Novacyt S.A. (ALNOV.PA) 2026-09-30 Earnings Call Transcript

Good morning, and welcome to the Novacyt Group Investor Presentation. [Operator Instructions] I'd now like to welcome our French shareholders. [Foreign Language] I would now like to hand over to Lyn Rees, CEO. Good morning, sir.

Thank you very much, and good morning, everyone, and thank you for joining us this morning for our interim results presentation. Hopefully, by now, Steve and I are faces that are familiar to everyone on this call. And as your CEO and CFO, we're very much looking forward to sharing another 6 months' progress that Novacyt has made over another busy, but effective 6-month period. Just before we dive into the results, a quick recap on who we are as a business. We're an international molecular diagnostics company with a growing portfolio of clinical assays or tests that are run in the market, instrumentation that is used to run samples and those tests and research tools. Our three core markets are in reproductive health care, precision medicine and infectious disease. In terms of the operational and post-period highlights, I think I'd like to first focus in on the acquisition of Southern Cross Diagnostics, where we acquired a profitable distributor of diagnostic and life science products in the Australian marketplace. The Australian diagnostics market is a fast-growing market, and we wanted to get access to that. And since we acquired the business back in March, Southern Cross has delivered just shy of GBP 2 million worth of revenue to our organization, showing it's a clear contributor to our current growth and hopefully, our future growth. So really, really pleased to share the progress with that. The business has been fully integrated. Our teams are working very closely together, and it's proven to be a strong addition into the Novacyt portfolio of products and services. In addition to nonorganic growth throughout Southern Cross, we also launched our Yourgene Insight DPYD assay. So we continue to deliver on the commitment to bring new product to our customer base and to the global market. This particular assay is for patients that are using 5-FU chemotherapy. Some of those patients lack a gene, the DPYD gene, which means the chemotherapy attacks the patient, their organs, as well as the cancer. So this is a life-saving product. We estimate probably 1 in 100 patients who have this product, lives will be saved by either not giving the chemotherapy dose or reducing that dose. And I'm delighted to say our product is the most complete product in the market. So it picks up 19 genetic variants for the DPYD gene. And the fact that we've now just recently achieved IVDR approval means that we can truly launch this product right the way throughout Europe as well as the other markets that we serve. So a clear delivery on a commitment to bring new content to our customer base, and I'm really, really proud of the team and everyone that worked on the successful launch of this product. Alongside looking at new products and new ways to stimulate growth in our organization, we've also announced midway through the year, a company restructuring, looking at further reductions to the OpEx footprint. I think since Steve and I took control of this business and since these entities -- acquired entities came together, we've shaved about GBP 4 million of OpEx, and we continue to be focused on making sure that we utilize our cash reserves as effectively as possible. So as an organization, we targeted GBP 4 million cost restructuring. I'm confident that we are on track to deliver that. We will see most of the benefit of that in 2027, but I can report that, well, just over 60 heads have already left the business where we sit as of today. So in terms of the company restructuring, we're on plan for that and further control of the OpEx in the business. I guess the final pillar that I'd really like to update you on today is the Master Collaboration Agreement that we signed off recently with Illumina. This is an agreement for a 5-year period, which I really think is a nod to the confidence in the industry on the longevity of our organization, but also the skill set of our organization. We now have a framework for technical and operational collaboration in areas of mutual interest. We signed the first statement of work in relation to this collaboration agreement last month, and we are actively working on that first project now, and we'll update you in due course with any material news. But it's a real move in our organization towards commercializing our technical skill sets, specifically in R&D and operations, which I think completely seriously derisks our approach of developing new content and taking that content to market with one of the world's largest sequencing companies. So again, very, very proud of the team that delivered this, worked so hard on the project. And I really look forward to working hard with Illumina and closely over the next couple of months to really bed in the teams and create a strong foundation for the 5-year Master Collaboration Agreement. So I guess lots of things have happened since we last reported to you. And I'm going to hand over to Steve now, who's going to walk through some of the financials.

Thanks, Lyn. Good morning, everyone. Hope you're well. And it's great to be with you to chat you through the interim results. So look, if we kick off with the financial highlights. H1 revenue is up significantly to GBP 11.6 million, and that's helped by the inclusion of sales from Southern Cross. Now if you remove the impact of these sales, then the underlying business still grew by around 9%. I think it's really pleasing to see the momentum that continues to build in our business, and we've now seen 3 halves of continued growth from GBP 9.6 million in H2 2024 through to H1 results this year. From a gross profit perspective, you can see that we were broadly flat at around GBP 6.4 million. However, the margin has dropped by around 10 percentage points to 56%. And I'll talk through the drivers later because they're not all permanent impacts. And from an EBITDA perspective, the group continued to reduce its losses. We delivered GBP 3.9 million loss. However, this includes around GBP 300,000 of stock uplift adjustments that are associated with the Southern Cross acquisition. So the actual adjusted EBITDA margin is around GBP 3.6 million, meaning that we've reduced our losses year-on-year by over 10%. And then finally, from a cash flow perspective, we closed June with just under GBP 9 million in the bank following the all-cash acquisition of Southern Cross. And the important thing remains that we remain debt free. So we move on to look at revenue. What you'll see here is that the product mix has shifted a little, and that's impacted our gross margin. So sales of our high-margin RUO revenue stream have declined year-on-year, and that's been offset by increases in our other 2 segments that generate slightly lower margins. Now the clinical business made up around 3/4 of our total revenue or GBP 8.5 million. And as Lyn mentioned earlier, within this segment, Southern Cross has delivered around GBP 1.8 million of sales. And obviously, we no longer see the sales of our cystic fibrosis product to Southern Cross as that's now an intercompany sale and it gets eliminated out. The RUO segment remains our cash cow, and it's important that we reverse the decline that we saw year-on-year in H1. And then instrumentation was really pleasing. It was up over 30% to GBP 1.3 million, and that was driven by the continued demand for our LightBench Discover instrument that we launched last year. Now if we look at revenue from a geographic perspective, we remain well balanced and we've got a really diversified income stream, and we're not reliant on any one region. The pleasing thing that we saw in H1 is that all regions grew year-on-year, and that's the first time in a number of periods. So the Americas grew by over 30%, and that was driven predominantly by strong instrumentation demand. The Asia Pac region grew by over 20%, and that was helped by the inclusion of Southern Cross sales, but also strong demand for our reproductive health range of products. And then our European region grew by a couple of percentage points as well. Now our gross margin, as I mentioned earlier, is down around 10 percentage points year-on-year. I just wanted to provide a little bit more detail on what's driving the change, and there's 3 main items. So Southern Cross sales are a typical distributor margin of around 40%, and that causes about 3 percentage point dilution. And then also as part of the acquisition of Southern Cross, we have to complete a thing called a fair value assessment of their opening inventory. And what this does, it effectively increases the cost on the balance sheet of their stock, thus it dilutes the gross profit as we sell the stock. And this caused around a 3 percentage point dilution in H1 as well. Now we've estimated the total stock uplift amount will be around GBP 0.5 million, and we expect all of this to be released in the 2026 financial results. So it shouldn't have a dilutive impact in our 2027 results. The other important thing to note is that this is not a cash impacting item. And then the final big item that's causing an impact is the Primerdesign, which generates over 80% gross margin, has seen its sales reduced as a percentage of our overall revenue. I think the key message is that longer term, we still expect the business to deliver a gross margin of over 60%. So if we move a little bit further down the P&L to look at operating costs. So OpEx costs decreased to around GBP 10.3 million, and that includes about GBP 0.5 million of Southern Cross costs as well. So if we strip this out, the year-on-year OpEx costs have actually reduced by around GBP 800,000 or 8%. And I think as Lyn mentioned, as everyone knows, we've been on this journey of reducing the cost base of our business since Novacyt acquired Yourgene back in late 2024 (sic) [ 2023 ]. And if you go back to that time, our pro forma cost run rate was around GBP 13.8 million for a half. And we've reduced that down to around GBP 10 million through a series of initiatives that you'll see there. And that actually means that we've reduced our underlying cost base by around GBP 7 million on an annualized basis. So we've made good progress on reducing the cost base. But clearly, we're not done. And we announced recently that we're in the process of reducing it further, and we'll start to see the benefits of that in H2 and also straight into 2027. Now from an EBITDA perspective, we reduced our losses, as I mentioned earlier, by about 6% to GBP 3.9 million. However, this includes around GBP 300,000 of the fair value impact of the Southern Cross. So if we strip that out, the adjusted EBITDA is actually around GBP 3.6 million, that's a year-on-year improvement of around 13%. And then operating losses, you'll see has reduced by around GBP 2 million year-on-year, and that's due to lower depreciation and amortization, but also reduced exceptional charges. I think it's worth noting that exceptional charge is going to increase clearly in H2 because of our restructuring program and work that we've just gone through. Now if we turn to the balance sheet, what you will see here is that the main changes are driven by the acquisition of Southern Cross, where we acquired all of their assets and liabilities. So the increase in noncurrent assets is driven by the goodwill and intangible assets associated with the deal. And then the noncurrent liabilities has increased, and that's predominantly due to the booking of a contingent consideration that covers the likely earn out amount. Now if we move to my final slide, which just looked at cash flow. What you'll see is that we consumed around GBP 10 million in the first half of this year, and we closed around GBP 8.9 million in the bank. Now obviously, the major item was the acquisition of Southern Cross that consumed just over GBP 5 million, and that included the cash that we acquired, but also the working capital adjustment that we made. And then the next biggie was the core operations consumed just under GBP 4 million during the period. We also successfully completed a small equity raise where we raised a net GBP 0.5 million. And I just want to say a massive thank you to all shareholders that participated. We really do appreciate your support, and thank you. Now if you roll forward a couple of months and we look at the cash position at the end of August, we had around GBP 7.5 million in the bank. I think the key message is we expect the underlying cash burn to be materially lower once we -- all the restructuring activities have been completed, and we'll start to see the benefits of this in our 2027 financial results. That's a quick run through of our interims. And if you'd like to see any more details, please visit our website, and I'll hand back to Lyn.

Thank you, Steve. And I just want to sort of finish with running through sort of the summary of where we've got to as a business. So I think we've spoken today about our stable foundations being operationally ready for growth with the cost base reduction and cash burn reduced and further initiatives implemented, we've got a revenue growth on an upward trajectory. So as Steve has mentioned, 3 half years of consecutive growth from H2 in 2024, 18% year-on-year growth for this period. We've got double-digit growth across clinical, across research, across instrumentation. We're seeing good geographic growth in APAC, in Americas and a return to growth in Europe. So I think when you look at the forward movement of this business, all of our products are growing, and we are launching more products. So there is a clear focus on growth, and there has been since Steve and I took over in our roles in this organization. Alongside that, though, point 3 shows that we have got a clear focus on costs as well. Steve has highlighted that our OpEx has reduced by sort of GBP 4 million over the last sort of 2.5-year period. We continue to expect to see those costs reduce, as we said, off the back of the restructuring that we launched and that we are nearly complete. So we have got a clear focus on the growth levers of the business, launching the new products, winning new customers, but we've got a clear focus as well to ensure that operationally, we are the right size for the market in which we operate in and that we're preserving this cash that we have in the organization. We've got an established and growing customer base. That's been significantly enhanced by the acquisition of Southern Cross Diagnostics and a whole new suite of customers in the APAC region. We signed this collaboration agreement with Illumina to get the recognition of one of the world's largest sequencing companies and to be working with in partnership with them to develop content and to manufacture content for the global marketplace is really, really exciting for our organization. We've got a robust commercialization strategy across each product portfolio and market segment. And I think that has been proven by the growth that we're seeing, not just in regions, but also with our specific product lines. And we've demonstrated, I think, in this reporting period what inorganic M&A opportunities can do for our organization. So I'm really, really pleased with this set of results. As I sit back and reflect, it's just over 2 years that Steve and I took on our roles as CEO and CFO of this organization. We've been working alongside our kind of new look Board, and it's been a real pleasure to be working as part of a team and as part of an organization that has delivered 3 consecutive half year reporting periods of consecutive growth to be part of a team that has delivered material reductions in OpEx over the last 2-year period. We're not a team that's afraid of making tough decisions in tough markets, and that's what we've been faced with in the last 2 years. But despite those tough conditions, we are a team that's launched multiple new products in the market. Those products save people's lives every day. And we are very, very proud of the impact that those products make, and we look forward to working closely with our key opinion leaders, our customers and our partners to develop and generate more content for this global health care market. We have won blue-chip partnerships with really bright opportunities for our development and manufacturing services in the future. So we're really pleased with the set of results. I think the numbers are all trending in the right way. And I think the key objectives that we set ourselves around growth and cost management are being delivered by this team. We'd like to thank everyone in our organization for their hard work, their gumption, and the determination in making these results reality today. And as always, and finally, we'd like to thank you, our shareholders, for your continued support and your loyalty. Now I think that brings to an end the formal presentation part.

We have received a couple of questions as a result of being online for the last couple of days with this information. So I'm going to read these out. I think the first one, Steve, is going to fall on to you. Have you finished the restructuring process? And what savings have you achieved versus the GBP 4 million target?

Perfect. So yes, so as you remember, we announced in early June that the Board has set a target of GBP 4 million in terms of annualized cost reduction. So where we sit at the end of September, as I mentioned, we've released around 60 staff from the business, and that equates to around a GBP 2.7 million annual reduction in costs. We are expecting to go further, and there will be a few more people exiting over the coming weeks. So we're not done yet. So that's the labor element, end of September, GBP 2.7 million. And then from a nonlabor perspective, we've identified and completed activities that should deliver between GBP 0.5 million and around GBP 700,000 of cost reductions. And that covers stuff like reduction in our IT costs, where as we reduce the headcount, we don't need to relicense it. Same applies to travel and entertainment. We expect to see some reductions in advertising and marketing, R&D, other spend, et cetera. So there's about between GBP 500,000 and GBP 700,000 of nonlabor savings that we've identified. So if you sum them together, where we sit here today, we reckon that there's at least around GBP 3.2 million to GBP 3.4 million of savings that will start to flow through certainly from 2027 onwards, if not very, very soon over the next couple of weeks. And it's worth noting that when we set that original 4 million target, that did include a number of staff that have been successfully retained to support the delivery of the recently announced Illumina statement of work, which is a really good thing. So we retained a handful of staff to make sure we're successful with that statement of work.

Thank you, Steve. We've had another question around how can shareholders get more information about events and upcoming meetings such as the AGM? Well, I think the easiest way to probably get all the latest information is to e-mail our PR agency, Walbrook. So if you e-mail [email protected], you will get access to all of the latest information on RNS', company results, company updates. This platform that we sit on today, the IMC platform, Investor Meet Company, I think 1,200 people follow us through that platform. So between those 2 companies, I think you can get access to anything you need on the business. We will update you through these services around where we're going to be attending and when our next results, et cetera, are coming up. So all the information is there, just reach out to Walbrook guys and they will provide that. Okay. Sorry, I'm just reading some more questions. You mentioned that you have retained a number of staff to ensure the successful delivery of funded work for Illumina. Is the partnership going well? Does this expect -- do you expect to do more work with Illumina going forward? Yes, really good question. We signed a 5-year collaboration agreement with Illumina. So yes, I would expect this to be a long-term partnership. But the partnership will work on our ability to provide good service and good content to Illumina. And we have just started that initial statement of work, SOW #1 started a month ago. It's progressing really, really well on plan. The relationship is strong. And yes, I expect good things to come from that in the future. We did have a second question to ask if the collaboration with Illumina would make it possible to reduce the cost of Yourgene test? Just to be clear, we still develop and manufacture our own content, Yourgene or Novacyt branded products to the market. That will continue as ever. This partnership with Illumina is about working together to develop new content. So this is for future content, not existing content. So yes, we expect great things from that relationship moving forward, but we have to demonstrate our effectiveness, and we are doing that currently with the first project at the moment. Okay. It looks to me like you will run out of cash by the end of the year, yes, no? Well, that's an absolute firm no. So I can gladly answer that one. Okay. And I think that's pretty much all the questions that we've got through at the moment that we've got time to go through. So I really want to thank everyone for their time again this morning. We've tried to keep this brief. We know it's a busy day for results and investors, no doubt joining many, many calls. We hope you're really pleased with the progress that we're delivering here. As I said, there's a real focus on growth. There's a real focus on reducing the cost of this business. And I think some of the milestones that we've delivered in the last 6 months, acquiring some nonorganic growth, this partnership with Illumina and the launch of the new products sets us up very nicely for the final part of the year and for the future years coming. So I want to thank everyone for your continued support and loyalty, and we look forward to further updating you and the market in due course.

That's great. Thank you for updating investors today. So 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 better 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, we'd like to thank you for attending today's presentation, and good morning to you all.