Lab group HRL — which is expanding from testing asbestos to inspecting China-bound infant formula — reported lower sales but higher operating cashflow in the September quarter.

Earlier this month HRL shares jumped by almost 70 per cent after news that it would buy Kiwi test lab  Analytica, which has a licence to test infant milk formula exports bound for China.

Chinese demand for Australian infant formula is so high that prices can reach more than five times the local price.

HRL reported $5.4 million in quarterly sales for the September quarter, down from $6 million in the previous quarter.

It generated $405,000 cash from operations in the quarter — twice as much as the previous period — growing cash reserves from $728,000 to $925,000.

However HRL has big bills coming up — including $4.9 million in operating costs this quarter and $NZ30 million ($27 million) for Analytica (of which $NZ13.3 million is due upfront in cash).

HRL jumped sharply this month after moving into infant formula. Source:

The acquisition — HRL’s first foray into food — fit with the company’s strategy of targeting niche chemical testing, chief executive Steven Dabelstein told Stockhead.

“Analytica is a single site lab offering capabilities we don’t have at the moment,” Mr Dabelstein said.

“We see the opportunity to expand testing and bring the capability across from New Zealand to Australia.”

Analytica part-owns CAIQ Test Pacific which aims to speed up the export of goods such as infant formula which often get caught up in quarantine bottlenecks in China.

Earlier this year Chinese authorities placed a month-long import ban on a Bellamy’s infant formula cannery over quality concerns.

New Chinese infant formula rules to be introduced in January will mandate quality assurance and limit the number of products a manufacturer can register.

HRL are raising $15 million at 8.5c per share to fund the acquisition, subject to shareholder approval at its annual general meeting on November 23.

HRL’s operations are now split between testing of hazardous materials such as asbestos, geotechnical services and software to manage compliance.

While there is no central register of asbestos, the National Asbestos Safety and Eradication Agency has set a goal to eliminate risk of the hazardous material by 2030.

HRL shares rose slightly to 12c on Monday.