Ekf Diagnostics Holdings (LSE:EKF) — Half-year Results

0:02 Good afternoon, ladies and gentlemen, and welcome to the EKF DIAGNOSTICS HOLDINGS PLC Half Year Results Investor Presentation. Situated on the right hand corner of your screen. Just simply type in your question at any time and press end. The company may not be in a position to answer every question received during today's meeting. However, company review all questions submitted today and publish responses where it's appropriate to do so. We'll notify you when they're ready for your review. Before we begin, we'd like to submit the following poll.

0:32 And if you give that your kind attention, I'm sure that'd be warmly welcomed by the company. I'd now like to hand over to CEO, Mike Salter. Good afternoon, sir. Thank you, Mark. Good afternoon, everybody, and welcome to our interim results presentation. For those who don't know myself and Mark, we'll start by going through a brief introduction. So Mike Stalter. I'm the CEO. I joined EKF in 2017, so being

1:07 that, I was thirty three years with, GE Healthcare and Amersham. So I've been a long time in the life science and diagnostic industry in a variety of senior roles from operations to sales, business development, etcetera. And I'd just hand you over to Mark. Good afternoon, everyone. My name is Mark Davies. I'm the chief financial officer of EKF. I joined the business in early twenty twenty two coming in at a very interesting time. Prior to joining EKF, I was the CFO of a private medical devices company. And before that, I've got experience as an adviser focused around corporate finance.

1:44 Thanks, Mark. So let's start by giving a high level overview of the results and the business. So H1 financial performance, 37,500,000 in revenues and adjusted EBITDA of £9,700,000 If you compare this to the pre COVID twenty nineteen business, this represents a 73% increase in revenue and adjusted EBITDA. Attractive gross margins maintained of 47%. This is very positive considering inflationary challenges that we've had throughout the year so far. Net cash generation of £19,100,000, positive cash flows from core operations, and all the investment that we've done so far in the company has been funded by internal cash generation.

2:40 If we look at the established core business then, 11.5% growth in non COVID h one sales as compared to last year. Point of care and central lab growth versus the pre pandemic two thousand nineteen levels, a 7.3% growth. So we've not only got back to the levels of revenue for our core business that we had in 2019, we've actually exceeded that those levels. So that's very pleasing result. With the razor and razor blade model, we have a high margin consumables driven by a installed base. The life science opportunities driven by existing customers and further investment, which we will go through later in the presentation, and the core business is really profitable and cash generative.

3:36 If we look at where we play in the attractive markets, established businesses in global growth markets, we have a global distribution network that spans all the regions in the world and good growth in The US, Europe, and Asia. And this is these these markets are considering continuing to show good growth. For the life science business, there's a strong demand for GMP grade enzyme fermentation. And, again, we'll talk about the life science business as we move forward in the presentation. With our lab testing business that we acquired last year in October, the demand there is really driven by a value add offering that we have, a service offering, where we're gonna be turning around results within twenty four to forty eight hours, which is going to be very competitive against our competition in this market who take ten to fourteen days. So we're really gonna build on this value add.

4:41 And with our contract manufacturing business, which we're gonna talk about, we're seeing increasing demand for outsourcing. And this is due to companies that are very good with r and d but just don't want to invest in manufacturing capabilities. If we look at growth prospects then, we we're seeing continued growth in point of care and central lab.

5:03 Really leveraging here our global distribution network. Life sciences, we invested 10,000,000 last year, and we're gonna see that capacity come online at the end of this year. And we're looking forward to continued growth in this business in '23 and '24. And we're seeing good transition to non COVID manufacturing, non COVID in contract manufacturing and lab testing. So overall, we have a strong core business that's cash generative and profitable and a growth strategy that we are confident we will deliver significant revenue in in '23 and '24. And I have to, just make a note that we are not reliant on any COVID business for future growth.

5:56 Okay. So let's look at the business where it is today, as regards to where it was pre COVID. So let's have a look what EKF does now. So pre COVID, we were really a point of care medical device company.

6:16 Ourselves now as a products and services provider for the diagnostic market. And let me explain that. On the left hand side with point of care and central laboratory, this is our product portfolio. This is the pre COVID business that those of you who'll be following EKF know know well. This is the portfolio of analyzers and consumables for hematology and diabetes. And we have central laboratory where we have our reagents for lab based testing, our Clin Chem reagent portfolio, and our benchtop analyzers and centrifuges. In the middle, we have our life science business. This really comes under products and services.

7:01 And why is that? This is because we make products that go into our so we make enzymes that go into our own products. We make the enzyme for BHB that goes into our BHB reagents, but we also manufacture products for third parties.

7:14 So we're gonna take life science as a stand alone p and l, as a stand alone business. And on the Hey, gentlemen. Just bear with us one second. Thank you.

8:16 Hey, gentlemen. Do bear with us just while we reconnect, Mike. We've just lost connectivity just momentarily. Thank you. Hello, Mark. Can you hear me now? I can hear you, Mike. We've got you Mark, we've got you up on your computer. So thank you very much indeed. Apologies to those online, but hopefully, can now continue.

9:08 Mark, can you hear me? Yes. We can, sir. I'm sorry about that, folks. I'll show a bit of a technical hitch there. Do not worry, sir. Please carry on. Okay. So we're going to the services now and the contribution of the services business to twenty twenty two h one revenues of 10,700,000, just over 28%. When we move forward with the business into '23 and '24, we're gonna see this balance of revenue change. We're gonna see major growth out of life sciences and out of the services business. And as we move towards '24, you're gonna see more of a balance of a 50% of services and 50% of products. That's how we envisage the business moving forward.

9:55 Okay. If you just look at our global footprint then, and this is just giving you an idea of where we play, where our manufacturing sites are, what our global facilities are, for instance. Manufacturing sites, we have six globally. We have three in The US, two in Indiana where we have our enzyme manufacturing, one in Boerne, Texas, which we produce a lot of the Clin Chem reagents and our devices for the blood bank and plasma industry. A newly formed facility in Wales and Kannada came online during COVID, which will be doing contract manufacturing moving forward. And then we have two facilities in Germany, one in Leipzig, which manufactures our point of care lactate device, and then in Baalaben, which manufactures all our point of Care devices for hematology and diabetes.

10:51 If you look at the analyzers that we have in the market, we've got a very large installed base in the market. We have over 80,000 analyzers in the market. And with this razor razor blade model, we are pulling through around 80,000,000 tests a year. And these are a lot of these are very, very high margin tests, and we actually play in over a 120 countries. If we look at the revenue split by location then for 2021, UK was about 10% of the total revenue, US about 50%, Germany 37%, and Russia, three percent. And we do have a legal entity in Russia. We have a subsidiary in Russia. We have 60 people in Russia. And at the moment, we are continuing to do business in that region, but we are keeping an eye on sanctions.

11:46 So this just gives you an idea of EKF's global footprint and where we actually manufacture our products. I'm going to hand you over to Mark now to do a deep dive financial review of H1. Thank you, Mike. So I now have the opportunity to take you through the financial performance of the business in the first half in twenty twenty two. So on this slide, you can see the key financial highlights of our first half performance. I will take you through each one in turn and provide a bit more color around the performance. So our revenue for the first half was £37,500,000 This compares and is a small drop to the £38,600,000 in 2021. That drop is largely driven as a result of the reduction in contract manufacturing COVID related activity.

12:38 However, what it does hide is the strong growth in the established core parts of our business. And by that, I'm defining our point of care business, our central lab business, and our life science business. And in a couple of slides' time, I will focus on those in more detail. But within the established core part of our business, we saw strong revenue growth of 11.5% compared to the equivalent period in 2021. Gross profit was $17,700,000 compared to $18,500,000 and gross margin percentage was maintained at around 47%, which is pleasing considering the macro inflationary pressures that we, along as other businesses, are currently experiencing. As you would expect, it is a key management focus to maintain the gross margin percentage, and we have a number of initiatives ongoing, including forward sourcing looking at forward sourcing requirements and also implementing price increases where appropriate to mitigate the impact of increased input costs.

13:42 Turning to adjusted EBITDA, we've delivered GBP 9,700,000 versus GBP 12,800,000 in 2021. The majority of the reduction comes from the drop off in contract manufacturing similar to when I explained revenue. Within this adjusted EBITDA, we have excluded restructuring costs related to the transition of certain business activities as we pivot the business in 2022 for further growth in 2023. And in the appendix of this presentation, there's further details of those costs. Profit before tax, 4.1 versus 11.4 in 2021. Within profit before tax, there is the inclusion of these one off costs that I referred to. And it's also worth remembering that in 2021, it benefited from a large share based payment credit.

14:36 Looking at net cash, and I will go into more detail around cash usage, a couple of slides on, we finished the half at £19,100,000 versus £20,800,000 in the equivalent period in 'twenty one. And this is after a significant amount of non trade cash usage, which I will explain in more detail. Net cash generated from operating activities was 8,400,000 versus 1,100,000 in 2021. 2021 was low as a result of working capital increases in order to prepare the business for increased contract manufacturing, and that has been normalized in 2022 as we move away from COVID activity. Within the net cash generated is the inventory cash payment that we announced in June of 4,500,000 relating to U. S. Inventory, and this represents a near clean break of our COVID business with our U. S. Customer.

15:35 I will now go through each of the five business units and explain the performance in the first half of the year. So Point of Care First, which delivered $13,800,000 of revenue, up 9.7% on the equivalent period in '21. I have a slide in the next on the next page, which shows the performance compared to the prepandemic world of 2019. However, the growth that we've seen this year gives the Board further confidence, not only have we seen a full recovery as a result of the COVID downturn, but we now experienced growth in markets and within our customers and within our product ranges. The growth that we've seen in Point of Care goes throughout the product ranges, and I've highlighted here two particularly pleasing product ranges: HemoControl that grew by 45% and BioSend that grew by an impressive 31%.

16:34 Central lab was £6,300,000 for the period, and this was flat compared to the six month of 2021. However, towards the end of this half, the business was impacted by temporary supply chain availability, which was rectified in July. So I think a more accurate representation of the performance of Central Lab is to look at the seven month performance to July. And if we compare the seven months to July in 2022 versus 2021, you see an increase of 13.5% year on year compared to 2021. There's a strategy within Central Lab to diversify the product offering. You'll be aware of our strong performing BHP range. We believe it's important to diversify our central lab. And it's pleasing to see that our glycated albumin range increased by 139% compared to the equivalent period in 'twenty one.

17:31 Life Sciences had a strong performance, bringing in $2,000,000 of revenue, and this is up 96% compared to 2021. This revenue increase was driven by key customer activity that we're seeing within the business, and this is a really good sign for the additional capacity in Life Sciences that we will be bringing online in early twenty twenty three. Lab testing delivered GBP 2,100,000 without an equivalent result for 2021 given that we acquired the ADL business in October 2021. This revenue has been COVID related, and the focus in the second half of the first half of the year has been about diversifying the business to focus on non COVID activities, and we will bringing on and we will be bringing on new and diversified tests, which we are expecting to see revenue being delivered in the second half of twenty twenty two.

18:30 It's a similar story in relation to contract manufacturing, where we saw a drop off in COVID activity towards the end of quarter one and again, a focus on pivoting that business to a non COVID activity platform. So contract manufacturing delivered 8,600,000, which was down 51% as we alluded to during our previous results presentation. Contract manufacturing, we've scaled back the direct overhead base relating to contract manufacturing. So the contract manufacturing that we have left looks very different to what we had last year and has been scaled back accordingly and ready to be built up as and when the, non COVID business establishes itself.

19:15 I mentioned the strong established core performance, which grew by 11.5, and I'm now going to go into some more detail comparing the performance in these business areas to 2019. And I think this is an important measure to look at to show the progress of the established core business over the last few years. Point of care is up 3.2% higher than the pre pandemic level. And within point of care, the core key ranges of diabetes and hematology have both shown growth, which, as I mentioned earlier, gives us confidence not only have they recovered following the downturn during the pandemic, but we're seeing growth within our markets and products. We're also bringing new products online, which we are hoping is going to provide further fuel to the continued growth in this business segment.

20:09 Central Lab is up 8% versus the equivalent period in 2019. And as I mentioned earlier, it's probably more accurate to review the seven month performance to July for Central Labs. And if you were to do that, you would see an improvement of around 20% versus the equivalent period of 2019. Central Lab is underpinned by our successful BHB offering, and that has benefited in recent years as a result of private label agreements with our large distribution partners. Finally, Life Sciences is up 43.6% versus 2019. And from the chart, you can see that this is largely due to the performance that we've had in 2022.

20:55 I believe the performance and the increase that we've seen in 2022 is as a result of the greater focus and investment that we've made into this important growth area, and I think shows the experience and the relationships that Mike brings to the EKF business. And again, this is a very strong sign as we bring on significantly increased capacity into Life Sciences in the new South Bend facility that will come online at the beginning of twenty twenty three.

21:26 Finally, on financial performance, I'm going to review the cash flow of the business in the first half. So we started the half with cash of GBP 20,300,000,000, and we ended with GBP 19,100,000,000. Taking you through the activity within our cash flow, We had strong cash generation, excluding taxation of $10,400,000 in the six month, and this includes The U. S. Inventory payment that I referred to before. We had $6,800,000 of cash used external investments and the share buyback that was concluded in April. This successful share buyback reversed the dilution that shareholders suffered as a result of the ADL acquisition in October 2021.

22:16 As a Board, we have reviewed our capital allocation policy, and we believe that there is significant opportunity through investment into our organic business, and that will be the focus of our investment strategy moving forward. So we're not expecting any further external investments to be made in 2022 and probably 2023 subject to market conditions. Looking ahead to the second half of the year, I'm expecting to see significant CapEx being spent, and this includes activity within life sciences and the South Bend facility. So as the fermenters are being delivered, that triggers certain payment obligations. Also, as a business, we have diversified the investment that we've made, and we've invested in our core German business with a focus on point of care and also within our UK manufacturing capabilities as well. Within our German business, we are increasing the capacity.

23:18 We are also looking at operational efficiencies and ways of bringing certain production processes in house. And again, that will have the benefit of margin enhancement, going back to my point around focus on maintaining gross margin. There's a small benefit as a result of inventory reductions, and this is due to the normalization of the business' working capital as we come out of the recession. There's a GBP 1,600,000 increase in cash coming from foreign exchange. Around 50% of our business is denominated in U. S. Dollar. So in the last six months, we have benefited from the weakness in sterling.

24:04 And around just under 50% of the cash that we hold is also within U. S. Dollars. Of the cash that we hold, 2,600,000 is held within our Russian subsidiary, and there are currently challenges in relation to dividend in that value out because of the restrictions on dividends to foreign companies. Worth remembering that as and when that dividend occurs, we own 60% of our Russian subsidiary, so it would be 60% that we will receive. And then finally, on cash, there is a GBP 5,600,000 dividend scheduled in at the end of this year in December, and that relates to the 2021 financial results and is the dividend that was approved during the last AGM in May.

24:53 Thank you, Mike. Alright. Thanks, Mark. So now we're gonna go into the performance and growth opportunities by business segment. So let's look at point of care first, then let's look at business drivers. So there's a definite need for rapid results at point of care with high quality, robust, and easy to use products. There's also, the demand for improving patient outcomes across a wide range of disease, and EKF is in a very fortunate position of having a diverse portfolio throughout,

25:26 which covers diabetes and hematology. And we have, and we're seen as a trusted partner with an established customer base, but not only established customer base, an established distributor base as well. We're seeing expansion with new doctor's offices and clinics opening up especially in The US. And we're also seeing it as well because of diversity of our portfolio. Companies really wanna work with us because we're just not a one stop shop for diabetes. For instance, we offer a wide range of products. The last point in this slide, which is really interesting, some companies seen as a as a challenge. We also see it as an opportunity as well. It's a new IVDR regulations that are coming in. So we're already working with notified bodies in this area, and we've identified the products

26:19 that we wanna move forward with. We also have expertise in this area. So we see this as a potential window of opportunity as other companies may find this too expensive and difficult to move into. If we look at performance then, h one revenues in point of care up 9.7% versus 2021 and up 3.2% versus 2019. So full recovery plus growth, as I mentioned earlier. Double digit growth in in diabetes and hematology. Diabetes up eighteen percent, hematology up 10.5%, and biocin at 31%, and that's due to growth in EMEA and APAC.

27:06 HemoControl at 45% is really driven by government anemia programs coming online, especially in Latin America and in Africa. And from a performance perspective, this business is really profitable and cash generative. If we look at growth prospects then, we

27:27 aren't going to develop everything in house. So we are investing in r and d internally for new products in point of care, but we're also collaborating with companies who have a strong r and d presence, who are very good at developing new point of care devices, but just don't have the distribution and commercial reach. And we're talking to a number of companies at this time to bring new products into point of care where where they where we don't have to acquire them. We just need to partner with them as a distribution partner. We're expanding our platform system by using latest internal technology. One of the one of the areas where we are adding value now to our existing mature portfolio is with EKF link. So that's basically a software enhancement

28:24 that we can add to our devices, which basically allows us to manage data more effectively. So you can store more data. You can transmit data to hospital LIM systems. I and we're actually seeing how this is really competitive. Last year, we won two state tenders based on having this extra data capability. We're seeing geographic geographic expansion in Sweden, Nigeria, Uganda, Kenya, and Ethiopia, a lot of it driven by anemia programs and by increasing demand for diabetes testing.

29:10 So this is quite an interesting slide I put in here, this is to try and bring EKF to life for all of you and and just really explain where our products are used and the type of products. So there's so we talked about our robust products. So I I think this is just a great example of of how robust our products are. So these are photographs from Peru. This is working with our one of our largest distributors

29:40 in Latin America, DIAGNOSTICIPIRONA, and this has to do with fighting anemia. This has to do with government programs of of basically improving the life of hundreds of thousands of women and children. And as you can see in the middle there, there's one of our devices with a lady on the back of a donkey. And if you think about it, if this doesn't prove that our products are robust, actually traveling up mountains on a donkey, nothing will. So, you know, just a good example of where our products are being used and how robust they are. So let's move to central laboratory then. So in central laboratory, we do have own analyzer, our bench top analyzer. We have a range of reagents.

30:28 We also have reagents that are total totally platform agnostic, such as BHB and glycated albumin. And we are the market leader for BHB, but bringing on glycated albumin, which is a

30:45 short term monitoring reagent really for diabetes, two two to three week monitoring. And this is this business is really, really growing. Unfortunately, we tried to launch this business in 2019 just before COVID, so we didn't have much traction at that stage. But this this product now is really building, and and and it's grown over a 100% as regards to 2019 and as regards to last year. So

31:12 a great portfolio of products there, and and the performance, as you can see, is if we look at PHP, it remains strong at nearly 10% for the first seven months. And why we've said seven months with regards to six months is that we've had some sourcing challenges in regards to bottles, etcetera. And a lot of the a a large amount of revenue rolled over from June into July. So if we take the first seven months, we can see the growth there. H one revenues are in line with 2021.

31:52 As I mentioned as well, with glycated albumin up a 139% in relation to h one last year. So what are the growth prospects then really in central authority? One of the areas where we've seen a lot of growth is working with our large distributor network and doing private label products. And why have we done this? So when distributors take on a private label product, their sales force is incentivized to sell the product. So when the sales force is incentivized to product, you're actually gonna sell much more product. And we've already done this with a couple of larger distributors, especially in The US, and we're continuing to do that through the remainder of of this year.

32:37 We brought in, as I mentioned, novel tests in years of limited competition like GA. We're also working on a reagent format that is a plug and play for different different instruments out there, so making it easier for the user. We see geographic expansion in Latin America, especially for Clin Chem and in APAC. And with group purchasing contracts, we're working quite closely with these GPOs and basically bringing the core of our products into those contracts. So very large contracts that we'll be working on. If we move to life sciences then, this is one of the major areas where you're gonna see growth, and this is one of the major areas which we've invested heavily in.

33:30 So why have we done that? What are the business drivers? So it's really demand demand for precision fermentation technology and services. What this is really, this has to do with the control and expertise that we bring to fermentation. And there's a huge demand for this in The US. There's basically a lack of capacity out there. There's also for downstream expertise. So not only performing the fermentation, but the centrifuging, the purification down down downline of the fermentation, and also adding value by potentially bringing in new technologies and downstream processing, such as spray drying to add a more wing to wing, basically, offering to our enzyme service.

34:24 We're gonna be leveraging the requirements that that for GMP. We our site is sites are FDA certified, and we have ISO thirteen forty five quality systems. The business one of the important business drivers in life sciences is the design in business model. When we're working with these customers, we're not only the contract manufacturer, but with their long term partner. And contracts you will see for life sciences will be five to ten years as the customer builds up, you know, the commercial products. We've been building these with a relationship with, EKF and with EKF. And as you I'll show you on the next slide the progress we've made in this.

35:10 But we've taken, partners that are very well known in the industry. And with EKF, they're producing the smaller fermenters for us, and we've already had those delivered, and they're on-site this week actually installing them and validating the fermenters. So moving really quickly on the life sciences business. Performance, h one revenue is up 96% versus 2021. That's really driven by our existing customer base, especially which which is a good indicator of the growth that we're gonna see in this area. We are building a new customer base now for this new facility. So we knew there was demand there, and we're already building a customer base especially in the food area.

36:00 So the demand for food enzymes, health food products, for food additives, like antimicrobial food additives. We're seeing traction in molecular enzymes, in CRISPR and PCR enzymes, and in other industry applications. So capacity expansion then on track to complete by the end of twenty twenty two, and then we'll see then the ramp up, and scale up in revenues from 2023 onwards. So the growth prospects and really leveraging existing strong relationships that we have with customers. We're working with companies already by contract manufacturing their kits.

36:46 And because we contract manufacturing their kits and they know that we have enzyme manufacturing capabilities, we've been asked to manufacture the enzymes, molecular enzymes also. And for the molecular assay, the most the most expensive component in that assay is the enzyme. So we're gonna work on enzymes not only for third parties, but we are thinking of bringing in an EKF brand of enzymes as well. We've invested in in a business development. We brought in somebody just to look at building our business in life sciences and contract manufacturing. And we will be investing in other new technologies in downstream processing, as I mentioned, drying.

37:32 For the food industry, they really want not only the enzyme production, but the purification, but really the production of a powder so that they can use that to add to their, products moving forward. We have three very large privately held, family, businesses that are moving forward with us, and they all want our 14 and a half thousand liter fermenter. So, you know, this is really, really encouraging that we've already got the customer base that we need to, utilize the majority of the capacity moving forward to next year and the year after. So just to bring the business to life for you to explain a little bit more about enzymes and about fermentation.

38:24 So what is the life science investment? So, basically, we took a 25,000 square foot facility from Pfizer. It was what it was their US distribution warehouse, and we are installing a range of fermenters from 65 liters to 14 and a half thousand liters. Our existing facility that we have in Elkhart has a maximum fermentation capability of 1,600 liters so that you can see with a 14 and a half thousand liter fermenter, that's nearly 10 times the fermentation capacity for one fermenter. If you look at the top left, you can see this is actually our new life science facility in South Bend, Indiana. And on the right of that, you can see where we've actually been prepping the building to take in new fermenters.

39:15 In the middle are actually the 1,500 liter and 3,000 liter fermenters that have been delivered, and as I said, actually been installed this week. And on the bottom left, you can see a picture of one of our guys hugging a 3,000 liter fermenter. And you just gotta love the passion in the organization and the passion of the people that we have in life sciences. Gentleman is Cesar. He's our operations manager. He's been with the company over twenty years, and he is so happy to be having investment in life sciences and having, you you know, know, the next state of the art technology in fermentation. And on the right hand side, you can see the where the guys went for the acceptance testing for the fermenters. So that just sort of brings it a bit to life. You can see what a fermenter looks like. You can see what we're doing in the facility and the range of fermenters that we're putting in.

40:12 So if we go to lab testing, so this is another area where we feel there's gonna be tremendous growth. What so our value add really in in lab testing is the quick turnaround from sample to result. As I mentioned, especially in The US at the moment, you would go to a clinic or a hospital. You would provide a blood sample. It would be sent off to LabCorp request, and you may get the result back in eight days, ten days, twelve days. Our value add is we're gonna turn that sample around in twenty four hours sample to result. And in NIPT testing, which I'll go on to in a second, we're looking at a forty eight hour turnaround.

40:59 What's very attractive to, private hospital networks at the moment is not only laboratory testing, but the range of services that EKF can bring to them. So we're bundling our ability of our range of point of care instruments plus our laboratory testing, and that's a real value add to just laboratory testing on it. So, we're working with a large, maternity hospital in Arizona where we're not just gonna be providing testing services. We're actually going to put instrumentation in their new lab and get people trained on it and build up a range of tests for that new facility and and work with them on a profit share after cost on those different tests.

41:52 With ADL, what was really attractive as well, and you can see a picture on the right hand side in the middle there, We've got a really highly experienced and technically qualified staff. And these guys have got years of experience in lab testing. They used to work into toxicology labs beforehand, and and we're in an ideal position to pivot from COVID to non COVID testing. We announced recently our strategic partnership with YourGene. This is for noninvasive parental testing in The US. Hopefully, we'll be one of the first labs to bring this test live in The US. And some of the future tests that we want to do, are based on next gen sequencing. So we don't want to be this mean to lab.

42:40 We really want to be, leading the pack as regards to new tests coming on. Give you an example. There's a company in the West Coast of, in California that's developing next gen sequencing infectious disease testing. We want to be the first lab in The US to bring that on board. We brought in NGS testing for NIPT. We wanna bring in NGS testing for oncology, and we're looking at prediabetes testing as well. So performance h one, two point one million. Obviously, you can't compare that to last year because they weren't on board with EKF at that time. Transition from from COVID to non COVID is going well. We have toxicology, medication monitoring online.

43:26 We have respiratory pathogen panel online now. We have cannabinoid testing online. And this month, we're gonna be bringing on NIPT testing and UTI testing. So real good momentum and pivoting from COVID to non COVID, really good growth prospects for the lab testing business as we move forward. Okay. Let's move to contract manufacturing then. So, obviously, we we grew a very large contract manufacturing business during COVID, and this was really basic contract manufacturing. This was put in tubes and swabs in a bag. Anybody could do it, but, you know, we felt good that we basically supported the testing efforts globally during the COVID, pandemic.

44:15 We did generate a lot of cash from this business, which we invested back into the business. But moving forward, we will be pivoting away from this very simple contract manufacturing model into working more on highly complex kits in the genomics and forensic space. And there is a very there's a huge demand for, you know, kitten in in that space, in that genomic space. And we will be offering a total wing to wing contract manufacturing service. What does that mean? That means that we will be providing a service from everything from sourcing of the raw materials to shipping and everything in in between. What's attracted to customers is that we're a very agile business.

45:04 We we we are moving rapidly with them. And as regards to global reach, we have manufacturing sites in The US where we do contract manufacturing. We opened up manufacturing facility in The UK, which is now doing a non COVID manufacturing. And we do have a facility in Baalaben with contract manufacturing capabilities, which we will leverage in the in the short term and the near term. So h one revenues then were down from 2021. Obviously, that's COVID coming offline. We did have a strong q one in contract manufacturing. There was a rollover of COVID business there, and that dropped off then as we went into q two.

45:50 What we did when COVID dropped off was we immediately restructured and removed the cost base. We had a lot of staff, almost 200 globally, that were temporary staff that we had to bring on related to COVID manufacturing and and quickly remove that cost base as COVID died off. So the growth prospects are then really leveraging our expertise and our capabilities. We have ISO seven class 10,000 clean rooms, which you need when you're handling RNA and DNA based products. Our our sites are ISO thirteen forty five two thousand sixteen, and we have FDA and we have FDA registered sites. We've invested in the business through business development, which I mentioned earlier. We are investing in potentially additional services in contract manufacturing, especially in The UK. We're looking to expand into, like, authorization, freeze drying capabilities as well, that service. And we are going to be launching a global marketing campaign to build the awareness that EKF is now a global contract manufacturer.

47:04 So just finishing off then the outlook. So, you know, we are a we do have a solid core and established point of care and center laboratory business, which is growing. We have a resilient and diversified business and product stream, revenue stream. Life sciences is on plan, and that's gonna deliver significant revenue in 2023 and beyond. And we are transitioning from COVID to non COVID in contract manufacturing and lab testing to produce to generate sustainable income moving forward. As regards to investment, the investment in life sciences is on track.

47:52 We've invested in point of care. We've invested in new facility in Germany to increase capacity there. On our Lactic products, we have a global wide integration project supporting global efficiencies in IT and other areas. And, again, all these expansion and growth plans are fully funded with internal cash. So So finishing off in growth. Good organic growth we're gonna see from Point of Care Center Lab and Life Sciences, leveraging existing routes to market and relationships, the expansion of the CLIA certified lab offering non COVID capabilities, and then pivoting, our contract manufacturing skills and relationships to non COVID business.

48:44 So in summary, we're on track to deliver adjusted EBITDA results in line with expectations for 2022. So Mark, this concludes our presentation. I'm happy to take any questions. That's really kind of you, Mike. And to Mark and Mike, thank you very much for updating investors this afternoon. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab just on the right hand corner of your screen. Just while Mike and Mark could take a few moments to review those questions you've submitted already, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Meet company dashboard. Now you'll probably see that you've received a number of questions from investors throughout today's presentation. And maybe, Mark, if I may, just hand back to you in the first instance. And if I could ask you to read out the questions and give a response where it's appropriate to do so, that would be fantastic.

49:35 Yes. Thank you, Mark. So I will pick up the first question, the first expenses as a percentage of revenue question increase from 18% to 39%? That's a good question. So if I explain the delta from 2021 to 2022, which is 7,500,000, The vast majority of that difference comes from one offs. So one offs that occurred in '21, but also within '22. In '21, there was a 1,900,000 credit in relation to share based payments that artificially reduced the admin expenses in '21.

50:25 In '22, there was 1,700,000, relating to transition and restructuring costs that I referred to earlier in my financial update with further details of those being in the appendix of the presentation. And for the purpose of adjusted EBITDA, those were treated as exceptional. There was also a further £1,200,000 relating to the accounting treatment of The US inventory payment that I also referred to earlier, and further detail of that is available in the back of the presentation. So those are the one offs that account for most of the change. We have also had an increase in admin costs this year. You will remember as a result of the acquisition of ADL that occurred in October. So it's not a complete like for like.

51:11 We have a new business unit, which contributed around 600,000 of additional admin expenses in the first half of the year. So I hope that answers your question. Thanks, Mark. I'm gonna pick up a question from Sam M. A great question here around the five point strategy statement that we made a year ago where there was no mention this time of acquisitions among Sinai partnership or paying a dividend. Let's take the last one first. So we did announce this morning the timing of paying a dividend, so that will happen at the end of the year. As regards to acquisitions, so at the moment, I think the focus, Sam, is delivering on the strategy that we have at present. We've got to deliver on life sciences. We've got to deliver on lab testing.

52:00 We really don't want to be distracted by an acquisition at this stage, but if the right one was to come along, we would have a look at it. But it's really some focusing on our strategy as is at the moment and delivering on it. I think we've got enough going on to focus on. And then the Mount Sinai partnership, we probably won't be doing anything with Mount Sinai for the next one to two years unless that's something interesting was coming along. The marketplace is just it isn't set up at the moment to do any of the sort of deals that we've done before with Renalytics, know, Trellis and Vireci. So we we we are keeping the Mount Sinai partnership going. We we we have regular discussions with them, but we're not gonna be focused on on that moving forward.

52:50 Thank you, Mike. I'm now gonna pick up a question from Murray Jay. And if you see it, Mike, I'm gonna pick up point one and two, and if I can give you a bit of time to form an answer for for number three. You got that? Where is that? You can see it on my screen if you want. So the question, I'll do them in turn. So the first question, how do you expect margins to change with the change in revenue mix in 2324? So clearly, one of the large areas of increases within life sciences. We are expecting that the additional benefit from further revenues in life science will be overall gross margin enhancing to the business. I won't be able to give you a figure at this point because we are still going through various commercial conversations. And, clearly, the margin that we'll make will depend on the industry application and also the services being provided.

53:40 But in general, we are believing that the the the strong and positive gross margins that we see in some of our growth areas being life sciences and lab testing will be overall enhancing to the gross margin position. The second question is, I assume you don't have any US dollar debt. So with 50% of revenue in US dollar, are you tempted to hedge while the pound is so weak? Another good question. Historically, the rate is very low at the moment, and we are benefiting. As a business, we benefit from a natural hedge within our currencies where we match off the revenue that is received with the cost base that is also in that currency. So from a cash flow performance, we don't have the pressure to hedge. Clearly, from a translation point of view, from a financial reporting point of view, it would be beneficial to lock in the prices.

54:38 Clearly, any, any opportunity to hedge will come at a cost as well. So it is a strategy that that will will be explored. But as I said, because of the natural hedge that we have in the business, it is maybe not as key a consideration as it otherwise would be. Mike, would you like to pick the third question there? Alright. So how how large could the NIPT market be for EKF bearing in mind the large players already offering this service? Another great question, Manny. I'm not sure, Manny, if you follow your gene at all, and I'm sure Lynn from your gene has has given a presentation on market sizes, etcetera. You know, let's talk about what we are doing in NIPT and the traction we are having. So there are some big players there. There's PerkinElmer, but that's not based on NGS.

55:25 That's not based on that technology. It's not as precise and accurate, should we say, as as your technology. The other big player really is Natera. Natera in The US does have NGS based technology. Where we are seeing traction is through the relationships that we already have with not only reference labs, but with hospitals. So we've already signed our first contract with a large reference lab, to do their NIPT testing for them, and that was really due to the quick turnaround that we're gonna be offering for this test as regards to the, competition. And we are working with a large, maternity hospital network in Arizona, and that's not only leveraging, the NIPT test, but what are the tests that we could bring to the market.

56:20 So this large maternity hospital is not only looking at NIPT, but looking at sort of oncology testing as well and a lot of other tests that EKF can bring to this table. So we really marry bundling NIPT testing with other potential tests that we're bringing on board. There is competition out there, but we've already seen that we can win in this business due to really the, you know, the the portfolio that EKF has to offer. Okay. So what is the Yeah. I'll I'll I'll pick up a question now, Mike, and then may maybe you can you can answer that one that that's on the screen. So a question from Mark a. Rather than share buybacks, would you look to accelerate your development through accretive acquisitions? As we've mentioned, it is a revised strategy of the Board to focus our investment activities on in the core organic growth within the business. We did a share buyback earlier on this year. There are no current plans to perform any further share buybacks at this time.

57:21 As Mike said in relation to M and A activity, it is not a specific focus at the moment, but we are often seeing opportunities come our way, and we have a senior team that are well placed to assess any opportunities. And, clearly, if the right, option was there for the business and it fitted within our strategic, growth strategy, then we would consider it. And, with the cash balance that we have, we are also in the fortunate position of being well funded to move very quickly, on acquisitions, as and when they come our way. Thanks, Mark. I'm gonna take a question from Steve Kaye, and the question was, what visibility do you have of new business from customers in the life science business? You seem very confident for this segment of the business. So we knew, Steve, that there was huge demand for the fermentation capacity that we brought on board, and this was really due to to this was customer driven, basically.

58:21 What we have been very successful in doing in the last couple of months is engaging very, very large privately held family owned businesses in The US that want the that need this new fermentation capability. And two large customers in the food industry, so looking for products for food, for health, and fitness products, looking for antimicrobial additives of food. So a lot of traction in the food business, a lot of traction for industrial enzymes, and obviously a lot of traction as well in the molecular business. COVID really put PCR on the map, especially in the demand for enzymes for PCR, is increasing.

59:08 But also we're working with companies in the next gen sequencing space, especially with CRISPR, and we're gonna be looking at manufacturing CRISPR enzymes as well moving forward. So, yes, Steve, pretty confident in this area at the moment, and that's only because of the customer base that we've already built. So looking for good growth moving forward. Okay. So I'll I'll pick up a question from Andrew on. I think this has been partly covered off in a previous answer that Mike gave, but but I'll just go into a bit more detail. The question is, do you intend to carry on with the in specie dividends for your spin out companies, most recently for Ricci? My concern is that these are early stage cash hungry businesses, and so the risk to shareholders of future dilution is material.

59:53 So we currently have no plans to do any further spinouts and dividends in specie back to shareholders. Again, that will be continually reviewed subject to market conditions, which we don't have control over. So no plans at the moment. And as you're aware, the the recent dividends in SPC have reduced the external hold holdings that we have on the balance sheet currently. Mark, do I have time for another one question? You do, sir. Please do. Please do. Alright. Okay. So question from Andrew R here. And the question is, are you able to expand on the level of demand from customers for your fermentation services? Specifically, how large are the projected contracts, and are they one offs or long term commitments? The great thing, Andrew, about this business is it's totally designed in.

1:00:42 So there's a lot of tech transfer and a lot of technology in bringing these products to commercial scale. And that's the, basically, the value that we bring to the customers. So when a customer works with us, they're definitely not gonna be one offs. There's a huge commitment on both sides here, and our technical teams work very, very closely together. So So these are really long term projects, maybe commitments, maybe five to ten years. How large are they? Really dependent on the the product itself and the project and the project itself. But I would say long term, very large contracts, especially if they're gonna utilize our large scale for Mentor. So really designing model here, Andrew.

1:01:31 Okay. And if I pick up the final question that's just come through from John s, which is will the life science business continue to be profitable in spite of the investment in the new fermentation capacity? So, hopefully, I understand the that question. The investment is in a different site in the South Bend site. The revenue that we're currently generating is within our existing Elkhart site. So given the separation, there's not gonna be any disruption disruption on our L Card activity, which is currently very profitable. In terms of the investment that we're making, this is capital expenditure. So that will go onto the balance sheet and and will not impact upon the profitability. So very confident that if we when we bring the life science new development online, it will be a profitable part of the business going forward.

1:02:22 That's great. Mark, Mike, you thank very much. You've pretty much taken all the questions you can from investors this afternoon. If there are any further questions to come through, we'll make those available for your review after today's meeting. I wondered if I may, Mike, knowing that investor feedback is important to both you and to Mark and the company. Before I redirect investors to give you their thoughts and expectations, I wonder if I may just ask you for a few closing comments. Yeah. Sure. Thanks, Mark. So really strong first half results in line with market expectations. Core business growing nicely and strategy for life science contract manufacturing lab testing progressing well. So we're really looking forward to continued growth for the remainder of this year and into 2023. That's great. Mike, Mark, thank you once again for updating investors this afternoon. Can I please ask investors on the call not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the management team can better understand your views and expectations?

1:03:19 So it'll 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. Good afternoon to you all.