EKF Diagnostics cuts guidance after installation delays

Shares in EKF Diagnostics fell on Tuesday morning after the medical diagnostic products manufacturer warned that increasing its fermentation capacity is taking longer than planned, and will result in a slower-than-expected acceleration in revenue growth over the medium term.

The life sciences division of EKF makes diagnostic enzymes and contracted custom products for use in medical diagnostics, pharmaceuticals and industry. Its facilities in Indiana use bacterial fermentation and downstream processes to isolate enzymes and biomolecules specially engineered to customers' specifications.

At the time of its 2022 full-year results in March, the Cardiff-based group said it expected to have its large 14,500-litre fermenter installed and operational by some time in the third quarter of 2023.

However, on Tuesday, EKF said the process of validating and verifying the fermenter "had not been sufficiently factored into current timescales for installed equipment to become fully operational".

"In addition, customer needs for downstream processing have become apparent, meaning that as a result of these factors only limited initial scale-up revenues will be generated from this additional capacity during FY 2023."

As such, EKF said it is removing any guidance for fermentation revenues this year and expects a "steadier build-up" of revenues during 2024 as capacity comes online and production projects start.

The company now expects group revenues to be just £53m for 2023, down from £66.6m in 2022, while adjusted EBITDA is forecast to fall to £10m from £14.9m.

"We remain very confident about the longer-term growth prospects from our newly expanded fermentation capacity, but believe it is prudent to reduce short-term guidance to reflect the revenue build now starting in 2024," said chair Julian Baines, who is now taking the position as executive chair. Baines has been a temporary executive chair since February as the company looked for a new chief exec, but that recruitment process has now been halted.

In a separate statement, the company also announced the appointment of a new chief financial officer, Steven Young, who has been working as a consultant at EKF for the past two months. He joins from Trellus Health where he served as interim CFO.

The stock was down 3.5% at 25.1p by mid-morning.