Half Year 2021 Abcam PLC Earnings Call
They just and gentlemen welcome to the up comes interim results conference call all participants are currently in listen-only mode after the presentation that will be the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. I must inform you that this call is being recorded. I would not allowed to hang over to Jim stably vice president of investor relations at home James. Please go ahead and welcome everyone to have conference calls for the first six months of fiscal 2021 before I hand over to Alan. Let me briefly cover our faith statement some of the comments made during this conference call, maybe considered forward-looking statements including beliefs and expectations about the company's future performance as well as the potential impact of the COVID-19 package or not operations and financial results. These forward-looking statements are subject to risks and uncertainties on the based upon currently available data, the company assumes no obligation to update them.
Actual results are such.
It's a future events on certainties which can materially impact the company's actual performance, please look at the company's recent regulatory filings for a more complete picture of our risks and other factors affecting the cool non-ifrs adjusted Financial measures may be used to provide information pertinent ongoing business performance tables reconciling these measures to the most comparable IFRS measures are Awash in the company's press release issued earlier today on the abcam website at corporate investors, and now I'd like to turn the call over to Alan.
Thank you James. Good morning, and good afternoon. Everyone Michael Baldock, and I thank you for joining us today.
It is such an extraordinary. In life sciences and that abcam we've got the privilege of seeing the remarkable pace of discoveries and innovation in life science and proteomics despite the temporary setback to the current environment. We certainly remain confident in the long-term outlook for life science growth as the world funds basic research adopts new discovery platforms pursues Precision medicine, and she continues investment in creating Better Health globally.
Since our last update in September 2020. We've been operating in building our business in line with three themes we discussed back then.
First and foremost we've been providing a safe and engaging environment for our employees globally as they continue to serve customers during the different phases of the COVID-19 pandemic.
Second we've been accelerating Innovation and driving durable growth through our 2024 plan and Beyond we've been investing in and building talents and capabilities as a leader and proteomics research Tools in spite of the challenges caused by COVID-19.
Third we brought in the capital and investor base of abcam to successfully Implement strategy and to help grow this company and its value sustainably long-term.
Today Michael and I would like to provide an update on three topics where progress has been shaped by those themes our first-half performance major Milestones achieved in our strategy implementation and COVID-19 ongoing impact on customer demand and its implications for the business Outlook through twenty twenty four months before I get into those topics. I would like to recognize the dedication of our team over 1,600 colleagues who remained and maintained hi customer service levels and support each other through what continues to be a challenging.
With their efforts, we strengthen our business by providing quality products and services to scientists. Globally. We've been depending on abcam for advancing their life science Discovery recognition as one of the top 5 Employers in the UK as a risen from our employees Collective efforts and building our company.
Thank them for their dedication to our purpose and to our customers who have been depending on Afghan for creating the results that will discuss today. Thank you.
First-half performance against the backdrop of the pandemic and the market environment where Adam and has remained ten to twenty percent below are expected levels. We were pleased to achieve constipation see Revenue growth of over 8% in the first half. We were also pleased to see the positive impact of our focus on customers. We've customer transactional net promoter score up seven percentage points year-on-year to 59%
This outcome was our customer assessment of abcam quality at all-time highs.
Customer demand for our in-house products was particularly strong with custom currency sales growth of approximately 25% We observe the scientists ought to maximize efficiency in the lab and bought more of these high-quality and time-saving products including recombinant antibodies in EM, you know acids.
Our Global research and development activity has been busy raising standards for quality and validation over the last few years this effort differentiates. Our products aligns us with the needs of customers and allows us to deliver on promises serving life scientists to achieve their mission faster.
In line with our plans, we continue to invest throughout the half in our Innovation capabilities systems and processes facilities and people are financial position, which is further strengthened by our us listing on NASDAQ last October provides the foundation to grow the business organically and through further acquisition.
I'm not going to talk a few moments about the major Milestones that we've achieved in our strategy implementation in the first half. Our aim is to deliver consistent durable and profitable growth responsibly month, and I'm pleased to say who made progress across all areas of our strategy in the first half.
We increased our rate of development and introduced more than 2,500 dominant antibody products. This was a significantly higher level of production than in the first half during the prior. In 2020. Although certain product development pipelines have slowed due to our own need to reduce lab capacity across Global facility as a result of COVID-19 restrictions. Our product development continues to focus on some of the hottest research areas, including immuno-oncology neuroscience epigenetics and not to support SARS close to research
Products included recombinant antibodies antibodies pairs simple step Eliza kits and new formulations that enable faster labeling and asset Development Office over all our portfolio of recombinant antibody and amino acid products totaled more than 24,000 by the end of the first half.
Our work to improve antibody quality continued our Gene knockout validation program has now been applied to over 3,500 products and we further validated hundreds of antibodies in new applications to extend their utility for customers.
Our Cellar in portfolio and Gene editing platform, which we acquired in 2020 supported these validation programs and are leading to higher throughput antibody selection and stronger validation.
In addition to our product Innovation. We've also been enhancing our digital marketing and e-commerce capabilities are multi-year plans to upgrade our digital platform achieved notable milestones and burst half with the opening of new digital hubs in Shanghai China and Amsterdam that are already bringing improvements to our Market.
In the other area that I wanted to talk about today. I'll be there are a few areas updates in new product lines and adjacent markets. We have made progress across each of our new product line down in the first half including conjugation labeling recombinant proteins cell lines and imaging and multiplying multiplexing consumables. We significantly expanded our capabilities through the ignition of expedient last year. This capability Edition is allowing us to better serve the growing need for antibody conjugation and imaging and biological testing platforms.
We also made further operational and Commercial progress with our fire Flex Multiplex offering with the addition of several new biopharma customers and a new high-throughput 15365 product launched in January 20-21. We completed the build-out of our protein development team during the first half and we are seeing early customer interests in the initial Cult of over fifty high-quality bioactive proteins.
Are cell lines portfolio. We introduced our first batch of In-House developed cell lines early customer demand for these products is encouraging and includes the extension of our partnership with a Mike Fox Foundation to include knock out and knock in cell line development for Parkinson's research.
In the area of partnering with biopharma and abcam and side you will see across the translational research and clinical markets that our goal has been to be a trusted partner to organizations looking to access Office Products and expertise for their platforms and clinical development programs.
Any. We entered into over 40 new agreements with new and existing partners and commercialized nearly one hundred additional antibody clones through code development programs spanning platform Diagnostic and pathology partners.
In all over 560 abcam antibodies are now validated for commercial use third-party platforms or his diagnostic tools. There are over 2000 additional antibodies undergoing evaluation biopharma partners for similar applications.
These programs are enabling more scientists to access our products while also supporting clinical developments that will result in better diagnosis and treatment for patients.
Finally on strategy. I'm going to provide an update is on building organizational scalability and sustaining value creation.
In December 2020. We opened a 16,000 square-foot facility in Fremont, California to support cell line development and production other facility developments that continue to divorce half include progress on the construction of a new one hundred thousand square foot site in Waltham, Massachusetts and upgrades and expansions across our operations in Oregon and China.
Despite disruption caused by COVID-19 the booklet footprint program remains within a few months of our pre paid plans, and we hope to complete all of these facility upgrades during calendar 1221.
We are also in the final stage of our P implementation covering manufacturing and supply chain. We're currently going live in multiple production locations and the program is on track as we moved from the design phase two user testing during the half with completion expected by the end of 2022.
Turning down to the final area. I want to provide an update on the our business Outlook through 2024.
To reiterate what I said at the start of the call the fundamental drivers of life science research and it's Market remain attractive the stable Public Funding and an increased emphasis on proteomics off and clinically relevant biologics, the long-term transfer market are positive. However, the short term remains uncertain in markets where I'm working in the lab is unconstrained by coded. We are seeing high demand growth these markets and customers are offering plenty of proof points to us that the prospects are good for abcam to achieve long-term and durable growth.
Through December of last year COVID-19 health and safety controls were still constraining researcher access to nearly sixty percent of labs globally.
These constraints limited and continue to limit scientific discovery capacity.
We observed demand in those labs was well below historic levels this Dynamic is particularly true with an academic labs in the United States Canada and here in the UK.
Against this Market backdrop implementation of our strategy remains within the board's expectations for timing costs and Milestones in the context of a five year period of our plan month. We remained confident in realizing growth from our investments and generating an attractive return on Capital employed as we gain operational leverage normalized capital investment and generate more of our own product at high gross margins over the next few years.
With over 15 months of operational experience throughout the pandemic. We now have learned to be more cautious in our assessment of when laboratory activity and demand will return to full strength.
As we look ahead the remainder of 20 21, we're optimistic about vaccinations and the relaxation of controls leading to a path and a a path to a return to full activity in our customers laps choosing. The exact timing is not a certainty though, and we expect the rate of demand growth or remain uncertain throughout this calendar year.
With the uncertainty of pandemic impact on demand in mind. We believe the long-term Outlook to 20244 abcam as a broader range of potential outcomes than those proposed in 2019. Our latest view of the range of Revenue that can be generated by the business by the end of calendar 2024 is $425 million to five hundred million pounds off.
When laboratory activity and demand return to normal levels, we expect to provide additional feedback and updates to the market.
Amount hand over to Michael who provide for further Financial detailed from F1 Michael. Thank you Alan and good morning. Good afternoon to everyone. I'm going to spend a few minutes talking about our financial performance during the first six months and then we'll have some time for questions if you'd like.
We're pleased to have returned to top-line growth in the. Against a backdrop of continued COVID-19 disruption at the same time. We continue to invest significantly in our long-term growth strategy Palm Avenue on a reported basis was 147.5 million pounds up 6.7% after foreign exchange headwind of around 1.6% predominantly due to the appreciation of the Sterling against the dollar on a constant currency basis Revenue increased 8.3% over the same period last year as you know, Sterling has continued to appreciate against the dollar and other major currencies and 2021 month if the current rates Prevail for the remainder of our second half, it will represent a greater headwind reported top-line growth in the second half around 5% for the approximately Thirty to forty percent of that impacts expected to flow through to the Boss line after hatching.
Our gross margin for the period increased by 120 basis points to 70.9% predominantly due to increased sales from our in-house products.
We expect our gross margin to improve further as a proportion of revenue generated from our in-house products continues to grow.
After continuing to invest in our long-term growth plan or adjusted operating profit for the half was 23.6 million pounds and adjusted operating margin of 16% wage instead. The major component of the assessment is in our team our headcount 23% year-on-year to around 16000 people with around 100 net new hires in the first half alone. We currently anticipate adding approximately the same number of people in the second six months as we continue to invest this would give us a net headcount increase of about 200 people for the 12 months while this increase is still meaningful grown. Now, it has slowed significantly from last year when we added approximately 350 net new people. You'll remember 85 of which came from acquisitions.
Adjusted fully diluted earnings per share was 8.1 Pence reflecting both the decrease in earnings on and and increase and share can't resulting from the 5% share placing in our NASDAQ listing in the home group continues to be highly cash generative with cash generated from operating activities of 33.9 million pounds this together with the net proceeds of approximately 126.5 million pounds from our us share placing means we ended the. With a net cash position of over two hundred eleven million pounds providing significant Capital flexibility to deploy to our growth plans including potential Acquisitions. I thought well now give you a more detailed breakdown of revenues during the first half as Alan mentioned catalog Revenue which accounts for about 94% of the total was up 6.4% on a reported basis and 7.8% on a constant currency basis.
As I mentioned this was particularly pleasing giving the reduced lab capacity during the. Additionally as part of our ongoing drive to improve the quality of our catalog. We'd be listed a number of third-party products, which it contributed approximately four million pounds of Revenue in the first half of the prior-year the first half also benefited from approximately 6 million pounds of revenue from expedient which we did not have in the first half of the prior-year.
The man was once again strong for our highly validated recombinant antibody products which continue to gain traction with academic Pharma and biotech customers as well as our growing range of rapid and high performance package. Aliza kits. We also saw encouraging early interest in demand for our newer product lines, including conjugation kits bioactive proteins and engineered cell lines over all in-house projects Avenues on the catalog increased by 25.6% on a constant currency basis and comprised 53% of catalog Revenue up from 45% last year, including cp&l Revenue total package from in-house products and services increased by approximately 25% on a constant currency basis and represented over 55% of total revenue the strong demand for these products reinforces the undead basis for our organic growth strategy.
The performance of all regions improved in the. Over all the revenue Trends continue to correlate to policy actions taken by governments and organizations from around the world in response to the spread of the virus and the revolting partial or full shutdowns and subsequent reopening of academic and biopharmaceutical Research Laboratories this phenomenon method the Americas region continue to lag the rest of the world with growth of only 6.8% all other major regions fared better with emea and China performing particularly. Well China Grove or 15% and the emea which saw the greatest contribution from a 12.4% moving to our cp&l line, which comprises our customer services revenue from the supply of products for in vitro diagnostic use neurology and Licensing income from in-house and IP including Milestone payments cp&l grew 15.9% overall at constant exchange rates within CPL. We had strong growth in revenue from supply of products for ivd use with birth.
Give up over 90%
As you may recall we experience delays at certain customer orders in fiscal 2020. And so part of this extraordinary growth was a normalization of customer order flows. We continue to build long-term relationships with our major. I video stores and remain confident of further growth from this area of the business.
We also had good growth and income from royalties and licenses which increased by 15.5 15.6% at constant currency rates demonstrating the downstream benefits of our efforts in this area over the last few years back. We experience the lower activity in our customer services business in the. Due to COVID-19 resulting in a 16.7% decline in Revenue. Now, let's turn to Investments that drive are off-line growth in late 2019. We set out our five year plan to invest in the business to accelerate and sustain our growth this investment plan spans a broad range of areas including product Innovation Andy digital capabilities supply chain and Manufacturing capacity and our customer commercial teams discontinued investment is reflected in our adjusted operating costs of just over eighty million pounds. A 29% increase on the prior-year the figure includes 18.3 million of non-cash costs comprising 11 million pounds of adjusted depreciated at depreciation and amortization.
And 7.3 million pounds of share-based compensation. The majority of the underlying increase is attributable to the increasing headcount that I mentioned previously with in total cost adjusted are spending increased 54% including capitalized Innovation our total including capitalized Innovation our total R&D investment, as a percent of our in-house sales was approximately 20% reflecting the importance we place on them and and development to our growth strategy as you'll recall last year. We invested approximately 120 million pounds on a range of Acquisitions and external Investments those businesses and teams aren't fully integrated and we're now focused on delivering benefits from the Technologies and products. They brought us. It's still very early days, but we're certainly excited about their ability to support our Innovation rate and growth potential.
Attorney to cash flow we continue to be highly cash generative with 33.7 million pounds of cash from operations after working capital movements in the. After taxes paid wage increase in net capital expenditure are free cash flow was 6.6 million pounds cash outflow from investing activities was 22.8 million pounds predominantly comprising capital expenditure of 5.1 million pounds. This is in line with our expectation of around fifty to sixty million pounds of capex for the 12-month period as we move through what we expect to be the heaviest year capital investment in the plan.
Cafe X includes eight point five million in respect of global footprint developments as we expand enhance and fit-out our Global operations to support our in-house development capabilities particularly proteins and cell lines off. We also spent around eight million pounds on i t programs in the year and the majority of which was on r e r p e and 4.5 million of internally developed technology relating to new in house products. I'm moving to financing cat activities net cash inflow from activities total fifteen million pounds with net proceeds of 126.5 million pounds from issuing new shares in our NASDAQ listing on in life over 20 20 partially offset by the full repayment of the group's revolving credit facility of 107 million pounds and other outflows of five million pounds.
we were delighted with the
Bonds to our us listing in October which is strongly supported by both our existing and new shareholders the group ended the period with a net cash position of over two hundred eleven million pounds an undrawn revolving credit facility of two hundred million pounds the term of which is Big extended too early 2024.
Our Capital allocation strategy remains unchanged we see significant further opportunities for profitable growth and attractive Returns on investment and believe that the best way to maximize shareholder value over. The long term is Tom Paine our flexibility to invest in opportunities as they arise on the m&a front the market for deals remains open despite COVID-19 and we remain actively focused on developing a pipeline of opportunity opportunities that meet our position criteria finally as mentioned in the release. We intend to change the company's year-end from June to December. This means our current fiscal year will be extended to an eighteen-month period ending December 31st. This change shouldn't materially change the Cadence of our Market Communications will provide a sales update in early July with a full earnings release in September which will cover both the six and 12-month periods and in June 30th in March 20-22 will report both a 12 months and 18 months ending December 31st.
Full details of the new reporting schedule calendar in the release. It should hopefully be relatively straightforward change for you for modeling purposes, but I'm happy to take any questions on this if there are any later month. So in summary despite everything that's going on in the world and the higher levels of uncertainties that we operate in these remain exciting times that abcam we continue to invest in the business and remain focused on Thursday our goals in order to build a stronger more sustainable Global business deliver longer-term durable and profitable Revenue growth and generate value for stakeholders. And with that. Thank you very much for listening and we'll turn it over to the operator for questions.
Thank you. Ladies and gentlemen will now begin the question-and-answer session as romantic. If you wish to ask a question, please press that and one on your telephone keypad and wait will be announced.
The first question comes from line of page Esteban from from Morgan's. Please. Ask the question. Hey guys, good afternoon. Thanks for the time today wage and just one quick one here for you on the on the guide and the comments you made about 60% Labs operating below capacity as if your end since then for a lot of years, I mean things seem to have gotten sort of sequentially better month-over-month in terms of the Resurgence numbers going down as well as vaccinations sticking up. How does that number look for you today? And are you still seeing this clear Divergence between the Americas and Europe?
No, thanks Tas. It's obviously It's tricky to get precise data, but our own surveying and discussions with customers lead us to believe that the US UK and Thursday and academic markets in particular remain challenging. It's there's no let up yet in in Social distancing and um wage now they're having to schedule Labs the answer exactly what's going on in facilities differs wildly, depending on which Institute you're talking to some organizations like Courtney T. For example been on top of extensive testing. They've been able to keep labs open a lot more actively than some others but net. Um, certainly there are enough stories and thoughts feedback about p i saying to The Graduate students, you know, start extending your time Horizon. Um, we're not going to you know, we've lost we lost up to a year this year that those conversations are ongoing wage.
even with the extension in Grants and other things so, you know our view is that we're
Still in the tricky part, um particularly as schools have been locked down that's that's put additional strain on on um, graduate students and postdocs and pies with children and off and we don't see any letting up really it of any significant amount in those those markets yet. But farmers picked up quite a bit more certainly that story there is a different month and obviously in markets like China things are totally back to normal and got it very helpful. It's also worth mentioning I think too. I think something Ellen mentioned earlier. I mean one of the issues is also in the US particularly as immigration Visas, so just it's anecdotal but Memorial Sloan-Kettering is down 100 researchers from from China that couldn't get visas to come back and haven't been able to get back yet. So there are a lot of things driving the variation of the numbers particularly in the US gotta that's helpful Michael and then one one quick follow-up on the on the long-term guide. Can you just log
Playing, you know, does it pretty modest decrease of the midpoint here? How much is that was just the FX expectations, you know getting a little bit worse vs. November 2019 versus this slash prolong prolong. Go with overhang here and Michael one for you on the same note in light of this broader range. Can you provide some color and just margin expectations at the low engine has the high end of the four $25 to $500 million top-line range is really a reflection of the uncertainties around October is demand curve that we've just been talking about and um in these next 12-18 months depending on which scenario we are in four people getting back in the lab that shift that the kind of Revenue curve one to one end or the other of that range pretty quickly. So we're we just have to acknowledge. It's quite difficult to call at the moment and and that's why we broaden dead.
We we tend to think of these targets much more in terms of constant currency than trying to adjust for any short-term currency adjustments.
Yeah on the margin front. I guess that's the reason we didn't give any incremental guidance. We're just finding it quite hard to call Things From A short-term timing perspective and we're still very confident. Well, I mean two things one way, you know, we're continuing to spend and if we added a hundred people in the first half will add another hundred in the second half, but you can see that our increase in spending and by the way, 77% of our costs are are uh, benefits office. So we are while we're still growing increasing spending and investment. It is slowing. So we're confident on on, you know, we're fairly confident on our speed of on the timing of investment what we're not so confident on is how that relates over the next short period to revenues and what that the exact implications for margins longer-term. We're still very comfortable that this business about lacking incremental investment is very easily delivers and adjusted operating margin of of in the low 30s. The timing of that is just less certain both from a a code perspective and a ninja
Perspective but but comfortable that we can get.
they're particularly at the higher end of that range if we we so desire and if our investment in in growth, you know where to come down some
Got it, very helpful guys. Thanks.
Thank you. The next question comes from line of Charles Western from please ask a question.
Hi, thanks for taking my questions to one is also on the guidance and and one is on Explorium in terms of the guidance. I just wanted to better understand from the period to which the range relates. Um, I was under the impression that the 450 to 500 related to the junior em for twenty twenty four the I think you used the phrase by the end of Candor twenty-four. So I just wanted to know if this does this now relate counter 24 or does it relate to an annualizing number at the end of 24 and then my boss same question. Please relate to expedient clearly. It's going very nicely and seems to be an example of you leveraging your distribution network, uh for you products. Can you give us some additional color here in terms of the increasing number of customers for expedient products the penetration of your existing customer base anything like that?
Sure. So so first let's talk about timing Charles. So as we know we're changing our our fiscal year end to calendar year end and you're quite right in the guys. We've had said that that we've widened guidance to 425 million to five hundred million pounds of Revenue by the end of fiscal 2024, which will be calendar 24.
On the second point which is expedient and maybe I can talk about a little more, you know, look it's it's it's quite hard as we fully integrated Expedia now into the business. It has been certainly wage increase in Revenue has been pushing incremental conjugation products, uh, and Eliza kits and and incremental having incremental assets for our for our immunoassays page that has contributed to that Revenue growth that you remember we had last half for a million pounds. Um, uh, it was a five million pounds in the last half for a million pounds when we bought it so long it's going up at a fairly rapid rate and that is largely in Europe. So we also believe that as we as we increase as COVID-19 passes by and we increase our penetration the US that will go up quite significantly. So we're really happy with that as a business. Um, we won't be breaking it out much in the future because it literally is integrated now fully
I'll just just just to go back onto the margin point for that for that range you I think you mentioned if it can be achievable. If we so desire is essentially should we interpret that? It's saying on the current spending plan that that 36% is too is is is going to be achieved at the higher end of your Revenue guidance. And if you were to step up investment again, are you likely to be telling the market first month or just carrying on spending and telling us postdoc? Well, I mean as you know this you don't run a company from you know at chunks of five years you run them. It's it's an awful and like like we do now we will continue to have conversation with with both analysts and shareholders as to our growth plans and we think as long as we continue to see opportunities to drive growth will wage.
in those that did
Let me we'll be investing at current levels, but but we certainly will continue to invest if we can drive growth. So if we're not increasing our investment to drive growth, we think we're easily in the low 30s, that will be that that could vary depending on the level of investment in the opportunities. We see to grow and thank you.
Thank you. The next question comes from line of soda from SED. Please ask your question. Yeah. Hi, Alan and Mike. Thanks for the question. So wage first one on the guide. I mean, I totally appreciate this as an uncertain environment to still but I wanted to get a better understanding of the the recovery that you were seeing across, you know, both antibodies and and the new kids and the new products introduction that you're seeing. Obviously you're seeing, you know, strong growth here in in-house products you were year, but you know when I'm still a little bit surprised about the 60%, that you made because when we look at your product lineup, it's largely consumables antibodies versus we're hearing from your peer groups that are both instruments heavy. They're recovering strongly across their labs and they have appears that they appear to have better than 50% access. So I just want to you know frame that. Uh, yep.
And then just want to get a better understanding of you know, what is there anything else that in certain geographies that we're missing or we need to account for in the in the consumable access because I would have supposed that those should have, you know being adopted sooner than later recovered sooner than later.
As I said, thanks for question the trying to get to exactly what's going on is tricky business. I can tell you for example here in the UK when we serve a lab activities only 25% elapsed would say they're at full activity here in the United Kingdom. So it does does vary quite a lot and therefore depending on your mix of customer type c and geographies that you can get a different answer and then within that too. I think what we're hearing is some Labs have expiring grants and they're using those expiring grants in the absence of me and we'll do work and by consumables to buy other things that will advance the research later. And so that might be benefiting benefitting off of our other participants in in our in the marketplace they have equipment, but you know, we're
You part of the reason why we why the range here is we have not seen in the United States UK and Canada as I mentioned earlier anything that suggests that the markets off in the academic side or strengthening and improving and you know, I what I think I mentioned when when I spoke to the January trading update remains that concerns me is there was a there was a little blip in the summer and the academic buying where it looked like the US in particular was kind of optimistically getting back to work it is we've not seen a strengthening since then.
Okay. Okay. All right. I got it in terms of proteomics. Can you just remind us, you know your exposure there with antibodies and proteins wage at this point in time? And you know, we obviously seen an increased level of interest in proteomics. We have seen new company creation and more Investments happening in the space. Could you talk maybe broadly about 800 abcam is is is positioned here in proteomics longer-term and within the context of this long-term guide as well.
Oh, it's tremendously exciting period of innovation and proteomics and the approach to high throughput protein sequencing or identification application. So I agree with you. There's lots going on the way abcam participates is in the way we think about it is twofold both are good for us. The first is where there are proteomic platforms that wage or antibodies are proteins or conjugation chemistry too as well. We're really well positioned. We have all of those platform Partners to provide them with content as they go forward and we're very active life doing so already and then our thesis I think is that as more proteins are understood more widely and bought specially and their tissue and what the what the regulation is ultimately from these very large screens or identification. Um,
Work flows that are being forwarded by all of these companies are out there. Ultimately. You still need to do the work of getting down to a single protein characterization and for that I am also need antibodies and and other consumables that we sell so we kind of think about what can we learn from the genomics. The massive amounts of sequencing didn't substitute out the need to look at proteins rather raised more questions to where we're protein characterization was important. We believe the same will be true in the proteomics explosion. And so by providing content to this proteomics platforms and the tools required to look at individual proteins. We think we're pretty well-positioned for growth on the back of that trend.
Okay, great. Thank you.
Thank you. The next question come through line of James Gordon from JPMorgan. Please ask you a question.
Hello James calling from JP Morgan. Thanks taking the questions. First question was just on h two so it's actually we're going to see further improvements in terms of of COVID-19. Are there any activities at home could also normalize or step up that would put upward pressure on the second half of ex and I also heard the commentary about further head count increases. So does it would it be fair to assume we're going to see sequential contraction and how much margin contractual might be seeing the second half. That would be the first question, please second one was just a tax rate. I noted the comments in the release about the UK corporate tax rate going up, but I know, exactly. Just determined by the country that they're domiciled in. So what is the sensitivity say for every one percentage Point move in the UK tax rate if it does actually end up going up as much as in currently plan. What does that actually do to abcam.
Okay. Well, so I I don't I take the margin question first. I guess we specifically not given margin guidance, um because of the uncertainty what's up, what's happening right now, but I think if you can safely assume that we are going to continue to invest over this year as we've said and and certainly by adding an extra hundred hundred people in the second half. You know, that that investment will be will come through the p&l. Um, you know, we also you remember as we as we current see things right now our second half is usually stronger than our first half assuming that we don't hit Blitz from COVID-19. We also you know, we're we're currently hoping that that is a trend that continues and and so those two there's two things combine will will give you the ultimate margin for the second half and for the year given what's going we're just we're just not willing to guess what that is right now, but but I think you can make some assumptions on what we've send our investment and look at least under the past few years and look at the rate of increase in headcount what that means and draw your own your own conclusion.
On the tax rate as you know, the government announced it last week. We are current tax rate was something between 17 and 18% off. So we're slightly below or than the than the current rate. It really depends on a number of factors particularly given what happens in the US a lot of our profits are a lot of our revenues are in the US and that maybe u.s. Tax rate goes out. So we're not actually we haven't actually said right now and and actually dug into where we think our tax rate could ultimately end up but we certainly know it's going to it's going to it's going to go higher
Thank you.
Thank you. The next question comes from line of Stephen hollmann from numerous. Please ask a question. My folks just someone further one. I think I understand where you're going on a timing of you Midtown targets and and the margin Ambitions. They're just interested in the OEM friends that you saw in the first half you sort of Six Million Dead decrease of which two thirds seem to be active delisting. Have you just analyzed how many of those binders and targets were replaced by in-house Products off and how many lost competitors? Can you drive further growth of In-House in this way?
Yeah, I mean, it's yeah, sorry Michael. I'll take this one step on your first off. You're right that most of the effect was active by us off. This is one of the bigger periods of doing that but you know when we sort of dig into what's really going on underlying Demand with the remaining bed the reality is that for us anyway early Thursday every research particularly that done by academic Labs tends to look at a much wider wider variety of small volume purchases from App Kam and really takes advantage of the breadth of the volt catalog much more so than people are later stages like bio far more academic accounts that are more in translational work. So the fact that a lot of those gaps are at reduced capacity has had an unusually high impact on the OEM source side where we've got a wider variety of small volume purchases and prod
so what we've seen is is the contraction and
Man for that kind of exploratory Fringe or breadth of buying and academic customers.
And we'd expect that to come back when those kinds of behaviors in customers return.
I get it analyzed of the targets finders Etc delisted how many you've been able to capture? Otherwise about half dead? Yeah, we're pretty good at that. We we usually don't be list unless we're confident. We're going to have a path to getting back. And so that's that's as much as question about timing is it is about a month.
Got you. Thank you. And then just one very quickly on China. I noticed you open the new facility in Shanghai. Is there any change in the sales model and try not to be going more directly?
We're certainly in China aiming to make it easier for customers to get support and help from abcam and trying to work through the natural grain of distribution. They're dead but also provide Direct customer contact and and that facility has been working on that both digitally through a bunch of improvements on WeChat as well as physical contact.
Thank you.
Thank you. The next question comes from line of from William. Please ask a question.
Hi, good morning, and good afternoon. I suppose just wanted to ask in terms of headcount, you know, excluding Thursday 11 a should we think about sort of sg&a as a percentage of sales having hit the high Watermark and what might we start thinking about headcount again X m&a in fiscal year 2022.
So excluding m&a as we've we've had pretty consistently as long as we're investing in the growth. We're going to our largest class. The largest investment is is going to be people it's certainly slowing down and we don't anticipate that it continues to grow at this level. Will it continue to increase some over over time? Even when we slow down our investment the question is is absolutely we don't have a a target number but I think that by the time we get to the end of this year at about you know, we should be around what Seventeen hundred people that that that the growth in that number is going to slow fairly substantially short of investment in incremental new things or or bringing on Acquisitions, but we will continue to invest particularly as we're able to drive our growth and new page spread some of these Technologies across our platform. If you look at what we're able to do right now with with conjugation and the speeding technology the more demand we see for that the the more people will add to continue to drive.
I just had Michael that the used to have to put where we are in our overall plan. We
Launch the plan 2019.
We always believed that these first couple of years we're going to be installing a lot of new capabilities and kind of building new muscles and bringing in new teams in order to drive off more grocery antibodies and and related products and and capabilities from that. So, you know, we're still in this. We're we're putting our foot on the accelerator to accelerate the top line and next year's. So when we talked about being within kind of bored expectations of timing and Milestones, this was always the plan, you know, it's not we're neither off if anything we moved more quickly and getting people in place and and some of these Investments made than we had originally anticipated and equally we expect to see top-line growth and expansion of margins over time from that activity.
Sure, and then with you know a number of the markets that are still challenging for you now kind of ramping up vaccinations distribution. It might be nice to hear what the pace of recovery looked like in markets that are fully back today you highlighted China and Mao, you know, once they start a recovery and just how quickly they came back, you know, understanding each market is different, but maybe just to give us a sense for how the ramp back up might look and the US and UK.
Well, it's a matter of degree. I mean where we saw where we saw markets go quickly too unconstrained access to Labs social distancing know, you know, kind of planned time slots all those kind of things you almost you nearly instantly get back to full demand and and personally and we kind of had a little snapshot of that what it looked like in in July. I mean, it was almost it's almost back in all of that for a bit and wage then we've seen markets go backwards from that. I certainly seen Market go backwards in Germany. Japan has pulled back a bit from where it was is it had to break up break in Tokyo and Beijing and they're related prefectures, uh in January February. So the I guess the complexity of dealing with COVID-19 is that
Apart from China. We've not seen a market where it went through lock down and then re-emergence and it was all u11 shift seen kind of Ebbs and flows of different policy changes and uh kind of rising the activity of reducing the activity throughout particularly here in the UK that's been true. So I guess we're not only looking for the activity we're looking for consistency and and no more ways and um, once we see that it demands snaps very quickly. I think that's all I can say about that. Yep. Okay, I think it's the last one but you know, maybe it's a difficult time to track market share Dynamics, you know, based on the metric that you can rely on, you know, just want to gets its value think your your share has trended now kind of annualizing, uh one year with COVID-19.
It's really difficult because I need to know what happens to is everybody else. You know, our sense is.
Because of the growth of the half more than half of our portfolio that's of our own making is so high and that that's attracting much more clinically dead and then translational types of customers whether they're in Academia or in biopharma. We're really gaining share their because we can see the traction. What's hard to measure is the kind of early Discovery academic and an early Discovery and biopharma where where things have been a bit more constrained and I just can't call it off. But you know, my expectation would be everything we're doing in terms of building quality of product portfolio and Data Insights about where Market needs are and building differentiated products.
That steaming growth. I don't think we could have grown for a staff 8% if we weren't getting share.
Yep. Okay. Thanks Al.
Thank you. The next question comes from line of Michael risking from Bank of America. Please ask you a question.
Hey, thanks for taking my question. I want to go back to you certain your comments on the listing the some of the third-party products. How should we think about that going forward? And obviously the the mix of the company has shown no overtime both through the the faster performance of the in-house catalogs and also some of these steps, but you still have a substantial OEM catalog. Are you are you looking a celebrate the pace of that? Um, do you listening just so how should we think about that draw down in the second half and going forward?
That's the listing was a continuation of an activity that we've been doing for the last four or five years, but it was significantly larger than any of that we've undertaken before and it was fundamentally to to suppliers who's customer feedback was not up to our standards. They were unable to Thursday is some of the quality and consistency concerns and we chose to delist those once we could identify what alternatives we had. You know, my our feedback to rep Myers is if you're providing high-quality products that are highly validated and of the standards to our customers is a role for you with abcam long-term. That'll be very successful for both of us. If you, we're going to find Alternatives and that's kind of where where we are today. There's a whole bunch of biological targets out there that we're not going to have the best binder to age.
There's others will and we're very happy to Source those in where we can reach agreement on quality and and Commercial terms. Yeah, the reality is often innovating at 2500 plus uh new molecules a year. There's a lot we can tackle on our own. We'd like to direct most of that to kind of new areas where there aren't any tools available by working with Partners like cancer research UK or MD Anderson or um, mostly Fox Foundation because that's a lot more interesting for us and for Science and I'd love to have our own a r o m suppliers providing the quality consistency on those that are more well-known care products and targets that we can we can stay Innovative on the edge. That's kind of, you know lack of management ongoing. I don't expect that. We're going to be doing any major shifts or adjustments but
You know, that's not entirely in in our hands I think customers expectations of equality means are involved.
The standards are getting higher and our suppliers need to come up with that.
Okay, thanks. That's helpful. And then going back to sort of the the COVID-19 scape and you thought there I realized there's a lot of uncertainty and it's hard to make predictions. But could you just give us a sense of sort of what your expectations are finally as you as you make business plan for the rest of the year, you know that 60% number operating below capacity, you know the fair to say that maybe by the end of this calendar year you expect that surface 820 or just choices your you know, your internal business plan is going um, what are your thoughts on the pacing of that?
I wish I wish we had a a confident answer to that the things that were watching for our the return of public schools because you know, we're here with celebrating International women's day. You know, this is one of the rare Industries where in life sciences more than half excuse. These are granted to women women in particular been hard-hit where they're dealing with child care at home and trying to have a life sciences career, you know, so we need schools to be reopen to get full employment back in Labs. We need policies to open back up again to allow full use of labs and not have distancing and we need granting agencies to act sensibly in terms of how they're handling Grant expirations on projects that are taking longer and and we haven't seen all three of those yet consistently in each of the markets so you can imagine
And why we're we're just reluctant to to call it. I'm optimistic, you know here in the UK. Today's first day of school is great. I understand many US states that's happened already. Certainly. The vaccination program is is great. But it's if we're it's where the priorities being driven by age rather than type of work, you know, a lot of Life Sciences being done by young people and it's going to be a while before the vaccinated. So I think when we do our trading update over the summer will certainly have a much better view than that. Probably the right time to talk about it.
Okay, thanks. And if I could squeeze in one more you have some comments on m&a. So if you use of cash and you said the listing on the market wage of where we should work, you know, are you still targeting more of the some of these newer verticals such as you know kept I'd like it's that lines um, or or there any any interesting Targets in some nutrition markets, you know primary secondary antibodies and also cuz you remind us of the target criteria, you know, what metrics are you looking for when you pursue assets sure. So I mean, we we continue he's consistent in the areas. We're targeting which is other ways to add to our you know, high-quality antibody portfolio or or other other Jason sees, uh, so, you know, you've mentioned some of them to the extent we can find out for you know, good assets that have high quality products that customers like then we're interested in adding them. I mean you've seen what's happened to the pricing particularly as private Equity firms begun to plan our space and you know, we're we're very disciplined.
So we are very anxious to and on the lookout for and have quite a a good Pipeline and assets we're looking at but but we also have to look you all and our shareholders in the in the eye and and tell them that we're doing it off switch will deliver a good return on Capital to them and and make sense for the business.
So we're very optimistic about it. As you know, we've got some Capital sitting there plus and under on credit line and we're optimistic that we can find good assets that we can purchase and deliver a good return in those areas. We we aren't looking to deviate right now from from the criteria. We've laid out pretty consistently.
All right. Thank you.
Thank you. The next question comes from line of Miles Dixon from your hands. Please ask your question.
Many kinds I'm Alan Michael Ott, very quick ones and firstly the the options work with biopharma. I mean, I remember you talking at the capital markets day way back in 2019, but under indexing wage, Partners has the coronavirus and they make that change in in that business. I mean aside from just looking at Revenue growth today, and I think secondly, I mean you mentioned about a contraction change Patches from academic and expiring granted, but potentially more likely to to benefit higher-value Goods. Have you seen a change in purchasing behaviors from those academics? Maybe a larger purchasing? Thank you.
Hey miles. Thanks for the questions. You know, the the biopharma work we've earned by making our own products where we own the IP and can control quality and formulation in ways that we could never do in an old older business model abcam and all of our growth with that sector has come back from expanding our portfolios the products that we have in that area and getting better at understanding and serving the customer needs and and dealing with their worries an approach which can be different than and some of the smaller volume users. So so it's been a whole bunch of things on business licensing and sales and sales tax in Contracting terms that have gone with that product proposition which improved over the years COVID-19 been much of a benefit in the sense that you know, we're not out selling a lot more dead.
Covid related products. Is that a little bit here and there where we've provided some support but I think the trend is much longer term and and have more durability through covet than that off. And then on the purchasing Behavior question, I I don't have a lot more I can say other than if you can imagine. Yeah someone in a new area of exploration where they don't have that much experience might have bought ten different antibodies from five different suppliers at the beginning of their experiment that's much more in early-stage, uh, exploration typically more academic customer buying behavior that suits white Port Folio of lots of options that activity is most diminished in the Market at the moment.
Okay. Thanks hun.
Thank you. And the last question about I take him from Alastair Campbell from the bedroom, please ask a question. Oh great. Yeah. Thanks the questions just a quick one quite a high level one just in terms of looking to develop a lateral flow tests for COVID-19 you've seen sort of lots of alternative binding companies whether it be a firmer zappers in a race of trying to validate the Technologies and work with companies to develop their own T's and obviously antibodies you're playing a partner as well. So I guess the question is from what you've seen from. The performance of those tests you remain comfortable at antibodies are still King in terms of binder quality and attribution, or do you think actually that there's there's some Merit and some of these normal antibody-based Saunders and I suppose longer-term. Could you see a role for that fitting into your catalog as well? Thanks.
It's a great.
Question, we're still very confident that antibodies are the Workforce Technology for binding to proteins mostly because of the combination of quality and black Comics. Um, but we like everybody else look at every kind of binder technology that's out there and think about how do we want to participate in that? And is that a growing market and faith in our OEM history and model gives us a latitude for buying him and sourcing them in rebranding them or we can in license the technology or require it if if we thought one of those packages was was going to become a bigger opportunity as yet, we we are not seeing anything that would shift our confidence in IGG antibodies as long as the work hard solution for research and and you know, the lateral flow, you know, it might be a good application for for some of these alternate binder Technologies, but it's
It's it's not, you know, certainly we haven't pivoted to be a COVID-19 company or pivot to be a lateral flow company, and it's still a relatively small part of the marketplace off right? Thanks, Allan. Thank you. Thank you. Thank you everyone.
Thank you very much for all your questions, and I will return the call back to Alan Hills or for any closing remarks. Well, thank you everyone. I really appreciate the time to have these kinds of options with you. Obviously, if you've got further questions, we're we're here for you. Um, you know, the business is as I said performing as we would expect in terms of our strategy implementation is certainly our outlook for the business, and the demand is is very good given our our success we've had in the first half and we will get through COVID-19 be normal demand and we serve or confident about the outlet for the company. So thanks for sticking with us and look forward to our next update with you for today. Thank you for your participation. Ladies and gentlemen, you may now or disconnect. Have a nice day.
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