In 2018 we have been highly successful in achieving the operational goals we set ourselves at the beginning of the year. I am pleased to announce that we delivered 6.3% year on year organic growth excluding the effect of the completion of the Saudi Arabian Quo-Test contract which had contributed circa £1.6m more to revenues in 2017 than in 2018. The delivery of replacement revenues through new contract wins and additional organic sales growth has not only mitigated the impact of this source of revenue ending, but has allowed us to maintain overall revenue growth.

Operations

In 2018 we promised to deliver in five main areas to ensure we maintain sustainable organic growth for the foreseeable future, which were: -

1.    DiaSpect Tm FDA 510(k) CLIA Waiver.

2.    Delivery of a major contract alongside this clearance - the McKesson OEM contract in the US.

3.    Upgrade of our Elkhart (Indiana, USA) enzyme facility.

4.    Deliver a major contract alongside the upgrade - the Oragenics contract.

5.    FDA 510(k) clearance of Quo-Test.

I am proud to say that we have delivered on all the above, although the Quo-Test 510(k) clearance crept into 2019. The OEM contract with McKesson in the US for the DiaSpect Tm gives us an opportunity to quickly expand our haemoglobin Point-of-Care franchise in the US where we already have a strong foothold.

The Oragenics contract in Elkhart has enabled us to broaden our offering in pharmaceutical enzymes. The additional investment has led to a significant upgrade of the facility and we are now in a position to attract other partners alongside Oragenics.

Point-of-Care

One of the two main strands of EKF's business involves the development, manufacture, and sale of instruments and related consumables for use in the diagnosis of conditions in situations which are near-patient. They have the advantage of giving rapid results which can be communicated and acted on immediately, yet offer equivalent accuracy to laboratory based analysers.

Hematology

In 2018, sales of haematology products have risen by 6% to £13.7m (2017: £12.9m).

For many years our Hemo Control analyser range (sold in the USA as the HemoPoint H2) has been our best seller in this area. Following FDA 510(k) clearance for the DiaSpect Tm in point-of-care and CLIA waiver settings, we anticipate that future growth will be maintained globally.

Once we had clearance, we signed a private label distribution agreement with McKesson Medical-Surgical Inc., an affiliate of McKesson Corporation, one of the largest companies in the US by revenue, and one of the largest distributors of medical supplies, who will sell the Tm as the McKesson Consult® Hb analyser. Whilst this partnership is in its infancy we have already opened over 25 new accounts in the US.

Diabetes

Sales of diabetes products are down by 5% this year from £11.5m to £11.0m, due to the end of the Quo-Test contract in Saudi Arabia. Sales of Quo-Lab are up by 20%, and sales of Quo-Test excluding Saudi Arabia are up by 6%.

We were pleased to announce that the Quo-Test analyser has received US Food and Drug Administration 510(k) clearance for professional use in a clinical laboratory setting. This will allow us to enter the US market with this product.

Lactate Scout

Our new Lactate Scout 4 hand-held lactate analyser for fast and accurate sports performance monitoring was launched at the Medica 2018 show. Lactate Scout 4 is designed for use in the field as a training companion for individuals or sports teams. We are working to adapt our existing lactate technology for use in clinical settings. Having taken professional guidance, and consultations with interest groups including potential end users, we are determined to deliver the right solution for this market, which will involve adapting the base product to ensure good usability in this market, and subsequently carrying out some limited clinical trials.

Central Laboratory

The second main strand of EKF's business is the supply of reagents for use on central laboratory analysers. As an adjunct to this, we also sell our own range of laboratory standard analysers. In 2018, Central Laboratory sales were £13.3m, an increase of 5%.

During the year we signed a distribution agreement for Asahi Kasei's Glycated Albumin products. This has now been launched in the US and the first orders have been received.

We have continued to see strong performance from sales of Beta-Hydroxybutyrate (β-HB) Liquicolor reagent, which are up 10% in GBP terms. As mentioned earlier, our project to increase capacity and significantly upgrade our main wet chemistry site in Elkhart, Indiana has continued, and is expected to complete in 2019. The work we have done there has enabled us to sign an exclusive, multi-million dollar agreement with Oragenics, Inc., a Florida-based biopharmaceutical company, for the manufacturing of Oragenics' lantibiotic bulk drug substances in the United States. Under the collaboration agreement, EKF Diagnostics will manufacture compounds intended for preclinical and early stage clinical trials.

Regulatory update

Our major successes in 2018 have been the achievement of FDA 510(k) clearances for the DiaSpect Tm and Quo-Test. In addition, we have received regulatory approval for β-HB in both Mexico and Colombia, as well as registration of DiaSpect Tm in India. In China, we have had some successes but continue to work on the complex process of getting registrations in place. We continue to work using our own resources and with our partners to extend the span of our registrations.

sTNFR Project - Renalytix AI plc

There has been a longstanding unmet need in the field of End Stage Renal Disease ("ESRD"). Kidney disease costs the US Healthcare system over $40bn per annum in dialysis alone. In 2017 we started looking for ways to maximise the value of our sTNFR biomarker technology based around this unmet need. It soon became clear that there was a significant opportunity to use this as the springboard for a unique business with the ultimate aim being to develop and sell artificial intelligence enabled diagnostics for ESRD. It was also clear that it was best that this should be progressed entirely outside EKF. A team was put in place to take the new business forward, led by James McCullough. This team rapidly assembled a set of partners including the world - leading centre in the care of kidney disease, the Icahn School of Medicine at Mount Sinai ("ISMMS"). In early November 2018, £22.5m was raised with ISMMS becoming a major shareholder. The funds are primarily being used for the acquisition of licences from ISMMS, to develop the company's products and technology, for corporate purposes, and for general working capital. The Renalytix AI shares which EKF had received in return for its past investment and technology have been distributed to EKF shareholders, and the company has been floated separately on AIM. EKF retains an interest in the business having participated in the fundraising. A company as at the date of this statement valued at circa £75m, post admission to AIM, has been created, which the Directors believe has the potential to be a game changer in the diagnosis and treatment of ESRD.

Outlook

2018 has been a year in which we have achieved all our major milestones, including setting up a number of platforms for growth in 2019 and beyond. We are continuing to build a solid and reliable business with opportunities for significant growth, while ensuring excellent financial results.

Julian Baines

Chief Executive Officer

13 March 2019

Revenue

Revenue for 2018 was £42.5m (2017: £41.6m), which is an increase of 2%. At constant exchange rates, revenue for the year would have been 1% higher, so organic growth is over 3%, despite the ending of the large Saudi Arabia contract.

Revenue by disease state, which is presented for illustrative purposes only, is as follows:

Gross profit

Gross profit is broadly flat at £22.7m (2017: £22.9m), while the gross margin percentage on sales is 53.3% (2017: 55.0%). In 2017 there were releases of inventory provisions set in previous years; this did not recur in 2018.

Administration costs and research and development

Administration costs have fallen substantially, to £10.6m (2017: £18.2m), reflecting the focus on operational improvements. The biggest factor was the effect of exceptional items, which are again strongly positive in the year. The most important exceptional item this year is the substantial gain made on the Group's shares in Renalytix AI plc as a result of its successful separate flotation. The gain recognised in EKF's books is discounted to take account of the restrictions on the shares which were distributed to EKF's shareholders prior to the flotation. In addition to Renalytix, there was an exceptional gain following the satisfactory conclusion to a loan agreement with a former employee, offset by business restructuring costs. Excluding the effect of exceptional items, administration costs reduced from £19.7m in 2017, to £17.0m in 2018.

Research and development costs included in administration expenses were £1.6m (2017: £2.2m). A further £0.6m was capitalised as an intangible asset, bringing gross R&D expenditure for the year to £2.2m, a reduction from the expenditure in 2017 of £2.9m, largely caused by the completion of expenditure last year on the DiaSpect Tm FDA clearance process.

The charge for depreciation of fixed assets and amortisation of intangible assets reduced to £4.0m (2017: £4.6m). 2017 included an impairment charge relating to the closure of our Polish operations in that year.

Operating profit and adjusted earnings before interest, tax, depreciation and amortisation

The Group made an operating profit of £12.2m (2017: £4.7m). This again reflects the significant exceptional gain on Renalytix and other items, without which operating profit would have been £5.8m, still an increase of 23.4%. We continue to consider that adjusted earnings before interest, tax, depreciation and amortisation, share-based payments and exceptional items (adjusted EBITDA) is a better measure of the Group's progress because the Board believes it gives clearer comparability of operating performance between periods. In 2018 we achieved adjusted EBITDA of £10.7m (2017: £9.3m), an increase of 14.7%. The calculation of this non-GAAP measure is shown on the face of the income statement. It excludes the effect of non-cash share-based payment charges of £0.9m (2017: £1.5m), and exceptional profits of £6.5m (2017: £1.6m). The increase in adjusted EBITDA of £1.4m would be higher by £0.2m without the effect of exchange rates, with £1.6m therefore being attributable to improved underlying performance.

Finance costs

Net finance costs have reduced to £0.03m (2017: £0.42m). While interest costs on borrowings have continued to reduce, the main effect is a result of a lower charge associated with the change in fair value of deferred consideration.

Tax

There is an income tax charge of £1.9m, an increase from the 2017 charge of £1.4m. The charge is lower than would have been expected because of the utilisation of past tax losses.

Balance sheet

Property plant and equipment

Additions to fixed assets were £1.2m (2017: £1.4m). The major programme has been the continuing work on the upgrading and refurbishment of the Group's facility in Elkhart, USA, where many of the Group's central laboratory products are manufactured, including those being supplied to Oragenics.

Intangible assets

The carrying value of intangible assets has continued to fall, from £43.6m in 2017 to £41.8m as at 31 December 2018. This is largely the result of the annual amortisation charge. There was a £0.6m disposal of capitalised development costs which were sold to Renalytix AI plc.

Investments

As part of the fund raising for the Renalytix project, EKF agreed to invest the sum of £3.1m for 4.79% of Renalytix's enlarged (post IPO) share capital.

Deferred consideration

The remaining deferred consideration relates to a share-based payment to the former owner of EKF-Diagnostic GmbH, payment of which is subject to an offsetting warranty related claim, the value of which is held in receivables. Conclusion of the position has taken longer than anticipated but is expected during this year.

Cash and working capital

Despite the £3.1m investment in Renalytix and share buy-backs totalling £0.9m, net cash has increased from £7.0m to £9.4m. Gross cash has increased to £10.3m (2017: £8.2m). Borrowings, which were mainly used to fund a new building at our plant in Barleben, Germany, are reducing over the loan period to 2023, while the remaining balance of a loan from a former employee of EKF Molecular was written back.

Inventory has increased slightly from £5.6m to £6.1m due to a number of strategic decisions to increase raw material holdings to ensure continuity of supply. Trade and other receivables have dipped slightly, largely for non-trading reasons. Trade payables have increased, chiefly because of the effect of the increased liability relating to the cash settled share-based payments.

Richard Evans

Finance Director and Chief Operating Officer

13 March 2019

Consolidated Income Statement

FOR THE YEAR ENDED 31 DECEMBER 2018