Annual Report 2019
1 Strategic Review
Financial and Operational Highlights
At a Glance
Chairman’s Statement
Chief Executive’s Review
Finance Director’s Review
Board of Directors
2 Corporate Governance
Strategic Report
Report of the Directors
Corporate Governance Statement
Report of the Remuneration Committee
Independent Auditors’ Report
3 Financial Statements
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated and Company’s Statements of Financial Position
Consolidated and Company’s Statements of Cash Flows
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Notes to the Financial Statements
4 Additional Information
Notice of Annual General Meeting
Notes
Company Information
2-14
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3
8
10
11
13
15-27
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18
20
22
23
28-64
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3 1
32
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68-71
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1
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2Annual Report 2019 | EKF Diagnostics Holdings plc 2
Financial and Operational Highlights
COVID-19 – Key points
•
•
•
•
•
•
Contract manufacturing opportunity with Longhorn Vaccines and Diagnostics, USA, for specimen
collection tubes for COVID-19 testing – initial orders c. $1m and expected to grow significantly
Robust plan in place to mitigate the effect of the disruption on the business
Substantial net cash balances of £14.3m as at close of business on 20 March 2020 with continuing
strong free cashflow
Demand for diabetes and haemoglobin tests remains, with patients using these tests being in the
higher risk category for COVID-19
German state approval received to keep Barleben manufacturing facility open in event of a lockdown
Current beneficial exchange rates as a US Dollar / Euro denominated business, with a natural
currency hedge across operations in the UK, US and Europe
Financial Highlights
Revenue up 6% to £44.9m (2018: £42.5m)
Gross profit up 4% to £23.7m (2018: £22.7m)
Adjusted EBITDA* up 12% to £12.0m (2018: £10.7m)
Profit before tax £5.5m (2018: £12.2m; £5.8m excluding exceptional gain from Renalytix AI plc spin-out)
Basic Earnings per share of 0.81p (2018: 2.21p), underlying Basic Earnings per share* of 1.20p (2018: 1.01p)
Cash generated from operations of £6.5m (2018: £9.9m)
Cash at 31 December 2019 of £12.1m (2018: £10.3m), net cash of £11.4m (2018: £9.4m)
•
•
•
•
•
•
•
• Maiden dividend preserved and payable to shareholders on 1 December 2020
* Excluding exceptional items and share based payments
Operational Highlights
• McKesson OEM of DiaSpect Tm successfully launched with positive first six months of business
•
• Mount Sinai agreement provides EKF with advanced access to innovative commercial opportunities
Successful completion of early stage development batches of a bulk dietary ingredient for Ixcela, Inc.
2019 Revenue
2019
2018
+/-
Revenue (£m)
£44.9
£42.5
6%
Net cash (£m)
£11.4
£9.4
+21%
Adjusted
EBITDA (£m)
£12.0
£10.7
12%
2018
2019
£44.9
2017
£42.5
£38.6
£41.6
£37.1
2016
2014
2013
£31.8
2015*
£30.0
6%Increase in revenues
year on year
2012
£26.1
HEMOGLOBIN
REVENUES
DIABETES
REVENUES
FY 2019
£13,808 (£k)
+1%
FY 2018
£13,728 (£k)
FY 2019
£20,607 (£k)
+9%
FY 2018
£18,899 (£k)
*Restated
Annual revenues
£m
CENTRAL
LABORATORY
REVENUES
FY 2019
£6,135 (£k)
+15%
FY 2018
£5,353 (£k)
Annual Report 2019 | EKF Diagnostics Holdings plc1 3
At a Glance
Background
EKF Diagnostics is a global medical diagnostics business with a long history in point-of-care testing and manufacturing
reagents for use in central laboratories.
Our point-of-care (POC) products, most of which are designed and manufactured in Germany, have a hard earned
reputation for ease of use, reliability and accuracy from professionals working in diabetes, blood banking and sports
medicine.
The POC business is built around a large installed base of analysers each of which generates a regular demand for tests,
often for the entire life cycle of the analyser. In 2019 we sold around 74 million tests. This approach – sometimes known as
the ‘razor/razorblade’ model – permits a percentage of repeated income each year.
The EKF Central Laboratory range includes clinical reagents and centrifuges which are manufactured at premises near San
Antonio, Texas. Clinical chemistry reagents are sold for use on open channel systems or on EKF’s own brand of analysers.
EKF Life Sciences, based in Elkhart, Indiana, manufactures diagnostic enzymes and contracted custom products for use in
medical diagnostics, pharmaceuticals and industry. In 2019 EKF Life Sciences opened a second manufacturing facility in
South Bend, Indiana to supply enzymes and offering additional capacity for contract fermentation customers.
2019 Sales
2019
14,167
2018
14,087
ANALYSERS SOLD
TESTS SOLD
+1%
2019
74,139,615
2018
76,241,694
+9%
-3%
Geographical Performance
Elkhart, IN
San Antonio, TX
Americas (£k)
FY 2019 £23,902
Leipzig, DE
Magdeburg, DE
Moscow, RU
APAC (£k)
FY 2019 £4,509
Shanghai, CN
EMEA (£k)
FY 2019 £16,506
Revenue
FY 2019
FY 2018
+/- (£k)
APAC
EMEA
4,509
4.867
(358)
16,506
15,498
1,008
AMERICAS
23,902
22,178
1,724
Annual Report 2019 | EKF Diagnostics Holdings plc1 4
Hematology
Product Portfolio
The hemoglobin analysers product range within EKF Diagnostics is the largest in terms of revenues and the size of the
installed base.
A number of OEM arrangements with distribution partners has provided EKF with access to significant geographic
markets and industry sectors that complement a strong and loyal customer base.
Hemo ControlTM
DiaSpect Tm
DiaSpect Hemoglobin T Low
•
•
•
Uses ‘gold standard’
methodology (reagent filled
microcuvettes)
Data management capability;
provides a hematocrit
calculation
Proven, robust analyser sold
worldwide
•
•
•
Handheld analyser utilising
reagent-free cuvette technology
One second time to result
and an extended shelf-life of
microcuvettes
Connectivity to a mobile phone
application available
•
•
•
•
Tests serum, plasma, aqueous
solutions or stored erythrocytes
Estimates the degree of
hemolysis
Results in less than two seconds
Reagent-free microcuvettes
UltraCritTM
HemataStat IITM
•
•
Hematocrit analyser which uses
unique ultrasound technology
Strong presence in US blood
banking sector
•
•
Laboratory hematocrit
centrifuge and analyser
Processes multiple samples
Strategy
The EKF Diagnostics portfolio of hemoglobin and hematocrit analysers is unique within the Point of Care diagnostics sector.
Sales are primarily focused around two markets – public health initiatives such as anaemia screening programmes, and
private practices where the cost of testing is paid for by an insurance company or the patient.
To approach these markets EKF has two distinct strategies: firstly, OEM partnerships with international distributor/
manufacturers such as Fresenius Kabi; and secondly agreements with smaller distributors who are focused on the public
health opportunities within their own countries.
Sports medicine and veterinary medicine provide two additional niche sources of customer for EKF distributors.
EKF believes that this portfolio can provide it with a competitive advantage to grow its market share.
In 2019 EKF sold more than 28 million tests for the DiaSpect Tm range, and 20 million tests for Hemo Control and HemoPoint® H2.
Annual Report 2019 | EKF Diagnostics Holdings plc1
5
Diabetes
Product Portfolio
EKF’s Diabetes Care range aims to provide affordable, easy-to-use technology that reduces the costs of long-term
healthcare of the diabetic and pre-diabetic population.
Diabetes has been at the core of EKF’s strategy for over a decade starting with the early models of the
Biosen glucose analysers. Later, Quo-Test and Quo-Lab were launched to address the diabetes screening market.
Although they do not strictly belong within a point-of-care framework, clinical chemistry reagents such as Glycated
Albumin, Glycated Serum Protein and Beta- Hydroxybutyrate add further provenance to EKF’s claim to be a significant
contributor to diabetes care worldwide.
BiosenTM
Quo-Lab® A1c
Quo-Test® A1c
•
•
•
•
Glucose and/or lactate
measurement
Two models, each aimed at
different settings
Strong presence in Eastern
Europe and China in diabetes
clinics and research
Used by professional and
amateur sports clubs to test
lactate thresholds
•
•
•
HbA1c testing (Glycated
Hemoglobin)
Results in four minutes using a
unique methodology
Semi-automated analyser aimed
at cost-sensitive markets
•
•
•
HbA1c testing (Glycated
Hemoglobin)
Same methodology as Quo-Lab
but fully automated
Simple operation requires
minimal training
β-Hydroxybutyrate LiquiColor & STAT-Site WB
Liquid reagent for the early detection of ketosis and new
•
ketone analyser launched Q1 2020
•
•
Primarily sold in USA through national distribution networks
Small but growing markets in China, Singapore and Australia
Strategy
Although glucose testing is the most commonly used method of determining glycaemic control within diabetics,
HbA1c is the accepted long term barometer of patient wellbeing and their compliance with the treatment regimes.
The growth in popularity of HbA1c measurement has seen an increasing number of entrants to the point-of-care
HbA1c market focused on GP surgeries and diabetes clinics.
Since transferring manufacturing from the UK to Germany EKF has engaged in programmes to automate the
production of cartridges to increase capacity and improve quality. In addition, these changes have allowed EKF
Diagnostics to make significant operational savings through the centralisation of manufacturing, warehousing and
logistics, and customer service.
Sales of Beta-Hydroxybutyrate Liquicolor reagent continue to be healthy with a strong performance from US
distributors who have developed a market capitalising on the withdrawal of a previous method of testing for ketosis.
More than 1,300 US hospitals now use EKF’s Beta-Hydroxybutyrate reagent. To capitalise on this strong position EKF
launched a whole blood ketone analyser in Q1 2020 for use in Emergency Rooms and small hospital labs. The analyser
was launched with US FDA clearance.
Annual Report 2019 | EKF Diagnostics Holdings plc1
6
Women’s Health & Sports Performance
Product Portfolio
The Women’s Health product range focuses on specialist diagnostics used to address conditions and complications
associated with pregnancy and child birth.
Products include the Creamatocrit centrifuge but also the use of our hemoglobin meters that are used in Women and
Infant Clinics, pregnancy test kits and HbA1c analysers used to diagnose gestational diabetes in pregnant women.
The EKF Sports Performance range is primarily comprised of Lactate Scout 4, a handheld blood analyser used ‘in the
field’ by sports scientists. There is also a growing market for Biosen analysers used in sports research in both academia
and professional sports organisations and clubs around the world.
Creamatocrit PlusTM
Pregnancy Testing
Lactate Scout 4
Small lab centrifuge used in
•
Women and Infant Clinics
• Measures the lipid
Cassette rapid tests
•
• Marketed for use in hospital
settings
•
•
•
Handheld lactate analyser
Results in 10 seconds
Developed for use in sports
medicine
New model launched in
•
February 2019
•
concentration and caloric
density of breast milk
Allows professionals to guide
mothers with underweight
infants
Strategy
Lactate Scout has been sold into sports medicine for over a decade. It has been a popular tool with athletes in endurance
activities such as cross-country skiing, cycling and rowing. This market also contributes significantly to Biosen revenues
in which the lactate testing function is used in the preparation of elite squads of athletes such as Premier League and
Bundesliga football teams and Olympians.
Lactate Scout 4 was introduced in February 2019 with new functionality and a specific focus on sports medicine. Today,
EKF is developing new applications for Lactate Scout 4 in other markets including veterinary medicine.
Annual Report 2019 | EKF Diagnostics Holdings plc1
7
Central Laboratory
Product Portfolio
EKF, through its wholly owned subsidiary Stanbio Laboratory, has had a presence within central laboratory dating back
over 50 years. During this time it has built a global customer base for its clinical chemistry reagents that can be used on
most open-channel analyser platforms.
The Central Laboratory business also includes the manufacture of enzymes, produced at EKF Life Sciences in
Elkhart, Indiana.
From this facility EKF Life Sciences sells enzymes used in Stanbio’s clinical chemistry portfolio - as well as providing
contract manufacturing services for enzymes and proteins used in industrial applications. These are then sold in bulk or
used in the production of in-vitro diagnostic devices (IVDs) and a range of health and veterinary products.
EKF Life Sciences received a significant investment in plant in 2018 to allow it to grow the services and products it
provides and agreed a lease to expand manufacturing capacity in 2019. This facility will allow EKF Life Sciences to fulfil
larger bulk orders than was previously possible as well as provide additional bottling and warehouse space.
AltairTM240
Procalcitonin
Lucica Glycated Albumin-L
•
•
•
Automated bench-top analyser
Runs up to 400 tests per hour
and can handle up
to 43 different reagents
Calibrated to run the Stanbio
Chemistry range of reagents
Strategy
•
•
Liquid reagent for the detection
of sepsis
Targeted at certain European
markets
•
•
Confirms changes in blood
glucose 1-2 weeks treatment
EKF is the exclusive distributor
in the USA
The central laboratory market continues to experience relatively low levels of growth. This is in part because sales of
chemistry reagents are often linked to the provision of the analysers on which the tests are performed. EKF Diagnostics’
approach to the clinical chemistry market changed in late 2015 with the launch of the Altair 240, a benchtop analyser
calibrated to run the Stanbio Chemistry range of reagents.
In 2019 EKF launched its new, exclusive Glycated Albumin test which has been developed in partnership with Japan’s
Asahi Kasei Pharma Corporation.
Annual Report 2019 | EKF Diagnostics Holdings plc1
8
Chairman’s Statement
It gives me great pleasure to be able to
report that EKF continues to perform
strongly, with excellent growth in revenues
and earnings. The core business has grown
revenue at a steady rate and adjusted
earnings before interest, depreciation and
amortisation (AEBITDA) at a much faster
rate.
Strategy
The core strategy of the business remains
unchanged. It is threefold:
1) to continue to build our installed
base of point-of-care analysers
which then generate an ongoing
stream of revenue through the sale of
proprietary consumables;
2) to supply a range of clinical
chemistry reagents for use on our own
and third party analysers; and
3) to grow our contract and
partnership enzyme manufacturing
business.
To this core, we have added our Preferred
Partnership Agreement (“PPA”) with Mount
Sinai Innovation Partners (“MSIP”) which
allows us advanced access to innovative
commercial opportunities arising from
certain technologies managed by MSIP.
MSIP Preferred Partnership Agreement
MSIP is responsible for driving the real-
world application and commercialisation
of discoveries and inventions made within
the Mount Sinai Health System (“MSHS”),
New York’s largest integrated healthcare
delivery system.
diagnostics
EKF has established a longstanding and
close working relationship with MSIP,
through the highly successful spin-off of
Renalytix AI plc, the developer of artificial
for
intelligence-enabled
kidney disease, made in close collaboration
with the Icahn School of Medicine at Mount
Sinai (“Mount Sinai”), the medical school
of MSHS. This collaboration has already
to EKF
delivered considerable value
shareholders. This new agreement with
MSIP provides a framework to explore
other commercial opportunities together
and to select and support pioneering
medical approaches that could make a
major difference to people’s lives around
the world, as well as much-needed
improvements in healthcare economics
The PPA, which is non-exclusive, provides
EKF with access to opportunities which
benefit from a clinician and demand-
developing
focused
commercially
healthcare
products and services, and access to deep
domain expertise in clinical disciplines
and academia, commercial healthcare
to
relevant
approach
enterprises and other key stakeholders in
the US healthcare market.
In connection with the PPA, the Company
has signed a non-binding term sheet with
MSIP, which will allow the Company to
explore the opportunity to support the
licensing of technology originating from
Mount Sinai to establish a novel digital
health platform for earlier intervention
in and better management of the care
pathway for patients with Inflammatory
Bowel Disease (“IBD”). Better evaluation
and personalised management of IBD
patients, including the implementation of
appropriate care delivery pathways in a
more timely manner than current practice
allows, is expected to deliver better
healthcare outcomes (including quality
of life) and on a more cost-effective basis
than current approaches.
Work on bringing this opportunity to
fruition is ongoing, and we will update
shareholders with progress in the future.
We anticipate that other opportunities
will flow from the PPA in due course.
Renalytix AI plc
In November 2018 RenalytixAI, a spin-
out from EKF, was separately floated
on AIM, with 20,964,295 RenalytixAI
shares having been distributed by EKF
to shareholders just prior to the float.
At 31 December 2019 the RenalytixAI
share price was £3.64 per share or an
equivalent market value of the dividend
to EKF shareholders at that date of
£76.3m, which represents approximately
16.8p of incremental value received per
EKF share.
In April 2019 we purchased a further
100,074 RenalytixAI shares at a price
of just under £1.236 pence per share, to
add to the holding acquired in the initial
public offering, bringing our total holding
to 2,677,981 shares. At 31 December
2019 these were held at a fair value of
£9.75m. The unrealised gain of £6.50m
on these shares has been taken to Other
Comprehensive
income. While global
events since year end have reduced the
RenalytixAI share price, the company
continues to make significant progress
against its objectives, which have been
and continue to be delivered at a far
greater pace than that thought possible
at the time of its IPO in November 2018.
The Board considers there to be very
substantial further value accretion to
come from EKF’s continuing investment
in RenalytixAI.
Share capital
During the year to 31 December 2019
we have not utilised the permission we
hold from shareholders to acquire shares
Annual Report 2019 | EKF Diagnostics Holdings plc1
9
Board and Corporate Governance
All Board members have served throughout the year. The
Board continues to believe that the current make-up of the
Board is appropriate.
We have adopted the corporate governance code
issued by the Quoted Company Alliance. Further details
of compliance are found in the Corporate Governance
Statement and on the Company’s website.
Outlook
With good cash resources and a business which is growing
strongly, EKF has moved into a phase where we are
confident that we can provide an income for shareholders
and the prospect of significant upside from our relationships
with MSIP and others. Trading in 2020 to date has been
satisfactory and in line with management expectations.
I would also like to remind everyone that despite these
difficult times EKF is in a very strong position. We have a
substantial net cash balance, continuing solid positive cash
flow, and the business remains robust. We see significant
opportunities globally, particularly within the USA. Being
a medical device company focussing on tests monitoring
diabetes and haemoglobin, both conditions putting
patients in higher risk categories for contracting COVID-19,
Christopher Mills
Non-executive Chairman
7 April 2020
for cancellation. It remains our intention to do so when
appropriate.
We have continued the process of simplifying our share
capital through the cancellation of 250,000 share options
at the election of the holder, in return for a small payment.
Dividend
We are pleased to confirm that, given the progress in
EKF’s business and its strong cash generation, it remains
our intention to make an inaugural dividend payment
to shareholders of 1p per ordinary share, as previously
indicated. If approved by shareholders at the Company’s
next annual general meeting, payment will be on 1 December
2020 to shareholders on the register on 6 November 2020.
Cash-settled share-based incentive
The Company operates a cash-settled, share based incentive
for the Executive Directors, which is designed to pay out in
the event that the Company is acquired by a third party (an
“Exit”). Since the date of implementation of the Incentive in
June 2016, the EKF share price had nearly trebled by late
2019 and the Company has moved from being loss making
into EBITDA profitability and from being cash consumptive
to strongly cash generative. In addition, EKF shareholders
have benefited from the additional material value deriving
from the establishment and spin-out of RenalytixAI.
Reflecting this delivery of value to shareholders by the
Executive Directors, EKF’s Remuneration Committee
determined that, in the absence of any other performance-
related pay mechanism, it was appropriate to distribute,
as performance-related pay, a portion of the amount
that would otherwise be payable under the Incentive on
an Exit. The determination followed consultation with a
majority of shareholders representing over 60% of the total
voting rights in the Company, who were in support of the
proposed action.
The Executive Directors each received an equal payment of
approximately £1.345 million in November 2019, comprising
a baseline payment for value creation up to a 20 pence
share price, plus a variable amount calculated as to 5% of
the excess value over 20 pence per share, calculated using
a reference share price of 27 pence.
Any future amounts payable to the Executive Directors
under the Incentive in the event of an Exit shall be reduced
by all previously paid amounts, including the payment
of £200,000 to each of the Executive Directors in 2017.
Accordingly, the aggregate amount payable to them under
the Incentive is unchanged by the payments described
above and the total value available to Shareholders on
an Exit will be unaffected. The Remuneration Committee
considers that the remaining unpaid amounts under the
incentive continue to provide strong motivation to the
Executive Directors, who will receive a further potential
variable reward in the event of an Exit, equal to 5% of the
excess value obtained over 27 pence per share.
Results overview
The Chief Executive’s and Finance Director’s statements
contain a review of the year and an overview of the
financial performance of the Group.
COVID-19
A statement on the potential effects of the COVID-19
pandemic is laid out in the Strategic Report on page 16.
Annual Report 2019 | EKF Diagnostics Holdings plc1
10
Chief Executive’s Review
2019 has seen the Company continue its
momentum by delivering on its strategic
goals and, as mentioned above, the
Board is confident that this progress will
continue in 2020 and beyond. Further
upside is expected from the OEM contract
the
with McKesson-Surgical
distribution of DiaSpect Tm in the US,
the enzyme manufacturing business with
Oragenics, Inc. and increased manufacture
of the Longhorn PrimeStore MTM sample
collection device.
Inc.
for
We are excited by the possibilities being
opened to us through our non-exclusive
Preferred Partnership Agreement with
Mount Sinai Innovation Partners, details
of which are described in the Chairman’s
Statement.
stage development batches of a bulk
dietary ingredient for Ixcela, Inc.
Since the period end, we have released
a new addition to our Diabetes Care
portfolio in the US. The STAT-Site WB is a
handheld dual-use whole blood β-ketone
and glucose meter for professional use
in the management of diabetes. The new
analyzer is FDA CLIA-waived and can
be used in point-of-care and Certificate
of Waiver settings, such as physicians’
offices, clinics and other non-traditional
laboratory locations.
We have also launched our new Glycated
Albumin liquid reagent product in the USA.
In addition, we have successfully supplied
the Jordanian Army with 26 Altair Clinical
Chemistry analysers.
Operations
Point-of-Care
Other
Hematology
Hematology sales have risen very slightly
over 2018. Hemo Control sales fell due
to the completion of Pakistan, Saudi and
Tanzanian anaemia screening tenders in
2018.
This category includes sales of a number
of products including our Lactate Scout
sports medicine product and other
diagnostic tests, the most important of
which is for pregnancy. Sales have reduced
because of higher shipping charges.
This was offset however by growth through
EKF’s private label distribution agreement
with McKesson for DiaSpect Tm. It is sold
in the US by McKesson under its own
branded line, as the McKesson Consult® Hb
analyser. The agreement follows US Food
and Drug Administration 510(k) clearance
and CLIA waiver for the DiaSpect Tm in
April 2018. The full launch of the McKesson
Consult® Hb analyser took place in April
2019. Initial sales have been encouraging.
We have also seen significant hematology
sales in Peru and Egypt.
Diabetes
From 2019 we are reporting sales of β-HB
products under diabetes rather than
Central Laboratory as we consider β-HB to
be part of our diabetes portfolio.
Sales of our Diabetes products increased
by 9%. Sales of β-HB products improved
by 18%, with the majority of sales coming
from the USA. Diabetes sales have also
been driven by increased sales of Quo-
Test where we are gaining traction in
the UK and seeing continued growth in
APAC. Quo-Lab sales were impacted by
a technical issue with reagents which has
now been solved.
We are continuing development of the
new Biosen R-Line range, a research use
only version of our successful analyser
in non-medical applications.
for use
Central Laboratory
for
the enzyme
Sales to Oragenics, Inc. (for the outsourced
manufacture of
its
Lantibiotic product) have been the main
contributor of growth in the year, with
Life Sciences revenues up 20% as a result.
With our enzyme facility in Elkhart, USA,
now operating at full capacity we have
commenced the work necessary to bring
our new South Bend facility into operation.
We have also successfully completed early
Regulatory update
team
resources
to address
Regulatory pressures
in diagnostics
continue to grow and we are therefore
to our
adding additional
regulatory
In
this.
particular, the new requirements of the
In Vitro Diagnostic Regulation (IVDR)
in Europe place a significant additional
burden on all IVD manufacturers and must
be in place by May 2022.
Summary
We have not yet seen any material
disruption to our business as a result of
the COVID-19 pandemic. At this stage,
it is difficult to assess reliably whether
there will be any material disruption in the
future, however we continue to monitor
the situation closely. As mentioned
in the Chairman’s statement, we have
comprehensive plans in place and we are
fortunate that EKF has significant cash
resources available.
In addition, there
will be an increased reliance on diabetes
throughout
and haemoglobin
this year, as well as the PrimeStore
MTM manufacturing opportunity which
together have the potential to ameliorate
or even counteract the possible effects of
COVID-19 on other parts of our business.
testing
Absent such matters which are outside
our control, we have a growing business
built on a good quality product portfolio
which meets a broad range of medical
needs in a significant number of countries
worldwide. We remain very confident in
the Group’s future and its prospects for
continued growth this year and beyond.
Julian Baines
Chief Executive Officer
7 April 2020
Annual Report 2019 | EKF Diagnostics Holdings plc1 Finance Director’s Review
11
Revenue
Revenue for 2019 was £44.9m (2018:
£42.5m), which is an increase of 6%. At
constant exchange rates, revenue for the
year would have been 1% lower, so organic
growth is over 5%.
Revenue by disease state, which
is
presented for illustrative purposes only, is
as follows:
FY 2019
£’000
FY 2018
£’000
+/- %
Hematology
13,808
13,728
+1%
Diabetes Care
20,607
18,899
+9%
Central Laboratory
6,135
5,353
+15%
Other
Total
4,367
4,563
(4%)
44,917
42,543
+6%
In this presentation, sales of β-HB of £9.4m
(2018: £7.4m) have been reclassified from
Central Laboratory to Diabetes
Gross profit
represents
Gross profit is £23.7m (2018: £22.7m),
which
a gross margin
percentage of 52.8% (2018: 53.3%). The
reduced gross margin was largely due to
higher than usual releases of inventory
provisions during 2018.
Administration costs and research
and development
Administration costs have increased to
£18.3m (2018: £10.6m). The biggest factor
was the effect of exceptional items, which
were strongly positive in 2018. The most
significant exceptional item in 2018 was
the substantial gain made on the Group’s
investment in Renalytix AI plc as a result
of its successful separate flotation. The
revaluation of Renalytix shares to their fair
value in 2019 is recognised through other
income. An additional
comprehensive
factor was the revaluation of the share-
based payment liability in 2019 as a result
of the higher share price of EKF. Excluding
the effect of exceptional items and share
based payments, administration costs
increased from £16.1m in 2018, to £16.5m
in 2019.
and
development
Research
costs
included in administration expenses were
£2.3m (2018: £1.6m). A further £0.5m
was capitalised as an intangible asset,
resulting from our development work
to broaden and improve our product
portfolio, bringing gross R&D expenditure
for the year to £2.8m, an increase from
the expenditure in 2018 which was £2.2m.
The charge for depreciation of fixed
intangible
assets and amortisation of
assets increased to £4.4m (2018: £4.0m).
Operating profit and adjusted
earnings before interest, tax,
depreciation and amortisation
The Group generated an operating profit
of £5.8m (2018: £12.2m). This again
reflects the significant exceptional gain
on Renalytix and other items in 2018.
We continue to consider that adjusted
earnings before interest, tax, depreciation
and amortisation, share-based payments
and exceptional items (adjusted EBITDA)
is a better measure of the Group’s progress
as the Board believes it gives a clearer
comparison of the operating performance
between periods. In 2019 we achieved
adjusted EBITDA of £12.0m (2018: £10.7m),
an increase of 12.5%. The calculation of this
non-GAAP measure is shown on the face of
the income statement. It excludes the effect
of non-cash share-based payment charges
of £2.1m (2018: £0.9m), and exceptional
profits of £0.3m (2018: £6.5m). IFRS 16
“Leases”, which has been
introduced
in the Group this year has the effect of
moving £0.3m into adjusted EBITDA while
having no effect on unadjusted earnings.
The
in adjusted EBITDA of
£1.3m would be higher by £0.1m without
the effect of exchange rates, with £1.1m
therefore being attributable to improved
underlying performance, excluding the
effect of the introduction of IFRS 16. This
new accounting standard has no effect on
the reporting of cashflow.
increase
Finance costs
Net finance costs have increased to £0.27m
(2018: £0.03m). While interest costs on
borrowings have continued to reduce, the
main charge results from an increase in the
fair value of deferred consideration.
Tax
There is an income tax charge of £1.6m, a
small decrease from the prior year charge
(2018: £1.9m). The charge is lower than
would have been expected largely because
of tax savings in the USA offset by losses in
the UK for which a deferred tax asset has
not been recognised as the likely timing of
recovery is considered too remote.
Balance sheet
Property plant and equipment
Additions to fixed assets were £1.5m (2018:
£1.2m). The major programme has been
the continuing work on the upgrading
and refurbishment of the Group’s facility
in Elkhart, USA, where many of the
Group’s central laboratory products are
manufactured,
those being
including
supplied to Oragenics.
The carrying value of intangible assets has
continued to fall, from £43.6m in 2017 to
£41.8m as at 31 December 2018.
Annual Report 2019 | EKF Diagnostics Holdings plc1 12
Finance Director’s Review (continuation)
Right-of-use assets
Deferred consideration
As a result of the implementation of IFRS
16 “Leases” we recognised £0.7m of right-
of-use assets.
Intangible assets
The carrying value of intangible assets
has continued to fall, from £41.8m in
2018 to £37.8m as at 31 December 2019.
This is largely the result of the annual
amortisation charge.
Investments
Although EKF’s pre spin-out shareholding
in Renalytix AI plc was distributed to
EKF shareholders in October 2018, EKF
participated in the Renalytix AI initial public
offering fund raising acquiring 2,577,907
ordinary shares at a cost of £1.21 each.
Subsequently in April 2019, EKF acquired
a further 100,074 ordinary shares in the
market at a cost of approximately £1.236
per share. The resulting shareholding in
Renalytix of 2,677,981 shares represents
4.51% of their share capital. As Renalytix
is an AIM quoted business, our shares
are held at “fair value” being the quoted
middle market price, with any gain or loss
being taken through Other Comprehensive
Income in accordance with IFRS 13. In the
event of an outright sale of this investment,
a discount will apply.
The remaining deferred consideration
of £1.4m (2018: £1.1m) relates to a share-
based payment to the former owner
of EKF-Diagnostic GmbH, payment of
which is subject to an offsetting warranty
related claim, the value of which is held
in receivables. Conclusion of the position
has taken longer than anticipated but is
expected during 2020.
Cash and working capital
Despite the performance related bonuses
paid to the directors of the company
of approximately £2.7m, net cash has
increased from £9.4m to £11.4m. Gross
cash has
increased to £12.1m (2018:
£10.3m). Borrowings, which were mainly
used to fund a new building at our plant in
Barleben, Germany, are reducing over the
loan period to 2023.
Inventory has remained largely static at
£6.1m in spite of higher revenue.
Richard Evans
Finance Director and Chief Operating
Officer
7 April 2020
Annual Report 2019 | EKF Diagnostics Holdings plc1 Board of Directors
Executive Directors
13
Julian Baines MBE
Chief Executive Officer (aged 55)
Julian was Group CEO of BBI where he undertook a management buyout in 2000, a
flotation on AIM in 2004 and was responsible for selling the business to Alere Inc. (now
part of Abbott Laboratories) in 2008 for circa £85 million. In December 2009 Julian
became CEO of the Group and has subsequently successfully completed a number of
fund raisings and the acquisition and subsequent integration of eight businesses in seven
countries. In 2016 he was awarded an MBE for services to the life sciences industry. Julian
is also Chairman of Renalytix AI plc.
Richard Evans
Chief Operating Officer and Finance Director (aged 62)
Richard qualified as a Chartered Management Accountant in 1983 and holds a Bachelor
of Commerce in Business Studies and Law from Edinburgh University and an MBA from
INSEAD. Before joining EKF, Richard was Finance Director, General Manager and finally
Global Account Director at Hitachi Data Systems GmbH. He has also held positions at
Fisher Scientific, TRW Seat Belt Systems, Maxtor Corporation, United Technologies
Carrier and Abbott Diagnostics GmbH in Germany. Richard is also a non-executive
director of Renalytix AI plc.
Annual Report 2019 | EKF Diagnostics Holdings plc1 14
Board of Directors
Non-Executive Directors
Christopher Mills
Non-Executive Chairman (aged 67)
Christopher founded Harwood Capital Management in 2011, a successor to its former
parent company J.O. Hambro Capital Management, which he co-founded in 1993. He is
Chief Executive and Investment Manager of North Atlantic Smaller Companies Investment
Trust plc and Chief Investment Officer of Harwood Capital LLP. He is a Non-Executive
Director of a number of companies including Renalytix AI plc. Christopher was a Director
of Invesco MIM, where he was Head of North American Investments and Venture Capital,
and of Samuel Montagu International. Christopher is a member of the Audit Committee
and the Remuneration Committee.
Adam Reynolds
Non-Executive Director (aged 57)
Adam is a former stockbroker specialising in corporate finance. He has built, rescued and
re-financed a number of public companies. He is currently Chairman of Autoclenz Group
Limited and Yourgene Health plc, and a director of several listed and private companies.
Adam chairs the Audit Committee and Remuneration Committee.
Carl Contadini
Non-Executive Director (aged 71)
Carl has been a director of numerous companies throughout his career, predominately
focusing on the healthcare and electronics sectors. He is currently an Operational
Adviser to Harwood Capital LLP, where he assists in sourcing, evaluating and monitoring
investments. Carl also holds the position of Executive Chairman at Utitec Holdings Inc.
and is a board member of Prospect Medical Waterbury Hospital. Carl has, in the past, also
been a director of Bionostics Limited and Celsis Group Limited. He holds an Associate of
Science degree in Business Administration and Marketing from Tunix Community College,
Connecticut and a Batchelor of General Studies degree specialising in Human Resources
from University of Connecticut.
Annual Report 2019 | EKF Diagnostics Holdings plc1 Strategic Report
for the year ended 31 December 2019
15
The Directors present their Strategic Report for the
year to 31 December 2019.
Review of the business
A review of the business is contained in the Chairman’s
Statement on pages 8 and 9, and in the Chief Executive’s
Review on page 10 and the Finance Director’s Review on
pages 11 and 12.
We recognise that effective risk management is essential
to the successful delivery of the Group’s strategy. As we
continue to grow our business we believe it is important
to develop and enhance our risk management processes
and control environment on an ongoing basis and ensure
it remains fit for purpose. We continue to mature our
approach to identifying and managing risks across the
Group in a consistent and robust manner.
Below we describe our risk management approach, the
principal risks and uncertainties faced by the Group and
the controls in place to manage them.
Overview of risk management approach
Each business area is responsible for identifying, assessing
and managing the risks in their respective area. Risks are
identified and assessed by all business areas on a periodic
basis, and are measured against a defined set of criteria,
considering likelihood of occurrence, and potential impact.
The Executive Board members also conduct a strategic
risk identification and assessment exercise to identify
risks, including those that could impact the business
model, future performance, solvency or liquidity. This risk
information is combined with a consolidated view of the
business area risks. The most significant risks identified are
included in our Group Risk Profile, which is reported to the
Executive Board for review and challenge, ahead of it being
submitted to the Group Board for final review, challenge
and approval. The Board has the overall accountability for
ensuring that risk is effectively managed across the Group
and therefore ensuring that it is comfortable with the
nature and extent of the principal risks faced in achieving
its strategic objectives.
Principal risks and uncertainties
Set out below are the principal risks which we believe
could materially affect the Group’s ability to achieve its
financial and operating objectives and control or mitigating
activities adopted to manage them. The risks are not listed
in order of significance.
Political risk
A significant proportion of the Group’s revenues are
accounted for by agreements in developing countries.
Any instability in these countries could significantly affect
the operations and the revenue of the Group. In particular
the Group has significant revenue from customers in
Russia which are ultimately largely funded by the Russian
government.
The Group spreads the risk through seeking a portfolio of
diversified revenue streams geographically with a mixture
of distribution partners in developing and developed
countries.
the European Union
(EU) membership
Following
referendum in 2016, the UK Government has commenced
the process of withdrawal from the EU. Although at present
the Group does not anticipate significant issues, the Group
has employees, facilities, customers, and suppliers in both
the United Kingdom and the EU, and therefore withdrawal
may affect the Group’s operational abilities and costs. The
Group seeks to manage this risk by monitoring events and
taking mitigating actions if necessary.
Supply chain continuity
The Group relies on third party manufacturers for the
supply of the majority of raw materials. Problems with
obsolescence and manufacturer facilities may lead to delay
and disruptions in the supply chain which could have a
significant negative impact on the Group.
The Group maintains a close dialogue with key suppliers
and closely monitors its inventory status and customer
demand to ensure that any problems with the supply
chain can be managed, and back up sources of supply are
maintained where possible.
Regulatory risk
There can be no guarantee that any of the Group’s
products will be able to obtain or maintain the necessary
regulatory approvals in any or all of the territories in
respect of which applications for such approvals are made.
Where regulatory approvals are obtained, there can be no
guarantee that the conditions attached to such approvals
will not be considered too onerous by the Group or its
distribution partners in order to be able to market its
products effectively.
The Group seeks to reduce this risk by manufacturing
the products to recognised standards, by keeping
appraised with changes in the standards geographically,
by seeking advice from regulatory advisers, consultations
with regulatory approval bodies and by working with
experienced distribution partners.
Key employees
Competition risk
Lack of retention of key employees affects the continuity
and effectiveness of on-going relationships with key
customers and suppliers.
This risk is minimised by ensuring that a minimum of two
individuals manage every relationship with key customers
and suppliers. In addition, in retaining the key employees,
incentivisation packages are offered through a mixture of
sales commission, and profit related bonuses. Main Board
Directors are incentivised as detailed in the Directors’
Remuneration Report.
Due to the Group’s current and future potential competitors,
such as major multinational pharmaceutical and healthcare
companies, having substantially greater resources than
those of the Group, the competitors may develop systems
and products that are more effective or economic than
any of those developed by the Group, rendering the
Group’s products obsolete or otherwise non-competitive.
The Group seeks to mitigate this risk by securing patent
registration protection for its products where appropriate,
maintaining
regarding
the Group’s know-how and technology, monitoring
technological developments and by selecting leading
businesses in their respective fields as distribution partners
capable of addressing significant competition, should
it arise.
confidentiality
agreements
2Annual Report 2019 | EKF Diagnostics Holdings plc2 16
Strategic Report
for the year ended 31 December 2019
Intellectual property risk
Cyber security risk
The commercial success of the Group and its ability to
compete effectively with other companies depends,
amongst other things, on its ability to obtain and maintain
patents sufficiently broad in scope to provide protection
for the Group’s intellectual property rights against third
parties and to exploit its products. The absence of any such
patents may have a material adverse effect on the Group’s
ability to develop its business.
The Group mitigates this risk by developing products where
legal advice indicates patent protection would be available,
seeking patent protection for the Group’s products,
maintaining confidentiality agreements regarding Group
know-how and technology and monitoring technological
developments and the registration of patents by other
parties. The commercial success of the Group also depends
upon not infringing patents granted, now or in the future,
to third parties who may have filed applications or who
have obtained, or may obtain, patents relating to business
processes which might inhibit the Group’s ability to develop
and exploit its own products.
Foreign exchange risk
The Group has transactional currency exposures as the
majority of revenues and expenditure and certain borrowings
are denominated in foreign currencies. Fluctuations in
exchange rates between the Group’s functional currency
of Sterling and the currency of the overseas operations
could adversely impact the financial results. In most cases
the Group matches the currency receipts and expenditure
of the overseas operations. The Group also endeavours to
match the foreign currency assets of the foreign operations
by funding through borrowings and loans denominated in
the currency of the overseas operations, and to negotiate
currency protection in major contracts.
Reimbursement levels
There is no guarantee that the Group may be able to sell its
products or services profitably if the reimbursement level
from third party payers, including government and private
health insurers, is unavailable or limited. Third party payers
are increasingly attempting to contain health care costs
through measures that could impact the Group including
challenging the prices charged for health care products
and services, limiting both coverage and the amount of
reimbursement for new diagnostics products and services,
and denying or limiting coverage for products that are
approved by the regulatory agencies but are considered
experimental by third party payers.
The Group understands that due to third party dependency
it is extremely difficult to eradicate this risk. However,
the Group manages this risk with constant dialogue and
educating the third party payers on the Group’s products
and also developing new technologies in order to seek
additional reimbursements.
Financial reporting and disclosure
Due to the nature of the Group there is a requirement to
report accurate financial information in compliance with
accounting standards and applicable legislation.
This risk is mitigated through the Group’s internal controls
over the financial information and reporting, overseen by
the local financial heads and then reviewed by the central
finance team, including the Finance Director. The annual
financial statements are also subject to audit by the Group’s
external auditors.
The Group uses computers extensively in its operations and
has an online presence but does not trade online. It is at
risk of attack through hacking or other methods. This risk
is mitigated by the use of robust security measures, staff
training, and back-up systems. The Group also has specific
insurance cover.
Pandemic risk
The recent COVID-19 pandemic has created uncertainty
in the market in the short term. Many countries are either
closed or on the verge of being shut down, and government
action is having a significant effect on economies across
world. The eventual severity and length of the economic
disruption is impossible to forecast. We believe we have a
robust plan in place to mitigate the effect of the disruption
on the business including taking the following actions
(amongst others):
• Organising for as many staff as possible to work
•
from home
Improving our computer networking to facilitate
remote working
• Gaining designation as a company essential to basic
medical care which allows our premises to remain
open even in a lockdown
Improved social distancing by limiting physical
meetings,expanding flexible working, and altering
production practices
•
• Preparing requests for support for short time working
with local authorities in case this becomes necessary
• Banning international travel and limiting
domestic travel
Increasing supplier and customer contact so as
to be able to anticipate issues and react quickly
Increasing raw material stock holding
Increasing cleaning and disinfection cycles
•
•
•
We have insurance cover in place in case there is a loss of
business, although it cannot be guaranteed that cover will
be sufficient to protect against all eventualities.
We have not yet seen any material disruption to our
business as a result of the COVID-19 pandemic and current
trading suggests that our base case forecasts are still
applicable. However, at this stage, it is difficult to assess
reliably whether there will be any material disruption in the
future. We have modelled a number of scenarios covering
reductions in revenue of 10% and 50%, without taking into
account the potential benefits of any mitigation strategies
such as potential cost savings or insurance claims. We
have also modelled out 100% reductions in revenue with
cost savings within our control. While the eventual severity
and length of the economic disruption stemming from the
pandemic is impossible to forecast these models give the
Directors reasonable confidence that the business can
survive even catastrophic reductions in revenue for at least
the next 12 months.
Review of strategy and business model
The Board of Directors judge the Company’s financial
performance by reference to the internal budget which it
establishes at the beginning of each financial year.
EKF’s strategy is to create a world class IVD business
through organic growth. IVD has a wide spectrum, and
within this spectrum we have chosen to concentrate on
point-of-care, and our existing central laboratory business.
We have identified and acquired businesses in these areas
with strong product lines and distribution networks which
can benefit from better, more professional management,
greater resources, and from the synergistic benefits of
being part of a larger group.
We sell worldwide to over 100 countries. In many
territories we sell through local distributors, however
where appropriate we sell direct to end users which include
Annual Report 2019 | EKF Diagnostics Holdings plc2 17
Strategic Report
for the year ended 31 December 2019
hospitals, laboratories, and government agencies. Our
distributors are supported by a network of regional sales
managers and by product managers who are specialists
in our product range. We manufacture the majority of the
products we sell ourselves, but also distribute a number
of carefully chosen products on behalf of others. We have
product support centres in the USA and Germany.
The Group works mainly on the principle of selling value
priced instrumentation which generates long-term revenue
streams from the subsequent sale of consumables. The
Group has an existing portfolio of technologies which
produce revenues and will add technologies which are
strategically appropriate to this portfolio should they
become available and providing the additions make
economic sense.
Future outlook
The Chairman’s Statement on pages 8 and 9 and the Chief
Executive’s Review on page 10 give information on the
future outlook of the Group, including the main trends and
factors likely to affect its future development.
Key Performance Indicators (KPIs)
The key performance indicators currently used by the
Group are revenue, gross margin, adjusted EBITDA and
cash resources. The Group is working to establish other key
performance indicators including non-financial measures.
KPIs are discussed in more detail in the Finance Director’s
review on pages 11 and 12.
Environment
The Directors consider that the nature of the Group’s
activities is not inherently detrimental to the environment.
The Group is committed to minimising any effect on the
environment caused by its operations.
Employees
The Group places great value on the involvement of its
employees and they are regularly briefed on the Group’s
activities. The Group closely monitors staff attrition rates
which it seeks to keep at low levels and aims to structure
staff compensation levels at competitive rates in order to
attract and retain high calibre personnel.
Disabled employees
Applications for employment by disabled persons are
always fully considered, bearing in mind the specific
aptitudes of the applicant involved. It is the policy of the
Group that the training, career development and promotion
of disabled persons, as far as possible, be identical with that
of other employees.
Social, community, and human rights
The Board recognises that the Group has a duty to be a
good corporate citizen and to respect the laws, and where
appropriate the customs and culture of the territories
in which it operates. The Group has donated product to
selected appropriate charities which operate within its area,
and encourages staff to take part in charitable activities
which are related to our business areas or customers. It
contributes as far as is practicable to the local communities
in which it operates and takes a responsible and positive
approach to employment practices. The Group’s Modern
Slavery Act statement is published on our website.
Section 172 Statement
The Directors are required by the Companies Act 2006 to
act in the way they consider, in good faith, would be most
likely to promote success of the Group for the benefit of
its shareholders as a whole and in doing so are required to
have regard for the following:
• the likely long term consequences of any decision;
• the interests of the Group’s employees;
• the need to foster the Group’s business relationships
with suppliers, customers and others;
• the impact of the Company’s operations on the
community and the environment;
• the desirability of the Company maintaining a
reputation for high standards of business conduct;
and the need to act fairly as between shareholders of
the Company.
In 2018 the Group adopted the Corporate Governance Code
for Small and Mid-Size Quoted Companies from The n 2018
the Group adopted the Corporate Governance Code for
Small and Mid-Size Quoted Companies from The Quoted
Companies Alliance (the “QCA Code”). The QCA Code is an
appropriate code of conduct for the Group’s size and stage
of development. There is a discussion of how the Group
applies the ten principles of the QCA Code in support of its
growth on the Group’s website.
The Chairman’s and Chief Executive Officer’s statements
describe the Group’s activities, strategy and future
prospects, including the considerations for long term
decision making on pages 8 to 10.
The Board considers its major stakeholders to be its
employees, its suppliers, customers, and shareholders.
When making decisions, the interests of these stakeholders
is considered informally as part of the Board’s group
discussions.
The Board has a good relationship with the Group’s
employees. The Board maintains constructive dialogue with
employees through the Executive Directors. Appropriate
remuneration and incentive schemes including bonuses and
commissions are maintained to align employees’ objectives
with those of the Group. The Group regularly discusses
progress both locally and at group level with employees
in “town hall” style meetings, allowing opportunities to
exchange views and for employees to have a say.
The Board ensures that the Group endeavours to maintain
good relationships with its suppliers by contracting on their
standard business terms and paying them promptly, within
agreed and reasonable terms. We meet with our significant
suppliers regularly and where required audit their activities
to ensure that materials are delivered effectively in a timely
and cost-efficient manner. We frequently offer longer term
contracts to provide stability to their business in return for
cost savings. These principles ensure that the Group’s and
our significant suppliers’ interests are aligned.
The Executive Directors meet major customers regularly
and encourage a dialogue with them and with the Regional
Sales Management team as appropriate. The Board receives
regular reports on progress with customer relationships to
ensure that their decision making takes into account the
needs of our customer base. Key Performance Indicators
are used internally to ensure we are responding to customer
needs.
The Board does not believe that the Group has a significant
impact on the communities and environments within which
it operates. The Board recognises that the Group has a
duty to be a good corporate citizen and is conscious that
its business processes minimise harm to the environment,
and that it contributes as far as is practicable to the local
communities in which it operates.
The Board recognizes the importance of maintaining
high standards of business conduct. The Group operates
appropriate policies on business ethics and provides
mechanisms for whistle blowing and complaints.
The Board endeavours to maintain good relationships with
its shareholders and treat them equally. This is described
in more details in “Relations with shareholders” in the
Corporate Governance Report on page 21.
The Strategic Report was approved by the Board on
7 April 2020 and signed on its behalf by:
Richard Evans
Finance Director and Chief Operating Officer
2Annual Report 2019 | EKF Diagnostics Holdings plc2
18
Report of the Directors
for the year ended 31 December 2019
The Directors have pleasure in presenting this report
together with the audited consolidated financial statements
of EKF Diagnostics Holdings plc for the year ended 31
December 2019.
Corporate details
EKF Diagnostics Holdings public limited company is
domiciled, incorporated, and registered in England and
Wales with registration number 4347937. The registered
office is Avon House, 19 Stanwell Road, Penarth, Cardiff
CF64 2EZ.
Directors
The Directors who held office during the year and as at the
date of signing the financial statements were as follows:
• Christopher Mills
• Julian Baines
• Richard Evans
• Adam Reynolds
• Carl Contadini
The Company Secretary is Salim Hamir.
Principal activities
During the year the principal activities of the Group and
Company were the development, manufacture and supply
of products into the in-vitro diagnostics (IVD) market
place. Future developments and research and development
activities are discussed in the Chairman’s Statement on
pages 8 and 9, the Chief Executive’s Review on pages 10
and the Finance Director’s Review on pages 11 and 12.
Dividends and share buy back
In 2018 the Company declared and paid a distribution in
specie under which the Company’s shareholding in Renalytix
AI plc was distributed to Relevant EKF shareholders at
a rate of one Renalytix AI plc share for each 21.825 EKF
shares held, it remains our intention to make an inaugural
dividend payment to shareholders of 1p per ordinary share,
as previously indicated. If approved by shareholders at the
Company’s next annual general meeting, payment will be
on 1 December 2020 to shareholders on the register on 6
November 2020.
The Company holds authorisation to acquire up to
approximately 15% of its Ordinary Shares in order to reduce
the number of shares in issue. No shares (2018: 3,461,409
shares) were acquired under this authorisation during
the year. The Company intends to seek renewal of the
authorisation at the next AGM.
Going concern
The Directors have considered the applicability of the
going concern basis in the preparation of these financial
statements. This included the review of internal budgets and
financial results which show, taking into account reasonably
probable changes in financial performance, that the Group
should be able to operate within the level of its current
funding arrangements. We have not yet seen any material
disruption to our business as a result of the COVID-19
pandemic and current trading suggests that our base case
forecasts are still applicable. However, at this stage, it is
difficult to assess reliably whether there will be any material
disruption in the future. In addition the Directors have
considered the potential effects of the COVID-19 pandemic
as laid out in the Strategic Report. We have modelled a
number of scenarios covering reductions in revenue of 10%
and 50%, without taking into account the potential benefits
of any mitigation strategies such as potential cost savings
or insurance claims. We have also modelled out 100%
reductions in revenue with cost savings within our control.
While the eventual severity and length of the economic
disruption stemming from the pandemic is impossible
to forecast these models give the Directors reasonable
confidence that the business can survive even catastrophic
reductions in revenue for at least the next 12 months.
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future.
The Group therefore continues to adopt the going concern
basis of preparation for its consolidated financial statements.
Financial risk management
Financial risk management is discussed in Note 3 of the
financial statements.
Employee policies
Employee policies are discussed in the Strategic Report on
pages 15-17.
Stakeholder engagement
A statement summarising how the directors have had regard
to the need to foster the Group’s business relationships
with other stakeholders is included in the Strategic Report
on pages 15-17.
Directors’ interests
The interests in the share capital of the Company of those
Directors serving at 31 December 2019 and as at the date
of signing of these financial statements, all of which are
beneficial, were as follows:
On 31 December 2019
Ordinary Shares of
1p each
On 31 December 2018
Ordinary Shares of
1p each
Christopher Mills
136,113,591
135,963,591
Julian Baines
Richard Evans
Adam Reynolds
Carl Contadini
1,855,288
178,842
1,668,613
-
1,855,288
178,842
2,068,613
-
Mr Mills holds 150,000 Ordinary shares in his own name.
Mr Mills’ other interest in the Company’s shares is held
through North Atlantic Smaller Companies Investment
Trust PLC (“NAIT”) and Oryx International Growth Fund
Limited (“Oryx”). Harwood Capital LLP (“Harwood”) is
investment manager and investment adviser to NAIT
and Oryx respectively. Christopher Mills is a partner and
Chief Investment Officer of Harwood. Christopher Mills is
also a director of Oryx and NAIT. He holds 2.16 per cent.
of the shares in Oryx in his own name as well as a further
46.44 per cent. of the shares in Oryx via his 25.06 per cent.
shareholding in NAIT.
Carl Contadini holds no shares personally, but acts as an
Operational Advisor to Harwood which acts as investment
manager and investment adviser to NAIT and Oryx
respectively.
On 24 May 2019, Adam Reynolds sold 400,000 Ordinary
shares at 33p per share and Christopher Mills bought
150,000 Ordinary shares.
Annual Report 2019 | EKF Diagnostics Holdings plc2 Report of the Directors
for the year ended 31 December 2019
Substantial shareholdings
As at 6 April 2020, the following interests in 3% or more
of the issued Ordinary Share capital had been notified to
the Company:
Number of
shares
Mr Christopher Mills
136,113,591
Canaccord Genuity
Wealth Management
Schroder Investment
Management
Mr William Pippin
Stockinvest
Chelverton Asset
Management
27,892,136
22,586,000
16,189,675
15,635,000
15,500,000
Percentage of
issued share
capital
29.97
6.14
4.97
3.57
3.44
3.41
Statement of Directors’ responsibilities in respect
of the financial statements
The directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable law and regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the
directors have prepared the group financial statements
in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union
and parent company financial statements in accordance
with International Financial Reporting Standards (IFRSs)
as adopted by the European Union. Under company law
the directors must not approve the financial statements
unless they are satisfied that they give a true and fair view
of the state of affairs of the group and parent company
and of the profit or loss of the group and parent company
for that period. In preparing the financial statements, the
directors are required to:
• select suitable accounting policies and then apply
them consistently;
• state whether applicable IFRSs as adopted by
the European Union have been followed for the
group financial statements and IFRSs as adopted
by the European Union have been followed for
the company financial statements, subject to any
material departures disclosed and explained in the
financial statements;
• make judgements and accounting estimates that are
reasonable and prudent; and
• prepare the financial statements on the going
concern basis unless it is inappropriate to presume
that the group and parent company will continue in
business.
The directors are also responsible for safeguarding the
assets of the group and parent company and hence for
taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the group and parent company’s transactions
and disclose with reasonable accuracy at any time the
financial position of the group and parent company
and enable them to ensure that the financial statements
comply with the Companies Act 2006.
The directors are responsible for the maintenance and
integrity of the parent company’s website. Legislation
in the United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
The directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders
19
to assess the group and parent company’s performance,
business model and strategy.
Each of the directors, whose names and functions are listed
in the Report of the Directors confirm that, to the best of
their knowledge:
• the parent company financial statements, which have
been prepared in accordance with IFRSs as adopted
by the European Union, give a true and fair view of
the assets, liabilities, financial position and loss of the
company;
• the group financial statements, which have been
prepared in accordance with IFRSs as adopted by
the European Union, give a true and fair view of the
assets, liabilities, financial position and profit of the
group; and
• the Chairman’s Statement, Chief Executive’s Review
and Finance Director’s Review include a fair review
of the development and performance of the business
and the position of the group and parent company,
together with a description of the principal risks and
uncertainties that it faces.
Directors’ liability insurance
The Company has entered into deeds of indemnity for
the benefit of each Director of the Company in respect
of liabilities to which they may become liable in their
capacity as Director of the Company and of any Company
in the Group. Those indemnities are qualifying third party
indemnity provisions for the purposes of Section 234 of the
Companies Act 2006 and have been in force during the
whole of the financial year and up to the date of approval
of the financial statements.
Independent auditors
their
PricewaterhouseCoopers LLP has expressed
willingness to continue in office as auditors and a resolution
to reappoint them will be proposed at the forthcoming
Annual General Meeting.
Disclosure of information to the Auditors
The Directors who hold office at the date of approval of
this report confirm that so far as they are each aware, there
is no relevant audit information of which the Company’s
auditors are unaware, and each Director has taken all the
steps that they ought to have taken as a Director in order to
make themselves aware of any relevant audit information
and to establish that the Company’s auditors are aware of
that information.
Corporate governance
The Company’s statement of corporate governance can be
found in the Corporate Governance Statement on pages
20 and 21 of these financial statements. The Corporate
Governance Statement forms part of this Report of the
Directors and is incorporated into it by cross-reference.
Annual General Meeting
The resolutions to be proposed at the forthcoming Annual
General Meeting are set out in the formal notice of the
meeting, as set out on pages 68 and 69.
Recommendation
The Board considers that the resolutions to be proposed
at the Annual General Meeting are in the best interests of
the Company and it is unanimously recommended that
shareholders support these proposals as the Board intends
to do in respect of their own holdings.
The Report of the Directors was approved by the Board on
7 April 2020 and signed on its behalf by:
Richard Evans
Finance Director and Chief Operating Officer
2Annual Report 2019 | EKF Diagnostics Holdings plc2 20
Corporate Governance Statement
for the year ended 31 December 2019
Compliance
Board meetings
The Company recognises the value of good corporate
governance in every part of its business. In September 2018
the Board adopted the corporate governance principles of
the 2018 Quoted Companies Governance Code. Details of
the Code can be obtained from the Quoted Companies
Alliance’s website (www.theqca.com).
The following statement describes how the Group as at 31
December 2019 sought to address the principles underlying
the Code.
5 Board meetings were held during the year. The Directors’
attendance record during the year is as follows:
Christopher Mills (Non-Executive Chairman)
Julian Baines (Chief Executive Officer)
Richard Evans
(Chief Operating Officer and Finance Director)
Adam Reynolds (Non-Executive Director)
Carl Contadini (Non-Executive Director)
5
5
5
5
5
Board composition and responsibility
The Board currently comprises two Executive Directors
and three Non-Executive Directors. Christopher Mills was
appointed as Non-Executive Chairman on 20 April 2016.
The Executive Directors work full time for the Group. The
Non-executive Directors are expected to devote at least
two days per month to the business of the Group, plus
additional days for committee meetings.
It is the Board’s opinion that the two directors, Adam
Reynolds and Carl Contadini, are independent in character
and judgment and that there are no relationships or
circumstances which could materially affect or interfere
with the exercise of their independent judgement. Both
Mr. Reynolds and Mr. Contadini have been appointed to
the Boards of numerous companies, with Mr. Reynolds
specialising in corporate finance matters and Mr. Contadini
specialising in operations in the healthcare and electronics
sectors. The Board is cognisant that Mr. Contadini serves
as an operational adviser to Harwood Private Equity, an
investment entity of which Christopher Mills is Managing
Partner. The three Board members (other than Mr.
Contadini and Mr. Mills) consider that Mr. Contadini’s
decision-making on the EKF Board is driven by his relevant
industry experience which underpins his independence.
There is a majority of Board members unconnected to Mr.
Mills such that it functions in a balanced manner.
During the year the Board has performed an evaluation of
their performance and that of the Chairman, as well as the
effectiveness of the Board committees. The Board intends
to develop further its evaluation of the performance of the
Board and Committees on an annual basis. The evaluation
will include Board composition, experience, dynamics and
the Board´s role and responsibilities for strategy, risk review
and succession planning. The evaluations will involve a
detailed questionnaire and individual discussions between
the Non-executive Chairman and the Directors. Being a
small listed company, the Board considers it unnecessary
to have evaluations facilitated by an external consultant.
Independent Director Adam Reynolds will conduct an
evaluation of the Non-executive Chairman´s performance
in conjunction with the other independent Director, Carl
Contadini and input from the two Executive Directors. The
outcome from these evaluations will be discussed by the
Board at one of its Board meetings.
All Directors are subject to election by Shareholders at
the first Annual General Meeting after their appointment,
and are subject to re-election at least every three years.
Non-Executive Directors are appointed for a specific
term of office which provides for their removal in certain
circumstances, including under section 168 of the Companies
Act 2006. The Board does not automatically re-nominate
Non-Executive Directors for election by Shareholders. The
terms of appointment of the Non-Executive Directors can
be obtained by request to the Company Secretary.
The Board’s primary objective is to focus on adding value
to the assets of the Group by identifying and assessing
business opportunities and ensuring that potential risks are
identified, monitored and controlled. Matters reserved for
Board decisions include strategic long-term objectives and
capital structure of major transactions. The implementation
of Board decisions and day to day operations of the Group
are delegated to Management.
The Board evaluation covers areas including the makeup
of the board, the way that it conducts discussions and
takes decisions, the quality of board papers, the inputs
from Executive and Non-executive Directors, and the
effectiveness of Board committees. In each case the
evaluation found that performance was satisfactory,
although some improvement was required in certain areas.
More details on corporate governance
including a
compliance statement can be found on the Company’s
website at ekfdiagnostics.com/investors.html.
Audit Committee
This comprises two Non-Executive Directors, Adam
Reynolds
(Chairman) and Christopher Mills. Adam
Reynolds is the Senior Independent Director and has
recent and relevant finance experience. The committee has
responsibility over the following:
There is a division of responsibilities between the Non-
Executive Chairman, who is responsible for the overall
strategy of the Group and running the Board, and the CEO,
who is responsible for implementing the strategy and day
to day running of the Group. He is assisted by the Finance
Director and Chief Operating Officer.
• Recommend the appointment, re-appointment and
removal of the external auditors
• Ensure the objectivity and independence of the
auditors including occasions when non-audit
services are provided
• Ensure appropriate ‘whistle-blowing’ arrangements
are in place
• The Non-Executive Directors may seek information
from any employee of the Group and obtain external
professional advice at the expense of the Company
if considered necessary. Due to the relatively low
number of personnel employed within the Group,
the nature of the business and the current control
and review systems in place, the Board has decided
not to establish a separate internal audit department.
Annual Report 2019 | EKF Diagnostics Holdings plc2 21
Corporate Governance Statement
for the year ended 31 December 2019
• The committee met once formally during 2019. There
were no significant matters communicated to the
Committee by the Auditors and no interaction with
the Financial Reporting Council.
Remuneration Committee
The Company has established a formal and transparent
procedure for developing policy on executive remuneration
and for fixing the remuneration packages of individual
Directors. No Director is involved in deciding his own
remuneration.
The remuneration committee
is made up of Adam
Reynolds (Chairman), and Christopher Mills. The committee
considers the employment and performance of individual
Executive Directors and determines their terms of service
and remuneration. It also has authority to grant options
under the Company’s Executive Share Option Scheme.
resolution and all Shareholders have the opportunity to put
questions to the Board at the Annual General Meeting.
The Chair(s) of the Audit and Remuneration Committees
normally attend the Annual General Meeting and will
answer questions which may be relevant to their work.
The Chairman advises the meeting of the details of proxy
votes cast on each of the individual resolutions after they
have been voted on in the meeting. The Chairman and
the Non-Executive Directors intend to maintain a good
and continuing understanding of the objectives and views
of the Shareholders.
Shareholders may contact the Company as follows:
Tel: 029 2071 0570
Fax: 029 20 705715
Email: investors@ekfdiagnostics.com
The Committee met twice during 2019.
Corporate social responsibility
The Board recognises that the Group has a duty to be a
good corporate citizen and is conscious that its business
processes minimise harm to the environment, that it
contributes as far as is practicable to the local communities
in which it operates and takes a responsible and positive
approach to employment practices.
With effect from the financial year to 31 December 2016, the
Group became subject to the requirements of the Modern
Slavery Act 2015. The Group has published the required
statement on its website.
The Corporate Governance Statement was approved by
the Board on 7 April 2020 and signed on its behalf by:
Richard Evans
Finance Director and Chief Operating Officer
Board appointments
There is no formal Nominations Committee, the appointment
of new Directors being considered by the full Board.
Internal control
The Directors are responsible for ensuring that the Group
maintains a system of internal control to provide them with
reasonable assurance regarding the reliability of financial
information used within the business and for publication
and that the assets are safeguarded. There are inherent
limitations in any system of internal control and accordingly
even the most effective system can provide only reasonable,
but not absolute, assurance with respect to the preparation
of financial reporting and the safeguarding of assets.
The Group, in administering its business, has put in place
strict authorisation, approval and control levels within
which senior management operates. These controls
reflect the Group’s organisational structure and business
objectives. The control system includes clear lines of
accountability and covers all areas of the organisation.
The Board operates procedures which
include an
appropriate control environment through the definition of
the above organisation structure and authority levels and
the identification of the major business risks. The Group
has commenced a project to enhance and formalise its
internal controls including the establishment of a Risk
Steering Committee.
Internal financial reporting
The Directors are responsible
for establishing and
maintaining the Group’s system of internal reporting and
as such have put in place a framework of controls to ensure
that on-going financial performance is measured in a timely
and correct manner and that risks are identified as early as
is practicably possible. There is a comprehensive budgeting
system and monthly management accounts are prepared
which compare actual results against both the budget
and the previous year. They are reviewed and approved
by the Board and revised forecasts are prepared on a
regular basis.
Relations with shareholders
The Company reports to Shareholders twice a year. The
Company dispatches the notice of its Annual General
Meeting, together with a description of the items of special
business, at least 21 clear days before the meeting. Each
substantially separate issue is the subject of a separate
2Annual Report 2019 | EKF Diagnostics Holdings plc2 22
Report of the Remuneration Committee
for the year ended 31 December 2019
Statement of compliance
This report does not constitute a Directors’ Remuneration Report in accordance with the Directors’ Remuneration
Regulations 2007 which do not apply to the Company as it is not fully listed. This report sets out the Group policy on
Directors’ remuneration, including emoluments, benefits and other share-based awards made to each Director.
Policy on Executive Directors’ remuneration
Remuneration packages are designed to motivate and retain Executive Directors to ensure the continued development of
the Group and to reward them for enhancing value to shareholders. The main elements of the remuneration package for
Executive Directors are basic salary or fees, performance-related bonuses, benefits and share based incentives.
Directors’ remuneration - Audited
The remuneration of the Directors for the year ended 31 December 2019 is shown below:
Salary and
fees
£’000
Benefits in
kind
£’000
Bonus
£’000
Pension
£’000
2019
£’000
2018
£’000
Executive Directors
Julian Baines
Richard Evans
Non-Executive Directors
Christopher Mills
Carl Contadini
Adam Reynolds
268
228
496
-
-
-
-
13
16
29
-
-
-
-
1,345
1,346
2,691
50
50
50
150
Total fees and emoluments
496
29
2,841
Directors’ share options and Long-Term Incentive Plan
No director holds options under any share option plan.
11
6
17
-
-
-
-
17
1,637
1,596
3,233
50
50
50
150
3,383
346
283
629
25
25
30
80
709
In June 2016 two Directors were granted a cash settled share-based incentive award. During 2017 both the maximum and
minimum amounts payable to each Director were reduced by £0.2m. In November 2019, a payment was made to each
Director of approximately £1.345m, and at the same time the terms of the scheme were updated. The revised awards vest
if a controlling interest in the Company is acquired by a third party prior to 30 June 2021.
In these circumstances an award is payable to each Director, which increases by reference to the sale price achieved. The
fair value of this award has been calculated at £2,481,000 using a modified form of a Black Scholes model. The fair value
has been spread over the assumed vesting period, with a charge of £1,943,000 (2018: £775,000) recognised in 2019. The
key assumptions used in the model are disclosed in Note 30.
Directors’ interests in the share capital of the Company are disclosed in the Directors’ Report on page 18.
.
Approved by the Board on 7 April 2020 and signed on its behalf by:
Richard Evans
Finance Director and Chief Operating Officer
Annual Report 2019 | EKF Diagnostics Holdings plc2 Report on the audit of the financial statements
for the year ended 31 December 2019
23
Opinion
In our opinion, EKF Diagnostics Holdings plc’s group financial statements and parent company financial statements (the
“financial statements”):
• give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2019 and
of the group’s profit and the group’s and the parent company’s cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by
the European Union and, as regards the parent company’s financial statements, as applied in accordance with the
provisions of the Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated and
Company’s Statement of Financial Position as at 31 December 2019; the Consolidated Income Statement; the Consolidated
Statement of Comprehensive Income; the Consolidated and Company’s Statement of Cash Flows; the Consolidated and
Company’s Statement of Changes in Equity for the year then ended; and the notes to the financial statements, which
include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with these requirements.
Our audit approach
Overview
• Overall group materiality: £378,000 (2018: £425,000), based on 5% of adjusted profit
before tax (adjusted for share-based payments and exceptional items).
• Overall parent company materiality: £356,000 (2018: £403,000), based on
component allocation of group materiality.
• We performed full-scope audit procedures in respect of the group’s largest trading
subsidiaries in the USA and in Germany, as well as EKF Diagnostics Holdings plc
in the UK.
• Our audit scope also included specified audit procedures in respect of Separation
Technologies Inc. in the USA.
• Our audit procedures covered entities contributing 83% of the group’s revenues for
the year ended 31 December 2019.
• Goodwill and intangible asset impairment assessments. (Group and parent).
• Share-based payment transactions (Group and Parent).
• COVID-19 (Group and Parent).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in
all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there
was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit
of the financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any
comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit. statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
2Annual Report 2019 | EKF Diagnostics Holdings plc2
24
Report on the audit of the financial statements
for the year ended 31 December 2019
Key audit matter
How our audit addressed the key audit matter
Goodwill and intangible asset impairment assessments
(Group and parent)
At 31 December 2019, the Consolidated Statement of Financial
Position includes £37.9m of intangible assets (2018: £41.8m).
In accordance with the requirements of IFRS, management has
performed impairment reviews in relation to the goodwill held in
the group’s cash generating units (CGUs). The book values of the
intangible assets and goodwill are supported by multiple-year
profitability projections based on the budget for 2020.
The impairment reviews include significant estimates and
judgements in respect of future growth rates and cash flows, the
discount rate employed and profitability.
Share-based payment transactions
(Group and parent)
During 2016, two directors were awarded a cash-settled share-
based incentive, which will see a payment made if the Company
is acquired by a third party before 30 June 2021 (revised). The
amount payable under the award varies depending on the
acquisition price.
A senior employee was also granted a cash settled share-based
incentive award, which vests if a controlling interest in the
Company is acquired by a third party at any time while the holder
remains an employee.
During the year the decision was taken by the Remuneration
Committee to early settle a portion of the exit bonuses after
failure to successfully find a buyer for the company, but to
reward for the financial growth and performance of the business
since 2016. The performance-related pay which would have
otherwise been paid on exit was c.£2.7m. Consequently, the
exit agreements were revised to extend the acquisition date to
30 June 2021, and increasing the acquisition price required, for
amounts to be payable on acquisition.
The awards have been accounted for in accordance with IFRS
2 as cash-settled share-based payments and the value of the
liability recognised as at 31 December 2019 is £1.7m (2018:
£2.5m). Management engaged an independent expert to value
the share-based awards and the movement in the fair value of
the year-end liability has been recognised in the Consolidated
Income Statement within the charge for share-based payments.
We obtained the group’s cash flow forecasts supporting
its assessments and evaluated
the appropriateness of
key assumptions. We assessed the methodology used by
management in performing the assessments and evaluated key
inputs including;
• The projected growth rates used, both over the short-term
to 2024 and over longer-term;
• The discount rate used;
• Other key inputs, including the applicable tax rate,
forecast capital expenditure and forecast margins.
We also considered 2019 financial performance vs budget and
performance in the first part of 2020. We performed a range
of sensitivity analyses to assess the impact of alternative
assumptions to those used by management.
We concur with management’s assessment that no impairment
charge is required in respect of goodwill and intangible assets
but identified that if management is unable to achieve planned
results, this could reasonably be expected to give rise to an
impairment in the future. Management has disclosed the results
of sensitivity analysis in Note 18.
A number of assumptions have been made in valuing the
awards, including the expected date of acquisition, share-price
volatility and the premium expected to be paid for acquiring the
Company’s shares.
Disclosure in respect of these awards is included in Note 30.
We obtained the valuation of the share-based
incentive
awards and evaluated the independence and objectivity of
management’s expert. We gained an understanding of and
evaluated the assumptions and methods that are significant
to the management’s expert’s work for their relevance and
reasonableness.
We obtained and reviewed the key terms of the revised exit
agreements and verified the model’s inputs to reliable third party
data. We also recalculated the liability using a standard Black-
Scholes model.
We challenged management in respect of the assumptions
made, including the expected exit date and expected share-
price volatility, and concluded that the assumptions made by
management are reasonable.
We concluded that the work of the management’s expert is
appropriate and concur with management’s accounting for the
awards. We have also evaluated the explanatory disclosures
made in Note 30 to the Financial Statements.
COVID-19
(Group and parent)
We obtained the group’s modelled scenarios and evaluated the
appropriateness of key assumptions and inputs including;
The emergence of Coronavirus (“COVID-19”) during Q1 2020
has impacted all businesses, both financially and operationally.
Management refer to their assessment of the pandemic risk
and the mitigating actions taken, in the Principal Risks and
Uncertainties section within the Strategic Report on page 16.
• Verified the integrity of management’s model, as well
as agreeing to underlying data. We have agreed the
model to the approved budget used for purposes of our
audit procedures over goodwill and intangible assets
impairment.
The Directors have performed a detailed assessment of the
potential effects of the COVID-19, specifically in respect of the
preparation of the financial statements on a Going Concern basis.
In performing this assessment, management have modelled
number of scenarios, covering reductions in revenue of 10%, 50%
and 100%, and also considering mitigating strategies such as
potential cost savings.
The Directors have included a statement within the Annual
Report stating that they have reasonable confidence from the
outcome of the assessment that the business can survive even
catastrophic reductions in revenue for at least the next 12 months,
due to the robust business and current strong cash balances. The
Directors have concluded that it remains appropriate to prepare
the group financial statements on a going concern basis.
• Obtained management information for the Q1 2020
financial performance to support our evaluation of
management’s assumptions. We also confirmed cash
balances at the end of Q1 to third party bank statements.
• Evaluated and challenged management’s assumptions
on the potential cost savings from mitigating strategies
included in the model for 100% reductions in revenue.
• Agreed the mathematically accuracy of the modelled
scenarios.
• Group management provided their current contingency
plans, including mitigating actions being taken. We
challenged and corroborated these with operational site
management in US and Germany.
We obtained evidence to support management’s disclosures in
the financial statements, and checked the relevant disclosures
within the annual report, namely the Strategic Report and
checked the consistency of this with the financial statements and
our knowledge from the audit.
We concur with management’s assessment that the going
concern basis remains appropriate, and that the disclosures in
the financial statements adequately describes the nature of the
risk, and impact on the Group.
Annual Report 2019 | EKF Diagnostics Holdings plc2 25
Report on the audit of the financial statements
for the year ended 31 December 2019
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the group and the parent company, the accounting processes
and controls, and the industry in which they operate.
The group has two main manufacturing centres in Germany and the USA, in addition to the Head Office function based in
the United Kingdom (UK). The central finance and accounting team is located in the UK and is responsible for the financial
reporting of EKF Diagnostics Holdings plc.
Stanbio Laboratory (“Stanbio”) and EKF-diagnostic GmbH (“EKF Germany”) are assessed as financially significant
components of the group, given the significant revenue earned by the group in these entities. An audit of these entities’
financial information has been carried out. The audit of Stanbio was conducted by the group engagement team and
component auditors were engaged to audit EKF Germany. Full-scope audit procedures were performed for DiaSpect
Medical GmbH by the component audit team and the group audit team performed full-scope audit procedures for EKF
Diagnostics Holdings plc. The parent company audit was scoped in accordance with our parent company materiality.
Our audit scope also included specified audit procedures in respect of Separation Technologies Inc. (STI) in the USA, where
we designed audit procedures to gain coverage over certain financial statement line items. This work was performed by
the group engagement team. Our audit addressed components making up 83% of the Group’s 2019 revenues.
Where component auditors were engaged, we adopted procedures to ensure we were sufficiently involved in their audits.
This included discussions with component audit teams during the planning, fieldwork and reporting phases, the issuance
of comprehensive audit instructions and a review of key working papers.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
£378,000 (2018: £425,000).
£356,000 (2018: £403,000).
Group financial statements
Parent company financial statements
How we determined it
Rationale for benchmark applied
Limited component allocation of group
materiality.
Since the materiality we would have
employed to this entity on a standalone
basis was in excess of the component
allocation, materiality was capped at the
component materiality allocation.
5% of adjusted profit before tax (adjusted
for share-based payments and exceptional
items).
Materiality has been determined based on
5% of adjusted profit before tax (adjusted
for share based payments and excep-
tional items). This is a change to the basis
from 2018 where revenue was utilised, as
strategic alignment activities and asso-
ciated costs were substantially complete
by the start of 2019, and for the first time
a dividend has been recommended in
respect of the 2019 financial performance.
A profit-based measure is therefore
considered to be more appropriate for the
current year.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality.
The range of materiality allocated across components was between £96,000 and £356,000.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
£18,000 (Group audit) (2018: £21,000) and £17,000 (Parent company audit) (2018: £20,000) as well as misstatements
below those amounts that, in our view, warranted reporting for qualitative reasons.
2Annual Report 2019 | EKF Diagnostics Holdings plc2 26
Report on the audit of the financial statements
for the year ended 31 December 2019
Conclusions relating to going concern
ISAs (UK) require us to report to you when:
• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not
appropriate; or
• the directors have not disclosed in the financial statements any identified material uncertainties that may cast
significant doubt about the group’s and parent company’s ability to continue to adopt the going concern
basis of accounting for a period of at least twelve months from the date when the financial statements are
authorised for issue.
We have nothing to report in respect of the above matters.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent
otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact. We have nothing to
report based on these responsibilities.
With respect to the Strategic Report and Report of the Directors, we also considered whether the disclosures required by
the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also
to report certain opinions and matters as described below.
Strategic Report and Report of the Directors
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and
Report of the Directors for the year ended 31 December 2019 is consistent with the financial statements and has been
prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and parent company and their environment obtained in the
course of the audit, we did not identify any material misstatements in the Strategic Report and Report of the Directors.
Annual Report 2019 | EKF Diagnostics Holdings plc2
Report on the audit of the financial statements
for the year ended 31 December 2019
27
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities set out on page 19, the directors are responsible
for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that
they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the parent company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or
into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the parent company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Jason Clarke (Senior Statutory Auditor)
for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Cardiff
7 April 2020
2Annual Report 2019 | EKF Diagnostics Holdings plc2 28
Consolidated Income Statement
for the year ended 31 December 2019
Notes
Revenue
Cost of sales
Gross profit
Administrative expenses
Other income
Operating profit
Depreciation and amortisation
Share-based payments
Exceptional items
EBITDA before exceptional items and share-based payments
Finance income
Finance costs
Profit before income tax
Income tax charge
Profit for the year
Profit attributable to:
Owners of the parent
Non-controlling interest
Earnings per Ordinary Share attributable to the owners of the parent during the year
From continuing operations
Basic
Diluted
5
6
6
5
7
5
12
12
13
14
14
The notes on pages 34 to 67 are an integral part of these consolidated financial statements.
2019
£’000
44,917
(21,190)
23,727
(18,280)
337
5,784
(4,441)
(2,118)
338
12,005
73
(339)
5,518
(1,586)
3,932
3,678
254
3,932
2018
£’000
42,543
(19,847)
22,696
(10,586)
89
12,199
(3,991)
(939)
6,454
10,675
43
(77)
12,165
(1,866)
10,299
10,110
189
10,299
Pence
Pence
0.81
0.80
2.21
2.19
Annual Report 2019 | EKF Diagnostics Holdings plc3 Consolidated Statement of Comprehensive Income
for the year ended 31 December 2019
29
Profit for the year
Other comprehensive income/(expense):
Items that may be subsequently reclassified to profit or loss
Changes in fair value of equity instruments at fair value through other comprehensive
income
Currency translation differences
Other comprehensive gain
Total comprehensive gain for the year
Attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive gain for the year
2019
£’000
3,932
6,505
(3,097)
3,408
7,340
7,056
284
7,340
2018
£’000
10,299
-
1,383
1,383
11,682
11,526
156
11,682
Items stated above are disclosed net of tax. The income tax relating to each component of other comprehensive income
is disclosed in note 13.
The notes on pages 34 to 67 are an integral part of these consolidated financial statements.
Annual Report 2019 | EKF Diagnostics Holdings plc3 30
Consolidated and Company’s Statements of Financial Position
for the year ended 31 December 2019
Assets
Non-current assets
Property, plant and equipment
Right-of-use asset
Intangible assets
Investments in subsidiaries
Investments
Trade and other receivables
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity attributable to owners of the parent
Share capital
Other reserves
Foreign currency reserves
Retained earnings
Non-controlling interest
Total equity
Liabilities
Non-current liabilities
Borrowings
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Trade and other payables
Lease liabilities
Deferred consideration
Current income tax liabilities
Borrowings
Total current liabilities
Total liabilities
Total equity and liabilities
Notes
Group
2019
£’000
Group
2018
£’000
Company
2019
£’000
Company
2018
£’000
16
17
18
19
21
22
28
23
22
24
29
31
26
28
25
17
27
26
12,179
1,002
37,767
-
9,900
-
34
12,469
-
41,773
-
3,271
-
36
1,417
270
128
30,521
9,900
15,326
19
1,411
-
334
30,521
3,271
18,099
23
60,882
57,549
57,581
53,659
6,073
8,097
12,074
26,244
87,126
4,541
6,648
3,183
56,199
70,571
601
6,115
7,434
10,282
23,831
81,380
4,541
143
6,309
52,536
63,529
375
-
178
1,999
2,177
59,758
4,541
6,607
-
39,917
51,065
-
-
229
3,721
3,950
57,609
4,541
102
-
43,579
48,222
-
71,172
63,904
51,065
48,222
480
2,619
3,099
7,470
1,002
1,385
2,823
175
12,855
15,954
87,126
695
3,179
3,874
10,094
-
1,104
2,219
185
13,602
17,476
81,380
-
-
-
6,146
270
1,385
892
-
8,693
8,693
-
-
-
7,713
-
1,104
570
-
9,387
9,387
59,758
57,609
The notes on pages 34 to 67 are an integral part of these financial statements.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the Parent
Company income statement.
The loss for the Parent Company for the year was £3,647,000 (2018: profit of £6,143,000).
The financial statements were approved and authorised for issue by the Board on 7 April 2020 and
signed on its behalf by:
Julian Baines
Richard Evans
Chief Executive Officer
EKF Diagnostics Holdings plc
Registered no: 04347937
Finance Director and Chief Operating Officer
Annual Report 2019 | EKF Diagnostics Holdings plc3 Consolidated and Company’s Statements of Cash Flows
for the year ended 31 December 2019
31
Net cash generated by operating activities
5,100
8,323
(1,385)
Cash flow from operating activities
Cash generated by operations
Interest paid
Income tax paid
Cash flow from investing activities
Purchase of investments
Purchase of property, plant and equipment (PPE)
Purchase of intangibles
Proceeds from sale of PPE
Interest received
Net cash used in investing activities
Cash flow from financing activities
Share option buy back
Share buy back
Repayments on borrowings
Principal lease payments
Dividend payment to non-controlling interest
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange (losses)/gains on cash and cash equivalents
Cash and cash equivalents at end of year
24
7,048
-
(23)
7,025
(3,119)
(12)
-
-
17
Group
2018
£’000
Company
2019
£’000
Company
2018
£’000
Notes
34
Group
2019
£’000
6,519
(21)
9,861
(35)
(1,365)
-
(20)
(1,398)
(1,503)
(124)
(1,418)
(957)
30
73
(3,119)
(1,220)
(632)
-
43
(124)
(74)
(56)
-
20
34
(2,396)
(4,928)
(234)
(3,114)
(15)
-
(180)
(381)
(58)
(634)
2,070
10,282
(278)
12,074
-
(940)
(242)
-
(309)
(1,491)
1,904
8,203
175
10,282
(15)
-
-
(101)
-
(116)
(1,735)
3,721
13
1,999
-
(940)
-
-
-
(940)
2,971
710
40
3,721
Annual Report 2019 | EKF Diagnostics Holdings plc3 32
Consolidated Statement of Changes in Equity
Consolidated
At 1 January 2018
Comprehensive income
Profit for the year
Other comprehensive income
Currency translation differences
Total comprehensive (expense)/income
Transactions with owners
Share cancellation
Dividends to non-controlling interest
Distribution in specie
Total distributions to owners
At 31 December 2018 and
1 January 2019
Comprehensive income
Profit for the year
Other comprehensive income
Changes in fair value of equity
instruments at fair value through
other comprehensive income
Currency translation differences
Total comprehensive income
Transactions with owners
Share cancellation
Dividends to non-controlling interest
Total distributions to owners
Share
capital
£’000
4,576
-
-
-
(35)
-
-
(35)
4,541
-
Share
premium
account
£’000
Other
reserves
£’000
Foreign
currency
reserve
£’000
Retained
earnings
£’000
Non-
controlling
interest
£’000
Total
£’000
Total
equity
£’000
-
-
-
-
-
-
-
-
-
-
108
4,892
50,394
59,970
528
60,498
-
-
-
35
-
-
35
-
10,110
10,110
189
10,299
1,417
(1)
1,416
1,417
10,109
11,526
(33)
156
1,383
11,682
-
-
-
-
(940)
(940)
-
-
-
(309)
(940)
(309)
(7,027)
(7,027)
-
(7,027)
(7,967)
(7,967)
(309)
(8,276)
143
6,309
52,536
63,529
375
63,904
-
-
3,678
3,678
254
3,932
- -
6,505 -
-
6,505 -
6,505
-
-
-
-
-
-
-
-
-
-
-
-
(3,126)
-
(3,126)
30
(3,096)
6,505
(3,126)
3,678
7,057
284
7,341
-
-
-
-
-
-
(15)
-
(15)
(15)
-
(15)
6,648
3,183
56,199
70,571
-
(58)
(58)
601
(15)
(58)
(73)
71,172
At 31 December 2019
4,541
Annual Report 2019 | EKF Diagnostics Holdings plc3 Company Statement of Changes in Equity
33
Company
At 1 January 2018
Comprehensive income
Profit for the year
Total comprehensive income/(expense)
Transactions with owners
Share cancellation
Distribution in specie
Total contributions by and distributions to owners
At 31 December 2018 and 1 January 2019
Comprehensive income
Loss for the year
Other comprehensive income
Changes in fair value of equity instruments at fair
value through other comprehensive income
Total comprehensive income
Transactions with owners
Share option cancellation
Total contributions by and distributions to owners
Share
capital
4,576
-
-
(35)
-
(35)
4,541
-
-
-
-
-
At 31 December 2019
4,541
Share
premium
£’000
Other
reserves
£’000
Retained
earnings
£’000
Total
£’000
-
-
-
-
-
-
-
-
-
-
-
-
-
67
45,403
50,046
-
-
35
-
35
102
6,143
6,143
6,143
6,143
(940)
(7,027)
(7,967)
43,579
(940)
(7,027)
(7,967)
48,222
-
(3,647)
(3,647)
6,505
6,505
-
-
-
-
(15)
(15)
6,505
6,505
(15)
(15)
6,607
39,917
51,065
Annual Report 2019 | EKF Diagnostics Holdings plc3 34
Notes to the Financial Statements
for the year ended 31 December 2019
1. General information
EKF Diagnostics Holdings Plc is a company incorporated and domiciled in the United Kingdom. The Company is a public
limited company, which is listed on the AIM market of the London Stock Exchange. The address of the registered office is
Avon House, 19 Stanwell Road, Penarth, Cardiff CF64 2EZ.
The principal activity of the Group is the development, manufacture and supply of products and services into the in-vitro
diagnostic (IVD) market place. The Group has presence in the UK, USA, Germany, Russia, and China, and sells throughout
the world including Europe, the Middle East, the Americas, Asia, and Africa.
The financial statements are presented in British Pounds Sterling, the currency of the primary economic environment in
which the Company’s headquarters is operated. The Group comprises EKF Diagnostics Holdings plc and its subsidiary
Companies as set out in note 18.
The registered number of the Company is 04347937.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
The policies have been consistently applied throughout all years presented, unless otherwise stated.
Basis of preparation
The consolidated financial statements of EKF Diagnostics Holdings plc have been prepared in accordance with International
Financial Reporting Standards as adopted by the European Union (IFRSs), IFRS IC interpretations and the Companies Act
2006 applicable to companies reporting under IFRS. Practice is continuing to evolve on the application and interpretations
of IFRS.
The consolidated financial statements have been prepared under the historical cost convention, as modified by the
revaluation of certain financial liabilities at fair value through profit and loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It
also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas
involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the
consolidated financial statements are disclosed in note 4.
(a) New standards, amendments and interpretations adopted by the Group.
The Group applied IFRS 16 “Leases” for the first time, which is effective for annual periods beginning on or after 1 January
2019. The Company has not early adopted any other standards, amendments or interpretations that have been issued but
not yet effective. The nature and impact of the new standard is described below:
The Group has adopted IFRS 16 Leases retrospectively from 1 January 2019, but has not restated comparatives for the
2018 reporting period, as permitted under the specific transition provisions in the standard. The reclassifications and
adjustments arising from the new leasing rules are therefore recognised in the opening statement of financial position on
1 January 2019. The new accounting policy is disclosed within the ‘Leases’ section of Note 2.
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified
as ‘operating leases’ under the principles of IAS 17, ‘Leases’. These liabilities were measured at the present value of the
remaining lease payments, discounted using the Group’s incremental borrowing rate as of 1 January 2019. The weighted
average Group’s incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 2.5%.
In applying IFRS 16 Leases for the first time, the Group has used the following practical expedients permitted by the
standard:
• applying a single discount rate to a portfolio of leases with reasonably similar characteristics;
• relying on previous assessments on whether leases are onerous as an alternative to performing
an impairment review – there were no onerous contracts as at 1 January 2019;
• accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as
short-termleases;
• excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
• Not reassessing whether a contract is, or contains a lease at the date of initial application. Instead, for contracts
entered into before the transition date the group relied on its assessment made applying IAS 17 and Interpretation 4
Determining whether an Arrangement contains a Lease.
Annual Report 2019 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2019
Measurement of lease liabilities
The differences between the operating lease commitments disclosed under IAS 17 at 31 December 2018, and the
lease liabilities recognised on 1 January 2019 under IFRS 16 is explained as follows:
35
Operating lease commitments disclosed as at 31 December 2018
Discounted using the lessee’s incremental borrowing rate of at the date of initial
application
Add: adjustments due to different treatment of exchange rates
Other reconciling items
Lease liability recognised as at 1 January 2019
Of which are:
Current lease liabilities
Non-current lease liabilities
Measurement of right-of-use assets
Group
£’000
Company
£’000
664
638
102
3
743
349
394
178
176
-
-
176
92
84
Right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments relating to that lease recognised in the balance sheet at 1 January 2019.
Adjustments recognised in the balance sheet on 1 January 2019
Right-of-use assets – increase by
Lease liabilities – increase by
The impact on retained earnings on 1 January 2019 was £nil.
Group
£’000
£743,000
£743,000
Company
£’000
£176,000
£176,000
(b) New standards, amendments and interpretations issued but not effective for the financial year beginning 1
January 2019 and not early adopted.
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning
on or after 1 January 2020, and have not been applied in preparing these financial statements. The Group does not
anticipate a material impact within its financial statements as a result of the applicable standards and interpretations.
Going concern
The Group meets its day-to-day working capital requirements through the use of cash reserves and existing bank facilities.
The Directors have considered the applicability of the going concern basis in the preparation of these financial statements.
This included the review of internal budgets and financial results which show, taking into account reasonably probable
changes in financial performance, that the Group should be able to operate within the level of its current funding
arrangements. We have not yet seen any material disruption to our business as a result of the COVID-19 pandemic
and current trading suggests that our base case forecasts are still applicable. However, at this stage, it is difficult to
assess reliably whether there will be any material disruption in the future. In addition the Directors have considered the
potential effects of the COVID-19 pandemic as laid out in the Strategic Report. We have modelled a number of scenarios
covering reductions in revenue of 10% and 50%, without taking into account the potential benefits of any mitigation
strategies such as potential cost savings or insurance claims. We have also modelled out 100% reductions in revenue with
cost savings within our control. While the eventual severity and length of the economic disruption stemming from the
pandemic is impossible to forecast these models give the Directors reasonable confidence that the business can survive
even catastrophic reductions in revenue for at least the next 12 months.
After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable future. For this reason the Group continues to adopt the
going concern basis in the preparation of the financial statements.
.
Annual Report 2019 | EKF Diagnostics Holdings plc3 36
Notes to the Financial Statements
for the year ended 31 December 2019
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiary undertakings.
Subsidiaries are all entities over which the Group has the power to govern their financial and operating policies generally
accompanying a shareholding of more than fifty per cent of the voting rights. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered when assessing whether the Group controls another
entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated
from the date that control ceases.
The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred
for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests
issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent
consideration agreement. Acquisition related costs are expensed as incurred. Identifiable assets acquired and liabilities
and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition
date. On an acquisition by acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair
value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition
date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net
assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the
case of a bargain purchase, the difference is recognised directly in the income statement.
Investments in subsidiaries are accounted for at cost less impairment.
Inter-Company transactions, balances and unrealised gains on transactions between Group companies are eliminated.
Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
Foreign currency translation
(a) Functional and presentational currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (the functional currency). The consolidated financial statements are
presented in British Pounds Sterling, which is the Company’s functional and presentational currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognised in the income statement within ‘administrative expenses’.
(c) Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyper- inflationary economy)
that have a functional currency different from the presentational currency are translated into the presentational currency
as follows:
• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance
sheet;
income and expenses for each income statement are translated at average exchange rates; and
•
• all resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken
to other comprehensive income. When a foreign operation is partially disposed of or sold, exchange differences that were
recorded in equity are recognised in the income statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance
of the operating segments, has been identified as the Executive Directors who make strategic decisions. The information
used to assess performance is by geography as income statements by product are not available.
Government grants
Government grants receivable in connection with expenditure on property, plant and equipment are accounted for as
deferred income, which is credited to the income statement over the expected useful economic life of the related assets,
on a basis consistent with the depreciation policy. Revenue grants for the reimbursement of costs charged to the income
statement are credited to the Income Statement in the year in which the costs are incurred.
Annual Report 2019 | EKF Diagnostics Holdings plc3
Notes to the Financial Statements
for the year ended 31 December 2019
37
Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and any provision for impairment.
Historical cost includes expenditure that is directly attributable to the acquisition of the asset and bringing the asset to its
working condition for its intended use.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only where
it is probable that future economic benefits associated with the asset will flow to the Group and the cost of the asset can
be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are
charged to the income statement during the financial period in which they are incurred. Any borrowing costs associated
with qualifying property plant and equipment are capitalised and depreciated at the rate applicable to that asset category.
Land is not depreciated. Depreciation on other assets is calculated using the straight-line method or reducing balances
method to allocate their cost to its residual values over their estimated useful lives, as follows
Buildings
Fixtures and fittings
Plant and machinery
Motor vehicles
2%–2.5%
20%–25%
20%–33.3%
25%
The assets’ residual values and useful economic lives are reviewed regularly, and adjusted if appropriate, at the end of each
reporting period.
An asset’s carrying value is written down immediately to its recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount.
Gains and losses on the disposal of assets are determined by comparing the proceeds with the carrying amount and are
recognised in administration expenses in the income statement.
Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable
assets of the acquired subsidiary at the date of the acquisition. Goodwill on acquisitions of subsidiaries is included
in ‘intangible assets’. Goodwill has an infinite useful life and is tested annually for impairment and carried at cost less
accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an
entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-
generating units or groups of cash-generating units that are expected to benefit from the business combination in which
the goodwill arose, identified according to operating segment.
(b) Trademarks, trade names and licences
Separately acquired trademarks and licences are shown at historical cost. Trademarks and licences acquired in a business
combination are recognised at fair value at the acquisition date. Trademarks and licences have a finite useful life and are
carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the
cost of trademarks and licences over their estimated useful lives of between 8 and 12 years and is charged to administrative
expenses in the income statement.
(c) Customer relationships
Contractual customer relationships acquired in a business combination are recognised at fair value at the acquisition date.
The contractual customer relationships have a finite useful life and are carried at cost less accumulated amortisation.
Amortisation is calculated using the straight-line method over the expected life of the customer relationship of between 5
and 15 years and is charged to administrative expenses in the income statement..
(d) Trade secrets
Trade secrets, including technical know-how, operating procedures, methods and processes, acquired in a business
combination are recognised at fair value at the acquisition date. Trade secrets have a finite useful life and are carried at
cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of trade
secrets over their estimated useful lives of between 6 and 15 years and is charged to administrative expenses in the income
statement.
(e) Development costs
Development costs acquired in a business combination are recognised at fair value at the acquisition date. Development
costs have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the
straight-line method over their estimated useful lives of 15 years and is charged to administrative expenses in the income
statement.
Expenditure incurred on the development of new or substantially improved products or processes is capitalised, provided
that the related project satisfies the criteria for capitalisation, including the project’s technical feasibility and likely
commercial benefit. All other research and development costs are expensed as incurred.
Annual Report 2019 | EKF Diagnostics Holdings plc3 38
Notes to the Financial Statements
for the year ended 31 December 2019
Development costs are amortised over the estimated useful life of the products with which they are associated, currently
4 to 10 years. Amortisation commences when a new product is in commercial production. The amortisation is charged to
administrative expenses in the income statement. The estimated remaining useful lives of development costs are reviewed
at least on an annual basis.
The carrying value of capitalised development costs is reviewed for potential impairment at least annually and if a product
becomes unviable and an impairment is identified the deferred development costs are immediately charged to the income
statement.
Software costs
Expenditure incurred on the development of new or substantially improved software is capitalised, provided that the
project satisfies the criteria for capitalisation, including technical feasibility and likely commercial benefit. All other software
costs are expensed as incurred.
Software costs are amortised over their estimated useful life, currently 5 years. Amortisation commences when software
is in commercial use. The amortisation is charged to administrative expenses in the income statement. The estimated
remaining useful life of software is reviewed at least on an annual basis.
The carrying value of capitalised software costs is reviewed for potential impairment at least annually and if an impairment
is identified the costs are immediately charged to the income statement.
Impairment of non-financial assets
Assets that have an indefinite life such as goodwill are not subject to amortisation and are tested annually for impairment.
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying
amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs to sell, and value in use. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash
flows have not been adjusted.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash flows. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited
initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the
cash-generating unit.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to
the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit)
in the prior period. A reversal of an impairment loss is recognised in the income statement immediately. If goodwill is
impaired however, no reversal of the impairment is recognised in the financial statements.
Financial assets
Classification
The group classifies its financial assets in the following measurement categories:
• those to be measured at amortised cost; and
• those to be measured subsequently at fair value (either through OCI or through profit or loss);
(a) Financial assets at amortised cost
Assets that are held for collection of contractual cash flows, where those cash flows represent solely payments of principal
and interest, are measured at amortised cost. Interest income from these financial assets is included in finance income
using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss
and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented
as a separate line item in the statement of profit or loss.
(b) Financial assets at fair value through profit or loss
The Group classifies the following financial assets at fair value through profit or loss (FVPL):
• debt investments that do not qualify for measurement at either amortised cost or fair value through Other
Comprehensive Income
• equity investments that are held for trading, and
• equity investments for which the entity has not elected to recognise fair value gains and losses through Other
Comprehensive Income.
(c) Financial assets at fair value through other comprehensive income
Financial assets at fair value through other comprehensive income comprise equity securities that are not held for trading
and which the Group has irrevocably elected at initial recognition to recognise in this category. The Group considers this
category to be more relevant for assets of this type.
Annual Report 2019 | EKF Diagnostics Holdings plc3
Notes to the Financial Statements
for the year ended 31 December 2019
Inventories
Inventories and work in progress are stated at the lower of cost and net realisable value. Cost is calculated on a first in and first
out basis and includes raw materials, direct labour, other direct costs and attributable production overheads, where appropriate.
Net realisable value represents the estimated selling price less all estimated costs of completion and applicable selling costs.
Where necessary, provision is made for slow-moving and obsolete inventory. Inventory on consignment and their related
obligations are recognised in current assets and payables respectively.
39
Trade and other receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of
business. Other than in the case of certain intercompany receivables, they are generally due for settlement within 30
days and therefore are all classified as current. Trade receivables are initially recognised at fair value, being the original
invoice amount, and subsequently measured at amortised cost less provision for impairment. The group applies the IFRS
9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade
receivables. Trade receivables that are less than three months past due are not considered impaired unless there are
specific financial or commercial reasons that lead management to conclude that the customer will default. Older debts
are considered to be impaired unless there is sufficient evidence to the contrary that they will be settled. The amount
of the provision is the difference between the asset’s carrying value and the present value of the estimated future cash
flows. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the
loss is recognised in the income statement within administrative expenses. When a trade receivable is uncollectible it is
written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against
administrative expenses in the income statement.
Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an
original maturity of less than three months, reduced by overdrafts to the extent that there is a right of offset against other
cash balances.
For the purposes of the consolidated cash flow statement, cash and cash equivalents consist of cash and short-term
deposits as defined above net of outstanding bank overdrafts where there is a right of offset.
Share capital
Ordinary Shares are classified as equity. Proceeds in excess of the nominal value of shares issued are allocated to the share
premium account and are also classified as equity. Incremental costs directly attributable to the issue of new Ordinary
Shares or options are deducted from the share premium account.
Where Ordinary Shares are acquired for cash and then cancelled, the nominal value of shares is deducted from the value
of equity and credited to the Capital Redemption reserve. The amount paid is debited to reserves.
Financial liabilities
Debt is measured at fair value, being net proceeds after deduction of directly attributable issue costs, with subsequent
measurement at amortised cost with the exception of deferred equity consideration which is categorised as a financial
liability at fair value through profit and loss. Debt issue costs are recognised in the income statement over the expected
term of such instruments at a constant rate on the carrying amount.
Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business
from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the
normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are
recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Borrowings
Borrowings are recognised initially at the fair value of proceeds received, net of transaction costs incurred. Borrowings are
subsequently carried at amortised cost. Borrowings are classified as current liabilities unless the Group has an unconditional
right to defer settlement of the liability for at least 12 months after the balance sheet date.
Borrowing costs are expensed in the consolidated Group income statement under the heading ‘finance costs’. Arrangement
and facility fees together with bank charges are charged to the income statement under the heading ‘administrative
expenses’.
Current and deferred income tax
The tax expense comprises current and deferred tax. Tax is recognised in the income statement, except to the extent
that it relates to items recognised in other comprehensive income where the associated tax is also recognised in other
comprehensive income.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the
balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income.
Annual Report 2019 | EKF Diagnostics Holdings plc3 40
Notes to the Financial Statements
for the year ended 31 December 2019
Management evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is
subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the
tax authorities.
Deferred tax is recognised, using the liability method, on all temporary differences at the balance sheet date between the
tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are
recognised in respect of all temporary differences except where the deferred tax liability arises from the initial recognition
of goodwill in business combinations.
Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and tax
losses, to the extent that they are regarded as recoverable. They are regarded as recoverable where, on the basis of
available evidence, there will be sufficient taxable profits against which the future reversal of the underlying temporary
differences can be deducted.
The carrying value of the amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent
that it is no longer probable that sufficient taxable profit will be available to allow all, or part, of the tax asset to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is
realised or the liability is settled, based on the tax rates (and tax laws) that have been substantively enacted at the balance
sheet date.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the
same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the
balances on a net basis.
Provisions
Provisions for legal claims are recognised when the Group has a present legal or constructive obligation as a result of a
past event and it is probable that an outflow of resources will be required to settle the obligation and the amount can be
reliably measured.
Leases
As noted above, the Group has applied IFRS 16 retrospectively, but has elected not to restate comparative information.
As a result, the comparative information provided continues to be accounted for in accordance with the Group’s previous
accounting policy.
Accounting Policy applied from 1 January 2019
Leases are recognised as a right-of-use asset and a corresponding lease liability at the date on which the leased asset is
available for use by the Group.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net
present value of the following lease payments:
• fixed payments (including in-substance fixed payments), less any lease incentives receivable
• variable lease payment that are based on an index or a rate, initially measured using the index or rate as
at the commencement date
• amounts expected to be payable by the group under residual value guarantees
• the exercise price of a purchase option if the group is reasonably certain to exercise that option, and
• payments of penalties for terminating the lease, if the lease term reflects the group exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the
liability.
The lease payments are discounted using the interest rate implicit within the lease. If that rate cannot be readily determined,
the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds
necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms,
security, and conditions.
Where the Group is exposed to potential future increases in variable lease payments based on an index or rate, amounts
are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate
take effect, the lease liability is reassessed and adjusted against the right-of-use asset.
Lease payments are allocated between principal and finance cost. The finance cost is charged to the income statement
over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each
period.
Right-of-use assets are measured at cost comprising the following:
• the amount of the initial measurement of lease liability
• any lease payments made at or before the commencement date less any lease incentives received
• any initial direct costs
• restoration costs
Annual Report 2019 | EKF Diagnostics Holdings plc3 41
Notes to the Financial Statements
for the year ended 31 December 2019
Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight
line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the
underlying asset’s useful life.
Until 31 December 2018, Leases which transfer substantially all the risks and rewards of ownership of an asset were treated
as a finance lease. Assets held under finance leases were capitalised at their fair value at the inception of the lease
and depreciated over the estimated useful economic life of the asset or lease term if shorter. The finance charges were
allocated to the income statement in proportion to the capital amount outstanding. All other leases were classified as
operating leases. Operating lease rentals were charged to the income statement in equal annual amounts over the lease
term.
Deferred consideration
Deferred consideration is recognised at fair value. Where the value of deferred consideration is based on a future event,
management estimate the likelihood of the consideration becoming payable. Deferred consideration is discounted to take
account of the time value of money at rates based on those used for the valuation of related intangible assets.
Employee benefits
(a) Pension obligations
Group companies operate various pension schemes all of which are defined contribution plans. A defined contribution plan
is a pension plan under which the Group pays fixed contributions into a separate entity with the pension cost charged to
the income statement as incurred. The Group has no further obligations once the contributions have been paid.
(b) Share-based compensation
The Group operates a number of equity-settled, share-based compensation plans, under which the Group receives services
from employees and others as consideration for equity instruments of the Group. Equity-settled share-based payments are
measured at fair value at the date of grant and are expensed over the vesting period based on the number of instruments
that are expected to vest. For plans where vesting conditions are based on share price targets, the fair value at the date of
grant reflects these conditions. Where applicable the Group recognises the impact of revisions to original estimates in the
income statement, with a corresponding adjustment to equity for equity-settled schemes. Fair values are measured using
appropriate valuation models, taking into account the terms and conditions of the awards.
When the share-based payment awards are exercised, the Company issues new shares. The proceeds received net of any
directly attributable transaction costs are credited to share capital (nominal value) and share premium.
The Group operates a cash-settled compensation plan for certain senior employees. Cash-settled share-based payments
are measured at fair value at each reporting date and are expensed over the expected vesting period. The fair value
amount is recognised in liabilities.
National insurance on share options
To the extent that the share price at the balance sheet date is greater than the exercise price on options granted under
unapproved share-based payment compensation schemes, provision for any National Insurance Contributions has been
based on the prevailing rate of National Insurance. The provision is accrued over the performance period attaching to the
award.
Revenue recognition
Revenue is accounted for in accordance with the principles of IFRS 15, which has been applied as follows:
(a) Sale of goods
Revenue for the sale of medical diagnostic instruments and reagents is measured at the fair value of the consideration
received or receivable and represents the invoiced value for the sale of the goods net of sales taxes, rebates and discounts.
Revenue from the sale of goods is recognised when control of the products has transferred which is when a Group
Company has delivered products to the customer, the customer has accepted delivery of the products and collectability
of the related receivables is reasonably assured. A receivable is recognised when the goods are delivered as this is the
point in time that the consideration is unconditional because only the passage of time is required before the payment is
due. Where contracts contain multiple deliverables, and the volume of each deliverable can be determined with reasonable
certainty, then the transaction price will be allocated to each performance obligation based on the expected cost
of each item.
Annual Report 2019 | EKF Diagnostics Holdings plc3 42
Notes to the Financial Statements
for the year ended 31 December 2019
(b) Sale of services
Revenue for the sale of services is measured at the fair value of the consideration received or receivable and represents
the invoiced value for the sale of the services net of sales taxes, rebates and discounts. Revenue from the sale of services is
recognised when a Group Company has completed the services and collectability of the related receivables is reasonably
assured.
(c) Royalty and licence income
Royalty and licence income is recognised on an accruals basis in accordance with the substance of the relevant agreements.
Interest income
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial
asset to that asset’s net carrying amount.
Dividend distribution
Dividend distributions to the Company’s shareholders are recognised as a liability in the Group’s financial statements in the
period in which the dividends are approved by the Company’s shareholders. Interim dividends are recognised when paid.
Distributions in specie are recognised at the fair value of the assets distributed.
Other income
Other income includes grant income and R & D tax credits passed through income where this is permitted by the relevant
jurisdiction.
Exceptional items
These are items of an unusual or non-recurring nature incurred by the Group and include transactional costs and one off
items relating to business combinations, such as acquisition expenses.
3. Financial risk management
Financial risk factors
The Group and Company’s activities expose it to a variety of financial risks: market risk (foreign exchange risk and cash
flow interest rate risk), credit risk, liquidity risk, capital risk and fair value risk. The Group and Company’s overall risk
management programme focuses on the unpredictability of the financial markets and seeks to minimise the potential
adverse effects on the Group and Company’s financial performance. The Group and Company do not use derivative
financial instruments to hedge risk exposures.
Risk management is carried out by the head office finance team. It evaluates and mitigates financial risks in close co-
operation with the Group’s operating units. The Board provides principles for overall risk management whilst the head
office finance team provides specific policy guidance for the operating units in terms of managing foreign exchange risk,
credit risk and cash and liquidity management.
(a) Market risk
(i) Foreign exchange – cash flow risk
The Group and Company’s presentational currency is sterling although the Group operates internationally and is exposed
to foreign exchange risk arising from various currency exposures, primarily between GBP, USD, the Euro, and Rouble, such
that the Group’s cash flows are affected by fluctuations in the rate of exchange between GBP and the aforementioned
foreign currencies.
This exposure is managed by a natural currency hedge as the Group’s operating subsidiaries cost base is also denominated
mainly in USDs, Euros, and Roubles, as the Group has subsidiary businesses located in the USA, Germany, and Russia.
Management do not use derivative financial instruments to mitigate the impact of any residual foreign currency exposure
not mitigated by the natural hedge within the business model. The Group and Company do not speculate in foreign
currencies and no operating Company is permitted to take unmatched positions in any foreign currency.
(ii) Foreign exchange – Fair value risk
Translation exposures that arise on converting the results of overseas subsidiaries are not hedged. Net assets held in
foreign currencies are hedged wherever practical by matching borrowings in the same currency. The principal exchange
rates used by the Group and Company in translating overseas profits and net assets into GBP are set out in the table below.
Annual Report 2019 | EKF Diagnostics Holdings plc3 43
Notes to the Financial Statements
for the year ended 31 December 2019
Rate compared to GBP
Euro
Russian Rouble
US Dollar
Average
rate 2019
Average
rate 2018
Year end
rate 2019
Year end
rate 2018
1.144
82.840
1.280
1.129
83.197
1.332
1.182
82.369
1.327
1.114
88.514
1.276
As a guide to the sensitivity of the Group’s results to movements in foreign currency exchange rates, a one cent movement
in the Euro and US Dollars to Sterling rate would impact annual earnings by approximately £31,000 (2018: £55,000) and
£43,000 (2018: £73,000) respectively. The Company’s results are not sensitive to changes in exchange rates.
(iii) Cash flow and fair value interest rate risk
The Group has interest-bearing assets in the form of cash and cash equivalents and interest- bearing liabilities which relate
to borrowings and finance lease obligations mainly in the Group’s German subsidiary. Interest rates on cash and cash
equivalents are floating whilst interest rates on certain borrowings have been fixed and therefore expose the Group to fair
value interest rate risk. The Group and Company do not speculate on future changes in interest rates.
Where overseas acquisitions are made, it is the Group’s policy to arrange any borrowings required in local currency.
It is the Group and Company’s policy not to trade in financial instruments. The Group and Company do not use interest
rate swaps.
(b) Credit risk
Credit risk is managed on a Group basis, except for credit risk relating to accounts receivable balances. Each local subsidiary
and operating business unit is responsible for managing and analysing the credit risk for each of their new clients before
standard payment and delivery terms and conditions are offered. It is the Group and Company policy to obtain deposits
or require payment in advance from customers where possible, particularly overseas customers. In addition if possible
the Group will seek confirmed letters of credit for the balances due. Credit risk is managed at the operating business
unit level and monitored at the Group level to ensure adherence to Group policies. If there is no independent rating, local
management assesses the credit quality of the customer, taking into account its financial position, past experience and
other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board.
The utilisation of credit limits is regularly monitored. Where extended credit is granted, this is agreed by the Finance
Director. Credit insurance is taken out where appropriate and cost effective.
Credit risk also arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial
institutions, as well as credit exposures to customers.
(c) Liquidity risk
Cash flow forecasting is performed in the individual operating entities of the Group and is aggregated by Group finance.
Group finance monitors cash and cash flow forecasts and it is the Group and Company’s liquidity risk management policy
to maintain sufficient cash and available funding through an adequate amount of cash and cash equivalents and committed
credit facilities from its bankers. Due to the dynamic nature of the underlying businesses, the head office finance team aims
to maintain flexibility in funding by keeping sufficient cash and cash equivalents available to fund the requirements of the
Group and Company.
The Group’s policy in relation to the finance of its overseas operations requires that sufficient liquid funds be maintained
in each of its territory subsidiaries to support short and medium-term operational plans. Where necessary, short-term
funding is provided by the holding company. In the UK, the management of liquid funds in excess of operational needs
are controlled centrally. Typically excess funds are placed as short-term deposits, to provide a balance between interest
earnings and flexibility, where the benefit outweighs the administrative cost.
The table below analyses the Group’s non-derivative financial liabilities into relevant maturity groupings based on the
remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the
contractual undiscounted cash flows.
Rate compared to GBP
At 31 December 2019:
Borrowings
Lease liabilities
Deferred consideration
Trade and other payables
At 31 December 2018:
Borrowings
Deferred consideration
Trade and other payables
Less than
one year
£’000
Between 1 and
2 years
£’000
Between 2 and
5 years
£’000
More than
5 years
£’000
175
286
1,385
7,152
185
1,104
8,591
175
214
-
-
185
-
-
305
489
-
-
510
-
-
-
13
-
-
-
-
-
Total
£’000
655
1,002
1,385
7,152
880
1,104
8,591
The maturity of the Company’s non-derivative financial liabilities is all less than one year.
Annual Report 2019 | EKF Diagnostics Holdings plc3 44
Notes to the Financial Statements
for the year ended 31 December 2019
(d) Capital risk management
The Group and Company’s objectives when managing capital are to safeguard the ability to continue as a going concern in
order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure
to reduce the cost of capital.
The Group and Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by
total capital. Net debt is calculated as total borrowings (including “current and non-current borrowings” as shown in the
consolidated balance sheet) less cash and cash equivalents. Total capital is the sum of net debt plus equity.
(e) Fair value estimation
Fair value for the investment in Renalytix AI plc was determined by reference to its published price quotation in an active
market (classified as level 1 in the fair value hierarchy).
Group and Company
AIM listed ordinary shares
2019
£’000
9,748
2018
£’000
3,119
The Group and Company did not have any Level 2 or 3 classified financial assets as at 31 December 2019 (2018: none).
4. Critical accounting estimates and judgements
In the process of applying the Group’s accounting policies, management has made accounting judgements in the
determination of the carrying value of certain assets and liabilities. Due to the inherent uncertainty involved in making
assumptions and estimates, actual outcomes will differ from those assumptions and estimates. The following judgements
have the most significant effect on the amounts recognised in the financial statements.
(a) Impairment of goodwill and intangible assets
The Group tests annually whether goodwill and other intangible assets have suffered any impairment, in accordance with
the accounting policy stated in note 2. The recoverable amounts of cash-generating units have been determined based on
value-in-use calculations. These calculations require the use of estimates as set out in note 18.
(b) Share-based payments
A number of accounting estimates and judgements are incorporated within the calculation of the charge to the income
statement in respect of share-based payments. These are described in more detail in note 30.
5. Segmental reporting
Management has determined the Group’s operating segments based on the monthly management reports presented to
the Chief Operating Decision Maker (‘CODM’). The CODM is the Executive Directors and the monthly management reports
are used by the Group to make strategic decisions and allocate resources.
The principal activity of the Group is the design, development, manufacture and sale of diagnostic instruments, reagents
and certain ancillary products, as well as central laboratory reagents. This activity takes place across various countries,
such as the USA, Germany, Russia, and the United Kingdom, and as such the Board considers the business primarily from a
geographic perspective. Although not all the segments meet the quantitative thresholds required by IFRS 8, management
has concluded that all segments should be maintained and reported.
The reportable segments derive their revenue primarily from the manufacture and sale of medical diagnostic equipment
and reagents. Other services include the servicing and distribution of third party company products under separate
distribution agreements.
Currently the key operating performance measures used by the CODM are Revenue and adjusted EBITDA.
Annual Report 2019 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2019
45
5. Segmental reporting continued
The segment information provided to the Board for the reportable segments for the year ended 31 December 2019 is as
follows:
Germany
£’000
USA
£’000
Russia
£’000
Other
£’000
Total
£’000
2019
Income statement
Revenue
Inter-segment
External revenue
Adjusted EBITDA*
Exceptional items (Note 7)
Share-based payments (Note 30)
EBITDA
Depreciation
Amortisation
Operating profit/(loss)
Finance income
Finance cost
Income tax
Retained profit/(loss)
Segment assets
Operating assets
Inter-segment assets
External operating assets
Cash
Total assets
Segment liabilities
Operating liabilities
Inter-segment liabilities
External operating liabilities
Borrowings
Total liabilities
Other segmental information
Non-current assets – PPE
Non-current assets – Intangibles
PPE – additions
Intangible assets – additions
25,434
-
25,434
3,065
-
3,065
-
-
-
8,016
782
(4,228)
23,087
(6,669)
16,418
7,435
356
-
7,791
(739)
(2,077)
4,975
10
(21)
(677)
4,287
36,327
(400)
35,927
3,298
39,225
-
-
8,016
(387)
(1,161)
6,468
7
-
(449)
6,026
24,630
-
24,630
5,480
30,110
7,926
15,162
(2,938)
(11,777)
4,988
655
5,643
6,006
24,172
872
739
3,385
-
3,385
4,679
12,115
455
162
51,586
(6,669)
44,917
12,005
338
(2,118)
10,225
(1,512)
(2,929)
5,784
73
(339)
(1,586)
3,932
(18)
(2,118)
(6,364)
(367)
311
(6,420)
19
(318)
(296)
(7,015)
39,709
101,255
(25,803)
(26,203)
13,906
2,137
16,043
75,052
12,074
87,126
18,263
41,502
(11,488)
(26,203)
6,775
-
6,775
2,421
1,385
74
56
15,299
655
15,954
13,181
37,767
1,418
957
-
-
782
(19)
(2)
761
37
-
(164)
634
589
-
589
1,159
1,748
151
-
151
-
151
75
95
17
-
* Adjusted EBITDA excludes exceptional items and share-based payments.
Annual Report 2019 | EKF Diagnostics Holdings plc3 46
Notes to the Financial Statements
for the year ended 31 December 2019
5. Segmental reporting (continued)
2018
Income statement
Revenue
Inter-segment
External revenue
Adjusted EBITDA*
Exceptional items (Note 7)
Share-based payments (Note 30)
EBITDA
Depreciation
Amortisation
Operating profit
Finance income
Finance cost
Income tax
Retained profit
Segment assets
Operating assets
Inter-segment assets
External operating assets
Cash
Total assets
Segment liabilities
Operating liabilities
Inter-segment liabilities
External operating liabilities
Borrowings
Total liabilities
Other segmental information
Non-current assets – PPE
Non-current assets – Intangibles
PPE – additions
Intangible assets – additions
Germany
£’000
USA
£’000
Russia
£’000
Other
£’000
Total
£’000
23,478
-
23,478
2,687
-
2,687
5
-
5
7,824
762
(4,202)
21,937
(5,564)
16,373
6,291
(580)
-
5,711
(847)
(2,137)
2,727
11
(35)
(327)
2,376
38,933
(99)
38,834
2,980
41,814
97
-
-
7,921
(271)
(1,096)
6,554
-
-
(1,064)
5,490
25,849
-
25,849
2,749
28,598
10,167
17,008
(5,000)
(12,093)
5,167
880
6,047
6,204
27,026
501
506
4,915
-
4,915
4,779
13,638
659
126
48,107
(5,564)
42,543
10,675
6,454
(939)
16,190
(1,158)
(2,833)
12,199
43
(77)
(1,866)
10,299
6,937
(939)
1,796
(16)
413
2,193
17
(42)
(305)
1,863
35,101
100,346
(29,149)
(29,248)
5,952
3,855
9,807
71,098
10,282
81,380
18,540
45,844
(12,155)
(29,248)
6,385
-
6,385
1,413
1,018
13
-
16,596
880
17,476
12,469
41,773
1,220
632
-
-
-
762
(24)
(13)
725
15
-
(170)
570
463
-
463
698
1,161
129
-
129
-
129
73
91
47
-
* Adjusted EBITDA excludes exceptional items and share-based payments.
‘Other’ primarily relates to the holding company and head office costs.
Annual Report 2019 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2019
5. Segmental reporting (continued)
Disclosure of Group revenues by geographic location of customer is as follows:
Americas
United States of America
Rest of Americas
Europe, Middle East and Africa (EMEA)
Germany
United Kingdom
Rest of Europe
Russia
Middle East
Africa
Asia and Rest of World
China
Rest of Asia
New Zealand/Australia
Total revenue
One external customer represented 11.4% of revenues in 2019 (2018: 10.2%)
6. Expenses – analysis by nature
Inventories consumed in cost of sales
Employee benefit expense (note 10)
Employee costs capitalised as intangible assets
Depreciation and amortisation
Exceptional items (note 7)
Research and development expenses
Foreign exchange
Operating lease payments
Other expenses
Total cost of sales and administrative expenses
Included within the above expenses are exceptional items as set out in note 7.
2019
£’000
19,955
3,947
6,268
435
3,484
3,066
1,771
1,482
822
3,578
109
44,917
2019
£’000
9,590
18,321
(325)
4,441
(338)
2,267
86
-
5,428
39,470
47
2018
£’000
18,253
3,925
6,208
324
3,583
2,687
1,467
1,229
994
3,751
122
42,543
2018
£’000
9,484
16,457
(359)
3,991
(6,454)
1,644
(83)
487
5,266
30,433
Annual Report 2019 | EKF Diagnostics Holdings plc3 48
Notes to the Financial Statements
for the year ended 31 December 2019
7. Exceptional items
Included within administrative expenses are exceptional items as shown below:
– Warranty claim
– Business reorganisation costs
– A Webb loan
– Net receipt from legal action
– Renalytix
Exceptional items
Note
a
b
c
d
e
2019
£’000
367
(29)
-
-
-
338
2018
£’000
31
(120)
90
97
6,356
6,454
a. Estimated warranty claim in relation to the acquisition of EKF-diagnostic GmbH increased because of higher
share price.
b. Restructuring costs, mainly redundancy and notice costs, associated in 2019 and 2018 with the closure of
EKF’s Polish facility and other restructuring activities.
c. Following settlement with Mr A Webb, the balance of the loan made by him in relation to the molecular diagnostic
business has been written back.
d. Receipt from legal action against a customer net of legal costs.
e. The net profit made by the Group in relation to the Renalytix transaction.
8. Auditor remuneration
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditor
and its associates:
Fees payable to Company’s auditor and its associates for the audit of the parent Company and
consolidated financial statements
Fees payable to the Company’s auditor and its associates for other services:
– The audit of Company’s subsidiaries
– Other services
– Tax compliance services
9. Directors’ emoluments
Aggregate emoluments
Share-based payments
Contribution to defined contribution pension scheme
2019
£’000
37
73
-
11
121
2019
£’000
3,366
1,943
17
5,326
2018
£’000
32
70
36
12
150
2018
£’000
690
775
19
1,484
Retirement benefits are accruing to 2 (2018: 2) current directors under a defined contribution scheme. See further
disclosures within the Remuneration Report on page 22. The highest paid director received aggregate emoluments,
including the effect of the share-based payments charge, of £2,609,000 (2018: £734,000).
Annual Report 2019 | EKF Diagnostics Holdings plc3
49
Notes to the Financial Statements
for the year ended 31 December 2019
10. Employee benefit expense
Wages and salaries
Social security costs
Share-based payments granted to Directors and senior
management (Note 30)
Other pension costs (Note 32)
Group
2019
£’000
13,847
2,129
2,118
227
18,321
Group
2018
£’000
13,332
1,979
939
207
16,457
Company
2019
£’000
Company
2018
£’000
2,115
126
2,118
51
4,410
1,919
149
939
45
3,052
Employee costs of £0.3m (2018: £0.4m) have been capitalised as part of development costs in the Group.
11. Monthly average number of people employed
Monthly average number of people (including Executive Directors)
employed was:
Administration
Research and development
Sales and marketing
Manufacturing, production and after sales
Group
2019
£’000
Group
2018
£’000
Company
2019
£’000
Company
2018
£’000
59
17
56
168
300
54
18
60
159
291
11
5
12
1
29
10
3
6
1
20
The total number of employees (FTEs) in the Group at 31 December 2019 was 309 (2018: 300), and in the Company was
29 (2018: 20).
12. Finance income and costs
Finance costs:
– Bank borrowings
– Other interest
– IFRS 16 interest
– Financial liabilities at fair value through profit or loss
Finance costs
Finance income
– Interest income on cash and short-term deposits
– Other interest
Finance income
Net finance costs
2019
£’000
2018
£’000
21
-
37
281
339
6
67
73
266
25
10
-
42
77
9
34
43
34
Annual Report 2019 | EKF Diagnostics Holdings plc3 50
Notes to the Financial Statements
for the year ended 31 December 2019
13. Income tax charge
Group
Current tax:
Current tax on profit/ the year
Adjustments for prior periods
Total current tax
Deferred tax (note 27):
Origination and reversal of temporary differences
Total deferred tax
Income tax charge
2019
£’000
2,096
(94)
2,002
(416)
(416)
1,586
2018
£’000
2,248
5
2,253
(387)
(387)
1,866
The Finance Act 2015 which was substantively enacted in 2015 included legislation to reduce the main rate of UK
corporation tax to 19% from 1 April 2017 and the Finance Act 2016 which was substantively enacted in 2016 included
legislation to reduce the main rate of UK corporation tax to 17% from 1 April 2020.
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the standard tax rate
applicable to the profits of the consolidated entities as follows:
Profit before tax
Tax calculated at domestic tax rates applicable to UK standard rate of tax of 19% (2018: 19%)
Tax effects of:
– Expenses not deductible for tax purposes
– Remeasurement of deferred tax – change in future tax rate
– Income not subject to tax
– Utilisation of losses
– Adjustment in respect of prior years
– Impact of different tax rates in other jurisdictions
– Unrecognised deferred tax
– Other movements
Tax charge
There are no tax effects on the items in the statement of other comprehensive income.
2019
£’000
5,518
1,048
299
(32)
(2)
(67)
(94)
378
218
(162)
1,586
2018
£’000
12,165
2,311
297
(19)
(238)
(1,069)
106
277
-
201
1,866
Annual Report 2019 | EKF Diagnostics Holdings plc3 51
Notes to the Financial Statements
for the year ended 31 December 2019
14. Earnings per share
(a) Basic
Basic earnings per share is calculated by dividing the profit attributable to owners of the parent by the weighted average
number of Ordinary Shares in issue during the year.
Profit attributable to owners of the parent
2019
£’000
3,678
2018
£’000
10,110
Weighted average number of Ordinary Shares in issue
454,093,227
457,207,272
Basic profit per share
(b) Diluted
0.81 pence
2.21 pence
Diluted earnings per share is calculated by adjusting the weighted average number of Ordinary Shares outstanding
assuming conversion of all dilutive potential Ordinary Shares. The Company has one category of dilutive potential
ordinary shares being share options.
Profit attributable to owners of the parent
Weighted average number of Ordinary Shares in issue
2019
£’000
3,678
2018
£’000
10,110
458,414,273
461,489,617
Diluted profit per share
0.80 pence
2.19 pence
Weighted average number of Ordinary Shares in issue
Adjustment for:
– Assumed conversion of share awards
– Assumed payment of equity deferred consideration
2019
2018
454,093,227
457,207,272
277,106
238,405
4,043,940
4,043,940
Weighted average number of Ordinary Shares including potentially dilutive shares
458,414,273
461,489,617
15. Dividends
The Directors propose the payment of a dividend of 1p per EKF Ordinary share held on 6 November 2020. Payment will
be made on 1 December 2020.
In 2018 the Company made a distribution in specie whereby the Company’s shareholding in Renalytix AI plc was distributed
to ordinary shareholders of the Company at a total value of £7,027,000. The fair value per EKF share was 1.5357p.
Annual Report 2019 | EKF Diagnostics Holdings plc3 52
Notes to the Financial Statements
for the year ended 31 December 2019
Land and
buildings
£’000
Fixtures &
fittings
£’000
Plant and
machinery
£’000
Motor
vehicles
£’000
Right-of-
use asset
£’000
Total
£’000
16. Property, plant and equipment
Group
Cost
At 1 January 2018
Additions
Exchange differences
Disposals
9,655
50
285
-
1,218
125
34
(4)
9,670
998
166
(55)
At 31 December 2018
9,990
1,373
10,779
Accumulated depreciation
At 1 January 2018
Charge for the year
Exchange differences
Disposals
At 31 December 2018
Net book value at 31 December 2018
Cost
At 1 January 2019
Adjustment for change in accounting
policy (IFRS 16)
Restated 1 January 2019
Additions
Exchange differences
Transfers
Disposals
At 31 December 2019
Accumulated depreciation
At 1 January 2019
Charge for the year
Exchange differences
Disposals
At 31 December 2019
Net book value at 31 December 2019
1,270
275
51
-
1,596
8,394
928
155
24
(4)
1,103
270
6,273
706
107
(42)
7,044
3,735
9,990
1,373
10,779
-
9,990
88
(392)
15
-
9,701
1,596
286
(68)
-
1,814
7,887
-
1,373
236
(60)
-
(18)
1,531
1,103
133
(52)
(18)
1,166
365
-
10,779
1,077
(579)
(15)
(293)
10,969
7,044
737
(415)
(249)
7,117
3,852
139
47
(16)
-
170
90
22
(12)
-
100
70
170
-
170
17
11
-
(20)
178
100
19
4
(20)
103
75
-
-
-
-
-
-
-
-
-
-
-
-
743
743
647
(16)
-
(33)
1,341
-
337
2
-
20,682
1,220
469
(59)
22,312
8,561
1,158
170
(46)
9,843
12,569
22,312
743
23,055
2,065
(1,036)
-
(364)
23,720
9,843
1,512
(529)
(287)
339
10,539
1,002
13,181
Depreciation expense of £792,000 (2018: £768,000) has been charged to cost of sales and £720,000 (2018: £390,000)
has been charged to administrative expenses.
Annual Report 2019 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2019
16. Property, plant and equipment (continued)
Company
Cost
At 1 January 2018
Additions
At 31 December 2018
Accumulated depreciation
At 1 January 2018
Charge for the year
At 31 December 2018
Investment property
£’000
Fixtures &
fittings
£’000
Right-of-
use asset
£’000
1,673
-
1,673
243
40
283
130
12
142
100
21
121
Net book value at 31 December 2018
1,390
21
Cost
At 1 January 2019
Adjustment for change in accounting policy (IFRS 16)
Restated 1 January 2019
Additions
Disposals
At 31 December 2019
Accumulated depreciation
At 1 January 2019
Charge for the year
At 31 December 2019
1,673
-
1,673
-
-
1,673
283
40
323
142
-
142
74
-
216
121
28
149
-
-
-
-
-
-
-
176
176
203
(33)
346
-
76
76
53
Total
£’000
1,803
12
1,815
343
61
404
1,411
1,815
176
1,991
277
(33)
2,235
404
144
548
Net book value at 31 December 2018
1,350
67
270
1,687
The Company’s freehold property is in Germany and occupied by its subsidiary undertaking, EKF- diagnostic GmbH. EKF-
diagnostic GmbH is paying rental income of €13,900 (£11,800) per month to the parent Company. €167,000 (£146,460)
(2018: €167,000 (£149,760)) was paid to the parent Company for the year. The Company adopts the cost model and
shows the investment property at cost less accumulated depreciation and any accumulated impairment losses. As the
property is occupied by a subsidiary, it does not meet the definition of an investment property for the Group.
Annual Report 2019 | EKF Diagnostics Holdings plc3 54
Notes to the Financial Statements
for the year ended 31 December 2019
17. Leases
(i) Amounts recognised in the statement of financial position
The balance sheet shows the following amounts relating to leases:
Right-of-use assets
Properties
Equipment
Motor vehicles
Total right-of-use
Lease liabilities
Current
Non-current
Total lease liabilities
Group
31 December 2019
£’000
941
18
43
1,002
286
716
1,002
Group
1 January 2019
£’000
546
97
100
743
349
394
743
Company
31 December 2019
£’000
Company
1 January 2019
£’000
269
1
-
270
93
177
270
174
2
-
176
92
84
176
In the previous year, the group only recognised lease assets and lease liabilities in relation to leases that were classified as
‘finance leases’ under IAS 17, ‘Leases’. The assets were presented in property, plant and equipment and the liabilities as part
of the group’s borrowings. For adjustments recognised on adoption of IFRS 16 on 1 January 2019, please refer to note 27.
Additions to the right-of-use assets during the 2019 financial year were £647,000 for the Group and £203,000 for the
Company.
(ii) Amounts recognised in the statement of Comprehensive income
The statement of profit or loss shows the following amounts relating to leases:
Group
2018
£’000
Depreciation charge right-of-use
assets
Group
2019
£’000
Buildings
Equipment
Vehicles
Other
Total right-of-use
Interest expense (included in
finance cost)
212
75
50
-
337
37
-
-
-
-
-
Company
2019
£’000
Company
2018
£’000
76
-
-
76
6
-
-
-
-
-
The total cash outflow for leases in 2019 was £381,000 for the Group and £101,000 for the Company
(iii) The group’s leasing activities and how these are accounted for
The group leases various offices, factories, equipment and vehicles. Rental contracts contracts for offices and factories
are typically made for fixed periods of 5 years, and those for machinery and vehicles for 3 years, but may have extension
options as described below.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined,
which is generally the case for leases in the group, the lessee’s incremental borrowing rate is used, being the rate that the
individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use
asset in a similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group uses recent third-party financing received, adjusted where
appropriate to reflect changes in financing conditions since third party financing was received.
Annual Report 2019 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2019
55
18. Intangible assets
Group
Cost
Trademarks,
trade name
and
licences
£’000
Goodwill
£’000
Customer
relationships
£’000
Trade
secrets
£’000
Development
costs
£’000
Software
£’000
Total
£’000
At 1 January 2018
26,999
3,169
15,721
18,987
Net book value at 31 December 2018
24,912
761
6,805
6,468
2,827
Additions
Disposals
Exchange differences
At 31 December 2018
Accumulated amortisation
At 1 January 2018
Exchange differences
Charge for the year
At 31 December 2018
Cost
At 1 January 2019
Additions
Transfer
Disposals
Exchange differences
At 31 December 2018
Accumulated amortisation
At 1 January 2019
Disposals
Exchange differences
Charge for the year
At 31 December 2019
-
-
-
-
-
-
-
-
-
-
-
74,086
632
(646)
1,543
75,615
30,486
523
2,833
33,842
41,773
75,615
957
-
(462)
(3,565)
-
-
544
73
-
15
-
-
573
-
-
172
27,543
3,257
16,294
19,159
9,210
559
(646)
239
9,362
2,603
28
-
2,174
(18)
340
7,881
262
1,346
11,672
6,156
91
928
160
219
2,631
2,496
9,489
12,691
6,535
27,543
3,257
16,294
19,159
9,362
-
-
-
(1,172)
26,371
171
(42)
-
(587)
2,799
-
-
-
-
-
-
(714)
(723)
527
-
(462)
(367)
259
42
-
(2)
15,580
18,436
9,060
298
72,545
2,631
2,496
9,489
12,691
-
(81)
-
-
(374)
267
-
(405)
1,274
-
(426)
876
6,535
(462)
(245)
512
2,550
2,389
10,358
13,141
6,340
-
-
-
-
-
33,842
(462)
(1,531)
2,929
34,778
Net book value at 31 December 2019
23,821
410
5,222
5,295
2,720
298
37,767
Amortisation charge of £nil (2018: £63,000) has been charged to cost of sales and £2,929,000 (2018: £2,770,000) has
been charged to administrative expenses in the income statement (net of the profit on the sale of intangible assets).
Goodwill is allocated to the Group’s cash–generating units (CGU’s) identified according to geographic operating segment.
An operating segment-level summary of the goodwill allocation is presented below.
Germany
Russia
USA
Total
2019
£’000
16,917
94
6,810
23,821
2018
£’000
17,742
88
7,082
24,912
Annual Report 2019 | EKF Diagnostics Holdings plc3 56
Notes to the Financial Statements
for the year ended 31 December 2019
Germany includes EKF-Diagnostic, Senslab, and DiaSpect, while the USA includes Stanbio and STI.
Goodwill is tested for impairment at the balance sheet date. The recoverable amount of goodwill at 31 December 2019
was assessed on the basis of value in use. The assessed value exceeded the carrying value and no impairment loss
was recognised.
The key assumptions in the calculation to assess value in use are future revenues and the ability to generate future
cash flows. The most recent financial results and initial budgets approved by the Board for the next year were used and
forecasts for a further four years, followed by an extrapolation of expected cash flows at a constant growth rate for each
unit and the calculation of a terminal value based upon the longer term growth rates set out below. The projected results
were discounted at a rate which is a prudent evaluation of the pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the cash-generating units. The discount rates applied reflect a risk-adjusted
weighted average cost of capital.
The key assumptions used in 2019 for the value in use calculations of cash generating units with significant goodwill
are as follows:
Longer-term growth rate
Discount rate
EKF
Germany
%
3
10
DiaSpect
%
Stanbio
%
2
10
3
10
STI
%
3
10
The discount rate used is based on a common risk profile across the Group.
The impairment assessments for all units showed assessed values that exceeded the carrying values with significant
headroom. Sensitivity analysis has been carried out on the assessments for each unit. In the cases of EKF Germany, Russia,
Stanbio and STI, the assessment was recalculated using both a longer term growth rate of 0% and a discount rate of 15%.
No impairment was required using those assumptions. In the case of DiaSpect, the assessment was recalculated using a
reduction in longer term growth to 0% and also an increase in discount rate to 13%. No impairment would be required
under either of these scenarios.
The remaining average useful lives of the intangibles are as follows:
Trade name
Customer relations
Trade secrets
Development costs
1–5 years
2–10 years
3–10 years
3-10 years
The Company holds capitalised development costs with a cost and net book value of £1,470,000 (2018: £1,876,000)
and £128,000 (2018: £334,000) respectively. These are amortised over their useful lives and an amortisation charge of
£262,000 (2018: £204,000) has been recognised in the income statement in 2019.
Annual Report 2019 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2019
19. Investments in subsidiaries
Company Shares in Group undertakings
At 1 January and 31 December 2019
57
2019
£’000
30,521
2018
£’000
30,521
Investments in Group undertakings are recorded at cost, which is the fair value of the consideration paid, less
any impairment.
The subsidiaries of EKF Diagnostics Holdings plc as at 31 December 2019 are as follows:
Name of Company
Note
Proportion Held
EKF Diagnostics Limited (UK)*
Quotient Diagnostics Limited*
360 Genomics Limited*
EKF Molecular Diagnostics Limited*
DiaSpect Medical AB
DiaSpect Medical GmbH
EKF-diagnostic GmbH
Senslab GmbH
EKF Diagnostyka Sp.z.o.o.
000 EKF Diagnostika
EKF Diagnostics Inc
Stanbio Laboratory LP
Separation Technology, Inc
1261 N Main LP
Stanlab Management LLC
1261 N Main Management LLC
EKF POC, LLC
Argutus Intellectual Property Limited
EKF Diagnostics Limited (Ireland)
EKF Diagnostics (Shanghai) Co. Ltd
Notes
1
1
1
1
2
3
3
3
4
5
6
6
6
6
6
6
6
7
7
8
Class of
Shareholding
Ordinary
Ordinary
Ordinary
Ordinary
Nature of Business
Head Office
Sale of diagnostic equipment
Sale of diagnostic equipment
Manufacture and sale of
diagnostic equipment
Ordinary
Head office and IP licencing
100%
100%
100% (indirect)
100%
100%
100% (Indirect)
Ordinary
100%
Ordinary
100% (indirect)
Ordinary
100% (indirect)
Ordinary
Manufacture and sale of diagnostic
equipment and consumables
Manufacture and sale of diagnostic
equipment and consumables
Manufacture and sale of diagnostic
equipment and consumables
Manufacture and sale of diagnostic
equipment and consumables
60% (indirect)
100%
Ordinary
Ordinary
Sale of diagnostic equipment
Intermediate holding company
100% (indirect)
Partnership
100% (indirect)
Ordinary
100% (indirect)
Partnership
100% (indirect)
100% (indirect)
100% (indirect)
100% (indirect)
100%
100%
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Manufacture and sale of diagnostic
equipment and consumables
Manufacture and sale of diagnostic
equipment and consumables
Dormant
Dormant
Dormant
Dormant
Dormant
Manufacture and sale of
diagnostic equipment
Dormant
Incorporated, registered and having its principal place of business in the United Kingdom, with its registered office being Avon
•
House, 19 Stanwell Road, Penarth Vale of Glamorgan, CF64 2EZ.
•
Incorporated in Sweden. The principal place of business is in Germany. The registered address is Lytta Gard, 75593 Uppsala,
Sweden.
Incorporated, registered, and having its principal place of business in Germany at Ebendorfer Chaussee 3, 39179 Barleben,
•
Germany.
•
Poland.
•
Chertanovo, House 2, building 207.
•
Main Street, Boerne, Texas, USA 78006.
•
business is in the United Kingdom.
•
Changning District, Shanghai, P.R.C.200051
Incorporated, registered, and having its principal place of business in Poland at ul. Kazimierza Wielkiego 58, 32-400 Myślenice,
Incorporated, registered, and having its principal place of business in Russia at 117648, Moscow, PO Box: 30, District Severnoe
Incorporated and registered, or formed, and having its principal place of business in the United States of America at 1261 North
Incorporated and registered in Ireland c/o Mazars, Harcourt Centre, Block 3, Harcourt Road, Dublin 2. Its principal place of
Incorporated and registered in China, Suite 1202, Jin Hong Qiao International Center Building I, No. 523 Loushan-guan Road,
Annual Report 2019 | EKF Diagnostics Holdings plc3
58
Notes to the Financial Statements
for the year ended 31 December 2019
All subsidiaries are included in the consolidation. The proportions of voting shares held by the parent Company do not
differ from the proportion of Ordinary Shares held.
* All UK subsidiaries are exempt from the requirement to file audited financial statements by virtue of section 479A of the Companies Act
2006. As part of this process, the Company has provided statutory guarantees to these subsidiaries.
20. Financial instruments by category
(a) Assets
31 December
Assets as per balance sheet
Financial assets at fair value through other comprehensive income
Trade and other receivables excluding prepayments
and corporation tax
Cash and cash equivalents
Total
(b) Liabilities
31 December
Liabilities as per balance sheet
Borrowings
Lease liabilities
Trade and other payables (excluding deferred grants and deferred
income)
Deferred consideration
Total
Group
2019
£’000
9,990
7,617
12,074
29,681
Group
2019
£’000
655
1,002
7,329
1,385
10,371
Group
2018
£’000
Company
2019
£’000
Company
2018
£’000
3,271
7,138
10,282
20,691
9,990
15,388
1,999
27,377
3,271
18,187
3,721
25,179
Group
2018
£’000
Company
2019
£’000
Company
2018
£’000
880
-
8,833
1,104
10,817
-
270
2,847
1,385
4,502
-
-
7,713
1,104
8,817
Liabilities in the analysis above are all categorised as ‘other financial liabilities at amortised cost’ for the Group and
Company, with the exception of deferred equity consideration totalling £1,385,000 (2018: £1,104,000) that is categorised
as a financial liability at fair value through profit and loss.
(c) Credit quality of financial assets
The Group is exposed to credit risk from its operating activities (primarily for trade receivables and other receivables) and
from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and
other financial instruments.
The Group’s maximum exposure to credit risk, due to the failure of counterparties to perform their obligations as at 31
December 2019 and 31 December 2018, in relation to each class of recognised financial assets, is the carrying amount of
those assets as indicated in the accompanying balance sheets.
Trade receivables
The credit quality of trade receivables that are neither past due nor impaired have been assessed based on historical
information about the counterparty default rate. The Group does not hold any other receivable balances with customers,
whose past default has resulted in the recovery of the receivables balances.
Cash at bank
The credit quality of cash has been assessed by reference to external credit ratings, based on reputable credit agencies’
long-term issuer ratings:
AA-
Ratings lower than AA- or unrated
Total
2019
£’000
2,405
9,669
2018
£’000
4,053
6,229
12,074
10,282
Annual Report 2019 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2019
21. Investments
Group and Company
1 January
Additions
Change in fair value through other comprehensive income
31 December
59
2019
£’000
3,271
124
6,505
9,900
2018
£’000
152
3,119
-
3,271
The investment consists of a 0.66% holding in Epinex Diagnostics Inc., a US based privately held company operating in the
medical diagnostics industry; a 19.90% holding in DX Economix, Inc., a Canadian based privately held company operating
in the healthcare consultancy industry, the value of which has been 100% impaired, and a 4.51% holding (2018: 4.79%) in
Renalytix AI plc an AIM listed developer of artificial intelligence enabled diagnostics for kidney disease.
These equity securities are not held for trading. They are held as financial assets at fair value through other comprehensive
income.
22. Trade and other receivables
Non-current
Group
2019
£’000
Group
2018
£’000
Company
2019
£’000
Company
2018
£’000
Amounts owed by subsidiary undertakings
-
-
15,326
18,099
Current
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Prepayments
Other receivables
6,182
(181)
6,001
480
1,616
8,097
6,146
(487)
5,659
296
1,479
7,434
-
-
-
116
62
178
-
-
-
140
89
229
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of
business. They are generally due for settlement within 30 days and are therefore all classified as current. Trade receivables
are recognised initially at the amount of consideration that is unconditional. The group holds the trade receivables with the
objective of collecting the contractual cash flows.
Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair
value.
As of 31 December 2019, trade receivables of £1,478,000 (2018: £3,833,000) were past due but not covered by a loss
allowance. These relate to a number of independent customers for whom there is no recent history of default. The ageing
analysis of these trade receivables is as follows:
Up to 3 months
3 to 6 months
Over 6 months
Group
2019
£’000
1,380
79
19
Group
2018
£’000
3,659
78
96
1,478
3,833
Company
2019
£’000
Company
2018
£’000
-
-
-
-
-
-
-
-
As of 31 December 2019, trade receivables of £181,000 (2018: £487,000) were subject to a loss allowance. The ageing of
these receivables is as follows
Up to 3 months
3 to 6 months
Over 6 months
Total
Group
2019
£’000
1
31
149
181
Group
2018
£’000
3
51
433
487
Company
2019
£’000
Company
2018
£’000
-
-
-
-
-
-
-
-
Annual Report 2019 | EKF Diagnostics Holdings plc3 60
Notes to the Financial Statements
for the year ended 31 December 2019
Movements on the provision for impairment of trade receivables are as follows:
At 1 January
Provision for receivables impairment
Receivables written off during the year as uncollectible
Unused amounts reversed
Exchange differences
At 31 December
Group
2019
£’000
487
6
-
(292)
(20)
181
Group
2018
£’000
Company
2019
£’000
Company
2018
£’000
285
183
(1)
14
6
487
-
-
-
-
-
-
-
-
-
-
-
-
The other classes within trade and other receivables do not contain impaired assets.
The carrying amounts of the Group’s trade and other receivables denominated in foreign currencies were as follows:
UK Sterling
Euros
US dollar
Russian rouble
Polish zloty
23. Inventories
Raw materials
Work in progress
Finished goods
Group
2019
£’000
178
3,540
4,315
62
1
Group
2018
£’000
229
3,394
3,761
40
10
Company
2019
£’000
178
3,446
Company
2018
£’000
229
5,744
11,880
12,355
-
-
-
-
8,097
7,434
15,504
18,328
Group
2019
£’000
4,492
432
1,149
6,073
Group
2018
£’000
4,440
590
1,085
6,115
Company
2019
£’000
Company
2018
£’000
–
–
–
–
–
–
–
–
The Directors are of the opinion that the replacement values of inventories are not materially different to the carrying
values stated above. The carrying values above are stated net of impairment provisions of £1,763,000 (2018: £2,024,000).
The cost of inventories recognised as expense and included in ‘cost of sales’ amounted to £9,590,000 (2018: £9,484,000).
The Company held no inventories at 31 December 2019 or at 31 December 2018.
24. Cash and cash equivalents
Cash at bank and in hand
Cash and cash equivalents (excluding bank overdrafts)
Group
2019
£’000
12,074
12,074
Group
2018
£’000
10,282
10,282
Company
2019
£’000
1,999
1,999
Company
2018
£’000
3,721
3,721
The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.
Annual Report 2019 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2019
61
25. Trade and other payables
Trade payables
Amounts due to subsidiary undertakings
Social security
Other payables
Accrued expenses and deferred income
26. Borrowings
Non-current
Bank borrowings
Current
Bank borrowings
The maturity profile of borrowings was as follows:
Amounts falling due
Within 1 year
Between 1 and 2 years
Between 2 and 5 years
More than 5 years
Total borrowings
Bank borrowings
Group
2019
£’000
748
-
124
1,985
4,613
7,470
Group
2019
£’000
480
480
175
175
Group
2018
£’000
1,226
-
114
2,758
5,996
10,094
Company
2019
£’000
Company
2018
£’000
50
3,300
57
1,835
904
6,146
156
3,728
53
2,547
1,229
7,713
Group
2018
£’000
Company
2019
£’000
Company
2018
£’000
695
695
185
185
-
-
-
-
-
–
-
-
Group
2019
£’000
Group
2018
£’000
Company
2019
£’000
Company
2018
£’000
175
175
305
-
655
185
185
510
-
880
-
-
-
-
-
-
-
-
-
-
Bank borrowings mature in 2023 and bear an average fixed coupon of 2.5% annually (2018: 2.5%).
Bank borrowings are secured against certain assets of the Group. The Parent Company has also provided guarantees
against those bank borrowings which are denominated in foreign currencies.
The Euro denominated borrowings have covenants attached to them. The Group has been compliant with these covenants
throughout the year.
The bank borrowings are repayable by quarterly instalments.
The Group is not exposed to interest rate changes or contractual re-pricing dates at the end of the reporting period, as
the borrowings are fixed in nature.
The fair value of both current and non-current borrowings equals their carrying amount, as the impact of discounting is
not significant.
The carrying amounts of the group’s bank borrowings are all denominated in euros.
Annual Report 2019 | EKF Diagnostics Holdings plc3 62
Notes to the Financial Statements
for the year ended 31 December 2019
27. Deferred consideration
At 1 January
Fair value adjustment
At 31 December
Group
2019
£’000
1,104
281
1,385
Group
2018
£’000
1,062
42
1,104
Company
2019
£’000
Company
2018
£’000
1,104
281
1,385
1,062
42
1,104
The deferred consideration consists of 4,043,940 Ordinary Shares originally valued at £605,000 to be issued as part of
the consideration paid for the acquisition of EKF-diagnostic GmbH Germany. The value of the shares has been adjusted to
its fair value at 31 December 2019 of £1,385,000. Whilst agreement has been reached in principle to conclude the position,
the contract amendment has not yet been signed. All of the outstanding balance is current.
28. Deferred income tax
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when deferred income tax assets and liabilities relate to income taxes levied by the same
taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances
on a net basis. The amounts concerned are as follows:
Group
Deferred tax assets
Deferred tax asset to be recovered within 12 months
Deferred tax asset to be recovered after more than 12 months
Deferred tax liabilities
Deferred tax liability to be recovered after more than 12 months
Deferred tax liability to be recovered within 12 months
Deferred tax liabilities – net
The gross movement on the deferred income tax account is as follows:
At 1 January
Exchange differences
Income statement movement (note 13)
At 31 December
2019
£’000
(15)
(19)
(34)
2,505
114
2,619
2,585
2019
£’000
3,143
(142)
(416)
2,585
2018
£’000
(13)
(23)
(36)
3,065
114
3,179
3,143
2018
£’000
3,443
87
(387)
3,143
The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting
of balances within the same tax jurisdiction, is as follows:
Deferred tax liabilities
At 1 January 2018
Credited to the income statement
Exchange differences
At 31 December 2018
At 1 January 2019
Credited to the income statement
Exchange differences
At 31 December 2019
Accelerated tax
depreciation
£’000
3,489
(398)
88
3,179
3,179
(418)
(142)
2,619
Total
£’000
3,489
(398)
88
3,179
3,179
(418)
(142)
2,619
Annual Report 2019 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2019
63
Deferred tax assets
At 1 January 2018
Charged to the income statement
At 31 December 2018
At 1 January 2019
Charged to the income statement
At 31 December 2019
Tax losses
£’000
Other
£’000
Total
£’000
(13)
-
(13)
(13)
(2)
(15)
(34)
11
(23)
(23)
4
(19)
(47)
11
(36)
(36)
2
(34)
Deferred income tax assets are recognised to the extent that the realisation of the related tax benefit through future
taxable profits is probable. The Group did not recognise deferred income tax assets of £817,000 (2018: £533,000) mainly
in respect of tax losses amounting to £4,300,000 (2018: £2,770,000), primarily arising in the UK entities, that can be
carried forward against future taxable income, as the likely timing of recovery is considered too remote.
Company
Deferred tax assets
Deferred tax asset to be recovered after more than 12 months
Deferred tax
29. Share capital
Group and Company
At 1 January 2019 and 31 December 2019
2019
£’000
2018
£’000
19
19
23
23
Number of
Shares
Share capital
£’000
454,093,227
4,541
The Company has not acquired any ordinary shares during this year (2018: 3,461,409).
Annual Report 2019 | EKF Diagnostics Holdings plc3 64
Notes to the Financial Statements
for the year ended 31 December 2019
30. Share options and share-based payments
The share options and share incentive schemes in existence in the Group and Company were as follows:
Unapproved share option scheme
At 1 January
Cancelled
Expired
At 31 December
2019
2018
Av. Exercise price
per share
(£)
0.247
0.273
-
0.240
Options
(Number)
1,200,000
(250,000)
-
950,000
Av. Exercise price
per share
(£)
0.252
0.376
-
0.247
Options
(Number)
1,250,000
(50,000)
-
1,200,000
The remaining unapproved share options include the following:
• 400,000 options were issued on 7 July 2013 to senior employees at an exercise price of 27.25p per share. These
options are exercisable from the third anniversary of grant with a maximum term of 10 years. These options have
vested.
• 50,000 options were issued on 21 January 2014 to senior employees at an exercise price of 37.625p per share. These
options are exercisable from the third anniversary of grant with a maximum term of 10 years. These options have
vested.
• 500,000 options were issued to a third party on 17 May 2015 at an exercise price of 20p. The maximum term is 10
years from grant. These options have vested.
All share option awards are equity settled. Out of the 950,000 (2018: 1,200,000) outstanding options 950,000 (2018:
1,200,000) were exercisable at 31 December 2019.
Expiry Date
07.07.2023
21.01.2024
06.04.2025
2019
2018
Av. Exercise price
per share
(£)
0.2725
0.37625
0.200
Av. Exercise price
per share
(£)
0.2725
0.37625
0.200
Options
(Number)
400,000
50,000
500,000
950,000
Options
(Number)
650,000
50,000
500,000
1,200,000
On 2 June 2016 two Directors were granted a cash settled share-based incentive award. The terms of the award were
varied in January 2019 and in November 2019. As varied, the awards vest if a controlling interest in the Company is
acquired by a third party prior to 30 June 2021. A portion, being approximately £2,691,000, of the amount that would
otherwise have been payable on an exit was paid as performance related pay in November 2019. Following this payment
a residual amount representing 5% of the excess sales price achieved over 27p per share is payable to the two Directors.
The fair value of this award has been calculated at £2,481,000 (2018: £3,464,000) using a modified form of a Black Scholes
model. The key assumptions in the model included expected volatility of 32% (2018: 36%), a risk free rate of 0.54% (2018:
(0.74%)) and an expected dividend yield of 1p per share (2018: nil); and an assumed acquisition premium and option life.
The decrease in the liability is largely due to the increase in the effective share price required before any bonus is payable,
offset by the increase in the share price over the period.
On 9 October 2017, a senior employee was granted a cash settled share-based incentive award. The award vests if a
controlling interest in the Company is acquired by a third party at any time while the holder remains an employee. There is
a minimum price level below which no amount is payable, with the amount payable rising based on the sale price achieved,
up to a maximum of $700,000. The fair value of this award has been calculated at £144,000 (2018: £90,000), using a
similar model and assumptions as noted above.
£2,118,000 (2018: £939,000) has been recognised as an expense in administrative expenses in the current year, and
£1,835,000 (31 December 2018: £2,547,000) is shown as a liability on the balance sheet at 31 December 2019 within trade
and other payables.
Annual Report 2019 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2019
31. Other reserves
Group
At 1 January 2018
Shares cancelled
At 31 December 2018
At 1 January 2019
Changes in the fair value of equity instruments at fair value through
other comprehensive income
At 31 December 2019
32. Retirement benefit obligations
Pension benefits
65
Capital
redemption
reserve
£’000
67
35
102
102
-
102
Other
reserve
£’000
41
-
41
41
6,505
6,546
Total
£’000
108
35
143
143
6,505
6,648
The Company operates defined contribution pension schemes the assets of which are held separately from those of
the Company in independently administered funds. The pension cost for the year represents contributions made by the
Company to the funds and amounted to £227,000 (2018: £207,000). The value of pension contributions owed to pension
providers at 31 December 2019 was £9,000 (2018: £9,000).
33. Commitments
Capital commitments
The Group has contracted £nil (2018: £70,500) capital expenditure at the end of the reporting period that had not yet
been incurred.
Annual Report 2019 | EKF Diagnostics Holdings plc3 66
Notes to the Financial Statements
for the year ended 31 December 2019
34. Cash generated by operations
Group
Company
Profit/(loss) before tax
Adjustments for:
– Depreciation
– Amortisation
– Warranty claim
– Loss on disposal of fixed assets
– Share-based payments
– Profit on sale of Renalytix
– Fair value adjustment
– Foreign exchange
– Bad debt written down/(back)
– Net finance income
– Loan write back
Changes in working capital
– Inventories
– Trade and other receivables
– Trade and other payables
Net cash generated by operations
2019
£’000
5,518
1,512
2,929
(367)
14
2,118
-
281
86
212
(15)
-
37
(327)
(5,479)
6,519
2018
£’000
12,165
1,158
2,833
(31)
13
939
(6,356)
42
(83)
-
(8)
(90)
(461)
11
(271)
9,861
2019
£’000
(3,301)
144
262
-
-
2,118
-
281
102
8
(941)
-
-
3,704
(3,742)
(1,365)
2018
£’000
6,747
61
204
-
-
939
(6,356)
42
(40)
(514)
(1,000)
-
-
5,961
1,004
7,048
In the statement of cash flows, proceeds from the sale of property, plant and equipment comprise:
Group
Net book value
(Loss)/profit on disposal of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Non-cash transactions
2019
£’000
44
(14)
30
2018
£’000
13
(13)
-
The principal non-cash transactions are: the revaluation of shares held in Renalytix AI plc; movements on deferred
consideration provisions; the fair value adjustment relating to the deferred equity consideration in respect of EKF Germany,
the warranty claim, and release of accruals no longer required.
Annual Report 2019 | EKF Diagnostics Holdings plc3 67
Notes to the Financial Statements
for the year ended 31 December 2019
35. Related Party Disclosures
Directors
Christopher Mills’ controls 29.97% of the Company’s share capital through North Atlantic Smaller Companies Investment
Trust PLC (“NAIT”) and Oryx International Growth Fund Limited (“Oryx”). Harwood Capital LLP (“Harwood”) is investment
manager and investment adviser to NAIT and Oryx respectively. Christopher Mills is a partner and Chief Investment Officer
of Harwood. Christopher Mills is also a director of Oryx and NAIT. He holds 2.16 per cent. of the shares in Oryx in his own
name as well as a further 46.44 per cent. of the shares in Oryx via his 25.06 per cent. shareholding in NAIT.
The Group was invoiced £18,000 (2018: £18,000) by J & K (Cardiff) Limited for property rent. Julian Baines is a Director
of J & K (Cardiff) Limited.
Carl Contadini acts as an Operational Advisor to Harwood which acts as investment manager and investment adviser to
NAIT and Oryx respectively.
Directors’ emoluments are set out in the Remuneration Committee report and in note 9.
The performance related payment made to the Executive directors under the cash settled share based payment scheme
is set out in note 30.
Other related party transactions
Sergey Kots who is Chief Executive of OOO EKF Diagnostika (“EKF Russia”), owns 20% of the subsidiary’s share capital.
During the year EKF Russia invoiced £655,000 (2018: £545,000) to OOO Laboratory Diagnostic Systems, a company of
which Mr Kots’ brother is a director.
Key management compensation
Key management compensation for the year was as follows:
Salaries and other short-term employee benefits
Share-based payments
Employer contribution to pension scheme
2019
£’000
3,366
1,943
17
5,326
2018
£’000
690
775
19
1,484
Key management includes the Directors of the Company only.
The Company
During the year the Company invoiced management charges of £2,719,000 (2018: £2,383,000) and interest of £929,000
(2018: £984,000) to its subsidiary companies, it also invoiced rental costs to EKF Germany of €167,000 (£146,460) (2018:
€167,000 (£149,760)). It purchased goods and services from subsidiaries totalling £270,000 (2018: £201,000). At 31
December 2019 the Company was owed £15,326,000 (2018: £18,099,000) by its subsidiaries and owed £3,300,000 (2018:
£3,728,000) to other subsidiaries
36. Post Balance Sheet event
The outbreak of coronavirus (COVID-19) in early 2020 has affected business and economic activity around the world,
including certain countries in which we operate. The Group considers this outbreak to be a non-adjusting post balance
sheet event as of 31 December 2019. The eventual severity and length of the economic disruption is impossible to forecast.
We believe we have a robust plan in place to mitigate the effect of the disruption on the business, and we have taken the
actions as described in our Strategic Report on page 16.
The Group continues to monitor closely the development of the coronavirus outbreak and its impact on market conditions.
It is not practicable to quantify the potential financial effect of the outbreak on the Group at this stage. Nonetheless we
have modelled a number of scenarios covering reductions in revenue of 10% and 50%, without taking into account the
potential benefits of any mitigation strategies such as potential cost savings or insurance claims. We have also modelled
out 100% reductions in revenue with cost savings within our control. While the eventual severity and length of the economic
disruption stemming from the pandemic is impossible to forecast these models give the Directors reasonable confidence
that the business can survive even catastrophic reductions in revenue for at least the next 12 months.
Annual Report 2019 | EKF Diagnostics Holdings plc3 68
NOTICE OF ANNUAL GENERAL MEETING
EKF Diagnostics Holdings PLC (Company)
NOTICE IS HEREBY GIVEN that the Annual General Meeting (Meeting) of EKF Diagnostics Holdings plc (Company) will be
held at the Company’s offices at Avon House, 19 Stanwell Road, Penarth, Cardiff, CF64 2EZ on 10 June 2020 at 11.00 a.m.
for the following purposes::
Ordinary Resolutions
1. To receive and adopt the statement of accounts for the year ended 31 December 2019 together with the reports
of the Directors and the auditors thereon.
2. To re-elect Julian Bainess, who retires by rotation, as a Director.
3. To re-elect Carl Contadini, who retires by rotation, as a Director.
4. To re-appoint Messrs PricewaterhouseCoopers LLP as auditors to act as such until the conclusion of the next
General Meeting of the Company at which the requirements of section 437 of the Companies Act 2006 are
complied with and to authorise the Directors of the Company to fix their remuneration.
5. That in substitution for any existing such authority, the Directors be and are hereby generally and unconditionally
authorised pursuant to section 551 of the Companies Act 2006 (the “2006 Act”) to allot Relevant Securities of
the Company:
i.
up to a maximum nominal amount of £52,500 (in pursuance of the exercise of outstanding share options and
other potential shares granted by the Company but for no other purpose);
ii. up to an aggregate nominal amount of £454,093.23 (in addition to the authorities conferred in sub-paragraphs
(i) above) representing approximately 10% of the Company’s Issued Share Capital,
such authorities (unless previously renewed, revoked or varied) to expire at the conclusion of the next Annual General
Meeting of the Company to be held in 2020, save that the Company may, before such expiry, make an offer or
agreement which would or might require Relevant Securities to be allotted after such expiry and the directors may
allot Relevant Securities in pursuance of such an offer or agreement as if the authority conferred hereby had not
expired.
6. To declare a final dividend of one pence per ordinary share to be paid on 1st December 2020 to the holders of
ordinary shares on the register of members at the close of business on 5th November 2020.
Special Resolutions
7. That, subject to the passing of the above Resolution the Directors be given the general power to allot equity
securities (as defined in section 560 of the 2006 Act) pursuant to the authority conferred by the Resolution
above as if section 561(1) of the 2006 Act did not apply to any such allotments provided that this power shall be
limited to:
i.
ii.
the allotment of equity securities on the exercise of the share options granted by the Company;
the allotment of equity securities (otherwise than pursuant to sub-paragraphs (i) above) for cash in connection
with any rights issue or pre-emptive offer in favour of holders of equity securities generally; and
iii. the allotment (otherwise than pursuant to sub-paragraphs (i) and (ii) above) of equity securities for cash up
to an aggregate nominal amount of £454,093.23 representing approximately 10% of the Company’s Issued
Share Capital;
provided that such power (unless previously renewed, revoked or varied) shall expire at the conclusion of the Annual
General Meeting of the Company to be held in 2021, save that the Company may, before such power expires, make
an offer or enter into an agreement which would or might require equity securities to be allotted after such power
expires and the Directors may allot equity securities in pursuance of any such offer or agreement notwithstanding
that the power conferred by this resolution has expired.
8. That the Company be and is generally and unconditionally authorised for the purposes of section 701(1) of the
Companies Act 2006 (the “Act”) to make one or more market purchases (within the meaning of section 693(4) of
the Act) on the London Stock Exchange of ordinary shares of £0.01 each in the capital of the Company (“Ordinary
Shares”) provided that:
i.
the maximum aggregate number of Ordinary Shares authorised to be purchased is 68,113,984 (representing
approximately 15 per cent. of the Company’s issued ordinary share capital);
ii.
the minimum price (excluding expenses) which may be paid for such Ordinary Shares is £0.01 per share;
iii. the maximum price (excluding expenses) which may be paid for an Ordinary Share shall not be more than 5 per
cent. above the average of the middle market quotations for an Ordinary Share as derived from The
London Stock Exchange Daily Official List for the five business days immediately preceding the date on which
the Ordinary Share is purchased;
Annual Report 2019 | EKF Diagnostics Holdings plc4
NOTICE OF ANNUAL GENERAL MEETING
EKF Diagnostics Holdings PLC (Company)
iv. unless previously renewed, varied or revoked, the authority conferred shall expire at the conclusion of the
Company’s next annual general meeting or 30 June 2021, if earlier; and
v. Company may make a contract or contracts to purchase Ordinary Shares under the authority conferred prior to
the expiry of such authority which will or may be executed wholly or partly after the expiry of such authority and
may make a purchase of Ordinary Shares in pursuance of any such contract or contracts..
69
Registered Office
Avon House
19 Stanwell Road
Penarth
CF64 2EZ
7 April 2020
BY ORDER OF THE BOARD
Salim Hamir
Company Secretary
2Annual Report 2019 | EKF Diagnostics Holdings plc4 70
Notes
1. The Company specifies that only those members registered on the Company’s register of members at close of business on
8 June 2020 or if this general meeting is adjourned, at close of business on the day two days prior to the adjourned meeting shall be
entitled to attend and vote at the General Meeting.
2.
If you are a member of the Company at the time set out in note 1 above, you are entitled to appoint a proxy to exercise all or any
of your rights to attend, speak and vote at the General Meeting
3. A proxy does not need to be a member of the Company but must attend the General Meeting to represent you. If you wish your
proxy to speak on your behalf at the General Meeting you will need to appoint your own choice of proxy (not the chairman) and
give your instructions directly to them.
4. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You may
not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy, please contact
the Company’s registrars at the address set out in note 5.
5. You can vote either:
6.
by logging on to www.signalshares.com and following the instructions;
7. or you may request a hard copy form of proxy directly from the registrars, Link Asset Services at enquiries@linkgroup.co.uk or or
Tel: 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom
will be charged at the applicable international rate. Lines are open between 09:00 – 17:30, Monday to Friday excluding public
holidays in England and Wales ; or
8.
9.
In the case of CREST members, by utilising the CREST electronic proxy appointment service in accordance with the procedures
set out below.
In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment
submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint
holders appear in the Company’s register of members in respect of the joint holding (the first-named being the most senior).
10. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do
so for the Meeting (and any adjournment of the Meeting) by using the procedures described in the CREST Manual
(available from www.euroclear.com/site/public/EUI). CREST Personal Members or other CREST sponsored members,
and those CREST members who have appointed a service provider(s), should refer to their CREST sponsor or voting
service provider(s), who will be able to take the appropriate action on their behalf.
11.
In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a ‘CREST
Proxy Instruction’) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications and must
contain the information required for such instructions, as described in the CREST Manual. The message must be transmitted so as
to be received by the issuer’s agent (ID RA10) by 11 a.m. on 8 June 2020. For this purpose, the time of receipt will be taken to
mean the time (as determined by the timestamp applied to the message by the CREST application host) from which the
issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any
change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.
12. CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & Ireland
Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations
will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned
to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service
provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure
that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and,
where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST
Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy
Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
13. To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Note that the cut-off
time for receipt of proxy appointments (see above) also apply in relation to amended instructions; any amended proxy
appointment received after the relevant cut-off time will be disregarded.
Where you have appointed a proxy using the hard-copy proxy form and would like to change the instructions using another hard-
copy proxy form, please contact Link Asset Services at the address noted in note 5 above. If you submit more than one valid
proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence.
14. In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard copy notice clearly stating
your intention to revoke your proxy appointment to Link Asset Services at PXS, 34 Beckenham Road, Kent, BR3 4TU. In the case
of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an
officer of the company or an attorney for the company. Any power of attorney or any other authority under which the
revocation notice is signed (or a duly certified copy of such power or authority) must be included with the revocation notice. The
revocation notice must be received by Link Asset Services no later than 11.00 a.m. on 8 June 2020. If you attempt to revoke your
proxy appointment but the revocation is received after the time specified then, subject to the paragraph directly below, your
proxy appointment will remain valid.
Appointment of a proxy does not preclude you from attending the general meeting and voting in person. If you have appointed a
proxy and attend the general meeting in person, your proxy appointment will automatically be terminated.
15. A corporation which is a member can appoint one or more corporate representatives who may exercise, on its behalf, all its
powers as a member provided that no more than one corporate representative exercises power over the same share.
16. Voting on all resolutions will be conducted by way of a poll rather than on a show of hands.
17. As at 5.00 p.m. on the day immediately prior to the date of posting of this notice, the Company’s issued share capital comprised
454,093,227 Ordinary Shares of 1p each. Each ordinary share carries the right to one vote at a general meeting of the Company
and, therefore, the total number of voting rights in the Company as at 5.00 p.m. on the day immediately prior to the date of
posting of this notice is 454,093,227.
Annual Report 2019 | EKF Diagnostics Holdings plc4
Company information
Directors:
Christopher Mills
(Non-Executive Chairman)
Julian Baines MBE
(Chief Executive Officer)
Solicitors to the Company:
Berry Smith LLP
Haywood House Dumfries Place Cardiff
CF10 3GA
Richard Evans
(Chief Operating Officer and Finance Director)
Registrars:
Link Asset Services
The Registry
34 Beckenham Road Beckenham
Kent
BR3 4TU
If you have a query regarding your shareholding please
call (from inside the UK) 0871 664 0300 (calls cost 12p
per minute plus your phone company’s access charge), or
(from outside the UK) +44 371 664 0300
or e-mail shareholderenquiries@linkgroup.co.uk
Financial public relations:
Walbrook PR Limited
4 Lombard Street London
EC3V 9HD
Investor relations email:
investors@ekfdiagnostics.com
Carl Contadini
(Non-Executive Director)
Adam Reynolds
(Non-Executive Director)
Company Secretary:
Salim Hamir
Registered office and Head office:
Avon House
19 Stanwell Road Penarth
Cardiff CF64 2EZ
Place of incorporation:
England and Wales (Company number – 4347937)
Independent Auditors:
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
One Kingsway
Cardiff CF10 3PW
Nominated Advisor and Broker:
N+1 Singer
1 Bartholomew Lane London EC2N 2AX
www.ekfdiagnostics.com
,