Ekf Diagnostics Holdings (LSE:EKF) — Full Year Results

0:01 Good afternoon, and welcome to the EKF DIAGNOSTICS HOLDINGS PLC full year results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab sit in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to

0:31 Julian Baines, executive chair. Good afternoon to you, sir. Good afternoon, everyone. Thanks for joining the call this afternoon. Accompanying me today, I've got along Gavin Jones. Gavin is the head of our senior management team and looks after all the product management, all the new products, product updates, and is an integral part of the management team. I thought it would be quite good, this roadshow, to introduce further members of the staff so that investors could get used to new members of the team that have been with the company for a long time that really do drive the business. And as usual, Steve Young's with me, F D, to answer any financial questions. Before I kick off with the presentation, there's a few things I would like to say. We've worked a lot sorry. We've worked very hard over the past year turn the ship around on EKF and look at delivering just high margin, high profit products.

1:31 And looking at what we've achieved, we've increased our margins to 48% in q four. I I know know the presentation says 45, but we've managed now to get it up to 48%. We've got 3,500,000 off the overheads. We're generating around 5 to £600,000 a month in cash now, which we're aiming to get up towards a million. We have a tax rebate coming from The United States for $2,700,000, 2.2 ish million pounds. So we would hope to be around 10,000,000 cash at the end of this year. And what you'll hear from my presentation today is EKF simplified down to the core products with the highest margin and the highest revenue opportunities because the focus for me now that we have implemented all these changes is actually to drive growth, drive margin, drive EBITDA, keep the cost base at a sensible level, and then on top of that, manage the growth within South Bend, which will give us the large growth opportunity within the business. So by doing this, we feel that we've got a very straightforward presentation today and something that hopefully will encourage questions, but also help in understanding exactly where EKF is headed and what we're we're trying to do. So on the first slide, we have the financial highlights.

3:02 Revenues were 52,600,000. Gross profit before exceptional was 24.4. As I said, gross margin for the year was 45%, but it's now q four was at 48%. Our aim and and Steve's target is to get gross margin to around 52% this year. We've reduced our overheads by 3,500,000 annualized this year. I expect that to be around 4,000,000, again, increasing margin. Adjusted EBITDA of 10,400,000, which if you think that we did 4,700,000 in the first half of twenty twenty three and 5,700,000 in the second half. It shows you that the margins are improving at an ever accelerated rate in leading to strong cash generation.

3:53 We've returned a profit, 100,000, and cash generated from operations of 8,800,000. But as a reminder, we are now generating 5 to 600,000. Our capital expenditure and cash outflows have reduced significantly. So we are in a really strong position. We've turned the ship around, but now we've got to make sure it goes forward. And all I'm focused on, all I care about is driving growth within the business. So the operational highlights. Continued very sustainable growth in our core business lines. However, a few years ago, our point of care growth was around 6%. We are seeing a significant growth in key and core products within the point of care portfolio.

4:42 So diabetes grew by double digit, and in point of care, double digit is the what you're waiting for. However, quote test grew by 19% year on year, showing that we really are penetrating certainly Western Europe and APAC markets. And you'll see later on the geographical spread of this business showing that we're a truly global point of care business. Hematology delivered 10% year on year growth, but DIASPECT TM delivered a 34% growth, which is way beyond anyone's expectations, and it's continuing into 2024 to deliver that level of growth. The reasons being are a little bit unfortunate in a way. We are seeing big growth in Europe, Middle East, and Africa, and there's a large tie in between hemoglobin testing and malnutrition in children, testing in poorer countries and more torn countries.

5:40 And we we do have the ultimate product in the DIASPEC TM and the the low cost analyzer and the low cost test. We've recently won a tender in Egypt for around £2,000,000 a year of DIASPEC TM, and that's running till 2030. So we are seeing a very strong growth in the most important products within our point of care portfolio. BHP liquid color grew by 4%, slightly disappointing, but the reason behind the 4% growth is that we've changed our EKF labeled product with Fisher to a Fisher white label product, and the changeover has been quite difficult because we have to work with Fisher to change all their customers from the EKF product to the Fisher white label product, and that has taken longer than expected. But we're now employing a lot of resource, and we're seeing the benefits of changing over to Fisher. The reasons to do this is that, like Cardinal, Fisher have signed an exclusivity with us, which means that no comp they will not sell any competitive products in this market, and PHP is our most important product in the whole of EKF.

7:03 We've opened the new life sciences facility in October. I'm sure everyone on this call will be interested to hear how that is going and what what the next one to two years is is looking like, which I'll go into detail later in the presentation. Finally, we made a decision to get rid of low margin product from point of care. So clinical chemistry will be gone by the end of this year, we hope. We can't just do it straight away because under diagnostics, you have to regulations, you have to make sure that your distributors have alternative products. But that product will be declining over the next year. It stood for about 2,100,000 revenue last year, but it's loss making.

7:52 And it it is so we should see our EBITDA increase by actually discontinuing that product. Statside MBHP is a handheld meter and strip. The hand the meter had been discontinued from '21. We decided at the end of September to stop the strips, and we've replaced it with a stat side whole blood meter, which is beginning to grow in The US market, and I'll come on to it later. The other thing that investors have to be aware of is, obviously, we still sell products into Russia. Sanctions mean that we can no longer sell BioSend there. We can sell the tests, but we can't sell the instruments. So in terms of the the company, Russia is obviously something that we focus on greatly.

8:39 In that, we're we're looking at revenues forecast this year of 54,000,000 plus, but our EBITDA change. If not, it potentially will grow from the the figures that are in the market. So the geographic highlights. This will show to well, this shows to me that this is a truly global business. So 48.4% of our revenues were in The Americas, and that is mainly driven by BHB and some DIASPEC, some HaemoControl. But the vast majority of the American revenues are in BHB. Europe, Middle East, and Africa has now grown 25% over the last few years to be in 41.2% of our overall revenue. That is all point of care and mainly, the diabetes and hemoglobin core products of quote test, DIASPECT, hemo and hemo control.

9:40 And then 10.4% in Asia Pacific. That also grew 16%. So years ago, we were we were US reliant. I'm a lot more comfortable being reliant on the globe as in each market is growing at a decent rate. We expect to see The US point of care business grow significantly this year, but I will come onto that later in the presentation. So something that we've gone back to basics again as a business because we're a razor razor blade business. And if we don't sell the razors, the razor blades won't won't come along. And one thing that I've always had historically is that with EKF, when I get up on the January 2, because of the point of care business, we can guarantee 35 to 40,000,000 in revenue before before we start the year, and that is a fantastically positive place to be. And as you can see from here that we sold 9,000 plus instruments into hematology, DIASPEC TM being the the biggest one of those, and that's continuing to grow at a rate. We also sell sell 1,300 diabetes products. The difference being if you take the DIASPEC TM, it's a product that is about a 100 to €200 for the instrument.

11:00 The quote test is about €1,200 for the instrument. So you are never gonna do like for like because of the markets that you sell these these products in. Also, we continue although it won't be a major focus of ours, we will continue to sell lactate scout, which is fundamentally sold into into the sports market for high performance sports. But without that, you wouldn't have the tests. And this this figure for me is on this slide is really important. We sold over and manufactured over 95,000,000 tests last year. But if you look at the slide, 77,000,000 of those were in Europe, Middle East, and Africa. A lot of that being hemoglobin showing you that the markets in, unfortunately, the poorer territories is where hemoglobin testing is most required. And we have the product for that market, both from a quality and cost perspective.

11:58 Disappointingly, you know, not everything is perfect. We only did 11,000,000 in The US, one of those problems was our partnership with McKesson. McKesson decided the to change the instructions for use leaflet within the McKesson product, and that took them seven months to change it, which meant that we didn't sell many products for seven months. That is now back online. Also, diagnostic of Paruana in Peru is placing large orders with us at the moment for hemo control. So we should certainly I'll be dis very, very disappointed if we don't do a lot more than 11,000,000 tests in The United States and The Americas next year. And we did 7,000,000 in Asia Pacific, a lot to do with DIASPECT again. So, the global view, but you can see in point of care, EMA is is now becoming the dominant player for us, and that's exactly where you would with the product portfolio we have, that's exactly where you want to see the large growth, in the business.

13:04 Next one. Thank you. So I'm going back to very much basics in in this presentation. There's four key products in two areas, point of care and life sciences. Point of care, I don't think it hurts to remind everyone that we are the number two player in hemoglobin testing globally. We will work with a global distribution base. The red product and the blue product in the picture is what we sell. The blue one is the DIASPECT Huge growth rate with that product and doing really, really well. HemoControl, we sell into WIC programs. We sell a lot into Peru. We certainly sell a lot into Western Europe, Germany. It's It's more of a doctor's office product, whereas the other one is a field product. And then the two white products, the flat one is QuoLab, and the tall one is QuoTest, which we sell into the diabetes market. And then there is a fifth product, BioSend, which I'll talk about later.

14:03 But we're very focused now on on just growth. All I really care about now is growing this business and making sure that we deliver cash, EBITDA, and and growth to shareholders. So we had a 3.5% growth strong sustainable growth in 2023. But we imagine if we're focused on these core products that that will be a lot higher. As you can see in the next point, 34% was achieved with DIAGNOSTICS TM, and as a reminder, 19% with DIAGNOSTICS. So so that is where our focus is going to be. Our consumable growth, which is what you want to see, was double digit. That's quite rare. We saw a 10% growth in consumables.

14:49 And so we are now very much back on the trajectory with point of care. So hematology, you'll see here that there's three products at the bottom, and this is actually another growth opportunity for us because hematology looks like it grew 2% year on year. Well, it doesn't look like it did grow 2% year on year, but DIASPEC TM grew by 34%. Hemacrol hemacontrol declined by 5%. But the reasons for that are that in The US, I've mentioned it earlier, one of the biggest selling territories in The US for us is into women, infants, and children programs, with programs which is mainly, for, low income families, immigration, etcetera, where they do testing in these programs. They've only just reopened in the last year or so, and we're already starting to see growth into those territories.

15:48 The second one is diagnostic of marijuana, which, is now very much back online. The third area there, Hematostat, that's brought the overall percentages down in hematology. But the reason being is that last year well, towards the end of twenty twenty two, we had a significant problem with the tooling. We it's one of the very few products we don't manufacture in house. The tool basically wore out, and we had huge back order situation. Our two major customers or distributors in The US a whole load of stock on board at the end of twenty twenty two. And whilst we fixed the tooling problem in 2023, we saw a big decline in Hematostat. But now the the stocking is all being cleared out. We are seeing a and we've sorted the tool problem out. We're now seeing a large growth in Homatostat in 2024.

16:44 I'd be very surprised to see overall growth just 2% in all of that. But in terms of revenues, DIASPECT and HEMO CONTROL are the major players in this anyway, so the revenue difference is quite marked.

16:58 In diabetes, quote test grew by 19%, Really selling very, very well into APAC, Asia Pacific. Certainly in The Philippines, we're seeing a large pull through. We also see a fair amount of growth in The Middle East. So we are seeing a great performance of Coatest. QuoLab didn't grow as much this year, and we are looking to phase out Coatest over the next two to three years. It won't be an overnight situation, but we feel that QuoTest is such a much, much better product. QuoLab needs a lot of investment in automation, a lot of investment in r and d, and we feel that that money will be far better spent in QuoTest, bringing down cost per instrument, cost per test.

17:45 So that's where our focus will be decision made over the next couple of years. BioSEN has shown a 5% negative growth, but the major reason for that is we sell as I mentioned at the top of this call, we sell a lot of Biosen into Russia. And so and actually, an exchange rate perspective, the ruble collapsed as well. We would have seen a slight growth in Biosen. However, we're not sitting on our laurels and just saying, oh, dear. We can't sell it into Russia anymore. We have developed as a company an upgraded BioSend, which will be launched in May. That will be launched into Western Europe, into countries that are utilizing BioSend at the moment. There'll There'll be a replacement program because some of these BioSense devices have been on the market for fifteen plus years.

18:35 We've got better connectivity, better screen, better readout, and so we're looking forward to launching that in May. So I'm hoping that we can counteract the Russian negativity with positive sales in the rest of the world with BioSend. So so that is the strategy for the BioSend device. Moving on to life sciences. I don't feel it hurts to say that our major product in the company is beta hydroxybutyrate, BHB. We sell this directly to monitor patients suffering from ketoacidosis as well as people have to be tested when they come into A and E in The US in case they've got ketoacidosis instead of hypoglycemia.

19:24 This product is key to us. We are investing quite a lot in improving the product, working in r and d to make sure that we keep the product ahead of the competition. Competition is incredibly limited. It is hard market to enter, and our relationships with cardamom and fisher protect us a lot within The United States. Fermentation, as is well documented by now, we have a large new fermentation facility in in South Bend. Our old fermentation facility in Alcarte is being run down, and we are manufacturing in the new site in South Bend. The good news with this site is that everyone is waiting to see, is it going to start to work? Well, we did one fermentation in December, and by the end of q one, we'll have done three fermentations for one customer, which will be around $500,000 of revenue.

20:23 But the thing that's become very clear to me is that everyone has been going, what's your portfolio like? How are you gonna grow your portfolio? The customers we have in place and coming through, the one customer we've done these three runs for this year, if we're successful, in developing this fermentation process for them and we're able to do the scale up, they will take up 50% of the capacity of this site by next year. The second customer could do the same. But I want investors to understand that this is an this site begins with an r and d process. So you do an r and d trial by error process with the customer. You work alongside the customer because doing 50 liter benchtop work is very different to doing 3,010 liter fermentation runs. So it'll take three to four runs before you get the yield that the customer will require.

21:22 So it isn't as people may have thought just to plug and play and you just ferment. It does not work like that. But But all all the runs you do, you get paid for because the customer's fully aware that there's an r and d process. But when you get it into scale up at 10,000 liter, then they're pretty much locked in as a customer, and then it becomes a repeat business. Hope is that we'll have two to three major customers on board and doing the fermentations by the end of this year. And I would also, as I put in my statement, would hope to see the site at capacity in early twenty twenty six. It's completely feasible with the customers we have on board and we're doing fermentations for as well as the two to three customers we've got lined up. What we won't be doing is is we could not cope with 50 customers. It doesn't work that way.

22:13 In addition, we're bringing in our all our products that we can currently make in Elkhart into South Bend. That's about 3,000,000 in terms of enzyme production we do Ekusui, Kyogen. So overall, I would hope by the end by 2026, our revenues within life sciences, within fermentation will be around 12 to 15,000,000 at a margin of above 60%, a huge huge growth opportunity for EKF and something we're focused on. So life sciences since 09/2019 has grown by 18%. Manufacturing skewed figures from q one twenty twenty two, which is why that graph looks so weird because we had a manufacturing growth in the first quarter of twenty two for obvious reasons.

23:05 We've seen a 4% growth, which I've already explained about BHP, but we have a 60% growth opportunity with the new fermentation site, which we're looking to drive very hard over the next two years.

23:19 BHB, this this slide is quite explanatory because I think it's important that the reason we stopped selling sat site m b h b, which was coming to the end of its life, you can see the revenues dropped hugely from 2019 to '23. We really needed a replacement product for that. We've launched stat site whole blood, an FDA approved whole blood test for BHB. As you can see, it's already growing and heading towards where we were in '23 with stat site BHB. It's never going to be as important as the bar chart on the right, which is our liquid color that we we sell sell into hospitals, but it is an important supportive product to the liquid color. So we're very pleased with the performance that it's growing at 52%, although admittedly from a low a low base.

24:10 But we're seeing growth every month from that.

24:15 The next slide, BHB. All I can say is that the 2% growth, but there's been a 31% negative growth in stat side m for obvious reasons. We discontinued it from the end of q four. So fermentation. I fundamentally talked about fermentation during this call. Gavin, myself, and Olga, who's our chief operating officer, hopefully, you will meet Olga in the near future. Olga has a fermentation background. She's a really strong operating officer. She she does live in Berlin, but she's spending an awful lot of time in South Bend. We are really putting a lot of effort and time into turning that business into

25:00 what everyone expects it to be. The one big thing for me is that we've all learned a huge amount, and you can tell that my explanations these days are a lot different. But I still believe, and we're targeting to have almost full payback within two to two and a half years on that investment. Our hope would be, and this is just a hope at the moment because we've got such a long way to go, is that we do fill that site. And late twenty twenty five, we're starting to look at maybe a second site in the area, but that is something that we're aiming for. That's a strategy of ours. But at the moment, we've gotta focus on on growing this business.

25:42 And so the outlook, I hope I hope you'll agree, is simplification. The four products at the bottom of that slide are really key to us. The growth of DIASPEC TM is phenomenal. The growth growth of quo test has been, for for point of care, really, really high. Then, obviously, we have to carry on marketing and driving BHB liquid color, and then fermentation, you know, has to deliver. It's up to us. We have to deliver on that.

26:12 So our outlook is I've said it all. We're investing in the core products, hematology, diabetes, and BHB to drive growth. Growth is what we're focused on now. Strengthening relationships with key key global partners. We you know, it's sometimes forgotten that we are very close with Fisher, Cardinal, McKesson, Fresenius. And these partners wouldn't be such big partners for us if our product range wasn't exactly in the in the areas that they they want. 2024 will see the completion of the rationalization process. I actually think that's nearly done. I I you know, that's in there as a point, but we've streamlined as much as we can.

26:57 We've taken so much cost out of the business. We're generating cash. Our margins are improving all the time. We should end up with 10,000,000 cash by the end of this year,

27:07 totally back on track to to where we should be. So we're well placed to deliver growth and improve returns from the investments we've made, and we will now just be investing and focusing on our core products. And thanks ever so much for listening to this presentation, and hopefully, you have some questions. Perfect. Julian, thanks very much for your presentation. What I'll do is I'll just bring your cameras back up at this point. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which is situated on the top right hand corner of your screen. But just while the company take a few moments to review those questions that have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard.

27:53 As you can see, we have received a number of questions throughout today's presentation. And at this point, if I could hand over to Paul from Warbrook to chair the q and a, that'd be great. And I'll pick up from you at the end, Paul. Thank you.

28:03 Gentlemen, we've got some questions that were presubmitted, so I'll go through those first. And then we have a number of questions that have come through during the meeting. Quite a few of them are on the dividend, so we'll we'll we'll touch on those. But in the first instance, there's a question regarding the new facility at South Bend and whether EKF had benefited from any government grants or state funding initiatives. I'm sorry to say, but no. The simple answer to that is no. We we didn't benefit from any initiatives on that site. Thank you. And any further investment, I think we would be looking to see what would would be available. Okay. From the same similar question, what part of artificial intelligence playing in the development and manufacture of any of your fermentation products? I think it's a similar question to that you have asked at your AGM. So I I think the answer is no. But

28:56 We don't utilize any AI in in the process at the moment. Do have anything now? No. I think it might be something we look at in the future for our point of care range, but certainly not within the fermentation process. Not at this time anyway. Thank you. A question on BHB. Is EKF seeing any demand or inquiries of BHB beyond its use in diagnosing and monitoring of ketosis, for example, as a clinically useful supplement, for example? So I think this question is potentially around ketogenic diets or that area. It's not an area we have experience in. The I'd like to expand because I think it's a very thoughtful question.

29:43 The answer is no at the moment, but it's something that we haven't really thought about. So it's it's a question that I think we should go away and think about as a team back. But at the moment, we can't we can't see there is no application at the moment for our current BHB in that arena. But is there a future expansion opportunity there? I don't know. I mean, you can you can use BHB as a as a supplement within that type of so not just as as a a testing parameter, but also as a supplement where you take BHP as part of the program. And there's been a number of different reports on this in terms of how good it is and how positive the utility is. I think for us, it would be a bit of a distraction right now in terms of what we're doing at life sciences, and we wanna focus in with our key and core products.

30:30 In the future, we'd certainly look at it, but I don't think we've had any approaches No. For that. We've certainly not gone up. That's the first time I've been asked a question in that nature, but it's not to be ignored. Okay. One of the shareholders commented that your website doesn't portray an image of a company with cutting edge fermentation facilities and downstream processing. With the website perhaps coming across somewhat dated, do you have any plans to bring the website up to date and better reflect the dynamic global business? Sure. Yeah. I think the first thing to say is we agree.

31:03 We agree that the website does need updating. That's why I'm pleased to let investors know that they should see a new website within by the end of q two this year. We've been working on it for quite a while. We will have increased functionality, a new look, and something that will present the company in the way in which it should be presented. And certainly from the fermentation point of view, like there's been a big focus on the

31:31 life sciences, we know that the the current website really doesn't do it justice. There's a whole host of new marketing material and to go along with that, and we will be putting a number of campaigns on our life sciences opportunities in the very near future. I think the other thing to say with our with our new website, it'll be a.com first. So it'll be based on our PLC website, and then we will slowly but surely roll in our German and US sites into having one one place you can find us on on the Internet. Thank you. We so we've have a few questions in, but I'll I'll tackle the ones on on dividend. First was one investor said, you you failed to mention the dividend being scrapped in in the in the presentation.

32:18 So Okay. I'll just pass on that comment. The questions that I've had so they're all around the same question, really, but I'll I'll ask each one each one just because they they kind of ask it in a in a slightly different way, so you may want to to to address them slightly differently. So

32:34 the first is from Andy. As a as a stable cash generative business with 2.7 US dollars million US dollar tax rebates and net cash on the balance sheet, what growth opportunities or issues do do you you anticipate to warrant the cancellation of the dividend? Look. If I take a step back from that, we we got ourselves into a position last year where the cost overrun in South Bend was so high that our cash positive situation was diminishing at, in my opinion, an alarming rate. So as a board, Chris Rigg and I recommended that we no longer carry on paying the dividend for the the the foreseeable future so that we can get our cash balances back on track. The other thing is that the investments in the business are really important because we have a number of products that need updating.

33:27 I mentioned Biosen, but we've got a new lactate product that that supply a really interesting platform that we want to invest in. We want to update our quote test even more. So and connectivity. So there's a lot of money that we wanted to spend on the core business. And everyone, you know, has to remember that, you know, I take responsibility that we overran $7,000,000 in South Bend. So the the decision would to stop the dividend was done on a business principle, and I strongly back it. It wasn't done for any other reason. And when we start to generate cash again, I still think that investment in the business I mentioned earlier that if the South Bend facility goes really well, I would rather be investing in a second facility that will give even further growth and even further returns to investors.

34:26 And the third thing is I do listen, and I went on a roadshow in September, and 95% of our institutional fund managers said, why are you paying a dividend? We we've got no income funds in our portfolio, and they would much rather we reinvested the money into the business or, you know, have an opportunity to look at m and a, have an you know, what it did was seriously limit our opportunity to grow this business. And £5,700,000 in dividend payments is a huge chunk out for a company of the size of EKF. Even with that, one of the investors has asked, you know, given you've got cash generation of it's just 500 k to 600 k per month Yeah. Did you consider just reducing the dividend rather than suspending it?

35:13 No. We just just we just have to have just be totally straight. No. We just wanted to suspend it. We wanted to get back on track. I think we've, you know I hope from this presentation you can see that we turned the ship. We're back on track, but we've gotta drive it forward. And and I don't want to be you know, we had to take out we didn't use it in the end, but we had to take out a loan facility because of the concerns over the dividend. Our auditors were concerned over the payment of the dividend from a going concern perspective. It caused all sorts of business issues for the company. So, no, we didn't consider reducing it. We considered and our fund managers our institutional fund managers backed backed that decision.

36:00 There's a a question from Tim about if you have a period of significance now that you have that period of significant investment in life sciences for meditation behind you, could we look forward to a period of higher dividends, share buybacks, and possibly even special dividends if and when the business starts to throw off excess cash? Too too too soon to say. Let's see where the cash balance goes. My preference is to invest it in the business. Some people like share buybacks. I'm not I'm not overly keen to hurry back to dividends. But if, you know, at the end of the day, if we get to cash balance so high, then, you know, that's what happened the last time. The balance was so high, and we were getting pressure from institutions to say, what are you doing with your cash? So I think we've got to get there first, and then those decisions will be made. Again, I realize these questions are kind of repeating the same thing, but the the there's a follow on question from Andrew that says, if if you state that dividend payments are being paused so that you can focus on enhancing shareholder value through growth, This this is is a a significant change. But what specifically do you think you would intend for that cash that is safe? What would you do with it? Well, as I mentioned, the I we have to invest in our product portfolio.

37:23 We have to invest in BHP. And I think there's a strong chance within eighteen months, we'll need to invest in another fermentation site. And I think that's a much better way of enhancing shareholder value than just giving the cash back. And I I'm not entirely sure. We we succumb to pressure the first time around. This time, I I really want to see this business grow. And we're also in a position where I don't wanna ever be in a position where I have to raise money at stupid discounts. We're cash generative. We've got no debt. And I think that's a really comfortable and positive place to be and allows the management team, including me, not to be worrying about going concerns cash journey. You know, we can just focus on driving and growing the business, which is why I came back because I really do believe in this business.

38:13 And I really do believe the opportunity's in front of us, but it's taken a full hard twelve months to realign it back to where it should be as a really high functioning global point of care and life science business. Two comments from from Lawrence and from William have said, we don't have a good track record in m and a. Please don't go down that route. One question is, you actually considering making acquisitions? No. Not right. Sorry. I've just when you when the question was opened up about share buybacks, dividends, etcetera, etcetera, I'm just trying to express the opportunity of giving ourselves some freedom to make the right decisions and the right investment decisions with the business. M and A, I agree with the recent track record. Believe me. I fully understand that.

39:03 So there's no immediate thought at all of doing m and a. But if the right opportunity did come along that was cash generative and profitable and fitted in within our distribution channels, be a real shame not to be able to take advantage of that if we had the if we'd given the cash back in a dividend. So, you know, there's nothing in the pipeline. And and, actually, I'm sure as investors, if you try and find another EKF out there in the market at the moment that hasn't been swallowed up by one of the big boys, it's really difficult. So even if I said, I really wanna do m and a, there's nothing out there to buy anyway. So it's it's not an issue. Moving away from that onto margins. Mhmm. The couple of the questions were one of the investors thought, did they hear correctly that you think 60% gross margin would be attainable on fermentation?

39:57 Was that Yeah. What was said? Yes. We're we're just just looking for you to confirm that. A question from David is is margin improvement being driven mainly by price increases or cost reduction? Cost reduction at the moment. Price increases, we've averaged out at about 5%. We introduced price increase of around 7% this year, but we hit about 5%. And people say to us, why is that? And that's because some of our major contracts with our big guys are tied in on a pricing structure over a three to five year period, for example, with Fresenius, Fischer, Cardinals. So some of the bigger revenue drivers, we can't actually influence with price. So we average around 5% price increase, but the margin growth was that we were really fat in terms of personnel and legacy situation.

40:54 We had a number of cash scenarios as well that we had to pay, but we had a if people remember, we had a debt we had to pay back to Asahi, which is finished. We've closed down the the two more sites that we have in The UK will be finished in June. All All of this is leading to significant increases in cash generation, and margin is being driven by cuts and continuous product improvements, streamlining the product portfolio, getting rid of clinical chemistry, getting rid of stats like BHB, glycated albumin, all these things. By getting rid of them, we're actually seeing a margin increase because they were negative margin products in our portfolio. Alex? So if I was just have the automation, we'll have to look at automation to to cope with some of the sort of growth in some of the key products being manufactured in some of the facilities.

41:50 Alex asks, could you speak about margin outlook, especially as it relates to the effect that the scale up of fermentation would have on overall margins? Well, we we the only way we can look at it is that I've set Steve a target of getting up to around 52% margin this year. If if South Bend goes gangbusters, it may get more than that. But point of care margin is around 40 to 45%. Fermentation is around 60 to 70. So if you average it out, I would I would say 52 to 55% is the gross margin level that I would seek to attain. It would be very difficult to get get it higher than that. Another margin question, but specifically on BHB. Did you have to sacrifice any margins on BHB to get exclusivity?

42:39 That's a great question. The answer to that is yes, but the caveat to it is that the South Bend site hasn't just proven to be very useful from a growth opportunity perspective. It's also proven to be very useful that we only have historically, for BHB, we'd have to do four runs a year. Because we've got much larger fermentation capability now, we only have to do one run a year and distribute from there, and then are no shelf life issues with that. The same applies to Roche. The same applies to Sikusui. So, actually, the margin decline of 12% with Fisher will be at least 50% made up by the fact that we only have to produce once a year. So we did have to do a margin, but we we will still see above 70% margins.

43:27 And the value is so much more valuable to protect our market in The United States and improve manufacturing efficiency than and so it was worth the sacrifice in every way. From the same investor, Martin asks, is there a reason why BHP is largely in The US? Say Yeah. Well, because the crazy thing is, Martin, So Martin. Yeah. Hi, Martin. The crazy thing is everywhere else in the world we're doing okay in Latin America, but all the white papers on BHB were written and produced in Oxford and Cambridge. In The UK, we still test ketoacidosis by smelling the breath of the patient to see if it smells of pear drops.

44:13 That also applies in Europe. They because only five percent of people with hypoglycemia actually are having ketoacidosis, there's a there's a laxadaisical attitude to BHB in the rest of the world. I don't if you've got anything to add to that, Gab. But Well, I it's it's I mean, you're you're not wrong in terms of the way in which BHB is dealt with, but it's also dealt with certainly within Western Europe. The preference is to go to for the handheld meter. Yeah. The p the Abbott one. Yeah. Yeah. Which is and those are their devices out there that have been out there there for for a a very very long long time, time, very well established. They don't use the clinical chemistry reagent that we we utilize in The US. So just a very different model of how they do it. They where they are using the the handheld meters, it is mostly BHB in which they're testing, but on a strict basis.

45:05 Thank you. Just going through a few more questions still to go. We've got fifteen minutes Yeah. Left. One question. Are you still determined not to accept a lowball offer from Harvard? Oh, that's a that's it is, that's my annual or my six monthly question. No. We are not accepting a lowball offer from Harvard. Christopher also doesn't want to take us private. We're staying public. He asked me to come back whether you like that or not. I'm not sure, but he asked me to come back because he fully believes in this business as a public business, and there are there is literally no intention to take it private. There is a disappointment, though. One of our fund managers came up today, and this is just an aside, and said, if if we we floated today as we are, our share price would be double where it is today because of the history.

46:04 I get why we are. I'm not, you know, I'm not saying that, but that's how you have to look at it. And and Christopher sees the opportunity, hopefully, when markets return. EKF is a very, very strong listed business. There's no need whatsoever to take it private. There's a question maybe, Steve, I don't know if you can answer this, but one one investor said, how exactly have you cut overhead by 3,500,000? They pointed that out that they're down 66% on their investment. Do you have any expectations or targets for OpEx management going forward? I think sort sort of of the 3,500,000 is coming down because of various areas. The headcount is down from probably $3.70 roughly at the beginning of twenty twenty three to probably on just about 310 at the end of twenty three.

47:00 So it's some of the savings have come in that area. There's other areas which we need to target moving forward, which we got into some internal targets on the target, where perhaps some of the costs have increased during the COVID peak then at a rate that you would probably would not have expected them to have increased at that level. So Yeah. Faster than the rate of the growth of sales possibly. So, yeah, we do have internal targets which we're looking at to reduce of the to overhead spend further. We're not thinking we're not looking at any reductions in headcount. So think I've seen another question who's asking for headcount. I was gonna say, that's the opposite question. Yeah. Yeah. So then I think we are where we are. Yeah. Where we we're comfortable with the headcount.

47:49 There's no plans that should be able to with the headcount, as it stands at the moment, should allow us to reach our targets to 24, 25, unless it goes then fermentation goes through the roof, and we then need to probably strengthen the head company in that sort of area. Yeah. So that answers Tim's question, which was about head count and overhead cost. Do you think you're the right size now, and do you have capacity? Should you reach your goals, or would you need to scale up the workforce so that that answers that question? Could you comment on prior priorities for capital allocation going forward, I. E, shareholder terms, m and a, organic growth CapEx? And on these latter three, is it in life sciences or point of care? What's the right level of debt, if any, for the business? We haven't got we we don't intend to have any debt.

48:41 CapEx in the next twelve months will be more aligned to point of care, certainly in r and d with lactate because we've developed a strip that we haven't talked about much, but we we have developed a strip with our lactate product called and we've called it the response, actually is a is a strip that doesn't cross react with other substances. So what I mean is that, historically, some strips cross react with aspirin or paracetamol, etcetera, etcetera. We have a a strip now that we've developed over a long period of time that doesn't cross react with anything. But I'm gonna hand over to Gavin because it's also a panel and spend some money on on driving this.

49:32 Gavin, being the product manager, is the one who really is driven by this product. So I'll hand over and let Gavin explain it in more detail. Yeah. And I think this also goes to answer one of the other questions as well in terms of I think, there's a later question saying, are we actively considering expanding EKF's point of care portfolio? And the the answer there is is yes. But it has to be the right type of product, and it has to fit within our our current product portfolio and distribution base. We have quite a focused global distribution base. They work in specific areas. We work in specific areas, diabetes and hematology mostly in point of care. And and the device that we're working on at the moment and the center that we're working on really should be focused in those areas to try and support some of what we're doing and build upon, you know, the great foundation that we've already made. So, yes, we are making good movements there. I think Julian alluded to the fact that this could be a platform product, and I think for us, that's a very positive step forward.

50:39 Most of our devices not all, but most of our devices are single analyte tests, which is done as well. It's helped serve the right markets, but moving forward, we can certainly improve on where we are by building out this platform device and putting multiple tests into the same sort of areas that we're already selling into. And that's that's what we really wanna achieve. And that's gonna take some time to get to market. You know, regulatory landscape is not quite what it used to be, and that is gonna be challenging. You know, IVDR takes a longer time than the previous IVDD. But we understand that. We're very much focused on that, and that's where a lot of the investment is gonna be moving forward. And then as Steve said, there'll be investment in automation improvement, which will improve margins within the business.

51:27 So it'd be more point of care driven, but there still will be downstream processing investment in South Bend. There are still things to do there, but then it's not of millions. It's hundreds of thousands, etcetera. So we are continuing to invest in the business. But one comment points out, Julian, obviously, you were talking about DIAGNOSTICS 34% growth. So in terms of your m and a record, that's an example of a product that was bought bought bought on board via acquisitions. It was. Yeah. Actually, the m and a history isn't all bad. You've Thank you. You. Yeah. So businesses When I was at BBI, I didn't go far wrong. But the last five years, I'll accept the other investors' criticism. So there there's a question on could you give an update on your competitive landscape and your strategy and investment needs to in order to stay relevant and evolve?

52:16 Well, the competitive landscape in hemoglobin is hardly ever changed. It's us and. There are a few products coming on board with, for example, noninvasive, but they've been around for a long time. They're gaining a little bit of traction, but we're seeing far greater growth with our product portfolio. We certainly do not ignore that area, and it's certainly not causing us any issues at the moment because it has been around for a long time. Hemacur, our major competitor, I think that we are taking a fair amount of market share from them. If you look at our Europe, Middle East, and Africa performance, it's been incredible. And that will be to the sacrifice of of Hemacure.

53:02 In diabetes, Interestingly, the number one product in h b a one c for years has been Affinion, when it was owned by EYLEA, and Abbott have, taken it over. And we see far less of it and far less competition from Athenian. So h b a one c, which Gavin is Gavin's area, is much more driven by Indian and Chinese product than the the old school, Athenian, Nykaa card, etcetera. I don't know if there's Yeah. There's there's certainly been I think within HBO one two, there's been a lot of competitors enter the market. Certainly, since we entered the market, we see quite a few, that and that landscape changed quite a lot. It's also been there's also been quite a change in the in the quality of product that's out there as well.

53:52 And that has helped us in some markets where we have been considered to be, you know, a much better manufactured product, German made product. And and that's a positive for us, and I think that's reflected in the numbers that we've seen today. Certainly, if you consider quote test, it's it's a pretty old product. It's been around for a long time, and it's still growing. It's still gaining market share, which is which is good for us. But, yeah, h b a one c is changing all the time, and we're trying to change with it. And we we wanna make sure that we respond to that competition as as it comes out. Fermentation, the situation is still the same. In our particular area, we do not seem to have much competition in The United States for the small to 14 and half thousand liter fermentation.

54:45 So that is something that's that is a positive and pretty satisfactory for us is that competition in that area. And I think, believe it or not, the opposite is true. There's a dearth of fermentation capability in The States, and competition wouldn't really hurt us anyway. And I hope that we can see that business grow over the next two years as I've talked about a lot today. We've got a few left. I'll try and get them in the last five minutes. But one question was from Martin. Some diagnostic companies have highlighted challenges recently of receiving payments in Egypt. Do you have any risk there with that? No. No. We don't. But, we have a challenge. There we go, Martin. It's the way we've had to do it has been highly complex, and it's with the Egyptian government, and we're paid in dollars.

55:34 We'll have to meet up sometime, Martin. I'll go through it, but it's it's longer than five minutes explanation. But we're completely safe and paid upfront for the product, but the way the in this is highly complex. In terms of fermentation, natural nutrition is a very large market. Could EKF fermentation facility make nutritional products, and are you receiving inquiries for these? Yeah. We've got I don't know what happened to the mung bean fermentation. We did have quite a lot of gastro gastro products and fermentation inquiries. We used to do mung bean fermentation. I need to come back. I don't actually know what's happened to that fermentation. And then about the facilities, a couple of questions addressing the same thing.

56:22 In terms of your next fermentation facility, what are your thoughts on location if you were to expand? And if you do require a further facility, what are your considerations regarding Elkhart? We're looking to close Elkhart anyway. It's South Bend that we're looking to grow. We would probably if we're gonna grow the fermentation because all the capabilities are there, we'd probably do a second site in South Bend and grow it that way. But question was also, why would you close Elkhart? What's what would be the reason? Because it's it's needs a significant amount of investment. It was very rundown. One of the reasons for doing South Bend is it's extremely rundown. Just as an an addition, we would fund the next facility should it should we be in a great position of needing another facility.

57:09 We'd fund it a bit differently. We'd probably lease the fermenters. We wouldn't just do it all for cash. That that is a lesson learned that we would certainly fund it in a different way. Steve, you might not be able to answer this if don't have it in hand. But could you give an indication about total CapEx spend including IFRS 16 over twenty twenty four twenty five, not assuming further south band expansion? What's the current level of maintenance CapEx for the current EKF structure? If we need to come back, we can we can give us a bit of No. Should we are planning sort of level capital expenditure in terms of roughly 3,000,000 in sterling a year. Probably, other capital we've got the capital budgets in place for this year from the various businesses and what we've done with this has from submitted. So roughly over the next few years, you'll probably be general, roughly 3,000,000 a year still, maintenance and sort of automation and improvement projects which we're doing. Yeah.

58:07 And then just our last question, did the board the issue of splitting chair and chief exec roles debated by the board? And if so, what concessions were reached? The it hasn't particularly been discussed by the board at this moment in time. The reason being is that I was asked to do a job, and I'm still halfway through that job. It has I don't know why. It hasn't been brought up in recent board meetings, no, about splitting the role again. At the moment, the board, I believe, feel quite happy in the arrangement as it is. Chris Rigg is having significant input as well into the business. And so the board, I believe, feel comfortable, but happy to field that question at the next board meeting.

58:59 Thank you. That's the end of the online questions. I'll hand back to IMC. Perfect. And thank you very much for answering those questions you can from investors. And, of course, the company can review all the questions submitted today and publish those responses on the Investor Meet company platform. But just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Julian, could I just ask you for a few closing comments? Yes. Well, firstly, thanks very much for your questions and listening. And I know that the I'm fully aware that the journey hasn't been that easy over the last few years. I hope you agree with our overall strategy and what we're trying to achieve getting back to the core products. I am genuinely excited about the four or five products I've talked about at length today, and I think that the opportunity for where EKF is and where it's got back to is really strong. The only issue now is that we've gotta deliver for you, and that's that's down to us. But we have we have put the business back into a position of potential strong growth, and that's what we all hope to deliver.

1:00:09 Perfect, Julian. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of EKF DIAGNOSTICS HOLDINGS PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.