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Annual financial statements for 2016: aap with fundamental progress in strategy implementation
Transformation to a pure player in trauma completed
2016 – Key results and progress
- Sales and Earnings: Sales totalling EUR 10.5 million (FY/2015: EUR 12.3 million) and EBITDA of
EUR -7.9 million (FY/2015: EUR -6.8 million) in the continued operations; recurring EBITDA 2016 at EUR -5.6 million
- Cash flow and balance sheet: Positive effect from working capital reduction mainly through significant decrease in trade receivables (EUR 2.9 million); sound balance sheet structure for further growth with an equity ratio of 86% and a liquidity position of EUR 28.9 million1
- Focus on trauma: Sale of aap Biomaterials GmbH on favourable terms leading to a deconsolidation profit of EUR 23.2 million and a cash inflow of around EUR 34 million; sale of the remaining stake in aap Joints GmbH completes transformation to a pure player in trauma
- Focus on established markets: Share of sales attributable to North America and Europe together increases by 50% to EUR 6.8 million (FY/2015: EUR 4.5 million); sales in North America grows to EUR 2.5 million (FY/2015: EUR 0.5 million; extended customer access in the DACH region and listing at important hospital groups (Helios and Asklepios)
- LOQTEQ®: Completion of the portfolio with inter alia the market launch of the periprosthetic system and development of various polyaxial systems; more than 90% indication coverage for the treatment of major bone fractures creates high attractiveness for full service hospital and purchasing groups; umbrella patent granted in the United States
Silver coating technology: Submission of the design dossier for a CE conformity assessment procedure at a notified body; submission of documents for pre-submission meetings at the FDA
- Costs: Implementation of extensive personnel measures leading to an effective saving of around EUR 1 million in 2017; amicable agreement with co-developer of the LOQTEQ® technology for early termination of a long-term licence agreement leading to a sustainable discharge of the earnings level in the medium and long term
For a detailed evaluation of the Management Agenda 2016 please refer to the consolidated annual financial report for 2016, published today.
2016 - Financials
Overall, with a view to the sales development of the continued operation in financial year 2016 an ambivalent picture appears which was significantly impacted by two opposite effects. On the one hand, aap achieved substantial progress in connection with the aimed focus on established markets such as North America and Europe in financial year 2016. The share of sales attributable to North America and Europe together increased in financial year 2016 year on year by about 50% to EUR 6.8 million (FY/2015: EUR 4.5 million). Development is especially pleasing in North America, representing one of the core markets within the growth strategy, with sales rising significantly in the reporting period to EUR 2.5 million (FY/2015: EUR 0.5 million). On the other hand, China, which was despite halted growth a main sales market in 2015, could not make a contribution towards sales in financial year 2016 (Sales FY/2015: about EUR 3.3 million). Overall, the realized pleasing sales increases in North America and Europe in financial year 2016 could not compensate the missing sales contributions from China. On the basis of an indication coverage of more than 90% for the treatment of major bone fractures we could successfully extend our customer access in the DACH region and are now relisted at important hospital groups such as Helios and Asklepios, which will contribute towards our planned sales growth in financial year 2017.
EBITDA in the continued operation amounted to EUR -7.9 million in the financial year 2016 (FY/2015: EUR -6.8 million). The background of this development are mainly to the following factors that had a major effect on EBITDA in the reporting period:
- Improvement in sales margin (Sum of sales revenues, change in inventory and cost of materials in relation to sales revenues) from 68% to 71% as a result of a transfer to focus markets with higher margins and a simultaneous strongly reduced inventory build-up and significant reduction in the cost of materials
- Further pre-operating costs for developing sales business in North America with dynamic sales development already apparent
- Personnel expenses burdened by one-time cost of redundancy payments while adjusting the cost structure to future sales streams and the reduced size of the company
- A positive trend with lower other operating costs, which in 2016 were additionally burdened by one-time expenses for the early termination of a licence agreement with a co-developer of the LOQTEQ® technology, essential recertification work as part of the aap Joints transaction and legal fees in connection with the personnel measures implemented and the two above-mentioned agreements
Based on the above, recurring EBITDA, adjusted for one-off effects, was EUR -5.6 million in the financial year 2016 and reflects the aimed development: a focus on established markets with higher profit margins and simultaneous a disciplined cost management to improve operational performance. These areas of activity will continue to be of central significance for the management in the financial year 2017.
In financial year 2016 the discontinued operation posted an EBITDA of EUR 23.9 million, which along with the deconsolidation profit totalling EUR 23.2 million includes current earnings subject to the provisions of IFRS 5 for the period from 1 January to 11 May 2016.
Outlook for 2017
aap intends to return to the growth track in financial year 2017. In line with the strategic focus in particular established markets such as North America, the DACH region and further European countries shall serve as drivers of the sales increase. At the same time sales development in BRICS and SMIT countries shall be stabilized. The Management Board anticipates a moderate development over the first six months and a more dynamic growth in particular in the second half of the year. Overall, the company expects sales of EUR 10.0 million to EUR 13.0 million for 2017.
Furthermore, aap intends to improve EBITDA in financial year 2017 by raising gross margin while at the same time reducing costs. aap plans to increase gross margin, in particular by growing sales in higher margin markets, such as North America or the DACH region. The company also plans to close a technology deal (e.g. co-development agreement, licensing, granting of distribution rights etc.) in financial year 2017 for its LOQTEQ® and/or silver coating technology. Overall, the Management Board expects an EBITDA in financial year 2017 of EUR -6.5 million to EUR -4.5 million.
The Management Board is confident with the consequent implementation of the measures derived from the strategy to lead aap back on the growth track and to unlock the inherent value of its innovative product and technology base.
This release may contain forward-looking statements based on current experience, estimates and projections of the management board and currently available information. They are not guarantees of future performance. 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. Many factors could cause the actual results, performance or achievements of aap to be materially different from those that may be expressed or implied by such statements. These factors include those discussed in aap's public reports. Forward-looking statements therefore speak only as of the date they are made. aap does not assume any obligation to update the forward-looking statements contained in this release or to conform them to future events or developments.
1 In the consolidated statement of financial position to 12/31/2016, EUR 23.8 million is stated as cash and cash equivalents, while cash with banks totalling EUR 5.1 million is shown under other financial assets as it was pledged to secure financial liabilities respectively cash payments were made to secure bank guarantees granted to third parties in the financial year.
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