Member Info for Slich

No - a significant proportion is contingent - read the original RNS

I wonder how the former owners of Coastal Genomics feel about the takeover they agreed to 3 years ago?

They thought they might get $13.5m, but will receive no more than $5.5m by my estimations. Admittedly a lot of it relates to COVID, but a lot of it also relates to LR’s complete incompetence.

I presume they will be voting for the takeover to make sure they get at least the $2m they will be due this financial year.

The total consideration payable by the Company will be up to US$13.5m and will comprise the following:

· cash consideration on Completion of US$3.0m;

· consideration of US$2.5m payable by the issuance on Completion of Initial Consideration Shares at a price of 18.3 pence per share (as described below);

· two further elements of consideration of US$1.0m each for early strategic customer wins, payable in ExchangeCo Shares and Ordinary Shares at a price of up to 18.3 pence per share, and subject to lock-up periods of 12 months;

· contingent cash consideration of US$2.0m should Coastal Genomics generate revenues of at least US$4.0m for the year ended 31 March ("FY") 2022; and

· contingent cash consideration of US$4.0m should Coastal Genomics generate revenues of at least US$8.5m in FY23.

There may be some clarity one way or the other this week because the scheme document relating to the takeover should be published this week.

We need another bidder!

I'd like to hear from the Board what the contingency plan is if they don't get enough votes and no other bidder emerges.

That's what a responsible board would do.

And will there continue to be a commercial news blackout whilst we are in no man's land. It makes you sick to think that nothing has been announced for such a long time because they were trying to suppress the share price.

They should be locked up.

I disagree.

I think YGEN could survive independently with good management and an injection of around £2m-3m cash. As a patronising know it all you'd probably say at what cost, but I'd put it in more money at 0.3 again and the NCYT bid shows the possible return, which would be even higher in a year's time if the Board got it right.

And our beloved Board even says the same on p.15 of Monday's announcement (for what it's worth!) - it would have to be without LR of course and would require some quick fixes but could be done.

I have reviewed all the forms announced over the last few days.

I may be trying to play the detective and making deductions that are wrong but I would speculate that those who are buying since the acquisition was announced are either trying to block the deal and/or are expecting a higher bid.

There are five significant shareholders who have purchase since Monday and who now hold 16% of the share capital. It’s not far to 25% from there. Heck I own 0.3% and I will be voting against.

There is still a lot to play for here and a little hope…

I think 1p would be the best outcome we could hope for

Have Oddo bought 100m shares (3.15%) at 0.47p following yesterday's news?

Their disclosure this morning seems different to BGF's yesterday.

Could they think a bidding war is in the offing?

Or am I just dreaming and the explanation is much more prosaic?!!

Andrewkennedy079@gmail.com

Andrew Kennedy

Would be good to have you on board twix

And I'll give you the obvious postscript - it doesn't matter what they expect or pretend to know because they have proven themselves to be incompetent. The market is telling us the prospects are poor and the share price will continue to decline without resolving the funding issue or releasing meaningful commercial news.

Strange question.

But I'll give you the obvious answer - because they thought it was a good investment.

What does Coastal Genomics the earn-out commitment mean for cash flow?

We know the following from the April trading update:

· Ranger® Technology product revenues have grown by over 100% to £2.2m, with growth driven equally by additional instrument placements and consumable sales.

So it seems Ranger revenue hit about $2.6m in FY23.

We know the following from the half-year report in December:

8. Acquisitions of Subsidiaries

Acquisition of Coastal Genomics Inc, now named Yourgene Health Canada Inc

Remaining deferred consideration has been amended to reflect COVID pandemic delays and to retain incentivisation and is payable under the terms of the acquisition as follows:

· cash consideration of US$2.0m should Yourgene Health Canada generate revenues of at least US$4.0m cumulatively from 1 April 2022. If this target is achieved before 31 March 2024 then 65% will become payable in April 2024. If the target is achieved before 31 March 2023 then 35% becomes payable in April 2023. If the target is achieved between 1 April 2023 and 30 September 2023 then the 35% will become payable in October 2023 and if the target is achieved between 1 October 2023 and 31 March 2024 then the 35% is payable in April 2024 alongside the 65% portion. If the target is not achieved by 31 March 2024 then the deferred consideration lapses entirely. Based on current projections the performance condition will be achieved prior to 31 March 2023.

· contingent cash consideration of US$4.0m should Yourgene Health Canada generate revenues of at least US$8.5m in the financial year to 31 March 2023, which would become payable in April 2023. The Group has deemed this a stretch target which was not included in the fair value assessment at acquisition, which is based on more cautious cashflows than would trigger this stretch target payment. This consideration will either be earned or not and there is no contractual provision for partial payment. As such, this amount is disclosed as a contingent liability and is not expected to crystallise before it lapses on 31 March 2023

So it seems that the $4m revenue target will probably be hit by September 2023 (in spite of them saying in half-year report it will be hit by March 2023!) so $700k will be payable in October 2023 and $1.3m in April 2024.

The $8.5m clearly falls away.

It seems most of the initial $1m receivable from the Taiwan disposal will therefore go on the Coastal Genomics earn-out.

The Board really needs to address the funding uncertainty - without this and in the absence of commercial news we are in a death spiral.

If our price can increase twentyfold we'll be at 4p! Happy days...

I agree that MHC would not contract with YGEN if they did not think we were a going concern. Having said that I'm sure they have a contingency plan, but it would show poor judgment to contract with a basket case.

Looking at MHC's share price over the last couple of months should give us a little hope - it has increased twentyfold!

All we need is news of a great contract or the disposal of Taiwan under good terms.

But can this Board deliver that? They should act like they've got verbal diarrhea and announce every commercial contract!

The longer Taiwan drags on the less likely it seems. Last December they promised it would be done by March. We are now into June. Cash was £2.8m at the end of March and is likely well below £2m now. Any responsible Board would be looking at alternative funding now - and that sadly means likely further dilution, but who would invest in these fools?

LR has to go but a big part of me would love to meet him at the AGM...

I have been re-reading the Company’s announcements about the cost restructuring initiative undertaken at the start of FY23, and I have to say they are very confusing.

On 26 April 2022, they announced:

…the Group's annual operating cost base will reduce significantly, by c. £5m pa on a like-for-like post-restructure basis

- Restructure commenced in the final quarter of FY22 and will be largely complete by the end of the first quarter of FY23. One-off restructuring costs are anticipated to be in the range of £0.5m-£0.7m

So given operating costs were £18m in FY22, we should expect operating costs of £13-£14.5m in FY23 (given they will be completed at the end of Q1 FY23) and restructuring costs of c.£0.6m.

Then on 27 July 2022 they announced:

Business restructuring is now complete, the Group's platform has been reshaped to deliver growth within the core portfolio across Yourgene's operating footprint

So, this confirms the logical conclusion above after the 26 April announcement.

Then on 3 November 2022 they announced:

In line with previous announcements, the Company remains on track to reduce its operating costs by £5m, approximately one-third, in the current financial year when compared to FY22, excluding restructuring expenses.

Remains on track? They told us on 27 July that the restructuring was complete!

Then on 21 December 2022 they announced:

· Restructure and cost saving programme has reduced annualised H1 FY23 administrative expenses by £3.7m when compared to the previous full financial year, with further savings to come once all synergy benefits of the move to new single site at Skelton House are realised

So, the restructure is supposedly complete and £5m of savings delivered but now we find out the reduction is only £3.7m and the remainder is dependent on the relocation benefits that have not been delivered yet?

Then on 27 April 2023 they announced:

…these funds have been used to cover the one-off costs of further restructuring of the Group's cost base. Since the fundraise the Company has already delivered the first phase of its reshaping plans delivering an annualised 10% operating cost reduction. A further annualised 15% saving has been identified for the planned second phase.

So, if I read this correctly operating costs should fall by £18m to £13m and then by a further 10% or £1.3m to £11.7m before decreasing by another 15% to £10m?

Does anyone understand where the Company is in terms of the cost restructuring?

I have reviewed the FY23 trading update and it is certainly a mixed bag. For what it’s worth, here are my thoughts:
• Revenue was above market expectations but EBITDA was in line with market expectations so either margin or costs are worse than expected
• The geographic breakdown of sales will be the following as far as I can tell:
2023 2022 % change

Int'l 9.5 5.6 70%

Europe 3.8 5.5 -31%

UK - core 4.0 3.3 20%

UK - covid 1.7 23.2 -93%

Total 19.0 37.6 -49%

• The strong growth in the Americas and APAC is very encouraging
• Did we know that we had lost a key customer in Europe in FY22? I don’t recall that, but it seems to have reduced Europe sales by 31% although they do note that this should recover in FY24
• UK core sales are positive with growth of 20%
• The growth in Ranger sales is building, but perhaps a little more slowly than we might hope. It seems that the revenue will trigger a cash payment of £0.6m in October 2023 and £1.1m in April 2024
• NIPT revenue grew by 21% but this is slightly disappointing because the growth rate was 25% in the first half
• DPYD revenue growth of 8% is very disappointing
• Cost cutting progress is very opaque – the update notes a 10% reduction in annual opex with a further 15% planned. In the first half they disclosed cost savings were an annualised £3.7m. A 10% reduction is only £1.8m against FY22. This level of disclosure is not good enough, and nor are the cost savings achieved if only 10%, when you consider how bloated the cost base is and the amount of cash spent to deliver those savings
• Is the Taiwan disposal really progressing as expected? In December they said it should have been done in Q1 2023?
• How does LR still have a job given this $h!t shower?
• Cash was £2.8m at the end of March. In December they revealed cash burn was £0.5m per month so there is probably enough until end August.
• How have they spent £4m in 3 months, they are out of control?
• I am encouraged by the statement about the strategic investment, ‘The Board is mindful of pursuing any further dilutive initiatives and it is therefore unlikely that such an investment will take place in the near-term.’ This sounds like the Taiwan deal will be done and an equity raise won’t be necessary this year at least.
• I am concerned and disappointed by the delayed audit, which they have blamed on the auditors (who can’t be happy!), rather than on the company turmoil or the uncertainty around their status going concern, which are far more likely.
• All in all, I am encouraged by international sales and the likelihood a further equity raise may not be necessary, but LR needs to go, cost savings need to improve and the Taiwan disposal needs to complete by the end of June at the latest.
• 4 out of 10 for the Board.

Davand, clearly forecasts are based on best estimates and what we know now. They are necessary for planning and decision making, and therefore valid. But I welcome your forecasts too.

GLTrader, thanks for your feedback. I’m afraid we’ll have to disagree on our forecast of cash balances and the need to raise funds (of course this could be done via equity or debt, but whichever method is used, there is still uncertainty about whether it is available and if so on what terms.) EBITDA and working capital are two separate elements of cash flow but combine to make up cash generated or used by operations. I think we can all agree the company will need to spend on growth and replacement capex, which underpins my forecast of c. £2.5m per annum (plus £0.4m of capitalised R&D). I’m afraid you have more faith than me in their ability to manage working capital – have you noticed that 20% of their receivables had been provided for at 31/3/22, which is a staggering number? You have also forgotten financing activities - the loan needs to be repaid at £1.7m per annum and there will also be interest (£0.4m in FY23, £0.2m in FY24, £0.1m in FY25).

So, in summary, based on current projections i.e. what we know now and the stated plans of management, I maintain a profit before tax will likely not be achieved before FY26/27 at the earliest and additional funds will be required in FY24.

But of course that could all change with the drop of a large contract and next year we will all be millionaires…

I have spent a lot of time analysing YGEN’s financial performance and position in recent days.

I think the main problem in a nutshell is that the market cannot see a pathway to medium-term profitability i.e. the company is unlikely to make a profit before tax in the next 4-5 years, and it is likely that the company will need to raise additional funds in FY24, probably in the order of £7m-£8m.

Based on revenue of £21.9m and a gross margin of 55% (probably generous given the margin warning in the trading update and the 57% achieved in FY22) and assuming overheads fall to £13m following the £5m cost reduction the company says it has achieved, I am expecting negative adjusted EBITDA of £1m in FY23.

Assuming depreciation and amortisation increases slightly to £5m as the company continues its capex programme to drive growth, there is no goodwill impairment, share based payments remain the same at £0.3m, the restructuring cost to deliver the £5m cost reduction is £1m and interest payable is £0.7m, I am expecting a loss before tax of £8m in FY23.

Factoring these profit figures into the cash flow, assuming the company manages to unwind half of the FY22 working capital increase in FY23 (£0.8m), capex and intangible capitalisation expenditure of £2.9m and borrowing repayments of £1.7m, gives a cash decrease of £6.1m and FY23 year end cash balances of £2.3m.

There is obviously significant uncertainty in these projections around the gross margin, whether the £5m cost reduction will be delivered in full in FY23, the cost of the restructuring, whether there will be a further cash payment in the order of £1.3m to the owners of Coastal Genomics in FY23 (this payment is due if the integrated business delivered more than $4m of revenue in FY22, which it seems it hasn’t based on the disclosure that annualised Ranger revenues are now $2m in FY23) and if there are any significant costs relating to the leases that have recently been exited.

Looking ahead to FY24, I am expecting positive EBITDA of £0.6m and a loss before tax of £5.2m. This will lead to a cash decrease of £4.5m and negative year-end cash balances of £2.2m.

Then moving on to FY25, I am expecting positive EBITDA of £2.5m and a loss before tax of £3.5m. This will lead to a cash decrease of £1.9m and negative year-end cash balances of £4.1m.

So, in summary, based on current projections and the plans of management, a profit before tax will likely not be achieved before FY26/27 at the earliest and additional funds will be required in FY24.

We cannot continue like this. Current management need to go. Overheads need to be reduced drastically. Better communication of commercial wins needs to start urgently. And then we need to look for a purchaser who can take the business forward.

Sorry Slich is Hemo...I can log in to my Hemo account on my iPhone but only my Slich account on my laptop!!!