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 2018

Omega (AIM: ODX), the medical diagnostics company focused on allergy, food intolerance and infectious disease, announces its unaudited interim results for the six months ended 30 September 2018.

Omega is one of the UK's leading companies in the fast growing area of food intolerance testing and also operates in markets supplying tests for allergies and autoimmune diseases and specific infectious diseases through a strong distribution network in over 100 countries.

Following the closure of our German business unit and the Pune manufacturing facility in India together with the disposal of our infectious disease business, we now have a smaller business focused on long term profitability and prioritised to deliver on VISITECT® CD4, Allergy and Food Intolerance. The results below reflect the reshaping of Omega.

· Revenue reduced by 27% at £5.23m (2017: £7.11m)

· Revenue from continuing operations reduced by 7% at £4.22m (2017: £4.54m)

· Gross margin decreased by 2.9% on the same period last year at 60.2% (2017: 63.1%)

· Statutory profit before tax of £0.8m (2017: £0.1m)

· Adjusted loss before tax1 of £0.51m (2017: adjusted profit before tax of £0.22m)

· Adjusted earnings per share1 of -0.5p (2017: 0.3p)

· Bank overdraft at the period end of £0.45m (2017: cash of £2.42m)

· Food Intolerance revenue increased by 12% to £3.84m as compared to the immediately prior 6 month period (H2 FY18: £3.42m)

· Omega GmbH liabilities of £0.7m written back following appointment of a permanent administrator on 1 September 2018

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

Operational Highlights:

· Strategic review leading to:

o the closure of our German business unit and the Pune manufacturing facility in India

o the disposal of our legacy Infectious disease business to Lab 21 Healthcare Ltd for up to £2.175 million with a gain on sale of £1.09m

· 60 allergens CE marked to run on the IDS automated instrument and first purchase order received from IDS

· Visitect® CD4 350 cut off test commercialisation activities progressing with distributor agreements signed for Nigeria, Zimbabwe, Ghana, Zambia, Kenya, Columbia, Indonesia, Guatemala, Cameroon, Uruguay and Brazil with agreements under negotiation covering a further five countries

· Visitect® CD4 Advanced Disease test (utilising a lower 200 cut-off) validation is ongoing and the project continues to progress on track

Regarding outlook, David Evans, Chairman, said:

"Our short-term outlook is dominated by our efforts to realise value for Shareholders whilst at the same time successfully accelerating our efforts to commercialise our CD4 offering. The challenges are not inconsequential but I remain confident that in those areas where we can control our own destiny that we will succeed in delivering our objectives. In those areas where we are not masters of our own destiny then, by definition, the outcome will always be less certain. I believe it is best for our statement to reflect that reality as it stands today. Rest assured we will continue to work towards achieving success for all our Stakeholders."

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

Contacts: 

Chairman's Statement

Financial performance

Total revenue for the six months ended 30 September 2018 reduced by 27% to £5.23m (2017: £7.11m) with much of the reduction being attributable to the divestment of our legacy infectious disease division and the decision to close our German manufacturing facility, limiting the revenue contribution from both these units to Q1 only within the reporting period. Revenue from continuing operations reduced by 7% to £4.22m (2017: £4.54m) predominantly due to the reduction in Food Intolerance revenue as described below.

Food Intolerance revenue decreased by 7% to £3.84m over the same H1 period in the prior year (2017: £4.13m) but showed an increase of 12% when measured against the most immediate six-month period being H2 in the year to 31 March 2018 (£3.84m v £3.42m). Sales of our FoodPrint® laboratory system were £2.30m (2017: £2.60m) with the difference attributable to the ordering pattern of our largest customer which stockpiled in the prior half-year period, which was not repeated in the current period. We maintained sales of Food Detective® at £0.95m, the same level as in the prior period, with an uplift in three key markets offsetting the loss of £0.23m of sales of the retail kit version in the prior period due to the previously reported regulatory issue which is still in the process of being resolved.

Sales in both the Allergy/Autoimmune and Infectious disease divisions declined by 53% and 54% respectively due to the divestment/closure decisions referred to above, with Allergy/Autoimmune sales of £0.79m (2017: £1.67m) and Infectious disease sales of £0.60m (2017: £1.31m).

Gross profit was £3.15m (2017: £4.49m) with the gross margin percentage reducing by 2.9 percentage points to 60.2% (2017: 63.1%). The reduction in margin is due to product mix and the fixed element of manufacturing labour cost against the lower level of sales in the period. The adjusted loss before tax was in line with management's expectation at £0.51m (statutory profit before tax of £0.82m less the exceptional credit items of £1.45m and adding back amortisation of intangibles and share-based payment charges totalling £0.12m) (2017: adjusted profit before tax of £0.22m). When analysed in each of the first two quarters, there was an adjusted loss before tax in Q1 of £0.87m, followed by an adjusted profit before tax in Q2 of £0.36m. Q1 included non-recurring losses of £0.25m related to the German and Indian business units, underpinning the reason behind their closure.

A tax charge of £0.1m resulted from the sale of the legacy infectious disease business versus a tax credit of £0.1m in the prior period resulting in adjusted earnings per share of -0.5p (2017: 0.3p). Statutory basic earnings per share were 0.9p (2017: 0.2p) due to the exceptional items noted below.

Exceptional items

We have reported two exceptional credits in the period; the sale of our legacy infectious diseases business to Lab 21 Healthcare Ltd on 28 June 2018, for up to £2.175m, yielded a book profit in the period of £1.09m, being the balance of the sale proceeds in excess of the book value of assets transferred and; following the decision to close the German operation, the assets as at 31 March 2018 were fully provided against and this was reported in our final results announcement dated 6 August 2018. Since formal insolvency proceedings commenced with Omega GmbH on 1 September 2018, the Group is no longer liable for any of the liabilities and this has resulted in a credit of £0.36m through the profit and loss account and a credit of £0.32m through other comprehensive income. There has been a corresponding reduction in the reported value of long term borrowings on the balance sheet to reflect this. Both of these items are excluded from the adjusted loss before tax for the period.

Strategic review

Since the commencement of a strategic review in the last financial year, the Board has prioritised to deliver on VISITECT® CD4, Allergy and Food Intolerance, following the divestment of the infectious disease business and the closure of operations in Germany and India.

Visitect® CD4

The Company continues to make good progress with the commercialisation plans for the VISITECT® CD4 350 cut-off test. Two additional distribution agreements have been signed since the trading update dated 10 October 2018. Country coverage now extends to 11 countries; Nigeria, Zimbabwe, Ghana, Zambia, Kenya, Columbia, Indonesia, Guatemala, Cameroon, Uruguay and Brazil with negotiations ongoing in a further five countries.

The VISITECT® CD4 Advanced Disease test (utilising a lower 200 cut-off) continues to make good progress. Since the trading update a third validation batch has been manufactured and is currently being externally tested in India. Although still to be finalised, external results completed to date for all three validation batches are looking promising. We now have ethical approval in place to start our performance evaluation studies with initiation planned as soon as the ongoing site training has been successfully completed.

Discussions are ongoing with key HIV stakeholders to formulate plans for the procurement and implementation of VISITECT® CD4 Advanced Disease in low and middle-income countries at the earliest opportunity. Up to 40% of patients diagnosed with HIV are already at an advanced stage of the disease. Identification of advanced HIV disease is a critical issue that can improve the effectiveness of HIV control measures and it is widely recognised by opinion leaders that utilisation of the VISITECT® CD4 Advanced Disease test will play an important role in ensuring patients receive the most appropriate package of care.

Allergy

Since signing the distribution agreement with Imuunodiagnostics Systems ('IDS') in April of this year, we have continued to develop allergens for IDS' automated instrument. Since our last allergy update announced on 27 September 2018, we have CE-Marked two additional allergens, extending the menu to 60 allergens in total. We have also now shipped our first order to IDS and anticipate one further order for the final quarter of this financial year. We are working closely with IDS and there is regular contact between our respective commercial teams. We will continue to support IDS during the launch phase for this product range.

Food Intolerance

We are encouraged with the sales result from our Food Intolerance division for two reasons; sales for the six months to 30 September 2018 recorded growth of 12% when measured against the immediately prior six-month period to 31 March 2018 and; sales of Food Detective® of £0.95m for the six months to 30 September 2018 were equivalent to H1 in the prior period, despite that prior period including sales of £0.23m for the retail kit version which did not repeat in the current period due to the ongoing regulatory issue. We continue to work with our notified body on how best to resolve the issue.

The commissioning of a new 35,000 sq. ft facility is proceeding to plan with an expected move during the middle of the next calendar year. The upgraded facility underpins our view that the food intolerance division offers longer term growth opportunity, particularly in the US and China, and the Board continues to explore how best to realise value from this division given its stage in its current life-cycle.

Outlook

Our short-term outlook is dominated by our efforts to realise value for Shareholders whilst at the same time successfully accelerating our efforts to commercialise our CD4 offering. The challenges are not inconsequential but I remain confident that in those areas where we can control our own destiny that we will succeed in delivering our objectives. In those areas where we are not masters of our own destiny then, by definition, the outcome will always be less certain. I believe it is best for our statement to reflect that reality as it stands today. Rest assured we will continue to work towards achieving success for all our Stakeholders.

David Evans

Non-Executive Chairman

30 November 2018

Notes to the Interim Report

for the six months ended 30 September 2018

1. BASIS OF PREPARATION

For the purpose of preparing the March 2018 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 2018 have been applied consistently. The Group does not expect the adoption of IFRS9 and IFRS15 to have a material impact on the consolidated financial statements for the year ended 31 March 2019. 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 31 March 2018 does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006 and has been extracted from the Group's 2018 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 2018 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 30 November 2018.

2. SEGMENT INFORMATION

For management purposes the Group is organised into three operating divisions: Allergy and Autoimmune, Food Intolerance and Infectious Disease and Other.

The Allergy and Autoimmune division specialises in the research, development, production and marketing of in-vitro allergy and autoimmune tests used by doctors to diagnose patients with allergies and autoimmune diseases.

The Food Intolerance 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 as well as supplying the consumer Food Detective test.

The Infectious Diseases division specialises in the research, development and production and marketing of kits to aid the diagnosis of infectious diseases.

Corporate consists of centralised corporate costs which are not allocated across the three business divisions.

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

4. FINANCE COSTS

5. TAX (CHARGE) / CREDIT

The deferred tax asset balance at 30 September 2018 will be offset against future profits expected to be generated from the prospects for Allergy sales and Visitect® CD4 sales leading management to conclude to carry the deferred tax asset in full.

6. EARNINGS PER SHARE

The number of shares in issue at the period end was 126,959,060. 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 profit 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 profit for the period

The Group presents adjusted earnings per share which is calculated by taking adjusted profit 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.

7. INTANGIBLES