Member Info for Okehurst1

£900k a month of sales that’s it

This was the latest £numbers off Omega - RNS 25/11/21

Financial Highlights:
· Revenue increased by 81% to £5.73m (H1 '20: £3.16m)

§ Health and Nutrition sales up 62% to £4.17m (H1 '20: £2.58m)

§ Global Health revenue up 170% to £1.56m (H1 '20: £0.58m)

· Gross margin decreased to 34.4% (H1 '20: 42.9%) caused by increased direct labour in anticipation of DHSC COVID-19 contract work

· Statutory loss for the period of £2.75m (H1 '20: £0.28m)

· Adjusted EBITDA loss1 of £2.45m (H1 '20: loss of £1.29m)

· Adjusted loss per share1 of 1.3p (H1 '20: 0.1p)

· Cash balance of £4.7m (H1 '20: £7.0m)

MIKODX

£3M a month would mean they are doing £2M a month from Covid ? - assume they are only doing £11M p/a ex Covid

Can’t see that tbh ? How are you getting to the 3M ?

But IF the cash burn over and above operational gross profit that would be £7M a year of losses - assuming 55% gross profit on £11M of CD4/HIV sales
Note ; H1 gross was 30% but they disclosed this was down to DHSC Costs indicating they expected a return to the normalised gross margins which have been 55%

So IF they are generating £900k a month of sales of CD4 then they are generating £500k of gross profit a month ( now ) that covers the operational cost - maybe some PLC costs tip it over to a small manageable loss

It all boils down to what did they spend £650k a per month from their £4M plus cash pile the last 3 months ?
It has to be raw materials for stock ? What else could it be ?

The cash running costs of Omega can’t be say £500k p/m which happens to match the gross profit generated (give or take ) plus another £650k p/m on top - which would be £7M a year plus of losses, that’s not the case

TW, how about we look at it this way ?

MIKODX thinks (below )cash running costs look up to around £500k a month

Once we firm the base line operational
monthly run rate for cash burn we can take a view on what the other £2M over 3 months was used for ?

£600k per month tops is my take on cash burn and they have maybe £500k to £600k of gross from CD4 sales per month , so maybe washing their face at best

Re the £2M cash used from reserves over the last 3 months, agree it’s cash utilised ( no argument on that point )
However this cash is not on staff/ establishment but stock to ensure the CD4 has the - maybe low numbers of Antigen LFT’s -the materials to be produced , this will be turned back into cash when products are sold (CD4 and maybe a very small £value for EU CE via DAM )

I just can’t see our cash burn is £1.2M a month to generate £900k per month of total revenue?

Could be wrong but we would be looking at £6M to £7M a year losses and that’s not the case?

It does focus the mind that the Chairman has to make some big calls within the next 8 weeks - personally I don’t think it’s Jag calling the shots here it’s the Chairman.

Does he try and limp on if he secures CTDA/ EU HUA and how big is that market going to be over the spring / summer from a £cash point of view ?

If your correct and am wrong re cash burn then he doesn’t have long before he has burnt his cash pile - what’s left of it

He then has to consider plan B which is selling CD4 division and separately Alva as a going concern IF there are any overseas players who want a U.K. base to help pick up Government contracts for next winter ?

Innova have now nicked close to £4B from the U.K. for Chinese LFT’s and the DHSC are chasing Omega for £2.5M after shafting them, you couldn’t make it up

TW, am just adding back the 55% gross - we lost 25% off the gross in H1 due to the DHSC debacle - on the £11M non Covid sales, say £600k gross profit a month today ?

On the cost side we discussed £250k p/m estimation for the 150no staff today ? This could be light

I genuinely can’t see how we are burning £650k more cash a month ? That would be £1.1k cash require per month for £900k sales

It has to be for stock materials for CD4 ? - £2M
Could be a very small cash burn but looking at the numbers it can’t be £650k over above the £600k gross ?

Everything else below Re Omega directors ramping fully agree with your points

TW, they have home use China clearance for their food detective kit, the country has 120M diabetics, can only guess how many are metabolically unwell in total ?

With £10M annual sales @ 55% gross there may be an operator somewhere who thinks they can exploit better than Omega? Would we achieve 3X Rev for a consumer health product ?If we can show revenue growth for 2022 we could see a much higher valuation for this division than our current m/cap

Then we have Alva and our LFT a capacity, has to be attractive to an overseas operator who can secure U.K./ EU Government contracts - like Innova with their £300M contract this week
Politically it could be a shrewd deal for one the many Chinese suppliers, they could set up their own plant but Omega is plug & play so to speak.

John, the cash has dropped to £2.5M from the interims and the DHSC want £2.5M back plus our U.K. market was taken away from us, we don’t have a test to actually sell other than EU professional.

If CTDA/ EU HUA comes off then we can generate free cash but as it stands today we are not in that position

I disagree with TW’s views on cash burn ( quantum) per month, I don’t think it’s £1M, suggest we are close to break even or small loss due to the £600k gross from CD4 / HIV

Appreciate the debate if I am missing something ?

John
We have no Covid test to sell - outside professional EU
£2.5M in the bank, shareholders have no/ limited trust in the Board and we may need a raise to fund a contract IF we do ever secure validation & a contract

We don’t know if we are running at a loss at cash level and there are question marks around the ability of Jag as the new interim CEO and is he a fill in via the Chairman

The Chairman is driving this process, he is the one who sacked the CEO/ non exec director, he’s calling the shots now.

Does he keep waiting for CTDA / EU HUA ? Or does he run a sale process alongside ? Guess only he knows but realistically Jag is just a stand in / part player , what can he come out and say other than waiting for the above approvals ?

If we head to 10p - looks that way - raising ££ is going to be so dilutive it would need to be some sales order to justify

With CTDA/ EU HUA we could generate bunce cash but it’s nothing like what the £374M contract would have offered.

He could limp on of course but is he a busy fool? - no idea but he needs sort this mess out

The Chairman is relatively new to Omega all about reputation for these guys as they have multiple positions
he has a decent CV to be fair - only as good as their last bad gig

He has shown this week he’s not afraid to act, he disposed of the CEO & a non exec director , Jag is a stand in whilst he formulates his strategy.

Breaking up/ disposal of the business looks the only forward without a large sales contract to justify a rights issue

Fair comment John

Sell off CD4 it enjoys HUA in China - only test that enjoys this status apparently ?
Colin was only forecasting £18M revenue in a few years, a new savvy owner could well exploit the opportunity better than Omega

Then highest bidder for Alva, put the operation up for sale within the industry , now is the time

Some musing ,is there now more value in this route below considering we have a £25M m/cap today ?

Value of the kit installed by DHSC , £17M has been quoted but who knows ? Do we have to give it back ?

Cash £2.5M - we now know

WIP ( work in progress) manufacturing CD4 LFT’s for distribution/ stock - what the 150 staff are working on ?

Put aside the labs/ infrastructure/ their own kit

The Chairman could look to sell the CD4 division £10M a year Rev @ 55% gross , possibly link disposals with Cambridge Labs thrown in?

Then sell Alva as a going concern, maybe 2 year contract to supply the new owner of CD4 ,assume a savvy investment bank or industry player could negotiate the purchase of the £17M of kit at a big discount ? What’s it worth to DHSC? Going to cost a few Bob to remove / store etc , they could nick the lot

The Alva site has 100M capacity, Innova just picked up another £300M contract this week, on boarding part of their operation - or any Chinese Co in the space - then Alva has plug & play play political advantages

The company won’t be able to raise ££ without a commercial reason like a large sales contract, this Chairman doesn’t look like he messes about and is not here for a salary, reputation is important - as we have seen this week

What £value is placed on the sun of the parts above ?
There are tax implications on disposals ( capital gains ) which can’t be offset against trading losses but if structured correctly the new owners could purchase the shares of Omega - sure there is a way

Bottom line … is Omega now a breakup / a sale play ? Feels like it

Danl, interesting thesis

It looks like the market is valuing THG at 10X EBITA plus £cash, suggest until they demerge - as planned - we won’t get valued via sum of the parts ?

TW, good debate.

That would imply a cash spend of £1M a month if you add back the £500k gross generated from the £11M p/a non Covid sales

Just can’t see that tbh

I can see £2M ish spent on stock materials taking into account global supply issues

TW, we have £11M of non Covid sales sales @ 55% gross - H1 gross was down to 30% but that was a one off , we are told

We should be currently generating £500K gross cash a month less staff / establishment / listing costs, suggest your £250k per month for the staff won’t be far away

Hence our current cash burn is close to break even / small loss

We may have had to stock up on our raw materials for the LFT - be that CD4 / whatever - with global supply chains as they are, as such personally I am not that concerned about the cash position today

CTDA approval should see us generate cash at a decent margin with the DAM tie up, plus hopefully our sales consultant can secure a contract or two, at the current m/cap we are a decent punt IF they get the validations over the line

The £2.5M dispute with the HMRC will get pushed out into the weeds for the time being , ditto dealing with the kit they installed

Suggest this is a fair reflection of our current commercial position

Can’t argue with your points TW - fact

But we have to look forward now, we think we know we have £11M p/a sales of CD4/ HIV @ 55% gross
we may be running at a small loss / breakeven

IF we get validations we could well be cash positive if they manage correctly, it would have to be a firm contract and decent £numbers to justify a rights issue / placing

Not without risk but at £29M m/cap it’s a punt on validations and/or sell the business, one or both have to happen

Felt like insiders on the Bid yesterday at 5:1

Whilst not an exact science it’s a decent indicator in a small AIM business as news ‘ leaks ‘ before the RNS

I agree with Captain, there is a fair chance there is no further bad news due short term, Colin was a helpful
‘ Xmas tree’

Jag has a chance to enjoy a bounce in the share price IF we get positive news on CTDA/EU HUA

Good news no raise

If we look at the sales ex Covid then we have around £11M sales @ 55% gross

We are probably close to breakeven currently / small loss depending on DAM sales to Europe, even though small these sales could swing it to breakeven at EBITA - cash level

The investment in infrastructure has already been sunk

The upside as it stands is CTDA/ EU HUA - IF we secure
that feeds straight to the bottom line and is our bunce

Speculating but the Chairman may consider another route and explore selling Omega, it’s a a decent engineering business with potentially 100M capacity plus POC
CD4/HIV etc