Quarterly Report • Aug 29, 2022
Quarterly Report
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Significant events · Financial position and performance · Consolidated income statements · Condensed consolidated statements of the financial position (balance sheet) · Condensed consolidated cash flow statements · Selected notes to the consolidated financial statements · Contact · Financial calendar
BRAIN Biotech AG ("BRAIN") is a leading European specialist in industrial biotechnology. As a technology provider and developer of bio-based products and solutions for nutrition, health and the environment, the company supports the biologization of industry and contributes to a more sustainable economy. BRAIN is the parent company of the BRAIN Group. Two pillars form BRAIN Group's business: The BioScience segment includes contract research for renowned industrial partners as well as an incubator for the development of the company's own highly innovative products. In the BioIndustrial segment, the company focuses on specialty business in the production and refinement of enzymes, microorganisms and bioactive natural products and the respective distribution.
The BRAIN Group maintains its own diverse collection of natural resources: the BRAIN Bioarchive comprises microorganisms, genetic material and natural substances. Based on this collection and with a comprehensive technology portfolio, BRAIN addresses technological challenges and develops bio-based products and solutions that are already successfully employed in the industry. The BRAIN Group has its own production facilities in Germany, UK and the US, which together with the associated biotechnological production expertise, complete the value chain within the Group.
Since its IPO in 2016, BRAIN Biotech AG has been listed in the Prime Standard of the Frankfurt Stock Exchange (ISIN DE0005203947 / WKN 520394).
1 October 2021 to 30 June 2022 and for 1 April 2022 to 30 June 2022
Condensed consolidated statements of the financial position (balance sheet) [unaudited] 30 June 2022 10
1 October 2021 to 30 June 2022
1 October 2021 to 30 June 2022
BRAIN has reached a major milestone by successfully performing genome editing in mammalian cell lines using its proprietary CRISPR-Cas genome editing nucleases, BRAIN-Metagenome-Cas (BMC) and BRAIN-Engineered-Cas (BEC). This is expected to pave the way for the potential launch of BRAIN's genome editing technology in very large addressable markets such as livestock breeding, cell lines, pharmacology and therapeutic applications. The company will continue to develop this technology with partners for a variety of end markets and applications.
These BRAIN-developed genome editing nucleases are already being deployed successfully in customer projects in the BioScience area, and are used to optimize highly efficient microbial producer strains that drive biological production in so-called microbial cell factories. Together with partners, these proprietary genome editing nucleases are currently being further developed for applications in agriculture, pharmaceutical cell lines, marine applications and industrial producer strains.
BRAIN Biotech AG has published its first ESG and sustainability report. BRAIN sees the accelerated development towards sustainable business conduct as a clear opportunity for the company's further development. The BRAIN Group companies develop innovative products and services based on enzymes, microorganisms and bioactive natural compounds that help drive the economic transformation towards a sustainable circular economy. In addition to a detailed presentation of the company's sustainability strategy, the sustainability report also contains numerous examples of developments, products and cooperation's from the BRAIN Group that are already helping industrial partners to achieve their own sustainability goals more quickly, or will do so in the future. With breakthrough innovations from its own incubator, the BRAIN Group can also make a significant contribution to sustainability in society. Material ESG issues are of central importance for the business model and also the long-term financial success of BRAIN Biotech. They form an integral part of the company's risk assessment and planning. BRAIN has set itself ambitious targets for sustainable corporate development. In addition to environmental, social and governance issues, the strategy for sustainable value enhancement also includes economic and impact targets.
Professor Dr. Bernhard Hauer had informed the Chairman of the Supervisory Board of BRAIN Biotech AG that, for personal reasons, he wishes to resign from his position as a member of the Supervisory Board of BRAIN Biotech AG. The Supervisory Board has regretfully complied with this request and Prof. Dr. Hauer has resigned from the Board as per his wishes as of May 31, 2022. The search for a successor to Prof. Hauer has been initiated by the Supervisory Board and it is intended to present a suitable candidate to the shareholders for election at the Annual General Meeting for the current fiscal year 2021/22.
The remarks made in the consolidated financial statements for the financial year ending 30 September 2021 about the Group's basis and general conditions continue to be applicable.
In the first nine months of the 2021/22 financial year, BRAIN Group revenues increased by 29.2% year-on-year from € 27.8 million to € 36.0 million. This strong revenue development is characterized both by significant organic growth and by the acquisition of Breatec in February of this year. In the third quarter, sales revenues increased by 29.1% from € 9.8 million in the same period last year to € 12.7 million. Organically, i.e. without taking Breatec into account, turnover increased by 6.2% to € 10.5 million in the third quarter.
The total operating performance (sales revenues, research and development funding, changes in inventories, other income) increased by 24.1% or € 7.2 million from € 30.0 million to € 37.2 million compared to the same period last year. In the third quarter, total operating performance increased by 27.6% to € 13.0 million compared to the same quarter of the previous year.
The aforementioned developments are explained in more detail below.
The "BioScience" segment generated revenue of € 8.5 million in the reporting period and was thus 15.2% higher than in the same period of the previous year. This growth mainly reflected a higher number of contracts signed for Tailor-Made-Solutions projects. A large proportion of the new projects and contracts are based on the use of BRAIN's proprietary genome editing tools. In the third quarter, revenues remained stable year-on-year at € 2.8 million compared to € 2.7 million. Adjusted EBITDA improved from € –4.6 million to € –3.8 million.
Revenue generated by the "BioIndustrial" segment reported growth of 33.9% from € 20.6 million to € 27.5 million in the reporting period. This strong increase in the segment in the nine-month period is partly due to inorganic growth from the acquisition of Breatec in February 2022, but also to strong organic growth in the enzymes business compared to the same period in the previous year. In the third quarter, revenue amounted to € 10.0 million, 39.8% above the previous year's figure. Organically, turnover in the third quarter increased by € 0.6 million from € 7.2 million to € 7.8 million. The adjusted EBITDA increased by 54.9% from € 2.4 million to € 3.7 million. The improved segment EBITDA is not only due to the increased revenue but also to an improved cost of materials ratio. As such, this
strategically important segment makes a significant positive contribution to the improved adjusted consolidated EBITDA.
Adjusted consolidated EBITDA improved significantly from € –2.2 million in the previous year to € –0.2 million in the first nine months of the 2021/22 financial year.
Undiluted (basic) and diluted earnings per share during the first nine months of the financial year amounted to € –0.30 compared with € –0.17 in the prior-year period. Earnings per share deteriorated due to the lower financial result compared to the previous year. On the one hand, the at-equity result was lower driven by the development at SolasCure Ltd. and its planned rising costs for Phase 2 clinical trials. On the other hand, there was a one-time positive effect in the previous year from the revaluation of financial liabilities due to the partial exercise of put option rights by minority shareholders of Biocatalysts Ltd.
The following table shows the reconciliation of unadjusted EBITDA to adjusted EBITDA.
| € thousand | 9M 2021/22 | 9M 2020/21 |
|---|---|---|
| EBITDA | –1,442 | –2,061 |
| Share-based employee compensation | –825 | –511 |
| Acquisition and integration costs incurred in the expansion of the BRAIN Group |
–425 | –170 |
| Gain on bargain purchase | 0 | 858 |
| Adjusted EBITDA | –192 | –2,238 |
Non-current assets increased from € 38.6 million as at 30 September 2021 to € 46.5 million as at 30 June 2022. This was due, firstly, to the acquisition of Breatec and the intangible assets thereby determined as part of the acquisition-related preliminary purchase price allocation. Secondly, property, plant and equipment increased due to the further investments in fermentation capacities at the Cardiff site. In addition, a share capital contribution of € 1.2 million was rendered in cash as part of a further Series B capitalization at SolasCure Ltd., which is equity accounted. Current assets decreased from € 39.1 million to € 31.5 million. This decrease is mainly due to the decrease in cash and cash equivalents.
Equity decreased from € 41.8 million as at 30 September 2021 to € 32.7 million as at 30 June 2022. This is mainly due to the reduction in capital reserves in connection with the recognition of a potential obligation (liability) from put option rights of non-controlling interest in Breatec and the negative result for the period. No capital measures were implemented during the reporting period.
Non-current liabilities increased from € 24.6 million to € 28.2 million. On the one hand, this increase is due to higher long-term financial liabilities for the put option liabilities for the acquisition of minority interests in Breatec. On the other hand, the put option liabilities for the acquisition of minority interests in Biocatalysts were reclassified from non-current to current financial liabilities due to the time elapse. Current liabilities increased accordingly from € 11.3 million to € 17.0 million.
The Group's gross cash flow amounts to € –3.7 million compared to € –4.1 million in the same period of the previous year.
Cash flow from operating activities improved strongly from € –3.0 million to € –1.0 million compared to the same period of the previous year. This positive development is mainly due to the improved EBITDA as well as an improvement in the operating working capital.
Cash flow from investing activities amounted to € –8.7 million in the first nine months of the current financial year compared to € –2.0 million in the previous year and mainly reflects the acquisition of Breatec (€ 3.1 million), a participation in a capital increase of SolasCure Ltd. (€ 1.2 million) and the investment in the expanded production capacity at the Cardiff, UK site (€ 3.7 million).
The cash flow from financing activities reflects the repayment of financial liabilities in the reporting period and amounted to € –1.6 million compared to € –6.8 million in the previous year.
Compared to 30 September 2021, cash and cash equivalents decreased from € 24.5 million to € 13.3 million, which is attributable to the aforementioned effects.
[UNAUDITED] 1 October 2021 to 30 June 2022 and 1 April 2022 to 30 June 2022
| € thousand | 9M 2021/22 | 9M 2020/21 | Q3 2021/22 | Q3 2020/21 |
|---|---|---|---|---|
| Revenue | 35,974 | 27,845 | 12,707 | 9,844 |
| Research and development grant revenue | 655 | 472 | 296 | 107 |
| Change in inventories of finished goods and work in progress |
–120 | 170 | –227 | 23 |
| Other income1 | 678 | 1,479 | 199 | 192 |
| 37,188 | 29,966 | 12,975 | 10,167 | |
| Cost of materials | ||||
| Costs of raw materials and supplies, and purchased merchandise |
–15,007 | –11,341 | –5,578 | –3,739 |
| Cost of purchased services | –952 | –1,089 | –269 | –288 |
| –15,959 | –12,430 | –5,847 | –4,026 | |
| Personnel expenses | ||||
| Wages and salaries | –12,830 | –11,859 | –4,577 | –4,085 |
| Share-based employee compensation | –825 | –511 | –297 | –210 |
| Social security and post-employment benefit costs | –2,441 | –2,257 | –863 | –764 |
| –16,096 | –14,627 | –5,737 | –5,059 | |
| Other expenses | –6,575 | –4,969 | –2,108 | –1,576 |
| EBITDA | –1,442 | –2,061 | –717 | –495 |
| Depreciation and amortization and impairment | –3,198 | –2,947 | –1,140 | –1,061 |
| Operating result (EBIT) | –4,640 | –5,008 | –1,857 | –1,556 |
| Share of profit or loss from equity-accounted | –1,781 | –567 | –564 | –206 |
| investments | ||||
| Finance income | 625 | 3,091 | –30 | –1 |
| Finance costs | –538 | –425 | –248 | –135 |
| –1,695 | 2,099 | –841 | –342 | |
| Pretax loss for the reporting period | –6,335 | –2,909 | –2,699 | –1,899 |
| Income tax expense / income | ||||
| a) Current tax expense (-) / income (+) | –131 | –257 | 138 | –91 |
| b) Defered tax expense (-) / income (+) | 261 | 224 | 104 | 88 |
| 130 | –33 | 242 | –3 | |
| Net loss for the reporting period | –6,205 | –2,942 | –2,456 | –1,902 |
| of which attributable to: | ||||
| Non-controlling interests | 367 | 375 | 160 | 129 |
| Shareholders of BRAIN Biotech AG | –6,571 | –3,317 | –2,616 | –2,031 |
| Earnings per share, basic (undiluted) | –0.30 | –0.17 | –0.12 | –0.10 |
| Number of shares taken as basis | 21,847,495 | 19,861,360 | 21,847,495 | 19,861,360 |
| Earnings per share, diluted | –0.30 | –0.17 | –0.12 | –0.10 |
| Number of shares taken as basis | 21,847,495 | 19,861,360 | 21,847,495 | 19,861,360 |
1 Other income in 9M 2020/21 includes € 858k Gain on bargain purchase.
30 June 2022
| € thousand | 30.06.2022 | 30.09.2021 |
|---|---|---|
| Non-current assets | 46,450 | 38,623 |
| Current assets | 31,453 | 39,114 |
| ASSETS | 77,903 | 77,737 |
| Equity | 32,681 | 41,828 |
| Non-current liabilities | 28,202 | 24,575 |
| Current liabilities | 17,020 | 11,335 |
| EQUITY AND LIABILITIES | 77,903 | 77,737 |
| € thousand | 9M 2021/22 | 9M 2020/21 |
|---|---|---|
| Gross cash flow | –3,695 | –4,061 |
| Cash flow from operating activities | –1,032 | –3,000 |
| Cash flow from investing activities | –8,653 | –1,999 |
| Cash flow from financing activities | –1,584 | –6,826 |
| Net change in cash and cash equivalents | –11,269 | –11,824 |
| Cash and cash equivalents at start of reporting period | 24,545 | 18,943 |
| Cash and cash equivalents at end of reporting period 2 | 13,309 | 7,249 |
2 A € +34 thousand change in the cash position arose as at 30 June 2022, reflecting changes in currency exchange rates.
The accounting policies on which the consolidated financial statements as at 30 September 2021 were based were also applied for the first nine months of 2021/22.
On 1 February 2022, BRAIN Biotech AG acquired a 62% interest in Weriol Group B.V., based in Nieuwkuijk, Netherlands. This acquisition also included Breatec B.V. and Panei B.V. (including Comix activities), both also located in Nieuwkuijk, Netherlands, as wholly owned subsidiaries of Weriol Group B.V. (hereinafter collectively referred to as "Breatec").
Breatec is an established distributor, formulator and blender of functional food ingredients for the baking and milling industries. This acquisition will further accelerate the growth of BRAIN's BioIndustrial business area and expand the enzyme portfolio to include adjacent market segments.
The acquisition price for the acquired 62% interest in Breatec amounted to € 4,170 thousand. The purchase price includes an immediate cash outflow of € 3,494 thousand, an earn-out agreement of € 476 thousand subject to performance conditions for the 2022 calendar year, and a payment of € 200 thousand due in 12 months with no further conditions.
The acquisition generated € 1,526 thousand of partial goodwill on the acquisition date which is attributable to BRAIN Biotech AG shareholders on the basis of the interest held. The hidden reserves disclosed under other intangible assets (excluding goodwill) relate mainly to disclosed customer relationships and brand names.
The preliminary fair values of the identifiable assets and liabilities of Breatec as at the date of acquisition were:
| € thousand | Fair value recognized on acquisition |
|---|---|
| Assets | |
| Intangible assets (Customer relationships and trademarks) | 3,502 |
| Property, plant and equipment | 175 |
| Right-of-use assets | 946 |
| Inventories | 904 |
| Trade receivables | 1,396 |
| Other current assets | 64 |
| Cash & cash equivalents | 398 |
| Total assets | 7,385 |
| Liabilities | |
|---|---|
| Trade payables | –664 |
| Long term liabilities (interest bearing) | –1,202 |
| Short term liabilities (interest bearing) | –352 |
| Deferred tax liabilities | –902 |
| Total liabilities | –3,120 |
| Total identifiable net assets at fair value | 4,265 |
| Fair value of non-controlling interests (38%) | –1,621 |
| Goodwill | 1,526 |
| Purchase consideration transferred | 4,170 |
| € thousand | Cash flow on acquisition |
|---|---|
| Cash & cash equivalents acquired with the subsidiary | 398 |
| Cash paid | –3,494 |
| Net cash flow on acquisition | –3,096 |
As at the acquisition date, the fair value of the trade receivables essentially corresponds to the gross amounts of the contractual receivables.
The acquired lease liabilities were measured at the present value of the remaining lease payments on the acquisition date. The rights-of-use were measured at the same amount as the lease liabilities.
Deferred tax liabilities comprise the effects of temporary differences between the fair values of the assets and liabilities identified as part of purchase price allocation, and their carrying amounts on the tax balance sheet.
Goodwill derives primarily from the synergies arising at Group level. The BRAIN Group possesses extensive product expertise and market access in the enzymes area. It is expected that the acquisition of Breatec's activities will enable the Group to realize both extended cost synergies and revenue synergies. Breatec was allocated to the "BioIndustrial" segment.
The entire goodwill is not tax deductible.
The condensed interim financial statements include the results of Breatec for the fivemonth period from the acquisition date. Since the acquisition date, Breatec has contributed € 3.4 million to the BRAIN Group's revenue and € +0.1 million to the net result for the reporting period. If the acquisition had taken place at the beginning of the financial year, BRAIN Group's revenue would have amounted to € 38.7 million, and the net result for the reporting period would have amounted to € –6.2 million.
Transaction costs of € 0.4 million were expensed and are included in other expenses in the consolidated income statement. They also form part of cash flow from operating activities in the consolidated statement of cash flows.
The non-controlling interests were as follows as at the acquisition date:
| € thousand | Interest in % | Interest in book equity |
Share of revalued equity |
|---|---|---|---|
| Non-controlling interests | 38.00 | 635 | 1,621 |
Put/call option agreements were also arranged between the remaining non-controlling interests and BRAIN Biotech AG, which enable BRAIN Biotech AG to acquire the remaining non-controlling interests at a contractually agreed EBITDA multiple during three exercise periods between 1 January 2025 and 31 March 2027. The put option gives the non-controlling interests the right to tender shares to the BRAIN Group at a contractually agreed EBITDA multiple in three exercise periods between 1 January 2025 and 31 March 2027.
The financial liability is recognized so as to reflect the highest probable liability, as the actual exercise dates are uncertain. The present value of the resultant contingent acquisition consideration amounted to € 5,199 thousand as at 1 February 2022. The capital reserves were reduced by € 5,199 thousand accordingly. The liability is subsequently remeasured with recognition in profit or loss.
In the segment reporting Breatec has been added to the Segment BioIndustrial. Compared with the consolidated financial statements as at 30 September 2021, no other changes have occurred in relation to the segment reporting. The segment results3 are presented in the following overview.
| BioScience | BioIndustrial | Consolidation 9M 2021/22 | ||||
|---|---|---|---|---|---|---|
| € thousand | 9M 2021/22 | 9M 2020/21 | 9M 2021/22 | 9M 2020/21 | Reconciliation | Group |
| Revenue | 8,543 | 7,416 | 27,530 | 20,566 | –98 | 35,974 |
| Adjusted EBITDA | –3,848 | –4,602 | 3,686 | 2,379 | –29 | –192 |
| Average for the reporting period | 9M 2021/22 | FY 2020/21 |
|---|---|---|
| Total employees, of which | 306 | 288 |
| Salaried employees | 282 | 264 |
| Industrial employees | 24 | 25 |
3 After partial elimination within the segment 4 Excluding the members of the parent company's Management Board and the subsidiaries' managing directors
Furthermore, BRAIN employs scholarship/grant holders (1, FY 2020/21: 3), temporary employees (11, FY 2020/21: 12) and trainees (5, FY 2020/21: 8).
BRAIN has been able to largely contain any adverse effects from the coronavirus pandemic. However, potential future travel restrictions and renewed social distancing rules may continue to make it difficult for BRAIN to visit clients in order to acquire new projects in the course of the financial year. This can lead to delays in customer acquisition and the signing of new contracts. The associated company SolasCure Ltd. was affected by the pandemic insofar as clinic closures led to delays in clinical trials. The tense supply chain situation has already had a dampening effect on even more dynamic growth in the BioIndustrial segment.
A sufficient and uninterrupted energy supply is essential for the BRAIN Group and forms the basis of our full-year forecast. No significant changes are identifiable concerning the business outlook compared with the outlook report presented in the 2020/21 annual report (page 97). Despite the ongoing coronavirus pandemic, the supply chain situation and price inflation, BRAIN is confident that it will be able to achieve the targets it has set for this financial year.
Zwingenberg, 29 August 2022
The Management Board
Adriaan Moelker Lukas Linnig
The following contact person is available to respond to your queries:
Head of Investor Relations & Sustainability Michael Schneiders Phone: +49 (0) 6251 / 9331-86 Email: [email protected]
16.01.2023
Publication of the annual report as at 30.09.2022 (12M)
Publication of the quarterly statement as at 31.12.2022 (3M) 27.02.2023
Annual General Meeting 08.03.2023
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 Biotech 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: 29 August 2022
Published by:
BRAIN Biotech AG Darmstädter Straße 34 –36 64673 Zwingenberg · Germany
| phone | +49 (0) 62 51 / 9331-0 |
|---|---|
| fax | +49 (0) 62 51 / 9331-11 |
| [email protected] | |
| web | www.brain-biotech.com |
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