Ekf Diagnostics Holdings (LSE:EKF) — Interim Results

0:01 Good afternoon, ladies and gentlemen. Welcome to the EKF Diagnostics Holdings PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab It's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so.

0:30 Before we begin, as usual, we would just like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to executive chairman, Julian Baines. Julian, good afternoon, sir. Good afternoon, everyone. Thank you for attending our interim, presentation for EKF DIAGNOSTICS. To begin with, when I came back to the business eighteen months ago, the board gave me and the management team a remit to return EKF into the strong, stable, sustainable business that it was, in 2019. And the team has worked really, really hard to deliver these results and get the business back to a level where, you as shareholders would expect us to be.

1:15 And so we have focused in many areas. So, if you could turn the page, Paul. So as you've known from the RNS, revenues are 25,200,000, but as I mentioned in the last presentation, we have spent quite a bit of time winding down non core product lines, loss making product lines and services. This has resulted in an increase in gross profit of 12,100,000. Gross margin improved at 48% in the first half of this year compared to 44%. We believe as a company that we can get it back to the days of 52 to 54%. We expect a growth in gross margin in the second half of this year. Adjusted EBITDA is reflecting the fact that the margins are improving all the time. So adjusted EBITDA of 5,400,000.

2:06 Profit before tax of 3,100,000 compared to a loss in 2023. And, very pleasingly, we were always a very cash generative, operationally profitable business, and we've got a cash, generated from operations to up to 7,900,000. And even if you include the fact that, as you all know, we had a 2,700,000 tax rebate, we're still showing cash generation of around 800,000 a month continuing to grow. So group cash at the end of the half was 9,800,000. We're now, as you would expect, well in excess of that. So we are we are quickly returning the business back to the cash generated, cash levels that we were a few years ago.

2:54 So you'll hear a lot about what have we delivered in the first half of this year and the last half of, last year. We we have achieved and finished the work on simplifying the business and stabilizing the cost base, which is yielding the results from the first page. We are now very focused on higher margin product, and core operations, and we're not just focusing on higher margin products. We're looking at means and ways of increasing the margin for each of those products by introducing operational efficiencies, bringing more in house. A classic example of that, which I will talk about a bit later, is the DIASPEC TM cuvette, where we have seen a big increase in margin on that product by bringing it in in house rather than outsourcing the manufacturer of that product.

3:46 That product is proving to be so successful that we've had to order two more, tools for the the product because we're now manufacturing over 4,000,000 tests per month just in DIASPEC TM. Ferment crate fermentation new fermentation business grew by 41% as we're scaling up capacity. However, I will talk about that, a bit later in this presentation because there's actually there's four areas now in South Bend that I want to talk about, and this area still needs significant improvement. We've continued to focus on operational efficiencies and review product mix to maximize margin improvement and deliver we are delivering sustainable growth from our core business lines only.

4:38 So the operational focus and increased margin is that we've I mentioned the improvements in the DIASPEC margin. We've also spent a fair amount of time improving the lactate scalp margin. Operationally, we've improved everything across the business from freight costs, from raw material costs, from introducing new IT new IT into the business. We also have discontinued the low margin products, low performing products, but it is, important to say there's a dis difference between discontinuing and finishing. We have some contractual obligations in clinical chemistry, which we still have to deliver on. So clinical chemistry won't cease to exist for at least, another twelve months as we, finish, the contractual obligations we have. All the others, though, have been discontinued, and, we are showing the, operational and margin benefits from from doing this. As you'd expect with any manufacturing company with a large amount of products that we manufacture, we do have some headwinds.

5:50 One of those is that whilst we were looking at margin analysis, our our diabetes h b a one c product, QoLab, we was very, very low margin. And so we we had a decision to make, especially with our biggest distributor for this product, whether to discontinue utilizing that distributor. The decision from the board was that we would do that. We sent a notification to discontinue the contract in June because the margins it was a negative margin contract. They have come back to us and said, apologized and said, want to negotiate with us increased margins, increased pricing. The issue we still have as a business, though, QoLabs, tooling and, manufacturing equipment is very dated.

6:43 And should we continue with this product, then we will have to invest well over 500,000 in, getting this product back up to the standard it needs to be. To remind everyone, we have quote test, as a replacement, but quote test is a a higher level product. It is a lot more expensive. So over the next month or two, the board will consider whether we carry on, manufacturing and selling QoLabs or not. I have to keep reminding shareholders that Russia is always a potential problem. At the moment, our trading in Russia is absolutely fine. It's very difficult to trade in Russia for us, but we have the capability in house to on every delivery, we have to deal with the German government to ensure that we comply with all standards to deliver products to Russia, which we do on every shipment. But it is quite a, challenge. With regards to our cash in Russia, it came down, if you remember, six months ago from 2,700,000 to 2,000,000.

7:49 It is still around 2,000,000 because we are able to continue selling in Russia. We get a dividend of €200,000 every quarter, so 800,000 a year. We aren't seeing the cash balance increase, but decreasing is has slowed down. We have to remember, though, we do get a double benefit from this because we own the Russian business. We pay the the Russian business pays a 40%, increase per product of everything they order from us. So we we do get the benefit of increased margins out of that out of Russia. And as you'd expect, we don't deliver without cash upfront. So everything is, working okay for now in Russia, but we don't know what the future holds.

8:36 What this slide is demonstrating is what we promised to shareholders and what we've actually delivered, and this was only six months ago. We promised to review and reduce the cost base on the entire business, which we achieved by reducing the cost on an annual basis by 1,900,000. We looked at review of resources and related costs. We've canceled low margin contracts, received reviewed suppliers, identified outsourcing opportunities, and reduced headcount. Our headcount is now the lowest it's ever been well, sorry, ever been since we, after all the acquisitions we made, it's at 291 people we have globally. But we are in a position now where later in this presentation, we have done all these actions, and now it's time to look at growth of the business across the whole business point of care as well as life sciences.

9:30 We focus on improving raw material purchasing, which I've mentioned. We've consolidated external production into core production facilities in Magdeburg and Texas, reducing costs and bringing raw material costs under control. Some of that admittedly is raw material costs have reduced post the pandemic when they went sky high, just after pandemic, but a lot of it has been implemented by by by the team in Germany and The US. And we've invested quite heavily in IT to improve the IT infrastructure across the board. In terms of next slide, Paul. Sorry. In terms of, carrying on the efficiencies that we've delivered, we've already mentioned we have removed we've taken the action of removing low margin products, which is demonstrated in the revenue, you know, with slightly reduced revenue for a much increased profitability and cash generation.

10:33 We've updated features on, products. We've launched the new ViaSend device, which has been well received in the market and, is continuing to grow. Our very positive position that we have at the moment is that we have a back order of Biosense, and so we intend to fill that back order through the rest of this year. We've significantly increased BHB fermentation. BHB margins have increased again, and that is because we only have to do one batch manufacture, should we so wish, out of South Bend compared to multiple manufacturing in Elkhart, Indiana. This has led to an increase in margin by two to three percentage points up to over 80%, and we've also increased margin by transferring our liquid reagent manufacturing to Texas because Texas used to be the the site that manufactured our Clin Chem, and now we've replaced that with liquid reagent manufacturing.

11:35 And we've canceled all canceled or renegotiated all nonpreferential partner agreements. The ones we have canceled, I've just mentioned, we've renegotiated with Fresenius and others, and we're in a very, very good and strong position to move forward. So I mentioned earlier in the the presentation the strategy for growth. It's all well and good cutting all the time. We have now reached the point as a management team where we want to start to invest some of the cash we generate in in growth, and we've introduced a new four pillars. We had the four pillars before, a new four pillars, which are gonna be in CapEx, r and d,

12:17 resurrecting cell lines, which will be interesting to talk about in a second from South Bend, and then finally, investing in our connect connectivity platform, is showing real signs of growth and contributing very much to the success we're experiencing certainly in the hemoglobin area, of the business, which I will talk about later. But because the strategy for growth really does involve, r and d and product management, I'm gonna hand over to Gavin now who'll go through what our strategy is going to be to grow this business over the next three to five years. Thanks, Julian. So, yeah, as we've already talked about, the the the operational review will continue. We've done a lot so far, but we can still continue that process on in terms of identifying low and negative margin products. It may not be that we'll discontinue those, but we may amend them. We may look at the contracts. We may be a little bit more refined in how we approach that, but that's something that we'll keep we'll keep looking at and we are committed to doing.

13:23 We're gonna look at, obviously, we've established some of the best opportunities for the operational cost savings. Now we need to make sure that we implement those and make sure that they are delivering on what we said they will do. We need to continue our investments, align any CapEx required to deliver the additional capacity we need. We are seeing a huge amount of growth. And what we want to look at is not just about where we're growing as a business right now, but where we're going to be growing over the next three to five years and make sure that the CapEx we're putting in now delivers on that. That's also gonna be aligned with our r and d roadmap. We've always had an r and d roadmap, but we've not spent as much as a company on r and d as perhaps we should in the past.

14:12 That's something we're gonna look at a lot more moving forward, both in terms of improving the current products that we've got from a cost saving point of view, but also from a obsolescence point of view and user features. You can see the first example of that in the the recent bias and facelift update. On top of that as well, we make sure that that's aligned with our our regulatory program. It's it's never been more important for us to align our r and d with our regulatory program. It's becoming more and more challenging. So right now, those are very, very closely aligned, and we wanna make sure that that that continues. We'll also be investing in new product development. I don't wanna talk over some of the things that Julian's gonna talk about later on with fermentation, but we will be rolling some of the enzymes we're producing in life sciences into the point of care portfolio where we'll utilize those enzymes in our new product development within point of care. That's not something we've done before.

15:15 What we're doing is taking multiple strands within the business and aligning them so that they feed into one another to produce a kind of complete solution. And that is also then connected to our connectivity platform, which will deliver pretty significant product development moving forward. We're certainly looking at developing our BHB business outside of the current lab based BHB testing. We wanna move more into the point of care BHB business, and we do have an ongoing product and project to be able to deliver that that will utilize some of the of that enzyme work we're doing right now.

15:59 In terms of CapEx, obviously, we do need to continue with CapEx in order to allow us to grow. We're looking at our current injection molding, updating the tools that we have externally, ensuring that those are update looking at multiple suppliers there so we're not necessarily reliant on only one supplier. On top of that, where we need to, we should we'd also be looking to outsource additional production. We've brought a lot in house where we've got special specialties in house. Where we don't have that, we should look to to outsource and we'll continue to do that. We will be updating our existing production lines to to cope with the additional capacity that we have right now, but also that that we're anticipating to bring in.

16:53 And we will be looking at additional automation in all of our production facilities, specifically in in packaging, something which currently is done entirely manually, but something that in the future we think we can improve on at least taking it to a semi automated process. Okay. So on to performance, the the geographic, scenario that we have in front of us is one glaring, number there in terms of Europe, Middle East, and Africa. One of the downsides of interims is things can come down to timing. So email there looks like it's reduced by 16% year on year, which obviously is factually correct.

17:38 However, built into that figure was, I don't know if you remember, we have a big tender in Egypt that we deliver, significant amounts of product of DIASPECT TM to Egypt, but it takes quite a long time to get all the, paperwork in place to make sure that we could do that. We would forecast, and that would be delivered at the end of June. It's actually going out on Friday, and that is a value of around £1,100,000, in one order, and so that's going out on Friday. And in terms of the, growth in The Americas, some of that is down to the fact that most of the, products that we've really moved from our portfolio hit the American market.

18:27 And secondly, we had a slow buildup of the women, infants, and children's programs. But, again, in The US as well, we've we've won a WIC tender, which is £500,000, which will go out in September and October. And what we're experiencing at the moment as a company is a slight hockey stick effect where the demand for product is, is very high and manufacturing is as as at higher level as we've seen for many years, certainly in the hemoglobin area of the business. And, we are delivering, high volumes of product, which is reflecting in the fact that September and October are looking to be very, very successful months for us, which obviously will help with margin and cash generation.

19:16 So, a little bit of this slide is victim to timing. However, Europe, Middle East, and Africa will be back on track by the end of the year, and I expect The US to grow, significantly from there. BHB is performing strongly, within that, and so, I think the the second half of this year is looking extremely positive, and we are comfortable as a company with where our forecasts are at the moment in the market. In point of care, so we've had focused growth. If you remember in the last meeting, I said that the sales of HEMA controlled had declined by 5% year on year, but I expected it to bounce back from success with WIC in The US and everything else.

20:03 And excluding the tender that I just talked about, there's been a 15% uplift in hemo control sales, and so it's grown by 10% compared to 5% reduction, last year, year on year. New pricing and product configurations has delivered 10% growth in lactate scout and analyzer growth. This is the most important part of this slide. We've seen a 51% increase in analyzer sales in the first half of this year compared to the year before, which naturally means as a razor razor blade company, the the razor blades are gonna have pull through, which we are experiencing already in the second half of this year and the first half of next year. So our point of care business is performing very well.

20:51 There are, some slight headwinds, as I mentioned, in in diabetes because of CrowLab, but in terms of hemoglobin testing, we are showing large growth in those areas. In life sciences, there's actually four parts to this slide even though there's three parts on there because the other one wasn't a percentage scenario. But in life sciences, two out of three are doing very well. So we're continuing to grow BHP. We are seeing, growth every month from Fisher. Fisher ordering higher, so we would expect BHP to finish higher than 6% year on year growth by the end of this year. We are seeing a ramp up in sales of BHP throughout the year, not just in the second half as Fisher get back online after the trouble we had transferring it into a white label product.

21:49 Core product growth, in thanks to South Bend, we're able to see, growth in the core products, and that is products that we manufacture for the likes of Roche, Ortho Clinical, Sekosui. So we've seen growth in the first half of this year. And it I think the growth is coming in volume as well as they see in the higher quality yield of products we're getting out of the new facility. And then on new fermentation, we've seen a 41% growth. I, at the moment, do not feel that we've got the strategy right on new fermentation. 41% sounds like a nice figure, but it's not as big as I would like it to be. And I think the growth opportunity is far greater than that. The reason I think strategically we've got it wrong is that we have a pipeline that's long, but nearly all of it is r and d an r and d pipeline.

22:44 And the problem with that is you're developing an enzyme for a customer. They come along with a formulation. You make an enzyme to that formulation. You hand it back to them. It takes a while for them to come back to you, then they want to change the formulation. And it never gets above sort of 50 liter fermentations. It's all tiny work. So it is delivering revenues. It is new business that's coming through, it's not business we'll discontinue. It's just not gonna drive the business as fast as I want it to be driven. So therefore, alongside that, we are going to work much harder in ongoing, first of all, for low hanging fruit, our existing customer base, to look at their capacity issues, to bring fermentation into South Bend on much higher volumes, is straight transfer contract manufacturing, not trying to develop an enzyme from the beginning. I'll give you an example. Why we haven't done this earlier is we did have two major customers, which I've talked about, that gave us forecasts of how fast they were going to scale up this year.

23:53 But they kept on changing the formulation of the enzyme. They won't scale up this year, but they may scale up next year. But we can't wait because I think this is an opportunity that's too good to not take action on and get the sales team here supporting the current team in place to drive the growth of this business. So that is what we're doing. We're actioning it, and we're going to, try and deliver on this. The good side and the really positive side is it doesn't affect our annual figures, doesn't affect our annual forecast, cash, EBITDA. South Bend is phenomenally profitable. So there is no cash burn involved in this. There is no from a performance basis, there is no issue. But we believe as a management team, this could do a lot better. It's a state of the art facility, and we've got to pivot and get our strategy right.

24:46 Albeit growing at 41%, it could do better, and that is where a lot of our focus is going to be for the rest of this year and throughout next year. Oh, there is one more thing as well, which is a big upside. My fourth pillar on this one is we have, cell lines within,

25:07 South Bend that have been as part of our business for many, many years way before EKF owning them. And these cell lines have proven to be, potentially very beneficial and will bring South Bend closer to our point of care business. They have especially four enzymes that we are now bringing out of liquid nitrogen and into developing these enzymes back to catalog enzymes, for want of a better word. The four are diaphyrase, phenylalanine, glucose esterase, sorry, cholesterol esterase and glucose oxidase. And the biggest plus with this, if you take the glucose oxidase, Gavin alluded to the fact that we want to develop further into markets that we are very strong in and know well. And if you have our glucose oxidase with our BHB, our strip that we've got IP around and developed over many years in our reader, we've got every single aspect of creating our own glucose BHB strip.

26:10 And the market in The US alone for glucose BHB strip testing is $59,000,000, very complementary to our lab based, testing. We have a sales team already understand it. We have distributors in Fisher and Cardinal who already understand it, and it gives us an opportunity to work with ortho outside of The US to drive growth in that. We should have feasibility on this completed by Christmas. The only caveat is with the new regulatory world of FDA and IVDR, we still will not expect to complete clinical trials and get approval at least until the end of twenty twenty six. It takes a long time, but we will be increasing our R and D spend to drive this product because it's a market we understand, a market we can access very quickly and a very large growth market for somebody like EKF.

27:05 There are products out there at the moment that would compete with us, but because we will be new off the block, the old products that are out there have no connectivity. There are a lot of issues with it that customers don't like. We will bring a state of the art product to the market that we think there will be fast take up on our our glucose PHP strip. So the outlook of the business, I think we've delivered on what we promised in terms of cash generation, EBITDA growth, solidifying the business and focusing on high margin products. Point of care is working really, really well, and we are focusing our r and d not just on, life sciences, but on, point of care now and bringing the life sciences and point of care businesses much closer together by developing enzymes

28:00 for our own tests. By the way, we can also sell those enzymes commercially, which is what we'll intend to do, which will be much more margin accretive compared to contract manufacture. We're confident that the point of care performance, which I mentioned earlier in Europe, Middle East and Africa will improve. It is improving. Those orders are in place. The delivery is going out on Friday. And I've mentioned the development of our own enzymes, which will add value to the business and also give us strong control over product development going forward. I'll hand over now. I don't know financially. You know, I'll hand over to Steve, I'll go through the full financial review and repeat the first slide again. Sorry. Yeah.

28:50 So this slide is just really a repeat of the first slide, so I probably won't go through it again because Jiren's explained also the detail. If we flick more to the next slide, there's a little bit more of the detail, which gives us the first the first the next slide is the detail of the revenue by point of care, life sciences, and other. What we try to do here is try to break that down in a little bit more detail, so the reader can understand a little bit more about Julian's probably explained what's in the point of care life sciences business sort of revenue sectors a little bit earlier. The other revenue was just other revenue we generate from other services and shipping charges and things like that. But we what we've tried to do is highlight in a little bit more detail for whoever's looking at the the the figures, what has actually dropped out or discontinued during the year. You can see the clinical chemistry, which is gonna be phased out over a period of time, probably by completed by the end of twenty twenty five.

29:53 But you can see that in the first half of last year, there was an element of testing, and UK manufacture still left in the business related to COVID, which is now gone. That's at the additional effect of reducing the cost base. And also the stat site m b h b product, which is phased out in the at the end of the third quarter in twenty twenty three. So then this year moving forward, there is no revenue. So you can see then you really got some revenues overall in the remaining sort of our core products, which are remaining only slightly up, so virtually flat for the first half of the year compared to the first half again last year. And then you can see how that impacts the overall number with all the discontinued lines underneath it. Then if we move on to the income statement then, you can see the revenue, you can see the improvement that Julian has already spoken about in terms of the gross margin. We think we can improve that will improve more during the second half of the year, and we hope to get it back up to the levels pre pandemic week. So when we're in the sort of low fifties as high as probably 54 in 2019.

31:00 So our aim is to move that in the right direction. You can see the overheads.

31:06 The optimal overheads is fine as well where you can see the reduction overhead. It's year on year for the first half of the year. We get additional benefits in the second half of the year compared to the full year of 2023. Won't be at the same level as we've achieved in half one in this half one comparison because some of those effects have already been felt during the second half of last year. And you see what's been moved in then to the operating profit from an operating loss during the first half of this year compared to last year, and you can see the result in EBITDA increase as well. And we we would expect with the sort of some of the

31:46 ongoing orders or type which we've got coming through in the second half of the year for that to be improved during the second half of the year, more in line with what our market market expectations are.

32:03 I suppose the one thing it which wasn't mentioned on that particular side was the cash position. We have a net cash position of 9,800,000 at the half year, and that is that includes the repayment of the revolving credit facility, which is HSBC, which was taken out at the end of last year. That was then repaid in in full in May 2024.

32:29 Thank you. Perfect. Gillian, Steve and Gavin, if I may just jump back in there. Thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the top right hand corner of your screen. But just while the company take a few moments to review those questions that were submitted already, I'd just like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can all be accessed via your investor dashboard.

32:58 Guys, as you can see there, we have received a number of questions throughout your presentation this afternoon, and thank you to all of those on the call for taking the time to submit their questions. But, Paul, at this point, sir, if I may hand over to you just to chair the q and a with the team. And if I pick up from you at the end, that would be great. Thank you. Thank you. We've got a question in for from Rob. You've successfully reduced your cost base by 1,900,000 largely through canceling low margin contracts and optimizing production. Are there any additional cost saving measures that you've got planned, and how sustainable do you think these reductions will be over the long term? I think, Rob, we've reached a point where cutting could be come detrimental to the business. So there are a few things we could still work on, few improvements we could make, but you're talking now hundreds of thousands.

33:44 We we have taken so much cost out of the business to get it back to where you would expect. There is very minimal cost cutting left that we could do. There are improvements in certain areas, efficiencies, but there won't be it it was a lot more as well than just, efficiencies. There was, you know, closing closure of sites, sort of lowered staff levels. We're down to 291 staff now, and we're back into a position of very strong generation. But as I mentioned, my opinion now is that we should be investing for growth, not continuing to try and cut costs even more. So my way forward now will be to look at where should we strategically invest and improve the business performance.

34:32 There's a question from Richard, maybe follows on from that. Given that EKF have delivered improvements in gross margins, earnings, and cash generation, what do you think are the key drivers or strategic initiatives that you anticipate will further strengthen investor confidence and enhance shareholder value as they move into the second half? Well, the biggest low hanging fruit for me, Richard, is South Bend. I don't think, as I mentioned in the presentation, that we have done as well as we could with South Bend. And I think that considering we still got over 80% capacity there, that is a very, very strong area for us to focus on investing and grow. And, you know, at the moment, we're leaving 7 to 8,000,000 in revenue and profitability on the table, not fully utilizing that site, albeit it being profitable and cash generative.

35:26 So a large focus in the next six months will be to get that facility as close to capacity throughout 2025 as we possibly can. The other areas that we're looking to short term areas we're looking to grow is to drive the growth in manufacture of DIASPECT cuvettes, get our enzyme our in house enzymes fully up and running so that we can commercialize those and sell them. And obviously, then in the longer term, start to invest in developing new products. And the last area we can see of growth now is that our connectivity platform is proving to be so popular that we're getting approached by companies with approved technologies where they haven't got the incredible distribution channels that EKF has. And they're asking us to not only align with them on connectivity, but would we be interested in licensing their products, to sell through our distribution channels. So we have multiple opportunities for growth.

36:32 And I just mentioned then the connectivity, we expect to put commercial team behind that now to start selling that because it's test agnostic and can be used on any testing platform, and so we intend to expand. Now we've got proven customers, alpha sites, beta sites, and commercial sites. We will be looking to expand that. So we have a number of areas that now we've hit the level we have that we can expand the business quite rapidly. Alex asks, could you comment on your go to markets in emerging markets like Asia and Africa where health care infrastructure is growing? We have a very strong where we're fortunate against sorry. I'm gonna take a step back here. One of the benefits of EKF and that we have found recently is that, for example, when HemoQ were taken by Dana taken out by Dana here and when Alea bought were bought by Abbott, they tend to go direct. We have distribution, very strong distribution in these territories where these distributors know the customer, know the government, know how the system works.

37:40 And so I we're seeing very strong growth in Africa, actually. We're winning a lot of tenders. A lot of it is tender based, but we know how to apply for those tenders, get into those the tenders. So I I actually think our APAC market is growing. Could we do better? Yes. I'm sure we could. But I think our distribution is really strong in those areas, we can support them more to that. I don't know if you've got Yeah. No. I I think just to reiterate that, I mean, you know, our go to market strategy has always been the same. You know, we do work well with distribution partners. There are gaps, and that's something that we we need to close, really. So we've been very good in certain markets within Africa. Africa is a pretty big market. Yeah. And suddenly, you can't really talk about it as as one thing. So there are gaps there, and that's really what we're looking at now is to try and fill in those gaps and make sure that, you know, where we've not been strong in the past, that we find the right distribution partners. It's not an area where we would go direct. We'll continue to develop key distribution partners. And it's it's gonna be identifying those. So I think that's the next step for us.

38:47 I mean, going back to the South Africa contract that you mentioned, Rob asks, is that reagent rental contract? It's South African or Egyptian because I'm confused here. So I think the South African contract is related to the the quote test analyzer installation, which is is linked to insurance. So it's yeah. So, yeah, that that it's not no. It's not reagent rental. It is, you know, it's a low installation in terms of low value installation on the analyzers. We put quite a few in there. It is tied into our connectivity platform. That installation process is still ongoing. But, yeah, we should it is based upon seeing high numbers of pull through.

39:35 There's a few questions here from Andrew. A shareholder is asking about the fermentation side of the business. Well, he was trying to understand the estimated outstanding CapEx cost for the fermenters project and then also what the projected annual operating cost business was. The CapEx is finished.

39:54 You might feel few tens of thousands, but in general, the CapEx is finished on that. Operating cost, I will hand to Steve. In terms of the Indiana plant split, there's currently two we still have two facilities out of fermentation capabilities, although all the fermentation is taking place in the new facility now. The annual operating costs are around $6,000,000. That include but that includes, like, it is a depreciation charge, wages, and the cost of raw material and things like that at the facility cost. Mhmm. He also asked about the approximate fermenter revenues for the first half. I'm conscious that you haven't disclosed that in your No. We haven't said so. You have done in full year, but I'm just wary of disclosing something that hasn't hasn't been made. But Andrew also asks about how many customers have contracted with services.

40:44 How many are overall customers? We've got a there's two two sides to that. We've only got three or four customers. One of the reasons we only have three or four, two of them initially said that they we were gonna develop the enzyme and we were gonna grow that enzyme. They gave us a plan for the whole of this year of scale up up into 10,000 liter, which is why we thought, okay, we need to focus on this, get this through to 10,000. Both of those customers have now they're still onboarded with us, but they've changed the formulation, as I mentioned earlier. We won't see any sign of scale up for those two customers until next year. We'll carry on doing work for the rest of this year. We're bringing we've brought on three or four more customers, out of our pipeline. It's the wrong pipeline.

41:32 I'm Andrew. I'm gonna say that's the wrong pipeline. We need to pivot, as I said, away from these r and t d level customers into much higher usage, businesses of which the crazy thing is we do have contacts and we do have abilities to get into those customers. I appreciate your strategy for fermentation has changed. Yeah. But the question Andrew was asking about originally when it was conceived, was it a bit of a flyer taking the the project without end user contracts place? Is that No. Sorry. Right. Right. There there is an element of it's not it's not being managed as well as it could historically. But, no, the the decision was made not as a as a flyer. It's when we Steve just mentioned Elkhart, Indiana.

42:23 We had one fermenter in Elkhart that was almost being held together by duct tape that was running £15,000,000 worth of high margin revenue for EKF. So the board had to make a decision to invest in in that facility. We would have replaced A Fermenter with A Fermenter, and it would have still cost us about 6 to £7,000,000 to the dollar, sorry, to develop that site. So we chose as a board, why don't we have a site where we can scale up and build a state of the art manufacturing site for existing and new customers, and the board decided that was what was should be done. Mistakes I I don't wanna talk about the past and who and what was involved, mistakes were made, but we are now in a position where we would have had to have this new fermentation capability anyway. We fully protected our BHB business, which is growing. We fully protected our core product business, which is growing by 12%, as mentioned earlier.

43:24 Now we've got to deliver on the third part. So it wasn't a flyer. It was essential that we updated either the existing site or went into a site that could offer us significant upside, and that opportunity is still there for us and for our shareholders. What he was trying to understand what the future CapEx spend expenditure might be over the coming years? It's about 3,000,000 per annum now, but it'll be fundamentally based in point of care. It won't be life science because we now see opportunities to grow our point of care business quite rapidly. So there'll be new tools, improvement in production processes, produce improvement in production lines, etcetera. And same from same investor. William was asking whether there was any force towards building a second site in South Bend. No. No. Not until we got the confidence so we can fill the first site because it's gone slower as as we all know than we wanted. Yeah.

44:21 Are you hoping to sign long term contracts, asks Martin, for manufacturing of enzymes in the next, say, six to twelve months? Yeah. Yeah. Yeah. Absolutely. We hope so, Martin. Yeah. That's exactly what we want to do. Yeah. And, sir, another question from Martin. Is increased Chinese competition a concern over the longer term when it comes to point of care in particular? No. Sorry, Martin. Is that Martin Taylor? I'm I'm guessing. No, Martin. We aren't we aren't experiencing any competition from China. We've had a couple of copycat problems, over the last few years, but in general, they do come become a pain in the neck and then go again. So we're not really experiencing and they struggle big time through regulatory IVDR FDA because their products are almost always not up to regulatory standard.

45:12 And there are two questions here about South Bend, which I think you might be able to answer at the same time. One of them Lawrence is saying about you've reported each time about how the, I guess, growth at South Bend has been disappointing or not as you'd hoped. How would you how can you give investors confidence that the the the the strategy now in place is is going to deliver that? And that's the question then that William has is, you know, what is the strategy for the facility there? Could you just, like, outline that or make it more clear for Okay. The the strategy going forward, the first question is a very fair one. And based on, where we are today, it would be unfair to say, I guarantee that this strategy will work. But we have brought in a product manager for fermentation who has written a report to tell us not tell us, to help us understand what is the best route forward for this, site.

46:09 We intend to invest quite heavily in a sales team that understand the market, understand the customers. And as I mentioned earlier, the strategy initially will be to approach our existing customer base to look for scale up of their enzymes we already make there. Because don't forget, we make significant number of enzymes out that site already, and also where they've got capacity issues and where we can rapidly introduce new higher volume enzyme fermentation production into into the facility. That I think is a very logical and strategic way forward to grow the business, but we haven't sat on our laurels, as I've said in the presentation, in terms of we're resurrecting our own enzymes, we'll develop for commercial and internal use, and we are continuing to grow the other areas of the the business.

47:10 But I am getting personally tired of coming to the to to saying we haven't quite delivered on what we haven't delivered on what we should out of that site. But the counterbalance of that is that the actions of the team has meant that we haven't seen any downside in business, and the performance of the business is really strong. So this this still remains a considerable upside for us. But we have to you know, I don't think we will be demonstrating massive growth, during our final results. I just think this will take we've learned that this takes time, and I put in my RNS, which I'm consistent with because this started six months ago. I put in the RNS that we wouldn't expect to fill that site until early twenty twenty six, and that still remains my belief. But, yes, we we know we know all shareholders are disappointed, But also during the road show this week, shareholders have been very pleased with the rest of the business and the actions that have been taken.

48:16 So the businesses, as you've described, has returned to very good cash generation, much higher levels than than in more recent past. Lionel wants to know, is there a strategy for cash distribution? What will you do with it? Right. There's the first thing that we're going to do, as I mentioned earlier, is we are going to invest a bit in infrastructure, bit in ensuring we get the right people for the sales in South Bend, for example. We're going to invest in CapEx in point of care, and we're gonna probably increase our investment in r and d from around 7 to 800,000 to probably 2 to 3,000,000 in r and d because we need to now not just rely on South Bend growth, but just growth across the portfolio. The second thing we will then consider, and this will be when the board feels comfortable enough that we have enough cash to cover all the things that we're looking to achieve, then we have a number of choices in front of us. The obvious one is will we return the dividend?

49:18 If if we return the dividend, it will be on a much more sensible base and not a one off payment per year. It'll be like a third, two thirds spread twice over a year, whatever. That hasn't been yet considered by the board because we're still focused on the whole business and and South Bend. Or the second option is to put a consistent share buyback program in where you take 20% of your earnings, and you do a share buyback throughout each year. That is another way of rewarding loyal shareholders where they get a bigger slice of the company by rewarding them not on a one off share buybacks, but consistent share buybacks. There are a couple of areas in which we would consider utilizing our cash moving forward, but I stress no decision has been made by the board on either of those.

50:12 Thank you, Julian. That wraps up the Q and A, and I'll hand back to Jake. Perfect, Paul. That's great. And thank you very much, all of you, being so generous of your time addressing all of those questions that came in, from investors this afternoon. Of course, we'll publish, all those responses on the platform. But, Julian, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, If I could please just ask you for a few closing comments to wrap up with, that'd be great. Yes. I'd like to begin with, firstly thanking everyone for their loyalty to EKF. There's a lot of people on this call that have been very loyal, and, I hope you can see that in the eighteen months, in the past eighteen months, we really have, realigned that bit the business back to those days of 2019, and I hope to be in a position where we can overachieve on a consistent basis.

51:08 I still have a lot of work to do, certainly judging by the questions on South Bend, which all were valid, and I accept every question. I also am pleased that, you know, EKF is a very strong business, and you may or may not know, as shareholders that about 75% of EKF is owned by six funds, all very loyal, all long standing funds who believe in in EKF being a very, a, a very secure investment, but also an event, an investment that has, opportunities for growth. It is on my shoulders, Gavin Stevens, the senior management team now to, we've done the hard yards. Now we've got to really, you know, improve the growth trajectory of this business, which we're all focusing and concentrating on doing. But I do appreciate very much your loyalty to the company and to us as a management team, and, I look forward to, showing you, positive delivery as, as the next months and years go by.

52:11 But we are on a, we're having a very strong second half. I believe we had a very strong first half, I think you can see that we're back in a position where from a cash EBITDA perspective, we're back to being a very strong investment. And I look forward to speaking to you again at the next presentation. But thank you very much for your time and your loyalty. Perfect, Julian. That's great. And thank you once again for updating investors this afternoon. I please ask investors not to close this session as you will now be automatically redirected for the opportunity to provide your feedback in order that the management team can really 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 would like to thank you for attending today's presentation.

53:04 That now concludes today's session. So good afternoon to you all.