Latest Results

Half Yearly Report
Interim Results for the six months ended 30 September 2019

Collagen Solutions plc (AIM: COS), the developer and manufacturer of biomaterials and regenerative medicines for the enhancement and extension of human life, announces its unaudited results for the six months ended 30 September 2019.

Operational Highlights

  • Revenue growth of 14.4%
  • Four new customer contracts secured (H1 2018: nine) and began supply to 10 new customers (H1 2018: 16) with increased average value of new customer contracts vs prior years
  • Core supply business growth of 56% driven by tissue sales, which more than doubled with 124% growth, and collagen, which grew at 13%
  • Development and contract manufacturing project work continues to increase with multiple ongoing projects, whilst revenue in this category declined 17% during the period this reflects timing of development contract milestones only
  • Delivered on key development projects with development and contract manufacturing revenue accounting for 42% of overall revenue in H1 2019 (H1 2018: 57%)
  • Initiated an infrastructure capacity expansion project at our Glasgow facility to support increased demand
  • Secured investigational medical product (IMP) licence from MHRA to support manufacturing for a development customer moving into phase 1 clinical trial scheduled for 2020
  • Made continued progress on the path to CE mark approval on ChondroMimetic® although the regulatory environment in Europe remains challenging and we remain cautious on timing for approval

Financial Highlights

  • Group revenue grew 14.4% to £2.23m (H1 2018 £1.95m)
  • Gross margin reduced to 71.2% (H1 2018: 73.0%) driven by business mix
  • LBITDA of £0.67m (H1 2018: £0.66m)
  • Pre-tax loss of £1.19m (H1 2018: £1.06m) with post tax losses of £0.98m (H1 2018: £1.05m)
  • Cash and cash equivalents of £5.01m (31 March 2019: £1.68m)
  • Fundraise: on 5 June 2019 the Company completed a fundraise of £5.96m gross of costs made up of a strategic investment by Rosen’s Diversified Inc of £4.18m, a placing with existing and new investors of £1.25m and an open offer totalling £0.53m.
  • Norgine Ventures Bond repayments of £0.59m reducing overall debt to £1.94m (H1 2018: £2.48m)
  • Other income £0.09m (2018: £0.15m) reflecting timing of grant funding
  • Tax credits of £0.2m (H1 2018: Nil)

Jamal Rushdy, Chief Executive Officer of Collagen Solutions, commented: “As we previously announced, we are pleased to report the third consecutive six-month period of double-digit sales growth. We have shown particularly strong growth from our tissue business and also are continuing to bring on new customers and contracts from our global sales team. Our product development teams remain focused on development projects for customers, providing a solid platform for future contract manufacturing business. Finally, we are investing in our manufacturing capacity to ensure we can continue to support future growth and we look forward to a successful remainder of the year.”

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

Chairman's Statement

Business
I am pleased to present Collagen Solutions’ interim results for the six-month period ended 30 September 2019.  During the period we saw the Group continue its revenue growth as we both diversify our customer base and grow with our core customers. The period saw us focused on upgrading our production capabilities, strengthening our technical excellence and organising the Company around meeting the growing demand for biomaterials product supply, development and contract manufacturing.

Overview
During the six-month period, H1 revenue grew 14.4% on the same period in the prior year, showing continued global demand for our products. Growth was limited by capacity constraints within our collagen manufacturing operation and the timing of delivery of development contract milestones. During the period the Company has made additional investments in people, capabilities and technology that will allow us to build for the future.

The continued organic growth in revenue has not been fully reflected at the earnings level as these investments have impacted our profitability for the first half but we anticipate will provide momentum for the second half and help us meet market expectations.

Where we see growing demand for our products and as we seek to increase our manufacturing capabilities and capacity, delivery of key customer projects and implementation of manufacturing capabilities will be key to deliver the year end outcome.

The Group’s results for the six months ended 30 September 2019 are set out in the Consolidated Statement of Comprehensive Income. More detailed commentary is included within the CEO’s statement.

Fundraise and use of Funds
On 5 June 2019, we completed a fundraise of £5.96m led by a strategic investor, Rosen’s Diversified Inc. Funds raised were to further our customer product development projects as well as ChondroMimetic®, expand contract manufacturing activities and capabilities, and for working capital including the repayment of the Norgine Ventures Bond Facility.

In line with the proposed use of funds in the first half we have continued investment in ChondroMimetic®, invested in development of our customers’ own proprietary products, increased production capabilities within the Glasgow facility and repaid £0.59m of debt.

While the first half saw increased investment in resources, the second half will see delivery of additional technical capacity and space to meet the demand anticipated in financial year 2020/21 from existing and new collagen supply customers, and to fulfil contract manufacturing contracts as they are realised and grow.

Proprietary Products / ChondroMimetic ®
We have reviewed our R&D projects and business environment, and refocused research and development resources from developing additional proprietary products, other than ChondroMimetic®, to investment in products developed on behalf of our customers. This shift in approach, while de-risking the business, makes the path to accessing the Scottish Enterprise large R&D grant award announced on 7 January 2019 slightly different to that originally anticipated. We are working with Scottish Enterprise to unlock funds but no income has been recognised in the first half of the year. We also continue to believe our ChondroMimetic® implant for the repair of cartilage defects represents significant untapped value for the Company, and are diligently pursuing the approval process cognisant of the regulatory challenges in Europe and resulting uncertainty in timing.

Board and Management
As part of the fundraise above, we welcomed Wade Rosen to the Board. As anticipated, Wade’s commercial experience is bringing a welcome new dimension to Board conversations and as the Company is preparing for its next stage of growth. On 13 November 2019 we announced a restructuring of the Board to a slimmer, more efficient profile, reducing the size from eight members to six. This restructuring will enable the executive team to focus on delivery of key initiatives, whilst ensuring effective and efficient governance and Board support.

Outlook
The underlying trend in the business remains positive. Financially, investment in capabilities in the first half means that top line growth has not translated to bottom line performance in the first half. With the creation of additional manufacturing capacity and delivery of development contract milestones in the back half, we remain on track to deliver against our key objectives this year: Financial Performance, ChondroMimetic®, Core Business Growth, Infrastructure and Product Portfolio, and delivering market results.

Chris Brinsmead CBE
Chairman

2 December 2019

Chief Executive Officer's Statement

I am pleased to report continued progress in the first six months of our financial year, representing the third consecutive six month period of organic double-digit sales growth and progress against all of our key initiatives for the year.

Revenue and Commercial Progress
Revenue for the first six months was £2.23 million, representing 14% growth over the prior year. Our core collagen and tissue supply business grew by 56%, led by 124% growth of our tissue business reflecting increased demand from our customers as well as early sales from new customers following our strategy to expand our offering of tissue sources and products. Our tissue business continues to perform well and whilst the customer acquisition process is a lengthy one, in-roads to new customers in new geographies is encouraging. Our core collagen supply grew 13% as well notwithstanding interim capacity constraints. We continued to make significant progress in our development and contract manufacturing projects although overall revenue in this category declined 17% reflecting timing of development contract milestone deliveries, and is expected to reverse in the back half.

Revenue from North America grew 8% in the half to £1.58 million, driven both by existing customer demand increases and new customers offset by certain product development milestone timing. Asia Pacific revenue grew 155% to £0.46 million both due to increased existing customer demand and new business in China. The EMEA region declined by 38% to £0.19 million, driven mostly by existing customer project timing. Overall new customer growth remained strong as we added four new customer contracts and began supply to 10 new customers.

Product Development and Innovation
Our product development team and resources have been largely focused on delivering customer development projects as well as being key partners to our commercial team to help bring on new customers. Not only do these customer development projects provide near-term revenue, but also provide a valuable platform of future sustainable revenue as these projects mature from development to contract manufacturing over time supporting our strategy to move up the value chain.

We are also continuing to focus on gaining CE Mark approval for ChondroMimetic®. We are in the process of answering questions from our Notified Body, inclusive of providing additional non-clinical test data where necessary. The current regulatory environment in Europe remains challenging as the impending implementation of the new EU Medical Device Regulation (MDR) have impacted the capacity of all Notified Bodies and therefore we remain cautious on timing for approval, while being diligent in our own efforts to respond quickly and completely to our Notified Body’s questions.

Operations and Financial Results
The Group’s financial results for the six months ended 30 September 2019 are set out in the Consolidated Statement of Comprehensive Income. Our financial KPIs are as follows:

MeasureSix months to 30 September 2019Change from Prior Year
Revenue£2.23m+14.4%
Gross margin£1.59m+11.6%
Gross margin %71.2%-1.8%
EBITDA(£0.67m)-0.5%
Diluted loss per share(0.25p)+22%
Cash and cash equivalents£5.01m+96%

Operationally, we have commenced our planned projects to deliver increased capacity in collagen supply and contract manufacturing through investment in capital equipment and the creation of additional space in our Glasgow manufacturing facility. These plans are in line with our aims at the time of the fundraise of increasing manufacturing capabilities and capacity. We believe that expansion at the existing plant provides the best opportunity for a return on investment for our shareholders.

With the mix in the first half leaning towards our tissue business, margins were slightly lower than the previous year but remain strong. In addition, investment in additional resources in the first half of the year to build the capabilities required to service the future business and the timing of development revenue milestones have impacted our profitability in the first half of the year. We believe the continued performance of the tissue business, investment in additional capabilities and capacity in the collagen business, and delivery of development milestones in the second half will allow us to deliver against market expectations.

Jamal Rushdy
Chief Executive Officer 

2 December 2019

Consolidated Statement of Comprehensive Income
For the six months ended 30 September 2019

 NotesUnaudited six
months
ended 30
September
2019
£
Unaudited six
months
ended 30
September
2018
£
Audited year
ended  31
March
2019
£
REVENUE 2,229,4231,948,3194,150,736
     
Cost of sales (641,817)(525,812)(1,111,399)
     
Gross profit 1,587,6061,422,5073,039,337
     
Share-based compensation (33,000)(42,300)(85,900)
Administrative expenses (excluding separately identifiable items) (1,746,736)(1,699,885)(3,499,544)
Separately identifiable items4--248,775
Total administrative expenses (1,746,736)(1,699,885)(3,250,769)
Total Selling and Marketing costs (562,313)(491,324)(1,024,868)
     
Other income 87,742147,336354,445
     
LOSS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTISATION (666,701)(663,666)(967,755)
     
Amortisation and depreciation (352,086)(238,981)(562,355)
Finance income 7,2089,46815,254
Finance expense (174,840)(167,481)(332,213)
     
LOSS BEFORE TAXATION (1,186,419)(1,060,660)(1,847,069)
     
Taxation 208,57912,917180,800
     
LOSS FOR THE PERIOD (977,840)(1,047,743)(1,666,269)
Attributable to:    
Owners of the parent (977,840)(1,047,743)(1,666,269)
     
  (977,840)(1,047,743)(1,666,269)
     
Currency translation difference 220,256107,922129,488
Other comprehensive income 220,256107,922129,488
     
TOTAL COMPREHENSIVE (LOSS)/GAIN FOR THE PERIOD (757,584)(939,821)(1,536,781)
     
Attributable to:    
Owners of the parent (757,584)(939,821)(1,536,781)
  (757,584)(939,821)(1,536,781)
     
Basic and diluted loss per share - pence attributed to owners of the parent3(0.24p)(0.32p)(0.51p)

Consolidated Statement of Financial Position
as at 30 September 2019

 NotesUnaudited 30
September
2019
£
Unaudited 30
September
2018
£
Audited 31
March
2019
£
ASSETS    
Non-current assets    
Intangible assets 15,369,55014,731,83614,944,687
Property, plant and equipment 1,491,5471,120,5271,101,959
  16,861,09715,852,36316,046,646
Current assets    
Inventories 505,567477,039338,068
Trade and other receivables 1,596,582760,8771,137,758
Cash and cash equivalents 5,011,0272,556,5021,678,079
  7,113,1763,794,4183,153,905
     
Total assets 23,974,27319,646,78119,200,551
     
EQUITY AND LIABILITIES    
Equity attributable to equity holders of the parent company     
     
Share capital54,481,8303,290,1663,290,166
Share premium 19,353,78214,869,90914,869,909
Share-based payment reserve 324,720248,120291,720
Shares to be issued reserve 106,581106,581106,581
Merger reserve 4,531,7984,531,7984,531,798
Translation reserve 1,025,643783,821805,387
Retained deficit (9,442,071)(7,845,705)(8,464,231)
Total equity 20,382,28315,984,69015,431,330
     
Non-current liabilities    
Deferred tax 147,231177,569162,094
Provision for other liabilities and charge 99,984132,696121,744
Borrowings 282,4151,329,4811,294,079
  529,6301,639,7461,577,917
Current liabilities    
Trade and other payables 1,368,760761,783938,556
Provision for other liabilities and charges 37,601105,55138,538
Borrowings 1,655,9991,155,0111,214,210
  3,062,3602,022,3452,191,304
     
Total liabilities 3,591,9903,662,0913,769,221
     
Total liabilities and equity 23,974,27319,646,78119,200,551

Consolidated Statement of Changes in Equity
For the six months ended 30 September 2019

 Share
Capital
£
Share
Premium
Account
£
Share-Based
Payment
Reserve
£
Shares to be
issued
Reserve
£
Merger
Reserve
£
Translation
Reserve
£
Retained
Deficit
£
Total
£
         
As at 1 April 20183,290,16614,869,909205,820106,5814,531,798675,899(6,797,962)16,882,211
Share-based compensation--42,300----42,300
Loss for the period------(1,047,743)(1,047,743)
Currency translation difference-----107,922-107,922
         
Loss and total comprehensive loss for the period-----107,922(1,047,743)(939,821)
At 30 September 20183,290,16614,869,909248,120106,5814,531,798783,821(7,845,705)15,984,690
         
Share-based compensation--43,600----43,600
Loss for the period------(618,526)(618,526)
Currency translation difference-----21,566-21,566
         
Loss and total comprehensive loss for the period-----21,566(618,526)(596,960)
At 31 March 20193,290,16614,869,909291,720106,5814,531,798805,387(8,464,231) 15,431,330
         
Issue of shares1,191,6644,766,657-----5,958,321
Share issue costs-(282,784)-----(282,784)
Proceeds from share issue1,191,6644,483,873-----5,675,537
Share-based compensation--33,000----33,000
Loss for the period------(977,840)(977,840)
Currency translation difference-----220,256-220,256
         
Loss and total comprehensive loss for the period-----220,256(977,840)(757,584)
At 30 September 20194,481,83019,353,782324,720106,5814,531,7981,025,643(9,442,071)20,382,283

Consolidated Statement of Cash Flows
As at 30 September 2019

 Unaudited six
months ended
30 September
2019
£
Unaudited six
months ended
30 September
2018
£
Audited year
ended
31 March
 2019
£
CASH FLOW FROM OPERATING ACTIVITIES   
Loss before taxation(1,186,419)(1,060,660)(1,847,069)
Share based compensation33,00042,30085,900
Depreciation234,368135,505334,461
Amortisation117,718103,476227,894
Increase / (decrease) in contingent consideration--4,744
Other income-(145,944)-
Finance expense173,840167,481332,213
Finance income(7,208)(9,468)(15,254)
Gain on sale of property, plant and equipment--(67,591)
Gain on sale of investment--(214,965)
Increase in inventories(136,846)(150,135)(12,418)
(Increase) / decrease in trade and other receivables(317,310)273,29753,442
(Decrease) / increase in trade and other payables(98,070)109,750112,635
Decrease in provisions(55,148)(132,241)(202,736)
CASH USED IN OPERATIONS(1,242,075) (666,639) (1,208,744)
    
Interest paid(151,789)(143,684)(273,327)
Taxation received152,73753,58653,245
Net cash used in operations(1,241,127)(756,737)(1,428,826)
    
INVESTING ACTIVITIES   
Proceeds from sale of investment--214,965
Proceeds from sale of property, plant and equipment--67,591
Payments to acquire property, plant and equipment(91,468)(280,010)(454,215)
Payments to acquire licensed IP, patents and intangibles(307,210)(413,471)(740,045)
Deferred development costs(124,363)--
Interest received7,2089,46815,254
Settlement of deferred and contingent consideration-(562,207)(566,951)
Net cash used in investing activities(515,833)(1,246,220)(1,463,401)
    
FINANCING ACTIVITIES   
Repayment of related party loan-(43,022)(43,022)
Net proceeds on issue of ordinary shares5,675,537--
Repayment of Bonds(591,927)(420,319)(420,325)
NET CASH (USED IN) / GENERATED FROM FINANCING ACTIVITIES5,083,610(463,341) (463,347)
Net decrease in cash and cash equivalents3,326,650(2,466,298)(3,355,574)
Effect of foreign exchange rates on the balance of cash held in foreign currencies6,29848611,339
Net decrease in cash and cash equivalents3,332,948(2,465,812)(3,344,235)
    
Cash and cash equivalents at the beginning of the financial period1,678,0795,022,3145,022,314
Cash and cash equivalents at the end of the financial period5,011,0272,556,5021,678,079

Page last updated: 3 December 2019

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