Ekf Diagnostics Holdings (LSE:EKF) — Interim results

0:01 Good afternoon, and welcome to the EKF Diagnostics Holdings PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, can be submitted at any time via the Q and A tab

0:18 The company may not be in a position to answer every question received during the meeting itself. I hope the company will review all questions submitted today and we'll publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Julian Baines, the go to CHEM. Good afternoon. Good afternoon, everyone. Thank you very much for joining the EKF presentation. Before we start the presentation, I personally would like to apologize a little bit for the confusion and the messaging over the last twelve months. It's been twelve difficult months for EKF where we've lost two exec directors. There have been delays in South Bend in building the fermentation facility. And so what I hope to show you today and then we've had to rebase the figures based on information that, I have uncovered over the last three to four months. So what I'm gonna try to show you today is where EKF is today, how simple the new story is, how we've, Steven and I, the new CFO, have simplified the story, simplified the outlook, and put figures out there into the market that we, are very, very confident that we can deliver moving forward rather than figures that over the last couple of years have been difficult to achieve. So I just wanna thank you for your patience with EKF, and I think what I will show you today is a really bright future for a company that was always had a very, very strong core business that has been had an exceptional performance in

1:49 the first half of the year. But, unfortunately, that's been clouded by issues in South Bend and, obviously, other issues with regards to the new exec team. What I can say to you all as as shareholders, I am now fully committed to this business and will be ensuring that the delivery that I will outline and talk about today will be achieved, and it will be achieved over the next twelve to eighteen months. And because of the patience of everyone resetting the figures to targets that are ultimately achievable for a business like this, I feel extremely confident that moving forward, we will deliver what you expect from a company like EKF. Oops. Sorry.

2:36 Sorry. So the strategy of the business, I've done my, best now to really simplify EKF for everybody. So we have just four areas now that we are gonna be focusing on as a business for the future. These four areas are our high margin, high revenue opportunities. So the number one in that is, of course, BHB. For those of you who do not know what beta hydroxybutyrate is, it's a measure it's a measure for, diagnosing ketoacidosis in people with diabetes, and it's a business for us that now has revenues of around, 12 to £14,000,000 per annum at a 75 to 80% margin.

3:22 That is a very, very important product for us. It's made out in, Elkhart, Indiana, which will move eventually to South Bend, but that will be our our very first focus. Our second focus all these are equal, by the way. Sorry. Our second focus will be on hemoglobin testing. The reason for this is that we're number two in the world at the moment, but we have seen, in our DIASPEC TM, which is the little blue device in that, picture, We've seen with DIASPEC TM a 45% year on year growth in that business. We've invested in it this year so that we will no longer be outsourcing, cuvette manufacture. We will be manufacturing it in Baarleven in our German facility from January next year. All of that is online to be delivered, which will have a very strong positive impact in our margin, for that product.

4:14 The red product, which is Hemacontrol, is, high you'll notice it had a slight decline in revenues this year, but that was down to, what we sell into Peru. So diagnostic per Peruana, they have revenues around 2,000,000 a year for testing for malnutrition in children in Peru, but there was some political turmoil earlier in this year. And we didn't actually start selling into Peru until April, May of this year, but that has picked up to a very high level. But the important thing about that is that for years now, we have been supplying them what's called single pack cuvettes. So, the cuvettes that we test, they come in tubes of 50 cuvettes.

4:59 We've been supplying Peru single pack ones, but because of the nature of how we manufacture it, we can only make 15,000 a month. However, we've, just completed installing an automated line so that we can manufacture at least double that single pack cuvettes, which give us opportunities outside of Peru in in, remote places in Africa, India, etcetera, etcetera. And why is this important? Well, a pack of 50 cuvettes, when you send it to a remote area of Peru, they're never gonna do 50 tests, and they find that they waste between thirty five and forty cuvettes out of every pack. So that's why they wanted one cuvette at a time. HemoQ have no capability of doing this. So this, for me, will give us another competitive advantage with HaemoControl in the in the hemoglobin market.

5:55 And then we have our diabetes products, quote test and quote lab. They grew at 1824%, respectively. Still got very strong demand, out there in the emerging markets, is the main area in which we sell that. And then, naturally, I'll talk later that the fourth area of real, focus for me is the fermentation enzyme capability in South Bend. So we over the years, so for those of you who followed EKF, we've always had four areas of, four areas within the business. Now we've cut it down to just two. We are only gonna be talking about point of care and life sciences. The point of care, just to cover what I've just said, is the hematology and diabetes business as a whole, 16,600,000 revenue in the first half, which is 61% of our overall revenue, but there is a huge opportunity for growth.

6:54 As, unfortunately, as health care declines, there's an increase in frequency of testing, certainly in malnutrition in poorer countries, but also we've seen a large increase in blood bank testing globally. So if you have to go and give blood, you have to have a hematology test to give blood. So we have seen that we are taking market share in that area mainly through Fresenius Kabi, but also through our own distributors certainly in, India and in Asia Pacific. So we do see this as a big, big growth area for us. And, obviously, diabetes is a very large growth area, and we're seeing expansion in that both. Don't forget BHB is also a diabetes product even though it's under life sciences, but also our co test and co lab.

7:44 With regards to specialist enzymes, just to remind everyone, in Elkhart, Indiana, we also manufacture BHB, but also, products such as salicylate and acetaminophen for Roche, products for Sakusui. And our, aim is over the next six to nine months will be to close down our Elkhart facility, move this all into our South Bend facility, making it a Rolls Royce facility for all enzyme manufacturer that we do there, plus all the new applications that we are bringing on, hopefully, this year and next year. So operational highlights. What is slightly frustrating for me now in the position I'm in, we've had the best revenue half we've ever had in the history of the company at 26.9, excluding COVID.

8:38 I mean, just core business, best revenue we've ever had at 26,900,000. But our adjusted EBITDA has fallen to 4,400,000, and that is for many reasons. One is that our cost base is far too high. We are working very hard to reduce that cost base, which I'll talk about a little bit later. We have identified a number of areas. That cost base has increase has been caused by wage inflation. Part of that to do with, the pandemic, it's being caused by, raw material cost increases and utility cost increases. We have a defined strategy to review, reduce the, certainly, the salary perspective within the the business, but also in terms of the, raw material costs. There's not a lot we can do about utility costs.

9:30 But we are at the moment, in 2019, we had a margin of around 53.8%. At the moment, it's around 44%. And, Steve, who's only been with us a month or so, but we're identifying a number of areas where we can improve the margin. Some of it is operational, of course, as I mentioned, bringing the DIASPEC TM into the under our control, closing our cart, etcetera, etcetera. So some of it is in our control, and others, we we're gonna directly target areas where we know that we can reduce, the the expenditure. We've shown life sciences showing 13.6% growth. And then South Bend is I will talk about South Bend at the next slide, but South Bend, all its quality management orders, which we talked about before, have been completed.

10:20 As I mentioned at the beginning, I am now fully committed to this business to deliver on all the things I'm talking about today. One thing that we are looking at is in terms of increasing margin, our clinical chemistry business in general is a loss making business, and we're looking at these nonprofit making business units and making decisions over the next six to nine months with regards to those. The reason it takes that long is is as a business like a business like ours cannot just close these businesses. You've got to give the customer six to nine months to find alternative sources, but we will be very much focused, and I'll repeat this throughout this presentation, very much focused on the four areas I mentioned at the beginning of the presentation.

11:10 So I won't dwell on this slide purely because it's it's quite obvious, but, you know, we're gonna be investing in reviewing the cost base, making sure across the entire business, focusing on internal and external expenditure. We have found costs in very in a lot of areas with regards to expenses have gone up double in some case to where we were in 2019. We'll make be making sure that they will be looked at and reduced. Looking at reviewing resources related costs, focusing on improving raw materials, all of this I've mentioned, and making sure that what Mark started as a business has continued in terms of improving our processes and systems to support the growth that we're aiming to do as well as mentioning investing in single pack cuvettes and manufacturing.

12:05 We're gonna optimize efficiencies by removing low margin loss making products, legacy products that we've had, some of them since the sixties, believe it or not. We're gonna continue to invest and grow the form and functionality of our existing port of point of care portfolio. We're not looking to expand that portfolio because we're in such a strong position with the products we have. We're just looking to continuously review and improve those products. One thing that's important about life science is if we end up transferring the Elkhart products into South Bend, one area that will be, of great benefit is, for example, if we manufacture enzymes for Roche, at the moment, we do five or six runs per annum.

12:53 If because we've only got limited size fermenters in Elkhart, if we move to South Bend with a much larger fermenters, we probably only need to do one or two runs per year, which will massively increase the margins for us as a business. And we're looking to review that across all our enzyme capabilities.

13:13 And so and we're gonna review all current partnership agreements going forward to make sure it's aligned with where we want to be and where we're going. That includes distribution. So South Bend update. I think that there's been a lot of concern and confusion about the continued delays about, South Bend, so I hopefully can put clarity around this. So, fundamentally, the installation has taken a lot longer than than we thought. And one of the reasons for the, trading update two weeks ago was that even though all the fermenters are now installed in South Bend, all of them need to have so they need to go through a six week verify verification and validation process.

14:05 Every one of you on this call has the right to say, I thought you said that they could be done individually one by one, and then you could bring in revenues for each one as they are validated and verified. Since talking in in great detail with the team in South Bend, it is not the practical way to do it. The practical way to do it is to qualify all the fermenters at once over a six week period, so in ensuring that they're all aligned. So I made the decision that we will do that over this next six weeks, and we will not

14:41 have any revenues. Or I've announced that we would not likely have any revenues this year out of South Bend, which I know was disappointing to everybody. However, we have received our first order for South Bend, which will be done this year. So, slight positive news is that we'll do revenues around 250,000 out of South Bend, but, of course, that's nowhere near the 3 to 5,000,000 that was expected. But, hopefully, if I explained there that we need to do this properly, we need to do this right, I've rebased the numbers so that we run the business correctly and not just chasing revenues and EBITDA. It has to be done properly. It has to be done correctly, and that's what we're doing. And we're making sure that we deliver on this, facility.

15:31 We can also do at least 75 to 80 fermentation runs per annum, which dependent on the product. If it's enzymes where you you have purification at the end, this could lead to to 14 to $20,000,000 of revenue. But we've only forecast 3,000,000 next year because, again, I am being much more cautious about our approach to this because one of the issues we've also had is that, initially, we were saying we could be all things to all men. Basically, we could do anything from food enzymes, industrial enzymes, agricultural enzymes. But the real reason for building this facility was for pharmaceutical and diagnostic enzymes.

16:13 And that's where I want to focus because, a, that's where our expertise is, and secondly, that's where the margin is. So we will be really, really focusing on those two areas. The other issue we would have had if we went on to do all the other areas, it mentions downstream processing here. The downstream processing and purification for food enzymes is vastly different to pharmaceutical and diagnostic enzymes and would have cost more. And the margins in, for example, food and agriculture are a lot, lot lower. So I've again made sure that we focus and deliver on the areas of fermentation, which brings us the best margin where we have the best expertise. And as I mentioned there, we got our first customer secured, and that will be manufactured this year.

17:01 So point of care performance, 9.9% growth versus h one twenty twenty two. But the asterisk shows you this includes central laboratory. If we didn't have central laboratory in this figure, the growth would have been more like 14%. So it gives you an idea why we're looking in great detail at the low margin or negative margin businesses within the in the portfolio and focusing on high margin. You know, our DIAGNOSTICS grown by 45%. It is the best hemoglobin meter in the market. We're taking a lot of market share. We work alongside McKesson, Fresenius. Because I think also people have forgotten that we deal with Roche, McKesson, Fresenius, Fisher, Cardinal.

17:51 Some of our customers are long standing, very large businesses. I talked about HemoControl in Peru, but that's all back online, so you'll see a positive percentage growth in h two. And QoLab and QoTest are growing at double digit growth. Historically, again, people who followed EKF, I've always said that point of care will grow at 6% per annum, but you can see from just those three products, we are continuously now delivering double digit growth. And for next year, we've only forecast 6% growth again. So we're, again, being very, very cautious in our approach to make sure that, we deliver for for shareholders. Life sciences performance, shows 13.6% growth versus the same period.

18:39 It excludes contract manufacturing now because that was mainly COVID related, and, hopefully, I don't have to talk about COVID anymore. The growth has been mostly driven by sales of beta hydroxybutyrate at 27% growth in that product to deliver the 13.6% growth in the in the business. Development of South Bend will lead to to greater reduction in fermentation costs, which I've already mentioned two slides ago, And we are now focusing on delivering these new customers into South Bend next year as well as existing customers to create a site that becomes very, very high-tech, but also very high margin business.

19:27 I'll hand over to Steve now to give oh, no. You you haven't got in front. No. Don't don't worry. So the final I can do is, Steve. So the financial highlights. Revenue from continuing operations of 26,900,000 compared to 37,500,000 last year, but that obviously included COVID. Revenue growth in continuing operations. So therefore, like for like in the core business, is 6.8%. As I mentioned, the EBITDA figure, are looking and focusing on very much for next year of 4,400,000, Gross profit of 11.8. The margin of 44% slightly improved. It isn't good enough. I'm gonna say that now. It isn't good enough. In four years ago, we had 53.8% margin. Steve and I I'm not gonna say we're gonna deliver that next year. That would be ridiculous, but we will be focusing over the next two to three years to get back to that level of margin that we used to have before the pandemic.

20:29 Net cash. This is this is important because I know people are concerned about the cash balance within EKF. In the end of June, we had a cash balance of 9,200,000. At the end of September, we'll have a cash balance of 9,100,000. So our cash generation, despite the outgoings, has been very, very strong. And we are now getting cash out of Russia, so it's not a lot. We can get a €100,000 a month dividend paid out of Russia, of which we receive 60,000 because if you remember, we only own 60% of the Russian facility. So the other 40,000 goes to the shareholders, in Russia. Our current cash balance in Russia is 2 is 1,900,000, down from 2.4.

21:21 So things are improving from the Russian perspective, but that 9,200,000 excludes the Russian money. So we are paying the dividend at the end of this year, and we would expect our end of year cash to be around 2,400,000. But we do have a facility in place two facilities in place of 6,000,000, 3,000,000 in asset loan, and then 3,000,000 with HSBC, which, I only just have to sign the agreement, then we'll have that 3,000,000 in place for. We're very secure moving forward with regards to operational cash, etcetera.

21:58 Steve's got the presentation. Yeah. So Steve you can you just talk. I'm going to chat away, Steve. So the financial Apologies if you can't see me, but yeah. It's a good thing. Yeah. Anyway In terms of you looking financial performance, the chart on page 12 of the presentation, which I believe is the one, which is up, is it? Yeah.

22:22 So if you look at the performance of the individual business units, students touched on already, You can see point of care, 16,600,000 compared to 15.5 15.1 last year. Again, life science is split into BHP and fermentation and other COVID related items, which you can see with the big drop off has come there because in in terms of the life sciences side other as well, you can see with the big drop came there because it's COVID related, and it includes from 2022, it included some shipping on on material for US inventory related to COVID. So you can see total group revenues, 26.9 compared to 37.5 compared to 2022. But if you turn to the next slide, that probably gives you a little bit more of a sort of a comparison of where we are in terms of revenue, gross profit, gross margin, overheads, and operating profit, and adjusted EBITDA.

23:21 And it follows on from what Julia said, really, in terms of you'll see we've put 2019 net in there for illustration to show where the core business was in '20 the first half of twenty nineteen at 21,400,000, and where really the core businesses in the first half of twenty twenty three at 26,800,000. There are a few differences due to some corporate related work, but the majority of it is really comparing like for like. You can see the gross profit percentage. The value hasn't gone up that much, the percentage has dropped significantly from 53.8 down to 44. And you can see the overheads themselves have also increased from roughly around 9,000,000 to 11,900,000, which then is the knock on effect of impacting the overall EBITDA number. And you can see the EBITDA from 21,000,000 turnover in '19, it is 5.5, and 26 high '26.

24:16 In '23, it was 4.4. So the cost base, some has risen during that. There has been margin erosion for obvious reasons, same to material pricing, wage inflation, and things like that. But the cost base in general has increased as well, and we'll be targeting that moving forward to reduce the cost base moving forward to try and get the margin back up by looking at margin improvement of the product. We're also looking at looking at where are we spending some of those overheads on? Can they be reduced and improved upon moving forward?

24:57 So in summary, I believe, unless I'm wrong, we have simplified the story. We've realigned the business back to where we were pre the pandemic. We've taken out all the headaches and the smoke and mirrors that we've had to put up with. And, again, I apologize for this over the last two years. And I feel very, very much happier, that we have a real line of sight for growth over the next two to three years. And I'd much rather be in a position that we are in in seventeen to nineteen of delivering to shareholders rather than constantly defending. So I'm extremely happy with the progress that we are making, but there's a long, long way to go, and the delivery is is only just beginning. We have a huge amount to do and a huge amount to achieve as a business.

25:45 As I mentioned, very, very and I I will keep saying this. We're focused on high margin products and services. So enzyme fermentation, BHB, hematology, and diabetes. And now I would like to hang hang back to Paul. Fantastic. Look, thank you very much indeed for the presentation. Ladies and gentlemen, please do continue to submit your questions using the q and a tab

26:22 accessed via your investor dashboard. You. I'd now like to hand over to Paul McManus to host the Q and A. Paul, as you can see, we've had a number of questions, both pre submitted and throughout today's presentation. Could I please just ask you to read out the question where appropriate to do so, and we'll pick up from you at the end? Just pop your camera up, Julian. Thank you. We'll start with some of the pre submitted questions, Julian and Steve. The first is, it appears you've had some difficulty in managing the program to expand the enzyme business. All all all of the change throws up challenges. This is not high up on the complexity scale. What plans do you have to ensure that your latest plans are executed to time and without further cost, delays cost money as we see from the reducing cash balance? I would answer that question in in two areas. We have had difficulty in managing the program for a number of reasons.

27:12 One is we've had delays in delivery of some fermenters. We should have employed, more than one project manager to to manage this. We've had issues in in terms of the pandemic and building work, fit out, plumbing. So the managing of the program, I think that, we've had difficulty is a fair comment, but I think that all the fermenters are now in. I admit totally that they're late, but the ferment fermenters are in. All everything. The building works are done. We've started the verification and validation, which will be done by October 25. There is still risk there in terms of if the VNV fails, but we don't think that is very likely. But there's still risk there.

28:02 I don't agree if the if you don't mind me saying that this is not high upon the complexity scale. This has been the biggest program that EKF has ever ventured on, certainly the highest in terms of investment. But it's been an incredibly complex installation, incredibly, because we wanted to make sure that each fermenter had its own clean room so that we could do different fermentations at different times. It's been a hugely complex project. So I don't agree that it's not high in complexity. It has been and you will find that most fermentation companies, it's it's a complex process, certainly putting in the downstream processing, the purification as well as the fermenters. So that has, been, difficult.

28:49 What plans do you have to ensure your latest plans are executed? Well, we're in validation and verification now. It's we're aiming to open the facility fully on October 25, and I agree delays cost money. But, also, I announced that we wouldn't have any revenues this year. I now believe that we will do $250,000 worth of enzyme fermentation in the final quarter of this year. And so I think that the plans are are well on the way to being executed. But, you know, I'm looking forward to announcing at the end of October that it's all complete, and we're ready to make the way forward. One of the other questions was asked about future dividend policy and what future considerations might be for interims.

29:38 I I I will have to apologize, I think, to whoever submitted that because I don't think it'll be appropriate for you to give any forward looking statements on dividend policy outside of an r and s. So you would wouldn't be able to answer that question. Question. The next one is is about what is the current position in terms of EKF's portfolio being compliant with IVDR and with some professionals already starting to notice products coming off the shelf as a result of the complexities of complying with these new regulations. Does this present EKF with enhanced opportunities? Yeah. Yes is the answer to that. Next. No. I'm joking. So that was being facetious. Apologize. But we have all our major four products, DIASPEC TM, HEMO CONTROL, QOLAP, and QOTEST are all well down the roots of IVDR.

30:26 I find IVDR is very detrimental to the diagnostic market because small companies just cannot afford to implement IVDR. It it's it in many cases, it's a ludicrous regulation. However, it's a very fair question. For companies like ours, it does enhance our opportunities in with regards to obtaining IVDR. We're just waiting to be audited, but there's numerous issues with that. There's just been nothing but problems with it. But it will give us enhanced opportunity certainly in western markets where companies can't compete with regards to I v IVDR. So but I would still say they keep on putting back the expectation date of when you need to get IVDR approval.

31:17 So it'll be over time, but I'm pretty sure it'll be beneficial to us. And, unfortunately, a lot of good products are coming off the shelf because companies are not bothering with it, and they'd rather go through FDA. And I find that astonishing that everyone would rather do FDA than IVDR. On the question of recruiting a new chief exec, has this been temporarily suspended as opposed to terminated, and has the process today yielded any suitable candidates? It hasn't been temporarily suspended. It is being terminated. I am staying now as fundamentally the CEO. I've committed to the board that I will see this growth and delivery through the next however long two years.

32:05 So, no longer am I looking to step down at the end of January, and, I owe it to not just myself, but to you as shareholders, to Christopher Mills, who's been incredibly supportive of the business and of me. And so and it's been a difficult very, very difficult time where we thought we we had a solution. And now, one thing that's very important for people to know is that I worked with Steve back in my BVI days. We worked together for seven years. And so bringing Steve in has really helped me in terms of, putting a strategic focus on the business and and looking at where we should be, driving the business. We've worked very closely together in the past, and it makes and what that's done for the staff. The staff got very, very you know, they're they're incredibly good team of people we have at EKF, and they got very nervous when the CEO and CFO stood down because that gave them a sense of, you know, what's wrong, really. And there there was nothing wrong, but I think that Steve coming on board alongside myself and and committing properly to the business has steadied the ship. And I had a number of people over from The US and Germany, and we've we had a very, very strong outlook on on the next year or two.

33:25 So, hopefully, that answers the question. For now, it's it's me and Steve driving the business forward. Two parts to this question. One was does EKF have strategic plans in place for a US listing? And the second part, I think you probably have already answered, but does that have an impact on the has that had an impact on the recruitment of the CEO? We're too small. Looking at my experience of my limit experience limited experience of reanalytics with Nasdaq, we're way too small at the moment to to list on in The US. I understand the question, and it's a reasonable question with markets so poor in The UK at the moment and AIM suffering the way it is. But I think that AIM is the right market for EKF because we'll be one of the few businesses, I believe, on that market that is cash generative, operationally profitable, and is a is a really good solid business. And I don't think in diagnostics is anything quite like EKF on AIM. So we will be staying on AIM. So, therefore, the CEO question answers itself.

34:29 Given the recent increase in COVID surveillance testing, what's the situation in terms of demand and that of EKF's current COVID related inventory? Very, very limited. PCR testing is around labour, but it's still in very, very small numbers. This new variant of COVID has caused quite a lot of illness, but there doesn't seem to be that much increase in testing with PCR. So don't forget we're not a lateral flow testing business. We supplied MTM. Also, I have to be honest. It's very good question about the inventory, and, naturally, we'll try and get our inventory reduced wherever possible.

35:11 But I wanna make it clear that I think COVID in hindsight has been quite damaging to EKF, and so we have no wish moving forward to be involved in any form of COVID testing or anything else of that nature. What is the current operational position of the new Leipzig facility? Can I cut across that there is no new Leipzig facility, EKF, and the project? The reason being is that, as I said at the beginning of the meeting, it would be margin wise, it would be far, far more beneficial to move DIASPEC TMQ vet manufacturing to Baalhaven alongside our Haemakontrol. So all we're doing at the moment in Leipzig is staying in the old, very low cost facility producing the lactate product, but it won't be a core focus for us. But it is a it is a revenue generator and and does give us margin, but that's all we're doing.

36:04 So we're no longer doing anything in Leipzig. Going back to enzyme fermentation. Have the delays in the validation of your increased capacity impacted the onboarding processes and therefore affected the relationships with customers that EKF already have established relationships with and who were well advanced in the process of transferring to EKF for enzyme contract manufacturing services. With our existing customers, it's had zero impact. I think I understand the question, but just to to split it down into two or three points for existing customers, it has zero impact because we've been making the enzymes out of, Elkhart, and we'll continue to until we can transfer over. For customers that were, looking to come on board with, EKF, As I mentioned earlier, one of those has signed an order, which could be very beneficial to us next year because this is just first phase, the $250,000.

37:02 Some of the other customers I have chosen to not pursue because they were in food, enzymes, or agriculture, which isn't our expertise. We're now focusing a lot more on pharma and diagnostic enzymes. So the straight answer to that is some customers have fallen away, where we would have had to spend a lot of money putting in different downstream processing, but we're now very focused on the the four or five customers that we are looking to bring on board next year. And as I mentioned, we've only put in our forecast for next year 3,000,000, and I think that is a very, very reasonable target to to achieve. Given the advantages of CRISPR based diagnostics, clustered regulatory interspaced short, panoramic repeats Thank you. Diagnostics and the potential to revolutionize the field of diagnostics, Can you elaborate on the opportunity from the manufacturer of CRISPR enzymes for molecular diagnostics?

38:05 To what degree will EKF branded molecular diagnostics products impact EKF's diagnostics portfolio in terms of product development and opportunity? The with regards advancing CRISPR based enzymes, we have not made progress in that area because, as a board, we have decided to focus on, the pharma and diagnostic enzymes in which we have a significant amount of, experience. Strategically, this question is really important. I want to get South Bend up and running over the next year before we start to look at r and d of our own enzymes, but a natural progression for this company is to develop the next BHB or the next CRISPR or whatever specialist enzyme that we should be developing. But in the short to medium term, and I'm talking the next twelve months, I want to get South Bend bedded down, delivering the revenues, delivering the margins, the profitability that we've promised for too long to to shareholders. So that's where my focus will be.

39:09 And the these types of enzymes will have to wait until we're at at a point where we feel we're back in the position to deliver on them. Could you elaborate further on the degree of likely improvements from the DIAGNOSTICS manufacturing initiatives? The the biggest one will be volume and margin. So we'll be able to double our our volume, and the margin should increase pretty significantly. We should be able to bring down the cost per test by 10 to 20% at least. So that's the main benefit of doing it. Question about point of care. I noticed it note that the point of care gross initiatives, the majority of point of care sales coming from come from recurring revenues from consumables. The installed point of care base appears to be relatively static.

39:58 Are there any specific initiatives to grow point of care in store base of instruments from existing and new, including geographically, therefore, further enhancing the opportunities from the investments made in manufacturing? I'm gonna need to come back to that question. And the reason I say it is I don't agree. I think that we are installing installing more based on our inventory and sales of instruments. You will always have in point of care a third instruments, two thirds, tests. That would that's a very broad average, but that's how how it works. I would need to come back to see because I don't think they're relatively static. Certainly, the DIASPECT TM is not static and nor and definitely not co test and co lab this year. So, I'll I'll need to check. The one thing that could be static is BioSent, but that's because we sell BioSent into Russia.

40:57 So and it's our biggest market, and we cannot sell BioSent into Russia anymore because it has the optics in the instrument, and you can't sell a product into Russia anymore. It's got optics within it. But we do sell the tests, and we've been, selling into Russia since 1989. And so, therefore, we still sell around £3,000,000 worth of tests into Russia, but no instruments. Where does Asia fit in terms of point of care growth potential, particularly with regard to hematology and diabetes? And does India in particular form part of any EKF growth initiatives? We sell a lot into India already, and we continue to do that. The most successful product in India by far is the DIASPEC TM because the cuvette cost is very low, and it also works in extremely high temperatures.

41:45 So we we do sell a lot into India. We're always faced with the margin consideration because it's extremely competitive market. It's a extremely low cost market, but we are seeing continuous growth in EMEA and APAC where we do, you know, do focus our attentions a lot certainly in point of care. Does the further expenditure in life sciences in South Bend that are planned for the second half of the year also address the greater customer needs for downstream processing that became apparent? Yes. They do, and that's a very fair question. That's why part of the delay has been in place and why the cost overrun has happened is mainly to do with downstream processing.

42:33 So a question just on on the updates that you put out up to July 26. Told about the good progress being made in the project to increase fermentation capacity and that units would have been operational generating revenue by 2023. Then in the September 12 statement, you announced program delays, withdrew all guidance for full year 2023. Well, I think you need to address that because you did provide guidance in your update, but this is how the question reads. Three related questions to that. Why were there these problems not identified earlier? What is is the the mantra doing to strengthen the team on the ground delivering the project and make sure that there's better communication? And what's the expected further CapEx expenditure to complete the project? How much in total will it cost? So I don't know if you can quickly remind people that you provided guidance for full year twenty three three revenues.

43:25 It was 53,000,000 and Yeah. I provided the guidance of 53,000,000 and 10,000,000 EBITDA. But I I suspect what they're saying was that they withdrew you withdrew any expected revenues. Yeah. The reason we we withdrew any expected revenues When I started to work in when I came back in and started to work in detail with the team in South Bend who were a superb operational team, it became very apparent that they were rushing, to deliver the revenues that we had in the market, and there was a disconnect between what we were forecasting at the market and what we were able to do properly to deliver a very, very high class facility in South Bend. So I took it on myself to say to the guys, you know, what is happening? And I agree that I said we're making good pro pro progress, but what I didn't take into account is that, yes, the facility was completed at the beginning of September, but there's a six month week verification and validation program that's needed, which would take us to the end of October, which we're in the middle of at the moment.

44:38 I then looked at what it would take to hit the original 3 to 5,000,000 revenue that was being in the market for the whole year. It was impossible. There was no way we were gonna hit those revenues. And the only way to deal with that was to say to the market, we're not gonna hit those revenues. The third thing we said to the market, and this predate you've gotta remember all these questions slightly predate me. But the third question that, I need to answer is that we also told the market that each individual fermenter would generate revenue, and we could do validate and verify them individually and gen generate revenue. That, as it appears, was not the case. We need to validate and verify all six fermenters at the same time. Otherwise, it would have caused confusion and chaos within the facility.

45:32 And the team that are on the ground there who have been with us for some of them for thirty years, Cesar, who runs it, was telling me we have to do this properly, and it takes time. So the information I was receiving wasn't the information that, was on the ground. The further CapEx left is the overrun of cost has been significant. We got further CapEx of about $1,100,000, and it will end up being 16,000,000 to complete the site from an original budget of 9,750,000. But, again, the team have been informing me that that was never particularly the case. But, that is where we will end, but we are very, very, very near the end now of any more expenditure that, we have to do. Most of the CapEx now is fundamentally on minor building works and on downstream processing.

46:29 It's a question it's on the same I'll stay on South Bend. A question from the same investor who's asked about you referring to substantial revenue growth in 2024 for enzyme manufacturing services. In the past, the company has mentioned annual revenues of maybe between 10,000,000 to $50,000,000. But your house broker in their forecasts are suggesting that these services would generate £3,000,000 worth of revenues in 2024, 5,000,000 in 2025. Do Do you you think think that these are an acceptable return? That's a fair question. Do I think they're an acceptable return? I would hope to massively overachieve that, but I want to get into a position where we grow that business in the correct areas.

47:16 And I've mentioned this numerous times on this call. We've gotta be focused on diagnostic and pharmaceutical enzymes. We've gotta ensure that we bring them in, purify them, and make sure that we're a success in those two areas. And I do not want to make promises to the market that we can't deliver. Am I comfortable with 3,000,000 out of South Bend next year? Well, you'd expect me to say absolutely. But do I expect more? Yes. But I want this to be managed in a in a very careful manner and make sure we have the right customers in the right margin. Also, with with regards to respectable return, our intention is to move all our enzyme manufacturing from our rundown facility in Elkhart, Indiana into, South Bend because we would have had to spend significant millions in Elkhart to bring that facility up to date. So rather than do that, we've built a brand new facility, which will also very much assist the ROI.

48:19 And if we bring those into in house into South Bend, then your revenues are already looking at 7 or 8,000,000. But in terms of new revenues, 3,000,000 is, where I'm setting it now until we get the other thing I would like shareholders to understand is we've gotta get to make sure that this facility runs properly, what the returns are, what the yields are out of the fermenters, etcetera, etcetera. So I don't want to overcommit too early, but I would rather be in a position of pleasing the market than disappointing again. We cannot afford EKF to disappoint the market again. I suspect you won't be able to answer this question, but just one of relating to that because you are overpromising or providing a forecast yourselves. But there about how quickly you expect South Bend's capacity to wrap up ramp up.

49:11 And can you express that utilization statistics? I think you've just said there that, you know, your your house broker has conservative conservative forecasts, which you would hope to beat, and you can't really provide a forecast for that. Not forecast. Right? No. No. Okay. Though relating to the expansion of fermentation revenues, what are the business development steps that the business are taking to to to get more sales coming in? Oh, we've we've we're bringing in a new commercial person to help drive the fermentation capability. We're massively increasing our marketing capability. We're obviously exploiting the existing customers that we have and making sure that we grow. We're obviously going to the likes of Roche and Sekosui saying what more can we do for you in terms of enzyme manufacture.

50:02 And so we have a multifaceted approach to this. Believe me, it's as I mentioned in the beginning, there's four areas of investment and growth, and and this is definitely very high priority to us. There's a question regarding the facility that you have Yeah. The 3,000,000 and the additional 3,000,000 from HSBC. Why do you need to have that in in place, and is that to cover potential potential cost overruns? No. It's to do with PLC. Fundamentally, PLC took every single negative forecast for cash that we could possibly throw at them, and we've always wanted to avoid any form of going concern, considerations, etcetera, etcetera. As I mentioned earlier, you know, our cash generation is proved to be a lot, lot better than than in the worst case scenario for PwC.

50:57 Do we need this HSBC facility? No. Are we likely to use a facility? Maybe up to a million, but we don't really need the HSBC facility. But this was just to make sure that we have no issues with PWC moving forward. It's as simple as that. In terms of price increases, what extent are you able to increase prices? We increased prices across the board earlier this year at 10%. Unfortunately, that average is out at 7%. I can hear everyone saying why. Unfortunately, we have certain contracts with certain customers that are long term at the set price. And, also, with certain of the big boys, we have to offer some small price reductions for an increase. So, example, small price reduction for Roche for a big increase in revenue.

51:51 However, that will be offset by South Bend, which is why we did it because South Bend will increase our margin significantly out of South Bend evening that out. But on average, we've increased prices around 7%. At the AGM, you talked about an analyzer of Vets that was launched in December 2022. Is this one of the products that you no longer propose to do, or will it continue? This is continuing, but it's not a product that is going to go into the tens of millions. It's when when I announced at the AGM, we forecast selling 10 instruments in a year, and we've done 28 in a month. It still sells pretty well. We're we're up at around 60 or 70 for the year, but it's not something that we it's something we manufacture on Leipzig. It's not something we're not a veterinary business.

52:46 It's similar with the lactate. We're not a sports business, so we'll be focusing on on our scientific capability. But we there is no need to discontinue it, and we will be carrying on doing that. Are you still in the position where you have no long term debt? Yes. Yep. That was an easy one. How much of the overhead that you're describing is headcount? How much are you targeting for reduction? Because of the nature of that question, I've gotta be careful. A better way of saying it is by closing Elkhart, we don't need two teams of operators. We'll just have the team from Elkhart working in in South Bend. There are overheads in certain areas of the business that are COVID related, which we could take out.

53:38 But from a professional perspective, I would rather be very, very careful how I answer that question. Are you still selling products sorry. Why are you still selling products in Russia given that there's a high risk of payment defaults? I don't know whether that is the case. You need to ask that. But certainly, the inability to extract the revenues. Well, as I mentioned earlier, we are now able to extract a €100,000 a month. From there, our balances have gone down. The other thing is that we own the facility in we own 60% of the facility in Russia. We've never ever had a payment a debt ish a payment issue from there ever in the history because we own 60%. We supply just tests into Russia for he for diabetes, and we did look at selling the business back to the two owners to sorry, the two other shareholders.

54:38 And it would actually the way the process works at the moment, we wouldn't have got 1¢ of our cash out of the business. So we're better off taking the dividend and continuing to run the Russian business. However, I will say the revenues in Russia will have dropped by next year from 4,000,000 to under 3,000,000, and that is all factored into next year's forecasts. Just that, I guess, you can only give rough ideas here, but do you have targets for gross margin across the business in terms of the medium term and how that might compare to peers? And there's also a specific question about are you what's the percentage gross margin that you would target for the life sciences business? We would be targeting 60% plus for the life sciences business, and we should, over the next couple of years, get the point of care business back up over 50%.

55:31 That won't happen, as I mentioned earlier, next year, but but Steve is very much focused on increasing the margin because that's where the high higher EBITDA will come. As I mentioned in 2019, we did 45,000,000 revenue and 12,500,000 EBITDA. And this year, we'll do 53,000,000 and 10,000,000. So it doesn't take you know, it's very simple to analyze and say we need to do something about it, which is what we're working on. Just three more short questions, I think. One is, is Mike Salter still working for the business? No. He isn't. And by the way, can I clarify that? We were somebody once said we didn't announce it, and we should have. That is partially correct. Mike had stepped down as CEO, but it would have been prudent to announce it. And we were gonna announce it in our interim results or end of year results.

56:24 Sorry. We're gonna announce it in our trading update earlier this year, but Mike then published on LinkedIn that he'd left the company. And so, therefore, announcing it was no longer relevant. We didn't have to announce it as a from a legal perspective, but we were going to announce it as part of our trading update, but Mike announced it on LinkedIn. So two more questions. The penultimate one, at the last presentation, you gave assurance to shareholders who were upset regarding Source Bio and what happened there that you wouldn't allow the company to delist on the cheap. Is that still the case? Absolutely. We're not I'm probably gonna get this question every time I present, but we are not delisting. We're not we've got I hope you can see from this afternoon, we've got a lot to deliver, and and delisting is not even in my thought process.

57:15 We're in a very good position. We want to build from here, in a strong position now, and, I wanna look forward. And there's nothing like that being considered on the board of EKF. The final question is, given the outcome of what happened on Sunday night, who's gonna win the World Cup? Wales, of course, naturally. No. Yeah. Well, I'm a very, very happy man, and so is Paul, and so is Steve. Your three Welshman around the table. But and I think we'll get to the semifinal, but then I think it'll all come apart again. So there we go. Julian, thanks very much. That's all of the questions that we have. That's great, Paul. Thank you very much indeed. Julian, thanks indeed. And wish you the luck for the game. Thank you very much for addressing all those questions. Of course, any other questions that do come through the team, we'll be able to review those and publish responses where appropriate to do so. Julian, perhaps just as a couple of closing comments just before redirecting investors to give your feedback, would that be great?

58:12 Yes. I just wanna say I meant what I said at the beginning. I know it's been disappointing. It's been a very it's a year full of turmoil and difficulty and disappointment, and I I do take that on board. I do take it personally. That's why I really feel, strongly that we will deliver this business, but it's gotta be done correctly, it's and gotta be done in a in a sensible strategic growth manner, and that's what we're aiming to do. And, we now because we've now put the past behind us in terms of all the confusion, all the issues, the overspend in South Bend. And I think we are have now reached a point where we could start to properly grow again from a post pandemic situation.

59:01 And, you know, forecasting 17% increase in EBITDA next year gives you an insight into where we really truly believe we can take this business. And so I think we're in a we've got an incredible core business in diabetes and hemoglobin and BHB, and then we've got the considerable potential upside of the fermentation. But it, you know, we ask for time and patience, but we'll also now from here, we'll start to deliver significant upside from where we are today. But I, as I say, I apologize for the turmoil and and the communication and the changes that have happened over the last twelve months. Fantastic. Thanks very much indeed, Julian. Thanks for updating investors today. Can I please ask investors not to close the session? Should we automatically redirect it to provide your feedback in order the team can better understand your views and expectations.

59:54 This will only take a few moments to complete. I'll be directly 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. That concludes today's session, and good afternoon to you all.