A record of changes in AN1 quarterly financials and activities in an historical perspective, continuing on from a previous CDY thread.
The charts in the graphic below are updated to include the latest Dec21 figures of revenues and cash flows. Their general appearance of a Manhattan skyline demonstrates that any quarter-to-quarter comparisons would be pretty meaningless.
It should still hold that there is a general delay of about one quarter between sales revenue recorded and most of the subsequent payments appearing as cash receipts. The same situation probably holds for expenses, although items such as staff costs would be immediate.
The two top charts demonstrate that the Dec21 quarter saw record cash inflows, which unfortunately were countered by record outflows. How the consequent net cash burn of $815K relates to previous efforts to achieve positive cash flow is represented in the fourth chart. At what point that parameter moves to become consistently negative is still anyone’s guess, but we are assured by the Company that it won’t take too much longer. Activation of the China distribution arrangements would see an immediate large positive effect.
One significant contributor to the current quarter should be January’s QVC event, which together with cash coming in from BLC’s reported 2Q22 revenue, should result in record cash inflows once again in the March 4C.
BLC Contributions The BLC business would have been a significant contributor to the record $3.1M cash inflow. Since it was purchased as a going concern some of its cash receipts likely relate to sales revenue booked prior to being ‘merged’. CDY had reported relatively low sales revenue for the September quarter.
Quarterly operating expenses had averaged $2.355M over the twelve months prior to the BLC purchase. These jumped by $2.087M to $4.442M (+89%) for 2Q22, which should give a rough indication of BLC-associated costs.
BLC’s $2.61M clearly was a major contributor to total revenue booked for 2Q22, as distinguished in the Sales Revenue chart. Its well-established sales channels, together with those of Pump and Sasi, obviously represent a local distribution structure now in place that CDY had been unable to effectively establish. It would be valuable to know how the BLC revenue was apportioned between evolis products and its own brands. That ratio will be critical to the size of the Tranche 2 purchase overhang and any associated share dilution.
Lyramid Disposal One expectation announced over the previous twelve months was that operating savings would occur from the sale of Lyramid, including decreased staff costs. The latter had gradually declined enough to level out at around $850K per quarter throughout FY21. This item fell to $814K in 1Q22 with the removal of Lyramid, so perhaps that deserves a tick. It then increased to $1,294K (+59%) in 2Q22 however, obviously a consequence of adding BLC. If the Lyramid sale indeed has led to savings they will be difficult to distinguish in future accounts.
Also related to the Lyramid sale was one agreement term described in its announcement of 29th April 2021 as:
“A 4% fee is payable to Cellmid on sale of Lyramid shares by the buyer above a certain valuation”.
There is no item in the 2Q22 report attributable to such an amount (ca $75K), which would fall under the ‘investing activities’ heading. The sale was completed on 21st December, so although not a material amount it is something to keep an eye out for in future accounts.
The Game Changers Large distribution agreements into China, via Aeon and Ourui Health Management (OHM), were touted during 2021 as “Game Changers” through the size of their expected contribution to annual revenues. The OHM ten-year agreement alone would be expected to make an 8-figure annual contribution to revenue by FY23, and applied to the Japanese Ju-Ju and Lexilis branded anti-aging and skincare products. The Aeon deal applied to Australian-sourced evolis products.
On 30th April 2021 Cellmid announced that the Chinese NMPA had issued import permits allowing sale of the Jo-Ju and Lexilis brands there in any channel, noting that they were key to the OHM distribution agreement. Their existence was referred to in the July conference presentation, and inventory investment was increased to service this large China distribution. The importance of holding the permits was again referred to in the Preliminary and Annual Reports, with OHM launching into China in September. The October 4C noted that sales to China were expected to increase in the near term.
Under those circumstances it is surprising to hear without warning that exports to China have been low “due to new regulatory changes imposed on hair loss products generally in the local market”, and that the timing of receipt of new approvals is uncertain. Apparently the Game has been suspended until the rules are sorted out.
There is scope for some expanded explanation in the Half Year report due in the next couple of weeks.
T7
AN1 Price at posting:
5.2¢ Sentiment: Buy Disclosure: Held
