Cambridge Nutritional Sciences plc (CNSL.L) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Omega Diagnostics Group PLC investor presentation. [Operator Instructions] And I now like to hand over, if I may, to Simon Douglas, Chairman of Omega Diagnostics. Good afternoon.

Thank you very much, indeed, and good afternoon, everyone. Thank you for taking the time to join the investor presentation. We do appreciate it. For shareholders, I would like to introduce myself and the presenting team today. I'm Simon Douglas the Chair of Omega. And I'm joined by Jag Grewal, our new Chief Executive, who's now been in the role for 5 weeks, having previously run our successful Health and Nutrition business for a number of years. And Chris, our newly appointed CFO, who joined the group in August last year. As you know, we, the company and in particular, you the shareholders, have had a very difficult few months, with a considerable share price drop, caused in the main by our COVID business and the failure of the government to meet its obligations, which were to identify and license the COVID lateral flow test for us to make and to manufacture. When the COVID-19 pandemic first hit, the government made a commitment to work with U.K.-based diagnostic companies to help manage the crisis and Omega were successful in being selected as one of many of the key partners to manufacture a COVID lateral flow test. The relationship with the HSC recognize that one of the strengths of Omega was in the manufacture of these LFT tests, but not in the development of this new test against the novel disease. So the government supported the growth in our manufacturing infrastructure, while in parallel, they agreed to identify and supply a test to the company. As you know, the outcome of this was that Omega delivered on our obligations on the manufacturing side by scaling up our Alva site. But in the end, the government failed to present Omega with a suitable test and finally, allowed the contract to expire. During this period, the share price rose significantly on the anticipation that the government would deliver on their contracts. And when they fail to do so, coupled with the COVID prices slowing down and coming to an end, the signs where the COVID opportunity had moved on and consequently, our share price has dropped. We're not alone in this. Unfortunately, the trend seen in many COVID-related listed companies is negative, and many people are currently selling as people withdraw from stocks. We firmly believe that we have not misled the market with all our messaging to shareholders via RNSs and social media, which reflected our view of the business at that point in time and the prospects we had then. We're a team with high integrity, but we do recognize that the news flow from our COVID business has been a complex one. Despite this disappointment, the new management team do believe that we have a new strategy to reposition the company, one that will focus on our core businesses, increased revenue across the group and to reduce losses. From the point in November where we knew categorically that the government had allowed the contract to lapse and had no interest in a further extension, we, as a group, have moved swiftly and efficiently. A new leadership team has been established, and you'll meet both of those in the presentation. And we focused on significant growth in the profitable Health and Nutrition division, whilst we've also taken steps in controlling our costs through the sale of the Alva sites. I recognize the shareholder communication can improve starting today. We have shortened our presentation to allow more time for questions at the end, while keeping the integrity of the same presentation delivered to the institutions. As you're going to gather, we have received an unprecedented amount of pre-submitted questions and I've read each and every one of them, grouping them into key themes and topics which we endeavor to cover off at the end of the slide deck. With so many individual shareholders on the register, unfortunately, we can't talk to each of you individually. But we are committed to ensuring we communicate fairly, with all our investors, governed by the rules, we will treat each of you in the same way. Meetings like this, we feel are a good vehicle. Let's get a brief introduction. I'd like to hand over now to Jag and Chris, who will take you through the details of the new plans, which will then follow by the questions and then I'll close the meeting. So Jag?

Thank you, Simon. Thank you, everybody, and thank you for your attendance this afternoon. I'd just like to go through the areas that we'll be discussing later on. A brief introduction from Simon that we've had. We're really focusing on a new vision and a focused strategy going forward. An update and an overview of our core businesses. And then a summary, and as Simon said, I think we're very acutely aware of trying to get in as many questions and answers as possible during this valuable session with your time. Just briefly in terms of giving you an overview of the organization and the company, I mean, that some of you may be new to Omega Diagnostics. We're a company that's been around for quite some time. We develop and manufacture diagnostic products and sell those in over 70 countries globally, mainly through a distributor network. We have 2 main principal divisions now. our Health and Nutrition division, which is a market leader in food sensitivity testing. And that really enables healthcare professionals and more importantly, our patients to identify dietary changes that improve their long-term health and well-being. We then have a Global Health division, which is quite a different business that focuses largely on global health, confirms, particularly centered around patients living with HIV and our CD4 test allows health care professionals to manage those patients, particularly in low and middle-income countries. And of course, over the past few years, as I'm sure you're aware, we've got into working with partners to develop and manufacture high-quality COVID antigen tests. So really, the purpose of this call today is to really talk about our plans post-COVID and how we're going to employ the capital in further growing the business and focusing on it going forward. And really, the focus on core business is quite key, and it's really about taking control of our destiny and driving our business in those segments that we have a greater amount of control over. It's really essentially a 5-point plan with a new team to focus on continued growth in our Health and Nutrition business that has grown successfully over the last couple of years, and extending it and expanding it either geographically within the U.S. and adding to it in terms of complementary menu. And then with our Global Health area, in terms of CD4, is continuing the upward curve of sales and supporting that, while having a lean and mean manufacturing operation to support that business.

At the same time, it became very clear to me early on that we needed to address the cost base in the Alva site. And the Alva side is primarily where our Global Health business has historically been based. It was necessary to reduce the cost, having ramped up the capacity in relation to COVID, both in terms of footprint, but on personnel and equipment, and where we see overlap in the cost base between the Alva site and the Ely site to develop a plan to allow us to reduce the operating costs and consolidate onto a single site. This will generate in excess of GBP 2 million a year of cost savings from where we sit today. In terms of COVID, we don't want to throw away all the hard work that's gone into developing our COVID products. We have relatively close to finalizing the accreditations that are required under both CDTA, and you will have recognized that we've recently announced the CE marking for our self-test last month. However, the economics of that market have changed fundamentally from when it first opened up, and we're now seeing COVID tests that are being imported from China, which you can buy at a lower cost, than purely the raw material cost for us in the Alva site, let alone labor and overhead that you would need to add on to that. As a result, our COVID products are not competitive to be made in the U.K., and we wish to seek to exploit the hard work we put into developing those tests through moving to an outsourced model and taking the equivalent of a royalty or license fee on every test that's produced, which also has the ability to free up working capital for the business. And finally, to align the interests of the Board and the management team with those of the shareholders, we're moving away from what we've traditionally used as a share option scheme for a number of staff within the business, which can give anomalies as we've seen with the spike in the share price that was driven by the attention for COVID and moving to something that is more geared to business performance, management performance over an extended period of time. So we're looking to implement a long-term incentive program using equity, but with the targets that are driven by earnings per share and total shareholder return performance over typically a 3-year period rather than historically how we have incentivized the team.

As you know, we recently issued a circular to raise at GBP 7 million through a combination of a placing of GBP 5 million and an open offer of up to GBP 2 million. The GBP 5 million placing, we have a number of participants who have signed up to that, that is secure subject to the general meeting that we're going to have on the 7th of March. In fact, actually, that placing was somewhat oversubscribed. And we're moving now towards the general meeting a week on Monday. As part of this, the Directors are all participating. We're putting in a combination of GBP 85,000 between the 4 of us. So let's have a look at each division in turn, and a brief canter through the overview of each division and its business, and then its growth potential that we're planning for. So for those who aren't aware, in terms of the Health and Nutrition business, which is largely focused on food sensitivity testing, we have a number of platforms and technologies that we sell into the marketplace. The first one is Food Detective. This is a near patient test or point-of-care test that can test for reactions and these are IgG reactions to 59 common foods and results can be given out in less than 40 minutes. So suitable for clinics, pharmacies and doctors' offices. The flagship of our product, and the one that generates the most amount of revenue and profit is our FoodPrint system. This is a laboratory-based system that provides IgG results to over 200 foods, and they are used by over 140 labs worldwide. It's a very innovative product, with some really nice USPs that allows us to have a leadership position in laboratory testing for food sensitivity. We also have a range of aliases. These are more basic laboratory tools designed to measure reactions to anywhere between 5 and 93 foods. And here in the U.K., based in Ely and Cambridge, we actually have our own testing laboratory called CNS Lab. That's the brand that it has that serves healthcare professionals, both in the U.K. and in Ireland. Our customer base, as I said, are generally government hospitals, reference labs, but primarily nutritionists and naturopaths. Those healthcare professionals that are dealing with patients or healthcare consumers who have inflammatory conditions. And the key thing here is to look at the improvement in gut health. And gut health is one of the last areas in medicine that really is now being better understood in terms of its link and its impact on chronic conditions, ranging from everything from autoimmune disease, diabetes, obesity, and even mental health. But it's important to recognize where we've come from this business, having only acquiring it back in 2007. It's now a business that covers over 70 countries globally. Particularly, in recent years, we've grown those revenues from just over GBP 2 million in revenue to just under GBP 9 million. It's cash generative. The margins are excellent. It generates a lot of EBITDA, which has been used in the group to fund development projects. And a lot of that EBITDA does convert into cash. But nevertheless, it has significant opportunities for growth going forward, which we wish to exploit. And those growth areas are in 3 main segments. The 1 is organic. Our organic business outside of China, outside of a couple of key markets, has grown really well. It's recovered really well from the pandemic. Dip has grown 56% over prior year, and we aim to maintain our leadership position in this area and differentiate ourselves, particularly to the competition through scientific and education and awareness. And that sets us apart from other labs and other technology providers in this space. We're building on that leadership position by employing a new digital platform that will help empower our customers, which are both the healthcare professionals and those patients in managing those diets and improving their gut health. And obviously, we wish to do more marketing. This is a consumer healthcare area and marketing goes hand-in-hand with what you need to do to grow this business in this segment. In terms of geographic growth, we've always been working in a large number of countries. We're always entering new countries and new regions. China, for one, is an important focus for us. And for those who remember, a couple of years ago, we established a relationship and a subsequent registration of our Food Detective product in China. That yielded some significant sales in prior years. I think with the impact of a pandemic and a slight lag in its adoption in China, potentially a bit of overstocking in the prior FY, we see that market going back to growth over the next couple of years. And the U.S. in particular, is a very key market for us to grow into. We have a little bit of business there today in the U.S., but it's arguably the most health conscious and mature market that we wish to address with our offering. And because we've got all these channels to market, serving healthcare professionals around the world who are dealing with gut health, we also wish to then add that menu of tests into those sales channels, a classical sales technique of putting more goods in the same basket. And we wish to expand in microbiome and nutrigenomics, which will give our customers a much more comprehensive personalized nutrition for better health. If you focus on the U.S., first of all, the sense -- the food sensitivity market in the U.S. is estimated to be the largest and most well-established market in the world. There are a number of players in there already that just offer lab testing services, but we think the best route to address that market is actually lift what we do today and do very well today and pop that into the U.S. The differentiation comes against versus established players, is with our approach around education, science and the digital strategy which will pull us apart from the competition. And our estimate of the market in the U.S. is about $50 million to $100 million. And we think over the next couple of years, we have the potential to realize GBP 3 million to GBP 6 million, at pretty good margins, over the next couple of years. And the plan there really is 3 steps. Deploy our existing successful model, the CNS lab and go more direct, sell to health care professionals with our established brands and approaches were recognized around the world, differentiate through our engagements and our science and education, and as what I said earlier on about FoodPrint, being a microarray, it can test for over 200 foods just from a couple of drops of blood from a finger, which is a massive improvement and a massive advantage over existing collection techniques, which is typically using a phlebotomist taking blood from an arm and then the complexity and the cost of sending that to the lab. Once we're set up in the U.S., that provides a perfect vehicle for expanding the menu offering to that market that we're serving already. And the first step in that menu offering is microbiome testing. This is looking at your gut flora in your gut. It's key and increasingly being linked to a range of inflammatory conditions that lead to the chronic symptoms that we see when we're testing for food sensitivity. There's a big demand for this. And if you couple that with the immunological assessment with IgG testing, gives a much more comprehensive profile to the healthcare professional. And then there's our DNA. There are a large number of DNA and genes that impact the way we digest and process food. And mutations in those genes contribute to a variety of conditions, such as food intolerances, the most obvious one and the most common one is lactose intolerance. And if you add your DNA, your microbiome and our existing food sensitivity testing in one package, all through one digital platform, we will be the first to market to offer a comprehensive personalized nutritional assessment to our healthcare professionals and to our patients and the healthcare consumer. And to support this and to support this growth, we currently operate in a much smaller facility, but we are working with a landlord in the final stages of building out and fitting out a 35,000 square foot state-of-the-art space just a couple of miles down the road from where we are today in Ely, Cambridgeshire. This will provide us with greater environmental control and better quality products, but also, more importantly, once it's compliant to our regulatory standards, gives us that foundation to grow and build more kits and expand our laboratory testing services. So that's Health and Nutrition. Let's talk about Global Health now. And the flagship products for many years in Global Health, and it's been a long time in development when we took on the prototype from the Burnet Institute in Melbourne in Australia, is our VISITECT CD4 test, a unique product in the marketplace, the only instrument-free CD4 testing product available to healthcare professionals. And this is really key for patients living with HIV, particularly those patients that live in inaccessible areas, especially in low- and middle-income countries. A very different business to our healthcare consumer division, which is our Health and Nutrition division. This product is bought, acquired and deployed by the likes of the Clinton Health Access Initiative or CHAI, the WHO, Unitaid and funding from PEPFAR, which is the President's Emergency Relief Fund from the U.S. And the main channels to market are threefold. The first one is working with CHAI and another organization called Unitaid. This is the advanced HIV disease initiative, where this has really been breaking ground over the last couple of years in providing the CD4 test to those countries, starting with 7 of them in East Africa and now, growing beyond that in sub-Saharan Africa, providing CD4 testing to those patients that need it in those countries. The second channel to market is with NSF. They've been a very long-term supporter of our CD4 test and did a lot of work in the early days, particularly the study in DLC Malawi and Zimbabwe. And they've just been starting off in 6 countries and are actually supporting deployment, and they aim to grow that number of countries out into the markets that they serve. And then more lastly, particularly with the PEPFAR endorsement and the funding that, that gives. The UN agencies listed below there, together with the WHO prequalification are now setting up long-term agreements and framework agreements with us to implement the CD4 test into their operations in these countries at the same time. And in recent -- and literally, in recent months in the past year, we've grown massively in CD4 sales, and that will continue to grow as the NGOs and AIDS agencies expand and deploy the test in more and more countries. The test is performing really, really well in the marketplace. It provides a lot of clinical benefit when it's being used. To support that, we've established and launched a global learning center. So we have an online ability and capability to train healthcare workers wherever they are in the world. The product now is approved for use and sale in 24 countries, and that number is growing. And to match the demand, our production scale up is underway. However, as we've said in the circular, it's now the right time to potentially transfer CD4 manufacturing out of Alva to a new home. And before we do that, that may or may not be easy, we want to undertake a strategic review as to what is the right thing to do around CD4 so we can capture the potential and give it a home that allows it to be made at the right margin and at the right scale to meet the demand, as you can see there going forward. I'll hand over to Chris now who will take you through the COVID strategy.

Thank you. So in relation to COVID, we've issued a number of regulatory announcements confirming the status of all the necessary approvals that we've been going through. So you'll be aware that our professional test was CE marked last summer, our self-test was CE marked in February. That was subject to the provision of some additional study data, which has to be provided by the 31st of March. But absent that, that award certification lasts for 5 years. In terms of the Department of Health, we have continued to supply information in relation to the CDT regulations, the latest deadline of which was the 10th of February, and we supplied all available information into DHSC at that particular point, and we're currently awaiting a response. What we are seeing now is a number of tests are being finally approved. It's been a very slow process in terms of getting tests through not just for us, but for all participants in this particular market, but some are now coming through. In terms of the U.S., the professional test, our mission in the U.S. is continuing, albeit that's being led by Mologic and not by Omega. As for self-test, we have been looking at feasibility studies. The likely cost of going into the U.S. market is in excess of $2 million, and we're looking at a more funding partnership arrangement with a test user [ stroke ] manufacturer to potentially fund that registration rather than doing that ourselves. That's just beyond our funding capabilities at the current time. In terms of the commercial status, as Simon mentioned at the outset, the Department of Health contract expired, albeit with no test to manufacture, therefore, no orders. And you'll be aware that we continue to be in dispute with the Department of Health over the GBP 2.5 million worth of preproduction funding that they provided to the business. We don't believe, based on our legal advice that we are likely to have to pay that back. In fact, actually, we believe we are due some initial money from the Department of Health in terms of a termination payment at the end of the contract as a result of them failing to license the test and sublicense it to Omega for the manufactured product. But we do remain in active dialogue in terms of trying to resolve this dispute with the Department of Health, and I suspect that will continue for a number of months. As you're aware, there is some government-funded equipment currently located on the site. That government funded equipment is clearly not ours by definition. And we have no intention to use it for COVID manufacturing and we are facilitating the sale or removal of that equipment on behalf of the government, potentially to manufacturing partners who would be making tests for Omega or alternatively, to return the goods -- the equipment back to the Department of Health. We've continued to work with Lansdown in terms of creating demand. When this first came about, we did not have a sales team focused on this particular market. our Health and Nutrition business is fundamentally different in terms of our channel and our CD4 business is very much focused on international nongovernmental organizations such as the WHO, Unitaid, Médecins Sans Frontières as Jag has outlined. So we chose to partner with somebody who could potentially access that market for us. They brought us DAM Health as a potential partner. Unfortunately, the DAM Health project has not created any volume as yet as a result of the CDTA regulations acting as a barrier in terms of supply in the short term. And as I mentioned before, the market has moved on. These tests are now available to buy, delivered from China at below our cost of raw materials, let alone our fully loaded costs, including labor and overhead. And as a consequence, we wish to move to a model which is more of a royalty and license-type model where we can benefit and monetize the work that's been done in developing the technology without having to fund the working capital and without having to take the manufacturing risk. And we're working with a number of potential manufacturing partners to create that capacity, both in the U.K. and abroad so that we can leverage the hard work that's being done in terms of developing the sales opportunities to date. In terms of the use of proceeds, so this is based upon an assumption that we would raise GBP 7 million, the GBP 5 million from the placing, which we already have in hand and the GBP 2 million from the open offer. Unfortunately, the GBP 2 million from the open offer is not something we can rely upon. It will be determined by our shareholders behave and wish to continue to invest in the business going forward. The broad buckets in terms of how we intend to spend the proceeds, there are some costs, some cash costs associated with the exit of the Alva site, and I'll talk a little bit later on about the structure of the transaction with Alva. In terms of -- by leaving Alva, we have to move CD4. We have the ability to continue to make CD4 on the Alva site up until the 31st of December this year, which allows sufficient time for us to transfer that test, either into our new Ely site or to a third party. In order to do the transfer to our Ely site, which is the premise of the fund raise, we require GBP 1.5 million to invest in that particular product. And that comes into 3 broad areas. There's approximately GBP 0.5 million of capital expenditure to be incurred in Ely in order to be able to accommodate the CD4 equipment in that particular site. There is a transfer team. So this is people we would employ in Ely, who are going to be the go-forward management team for that particular product, who have to come up, learn about the product, plan the transfer. And in addition, we've also targeted some of these funds towards retaining the people with the knowledge within the business to ensure the transfer would be successful. And finally, we've identified GBP 0.5 million worth of spend to try and improve the product to make it more stable, to improve the yield and to look for cost efficiencies within the production environment. In terms of COVID, there's no additional cost to transfer of COVID to third parties, on the basis that the third parties would actually fund that particular work themselves. On our Health and Nutrition business, we're looking to invest 1.1 million in establishing the U.S. That's in terms of finding and kitting out a small lab, hiring staff, a general manager, a sales and marketing resource and lab staff to perform the tests on the basis that we would be up and running in terms of generating sales from Q1 2023. And finally, on the Health and Nutrition side, in terms of nutrigenomics and microbiome, GBP 400,000 is allocated towards that, which is covering -- hiring a couple of people, but more importantly, purchasing and developing the tests and the reports that we can then plug in to our new digital app to consolidate the reporting alongside our existing food intolerance testing. And the balance would be working capital. As I said, that could be GBP 3.2 million. If all of the funding is raised, it could be GBP 1.2 million if the open offer is not successful. And on this -- finally, on this point, we are not -- we've been very clear here, we are not raising money to pay back the Department of Health. Those discussions are ongoing. We don't believe, as I said, that we are obliged to repay the money. In fact, we think we're entitled to recover additional monies for the losses that we've incurred as a result of how the Department of Health have handled that particular contract. So we are not raising money to give it to the government. In terms of the Alva site, you touched on it, obviously, it was sent out in the circular. But that site has lost nearly GBP 5 million in 9 months, and has essentially, put the risk -- put the future of the group at risk. There's insufficient production volume going through the site, little or no antigen testing. The COVID work that we've been doing has generally been short-term, subcontract for the likes of sure screening or reworking product on behalf of Orient Gene as we saw in December. And whilst our CD4 product is growing significantly, it's still relatively subscale for the size of the manufacturing facility that we now have. The site has 141 employees at the end of January. Of those 141, 109 people are transferring across to Accubio who are the acquirer of that particular site. So significant reduction in headcount. We're also dealing with inefficient shift patterns, the shift patterns were set up for volume manufacturing in light of COVID. That clearly has not materialized. And we've been going through a process recently to align that on to one shift and reduce the amount of available hours and the other personnel. And there's a relatively high level of waste, as we go through some of the production challenges in terms of getting our CD4 product into a stable, predictable manufacturing process. Associated with the site, there is a high level of fixed cost, particularly around the quality and regulatory activities that this industry requires. So whether -- our costs don't really change in this regard, whether we're selling 1 test or 1 million tests out of the site, the regulatory burden remains broadly the same. The current lease has 14 years left to run at GBP 187,000 a year. So that's GBP 2.5 million worth of future rentals that we've been able to avoid by assigning the lease to Accubio. At the same time, we've been able to pass on the liability associated with dilapidations, of somewhere between GBP 400,000 and GBP 600,000. And bear in mind, the site itself was originally 12 business departments or offices, if you like, in 3 buildings in a U-shape. So the obligation would have been to move from what is now a consolidated site and to reinstate 12 individual units. The agreement with Accubio was signed on the 10th of February. There are a number of conditions associated with it, conditions around the Department of Business, not actually reviewing the transaction and calling in on public interest grounds, the 2P process or the staff we're moving across to Accubio and confirmation that the lease is being assigned to the landlord and that the dilapidation costs are capped at a certain amount. We're selling fixed assets primarily, which are not required for our CD4 production business. So we're keeping those and we're selling assets with a net book value of GBP 1.2 million for GBP 1 million. We're signing the lease, we're [ tuping ] the people across. And more importantly, we are continuing to -- we've negotiated a position whereby we can continue to manufacture CD4 in that site until December. So we'll be running a site within a site, allowing us to continue to meet our customer demand and allowing for the orderly transition of that product into a new facility, where we have to go through a validation process, site accreditation, et cetera, to be able to switch the production off in Alva and on in a new site. As part of the agreement, we have an obligation to see that the government-funded equipment is removed from the Alva site within 1 month because space is required for Orient Gene. And you will see there's a 2-step process here in terms of the initial savings, which will materialize next month. And then our second set of savings which we're estimating to come around about September, October time on CD4 is actually physically moved out of the Alva site. And the current effect of that is somewhere around about in excess of GBP 2 million per annum.

Thank you, Chris. So in summary, the key to our future success and future growth is to restructure the business. We need to focus on cost control and operational efficiency. And working across 2 sites, there was quite a bit of duplication and then transferring everything to the one site would make that happen. We need to review our strategic options for CD4, however, prior to committing for transfer of CD4 to Ely. And then obviously, as Chris mentioned, outsourcing the COVID antigen manufacturing quite simply for us to be more competitive in the marketplace. Central to the plan is the jewel in our portfolio, which has held for nutrition over the years. that's delivered the EBITDA and the cash to do what we've been doing across the group. But it's had very little attention over that period of time. Nevertheless, it has grown, but I believe and I firmly believe, it's got strong potential to grow further beyond what it's been doing today. And that's either through organic growth, utilizing and being driven by the digital platform. Key to the growth is U.S. expansion and then adding the microbiome and nutrigenomics menu additions to our existing basket of goods in those 70 countries worldwide. In terms of CD4, the momentum is building. The growth is there in terms of sales and more importantly, demand from our key stakeholders across a larger number of countries, but it's still loss-making in the current way that we're manufacturing It. So we do need to evaluate the strategic options, maybe revisit the selling price with our key stakeholders and look at volume commitments accordingly. But if we can reshape and restructure the business, then we'll be much more fit and able to execute on that opportunity. And then in terms of COVID-19, there is still opportunity for that. They are contingent on registrations and approvals. CTDA, for example, being one of them. And remember, the self-test CE mark is also still contingent on some -- getting some additional study data to satisfy the regulator. But to be more competitive, as Chris highlighted, we need to move to a subcontracted manufacturing model, potential licensing model that then allows us to address that opportunity much more effectively. So that's the summary. I'll hand back to Simon, who will make some closing remarks.

I think first, we'll have some questions.

That's great. Yes. If I may, Jag, Chris, Sam. Thank you -- sorry Simon, thank you very much, indeed, for updating investors this afternoon. Now, obviously, you've got a considerable number of investors on today's call. And as you rightly highlighted at the beginning, Simon, there were a considerable number, unprecedented number I think you used, of questions that were submitted ahead of the meeting. So apologies for frustration if it sounds like we're not addressing each and every one, but what the company have done is they've allocated these into certain themes. And perhaps, if I may, I'll start off with the first theme, which was around the Alva site. And Chris, maybe one for you. Why has Alva been sold a mere GBP 1 million consideration, considering how much cost has been spent on it to date?

Well, I guess there's maybe a preconception or a misconception as to the level of spend that has actually gone on into the site, because the book value of the assets that we've disposed of was GBP 1.2 million, and we sold those for GBP 1 million, and that's a negotiation effectively between us and Orient Gene. So I don't think that there was perhaps, as much spend as people maybe thought. But fundamentally, the site was just not competitive. I couldn't see a way to make it competitive, that was pretty clear to me from very early on when I joined the business back in September. It has been expanded to cover COVID in terms of additional floor space, additional personnel, installing the government equipment and the volumes going through the factory were just insufficient to absorb the cost of operating the facility. Added to which, the lease has a long way to run. It's very -- it's an expensive property to continue to occupy if it's underutilized. And really, what we saw was an overlap in terms of functions, where there was duplication between Alva and Ely, particularly on the sort of quality and the regulatory side of the business, and we feel we're able to share the cost of those between the 2 business units operating out of the same site. Some may say we've been slow to react in terms of addressing this particular cost base. We have plans in terms of dealing with headcount within the site back in November, which was when we first began our conversations with Orient Gene. And really since November, Orient Gene have been underwriting an element of salary costs or personnel costs in order to retain the workforce on the site in anticipation of an acquisition by them of the facility and of the personnel. And that has covered our costs in terms of some of the savings that we would otherwise have been making, have we implemented a significant redundancy program at that particular point in time. And by significant, I'm talking roughly half of the personnel that would have been operating on that site with effect from November. So there was an urgent need, really, to address the site. It's time to work through with a solution, particularly to make sure we found a home for CD4. We developed our transfer plan to allow us to move the products into our Ely site. As a reminder, in terms of the transaction, we've avoided significant redundancy costs. We've avoided significant dilapidation costs under the lease. We've got out of the lease with 14 years still to go, at the thick end of GBP 200,000 a year of rental. The next break clause was until 2029. So if we haven't passed on the lease, we would continue to be paying that for the next 7 years. And we've created the capacity for us to lower our cost, while we're operating our CD4 production out of the site. We'll be occupying roughly 1/3 of the footprint of the site and incurring a percentage of staff costs, which varies by function, so that we are not paying 100% of the wages and salaries for personnel, where we don't need to. And those costs will be split, as I say, department by department, individual by individual, so that we continue to access the personnel that we need, but we don't necessarily have to make 100% of their salary costs.

That's great. Simon, if I may, as you can imagine, there were a number of questions, a significant number of questions around the placing. And perhaps, if I could summarize, why should investors support this placing?

It's a good question. And I think we've got to look at the 2 opportunities and then the 2 ways forward. We are where we are, and we can't reverse the flock. We put together a plan which we think will change what is a heavy loss-making company currently into a growth company and move into profitability over the next few years. The key thing for us is that the plan has been built bottom up. We understand, for instance, as Chris has explained, what it will take to move CD4 to Ely. It's not just a question of lifting everything up and move to Ely. You have to reestablish production facilities, you have to run batches in parallel, you have to reregister, get regulatory approval. It's not a trivial exercise. And the amount of money we put in is what we believe that is required. And the same with the other numbers that Chris has broken down. We don't believe that there is a huge amount of fat in this. We're not raising money just to stick it in the bank. And we will put all the funds into good use. I think the key thing is, what happens if we don't raise the money. And that is a real challenging question. We would have to consider a lot of alternative, of course, is to reduce losses, manage cash flow. That possibly could involve a very quick sale of CD4 or even the closure. It could well be that we have to stay in the facilities in Ely rather than move into the new building, which means that the capacity crush that we have currently would remain, and that would hamper any growth. We have to limit our marketing and basically, the competitors could take advantage of that. So without it, in my view, personally, we were kind of in a bit of a downhill spiral. So the amount of money we're raising, I think, is realistic. We know that the share price is not where we would want it to be. And we understand fully that the dilution is significant. But we really do believe that raising this money, investing into the company, we can move the dial forward and really, start, I guess, recreating some shareholder value, which has been lost over the last 12 to 15 months.

And maybe, Chris, if I could turn to you. And I think you guys did touch on this in the presentation about your personal participation, but can you let us know how the Board are participating in displacing and indeed, increasing the holding?

Yes, as I said in one of the slides at the beginning, I think the Board are putting -- the Board are putting GBP 85,000 into this. In addition, Jeremy Millard already has over 0.5 million shares that he bought personally some years ago. The other piece for me is actually moving to an incentive-type arrangement under a long-term incentive plan that aligns our interest as managers with those of the shareholders. And that will be putting longer-term sort of 3-year performance targets on focusing on earnings per share and total shareholder return. So we don't get a repeat of effectively, a COVID spike that suddenly means options that were granted some time ago or were significantly more without the business performance itself actually delivering.

And Chris, if I may, just maybe expand further. Obviously, a placing was one route to raising additional funds. But can you explain what different avenues you looked at?

Yes. So I mean, we've continued to have our overdraft facility, which is GBP 2 million as we stated that. That has not yet been drawn, and we continue to operate with cash in the bank. The overdraft, though, is effectively likely to be drawn, I think, in the next few months. It would be my expectation and is subject to renewal in June. Of course, an overdraft is repayable on demand and doesn't give me the certainty of funding going forward, particularly for a business that has been loss-making to the extent that Omega has been or is, for the current financial year. Trade finance, those of you who were on the call in November when we talked about the interim results, we're aware that I've been looking at a trade finance scheme. That remains still available. The challenge, to date, has been to access that or to collateralize that or as Bank of Scotland are concerned, I would have to give up a proportion of my overdraft. That would create additional headroom, but unfortunately, that facility isn't quite as flexible in terms of what is available to be used for as an existing bank overdraft would be. So for example, I couldn't pay salaries using a trade finance facility, whereas I can with an overdraft facility. In addition, there are some fundamental changes going on within the business. Originally, the sale of the Alva site changes significantly the potential in terms of raw material purchases, particularly as we exit manufacturing per antigen. And there are further changes potentially ahead depending on the outcome of our strategic review in relation to CD4. I would want to understand the level of impact on debt facilities that would be available under this route based upon the business that we will have long term. If we're left with just a healthy nutrition business going forward, which is a potential. The raw material component for Health and Nutrition is relatively modest. It's only around about GBP 2 million a year. And that probably doesn't create sufficient capacity in a trade finance line for -- to help us with funding. Whereas when we had a broader business, potentially COVID, the working capital demand will be very, very heavy. I think we did the calculations that said we would need to raise another GBP 8 million just to fund the working capital if we were to sell our antigen tests out of the Alva site. So I don't -- whilst trade finance remains an option, it's one I'm hesitant to draw until I have clarity in terms of the ongoing structure of the business right now. And obviously, to the extent we can use debt, we will, provided its short-term debt and there is a route to repayment and I'm not drawing the overdraft just to prolong effectively an inevitable glide to run out of cash. We elected to raise the GBP 5 million fully subscribed, oversubscribed to fund the strategic plan. Investors were very keen to make sure we were well-funded. We need to be able to fund the move of the CD4 production line to Ely. Without that, we are forced down a route of sale or closure, as Simon has alluded to. So that was an important part. And I think it's fair to say as well, some of the places, we remain nervous around the position with the Department of Health and the potential for us to have to repay some of the GBP 2.5 million that is currently in dispute. We're also in a position where we are waiting on additional funds from Abingdon. We're also in dispute with the Department of Health, and I have around about GBP 600,000 due, which was due over a year ago, in fact, in relation to supply of antibody tests as part of the U.K. LTC. In addition, the open offer is uncertain in terms of the quantum that, that will deliver. It could be anything between GBP 0 and GBP 2 million. I guess we'll know pretty soon what the answer is in terms of that and the quantum that can raise. And therefore, we went for a GBP 5 million secure placing to make sure we had adequate funding going forward. What I would point out is right now, those places are contracted to put GBP 5 million in at 5p on the 8th of March. There's been suggestion that we could maybe take a lower raise. If we change the game now, there is no certainty that those places will continue to put their money in at those sort of levels. There's no guarantees over the price at which they will be prepared to put it in, particularly where we're seeing volatility in the markets driven by the events in Ukraine in recent days. And to reject the placing at this particular point would take us down a path of uncertainty in terms of funding going forward. Clearly, our strong preference, recommendation is that we take the placing as is, where we have security of funding for the future.

That's great. Simon, if I may turn to you and I guess, the perception in the market perhaps, as the Board was lying about the need of fund. So can you perhaps expand on the reasons behind the timing and explain why the board didn't lie about the needing of funds?

Yes. I mean, we -- in my tenure over the last 12 months, we have never lied to the investors. Look, everyone on this call doesn't know me personally. I've had 35 years' experience in big and small companies and I have always worked with the highest level of integrity. So all the statements we made were checked and were correct at the time of writing. I know some of them that are being questioned. I mean, for instance, there was one which we said we had no immediate need of funds. And that's absolutely true, because the point being made was that this was not an emergency fund raise. Over the last 12, 18, 24 months during the COVID period, there have been many stocks and have been many companies who have literally run out of money, and they are raising money, literally, and they need it within a couple of weeks. Otherwise, they're going under. So the point we made was there was no immediate need. It wasn't a major panic, but we do believe that there's no point in sitting on our hands. We know where we are now, we know what we want to do. So let's go out and make it happen. So that was -- we're concerned -- it's actually true statement. Other statements we made about the institutional investors about a potential placing. That's absolutely true. We couldn't say more because the institutional placing wasn't confirmed. It wasn't agreed. It wasn't finalized. In the midst of all that, we had a leak, which we had to contend with. And on that subject, again, I know people are believing that the leak may have come from the Board. It didn't. And we are very, very keen and welcome any investigation into this, because it helped no one. It was unjustifiable and it really is something that nobody needs to contend with. So again, we're absolutely determined to get to the bottom of that because that was just wrong. Even the timing of the funding itself. We knew we were building up an institutional placing of GBP 5 million. We were building a book, but some of these investors who understood the finances in the same way that Chris has presented today. We're very nervous about the fact that part of our cost savings was the sale of the Alva site. And if we haven't managed to sell it, we will be burning a lot of money on a monthly basis. So we couldn't announce anything about the certainty of where we stood until the Alva site was sold. So the agreement was agreed on 10th of February and within 24 hours, we announced it. But that is the first time we could have announced it. And I know we've been accused of holding back information and not being open with the shareholders, but that's simply not true. Each time we look at the announcements, we know exactly what's going on, what we can announce, what we can't announce and what's going on in the background. And some things have to be held back a little bit because there's no certainty that's going to happen. And on that, we don't want to misinform the market by putting out things that might happen or might not happen. That is something that is very guided about under the AIM regulations that we have.

That's great. I guess, turning and extending on to that, maybe you mentioned informing and communications and there were a number of questions around communications. And really, how will the Board regain shareholder trust again, the talk of Board misleading and deceiving shareholders.

I think basically, we have to deliver. We strongly reject any acquisitions of having misled shareholders. It's very linked to the previous question you asked. Our messaging to shareholders via the RNS process and social media has always reflected our view of the business at that point in time and the prospects we had at that point in time. We tried not to pump it up. We've tried in fact -- we've actually been accused sometimes of dampening it down. I mean, as an example, and I think one of the questions that I saw fell through tonight, the GBP 50 million to GBP 100 or GBP 374 million value of the government contract didn't come from us. We didn't know about that until it was on the website and the second we saw it same time as over everyone else. And we put out an RNS saying it's up to -- these are not numbers that we recognize. So we, in that case, recognize something that was out there, which we didn't put out, and we actually did the right thing by going out and saying that doesn't mean to say that's the size of the order. It is potentially up to one of those numbers, but they're not our numbers. So we try very hard to do both things, is share information on a positive basis, but also, make sure that some of the numbers out there were commented on. And look, I think the challenge we grow as a company and we need to work on this, some things, when they happen, are quite sensitive, so they go it immediately. Clearly, when things are on track, but there's nothing new to announce, we get on with running the business. But I do appreciate that there's often rumors that then start filling in the gaps, and we do need to try to work and see what we can do about that in the future. But we are committed to increasing shareholder engagement. We've listened to an awful lot of the feedback in the last 3 months in particular. I'm personally not a great fan of providing a running commentary to investors via Twitter, but I recognize that handled correctly, it can add value. So again, we need to look at that. I think the very fact we have a very significant retail group of shareholders. It is not possible to deal with individual questions. we have to basically treat every shareholder the same. So if somebody -- one shareholder asked the question, then basically, there are I don't know about total bookings, but there are thousands of shareholders that need to be told. So we have to basically work in, in the fairness way across the board with everyone. And I think we need to work on that as a group. And we're also well aware that criticism has been leveled at Walbrook. Walbrook [indiscernible], the frequency and the content of the communications are triggered and our responsibility of the Board. They are our conduits to allow us to get on with running the business and we outsource the communications to them.

Great. Of course, the company is compliant in terms of the AIM rules and a number of questions were around that. And so has the company been compliant with AIM rules in terms of its listing?

Yes. Clearly. We comply with AIM rules. We've all been trained in [ NOMADS ] regulations. Our [ NOMAD ] keeps us straight on material information that's going out into marketplace and there are standing board, they give us a lot of questions. They push back often and they make sure, basically, that we have done nothing that will be misleading or false in the marketplace. That's it, John.

Jag, if I may just turn to you and I'll read the question straight as it come in. Is Omega committed to improve communications with shareholders in a proper and professional manner?

Absolutely, yes. I think we can learn from the past and improve communications going forward. I think as Simon said, we need to be correct and compliance when we do communicate. We've come from a background of being largely institutional held. I think we need to learn on how to better communicate with our retail base. There are many of you out there and there are platforms, such as today, that we want to exploit more often. Personally, which I could speak to every single shareholder. But I would do nothing else but do that. We recently communicated, for example, with the Omega shareholder Action Group in response to a detailed list of questions. And there will be opportunities such as general meetings that is coming up. Now, there are, I guess, less COVID restrictions, that we can meet and greet and engage our shareholders. I mean, we have been -- we've had to be very careful on social media. There's a lot of stuff that goes the other way and misrepresents what we're saying as well. I know one particular area that's been contentious is turning off replies on social media, for example. That's because we just got some abusive comments on that. And really, myself coming from a commercial background, those things could be read by customers and will be damaging to our future commercial interest and our future growth plans, which I'm sure none of us, in terms of directors, employees, customers and more importantly shareholders would want to see.

Simon, if I may, a number of questions, quite a considerable amount of questions through the live meeting today. And also, that were pre-submitted around Board pay, director, share selling. What proactive steps will be taken, if any, to overcome shareholder concerns around these areas?

It's a very good question, and I understand the frustration. Decisions to buy the shell shares are very much a personal decision. Just because you work for a company or on the Board of a company, you're not obliged to make those purchases. So it's very much a personal thing. And providing we're not in a close period, that individual can make those choices. At the end of the day, everyone has their own families, their own personal situations, and they have their own preferences when it comes to how they handle their personal finances. I'll be very blunt. I can't really influence that. Clearly, I understand completely why everyone would like everyone to be aligned. But people have -- their own personal finances are handled in their own way and people take their own advice. So bluntly, I would struggle to be able to influence that in a proactive way. Now, in terms of the remuneration of the Board, we regularly take external advice. We regularly benchmark our salaries against the industry norms. We clearly need to make sure our salaries are competitive. We need to attract the right talent at all levels, not just the Board levels, but all underneath. And bearing in mind that we're a named listed company, I don't believe that we will pay any of our directors. And we will continue to take that benchmarking and we look to continue to make sure that we do align ourselves with other companies. I think Chris has already mentioned a new -- it's called an LTIP option program, which is very different to the one that exists now. And this particular structure is going to align the performance targets with shareholders and the rewards will be aligned with shareholder gain as well. Just to answer one of the questions I know I'll just go through. As yet, we haven't set, it's not in place yet. It's still being set up by the lawyers. So as yet, we don't have numbers that we can talk about. And can I just go back to the question before, I'm sorry, to jump around. Even tonight, we have had some fairly disgusting language appear on some of the questions. And I understand fully, that we have some very annoyed shareholders and very angry, but I just think, some of the personal abuse has been directed at the Board, including to me, in particular, phone calls threatening physical violence, and that can't be tolerated. That really cannot be tolerated. So there are times that we might end up turning off communication, because if it starts becoming that aggressive, then we have to basically take some action. So I think I would just ask 99% people I'll call you and that's fine. But as I say, even tonight, there's been some very disgusting language come through on 1 or 2 questions, and that's just not right.

No problem. And Simon, that has been noted and there will be a follow-up from us with those individuals as well. If I may just turn on to the next topic. We've got about 3 more to run through. I'm mindful that we're way through the time, but I know you're very intent on making sure that these areas get cleared up. In the event the Board doesn't get approval of the resolutions and additional funding, you must have a plan B. What is it? And can it involve less dilution if additional funding is required? Maybe that one is for you, Chris.

The fundraising is not successful. We will have to take some strategic action to manage our cash flow and to reduce the ongoing costs and losses of the group. It's not something we wish to do, mainly because it's likely to destroy longer-term shareholder value. So for example, if we don't have sufficient funds to enable us to relocate our CD4 business, our options become limited to a sale or a closure. If we don't have the funds, there will be a finite amount of time in which we can continue to fund that CD4 business, while we were looking for a buyer, because it's still a loss-making business. And that will either curtail the operations or reduce the value at which we're able to sell it potentially to 0. Now, that's not something we want to do. Clearly, we have a product. It's in the market. It's growing in the market. It meets a need. But if we end up in a position where we cannot afford to keep it, our options become very, very limited indeed. And I don't believe that is in the long-term interest of any shareholder. And as I said before, there's no guarantee that the placing will come in at a different level, should we not be successful on the 7th of March. So there is -- we would introduce a significant level of risk around funding. We would have to seek alternative sources of funding through primarily debt and potentially, some slightly more complex instruments, which we have rejected to date coming through from typically, American investors who are seeking a value opportunity. There are some strings attached with those that I would countenance against entertaining. But we would -- if we have to entertain them, then clearly, that's what we would have to do. In terms of the debt funding, like I said before, there is an overdraft facility. I don't intend to draw the overdraft unless I've got a route out of it, because all that does is kick the can down the road. And that's not what we should be doing as a business. We need to have a plan to sustainability. The funding is a key part of that, I'm afraid. And without that, then life gets very difficult pretty quickly. Sorry, I would just say, in addition, I guess, it would -- as well as dealing with CD4, it would make it quite difficult for us to take on the new facility in Ely. There's a significant lease commitment that is in the plan. That facility is required to enable our Health and Nutrition business to grow. So to the extent that we don't have funds sufficient to allow us to sign that new lease, we would become capacity constrained out of our existing site quite quickly. And any growth in that business would be much slower than otherwise we would anticipate. And clearly, we wouldn't be able to add some of the other growth opportunities around the U.S. investment and microbiome nutrigenomics as well.

That's great. Jag, if I may turn to you. Around CD4, really, is CD4 moving in the right direction. And really summarize, I have to say, this is from one of the questions, the lack of information since the share price crash has left me with shocking losses and now, the 5P offer. Why should I invest more without substantial evidence that you have the capability to add significant value in the next 12 months?

Yes, that's a really good question. And CD4 is a key product for us. We've been working on it for quite some time. I mean, in terms of demand, I know there's a couple of other questions on the scrolling line, around them. In the last FY, we sold about 38,000 units. This year, we're probably going to be on track for selling about 400,000 units. And the next FY, we're forecasting 1 million units and then 1.6 million after. And these forecasts for future business come directly from the likes of CHAI and UNICEF, et cetera. So they're the ones that give us those forecasts for their deployment and implementation in the countries, where CD4 is being deployed. Market adoption is driving that. It's now available in 21 countries. That's up 15 countries since July of last year. And recently, in November and even a month ago, PEPFAR, the funding agency quoted directly in its guidance, the VISITECT CD4 test to be procured for NGOs that are managing and putting in implementation plans for patients living with HIV. I mean, that said, as Chris said, we are strategically reviewing CD4 prior to committing to move it. There's a cost to moving it. There's a risk to moving it. And are there better options out there before we press that button. As Chris said, there's about 1.5 million of transfer costs, including CapEx, to drive that transfer. Is there something better out there? Is it a subcontracting model or a better home for it to drive the adoption of that test going on. There's also an option to potentially renegotiate terms with the purchases of the test. That could possibly fundamentally change the economics of the product that allows us to invest and drive that forward as well.

That's great. Thank you very much, indeed, Jag. If I may, Chris, turn to you and issues relating really to the relationship and the involvement with the government. If I may just read the whole question in flow. Instead of fighting with [ dot gov ] why have you not agreed a way forward with them to retain the equipment and facility in preparedness for the future? The government wanted this set up originally, and I expect there could have been a deal done to mothball it should it be needed in the future. The dot gov do this with critical facilities all the time. Why just cut and run losing everything? It doesn't seem a wise move, again, unless we're not being told the whole picture.

I think you are being told the whole picture. Fundamentally, we can't make money out of COVID in Alva. Even if we had a test that was fully approved and accredited for the U.K. market, cost of manufacture are significantly below the costs of importation from China and the cost of the facility and the cash strain of the facility on an ongoing basis is just unsustainable. So the 2 are intrinsically linked. The government are clear that we're not going to get any volume from them, so we're reliant upon the commercial market, and we can't meet the price point in terms of manufacturing. So worse than that. By the way, they're not only for -- they're asking for their money back in terms of things that we have logistically spent on the types of costs that they requested, we spend it on to build that capacity. So I have no reason to believe that we are -- that they would support, in any funding sort of way, the continuation of unutilized capacity in the U.K., that would be contradictory to all of the behavior. Because we've seen, in terms of government procurement for lateral flow tests, where the vast majority have been coming in from China. So I just don't see that, that is a viable option at all. And if we can't make money out of it, then we have to move on and invest in areas where we think we can.

That's great. Thank you very much, indeed, Chris. Look, I'm very mindful of time that -- you've given us 20 minutes past the hour. And also, thank you to all those investors who submitted questions. All of which, will be made available to the company, and we'll do our best to get those published back out to you as soon as you can. But please, do bear in mind the significant number of attendance on today's call. Simon, if I may, I know investor feedback is important, and I will shortly redirect all the investors on the call to give you their thoughts and expectations. But before doing so, I wonder if I could just ask you for a few closing comments.

Thank you, and thanks, everyone, for staying with us for this. Look, at the end of the day, this is not a position that any of us would have wanted to be in 12 months ago or anticipated we would be in. But we have to deal in reality. Without this level of investment that we're seeking, we would be in a position, as Chris has explained or cutting things back. And in my view, building half a bridge to nowhere, to struggle to grow the company any further. And luckily, it's a competitive market. Our competitors would take advantage of our current position. I firmly believe that the repositioning of the company, adequately financed and together with the team around me is the best way to create future value for our shareholders. I think we'll be losing a lot of value if we didn't close the round, and we would really struggle to grow in the foreseeable future. I personally have managed 2 company turnarounds before, and they have always involved a level of investment to kick start them again. As I say, it's not where we wanted to be. is where we are, and we have to demonstrate we have the leadership ability to deliver a successful company going forward. Look, at the end of the day, it's the shareholders to vote the plan. It's in their hands. The entire Board firmly believe this is the best way forward. We spent a lot of time putting the plans together. A lot of us understanding the risks and getting the balance right. We have considerable experience behind us. And the alternatives, as I say, I think, will be very negative and could be quite damaging. But at the end of the day, the choices with everyone that's been listed into this call, and the remainder of our shareholder base. So look, thank you for your time today. I do really appreciate everyone listening to it. We need to regain your trust. I believe we can do. We just need to move -- to get past the next step. So thank you, and everyone, take care.

That's great. Simon, Chris and Jag, thank you so much for your time and for updating investors this afternoon. [Operator Instructions] On behalf of the management team of Omega Diagnostics Group PLC, we'd like to thank you for attending today's presentation and I wish you all a very good evening.