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TyraTech's hard choices paying off

The company expects to slash losses in 2017 as it constrains costs and grows sales of Vamousse

TyraTech boffin
The company is to restructure into two operational units: Animal Welfare and Personal Healthcare

Pest control technology firm TyraTech PLC (LON:TYR) has had to make some hard choices this year but the reasoning behind them seems sound.

After carrying out a strategic review, Bruno Jactel, chief executive, said the company concluded that it did not have sufficient resources from operating cash flow alone to fund the next phase of its growth and unlock the full value of its assets.

Its response was to restructure into two divisions, one focused on animal health and the other on human health, to help it capitalise on the potential in both businesses. Initially, both entities will remain 100% owned by TyraTech.

The company is best known for its Vamousse head lice treatment, which in terms of effectiveness knocks old-school treatments into a cocked hat, but for as long as Proactive Investors has been following the TyraTech story, it has been known that the company's technology has other potential applications, particularly the massive agricultural livestock market.

WATCH TyraTech 'looking to unlock potential' in animal health

It also took a long hard look at where its marketing dollars could best be used and opted to focus, for now, on the US, where its Vamousse head lice treatment has been outperforming the market in terms of sales growth.

The product has been well received in other geographies too, but as a consumer good it needs heavyweight promotion to improve its chances of making its way into shoppers’ baskets, and the company has opted to concentrate on its biggest market.

The move seems to be paying off, judging by its interim results, released in September.

TyraTech said like-for-like sales of Vamousse product are outstripping the market in the US, contributing to a handy increase in first half revenues to US$4.3mln from US$4.1mln in the first half of last year.

The company, still in the growth stage of its development, slashed losses from operation to US$711,000 from US$1.52mln the previous year.

Loss before tax narrowed dramatically to £254,000 from a loss the year before of £1.52mln, helped by a £456,000 gain on the sale of intellectual property to Envance Technologies.

The sale to Envance has also provided the company with an upfront payment of US$500,000, received subsequent to the half year-end. TyraTech ended the reporting period with cash and cash equivalents of US$1.3mln, down from US$1.8mln at the end of 2016.

TyraTech may have sold off some of the family silver, but the cash will undoubtedly come in useful – the company will also receive a small share of any profits from Envance’s sales of the products - and it now has a major global consumer company in its corner.

READ TyraTech gets major boost as global group licenses pest control tech

Jactel believes the deal is an excellent endorsement of TyraTech’s technology by one of the largest consumer products companies in the world.

“Although the agreement is not expected to be transformational in terms of profitability, it provides us with further confidence in the significant value of our IP [intellectual property] and know-how and the potential and value of our Animal Health and Personal Care portfolios," Jactel said.

Va-va-Vamousse

The company's revolutionary head lice treatment, Vamousse, is now stocked on both sides of the Atlantic by several well-known retailers, such as Walmart, Walgreen, Sainsbury's, Boots and Superdrug, and though it has yet to knock the market leaders off their perches – backed as they are by big companies with heavy marketing budgets – it has clearly established itself as “the best of the rest”.

Not bad for a company valued at around £5mln.

“Head lice protection is an emergency purchase so you have to be able to find it in the store next door, so achieving good distribution was a key milestone,” TyraTech's chief executive officer, Bruno Jactel, told Proactive Investors.

Having established Vamousse as what Jactel called “the first of the outsiders”, the challenge is to start taking market share from the two market leaders, both of which are old school lice treatments of the type that are gradually losing their effectiveness, as successive generations of lice build up resistance.

Some of these products require that the treatment remains on the hair for several hours in order to work; Vamousse's technology is different in that it effectively kills the lice and their eggs by dehydration within 15 minutes of being applied.

The formulation is pesticide free and the fashion conscious will be pleased to learn that it is fine to apply a conditioner after using Vamousse.

Animals have pests too

The potential in the animal health market dwarfs that of the human head lice treatment market.

The world's population is expanding at a rapid rate, and with it the need for protein, and the world simply cannot afford the loss of animal production caused by parasites.

Treatments do exist, of course, to combat parasites but again we are talking old-school solutions that come with concomitant dangers to the environment and the food chain.

No one wants to see a return to the days of mass use of DDT, for instance.

Like all of TyraTech's technology, though, its PureScience products are environmentally friendly, plus, of course, they work.

The only problem for the AIM minnow is that developing the animal health technology will require a (cow) shed-load of money, hence the decision to set-up the business as a discrete unit, which should make it easier for potential partner companies to share the development load.

The stark realisation that TyraTech is a David competing on a battleground populated by Goliaths has seen TyraTech’s share price halve in the last year but management’s response seems to have been the right one, judging by the sharply reduced losses at the half-year stage.

The market may also be coming round to that point of view, given the shares rose 20% on the release of the results.

Quick facts: TyraTech, Inc.

Price: - GBX

AIM:TYR
Market: AIM
Market Cap: -
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