Venture Life HY update.

Venture Life (#VLG)

"Venture Life develops, manufactures and distributes products for the consumer self-care market"

VLG "want to become a leading global self-care branded products business."

Today I had a telephone conversation with Andrew Waters (CFO).

I had sent an email with questions and his call coincided with the HY update this morning.

VLG were very pleased with the revenue growth showing an 80% increase against H119 (65% organic and 15% acquired) to £16.9m. The reasons for the improved revenue were (a) PharmaSource (recent acquisition) performed well (b) the hand sanitiser business which provided a significant uplift to revenue and was also very opportune - I like that VLG were able to take advantage of this situation with their set-up and it signals to me that they may be able to take advantage of similar opportunities like this is the future, (c) the Chinese partnership deal worth 168m Euro over 10 years, (d) the rest of the business improved as well. So all areas doing well. VLG prospered as their Italian factory was deemed an essential business which was not the case for many competitors. Andrew says this puts VLG in a good position with their customers as they can be relied on when others can't.

I asked why no margin or profit figures were given? There is nothing untoward and they do not normally provide profit or margin at this stage. Furthermore he confirmed it is reasonable to assume by default that if no new numbers have been given that the latest upgraded forecasts of £30m rev (up 100% on 2019) and £6m EBITDA (up 120% on 2019), PBT of £3.8m and PAT of £3m (up 300%) stand. He says he "always takes a conservative position," which is not surprising for an CFO and good from an investor's viewpoint. He pointed out that the H1 revs of £16.9m accounted for more than half the FY forecast of £30m confirming his cautious approach. Other outlets for hand sanitiser are now open so there is more competition in this area and may result in a reduction in hand sanitiser revenue. Also a little weakness in sales to retail in H1.

I asked if the fixed costs are stable so that an increase in revenue would lead to a sharp increase in margin and profit? He agreed broadly as the costs of the factory and permanent staff remain the same. He said I can assume that if the top line improves, that the margin also improves.

I asked about the China deal, the payment terms, was this partner the same partner there was a problem with in the past? It is the same Chinese partner. The problem previously was with the caps on the bottles and leakage. The product was made by a subcontractor, was made for delivery to Europe and intended to remain upright. This did not work for the Chinese partner, the distance and freighting to China. This problem is now rectified as VLG have taken the manufacturing of this product to their own factory and improved the capping. The contract with the Chinese partner is for manufacturing and supply only. The agreement is that the Chinese partner collects from the Italian factory and deals with the entire process from then on - transport, sea freight, sales and delivery. Payment terms are when the items leave the factory in Italy. Normally freight is 6 weeks to China but is 10 weeks at present due to Covid so VLG have slightly relaxed their (excellent for VLG) payment terms. I asked if any payment has already been received for the reported 7million Euros for Chinese order - "oh yes." The volume of orders could still increase from this point for FY20. Andrew pointed out there is some risk with Covid and Chinese relations but everything is progressing well to date. I asked if the large 168million Euro 10 year agreement came with any reduction. He confirmed it is reasonable to expect economies of scale for high value sales.

The recent RNS confirming the introduction of a joint broker is a reflection that VLG is doing well. The idea is to increase interaction between company and shareholders and improve the liquidity of shares. No agenda for a funding round. He confirmed VLG are a buy and build operation and they make one acquisition a year on average. They have sufficient funds, relatively strong balance sheet and bank facility to cater so no placing required. Several options under consideration.

VLG look to grow in 2 ways - via acquisition and maximising factory output. They target 20% sales growth PA in the medium and long term - 10% organic and 10% acquired.

In conclusion I found the call pretty positive but as with any investment there are some risks. The growth this year has been extremely impressive but I think it has been building for some time and as Sir John Lee says you "often have to wait a long time but then a share price can explode." In March the SP was down to 23p, today over 80p. I was pleased with the conservative outlook from Andrew Waters and also the details of the large Chinese deal. The risk appears to be to the upside and in my opinion companies who are getting it right are more likely to continue getting it right.

Cenkos cover VLG and PIs can access their research for free .

VLG is my largest holding at present.