TIDMABDX

RNS Number : 4276H

Abingdon Health PLC

24 November 2022

Abingdon Health plc

("Abingdon" or "the Company")

Preliminary Results

York, U.K. 24 November 2022: Abingdon Health plc (AIM: ABDX), a leading international developer and manufacturer of high quality, rapid diagnostic tests, announces its preliminary results for the year ended 30 June 2022.

Financial highlights

   --    Revenue of GBP2.8m (2021: GBP11.6m) with prior year impacted by one-off COVID-19 revenues 

-- Adjusted(*) EBITDA loss of GBP10.0m (2021: GBP3.3m loss) due to significant increase in, and subsequent unwinding of, operational headcount to meet anticipated COVID-19 demand which did not come to fruition

-- Loss for the period of GBP21.3m (2021: GBP7.0m loss), includes GBP7.2m impairment charge (2021: GBPnil)

   --    Cash as at 30 June 2022: GBP2.4m (2021: GBP5.0m) and as at 31 October 2022 of GBP4.4m 

-- Net cash outflow from operating activities of GBP7.7m (2021: GBP12.9m), driven in part by a reduction year-on-year in payables.

(*) Adjusted EBITDA stated before deduction of non-recurring costs, impairment of intangibles and share based payment

Operational highlights (including post-period end)

-- Settlement agreement reached with the Department of Health and Social Care ("DHSC") on the outstanding invoices payable by DHSC for lateral flow tests and component stock, with GBP6.3m cash being received in July 2022 in full settlement

-- Outcome of Judicial Review proceedings initiated by the Good Law Project Limited ("GLP") against DHSC in which Abingdon was an interested party ruled in favour of the DHSC on all grounds, confirming that contract award decisions by DHSC, for the development and manufacture of lateral flow test kits for COVID-19 antibodies by Abingdon, were lawful and complied with the principles of public law

-- Launched e-commerce self-test site , marketing a range of Abingdon Simply Test and other branded self-test products

-- Strategy focused on provision of Contract Development and Manufacturing ("CDMO") services given anticipated growth in demand within the lateral flow market

   --    Strong pipeline of contract development, regulatory and technical transfer opportunities. 

Chris Yates, Chief Executive Officer, Abingdon Health plc, commented:

"The last two years within the lateral flow market have been dominated by COVID-19 with little other contract development activity being undertaken by customers or prospective customers. In addition, a great deal of our own focus has been spent on successfully resolving unwarranted legal challenges which were an unwelcome distraction and a significant use of our time and resources.

"It is pleasing to see the industry refocus on a much broader range of applications of lateral flow technology in other health and non-health areas. As a knowledge leader in lateral flow, and with our comprehensive contract service offering, we believe we are well-placed to support customers in bringing their products to market and grow our business."

Enquiries:

 
  Abingdon Health plc                                               www.abingdonhealth.com/investors/ 
  Chris Yates, Chief Executive Officer                                                Via Walbrook PR 
  Melanie Ross , Chief Financial Officer 
  Chris Hand, Non-Executive Chairman 
 
  Singer Capital Markets (Sole Broker and                                    Tel: +44 (0)20 7496 3000 
   Nominated Adviser) 
  Peter Steel, Alex Bond (Corporate Finance) 
  Tom Salvesen (Corporate Broking) 
 
  Walbrook PR Limited                             Tel: +44 (0)20 7933 8780 or abingdon@walbrookpr.com 
  Paul McManus / Phillip Marriage                              Mob: +44 (0)7980 541 893 / +44 (0)7867 
   Alice Woodings                                                                             984 082 
                                                                                  +44 (0)7407 804 654 
 
 

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

About Abingdon Health plc

Abingdon Health is a world leading developer and manufacturer of high-quality lateral flow rapid tests across all industry sectors, including healthcare and COVID-19. Abingdon is the partner of choice for a growing global customer base and takes projects from initial concept through to routine and large-scale manufacturing and has also developed and marketed its own labelled tests.

The Company offers product development, regulatory support, technology transfer and manufacturing services for customers looking to develop new assays or transfer existing laboratory-based assays to a lateral flow format. Abingdon Health aims to support the increase in need for rapid results across many industries and locations and produces lateral flow tests in areas such as infectious disease, clinical testing including companion diagnostics, animal health and environmental testing. Faster access to results allows for rapid decision making, targeted intervention and can support better outcomes. This ability has a significant role to play in improving life across the world. To support this aim Abingdon Health has also developed AppDx(R) , a customisable image capturing technology that transforms a smartphone into a self-sufficient, standalone lateral-flow reader.

Founded in 2008, Abingdon Health is headquartered in York, England.

For more information visit: www.abingdonhealth.com

Chairman and CEO Joint Statement

Following a two-year period, where COVID-19 was the primary focus of the lateral flow industry, we are now seeing growth in the market across a broad range of other (non-COVID-19) applications, driven by reduced barriers to adoption for the technology. In this new environment, the Board has confidence that Abingdon Health's knowledge leadership position in the lateral flow industry and the development and manufacturing platform we have built will begin to yield positive momentum and revenue growth. Our key objective is to move the Company to positive cash flow.

This financial year was dominated by the continued impact of COVID-19 on the lateral flow industry. There was limited non-COVID-19 development activity in financial years 2021 and 2022 as most industry participants focused on developing and manufacturing COVID-19 tests. Whilst we participated in providing COVID-19 solutions through our commercial contracts with, inter alia, Avacta, Vatic and BioSure; none of these activities yielded material revenue traction beyond the successful transfer of all three products to manufacture (technical transfer). We had previously developed and manufactured 1 million COVID-19 antibody tests for the Department of Health and Social Care (DHSC) in FY2021. With COVID-19 strategies across the globe, China-aside, transitioning towards treating COVID-19 as a seasonal disease, such as flu, we are seeing a significant increase in engagement on non-COVID-19 testing projects and believe that our expertise in the lateral flow industry and the development and manufacturing platform we have built will drive positive momentum and revenue growth.

Strategy

Our mission at Abingdon is to improve life by making rapid results accessible to all. We achieve this by supporting our customers in developing and manufacturing lateral flow tests across a range of sectors including human health, such as infectious disease testing, animal health, plant pathogen and environmental testing.

COVID-19 had a significant impact on lateral flow testing; initially through widespread adoption of lateral flow testing across many countries, including the UK. This has reduced the "barriers to adoption" as many people are now extremely familiar with lateral flow testing and "doing a lateral flow test" is now part of the vernacular. There is increasing acceptance that lateral flow testing is a viable, cost-effective alternative or complement to laboratory testing. We strongly believe that this will drive the increased adoption of lateral flow testing across a broad range of applications and sectors

As a well-established knowledge leader within the area of lateral flow testing, we are focused on providing a broad contract development and manufacturing organisation ("CDMO") service to an international customer base. We believe the CDMO business model, well-established in the pharmaceutical industry, has direct application to the medical diagnostics market and we offer our customers a turn-key full-service offering in lateral flow which includes research, development, scale-up, technical transfer, manufacturing, regulatory approval, supply chain management, and commercial support. Our long-term strategic objective is to become the leading full-service CDMO in the lateral flow market.

In addition to our contract service business, we will continue to consider options to develop, manufacture and commercialise , our own products. We believe that COVID-19 is a catalyst for the expansion of self-testing across a range of other clinical areas. However, as set out below in the current economic environment our focus is on driving our revenues, managing our costs and reaching a cashflow positive position as quickly as possible. Therefore, we will focus most of our team's efforts on driving CDMO revenues for now rather than on significant internal product development. During 2022 we have built an ecommerce self-test site; www.abingdonsimplytest.com ; launched in July 2022 which markets a range of Abingdon Simply Test branded products and other branded self-test products. We currently have a range of 14 products on this newly launched site and we will continue to grow this in a managed way. www.abingdonsimplytest.com also provides the opportunity for our contract service customers to market their products.

We strongly believe that we are at the start of a paradigm-shift in the use and application of rapid testing across a wide range of applications and that Abingdon Health is well positioned to support customers in bringing new, innovative products to market across a range of sectors.

Performance in year

Revenue for the full year was GBP2.8m (2021: GBP11.6m). In 2021 the financials were impacted significantly by revenue of GBP5.2m from the Department for Health & Social Care ("DHSC") and a one-off order for our nucleic acid lateral flow immunoassay called PCRD. 2022 was a transition year as we moved the business away from its focus on supporting COVID-19 solutions towards a normalised business model where we operate as a CDMO offering our services to customers across a wide range of sectors. We expect to see the benefits of this transition in FY2023 and beyond, supported by the forecast growth in the lateral flow market, which is expected to grow to $13.4 billion by 2028, at a cumulative average growth rate of 4.7% per annum (Source: Lateral Flow Assays Market Size & Growth Analysis By 2030 (alliedmarketresearch.com) ).

2022 activity was dominated by COVID-19 business with three key technical transfers, Avacta, Vatic and BioSure, all of which were successfully transferred into manufacturing, which was a real credit to the hard work and diligence of the Abingdon team, but ultimately were not successfully commercialised by our customers nor, therefore, for Abingdon . The anticipated manufacturing volumes from these three products did not materialise and were a key reason for the disappointing revenue performance in the financial year. During the second half of 2022 we started to rebuild our customer pipeline focusing on opportunities outside of COVID-19 as we started to see, firstly, COVID-19 strategies across many countries move towards treating it as a seasonal illness and secondly many of our prospective customers move their product development strategies away from COVID-19 and towards more normalised activities.

Current Activity and Pipeline

We have seen an encouraging uplift in contract development opportunities across a range of areas and we are expanding our contract development team to support this increase in activity. We believe our knowledge leadership position and our integrated service offering is resonating with prospective customers who range from small, innovative start-ups to some of the largest global healthcare companies. We believe contract development will become a significant driver of revenue growth in the short-term and beyond, and will also drive increased opportunities for technical transfer and manufacturing over time.

Technical transfer is the process of optimising and scaling up the production processes of a developed assay for manufacture and the production of three batches to allow validation and verification of assay performance. We currently have two active technical transfers that should be complete in H1 2023. We stopped one transfer due to the instability of the product's manufacturing process ( due to issues with the functioning of assay as provided to us by our customer ) but we remain in contact with the customer to see what additional support we can provide. We have a number of additional transfer opportunities within our pipeline which we are looking to bring in during the remainder of calendar year 2022 and in 2023.

We have continued during 2022 to manufacture lateral flow tests for customers across human health, animal health, plant health and environmental testing. A key objective is to grow our manufacturing base through successful transition of tests into manufacture and importantly these will build "annuity income" to underpin future revenues.

Team

During the financial year we reduced our average staff numbers from 151 to 130, which sadly meant that a number of valued colleagues were made redundant. The reason for the reduction was the transition away from COVID-19 activity and the impact of the delayed payment from DHSC. We continued to right-size the business post FY22 year-end as manufacturing did not proceed from the three COVID-19 projects as described above. This was despite successful technical transfer of all three products. As at 31st October 2022 there were 71 employees within Abingdon.

We would like to thank all of the Abingdon team, both current and past, for their hard work and support during an extremely challenging period. The Board have been impressed by this unwavering commitment to supporting our customers and providing a first-class contract service despite the distractions.

Cost Restructuring

As noted above we right-sized the business during the financial year and post year-end.

This involved a significant reduction in headcount as well as a reduction in operational footprint and discretionary expenditure. In 2020 and 2021 the Group had been built to service the significant volume opportunities arising from COVID-19 testing. However, these didn't materialise for various reasons and given the uncertainty around the ongoing requirement for high volume COVID-19 testing it was necessary to reduce the cost-base of the business to match more closely the commercial activity. The key focus of the management team remains reducing the Group's cash burn and driving the Company into positive cashflow. Based on the Group's forecasts we believe that we have the financial resources in place to reach this target.

As part of this restructuring we have limited our expenditure on new product development. We have paused both the Flu and Hepatitis C projects and have focused on completing the proof of concept of the Lyme disease test. We remain enthusiastic about the commercial opportunities for self-testing but are cognisant of the financial investment needed in, for example clinical trials and regulatory costs, to bring these products to market. Therefore, we believe it is sensible to limit the expenditure in these areas for now and focus the team's efforts of driving CDMO revenues with the aim of positive cashflow .

Intellectual Property

The Company continues to protect its intellectual property position and in the area of lateral flow device readers, particularly the Company's AppDx(R) smartphone reader, has continued to file UK and international patents. During the financial year to June 2022 a patent was granted relating to AppDx(R). Other patent applications continue including one relating to a time-resolved fluorescence reader which has been given a notice of grant for December 2022 and another ongoing application relating to blood self-test apparatus.

Governance and People

Mary Tavener was appointed senior-independent non-executive director in November 2020 prior to listing on AIM. Abingdon's other non-executive director is Dr Chris Hand who is a co-founder of Abingdon and non-executive chairman.

Lyn Rees (independent non-executive director) resigned as non-executive director of the Company effective 30 September 2022 to focus on his responsibilities outside of the Company. We would like to place on record our thanks and appreciation to Lyn for his support and valued advice over the past three years.

Our Audit Committee and Remuneration Committee currently comprises Mary Tavener (Chair) with Chris Hand (non-executive chairman) and the executive directors Chris Yates and Melanie Ross invited to attend as required from time-to-time. The Board has concluded that at this time the Group does not currently require a Nominations Committee but will review this assessment on a regular basis including discussing the matter with its Nominated Advisor.

Scott Page, Company Secretary and Finance Director, left Abingdon Health in July 2022. The Board would like to place on record their thanks to Scott for his hard work and contribution over the past three years and wish him well for the future. Melanie Ross, Chief Financial Officer, has taken over Company Secretary responsibilities.

The Board remains focused on ensuring its own effectiveness and that of the governance processes throughout the Group, and that these governance structures remain fit for purpose as the Group develops and grows over time. Mary Tavener is Abingdon's only independent non-executive director and, as such, the Board's current composition does not comply with the requirements for a minimum of two independent non-executive directors under the QCA Corporate Governance Code, being the corporate governance code that the Company has chosen to apply. The Board believes, however, that its current composition is appropriate for the current size of the business and will continue to review its structure periodically as the needs of the business change.

DHSC Dispute

We were pleased that in June 2022 we were able to reach a settlement in relation to the dispute with the Department of Health and Social Care ("DHSC"). The dispute resolution process arose due to the lack of payment by DHSC for goods and services provided by Abingdon.

It is disappointing that we, alongside many other UK diagnostic companies, have had to spend time and money recovering monies owed despite responding to a "call to arms" by the UK Government. The Group believed at all times that there were no legal grounds as to why these monies were not being paid in full by DHSC but the reality was that it was important to reach a settlement with a counter-party that effectively had unlimited time and financial resources at its disposal to prolong the dispute. Given the UK Government's initial aim at the start of the pandemic was to build a British diagnostics industry their behaviours have been quite the opposite, both in terms of how they have dealt with established UK businesses and their preference to order significant quantities of tests, through recently established intermediaries, predominantly from Chinese companies.

The settlement agreement was in full and final settlement of the outstanding debt of GBP8.9m (excluding interest) and comprised:

i ) A contractually required cash payment of GBP6.3m from DHSC to Abingdon, which was paid as required to the Company on or before 22 July 2022;

ii) GBP1.5m of this cash payment was held under charge until the outcome of a judicial review brought by the Good Law Project Limited in challenge to the Secretary of State for Health and Social Care, was known; this payment was subsequently released in full to Abingdon;

iii) transfer to the Company of ownership of the outstanding component stock that it had procured on behalf of DHSC in 2020/21;

iv) joint-ownership, alongside DHSC, of the intellectual property of the AbC-19(TM) COVID-19 antibody test; and

v) a lower royalty payable to DHSC on sales of the AbC-19(TM) COVID-19 antibody test, with this royalty time limited to one year from the date of the settlement agreement.

The settlement of the DHSC dispute has led to an overall exceptional write-off of GBP1.6m in the 2022 financial accounts. This included legal costs of GBP0.2m in 2022 and GBP1.4m in total in relation to writing off the outstanding balances relating to the DHSC dispute. This is further broken down in note 5 below.

Judicial Review Process

In October 2022 Mr Justice Waksman issued his judgment in relation to the Judicial Review proceedings initiated by the Good Law Project Limited ("GLP") against the Secretary of State for Health and Social Care in which Abingdon was an interested party. Mr Justice Waksman ruled in favour of DHSC on all grounds, including lack of state aid to Abingdon and dismissed all claims brought by the GLP. GLP did not appeal the judgement.

Whilst we were pleased with the outcome, the impact that this has had on Abingdon and its employees since late-2020 should not be underestimated. Throughout the process the GLP made a number of disparaging statements and unsubstantiated assertions about Abingdon that have yet to be corrected, despite attempts being made by Abingdon through its advisors inviting GLP to do so.

Abingdon fully supports both openness and accountability relating to the award of public contracts; however, this particular case brought by the GLP was comprehensively dismissed on all grounds. Despite the Company's best efforts to cooperate and demonstrate to the GLP that there was no bias or assistance in these contracts being awarded, and to illustrate the impressive credentials and experience of the Company and its employees in lateral flow test development and manufacture, in the Board's opinion, the proceedings continued long after they could have been halted. This is particularly the case in view of the material facts made available to GLP by Abingdon well over a year before judgment with a view to informing the GLP of the factual background.

Abingdon incurred exceptional legal costs in 2022 of GBP0.2m, and in total GBP0.3m in relation to the judicial review.

Outlook & Funding

Having raised GBP6.5m via a successful placing and oversubscribed open offer in December 2021, the Company has no current requirement for additional funding. Cash at the end of the financial year was GBP2.4m and as of the end of October 2022 was GBP4.4m. We believe we have sufficient cash resources to fund progress beyond 12 months from the signing date of the accounts, with our priority being to move the Company to a positive cashflowposition.

Our strategic focus is on growing our CDMO business particularly in non-COVID-19 markets in human health, animal health, plant pathogen and environmental testing; particularly given the COVID-19 market outlook remains uncertain and volatile and appears to be moving towards a seasonal infectious disease in a similar manner to flu.

We are seeing our CDMO customer base expand and we are encouraged by the growth in the range of potential opportunities. Our key priorities are to grow our revenues and alongside this, given the economically uncertain outlook, reduce our cash-burn through continued close cost management. To this end we will focus our team's activities on CDMO business and near-term revenues with own-product development being given less priority until we are closer to break-even.

The lateral flow testing market is forecast to strongly grow for the next decade and Abingdon as a knowledge leader in the sector with a well-established track record of bringing products from "idea to market" is well-placed to support a broad range of customers. We believe our full-service contract service proposition strongly resonates with customers and we look forward to building our business after an extremely challenging two years during where COVID-19 dominated our industry.

We would like to thank all our employees for their hard work, dedication and commitment during the past year despite the challenges we have faced in an uncertain economic climate. We are confident with our contract services customer base and our current growing pipeline means we are well positioned to grow our business and deliver shareholder value going forward. We would like to thank shareholders for their support.

Stakeholder Engagement

The Board of Directors of the Abingdon group of companies (the "Group") considers that, individually and collectively, it has acted in the way which in good faith would be most likely to promote the success of the Group for the benefit of its stakeholders, employees, customers, suppliers, local government and communities in accordance with the stakeholder and matters noted in S172(1)(a-f) of the Act in the decisions taken during the year reported on, having regard to:

-- The likely consequences of any decision in the long term;

-- The interests of the Group's employees;

-- The need to foster the Group's business relationships with suppliers, customers and others;

-- The need to regularly communicate with our shareholders;

-- The impact of the Group's operations on the community and the environment;

-- The desirability of the Group in maintaining a reputation for high standards of business conduct; and

-- The need to act fairly between members of the Group.

The Board looked to promote the success of the Group, having regard to the long term, whilst considering the interests of all stakeholders. Our strategy is designed to secure the long-term financial viability of the Group to the benefit of its members and all stakeholders. A main feature of this is to continue to operate the business within tight budgetary controls and in line with regulatory requirements. During the year this was done by reference to:

-- our continued and ongoing communication with our employees;

-- our continued and ongoing communication with our shareholders;

-- our continued priority for health and safety improvement measured through ongoing risk assessments;

-- the approval of our strategic objectives ('our strategy') for the Group; and

-- the business plan for the next financial year ('our plan').

Stakeholder interests are considered by the Board through a combination of methods.

Shareholders

We communicate with our shareholders through planned investor relation activities, Regulatory News Service ("RNS") announcements and the publication of our annual and half year reports. Through this we ensure our shareholders are provided with insight into the Group strategy and how we create value that will generate strong and sustainable results. We also engage with shareholders through the AGM, one on one investor meetings and discussions with shareholders where appropriate. The Board were mindful to inform shareholders of the progress of both the DHSC dispute and the GLP legal case throughout.

Customers

Our customers are central to the strategic goals of the Group, and we strive to deliver products that meet not only their specific needs, but the highest applicable regulatory standards. We engage regularly with our customer base and conduct annual customer experience surveys, taking action where appropriate. We also meet our customers' needs by maintaining facilities that are compliant to appropriate quality and regulatory standards and have dual site capability as part of our disaster recovery planning.

Employees

We appreciate the value of diversity within our employee base and recognise that the skills and knowledge of our employees is a key part of creating value within the organisation. We strive to create a friendly and open culture within the Group, holding regular all-staff calls led by either the CEO, CFO or COO and encourage career progression within the Group.

The Group conducts an annual employee feedback survey, the results of which are reported to the Board and fed back to the employees along with any resulting actions. The Group has also encouraged the creation of an Employee Forum to more directly communicate both employee thoughts, considerations and needs to the senior management.

Open door sessions have also been conducted during the year to ensure open communication regarding matters such as health and safety and COVID-19 concerns.

The business had hopes that the changes made to the people infrastructure during the last fiscal year would see an end to the reduction in our headcount, but unfortunately we reluctantly entered into additional redundancy consultations with employees in roles that were identified 'at risk' during the 2021/22 fiscal year. This process has enabled the business to right size itself for the short- and medium-term opportunities that it predicts most likely to occur, whilst remaining nimble enough to respond to changes in forecasts going forwards. At every stage of the process employees were kept informed and provided with appropriate support.

   Dr Chris Hand                                               Chris Yates 
   Non-Executive Chairman                           Chief Executive Officer 

24 November 2022

Operating and Financial Review

Revenue and Margins

In the year revenue fell 76% to GBP2.8m (2021: GBP11.6m). Excluding DHSC revenue from the prior year, revenue fell 56%.

Revenue by Geographical Market

 
 
    Geographical     2022              2021             Growth/ 
    Market            GBPm     %        GBPm    %        (Decrease) 
-----------------  --------  ------  -------  ------  ------------- 
  UK                  1.4      50%     6.6      57%     (79)% 
  USA/Canada          0.2      6%      3.4      29%     (95)% 
  Europe              1.0      38%     1.5      13%     (31)% 
  ROW                 0.2      6%      0.1      0%      185% 
  Total               2.8      100%    11.6     100%    (76)% 
------------------  -------  ------  -------  ------  ------------- 
 
 

Revenue by Operating Segment

 
                             2022             2021             Growth/ 
  Operating Segment           GBPm    %        GBPm    %        (Decrease) 
-------------------------  -------  ------  -------  ------  ------------- 
  Products                   0.4      16%     8.3      72%     (95)% 
  Contract Manufacturing     1.1      40%     1.7      15%     (37)% 
  Contract Development       1.3      44%     1.6      13%     (14)% 
  Total                      2.8      100%    11.6     100%    (76)% 
-------------------------  -------  ------  -------  ------  ------------- 
 
 

Contract Manufacturing (manufacture of products to a defined specification leading to recurring revenues, secured by customer contracts) fell 34% over the period, predominantly due to two customer products and their customer-supplied components requiring additional design activity, leading to a GBP0.4m year on year reduction in sales. Both products are scheduled to return to production in H2 22/23.

Product sales (own products that are part of our product catalogue that can be ordered via the website or through a network of distributors) reduced to GBP0.4m in the relevant period. 21/22 sales include DHSC revenue of GBP5.2m and GBP2.8m of sales to a customer in the USA of our PCRD product for incorporation into their own device. Excluding these non- repeating customers, like for like sales fell 7%.

Contract Development (R&D activity based on a day rate, developing and scaling up customer products as a fee for service) decreased 21%, It is important to note that whilst revenue for scale up to manufacture would typically be expected to lead to meaningful Contract Manufacturing revenue, three customers in this area subsequently failed to move into manufacture for customer-related reasons.

Gross margin in the financial year was (116)%, though this includes provisions for stock write off of GBP3.7m, mainly relating to Abingdon owned AbC-19 stock and an increase in provisions for obsolete items. Adjusting for this one-off charge, underlying gross margin was 3%. This direct gross profit margin continued to be impacted by the reduced level of manufacturing output in relation to the labour overhead, carried due the expectation that contracts would transition into contract manufacturing in the early new year. As previously explained, this did not happen and this overhead has since been reduced.

Adjusted EBITDA

The Group uses adjusted EBITDA as this excludes items which can distort comparability as well as being the measure of profit that most accurately reflects the cash generating activities of the Group. The reconciliation of these adjustments is as follows:

 
                                           Year Ended       Year Ended 
                                            30 June 2022     30 June 2021 
                                            GBP'000          GBP'000 
  Adjusted EBITDA                          (9,997)          (3,256) 
  Share based payment expense              (231)            (1,367) 
  Impairment charges                       (7,192) 
  Non-recurring legal and professional 
   fees                                    (688)            (257) 
  Non-recurring employee costs             (198)            (188) 
  Listing costs                                             (903) 
  DHSC related costs                       (1,585) 
  Net Finance costs                        (65)             (234) 
                                         ---------------  --------------- 
  Statutory EBITDA                         (19,956)         (6,205) 
                                         ---------------  --------------- 
  Amortisation                             (121)            (42) 
  Depreciation                             (1,516)          (707) 
                                         ---------------  --------------- 
  Operating Loss                           (21,593)         (6,954) 
                                         ---------------  --------------- 
 

Adjusted EBITDA loss in the period was GBP10.0m (2021: loss GBP3.3m).

Headcount in the Group was an average of 130 (2021: 151) peaking at 133 in the reporting period. Consequently, staff costs overall reduced to GBP5.3m (2021: GBP7.4m) reflecting the full year impact of the reduction in heads implemented during the previous year, and the savings associated with the second redundancy programme in the current fiscal year. Exceptional costs of GBP0.2m were incurred in the year due to this redundancy programme.

Professional costs in the year were GBP1.5m (2021: GBP1.9m). This falls to GBP0.6m when excluding non-recurring costs associated with the fund raise, completed in December 2021, legal costs associated with the DHSC and the GLP challenge and costs incurred in pursuing acquisition opportunities, subsequently aborted. Legal costs within the financial year relating to the contractual dispute with the DHSC totalled GBP0.2m, and the costs associated with the GLP legal case were GBP0.3m.

Obsolescence provisions totalling GBP3.7m have been made in the period. These predominantly fall into two categories, being those non AbC-19(TM) raw materials (GBP1.0m) that fall into ageing categories under which we automatically provide against and certain finished goods and semi-finished goods relating to AbC-19(TM) (GBP2.7m) which are flagged as obsolete as we continue to review this product's place in the current market. Stock holding continues to be an area of focus to both support customer requirements and control working capital. Separate provisions have been made in exceptional costs for the DHSC owned stock which transferred to Abingdon as part of the settlement agreement (see Note 5).

Impairment of Assets

The Directors have compared the projected results of the Group to the carrying value of its property, plant and equipment, which is considered to form a single cash generating unit ("CGU") for impairment testing purposes. The Group had invested heavily in growing the capacity of the Group in anticipation of the DHSC contract fulfilment, along with associated contracts.

The future cashflows were tested on a group basis, which showed an estimated present value of future cashflows into perpetuity of GBP1.8m, representing an overall impairment of GBP7.2m. This was discounted at a rate of 23.7% and with a long-term growth normalising at 3.0%. The Directors also performed a complementary check of the expected capacity modelling for each key machine, which approximated to the outcome of the cashflow model.

The impairment has been charged first to goodwill to eliminate this, with the remainder of the charge allocated first to reduce the value of right of use assets and leasehold improvements to a fixed level, and then pro-rated across all other assets, excluding new intangible assets in two subsidiaries.

Cash Resources

Net cash outflow from operating activities was GBP7.7m (2021: outflow GBP12.9m). A reduction year-on-year in payables and the unwinding of the DHSC contract stock and payable amounts following the conclusion of the dispute being the main drivers.

The net proceeds from financing activities were from the completion of the fundraise in December 2021 when the Group raised money through a placing. Altogether this represented a net cash decrease of GBP2.6m when compared to the prior year, with a closing cash position of GBP2.4m (2021: GBP5.0m).

Financing

Post-year-end, the dispute with the DHSC was concluded and in July 2022 the business received GBP6.3m cash in full settlement of the disputed amounts. Cash at the end of October was GBP4.4m .

Earnings per Share

Earnings per share was a loss of 7.29p in the period and adjusted EPS was a loss of 3.43p in the same period.

 
                                                     EPS 
  Basic EPS                                          (7.29)p 
  Loss attributable to Shareholders                  GBP(21.6)m 
  Add: Share Based Payments                          GBP0.2m 
  Add: Non recurring legal fees                      GBP0.7m 
  Add: Non recurring employment costs                GBP0.2m 
  Add: impairment charge                             GBP7.2m 
  Add: Other Costs relating 
   to DHSC Settlement                                GBP1.6m 
  Add: Depreciation and Amortisation                 GBP1.6m 
  Add: Finance Costs                                 GBP0.1m 
  Adjusted Loss attributable to Shareholders         GBP(10.0)m 
  Adjusted EPS                                       (3.43)p 
----------------------------------------------     ------------ 
 

Principal Risks and Uncertainties

 
 
                          Indication 
    Risk                  of risk on           Impact and description         Mitigating actions 
                          prior year 
 
    Funding risk            Risk decrease      The cash position as           GBP6.3m was received from 
    and material            vs prior year      at 31 October 2022 is          the DHSC, with GBP1.5m of 
    uncertainty                                GBP4.4m                        this put in a blocked account 
    in relation                                                               pending the result of the 
    to Going Concern                                                          Good Law Project court case. 
                                                                              This has now concluded and 
                                                                              the funds have been released. 
 
                                                                              The Business continues to 
                                                                              grow its revenue generating 
                                                                              opportunities and has a 
                                                                              strategy in place to develop 
                                                                              long term relationships 
                                                                              from Contract Development 
                                                                              through to Contract Manufacturing. 
 
                                                                              Costs are also regularly 
                                                                              reviewed to ensure that 
                                                                              they are line with the needs 
                                                                              of the business and continue 
                                                                              to give the business sufficient 
                                                                              runway. 
                      -------------------  -----------------------------  -------------------------------------- 
 
    Infectious            Risk remains         A future escalation            Dual site manufacturing 
    Diseases              the same vs          in the spread of COVID-19      capability across the primary 
    and                   prior year           or another pandemic            manufacturing process in 
    business                                   type disease in the            both York and Doncaster. 
    interruption                               UK poses a threat to 
                                               the continuation of            Cross functional teams and 
                                               business operations            shift rotations creating 
                                               if there is a widespread       bubble environments to mitigate 
                                               infection in any of            the risk of people being 
                                               our facilities or amongst      unable to complete activities 
                                               the workforce.                 in either R&D or Operations. 
 
                                                                              Supply chain activities 
                                               This would also apply          are focused on managing 
                                               to risk in the Customer        both our relationships with 
                                               and Supplier profiles          suppliers, as well as these 
                                               where crucial components       risks through supply chain 
                                               and raw materials become       diversification and dual 
                                               scarce and difficult           sourcing considerations. 
                                               to import. 
                      -------------------  -----------------------------  -------------------------------------- 
 
 
 
                    Indication 
    Risk            of risk on           Impact and description             Mitigating actions 
                    prior year 
 
    Regulatory        Risk remains       As a business that supplies        We have a team of Quality 
    Approval          same vs prior      to international Customers         and Regulatory specialists 
                      year               a significant proportion           in house who can work on 
                                         of the products where              multiple registrations in 
                                         we are acting as Legal             parallel to increase the 
                                         Manufacturer require               likelihood of approvals. 
                                         registration from multiple 
                                         regulatory bodies prior            Our EU representative for 
                                         to being offered for               our products, Advena, have 
                                         sale.                              offices in Malta and the 
                                                                            UK and advise on EU specific 
                                         There is no guarantee              matters and IVDR. 
                                         that any product registration 
                                         by the Group will be 
                                         successful and failure 
                                         to do so could have 
                                         a major impact upon 
                                         the Group's ability 
                                         to sell products in 
                                         the relevant country. 
                -------------------  ---------------------------------  ------------------------------------- 
 
    Revenue         Risk remains         If Revenue Growth is               Strategic plan to bring 
    Growth          the same vs          not continuously achieved          more Research and Technical 
                    prior year           there is a risk that               Transfer stage projects 
                                         capacity will be under             through the R&D Team. This 
                                         utilised.                          generates revenue in the 
                                                                            short term and will lead 
                                                                            to longer term sustainable 
                                                                            relationships with customers. 
                                                                            The number and quality of 
                                                                            customers in this area is 
                                                                            high, giving the Board sufficient 
                                                                            confidence in achieving 
                                                                            sales growth. 
 
                                                                            Use of automated lateral 
                                                                            flow assembly equipment 
                                                                            with versatile equipment 
                                                                            which can changeover product 
                                                                            types and increase the throughput 
                                                                            in Operations. 
                -------------------  ---------------------------------  ------------------------------------- 
 
 
 
                       Indication 
    Risk               of risk on         Impact and description             Mitigating actions 
                       prior year 
 
    Key Employees      Risk remains       The Group operates in              The Group offers competitive 
                       same vs prior      an industry where recruitment      salary and benefits packages 
                       year               and retention of talented          to employees. 
                                          employees is crucial 
                                          in being able to deliver           Our personal development 
                                          the strategic objectives.          review process aids in both 
                                                                             identifying areas of focus 
                                          Talent pools in the                and success, as well as 
                                          industry are not as                identifying talented individuals 
                                          immediately available              and the program of training 
                                          as they may have been              that is needed to help them 
                                          12-24 months ago so                and the business achieve 
                                          the Group must be proactive        its highest potential 
                                          in talent attraction. 
 
                                          Recent redundancies 
                                          have meant that the 
                                          Group have had to work 
                                          harder to retain and 
                                          attract in an already 
                                          difficult market. 
                   -----------------  ---------------------------------  -------------------------------------- 
 
    Supply Chain       Risk remains       The supply chain is                Contractual arrangements 
                       same vs prior      subject to price movements         in place offer some mitigation 
                       year               due to inflationary                for component pricing. 
                                          pressure as well as 
                                          other potential factors            Suppliers are measured with 
                                          such as COVID related              robust key performance indicators, 
                                          transport cost increases.          with our highest-level suppliers 
                                                                             being audited by our quality 
                                          This may lead to increasing        assurance team annually. 
                                          prices for goods as                Supply of stock to achieve 
                                          well as increased lead             on time delivery to customers 
                                          times for critical components      is managed robustly to ensure 
                                                                             that we meet our customers' 
                                                                             needs without holding unrequired 
                                                                             amounts of stock. 
 
                                                                             Where managing supply chain 
                                                                             activities for new products 
                                                                             and customers, the team 
                                                                             recognise that there is 
                                                                             a balance between the pricing 
                                                                             of components and their 
                                                                             availability due to location 
                                                                             of manufacture. This is 
                                                                             managed accordingly with 
                                                                             appropriate stockholding 
                                                                             or dual sourcing where possible. 
                   -----------------  ---------------------------------  -------------------------------------- 
 

Going concern

The Directors have prepared cash flows for the foreseeable future, being a period of at least 12 months from the expected date of approval of the financial statements and continue to evaluate financial forecasts. The Group continues to focus on securing sales of existing and new products, partnering with other Companies to develop products for manufacture and transition these in a timely manner. At 30 June 2022 the bank balance was GBP2.4m. Post year end, GBP6.3m was received from the DHSC in full settlement of the outstanding monies owed from the three contracts in dispute. Cash at the end of October was GBP4.4m. This draws to a conclusion all the contractual commitments in those relationships.

The Board is satisfied that based on current forecasts, there is sufficient headroom and concluded that it is appropriate to prepare the Annual Report and Accounts on a going concern basis.

Events after the reporting date

Following the signing of the settlement agreement on the 22nd June, the monies agree, being GBP6.3m, were paid in full with GBP1.5m being put aside in a blocked account pending the conclusion of the judicial review. This money has now been released in full to Abingdon.

Consolidated Statement of Comprehensive Income

For the Year Ended 30 June 2022

 
                                                           Year ended    Year ended 
                                                              30 June       30 June 
                                                  Notes          2022          2021 
                                                              GBP'000       GBP'000 
 
  Revenue                                       1               2,835        11,618 
 
  Cost of sales                                               (6,427)       (7,475) 
                                                         ------------  ------------ 
  Gross (loss)/profit                                         (3,592)         4,143 
 
  Administrative expenses                                     (6,645)       (7,547) 
  Other income                                                    240           148 
 
  Adjusted EBITDA (before adjusting items)                    (9,997)       (3,256) 
 
  Amortisation                                                  (121)          (42) 
  Depreciation                                                (1,516)         (707) 
  Impairment charges                                          (7,192)             - 
  Share based payment expense                                   (231)       (1,367) 
  Non-recurring legal, professional and 
   fundraising fees                                             (688)         (257) 
  Listing costs                                                     -         (903) 
  Non-recurring redundancy costs                                (198)         (188) 
  Other exceptional costs relating to 
   DHSC settlement                              5             (1,585)             - 
--------------------------------------------  ---------  ------------  ------------ 
 
  Operating loss                                             (21,528)       (6,720) 
 
  Finance income                                                    4             - 
  Finance costs                                                  (69)         (234) 
                                                         ------------  ------------ 
 
  Loss before taxation                                       (21,593)       (6,954) 
 
  Taxation credit/(charge)                      2                 331          (19) 
 
  Loss for the financial period                              (21,262)       (6,973) 
                                                         ------------  ------------ 
 
    Other comprehensive income for the year 
    net of tax                                                      -             - 
                                                         ------------  ------------ 
 
  Total comprehensive loss for the year                      (21,262)       (6,973) 
                                                         ------------  ------------ 
 
 
  Attributable to: 
   Equity holders of the parent                              (21,262)       (6,973) 
                                                         ------------  ------------ 
 
 
  Basic earnings per share (pence)       4    (7.29)    (2.65) 
                                            --------  -------- 
 
  Diluted earnings per share (pence)     4    (7.29)    (2.65) 
                                            --------  -------- 
 

Consolidated Statement of Financial Position

As at 30 June 2022

 
                                                Notes     30 June    30 June 
                                                             2022       2021 
                                                          GBP'000    GBP'000 
 
  Non-current assets 
  Goodwill                                                      -        763 
  Other intangible assets                                      36        465 
  Property, plant, and equipment                            1,777      9,041 
                                                            1,813     10,269 
 
  Current assets 
  Inventories                                                 534      7,888 
  Trade and other receivables                               7,844      9,978 
  Income tax receivable                                       183        115 
  Cash and cash equivalents                                 2,397      4,977 
                                                       ----------  --------- 
                                                           10,958     22,958 
                                                       ----------  --------- 
 
  Total assets                                             12,771     33,227 
                                                       ----------  --------- 
 
  Current liabilities 
   Trade and other payables                                 5,059     10,405 
  Borrowings                                                  115        125 
  Obligations under leases                                    150        227 
                                                            5,324     10,757 
 
  Non-current liabilities 
  Borrowings                                                  435        367 
  Obligations under leases                                    580        776 
                                                            1,015      1,143 
 
  Total liabilities                                         6,339     11,900 
 
  Net assets                                                6,432     21,327 
                                                       ----------  --------- 
 
  Equity 
  Attributable to the owners of the parent: 
  Share capital                                 6              76         69 
  Share premium                                            30,309     24,180 
  Share based payment reserve                   6             153         44 
  Retained losses                                        (24,106)    (2,966) 
                                                       ----------  --------- 
  Total equity                                              6,432     21,327 
                                                       ----------  --------- 
 

Consolidated Statement of Changes in Equity

For the Year Ended 30 June 2022

 
                                  Share    Share premium       Share     Retained      Total equity 
                                Capital                        based     earnings      attributable 
                                                             payment                      to owners 
                                                             reserve                  of the parent 
                                GBP'000          GBP'000     GBP'000      GBP'000           GBP'000 
  Balance at 1 July 2020             15           13,195          70     (10,531)             2,749 
 
  Year ended 30 June 2021: 
  Profit and loss                     -                -           -      (6,973)           (6,973) 
                             ----------  ---------------  ----------  -----------  ---------------- 
  Total comprehensive loss 
   for the year                       -                -           -      (6,973)           (6,973) 
  Other movements: 
  Capital reduction                   -         (13,145)           -       13,145                 - 
  Bonus share allotment              46             (46)           -            -                 - 
  Share option expenses               -                -       1,367            -             1,367 
  Share options vested                1                -       (973)          973                 1 
  Share options cancelled             -                -       (420)          420                 - 
  Conversion of loan notes            1            3,481           -            -             3,482 
  Shares issued on listing            6           21,994           -            -            22,000 
  Cost of issue of shares             -          (1,299)           -            -           (1,299) 
 
  Balance at 30 June 2021            69           24,180          44      (2,966)            21,327 
                             ----------  ---------------  ----------  -----------  ---------------- 
 
  Year ended 30 June 2022: 
  Profit and loss                     -                -           -     (21,262)          (21,262) 
                             ----------  ---------------  ----------  -----------  ---------------- 
  Total comprehensive loss 
   for the year                       -                -           -     (21,262)          (21,262) 
  Other movements: 
  Share option expense                -                -         231            -               231 
  Share options exercised             -                -        (10)           10                 - 
  Share options cancelled             -                -       (112)          112                 - 
  Issue of shares                     7            6,493           -            -             6,500 
  Cost of issue of shares             -            (364)           -            -             (364) 
 
  Balance at 30 June 2022            76           30,309         153     (24,106)             6,432 
                             ----------  ---------------  ----------  -----------  ---------------- 
 

Consolidated Statement of Cash Flows

For the Year Ended 30 June 2022

 
                                                 30 June     30 June 
                                                    2022        2021 
                                                 GBP'000     GBP'000 
 
  Cash flows from operating activities: 
  Loss for the year                             (21,262)     (6,973) 
  Adjustments for: 
 
  Other income                                     (240)       (148) 
  Net finance costs                                   65         234 
  Tax (credit)/charge                              (331)          19 
  Amortisation and impairment of intangible 
   assets                                          1,270          42 
  Share based payments                               231       1,367 
  Depreciation and impairment of property, 
   plant and equipment                             7,559         707 
  Loss on disposal of property, plant                240           - 
   and equipment 
  Impairment of Inventories (including              9676           - 
   DHSC) 
 
  Changes in working capital: 
  Decrease/(increase) in inventories               2.322     (7,109) 
  Decrease/(increase) in trade and 
   other receivables                               2,134     (8,103) 
  (Decrease)/increase in trade and 
   other payables                                (5,170)       7,033 
 
  Cash used in operations                        (8,150)    (12,931) 
  Interest paid (including leases)                  (58)        (51) 
  Income taxes received                              323         106 
  Insurance claim proceeds                           146           - 
 
  Net cash outflow from operating 
   activities                                    (7,739)    (12,876) 
 
  Interest received                                    4           - 
  Purchase of intangible assets                     (78)        (71) 
  Internally capitalised development 
   costs                                               -       (419) 
  Purchase of property, plant and equipment        (682)     (6,761) 
  Proceeds on disposal of property, 
   plant and equipment                                 -           8 
  Payment of deferred consideration                    -        (32) 
 
  Net cash used in investing activities            (756)     (7,275) 
                                              ----------  ---------- 
 

Consolidated Statement of Cash Flows

For the Year Ended 30 June 2022 (continued)

 
                                               30 June    30 June 
                                                  2022       2021 
                                               GBP'000    GBP'000 
 
  Financing activities 
  Proceeds from issue of own shares 
   (net of costs *)                              6,136     20,702 
  Cash withheld for SAYE scheme                    (7)          9 
  Proceeds from new bank loans and 
   borrowings                                      167        250 
  Payment of loans                               (125)       (19) 
  Payment of lease obligations                   (144)      (222) 
  Payment on settlement of accrued               (112)          - 
   lease obligations 
  Proceeds from issue of loan notes                  -         20 
                                             ---------  --------- 
 
  Net cash generated from financing              5,915     20,740 
                                             ---------  --------- 
 
 
    Net (decrease)/increase in cash 
    and cash equivalents                       (2,580)        589 
 
  Cash and cash equivalents at beginning 
   of the year                                   4,977      4,388 
                                             ---------  --------- 
 
  Cash and cash equivalents at end 
   of the year                                   2,397      4,977 
                                             =========  ========= 
 
  Recognised in the Statement of Financial 
   Position as: 
  Cash at bank and in hand                       2,397      4,977 
  Overdrafts                                         -          - 
                                             ---------  --------- 
                                                 2,397      4,977 
                                             ---------  --------- 
 

* Net of costs of GBP364,000 (2021 - GBP1,298,000) set against the share premium account only. In the prior year additional costs of admission to AIM are included within exceptional costs in the Statement of Comprehensive Income and are shown as Operating cashflows.

Abingdon Health PLC

Notes to the Financial Statements

For the Year Ended 30 June 2022

Company information

Abingdon Health PLC ("the Company") is a public limited company domiciled and incorporated in England and Wales. The Company is quoted on the London Stock Exchange's Alternative Investment Market ("AIM"). The registered office is York Biotech Campus, Sand Hutton, York, YO41 1LZ. The consolidated financial information (or "financial statements") incorporates the financial information of the Company and entities (its subsidiaries) controlled by the Company (collectively comprising the "Group").

The principal activity of the Group is to develop, manufacture and distribute diagnostic devices and provide consultancy services to businesses in the diagnostics sector.

Basis of preparation

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined by section 434 of the Companies Act 2006.

The financial information for the year ended 30 June 2022 and the year ended 30 June 2021 does not constitute the Company's statutory accounts for those years. Statutory accounts for the year ended 30 June 2021 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 June 2022 were approved by the Board on 23 November 2022 and will be delivered to the Registrar of Companies in due course. The statutory accounts for the period ended 30 June 2022 will be posted to shareholders at least 21 days before the Annual General Meeting and made available on the Group's website .

The Group's statutory financial statements for the year ended 30 June 2022, from which the financial information presented in this announcement has been extracted, were prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The financial statements have been prepared on the historical cost basis with the exception of certain items which are measured at fair value as disclosed in the principal accounting policies set out in the Group's Annual Report. These policies have been consistently applied to all years presented.

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from these estimates.

The auditor's reports on the accounts for 30 June 2022 and 30 June 2021 were unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. The auditor's report for the year ended 30 June 2021 did include a reference to a material uncertainty related to going concern, drawing attention to the fact that the Company was dependent on the recoverability of amounts owed by the Department of Health and Social Care which was being pursued through a dispute resolution process in the Contract, or was required to investigate further funding and reduce costs further in the near term, without qualifying their report. The opinion was not modified in respect of this matter. The auditor's report for the year ended 30 June 2020 did not draw attention to any matters by way of emphasis.

Judgements and key sources of estimation uncertainty

The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

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 and in any future periods affected.

Critical judgements

The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements:

Right of use asset recognition

Management have assessed each lease liability for recognition under IFRS 16 and recognised a right of use asset where appropriate.

One lease includes a material component of service charge by comparison to the headline rental payments, where this service charge partially covers shared areas and facilities which would normally form part of a rental price. The Directors have applied judgement in splitting this service charge into rent-like components of GBP24,000 per annum (which qualify for capitalisation as a right of use asset), utility fees of GBP104,000 per annum, and ongoing shared costs of GBP72,000 per annum (which the latter two do not qualify for capitalisation as a right of use asset, nor recognition as a lease liability). The lease runs for a 7-year term and the total value of rent-like components capitalised (prior to amortisation) is GBP161,000.

Revenue recognition

In line with IFRS 15 management are required to determine appropriate revenue recognition points for all revenue streams. Where multiple contracts are entered into with a single counterparty any instalment payments are not considered to be a key indicator of the satisfaction of a performance obligation, although linked contracts with a counterparty are considered in conjunction when identifying the appropriate point for revenue recognition.

Key sources of estimation uncertainty

The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows:

Valuation of intangible assets (Group 2022: GBP36,000; 2021: GBP465,000)

Management judgements are required to estimate the useful lives of intangible assets, having reference to future economic benefits expected to be derived from use of the asset. Economic benefits are based on the fair values of estimated future cash flows.

Management further test the assets for impairment on an annual basis, by reference to future plans and expectations for group revenues and profits. An impairment of GBP386,000 has been recognised against intangible assets during the year

Valuation and impairment of cash generating units (including goodwill)

Goodwill is tested annually for impairment as part of a cash generating unit ("CGU"). The test considers future cash flow projections of each CGU on a group basis, as the group as a whole is considered to be a single CGU. In the current year, two tests have been performed, a discounted cash flow model and a value-in-use model, which have both approximated to the same value.

Where the discounted cash flows are less than the carrying value of the CGU, an impairment charge is recognised for the difference.

Share based payments

The determination of the fair values of EMI and SAYE options has been made by reference to the Black-Scholes model.

Going concern

In their assessment of the Group's ability to continue as a going concern, the Directors have considered the principal risks and uncertainties facing the business, along with the Group's objectives, policies and processes for managing its exposure to financial risk. In making this assessment the Directors have prepared cash flows for the foreseeable future, being a period through to 30 June 2024, and continue to evaluate financial forecasts for revenue, expenditure and cash flows.

Net cash at the end of the year was GBP2.4m, and the group received GBP6.3m in full and final settlement of the DHSC outstanding amounts in July (post year-end). Cash at the end of October was GBP4.4m.

As set out above, the business continues to focus on securing sales of existing and new products, and in particular are seeing an uplift in the amount of CDMO customers we are in meaningful discussions with, which should lead to repeatable revenue, driving top line growth in the Group.

Having considered all the above, the Directors have prepared the financial statements on a going concern basis.

Non-recurring income and costs

The Group seeks to highlight certain items as exceptional operating income or costs. These are considered to be exceptional in size, frequency and/or nature rather than indicative of the underlying day to day trading of the Group. These may include items such as acquisition costs, restructuring costs, obsolescence costs, employee exit and transition costs, legal costs, profits or losses on the disposal of subsidiaries, and loan impairments. All of these items are charged or credited before calculating operating profit or loss.

The Directors apply judgement in assessing the particular items, which by virtue of their size and nature are disclosed separately in the Statement of Comprehensive Income and the notes to the financial statements as non-recurring income and costs. The Directors believe that the separate disclosure of these items is relevant to understanding the Group's financial performance.

Guarantees, commitments and contingent liabilities

At 30 June 2022, the Group and Company had no contingent liabilities (2021 - none).

At 30 June 2022 the Group had contracted for capital commitments of approximately GBPnil (2021 - GBP0.8 million). These amounts have not been reflected in the financial statements.

   1.         Revenue 

The Group applies IFRS 15 'Revenue from contracts with customers'. Under IFRS 15, the Group applies the 5-step method to identify contracts with its customers, determine performance obligations arising under those contracts, set an expected transaction price, allocate that price to the performance obligations, and then recognises revenues as and when those obligations are satisfied.

Segmental analysis of revenue

 
                                                     2022       2021 
                                                  GBP'000    GBP'000 
 
  Product sales                                       465      8,360 
  Contract Manufacturing                            1,124      1,690 
  Contract Development                              1,246      1,568 
  Total revenue from contracts with customers       2,835     11,618 
                                                ---------  --------- 
 

Revenue analysed by geographical market

 
                        2022       2021 
                     GBP'000    GBP'000 
 
  United Kingdom       1,417      6,596 
  Europe               1,072      1,560 
  USA & Canada           182      3,405 
  Rest of World          164         57 
                   ---------  --------- 
                       2,835     11,618 
                   ---------  --------- 
 

All revenue received in the current and comparative years has been recognised at a point in time in accordance with the Group's revenue recognition policy.

   2.            Taxation 

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

 
                                               2022       2021 
                                            GBP'000    GBP'000 
  Current tax 
  UK Corporation tax on profits for the 
   current year                                   -         19 
  Adjustments in respect of prior years       (331)          - 
  Total current tax                           (331)         19 
 
  Deferred tax 
  Origination and reversal of temporary           -          - 
   differences 
                                          ---------  --------- 
  Impact of change in tax rates                   -          - 
                                          ---------  --------- 
  Total deferred tax                              -          - 
                                          ---------  --------- 
  Total tax (credit)/charge                   (331)         19 
                                          ---------  --------- 
 

The charge for the year can be reconciled to the profit per the Consolidated Statement of Comprehensive Income as follows:

 
                                                         2022       2021 
                                                      GBP'000    GBP'000 
  (Loss) before taxation                             (21,593)    (6,954) 
                                                   ----------  --------- 
 
  Expected tax (credit) based on a corporation 
   tax rate of 19% (2021 - 19%) 
   (2019 - 19%)                                       (4,103)    (1,321) 
  Tax effect of expenses that are not deductible 
   in determining taxable profit                          717        228 
  Depreciation on assets not qualifying for 
   tax allowances                                         316         94 
  Change in unrecognised deferred tax asset             3,072      1,629 
  Share based payments                                     44      (705) 
  Prior Year Adjustment                                 (331)          - 
  Other differences                                      (46)         94 
 
  Total tax (credit)/charge                             (331)         19 
                                                   ----------  --------- 
 

The UK corporation tax rate was 19% throughout the year.

On 3 March 2021, the Chancellor of the Exchequer announced that the main rate of corporation tax in the United Kingdom will rise to 25% with effect from 1 April 2023 for companies earning annual taxable profits in excess of GBP250,000. Deferred tax balances at the reporting date are therefore measured at 25% (2021: 25%; 2020: 19%).

   3.         Dividends 

No dividends were paid in the current or prior year.

   4.            Earnings per share 

The calculation of the basic and diluted earnings per share is based on the following data:

 
                                                    2022           2021 
  Earnings used in calculation (GBP'000)        (21,262)        (6,973) 
  Weighted average number of ordinary 
   shares                                    291,622,638    262,926,110 
  Basic EPS (pence/share)                         (7.29)         (2.65) 
  Weighted average number of dilutable 
   shares                                    291,622,638    262,926,110 
  Diluted EPS (pence/share)                       (7.29)         (2.65) 
 

The diluted EPS is the same as the Basic EPS as there is a loss for each of the periods concerned.

In each period there were share options outstanding. As at 30 June 2022, options which are out of the money are excluded from the calculation of the weighted average number of dilutable shares.

The Directors use adjusted earnings before certain non-recurring costs ("Adjusted Earnings") as a measure of ongoing performance and profitability. These non-recurring costs are presented as separate items on the face of the Consolidated Income Statement.

The calculated Adjusted Earnings for the current and comparative periods are as follows:

 
                                                   2022       2021 
                                                GBP'000    GBP'000 
  Loss before taxation attributable to 
   equity owners of the Parent                 (21,593)    (6,954) 
  Share-based payment costs                         231      1,367 
  Impairment charges                              7,192          - 
  Non-recurring legal fees                          688        257 
  Listing costs                                       -        903 
  Non-recurring employee redundancy costs           198        188 
  Exceptional costs relating to settlement        1,585          - 
   of DHSC contract (see note 5) 
  Depreciation and amortisation                   1,638        749 
  Finance costs                                      69        234 
 
  Adjusted Earnings                             (9,992)    (3,256) 
                                             ----------  --------- 
 
  Basic and diluted Adjusted Earnings 
   per share (pence/share)                       (3.43)     (1.25) 
 

The calculation of Adjusted Earnings is consistent with the presentation of Adjusted Earnings before Interest, Tax, Depreciation, and Amortisation, as presented on the face of the Statement of Comprehensive Income. This adjusted element also removes non-recurring items, as explained further above. The Directors have presented this Alternative Performance Measure ("APM") because they feel it most suitably represents the underlying performance and cash generation of the business, and allows comparability between the current and comparative period in light of the rapid changes in the business (most notably its admission to AIM and associated costs), and will allow an ongoing trend analysis of this performance based on current plans for the business.

5. Impact of Department of Health and Social Care ("DHSC") Contract on the Income Statement (IS) and the Statement of Financial Position ("SFP")

Following the long-standing dispute between the Company and DHSC, which was disclosed in note 16 to the prior year's financial statements, the Company and DHSC signed a settlement agreement in June 2022. This resulted in the full and final payment of monies owed to the Company on 7 July 2022.

However, the settlement included a number of adjustments to the outstanding monies owed to the Company. All such adjustments have been recognised within the current year's financial statements as follows:

 
  Description of adjustment                     Location in financial                        IS Amount GBP'000 
                                                 statements 
                                                Exceptional costs 
  Acquisition and impairment of inventories      - DHSC                                                (5,536) 
  Relinquishing of payable to DHSC              Exceptional costs 
   for components                                - DHSC                                                  4,579 
  Credit loss arising on the outstanding        Exceptional costs 
   receivable from DHSC                          - DHSC                                                  (600) 
  Cancellation of accrued royalty               Exceptional costs 
   payments                                      - DHSC                                                      6 
                                                Exceptional costs 
  Interest received on overdue payment           - DHSC                                                    168 
                                                Exceptional costs 
  Other legal fees (see below)                   - DHSC                                                  (202) 
                                                                        -------------------------------------- 
  Net (expense) to IS                                                                                  (1,585) 
                                                                        -------------------------------------- 
 

Other legal fees include significant legal costs in defending the Company's position totalling GBP202,000, which have also been recognised within exceptional costs relating to the DHSC contract.

Following the adjustments described above, the Company has the following inclusions on its SFP as at the year end in relation to DHSC:

 
                                                       2022       2021 
  Group                                             GBP'000    GBP'000 
  Inventories                                             -      3,987 
  Trade receivables (inclusive of VAT but after 
   irrecoverable amounts)                             6,266      6,410 
  Contract liability                                      -    (5,308) 
  Net impact on SFP                                   6,266      5,089 
                                                  ---------  --------- 
 

The total net exposure was received in cash on 7 July 2022. The Company does not believe it has any further exposure to future costs or risks associated with this contract.

   6.            Share capital and reserves 
 
                                            2022           2021 
  Ordinary share capital 
  Authorised                              Number         Number 
  Ordinary shares of 0.025p each     121,711,614     95,699,114 
  Deferred shares of 0.025p each     182,316,812    182,316,812 
                                   -------------  ------------- 
                                     304,028,426    278,015,926 
                                   -------------  ------------- 
 
  Allotted and fully paid                 Number         Number 
  Ordinary shares of 0.025p each     121,711,614     95,699,114 
  Deferred shares of 0.025p each     182,316,812    182,316,812 
                                   -------------  ------------- 
                                     304,028,426    278,015,926 
 
                                         GBP'000        GBP'000 
  Ordinary shares of 0.025p each              31             24 
  Deferred shares of 0.025p each              45             45 
                                              76             69 
                                   -------------  ------------- 
 
 

On 21 December 2021 the Company raised GBP6.5 million (before expenses) by way of issuing 26,000,000 ordinary shares of 0.025 pence each at a premium of 25 pence per share.

On 25 May 2022 there was an exercise of options over 12,500 Ordinary shares of 0.025 pence each.

Reconciliation of movements during the year:

 
                                     Number 
 
  At 1 July 2021                278,015,926 
  Issue of shares                26,000,000 
  Exercise of share options          12,500 
  At 30 June 2022               304,028,426 
                              ------------- 
 

Reserves of the Company represent the following:

Share capital - Shares in the Company held by shareholders at a proportional level with equal voting rights per share.

Share premium - Excess over share capital of any investments.

Retained earnings - This comprises the accumulated trading results of the Group.

Share-based payment reserve - This reserve comprises the fair value of options share rights recognised as an expense. Upon exercise of options or performance share rights, any proceeds received are credited to share capital .

7. Share options

 
  Group & Company                    Number of share          Weighted average 
                                          options              exercise price 
                                   30 June        30 June    30 June    30 June 
                                      2022           2021       2022       2021 
                                    Number         Number        GBP        GBP 
 
  Outstanding at 1 July 2021       729,467        287,440     0.5071     0.0010 
  Granted                                -      2,049,275          -     0.2191 
  Forfeited                      (497,186)      (204,808)     0.5755     0.3355 
  Lapsed                                 -       (80,000)          -     0.0010 
  Exercised                       (12,500)    (1,322,440)     0.0003     0.0080 
 
  Outstanding at 30 June 
   2022                            219,781        729,467     0.3997     0.5071 
                               -----------  -------------  ---------  --------- 
 
  Exercisable at 30 June                 -              -          -          - 
   2022 
                               -----------  -------------  ---------  --------- 
 

12,500 options were exercised during the year.

The options outstanding at 30 June 2022 had an exercise price ranging from GBP0.00025 to GBP0.70 and a remaining contractual life of 1 year and 9 months. The options exist at 30 June 2022 across the following share option schemes:

 
                                   Number        Exercise    Fair value    Vesting 
                                of shares       price per     of scheme     period 
                                              share (GBP) 
  Options issued in April 
   2021                           104,174         0.00025       215,449     1 year 
  SAYE scheme commenced in 
   March 2021                     138,608            0.70       368,211    3 years 
                             ------------                  ------------ 
                                  242,782                       583,660 
                             ------------                  ------------ 
 

The fair value of the scheme is being expensed over the vesting period. All share options expire 10 years after the date of issue.

 
                                               Group                  Company 
                                         30 June     30 June     30 June     30 June 
                                            2022        2021        2022        2021 
                                         GBP'000     GBP'000     GBP'000     GBP'000 
  Expenses recognised in 
   the year 
   Arising from equity settled 
   share-based payment transactions          231       1,367          87       1,238 
                                      ----------  ----------  ----------  ---------- 
 

8. Annual Report & Accounts

The Company's Annual Report and Accounts for the year ended 30 June 2022 will be sent to shareholders on 28 November 2022 and is available on the Company's website www.abingdonhealth.com along with the Company's Notice of Annual General Meeting, which was sent to shareholders on 23 November 2022.

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November 24, 2022 02:00 ET (07:00 GMT)

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