Novacyt Group Annual Report 2022

Plain-text annual report

Global leaders in the fight against infectious diseases Novacyt Annual Report and Accounts for the year ended 31 December 2022 Contents 3 04 Financial Statements Responsibility Statement of the Directors in Respect of the Annual Financial Report Statutory Auditors Report on the Statement Consolidated Financial Statements 05 Accounts And Notes 70 70 72 76 06 Company Information 142 Contents 01 Business Overview Novacyt Key Strengths Group at a Glance – Transitioning Beyond COVID-19 02 Strategic Report Chairman’s Statement 04 06 08 10 11 Shaping the Future with the Right Portfolio 12 Chief Executive Officer’s Review Section 172 (1) Statement Financial Review Sustainability 03 Governance The Board of Directors Directors’ Report An Introduction from the Chairman QCA Principles Nomination Committee Report Directors’ Remuneration Report Performance Share Awards Scheme Audit Committee Report Principle Risks and Risk Management 16 21 22 26 34 35 38 42 44 53 54 57 58 62 4 5 Business Overview Novacyt is a diagnostics solution provider, manufacturing diagnostic and pathogen testing kits based on molecular and protein technologies sold into human clinical, life science, food and industrial markets. Our purpose Our vision We protect lives from invisible threats by providing actionable health information in the right place, at the right time Global leaders in the fight against infectious diseases Business OverviewAnnual Report and Accounts6 7 Novacyt Key Strengths 01 Clinical Diagnostics 02 Life Sciences 04 Instruments 06 World-class R&D Team The molecular diagnostics market is made up of an ever-increasing breadth of different healthcare provider models that requires diagnostics to guide treatment decisions. Our goal is to improve access to insights that guide treatment decisions, with particular focus on infectious diseases, by providing precise and accurate data and information at the right place at the right time. We do this by partnering with public and private laboratories as well as commercial partners to provide clinical diagnostic testing workflows, which historically included qPCR instrumentation and high-quality qPCR reagents but are being expanded to introduce solutions for automated liquid handling and automated nucleic extraction systems and associated kits. The most recent addition to our Primer DesignTM range of clinical assays is genesigTM SARS-CoV-2 Winterplex. The assay is a multiplex for the detection of all strains of Influenza A, Influenza B, RSV and three separate SARS-CoV-2 (COVID-19) targets. Differentiation between these infections is key to the clinical management strategy of patients with acute respiratory illness1. The Company’s genesigTM SARS-CoV-2 Winterplex testing has been received well in UK and European markets, receiving top rated performance assessment scores, and growing our business in hospital triage environments. We have a passion for patient-centric solutions that advance the science behind diagnostics. This fuels our drive to deliver high-quality and reliable reagents and instruments for the Life Sciences market. We continue to add to our comprehensive range of qPCR assays (1200+), developed in combination with our high-performance qPCR instrument offering, to enable personalised solutions customised to meet the needs of Life Sciences research across veterinary, animal health, food protection and adulteration, human pathogen and many more market sectors. Our dedicated team of technical and field support specialists continue to provide round-the-clock support to our customers to ensure they achieve success in their fields through instrument servicing and repair, software updates, and technical advice and documentation to support training, use and quality requirements. 03 Global First Responder As a pioneer in clinical diagnostics, Novacyt has a proven history of responding quickly to changing global health needs and key outbreaks worldwide, including testing solutions for Zika, Swine Flu, and Ebola viruses. Solidifying this position, Novacyt was among the first to respond to the COVID-19 pandemic in 2020, providing a rapid and reliable gold standard SARS-CoV-2 test kit that the received WHO approval. Our streamlined research and development (R&D) pipelines and commitment to better innovation to meet patients’ needs have enabled us to respond quickly to global outbreaks, achieving accurate identification and detection with our proprietary molecular and protein detection technologies. 2022 saw also Novacyt granted a UK patent for the design of the ORF1ab assay for COVID detection. 1 https://www.covid19treatmentguidelines.nih.gov/special-populations/influenza/ As a global leader in qPCR innovation, our UK manufacturing site has been delivering gold standard real-time PCR instrumentations for decades. The genesigTM q and MyGo series of qPCR instruments empower our customers to take real-time PCR tests out of the laboratory, with portable options to run the instrument on 12 Volt vehicle outlets. Our qPCR instruments are designed to offer mobility, versatility, and speed to meet any testing needs. The capability to operate multiple units at once enables efficient and cost-saving operations. Most recently the q16 and q32 instruments have been successfully registered as IVD devices allowing diagnostic testing on the platforms. This development has been supported by a successful external audit of the instrumentation manufacturing site. In addition, the next generation of q32 instruments offer flagship level optical and thermal performance to enable higher multiplex assays currently being developed by the company. 05 Bioinformatics Surveillance Global tracking of virus mutations enables our R&D team to quickly identify development opportunities, particularly in relation to viruses and their mutations that can result in outbreaks detrimental to healthcare systems and global supply chains including food production. Our in-house bioinformatics surveillance group worked within a global network of virologists to track the SARS-CoV-2 variants to identify the mutations expected to pose the most significant challenges to healthcare and vaccine efficacy during the pandemic, and has more recently supported development of new MPox (previously monkeypox) and updated H5N1 Flu assays. The expertise in our research and development team encompasses all aspects of our customer journey. Our team have a deep scientific understanding in designing and developing quantitative real-time polymerase chain reaction (qPCR) assays. Additionally, we understand that the test itself is not the only part of the story and that the supporting workflow drives quality in results. To this end our instrumentation and software teams support our wide breadth of scientific, medical, industrial and veterinary users to answer questions that support their work around the globe by delivering results they can rely on. Our R&D strategy ensures continual surveillance of our current portfolio to ensure our offerings are relevant in a changing genetic landscape. Additionally, our new product development and validation ensures we advance our proprietary technology platforms and drive manufacturing process improvement across Novacyt. With an in-house clinical and validation team, our R&D can leverage insights and data to progress cutting-edge technology designs to meet the diagnostic needs of our customers and their patients. By collaborating as part of a UK-based manufacturing network we retain the ability to closely control all forms of development and product quality that our customers demand. Seamless links between R&D and manufacturing teams support our successes. For our assay portfolio, the bioinformatics core-function identifies optimal sequences for incorporation into final assay designs and once placed on the market are subject to continuous ongoing surveillance, such that redesigns can be applied when necessary. Once assay design phases are completed, applied research combines the bioinformatics design with their breadth of reagent chemistry knowledge to realise finalised product prototypes, that are passed to an analytical validation team with core expertise in validation of research use and diagnostic product specifications using clinical materials. Completing this chain of development is a team that maintain our products post-launch, supporting any requirements for technical investigations, as well as providing expert technical support for end-users and business development opportunities. Annual Report and AccountsBusiness Overview 8 8 Annual Report and Accounts Business Overview 9 9 Group at a Glance – Transitioning Beyond COVID-19 01 Post-COVID-19 Assay Development • Development of genesigTM PLEX Gastrointestinal Bacterial Real-Time PCR Multiplex Kit • Developed and relaunched two single analyte transplant viral assay panels for the Epstein-Barr virus and BK virus • Added over 40 CE IVD assays, through a 3rd party distribution agreement • Launched and UK CTDA approval of genesigTM Real-time PCR SARS-CoV-2 Winterplex panel covering RSV, Flu A&B and COVID-19 • Re-launched RUO portfolio globally and developed Monkeypox and Adenovirus F41 RUO assays 02 Workflow and Instrumentation Development • Launched and CE marked an automated liquid handling system (CO-Prep™) and validated a nucleic acid extraction system to enhance post-COVID-19 integrated sample-to-result molecular workflow solution • Launched new lateral flow test (LFT) readers 03 COVID-19 Assay Development • Six UK CTDA approvals in the year taking the total number of Novacyt products approved by the CTDA to seven, the most of any UK-based company • CE marked two lyophilised PROmateTM products • CE marked PathFlowTM COVID-19 Rapid Antigen Self-Test, one of the first saliva-based COVID-19 assays to be launched in the EEA 04 Geographic Expansion • Commercialised Winterplex panel with sales to hospitals in both the UK and Europe • Partnering with salmon farming in North America to develop solutions for testing infectious salmon anaemia virus and bacterial kidney disease • Signed a contract with a leading global non-governmental organisation (NGO) to support the detection of arboviruses, including dengue, Zika and Chikungunya • Partnering with a leading Health care company in India to supply both reagents and instrumentation 05 Financial Highlights • Group revenue for FY2022 was £21.0m, in line with guidance, compared to £92.6m1 for FY2021, due to the expected decline in COVID-19 related sales • Revenue from COVID-19 products in 2022 totalled £14.7m (FY2021: £84.0m1) • Revenue for the non-COVID-19 portfolio in 2022 totalled £6.3m (FY2021: £8.6m1). As previously announced, this decline was predominantly driven by lower instrument sales compared to FY2021 which benefited from COVID-19 demand • Group gross profit totalled £5.7m (27%) in FY2022 (FY2021: £28.2m (30%)). The FY2022 gross profit was reduced as a result of significant stock provisions based on lower forecasted COVID-19 sales in addition to writing off stock that had not been provided for previously. Excluding the impact of these items, the margin would be in excess of 60% • Group EBITDA loss in FY2022 is £13.5m before exceptional items (FY2021: £3.1m1 profit) as a result of the expected decline in revenue and in line with guidance • Discontinued operations loss of £3.5m in FY2022 (FY2021: £3.7m loss) • Loss after tax increased to £25.7m in FY2022 (FY2021: £9.7m loss) • Cash position at 31 December 2022 was £87.0m (2021: £101.7m) and the Company remains debt free 1 In accordance with IFRS 5, the net result of the Lab21 Products business has been reported on a separate line “loss from discontinued operations” in the consolidated income statement for 2021 and 2022. Annual Report and AccountsBusiness Overview10 11 11 Strategic Report James Wakefield Chairman, Novacyt S.A. “The Company intends to continue to focus on its core strengths of in-vitro diagnostic product and instrumentation development and commercialisation by driving value from its Primer Design and IT-IS businesses. We intend to continue to grow both organically and through selective acquisition.” Chairman’s Statement In my report last year, I said that we were predicting a significant reduction in the demand for COVID-19 tests, but that it would be extremely difficult to predict exactly what the requirements and the rate of fall off in demand would be. We took the view that the most prudent measure was to plan for a rapid reduction and to assume that we needed to diversify away from almost all COVID-19 products and seek to service a wider geographic area with a broader range of related products. This turned out to be exactly what happened with regular testing in different industries reducing significantly, with the film industry being one of the last sectors to continue with testing throughout 2022 and only stopping as a matter of course during H1 2023. The Group has re-focused on its core activities of RUO and clinical diagnostics in conjunction with its instrumentation manufacture and distribution. A core skill of our highly experienced staff is identifying new trends in the market at an early stage, being extremely nimble and developing new tests rapidly as a particular disease outbreak occurs. Our R&D team has a very strong reputation in the market for developing tests very quickly due to their significant skills and commitment combined with the Group’s willingness and ability to adapt to ever-changing situations and priorities. We are continuing to develop new products in our test portfolio and to develop new derivatives of existing tests. In parallel, a number of other longer term R&D projects are ongoing to ensure that we retain a leading edge in our product portfolio development. On behalf of the Board, I would like to acknowledge the efforts of David Allmond during the short period he was with us as CEO, when a significant drop in revenue was inevitable post COVID-19. I would also like to particularly thank James McCarthy for his efforts since stepping into the position of acting CEO. In addition, there have been a number of other changes within the executive management team as we have responded to the post COVID-19 era by making necessary cost reductions. We remain committed and focused on becoming a leading global clinical diagnostics company in the fight against infectious diseases as we build towards the next phase of growth. We will continue to make a significant contribution to global health, whilst seeking to continually deliver value to our Shareholders. We are investing in non-COVID-19 product development to tackle high unmet needs and bolster our business development efforts, with a clear strategic focus. Novacyt has a track record of speed and agility in delivering critical products, as demonstrated in its response to the COVID-19 pandemic, and previous outbreaks including Zika, H1N1 (Swine Flu), and Ebola. During the 2022 period under review, we generated revenues of £21 million. The Company remains debt free with a cash position at 31 December 2022 of over £80 million. We are delighted to be working with Allegra Finance as our French listing sponsor and SP Angel Corporate Finance LLP as our Nominated Advisor/ Broker; Numis continues to act as our joint broker. Following a detailed review of the Lab21 and Microgen businesses at the start of 2022, the decision was taken to close both businesses and consolidate operations at Primer Design in Southampton, Hampshire and ITIS in Stokesley, North Yorkshire. The Company intends to continue to focus on its core strengths of in-vitro diagnostic product and instrumentation development and commercialisation by driving value from its Primer Design and IT-IS businesses. We intend to continue to grow both organically and through selective acquisition. We are not proposing to pay a dividend for the financial year ended 2022. The future dividend policy will be reviewed on an annual basis as part of a wider review of capital allocation, which will be formulated in conjunction with the requirements for continued investment in the business or future acquisitions to maximise Shareholder value, taking into account the prevailing financial conditions in the markets in which the business operates. The Company is listed on two stock exchanges: Euronext Growth Paris and AIM London. As such, the Board remains committed to maintaining the highest standards of transparency, ethics and corporate governance, whilst also providing leadership, controls and strategic oversight to ensure that we deliver value to all our stakeholders. Finally, I would like to take this opportunity of thanking you, the Shareholders, for your continued support, and also to thank the Board, the Executive management team and all of our staff for their commitment and contribution to the business. James Wakefield Chairman Strategic ReportAnnual Report and Accounts12 Shaping the Future with the Right Portfolio With a heritage of diagnostic testing in the food and veterinary industries for the Life Sciences and Clinical Diagnostics areas, Novacyt will continue to develop into a global leader in the fight against infectious diseases. The COVID-19 pandemic has carved out a new segment for simple, scalable molecular diagnostics in decentralised settings with a targeted multi-panel approach. Scalable decentralised testing Portfolio development Before the pandemic, molecular testing was primarily confined to medium to large-size laboratories with high-output instruments. However, there has been a shift towards acute, decentralised settings where syndromic testing is being adopted. To address this trend, Novacyt has committed to providing versatile solutions for decentralised testing, including a range of innovative products and technologies such as mobile processing laboratories (VersaLabTM MPL), lab-in-a-box products (VersaLabTM Portable), small-scale automated liquid handling systems (CO-PrepTM), and a user-friendly direct-to-PCR platform (PROmateTM). The company’s goal is to make molecular diagnostics accessible to everyone, everywhere, and to provide accurate and reliable test results even in decentralised settings. At the height of the COVID-19 pandemic, our PROmateTM technology was developed to provide total viral inactivation, with a ready prepared master mix containing internal control for run validity. This means there is no need for a category 2 laboratory to handle the live virus, so the risk in handling is nullified, and tests can be performed nearer to patients. With the success of accurate detection of SARS-CoV-2, PROmateTM is being explored with other pathogens to continue the application of Novacyt’s innovation and expertise to support other healthcare threats. Novacyt conducted a comprehensive market study in 2022 to identify high-growth infectious disease areas. Based on the findings, Novacyt has prioritised the commercialisation of diagnostic products for gastro- intestinal infections, insect-borne pathogens, respiratory illnesses, and sexually transmitted infections (STIs). These represent the current developmental focus for Novacyt in 2023, with the gastro-intestinal diagnostic products scheduled for launch in 2024; insect-borne, 2025. In addition to these priority disease areas, Novacyt has identified other disease areas as opportunities for growth and menu differentiation. As a result, the company will be launching a range of new products over the course of 2023, initially targeting the Life Sciences sector. These products will be used for prevalence monitoring and in clinical laboratories as laboratory- developed tests (LDTs), with a view to adding to the diagnostic roadmap based on market feedback. Each new product will be developed in conjunction with Novacyt’s instrumentation, enabling effective deployment in decentralised laboratories. These products will add to Novacyt’s diagnostic portfolio, which already includes COVID tests and our genesigTM Winterplex kit for seasonal respiratory illnesses (Flu, RSV, SARS-CoV-2). Additionally, Novacyt distributes an infectious disease portfolio in partnership with Clonit srl. 13 Test Opportunity Comparison Test Opportunity Comparison Better Fit STI Common Illnesses V GI Viral B GI Bacterial Less Attractive Blood-borne Viruses Other Resp Viruses V UTI Meningitis/ Encephalitis Transplant More Attractive Insect-borne Eye Infection Joint Infection Atypical Pneumonia B Worse Fit Recommended Legend Bubble size indicates relative size of total addressable market MARKET ATTRACTIVENESSSTRATEGIC FIT FOR NOVACYTStrategic ReportAnnual Report and Accounts15 14 Shaping the Future with the Right Portfolio Seasonal respiratory illnesses Sexually-Transmitted Infections Sexually-Transmitted Infections (STIs) are a major public health concern globally, with over 376 million new cases reported each year. The total market value of this segment was estimated at $22.42 billion in 2019 and is expected to grow at a CAGR of 8.2% to reach $39.11 billion by 2027. The market is made up of molecular diagnostics, immunoassays, and other diagnostic tests, with molecular diagnostics accounting for the largest share of the market. Molecular diagnostics are highly accurate and sensitive in detecting STIs, making them the preferred method for diagnosis. The most common STIs that can be detected using molecular diagnostics include Chlamydia, Gonorrhoea, Human Papillomavirus (HPV), Herpes Simplex Virus (HSV) and Human Immunodeficiency Virus (HIV). Early detection of STIs is critical as it can prevent the spread of the infection and reduce the risk of complications such as infertility, pelvic inflammatory disease and cancer. Overall, the STI testing market is a rapidly growing field, with molecular diagnostics playing a central role in accurate and sensitive diagnosis. As the burden of STIs continues to rise, particularly in developing countries, the need for effective testing and treatment is critical. The use of molecular diagnostics in STI testing is expected to grow significantly in the coming years, particularly for early detection and screening purposes. The COVID-19 pandemic has taught us that identifying the right seasonal respiratory testing solutions and ensuring healthcare providers have the right tools to support optimal treatment is more critical than ever. Prioritisation of seasonal respiratory diagnostics, especially where winter diseases are prevalent, remains essential to governmental policies and health economies worldwide. The global addressable market of seasonal respiratory diagnostics is estimated to be $1,372 million for 2022 growing at a CAGR of 4% to 2026. Viral and bacterial gastrointestinal disease Diagnostics offer valuable insights when a patient is suspected of suffering from a gastrointestinal (GI) disease or disorder; or if a patient reports unexplained symptoms in their gut. Diagnostic tests and procedures can range from invasive to non-invasive and can help healthcare professionals learn more about the causes, symptoms, and severity of different health conditions. Providing simple and easy-to-use test solutions saves time to diagnose and provide vital information on patients’ health, eventually saving lives. Global GI diagnostics (including viral and bacterial) total addressable market is estimated to be $632 million for 2022 growing at a CAGR of 5% to 2026. Insect-borne pathogens: connecting to clinical and first responder strategy Insect-borne or vector-borne diseases are emerging or re-emerging in many geographical areas, especially in tropical and subtropical regions, and they disproportionately affect the poorest populations. The emergence of these diseases is starting to raise alarms on new health threats and economic losses. Besides vector control, the WHO has urged other medical organisations to provide technical support to manage cases and outbreaks. With our established relationships with aid agencies, it remains an opportunity for us to provide diagnostics tools that can rapidly give results. The total addressable market of insect-borne diagnostics globally is estimated to be $156 million for 2022 growing at a CAGR of 5% to 2026. Strategic ReportAnnual Report and Accounts16 17 17 Chief Executive Officer’s Review James McCarthy Acting Chief Executive Officer In early 2022 the business set out a new strategy to transition to a post- COVID-19 market and this remains in place today. This strategy focused on the twin objectives of portfolio development and geographic expansion underpinned by our credentials as an agile, world-leading provider of integrated RUO and clinical diagnostics. In parallel the business will continue to evaluate strategic opportunities, which would accelerate our growth including licensing, partnerships and acquisitions. Whilst the strategy has not changed, the 2022 trading environment was much more volatile than expected. 2022 saw a sharp reduction in COVID-19 sales, falling from £10.6m in Q1 2022 to £4.1m for the total Q2-Q4 period. This decline which was much faster than expected prompted the business to accelerate its post-COVID-19 product development efforts both internally and externally and to execute a significant cost rightsizing to protect investment in R&D and commercial activities. As we accelerate our product development activities it is also worth noting that the application of IVDR from May 2022 means that product development cycles for clinical products from product design to launch are likely to be in the 24-month range going forward versus 6 months under the previous IVD process. Product development In July 2022 the Company relaunched its extensive and established RUO portfolio ensuring primers and probes were best in class to reliably target current pathogens. By year-end the team optimised and verified the re- designs of 25 RUO products as well as new RUO assays for Monkeypox and Adenovirus F41. As the product development pathway for clinical products is significantly extended under IVDR the company will now develop RUO versions of its target therapeutic areas as a first step. This activity is well underway with the development of up to 10 new multiplex products in 2023 in the areas of gastrointestinal, respiratory and insect-borne infections. Through a combination of internal R&D and 3rd party sourcing the Company has already launched a portfolio of CE marked clinical assays in the following areas: • A winter respiratory panel with the internally developed genesigTM Real-time PCR SARS-CoV-2 Winterplex launched in Europe and CTDA approved for UK launch in October 2022 • Sexually-transmitted infections (STIs) (e.g. Chlamydia trachomatis, Neisseria gonorrhoeae, Trichomonas vaginalis) • Gastrointestinal infections (e.g. Clostridium difficile, Enterovirus) • Respiratory (RI) (e.g. Mycoplasma pneumoniae) • Two single analyte transplant viral assay panels for the Epstein-Barr virus and BK virus for use on open instrument platforms during the period. These products and enhanced workflow will be targeted where there is a need for cost-effective, rapid and highly precise diagnostic testing. Based on market research, we believe the key market for this offering is in routine testing in mid-to-low volume spoke laboratories and non-routine services in hub laboratories. As identified in April 2022 at the strategy update, we will target these markets due to our differentiated customer offering. For Europe, which is our initial target geography with CE marked products, the Company estimates a market size of circa £470m growing at a CAGR of 10%. The mid- term goal is to offer this to customers worldwide. Strategic ReportAnnual Report and Accounts18 19 19 Chief Executive Officer’s Review Our molecular portfolio is complemented by an extensive range of lateral flow (LFT) diagnostic tests for clinical use. The range aligns with the target disease areas covered by the molecular portfolio and has been further enhanced with the launch of two new LFT readers for use in conjunction with a number of key assays within Novacyt’s PathflowTM product portfolio. The small, lightweight reader is designed to provide digital test results based on optical imaging technology, thereby removing the ambiguity of manually interpreting a reading. The result is available in a matter of seconds (~10-12 secs) in a digital form that can be exported to other systems. Instrumentation & workflow Novacyt has made considerable progress enhancing its post-COVID-19 integrated sample-to-result molecular workflow solution. We have validated a nucleic acid extraction system and we have launched an automated liquid handling system (CO-PrepTM) for assay set up that complements our proprietary q16 and q32 instruments and user-friendly direct-to-PCR assays to deliver an end-to-end scalable workflow solution capable of processing over 1,000 tests per day. The new workflow reduces hands-on time and risk of contamination whilst providing robust sample stewardship to reduce the chance of human error. The complete workflow platform can be used where currently decentralised sample-to-result solutions are not easily scalable, slow, and costly. COVID-19 portfolio To ensure Novacyt remains well positioned for any future COVID-19 outbreaks in both developed and developing markets, the Company has consolidated its portfolio. To this end, Novacyt secured CE mark accreditation for its saliva-based PathFlowTM COVID-19 Rapid Antigen Self-Test and an ambient version of its PROmateTM COVID-19 2G assay designed for international shipping. Both tests complement the Company’s established genesigTM COVID-19 Real-Time PCR portfolio and PROmateTM COVID-19 direct to PCR 1G and 2G assays. Geographic expansion Business development In addition to the internal development of the new portfolio, the Company continues to assess strategic M&A, partnership and licencing opportunities as a priority to add scale and diversification to support the long-term growth of the business. In January 2023 Novacyt entered into an exclusive development agreement with Eluceda Ltd, a specialist developer of electrochemical sensors, to develop novel biosensor technology in the fields of human and animal in vitro diagnostics, life science research and animal speciation. This follows a collaboration in 2022, where the companies worked together to deliver a proof-of- principle human infectious disease biosensor. Both Novacyt and Eluceda believe that the technology has the potential to be highly disruptive in the assigned fields. Development of two products has started and the first product is expected to launch early in 2024. I would like to thank the Board and our shareholders for their continued support throughout the year and all our employees for their passion, resilience and hard work during a difficult year of transition as we build the post COVID-19 portfolio. James McCarthy Acting Chief Executive Officer During the period, Novacyt has focused on deploying talent in key geographies and optimising its global distributor network to build coverage in new markets to ensure optimal coverage for its recently relaunched RUO portfolio and its growing clinical offering. Through this work, coverage has been increased across EMEA and the Company has begun conducting distributor training on its full portfolio, including its expanded clinical portfolio and workflow. • Commercialised Winterplex panel with sales to hospitals in both the UK and Ireland • Partnering with a global fisheries company in the development of tests and workflow for more efficient management of fish stocks, initial sales have been focussed on their North American subsidiary and we are now engaging with other global sites to identify their testing needs • As the APAC region begins to open up post COVID, we are re-engaging with new and existing distributors across the region with the RUO reagent and instrument products • Signed a contract with a leading global non- governmental organisation (NGO) to support the detection of arboviruses, including dengue, Zika and Chikungunya. This has now been extended to include West Nile Fever, Hepatitis A & E, haemorrhagic fever with further orders received. We also anticipate sales of our RSV test in the near term and they are currently evaluating our Winterplex product for deployment across the African region • Partnering with a leading Health care company in India to supply both reagents and instrumentation The company expects to launch an updated version of www.novacyt.com in H1, that will include a transition of all e-commerce from legacy sites to the updated site. All existing product pages from legacy sites will also be transferred, plus new product page content will be added. The new site will also include webshop functionality, as well as a customer portal offering instrument registration and software upgrades. Annual Report and AccountsStrategic Report20 21 21 Section 172(1) Statement The Directors acknowledge their duty under s172 of the Companies Act 2006 and consider that they have, both individually and together, acted in the way that, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole. In doing so, they have had particular regard to: The likely consequences of any decision in the long term The impact of the Company’s operations on the community and the environment The Group’s long-term strategic objectives, including progress made during the year, and principal risks to these objectives, are set out in the Chief Executive Officer’s Review on pages 16 to 19, and in the Principal Risks and Risk Management section on pages 62 to 69 respectively. The interests of the Company’s employees Our employees are fundamental to the Group achieving its long-term strategic objectives, and further disclosure on how we look after the interests of our employees is contained in Principle 3 of the Corporate Governance Statement on pages 44 to 45. The need to foster the Company’s business relationships with suppliers, customers and others A consideration of our relationship with wider stakeholders and their impact on our long-term strategic objectives is disclosed in Principles 2 and 3 of the Corporate Governance Statement on pages 44 and 45. The Group operates honestly and transparently. We consider the impact of our day-to-day operations on the community and the environment, and how this can be minimised, as more fully explained in Principle 3 of the Corporate Governance Statement on pages 44 to 45. Further disclosure on how we promote a corporate culture based on ethical values and behaviours is included in Principle 8 of the Corporate Governance Statement on page 50. The desirability of the Company maintaining a reputation for high standards of business conduct Our intention is to behave in a responsible manner, operating within a high standard of business conduct and good corporate governance. This is explained more fully in our Corporate Governance Statement on pages 44 to 52, and is also encapsulated in our risk management framework on pages 62 to 69. The need to act fairly as between members of the Company Our intention is to behave responsibly towards our Shareholders and to treat them fairly and equally so that they may also benefit from the successful delivery of our strategic objectives. Strategic ReportAnnual Report and Accounts22 Financial Review James McCarthy Chief Financial Officer Novacyt S.A. Novacyt’s 2022 performance was impacted by a faster than anticipated decline in COVID-19 related sales and, as such, is reporting a loss for the year. During the second half of 2022 the Group made good progress on i) transitioning away from its reliance on COVID-19 revenue and ii) right sizing its cost base. During the period the Group carried out a large restructuring exercise to reduce its opex cost base, which saw over 100 employees leave the Group. 23 23 Novacyt generated sales of £21.0m, an EBITDA loss of £13.5m and a loss after tax of £25.7m. Cash at the end of 2022 was £87.0m, which continues to provide the Group with a solid foundation for its future strategy. Discontinued operations In early 2022, Novacyt carried out a strategic review of the Lab21 Healthcare and Microgen Bioproducts businesses to consider the merits of maintaining multiple company entities/names under the Novacyt Group umbrella versus a simplified business model and brand, which the Directors believed could be more impactful. Novacyt announced its intention to discontinue both businesses in April 2022, and they had ceased day-to-day trading at the end of June 2022. In accordance with IFRS 5, the net results of Lab21 Healthcare and Microgen Bioproducts have been reported on a separate line “loss from discontinued operations” in the consolidated income statement for FY2022 and 2021. Revenue Revenue for 2022 fell to £21.0m compared with £92.6m in 2021, driven by reduced demand for COVID-19 testing as we emerge from the pandemic. Primer Design delivered sales totalling £19.6m whilst IT-IS International delivered sales of £1.4m for 2022. Gross profit The business delivered a gross profit of £5.7m (27%), compared with £28.2m (30%) in 2021. The margin, at 27%, is significantly below the Group’s historic margin (60%+) predominantly driven by the impact of stock in the form of i) booking a higher stock provision than normal as a result of lower forecast COVID-19 sales and ii) writing off stock that had not been provided for previously. Excluding the impact of these items, the margin would be in excess of 60%. The 2021 gross profit was impacted by the £35.8m one-time cost of sales exceptional charge relating to the DHSC dispute. Operating expenditure Group operating costs fell by £5.8m to £19.3m in 2022 compared with £25.1m in 2021. Savings are mainly due to lower staff costs, as average headcount for the continuing operations has fallen from circa 239 in December 2021 to circa 137 in December 2022 as a result of the Group- wide restructuring programme. Further savings have been made in legal and professional fees, commercial insurance, as the business contracts, and facilities. The business continued to invest in research and development, which saw a year-on-year increase in expenditure that supported bringing a number of new products to the market. EBITDA The Group reported an EBITDA loss of £13.5m for 2022 compared with a profit of £3.1m in 2021. The £16.6m swing from EBITDA profitability in 2021 to an EBITDA loss in 2022 is driven by reduced gross profit contributions of £22.5m as a result of lower sales, partially offset by a £5.8m fall in operating expenditure. Operating loss The Group reported an operating loss of £23.4m compared with a 2021 loss of £3.9m, predominantly driven by lower year-on-year sales. Year-on-year, depreciation and amortisation charges have increased by £0.3m to £2.1m due to the annualised effect of reporting twelve months of depreciation on a number of material asset additions during late 2021. Other operating expenses have increased from £5.2m to £7.7m. The main items making up the 2022 charge are i) a £5.2m impairment charge in relation to the goodwill and intangible assets associated with IT-IS International acquisition due to reduced future expected cash flow generation, ii) £1.3m restructuring expenses predominantly covering redundancy payments, iii) £0.9m costs in relation to the ongoing DHSC contract dispute and iv) £0.3m of other expenses. Loss after tax from continuing operations The Group reported a loss after tax from continuing operations of £22.2m, compared to a loss of £6.0m in 2021. Other financial income and expenses netted to a £3.3m income compared with a £1.7m charge in 2021. The two key items making up the balance are i) a £2.4m net financial foreign exchange gain mainly resulting from revaluations of the 2017 to 2020 LTIP Strategic ReportAnnual Report and Accounts24 Financial Review scheme liability and bank and intercompany accounts held in foreign currencies and ii) with interest rates rising the Group received £0.6m interest on deposits held in bank accounts. Taxation at £2.1m compared with £0.3m in 2021 is predominantly as a result of the movement in deferred tax. Loss from discontinued operations In accordance with IFRS 5, the net result of the Lab21 Products business has been reported on a separate line “Loss from discontinued operations” in the consolidated income statement for 2022 and 2021. Lab21 Products reported a loss after tax of £3.5m in 2022 versus a loss of £3.7m in 2021. The 2022 loss includes closure costs totalling circa £1.8m made up of i) a £1.0m impairment charge of right-of-use assets (Camberley facility lease), ii) £0.6m impairment charge of remaining property, plant and equipment and iii) £0.2m redundancy costs. The 2022 tax expense of £0.4m is primarily due to the release of all deferred tax balances, as unused tax losses cannot be utilised by the Group post closure. Earnings per share 2022 saw a loss per share of £0.36 compared to a loss per share of £0.14 in 2021, as a result of the loss widening. Non-current assets Goodwill has fallen from £11.5m in 2021 to £6.6m in 2022. Following the 2022 impairment review, goodwill associated with the acquisition of IT-IS International Ltd has been impaired by £5.2m as a result of reduced future expected cash flow. The remaining £0.3m is due to exchange revaluations on the acquisition of Primer Design goodwill balance, which is held in Euros. Right-of-use assets have decreased from £1.8m at 31 December 2021 to £0.5m at 31 December 2022, largely as a result of fully impairing the right-of-use asset associated with the Camberley facility following the closure of the Lab21 Products business that operated from that site. Property, plant and equipment has decreased by £1.8m from 31 December 2021 to £2.8m at 31 December 2022, driven by four main factors i) £1.0m depreciation costs, ii) £0.6m impairment costs for fixed assets associated with the Lab21 Products business, iii) £0.4m impairment costs for lab equipment that will not be of use to the Novacyt Group and iv) offset by capital purchases of £0.2m. Deferred tax assets have decreased from £3.1m at 31 December 2021 to £0.6m at 31 December 2022. The 2022 balance relates to Primer Design, where a £0.6m deferred tax asset, relating to carried forward tax losses, has been recognised to offset its £0.6m deferred tax liability on accelerated capital allowances. The remaining deferred tax assets have not been recognised at 31 December 2022 on the basis that they may not be recoverable in the near-term. At 31 December 2022, the Group has unused tax losses of over £70.9m (covering France & the UK) available for offset against future relevant profits and their period of use is unlimited. Other non-current assets have reduced by £0.8m to £3.1m as at 31 December 2022 largely driven by the amortisation of intangible assets. Current assets Inventories and work in progress has fallen significantly from £11.5m at 31 December 2021 to £3.0m at 31 December 2022, this is mainly due to i) providing for stock that is at risk of not being sold due to the fall in expected future demand for COVID-19 related products and ii) writing off stock that has expired in 2022 that was not previously provided for. Trade and other receivables has fallen by £4.8m to £33.7m at 31 December 2022 in line with a decline in sales. The trade receivables balance includes a £24.0m unpaid DHSC invoice raised in December 2020, in respect of products delivered during 2020 that remains unpaid at the date of publishing the accounts. Recovery of the invoice is dependent on the outcome of the contract dispute. Also included in trade and other receivables is a £8.3m VAT receivable balance (December 2021: £8.2m), that mainly relates to UK VAT paid on sales invoices in dispute with the DHSC. As these sales have not been recognised in accordance with IFRS 15, the revenue, trade receivable and VAT element of the transactions have been reversed, resulting in a VAT debtor balance. Tax receivables has fallen by £3.9m to £1.1m at 31 December 2022, as the Group received a refund for the overpayment of 2020 corporation tax from HMRC in 25 25 March 2022. The current balance relates to 2021 losses that can be carried back for relief against 2020 taxable profits totalling £0.5m and a Research and Development Expenditure Credit (RDEC) accrual covering 2021 and 2022 totalling £0.6m. Other current assets have increased to £2.4m from £2.0m in 2021, driven by a £0.2m increase in prepayments and a £0.2m increase in short-term deposits, which includes rent deposits due back to the Group. Prepayments at 31 December 2022 include the annual Group commercial insurance, rent, rates, prepaid support costs and stock that had not been delivered at the reporting date. Current liabilities Contingent consideration fell from £0.8m to £nil in 2022 as a result of settling the final earnout milestones associated with the IT-IS International acquisition concluding the payments for the acquisition. Short-term provisions remained flat year-on-year at £20.3m (2021: £20.0m). A product warranty provision for £19.8m booked in 2020 to cover Management’s view of the maximum cost of replacing products in relation to the ongoing commercial dispute with the DHSC remained unchanged in 2022. Trade and other liabilities fell to £2.8m at 31 December 2022 from £17.2m at 31 December 2021, predominantly as a result of payments made during the year in relation to the 2017 to 2020 LTIP scheme, together with a £2.6m decrease in trade payables and accrued invoices in line with reduced sales. Non-current liabilities Non-current liabilities has fallen by £1.5m to £1.4m at 31 December 2022. The main driver for this is the reduction in the long-term lease liability as a result of Microgen Bioproducts negotiating the surrender of its Watchmoor Point leased facility based in Camberley, which was agreed in 2022 and settled in early 2023. Cash flow Cash held at the end of 2022 totalled £87.0m compared with £101.7m at 31 December 2021. Net cash used in operating activities was £13.7m for 2022 made up of a working capital outflow of £0.2m and an EBITDA loss of £13.5m, compared to 2021 that generated a cash inflow of £15.7m. Net cash used in investing activities fell to £1.2m from £5.0m in 2021. Capital expenditure in 2022 fell to £0.4m compared with £4.1m in 2021, when the Group heavily invested in insourcing manufacturing during 2021. In addition, acquisition related cash outflows reduced by £0.1m year-on-year as a result of the final earnout milestone associated with the IT-IS acquisition being lower than the previous year’s payment. Net cash generated from financing activities in 2022 totalled £0.1m compared to a cash outflow of £0.6m in 2021. The Group has benefited from interest rate rises throughout 2022, generating £0.6m interest income from its cash balances, which has been offset by lease payments totalling £0.5m. The Group remains debt free at 31 December 2022. Patent box On 30 March 2022 Novacyt (specifically Primer Design Ltd) received confirmation that the UK Intellectual Property Office had granted the key patent (ORF1a/b), with patent number GB2593010. This means that the effective rate of tax on profits (adjusted for certain rules) derived from the sale of products incorporating this patent is close to 10% rather than the current (FY2022) UK corporation tax rate of 19%. The effective tax rate is given via a tax deduction and due to the uncertainty over the precise timing of the tax relief available to the company and the complexity involved in making a claim for the first time, a tax asset has not been recognised. The asset will only be recognised when Management can reliably measure and predict the outcome of a Patent Box claim in terms of value and timing. James McCarthy Chief Financial Officer Novacyt S.A. Annual Report and AccountsStrategic Report26 Sustainability Novacyt continues to focus on Environment, Social and Governance (“ESG”) matters. We are pleased to share ESG data in this Annual Report and will continue to develop our approach over time. Environment and Social information is covered in this section, while our overall approach to Governance is addressed on page 42. Methodology The following methodology was applied in the preparation and presentation of this data: • the Greenhouse Gas Protocol published by the World Business Council for Sustainable Development and the World Resources Institute (the “WBCSD/WRI GHG Protocol”); • application of appropriate emission factors to Novacyt’s activities to calculate GHG emissions; • application of location-based emission factors for electricity supplies; • inclusion of all the applicable Kyoto gases, expressed in carbon dioxide equivalents, or CO2e; and • presentation of gross emissions as Novacyt does not purchase carbon credits (or equivalents). Environment: measuring our impact Streamlined Energy & Carbon Reporting This report is Novacyt’s third year of reporting under the new Streamlined Energy & Carbon Reporting requirements. The reporting period is the same as the Company’s financial year, 1 January 2022 to 31 December 2022. Organisation boundary and scope of emissions We have reported on all of the emission sources required under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2018. These sources fall within Novacyt’s consolidated financial statement. An operational control approach has been used in order to define the organisational boundary. This is the basis for determining the Scope 1, 2 and 3 emissions for which Novacyt is responsible, and includes emissions from Novacyt’s two operational facilities: • Primer Design, based in Southampton, UK; and • IT-IS International, based in Stokesley, Middlesbrough. The Microgen and Lab21 businesses were closed during 2022 therefore we have removed the data relating to them from both 2021 and 2022 to create a comparable baseline. 27 27 Total energy use The total energy use for Novacyt for the year ending 31 December 2022 was 588,023 kWh excluding Microgen and Lab21. This represents a 16% decrease in total emissions compared to the year ending 31 December 2021 (700,334 kWh) excluding Microgen and Lab21. The decrease in total emissions in 2022 relative to 2021 can be attributed to the reduction in operations and production post COVID-19 during the course of 2022. 2021 2022 Primer Design IT-IS Total Primer Design IT-IS Total Gas1 98,689 107,077 205,766 73,787 106,575 180,362 Electricity2 392,045 102,523 494,569 356,991 50,670 407,661 Transport3 - - - - - - Total 490,734 209,600 700,334 430,778 157,245 588,023 References: 1 Scope 1 covers direct emissions from sources owned or controlled by the Company, including emissions from fuel combustion (e.g. emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc.), process emissions (e.g. emissions from chemical production in owned or controlled process equipment), and fugitive emissions (e.g. intentional and unintentional). Of the aforementioned facilities or assets, only natural gas combustion within boilers is applicable to Novacyt’s operations. 2 Scope 2 covers energy use and related emissions from electricity purchased for Novacyt’s own use. 3 Scope 3 covers energy use and related emissions from business travel in rental cars or employee-owned vehicles where Novacyt is responsible for purchasing the fuel. Novacyt does not purchase fuel for business travel or employee-owned vehicles, as such Scope 3 emissions are not applicable based on the defined organisational boundary. Annual Report and AccountsStrategic Report28 Sustainability Absolute emissions The total Scope 1, 2 and 3 GHG emissions from Novacyt’s operations in the year ending 31 December 2022 were 110.8 tonnes of CO2 equivalent (tCO2e) excluding Microgen and Lab21, using a ‘location-based’ emission factor methodology for Scope 2 emissions. This represents a 22% decrease in total emissions compared to the year ending 31 December 2021 (142.7tCO2e) excluding Microgen and Lab21. As with total energy use, the decrease in total emissions in 2022 relative to 2021 can be attributed to the reduction in operations and production post COVID-19 during the course of 2022. Primer Design 18.1 83.2 - 101.3 2021 IT-IS 19.6 21.8 - 41.4 Total Primer Design 37.7 105.0 - 142.7 13.4 68.3 - 81.7 2022 IT-IS 19.4 9.7 - 29.1 Total 32.9 77.9 - 110.8 Scope 14 Scope 25 Scope 36 Total References: 4 Scope 1 data calculated by multiplying total fuel consumption (gas – kWh) by the UK Government GHG Conversion Factor for natural gas defined for the given year (2021: 0.18316kg CO2e/kWh; 2022: 0.18219 kg CO2e/kWh). 5 Scope 2 data calculated by multiplying total electricity consumption (kWh) by the UK Government GHG Conversion Factor for electricity generated defined for the given year (2021: 0.21233 kg CO2e/kWh; 2022: 0.19121 kg CO2e/kWh). 6 Novacyt does not purchase fuel for business travel or employee-owned vehicles, as such Scope 3 emissions are not applicable based on the defined organisational boundary. 29 29 Intensity ratios As well as reporting the absolute emissions, Novacyt’s GHG emissions are reported below on the metrics of kg of CO2 equivalent per full-time employee (“FTE”) and kg of CO2 equivalent per square foot of occupied areas. These are the most appropriate metrics given that the majority of emissions result from the operation of Novacyt’s offices and the day-to-day activities of the employees. All of the intensity ratios have been calculated using Scope 1 and Scope 2 emissions only. The intensity metrics based on floor area in the year ending 31 December 2022 was 27 kg CO2e per m2 which is a reduction of 22% versus last year, excluding Microgen and Lab21. The employee number metric in the year ending 31 December 2022 was 551.3 kg CO2e per FTE using the location-based method which is a reduction of 11% versus prior year, excluding Microgen and Lab21. 2021 2022 kg CO2e/FTE7 kg CO2e/m8 kg CO2e/FTE9 kg CO2e/m10 Scope 1 Scope 2 Scope 3 163.2 454.6 - Total GHG emissions 617.7 9.2 25.6 - 34.74 163.5 387.8 - 551.3 8.0 19.0 - 27.0 References: 7 Number of FTE equivalents in 2021 was 231 excluding Microgen and Lab21. 8 Building area in 2021 was 4.108 m2 excluding Microgen and Lab21. 9 Average number of FTE equivalents in 2022 was 201 excluding Microgen and Lab21. This decrease can be attributed to the reduction in operations and production post COVID-19 during the course of 2022. 10 Building area in 2020 was 4108 m2 which is the same as 2022 excluding Microgen and Lab21. Annual Report and AccountsStrategic Report30 Sustainability Energy efficiency actions undertaken Novacyt has taken a number of actions to increase the business’s energy efficiency in the year ending 31 December 2022, focused on: i. Reducing absolute energy consumption through capital investment projects; and ii. Reducing energy consumption per unit output through scaling up production (economies of scale), increasing asset utilisation, and increasing automation. Principal actions reported have had a direct impact on the energy efficiency related to Scope 1 and Scope 2 emissions, as defined by the Company’s operational boundary for the year ending on 31 December 2022. For increased transparency in emissions disclosure reporting, additional information has been provided on actions impacting the energy efficiency related to Scope 3 emissions despite falling outside the Company’s operational boundary. Principal actions Scope 1 (Gas Consumption) and Scope 2 (Electricity Usage) Additional information Scope 3 (Transport) Reduced energy consumption (absolute) Reduced transportation across the value chain • Capital investment projects • Much of the manufacturing capability that previously required 3rd Novacyt has reduced operational facilities with the closure of Microgen and Lab21. In addition, the Primer Design site is in the process of consolidating its operations facilities from two to one site Reduced energy consumption (per unit output) party sub-contractors has been brought in house • Site consolidation to one site has eliminated the transfer of stock between sites • Where possible, reducing partial shipments to customers minimising shipping costs and impact on the environment • Improved energy efficiency through reduction of footprint Managing waste Novacyt has decreased manufacturing capacity with the change in demand by decreasing the real estate footprint, leading to increased output relative to overhead energy consumption • Increased asset utilisation Novacyt has improved asset utilisation efficiency by optimising manufacturing batch size, adopting more efficient practices • Increased automation New lab equipment has been purchased creating efficiencies by reducing cycle time and cost • There is a continued drive within the organisation to get to right- first-time to eliminate wasted product • Supply chain teams have adopted planning systems and worked with customers to provide forecasts to reduce unsold product • Within office space, shredded bins have been introduced and paper waste goes to recycling. Office lights have been transferred to LEDs and are now automatic • Unwanted furniture where possible has been donated to charities and universities • As part of the site consolidation and improvement projects, materials have been recycled rather than being disposed of Novacyt has taken action to reduce single-use waste by increasing the materials reused and recycled through the Company’s operation. This includes an updated anti-contamination procedure to move from single-use disposable lab coats to reusable lab coats, and implementation of a standard recycling practice across all sites using recycling bins, compactors, and third-party recycling organisations 31 31 The importance of talent to Novacyt Novacyt prides itself in the talented people we employ, who are critical to our vision to become global leaders in the fight against infectious diseases, whilst ensuring we retain our competitive advantage in a challenging market. They are passionate, resilient, committed and continue to drive successful performance. Our employees rapidly respond to opportunities with innovation and agility. How we attract and retain talent We use several methods to attract talent from the market. We have partnerships with a select number of recruitment consultancies that represent us internationally. Our “Refer A Friend” programme rewards existing employees that recommend their friends and family to apply to and join Novacyt and vacancies are advertised internally across our sites. We leverage our expertise across a wide range of platforms such as the Novacyt career webpage, social media sites and job boards to promote our brand and advertise our career opportunities. Novacyt’s workforce reduced in 2022, due to the closure of the Microgen and Lab21 businesses plus a further restructuring to align with projected revenue in the post-COVID environment. The average number of full-time equivalents fell from 276 in 2021 to 222 in 2022 (including Microgen and Lab21). How we support our employees We provide an Employee Assistance Programme in order to help all our employees and their families when faced with adversity in their lives. It offers confidential assessments, short-term counselling, referrals, and follow-up services to employees who have personal and/or work-related issues. We also partner with a specialist occupational health organisation that provides advice to Novacyt on how we re-engage with people who have been absent due to health issues or extenuating circumstances that have occurred in their lives. They help our people with how they can best settle back into their job and career. We offer a comprehensive and competitive range of employment benefits for our people. We also hold regular all employee meetings to support communication and engagement. Social diversity and inclusion Novacyt actively supports diversity and inclusion and seeks to create a culture where everyone feels comfortable to be themselves at work and have their contribution valued and where individual differences can be celebrated. This approach is captured in our Equality, Inclusion and Diversity policy. Novacyt Employees Novacyt is currently 47% female: 53% male across its employee population Female Male Manager Base Our manager base is 46% female: 54% male Female Male Annual Report and AccountsStrategic Report33 33 32 Sustainability Social – training and development Supporting communities and wider society Novacyt’s Manager Development Programme completed in 2022 providing much appreciated upskilling in our people management capability with 14 employees completing the course and receiving certification. Feedback was extremely positive and we are seeing many of the attendees demonstrating the skills and confidence gained with Line Management reported in the latest engagement survey as one of the Company’s current strengths. Alongside internal product training, our talented Field Application Services team also continue to invest in upskilling our external partners. We support employees who wish to undertake professional qualifications or apprenticeships Novacyt provides individuals with ad hoc training courses as and when required to meet their role requirements and career aspirations. Where possible, we also support employees who wish to undertake professional qualifications or apprenticeships. Health and Safety We have a clear policy on health and safety. Employees are provided with health and safety training, and protective clothing and other equipment if required. Novacyt complies with the OHSAS 18001 standard. Charitable giving At Novacyt, we believe in contributing to communities where we operate, and we have made donations to a number of schools and charities from all over the UK including Southampton and Middlesbrough. During 2022, a sum of £16,000 was dedicated to supporting 35 fundraising campaigns throughout the UK. Following the transformational financial performance of Novacyt in 2020, a Charity Committee was created from key employees within the Group tasked with identifying charities in need of support. During 2022, a sum of £16,000 was dedicated to supporting 35 fundraising campaigns throughout the UK. We contributed to projects supporting education, the Ukrainian crisis, mental health, critically ill children and adults, the homeless, old age pensioners, war veterans and animal welfare. The Novacyt Group is proud to have played a part in supporting local communities and is truly humbled by the impact our charitable donations have made to so many people in 2022. Annual Report and AccountsStrategic Report34 35 The Board of Directors Governance James Wakefield Non-Executive Director and Chairman of the Board James is an experienced private equity investor, having spent over 35 years in the finance industry. He has been involved with over 50 businesses of varying sizes and stages of development across a wide range of sectors, including Board representation as Chairman or non-executive director in a number of these. He is Chairman of WestBridge Capital LLP of which he was a founder partner in 2008. He previously spent 18 years at Bridgepoint (previously NatWest Equity Partners) and, prior to that, spent four years at NatWest Markets/ NatWest Investment Bank. He is also Chairman of the Nomination Committee and a graduate of Harvard Business School (AMP). James McCarthy Acting Chief Executive Officer and Chief Financial Officer James assumed the role of Acting CEO following the departure of David Allmond in November 2022 having joined the Group as Chief Financial Officer in January 2021 and being appointed as a member of the Board in October 2021. He has over 30 years of finance experience in international businesses in both consumer and B2B and in both private equity and publicly listed companies. During his career, he has led large-scale transformation initiatives both organic and supported by M&A. He has also held general management roles, which gives him broad commercial experience and a strong appreciation for effective business partnership. He is a Fellow of the Association of Chartered Certified Accountants. GovernanceAnnual Report and Accounts36 37 The Board of Directors Juliet Thompson Independent Non-Executive Director Juliet has 20 years of experience working as an investment banker and strategic advisor to healthcare companies in Europe. She has built a strong track record of advising companies on corporate strategy, equity and debt fundraisings and international M&A. Her experience includes senior roles (managing director, head of corporate finance and partner) at Stifel Financial Corp, Nomura Code Securities and WestLB Panmure. Juliet sits on the Board of: Indivior PLC, a FTSE 250 UK global pharmaceutical company working to develop medicines to treat addiction; Organox Ltd, a private company that was spun out of Oxford University; and Angle plc, an AIM listed company with an FDA approved product with application in the liquid biopsy market. Juliet is also a trustee of Leadership through Sport & Business, a social mobility-focused charity, and trustee of the De Hann family trusts and Director of their associated investment companies. She is a member of the Institute of Chartered Accountants in England and Wales (ACA) and holds a BSc degree in Economics from the University of Bristol, UK. Juliet is Chair of the Audit Committee and is a member of the Remuneration and Nomination Committees. Andrew Heath MD, PhD Independent Senior Non-Executive Director Andrew is a healthcare and biopharmaceutical Executive with in-depth knowledge of the US and UK capital markets, with international experience in marketing, sales, R&D and business development. In addition to his role as Senior Independent Director for Novacyt since 2015, he is also currently Chairman of TauC3 Biologics Ltd. He served as Chairman of Shield Therapeutics plc from 2016–2018 and as a Non-Executive Director of Oxford Biomedica plc from 2010-2021. From 1999–2008, Andrew was the Chief Executive Officer of Protherics plc, taking the company from 30 to 350 members of staff and managing its eventual acquisition by BTG plc for £220 million. Prior to this, he served as vice president of marketing and sales for Astra Inc in the US, and worked within clinical and academic medicine at Vanderbilt University. He is also a former Director of The BioIndustry Association. He graduated in medicine from the University of Gothenburg, Sweden, where he also completed his doctoral thesis in human toxicology. He is a fellow of the American Academy of Clinical Toxicology and a fellow of the UK Institute of Directors. Andrew is Chairman of the Remuneration Committee, and a member of the Audit and Nomination Committees. Jean-Pierre Crinelli Independent Non-Executive Director Jean-Pierre is one of Novacyt’s founders, having established the business in July 2006. He has some 30 years of experience in the car and electrical components industry, with various roles in M&A and business restructuring. During this period, he was located for 10 years in Singapore, North America, Belgium and Italy. He holds a Diplôme from ESC Le Havre (business school, France) and a DECS (Diplôme d’Études Comptable Supérieures, national diploma). Jean-Pierre is a member of the Audit Committee and was appointed a member of the Remuneration Committee in 2023. Annual Report and AccountsGovernance38 Directors’ Report General information and principal activity Directors Novacyt S.A. is a public limited company incorporated and registered in France with registered number 491 062 527. The Directors of the Company who served during the year ended 31 December 2022, and up to the date of this Report are listed below. Likely future developments in the business of the Group are discussed in the Strategic Report. James McCarthy Review of business The Chairman’s Statement on page 11, the Chief Executive Officer’s Review on pages 16 to 19 and the Strategic Report on pages 10 to 33, provide a review of the business, the Group’s trading for the year ended 31 December 2022, key performance indicators and an indication of future developments and risks, and form part of this Directors’ Report. The Company is listed on both Euronext Growth Paris and on the Alternative Investment Market (“AIM”) of the London Stock Exchange. Its principal activities in the year under review were specialising in infectious disease diagnostics. Future developments Results and dividends The results for the period and financial position of the Company and the Group are as shown in the financial statements and are reviewed in the Strategic Report. Since its inception, the Company has not paid any dividends and the Directors do not intend to recommend a dividend at present. In the future, the Company’s dividend policy will form part of a wider review of capital allocation, which will be formulated in conjunction with the requirements of the business. The Directors will only recommend dividends when appropriate, and they may, from time to time, revise the Company’s dividend policy. No dividends will be proposed for the financial year ended 31 December 2022 so we can continue to invest in R&D, manufacturing and commercial aspects of the business. The brief biographical details of the currently serving Directors are set out on pages 35 to 37. Director Capacity James Wakefield Non-Executive Director and Chairman of the Board David Allmond Chief Executive Officer (until 10th November) Chief Financial Officer Acting Chief Executive Officer (from 10th November) Company Secretary Juliet Thompson Independent Non-Executive Director Andrew Heath Independent Senior Non-Executive Director Jean-Pierre Crinelli Independent Non-Executive Director Edwin Snape Independent Non-Executive Director (until 31st December) 39 Directors’ interests The Directors’ interests in the Company’s shares and the Novacyt LTIP are shown in the Directors’ Remuneration Report on pages 54 to 56. No Director has any beneficial interest in the share capital of any subsidiary or associate undertaking. Directors’ indemnity provisions The Directors have the benefit of an indemnity, which is a qualifying third-party indemnity provision as defined by s236 of the Companies Act 2006. The indemnity was in force throughout the financial period and at the date of approval of the financial statements. In addition, the Group has purchased and maintains Directors’ and Officers’ liability insurance in respect of itself and its Directors. Political and charitable donations The Company created a Charity Committee who were responsible for organising a number of charitable donations and activities during the reporting period, as explained further on page 32. Financial instruments – risk management The Group’s financial risk management policy is set out in note 41 to the financial statements. Share capital structure The Company’s share capital, traded on Euronext Growth Paris and AIM, comprises a single class of ordinary shares each having a nominal value of 1/15th of one Euro. Except as otherwise provided by law, every Shareholder has one vote for every fully paid up share of which they are the holder. Each ordinary share creates a share in the Company’s assets, profits and in any liquidation surplus. In the event of a liquidation of the Company, any outstanding cash would be distributed to each Shareholder in proportion to their holdings in the Company. The share rights follow the ordinary shares from owner to owner and any transfers of the shares include all dividends due and unpaid, and those due and, where applicable, the share of the reserves (following payment of any outstanding liabilities) of the Company. Movements in the Company’s issued share capital during the year under review are set out in note 33 to the financial statements. As of 31 December 2022, the Company’s share capital of €4,708,416.54 was divided into 70,626,248 shares with a par value of 1/15th of a Euro each. Major interests As at 31 March 2023, the Company had no shareholders with significant shareholdings above 3% of the issued share capital of the Company. UK Bribery Act 2010 The Group is committed to complying with the UK Bribery Act 2010, both within its UK and overseas business activities. As such, the Group has implemented an anti-bribery policy, which has been adopted by the Board, designed to ensure that the Group operates in an open, transparent and ethical manner. This policy applies to the Board and employees of the Group, and to temporary workers, consultants, contractors and agents acting for, or on behalf of, the Group (both in the UK and overseas). The policy generally sets out their responsibilities in observing and upholding a “zero tolerance” position on bribery in all jurisdictions in which the Group operates, as well as providing guidance to those working within the Group on how to recognise and deal with bribery issues and the potential consequences. Management at all levels of the Group is responsible for ensuring that those reporting to them, internally and externally, are made aware of and understand this policy. Significant agreements The Company is not party to any significant agreement that takes effect, alters or terminates upon a change of control of the Company other than the Directors’ service contracts, details of which are set out in the Remuneration Report. Annual Report and AccountsGovernance41 40 Directors’ Report Statement of engagement with suppliers, customers and others in a business relationship with the Group The Directors are mindful of their statutory duty to act in a way they each consider, in good faith, would be most likely to promote the success of the Group for the benefit of its members as a whole, as set out in the s172(1) statement on page 21. A review of the Group’s approach to developing and maintaining relationships with its wider stakeholders, and the impact on the Group’s long-term strategic objectives, is set out under Principle 3 of the Corporate Governance Statement on pages 44 and 52. Going concern The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus, they adopt the going concern basis of accounting in preparing the financial statements. The going concern model covers the period up to and including April 2024. In making this assessment, the Directors have considered the following elements: • The working capital requirements of the business; • A positive cash balance at 31 December 2022 of £86,973,000; • Payment of the Long-Term cash Incentive Plan (“LTIP”) that commenced in 2021 and vests at the end of 2023; and • The DHSC commercial dispute having a trial date set for June 2024. The forecast prepared by the Group shows that it is able to cover its cash needs during the financial year 2023 up until April 2024. Independent auditor Deloitte LLP has indicated that they are willing to continue in office as the Group’s auditor. Under French law the company were required to appoint a second auditor and Alberis Audit were appointed for a period of six years to approve the financial statements up to the year ended 31 December 2026. Disclosure of information to the auditor As far as the Directors are aware, there is no relevant audit information (that is, information needed by the Group’s auditor in connection with preparing their report) of which the Group’s auditor is unaware, and each Director has taken all reasonable steps that they ought to have taken as a Director in order to make themself aware of any relevant audit information and to establish that the Group’s auditor is aware of that information. Annual General Meeting The Annual General Meeting of the Company will be held on 15th June, further information can be found on the companies website at www.novacyt.com. By order of the Board James McCarthy Chief Financial Officer Annual Report and AccountsGovernance42 43 An Introduction from the Chairman James Wakefield Non-Executive Director and Chairman of the Board Novacyt S.A. Dear Shareholders, As Chairman of Novacyt S.A., it is my responsibility to lead the Board to ensure that the Group has in place the strategy, people, structure and culture to deliver value to Shareholders and other stakeholders of the Group over the medium to long term. During 2022, the Group focused on building its post- COVID-19 growth strategy to become a leading, global clinical diagnostics company in the fight against infectious diseases through product portfolio expansion, geographic expansion, and business development. Following his departure in November 2022, I would like to thank David Allmond for his focus on helping to formulate a post-COVID-19 strategy for the Company. I would also like to thank Edwin Snape for his significant contribution and the support he has provided to the Board over many years. Ed took the decision to retire at the end of 2022 after being a Board member for over 10 years. Internal control procedures continue to be reviewed, with improvements made when identified. On behalf of the Board, I am, therefore, pleased to present our Corporate Governance Statement for the year ended 31 December 2022. Novacyt S.A. is incorporated in France and is listed on Euronext Growth Paris and AIM. The Directors recognise the value and importance of high standards of corporate governance. As the Company is traded on AIM, it is not required to comply with the UK Corporate Governance Code. However, the Board has adopted the 2018 Quoted Companies Alliance Corporate Governance Code (the “QCA Code”) as the basis of the Group’s governance framework. The Company complies with the provisions of the QCA Code as far as is practicable for a company of Novacyt S.A.’s size, nature and stage of development, and in accordance with the regulatory framework that applies to companies admitted to trading on AIM. The Company also continues to comply with all the requirements of being listed on Euronext Growth Paris. It is the responsibility of the Board to ensure that the Group is managed for the long-term benefit of all Shareholders and stakeholders, with effective and efficient decision-making. Corporate governance is an important aspect of this, reducing risk and adding value to our business. As individual Directors, we are mindful of our statutory duty to act in the way each of us considers, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, as set out in our s172(1) statement on page 21. The QCA Code sets out ten principles, in three broad categories, and in this Corporate Governance Statement, I have set out the Group’s application of the QCA Code, including, where appropriate, cross references to other sections of the Annual Report and to our website. James Wakefield Non-Executive Director and Chairman of the Board Annual Report and AccountsGovernance44 QCA Principles Deliver growth 1. Establish a strategy and business model that promote long-term value for Shareholders The Board is responsible to Shareholders for setting the Group’s strategy by: maintaining the policy and decision-making process around which the strategy is implemented; ensuring that necessary financial and human resources are in place to meet strategic aims; monitoring performance against key financial and non-financial indicators; providing leadership whilst maintaining the controls for managing risk; overseeing the system of risk management; and setting values and standards in corporate governance matters. The Board has established a strategy and business model which seek to promote long-term value for Shareholders and the business focused on the twin objectives of portfolio development and geographic expansion underpinned by our credentials as a global first responder. In parallel the business will use its balance sheet to accelerate the strategy through licensing, partnerships or acquisitions. 2. Seek to understand and meet Shareholder needs and expectations The Company has a strong commitment to market communication, with the Directors seeking to be accountable against the stated strategic objectives of the Group. The Company maintains regular contact with Shareholders through publications such as the Annual Report and Accounts, operational updates, regular press announcements made via a regulatory information service and the Company’s website. The Company is responsive to Shareholder telephone and email enquiries throughout the year and the Board regards the AGM as a particularly important opportunity for Shareholders and members of the Board to meet and exchange views. The Company receives occasional feedback direct from investors, which is carefully considered by the Board, with appropriate action being taken where the Board believes it is in the interests of Shareholders to do so. 3. Take into account wider stakeholder and social responsibilities and their implications for long-term success In addition to its Shareholders, the Company believes its main stakeholder groups are its employees, clients, suppliers and relevant statutory authorities in its areas of operation. The Group is committed to maintaining the highest standards of corporate social responsibility in its business activities by: aiming to comply with all applicable laws and regulations, wherever the Group operates; achieving and complying with relevant quality and people management standards; consulting with and responding to the concerns of its stakeholders; working towards realising the Group’s mission and vision statements; and behaving with honesty and integrity in all the Group’s activities and relationships with others and rejecting bribery and corruption in all its forms. The Board recognises the benefits of a diverse workforce, which enables the Group to make better decisions about how to optimise resources and work by eliminating structural and cultural barriers and bias. It allows us to: protect and enhance our reputation by recognising and respecting the needs and interests of diverse stakeholders; deliver strong performance and growth by attracting, engaging and retaining diverse talent and; innovate by drawing on the diversity of perspectives, skills, styles and experience of our employees and stakeholders. The Group is committed to ensuring that it treats its employees fairly and with dignity. This includes being free from any direct or indirect discrimination, harassment, bullying or other form of victimisation. The Group has policies in place to encourage employees to speak up about any inappropriate practices or behaviour. It was important for us to continue looking after our employees during 2022 as they remain keyworkers therefore we continued to enforce a COVID-19 screening programme throughout the year. During this time, we reminded our employees of the Employee Assistance Programme, which provides 24/7 support for any issues they were facing, particularly with mental health challenges, relationship issues, etc. 45 The Group believes that having empowered and responsible employees who display sound judgement and awareness of the consequences of their decisions or actions, and who act in an ethical and responsible way, is key to the success of the business. The operation of a profitable business is a priority and that means investing for growth as well as providing returns to its Shareholders. To achieve this, the Group recognises that it needs to operate in a sustainable manner and therefore has adopted core principles to its business operations, which provide a framework for both managing risk and maintaining its position as a good “corporate citizen”, and also to facilitate the setting of goals to achieve continuous improvement. The Group encourages feedback from its clients through engagement with individual customers. As a consequence of such feedback, the Group has collaborated with multiple existing and prospective clients to develop and validate new products, work flows and know-how to improve accuracy, testing turnaround times, cost per test, and ultimately deliver improved clinical outcomes for millions of individual patients globally. The Board is aware of the need to maintain good working relationships with the Group’s key suppliers and receives regular updates from the Executive team on key supply agreements. Health and safety The Group is committed to complying with all relevant health and safety regulations in its operations. As such, all employees are trained on the relevant health and safety procedures upon commencement of employment within the Group. This training includes: emergency procedures; security recommendations; accidents/incidences and first aid; manual handling/ lifting and moving; work-related upper limbs disorders (including strains to hands and arms); and display screen equipment/visual display equipment assessment. We also have a section in our employee handbook covering alcohol, drugs and smoking. The Group is not aware of any orders made in respect of a breach of health and safety regulations during the period. Environment The Directors consider that the nature of the Group’s activities is not detrimental to the environment. The Group adopts a systematic approach to its environmental responsibility and has good knowledge of the environmental impacts caused by its operations. The Group aims to meet all relevant environmental standards in its production and products. The Group aims to establish, implement and maintain a risk- based programme to reduce or minimise any negative environmental impact caused by its operations, taking precautionary measures as soon as there is reason to believe that an action could harm the environment. 4. Embed effective risk management, considering both opportunities and threats, throughout the organisation The Board has overall responsibility for the Group’s system of internal control and for reviewing the effectiveness of internal control to safeguard Shareholders’ investment and the Group’s assets. There is an ongoing process for identifying, evaluating and managing the significant risks the Group faces. The Board delegates to the Executive team the responsibility for designing, operating and monitoring both the risk management and internal control systems, and the maintenance of effective internal controls within the Group. The Company also has a whistleblowing policy. The systems and controls in place include policies and procedures, which relate to the maintenance of records that fairly and accurately reflect transactions, correctly evidence and control the Group’s assets, provide reasonable assurance that transactions are recorded as necessary to enable the preparation of financial statements in accordance with International Financial Reporting Standards (“IFRS”), and review and reconcile reported results. Annual Report and AccountsGovernance46 QCA Principles The Group’s key internal controls are: • establishing a comprehensive risk register for the Group; • a regular review of the Group’s insurance policies with its insurance broker to ensure that the policies are appropriate for the Group’s activities and exposures; • a comprehensive system for consolidating financial results from Group companies and reporting these financial results to the Board; • reviewing cash flow, annual revenue and capital forecasts regularly during the year, along with regular monitoring of management accounts and capital expenditure reported to the Board and comparisons with forecasts; • financial controls and procedures, including in respect of bank payments, bank reconciliations and petty cash; • monthly review of outstanding debtors; • regular meetings of the Executive team; • an Audit Committee that approves audit plans and published financial information and reviews reports from the external auditor arising from the audit and deals with significant control matters raised; • an independent review on whether the Group’s tax processes and controls are appropriate to manage tax risk and compliance for Senior Accounting Officer (‘SAO’) purposes. The Board monitors the activities of the Group through regular Board meetings and it retains responsibility for approving any significant financial expenditure or commitment of resources. Risk management is focused around the operational areas of the Group. The Group has a dedicated Head of Quality Assurance/Regulatory Affairs, who has extensive operational experience, and particularly strong experience in quality system development and regulatory compliance. They are responsible for a Regulatory team operating across the Group, working at identifying and prioritising operational risks and working with the operational teams to mitigate the identified risks. This work is supported by the risk assessment procedure in place across the Group, with the objective to ensure that risk assessment of the Group’s equipment, procedures and processes is approached consistently across the Group. With the assistance of the Audit Committee, the Board’s review process is principally based on reviewing regular reports from the Executive team to consider whether significant risks are identified, evaluated, managed and controlled effectively, and whether any significant weaknesses are promptly remedied. The system is designed to manage rather than eliminate the risk of failure to achieve the Company’s objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. In assessing what constitutes reasonable assurance, the Board considers the materiality of financial and non-financial risks and the relationship between the cost of, and benefit from, internal control systems. Details of the principal risks currently facing the Group and how they are mitigated are set out on pages 62 to 69. The Board confirms that it has, during the reporting period, reviewed on an ongoing basis the effectiveness of the Company’s system of internal controls including financial, operational and compliance controls and risk management systems and has reviewed insurance provisions. No significant failing or weaknesses have been identified. 47 Maintain a dynamic management framework 5. Maintain the Board as a well-functioning, balanced team led by the Chair considered and determined that, all Directors are independent of the Executive management and free from any relationship that could materially affect the exercise of their independent judgement. None have beneficial or non-beneficial shareholdings in the Company exceeding 3%. The Chairman, James Wakefield, is responsible for leadership of the Board, ensuring its effectiveness in all aspects of its role. The Company is satisfied that the current Board is sufficiently resourced to discharge its governance obligations on behalf of all stakeholders. To enable the Board to discharge its duties, all Directors receive appropriate and timely information. Briefing papers are distributed to all Directors in advance of Board and Committee meetings. All Directors have access to the advice and services of the Chief Financial Officer/Company Secretary, who is responsible for ensuring that the Board procedures are followed, and that applicable rules and regulations are complied with. In addition, procedures are in place to enable the Directors to obtain independent professional advice in the furtherance of their duties, if necessary, at the Company’s expense. In between Board meetings, the Executive Directors maintain regular informal contact with the Non-Executive Directors. Whilst the Board retains overall responsibility for, and control of, the Group, day-to-day management of the business is conducted by the Executive Directors, who meet with the senior management team on a weekly basis. Board of Directors The composition of the Board during the period is summarised in the table on page 38 of the Directors’ Report. As at the date of this Report, the Board comprises five members, of which four are Non- Executive Directors, all of whom are independent, namely James Wakefield, Andrew Heath, Juliet Thompson and Jean-Pierre Crinelli. Independence of Directors The Directors acknowledge the importance of the principles of the QCA Code that recommend that a company should have at least two independent Non-Executive Directors. The Board has, therefore, All the Non-Executive Directors constructively challenge and help develop proposals on strategy and bring strong, independent judgement, knowledge and experience to the Board’s deliberations. The Non- Executive Directors are of sufficient experience and competence that their views carry significant weight in the Board’s decision-making and when relevant, would record their concerns about the running of the Company. At each meeting, the Board considers Directors’ conflicts of interest. The Non-Executive Directors have regular opportunities to meet without Executive Directors being present (including time after Board and Committee meetings). Time commitments Non-Executive Directors receive a formal appointment letter on joining the Board, which identifies the terms and conditions of their appointment. A potential director candidate (whether an Executive Director or Non-Executive Director) is required to disclose all significant outside commitments prior to their appointment. The Board is satisfied that both the Chairman and the Non-Executive Directors are able to devote sufficient time to the Company’s business. If considered appropriate, the Board may authorise the Executive Director to take Non-Executive positions in other companies and organisations, provided the time commitment does not conflict with the Director’s duties to the Company, since such appointments should broaden their experience. The acceptance of appointment to such positions is subject to the approval of the Chairman. Annual Report and AccountsGovernance48 QCA Principles Attendance at Board and Committee meetings The Directors meet regularly for formal Board meetings to discuss and decide the Group’s business, financial performance and strategic decisions. In addition, and as required, the Board meets more frequently by conference call to discuss and decide on matters considered more urgent, such as those relating to acquisitive growth. During the reporting period, the Board met in person or via conference calls twelve times. In advance of each meeting of the Directors, the Board is provided with relevant information to ensure that it can properly carry out its role. For each meeting, the Directors generally consider the minutes of the previous meeting and any action points, recent forecast and operations, cash flows and progress on any particular projects. The attendance of each Director at Board and Committee meetings during the period is set out in the table below. Attendance is expressed as the number of meetings attended/number eligible to attend. Directors’ attendance by invitation at meetings of Committees of which they are not a member is not reflected in the following table. Director Board Audit Committee Nomination Committee Remuneration Committee James Wakefield James McCarthy Andrew Heath Juliet Thompson Jean-Pierre Crinelli *Edwin Snape *David Allmond 12/12 12/12 11/12 12/12 12/12 12/12 10/10 - - 4/4 4/4 4/4 - - 5/5 - 5/5 5/5 - - - - - 3/3 3/3 - 2/3 - * David Allmond stepped down as Director on 10 November 2022 and Edwin Snape retired as Director on 31 December 2022. 49 6. Ensure that, between them, the Directors have the necessary up-to-date experience, skills and capabilities responsible for ensuring that Board procedures are followed, that the Company complies with company law and with the Euronext Growth Paris and AIM Rules. The Board currently comprises one Executive and four Non-Executive Directors with an appropriate balance of sector, financial and public market skills and experience to deliver the Group’s strategy for the benefit of Shareholders over the medium to long term. The Board considers that the Non-Executive Directors bring a wide experience at a senior level of business operations and strategy and have an expanse of knowledge and expertise gained from other areas of business. The skills and experience of the Board are set out in their biographical details on pages 35 to 37. The experience and knowledge of each of the Directors gives them the ability to constructively challenge the strategy and to scrutinise performance. The Board also has access to external advisors where necessary. New Directors are presented with appropriate levels of background information on the Company, meet the management, visit sites and spend time with the Chairman and other Directors as required. The induction is tailored to meet each new Director’s specific needs. Throughout their period in office, the Directors are continually updated on the Group’s business, the industry and competitive environment in which it operates, corporate social responsibility matters and other changes affecting the Group by written briefings and meetings with senior Executives. Each Director takes responsibility for maintaining their skill set, which includes roles and experience with other boards and organisations as well as attending formal training and seminars. The Company is a strong supporter of diversity in the boardroom and, during the reporting period, the Board comprised one female and six male Directors, including David Allmond who stepped down as Director 10 November and Edwin Snape who retired on 31 December. The Company remains of the opinion that appointments to the Board should be made relative to a number of different criteria including diversity of gender, background and personal attributes, alongside the appropriate skill set, experience and expertise. 7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement Board evaluation The Board is mindful that it needs to continually monitor and identify ways in which it might improve its performance. The Chairman routinely assesses the performance of the Board and its members and discusses any issues, problems, or shortcomings with the relevant Director(s). Likewise, the Senior Independent Director reviews the performance of the Chairman. Although it is not an AIM requirement for an external Board appraisal to be undertaken, the Board believes that gaining independent input on a regular basis is best practice. It therefore intends to implement an external Board appraisal on a three-year rolling basis. The current intention is to conduct the first of these within the next 12 months. The terms of reference of the report will seek input from all Board members both in the form of a questionnaire and one-to-one interviews covering: The Directors receive regular and ongoing updates from their professional advisors covering financial, legal, tax and the Euronext Growth Paris and AIM Rules. • • the themes from the questionnaire; the assessment of the Director’s individual performance; and The Company Secretary provides information and advice on corporate governance and individual support to Directors on any aspect of their role, particularly supporting the Chairman and those who chair Board Committees. The Company Secretary is also • feedback on Board colleague’s individual performance. In addition, the independent review will have access to certain historic nonconfidential Board items and other information. Annual Report and AccountsGovernance50 QCA Principles Final feedback is likely to be in the form of a full report for internal use. It is intended that this includes an Executive summary and key findings, together with a detailed analysis of the responses to the questionnaire and anonymised comments made in response to the questionnaire and during the interviews. The report will also include recommendations for consideration together with benchmarking against best practice. The aim of the review will be to ensure that the Board contains the necessary skills to enable it to be satisfied that: • the Board continues to meet its regulatory requirements and ensures that appropriate processes are in place for setting the strategic direction of the Group; • each Committee continues to be effective and that all members were considered to have made valuable contributions, and individual Directors continue to perform effectively; and • feedback will be provided through the Chairman to individual Board members. 8. Promote a corporate culture that is based on ethical values and behaviours The Company recognises the importance of investing in its employees to provide foundations and leadership to drive performance further regardless of age, race, religion, gender or sexual orientation or disability. Our core Company values are the building blocks for developing our dynamic and challenging culture within the Group. These values represent our philosophy, which, through our people and organisation, will help the business deliver our Company goals. The values represent how each of us can contribute to the success of the Company both now and in the future as an individual and also as part of the wider team. • To treat each other with trust, dignity and respect • Enabling, empowering and energising others to make things happen • Work as a team with colleagues and across functions • Innovation, inspiration and motivation, creating an open culture where people are valued for their contribution • Novacyt endeavours to deliver the best quality service to all of our internal and external customers The Group recognises the importance of investing in its employees and, as such, the Group provides opportunities for training and personal development and encourages the involvement of employees in the planning and direction of their work. These values are applied regardless of age, race, religion, gender, sexual orientation or disability. The Group believes that it has robust policies and procedures for combating bribery and corruption. A copy of the Group’s Anti-Corruption and Bribery Policy can be found on the Group’s website www.novacyt.com. The Group recognises that commercial success depends on the full commitment of all its employees and commits to respecting their human rights, to provide them with favourable working conditions that are free from unnecessary risk and to maintain fair and competitive terms and conditions of service at all times. The performance and reward system endorses the desired ethical behaviours across all levels of the Group. 51 9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board The Chairman, James Wakefield, is responsible for leading the Board, facilitating the effective contribution of all members and ensuring that it operates effectively in the interests of the Shareholders. James McCarthy, the Acting Chief Executive Officer, is responsible for the leadership of the business and implementation of the strategy. By dividing responsibilities in this way, no one individual has unfettered powers of decision-making. The Board reserves for itself a range of key decisions to ensure that it retains proper direction and control of the Group, and a formal schedule of matters reserved for decision by the Board has been adopted by the Board since admission to AIM; a copy of which can be found at www.novacyt.com. Such matters include business strategy and management, financial reporting (including the approval of the annual budget), Group policies, corporate governance matters, major capital expenditure projects, material acquisitions and divestments and the establishment and monitoring of internal controls. This schedule may be updated by the Board and approved by the Board only. The day-to-day management of the business has been delegated to the Chief Executive Officer and the wider Executive team. The appropriateness of the Board’s composition and corporate governance structures are reviewed through the ongoing Board evaluation process and on an ad hoc basis by the Chairman together with the other Directors, and these will evolve in parallel with the Group’s objectives, strategy and business model as the Group develops. Board Committees The Board has established an Audit Committee, a Remuneration Committee and a Nomination Committee; the terms of these Committees reflect market practice on AIM. These Committees of the Board have formally delegated responsibilities. Copies of each Committee’s terms of reference are available on the Company’s website at www.novacyt.com. Audit Committee The Audit Committee is chaired by Juliet Thompson, and has primary responsibility for monitoring the quality of internal controls, ensuring that the financial performance of the Group is properly measured and reported on, and for reviewing reports from the Group’s auditor relating to the Group’s accounting and internal controls, in all cases having due regard to the interests of Shareholders. The Audit Committee meets at least twice a year. Andrew Heath and Jean-Pierre Crinelli are the other members of the Audit Committee. A report on the duties of the Audit Committee and how it discharges its responsibilities is provided on pages 58 to 60. Remuneration Committee The Remuneration Committee is chaired by Andrew Heath, and reviews the performance of the Executive Directors, and determines their terms and conditions of service, including their remuneration, having due regard to the interests of Shareholders. The Remuneration Committee meets at least twice a year. Juliet Thompson is a member of the Remuneration Committee together with Jean-Pierre Crinelli who was made a member in 2023 following the retirement of Edwin Snape. The Directors’ Remuneration Report and details of the activities and responsibilities of the Remuneration Committee are set out on pages 54 to 56. Nomination Committee The Nomination Committee is chaired by James Wakefield, and identifies and nominates, for the approval of the Board, candidates to fill Board vacancies as and when they arise. The Nomination Committee meets at least once a year. Andrew Heath and Juliet Thompson are the other members of the Nomination Committee. Details of the activities and responsibilities of the Nomination Committee are set out on page 53. Annual Report and AccountsGovernance52 53 QCA Principles Nomination Committee Report Build trust 10. Communicate how the Company is governed and is performing As explained earlier in this Corporate Governance Statement, the Board has established a Nomination Committee, an Audit Committee and a Remuneration Committee. The work of each of the Board Committees undertaken during the year ended 31 December 2022 is detailed on pages 53 to 60. The Board places its responsibility to the Company’s Shareholders and setting the Group’s strategy for achieving long-term success as a high priority. The Group’s website is regularly updated with all press releases, AGM and EGM results and investor presentations. The results of the votes received in relation to the 2022 AGM and EGM are available on the Company’s website. All ordinary resolutions proposed were passed at the 2022 General Assembly. As part of the AGM, the Company also met to hold an extraordinary general meeting. The meeting was not deemed quorate due to the minimum number of voting rights under French company law not being present or represented at the meeting. Consequently, the meeting did not take place. The Board maintains a healthy dialogue with all of its stakeholders. Throughout the course of the year, the Board communicates with Shareholders directly on any views, concerns and expectations they may wish to express. The Company established a Nomination Committee during 2017 prior to its admission onto the AIM market. James Wakefield acts as Chairman of the Nomination Committee and its other members are Juliet Thompson and Andrew Heath. All members of the Nomination Committee are considered independent. The Nomination Committee is responsible for identifying and nominating for the approval of the Board candidates to fill Board vacancies as and when they arise, and to ensure that the Board consists of members with the range of skills and qualities needed to meet its principal responsibilities in a way that promotes the protection of the interests of stakeholders and compliance with the requirements of the AIM Rules. The Nomination Committee will meet at least once a year and at such other times as the Chairman or any other member of the Nomination Committee requires. During 2022 the Nomination Committee met more often than would usually be the case in view of the departure of David Allmond as CEO and the retirement of Edwin Snape. Annual Report and AccountsGovernance54 55 Directors’ Remuneration Report Composition and meetings The Remuneration Committee comprises at least two members, and all members are Non-Executive Directors considered independent. Andrew Heath acts as Chairman of the Remuneration Committee, Juliet Thompson and Jean-Pierre Crinelli are the other members. Only members of the Remuneration Committee have the right to attend meetings, but other Directors and external advisors may be invited to attend all or part of any meeting as and when appropriate. No Director may be involved in discussions relating to their own remuneration. The Remuneration Committee meets as appropriate but not less than twice a year. During the period, the Remuneration Committee met three times. Details of meeting attendance are shown in the table in the Corporate Governance Statement on page 48. Policy on Executive remuneration The Remuneration Committee is responsible for determining and agreeing with the Board the framework or broad policy for the remuneration of the Executive team. In determining such policy, the Remuneration Committee takes into account all factors that it deems necessary including the relevant legal and regulatory requirements and corporate governance guidelines. The Remuneration Committee also takes into account emerging best practice and guidance from major institutional Shareholders. The objective of the Company’s remuneration policy is to attract, retain and motivate individuals of the quality required to run the Company successfully without paying more than is necessary, having regard to views of Shareholders and other stakeholders. The Remuneration Committee recognises that the remuneration policy should have regard to the risk appetite of the Company and alignment to the Company’s long-term strategic goals, with a significant proportion of remuneration being structured to link rewards to corporate and individual performance, designed to promote the long-term success of the Company. The Remuneration Committee, when setting the remuneration policy for Executive Directors, also has regard to the pay and employment Andrew Heath Chairman of the Remuneration Committee Key responsibilities The Remuneration Committee determines performance related targets for the members of the Executive team, reviews their performance and makes recommendations to the Board on matters relating to their remuneration and terms of employment. The Remuneration Committee also makes recommendations to the Board on proposals relating to all long-term incentive scheme structures and any future option schemes, and the granting of any share options under such schemes. The remuneration and terms and conditions of appointment of the Non- Executive Directors are set by the Board. As Chairman of the Remuneration Committee, I am pleased to present our Directors’ Remuneration Report for the year ended 31 December 2022. This report does not constitute a Directors’ Remuneration Report in accordance with the Companies Act 2006. As a Company whose shares are admitted to trading on AIM, the Company is not required by the Companies Act to prepare such a report. We do, however, have regard to the principles of the QCA Code, which we consider to be appropriate for an AIM company of our size. The report provides a general statement of policy on Directors’ remuneration as it is currently applied, and details the remuneration for all Directors during the year. It also provides a summary of the Novacyt LTIP, which was established during 2022. conditions across the Group, particularly when conducting salary reviews. The main elements of the remuneration packages of the Executive Directors are as follows. Basic annual salary and pension Basic salary is reviewed annually by the Remuneration Committee, usually in February, and takes into account a number of factors, including the current position and progress of the Group, individual contribution and market salaries for comparable organisations. The Company makes contributions into the private pension schemes of the Executive Directors. Discretionary bonus At the discretion of the Remuneration Committee, taking into account performance against certain financial and individual targets, an Executive Director may be entitled to an annual discretionary cash bonus on such terms and subject to such conditions as may be decided from time to time by the Remuneration Committee. The Novacyt 2022 Performance Share Awards Scheme This LTIP replaced the previous phantom share award scheme which ended in November 2020. The 2022 Performance Share Awards (structured as nil-cost options1) currently applies to James McCarthy as Acting Chief Executive Officer and Chief Financial Officer, and Paul Oladimeji as Group Head of R&D. The performance shares will vest (“Vest”) after three financial years (the “Performance Period”) subject to the Company achieving Total Shareholder Return (“TSR”) Growth conditions as follows: TSR Growth % of the Award that may vest Less than 10% p.a. Nil Equal to 10% p.a. 25% Greater than 10% p.a. but less than 30% p.a. Pro-rata between 25% and 100% on a straight-line basis Equal to or greater than 30% p.a. 100% The baseline for TSR is based on the average closing price of the Company’s shares in December 2021, which was £3.54. This will then be compared to the equivalent figure in December 2024. Once vested, a Performance Share Award shall normally remain exercisable up until the tenth anniversary of the date of grant (3 February 2022 for these awards). As Acting Chief Executive Officer and Chief Financial Officer James McCarthy will be required to hold 50% of vested shares, or such other percentage determined by the Board from time to time (less any shares sold to pay any tax liability) for a minimum period of one year after the vesting date. Benefits in kind Executive Directors are entitled to benefits in kind commensurate with their position, including company car allowance, private medical and death in service insurance. 1 Executive salary and short-term bonus was reviewed and agreed. Annual Report and AccountsGovernance56 57 Directors’ Remuneration Report Directors’ remuneration The remuneration of the Directors who served on the Company’s Board during the year to 31 December 2022 was as follows: Year ended 31 December 2022 Year ended 31 December 2021 Executive Directors Basic salary and fees James McCarthy3 354,517 David Allmond3, 6 372,708 Non-Executive Directors James Wakefield 128,333 Andrew Heath 49,399 Juliet Thompson 49,399 Jean-Pierre Crinelli1 33,686 Edwin Snape2, 7 36,784 Bonus Pension LTIP Total Basic salary and fees Bonus Pension LTIP Total - - - - - - - - - - - - - - - - - - - - - 354,517 73,883 - 372,708 85,744 200,0004 128,333 95,000 49,399 47,500 49,399 47,500 33,686 32,672 36,784 31,802 - - - - - - - - - - - - 150,0005 223,883 - - - - - - 285,744 95,000 47,500 47,500 32,672 31,802 1 Salaries paid in Euros and disclosed in GBP, translated at the average exchange rate of 1.173187 in 2022 (2021: 1.163068) 2 Salary paid in USD and disclosed in GBP, translated at the average exchange rate of 1.236969 in 2022 (2021: 1.375659) 3 James McCarthy and David Allmond were elected as Directors during the AGM held on 18 October 2021 4 Payment received by way of a signing on bonus 5 Cash payment received in lieu of 2021 LTIP entitlement 6 David Allmond stepped down as Director on 10 November 2022 7 Edwin Snape retired as Director on 31 December 2022 Performance Share Awards Scheme Directors’ shareholdings and share interests The interests of the Directors who served during the year in the share capital of the Company as of 31 December 2022, 31 December 2021 and the date of this report were as follows: Directors’ share interests under the 2022 Performance Share Awards Scheme The Performance Share Awards allocated to the Executive team under the 2022 Performance Share Awards Scheme, which represent 0.4% of the current issued share capital, are as follows: As at the date of report 31 December 2022 31 December 2021 49,670 49,670 10,000 43,839 43,839 36,839 20,000 20,000 20,000 Participants James McCarthy1 Acting Chief Executive Officer and Chief Financial Officer LTIP Award # Shares 228,333 Paul Oladimeji Head of R&D Total 57,452 285,785 - - - 1James McCarthy is a member of the Novacyt Board 33,981 33,981 30,773 43,500 - Conclusion - - 17,919 17,919 This report is intended to explain clearly the remuneration approach adopted by the Company and to enable Shareholders to appreciate how it underpins the Group’s business growth and strategic objectives. The Board considers that the current remuneration policy is fair and is fully aligned with the interests of Shareholders. 1 David Allmond stepped down as Director on 10 November 2022 2 Edwin Snape retired as Director on 31 December 2022 All interests are beneficially held. There is no requirement for Directors to hold shares in the Company. Andrew Heath Chairman of the Remuneration Committee James McCarthy James Wakefield Andrew Heath and family Juliet Thompson Jean-Pierre Crinelli David Allmond1 Edwin Snape2 Annual Report and AccountsGovernance58 Audit Committee Report Summary of the role of the Audit Committee The Audit Committee’s primary responsibility is to monitor the quality of internal controls and ensure that the financial performance of the Group is properly measured and reported on. It receives and reviews reports from the Executive team and external auditors relating to the interim and annual accounts and the accounting and internal control systems in use throughout the Group. The Audit Committee meets as appropriate, but not less than twice a year, and minutes are recorded for each meeting by the Chief Financial Officer. The Audit Committee is able to call for information from the Executive team and has unrestricted access to the Company’s external auditors. The Audit Committee operates within specific terms of reference that include: • Reviewing management procedures to monitor the effectiveness of the accounting systems, accounting policies and internal controls; • Conducting a regular and ongoing process of risk assessment; • Reviewing the scope and planning of the external audit; • Reviewing the findings of the external auditor’s and management’s response; • Reviewing the annual financial statements before their submission to the Board for approval; • Making recommendations to the Board concerning the appointment and remuneration of the external auditor; • Reviewing any profit forecasts or working capital statements published in any bid document or listing particulars as investigated and verified by the Company’s auditor and/or reporting accountant; • Reviewing from time to time the cost effectiveness of the audit including a review of the performance of the external auditor; Juliet Thompson Chair of the Audit Committee Key responsibilities The Audit Committee administers the financial reporting of the company and related risks, internal controls, compliances, and ethics. It must coordinate with management and the auditors to come up with financial reporting for the Group results that is compliant with International Financial Reporting Standards, as adopted by the EU, and French GAAP for the parent Company. Ensuring the financial reports are accurate, the audit committee should be aware of the processes and internal controls put in place by the company’s management. The Audit Committee is responsible for appointing individual auditors, along with evaluating their performance and compensation. In some organisations, they may oversee the internal auditors as well. The Audit Committee comprises at least two members, with at least one Non-Executive Director considered independent, including the Chairman. In addition, the Chief Financial Officer and other members of the Company may be invited to attend as required. Independent Non-Executive Director, Juliet Thompson, being a chartered accountant, acts as Chair of the Audit Committee, and its other members are Jean-Pierre Crinelli and Andrew Heath. • Monitoring the fees paid to the external auditor and where the external auditor supplies a substantial volume of non-audit services to the Company, to keep the nature and extent of such services under review, in order to achieve a balance between objectivity and value for money; and • Having the right to obtain outside legal help and any professional advice, at the Company’s expense, which might be necessary for the fulfilment of its duties. The Audit Committee is responsible for ensuring the “right tone at the top” and that the ethical and compliance commitments of the Executive team and other employees are understood throughout the Group. External auditors The Audit Committee is responsible for making recommendations to the Board on the appointment, reappointment and removal of the external auditor and assesses annually the qualifications, expertise, resources, remuneration and independence of the external auditor. The Audit Committee receives reports on the external audit firm’s own internal quality control procedures and confirmation of the auditor’s independence. The Audit Committee ensures that appropriate plans are in place for the external auditor each annual cycle. The Group’s external auditors are Deloitte LLP and Alberis Audit. Under French law, the mandatory term for auditors is six years. Deloitte LLP was reappointed as external auditor during the AGM held in 2018 and has now been the auditor for eleven years at the end of the audit of the annual accounts for the year ended 31 December 2022, in addition, Alberis Audit were appointed in 2021 for a period of six years to approve the financial statements up to the year ended 31 December 2026. The Audit Committee annually reviews the effectiveness of the external auditor. This process involves overseeing the relationship with the Group’s external auditor, including reporting to the Board each year whether it considers the audit contract should be put out to tender, adhering to any legal requirements for tendering or rotation of the audit services contract as appropriate, reviewing and monitoring the external auditor’s objectivity and independence, agreeing the scope of their work and fees paid to them for audit, and assessing the effectiveness of the audit process. The external auditor presents to the Audit Committee the output of its detailed year-end work and the Audit Committee challenges significant judgements (if any). In making its assessment of external auditor effectiveness, the Audit Committee reviews the audit engagement letters before signature, reviews the external auditor’s summary of Company issues, and 59 conducts an overall review of the effectiveness of the external audit process and the external auditor. The Audit Committee reports its findings to the Board. The Audit Committee and the Board have been satisfied with the performance of the external auditors during the year and with the policies and procedures they have in place to maintain their objectivity and independence. The Audit Committee also approves in advance any non-audit services to be performed by the auditor such as tax compliance and advisory work, audit related assurance services (e.g. reviews of internal controls and reviewing the Group’s interim financial statements). Any non-audit services that are to be provided by the external auditor are reviewed in order to safeguard auditor objectivity and independence. Accordingly, the Board can confirm that, during the reporting period, there have been no non-audit services that are considered to have impaired the objectivity and independence of the external auditor. A full breakdown of payments made to the external auditor during the financial year is disclosed within note 43 to the financial statements. Work undertaken by the Audit Committee during the period The Audit Committee met four times during the period. Details of meeting attendance are shown in the Corporate Governance Statement on page 48. Deloitte LLP and Alberis Audit, as the auditors, were also present at one of the meetings. The key matters considered by the Audit Committee whilst discharging its duties and responsibilities are set out below: • Review of the Annual Report and Accounts for the year ended 31 December 2021; • Consideration and approval of the unaudited interim financial statements for the period ended 30 June 2022; • Review of the financial integrity of the Group’s financial statements including relevant corporate governance statements; • Review of the Company’s interim report for the six months ended 30 June 2022; • Approval of the audit fees for the financial year ended 31 December 2022; • Approval of non-audit work to be carried out by the auditor; • Consideration of the independence and objectivity of the external auditor; • Review of the internal controls and risk management systems within the Group; Annual Report and AccountsGovernance60 61 Audit Committee Report • Consideration of the requirement for the Group to Going concern have an internal audit function; The Directors have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they adopt the going concern basis of accounting in preparing the financial statements. The going concern model covers the period up to and including April 2024. In making this assessment, the Directors have considered the following elements: • The working capital requirements of the business; • A positive cash balance at 31 December 2022 of £86,973,000; • Payment of the Long-Term cash Incentive Plan (“LTIP”) that commenced in 2021 and vests at the end of 2023; and • The DHSC commercial dispute having a trial date set for June 2024. The forecast prepared by the Group shows that it is able to cover its cash needs during the financial year 2023 up until April 2024. Approved by on behalf of the Board. Juliet Thompson Chair of the Audit Committee • Review of the effectiveness of the external auditor, as more fully described above; • Discussions with the auditor on the audit approach and strategy, the audit process, significant audit risks and key issues of focus for the annual audit; • Review and approval of the continuing appointment of Deloitte LLP as the Group’s auditor and Alberis Audit as 2nd auditor. The ultimate responsibility for reviewing and approving the financial statements in the interim and annual reports remains with the Board. The Audit Committee, in conjunction with the auditor, has considered there are no significant issues relating to the preparation of the financial statements contained in this Annual Report. Risk management and internal control The Board has overall responsibility for the Group’s system of internal control and for reviewing the effectiveness of internal control to safeguard Shareholders’ investment and the Group’s assets. There is an ongoing process for identifying, evaluating and managing the significant risks the Group faces. The Board regularly reviews the process, which has been in place throughout the period and up to the date of approval of the Annual Report and Accounts. The Board’s internal control and risk management review process (conducted with the assistance of the Audit Committee) is outlined on pages 62 to 69. Internal audit The Board has reviewed the need for a separate internal audit function and concluded that such a function is not currently appropriate for a size of company such as the Group, and because the internal audit principles already fall under the remit of the Audit Committee. Annual Report and AccountsGovernance 62 Principle Risks and Risk Management The Group’s risk management strategy is a key responsibility of the Board of Directors. The Board ensures that all major risks are understood and appropriately managed in light of the Group’s strategy and objectives and is satisfied that the Group’s risk management and internal control systems are adequate. The Group’s risk management framework supports the risk assessment procedure across the Group, with the objective of ensuring that the assessment of the strategic, operational, financial and external risks of the Group is approached consistently Group-wide. At this stage of the Company’s development, the Board does not consider it to be appropriate to establish an internal audit function, but this will be kept under review. The principal risks faced by the Group are set out below. The pace of development in the healthcare industry The Group operates within the biotechnology sector, a complex area of the healthcare industry. Rapid scientific and technological change within the biotechnology sector could lead to other market participants creating approaches, products and services equivalent or superior to the diagnostic testing products and services offered by the Group, which could adversely affect the Group’s performance and success. If the Group is unable to keep pace with these changes in the biotechnology sector and in the wider healthcare industry, the demand for its technological platforms and associated products and services could fall. Competitive pressures Companies operating within the biotechnology sector are subject to competitive forces that may result in price discounting and product obsolescence. Better resourced competitors may be able to devote more time and capital towards the R&D process, which, in turn, could lead to scientific and/or technological breakthroughs that may materially alter the outlook or focus for markets in which the Group operates. In addition, a certain number of the Group’s competitors may have significantly greater financial and human resource capacity and, as such, better manufacturing capability or sales and marketing expertise. Competitors could also resort to price discounting or other sales and marketing strategies. Equally, new companies with alternative technologies and products may also emerge. Geographic markets The Group is largely based in the UK, and its products are distributed to and sold across multiple jurisdictions. In each of these jurisdictions, there may be a number of associated risks in respect of which the Group will have no, or limited, control. These may include: contract renegotiation, contract cancellation, economic, social or political instability or change, hyperinflation, currency non-convertibility or instability, and changes of laws affecting foreign ownership, taxation, working conditions, rates of exchange, exchange control and licensing. 63 Product development Additional products and services developed through the element of the Group’s strategy focused on R&D transformation will be required to drive the Group’s growth, such as Primer Design’s focus on transferring assays from RUO to clinical CE-IVD products. The development of such additional diagnostic testing products and services may take longer than expected or not be successful at all, which may adversely impact the Group’s ability to generate revenues and achieve sustainable profitability. In addition, the value of additional diagnostics tests and products may not prove as robust as currently envisaged by the Group. Any delays or unbudgeted expenditures incurred by the Group could postpone or halt the commercialisation of particular diagnostics tests and products. Product liability claims The Group faces an inherent risk of product liability and associated adverse publicity as a result of the sales of its products. Criminal or civil proceedings might be filed against the Group by patients, the regulatory authorities, pharmaceutical companies and any other third party using or marketing its products. Any such product liability claims may include allegations of defects in manufacturing, defects in design, negligence, strict liability, a breach of warranties and a failure to warn of dangers inherent in the product. If the Group cannot successfully defend itself against product liability claims, it may incur substantial liabilities or be required to limit commercialisation of its products, if approved. Even successful defence could require significant financial and management resources. Although the Group maintains a level of insurance that is customary for its industry to cover its current business, any claim that may be brought against the Group could result in a court judgement or settlement in an amount that is not covered, in whole or in part, by its insurance or that is in excess of the limits of its insurance coverage. Its insurance policies also have various exclusions and the Group may be subject to a product liability claim for which the Group has no coverage. Due to the specific and innovative nature of some of the Group’s products, there may only be a single supplier of goods or services to the Group in respect of those products or services, which may or may not be pursuant to the terms of exclusive supplier agreements. The Group’s purchases may be delayed if that single supplier, in respect of any one product or service, has its own manufacturing difficulties or is not able to meet the purchase requirements of the Group within a reasonable time frame. Further, any exclusive supplier arrangements may be terminated by either the supplier or the Company on notice. In the event of serious delays or non-performance by such suppliers, or upon such arrangements being terminated, the Group’s own stock levels could diminish or be exhausted. The Group may consider expanding its current supplier base to reduce the reliance on certain suppliers. However, there is no guarantee that they will be successful in doing so in a manner that complies with regulatory requirements. Reliance on sole suppliers Annual Report and AccountsGovernance64 Principle Risks and Risk Management Reliance on third- party distributors The Group uses third-party distributors in a number of its business areas. Although the Group enters into agreements with such distributors, it cannot ultimately control their actions and they may underperform or not act in the best interests of the Group. Furthermore, the distribution agreements may be terminated by the distributors or the Group. If so, and if appropriate from the Group’s strategy at that time, the Group may seek to find a replacement distributor but there can be no guarantee that they will be successful in doing so. Acquisition strategy Litigation and arbitration Key personnel Tenders A core part of the Group’s strategy is to undertake acquisitions that are strategically complementary to its existing businesses. The success of such a strategy will depend on the Group’s ability to identify potential targets, complete the acquisition of such targets on favourable terms, including securing appropriate financing, and to generate value from the acquired targets. This strategy may not be successful under all or any market conditions. The Group may not be able to acquire targets on attractive terms or to generate resulting returns for Shareholders and prospective investors. From time to time, the Group may be subject to litigation arising from its operations, distribution and sales. Damages claimed, awarded, settled or paid under any litigation or arbitration may be material or may be indeterminate, and the outcome of such litigation or arbitration may have a material adverse effect on the Group’s business, financial condition, capital resources, results and/or future operations. Please refer to notes 44 and 45 of the accounts regarding the ongoing DHSC dispute. The Group depends on the services of its key personnel, which includes a number of individuals some of whom are currently on a short notice period of three months or less. The Group’s ability to manage its R&D and product development activities, wider operations and financing will depend in large part on the efforts of its key personnel. The loss of services of key personnel, the inability to attract, retain and integrate suitably qualified personnel or delays in hiring required personnel, could delay the achievement of the Group’s objectives and strategy. A proportion of the Group’s revenues stem from tenders awarded to the Group and it is not possible to control and/or predict the outcomes of these tender processes. The success of such tender awards is based upon the ability of the organisation or country to finance tenders, and then it is based upon the historical performance, price and quality of the competitors who have been invited to participate in the tender process. The Group may not be successful in future tender processes. The failure to gain new business through the award of tender contracts may have a material adverse effect on the Group’s business, financial condition, capital resources, results and/or future operations. 65 Regulatory environment The Group’s products are subject to various laws, regulations and standards in each of the jurisdictions in which products are manufactured and distributed. These laws, regulations and standards may change and, if the Group fails to meet those regulatory or other requirements, it could face delays or prohibitions on the operation of its business. New IVDR regulations The Group’s ability to conduct business is predicated on being in compliance with all licence requirements as specified by each relevant jurisdiction. The Group may not continue to hold all of the necessary consents, approvals and licences required to conduct its business, and where new permissions are required, these may be delayed or not forthcoming. If any new approvals or licences are required in order for the Group to carry on its business, the Group could face delays or prohibitions on the development, manufacture, sale or distribution of its products, which may have a material adverse effect on the Group’s business, financial condition, capital resources, results and/or future operations. The entire IVD industry within the EU has undergone a significant regulatory transition from the In Vitro Diagnostic Directive (“IVDD”) (98/79/EC) to the new In Vitro Diagnostic Regulation (“IVDR”) (2017/746). There are a limited number of notified bodies available to IVDD manufacturers, which reflects a risk that the industry may not be ready when the new IVDR regulations come into force. In recognition of this, the European Commission has delayed the full implementation of IVDR for existing products until 2025, 2026 or 2027 depending on the risk classification of the device (COVID tests must meet the requirements by 2025). Whilst there is now more time to meet requirements for existing tests, any new products launched after May 2022 must meet IVDR requirements. The cumulative effect of the introduction of the new regulation has significantly increased the burden on IVD manufacturers to maintain regulatory compliance and this may result in older products being discontinued due to the additional cost of compliance. The IVDR applies to any products sold in Europe. The UK, in turn, is applying its own regulatory regime to IVDDs, which will involve applying a UK certification mark for any products sold in the UK and this increases the regulatory burden. Employment laws The Group is also subject to various UK and US regulations governing the Group’s relationship with employees, including such matters as the treatment of part-time or agency workers, employers’ National Insurance contributions, overtime and other working conditions. A failure to comply with one or more regulations could result in the imposition of sanctions, including the closing of facilities for an indeterminate period of time or third-party litigation. European General Data Protection Regulation The Group is committed to ensuring compliance with European General Data Protection Regulation (“GDPR”). Failure to demonstrate appropriate actions to comply with GDPR could result in a one-off discretionary caution or can escalate to a fine of up to 4% of annual global turnover. Annual Report and AccountsGovernance66 Principle Risks and Risk Management Information technology Brexit The Group is heavily reliant upon its information technology systems to enable it to manage a growing business and to service its customers online. Information systems are used across all aspects of the Group’s business, including R&D, product development, sales, production, stock control, distribution, and accounting and finance. The Group’s business would be adversely affected by a material or sustained breakdown in its key computer and communication systems. In addition, the Group may face online security breaches, including hacking and vandalism. The Group cannot guarantee absolute protection against unauthorised attempts to access its information technology and communication systems, including malicious third-party applications that may interfere with or exploit security flaws in its products and services. On 23 June 2016, the UK held a referendum on the UK’s continuing membership of the EU, the outcome of which was a decision for the UK to leave the EU (Brexit). Following Royal Assent of the European Union (Withdrawal Agreement) Act on 23 January 2020 and ratification of the Withdrawal Agreement by the European Parliament on 24 January 2020, the UK left the EU on 31 January 2020 and became a third country with a transition period running to 31 December 2020. As the IVDD applies to all products placed on the market, the Company still need to comply with IVDD and IVDR but as we are now considered a non-EU manufacturer, we have to appoint a European Authorised Representative and Importer based in the EU, to make labelling changes and register our products with an EU Competent authority. This adds cost and complexity to selling in Europe. In addition, the UK Government is currently drafting new UK Regulations requiring IVDs placed on the UK market to undergo a regulatory process that could mirror the CE marking process, with a separate registration in the UK and the application of a UKCA mark adding further cost and complexity. 67 Protection of intellectual property rights The Group’s ability to compete depends, in part, upon the successful protection of its intellectual property, in particular its patents, trademarks, know-how and trade secrets. The Group seeks to protect its intellectual property through the filing of worldwide patent and trademark applications, as well as robust confidentiality obligations on its employees (and any contractors). Infringement of third-party patents and other intellectual property rights Despite these precautions that may be taken by the Group to protect its intellectual technology and products, unauthorised third parties may attempt to copy, or obtain and use, its technology and products. A third party may infringe upon the Group’s intellectual property, release information considered confidential about the Group’s intellectual property and/or claim technology that is registered to the Group. In addition, the Group may fail to discover infringement of its intellectual property, and/or any steps taken or that will be taken by it may not be sufficient to protect its intellectual property rights or prevent others from seeking to invalidate its intellectual property, or block sales of its products by alleging a breach of their intellectual property. Applications filed by the Group in respect of new patents and trademarks may also not be granted. The Directors are committed to defending the Group’s intellectual property vigorously through litigation and other means. The Group’s products may infringe or may be alleged to infringe existing patents or patents that may be granted in the future, which may result in costly litigation and could result in the Group having to pay substantial damages or limit the Group’s ability to commercialise its products. If the Group is sued for patent infringement, the Group would need to demonstrate that its products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and the Group may not be able to do this. If the Group is found to have infringed a third-party’s patent, the Group could be required to obtain a licence from such third party to continue developing and marketing its products and technology or the Group may elect to enter into such a licence in order to settle litigation or in order to resolve disputes prior to litigation. However, the Group may not be able to obtain any required licence on commercially reasonable terms or at all. Even if the Group is able to obtain a licence, it could be non-exclusive, thereby giving its competitors access to the same technologies licensed to the Group, and could require the Group to make substantial royalty payments. The Group could also be forced, including by court order, to cease commercialising the infringing technology or products. A finding of infringement could prevent the Group from commercialising its products or force the Group to cease some of its business operations, which could materially harm its business. Claims that the Group has misappropriated the confidential information or trade secrets of third parties could have a similarly negative impact on its business. Annual Report and AccountsGovernance68 Principle Risks and Risk Management Protection of trademarks Customer concentration Bad debts The Group owns certain trademarks that are important to its business and competitive position. Third parties may infringe or misappropriate these rights by, for example, imitating the Group’s products, asserting rights in, or ownership of, the Group’s trademarks or other intellectual property rights or in trademarks that are similar to trademarks that the Group owns. In addition, the Group may fail to discover infringement of its intellectual property, and/or any steps taken or that will be taken by it may not be sufficient to protect its intellectual property rights or prevent others from seeking to invalidate its trademarks by alleging a breach of their trademarks and intellectual property. Applications filed by the Group in respect of new trademarks may not be granted. In addition, some of the Group’s intellectual property may not be capable of being registered as belonging to the Group in all types of trademarks and all classes and the Group may, therefore, have difficulty protecting such intellectual property. Further, the Group may not be able to prevent others from using its brands (or other intellectual property that is not registered as belonging to the Group) at all or in a particular market. If the Group is unable to protect its intellectual property rights against infringement or misappropriation, or if others assert rights in or seek to invalidate its intellectual property rights, this could have a material adverse effect on the Group’s business, financial condition, capital resources, results and/or future operations. There was no customer that contributed 10% or more to the Group’s revenue in 2022. The Group sells to companies of all sizes from small to medium-sized enterprises to blue-chip institutions, and operates in emerging markets, such as the Middle East, Asia-Pacific, Africa and South America. Whilst the Group has, to date, successfully managed the risk of being paid for products and services sold into these companies and regions, as the Group grows and its customer base and distribution channels expands, there could be a higher risk that new customers do not pay in a timely manner and that bad debt increases. 69 Foreign exchange rates SARS-CoV2 Pandemic The Group operates on a global basis and it has exposure to foreign exchange risk on purchases and sales that are denominated in currencies other than the Pound Sterling, Euro and US Dollar, which are the currencies of most of its receivables, expenditures, cash reserves and borrowings. The Pound Sterling, Euro and US Dollar exchange rates have fluctuated significantly in the past and may do so in the future. Consequently, revenue, expenditure, cash and borrowings may be higher or lower than anticipated by the Group. In addition, the financial statements of the Group are denominated in Pounds Sterling which, therefore, give further exposure to foreign exchange rate fluctuations and may impact the financial results reported to its Shareholders, particularly as profits and losses arising from foreign currency transactions and on settlement of amounts receivable and payable in foreign currency are dealt with through the profit and loss statement. The global pandemic caused significant disruption and volatility to the entire diagnostics market. However, the threat from COVID-19 to public health has now eased considerably due to vaccination and natural immunity in the general population with testing requirements for travel, work and leisure now rarely required. Following the pandemic, the UK health care system is struggling with significant patient backlogs at a time where funding has come under pressure as government budgets struggle with the global cost of living crisis. This means more volatility in demand for diagnostics companies and uncertainty in planning and forecasting future demand. Annual Report and AccountsGovernance70 71 Financial Statements Company law requires the Directors to prepare Group and parent company financial statements for each financial year. Under that law, they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards, as adopted by the EU, and applicable law, and have elected to prepare the parent company financial statements under French GAAP. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company financial statements, the Directors are required to: • Select suitable accounting policies and then apply them consistently; • Make judgements and accounting estimates that are reasonable and prudent; • State whether they have been prepared in accordance with IFRSs as adopted by the EU; and • Prepare the financial statement’s on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that the Group’s financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. Responsibility Statement of the Directors in Respect of the Annual Financial Report We confirm that to the best of our knowledge: • The financial statements, 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 Company and the undertakings included in the consolidation taken as a whole; and • The Strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. Financial StatementsAnnual Report and Accounts72 73 Financial Statements Statutory Auditors Report on the Statement Consolidated Financial Statements For the year ended 31 December 2022 This is a translation into English of the statutory auditor’s report on the consolidated financial statements of the Company issued in French and it is provided solely for the convenience of English speaking users. This statutory auditor’s report includes information required by European regulation and French law, such as information about the appointment of the statutory auditors or verification of the management report and other documents provided to Shareholders. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the NOVACYT Shareholders’ Meeting Opinion In compliance with the engagement entrusted to us by your annual general meeting, we have audited the accompanying consolidated financial statements of NOVACYT for the year ended 31 December 2022. In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of the Group as at 31 December 2022 and of the results of its operations for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. Basis for opinion Audit framework We conducted our audit in accordance with professional standards applicable in France. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the “Statutory Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements” section of our report. Independence We conducted our audit engagement in compliance with independence requirements of the French Commercial Code (code de commerce) and the French Code of Ethics (code de déontologie) for statutory auditors, for the period from 1 January 2022 to the date of our report. Emphasis of matter We draw attention to the following matter: • Notes 44, Contingent Liabilities and 45, Subsequent Events, identifying an ongoing commercial dispute and disclosing the underlying assumptions and the potential impacts in the consolidated financial statements. Our opinion is not modified in respect of this matter. Justification of assessments In accordance with the requirements of Articles L. 823- 9 and R. 823-7 of the French Commercial Code relating to the justification of our assessments, we inform you of the following assessments that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on specific items of the consolidated financial statements. Goodwill Goodwill was subject to impairment tests according to the procedures described in the “Impairment testing” note to the consolidated financial statements. We reviewed the procedures used to implement these tests as well as the cash flow forecasts and assumptions used for this purpose, and we verified that the “Impairment testing” and “Goodwill” notes provided appropriate disclosures. Specific verifications We have also performed, in accordance with professional standards applicable in France, the specific verifications required by law and regulations of the information pertaining to the Group presented in the Board of Directors’ management report. We have no matters to report as to its fair presentation and its consistency with the consolidated financial statements. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the 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 it is expected to liquidate the Company or to cease operations. The consolidated financial statements were approved by the Board of Directors. Statutory Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our role is to issue a report on the consolidated financial statements. Our objective is to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with professional standards 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. Financial StatementsAnnual Report and Accounts74 75 Financial Statements However, future events or conditions may cause the Company to cease to continue as a going concern. If the statutory auditor concludes that a material uncertainty exists, there is a requirement to draw attention in the audit report to the related disclosures in the consolidated financial statements or, if such disclosures are not provided or inadequate, to modify the opinion expressed therein. • Evaluates the overall presentation of the consolidated financial statements and assesses whether these statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtains sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements.The statutory auditor is responsible for the direction, supervision and performance of the audit of the consolidated financial statements and for the opinion expressed on these consolidated financial statements. Cergy and Paris-La Défense, 26th April 2023 The Statutory Auditors French original signed by Alberis Audit Deloitte & Associés Guillaume TURCHI Benoit PIMONT As specified in Article L. 823-10-1 of the French Commercial Code, our statutory audit does not include assurance on the viability of the Company or the quality of management of the affairs of the Company. As part of an audit conducted in accordance with professional standards applicable in France, the statutory auditor exercises professional judgement throughout the audit and furthermore: • Identifies and assesses the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, designs and performs audit procedures responsive to those risks, and obtains audit evidence considered to be sufficient and appropriate to provide a basis for his opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtains an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control. • Evaluates the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management in the consolidated financial statements. • Assesses the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. This assessment is based on the audit evidence obtained up to the date of his audit report. Financial StatementsAnnual Report and Accounts76 Accounts and Notes Consolidated income statement for the years ended 31 December 2022 and 31 December 2021 Amounts in £’000 Continuing Operations Revenue Cost of sales Cost of sales – exceptional Total cost of sales Gross profit Sales, marketing and distribution expenses Research and development expenses General and administrative expenses Governmental subsidies Operating (loss) / profit before exceptional items Other operating income Other operating expenses Operating loss after exceptional items Financial income Financial expense Loss before tax Tax expense Year ended 31 December 2022 Year ended 31 December 2021 (*) Notes 5 7 8 9 10 11 12 12 13 13 21,040 -15,294 - -15,294 92,603 -28,607 -35,770 -64,377 5,746 28,226 -4,826 -5,047 -12,090 562 -6,225 -4,645 -16,359 308 -15,655 1,305 - -7,738 -23,393 3,969 -629 65 -5,286 -3,916 787 -2,531 -20,053 -5,660 14 -2,148 -349 Loss after tax from continuing operations -22,201 -6,009 Loss from discontinued operations Loss after tax attributable to owners of the Company (**) Loss per share (£) Diluted loss per share (£) Loss per share from continuing operations (£) Diluted loss per share from continuing operations (£) Loss per share from discontinued operations (£) Diluted loss per share from discontinued operations (£) 38 15 15 15 15 15 15 -3,529 -3,719 -25,730 -0.36 -0.36 -0.31 -0.31 -0.05 -0.05 -9,728 -0.14 -0.14 -0.09 -0.09 -0.05 -0.05 * The 2021 consolidated income statement is presented to reflect the impact of the application of IFRS 5 relative to discontinued operations, by stating the Lab21 Products activity on a single line ‘Loss from discontinued operations’. ** There are no non-controlling interests. Annual Report and Accounts Consolidated statement of comprehensive income for the years ended 31 December 2022 and 31 December 2021 Statement of financial position for the years ended 31 December 2022 and 31 December 2021 Amounts in £’000 Loss for the period recognised in the income statement Items that may be subsequently reclassified to profit or loss: Year ended 31 December 2022 Year ended 31 December 2021 (*) -25,730 -9,728 Translation reserves -843 862 Total comprehensive loss -26,573 -8,866 Comprehensive loss attributable to: Owners of the Company (**) -26,573 -8,866 * The 2021 consolidated income statement is presented to reflect the impact of the application of IFRS 5 relative to discontinued operations, by stating the Lab21 Products activity on a single line ‘Loss from discontinued operations’. **There are no non-controlling interests. Amounts in £’000 Notes Year ended 31 December 2022 Year ended 31 December 2021 Goodwill Other intangible assets Property, plant and equipment Right-of-use assets Non-current financial assets Deferred tax assets Other long-term assets Total non-current assets Inventories and work in progress Trade and other receivables Tax receivables Prepayments and short-term deposits Investments short-term Cash and cash equivalents Total current assets Total assets Lease liabilities short-term Contingent consideration short-term Provisions short-term Trade and other liabilities Other current liabilities Total current liabilities Net current assets Lease liabilities long-term Provisions long-term Deferred tax liabilities Other long-term liabilities Total non-current liabilities Total liabilities Net assets 16 17 18 19 20 21 22 28 23 24 25 27 29 30 31 25 29 20 32 6,646 3,121 2,751 521 - 624 - 13,663 3,027 33,662 1,149 2,418 9 86,973 127,238 11,471 3,710 4,594 1,788 144 3,143 64 24,914 11,461 38,499 5,034 2,034 9 101,746 158,783 140,901 183,697 609 - 20,300 2,787 540 24,236 424 836 19,956 17,190 498 38,904 103,002 119,879 263 95 1,041 50 1,449 1,446 308 1,224 - 2,978 25,685 41,882 115,216 141,815 Statement of financial position for the years ended 31 December 2022 and 31 December 2021 (continued) Statement of changes in equity for the years ended 31 December 2022 and 31 December 2021 Amounts in £’000 Notes Year ended 31 December 2022 Year ended 31 December 2021 Share capital Share premium account Own shares Other reserves Equity reserve Retained earnings Total equity – owners of the Company 33 34 35 36 37 4,053 50,671 -91 -2,017 1,155 61,445 115,216 4,053 50,671 -78 -1,174 1,155 87,188 141,815 Total equity 115,216 141,815 Amounts in £’000 Other Group reserves Share capital Share premium Own shares Equity reserves Acquisition of the shares of Primer Design Translation reserve OCI on retirement benefits Retained earnings Total equity Total Balance at 1 January 2021 Translation differences Loss for the period Total comprehensive income / (loss) for the period Own shares acquired / sold in the period Balance at 31 December 2021 Translation differences Loss for the period Total comprehensive loss for the period Own shares acquired / sold in the period Other Balance at 31 December 2022 4,053 50,671 -49 1,155 -2,407 – – – – – – – – – – – -29 – – – – – – – – 379 862 – 862 – -8 -2,036 96,916 150,710 – – – – 862 – 862 – -9,728 -9,728 862 -9,728 -8,866 – – -29 4,053 50,671 -78 1,155 -2,407 1,241 -8 -1,174 87,188 141,815 – – – – – – – – – – – – – -13 – – – – – – – – – – – -843 – -843 – – – – – – – -843 – -843 – -25,730 -25,730 -843 -25,730 -26,573 – – – -13 -13 -13 4,053 50,671 -91 1,155 -2,407 398 -8 -2,017 61,445 115,216 Statement of cash flows for the years ended 31 December 2022 and 31 December 2021 Notes 39 Amounts in £’000 Net cash (used in) / from operating activities Operating cash flows from discontinued operations Operating cash flows from continuing operations Investing activities Purchases of patents and trademarks Purchases of property, plant and equipment Variation of deposits Acquisition of subsidiary net of cash acquired Interest received Net cash used in investing activities Investing cash flows from discontinued operations Investing cash flows from continuing operations Financing activities Repayment of lease liabilities Purchase of own shares – net Net cash used in financing activities Financing cash flows from discontinued operations Financing cash flows from continuing operations Net (decrease) / increase in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes Cash and cash equivalents at end of year Year ended 31 December 2022 Year ended 31 December 2021 -13,729 -1,955 -11,774 -260 -156 -12 -787 638 -577 28 -605 -503 -13 -516 -142 -374 -14,822 101,746 49 86,973 15,689 2,180 13,509 -330 -3,770 16 -943 40 -4,987 -247 -4,740 -610 -29 -639 -261 -378 10,063 91,765 -82 101,746 NOTES TO THE ANNUAL ACCOUNTS 1. APPLICABLE ACCOUNTING STANDARDS Novacyt is an international diagnostics business delivering a broad portfolio of in vitro and molecular diagnostic tests for a wide range of infectious diseases, enabling faster, more accurate, accessible testing to improve healthcare outcomes. The Company provides customers with a seamless sample-to-result workflow using its integrated and scalable instrumentation/solutions. The Company specialises in the design, manufacture, and supply of real-time PCR kits, reagents and a full range of laboratory and qPCR instrumentation for molecular biology research and clinical use. Novacyt offers one of the world’s most varied and comprehensive range of qPCR assays, covering human, veterinary, biodefence, environmental, agriculture and food testing. Its registered office is located at 13 Avenue Morane Saulnier, 78140 Vélizy-Villacoublay. The financial information contained in this report comprises the consolidated financial statements of the Company and its subsidiaries (hereinafter referred to collectively as the “Group”). They are prepared and presented in Great British Pounds (“GBP”), rounded to the nearest thousand (“£’000s”). The 2022 consolidated financial statements were approved by the Board of Directors on 26 April 2023. 2. ADOPTION OF NEW STANDARDS AND AMENDMENTS TO EXISTING STANDARDS - Standards, interpretations and amendments to standards with mandatory application for the period beginning on or after 1 January 2022 had no material impact on Novacyt’s consolidated financial statements at 31 December 2022. These are: o Amendment to IFRS 4 : Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts; o Amendment to IAS 16 regarding proceeds received before the intended use of an property, plant and equipment; o Amendment to IAS 37 about which costs to include for the purpose of assessing whether a contract is onerous; o Amendment to IFRS 3 about the criteria that activities and assets must meet to be considered as a business; o o o o Improvement to IAS 41: disclosure of the method of calculating the fair value of agricultural assets; Improvement to IFRS 1: treatment of the individual accounts of subsidiaries adopting IFRS for the first time; Improvement to IFRS 9: consideration of fees and commissions for the derecognition of a financial liability; and Improvement to IFRS 16 regarding rental incentives. - Standards or interpretations not mandatorily applicable in 2022 that would be available Basis of consolidation for an early application. o Amendment to IAS 1: information to disclose regarding accounting principles and policies; o Amendment to IAS 8 regarding the definition of an accounting estimate; and o IFRS 17 – Insurance contracts. The company has not adopted the standards and amendments listed above early. The texts adopted by the European Union are available on the website of the European Commission. 3. SUMMARY OF ACCOUNTING POLICIES APPLIED BY THE GROUP The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union. The financial information has been prepared on the historical cost basis except in respect of those financial instruments that have been measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for the goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in the financial information is determined on such a basis, except for leasing transactions that are within the scope of IFRS 16, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36. The areas where assumptions and estimates are material in relation to the financial information are the measurement of goodwill (see note 16), the carrying amounts and useful lives of the other intangible assets (see note 17), deferred taxes (see note 20), trade receivables (see note 22) and provisions for risks and other provisions related to the operating activities (see note 29). The accounting policies set out below have been applied consistently to all periods presented in the financial information. The financial information includes all companies under control. The Group does not exercise joint control or have significant influence over other companies. Subsidiaries are consolidated from the date on which the Group obtains effective control. Controlled companies are consolidated by the full consolidation method with recognition of non-controlling interests. Under IFRS 10, an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. When the Group has less than a majority of the voting rights of an investee, it considers that it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Group considers all relevant facts and circumstances in assessing whether or not the Group’s voting rights in an investee are sufficient to give it power, including: • • • • the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; potential voting rights held by the Company, other vote holders or other parties; rights arising from other contractual arrangements; and any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date the Group gains control until the date when the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Group and to the non-controlling interests. Total comprehensive income of the subsidiaries is attributed to the owners of the Group and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated on consolidation. The Group’s scope of consolidation included the following companies, all fully consolidated when included in the scope. At 31 December 2022 At 31 December 2021 Discontinued operations and assets held for sale Companies Interest percentage Consolidation method Interest percentage Consolidation method 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% FC FC DO FC FC DO FC FC FC FC FC Biotec Laboratories Ltd IT-IS International Ltd Lab21 Healthcare Ltd Novacyt US Inc Novacyt Inc Microgen Bioproducts Ltd Novacyt SA Novacyt Asia Ltd Novacyt China Ltd Novacyt UK Holdings Ltd Primer Design Ltd 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% FC FC DO FC FC DO FC FC FC FC FC Legend: FC: Full consolidation DO: Discontinued operation Consolidation methods The consolidated historical financial information is prepared using uniform accounting policies for transactions and other similar events in similar circumstances. o Elimination of intercompany transactions The intercompany balances arising from transactions between consolidated companies, as well as the transactions themselves, including income, expenses and dividends, are eliminated. o Translation of accounts denominated in foreign currency The historical financial information is presented in £’000 GBP. The financial statements of companies whose functional currency is not GBP are translated into GBP as follows: - Items in the statement of financial position are translated at the closing exchange rate, excluding equity items, which are stated at historical rates; and - Transactions in the income statement and statement of cash flows are translated at the average annual exchange rate. in other Translation differences on earnings and equity are recognised directly comprehensive income under “Translation reserves” for the portion attributable to the Group. On disposal of a foreign company, the translation differences relating thereto and recognised in other comprehensive income are reclassified to profit or loss. Exchange differences arising from intragroup balances are recognised as exchange losses or gains in the consolidated income statement. A discontinued operation is a component that either has been disposed of, or is classified as held for sale, and (a) represents a separate major line of business or geographical area of operations, (b) is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or (c) is a subsidiary acquired exclusively with a view to resale. Discontinued operations are presented in the consolidated income statement as a single amount comprising the total of: - The post-tax profit or loss of the discontinued operation, - The post-tax gain or loss recognised on the measurement to fair value less costs to sell, and - The post-tax gain or loss recognised on the disposal of assets or the disposal group making up the discontinued operation. Where material, the analysis of the single amount is presented in the relevant note (see note 38). In the statement of cash flows the net cash flow attributable to the operating, investing and financing activities of discontinued operations have been disclosed separately. No adjustments have been made in the statement of financial position. Comparatives for discontinued operations are restated. Going concern The Directors have, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they adopt the going concern basis of accounting in preparing the financial statements. The going concern model covers the period up to and including April 2024. In making this assessment, the Directors have considered the following elements: - The working capital requirements of the business; - A positive cash balance at 31 December 2022 of £86,973,000; - Payment of the Long-Term cash Incentive Plan (“LTIP”) that commenced in 2021 and vests at the end of 2023; and - The DHSC commercial dispute having a trial date set for June 2024. The forecast prepared by the Group shows that it is able to cover its cash needs during the financial year 2023 up until April 2024. Business combinations and measurement of goodwill o Business combinations Business combinations are accounted for using the purchase method (see IFRS 3). Each time it acquires a company or group of companies constituting a business, the Group identifies and measures the assets acquired and liabilities assumed, most of which are carried at fair value. The difference between the fair value of the consideration transferred, including the recognised amount of any non-controlling interest in the acquiree, and the net amount recognised in respect of the identifiable assets acquired and liabilities assumed measured at fair value, is recognised as goodwill. Pursuant to IFRS 3, the Group applies the following principles: - Transaction costs are recognised immediately as operating expenses when incurred; - Any purchase price adjustment of an asset or a liability assumed is estimated at fair value at the acquisition date, and the initial assessment may only subsequently be adjusted against goodwill in the event of new information related to facts and circumstances existing at the acquisition date if this assessment occurs within the 12- month allocation period after the acquisition date. Any adjustment of the financial liability recognised in respect of an additional price subsequent to the intervening period or not meeting these criteria is recognised in the Group’s comprehensive income; - Any negative goodwill arising on acquisition is immediately recognised as income; and - For step acquisitions, the achievement of control triggers the remeasurement at fair value of the interest previously held by the Group in profit or loss. Loss of control results in the remeasurement of the possible residual interest at fair value in the same way. For companies acquired during the year, only the results for the period following the acquisition date are included in the consolidated income statement. o Measurement of goodwill Goodwill is broken down by cash-generating unit (“CGU”) or group of CGUs, depending on the level at which goodwill is monitored for management purposes. In accordance with IAS 36, none of the CGUs or groups of CGUs defined by the Group are greater in size than an operating segment. o Impairment testing Goodwill is not amortised, but is subject to impairment testing when there is an indication of loss of value, and at least once a year at the reporting date. Such testing consists of comparing the carrying amount of an asset to its recoverable amount. The recoverable amount of an asset, a CGU or a group of CGUs is the greater of its fair value less costs to sell and its value in use. Fair value less costs to sell is the amount obtainable from the sale of an asset, a CGU or a group of CGUs in an arm’s length transaction between well- informed, willing parties, less the costs of disposal. Value in use is the present value of future cash flows expected to arise from an asset, a CGU or a group of CGUs. It is not always necessary to determine both the fair value of an asset less costs to sell and its value in use. If either of these amounts exceeds the carrying amount of the asset, the asset is not impaired and it is not necessary to estimate the other amount. Intangible fixed assets o Customer relationships In accordance with IFRS 3, the Group’s acquisition of Primer Design and IT-IS International resulted in the recognition of the value of the acquired customer base on the statement of financial position. The value of these assets was determined by discounting the additional margin generated by customers after remuneration of the contributing assets. Customer relationships are amortised on a straight-line basis over nine years, unless they are deemed to be impaired. o Trademark The acquisition price of Primer Design and IT-IS International by the Group has led to the recognition of a number of trademarks. The value of these assets has been determined by discounting the cash flows that could be generated by licensing the trademark, estimated as a percentage of revenue derived from information available on comparable assets. Trademarks are amortised on a straight-line basis over nine years, unless they are deemed to be impaired. o Other intangible assets Intangible assets include licences and patents recognised at cost and amortised over useful lives of between 7 and 20 years. Property, plant and equipment Items of property, plant and equipment are recognised at their acquisition cost (purchase price plus incidental expenses and acquisition costs). Depreciation and amortisation Property, plant and equipment and intangible assets are depreciated or amortised on a straight-line basis, with major components identified separately where appropriate, based on the following estimated useful lives: - Leasehold improvements: Straight-line basis – 2 to 15 years - Trademarks: - Customer relationships: - Plant and machinery: Straight-line basis – 9 years Straight-line basis – 9 years Straight-line basis – 3 to 6 years - General fittings, improvements: Straight-line basis – 3 to 5 years - Transport equipment: - Office equipment: - Computer equipment: Straight-line basis – 5 years Straight-line basis – 3 years Straight-line basis – 2 to 3 years Any leased buildings, equipment or other leases that fall under the scope of IFRS 16 have been capitalised as a right-of-use asset and will be depreciated on a straight-line basis over the shorter of the estimated useful life and the lease term. The depreciation or amortisation of property, plant and equipment begins when they are ready for use and ceases at their disposal, scrapping or reclassification as assets held for sale in accordance with IFRS 5. Given the nature of its assets, the Group does not recognise residual value on the items of property, plant and equipment it uses. Depreciation and amortisation methods and useful lives are reviewed at each reporting date and revised prospectively if necessary. Asset impairment Depreciable and non-depreciable assets are subject to impairment testing when indications of loss of value are identified. In assessing whether there is any indication that an asset may be impaired, the Group considers the following external and internal indicators: External indicators: - Drop in the market value of the asset (to a greater extent than would be expected solely from the passage of time or the normal use of the asset); - Significant changes with an adverse effect on the entity, either having taken place during the period or expected to occur in the near future, in the technical, economic or legal environment in which the Group operates or in which the asset is used; and - Increases in market interest rates or other market rates of return during the year when it is likely that such increases will significantly reduce the market value and/or value in use of the asset. Internal indicators: - Existence of indication of obsolescence or physical damage of an asset unforeseen in the depreciation or amortisation schedule; - Significant changes in the way the asset is used; - Weaker-than-expected performance by the asset; and - Significant reduction in the level of cash flow generated by the asset. If there is an indication of impairment, the recoverable amount of the asset is compared with its carrying amount. The recoverable amount is the greater of fair value less costs to sell and value in use. Value in use is the present value of future cash flows expected to flow from an asset over its estimated useful life. The recoverable amount of assets that do not generate independent cash flows is determined by that of the CGU to which it belongs; a CGU being the smallest homogeneous group of identifiable assets generating cash flows that are largely independent of other assets or groups of assets. The carrying amount of an asset is its gross value less accumulated depreciation, for depreciable property, plant and equipment, and impairment losses. In the event of loss of value, an impairment charge is recognised in the income statement. Impairment is reversed in the event of a change in the estimate of the recoverable value or if indications of loss of value disappear. Impairment is recognised under “Depreciation, amortisation and provisions for impairment of property, plant and equipment and intangible assets” in the income statement. Intangible assets not subject to amortisation are tested for impairment at least once a year. Leases The Group assesses whether a contract is or contains a lease, at the inception of the contract. The Group recognises a right-of-use asset and a lease liability at lease commencement for all lease arrangements in which it is the lessee, except for short-term leases and leases of low- value assets. • The Group records right-of-use assets at cost at the commencement date of the lease, which is the date the underlying asset is available for use, less any accumulated depreciation and impairment losses, and adjusted for subsequent remeasurement of lease liabilities. Cost includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date, less any lease incentives received. The Group charges depreciation to the income statement on a straight-line basis over the shorter of the estimated useful life and the lease term. • The lease liability is initially measured at the present value of the future lease payments discounted using the discount rate implicit in the lease (or if that rate cannot be readily determined, the lessee’s incremental borrowing rate). Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. Inventories Inventories are carried at the lower of cost and net realisable value. Cost includes materials and supplies, and, where applicable, direct labour costs incurred in transforming them into their current state. It is calculated using the weighted average cost method. The recoverable amount represents the estimated selling price less any marketing, sales and distribution expenses. The gross value of goods and supplies includes the purchase price and incidental expenses. A provision for impairment, equal to the difference between the gross value determined in accordance with the above terms and the current market price or the realisable value less any proportional selling costs, is recognised when the gross value is greater than the other stated item. Trade receivables Financial liabilities The Group has an established credit policy under which the credit status of each new customer is reviewed before credit is advanced, including external credit evaluations where possible. Credit limits are established for all significant or high-risk customers, which represent the maximum amount permitted to be outstanding without requiring additional approval from the appropriate level of senior management. Outstanding debts are continually monitored by each division. Credit limits are reviewed on a regular basis, and at least annually. Customers that fail to meet the Group’s benchmark creditworthiness may only transact with the Group on a prepayment basis. Trade receivables are recorded initially at fair value and subsequently measured at amortised cost. This generally results in their recognition at nominal value less an allowance for any doubtful debts. Trade receivables in foreign currency are transacted in their local currency and subsequently revalued at the end of each reporting period, with any foreign exchange differences being recognised in the income statement as an income/expense. The allowance for doubtful debts is recognised based on Management’s expectation of losses without regard to whether an impairment trigger happened or not (an “expected credit loss” model). Through implementation of IFRS 9, the Group concluded that no real historical default rate could be determined due to a low level of historical write offs across the business. The Group therefore recognises an allowance for doubtful debts on the basis of invoice ageing. Once an invoice is overdue from its due date, based on agreed credit terms, by more than 90 days, this invoice is then more likely to default than those invoices operating within 90 days of their due date. As such, these invoices will be provided for in full as part of an expected credit loss model, except where Management have reviewed and judged otherwise. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there may be no reasonable expectation of recovery may include the failure of the debtor to engage in a payment plan, and failure to make contractual payments within 365 days of the original due date. Cash and cash equivalents Cash equivalents are held to meet short-term cash commitments rather than for investment or other purposes. For an investment to qualify as a cash equivalent, it must be readily convertible into a known amount of cash and be subject to an insignificant risk of change in value. Cash and cash equivalents comprise cash funds, current bank accounts and marketable securities (cash Undertakings for Collective Investment in Transferable Securities (“UCITS”), negotiable debt securities, etc) that can be liquidated or sold within a very short time (generally with original maturities of three months or less) and which have a negligible risk of change in value. All such items are measured at fair value, with any adjustments recognised in the income statement. The Group records bank and other borrowings initially at fair value, which equals the proceeds received, net of direct issue costs, and subsequently at amortised cost. The Group accounts for finance charges, including premiums payable on settlement or redemption and direct issue costs, using the effective interest rate method. • IT-IS International Ltd contingent consideration The Group negotiated a contingent consideration for the acquisition of the IT-IS International securities with its former shareholders in 2020, subject to the achievement of a production volume target. In accordance with IFRS 9, the financial liability has been remeasured at its fair value as of the statement of financial position date. • Trade payables Trade payables are obligations to provide cash or other financial assets. They are recognised in the statement of financial position when the Group becomes a party to a transaction generating liabilities of this nature. Trade and other payables are recognised in the statement of financial position at fair value on initial recognition, except if settlement is to occur more than 12 months after recognition. In such cases, they are measured using the amortised cost method. The use of the effective interest rate method will result in the recognition of a financial expense in the income statement. Trade and other payables are eliminated from the statement of financial position when the corresponding obligation is discharged. Trade payables have not been discounted, because the effect of doing so would be immaterial. Provisions In accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, a provision is recognised when the Group has a current obligation as of the reporting date in respect of a third party and it is probable or certain that there will be an outflow of resources to this third party, without at least equivalent consideration from the said third party. Provisions for risks and charges cover the amount corresponding to the best estimate of the future outflow of resources required to settle the obligation. The provisions are for the restoration of leased premises, risks related to litigations and product warranties. Long-Term Incentive Plan Novacyt granted shares to certain employees under a LTIP adopted on 1 November 2017. The exercise price was set at the share price on the grant date and the options were settled in cash. The options fully vested on the third anniversary of the grant date, 1 November 2020. The payment expenses were calculated in accordance with IFRS 2 “Share-based Payment”. The accounting charge has been spread across the vesting period to reflect the services received and a liability was recognised in the statement of financial position. The final tranches were settled in 2022 and the scheme has now been fully settled. In December 2021, Novacyt implemented a cash LTIP to qualifying employees, based on achieving certain annual EBITDA targets over a three-year qualifying period. The plan will vest on the third anniversary of the grant date and will be settled in cash. In February 2022, a Performance Share Awards programme for executive management was created as part of its new LTIP. This LTIP replaced the previous phantom share award scheme which ended in November 2020. The 2022 Performance Share Awards programme is structured as nil-cost options, giving a right to acquire a specified number of shares at a nil exercise price per share (i.e. for no payment) in accordance with the rules, governed by sections L-225-197-1 and seq. of the French Commercial Code (“actions gratuites"). The awards will vest over a three-year performance period, starting 1 January 2022 and ending on 31 December 2024, subject to the Company achieving certain total shareholder return growth conditions. The baseline for total shareholder return is based on the average closing price of the Company’s shares in December 2021, which was £3.54. This will be compared to the equivalent figure in December 2024. Consolidated revenue IFRS 15 “Revenue from Contracts with Customers” establishes a principles-based approach to recognising revenue only when performance obligations are satisfied, and control of the related goods or services is transferred. It addresses items such as the nature, amount, timing and uncertainty of revenue, and cash flows arising from contracts with customers. IFRS 15 applies a five-step approach to the timing of revenue recognition and applies to all contracts with customers except those in the scope of other standards: • Step 1 – Identify the contract(s) with a customer • Step 2 – Identify the performance obligations in the contract • Step 3 – Determine the transaction price • Step 4 – Allocate the transaction price to the performance obligations in the contract • Step 5 – Recognise revenue when (or as) the entity satisfies a performance obligation The Group principally satisfies its performance obligations at a point in time and revenue recognised relating to performance obligations satisfied over time is not significant. As such, revenue is generally recognised at the point of sale, with little judgement required in determining the timing of transfer of control. Some contracts with customers contain a limited assurance warranty that is accounted for under IAS 37 (see Provisions accounting policy). If a repair or replacement is not possible under the assurance warranty, a full refund of the product price may be given. The potential refund liability represents variable consideration. Under IFRS 15.53, the Group can use either: • The expected value (sum of probability weighted amounts); or • The most likely amount (generally used when the outcomes are binary). The method used is not a policy choice. Management use the method that it expects will best predict the amount of consideration based on the terms of the contract. The method is applied consistently throughout the contract. Variable revenue is constrained if appropriate. IFRS 15 requires that revenue is only included to the extent that it is highly probable that there will not be a significant reversal in future periods. In making this assessment, Management have considered the following factors (which are not exclusive): • If the amount of consideration is highly susceptible to factors outside the Group’s influence; • Whether the uncertainty about the amount of consideration is not expected to be resolved for a long period of time; • The Group’s experience (or other evidence) with similar types of contract; • The Group has a practice of either offering a broad range of price concessions or changing the payment terms and conditions of similar contracts in similar circumstances; and • The contract has a large number and broad range of possible consideration amounts. The decision as to whether revenue should be constrained is considered to be a significant judgement as the term ‘highly probable’ is not defined in IFRS 15, Management consider highly probable to be significantly more likely than probable. o Primer Design Primer Design Ltd is a designer, manufacturer and marketer of molecular ‘real-time’ qPCR testing devices and reagents in the area of infectious diseases based in Eastleigh, UK. Revenue is recognised upon delivery of products sold and, where appropriate, after formal customer acceptance. o IT-IS International IT-IS International Ltd is a diagnostic instrument development and manufacturing company specialising in the development of PCR devices for the life sciences and food testing industry. Revenue is recognised upon delivery of products sold and, where appropriate, after formal customer acceptance. o Lab21 Products Lab21 Healthcare Ltd and Microgen Bioproducts Ltd were a developer, manufacturer and distributor of a large range of protein-based infectious disease IVD products. Revenue was recognised upon delivery of products sold and, where appropriate, after formal customer acceptance. Microgen Bioproducts and Lab21 Healthcare ceased trading during 2022 and they are being treated as discontinued operations. Taxation Income tax on profit or loss for the period comprises current and deferred tax. • Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. A provision is recognised for those matters for which the tax determination is uncertain but it is considered probable that there will be a future outflow of funds to a tax authority. The provisions are measured at the best estimate of the amount expected to become payable. The assessment is the result of the Group’s judgement based on the advice of external tax professionals and supported by previous experience in respect of such activities. • Deferred tax Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences in the near-term. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered in the near-term. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current tax and deferred tax for the year Current and deferred tax are recognised in the income statement, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. UK Patent Box regime The UK Patent Box regime is a special low corporate tax rate used to incentivise research and development by taxing revenues from patented products differently from other revenues. On 30 March 2022 Novacyt (specifically Primer Design Ltd) received confirmation that the UK Intellectual Property Office had granted the key patent (ORF1a/b), with patent number GB2593010. This means that the effective rate of tax on profits (adjusted for certain rules) derived from the sale of products incorporating this patent is close to 10% rather than the current UK corporation tax rate of 19%. The effective tax rate is given via a tax deduction and due to the uncertainty over the precise timing of the tax relief available to the company and the complexity involved in making a claim for the first time, a tax asset has not been recognised. The asset will only be recognised when Management can reliably measure and predict the outcome of a Patent Box claim in terms of value and timing. Research and development expenditure credits Primer Design Ltd and IT-IS International Ltd benefit from a R&D expenditure credit in respect of some of their research activities. The tax credit is calculated per financial year as 13% of the actual expenditure and is shown in the income statement against governmental subsidies. The credit is taxable and therefore the tax charge on this credit is included in the tax line of the income statement. Profit/loss per share The Group reports basic and diluted profit/loss per ordinary share. Basic profit/loss per share is calculated by dividing the profit/loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted profit/loss per share is determined by adjusting the profit/loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding, taking into account the effects of all potential dilutive ordinary shares, including options. Exceptional items Exceptional items are those costs or incomes that in the view of the Board of Directors, require separate disclosure by virtue of their size or incidence, and are charged or credited in arriving at operating profit on the face of the consolidated income statement. 4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATE UNCERTAINTY In the application of the Group’s accounting policies, which are described in note 3, the directors are required to make judgements (other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Critical accounting judgements • Constraint of revenue Revenue is only constrained if it is highly probable there will not be a significant reversal of revenue in the future. Highly probable is not defined in IFRS 15 and so it is a significant judgement to be exercised by Management. The value of revenue related to performance obligations fulfilled in 2020 to which constraint has not been applied is £130,642,000 and relates to the DHSC dispute, further details are disclosed in note 44. • Measurement and useful lives of intangible assets Other intangible assets (except for goodwill) are considered to have a finite economic useful life. They are amortised over their estimated useful lives that are reviewed at each reporting date. In the event of impairment, an estimate of the asset’s recoverable amount is made. The main intangible assets requiring estimates and assumptions are the trademarks and the customer relationships identified as a result of the acquisition of Primer Design, and IT-IS International. The value of the intangible assets is tested whenever there are indications of impairment and reviewed at each annual closing date or more frequently should this be justified by internal or external events. o Trademarks The value of these assets was determined by discounting the cash flows that could be generated by licensing the trademark, estimated as a percentage of revenue derived from information available on comparable assets. Trademarks are amortised on a straight-line basis over a period of nine years, estimated as their useful life. They are also tested for impairment at least annually. Their recoverable amount is determined using forecasts of future cash flows. The total amount of anticipated cash flows reflects Management’s best estimate of the future benefits and liabilities expected from the operation of the trademark. The resulting estimates are subject to discount rate, percentage of revenue and useful life assumptions. The carrying amount of trademarks at 31 December 2022 is £791,000 (2021: £938,000). The amortisation charge for the period is £156,000 (2021: £157,000) and the cumulative amortisation is £636,000 (2021: £458,000). o Customer relationships The value of these assets was determined by discounting the additional margin generated by customers after remuneration of the contributing assets. Customer relationships are amortised on a straight-line basis over a period of nine years, estimated as their useful life. They are also tested for impairment at least annually. Their recoverable amount is determined using forecasts of future cash flows over an estimated period of time. The total amount of anticipated cash flows reflects Management’s best estimate of the future benefits and liabilities expected from customer relationships. The resulting estimates are subject to assumptions in respect of the discount rate, additional margin generated by customers after remuneration of contributing assets and useful lives. The carrying amount of customer relationships at 31 December 2022 is £1,888,000 (2021: £2,339,000). The amortisation charge for the period is £501,000 (2021: £502,000) and the cumulative amortisation is £2,733,000 (2021: £2,113,000). • Deferred taxes Deferred tax assets are only recognised to the extent that it is considered probable that the Group will have future taxable profits against which the corresponding temporary difference can be offset. Deferred tax assets are reviewed at each reporting date and derecognised if it is no longer probable there will be taxable profits against which the deductible temporary differences can be utilised. For deferred tax assets on tax losses carried forward, the Group uses a multi-criteria approach that takes into account the recovery timeframe based on the strategic plan, but which also factors in the strategy for the long-term recovery of tax losses in each country. Deferred tax liabilities relate to the assets acquired as part of the IT-IS International acquisition and accelerated capital allowances. • Trade and other receivables An estimate of the risks of non-receipt based on commercial information, current economic trends and the solvency of individual customers is made to determine the need for impairment on a customer-by-customer basis. Management use significant judgement in determining whether a credit loss provision is required. At the year end, the Group had trade receivables of £25,485,000 against which a credit loss provision of £214,000 has been applied. At the date of signing the financial statements, £23,957,000 of the 31 December 2022 receivables, relating to products delivered during 2020, were overdue due to the contract dispute with the Department of Health and Social Care “DHSC” (see notes 44 and 45). Management considers it to be more likely than not that the 31 December 2022 balances are recoverable; this is a significant judgement. • Provisions The carrying value of provisions at 31 December 2022 and 2021 are as per the table below: Amounts in £’000 Provisions for restoration of premises Provision for litigation Provisions for product warranty Year ended 31 December 2022 Year ended 31 December 2021 425 157 19,813 308 157 19,799 o Provisions for product warranty The value of provision required is determined by Management based on available information, experience and, in some cases, expert estimates. Product warranty provisions are only included if it is considered to be probable that an outflow of economic benefit will be required. Determination of probable is a significant judgement especially in light of the dispute described in notes 44 and 45. Key sources of estimation uncertainty The Group has a number of key sources of estimation uncertainty. Of these items, only the measurement of goodwill (see note 16) is considered likely to result in a material adjustment. Where there are other areas of estimates these have been deemed not material. • Measurement of goodwill Goodwill is tested for impairment on an annual basis. The recoverable amount of goodwill is determined mainly on the basis of forecasts of future cash flows. The total amount of anticipated cash flows reflects Management’s best estimate of the future benefits and liabilities expected for the relevant CGU. The assumptions used and the resulting estimates sometimes cover very long periods, taking into account the technological, commercial and contractual constraints associated with each CGU. These estimates are mainly subject to assumptions in terms of volumes, selling prices and related production costs, and the exchange rates of the currencies in which sales and purchases are denominated. They are also subject to the discount rate used for each CGU. The value of the goodwill is tested whenever there are indications of impairment and reviewed at each annual closing date or more frequently should this be justified by internal or external events. The carrying amount of goodwill in the statement of financial position and related impairment loss over the period is shown below: Total provisions 20,395 20,264 Amounts in £’000 o Provisions for restoration of premises The value of provision required is determined by Management on the basis of available information, experience and, in some cases, expert estimates. When these obligations are settled, the amount of the costs or penalties that are ultimately incurred or paid may differ significantly from the amounts initially provisioned. Therefore, these provisions are regularly reviewed and may have an effect on the Group’s future results. To the Group’s knowledge, there is no indication to date that the parameters adopted as a whole are not appropriate, and there are no known developments that could significantly affect the amount of provision. Goodwill Primer Design Cumulative impairment of goodwill Net value Goodwill IT-IS International Cumulative impairment of goodwill Net value Total goodwill Year ended 31 December 2022 Year ended 31 December 2021 6,384 - 6,384 9,437 -9,175 262 6,646 6,053 - 6,053 9,437 -4,019 5,418 11,471 Sensitivity analysis has been performed on the goodwill balance. There is significant headroom associated with the Primer Design balance, but there is limited headroom on the IT-IS International goodwill balance, which could result in future impairments. The goodwill sensitivity analysis is presented in note 16. • Litigations The Group may be party to regulatory, judicial or arbitration proceedings which may have an impact on the Group’s financial position. The Group’s Management regularly reviews current proceedings, their progress and assesses the need to establish appropriate provisions or to change their amount if the occurrence of events during the course of the proceedings necessitates a reassessment of the risk. Internal or external advisors are involved in determining the costs that may be incurred. The decision to set aside provisions to cover a risk and the amount of such provisions are based on the risk assessment on a case-by-case basis, Management’s assessment of the unfavourable nature of the outcome of the proceeding in question (probability) and the ability to reliably estimate the associated amount. 5. REVENUE The table below shows revenue on a geographical basis: Amounts in £’000 Geographical area United Kingdom Europe (excluding UK) America Asia-Pacific Middle East Africa Total revenue Year ended 31 December 2022 Year ended 31 December 2021 10,123 3,849 4,481 1,852 377 358 21,040 42,108 31,400 8,829 8,638 518 1,110 92,603 Revenue has fallen year on year as a result of COVID-19 sales reducing as the demand for tests has fallen. During 2021, £40,861,000 (excluding VAT) of product and services were delivered and invoiced to the DHSC which has now been included as part of the ongoing dispute. Management have made the judgement that per IFRS 15, Revenue from Contracts with Customers, it is not appropriate at this stage to recognise as revenue, any sales invoices raised to the customer in 2021 that are in dispute. However, Management remains committed to obtaining payment for these products and services. A portion of the Group’s revenue is generated in foreign currencies (particularly in Euros and US Dollars). The Group has not hedged against the associated currency risk. The breakdown of revenue by operating segment and geographical area is presented in note 6. 6. OPERATING SEGMENTS Segment reporting Pursuant to IFRS 8, an operating segment is a component of an entity: - that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity); - whose operating results are regularly reviewed by the Group’s Chief Executive to make decisions regarding the allocation of resources to the segment and to assess its performance; and - for which discrete financial information is available. The Group has identified four operating segments, whose performance and resources are monitored separately. Following the Group's announcement to discontinue the Microgen Bioproducts and Lab21 Healthcare businesses earlier this year, the Lab21 Products segment, which is made up of these businesses, is being treated as a discontinued operation: o Primer Design This segment represents the activities of Primer Design Ltd, which is a designer, manufacturer and marketer of molecular ‘real-time’ qPCR testing devices and reagents in the area of infectious diseases based in Eastleigh, UK. o IT-IS International This segment represents the activities of IT-IS International Ltd, a diagnostic instrument development and manufacturing company specialising in the development of PCR devices for the life sciences and food testing industry based in Stokesley, UK. o Lab21 Products This segment represents the activities of Lab21 Products, which was a developer, manufacturer and distributor of a large range of protein-based infectious disease IVD products covering Microgen Bioproducts Ltd and Lab21 Healthcare Ltd, both based in Camberley, UK. As these businesses ceased trading in June 2022, this segment is being treated as a discontinued operation. o Corporate This accounting treatment does not change the Group’s legal position or rights in relation to the dispute with the DHSC. This segment represents Group central/corporate costs. Where appropriate, costs are recharged to individual business units via a management recharge process. o Intercompany eliminations This represents intercompany transactions across the Group that have not been allocated to an individual operating segment. It is not a discrete segment. Breakdown of result by operating segment o Year ended 31 December 2022 The Chief Operating Decision Maker is the Chief Executive Officer. Headcount The average headcount by segment is presented in the table below: Segment Primer Design Lab21 Products IT-IS International Corporate Total headcount 2022 141 21 31 29 222 2021 169 45 38 24 276 Breakdown of revenue by operating segment and geographical area o Year ended 31 December 2022 Amounts in £’000 Primer Design IT-IS International Total Geographical area United Kingdom Europe (excluding UK) America Asia-Pacific Middle East Africa Total revenue 10,051 3,372 4,134 1,373 347 357 19,634 72 477 347 479 30 1 1,406 10,123 3,849 4,481 1,852 377 358 21,040 There were no sales in France in 2022. o Year ended 31 December 2021 Amounts in £’000 Primer Design IT-IS International Total Geographical area United Kingdom Europe (excluding UK) America Asia-Pacific Middle East Africa Total revenue 41,944 31,045 8,047 7,262 501 1,053 89,852 164 355 782 1,376 17 57 2,751 42,108 31,400 8,829 8,638 518 1,110 92,603 There were sales totalling £262,000 in France in 2021 contained within the line Europe (excluding UK). Amounts in £’000 Primer Design Lab21 Products IT-IS International Corporate Intercompany eliminations o Year ended 31 December 2021 Amounts in £’000 Primer Design Lab21 Products IT-IS International Corporate Intercompany eliminations Revenue Cost of sales Sales and marketing costs Research and development General and administrative Governmental subsidies Earnings before interest, tax, depreciation and amortisation as per management reporting 19,634 -14,710 -4,231 -4,458 -7,668 490 -10,943 Depreciation and amortisation -1,699 Operating (loss) / profit before exceptional items -12,642 - - - - - - - - - Revenue Cost of sales Cost of sales - exceptional Sales and marketing costs Research and development General and administrative Governmental subsidies ADJUSTED Earnings before interest, tax, depreciation, amortisation and cost of sales – exceptional, as per management reporting Earnings before interest, tax, depreciation and amortisation as per management reporting Depreciation and amortisation Operating profit / (loss) before exceptional items 89,856 -27,582 -37,192 -5,659 -4,148 -12,439 254 40,282 3,090 -1,372 1,718 - - - - - - - - - - - 1,417 -2,026 -321 -589 -1,046 72 - - -274 - -1,261 - -11 1,442 - - - - Total 21,040 -15,294 -4,826 -5,047 -9,975 562 -2,493 -1,535 1,431 -13,540 -405 -44 33 -2,115 -2,898 -1,579 1,464 -15,655 9,270 -5,131 -3,984 -228 -497 -1,493 54 - - - -338 - -637 - -6,523 4,106 5,406 - - - - Total 92,603 -28,607 -35,770 -6,225 -4,645 -14,569 308 1,975 -975 -2,417 38,865 -2,009 -975 2,989 3,095 -404 -24 10 -1,790 -2,413 -999 2,999 1,305 Assets and liabilities are not reported to the Chief Operating Decision Maker on a segmental basis and are therefore not disclosed. Please note that in accordance with IFRS 5 the results of the Lab21 Products segment for 2022 and 2021 have been reported on a separate line ‘Loss from discontinued operations’ which is shown below EBITDA and thus all items above EBITDA have a nil value. 8. COST OF SALES - EXCEPTIONAL 7. COST OF SALES Amounts in £’000 Cost of inventories recognised as an expense Change in stock provision Freight costs Direct labour Product warranty Other Total cost of sales Year ended 31 December 2022 Year ended 31 December 2021 17,509 -6,473 73 4,141 14 30 15,294 20,373 -10,404 405 17,624 11 598 28,607 Total cost of sales has fallen year on year reflecting the reduction in sales. In 2022 the stock provision relating to continuing operations decreased by a net £6,473,000 (2021: £10,404,000). A large amount of stock, which had previously been provided for, was written off and disposed of during 2022, with the cost being charged to ‘Cost of inventories recognised as an expense’ and a corresponding release of the stock provision being made. Amounts in £'000 Cost of inventories recognised as an expense Change in stock provision Direct labour Other Total cost of sales - exceptional Year ended 31 December 2022 Year ended 31 December 2021 - - - - - 4,802 26,098 4,133 737 35,770 During 2022 no costs were classified as cost of sales - exceptional relating to the DHSC dispute. Due to the DHSC dispute mentioned in note 44, Management booked a number of one-off, non-recurring cost of sales charges in 2021. Two of the key items were a £26,098,000 stock provision, as a result of the Group buying stock to fulfil expected future DHSC orders that did not materialise, and the expensing of £6,884,000 of stock delivered to the DHSC which has not been paid for as it is now included in the ongoing contract dispute. 9. SALES, MARKETING AND DISTRIBUTION EXPENSES Direct labour (including subcontractor costs) has decreased year on year as a result of scaling back production to align to lower sales. Amounts in £’000 A large amount of stock, which had previously been provided for, was written off and disposed of during 2021, with the cost being charged to ‘Cost of inventories recognised as an expense’ and a corresponding release of the stock provision being made. Advertising expenses Distribution expenses Employee compensation and social security contributions Travel and entertainment expenses Other sales and marketing expenses Total sales, marketing and distribution expenses Year ended 31 December 2022 Year ended 31 December 2021 459 258 3,606 184 319 4,826 743 539 4,519 107 317 6,225 Labour costs have reduced year on year as a result of the restructuring programme undertaken by the Group in 2022 to reduce its cost base. 10. RESEARCH AND DEVELOPMENT EXPENSES 12. OTHER OPERATING INCOME AND EXPENSES Amounts in £’000 Year ended 31 December 2022 Year ended 31 December 2021 Employee compensation and social security contributions Other expenses Total research and development expenses 2,704 2,343 5,047 2,756 1,889 4,645 Other expenses includes R&D consumables, non-capitalised development costs and quality control/assurance expenses that supported the launch and development of new products. Amounts in £’000 Other operating income Total other operating income Impairment of IT-IS International goodwill DHSC contract dispute costs Restructuring expenses Acquisition related expenses Other expenses Year ended 31 December 2022 Year ended 31 December 2021 - - -5,156 -927 -1,255 -325 -75 65 65 -4,019 -802 -422 - -43 11. GENERAL AND ADMINISTRATIVE EXPENSES Total other operating expenses -7,738 -5,286 Amounts in £’000 Year ended 31 December 2022 Year ended 31 December 2021 Purchases of non-stored raw materials and supplies Lease and similar payments Maintenance and repairs Insurance premiums Legal and professional fees Banking services Employee compensation and social security contributions Depreciation and amortisation of property, plant and equipment and intangible assets Other general and administrative expenses 323 477 370 1,024 1,622 55 5,144 2,115 960 376 397 499 1,451 2,404 88 7,890 1,790 1,464 Total general and administrative expenses 12,090 16,359 Legal and professional fees include advisors’ fees, audit fees and legal fees. Labour costs have reduced year on year predominantly as a result of the restructuring programming undertaken by the Group in 2022 to reduce its cost base. Depreciation and amortisation of property, plant and equipment and intangible assets increased in 2022 due to the annualised effect of reporting twelve months of depreciation on a number of material asset additions during late 2021. Other general and administrative expenses include costs such as building rates, regulatory fees and IT expenses. 2021 included approximately £500,000 charitable donations. Operating income Other operating income in 2021 predominantly relates to the settlement of a legal claim against a third party. Operating expenses Goodwill associated with the IT-IS International Ltd acquisition was impaired in 2022 and 2021 due to reduced future expected cash flow generation. DHSC contract dispute costs relate to legal and professional fees and product storage costs incurred in the ongoing commercial dispute. Restructuring expenses have increased in 2022 driven by the Group restructuring programme. Acquisition related expenses primarily include costs associated with potential merger and acquisition targets. 13. FINANCIAL INCOME AND EXPENSE Amounts in £’000 Financial foreign exchange gains Discount of financial instruments Interest received from discontinued operations Other financial income Total financial income Interest on IFRS 16 liabilities Financial foreign exchange losses Discount of financial instruments Interest paid to discontinued operations Other financial expense Total financial expense Year ended 31 December 2022 Year ended 31 December 2021 2,506 3 779 681 3,969 -45 -139 -31 -413 -1 -629 337 33 363 54 787 -66 -2,214 -54 -150 -47 -2,531 Financial foreign exchange gains and losses are driven by revaluations of the LTIP liability and bank and intercompany accounts held in foreign currencies. Interest received from or paid to discontinued operations relates to interest on intercompany balances with Microgen Bioproducts Ltd and Lab21 Healthcare Ltd. Other financial income relates to interest received on cash balances. 14. INCOME TAX The standard rate of corporation tax applied to reported profit is 19%, which is the tax rate applicable to the companies in the United Kingdom for the financial year 2022 (due to rise to 25% on 1 April 2023). It was 19% for the year 2021. Taxation for other jurisdictions (mainly France) is calculated at the rates prevailing in the respective jurisdictions. The Group’s tax charge is the sum of the total current and deferred tax. Amounts in £’000 Current tax expense Current year (expense) / income Deferred tax expense Deferred tax expense Total taxation expense in the income statement Year ended 31 December 2022 Year ended 31 December 2021 -224 411 -1,924 -2,148 -760 -349 The expense for the period can be reconciled to the loss before tax as follows: Amounts in £’000 Loss before taxation Tax at the UK corporation tax rate (2022 and 2021: 19%) Year ended 31 December 2022 Year ended 31 December 2021 -20,053 3,810 -5,660 1,075 Effect of different tax rates of subsidiaries operating in other jurisdictions Change of the tax rate for the calculation of the deferred tax Effect of non-deductible expenses and non-taxable income Derecognition of deferred tax assets Change in unrecognised deferred tax assets Other adjustments Total taxation expense for the year 95 3,571 -1,224 -8,047 -287 -66 -2,148 115 - -822 - -712 -5 -349 At 31 December 2022, the Group has unused tax losses of £70,909,000 (2021: £9,432,000) available for offset against future relevant profits and their period of use is unlimited. The key item making up the non-deductible expenses in 2022 and 2021 is the impairment of goodwill. Matters affecting the tax charge On 30 March 2022 Novacyt (specifically Primer Design Ltd) received confirmation that the UK Intellectual Property Office had granted the key patent (ORF1a/b), with patent number GB2593010. This means that the effective rate of tax on profits (adjusted for certain rules) derived from the sale of products incorporating this patent is close to 10% rather than the current UK corporation tax rate of 19%. The effective tax rate is given via a tax deduction and due to the uncertainty over the precise timing of the tax relief available to the Company and the complexity involved in making a claim for the first time, a tax asset has not been recognised. The asset will only be recognised when Management can reliably measure and predict the outcome of a Patent Box claim in terms of value and timing. 15. LOSS PER SHARE 16. GOODWILL The loss per share is calculated based on the weighted average number of shares outstanding during the period. The diluted loss per share is calculated based on the weighted average number of shares outstanding and the number of shares issuable as a result of the conversion of dilutive financial instruments. At 31 December 2022 there are no outstanding dilutive instruments. Amounts in £’000 Net loss attributable to owners of the Company Impact of dilutive instruments Net diluted loss attributable to owners of the Company Weighted average number of shares Impact of dilutive instruments Weighted average number of diluted shares Loss per share (£) Diluted loss per share (£) Loss per share from continuing operations (£) Diluted loss per share from continuing operations (£) Loss per share from discontinued operations (£) Diluted loss per share from discontinued operations (£) Year ended 31 December 2022 Year ended 31 December 2021 -25,730 - -25,730 -9,728 - -9,728 70,626,248 - 70,626,248 70,626,248 - 70,626,248 -0.36 -0.36 -0.31 -0.31 -0.05 -0.05 -0.14 -0.14 -0.09 -0.09 -0.05 -0.05 Goodwill is the difference recognised, upon consolidation of a company, between the fair value of the purchase price of its shares and the net assets acquired and liabilities assumed, measured in accordance with IFRS 3. Cost At 1 January 2021 Exchange differences At 31 December 2021 Exchange differences At 31 December 2022 Accumulated impairment losses At 1 January 2021 Impairment of the IT-IS International goodwill Impairment of the Lab21 Products goodwill Exchange differences At 31 December 2021 Impairment of the IT-IS International goodwill Exchange differences At 31 December 2022 Carrying value at 31 December 2020 Carrying value at 31 December 2021 Carrying value at 31 December 2022 Primer Design £’000 31,982 -1,624 30,358 1,144 31,502 14,105 4,019 1,822 -1,059 18,887 5,156 813 24,856 17,877 11,471 6,646 The impairment testing of the CGU as at 31 December 2022 was carried out using the DCF method, with the key assumptions as follows: o Five-year business plan; o Extrapolation of cash flows beyond five years based on a growth rate of 1.5%; and o Discount rate corresponding to the expected rate of return on the market for a similar investment, regardless of funding sources, equal to 12.1%. The implementation of this approach demonstrated that the value in use amounted to £36,112,000, which is greater than the carrying amount of this asset. As such, no impairment was recognised in the year ended 31 December 2022. Sensitivity of the value derived from the discounted cash flow model to changes to the assumptions used for the Primer Design acquisition Sensitivity of the value derived from the discounted cash flow model to changes to the assumptions used for the IT-IS International acquisition 36,112 8.0% 9.0% 10.0% 11.0% 12.0% 12.1% 13.0% 14.0% 15.0% s e t a r C C A W Terminal growth rates 1.0% 0.0% 2.5% 2.0% 0.5% 3.0% 1.5% 53,908 57,323 61,226 65,729 70,983 77,192 84,643 46,640 49,233 52,151 55,457 59,236 63,597 68,684 40,857 42,880 45,127 47,639 50,465 53,667 57,327 36,153 37,765 39,538 41,498 43,675 46,109 48,846 32,258 33,565 34,991 36,553 38,272 40,171 42,281 31,905 33,186 34,583 36,112 37,792 39,646 41,705 28,983 30,059 31,225 32,493 33,875 35,389 37,055 26,196 27,093 28,059 29,103 30,233 31,462 32,802 23,797 24,553 25,363 26,233 27,171 28,183 29,279 1,992 8.0% 9.0% 10.0% 11.0% 12.0% 12.1% 13.0% 14.0% 15.0% 0.0% 3,281 2,749 2,327 1,986 1,704 1,679 1,468 1,269 1,098 1.0% 3,826 3,160 2,645 2,238 1,908 1,878 1,635 1,407 1,214 s e t a r C C A W Terminal growth rates 1.25% 3,988 3,279 2,736 2,309 1,964 1,934 1,681 1,446 1,246 1.5% 4,162 3,406 2,833 2,384 2,024 1,992 1,730 1,485 1,279 1.75% 4,350 3,542 2,935 2,463 2,086 2,053 1,780 1,526 1,314 2.0% 4,553 3,687 3,043 2,546 2,152 2,117 1,833 1,569 1,349 3.0% 5,571 4,391 3,554 2,931 2,451 2,408 2,070 1,761 1,506 This sensitivity table shows the difference in the recoverable amounts of the Enterprise Value depending on changes in the discount rate (WACC) and the terminal growth rate. The sensitivity analysis shows that an increase of 1% in the WACC would not result in the need to impair the Primer Design goodwill. IT-IS International The impairment testing of the CGU as at 31 December 2022 was carried out using the DCF method, with the key assumptions as follows: o Five-year business plan; o Extrapolation of cash flows beyond five years based on a growth rate of 1.5%; and o Discount rate corresponding to the expected rate of return on the market for a similar investment, regardless of funding sources, equal to 12.1%. The implementation of this approach demonstrated that the value in use amounted to £1,992,000, which is lower than the carrying amount of this asset. As such an impairment charge has been recognised in the year ended 31 December 2022 due to reduced future expected revenue generation. This sensitivity table shows the difference in the recoverable amounts of the Enterprise Value depending on changes in the discount rate (WACC) and the terminal growth rate. The sensitivity analysis shows that an increase of 1% in the WACC would result in the need to further impair the IT-IS International goodwill. 17. OTHER INTANGIBLE ASSETS 18. PROPERTY, PLANT AND EQUIPMENT Amounts in £’000 Cost At 1 January 2021 Acquisitions Other disposals Foreign exchange impact At 31 December 2021 Acquisitions Other disposals Foreign exchange impact At 31 December 2022 Amortisation At 1 January 2021 Amortisation for the year Other disposals Foreign exchange impact At 31 December 2021 Amortisation for the year Other disposals Foreign exchange impact At 31 December 2022 Net book value At 1 January 2021 At 31 December 2021 At 31 December 2022 Customer relationships Trademarks Development costs Patents Other Total 5,005 – -313 -240 4,452 – – 169 4,621 -2,055 -502 313 131 -2,113 -501 – -119 -2,733 2,950 2,339 1,888 1,486 – -47 -43 1,396 – – 31 1,427 -372 -157 47 24 -458 -156 – -22 -636 1,114 938 791 277 – – – 277 – -80 – 197 -153 -55 – – -208 -46 80 – -174 124 69 23 89 300 -5 – 384 74 -149 – 309 -54 -3 – – -57 -21 4 – -74 35 327 235 260 30 -59 -4 227 188 -65 1 351 -228 -21 55 4 -190 -41 65 -1 -167 32 37 184 7,117 330 -424 -287 6,736 262 -294 201 6,905 -2,862 -738 415 159 -3,026 -765 149 -142 -3,784 4,255 3,710 3,121 Amounts in £’000 Cost At 1 January 2021 Acquisitions Other disposals Reclassifications At 31 December 2021 Acquisitions Other disposals At 31 December 2022 Depreciation At 1 January 2021 Depreciation for the year Other disposals Reclassifications At 31 December 2021 Depreciation for the year Other disposals At 31 December 2022 Net book value At 1 January 2021 At 31 December 2021 At 31 December 2022 Leasehold improvements Plant and machinery Fixtures and fittings 877 375 -85 127 1,294 31 -575 750 -421 -135 81 -9 -484 -531 575 -440 456 810 310 1,793 3,104 -270 – 4,627 93 -811 3,909 -971 -518 270 – -1,219 -866 454 -1,631 822 3,408 2,278 762 291 -65 -127 861 32 -380 513 -397 -159 62 9 -485 -202 337 -350 365 376 163 Total 3,432 3,770 -420 – 6,782 156 -1,766 5,172 -1,789 -812 413 – -2,188 -1,599 1,366 -2,421 1,643 4,594 2,751 Other disposals in 2022 include over £1,200,000 of property, plant and equipment associated with the Camberley site that was vacated in late 2022, due to the closure of Lab21 Products, and over £390,000 of laboratory equipment no longer of use to the Novacyt Group. 19. RIGHT-OF-USE ASSETS 20. DEFERRED TAX ASSETS AND LIABILITIES Amounts in £’000 Cost At 1 January 2021 Additions Disposals Policy adjustment At 31 December 2021 Additions Disposals Reclassifications At 31 December 2022 Depreciation At 1 January 2021 Depreciation for the year Disposals Policy adjustment At 31 December 2021 Depreciation for the year Disposals Reclassifications At 31 December 2022 Net book value At 1 January 2021 At 31 December 2021 At 31 December 2022 Land and buildings Plant and machinery 2,745 148 -225 -3 2,665 153 -1,359 10 1,469 -507 -443 67 -2 -885 -1,415 1,359 -10 -951 2,238 1,780 518 54 – -15 – 39 8 -29 – 18 -33 -10 12 – -31 -13 29 – -15 21 8 3 Total 2,799 148 -240 -3 2,704 161 -1,388 10 1,487 -540 -453 79 -2 -916 -1,428 1,388 -10 -966 2,259 1,788 521 The large 2022 reduction is due to Microgen Bioproducts negotiating the surrender of its Watchmoor Point leased facility based in Camberley. This was agreed in 2022 and settled in early 2023. The table below shows the movements in deferred tax assets and liabilities during the reporting period: Amounts in £’000 Accelerated capital allowances Intangible assets Intra-Group profit Long-term incentive plan Other temporary differences Tax losses Total At 1 January 2021 -238 -489 897 2,125 Credit / (charge) to “Discontinued operations” (Charge) / credit to income statement At 31 December 2021 (Charge) / credit to “Discontinued operations” (Charge) / credit to income statement -30 -512 -780 68 66 - 47 -442 - 47 - 487 170 657 -73 2,222 - 457 104 31 -760 1,919 - -569 328 - - 2,125 - - -480 - -412 -328 -2,125 447 624 -31 -1,924 - -417 At 31 December 2022 -646 -395 - - At 31 December 2022, deferred tax liabilities amounting to £646,000 (2021: £780,000) reflect the tax advantage from investments in fixed assets that is obtained in advance of depreciation charges. At 31 December 2022, deferred tax liabilities amounting to £395,000 (2021: £442,000) result from the recognition of brand and customer relationships intangible assets as part of the October 2020 IT-IS International acquisition. Primer Design has recognised a £624,000 deferred tax asset relating to carried forward tax losses to offset its £624,000 deferred tax liability on accelerated capital allowances, leaving Primer Design with a £nil deferred tax balance at the reporting date. The remaining deferred tax assets have not been recognised at 31 December 2022 on the basis that they may not be recoverable in the near-term. The £2,125,000 deferred tax asset balance at 31 December 2021 related to the portion of the Long-Term Incentive Plan charge that was recognised by Novacyt UK Holdings in 2020, but was not deducted for taxation until payments were made in 2022. Deferred tax assets and liabilities are recognised on the statement of financial position as follows: 22. TRADE AND OTHER RECEIVABLES Amounts in £’000 Deferred tax assets Deferred tax liabilities Net deferred tax (liabilities) / assets Year ended 31 December 2022 Year ended 31 December 2021 624 -1,041 -417 3,141 -1,222 1,919 The following table shows the deferred tax assets not presented in the statement of financial position: Amounts in £’000 Novacyt SA Novacyt UK Holdings Lab21 Healthcare IT-IS International Primer Design Total unrecognised deferred tax assets 21. INVENTORIES AND WORK IN PROGRESS Amounts in £’000 Raw materials Work in progress Finished goods Stock provisions Total inventories and work in progress Year ended 31 December 2022 Year ended 31 December 2021 2,299 3,645 - 725 10,623 17,293 990 - 1,368 - - 2,358 Year ended 31 December 2022 Year ended 31 December 2021 8,562 2,854 3,404 -11,793 19,382 3,350 7,831 -19,102 3,027 11,461 Total inventories and work in progress has reduced significantly since December 2021, predominantly as a result of providing for, writing off and disposing of stock that had either expired or is deemed excess stock as a result of lower future forecasted COVID-19 sales. Stock provisions have fallen as a result of provided for stock being written off and disposed of during 2022. Amounts in £’000 Trade and other receivables Expected credit loss provision Tax receivables – Value Added Tax Receivables on sale of businesses Other receivables Year ended 31 December 2022 Year ended 31 December 2021 25,485 -214 8,312 69 10 30,279 -89 8,213 66 30 Total trade and other receivables 33,662 38,499 Trade receivables have decreased since 31 December 2021 in line with falling monthly sales. The trade receivables balance includes a £23,957,000 unpaid DHSC invoice raised in December 2020, in respect of products delivered during 2020, that remains unpaid at the date of publishing the annual accounts. Recovery of the invoice is dependent on the outcome of the contract dispute. During 2021, £49,034,000 (including VAT) of products and services were delivered and invoiced to the DHSC which has now been included as part of the ongoing dispute. As these sales have not been recognised in accordance with IFRS 15, the revenue, trade receivable and VAT element of the transactions have been reversed. This accounting treatment does not change the Group’s legal position or rights in relation to the dispute with the DHSC. The ‘Tax receivables – Value Added Tax’ balance of £8,312,000 mainly relates to VAT paid in the UK on sales invoices in dispute with the DHSC. As these sales have not been recognised in accordance with IFRS 15, the revenue, trade receivable and VAT element of the transactions have been reversed, resulting in a VAT debtor balance. Trade receivables balances are due within one year. Once an invoice is more than 90 days overdue, it is deemed more likely to default and as such, these invoices have been provided for in full as part of an expected credit loss model, except where Management have reviewed and judged otherwise. The movement in the expected credit loss provision is shown below: 24. CASH AND CASH EQUIVALENTS Amounts in £’000 Balance at the beginning of the period Impairment losses recognised Amounts written off during the year as uncollectible Impairment losses derecognised Amounts recovered during the year Balance at the end of the period Year ended 31 December 2022 Year ended 31 December 2021 89 453 -14 -157 -157 214 160 100 -44 - -127 89 The split by maturity of the clients’ receivables is presented below: Amounts in £’000 Less than one month Between one and three months Between three months and one year More than one year Year ended 31 December 2022 Year ended 31 December 2021 970 143 121 24,251 5,818 217 24,200 44 Balance at the end of the period 25,485 30,279 23. PREPAYMENTS AND SHORT-TERM DEPOSITS Amounts in £’000 Liquidity contract Short-term deposits Prepaid expenses Total prepayments and short-term deposits Year ended 31 December 2022 Year ended 31 December 2021 51 183 2,184 2,418 61 12 1,961 2,034 Prepaid expenses include the annual Group commercial insurance, rent, rates and prepaid support costs. In addition, 2022 prepaid expenses includes prepaid stock that had not been delivered at the reporting date. The net cash available to the Group includes the following items: Amounts in £’000 Available cash Year ended 31 December 2022 Year ended 31 December 2021 86,973 101,746 Total cash and cash equivalents 86,973 101,746 Cash and cash equivalents comprise bank and cash balances, call deposits and short-term notice accounts with original maturities of three months or less, with a number of them earning interest. The carrying amount of cash and cash equivalents approximates fair value. 25. LEASE LIABILITIES The following tables show lease liabilities carried at amortised cost. o Maturities Amounts in £’000 Lease liabilities short-term Lease liabilities long-term Total lease liabilities Year ended 31 December 2022 Year ended 31 December 2021 609 263 872 424 1,446 1,870 Closing 1,870 872 o Change in lease liabilities in 2022 and 2021 Amounts in £’000 Changes in 2021 Changes in 2022 Opening Repayment Non-cash movements 2,378 1,870 -610 -503 102 -495 The reduction in the total lease liability balance is predominantly as a result of Microgen Bioproducts negotiating the surrender of its Watchmoor Point leased facility based in Camberley, which was agreed in 2022 and settled in early 2023. 26. RECONCILIATION OF THE MOVEMENTS OF THE BORROWINGS AND LEASE 29. PROVISIONS LIABILITIES WITH THE STATEMENT OF CASH-FLOWS Repayment of borrowings and lease liabilities in 2022 Note 25 – Lease liabilities Change in lease liabilities in 2022: repayment Total repayments in 2022 as per note 25 Statement of cash flows for the year 2022 Cash used in financing activities: repayment of lease liabilities Total repayments as per the statement of cash flows Repayment of borrowings and lease liabilities in 2021 Note 25 – Lease liabilities Change in lease liabilities in 2021: repayment Total repayments in 2021 as per note 25 Statement of cash flows for the year 2021 Cash used in financing activities: repayment of lease liabilities Total repayments as per the statement of cash flows £’000 -503 -503 -503 -503 £’000 -610 -610 -610 -610 27. CONTINGENT CONSIDERATION Amounts in £’000 Contingent consideration short-term Total contingent consideration Year ended 31 December 2022 Year ended 31 December 2021 - - 836 836 The final tranche of the contingent consideration relating to the acquisition of IT-IS International was settled during 2022. No further liabilities exist at 31 December 2022. 28. TAX RECEIVABLES The main items making up the 2022 tax receivable balance of £1,149,000 relates to research and development expenditure credits and carried back corporation tax losses. The main item that made up the corporation tax receivable balance at 31 December 2021 related to an overpayment of 2020 corporation tax totalling approximately £4,225,000, which HMRC repaid in March 2022. The table below shows the nature of and changes in provisions for risks and charges for the period from 1 January 2022 to 31 December 2022: Amounts in £’000 Provisions for restoration of premises Provisions long-term Provisions for restoration of premises Provision for litigation Provisions for product warranty At 1 January 2022 - 308 308 – 157 19,799 Provisions short-term 19,956 Increase Reduction Other movements Reclass At 31 December 2022 – – – – 14 14 – – – – – – 95 95 330 157 19,813 117 -330 117 -330 330 – – – – – – 330 20,300 The table below shows the nature of and changes in provisions for risks and charges for the period from 1 January 2021 to 31 December 2021: Amounts in £’000 At 1 January 2021 - Increase Reduction Other movements Change in exchange rates At 31 December 2021 Provisions for restoration of premises 242 117 Provisions long-term Provision for litigation Provisions for product warranty 242 68 19,788 117 157 11 Provisions short-term 19,856 168 -67 -67 -65 – -65 16 16 – – – – – -3 – -3 308 308 157 19,799 19,956 Provisions chiefly cover: - Risks related to litigations; - The restoration expenses of the premises as per the lease agreements; and - Product assurance warranties. The provisions for the restoration of the premises are an estimation of amounts payable to cover dilapidations at the end of the rental periods, thus at the following dates: - Microgen Bioproducts Ltd: January 2023 (lease surrender date); - Primer Design Ltd: May 2023 and November 2025 as there are two sites that do not have - co-terminus leases; IT-IS International Ltd: December 2023 and September 2025, as there are two sites that do not have co-terminus leases. The provision for product assurance warranties predominantly relates to the notification of a product warranty claim with the DHSC (see notes 44 and 45). Management have assessed the DHSC product warranty provision held at 31 December 2021 and have deemed that it is still appropriate at 31 December 2022. 32. OTHER LIABILITIES LONG-TERM Amounts in £’000 Year ended 31 December 2022 Year ended 31 December 2021 Share-based payment benefits – LTIP, long-term Total other liabilities long-term 50 50 - - 30. TRADE AND OTHER LIABILITIES The 2022 other liabilities long-term balance relates to the 2022 to 2024 share-based LTIP scheme. Amounts in £’000 Trade payables Accrued invoices Social security liabilities Tax liabilities – Value Added Tax Other liabilities Year ended 31 December 2022 Year ended 31 December 2021 278 2,035 455 6 13 1,363 3,534 954 115 11,224 Total trade and other liabilities 2,787 17,190 33. SHARE CAPITAL As of 31 December 2022 and 2021, the Company’s share capital of €4,708,416.54 was divided into 70,626,248 shares with a par value of 1/15th of a Euro each. The Company’s share capital consists of one class of share. All outstanding shares have been subscribed, called and paid. Amount of share capital £’000 Amount of share capital €’000 Unit value per share € Number of shares issued Trade payables and accrued invoices have decreased in line with reduced sales. Balance at 1 January 2021 4,053 4,708 0.07 70,626,248 Other liabilities have fallen as a result of settling all outstanding liabilities in relation to the 2017 to 2020 LTIP scheme during 2022. Balance at 31 December 2021 4,053 4,708 0.07 70,626,248 Balance at 31 December 2022 4,053 4,708 0.07 70,626,248 31. OTHER CURRENT LIABILITIES Amounts in £’000 Year ended 31 December 2022 Year ended 31 December 2021 34. SHARE PREMIUM ACCOUNT Amounts in £’000 Deferred income and advance payments received from customers 540 498 Total other current liabilities 540 498 The balances above predominantly relate to customer payments in advance of receiving the products. Balance at 1 January 2021 Balance at 31 December 2021 Balance at 31 December 2022 50,671 50,671 50,671 35. OTHER RESERVES Amounts in £’000 Balance at 1 January 2021 Translation differences Balance at 31 December 2021 Translation differences Balance at 31 December 2022 36. EQUITY RESERVE Amounts in £’000 Balance at 1 January 2021 Balance at 31 December 2021 Balance at 31 December 2022 This reserve represents the equity component of warrants and loans. 37. RETAINED EARNINGS/LOSSES Amounts in £’000 Balance at 1 January 2021 Loss for the year Balance at 31 December 2021 Loss for the year Adjustment of the LTIP contribution Balance at 31 December 2022 -2,036 862 -1,174 -843 -2,017 1,155 1,155 1,155 96,916 -9,728 87,188 -25,730 -13 61,445 38. DISCONTINUED OPERATIONS In early 2022, Novacyt commenced a strategic review of the business, which included a review of the Microgen Bioproducts and Lab21 Healthcare businesses to consider the merits of maintaining multiple company entities/names under the Novacyt Group umbrella versus a simplified business model and brand, which the directors believed could be more impactful. In April 2022, Novacyt announced its intention to discontinue both businesses, and as at the end of June 2022 they had ceased day to day trading operations. In accordance with IFRS 5, the net result of the Lab21 Products segment has been reported in the line ‘Loss from discontinued operations’ on the consolidated income statement. The table below presents the detail of the loss generated by these two businesses as of 31 December 2022 and 2021: Amounts in £’000 Revenue Cost of sales Gross profit Sales, marketing and distribution expenses Research and development expenses General and administrative expenses Operating loss before exceptional items Other operating expenses Operating loss after exceptional items Financial income Financial expense Loss before tax Taxation (expense) / income Loss after tax from discontinued operations Year ended 31 December 2022 Year ended 31 December 2021 1,448 -1,102 346 -320 -22 -3,059 -3,055 -290 -3,345 1,181 -953 -3,117 -412 -3,529 3,177 -1,725 1,452 -800 -170 -2,474 -1,992 -1,887 -3,879 192 -482 -4,169 450 -3,719 39. NOTES TO THE CASH FLOW STATEMENT 40. LEASES Amounts in £’000 Loss for the year Loss from discontinued operations Loss from continuing operations Adjustments for: Depreciation, amortisation, impairment loss and provisions Unwinding of discount on contingent consideration Losses on disposal of assets Surrendering the Watchmoor Point lease (non-cash impact) Income tax charge / (credit) Operating cash flows before movements of working capital Decrease in inventories (*) Decrease in receivables Decrease in payables Cash (used in) / from operations Income taxes received / (paid) Finance costs Net cash (used in) / from operating activities Operating cash flows from discontinued operations Operating cash flows from continuing operations Year ended 31 December 2022 Year ended 31 December 2021 -25,730 -3,529 -22,201 7,918 133 543 281 1,998 -14,857 8,434 4,625 -15,624 -17,422 4,223 -530 -13,729 -1,955 -11,774 -9,728 -3,719 -6,009 7,882 -17 75 - -409 -2,197 18,427 42,754 -23,996 34,988 -19,437 138 15,689 2,180 13,509 (*) The variation of the inventories value results from the following movements: Amounts in £’000 Decrease in the gross value of inventories Variation of the stock provision Total variation of the net value of inventories Year ended 31 December 2022 Year ended 31 December 2021 15,743 -7,309 8,434 2,392 16,035 18,427 The details for the change in the stock provision are covered in notes 7, 8 and 21. In application of IFRS 16, the Group has recognised on the statement of financial position some “right-of-use” assets and lease liabilities. Novacyt SA Novacyt SA rents a small office in Vélizy, on a rolling 12-month basis. Primer Design Ltd The York House leased premises is used for office, storage and laboratory purposes. The annual charge for the site (with service charges) is now £311,584 per annum, with all leases running to November 2025. In November 2020, the company took out a new lease at a nearby site ‘Unit A’, primarily for storage purposes. The annual charge for the site (with service charges) is now £146,750 per annum, with the lease running to May 2023. Microgen Bioproducts Ltd The Watchmoor Point leased premises had a mixed use for office, storage and laboratory purposes. This commenced in May 2017 and would have run until May 2032. There were rent review clauses in May 2022 and 2027. The annual charge for the site was £175,643 per annum (including service charges). This lease was surrendered in January 2023. IT-IS International Ltd Units 1, 3 and 4 Wainstones Court leased premises have a mixed use for office, storage and production purposes. This commenced in October 2022 and will run until September 2025. The annual charge for the site is £31,500 per annum (including service charges). In December 2020, the company took out a new lease at a nearby site ‘MMC House’, for mixed use of office, storage and production purposes. The lease runs to December 2023 with an annual charge of £60,000. In September 2020, the company took out a 12-month lease at a nearby site ‘Pulrose House’ for production purposes. The annual charge for the site was £17,000 per annum. The lease was not renewed after the initial 12-month period. The table below presents the impact of the leases in the consolidated income and cash flow statements of the financial years 2022 and 2021: Amounts in £’000 Cash outflows for leases accounted for as per IFRS 16 Expenses related to short-term and low-value leases Total cash outflows for leases Year ended 31 December 2022 Year ended 31 December 2021 503 530 1,033 610 445 1,055 41. FINANCIAL INSTRUMENTS Categories of financial instruments Amounts in £‘000 Financial assets Cash and cash equivalents Short term investments and receivables Financial liabilities Fair value through profit and loss Amortised cost Year ended 31 December 2022 Year ended 31 December 2021 86,973 25,359 101,746 30,439 - 3,710 836 17,991 Financial risk management objectives The Group’s finance function is responsible for managing the financial risks relating to the running of the business. These risks include market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. If a material risk is identified then the Group would look to mitigate that risk through the appropriate measure, such as hedging against currency fluctuations. The Group does not use complex derivative financial instruments to reduce its economic risk exposures. Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates. There has been no change to the Group’s exposure to market risks or the way these risks are managed and measured. Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern whilst maximising the return to shareholders through the optimisation of debt and equity balances. The Group’s overall strategy is to ensure there is sufficient working capital to optimise the performance of the business. The capital structure of the Group consists of net debt (comprising debt less cash and cash equivalents) and equity of the Group (comprising issued capital, reserves and retained earnings in notes 33 to 37). The Group is not subject to any externally imposed capital requirements. The Group is focused on cash management and this is reviewed on a regular basis by the Group Finance Director and the Chief Financial Officer. The funding mix of the business is reviewed and managed regularly by the Chief Financial Officer and the Chief Executive Officer. Gearing ratio The gearing ratio at the year end is as follows: Amounts in £’000 Debt (lease liabilities) Cash and cash equivalents Net (cash) / debt Equity Net (cash) / debt to equity ratio Year ended 31 December 2022 Year ended 31 December 2021 872 86,973 -86,101 1,870 101,746 -99,876 115,216 141,815 -75% -70% Debt is defined as long-term and short-term borrowings and lease liabilities (excluding derivatives and financial guarantee contracts) as detailed in notes 25 and 26. For both years, 2022 and 2021, debt in the table above relates to IFRS 16 lease liabilities. Equity includes all capital, premiums and reserves of the Group that are managed as capital. Significant accounting policies Details of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement and the bases for recognition of income and expenses) for each class of financial asset, financial liability and equity instrument are disclosed in note 3. Foreign currency risk management The Group undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. Exchange rate exposures are not managed utilising forward foreign exchange contracts. The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: Assets and liabilities denominated in EUR Assets and liabilities denominated in USD Amounts in £’000 Year ended 31 December 2022 Year ended 31 December 2021 Year ended 31 December 2022 Year ended 31 December 2021 Assets Liabilities Net Exposure 17,395 -2,063 15,332 15,028 -1,419 13,609 5,151 -8 5,143 9,100 -39 9,061 Foreign currency sensitivity analysis The Group is mainly exposed to the Euro and US Dollar currencies. The following table details the Group’s sensitivity to a 5% increase and decrease in GBP against the relevant foreign currencies. 5% represents Management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the denomination of the loan is in a currency other than the currency of the lender or the borrower. A positive number below indicates an increase in profit and other equity. Amounts in £’000 EUR Conversion rate Impact GBP strengthening: FX + 5% Impact GBP weakening: FX - 5% USD Conversion rate Impact GBP strengthening: FX + 5% Impact GBP weakening: FX - 5% Net Assets and Liabilities Year ended 31 December 2022 Year ended 31 December 2021 15,332 13,609 1.12932 -730 807 1.19107 -648 716 5,143 9,061 1.20582 -245 271 1.34894 -431 477 Amounts in £’000 EUR Conversion rate Impact GBP strengthening: FX + 5% Impact GBP weakening: FX - 5% USD Conversion rate Impact GBP strengthening: FX + 5% Impact GBP weakening: FX - 5% Income Statement Year ended 31 December 2022 Year ended 31 December 2021 1,932 6,854 1.17319 -161 26 1,16307 -169 534 3,020 5,871 1.23697 -216 79 1.37566 -392 185 Interest rate risk management The Group is debt free and therefore it is not exposed to significant interest rate risk. Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group uses publicly available financial information and its own trading records to rate its major customers’ risk levels. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. The Group uses debt collection agencies and government-backed schemes to collect difficult aged debts as a last resort. Trade receivables generally consists of a large number of customers, spread across diverse geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable and, where appropriate, credit guarantee insurance cover is purchased. The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. The carrying amount of the financial assets recorded in the historical financial information, which is net of impairment losses, represents the Group’s maximum exposure to credit risk as no collateral or other credit enhancements are held. Reliance on major customers and concentration risk In 2022 the Group was not dependent on one particular customer and there were no customers generating sales accounting for over 10% of revenue. In 2021 Primer Design’s revenue included approximately £9,702,000 from sales to the Group’s largest customer. No other customers contributed 10% or more to the Group’s revenue in 2021. 94% of trade receivables are with one counterparty, with whom there is a contract dispute as disclosed in note 44. Management considers it to be more likely than not that the 31 December 2022 balances are recoverable. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. Liquidity and interest risk tables The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. Effective interest rate Less than 1 month 1–3 months 3 months to 1 year % £’000 £’000 £’000 1–5 years £’000 – 315 5+ years £’000 – – Total £’000 – 1,243 – 231 31 December 2022 Variable interest rate instruments Fixed interest rate instruments 1.2 31 December 2021 Variable interest rate instruments – 634 – Fixed interest rate instruments 1.2 1,408 – 63 – 91 – – 11,638 1,086 – 859 – 15,082 The following table details the Group’s expected maturity for its non-derivative financial assets. The table below has been drawn up based on the undiscounted contractual maturities of the financial assets including any interest that will be earned on those assets. The inclusion of information on non-derivative financial assets is necessary to understand the Group’s liquidity risk management as the liquidity is managed on a net asset and liability basis. Effective interest rate % – 0.7 – 0.1 31 December 2022 Non-interest bearing Variable interest rate instruments 31 December 2021 Non-interest bearing Variable interest rate instruments Less than 1 month £’000 1–3 months £’000 3 months to 1 year £’000 1–5 years £’000 Total £’000 8 1,040 86,973 – 112 – 24,393 – 25,553 86,973 5,737 278 24,296 101,746 – – 188 – 30,499 101,746 Fair value measurements The information set out below provides information about how the Group determines fair values of various financial assets and financial liabilities. The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Fair value of the Group’s financial assets and financial liabilities that are measured at fair value on a recurring basis Some of the Group’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used). Financial assets / financial liabilities Fair value as at Fair value hierarchy Valuation technique(s) and key input(s) Significant unobservable input(s) Relationship of unobservable inputs to fair value 31/12/22 31/12/21 1) Contingent - 836 2 consideration in relation to the IT-IS International acquisition (current and non-current portion) Payment made in September 2021 and October 2022. Estimated according to the probability of payment. Fair value measurements recognised in the statement of financial position Amounts in £’000 Financial liabilities at FVTPL Debts from the acquisition of shares Total liabilities at FVTPL Amounts in £’000 Financial liabilities at FVTPL Debts from the acquisition of shares Total liabilities at FVTPL Year ended 31 December 2022 Level 1 Level 2 Level 3 Total – – – – – – – – – – 836 836 – – 836 836 There were no transfers between Levels during the current or prior year. The table above only shows the fair value of the financial liabilities as the fair value of the applicable financial assets are not materially different from their carrying value. Fair value of financial liabilities that are not measured at fair value (but fair value disclosures are required) There are no financial liabilities in the statement of financial position at 31 December 2022 or 31 December 2021 that are not measured at fair value but for which fair value must be disclosed. 42. RELATED PARTIES Parties related to Novacyt SA are: - - the managers, whose compensation is disclosed below; and the Directors of Novacyt SA. Remuneration of key management personnel Amounts in £’000 Fixed compensation and company cars Variable compensation Social security contributions Contributions to supplementary pension plans Termination benefits Cash based payment benefits – LTIP Total remuneration Aggregate Directors’ remuneration Fixed compensation and company cars Variable compensation Social security contributions Contributions to supplementary pension plans Fees Total remuneration Year ended 31 December 2022 Year ended 31 December 2021 1,605 15 224 26 - 17 1,887 2,176 590 412 48 371 - 3,597 Year ended 31 December 2022 Year ended 31 December 2021 988 - 155 - 38 897 350 181 11 32 1,181 1,471 Related party transactions were made on terms equivalent to those that prevail in arm’s length transactions. Year ended 31 December 2021 Level 1 Level 2 Level 3 Total Amounts in £’000 43. AUDIT FEES Amounts in £’000 On 15 June 2022, Novacyt and Primer Design Ltd filed a defence of the claim received on 25 April 2022, and Primer Design Ltd made a counterclaim of circa £81,500,000 including interest and VAT against the DHSC. Year ended 31 December 2022 Year ended 31 December 2021 The Group remains committed to defending the case and asserting its contractual rights, including recovering outstanding sums due from the DHSC. Management have reviewed the position at 31 December 2022 and deem this to be an appropriate reflection of the current commercial dispute. Management and the Board of Directors have reviewed the product warranty provision totalling £19,753,000 booked in 2020 in relation to the DHSC dispute and have deemed that it remains appropriate at 31 December 2022. 45. SUBSEQUENT EVENTS On 30 January 2023, Novacyt announced that the UK High Court had directed Novacyt, that the hearing of the case between Primer Design Ltd / Novacyt SA and the DHSC has been listed to commence on 10 June 2024 and is expected to last 16 days. Fees payable to the Company’s Auditor and its associates in respect of the audit Group audit of these financial statements Audit of the Company’s subsidiaries’ financial statements Total audit remuneration Fees payable to the Company’s Auditor and its associates in respect of non-audit- related services Audit-related assurance services All other services Total non-audit-related remuneration Estimated 2021 audit fees were over accrued, this reversed in 2022. 67 200 267 - - - 103 260 363 - 5 5 44. CONTINGENT LIABILITIES During 2021, the Group received notification of a contract dispute between its subsidiary, Primer Design Ltd, and the DHSC related to revenue totalling £129,125,000 in respect of performance obligations satisfied during the financial year to 31 December 2020. During 2021, a further £49,034,000 (including VAT) of products and services were delivered and invoiced to the DHSC which have subsequently been included as part of the ongoing dispute. Management made the judgement that in accordance with IFRS 15, Revenue from Contracts with Customers, it was not appropriate at that stage in the dispute to recognise as revenue, any sales invoices raised to the customer in 2021 that were in dispute. However, Management remains committed to obtaining payment for these goods and services. Payment for £23,957,000 of invoices in respect of products delivered during 2020 remains outstanding at the date of publishing the annual accounts and recovery of the debt is dependent on the outcome of the dispute. On 25 April 2022, legal proceedings were issued against Novacyt and Primer Design Ltd in respect of amounts paid to Primer Design Ltd totalling £134,635,000 (including VAT) by the DHSC. This refers to £132,814,000 (including VAT) of reagent sales out of a total disputed amount of £154,950,000 (£129,125,000 excluding VAT as previously reported) plus £1,821,000 (£1,517,000 excluding VAT) of q16 instruments which have been added to the dispute. This takes the total 2020 revenue in dispute to £130,642,000. 142 Annual Report and Accounts Company Information 143 Company Information Directors Company Secretary Registered office Registered number James Wakefield James McCarthy Andrew Heath Juliet Thompson Jean-Pierre Crinelli James McCarthy Novacyt S.A. 13 Avenue Morane Saulnier 78140 Vélizy-Villacoublay France 491 062 527 (France) French Auditors Deloitte & Associés 6 place de la Pyramide 92908 Paris-La Défense Cedex France UK Auditors Alberis Audit 2 rue Colmar 92400 Courbevoie France Constantin Limited Statutory Auditor 25 Hosier Lane London EC1A 9LQ United Kingdom Company website www.novacyt.com Bankers Nominated Advisor and Joint Broker Joint Broker French Listing Sponsor Legal advisers to the Company S. P. Angel Corporate Finance LLP Prince Frederick House 35-39 Maddox Street London W1S 2PP United Kingdom Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT United Kingdom Allegra Finance 213 Boulevard Saint-Germain 75007 Paris France English law: Stephenson Harwood LLP 1 Finsbury Circus London EC2M 7SH United Kingdom Pitmans LLP 47 Castle Street Reading RG1 7SR United Kingdom French law: Stance Avocats 37-39 Avenue de Friedland Paris 75008 France Banque Populaire Val de France Accueil Entreprises Trs 2 Avenue De Milan 37924 Tours Cedex 9 Barclays Bank plc 48a-50 Lord Street Liverpool L2 1TD United Kingdom National Westminster Bank plc Southampton University Southampton Customer Service Centre Brunswick Gate 23 Brunswick Place SO15 2AQ Investec Bank PLC 30 Gresham Street London EC2V 7QP United Kingdom HSBC Bonham Strand Commercial Service Centre 35-45 Bonham Strand Sheung Wan Hong Kong Bank of China First Floor No. 50 Tai Nan Road Pudong Shanghai 200131w Headquarters: Novacyt Group (UK) York House School Lane Chandler’s Ford Eastleigh SO53 4DG T +44 (0) 2380 748830 E investor.relations@novacyt.com www.novacyt.com Registered Address: Novacyt Group (France) 13 Avenue Morane Saulnier 78140 Vélizy-Villacoublay France Registered Number: 491 062 527

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