NIOX GROUP PLC

(formerly Circassia Group plc)

("NIOX" or the "Company" 
and, together with its subsidiaries, the Group")

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022

Oxford, UK - 14 September 2022: NIOX Group plc (LSE: NIOX), a company engaged in the design, development, and commercialisation of medical devices for asthma diagnosis and management, today announces its unaudited interim results for the six months ended 30 June 2022 ("H1 2022").

Financial highlights

·    Underlying NIOX® revenue growth of 11% to £15.5 million (excluding the effect of a one-off revenue item of £0.6 million recognised in H1 2021)

·    The Group generated an adjusted EBITDA profit of £3.2 million (H1 2021: £0.3 million loss), reflecting improved margins and a substantial reduction in the cost base

·    Strong balance sheet with no debt and cash of £13.8 million as of 30 June 2022 (30 June 2021: £11.3 million, 31 December 2021: £12.6 million)

Financial progress

¹ Excludes depreciation, amortisation, impairment and share option charge.

² Earnings before interest, tax, depreciation, amortisation, impairment and share option charge. See note 12 for reconciliation.

³ Includes cash and cash equivalents.

Operational highlights

·      FDA approval for Beyond Air's LungFit® PH device received on 28 June 2022, initiating total milestone payments of $10.5 million over the next three years, with up to a further $6 million in royalty payments thereafter

·      Ongoing transition to distributor-led business model with new arrangements in the USA and China expected to drive scalable revenue growth

Post period end

·      Initial payment of $2.5 million received from Beyond Air on 24 August 2022

·      Net cash at 31 August 2022 increased to £17.6 million

·      The Company received approval from shareholders on 1 September 2022 to change its name from Circassia Group plc to NIOX Group plc

·      The Company will shortly be proposing a capital reduction scheme to shareholders for approval in order to provide flexibility to enable the Board to return surplus cash to shareholders, via dividends and/or share buybacks, if considered appropriate in the future

Ian Johnson, NIOX's Executive Chairman, said: "The Group has performed well in the first half of the year with good underlying growth in revenue and profits despite Covid-19 lockdowns persisting in China and the ongoing effects of Covid-19 on testing volumes in Japan. Cash generation remained strong with net cash at the half year of £13.8 million, up from £12.6 million at the end of 2021.  

Future revenue growth is likely to be driven by success in raising the awareness of the benefits of FeNO testing amongst clinicians, patients and drug developers, the continued expansion of our worldwide network of distributors and investing in the installed base of devices. The NIOX Group is now in a strong financial position to deploy its cash resources to invest in these areas and also to develop next generation devices, including a home-use device.

The second half has started well with revenues for July and August taken together up 25% on the same period in 2021. Margins remain strong and costs are continuing at a much-reduced level. The Board remains confident of achieving management expectations for the full year, which were significantly upgraded in July."

Contacts

NIOX

Ian Johnson, Executive Chairman                                                                Tel: +44 (0) 1865 405 560

Michael Roller, Chief Financial Officer

Singer Capital Markets (Nominated Adviser and Broker)

Aubrey Powell/ Jen Boorer                                                                           Tel: +44 (0) 20 7496 3000

About NIOX

Our ambition is to improve the quality of life of millions of people suffering from asthma. Asthma is one of the biggest healthcare issues globally with 340 million sufferers, many of whom are undiagnosed or misdiagnosed The Group is engaged in the design, development, and commercialisation of medical devices for the measurement of FeNO, a biomarker of inflammatory asthma. Our market leading device, NIOX VERO®, is increasingly recognised by healthcare professionals as an important tool to improve the diagnosis and management of asthma. NIOX VERO® is also the device of choice by leading clinical research organisations for respiratory studies. We passionately believe in empowering everyone to manage their health at home and will look to provide a device designed exclusively for home use. 

At present, NIOX provides products and services in around 50 countries. For more information, please visit www.investors.niox.com

The Group's interim results report is available online at www.investors.niox.com/investors/financial-reports/

Forward-looking statements

This press release contains certain projections and other forward-looking statements with respect to the financial condition, results of operations, businesses and prospects of NIOX. The use of terms such as "may", "will", "should", "expect", "anticipate", "project", "estimate", "intend", "continue", "target" or "believe" and similar expressions (or the negatives thereof) are generally intended to identify forward-looking statements. These statements are based on current expectations and involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. Any of the assumptions underlying these forward-looking statements could prove inaccurate or incorrect and therefore any results contemplated in the forward-looking statements may not actually be achieved. Nothing contained in this press release should be construed as a profit forecast or profit estimate. Investors or other recipients are cautioned not to place undue reliance on any forward-looking statements contained herein. NIOX undertakes no obligation to update or revise (publicly or otherwise) any forward-looking statement, whether as a result of new information, future events or other circumstances.

OPERATING REVIEW  

Introduction

The Group performed well in the first half of 2022 with revenues up 6% to £15.5 million (H1 2021: £14.6 million). Underlying revenues (excluding the effect of a one-off item of £0.6 million recognised in H1 2021) grew by 11%. The business made a profit at an adjusted EBITDA level of £3.2 million (H1 2021: £0.3 million loss).

Business review

NIOX is the market leader in point of care FeNO testing for the diagnosis and management of asthma. The NIOX VERO® device is approved in most major markets.  

Clinical sales grew by 12% to £13.0 million (H1 2021: £11.6 million, excluding the one-off item of £0.6 million). Recurring revenues from test kit sales provide good visibility of earnings and are typically 90% of total clinical sales. The clinical business has continued to recover from its low point in the second quarter of 2020 with underlying revenues now approximately 90% of pre-pandemic levels. 

In our major geographic regions, EMEA has experienced significant growth in H1 2022 and is now ahead of pre-pandemic levels whilst APAC and the Americas are yet to fully recover.

Research sales grew by 4% to £2.5 million (H1 2021: £2.4 million). Period comparisons are difficult given revenues more than doubled in the first half of 2021 (H1 2020: £0.9 million) as clinical trials resumed, adapting to the constraints imposed by the pandemic.

Discontinued operations

The discontinued COPD business generated a small profit of £0.3 million in the first half of the year (H1 2021: £1.1 million) as a result of the recognition of some rebate credits received in respect of prior periods.

The Group retains an accrual of £3.4 million (31 December 2021: £3.7 million) in respect of potential future rebate payments and £2.1 million (31 December 2021: £1.9 million) in respect of potential product returns. The level of rebate claims received in H1 2022 was £0.6 million and no claims for returns have been received since 30 June 2022. The remainder of the movement relates to exchange rate fluctuations.

Beyond Air

On 28 June 2022, Beyond Air, Inc. ("Beyond Air") confirmed that it had received approval from the U.S. Food and Drug Administration (FDA) for its LungFit® PH device.

As a result of this news and in accordance with the terms of a previously announced settlement agreement with Beyond Air, the Group is entitled to receive payments of $10.5 million in total, in three instalments as follows:

·      $2.5 million within 60 days of the approval of LungFit® by the FDA ("FDA approval") - received on 24 August 2022

·      $3.5 million within 60 days of the first anniversary of FDA approval

·      $4.5 million within 60 days of the second anniversary of FDA approval

In addition, the Group is entitled to a royalty of 5% of net sales of the device, commencing on the second anniversary of FDA approval and capped at a maximum of $6 million.

Energy prices and inflation

The Group does not manufacture its own products and accordingly energy costs are a very small component of total costs.  The effect of inflationary pressures on purchase prices from its two main suppliers is mitigated both by the group's high gross margins and its ability to implement price increases in the majority of its markets.

Outlook

Management is continuing to implement a growth strategy that will raise the awareness of the benefits of FeNO testing and significantly improve the availability of NIOX® worldwide by expanding distribution, optimising reimbursement and improving patient access. Exploring use in the home and availability in pharmacies and the workplace will further improve patient access as greater emphasis is placed on managing patients in non-hospital locations. The Group is now in a strong financial position to deploy its cash resources to invest in these areas. While mindful of these prospective investments which have the scope to enhance shareholder value materially from the increased use of NIOX® tests, the Company will shortly seek shareholder approval for a Court-sanctioned capital reduction. This will provide flexibility in due course to return any surplus cash beyond the needs of the business, by way of dividends and/or share buybacks.

The second half has started well with revenues in July and August taken together up 25% on the same period last year, margins remain strong and costs are well controlled. Notwithstanding continuing Covid-19 related lockdowns in China and ongoing restrictions in Japan, the Board remains confident of achieving the upgraded full year expectations and the longer term prospects for value creation in the NIOX Group.

FINANCIAL REVIEW

The first half of 2022 has been a period of continued recovery for NIOX following the Covid-19 pandemic.

¹ Earnings before interest, tax, depreciation, amortisation, impairment and share option charge. See note 12 for reconciliation.

Revenue

NIOX® revenues for the period were £15.5 million (H1 2021: £14.6 million) which include clinical sales of £13.0 million (H1 2021: £12.2 million, or £11.6 million excluding the effect of a one-off revenue item of £0.6 million) and research sales of £2.5 million (H1 2021: £2.4 million). NIOX® clinical revenue represents sales to physicians and hospitals for use in clinical practice and to the Company's distributors, while research revenue is from pharmaceutical companies and contract research organisations (CROs) for use in clinical studies.

The increase in NIOX® revenue was principally attributable to a recovery in testing volumes following the Covid-19 pandemic, with the exception of Japan and China where the impact of Covid-19 on testing volumes is ongoing.  

Gross profit

Gross profit on NIOX® sales was £11.0 million (H1 2021: £9.9 million), with a gross margin of 71% (H1 2021: 68%). Gross margin was higher than the prior period due to a greater proportion of higher margin test kit sales.

Sales and marketing

Sales and marketing costs decreased to £4.6 million (H1 2021: £6.7 million). There was a significant reduction in the number of dedicated NIOX® sales representatives across the Group during 2021, as a result of the decision to focus on a distributor-led sales model. This led to a much reduced run rate in sales and marketing costs at the end of 2021, which continued during H1 2022.

Other income

Other income has increased to £8.3 million (H1 2021: £0.1 million). £8.1 million (H1 2021: nil) relates to the recognition of the settlement consideration due from Beyond Air following FDA approval of the LungFit® PH product. The total settlement consideration of $10.5 million has been recognised, discounted to its present value at the balance sheet date. £0.2 million (H1 2021: £0.1 million) relates to sub-lease rental income in respect of the Chicago property.

Earnings per share

Basic and diluted profit per share for the period was 2.2p (H1 2021: 0.7p loss) reflecting a profit for the period of £9.2 million (H1 2021: £0.9 million loss), with the increase being the result of the business's improved profitability, largely due to the recognition of the consideration due from Beyond Air.

Excluding the impact of the Beyond Air consideration, basic profit per share for the period was 0.3p (H1 2021: 0.7p loss) reflecting a profit for the period of £1.1 million (H1 2021: £0.9 million loss)

Basic and diluted profit per share from continuing operations was 2.1p (H1 2021: 0.5p loss) reflecting a profit for the financial period of £8.9 million (H1 2021: £2.0 million loss).

Other comprehensive income/(expense)

Other comprehensive income of £1.5 million (H1 2021: £4.7 million) relates to exchange differences on the translation of the balance sheets of foreign operations into British pound sterling.

The income consists of a £0.5 million gain (H1 2021: £2.5 million) on the translation of intangible assets, a £0.5 million gain (H1 2021: £1.9 million) on the translation of overseas subsidiaries' net assets, a £0.4 million gain (H1 2021: £nil) on the retranslation of intercompany balances which are determined to be long-term investments in nature and a £0.1 million gain (H1 2021: £0.3 million) on the translation of goodwill.

Statement of financial position

Net assets at 30 June 2022 were £73.2 million (31 December 2021: £66.8 million).

Current liabilities at 30 June 2022 were £10.2 million (31 December 2021: £10.8 million). The decrease is mainly due to lower trade payables, in particular lower accruals.

Cash flow

The Group's cash position (including cash and cash equivalents) increased from £12.6 million at 31 December 2021 to £13.8 million at 30 June 2022 and £17.6 million at 31 August 2022. The Group has no bank borrowings.

Cash generated from operations during the period aggregated £1.2 million (H1 2021: £0.4 million used in operations), of which £0.1 million (H1 2021: £0.8 million) was used in discontinued operations.

Exchange differences on cash and cash equivalents arose as a result of translation of foreign currency balances at the beginning and end of the relevant period. The exchange gain for the period was £0.4 million (2021: £0.1 million loss).

Foreign exchange exposures

The Group's activities presently generate a small surplus of US$ cash flows, a larger surplus of € cash flows and a deficit in £ sterling cash flows and Swedish Krona cash flows.  The Group thus benefits from a weak pound and a strong US dollar. 

Michael Roller

Chief Financial Officer

14 September 2022

PRINCIPAL RISKS AND UNCERTAINTIES

NIOX has considered the principal risks and uncertainties facing the Group for the first six months of 2022 and does not consider them to have changed from those set out on pages 34 to 37 of the 2021 Annual Report and accounts, which is available on the Group's website. A summary of these risks and uncertainties is as follows:

Covid-19

The Covid-19 pandemic is having, and will continue to have, an impact across the Group with the imposition of lockdowns and travel restrictions disrupting global supply chains and resulting in changing consumer behaviour.

Cyber security

If the Group fails to sufficiently detect, monitor, or respond to cyber-attacks against its systems, this may result in disruption of service, compromise of sensitive data, financial loss and reputational damage.

Commercial success

The Group's competitors, many of whom have considerably greater financial and human resources, may develop more effective products, or be able to compete more effectively in the markets targeted by the Group. New companies may enter these markets and novel products and technologies may become available which are more commercially successful than those developed by the Group.

Compliance with healthcare regulations

The Group must comply with complex regulations in relation to the marketing of its devices. These regulations are strictly enforced. Failure by the Group (or its commercial partners) to comply with relevant legislation and regulations in the countries in which it operates may result in criminal and civil proceedings against the Group.

Supply Chain

The Group relies on third parties for the supply of key materials, finished products and services, including shipping. Some materials may only be available from one source, and regulatory requirements may make substitution costly and time-consuming.

The Covid-19 pandemic has caused some supply chain challenges due to increased buying as economies have reopened. There has been a shortage of some components available needed to manufacture sensors and devices, however nothing that has been of sufficient significance to interrupt supply.

Foreign exchange fluctuations

Foreign exchange fluctuations may adversely affect the Group's results and financial condition. The Group records its transactions and prepares its financial statements in British pound sterling, but a significant proportion of its income and expenditure is in United States dollar, Swedish krona, euro and Chinese yuan.

CONDENSED INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2022

Adjusted basic earnings per share eliminates the impact of the Beyond Air settlement consideration.

The notes below are an integral part of these condensed interim consolidated financial statements.

CONDENSED INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2022

The notes below are an integral part of these condensed interim consolidated financial statements.

Ian Johnson                                                                             Michael Roller

Executive Chairman                                                                   Chief Financial Officer
NIOX Group plc                                                                         NIOX Group plc

Registered number: 05822706