Biome Turnaround Gains Traction

Bioplastics specialist Biome Technologies (AIM:SEO) saw losses narrow in the first half as chief executive Paul Mines’ turnaround plan gained momentum.

‘We have the business moving in the right direction,’ he told Proactive Investors.

The company formerly known as Stanelco reported a 40 per cent rise in underlying revenues to £6.7 million, while deficit narrowed £1 million to £1.7 million.

While demand for the company’s biodegradable plastic products was strong, the growth driver was Biome’s RF business, where sales advanced 92 per cent.

The operation produces advanced radio frequency equipment and builds state-of-the-art furnaces used in the manufacture of fibre optic cables.

‘Just because it is the smaller part of the business, doesn’t mean we ignored it,’ Mines said.

‘The business generates some good cash. We have given it some TLC.

 ‘It is the fibre optic market that has really turned for us.

‘There was a famine when nobody was putting fibre optic cables in the ground.

Now you have two effects. In Asia growth is continuing and they are going straight to fibre optics rather than copper.

And here in the West you have so many people streaming media they are putting fibre optic cables in the ground again.

‘It is a niche market. But we fairly much dominate production of fibre optic furnaces.

‘That’s a good portion of our growth. Looking at our order book it will go through until mid 2011.’

The Biome Bioplastics division continues to thrive, with the company reporting sales growth of 53 per cent in the six months to June 30, driven by marked increase in demand from America.

‘The US market has started to pick up and of course we’ve had a guy there working and seeding the market,’ Mines said.

‘There seems to be a sea change in the US. A number of cities have announced bag taxes; there’s more talk about composting and disposal.  I would characterise the US as two years behind Europe.’

Following a £2.7 million cash call in June, the group now has £4.7 million on the balance sheet – enough to see it through to profitability in 2012.

The only fly in the ointment is patent litigation with rival Novamont. It won a case in France, but a similar action in Italy has yet to come to court.

Mines is eager to conclude the long-running saga.

‘We want to drive it to a resolution as soon as possible as we are confident about the technical and commercial position,’ he explained.

The company has undergone a major transformation under Mines as it has raised fresh capital, changed its name and moved down to the AIM market.

The Stanelco name itself dated back to the mid-1940s and originally stood for the Standard Electrical Company – so it was definitely time for a change.

But the corporate makeover also ditches some ‘baggage’ from the company’s more recent history.

In the mid-noughties the business garnered a substantial and fervent private investor following impressed by the firm’s biodegradable plastics technology Greenseal and ground-breaking packaging tie-up with Asda.

In the process the share price ran up so high the firm was valued at a nose-bleed inducing £200 million, which compares with a market cap of £7.65 million today.

However it rather lost its way and, in 2006, Mines was approached by investors to take over as chief executive from Martin Wagner, after the group was forced to tap the market for almost £15 million.

Under Mines, losses have narrowed while sales have grown to £19 million from £6 million. With £2.8 million from the May fund-raising it has enough cash to see it through to break-even in 2012, analysts say.

Biome is now focused on bioplastics and radio frequency (RF) equipment used in welding, heating and sealing.

Neither are complementary other than they are highly innovative, research led businesses.

As Mines has whipped the business into shape, so operations such as Aquasol, a water soluble polymers consultancy and the manufacturing arm Adept have gone, which has reduced both the workforce and the company’s overheads.

A major milestone in de-risking Stanelco came in April when it won that French court battle with Novamont.

‘The ruling has provided a visible sign that has taken some of the worry away,’ Mines said.  It has been a good positive signal in the market – but it is not resolved yet.’

Having spent over three years whipping Stanelco into shape, the focus now is very much on developing the dominant bioplastics arm.

The group is a close second in the market to Novamont, but the sector isn’t exactly bubbling over with competition.

At the moment Biome’s big products are in the horticultural sector, though the range is broadening with consumer electronics starting to figure.

It is a hallmark of the US in particular, that marketing of household gadgets is now increasingly focused on that product’s green credentials.

The group is likely to start small by producing biodegrable casings for hand-held gadgets such as MP3 players. ‘We don’t have sales (in this area) yet,’ Mines said. ‘But by next year, who knows.’