Latest Results

Financial Review

Improving operational efficiency
Chris Lea
Chief Financial Officer

The year was one in which the Group completed the disposal of the remainder of the Global Health division, culminating with the disposal of the CD4 business on 31 July 2022. The disposal of the loss-making division and receipt of the initial cash proceeds of £5.3 million have significantly strengthened the Group balance sheet and allowed the Board to focus exclusively on the remaining Health and Nutrition business, where there are a number of growth opportunities.

Essential changes to the formulation of the Group's key FoodPrint^® product in May 2022 led to a second half weighted sales forecast which placed additional pressures on the Group's manufacturing operations. Whilst production yields have been declining steadily from a high in April 2020, there was a further and unexpected sharp decline from November 2022 which, when coupled with delays in the quality control approval process brought about by personnel changes, inefficient working practices and COVID-19 related absences, did not allow the Group to keep up with demand for its FoodPrint^® product.

Whilst the order book at 31 March 2023 was £2.4 million - £1.0 million higher than the prior year - the low yield led to a substantially higher than expected raw material cost and a consequent reduction in gross margin towards the end of the financial year. In February 2023, the Board appointed Chartwell Consulting to undertake a review of micro-array production and to recommend and help implement an improvement plan, with the aim of returning yields to the 2020 high or better and to significantly reduce manufacturing and quality control lead times. These objectives have largely been achieved, with a number of all-time high yields achieved in recent weeks, although there is further work required to ensure performance is sustainable at these levels. Furthermore, the Omega team have developed new KPIs and troubleshooting skills and are now better positioned to respond earlier and more effectively to any future production challenges. In response to the lower-than-expected operational performance, several personnel changes have been enacted, with Jag Grewal currently acting as Interim Operations Director whilst the recruitment of a full-time replacement is underway.

Dispute with the DHSC
As announced on 10 December 2021, the Group is in dispute with the DHSC regarding the potential repayment of a pre-production payment of £2.5 million (net of VAT). The Board, having taken legal advice, does not believe that the Group is required to repay the pre-production payment and considers that it is entitled to recover additional losses in connection with the contract. The legal costs associated with the dispute have been expensed and, with no production volume over which the pre-production payment can be recovered as envisaged in the contract, the Group still retains a deferred income balance of £2.5 million pending resolution of the dispute.

Whilst the Company sought to develop a COVID-19 test for commercial, non-governmental purposes, this was entirely separate from the operation of the contract with DHSC, which was for the manufacture - and not development - of tests and required DHSC to confirm which test was to be manufactured through the licensing of rights. There is no reference to the development of the Group's own test anywhere in the contract, whereas the contract specifically deals with the licensing of intellectual property rights by the DHSC once an appropriate agreement has been entered into between the DHSC and a third-party test developer. Despite repeated requests over the last 18 months, the DHSC have yet to provide any information regarding the licencing of rights.

Following a protracted series of correspondence throughout 2022, on 26 April 2023 the Group met with a mediator and representatives of DHSC to attempt to resolve the dispute. Following mediation, the Board are increasingly confident that the Company is in a strong position and that the pre-production payment will not need to be repaid. Furthermore, the Company intends to pursue its counterclaim to seek to recover additional losses incurred in connection with the contract.

The mediation was paused to allow DHSC to re-assess their position in the light of the evidence provided by the Group. As a consequence, the Board is increasingly confident that the DHSC's claim has no merit and will not succeed. The Board now intends to vigorously pursue its substantial counterclaim for losses incurred as a result of the DHSC's failure to licence the necessary intellectual property to permit the contract to move forward and their failure to notify the Group of their inability to do so in a timely manner.

Placing and an open offer/direct subscription
Requiring additional funding to finance the CD4 business through to an eventual sale, the Company undertook a placing in May 2022 and an open offer/direct subscription in June 2022 which raised £2.0 million and £0.2 million respectively, at a price of 4.0 pence, with the placees requiring warrants over a further 90 million shares at an exercise price of 4.0 pence. To date, none of these warrants have been exercised and they expire on 9 November 2023.

Disposal/sale of CD4 business
Following the decision to divest the CD4 business, the Group completed the disposal to Accubio on 31 July 2022. Under the terms of this agreement, the Group received an immediate cash payment of £1.3 million for fixed assets and inventory on hand at completion. Furthermore, the Group received an additional £4.0 million of deferred consideration in November 2022, following the successful outcome of a final clinical study. The Group will continue to receive a royalty of 4% of Accubio's future CD4 revenues for the period to 31 December 2026, capped at £1.0 million in aggregate.

Following the sale, the Group were left with surplus plant and equipment with a net book value of £0.7 million, the majority of which relate to the COVID-19 business and which were purchased as part of the site expansion for the DHSC contract. These assets were offered to potential purchasers of the CD4 business and as such have been classified as assets held for sale at 31 March 2022. These non-CD4 assets were written down to an estimated recoverable amount of £0.1 million as at 31 March 2022 and were fully impaired as at 30 September 2022. Finance lease liabilities of £0.4 million remain outstanding in relation to lateral flow equipment which was purchased for the manufacture of COVID-19 lateral flow tests for the DHSC and the commercial market.

Financial results summary - continuing operations
For the year ended 31 March 2023, the Group reported revenue of £7.5 million (2022: £8.5 million), an EBITDA loss of £2.6 million (2022: EBITDA loss of £0.4 million), an adjusted EBITDA loss of £2.0 million (2022: EBITDA profit of £0.2 million), and a statutory loss before tax of £3.3 million (2022: £1.0 million).

Health and Nutrition revenue of £7.5 million (2022: £8.5 million) was 12% below prior year, with the order backlog caused by lower than anticipated production yields accounting for all of this shortfall. The order book at 1 April 2023 was £2.4 million (2022: £1.4 million). Encouragingly, the Group's primary trading partner in China re-commenced ordering after a two-year hiatus.

A summary of Health and Nutrition revenue is in the table below:

The gross profit margin percentage has decreased to 47.0% (2022: 59.7%), impacted by lower FoodPrint® production yields and substantially increased scrap costs.

Excluding exceptional costs, administrative overheads for continuing operations increased by £0.4 million to £4.8 million (2022: £4.4 million).

Sales and marketing costs increased by £0.2 million to £1.5 million (2022: £1.3 million).

Exceptional items

During the year, the Group incurred exceptional costs on continuing operations of £0.5 million (2022: £0.3 million). These costs represent the cumulative expenditure on the planned new manufacturing facility in Ely. To date, the landlord has yet to deliver the property to the agreed specification and has advised that they are unable to fund the remaining works required to complete the building. Whilst the Group is contractually obliged to enter into a lease for the property once it has been completed to the agreed specification, this is now considered to be highly improbable. As a consequence, the Group have extended the lease for the current Littleport site to June 2025 and is currently evaluating a number of new and existing properties in the Ely area.

Financial results summary - discontinued operations

As a consequence of the decision taken in March 2022 to dispose of the CD4 business, the Global Health division, which also included the COVID-19 business, has been treated as a discontinued operation, with the COVID-19 assets, CD4 assets and any associated research and development assets being written down to their recoverable amount and reclassified as assets held for sale as at 31 March 2022.

 In the four months to the date of disposal of the CD4 business, revenue from Global Health was £0.6 million (twelve months ended 31 March 2022: £3.8 million).

The exceptional costs associated with the discontinued Global Health division are as follows:

*     relates to the German business which was discontinued in the year ended 31 March 2019.

The loss on disposal of the Alva site includes the sale of tangible fixed assets at a loss of £0.2 million, transaction costs of £0.1 million and other costs of £0.1 million. In addition, the Group made a net gain of £0.2 million when disposing of the Alva property lease.

All COVID-19 inventory was fully impaired at 31 March 2022 and CD4 inventory was written down to net realisable value in line with the terms of the CD4 sale and purchase agreement, resulting in an aggregate impairment charge of £0.7 million.

The bad debt expense of £0.2 million in 2022 includes a provision for the potential repayment which may have arisen if Abingdon Health were unsuccessful in resolving their ongoing dispute with the DHSC. This provision was released in 2023 following the settlement of the related dispute.

The insolvency claim relating to Omega Diagnostics GmbH was settled during the 2022 for £0.3 million, £0.1 million lower than had been provided for in prior periods.

Assets held for sale
At 31 March 2022, the Global Health assets of £5.0 million and liabilities of £0.5 million were reclassified as held for sale. These assets and liabilities included CD4 assets and liabilities and non-CD4 assets and liabilities.

Following the withdrawal from the COVID-19 market and disposals of the Alva manufacturing site and the CD4 business, the Group also has a number of surplus assets which are no longer required to support its operations. These non-CD4 assets were primarily plant and equipment purchased in anticipation of COVID-19 lateral flow test production.

In 2022, the Group recognised an impairment loss of £1.9 million on the remeasurement of the CD4 and non-CD4 assets to their fair value, less costs to sell. This amount included assumptions on the fair value of deferred consideration and future royalty income to be received by the Group following the sale of the CD4 business. In 2023, the Group recognised a further impairment of £0.2 million, fully impairing these assets.

Adjusted EBITDA
Alongside the key performance indicators of revenue and gross margin percentage, the Group  continues to consider EBITDA and adjusted EBITDA as being more appropriate performance measures which are better aligned with the cash-generating activities of the business. Whilst the Group made an EBITDA loss of £3.6 million (2022: £9.0 million), the continuing Group generated an EBITDA loss of £2.6 million (2022: £0.4 million). The adjusted EBITDA loss (before exceptional costs, share-based payment charges and the impairment loss recognised on the remeasurement to fair value of assets held for sale, less costs to sell) for continuing operations is £2.0 million (2022: EBITDA profit of £0.2 million).

After the loss arising from discontinued activities of £0.7 million (2022: £9.9 million), the Group has recorded a loss after tax of £3.9 million (2022: £11.3 million).

Taxation
The current year tax credit of £0.4 million arises predominantly from the cash receipt of £0.5 million of research and development tax credits relating to the year ended 31 March 2021. Other than to offset any deferred tax liabilities which may crystallise in the future, based on the Group's trading assumptions the deferred tax asset in respect of trading losses will begin being realised from 2025 onwards, when the Group starts to generate taxable profits. The deferred tax asset has been valued based upon a future UK Corporation tax of 25%.

Loss per share
The loss per share was 1.7 pence (2022: 6.2 pence) based on a statutory loss after tax of £3.9 million (2022: loss of £11.3 million). The basic loss per share for continuing operations was 1.4 pence (2022: 0.9 pence). The adjusted loss per share was 1.4 pence (2022: 4.2 pence). The adjusted loss after tax was £3.1 million (2022: loss of £7.7 million) and the loss per share is calculated on the basic average of 231.3 million shares (2022: 182.6 million shares) in issue. The adjusted loss per share on continuing operations was 1.1 pence (2022: 0.4 pence).

Research and development
During the year, the Group invested a total of £0.4 million in all development activities associated with continuing operations, in line with the prior year (2022: £0.4 million), representing 4.7% (2022: 5.1%) of revenue. Of the total expenditure, £0.1 million (2022: £0.1 million) has been capitalised in accordance with IAS 38 - Development Costs, whilst earlier stage expenditure and expenditure not qualifying in accordance with IAS 38 criteria of £0.3 million (2022: £0.3 million) has been expensed through the income statement. The capitalised expenditure incurred all related to the development of the digital platform.

Research and development expenditure on the now discontinued Global Health division totalled £0.1 million during the first four months of the year (2022: £0.8 million).

Property, plant and equipment
Total expenditure on property, plant and equipment in the year was £0.03 million (2022: £1.0 million).

As at 31 March 2023, the outstanding liabilities in connection with leases recognised under IFRS 16 includes short-term liabilities of £0.02 million (2022: £0.1 million) and long-term liabilities of £NIL million (2022: £0.02 million).

Financing and going concern
Following the disposal of the operations in Scotland, the Group has appointed NatWest to replace Bank of Scotland as its bankers, with support to be provided by the East of England corporate team, more local to the Littleport site. In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Company and Group can continue in operational existence through a period of at least twelve months from the date of approving the financial statements (the going concern period). The Directors have determined that the going concern period for purposes of these financial statements is the period through to 31 August 2024. The Group realised a loss of £3.9million for the year ended 31 March 2023 (2022: loss of £11.3 million). As at 31 March 2023, the Group had net current assets of £6.7 million, including a cash balance of £5.1 million.

The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic Report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review.

The Directors have prepared trading and cash flow base case forecasts to 31 August 2024 and have applied reverse stress tests to the base case forecasts. The stress tests have been applied to take account of the impact of potential uncertain outcomes that are, to an extent, outside of management's control, as well as reduced trading forecasts, taking into account current macro-economic conditions. These scenarios include:

• The reverse stress test indicates revenue could fall by a further 45% and a gross margin could deteriorate by an additional 2% before forecast cash resources are exhausted.
• After taking legal advice and making an assessment of the terms and conditions contained within the contract with the DHSC, the Directors do not believe the Group will be required to repay the pre-production payment of £2.5 million. In addition, the Directors consider there to be grounds to claim for damages for additional losses incurred under the contract. As such, the Directors believe that there will be no cash outflow in the form of a repayment to the DHSC in the going concern period and repayment is not included in the base case or as a sensitivity. However, the Directors acknowledge that there is a risk that a repayment of some or all of this amount may be required, the timing and quantum of which is uncertain.

The Board has a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the period to 31 August 2024. On this basis, the Directors continue to adopt the going concern basis of preparation. Accordingly, these financial statements do not include the adjustments that would be required if the Company and Group was unable to continue as a going concern.

Chris Lea
Chief Financial Officer
2 August 2023