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Provexis takes €5m yearly loss but bullish about sports supplement acquisition

06-Aug-2012

The CEO of UK start-up Provexis is bullish about the company’s prospects to develop its Fruitflow tomato extract and the Science in Sport (SiS) sports supplement range it acquired a year ago for €10 million.

In announcing the company’s results for the year ended March 31, 2012, Stephen Moon was not phased by a €5m (€0.35 per share) pre-tax loss for the 12-month period, stating a major restructuring effort had significantly reduced R&D and manufacturing costs for both Fruitflow and SiS.

The figure was therefore affected by the cost of that restructuring, new facilities as well as costs associated with the acquisition of SiS and €1.75m written off due to an abandoned Crohn’s disease trial. Other research activity has also been reigned in to focus on core areas around SiS.

SiS generated revenues of €4.4m for the nine month period from the June buy-out to the end of March – a 12% growth period-on-period. In that time the range has been reconfigured to better promote its sports science backing, along with new formulations.

SiS recorded an operating loss of €285,000, something Moon attributed to the economic recession and, “low season sales levels in the winter months and high levels of investment in the new supply chain facility, together with increased investment in marketing and sales.”

“We believe that following this period of investment, the SiS business has a very solid growth platform,” he said, adding the global sports nutrition sector was worth about €25bn – €400m of that in the UK.

Fruitflow is also set to get its debut in an SiS product which, like the whole range, will be given a significant marketing push online, in-store and with the sporting and sports science community.

Re-establishing the brand

Moon noted SiS sponsors several pro cycling teams, that many other cycling teams use the products out of choice, and that it would continue to seek new partnerships with elite athletes and organisations. It has also employed a former Red Bull sales manager to push these activities.

Tour de France winner Alberto Contador using SiS products before his two-year doping ban

“There’s been a lot of change in that business,” Moon said. “All the indicators are moving in the right direction and we will continue to push hard there.”

He added: “The economic climate remains challenging and we expect this to continue through the coming year, affecting both brand owner attitudes to innovation, and consumer spending.

“New advertising and public relations strategies have re-established the brand, together with continuation of many of the existing sponsorship arrangements with elite athletes and teams in cycling, triathlon and rowing.”

“Investment in marketing and sales has increased significantly when compared with the last financial year under previous ownership. The Company hopes to benefit following the Olympic Games, as interest in elite athletes increases and given the expected uplift in sports participants.”

Increased distribution was expected in both specialist outlets like sports stores and major retailers beyond Tesco’s ASDA and Waitrose, where it is already present.

E-commerce was also being targeted. “We think there is a significant opportunity in e-commerce sales. When we look at the some of the largest sports nutrition brands in the UK, Europe and indeed the US we can see that a large proportion of their sales and indeed their growth will tend to come from the e-commerce platform.”

Fruitflow

Moon said that aside from small expenditures around IP and trademarks, its investment cycle for its blood flow-benefiting, EU health claim-approved Fruitflow extract – which has run to the many millions of pounds – has essentially passed to its commercial partner, DSM.

Provexis would invest no more than €100,000 in Fruitflow in the coming year, he said.

It is no secret that both Provexis and DSM have been frustrated by the slow progress with Fruitlfow, especially after it won the article 13.5 claim under the EU nutrition and health claims regulation (NHCR) in May, 2009, but Moon said DSM relayed the extract was present in seven supplement brands, with five more set to come onboard by year’s end.

“DSM says once you have 15-20 you are at point where you are gaining critical mass,” Moon said.

Cost and formulation issues had also been tackled by the ingredients giant.

“DSM have helped make sure that the ingredient can be delivered at a good commercial price,” Moon said.

“Over recent months [DSM] have made significant inroads into the costing use of the Fruitflow syrup. This is very important when the DSM sales force take that lower cost to the brand owners.”

DSM has managed to develop a tablet-grade powder that was, “within the acceptable range and DSM can see a route to keep decreasing that cost.”

The company balance sheet showed it had cash reserves of €1.83m and Moon said it had been granted extended overdraft facilities by its bank.

Provexis shares rose 0.5 pence to 2p (2.53 centimes) pence in this morning’s trading.

Fruitflow, which is used in a juice called Sirco in the UK, works by inhibiting clumping of blood platelets, and is aimed at healthy adults between the ages of 35 and 70, who are disposed to cardiovascular disease.

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