Annual Report • Mar 29, 2012
Annual Report
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RESEARCH: Probiotics' good effect on gastric ulcer bacterium page 8
PRODUCTS: Semper + BioGaia = success page 20
MARKET: Millions of reasons to smile page 22
O Information from BioGaia about the past year
ANNUAL REPORT 2011 pages 37–65
4 This is BioGaia 5 Financial targets Vision Business concept Strategy Business model
R ESEARCH
29 Survey: Do you do anything fun in your free time? 30 How we work
32 What is the nature of your commitment, Peter Rothschild? 34 A greeting from the Philippines
OR AL REHYDRATION S OLU TION in Finland and Ukraine
IN FANT FORMULA with Lactobacillus reuteri Protectis in Algeria, Bahrain, the Philippines, the United Arab Emirates, Iran, Indonesia, Jordan, Kuwait, Lebanon, Malaysia, Pakistan, Qatar, Saudi Arabia and Vietnam.
DE CISION T O INVEST in a new production facility in BioGaia's 50 per cent-owned subsidiary TwoPac.
BioGaia extends collaboration with Nestlé.
FINANCIALS NET S ALE S amounted
to SEK 315.0 million (236.0), an increase of SEK 79.0 million (33 per cent).
OPERATING PROF IT was SEK 103.2 million (56.3), up by SEK 46.9 million (83 per cent).
PR OF IT AFTER T AX reached SEK 79.5 million (47.2), an improvement of SEK 32.3 million (68 per cent).
Results from two studies on Helicobacter pylori infection
DROPS in the Dominican Republic, Guatemala, Latvia, Lithuania and Hungary. Drops with Vitamin D in Finland, Italy and Sweden
DIGESTI VE HEALT H T AB LETS in the Dominican Republic and Guatemala
DIGESTI VE HEALT H T AB LETS WIT H A NEW FLAVOUR in Greece, Spain and Sweden
The 2012 Annual General Meeting will be held at 4:00 p.m. on 8 May, at Citykonferensen Ingenjörshuset, Malmskillnadsgatan 46, in Stockholm.
Shareholders who wish to have a matter dealt with at the AGM must submit a request by 26 March 2012 to the Board Chairman, BioGaia AB, Box 3242, SE-103 64 STOCKHOLM, Sweden, or by e-mail to [email protected].
Project management: Eva Nelson, Product Manager and Project Manager at BioGaia and Cattis Grant, writer and Project Manager at Grant Information. Graphic design: Helena Åberg, Tidning & Form, www.tidningochform.se, and Chatarina Andersson, Marketing Assistant, BioGaia (financial section) Photos: Anette Andersson, Eva Lie and Scandinavian Children's Mission in the Philippines Illustrations: Lasse Widlund Translation: GH Language Solutions Print: Danagård Litho 2012
S U S T A I N A B I L I T Y & E THICS 32
| Key ratios | 2011 | 2010 2009 | 2008 2007 | ||
|---|---|---|---|---|---|
| Net sales, SEK M | 315.0 236.0 203.5 145.2 106.6 | ||||
| Profit before tax, SEK M | 108.9 | 69.7 | 53.1 | 24.0 | 10.7 |
| Profit after tax, SEK M | 79.5 | 47.2 | 36.0 | 36.1 | 19.7 |
| Sales growth, % | 33 | 16 | 40 | 36 | 23 |
| Profit margin, % | 33 | 24 | 23 | 18 | 8 |
| Equity/assets ratio, % | 82 | 82 | 90 | 86 | 86 |
| Average number of employees | 61 | 45 | 43 | 39 | 37 |
1990 Peter Rothschild and Jan Annwall acquire the rights for the probiotic use of Lactobacillus reuteri and found the company BioGaia Biologics. The duo also acquires the laboratory operations in Raleigh, USA. The focus is on reducing the need for antibiotics in animal feed. An interest is awakened in human health and so-called functional foods. The first brand for BioGaia's products is BRA milk and fermented milk.
2009 Net sales exceed SEK 200 million.
Sales force
Distribution partners
Innovation & IPR
Pharmacies
Physicians
Product
strategies Indications
Product development
Research
Production
Dietary
supplements Probiotic
cultures
BioGaia's business model is based on cooperation with three networks. Read more on page 5.
to our partner Ewopharma. Our Japanese partner Nippon Access has started to sell the oral health lozenges through dental clinics in Japan and in spite of the turmoil caused by the earthquake in March, sales have essentially developed according to plan. I am convinced that the oral health products have major potential and we are taking continued steps to establish our primary business model also in this area.
Countries outside Europe often require registration of the products, and this is one of the factors that is inhibiting an even faster expansion. In response to this, we have further enlarged our Quality Assurance & Regulatory Affairs department.
The effective date for implementation of the new EFSA regulations has been pushed forward one year, until June 2012, but we still don't expect these to have any impact on our sales since our marketing is primarily directed to healthcare professionals and not consumers. Most of the health claims on our packages were removed more than a year ago.
LAST AUTUMN we received the results of the first studies performed on our new product BioGaia Gastrus, in patients with Helicobacter pylori infection. One of the studies was very positive while the other showed no significant effects. It was of course disappointing that we didn't see successful results in both studies, but in light of the earlier studies conducted in this area and our discussions with partners and physicians, we have decided to launch Gastrus during 2012. Given the high rate of Helicobacter pylori infection in Asia, Latin America and Eastern Europe and the resistance problems resulting from existing therapies, we have high expectations for this product.
As shown by the income statement, operating profit rose dramatically and outpaced growth in sales despite higher investments in marketing, research and development. The explanation is found in BioGaia's business model which is based on three networks – a network of researchers that work in collaboration with us, a network of producers that manufacture and package our products and a network of partners that market
and sell these.
You might be led to believe that BioGaia is a virtual company, but this is not the case. Bio-Gaia oversees the networks and controls a
few vital areas that we will never hand over to an outside party. BioGaia's core expertise lies among other things in choosing which clinical studies to pursue and ensuring that these are performed according to our high quality standards.
WHAT 'S MORE , BioGaia develops products and packaging solutions, often in cooperation with the suppliers, and the products are protected by patents that we control. We also support our partners in their marketing, primarily to physicians but also via the Internet and through targeted PR activities. By focusing on these core areas and using the three networks, we are able to continuously develop and sell creative new products on the global market. The business model explains why we have succeeded in growing by around 30 per cent in the past few years at the same time that our fixed costs have risen by only 10 to 15 per cent over the same period.
The top priorities in 2012, as earlier, will be the USA, Japan and our oral health segment, but the registration process in China will also be central. With regard to new products, we will introduce BioGaia Gastrus in a few key markets. In addition, we will continue working determinedly to create new packaging solutions that can be launched during the year.
Against this background, I look forward to the year ahead with confidence.
I n 2011 we achieved sales growth of over 30 per cent, which also roughly corresponds to our average for the past five years. We have seen strong growth for all of the finished products and for our sales of probiotic cultures to Nestlé. Two particular highlights are that sales in Japan have risen by a full 270 per cent and that the sales trend in the USA has turned upward following our distribution partner Everidis' launch of the drops in America's largest pharmacy chain. Everdis started a marketing campaign in connection with this and we are also providing the company with PR support, where one result is that our products have been featured on a large number of morning TV shows. In 2012 we will continue focusing on the US market.
THE IMPORTANCE OF the BioGaia brand is growing and surveys confirm the recognition of our brand among paediatricians. Brand building is a critical component of BioGaia's strategy – perhaps even more so than our already strong patent protection – and gives us distinct advantages in marketing of new products. In 2011, over 40 per cent of our finished consumer products were sold under the BioGaia brand. And if we include co-branded products, the BioGaia brand now accounts for more than 50 per cent of sales.
Nestlé, our largest customer, sells infant formulas with Reuteri in more than 30 countries and has plans for launches in additional markets. The partnership has been highly satisfying and rewarding for BioGaia, which is manifested in the agreement we signed with Nestlé on 15 February 2012. Under the agreement, Nestlé has acquired a perpetual licence for infant nutrition products and will further extend its collaboration with BioGaia in other areas.
In the past year we started efforts to relaunch our oral health products. The agreement with Sunstar, which originally granted them virtually global rights, has been renegotiated and now only covers the countries where they have been successful. In a few Eastern European countries we have instead given the marketing rights for the oral health products
biotic products with documented health benefits. The products are primarily based on different strains of the lactic acid bacterium Lactobacillus reuteri in combination with unique packaging solutions that make it possible to create probiotic products with a long shelf life.
BioGaia's goal is to create strong value growth and a good return for the shareholders. This will be achieved through a greater emphasis on the BioGaia brand, increased sales to both existing and new customers and a controlled cost level. The financial target is a sustainable operating margin (operating profit in relation to sales) of at least 30 per cent with continued strong growth and increased investments in research, product development and brand building. BioGaia's policy is to pay a shareholder dividend equal to 30 per cent of profit after tax.
BioGaia's vision is to improve the health of people around the world by offering first class probiotic products.
BioGaia's concept is to develop, market and sell well documented probiotic products worldwide in the form of innovative and appealing dietary supplements and food products.
BioGaia's strategy is based on three main pillars:
● performance of clinical studies
● development of innovative new products and packaging solutions ● powerful marketing support for the company's partners
The company's products should be sold under the BioGaia brand to the greatest possible extent.
In BioGaia's business model, the company sells its products through a network of distribution partners around the world. These companies have sales representatives that visit physicians and other healthcare professionals. By informing them about the published results of high quality clinical studies, the sales reps create interest and confidence among the physicians, which then recommend the products to their patients. The products are sold mainly in pharmacies and similar retail outlets.
We have decided to launch BioGaia Gastrus during 2012 and have high expectations for this product.
TO C ON T R I BUTE T O the understanding of the co-evolution between vertebrate gut synbionts and their hosts, we have published several articles. These present phylogenetic analyses (the study of evolutionary relatedness between groups of organisms, such as species) of Lactobacillus reuteri and the results of experimental studies.
By using a combination of gnotobiotic mouse (born free from all microbial organisms) experiments with population genetics and evolutionary genomics, we could characterize the evolutionary and ecological strategies of Lactobacillus reuteri. We were thus able to show that Lactobacillus reuteri has established a highly specialized symbiosis with its vertebrate hosts.
Population genetics revealed that Lactobacillus reuteri strains can be divided into phylogenetic clusters (species-specific "groups") that correlate with host origin (Oh et al., 2010).
This evolutionary pattern indicates a long-term association of Lactobacillus reuteri lineages with confined groups of vertebrate species. Further experiments in gnotobiotic mice have shown that strains of Lactobacillus reuteri are host specific (Frese et al., 2011), which is further evidence of a shared evolutionary history.
These findings are significant as they establish Lactobacillus reuteri as the very first example of host specificity for a nonpathogenic member of the vertebrate gut microbiota. The work of our group has also revealed phylogenetic patterns and phenotypic characteristics of Lactobacillus reuteri that indicate a stable evolutionary relationship with the host.
Theoretically, such a relationship has a higher potential for the development of mutually beneficial interactions between microbe and host than more temporal relationships (Walter et al., 2011).
Assistant Professor, Food Science and Technology Department, University of Nebraska, Lincoln
A complete reference list can be found at www.biogaia.se
he majority of clinical studies carried out with BioGaia's products are randomised, double blind and placebo-controlled, and are thus fully compara-
ble to pharmaceutical studies in terms of research quality. Furthermore, all studies must be approved by a local ethics review board before starting.
Research on BioGaia's products should generate publication of well-controlled and scientifically sound articles. As a result, BioGaia actively supports publication of the results in peer reviewed scientific journals.
A QUARTER of all studies are initiated by BioGaia itself, to investigate product safety and health benefits in a specific area, and are monitored by BioGaia's research supervisors.
However, there is a widespread inte-
rest in research on Lactobacillus reuteri and another fourth of the studies are initiated and conducted by independent researchers. Aside from requesting the researcher's resumé and study protocol and requiring ethical approval (these criteria apply to all studies), BioGaia has no insight into or influence over these studies.
Around half of all studies are initiated and conducted by BioGaia's partners.
Lactobacillus reuteri is one of the world's most well researched probiotics, especially in young children. To date, 92 clinical studies using BioGaia's human strains of Lactobacillus reuteri have been performed on more than 7,700 individuals of all ages. The results have been published in 55 articles in scientific journals (February 2012).
researched probiotics. Here, Magdalena Delikat Kulinski is working at the laboratory in Lund.
A group of researchers headed by Jens Walter has studied Lactobacillus reuteri from an evolutionary perspective and found unique symbioses. Here, he gives a brief description of his research.
Rodents Porcine Human Poultry
The picture above illustrates the host-specific evolution of Lactobacillus reuteri strains. Each line represents a strain of Lactobacillus reuteri that has been isolated from rodents, pigs, birds or humans. The striking genetic similarities between the strains from each host demonstrate the symbiotic relationship between Lactobacillus reuteri and its host. These similarities are completely unrelated to geographic origin.
Probiotic means "for life", in contrast to antibiotic which means "against life". WHO/FAO (2001) defines probiotics as "live microorganisms which when administered in adequate amounts confer a health benefit on the host". This means that only the live lactobacilli with proven health effects in clinical trials may be called probiotics. Furthermore, the product in question must contain the same bacterial strain and the same dose that was used in the clinical trials.
Collaborations around the world
BioGaia collaborates with specialists in some 40 research institutions and clinics in a unique global network.
T W O IN DEPE N D E N T, randomised, double-blind, placebo-controlled clinical studies have been performed to determine the effects of BioGaia Gastrus on the control of Helicobacter pylori infections in patients with mild symptoms. The first trial was performed in Italy and the second in Mexico. Both trials included 100 patients, of which 50 were given Lactobacillus reuteri Gastrus before, during and after standard therapy and 50 were given a placebo. The Italian study demonstrated a significant reduction in Helicobacter pylori load and symptoms during treatment with Lactobacillus reuteri Gastrus before standard therapy. Moreover, during this period three of 50 subjects in the Lactobacillus reuteri Gastrus group compared to one of 50 in the placebo group lost their infection completely during this period. Also during the period when the patients received standard therapy, the symptoms improved significantly in the group that was given Gastrus compared to the placebo group.
In the Mexican study, no significant reduction in Helicobacter pylori load and symptoms were observed during treatment with probiotics before standard therapy. However, as in the Italian study, three of 50 subjects in the Lactobacillus reu- teri Gastrus group lost their infection completely when given Gastrus alone, compared to none in the placebo group.
(AAD), i.e. diarrhoea as a side-effect of antibiotic therapy, affects up to 25 per cent of all patients treated with antibiotics. In the hospital environment, this can lead to prolonged hospital stay, increased costs and higher mortality rates. At University Hospitals Case Medical Center in Cleveland, USA, a study was performed to investigate whether Lactobacillus reuteri Protectis could prevent this type of diarrhoea in hospitalised adult patients. Earlier studies have shown that Lactobacillus reuteri Protectis
can reduce acute diarrhoea in children. This randomised, double-blind and placebo-controlled pilot study included 31 hospitalised patients receiving antibiotics. For a period of four weeks, half of the patients were given chewable tablets Lactobacillus reuteri Protectis twice a day, while the other half were given an identical placebo. The results showed that the incidence of diarrhoea was significantly lower in the patients given probiotic tablets than in the placebo group, 7.7 per cent compared to 50 per cent. The study was presented in 2009 and published in 2011.
BIOGAIA'S research bank contains around 50 strains of Lactobacillus reuteri that can be divided into two groups. The first includes strains with anti-pathogen attributes, such as Lactobacillus reuteri DSM 17938 (Lactobacillus reuteri Protectis), for digestive health and immune health connected to the GI tract. The second includes strains with anti-inflammatory traits, such as Lactobacillus reuteri ATCC PTA 5289, which in combination with Lactobacillus reuteri DSM 17938 is called Lactobacillus reuteri Prodentis and is used for oral health, and Lactobacillus reuteri ATCC PTA 6475, which in combination with Lactobacillus reuteri DSM 17938 is called Lactobacillus reuteri Gastrus (for control of Helicobacter pylori infection).
Colicky babies
U P T O 26 PER C EN T of all infants in the West suffer from infant colic, which is defined as recurrent crying, mainly in the evening, for at least three hours per day, at least three days per week and for at least three weeks in an otherwise healthy infant.
Research on colic is a top priority
for BioGaia.
at Baylor College of Medicine in Houston, Texas, presented the results of studies on neonatal mice, an animal model of acute gastroenteritis caused by rotavirus. The studies showed that both of the tested Lactobacillus reuteri strains (of which one was Lactobacillus reuteri Protectis) reduced the duration of diarrhoea. The mechanism of action is related to an increase in specific antibodies as well as stimulation of gut mucosal cell growth.
Treatment with probiotics also contributed to enhanced microbial diversity despite infection with diarrhoea.
The study can explain the already documented effect of Lactobacillus reuteri DSM 17938 on rotavirus-related diarrhoea.
ROTAV IRUS IS ON E OF THE most prevalent causes of acute diarrhoea in small children worldwide. By the age of five, it is estimated that all children, regardless of their homeland, have had one rotavirus infection.
In the USA rotavirus is behind 45 per cent of all cases of acute diarrhoea in children. Antibiotic-associated diarrhoea (AAD), i.e. diarrhoea as a side-effect of antibiotic therapy, affects up to 25 per cent of all patients treated with antibiotics. The risk of AAD is increased by factors such as the intake of several different types of antibiotics over a long period of time, gastrointestinal surgery and long-term hospital stays.
At least half of the earth's population is infected, but its incidence varies from over 80 per cent of all adults in developing regions such as Asia and Latin America to between 20 per cent and 50 per cent in the industrialised world. However, the majority of infected individuals are unaware of this fact and only around 20 per cent have symptoms.
DEATH OF IN TESTI NAL TISSUE , necrotising enterocolitis, NEC, is the leading gastrointestinal cause of death and illness in premature infants.
The explanation for this is that the gastrointestinal flora in these infants is not fully developed, which means that there is a major risk for colonisation with potentially pathogenic organisms.
Because Lactobacillus reuteri is known to inhibit intestinal infections and modulate the immune system, a group of researchers at the University of Texas in Houston, USA, wanted to study its effects
on NEC. The study was performed on newborn rats and showed positive effects on several parameters for both Lactobacillus reuteri Protectis and an additional strain of Lactobacillus reuteri .
The results thus support the theory that Lactobacillus reuteri may represent a valuable treatment alternative to prevent NEC. The results of the world's largest probiotics study on preterm newborns to date, including more than 700 infants, are awaited during 2012. Furthermore, additional studies on preterm newborns are underway.
The results of a double-blind, placebocontrolled study of 494 children performed in Indonesia were published on 21 February 2012. The study showed that supplementation with Lactobacillus reuteri Protectis significantly reduced the incidence of all diarrhoea. The effects were particularly good in children with lower nutritional status. Lactobacillus casei 431, which was also tested in the study, showed no effect.
11
The focus in 2011 was on boosting sales in the USA and restructuring the partner network for the oral health products.
In 2011 BioGaia held scientific symposia at
PACKAGING SOLU TIONS – ways to administer probiotics to consumers, such as drops, tablets and straws. LINE EXT ENSIONS OF OW N-BR ANDED PRODUCTS – new flavours
for the digestive health tablets, drops with Vitamin D, oral health drops, oral rehydration solution. WH OLE NEW PRODUCTS – new strains and combinations of strains, new areas of use.
TH E INCID ENC E OF constipation among children varies between 7 and 30 per cent depending on the country. A full 40 per cent develop symptoms already during the first year of life and these often persist for a long time. Many children with constipation have continued problems as teens and adults.
H AL ITOSIS (bad breath) is estimated to be the third most frequent reason for seeking dental aid, following tooth decay and periodontal disease. In a randomised, double-blind and placebocontrolled study, 27 adults with self-reported bad breath chewed a gum containing either Lactobacillus reuteri Prodentis or a placebo in the morning and evening for 14 days. After the treatment period, halitosis was significantly reduced in the patients who were given active treatment compared to the placebo group.
The study was performed at the University of Copenhagen's Institute of Odontology and is the first to evaluate the effect of Lactobacillus reuteri Prodentis on bad breath. Some ten other studies have shown beneficial effects in reduction of caries and periodontal disease, such as gingivitis and periodontitis.
also dentists, with which they have built up close contacts. In Bratislava, a study is currently underway with BioGaia's new product for treatment of Helicobacter pylori infection and in 2012 Slovakia plans to be one of the first countries to test launch BioGaia Gastrus.
In Poland, Ewopharma has sold drops and tablets since 2007. There are close to 200 probiotic products on the Polish market, but by focusing on marketing of scientific documentation to the medical profession the company has established a position as the twelfth largest probiotic brand. In 2012 they plan to launch drops with Vitamin D, oral rehydration solution and oral health lozenges.
IN PORTUGAL , Ferring launched the drops under BioGaia's brand five years ago. Today they are in second place among a total of some ten competing products and despite a shrinking economy in the country, the product has shown some growth. Furthermore, Ferring's sales in Portugal make this one of BioGaia's ten leading markets measured in sales per capita. In 2012 Ferring plans to launch the digestive health tablets. So far, Ferring's marketing has been directed only to physicians and other healthcare professionals, but last autumn they also started a consumer campaign using radio and TV advertisements and activity in social media.
FI VE OF THE MORE than 40 competiting products in France are registered as pharmaceuticals, but not BioGaia's drops and tablets. These are sold under the Bio-Gaia brand by Laboratoires Bioethic, and since the launch at the end of 2009 they have grown to become one of the top ten probiotic products. Sales are rising steadily, by 79 per cent in 2011 compared to the prior year, and there is still considerable untapped potential in France. The bestselling product is the drops, which accounted for around 74 per cent of sales in 2011. As in many other countries, Bioethic's marketing targets physicians and pharmacists and a large share of sales are made on their recommendation.
I n Europe, BioGaia's largest market, acceptance and understanding of probiotics are relatively high among both consumers and healthcare professionals, although there are major differences between countries. Probiotics are most firmly established in Finland, Italy and a number of Eastern European countries. These are regarded as mature markets where probiotics are regularly prescribed and used.
IN U KRAI N E there are around 80 different probiotic preparations on the market. Delta Medical launched BioGaia's drops in 2008, the digestive health tablets in 2009 and the oral rehydration solution in 2011. In October 2011 Delta Medical had a market share of 6.5 per cent, placing the company as number five in the market. Unlike BioGaia's products, the four topselling products are registered as pharmaceuticals. According to BioGaia's business model, the marketing is directed mainly to physicians and other healthcare professionals, and Delta Medical is very highly regarded by this group. However, many competitors use advertising campaigns targeting the public and Delta Medical therefore plans to expand its marketing in order to reach consumers directly.
Total sales of BioGaia's products in Ukraine increased by 38 per cent in 2011 compared to 2010. The digestive health tablets accounted for the largest increase, 48 per cent, while sales of the drops rose by 28 per cent over the previous year. Next year Delta Medical will launch Bio-Gaia ProDentis and digestive health tablets with strawberry flavour.
T HROUGH IT S S U BSIDIA R IE S, the partner Ewopharma has successfully established BioGaia's products under the BioGaia brand in a number of Eastern European countries. In the span of just three years,
they have become
the market-
leader among probiotic dietary supplements in Bulgaria. The recipe for success has been to combine marketing to healthcare professionals with consumer advertising campaigns and other information for the public. They have also built up a close collaboration with opinion leaders within the medical profession and other physicians, and two clinical studies with BioGaia's products are currently in progress in Varna. The main challenge is the many new competitors that have started to spread messages similar to those used in Ewopharma's marketing. Another challenge is to establish BioGaia ProDentis in the oral health market (see page 23). One
interesting fact is that Ewopharma Bulgaria has succeeded well in establishing the digestive health tablets, for which sales are roughly equal to those for the drops, which is not the case in most other countries.
Despite aggressive competition among the 20 or so probiotic dietary supplements on the Slovakian market, Ewopharma has captured the marketleading position with BioGaia's drops and digestive health tablets. In contrast to Bulgaria, the marketing here is only directed to physicians, other healthcare professionals and now
"To a certain extent I really think that it's because Ewopharma has done a good job. Bulgaria also has a long tradition of yoghurt and probiotics. Lactobacillus bulgaricus was discovered in the 1960s and this lactobacillus is still widely known and something that the Bulgarians are proud of. During the communist era, for example, whole aircraft full of this probiotic were flown to Japan. As far as I know, none of the other countries have any similar tradition. Our strategy differs from market to market, but one thing is certain – that we have a strong focus on BioGaia's products and invest offensively, which produces results."
"The key factors are that we have clearly identified the extensive documentation on the core products and a willingness by BioGaia to continue investing in clinical studies. BioGaia's continuous presence at international conferences has also been of major importance in giving the products a good reputation among opinion leaders."
"The plans for 2012 are very optimistic and ambitious. In a few existing markets, such as Poland, we are planning large-scale consumer advertising campaigns at the same time that we are expanding the sales force that markets the products to healthcare professionals. At the end of 2011 we launched the tablets and drops in Latvia and Lithuania and hope that sales will gain momentum in the year ahead. In our established markets, we have several launches scheduled for next year. In Poland, for example, we will launch drops with Vitamin D, oral rehydration solution and oral health lozenges. The oral health lozenges will also be launched in Serbia, Slovenia and Croatia."
INTERVIEW: Eva Nelson Product Manager and Project Manager at BioGaia
Ewopharma, one of BioGaia's most important partners in Eastern Europe.
Manager International Product Management at Ewopharma's head office in Switzerland
True and false about probiotics
| Digestive | Oral | ||
|---|---|---|---|
| health | health | ||
| tablets | Drops | lozenges | |
| Poland | X | X | |
| Bulgaria | X | X | X |
| Slovakia | X | X | X |
| Rumania | X | X | |
| Croatia | X | X | |
| Slovenia | X | X | |
| Serbia | X | X | |
| Moldavia | X | ||
| Lithuania | X | ||
| Latvia | X | ||
W Fatima Barakat from the product development department in Lund and Louise Gydmer from the quality assurance department in Stockholm.
X Elin af Klinteberg works with registration and quality assurance at the office in Stockholm . W Salme Portinson and Karin Diderot work with clinical trials at the research department in Lund.
With only 50 employees (plus an additional 14 in the 50 per cent-owned TwoPac) and sales in more than 60 countries, the employees have many international contacts. XChristoffer Lundqvist, product developer, Lund WCristian Contreras R-T, Regional Manager for Latin America, based in Stockholm.
BIOGAIA'S GO AL is to be one of the three leading providers of probiotic dietary
supplements in every market where the company's products are available. Of the 26 European countries where BioGaia's finished products are sold, this goal has been met in over a third, of which the top positions are held in Bulgaria, Slovakia and Finland.
THE CHI N ESE MARKET for probiotic dietary supplements alone is worth around SEK 750 million annually, and the potential for BioGaia's products is vast. In mid-2010 BioGaia signed an agreement with Asia United (China) Medical Co, Ltd, for sales of the drops. Since then, the two have worked together to find local distribution partners and prepare for the test launch.
For the first few years the drops will be sold only in pharmacies, but other distribution channels may eventually be considered. The drops will be marketed as food products and sold under the BioGaia brand in the same manner as in most of BioGaia's other markets, by targeting physicians and healthcare professionals. Asia United's portfolio consists mainly of cholera vaccines and growth hormones, which means that the company has already established contacts with paediatricians and other healthcare professionals.
Sales in Singapore have surged by over 120 per cent in the past three years (albeit from a low level) and the drops, which are sold under BioGaia's brand, are now counted among the top three probiotic products. So far, nearly all sales have been made directly via physicians. The partner Age D'Or has access to virtually all paediatricians in the country and estimates that around 85 per cent of them recommend the drops. Today, one bottle is sold for every second newborn child and the potential for growth is deemed excellent.
Despite a low average income among Indonesia's population of 230 million, there is a relatively good knowledge of probiotics and the potential is therefore considered favourable. Kalbe currently sells the digestive health tablets under the Rillus brand, which is the country's fourth best selling probiotic dietary supplement. The marketing is directed primarily to specialised physicians and the tablets
are sold mainly as a probiotic diarrhoea treatment and for general digestive health. In 2012 the drops will also be launched, but by another partner, Interbat. They will be sold under the Interlac brand, which apart from the product name shares BioGaia's other brand attributes. Interbat's marketing will primarily target paediatricians and since 60 per cent of the probiotics market is estimated to lie in the child health segment, expectations are high.
14 billion
Based on figures from IMS Health and BioGaia's own estimates, the global market for probiotic dietary supplements is worth between SEK
13 billion and SEK 14 billion in consumer sales.
2009
40
30
20
10
2010 2011
37.1
SEK M
Sales in Asia
Sales in Asia were up by 90 per cent to SEK 20 million in
2011.
16 17 P RODUCTS & M ARKET P RODUCTS & M ARKET
President of Everidis Health Sciences, USA, which markets BioGaia's products on the US market
"Everidis has made major strides in the US market. When we started out, the level of knowledge and acceptance among paediatricians was very low. Many doctors were completely opposed to the idea of using bacteria to promote health. Today the number of doctors that recommend probiotics has risen, partly due to the number of clinical studies that have been published in American medical journals and partly thanks to increased educational contributions from both the academic sphere and the industrial sector, including Everdis."
"The launch of the drops that can be stored at room temperature is a major investment for Everidis. We believe that the synergies created by increased marketing activities together with the greater convenience and availability of the new drops will generate significant sales growth in the USA."
INTERVIEW: Eva Nelson Product Manager and Project Manager at BioGaia
2009 20 15 10 5 SEK M 2010 2011 17.8 Sales in the USA and Canada
DU R ING THE YEAR E VE R IDIS was successful in selling BioGaia's new drops that can be stored at room temperature to USA's pharmacy chain, Walgreens. In August 2011, Walgreens was first in the world to launch the new drops that are now displayed on the pharmacy shelf, instead of as earlier and as is still the case in most countries, in a refrigerator behind the counter. Last autumn both Walgreens and Everidis carried out information and advertising campaigns directed to both healthcare professionals and consumers. So far, their expectations have been met and sales are rising steadily.
In addition to this venture, in the past year BioGaia signed an exclusive distribution agreement with Fleet Laboratories, one of the USA's largest providers of overthe-counter (OTC) drugs. Fleet will sell the digestive health tablets with strawberry flavour under its own Pedia-Lax
BIOGAIA'S PART N E R BLACK-MORES is by far Australia's largest and best know brand in the nutraceutical and dietary supplements segment with a market share of 20 per cent, while the segment for probiotic dietary supplements is dominated by a competitor and Blackmores is number two, with around 8 per cent of the market. When they launched the digestive health tablet at the end of 2010, the longterm goal was to be number one also in this segment. The market-leader's product is sold only in pharmacies and sales of probiotic dietary supplements have therefore been virtually limited to this channel. In the past year, however, Blackmores succeeded in its strategy to boost sales via grocery stores (70 per cent growth), among other things by starting distribution through Australia's largest
Issues related to patents and trademarks are of central importance for BioGaia. This is an area known as IPR (intellectual property rights), which includes patents, brands and trademarks, copyrights and other rights. An approved patent is normally valid for around 20 years. In BioGaia's business model, the company functions as a hub in the network of researchers and licensees that together contribute to developing knowledge about and use of the company's probiotic strains and technologies. The advantages of working with independent researchers is that this leads to a more creative research climate and enables BioGaia to form ties with the top experts in each area. The one possible drawback is the time-consuming and continuous work surrounding administration of patents and contracts with different researchers.
There are no global patents. BioGaia applies for and holds patents in the countries where it is commercially relevant to do so and where there are functioning
patent systems. Applying for patents is a cumbersome process that requires extensive documentation. BioGaia handles the fundamental aspects of the process and then uses representatives in each country where a patent is being sought for contacts with the country's patent authorities. Thanks to BioGaia's forefront position when it comes of new knowledge in the field of probiotics, it has been possible to patent specific new strains and indications/areas of use.
BioGaia also protects its packaging solutions, which are developed to make the products more user-friendly.
IN 2011 A DECISION WA S MADE to add product names to the various products. In pace with growing number of products being launched, there is a need to more effectively differentiate between them while at the same time strengthening the BioGaia brand. Previously, all of the products were called BioGaia in combination with the packaging solution, such as BioGaia probiotic chewable tablets. In the new system, all products based on the Lactobacillus reuteri Protectis strain have been given the product name ProTectis. As a result, the digestive health tablets are now called BioGaia ProTectis followed by "tablets" to clarify that this refers to tablets and not drops, which instead have the addition "drops". Products based on Lactobacillus reuteri Prodentis are called BioGaia ProDentis, followed by "tablets" or "drops".
domains
Sales in North America grew by 28 per cent during 2011.
brand (with the product name Probiotic Yums) and therefore does not compete with the product sold through Everidis.
grocery retail chain Woolworths. They have also turned the negative trend for pharmacy sales into growth of over 18 per cent. The main underlying factors have been successful marketing campaigns targeting the public, which has resulted in greater awareness and knowledge of probiotics, as well as web-based educational programmes for pharmacists.
In 2012 the drops will be launched in Australia under BioGaia's own brand, with marketing primarily to paediatricians.
IN LAT IN A MER IC A, BioGaia has gone from sales in two markets two years ago to five markets today – Mexico, Guatemala, Brazil, Peru and Chile. The expansion is continuing with launches planned for another four countries during 2012.
BioGaia's highest sales in Latin America are found in Chile, where the partner Recalcine has succeeded in advancing BIOGAIA HAS HAD its own consumer brand since 2006 and its strategy is to successively raise the share of sales under this brand, which today accounts for 43 per cent of finished product sales (or 50 per cent including cobranded products). This is an increase of 30 per cent compared to two years ago. The target for 2014 is to achieve 60 per cent of sales under the BioGaia brand.
The most significant sales growth for finished products comes from markets where the BioGaia brand is used. This is
ket longer and therefore have a flatter growth curve. One exception to this rule is Italy – BioGaia's largest market – where sales growth remained strong during the year despite eight years in the market and fierce competition from some 400 other
BIOGAIA'S COMPETITORS include research-driven probiotic companies with products in the dietary supplements segment. One such company is Finnish Valio, which licenses its well documented Lactobacillus rhamnosus GG worldwide. As a result, the major food manufacturers that add probiotics primarily to yoghurt and other milk-based products do not compete directly with BioGaia.
Another way to look at the compe-
tition is by comparison to the most well documented probiotic bacterial strains in published literature. Of the ten foremost strains, BioGaia's Lactobacillus reuteri Protectis is one of the top three.
This complexity makes is difficult to determine who is the world-leader in probiotics. However, it is clear that however you define the market, Bio-Gaia is one of the world's leading probiotic companies.
30 SEK M
Finished products currently account for close to 70 per cent of BioGaia's operations, and this is also where the company's focus lies. The main market is therefore defined as "probiotic dietary supplements that are sold in pharmacies and similar retail outlets". The finished products are sold in more than 50 countries and BioGaia is represented in a total of over 60 countries.
A FE W OF BIOGAIA'S PART N ERS, such as Verman in Finland, Akacia in South Africa och Ewopharma in Bulgaria, have succeeded in communicating the probiotic message directly to consumers. A few additional partners now feel that their markets are mature for this type of communication and are planning consumer advertising campaigns in the coming year. Although the majority of partners are continuing according to BioGaia's because growth is normally highest in the second and third year after launch, and most of the markets with the BioGaia brand are currently at this stage. In countries where BioGaia's partners sell the products under other brands, these brands have been on the marprobiotic products. True and false about probiotics
primary business model, based on marketing to physicians and other healthcare professionals, these experiences provide valuable lessons for future marketing of BioGaia's products. Regardless of the target group, however, BioGaia's products are always positioned as high quality and well documented probiotic dietary supplements. In light of the relatively widespread unfamiliarity with probiotics among both healthcare professionals and the public, the challenge is to increase knowledge about probiotics, such as the fact that different probiotic strains have varying attributes and therefore also different health-enhancing effects.
American Society of Neonatology (SIBEN) conference in October 2011.
In just one year, Recalcine (whose subsidiary here is called Farmindustria) has secured a number three position in Peru measured in unit sales of probiotic products and a market share of 9 per cent. In spite of more than a dozen competitors, sales of both drops and tablets have continued to grow. In both Peru and Chile the marketing is directed exclusively to physicians and other healthcare professionals, among whom Recalcine has built up a high level of confidence in BioGaia's products.
from a market share of 10 per cent last year to a full 20 per cent this year despite a growing number of competitors. Above all, they have gained shares from the market-leader. In the child health segment, BioGaia's drops took the leading position in August 2011 with a market share of 36 per cent.
In total, BioGaia's products account for the second highest sales among the ten probiotic products available in the country. The partnership with Recalcine is effective and dynamic. Together with Bio-Gaia, Recalcine among other things held a well-attended symposium at the IberoSales in the "rest of the world" refer mainly to South Africa, South America and Australia and rose by 37 per cent in 2011.
Sales in South America, Africa and Australia
However, we should be even clearer in communicating the differences between the products."
"It's still too early to say. We are at the sell-ing stage with the pharmacy chains and so far the drops with Vitamin D are only available in a couple of chains. But the interest is considerable."
Semper is a very strong brand in the baby food segment. Now you are further widening your range of dietary supplements through the launch of Semper Magtabletter, a digestive health tablet. What is the strategy behind this decision?
"All of our probiotic products are part of the Nutrition business area. Expanding this with BioGaia's digestive health tablets is a natural step in an already suc-
"The regular digestive health drops are still seen mainly as a short-term problem solver, whereas the Vitamin D drops are positioned as a practical daily solution for those who need the regular drops in addition to the recommended dose of Vitamin D that is given to all infants in Sweden. cessful segment. The drops can be given from birth and when a child reaches the age of three these can be replaced with tablets that have the same content. The tablets also strengthen and broaden Semper's profile in the healthcare sector."
"The product has just been launched and is so far only available in a couple of pharmacy chains. The reception by the pharmacies has been generally positive, but we are also noticing that the health advantages of the tablets are somewhat more complicated to explain than for the probiotic drops and oral rehydration solution. In our marketing to the healthcare sector, the tablets allow Semper to turn to doctors at paediatric clinics since these treat children from the age of three, which is the lower age limit for the tablets. Nurses at the child health centres, who were previously our main target group, mostly see newborns and children up to the age of three."
"In 2006 BioGaia was seeking a strong partner for its probiotic drops in the Swedish market and saw Semper as an excellent candidate. Through BioGaia's digestive health drops, Semper in turn had the chance to establish itself with a new and innovative product in a channel that was new to us, namely pharmacies. Furthermore, the healthcare sector's confidence in us was reinforced by the clinical documentation that BioGaia contributed with. Over the years, our partnership has both grown deeper and expanded with additional products. And because Semper sees the pharmacy channel as beneficial and confidencebuilding for the entire portfolio, I feel very optimistic about the future. Together with BioGaia our goal is to develop more products in the probiotic segment and become established in more markets."
1 Semper and BioGaia started a collaboration for the nutritional drink Addera, with a straw containing Lactobacillus reuteri Protectis, already in 2002. The product was sold on the Swedish market between 2002 and 2005.
For several years Semper and BioGaia have been collaborating successfully. This year the product portfolio was expanded from probiotic digestive health drops and infant formula products to include digestive health tablets and drops with Vitamin D. Here, Semper's CEO Witte van Cappellen talks about positive trends and future ventures.
Semper Magdroppar digestive health drops have been on the Swedish market since 2007 and today an average of one bottle is sold for every newborn in Sweden. What are the success factors? "These include our focus on the target group and the fact that it's a good product that fills a need in the market. The main target group has always been nurses in the Swedish child health centres. When the drops were launched, these nurses gained access to an effective and well-documented product that could solve their child patients' problems with colic. Nothing of its kind had been available before. In combination with Semper's strong brand, this meant that the drops were well received. We also have close contacts with paediatricians and since the past year or so we provide information to pharmacy staff. In addition, we have broadened our message about the drops to explain that they are also effective in treating conditions like diarrhoea. Against this background, I think the drops have potential to grow further in the future."
Cappellen.
Photo: Anette Andersson
BioGaia's focus in probiotics for oral health started in 2006 through the signing of an exclusive, global distribution agreement with Sunstar, a world-leading oral health company with brands like GUM and Butler. In the years thereafter BioGaia's oral health products were launched under the GUM PerioBalance brand in Sweden, Germany, France, Italy and Spain. The launches did not live up to expectations and it became clear that much more than a good product was needed to reach dentists and consumers. However, recent years have seen a paradigm shift in attitudes towards periodontal disease. From having previously focused primarily on the symptoms, more and more dentists are now recognising the essential role of preventative treatment. A similar shift took place in the treatment of caries when fluoride was introduced.
The market is currently dominated by antimicrobial products, such as mouthwash and antibiotics, but with a growing awareness of the importance of maintaining balance in the oral microflora and the problems associated with widespread use of antibiotics, the future looks promising for BioGaia's natural oral health products.
A RESTRUCTUR ING OF distribution rights for the oral health products in 2011 created the conditions for BioGaia to sell products under its own brand in a large number of countries. Efforts are now underway to find partners that already have oral health products in their port-
folio and want to expand their range to include BioGaia's products, or partners seeking to establish themselves in this area. Sunstar has continued to distribute the oral health products in Sweden, Denmark, Italy, Spain, Portugal and the USA, and in the coming year will also launch them in Canada. In the USA, Sunstar launched GUM PerioBalance during 2011 in two of the country's three largest pharmacy chains.
THE BU SI N ESS MODEL FO R sales of the oral health products is based on professional recommendations and is thus identical to that used for the company's other products. Scientific studies, carried out in close cooperation with schools of dentistry where researchers and opinion-leaders are active, are an important success factor. On the other hand, there is virtually no marketing to consumers. For example, Sunstar Spain took action at an early stage to establish BioGaia's oral health lozenges among dentists by holding symposia and performing scientific studies, which has resulted in strong support from the dental profession and favourable sales figures.
I N 2011 E WOPHARMA launched the oral health lozenges with BioGaia's ProDentis brand in Bulgaria and Slovakia. In Slovakia the marketing is targeted primarily toward dentists and the reception has been enthusiastic. BioGaia ProDentis is first on the market, which means that it will take both time and resources to establish the product.
Ewopharma in Bulgaria launched Bio-Gaia ProDentis last spring and chose a
With new opportunities for distribution, more scientific documentation and additional products, BioGaia sees exciting growth potential in the oral health business area.
Inflammation of the gums (gingivitis) is very common and is found in more than half of the adult population. Gingivitis is caused by dental plaque and the first signs of the illness are irritated, swollen and bleeding gums. In one third of all adults the inflammation has advanced to periodontitis, which is often chronic and can in many cases lead to loss of teeth.
In a number of randomised, double-blind and placebo-controlled clinical studies, Lactobacillus reuteri ProDentis has been shown to reduce bleeding and inflammation of the gums, reduce plaque and pathogenic bacteria in the oral cavity and restore a healthy bacterial flora in the mouth. There is also clinical evidence for a reduction in probing pocket depth and clinical attachment level, two of the key parameters in assessing the severity of periodontitis. No side-effects or negative effects have been discovered.
All in all, the future looks bright for BioGaia's oral health products and there are millions of reasons for patients, dentists and BioGaia's shareholders to smile even more," says Robert Lindström, Manager Business Development, Oral Health.
wider marketing strategy that is directed to dentists, general practitioners, paediatricians, pharmacists and consumers. The reception among dentists, who make up the primary target group, has been very positive. Among consumers, knowledge about oral health remains limited and not even dentists have an established strategy for preventative oral health. Since the price of BioGaia ProDentis is relatively high, this has resulted in a fairly sluggish launch. However, Ewopharma Bulgaria has good hope for increased sales in pace with the product's establishment on the market. So far there are no probiotic competitors, but there are two products marketed for the same oral health problems as ProDentis.
I N MOST COU N T R IE S BioGaia ProDentis oral health lozenges are sold mainly in pharmacies and similar outlets, and the product is intended for daily oral health. BioGaia ProDentis drops are a new professional product that is used by dentists in a clinical setting, where the drops are given as a complement to traditional, mechanical tooth cleaning.
At the beginning of the year, BioGaia Japan was first in the world to launch the oral health drops through its distribution partner Nippon Access. The drops are being marketed to dentists throughout Japan and are showing good sales growth.
TABLETS. BioGaia ProTectis tablets for digestive health (children and adults) and BioGaia ProDentis lozenges for oral health.
DROPS. BioGaia ProTectis drops and BioGaia ProTectis drops with Vitamin D, both of which have been developed specifically for infants and small children, and BioGaia ProDentis oral health drops.
formula and infant cereal products, yoghurt and other dairy products.
CAP. LifeTop Cap is a bottle cap in which sensitive ingredients such as Lactobacillus reuteri Protectis can be stored in a foil blister until the beverage is consumed.
STRAW. LifeTop Straw is a probiotic-containing drinking straw that is attached to the side of a beverage package. The ingredient, such as Lactobacillus reuteri Protectis, is released during consumption
of the beverage.
B IOGAIA PRO-D ENTIS drops have exactly the same contents as the lozenges. The daily dose is five to ten mint-flavoured
drops.
B IOGAIA PRODENTIS lozenges consist of two probiotic strains, Lactobacillus reuteri DSM 17938 and Lactobacillus reuteri ATCC PTA 5289. One lozenge contains 200 million Colony Forming Units (CFU) of live bacteria. The recommended daily dose is one to two lozenges. The lozenges are mint-flavoured. BioGaia ProDentis was launched in 2005 as the world's first probiotic for oral health.
True and false about probiotics
2000 Launch of the world's first chewable probiotic tablet
2001 Introduction of the first probiotic infant formula
2002 Launch of the world's first probiotic straw
2004 The world's first probiotic drops for infants are launched
2005 Launch of the first probiotic oral health products for adults
2008 More than 50 studies carried out on over 4,000 individuals. Global agreement with Nestlé Nutrition for infant formula. BioGaia's products sold in more than 40 countries
2009 Launch of the first probiotic oral rehydration solution (ORS) with zinc
2010 Three billion doses sold globally. 80 studies carried out on over 5,000 individuals. BioGaia's products sold in more than 60 countries
2011 Launch of oral health drops, drops with Vitamin D and digestive health tablet with strawberry flavour. Drops that can be stored at room temperature are also launched. 92 clinical studies using BioGaia's human strains of Lactobacillus reuteri performed on more than 7,700 individuals of all ages. Results published in 55 articles in scientific journals.
Illustration: Lasse Widlund
launch ProDentis in several Eastern European countries. In addition to expansion with its existing partners, BioGaia hopes to sign agreements for a number of new markets and work on establishing the Bio-Gaia ProDentis brand among dentists by participating in international dental congresses – a strategy that has been highly successful for the digestive health products. The premiere will take place at Europerio 7, an international periodontology conference that will be held in Vienna in June 2012.
X Incoming product orders are received by BioGaia in Lund X and are then forwarded to the subcontractors in Sweden and other European countries that manufacture the actual products and to the suppliers that make the packages based on customer specifications, among other things with product texts in their respective languages. X When the products are ready, a sample is sent to Lund for analysis. Before the goods are sent to the customer, the sample is examined to test its quality and ensure that a dose contains
the right number of live bacteria, as a guarantee that there are at least 100 million live bacteria left on the final date of use. X Reference samples are also saved in temperature-regulated cabinets under recommended conditions for a period equal to the shelf life of the product.
X The period from order to delivery takes a maximum of 90 days.
BioGaia's products are currently sold in some 60 countries around the world. Due to their differing regulatory systems, the length of time between contract and product launch varies between countries. In most countries the products are registered as dietary supplements but in certain markets, like Turkey, Canada, Hong Kong and Peru, they are registered as a category of pharmaceuticals.
There is always a risk that the rules will be changed in the different markets with a resulting negative impact on sales, at least for a limited period of time.
In the EU, the use of nutrition and health claims is regulated by the European Food Safety Authority (EFSA). The EFSA rules apply to food products that are marketed to consumers with various claims about preventative health effects, for example that a lower intake of cholesterol reduces the risk for cardiovascular disease or a food product's ability to improve the immune defence. In the case of BioGaia's products, these are often recommended to patients by doctors or other healthcare professionals because the patient in question is in more or less urgent need of the product's probiotic effect. As a result, the EFSA rules are not applicable to the majority of BioGaia's products. Furthermore, because the products are recommended by healthcare professionals, in most countries there is no need to make general health claims in the marketing materials as would be the case if the company was marketing a yoghurt or beverage directly to consumers. If it becomes necessary to use another type of marketing for future products, BioGaia will apply for approval of its health claims from the EFSA. Together with partners BioGaia is assessing the opportunities to register its products under the existing regulations as Food for Special Medical Purposes (in Sweden called "SärNär"), natural remedies or other registra-
tion categories depending on the type of product and the country involved.
BioGaia does not sell directly to end-users but instead sells its products to companies (partners) which then sell the products to consumers. This means that BioGaia is dependent on these partners to invest the resources necessary for marketing and sales. In order to influence this to a greater extent on its own, BioGaia launched its own brand in 2006. Today a number of BioGaia's partners sell products wholly or
partly under the BioGaia brand and BioGaia-branded products are currently sold in 38 countries. BioGaia also provides its partners with strong support in the form of education, information about new clinical studies and speakers at symposia, as well as marketing and PR support.
Employees BioGaia's operations are wholly dependent on the employees' expertise, and they therefore make up the company's most valuable resource. In order to attract and retain skilled and motivated employees, BioGaia strives to create a culture in which all employees are given the opportunity to develop, influence their own work situation and maintain a good balance between work and leisure in order to avoid stress. In addition, there is an incentive scheme that is open to all employees in the parent company and the wholly owned subsidiaries.
BioGaia invests considerable sums in research, clinical studies and product development with the aim of developing products with proven health benefits. Even after thorough pilot studies, there is always a risk that a project will be wholly or partly unsuccessful or that the finished products will not be attractive to potential customers. There is also a certain risk that the studies that lie outside BioGaia's control are not performed in accordance with BioGaia's strict requirements. On the other hand, these studies are regarded as more objective and also contribute to reducing the company's research expenses.
BioGaia's business activities are based on a large number of intellectual property rights, such as patents, trademarks, names of strains and Internet domains. The company works continuously to strengthen its intellectual property rights by protecting the use of the company's products. There is always a risk for infringement of intellectual property. In 2010 BioGaia filed a lawsuit in the USA against one of the company's former licensees, Nature's Way. Although the agreement with Nature's Way expired in August 2007, the company continued to use Lactobacillus reuteri in its marketing and products despite repeated requests to cease. In the autumn of 2011 a settlement was reached with Nature's Way, which was required to pay damages to BioGaia.
These rights are enforced on an ongoing basis, but there are no guarantees that future infringements will not cause the company damage. BioGaia works continuously with market intelligence.
All employees are given the opportunity to influence their work situation in order to maintain a good balance between work and leisure, and thereby avoid stress. So we asked a few employees:
Chatarina Andersson, Marketing Assistant, Stockholm
1. Yes!
2 . Spending time and discovering new things with my family, such as music festivals and previously unknown oases around Stockholm. Having fun with friends and keeping up the "sewing circle" that was started in 1979. I try to exercise regularly and go for long walks.
Product liability insurance
BioGaia's partners require the company to have product liability insurance as protection against liability claims for third party damage. BioGaia has product liability insurance that provides coverage up to SEK 60 million per claim up to a maximum of SEK 120 million per year. The insurance is valid worldwide.
BioGaia Japan Hiroshima
CapAbleAB Stockholm
Subsidiary
Part of Executive Management New employees
Marketing
Sales
President & CEO
1 . I find time for some leisure activities.
2 . I read a lot of books, play some computer and TV games and like to spend time outdoors fishing or picking mushrooms when I get the chance. I always have a bunch of small projects lying around that I fiddle with now and then, like building and programming small robots, learning to play the guitar or learning a new programming language.
1. Yes, I do. Sometimes I have a few too many projects at once!
2 . I have a special interest that I devote some of my free time to: Traditional Chinese Medicine (TCM) and different treatment methods, like acupuncture and herbal medicine. The thing I like about TCM is its basic philosophy, to see both the whole and the uniqueness in each individual, and to offer individualised treatment based on this. It feels good to combine my work at BioGaia with this, since both are focused on improving human health in a natural way.
The level of expertise is high: 34 employees have at least the equivalent of a university education and four of these hold a doctor's degree. The company promotes continuing education among its employees in order to meet future competency needs.
Five people were hired in 2011 and zero people left the company. There are a total of 64 employees, of which 14 work in the 50 per cent-owned subsidiary TwoPac AB. The average term of service is five years and the average age is
42 years.
1. Do you find time for leisure activities?
2. What are your hobbies and interests?
Linda Hedlund, Controller, Stockholm
1 . Absolutely. It's important to use your free time to create a balance in life! 2. I enjoy cross-country skiing in the winter and picking berries and mushrooms together with my family in the summer. I have preschool children and spend a lot of time with them. I also like to play golf.
Christoffer Lundqvist, Product Developer, Lund
1 . Yes, I make sure that I have some free time.
2. When I'm not working I prefer to spend time with my family and my three daughters. Unfortunately, I don't get as much exercise as I would like, but I do go running regularly every week. And I always have a book that I'm reading.
You have done a life cycle analysis of your packages as part of your environmental commitment. Yet you have global sales and employees who travel around the world to meet customers and take part in medical conventions. How do you compensate for your product and employee transports? "For example, I think you
need to do something more than just routinely checking the carbon compensation box for air travel. We are currently discussing whether we should purchase and plant forest somewhere where it is needed in order to
"An employee told me about the work of the Children's Mission before one of my business trips to the Philippines. I visited them and was deeply impressed by their activities. Here I can see that our donations are really making a difference for the children, teens and young adults that the Mission takes care of and educates. I regularly visit the mission in the Philippines to monitor how our money is being used. For me, it is above all important that BioGaia supports an initiative that benefits children. Most of our income comes from our children's products, and we should give some of that back."
In different contexts you describe your ambition to be an equal opportunity company. How do you plan to correct the imbalance in the executive
"The members of the executive management team have been with the company for a long time and reflect a historical core group of individuals. At the moment we are working actively with regrowth. For example, now that we are appointing a new Marketing Director, the goal is that this position goes to a woman. We are taking deliberate steps to even out past gender imbalances."
"First of all, I would like to point out that an earlier study showed that ownermanaged businesses have traditionally shown higher profitability. And then I think it is critical to respect the work and decisions of the board. If you want a board that is good for the company, it has to be able to maintain a high level of integrity."
INTERVIEW: Cattis Grant writer and Project Manager at Grant Information
In 2009 BioGaia asked the Swedish Environmental Research Institute (IVL) to calculate and compare the environmental effects of the company's different packages. The environmental aspects covered in the study were climate change, acidification, eutrophication and formation of ground-level ozone. Primary energy consumption was also calculated.
In a comparison between the two packaging types, plastic containers and aluminium blister packs, and between different package sizes (10 or 30 tablets) the results were as follows:
The drops have an equal effect on the environment per dose as the tablets in terms of eutrophication and groundlevel ozone. In other environmental categories the drops are better than the tablets, for example with a climate impact that is 20 per cent lower per dose. If the outer package and information leaflet are removed, the climate impact is naturally further reduced. The largest differences are seen in the categories of eutrophication and primary energy consumption, where the lack of an outer package and infor-
mation leaflet decreases the environmental impact by 30–40 per cent.
In your annual reports it usually says that BioGaia contributes to positive development through its commitment to sustainability and biology. What is the nature of this commitment?
"For me, one strong driver is to contribute to reducing the use of antibiotics. Already 20 years ago we could see that the rate of antibiotic usage was alarmingly high. Today we are facing widespread global problems with antibiotic resistance."
"For us, it is especially important to help prevent children from becoming sick and needing to use so much antibiotics. An earlier study showed that children who received Lactobacillus reuteri Protectis as a supplement in infant formula had significantly fewer absences from daycare, fewer doctor's visits and reduced use of antibiotics. Another study on preterm newborns showed lower use of antibiotics when our probiotic was given. In other words, we provide a gentle but effective alternative that has no negative effects on humans or the environment."
"Without a doubt, our products beneficial effects on infants with colic and preterm newborns. It's an added bonus for all of us who work here to receive so many letters from grateful parents who can finally sleep at night and feel secure for their children's sake."
"That question does come up occasionally. For example, it can be related to a certain type of fat that we don't approve of. Ultimately, the decision is mine and I always object if things have gone so far that we have any doubts. Our probiotics may never be associated with unhealthy products or negative effects."
I think you need to do something more than just routinely checking the carbon compensation box for air travel.
Photo: Anette Andersson
ANNUAL REPORT 2011
34
ANNUAL REPORT 2011
H Å LLBARHET & ETIK H Å LLBARHET & ETIK
Å RSREDOVISNING 2011 Å RSREDOVISNING Every year, BioGaia makes a donation to the Scandinavian Children's Mission in the Philippines, which takes care of malnourished children, runs a preschool and provides skills training for teens and young adults. Here is a greeting from the Philippines where Birgitta Dahl, Director of the Mission together with Thore Dahl, tells the story of four-year-old Andrea.
Greetings from
the Philippines X Little Andrea was seriously ill and her mother Elena worried when they came seeking help in February 2011. W Now Andrea is smiling again. In December 2011 she, her mother Elena and her little brother attended the Christmas party. V Already by October, Andrea had recovered. Here she is pictured with Nurse Carol from the
Children's Mission.
Andrea is four years old. When I see her lying there weak and emaciated in her mother's lap, I find it hard to believe that she could be so old except for the fact of her height. In other respects, she is a mere shadow of a four-year-old. Her
eyes are empty, her arms and legs hang lifelessly, she has a fever and she cries at regular intervals. How can a child end up in a situation like this? I ask her mother Elena and receive a long answer in the Philippine language Tagalog that one of the Mission's employees translates for me.
In November of 2010 Andrea fell ill with diarrhoea and fever, a persistent cough and weakness. A visit to the government clinic didn't bring any relief despite a prescription for antibiotics. Time passed and little Andrea grew sicker and sicker. But there was no money to seek further care, not even enough to travel to the enormous state-run hospital in Manila where the poor can receive help free of charge.
Her mother Elena is 25 years old and lives with her partner in a shanty near a river in Rodriguez, just outside Manila. They have four children of the ages of six, four and two years old and a baby of seven months. The smallest is chubby and appears to be thriving. I ask Elena if she is breastfeeding and she answers yes, which explains the baby's good health. Elena and her husband work as rubbish sorters, or "scavengers". When I ask how much they can earn in a day she mentions different amounts, equal to between 14 and 25 Swedish kronor. The shanty they live in is quite far from the Children's Mission's clinic in Erap City, but our energetic Nurse Riza has been to Elena's area on house calls and is well known there. When little Andrea didn't recover and just kept getting worse by the day, her mother Elena brought her to our Mother and Child Healthcare Clinic. It is a long way to walk, but they didn't give up. Immediately on arrival, Andrea was admitted to our malnutrition clinic.
When I check the isolation room, where all new patients are placed, I find out that Andrea most likely has child tuberculosis.
The Children's Mission's Skills Training Center (STC) near the large Quezon City dump site in Manila has trained 741 students since the start in 2007. Of these, more than a third have found employment. The courses that lead to the most jobs are cosmetology and welding, but cell phone repair has also been successful. The Philippines have one of the world's highest numbers of cell phones per capita. With the population of the Philippines spread across 7,100 islands, cell phones have become the primary means of communication. After successfully completing their training, students at the Skills Training Center, which offers short-term courses lasting between three and five months, receive a certificate from the government's Technical Education and Skills Development Agency, TESDA, since the STC has been approved by them. This gives them better opportunities to win the jobs they need to support their families.
The vocational school near the Smokey Valley dump site outside Manila offers courses in areas like dressmaking, small appliance troubleshooting and repair and cell phone repair and welding.
The Children's Mission has three focus areas in and around Manila ● EDUCATION preschools, school sponsorship programme and vocational training ● C HI LD WEL FARE malnutrition clinic, mother and child healthcare clinic, dental care
● CHRIS TIAN C HI LDREN'S ACTIVITIE S
Her mother is also complaining of a cough and we suspect that she herself has fully developed tuberculosis, which is an obvious threat to the entire family.
Andrea has now been home with her family for some time after rehabilitation and treatment at the malnutrition clinic, and is glowing with health. Her mother Elena is still being treated for tuberculosis but looks healthier than she has in a long time.
Andrea's story is just one of many examples of how we can help people through our work. Those of us at the Children's Mission are tremendously happy and grateful to be part of this effort to bring a ray of light and hope into the darkness.
I would therefore like to thank BioGaia warmly for supporting our activities.
TEXT & PHOTOS: Birgitta Dahl Scandinavian Children's Mission in the Philippines
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Margareta Hagman, Executive Vice President Accounting, Finance and Investor Relations
37
| BioGaia |
|---|
| Key events in 2011 |
| Key events after the end of the financial year |
| Financial performance in 2011 |
| Research and development activities |
| Environmental information |
| Business risks and uncertainties |
| Financial risk management |
| Employees |
| The Board of Directors' proposal to the AGM regarding remuneration |
| and other terms of employment for senior executives |
| Most recently adopted guidelines regarding remuneration |
| and other terms of employment of senior executives |
| Corporate governance |
| Proposed appropriation of profits |
Income statements Cash fl ow statements Balance sheets Statement of changes in equity
Income statements Cash fl ow statements Balance sheets Statement of changes in equity
The Board of Directors and Managing Director of BioGaia AB (publ), corporate identi!cation number 556380-8723, hereby submit their annual report and consolidated accounts for the !nancial year 2011.
The !nancial statements were approved for publication by the Board of the Parent Company on 21 February 2012.
BioGaia is a healthcare company that develops, markets and sells probiotic products with documented health bene!ts. The products are primarily based on di"erent strains of the lactic acid bacterium Lactobacillus reuteri in combination with unique packaging solutions that make it possible to create probiotic products with a long shelf life.
The class B share of the Parent Company BioGaia AB is quoted on the Mid Cap list of NASDAQ OMX Nordic Exchange Stockholm. The share was moved from the Small Cap list to the Mid Cap list on 1 January 2012.
BioGaia has 64 employees, of whom 20 are based in Stockholm, 21 in Lund, 14 in Eslöv, 2 in Raleigh, USA, 5 in Hiroshima, Japan, and 2 in Shanghai, China.
BioGaia's revenue comes mainly from the sale of !nished consumer products (digestive health tablets, drops, Oral Rehydration Solution (ORS) and oral health products) to distributors, but also from component products such as reuteri cultures, straws and caps.
The products are sold through nutrition, food, natural health and pharmaceutical companies in some 60 countries worldwide.
BioGaia holds patents for the use of Lactobacillus reuteri and certain packaging solutions in all major markets.
At the beginning of 2006 BioGaia launched its own consumer brand and today there are a number of distribution partners that sell !nished products under the BioGaia brand in a large number of markets. One central part of BioGaia's strategy is to increase the share of sales under the BioGaia brand.
Some of BioGaia's distributors sell !nished consumer products under their own brand names. For these products, the BioGaia brand is shown on the consumer package since BioGaia is both the manufacturer and licensor.
BioGaia's licensees add reuteri culture to their products and sell these under their own brand names. On these products, the BioGaia brand is most often shown on the package as the licensor/patent holder.
Lactobacillus reuteri is one of the world's most well researched probiotics, especially in young children. To date, 92 clinical studies using BioGaia's human strains of Lactobacillus reuteri have been performed on more than 7,700 individuals of all ages. The results have been published in 55 articles in scienti!c journals.
Studies have been performed on:
At the beginning of 2011 BioGaia signed an agreement with Cube Pharmaceuticals for exclusive rights to distribute BioGaia's new Oral Rehydration Solution (ORS) in Greece. The launch has been postponed and is now planned for the !rst quarter of 2012.
At the beginning of August BioGaia signed an agreement with the Moroccan pharmaceutical company Galenica SA. The agreement gives Galenica exclusive rights to distribute BioGaia's Probiotic drops and tablets under the BioGaia brand in Morocco. The launch has been delayed somewhat and is planned for the second quarter of 2012.
In August BioGaia signed an agreement with Fleet Laboratories for the exclusive right to sell BioGaia's digestive health tablets with strawberry #avour in the USA and its territories (excluding Puerto Rico). Fleet will sell the digestive health tablets under its Pedia-Lax brand. The launch is planned for the !rst quarter of 2012. Certain sales to Fleet took place already during 2011.
| Distributor/licensee | Product | Country |
|---|---|---|
| Blackmores | Re-launch of digestive health tablets | Australia and New Zealand |
| BG Distribution | Drops | Hungary |
| Delta Medical | Oral Rehydration Solution (ORS) | Ukraine |
| Ewopharma | Oral health tablets | Slovakia and Bulgaria |
| Ewopharma | Drops | Latvia and Lithuania |
| Ferring | Digestive health tablets and drops | Guatemala |
| Ferring | Digestive health tablets (new #avour) | Greece |
| Laboratorios Casen-Fleet | Digestive health tablets (new #avour) | Spain |
| Nestlé | Infant formula with Lactobacillus reuteri Protectis |
Algeria, Bahrain, Iran, Indone sia, Jordan, Kuwait, Lebanon, Malaysia, Pakistan, Philippines, Qatar, Saudi Arabia, United Arab Emirates and Vietnam |
| Noos and Italchimici | Drops with Vitamin D | Italy |
| Semper | Digestive health tablets with straw berry #avour and drops with Vitamin D |
Sweden |
| Sued | Drops and digestive health tablets | Dominican Republic |
| Verman | Oral Rehydration Solution (ORS) and | Finland |
drops with Vitamin D
In September BioGaia signed a distribution agreement with United Laboratories Incorporated, the largest pharmaceutical company in the Philippines, for its digestive health tablets. The tablets will be sold under the BioGaia brand and the launch is scheduled for the !rst half of 2012.
In October BioGaia signed a new agreement with Victus for the sale of BioGaia's digestive health tablets and drops in Venezuela and Puerto Rico. The launches are expected to take place in 2012. Since 2001 Victus has purchased Lactobacillus reuteri Protectis for use in its product Glutapak-R.
Two independent, randomised, double-blind, placebo-controlled clinical studies have been performed to determine the e"ects of BioGaia Gastrus on the control of Helicobacter pylori infections in patients with mild symptoms. The !rst trial was performed in Italy and the second in Mexico. Both trials included 100 patients, of which 50 were given Lactobacillus reuteri Gastrus before, during and after standard therapy and 50 were given a placebo.
The Italian study demonstrated a signi!cant reduction in Helicobacter pylori load and symptoms during treatment with Lactobacillus reuteri Gastrus before standard therapy. Also during the period when the patients received standard therapy, the symptoms improved signi!cantly in the group that was given Gastrus compared to the placebo group. In the Mexican study, no signi!cant e"ects of probiotic supplementation were observed.
Based on earlier documentation and the new, encouraging data from Italy, BioGaia has decided to launch BioGaia Gastrus. Some of BioGaia's distribution partners will launch BioGaia Gastrus already during 2012.
BioGaia announced these results in the beginning of November since they would then become available to a wider circle for pre-launch and registration procedures. The researchers are currently working on manuscripts of the studies, which will be submitted for publication in reputable scienti!c journals later this year.
TwoPac, which is owned 50 per cent by BioGaia and 50 per cent by TwoPac's management, produces straws and oil drops containing probiotics on behalf of BioGaia. Due to growing volumes and stricter quality requirements from the authorities and customers, the existing facilities are no longer suitable and TwoPac has decided to build its own factory in Eslöv where the company currently rents premises.
The investment is estimated at approximately SEK 20 million and will be !nanced with TwoPac's own operating surplus and through a loan from BioGaia. The factory is expected to go into operation in the !rst half of 2012.
Until 31 December 2010, TwoPac was reported as an associated company. As a result of the !nancing arrangement described above, BioGaia has gained a controlling in#uence over TwoPac, which is thus consolidated in the BioGaia Group as of January 2011. No additional consideration has been paid for the associated company. The fair value of the shares has been determined as the existing historical cost and no surplus values have been identi!ed. This means that no revaluation e"ects have arisen.
For comparative information showing how the Group's !nancial results would have been a"ected if TwoPac had been consolidated in the Group during 2010, see page 55.
Since 2008, BioGaia and Nestlé have collaborated in the !eld of infant nutrition products. After the signing of several new agreements in mid-February 2012, the parties have further extended this collaboration. These agreements are of signi!cant strategic value for BioGaia since they not only involve an extended close collaboration with Nestlé but also generate greater !nancial freedom for BioGaia to further invest in its own brand, develop its own new products, conduct research on new indications and increase the distribution of BioGaia-branded products. The additional !nances also give the Board scope to propose a generous dividend policy.
The agreements include the entry by Nestlé into a perpetual licence to use BioGaia's patented Lactobacillus reuteri in infant nutrition products for EUR 50.8 million. This amount will be paid over a period of !ve years, including an initial payment of EUR 40 million made and accounted for in the !rst quarter of 2012 and additional payments of EUR 10.8 million to be paid and accounted for on the achievement of certain milestones. In addition, Nestlé has entered into an option agreement with BioGaia to extend the use of L. reuteri to other product areas.
Furthermore, Nestlé and BioGaia are working on several other projects, including the development of innovative products in the infant nutrition and other nutrition categories and the distribution of BioGaia-branded products in new markets. These further developments will be announced at an appropriate time closer to launch.
As a result of the up-front payments for the acquisition of the licence, BioGaia estimates that revenue from Nestlé during 2012, excluding the up-front payment, will be equal to around 50 per cent of the value of sales during 2011, and will increase in 2013 to close to the 2011 level. From 2014 forward, sales are expected to exceed those in 2011.
Consolidated net sales reached SEK 315.0 million (236.0), an increase of 33 per cent compared to the previous year.
Most of the company's sales are denominated in foreign currency, mainly EUR. With unchanged exchange rates, net sales would have been SEK 15.5 million higher. Excluding foreign exchange e"ects, the increase in net sales was 40 per cent. Exchange rate #uctuations have reduced both income and expenses. Operating pro!t would have been SEK 10.0 million higher in the event of unchanged exchange rates.
Sales increased in both segments (!nished consumer products and component products) and in all markets.
Sales of !nished consumer products rose by SEK 49.8 million (30 per cent) to SEK 215.4 million. The increase referred to all markets, but primarily Europe and Asia. Sales of component products were up by SEK 29.2 million (43 per cent) to SEK 97.7 million, which is mainly attributable to sales of bacteria cultures to Nestlé.
Sales in Asia grew by SEK 17.6 million (90 per cent) from SEK 19.6 million to SEK 37.1 million. This is mainly due to higher sales in Japan but also to the fact that negotiations with Yili in China led to a solution that contributed to higher sales during the period. The increase in Asia referred primarily to !nished consumer products.
Sales in Europe rose by SEK 50.6 million to SEK 234.5 million (28 per cent), which is mainly explained by sales of bacteria cultures to Nestlé as well as increased sales of !nished consumer products above all in Italy and Eastern Europe. Final sales of Nestlé's products also take place outside Europe. For further information about Nestlé, see above under "Key events after the end of the !nancial year".
Sales in the USA and Canada increased from SEK 13.9 million to SEK 17.8 million (28 per cent). This is explained mainly by higher sales to both of the company's distributors of drops and digestive health tablets sold under the BioGaia brand and to BioGaia's new distributor Fleet, which will launch digestive health tablets with strawberry #avour under its own brand in the !rst quarter of 2012. Certain sales to Fleet were made already in 2011.
Sales in the rest of the world rose from SEK 18.7 million to SEK 25.6 million (37 per cent) as a result of higher sales of !nished consumer products in Australia and South America.
Of total !nished consumer products, 43 per cent (38) were sold under the BioGaia brand. Including co-branding, the percentage was 51 per cent (48).
Gross pro!t amounted to SEK 216.3 million (158.9), an improvement of SEK 57.4 million compared to the previous year. Gross margin rose from 67 per cent to 69 per cent, mainly because the consolidation of TwoPac in 2011 has reduced the company's cost of goods sold. Furthermore, sales were up in Japan, where both the margin and selling expenses are higher than in other markets.
Selling expenses amounted to SEK 66.1 million (61.3), which is equal to 21 per cent (26) of net sales. Selling expenses for the previous year included one-time costs of around SEK 5.0 million. Aside from these, selling expenses rose by SEK 9.8
million primarily as an e!ect of increased marketing activities and higher personnel expenses.
Administrative expenses totalled SEK 13.0 million (9.8), which is equal to 4 per cent (4) of net sales. The increase of SEK 3.2 million is due mainly to the fact that administrative expenses in TwoPac AB, which is now reported as a group company, were not included in the previous year, as well as higher personnel expenses.
R&D expenses amounted to SEK 34.3 million (29.4), which is equal to 11 percent (12) of net sales. The increase of SEK 4.9 million is explained primarily by higher activity in product development and clinical trials, but to a certain extent also to higher personnel expenses. The amortisation component of R&D expenses was SEK 1.2 million (1.4). Investments in capitalised development expenses totalled SEK 0 million (0).
Other operating income/expenses refer to foreign exchange gains/losses on operating receivables and liabilities. For 2011 these gave rise to operating income of SEK 0.3 million, compared to an operating expense of SEK 3.2 million in the previous year.
Operating pro"t was SEK 103.2 million (56.3), which is SEK 46.9 million (83 per cent) better than in the previous year. Excluding foreign exchange e!ects (see above under "Sales"), operating pro"t improved by 101 per cent.
Pro"t before tax was SEK 108.9 (69.7) million, an improvement of SEK 39.2 million (56 per cent) over the previous year. Net "nancial items include a foreign exchange gain of SEK 2.5 million (12.4) on forward exchange contracts in EUR.
At 31 December 2011 the company had outstanding forward exchange contracts for EUR 13.3 million at an average exchange rate of SEK 9.30. Forward exchange contracts amounting to EUR 8.9 million will mature for payment in 2012 and the remaining EUR 4.4 million in 2013. The actual exchange gain/loss depends on the exchange rate on the maturity date of the contracts. If the EUR rate on the maturity date is lower/higher than that at 31 December 2011 (8.92), an exchange gain/loss will be recognised in the future.
Pro"t after tax was SEK 79.5 million (47.2), which represents an increase of SEK 32.3 million (68 per cent) over the previous year.
The tax rate for the Group was 27 per cent (32). The Group pays tax on pro"ts in the Swedish companies. The loss in Japan is not deductible against the Swedish pro"ts. Since the loss in Japan was lower than in the previous year, the tax rate for the Group has decreased. Loss carryforwards in the Japanese subsidiary amount to SEK 61.9 million. The deferred tax asset for these has not been recognised, since a sustainable pro"t level has not yet been shown in the Japanese subsidiary.
Earnings per share amounted to SEK 4.42 (2.74).
The Group's cash and cash equivalents at 31 December 2011 totalled SEK 171.5 million (146.9).
Cash #ow amounted to SEK 24.7 million (47.5), down by SEK 22.8 million compared to the previous year.
Cash #ow for 2011 was a!ected by payment of SEK 34.5 million (25.8) in dividends and SEK 35.8 million in tax (of which SEK 18.4 million refers to the 2010 "nancial year) during the year. In addition, investments in property, plant and equipment amounted to SEK 16.2 million (0.6), of which SEK 15.8 million refers to TwoPac.
Consolidated equity amounted to SEK 230.4 million (187.3) and the equity/assets ratio was 82 per cent (82).
Investments in property, plant and equipment totalled SEK 16.2 million (0.6), of which SEK 15.8 million refers to TwoPac AB.
Until 31 December 2010, BioGaia's 50 per centowned company TwoPac AB was reported as an associated company. BioGaia has signi"cant in#uence over TwoPac's operations and as a result of BioGaia's decision to "nance TwoPac's new factory in Eslöv (for more information see above), TwoPac is consolidated in the BioGaia Group as of 1 January 2011. Comparative "gures for the previous year are provided on page 55.
The business model previously used in Japan was found to be unsuccessful and in 2010 the company changed to the business model that is being used successfully in other markets. The Japanese subsidiary's sales have now picked up and net sales for 2011 reached SEK 12.6 million (3.4). Operating pro"t, including BioGaia's internal pro"t, was SEK -3.9 million (-14.8).
Net sales in the Parent Company are reported at SEK 306.2 million (234.0) and pro"t before tax was SEK 102.3 million (71.4). Due to uncertainty about whether the receivable from BioGaia Japan will be recovered in the foreseeable future, a provision has been made for this amount. This has led to an impairment loss of SEK 10.5 million (16.9) that has had a negative impact on earnings. Pro"t after tax was SEK 72.5 million (48.4). Cash #ow in the Parent Company was SEK 21.1 million (45.4).
Cash #ow from investing activities includes a loan of SEK 4.5 million (14.3) to the Japanese subsidiary and a loan of SEK 11.1 million (0) to the subsidiary TwoPac.
BioGaia has an extensive research network and collaborates with numerous universities and hospitals around the world, such as the Swedish University of Agricultural Sciences in Uppsala, Sweden, the Karolinska Institute in Stockholm, Sweden, Texas Children's Hospital in the USA, University Hospital of Bari, Italy, and University Hospital of Turin, Italy. Current areas of research include studies related to mapping of the reuteri genome and how it is linked to the bacterium's function and e!ects. In addition, the company is
working to identify and develop new probiotic lactic acid bacteria with potential e!ect in a number of human applications and is conducting clinical trials on its existing and new products.
Several studies on Lactobacillus reuteri are underway and the results of these will be reported when they become available to BioGaia. Among other things, the results two studies on patients with Helicobacter pylori infection were presented during 2011 (see above).
R&D expenses amounted to SEK 34.3 million (29.4), which is equal to 11 per cent (12) of net sales. The increase of SEK 4.9 million is explained primarily by higher activity in product development and clinical trials, but also to a certain extent also higher personnel expenses. The amortisation component of R&D expenses was SEK 1.2 million (1.4). Investments in capitalised development expenses totalled SEK 0 million (0).
For more information, see Note 14.
Publication of clinical trial results is a key success factor for BioGaia. The International Committee of "Medical Journal Editors" has initiated a policy requiring clinical investigators to deposit information about trial design into an accepted clinical trials registry before the onset of patient enrolment, and this has now become a prerequisite for publication of trial outcomes in major medical journals. "ClinicalTrials.gov" is a registry of clinical trials provided by the U.S. "National Institutes of Health" and BioGaia encourages all clinicians working with BioGaia products to register their trials on this site. Many of the trials are registered at an early stage, which means that some of the registered trials will not be performed as planned. Consequently, BioGaia takes no responsibility for ensuring that the registered trials reach completion or are successfully reported in the register or the scienti"c literature. When clinical trial results of signi"cance to the company's business do become available, BioGaia will report these through press releases.
BioGaia has a fundamentally ethical vision, namely to improve human health. The company's products are based on ethical research in which consumer safety is the foremost priority.
The ability to take responsibility for sustainable development is vital in winning and retaining the con"dence of the company's stakeholders, and is therefore essential for successful business operations.
BioGaia contributes to positive development through its commitment to ecology and biology. The microorganisms used by the company are natural and are normally present in human beings. The modes of action of these microorganisms are based on biological principles. To stay healthy, the human body must maintain equilibrium between its various systems. An imbalance quickly results in diminished ability of the immune defence to prevent and "ght disease. This ecological-biological approach is at the very core of BioGaia's operations.
BioGaia conducts no operations that require permits.
BioGaia contributes to a better environment by:
BioGaia's operations are associated with both risks and opportunities of various types. Certain risks are of a general nature, while others are more speci!c to the company. The following section is not a complete risk analysis, but an indication of the factors of signi!cance for future development.
The Japanese subsidiary has operated at a loss since the start in 2006. The previously chosen business model was found to be unsuccessful and in 2010 BioGaia decided to change the business model in Japan to that which is used in the other markets.
In 2011 this had a visible e"ect. The loss in the Japanese subsidiary decreased and the company reported an operating loss of SEK -3.9 million (-14.8 ). On the balance sheet date, assets in the Japanese subsidiary were reported at SEK 8.7 million (5.6). BioGaia's assessment is that the subsidiary will show good pro!tability in the future, for which reason there was no indication of impairment of these assets on the balance sheet date.
CapAble, which is 90.1 per cent owned by BioGaia AB, was started in November 2008 to manufacture and sell the patented LifeTop Cap. The shares in the subsidiary CapAble are reported at a total of SEK 6.9 million in the Parent Company. CapAble has operated at a loss since the start in 2008. Loss before tax for 2011 was SEK -2.5 million. BioGaia has made total conditional shareholder contributions of SEK 6 million to CapAble in 2009 and 2010.
BioGaia's assessment is that CapAble will show good pro!tability in the coming years, for which reason there was no indication of impairment on the balance sheet date.
BioGaia does not sell directly to end-users but instead sells its products to companies (partners) which then sell the products to wholesalers and pharmacies. This means that BioGaia is dependent on these partners to invest the resources necessary for marketing and sales. In order to in#uence this to a greater extent on its own, BioGaia launched its own brand in 2006. Today a number of BioGaia's partners sell products wholly or partly under the BioGaia brand and BioGaia-branded products are currently sold in
38 countries. BioGaia also provides its partners with strong support in the form of education, information about new clinical studies and speakers at symposia, as well as marketing and PR support.
BioGaia invests considerable sums in research, clinical studies and product development with the aim of developing products with proven health bene!ts. Even after thorough pilot studies, there is always a risk that a project will be wholly or partly unsuccessful or that the !nished products will not be attractive to potential customers. There is also a certain risk that the studies that lie outside BioGaia's control are not performed in accordance with BioGaia's strict requirements. On the other hand, these studies are regarded as more objective and also contribute to reducing the company's research expenses.
BioGaia's business activities are based on a large number of intellectual property rights, such as patents, trademarks, names of strains and Internet domains. The company works continuously to strengthen its intellectual property rights by protecting the use of the company's products.
There is always a risk for infringement of intellectual property. In 2010 BioGaia !led a lawsuit in the USA against one of the company's former licensees, Nature's Way. Although the agreement with Nature's Way expired in August 2007, the company continued to use reuteri in its marketing and products despite repeated requests to cease. In the autumn of 2011 a settlement was reached with Nature's Way, which was required to pay damages to BioGaia.
These rights are enforced on an ongoing basis, but there are no guarantees that future infringements will not cause the company damage. BioGaia continuously monitors the environment.
BioGaia's products are currently sold in some 60 countries around the world. Due to their di"ering regulatory systems, the length of time between contract and product launch varies between countries. In most countries the products are registered as dietary supplements but in certain markets, like Turkey, Canada, Hong Kong and Peru, they are registered as a category of pharmaceuticals.
There is always a risk that the rules will be changed in the di"erent markets with a resulting negative impact on sales, at least for a limited period of time.
In the EU, the use of nutrition and health claims is regulated by the European Food Safety Authority (EFSA). The EFSA rules apply to food products that are marketed to consumers with various claims about preventative health e"ects, for example that a lower intake of cholesterol reduces the risk for cardiovascular disease or a food product's ability to improve the immune defence. In the case of BioGaia's products, these are often recommended to patients by doctors or other healthcare professionals because the patient in question is in more or less urgent need of the product's probiotic effect. As a result, the EFSA rules are not applicable to the majority of BioGaia's products. Furthermore, because the products are recommended by healthcare professionals, in most countries there is no need to make general health claims in the marketing materials as would be the case if the company was marketing a yoghurt or beverage directly to consumers.
If it becomes necessary to use another type of marketing for future products, BioGaia will apply for approval of its health claims from the EFSA. Together with partners BioGaia is assessing the opportunities to register its products under the existing regulations as Food for Special Medical Purposes, natural remedies or other registration categories depending on the type of product and the country involved.
BioGaia's operations are wholly dependent on the employees' expertise, and they therefore make up the company's most valuable resource. In order to attract and retain skilled and motivated employees, BioGaia strives to create a culture in which all employees are given the opportunity to develop, in#uence their own work situation and maintain a good balance between work and leisure in order to avoid stress. In addition, there is an incentive scheme that is open to all employees in the Parent Company and the wholly owned subsidiaries.
BioGaia's partners require the company to have product liability insurance as protection against liability claims for third party damage. BioGaia has product liability insurance that provides coverage up to SEK 60 million per claim up to a maximum of SEK 120 million per year. The insurance is valid worldwide.
BioGaia has revenue primarily in EUR (around 80 percent of net sales) and expenses primarily in SEK, EUR, JPY and USD. In 2011 the company had a cash #ow surplus of approximately EUR 17.6 million (14.0), a cash #ow de!cit of JPY 65.2 million (170.0) and a cash #ow de!cit of USD 0.3 million (0.6).
Growth in sales has also led to increased currency risks, for which reason the company has taken currency hedges in EUR. The company's Board of Directors has issued a policy to hedge approximately 50-60 per cent of projected cash #ow 12 months forward and approximately 10-40 per cent of projected cash #ow 13-24 months forward in order to spread the risk for exchange rate #uctuations. At 31 December 2011 the company had outstanding forward exchange contracts for EUR 13.3 million at an average exchange rate of SEK 9.30, of which EUR 8.9 million will mature for payment in 2012 and EUR 4.4 million in 2013. BioGaia does not apply hedge accounting. For more information see Notes 10 and 21.
A stronger SEK rate against the EUR will decrease the value of BioGaia's sales and pro!t, but through pro!table forward exchange transactions and by trying to reallocate a portion of expenses to EUR, the company should be able to minimise the impact on earnings. BioGaia is also trying to reallocate a portion of its revenue from EUR to other currencies, primarily SEK.
The Group has no loans and therefore no interest rate risks. Excess liquidity is held in bank or invested in !xed income securities with a high credit rating.
BioGaia's credit risks are attached to trade receivables and, for the Parent Company, also loans to subsidiaries. When signing agreements with new customers, BioGaia always carries out an assessment of the customer's !nancial position. The company has routines for collection of accounts receivable due and additional evaluation of the customers' !nancial position is carried out when needed in order to minimise risks.
The loan from the Parent Company to the subsidiary CapAble AB has been used to purchase equipment for manufacturing of LifeTop Cap. The company's assessment is that the loan entails no credit risk.
The loan from the Parent Company to the subsidiary TwoPac AB has been used mainly to build a new production facility in Eslöv, Sweden. The company's assessment is that the loan entails no credit risk.
Excess liquidity is held in bank or invested in !xed income securities with a high credit rating.
In 2011 BioGaia had a positive cash "ow from operating activities before changes in working capital of SEK 77.2 million (66.0). After changes in working capital, cash "ow was SEK 72.8 million (69.0). Total cash "ow for the year was SEK 24.7 million (47.5). Because cash and cash equivalents at 31 December 2011 amounted to SEK 171.5 million (146.9) and cash "ow is positive, no infusion of capital is necessary.
BioGaia buys most of its goods on the international market and has several alternative suppliers, which minimises the company's price risk.
The number of employees in the Group at 31 December 2011 was 64 (46), consisting of 35 women and 29 men. The management team includes 6 men and 2 women. In 2011, !ve new employees were hired and no employees left the company.
BioGaia has no warrant programmes currently in progress for the employees.
BioGaia had 2011 an incentive scheme that applies to all employees in the Parent Company and the wholly owned subsidiaries under which an extra bonus (equal to no more than 8 per cent of salary) is payable depending on BioGaia's gross pro!t.
BioGaia's goal is to create strong value growth and a good return for the shareholders. This will be achieved through a greater emphasis on the BioGaia brand, increased sales to both existing and new customers and a controlled cost level.
The !nancial target is a sustainable operating margin (operating pro!t in relation to sales) of at least 30 per cent with continued strong growth and increased investments in research, product development and brand building.
BioGaia's policy is to pay a shareholder dividend equal to 30 per cent of pro!t after tax.
Product launches are planned in a number of countries over the next 12 months. In view of the Company's strong portfolio consisting of an increased number of innovative products partly under the company's own brand, together with successful clinical trials and a growing distribution network covering a large share of the key markets, BioGaia's future outlook is bright.
The Board of Directors proposes that the AGM approve the following guidelines for remuneration and other terms of employment for senior executives in the Group. These principles apply to employment contracts entered into after the decision of the AGM and in the event that changes are made in the existing terms after this time.
It is of fundamental importance for the Board that the principles for remuneration and other terms of employment for senior executives in the Group create long-term motivation and enable the company to retain competent employees who work to attain maximum shareholder and customer value. In order to achieve this, it is vital to uphold fair and internally balanced terms that are market-based and competitive with respect to the structure, scope and level of remuneration. The total remuneration package for the a#ected individuals should contain a well-balanced mix of !xed salary, variable remuneration, long-term incentive schemes, pension bene!ts, other bene!ts and terms of notice/termination bene!ts.
Fixed salary – Fixed salary shall be di#erentiated on the basis of the individual's role and responsibilities, as well as the individual's competence and experience in the relevant position.
Variable remuneration – The amount of variable remuneration shall not exceed 25 per cent of total remuneration.
Long-term incentive schemes – Every year, the Board of Directors shall evaluate whether a share-based or share price-based incentive scheme should be proposed to the AGM. Other types of long-term incentive schemes can be decided on by the Board. Any remuneration in the form of long-term incentive schemes shall be consistent with generally accepted practices in the respective market.
Pensions – Senior executives who are entitled to pension bene!ts shall have pension agreements of the de!ned contribution type. The mandatory age of retirement for senior executives who are Swedish citizens is 65 years, and for others according to the pension rules in their respective countries. The amount of bene!t payable depends on the amount payable under the pension agreements in force.
Other bene!ts – Other bene!ts shall be of limited value in relation to the other remuneration and shall be consistent with general norms in the respective geographic market.
Terms of notice and termination bene!ts – the President and the company have a mutual notice period of 18 months. The company's Vice Presidents have a corresponding notice period of six months. For other senior executives, the notice period is three months.
The Board of Directors proposes that the Board be authorised to deviate from the above proposed guidelines in individual cases when there is special reason to do so.
For more information about remuneration to senior executives, see Note 4.
The most recently adopted guidelines correspond to those that are proposed to the AGM (see above) except for "variable remuneration". The prior wording was "the amount of variable remuneration shall not exceed 10 per cent of total remuneration".
BioGaia has issued a separate corporate governance report.
The following funds in the Parent Company are at the disposal of the Annual General Meeting (SEK):
| Retained pro!t: | 45,306,082 |
|---|---|
| Pro!t for the year: | 72,478,229 |
| Together amounting to: | 117,784,311 |
|---|---|
| Total: | 117,784,311 |
|---|---|
| to new account: | 48,700,463 |
| To be carried forward | |
| to the shareholders | *) 69,083,848 |
| To be paid as a dividend |
*) The proposed dividend consists of an ordinary dividend of SEK 1.26 per share and, in view of the company's good liquidity and strong balance sheet, an extraordinary dividend of SEK 2.74 per share, amounting to a total dividend of SEK 4.00 per share.
| SEK 000s | Note | 2011 | 2010 |
|---|---|---|---|
| Net sales | 2, 3 | 314,992 | 236,033 |
| Cost of goods sold | –98,727 | –77,150 | |
| Gross profit | 2 | 216,265 | 158,883 |
| Selling expenses | 4 | –66,079 | –61,336 |
| Adminstrative expenses | 4, 5 | –13,014 | –9,849 |
| Research and development expenses 4, 14 | –34,317 | –29,386 | |
| Other operating income | 6 | 304 | – |
| Other operating expenses | 7 | – | –3,242 |
| Share in profit of associated company | 8 | – | 1,200 |
| Operating profit | 9 | 103,159 | 56,270 |
| Financial income | 10 | 5,792 | 13,417 |
| Financial expenses | 11 | –84 | –100 |
| Net financial items | 5,708 | 13,417 | |
| Profit before tax | 108,867 | 69,687 | |
| Tax | 12 | –29,345 | –22,519 |
| PROFIT FOR THE YEAR | 79,522 | 47,168 | |
| Other comprehensive income Gain/losses arising on translation of the financial statements of foreign operations: |
712 | –15 | |
| Comprehensive income for the year | 80,234 | 47,153 | |
| Profit for the year attributable to: | |||
| Owners of the Parent Company | 76,369 | 47,250 | |
| Non-controlling interests | 13 | 3,153 | –82 |
| 79,522 | 47,168 | ||
| Comprehensive income for the period attributable to: | |||
| Owners of the Parent Company | 77,081 | 47,235 | |
| Non-controlling interests | 3,153 | –82 | |
| 80,234 | 47,153 | ||
| Earnings per share | |||
| Basic earnings per share, SEK | 4,42 | 2,74 | |
| Diluted earnings per share, SEK | 4,42 | 2,74 | |
| Number of shares, thousands | 17,271 | 17,271 | |
| Average number of shares, thousands | 17,271 | 17,230 | |
| Number of outstanding warrants, thousands | – | – | |
| Number of outstanding warrants with a | |||
| dilutive effect, thousands | – | – | |
| Average number of shares after | |||
| dilution, thousands | 17,271 | 17,271 |
| SEK 000s | Note | 2010 | 2009 |
|---|---|---|---|
| Operating activities | |||
| Operating profit | 103,159 | 56,270 | |
| Adjustments for non-cash items | |||
| Depreciation/amortisation | 5,425 | 2,836 | |
| Capital gains/losses on the sale | |||
| of non-current assets | 1,340 | 22 | |
| Share in profit of associated company | – | –1,200 | |
| Other non-cash items | 58 | 964 | |
| 109,982 | 58,892 | ||
| Taxes paid | –35,768 | – | |
| Realised forward exchange contracts | –164 | 6,144 | |
| Interest received | 3,269 | 1,091 | |
| Interest paid | –80 | –96 | |
| Cash flow from operating activities | |||
| before changes in working capital | 77,239 | 66,031 | |
| Cash flow from changes in working capital | |||
| Inventories | –5,928 | –779 | |
| Current receivables | –13,057 | –5,870 | |
| Trade payables | 7,788 | 1,629 | |
| Current interest-free operating liabilities | 6,750 | 7,954 | |
| Cash flow from operating activities | 72,792 | 68,965 | |
| Investing activities | |||
| Purchase of intangible assets | 14 | – | – |
| Purchase of property, | |||
| plant and equipment | 15 | –16,179 | –640 |
| Sale of property, | |||
| plant and equipment | 15 | – | 107 |
| Purchase of financial assets | 16 | 2,612 | – |
| Net change in non-current receivables | – | 11 | |
| Cash flow from investing activities | –13,567 | –522 | |
| Financing activities | |||
| New share issue warrants | – | 4,863 | |
| Dividend | –34,542 | –25,811 | |
| Cash flow from financing activities | –34,542 | –20,948 | |
| CASH FLOW FOR THE YEAR | 24,683 | 47,495 | |
| CASH AND CASH EQUIVALENTS | |||
| AT BEGINNING OF YEAR | 146,903 | 100,327 | |
| Exchange difference in cash | |||
| and cash equivalents | –52 | –919 | |
| CASH AND CASH EQUIVALENTS | |||
| AT END OF YEAR | 171,534 | 146,903 | |
| Balance sheets | |||
|---|---|---|---|
| SEK 000s | Note | 31 Dec. 2011 | 31 Dec. 2010 |
| ASSETS | |||
| Non-current assets | |||
| Intangible assets | 14 | 264 | 1,173 |
| Property, plant and equipment | 15 | 24,158 | 4,216 |
| Participations in associated company | 16 | – | 10,641 |
| Receivables from | |||
| associated company 17, 20, 23, 29 |
– | 4,400 | |
| Deposits | 18 | 18 | |
| Total non-current assets | 24,440 | 20,448 | |
| Current assets | |||
| Inventories | 18 | 21,528 | 14,028 |
| Trade receivables | 19, 23 | 49,112 | 33,574 |
| Other receivables | 21 | 7,044 | 9,442 |
| Deferred expenses and accrued income 22 | 6,094 | 3,347 | |
| Short-term investments | 23 | 80 | 80 |
| Cash and cash equivalents | 23 | 171,534 | 146,903 |
| Total current assets | 255,392 | 207,374 | |
| TOTAL ASSETS | 279,832 | 227,822 |
| Balance sheets | |||
|---|---|---|---|
| SEK 000s | Note | 31 Dec. 2011 31 Dec. 2010 0 | |
| EQUITY AND LIABILITIES | |||
| Equity | 24 | ||
| Share capital | 17,271 | 17,271 | |
| Other contributed capital | 82,501 | 77,701 | |
| Reserves | 1,644 | 932 | |
| Retained profit | 51,979 | 44,071 | |
| Profit for the year attributable to | |||
| owners of the Parent Company | 76,369 | 47,250 | |
| Total equity attributable to | |||
| owners of the Parent Company | 229,764 | 187,225 | |
| Non-controlling interests | 13, 16 | 591 | 98 |
| Total non-controlling interests | 591 | 98 | |
| Total equity | 230,355 | 187,323 | |
| Long-term liabilities | |||
| Deferred tax liability | 185 | – | |
| Total long-term liabilities | 185 | – | |
| Current liabilities | |||
| Prepayments from customers | 23 | 2,960 | 1,054 |
| Trade payables | 23 | 17,769 | 9,373 |
| Liabilities to associated company | 20, 23 | – | 1,029 |
| Current tax liability | 12,102 | 18,184 | |
| Other liabilities | 25 | 1,296 | 696 |
| Accrued expenses and deferred income | 26 | 15,165 | 10,163 |
| Total current liabilities | 49,292 | 40,499 | |
| Total liabilities | 49,477 | 40,499 | |
| TOTAL EQUITY AND LIABILITIES | 279,832 | 227,822 | |
Pledged assets and contingent liabilities in the Group 27
| SEK 000s | Share capital | Other contributed capital |
Translation reserve |
Retained profit for the year |
attributable to owners incl. profit of the Parent Company |
Non controlling interests |
Totalt equity |
|---|---|---|---|---|---|---|---|
| Opening balance, 1 January 2010 | 17,208 | 77,701 | 947 | 65,428 | 161,284 | –166 | 161,118 |
| New share issue (warrants) Dividend |
63 | 4,800 –25,811 |
4,863 –25,811 |
4,863 –25,811 |
|||
| Total transactions with owners | 63 | 0 | 0 | –21,011 | –20,948 | 0 | –20,948 |
| Profit for 2010 | 47,250 | 47,250 | –82 | 47,168 | |||
| Other comprehensive income | |||||||
| Gain/losses arising on translation of the financial statements of foreign operations | –15 | –15 | –15 | ||||
| Comprehensive income for the year | 0 | 0 | –15 | 47,250 | 47,235 | –82 | 47,153 |
| Change in non-controlling interest | –346 | –346 | 346 | 0 | |||
| Closing balance, 31 December 2010 | 17,271 | 77,701 | 932 | 91,321 | 187,225 | 98 | 187,323 |
| Reclassification of prior new share issue Dividend |
4,800 | –4,800 –34,542 |
0 –34,542 |
0 –34,542 |
|||
| Total transactions with owners | 0 | 4,800 | 0 | –39,342 | –34,542 | 0 | –34,542 |
| Profit for 2011 | 76,369 | 76,369 | 3,153 | 79,522 | |||
| Other comprehensive income Gain/losses arising on translation of the financial statements of foreign operations |
712 | 712 | 712 | ||||
| Comprehensive income for the year | 712 | 76,369 | 77,081 | 3,153 | 80,234 | ||
| Change in group structure | –2,660 | –2,660 | |||||
| Closing balance, 31 December 2011 | 17,271 | 82,501 | 1,644 | 128,348 | 229,764 | 591 | 230,355 |
| SEK 000s | Note | 2011 | 2010 |
|---|---|---|---|
| Net sales | 2, 3 | 306,182 | 233,988 |
| Cost of goods sold | –106,868 | –76,698 | |
| Gross profit | 2 | 199,314 | 157,290 |
| Selling expenses | 4 | –49,406 | –42,355 |
| Administrative expenses | 4, 5 | –11,607 | –9,743 |
| Research and development expenses | 4, 14 | –34,283 | –29,497 |
| Other operating income | 6 | 304 | – |
| Other operating expenses | 7 | – | –3,242 |
| Operating profit | 9 | 104,322 | 72,453 |
| Result from financial investments | |||
| Result from participations in | |||
| associated company | 8, 16 | – | 1,200 |
| Impairment loss of non-current receivable | |||
| from group company | 17 | –10,453 | –16,928 |
| Interest income and similar | |||
| profit/loss items | 10 | 8,469 | 14,760 |
| Interest expense and similar | |||
| profit/loss items | 11 | –78 | –95 |
| Net financial items | –2,062 | –1,063 | |
| Profit before tax | 102,260 | 71,390 | |
| Tax | 12 | –29,781 | –23,038 |
| PROFIT FOR THE YEAR | 72,479 | 48,352 |
| SEK 000s | Note | 2011 | 2010 |
|---|---|---|---|
| Operating activities | |||
| Operating profit | 104,322 | 72,453 | |
| Adjustments for non-cash items | |||
| Depreciation/amortisation | 2,096 | 2,369 | |
| Capital gains/losses on the sale of | |||
| non-current assets | – | 4 | |
| Other non-cash items | 51 | 964 | |
| 106,469 | 75,790 | ||
| Taxes paid | –35,769 | – | |
| Realised forward exchange contracts | –164 | 6,144 | |
| Interest received | 3,660 | 1,083 | |
| Interest paid | –78 | –95 | |
| Cash flow from operating activities | |||
| before changes in working capital | 74,118 | 82,922 | |
| Cash flow from changes in working capital | |||
| Inventories | –5,522 | –785 | |
| Current receivables | 12,926 | –6,070 | |
| Trade payables | 6,208 | 701 | |
| Current interest-free operating liabilities | 9,554 | 7,385 | |
| Cash flow from operating activities | 71,432 | 84,153 | |
| Investing activities | |||
| Purchase of intangible assets Purchase of tangible assets |
14 15 |
– –221 |
– –446 |
| Sale of tangible assets | 15 | – | 5 |
| Purchase of financial assets | 16 | –50 | –3,000 |
| Payment of loan to subsidiary | 17 | –15,542 | –14,339 |
| Cash flow from investing activities | –15,813 | –17,780 | |
| Financing activities | |||
| New share issue warrants | – | 4,863 | |
| Dividend | –34,542 | –25,811 | |
| Cash flow from financing activities | –34,542 | –20,948 | |
| CASH FLOW FOR THE YEAR | 21,077 | 45,425 | |
| CASH AND CASH EQUIVALENTS | |||
| AT BEGINNING OF YEAR | 140,840 | 96,379 | |
| Exchange difference in cash and | |||
| cash equivalents | –52 | –964 | |
| CASH AND CASH EQUIVALENTS | |||
| AT END OF YEAR | 161,865 | 140,840 |
| Balance sheets | |||
|---|---|---|---|
| SEK 000s | Note | 31 Dec. 2011 31 Dec. 2010 | |
| ASSETS | |||
| Non-current assets | |||
| Intangible assets | 14 | ||
| Capital development expenditure | 264 | 1,173 | |
| Total intangible assets | 264 | 1,173 | |
| Property, plant and equipment | 15 | ||
| Production equipment | 218 | 303 | |
| Office equipment and computers | 1,850 | 2,731 | |
| Total tangible assets | 2,068 | 3,034 | |
| Financial assets | |||
| Participations in group companies | 16 | 21,160 | 10,469 |
| Participations in associated | |||
| company | 16, 29 | – | 10,641 |
| Receivables from group companies | 17, 29 | 16,513 | 1,022 |
| Receivables from | |||
| associated company | 17, 20, 23, 29 | – | 4,400 |
| Total financial assets | 37,673 | 26,532 | |
| Total non-current assets | 40,005 | 30,739 | |
| Current assets | |||
| Inventories | 18 | 18,665 | 13,143 |
| Current receivables | |||
| Trade receivables | 19 | 42,872 | 31,600 |
| Other receivables | 21 | 6,479 | 8,657 |
| Deferred expenses and accrued income | 22 | 5,547 | 2,950 |
| Total current receivables | 54,898 | 43,207 | |
| Short-term investments | 23 | 80 | 80 |
| Cash and cash equivalents | 161,865 | 140,840 | |
| Total current assets | 235,508 | 197,270 | |
| TOTAL ASSETS | 275,513 | 228,009 |
| Balance sheets | |||
|---|---|---|---|
| SEK 000s | Note | 31 Dec. 2011 | 31 Dec. 2010 |
| EQUITY AND LIABILITIES | |||
| Equity | 24 | ||
| Restricted equity | |||
| Share capital | 17,271 | 17,271 | |
| Statutory reserve | 77,700 | 77,700 | |
| 94,971 | 94,971 | ||
| Non-restricted equity | |||
| Retained profit | 45,306 | 33,309 | |
| Profit for the year | 72,479 | 48,352 | |
| 117,785 | 81,661 | ||
| Total equity | 212,756 | 176,632 | |
| Liabilities | |||
| Current liabilities | |||
| Prepayments from customers | 2,960 | 1,054 | |
| Trade payables | 14,295 | 8,086 | |
| Liabilities to associated company | 20 | – | 1,029 |
| Liabilities to group companies | 20 | 19,404 | 12,793 |
| Current tax liability | 12,056 | 18,176 | |
| Other liabilities | 25 | 779 | 667 |
| Accrued expenses and deferred income | 26 | 13,263 | 9,572 |
| Total current liabilities | 62,757 | 51,377 | |
| Total liabilities | 62,757 | 51,377 | |
| TOTAL EQUITY AND LIABILITIES | 275,513 | 228,009 | |
| Statement of changes in equity | Retained profit | |||
|---|---|---|---|---|
| Statutory | incl. profit | Total | ||
| SEK 000s | Share capital | reserve | for the year | equity |
| Opening balance,1 January 2010 | 17,208 | 77,700 | 58,785 | 153,693 |
| New share issue of warrants | 63 | 4,800 | 4,863 | |
| Group contributions paid | –6,058 | –6,058 | ||
| Tax on group contributions paid | 1,593 | 1,593 | ||
| Dividend | –25,811 | –25,811 | ||
| Profit for 2010 | 48,352 | 48,352 | ||
| Closing balance, 31 December 2010 | 17,208 | 77,700 | 81,661 | 176,632 |
| Group contributions paid | –2,460 | –2,460 | ||
| Tax on group contributions paid | 647 | 647 | ||
| Dividend | –34,542 | –34,542 | ||
| Profit for 2011 | 72,479 | 72,479 | ||
| Closing balance, 31 December 2011 | 17,271 | 77,700 | 117,785 | 212,756 |
All ! gures in SEK 000s unless otherwise speci! ed. Figures in brackets refer to the preceding year.
| Sida | ||
|---|---|---|
| Not 1 | Accounting policies | 49 |
| Not 2 | Segment reporting | 51 |
| Not 3 | Revenue | 51 |
| Not 4 | Employees and personnel expenses, remuneration | |
| to senior executives | 51 | |
| Not 5 | Audit fees | 52 |
| Not 6 | Other operating income | 52 |
| Not 7 | Other operating expenses | 52 |
| Not 8 | Share in profit of associated company | 52 |
| Not 9 | Operating expenses allocated by type of cost | 53 |
| Not 10 | Financial income | 53 |
| Not 11 | Financial expenses | 53 |
| Not 12 | Tax on profit for the year | 53 |
| Not 13 | Non-controlling interests | 53 |
| Not 14 | Intangible assets | 54 |
| Not 15 | Property, plant and equipment | 54 |
| Not 16 | Financial assets | 55 |
| Not 17 | Non-current receivables from subsidiaries | |
| and associated company | 56 | |
| Not 18 | Inventories | 56 |
| Not 19 | Trade receivables | 56 |
| Not 20 | Related party transactions | 56 |
| Not 21 | Other receivables | 57 |
| Not 22 | Deferred expenses and accrued income | 57 |
| Not 23 | Financial assets and liabilities | 57 |
| Not 24 | Equity | 58 |
| Not 25 | Other liabilities | 58 |
| Not 26 | Accrued expenses and deferred income | 58 |
| Not 27 | Pledged assets and contingent liabilities | 58 |
| Not 28 | Policy for financial risk management | 58 |
| Not 29 | Critical accounting estimates and assumptions | 59 |
The consolidated !nancial statements have been prepared in compliance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). Furthermore, the Swedish Financial Reporting Board's recommendation RFR 1, Supplementary Rules for Consolidated Financial Statements, has been applied.
The Parent Company applies the Swedish Financial Reporting Board's recommendation RFR 2, Accounting for Legal Entities, i.e. the same accounting policies as the Group except in cases where the Parent Company's compliance with the Swedish Companies Act limits the applicability of IFRS in the Parent Company.
The following new standards and interpretations e"ective for the !nancial year beginning on 1 January 2011:
The changed IFRS standards and IFRIC interpretations have not had any signi!cant impact on the Group's pro!t, !nancial position or disclosures.
Standards and interpretations that are not yet e"ective and are awaiting approval from the EU have not been evaluated by BioGaia.
The !nancial statements have been prepared in accordance with the cost method of accounting unless otherwise stated.
Non-current assets, non-current liabilities and provisions essentially consist of amounts that are expected to be recovered or settled more than 12 months after the closing date. Current assets and current liabilities essentially consist of amounts that are expected to be recovered or settled within 12 months from the closing date.
The preparation of !nancial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are signi!cant to the consolidated !nancial statements, are disclosed in Note 29.
The consolidated !nancial statements include those companies over which the Parent Company has a controlling in#uence. Control is achieved where the company directly or indirectly has the power to govern the !nancial and operating policies of an entity so as to obtain bene!ts from its activities.
The consolidated !nancial statements have been prepared in accordance with the acquisition method of accounting, whereby the acquisition of a subsidiary is regarded as a transaction in which the Group indirectly acquires the subsidiary's assets and assumes its liabilities and contingent liabilities. To determine the Group's cost for the investment in the subsidiary, a purchase price allocation (PPA) is conducted in connection with the acquisition. The consideration transferred for the acquisition of a subsidiary or business is measured as the aggregate of the fair values, on the date of exchange, of the assets given, equity instruments issued and liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. All acquisition-related costs are expensed immediately. In cases where the Group increases its equity interest su\$ ciently to achieve control (business combination achieved in stages), any previously-held equity interests in the acquiree are remeasured to fair value. The resulting gain or loss is recognised in the statement of comprehensive income. For acquisitions of non-controlling interests there are two alternatives for recognition of goodwill – full goodwill or partial goodwill. The choice of method is made on an acquisition-by-acquisition basis. Subsequent acquisitions once control has been achieved are regarded as transactions with owners and are recognised directly in equity.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. All inter-company balances and transactions, including unrealised gains or losses arising from inter-company transactions, are eliminated in full in presentation of the consolidated !nancial statements.
The functional currency is the currency of the primary economic environments in which the Group's companies operate.
Foreign currency transactions are translated to the functional currency at the rate of exchange ruling on the transaction date. Monetary assets and liabilities in foreign currency are translated to the functional currency at the closing day rate. Exchange di"erences arising on translation are recognised in pro!t or loss. Non-monetary assets and liabilities carried at cost are translated at the rate of exchange ruling on the transaction date. Non-monetary assets and liabilities measured at fair value are translated to the functional currency using the rates of exchange ruling on the date when the fair value was determined.
Foreign exchange gains/losses on operating receivables and liabilities are recognised in operating pro!t while foreign exchange gains/losses on !nancial receivables and liabilities are recognised in net !nancial items.
Assets and liabilities in foreign operations are translated from the foreign operation's functional currency to the Group's presentation currency, SEK, at the closing day rate of exchange. Income
and expenses in foreign operations are translated to SEK at an average rate that is a reasonable approximation of actual rates on the respective transaction dates. An average rate is calculated quarterly. Exchange di"erences arising on translation of foreign operations are recognised in other comprehensive income.
Receivables from a foreign operation for which settlement is neither planned nor likely occur in the foreseeable future are, in substance, part of the company's net investment in that foreign operation. Exchange di"erences arising on translation of long-term loans in foreign currency that that form part of the net investment in a foreign operation are deferred to a translation reserve in other comprehensive income.
Associated companies are all entities over which the Group has a signi!cant but not controlling in#uence. Investments in associated companies are accounted for using the equity method of accounting and are initially recognised at cost on the acquisition date and are subsequently adjusted to re#ect the company's share of fair value changes in the net assets of the associated company
The Group has applied IFRS 8, Operating Segments, since 1 January 2009. The Executive Management has analysed the Group's internal reporting and determined that the Group's operations are monitored and evaluated based on the following segments:
BioGaia's net sales consist primarily of revenue from the sale of !nished consumer products (tablets, drops and oral health products) to distributors but also revenue from the sale of component products for the use of Lactobacillus reuteri in licensee products (such as infant formula and dairy products), and to a certain extent royalties for the use of Lactobacillus reuteri in licensee products and revenue from the sale delivery systems such as straws and caps.
Revenue from the sale of goods is recognised when the amount can be measured reliably, it is probable that the economic bene!ts will #ow to the company and the criteria have been met for delivery in accordance with the agreed sale and shipping conditions.
Royalties are measured as a percentage of the licensee's reported sales value for consumer products containing BioGaia's products, and are recognised monthly or quarterly. License revenue received in connection with the signing of agreements is accrued in cases where it intended to cover costs until the time of launch. In other cases, the revenue is recognised immediately.
Interest income is recognised in the income statement for the period in which it arises.
Leased assets are classi!ed as operating leases, since all the risks and rewards incident to ownership have not been substantially transferred to BioGaia. As a result, the lease payments are recognised on a straight-line basis over the term of the lease.
All employees in Sweden are subject to mandatory retirement in accordance with Swedish law, currently at the age of 65 years. The company has no pension commitments other than payment of annual pension insurance premiums. The pension insurance premiums are of the de!ned contribution type and are expensed as incurred.
Current tax refers to the tax computed on the year's taxable pro!t. Deferred tax refers to the tax calculated partly on the basis of temporary di"erences and partly on taxable de!cits. At every closing date, an assessment is made to determine whether to recognise deferred tax assets not previously recognised in the balance sheet. Such tax assets are recognised to the extent that it is deemed likely that su#cient taxable pro!ts will be available in the future.
Costs related to research undertaken with the prospect of gaining new scienti!c or technical knowledge in the Group's operations are expensed as incurred. Costs for development, where knowledge and understanding gained from research and practical experience are directed towards producing new products, processes or systems, are recognised as intangible assets in the balance sheet when they meet the criteria for capitalisation according to IAS 38, i.e. only when the technical and commercial feasibility of the product or process has been established, the Group has adequate resources to complete development and the Group intends and is able to complete the intangible asset and either use it or sell it. It should also be probable that the future economic bene!ts attributable to the asset will \$ow to the company and the cost of the asset can be reliably measured. The reported value includes all directly attributable costs, such as those for materials, purchased services and compensation to employees engaged in R&D activities. Other development costs are expensed as incurred.
Individual assessment is made of all ongoing research and development projects to determine which costs for the respective project are capitalisable and to look for any indications of impairment.
The company has a number of projects that meet the criteria for capitalisation and are recognised in the balance sheet. In 2011 no development costs were assessed to meet these criteria, for which reason all of the year's costs were expensed.
Intangible assets and property, plant and equipment are recognised at cost with a deduction for accumulated amortisation/ depreciation and impairment.
The following amortisation schedules are applied:
| Parent | |
|---|---|
| Company | |
| 5-10 yrs | |
| 5 yrs | |
| 5 yrs | 5 yrs |
| Group 5-10 yrs 5 yrs |
| Production equipment | 5-10 yrs | 5 yrs |
|---|---|---|
| Equipment and computers | 3-5 yrs | 3-5 yrs |
| Construction in progress | – | – |
Amortisation of intangible assets is started when a project has been completed and the product begins generating revenue.
The amortisation period varies between 5-10 years depending on the estimated useful life of the project. The only project with an amortisation schedule of more than 5 years is the Animal Health project, for which the amortisation period is matched to the term of the contract.
The carrying amounts of the Group's assets are reviewed at each balance sheet date to look for any indication that an asset may be impaired. If impairment is indicated, the recoverable amount of the asset is calculated. If this is lower than the carrying amount, the value is written down to recoverable amount.
Depreciation of a building is started when construction is completed.
Inventories are stated at the lower of cost and net realisable value, including provisions for obsolescence. Cost is measured according to weighted average prices.
Cash and cash equivalents comprise cash in hand and at bank.
Financial instruments in the Group are measured and recognised in accordance with the rules in IAS 39.
The !nancial assets recognised in balance sheet include cash and cash equivalents, short-term investments, trade payables and loans. Financial liabilities and equity include trade payables and prepayments from customers.
Financial assets and liabilities are initially measured at cost, corresponding to fair value including transaction costs for all !nancial assets and liabilities not measured at fair value through pro!t or loss. Subsequent measurement depends on how the instruments have been classi!ed according to the following.
A !nancial asset or liability is recognised in the balance sheet when the company initially becomes party to the contractual provisions of the instrument. Financial liabilities are recognised when the counterparty has performed and there is contractual obligation to pay, even if no invoice has been received. Trade receivables are initially measured at cost and subsequently at amortised cost less provision for impairment. Impairment losses on trade receivables are recognised in pro- !t or loss. Trade payables are recognised when an invoice has been received.
The purchase or sale of a !nancial asset is recognised on the trade date, which is the date on which the company commits to purchase or sell the asset.
A !nancial asset is derecognised from the balance sheet when the company's rights under the agreement are realised, expire or the company has relinquished control of the asset. The same applies to a part of a !nancial asset. A !nancial liability is derecognised from the balance sheet when the obligation speci!ed in the agreement is discharged or otherwise extinguished. The same applies to a part of a !nancial liability.
The company classi!es its !nancial assets and liabilities in the following categories; Financial assets and liabilities at fair value through pro!t or loss, loans and receivables, held-to-maturity investments and other !nancial liabilities.
The di"erence between the accounting policies applied by the Group and the Parent Company are described below. The following accounting policies for the Parent Company have been applied consistently for all pesriods presented in the Parent Company !nancial statements.
In the Parent Company, shareholdings in subsidiaries are accounted for in accordance with the cost method of accounting.
In the Parent Company, untaxed reserves are recognised including deferred tax liability. In the consolidated !nancial statements, however, untaxed reserves are divided between deferred tax liability and equity.
The Parent Company reports group and shareholder contributions in accordance with a statement from the Swedish Financial Reporting Board (UFR 2). Shareholder contributions are recognised directly in equity by the recipient and are capitalised in shares and participations by the giver, to the extent that impairment is not indicated. Group contributions are reported in accordance with their !nancial signi!cance. This means that group contributions paid to minimise the Group's overall tax burden are recognised directly in retained earnings less the current tax e"ect.
Starting on 1 January 2009 the Group has implemented IFRS 8, Operating Segments. The Executive Management, which is BioGaia's chief operating decision-maker, has analysed the Group's internal reporting and determined that the Group's operations are steered and evaluated based on the following segments:
The management monitors net sales and gross profit. Other expenses are not broken down at the segment level, but only at the group level.
| Revenue by segment | Group 2011 |
2010 | Parent Company 2011 |
2010 |
|---|---|---|---|---|
| Finished consumer products 215,431 | 165,590 | 206,623 | 163,575 | |
| Component products | 97,731 | 68,559 | 97,729 | 68,529 |
| Other products | 1,830 | 1,884 | 1,830 | 1,884 |
| 314,992 | 236,033 | 306,182 | 233,988 |
| Gross profit by segment | 2011 | 2010 | 2011 | 2010 |
|---|---|---|---|---|
| Finished consumer products 154,015 | 109,476 | 136,980 | 107,901 | |
| Component products | 60,523 | 47,680 | 60,607 | 47,663 |
| Other products | 1,727 | 1,727 | 1,727 | 1,727 |
| 216,265 | 158,883 | 199,314 | 157,291 | |
| 31-dec | 31-dec | 31-dec | 31-dec | |
| Trade receivables by segment 2011 | 2010 | 2011 | 2010 | |
| Finished consumer products | 35,812 | 21,040 | 29,611 | 19,183 |
| Component products | 13,300 | 12,323 | 13,261 | 12,207 |
| Other products | – | 211 | – | 211 |
| 49,112 | 33,574 | 42,872 | 31,601 |
In 2011, SEK 134.0 million, or 42.3 per cent of the revenue, was related to three customers, two in the Finished Consumer Products segment and one in the Component Products segment (2010: SEK 100.4 million or 42.6 per cent).
| Net sales by geographical market |
Group 2011 |
2010 | Parent Company 2011 |
2010 |
|---|---|---|---|---|
| Europe | 234,505 | 183,858 | 234,505 | 183,858 |
| USA and Canada | 17,816 | 13,879 | 17,814 | 13,849 |
| Asia | 37,117 | 19,564 | 28,309 | 17,549 |
| Rest of world | 25,554 | 18,732 | 25,554 | 18,732 |
| 314,992 | 236,033 | 306,182 | 233,988 |
More than 90 per cent of the Group's total assets, amounting to SEK 279,831 thousand (227,822) are located in Europe.
Of the Group's capital expediture on tangible and intangible assets, totalling SEK 16,179 thousand (640), more than 90 per cent pertained to Europe.
Sales in Sweden amounted to SEK 14.4 million (11.9) or 4.6 per cent (5.0 per cent).
The Group's non-current assets amount to SEK 24.4 miilion, of which SEK 24.2 million is located in Sweden and SEK 0.2 million in other countries (USA and Japan).
| Parent | |||||
|---|---|---|---|---|---|
| Group | Company | ||||
| 2011 | 2010 | 2011 | 2010 | ||
| Product revenue | 302,309 | 228,995 | 293,499 | 226,950 | |
| Royalties | 12,683 | 7,038 | 12,683 | 7,038 | |
| 314,992 | 236,033 | 306,182 | 233,988 |
| of whom, | of whom, | |||
|---|---|---|---|---|
| Parent Company | 2011 | men | 2010 | men |
| Sweden | 41 | 14 | 38 | 12 |
| Subsidiaries | ||||
| Sweden | 13 | 11 | 1 | 1 |
| Japan | 5 | 4 | 4 | 3 |
| USA | 2 | 0 | 2 | 0 |
| Total subsidiaries | 20 | 15 | 7 | 4 |
| Total Group | 61 | 29 | 45 | 16 |
The number of employees in the Group at 31 December 2011 was 64 (46).
| 2011 | 2010 | 2011 | 2010 | |
|---|---|---|---|---|
| Board and | Board and | Other | Other | |
| Parent Company | President | President employees | employees | |
| Sweden | 2,975 | 3,296 | 20,836 | 19,265 |
| Subsidiaries | ||||
| Sweden | 2,031 | 869 | 3,599 | – |
| Japan | 1,804 | 1,804 | 3,227 | 2,828 |
| USA | – | – | 985 | 1,082 |
| Total subsidiaries | 3,835 | 2,673 | 7,811 | 3,910 |
| Total Group | 6,810 | 5,969 | 28,647 | 23,175 |
| Parent | ||||
|---|---|---|---|---|
| Total salaries and | Group | Company | ||
| social security expenses | 2011 | 2010 | 2011 | 2010 |
| Salaries and other | ||||
| remuneration | 35,457 | 29,144 | 23,811 | 22,561 |
| Pension expenses for | ||||
| the Board and President | 1,455 | 418 | 1,161 | 204 |
| Pension expenses for | ||||
| other employees | 2,965 | 2,226 | 2,561 | 1,916 |
| Other social security expenses 10,490 | 7,975 | 8,386 | 7,227 | |
| Total | 50,367 | 39,763 | 35,919 | 31,908 |
All employees in Sweden are subject to mandatory retirement in accordance with Swedish law, currently at the age of 65 years. The company has no pension commitments other than payment of annual pension insurance premiums.
For all employees over the age of 25 years, the following pension insurance premiums are paid in relation to salary:
| 0–7.5 | More than 7.5 | |
|---|---|---|
| Pensionable salary within the range: | base amounts | base amounts |
| Premium: | 6% | 20% |
All employees aside from the President (for the President, see below) are covered by health insurance, with benefits, in addition to compensation from the Swedish Social Insurance Office. This health insurance is activated after 90 days of sick leave.
Together with the employer's health insurance and compensation from the Social Insurance Office, the employee receives total benefits equal to approximately 65-87 per cent of salary after a qualifying period of 3 months (depending on the level of salary).
Remuneration to the Chairman and members of the Board is paid according to the decision of the Annual General Meeting. The Board has appointed a remuneration committee consisting of Board Chairman David Dangoor and Board member Stefan Elving. The remuneration committee handles matters related to remuneration and other terms of employment of senior executives. The principles for remuneration to senior executives are approved by the Annual General Meeting. The task of the remuneration committee is to prepare recommendations in accordance with these principles. Board member Jan Annwall was Vice President until 1 April 2010 and has thereafter worked for BioGaia to a limited extent in the capacity of consultant.
Remuneration to the President and other senior executives employed by the company consists of basic salary and other benefits. Other senior executives comprise the 7 persons who together with the President make up the executive management team. One senior executive works on a consulting basis since May 2003.
In the event of termination by the company, the President is entitled to full salary during an 18-month period of notice. For Vice Presidents, the corresponding period is six months. Other senior executives have a statutory notice period of at least 3 months in the event of termination by the company. For the President, the company made extra pension payments of SEK 750,000 in 2011. In addition, for the President the company pays the cost of health insurance that provides sickness benefits equal to 75 per cent of salary after a qualifying period of 3 months. In other respects, the President has the same benefits as other employees.
No agreements for termination benefits exist for the President or other senior executives.
| 1,200 | 7,022 | 737 | 2,115 | 2,680 | 13,754 | |
|---|---|---|---|---|---|---|
| (7 persons) | 5,383 | 601 | 954 | 2,384 | 9,322 | |
| Other senior executives | ||||||
| Peter Rothschild | 1,639 | 136 | 1,161 | 2,936 | ||
| President | ||||||
| Paula Zeilon | 150 | 150 | ||||
| Board member | ||||||
| Jörgen Thorball | 150 | 150 | ||||
| Board member | ||||||
| Inger Holmström | 150 | 150 | ||||
| Thomas Flinck Board member |
150 | 150 | ||||
| Board member | ||||||
| Stefan Elving | 150 | 150 | ||||
| Board member | ||||||
| Jan Annwall | 150 | 296 | 446 | |||
| Board member | ||||||
| David Dangoor | 300 | 300 | ||||
| Board Chairman | ||||||
| Director's fees | Basic salary |
Variable including remun- |
health eration insurance |
Other remun eration |
Total | |
| Pension insurance |
||||||
Comments on the table
Other remuneration to other senior executive refers to consulting fees to a former employee who has worked for the company on a consulting basis since 2003 and is a member of the executive management team.
In June 2007 BioGaia carried out a warrant programme that was approved by the AGM the same year. This warrant programme was completed in 2010. Since the completion of this programme, BioGaia has no ongoing warrant programmes.
| 2011 | 2010 | 2011 | 2010 | |
|---|---|---|---|---|
| Women | Women | Men | Men | |
| Board members | 2 | 2 | 5 | 5 |
| Management including President | 2 | 2 | 6 | 6 |
| Parent | ||||
|---|---|---|---|---|
| Group | Company | |||
| 2011 | 2010 | 2011 | 2010 | |
| Grant Thornton Sweden AB | ||||
| Audit assignments | 431 | 488 | 346 | 485 |
| Audit services in addition to audit 120 | 120 | 120 | 120 | |
| Tax advice | 25 | 31 | 15 | 31 |
| Other assignments | 34 | 14 | 34 | 13 |
| Cherry, Bekaert & Holland, L.L.P. | ||||
| Audit assignments | 41 | 67 | – | – |
| Other assignments | 100 | 123 | – | – |
| Nakashima Accounting Firm | ||||
| Audit assignments | 18 | 17 | – | – |
| Other assignments | – | – | – | – |
Audit assignments refer to the auditors' work on the statutory audit, other auditing activities and different types of quality assurance services. Other services are such that are not included in the audit assignment, auditing activities or tax advice.
| Group | Parent Company |
|||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Exchange gains on operating | ||||
| receivables/liabilities | 304 | – | 304 | – |
| 304 | – | 304 | – |
| Group | Parent Company |
||||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Exchange losses on | |||||
| receivables/liabilities | – | 3,242 | – | 3,242 | |
| – | 3,242 | – | 3,242 |
| 2011 | 2010 | |
|---|---|---|
| Share in profit of TwoPac AB | – | 1,200 |
See also information in Note 16.
| Group 2011 |
2010 | Parent Company 2011 |
2010 | |
|---|---|---|---|---|
| Cost of goods | 98,727 | 78,111 | 106,868 | 77,594 |
| Personnel expenses | 50,529 | 39,887 | 35,727 | 32,032 |
| Depreciation/amortisation | 5,425 | 2,836 | 2,096 | 2,369 |
| Other operating expenses | 57,456 | 61,090 | 57,473 | 50,436 |
| 212,137 | 181,924 | 202,164 | 162,431 |
Operating expenses include lease payments of SEK 192 thousand (177). Total minimum future lease payments fall due as follows: Within one year: 130
Within two to five years: 154
The Group's future payment commitments for rents amount to SEK 7.8 million, of which SEK 7.0 million refers to the Parent Company. The Group's rents fall due for payment in an amount of SEK 3.8 within one year and SEK 4.0 million within two to five years.
| Group | Parent Company |
|||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Interest income Exchange gains on forward |
3,270 | 1,091 | 5,947 | 2,334 |
| exchange contracts | 2,522 | 12,426 | 2,522 | 12,426 |
| 5,792 | 13,517 | 8,469 | 14,760 |
The Parent Company and the Group have entered into forward exchange contracts in EUR for a total of EUR 13.3 million (13.9) at an average exchange rate of SEK 9.30 of which EUR 8.9 million will mature in 2012 and EUR 4.4 million in 2013. The unrealised foreign exchange loss is reported as a financial income/expense.
| Group | Parent Company |
||||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Other financial expenses | 84 | 100 | 78 | 95 | |
| 84 | 100 | 78 | 95 |
| Group 2011 |
2010 | Parent Company 2011 |
2010 | |
|---|---|---|---|---|
| Current tax Tax on group |
–29,160 | –18,419 | –29,134 | –18,395 |
| contributions paid | – | – | –647 | –1,593 |
| Deferred tax | –185 | –4,100 | – | –3,050 |
| –29,345 | –22,519 | –29,781 | –23,038 |
| –185 | –4,100 | – | –3,050 | |
|---|---|---|---|---|
| temporary differences | – | 1 | – | –1 |
| Deferred tax related to | ||||
| during the year | –185 | – | – | – |
| to loss carryforwards capitalised | ||||
| Deferred tax income attributable | ||||
| capitalised loss carryforwards | – | –4,101 | – | –3,049 |
| to utilisation of previously | ||||
| Deferred tax expense attributable |
| Group 2011 |
2010 | Parent Company 2011 |
2010 | |
|---|---|---|---|---|
| Reported profit before tax | 108,867 | 69,687 | 102,260 | 71,390 |
| Nominal tax rate 26.3% Tax effect of non-capitalised |
–28,632 | –18,328 | –26,894 | –18,776 |
| loss carryforwards Tax effect of other non-deductible |
–2,050 | –4,382 | – | – |
| and non-taxable items Tax effect of group |
–237 | 191 | –2,887 | –4,261 |
| adjustments Tax effect of temporary |
1,574 | 4 | – | – |
| adjustments | – | –4 | – | – |
| –29,345 | –22,519 | –29,781 | –23,038 |
The Group's loss carryforwards amounted to a total of SEK 61.9 million (54.1) at 31 December 2011.
Loss carryforwards of SEK 0 thousand (0) are attributable to the Swedish companies.
No deferred tax has been recognised on loss carryforwards amounting to SEK 61.9 thousand (54.1).
These carryforwards are attributable to the Japanese subsidiary and will expire as follows: SEK 3,101 thousand will expire in the financial year 2013, SEK 11,907 thousand in 2014, SEK 11,093 thousand in 2015, SEK 12,699 thousand in 2016, SEK 15,259 thousand in 2017 and SEK 7,814 thousand in 2018.
| 2011 | 2010 | |
|---|---|---|
| Opening balance, 1 January | 98 | –166 |
| Share of group contributions received | – | 346 |
| Change in group structure | –2,660 | – |
| Non-controlling interests' | ||
| share in profit/loss for the year | 3,153 | –82 |
| Closing balance, 31 December | 591 | 98 |
The non-controlling interests refer to a 9.9% stake in the subsidiary CapAble AB that is held by its managing director and a 50% stake in the subsidiary TwoPac AB that is held by the management of TwoPac AB.
| Capitalised development expenditure |
Licenses and brands |
Total intangible |
|---|---|---|
| assets | ||
| 26,875 – |
2,528 – |
29,403 – |
| 26,875 | 2,528 | 29,403 |
| 26,875 – |
2,528 – |
29,403 – |
| 29,403 | ||
| 24,590 | 2,528 | 27,118 1,112 |
| 25,702 | 2,528 | 28,230 |
| 25,702 | 2,528 | 28,230 |
| 909 | – | 909 |
| 26,611 | 2,528 | -29,139 |
| 2,285 | 0 | 2,285 |
| 1,173 | 0 | 1,173 264 |
| 26,875 1,112 264 |
2,528 – 0 |
Capitalised expenses include internally generated and externally acquired assets.
| Parent | ||||
|---|---|---|---|---|
| Group | Company | |||
| 2011 | 2010 | 2011 | 2010 | |
| Research and | ||||
| development expenses | 909 | 1,112 | 909 | 1,112 |
| 909 | 1,112 | 909 | 1,112 |
Amortisation begins when a project has been completed. The amortisation period varies between 5–10 years depending on the estimated useful life of the project. The remaining projects refer to Animal Health products and will be fully amortised in one year.
| Parent | ||||
|---|---|---|---|---|
| Group | Company | |||
| 2011 | 2010 | 2011 | 2010 | |
| Total R&D expenditure The year's capitalisation of |
33,035 | 27,930 | 33,058 | 28,054 |
| development expenses | – | – | – | – |
| Uncapitalised R&D expenditure Amortisation/depreciation |
33,035 | 27,930 | 33,058 | 28,054 |
| recognised in R&D expenses | 1,282 | 1,456 | 1,225 | 1,443 |
| R&D expenses with an effect on income |
34,317 | 29,386 | 34,283 | 29,497 |
| Group | Total | ||||
|---|---|---|---|---|---|
| Office | property, | ||||
| Land | and Production | in | Work equipment and |
plant and |
|
| buildings equipment | progress computers | equipment | |||
| Accumulated cost | |||||
| Opening balance, | |||||
| 1 January 2010 | – | 4,519 | – | 11,262 | 15,781 |
| Purchases | – | 22 | – | 618 | 640 |
| Sales and disposals | – | – | – | –319 | –319 |
| Translation difference | – | – | – | –58 | –58 |
| Closing balance, 31 December 2010 |
0 | 4,541 | 0 | 11,503 | 16,044 |
| Opening balance, | |||||
| 1 January 2011 | – | 4,541 | – | 11,503 | 16,044 |
| Opening balance, | |||||
| 1 January 2011 inTwoPac AB | – | 13,461 | 3,141 | 746 | 17,348 |
| Purchases | 506 | 926 | 14,272 | 482 | 16,186 |
| Sales and disposals | – | –2,241 | –77 | –264 | –2,582 |
| Reclassifications | – | 2,046 | –2,046 | – | 0 |
| Impairment losses | – | – | –774 | – | –774 |
| Translation difference | – | – | – | 50 | 50 |
| Closing balance, 31 December 2011 |
506 | 18,733 | 14,516 | 12,517 | 46,272 |
| Accumulated depreciation | |||||
| Opening balance, | |||||
| 1 January 2010 | – | 2,897 | – | 7,460 | 10,357 |
| Depreciation | – 86 | – | 1,638 | 1,724 | |
| Sales and disposals | – | – | – | –200 | –200 |
| Translation difference | – | – | – | –53 | –53 |
| Closing balance, 31 December 2010 |
0 | 2,983 | 0 | 8,845 | 11,828 |
| Opening balance, | |||||
| 1 January 2011 | – | 2,983 | – | 8,845 | 11,828 |
| Opening balance, | |||||
| 1 January 2011 in TwoPac AB | – | 7,128 | – | 613 | 7,741 |
| Depreciation | – | 2,398 | – | 1,352 | 3,750 |
| Sales and disposals | – | – 983 | – | –259 | –1,242 |
| Translation difference | – | – | – | 36 | 36 |
| Closing balance, 31 December 2011 |
0 | 11,526 | 0 | 10,587 | 22,113 |
| Carrying amounts | |||||
| At 1 January 2010 | 0 | 1,622 | 0 | 3,802 | 5,424 |
| At 31 December 2010 | 0 | 1,558 | 0 | 2,658 | 4,216 |
| At 31 December 2011 | 506 | 7,207 | 14,516 | 1,929 | 24,158 |
| Parent Company | Office | Total | |||
| Production equipment |
equipment and computers |
property, plant and equipment |
|||
| Accumulated cost | |||||
| Opening balance, 1 January 2010 | 2,293 | 9,639 | 11 932 | ||
| Purchases | 22 | 424 | 446 | ||
| Sales and disposals | – | –31 | –31 | ||
| Closing balance, | |||||
31 December 2010 2,315 10,032 12,347 Opening balance, 1 January 2011 2,315 10,032 12,347 Purchases – 220 220 Sales and disposals – –70 –70
31 December 2011 2,315 10,182 12,497
Opening balance, 1 January 2010 1,926 6,151 8,077 Depreciation 86 1,172 1,258 Sales and disposals – –22 –22
31 December 2010 2,012 7,301 9,313
Closing balance,
Closing balance,
Accumulated depreciation
Cont'd, Note 15
| Opening balance, 1 January 2011 Depreciation Sales and disposals |
2,012 85 – |
7,301 1,101 –70 |
9,313 1,186 –70 |
|---|---|---|---|
| Closing balance, 31 December 2011 |
2,097 | 8,332 | 10,429 |
| Carrying amounts At 1 January 2010 At 31 December 2010 At 31 December 2011 |
367 303 218 |
3,488 2,731 1,850 |
3,855 3,034 2,068 |
Depreciation is recognised on the following lines in the income statement:
| Group | Parent Company |
|||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Cost of goods sold | 2,249 | – | – | – |
| Selling expenses | 1,341 | 1 209 | 693 | 756 |
| Administrative expenses | 553 | 171 | 178 | 171 |
| Research and | ||||
| development expenses | 373 | 344 | 316 | 331 |
| 4,516 | 1,724 | 1,187 | 1,258 |
| Parent Company | ||
|---|---|---|
| 2011 | 2010 | |
|---|---|---|
| Parent | Parent | |
| Participations in group companies | Company | Company |
| At beginning of year | 10,469 | 7,469 |
| Conditional shareholder contribution to CapAble AB | – | 3,000 |
| Reclassification of TwoPac AB from | ||
| associated company to group company | 10,641 | – |
| Purchase of Infant Baby AB | 50 | – |
| Book value at end of year | 21,160 | 10,469 |
| reg.no./ Domicile | No. of shares | Holding, % | Book value |
|---|---|---|---|
| BioGaia Biologics Inc. /–/ | |||
| Raleigh, NC, USA | 100,000 | 100 | 0 |
| TriPac AB /556153-2200/Lund | 10,000 | 100 | 3,568 |
| CapAble AB /556768-3601/ | |||
| Stockholm | 9,010 | 90.1 | 6,901 |
| BioGaia Japan Inc. /–/ | |||
| Hiroshima, Japan | 180 | 100 | 0 |
| TwoPac AB /556591-9767/Eslöv | 5,000 | 50 | 10,641 |
| Infant Baby AB /556873-8586/ | |||
| Stockholm | 50,000 | 100 | 50 |
| 21,160 |
The assets and liabilities of the American subsidiary BioGaia Biologics Inc. have been translated at the closing day rate of exchange, SEK 6.88 (6.78). All items in the income statement have been translated at the average exchange rate during the year, SEK 6.48 (7.21). The assets and liabilities of the Japanese subsidiary BioGaia Japan Inc. have been translated at an exchange rate of SEK 0.089 (0.083) kronor. All items in the income statement have been translated at an exchange rate of SEK 0.082 (0.082). The resulting translation differences have been recognised in consolidated comprehensive income.
CapAble AB was formed in the autumn of 2008. BioGaia owns 90.1 per cent of the company. CapAble's President, Staffan Pålsson, owns 9.9 per cent of the company. The non-controlling interests' share in equity of CapAble amounts to SEK -82 thousand.
TwoPac AB was formed in 2002 and is owned 50 per cent by BioGaia and 50 per cent by the management of TwoPac. The non-controlling interests' share in equity of TwoPac amounts to SEK 673 thousand.
Of total purchases made by the Parent Company, 1.1 per cent (1.6) was attributable to group companies. Of total sales made by the Parent Company, 1.2 per cent (0.6) was attributable to group companies.
| Parent | ||||
|---|---|---|---|---|
| Group | Company | |||
| 2011 | 2010 | 2011 | 2010 | |
| At beginning of year | 10,641 | 9,441 | 10,641 | 9,441 |
| Share in profit for the year | – | 1,200 | – | – |
| Reversal of previous | ||||
| impairment loss on | ||||
| participation in associated | ||||
| company | – | – | – | 1,200 |
| Reclassification of | ||||
| associated company | ||||
| to group company | –10,641 | – | –10,641 | – |
| Book value at end of year | 0 | 10,641 | 0 | 10,641 |
The reversal of the previous impairment loss on participations in the associated company to the value of the equity share in the Group was recognised in the Parent Company.
| TwoPac AB/556591-9767/Eslöv | 2010 |
|---|---|
| Assets1) | 14,612 |
| Liabilities | 6,432 |
| Equity | 8,180 |
| Revenue | 16,189 |
| Profit | 2,407 |
| Number of shares | 5,000 |
| Holding, % | 50 |
| Value of equity share in Group | 10,641 |
| Book value in Parent Company | 10,641 |
1) TwoPac's assets of SEK 14,612 thousand include cash of SEK 2,612 thousand.
Until 31 December 2010, TwoPac was reported as an associated company. As a result of the financing arrangement described in the administration report, BioGaia has gained a controlling influence over TwoPac, which was thus consolidated in the BioGaia Group as of January 2011. No additional consideration has been paid for the associated company. The fair value of the shares has been determined as the existing historical cost and no surplus values have been identified. This means that no revaluation effects have arisen.
In 2010 TwoPac was reported as an associated company in the BioGaia Group. As of 1 January 2011, TwoPac is reported as a group company (subsidiary). If TwoPac had been consolidated in 2010, the figures for that year would gave been affected as follows:
| Jan-Dec | Jan-Dec | |
|---|---|---|
| 20101) | 20102) | |
| Net sales | 236,033 | 236,033 |
| Gross profit | 164,339 | 158,883 |
| Operating profit | 57,588 | 56,270 |
| Profit for the period before tax | 70,887 | 69,687 |
| Profit for the period | 48,368 | 47,168 |
| Profit for the period attributable | ||
| to owners of the Parent Company | 47,250 | 47,250 |
| Basic earnings per share, SEK | 2.74 | 2.74 |
| Operating margin | 24% | 24% |
| Profit margin | 30% | 30% |
| Number of employees | 55 | 45 |
| Balance sheet items on the balance sheet date, 31 December 2010: | ||
|---|---|---|
| Property, plant and equipment | 13,824 | 4,216 |
| Balance sheet total | 226,131 | 227,822 |
| Equity | 184,660 | 187,323 |
| Equity attributable to owners | ||
| of the Parent Company | 187,225 | 187,225 |
1) If TwoPac had been reported as a group company in 2010.
2) Corresponds to the comparative figures above, i.e. TwoPac is reported as an associated company
An age analysis of overdue trade receivables is shown below:
| Non-current receivables from subsidiaries | |
|---|---|
| ------------------------------------------- | -- |
| Parent Company 2011 |
Parent Company 2010 |
|
|---|---|---|
| At beginning of year | 1,022 | 1,022 |
| Payment of loan to | ||
| BioGaia Japan Inc. | 4,451 | 14,340 |
| Payment of loan to TwoPac AB | 11,091 | – |
| Reclassification of loan to | ||
| associated company | 4,400 | – |
| Sale of products to | ||
| BioGaia Japan Inc. | 3,759 | 1,364 |
| Interest income from | ||
| BioGaia Japan Inc. | 2,243 | 1,224 |
| Provisions for receivables 1) | –10,453 | –16,928 |
| 16,513 | 1,022 |
1) Because it is uncertain whether the receivable from the subsidiary in Japan will be repaid within the foreseeable future, a provision has been made for this amount.
| 2011 | 2010 | |
|---|---|---|
| Non-current recievables from subsidiaries as of December 31 |
Parent Company |
Parent Company |
| CapAble AB | 1,022 | 1,022 |
| TwoPac AB | 15,491 | – |
| 16,513 | 1,022 |
| Parent | ||||
|---|---|---|---|---|
| Group | Company | |||
| 2011 | 2010 | 2011 | 2010 | |
| At beginning of year | 4,400 | 4,400 | 4,400 | 4,400 |
| Reclassification of loan | ||||
| to subsidiary | –4,400 | – | –4,400 | – |
| Closing balance at end of year | 0 | 4,400 | 0 | 4,400 |
| Group | Parent Company |
|||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 20010 | |
| Raw materials and | ||||
| consumables | 2,297 | 95 | 96 | 95 |
| Finished goods and | ||||
| goods for resale | 19,231 | 13,933 | 18,569 | 13,048 |
| 21,528 | 14,028 | 18,665 | 13,143 |
The company's provisions for obsolescence amounted to SEK 469 thousand (239) at 31 December 2011. An individual assessment of the obsolescence reserve has been carried out. The entire inventory value is recorded at cost with a deduction for obsolescence.
The Group and the Parent Company have recorded a loss of SEK 0 thousand (0) on the write-down of trade receivables in 2011.
Provisions for bad debt losses amounted to SEK 244 thousand (150) at 31 December 2011. At 31 December 2011, trade receivables of SEK 1,751 thousand (2,026) were overdue without any assessed grounds for impairment. Of the overdue receivables, SEK 1,640 thousand had been recovered as of the closing date.
| Group | Parent Company |
|||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Less than 3 months | 1,727 | 1,910 | 1,714 | 1,910 |
| 3-6 months | 24 | 116 | – | – |
| 1,751 | 2,026 | 1,714 | 1,910 |
| Parent | ||||
|---|---|---|---|---|
| Group | Company | |||
| 2011 | 2010 | 2011 | 2010 | |
| SEK | 3,349 | 3,906 | 3,338 | 3,903 |
| EUR | 35,479 | 26,184 | 35,464 | 26,105 |
| USD | 3,327 | 897 | 3,314 | 862 |
| DKK | 756 | 605 | 756 | 605 |
| NOK | – | 125 | – | 125 |
| JPY | 6,201 | 1,857 | – | – |
| 49,112 | 33,574 | 42,872 | 31,600 |
Annwall & Rothschild Investment AB holds 740,668 class A shares and 1,259,332 class B shares, corresponding to 11.6 per centof the share capital and 36.2 per cent of the votes. Annwall & Rothschild Investment AB is owned by Peter Rothschild, President of BioGaia AB, and Jan Annwall, a member of the Board of the Parent Company. The transaction that took place during 2011 is a dividend of SEK 2.00 per share. No other transactions have taken place
between BioGaia and Annwall & Rothschild Investment AB. For further information, see Note 4, Employees and personnel expenses.
The Parent Company owns 50 per cent of TwoPac AB, which is reported as a group company since 1 January 2011.
TwoPac was previously reported as an associated company. For more information, see the administration report.
The Parent Company owns 100 per cent of the shares in BioGaia Biologics Inc, USA, BioGaia Japan Inc, Tripac AB and Infant Baby AB. The Parent Company owns 90.1 per cent of the shares in CapAble AB.
| Parent Company | ||
|---|---|---|
| 2011 | 2010 | |
| Interest income | 487 | 119 |
| Loan paid | –11,091 | – |
| Purchase of goods | –26,179 | –15,959 |
Goods are purchased at cost plus profit margin.
| Parent Company | ||
|---|---|---|
| 2011 | 2010 | |
| Interest income | 2,244 | 1,224 |
| Loan paid | –4,451 | –14,339 |
| Sale of goods | 3,759 | 1,364 |
Due to uncertainty as to whether the receivable from BioGaia Japan will be recovered within the foreseeable future, a provision has been made for this amount.
| Parent Company | ||
|---|---|---|
| 2011 | 2010 | |
| Purchase of services | –2,284 | –2,44 |
| Parent Company | ||
|---|---|---|
| 2011 | 2010 | |
| Interest income | 43 | 27 |
| Conditional shareholder contribution | – | –3,000 |
| Sales of services | 165 | 209 |
| Group contribution paid | –2,459 | –4,740 |
| Tax on group contribution paid | 647 | 1,249 |
| Parent Company | ||
|---|---|---|
| 2011 | 2010 | |
| Group contribution paid | –1 | –1,310 |
| Tax on group contribution paid | – | 345 |
| Non-current receivables, | Parent Company | |
|---|---|---|
| related parties | 31 Dec 2011 | 31 Dec 2010 |
| Non-current receivables, TwoPac AB | 15,491 | 4,400 |
| 15,491 | 4,400 | |
| Non-current receivables, CapAble AB | 1,022 | 1,022 |
| Current liabilities, related parties | ||
| Current liabilities, BioGaia Biologics Inc. | –805 | –328 |
| Current liabilities, BioGaia Japan | –4,241 | –4,241 |
| Current liabilities, CapAble AB | –6,720 | –3,575 |
| Current liabilities, Tripac AB | –4,648 | –4,647 |
| Current liabilities, TwoPac AB | –2,990 | –1,029 |
| –19,404 | –13,820 |
| Parent | ||||
|---|---|---|---|---|
| Group | Company | |||
| 2011 | 2010 | 2011 | 2010 | |
| VAT refund | 2,883 | 1,675 | 2,797 | 1,662 |
| Tax asset | 358 | 125 | 253 | 85 |
| Foreign exchange contracts | 2,873 | 6,277 | 2,873 | 6,277 |
| Other receivables | 930 | 1,365 | 556 | 633 |
| 7,044 | 9,442 | 6,479 | 8,657 |
Forward contracts have been measured at fair value, taking into account the applicable interest rates and exchange rates on the balance sheet date.
| Parent | ||||
|---|---|---|---|---|
| Group | Company | |||
| 2011 | 2010 | 2011 | 2010 | |
| Accrued income | 3,633 | 1,586 | 3,620 | 1,586 |
| Prepaid rents | 880 | 738 | 789 | 738 |
| Other deferred expenses | 1,581 | 1,024 | 1,138 | 626 |
| 6,094 | 3,348 | 5,547 | 2,950 |
The Group classifies its financial assets and liabilities in the following categories; financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and other financial liabilities.
The Group's assets at fair value through profit or loss consist of cash and cash equivalents and short-term investments. The financial assets are recognised in the balance sheet and are valued at the closing day rate of exchange.
| Assets (SEK 000s) | Fair value 31 Dec 2011 |
Fair value 31 Dec 2010 |
Carrying amount 31 Dec 2011 |
Carrying amount 31 Dec 2010 |
|---|---|---|---|---|
| Cash and cash | ||||
| equivalents in SEK | 156,561 | 135,703 | 156,561 | 135,703 |
| Cash and cash | ||||
| equivalents in EUR | 12,319 | 7,918 | 12,319 | 7,918 |
| Cash and cash | ||||
| equivalents in USD | 2,358 | 1,696 | 2,358 | 1,696 |
| Cash and cash | ||||
| equivalents in JPY | 260 | 1,485 | 260 | 1,485 |
| Cash and cash | ||||
| equivalents in DKK | 36 | 101 | 36 | 101 |
| Short-term investments | 80 | 80 | 80 | 80 |
| Total assets | 171,614 | 146,983 | 171,614 | 146,983 |
This item refers to listed securities. The shares have been valued at the quoted market price on the balance sheet date. The intention is to sell the shares when an appropriate occasion arises.
The Group has no held-to-maturitity investments.
The Group's holdings of loans referred to the associated company. The company is reported as a group company since 1 January 2011.
| 31 Dec 2011 Carrying amount1) |
31 Dec 2010 Carrying amount1) |
|
|---|---|---|
| Loan to associated company | – | 4,400 |
| Trade receivables | 49,112 | 33,574 |
| Total loans and receivables | 49,112 | 37,974 |
1) Fair value corresponds to the carrying amount. The maximum credit risks are equal to the reported amounts.
The Group's other financial liabilities consist of trade payables, liabilities to associated companies and prepayments from customers.
| Fair value |
Fair value |
Carrying amount |
Carrying amount |
|
|---|---|---|---|---|
| 31 Dec | 31 Dec | 31 Dec | 31 Dec | |
| 2011 | 2010 | 2011 | 2010 | |
| Trade payables | 17,769 | 9,373 | 17,769 | 9,373 |
| Liability to associated | ||||
| company | – | 1,029 | – | 1,029 |
| Prepayments from customer | 2,960 | 1,054 | 2,960 | 1,054 |
| Total other financial | ||||
| liabilities | 20,729 | 11,456 | 20,729 | 11,456 |
The share capital in BioGaia AB consists of 740,668 class A shares, carrying 10 votes each, and 16,530,294 class B shares, carrying one vote each. The class A and B shares grant equal entitlement to the company's assets and profits. Both the A shares and B shares have a quota value of SEK 1 each. All shares are fully paid-up and no shares are reserved for transfer. No shares are held in treasury by the company itself or by its subsidiaries.
Other contributed capital consists of payments made by the shareholders in excess of the quota value.
The translation reserve arises in translation of the net assets of foreign operations according to the acquisition method.
Retained profit consists of other equity. The Parent Company's dividend for 2011 was SEK 34.5 million, equal to SEK 2.00 per share. For 2012 the Board and President propose that the company pay an ordinary dividend of SEK 1.26 per share and an extraordinary dividend of SEK 2.74 per share, amounting to a total dividend of SEK 4.00 per share. This is equal to total dividends of SEK 69.1 million.
Non-controlling interests account for 9.9 per cent of equity in the subsidiary CapAble and 50 per cent of equity in the subsidiary TwoPac AB.
Equity in the BioGaia Group consists of the sum of equity attributable to owners of the Parent Company and equity attributable to non-controlling interests. At 31 December 2011, total consolidated equity amounted to SEK 230.3 million (187.3) and equity attributable to owners of the Parent Company amounted to SEK 229.8 million (187.2).
The company's policy is to pay a shareholder dividend equal to 30 per cent of profit after tax.
| 2011 | 2010 | |
|---|---|---|
| Number of shares at 31 Dec., thousands 17,271 | 17,271 | |
| Average number of shares, thousands | 17,271 | 17,230 |
| Number of outstanding | ||
| warrants, thousands | – | – |
| Number of outstanding warrants | ||
| with a dilutive effect, thousands | – | – |
| Number of outstanding shares | ||
| including outstanding warrants | ||
| with a dilutive effect, thousands | 17,271 | 17,271 |
| Earnings per share, SEK | 4.42 | 2.74 |
| Earnings per share after dilution, SEK | 4.42 | 2.74 |
| Equity per share, SEK | 13.30 | 10.84 |
| Equity per share after dilution, SEK | 13.30 | 10.84 |
| Return on equity, % | 37 | 27 |
| Share price on closing day, SEK | 163 | 96.00 |
| Dividend per share, SEK | 1) 4.00 |
2.00 |
1) Dividend proposed but not yet approved. The Board and President propose that the company pays an ordinary dividend of SEK 1.26 per share and an extraordinary dividend of SEK 2.74 per share, equal to a total dividend of SEK 4.00 per share.
| Group | Parent Company |
|||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Employee withholding tax | 880 | 696 | 779 | 667 |
| Other current liabilities | 416 | – | – | – |
| 1,296 | 696 | 779 | 667 |
| Group | Parent Company |
|||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Accrued holiday pay Accrued social |
3,985 | 3,699 | 3,364 | 3,515 |
| security expenses | 859 | 648 | 709 | 625 |
| Other accrued expenses | 10,321 | 5,814 | 9,190 | 5,432 |
| 15,165 | 10,161 | 13,263 | 9,572 |
| Group | Parent Company |
|||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Pledged assets | ||||
| Floating charges | 2,000 | 2 000 | 2,000 | 2 000 |
| Blocked account for new | ||||
| facility in TwoPac AB | 3,874 | – | – | – |
| Contingent liabilities | None | None | None | None |
The overall objective of the Group's finance function is to secure costeffective financing for the Group's operations and group companies and to provide secure cash management with a market-based return on investment. The overall objective of financial risk management is to minimise the risk for negative effects on the Group's earnings. Consequently, the Group's financial investments must have a low risk profile.
The Group's assessed risk exposure and related risk management are described below:
BioGaia has revenue primarily in EUR (around 80 per cent of net sales) and expenses primarily in SEK, EUR, JPY and USD. In 2011 the company had a cash flow surplus of approximately EUR 17.6 million (14.0), a cash flow deficit of JPY 65.2 million (170.0) and a cash flow deficit of USD 0.3 million (0.6). Growth in sales has also led to increased currency risks, for which reason the company has taken currency hedges in EUR. The company's Board of Directors has issued a policy to hedge approximately 50-60 per cent of projected cash flow 12 months forward and approximately 10-40 per cent of projected cash flow 13-24 months forward in order to spread the risk for exchange rate fluctuations. At 31 December 2011 the company had outstanding forward exchange contracts for EUR 13.3 million at an average exchange rate of SEK 9.30, of which EUR 8.9 million will mature for payment in 2012 and EUR 4.4 million in 2013. For more information see Notes 10 and 21. A stronger SEK rate against the EUR will decrease the value of BioGaia's sales and profit, but through profitable forward exchange transactions and by trying to reallocate a portion of expenses to EUR, the company should be able to minimise the impact on earnings. BioGaia is also trying to reallocate a portion of its revenue from EUR to other currencies, primarily SEK.
The Group has no loans and therefore no interest rate risks. Excess liquidity is held in bank interest rates or invested in fixed income securities with a high credit rating, which the company regards as a risk-free investment.
BioGaia's credit risks are attached to trade receivables and, for the Parent Company, also loans to subsidiaries. When signing agreements with new customers, BioGaia always carries out an assessment of the customer's financial position. The company has routines for collection of past due accounts receivable and additional evaluation of the customers' financial position is carried out when needed in order to minimise risks.
The loan from the Parent Company to the subsidiary CapAble AB has been used to purchase equipment for manufacturing of LifeTop Cap. The company's assessment is that the loan entails no credit risk. The loan from the Parent Company to the subsidiary TwoPac AB has been used mainly
to build a new production facility in Eslöv, Sweden. The company's assessment is that the loan entails no credit risk.
Excess liquidity is held in bank interest rates or invested in fixed income securities with a high credit rating.
In 2011 BioGaia had a positive cash flow from operating activities before changes in working capital of SEK 77.2 million (66.0). After changes in working capital, cash flow was SEK 72.8 million (69.0). Total cash flow for the year was SEK 24.7 million (47.5). Because cash and cash equivalents at 31 December 2011 amounted to SEK 171.5 million (146.9) and cash flow is positive, no infusion of capital is necessary.
BioGaia buys most of its goods on the international market and has several alternative suppliers, which minimises the company's price risk.
Certain sources of uncertainty in accounting estimates and assumptions are described below.
The Japanese subsidiary has operated at a loss since the start in 2006. The previously chosen business model was found to be unsuccessful and in 2010 BioGaia decided to change the business model in Japan to that which is used in the other markets. As a result of this, the loss in the Japanese subsidiary decreased in 2011 and the company reported an operating loss of SEK -3.9 million (-14.8). On the balance sheet date, assets in the Japanese subsidiary were reported at SEK 8.7 million (5.6). BioGaia's assessment is that the subsidiary will show good profitability in the future, for which reason there was no indication of impairment of these assets on the balance sheet date.
CapAble, which is 90.1 per cent owned by BioGaia AB, was started in November 2008 to manufacture and sell the patented LifeTop Cap.
The shares in the subsidiary CapAble are reported at a total of SEK 6.9 million in the Parent Company. CapAble has operated at a loss since the start in 2008. Loss before tax for 2011 was SEK -2.5 million.
BioGaia made total conditional shareholder contributions of SEK 6 million to CapAble in 2009 and 2010.
BioGaia's assessment is that CapAble will show good profitability in the coming years, for which reason there was no indication of impairment on the balance sheet date.
The Board of Directors and the President hereby give their assurance that the consolidated financial statements and annual report have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and generally accepted auditing practices, and give a true and fair view of the financial position and results of operations of the Group and the Parent Company.
The administration report for the Group and the Parent Company gives a true and fair view of the business activities, financial position and results of operations of the Group and the Parent Company, and describes the significant risks and uncertainties to which the Parent Company and the Group companies are exposed.
| David Dangoor Chairman |
Peter Rothschild President |
|---|---|
| Jan Annwall | Stefan Elving |
| Thomas Flinck | Inger Holmström |
| Jörgen Thorball | Paula Zeilon |
Grant Thornton Sweden AB
Lena Möllerström Nording Authorised Public Accountant
S A L E S B Y S E G M E N T
| 2011 | 2010 | 2009 | 2008 | 2007 | |
|---|---|---|---|---|---|
| Net sales, SEK M | 315.0 | 236.0 | 203.5 | 145.2 | 106.6 |
| Operating profit, SEK M | 103.2 | 56.3 | 47.7 | 25.8 | 8.9 |
| Profit before tax, SEK M | 108.9 | 69.7 | 53.1 | 24.0 | 10.7 |
| Profit after tax, SEK M | 79.5 | 47.2 | 36.0 | 36.1 | 19.7 |
| Profit after tax attributable to owners of the Parent Company, SEK M | 76.4 | 47.3 | 36.3 | 36.1 | 19.7 |
| Growth, % | 33 | 16 | 40 | 36 | 23 |
| Operating margin, % | 33 | 24 | 23 | 18 | 8 |
| Profit margin, % | 35 | 30 | 26 | 17 | 10 |
| Current ratio, times | 5.2 | 5.1 | 8.2 | 5.1 | 5.1 |
| Equity/assets ratio, % | 82 | 82 | 90 | 86 | 86 |
| Capital employed, SEK M | 230.5 | 187.3 | 161.1 | 132.4 | 94.9 |
| Return on capital employed, % | 52 | 40 | 36 | 25 | 13 |
| Return on equity, % | 37 | 27 | 25 | 32 | 23 |
| Average number of employees | 61 | 45 | 43 | 39 | 37 |
| Data per share | |||||
| Number of shares at 31 Dec., thousands 1) | 17,271 | 17,271 | 17,208 | 17,208 | 17,208 |
| Average number of shares, thousands | 17,271 | 17,230 | 17,208 | 17,208 | 17,208 |
| Number of outstanding warrants, thousands | – | – | 129 | 129 | 129 |
| Number of outstanding warrants with a dilutive effect, thousands | – | – | 129 | – | – |
| Number of outstanding shares including outstanding warrants | |||||
| with a dilutive effect, thousands | 17,271 | 17,271 | 17,337 | 17,208 | 17,208 |
| Basic earnings per share, SEK | 4.42 | 2.74 | 2.11 | 2.10 | 1.14 |
| Diluted earnings per share, SEK | 4.42 | 2.74 | 2.09 | 2.10 | 1.14 |
| Equity per share, SEK | 13.30 | 10.84 | 9.37 | 7.69 | 5.52 |
| Equity per share after dilution, SEK | 13.30 | 10.84 | 9.30 | 7.69 | 5.52 |
| Share price on the balance sheet date, SEK | 163.00 | 96.00 | 80.00 | 33.10 | 27.80 |
| Dividend per share, SEK | 2) 4.00 |
2.00 | 1.50 | 0.40 | – |
1) The share capital consists of 740,668 class A shares and 16,530,294 class B shares. The quota value is SEK 1 per share.
2) Dividend proposed but not yet approved.
Pro!t after tax attributable to owners of the parent company divided by the number of shares.
Balance sheet total less interestfree liabilities.
Total current assets divided by current liabilities.
Pro!t after tax attributable to owners of the Parent Company divided by the number of shares plus the number of outstanding warrants with a dilutive e"ect
Shareholders' equity attributable to the owners of the parent company divided by the number of shares plus the number of outstanding warrants with a dilutive e"ect.
Shareholders' equity attributable to the owners of the parent company divided by total assets.
Shareholders' equity attributable to the owners of the company divided by the number of shares.
Sales for the current year less sales for the previous year divided by sales for the previous year.
Operating pro!t in relation to net sales.
Pro!t before tax in relation to net sales.
Pro!t before !nancial items plus !nancial income, divided by average capital employed.
Pro!t after tax equity attributable to the owners of the Parent Company divided by average shareholders' equity attributable to the owners of the Parent Company.
To the general meeting of BioGaia AB (publ), corporate identity number 556380-8723
We have audited the annual accounts and consolidated accounts of BioGaia AB for the year 2011. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 38-60.
The Board of Directors and the President are responsible for the preparation and fair presentation of these annual accounts in accordance with the Annual Accounts Act and of the consolidated accounts in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the President determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the e!ectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the President, as well as evaluating the overall presentation of the annual accounts and consolidated accounts.
We believe that the audit evidence we have obtained is su"cient and appropriate to provide a basis for our audit opinion.
In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the #nancial position of the Parent Company as of 31 December 2011 and of its #nancial performance and its cash \$ows for the year then ended in accordance with the Annual Accounts Act, and the consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the #nancial position of the Group as of 31 December 2011 and of their #nancial performance and cash \$ows in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.
We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the Parent Company and the Group.
In addition to our audit of the annual accounts and consolidated accounts, we have examined the proposed appropriations of the company's pro#t or loss and the administration of the Board of Directors and the President of BioGaia AB for the year 2011.
The Board of Directors is responsible for the proposal for appropriations of the company's pro#t or loss, and the Board of Directors and the President are responsible for administration under the Companies Act.
Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company's pro#t or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden.
As a basis for our opinion on the Board of Directors' proposed appropriations of the company's pro#t or loss, we examined the Board of Directors' reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act and the Articles of Association.
As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined signi#cant decisions, actions taken and circumstances of the company in order to
determine whether any member of the Board of Directors or the President is liable to the company. We also examined whether any member of the Board of Directors or the President has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.
We believe that the audit evidence we have obtained is su"cient and appropriate to provide a basis for our opinion.
We recommend to the annual meeting of shareholders that the pro#t be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the President be discharged from liability for the #nancial year.
Stockholm, 21 February 2012 Grant Thornton Sweden AB
Lena Möllerström Nording Authorised Public Accountant
BioGaia is a Swedish public limited company whose class B shares are listed on the Mid Cap list of the NASDAQ OMX Nordic Exchange Stockholm. The company's corporate governance is exercised through the General Meeting of Shareholders, the Board of Directors, the President and the Executive Management in accordance with the Swedish Companies Act, the Articles of Association and the Swedish Code of Corporate Governance.
According to BioGaia's Articles of Association, the company, directly or through subsidiaries or other forms of co-ownership or partnership, shall engage in the development, production, marketing and sale of health-enhancing products in the form of pharmaceuticals, natural health products, dietary supplements, additives for food products and animal feed, suitable delivery systems for these products and other activities compatible therewith. The company is domiciled in Stockholm, Sweden. The Articles of Association can be viewed on BioGaia's website under the heading "Investors/Corporate Governance".
The General Meeting of Shareholders is the highest decision-making body through which the shareholders exercise their in!uence over the company. The Annual General Meeting (AGM) elects the members of the Board of Directors. The responsibilities of the AGM also include adoption of the company's income statements and balance sheets, approval of the appropriation of disposable pro"ts and discharge from liability for the members of the Board and the President. The AGM also elects the company's auditor.
One shareholder, Annwall & Rothschild Investment AB, holds 11.6 per cent of the share capital and 36.2 per cent of the votes in the company. Other individual shareholders hold less than 10 per cent of the share capital and votes each.
BioGaia's AGM was held on 10 May 2011 and was attended by shareholders representing 44.4 per cent of the total number of votes in the company. The AGM was also attended by the company's President, the Board members elected by the previous AGM and all of the Board members elected by the year's AGM, as well as the company's elected auditor.
The 2012 AGM will be held at 4:00 p.m. on Tuesday, 8 May 2012, at Citykonferensen Ingenjörshuset, Malmskillnadsgatan 46, in Stockholm.
Notice of the AGM is given through an announcement in the O#cial Gazette (Post- och Inrikes Tidningar) and on the company's website. An announcement that notice has been given shall be published in Svenska Dagbladet no earlier than six weeks and no later than four weeks prior to the Meeting.
The task of the Nominating Committee is to prepare recommendations regarding election and remuneration for decision by the AGM.
The 2011 resolved that the Nominating Committee
would be appointed according to the following:
"The Board Chairman shall convene the three largest shareholders in the company in terms of voting power, each of which has the right to appoint a member to the Nominating Committee together with the Board Chairman. In determining the composition of the Nominating Committee, the largest shareholders in terms of voting power shall be based on the ownership conditions at 30 June 2011. The Nominating Committee shall be chaired by the member representing the largest shareholder at that time. If any of the three largest shareholders should waive their right to appoint a member to the Nominating Committee, the next largest shareholder in order of voting power shall be given the opportunity to appoint a member. The names of the three shareholder representatives shall be made public as soon as they have been appointed, but no later than six months before the 2012 AGM. The term of o#ce shall extend until a new Nominating Committee has been appointed.
In the event that the shareholder represented by a member is no longer one of the three largest shareholders in terms of voting power, and if the Nominating Committee deems it appropriate, the member can resign and a representative for the next largest shareholder in order of voting power can be given the opportunity to replace this member. The same applies of a member of the Nominating Committee leaves the Committee for some other reason."
In accordance with the AGM's resolution, the Nominating Committee was appointed and consists of Per-Erik Andersson, representing Annwall & Rothschild Investment AB, the company's largest shareholder, Allan Ladow, representing Sebastian Jahreskog, who is the second largest shareholder via direct and indirect holdings, and Board Chairman David Dangoor, the fourth largest shareholder. All three members of the Nominating Committee are independent in relation to the company and its management.
The Nominating Committee will prepare recommendations for the following matters to be put before the 2012 AGM for resolution:
All shareholders have the opportunity to contact the Nominating Committee with recommendations for Board candidates for further evaluation within the framework of the Committee's work. No suggestions or proposals have been submitted to the Nominating Committee as of today's date.
The Nominating Committee presents a written motivation to the AGM for election of Board members.
According to BioGaia's Articles of Association, the Board shall consist of at least "ve and at most eight members with no more than three deputies. The Board is elected yearly by the AGM to
serve for the period until the end of the following AGM. In 2011 the Board consisted of seven members elected by the AGM, with no deputies. One Board member, Jan Annwall, has been a member of the Board since 1990 and is a major shareholder in the company. Jan Annwall was previously employed by the company as CFO and Executive Vice President, but retired on 1 April 2010. However, Jan Annwall works to a limited extent as a consultant to the company. The six remaining members are independent in relation to both the company and its management. A presentation of the Board is provided on page 66.
BioGaia's independent legal counsel has been appointed to serve as Secretary at Board meetings. The President is not a member of the Board but is co-opted to attend all Board meetings. Other executives in the company take part in Board meetings in order to present reports. The Board has adopted rules of procedure that include instructions for the division of responsibilities between the Board and the President and the structure of Board activities during the year. Furthermore, the Board has adopted instructions for the President, authorisation instructions including instructions for liquidity management and a policy for foreign exchange management. The rules of procedure, President's instructions and authorisation instructions are reviewed at least once a year.
The Board decides on matters related to the Group's overall strategy, organisation and management. The Board approves both interim reports and the annual report before these are published. The Board held nine minuted meetings and one strategy seminar in 2011. At these meetings the Board has discussed budgetary matters, business plans, "nancial accounts, investments, "nancial reports and major agreements. At the strategy seminar, the Board dealt mainly with issues concerning R&D, product development, brand building and related matters. During the year, Inger Holmström was absent from one meeting.
The Board of Directors continuously evaluates its own performance through both open discussions and a written evaluation. The results of the written evaluation are submitted to the Nominating Committee
The 2011 AGM resolved that Board fees would be paid in an amount of SEK 300,000 to the Board Chairman and SEK 150,000 to each of the other Board members not employed by the company.
The Chairman supervises the work of the Board and is responsible for ensuring that the Board carries out its duties in accordance with the Swedish Companies Act and the rules of procedure. Through ongoing contact with the President, the Chairman continuously monitors the company's development and ensures that the Board is provided with the information necessary to carry out its duties. David Dangoor has been Board Chairman since the 2007 AGM.
The President is responsible for overseeing the company's business development and for supervising and coordinating its day-to-day operations. The Board has established instructions for the President that among other things regulate his management and development of the company and the provision of reports and decision data to the Board. The President prepares the requisite information and decision data such as reports on the company's !nances, the order situation, signi!cant business matters and strategic issues prior to Board meetings, as well as presenting reports and motivating proposals for decision. Furthermore, the President continuously informs the Board Chairman about the company's !nancial and business situation. Every year the Board carries out an evaluation of the President's performance in which no member of the Executive Management is present.
BioGaia's Group Executive Management consists of the eight individuals who are presented on page 67. The Group's Executive Management is headed by the President and is responsible for planning, supervising and monitoring the company's day-to-day operations. Minuted meetings are normally held once a month. The responsibilities and powers of the President are regulated by the Swedish Companies Act and by the instructions that are adopted by the Board. The responsibilities and powers of the Executive Management are de!ned in the established job descriptions and authorisation instructions.
The Board has appointed a Remuneration Committee consisting of the Board Chairman David Dangoor and Board member Stefan Elving. The task of the Remuneration Committee is to prepare recommendations for remuneration and other terms of employment of the President and other senior executives who together make up the Executive Management. The principles for remuneration to senior executives are resolved on by the AGM. The Remuneration Committee prepares its recommendations based on these principles.
BioGaia's independent auditors are normally appointed by the AGM to serve for a period of four years. The 2010 AGM elected Grant Thornton Sweden AB as the company's auditor until the end of the 2014 AGM. Grant Thornton has appointed Lena Möllerström Nording as Auditor in Chief. By decision of the AGM, auditing fees are paid according to approved account.
The auditors examine the administration of the company by the Board of Directors and the President and the quality of the company's !nancial reporting. At the request of the Board, the auditors review the semi-annual report and the year-end report.
The auditors report the results of their review to the shareholders through an audit report, which is presented to the AGM. In addition, the auditors submit written and oral reports to the Executive Management and the Board. The auditors take part in the Board meeting preceding publication of the year-end report to present the results of their audit of the annual accounts and observations from ongoing examination of the company's internal control during the !nancial year.
The auditors also submit an auditor's statement on the corporate governance report and a report on the examination of remuneration to senior executives.
In addition, Grant Thornton has provided certain tax-related advice and performed other audit-related services. Information about remuneration to the
auditors can be found in Note 5 of the annual report.
Due to the fact that independent Board members have accounting expertise and in view of the Board's ongoing examination of the !nancial reporting and the company's limited size and transaction volume, the Board has decided not to set up any audit committee. Instead, the entire Board of Directors meets with the auditors at least once a year without the presence of the President or other members of the Executive Management.
As stated in the Swedish Companies Act and the Swedish Code of Corporate Governance (the Code), the Board of Directors is responsible for establishing and maintaining adequate internal control. This report has been prepared in accordance with these rules and provisions and is thereby limited to internal control over !nancial reporting.
The Board is responsible for ensuring that the company's organisation is suitably structured so that the !nancial accounts, cash management and other !nancial conditions can be controlled satisfactorily.
Every year, the Board of Directors adopts rules of procedure for the Board's activities and instructions regulating the division of responsibilities between the Board and the President. The rules of procedure state which matters require approval or authorisation from the Board. At Board meetings, the President reports on matters requiring treatment by the Board.
The Managing Director ensures that the Board is provided with the objective, detailed and relevant information needed for the Board to make well founded decisions and that the Board is continuously informed about the company's business development and !nancial position.
Aside from the rules of procedure between the Board and the President, BioGaia's control environment is based on the company's organisation and operating structure, in which roles and responsibilities are de!ned. There is a high level of employee awareness about the importance of maintaining good control over !nancial reporting. The company's !nancial development is assessed and monitored monthly. Financial reports and summaries are prepared by the Group's !nance department and are presented to the Board quarterly and to the Executive Management monthly.
BioGaia's vision is to improve the health of people around the world by o"ering !rst class probiotic solutions.
BioGaia also has a set of shared values and the company's employees are well aware of these.
BioGaia and BioGaia's employees:
The company works continuously with risk assessment and risk management to ensure that the risks to which the company is exposed are handled within the limits ultimately established by the Board. The executive management continuously analyses the company's business processes with regard to e#ciency and risks. This work includes the identi!cation of signi!cant risks for misstatements and de!ciencies in the !nancial reporting. To limit risks, suitable processes and controls are built into the company's operations. The most critical business processes and the absolutely largest values, in terms of both assets and business/product development, are found in the Parent Company. In addition, the bulk of sales take place in the Parent Company. Processes that are deemed to be of special importance to BioGaia are sales including quality assurance, R&D and manufacturing.
The risks identi!ed in !nancial reporting are managed through a number of control activities in the company's processes. Processes and controls are reviewed and updated regularly in order to detect, prevent and correct any errors or de!ciencies. The control structure also includes the division of powers and responsibilities and the Executive Management's monthly review of the company's !nancial information.
BioGaia has information and communication paths that are designed to promote the completeness and accuracy of the !nancial reporting. Authorisation instructions and policies are distributed to all employees and can be viewed on the company's intranet. Once or twice a year, all of BioGaia's employees meet to increase their knowledge about the company's processes and goals and to exchange information and experiences. In 2011 the company's employees met for two days in May.
The Executive Management performs a yearly evaluation of the e"ectiveness of internal control. Every year, the company's elected auditing !rm, Grant Thornton Sweden AB, also audits of a selection of BioGaia's routines and internal controls. The Board then evaluates this information and ensures that measures are taken in respect of the identi- !ed de!ciencies and resulting recommendations.
The company has no special internal audit function. In light of the company's size and the volume of transactions, together with the expertise in this area possessed by the Board of Directors and the Board's meeting with the independent auditor, the Board has determined that there is no reason to set up a formal intern audit function.
The Board of Directors and the President are responsible for the corporate governance report and for ensuring that it is prepared in accordance with the Annual Accounts Act.
As a basis for our statement on whether the corporate governance report has been prepared and is consistent with the other parts of the annual report, we have read the corporate governance report and judged its statutory content based on our knowledge of the company.
A corporate governance report has been prepared and its statutory information is consistent with the annual report and the consolidated accounts.
Grant Thornton Sweden AB
Lena Möllerström Nording Authorised Public Accountant
Figures in brackets refer to the preceding year
BioGaia AB's class B share has been quoted on the OMX Nordic Exchange Stockholm since May 1998. On 1 January 2012 the share was moved from the Small Cap list to the Mid Cap list. In 2011 BioGaia shares were traded for a total of around SEK 872 million (524), corresponding to approximately 6.3 million shares (5.8).
The number of shareholders at 31 December 2011 was 6,752 (6,985).
The total registered share capital of BioGaia AB consists of 740,668 class A shares and 16,530,294 class B shares.
In 2011 the share price increased from SEK 96.00 to SEK 163.00. The highest closing price during the year was SEK 174.00 and the lowest was SEK 94.50. Market capitalisation at 31 December 2011 was approximately SEK 2,815 million (1,660).
BioGaia's policy is to pay a shareholder dividend equal to 30% of pro!t after tax.
BioGaia has no ongoing warrant programmes.
| Total number of share holders, 31 December |
||||
|---|---|---|---|---|
| Number of shares | 2010 | 2011 | ||
| 1–500 | 5,221 | 5,245 | ||
| 501–1,000 | 927 | 781 | ||
| 1,001–5,000 | 621 | 525 | ||
| 5,001–10,000 | 86 | 72 | ||
| 10,001–15,000 | 24 | 21 | ||
| 15,001–20,000 | 18 | 13 | ||
| 20,001– | 88 | 95 | ||
| Total number of | ||||
| shareholders: | 6,985 | 6,752 |
| A shares, 000's |
B shares, 000's |
Share capital, SEK 000's |
No. of votes, 000's |
Holding, % | Votes, % | |
|---|---|---|---|---|---|---|
| Annwall & Rothschild Inv. AB | 741 | 1,259 | 2,000 | 8,666 | 11.6 | 36.2 |
| Sebastian Jahreskog | 1,061 | 1,061 | 1,061 | 6.1 | 4.4 | |
| David Dangoor (inkl bolag) | 569 | 569 | 569 | 3.3 | 2.4 | |
| SIX SIS AG | 569 | 569 | 569 | 3.3 | 2,4 | |
| Futuris | 530 | 530 | 530 | 3.1 | 2.2 | |
| Pictet & CIE | 519 | 519 | 519 | 3,0 | 2.1 | |
| Livförsäkringsaktiebolaget Skandia | 477 | 477 | 477 | 2,8 | 2.0 | |
| Swedbank Robur fonder | 416 | 416 | 416 | 2,4 | 1.7 | |
| Handelsbanken fonder | 406 | 406 | 406 | 2.4 | 1.7 | |
| AMF Försäkring och Fonder | 388 | 388 | 388 | 2.3 | 1.6 | |
| Skandinaviska Enskilda Banken S.A., NQI | 387 | 387 | 387 | 2.2 | 1.6 | |
| Banque Carnegie Luxembourg SA | 309 | 309 | 309 | 1.8 | 1.3 | |
| Försäkringsaktiebolaget Avanza Pension | 303 | 303 | 303 | 1.8 | 1.3 | |
| Credit Agricole Suisse SA | 300 | 300 | 300 | 1.7 | 1.3 | |
| Caroline Hamilton | 299 | 299 | 299 | 1.7 | 1.3 | |
| Fidelity Nordic Fund | 285 | 285 | 285 | 1.7 | 1,2 | |
| Hanvad Invest Aktiebolag | 268 | 268 | 268 | 1.6 | 1.1 | |
| Lars Thunberg | 214 | 214 | 214 | 1.2 | 0.9 | |
| Tanglin Asset Managment AB | 178 | 178 | 178 | 1.0 | 0.7 | |
| Subfund Ruffer European FD | 165 | 165 | 165 | 1.0 | 0.7 | |
| Sten Irwe | 158 | 158 | 158 | 0.9 | 0.7 | |
| Incore bank AG | 152 | 152 | 152 | 0.9 | 0.6 | |
| Lärerstandens Brandforsikring GE | 130 | 130 | 130 | 0.8 | 0.5 | |
| Goldman Sachs International | 127 | 127 | 127 | 0.7 | 0.5 | |
| Nordnet pensionsföräkring AB | 125 | 125 | 125 | 0.7 | 0.5 | |
| Other shareholders | 6,936 | 6,936 | 6,936 | 40.1 | 29.0 | |
| Total | 741 | 16,530 | 17,271 | 23,937 | 100.0 | 100.0 |
| Increase in | Issue | |||||||
|---|---|---|---|---|---|---|---|---|
| Increase in | share | Total share | Total no. of | Total no. of | Quota value, | proceeds, | ||
| Year | Transaction | no. of shares | capital, SEK | capital, SEK | A shares | B shares | SEK | SEK |
| 1990 | Company founded | 150,000 | 30,000 | 5.00 | – | |||
| 1991 | New share issue | 12,857 | 64,285 | 214,285 | 42,857 | 5.00 | 4,500,000 | |
| 1993 | New share issue | 12,554 | 62,770 | 277,055 | 55,411 | 5.00 | 4,394,341 | |
| 1995 | New share issue | 2,303 | 11,515 | 288,570 | 57,714 | 5.00 | 806,009 | |
| 1996 | Bonus issue/Split | 60,541,986 | 5,771,400 | 6,059,970 | 4,740,278 | 55,859,422 | 0.10 | – |
| 1996 | New share issue | 18,200,000 | 1,820,000 | 7,879,970 | 4,740,278 | 74,059,422 | 0.10 | 15,320,000 |
| 1997 | New share issue | |||||||
| Banco Fonder | 2,608,696 | 260,870 | 8,140,840 | 4,740,278 | 76,668,118 | 0.10 | 5,760,000 | |
| 1997 | New share issue | |||||||
| BioGaia Fermentation | 4,400,000 | 440,000 | 8,580,840 | 4,740,278 | 81,068,118 | 0.10 | 7,469,000 | |
| 1997 | New share issue | 21,452,099 | 2,145,210 | 10,726,050 | 5,925,347 | 101,335,148 | 0.10 | * 38,597,265 |
| 1998 | New share issue | 5 | 1 | 5,925,350 | 101,335,150 | 0.10 | 20 | |
| 1998 | Reverse split | 592,535 | 10,133,515 | 1.00 | – | |||
| 1998 | New share issue (IPO on SSE) | 2,681,512 | 2,681,512 | 13,407,562 | 740,668 | 12,666,894 | 1.00 | * 57,934,131 |
| 2000 | New share issue November | 3,275,000 | 3,275,000 | 16,682,562 | 740,668 | 15,941,894 | 1.00 | * 73,031,886 |
| 2000 | New share issue December | 425,000 | 425,000 | 17,107,562 | 740,668 | 16,366,894 | 1.00 | * 11,505,294 |
| 2004 | New share issue Industrifonden | 100,000 | 100,000 | 17,207 562 | 740,668 | 16,466,894 | 1.00 | 100,000 |
| 2010 | New issue, warrant programme | 63,400 | 63,400 | 17,270,962 | 740,668 | 16,530,294 | 1.00 | 4,862,780 |
*Excluding underwriting costs
66
David Dangoor Born in 1949.
Chairman of the Board. Elected to the Board in 2003. M.B.A. Marketing and PR consultant.
President of Innoventive Partners LLC. Former Vice President and Marketing Director at Philip Morris USA and Philip Morris International.
Other board assignments: Lifetime Brands, Inc., New York, City Ballet Inc., School of Creative Leadership, Berlin University and Swedish-American Chambers of Commerce (SACC NY, Chairman 1997–2001), among others.
Holds 518,918 class B shares and 50,000 class B shares via private company.
Inger Holmström Born in 1948. Elected to the Board in 2007.
M.A. in language and linguistics and a degree in journalism. Communication and Relationships Director in Paf. Former Corporate Communications Director at Coop Norden, Posten and Vattenfall.
Other board assignments: Star Management AB. Holds 500 class B shares.
Jörgen Thorball Born in 1962. Elected to the Board in 2008. Physician. Managing Partner in XOventure GmbH. Former international senior positions for example at Novozymes, BioGaia, Aventis and Pharmacia. Other board assignments: ViroGates A/S, YourGlobalEye Aps and Immudex A/S. Holds 0 shares.
Jan Annwall Born in 1950. Elected to the Board in 1990. M.B.A. Former Executive Vice President and CFO of BioGaia AB. Founder and principal shareholder in BioGaia AB. Holds 370,334 class A shares and 629,666 class B shares via Annwall & Rothschild Investment AB.
Elected to the Board in 1996. M.B.A. Managing Director and partner in Centrecourt AB. Other board assignments: Centrecourt AB and Briggen Tre Kronor AB, among others. Holds 57 class B shares.
Paula Zeilon Born in 1962. Elected to the Board in 2003. M.Sc.Eng. Partner in Conlega affärskonsultbolag. President of Life Science Foresight Institute. Former Marketing Director of Amersham Biosciences AB. Other board assignments: Hansa Medical AB. Holds 0 shares.
Born in 1941. Elected to the Board in 2001. Former Marketing Director and Executive Vice President of ICA Handlarnas AB. Other board assign-
ments: Arcus AS and Cervera AB. Holds 0 shares.
Peter Rothschild Born in 1950. M.B.A. President, founder and principal shareholder. Board assignments in Looft Industries AB and Moberg Derma AB. Holds 370,334 class A shares and 629,666 class B shares via Annwall & Rothschild Investment AB and 50,000 class B shares privately.
Jonas Weimer Born in 1971. M.B.A. Vice President Sales and Marketing. Employed by the company since 1998, in current position since 2008. Holds 8,000 class B shares.
Margareta Hagman Born in 1966. M.B.A. Executive Vice President Accounting, Finance and Investor Relations. Employed by the company since 1996, in current position since 2010.
Holds 9,000 class B shares.
Eamonn Connolly Born in 1957. Ph.D. Senior Vice President Research. Employed by the company since 2000, in current position since 2002. Holds 0 shares.
Kristina Silverio Born in 1964. M.Sc.Eng. Vice President Production and Supply. Employed by the company since 2003, in current position since 2005. Holds 0 shares.
Urban Strindlöv Born in 1964. Mechanical Engineer. Executive Vice President Business and Product Development. Employed by the company since 2004, in current position since 2010. Holds 0 shares.
Björn Lindman Born in 1946. Ph.D. Senior Vice President Quality Assurance and Regulatory Affairs. Employed by the company since 1999, in current position since 2002. Holds 0 shares.
Bo Möllstam Born in 1952. M.B.A. Director of Intellectual Property. Employed by the company since 1990, on a consulting basis since 2003. Holds 70,000 class B shares.
The annual report will be distributed to all shareholders. The year-end report, annual report and quarterly reports are also available in English. All financial information is published on www.biogaia.com and can be ordered from BioGaia's head office.
Kungsbroplan 3A Box 3242 SE-103 64 Stockholm Tel +46 8 555 293 00 Fax: +46 8 555 293 01 E-post: [email protected] www.biogaia.com
BioGaia AB Stora Södergatan 47 Box 966 SE-220 09 Lund Tel: +46 46 311 900 Fax: +46 46 311 901
6213 - D Angus Drive Raleigh, NC 27 617, USA Tel: +1 919 782 33 12 Fax: +1 919 783 69 40
Peter Rothschild [email protected]
Investor Relations Margareta Hagman [email protected]
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