BRAIN Biotech AG

XETRA:BNN

Earnings Call Transcript 2023-Q2

[Michael Schneiders, executive]

Hello. My name is Michael Schneiders. I'm the CFO of BRAIN Biotech AG. We are located in Germany, just between Frankfurt and Sternberg. And I'm very happy to present our 6M numbers to you today.

Let me quickly start the call, actually BRAIN is all about and what we do. Well, BRAIN actually is quite an established company. We are now 30 years old, actually having our 30th anniversary now this year in July, 330 employees, and we are a company, I would say has actually quite strong track record of about 535 Specialty B2B products on the market and more than 150 successful partnerships already out in the market.

And I think what distinguishes us from the other biotech companies are, we are not the one product company, which is going to make us fail but we actually have a lot of industrial partnerships. There are a lot of products already out on the market, and we have a very viable product business which are trying to grow aggressively in the next couple of years. Our specialty is essentially Industrial Biotech, the White Biotech, everything that has to do with the environment, which has the food [indiscernible], do with health care. We also have some pharma offspring and I'm going to touch upon it later on. Our focus is on enzymes, on microorganisms, and bioactive natural compound. And we actually have the capability to do everything from labs to production.

Let me now explain a bit more on what we do. Many of the companies you see out there are actually trying to find their position in the ESG world, in the sustainability world. All what we do is all about sustainability, doing retainable processes for the industry, decarbonizing the world, actually getting from a chemical production into biological production. To start, what we call Discovery. So we actually look out in nature, what is out there, what we could actually use for industrial processes. When we look how to enable it for manufacturing [indiscernible] factory, for example, bioprocess development, where we get into production when the deal is signed. Now we have companies within the group who can then distribute the final product to the customer. And these products are mainly focused around enzymes and these enzymes go preliminary in the food and beverage industry. They go into the health care industry and they go also environmental applications. Also very important for us is what we call the G-dase E and G-dase M, where you see gray box down there, that is essentially our old genome engineering tool. And many things we do is basically reprogram self to produce something. And to reprogram, we sell tools. And these tools are very helpful, modern tool, CRISPR-Cas 9 Tool. And here we have developed our own tools that -- which gives us freedom to operate with our own license business basically to satisfy our customer demand. Showing a little bit different start, so we actually can get a bit more idea of what this is all about it. We go out and discover a new enzyme in the nature. Once you have discovered the enzyme, you need to produce it. And you produce it, we call a microbial strain, which is basically yeast or bacteria. It might even be something like the dark stuff you find sometimes in your shelf or the silicon. That is something we can use to actually produce other things on which we call Expression technology restrained by the microbial strains we use, for example, bacteria or fungi. We then use to do a Bio process and that Bio process has been actually industrial scale, i.e., in the field tank, produces the final products. We have some cleaning steps and get the clean enzyme use, for example, to modulate taste in food and beverages, to change colors in there, to give you to deep bitter, for example, and to give you all natural ingredients in your food.

Let me run you now to some numbers. 6M was, I think, quite a strong reading for us. We actually have implemented the new organizational structure. I'm going to share with you in a moment. And the whole idea of that organizational structure was essentially to bring align our internal management model with the external reporting model that gives you improved transparency on our business. We have now corporate on top and 3 operating segments that I'm going to touch about in a moment.

We have a very important daughter company Biocatalysts Limited, located in Cardiff, Wales. And here, we actually have all our production facilities concentrated on the fermentation side. We have not been able to buyout [indiscernible] minorities with 100% owned and will basically build the centerpiece of our industrial surge going forward. Akribion Genomics. That's G-dase E, G-dase M, genome engineering tool. We're actually preparing Cas9 at the moment to extract external capital and grow the company aggressively, particularly also in the oncology space. And we have 2 pharma projects, SolasCure Wound Debridement and PHA121 with -- for a disease called HAE, which is on Phase 2a, well advancing according to plan. And we expect SolasCure actually to make their market imprint and we try to sell that asset on the market.

And for PHA121, we can expect a larger milestone payment at the end of the year if and when the program enters Phase 3a of clinical trial. Overall, very solid top line growth in H1. Cash positions grew at comfortable EUR 9.2 million. And I can confirm our full fiscal year and our midterm targets remain unchanged.

This is the new corporate structure, a very clean structure, a holding on top of 1.6 million costs in the first half year. On the left-hand side, the BioProducts business, very strong business, about EUR 21 million of revenues, about 10% of margin, growing very nicely with double-digit range. And the Biocatalysts, based in the big logo, which they will down to minorities, will be the center piece of our future factory.

In the middle, BioScience, which where we do custom research, that's we do with innovative solutions, bioprocess, [indiscernible] new proteins with our customers together, EUR 6.1 million of revenue, EBITDA margin around 0 at the moment with an improvement we expect for the second half of the year. And we have 2 operating entities in here, BRAIN Zwingenberg headquartered and located [indiscernible]; AnalytiCon Discovery in Potsdam with more on big chemical side of things looking essentially for new pharma compound. On the right-hand side, our BioIncubator. That's where we're going to build our future business, the project we invest heavily in with the most biggest project in Akribion Genomics, which actually do genome engineering or genomic scissors, which we're trying to carve out as a separate company. We have invested EUR 1.3 million in the first half of the year. Let me jump into the numbers a bit more in detail. Growth overall for the first 6 months was 16.8%, were 8.2% organic in the products business. But the enzyme business, 19% top line growth, 7.6% organic and the science business growing at 6.5% all organic. We had a little slowdown in the second quarter compared to the first quarter of the year, which has also natural swings in our business because, for example, on the enzyme side, we acquired [indiscernible] Fuchs. We acquired [indiscernible], for example, in the wine industry, and that is cyclical to the natural growing cycle of the fruit and the grade for that matter. So that actually, we do expect a better business here in Q3 and Q4 of this year.

With the half year figures, we are well on track to make our full year target. Altogether, EBITDA weaker than last year on comparison, mainly driven by the higher investments into Akribion Genomics and also by the lower EBITDA contribution from the industrial business, and we'll get to that in a second. Cash flow, weak on the operating side, but mainly timing here from payable receivables. So that we'll watch out in the course of the year, also pre-filling essentially working capital for us here for the stronger growth in season enzyme, season in Q3 and Q4 of this year. We sold a daughter company, L.A. Schmitt with about [ EUR 3 million ] in investment income. So actually helping our cash position here. And we are also taking out some additional debt to finance the minority buyoff of Biocatalysts. I would say our cash position is strong at the moment and sufficient definitely for the rest of the year. We do some more refinancing -- reorganization basically in the later part of this year.

On the adjusted EBITDA, also again on our segment reporting, we essentially are strong EBITDA in Bioproducts, EUR 2.2 million for the half year. we are a bit lower than last year, mainly driven essentially by cyclical effects, but also by the fact that we are commissioning a new big fermenter. And in commissioning this big fermenter, you have some general supply disruption essentially a production disruption, which we have to face. This is a natural commissioning of that fermenter, which is going to improve basically from the third quarter of this year.

The Bioscience business, basically around the 0 line, as the BioIncubator has set stronger investments and hence, also lower EBITDA, which to the overall group to a loss of about EUR 1 million, welted in our guidance range for the year.

Let me say something on the general business. I think so far, we have shown, we actually have a very robust business into last year. We also have a very robust business in the first half of this year. But of course, the situation out in the economy is not getting easier. Geopolitical risks are there, the risk from the business cycle have rather increased, and we see essentially increased tension in many of the main export markets of Europe.

For us, the end markets are mainly food and beverage. There are essentially the consumer here. There are environmental structural growth and there are essential health care markets, which have low cyclicality. So despite the fact we have low cyclicality altogether, of course, all the general business trying to apply to us. So what we still think we are well on our way to make our targets, but I think the risk for the full year have increased and we have definitely less tailwind when we had into last year on recovery of corona.

Let me reiterate our guidance. We are guiding EUR 54 million to EUR 57 million in sales with high single-digit growth in our science business, low double-digit growth on our products business, and we're essentially looking to spend about EUR 3.5 million on our Akribion Genomics project.

So without the investments in Akribion Genomic, we're looking at a low single-digit million positive EBITDA for the group. And as of today, I'd like to guide you lower on our CapEx expectations. We are now looking at EUR 5 million spending rather than EUR 7 million spending, essentially rolling over CapEx into the next year as we think we have enough capacity at the moment to fulfill our growth targets in the near term.

Midterm targets are unchanged that we're trying to double group revenue from last year's level. We want to get into a very, let's say, comfortable margin range around 15% plus/minus 5 percentage points.

As an innovative company, of course, we do expect a high proportion of our products coming from new products so that new products actually will drive sales also going forward. We're going to report our next numbers with 9M, which is on August 30. But of course, if you have any questions in the meantime or want to know more about BRAIN, visit us at Zwingenberg, we'll get Martina Schuster and you can call all the numbers here. Thank you very much. Looking forward to present again at 9M.