Versailles Trade and Companies Register 491 062 527
(hereinafter "the Company" or "Novacyt")
MANAGEMENT REPORT ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
To the shareholders,
We hereby present to you the management report on the activities of Novacyt (hereinafter referred to as "the Company") and its subsidiaries during the financial year beginning on 1 January 2020 and ending on 31 December 2020 in accordance with the provisions of the French Commercial Code.
1. REVIEW OF THE ANNUAL AND GROUP CONSOLIDATED ACCOUNTS
The annual accounts and consolidated accounts for the year ended 31 December 2020, which we submit to your approval, have been prepared in accordance with the rules of presentation and valuation methods provided for in the current regulations.
1.1 Annual Social Accounts
For the year ended 31 December 2020:
Net turnover amounted to €22,094,742
Total operating revenues amounted to €22,210,889
Operating expenses for the year amounted to €24,114,103
The operating result therefore is a loss of -€1,903,214
Salaries and wages amounted to €76,459
The amount of social security charges amounted to €18,500
The financial result for the year 2020 is -€421,171.
The exceptional result for the 2020 financial year is -€237,177.
Net accounting income:
The year ended 31 December 2020, therefore, resulted in a net accounting loss of -€2,561,562.
Total balance sheet:
At 31 December 2020, the Company's balance sheet total amounted to €24,612,699.
Proposed appropriation of the result:
We propose you to approve the annual accounts (balance sheet, income statement and schedule) as presented to you and to allocate the net accounting loss for the year amounting to -€2,561,562, as follows:
the debtor "Retained Earning" account, for an amount of€ 2,561,562.
Therefore, the balance of the "Retained Earnings" account, will be debtor for an amount of €50,257,848.
1.2 Annual Group Consolidated Accounts
Consolidated Operating Income:
For the year ended 31 December 2020:
Net consolidated turnover amounted to £277,204,000
Total consolidated operating revenues amounted to £277,204,000
Consolidated operating expenses for the year amounted to £109,763,000
The consolidated operating result therefore is a Profit of £167,441,000
Financial consolidated result:
Net financial income and expense for the year 2020 is - £2,270,000.
Net consolidated accounting income:
The year ended 31 December 2020, therefore, was a consolidated net accounting profit of £132,423,000.
Total consolidated balance sheet:
At 31 December 2020, the company's consolidated balance sheet assets total amounted to £234,276,000.
Approval of consolidated results:
We suggest that you approve the consolidated financial statements (balance sheet, income statement and schedule) as presented to you.
2. ACTIVITY OF THE COMPANY AND ITS SUBSIDIARIES AND BUSINESS TRENDS DURING THE YEAR ENDED 31 DECEMBER 2020
2.1 Overview of Novacyt's activity
The Novacyt Group is an international diagnostics business generating an increasing portfolio of in vitro and molecular diagnostic tests. Its core strengths lie in diagnostics product development, commercialisation, contract design and manufacturing. The Company's lead business units comprise of Primerdesign and Lab21 Products, supplying an extensive range of high-quality assays and reagents worldwide. The Group directly serves microbiology, haematology and serology markets as do its global partners, which include major corporates.
The following companies make up the Novacyt Group:
Biotec Laboratories Ltd
IT-IS International Ltd
Lab21 Healthcare Ltd
Microgen Bioproducts Ltd
Novacyt Asia Ltd
Novacyt China Ltd
Novacyt UK Holdings Ltd
2.2 Situation and activity / Analysis of business trends
Group consolidated revenue increased by over 2,300% to £277.2m in 2020 compared with £11.5m in 2019. o Primerdesign grew more than 4,800% year-on-year to £272.8m in 2020 compared with £5.5m in 2019. o All key territories saw year-on-year growth, with the UK market seeing sales increase by over £217m, to £219.4m, largely driven by contracts won in support of the UK testing response to the COVID-19 pandemic. Sales to Europe (excluding the UK) were up over 1,000%, or £29m, to £32.0m driven by increased distributor sales of our range of COVID-19 tests. American sales were up 340% year-on-year to £10.3m.
Group gross margin continued to improve increasing to 76.3% in 2020 from 64.0% in 2019.
The Group delivered a gross profit of £211.5m in 2020 compared with £7.3m in 2019
o This continues the trend of increasing the gross margin percentage every year since 2014.
The improvement is due to Primerdesign's share of Group revenue increasing from 48% in
2019 to 98% in 2020.
Primerdesign's gross margin decreased to 76.5% in 2020 compared with 85% in 2019, as a result of increasing the product warranty provision by £19.8m.
Group EBITDA increased to £176.1m in 2020 compared with £0.2m in 2019.
EBITDA margin increased to 64% in 2020 compared with 2% in 2019.
This continues the trend of positive EBITDA for the Group.
Operating profit of £167.4m in 2020 compared to a loss of £1.6m in 2019, driven by the growth in sales in the Primerdesign business.
Profit after tax of £132.4m in 2020 compared to a loss of £5.7m in 2019.
Cash at year-end of £91.8m compared with £1.5m in 2019, driven by the strong 2020 performance.
• The Group exits 2020 debt free after all debt was repaid during the first half of 2020.
IT-ISInternational Limited, a profitable diagnostic instrument development and manufacturing company, was acquired on 15th October 2020. The net consideration for the acquisition after earnouts is £8.7m.
2.3 Results, progress achieved and difficulties encountered
2020 was a year of transformation and growth as the company helped support the worldwide COVID-19 pandemic response with its gold standard qPCR diagnostic tests.
Primerdesign sales increased to £272.8m, up 4,833% in 2020.
UK and Ireland NHS accounts represented £191.2m (70%) of total sales, reflecting the
Company's response and contribution to the UK government testing strategy.
Core distributor and reseller business across UK and international markets represented £49.5m
(18%) of total sales, with sales to over 85 countries.
Private Sector testing market represented £32.1m (12%) of total sales.
Lab21 Products revenue of £5.2m (before intercompany eliminations), is down 14% from 2019.
The core business was impacted by customers diverting their testing laboratories and procedures from veterinary and food testing to COVID-19 testing, to support the global pandemic efforts.
The Asia Pacific region within Microgen Bioproducts grew 6% year-on-year.
IT-ISInternational delivered post acquisition revenues of £6.9m (before intercompany eliminations).
Rapid development and launch of 10 new products to support laboratories and clinicians testing for COVID-19 o Developed one of the first molecular tests for COVID-19, receiving CE Mark accreditation and Emergency Use Authorisation from regulatory authorities around the world o Launch of a number of innovative PCR products, including Exsig™, PROmate™, COVID-HT and Winterplex™, to improve workflow efficiency and address testing needs in both central and near- patient settings
Significant organisational scale-up, including a manufacturing capacity increase of over 100x, an increase in supply chain capacity, and a significant investment in commercial infrastructure to support growth
Strategic collaboration with AstraZeneca, GSK and University of Cambridge to support COVID-19 testing in the UK
Secured significant contracts with national governments, including the UK DHSC, and national non- government organisations for the supply of COVID-19 products
Acquisition and successful integration of IT-IS International Ltd in line with strategy, securing key IP and expanding core capabilities and product offering
Development of VersaLab™ to improve near-patient PCR testing in the emerging private sector testing market
Expertise in bioinformatics surveillance used to assess ongoing accuracy of COVID-19 tests and monitor new viral sequences of SARS-CoV-2
2.4 Foreseeable change in the Company's position and future prospects
The Company expects to see significant new growth from the launch of new products during the second half including an expansion of its lateral flow antigen testing portfolio.
In the UK, we are continuing to expand our installed base at NHS hospitals with approximately 40 sites now running q16 or q32 instruments with the new PROmate™ test. Demand for COVID-19 testing through these hospitals is low at present based on low infection / testing rates but we believe this installed base will be a key long-term asset moving forwards and an opportunity for Novacyt to expand its test menu for additional diseases.
With the strengthened cash position of the Company, the business will continue to invest in innovation, organic expansion, and external business development, in line with its updated growth strategy. The Company also continues to evaluate M&A opportunities and will consider additional bolt-on acquisitions to add strategic assets and expand its geographical footprint.
2.5 Business activity in the year ended 31 December 2020