Novacyt S.A. (ALNOV) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our 2026 AGM Management Presentation. As ever, I'd like to thank all shareholders in the room with us today in Paris and joining us remotely for your continued support. The presentation team today is myself and Steve. We're going to be talking through some of the highlights of the 2025 period, updating you on some post-period events and talking through the numbers as ever. So before we do that, I thought we'd just jump into a quick update of the Novacyt Group. A lot of you have seen this slide before. The new addition is the Southern Cross Diagnostics logo in the middle of that diagram. As an organization, we're an international molecular diagnostics company with a portfolio of clinical assays, instrumentation and research tools. We focus predominantly in reproductive health care, precision medicine and infectious disease. And when you look at the diagram, basically Yourgene Health, the box on the left-hand side is all of the clinical IVD assays, anything to do with DNA size selection, our range of technology and all of our products in this space have to go through the IVDR regulatory approval. The middle box is our newly acquired Southern Cross Diagnostics business, a distributor of life science products, which gives us more opportunity to sell third-party products throughout our organization. And then we have on the right-hand side, Primerdesign, which is a bit of a cash cow, very high-margin business, nonregulated, so in the research use market space only, where we're selling qPCR kits for pathogen detection in things like infectious disease, veterinary, et cetera. So there's a new company [ Organigram ] showing where Southern Cross Diagnostics fit in. Steve and I set out on a -- to update the market with a big strategic plan. One of the pillars of that was portfolio development. So delighted to be able to say we successfully launched the LightBench. We successfully received our IVDR accreditation for our [ QSTR ] base, and we've just recently launched the Yourgene Insight DPYD. So that's products for every segment in our clinical space, some new technology, some improving existing technology and making sure that we got the accreditation in place. So this was a big tick in the box. Those products that we've launched, the initial sales are going really, really well. I think LifeVenture is up 20% year-on-year. We're really excited about the DPYD product and what it can do for cancer patients in the market, and we continue to get products approved through this IVDR process, which is going to reduce the number of people that compete in the market because it's a high regulatory hurdle to reach. And I think the fact that we continue to get our products approved is going to give us a strong differentiator moving forward. When we look at the organic part of our business, our NIPT customer growth has been again double digit over the last reporting period. We further added to that with a tender win for St. George's University working with the South of England and doing the NIPT test through that NHS Foundation. We've won a 4-year contract for the first NIPT system in Iceland. And we continue to see growth in APAC, where we are installing more bases and have more customers driven predominantly through the reimbursement of NIPT in Thailand, but also continued strong growth in regions such as India. In terms of our inorganic growth and the subsequent preferential subscription rights issue raise, we have managed to buy Southern Cross Diagnostics. We bought it at a good multiple. We kept the ownership team motivated and committed to working with us on the next 3 years on an earnout plan, which is a wonderfully aligned and simple model. And we were able to test the market to see if we could raise money, and we were delighted and thank you to the shareholders that supported us by doing a preferential subscription rights. So I think showing that if inorganic opportunities arrive, we have a team with the capability to find them, complete the deal at sensible parameters and then as importantly, integrate the business and make it part of the group, suggesting that we can do more of that moving forward. And so finally, bringing all of that together, as I mentioned earlier, we launched the strategic plan. I think we commented today on how we develop the products that we said we would, how we hit the growth levels and the sales numbers that we said we would, how we look at inorganic growth opportunities, and we've successfully completed them. The final piece then was managing the cost base of the business. And the recent announcement of a consultation process to look at reducing the headcount in the business by up to 40% shows the continued commitment to doing that. From an operational and a cost perspective, we spent a lot of time over the last 18 months consolidating the business from an operational point of view, having launched new products faster than we expected, having acquired Southern Cross Diagnostics, it's time to look at that investment in R&D and potentially accelerate the reduction in that expenditure. In addition to this slide, we've also announced the departure of Joe Mason from our Board in May. And overall, when I look to summarize this slide, I think we're ahead of our promises we made in the market. We're definitely delivering market expectations, and it's a pleasure to present those updates to you today. Okay. So looking at our strong operational foundations. We had an objective to reduce the cost base and make sure that we were always operationally excellent as an organization. We continue to streamline the group. As I said, we've announced a process where we're looking to potentially reduce headcount by up to 40% in the business. That would have a knock-on effect by reducing cash burn by about GBP 4 million with a one-off restructuring charge of GBP 1 million, with these numbers obviously being conditioned on the consultation process ending and assuming a total reduction of 40%. We've done this to strengthen our cost control to optimize margins, improve gross profit contribution and fundamentally protect the cash in the organization and ensure that we have no need to go and raise money at any point in the foreseeable future. This work comes off the back of already a heavy reduction in the cost base. We consolidated all of our manufacturing sites into our Manchester Center of Excellence last year, shutting down 2 facilities in the U.K. and 1 in Canada. And we continue to work to ensure that our cost base is the right size for this organization. We make a big investment in R&D. We've got those products coming through now. So we're able to reduce our investment and protect our cash. In terms of the acquisition of Southern Cross, just to give you a bit of an overview of what Southern Cross is as a business. It's 11 people, including its founder. Nick, the founder owned 100% of that business. I've known Nick and worked with him for over 20 years, so really established within the industry. He's been our distributor at Novacyt for a number of years of close working relationships with the business. The business was established in 2008, had seen a sharp increase in revenue since 2023, partly driven by the back of some of the products that Novacyt was launching in region. We saw the gross profit increase by 6 margin points. And generally, in Australia, the clinical market is exploding. It's worth about $1.5 billion -- $1.4 billion now and is expected to grow past the $2.3 billion by 2030. So having a direct seat in that market where we can speak to customers, liaise directly with key opinion leaders and work with our distributed base of customers in region, we felt was really a great opportunity for quicker growth and more valuable growth. Obviously, the deal accelerated the EBITDA profitability time frame for the Novacyt Group, and we'll share a bit more about that later. It aligned with our geographic expansion plans to increase our international sales. APAC has been the fastest-growing part of our business for probably the last 2 years. So it's great to be able to support that with some strategic bolt-on and an inorganic step changing to get Novacyt closer to revenue breakup or sorry, EBITDA breakup and continuing to grow the revenue line of the business. And finally, it gives us access to third-party products, which are currently only distributed in the Australian market, where we have opportunities to look for wider distributor relationships and also wider collaboration opportunities with the organizations that Southern Cross was representing in region. So on the face of it, a very simple view when you look at the acquisition rationale and the type of business, but the process itself to acquiring the business was far from simple. And on that point, I'm going to hand over to Steve to explain it in a lot more detail.

Thanks, Lyn. Good morning, good afternoon, everyone. It's great to be with you today. So we acquired Southern Cross for an initial consideration of AUD 8.5 million, which equates to around GBP 4.4 million. Now on top of that, there's a deferred consideration of up to AUD 16.5 million, and that can be earned over a 4-year period. But in order for the full amount to be paid out, they need to generate over AUD 30 million of EBITDA over that period. So it's really a win-win situation. Now post that acquisition, we successfully completed a preferential subscription rights issue where we issued around 2 million new shares. Look, I'd just like to take the opportunity to say a massive thanks for all shareholders that participated in that. We really appreciate your support. Now just over 50% of the newly issued shares were issued to the former owner of Southern Cross, showing his long-term belief in Novacyt as a business. And this meant that the process raised around GBP 580,000 net. Now if we move to the full year results. So look, I think as Lyn said earlier, we're really pleased with the results because they exceeded all market expectations. So revenue totaled GBP 20 million, and that was up on last year. However, when you strip out the impact of the Taiwanese divestment, so we're comparing apples-to-apples, revenue has actually grown by around GBP 800,000 year-on-year or about 4%. So from an underlying gross profit perspective, that's ticked up nicely to GBP 12.6 million when you exclude the impact of the DHSC settlement in 2024. From a gross margin perspective, it remains strong. We delivered a solid 63% gross margin, and that was helped by strong sales in our PCR range products, which saw Primerdesign delivering a gross margin of over 80% and from a cost perspective, as Lyn discussed earlier, they continue to track downwards. And we've reduced from a pro forma spend of about GBP 27.5 million when we combine the Novacyt and Yourgene business down to around GBP 21 million this year. And that's against a backdrop of some heavy investment into R&D over the last 18 months or so. So from an EBITDA perspective, the group continued to reduce its losses and have reduced it by around 14% compared to last year, and we delivered an EBITDA of GBP 7.8 million loss, and that was helped by year-on-year cost reductions. So this meant overall, the group reported a loss after tax attributable to the owners of just under GBP 23 million, and that's compared to a loss of GBP 42 million in the prior period. So we've made a significant improvement year-on-year. Now if we turn to the balance sheet, there's been 2 main movements since the end of the year. So firstly, noncurrent assets has decreased by around GBP 19 million, of which around GBP 14.5 million of them related to an impairment charge covering the goodwill and intangible assets associated with the Yourgene Health acquisition. And then we have the usual annual amortization and depreciation charges that we see. And then the other big movement was cash. And as you can see, that's decreased by around GBP 11 million, and we'll look at that a little bit more detail on the next slide. So we closed 2025 with just over GBP 19 million in the bank. And the main cash outflow was driven by core operations consuming around GBP 8 million during the period. Now on top of that, we did see some onetime items, such as around GBP 1.3 million for the various site closures that we covered earlier in the presentation, and there was a couple of hundred thousand of M&A-related fees, too. Now if we strip out these onetime items, it meant that our underlying cash burn was about GBP 825,000 per month. Now if we roll forward to the end of March 2026, we had a cash balance of around GBP 11 million. So this meant that there was a cash outflow in Q1 of this year of around GBP 8 million. Now just over GBP 5 million of that related to the Southern Cross acquisition and the associated fees and the normal working capital adjustment, along with the successful PSR raise that we did. So that was a short run through the results, and I'll hand back to Lyn now. Thank you.

Thank you, Steve. So I guess just sort of bringing this all together and summarizing it, it's good to see all of the financial metrics that Steve just reported moving in the right direction. Our revenue is growing. We're at double-digit growth consecutive quarters and half years of growth. Our costs are declining than they have been materially for the last 2 years, and we expect to be able to deliver another material cost saving once we get through the consultation process. Our EBITDA losses are decreasing significantly. So I really think that the business has got really stable foundations. We've got lots of operational capacity for growth. We brought everything together under one manufacturing site of excellence, and we've got further initiatives implemented, which we shared today that will further reduce that cash burn. All of those things are being planned and being executed to ensure that we never need to go and seek to raise additional money to keep the business open in the market. We want to use our cash for strategic growth. Our revenue growth is on an upward trajectory, 4 quarters of consecutive growth, consistent gross margin performance and the new products that we've launched to the market are gaining good momentum and showing good traction. The business is sufficiently funded, as I mentioned earlier, to reach EBITDA profitability using our current cash balance. We've got an established and growing customer base in key markets, which has been further strengthened by the immediately earnings and revenue accretive acquisition of Southern Cross Diagnostics. Our business is based in the highest growth part of the diagnostic market, a, we're in molecular; and b, we're in reproductive health care and oncology. So those are really, really fast-growing markets. And then as you've seen in the news over the last couple of weeks, if there's a virus such as Hantavirus or Ebola, we are in a good position to react as an organization because of our primary design range of products and services. So we expect to see continued growth from the portfolio of products that we take to market. That growth will come through a more robust commercialization strategy where we've really looked at the products in our group. We've decided on the ones that we need to support more, decided on the products that didn't quite fit having gone through that portfolio cleanup now we're very focused and expect continued growth across our clinical research use only and instrumentation segments. And finally, we were able to bolster that with some inorganic M&A opportunities. We acquired Southern Cross Diagnostics for a fair multiple. We acquired a business and convinced the owner to join us on the journey as a shareholder. He signed up for 3 years in our organization. As Steve has outlined, has a growth plan to hit. So it's a beautifully aligned model. And I'm sure there will be more opportunities such as that in the future to continue to inorganically grow the organization. So it's been a pleasure to present to you today. And as I mentioned at the start of the presentation, we really appreciate your support and commitment, and thank you very much, everyone.