Annual Report 2020
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
2-18
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4
10
13
15
17
19-35
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23
25
28
29
36-75
36
37
38
3 9
40
41
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76-79
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2Annual Report 2020 | EKF Diagnostics Holdings plc 2
Financial and Operational Highlights
2020 - Key points
Financial Highlights
Revenue up 45% to £65.3m (2019: £44.9m)
Gross profit up 58% to £37.4m (2019: £23.7m)
Adjusted EBITDA1 up 113% to £25.5m (2019: £12.0m)
Profit before tax £15.4m (2019: £5.5m)
Basic Earnings per share of 2.45p (2019: 0.81p)
Cash generated from operations of £13.8m (2019: £5.1m)
Cash at 31 December 2020 of £21.9m (2019: £12.1m), net cash after borrowings of £21.4m (2019: £11.4m)
Value of investments in marketable securities at year end of £6.5m, after sale of Renalytix shares raised £7.7m
•
•
•
•
•
•
•
•
(2019: £9.7m)
• Maiden cash dividend of £4.5m paid to shareholders, equivalent to 1p per ordinary share
Operational Highlights
Significant improvements in revenue and profits, resulting from successful COVID-19 related contract
Core business held up well in light of the global pandemic: revenues were down £6.5m YoY (-14%), however there
•
manufacturing business
•
were strong performances and signs of a steady recovery are apparent:
− DiaSpect Tm up £548k (+15%), due to strong performance from OEM partners McKesson and Fresenius Kabi
− Quo-Lab up £210k (+9%) due to improved sales in EMEA and improved shelf-life of reagent cartridges
− HemoControl and HemoPointH2 sales down £2.6m (-36%) as anaemia screening programmes were paused or
cancelled, particularly Peru (-£1.1m), and reduced demand from Women & Infants Clinics in US
− β-HB down £847k (-9%) due in part to the fulfilment of large orders from Cardinal in Q4 2019
− Reduced demand for diabetes testing, especially in China and Southeast Asia
− COVID-19 restrictions in laboratories, universities and organized sport impacted research use market for
lactate and clinical chemistry product
•
− Fresenius Kabi up +20% YoY following tender wins in Asia and the Middle East
− Tender win in Rwanda c. 200k tests; screening programmes in Uganda, Ghana, Kenya and Egypt
− First shipment of 1,000 DiaSpect Tm analysers to South Africa following tender win
− CBER2 approval of DiaSpect Tm allows EKF to start selling into US blood banks from March 2021
− Won South Carolina WIC3 tender, displacing HemoCue; other WIC tender opportunities expected
− New pregnancy testing accounts won following exit of major competitor from the US market
− Won Jharkhand (India) tender (3 million DiaSpect Tm cuvettes); additional tenders in the pipeline
Post period end, recovery of core business underway in Q1 2021:
1 Earnings before interest, tax, depreciation and amortisation, share-based payments and exceptional items, as laid out
in the income statement
2 Centre for Biologics Evaluation and Research, part of the US FDA, which (amongst other things) regulates medical
devices involved in the testing of licensed blood, blood components and cellular products
3 Women, Infants and Children
Annual Report 2020 | EKF Diagnostics Holdings plc1 2020 Revenue
2020
2019
+/-
Revenue (£m)
£65.3
£44.9
45%
Net cash (£m)
£21.4
£11.4
88%
Adjusted
EBITDA (£m)
£25.6
£12.0
113%
£37.1
2016
2014
45%Increase in revenues
year on year
2013
£31.8
2015*
£30.0
HEMOGLOBIN
REVENUES
DIABETES
REVENUES
FY 2020
£11,036 (£k)
- 20%
FY 2019
£13,808 (£k)
FY 2020
£19,056 (£k)
- 8%
FY 2019
£20,607 (£k)
3
2020
£65.3
2018
2019
£44.9
2017
£42.5
£38.6
£41.6
Annual revenues
*Restated
£m
CENTRAL
LABORATORY
REVENUES
FY 2020
£30,995 (£k)
+405%
FY 2019
£6,135 (£k)
Annual Report 2020 | EKF Diagnostics Holdings plc1 4
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. In 2020 we very significantly grew our contract manufacturing business.
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. Although EKF sold more than 65 million tests in 2020, the revenue from
analysers and tests was lower than in previous years due to the impact of COVID-19 on diabetes clinics, anaemia screening
programmes and the closure of universities and research institutes. Even the decision to postpone the Olympics had a
detrimental effect as the demand for lactate testing using Lactate Scout and Biosen dropped. EKF expects much, if not
all, of this business to return in 2021
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.
The following pages describe our product portfolio, split broadly into groups by disease class.
2020 Sales
2020
11,167
2019
14,167
ANALYSERS SOLD
TESTS SOLD
-21%
2020
65,014,470
2019
74,139,615
+9%
-12%
Geographical Performance
South Bend and
Elkhart, IN
Leipzig, DE
Magdeburg, DE
APAC (£k)
Moscow, RU
FY 2020 £ 3,747
San Antonio, TX
Shanghai, CN
EMEA (£k)
FY 2020 £16,506
Americas (£k)
FY 2020 £37,162
Revenue
FY 2020
FY 2019
+/- (£k)
APAC
EMEA
3,747
4,509
(762)
24,339
16,506
9,458
AMERICAS
37,162
23,902
11,636
Annual Report 2020 | EKF Diagnostics Holdings plc1 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.
5
Hemo ControlTM
DiaSpect Tm
DiaSpect Hemoglobin T Low
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•
•
Uses ‘gold standard’
methodology (reagent filled
microcuvettes)
Data management capability;
provides a hematocrit
calculation
Proven, robust analyser sold
worldwide
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•
•
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
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•
Hematocrit analyser which uses
unique ultrasound technology
Used in blood banks in the US
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•
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.
Annual Report 2020 | EKF Diagnostics Holdings plc1
6
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 2020 | EKF Diagnostics Holdings plc1
7
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 2020 | EKF Diagnostics Holdings plc1
8
Central Laboratory
Product Portfolio
EKF, through its wholly owned subsidiary Stanbio Laboratory, has had a presence within central laboratory dating back
over 60 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. In 2020 we developed a significant COVID-19 related contract manufacturing
business which Is described more fully on the next page.
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
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•
•
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
Outside of our COVID-19 related contract manufacturing business, 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 2020 | EKF Diagnostics Holdings plc1
9
COVID-19
Product Portfolio
The COVID-19 pandemic changed the way society functions and businesses operate. It also changed the landscape for
diagnostics and pharmaceutical business, possibly forever.
EKF Diagnostics worked with some leading epidemiology organisations during 2020 to develop a small but effective
portfolio of exceptionally high quality products that addressed the needs of the market and helped turn the tide in the
battle against COVID-19.
EKF’s existing relationship as a contract manufacturing partner for Longhorn Vaccines & Diagnostics developed
significantly during 2020. The escalating demand for PrimeStore® MTM in the US spread to Europe following a successful
evaluation of the product by Public Health England. As a result EKF opened production facilities in Germany and the
UK, as well as a second site in the US.
In Q4 of 2020 EKF announced that it was partnering with Kantaro Biosciences to market COVID-SeroKlir – a quantitative
COVID antibody test in the UK and Europe. SeroKlir had received both its CE mark and US FDA Emergency Use
Authorisation by the end of November.
PrimeStore® MTM
PrimeStore® MTM sample collection kits
Kantaro COVID-SeroKlir
• Molecular Transport Media that
preserves and stabilises DNA
and RNA
Allows viral samples to be safely
•
collected, transported and tested
•
•
Sold in vials and in bulk
FDA Class 2 and CE marked
Strategy
For use at home or on-site
Includes a vial of PrimeStore MTM
•
•
and a flocked swab
•
one sample
•
30 days
Test for multiple virus’ from
Stable at room temperature for
Quantitative COVID-19
Peer reviewed in Nature and
•
antibody test
•
Science journals
•
Hospital System in New York
•
in the UK and Germany
Developed by Mount Sinai
EKF is the exclusive distributor
The COVID-19 pandemic created an opportunity for EKF to build on its partnership with Longhorn Vaccines &
Diagnostics by making its facilities available to manufacture PrimeStore® MTM on site at Boerne, Texas. As demand grew
EKF built additional capacity in South Bend and Elkhart, and also in Europe at its manufacturing base on the outskirts
of Magdeburg. The demand for PrimeStore® MTM in the UK drove the need to establish a manufacturing hub in Cardiff.
This in turn grew substantially and necessitated relocation to new premises by the turn of the year.
Sales of PrimeStore® MTM have been focused on the USA, UK and Ireland where there is a demand for high quality
sample collection and testing products that ensure the safety of the sample collection teams, couriers and lab staff. Over
time, demand emerged for a testing kit including swab and packaging from businesses, labs and public health services.
Antibody testing studies have been undertaken since the emergence of COVID-19. The Mount Sinai Hospital System
undertook a comprehensive study in New York throughout 2020 and developed the COVID-SeroKlir test based on
existing technology. EKF’s previous cooperation with Mount Sinai to launch Renalytix AI allowed EKF access to the
technology with the intention of selling the test in the UK, Germany and beyond.
Annual Report 2020 | EKF Diagnostics Holdings plc1
10
Chairman’s Statement
2020 has been an unusual but highly
successful year for EKF and I must first
extend my thanks to the Executive team
for their achievements over the
last
year, which by any standards have been
outstanding and have contributed to a
significant increase in shareholder value.
I am delighted that across our business,
our teams responded very quickly to the
challenges that faced our core business
due to the impact of the global COVID
pandemic.
To their credit, we have
simultaneously and rapidly adjusted the
business to assist our partners in the USA
and Europe in their COVID response.
Consequently, we have had by far our
most successful year to date, with record
turnover and profits. Revenues across the
Group are up 45% to over £65m (2019:
£44.9m) and adjusted EBITDA increased
by 113% to £25.5m (2019: £12.0m). This
strong performance has continued into
the first quarter of 2021 and in January
we announced that Q1 2021 performance
would be materially ahead of current
management expectations and that of the
first quarter of 2020.
Strategy
It is important to note that we continue
to focus heavily on our core business,
which we define as all operations outside
our COVID-19 related product range. Our
major strategy aims are:
1.
2.
3.
4.
to continue to build our installed
point-of-care analysers
base of
which generate an ongoing stream
of revenue through the sale of
proprietary consumables;
to supply a range of clinical chemistry
reagents for use on our own and third
party analysers;
to grow our contract and partnership
enzyme manufacturing business; and
to continue to exploit 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.
Impact of COVID-19
As a global supplier of diagnostic and
clinical chemistry products, we have
experienced disruption in nearly every
market we serve, and despite this we have
still delivered what we consider to be a
robust performance in our core business.
The core business delivered revenues of
over £38m, and whilst this is a reduction
of 14% versus previous year revenues,
this was a better performance than
our own expectations. The second half
showed signs of improved performance
in both Diabetes and Hematology, and
this recovery has continued into the new
financial year.
Our sales and operations teams have
in often trying
worked extremely hard
circumstances – in many cases working from
home and being unable to travel – to limit
the effect on our business, and I believe they
have been very successful. Equally, we have
showed the best strengths of our business
in the way that we have reacted to the
opportunity which arose for viral transport
medium related products.
Having done some preparatory work in
2019, long before the world had heard of
COVID, in March 2020 we signed a contract
manufacturing agreement with Longhorn
Vaccines and Diagnostics LLC in the US
for their FDA-approved PrimeStore® MTM
sample collection device. It is designed to
de-activate pathogens rapidly and stabilise
test samples for up to four weeks with no
requirement for cold storage. This approach
also allows samples to be tested by a greater
number of laboratories, as the handling risks
for the deactivated virus are reduced.
The sudden demand for this product meant
that from a standing start at our facility in
Boerne, Texas, we had to create a supply
chain, a reagent production line and a tube
filling line for a regulated product, along with
all of the associated peripheral activities. We
quickly realised that there would also be a
demand for this product in Europe. In the UK,
a project team was formed which created a
fully manned and trained production facility
from scratch using space that had been
set aside for development activities, and
was up and running in less than 8 weeks. In
Germany, a further production line was also
started.
It has taken enormous flexibility, dedication,
skill, and teamwork, especially from the
project teams set up to create and run these
facilities, but also from everyone else in the
organisation and on behalf of the Board I
would like to extend my thanks to all of them.
Their work is not over; as the pandemic
evolves, so do the needs of our customers,
whose programmes are continuing
into
2021.
MSIP Preferred Partnership Agreement
longstanding
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. EKF has established
a
close working
and
relationship with MSIP, and in 2019 signed
a non-exclusive partnership agreement.
The agreement provided EKF and MSIP
with a framework to explore commercial
opportunities together and to select and
support pioneering medical approaches
that could make improvements to people’s
Annual Report 2020 | EKF Diagnostics Holdings plc1 11
Chairman’s Statement (continuation)
lives and to healthcare economics. EKF has access to
opportunities which benefit from a clinician and demand
focused approach to developing commercially relevant
healthcare products and services. This partnership has
now led to the development of three new businesses
which between them are worth over $1bn: Renalytix
AI plc, the developer of artificial intelligence-enabled
diagnostics for kidney disease; Verici Dx plc, a developer
of advanced clinical diagnostics for organ transplant; and
Trellus Health Limited, a company working to transform
the way chronic conditions are treated, with an initial focus
on Inflammatory Bowel Disease (IBD), including Crohn’s
disease and ulcerative colitis.
During 2020, EKF sold just under 63% of its holding
in Renalytix, raising £7.7m. The remaining holding was
worth £4.9m at year end. Just prior to this sale, the Group
benefited from the receipt of shares in Verici when it was
spun out of Renalytix by way of a dividend in specie. At 31
December this holding was worth £1.6m.
In August, EKF invested $5.0m in Trellus in return for
a 31.1% holding, alongside Mount Sinai and others. In
December, the Company transferred this shareholding to
its then shareholders by way of a dividend in specie. It is
expected that Trellus will complete an IPO in 2021.
The Group continues to work with MSIP to develop further
opportunities.
Share capital
During the year to 31 December 2020 we have again not
utilised the permission we hold from shareholders to
acquire shares for cancellation. It remains our intention to
do so when appropriate.
The process of simplifying our share capital has continued
through the exercise of 900,000 options for a total value
of £209,000 and the cancellation of 25,000 share options
at the election of the holder, in return for a small payment.
Dividend
In December 2020, the Company paid its inaugural
cash dividend of 1p per share as a final dividend for
2019, a total of £4.6m. We are pleased to confirm that,
given the progress in EKF’s business and its strong cash
generation, it is our intention to make a further dividend
payment to shareholders of 1.1p per ordinary share, as
previously indicated. If approved by shareholders at the
Company’s next Annual General Meeting, payment will be
on 1 December 2021 to shareholders on the register on 4
November 2021.
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”). During the present year EKF
shareholders have benefited from very strong increases
in value through the improved performance of the Group
and the investment opportunities that we have followed.
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 Executive Directors each received an equal payment
of approximately £0.23 million in July 2020, comprising a
variable amount calculated as to 5% of the excess value
over 27 pence per share, calculated using a reference
share price of 29 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.
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 29 pence per share. In January
2021, the Executive Directors received a further payment
under the scheme of £0.5m each, in recognition of the
further significant value creation for shareholders. As a
result, the new base line will be 33.4p.
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
The recent COVID-19 pandemic has created uncertainty
in the market in the short term. Many countries remain
closed, and government action continues to have a
significant effect on economies across the 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):
• Ensuring the safety of our employees by organising for
as many staff as possible to work from home and making
appropriate adjustments in the workplace
• 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
• 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.
While we have seen some disruption to our core business
as a result of the COVID-19 pandemic, current trading
suggests that our base case forecasts are still applicable.
In addition, our range of COVID related products has
been highly successful, bringing significant benefits to
the Group, including higher revenue, profits, and cash
balances. We believe the Group is in a strong position,
however, it is difficult to assess reliably whether there will
be any material disruption in the future, and for how long
our COVID range will remain relevant. 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. While the eventual severity
and length of the economic disruption stemming from the
Annual Report 2020 | EKF Diagnostics Holdings plc1 12
Chairman’s Statement (continuation)
pandemic is impossible to forecast these models give the
Directors reasonable confidence that the business can
survive our worst-case scenarios for reductions in revenue
for at least the next 12 months.
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
EKF has come through 2020 in an extremely strong position.
The Group has been able to make a real contribution to the
fight against the COVID-19 pandemic, which sadly has been
very costly for many in lives and income. In doing so, EKF
has delivered on every level and our core business has held
up well.
The improvement in trading in our core business and the
strong demand for COVID-19 sample collection devices has
continued into the new financial year. Whilst necessarily
maintaining a conservative approach to forecasting for
our core business, we have already announced that our
performance for the first quarter of 2021 will be materially
ahead of expectations and the same quarter last year.
This morning’s news that we have expanded a key supply
agreement to become a multi-million dollar global supply
contract, means that we are confident that trading for the
year ending 31 December 2021 will be significantly ahead of
already upgraded expectations
Christopher Mills
Non-executive Chairman
30 March 2021
Annual Report 2020 | EKF Diagnostics Holdings plc1 Chief Executive’s Review
13
In what has been a year like no other I have
been astounded at how my colleagues
at EKF have been able to adapt to the
pandemic, support a solid core business
performance and
introduce a new
manufacturing capability from zero to
a business that is now manufacturing
hundreds of
thousands of COVID-19
sample collection kits per annum. All the
credit for this past 12 months has to go to
the incredible employees at EKF in Wales,
Germany and the US.
It has been a turbulent year as the timing
of lockdowns globally have differed across
the globe, but it has been an incredible
effort from the team to maintain our core
business globally.
As a result, we have come through 2020
with our core customer base intact and
have developed new relationships, both
directly and indirectly, with healthcare
systems and a major corporate partner,
and we’re now seeing signs of recovery
that bodes well for the future performance
of our core business. We also expect to
benefit further from those programmes
suspended during 2020 coming back on-
line this year.
Operations
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, which the
Board considers to be a single segment.
The Board considers the business primarily
from a geographic perspective, but for
interest describes below the performance
of each major product group.
Point-of-Care
Hematology
Hematology delivered a
respectable
£11.0m in revenues, albeit a 20% reduction
on the previous year (2019: £13.8m).
DiaSpect Tm sales bucked the trend and
were up by 15% as the OEM versions we
produce, including those for McKesson
and Fresenius, gained some traction, with
Fresenius winning new business in Asia
and the Middle East.
Sales of our Hemo Control product line
were down by 36% as anemia screening
programmes were either cancelled or
postponed. We saw this particularly in
Peru, which has been very badly affected
by the pandemic and is a major user of our
hemoglobin analyzer. Blood banks and
WIC (Women, Infants, Children) centres
in the US have seen closures and reduced
volumes of patients since COVID struck.
It is incredibly encouraging to see sales in
Peru and US-based WIC sales recovering
in Q1 2021 and this recovery was supported
by the recent WIC tender win in South
Carolina. In addition, this WIC tender win
was the first to include our newly launched
EKF Link connectivity platform. EKF Link
will enable us to enter all tenders moving
forward that require connectivity which
is a significant boost for the Company’s
commercial appeal.
For 2021 we are
looking forward to
anemia programmes returning to normal,
to McKesson’s Consult OEM version of
DiaSpect Tm making continued progress,
and the opportunity to start selling
DiaSpect Tm into blood banks in the US.
Diabetes
Our Diabetes product sales held up very
well against strong headwinds delivering
over £19m of revenues compared to £20.6m
of sales in 2019. The main product that
demonstrated growth during the year was
our HbA1c point-of-care analyzer, Quo-Lab,
which increased by 9%, driven by increased
reagent sales in EMEA; and Stat-Site, which
measures β-HB and glucose in whole blood,
following the launch of the Stat-Site WB
meter which provides results in less than
10 seconds. Other product groups were
affected by COVID-related decreases in
testing volumes as diabetic clinics globally
were closed or had limited opening hours.
The reduction in β-HB Liquicolor reagent
sales of 9% was more due to Cardinal
placing a large initial order for their OEM
branded product in Q4 2019 than a genuine
reduction in demand. Overall, taking this
into account our sales have been in line
with expectations despite the pandemic.
Central Laboratory
Clinical chemistry and Life sciences
There has been a reduced demand in
2020 for chemistries, including enzymes,
analysers and rapid tests, and many of
the development projects we have been
working on, including that with Oragenics,
have been paused as a result of COVID-19.
As a result, sales are down by 21%. We
expect those projects to come back
on stream in 2021, albeit a year behind
our original expectations, with work on
Oragenics and Ixcela due to recommence
in Q3 2021. As a result of the delays, we
have slowed the capital programme at our
South Bend site, and repurposed It to work
on our own COVID products.
Contract manufacturing
While we have always had an interest in
contract manufacturing, this area has
seen a huge increase in revenue in 2020,
rising from £0.18m to £26.3m with this
continuing, so far, into 2021. Starting from
the manufacture of the Primestore MTM
reagent and filling tubes for Longhorn
in the US, activities have expanded to
encompass manufacturing in two sites in
the US, two in the UK, and one in Germany.
This
includes a product portfolio of
additional reagents, filled tubes in multiple
sizes, testing kits, and now full retail packs
with boxed contents including our testing
kits and other materials. Our customer base
has expanded beyond Longhorn to include
Public Health England, clinics, universities,
testing companies, and a large industrial
partner (which we are unable to name for
confidentiality reasons), with sales made to
13 countries in the Americas, Europe and
Africa.
These activities are all associated with viral
testing, and while much of the activity is
driven by COVID, we believe that there will
be an ongoing need for testing for this and
other coronaviruses for the foreseeable
future. However, in light of the uncertainty
about how long this will stay at current
levels, we have mitigated our forward risk
by taking premises on short term leases
Annual Report 2020 | EKF Diagnostics Holdings plc1 14
Chief Executive’s Review (continuation)
with appropriate break clauses and using temporary
labour where possible.
In addition to our COVID related contract manufacturing
success, we have secured rights to Kantaro’s COVID
antibody ELISA test, SeroKlir, which was developed at
Mount Sinai. We believe there are exciting opportunities
for this test.
Other
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. Professional sports medicine has been badly
affected by the various lockdowns throughout our most
important markets.
Regulatory update
Our most important new approvals came in the USA, where
the DiaSpect Tm gained clearance from CBER for use in
blood banks, and Hemo Control gained FDA clearance for
additional data management functionality. We continue to
work hard to succeed.
We are continuing to work towards the new requirements
of the In Vitro Diagnostic Regulation (IVDR) in Europe
which must be in place by May 2022.
Summary
It has been a difficult year for many people across the
world, and I am proud that against this background EKF
has not only survived but flourished. Our partners have
grown to be dependent on the flexibility and high levels
of customer service they are experiencing from EKF,
and our shareholders are benefiting through income and
capital accretion. We have protected our core business
through one of the most difficult periods for business in
recent history, and created millions of pounds of revenue
and profits from new business. Whether this new source of
income continues at the same level or not, I am confident
that the skills we have learnt and the relationships we
have developed will be of benefit to the business for years
to come.
Julian Baines
Chief Executive Officer
30 March 2021
Annual Report 2020 | EKF Diagnostics Holdings plc1 Finance Director’s Review
15
Revenue
Revenue for 2020 was £65.3m (2019:
£44.9m), which is an increase of 45%. At
constant exchange rates, revenue for the
year would have been 1% higher, so organic
growth is 46%.
Revenue by disease state, which
is
presented for illustrative purposes only, is
as follows:
FY 2020
£’000
FY 2019
£’000
+/- %
Hematology
11,037
13,808
(20%)
Diabetes Care
19,056 20,607
(8%)
Central Laboratory
30,995
6,135
+405%
Other
Total
4,172
4,367
(4%)
65,260 44,917
+45%
sales
Central Laboratory
2020
include sales of contract manufacturing
services relating to PrimeStore and other
transport medium products of
viral
£26,799,000 (2019: £44,000).
in
Revenue by geographical segment based
on the locations from which sales are
made, is as follows:
FY 2020
£’000
FY 2019
£’000
+/- %
Germany
20,286
16,418
+24%
USA
Russia
Other
Total
Gross profit
37,692
25,434
+48%
2,904
3,065
(5%)
4,378
-
-
65,260 44,917
+45%
represents
Gross profit is £37.4m (2019: £23.7m),
which
a gross margin
percentage of 57.5% (2019: 52.8%). The
increased gross margin was largely due to
the higher volumes.
Administration costs and research
and development
Administration costs have increased to
£20.7m (2019: £18.3m).
To aid understanding, administrative
expenses in each period are made up as
follows:
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
17,234
17,027
5,292
2,118
(586)
(527)
(1,282)
(338)
20,658
18,280
Non-exceptional
administration
expenditure before
R & D capitalisation
Effect of share-
based payments
Less capitalised
R & D
Effect of
exceptional items
Total
administrative
expenses
The largest effect has been the increased
share-based payment charge, with the
increase mainly being a result of the
Company’s increased share price and a
related increase in volatility.
Research and development costs included
in administration expenses were £1.4m
(2019: £2.3m). A further £0.6m 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
£2.0m (2019: £2.8m). The reduction was
largely a result of the emphasis required
during the year on our COVID related
products. The charge for depreciation of
fixed assets and amortisation of intangible
assets increased to £4.6m (2019: £4.4m).
Operating profit and adjusted
earnings before interest, tax,
depreciation and amortisation
The Group generated an operating profit
of £16.9m (2019: £5.8m). This was largely
a result of the higher activity levels seen
during the year. 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 2020 we achieved adjusted EBITDA
of £25.5m (2019: £12.0m), an increase of
113%. 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 £5.3m (2019: £2.1m), and exceptional
profits of £1.3m (2019: £0.3m), the main
element of which is the increase in fair
value of the warranty claim provision which
offsets the deferred consideration liability,
both of which relate to an outstanding
issue with the previous owner of
EKF-Diagnostic.
Finance costs
Net finance costs have increased to £1.5m
(2019: £0.3m). The main charge, and the
increase, results from an increase in the
fair value of deferred consideration which
is valued using the Company’s share
price. Although the Group holds net cash,
achievable returns on this are very low
because of low interest rates around the
world.
Tax
There is an income tax charge of £4.0m, an
increase from the prior year charge (2019:
£1.6m). The charge is higher than would
have been expected largely because of
the effect of losses in the UK entities for
which a deferred tax asset has not been
recognised as the likely timing of recovery
is considered too remote, as well as the
higher tax rates that apply in Germany and
the USA. Tax of £1.1m has been charged
direct to Other Comprehensive Income.
Annual Report 2020 | EKF Diagnostics Holdings plc1 Cash and working capital
Net cash which excludes marketable securities has
increased to £21.4m from £11.4m. Gross cash has risen
to £21.9m (2019: £12.1m) and Borrowings reduced in
line with repayments to £0.5m (2019: £0.7m). Cash flow
was boosted by the proceeds of the sale of Renalytix
shares (£7.7m), while investments were made in Trellus
and fixed and intangible assets – mainly R & D and an
updated accounting system - totalling £7.0m, and £4.6m
was paid out in cash dividends. Working capital needs
increased by £4.2m, driven by the increases in volume
and by action taken, to ensure supply lines during the
COVID-19 pandemic.
Richard Evans
Finance Director and Chief Operating Officer
30 March 2021
16
Finance Director’s Review (continuation)
Dividend
A cash dividend of 1p per ordinary share was paid in
December, in respect of the final dividend for 2019. In
addition, a dividend in specie was completed which
transferred the Group’s holding in Trellus Health Limited
to EKF shareholder at that time. Dividends are shown in
the Statement of Changes in Equity, and not in the Income
Statement.
Balance sheet
Property plant and equipment and right-of-use assets
Additions to fixed assets were £2.1m (2019: £1.4m).
Major programmes include the continuing work on the
upgrading and refurbishment of the Group’s central
laboratory product manufacturing facility in Elkhart, USA,
the capitalization of new and replacement leases under
IFRS 16 including the new production facility in the UK,
and the building works associated with its set up.
Intangible assets
The carrying value of intangible assets has continued to
fall, from £37.8m in 2019 to £37.1m as at 31 December
2020. This is largely the result of the annual amortisation
charge.
Investments
During the year the Company sold around 63% of the
shares it previously held in Renalytix AI plc (“Renalytix”).
These shares were acquired at an average cost of £1.211
per share and were sold for £4.579 per share. The profit
of £5.64m (less tax) is shown in Other Comprehensive
Income. The Company continues to hold 1.39% of
Renalytix, which itself completed a dividend in specie of
its shareholding in Verici Dx plc (“Verici”), a developer of
advanced clinical diagnostics for organ transplant. Like
Renalytix, Verici has been brought to the public capital
market by virtue of EKF’s relationship with the Mount
Sinai Hospital System. As a result of the distribution of
Verici shares by Renalytix and following the successful
IPO fundraising for Verici in November 2020, EKF now
owns 1.89% of Verici.
Also during the year and again as a result of EKF’s
relationship with Mount Sinai, the Company invested
$5.0m in August for 31.1% of Trellus Health Limited, a
provider of connected digital health solutions for chronic
conditions. The shareholding rights, except for voting
rights, were transferred to EKF’s shareholders via a
dividend in specie in December.
Deferred consideration
The remaining deferred consideration of £2.9m (2019:
£1.4m) relates to a share-based payment to the former
owner of EKF-Diagnostic GmbH, payment of which is
subject to an equal and 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 2021.
Annual Report 2020 | EKF Diagnostics Holdings plc1 Board of Directors
Executive Directors
17
Julian Baines MBE
Chief Executive Officer (aged 56)
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. Julian has been CEO of the
Group since its inception in 2009 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 Trellus Health Limited and Verici Dx plc.
Richard Evans
Chief Operating Officer and Finance Director (aged 63)
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.
Annual Report 2020 | EKF Diagnostics Holdings plc1 18
Board of Directors
Non-Executive Directors
Christopher Mills
Non-Executive Chairman (aged 68)
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 58)
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 72)
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 2020 | EKF Diagnostics Holdings plc1 Strategic Report
for the year ended 31 December 2020
19
The Directors present their Strategic Report for the
year to 31 December 2020.
Review of the business
A review of the business is contained in the Chairman’s
Statement on pages 10 to 12, and in the Chief Executive’s
Review on pages 13 and 14 and the Finance Director’s
Review on pages 15 and 16.
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.
Political risk
A significant proportion of the Group’s revenues are
accounted for by agreements in developing countries. Any
instability in these countries could meaningfully affect the
operations and the revenue of the Group. In particular the
Group has revenues 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 UK has withdrawn from the EU. Although at present
the Group is not facing 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.
Below we describe our risk management approach, the
principal risks and uncertainties faced by the Group and
the controls in place to manage them.
Supply chain continuity
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.
Key employees
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.
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.
Competition risk
to
the Group’s current and
Due
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 confidentiality agreements
regarding
technology,
monitoring technological developments and by selecting
leading businesses in their respective fields as distribution
partners capable of addressing significant competition,
should it arise.
the Group’s know-how and
2Annual Report 2020 | EKF Diagnostics Holdings plc2 20
Strategic Report
for the year ended 31 December 2020
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
where appropriate 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.
While we have seen some disruption to our core business
as a result of the COVID-19 pandemic, current trading
suggests that our base case forecasts are still applicable.
In addition, our range of COVID related products has
been highly successful, bringing significant benefits to
the Group, including higher revenue, profits, and cash
balances. We believe the Group is in a strong position,
however, it is difficult to assess reliably whether there will
be any material disruption in the future, and for how long
our COVID range will remain relevant. 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. 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 our
worst case scenarios for reductions in revenue for at least
the next 12 months.
Climate change risk
Climate change means we may face more frequent or
severe weather events, or that a move towards a greener
economy could mean the Group might face reductions in
asset values or higher costs of doing business. While the
potential economic effect on the Group is uncertain, the
Group does not believe its operations are materially at risk.
The Group seeks to manage this risk by monitoring events
and taking mitigating actions if necessary.
Annual Report 2020 | EKF Diagnostics Holdings plc2 Strategic Report
for the year ended 31 December 2020
21
Review of strategy and business model
Social, community, and human rights
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 and strategic partnerships. 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 includes
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 10 to 12 and the Chief
Executive’s Review on pages 13 and 14 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 15 and 16.
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.
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 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 10 to 14. The Board considers
that its response to the COVID pandemic has been
measured and has allowed it to grasp opportunities as they
have arrived.
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
Group has an open, flexible, and entrepreneurial culture
which has allowed the Group to be flexible and responsive
to customer needs. The Board monitors, assesses,
and promotes the Group’s corporate culture through
discussions with management and employees and through
the use of appropriate measures.
2Annual Report 2020 | EKF Diagnostics Holdings plc2
22
Strategic Report
for the year ended 31 December 2020
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 25.
The Strategic Report was approved by the Board on
30 March 2021 and signed on its behalf by:
Richard Evans
Finance Director and Chief Operating Officer
Annual Report 2020 | EKF Diagnostics Holdings plc2 23
Report of the Directors
for the year ended 31 December 2020
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 2020.
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
in a strong position, however, it is difficult to assess reliably
whether there will be any material disruption in the future,
and for how long our COVID range will remain relevant. 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. 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 our worst case scenarios
for 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.
The Company Secretary is Salim Hamir.
Employee policies
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 10 to 12, the Chief Executive’s Review on pages 13
and 14, and the Finance Director’s Review on pages 15 and
16.
Dividends and share buy back
In December 2020 the Company paid an inaugural final
dividend for 2019 of 1p per share. The Board has noted that
it now intends to follow a progressive dividend policy. If
approved by shareholders at the Company’s next annual
general meeting, payment of a dividend of 1.1p per share
will be on 1 December 2021 to shareholders on the register
on 4 November 2021.
Employee policies are discussed in the Strategic Report on
pages 19 to 22.
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 19 to 22.
Directors’ interests
The interests in the share capital of the Company of those
Directors serving at 31 December 2020 and as at the date
of signing of these financial statements, all of which are
beneficial, were as follows:
On 31 December 2020
Ordinary Shares of
1p each
On 31 December 2019
Ordinary Shares of
1p each
Christopher Mills
136,113,591
136,113,591
Also in December 2020 the Company made a distribution
in specie under which all but one “golden share” of the
Company’s holding in Trellus Health Limited (“Trellus”) was
distributed to relevant EKF shareholders at a rate of one
Trellus share for every 16.25 EKF shares held. More details
on this transaction are given in Note 36.
Julian Baines
Richard Evans
Adam Reynolds
Carl Contadini
1,855,288
178,842
1,668,613
-
1,855,288
178,842
1,668,613
-
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 (2019: no 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. While we have seen some
disruption to our core business as a result of the COVID-19
pandemic, current trading suggests that our base case
forecasts are still applicable. In addition, our range of
COVID related products has been highly successful,
bringing significant benefits to the Group, including higher
revenue, profits, and cash balances. We believe the Group is
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.
2Annual Report 2020 | EKF Diagnostics Holdings plc2 24
Report of the Directors
for the year ended 31 December 2020
Substantial shareholdings
As at 30 March 2021, the following interests in 3% or more
of the issued Ordinary Share capital had been notified to
the Company:
Number of
shares
Percentage of
issued share
capital
Mr Christopher Mills
136,113,591
29.92%
Canaccord Genuity
Wealth Management
LionTrust Asset
Management
Schroder Investment
Management
Stockinvest
29,955,780
6.58%
25,283,659
5.56%
20,848,823
17,631,000
4.58%
3.88%
3.75%
Octopus Investments
17,078,000
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 and parent company
financial statements in accordance with international
accounting standards in conformity with the requirements
of the Companies Act 2006.
Under company law, 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
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 international accounting
standards in conformity with the requirements of the
Companies Act 2006.
• 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’s 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
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 the applicable set
of accounting standards, give a true and fair view of
the assets liabilities, financial position and profit of the
company
the group financial statements, which have been
prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss 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 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
PricewaterhouseCoopers LLP has expressed
their
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
25 to 27 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 76 and 77.
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
30 March 2021 and signed on its behalf by:
Richard Evans
Finance Director and Chief Operating Officer
Annual Report 2020 | EKF Diagnostics Holdings plc2 Corporate Governance Statement
for the year ended 31 December 2020
Compliance
Board meetings
25
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 2020 sought to address the principles
underlying the Code.
9 Board meetings were held during the year, two of which
were technical meetings to approve option issues which did
not require the attendance of the full Board. 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)
7
9
9
7
7
Board composition and responsibility
Carl Contadini (Non-Executive Director)
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.
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.
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.
including a
More details on corporate governance
compliance statement can be found on the Company’s
website at: ekfdiagnostics.com/investors.html.
The Board currently comprises two Executive Directors
and three Non-Executive Directors. Christopher Mills was
appointed as Non-Executive Chairman on 20 April 2016.
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. The Directors keep their skills up to date
through appropriate training and experience both within and
outside the organization.
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.
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 including
corporate governance, 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.
2Annual Report 2020 | EKF Diagnostics Holdings plc2 26
Corporate Governance Statement
for the year ended 31 December 2020
Audit Committee
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.
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:
• Recommend the appointment, re-appointment and
removal of the external auditors. The external audit
process is assessed through discussion within the
committee and with management. If the committee
believes based on this assessment that the external
auditors should be replaced or the audit put out
to tender, this is determined by the full Board. The
Company rotates its auditor or performs a retender
in line with the needs of the business and legislation.
The current auditors have been in place since 2010,
and the audit was last retendered in 2015.There are
no current plans to seek a retender.
• Ensure the objectivity and independence of the
auditors including occasions when non-audit
services are provided. From 2020 the external
auditor does not provide non-audit services.
• 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.
• The committee met once formally during 2020.
All members attended. There were no significant
matters communicated to the Committee by the
Auditors .Key matters of judgement discussed with
the Auditors are noted within the Audit report on
pages 29 to 35.
• 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.
The Committee met twice during 2020. All members
attended all meetings.
Annual Report 2020 | EKF Diagnostics Holdings plc2 27
Corporate Governance Statement
for the year ended 31 December 2020
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
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
Email: investors@ekfdiagnostics.com
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 30 March 2021 and signed on its behalf by:
Richard Evans
Finance Director and Chief Operating Officer
2Annual Report 2020 | EKF Diagnostics Holdings plc2 28
Report of the Remuneration Committee
for the year ended 31 December 2020
Statement of compliance
This report does not constitute a Directors’ Remuneration Report in accordance with The Companies (Directors’
Remuneration Policy and Directors’ Remuneration Report) Regulations 2019 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 2020 is shown In the table below (excluding long-term
incentive plan):
Salary and
fees
£’000
Benefits in
kind
£’000
Bonus
£’000
Pension
£’000
Executive Directors
Julian Baines
Richard Evans
Non-Executive Directors
Christopher Mills
Carl Contadini
Adam Reynolds
276
232
508
25
25
25
75
14
16
30
-
-
-
-
252
253
505
25
25
25
75
Total fees and emoluments
583
30
580
Directors’ share options and Long-Term Incentive Plan
No director holds options under any share option plan.
14
7
21
-
-
-
-
21
2020
£’000
556
508
1,064
50
50
50
150
1,214
2019
£’000
1,637
1,596
3,233
50
50
50
150
3,383
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 terms of the scheme
were again updated in 2020 following payments to each director of approximately £0.23m in July and £0.5m in January
2021. The revised awards vest if a controlling interest in the Company is acquired by a third party prior to 30 June 2024.
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 £11,151,500 using a modified form of a Black Scholes model. The fair value
has been spread over the assumed vesting period, with a charge of £4,998,000 (2019: £1,943,000) recognised in 2020.
The key assumptions used in the model, and details of the updated terms are disclosed in Note 30.
Directors’ interests in the share capital of the Company are disclosed in the Directors’ Report on page 23.
Approved by the Board on 30 March 2021 and signed on its behalf by:
Richard Evans
Finance Director and Chief Operating Officer
Annual Report 2020 | EKF Diagnostics Holdings plc2 Independent auditors’ report to the members of EKF Diagnostics Holdings plc
Report on the audit of the financial statements
29
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 2020 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: Consolidated and Company’s
Statements of Financial Position as at 31 December 2020; Consolidated Income Statement, Consolidated Statement
of Comprehensive Income, Consolidated and Company’s Statements of Cash Flows, and Consolidated and Company’s
Statements 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
Audit scope
• 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 90% of the group’s revenues for the year ended 31 December 2020.
Key audit matters
• Goodwill and intangible asset impairment assessments (group and parent)
• Share-based payment transactions (group and parent)
• Accounting for investment and divestment of Trellus Health Limited (“Trellus”) (group and parent)
• COVID-19 (group and parent)
Key audit matters
• Overall group materiality: £968,000 (2019: £378,000) based on 5% of Adjusted profit before tax (adjusted to
exclude share-based payments and exceptional items).
• Overall parent company materiality: £580,000 (2019: £356,000) based on 1% of total assets.
• Performance materiality: £726,000 (group) and £435,000 (parent company).
2Annual Report 2020 | EKF Diagnostics Holdings plc2 30
Independent auditors’ report to the members of EKF Diagnostics
Holdings plc (continued)
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.
Capability of the audit in detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined in the Auditors’ responsibilities for the audit of the financial statements section, to detect
material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and
regulations related to patent protection, product safety (including but not limited to the US Food and Drug Administration
regulation), employment legislation (including health & safety regulation) and tax legislation, and we considered the extent
to which non-compliance might have a material effect on the financial statements. We also considered those laws and
regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006. We
evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including
the risk of override of controls), and determined that the principal risks were related to posting of inappropriate journal
entries to manipulate financial results and potential management bias in accounting estimates. The group engagement
team shared this risk assessment with the component auditors so that they could include appropriate audit procedures
in response to such risks in their work. Audit procedures performed by the group engagement team and/or component
auditors included:
• Evaluation of the adequacy of the design of management’s controls to prevent and detect irregularities;
• Enquiry of group management and global head of quality and regulatory assurance around known or suspected
instances of non-compliance with laws and regulations and fraud;
• Review of minutes of meetings of those charged with governance;
• Challenging assumptions made by management in its significant accounting estimates, in particular in relation to the
impairment of goodwill and intangibles, share-based payments, and the accounting for the transactions associated
with Trellus Health Limited (see related key audit matters below); and.
•
Identifying and testing the validity of journal entries, in particular any journal entries posted with unusual account
combinations and consolidation journals.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances
of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the
financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion.
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.
Accounting for investment and divestment of Trellus Health Limited is a new key audit matter this year. Otherwise, the key
audit matters below are consistent with last year.
Annual Report 2020 | EKF Diagnostics Holdings plc2 Independent auditors’ report to the members of EKF Diagnostics
Holdings plc (continued)
31
Key audit matter
How our audit addressed the key audit matter
Goodwill and intangible asset impairment assessments
(Group and parent)
At 31 December 2020, the Consolidated Statement of Financial
Position includes £37.0m of intangible assets, of which £24.4m
is goodwill (2019: £23.8m), and £12.6m amortised intangible
assets (2019: £13.9m), being research & development, customer
relationships and trade secrets.
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 most recent financial
results and forecasts for 2021.
The impairment reviews include significant estimates and
judgements in respect of future growth rates and cash flows, the
discount rate employed and profitability.
The impairment reviews indicate that each of the CGUs has
sufficient headroom at 31 December 2020 to support the
carrying value of goodwill and amortised intangible fixed assets..
The CGU with the highest estimation uncertainty is considered
to be DiaSpect. A 2.9% increase in discount rate or a reduction
in forecast revenue growth rates in year 2-5 to 2% would result
in an impairment.
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 parent
company is acquired by a third party before 30 June 2024
(revised - see below). The amount payable under the award
varies depending on the acquisition price.
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 2020 is £6,458,000
(2019: £1,835,000). 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 parent company’s shares. The exit date has been
revised to 30 June 2024 (previously 30 June 2021), based on the
Directors’ best estimate of the probable exit date.
The terms of the award were varied in 2019, and again in 2020,
and the decision was taken by the Remuneration Committee to
make further payments against the scheme of £455,000 in the
year which would otherwise have been paid on exit. A further
payment against the scheme, of £1,000,000 was made in
January 2021, which is included in the liability recognised at the
balance sheet date.
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.
Disclosure in respect of these awards, including sensitivities of
the key assumptions, is included in Note 30.
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 and the integrity of the model used in performing
the assessments and evaluated key inputs including;
• The projected growth rates used, both over the short-term
to 2025 and over the longer-term;
• The discount rate used;
• Other key inputs, including the applicable tax rate,
forecast capital expenditure and forecast margins.
We also considered 2020 performance vs budget and
performance in the first part of 2021. We performed a range of
sensitivity analyses to assess the impact of changes to significant
assumptions (specifically the short-term revenue growth rates,
including the impact of COVID-19 and the recovery of the
core business, and the discount rate applied) to those used by
management. Further, the group’s current market capitalisation
significantly exceeds consolidated net assets, which does not
indicate an impairment.
We concur with management’s assessment that no impairment
charge is required in respect of goodwill and intangible assets.
Management has disclosed the results of its sensitivity analysis
in Note 18
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 independent and
reliable third-party data. We also recalculated the liability using a
standard Black-Scholes model. It was identified that the revised
agreements incorporated a performance payment of £1,000,000
which was made subsequent to the year end. The model was
consequently updated to reflect the payment as a liability at
the balance sheet date, resulting in an increased liability at 31
December 2020 of £438,000 to £6,458,000. This has been
appropriately corrected in the financial statements.
We challenged management in respect of the assumptions
made, including the expected exit date and expected share-price
volatility and assessed these for reasonableness.
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, and the sensitivities
disclosed reflect the impact of changes in the key assumptions
on the liability recognised at 31 December 2020
2Annual Report 2020 | EKF Diagnostics Holdings plc2 32
Independent auditors’ report to the members of EKF Diagnostics
Holdings plc (continued)
Key audit matter
How our audit addressed the key audit matter
Accounting for investment and divestment of Trellus Health
Limited (“Trellus”) (group and parent)
In August 2020, the parent company invested $5,000,000
(£3,810,000) for a 31.1% shareholding in Trellus. In December 2020,
the parent company made a distribution in specie, whereby with
the exception of a single “golden” share, the parent company’s
shareholding in Trellus was distributed to ordinary shareholders
of the parent company at a total value of £3,810,000.
Judgement has been applied in the estimation of the fair value
of the non-cash dividend, which the Directors have concluded as
being equivalent to the cost of the investment.
At 31 December 2020 the “golden” share retained all of the
voting rights of the shares in Trellus previously held by the group,
and is classified as an associate company. Because the group no
longer has the beneficial ownership of 31.1% of its shares, and
on the admission to AIM or another recognised stock exchange,
or after two years, the Golden Share will convert to an ordinary
share, and the voting rights will transfer to the distributed shares,
the Golden Share has been measured at the nominal value (84p)
at the balance sheet date, as disclosed in Note 36.
Equity accounting has not been applied to the investment, in the
directors’ view of the acquisition and disposal occurring in the
same financial period.
There is common directorship of Trellus, where Christopher Mills
and Julian Baines, who are both directors of EKF, and Mike Salter
who is the Chief Executive of the US subsidiaries, were also
Directors of Trellus during the year, and at the year end. Related
parties are disclosed in Note 35.
COVID-19 (group and parent)
The emergence of COVID-19 has impacted all businesses, both
financially and operationally, and creates significant uncertainty
in the wider economic environment. Management refer to their
assessment of the pandemic risk and the mitigating actions
taken, in the principal risk and uncertainties section within the
strategic report on page 19.
The group reacted to the opportunity which arose for viral
transport medium related products as a result of the pandemic,
and developed a COVID-19 product portfolio which has
contributed to the significant growth in revenues and profitability
for the year.
However, the group recognises the risk that the pandemic has
on the disruption to their core business, with revenues down
14% versus the previous year. Their strategy continues to be
the protection of their core business, and recognition that while
there is high demand for their COVID-19 product offerings, this is
relatively short-term.
The Directors have prepared detailed projections of future cash
flows to December 2022 which reflect a number of downside
scenarios.
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
significant reductions in revenue for 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.
We obtained management’s assessment and evaluated the
appropriateness of the judgements applied in the accounting
treatment of the transaction, and the key assumptions used in
the estimate of the valuation of the shareholding and non-cash
dividend in the financial statements. This included the following;
• We obtained and reviewed the key terms of the signed
subscription agreement to determine the group had
significant influence but not control of Trellus, given the
shareholding held by related parties of the EKF group at
the time of the transaction.
• The distribution of the shares are within the scope of
IFRIC 17, which requires a fair value to be assigned to the
distribution. We obtained an external valuation report to
support that despite the related party nature, the price
paid of $5,000,000 for the shares obtained represents a
fair market value at the time of the transaction. We also
obtained and reviewed the trading results of Trellus up to
the date of distribution to assess any material variations
in its valuation between the time of investment and
divestment. The trading result attributable to EKF on a
proportionate basis was immaterial, and therefore the fair
value of the non-cash dividend distributed in December
2020 being equal to the initial investment in August 2020
is considered reasonable. This also supports that the
impact of the transactions if equity accounting was to be
applied to the investment, are not significant.
• We corroborated the distribution of the shareholding to
supporting evidence, and implications of the “golden”
share to the underlying subscription agreement. We
concur with management that the “golden” share has
negligible economic value to the holder, and valuing the
remaining “golden” share at 31 December 2020 at the
nominal value; 84p is reasonable.
We concur with management on the accounting treatment of the
transaction and evaluated the disclosures in the Annual Report
and confirmed it adequately describes the nature of the events.
While parts of the business continue to work remotely, there was
no evidence to suggest a breakdown in the control environment
as part of our audit work. Sufficient and appropriate audit
evidence was obtained, despite the audit being performed
remotely.
We obtained the group’s modelled scenarios and evaluated the
appropriateness of key assumptions and inputs including;
• Verifying the integrity of the model as well as agreeing
underlying cash flow projections to management
approved forecasts;
• Assessing the accuracy of management’s forecasts by
obtaining management information for the financial
performance year to date, and evaluating the key
assumptions within management’s forecasts;
• Assessing whether stress testing performed by
management including plausible scenarios affecting the
business, and the feasibility of mitigation actions in the
stress testing scenarios.
Based on our work undertaken across the group, we did not
identify any other material impacts of COVID-19 on the group
and parent company’s key judgements and significant estimates.
We obtained evidence to support management’s disclosures in
the financial statements, and agreed the relevant disclosures
within the Annual Report, and verified the consistency of these
with the financial statements and our knowledge of the audit
Annual Report 2020 | EKF Diagnostics Holdings plc2 Independent auditors’ report to the members of EKF Diagnostics
Holdings plc (continued)
33
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). Manufacturing activities also occurred in the UK for the first time during the year, with
external revenues earned from the COVID-19 products. 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. A full-scope 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 90% of the group’s 2020 revenues. Where component auditors were engaged, we adopted
procedures to ensure we were sufficiently involved in their audits. These 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 in key risk areas.
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:
Group financial statements
Parent company financial statements
Overall materiality
£968,000 (2019: £378,000).
£580,000 (2019: £356,000).
How we determined it
Rationale for benchmark applied
5% of Adjusted profit before tax (adjusted
for share-based payments and exceptional
items)
Based on the benchmarks used in the
Annual Report, a profit-based measure
has been used which is a primary measure
used by the shareholders in assessing the
performance of the group. We have used
profit before tax, adjusted for share-based
payments and exceptional items, which
are disclosed separately to aid the users of
the financial statements. The rationale is
consistent with the previous year.
1% of total assets.
Historically, an asset-based measure
was used for the parent company as no
external revenues were generated, and
the Company's Statement of Financial
Position was included in the Annual Re-
port. While external revenues have been
earned by the parent company for the first
time during the year, the revenue stream
is considered temporary, based on the
longevity of the COVID-19 opportunities,
and therefore an asset-based measure
remains appropriate. In the previous year,
the statutory materiality was limited to
component materiality allocation.
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 £85,000 and £902,000. Certain components were
audited to a local statutory audit materiality that was also less than our overall group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected
and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the
scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for
example in determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to £726,000
for the group financial statements and £435,000 for the parent company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk
assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our
normal range was appropriate.
We agreed with those charged with governance that we would report to them misstatements identified during our
audit above £48,000 (group audit) (2019: £18,000) and £29,000 (parent company audit) (2019: £17,000) as well as
misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
2Annual Report 2020 | EKF Diagnostics Holdings plc2 34
Independent auditors’ report to the members of EKF Diagnostics
Holdings plc (continued)
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group’s and the parent company’s ability to continue to adopt the going
concern basis of accounting included:
• Verifying the integrity of the model as well as agreeing underlying cash flow projections to management
approved forecasts;
• Assessing the accuracy of management’s forecasts by obtaining management information for the financial
performance year to date, and evaluating the key assumptions within management’s forecasts;
• Assessing whether stress testing performed by management included plausible scenarios affecting the business,
and the feasibility of mitigating actions in the stress testing scenarios
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the group’s and the parent company’s ability to continue as
a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group’s
and the parent company’s ability to continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
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 our work undertaken in the course of the audit, the Companies Act 2006 requires 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 2020 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 2020 | EKF Diagnostics Holdings plc2 Independent auditors’ report to the members of EKF Diagnostics
Holdings plc (continued)
35
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 in respect of the financial statements, 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.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data
auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing
complete populations. We will often seek to target particular items for testing based on their size or risk characteristics.
In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample
is selected.
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.
Heather Ancient (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Cardiff
31 March 2021
2Annual Report 2020 | EKF Diagnostics Holdings plc2 36
Consolidated Income Statement
for the year ended 31 December 2020
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
6
7
5
12
12
13
14
14
The notes on pages 42 to 75 are an integral part of these consolidated financial statements.
2020
£’000
65,260
(27,840)
37,420
(20,658)
133
16,895
(4,611)
(5,292)
1,282
25,516
53
(1,592)
15,356
(3,971)
11,385
11,114
271
11,385
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
Pence
Pence
2.45
2.42
0.81
0.80
Annual Report 2020 | EKF Diagnostics Holdings plc3 Consolidated Statement of Comprehensive Income
for the year ended 31 December 2020
37
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 (net of tax)
31
Note
Currency translation differences
Other comprehensive income (net of tax)
Total comprehensive income for the year
Attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive income for the year
2020
£’000
11,385
3,276
734
4,010
15,395
15,235
160
15,395
2019
£’000
3,932
6,505
(3,096)
3,409
7,341
7,057
284
7,341
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 42 to 75 are an integral part of these consolidated financial statements.
Annual Report 2020 | EKF Diagnostics Holdings plc3 38
Consolidated and Company’s Statements of Financial Position
As at 31 December 2020
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
Current income tax receivable
Cash and cash equivalents
Total current assets
Total assets
Equity attributable to owners of the parent
Share capital
Share premium
Other reserves
Foreign currency reserves
Retained earnings
Non-controlling interest
Total equity
Liabilities
Non-current liabilities
Lease 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
16
17
18
19
21
22
28
23
22
24
29
29
31
17
26
28
25
17
27
26
Group
2020
£’000
12,620
1,019
37,051
-
Group
2019
£’000
Company
2020
£’000
12,179
1,002
37,767
1,559
328
128
-
30,521
6,608
9,900
-
14
-
34
6,608
6,670
-
Company
2019
£’000
1,417
270
128
30,521
9,900
15,326
19
57,312
60,882
45,814
57,581
8,487
13,182
371
21,913
43,953
101,265
4,550
200
5,354
4,028
63,516
77,648
552
78,200
690
323
2,636
3,649
14,435
380
2,901
1,515
185
19,416
23,065
101,265
6,073
8,097
-
12,074
26,244
87,126
4,541
-
6,648
3,183
56,199
70,571
601
71,172
716
480
2,619
3,815
7,470
286
1,385
2,823
175
12,139
15,954
87,126
631
1,476
-
10,045
12,152
57,966
4,550
200
5,313
-
31,981
42,044
-
-
178
-
1,999
2,177
59,758
4,541
-
6,607
-
39,917
51,065
-
42,044
51,065
221
-
-
221
12,162
158
2,901
480
-
15,701
15,922
57,966
76
-
-
76
6,146
93
1,385
892
-
8,617
8,693
59,758
The notes on pages 42 to 75 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 £4,139,000 (2019: loss of £3,647,000).
The financial statements were approved and authorised for issue by the Board on 30 March 2021 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 2020 | EKF Diagnostics Holdings plc3 Consolidated and Company’s Statements of Cash Flows
for the year ended 31 December 2020
39
Notes
Group
2020
£’000
Group
2019
£’000
Company
2020
£’000
Company
2019
£’000
Cash flow from operating activities
Cash generated by/(used in) operations
34
20,798
34
Interest paid
Income tax paid
Net cash generated by/(used in) operating activities
Cash flow from investing activities
Purchase of investments
Purchase of property, plant and equipment (PPE)
Purchase of intangibles
Proceeds from sale of PPE
Proceeds from sale of investments
Interest received
Net cash generated by/( used in) investing activities
Cash flow from financing activities
Share option buy back
Proceeds from issuance of Ordinary shares
Dividend
Repayments on borrowings
Principal lease payments
Dividend payment to non-controlling interest
Net cash used in financing activities
Net increase/(decrease) 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
(47)
(6,942)
13,809
(3,810)
(1,631)
(1,014)
68
7,670
53
1,336
(7)
209
(4,550)
(183)
(469)
(209)
(5,209)
9,936
12,074
(97)
21,913
6,519
(21)
(1,398)
5,100
(124)
(1,418)
(957)
30
-
73
9,712
(21)
(911)
8,822
(3,810)
(222)
-
-
7,670
-
(1,365)
-
(20)
(1,385)
(124)
(74)
(56)
-
-
20
(2,396)
3,638
(234)
(15)
-
-
(180)
(381)
(58)
(634)
2,070
10,282
(278)
12,074
(7)
209
(4,550)
-
(109)
-
(4,457)
8,003
1,999
43
10,045
(15)
-
-
-
(101)
-
(116)
(1,735)
3,721
13
1,999
Annual Report 2020 | EKF Diagnostics Holdings plc3 40
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
Consolidated
At 1 January 2019
Comprehensive income
Profit for the year
Other comprehensive income
/(expense)
Changes in fair value of equity
instruments at fair value
through other comprehensive
income
Currency translation differences
Total comprehensive
income/(expense)
Transactions with owners
Share option cancellation
Dividends to non-controlling
interest
Total distributions to owners
At 31 December 2019 and
1 January 2020
Comprehensive income
Profit for the year
Other comprehensive income
Changes in fair value of equity
instruments at fair value
through other comprehensive
income
Transfer of gain on disposal of
equity investments at fair value
through other comprehensive
income to retained earnings
Taxation on profit on disposal
of equity instruments at fair
value
Currency translation differences
Total comprehensive income
Transactions with owners
Proceeds from share issue
Share option cancellation
Dividends to non-controlling
interest
Dividends to owners
Total distributions to owners
Notes
Share
capital
£’000
4,541
-
-
-
-
-
-
-
4,541
-
-
-
-
-
-
9
-
-
-
9
31
31
31
29
30
15
At 31 December 2020
4,550
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
200
-
-
-
200
200
Share
premium
account
£’000
Other
reserves
£’000
Foreign
currency
reserve
£’000
Retained
earnings
£’000
Non-
controlling
interest
£’000
Total
£’000
Total
equity
£’000
143
6,309
52,536
63,529
375
63,904
-
6,505
-
-
-
(3,126)
3,678
3,678
254
3,932
-
-
6,505
-
6,505
(3,126)
30
(3,096)
6,505
(3,126)
3,678
7,057
284
7,341
-
-
-
-
-
-
(15)
(15)
-
-
(15)
(15)
-
(58)
(58)
(15)
(58)
(73)
6,648
3,183
56,199
70,571
601
71,172
-
4,348
(5,642)
-
-
(1,294)
-
-
-
-
-
-
-
-
-
11,114
11,114
271
11,385
-
4,348
5,642
-
(1,072)
(1,072)
-
-
-
845
845
-
845
15,684
15,235
(111)
160
4,348
-
(1,072)
734
15,395
-
-
-
-
-
-
(7)
-
209
(7)
-
-
209
(7)
-
(209)
(209)
(8,360)
(8,360)
-
(8,360)
(8,367)
(8,158)
(209)
(8,367)
5,354
4,028
63,516
77,648
552
78,200
Annual Report 2020 | EKF Diagnostics Holdings plc3 Company Statement of Changes in Equity
For the year ended 31 December 2020
41
Company
At 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
Share
capital
£’000
4,541
-
-
-
-
Total contributions by and distributions to owners
At 31 December 2019 and 1 January 2020
4,541
Comprehensive income
Loss for the year
Other comprehensive income/(expense)
Changes in fair value of equity instruments at fair
value through other comprehensive income
Recycling of reserves in respect of disposal of
equity instruments at fair value
Taxation on profit on disposal of equity instruments at fair value
Total comprehensive (expense)/income
Transactions with owners
Proceeds from shares issued
Share option cancellation
Dividends to owners
Total contributions by and distributions to owners
-
-
-
-
-
9
-
-
9
At 31 December 2020
4,550
Share
premium
£’000
Other
reserves
£’000
Retained
earnings
£’000
Total
£’000
-
-
-
-
-
-
-
-
-
-
-
-
102
43,579
48,222
-
(3,647)
(3,647)
6,505
-
6,505
6,505
(3,647)
2,858
-
-
(15)
(15)
(15)
(15)
6,607
39,917
51,065
-
(4,139)
(4,139)
4,348
-
4,348
(5,642)
5,642
-
-
(1,072)
(1,072)
(1,294)
431
(863)
200
-
-
-
209
-
(7)
(7)
-
-
(8,360)
(8,360)
200
200
-
(8,367)
(8,158)
5,313
31,981
42,044
Annual Report 2020 | EKF Diagnostics Holdings plc3 42
Notes to the Financial Statements
for the year ended 31 December 2020
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 have been prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act 2006 (‘IFRS’), and the applicable legal
requirements of the Companies Act 2006.
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 has applied the following standards and amendments for the first time for their annual reporting period
commencing 1 January 2020:
• Definition of Material – Amendments to IAS 1 and IAS 8;
• Definition of a Business – Amendments to IFRS 3;
•
Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39 and IFRS 7; and
• Revised Conceptual Framework for Financial Reporting.
The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected
to significantly affect the current or future periods.
(b) New standards, amendments and interpretations issued but not effective for the financial year beginning
1 January 2020 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 2021, 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 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. While we have seen some disruption to our core business as a result of the COVID-19 pandemic, current
trading suggests that our base case forecasts are still applicable. In addition, our range of COVID related products has
been highly successful, bringing significant benefits to the Group, including higher revenue, profits, and cash balances.
We believe the Group is in a strong position, however, it is difficult to assess reliably whether there will be any material
disruption in the future, and for how long our COVID range will remain relevant. 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. 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 our worst case scenarios for reductions in revenue for at least the next 12 months.
The Company has net current liabilities, largely as a result of non-cash Items. The Group is profitable and cash generative
and is able to provide funding for the Company if required, through loans or dividends.
After making enquiries, the Directors have a reasonable expectation that the Company and Group have adequate resources
to continue in operational existence for the foreseeable future. The Company and Group therefore continues to adopt the
going concern basis of preparation for its consolidated financial statements.
Annual Report 2020 | EKF Diagnostics Holdings plc3 43
Notes to the Financial Statements
for the year ended 31 December 2020
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.
Associates are all entities over which the group has significant influence but not control or joint control. This is generally
the case where the group holds between 20% and 50% of the voting rights. The Group has retained the voting rights
covering the 31.1% shareholding in Trellus Health Limited which was transferred to EKF shareholders by way of a dividend
in specie. These voting rights will vest in the shareholders of Trellus once an initial public offer has been completed by
Trellus. The remaining investment in Trellus has therefore been treated as an investment in an associate for the purposes
of these accounts, at a nominal value. Equity accounting has not been applied as the investment in Trellus and its disposal
were within the same period and the impact of the equity accounting transactions are immaterial.
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 2020 | EKF Diagnostics Holdings plc3
44
Notes to the Financial Statements
for the year ended 31 December 2020
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
2%–2.5%
Buildings
Leasehold improvements 20% or over the life of the lease if under 5 years
Fixtures and fittings
Plant and machinery
Motor vehicles
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 asset represents the value at acquisition of long term relationships with customers. 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 2020 | EKF Diagnostics Holdings plc3 45
Notes to the Financial Statements
for the year ended 31 December 2020
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.
(f) 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 6 – 8 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. Purchases and sales of these assets are valued at the date of trade.
Annual Report 2020 | EKF Diagnostics Holdings plc3
46
Notes to the Financial Statements
for the year ended 31 December 2020
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.
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, and large corporate customers, 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 2020 | EKF Diagnostics Holdings plc3 47
Notes to the Financial Statements
for the year ended 31 December 2020
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
The Group and Company’s leasing policy is described in Note 17.
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 an equity-settled, share-based compensation plan, 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. Sensitivities relating to the valuation of the scheme are discussed in Note 30
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 2020 | EKF Diagnostics Holdings plc3 48
Notes to the Financial Statements
for the year ended 31 December 2020
(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 2020 | EKF Diagnostics Holdings plc3 49
Notes to the Financial Statements
for the year ended 31 December 2020
Rate compared to GBP
Euro
Russian Rouble
US Dollar
Average
rate 2020
Average
rate 2019
Year end
rate 2020
Year end
rate 2019
1.127
94.889
1.293
1.144
82.840
1.280
1.117
101.139
1.366
1.182
82.369
1.327
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 £60,000 (2019: £31,000) and
£202,000 (2019: £43,000) 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 2020:
Borrowings
Lease liabilities
Deferred consideration
Trade and other payables
At 31 December 2019:
Borrowings
Lease liabilities
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
185
380
2,901
13,051
175
286
1,385
7,152
185
287
-
-
175
214
-
-
138
403
-
-
305
489
-
-
-
-
-
-
-
13
-
-
Total
£’000
508
1,070
2,901
13,051
655
1,002
1,385
7,152
The maturity of the Company’s non-derivative financial liabilities is all less than one year.
Annual Report 2020 | EKF Diagnostics Holdings plc3 50
Notes to the Financial Statements
for the year ended 31 December 2020
(d) Capital risk management
Capital risk
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. In order to maintain or adjust its capital structure, the Group might adjust the amount of
dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
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 or net cash plus equity.
Dividends on ordinary shares
Group and Company
Final dividend for the year ended 31 December 2019 of 1p per ordinary share
Dividend in specie of shares in Trellus Health Limited at fair value
2020
£’000
4,550
3,810
2019
£’000
-
-
In addition, since the year end the directors have recommended the payment of a final dividend of 1.1p per ordinary share
(2019: 1p). The aggregate amount of the proposed dividend expected to be paid on 1 December 2021 out of retained
earnings at 31 December 2020 but not recognised as a liability at year end is £5,005,000 (2019: £4,550,000).
(e) Fair value estimation
Fair value for the investments in Renalytix AI plc and Verici Dx plc were determined by reference to their published price
quotation in an active market (classified as level 1 in the fair value hierarchy).
Group and Company
AIM listed ordinary shares – Renalytix AI plc
AIM listed ordinary shares – Verici Dx plc
2020
£’000
4,889
1,567
2019
£’000
9,748
-
During the year the Company sold 1,675,000 Renalytix AI plc shares, retaining 1,002,981.
The Group and Company did not have any Level 2 or 3 classified financial assets as at 31 December 2020 (2019: 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 estimates
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 where we also detail the
sensitivity of changes in the key assumptions.
(b) Share-based payments
A number of accounting estimates 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 including the impact of possible changes
in the key assumptions.
(c) Trellus Health Limited
The Group invested $5.0m to acquire 31.1% of Trellus in August 2020. Further details of this transaction are given in Note
36. In December 2020, the Group distributed its shareholding in Trellus to its shareholders (with the exception of one
“golden” share) by way of a dividend in specie. The fair value of the dividend has been judged as being the equivalent of
the cost of the investment. The “golden” share is valued at its cost of 84p at 31 December 2020.
(d) Recoverability of deferred tax assets
Deferred income tax assets are recognised to the extent that the realisation of the related tax benefit through future
taxable profits is probable. This Involves an assessment of when those deferred tax assets are likely to reverse and a
judgement as to whether or not there will be sufficient taxable profits available to offset the tax assets when they do
reverse. This requires assumptions regarding future probability and timing, and is therefore inherently uncertain. The
unrecognised deferred tax assets are described in more detail in note 28.
Annual Report 2020 | EKF Diagnostics Holdings plc3 51
Notes to the Financial Statements
for the year ended 31 December 2020
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 2020 | EKF Diagnostics Holdings plc3 52
Notes to the Financial Statements
for the year ended 31 December 2020
5. Segmental reporting continued
The segment information provided to the Board for the reportable segments for the year ended 31 December 2020 is as
follows:
2020
Income statement
Revenue
Inter-segment
External revenue
Germany
£’000
USA
£’000
Russia
£’000
Other
£’000
Total
£’000
25,637
(5,351)
20,286
39,459
(1,767)
37,692
2,904
-
2,904
4,432
(54)
4,378
72,432
(7,172)
65,260
Adjusted EBITDA*
7,343
20,094
833
(2,754)
25,516
Exceptional items (Note 7)
877
-
Share-based payments (Note 30)
-
-
EBITDA
Depreciation
Amortisation
Operating profit/(loss)
Finance income
Finance cost
Income tax
8,220
20,094
(787)
(1,646)
(511)
(1,120)
5,787
2
(26)
(820)
18,463
13
-
(3,497)
Retained profit/(loss)
4,943
14,979
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
39,961
(112)
39,849
3,130
42,979
36,899
(11,427)
25,472
7,459
32,931
7,135
17,836
(1,332)
(14,915)
5,803
508
6,311
5,912
24,039
779
679
2,921
-
2,921
4,632
10,979
575
335
* Adjusted EBITDA excludes exceptional items and share-based payments.
-
-
833
(24)
(1)
808
39
-
(171)
676
355
-
355
1,257
1,612
158
-
158
-
158
93
77
54
-
405
1,282
(5,292)
(5,292)
(7,641)
21,506
(522)
(1,844)
- (2,767)
(8,163)
16,895
(1)
(1,566)
517
53
(1,592)
(3,971)
(9,213)
11,385
30,529
107,744
(16,853)
(28,392)
13,676
79,352
10,067
21,913
23,743
101,265
25,820
50,949
(12,145)
(28,392)
13,675
22,557
-
508
13,675
23,065
3,002
1,956
741
-
13,639
37,051
2,149
1,014
Annual Report 2020 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2020
5. Segmental reporting (continued)
53
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
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
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
7,926
(2,938)
4,988
655
5,643
6,006
24,172
872
739
25,434
-
25,434
3,065
-
3,065
-
-
-
8,016
782
(4,228)
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
721
56
15,299
655
15,954
13,181
37,767
2,065
957
-
-
-
8,016
(387)
(1,161)
6,468
7
-
(449)
6,026
24,630
-
24,630
5,480
30,110
15,162
(11,777)
3,385
-
3,385
4,679
12,115
455
162
-
-
-
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.
‘Other’ primarily relates to the holding company and head office costs.
Annual Report 2020 | EKF Diagnostics Holdings plc3 54
Notes to the Financial Statements
for the year ended 31 December 2020
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
2020
£’000
33,474
2,391
5,873
4,522
8,535
2,904
1,261
2,553
767
2,883
97
65,260
2019
£’000
19,955
3,947
6,268
435
3,484
3,066
1,771
1,482
822
3,578
109
44,917
Revenues of £16,960,000 (26.0%) were derived from one external customer. Sales to this customer all relate to the USA.
In 2019 revenues of £5,122,000 (11.4%) were derived from a different customer, all of whose revenues relate to the USA.
Revenue by disease state, which is presented for illustrative purposes only, is as follows:
Hematology
Diabetes Care
Central Laboratory
Other
Total
FY 2020
£’000
FY 2019
£’000
+/- %
11,037
13,808
(20%)
19,056 20,607
(8%)
30,995
6,135
+405%
4,172
4,367
(4%)
65,260 44,917
+45%
Central Laboratory sales in 2020 include sales of contract manufacturing services relating to PrimeStore and other viral
transport medium products of £26,799,000 (2019: £44,000).
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
Other expenses
Total cost of sales and administrative expenses
2020
£’000
12,502
23,744
(441)
4,611
(1,282)
1,440
(26)
7,950
48,498
2019
£’000
9,590
18,321
(325)
4,441
(338)
2,267
86
5,428
39,470
Included within the above expenses are exceptional items as set out in note 7.
Annual Report 2020 | EKF Diagnostics Holdings plc3 55
Notes to the Financial Statements
for the year ended 31 December 2020
7. Exceptional items
Included within administrative expenses are exceptional items as shown below:
– Warranty claim
– Business reorganisation costs
– Cost of Trellus set-up
Exceptional items
Note
a
b
c
2020
£’000
1,414
(58)
(74)
1,282
2019
£’000
367
(29)
-
338
a. Increase in the value of an estimated warranty claim which offsets the remaining deferred consideration of £2.9m
(2019: £1.4m) relating to a share-based payment to the former owner of EKF-Diagnostic GmbH. The increase is a
result of the higher share price.
b. Restructuring costs, mainly closure costs, associated in 2020 and 2019 with the closure of EKF’s Polish facility
and other restructuring activities.
c. Start-up costs associated with the set-up of Trellus Health Limited.
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
– Tax compliance services
9. Directors’ emoluments
Aggregate emoluments
Share-based payments
Contribution to defined contribution pension scheme
2020
£’000
44
90
-
134
2020
£’000
1,193
4,998
21
6,212
2019
£’000
37
73
11
121
2019
£’000
3,366
1,943
17
5,326
Retirement benefits are accruing to 2 (2019: 2) current directors under a defined contribution scheme. See further
disclosures within the Remuneration Report on page 28. The highest paid director received aggregate emoluments,
including the effect of the share-based payments charge, of £3,055,000 (2019: £2,609,000).
Annual Report 2020 | EKF Diagnostics Holdings plc3 56
Notes to the Financial Statements
for the year ended 31 December 2020
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
2020
£’000
15,971
2,219
5,292
262
23,744
Group
2019
£’000
13,847
2,129
2,118
227
18,321
Company
2020
£’000
2,705
277
568
71
3,621
Company
2019
£’000
2,115
126
2,118
51
4,410
Employee costs of £0.4m (2019: £0.3m) 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
2020
£’000
Group
2019
£’000
Company
2020
£’000
Company
2019
£’000
54
23
56
205
338
59
17
56
168
300
9
10
9
17
45
11
5
12
1
29
The total number of employees (FTEs) in the Group at 31 December 2020 was 356 (2019: 309), and in the Company was
53 (2019: 29).
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
2020
£’000
2019
£’000
17
30
29
1,516
1,592
-
53
53
1,539
21
-
37
281
339
6
67
73
266
Annual Report 2020 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2020
13. Income tax charge
Group
Current tax:
Current tax on profit for 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
57
2020
£’000
3,913
(89)
4,002
(31)
(31)
3,971
2019
£’000
2,096
(94)
2,002
(416)
(416)
1,586
On 3 March 2021, the Chancellor of the Exchequer announced that the main rate of corporation tax in the United Kingdom
will rise to 25% with effect from 1 April 2023 for companies earning annual taxable profits in excess of £250,000.
Companies earning annual taxable profits of £50,000 or less will continue to pay corporation tax at 19% with a marginal
rate adjustment for companies earning annual taxable profits between the two levels. These changes had not been
substantively enacted at the balance sheet date and therefore no adjustment has been made to deferred taxation
balances to account for this change.
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% (2019: 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
2020
£’000
15,356
2,918
572
277
(35)
(725)
(89)
1,073
-
(20)
3,971
2019
£’000
5,518
1,048
299
(32)
(2)
(67)
(94)
378
218
(162)
1,586
In the Group and the Company, Changes in fair value of equity at fair value through comprehensive income are shown
net of corporation tax of £1,072,000.
Annual Report 2020 | EKF Diagnostics Holdings plc3 58
Notes to the Financial Statements
for the year ended 31 December 2020
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
Weighted average number of Ordinary Shares in issue
Basic profit per share
(b) Diluted
2020
£’000
11,114
2019
£’000
3,678
454,524,101
454,093,227
2.45 pence
0.81 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
2020
£’000
11,114
2019
£’000
3,678
Weighted average number of Ordinary Shares in issue
458,803,076
458,414,273
Diluted profit per share
2.42 pence
0.80 pence
Weighted average number of Ordinary Shares in issue
Adjustment for:
– Assumed conversion of share awards
– Assumed payment of equity deferred consideration
2020
2019
454,524,101
454,093,227
235,035
277,106
4,043,940
4,043,940
Weighted average number of Ordinary Shares including potentially dilutive shares
458,803,076
458,414,273
15. Dividends
In December 2020, the Company paid a final dividend for 2019 of 1p per ordinary share, at a total value of £4,550,000.
Subject to continuing strong performance and the needs of the business, the Board intends to follow a progressive
dividend policy. The Directors propose, subject to approval at the Company’s next Annual General Meeting, the payment
of a final dividend for 2020 of 1.1p per EKF Ordinary share held on 4 November 2021. Payment will be made on 1 December
2021. The expected total value is £5,005,000.
In addition to the cash dividend described above, in December 2020 the Company made a distribution in specie whereby,
with the exception of a single “golden” share, the Company’s shareholding in Trellus Health Limited was distributed to
ordinary shareholders of the Company at a total value of £3,810,000. The fair value per EKF share was 0.8374p. Because
the investment in Trellus was made on an arms’ length basis within 6 months of the dividend, the Board judged the fair
value of the dividend payment to be identical to the value of the investment.
Annual Report 2020 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2020
16. Property, plant and equipment
59
Land and
buildings
£’000
Fixtures &
fittings
£’000
Plant and
machinery
£’000
Motor
vehicles
£’000
Assets under
construction
(restated)
£’000
Right-of-use
asset
£’000
Total
£’000
At 31 December 2019
9,760
1,552
10,275
Group
Cost
At 1 January 2019
Additions
Exchange differences
Transfers
Disposals
Accumulated depreciation
At 1 January 2019
Charge for the year
Exchange differences
Disposals
At 31 December 2019
Net book value at 31 December 2019
Cost
At 1 January 2020
Additions
Exchange differences
Transfers
Disposals
At 31 December 2020
10,210
Accumulated depreciation
At 1 January 2020
Charge for the year
Exchange differences
Transfers
Disposals
At 31 December 2020
Net book value at 31 December 2020
1,814
1,166
302
(4)
188
-
2,300
7,910
128
22
(188)
(26)
1,102
287
9,990
88
(392)
74
-
1,373
236
(60)
21
(18)
10,551
252
(566)
321
(283)
1,596
286
(68)
-
1,814
7,946
1,103
133
(52)
(18)
1,166
386
7,044
737
(415)
(249)
7,117
3,158
9,760
1,552
10,275
63
85
302
-
122
26
(285)
(26)
1,389
340
412
928
(146)
11,809
7,117
902
300
-
(105)
8,214
3,595
170
17
11
-
(20)
178
100
19
4
(20)
103
75
178
54
(30)
-
(1)
201
103
23
(18)
-
-
108
93
228
825
(13)
(416)
(10)
614
-
-
-
-
-
743
647
(16)
-
23,055
2,065
(1,036)
-
(33)
(364)
1,341
23,720
-
9,843
337
2
-
1,512
(529)
(287)
339
10,539
614
1,002
13,181
614
1,052
18
(945)
(4)
735
-
-
-
-
-
-
1,341
23,720
518
(14)
-
2,149
497
-
(245)
(422)
1,600
25,944
339
489
(2)
-
10,539
1,844
298
-
(245)
(376)
581
12,305
735
1,019
13,639
Depreciation expense of £918,000 (2019: £792,000) has been charged to cost of sales and £926,000 (2019: £720,000)
has been charged to administrative expenses.
Annual Report 2020 | EKF Diagnostics Holdings plc3 60
Notes to the Financial Statements
for the year ended 31 December 2020
16. Property, plant and equipment (continued)
Company
Cost
At 1 January 2019
Additions
Disposals
At 31 December 2019
Accumulated depreciation
At 1 January 2019
Charge for the year
At 31 December 2019
Land and
buildings
£’000
Fixtures &
fittings
£’000
Assets under
construction
£’000
Right-of-
use asset
£’000
1,673
-
-
1,673
283
40
323
142
74
-
216
121
28
149
Total
£’000
1,991
277
(33)
2,235
404
144
548
176
203
(33)
346
-
76
76
270
1,687
346
213
(152)
407
76
155
(152)
79
2,235
435
(152)
2,518
548
235
(152)
631
-
-
-
-
-
-
-
-
-
130
-
130
-
-
-
-
Net book value at 31 December 2019
1,350
67
Cost
At 1 January 2020
Additions
Disposals
At 31 December 2020
Accumulated depreciation
At 1 January 2020
Charge for the year
Disposals
At 31 December 2020
1,673
-
-
1,673
323
40
-
363
216
92
-
308
149
40
-
189
Net book value at 31 December 2020
1,310
119
130
328
1,887
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 (£12,400) per month to the parent Company. €167,000 (£149,330)
(2019: €167,000 (£146,460)) 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 2020 | EKF Diagnostics Holdings plc3 61
Notes to the Financial Statements
for the year ended 31 December 2020
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 2020
£’000
Group
1 January 2020
£’000
Company
31 December 2020
£’000
Company
1 January 2020
£’000
859
65
95
1,019
380
690
1,070
941
18
43
1,002
286
716
1,002
321
7
-
328
158
221
379
269
1
-
270
93
177
270
Additions to the right-of-use assets during the 2020 financial year were £518,000 (2019: £647,000) for the Group and
£202,000 (2019: £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:
Depreciation charge right-of-use
assets
Properties
Equipment
Motor vehicles
Total right-of-use
Interest expense (included in
finance cost)
Group
2020
£’000
371
60
58
489
29
Group
2019
£’000
212
75
50
337
37
Company
2020
£’000
Company
2019
£’000
154
1
-
155
7
76
-
-
76
6
The total cash outflow for leases in 2020 was £469,000 (2019: £381,000) for the Group and £109,000 (2019: £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 for offices and factories are typically
made for fixed periods of between 1 and 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 2020 | EKF Diagnostics Holdings plc3 62
Notes to the Financial Statements
for the year ended 31 December 2020
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
.
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
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.
Annual Report 2020 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2020
63
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 2019
27,543
3,257
16,294
19,159
9,362
-
-
-
(1,172)
26,371
171
(42)
-
(587)
2,799
-
-
-
-
-
-
(714)
(723)
527
-
(462)
(367)
15,580
18,436
9,060
299
72,545
-
259
42
-
(2)
75,615
957
-
(462)
(3,565)
2,631
2,496
9,489
12,691
-
(81)
-
-
(374)
267
-
(405)
1,274
2,550
2,389
10,358
-
(426)
876
13,141
6,535
(462)
(245)
512
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
299
37,767
Cost
At 1 January 2020
26,371
2,799
15,580
18,436
9,060
-
-
632
146
-
372
-
-
-
-
586
(5,482)
(39)
620
289
27,003
3,317
15,541
19,056
4,453
593
69,963
2,550
2,389
10,358
13,141
6,340
-
55
-
-
201
357
-
(47)
1,245
-
401
919
(5,474)
231
246
At 31 December 2020
2,605
2,947
11,556
14,461
1,343
Net book value at 31 December 2020
24,398
370
3,985
4,595
3,110
593
37,051
Amortisation charge of £20,000 (2019: £nil) has been charged to cost of sales and £2,747,000 (2019: £2,929,000) 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
2020
£’000
17,705
77
6,616
2019
£’000
16,917
94
6,810
24,398
23,821
299
282
-
12
72,545
1,014
(5,482)
1,886
-
-
-
-
-
34,778
(5,474)
841
2,767
32,912
Additions
Transfer
Disposals
Exchange differences
At 31 December 2019
Accumulated amortisation
At 1 January 2019
Disposals
Exchange differences
Charge for the year
At 31 December 2019
Additions
Disposals
Exchange differences
At 31 December 2020
Accumulated amortisation
At 1 January 2019
Disposals
Exchange differences
Charge for the year
Annual Report 2020 | EKF Diagnostics Holdings plc3 64
Notes to the Financial Statements
for the year ended 31 December 2020
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 2020
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 forecasts 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 2020 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
%
3
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.
For DiaSpect, the impairment assessment has been carried out over a 5 year period with a terminal value based on the
long-term growth rate. The Directors estimate that growth rates in the 5 year period from the DiaSpect products will be
high because they are relatively new products that will bring market benefits, which have recently received approval for
sale to blood banks in the USA. In Year 1 a growth rate of 0% has been used, reflecting the impact of the COVID pandemic
on its product sales, followed by 21% in year 2, marking a return to pre-COVID levels of sales plus the anticipated growth
from partners and from entering the US blood bank market, and 5% in years 3-5, reflecting a combination of continuing
instrumentation sales and increasing consumable volumes as the established instrument base increases in the market. The
forecast growth rates then fall to 3% thereafter. The Directors believe the product will be sold at a margin equivalent to
other products sold by the Group. A 2.7% increase in the discount rate or a reduction in forecast revenue growth rates in
year 2-5 to 3% would result in an impairment.
The remaining average useful lives of the intangibles are as follows:
Trade name
Customer relations
Trade secrets
Development costs
1–3 years
2–8 years
1–8 years
3-10 years
The Company holds capitalised development costs with a cost and net book value of £1,470,000 (2019: £1,470,000) and
£128,000 (2019: £128,000) respectively. These are amortised over their useful lives and an amortisation charge of £nil
(2019: £262,000) has been recognised in the income statement in 2020.
Annual Report 2020 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2020
19. Investments in subsidiaries
Company Shares in Group undertakings
At 1 January and 31 December
65
2020
£’000
30,521
2019
£’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 2020 are as follows:
Name of Company
Note
Proportion Held
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
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
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
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
5
5
5
5
5
5
6
6
7
1. 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.
2. Incorporated in Sweden. The principal place of business is in Germany. The registered address is Lytta Gard, 75593 Uppsala,
Sweden.
3. Incorporated, registered, and having its principal place of business in Germany at Ebendorfer Chaussee 3, 39179 Barleben,
Germany.
4. Incorporated, registered, and having its principal place of business in Russia at 117648, Moscow, PO Box: 30, District Severnoe
Chertanovo, House 2, building 207.
5. Incorporated and registered, or formed, and having its principal place of business in the United States of America at 1261 North
Main Street, Boerne, Texas, USA 78006.
6. Incorporated and registered in Ireland c/o Mazars, Harcourt Centre, Block 3, Harcourt Road, Dublin 2. Its principal place of
business is in the United Kingdom.
7. Incorporated and registered in China, Suite 1202, Jin Hong Qiao International Center Building I, No. 523 Loushan-guan Road,
Changning District, Shanghai, P.R.C.200051
In December 2020 the Group’s former company based in Poland was liquidated.
Annual Report 2020 | EKF Diagnostics Holdings plc3
66
Notes to the Financial Statements
for the year ended 31 December 2020
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
2020
£’000
Group
2019
£’000
Company
2020
£’000
Company
2019
£’000
6,608
12,312
21,913
40,833
Group
2020
£’000
508
1,070
13,051
2,901
17,530
9,900
7,617
12,074
29,591
6,608
7,987
10,045
24,640
9,900
15,388
1,999
27,287
Group
2019
£’000
Company
2020
£’000
Company
2019
£’000
655
1,002
7,329
1,385
10,371
-
328
12,097
2,901
15,326
-
270
2,847
1,385
4,502
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 £2,901,000 (2019: £1,385,000) that is categorised
as a financial liability at fair value through profit and loss. Borrowings have been included at fair value which is not
materially different to amortised cost.
(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 2020 and 31 December 2019, 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:
A+
AA-
Ratings lower than AA- or unrated
Total
2020
£’000
10,045
596
11,272
21,913
2019
£’000
-
2,405
9,669
12,074
Annual Report 2020 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2020
21. Investments
Group and Company
1 January
Additions
Change in fair value through other comprehensive income
Disposal
31 December
67
2020
£’000
9,900
-
4,348
(7,640)
6,608
2019
£’000
3,271
124
6,505
-
9,900
The investments consist 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. The Group held a 1.39% holding (2019:
4.51%) in Renalytix AI plc, an AIM listed developer of artificial intelligence enabled diagnostics for kidney disease, with a fair
value at 31 December 2020 of £4.89m and a 1.89% (2019 : Nil) holding in Verici Dx plc, an AIM listed developer of advanced
clinical diagnostics for organ transplant, with a fair value at 31 December of £1.57m. In each case the fair value is calculated
using the quoted mid price.
On 26 November the Company sold 1,675,000 shares in Renalytix at an average price after expenses of £4.5793 per share,
at a total value of £7,670,326.
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
Amounts owed by subsidiary undertakings
-
-
6,670
15,326
Group
2020
£’000
Group
2019
£’000
Company
2020
£’000
Company
2019
£’000
Current
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Prepayments
Other receivables
9,181
(87)
9,094
870
3,589
13,553
6,182
(181)
6,001
480
1,616
8,097
1,231
-
1,231
158
87
1,476
-
-
-
116
62
178
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business.
Other than to certain corporate customers who are granted 60 day terms, 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 2020, in the Group trade receivables of £2,062,000 (2019: £1,478,000) were past due but not covered
by a loss allowance. In the Company, £395,000 (2019: £nil) 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
2020
£’000
2,000
8
54
Group
2019
£’000
1,380
79
19
2,062
1,478
Company
2020
£’000
Company
2019
£’000
394
1
-
395
-
-
-
-
As of 31 December 2020, trade receivables of £87,000 (2019: £181,000) were subject to a loss allowance. The Company
does not hold a loss allowance. The ageing of these receivables is as follows
Up to 3 months
3 to 6 months
Over 6 months
Total
Group
2020
£’000
34
39
14
87
Group
2019
£’000
1
31
149
181
Company
2020
£’000
Company
2019
£’000
-
-
-
-
-
-
-
-
Annual Report 2020 | EKF Diagnostics Holdings plc3 68
Notes to the Financial Statements
for the year ended 31 December 2020
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
2020
£’000
181
24
-
(118)
-
87
Group
2019
£’000
487
6
-
(292)
(20)
181
Company
2020
£’000
Company
2019
£’000
-
-
-
-
-
-
-
-
-
-
-
-
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
2020
£’000
1,476
6,340
5,702
35
-
Group
2019
£’000
178
3,541
4,315
62
1
Company
2020
£’000
1,477
2,083
4,586
-
-
Company
2019
£’000
178
3,446
11,880
-
-
13,553
8,097
8,146
15,504
Group
2020
£’000
5,854
931
1,702
8,487
Group
2019
£’000
4,492
432
1,149
6,073
Company
2020
£’000
Company
2019
£’000
513
–
118
631
–
–
–
–
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 £2,810,000 (2019: £1,763,000).
The Company does not hold any impairment provisions.
The cost of inventories recognised as expense and included in ‘cost of sales’ amounted to £12,502,000 (2019: £9,590,000),
and in the Company £1,359,000 (2019: £nil).
24. Cash and cash equivalents
Cash at bank and in hand
Cash and cash equivalents (excluding bank overdrafts)
Group
2020
£’000
21,913
21,913
Group
2019
£’000
12,074
12,074
Company
2020
£’000
10,045
10,045
Company
2019
£’000
1,999
1,999
The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.
Annual Report 2020 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2020
69
25. Trade and other payables
Trade payables
Amounts due to subsidiary undertakings
Social security
Other payables
Accrued expenses and deferred income
Group
2020
£’000
2,408
-
148
6,733
5,146
14,435
Group
2019
£’000
748
-
124
1,985
4,613
7,470
Company
2020
£’000
Company
2019
£’000
189
3,766
64
6,535
1,608
12,162
50
3,300
57
1,835
904
6,146
The carrying amounts of trade and other payables are considered to be the same as their fair values due to their short-term
nature. Trade payables are unsecured and are usually paid within 30 days of recognition. Amounts due by the Company
to its subsidiaries are interest free and repayable on demand.
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
2020
£’000
Group
2019
£’000
Company
2020
£’000
Company
2019
£’000
323
323
185
185
480
480
175
175
-
-
-
-
-
–
-
-
Group
2020
£’000
Group
2019
£’000
Company
2020
£’000
Company
2019
£’000
185
185
138
-
508
175
175
305
-
655
-
-
-
-
-
-
-
-
-
-
Bank borrowings mature in 2023 and bear an average fixed coupon of 2.5% annually (2019: 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 2020 | EKF Diagnostics Holdings plc3 70
Notes to the Financial Statements
for the year ended 31 December 2020
27. Deferred consideration
At 1 January
Fair value adjustment
At 31 December
Group
2020
£’000
1,385
1,516
2,901
Group
2019
£’000
1,104
281
1,385
Company
2020
£’000
Company
2019
£’000
1,385
1,516
2,901
1,104
281
1,385
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 2020 of £2,901,000. 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
Rate change through income statement
Income statement movement (note 13)
At 31 December
2020
£’000
(14)
-
(14)
2412
224
2,636
2,622
2020
£’000
2,585
68
277
(308)
2,622
2020
£’000
(15)
(19)
(34)
2,505
114
2,619
2,585
2019
£’000
3,143
(142)
-
(416)
2,585
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 2019
Credited to the income statement
Exchange differences
At 31 December 2019
At 1 January 2020
Credited to the income statement
Rate change
Exchange differences
At 31 December 2020
Accelerated tax
depreciation
£’000
114
45
(8)
151
151
63
-
11
225
Other
£’000
3,065
(463)
(134)
2,468
2,468
(389)
277
56
2,411
Total
£’000
3,179
(418)
(142)
2,619
2,619
(326)
277
66
2,636
Annual Report 2020 | EKF Diagnostics Holdings plc3 Notes to the Financial Statements
for the year ended 31 December 2020
71
Deferred tax assets
At 1 January 2019
Charged to the income statement
At 31 December 2019
At 1 January 2020
Charged to the income statement
At 31 December 2020
Tax losses
£’000
Other
£’000
Total
£’000
(13)
(2)
(15)
(15)
1
(14)
(23)
4
(19)
(19)
19
-
(36)
2
(34)
(34)
20
(14)
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 £964,000 (2019: £817,000) mainly
in respect of tax losses amounting to £4,880,000 (2019: £4,300,000), 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; and of £1,008,000
(2019: £313,000) in respect of cash settled share based payment liabilities of £6,458,000 (2019: £1,835,000) for the same
reason.
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
Exercise of share options
At 31 December 2020
2020
£’000
2019
£’000
-
-
19
19
Number of
Shares
Share capital
£’000
Share premium
£’000
454,093,227
900,000
454,993,227
4,541
9
4,550
-
200
200
Ordinary shares have a par value of 1p and are all fully paid. They entitle the holder to participate in dividends and to share
in the proceeds of winding up the Company in proportion to the number and amounts paid on the shares held. On a show
of hands, every holder of ordinary shares present at a meeting, in person or by proxy, is entitled to one vote; and on a poll
each share is entitled to one vote. The Company does not have a limited amount of authorised capital.
On 5 May 2020, 500,000 Ordinary share were issued following the exercise of share options at a price of 20p , and on 30
September 2020, 400,000 Ordinary share were issued following the exercise of share options at a price of 27.25p.
The Company has not acquired any ordinary shares during this year (2019: nil).
Annual Report 2020 | EKF Diagnostics Holdings plc3 72
Notes to the Financial Statements
for the year ended 31 December 2020
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
2020
2019
Av. Exercise price
per share
(£)
0.240
0.273
0.232
Options
(Number)
950,000
(25,000)
(900,000)
0.37625
25,000
Av. Exercise price
per share
(£)
0.247
0.273
-
0.240
Options
(Number)
1,200,000
(250,000)
-
950,000
The remaining unapproved share options consist of the following:
• 25,000 options were issued on 21 January 2014 to a senior employee 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.
All share option awards are equity settled. Out of the 25,000 (2019: 950,000) outstanding options 25,000 (2019: 950,000)
were exercisable at 31 December 2020.
Expiry Date
07.07.2023
21.01.2024
06.04.2025
2020
2019
Av. Exercise price
per share
(£)
-
0.37625
-
Av. Exercise price
per share
(£)
0.2725
0.37625
0.200
Options
(Number)
-
25,000
-
25,000
Options
(Number)
400,000
50,000
500,000
950,000
On 2 June 2016 two Directors were granted a cash settled share-based incentive award. The terms of the award were
varied in 2019, and again in 2020. Payments were made against the scheme in 2019 and a further payment of £455,000
was made in 2020. As varied, the awards vest if a controlling interest in the Company is acquired by a third party prior to
30 June 2024. Following this payment a residual amount representing 5% of the excess sales price achieved over 29p per
share is payable to the two Directors. The fair value of this award has been calculated at £11,151,000 (2019: £2,481,000)
using a modified form of a Black Scholes model. The key assumptions in the model included expected volatility of 46%
(2019: 32%), a risk free rate of (0.11)% (2019: 0.54%) and an expected dividend yield of 1p per share (2019: 1p per share); and
an assumed acquisition premium and option life. The increase in the liability is largely due to the increase in the Company’s
share price over the period.
A further payment against the scheme, of £1,000,000, was made in January 2021. Following this payment a residual
amount representing 5% of the excess sales price achieved over 33.4p per share is payable to the two Directors.
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 £279,000 (2019: £144,000), using a
similar model and assumptions as noted above.
£5,292,000 (2019: £2,118,000) has been recognised as an expense in administrative expenses in the current year, and
£6,458,000 (31 December 2019: £1,835,000) is shown as a liability on the balance sheet at 31 December 2020 within trade
and other payables. If the assumption on volatility had been 55%, then the liability would have increased by £191,000; if
the exit date had been assumed to be 6 months earlier, then the liability would have increased by £423,000; and if the
acquisition premium was reduced to 0% then the liability would have decreased by £872,000.
Annual Report 2020 | EKF Diagnostics Holdings plc3 73
Notes to the Financial Statements
for the year ended 31 December 2020
31. Other reserves
Group
At 1 January 2019
Changes in the fair value of equity instruments at fair value through Other
Comprehensive Income
At 31 December 2019
At 1 January 2020
Changes in the fair value of equity instruments at fair value through Other
Comprehensive Income
Recycling of reserves in respect of disposal of equity instruments at fair value
Capital
redemption
reserve
£’000
102
-
102
102
-
-
Other
reserve
£’000
41
6,505
6,546
6,546
Total
£’000
143
6,505
6,648
6,648
4,348
4,348
(5,642)
(5,642)
At 31 December 2020
102
5,252
5,354
The Group has elected to recognise changes in the fair value of certain investments in equity securities in Other
Comprehensive Income, as explained in note 2. These changes are accumulated within the FVOCI reserve within equity
and disclosed as Other reserve. The Group transfers amounts from this reserve to retained earnings when the relevant
equity securities are derecognised.
32. Retirement benefit obligations
Pension benefits
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 £262,000 (2019: £227,000). The value of pension contributions owed to pension
providers at 31 December 2020 was £11,000 (2019: £9,000).
33. Commitments
Capital commitments
The Group has contracted £41,000 (2019: £nil) capital expenditure at the end of the reporting period that had not yet
been incurred.
Annual Report 2020 | EKF Diagnostics Holdings plc3 74
Notes to the Financial Statements
for the year ended 31 December 2020
34. Cash generated by operations
Profit/(loss) before tax
Adjustments for:
– Depreciation
– Amortisation
– Warranty claim
– (Profit)/loss on disposal of fixed assets
- Loss on disposal of intangible assets
– Share-based payments
– Dividend received
– Fair value adjustment
– Foreign exchange
– Bad debt written down
– Net finance (income)/cost
Changes in working capital
– Inventories
– Trade and other receivables
– Trade and other payables
Net cash generated by/(used in) operations
Group
Company
2020
£’000
15,356
1,844
2,767
(1,414)
(22)
8
4,775
(31)
1,516
26
45
23
(2,557)
(3,426)
1,888
20,798
2019
£’000
5,518
1,512
2,929
(367)
14
-
2,118
-
281
86
212
(15)
37
(327)
(5,479)
6,519
2020
£’000
(4,693)
235
-
-
-
-
4,775
(31)
1,516
(12)
(106)
(815)
(631)
8,080
1,436
9,754
2019
£’000
(3,301)
144
262
-
-
-
2,118
-
281
102
8
(941)
-
3,704
(3,742)
(1,365)
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
2020
£’000
46
22
68
2019
£’000
44
(14)
30
The principal non-cash transactions are: the revaluation of shares held in Renalytix AI plc and Verici Dx plc; the dividend
in specie of shares in Trellus Health Limited; 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 2020 | EKF Diagnostics Holdings plc3 75
Notes to the Financial Statements
for the year ended 31 December 2020
35. Related Party Disclosures
Directors
Christopher Mills is interested in 29.94 per cent. of the Company’s issued share capital through North Atlantic Smaller
Companies Investment Trust PLC and Oryx International Growth Fund Limited. Harwood Capital LLP is investment
manager to North Atlantic Smaller Companies Investment Trust plc and investment adviser to Oryx International Growth
Fund Limited. Harwood Capital LLP, which is part of the Harwood Capital Management Group (of which Christopher is
sole shareholder) is a limited liability partnership of which Christopher Mills is Chief Investment Officer. He is non-executive
chair of Renalytix AI plc (“Renalytix”) and a non-executive director of Trellus Health Limited (“Trellus”). The Group owns
1.39% of Renalytix, and sold a further 2.32% during the year at a value of £7.67m, generating a gain of £5.64m. The Group
invoiced £1,380 to Renalytix during the year for services, all of which was outstanding at year end. The Group invested $5m
in Trellus in August 2020, and in December transferred that investment to relevant EKF shareholders through a dividend in
specie. The Company has retained one golden share which holds the voting rights in the transferred shares. There were no
other transactions with Trellus. Christopher Mills is interested in 29.2% of the share capital in, and is a director of Sourcebio
International plc (“Source”). During the year the Group invoiced goods totalling £236,167 to a subsidiary company of
Source, and was owed £199,236 by Source at year end.
The Group was invoiced £18,000 (2019: £18,000) by J & K (Cardiff) Limited for property rent. Julian Baines is a Director of
J & K (Cardiff) Limited. Julian is also non-executive chair of Trellus.
Carl Contadini acts as an Operational Advisor to Harwood which acts as investment manager and investment adviser to
NAIT and Oryx respectively.
Adam Reynolds is a non-executive director of Yourgene Health plc (“Yourgene”) and of Myhealthchecked plc (“Concepta”).
During the period the Group invoiced £342,904 to Yourgene for goods, and was owed £92,869 by Yourgene at year end;
and was invoiced £3,400 by Yourgene for services, £nil was owed to them at year end. During the year the Group invoiced
£16,500 for goods to a subsidiary of Concepta, of which £13,200 was outstanding at year end, and was invoiced £3,400
for goods by Concepta of which £nil was outstanding at year end.
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 £538,000 (2019: £655,000) to OOO Laboratory Diagnostic Systems, a company of
which Mr Kots’ brother is a director.
Michael Salter is a director of Trellus Health Limited.
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
2020
£’000
1,193
4,998
21
6,212
2019
£’000
3,366
1,943
17
5,326
Key management includes the Directors of the Company only.
The Company
During the year the Company invoiced management charges of £3,773,000 (2019: £2,719,000) and interest of £836,000
(2019: £929,000) to its subsidiary companies, it also invoiced rental costs to EKF Germany of €167,000 (£149,330) (2019:
€167,000 (£146,460)). It purchased goods and services from subsidiaries totalling £2,644,000 (2019: £270,000). At
31 December 2020 the Company was owed £6,669,000 (2019: £15,326,000) by its subsidiaries and owed £3,766,000
(2019:£3,300,000) to other subsidiaries.
36. Investment in Associate
In August 2020 the Company invested $5,000,000 (£3,810,000) for a 31.1% shareholding in Trellus Health Limited, a
pioneer in resilience-driven care for people with complex chronic conditions. In December 2020 the Company made
a distribution in specie whereby, with the exception of a single “golden” share, the Company’s shareholding in Trellus
Health Limited was distributed to ordinary shareholders of the Company at a total value of £3,810,000. The fair value per
EKF share was 0.8374p. In view of the acquisition and disposal occurring in the same financial period, the Group has not
applied equity accounting to this investment, but instead has valued the dividend at cost.
At 31 December 2020 the “golden” share retained all of the voting rights of the shares in Trellus previously held by the
Group. On the admission to AIM or another recognised stock exchange, or after two years, the Golden Share will convert
to an ordinary share, and the voting rights will transfer to the distributed shares. Because the Group retains the voting
rights but not the beneficial ownership of 31.1% of its shares, Trellus is treated as an associate company at the period end.
The Golden Share is valued at its cost of 84p at 31 December 2020.
Annual Report 2020 | EKF Diagnostics Holdings plc3
76
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 19 May 2021 at 10.30 a.m
for the following purposes:
Ordinary Resolutions
1. To receive and adopt the statement of accounts for the year ended 31 December 2020 together with the reports
of the Directors and the auditors thereon.
2. To re-elect Richard Evans, who retires by rotation, as a Director
3. 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
complied with and to authorise the Directors of the Company to fix their remuneration
4. 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 £41,000 (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 £454,993.23 (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 2022, 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.
5. To declare a final dividend of 1.1 pence per ordinary share to be paid on 1st December 2021 to the holders of
ordinary shares on the register of members at the close of business on 4 November 2021.
Special Resolutions
6. 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 £454,993.23 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 2022, 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.
7. That the Company be and is generally and unconditionally authorised for the purposes of section 701(1) of the
2006 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 68,248,984 (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 2020 | 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 2022, if earlier; and
v.
the 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.
77
Registered Office
Avon House
19 Stanwell Road
Penarth
CF64 2EZ
30 March 2021
BY ORDER OF THE BOARD
Salim Hamir
Company Secretary
2Annual Report 2020 | EKF Diagnostics Holdings plc4 78
Notes
1. The Company specifies that only those members registered on the Company’s register of members at close of business on
17 May 2021 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. The Company will provide a facility for shareholders to join the General Meeting either online or telephonically and there will be
an opportunity for shareholders to vote and ask questions. In order to facilitate the process, the Board would request that
Shareholders register for the meeting and submit questions in advance, before 10.30 a.m. on 17 May 2021. To register for dial-in
details and to submit any questions please contact Walbrook PR via email at ekf@walbrookpr.com or call +44 (0)20 7933 8780.
If you are a Shareholder of the Company at the time set out in note 1 above, you are entitled to appoint a proxy to exercise all or any
3.
of your rights to electronically attend, speak and vote at the meeting. You can only appoint a proxy using the procedures set out
these notes and the notes to the proxy form.
4. You will not receive a hard copy form of proxy with this document. Instead, you will be able to vote electronically using the link
www.signalshares.com. You will need to log into your Signal Shares account, or register if you have not previously done so. To
register you will need your Investor Code, this is detailed on your share certificate or available from our Registrar, Link Group.
Votes submitted electronically must be submitted by no later than 10.30 a.m. on 17 May 2021.
5. You may request a hard copy form of proxy directly from the Registrars, Link Group at shareholderenquiries@linkgroup.co.uk or on
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. Line are open between 09:00 - 17:30, Monday to Friday excluding public holidays
in England and Wales.
In the case of CREST members, by utilising the CREST electronic proxy appointment service in accordance with the procedures
6.
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
7.
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).
8. 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.
In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message
9.
(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 10.30 a.m. on 17 May 2021. 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.
10. 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.
11. 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 applies 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 Group 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.
12. In order to revoke a proxy instruction you will need to inform the Company by contacting Link Group on 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. Line are open between 09:00 - 17:30, Monday to Friday excluding public holidays in England and Wales. 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 Group no later than 10.30 a.m. on 17 May 2021. 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.
13. 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.
14. 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
15. Voting on the resolution will be conducted by way of a poll vote.
16. As at the close of business on the day immediately before the date of this notice of general meeting, the Company’s issued share
capital comprised 454,993,227 ordinary shares of nominal value 1 pence 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 close of business, on the
day immediately before the date of this notice of general meeting is 454,993,227.
Annual Report 2020 | EKF Diagnostics Holdings plc4
Company information
Directors:
Christopher Mills
(Non-Executive Chairman)
Julian Baines MBE
(Chief Executive Officer)
Richard Evans
(Chief Operating Officer and Finance Director)
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:
Solicitors to the Company:
Berry Smith LLP
Haywood House Dumfries Place Cardiff
CF10 3GA
BDB Pitmans LLP
One Bartholemew Close
London
EC1A 7BL
Registrars:
Link Group
Central Square
29 Wellington Street
Leeds LS1 4DL
If you have a query regarding your shareholding please
call the Link shareholder helpline on +44 (0)371 664 0300
(calls are charged at the standard geographic rate and will
vary by provider)
or visit their website at https://www.linkgroup.eu/get-in-
touch/shareholders-in-uk-companies/
England and Wales (Company number – 4347937)
Financial PR and investor relations:
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
Walbrook PR Limited
75 King William Street
London
EC4N 7BE
ekf@walbrookpr.com
Investor relations email:
investors@ekfdiagnostics.com
www.ekfdiagnostics.com
,