Quarterly Report • Aug 31, 2018
Quarterly Report
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Significant events · Financial position and performance · Consolidated income statement · Condensed presentation of the Group financial position (consolidated balance sheet) · Condensed consolidated cash flow statement · Selected information about the Group · Events after the end of the quarter · Contact · Financial calendar
BRAIN AG ranks among the technologically leading companies in Europe in the bioeconomy area, and operates in industrial – so-called "white" – biotechnology with its key technologies. BRAIN identifies previously untapped high-performing enzymes, microbial producer organisms and natural materials derived from complex biological systems to transform them into industrially usable applications. Innovative solutions and products developed from this "Toolbox of Nature" are successfully deployed in the chemicals sector, as well as in the cosmetics and food manufacturing industries.
The business model of BRAIN stands on two pillars: "BioScience" and "BioIndustrial". The "BioScience" pillar includes the company's collaboration business with industrial partners, usually arranged on an exclusive basis. The second pillar, "BioIndustrial", comprises the development and marketing of the company's own products and product components through direct access to markets and licensing partnerships.
As part of its growth-oriented industrialisation strategy, B.R.A.I.N. Biotechnology Research and Information Network AG (BRAIN AG; ISIN DE0005203947 / WKN 520394) has been the first bioeconomy company to be listed in the Prime Standard of the Frankfurt Stock Exchange since February 2016.
Condensed Consolidated cash flow statement [unaudited] 1 October 2017 to 30 June 2018
1 October 2017 to 30 June 2018
1 April 2018 to 30 June 2018
On 20 June 2018, BRAIN AG announced with CyPlus GmbH that it had developed initial market-relevant product offerings for the global mining industry as part of a multi-year partnership in the area of biological ore processing in gold and silver extraction. The process is currently being advanced toward industrial application.
Since 17 March 2018, Biocatalysts Limited (referred to below as "Biocatalysts Ltd"), which is based in Cardiff, UK, along with its US subsidiary Biocatalysts Inc, based in Dover, Delaware, USA, (both companies referred to together as the "Biocatalysts Group", or just "Biocatalysts"), was included in the Group. A detailed description of the company, the transaction and the ownership structure is presented in the Selected information about the Group in this quarterly statement. The Biocatalysts Group is consolidated within the Bio-Industrial segment.
With the acquisition of Biocatalysts, the Management Board of the BRAIN Group has decided to modify its key financial management indicators. In the company's view, total operating performance continues to best reflect the Group's overall profitability. Significant identifiable intangible assets, such as technologies and customer relationships, were disclosed as part of the preliminary purchase price allocation for the Biocatalysts acquisition. In the company's view, the resultant amortisation of acquired assets can lead to a distortion of the meaningfulness of the previous key financial indicator of "adjusted EBIT". Given this, the Management Board of BRAIN AG has decided to replace the existing key financial indicator of "adjusted EBIT" by "adjusted EBITDA" (adjusted earnings before interest, tax, depreciation and amortisation) as of the end of the financial year. The applicable adjustments remain unchanged in this context. For this reason, the income statement and the segment disclosures in these interim financial statements include both figures.
The other remarks made in the 2016/17 consolidated financial statements about the Group's basis and overall conditions continue to be applicable.
During the first nine months of the 2017/18 financial year, the total operating performance (revenue, research and development grant revenue, changes in inventories, and other income) of the BRAIN Group grew by € 1.0 million, or 5.0%, to € 20.5 million. Revenue reported a slight year-on-year increase of 1.3% to € 18.1 million. In the third quarter, total operating performance rose by 30.9% year-on-year to reach € 8.2 million.
The BioScience segment recorded € 8.1 million of total operating performance in the reporting period, representing a 17.6 % year-on-year increase. This reduction is mainly attributable to delays in arranging both new and follow-up projects. Adjusted EBITDA decreased from € –3.6 million to € –4.4 million. The weaker adjusted EBITDA is chiefly due to higher personnel and cost of materials ratios in the BioScience segment, reflecting the
slower revenue growth. The adjusted operating result (adjusted EBIT) of the BioScience segment decreased from EUR –4.3 million to EUR –5.2 million accordingly.
The total operating performance of the BioIndustrial segment grew by 27.7% in the period under review and by 73.5% during the third quarter. Revenue was up by 22.7% to reach € 12.3 million. Growth in the BioIndustrial segment is mainly attributable to the acquisition of Biocatalysts in March 2018. Adjusted EBITDA decreased from € 0.4 million to € 0.2 million. This trend reflects the change in total operating performance as described below. The cosmetics area reported a weak performance especially in the first six months of the financial year under review, but resumed year-on-year growth in the third quarter. Along with the overall growth in the enzymes area, a weaker trend was recorded in some submarkets (mainly bioethanol), in line with demand.
Due to the higher amortisation of hidden reserves from the Biocatalysts acquisition of € 0.2 million (as explained above), the adjusted operating result (adjusted EBIT) in the BioIndustrial segment was € 0.5 million lower than in the previous year at € 0.0 million.
Consequently, the Group's adjusted EBITDA decreased year-on-year from EUR –3.3 million to EUR –4.1 million.
The following tables present the reconciliation of the adjusted operating result (EBIT) and adjusted EBITDA to the respective unadjusted figures.
| € thousand | 9M 2017/18 | 9M 2016/17 |
|---|---|---|
| EBITDA | –5,193 | –6,205 |
| Personnel expenses from the employee share scheme at AnalytiCon Discovery GmbH |
–155 | –566 |
| Personnel expenses from the Post IPO Framework Agreement for key individuals at BRAIN AG (one-off effect) |
0 | –2,352 |
| Acquisition and integration costs incurred in the expansion of the BRAIN Group |
–893 | 0 |
| Adjusted EBITDA | –4,144 | –3,287 |
| € thousand | 9M 2017/18 | 9M 2016/17 |
|---|---|---|
| Operating result (EBIT) | –6,778 | –7,345 |
| Personnel expenses from the employee share scheme at AnalytiCon Discovery GmbH |
–155 | –566 |
| Personnel expenses from the Post IPO Framework Agreement for key individuals at BRAIN AG (one-off effect) |
0 | –2,352 |
| Acquisition and integration costs incurred in the expansion of the BRAIN Group |
–893 | 0 |
| Adjusted operating result (adjusted EBIT) | –5,729 | –4,428 |
Non-current assets increased from € 14.9 million as of 30 September 2017 to € 32.1 million as of 30 June 2018, with the rise being mainly attributable to the Biocatalysts acquisition, as this especially led to higher levels of intangible assets and of property, plant and equipment. The increase in intangible assets is mainly due to the goodwill that has arisen and the hidden reserves disclosed as part of the purchase price allocation. The rise in property, plant and equipment chiefly reflects the newly consolidated property, plant and equipment of Biocatalysts. Current assets reduced from EUR 53.6 million to EUR 46.8 million. This decrease mainly relates to liquid funds, which include other current financial assets. This reduction is attributable not only to the acquisition of Biocatalysts and the related payment of the purchase price but also the negative result for the period.
Equity decreased from € 47.4 million as of 30 September 2017 to € 32.7 million as of 30 June 2018. This reduction of € 14.7 million principally reflects the decrease in the capital reserves in connection with the recognition of a potential obligation (liability) from put options relating to non-controlling interests in the Biocatalysts Group. Moreover, a lesser proportion of the reduction is attributable to the result for the period.
Non-current liabilities rose from € 12.7 million to € 34.4 million, which arises predominantly from the aforementioned potential obligations for the put options for the acquisition of non-controlling interests in the Biocatalysts Group (liability) as well as the actual financial liabilities of the Biocatalysts Group. Furthermore, the silent partnership of € 3.0 million, upon which the AGM voted on 8 March 2018, was disbursed in the third quarter.
Due to the acquisition and first-time consolidation of the Biocatalysts Group, current financial liabilities increased, which partly accounted for the rise in current liabilities from € 8.4 million to € 11.8 million.
The Group's gross cash flow reduced to € –6.7 million, compared with the previous year's € –4.9 million. Besides the general business trend in the period under review, this decrease also reflects the incidental cash costs for the acquisition of Biocatalysts. Cash flow from operating activities reduced from € –4.2 million to € –6.2 million due to the lower level of gross cash flow.
Cash flow from investing activities during the first nine months of the current financial year is mainly determined by the acquisition of the Biocatalysts Group and the related purchase
price (less cash acquired), leading to cash flow from investing activities of € –11.6 million (compared with € 4.1 million). In the previous year, investments and disposals of financial assets relate to current fixed term deposits arranged on a revolving basis to avoid negative interest, and held at banks connected to the deposit insurance scheme. Apart from these changes as well as the acquisition of Biocatalysts, cash flow from actual investment activities reported a slight increase from € 0.9 million to € 1.2 million.
Cash flow from financing activities mainly reflects the debt financing facilities of BRAIN AG (see also the "Net assets" section above). Accordingly, cash flow from financing activities amounted to € 4.9 million, compared with € 0.0 million in the previous year.
Liquid funds, including current financial assets, reduced from € 39.0 million as of 30 September 2017 to € 26.0 million, which is attributable to the aforementioned effects, especially the acquisition of Biocatalysts.
[UNAUDITED] 1 October 2017 to 30 June 2018 and 1 April 2018 to 30 June 2018
| € thousand | 9M 2017/18 | 9M 2016/17 | Q3 2017/18 | Q3 2016/17 |
|---|---|---|---|---|
| Revenue | 18,143 | 17,910 | 7,437 | 5,790 |
| Research and development grant revenue | 1,479 | 1,618 | 523 | 505 |
| Change in inventories of finished goods and work in progress |
83 | –653 | 45 | –204 |
| Other income | 844 | 699 | 216 | 191 |
| 20,548 | 19,573 | 8,221 | 6,282 | |
| Cost of materials | ||||
| Costs of raw materials and supplies, and purchased merchandise |
–7,668 | –6,072 | –3,397 | –2,215 |
| Cost of purchased services | –1,754 | –1,757 | –476 | –616 |
| –9,422 | –7,829 | –3,873 | –2,831 | |
| Personnel expenses | ||||
| Wages and salaries | –8,738 | –8,511 | –3,294 | –2,582 |
| Share-based compensation | –10 | –2,352 | –10 | –90 |
| Social security and post-employment benefit costs | –1,767 | –1,624 | –678 | –517 |
| –10,516 | –12,487 | –3,982 | –3,189 | |
| Other expenses | –5,803 | –5,462 | –1,840 | –1,589 |
| EBITDA | –5,193 | –6,205 | –1,474 | –1,327 |
| Depreciation and amortisation | –1,585 | –1,140 | –769 | –384 |
| Operating result (EBIT) | –6,778 | –7,345 | –2,243 | –1,711 |
| Finance income | 28 | 151 | –2 | –11 |
| Finance costs | –328 | –269 | –114 | –87 |
| –300 | –118 | –116 | –98 | |
| Pretax loss for the reporting period | –7,078 | –7,463 | –2,358 | –1,809 |
| Income tax expense / income | ||||
| a) Current tax expense | –40 | –220 | 3 | 52 |
| b) Deferred tax income | 238 | 91 | 150 | 56 |
| 198 | –130 | 153 | 107 | |
| Net loss for the reporting period | –6,880 | –7,593 | –2,206 | –1,701 |
| of which attributable to: | ||||
| Non-controlling interests | –77 | –65 | –70 | –44 |
| Shareholders of BRAIN AG | –6,803 | –7,528 | –2,136 | –1,657 |
| Earnings per share, basic (undiluted) | –0.38 | –0.46 | –0.12 | –0.10 |
| Number of shares taken as basis | 18,055,782 | 16,414,348 | 18,055,782 | 16,414,348 |
| Earnings per share, diluted | –0.38 | –0.46 | –0.12 | –0.10 |
| Number of shares taken as basis | 18,055,782 | 16,414,348 | 18,055,782 | 16,414,348 |
[UNAUDITED] 30 June 2018
| € thousand | 30.06.2018 | 30.09.2017 |
|---|---|---|
| Non-current assets | 32,065 | 14,947 |
| Current assets | 46,772 | 53,557 |
| ASSETS | 78,837 | 68,504 |
| Equity | 32,685 | 47,362 |
| Non-current liabilities | 34,353 | 12,717 |
| Current liabilities | 11,798 | 8,425 |
| EQUITY AND LIABILITIES | 78,837 | 68,504 |
| € thousand | 9M 2017/18 | 9M 2016/17 |
|---|---|---|
| Gross cash flow | –6,688 | –4,916 |
| Cash flow from operating activities | –6,207 | –4,199 |
| Cash flow from investing activities | –11,636 | 4,125 |
| Cash flow from financing activities | 4,901 | –45 |
| Net change in cash and cash equivalents | –12,943 | –119 |
| Cash and cash equivalents at start of reporting period | 38,954 | 8,261 |
| Cash and cash equivalents at end of reporting period 1 | 25,992 | 8,140 |
1 A € 19 thousand change in the cash position arose as of 30 June 2018, reflecting changes in currency exchange rates.
The accounting policies on which the consolidated financial statements as of 30 September 2017 were based were also applied for the first nine months of 2017/18.
On 17 March 2018, the BRAIN Group concluded a purchase agreement concerning the acquisition of a majority interest in the company Biocatalysts Ltd, based in Cardiff, UK. This acquisition also included the acquisition of Biocatalysts Inc, Dover, USA, as a wholly-owned subsidiary of Biocatalysts Ltd (hereinafter referred to together as "Biocatalysts"). Biocatalysts is one of the leading European companies in special enzymes. Thanks to its strategic orientation, Biocatalysts meets wide-ranging customer requirements in the enzymatic area – either through standardised, customised or novel enzyme products. The company focuses on the application-specific development and production of novel enzymes with the objective of significantly proving application processes in established industries as well as tapping new deployment spectrums for enzymes in many different types of sectors. The development of enzyme products, which is driven by the company's application expertise, is partly supported by its proprietary MetXtra metagenome library, which enables access to more than 300 million unique sequences. Biocatalysts works in strategic partnerships with many globally positioned companies.
Moreover, on 6 February 2018, BRAIN AG formed a wholly owned US subsidiary BRAIN US LLC, based in Rockville, MD, to expand business development activities in the USA.
Both expansions to the Group are expected to exert positive effects on the course of business in both this and coming financial years.
In the segment reporting, the companies of the Biocatalysts Group have been included in the BioIndustrial segment. The company BRAIN US LLC was included in the BioScience segment. Apart from this, no changes have occurred compared with the consolidated financial statements as of 30 September 2017. The following overview presents the segment results. 2
| BioScience | BioIndustrial | Consolidation 9M 2017/18 | ||||
|---|---|---|---|---|---|---|
| € thousand | 9M 2017/18 | 9M 2016/17 | 9M 2017/18 | 9M 2016/17 | Überleitung | Konzern |
| Total operating performance | 8,139 | 9,880 | 12,450 | 9,751 | –40 | 20,548 |
| Adjusted EBITDA | –4,356 | –3,599 | 211 | 424 | 1 | –4,144 |
| Adjusted EBIT | –5,192 | –4,340 | –539 | 24 | 1 | –5,729 |
2 After partial elimination within the segment
| Average for the reporting period 3 | 9M 2017/18 | FY 2016/17 |
|---|---|---|
| Total employees, of which | 236 | 212 |
| Salaried employees | 221 | 199 |
| Industrial employees | 15 | 13 |
Furthermore, BRAIN employs scholarship/grant holders (6, FY 16/17: 8), temporary employees (10, FY 16/17: 13) and trainees (5, FY 16/17: 6).
3 Excluding the members of the parent company's Management Board (2) and the subsidiaries' managing directors
On 22 August 2018, BRAIN AG announced its investment in the founding of SolasCure Ltd. SolasCure Ltd, which is based in Cardiff, Wales (UK), will be responsible for the development, CE certification and marketing of medical products based on Aurase®, a new enzymatic active ingredient developed by BRAIN for the biological cleaning of chronic wounds. Investors including BRAIN AG have invested in SolasCure in a successful Series A financing round.
BRAIN AG, AnalytiCon Discovery GmbH and Roquette – together the DOLCE core team – announce on August 30, 2018, that a CPGC member (Consumer Product Goods Company) of the DOLCE partnership for natural-based sweetening solutions has left the programme for company-internal strategic reasons. Additionally, the business model was reshaped to enable new non-exclusive members an easier access to the programme.
Zwingenberg, 31 August 2018
The Management Board
Dr Jürgen Eck Frank Goebel
The following contact person is available to respond to your queries:
Corporate Development & Investor Relations Dr Martin Langer Tel: +49-6251-9331-16
| 31.08.2018 | Publication of the quarterly statement for the period ending 30.06.2018 (9M) |
|---|---|
| 10.01. 2019 |
Publication of the annual report as of 30.09.2018 (12M) |
| 28.02.2019 | Publication of the quarterly statement as of 31.12.2018 (3M) |
| 07.03.2019 | AGM, Zwingenberg |
This interim report might contain certain forward-looking statements that are based on current assumptions and forecasts made by the management of the BRAIN Group and other currently available information. Various known and unknown risks and uncertainties as well as other factors can cause the company's actual results, financial position, development or performance to diverge significantly from the estimates provided here. BRAIN AG does not intend and assumes no obligation of any kind to update such forward-looking statements and adapt them to future events or developments. The interim report can include information that does not form part of accounting regulations. Such information is to be regarded as a supplement to, but not a substitute for, information prepared according to IFRS. Due to rounding, it is possible that some figures in this and other documents do not add up precisely to the stated sum, and that stated percentages do not reflect the absolute figures to which they relate. This document is a translation of a document originally prepared in German. Where differences occur, precedence is given to the original German version.
Publication date: 31.08.2018
Published by:
Biotechnology Research and Information Network AG Darmstädter Straße 34–36 64673 Zwingenberg · Germany
phone +49 (0) 62 51 / 9331-0 fax +49 (0) 62 51 / 9331-11 e-mail [email protected] web www.brain-biotech.de
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