TIDMEKF
RNS Number : 0615Z
EKF Diagnostics Holdings PLC
19 May 2021
EKF Diagnostics Holdings plc
("EKF", the "Company" or the "Group")
AGM Statement
Strong trading continues into Q2, upgrading full year
expectations
Growth Plans & Managed Succession
EKF Diagnostics Holdings plc (AIM: EKF), the AIM-listed
point-of-care business, provides an update to shareholders ahead of
its Annual General Meeting ('AGM') today at Harwood Capital, 6
Stratton Street, Mayfair, W1J 8LD at 10.30 a.m., including an
upgrade to current year trading.
As previously announced, the Company is providing a facility for
shareholders to join the AGM, either online or telephonically and
investor questions will be addressed afterwards. For dial-in
details please contact Walbrook PR via email at ekf@walbrookpr.com
or call +44 (0)20 7933 8780.
The Chairman's AGM statement is produced below:
Introduction
As fellow shareholders know, 2020 was by far our most successful
year to date, with record turnover and profits. This strong
performance continues into the new financial year, driven by a very
meaningful recovery in trading from both our core business which,
despite the ongoing effects of the pandemic, has performed more
strongly than expected with growth in the first quarter, and
continued strong demand for our contract manufacturing services for
COVID-19 sample collection devices and associated kits.
After multiple upgrades last year and a step change in
year-on-year performance, the announcement in March of a
multi-million dollar contract expansion for the supply of sample
collection devices to a large multinational customer drove a
further material upgrade to revenue expectations and a significant
one for profit for 2021. The March upgrades were based just on
visible orders under the supply agreement and a continuing
conservative approach to forecasting on the core business. Strong
trading continues into the second quarter 2021 and the Board is now
confident that trading for the full year will be comfortably ahead
of already upgraded management expectations.
There is clear scope to evolve our contract manufacturing
activities beyond the current pandemic catalyst and to capture the
significant additional potential for the core business. Recognising
this, the Board has been evaluating EKF's growth strategy with a
view to ensuring and driving sustainable growth into the
future.
While our approach to forecasting and guidance to analysts may
be conservative, our aspirations are ambitious. Your Board is very
clear that there are excellent opportunities to support accelerated
growth within our core business, and to utilize our strong cash
generation effectively to generate further considerable value for
shareholders. In this vein, I wanted to take the opportunity today
to outline the next stage in our strategy to deliver additional
substantial growth.
This does not in any way imply that our COVID-19 business will
not continue for many years to come. Our largest contract is for a
minimum of two years. In addition, we continue to win new clients
who may add to our current production. In fact, we are investing in
our COVID-19 related activities as we strive to increase capacity
in our manufacturing facilities to meet the increasing demands of
our clients. Our manufacturing capabilities are applicable to other
forms of diagnostic tests and we are already making third party
products for other healthcare applications.
Strategy to 2024
In 2020, the core business (excluding contract manufacturing and
associated revenues for COVID-19 sample collection tests and kits)
delivered revenues of circa GBP38.5m. We believe that our evolving
strategy outlined below will allow us to create a business which,
aside from any COVID-19 related revenues, is capable of generating
significant double-digit growth in adjusted EBITDA(1) over the next
3 to 4 years. This can be achieved through investment in aggressive
organic growth in areas of our business where we already have
expertise and proprietary technology, as well as by funding other
means of delivering additional shareholder value such as targeted
acquisitions. We believe that the investment of between GBP10-15m
in funding the strategy below will generate a material contribution
to the planned growth in adjusted EBITDA.
As at 31 December 2020, we had net cash of GBP21.4m, having
generated GBP13.8m of cash from operations compared to GBP5.1m the
year before. Our strategy for growth to 2024 and beyond will see us
use these funds to:
1. invest in the existing core business to maximise the value of
our distribution network and drive aggressive organic growth;
2. continue to maximise value for EKF shareholders from our
agreement with Mount Sinai Innovation Partners ("MSIP"), which
allows us advanced access to innovative commercial opportunities
and where we can build on the ongoing successes of Renalytix AI
plc, Verici Dx plc and the further success that we are confident
Trellus Health plc will see;
3. seek out complementary and targeted earnings-enhancing
acquisitions with key strategic value to the core business;
4. deliver against these aims and allow us to continue to follow
a progressive dividend policy and to generate enhanced shareholder
returns; and
5. continue to maximise the opportunity to assist clients to
control the impact of COVID-19, and to evolve our new contract
manufacturing capabilities in this area to a broader range of
diagnostic and other healthcare settings
1. Investing in the existing core business to drive aggressive
organic growth
We believe we have a number of excellent growth opportunities to
exploit in our Point-of-Care and Central Laboratory & Life
Sciences businesses, where we can invest now to maximise the future
value of our existing and expanding distribution network for our
core products.
In particular, we have identified a demand-driven opportunity
within our existing contract fermentation business to expand our
facilities in South Bend, Indiana. To meet the requirements from
several customers for increased production, without any disruption
to the continuity or security of supply, we plan to invest in our
fermentation capacity increasing our annual manufacturing capacity
eight-fold at least. Specifically, we intend to invest in new
installations of 1,500L, 3,000L and 14,000L fermenters, to be
delivered as validated operations by third party turnkey experts in
this space. This capacity expansion will result in significantly
increased EBITDA contributions from these operations as we fulfil
demand from both well established and newer customer relationships
across a diverse range of end products.
One of the great strengths of our business has been the
establishment of an enviable distribution network in Point-of-care
and we believe we are well positioned to maximise the value of this
network, both for existing and new EKF product deployments as well
as after providing development services for white labelled
third-party products, leveraging already strong customer
relationships. We already expect to see growth from a number of
areas including the roll-out of McKesson's Consult OEM version of
DiaSpect Tm, the launch of DiaSpect Tm into blood banks in the US,
positive signs of a recovery in <BETA>-HB Liquicolor reagent
sales across a number of customers. We also expect to significantly
grow the market penetration of our new Lactate Scout product,
Lactate Response, to be used within ambulances to test patients at
risk of Sepsis. We believe this to be a substantial market
opportunity and look forward to updating shareholders on the
pathway through regulatory approvals and commercial launch in
initially targeted geographies in 2022. Overall, we are promoting
opportunities for our distributors by delivering differentiated
products and broadening their range of products through further
innovation.
In summary, we are very optimistic about the opportunities we
have to deliver significant, robust organic growth from our
existing core business between now and 2024, as well as the
emerging opportunities in diagnostic testing and contract
development and manufacture which are described below.
2. Maximise value from our agreement with Mount Sinai
Innovations Partners (MSIP)
As we highlighted in our recent full year results announcement,
one of the key aspects of our growth strategy is focussed around
our Preferred Partnership Agreement ("PPA") with MSIP. This
relationship allows us access to innovative commercial
opportunities arising from certain technologies managed by MSIP. We
have already delivered considerable value to EKF shareholders
through our relationship with Renalytix AI plc ("RENX"), which
combined biomarkers originally licensed by EKF, data, expertise and
access to biobank samples at Mount Sinai and a strong management
team to create a breakthrough approach to measuring and managing
risk of chronic kidney disease. EKF shareholders received nearly
21m shares in RENX which floated at a share price of GBP1.21 and
the shares yesterday closed at GBP10.35, representing a value
delivery of 47.7p per share to our shareholders to date. In
addition, last year we sold part of our holding in RENX realising a
profit of GBP5.7m (equivalent to 1.25p per EKF share)(2) , and our
remaining holding, based on yesterday's closing share price,
represents a gain of
GBP9.17m (equivalent to 2.01p per EKF share).
Assuming all EKF shareholders retained the 21m RENX shares
issued to them in 2018, they will have benefitted from a further
distribution of shares in the RENX spin-out, Verici Dx plc
("VRCI"). Those VRCI shares distributed in 2020 are now worth,
based on yesterday's VRCI closing price of GBP0.595, approximately
GBP12.5m (equivalent to 2.74p per EKF share). EKF itself as a RENX
shareholder received 2,677,981 VRCI shares today worth c. GBP1.6m
based on the GBP0.595 VRCI price (equivalent to 0.35p per EKF
share) .
The most immediate opportunity from the MSIP collaboration
relates to our $5m investment in Trellus Health plc ("TRLS"), a
company working to transform the way chronic conditions are
treated, with an initial focus on Inflammatory Bowel Disease (IBD),
including Crohn's disease and ulcerative colitis. EKF's original
31.1% holding (c. 28m shares) was distributed to shareholders in
December 2020 and we anticipate a successful debut on AIM on or
around 28 May 2021. At EKF's July 2020 investment price, these
shares were worth GBP3.2m (equivalent to 0.70p per EKF share).
In total these ventures have generated potentially up to 54.85p
for EKF shareholders (excluding any uplift at IPO or beyond on the
valuation of Trellus Health), and we believe the MSIP relationship
will generate further exciting opportunities to deliver value to
shareholders.
3. Targeted, earnings enhancing acquisitions
We also believe there are exciting opportunities available to
acquire strategically relevant, earnings enhancing acquisitions to
support the core business and increase our capabilities of our Life
Sciences business, moving us up the value chain from just component
and kit manufacture on the testing side of the business. The key
criteria when seeking acquisitions will be how we can integrate
these businesses into our current model to deliver enhanced
earnings contribution.
4. Progressive dividend policy
EKF is strongly cash generative and as such the investment
required in organic growth is expected to be met from existing
available resources. Whilst we believe that investment in all three
of our strategic goals above will provide significantly greater
value returns for our investors, we also acknowledge those
shareholders that are seeking income from cash dividend payments.
At the end of last year we paid our inaugural cash dividend of 1p
per share (in respect of 2019) and recently confirmed that, given
our strong cash generation in 2020, we intend to make a further
dividend payment to shareholders of 1.1p per ordinary share, which
we propose to on pay on 1 December 2021 to shareholders on the
register on 5 November 2021. It is our intention to maintain a
modest but progressive dividend policy.
5. Driving value from our COVID-19 business and evolve our
contract manufacturing capabilities
As I've mentioned above we do not believe our COVID-19 business
will end suddenly. Our largest contract is for a minimum of two
years and as we continue to win new clients we are investing
further in our manufacturing capacity to meet the increasing
demands of our clients. However, we know that we also have the
opportunity to leverage this capability in test-kit contract
manufacturing created across our sites in the US, UK and Europe to
provide other services. We are already in discussions with our
private sector partner, with whom we have a recently signed,
multi-million dollar global supply contract, regarding the
expansion of our support beyond their world-wide COVID-19 testing
programme for their staff, to supporting a much broader commercial
testing capacity to cover other areas of infectious disease,
chronic disease and general health and wellness.
Our manufacturing capabilities are applicable in other areas of
diagnostic testing, and for molecular disease and forensic test
manufacture. We are also evaluating the potential to offer contract
development services, whereby we would use our existing skills to
support customers earlier in the process of product development and
specification.
Executive changes to deliver against this strategy most
effectively
To optimise delivery against this strategy, we are also
announcing a number of planned changes today to the
responsibilities within the Senior Management team and Executive
Directors to best align the skills and expertise of the excellent
team we have to attaining the objectives for continuing
success.
Mike Salter, who currently leads our US operations and has been
instrumental in delivering much of the growth we've seen in this
region, will become Chief Executive Officer. Julian Baines,
currently CEO, will become Non-Executive Deputy Chairman and will
take on a new role specifically focussed on delivering value from
our relationship with MSIP. These changes will come into effect
from 1 October 2021, with Mike and Julian continuing to work
closely in the interim as the CEO responsibilities are transitioned
to Mike. Richard Evans remains as Financial Director and Chief
Operating Officer, although Richard has signalled that he will look
to stand down from his position at the end of June 2022. The timing
and sequencing of these changes allow for the orderly transition of
key roles and responsibilities, and we are currently undertaking
the necessary succession planning.
Mike Salter, an organic Chemist by training, is based in San
Antonio Texas and has been head of our Americas business since
joining EKF in October 2017. Mike was responsible for overseeing
the growth of our Diabetes and Haematology business in the US and,
by leveraging his business network he fixed licensing agreements,
built production capacity and secured orders for our COVID-19
sample collection kit business. Mike has been a passionate leader
of our US team and has been instrumental in securing many of our
largest US contracts and growth opportunities and is the ideal
candidate to deliver the accelerated organic growth described
above.
Mike has over 35 years of experience in the Life Science and
Diagnostics Industry. He joined Amersham plc, the UK's largest Life
Science company, in 1984 and spent 20 years in various Operational,
Product Management and Business Development roles. When Amersham
was acquired by GE in 2003 to become GE Healthcare Mike moved into
senior commercial and business development roles leading new
strategic Diagnostic initiatives. In 2016 Mike became General
Manager of the Global Custom Genomics Business in 2016. Throughout
his time at GE Healthcare Mike managed a successful multi-million
dollar business providing Biotech and Lifesciences companies with
products and services to support the development and launch of
their new products. At EKF Mike has been responsible for delivering
over $20m of new contract manufacturing revenues from the US
operations.
An additional board change is being made at the non-executive
level and this and additional disclosures required under the AIM
Rules are being made in a separate announcement. This also covers
details of a final bonus payment being made to the executive
directors in recognition of their very significant contribution to
creating shareholder value over the past several years. A new
remuneration scheme is being devised for Mike Salter and others,
details of which will be disclosed in due course.
As a Board we are confident that the strategy outlined above can
deliver compelling earnings growth across the business and
represents the best way to utilise our strong cash generative
qualities to maximise shareholder returns. The next phase for the
business is one of accelerated growth and we look forward to
updating shareholders on our progress. Mike and Julian will provide
a short overview of the strategy to shareholders at today's AGM and
we look forward to providing further details of our growth strategy
to shareholders over the next few weeks.
I thank shareholders for their continued support and our
dedicated staff and suppliers for their concerted efforts in
challenging times. I look forward to sharing together in our future
success as we deliver further value to our customers and partners
through innovation and endeavour.
Notes
(1) Earnings before interest, tax, depreciation and
amortisation, share-based payments and exceptional items
(2) Calculation based on current number of shares in issue: 454,993,227
EKF Diagnostics Holdings plc www.ekfdiagnostics.com
Christopher Mills, Non-executive Chairman Tel: +44 (0) 29 2071 0570
Julian Baines, CEO
Richard Evans, FD & COO
N+1 Singer Tel: 020 7496 3000
Aubrey Powell / George Tzimas / Tom
Salvesen
Walbrook PR Limited Tel: +44 (0) 20 7933 8780 or ekf@walbrookpr.com
Paul McManus / Lianne Cawthorne Mob: +44 (0) 7980 541 893 / +44 (0) 7584
391 303
About EKF Diagnostics Holdings plc ( www.ekfdiagnostics.com
)
EKF is a leading point-of-care diagnostics and central
laboratory assay manufacturer with an estimated 80,000 hemoglobin,
hematocrit, HbA1c, glucose and lactate analysers in regular use
across more than 100 countries. EKF specialises in developing tests
for use in anemia and diabetes diagnosis and management, as well as
providing a portfolio of reagents for use in clinical chemistry
analysers.
EKF specialises in the development, production and worldwide
distribution of point-of-care analyzers and clinical chemistry
reagents for use in hospital and research laboratories, doctor's
offices, blood banks and for in-field anaemia screening programmes.
EKF is also a bulk manufacturer of enzymes and has custom
manufacturing facilities in the across sites in the US, UK and
Europe for a variety of life science products. Demand for contract
manufacturing of COVID-19 sample collection tests and kits has
grown dramatically during the pandemic, however the capabilities
can be applied to other areas of diagnostic testing, molecular
disease and forensic test manufacture.
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END
AGMSFDFUAEFSEII
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