REG - Novacyt S.A. - Half year 2022 results
29/09/2022 07:00
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RNS Number : 0800B Novacyt S.A. 29 September 2022
Novacyt S.A.
("Novacyt", the "Company" or the "Group")
Half year 2022 results
Significant progress against post-COVID-19 growth strategy to offset expected
decline in COVID-19 sales
Paris, France and Camberley, UK - 29 September 2022 - Novacyt (EURONEXT
GROWTH: ALNOV; AIM: NCYT), an international specialist in clinical
diagnostics, announces its unaudited results for the six months ended 30 June
2022.
David Allmond, Group CEO of Novacyt, commented:
"During 2022, we have made good progress transitioning the business away from
COVID-19 revenue, due to its expected decline, and beginning to deliver
against our growth strategy, as outlined at our full year results earlier this
year. Of note, we are pleased with the progress we have made in the
development of the post-COVID-19 product portfolio, including the launch of
our integrated and scalable molecular workflow capable of delivering over
1,000 tests per day. This has been significantly accelerated by signing an
agreement for the immediate distribution of over 40 assays focused on our
target therapeutic areas, which we expect to drive near-term growth and
supplement our internal R&D. At the same time, we have also relaunched our
extensive RUO portfolio to support near-term growth and are encouraged by the
early success and new revenue streams.
"These developments bring together extraction capability, automated sample
preparation, and broad menu expansion. We expect this to deliver a competitive
market offering for rapid turnaround time, routine testing in our target areas
of mid to low volume "spoke" laboratories and non-routine services in "hub"
laboratories. Following our strategic review, we have also completed the
closure of our Lab21 Healthcare and Microgen Bioproducts businesses allowing
us to focus on our core capabilities and operations. Novacyt remains well
positioned for future growth and value creation as we move past the pandemic
and continue our journey to become a leading global clinical diagnostics
company focused on unmet needs in infectious diseases."
Financial highlights
· Group revenue of £16.5m in H1 2022 (H1 2021: £52.2m),
predominantly driven by the expected decline in COVID-19 related sales
· Revenue derived from COVID-19 products totalled £13.0m, or 79%
of total H1 revenue in 2022 (H1 2021: £47.6m (91%))
· Revenue for the non-COVID-19 portfolio was £3.5m (H1 2021:
£4.6m). As previously indicated, this decline was predominantly driven by
lower instrument sales compared to a strong H1 2021 which benefited from
COVID-19 demand
· Group gross profit improved to £4.0m (24%) in H1 2022 (H1 2021:
£1.2m (2%)). The latter was impacted by the one-off exceptional costs
relating to the DHSC dispute. H1 2022 gross profit was reduced as a result of
significant stock provision based on lower forecast COVID-19 sales in addition
to writing-off stock that had not been provided for previously. Excluding the
impact of these items, the margin would be in excess of 60%.
· Group adjusted EBITDA loss of £7.1m in H1 2022 before
exceptionals (H1 2021: £23.6m profit)
· Discontinued operations loss of £3.7m in H1 2022 (H1 2021:
£0.6m)
· Loss after tax decreased to £8.7m in H1 2022 (H1 2021: £12.7m)
· Filed a defence of the DHSC claim issued against Primerdesign Ltd
and Novacyt S.A. for £134.6m in relation to the contract dispute, as
previously announced, and filed a counterclaim of £81.5m against the DHSC
· Cash position at 30 June 2022 was £99.6m (FY 2021: £101.7m) and
the Company remains debt free
· Predicted Q3 2022 revenue of circa £2.0m, with similar levels
expected in Q4 2022, resulting in an anticipated EBITDA loss for the full year
of circa £13.5m
£'000 H1 2022 H1 2021
Continuing Operations* Consol Consol
Revenue 16,508 52,201
Gross profit ** 4,010 1,177
Gross profit % 24% 2%
OPEX (11,148) (13,301)
EBITDA (7,138) (12,124)
Adjusted EBITDA ** (7,138) 23,646
Adjusted EBITDA % (43%) 45%
Recurring operating loss *** (8,179) (12,958)
Operating loss (8,712) (12,958)
Other financial income and expenses 1,628 (1,421)
Income tax credit 2,041 2,295
Loss after tax from continuing operations (5,043) (12,084)
Loss from discontinued operations (3,656) (591)
Loss after tax attributable to the owners (8,699) (12,675)
* Following the 28 April 2022 announcement where Novacyt notified its
intention to close Microgen Bioproducts and Lab21 Healthcare, the net results
of the Lab21 Products segment for 2021 and 2022 has been reported on a
separate line 'Loss from discontinued operations' in accordance with IFRS 5,
"Non-current Assets Held for Sale and Discontinued Operations".
** Due to the ongoing commercial dispute with the DHSC, £35.8m exceptional
cost of sales were incurred in H1 2021 (H1 2022: £nil) that were one-off in
nature. The two largest items were a £26.1m stock provision, as a result of
the Group buying stock to fulfil expected future DHSC orders that did not
materialise; and the expensing of £6.9m of stock delivered to the DHSC which
has not been paid for as it is now part of the ongoing contract dispute.
*** H1 2022 recurring operating loss is stated before £0.5m of non-recurring
charges in relation to the ongoing DHSC contract dispute.
Operational highlights
Portfolio development - clinical diagnostics in human health and
instrumentation
· Completed a comprehensive market study to direct organic
development of the post-COVID-19 diagnostics portfolio, resulting in high
growth target infectious disease areas including respiratory,
gastro-intestinal infections, transplant, and insect-borne pathogens
· Launched an automated liquid handling system (CO-Prep) and
validating a nucleic acid extraction system to enhance post-COVID-19
integrated sample-to-result molecular workflow solution
· Advanced the design of two new direct-to-PCR assay panels for
gastro-intestinal bacterial and viral infections to run on q32 instruments
o Panels will include high-sensitivity direct-to-PCR testing chemistry for
use with faecal specimens, developed during the period, expanding PROmate®
product chemistry compatibility beyond anterior nasal swab samples
· Developed two single analyte transplant viral assay panels for
the Epstein-Barr virus and BK virus for use on open instrument platforms
· Launched new lateral flow test (LFT) reader for use in
conjunction with a broad range of assays within Novacyt's Pathflow® product
portfolio, consisting of 18 non-COVID-19 products for patient screening across
sexually transmitted, gastrointestinal, respiratory and insect-borne
infections
Global first responder
· Three additional UK CTDA approvals during the period, taking the
total number of Novacyt products approved by the CTDA to five (including one
post-period approval), the most of any UK-based company
· Key patent granted in relation to ORF1a/b, which will lead to a
corporation tax credit against future profits and is back dated to the
original patent submission date in October 2020
· Developed Monkeypox and Adenovirus F41 research-use-only (RUO)
assays to support infection monitoring
· Developed and secured CE mark for two lyophilised PROmate®
products enabling deployment of near-patient COVID-19 diagnostic solution
without the need for cold-chain shipping
· CE mark for PathFlow® COVID-19 Rapid Antigen Self-Test received,
one of the first saliva-based COVID-19 assays to be launched in the EEA and
providing diagnosis of symptomatic and asymptomatic individuals in
approximately 15 minutes
Post-period highlights
· Significantly expanded the clinical portfolio, adding 40 CE IVD
assays, through a distribution agreement with Clonit srl, an Italian-based
molecular diagnostic developer and manufacturer, to drive near-term growth
· Re-launched RUO portfolio globally with initial orders of over
£100k in aggregate, including testing infectious salmon anaemia virus and
bacterial kidney disease in salmon in Canada and testing salmonella in
chickens in Poland, with the expectation of repeat business
· UK CTDA approval of exsig™ COVID-19 Direct Real-Time PCR assay
· Strategic decision to discontinue Microgen Bioproducts and Lab21
Healthcare businesses following a strategic review during the period
· Delivered an additional reduction in operating costs of £2.4m,
in line with expectations, funded by a one-off cash restructuring charge of
circa £0.8m
A presentation for investors is being held at 12:00 BST today, on the Investor
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The information contained within this Announcement is deemed by the Company to
constitute inside information as stipulated under Article 7 of the Market
Abuse Regulation (EU) No. 596/2014 (as amended) as it forms part of the
domestic law of the United Kingdom by virtue of the European Union
(Withdrawal) Act 2018 (as amended). Upon the publication of this Announcement
via the Regulatory Information Service, this inside information is now
considered to be in the public domain.
Contacts
Novacyt SA
David Allmond, Chief Executive Officer
James McCarthy, Chief Financial Officer
+44 (0)1276 600081
SP Angel Corporate Finance LLP (Nominated Adviser and Broker)
Matthew Johnson / Charlie Bouverat (Corporate Finance)
Vadim Alexandre / Rob Rees (Corporate Broking)
+44 (0)20 3470 0470
Numis (Joint Broker)
James Black / Freddie Barnfield / Duncan Monteith
+44 (0)20 7260 1000
Allegra Finance (French Listing Sponsor)
Rémi Durgetto / Yannick Petit
+33 (1) 42 22 10 10
r.durgetto@allegrafinance.com (mailto:r.durgetto@allegrafinance.com) ;
y.petit@allegrafinance.com (mailto:y.petit@allegrafinance.com)
FTI Consulting (International)
Victoria Foster Mitchell / Alex Shaw
+44 (0)20 3727 1000
victoria.fostermitchell@fticonsulting.com
(mailto:victoria.fostermitchell@fticonsulting.com) /
Alex.Shaw@fticonsulting.com (mailto:Alex.Shaw@fticonsulting.com)
FTI Consulting (France)
Arnaud de Cheffontaines
+33 (0)147 03 69 48
arnaud.decheffontaines@fticonsulting.com
(mailto:arnaud.decheffontaines@fticonsulting.com)
About Novacyt Group
The Novacyt Group is an international diagnostics business generating an
increasing portfolio of in vitro and molecular diagnostic tests. Its core
strengths lie in diagnostics product development, commercialisation, contract
design and manufacturing. The Company supplies an extensive range of
high-quality assays and reagents worldwide. The Group directly serves
microbiology, haematology and serology markets as do its global partners,
which include major corporates.
For more information, please refer to the website: www.novacyt.com
(http://www.novacyt.com)
Chief Executive's review
Novacyt continues to invest in R&D and commercial resources, which
represents circa £10.0m of projected opex spend in 2022, to execute on the
vision and strategy announced earlier in the year to develop and commercialise
its non-COVID-19 portfolio. The Company has made substantial early progress
delivering against this strategy in 2022 to-date.
Portfolio development
Clinical diagnostics in human health and instrumentation
Novacyt has made considerable progress enhancing its post-COVID-19 integrated
sample-to-result molecular workflow solution. We are validating a nucleic acid
extraction system and we have launched an automated liquid handling system
(CO-Prep™) for assay set up that complements our proprietary q16 and q32
instruments and user friendly direct-to-PCR assays to deliver an end-to-end
scalable workflow solution capable of processing over 1,000 tests per day. The
new workflow reduces hands-on time and risk of contamination whilst providing
robust sample stewardship to reduce the chance of human error. The complete
workflow platform can be used where currently decentralised sample-to-result
solutions are not easily scalable, slow, and costly.
Through our business development efforts, we have expanded our testing menu
offering by entering into a global distribution agreement with Clonit srl, an
Italian-based molecular diagnostic developer and manufacturer, to deliver
near-term growth to underpin the base business and supplement the Company's
internal R&D efforts. The agreement provides Novacyt with immediate access
to over 40 CE marked assays (detailed below) aligned to the Company's
therapeutic areas of focus identified following the comprehensive market study
completed at the beginning of the period to direct organic development of the
post-COVID-19 diagnostics portfolio. These areas include:
· Sexually transmitted infections (STI) (e.g., Chlamydia
trachomatis, Neisseria gonorrhoeae, Trichomonas vaginalis)
· Gastrointestinal infections (e.g., Clostridium difficile,
Enterovirus)
· Respiratory (RI) (e.g., Mycoplasma pneumoniae)
· Transplantation (e.g., CMV, JCV, HHV-7, in addition to our
internally developed EBV and BKV in vitro diagnostic transplantation assays)
· Insect-borne infections (e.g., Dengue, West Nile virus, Malaria)
All products are immediately available and designed for use on open instrument
testing systems. In addition, the STI assay panel has been validated for use
with Novacyt's instrumentation and the RI assay panels are expected to be
validated by the end of Q1 2023, meaning the Company will be able to offer
fully integrated diagnostic solutions for these two priority therapeutic
areas.
These products and enhanced workflow will be targeted where there is a need
for cost effective, rapid and highly precise diagnostic testing. Based on
market research, we believe the key market for this offering is in routine
testing in mid-to-low volume spoke laboratories and non-routine services in
hub laboratories. As identified in April 2022 at the strategy update, we will
target these markets due to our differentiated customer offering. For Europe,
which is our initial target geography with CE marked products, the Company
estimates a market size of circa £470m growing at a CAGR of 10%. The mid-term
goal is to offer this to customers worldwide.
In our internal R&D pipeline, we have completed principal development of a
high-sensitivity direct-to-PCR testing chemistry for use with faecal
specimens. This new sample type expands PROmate(®) product chemistry
compatibility beyond anterior nasal swab samples and will be deployed as part
of our two new direct-to-PCR assay panels for gastro-intestinal bacterial and
viral infections to run on our q32 instruments. In addition, we developed two
single analyte transplant viral assay panels for the Epstein-Barr virus and BK
virus for use on open instrument platforms during the period.
Our molecular portfolio is complemented by an extensive range of lateral flow
(LFT) diagnostic tests for clinical use. The range complements the target
disease areas covered by the molecular portfolio and has been further enhanced
with the launch of a new LFT reader for use in conjunction with a number of
key assays within Novacyt's Pathflow(®) product portfolio. The small,
lightweight reader is designed to provide digital test results based on
optical imaging technology, thereby removing the ambiguity of manually
interpreting a reading. The result is available in a matter of seconds (~10-12
secs) in a digital form that can be exported to other systems.
Global first responder and research-use-only (RUO) diagnostics
In addition to the clinical diagnostics and instrument portfolio, Novacyt has
an extensive and established life sciences portfolio of RUO products. In 2021
and early 2022, the Company refreshed and refined the portfolio to ensure the
primers and probes were up to date to reliably target current pathogens. The
portfolio was subsequently relaunched globally as planned in July 2022 to
deliver near-term growth to underpin the base business. This portfolio is
intended to act as an innovation engine for future IVD products for use in
human health.
We are encouraged by early success following the relaunch of our RUO
portfolio, with initial orders of over £100k in aggregate. In addition to
launching assays for both monkeypox and adenovirus F41, as announced during
the period, we developed rapid solutions for testing infectious salmon anaemia
virus and bacterial kidney disease in salmon in Canada. We also deployed our
salmonella assays to test chickens farmed in Poland which could also be a
significant market opportunity, based on initial interest.
The Company has also signed a contract with a leading global non-governmental
organisation (NGO) to support the detection of arboviruses, including dengue,
Zika and Chikungunya, with the total value of the first order approximately
£220,000.
To ensure Novacyt remains well positioned for any future COVID-19 outbreaks in
both developed and developing markets, the Company has consolidated its
portfolio. To this end, Novacyt secured CE mark accreditation for its saliva
based PathFlow(®) COVID-19 Rapid Antigen Self-Test and an ambient version of
its PROmate(®) COVID-19 2G assay designed for international shipping. Both
tests complement the Company's established genesig(®) COVID-19 Real-Time PCR
portfolio and PROmate(®) COVID-19 direct to PCR 1G and 2G assays.
Geographic expansion
During the period, Novacyt has focused on deploying talent in key geographies
and optimising its global distributor network to build coverage in new markets
to ensure optimal coverage for its recently relaunched RUO portfolio and its
growing clinical offering. Through this work, coverage has been added for 18
new countries across EMEA and the Company has begun conducting distributor
training on its full portfolio, including its expanded clinical portfolio and
workflow.
Business development
In addition to the internal development of the new portfolio, the Company
continues to progress the M&A strategy as a priority to support the
inorganic growth of the business through scale and diversification.
DHSC dispute
On 25 April 2022, the Company was notified that the DHSC had issued a claim
against Primerdesign Ltd and Novacyt S.A. for £134.6m in relation to the
contract dispute announced by the Company on 9 April 2021 regarding its second
supply contract with the DHSC, announced on 29 September 2020. On 15 June
2022, the Company filed a defence of the claim received on 25 April 2022 and a
counterclaim of £81.5m against the DHSC. The value of the counterclaim is
broadly in line with the amounts previously announced by the Company in its
full year 2020 results, plus related interest.
The Company continues to believe it has strong grounds to defend the claim and
assert its contractual rights, including recovering outstanding sums due from
the DHSC under the counterclaim.
Unfortunately, the Company is unable to provide further comment at this time
but will provide further updates as appropriate and to the extent permitted to
do so.
Current trading and outlook
Group revenue for Q3 2022 is expected to be circa £2.0m bringing the
year-to-date revenue to £18.5m at the end of September 2022. The Company does
not expect demand for its COVID-19 products to pick up in Q4 2022 as
previously anticipated, therefore, the Board expects Q4 2022 revenue to be
similar to Q3 2022 resulting in an anticipated EBITDA loss for the full year
of circa £13.5m.
Financial review
Overview
As announced in the Company's July trading update, Novacyt's H1 2022
performance was impacted by a faster than anticipated decline in COVID-19
related sales and, as such, is reporting a loss for the first half of the
year. As also announced at that time, the Company commenced a restructuring of
its cost base which has been largely completed by the end of September 2022.
Discontinued operations
In early 2022, Novacyt carried out a strategic review of the Lab21 Healthcare
and Microgen Bioproducts businesses to consider the merits of maintaining
multiple company entities/names under the Novacyt Group umbrella versus a
simplified business model and brand, which the Directors believed could be
more impactful. Novacyt announced its intention to discontinue both businesses
in April 2022, and they had ceased day to day trading at the end of June 2022.
In accordance with IFRS 5, the net result of the Lab21 Products business has
been reported on a separate line "loss from discontinued operations" in the
consolidated income statement for H1 2021 and 2022.
Revenue
Unaudited revenue for the first half of 2022 fell to £16.5m compared with
£52.2m in H1 2021, driven by reduced demand for COVID-19 testing as we emerge
from the pandemic.
Gross profit
The business delivered a gross profit of £4.0m (24%), compared with £1.2m
(2%) in H1 2021. The margin, at 24%, is significantly below the Group's
historic margin (60%+) predominantly driven by the impact of stock in the form
of i) booking a higher stock provision than normal as a result of lower
forecast COVID-19 sales and ii) writing-off stock that had not been provided
for previously. Excluding the impact of these items, the margin would be in
excess of 60%. The H1 2021 gross profit was impacted by the £35.8m one-time
cost of sales exceptional charge relating to the DHSC dispute.
Operating expenditure
Group operating costs fell by £2.2m to £11.1m in the first half of 2022
compared with £13.3m in H1 2021. Savings are mainly due to lower staff costs
as i) headcount for the continuing operations has fallen from circa 235 staff
in June 2021 to circa 210 in June 2022 and ii) a reduced pay-out in relation
to the LTIP scheme. Further savings have been made in legal and professional
fees, lower commercial insurance as the business contracts, and savings in
facilities costs.
These cost reductions allowed the business to continue to invest in research
and development, which saw a year-on-year increase in expenditure that
supported bringing a number of new products to the market.
EBITDA
The Group reported a H1 2022 EBITDA loss of £7.1m compared with a loss of
£12.1m in H1 2021. The H1 2022 EBITDA loss was predominantly driven by
providing for stock at risk of not being sold in the future as demand for
COVID-19 products fell and related stock write-offs. The £5.0m year-on-year
EBITDA improvement is driven by a higher gross profit contribution of £2.8m
mainly due to not repeating the H1 2021 one-off DHSC related cost of sales
entries, with the remaining £2.2m being due to a fall in operating
expenditure.
Operating loss
The Group reported an operating loss of £8.7m compared with a H1 2021 loss of
£13.0m. This improvement is predominantly driven by not repeating the one-off
DHSC related cost of sales entries booked in H1 2021. Year-on-year,
depreciation and amortisation charges have increased by £0.2m to £1.0m and
other operating expenses have increased from £nil to £0.5m which mainly
relates to the DHSC dispute. In H1 2021, £0.3m costs relating to the DHSC
dispute were reported in general and administrative expenses, these were
reclassified to other operating expenses in the 2021 year end accounts.
Loss after tax from continuing operations
The Group reported a loss after tax from continuing operations of £5.0m,
improving its position from a £12.1m loss in H1 2021. Other financial income
and expenses netted to a £1.6m income compared with a £1.4m charge in H1
2021, driven by a £1.4m net financial foreign exchange gain mainly resulting
from revaluations of the 2017 to 2020 LTIP scheme liability and bank and
intercompany accounts held in foreign currencies. In addition, with interest
rates rising the Group received £0.1m interest on deposits held in bank
accounts. Taxation at £2.0m compared with £2.3m in H1 2021 mainly represents
corporation tax due in the UK and remains a credit balance due to the Group
being loss making.
Loss from discontinued operations
In accordance with IFRS 5, the net result of the Lab21 Products business has
been reported on a separate line "Loss from discontinued operations" in the
consolidated income statement for H1 2021 and H1 2022.
The Lab21 Products business reported a net loss of £3.7m in H1 2022 versus a
loss of £0.6m in H1 2021. The loss has increased year-on-year due to i) gross
profit falling by £0.7m due to lower revenues as customers moved to COVID-19
testing and sales have not picked up to pre-COVID-19 levels, stock write offs
and closure related stock provisions; ii) other closure related costs
including the £1.0m impairment of right-of-use assets, the £0.6m impairment
of remaining property, plant and equipment and £0.2m redundancy costs and
iii) a £0.6m swing on tax, moving from a tax income to a tax expense,
primarily due to the release of all deferred tax balances, as unused tax
losses cannot be utilised by the Group post closure.
Statement of financial position
Jun-22 Dec-21 Jun-22 Dec-21
£'000 £'000 £'000 £'000
Goodwill 11,638 11,471 Share capital and premium 54,632 54,646
Right-of-use assets 552 1,788 Retained earnings and reserves 78,035 87,169
Property, plant and equipment 3,439 4,594 Total equity 132,667 141,815
Deferred tax assets 4,796 3,143
Other non-current assets 3,625 3,918 Deferred tax liabilities 1,245 1,224
Total non-current assets 24,050 24,914 Lease liabilities long-term 1,324 1,446
Other provisions and long-term liabilities 425 308
Inventories 4,255 11,461 Total non-current liabilities 2,994 2,978
Trade and other receivables 35,293 38,499
Tax receivables 1,000 5,034 Lease liabilities short-term 347 424
Other current assets 1,889 2,043 Trade and other liabilities 8,128 17,190
Cash and cash equivalents 99,641 101,746 Other provisions and short-term liabilities 21,992 21,290
Total current assets 142,078 158,783 Total current liabilities 30,467 38,904
TOTAL ASSETS 166,128 183,697 TOTAL EQUITY AND LIABILITIES 166,128 183,697
Non-current assets
Right of use assets has decreased from £1.8m at 31 December 2021 to £0.6m at
30 June 2022, largely as a result of fully impairing the right-of-use asset
associated with the Camberley facility following the closure of the businesses
that operated from that site.
Property, plant and equipment has decreased by £1.2m from the year ended 2021
to £3.4m at 30 June 2022, driven by three main factors i) the £0.6m
impairment of fixed assets associated with the Lab21 Products business ii)
£0.7m depreciation charges and iii) offset by capital purchases of £0.1m.
A £4.8m deferred tax asset has been recorded at 30 June 2022 compared with
£3.1m at the year ended 2021. £0.9m of the balance relates to the unpaid
portion of the Long-Term Incentive Plan charge that was recognised in the 2020
accounts, but that will not be deducted for taxation until the remaining
payments are made in 2022. £0.3m arises from the elimination of internal
profit on products and services purchased by Primerdesign from Microgen
Bioproducts and IT-IS International and still held in stock at the end of June
2022. The remaining £3.6m relates to UK tax losses that can be carried
forward to offset future tax liabilities.
Current assets
Inventories and work in progress has fallen significantly to £4.3m at 30 June
2022 from £11.5m at 31 December 2021, this is mainly due to i) providing for
stock that is at risk of not being sold due to the fall in expected future
demand for COVID-19 related products and ii) expensing stock that has expired
in 2022 that was not previously provided for.
Trade and other receivables has fallen by £3.2m since the year end in line
with a decline in sales resulting in a closing balance of £35.3m. The trade
receivables balance includes a £24.0m unpaid DHSC invoice raised in December
2020, in respect of products delivered during 2020 that remains unpaid at the
date of publishing the interim accounts. Recovery of the invoice is dependent
on the outcome of the contract dispute. Also included in trade and other
receivables is a £8.4m VAT receivable balance (December 2021: £8.2m), that
mainly relates to UK VAT paid on sales invoices in dispute with the DHSC. As
these sales have not been recognised in accordance with IFRS 15, the revenue,
trade receivable and VAT element of the transactions have been reversed,
resulting in a VAT debtor balance.
Tax receivables has fallen by £4.0m from the year end to £1.0m at 30 June,
as the Group received a refund for the overpayment of 2020 corporation tax
from HMRC in March 2022. The current balance relates to 2021 losses that can
be offset against 2020 taxable profits totalling £0.6m and a Research and
Development Expenditure Credit (RDEC) accrual covering 2021 and 2022 totalling
£0.4m.
Current liabilities
Trade and other liabilities fell to £8.1m at 30 June 2022 from £17.2m at 31
December 2021, predominantly as a result of payments made in relation to the
2017 to 2020 LTIP scheme, together with a £2.0m decrease in trade payables
and accrued invoices in line with reduced sales.
Cash flow
Cash held at the end of June 2022 totalled £99.6m compared with £101.7m at
31 December 2021. Net cash used in operating activities was £1.7m compared
with £12.2m cash used in H1 2021, made up of a working capital inflow of
£5.4m offset by an EBITDA loss of £7.1m.
Capital expenditure in H1 2022 fell to £0.3m compared with £2.0m in H1 2021,
after the Group heavily invested in insourcing manufacturing during 2021.
Net cash used in financing activities in H1 2022 totalled £0.2m versus £0.4m
in H1 2021, with higher interest now being received on bank balances following
interest rate rises, helping to reduce the outflow.
The Group remains debt free at 30 June 2022.
Patent Box
On 30 March 2022, Novacyt (specifically Primerdesign Ltd) received
confirmation that the UK Intellectual Property Office had granted the key
patent (ORF1a/b), with patent number GB2593010. This means that the effective
rate of tax on profits (adjusted for certain rules) derived from the sale of
products incorporating this patent is close to 10% rather than the current UK
corporation tax rate of 19%.
The effective tax rate is given via a tax deduction and due to the uncertainty
over the precise timing of the tax relief available to the company and the
complexity involved in making a claim for the first time, a tax asset has not
been recognised. The asset will only be recognised when Management can
reliably measure and predict the outcome of a Patent Box claim in terms of
value and timing.
Management believes that if the eventual claim is successful the benefit to
Novacyt will be in excess of £5.0m of future tax credits to offset against
future profits.
Consolidated income statement as at 30 June 2022
Amounts in £'000 Notes (Unaudited) (Unaudited)
Six month Six month
30 June 30 June
2022 2021 (*)
Continuing Operations
Revenue 4 16,508 52,201
Cost of sales 6 -12,498 -15,254
Cost of sales - exceptional 7 - -35,770
Gross profit 4,010 1,177
Sales, marketing and distribution expenses -2,887 -2,991
Research and development expenses -3,271 -1,875
General and administrative expenses -6,211 -9,477
Governmental subsidies 180 208
Operating loss before exceptional items -8,179 -12,958
Other operating income 8 2 -
Other operating expenses 8 -535 -
Operating loss after exceptional items -8,712 -12,958
Financial income 9 2,351 342
Financial expense 9 -723 -1,763
Loss before tax -7,084 -14,379
Taxation 10 2,041 2,295
Loss after tax from continuing operations -5,043 -12,084
Loss from discontinued operations 18 -3,656 -591
Loss after tax attributable to owners of the Company -8,699 -12,675
Loss per share (£) -0.12 -0.18
Diluted loss per share (£) -0.12 -0.18
Loss per share from continuing operations (£) 11 -0.07 -0.17
Diluted loss per share from continuing operations (£) 11 -0.07 -0.17
Loss per share from discontinued operations (£) 11 -0.05 -0.01
Diluted loss per share from discontinued operations (£) 11 -0.05 -0.01
* The 2021 consolidated income statement is presented to reflect the impact of
the application of IFRS 5 relative to discontinued operations, by stating the
Lab21 Products activity on a single line 'Loss from discontinued operations'.
Consolidated statement of comprehensive income as at 30 June 2022
Amounts in £'000 (Unaudited) (Unaudited)
Six month Six month
30 June 30 June
2022 2021
Loss after tax -8,699 -12,675
Items that may be reclassified subsequently to profit or loss:
Translation reserves -434 530
Total comprehensive loss -9,133 -12,145
Comprehensive loss attributable to:
Owners of the Company (*) -9,133 -12,145
(*) There are no non-controlling interests.
Statement of financial position as at 30 June 2022
Amounts in £'000 Notes (Unaudited) (Audited)
Six month Year ended
30 June 31 December
2022 2021
Goodwill 11,638 11,471
Other intangible assets 3,429 3,710
Property, plant and equipment 3,439 4,594
Right-of-use assets 552 1,788
Non-current financial assets 132 144
Deferred tax assets 12 4,796 3,143
Other long-term assets 64 64
Total non-current assets 24,050 24,914
Inventories and work in progress 13 4,255 11,461
Trade and other receivables 14 35,293 38,499
Tax receivables 1,000 5,034
Prepayments and short-term deposits 1,880 2,034
Investments short-term 9 9
Cash and cash equivalents 99,641 101,746
Total current assets 142,078 158,783
Total assets 166,128 183,697
Lease liabilities short-term 347 424
Contingent consideration short-term 849 836
Provisions short-term 15 19,962 19,956
Trade and other liabilities 16 8,128 17,190
Other current liabilities 1,181 498
Total current liabilities 30,467 38,904
Net current assets 111,611 119,879
Lease liabilities long-term 1,324 1,446
Provisions long-term 15 425 308
Deferred tax liabilities 12 1,245 1,224
Total non-current liabilities 2,994 2,978
Total liabilities 33,461 41,882
Net assets 132,667 141,815
Statement of financial position as at 30 June 2022 (continued)
Amounts in £'000 Notes (Unaudited) (Audited)
Six month Year ended
30 June 31 December
2022 2021
Share capital 17 4,053 4,053
Share premium account 50,671 50,671
Own shares -92 -78
Other reserves -1,608 -1,174
Equity reserves 1,155 1,155
Retained earnings 78,488 87,188
Total equity - owners of the Company 132,667 141,815
Total equity 132,667 141,815
Statement of changes in equity as at 30 June 2022
Amounts in £'000 Share capital Share premium Own shares Equity reserves Other Group reserves Retained earnings
Total equity
Acquisition of the shares of Primer Design Translation reserve Other comprehensive income on retirement benefits Total
Balance at 1 January 2021 4,053 50,671 -49 1,155 -2,407 379 -8 -2,036 96,916 150,710
Translation differences - - - - - 862 - 862 - 862
Loss for the period - - - - - - - - -9,728 -9,728
Total comprehensive income/(loss) for the period - - - - - 862 - 862 -9,728 -8,866
Own shares acquired/sold in the period - - -29 - - - - - - -29
Balance at 31 December 2021 4,053 50,671 -78 1,155 -2,407 1,241 -8 -1,174 87,188 141,815
Translation differences - - - - - -434 - -434 - -434
Loss for the period - - - - - - - - -8,700 -8,700
Total comprehensive loss for the period - - - - - -434 - -434 -8,700 -9,134
Own shares acquired/sold in the period - - -14 - - - - - - -14
Balance at 30 June 2022 4,053 50,671 -92 1,155 -2,407 807 -8 -1,608 78,488 132,667
Statement of cash flows as at 30 June 2022
Amounts in £'000 Notes (Unaudited) (Unaudited)
Six month Six month
30 June 30 June
2022 2021
Net cash used in operating activities 19 -1,662 -12,179
Investing activities
Purchases of patents and trademarks -119 -115
Purchases of property, plant and equipment -182 -1,924
Variation of deposits -36 63
Acquisition of subsidiaries net of cash acquired 16 17
Net cash used in investing activities -321 -1,959
Investing cash flows from discontinued operations 7 -108
Investing cash flows from continuing operations -328 -1,851
Financing activities
Repayment of lease liabilities -200 -230
Purchase of own shares - net -14 -50
Interest received/(paid) 55 -91
Net cash used in financing activities -159 -371
Financing cash flows from discontinued operations -84 -179
Financing cash flows from continuing operations -75 -192
Net decrease in cash and cash equivalents -2,142 -14,509
Cash and cash equivalents at beginning of year 101,746 91,765
Effect of foreign exchange rate changes 37 -52
Cash and cash equivalents at end of period 99,641 77,204
Notes to the interim financial statements for the six month period to 30 june
2022
1. General Information and basis of preparation
The Novacyt Group is an international diagnostics business generating an
increasing portfolio of in vitro and molecular diagnostic tests. Its core
strengths lie in diagnostics product development, commercialisation, contract
design and manufacturing. The Group supplies an extensive range of
high-quality assays, reagents and instruments worldwide. The Group directly
serves microbiology, haematology and serology markets as do its global
partners, which include major corporates. Its registered office is located at
13 Avenue Morane Saulnier, 78140 Vélizy Villacoublay.
The financial information contained in this report comprises the consolidated
financial statements of the Group and its subsidiaries (hereinafter referred
to collectively as the "Group"). They are prepared and presented in Great
British Pounds ("GBP"), rounded to the nearest thousand ("£'000s").
This condensed consolidated interim financial information does not constitute
full statutory accounts. It does not include all of the information required
for full annual financial statements and should be read in conjunction with
the consolidated financial statements for the twelve months ended 31 December
2021. Statutory accounts for the year ended 31 December 2021 were approved by
the Board of Directors and have been delivered to the Registrar of Companies.
The auditor's report on those accounts was unqualified. The financial
information for the half years 30 June 2022 and 30 June 2021 is unaudited and
the twelve months to 31 December 2021 is audited.
2. Summary of accounting policies applied by the Group
The financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRSs"). The financial statements have also
been prepared in accordance with IFRSs adopted by the European Union.
The financial information has been prepared on the historical cost basis
except in respect of those financial instruments that have been measured at
fair value. Historical cost is generally based on the fair value of the
consideration given in exchange for the goods and services.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date, regardless of whether that price is directly observable
or estimated using another valuation technique. In estimating the fair value
of an asset or a liability, the Group takes into account the characteristics
of the asset or liability if market participants would take those
characteristics into account when pricing the asset or liability at the
measurement date.
Fair value for measurement and/or disclosure purposes in the financial
information is determined on such a basis, except for leasing transactions
that are within the scope of IFRS 16, and measurements that have some
similarities to fair value but are not fair value, such as net realisable
value in IAS 2 or value in use in IAS 36.
The areas where assumptions and estimates are material in relation to the
financial information are the measurement of goodwill (see note 17 of the 2021
Statutory Accounts for further details), the carrying amounts and useful lives
of the other intangible assets (see note 18 of the 2021 Statutory Accounts for
further details), deferred taxes (see note 21 of the 2021 Statutory Accounts
and note 12 of the 2022 Interim Accounts for further details), trade
receivables (see note 23 of the 2021 Statutory Accounts and note 14 of the
2022 Interim Accounts for further details) and provisions for risks and other
provisions related to the operating activities (see note 31 of the 2021
Statutory Accounts and note 15 of the 2022 Interim Accounts for further
details).
The accounting policies set out below have been applied consistently to all
periods presented in the financial information.
The accounting policies applied by the Group in these condensed consolidated
interim financial statements are substantially the same as those applied by
the Group in its financial statements for the year ended 31 December 2021 and
which form the basis of the 2022 financial statements. The methodology for
selecting assumptions underpinning the fair value calculations has not changed
since 31 December 2021.
Basis of consolidation
All intragroup assets and liabilities, equity, income, expenses and cash flows
relating to transactions between the members of the Group are eliminated on
consolidation. The Group's scope of consolidation included the following
companies, all fully consolidated when included in the scope.
At 30 June 2022 and At 30 June 2021
31 December 2021
Companies Interest percentage Consolidation method Interest percentage Consolidation method
Biotec Laboratories Ltd 100% FC 100% FC
IT-IS International Ltd 100% FC 100% FC
Lab21 Healthcare Ltd 100% FC 100% FC
Novacyt US Inc 100% FC 0% -
Novacyt Inc 100% FC 0% -
Microgen Bioproducts Ltd 100% FC 100% FC
Novacyt SA 100% FC 100% FC
Novacyt Asia Ltd 100% FC 100% FC
Novacyt China Ltd 100% FC 100% FC
Novacyt UK Holdings Ltd 100% FC 100% FC
Primer Design Ltd 100% FC 100% FC
Legend: FC: Full consolidation
Discontinued operations and assets held for sale
A discontinued operation is a component that either has been disposed of, or
is classified as held for sale, and
a) represents a separate major line of business or geographical area of
operations,
b) is part of a single co-ordinated plan to dispose of a separate major
line of business or geographical area of operations, or
c) is a subsidiary acquired exclusively with a view to resale.
Discontinued operations are presented in the consolidated income statement as
a single amount comprising the total of:
· The post-tax profit or loss of the discontinued operation,
· The post-tax gain or loss recognised on the measurement to fair value
less costs to sell, and
· The post-tax gain or loss recognised on the disposal of assets or the
disposal group making up the discontinued operation.
Where material, the analysis of the single amount is presented in the relevant
note, (see note 18).
In the statement of cash flows: the net cash flow attributable to the
investing and financing activities of discontinued operations have been
disclosed separately.
No adjustments have been made in the statement of financial position.
Comparatives for discontinued operations are restated.
Going concern
The directors have, at the time of approving the financial statements, a
reasonable expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. Thus, they adopt the going
concern basis of accounting in preparing the financial statements.
The going concern model covers the period up to and including September 2023.
In making this assessment, the directors have considered the following
elements:
· The working capital requirements of the business;
· A positive cash balance at 30 June 2022 of £99,641,000;
· Full payment of the remaining Long-Term Incentive Plan ("LTIP") that
commenced in November 2017 and vested in November 2020;
· Payment of the final earn-out milestone related to the IT-IS
International acquisition; and
· Management's expectation of settling the outstanding commercial
dispute as per note 20.
If however, Novacyt had to pay the full value of the claim in the period up to
and including September 2023, then the Group would not have sufficient funds
to settle the liability without agreeing a payment plan or raising additional
cash. As a result of this, a material uncertainty exists that may cast
significant doubt on the Group's ability as a going concern.
Measurement of goodwill
Goodwill is broken down by cash-generating unit ("CGU") or group of CGUs,
depending on the level at which goodwill is monitored for management purposes.
In accordance with IAS 36, none of the CGUs or groups of CGUs defined by the
Group are greater in size than an operating segment.
Impairment testing
Goodwill is not amortised, but is subject to impairment testing when there is
an indication of loss of value, and at least once a year at the reporting
date.
Such testing consists of comparing the carrying amount of an asset to its
recoverable amount. The recoverable amount of an asset, a CGU or a group of
CGUs is the greater of its fair value less costs to sell and its value in use.
Fair value less costs to sell is the amount obtainable from the sale of an
asset, a CGU or a group of CGUs in an arm's length transaction between
well-informed, willing parties, less the costs of disposal. Value in use is
the present value of future cash flows expected to arise from an asset, a CGU
or a group of CGUs.
It is not always necessary to determine both the fair value of an asset less
costs to sell and its value in use. If either of these amounts exceeds the
carrying amount of the asset, the asset is not impaired and it is not
necessary to estimate the other amount.
Inventories
Inventories are carried at the lower of cost and net realisable value. Cost
includes materials and supplies, and, where applicable, direct labour costs
incurred in transforming them into their current state. It is calculated using
the weighted average cost method. The recoverable amount represents the
estimated selling price less any marketing, sales and distribution expenses.
The gross value of goods and supplies includes the purchase price and
incidental expenses.
A provision for impairment, equal to the difference between the gross value
determined in accordance with the above terms and the current market price or
the realisable value less any proportional selling costs, is recognised when
the gross value is greater than the other stated item.
Trade receivables
The Group has an established credit policy under which the credit status of
each new customer is reviewed before credit is advanced, including external
credit evaluations where possible. Credit limits are established for all
significant or high-risk customers, which represent the maximum amount
permitted to be outstanding without requiring additional approval from the
appropriate level of senior management. Outstanding debts are continually
monitored by each division. Credit limits are reviewed on a regular basis, and
at least annually. Customers that fail to meet the Group's benchmark
creditworthiness may only transact with the Group on a prepayment basis.
Trade receivables are recorded initially at fair value and subsequently
measured at amortised cost. This generally results in their recognition at
nominal value less an allowance for any doubtful debts. Trade receivables in
foreign currency are transacted in their local currency and subsequently
revalued at the end of each reporting period, with any foreign exchange
differences being recognised in the income statement as an income/expense.
The allowance for doubtful debts is recognised based on Management's
expectation of losses without regard to whether an impairment trigger happened
or not (an "expected credit loss" model). Through implementation of IFRS 9,
the Group concluded that no real historical default rate could be determined
due to a low level of historical write offs across the business. The Group
therefore recognises an allowance for doubtful debts on the basis of invoice
ageing. Once an invoice is overdue from its due date, based on agreed credit
terms, by more than 90 days, this invoice is then more likely to default than
those invoices operating within 90 days of their due date. As such, these
invoices will be provided for in full as part of an expected credit loss
model, except where Management have reviewed and judged otherwise.
Trade receivables are written off when there is no reasonable expectation of
recovery. Indicators that there may be no reasonable expectation of recovery
may include the failure of the debtor to engage in a payment plan, and failure
to make contractual payments within 365 days of the original due date.
Cash and cash equivalents
Cash equivalents are held to meet short-term cash commitments rather than for
investment or other purposes. For an investment to qualify as a cash
equivalent, it must be readily convertible into a known amount of cash and be
subject to an insignificant risk of change in value. Cash and cash equivalents
comprise cash funds, current bank accounts and marketable securities (cash
Undertakings for Collective Investment in Transferable Securities ("UCITS"),
negotiable debt securities, etc.) that can be liquidated or sold within a very
short time (generally with original maturities of three months or less) and
which have a negligible risk of change in value. All such items are measured
at fair value, with any adjustments recognised in the income statement.
Trade payables
Trade payables are obligations to provide cash or other financial assets. They
are recognised in the statement of financial position when the Group becomes a
party to a transaction generating liabilities of this nature. Trade and other
payables are recognised in the statement of financial position at fair value
on initial recognition, except if settlement is to occur more than 12 months
after recognition. In such cases, they are measured using the amortised cost
method. The use of the effective interest rate method will result in the
recognition of a financial expense in the income statement. Trade and other
payables are eliminated from the statement of financial position when the
corresponding obligation is discharged.
Trade payables have not been discounted, because the effect of doing so would
be immaterial.
Provisions
In accordance with IAS 37 "Provisions, Contingent Liabilities and Contingent
Assets", a provision is recognised when the Group has a current obligation as
of the reporting date in respect of a third party and it is probable or
certain that there will be an outflow of resources to this third party,
without at least equivalent consideration from the said third party.
Provisions for risks and charges cover the amount corresponding to the best
estimate of the future outflow of resources required to settle the obligation.
The provisions are for the restoration of leased premises, risks related to
litigations and product warranties.
Long-Term Incentive Plan
Novacyt granted shares to certain employees under a LTIP adopted on 1 November
2017. The exercise price was set at the share price on the grant date and the
options will be settled in cash. The options fully vested on the third
anniversary of the grant date, 1 November 2020. The payment expenses are
calculated under IFRS 2 "Share-based Payment". The accounting charge has been
spread across the vesting period to reflect the services received and a
liability recognised in the statement of financial position.
In December 2021, Novacyt implemented a cash LTIP to qualifying employees,
based on achieving certain annual EBITDA targets over a three-year qualifying
period. The plan will vest on the third anniversary of the grant date and will
be settled in cash.
In February 2022, a Performance Share Awards programme for executive
management was created as part of its new LTIP. This LTIP replaced the
previous phantom share award scheme which ended in November 2020.
The 2022 Performance Share Awards programme is structured as nil-cost options,
giving a right to acquire a specified number of shares at a nil exercise price
per share (i.e. for no payment) in accordance with the rules, governed by
sections L-225-197-1 and seq. of the French Commercial Code (actions
gratuites).
The performance shares will vest after three financial years subject to the
Company achieving certain total shareholder return growth conditions. The
baseline for total shareholder return is based on the average closing price of
the Company's shares in December 2021 which was £3.54. This will be compared
to the equivalent figure in December 2024.
Consolidated revenue
IFRS 15 "Revenue from Contracts with Customers" establishes a principles-based
approach to recognising revenue only when performance obligations are
satisfied, and control of the related goods or services is transferred. It
addresses items such as the nature, amount, timing and uncertainty of revenue,
and cash flows arising from contracts with customers. IFRS 15 replaces IAS 18
"Revenue" and other related requirements. IFRS 15 applies a five-step approach
to the timing of revenue recognition and applies to all contracts with
customers except those in the scope of other standards:
· Step 1 - Identify the contract(s) with a customer
· Step 2 - Identify the performance obligations in the contract
· Step 3 - Determine the transaction price
· Step 4 - Allocate the transaction price to the performance
obligations in the contract
· Step 5 - Recognise revenue when (or as) the entity satisfies a
performance obligation
The Group principally satisfies its performance obligations at a point in time
and the amounts of revenue recognised relating to performance obligations
satisfied over time are not significant. Therefore, the accounting for revenue
under IFRS 15 does not represent a substantive change for recognising revenue
from sales to customers.
The Group's revenue recognition processes are generally straightforward, with
recognition of revenue at the point of sale and little significant judgement
required in determining the timing of transfer of control.
Some contracts with customers contain a limited assurance warranty that is
accounted for under IAS 37 (see Provisions accounting policy). If a repair or
replacement is not possible under the assurance warranty, a full refund of the
product price may be given. The potential refund liability represents variable
consideration.
Under IFRS 15.53, the Group can use either:
· The expected value (sum of probability weighted amounts); or
· The most likely amount (generally used when the outcomes are binary).
The method used is not a policy choice. Management use the method that it
expects will best predict the amount of consideration based on the terms of
the contract. The method is applied consistently throughout the contract.
Variable revenue is constrained if appropriate. IFRS 15 requires that revenue
is only included to the extent that it is highly probable that there will not
be a significant reversal in future periods.
In making this assessment, Management have considered the following factors
(which are not exclusive):
· If the amount of consideration is highly susceptible to factors
outside the Group's influence;
· Whether the uncertainty about the amount of consideration is not
expected to be resolved for a long period of time;
· The Group's experience (or other evidence) with similar types of
contract;
· The Group has a practice of either offering a broad range of price
concessions or changing the payment terms and conditions of similar contracts
in similar circumstances; and
· The contract has a large number and broad range of possible
consideration amounts.
The decision as to whether revenue should be constrained is considered to be a
significant judgement as the term 'highly probable' is not defined in IFRS 15,
Management consider highly probable to be significantly more likely than
probable.
Taxation
Income tax on profit or loss for the period comprises current and deferred
tax.
· Current tax
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
years, and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the end of the reporting period.
A provision is recognised for those matters for which the tax determination is
uncertain but it is considered probable that there will be a future outflow of
funds to a tax authority. The provisions are measured at the best estimate of
the amount expected to become payable. The assessment is the result of the
Group's judgement based on the advice of external tax professionals and
supported by previous experience in respect of such activities.
· Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the liability method. Deferred tax
liabilities are generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from the initial recognition of goodwill or
from the initial recognition (other than in a business combination) of other
assets and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future. Deferred tax assets arising from deductible
temporary differences associated with such investments and interests are only
recognised to the extent that it is probable that there will be sufficient
taxable profits against which to utilise the benefits of the temporary
differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled, or the asset is realised based on tax
laws and rates that have been enacted or substantively enacted at the
reporting date.
The measurement of deferred tax liabilities and assets reflects the tax
consequences that would follow from the manner in which the Group expects, at
the end of the reporting period, to recover or settle the carrying amount of
its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and
liabilities on a net basis.
Current tax and deferred tax for the year
Current and deferred tax are recognised in the income statement, except when
they relate to items that are recognised in other comprehensive income or
directly in equity, in which case, the current and deferred tax are also
recognised in other comprehensive income or directly in equity respectively.
Where current tax or deferred tax arises from the initial accounting for a
business combination, the tax effect is included in the accounting for the
business combination.
UK Patent Box regime
The UK Patent Box regime is a special low corporate tax rate used to
incentivise research and development by taxing revenues from patented products
differently from other revenues. On 30 March 2022 Novacyt (specifically Primer
Design Ltd) received confirmation that the UK Intellectual Property Office had
granted the key patent (ORF1a/b), with patent number GB2593010. This means
that the effective rate of tax on profits (adjusted for certain rules) derived
from the sale of products incorporating this patent is close to 10% rather
than the current UK corporation tax rate of 19%.
The effective tax rate is given via a tax deduction and due to the uncertainty
over the precise timing of the tax relief available to the company and the
complexity involved in making a claim for the first time, a tax asset has not
been recognised. The asset will only be recognised when Management can
reliably measure and predict the outcome of a Patent Box claim in terms of
value and timing.
Profit/loss per share
The Group reports basic and diluted profit/loss per ordinary share. Basic
profit/loss per share is calculated by dividing the profit/loss attributable
to ordinary shareholders of the Company by the weighted average number of
ordinary shares outstanding during the period.
Diluted profit/loss per share is determined by adjusting the profit/loss
attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding, taking into account the effects of all potential
dilutive ordinary shares, including options.
Exceptional items
Exceptional items are those costs or incomes that in the view of the Board of
Directors, require separate disclosure by virtue of their size or incidence,
and are charged or credited in arriving at operating profit on the face of the
consolidated income statement.
3. Critical accounting judgements and key sources of estimatE uncertainty
In the application of the Group's accounting policies, the directors are
required to make judgements (other than those involving estimations) that have
a significant impact on the amounts recognised and to make estimates and
assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions
are based on historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
Critical accounting judgements
· Constraint of revenue
Revenue is only constrained if it is highly probable there will not be a
significant reversal of revenue in the future. Highly probable is not defined
in IFRS 15 and so it is a significant judgement to be exercised by Management.
The value of revenue related to performance obligations fulfilled in 2020 to
which constraint has not been applied is £130,642,000.
· Trade and other receivables
An estimate of the risks of non-receipt based on commercial information,
current economic trends and the solvency of individual customers is made to
determine the need for impairment on a customer-by-customer basis. Management
use significant judgement in determining whether a credit loss provision is
required.
At 30 June 2022, the Group had trade receivables of £27,122,000 against which
a credit loss provision of £345,000 has been applied. At the date of
publishing the interim financial statements, £23,957,000 of the 30 June 2022
receivables were overdue due to the contract dispute with the Department of
Health and Social Care "DHSC" (see note 20). Management considers it to be
more likely than not that the 30 June 2022 balances are recoverable; this is a
significant judgement.
· Provisions for product warranty
The value of provision required is determined by Management based on available
information, experience and, in some cases, expert estimates. Product warranty
provisions are only included if it is considered to be probable that an
outflow of economic benefit will be required. Determination of probable is a
significant judgement especially in light of the dispute described in note 20.
Key sources of estimation uncertainty
The Group has a number of key sources of estimation uncertainty. Of these
items, only the measurement of goodwill is considered likely to result in a
material adjustment. Where there are other areas of estimates these have been
deemed not material.
· Measurement of goodwill
Goodwill is tested for impairment on an annual basis. The recoverable amount
of goodwill is determined mainly on the basis of forecasts of future cash
flows. The total amount of anticipated cash flows reflects Management's best
estimate of the future benefits and liabilities expected for the relevant CGU.
The assumptions used and the resulting estimates sometimes cover very long
periods, taking into account the technological, commercial and contractual
constraints associated with each CGU. These estimates are mainly subject to
assumptions in terms of volumes, selling prices and related production costs,
and the exchange rates of the currencies in which sales and purchases are
denominated. They are also subject to the discount rate used for each CGU.
The value of the goodwill is tested whenever there are indications of
impairment and reviewed at each annual closing date or more frequently should
this be justified by internal or external events.
4. Revenue
The table below shows revenue on a geographical basis:
Amounts in £'000 (Unaudited) (Unaudited)
Six month
Six month
30 June
30 June
2022
2021
Geographical area
United Kingdom 8,447 21,116
Europe (excluding UK) 2,973 20,367
America 3,514 5,340
Asia-Pacific 1,234 4,359
Africa 202 750
Middle East 138 269
Total revenue 16,508 52,201
Revenue has decreased year on year as a result of COVID-19 sales dropping as
the demand for tests has fallen.
The breakdown of revenue by operating segment and geographic area is presented
in note 5.
5. Operating segments
Segment reporting
Pursuant to IFRS 8, an operating segment is a component of an entity:
· that engages in business activities from which it may earn revenues
and incur expenses (including revenues and expenses relating to transactions
with other components of the same entity);
· whose operating results are regularly reviewed by the Group's Chief
Executive to make decisions regarding the allocation of resources to the
segment and to assess its performance; and
· for which discrete financial information is available.
The Group has identified four operating segments, whose performance and
resources are monitored separately. Following the Group's announcement to
discontinue the Microgen Bioproducts and Lab21 Healthcare businesses earlier
this year, the Lab21 Products segment, which is made up of these businesses,
is being treated as a discontinued operation:
· Primer Design
This segment represents the activities of Primer Design Ltd, which is a
designer, manufacturer and marketer of molecular 'real-time' qPCR testing
devices and reagents in the area of infectious diseases based in Southampton,
UK.
· Lab21 Products
This segment represents the activities of Lab21 Products, which was a
developer, manufacturer and distributor of a large range of protein-based
infectious disease IVD products covering Microgen Bioproducts Ltd and Lab21
Healthcare Ltd, both based in Camberley, UK. As these businesses ceased
trading in June 2022, this segment is being treated as a discontinued
operation.
· IT-IS International
This segment represents the activities of IT-IS International Ltd, a
diagnostic instrument development and manufacturing company specialising in
the development of PCR devices for the life sciences and food testing industry
based in Stokesley, UK.
· Corporate
This segment represents Group central/corporate costs. Where appropriate,
costs are recharged to individual business units via a management recharge
process.
· Intercompany eliminations
This column represents intercompany transactions across the Group that have
not been allocated to an individual operating segment, but it is not a
discreet segment.
The Chief Operating Decision Maker is the Chief Executive Officer.
Reliance on major customers and concentration risk
Primer Design's revenue includes approximately £1,272,000 from sales to the
Group's largest customer, representing 7.7% of sales in the period (H1 2021:
£9,264,000. This was a different customer). No customer contributed 10.0% or
more to the Group's revenue in the reporting period.
88.3% of receivables are with one counterparty, with whom there is a contract
dispute as disclosed in note 20. Management considers it to be more likely
than not that the 30 June 2022 balances are recoverable.
Breakdown of revenue by operating segment and geographic area
· At 30 June 2022
Amounts in £'000 Primer Design IT-IS International Total
Geographical area
United Kingdom 8,446 1 8,447
Europe (excluding UK) 2,705 268 2,973
America 3,271 243 3,514
Asia-Pacific 853 381 1,234
Africa 201 1 202
Middle East 138 - 138
Total revenue 15,614 894 16,508
· At 30 June 2021
Amounts in £'000 Primer Design IT-IS International Total
Geographical area
United Kingdom 20,899 217 21,116
Europe (excluding UK) 20,201 166 20,367
America 4,948 392 5,340
Asia-Pacific 3,650 709 4,359
Africa 700 50 750
Middle East 253 16 269
Total revenue 50,651 1,550 52,201
Breakdown of result by operating segment
· 6 month ended 30 June 2022
Amounts in £'000 Primer Design Lab21 Products IT-IS International Corporate Intercompany Total
Eliminations
Revenue 15,614 - 902 - -8 16,508
Cost of sales -11,125 - -1,670 - 297 -12,498
Sales and marketing costs -2,493 - -172 -222 - -2,887
Research and development -2,996 - -275 - - -3,271
General and administrative -3,780 - -520 -870 - -5,170
Governmental subsidies 163 - 17 - - 180
Earnings before interest, tax, depreciation and amortisation as per management -4,617 - -1,718 -1,092 289 -7,138
reporting
Depreciation and amortisation -840 - -202 -15 16 -1,041
Operating (loss)/profit before exceptional items -5,457 - -1,920 -1,107 305 -8,179
· 6 month ended 30 June 2021
Amounts in £'000 Primer Design Lab21 Products IT-IS International Corporate Intercompany Total
Eliminations
Revenue 50,652 - 7,424 - -5,875 52,201
Cost of sales -16,252 - -3,579 - 4,577 -15,254
Cost of sales - exceptional -37,192 - -3,984 - 5,406 -35,770
Sales and marketing costs -2,814 - -80 -97 - -2,991
Research and development -1,662 - -213 - - -1,875
General and administrative -6,916 - -852 -875 - -8,643
Governmental subsidies 208 - - - - 208
ADJUSTED Earnings before interest, tax, depreciation, amortisation and cost of 23,216 - 2,700 -972 -1,298 23,646
sales - exceptional, as per management reporting
Earnings before interest, tax, depreciation and amortisation as per management -13,976 - -1,284 -972 4,108 -12,124
reporting
Depreciation and amortisation -620 - -202 -12 - -834
Operating (loss)/profit before exceptional items -14,596 - -1,486 -984 4,108 -12,958
Please note that in accordance with IFRS 5 the results of the Lab21 Products
segment for 2021 and 2022 have been reported on a separate line 'Loss from
discontinued operations' which is shown below EBITDA and thus all items above
EBITDA have a nil value.
6. Cost of sales
The table below shows the cost of sales:
Amounts in £'000 (Unaudited) (Unaudited)
Six month Six month
30 June 30 June
2022 2021
Cost of inventories recognised as an expense 5,016 5,462
Change in stock provision 3,923 2,618
Non-stock items and supplies 514 167
Freight costs 42 347
Direct labour 2,984 6,817
Other 19 -157
Total cost of sales 12,498 15,254
Total cost of sales has declined year on year reflecting the reduction in
sales. In H1 2022 the stock provision relating to continuing operations has
increased by a net £3,923,000, based on lower future forecasted COVID-19
sales, to cover excess, short and out of shelf-life finished goods and raw
materials. The movement in the stock provision includes a significant release
for stock that has been written off in the period.
Direct labour has decreased year on year as a result of scaling back
production to align to lower sales.
7. Cost of sales - exceptional
The table below shows the cost of sales - exceptional:
Amounts in £'000 (Unaudited) (Unaudited)
Six month
Six month
30 June
30 June
2022
2021
Cost of inventories recognised as an expense - 4,802
Change in stock provision - 26,098
Direct labour - 4,133
Other - 737
Total cost of sales - exceptional - 35,770
Due to the DHSC dispute mentioned in note 20, Management booked a number of
one-off, non-recurring cost of sales charges in H1 2021. Two of the key items
were a £26,098,000 stock provision, as a result of the Group buying stock to
fulfil expected future DHSC orders that did not materialise, and the expensing
of £6,884,000 of stock delivered to the DHSC which has not been paid for as
it is now included in the ongoing contract dispute.
There were no costs classified as cost of sales - exceptional relating to the
DHSC dispute in H1 2022.
8. Other operating income and expenses
Amounts in £'000 (Unaudited) (Unaudited)
Six month
Six month
30 June
30 June
2022
2021
Other 2 -
Total other operating income 2 -
DHSC contract dispute costs -462 -
Other -73 -
Total other operating expenses -535 -
Costs totalling £293,000 relating to the DHSC contract dispute were shown in
'General and administrative expenses' in the 2021 interim accounts. These
costs were reclassified to 'Other operating expenses' in the year end 2021
accounts.
At June 2022 costs relating to the DHSC dispute amounted to £462,000.
9. Financial income and expense
The table below shows financial income and expense:
Amounts in £'000 (Unaudited) (Unaudited)
Six month
Six month
30 June
30 June
2022
2021
Financial foreign exchange gains 2,001 185
Interest received 134 16
Other financial income 216 141
Total financial income 2,351 342
Interest on IFRS 16 liabilities -24 -36
Financial foreign exchange losses -594 -1,596
Other financial expense -105 -131
Total financial expense -723 -1,763
Financial foreign exchange gains and losses
Financial foreign exchange gains and losses in both periods are driven by
revaluations of the LTIP liability and bank and intercompany accounts held in
foreign currencies.
10. Taxation
The standard rate of corporation tax applied to reported profit is 19%, which
is the tax rate applicable to the companies in the United Kingdom for the
financial year 2022. It was 19% for the year 2021.
Taxation for other jurisdictions (mainly France) is calculated at the rates
prevailing in the respective jurisdictions.
The Group's tax is the sum of the total current and deferred tax.
Amounts in £'000 (Unaudited) (Unaudited)
Six month
Six month
30 June
30 June
2022
2021
Current tax income
Current year tax income - 3,030
Deferred tax income/(expense)
Deferred tax income/(expense) 2,041 -735
Total taxation income in the income statement 2,041 2,295
The income for the period can be reconciled to the loss before tax as follows:
Amounts in £'000 (Unaudited) (Unaudited)
Six month
Six month
30 June
30 June
2022
2021
Loss before tax from continuing operations -7,084 -14,379
Tax at the UK corporation tax rate (2022: 19%, 2021: 19%) 1,346 2,732
Effect of different tax rates of subsidiaries operating in other jurisdictions 61 149
Effect of difference in tax rate applied to deferred tax 888 -
Effect of non-deductible expenses and non-taxable income -254 -39
Change in unrecognised deferred tax assets - -524
Other adjustments - -23
Total taxation income for the period 2,041 2,295
The UK Government announced in its emergency budget on 23 September 2022 that
the planned increase in corporation tax from 19% to 25% in April 2023 will not
go ahead. The effect of these changes on the deferred tax balances will be
reflected when this legislation is substantially enacted.
11. Loss per share
The loss per share is calculated based on the weighted average number of
shares outstanding during the period. The diluted loss per share is calculated
based on the weighted average number of shares outstanding and the number of
shares issuable as a result of the conversion of dilutive financial
instruments. At 30 June 2022, there are no outstanding dilutive instruments.
Amounts in £'000 (Unaudited) (Unaudited)
Six month
Six month
30 June
30 June
2022
2021
Net loss attributable to owners of the Company -8,699 -12,675
Weighted average number of shares 70,626,248 70,626,248
Loss per share (£) -0.12 -0.18
Diluted loss per share (£) -0.12 -0.18
Loss per share from continuing operations (£) -0.07 -0.17
Diluted loss per share from continuing operations (£) -0.07 -0.17
Loss per share from discontinued operations (£) -0.05 -0.01
Diluted loss per share from discontinued operations (£) -0.05 -0.01
12. Deferred tax assets and liabilities
The table below shows the movements in deferred tax assets and liabilities
during the reporting period:
Amounts in £'000 Accelerated Intangible Intra-Group Long-term Tax losses Other temporary Total
capital assets profit incentive differences
allowances plan
At 1 January 2020 -238 -489 897 2,125 - -73 2,222
(Charge)/credit to income statement -542 47 -569 - 657 104 -303
At 31 December 2021 -780 -442 328 2,125 657 31 1,919
(Charge)/credit to income statement -41 23 -59 -1,220 2,931 -2 1,632
At 30 June 2022 -821 -419 269 905 3,588 29 3,551
At 30 June 2022, deferred tax liabilities amounting to £821,000 (December
2021: £780,000) reflect the tax advantage from investments in fixed assets,
that is obtained in advance of the depreciation in future financial years.
At 30 June 2022, deferred tax liabilities amounting to £419,000 (December
2021: £442,000) result from the recognition of brand and customer
relationships intangible assets as part of the October 2020 IT-IS
International acquisition.
At 30 June 2022, deferred tax assets amounting to £269,000 (December 2021:
£328,000) result from the elimination of the internal margin on intercompany
stock, provisions or assets held.
At 30 June 2022, deferred tax assets amounting to £905,000 (December 2021:
£2,125,000) relates to the unpaid portion of the LTIP charge that was
recognised by Novacyt UK Holdings in 2020, but will not be deducted for
taxation until payments are made in 2022.
Carry forward tax losses total £3,588,000 at 30 June 2022, and have increased
from December 2021 as a result of significant losses in H1 2022.
Deferred tax assets and liabilities are recognised on the statement of
financial position as follows:
Amounts in £'000 (Unaudited) (Audited)
Six month Year ended
30 June
31 December
2022
2021
Deferred tax assets 4,796 3,143
Deferred tax liabilities -1,245 -1,224
Net deferred tax assets 3,551 1,919
13. Inventories and work in progress
The table below shows inventories and work in progress:
Amounts in £'000 (Unaudited) (Audited)
Six month
Year ended
30 June
31 December
2022
2021
Raw materials 16,670 19,382
Work in progress 5,338 3,350
Finished goods 5,395 7,831
Stock provisions -23,148 -19,102
Total inventories and work in progress 4,255 11,461
Total inventories and work in progress has reduced significantly since
December 2021, predominantly driven by a large one-off stock provision in H1
2022 related to lower future forecasted COVID-19 sales. Furthermore, a
substantial amount of expired or excess stock, of which a significant amount
had been provided for, has been disposed of in H1 2022, resulting in a
£4,046,000 net movement in the Group stock provision. The Group will continue
to look for ways to use inventory that has been provided for.
14. Trade and other receivables
The table below shows trade and other receivables:
Amounts in £'000 (Unaudited) (Audited)
Six month
Year ended
30 June
31 December
2022
2021
Trade and other receivables 27,122 30,279
Expected credit loss provision -345 -89
Tax receivables - Value Added Tax 8,449 8,213
Receivables on sale of businesses 66 66
Other receivables 1 30
Total trade and other receivables 35,293 38,499
Trade receivables have declined since the year end in line with falling
monthly sales.
The trade receivables balance includes a £23,957,000 unpaid DHSC invoice
raised in December 2020, in respect of products delivered during 2020, that
remains unpaid at the date of publishing the interim accounts. Recovery of the
invoice is dependent on the outcome of the contract dispute.
During H1 2021, £49,034,000 (including VAT) of products and services were
delivered and invoiced to the DHSC which has now been included as part of the
ongoing dispute. As these sales have not been recognised in accordance with
IFRS 15, the revenue, trade receivable and VAT element of the transactions
have been reversed. This accounting treatment does not change the Group's
legal position or rights in relation to the dispute with the DHSC.
The 'Tax receivables - Value Added Tax' balance of £8,449,000 mainly relates
to VAT paid in the UK on sales invoices in dispute with the DHSC. As these
sales have not been recognised in accordance with IFRS 15, the revenue, trade
receivable and VAT element of the transactions have been reversed, resulting
in a VAT debtor balance.
Trade receivables balances are due within one year. Once an invoice is more
than 90 days overdue, it is deemed more likely to default and as such, these
invoices have been provided for in full as part of an expected credit loss
model, except where Management have reviewed and judged otherwise.
15. Provisions
The table below shows the nature of and changes in provisions for risks and
charges for the period from 1 January 2022 to 30 June 2022:
Amounts in £'000 (Audited) Increase (Unaudited)
At 31 December At 30 June
2021
2022
Provisions for restoration of premises 308 117 425
Provisions long-term 308 117 425
Provision for litigation 157 - 157
Provisions for product warranty 19,799 6 19,805
Provisions short-term 19,956 6 19,962
Provisions for product warranty predominantly relates to the ongoing contract
dispute with the DHSC as detailed in note 20. Management have assessed the
DHSC product warranty provision held at 31 December 2021 and have deemed that
it is still appropriate at 30 June 2022.
16. Trade and other liabilities
Amounts in £'000 (Unaudited) (Audited)
Six month
Year ended
30 June
31 December 2021
2022
Trade payables 914 1,363
Accrued invoices 2,015 3,534
Social security liabilities 1,454 954
Tax liabilities - Value Added Tax 121 115
Other liabilities 3,624 11,224
Total trade and other liabilities 8,128 17,190
Trade payables and accrued invoices have decreased in line with reduced sales.
Other liabilities has fallen as a result of payments being made in relation to
the 2017 to 2020 LTIP scheme, leaving the final tranche, which is forecast to
be paid by the end of 2022.
17. Share capital
Amount of share capital in £'000 Amount of share capital in €'000 Unit value per share Number of shares issued
in €
(Audited) At 31 December 2021 4,053 4,708 0.07 70,626,248
(Unaudited) At 30 June 2022 4,053 4,708 0.07 70,626,248
As of 31 December 2021, the Company's share capital of €4,708,416.54 was
divided into 70,626,248 shares with a par value of 1/15th of a Euro each.
As of 30 June 2022, the Company's share capital of €4,708,416.54 was divided
into 70,626,248 shares with a par value of 1/15th of a Euro each.
The Company's share capital consists of one class of share. All outstanding
shares have been subscribed, called and paid.
18. Discontinued operations
In early 2022, Novacyt commenced a strategic review of the business, which
included a review of the Microgen Bioproducts and Lab21 Healthcare businesses
to consider the merits of maintaining multiple company entities/names under
the Novacyt Group umbrella versus a simplified business model and brand, which
the directors believed could be more impactful. In April 2022, Novacyt
announced its intention to discontinue both businesses, and as at the end of
June 2022 they had ceased day to day trading operations.
In accordance with IFRS 5, the net result of the Lab21 Products business has
been reported in the line 'Loss from discontinued operations' on the
consolidated income statement.
The table below presents the detail of the loss generated by these two
businesses as of 30 June 2021 and 2022:
Amounts in £'000 (Unaudited) (Unaudited)
Six month
Six month
30 June
30 June
2022
2021
Discontinued Operations
Revenue 1,349 1,749
Cost of sales -979 -652
Gross profit 370 1,097
Sales, marketing and distribution expenses -300 -379
Research and development expenses -17 -6
General and administrative expenses -2,839 -1,292
Operating loss before exceptional items -2,786 -580
Other operating expenses -173 -63
Operating loss after exceptional items -2,959 -643
Financial income 86 90
Financial expense -371 -208
Loss before tax -3,244 -761
Taxation (expense)/income -412 170
Loss after tax from discontinued operations -3,656 -591
19. Notes to the cash flow statement
Amounts in £'000 (Unaudited) (Unaudited)
Six month
Six month
30 June
30 June
2022
2021
Loss for the period -8,699 -12,675
Loss from discontinued operations -3,656 -591
Loss from continuing operations -5,043 -12,084
Adjustments for:
Depreciation, amortisation, impairment loss and provisions 2,724 938
Decrease of fair value 117 -
Losses on disposal of assets 60 35
Income tax credit -1,809 -2,673
Other non-cash movements - -7
Operating cash flows before movements of working capital -7,607 -14,382
Decrease in inventories (*) 7,264 14,760
Decrease in receivables 3,561 40,396
Decrease in payables -9,069 -23,596
Cash (used in)/from operations -5,851 17,178
Income taxes received/(paid) 4,244 -29,447
Finance (income)/costs -55 90
Net cash used in operating activities -1,662 -12,179
(*) The variation of the inventories value results from the following
movements:
Amounts in £'000 (Unaudited) (Unaudited)
Six month
Six month
30 June
30 June
2022
2021
Decrease/(increase) in the gross value of inventory 3,218 -13,615
Increase in the stock provision 4,046 28,375
Total variation of the net value of inventories 7,264 14,760
The details for the increase in the stock provision are covered in notes 6, 7
and 13.
20. Contingent liabilities
During 2021, the Group received notification of a contract dispute between its
subsidiary, Primer Design Ltd, and the DHSC related to revenue totalling
£129,125,000 in respect of performance obligations satisfied during the
financial year to 31 December 2020.
During 2021, a further £49,034,000 (including VAT) of products and services
were delivered and invoiced to the DHSC which have subsequently been included
as part of the ongoing dispute. Management made the judgement that in
accordance with IFRS 15, Revenue from Contracts with Customers, it was not
appropriate at that stage in the dispute to recognise as revenue, any sales
invoices raised to the customer in 2021 that were in dispute. However,
Management remains committed to obtaining payment for these goods and
services.
Payment for £23,957,000 of invoices in respect of products delivered during
2020 remains outstanding at the date of publishing the interim accounts and
recovery of the debt is dependent on the outcome of the dispute.
On 25 April 2022, legal proceedings were issued by the DHSC to the Group for
amounts paid to Novacyt totalling £134,635,000 (including VAT). This refers
to £132,814,000 (including VAT) of reagent sales out of a total disputed
amount of £154,950,000 (£129,125,000 excluding VAT as previously reported)
plus £1,821,000 (£1,517,000 excluding VAT) of q16 instruments which have
been added to the dispute. This takes the total 2020 revenue in dispute to
£130,642,000.
On 15 June 2022, Novacyt filed a defence of the claim received on 25 April
2022, and made a counterclaim of £81,500,000 including interest against the
DHSC.
The Group continues to believe it has strong grounds to defend the claim and
assert its contractual rights, including recovering outstanding sums due from
the DHSC under the counterclaim.
Management have reviewed the position at 30 June 2022 and deem this to be an
appropriate reflection of the current commercial dispute.
Management and the Board of Directors have reviewed the product warranty
provision totalling £19,753,000 booked in 2020 in relation to the DHSC
dispute and have deemed that it remains appropriate at 30 June 2022.
21. Subsequent events
No significant events have taken place since the reporting date.
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