Novacyt S.A. ("Novacyt", the "Company" or the "Group"): Half Year 2021 Results

Solid underlying financial performance and well-positioned for continued growth

Regulatory News:

Novacyt (EURONEXT GROWTH: ALNOV; AIM: NCYT), an international specialist in clinical diagnostics, announces its unaudited results for the half year ended 30 June 2021.

Graham Mullis, Group CEO of Novacyt, commented:

“During 2021, Novacyt has remained at the forefront in its response to the constantly changing global COVID-19 pandemic. We have launched 18 new COVID-19 products since the beginning of 2021 and we expect Novacyt to continue to play a major role in COVID-19 testing well into 2022. We also remain focused on strengthening our long-term position and executing against our strategy by building our product and instrument platforms and expanding our commercial infrastructure for growth beyond COVID-19.

“As my last results as CEO of Novacyt, I would like to take this opportunity to say it has been a privilege and an honour to lead the Company and to work alongside so many talented people who have worked tirelessly in the face of the unprecedented pandemic. I believe Novacyt is better positioned today than it has ever been, based on the capabilities it has developed over the last few years. I am immensely proud of what we have achieved, and I am confident the Company will continue to grow and cement its place as a leading global diagnostics player.”

Financial highlights

Group consolidated unaudited revenue of £54.0m (H1 2020: £63.3m) excluding £40.8m of H1 DHSC revenues whilst the contract dispute continues
Non-DHSC revenue increased by 20% to £54.0m (H1 2020: £44.8m) supported by growing UK private testing market
The Group has booked exceptional cost of sales of £35.8m in connection with the DHSC contract dispute to write down inventory and terminate supply agreements that the Company had built in anticipation of further DHSC demand and to book the cost of products supplied to the DHSC in 2021 that have not been paid for
Group gross margin before exceptional items was 71%, delivering a gross profit of £38.0m. After the exceptional DHSC related cost of sales, gross margin drops to 4%, delivering a gross profit of £2.3m
Group adjusted EBITDA of £23.2m before exceptionals (H1 2020: £43.1m)
Operating loss of £13.6m compared to a profit of £42.2m in H1 2020, driven by the one-time exceptional cost of sales and stock write-down
Loss after tax of £12.7m compared to a profit of £35.1m in H1 2020
Cash at 30 June 2021 of £77.2m with zero debt

£'000

H1 2021

Before

Exceptionals

H1 2021

After

Exceptionals

H1 2021

Total

Group

H1 2020

Total

Group

Revenue

53,950

63,257

Gross profit

38,044

(35,770)

2,274

52,673

Gross profit %

71%

83%

EBITDA

23,170

(35,770)

(12,600)

43,146

EBITDA %

43%

-23%

68%

Recurring operating (loss) / profit

22,232

(35,770)

(13,538)

42,540

Operating (loss) / profit

22,169

(35,770)

(13,601)

42,236

(Loss) / profit after tax attributable to the owners

16,299

(28,974)

(12,675)

35,131

Operational highlights

Rapid development and launch of 18 new assays to support laboratories, clinicians, and private testing for COVID-19 since the beginning of 2021
- Launch and continued expansion of PCR genotyping portfolio, SNPsig®, to detect variants of SARS-CoV-2, including VariPLEX™ to detect six key mutations in a single test
  - Portfolio included in the NHS England Framework for detecting Variants of Concern
- Expansion of PROmate® COVID-19 PCR portfolio for workflow efficiency in a near-to-patient setting
- Expansion of genesig® COVID-19 PCR portfolio
- Expansion of PathFlow® LFT portfolio with antibody and antigen tests for COVID-19
Launch of VersaLab™ mobile processing laboratories and VersaLab™ Portable to expand near-patient testing opportunities in private sector testing
Inclusion in PHE National Framework Agreement, resulting in a new contract with the DHSC for the supply of PROmate® COVID-19 tests to the NHS (post period)
Secured new contracts with WHO and UNICEF for the supply of COVID-19 products
Strengthened executive team and commercial operations to support future growth
- Appointment of James McCarthy as Chief Financial Officer
- Anthony Dyer assumed a new role of Chief Corporate Development Officer to focus on business development
- Appointment of Guillermo Raimondo to newly formed role of Chief Commercial Officer to lead global commercial operations
- Appointment of US General Manager and set-up of Novacyt US Inc
David Allmond appointed as Chief Executive Officer, effective from 18 October 2021, following Graham Mullis’ decision to retire (post period)

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014.

About Novacyt Group

The Novacyt Group is an international diagnostics business generating an increasing portfolio of in vitro and molecular diagnostic tests. Its core strengths lie in diagnostics product development, commercialisation, contract design and manufacturing. The Company's lead business units comprise of Primerdesign and Lab21 Products, supplying an extensive range of high-quality assays and reagents worldwide. The Group directly serves microbiology, haematology and serology markets as do its global partners, which include major corporates.

For more information, please refer to the website: www.novacyt.com

Chief Executive Officer’s Review

Continued strong momentum in H1 2021

Novacyt has continued to experience strong demand for its COVID-19 products during 2021, following its early mover advantage in 2020 and continued innovation, strengthening the Company’s reputation as a global clinical diagnostics player. This has been demonstrated by the launch of 18 new products since the beginning of 2021 and the generation of £54.0m in revenues from customers, excluding the DHSC.

Novacyt has continued to drive revenue growth from new customers, particularly in private testing markets which is expected to be a key part of the Company’s future success. Alongside strong sales into private testing in markets, such as the UK and Germany, the Company secured, post-period, new or extended supply contracts with non-governmental organisations, including with the World Health Organization (WHO) for the supply of its genesig® COVID-19 tests and UNICEF, where the Company has received confirmation that its existing Long-Term Agreement with the organisation has been extended by 12 months to July 2022. The Group has also signed a new contract with the DHSC under the PHE National Microbiology Framework, as announced on 18 August 2021, for the supply of PROmate® COVID-19 tests to the NHS until 31 March 2022.

In H1 2021, the Group delivered revenue of £54.0m, excluding DHSC revenue, compared to total group revenue of £63.3m in H1 2020. Excluding H1 2020 DHSC revenue, the Group delivered 20% year-on-year revenue growth. Group gross margin before exceptional items was 71%, delivering a gross profit of £38.0m and EBITDA, excluding exceptional charges, was £23.2m compared to £43.1m last year. The Group finished H1 2021 with £77.2m of cash and zero debt. This strong underlying financial performance provides the Company with a solid foundation as it continues to grow the business in line with the updated strategy, as announced at the time of the Company's full year results on 22 June 2021.

As announced on 22 June 2021, the Company is focused on key areas of test menu, instrument, and geographic expansion. The test portfolio expansion in COVID-19 and beyond COVID-19 will be achieved by leveraging the Company's strong bioinformatics and design expertise. With instruments, the Company is focused on improving capabilities in near-patient testing and offering full work-flow solutions which will include extraction and sample handling automation. Expanding the geographic footprint will be helped by selective investment in key countries and by leveraging the international relationships and reputation Novacyt has built up over the last 18 months.

Novacyt has continued to make good progress in these areas during H1 2021, including expansion of the Company’s respiratory portfolio for COVID-19 testing combined with a growing patent portfolio, expansion of VersaLab™ to provide further near-patient testing solutions in the private sector, and expansion and establishment of the Company’s commercial infrastructure in the UK and the US, respectively. This growth has been supported by a strengthened leadership team during the period.

Novacyt is well-positioned to continue its trajectory towards becoming a leading global diagnostics player

Novacyt is building upon its reputation for the innovation and high performance of its diagnostic products and believes it is well positioned as a global manufacturer rapidly developing and commercialising market leading and proprietary technologies in high value and growing markets. This confidence stems from the key competitive advantages the Company has established over a number of years and validated during Novacyt’s successful response to the COVID-19 pandemic.

These features of the Novacyt business include:

Market leading molecular diagnostics development capability

A leading development capability of in-vitro diagnostics which enables Novacyt to design, prototype, develop and optimize PCR tests rapidly and deliver best-in-class clinical performance. Consequently, Novacyt has been at the forefront of a number of global disease responses, including Zika, Ebola, SARS and now COVID-19
This includes a proprietary and automated bioinformatics capability which enables the Company to evaluate over 30,000 full genome sequences daily for the design of probes and primers to support accelerated product development for first-to-market PCR assays
The Company continues to scale this rapid development capability to enable Novacyt to deliver significant numbers of new PCR tests in the future
A vertically integrated PCR business which is able to design, develop and manufacture instruments and reagents in-house to control costs, quality and performance. The Company can deliver complete PCR work-flow solutions to its growing customer base

Ability to leverage existing core business to underpin future growth

An extensive portfolio of over 250 research-use-only (RUO) PCR diagnostic pathogen tests, which can be leveraged further into existing life science markets due to the Company’s growing distribution channels and brand reputation
Expansion of the Company’s PathFLOW® brand for new lateral-flow tests (LFTs), particularly into new and emerging sales channels such as private testing markets
Able to leverage Novacyt’s COVID-19 business into other related respiratory diseases, such as Winterplex®, the Company’s test panel technology able to differentiate between respiratory diseases

A significant clinical trial infrastructure

A clinical trial capability of skilled scientists across the Company’s two R&D sites for the planning, running and validation of new clinical trials covering new technologies, new products, or regulatory/market studies for current products
The Company also has a growing network of international clinical specialists to support its clinical trial capability on a global scale as the business continues to expand its geographic footprint
This capability, established over the past 18 months, has supported the Company’s rapid response to innovation, having conducted more than 15 trials in over 20 locations in the UK and worldwide, and will continue to enable the business to launch new products and new technologies in a rapid and cost-effective ways

Expanding patent portfolio to protect and secure future growth

The Company has invested in growing its patent portfolio, with 22 patents filed since the beginning of 2020 to protect its proprietary position. This will be a continued focus for Novacyt in the future and cover specific products in terms of design sequences, processes and workflow solutions

Highly flexible manufacturing capability

Able to rapidly scale, up and down, internal manufacturing capacity to address changes in the market and add the complexity of more new products
A responsive and flexible third-party supply-chain to boost capacity as required

Core business values to support employee and business development

Underpinning the business are the core values of the Novacyt team which include integrity, creativity, a can-do attitude, and an environment which allows its employees to challenge and grow with the Company

Outlook

The Company reiterates full year 2021 revenue and EBITDA guidance announced on 16 September 2021.

Financial Review

Overview

Unaudited revenue for the first half of 2021 was £54.0m compared to revenue for 2020 of £63.3m. This £54.0m excludes all H1 2021 DHSC revenue and represents a 20% or £9.2m growth versus the equivalent sales in 2020 if the DHSC revenue is excluded for this comparator period. This growth is driven by sales to private laboratories driven by a shift in demand from central government led testing to more devolved private testing to support the re-opening of businesses and international travel.

H1 2021 revenue excludes £49.0m (including VAT) of product that was delivered and invoiced to the DHSC and this has now also been included as part of the contract dispute. Payment for the £49.0m invoiced remains outstanding at the time of signing these interim accounts. As announced on 16 September 2021, the Board has made the decision that, in accordance with IFRS 15 accounting standard on revenue from contracts with customers and while the dispute with the DHSC remains unresolved, the Company will not recognise H1 2021 revenue from the DHSC. The Company continues to work with its legal advisers to progress the dispute with the DHSC and believes it has strong grounds to assert its contractual rights.

£'000

H1 2021

Consol

H1 2020

Consol

Revenue

53,950

63,257

Gross profit

2,274

52,673

Gross profit %

83%

Adjusted EBITDA

23,170

43,146

EBITDA

(12,600)

43,146

Recurring operating (loss) / profit

(13,538)

42,540

Operating (loss) / profit

(13,601)

42,236

(Loss) / profit after tax attributable to the owners

(12,675)

35,131

The underlying business before exceptional cost of sales delivered a gross profit of £38.0m or 71%, but after exceptional cost of sales items gross profit fell to £2.3m or 4%, compared to £52.7m (83%) in the first half of last year. This margin, at 71%, is slightly below Primerdesign’s historic margin predominantly as a result of booking a higher stock provision than normal. There was margin dilution year-on-year as a result of significantly higher instrument sales in H1 2021 totalling £1.4m as the Group builds its installed base versus sales of £0.1m in H1 2020 and as a result of commencing the donation of approximately one million test kits to UNICEF, of which as at the end of June 2021 over 194,000 had been delivered free of charge.

Group operating costs increased in the first half of 2021 by £5.4m, to £14.9m compared with £9.5m in H1 2020. This reflects the step-change in investment in R&D, Sales & Marketing and General Admin over the past 12 months as the Company continued its significant scale up of the business. This is also evident in headcount which has increased from 110 at the start of 2020 to in excess of 275 at the end of June 2021, driving up costs year-on-year.

The Group delivered an adjusted EBITDA of £23.2m or 43% in line with guidance given. This is £20.0m lower than in H1 2020, driven by a lower gross profit contribution of £14.6m as a result of lower sales and a reduced gross margin percentage, with the remainder being due to an increase in operating expenditure.

The Group delivered an EBITDA loss of £12.6m after taking a one-off exceptional cost of sales charge of £35.8m due to the DHSC contract dispute. This includes £28.9m to write down inventory that the Company had built in anticipation of further DHSC demand and to terminate supply commitments with third parties in respect of this supply that are no longer required and £6.9m of manufacturing costs relating to the 2021 disputed sales.

Operating Loss / Profit

The Group delivered an operating loss of £13.6m compared with a H1 2020 profit of £42.2m. The swing from a profitable position to a loss in H1 2021 is driven by the one-time exceptional cost of sales items. Year-on-year, exceptional charges and depreciation/amortisation costs are only £0.1m higher in H1 2021 at £1.0m (H1 2020: £0.9m), with higher depreciation being driven by increased capital expenditure.

Net Loss / Profit After Tax

The Group delivered a net loss after tax of £12.7m in H1 2021 from a profit of £35.1m in H1 2020. Financial income and expense fell by £0.4m to a net charge of £1.5m driven by the settlement of all outstanding Group debt in June 2020 resulting in lower borrowing costs but offset by higher non-operational financial foreign exchange expenses. Tax has moved from a £5.2m charge in H1 2020 to a £2.5m credit in H1 2021, the intent is to carry back the credit against 2020 profits.

Divisional performance

Primerdesign has grown its revenue in the UK private testing market in the first half of 2021, currently including COVID-19 testing in film, media, travel, and corporate industries, which has gone some way to offsetting the reduced DHSC revenue in H1 2021 (£ nil) versus H1 2020 (£18.4m). The international distribution business, which focuses on providing diagnostic tests and reagents on a reseller basis has seen strong growth. In Europe (excluding the UK), Primerdesign delivered year-on-year revenue growth of £3.8m or 23%, in the America’s year-on-year revenue growth of £1.7m or 54%, and in Asia Pacific year-on-year revenue growth £1.2m or 51%, representative of the increased need for testing in these regions as the pandemic continues to evolve.

Lab21 Products revenue of £3.1m (before intercompany eliminations), is up 98% from sales of £1.6m in H1 2020 as the pre-COVID-19 customer base returns after focusing their attention on COVID-19 testing. There is £1.4m of intercompany sales included in the £3.1m of Lab21 Products segment sales that are eliminated in the Group consolidated accounts. This intercompany revenue relates to services that Microgen Bioproducts provided to Primerdesign in its manufacturing of COVID-19 test, rather than outsourcing the task to a third party and to avoid diluting the gross margin.

IT-IS International sales for the first half of 2021 totalled £7.4m, including £5.9m of intercompany sales that are eliminated in the Group consolidated accounts.

Balance Sheet

£'000

Jun-21

Dec -20

£'000

Jun-21

Dec -20

Goodwill

17,457

17,877

Share capital and premium

54,661

54,675

Right of use assets

1,890

2,259

Retained earnings

83,890

96,035

Deferred Tax assets

2,535

3,023

Total equity

138,551

150,710

Other non-current assets

7,367

6,132

Total non-current assets

29,249

29,291

Borrowings (> 1 yr)

LTIP liabilities long-term

5,608

5,606

Lease liabilities long-term

1,707

1,964

Other provisions and long-term liabilities

2,039

1,854

Total non-current liabilities

9,354

9,424

Inventories

15,127

29,888

Trade and other receivables

40,570

79,592

Borrowings (< 1 yr)

Tax receivables

17,725

Trade and other liabilities

12,826

36,784

Other current assets

2,302

3,740

Tax Liability

15,116

Cash and cash equivalents

77,204

91,765

Other provisions and short-term liabilities

21,446

22,242

Total current assets

152,928

204,985

Total current liabilities

34,272

74,142

TOTAL ASSETS

182,177

234,276

TOTAL EQUITY AND LIABILITIES

182,177

234,276

Gross inventory has increased since the year end to £46.6m from £33.0m as a result of buying stock in the expectation of securing additional contracts with the DHSC that have now not materialised. The stock was ordered in advance due to the lead times for obtaining some raw materials and the Group wanting to ensure there were no supply chain issues. As such, the stock provision has increased from £3.1m at 31 December 2020 to £31.4m at 30 June 2021, of which £26.1m relates to not securing additional contracts with the DHSC and £5.3m relates to the underlying business. This has resulted in a closing net inventory balance of £15.1m at 30 June 2021.

Trade receivables have fallen by £47.0m since the year end to £32.2m, predominantly driven by the payment of an invoice totalling £47.9m by the DHSC in February 2021. £24.0m of the trade receivables balance is in respect of products delivered to the DHSC in 2020, the recovery of this balance is dependent on the outcome of the dispute.

Tax receivables – Value Added Tax balance of £8.3m at 30 June 2021 relates to VAT paid in the UK on sales invoices in dispute with the DHSC. As these sales have not been recognised in accordance with IFRS 15, the revenue, trade receivable and VAT element of the transactions have been reversed, resulting in a VAT debtor balance.

The Group had a tax receivable balance of £17.7m at the end of H1 2021. There are three key items that make up the corporation tax receivable balance; i) a £4.3m overpayment of corporation tax in relation to 2020, ii) an overpayment of £10.0m in relation to 2021, as a result of the late impact the DHSC contract dispute had on the financial results after payments had been made, and iii) £3.2m related to 2021 losses that can be carried back to be offset against 2020 taxable profits.

Trade and other liabilities have fallen from £36.8m at 31 December 2020 to £12.8m at 30 June 2021. Trade payables and accrued invoices have decreased from £13.2m at 31 December 2020 to £6.2m at 30 June 2021 in line with reduced sales in Q2 2021 versus Q4 2020. The closing 2020 Tax liability - Value Added Tax balance of £16.8m relates to VAT payable to HMRC in the UK covering the months of November and December 2020 and was paid in Q1 2021 reducing the balance to £0.1m at 30 June 2021.

Cash Flow

The Group held £77.2m of cash at 30 June 2021 compared to £91.8m at 31 December 2020. At 31 December 2020 the Group owed £16.8m of VAT covering November and December 2020 which it settled in Q1 2021. In January 2021, the Company paid £19.5m UK corporation tax for what it believed to be its outstanding liability, this has subsequently changed primarily driven by the late impact the DHSC dispute had on the 2020 results. In Q1 2021, the Group made the first quarterly instalment of its projected 2021 UK corporation tax liability, paying £10.0m to HMRC prior to the impact of the DHSC dispute being formalised. This £10.0m resides on account with HMRC and the Group will look to see if this can be refunded in the near future as, based on the 2021 interim results, no corporation tax was due for H1 2021.

The Group saw an operating cash outflow of £12.2m in H1 2021. Cash outflows from financing activities reduced considerably year-on-year, falling by £4.6m as a result of the Group settling all outstanding debts in H1 2020. The H1 2021 balance of £0.4m predominantly covers lease payments. Capital expenditure in H1 2021 was £2.0m, up significantly from H1 2020 expenditure as the Group invests in infrastructure to bring previously outsourced work in-house and to drive further automation, leading to improved margins and process controls.

Consolidated income statement as at 30 June 2021

Amounts in £'000

Notes

(Unaudited) Six month 30 June 2021

(Unaudited) Six month 30 June 2020 (*)

Continuing Operations

Revenue

53,950

63,257

Cost of sales

-15,906

-10,584

Cost of sales - exceptional

-35,770

Gross profit

2,274

52,673

Sales, marketing and distribution expenses

-3,370

-1,718

Research and development expenses

-1,881

-518

General and administrative expenses

-10,769

-7,897

Governmental subsidies

208

Operating (loss)/profit before exceptional items

-13,538

42,540

Other operating income

Other operating expenses

-63

-308

Operating (loss)/profit after exceptional items

-13,601

42,236

Financial income

233

Financial expense

-1,773

-2,002

(Loss)/profit before tax

-15,141

40,310

Tax income/(expense)

2,466

-5,179

(Loss)/profit after tax attributable to owners of the company

-12,675

35,131

(Loss)/profit per share (£)

-0.18

0.53

Diluted (loss) /profit per share (£)

-0.18

0.53

(*) The comparative information for 2020 has been restated to reflect the change in presentation currency of the Group (see Note 2).

Consolidated statement of comprehensive income as at 30 June 2021

Amounts in £'000

(Unaudited) Six month 30 June 2021

(Unaudited) Six month 30 June 2020 (*)

(Loss)/profit after tax

-12,675

35,131

Items that may be reclassified subsequently to profit or loss:

Translation reserves

530

771

Total comprehensive (loss)/profit

-12,145

35,902

Comprehensive (loss)/profit attributable to:

Owners of the company (**)

-12,145

35,902

(*) The comparative information for 2020 has been restated to reflect the change in presentation currency of the Group (see Note 2).

(**) There are no non-controlling interests.

Statement of financial position as at 30 June 2021

Amounts in £'000

Notes

(Unaudited) Six month 30 June 2021

(Audited) Year ended 31 December 2020

Goodwill

17,457

17,877

Other intangible assets

3,901

4,255

Property, plant and equipment

3,236

1,643

Right of use assets

1,890

2,259

Non-current financial assets

126

138

Deferred tax assets

2,535

3,023

Other long-term assets

104

Total non-current assets

29,249

29,291

Inventories and work in progress

15,127

29,888

Trade and other receivables

40,570

79,592

Tax receivables

17,725

Prepayments and short-term deposits

2,293

3,731

Investments short-term

Cash and cash equivalents

77,204

91,765

Total current assets

152,928

204,985

Total assets

182,177

234,276

Bank overdrafts and current portion of long-term borrowings

Lease liabilities short-term

365

414

Contingent consideration short-term

1,037

1,022

Provisions short-term

19,852

19,856

Trade and other liabilities

12,826

36,784

Tax liabilities

15,116

Other current liabilities

192

950

Total current liabilities

34,272

74,142

Net current assets/(liabilities)

118,656

130,843

Lease liabilities long-term

1,707

1,964

Contingent consideration long-term

824

812

Provisions long-term

181

242

Deferred tax liabilities

1,034

800

Other liabilities long-term

5,608

5,606

Total non-current liabilities

9,354

9,424

Total liabilities

43,626

83,566

Net assets

138,551

150,710

Statement of financial position as at 30 June 2021 (continued)

Amounts in £'000

Notes

(Unaudited) Six month 30 June 2021

(Audited) Year ended 31 December 2020

Share capital

4,053

Share premium account

50,671

Own shares

-63

-49

Other reserves

-1,506

-2,036

Equity reserve

1,155

Retained earnings

84,241

96,916

Total equity - owners of the company

138,551

150,710

Total equity

138,551

150,710

Statement of changes in equity as at 30 June 2021

Amounts in £'000

Other group reserves

Share capital

Share premium

Own shares

Equity reserves

Acquisition of the shares of Primer Design

Translation reserve

Other comprehensive income on retirement benefits

Total

Retained earnings

Total equity

Balance at 1 January 2020

3,311

46,999

-141

336

-2,407

491

-8

-1,924

-36,119

12,462

Translation differences

-112

Profit for the period

132,423

Total comprehensive income/(loss) for the period

-112

132,423

132,311

Issue of share capital

567

2,011

2,578

Own shares acquired/sold in the period

Conversion of warrants and debts

175

1,661

819

612

3,267

Balance at 31 December 2020

4,053

50,671

-49

1,155

-2,407

379

-8

-2,036

96,916

150,710

Translation differences

530

Loss for the period

-12,675

Total comprehensive (loss)/income for the period

530

-12,675

-12,145

Own shares acquired/sold in the period

-14

Balance at 30 June 2021

4,053

50,671

-63

1,155

-2,407

909

-8

-1,506

84,241

138,551

Statement of cash flows as at 30 June 2021

Amounts in £'000

Notes

(Unaudited) Six month 30 June 2021

(Unaudited) Six month 30 June 2020 (*)

Net cash (used in)/from operating activities

-12,179

21,504

Investing activities

Proceeds from disposal of property, plant and equipment

Purchases of patents and trademarks

-115

-38

Purchases of property, plant and equipment

-1,924

-234

Variation of deposits

Acquisition of subsidiaries net of cash acquired

Net cash used in investing activities

-1,959

-195

Financing activities

Repayments of lease liabilities

-230

-177

Repayments of other borrowings and financial liabilities

-5,060

Proceeds from issue of shares

2,542

(Purchase)/disposal of own shares – Net

-50

Repayment of other short-term financing facilities

-677

Interest paid

-91

-1,580

Net cash used in financing activities

-371

-4,921

Net (decrease)/increase in cash and cash equivalents

-14,509

16,388

Cash and cash equivalents at beginning of year

91,765

1,578

Effect of foreign exchange rate changes

-52

-730

Cash and cash equivalents at end of period

77,204

17,236

(*) The comparative information for 2020 has been restated to reflect the change in presentation currency of the Group (see Note 2).

NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD TO 30 JUNE 2021

1. GENERAL INFORMATION AND BASIS OF PREPARATION

The Novacyt Group is an international diagnostics business generating an increasing portfolio of invitro and molecular diagnostic tests. Its core strengths lie in diagnostics product development, commercialisation, contract design and manufacturing. The Group’s lead business units comprise of Primerdesign and Lab21 Products, supplying an extensive range of high-quality assays and reagents worldwide. The Group directly serves microbiology, haematology and serology markets as do its global partners, which include major corporates. Novacyt S.A. (the “Company”) is the parent company of the Novacyt Group and its registered office is located at 13 Avenue Morane Saulnier, 78140 Vélizy Villacoublay.

The financial information contained in this report comprises the consolidated financial statements of the Company and its subsidiaries (hereinafter referred to collectively as the “Group”). They are prepared and presented in ‘000s of Great British Pounds “GBP”.

This condensed consolidated interim financial information does not constitute full statutory accounts. It does not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements for the twelve months ended 31 December 2020. Statutory accounts for the year ended 31 December 2020 were approved by the Board of Directors and have been delivered to the Registrar of Companies. The auditor’s report on those accounts was unqualified. The financial information for the half years 30 June 2021 and 30 June 2020 is unaudited and the twelve months to 31 December 2020 is audited.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated on consolidation. The Group’s scope of consolidation included the following companies, all fully consolidated when included in the scope.

At 30 June 2021 and 31 December 2020

At 30 June 2020

Companies

Interest percentage

Consolidation method

Interest percentage

Consolidation method

Biotec Laboratories Ltd

100%

IT-IS International Ltd

100%

–

Lab 21 Healthcare Ltd

100%

Microgen Bioproducts Ltd

100%

Novacyt S.A.

100%

Novacyt Asia Ltd

100%

Novacyt China Ltd

100%

Novacyt UK Holdings Ltd

100%

Primer Design Ltd

100%

2. SUMMARY OF ACCOUNTING POLICIES APPLIED BY THE GROUP

The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

The financial information has been prepared on the historical cost basis except in respect of those financial instruments that have been measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for the goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

Fair value for measurement and/or disclosure purposes in the financial information is determined on such a basis, except for leasing transactions that are within the scope of IFRS 16, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.

The areas where assumptions and estimates are material in relation to the financial information are the measurement of goodwill (see Note 15 of the 2020 Statutory Accounts for further details), the carrying amounts and useful lives of intangible assets (see Note 16 of the 2020 Statutory Accounts for further details), deferred taxes (see Note 20 of the 2020 Statutory Accounts for further details), trade receivables (see Note 23 of the 2020 Statutory Accounts for further details) and provisions for risks and other provisions related to the operating activities (see Note 30 of the 2020 Statutory Accounts for further details).

The accounting policies set out below have been applied consistently to all periods presented in the financial information.

The accounting policies applied by the Group in these condensed consolidated interim financial statements are substantially the same as those applied by the Group in its financial statements for the year ended 31 December 2020 and which form the basis of the 2021 financial statements. The methodology for selecting assumptions underpinning the fair value calculations has not changed since 31 December 2020.

Change of presentation currency

The Group has opted to change its presentation currency to Great British Pounds, “GBP”, to better reflect the Group’s trading activities, which are mainly conducted in GBP. This change was made for the year end 2020 accounts.

Following this change in accounting policy, the comparative consolidated financial statements are presented in GBP. Consolidation translation differences were reset to zero as of 1 January 2014, the date of creation of the consolidated Group. The cumulative translation differences on consolidation are presented as if the Group had used the GBP as its presentation currency for its consolidated financial statements since that date, 1 January 2014.

The functional currency of the parent company, Novacyt S.A., remains the Euro. Translation differences arising from the parent company are presented in “other reserves”.

Going concern

The Directors have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements.

In making this assessment the Directors have considered the following elements:

- The working capital requirements of the business; - A positive cash balance at 30 June 2021 of £77,204,000; - Payment of the second tranche of the Long-Term Incentive Plan (“LTIP”) that commenced in November 2017 and concluded in November 2020; - Payment of the first earn-out milestone related to the IT-IS International acquisition; and - Management’s confidence in settling the outstanding commercial dispute (see Note 20).

Measurement of goodwill

Goodwill is broken down by cash-generating unit (“CGU”) or group of CGUs, depending on the level at which goodwill is monitored for management purposes. In accordance with IAS 36, none of the CGUs or groups of CGUs defined by the Group are greater in size than an operating segment.

Impairment testing

Goodwill is not amortised, but is subject to impairment testing when there is an indication of loss of value, and at least once a year at the reporting date.

Such testing consists of comparing the carrying amount of an asset to its recoverable amount. The recoverable amount of an asset, a CGU or a group of CGUs is the greater of its fair value less costs to sell and its value in use. Fair value less costs to sell is the amount obtainable from the sale of an asset, a CGU or a group of CGUs in an arm’s length transaction between well-informed, willing parties, less the costs of disposal. Value in use is the present value of future cash flows expected to arise from an asset, a CGU or a group of CGUs.

It is not always necessary to determine both the fair value of an asset less costs to sell and its value in use. If either of these amounts exceeds the carrying amount of the asset, the asset is not impaired and it is not necessary to estimate the other amount.

Inventories

Inventories are carried at the lesser of their acquisition cost and their recoverable amount. The acquisition cost of inventories includes materials and supplies, and, where applicable, personnel expenses incurred in transforming inventories into their current state. It is calculated using the weighted average cost method. The recoverable amount represents the estimated selling price less any marketing, sales and distribution expenses.

The gross value of goods and supplies includes the purchase price and incidental expenses.

A provision for impairment, equal to the difference between the gross value determined in accordance with the above terms and the current market price or the realisable value less any proportional selling costs, is recognised when the gross value is greater than the other stated item.

Trade receivables

The Group has an established credit policy under which the credit status of each new customer is reviewed before credit is advanced, including external credit evaluations where possible. Credit limits are established for all significant or high-risk customers, which represent the maximum amount permitted to be outstanding without requiring additional approval from the appropriate level of senior management. Outstanding debts are continually monitored by each division. Credit limits are reviewed on a regular basis, and at least annually. Customers that fail to meet the Group’s benchmark creditworthiness may only transact with the Group on a prepayment basis.

Trade receivables are recorded initially at fair value and subsequently measured at amortised cost. This generally results in their recognition at nominal value less an allowance for any doubtful debts. Trade receivables in foreign currency are transacted in their local currency and subsequently revalued at the end of each reporting period, with any foreign exchange differences being recognised in the income statement as an income/expense.

The allowance for doubtful debts is recognised based on management’s expectation of losses without regard to whether an impairment trigger happened or not (an “expected credit loss” model). Through implementation of IFRS 9, the Group concluded that no real historical default rate could be determined due to a low level of historical write offs across the business. The Group therefore recognises an allowance for doubtful debts on the basis of invoice ageing. Once an invoice is overdue from its due date, based on agreed upon credit terms, by more than 90 days, this invoice is then more likely to default than those invoices operating within 90 days of their due date. As such, these invoices will be provided for in full as part of an expected credit loss model, except where management have reviewed and judged otherwise.

Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there may be no reasonable expectation of recovery may include the failure of the debtor to engage in a payment plan, and failure to make contractual payments within 365 days of the original due date.

Cash and cash equivalents

Cash equivalents are held to meet short-term cash commitments rather than for investment or other purposes. For an investment to qualify as a cash equivalent, it must be readily convertible into a known amount of cash and be subject to an insignificant risk of change in value. Cash and cash equivalents comprise cash funds, current bank accounts and marketable securities (cash Undertakings for Collective Investment in Transferable Securities (“UCITS”), negotiable debt securities, etc.) that can be liquidated or sold within a very short time (generally with original maturities of three months or less) and which have a negligible risk of change in value. All such items are measured at fair value, with any adjustments recognised in profit or loss.

Trade payables

Trade payables are obligations to provide cash or other financial assets. They are recognised in the balance sheet when the Group becomes a party to a transaction generating liabilities of this nature. Trade and other payables are recognised in the balance sheet at fair value on initial recognition, except if settlement is to occur more than 12 months after recognition. In such cases, they are measured using the amortised cost method. The use of the effective interest rate method will result in the recognition of a financial expense in the income statement. Trade and other payables are eliminated from the balance sheet when the corresponding obligation is extinguished.

Trade payables have not been discounted, because the effect of doing so would be immaterial.

Provisions

In accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, a provision is recognised when the Group has a current obligation as of the reporting date in respect of a third party and it is probable or certain that there will be an outflow of resources to this third party, without at least equivalent consideration from the said third party. Provisions for risks and charges cover the amount corresponding to the best estimate of the future outflow of resources required to settle the obligation.

The provisions are for the restoration of leased premises, an industrial relations litigation, a long-term management incentive plan and product warranties.

Long Term Incentive Plan

Novacyt granted to certain employees shares under a long-term management incentive plan adopted on 1 November 2017. The exercise price is set at the share price on the grant date and the options will be settled in cash. The options fully vested on the third anniversary of the grant date, 1 November 2020. The payment expenses are calculated under IFRS 2 “Share-Based Payments”. The accounting charge has been spread across the vesting period to reflect the services received and a liability recognised on the statement of financial position.

Consolidated revenue

IFRS 15 “Revenue from Contracts with Customers” establishes a principles-based approach to recognising revenue only when performance obligations are satisfied, and control of the related goods or services is transferred. It addresses items such as the nature, amount, timing and uncertainty of revenue, and cash flows arising from contracts with customers. IFRS 15 replaces IAS 18 “Revenue” and other related requirements. IFRS 15 applies a five-step approach to the timing of revenue recognition and applies to all contracts with customers except those in the scope of other standards.

Step 1 – Identify the contract(s) with a customer
Step 2 – Identify the performance obligations in the contract
Step 3 – Determine the transaction price
Step 4 – Allocate the transaction price to the performance obligations in the contract
Step 5 – Recognise revenue when (or as) the entity satisfies a performance obligation

The Group principally satisfies its performance obligations at a point in time and the amounts of revenue recognised relating to performance obligations satisfied over time are not significant. Therefore, the accounting for revenue under IFRS 15 does not represent a substantive change for recognising revenue from sales to customers.

The Group’s revenue recognition processes are generally straightforward, with recognition of revenue at the point of sale and little significant judgement required in determining the timing of transfer of control. Given that, the Group principally satisfies its performance obligations at a point in time and the amounts of revenue recognised relating to performance obligations satisfied over time are not significant.

Some contracts with customers contain a limited assurance warranty that is accounted for under IAS 37 (see provisions accounting policy). If a repair or replacement is not possible under the assurance warranty, a full refund of the product price may be given. The potential refund liability represents variable consideration.

Under IFRS 15.53, the Group can use either:

The expected value (sum of probability weighted amounts); or
The most likely amount (generally used when the outcomes are binary).

The method used is not a policy choice. Management use the method that it expects will best predict the amount of consideration based on the terms of the contract. The method is applied consistently throughout the contract. Variable revenue is constrained if appropriate. IFRS 15 requires that revenue is only included to the extent that it is highly probable that there will not be a significant reversal in future periods.

In making this assessment, management have considered the following factors (which are not exclusive):

If the amount of consideration is highly susceptible to factors outside the Group’s influence;
Whether the uncertainty about the amount of consideration is not expected to be resolved for a long period of time;
The Group’s experience (or other evidence) with similar types of contract;
The Group has a practice of either offering a broad range of price concessions or changing the payment terms and conditions of similar contracts in similar circumstances; and
The contract has a large number and broad range of possible consideration amounts.

The decision as to whether revenue should be constrained is considered to be a significant judgement as the term ‘highly probable’ is not defined in IFRS 15, management consider highly probable to be significantly more likely than probable.

Taxation

The income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in profit or loss because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

A provision is recognised for those matters for which the tax determination is uncertain but it is considered probable that there will be a future outflow of funds to a tax authority. The provisions are measured at the best estimate of the amount expected to become payable. The assessment is the result of the Group’s judgement based on the advice of external tax professionals and supported by previous experience in respect of such activities.

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the reporting date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Profit/loss per share

The Group reports basic and diluted profit/loss per ordinary share. Basic profit/loss per share is calculated by dividing the profit/loss attributable to ordinary Shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.

Diluted profit/loss per share is determined by adjusting the profit/loss attributable to ordinary Shareholders by the weighted average number of ordinary shares outstanding, taking into account the effects of all potential dilutive ordinary shares, including options. These options are taken into account for the calculation of the profit/loss per share only if their exercise price is higher than the market price and if they have a dilutive effect on the result per share.

Exceptional items

Exceptional items are those costs or incomes that in the view of the Board of Directors, require separate disclosure by virtue of their size or incidence, and are charged/credited in arriving at operating profit on the face of the consolidated income statement.

3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATE UNCERTAINTY

In the application of the Group’s accounting policies, the Directors are required to make judgements (other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Critical accounting judgements

Constraint of revenue

Revenue is only constrained if it is highly probable there will not be a significant reversal of revenue in the future. Highly probable is not defined in IFRS 15 and so it is a significant judgement to be exercised by management.

Trade and other receivables

An estimate of the risks of non-receipt based on commercial information, current economic trends and the solvency of individual customers is made to determine the need for impairment on a customer-by-customer basis. Management use significant judgement in determining whether a credit loss provision is required.

At 30 June 2021, the Group had trade receivables of £32,452,000 against which a credit loss provision of £246,000 has been applied. At the date of releasing the interim financial statements, £23,957,000 of the 30 June 2021 receivables were overdue due to the contract dispute with the Department of Health and Social Care “DHSC” (see Note 20). Management considers it to be more likely than not that the 30 June 2021 balances are recoverable; this is a significant judgement.

Provisions for product warranty

The value of provision required is determined by management based on available information, experience and, in some cases, expert estimates. Product warranty provisions are only included if it is considered to be probable that an outflow of economic benefit will be required. Determination of probable is a significant judgement especially in light of the resolution of the contract dispute with the DHSC described in Note 20.

Key sources of estimation uncertainty

The Group has a number of key sources of estimation uncertainty as listed below. Of these items, only the measurement of goodwill is considered likely to give material adjustment. Where there are other areas of estimates these have been deemed not material.

Measurement of goodwill

Goodwill is tested for impairment at minimum on an annual basis. The recoverable amount of goodwill is determined mainly on the basis of forecasts of future cash flows. The total amount of anticipated cash flows reflects management’s best estimate of the future benefits and liabilities expected for the relevant CGU. The assumptions used and the resulting estimates sometimes cover very long periods, taking into account the technological, commercial and contractual constraints associated with each CGU. These estimates are mainly subject to assumptions in terms of volumes, selling prices and related production costs, and the exchange rates of the currencies in which sales and purchases are denominated. They are also subject to the discount rate used for each CGU.

The value of the goodwill is tested whenever there are indications of impairment and reviewed at each annual closing date or more frequently should this be justified by internal or external events.

4. REVENUE

The table below shows revenue from ordinary operations:

Amounts in £'000

(Unaudited) Six month 30 June 2021

(Unaudited) Six month 30 June 2020

Manufactured goods

53,610

63,113

Traded goods

Other

271

121

Total revenue

53,950

63,257

£40,759,000 (excluding VAT) of revenue for goods and services delivered to the DHSC during the first half of 2021 have been excluded from the interim accounts in accordance with IFRS 15. This accounting treatment does not change the Group’s legal position or rights in relation to the dispute between the DHSC and the Group’s subsidiary, Primer Design Limited, and the Group believes it has strong grounds to assert its contractual rights

A portion of the Group’s revenue is generated in foreign currencies (particularly in Euros and US Dollars). The Group has not hedged against the associated currency risk.

The breakdown of revenue by operating segment and geographic area is presented in Note 5.

5. OPERATING SEGMENTS

Segment reporting

Pursuant to IFRS 8, an operating segment is a component of an entity:

- that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity);

- whose operating results are regularly reviewed by the Group’s Chief Executive to make decisions regarding the allocation of resources to the segment and to assess its performance; and

- for which discrete financial information is available.

The Group has identified four operating segments, whose performances and resources are monitored separately:

Primerdesign

This segment represents the activities of Primer Design Ltd, which is a designer, manufacturer and marketer of molecular ‘real-time’ qPCR testing devices and reagents in the areas of infectious diseases based in Southampton, UK.

Lab21 Products

This segment represents the activities of Lab21 Products, which is a developer, manufacturer and distributor of a large range of protein-based infectious disease IVD products with both Microgen Bioproducts Ltd and Lab 21 Healthcare Ltd based in Camberley, UK.

IT-IS International

This segment represents the activities of IT-IS International Ltd, a diagnostic instrument development and manufacturing company specialising in the development of PCR devices for the life sciences and food testing industry based in Stokesley, UK.

Corporate

This segment represents Group central/corporate costs. Where appropriate, costs are recharged to individual business units via a management recharge process.

Intercompany eliminations

This column represents intercompany transactions across the Group that have not been allocated to an individual operating segment, but it is not a discreet segment.

The Chief Operating Decision Maker is the Chief Executive Officer.

Reliance on major customers and concentration risk

Primerdesign’s revenue includes approximately £9,264,000 (H1 2020: £nil) from sales to the Group’s largest customer. One other customer contributed 10% or more to the Group’s revenue in the reporting period.

74% of receivables are with one counterparty, with whom there is a contract dispute as disclosed in Note 20. Management considers it to be more likely than not that the 30 June 2021 balances are recoverable.

Breakdown of revenue by operating segment and geographic area

At 30 June 2021

Amounts in £'000

Primerdesign

Lab21 Products

IT-IS International

Total

Geographical area

United Kingdom

20,898

320

217

21,435

Europe (excluding UK)

20,201

600

166

20,967

America

4,949

143

392

5,484

Asia-Pacific

3,650

458

709

4,817

Africa

700

103

853

Middle East

253

125

394

Total revenue

50,651

1,749

1,550

53,950

At 30 June 2020

Amounts in £'000

Primerdesign

Lab21 Products

Total

Geographical area

United Kingdom

34,349

302

34,651

Europe (excluding UK)

16,379

522

16,901

America

3,221

171

3,392

Asia-Pacific

2,416

453

2,869

Africa

1,760

1,816

Middle East

3,567

3,628

Total revenue

61,692

1,565

63,257

Breakdown of result by operating segment

6 month ended 30 June 2021

Amounts in £'000

Primerdesign

Lab21 Products

IT-IS International

Corporate

Intercompany Eliminations

Total

Revenue

50,651

3,124

7,424

-7,249

53,950

Cost of sales

-16,252

-1,132

-3,579

5,057

-15,906

Cost of sales - exceptional

-37,192

-3,984

5,406

-35,770

Sales and marketing costs

-2,814

-379

-80

-97

-3,370

Research and development

-1,662

-6

-213

-1,881

General and administrative

-6,915

-1,189

-852

-875

-9,831

Governmental subsidies

208

ADJUSTED Earnings before interest, tax, depreciation, amortisation and cost of sales – exceptional, as per management reporting

23,216

418

2,700

-972

-2,192

23,170

Earnings before interest, tax, depreciation and amortisation as per management reporting

-13,976

418

-1,284

-972

3,214

-12,600

Depreciation and amortisation

-620

-104

-202

-12

-938

Operating (loss)/profit before exceptional items

-14,596

314

-1,486

-984

3,214

-13,538

6 month ended 30 June 2020

Amounts in £'000

Primerdesign

Lab21 Products

Corporate

Intercompany Eliminations

Total

Revenue

61,692

1,579

-14

63,257

Cost of sales

-9,381

-1,219

-10,584

Sales and marketing costs

-1,106

-584

-1

-27

-1,718

Research and development

-516

-2

-518

General and administrative

-1,811

-1,014

-4,491

-7,291

Governmental subsidies

Earnings before interest, tax, depreciation and amortisation as per management reporting

48,878

-1,240

-4,492

43,146

Depreciation and amortisation

-368

-229

-9

-606

Operating profit/(loss) before exceptional items

48,510

-1,469

-4,501

42,540

6. COST OF SALES

The table below shows the cost of sales:

Amounts in £'000

(Unaudited) Six month 30 June 2021

(Unaudited) Six month 30 June 2020

Cost of inventories recognised as an expense

5,960

4,205

Change in stock provision

2,277

127

Non-stock items and supplies

167

114

Freight costs

369

107

Direct labour

7,133

6,003

Other

Total cost of sales

15,906

10,584

Cost of sales is higher year on year as a result of increasing the stock provision for the underlying business and due to product mix, with increased direct labour and product costs as the portfolio of COVID-19 products have evolved and higher instrument sales.

7. COST OF SALES - EXCEPTIONAL

The table below shows the cost of sales - exceptional:

Amounts in £'000

(Unaudited) Six month 30 June 2021

(Unaudited) Six month 30 June 2020

Cost of inventories recognised as an expense

4,802

Change in stock provision

26,098

Direct labour

4,133

Other

737

Total cost of sales - exceptional

35,770

Due to the dispute mentioned in Note 20, Management have booked a number of charges that it is presenting as one-off, non-recurring cost of sales. Two of the key items making up the £35,770,000 are a £26,098,000 stock provision, as a result of the Group buying stock to fulfil expected future DHSC orders that have not materialised, and the expensing of £6,884,000 of stock delivered to the DHSC which has not been paid for as it is now included in the ongoing contract dispute.

8. GROSS PROFIT

The table below provides a view of the underlying business gross profit performance when adjusting for one-off exceptional items:

Amounts in £'000

(Unaudited) Six month 30 June 2021

(Unaudited) Six month 30 June 2020

Revenue

53,950

63,257

Cost of sales

-15,906

-10,584

Cost of sales - exceptional

-35,770

Gross profit

2,274

52,673

Add back cost of sales - exceptional

35,770

Underlying Business gross profit

38,044

52,673

Underlying Business gross profit percentage

71%

83%

The H1 2021 underlying business gross profit of 71% is slightly below the Group’s historic margin. This is due to booking a higher business as usual stock provision; margin dilution as result of significantly higher instrument sales as the Group builds its installed base and as a result of commencing the donation of approximately one million tests to UNICEF, with over 194,000 tests delivered free of charge at the end of June 2021.

9. FINANCIAL INCOME AND EXPENSE

The table below shows financial income and expense:

Amounts in £'000

(Unaudited) Six month 30 June 2021

(Unaudited) Six month 30 June 2020

Financial foreign exchange gains

211

Discount of financial instruments

Other financial income

Total financial income

233

Interest on IFRS 16 liabilities

-105

-107

Interest on loans

-1,417

Financial foreign exchange losses

-1,596

-100

Other financial expense

-72

-378

Total financial expense

-1,773

-2,002

Financial Expense:

Interest on loans

The decrease in loan interest from June 2020 is due to the settlement of all outstanding debts, predominantly the €5,000,000 Harbert European Growth Capital bond and its associated interest charges, in H1 2020.

Financial foreign exchange losses

Financial foreign exchanges losses in H1 2021 are driven by revaluations of the LTIP and bank and intercompany accounts held in foreign currencies.

10. INCOME TAX

The standard rate of corporation tax applied to reported profit is 26.5%, which is the tax rate applicable to Novacyt S.A. in France for the financial year 2021. It was 28.0% for the year 2020.

Taxation for other jurisdictions (mainly the UK) is calculated at the rates prevailing in the respective jurisdictions.

Amounts in '000 £

(Unaudited) Six month 30 June 2021

(Unaudited) Six month 30 June 2020

Current tax expense

Current year income/(charge)

3,201

-5,179

Deferred tax expense

Deferred tax

-735

Total income tax income/(expense) in the income statement

2,466

-5,179

The credit/(charge) for the period can be reconciled to the (loss)/profit before tax as follows:

Amounts in £'000

(Unaudited) Six month 30 June 2021

(Unaudited) Six month 30 June 2020

(Loss)/profit before tax on continuing operations

-15,141

40,310

Tax at the French corporation tax rate (2021: 26.5%, 2020: 28.0%)

4,013

-11,287

Effect of different tax rates of subsidiaries operating in other jurisdictions

-987

4,098

Effect of non-deductible expenses and non-taxable income

-39

-88

Effect of utilisation of tax losses not previously recognised

213

Change in unrecognised deferred tax assets

-524

-1,407

Research tax expenditure enhancement

Patent box relief

3,219

Other adjustments

-5

Total tax income/(expense) for the period

2,466

-5,179

Matters affecting the tax charge

During 2020, Novacyt applied for a number of patents for technology it developed during the period. Patents can take several years to be granted, if at all, and at the reporting date, all the patents were still going through the process for approval. If one or more of the patents ultimately are granted then the Group hopes to be able to benefit from the UK Patent Box regime, which is a special low corporate tax rate used by several countries to incentivise research and development by taxing revenues from patented products differently from other revenues. Subject to a number of adjustments, the effective rate of tax on profits derived from the sale of products subject to patents is close to 10% rather than the current UK corporation tax rate of 19% (due to rise to 25% in 2023). The Patent Box rate can only be claimed once a patent has been granted, although the benefit can be backdated to the time at which the patent was applied for, and so this is not reflected in the interim accounts. The H1 2020 estimated patent box tax relief of £3,219,000 was reversed in the full year 2020 accounts and a revised figure will be booked once/if patents are granted.

The corporation tax liability of £15,116,000 at 31 December 2020 was paid in January 2021.

11. PROFIT/LOSS PER SHARE

The profit or loss per share is calculated based on the weighted average number of shares outstanding during the period. The diluted profit or loss per share is calculated based on the weighted average number of shares outstanding and the number of shares issuable as a result of the conversion of dilutive financial instruments. At June 2021 there are no outstanding dilutive instruments.

Amounts in £’000

(Unaudited) Six month 30 June 2021

(Unaudited) Six month 30 June 2020

Net (loss)/profit attributable to owners of the Company

-12,675

35,131

Impact of dilutive instruments

Net (loss)/profit attributable to owners of the Company

-12,675

35,131

Weighted average number of shares

70,626,248

65,721,150

Impact of dilutive instruments

Weighted average number of diluted shares

70,626,248

65,721,150

(Loss)/profit per share (£)

-0.18

0.53

Diluted (loss)/profit per share (£)

-0.18

0.53

12. INVENTORIES AND WORK IN PROGRESS

The table below shows inventories and work in progress:

Amounts in £'000

(Unaudited) Six month 30 June 2021

(Audited) Year ended 31 December 2020

Raw materials

21,508

14,406

Work in progress

11,558

8,999

Finished goods

13,503

9,550

Stock provisions

-31,442

-3,067

Total inventories and work in progress

15,127

29,888

Gross inventory has increased significantly since the year end. This inventory build was the Group’s direct response to support the UK Government’s call for UK manufacturers to build manufacturing capacity and supply chain flexibility in response to the COVID-19 pandemic and was based on likely demand indicated by the DHSC. As such, the stock provision has increased to £31,442,000 at 30 June 2021 of which £26,098,000 relates to not securing additional contracts with the DHSC and £5,344,000 relates to the usual ongoing operations of the business. The Group will continue to look for ways to use this inventory.

13. TRADE AND OTHER RECEIVABLES

The table below shows trade and other receivables:

Amounts in £'000

(Unaudited) Six month 30 June 2021

(Audited) Year ended 31 December 2020

Trade and other receivables

32,452

79,341

Estimated credit loss provision

-246

-160

Tax receivables – Value Added Tax

8,262

343

Receivables on sale of businesses

Other receivables

Total trade and other receivables

40,570

79,592

The main driver for the reduction in the trade receivables balance is a £47,927,000 receipt from the DHSC clearing a 2020 invoice. The current trade receivables balance includes a £23,957,000 unpaid DHSC invoice raised in 2020 in respect of products delivered during 2020 that remains unpaid at the date of signing the interim accounts, recovery of the invoice is dependent on the outcome of the contract dispute.

During the first half of 2021, £49,034,000 (including VAT) of product and services were delivered and invoiced to the DHSC and has now been included as part of the ongoing dispute. As these sales have not been recognised in accordance with IFRS 15, the revenue, trade receivable and VAT element of the transactions have been reversed. This accounting treatment does not change the Group’s legal position or rights in relation to the dispute with the DHSC and the Group believes it has strong grounds to assert its contractual rights.

The ‘Tax receivables – Value Added Tax’ balance of £8,262,000 mainly relates to VAT paid in the UK on sales invoices in dispute with the DHSC. As these sales have not been recognised in accordance with IFRS 15, the revenue, trade receivable and VAT element of the transactions have been reversed, resulting in a VAT debtor balance.

Trade receivables balances are due within one year. Once an invoice is more than 90 days overdue, it is deemed more likely to default and as such, these invoices have been provided for in full as part of an expected credit loss model, except where management have reviewed and judged otherwise.

14. TAX RECEIVABLES

There are three key items that make up the corporation tax receivable balance of £17,725,000. A £4,346,000 overpayment of corporation tax in relation to 2020 and an overpayment of £9,976,000 in relation to 2021, as a result of the late impact the DHSC contract dispute had on the financial results after payments had been made. The final element of £3,201,000 relates to H1 2021 losses that can be carried back to be offset against 2020 taxable profits.

15. PROVISIONS

The table below shows the nature of and change in provisions for risks and charges for the period from 1 January 2021 to 30 June 2021:

Amounts in £'000

(Audited) At 1 January 2021

Increase

Reduction

Unwinding discount

Change in exchange rates

(Unaudited) At 30 June 2021

Provisions for restoration of premises

242

-70

181

Provisions long-term

242

-70

181

Provision for litigation

-4

Provisions for product warranty

19,788

Provisions short-term

19,856

-4

19,852

Management have assessed the product warranty claim provision held at 31 December 2020 and deem it to still be appropriate as at 30 June 2021. This predominantly relates to the ongoing contract dispute with the DHSC as detailed in Note 20.

16. TRADE AND OTHER LIABILITIES

Amounts in £'000

(Unaudited) Six month 30 June 2021

(Audited) Year ended 31 December 2020

Trade payables

1,587

5,228

Accrued invoices

4,602

8,016

Social security liabilities

884

1,082

Tax liabilities - Value Added Tax

139

16,831

Other liabilities

5,614

5,627

Total trade and other liabilities

12,826

36,784

Trade payables and accrued invoices have fallen in line with reduced sales in Q2 2021 versus Q4 2020.

The closing 2020 Tax liability - Value Added Tax balance predominantly relates to UK VAT payable to HMRC covering the months of November and December 2020. This was paid in Q1 2021.

The other liabilities balance relates to the second tranche of the LTIP payment that is due to be paid in November 2021.

17. SHARE CAPITAL

Amount of share capital in £‘000

Amount of share capital in €‘000

Unit value per share in €

Number of shares issued

(Audited) At 31 December 2020

4,053

4,708

0.07

70,626,248

(Unaudited) At 30 June 2021

4,053

4,708

0.07

70,626,248

As of 31 December 2020, the Company’s share capital of €4,708,416.54 was divided into 70,626,248 shares with a par value of 1/15th of a Euro each.

As of 30 June 2021, the Company’s share capital of €4,708,416.54 was divided into 70,626,248 shares with a par value of 1/15th of a Euro each.

The Company’s share capital consists of one class of share. All outstanding shares have been subscribed, called and paid.

18. NOTES TO THE CASH FLOW STATEMENT

Amounts in £'000

(Unaudited) Six month 30 June 2021

(Unaudited) Six month 30 June 2020

(Loss)/profit for the period

-12,675

35,131

Adjustments for:

Depreciation, amortisation, impairment loss and provisions

938

784

Management long-term incentive plan

3,648

(Increase)/decrease of fair value

-79

Losses/(gains) on disposal of assets

145

Income tax (credit)/charge

-2,673

5,178

Other non-cash movements

-7

-47

Operating cash flows before movements of working capital

-14,382

44,760

(Increase)/decrease in inventories (*)

14,760

-12,032

(Increase)/decrease in receivables

40,396

-24,768

Increase/(decrease) in payables

-23,596

11,584

Cash from/(used in) operations

17,178

19,544

Income taxes (paid)/received

-29,447

Finance costs

1,957

Net cash (used in)/from operating activities

-12,179

21,504

(*) The variation of the inventories value results from the following movements:

Amounts in £'000

(Unaudited) Six month 30 June 2021

(Unaudited) Six month 30 June 2020

Increase in the gross value of inventory

-13,615

-12,130

Increase in the stock provision

28,375

Total variation of the net value of inventories

14,760

-12,032

The details for the increase in the stock provision are covered in Notes 6, 7 and 12.

19. IMPACT OF BREXIT ON THE GROUP’S ACTIVITY

The UK left the EU on 31 January 2020, and the Brexit transition period ended on 31 December 2020 with a Trade and Cooperation Agreement (“TCA”) in place between the UK and EU. Our overriding priority in preparing for the UK’s exit from the EU has been to maintain continuity of supply of our products to customers.

To date, the impact of Brexit has not had a material impact on the business but as we are in the early stages of the post-Brexit era, management continues to monitor and manage the situation.

20. CONTINGENT LIABILITIES

During the first half of 2021, the Group received notification of a contract dispute between its subsidiary, Primer Design Limited and the DHSC related to revenue totalling £129,124,000 in respect of performance obligations satisfied during the financial year to 31 December 2020. Payment for £23,957,000 of invoices in respect of products delivered during 2020 remains outstanding at the date of releasing the interim accounts and recovery of the invoice is dependent on the outcome of the contract dispute.

Management and the Board of Directors have reviewed the product warranty provision totalling £19,753,000 booked in 2020 in relation to the DHSC contract dispute and have deemed that it remains appropriate at 30 June 2021.

21. SUBSEQUENT EVENTS

Updates on the contract dispute with the DHSC are included in Note 20, Contingent Liabilities.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210926005051/en/

Novacyt SA Graham Mullis, Chief Executive Officer James McCarthy, Chief Financial Officer +44 (0)1276 600081

SP Angel Corporate Finance LLP (Nominated Adviser and Broker) Matthew Johnson / Charlie Bouverat (Corporate Finance) Vadim Alexandre / Rob Rees (Corporate Broking) +44 (0)20 3470 0470

Numis Securities Limited (Joint Broker) Freddie Barnfield / James Black +44 (0)20 7260 1000

Allegra Finance (French Listing Sponsor) Rémi Durgetto / Yannick Petit +33 (1) 42 22 10 10 r.durgetto@allegrafinance.com / y.petit@allegrafinance.com

FTI Consulting (International) Victoria Foster Mitchell / Alex Shaw +44 (0)20 3727 1000 victoria.fostermitchell@fticonsulting.com / Alex.Shaw@fticonsulting.com

FTI Consulting (France) Arnaud de Cheffontaines +33 (0)147 03 69 48 arnaud.decheffontaines@fticonsulting.com

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