REG - EKF Diagnostics Hldg - Trading update

EKF Diagnostics HoldingsAnnouncement

06/02/2023 07:00

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RNS Number : 9351O  EKF Diagnostics Holdings PLC  06 February 2023

This announcement contains inside information

for the purposes of UK Market Abuse Regulation.

 

EKF Diagnostics Holdings plc

("EKF", the "Company" or the "Group")

 

Trading update

 

EKF Diagnostics Holdings plc (AIM: EKF), the AIM-listed global diagnostics
business, provides the following unaudited trading update for the year ended
31 December 2022 ("FY 2022"), reflecting strong growth in the core established
business. The Company also gives a progress update on the expansion of the
Life Sciences enzyme fermentation business and on the transition of Contract
Manufacturing & Laboratory Testing into non-COVID revenues.

 

Summary expected results for FY 2022

The positive first half performance of the core established business,
comprising Point-of-Care & Central Laboratory, continued into the second
half, and the Life Sciences division also delivered significant year-on-year
growth. Overall performance has shown considerable growth compared to
pre-pandemic levels and, as a result, the Company will report revenues for FY
2022 that are in line with market expectations.

 

The transition to non-COVID revenues in both Contract Manufacturing and
Laboratory Testing is progressing, but is taking longer than originally
anticipated. As a result of the underperformance in these businesses, adjusted
EBITDA(1) is now anticipated to be slightly below market expectations.
Laboratory Testing has, however, moved closer to a return to profitability in
recent months, driven by non-COVID services introduced.

 

Group cash, net of borrowings, as at 31 December 2022 was £11.4m (31 December
2021: £19.6m), reflecting planned investments made during the year, including
the significant capital expenditure to increase the Company's enzyme
fermentation capacity in the US.

 

Divisional Commentary

 

1.    Point-of-Care ("POC") & Central Laboratory - Continued growth in
key established business units

The established POC & Central Laboratory businesses continues to deliver
double-digit growth, and the Company expects continued growth in 2023. The
temporary supply delays that marginally impacted H1 sales of β-HB
(Beta-Hydroxybutyrate) have been resolved and a strong H2 sales performance
has ensured significant growth for the full year. This momentum is expected to
continue into 2023.

 

2.      Life Sciences - Focus on completing increase in enzyme
fermentation capacity

Completion of the capacity expansion at the enzyme fermentation facility in
South Bend, Indiana, remains the main short-term priority for the Group. Once
completed this will lead to further growth in 2024, the business having
already delivered significant organic growth of 60% using existing capacity in
FY 2022. The customer onboarding processes (internal audit, validation and
tech transfer) have progressed well, however the supply and delivery of the
largest 14,500 litre fermenter has been delayed and is now expected to be
installed and validated in July 2023. Delays have also arisen in the delivery
of key components and costs have increased, partly due to enhanced customer
requirements and partly due to inflationary pressures. Although these
increases mean that the total capital cost of the development is now estimated
to be around $14.2m, the Board remains confident in the commercial potential
and payback of this growth opportunity.

 

The full additional capacity is now expected to become operational during Q3
2023. Whilst this has an impact on growth expectations for this division for
2023, these delays have not affected relationships with key customers.
Accordingly the full positive impact of this increased capacity is still
expected to be seen in 2024.

 

3. Contract Manufacturing - Reducing cost base as operations shift into
non-COVID-revenues

In the US, the Company's non-COVID Contract Manufacturing services continues
to develop, focused on working with innovative companies in the areas of
genomics and forensics to support their growth ambitions. In 2023 this
division's focus will be on expanding this service line utilising the
Company's asset base in the US and Germany.

 

During the global pandemic, EKF went through significant structural changes to
deliver COVID-related testing products and services to a number of
international customers, expanding facilities in Germany, as well as opening a
number of new facilities in the US and UK to meet demand. In addition, there
was a requirement to employ further resource to meet this demand. EKF is
focussing on taking out significant costs from the business, using
pre-pandemic levels as a benchmark and extending its re-organisation programme
and efficiency drives previously notified in the Company's interim results in
September 2022.

 

By reducing the cost base in the first half of this year, the Company
anticipates growth in adjusted EBITDA and gross margin in the second half of
2023, with an improved cash position over the same period.

 

4. Laboratory Testing - Diversifying portfolio of non-COVID tests and
targeting a return to profitable growth

The transition of the Laboratory Testing business into non-COVID revenues
remains a challenge, following the rapid drop in demand for COVID testing seen
worldwide in Q1 2022. Whilst ADL was loss making for the last three quarters
of 2022, a focus on developing and validating a diversified portfolio of high
value tests has slowly seen the green shoots of recovery within the business,
with losses narrowing in Q4 2022.

 

The performance of ADL recently has been much improved, driven by non-COVID
services. Management will be monitoring this business closely in H1 2023 to
ensure it continues on its path to profitable growth and will update
shareholders on progress during the year.

 

Russia Update

During 2022 EKF continued to supply essential medical products to its
60%-owned Russian subsidiary, in compliance with current international
sanctions guidance and following regular management review. International
sanctions mean that the Company remains unable to distribute cash dividends
from this subsidiary and this situation is not expected to change in 2023. As
at 31 December 2022, cash in Russia totalled £2.4m (31 December 2021:
£1.3m).

 

Outlook

The performance of the core established business has been very encouraging and
the outlook for 2023 remains positive. Despite the delay with South Bend the
Company remains positive of the significant benefit to 2024 and beyond. The
swift end of the pandemic has posed challenges as the Group adjusts its
operating focus to execute its growth plans in other areas.

 

It is expected that 2023 performance will benefit from further cost reduction,
restructuring and operational efficiency measures being implemented, alongside
further growth in the core established business. Following the completion of
the capacity improvements at the South Bend facility later this year, there is
further opportunity for significant, longer-term growth from the Life Sciences
division.

 

The Company will recognise large exceptional costs in 2022, but this will lead
to stronger and clearer foundations for 2023. Further guidance on the outlook
for 2023 and beyond will be provided at the time of release of full year
results for FY 2022, expected to be reported in late March 2023.

 

Board Changes

The Board recognises the critical success factor in the delivery of growth in
Life Sciences and improved performances for Contract Manufacturing and Lab
Testing. Mike Salter, Chief Executive Officer, will focus on these critical
operational tasks and to do so will stand down from his role as CEO with
immediate effect, but remain as key part of the Management Team reporting
directly to the Board.

 

Christopher Mills, currently Non-executive Chair will remain a Non-executive
Director, and Julian Baines, will assume the role of Executive Chair on a
short-term basis, using his skills and experience to best support the
Management Team to deliver the required results for the Company. All of the
planned EKF Board changes are effective immediately.

 

Julian has agreed to step back from a number of his other non-executive roles
to focus on EKF alongside Mike Salter and Marc Davies, CFO. The Board will
also begin the process of recruiting a new Chief Executive Officer, and Mike
will support Julian and Marc closely during this period to ensure continuity
and an orderly transition.

 

(1)Earnings before interest, tax, depreciation and amortisation, excluding
exceptional items and share based payments.

 

 EKF Diagnostics Holdings plc                             www.ekfdiagnostics.com (http://www.ekfdiagnostics.com)
 Julian Baines, Executive Chair / Marc Davies, CFO         Tel: +44 (0)29 2071 0570

 Singer Capital Markets (Nominated Adviser & Broker)      Tel: +44 (0)20 7496 3000
 Aubrey Powell / George Tzimas / Oliver Platts

 Walbrook PR Limited                                      Tel: +44 (0)20 7933 8780 or ekf@walbrookpr.com (mailto:ekf@walbrookpr.com)
 Paul McManus / Lianne Applegarth                         Mob: +44 (0)7980 541 893 / +44 (0)7584 391 303

 

The persons responsible for arranging the release of this announcement

on behalf of the Company are Julian Baines, Executive Chair, and Marc Davies,
CFO.

 

About EKF Diagnostics Holdings plc (www.ekfdiagnostics.com
(http://www.ekfdiagnostics.com) )

EKF is a leading global diagnostics business with custom manufacturing
facilities across sites in the US, UK and Europe for a variety of life science
products. EKF is focussed on the following areas:

 

 Point-of-Care           Providing a portfolio of Point-of-Care analysers and consumables, particularly
                         for use in the area of Hematology and Diabetes, for use in hospital and
                         research laboratories, doctor's offices, blood banks and for in-field anaemia
                         screening programmes. EKF has an estimated 80,000 hemoglobin, hematocrit,
                         HbA1c, glucose and lactate analysers in regular use across more than 100
                         countries.

 Central Laboratory      Clinical chemistry, Small lab analysers, Centrifuges

                         Beta-Hydroxybutyrate (β-HB) LiquiColor, Glycated Albumin, Glycated Serum
                         Protein, Nitro-tab, Procalcitonin

 Life Sciences           Enzyme fermentation, Custom products and Bulk fermentation

 Contract Manufacturing  Bulk formulation, Sample collection kits, Private labelling, Molecular and
                         forensic kits

 Laboratory Testing      Laboratory testing services certified under the Clinical Laboratory
                         Improvement Amendments ("CLIA") for high complexity testing.

 

 

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