Companies: HCEG   

Problems integrating recent acquisition Crest Medical have serious implications for diversified venture Healthcare Enterprise.

Chief executive Gordon Wood blamed delays in settling down Crest, bought a year ago for £7.5m from Alliance Unichem, for the group turning last year’s £320,000 profit into a £2.1m loss at an operational level during the six months to August.

This has changed significantly our original reason for recommending the shares a year and a half ago at 50.12p. Back then the group’s core business, which supplies first aid kits and other medical requirements to major companies and organisations, was generating significant amounts of cash. This was then used to develop the company’s early-stage products through regulatory trials and so take them to market.

However, with the core business now under pressure and losing money it becomes unclear how this development work can continue, particularly as the balance sheet looks stretched. In the period under review, £0.5m was spent on obtaining US approval for the company’s specialist disinfectant Ebiox. It looks as if the focus will have to be on sorting out the first aid box operations before more money can be spent in this direction though.

The prognosis does not look good. Gross margins have dropped from 50.4% to 41.6% at the same time as the proportion of revenue spent on operating expenses has climbed from 42.5% to 67.4%. The departing finance director, John Bradshaw, has taken out an invoice discounting facility to tide the group over, but net current assets are only £2.1m.

Nevertheless, the group’s other products in the fertility area do have potential but at present a fundraising looks on the cards and the company may have to rely on the generosity of shareholders such as Nigel Wray. This could be at the expense of smaller investors. Avoid.

Healthcare Enterprise	AIM	£2.02m	0.46p	0.10p
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