DGAP-News: Q2/2022: Sales of EUR 2.7 million and EBITDA of EUR -0.2 million below expectations in persistently challenging macroeconomic environment; growth expected for second half of 2022

• Sales: Q2 at EUR 2.7 million (‑17 % yoy) and H1 at EUR 5.6 million (‑7 % yoy); growth trend intact with LTM sales up 7 %[1]
• EBITDA: Q2 at EUR ‑0.2 million (Q2/2021: EUR +0.3 million) and H1 at EUR ‑0.7 million (H1/2021: EUR +0.1 million) impacted by sales decline, planned build-up of sales infrastructure, conduction of human clinical trial and work on MDR implementation
• Silver: First sugeries performed as part of human clinical trial for innovative antibacterial silver coating technology
• H2 outlook: revenue increase expected compared to H1 with FY 2022 sales level of EUR 11.5 million to EUR 13.5 million and EBITDA (including full project costs for further execution of human clinical trial) of EUR ‑2.0 million to EUR ‑1.1 million

 
aap Implantate AG ("aap" or the "Company") operated in a challenging macroeconomic environment in both the second quarter and the first half of the year, which had a corresponding impact on business development and thus did not lead to the achievement of the targets set by the Company for the first half of 2022. In this context, the Company continues to face the existing pandemic COVID-19 situation, related bottlenecks in hospitals and also the increasing but persistently too low mobility and the changed mobility behavior of the population, which is reflected in lower case numbers compared to pre-COVID-19 levels. In addition, the still ongoing war in Ukraine, the observable dynamic pressure on global supply chains and the general inflationary environment are generally affecting business development, which is reflected, for example, in noticeable delayed execution of new customer contracts despite a well-filled pipeline or in the significantly reduced willingness of aap's existing distribution partners to invest in market expansion.

The Company's sales in the second quarter of 2022 decreased by 17 % to EUR 2.7 million compared to the same period of the previous year (Q2/2021: EUR 3.3 million). In the first six months of the current fiscal year, sales decreased by 7 % to EUR 5.6 million compared to the first half of 2021 (H1/2021: EUR 6.0 million). Taking constant exchange rates into account, the changes in sales were ‑21 % (Q2) and ‑10 % (H1). Looking at the results, the Company recorded EBITDA of ‑0.2 million EUR (Q2/2021: +0.3 million EUR) in the second quarter and of ‑0.7 million EUR (H1/2021: +0.1 million EUR) in the first six months of 2022, which mainly reflects the decline in sales, the expansion of the sales infrastructure in Germany and the U.S. as planned, the conduction of the clinical trial for aap's innovative antibacterial silver coating technology as well as the extensive work on processes and documents to meet the increased regulatory requirements of the new EU Medical Device Regulation (MDR).

Q2/2022 and H1/2022 - Key financial figures

Sales Q2/2022 and H1/2022

With regard to the individual regions, the aforementioned effects were felt in almost all markets relevant for aap, albeit to varying degrees. The development in the LATAM region is pleasing, where aap achieved growth of +38 % and +3 % in both the second quarter and the first half of 2022. Here, recovery tendencies are evident in markets such as Mexico and Brazil, but a new sales partner in Venezuela also contributed to the positive development in the LATAM region. In the EMEA region, the second quarter in particular was characterized by a significant decline of 27 %, resulting in a 6 % drop in sales in the first half of the year. Developments in the Spanish, Bosnian and Israeli markets were primarily responsible for more than 2/3 of the negative deviations. In contrast, the market in South Africa developed positively, with significant growth of +65 % in the second quarter and +24 % in the first six months, although this could only partially compensate for the development of the other submarkets in the EMEA region. In the APAC region, aap recorded a 62 % decline in sales in the second quarter and a 50 % decline in the first half of the year compared with the respective comparative period of the previous year, mainly as a result of a reduced volume of business with the Chinese sales partner.

The picture in the USA is divided: While at first glance there is a decline in sales for the region in the second quarter (‑13 %) and in the first six months (‑5 %), a non-recurring effect in the amount of EUR 0.2 million must be excluded from sales in the second quarter of 2021. This one-off effect in the previous year resulted from the termination of the contractual relationship with a long-standing distribution partner. Excluding this non-recurring effect results in growth of +14 % for the second quarter and +10 % for the first half of the year. In addition to the development of the USD/EUR exchange rate, the increase in the average invoiced price per surgery performed was also the background to the rise in sales.

Overall, the Management Board remains optimistic about the Company's further development and sees the sales development of the last 12 months compared to the corresponding period of the previous year with LTM sales growth of 7 % as confirming the fundamental orientation of aap.

EBITDA Q2/2022 and H1/2022

With regard to earnings, EBITDA decreased year-on-year to EUR -0.2 million for the second quarter of 2022 (Q2/2021: EUR +0.3 million) and to EUR -0.7 million for the first six months of 2022 (H1/2021: EUR +0.1 million). The following developments were particularly decisive in this regard:

• Sales level realized below the Company's planning in the second quarter and first half of the year mainly due to the aforementioned effects from the COVID-19 pandemic, the war in Ukraine and the general inflationary environment,
• Stable high gross margin (in %) with increase of gross margin[2] in absolute figures (excluding non-recurring effects; Q2: approx. +43 TEUR, H1: approx. +98 TEUR),
• Planned increase in personnel expenses mainly due to the expansion of the sales infrastructure in Germany and the USA to implement the planned sales growth, as well as in the areas of quality management, regulatory and clinical affairs to ensure the achievement of certification in accordance with the new EU Medical Device Regulation (MDR 2017/745/EU) within the transition period until 2024,
• Slight increase in cost level (excluding non-recurring effects) in other costs in the operating trauma business incl. central administration functions,
• Cost increase from the conduct of the human clinical trial of aap's innovative silver coating technology with the first surgeries performed and the inclusion of further hospitals participating in the trial in the first half of 2022,
• Lower non-recurring effects that had an earnings-enhancing impact on EBITDA in both comparative periods (mainly from the recognition of income from COVID 19 support programs and from the reversal of provisions and accrued liabilities).

Excluding the one-off effects, recurring EBITDA decreased further in Q2 and H1/2022 to EUR -0.5 million (Q2/2021: EUR -0.1 million) and EUR ‑0.9 million (H1/2022: EUR ‑0.4 million), respectively.

Silver coating technology

With regard to aap's innovative antibacterial silver coating technology, the first human clinical trial surgeries were performed in the first half of 2022 and further trial centers were initiated. In addition, the Company carried out promising test coatings for a leading medical technology company in the reporting period. The aim is to demonstrate the possible application of silver coating technology to non-aap products and thus to create the preconditions for potential joint development projects. In addition, aap is still in talks about possible co-financing of the human clinical trial and further cooperation opportunities.

Outlook

Not included in the following forecast statements:

• A significant tightening of sanctions against Russia or a change in the interpretation of existing sanctions,
• An expansion of the conflict situation outside Ukraine,
• Further additional significant increases in energy and raw material prices above the currently foreseeable level or restrictions on the Company's ability to operate as a result of partial or complete cessation of gas and/or energy supplies due, among other things, to the war in Ukraine or related sanctions,
• Further virus mutations (COVID 19 pandemic) leading to a significant worsening of the infection situation with corresponding lockdown measures or other restrictions in the sales regions relevant for aap or resulting in production stoppages at the Berlin site or at aap's service providers/suppliers.

In the second half of 2022, in addition to stabilizing aap's financial position, the focus will be in particular on the further implementation of the human clinical trial for the innovative antibacterial silver coating technology and the further revision of processes and documents to meet the increased regulatory requirements of the new EU Medical Devices Regulation MDR. On the revenue side, the Executive Board expects an increase for the second half of 2022 compared to the first six months and anticipates a revenue level of EUR 11.5 million to EUR 13.5 million for fiscal year 2022. For EBITDA in fiscal year 2022, the Executive Board expects a value of EUR ‑2.0 million to EUR ‑1.1 million, taking into account the full project costs for the further implementation of the human clinical trial for the antibacterial silver coating technology.





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aap Implantate AG (ISIN DE0005066609) - General Standard/Regulated Market - All German Stock Exchanges -

 

About aap Implantate AG

aap Implantate AG is a globally active medical technology company based in Berlin, Germany. The company develops, manufactures and markets products for traumatology. In addition to the innovative anatomical plate system LOQTEQ®, the IP-protected portfolio includes a wide range of cannulated screws. In addition, aap Implantate AG has an innovation pipeline with promising development projects such as antibacterial silver coating technology and magnesium-based implants. These technologies address critical problems in traumatology that have not yet been adequately solved. In Germany, aap Implantate AG sells its products directly to hospitals, purchasing groups and group clinics, while at international level it primarily uses a broad network of distributors in around 25 countries. In the USA, the company relies on a hybrid sales strategy through its subsidiary aap Implants Inc. This involves sales both via distribution agents and as part of partnerships with global orthopedic companies. The aap Implantate AG share is listed in the General Standard of the Frankfurt Stock Exchange (XETRA: AAQ.DE). For further information, please visit our website at www. aap.de.

The figures presented in this press release may be subject to technical rounding differences which do not affect the overall presentation.

Forward-looking statements

This release may contain forward-looking statements based on current expectations, beliefs and projections of the Executive Board and currently available information. The forward-looking statements are not guarantees of future performance or results. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. These factors include those discussed in aap's public reports. Forward-looking statements therefore speak only as of the date they are made. We assume no obligation to update the forward-looking statements made in this release or to conform them to future events or developments.

^[1] LTM revenue increase: revenue for the last 12 months (01.07.2021 - 30.06.2022) compared to the corresponding period of the previous year (01.07.2020 - 30.06.2021)

^[2] Gross margin = sales revenue +/- change in inventories of finished goods and work in progress - cost of materials / cost of purchased services.