EKF Diagnostics Holdings plc (EKF.L) Earnings Call Transcript & Summary

Good afternoon, and welcome to the EKF Diagnostics Holdings plc Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Gavin Jones, CEO. Good afternoon, sir.

Thank you very much. Good afternoon, everyone, and thank you for joining us. As already said, I'm Gavin Jones, CEO at EKF, and I'm joined today by Helen Jones, our new CFO. We're pleased to walk you through a solid set of interim results for the first half of 2026 and update you on the progress we're making against our 5-year strategy. For anyone newer to the EKF story, we operate across 2 complementary divisions, Point-of-Care, where we manufacture diagnostic devices and tests to deliver rapid, accurate results right where they're needed, at or near the patient. This is distributed through our global partner network reaching over 120 countries. Our Life Sciences division supplies high-quality reagents, enzymes, and contract manufacturing services that help companies out there bring their own products to market across pharma, biotech, and in health care. Both divisions are growing and both sit at the heart of our 5-year strategy, which I'll come to shortly. Briefly on us. I joined EKF in 2013 and served as Chief Product Officer before stepping into the CEO role in March 2025. So I do bring a real continuity on product, regulatory, and commercial execution. Helen joined as CFO in April 2026, and I'll allow Helen to introduce herself.

Thank you, Gavin. So good afternoon, everybody. My name is Helen. And as Gavin said, I'm the CFO of EKF since end of April 2026. So just in terms of by way of background, I started my 20-year career at PwC, qualified there as a chartered accountant. And for the last 10 years, I've worked within a number of different of AIM-listed businesses. I'm formerly CFO of AIM-listed company, Intelligent Ultrasound, for 5 years. I'm experienced across all areas of financing, including tax, transfer pricing, fundraising, M&A, restructuring. I'm excited to bring my skills and knowledge to EKF in leading the finance function and helping Gavin and the team drive forward the 5-year strategy.

Thanks, Helen. So in terms of the agenda, here's how today is going to run. First, we'll go through the H1 2026 highlights and an update on our 5-year strategy, commercial and operational progress. Helen will then take you through the financial detail, and we'll close with a summary before opening up for questions. So I'll let Helen take the financial element of the 2026 H1 highlights.

Yes. Thanks, Gavin. So financially, we delivered a strong first half and importantly, in line with expectations. Group revenue was broadly flat at GBP 25 million, but the quality of earnings improved with gross margin up 2.8 percentage points to 53% and adjusted EBITDA up 2.4% to GBP 5.9 million, and basic EPS up 26%. Net cash flow in the period was broadly neutral, and we ended the period with GBP 16 million in cash while continuing to invest for future growth in the business and return capital to shareholders. And to-date, the share buyback program has returned more than GBP 5 million.

On the commercial and operational progress, our point of care revenue was GBP 15 million for the period, just down just 3%. But most of this was very much timing-related effect, not a demand issue. We do have a very strong order book for H2, and I'll unpack that on the next slide. Life Sciences grew by a pleasing 8% to GBP 10 million. We fully exited our Elkhart facility. So we are now just dealing with one facility in South Bend for our Life Sciences division. We've added now digital capability through our Beep Insights acquisition for our sports performance portfolio. And again, I will go into more detail on that in a second. And continued investment in our commercial capacity, including an uplift in our sales function, which we do believe is a big part of delivering on our full year 2026 expectations. From a strategic point of view, we've made real progress over the year. We are up 4% on our B-HB growth and year-to-date, that's 9%. On contract manufacturing and fermentation, that revenue is up 20%, partially on new contract wins and partially on growing organically within the already existing business that we have there. We signed earlier on in the year in March an agreement with the Blood Centers of America, which is really helping us and supporting us to deliver the DiaSpect and opening up the U.S. Blood Bank opportunity for us. And again, our investment now is really focused on growing the capacity that we have and developing the priority markets for our strategy. So I go in a little bit deeper in terms of the revenue by division. You can see that Point-of-Care came in at GBP 15 million against GBP 15.4 million the previous year on a like-for-like basis. That's a 3% difference that is fully explained by 2 factors we've already resolved. So we had some key tender closures that simply pushed order deliveries into H2 from H1. We've got a full order book there. So we're very comfortable, confident that, that will improve in H2. We did have some production timing issues on our lactate deliveries. But again, that is now fully fixed and on track for the second half. I think it's important to state that this is deferred revenue, not lost revenue, and we expect to see it come through fully in the second half. Life Sciences delivered strong growth, GBP 10 million versus GBP 9.3 million up 8%, underpinned by structural changes that we made previously to our B-HB sales team, which are already paying off with the 4% growth there, and excellent execution in the fermentation and contract manufacturing facility, which is now up 20% against the same period last year. If we go a little bit deeper again into the revenue by product portfolio, Hematology was relatively flat at GBP 7.8 million. But again, this was down to that timing shift. We do have full visibility on some of our larger tender orders like the Egyptian business, for example. Hemo Control is remaining to be the largest contributor in this area with DiaSpect TM a close second, and it's really encouraging to see the HemataStat II up 9% as availability returns to that product range. Diabetes was broadly flat overall, although that's not the full story there. We do see that Biosen grew significantly. And we are seeing some changes in the HbA1c market as the Quo-Lab has gained share from the Quo-Test. This was fully expected as now reimbursement dynamics reset in the market. So it's helpful for us that we had a portfolio that is able to flex well with the market rather than losing ground in that space. In Life Sciences, obviously, the biggest contributor here was B-HB at GBP 7.4 million. We did have some changes in the market dynamics there, which meant some of our partners' inventory management held back some orders in the first half, but we have seen that change already, and we are seeing full development in H2, meaning that we are moving back to a normal type of usage. I think it's important to say this is not a drop in the amount of product being used, just in terms of how much inventory was being stored at our distributors. Contract manufacturing was up 25% to -- sorry, GBP 1 million and fermentation was up 14%, GBP 1.6 million with a strong order book supporting H2. I mentioned before that we fully exited the Elkhart site as of the 30th of June, which is a clean simplification of our operating footprint moving forward. Coming back to our 5-year strategy, everything we do ties back to the 3 pillars that we have well-established, the -- becoming #1 Point-of-care hemoglobin business, becoming #1 in ketone testing both for laboratory, which we already are, and then also Point-of-care adding back end, built on our existing B-HB product, and then transforming our Life Sciences division into a true standard CDMO. For 2026, that means we've been very much focused on delivering our BCA contracts in the U.S. blood bank market. We're getting much better visibility there. We've been investing in our commercial and marketing capability across many of our regions, but certainly the priority markets for us have been Africa, the U.S., and LatAm, and then Europe. We have continued to grow our B-HB LiquiColor market share, and we look to complete our claim support studies this month so that we're able to make a submission for a new and updated B-HB product, which will due to launch next year. The third part then from Life Sciences, we will be going for a rebrand of our contract manufacturing and fermentation offering. I will talk about that a little bit more in the next couple of slides. And we are continuing to expand and develop the next-generation of our diagnostic enzyme portfolio. All of this builds towards our 2029 target, which is to deliver revenues above GBP 80 million and adjusted EBITDA above GBP 20 million, roughly double where we are today. We believe the building blocks are firmly in place to deliver on that strategy. So I think from a commercial and operational progress point, we do have some concrete proof points here. So in hematology, we've delivered 3 U.S. blood banks now live with DiaSpect and 3 more coming online in the second half. And we're in active negotiation with members of BCA for 2027 onboarded a pipeline that's building well. In B-HB, we posted 106% growth in H1 with a third -- and a third distribution partners who is certainly expanding our reach into more of the integrated delivery network market. They've grown in ways that we -- let's say, we didn't really fully expect that, but it is fantastic to see, and we really fully support them in that. You can see 2 of our other distributors, those are the ones who are engaging that inventory management, we're very confident now that they're going to return to the same ordering process that we had previously in H2. So operationally, we acquired Beep Insights asset in April 2026. This was to strengthen our Sports Performance portfolio. Really, this offers a way for our users to manage their lactate threshold testing much more conveniently on their mobile phones, and we are adding additional AI elements to that to really drive that forward and we move into the future of Sports Performance measurement. Additionally to that, we will now rebrand our Life Sciences contract manufacturing and fermentation offering as Nexus Bioworks. The idea behind this is to make our service offering far easier for clients to understand and engage with. I move into the introduction of Nexus Bioworks. We are genuinely excited about this rebrand. It gives our Life Sciences business a distinct identity from EKF Diagnostics Point-of-care portfolio whilst keeping a legacy association with our long-standing clients, which they already trust. So Nexus really signals the convergence at the heart of what we do. Bioworks makes it immediately clear what that means in practice. It's a small change with real commercial purpose, clearer positioning makes it easier, faster client conversions. If we go to the next slide, you can see here on the -- it's on the right-hand side for me, this is a breakdown of our new dedicated Nexus Bioworks' website. I think what we're not losing here is any of the experience that we already have in the industry. We've got over 40 years' experience there. This rebrand reflects business with deep proven capability, not a startup. We do want to make sure that people can find us and it's a lot clear of what our service offering is. And we do believe that this is a compelling proposition already reflected in our new client-facing website. So outlook for the rest of the year. We certainly are extremely confident in being able to deliver Point-of-care growth. We've got a full committed order book, significant tenders due to finalize with a renewed focus on blood banks and production back to full speed, we do fully expect point of care to bounce back into growth. Secondly, we've already demonstrated that B-HB is continuing to grow, and we expect double-digit growth by year-end. Order patterings -- sorry, patterns are already normalizing. So we do have a lot of confidence there. And we do have that one partner who is due to more than double what they have done in the prior year. All of that combined does lead us to be in a strong confident position to hit full expectations for 2026 full year. I'll now hand over to Helen to go through some more of the financial detail.

Thank you, Gavin. So the headline for the first half of 2026 is that we delivered resilient revenue, improved margins, and higher EPS while continuing to invest in growth and return capital to shareholders. So firstly, solid revenue of GBP 25 million, down just 1%. And as Gavin explained, that was largely timing related on the Point-of-care side of the business rather than any weakening in demand. Second, gross margin strengthened by 3 percentage points to 53% and adjusted EBITDA grew to GBP 5.9 million. Operating cash flow was GBP 3.3 million with the reduction mainly relating to higher U.S. tax payments rather than any particular weakening in trading or material shift in working capital. Balance sheet remains strong with GBP 16 million of cash, supporting our planned capital investment plans and basic EPS, increased by 26%, helped by the share buyback program. So in short, although the first half has seen a flat top line overall, we have achieved stronger profitability and better returns per share, and we've got a strong financial position to continue to focus on the 5-year plan. So I'll just talk through the profit loss in a bit more detail on this slide. Revenue was GBP 25 million, as I've already said, against GBP 25.2 million last year, so essentially flat. Gross profit rose 4.8% to GBP 13.3 million with margin up 3 points to 53%, which was driven by a favorable mix of higher B-HB sales and consumable sales on the Point-of-care side of the business. Administrative expenses went up to GBP 9.7 million. That's around just under a 6% increase before exceptional items. And this reflects our planned investment across sales and marketing to support the revenue growth anticipated in the 5-year plan. So during the period, we recruited 3 new commercial leaders to support the Americas, which includes Latin America, Europe, Middle East, and Africa, those are 3 of our key focus geographical markets. And alongside that, we strengthened product management capability and implemented a more focused marketing strategy centered on our highest growth opportunities and our key product platforms and the priority geographic markets. So even with higher operating expenditure, adjusted EBITDA increased 2.4% to GBP 5.9 million with the margin improving by 0.7 percentage points to 23.6%. We did incur a GBP 0.3 million exceptional charge in relation to the early settlement of the Elkhart lease, the U.S. lease there, reflecting a one-off payment that closed out all our remaining lease obligations on that site a year ahead of the original expiry. The tax charge that reduced to GBP 0.9 million, and that includes a GBP 0.7 million tax provision release [ on investment in some ] parts our German tax audit that's still ongoing. So the underlying rate of 46.5% reflects U.S. tax normalizing now that our historical U.S. tax losses have been fully utilized, which was flagged at the half year -- at the full year last year as well as the losses we've got in the U.K. However, with profit weighted to the second half, we expect the full year underlying effective tax rate to be below the H1 level. The profit for the period increased by 18.2% to GBP 2.5 million. So on the next chart, I'm especially pleased to show this, and it does show that the H1 adjusted EBITDA of GBP 5.9 million was up 2.4% year-on-year. But more importantly, it marks the fourth consecutive year of first half growth. So from GBP 4.4 million in 2023, up to GBP 5.9 million in 2026. So this isn't a one-off improvement. It's a consistent multi-year trend. And the 23.6% margin shows the benefit of stronger gross margin more than offsetting the additional investments we've made in sales and marketing especially. And because the business is typically weighted to the second half, we expect that momentum to continue. It just gives that confidence we're going to achieve that market expectation for the full year. So our investments we've made across OpEx and CapEx very targeted and closely linked to our growth plan. On the operating side, that's been focused very much on our senior commercial hires in the U.S., Europe, and Africa, as I previously mentioned, supported by the product management team and the targeted marketing campaigns we're now doing. On the balance sheet side, the CapEx investments have been directed more into practical capacity, and that includes a 30% expansion of our Hemo Control production line, which is expected to cost around GBP 4 million over the next 18 months. We're also investing in new sensor production line of around GBP 2 million over the next 18 months and continued ongoing development of our next-generation analyzers and the connectivity as well as a small ERP upgrade that we've done in the first half of this year. We need to invest in these areas to achieve our growth plans, the capacity and capability needed to support our GBP 80 million target for 2029. So the balance sheet on the next slide. Thanks. So this puts us in a very strong position with total assets increasing to GBP 82 million from GBP 81 million last year, still very robust balance sheet and supported by retained earnings of GBP 53.6 million. Working capital was GBP 10.3 million at the end of June, of which GBP 9 million was inventory, which is higher mainly because we were holding finished goods we originally expected to ship in the first half of the year, but the ship moved to the second half of the year. Receivables and payables largely balance each other out. So overall, the balance sheet gives us enough capacity to continue to fund our growth investment plans while maintaining appropriate financial headroom. We ended the half year with GBP 16 million of cash. That does include GBP 2.4 million of restricted cash held in Russia, but we are maximizing the amount of cash we are able to extract from Russia through dividends, ongoing dividends, and we have had GBP 0.3 million of dividends in the first half of the year. So that cash position supports continued capital investment, lease payments, and GBP 0.9 million of buybacks in the period. Our free cash flow was GBP 1.1 million from GBP 3.7 million last year. But that is very well-explained due to over GBP 1 million of higher tax payments we're now making in the U.S. following the utilization of those tax losses last year, plus GBP 0.9 million of higher CapEx. Working capital has absorbed some cash, as I said, with the higher inventory but I'm expecting that to normalize by the end of the year. So just an update on the share buyback. So this continues to be an effective way of returning capital to shareholders. And to-date, we bought back 23.5 million shares, equal to around 5% of the share capital that we had at the start of the program. We've returned over GBP 5.9 million at an average price of 25.2p per share. This also helped support our earnings per share growth with basic EPS growing at nearly 26% to 0.54p, up from 0.43p in the first half of last year. So that's it for the financial update. I'll hand back to Gavin to do a summary.

Yes. Thanks a lot, Helen. So I think to bring it together, we delivered a solid first half. We expect a strong return to Point-of-care growth in H2 and we remain confident that full year '26 will be in line with expectations. We're going to continue to drive that B-HB expansion. We're very confident again that, that will come in, in H2. We remain focused on delivering our 5-year strategy, strategy already showing some tangible progress this half from the BCA agreement, the Nexus Bioworks rebrands to record B-HB growth. We're building a bigger, more profitable, more diversified EKF, and H1 2026 shows that we will continue on that path. [indiscernible].

[Operator Instructions] As you can see, we have received a number of questions throughout today's presentation. And Paul, if I could just hand over to you just to read out the questions to share with the team, and I'll pick up from you at the end.

Thanks very much. The first question was about how much operating leverage do you expect as Point-of-care revenues recover, particularly given the investments already made in sales and marketing.