BRAIN Biotech AG (BNN.DE) Earnings Call Transcript & Summary

BRAIN Biotech AG is a leading European industrial biotechnology company, leveraging enzyme engineering and bio-based solutions across multiple industries. Today, Michael Schneiders, Chief Financial Officer, presents the 12-month fiscal year 2024-'25 financial results, highlighting operational performance, key financial drivers and the strategic developments shaping BRAIN Biotech AG's outlook. Michael, the stage is yours.

Hello. My name is Michael Schneiders. I'm the CFO of BRAIN Biotech AG in Germany. And before I allude you on our 12-month full year figures, let me quickly remind you what BRAIN Biotech is all about. BRAIN Biotech is a successful niche player in research, development and production of enzymes. So what are enzymes? Enzymes are nature's catalysts. So almost any reaction which you will have in nature is accelerated by enzymes. And we use these same mechanism which nature uses actually to apply enzymes to industrial processes and in many cases, actually replace chemical agents by biological agents, which is searched after by industry, but also by consumers. BRAIN Biotech has 2 distinct areas of operations. First of all, our products business called BRAINBiocatalysts. And secondly, our incubator business called BRAINBioIncubator. In the products business, we specialize on enzyme products, microorganisms and ingredients, mostly for the food and beverage industry. On the BRAINBioIncubator, we are looking more at participation in projects with very high value potential with partners and many of them circle around the pharmaceutical industry. On the core business, we do about EUR 45.4 million of revenues with an EBITDA margin around 10% and a strong R&D ratio of around 5%. In the Incubator, we have made about EUR 4.2 million of recurring revenues. As I said, and that is the icing on the cake, essentially a lot of potential for future milestone royalty income from these projects. On the core business, BRAINBiocatalysts, we operate essentially with 3 distinct business model. First of all, products business, where we sell enzyme product to the food production, food beverage production and segments like baking, for example, fruit juice, wine, starch processing for bio-eth. On the CRO business, the so-called contract research organization, we, on behalf of our customers, execute exciting science projects, which help them to develop sustainable projects in industrial production. And the so-called CDMO CMO business, which is a contract development and manufacturing organization, we lend essentially our know-how and our manufacturing equipment to third parties to manufacture on their behalf. What is the practice of all of that? That is a shared technology platform, which goes from discovering new enzymes to engineering and developing new enzymes, to express these enzymes in microbial host, do the whole fermentation up to 10 acute fermenters we have started, to the complete scale up and then the DSP, the so-called downstream processing to get a product that is really being shipped to customers. Let me bring over some key messages for our 12-month figures. First of all, within the BRAINBiocatalysts segment, we hired a new EVP, Johan Jansen-Storbacka, a very strong individual joining us from a major competitor, focusing on driving growth in the future and drive them to integrate the acquired businesses of the past. Secondly, we have commissioned a beautiful new plant in the Netherlands, which is not only a manufacturing site, but also a showcase for our baking competency with the baking competence center, which we're now fully commissioning and we would like to have a grand opening of that facility somewhere in the summer of this year. All of our [ participations ] are either daughter companies we have bought over time, are now fully owned for BRAINBiocatalysts, which means actually we can now harvest a lot of synergies between these individual companies. In the Incubator, we had a particularly strong year on execution. We had very positive news flow also from Pharvaris, one of our major pharma partners, with significant potential for royalty income going forward. And you will see it in the numbers later, we have exercised a very high cost discipline in this segment. On cash, we still hold EUR 6.2 million in cash, which I will call solid. And we have now initiated several actions to boost growth for the future, particularly circling around the synergies, particularly circling around effectively the entity sales performance, hiring new sales director and having hired more sales force altogether to drive future growth. Let me dive in a bit deeper within BRAINBiocatalysts. We have now fully aligned with the organization reporting. Our R&D budget is now almost entirely focused on enzyme and microbial strain development business. Our own proprietary CRISPR-Cas system helps us actually to more efficiently engineer these microbial strains and becomes a competitive advantage for us. We are now establishing next to our hub in Cardiff, the Continental European hub in the Netherlands, where we have consolidated essentially 2 locations and also the commissioning is running fully as planned. Breatec, our baking business, the last remaining minority, which we bought out. And I said before, which will open the path to get the full synergies out of this. Within the Incubator segment, a very strong and important transformation happened at the beginning of the year. We have been able to successfully out-license the CRISPR-Cas technology in human use to a company called Akribion Therapeutics. And with that, also transferred 15 people into this new entity, leading to significant cost reduction immediately, but at the same time, keeping a lot of future milestone and royalty potential. We have been able to announce a partner in the gold -- BioGold/Urban mining program, where we essentially recycle biologically out of incineration waste or also things like motherboards, gold and can we do it in a fully biological process and [indiscernible] Switzerland is helping us to refine the process and then finally sell the gold thereafter. We have also been successfully announcing a cooperation with Corbion, a leader of natural ingredients in the field of food, where we have apparently active, an antioxidant where we actually develop it now together to market reach, and Corbion will market the product, BRAIN will essentially get royalties and milestone. And last but not least, SolasCure, our wound debridement wound healing agent has now closed the IIb extension of the clinical trials, these are about to announce a supportive preliminary data sets pretty soon on that trial and fundraising for the next round of clinical trials, i.e., IIb and Phase III actually is now right on the way. Let me now jump into the numbers. So clearly, with the revenue shrinking this year by 9.2%, we have not been satisfied. What we have been satisfied with is actually that we have been able to keep adjusted EBITDA roughly on the level of last year despite the fact that last year we had EUR 1.5 million milestone income, which we couldn't repeat this year. So on the cost base, I think we have done an excellent job. On the growth, we clearly have to take challenges, and that's why we have also launched more growth initiatives. On BRAINBiocatalysts, sales have been falling by 4.4%. Of that around 3 percentage points is U.S. dollar translation into Europe. The rest has been general weakness of sales in that segment, which in the BRAINBioIncubator, you see a more pronounced fall in revenues, but that's also largely to do with EUR 1.5 million milestone received last year that couldn't be repeated, but also a particularly weak business in the area of content research in the direction of pharma. The reason for that is that after the Trump administration came into play, we essentially cut back a lot of university funding and with that also many venture capital funds got nervous to fund new innovative drugs, which we have felt in our contract research organization as well. As said, EBITDA more or less flat on last year despite the lower sales. Where does that come? It comes largely out of cost cutting we have done. So if I can put your attention to a material expense ratio and also to adjust the personnel expense ratio, you will see we haven't changed much from the last year, but the absolute number of employees has been falling from 307 to 281, and that explains a larger part of the cost cutting. On top of that, we have done a lot of optimizations within the organization. Cash still sitting at EUR 6.2 million, which I would call solid and adequate for now. This is the mix of our revenues. And you can see for a company of our size, we have a remarkably international business, about 25% of our business is done in the United States. We also have a very stronghold across Continental Europe. And Continental Europe and the U.S. explains the majority of our revenues across the globe. Germany has been shrinking in the absolute importance over the last couple of years, and we now I would say we are international player. Let me put on some risk factors with the relocation of the Netherlands facilities. So of course, there will also be some temporary production interruptions, which might weight our growth in Q1 and Q2. We will be holding extra stock for safety stock to be able to deliver our customer requirements that will lead to slightly higher working capital over the year. And of course, volatility is more or less becoming a new normal so that we cannot deny the geopolitical risks will stay high and erratic. And also, we do expect the U.S. dollar, we have 25% sales exposure to the United States to remain quite weak but soft for the rest of the year. It brings me now to the initial guidance for the year, which we do always have a qualitative statement and an affordable quantitative statement when we publish the full year end numbers in about a months' time. So we expect for the core segment BRAINBiocatalysts revenues to stay around the level of last fiscal year, so around EUR 45.4 million with adjusted EBITDA margin around 10% and CapEx in the range of EUR 3 million. For the BRAINBioIncubator segment, we are seeing growth, so revenues of around EUR 5 million or plus and adjusted EBITDA around breakeven, which would also be a significant improvement year-on-year. The midterm targets of reaching EUR 100 million revenues, i.e., doubling recurring base and adjusted EBITDA margin of 15%, i.e., increasing by 5 percentage points on the EBITDA margin remains unchanged. Next reporting will happen with the 3M numbers on February 25th, and please feel free to visit [ seat11a web ] on the AGM on March 11th, if we do in presence, basically around the corner of our head offices. Thank you very much for your attention. If you have any further questions, please feel free to contact Martina Schuster, Investor Relations or myself directly. Thank you very much.

Thank you, Michael, for the comprehensive overview of BRAIN Biotech AG's 12-month fiscal year 2024-'25 financial results. For investors who would like to explore the company further, additional video presentations and insights are available on seat11a, offering a deeper understanding of BRAIN Biotech AG's strategy, innovation pipeline and long-term value drivers.