By Samuel Indyk
Investing.com – Novacyt (LON:NCYT) has today announced the proposed accounting treatment of its ongoing dispute with the UK Department of Health and Social Care (DHSC) on its audited H1 results for the six months ended 30th June 2021. The results are scheduled to be announced on 27th September.
In April, the clinical diagnostics company announced that it was in dispute with the DHSC over its second supply contract for Covid-19 testing kits, adding at the time that around 50% of its Q1 revenue were driven by these sales.
The company has no further update to previous announcements in relation to the dispute and is continuing to work with its legal advisers to progress the dispute, believing it has strong grounds to assert its contractual rights.
Revenue Guidance
Novacyt is reiterating its revenue guidance, excluding the disputed DHSC revenue, for the full year of approximately £100 million, with an underlying EBITDA margin of approximately 40%. However, the full year EBITDA margin could be materially affected by the outcome of the DHSC dispute and the write down of inventory.
At the time of the half year update in August, Novacyt said that £40.8 million of revenue in H1 was in dispute with the DHSC. In line with IFRS 15 accounting standards, the company will not recognise the H1 revenue of £40.8 million from the DHSC as the dispute remains unsolved. The remaining £54.0 million revenue in H1 from non-DHSC sales remains unchanged.
In addition to not recognising the DHSC sales in its interim results, the company has decided to recognise manufacturing costs of £6.9 million, in relation to the sales.
The company is also taking an exceptional one-off cost of £28.9 million to write down inventory that had been built up in anticipation of further DHSC demand and to terminate supply commitments with third parties in respect of this supply that are no longer required.
At 09:11BST, shares in Novacyt were trading lower 5.1% at 324.9 pence per share.