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aap Implantate
Interim Report 2019 2nd quarter Half-Year Report

Interim Report 2019 2nd quarter Half-Year Report

Product catalog summary

Selected Figures:
Sales increased by 10% from 5,436 KEUR in 2018 to 5,974 KEUR in 2019. EBITDA slightly decreased by 1%, and EBIT decreased by 9%. The net result showed a significant decline of 22%. Cash flow from operating activities improved by 21%, while investments in intangible and tangible assets decreased by 18% and 7%, respectively.

Value Development:
Intangible assets increased by 4%, while tangible assets decreased by 4%. Working capital decreased by 17%, and the working capital ratio increased by 18%. Non-current assets rose by 6%, while current assets slightly decreased by 1%.

Capital Structure:
Total assets increased by 3%, while shareholders' equity decreased by 3%, resulting in a lower equity ratio of 78% compared to 83% previously.

Share Information:
The total number of shares increased by 12%, but the closing price per share decreased by 51%, leading to a 45% reduction in market capitalization. The average share price also fell by 45%.

Employees:
The headcount decreased by 5%, and full-time equivalents (FTE) decreased by 10%.

Foreword by the Management Board:
The company achieved financial objectives with sales and EBITDA at the lower end of guidance. There was a focus on regulatory compliance with the new EU Medical Devices Regulation (MDR) and the development of innovative technologies like silver coating and magnesium implants. The company also strengthened its financial base through capital increases and external financing.

The Share:
The share price was volatile, ending the period down by approximately 15%. The stock markets showed a positive trend overall, influenced by favorable interest rates and monetary policies, despite uncertainties from trade conflicts and economic growth concerns.

Capital and Shares: As of June 30, 2019, aap Implantate AG had a capital stock of 32,067,377 EUR, with the same number of bearer shares. The authorized capital was also 32,067,377 EUR. The closing price per share was 0.93 EUR, down from 1.90 EUR in 2018, resulting in a market capitalization of 29.89 million EUR.

Analysts' Recommendations: Analysts from Warburg Research and Hauck & Aufhäuser recommended buying shares with target prices of 2.00 EUR and 2.40 EUR, respectively.

Investor Relations: The company focused on maintaining a fair valuation through transparent communication and meetings with investors, including roadshows and conferences.

Shareholder Structure: The shareholder structure remained stable, with Baring Asset Management holding 3.13% of voting rights. The free float was approximately 42.20%.

Capital Increase: A successful capital increase was implemented, raising about 3.5 million EUR to finance sales growth and silver coating technology development.

Annual General Meeting: Held on June 21, 2019, all agenda items were accepted by a large majority.

Organizational Structure: aap Implantate AG consolidates its subsidiaries, including aap Implants Inc. in the USA and MAGIC Implants GmbH in Germany.

Products and Markets: aap sells products under the "aap" brand, using direct sales in Germany and distributors internationally. The company attended several key conferences to promote its products.

Product Developments: The LOQTEQ® VA foot system received FDA approval, with plans for a 2020 launch. The company is also advancing its silver coating technology and magnesium implant technology.

Economic Report: Sales in Q2 2019 were 2.5 million EUR, with a 10% increase in the first half of 2019 compared to 2018. The gross margin improved due to a better product mix. Personnel expenses rose due to one-time effects, but excluding these, expenses slightly declined.

Overview: The interim report for the second quarter of 2019 for aap Implantate AG highlights financial performance, asset position, and strategic outlook. The company faced increased operating expenses and legal settlements, impacting EBITDA and net results.

Financial Performance: Operating expenses rose due to legal settlements and marketing costs, with a partial offset from IFRS 16 – Leasing. EBITDA for Q2 2019 was EUR -2.1 million, aligning with guidance. Recurring EBITDA, excluding one-time effects, remained stable at EUR -1.3 million for Q2 and improved to EUR -2.2 million for H1 2019. Depreciation increased due to IFRS 16, affecting EBIT, which was EUR -2.7 million for Q2 2019.

Asset Position: Total assets increased by 3% to EUR 43.4 million. Non-current assets rose due to intangible asset additions, while current assets slightly decreased. The company improved its Days Sales Outstanding (DSO) through a factoring agreement, reducing trade receivables.

Financial Position: Operating cash flow improved to EUR -1.8 million, driven by inventory reduction and receivables management. Cash flow from financing activities resulted in a EUR 4.2 million inflow, primarily from a capital increase and sale and rent back agreement.

Risk and Opportunity Report: Legal disputes were resolved, resulting in financial inflows. A new lawsuit from a former distributor is being contested. The company aims to develop strategic partnerships and adapt to new EU Medical Device Regulation requirements.

Outlook: The company plans to focus on cost reduction, efficiency improvements, and strategic partnerships. Sales growth is expected in Germany and North America, with ongoing development of antibacterial silver coating technology.

Interim Consolidated Financial Statements Overview:

Assets: Total assets slightly increased from 42,221 KEUR in 2018 to 43,373 KEUR in 2019. Notable changes include an increase in inventories and accounts receivable.
Liabilities and Shareholders' Equity: Shareholders' equity decreased from 34,919 KEUR to 33,932 KEUR. Non-current liabilities increased significantly due to new financial liabilities.

Consolidated Statement of Comprehensive Income:

Q2 2019 vs Q2 2018: Sales decreased from 2,654 KEUR to 2,473 KEUR. Net result worsened from -1,372 KEUR to -3,068 KEUR.
H1 2019 vs H1 2018: Sales increased slightly from 5,436 KEUR to 5,974 KEUR, but net result declined from -3,615 KEUR to -4,418 KEUR.

Consolidated Statement of Cash Flows:

Cash flow from operating activities improved slightly, but remained negative at -1,825 KEUR.
Cash flow from investment activities was negative due to investments in fixed and intangible assets.
Cash flow from financial activities was positive, primarily due to equity injections and loans.

Accounting and Valuation Methods:

The interim financial statements are prepared in accordance with IFRS as adopted by the EU, with no changes to accounting methods from 2018.
IFRS 16 was applied for the first time, affecting lease accounting.

Share-based Remuneration:

313,500 options were exercisable as of 30/06/2019, with a weighted average exercise price of 1.54 EUR.

1. Financial Instruments Reporting:
The report details the financial instruments held by aap Implantate AG as of June 30, 2019. It highlights that all option programs are now settled through equity instruments, except for those granted to the former CEO, which were settled in cash. A table lists various option programs with their grant dates, expiration dates, exercise prices, and fair values.

2. Financial Position:
The financial assets and liabilities are categorized according to IFRS 9. As of June 30, 2019, the total financial assets amounted to EUR 10,700 KEUR, while financial liabilities were EUR 2,201 KEUR. The report notes a decrease in trade receivables due to a factoring agreement and an increase in financial liabilities due to IFRS 16 application and a sale and rent back agreement.

3. Related Party Transactions:
There were no significant transactions with related companies or individuals during the reporting period. The report provides a comparison of related party transactions for 2018 and 2019, showing minimal activity.

4. Other Events:
The report outlines several key events:

Adjustment of sales and EBITDA forecasts for 2019.
Approval for a human clinical study of antibacterial silver coating technology.
Change in stock exchange listing from Prime Standard to General Standard.
Implementation of a capital increase with subscription rights.
Changes in the management board, including the resignation of the CEO and appointment of a new Chairwoman of the Supervisory Board.

5. Release of Financial Statements:
The interim financial statements for Q2 2019 were released on August 12, 2019, by the Management Board for submission to the Supervisory Board.

6. Forward-looking Statements:
The report includes a disclaimer about forward-looking statements, emphasizing that they are based on current estimates and are not guarantees of future performance.

7. Upcoming Events:
The company plans to publish its Q3 2019 results in November and participate in the German Equity Forum 2019.

Catalog excerpts

Interim Report 2019 2nd quarter Half-Year Report

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Interim Report | 2nd quarter 2019 | Half-Year Report aap * Sales for the last four quarters ** XETRA closing prices of the day; data source: Bloomberg; remark: aaps share price data for parts of the first half of 2019 and the entire first half of 2018 were adjusted retrospectively by Bloomberg by a subscription right deduction from the recent capital increase with subscription rights. The majority of the share price data listed below refer at least in parts to these adjusted values. Accordingly, the share price data for the first half of 2018 deviate from the information provided in the consolidated...

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Interim Report 2019 2nd quarter Half-Year Report-3

Interim Report | 2nd quarter 2019 | Half-Year Report Table of Contents Selected Figures Foreword by the Management Board Interim Group Management Report • Business and General Conditions • . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 • Economic Report • Earnings Position Asset Position Financial Position • Risk and Opportunity Report • . . . . . . . . . . . . . . . . . ....

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Interim Report 2019 2nd quarter Half-Year Report-4

Interim Report | 2nd quarter 2019 | Half-Year Report Foreword by the Management Board Dear Sir or Madam, system at the beginning of 2020 in the US and in other markets Dear Shareholders, that accept FDA approvals. We are also working on the docu- Dear Employees and Business Partners, ments for the corresponding conformity assessment procedure for the CE label in order to be able to market the system in Eu- We achieved our ﬁnancial objectives in the second quarter, rope as well. In addition, there was a focus on implants in sterile however with sales and EBITDA at the lower end of the guid- packaging...

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Interim Report 2019 2nd quarter Half-Year Report-5

Interim Report | 2nd quarter 2019 | Half-Year Report Furthermore, we implemented a package of measures to and we have already implemented the ﬁrst measures. Initially, strengthen our ﬁnancial base in the second quarter. We suc- we opted for a change in the stock exchange listing from Prime cessfully completed a capital increase with subscription rights Standard to General Standard on the regulated market of the with gross issuance proceeds of around EUR 3.5 million and Frankfurt Stock Exchange. This eliminates the need for various two further external ﬁnancings. We accrued a total of approx....

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Interim Report 2019 2nd quarter Half-Year Report-6

Interim Report | 2nd quarter 2019 | Half-Year Report aap General Information about aap's Share * Data source: Bloomberg. Figures relate to XETRA closing prices of the day. ** As of 30/06/2019 the number of bearer shares amounted to 32,067,377 and as of 30/06/2018 to 28,674,410. an expansive monetary policy from the US Federal Reserve and the European Central Bank with the prospects for potential interest rate cuts. At the same time, the trade conflict between the US and China, as well as fears about a slowdown in global economic growth, repeatedly caused temporary uncertainties on the stock exchanges,...

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Interim Report 2019 2nd quarter Half-Year Report-7

Interim Report | 2nd quarter 2019 | Half-Year Report Indices Share Price Comparison H1 | 2019 40%  DAXsubsector Medical Technology Analysts’ Recommendations All research reports by the analysis ﬁrms are available at Research Company Warburg Research GmbH Hauck & Aufhäuser Privatbankiers AG Ulrich Huwald Aliaksandr Halitsa Target Price aap Implantate AG 5 Lorenzweg 5 • 12099 Berlin

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Interim Report 2019 2nd quarter Half-Year Report-8

Interim Report | 2nd quarter 2019 | Half-Year Report Investor Relations Shareholder Structure The objective of investor relations work at aap is to achieve a The ﬁrst half of 2019 saw in particular as part of the success- fair valuation of the share through the capital market. In the fully implemented capital increase with subscription rights ﬁrst half of 2019, this was again based on a continuous dialog changes in aap’s shareholder structure, which did not signiﬁ- with all market participants, as well as the transparent provi- cantly affect the overall picture. aap’s shareholders structure sion...

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Interim Report 2019 2nd quarter Half-Year Report-9

Interim Report | 2nd quarter 2019 | Half-Year Report Shareholdings Executive Bodies The table below shows the direct and indirect shareholdings of all members of the Company's Supervisory Board and Management Board as of June 30, 2019: Capital Increase In the second quarter of 2019 aap successfully implemented a capital increase with subscription rights as part of a package of measures to strengthen the financial base. Within the transaction the Company's shareholders were offered up to 4,784,485 new aap shares for subscription at a subscription price of EUR 1.04 per new share in an indirect...

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Interim Report 2019 2nd quarter Half-Year Report-10

Interim Report | 2nd quarter 2019 | Half-Year Report aap Organizational and Legal Structure In the consolidated financial statements, aap Implantate AG and all of its companies have been consolidated using the full consolidation method, in which the parent company aap Implantate AG directly or indirectly holds the majority of voting rights through consolidated subsidiaries. Subsidiaries aap Implants Inc. aap Implants Inc. is the distribution company of aap Implantate AG for the North American market. The company is based in Dover, Delaware, USA. All orders are logistically handled via a service...

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Interim Report 2019 2nd quarter Half-Year Report-11

Interim Report | 2nd quarter 2019 | Half-Year Report will further increase the attractiveness for full-service clinics plied for. In addition, the application for approval of the human and purchasing groups. In addition, there was a focus on im- clinical study in the US has been submitted at the FDA at the plants in sterile packaging and adapting processes and docu- beginning of August. From today's perspective, it is not possible ments to the new regulatory requirements of the new EU Med- to predict when approval for the study will be granted in the ical Devices Regulation (MDR) in the second...

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Interim Report 2019 2nd quarter Half-Year Report-12

Interim Report | 2nd quarter 2019 | Half-Year Report Economic Report The cost of materials fell from EUR 0.6 million in the second quarter of 2018 to EUR 0.4 million in the reporting period and in Earnings position the ﬁrst half of the year were EUR 0.8 million, thus below the Sales and margin development as well as total operating level of the previous year (H1/2018: EUR 1.1 million). The cost of materials ratio (with regard to sales revenues and changes in in- Sales in the second quarter of 2019 were EUR 2.5 million ventories) decreased in the second quarter of 2019 to 17% (Q2/2018: EUR 2.7...

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*Prices are pre-tax. They exclude delivery charges and customs duties and do not include additional charges for installation or activation options. Prices are indicative only and may vary by country, with changes to the cost of raw materials and exchange rates.

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