Well.... It's at this moment he realised he screwed up :D 

Ok.. The bears were right. Now matter how you put it, selling 8 million shares to get another fund added to the register and also giving Regal Funds more equity is a big "No No" in my book. 

The short sellers are gonna have a field day manipulating the stock price. Expect very high volatility as both new asset managers have Long/Short funds. 

I am an investor not a trader and this stock has now become a trading stock. I am selling down a substainal weight, I still think it is undervalued but the recent announcement is not good for investors. It is great for traders. 

The management have a track record of dishonesty and I was too blinded by the valuation. Hence, why I still have to learn how to judge management before investing. Another painful lesson added to the diary...   

Zoono released its quarterly results last week and I have lot of questions centred around their cash conversion:

• To me, sales conversion is not reflecting in cash receipts. In layman's terms, Zoono is not collecting cash faster than invoicing customers. This is a major concern for any investor as good businesses have fast payables time periods. It is hard to know whether cash from past sales was recognised this quarter or cash from current sales recognised this quarter? My take:
  • According to Zoono, "Sales for Q3 FY21 were NZ$6.4 Million (unaudited)". Cash Receipt for Q3FY21 was NZ$6.8M. 
  • In the 1HFY21 balance sheet under Trade Payables note 11 we saw $2.1M of income in advance. It is another term for deferred revenue treated as a liability until cash is received. So, of the $6.8M in receipts $2.1M must be deferred revenue. Therefore, Zoono was paid $4.7M this quarter for sales made in Q3FY21. Since Zoono invoiced NZ$6.1M, then NZ$1.4M would be deferred revenue.   
  • That is my understanding of the cash collected by Zoono. Would like to know if I am making wrong conclusion on this as I am not sure and would like to ask management.   
• No update on MENA distribution agreements like Al Rabban. Zoono has a bad track record maintaining relationships with Middle Eastern distributors. There should have atleast been a mention on Al Rabban. My hunch is that the deal fell apart and we await another lawsuit. If true, it questions Zoono's ability to generate meaningful revenues in MENA.     
• What proportion of product is in inventory vs with distributors? Last half yearly balance sheet had NZ$14.3M of product in inventory which is more than double the cash on hand. 

In saying that, it’s not all bad as they signed commercial deals with Microsoft and Boeing. Their workspace cleaning products has lead to contracts with some of the largest companies in the world. The key question remain - "how quickly can they collect cash after invoicing?". Payment terms should be 60 days and I struggle to believe all of Zoono's customers pay on time. A balance sheet is more useful to track progress than the cash flow statement. 

Zoono made quite a lot of progress in their latest update;

• Microbe Shield successfully tests against Human Coronavirus 229E
  • That makes the AFR hit piece look pretty stupid. It was written by a senior reporter, which calls into question whether it is common for AFR to distort facts for clicks. The answer is obviously yes. 
• New Supply Agreement (This is the major news)
  • Microsoft invited Zoono to become an approved supplier to their office network. Microsoft is not a small organisation. They have plenty of employees. The initial purchase has been received for their Redmond Campus in USA. Microsoft is a global company, so I would not be surprised to see Zoono rolled out to all regional HQ. 
• Partnership with Boeing (The other major news) 
  • Microbe Shield meets Boeing Specification Standard BSS7434 for use in aircraft interiors and is now available from the official Boeing on-line store. Damn, this is constant demand as long as we have aircraft (whether flying or on the ground). 
• Fine Hygiene Group LLC (FHH) is on track to meet its sales projections of US$7 Million over the next 6 months. Good to see Fine Group is progressing as planned. They are a major distributor in the Middle East. Zoono have checkered past with Middle East distributors with lawsuits, but hopefully the main distributors deliver.     
• With one update, the bear thesis is in disarray. You cannot fault management for the progress they made. Thus, the share price increase of 50% today is warranted. I hope the short selling cartel got their just desserts with the short squeeze. Regal and BoA/Merrill Lynch deserve to get their short position trampled by common sense. A win for the little guys - screw Regal.  

1HFY21 results + Conference call 

• If you want to know why the share price keeps going down this is the main reason:
  • "On the downside, the half year was disappointing in that the Company's financial results were adversely affected by the COVID-19 lockdown measures in place globally (and, in particular, in the UK since November 2020).
  • While the Company has, overall, undoubtedly benefited from the impact of the COVID-19 pandemic, in many respects, the opposite has been the case in the review period in that the disadvantages have outweighed the benefits. Confidence in and around the workplace has been adversely affected and, with the Company's business being primarily focussed on the B2B sector, several major supply agreements have been put on hold or deferred simply because either the businesses or the buildings housing them (or both) have been closed and/or the employees not at work. 
  • In the UK, this impact has been further compounded by Brexit which has made logistics difficult, particularly in relation to guidance to customers with respect to supply timeframes. These issues have materially, and adversely, impacted sales revenues in H1 of FY21 (with the impact for the half year estimated at approximately NZ$6m to NZ$7m)."
  • I put on my optimistic hat and believe the lockdown in UK would be a short term headwind.  Furthermore, the UK Government will be implementing its ‘roadmap out of lockdown’. It should bring opportunities to Zoono UK.  
• The surprise to me was the NZ$6M to NZ$7M Covid-19 impact in UK. If it weren't for Covid, we would have seen Zoono reach $20M in revenues. 

Conference call - I only listened to the last half as I was refining notes for Alcidion

• New opportunities for growth are covid rebound sectors like Entertaintment and Sports stadiums. Peter did mention that today he was in discussion with US companies in those sectors. 
• Zoono is getting recognised as a global brand whether through social media channels or from customers. 
• Peter reiterated that there are no such thing as post covid. The world will have to live through covid like influenza. The demand for Zoono will get stronger as businesses move back into office.  
• They scrapped the dividend and use that money for clinical trials (which is a smart decision if you ask me), the animal health business and new products will grow the business. That could also be another reason why the share price went down, you give a dividend and then they are addicated like coke. 
• Zoono cannot disclose major deals quickly due to the nature of the customer. The United Airlines for example had to do the press release and media circuit before allowing Zoono to communicate the deal. Breaking disclosures is a fine line. 
• Euopean laws are strange especially UK (1920-30's regulation still apply today), where you can't make covid claim unless your product is a drug or medicine. Zoono is not a drug. 
• Fine Group in the Middle East is a big deal for Zoono and we (shareholders) weren't told the arrangements in the presentation decks. Paul spilled the beans on the targets. Fine Group is expected to supply 3 countries in MENA (UAE, Jordan and Qatar (Doha))
  • 3 year projected revenues = $50M with $500K per month on each region. The math works out: 
    • $500K x 3 (as there are 3 countries) = $1.5M 
    • Annualised revenue = $1.5M * 12 = $18M 
    • Total value of contract = $18M * 3 = $54M (which is close to $50M) 
• He does not lose much sleep over skyscrapper legal dispute haha. He believes Zoono's case is better than the Middle East distributor's case which is exactly what he communicated to shareholders in the past. Good to see alignment with previous announcements. 
• Zoono is planning on expanding product for the UK Police, NHS and used in government property. 
• January 2021 sales are sitting at $4M which is very healthy run rate and they expect to exceed sales target of $38M. It made me laugh that the CCZ analyst was questioning whether Zoono can hit $38M for the financial year which is $24M for 2HFY21 and Paul goes obviously if there are no more covid interruptions. The market does not agree which is great for investors to pick the company at a discount. 
• US love alcohol (me too) and the sanitisers manufactured for CVS contain alcohol. Global handsanitisers ex US does not contain alcohol according to Peter. 
• When I am writing the notes, I write "Peter" as Zoono is founder led business and you can tell that he is in control of the operations. The CFO hardly answered questions. 
• I like at the end he felt sympathetic for those that bought shares during the peak ($3), however he said give the business time and patience. I agree, there is mispricing happening in the market. Zoono is worth more and the market is overly pessimistic. Hence, I added more Zoono shares on the strawman portfolio and personal portfolio. The market is short term focused.     

Interested to know what people thought during the first half of the call? 

Zoono has many customers, here is an overview of customers per region: 

UK/Europe:

• ISS (FM)
• Atalian Servest (First Group/ GWR/ LSER/ Retail etc)
  • Currently servicing majority of the rail networks across the UK
• ABM – Rail & Aviation
• Bunzl Catering Division
• Churchill Contract Services (TFL)
• Universities & Colleges
• Care homes
• Leisure facilities

Australia/NZ:

• Qantas 
• Childcare Centres (possibly supplying to companies like G8 education)
• Customers of John Lyng Group (from distribution agreement)

North America/Carribean

• CVS (one of the largest pharma chains in America)
• United Airlines (got them through Microsonics distributor) 
• Universities & Charter Schools
• County jails 
• Stadiums 

Middle East & Africa 

• Fine Hygenic Holding
• IBV (Exclusive partner) 
• Trials done with Accor Hotel
• In talks with Emirate Airline, Dubai Taxi and Dubai Healthcare 

China

• It is mainly a B2C market through online channels such as T-Mall and JD.com, hence no large customer. The distributors covered in the Distributor straw

Listed on 9 May 2017. Previously the ticker was under Goldsearch a gold exploration mining company. My guess is a reverse merger, but I do not know, plus I can't find the prospectus. 

What do they do?

Zoono is an antimicrobial solutions company founded in New Zealand by Paul Hislop (who is the founder and the current managing director). They basically make wet wipes, dry wipes, microfibre cloths, antimicrobial body wash and hand sanitisers that claim to be 99.99% effective in almost all surfaces. Zoono seeks regulatory approval in different regions to make that claim so that they can use it for marketing.  

What sectors do they target?

Zoono targets a wide range of sectors (Child Care, commercial cleaning, agriculture and veterinary, medical and retail). They decide to split the business into 3 segments (B2B, B2C and Animal Health) so moving forward, it makes sense to analyse the business on a segment basis not a sector basis. 

Stable Management/Ownership? 

Starting from the top, Paul Hyslop is the founder and have been running the business since 2007. He has a lot of skin in the game as he owns around 66M shares with 40% ownership. The founder is aligned with shareholders which is great to see as he started the company from scratch. Regal Funds own 10% of the company and is a hedge fund that gives me concern as those guys manipulate the stock price. Their ownership stake is currently not larger than management, so they cannot overthrow management - good for the long term investor.   

What's their market entry strategy?

As explained above, Zoono's market entry strategy is through distributors. From my understanding, they sign an agreement with a distributor to sell "X" amount of product for a "Y" price. Depending on the distributor, the distributor should get (% or $) commission for selling "X" amount with a commission structure laid out on the contract. 

Here is an example: John Lyng Group 

• 5 year initial agreement with the option to extend for another 5 years.  
• John Lyng is the exclusive distributor for Australia. 
  • Zoono manufacture the handsanitiser in either 5 litre containers or 1,000 litre totes for the B2B customers, with limited exception to small customers that do not need large containers.
•  The contract 
  • Target minimum annual purchases are:
    • AUD $5.0m in the first 12 months;
    • AUD $6.0m in year two; and
    • AUD $7.0m in year three;
  • and thereafter increasing by 5% per annum.
  • So if you do the calc it would be: 
    • AUD $7.35m in year four;
    • AUD $7.71m in year five;
  • Either party may terminate the Agreement by providing not less than six months’ notice or for breach or insolvency. Zoono may also terminate if target minimum purchases are not achieved. 
  • Contract termination is an important barrometer for investors as it could mean either the product is not selling well or the distributor is not pushing hard on sales. 
    • In saying that, from reading all the agreements they have with distributors, Zoono do not care about marketing etc... They only care about volume. If you miss your minimum target volume, you are out and they find another distributor to sell.
    • They are ruthless with distributors and such we have seen legal proceedings by some of the distributors.   
• The contract did not include commission structure which must be there in the full contract. Otherwise, what does John Lyng get from being the middle man if they are not getting a fee? 

Have they executed well?

Yes they have thanks to Covid-19. Their antimicrobial hand sanitiser Z-71 was added to the TGA approved list. Zoono made the smart decision back in 2018 to focus on B2B which proved to be an excellent corporate decision. As Zoono puts it on the FY20 Annual report "the decision to change focus [from B2C to B2B] was a recognition of the fact that the Company simply did not have either the funding necessary to build a retail brand or, with its limited human resources, the capacity to build a global retail business".  

Growing revenue from $2M to $38M in one year is an amazing achievement so they have executed extremely well. 

The big question is can they maintain their growth? 

It depends on the new distribution agreements, growth in new verticals like Animal Health and new products. It is hard to project revenue growth as we are not given unit economics for the B2B segment. We are given B2C, but as Zoono said, they are not focusing on that segment for the forseeable future. What I need to do next is connect information across AGM slide decks, interviews and Annual report to make a guess on which distributors are generating the sales for the B2B segment. 

This straw should be named detective work :D A lot of compilation involved to put the distributor arrangements together. 

UK/ Europe:

• Bunzl (currently in UK but plans to replicate the UK model for more European countries) 
• OneSpray - international distributor 
• TEH - Bosnia 
  • An initial five-year term.
  • Exclusive sale of Zoono branded products in Bosnia-Herzegovina, Croatia, Serbia, and Montenegro.
  • Minimum annual performance volumes:
    • First 12 months from commencement: NZD$350,000;
    • Second 12-month period: NZD$450,000;
    • Third 12-month period: NZD$600,000; and
  • Thereafter, the minimum sales requirement will increase by 10% each year (based initially on year three total sales)

Aus/NZ/ Singapore

• John Lyng Group / RestorX (look at the history straw)
• Linco Investments Pte Ltd (Singapore - 18th February 2020)
  • An initial 5-year term;
  • Exclusive in all markets in Singapore;
  • Minimum purchase volumes of:
    • NZD$1.5m in first 12 months.
    • NZD$2.0m in year two; and
    • NZD$2.6m in year three and
  • thereafter increasing by 10% per annum;

North America / USA / Carribean   

• Mexico & Panama distributor confirmed for order "11.20". No idea what that means. 
• Jamaica distributor - Dalrada Health (came through from the relationship with UK distributor OneSpray)
• Microsonic - distribute Zoono products to Turtle Wax (for carwash, automotive and cruiseline industries). The agreement happened (13th May 2019)
  • Initial 10 year agreement
  • Minimum MicroSonic Zoono Z-71 Microbe Shield purchase commitments under the agreement are:
    • US$2m in calendar year 2020;
    • US$3m in calendar year 2021;
    • US$6m in calendar year 2022;
    • US$12m in calendar year 2023
  • And thereafter increasing by 10% per annum.

Middle East & Africa (MENA) 

• Al Rabban Capital (25th March 2020)
  • An initial 5-year term with a right of renewal for a further 5-years;
  • Exclusive for the Middle East and North Africa (with the exception of several smaller countries due to existing relationships) in all B2B and consumer retail markets;
  • Minimum annual purchases are:
    • NZD$ 4.8m in the first 12 months;
    • NZD$ 8.0m in year two; and
    • NZD$ 12.0m in year three; And
  • Thereafter increasing by 10% per annum.
  • The initial order lodged by Al Rabban is for NZD $2.4m; Zoono will deliver its product in 1,000 litre totes which Al Rabban will repackage locally.  
• International Nutrition and Sport SA (30th September 2019)
  • An initial five-year agreement.
  • Exclusive sale of Zoono branded products in South Africa, Botswana, Lesotho, Swaziland, Zambia and Namibia.
  • Minimum annual performance volumes of:
    • First 12 months from commencement: NZD$650,000;
    • Second 12-month period: NZD$800,000;
    • Third 12-month period: NZD$1,000,000; and
  • Thereafter, the minimum sales requirement will increase by 10% each year (based initially on year three total sales).
• ASH Group FZE (30th September 2019)
  • An initial five-year agreement.
  • Exclusive sale of Zoono branded products in Egypt, Syria and Iraq.
  • Minimum annual performance volumes of:
    • First 12 months from commencement: NZD$400,000;
    • Second 12-month period: NZD$480,000;
    • Third 12-month period: NZD$750,000; and
  • Thereafter, the minimum sales requirement will increase by 10% each year (based initially on year three total sales).
• Dubai-based Sky Scrapers General Trading LLC (21st December 2018) - This is the distributor they have ongoing legal battle with as that distributor was not able to hit minimum sales volumes. 
  • An initial 10 year term, with a 10 year renewal option;
  • The agreement includes minimum annual performance (volume) requirements; and
  • Either party may terminate the agreement with immediate effect for breach or insolvency.

China 

• Eagle Health (20th February 2020)
  • An initial 3 year term with 5-year rights of renewal;
  • Minimum purchase volumes of:
    • NZD$1,500,000 in the first 12 months;
    • NZD$2,300,000 in year two; and
    • NZD$3,100,000 in year three; and
  • thereafter increasing by 10% per annum.
  • Eagle granted exclusivity for co-branded products; and Zoono (sole label) may be sold by Eagle as a preferred partner with good faith negotiations after 12 months for securing exclusivity for further channels. 
• Beijing Youmeng Technology and Development Ltd   (10th February 2020)
  • An initial five (5) year term; Exclusivity in all childcare and hotel markets in China;
  • Minimum purchase volumes of:
    • NZD$1.5m in the first 18 months;
    • NZD$2.3m in year two; and
    • NZD$3.0m in year three, and
  • Thereafter increasing by 10% per annum;
• Zoono has licensed the distribution company, Zoono China International Trading Limited, to use its name and sell Zoono products to farmers, food producers and processors in China. Importantly, one of the key focuses of the new distributor will be the use of Zoono products to minimise the impacts of African swine fever within the pig population in China. (10th December 2020)
  • An initial 10-year term; Exclusivity in all animal health markets including aquaculture and food processing plants in China;
  • Minimum purchase volumes of:
    • NZD$3.1m in year one, including NZD$1m in instalment payments between execution of the agreement and 30 June 2020.
    • NZD$4.6m in year two; and
    • NZD$9.3m in year three, and
  • Thereafter increasing by 10% per annum;
• Guangzhou Sanchengyun Trade Co (25th September 2019)
  • An initial 5 year term.
  • Minimum annual performance volumes of:
    • First 12 months from commencement: NZD$900,000;
    • Second 12-month period: NZD$1.2m;
    • Third 12-month period NZD$1.6m; and
  • Thereafter, the minimum sales requirement will increase by 10% per annum.
• Beijing Bei Guang Jia Purchase Trading Company Ltd., trading as RBCGO (26th September 2017)
  • company majority owned (70%) by the Chinese Government and (30%) by Alibaba 
  • The agreement is entirely for B2C as RBCGO network have 300m households watching home shopping TV, radio and online channels and via the Alibaba and TMall platforms. 
  • A broad range of Zoono products will be offered for sale (all under the Zoono brand), including 5 separate skin care products, 4 surface products and a baby care range. These will be sold in pre-agreed bundles at RMB199.00 (NZ$40.00) and RMB299 (NZ$60.00) each.