EKF Diagnostics Holdings plc

Good morning and welcome to the EFK Diagnostics Holdings PLC investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time via the Q&A tab situated on the right-hand corner of your screen. 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 publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Gavin Jones, CEO. Good morning, sir.

Good morning. Thank you. And just to reiterate, that's EKF by Gnostic. This is our interim results for 2025. Thank you all for joining us today. Really appreciate it. I think I'll start with describing the team. Hopefully by now you know who I am. Joining me in the room is Stephen Young, our CFO. And slightly off camera is our Executive Chair, Julian Baines. You may hear him chip in every now and then. He can't help himself. But getting to the meat of the bones today, I think it's important to say that what we're going to be talking about is a fairly simple but significant update for the business. If you look at the revenues for the first half, we're at 25.2, which is very much in line with the same period. last year so you could say that it looks flat but if you look at it on a constant currency basis we're closer to 26 million if you also consider the fact that we've taken out some of the lower margin products that were causing us some challenges previously then actually it is we are delivering significant growth in the first half and we'll continue to do so into h2 You can see the impact of the reduction of those lower margin products by the improvement in gross profit and the gross margin at 50% from 48% the previous period. In terms of increased EBITDA, we're up 7.4% to 5.8 million versus 5.4 in the same period. Profit is also up 16.1% and the cash continues to grow 16.6%. million at the end of this period but has continued to grow and is certainly looking a lot better and we will be on target to hit the numbers that we previously talked about somewhere in the region of 20 million by the end of the year. Last time we spoke, I talked a lot about implementing the strategy that we had for the business and I think it's important to keep coming back to that and communicate that that has now been implemented right throughout the business. I personally have gone around to every site, spoken to everyone and made sure that they understood what the strategy is, how it's going to work, so we have that clarity and vision and focus right throughout the business. We've continued to look at our production capacity, as you'll see a little bit later on, I'll talk about the number of analyzers we've put out into the market, so it's important that we do continue to support that improvement in production capacity for our point of care products. We have improved the output in that area, but we look to continue investment in that space to get it up to a 30% increase. Our haematology analyzer production is up 60%. This is the same period last year and we anticipate that that will deliver significant consumable growth in H2 2025. going into full year 2026 and beyond. Most of you would have seen the announcement that went out earlier on this year where we talked about signing three new contracts in some of the strategic growth areas that we have been targeting, specifically in Africa and Latin America. And that will continue to deliver that growth over the next 12 to 24 months. If you look at one of our other areas, beta hydroxybutyrate, that's up 12% or 16% on a consistent currency basis. That is always a really good measure for how VKF diagnostics is performing and has a big influence on our gross margin. Certainly, a lot of the reason for that is the increased focus with the splitting of the sales team to focus entirely on BHP for Quicken Kid, depending on which area they found themselves in, and also some of the development of our key partners within the US market. Each time I do this, I will come back to what the board expectations are and I think it's important to give an update on what the board is expecting to see and how we're delivering on that. So the first thing they wanted to see was some capital deployment to deliver sustainable growth and unlock unrealised potential. The first part of that was really to invest in operational excellence to increase production capacity, improve efficiency and implement new technology. that have been initiated and you've seen some of the benefits of that for the fact that we've been able to get so many analyzers out in the first half this will continue to run into 2026 and beyond this is an ongoing program and something that we will continue to invest in it's where we really focus at the moment is developing the analyzer production to be able to be more efficient by looking at sub-assemblies but also be able to really get more analyzers out there and make sure that they are going out at a lower cost to the business. Second phase of that will be to look at the consumable production and that's currently ongoing. We have two projects in that space that deliver at the end of the year which will give you a better idea of what we need to invest moving forward and how we will do that. We also wanted to make sure that we had a commercial team that was able to respond to the growth that we anticipate, certainly in the focus areas of hematology, beta-hydroxybutyrate and fermentation. That's still ongoing. It does take time when you're restructuring your sales team, but we have put in new people within the marketing side and also within the sales side, certainly within the U.S. market, which has been a key focus for us. Some of that will continue into the rest of this year, but we do anticipate that we will have a complete expanded commercial team by the end of 2025. In terms of our new product development, that is specifically aligned to our growth strategy. We are on track there. We are looking to work within our beta-hydroxybutyrate area and also haematology. And the projects that we have in that space are ongoing and looking to be on track to continue according to schedules that have already been set down. In terms of our second point, we implement the shared buyback to improve earnings per share. We have utilized some of our cash reserves. to implement a share buyback. I know that a lot of people have been asking whether we would be re-implementing the dividend and that's not something we're currently looking at at the moment. We feel that this is a much more controllable way to use our cash reserves and to improve the earnings per share. So far we've bought 4.6 million shares which I think is probably went a little bit slower than we want, and some of that's down to the liquidity that we have in the market. We're a very stable share. There aren't as many shares to buy out there as we might like. But we have continued with that share buyback, and we will continue with that share buyback for as long as we need to. So we're certainly continuing into H2 2025 with that process. So from the five year strategy, again, I think it's important to be consistent with our messaging and make sure that we come back to that five year strategy and keep talking about it. So for the 2029 target, where we were looking at increasing revenue and EBITDA, revenue target for 2025 looks to be in line with expectations. We have had high volumes of low margin analyzer bill in the first half. Obviously, that does have an impact on our profits and our EBITDA. So I think we'll wait and see where we get to with EBITDA, but we are looking like we're in a good position. For the point of care in the global business, valuations are ongoing in US blood banks. They've been established and are still, we're about to get results in each of those spaces. This is a long-term investment. This is a conservative market, but it is the most highest value part of the business for us and certainly something that we are looking to grow. We have won new tenders in both Africa and we've now seen Peru come back online, which is an important partner for us. For the number one in ketone testing and BHB for lab and point of care, as you know, we're already number one for the lab testing, but we are developing our lab tests further to make sure that we can secure and extend that business even more. We will also be launching new point of care products in this area and the development programme for that is ongoing and on track and looking to be interchanged. So in terms of where we are with the five-year strategy from a geography point of view, I think it's important to note that we shouldn't focus too much on the APAC negatives, where we've seen a drop of 26%. That does seem to be a lot, but we're really talking about a much smaller part of the business. And a lot of that business was really focused on the discontinued products, so the clinical chemistry, and that's one of the reasons why we chose to take those products out. They weren't really contributing to the business in terms of margin. So it made sense to realign the business, focus on the point of care side of things. And that's really what you're seeing now is a realignment and refocus in the APAC region. By the same rationale, you can see that the Americas has grown by 3%, driven by continued BHB expansion in the US and haematology coming back online in Peru. EMEA has also grown with opening new markets. We've certainly signed a new contract in Africa, stabilised the Russian business, and we're looking to deliver extensive growth in that area in H2. Obviously, there's been a lot of panelliser build, and that's something I'll talk about in a second, but what that does mean is that we've seeded those markets, and now we anticipate to see much higher consumable usage within H2 in 2025. So in terms of that analyzer build, I think it's important to really reiterate just how much we've seen going out the door versus the previous period. So 125% growth in our hematology analyzer build, which is pretty substantial. Most of that going into Peru, Brazil, USA and Italy. Hema control is obviously one of the key products in our hemoglobin range but it's also partnered there with Diaspec which has previously seen huge analyzer growth that's not quite as big as it is for the human control we're only looking at 40% but that's still a huge jump up from where we anticipate to be. Flood that's going into blood banks and we certainly new business that we have in India and Uganda leading to that point. Overall, we're seeing a total 60% haematology analyzer increase in terms of the demand. Obviously, then means that there's a bit of a reduction in hematostat and ultracrit. Those are somewhat legacy products. There is still a market for them, certainly in the US, and we are still serving that market. But the focus is without a doubt on our haematocontrol and biospectral product ranges. In terms of our life sciences business, I think it's important to keep making sure that we give a good, strong update. Here it's challenging because we can't always talk about some of the partners we're working with. They would rather remain anonymous. certainly business and commercial reasons, and that's perfectly acceptable to us. It would help if we could talk a little bit more about them, but unfortunately what I can do is talk about the size of the pipeline. So we've got a $1.5 million pipeline on new business currently coming through, one of which is due to deliver anytime soon. I wish I could have said something different, but we do have a significant contract in the final stages. agreement it's just going through the signing process again i won't be able to announce this to the market but we will try to give you regular updates on on new customers and new contracts as they do come through as you can see there's a various number of different size opportunities in the pipeline i think it's important to say that some of these would be simple tech transfer which is great that's exactly what we want some of them like the one big opportunity we have here, which is worth maybe half a million in terms of dollars, will take a little bit more effort, a little bit more development in that. And that one's going to be an 18 month project. Hopefully we will be able to announce that when that comes through. But as you can see, there is a pipeline. It is relatively significant. And this is all new business and new customers. So I think it's important to make sure that people understand that we are bringing in more customers than we ever have done before. We've got more people coming on to Skype to do audits, more people looking at our capacity and really being attracted by what we have to offer in life sciences. And I think this is a significant turnaround from where we were previously. We were seeing customers before, but we weren't seeing the level of interest that we've got now. And a lot of that's down to sales team and what they're bringing in but also the new site management that we've brought to our life science facility and how they're running that operation so for the rest of 2025 uh it's certainly important that we make sure that we continue to deliver on that broader pipeline of new life science opportunities I said that we will deliver on that one significant partnership. I'm hoping that we can add to that. Whether we can announce that, we'll see. But yeah, we will definitely deliver on one new customer and it will be significant in the life sciences side of things. We will focus on the whole career consumables and that aligning with our record haematology analyzer production achievement H1. 2025 it's key to our strategy is to really get those consumables out there and make sure that the analyzers that we've used to see the market are being utilized in the right way and then we'll continue to support the strategy development by boosting supply of our hematology products into new markets while developing existing markets further. We've got a long history in this space. We do have a lot of well-established customers, but we are looking to add to that and re-develop some of those markets as we move forward. Like I said, I thought it would be a simple update today just to tell you where we are, but also very positive. Thank you very much. I think we'll go to questions.

Stephen, Gavin, thanks very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by the Q&A tab situated on the top right-hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via our investor dashboard. As you can see, we have received a number of questions throughout today's presentation. Can I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end. Okay.

I think there's a first couple of questions which we can see relate to CapEx.

Excuse me. Shall I read them out? Go on then. Can you quantify CapEx according to care capacity expansion? Is the fermentation CapEx done? What's the total CapEx budget for 2025-2026 which is similar to with production capacity expansion plans and the rate what CapEx investment is required? So they're pretty much the same. What's the effect on short-term margins

In terms of capital expenditure for mainly point of care, the implementation topic is currently in the US, there will always be some small pieces of equipment that we continue to buy each year just a hands-on service offering but no any years of labour of the money was already spent so in terms of the split of this particular year for 2025 our budgeted point of care was probably two and a half million and one million uh 2.2 million spent on the German facility, which is all Quanticare, and then a mixture of about a million being spent in the US, which is Quanticare, BHB and fermentation. So we're looking to spend around that, maybe a little bit less than that this year in terms of the actual amount, but that will just follow over into next year. We're expecting probably to spend again probably another three and a half to four million on CapEx next year, mainly in relation to Quanticare. We don't really see that having a major impact on the margins in the short term.

Okay. In terms of which production capacity expansion plans are underway, question from George. We've done some work in terms of sub-assemblies. So rather than produce everything in-house, we have outsourced some of our sub-assembly work that allows us to basically put more out there. That has been implemented and that's been successful. So we've had a few months of that now and we're looking to expand that further. We do have an external project ongoing which is due to deliver two stages to that. One delivers in October, the other delivers in November. and that's very much more focused on our consumable side of things. The point of that project is to really review where we are right now, look at what improvements can be made to our consumable lines, especially in the haematology area, and then also to produce a plan for how we can extend that completely, so really redeveloping our consumable lines from scratch. But there will be an the efficiency and compatibility from those lines and so that project is ongoing delivering in uh page 2 2025 but they will continue into 3 26 and beyond that um go ahead yes the next question yeah yeah tim has asked first of all very encouraging seven programs and congratulations

Can you talk a little bit more about the life sciences plant in South Bend and put this in context on ROI, on return of investment and the facility there?

Yeah, sure. I think in terms of where we are with the life sciences pipeline, It's going well. I think it's something that takes time. I think we've said that a lot, but we need to be patient with it. In terms of return on investment, at the time when we did make investments in life sciences, we had the cash available. We needed to make an investment in that area no matter what just to be able to serve our existing business, and that existing business still exists and still really underpins everything that we do there. So that would have probably been in the region of anywhere from five to six, seven million. So yes, we have added to that, but we are looking for, this is a long-term investment here to be able to build a business that really is something different than anything we've ever done before. So I think it's challenging to say when we'll get that return on investment. I don't want to make any promises there, but really what we do need, we always needed to make that investment. or some level of investment. We may have gone a little bit higher than what we needed to originally, but that has given us the opportunity to grow that business, something that we wouldn't have had if we'd made that investment.

And that particular site does manufacture the BHP in the site. Exactly. And as Gavin was trying to explain, that investment needed to be made to a certain level to protect that BHP business.

That's what we saw growing, you know. And I think it's important to mention, as you've already mentioned, as a lot of businesses come to that site, it's becoming very clear that strategically we've chosen now making sure we do tech transfer contracts and people are coming and saying that there's very little capacity globally. And so seeing our new site and coming to it, we're starting to feel a little more comfortable that we've taken our time, we've got our strategy right, we've got the right sales people and we're targeting the right customers. this year when we didn't particularly previously.

Yeah I think that goes some way to answer Lionel H's question as well which is how are you progressing with increasing utilization at the South Bend facility. Yeah very well I think you know as Julian alluded to we've got a lot of customers coming to us now and one of the things that they're interested in is the fact that we do have capacity. I think we wouldn't be seeing so many customers One of the things that they do tell us is that they have been to see other partners, potential partners, and they've not been able to serve them. So you've either got the very, very big kind of food production facilities that the type of customers we're talking to, it wouldn't suit their purposes, or then you have other sites who maybe are closer to our site, but they don't have any available capacity. So it is helping We're bringing in new customers and we are moving towards selling that site. We're nowhere near it yet. We're still at around maybe 10, 15%. We can certainly take on more and will take on more. But yeah, we will update the Market House when we can. We may not be able to tell you exactly who we're working with, but we'll be able to tell you.

Next question, does such a strong increase in analyzer volumes and less revenue mean that consumables are down in each one?

Not necessarily, no. I mean I think one of the things that's important to know is every time we sell analyzers it does come with consumable sales. The normal business is still going on, it's just that when we win tenders, we do have a very big influx of analyzers at the front end of that tender. You can't work in that tender until someone has an analyzer to work with. They also, when they do take those analyzers, they also take a percentage of consumables as well. But once you've done that initial outlay, you then have nothing but consumables for the period of that payment. So, no, I'd say consumables weren't down, but if I was to say they were not down, It's just that the focus has been very heavily on putting analyzable out there in the field because you need to see that market.

And we would expect to see this to end up getting consumable growth once those... Absolutely.

I mean, we talked about this before where it takes, you know, it can take anywhere from three to four months to start seeing the consumable pull through. So we're already in that phase, but we'll see that continue into H3, H5 and beyond because a lot of these tenders aren't single year, they're two, three years anyway.

I think it depends on who you ask.

I mean we never say no to the right type of opportunity if the right opportunity came about but at the same time yeah I mean we certainly could be a target for the right type of partner and we certainly can take anything serious into consideration.

And then Tim has said again, because I think you were a politician the last time I went to students, that an expected timeline takes three to five years for making a sufficient position. A sufficient target return on this investment. If I say, I think it's part of that five-year plan, you'd be expected to get by the end of your five-year plan a full ROI on that facility by 2029. Yeah, absolutely. Hopefully sooner. It all depends on the pipeline.

Yeah I think you know what you're right it was a politician's answer but the reason being is I think we needed to rebase that business and re-look at it and you know promises were made previously that you know we haven't followed through on and we accept and understand that. I don't want to make those mistakes myself so I've got to be careful to make sure those within that five-year plan. Lifeline is a significant part of that and we should be hitting the levels that we need to in that space within that time. Any more questions? Doesn't look like Tony.

Julian, Steve and Gavin, thank you for answering all those questions you can for investors and of course the company can review all questions submitted today and we'll publish those responses on the InvestorMeet company platform. Just before redirecting investors to provide you with their feedback, which is particularly important to the company, Gavin, could I please just ask you for a few closing comments?

Should we ask the last question?

Yeah, we did ask one last question from Tim. Tim, you've been very busy this morning. So lastly, for the share buyback, would you consider embedding this policy as part of your ongoing positive free cash flow generation and having, say, a monthly rolling program? I can say quite simply, yes. That would be something.

It's not even a monthly rolling program. It's continuous. Always on. Apart from when we're inside, obviously, we couldn't do it for the last four weeks. But then we reinstated it again this morning and we certainly intend to carry on indefinitely. Just have the buyback in place. And we slightly increased the price of the buyback as well. So... We think that there's a very positive future for EKF. We think that Gavin's five-year strategy plan that he's implemented with his team is very, very strong. Also, to answer the would we be a target for some people, I think that there's a real strength in EKF at the moment of being on our own because actually we are finding that very valuable that people are coming to us more and more because we have better customer service, better three times, better response. And so at the moment, EKF is in a very good place to deliver this five year plan and that's what we're totally focused on. But we will continue to buy you out in depth, I think.

Yeah, so just to wrap up, I'd like to say thank you for everyone joining us today for this simple yet significant update on the strategy of where we are as a company and how we're choosing to deliver sustainable growth within the market. And we will continue on that route and continue to update you as we move forward.

Julian, Steve and Gavin, thanks for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can best understand your views and expectations. This will only take a few moments to complete and I'm sure will be greatly valued by the company. On behalf of the management team of EKF Diagnostic Holdings PLC, we'd like to thank you for attending today's presentation.