Q2 and H1/2020: Tangible positive impact of restructuring on aap performance in challenging COVID-19 times
DGAP-News: aap Implantate AG
/ Key word(s): Half Year Results
Q2/2020 and H1/2020 - Major results and progress
- Sales by region: Besides Germany (Q2: -22 %, H1: -26 %), international business (Q2: -42 %, H1: -45 %) particularly affected by the effects of the COVID-19 pandemic; resumption of business relations with original distribution partner in China and sales in Q2
- USA: Continued dynamic sales growth (Q2: +16%, H1: +32%); number of weekly operations sustainably stabilized at a level of up to 40 procedures; contracts with 5 US-wide purchasing associations and health networks as basis for planned growth of +30% in FY/2020
- Earnings: EBITDA in Q2 and H1 burdened by substantial one-time effects from restructuring, refinancing and revision of the QM system (Q2: EUR 0.7 million, H1: EUR 1.4 million); recurring EBITDA adjusted for one-time effects improved in Q2 (+10%) and only slightly below previous year's level in H1 (-2%) - progress of restructuring clearly visible despite massive Corona-related sales decline
- Gross margin and costs: Gross margin improved to 88% in Q2 (Q2/2019: 83%) and 87% in H1 (H1/2019: 84%) thanks to discontinuation of standard trauma portfolio, reduction of headcount (to date approx. 30% vs. 31.12.2019) and improvement of product-customer mix; remarkable cost reduction through significant decrease in personnel expenses (-24% in Q2 and -12% in H1/2020) and decreasing other costs (-45% in Q2 and -37% in H1/2020)
- Cash flow and balance sheet: Cash holdings of EUR 0.8 million and equity ratio of 62%
- LOQTEQ(R): Focus on converting processes and documentation to meet increased regulatory requirements; new polyaxial LOQTEQ(R) VA foot system already successfully used several times in U.S.
- Silver coating technology: Approval by ethics commissions for conducting a human clinical study - all regulatory requirements for start of study in Germany fulfilled; test coatings performed for potential first joint development projects to be completed; ongoing discussions with global medical technology companies about potential co-financing of the study and further cooperation options
- Resorbable magnesium implant technology: FDA confirmation of probable classification as a particularly innovative "Novel" technology and qualification for faster "De Novo" approval process; further very promising results in pilot animal study with Colorado State University; ongoing discussions with technology-oriented investors to finance joint further development of technology
- Securing Company's financing: First shareholder loans from core shareholders in the amount of
In the United States, by contrast, aap remains on a good growth course and was able to increase sales substantially year-on-year both in the second quarter (+16%) and the first half (+32%). This is all the more remarkable since the U.S. is the country with the highest number of COVID-19 infections worldwide. Here, the momentum that began in the second half of 2019 continued and the number of procedures performed each week was sustainably stabilized at a level of up to 40 procedures. In addition, the newly concluded contracts with US-wide purchasing associations and health networks are beginning to bear fruit. At present aap already has contracts with five purchasing associations and health networks, which creates the basis for further growth. Overall, aap is aiming for a sales increase of at least 30% year-on-year in the U.S. in financial year 2020 despite COVID-19.
* Includes primarily restructuring and refinancing expenses (including personnel measures) and Project Quality First.
* Includes primarily restructuring and refinancing expenses (including personnel measures) and project Quality First.
- Improved gross margin (88% in Q2/2020 vs. 83% in Q2/2019 and 87% in H1/2020 vs. 84% in H1/2019), in particular as result of discontinuation of distribution of standard trauma portfolio at year end 2019 with simultaneous reduction in headcount and improved product-customer mix
- Headcount reduced by approx. 30% to date compared to 31.12.2019 (31.12.2019: 149 employees); decline in personnel expenses (excluding restructuring expenses) in Q2/2020 and H1/2020 by EUR 0.5 million year-on-year
- Declining trend in other costs (excluding restructuring and refinancing costs as well as one-time expenses in connection with the revision of the QM system) by EUR 1.0 million in Q2/2020 and by EUR 1.4 million in H1/2020
With a view to the further restructuring of the Company, aap has also initiated a partial sale of excess capacities of its machinery that, if successfully completed, should lead to a reduction in monthly lease payments of around 30% compared with year end 2019. In addition, the Company renegotiated the contract with its IT service provider and was able to reduce fixed costs by around 37% compared with the end of the financial year 2019. Last but not least, initial calculations show improvements in manufacturing costs of up to 10 % for selected fast-moving products.
Securing financing and thus aap's continued existence has top priority for the Management Board. In this connection, aap's core shareholders already granted first shareholder loans of EUR 0.4 million in April. In addition, aap announced a few days ago the issue of a convertible bond with a total volume of up to around EUR 2.6 million. The convertible bond can be subscribed to at an issue price of EUR 1.75 until August 26. In this way aap offers its shareholders the opportunity to participate in the financing measure at an attractive discount on the assumed future stock market price of around EUR 3.50 after the capital reduction resolved by the Annual General Meeting and to be entered in the commercial register in the next step. Individual shareholders have already committed themselves in advance to the subscription of convertible bonds with a volume of EUR 1.25 million, which corresponds to approx. 50% of the total transaction volume. In addition, aap has begun with the partial sale of excess capacities of its machinery that may lead to an inflow of liquid funds of up to EUR 0.3 million in the fourth quarter of 2020. In addition, the Management Board is currently working intensively on various other financing and cost-saving options. In particular, these include a committed interest-free loan from Investitionsbank Berlin (IBB) from the "Rescue Aid Corona Emergency Aid Package I" program, which is subject to certain challenging conditions, and far advanced negotiations on concluding a development and supply contract with a world-leading U.S. medical technology company, which is linked to the availability of sufficient financial resources at least for the duration of the development project. At the same time, the Management Board is currently in talks about possible corporate transactions (e.g. mergers, share or asset deals and carve-outs).
Based on the business development in the first half of the year, the Management Board now expects sales for the full year 2020 to be in the upper half of the guidance of EUR 8 million to EUR 10 million. Mainly due to the extensive one-time expenses, the Management Board expects EBITDA to be at the lower end of the guidance of EUR -6.7 million to EUR -5.5 million. However, it should be noted that the forecast data on hand are characterised by a high degree of uncertainty. At this point in time, it is very difficult to assess the further course of the worldwide COVID-19 pandemic. For example, in the second half of 2020 there could be a second wave, feared by some virologists and experts, which in the worst case could lead to a renewed lockdown with corresponding negative consequences for the economy.
Last but not least, the Management Board aims to reorganise aap also on a structural level and to align it on the three pillars of its innovative platform technologies in future. The three technologies LOQTEQ(R), antibacterial silver coating and resorbable magnesium implants shall be transferred to separate subsidiaries and managed independently under the aap holding company umbrella. This makes it possible to manage the individual technologies more flexibly and in a more targeted manner and to implement the aimed co-financing for the silver coating and magnesium implant technologies.
14.08.2020 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG.
|Company:||aap Implantate AG|
|Phone:||+49 (0) 30 75 01 90|
|Fax:||+49 (0) 30 75 01 91 11|
|Listed:||Regulated Market in Frankfurt (General Standard); Regulated Unofficial Market in Berlin, Dusseldorf, Hamburg, Munich, Stuttgart, Tradegate Exchange|
|EQS News ID:||1118949|
|End of News||DGAP News Service|