Preliminary Results

RNS Number : 5941T

Niox Group PLC

21 March 2023

 

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 ("UK MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of UK MAR.  The persons taking responsibility for this announcement are the Company contacts named below.

NIOX GROUP PLC

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

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022

Oxford, UK - 21 March 2023: NIOX Group plc (AIM: NIOX), a medical device company focused on point of care asthma diagnosis and management, today announces its unaudited results for the year ended 31 December 2022.

Financial highlights

· Underlying revenue growth of 15% to £31.3 million (2021: £27.9 million) excluding a one-off revenue item of £0.6 million in China

· Profit before tax £2.4 million, excluding the benefit of the Beyond Air consideration of £8.1 million (2021: loss of £2.1 million)

· Group adjusted EBITDA² at £7.3 million, ahead of upgraded consensus estimates (2021: £0.6 million in a transitional year)

· Net cash £19.4 million (31 December 2021: £12.6 million)

Financial progress

	2022	2021
	£m	£m
Revenue	31.3	27.9
Gross margin	71%	68%
Total expenditure1	(14.9)	(18.4)
Adjusted EBITDA2	7.3	0.6
Adjusted EBITDA margin	23.3%	2.2%
Operating profit/ (loss)	1.8	(4.3)
Beyond Air settlement consideration	8.1	-
Profit/ (loss) before tax	10.5	(2.1)
Profit for the year from discontinued operations	2.0	1.3
Profit for the financial year	16.1	3.6
Cash3 at year end	19.4	12.6
1 Excludes depreciation, amortisation, impairment and share option charge. 2 Earnings before interest, tax, depreciation, amortisation, impairment and share option charge. 3 Includes cash and cash equivalents .

Operational highlights

· Ongoing transition to distributor-led business model beginning to gather momentum with new arrangements in the USA and China expected to drive scalable revenue growth in 2023 and beyond.

· Maintained strong recurring revenue of 89% of £26.2 million of Clinical revenue.

· Good progress in the UK with initial sales into the primary care sector.

· Approval received from shareholders on 1 September 2022 to change the Company name from Circassia Group plc to NIOX Group plc reflecting the focus on  NIOX® products.

· FDA approval for Beyond Air's LungFit® PH device received on 28 June 2022, initiating total milestone payments of $10.5 million over three years ($2.5 million received in August 2022), with up to a further $6 million in potential royalty payments thereafter.

Post period end

· A Capital Reduction Scheme was concluded by filing an order of the High Court with the Registrar of Companies on 8 February 2023.  The scheme was approved by shareholders on 6 October 2022 and a Court Order was approved on 8 November. The purpose of the Capital Reduction is 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: "2022 was a significant year for the Group with the business substantially right-sized and the implementation of a distributor-led sales strategy well underway. These initiatives gave rise to a much-reduced cost base and generated scalable revenue growth.  The Group remains debt free and has significant cash resources to continue implementing its business strategy of accessing and promoting the benefits of its products to healthcare professionals in primary and secondary care, who diagnose and treat the large population of patients suffering from asthma. Significant progress was made in 2022 to sell NIOX® FeNO devices into primary care, and I am pleased to report that this is continuing into 2023.

The business has proved very resilient during both the Pandemic and the more recent global macroeconomic conditions. The high level of recurring revenues provides good visibility of earnings and together with high gross margins are delivering profitable growth. The Group has made a positive start to 2023 with revenues up 19% in the first two months of the year on the equivalent period in 2022. The Board believes that the strong business model will drive further top line growth and continue to deliver improved shareholder value going forward."

Contacts

NIOX

Ian Johnson, Executive Chairman    Tel: [phone]

Michael Roller, Chief Financial Officer

Singer Capital Markets (Nominated Adviser and Broker)

Aubrey Powell/ Jen Boorer / Alex Emslie  Tel: [phone]

About NIOX

Our mission is to improve asthma diagnosis and management by greater patient access to FeNO testing. 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.

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

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.

BUSINESS REVIEW

A year of continued progress

2022 saw both solid sales growth, and the completion of the cost reduction exercises which were ongoing during 2020 and 2021.  Pleasingly, the NIOX® business ended the year having achieved a 30% EBITDA margin (excluding corporate costs) and demonstrated the scalability and underlying profitability of its distributor led business model.

FeNO testing rates began a sustained recovery in most major markets in 2022, as the effects of Covid-19 diminished and more patients visited their physicians in person. This resulted in revenues to Clinical customers growing 12% versus 2021 with underlying growth of 15% excluding a one-off revenue item of £0.6 million in China in H1 2021. Sales to Research customers grew by 13%, bringing performance back to well above 2019 pre-pandemic revenue levels.

EMEA clinical sales demonstrated the strongest recovery and grew at 19% versus 2021. The UK was the strongest growing European market and ended the year with sales significantly higher than pre-pandemic levels. UK growth was fuelled by adoption of FeNO testing in Primary Care.

The Americas experienced modest growth as healthcare professionals began to return to business as usual. Clinical revenues in the region grew by 18% versus 2021 in sterling terms, but at only 7% in local currency terms.

China and Japan were slower to recover from Covid-19, which suppressed FeNO testing rates and meant that Clinical revenues in the Asia Pacific region showed weaker growth of 2% versus 2021 (9% underlying growth excluding the impact of the one-off revenue item of £0.6m in 2021).

Moving forward the Company is focused on accelerating the growth of FeNO testing in Primary Care, where most asthmatics are treated. The new distribution arrangements in the US and China are key enablers to the strategy of driving top line growth, without adding fixed costs to the business.

Once FeNO testing and NIOX® are established as normal practice in Primary Care the Company plans to explore a home use product, so that asthma patients can perform a FeNO test at home and help improve their asthma outcomes.

NIOX® business

Revenues for the year ended 31 December 2022 were up 12% to £31.3 million (2021: £27.9 million), and up 11% on a constant currency basis.  Underlying revenues (excluding the impact of a £0.6 million one-off revenue item in H1 2021) were up 15%.  The second half of the year saw stronger relative growth of 19% over H2 2021

The significant cost reductions of the two previous years continued, but principally as a result of the annualisation effect of actions taken in 2021.  Group headcount started the year at 111 and ended the year at 92.  Management does not expect further reductions in cost in 2023 and expects headcount to increase slightly during the year.  The Group's energy usage is low as it does not manufacture its own products, and accordingly the substantial increase in energy prices has not had a material impact on the Group's operations.

Discontinued operations

The transfer of the COPD products back to AstraZeneca completed on 31 March 2021. An operating profit of £2.0 million was generated by this business in 2022 as the result of a credit arising to revenue which dated back to transactions originally undertaken in 2019, combined with a reduction to the rebate accrual as a result of information received during the year.  NIOX retains legal liability for rebates payable to third parties (primarily Medicaid) for the period during which it operated the COPD business.  £0.7 million of rebates were paid during 2022 and an accrual for additional rebates of £1.8 million remains in the Group's balance sheet at 31 December 2022.  No rebate claims have been received since 31 December 2022.

NIOX also retains legal liability for returns of product sold during the period when it operated the COPD business.  An accrual of £2.2 million has been included to cover this eventuality in the Group's balance sheet at 31 December 2022.  Returns claims totalling £1.1 million were received during late 2022 but had not yet been paid at the balance sheet date.  NIOX's liability for returns will have been substantially extinguished by the end of 2023.

Russia and Ukraine

NIOX has no operations in Russia and generates no revenue in Russia.  In 2022, revenues derived from Ukraine were less than 1% of Group revenues.

Energy prices and inflation

The Group has two strategic manufacturing partners and does not manufacture its own products, 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.

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 became 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"), which was 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

The total settlement consideration of $10.5 million was recognised, discounted to its present value at the balance sheet date.

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. These royalties have not been recognised due to uncertainties around quantum and timing.

Name change

The Company changed its name from Circassia Group plc to NIOX Group plc during the year in order that the name of the Company's product is aligned with name of the Company itself.

Capital Reduction Scheme

As a result of the much improved profitability and cash generation of the Group, the Group is accumulating cash balances in excess of those which it requires to continue to operate and grow the business.

A Capital Reduction Scheme was sanctioned by both shareholders and the High Court in late 2022, and was completed by the filing of the Court Order with the Registrar of Companies in February 2023, to enable the Company to eliminate the deficit on its profit and loss account and to create distributable reserves to enable the Company to pay shareholders dividends, or to purchase its own shares in future, if this is considered appropriate.

Employees

On behalf of the Board, I would like to thank all employees within the Group for their hard work and commitment.

Summary and outlook

2022 was a good year for the Group.  The results demonstrate the clear ability of our business model to generate profitable growth, and double digit sales growth at historical trend levels was achieved despite ongoing adverse effects of Covid-19 in several of our major markets.

The business has made a positive start to 2023 and the Board expects another year of solid progress, notwithstanding the somewhat mixed macroeconomic outlook.

OPERATING REVIEW

Key strategic drivers of the Group

The opportunity

Asthma affects over 340 million people worldwide with a further 100 million estimated to be affected by 2025. There are an estimated 1,000 deaths globally due to asthma every day. In some 50% of cases, asthma is either not diagnosed or is misdiagnosed, which leads to a delay in asthma patients receiving the care that they need. Following a diagnosis of asthma, it is important to be able to regularly monitor the condition to confirm the effectiveness of treatment and adherence by the patient.

FeNO

Asthma is a condition that is characterised by inflammation of the airways and lungs. Nitric oxide is produced by inflammatory cells and can be precisely measured in exhaled breath, this is known as FeNO (fraction of exhaled nitric oxide). Measuring FeNO helps understand the level of inflammation in the lungs of an asthmatic and is a precise biomarker of type 2 airway inflammation. FeNO measurements can improve the chances of a correct diagnosis by up to seven times. 

The American Thoracic Society (ATS) recommended that FeNO testing should be part of the ongoing care of asthmatics as well as being used as a tool for diagnosing asthma.  This is the latest example from an increasing body of highly credible, influential evidence based medical guidelines around the world that have recommended the use of FeNO testing as a routine part of diagnosing and managing asthma.  The guidelines are based on a substantial body of published clinical trials that demonstrate the benefits of FeNO testing. Measuring FeNO as part of ongoing asthma management has been shown to decrease asthma exacerbations by 50%.

Further impetus is coming from a new class of biologic anti-inflammatory medicines for the treatment of type 2 inflammatory asthma.  Biologic medicines are targeted at asthmatics with increased inflammation and therefore elevated FeNO.  The cost of these new medicines is significant.  This means that some pharmaceutical companies are investing resources to raise the awareness and usage of FeNO testing in order to identify the patients that are most likely to respond to treatment as they seek to establish this new class of drugs as an effective line of therapy.

Our products

The Company's NIOX VERO® is the market leading device for measuring FeNO. This is a non-invasive, point-of-care system which accurately measures the patient's FeNO level. It is quick, easy to use and reliable. The system comprises a small portable device and a range of consumables including sensors, individual disposable mouthpieces and breathing handles. The quality and innovation of NIOX VERO® has been recognised with several awards over recent years, including the Global Health & Pharma Awards, where NIOX was named as Global Leaders in FeNO Testing 2021 and the 2022 Research and Development Award.  

NIOX® is registered and reimbursed in all major markets and available in more than 50 countries via NIOX's international network of distribution partners.

Our business

NIOX VERO® is the market leading device for FeNO testing, with approximately 17,000 devices and nearly 50 million FeNO tests sold to date.

NIOX® revenues in 2022 for clinical diagnosis and management of asthma were £26.2 million (2021: £23.4 million). Approximately 90% of these revenues are from recurring sales of consumables (test kits) used for routine testing.

In addition to routine use by clinicians, the NIOX VERO® is almost exclusively specified as the device of choice by clinical research organisations (CROs) who manage clinical trials on behalf of large pharma. Our principal CRO customer established a number of new trials in the early part of the year, after a slowdown in sales in 2020 during the early stages of the pandemic.

Revenues in 2022 from CROs were £5.1 million (2021: £4.5 million).  Approximately 55% of these revenues are from sales of consumables (test kits) driven by the length of the trial and the number of patients recruited. CRO revenues are not classified as recurring.

Principal challenges

Today the awareness and usage of FeNO testing and NIOX amongst the respiratory specialist community is high. The majority of asthmatics are under the care of Primary Care doctors, where the awareness and usage of FeNO is significantly lower than the specialist community. This means that there is a huge untapped potential in the FeNO testing market. The primary challenge the NIOX® business faces is to increase the awareness and usage of FeNO testing, specifically in the Primary care customer group.

The Company continues to engage with respiratory professionals to promote the use of FeNO tests in new and under-served customer segments such as primary care settings and pharmacies.  Use by CROs also raises the profile of FeNO testing and NIOX® in particular.

Management intends to expand the number of distribution partners in our major markets, such as the US and China, to further raise awareness and levels of education regarding the benefits of FeNO testing and to make NIOX® more easily available.

Covid-19 impact

In 2022, Covid-19 continued to have a negative impact in China and to a lesser extent in Japan. Meanwhile, as Europe and the US emerged from the shadow of Covid-19, FeNO testing started to recover as healthcare systems began to return to "business as usual".

Conclusion

The company's mission is to improve asthma diagnosis & management by greater patient access to FeNO testing. The Group has a robust strategy in place to expand the business and generate profitable growth from this large underserved market; this includes the ongoing evaluation of a product for home use.

FINANCIAL REVIEW

This has been an encouraging year for NIOX. The lessening impact of the Covid-19 pandemic has increased the level of FeNO testing carried out by our customers, resulting in the Group increasing both revenues and adjusted EBITDA, which it considers to be key KPI's.

On 27 May 2020, the Group handed back the rights to its COPD products to AstraZeneca, and as such the results of the COPD business are classified as a discontinued operation in the table below. The NIOX business represents the continuing operations of the Group.

		2022	2021
		£m	£m
Revenue		31.3	27.9
Cost of sales		(9.1)	(8.9)
Gross profit		22.2	19.0
Gross margin		71%	68%
Research and development costs		(3.2)	(4.6)
Sales and marketing costs		(9.7)	(11.9)
Administrative expenses		(7.5)	(6.8)
Adjusted EBITDA1		7.3	0.6
Operating profit / (loss)		1.8	(4.3)
Other gains and (losses)		0.4	1.6
Other income		8.3	0.9
Net finance costs		-	(0.3)
Profit / (loss) before tax		10.5	(2.1)
Taxation		3.6	4.4
Profit for the financial year from continuing operations		14.1	2.3
Profit for the financial year from discontinued operations		2.0	1.3
Profit for the financial year		16.1	3.6
Cash and cash equivalents		19.4	12.6

¹ Earnings before interest, tax, depreciation, amortisation, impairment and share option charge.

Revenue

NIOX® revenue for the year was £31.3 million (2021: £27.9 million) which includes clinical revenue of £26.2 million (2021: £23.4 million) and research revenue of £5.1 million (2021: £4.5 million). NIOX® c linical 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 as a result of the sustained recovery following the Covid-19 pandemic, combined with the continued focus on building partnered distribution in the USA and China.

Gross profit

Gross profit on NIOX® revenue was £22.2 million (2021: £19.0 million), with a gross margin of 71% (2021: 68%). Gross margin was higher than the prior year as a higher proportion of test kits was sold.

Research and development

Research and development costs decreased to £3.2 million (2021: £4.6 million). Included in this category are £0.4 million of Device Development costs (2021: £1.2 million), £0.3 million of Quality costs (2021: £0.6 million), £0.3 million of Medical Affairs costs (2021: £0.4 million), £0.3 million of Regulatory costs (2021: £0.3 million) and £1.9 million of depreciation, amortisation and impairment (2021: £2.1 million). The decrease in costs is mainly attributable to lower headcount.

Sales and marketing

Sales and marketing costs decreased to £9.7 million (2021: £11.9 million) as there was a reduction in the number of dedicated NIOX® sales representatives across the Group as a result of the switch to a distributor led sales model, combined with lower third-party marketing costs as the Covid-19 pandemic continued to limit marketing activities.

Administrative expenditure

Administrative expenditure, which includes overheads relating to corporate functions, centrally managed support functions and corporate costs, increased to £7.5 million (2021: £6.8 million). This was mainly attributable to higher remuneration for the Executive Directors, combined with several one-off project costs in the year, including the company name change and the capital reduction scheme.

Other income

Other income has increased to £8.3 million (2021: £0.9 million). £8.1 million (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 was recognised, discounted to its present value at the balance sheet date.

The residual amount includes £0.2 million (2021: £0.2 million) of sub-lease rental income in respect of the Chicago property and £nil (2021: £0.7 million) in respect of a grant received from the US government under the Payment Protection Program. There are no contingencies or conditions attaching to this grant, and the amounts are not repayable.

Taxation

Taxation for the year was a credit of £3.6 million (2021: £4.4 million) which arose as the result of an increase in the amount of recognised carried-forward tax losses in the Group generated in Sweden by Circassia AB.

Earnings per share

Basic earnings per share for the year was 3.84p (2021: 0.87p) and diluted earnings per share for the year was 3.63p (2021: 0.83p) reflecting a profit after tax of £16.1 million (2021: £3.6 million), with the increase mainly as a result of the business's improved profitability, largely due to the recognition of the consideration due from Beyond Air.

Basic earnings per share from continuing operations was 3.36p (2021: 0.55p) and diluted earnings per share for the year was 3.19p (2021: 0.53p) reflecting a profit for the financial year of £14.1 million (2021: £2.3 million).

Excluding the impact of the one-off Beyond Air consideration, basic earnings per share from continuing operations for the year was 1.43p (2021: 0.55p).

Profit from discontinued operations

Profit from discontinued operations was £2.0 million (2021: £1.3 million) relating to a reduction of the rebate accrual and credit notes received from AstraZeneca relating to the reversal of a historical Medicaid item dating back to the first half of 2019.

Statement of financial position

The Group's net assets at 31 December 2022 were £81.9 million (2021: £66.8 million).

Current liabilities at the end of the year were £9.2 million (2021: £10.8 million).

Other comprehensive expense

The Group's other comprehensive expense of £1.9 million (2021: £7.8 million) relates to exchange differences on the translation of foreign operations into British pound sterling.

The current year expense is mainly due to the strengthening of the British pound against the Swedish krona. The expense consists of a £1.4 million loss (2021: £3.6 million) on the translation of overseas subsidiaries' net assets, a £1.0 million loss (2021: £3.7 million) on the translation of intangible assets and a £0.1 million loss (2021: £0.5 million) on the translation of goodwill.

The current year expense of £2.6 million was offset by a £0.7 million (2021: £nil) adjustment to record the net gain on foreign exchange translation on certain intercompany balances through other comprehensive income. During the year, a number of long-term intercompany balances were designated as being in the nature of long-term-investments and as such the associated foreign exchange translation gain was removed from the income statement.

.

Cash flow

The Group's cash position (including cash and cash equivalents) increased from £12.6 million at 31 December 2021 to £19.4 million at 31 December 2022.

Cash generated from operations during the year aggregated £6.9 million (2021: £1.5 million), of which £nil (2021: £0.2 million) was generated in the COPD discontinued operations.

Michael Roller

Chief Financial Officer

21 March 2023

Unaudited Consolidated statement of comprehensive income

for the year ended 31 December 2022

		2022	2021
	Notes	£m	£m
Continuing operations
Revenue from contracts with customers		31.3	27.9
Cost of sales		(9.1)	(8.9)
Gross profit		22.2	19.0
Research and development costs		(3.2)	(4.6)
Sales and marketing costs		(9.7)	(11.9)
Administrative expenses		(7.5)	(6.8)
Operating profit/ (loss)	4	1.8	(4.3)
Other gains and (losses) - net		0.4	1.6
Other income	5	8.3	0.9
Finance costs	6	(0.3)	(0.3)
Finance income	6	0.3	-
Profit/ (loss) before tax		10.5	(2.1)
Taxation	8	3.6	4.4
Profit from continuing operations		14.1	2.3
Profit from discontinued operations (attributable to equity holders of NIOX Group plc)	7	2.0	1.3
Profit for the year		16.1	3.6
Other comprehensive expense
Items that may be subsequently reclassified to profit or loss
Exchange differences on translation of foreign operations	12	(1.9)	(7.8)
Other comprehensive expense for the year, net of tax		(1.9)	(7.8)
Total comprehensive income/ (expense) for the year		14.2	(4.2)

Earnings per share attributable to owners of the parent during the year (expressed in pence per share)

		2022	2021
Basic earnings per share		Pence	Pence
Basic earnings per share for profit from continuing operations	9	3.36	0.55
Basic earnings per share for profit for the year	9	3.84	0.87

		2022	2021
Diluted earnings per share		Pence	Pence
Diluted earnings per share for profit from continuing operations	9	3.19	0.53
Diluted earnings per share for profit for the year	9	3.63	0.83

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

Unaudited Consolidated statement of financial position

as at 31 December 2022

		2022	2021
	Notes	£m	£m
Assets
Non-current assets
Property, plant and equipment		0.2	0.2
Right-of-use assets		0.9	1.2
Goodwill	10	4.7	4.8
Intangible assets		32.4	37.3
Trade and other receivables		3.5	-
Deferred tax assets		25.4	23.1
		67.1	66.6
Current assets
Inventories		4.1	2.7
Trade and other receivables		7.9	4.5
Cash and cash equivalents		19.4	12.6
		31.4	19.8
Total assets		98.5	86.4
Equity
Share capital		0.3	0.3
Share premium		640.3	640.3
Other reserves	12	15.7	16.7
Accumulated losses		(574.4)	(590.5)
Total equity		81.9	66.8
Liabilities Non-current liabilities
Lease liabilities		0.4	0.9
Deferred tax liabilities		7.0	7.9
		7.4	8.8
Current liabilities
Trade and other payables	11	8.6	10.4
Lease liabilities		0.6	0.4
		9.2	10.8
Total liabilities		16.6	19.6
Total equity and liabilities		98.5	86.4

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

Ian Johnson   Michael Roller

Executive Chairman  Chief Financial Officer
NIOX Group plc  NIOX Group plc

Registered number: 05822706

Unaudited Consolidated statement of cash flows

for the year ended 31 December 2022

		2022	2021
	Notes	£m	£m
Cash flows from operating activities
Cash generated from operations	13	6.9	1.5
Interest paid		(0.2)	(0.1)
Net cash generated from operating activities		6.7	1.4
Cash flows from investing activities
Payments for property, plant and equipment		(0.1)	(0.1)
Payments for intangible assets		-	(0.1)
Net cash used in investing activities		(0.1)	(0.2)
Cash flows from financing activities
Proceeds from issue of shares		-	5.0
Share issue transaction costs		-	(0.1)
Interest received		0.1	-
Principal elements of lease payments		(0.6)	(0.8)
Net cash (used in)/ generated from financing activities		(0.5)	4.1
Net increase in cash and cash equivalents		6.1	5.3
Cash and cash equivalents at 1 January		12.6	7.4
Effects of exchange rate changes on cash and cash equivalents		0.7	(0.1)
Cash and cash equivalents at 31 December		19.4	12.6

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

Unaudited Consolidated statement of changes in equity

for the year ended 31 December 2022

		Share capital	Share premium	Other reserves1	Accumulated losses	Total equity
		£m	£m	£m	£m	£m
At 1 January 2021		0.3	635.4	24.5	(594.1)	66.1
Profit for the year		-	-	-	3.6	3.6
Exchange differences on translation of foreign operations		-	-	(7.8)	-	(7.8)
Total comprehensive (expense)/income		-	-	(7.8)	3.6	(4.2)
Transactions with owners:
Issue of new shares		-	4.9	-	-	4.9
At 31 December 2021		0.3	640.3	16.7	(590.5)	66.8
Profit for the year		-	-	-	16.1	16.1
Exchange differences on translation of foreign operations		-	-	(1.9)	-	(1.9)
Total comprehensive (expense)/income		-	-	(1.9)	16.1	14.2
Transactions with owners:
Employee share scheme issues		-	-	0.9	-	0.9
At 31 December 2022		0.3	640.3	15.7	(574.4)	81.9

¹ Other reserves include share option reserve, translation reserve, treasury shares reserve, and transactions with NCI reserve.

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Notes to the financial statements

1.  General information

Basis of preparation

With effect from 1 September 2022, the name of the Company was changed from Circassia Group plc to NIOX Group plc.

The unaudited summary financial information set out in this announcement does not constitute the Group's consolidated statutory accounts for the years ended 31 December 2022 or 31 December 2021. The results for the year ended 31 December 2022 are unaudited. The statutory accounts for the year ended 31 December 2022 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement, and will be delivered to the Registrar of Companies in due course. The statutory accounts are subject to completion of the audit and may also change should a significant adjusting event occur before the approval of the Annual Report.

The statutory accounts for the Group for the year ended 31 December 2021 have been reported on by the Group's previous auditors and delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified and did not include references to any matter to which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The unaudited summary financial information set out in this announcement has been prepared using the accounting policies as described in the December 2021 audited year end statutory accounts and have been consistently applied.

The preliminary announcement for the year ended 31 December 2022 was approved by the Board for release on 21 March 2023.

The preliminary announcement will be published on the Company's website. The maintenance and integrity of the website is the responsibility of the directors. The work carried out by the auditors does not involve consideration of these matters. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

2.  Operating segments

The chief operating decision-maker, the Executive Chairman, examines the Group's performance from a product perspective, and has identified one reportable segment in the continuing business:

-  NIOX® relates to the portfolio of products used to improve asthma diagnosis and management by measuring fractional exhaled nitric oxide (FeNO).

The COPD business has been classified as a discontinued operation. Information about the results of this segment is provided in note 7; information regarding its assets is presented below.

The table below presents operating profit/ (loss) information regarding the Group's operating segments for the years ended 31 December 2022 and 2021. Only the results for the Group's continuing activities are included in order to aid comparison.

 Segment operating profit / (loss)

Year ended 31 December 2022	NIOX®	Head office	Total
	£m	£m	£m
Revenue (from external customers, based on the destination of the customer)
US	8.1	-	8.1
UK	2.8	-	2.8
EU	9.5	-	9.5
Asia Pacific	10.7	-	10.7
Rest of world	0.2	-	0.2
Total segment revenue	31.3	-	31.3
Cost of sales	(9.1)	-	(9.1)
Research and development costs	(3.2)	-	(3.2)
Sales and marketing costs	(9.7)	-	(9.7)
Administrative expenses	(4.5)	(3.0)	(7.5)
Operating profit / (loss) from continuing operations	4.8	(3.0)	1.8
Depreciation, amortisation and impairment included above	(4.6)	-	(4.6)
Year ended 31 December 2021	NIOX®	Head office	Total
	£m	£m	£m
Revenue (from external customers, based on the destination of the customer)
US	7.1	-	7.1
UK	1.7	-	1.7
EU	8.2	-	8.2
Asia Pacific	10.6	-	10.6
Rest of world	0.3	-	0.3
Total segment revenue	27.9	-	27.9
Cost of sales	(8.9)	-	(8.9)
Research and development costs	(4.6)	-	(4.6)
Sales and marketing costs	(11.9)	-	(11.9)
Administrative expenses	(5.0)	(1.8)	(6.8)
Operating loss from continuing operations	(2.5)	(1.8)	(4.3)
Depreciation, amortisation and impairment included above	(4.9)	-	(4.9)

Assets by segment

As at 31 December 2022	NIOX®	Head office	COPD (Discontinued)	Total
	£m	£m	£m	£m
Cash and cash equivalents	19.4	-	-	19.4
Property, plant and equipment	0.2	-	-	0.2
Right-of-use assets	0.9	-	-	0.9
Goodwill	4.7	-	-	4.7
Intangible assets	32.4	-	-	32.4
Deferred tax assets	25.4	-	-	25.4
Inventories	4.1	-	-	4.1
Trade and other receivables	5.1	2.8	-	7.9
Trade and other receivables - non-current	-	3.5	-	3.5
Total assets	92.2	6.3	-	98.5
As at 31 December 2021	NIOX®	Head office	COPD (Discontinued)	Total
	£m	£m	£m	£m
Cash and cash equivalents	12.6	-	-	12.6
Property, plant and equipment	0.2	-	-	0.2
Right-of-use assets	1.2	-	-	1.2
Goodwill	4.8	-	-	4.8
Intangible assets	37.3	-	-	37.3
Deferred tax assets	23.1	-	-	23.1
Inventories	2.7	-	-	2.7
Trade and other receivables	4.3	-	0.2	4.5
Total assets	86.2	-	0.2	86.4

3.  Employees and directors

Average number of people employed

Monthly average number of people (including Executive and Non-Executive Directors) employed:
		2022 Number	2021 Number
Office and management		28	31
Sales and marketing		62	81
Research and development		9	16
Total average headcount		99	128

Average headcount includes nil (2021: 1) sales and marketing and nil (2021: 1) research and development people employed solely for the discontinued operation.

The Group's total headcount at 31 December 2022 was 92 (2021: 111).

Employee benefit costs

	2022 £m	2021 £m
Wages and salaries	8.4	10.6
Social security costs	1.1	1.2
Other pension costs	0.5	0.5
Share option charge	0.9	-
Total employee benefit costs	10.9	12.3

Key management personnel

Key management personnel during the year included directors (Executive and Non-Executive), Regional VP APAC, Regional VP Americas, VP Product Development, VP Supply Chain and Technical Operations, Regional VP EMEA, VP Research Business and Senior VP Global Human Resources. The compensation paid or payable to key management is set out below.

	2022 £m	2021 £m
Short-term employee benefits (including bonus)	3.3	3.0
Share based payment	0.9	0.3
Total	4.2	3.3

4.  Breakdown of expenses by nature

	Notes	2022 £m	2021 £m
Employee benefit costs	3	10.9	12.3
Depreciation charge of property, plant and equipment		0.1	-
Depreciation charge of right-of-use assets		0.6	0.8
Amortisation charge of intangible assets		3.9	4.1

5.  Other income

	2022	2021
	£m	£m
Sub-lease rental income	0.2		0.2
Government grant	-		0.7
Beyond Air consideration	8.1		-
Total other income	8.3		0.9

Beyond Air were granted FDA approval of the LungFit® PH product on 28 June 2022, and therefore other income and a corresponding receivable was recognised for the total consideration of $10.5 million. As part of the consideration was due after more than a year, the consideration was measured by discounting the asset to its present value, with the unwinding of the discount recognised as finance income in the year.

The government grant relates to a grant received by Circassia Inc. from the US government under the Payment Protection Program. The amounts are not repayable as forgiveness of the grant was approved on 25 March 2021.

6.  Finance costs and income

	2022	2021
	£m	£m
Finance costs:
Bank charges	(0.2)		(0.2)
Interest charges for lease liabilities	(0.1)		(0.1)
Total finance costs	(0.3)		(0.3)
Finance income:
Bank interest receivable	0.1		-
Discount unwind on Beyond Air consideration	0.2		-
Total finance income	0.3		-

7.  Discontinued operations

On 9 April 2020, an agreement was signed to hand back the Tudorza® and Duaklir® licences to AstraZeneca and as such, the results of the COPD operating segment are reported as a discontinued operation. There were no assets or liabilities classified as held for sale in relation to the discontinued operation.

Profit for the year
			2022 £m			2021 £m
Revenue			2.0			2.5
Cost of sales			-			(0.3)
Gross profit			2.0			2.2
Expenditure			-			(1.2)
Operating profit			2.0			1.0
Other gains and (losses) - net			-			0.3
Profit from discontinued operations			2.0			1.3
Cash flow				2022		2021
				£m		£m
Net cash inflow from operating activities				-		0.2
Net cash generated from discontinued operations				-		0.2

£0.5 million of the current year revenue represents credit notes received from AstraZeneca relating to the reversal of a historical Medicaid item dating back to the first half of 2019.

The remaining revenue relates to the revision of the rebate accrual based on information received during the year.

8.  Taxation

	2022 £m	2021 £m
Deferred tax
Increase in deferred tax assets	(2.7)	(2.8)
Decrease in deferred tax liabilities	(0.9)	(1.6)
Total deferred tax credit	(3.6)	(4.4)
Tax is attributable to:
Loss from continuing operations	(3.6)	(4.4)

The tax credit (2021: credit) for the year is lower (2021: lower) than the standard rate of corporation tax in the UK of 19.00% (2021: 19.00%). The differences are explained below:

	2022 £m	2021 £m
Profit/(loss) from continuing operations before tax	10.5	(2.1)
Profit from discontinued operations before tax	2.0	1.3
Profit/(loss) bef ore tax	12.5	(0.8)
Tax at the UK tax rate of 19.00% (2021: 19.00%)	2.4	(0.2)
Expenses not deductible for tax purposes	0.1	(0.2)
Employee share options	0.2	(0.1)
Tax losses for which no deferred income tax asset was recognised	(6.3)	(3.9)
Tax credit for the year	(3.6)	(4.4)

At 31 December 2022, the Group has tax losses to be carried forward of approximately £435.2 million (2021: £445.6 million). These can be utilised against future taxable profits. A proportion of these tax losses has been recognised as a deferred tax asset.

9.  Earnings per share

Basic earnings per share	2022 Pence	2021 Pence
From continuing operations	3.36	0.55
From discontinued operations	0.48	0.32
Total basic earnings per share attributable to the ordinary equity holders of the company	3.84	0.87

Diluted earnings per share	2022 Pence	2021 Pence
From continuing operations	3.19	0.53
From discontinued operations	0.44	0.30
Total diluted earnings per share attributable to the ordinary equity holders of the company	3.63	0.83

Adjusted basic earnings per share	2022 Pence	2021 Pence
From continuing operations	1.43	0.55
From discontinued operations	0.48	0.32
Total diluted earnings per share attributable to the ordinary equity holders of the company	1.91	0.87

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

Reconciliation of earnings used in calculating earnings per share	2022 £m	2021 £m
Basic and diluted earnings per share
Profit attributable to the ordinary equity holders of the Company used in calculating basic and dilutive earnings per share:
From continuing operations	14.1	2.3
From discontinued operations	2.0	1.3
Profit used as the basis of calculating basic and diluted earnings per share	16.1	3.6

The earnings used in calculating basic and diluted earnings per share is the same.

Reconciliation of earnings used in calculating adjusted earnings per share	2022 £m	2021 £m
Basic and diluted earnings per share
Profit attributable to the ordinary equity holders of the Company used in calculating basic and dilutive earnings per share:
From continuing operations	14.1	2.3
From discontinued operations	2.0	1.3
Deduct Beyond Air settlement consideration	(8.1)	-
Adjusted profit used as the basis of calculating adjusted basic earnings per share	8.0	3.6

Weighted average number of shares	2022	2021
Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share	419,199,013	412,604,673
Adjustments for calculation of diluted earnings per share:
Share options	23,799,062	22,402,289
Deferred shares	-	823,467
Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share	442,998,075	435,830,429

10.   Goodwill

	2022 £m	2021 £m
At 1 January
Cost	4.8	88.3
Accumulated impairment	-	(83.0)
Net book amount	4.8	5.3
Year ended 31 December
Opening net book amount	4.8	5.3
Impairment	-	83.0
Disposal	-	(83.0)
Exchange differences	(0.1)	(0.5)
Closing net book amount	4.7	4.8
At 31 December
Cost	4.7	4.8
Accumulated impairment	-	-
Net book amount	4.7	4.8

Following the cessation of the run-off period on 31 March 2021, the fully impaired COPD goodwill assets were disposed of in the prior year.

The carrying value of goodwill is allocated to the NIOX® CGU and was generated in June 2015 on the acquisition of Aerocrine. The recoverable amount of a CGU is assessed using a value in use model. The value in use for the NIOX® CGU was calculated over a five-year period using a discount factor of 13.1% (being a weighted average cost of capital rate for the CGU). The calculations use post-tax cash flow projections. Cash flows over five years have been considered appropriate based on the product lifecycle. Cash flows beyond the five-year period were extrapolated using the estimated terminal growth rate stated below. The growth rate does not exceed the long-term average growth rate for the business. The discount rate used is post-tax and reflects specific risks relating to the Group and uncertainties surrounding the cash flow projections.

The key assumptions used for the valuation of the NIOX® CGU are as follows:

Assumption	Approach used to determine values
Valuation basis	Value in use
Sales	Based on past performance and management's expectations of market development. Sales in 2023 are expected to return towards pre-pandemic levels. The growth rate for 2024-2027 reflects a more cautious growth level than historic CAGR.
Gross margin	Based on past performance and management's expectations for the future
Operating costs	Management forecasts these costs based on the current structure of the business, adjusting for inflationary increases but not reflecting any future restructurings or cost-saving measures
Period of specified projected cash flows	2022 - 5 years 2021 - 5 years
Long-term growth rate	Terminal growth rates based on management's estimate of future long-term average growth rate 2022 - 1% 2021 - 1%
Discount rate	Reflects specific risks relating to the relevant segments and the countries in which they operate 2022 - 13.1% 2021 - 11.5%

Impact of possible changes in key assumptions - NIOX® CGU

The level of headroom available before sensitivities were applied was £83.1 million. If the budgeted NIOX® sales in the value in use calculation had been 35% lower than management's estimates at 31 December 2022, the Group would have had to recognise an impairment against the carrying amount of goodwill and intangible assets of £16.4 million. This steep hypothetical reduction in sales represents a slower recovery post the Covid-19 pandemic.

11.  Trade and other payables

	2022 £m	2021 £m
Trade payables	0.5	0.5
Social security and other taxes	0.8	0.6
Accruals	6.8	9.0
Other payables	0.5	0.3
Total trade and other payables	8.6	10.4

Trade payables are unsecured and are usually paid within 30 days of recognition.

Due to the short-term nature of current trade and other payables , their carrying amount is considered to be the same as their fair value.

12.  Other reserves

	Share option reserve	Translation reserve	Treasury shares reserve	Transactions with non-controlling interests	Total other reserves
	£m	£m	£m	£m	£m
At 1 January 2021	15.0	16.5	(0.9)	(6.1)	24.5
Exchange differences on translation of foreign operations	-	(7.8)	-	-	(7.8)
At 31 December 2021	15.0	8.7	(0.9)	(6.1)	16.7
Employee share option scheme	0.9	-	-	-	0.9
Exchange differences on translation of foreign operations	-	(1.9)	-	-	(1.9)
At 31 December 2022	15.9	6.8	(0.9)	(6.1)	15.7

13.  Cash generated from operations

Reconciliation of profit/ (loss) before tax to net cash generated from operations:

	Notes	2022 £m	2021 £m
Profit/ (loss) from continuing operations before tax		10.5	(2.1)
Profit from discontinued operations before tax	7	2.0	1.3
Profit/ (loss) before tax		12.5	(0.8)
Adjustments for:
Finance income	6	(0.3)	-
Finance costs	6	0.3	0.1
Depreciation charge of property, plant and equipment	4	0.1	-
Depreciation charge of right-of-use assets	4	0.6	0.8
Amortisation charge of intangible assets	4	3.9	4.1
Share based payment charge	3	0.9	-
Foreign exchange on non-operating cash flows		(0.4)	(2.1)
Changes in working capital:
(Increase)/ decrease in trade and other receivables		(6.7)	13.4
(Increase)/ decrease in inventories		(1.4)	1.1
Decrease in trade and other payables		(2.6)	(15.1)
Cash generated from operations		6.9	1.5

14.  Related party transactions

There is no ultimate controlling party of the Group as ownership is split between the Company's shareholders. The most significant shareholders as at 31 December 2022 and 2021 are as follows:

	Ownership interest
Name	2022	2021
Griffiths R I	27.77%	29.88%
Harwood Capital LLP*	18.54%	18.59%
AstraZeneca PLC	16.94%	16.99%
* Harwood Capital LLP acts as investment manager to North Atlantic Smaller Companies Investment Trust plc

There were no transactions with related parties during the years ended 31 December 2022 and 2021 as classified under IAS24.

On 24 March 2021, the Company executed a Subscription for a total of £5 million in additional equity finance at a price of 25.0p per share with three of its major institutional shareholders, being North Atlantic Smaller Companies Investment Trust plc (to which Harwood Capital LLP acts as investment adviser/manager), Richard Griffiths and Lombard Odier Asset Management (Europe) Limited.  Each of the investments by Harwood Capital LLP and Richard Griffiths constituted a related party transaction under the AIM Rules for Companies and was disclosed as such at the time.

Employee benefit trust

In 2014 the Company set up an employee benefit trust for the purposes of buying and selling shares on the employees' behalf. Nothing was paid into the Trust by the Company during the year ended 31 December 2022 and 2021.

No shares were purchased by the Trust during the years ended 31 December 2022 and 31 December 2021. No shares were allotted to the Trust during the years ended 31 December 2022 and 31 December 2021.

15.  Events occurring after the reporting date

On 8 February 2023, a Capital Reduction Scheme was concluded by filing an order of the High Court with the Registrar of Companies.

 

END

 

 

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