Tristel's Full Year Results

On Monday, Tristel plc published its final results for the year ended 30 June 2021. I previously covered Tristel plc in February, when the company was trading at 50x 2021 earnings. In this prior article, I was under the impression that little had changed in Tristel’s prospects since 2019, and that although Tristel was a quality business with superior financial metrics, I would be placing the company on my watchlist, as it was a tad too expensive for my liking.


The shares are now down 7% since the results on Monday, yet they are trading at 58x trailing earnings (and approximately 48x forward earnings in 2022). In this article, I will provide an update on the company and try to understand why, during the biggest contamination crisis in recent history, its revenues have fallen.


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History

Tristel has been in operation since the 1990s, however, it was only listed on AIM in 2005. Its business is focused on preventing the transmission of microbes from one object or person to another in order to stop the cause of infection in humans. The business targets hospitals, as this is where the risk of infection to individuals is the highest. Its products use chlorine dioxide in order to disinfect both medical devices and surfaces, the use of which is its primary selling point and what differentiates it from other competitors in the sector.

Their business was previously segmented into four main segments:

  • Tristel: the core business, focused on medical device decontamination using chlorine dioxide technology

  • Cache: surface disinfectants and decontamination using chlorine dioxide technology

  • Anistel: infection prevention for the animal healthcare and veterinary industry

  • Crystel: lab and pharmaceutical disinfectants

However, in their 2021 final results, the company’s chairman detailed Tristel’s objectives to discontinue many of the products that they currently consider to be non-core (in both the Anistel and Crystel segments) as they are lower margin than Tristel and Cache and draw disproportionately on the company’s resources. The business will now focus on Tristel (which accounted for 77% of global sales in 2021) and Cache (which accounted for 13% of sales).


Business Model


Tristel differentiates itself from its competitors through its use of chlorine dioxide in its disinfectants:

“[W]e are the only provider of chlorine dioxide-based high-level disinfectants validated and regulated for use with semi-critical medical devices; and [...] we are unique in applying the active ingredient in a manual process.”


Tristel explains that this manual application, compared to other disinfection processes which require automated equipment, means that they are “the simplest, quickest and most affordable high-performance disinfection method available”.


Recent Performance


The table below shows the performance of both the Tristel and Cache segments in comparison to their performance in the year ended 30 June 2020. Tristel's (the core business) revenues grew 2% to £24m, but were held back by poor performance in the UK channel, which serves the NHS. Overseas business was good, but with growth of only 10% in this segment, it wasn’t enough to offset the weak performance in the UK.


Their much smaller business unit Cache, which houses the surface disinfectant business, really struggled. Flat sales in the UK and sales down 43% overseas suggest Tristel’s Cache product hasn’t lived up to what the company originally targeted for the product.


In my article earlier this year, I voiced skepticism at Tristel’s ability to grow in their Cache surface cleaning segment, as I believed other solutions such as bleach or industry standard disinfectants would be the go-to cleaning solution, as surface cleaning isn’t required to have the same level of rigorous quality that medical devices require. I think these results show this to be true, and I would potentially expect the Cache segment to be wound down or divested in the coming years if sales continue to struggle.


The table shows the global breakdown in revenue in millions of GBP pounds between Tristel's Tristel segment and their Cache segment of the business. The table shows that Tristel's UK  revenue in the year 2019-2020 was £8 million and in the year 2020-2021 it was £6.9 million resulting in a -14% change in revenue. In Tristel's Overseas revenue, in 2019-2020 their revenue was £15.5 million, and in 2020-2021 it was £17.1 million, which was a 10% change. This meant that Tristel's overall revenue growth, both UK and overseas, was a 2% growth. In Tristel's Cache business segment, their UK revenue was £2.8 million in 2019-2020 and was £2.8 million in 2020-2021. Overseas in the Cache segment, their revenue in 2019-2020 was £2.1 million and in 2020-2021 it was £1.2 million. This resulted in an overall revenue percentage decline of -18% revenue growth across both the UK and overseas market for the Cache segment.
Source: Tristel's Final Results, Year End 2021

Competitors and Risks


Looking at the medical device cleaning segment, Tristel operates with almost no direct competitors. However, when evaluating a potential investment, we have to conceptualise competition in a different way. In my opinion, the real competition for Tristel is a scenario in which disposable medical equipment becomes more prevalent than reusable medical equipment.