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ArcticZymes Technologies Interim / Quarterly Report 2020
3538_rns_2020-10-22_b337ac70-6432-45d3-81f4-48011728d03e.pdf
Interim / Quarterly Report
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Q3 REPORT 2020
Highlights for Q3 2020
- Annual group sales exceed 100 MNOK for the first time
- Gross profit for the Group improved 65% to NOK 26.0 million (Q3 2019: NOK 15.7 million)
- ArcticZymes had Q3 sales of NOK 19.5 million growing by 63% (Q3 2019: NOK 12.0 million)
- Biotec BetaGlucans had Q3 sales of NOK 11.2 million growing by 7% (Q3 2019: NOK 10.5 million)
- Upsides relating to COVID-19 pandemic is estimated at NOK 4 million for ArcticZymes and NOK 1.25 million for consumer health
- The Group delivered positive EBITDA with NOK 10.1 million (Q3 2019: NOK 0.8 million)
- Cash-flow for Q3 was positive NOK 13.6 million (Q3 2019: NOK 0.7 million) giving a cash balance of NOK 69.7 million (Q3 2019: NOK 22.1 million)
CEO Jethro Holter comments:
"ArcticZymes delivered another strong quarter with the underlying business contributing to solid growth. A new milestone was achieved in exceeding 100 MNOK in annual group sales for the first time. The company continues to deliver on profitability by accomplishing an EBITDA of 10.1 MNOK for the quarter.
The therapeutic segment remains the key contributor to growth through sales of the Salt Active Nuclease (SAN) products. It is supported by a broadening customer base of gene therapy and vaccine manufacturers engaged in developing viral vector-based therapeutics. With respect to ReiThera, activities are progressing well. ReiThera's vaccine development project recently entered phase 1 clinical trials.
Sales in the molecular diagnostics segment continue to grow in all regions served. Furthermore, efforts to expand into new geographies with large domestic populations, such as China and India, are materialising.
The Coronavirus pandemic continues to impact the business. As expected, Coronavirus related upsides attributed towards third quarter sales but to a lesser extent than in the second quarter. Conversely, sales to research kit manufacturers have slowed down during the quarter. Lockdowns have impacted our customers' ability to sell stockpiled kit-based products to the end user market. Overall, the supply chain relating to Coronavirus remains complex and unpredictable. Fluctuations in quarterly sales are expected for the foreseeable future.
Going into the last quarter of the year, our focus will continue towards building on the strong foundations in the underlying business and driving inherent growth through new customers, existing long-term partners and through our expanding product portfolio. Furthermore, plans are underway to expand ArcticZymes facilities in both manufacturing and R&D as part of the company´s forward leaning organic growth initiatives."
| NOK 1.000 | Q3 2020 | Q3 2019 | Change | YTD 2020 | YTD 2019 | Change |
|---|---|---|---|---|---|---|
| Sales | 30 751 | 22 476 | +37% | 109 345 | 54 145 | +102% |
| Total revenues | 31 550 | 23 956 | +32% | 111 972 | 58 818 | +90% |
| Operating expenses | 16 714 | 16 405 | +2 | 43 743 | 47 621 | -8% |
| EBITDA | 10 100 | 802 | 1 159% | 51 078 | -3 598 | NA |
| EBIT | 9 144 | -520 | NA | 48 212 | -7 687 | NA |
| Changes in cash & equivalents |
13 550 | 686 | +1 875% | 38 374 | -9 608 | NA |
Key financial figures:
Introduction
ArcticZymes Technologies ASA, (hereinafter "AZT" or "the Company") is a Norwegian life sciences company with its core business focused on specialised and novel enzymes. In addition, it has a non-core business focused on immunomodulating beta-glucan products.
Operational review
Commercial
ArcticZymes continues to perform and achieved another solid quarter.
Building on the inherent momentum in the business, the main attributing factors to growth were in the therapeutic and molecular diagnostics segments as well as product sales associated with the Coronavirus outbreak.
Therapeutics
The therapeutic segment continues to grow through sales of the Salt Active Nuclease (SAN) product line. The segments contribution towards ArcticZymes Q3 sales was 52%. Business continues to grow across our customers as they progress with their pre-clinical and clinical trial efforts. For our most well-established customer ArcticZymes expedited a 3.0 MNOK order during the quarter. This represents the largest individual order to date for SAN products.
Following the recent signing of the supply agreement with ReiThera, ArcticZymes has supported them in their development efforts through the supply of SAN products. ReiThera recently entered phase 1 clinical trials1 .
Furthermore, a top tier pharmaceutical company conducted an extensive three-day GMP audit of ArcticZymes operations relating to its SAN enzyme portfolio. The audit was successful and a requisition before moving forward with potential supply to several of its global sites.
Molecular Research & Diagnostics
The combined molecular research and diagnostic segments, excluding coronavirus related upsides, show a mixed picture.
For molecular diagnostics, business continues to grow with an expanding customer base in N. America, Europe and Japan. Furthermore, efforts to enter developing and new Asian markets are materialising with new supply deals. For example, a new supply agreement was signed with Chinese precision medicine company Jiangsu Simcere Diagnostics. Simcere Pharmaceutical Group, the parent of Simcere Diagnostics, is recognized as one of the "Top 10 Innovative Pharmaceutical Enterprises in China" and "Top 100 Pharmaceutical Manufacturing Enterprises in China". Simcere will use HL-SAN in development and manufacturing of their infectious disease diagnostic based Next Generation Sequencing (NGS) Technology. Also, the deal provides certain distribution rights within China for HL-SAN. This marks the first direct step into the Chinese market.
In developing markets, ArcticZymes has been providing Cod UNG to a noticeable diagnostic company in India for utilisation in their tuberculosis molecular diagnostic test. India bears a disproportionately large burden of the world's tuberculosis cases, accounting for 2.2 million cases alone. The global incidence of cases is 9.6 million2 . During the quarter, the customer switched to purchasing a larger bulk size. Future annual sales are expected to exceed 1 MNOK. Moving forward, we will gradually expand our commercial footprint in China, India and other developing countries offering the prospect to reach sizable domestic populations with molecular diagnostic solutions containing ArcticZymes enzymes. In being successful in these countries, we will be vigilant to respect differences in business cultures and adapt our business models to forge value creating relationships.
Sales to research kit manufacturers have marginally slowed down. Largely as a consequence of the coronaviruses pandemic where national lock downs have resulted in research personnel working from home rather
than doing laboratory work. Subsequently, this has led to less demand for kits, and this in turn has reverberated back up the supply chain to component suppliers such as ArcticZymes. The short-term expectation is that ArcticZymes will experience larger quarterly fluctuations than normal with respect to sales to research kit manufacturers while ad hoc and temporary lock downs remain across the world.
Coronavirus Sales Upsides
As expected, sales upsides relating to the Coronavirus pandemic were lower in the third quarter compared to the second quarter. Coronavirus sales upsides accounted for 20% of total enzyme sales in the quarter. Future quarterly sales are expected to greatly fluctuate. As a component supplier, serving future demand in the supply chain for coronavirus related applications is far from predictable. The market dynamics is complex and uncertain; especially at the front end of the supply chain. There is no disputing that the need for coronavirus diagnostic testing is far beyond what industry can serve today. For example, many of our customers have found it difficult to source all key components needed from other suppliers. Consequently, this has resulted in long delays in launching their tests. Also several customers overstocked our enzymes during the second quarter due to concerns relating to risks in supply chain. Lastly, numerous customers have launched coronavirus tests containing our enzymes. Some are doing well whilst others have experienced quality issues. In the worst case we have observed customers being forced to withdraw their tests from the market.
ArcticZymes focus towards coronavirus is twofold: (i) capture upside opportunities short-term; (ii) capture the long-term value in getting our enzymes locked down in the next generation of coronavirus tests and technologies. A good example of the latter is that our enzyme technology has been locked down by a new commercial customer into their LAMP based coronavirus test. The customer is currently underway with clinical trials prior to going to market with an FDA approved test.
Overall, the underlying business continues to grow, despite the positive and negative impact the coronavirus pandemic has had on sales. The resilience in growth is driven by a combination of a growing customer base forged on long-term relationships, an expanding product portfolio, and focused sales efforts toward three attractive and growing market segments.
Innovations and operations
The SAN upscaling project partly supported by Innovation Norway is making good progress and on schedule to initiate the first pilot scale production batch. Assuming the pilot batch meets specification demands, this will be followed by a large-scale pilot production batch towards the end of Q4.
In addition, other scale up projects are on the horizon with respect to our IsoPolTM polymerases, proteinase and HL-dsDNase enzymes.
ArcticZymes has long experience in supporting diagnostics companies in the development of infectious disease tests such as HIV and Hepatis C viral tests, and more recently Covid-19 testing. In capturing the longer-term potential in viral diagnostics and providing more content for Covid-19 test developers, the Company recently ramped up its innovation effort. In particular, it received funding from Innovation Norway during the second quarter to develop enzymes tailored for viral diagnostics. Progress is already underway with the expression and purification of thermostable polymerase and reverse transcriptase enzymes.
Other pipeline innovations are progressing with new SAN products, novel ligases, DNase-like enzymes, other novel polymerases and reverse transcriptases as well as new formulations of existing enzymes and non-enzyme support products.
Several personnel hires were made in R&D to support the above innovation projects and ramp product development efforts linked to earlier projects. For example, accelerating the commercialization of prototypes that have been
successfully generated from the EU funded Horizon 2020 Virus X project where ArcticZymes was one of the commercial partners3,4 .
Strategic growth initiatives
The recent development in financial performance and cash position offers the company a forward leaning stance towards its organic and inorganic growth strategies.
From an organic growth perspective, ArcticZymes is preparing to expand it facilities in both operations and R&D. Today, ArcticZymes enzymes business is operating on 2 separate sites in Tromsø. A project is underway to bring together the enzyme business onto one site at SIVA Innovation Centre.
R&D laboratory space will be expanded to facilitate the hiring of more laboratory personnel. It will allow the company to capitalize on ramping up its innovation efforts by running more product developments in parallel as well as support the upscaling of multiple existing products.
Enzyme production will be relocated into a new and larger production facility at SIVA Innovation Centre. It will enhance ArcticZymes capacity and capabilities to serve both cGMP and diagnostic grade enzymes to its growing customer base as well as support its rapidly expanding product range. New productions lines, some automation and new personnel will be part of a gradual investment, ensuring production grows ahead of commercial demand and caters for an expanding product range. The expansion process is expected to take approximately 1 year before R&D and production are fully operational in their expanded and new facilities.
Inorganic growth initiatives remain slow due to continued coronavirus related travel restrictions. Site visits are necessary to advance the due diligence process.
Biotec BetaGlucans
Woulgan®
Following the recent discontinuation of the Woulgan® product, all remaining stocks have been shipped to our existing customers. Consequently, all activities supporting Woulgan® sales and its operations have ceased. A small amount of sales related to earlier consignment stocks may trickle in during the fourth quarter. Apart from that this concludes internal activities relating to Woulgan®
The divestment process around Woulgan® is drawing to a close. The process has generated several possibilities and options for the company to consider in the near future.
Consumer and Animal Health
Third quarter sales continue to contribute strong growth in quarterly sales of M-Gard® (Consumer Health). During recent quarters, the business has attracted new customers and growth is attributed by an expanding customer base and sales growth within existing customers. A minor proportion of the growth is relating to bulk B2B sales to manufacturers as they position themselves towards providing immune enhancing nutritional products to help build up resistance against Corona virus. Approximately 25% of Consumer Health sales in Q3 2020 were Coronavirus related.
A major European nutrition company conducted an external audit of Biotec BetaGlucans during the quarter. The audit was a prerequisite to advance a new deal for the large bulk supply of M-Gard® product.
As expected, sales of M-Glucan® (Animal Health) continue to show quarterly fluctuations. The fluctuations are largely driven by seasonal variations in demand from our main customer.
Adjuvant
BetaGlucans continues to convert its earlier activities around the adjuvant (Soluble Beta
Glucan – SBG®) into commercial value. It continues to expedite SBG® shipments to support agreed commitments for continuation of clinical trials for the remainder of 2020.
Furthermore, the negotiation phase is ongoing with the vaccine owner regarding a longer-term deal for utilisation of SBG® as an adjuvant to be used in combination with a vaccine for treatment of Neuroblastoma.
Corporate
The Company has attracted substantial interest from the capital markets following recent performance developments. Management has had a busy quarter participating in several virtual investor road shows as well as numerous meeting requests from banks and financial institutions in the Nordics, other parts of Europe and the USA.
Financial review
The ArcticZymes Technologies group reported sales of NOK 30.8 million (Q3 2019: 22.5 m) for the third quarter of 2020. Earnings before tax, interest, depreciation, and amortisation (EBITDA) were NOK 10.1 million (Q3 2019: 0.8 m) and earnings before interest and tax (EBIT) were NOK 9.1 million (Q3 2019: -0.5 m) in the quarter. Net financial income was a loss of NOK 0.05 million (Q3 2019: 0.2 m).
ArcticZymes had third quarter sales of NOK 19.5 million (Q3 2019: NOK 12.0 m) and NOK 71.4 million (9M 2019: NOK 28.9 m) for the first 9 months of the year. Sales for the year are driven by good underlying demand in the key business areas; Molecular Research, Molecular Diagnostics and Therapeutics. An estimated NOK 4.0 million of total sales in the third quarter was related to upsides in COVID-19.
Sales segments
Sales for the BetaGlucans division was NOK 11.2 million (Q2 2019: NOK 10.5 m). Increase is explained by higher consumer health sales and sales of SBG® within the adjuvant area. Animal health experienced close to NOK 4.7 million in reduction compared to the same quarter last year. Animal Health is expected to continue fluctuating through the quarters, but the Company expects sales to be on similar levels as previous years.
The improved EBITDA for Q3 2020 and the first 9 months of 2020 are primarily derived from improved sales in all areas of the business, and upsides relating to COVID-19.
Expenses are also reduced for the first 9 months as the Group was restructured in Q4 2019. Due to high activity levels, strong sales and a forward leaning approach, expenses for Q3 are marginally higher in 2020 compared to 2019. All expenses relating to restructuring were accrued for in Q4 2019. The Company is not carrying any restructuring costs into 2020.
On 1 st January 2019, ArcticZymes Technologies ASA and its subsidiaries implemented IFRS 16 "Leases". This means that some operating expenses with longer commitments need to be valued over the lifetime of the contract and featured on the asset side of the balance sheet. This asset is then depreciated over the lifetime of the contract. For ArcticZymes Technologies this has the effect that most of the property, plant & equipment expenses are moved from operating expenses and are depreciated.
The Company recognised no income tax in the third quarter of 2020.
Financial position
Total equity amounted to NOK 95.6 million at the end of the third quarter 2020 compared to NOK 46.5 million at the end of 2019.
Total assets were NOK 120.5 million at the end of the third quarter of 2020, up from NOK 112.7 million at the end of the second quarter 2020.
The Company has no interest-bearing debt.
Cash flow
Net cash flow from operating activities was NOK 14.0 million in the third quarter, compared to NOK 2.0 million in the same quarter in 2019.
The operating cash flow reflects a change in working capital of NOK 7.5 million compared to the end of Q2 2020. This is explained by a decrease in receivables by NOK 5.9 million, increase in inventory of NOK 0.3 million and a decrease in liabilities of NOK 2.0 million.
Changes in cash and cash equivalents was NOK 13.6 million in Q3 2020. This generated a cash balance of NOK 69.7 million at the end of Q3 2020, compared to NOK 22.1 million at the end of Q3 2019.
Shareholder matters
The total number of issued shares was 48,334,673 at the end of Q3 2020. See the annual report for 2019 and note 3 & 6 in the Q3 2020 financial statement for further details on option programmes.
Risk factors
ArcticZymes Technologies' business is exposed to several risk factors that may affect parts of or all the Company's activities.
The most important risks the Company is exposed to are associated with commercial development in ArcticZymes.
The Coronavirus pandemic has had a positive impact on the business in the first 9 months of 2020 as the Company's products are used in several diagnostic test's solutions. Demand and upsides in sales will depend on global development of the Corona virus pandemic.
Also, see the risk factors which are described in the annual report for 2019 and published on the Company's website www.arcticzymes.com.
Outlook
The Company's outlook for 2020 and beyond was outlined during the investor update on the 10th December 2019. The number 1 goal was to drive the Group into profitability during 2020. Based on the first 9 months performance, the Company will achieve the profitably milestone for 2020.
With respect to the Coronavirus pandemic, it will continue to positively and negatively impact different parts of the business. Irrespective, the Company does anticipant continued growth in the overall business. However, quarterly fluctuations are an inherent part of growing B2B businesses and should be treated as a normal expectation.
1Link to ReiThera clinical trial announcement https://www.reithera.com/2020/08/24/reitheras-covid-19-vaccinecandidate-enters-phase-1-clinical-study-with-first-healthyvolunteer-dosed-in-italy/
2Link to Tuberculosis prevalence https://en.wikipedia.org/wiki/Tuberculosis\_in\_India
3Official link to Virus X project http://virus-x.eu/
4Euronews coverage on the Virus X project https://www.euronews.com/2020/09/14/virus-hunters-exploreiceland-s-geothermal-hot-springs-for-solutions
The interim financial statement 30. September 2020 (Q3)
CONSOLIDATED STATEMENT OF PROFIT & LOSS
| Q3 | YTD | |||
|---|---|---|---|---|
| (Amounts in NOK 1 000 - except EPS) | 2020 | 2019 | 2020 | 2019 |
| Sales revenues | 30 751 | 22 476 | 109 345 | 54 145 |
| Other revenues | 798 | 1 480 | 2 627 | 4 673 |
| Sum revenues | 31 550 | 23 956 | 111 972 | 58 818 |
| Cost of goods | -4 736 | -6 749 | -17 151 | -14 795 |
| Personnel expenses | -12 050 | -11 747 | -29 499 | -31 930 |
| Other operating expenses | -4 663 | -4 659 | -14 245 | -15 691 |
| Sum expenses | -21 450 | -23 154 | -60 894 | -62 416 |
| Earnings before interest, taxes, depr. and amort. | 10 100 | 802 | 51 078 | -3 598 |
| Depreciation and amortization expenses | -955 | -1 321 | -2 866 | -4 089 |
| Operating profit/loss (-) (EBIT) | 9 144 | -520 | 48 212 | -7 687 |
| Financial income, net | -51 | 239 | 314 | 194 |
| Profit/loss (-) before income tax (EBT) | 9 093 | -281 | 48 526 | -7 493 |
| Tax | 0 | 0 | 0 | 0 |
| Net profit/loss (-) | 9 093 | -281 | 48 526 | -7 493 |
| Basic EPS (profit for the period) | 0,19 | -0,01 | 1,00 | -0,16 |
| Diluted EPS (profit for the period) | 0,19 | -0,01 | 1,00 | -0,16 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| (Amounts in NOK 1 000) | 30.09.2020 | 30.09.2019 | 31.12.2019 |
|---|---|---|---|
| Non-current assets | |||
| Machinery and equipment | 4 292 | 4 138 | 3 875 |
| Intangible assets | 484 | 7 133 | 674 |
| Lease assets | 12 759 | 15 856 | 14 469 |
| Other non-current assets | 0 | -3 | 0 |
| Total non-current assets | 17 535 | 27 125 | 19 018 |
| Current assets | |||
| Inventories | 4 876 | 5 490 | 5 298 |
| Account receivables and other receivables | 21 507 | 22 807 | 14 754 |
| Cash and cash equivalents | 69 660 | 22 055 | 31 289 |
| Total current assets | 96 042 | 50 352 | 51 341 |
| Total assets | 113 577 | 77 477 | 70 358 |
| Assets classifed as "Assets held for sale" | 6 887 | 7 250 | |
| Total assets | 120 464 | 77 477 | 77 608 |
| Equity | |||
| Share capital | 48 335 | 48 335 | 48 335 |
| Premium paid in capital | 151 039 | 151 039 | 151 039 |
| Retained earnings | -106 784 | -153 486 | -154 233 |
| Non-controlling interests | 3 039 | 1 008 | 1 336 |
| Total equity | 95 629 | 46 895 | 46 476 |
| Other long-term liabilities | |||
| Lease liabillities | 13 743 | 16 671 | 12 764 |
| Total other long-term liabilities | 13 743 | 16 671 | 12 764 |
| Current liabilities | |||
| Accounts payable and other current liabilities | 10 340 | 13 910 | 17 652 |
| Total current liabilities | 10 340 | 13 910 | 17 652 |
| Total equity and liabilities | 119 712 | 77 477 | 30 416 |
| Liabilites attached to "Assets held for sale" | 7 | 716 | |
| Total equity and liabilities | 119 719 | 77 477 | 77 608 |
CONSOLIDATED CASH FLOW STATEMENT
| Q3 | YTD | |||
|---|---|---|---|---|
| (Amounts in NOK 1 000) | 2020 | 2019 | 2020 | 2019 |
| Cash flow from operating activities: | ||||
| Profit after tax Adjustment: |
9 093 | -281 | 48 526 | -7 493 |
| Depreciation | 316 | 595 | 949 | 1 911 |
| Depreciation IFRS | 639 | 726 | 1 917 | 2 178 |
| Employee stock options | 212 | 308 | 636 | 924 |
| Non cash interest expense | 177 | 201 | 531 | 561 |
| Changes in working capital | ||||
| Inventory | -337 | 1 093 | 945 | 1 070 |
| Account receivables and other receivables | 5 880 | -5 820 | -6 169 | -5 912 |
| Payables and other current liabilities | -1 997 | 5 144 | -7 801 | 542 |
| Net cash flow from operating activities | 13 984 | 1 966 | 39 534 | -6 218 |
| Cash flow from investing activities: | ||||
| Purchase of fixed assets | -57 | -489 | -1 176 | -608 |
| Invested in intangible assets | 0 | -412 | ||
| Change in long term receivables | 84 | -3 | 7 | -3 |
| Net cash flow from investing activities | 28 | -492 | -1 169 | -1 023 |
| Cash flow from financing activities: | ||||
| Interest expense on lease liability | -177 | -531 | ||
| Net present value adjustment | -284 | -789 | 536 | -2 366 |
| Net cash flow from financing activities | -461 | -789 | 5 | -2 366 |
| Changes in cash and cash equivalents | 13 550 | 686 | 38 371 | -9 608 |
| Cash and cash equivalents at the beginning of period | 56 109 | 21 369 | 31 289 | 31 662 |
| Cash and cash equivalents at end of period | 69 660 | 22 055 | 69 660 | 22 055 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| Q3 | YTD | ||||
|---|---|---|---|---|---|
| (Amounts in NOK 1 000) | 2020 | 2019 | 2020 | 2019 | |
| Equity at the beginning of period | 86 324 | 46 869 | 46 476 | 53 465 | |
| Shared based compensation | 212 | 308 | 636 | 924 | |
| Retained earnings | 7 410 | -422 | 45 485 | -7 626 | |
| Changes in non-controlling interests | 1 682 | 140 | 3 039 | 132 | |
| Equity at the end of period | 95 629 | 46 895 | 95 629 | 46 895 |
Statement by the Board of Directors and CEO
We confirm, to the best of our knowledge, that the financial statement for the period 1. January to the 30. September 2020 have been prepared in accordance with current accounting standards and that the information in the accounts gives a true and fair view of the Company and the Group's assets, liabilities, financial position and results of operation.
We also confirm, to the best of our knowledge, that the quarterly report includes a true and fair overview of the Company's and the Group's development, results and position, together with a description of the most important risks and uncertainty factors the Company and the Group are facing.
Tromsø, 21.10.2020 The Board of Directors of ArcticZymes Technologies ASA
Chairman Director Director
Marie Ann Roskrow Volker Wedershoven Marit Sjo Lorentzen
Jethro Holter CEO
Notes to the interim accounts for 30. September 2020 (Q3)
Note 1 - Basis of preparation of financial statements
The assumptions applied in the financial statements for 2020 that may affect the use of accouting principles, book values of assets and liabilities, revenues and expenses are similar to the assumtions found/used in the financial statement for 2019.
These financial statements are the unaudited interim consolidated financial statements (hereafter "the Interim Financial Statements") of ArcticZymes Technologies ASA and its subsidiaries (hereafter "the Group") for the period ended 30. September 2020. The Interim Financial Statements are prepared in accordance with the International Accounting Standard 34 (IAS 34). These Interim Financial Statements should be read in conjunction with the Consolidated Financial Statements for the year, ended 31. December 2019 (hereafter "the Annual Financial Statements"), as they provide an update of previously reported information.
The quarterly reports require management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses.
Income tax expense or benefit is recognized based upon the best estimate of the weighted average income tax rate expected for the full financial year. Deferred tax asset is accounted at NOK 0 in the balance sheet.
Note 2 - Analysis of operating revenue and -expenses, segment information
Services provided by the parent company are expensed at both segments according to agreements with actual subsidiary. Corporate overhead costs remain unallocated.
| Q3 | YTD | |||
|---|---|---|---|---|
| (Amounts in NOK 1 000) | 2020 | 2019 | 2020 | 2019 |
| Sales revenue: | ||||
| Beta-Glucans | 11 205 | 10 490 | 37 950 | 25 288 |
| Enzymes | 19 546 | 11 986 | 71 395 | 28 857 |
| Group operating sales revenues | 30 751 | 22 476 | 109 345 | 54 145 |
| Gross profit | ||||
| Beta-Glucans | 6 647 | 4 140 | 21 348 | 11 607 |
| Enzymes | 19 369 | 11 587 | 70 846 | 27 743 |
| Group gross profit | 26 015 | 15 727 | 92 194 | 39 350 |
| Other revenues | ||||
| Beta-Glucans | 0 | 701 | 213 | 2 049 |
| Enzymes | 798 | 779 | 2 414 | 2 624 |
| Group other revenues | 798 | 1 480 | 2 627 | 4 673 |
| Operating expenses: | ||||
| Beta-Glucans | -4 119 | -6 651 | -10 575 | -18 311 |
| Enzymes | -10 657 | -8 535 | -28 649 | -25 078 |
| Unallocated corporate expenses | -1 938 | -1 220 | -4 519 | -4 233 |
| Group operating expenses | -16 714 | -16 405 | -43 743 | -47 621 |
| Operating profit/loss (-) (EBITDA) | ||||
| Beta-Glucans | 2 528 | -1 809 | 10 986 | -4 655 |
| Enzymes | 9 510 | 3 831 | 44 612 | 5 289 |
| Unallocated corporate expenses | -1 938 | -1 220 | -4 519 | -4 233 |
| Operating profit/loss (-) (EBITDA) | 10 100 | 802 | 51 078 | -3 598 |
| Depreciation and amortization: | ||||
| Beta-Glucans | -354 | -797 | -1 061 | -2 391 |
| Enzymes | -541 | -488 | -1 623 | -1 463 |
| Unallocated corporate expenses | -61 | -37 | -182 | -234 |
| Group depreciation and amortization | -955 | -1 321 | -2 866 | -4 089 |
| Profit/loss (-) before income tax (EBIT) | ||||
| Beta-Glucans | 2 174 | -2 606 | 9 925 | -7 046 |
| Enzymes | 8 969 | 3 343 | 42 989 | 3 826 |
| Unallocated corpoate expenses | -1 999 | -1 257 | -4 702 | -4 467 |
| Profit/loss (-) before income tax (EBIT) | 9 144 | -520 | 48 212 | -7 687 |
Note 3 Share options
Per 30.09.2020, there were 315,000 outstanding options plus 600,000 right to receive options in the Group. The fair value of the historic services received from the associates in return for the options granted is recognized as an expense in the consolidated profit and loss statement. Total expense for the options are accrued over the vesting period based on the fair value of the options granted, excluding impact of any vesting conditions that are not reflected in the market. Criteria's not reflected in the market, affect the assumptions about the number of options expected to be exercised. It recognizes the importance of the revision of original estimates in the consolidated profit and loss statement with a corresponding adjustment in equity.
The net value of proceeds received less directly attributable transaction expenses are credited to the share capital (nominal value) and the share premium reserve when the options are exercised.
| 2020 | 2019 | |||
|---|---|---|---|---|
| Average | Number of | |||
| Average | Number of | exercise | share | |
| exercise price | share options | price | options | |
| As of 01.01. | 0 | 11.93 | 362 000 | |
| Granted during the year | 10.19 | 315 000 | ||
| Expired during the year | 362 000 | |||
| Outstanding at 30. September | 315 000 | 0 |
CEO J. Holter, CFO B. Sørvoll and R.Engstad has been given the right to receive 200 000 options each with the following assumptions:
| Awarded options | Option strike price | Options earned at share |
|---|---|---|
| 40 000 | NOK 8.00 per share | NOK 11.00 per share |
| 40 000 | NOK 8.00 per share | NOK 14.00 per share |
| 40 000 | NOK 8.00 per share | NOK 17.00 per share |
| 40 000 | NOK 8.00 per share | NOK 20.00 per share |
| 40 000 | NOK 8.00 per share | NOK 23.00 per share |
The vesting period is 2,5 years 31.12.2018-31.05.2021), with an additional 1,5 year declaration period (until 31.12.2022).
Expiry date, exercise price, and outstanding options:
| 2020 | 2019 | |||
|---|---|---|---|---|
| Average | ||||
| Expiry date | exercise price | Number of share options | ||
| 2019, 31 May | 11.93 | 362 000 | ||
| 2025, 14 May | 10.19 | 315 000 | ||
| Outstanding at 30. September | 315 000 | 0 | ||
| Exercisable options at 30. September | 0 | 0 |
The fair value of employee rights to receive options are calculated according to the Black-Scholes method with barrier options. The most important parameters are share price at grant date ( NOK 3,52 per share), risk free rate (1,49%), expected term of 5 years, expected dividend yield (0%), strike (NOK 8,00 per share) and volatility last 5 years (55,25%).
The fair value of the boards options are calculated according to the Black-Scholes method. The most important parameters are share price at grant date (NOK 22.80 per share) , risk free rate (1,49%), expected term of 5 years, expected dividend yield (0%), strike (NOK 10,19 per share) and volatility last 5 years (59,02%).
The fair value is expensed over the vesting period. Per 30.09.2020, a total of NOK 18.4 million had been expensed, of which NOK 0,2 million applies to Q3 2020. The Company has no obligations, legal nor implied, to repurchase or settle the options in cash unless general assembly declines to renew its authorization to issue new shares.
Note 4 Fixed assets
| Machinery & equipment | Q3 | YTD | ||
|---|---|---|---|---|
| (Amounts in NOK 1 000) | 2020 | 2019 | 2020 | 2019 |
| Net book value (opening balance) | 4 488 | 4 003 | 3 875 | 4 596 |
| Net investment | 57 | 486 | 1 176 | 608 |
| Depreciation and amortization | -253 | -351 | -759 | -1 066 |
| Net book value (ending balance) | 4 291 | 4 138 | 4 291 | 4 138 |
| Intangible asset | Q3 | YTD | |||
|---|---|---|---|---|---|
| (Amounts in NOK 1 000) | 2020 | 2019 | 2020 | 2019 | |
| Net book value (opening balance) | 6 681 | 7 423 | 6 808 | 7 551 | |
| Net investment | 0 | 0 | 0 | 412 | |
| Depreciation and amortization | -63 | -290 | -189 | -830 | |
| Net book value (ending balance) | 6 618 | 7 133 | 6 618 | 7 133 | |
| Note: Figures includes "Asset held for sale" |
| Lease assets | Q3 | YTD | ||
|---|---|---|---|---|
| (Amounts in NOK 1 000) | 2020 | 2019 | 2020 | 2019 |
| Net book value (opening balance) | 13 399 | 16 582 | 14 469 | 18 033 |
| Net present value adjustment 01.01 | 0 | 0 | 208 | 0 |
| Depreciation | -640 | -725 | -1 916 | -2 176 |
| Net book value (ending balance) | 12 760 | 15 856 | 12 760 | 15 856 |
Intangible assets (Research and development, patents and licenses):
- Research expenses are expensed when incurred. Development of products are capitalized as intangible assets when:
- · It is technically feasible to complete the intangible asset enabling it for use or sale.
- · Management intends to complete the intangible asset and use or sell it.
- · The Company has the ability to make use of the intangible asset or sell it.
- · A future economic benefit to the Company for using the intangible asset may be calculated.
- · Available technical, financial and other resources are sufficient to complete the development and use of or sale of the intangible asset.
- · The development expense of the intangible asset can be measured reliably.
Intangible assets are depreciated by the linear method, depreciating the acquisition expense to the residual value over the estimated useful life, which are for each group of assets: Product rights (5-10 years) and own product development (10-12 years)
Other development expenses are expensed when incurred. Previously expensed development costs are not recognized in subsequent periods. Capitalised development costs are depreciated linearly from the date of commercialization over the period in which they are expected to provide economic benefits. Capitalised development costs are tested annually by indication for impairment in accordance with IAS 36.
Note 5 Lease assets
IFRS 16 Leases was implemented 01.01.2019 and regulates matters relating to leased assets. It requires all leases to be recognised in the statement of financial position as a right to use asset with subsequent depreciation. At the commencement date the Group recognised a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. The Group has separately recognised the interest expense on the lease liability and the depreciation expense on the right-of-use asset. The Group has adopted the new standard on the effective date using a full retrospective method and a 3%/4,6% discount rate. The lease period includes options. Variable expenses are excluded from lease period and are not recognised. Two contracts relating to offices and lab at SIVA Innovation Centre and the Groups production premises at Nordøya are covered in the calculations.
| (Amounts in NOK 1 000) | |||
|---|---|---|---|
| Financial position | 30.09.2020 | 30.09.2019 | 31.12.2019 |
| Lease assets | 12 760 | 15 856 | 14 469 |
| Fixed assets | 10 909 | 11 272 | 10 682 |
| Other non-current assets | -7 | -3 | 0 |
| Sum Fixed assets | 23 663 | 27 124 | 25 152 |
| Note: Figures includes "Asset held for sale" | |||
| Lease liabilites | 13 508 | 16 671 | 12 764 |
| Current liabilities | 10 568 | 13 910 | 18 368 |
| Sum Liabilities | 24 076 | 30 581 | 31 132 |
-
Right of use is calculated from inception of contract
-
Net present value of liability maturing more than 12 months
-
Next years instalment is part of current liabilities
Note 6 Related party disclosures
| Shares owned or controlled by directors and senior management per 30. September 2020: | ||
|---|---|---|
| No of | ||
| Name, position | shares | No of options |
| Marie Roskrow, Chairman | 0 | 200 000 |
| Volker Wedershoven, Director | 80 000 | 100 000 |
| Marit Sjo Lorentzen, Director | 20 331 | 15 000 |
| Jethro Holter, CEO | 564 | * |
| Børge Sørvoll, CFO | 25 429 | * |
| Dino DiCamillio, Director worldwide marketing | 0 | 0 |
| Olav Lanes, Director R&D and applications | 2 000 | 0 |
*See note 3 for further details
Note 7 Shareholders
| The 20 largest shareholders as of 30. September 2020 | Shares | Ownership |
|---|---|---|
| Skandinaviska Enskilda Banken AB | 4 244 540 | 8,78 % |
| Nordnet Bank AB | 2 845 767 | 5,89 % |
| Avanza Bank AB | 2 344 895 | 4,85 % |
| Pro AS | 2 297 216 | 4,75 % |
| Vinterstua AS | 2 048 165 | 4,24 % |
| Clearstream Banking S.A. | 1 502 970 | 3,11 % |
| Danske Bank A/S | 1 459 554 | 3,02 % |
| Skandinaviska Enskilda Banken AB | 1 421 884 | 2,94 % |
| Belvedere AS | 1 365 684 | 2,83 % |
|---|---|---|
| Tellef Ormestad | 1 181 272 | 2,44 % |
| Nordea Bank Abp | 794 622 | 1,64 % |
| Middelboe AS | 718 908 | 1,49 % |
| Odd Knut Bikrkeland | 700 000 | 1,45 % |
| Nordnet Livsforsikring | 696 519 | 1,44 % |
| Danske Bank A/S | 600 000 | 1,24 % |
| Dragesund Invest AS | 597 891 | 1,24 % |
| Rolf Einar Engstad | 566 109 | 1,17 % |
| DNB Markets Aksjehandel/-analyse | 474 434 | 0,98 % |
| Norda ASA | 462 000 | 0,96 % |
| Naudholmen AS | 429 290 | 0,89 % |
| 20 largest shareholders aggregated | 22 507 180 | 46,57 % |
Note 8 Interim results
| (Amounts in NOK 1 000) | Q3-2020 | Q2-2020 | Q1-2020 | Q4-2019 | Q3-2019 |
|---|---|---|---|---|---|
| Sales revenues | 30 751 | 44 320 | 34 274 | 22 002 | 22 476 |
| Sales growth % (year-over-year) | 37 % | 97 % | 103 % | 13 % | 1 % |
| Gross profit % | 85 % | 90 % | 76 % | 82 % | 70 % |
| EPS | 0,19 | 0,56 | 0,28 | 0,07 | -0,01 |
| EPS fully diluted | 0,19 | 0,56 | 0,28 | 0,07 | -0,01 |
| EBITDA | 10 100 | 27 217 | 13 760 | 4 600 | 802 |
| Equity | 95 629 | 86 324 | 60 271 | 46 476 | 46 895 |
| Total equity and liabilities | 119 719 | 112 681 | 91 743 | 77 609 | 77 477 |
| Equitiy (%) | 80 % | 77 % | 66 % | 60 % | 61 % |
Note 9 Alternative Performance Measures
Information provided is based on Guidelines on Alternative Performance Measures (APMs) for listed issuers by The European Securities and Markets Authority - ESMA
ArcticZymes Technologies ASA reports EBITDA as performance measure that is not defined under IFRS but which represents an measure used by the Board as well as by management in assessing performance as well as for reporting both internally and to shareholders. ArcticZymes Technologies ASA belives that to use EBITDA will give the readers a more meaningful understanding of the underlying financial and operating performance of the company when viewed in conjunction with our IFRS financial information.
EBITDA & EBIT
We regard EBITDA as the best approximation to pre-tax operating cash flow and reflects cash generation before working capital changes. EBITDA is widely used by investors when evaluating and comparing businesses, and provides an analysis of the operating results excluding depreciation and amortisation. The non-cash elements depreciation and amortization may vary significantly between companies depending on the value and type of assets.
The definition of EBITDA is "Earnings Before Interest, Tax, Depreciation and Amortization" and EBIT is "Earnings Before Interest and Taxes". The reconciliation to the IFRS accounts is as follows:
| Q3 | YTD | |||
|---|---|---|---|---|
| (Amounts in NOK 1 000 - exept EPS) | 2020 | 2019 | 2020 | 2019 |
| Sales | 30 751 | 22 476 | 109 345 | 54 145 |
| Cost of goods | -4 736 | -6 749 | -17 151 | -14 795 |
| Gross profit | 26 015 | 15 727 | 92 194 | 39 350 |
| Other revenues | 798 | 1 480 | 2 627 | 4 673 |
| Sum other revenues | 798 | 1 480 | 2 627 | 4 673 |
| Personnel expenses | -12 050 | -11 747 | -29 499 | -31 930 |
| Other operating expenses | -4 663 | -4 659 | -14 245 | -15 691 |
| Depreciation and amortization expenses | -955 | -1 321 | -2 866 | -4 089 |
| Sum expenses | -17 669 | -17 727 | -46 610 | -51 710 |
| Operating profit/loss (-) | 9 144 | -520 | 48 212 | -7 687 |
Note 10 Accounts receivable and other receivables
| (Amounts in NOK 1 000) | 30.09.2020 | 30.09.2019 | 31.12.2019 |
|---|---|---|---|
| Accounts receivable | 16 702 | 16 734 | 10 049 |
| Research grants | 743 | 493 | 1 345 |
| Tax grants | 2 626 | 4 544 | 2 337 |
| VAT | 9 | 99 | 370 |
| Other receivables | 674 | 937 | 652 |
| Total accounts receivable and other receivables | 20 754 | 22 807 | 14 754 |
Note: Numbers are adjusted for "Asset held for sale"
| Days of maturity | Not due | 0-30 | 31-60 | 61-90 | Over 90- |
|---|---|---|---|---|---|
| Outstanding 30.09.2020 | 11 364 | 4 374 | 999 | 118 | 600 |
| Historical loss - % | 0 % | 0 % | 0 % | 0 % | 0 % |
| Future estimation of losses - % | 0 % | 0 % | 0 % | 0 % | 0 % |
| Expected loss | 0 | 0 | 0 | 0 | 0 |
| Provision for losses | 0 | 0 | 0 | 0 | 0 |
| Days of maturity | Not due | 0-30 | 31-60 | 61-90 | Over 90- |
| Outstanding 30.09.2019 | 13 743 | 1 232 | 410 | 655 | 694 |
| Historical loss - % | 0 % | 0 % | 0 % | 0 % | 0 % |
| Future estimation of losses - % | 0 % | 0 % | 0 % | 0 % | 0 % |
| Expected loss - % | 0 % | 0 % | 0 % | 0 % | 0 % |
| Provision for losses | 0 | 0 | 0 | 0 | 0 |
ArcticZymes's main customers are large corporations and Universities. Historic losses on receivables are close to zero. Due to payment system in the US and interaction with Norway, all payments from the US will be recorded later than actual payment.
Note 11 Accounts payable and other current liabilities
| (Amounts in NOK 1 000) | 30.09.2020 | 30.09.2019 | 31.12.2019 |
|---|---|---|---|
| Accounts payable | 2 158 | 7 361 | 4 525 |
| Public taxes and withholdings | 968 | 1 146 | 1 679 |
| Unpaid holiday pay | 1 946 | 2 061 | 2 782 |
| Other personnel | 4 022 | 2 182 | 4 596 |
| Other current liabilities | 1 467 | 1 160 | 4 070 |
| Total account payable and other current liabilities | 10 561 | 13 910 | 17 652 |
Note: Numbers are adjusted for "Asset held for sale"
Note 12 Assets held for sale and discontinued operations
| Total assets | 6 887 | 7 250 |
|---|---|---|
| Account receivables and other receivables | 753 | 593 |
| Inventories | 0 | 523 |
| Intangible assets | 6 134 | 6 134 |
| Assets classified as "Assets held for sale" | 30.09.2020 | 31.12.2019 |
| Total accounts payable and other current liabilities | 7 | 716 |
|---|---|---|
| Accounts payable and other current liabilities | 7 | 716 |
| Liabilities attached to "Assets held for sale" | 30.09.2020 | 31.12.2019 |
Note 13 Impacts of COVID-19
The Group's sales are impacted by COVID-19 effects that are considered to be transient and are defined as upsides in presentations. Figures are internal estimates based on historic purchasing patterns and communications with customers.
| Q3 | YTD | |||
|---|---|---|---|---|
| whereof | whereof | |||
| COVID-19 | COVID-19 | |||
| (Amounts in NOK 1 000) | 2020 | related | 2020 | related |
| Sales | 30 751 | 5 200 | 109 345 | 21 700 |
Other operating expenses related to the COVID-19 pandemic is only marginal and not reported as a seperate item
Note 14 Events after balance sheet date, 30. September 2020
There are no events of significance to the financial statements for the period from the financial statement date to the date of approval; 21.10.2020
Tromsø, 21.10.2020 The Board of Directors of ArcticZymes Technologies ASA
Chairman Director Director
Marie Ann Roskrow Marit Sjo Lorentzen Volker Wedershoven
Jethro Holter CEO