ABCZF Abcam PLC (CE)

PART I

Factors Affecting Our Performance

Our financial condition and results of operations have been, and will continue to be, affected by a number of important factors, including the following:

Product Mix, Growth and Innovation

We offer a variety of products, and the products in our portfolio are sold at different prices and in different volumes. In any particular period, changes in the volume of particular products sold across our various markets and the prices of those products relative to other products will impact our cost of sales, our gross profit and our gross margin. We continue to increase our focus on our innovation platform to extend and improve our in-house proprietary product offering, which we believe will continue to expand our market share in research use markets. Sales of in-house products generate a substantially higher gross margin than OEM product sales, and we also believe that in-house products will support continued market share expansion in research use markets while also enabling us to extend our product offering, through industry partners, to clinical applications. We expect to continue to devote significant resources to developing innovative new products, both as part of our existing portfolio and in complementary and adjacent markets. The acceptance and growth of such new products may vary. The volume of our products sold during a given period in any particular market will depend in part on successfully introducing new products that generate additional demand as well as the extent to which new products may impact our sales of existing products.

Seasonality

We experience modest seasonal customer demand, generally as a result of vacation and academic schedules of our worldwide customer base. We typically see minor slowdowns around the summer and winter holidays and a slight increase during the academic year. We believe that this is caused by factors unique to those particular product markets such as customer manufacturing schedules, inventory levels in the supply chain and government approval processes. As a result, we may see fluctuations across periods as the timing of our customers’ demand for certain products may change.

Currency Exchange Rates

We have substantial global operations whose financial condition and results of operations have been, and will continue to be, impacted by changes in the exchange rate of pound sterling into other currencies.

Strategic Acquisitions

We have made, and intend to continue to make, strategic acquisitions in our existing and adjacent customer markets to supplement our organic growth, solidify our current market presence and expand into new markets. We acquired the proteomics and immunology businesses of Expedeon AG (the “Expedeon Acquisition”) in January 2020 for £104.2 million, and we also made other acquisitions for a total consideration of £14.3 million in the fiscal years ended June 30, 2020 and 2019, comprising:

We did not make any strategic acquisitions in the six months ended December 31, 2020.

Our strategic acquisitions may affect our business growth and the comparability of our financial results. With the exception of the Expedeon Acquisition, the effects that these acquisitions had on our overall revenue and profitability in the fiscal years that they were acquired were relatively small. The Expedeon Acquisition contributed £5.9 million to revenue and £0.3 million to profit before tax for the period from acquisition to June 30, 2020. If the Expedeon Acquisition had been completed at the beginning of the fiscal year ended June 30, 2020, our revenue and profit before tax would have increased by £10.7 million and decreased by £0.3 million, respectively.

We intend to continue to selectively pursue strategic acquisitions to further strengthen our competitiveness. We will evaluate and execute opportunities that complement and scale our business, optimize our profitability, help us expand into adjacent markets and add new capabilities to our business.

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Impact of COVID-19 Pandemic

The COVID-19 pandemic, including variants, has adversely affected, and is expected to continue to adversely affect, elements of our business (including elements of our operations, supply chains and distribution systems). We are continuing to monitor closely how the pandemic and related response measures are affecting our business. Our production and manufacturing facilities are located around the world, so upon the outset of the pandemic, while certain facilities were shut down or operating at reduced capacity, our other locations were able to continue operating as normal.

COVID-19 pandemic controls constrained researcher access to labs globally. These constraints limited scientific discovery capacity and we observed that demand in those labs fell well below historic levels. As constraints on social distancing were gradually lifted around the world through the last year, labs were able to increase research activity. While we believe that underlying demand is still not yet at pre-COVID-19 levels as lab operations remain below their normal capacity, we are hopeful that the vaccination programs that are underway combined with policy changes planned for the summer will further increase research activity and support a return to pre-COVID-19 demand levels worldwide.

Fundamental drivers of the life science research market remain attractive with stable public funding and an increasing emphasis on proteomics and clinically relevant biologics. The implementation of our strategy remains within the Board’s expectations of timing, costs, and milestones. We remain confident in realizing growth from these investments and generating an attractive return on capital employed as we gain operational leverage, normalize capital investment, and generate more of our own product at higher gross margins.

Operating Expenses

Our operating expenses increased from the fiscal year ended June 30, 2019 to the fiscal year ended June 30, 2020 and were higher in the six months ended December 31, 2020 compared to the six months ended December 31, 2019. Consistent with our previously announced growth strategy, we intend to continue to increase our rate of investment in growth projects and expect our operating expenses will continue to increase in the short to medium term as a result. In particular, we expect such increases in operating expenses relative to prior periods as we (i) continue to increase our investment in research and development, digital marketing and e-commerce, (ii) continue to expand into adjacent markets and build scalability into our operational infrastructure, including through further investment in our IT systems, infrastructure and business processes, and (iii) continue to invest in our people and increase our headcount. For the six months ended December 31, 2019 and 2020, our operating profit margin was 19.2% and 12.1%, respectively, and our Adjusted Operating Profit Margin was 24.2% and 17.6%, respectively. We expect our operating profit margins to continue to be lower as a result of the effects of COVID-19 and our investment plans in the short to medium term.

Key Indicators of Performance and Financial Condition

The following table sets forth our key indicators of performance and financial condition for the six months ended December 31, 2019 and 2020 and the fiscal years ended June 30, 2019 and 2020. See note 13 to the condensed consolidated financial statements for the six months ended December 31, 2020 included elsewhere in this Transition Report for details regarding the restatement of results for the six months ended December 31, 2020.

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products and licensing, which we call our Custom Products and Licensing revenue. Custom product and service revenue, which can be the provision of a service or the development of products for customers, is recognized at the point at which a milestone, as defined in the contract, has been completed. Every milestone is typically aligned to a customer deliverable. For example, the amount of services provided, a deliverable arising from the services or the number of products successfully developed and provided to the customers, and accordingly is considered to be a performance obligation. Each milestone has a defined transaction price. If it is identified that the costs will be in excess of the contract revenue, the expected loss is recognized as an expense immediately. License fee income is recognized upon delivery of the licensed technology where our continued performance or future research and development services are not required. Royalty revenue is recognized on an accruals basis based on the contractual terms and the substance of the agreements with the counterparty, provided that the amount can be reliably measured and it is probable that the economic benefit will flow to us.

Cost of sales

Cost of sales primarily consists of:

Gross profit and gross margin

Our gross profit and gross margin may fluctuate from period to period. Such fluctuations may be influenced by changes in product mix and changes in foreign currency exchange rates. Gross margin is impacted by the mix of our products growing at different rates or differing growth rates within different geographic territories, as well as future acquisitions and productivity improvements to our manufacturing sites as we introduce more automation.

Selling, general and administrative expenses

Selling, general and administrative expenses primarily consist of salaries and related benefits, including share-based compensation for all functions other than research and development. Other general and administrative costs include marketing expenses, facility-related costs and professional services fees for auditing, tax and general legal services, as well as expenses associated with the requirements of being a listed public company on AIM and Nasdaq. We expect that our general and administrative costs will increase in the future as our business expands and we increase our headcount to support the expected growth in our operating activities. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate increased costs associated with being a U.S. public company, including expenses related to services associated with maintaining compliance with stock exchange rules and SEC requirements, director compensation, insurance and investor relations costs.

Research and development expenses

Research activities, which are the early stages of product development, are expensed as incurred up until products reach commercial feasibility, after which point such development costs are capitalized and amortized over the anticipated commercial life of the asset. Such research and development expenses, which are expected to increase in the future, consist of salary-related benefits, including share-based compensation for research and development staff, costs of related facilities, materials and equipment, costs associated with obtaining and maintaining patents and other intellectual property, depreciation of research and development specific assets and amortization of capitalized research and development projects, and include an offset in respect of research and development tax credits as described further below. Development activities generally relate to creating new products, creating variations of existing products, modifying existing products to meet new applications or developing new technology platforms from which to derive new products, but these costs are only capitalized

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once commercial feasibility is attained whereby this category of capitalized cost is described as Internally Developed Technology (“IDT”).

We carry out extensive research and development activities, and as a result, we benefit in the United Kingdom from HMRC’s Research and Development Expenditure Credit (“RDEC”), which provides relief against UK corporation tax. Broadly, RDECs provide a tax credit currently equal to 13% of “qualifying research and development expenditure” made from April 1, 2020 (the rate was previously 12% of qualifying research and development expenditure made from January 1, 2018 to March 31, 2020) by certain companies where certain criteria are met. Based on criteria established by HMRC, a portion of expenditures incurred in relation to our research and development and manufacturing development activities are eligible for RDEC relief. Our qualifying research and development expenditures largely consist of employment costs for research staff, consumables and certain internal overhead costs incurred as part of research projects for which we do not receive revenue and are loss generating. To the extent a company cannot utilize the RDEC against UK corporation tax, then certain rules apply that allow the RDEC to reduce the tax liability of certain specified taxes, and to the extent it is not possible to utilize the RDEC in full, then the net tax credit is repaid to the company by HMRC.

Exceptional items and amortization of acquisition intangibles

Exceptional items and amortization of acquisition intangibles is comprised of certain cash and non-cash items that we believe are not reflective of the normal course of our business and where the separate disclosure of such items enables a reader to isolate and evaluate the impact of such items on results and allows for a fuller understanding of underlying performance of the business. We identify and determine items to be exceptional based on their nature and incidence or by their significance. As a result, the composition of exceptional items may vary from period to period and from year to year. Current components consist of impairment of intangible assets, systems and process improvement costs associated with our strategic ERP implementation which commenced in 2016, acquisition costs and integration and reorganization costs. Amortization of acquisition intangibles relates to the amortization of intangible assets brought onto the balance sheet at a fair value in accordance with IFRS 3 Business Combinations (“IFRS 3”) and arising specifically from acquisition activity.

Finance income

Finance income is comprised of interest received or receivable on cash deposits.

Finance costs

Finance costs consist mainly of the amortization of upfront fees incurred in setting up our revolving credit facility and other related facility fees, such as those for non-utilization. Finance costs additionally include interest expense on our revolving credit facility that was drawn down during the fiscal year ended June 30, 2020 and is treated as short term debt. We have no other borrowings upon which interest could be incurred. Finance costs also include interest expense representing the unwinding of discounted lease liabilities in respect of assets now presented on our balance sheet in accordance with IFRS 16, which became effective for us on July 1, 2019.

Tax

Our tax credit or expense consists of income taxes, with UK income being taxed at the UK rate of tax and taxation for other jurisdictions calculated at the rates prevailing in each respective jurisdiction. Tax also includes the unwinding of temporary differences caused mainly by the manner in which intangible assets related to acquisitions are recognized, and therefore amortized, in our consolidated financial statements compared to the individual entity financial statements, which is the basis upon which taxation is calculated.

We also benefit from the UK “Patent Box” regime that allows profits attributable to revenue from patents registered in the United Kingdom or European Union or patented products to be taxed at effective rate of 10%, rather than the usual UK statutory rate of 19%.

Segment Reporting

We present our results of operations in the same way that we manage our business, evaluate our performance and allocate our resources. We have concluded that we have only one core business activity, and there are no separately identifiable business segments that provide individual products or services or a group of related products and services that would be subject to separate risks and returns. The financial information reported to our Chief Executive Officer, who is considered our chief operating decision maker, for the purposes of resource allocation and assessment of performance is based wholly on our overall activities. Therefore, we have determined that we only have one reportable segment, which is the sale of antibodies and related products.

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Results of Operations

We previously announced results for our fiscal year ended June 30, 2020 and comparative periods. We are transitioning to report our results on a calendar year basis (December 31), and as such we are reporting herein results for the six month period from July 1, 2020 to December 31, 2020, and the comparative period for 2019, which are unaudited.

Six months ended December 31, 2019 compared to the six months ended December 31, 2020

The following tables set forth our results of operations in pounds sterling and as a percentage of revenue for the six months ended December 31, 2019 and 2020:

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Revenue

Revenue was £147.5 million for the six months ended December 31, 2020 compared to £138.2 million for the six months ended December 31, 2019. Against the backdrop of COVID-19, customers gradually returned to labs, although according to industry research, almost 60% of life science labs were still operating below normal capacity through December 31, 2020. Growth was driven by demand for in-house developed products, with total in-house revenue growth of 22.6% (including Custom Products and Licensing (“CP&L”) revenue) to £81.8 million compared to £66.7 million for the six months ended December 31, 2019 and representing 55.5% of total revenue compared to 48.3% for the six months ended December 31, 2019. In addition, the pound sterling was stronger against the basket of foreign currencies in which we trade, which negatively impacted our reported revenue in 2020. Despite this, monthly revenue in the six months ended December 31, 2020 showed growth versus the monthly revenues in the equivalent period in 2019.

Catalogue revenue grew 6.4% compared to the six months ended December 31, 2019 while CP&L revenue grew 11.8%. Catalogue revenue grew mid-single- to double-digits in all regions other than the Americas, where customer laboratory activity has continued to be constrained due to COVID-19.

Our main source of revenue, catalogue product sales, was £139.0 million for the six months ended December 31, 2020 compared to £130.6 million for the six months ended December 31, 2019 and comprised 94.2% of our total revenue compared to 94.5% of our total revenue for the six months ended December 31, 2019. From a product perspective, key components are recombinant antibodies, sales of which were £41.0 million in the six months ended December 31, 2020 compared to £33.3 million for the six months ended December 31, 2019, and immunoassays, sales of which were £15.6 million for the six months ended December 31, 2020 compared to £10.7 million for the six months ended December 31, 2019. Together, these categories contributed 40.7% of catalogue revenue for the six months ended December 31, 2020 compared to 33.7% of catalogue revenue for the six months ended December 31, 2019. Within catalogue revenue, in-house products delivered a strong relative performance with the proportion increasing to 52.7% at £73.3 million compared to 45.2% at £59.1 million for the six months ended December 31, 2019. Sales of OEM products generated £65.7 million for the six months ended December 31, 2020 compared to £71.5 million for the six months ended December 31, 2019. Regionally, in respect of catalogue revenue, while all of our markets were adversely impacted by COVID-19 due to the below normal capacity of our customers, EMEA, China and Rest of Asia Pacific, representing 27%, 19% and 8%, respectively of our total revenues showed the strongest performances compared to Americas, which represented 40% of our total revenues, which saw greater challenges where customer laboratory activity has continued to be constrained due to COVID-19.

Our revenue from CP&L, which accounted for 5.8% of our total revenue for the six months ended December 31, 2020 compared to 5.5% of our total revenue in the six months ended December 31, 2019, comprises custom antibody development services, IVD sales and royalty and license income and was £8.5 million compared to £7.6 million for the six months ended December 31, 2019. Custom products and services revenue was £2.7 million for the six months ended December 31, 2020 where we experienced lower customer activity in the period due to COVID-19 compared to £3.3 million for the six months ended December 31, 2019. Our royalties and licensing revenue was strong at £3.2 million for the six months ended December 31, 2020 compared to £2.9 million for the six months ended December 31, 2019, part of which was as result of the Expedeon Acquisition which was absent from the results for the six months ended December 31, 2019. IVD sales were strong at £2.6 million for the six months ended December 31, 2020 compared to £1.4 million for the six months ended December 31, 2019 where the Group had experienced delays to certain customer orders.

Our revenue is broken down into the following geographical components:

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Revenue by type can be further broken down as follows:

Catalogue revenue can be further broken down as follows:

Cost of sales

Cost of sales increased by £1.0 million, or 2.4%, to £42.9 million for the six months ended December 31, 2020 compared to £41.9 million for the six months ended December 31, 2019. Key components of this were costs of catalogue inventory expensed of £29.1 million compared to £28.3 million for the six months ended December 31, 2019; royalty costs associated with products sold of £1.9 million compared to £2.0 million for the six months ended December 31, 2019; shipping costs of £4.4 million compared to £3.6 million for the six months ended December 31, 2019 and costs associated with our CP&L business were £3.2 million for the six months ended December 31, 2020 compared to £3.3 million for the six months ended December 31, 2019.

Gross profit and gross margin

Gross profit increased by £8.3 million, or 8.6%, to £104.6 million for the six months ended December 31, 2020 compared to £96.3 million for the six months ended December 31, 2019, and gross margin was 70.9% compared to 69.7% for the six months ended December 31, 2019. This increase predominantly reflects product mix, with a higher percentage of Catalogue revenue generated from in-house products which generate a higher margin as well as changes in the geographical mix.

Selling, general and administrative expenses before exceptional items and amortization of acquisition intangibles

Selling, general and administrative expenses before exceptional items and amortization of acquisition intangibles increased by £12.0 million, or 21%, to £68.1 million for the six months ended December 31, 2020 compared to £56.1 million for the six months ended December 31, 2019, reflecting greater business activity and planned investments made during the period, predominantly in innovation and our global team. The increase included salaries and related costs of £49.6 million for the six months ended December 31, 2020 compared with £37.1 million for the six months ended December 31, 2019. Salary and related costs also include non-cash share-based compensation costs of £5.4 million compared to £4.1 million for the six months ended December 31, 2019 and the increase reflects increased headcount as well as increased untaken vacation accrual which arises from the impact of COVID-19. Other significant costs included materials expenses which increased by £1.2 million to £6.6 million compared to £5.4 million for the six months ended December 31, 2019, but overall salary and related costs and materials costs were offset by amounts allocated to intangible assets and inventory of £12.8 million compared to £11.7 million for the six months ended December 31, 2019. Administrative costs comprising sales and marketing costs, premises costs, travel costs, software license costs and general administrative costs increased by £2.3 million to £13.8 million compared to £11.5 million for the six months ended December 31, 2019. This cost increase reflects increased sales and marketing activity following investment in the business, increased premises costs reflecting expansion in the footprint of the business, in

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particular in the US, an increase in software license costs as new elements of our ERP system went live, an incremental additional £0.8 million in respect of insurance costs arising from the Nasdaq listing. These cost increases were offset by a decrease in travel costs which was driven by travel restrictions and similar mitigation efforts that countries imposed globally as a result of the COVID-19 pandemic, and the release of accrual liabilities of £2.4 million. Depreciation and amortization charges of £8.6 million compared to £8.0 million for the six months ended December 31, 2019. There was also a £1.3 million cost in respect of foreign movements owing to the relative strength of the pound sterling in the six months ended December 31, 2020 compared to an equivalent amount of £1.2 million for the six months ended December 31, 2019 where sterling had also strengthened.

Research and development expenses before exceptional items and amortization of acquisition intangibles

Research and development expenses before exceptional items and amortization of acquisition intangibles increased by £3.7 million, or 54.4%, to £10.5 million, net of a tax credit of £0.6 million, for the six months ended December 31, 2020 compared to £6.8 million, net of a tax credit of £0.9 million for the six months ended December 31, 2019. These were comprised mainly of an increase of £3.6 million to £10.1 million of salary and related costs for six months ended December 31, 2020 compared to £6.5 million for the six months ended December 31, 2019 and included £1.9 million of non-cash share based compensation charges compared to £0.8 million for the six months ended December 31, 2019 but against which was an offset of £2.6 million for amounts allocated to intangible fixed assets and inventories compared to £2.4 million for the six months ended December 31, 2019. Depreciation and amortization charges of £2.4 million were also incurred in the six months ended December 31, 2020 compared to £1.8 million in the six months ended December 31, 2019.

Exceptional items and amortization of acquisition intangibles

Exceptional items and amortization of acquisition intangibles were £8.1 million for the six months ended December 31, 2020 compared to £6.8 million for the six months ended December 31, 2019. This cost was split into £4.9 million in selling, general and administrative expenses which compared to £4.6 million for the six months ended December 31, 2019 and £3.2 million in research and development expenses which compared to £2.2 million in the six months ended December 31, 2019. These expenses consisted of systems and process improvement costs of £1.8 million, compared to £2.1 million in the six months ended December 31, 2019, which related to the work performed on the Oracle Cloud ERP project related to upgrading our IT systems and that do not qualify to be capitalized; acquisition costs of £nil compared to £1.3 million in the six months ended December 31, 2019 which related to the Expedeon Acquisition which completed on January 1, 2020; integration and reorganization costs of £1.9 million compared to £nil for the six months ended December 31, 2019, which related partly to the integration of the Expedeon businesses and reorganization costs in respect of the alignment of our operational structure and geographical footprint to our strategic goals; and amortization of acquisition intangibles of £4.4 million, compared with £3.4 million in the six months ended December 31, 2019, of which £1.2 million related to selling, general and administration expenses; and the balance of £3.2 million related to research and development expenses and where a significant portion related predominantly to intangible assets acquired with Epitomics, Inc. in 2012.

Finance income

Finance income for the six months ended December 31, 2020 decreased by £0.3 million to £0.2 million compared to £0.5 million in the six months ended December 31, 2019, which consisted of interest receivable on cash deposits. The benefit of having a relatively high cash balance at the end of the period as well as a higher average cash balance during the six months was offset by low interest rates received on these balances.

Finance costs

Finance costs for the six months ended December 31, 2020 increased by £0.8 million to £1.9 million compared to £1.1 million for the six months ended December 31, 2019. This comprised lease liability costs of £1.0 million compared to £0.6 million for the six months ended December 31, 2019, representing the unwinding of discounted lease liabilities and borrowing costs arising as a result of interest payable on drawings on our revolving credit facility. These drawings were £107.0 million and interest was paid for over four months up until repayment on 23 November 2020 which compares with the six months ended December 31, 2019, where there were no drawings until 17 November 2019 when €120 million (£103.4 million) was borrowed to facilitate the Expedeon acquisition meaning that interest was only paid for just over one month. Other costs comprised the amortization of upfront fees incurred in setting up our revolving credit facility and other related facility fees, such as those for non-utilization.

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Tax expense

Tax expense for the six months ended December 31, 2020 increased by £3.0 million to £2.9 million compared to a credit of £0.1 million for the six months ended December 31, 2019. This charge was lower than the UK corporate rate of 19% due partly to a lower rate of tax applied to profits on patented income under HMRC’s “Patent Box” regime compared to the six months ended December 31, 2019 which also benefited from a one off credit of £4.7 million for historical periods going back to the fiscal year ended June 30, 2016, in respect of the initial recognition of patent box benefits following successful registration of patents. The tax effect of exceptional items and the amortization of acquisition intangibles had a beneficial effect of £1.8 million in the six months ended December 31, 2020 compared to £5.9 million (which includes the one off credit of £4.7 million referred to above) in the six months ended December 31, 2019, resulting in an effective tax rate of 17.9% compared to (0.4)% in the six months ended December 31, 2019. Excluding exceptional items and the amortization of acquisition intangibles, the effective rate was 19.5% compared to 17.7% for the six months ended December 31, 2019.

In March 2021, the UK government announced that the UK corporate tax rate would increase from 19% to 25% commencing 1 April 2023. As a result, we anticipate that our effective tax rate will increase towards the UK corporate rate and remains subject to further changes to the UK corporate tax rate, as well as equivalent changes that may occur in other in jurisdictions in which we operate, as various governments take actions to address the deficits caused by COVID-19.

Operating profit and Adjusted Operating Profit

Operating profit decreased by £8.7 million, or 32.7%, to £17.9 million for the six months ended December 31, 2020 compared to £26.6 million for the six months ended December 31, 2019. This decrease was primarily driven by both the increase in selling, general and administrative expenses and research and development expenses which reflected greater business activity and planned investment made during the period, predominantly in innovation and our global team, the impact of COVID-19, the step up in non-cash items including depreciation and amortization and share-based payments, period-on-period movement in exchange rates. In addition, although revenues increased for the six months ended December 31, 2020 compared to the six months ended December 31, 2019, these were still suppressed by the effects of the COVID-19 pandemic whereby equivalent costs have not reduced to compensate for this. Excluding non-cash costs, comprising depreciation and amortization and share-based compensation, total reported costs increased by 23.1% to £63.4 million which had a corresponding effect on operating profit.

Adjusted Operating Profit decreased by £7.4 million, or 22.2%, to £26.0 million for the six months ended December 31, 2020 representing an Adjusted Operating Profit Margin of 17.6% compared to £33.4 million for the six months ended December 31, 2019, representing an Adjusted Operating Profit Margin of 24.2%. Adjusted Operating Profit was primarily driven by the factors affecting operating profit, with the exception of exceptional items and amortization of acquisition intangible assets, which are excluded from Adjusted Operating Profit. For the six months ended December 31, 2020 this was composed of a decrease in systems and process improvement costs of £0.3 million to £1.8 million, compared to £2.1 million in the six months ended December 31, 2019 and which was for the work performed on the Oracle Cloud ERP project related to upgrading our IT systems and that do not qualify to be capitalized. Our acquisition costs were £nil for the six months ended December 31, 2020, compared to £1.3 million in the six months ended December 31, 2019 as a result of the completion of the Expedeon Acquisition on January 1, 2020. There was an increase of £1.9 million in integration and reorganization costs to £1.9 million compared to £nil for the six months ended December 31, 2019, which related partly to the integration of the Expedeon businesses acquired on January 1, 2020 and reorganization costs in respect of the alignment of our operational structure and geographical footprint to our strategic goals. Additionally, there was an increase of £1.0 million in amortization of acquisition intangibles to £4.4 million, compared with £3.4 million in the six months ended December 31, 2019, largely due to intangible assets acquired with the Expedeon Acquisition.

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Fiscal year ended June 30, 2019 compared to the fiscal year ended June 30, 2020

The following tables set forth our results of operations in pounds sterling and as a percentage of revenue for the fiscal years ended June 30, 2019 and 2020:

Revenue

Revenue increased by £0.1 million to £260.0 million for the fiscal year ended June 30, 2020 from £259.9 million for the fiscal year ended June 30, 2019. After delivering growth of 10.8% in the first half of the fiscal year ended June 30, 2020, revenue in the second half declined by 9.9%, impacted by the onset and spread of COVID-19, where we saw a reduction in demand as research laboratories globally temporarily shut down or

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reduced activity. We continued to serve the needs of laboratories that remained open, but due to the demand reduction, monthly reported revenue compared with the equivalent month in the prior fiscal year decreased by 7.2% in March, 37.6% in April, 26.2% in May and 0.2% in June, resulting in the overall second half decline of 9.9% compared to the prior year. The impact on revenue seen in the second half reflects the underlying factors affecting demand, including the easing of lockdown restrictions and the partial or full reopening of academic and biopharmaceutical research laboratories around the world. In addition, the pound sterling was weaker against the basket of foreign currencies in which we trade, which positively impacted our reported revenue.

Including CP&L revenue, discussed in more detail below, total revenue from in-house products and services increased by 6.3% to £131.3 million, compared to £123.5 million for the fiscal year ended June 30, 2019, representing 50.5% of our total revenue, with an equivalent reduction in OEM products of 5.6% to £128.7 million, compared to £136.4 million in the fiscal year ended June 30, 2019.

Our main source of revenue, catalogue product sales, increased by £0.3 million to £243.1 million for the fiscal year ended June 30, 2020 from £242.8 million for the fiscal year ended June 30, 2019 and comprised 93.5% of our total revenue. From a product perspective, our key growth drivers were recombinant antibodies, sales of which grew 7.0% to £63.2 million in the fiscal year ended June 30, 2020, and immunoassays, sales of which grew 23.7% to £22.9 million in the same period. Together, these categories contributed 35.4% of catalogue revenue for the fiscal year ended June 30, 2020 compared with 32.0% for the fiscal year ended June 30, 2019. Within catalogue revenue, in-house products delivered a strong relative performance, increasing by 7.5% to £114.4 million or 47.1% of total catalogue revenue in the fiscal year ended June 30, 2020, as compared to 43.8% in the fiscal year ended June 30, 2019. Regionally, in respect of catalogue revenue, all of our markets were adversely impacted by COVID-19 in the second half of the fiscal year ended June 30, 2020, with the Americas and China seeing the greatest impact, resulting in declines of 4.4% and 1.8% over the full year, respectively. EMEA, Japan and the Rest of Asia Pacific fared better, and overall, these regions delivered reported growth of 3.0%, 11.9% and 8.1% for the full year with these three regions collectively comprising 44.1% of our catalogue revenue in the fiscal year ended June 30, 2020.

Our revenue from CP&L, which accounted for 6.5% of our total revenue in the fiscal year ended June 30, 2020, and which comprises custom antibody development services, IVD sales and royalty and license income, decreased by £0.2 million to £16.9 million during the fiscal year ended June 30, 2020 compared with £17.1 million for the fiscal year ended June 30, 2019. Custom products and services revenue increased by 16.7% to £6.3 million for the fiscal year ended June 30, 2020, compared with £5.4 million for the fiscal year ended June 30, 2019. Our royalties and licensing revenue increased 22.9% to £5.9 million for the fiscal year ended June 30, 2020 compared with £4.8 million for the fiscal year ended June 30, 2019, part of which was a result of the Expedeon Acquisition. IVD sales declined to £4.7 million for the fiscal year ended June 30, 2020, compared with £6.9 million for the fiscal year ended June 30, 2019. IVD sales were lower than expected due to the certain purchasing delays of IVD products experienced in the first half of the year and that continued into the second half.

Our revenue is broken down into the following geographical components:

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Revenue by type can be further broken down as follows:

Catalogue revenue can be further broken down as follows:

Cost of sales

Cost of sales increased by £3.1 million, or 4.0%, to £79.8 million for the fiscal year ended June 30, 2020 from £76.7 million for the fiscal year ended June 30, 2019, which was primarily driven by an increase of £2.2 million in costs of custom services provided, but also was influenced by the inclusion of the Expedeon Acquisition since January 2020 and £0.6 million in shipping costs, which was mainly a result of the increase in shipping costs that were not passed on to customers.

Gross profit and gross margin

Gross profit decreased by £3.0 million, or 1.6%, to £180.2 million for the fiscal year ended June 30, 2020 from £183.2 million for the fiscal year ended June 30, 2019, and gross margin decreased by 120 basis points to 69.3% for the fiscal year ended June 30, 2020 from 70.5% for the fiscal year ended June 30, 2019. The decrease was primarily a result of weaker revenue and margins within CP&L, where Custom products and services typically generate lower margins, as well as an increase in direct costs, such as packaging and shipping costs arising in part from lower shipping charges passed on to customers. Other impacts included foreign currency headwinds and geographic mix.

Selling, general and administrative expenses before exceptional items and amortization of acquisition intangibles

Selling, general and administrative expenses before exceptional items and amortization of acquisition intangibles increased by £29.4 million, or 33.1%, to £118.3 million for the fiscal year ended June 30, 2020 from £88.9 million for the fiscal year ended June 30, 2019. This increase was primarily driven by an increase of £13.7 million in salaries and related costs to £76.7 million, predominantly due to increased headcount as well as increased untaken vacation accrual arising from the impact of COVID-19. The figure also includes an increase in non-cash share-based compensation costs of £1.1 million. Other factors were an increase of £4.0 million in general administrative costs, with a key component being a full year’s software license costs relating to the ERP system, which went live in April 2019; an increase of £11.6 million in depreciation and amortization charges to £17.4 million, which consisted of £6.7 million in respect of the implementation of IFRS 16, £1.3 million in respect of the annualization of depreciation on assets brought into use in our new headquarters and £2.3 million owing to the increase in software amortization costs, reflecting a full years’ contribution from the ERP system modules mentioned above; and a £1.3 million year-on-year foreign exchange related increase owing to the relative weakness of the pound sterling.

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Research and development expenses before exceptional items and amortization of acquisition intangibles

Research and development expenses before exceptional items and amortization of acquisition intangibles, net of a tax credit of £1.5 million, increased by £6.7 million, or 62.6%, to £17.4 million for the fiscal year ended June 30, 2020 from £10.7 million for the fiscal year ended June 30, 2019, net of a tax credit of £1.9 million. This increase was primarily due to a £4.3 million increase in salary and related costs, net of an offset for amounts allocated to intangible fixed assets and inventories, with the increase being partly to acquisition related activity during the year, in particular the Expedeon Acquisition, which was purchased in January 2020 and also £1.7 million of increased non-cash share-based compensation. The increase was also due to a £0.9 million increase in depreciation and amortization charges.

Exceptional items and amortization of acquisition intangibles

Exceptional items and amortization of acquisition intangibles increased by £6.5 million, or 23.6%, to £34.0 million for the fiscal year ended June 30, 2020 from £27.5 million for the fiscal year ended June 30, 2019, split into a decrease of £10.1 million in selling, general and administrative expenses, which was more than offset by an increase of £16.6 million in research and development expenses. These expenses consisted of impairment of intangible assets of £14.9 million in respect of AxioMx in vitro monoclonal antibody production technology, where, although technical feasibility had been proved, the scalability has since been determined to not be realistically viable at the current time, as compared to impairment of software assets of £12.8 million in the fiscal year ended June 30, 2019 in respect of the full impairment of certain modules of the ERP implementation; systems and process improvement costs of £4.3 million, compared with £4.5 million for the fiscal year ended June 30, 2019, which related to the work performed on the Oracle Cloud ERP project related to upgrading our IT systems and that do not qualify to be capitalized; acquisition costs of £4.1 million related to the Expedeon Acquisition; integration and reorganization costs of £2.1 million, which related partly to the integration of the Expedeon businesses and reorganization costs in respect of the alignment of our operational structure and geographical footprint to our strategic goals. In the fiscal year ended June 30, 2019, reorganization costs were £3.7 million and related to our new headquarters and consisted of costs such as dual rent incurred prior to moving in and depreciation of assets not yet brought into use prior to occupation of the building; and amortization of acquisition intangibles of £8.6 million, compared with £6.5 million in the fiscal year ended June 30, 2019, where the increase was mainly due to new acquired intangible assets arising from the Expedeon Acquisition, of which £2.6 million related to selling, general and administration expenses; and the balance of £6.0 million related to research and development expenses and where a significant portion related predominantly to intangible assets acquired with Epitomics Inc. in 2012.

Finance income

Finance income was £0.7 million in the fiscal year ended June 30, 2020 and £0.6 million in the fiscal year ended June 30, 2019, which consisted of interest receivable on cash deposits during the fiscal year. The benefit of higher overall cash balances during the fiscal year ended June 30, 2020 was offset by lower interest rates received on these balances.

Finance costs

Finance costs increased by £2.5 million to £2.8 million for the fiscal year ended June 30, 2020 from £0.3 million for the fiscal year ended June 30, 2019. This increase was primarily due to lease liability costs of £1.5 million, representing the unwinding of discounted lease liabilities, following the implementation of IFRS 16 as at July 1, 2019 and increased borrowing costs arising as a result of interest payable on drawings on our revolving credit facility, which were not present in the fiscal year ended June 30, 2019. Other costs that increased in the fiscal year ended June 30, 2020 were in respect of the amortization of upfront fees incurred in setting up our revolving credit facility and other related facility fees, such as those for non-utilization. In the fiscal year ended June 30, 2019, these costs were only incurred for five months since inception of the facility, whereas for the fiscal year ended June 30, 2020, these costs covered a full financial year.

Tax expense

Tax expense decreased by £15.5 million, to a credit of £4.1 million for the fiscal year ended June 30, 2020 from an expense of £11.4 million for the fiscal year ended June 30, 2019. This decrease was partially due to a reduction in profit before tax to £8.4 million from £56.4 million for the fiscal year ended June 30, 2019 and also from a credit of £6.0 million in respect of the initial recognition of benefit from a lower rate of tax applied to

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profits on patented income under HMRC’s “patent box” regime following successful registration of patents during the year where the credit consists of an element in respect of the fiscal year ended June 30, 2020 but also historical years going back to the fiscal year ended June 30, 2016. Exceptional items and the amortization of acquisition intangibles had a beneficial effect of £11.8 million in the fiscal year ended June 30, 2020, resulting in an effective tax rate on adjusted profits of 18.0%, compared to 19.7% in the fiscal year ended June 30, 2019.

In March 2020, the UK government announced that the UK corporate tax rate would remain at 19% until April 2022 rather than reduce to 17% as had previously been outlined. As a result, we now anticipate that our effective tax will remain around 18% in the medium term, subject to further changes to the corporate tax rate as a result of the remedial actions taken by the UK government to address the deficit caused by COVID-19, as well as equivalent changes that may occur in other in jurisdictions in which we operate.

Operating profit and Adjusted Operating Profit

Operating profit decreased by £45.6 million, or 81.3%, to £10.5 million for the fiscal year ended June 30, 2020 from £56.1 million for the fiscal year ended June 30, 2019. This decrease was primarily driven by a decrease in revenue in the second half of the year as a consequence of the COVID-19 pandemic but where there was no corresponding decrease in a number of our costs and where, in many cases, increases were incurred in line with what had previously been expected to be increases in revenue. We saw increases in the larger components of costs where significant increases were included within selling general and administrative expenses and consisted mainly of salaries and related expenses, premises costs, software costs and depreciation and amortization. These increased costs were partially offset by £12.8 million, representing the absence of an impairment charge incurred in the fiscal year ended June 30, 2019 in respect of the ERP system and which was treated as an exceptional item. Additional costs in respect of the Expedeon Acquisition and also integration and reorganization costs, both of which are classified as exceptional items, were also incurred. Additionally, we saw increases within research and development, which primarily consisted of salaries and related expenses and the impairment of the acquisition intangible asset of £14.9 million in respect of the AxioMx in vitro monoclonal antibody production technology, which is classified as an exceptional item.

Adjusted Operating Profit was £44.5 million for the fiscal year ended June 30, 2020, representing an Adjusted Operating Profit Margin of 17.1%, compared to Adjusted Operating Profit of £83.6 million for the fiscal year ended June 30, 2019, representing an Adjusted Operating Profit Margin of 32.2%, after planned strategic investments made during the fiscal year ended June 30, 2019. This decrease in Adjusted Operating Profit was primarily driven by the factors affecting operating profit, with the exception of exceptional items and amortization of acquisition intangible assets, which are excluded from Adjusted Operating Profit and consist of an increase of £2.1 million of impairment charges of intangible assets, which in the fiscal year ended June 30, 2020 consisted of £14.9 million in respect of an acquisition intangible asset and in the fiscal year ended June 30, 2019 consisted of £12.8 million in respect of software under construction; a decrease of £0.2 million related to system and process improvement costs of £4.3 million related to the ERP implementation that do not qualify for capitalization, which was consistent from the fiscal year ended June 30, 2019; an increase of £2.5 million across integration and reorganization costs and acquisition costs, with integration and reorganization costs down £1.6 million, to £2.1 million, where in the fiscal year ended June 30, 2019, costs consisted of £3.7 million in respect of our new headquarters and acquisition costs of £4.1 million, which were £nil in the fiscal year ended June 30, 2019; and an increase of £2.1 million in respect of the amortization of acquisition intangibles primarily due to the new Expedeon Acquisition assets acquired during the year.

In February 2019, we entered into a revolving credit facility (“RCF”) with HSBC, NatWest, Santander and Royal Bank of Canada for £200 million, with an additional £100 million accordion option, providing us with additional financial flexibility for future acquisitions. We may at any time up to six months of the termination date of the RCF, give prior notice of the wish to exercise this accordion option with a minimum value of £10 million and a maximum of £100 million. Drawings of £107.0 million on the RCF during the six months ended December 31, 2020 were repaid in full in November 2020 leaving the RCF undrawn as at December 31, 2020. During the six months ended December 31, 2019, drawings on the RCF comprised an initial amount of €120.0 million (£103.4 million) to fund the Expedeon Acquisition and after taking account of exchange movements and being stated net of the unamortized amount of upfront fees incurred on set up of the RCF, was reflected as £101.4 million within current liabilities on our balance sheet. On November 23, 2020, we repaid the borrowings on this facility of £107.0 million. The full amount of the facility of £200 million was undrawn as of December 31, 2020. The initial term of this RCF is three years with two extension options of one year each. On January 7, 2021, we received approval from all syndicate banks for a two year extension to the RCF following our exercise of the extension option on December 17, 2020, which extends the expiry of the facility to January 31, 2024. All other terms of the facility remained unchanged. The interest rate is the aggregate of: (i) a margin, which varies from 0.75% to 1.45%, that is dependent on a debt cover ratio, which for the six months ended December 31, 2020 and the fiscal year ended June 30, 2020 was at the minimum level of 0.75%; and (ii) London Inter-bank Offered Rate (“LIBOR”) or, in relation to any borrowing in Euro, Euro Inter-bank Offered Rate (“EURIBOR”) or in relation to any non-LIBOR currency, the benchmark rate for that currency. The benchmark rate is the applicable screen rate as of the specified time for the currency of the borrowing. Borrowings under this facility are unsecured but are guaranteed by certain of our material subsidiary companies.

Our capital expenditures consist primarily of property plant and equipment and intangible assets. Our capital expenditures were £24.7 million during the six months ended December 31, 2020 compared to £17.1 million for the six months ended December 31, 2019. Major areas of capital expenditure included £8.5 million in respect of global footprint developments on which there was no corresponding capital expenditure for the six months ended December 31, 2019. Capital expenditure of £13.6 million was incurred on intangible assets compared to £9.2 million for the six months ended December 31, 2019, which included £7.2 million in respect of our ERP implementation project and £4.5 million of internally developed technology relating to new in-house products compared to £4.2 million in respect of our ERP implementation project and £3.3 million with respect to IDT for the six months ended December 31, 2019. Other significant items included £1.6 million in respect of laboratory equipment during the six months ended December 31, 2020, with an equivalent amount of £2.9 million for the six months ended December 31, 2019. Additionally, in the six months ended December 31, 2019, capital expenditure of £2.0 million was incurred which was related to the cell line and lysates portfolio that we acquired from EdiGene. An inflow of £1.7 million in respect of reimbursement of leasehold improvement costs from landlords for the global footprint developments was received where such inflows were not experienced in the six months ended December 31, 2019.

Our capital expenditures during the fiscal year ended June 30, 2020 were £12.7 million for property plant and equipment, a £5.0 million decrease compared to the fiscal year ended June 30, 2019, which included net cash outflows of £5.1 million in respect of our new headquarters, which consisted of £9.6 million of cash outflow net of amounts held in escrow of £4.5 million from the previous fiscal year, but where the significant items were £7.0 million in respect of laboratory equipment, some of which related to new premises entered into during the year and £4.0 million of cell lines, the majority being related to the live cell line and lysates portfolio of EdiGene; and £23.0 million for intangible assets, which included £11.6 million in respect of our ERP implementation project and £9.0 million with respect to IDT.

We assess our liquidity, in part, through an analysis of our working capital together with our other sources of liquidity. As of December 31, 2020, our working capital balance, which is comprised of inventories, trade and other receivables and trade and other payables, was £44.2 million, an increase of £10.4 million from £33.8 million for the six months ended December 31, 2019.

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The following table presents the summary consolidated cash flow information for the periods presented.

Net cash inflow from operating activities

Six months ended December 31, 2020 compared to December 31, 2019

Net cash inflow from operating activities was £33.9 million for the six months ended December 31, 2020 compared to £39.6 million for the six months ended December 31, 2019. This inflow was reflective of the cash revenue generated from the sale of goods and services offset by cost of sales, selling, general and administrative costs and research and development expenditure, all of which are described in more detail above, although the six months ended December 31, 2020 was affected by COVID-19 whereas the six months ended December 31, 2019 was prior to the pandemic taking effect; a depreciation charge of £8.1 million, including laboratory equipment of £2.0 million, office fixtures, fittings and other equipment of £2.3 million and £3.8 million in respect of right of use assets; an amortization charge of £7.9 million, comprised of acquired intangibles of £4.4 million, internally developed technology of £1.5 million and software of £2.0 million; a share-based payment charge of £7.3 million for the six months ended December 31, 2020 which compares with £5.0 million for the six months ended December 31, 2019, with the largest component being £5.7 million in respect of AbShare, our innovative employee share plan, which was launched in September 2018, but attributable to lower staff attrition rates than experienced in the six months ended December 31, 2019 the costs are proportionally higher for the six months ended December 31, 2020 than for the six months ended December 31, 2019; and working capital movements of £7.6 million that were comprised of an increase in inventories of £3.5 million, driven mainly by an increase of £2.3 million of finished goods as inventory was expanded in anticipation of future revenue growth, an increase in receivables of £7.7 million consisting mainly of £6.1 million of prepayments, which includes insurance costs arising from the Nasdaq listing, offset by an increase in payables of £3.6 million made up mainly of accrued expenditures, which reflects the further investment in growing our business.

Year ended June 30, 2020 compared to June 30, 2019

Net cash inflow from operating activities decreased by £7.2 million, or 10.3%, to £63.0 million for the fiscal year ended June 30, 2020 from £70.2 million for the fiscal year ended June 30, 2019. This decrease resulted primarily from a decrease in operating profit for the period of £45.6 million, which predominantly consisted of the cash revenue generated from the sale of goods and services offset by cost of sales, selling, general and administrative costs and research and development expenditure, all of which are described in more detail above, which was partially offset by an increase in impairment of intangible assets of £2.1 million, where a £14.9 million impairment was incurred in respect of AxioMx in vitro monoclonal antibody production technology, as described above, compared with a £12.8 million impairment incurred in the fiscal year ended June 30, 2019 that related to certain modules in construction of the ERP system; a depreciation charge of £14.0 million, including of laboratory equipment of £3.4 million, office fixtures, fittings and other equipment of £2.6 million and £6.7 million in respect of right of use assets, which are those assets that have come on to our balance sheet for the first time in fiscal year ended June 30, 2020 following the implementation of IFRS 16 on July 1, 2019; an amortization charge of £15.9 million, comprised of acquired intangibles of £8.6 million, internally developed technology of £3.1 million and software of £4.2 million, where the increase was mainly due to £3.3 million of amortization of the finance and non-stock procurement ERP modules that went live in April 2019 but which resulted in only two months of charge in the fiscal year ended June 30, 2019; a share-based payment charge of £9.3 million, with the largest component being £5.7 million in respect of AbShare, our innovative employee share plan, which was launched in September 2018; and working capital movements of £4.0 million that were comprised of an increase in inventories of £1.1 million, driven mainly by an increase of £1.0 million of finished goods as inventory was expanded in anticipation of future revenue growth, a decrease in receivables of £2.7 million consisting mainly of £2.1 million of trade receivables, which were driven by the addition of receivables from acquired businesses, primarily related to the Expedeon Acquisition offset by a slowing in collections leading up to the end of the fiscal year arising from COVID-19, and an increase in payables of £2.4 million made up mainly of accrued expenditures, which reflects the further investment in growing our business.

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Net cash outflow from investing activities

Six months ended December 31, 2020 compared to December 31, 2019

Net cash outflow from investing activities was £22.8 million for the six months ended December 31, 2020 compared to £18.8 million for the six months ended December 31, 2019, which primarily resulted from an £11.5 million outflow on purchase of property, plant and equipment, with the main cost being £8.5 million in respect of global footprint developments and £13.6 million outflow for intangible assets, which included £7.2 million in respect of our ERP implementation project and £4.5 million with respect to IDT.

Year ended June 30, 2020 compared to June 30, 2019

Net cash outflow from investing activities increased by £98.2 million, or 196.8%, to £148.1 million for the fiscal year ended June 30, 2020 from £49.9 million for the fiscal year ended June 30, 2019, which primarily resulted from an outflow of £104.2 million in respect of the Expedeon Acquisition; £12.7 million outflow on purchase of property, plant and equipment, with the main cost being £7.0 million in respect of laboratory equipment, some of which related to new premises that were entered into during the year and £4.0 million of cell lines, the majority being in respect of the live cell line and lysates portfolio of EdiGene, which was purchased in July 2019; and £23.0 million outflow for intangible assets, which included £11.6 million in respect of our ERP implementation project and £9.0 million with respect to IDT.

Net cash inflow/(outflow) from financing activities

Six months ended December 31, 2020 compared to December 31, 2019

Net cash inflow from financing activities of £15.0 million for the six months ended December 31, 2020 contrasted with £83.6 million for the six months ended December 31, 2019. The inflow primarily comprise £127.0 million arising from the proceeds on issue of shares, the most significant being those from the secondary US listing on Nasdaq (in addition to the current listing on AIM in the UK) which was completed in October 2020, offset by the full repayment of £107.0 million of drawings on the Group’s RCF; £3.8 million of amounts classified as lease principal payments; and £1.1 million of interest payments including £0.5 million of amounts classified as lease interest payments. This contrasts with the six months ended December 31, 2019 where the main components were an inflow of £103.4 million in respect of drawings on the Group’s RCF offset by £17.7 million of dividends paid.

Year ended June 30, 2020 compared to June 30, 2019

Net cash inflow from financing activities of £184.6 million for the fiscal year ended June 30, 2020 contrasted with an outflow of £24.7 million for the fiscal year ended June 30, 2019. This increase primarily resulted from inflows arising from drawings of £107.0 million on our RCF and £110.0 million received upon the issuance and sale of 10 million new ordinary shares to an investor. These significant inflows were partially offset by outflows of £25.0 million in dividends, which remained broadly consistent with the fiscal year ended June 30, 2019, £6.8 million of amounts classified as lease principal payments and £1.7 million of interest payments including £0.9 million of amounts classified as lease interest payments following the implementation of IFRS 16 that were classified as operating lease payments within cash flows from operating activities in the fiscal year ended June 30, 2019, and £2.2 million of investments that consisted mainly of the acquisition of a 13% stake in Brickbio, Inc.

Non-IFRS Financial Measures

We collect and analyze operating and financial data to evaluate the health of our business and assess our performance. In addition to revenue, profit before tax and other results under IFRS, we assess our performance using a number of financial measures that are not defined under IFRS. We use Total CER revenue growth, Free Cash Flow, Adjusted Operating Profit, Adjusted Operating Profit Margin, ROCE and Adjusted Diluted earnings per share, each of which is described below, to evaluate our business, and we have included these non-IFRS financial measures in this Transition Report because they are key measures used by our management to evaluate our operating performance. Accordingly, we believe that these non-IFRS financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team. These non-IFRS performance measures exclude certain cash and non-cash items that we believe are not reflective of the normal course of our business. Our calculation of these non-IFRS financial measures may differ from similarly titled non-IFRS measures, if any, reported by other companies. These

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non-IFRS financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with IFRS.

Total CER Revenue Growth

Total CER revenue growth is our total revenue growth from one fiscal period / year to the next on a constant exchange rate basis. We measure CER revenue growth by applying the prior fiscal period’s / year’s actual exchange rates for each month to the current fiscal period’s/ year’s equivalent monthly results. We use this measure to identify the relative period on period or year-on-year performance of the business by removing the impact of currency movements that are outside of management’s control. Total CER revenue growth is included in this Transition Report because it is a key metric used internally to assess our financial performance. We also believe that Total CER revenue growth is useful to investors, analysts and others in assessing our performance. Management believes that Total CER revenue growth is an appropriate measure of operating performance because it eliminates the impact of currency movements.

Total CER revenue growth is not an IFRS measure of our financial performance and should not be considered as an alternative to profit for the period / year as a measure of financial performance or as an alternative to any other performance measure derived in accordance with IFRS. Total CER revenue growth should not be construed as an inference that our future results will be unaffected by unusual or other items. Management compensates for these limitations by relying on our IFRS results in addition to using Total CER revenue growth as a supplemental measure. Our measure of Total CER revenue growth is not necessarily comparable to similarly titled captions of other companies due to different methods of calculation.

The following tables present a reconciliation of revenue, the most directly comparable IFRS financial measure, to Total CER revenue growth for the periods indicated:

Free Cash Flow

Free Cash Flow is net cash inflow from operating activities less net capital expenditure, transfer of cash from/(to) escrow in respect of future capital expenditure and the principal and interest elements of lease obligations. Free Cash Flow provides an indication of the amount of cash available for discretionary investing or financing after removing capital related items. Free Cash Flow is included in this Transition Report because it is a key metric used internally to measure our liquidity. We also believe that Free Cash Flow is useful to investors, analysts, and others in assessing our liquidity.

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Free Cash Flow is not an IFRS measure of our financial performance and should not be considered as an alternative to net cash inflow from operations as a measure of liquidity, or as an alternative to any other performance measure derived in accordance with IFRS. Free Cash Flow should not be construed as an inference that our future results will be unaffected by unusual or other items. Management compensates for these limitations by relying on our IFRS results in addition to using Free Cash Flow as a supplemental measure. Our measure of Free Cash Flow is not necessarily comparable to similarly titled captions of other companies due to different methods of calculation.

The following table presents a reconciliation of net cash inflow from operating activities, the most directly comparable IFRS financial measure, to Free Cash Flow for the periods indicated:

Adjusted Operating Profit / Adjusted Operating Profit Margin

We define Adjusted Operating Profit as profit for the period / year before taking account of finance income, finance costs, tax, exceptional items and amortization of acquisition intangibles. Exceptional items consist of certain cash and non-cash items that we believe are not reflective of the normal course of our business. We identify and determine items to be exceptional based on their nature and incidence or by their significance. As a result, the composition of exceptional items may vary from period to period or year to year. Exceptional items currently consist of the impairment of intangible assets, systems and process improvement costs, acquisition costs, integration and reorganization costs and amortization of acquisition intangibles. Adjusted Operating Profit is included in this Transition Report because it is a key metric used internally to assess our financial performance. We also believe that Adjusted Operating Profit is useful to investors, analysts, and others in assessing our performance. We believe that disclosing Adjusted Operating Profit enables a reader to isolate and evaluate the impact of such items on results and allows for a fuller understanding of performance from period to period / year to year. Management believes that Adjusted Operating Profit is an appropriate measure of operating performance because it eliminates the impact of expenses that do not relate directly to the performance of the underlying business.

Adjusted Operating Profit Margin is calculated as Adjusted Operating Profit as a percentage of revenue. Adjusted Operating Profit Margin is included in this Transition Report because it is a key metric used internally to assess our financial performance. We also believe that Adjusted Operating Profit Margin is useful to investors, analysts and others in assessing our performance. Adjusted Operating Profit Margin is an appropriate measure of operating performance, as it reflects our ability to turn revenue into profits and because it eliminates the impact of expenses that do not relate directly to the performance of the underlying business.

Adjusted Operating Profit and Adjusted Operating Profit Margin are not IFRS measures of our financial performance and should not be considered as an alternative to profit for the period / year, or as an alternative to any other performance measure derived in accordance with IFRS. Adjusted Operating Profit and Adjusted Operating Profit Margin should not be construed as an inference that our future results will be unaffected by unusual or other items. Management compensates for these limitations by relying on our IFRS results in addition to using Adjusted Operating Profit and Adjusted Operating Profit Margin as supplemental measures. Our measure of Adjusted Operating Profit and Adjusted Operating Profit Margin are not necessarily comparable to similarly titled captions of other companies due to different methods of calculation.

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The following table presents a reconciliation of profit for the period / year, the most directly comparable IFRS financial measure, to Adjusted Operating Profit and includes the calculation of the Adjusted Operating Profit Margin for the periods / years indicated:

Return On Capital Employed (“ROCE”)

We define ROCE as Adjusted Operating Profit divided by capital employed, which is defined as total assets less current liabilities. We believe that ROCE is a key tool in measuring our financial efficiency and ability to create future growth in value. We attempt to maintain ROCE at a level well above our estimated cost of capital. ROCE is included in this Transition Report because it is a key metric used internally to assess our financial performance. We also believe that ROCE is useful to investors, analysts and others in assessing our performance.

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ROCE is not an IFRS measure of our financial performance and should not be considered as an alternative to profit for the period / year or as an alternative to any other performance measure derived in accordance with IFRS. ROCE should not be construed as an inference that our future results will be unaffected by unusual or other items. Management compensates for these limitations by relying on our IFRS results in addition to using ROCE as a supplemental measure. Our measure of ROCE is not necessarily comparable to similarly titled captions of other companies due to different methods of calculation.

The following table presents a reconciliation of profit for the period / year, the most directly comparable IFRS financial measure, to ROCE for the periods indicated:

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Adjusted Diluted earnings per share

We define Adjusted Diluted earnings per share as Adjusted profit for the period / year divided by the weighted average number of ordinary shares for the purposes of diluted earnings per share. Adjusted profit for the year used in this calculation is defined as profit for the period / year less impairment of intangible assets which was applicable for the fiscal years ended June 30, 2020 and June 30, 2019, system and process improvement costs, acquisition costs, which were applicable for the six months ended December 31, 2020 and the year ended June 30, 2020, integration and reorganization costs, which were applicable for the six months ended December 31, 2020 and the years ended June 30 2020 and June 30 2019, amortization of acquisition intangibles, the tax effect of these items and the net tax effect of new U.S. tax legislation which was applicable for the fiscal years ended June 30, 2019 and the net tax effect of the initial recognition in respect of historical periods of “patent box” claims which were applicable for the fiscal year ended June 30, 2020. Adjusted Diluted earnings per share is calculated with an adjustment to the weighted average number of shares outstanding to assume conversion of all potentially dilutive ordinary shares. We use Adjusted Diluted earnings per share to measure underlying profitability and to reflect the other adjusted performance measures used.

We measure Adjusted Diluted earnings per share because it is a key metric used internally to assess our financial performance. We also believe that Adjusted Diluted earnings per share is useful to investors, analysts and others in assessing our performance. Management believes that Adjusted Diluted earnings per share is an appropriate measure of operating performance because it eliminates the impact of expenses that do not relate directly to the performance of the underlying business. Adjusted Diluted earnings per share has limitations as a financial measure, should be considered as supplemental in nature, and is not meant as a substitute for earnings per share measures prepared in accordance with IFRS. Adjusted Diluted earnings per share may not be comparable to other similarly titled metrics of others.

The following table presents a reconciliation of profit for the year/ period, the most directly comparable IFRS financial measure, to Adjusted profit for the year / period for the years/ periods indicated, which is used in the calculation of Adjusted Diluted earnings per share:

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C. Research and Development, Patents and Licenses, etc.

Full details of our research and development activities and expenditures are given in Item 5.A. “Operating and Financial Review and Prospects—Operating Results” within this Transition Report and under the caption “Business” in our final prospectus filed with the Securities and Exchange Commission on October 22, 2020 pursuant to Rule 424(b) relating to our Registration Statement on Form F-1.

Research activities, which are the early stages of product development, are expensed as incurred up until products reach commercial feasibility. The benefit of UK research and development is recognized under the UK’s RDEC scheme and is netted against research and development expenses within the consolidated income statement.

Abcam engages in a number of development activities including the creation of new products and variations of existing products, the modification of existing products to meet new applications, and the development of new technology platforms from which to derive new products. Costs incurred on development activities are capitalized as Internally Developed Technology, within intangible assets, but only once commercial and technical feasibility is attained. Management regularly reviews these factors in order to determine that the costs meet the criteria for capitalization as intangible assets. A key judgement area in respect of the stage of development of Internally Developed Technology is whether a product’s future economic value justifies capitalization. Only direct costs associated with development activities are capitalized and these are primarily the attributable salary costs and consumables used in the manufacture process.

D. Trend Information

Other than as disclosed elsewhere in this Transition Report, we are not aware of any trends, uncertainties, demands, commitments or events since December 31, 2020 that are reasonably likely to have a material adverse effect on our revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E. Critical Accounting Estimates

Application of Significant Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. In preparing our consolidated financial statements, we make assumptions, judgments and estimates that can have a

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significant impact on amounts reported in our consolidated financial statements. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. We regularly reevaluate our assumptions, judgments and estimates. One critical accounting judgment was identified for the year ended June 30, 2019, which was as follows:

Impairment of our ERP System

We have been capitalizing costs associated with our new ERP system since 2016. After an extensive review of business requirements and the current functionality of Oracle Cloud software, as well as other best-in-class software providers, we made a decision to make changes to the approach and software. In addition, we also decided to extend the scope of the program to integrate improvements in these functional areas with front-end system enhancements to improve customer end-to-end experience through logistics and ultimately into manufacturing.

Taking this into account, we have conducted a review during the fiscal year ended June 30, 2019 of our historical expenditures incurred and, as part of the impairment review of assets under construction, two impairment indicators were identified including: (i) modules that are no longer being utilized or which would require considerable re-work; and (ii) the extended timeframe for certain modules resulting in potentially obsolete programming by the time the module goes live. Following the review and assessment of the impairment indicators identified, two modules were impaired in full.

Identifying which modules may be impacted was judgmental and technically complex compounded by identifying and, in particular, allocating the costs specifically related to each individual module in question. In this respect, we undertook an exercise to allocate historically incurred costs to each module. This exercise involved certain estimations and judgments to determine these allocations by apportioning those costs where there were allocations that were certain (for example, historical time records in respect of labor costs) to those where there was either less specific or no allocation to an individual module.

Application of Key Accounting Policies and Estimates

No critical accounting judgments were identified for the six months ended December 31, 2020, the six months ended December 31, 2019 and the year ended June 30, 2020. Despite this, other judgments exist that are considered to be key and in addition, two areas of estimation uncertainty have also been identified (although for the six months ended December 31, 2019, only one was identified in respect of slow moving or defective inventory). All of these areas of judgment and estimation uncertainty are listed as follows:

Capitalization of Intangible Assets

We capitalize internal software development costs, in particular internal staff costs, relating to the enhancement of our core IT systems architecture and developments. Judgment is required in applying the capitalization criteria of IAS 38, differentiating between enhancements and maintenance. Those costs which are not treated as capital but are directly attributable to our system and process improvement project are treated as adjusting items.

In establishing the principles on which costs are capitalized, consideration is given to the nature of work being performed, whether the costs and the activities are incremental and whether the associated deliverables meet the characteristics of an asset. Processes are in place to evaluate this and the same processes are used to confirm whether the expensed costs are related to the system and process improvement project so that classification as an adjusting item is appropriate.

We capitalize internal costs associated with IDT within intangible assets which are used to generate antibodies and kits. The point at which such internal costs are capitalized as well as their magnitude (whereby the amount capitalized comprises mainly attributable salary costs and consumables used in the manufacture process) is a key area of judgement and, in particular, whether a product’s future economic value justifies capitalization. Management reviews regularly these factors in order to determine that the costs meet the relevant criteria of IAS 38 for classification as an intangible asset.

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Valuation of acquisition intangibles

During the six months ended December 31, 2020, we undertook a review of the performance of historical acquisitions. In respect of the assets acquired from Applied Stem Cell, we determined that the additional knowledge gained of the marketplace in which these assets operate caused us to revisit the initial valuation of the acquisition intangibles as permitted by IFRS 3 within the first 12 months of ownership. This has resulted in a reduction in the initial valuation of acquisition intangibles from that originally presented in the consolidated financial statements for the fiscal year ended June 30, 2020 with a corresponding increase in goodwill.

During the six months ended December 31, 2020, we did not undertake any acquisitions, however, the revisiting of the valuation of the assets acquired from Applied Stem Cell to account for this in line with IFRS 3 required the use of a number of assumptions and estimates in relation to the future cash flows associated with acquisition intangibles and the use of valuation techniques in order to arrive at the fair value of the intangible assets acquired. The assumptions applied were based on the best information available to management, and valuation techniques were supported by third party valuation experts.

Nevertheless, the actual performance of these assets may differ from the valuations derived through this exercise.

Provision for Slow-Moving or Defective Inventory

The provision for slow-moving inventory is based on our estimation of the future sales of each of our products over the period from the balance sheet date to the expiry date of the product. Estimated future sales are based on historical actual sales and a growth rate assumption, which is derived from the average annual growth over the product life to date.

If actual unit sales growth rates differ from those estimated by management, both the level of provision against existing inventory and the rates of provision applied to inventory in future periods would need to be revised.