Tristel PLC

Well good afternoon everybody and thank you so much for joining us here for our interim results presentation. I think we've had a few people struck down by the weather and so our numbers are down a bit but it's good to see you. So we're presenting our results for the six months of the 31st of December. And let's flip to our next slide, our first slide. Well, that first slide of ours, we titled Refocusing the Business, and we really should have, and on reflection, have written Focusing the Business, because we're not changing direction. During the half, we have simply got rid of the activities that were distracting us and slowing us down. And a key feature of the announcement today is the discontinuation of a large number of the products so that we can focus ourselves upon our chlorine dioxide chemistry and the hospital marketplace. If we delve into the reasons for that, for some time we had planned to discontinue or withdraw from some of the peripheral activities outside of our hospital marketplace. And in October, with the year-end results, we shared that with our shareholders that there was a product discontinuation program that we were going to work on. We actually had an internal project name for it, which is Project 23, because we thought we would take until 2023 to complete the program. But we acted, I think, very decisively as a management team with the full support of the board. And we actually got on with it. And during the half, we discontinued a very large number of SKUs. The reasons for doing this, I think are worthy of explanation for you all. Up until the COVID, up until the pandemic striking, tri-sellers, you're very well aware, I think, have been charting a pretty steady course. But with COVID, demand for our products skyrocketed. in order to meet that demand in the initial phase of the pandemic we stretched we strained we stressed the organization to meet that demand and i have to say various weaknesses were revealed and the root cause of those weaknesses was a simple fact that 47 percent of our product portfolio was generating just 12 percent of our revenues so in this half We discontinued the manufacture and sale of almost all those products. And these results, which Liz and I are presenting, tell their story. We finished the project. We've completed it. And what we now reveal is a business totally focused on the hospital and our proprietary chlorine dioxide chemistry. And when our hospital customers around the world return to normal levels of service, which we can detect is happening, a faster growing and more profitable business will emerge. The rationalization that we completed is not simply for the purpose of freeing up manufacturing. It frees up the organization to focus on growth. And it also enables us to release our best people to lead the charge into North America. So let's talk about the United States and Canada. We have resumed the state-by-state registration of our product duo. that has an EPA approval. We received that approval a couple of years ago and some of you will recall that we had started the state by state registration process and then we put it on hold for reasons which I'll explain. In conjunction and in discussion with our business partner in the United States, Parker Laboratories, we have taken the decision during the half to reignite that process and to, we will have with the target date of end of June, Duo targeted at the ultrasound marketplace approved for sale throughout the United States. At the same time, we continue to prosecute our submission to the FDA for Duo, the same product in essence, but for approval as a high-level disinfectant by the FDA as the regulatory body for that use pattern. And I'll draw your attention to the graphic of the ultrasound console to explain the distinction between EPA approval and FDA approval and what that means for the use of our product. What you can see there is an ultrasound console and it involves a keyboard and a monitor and the gubbins within the body of the machine and And the ultrasound transducer, the probe, which comes into contact with the body is attached to the console via a cord. Now the EPA has jurisdiction over all of the surfaces that are in grey. So it includes the keyboard and the monitor and the cord. And in this graphic, the grey section stops at the transducer itself. And that's because the transducer shown is what's called an intracavity transducer. As you can see by its shape, it's designed to go into one of the two orifices that it's intended for use within. If the transducer that is shown attached to the cord was of a different design, they tend to be flatter, fatter, it would be what is called a skin surface ultrasound probe. The key distinction between those two ultrasound probes, the technology is exactly the same in terms of imaging with inside the body, but in terms of regulation, the skin surface probe is classified as non-critical. and therefore can be disinfected with a product that has been approved by the EPA. And the intra-cavity probe coming into contact with the mucosa inside the body is classified as semi-critical and as a consequence has to be approved by the FDA. And a disinfectant approved for that use has this classification of being a high-level disinfectant. With both EPA and FDA approval, we will be unique in the United States in that we have one solution for the entire ultrasound system, including semi-critical transducer use, non-critical transducer use, and all the other surface areas of the console itself. We expect to complete our FDA submission by the end of June, before the end of June is our target of course. We're well advanced in the preparation of the de novo submission dossier. Once submitted, we will then be looking at a 12 to 18 month period of time during which the FDA reviews our submission, and of course we all hope that we will succeed, prevail, and get an approval The reason why we have decided to restart the state-by-state registration is that increasingly ultrasound probes are being used in conjunction with needle site procedures. By which I mean if you're going to have a line insertion into the venous system, whether it's a central line or a peripheral line into the back of the hand or the arm, We might all have nice, plump veins, but lots of people, aged, obesity is a real problem. It's difficult to find that vein. And ultrasound skin surface probes, which classically are defined as being non-critical, are being used in close proximity with the skin puncture site. Our main competitor worldwide for the high-level disinfection of intra-cavity probes is a company in Australia with a product called Trofon. And they have been lobbying very hard in the United States to get the clinical bodies and CDC to, if you like, upgrade the classification of a skin surface probe from non-critical to semi-critical when it's being used in conjunction with the skin puncture site. Parker has a very strong relationship with the ultrasound marketplace. They're the market leader in the United States in the sale of the ultrasound gels that are used with every ultrasound procedure. The intra-cavity probe shown here, if it was going into one of these drawer offices, you always put a sheath on the probe. In part, it's a hygienic thing to do, but it also keeps the conducive gel on the transducer tip. And they're market leader in the sale of ultrasound gels and ultrasound sheaths. And they are very aware of the pushback from the societies in the United States against this move, lobbied for by Trofon to see these skin surface procedures be upgraded to semi-critical decision. Of course Trofon is doing it because it's driving demand towards its own product. And so Parker consulted with us and said, let's enter the market with our EPA approval for Juro as quickly as we possibly can because there we can help the American Society of Sonographers and others to push back against this lobbying by Trofon, because we, with our Giro product, although we are presenting it with our EPA approval, it will one day, and it will be known by the prospective customers, it will one day have FDA approval. So that is a reason, and I hope I've explained it well enough for everybody here to understand, and of course we can go over it in questions. But that is the reason why we've restarted the EPA approval. So just to summarize that, the EPA state by state should be finished by the end of June. The FDA submission should be in by the end of June. We're looking at a year to a year and a half window before the FDA decision is made. And we will be able to, with the EPA approval, once it is state by state, to start marketing our duo product. So the strategic intent between us and Parker is to get into the market, establish our brand, acquire a user base, and position ourselves for when the FDA approval is ultimately granted to us. Elsewhere in North America, we were approved last year for our Duo OPH, which is ophthalmic. So it's a Duo, same product essentially, but it's labeled for use on ophthalmic devices. It's the equivalent Canadian regulator as the FDA is in the States. And we are in the final stages, I hope, of appointing a national distributor for Duo's market introduction in Canada.

Okay, so if we go into the detail of the discontinuations a little bit more. On the left hand side of the screen, you'll see a graph which shows if you strip away everything that's non-hospital and non-chlorine dioxide, what's left is our core business. And our core business has grown through the pandemic. In the half that we're reporting upon, the underlying continuing sales are 5% higher than the comparable first half and 17% higher than the period before that, which was before COVID started. And these are the highest margin products that we sell. So our underlying business of chlorine dioxide hospital products have grown through the pandemic. They achieve the highest gross margin of our product sets. They are almost exclusively based upon chlorine dioxide and they represent 195 of our SKUs which was roughly 50% of our SKUs. In contrast on the other side of the screen you'll see our discontinued sales and these are the non-core products which fell by a third during the period and earned a much lower and declining gross margin. They represent 173 SKUs, and they, as opposed to a single active, which chlorine dioxide we would class as, these represented 15 active substances. So when we talk about actives, we mean the chemical ingredient within the product which allows it to perform its function. So it dissolves the dirt or it kills the bugs on the surface or on the medical device. The cost of supporting those actives under the biocidal products regulation can be as much as £100,000 per active. And so the cost of continuing with this product range is disproportionate to the value which it had been creating for the company, which is one of the reasons why we chose to discontinue. And then of course the quantity of products, when we look at roughly half and half between continuing and discontinuing SKUs in this category, they require substantial support from our UK teams. Our product team, our regulatory team, our quality team. And again, it's disproportionate to the level of revenue and profit that is generated from them. By removing those discontinued products from our portfolio, we pave the way for higher growth rates. for higher gross margins and, most importantly, the time of our teams to focus on, at this time, projects which are much more significant to the future of the organisation. In the first half, having made the decision to discontinue the products, we were obliged to, at that point in time, write down any remaining intangible assets associated with them. And the impairment that we are reporting in this first half totals £2.4 million. It principally relates to the intangible associated with the veterinary range, but it also includes patents and trademarks and goodwill associated with all of those products. So what are the outcomes that we expect from the discontinuation programme? Well, revenue growth will no longer be held back by the decline in non-core sales. And we note here that we will reset our financial targets at the end of the financial year, covering the three years to 2025. By then we will be able to see how our overseas markets are progressing out of COVID and that will give us better visibility on what those targets should be. If all the countries in which we have a sales presence were as well advanced as the UK is in terms of the pandemic, then we feel a return to normality for Tristell would be imminent. Other outcomes that we envisage from the discontinuations include an increase in gross margin, so we're reporting an 83% gross margin in this period for continuing products compared to 80% last year which was being dragged back by these non-core areas. A repositioning of internal resource to follow a single technology in a single market. And as we operate in an ever more demanding regulatory environment, with the removal of the more complex products from the range, our regulatory and quality teams will be able to focus on what really matters. and that is the high growth, high margin products that are our core. And similarly, we'll be able to look forward to simplified manufacture, so smaller pack sizes but higher volume campaign production, leading to the possibility of in-region production, which will shorten the supply chain and have a positive environmental impact as well.

So this is what... the Tristell PRC product range looks like today? Tristell is the brand for medical device decontamination products and Cash is the brand for sporosidal surface disinfection products. Almost all of them contain chlorine dioxide as the active ingredient and we have a few instrument cleaners and detergents sitting alongside them to complement chlorine dioxide's disinfection use.