Clackmannanshire-based Omega Diagnostics has returned to profit thanks to the takeover of a food intolerance specialist and is determined to stay on the acquisition trail despite the market downturn.

Clackmannanshire-based Omega Diagnostics has returned to profit thanks to the takeover of a food intolerance specialist and is determined to stay on the acquisition trail despite the market downturn.

The Alternative Investment Market-listed company notched up a pre-tax profit of £123,708 in the 12 months to March 31, 2008, compared to a £1.1m loss the year before, having taken over Cambridgeshire-based Genesis and Cambridge Nutritional Sciences (Genesis-CNS) in September.

Turnover was up 71.8% to £3.5m.

Finance director Kieron Harbinson said: "It is mainly down to the acquisition."

Until recently the company, which employs 22 people at its headquarters in Alva, has focused on selling testing kits for medical conditions such as syphilis, tuberculosis, Dengue Fever, and malaria into developing markets.

However, the takeover added home and laboratory testing kits for food intolerance to its roster. These products are sold into wealthy, developed markets.

Harbinson said: "Omega has for many years sold products that generate margins in the low 40% range. Genesis-CNS generate margins of 70% to 80% so for the year ended we had gross profit of 54.5% compared to just under 41% last year. As we move forward we would expect to see margins of 60% to 65%."

The other advantage was that the products, while high margin had not been sold aggressively.

Chief executive Andrew Shepherd said: "Up until we acquired Genesis-CNS they hadn't really marketed the products very effectively.

"One of their products was being sold to just one laboratory in Spain. Its direct to consumer product Food Doctor was sold only through its website. Its price has now been slashed and Omega is marketing it to pharmacies."

Shepherd believes he is selling into a growing sector. "It is a growing market and it is quite a lot to do with people wanting to take more control of their own health."

He reckons that people who worry their condition has not been correctly diagnosed by a doctor are more increasingly inclined to do their own tests.

He added that this demand is relatively immune to the consumer spending downturn. "Having spoken to some of these poor sufferers I know they will spend any amount of money to solve the problem they have."

The acquisition also gave the company access to technology that allows tests for a range of conditions to be conducted from one sample. The company is currently working on kits that will test for food allergies as well as for conditions such as rheumatoid arthritis.

Omega launched on AIM in September 2006 with a strategy to grow by acquisition. Chairman David Evans warned yesterday, in comments attached to the company's results, that this will be "a more challenging task" in the current funding environment.

But Harbinson said: "In a generic sense it will be more difficult to raise funds. There is less money but that doesn't mean the money has dried up."

He said the fund managers still had money to invest and identified venture capital trusts, which have relatively short timescales to invest their cash as a condition of the tax breaks they get, as one potential source of money.

The company reckons its return to profitability and the successful integration of its first acquisitions will make it attractive to future backers.

Currently around a third of its stock is held by directors. Scottish Enterprise also has a stake, as does New Star Asset Management.

Shepherd said: "There are enough acquisitions out there which fit into our focused strategy. We are going to add companies to the group that are going to positively enhance earnings."

He said when the firm went to market it had identified 15 takeover opportunities.

Shares in Omega closed up 1.8% at 28.5p.