REG - Biome Technologies - Trading Update

Biome TechnologiesAnnouncement

10/11/2022 07:00

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RNS Number : 9047F  Biome Technologies PLC  10 November 2022

This announcement contains inside information for the purposes of Regulation
11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310. With the
publication of this announcement, this information is now considered to be in
the public domain.

10 November 2022

Biome Technologies plc

("Biome", "the Company" or "the Group")

Trading Update

Biome Technologies plc, a leading bioplastics and radio frequency technology
business, today provides an unaudited Trading Update for the quarter ended 30
September 2022.

Group revenues for the quarter ended 30 September 2022 were in line with
management expectations at £1.9m and were 77% ahead of the similar period
last year (Q3 2021: £1.1m). There was some catch-up of revenues delayed from
Q2 in both divisions as anticipated. This takes the Group's revenues for the
nine months to 30 September 2022 to £4.3m (nine months to 30 September 2021:
£3.6m).

The Group had a cash balance as at 30 September 2022 of approximately £0.5m
(30 June 2022 £0.7m and September 2021: £1.0m), no bank debt and access to a
working capital facility of up to £600k.

Bioplastics Division

Revenues of £1.2m were achieved in the period (Q3 2021: £0.8m). This
reflected demand from across the customer portfolio and some catch-up from Q2
as raw materials required for production finally cleared supply chain hurdles.
The division's revenues in the first nine months of the financial year stood
at £3.2m, slightly ahead of the equivalent period last year (2021: £3.1m).

As has been referenced in various trading statements, in the first half of
2021, the business received a commitment from a second US end customer for
conversion to our biodegradable coffee filtration material. Whilst the end
customer has been purchasing regularly in the last eighteen months at limited
levels, the subsequent expected acceleration of revenues has been constrained
by various matters. These constraints are now clearing and a substantial
increase in orders for this customer has been received for delivery in Q4
2022. Fulfilment of these orders in the coming weeks is expected to double the
year's revenues from this source. Further, there are reasonable grounds to
believe that this increased offtake rate will persist into 2023.  However,
whilst management believe there is scope for additional revenue growth with
this customer, it has not factored any such growth into its revenue
expectations for 2023 given the challenges experienced to-date.

In the first nine months of 2022, a single long-standing customer for Biome's
materials used in packaging films procured £0.8m less of product than it did
in the same period in 2021. This was due to that customer rebalancing its
inventory as its own demand patterns changed. Whilst a substantial reduction
had been factored into management expectations during 2022, the reduction of
offtake proved deeper and longer than initially expected. This was reflected
in the sentiment of the Interim Statement and, whilst we remain optimistic
procurement from this customer will increase, it is premature to include such
revenues in our expectations at this time. This has increased the division's
proportion of revenues through its other main US customer and distributor.

Biome's team has won a number of new business contracts with other new mostly
filmic customers in both North America and Europe. These grew three-fold in
terms of revenue contribution in H1 2022, accounting for 32% of the division's
revenues (H1 2021: 10%) and are an important part of management's future
growth plan.

Several further opportunities are being pursued by the Bioplastics division.
These opportunities are at various stages of progress and, whilst encouraging,
can be subject to technical, operational and commercial delays. A selected few
of these opportunities are outlined below, but are not included at any scale
in management's expectations for the financial outturn of 2023:

 Filtration mesh                                                          Rigid parts                                                                Filmic (packaging) materials
 Name: Alternate coffee format                                            Name: Second pod opportunity                                               Name: Labels

 Market: USA commercial coffee                                            Market: North America consumer pods                                        Market: North America, global

 Progress: Customer paid development; success rests on home compostable   Progress: Technical challenges overcome at small scale; larger scale       Progress: Initial technical validation; relies on Biome's Home Compostable
 technology; launch has been delayed once                                 operational testing ongoing                                                technology (in part); engagement at brand and converter level

 Supply: Materials and manufacturing in USA                               Supply: Materials (in part) from Asia. Manufacturing in North America      Supply: Manufacturing envisaged in North America and Europe
 Name: Third pod opportunity                                              Name: Treeguards                                                           Name: UK packaging

 Market: North America consumer pods                                      Market: UK, global                                                         Market: North America, Australia fresh food packaging

 Progress: Early stage                                                    Progress: Main technical challenges overcome; performance in field being   Progress: Initial quantities for validation shipped; validation for Australian

                                                                        validated; operational ramp-up phase                                       certification required
 Supply: Materials and manufacturing in USA

                                                                          Supply: Multi-stage manufacturing process                                  Supply: European supply chain with some materials from Asia

 

Stanelco RF Division

Revenue of £0.7m in the quarter (Q3 2021: £0.3m) reflects reasonable
underlying demand and delivery of some of the major contracts announced in
2021 and earlier this year. This resulted in revenues in the first nine months
of the financial year of £1.1m, well ahead of the same period in the prior
year (2021: £0.3m).

Some revenues, originally anticipated in Q2, were delivered in Q3 as critical
electronic components became available. There is some easing in these supply
chains, but specialist computer parts remain on long and uncertain delivery
schedules.

It is encouraging to report that the business has quoted on a number of
projects of scale for 2023, some of which are included in management's
expectations for Stanelco RF next year, albeit these have yet to be confirmed
as contracts. Revenues from the underlying industrial induction heating
projects, spares and service continue as expected.

Group Commentary

Internal forecasting approach

In both of the last two years, Biome has had to adjust the expectations of its
performance mid-way through the relevant year, as follows.

·      In 2021 we cited that post-Covid global issues impacted the
supply chains of Biome and its customers.  In addition, the Group's single
largest growth prospect for the Bioplastics division stalled due to
engineering issues.

·      In 2022, we assumed that supply chain pressures would ease in H2
and that the large bioplastics opportunity that had stalled would accelerate.
This judgement proved incorrect.  The supply chain issues continued for both
divisions whilst business instability caused by inflation and demand variation
has caused our key prospects to delay launches further. In addition, as
highlighted earlier, an anticipated reduction in demand at one of Biome's key
filmic customers proved deeper and longer than expected.

Based on these experiences and in the context of continuing global economic
uncertainties, the Board has resolved to adjust its forecasting methodology
(particularly for the Bioplastics division) such that new customer prospects
are only included in management expectations when large scale
commercialisation is proven.  For example, none of the opportunities
highlighted in the table above are included at scale in management's
expectations for the financial performance of the division in 2023.

Board remuneration

The two Executive Directors and the Chairman have surrendered rights that have
accrued to them under the Group's 2017 long-term incentive plan (LTIP) and the
Chairman's equivalent shadow scheme, such that any benefit which has accrued
to them under these schemes has been sacrificed.

The Executive Directors have, alongside other measures, continued with the
2021 remuneration freeze through 2022, saving Biome £25k on an annualised
basis, in the context of company-wide remuneration average increases of 7% in
2022. The NEDs have similarly forgone any inflationary rises. The Chairman has
reduced his annual fee by 27%, saving the Company £17k on an annualised
basis.  The Independent NED has reduced his fee by 4.6%, a £1.5k per year
saving.

Growth and market proximity

A dominant proportion of the Bioplastics Division's existing revenues are
generated in North America. Management also believes that most future
opportunities of scale for this division are likely to be located in this
region. Until now, business development and trading activity has been
conducted through the UK entity and by regular contact and visits from the
UK-based team.  However, this will now change, and Biome has recently
established trading companies in both the USA and Canada (both named Biome
Bioplastics Inc) through which these activities will occur.  In addition,
from December, Biome's Business Development Manager charged with both
commercial and technical responsibilities for North America will reside
permanently in Canada.

Group Outlook

The Board believes that the change to forecasting methodology outlined above
will, in the current economic circumstances, provide a more consistent basis
by which the performance of Biome can be judged.  This change to methodology
has resulted in a marginal reduction in the Board's view of full year revenues
for 2022 but no change to its view of loss before interest, depreciation,
amortisation and share option charges or anticipated 2022 year-end cash. The
Board's view of expected financial performance in 2023 is unchanged.

The Board has sought to provide investors with as clear a view as possible on
its expectations for the Company. Whilst the expected growth rate in the
Bioplastics division has not taken place in 2022, there are encouraging signs
from the uptick in demand from the large opportunity we have been pursuing for
some time; growth from the broadened customer base and the portfolio of scale
opportunities that the division has been developing. The market continues to
demand highly functional bioplastic materials and the Company is in a good
position to deliver these.

-ENDS-

For further information please contact:

Biome Technologies plc

Paul Mines, Chief Executive Officer

Rob Smith, Chief Financial Officer

Tel: +44 (0) 2380 867 100

info@biometechnologiesplc.co.uk

Allenby Capital

David Hart/Alex Brearley (Nominated Adviser)

Kelly Gardiner (Sales and Corporate Broking)

Tel: +44 (0) 20 3328 5656

About Biome

Biome Technologies plc (Ticker: BIOM) is an AIM listed, growth-orientated,
commercially driven technology group. Our strategy is founded on building
market-leading positions based on patented technology and serving
international customers in valuable market sectors. We have chosen to do this
by developing products in application areas where value-added pricing can be
justified and that are not reliant on government legislation. These products
are driven by customer requirements and are compatible with existing
manufacturing processes. They are market rather than technology-led.

The Group comprises two divisions, Biome Bioplastics Limited and Stanelco RF
Technologies Limited. Biome Bioplastics is a leading developer of highly
functional, bio-based and biodegradable plastics. The company's mission is to
produce bioplastics that challenge the dominance of oil-based polymers.
Stanelco RF Technologies designs, builds and services advanced radio frequency
(RF) systems. Dielectric and induction heating products are at the core of a
product offering that ranges from portable sealing devices to large furnaces
for the fibre optics markets.

www.biometechnologiesplc.com www.biomebioplastics.com and
www.thinkbioplastic.com www.stanelcorftechnologies.com

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