ODX.L Regulatory News (ODX)

OMEGA DIAGNOSTICS GROUP PLC

("Omega" or the "Company" or the "Group")

INTERIM RESULTS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2022

Omega (AIM: ODX), the specialist medical diagnostics company focused on promoting a personalised and functional approach to health and nutrition, announces its unaudited interim results for the six months ended 30 September 2022.

Operational Highlights:

· Pivoted the business to focus solely and strategically on the Health and Nutrition diagnostics business (formerly known as Food Intolerance)

· Disposal of loss-making CD4 business for £6.3m completed in July 2022

o  Positive WHO data received for VISITECT® CD4 test

o  Accubio have approved the release from escrow of the full £4.0m deferred consideration

· Automation project delivered, bringing greater laboratory efficiencies and helping to attract new customers

· Lease extension agreed for current premises at Eden Research Park, Littleport

· My Health Tracker by Omega app in final stage beta testing

· Revenue down by 18% to £3.4m (H1 2021: £4.2m)

· Gross margin decreased to 54.0% (H1 2021: 64.4%)

· Loss before tax of £0.7m (H1 2021: £0.0m)

· Adjusted EBITDA loss1 of £0.2m (H1 2021: profit £0.4m)

· Loss on discontinued operations £1.4m (H1 2021: £3.4m)

· Gross equity fund raise of £2.2m completed

· Cash balance £2.7m (H1 2021: £4.7m)

1Adjusted for exceptional items, amortisation of intangible assets and share based payment charges

Post period highlights:

· Initial product range expansion complete, concluding with heads of terms signed for:

§  Development of a bespoke microbiome test

§  Development of a bespoke nutrigenomics test

· My Health Tracker by Omega App in final beta testing phase ahead of January 2023 launch

· New all-staff share incentive plan launched to help retain and motivate employees

Commenting on the results, Simon Douglas, Chairman, said: "We are pleased to have executed on our strategic decision to re-align the Group in the period, disposing of the loss-making business in Alva, reducing operating costs and focusing solely on the profitable and cash generative Health and Nutrition business and we are delighted to be notified of the impending release of the full CD4 deferred consideration of £4.0m. We have implemented the plan we set out to shareholders, growing our installed base, introducing our new digital platform and signing two partnership agreements which will expand our product portfolio and drive additional revenue growth. Our plans to create a US market presence will be progressed following the receipt of the remainder of the CD4 sale proceeds.

"Whilst we expect a stronger second half, our full year sales will be marginally lower than previously anticipated to reflect the delayed US investment plans. The performance expectations of the remainder of our business remain unchanged and the Group continues to target EBITDA break even this year."

Investor presentation

Jag Grewal, CEO, and Chris Lea, CFO, will provide a live presentation relating to the Interim Results via the Investor Meet Company platform today at 4:30pm GMT. The presentation is open to all existing and potential shareholders.

Investors can sign up to Investor Meet Company for free and add to meet OMEGA DIAGNOSTICS GROUP PLC via:

https://www.investormeetcompany.com/omega-diagnostics-group-plc/register-investor

The investor presentation will be available later this morning on the Company website:

https://www.omegadx.com/Investor-Relations/Corporate-Information

The information communicated in this announcement is inside information for the purposes of Article 7 of EU Regulation 596/2014.

Contacts: 

About Omega

Omega manufactures and distributes high quality in-vitro diagnostic products for use in hospitals, clinics, laboratories and healthcare practitioners in over 85 countries.

Chairman's Statement

This period marks the start of an exciting time and a new era for Omega. The new management team has, in a relatively short time, disposed of the Alva site to reduce operating costs, raised additional capital and successfully divested the loss-making CD4 business, re-aligning the Group to allow the Board to exclusively focus on the profitable and cash generative Health and Nutrition business.

In terms of the continuing menu expansion of our diagnostic tests, and in-line with our stated strategy, we were delighted to announce the signing of two successful heads of term agreements after the period end to develop both a bespoke microbiome and nutrigenomic test. For a modest initial outlay, these tests have the potential to generate more than £1m in additional revenue in the year ending 31 March 2024.

We recently began beta testing a mobile application that is available via Apple iPhone and Google Android. The My Health Tracker by Omega App is a health and wellbeing tool designed to be used alongside a trained healthcare professional, allowing the patient to receive laboratory test results direct to their smartphone thereby helping the patient make personalised changes to their diet for optimal health. The app is currently in the final beta testing stage, being trialled using our own CNS Lab data, before the planned market launch early in the new year.

The Board has made the sensible and prudent decision to delay the planned investment in the US market until after receipt of the remaining CD4 sale proceeds. We are delighted that Accubio share the Board's view that the CD4 test performs well and that they have now agreed to the release of the full £4.0m held in escrow, rather than wait for the report to be published by the World Health Organization. The Company remains committed to geographical expansion in the US and remains confident for the prospects of future growth in the US food sensitivity testing market, as it is estimated to be the largest and most established market in the world. This model would replicate our CNS Laboratory service direct-to-health-care-professionals, which is growing strongly in the UK this year.

Finally, we launched a new all-employee share incentive plan, 'Omega Diagnostics Group PLC Share Incentive Plan' which has been adopted to support the principles of wider share ownership amongst all the Company's staff, supporting retention and motivation of our employees.

Financial performance

As previously indicated revenues have been softer than the prior period, down 18% to £3.4m (2021: £4.2m) primarily due to a number of product re-registrations being in process following a significant regulatory-driven technical product change undertaken in May 2022, and variability in the ordering profile of many of the Group's FoodPrint® distributors, including those in the Middle East and North America. The Board confirms its expectation that revenues will be stronger in the second half of the financial year.

Revenue by product group:

§  Sales of FoodPrint® were down 24% to £2.2m (2021: £2.9m)

· Five new FoodPrint® installations were implemented in the period, with a further two installations implemented since the period end

· Representation secured in seven territories for the first time, now selling into over 85 countries

· A new FoodPrint® installation has been agreed for the US, the first new installation in that market for five years

§  Sales of Food Detective® were £0.7m, down by 4% from the prior year

§  After a two-year hiatus, the Group's largest partner in China has now re-commenced ordering for delivery in H2, which will support growth into the second part of the financial year.

§  CNS Lab sales were up 67% to £0.4m (2021: £0.3m)

· Due in large part to extensive work with a business partner to better commercialise FoodPrint® direct to consumer, as well as the UK commercial team onboarding 134 new Practitioner accounts in the first half of the financial year.

Gross profit from operations decreased to £1.9m (2021: £2.7m) with a lower gross margin percentage of 54.0% (2021: 64.4%). The reduction in margin principally reflects the lower proportion of the higher margin FoodPrint® tests in the product mix, coupled with lower labour efficiency given the reduced volumes. The Board are confident that margins will improve in H2 as the Company will benefit from improved operational efficiencies going forward.

Overheads reduced by 6% to £2.5m (2021: £2.7m). Despite centralised sales and marketing activities being wholly allocated to Health and Nutrition this year, significant reductions have been achieved in corporate costs. During the period we also restructured our quality assurance and regulatory teams, combining the two functions to reduce costs and better reflect the needs of our new business model.

In order to continually evolve as a business, remain competitive and further improve the customer experience and efficiency, especially for our larger customers, Omega has recently completed the validation processes to allow laboratories to automate their FoodPrint® testing using the Dynex DS2® instrument. This has already allowed our partner in the United Arab Emirates to secure a new three-year contract with the Dubai Health Authority and will allow our larger laboratory customers to process more tests more effectively and efficiently than ever before.

The Group continues to consider EBITDA and adjusted EBITDA (adjusted for exceptional items and share based payment costs) as being the more appropriate measures of profitability which are better aligned with the cash generating activities of the business. The EBITDA for the period was a loss of £0.3m (2021: profit of £0.3m) and the adjusted EBITDA loss was £0.2m (2021: profit of £0.4m).

The cash balance on 30 September 2022 was £2.7m (31 March 2022: £4.7m). The overdraft facility of £2.0m was withdrawn effective 30 September 2022 as previously advised and the current cash balance remains stable at £2.5m. The Company expects to receive the full £4.0m of deferred consideration from the sale of the CD4 business in the very near future.

Product Menu Expansion

As previously set out in the Company's strategic plan, in order to build a wider menu of complementary gut health tests, the Board remains committed to expanding the product menu and post-period end have successfully concluded two partnership agreements for the development of bespoke reports for microbiome and nutrigenomic testing.

The first agreement was announced in October 2022, when the Company signed a heads of terms partnership agreement to commercialise microbiome testing into its existing sales channels. We are working in partnership with our microbiome test provider to develop and commercialise a bespoke report for Omega, utilising the partner's proprietary software and Omega's sales channel, in order to provide a more comprehensive gut health assessment. Understanding the microbiome is the new frontier of understanding chronic inflammatory conditions arising from poor gut health and is an area the Company has recently seen a growing demand from its existing customer base.

The second agreement was secured earlier this month, when the Company signed heads of terms with a leading nutrigenomics software provider to develop and commercialise a bespoke DNA report. Nutrigenomics allows the healthcare professional to understand genetic strengths and weaknesses, helping to identify dietary changes that can help achieve better health.

These two tests require a combined up-front investment of £0.3m which mainly covers the advance purchase of future test reports and these new reports have the potential to generate over £1m in additional revenue in the year ending 31 March 2024.

New facility update

The Company has long planned to relocate to a new, purpose-built facility in Ely, Cambridgeshire, which would improve the manufacturing environment and provide the capacity needed for longer term expansion, however we continue to face unresolved issues with regards to the completion of the building to the agreed standard. The Company has appointed surveyors to identify remedial works and to assist in the re-negotiation of the Agreement for Lease, but it is not certain these issues can be overcome to the Company's satisfaction. Given the funding challenges currently faced by the new landlord and the likely timescale involved, an agreement has been reached with the existing landlord to extend the Littleport lease by two years to June 2025, thus providing sufficient time to resolve the outstanding issues and facilitate an orderly relocation in due course.

Discontinued Operations update

CD4

Effective 31 July 2022, Omega successfully disposed of its loss-making CD4 business in Alva to Accubio Limited, a wholly-owned subsidiary of Zhejiang Orient Gene Biotech Co. Ltd for up to £6.3m, having concluded that the business would be more successful under new ownership.

Under the terms of the sale the Company received an immediate cash payment of approximately £1.3m for fixed assets and inventory, representing the book values of these assets. As previously announced, contingent on the successful outcome of the WHO review of a now-completed clinical study in Kenya the Company expected to receive up to an additional £4.0m for the intellectual property and a future royalty income stream capped at £1.0m in aggregate. The Company provided comments on the draft performance evaluation report arising from the study in October, with the main area of discussion being the content of the instructions for use leaflet. To the Company's knowledge, all outstanding points have now been resolved and the Company awaits publication of the final report by the WHO. On 23 November 2022, Accubio confirmed that in their opinion it was no longer necessary to await the publication of the final performance evaluation report by the WHO prior to funds being released and they have instructed their legal advisers to release the full £4.0m to Omega with immediate effect.

DHSC dispute

The Group remains in an ongoing dispute with the Department of Health and Social Care ('DHSC') regarding the potential repayment of a pre-production payment of £2.5m under a contract to manufacture COVID-19 lateral flow tests. The negotiations are continuing slowly, with mediation now expected to take place toward the end of Q1 2023. The Company can confirm that it has recently advised the DHSC of its substantial counter claim, claiming an additional £1m+ over and above the disputed £2.5m pre-production payment. Details of this counter claim will not be made public as this may be prejudicial to the dispute resolution process.

Outlook

We are pleased to have executed on our strategic decision to re-align the Group in the period, disposing of the loss-making business in Alva, reducing operating costs and focusing solely on the profitable and cash generative Health and Nutrition business and we are delighted to be notified of the impending release of the full CD4 deferred consideration of £4.0m. We have implemented the plan we set out to shareholders, growing our installed base, introducing our new digital platform and signing two partnership agreements which will expand our product portfolio and drive additional revenue growth. Our plans to create a US market presence will be progressed following the receipt of the remainder of the CD4 sale proceeds.

Whilst we expect a stronger second half, our full year sales will be marginally lower than previously anticipated to reflect the delayed US investment plans. The performance expectations of the remainder of our business remain unchanged and the Group continues to target EBITDA break even this year.

Simon Douglas

Non-Executive Chairman

Consolidated Statement of Comprehensive Income

for the six months ended 30 September 2022

Consolidated Balance Sheet

as at 30 September 2022

* See note 2 for details regarding the restatement.

Consolidated Statement of Changes in Equity

for the six months ended 30 September 2022

* See note 2 for details regarding the restatement.

Consolidated Cash Flow Statement

for the six months ended 30 September 2022

Notes to the Interim Report

for the six months ended 30 September 2022

1. BASIS OF PREPARATION

For the purpose of preparing the 31 March 2022 annual financial statements the Directors used IFRS as adopted by the EU and in accordance with the AIM Rules issued by the London Stock Exchange. In preparing these interim financial statements, the accounting policies used in the Group's Annual Report for the year ended 31 March 2022 have been applied consistently. The Group has not applied IAS 34 Interim Financial Reporting, which is not mandatory for AIM companies, in the preparation of these interim financial statements.

The interim financial statements are unaudited. The information shown in the consolidated balance sheet as at 30 September 2022 does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006 and the information in respect of the year ended 31 March 2022 has been extracted from the Group's 2022 Annual Report which has been filed with the Registrar of Companies. The report of the auditors on the financial statements contained within the Group's 2022 Annual Report was unqualified and did not contain a statement under sections 498 (2) and 498 (3) of Chapter 3, Part 16 of the Companies Act 2006. These interim financial statements were approved by the Board of Directors on 23 November 2022.

2. RESTATEMENT OF COMPARATIVES

Group

Intangible assets

Following a review of intangible assets, one project has been identified which was not adequately defined in previous reporting periods and which does not meet the requirements of IAS 38, in that the probability of generating future economic benefits arising from the development expenditure cannot be established. The capitalised costs relating to this project are £235,000, all of which were incurred prior to 1 April 2020 and were incorrectly capitalised at the time.

In addition, a legacy research and development project valued at £55,000 has been identified which relates to the Group's infectious disease business, which was sold in June 2018. This amount was incorrectly not written off in the year ended 31 March 2019.

The costs associated with both of these projects have been written off effective 31 March 2020 through means of a prior year adjustment in accordance with the requirements of IAS 8, resulting in a reduction of the carrying value of intangible assets of £290,000 as at that date. There has been no impact on the earnings reported for the period ended 30 September 2021.

Deferred tax

Historically, deferred tax assets and liabilities were incorrectly reported as separate balances in prior years. The 30 September 2021 balance sheet has been restated to net off the deferred tax asset and liability, reducing the previously reported deferred tax asset by £1,200,000 with a corresponding reduction in the deferred tax liability.

2. RESTATEMENT OF COMPARATIVES (CONTINUED)

The effect of the restatements noted above on the consolidated balance sheet as at 30 September 2021 is as follows:

3. SEGMENT INFORMATION

Following the withdrawal from COVID-19 products and the decision taken in March 2022 to dispose of the CD4 business, the sale of which was completed on 31 July 2022, the only remaining division is Health and Nutrition. The Global Health division specialised in the research, development, production and marketing of kits to aid the diagnosis of infectious diseases, including COVID-19.

The Health and Nutrition division specialises in the research, development and production of kits to aid the detection of immune reactions to food. It also provides clinical analysis to the general public, clinics and health professionals.

The Corporate segment consists of centralised corporate costs which are not allocated to the trading activities of the Group.

Inter segment transfers or transactions are entered into under the normal commercial conditions that would be available to unrelated third parties.

3. SEGMENT INFORMATION (CONTINUED)

Business segment information

The adjusted profit/(loss) before taxation is a key measure of the Group's trading performance used by the Directors. The reported numbers are non-GAAP measures.

4. REVENUES - Continuing operations

5. FINANCE COSTS

6. TAXATION

6. TAXATION (CONTINUED)

7. DISCONTINUED OPERATIONS

Adjusted loss before taxation

Earnings per share

7. DISCONTINUED OPERATIONS (CONTINUED)

The major classes of assets and liabilities of the Global Health business as at 30 September 2022 are, as follows:

The property, plant and equipment relate primarily to COVID-19 plant and equipment no longer used in the business which have all been written down to zero value, the liabilities relate to the hire purchase on these assets.

8. EARNINGS PER SHARE

The number of shares in issue at the period end was 237,685,180. Basic earnings per share are calculated by dividing profit for the year attributable to ordinary equity holders of the Group by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share are calculated by dividing the loss attributable to ordinary equity holders of the Group by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. Diluting events are excluded from the calculation when the average market price of ordinary shares is lower than the exercise price.

Adjusted earnings per share on loss for the period

The Group presents adjusted earnings per share which is calculated by taking adjusted loss before taxation and adding the tax credit in order to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in financial performance.

8. EARNINGS PER SHARE (CONTINUED)

Adjusted loss for the year - continuing operations

The reported numbers are non-GAAP measures

Adjusted (loss)/profit before taxation, which is a key measure of the Group's trading performance used by the Directors, is derived by taking statutory profit before taxation and adding back exceptional items, amortisation of intangible assets (excluding development costs) and share-based payment charges

9. INTANGIBLES

* See note 2 for details regarding the restatement.