co.don Aktiengesellschaft, Teltow H1 Interim Report 2015 Good performance in first half of 2015 Revenue up year on year by 18% Operating break even before strategic expenses for marketing approval Overall loss down significantly compared with last year Capital market profile boosted by new research coverage from two analysts Management handover advances internationalisation of business co.don AG continued its growth in the second half of 2015 and was able to develop its business successfully: The technology leader for autologous chondrocyte implants increased its revenue by 18% in the first half of 2015 and was able to turn around its operating business and break even before strategic expenses for EU marketing approval. The total loss was reduced significantly year on year, although the overall result was still depressed by high strategic expenses in connection with work to obtain EU marketing authorisation for the pharmaceutical product co.don condrosphere.
1. Overview of revenue REVENUE in Increase YOY 2014 1,085 Q1 2015 1,326 22.2% 2014 1,064 Q2 2015 1,213 14.0% Table 01a: Revenue for co.don AG by quarter REVENUE in Increase YOY 2014 2,149 H1 2015 2,539 18.2% Table 01b: Revenue for co.don AG by half year Revenue was up by 18% in the first half of 2015 and the company was able to turn around its operating business and break even before strategic expenses for EU marketing approval. Page 2 of 11
EBIT in Increase YOY 2014 299 Q1 2015 176 41.1% 2014 868 Q2 2015 608 30.0% Table 02a: EBIT for co.don AG by quarter EBIT in Increase YOY 2014 1,167 H1 2015 784 32.8% Table 02b: EBIT for co.don AG by half year EBIT for co.don AG rose sharply to 784k in the first half year. (previous year period: 1,167k) Page 3 of 11
2. First half year 2015 Key figures The income statement (Table 3, page 6) for the period 1.1 to 30.6.15 and the balance sheet with comparative figures as of 31.12.14 were prepared in accordance with German commercial law (HGB). Total revenue for co.don AG increased again in the first half of 2015 compared with the same period last year to 2,539k (previous year period: 2,149k). For a better understanding of the course of business a supplementary table (Table 4, page 7) has been added to the income statement, in which operating and strategic expenses are shown separately. The cost of materials for raw materials, consumables and supplies and for purchased services came to 318k (previous year period: 299k). Staff expenses came to 1,558k in the first half of 2015 (previous year period: 1,419k). The increase was due to new recruitment. As of 30.6.15 co.don AG had an average of 65 employees (previous year period: 61). Other operating expenses for the first half of 2015 amounted to 1,339k (previous year period: 1,494k). They particularly include strategic expenses for external services in connection with clinical trials and marketing approval, as well as sales and administrative expenses and various operating costs. The loss for the period of co.don AG for the first half of 2015 came to 786k (previous year period: 1,173k). Overall, the company's net income is still depressed by high strategic expenses in connection with work to obtain EU wide marketing authorisation for its pharmaceutical product co.don condrosphere. Adjusting the loss for the period for strategic expenses, however, means that operating earnings before interest, tax, depreciation and amortisation (EBITDA) were positive at 283k (previous year: 4k), which is a significant improvement. Cash and cash equivalents at co.don AG came to 1,735k as of 30.6.15. The average monthly cash burn was 412k in the first half of 2015 (previous year period: 190k) as a result of extensive investment to fully modernise and expand the research laboratories. Shareholders' equity came to 3,501k as of 30.6.15. As of 31.12.14 equity amounted to 4,287k. Page 4 of 11
Share performance The codon share opened the year at a price of 2.261 and climbed steeply from mid March 2015 onwards with strong trading volumes to a high of 3.449 on 28.04.15. This period saw the publication of the operating figures for 2014 on 12. 3.15 and the announcement of the Q1/2015 results on 10.4.15, which both underlined the company's positive performance. As in prior years, the Berlin Cartilage Symposium on 22.4.15 generated additional reporting about co.don AG and so drew increasing attention to the share. Thereafter the share price declined again as new orders fell and is currently trading at around 2.70, which represents an increase of some 20% on the closing price for the year of 2.28 on 30.12.14. In the same period the reference index All Biotech increased by approx. 21%, the DAX by approx. 12% and the General Standard Index by 5%. On average around 24,000 shares valued at approx. 61,000 were traded every day in the reporting period (Germany overall). Perception of the share on capital markets was boosted substantially by the inclusion of two research coverages. Both Sphene Capital GmbH, a research outfit based in Munich that specialises in the analysis of undervalued small caps, and Warburg Research GmbH from Hamburg recommended shares in co.don AG as a buy in their respective reports and announced a potential target price of 4.30 per share. Market potential We address a high volume range of indications for orthopaedic and accident surgery which has great long term promise. Experts put the market potential for articular preservation therapies in Germany alone at over 250 million and at over 1bn for the whole of Europe. The method of matrix associated autologous chondrocyte transplantation (M ACT) is firmly established in many German clinics. "Joint preservation before joint replacement" is the motto of more and more orthopaedic and accident surgeons to the benefit of their patients. We assume this trend applies throughout Europe. For this reason we are in the process of applying for EU marketing authorisation from the European Medicines Agency (EMA), so that with international approval we can gain access to the EU market and increase the value of co.don AG substantially, and in all likelihood sustainably too. International expansion into markets outside the EU offers further interesting and realistic prospects. Page 5 of 11
3. Income statement and balance sheet Table 3: Income statement as of 30.6.15 in accordance with section 275 HGB (unaudited) condensed version 01.01. 30.06.2014 01.01. 30.06.2015 Change in % Revenue 2,149 2,539 18.2 Other operating income 9 29 222.2 Cost of materials 299 318 6.4 Staff expenses 1,419 1,558 9.8 Depreciation and amortisation 108 136 25.9 Other operating expenses 1,494 1,339 10.4 Other neutral expenses 5 1 80.0 Interest and similar expenses 0 0 Result of operating activities 1,167 784 32.8 Other taxes 6 2 66.7 Net income/loss for the period 1,173 786 33.0 Profit/loss carried forward 9,694 12,188 25.7 Transfer from capital reserve 0 0 Distributable profit/loss 10,867 12,974 19.4 Page 6 of 11
Table 4: Income statement as of 30.6.15, separating the operating business from strategic costs of authorisation (unaudited) 01.01. 30.06.2014 01.01. 30.06.2015 Change in % Operating business Revenue 2,149 2,539 18.2 Other operating income 0 13 Cost of materials 299 318 6.4 Staff expenses 1,016 1,133 11.5 Other operating expenses 830 818 1.5 EBITDA 4 283 6,975.0 Depreciation & amortisation 108 133 23.2 EBIT 104 150 Other neutral expenses 0 1 Neutral expenses 5 1 80.0 Other taxes 6 0 Interest and similar expenses 0 2 Net income/loss for the period before strategic costs 115 152 Strategic approval expenses Expenses for central marketing authorisation 1,058 953 9.9 Other operating income 0 15 Net income/loss for the period after strategic costs 1,173 786 33.0 Page 7 of 11
Table 5: Balance sheet as of 30.6.15 in accordance with HGB (unaudited) condensed version 31.12.14 30.6.15 Change in % Assets A. Non current assets I. Intangible assets 180 149 17.2 II. Property, plant and equipment 879 1,882 114.1 B. Current assets I. Inventories (raw materials, consumables and supplies) II. Receivables and other assets III. Cash in hand, bank balances 105 105 610 646 5.9 4,267 1,735 59.3 C. Prepaid expenses 32 63 96.9 6,073 4,580 24.6 Equity and liabilities A. Shareholders' equity 4,287 3,501 18.3 I. Subscribed capital 13,722 13,722 II. Capital reserve 2,752 2,752 III. Distributable profit/loss 12,188 12,974 6.4 B. Provisions Other provisions 1,193 688 42.3 C. Liabilities 593 391 34.1 6,073 4,580 24.6 Page 8 of 11
Opportunities and risks Recognising and exploiting opportunities for the benefit of co.don AG, but also identifying risks and limiting their effects, are the permanent responsibility of the Executive Board and all employees. The Executive Board sees risk management as a continuous process that forms part of the overall management of co.don AG. co.don AG has established a risk management system that is refined and adjusted on an ongoing basis. For a detailed description of opportunities and risks we refer to the annual report for 2014, item III of the management report, starting on page 31. The risks mentioned in 7 have decreased. "Risks from tax rulings". The risk that value added tax is deemed to apply retrospectively to foreign revenue has decreased substantially because the legal situation has changed since the financial year 2010. Since 2010 the principle has applied that other business to business services are subject to value added tax in the country where the customer is located. Even though we were not able to maintain our position that the revenue of co.don AG should be qualified as product deliveries, their classification as other services is not expected to result in sales being liable for VAT in Germany. We still believe there is a risk as far as input VAT is concerned. Now that the tax inspection for the years 2004 to 2006 is over this risk is limited to the financial years from 2009 onwards. Here it should be noted that parliament revised the regulations exempting certain companies from VAT as of 1.1.09. As co.don AG generally has no personal relationship of trust to the patient, which could be used to justify an exemption from VAT, we also refer to the letter from the German Finance Ministry dated November 2013. This letter states that for tax exemption pursuant to section 4 no. 14b German VAT Act (UStG), not only must laboratory physicians be involved, but the institution must also qualify within the meaning of the statute. As co.don AG neither operates via laboratory physicians nor counts as a qualifying institution in our opinion, we do not see tax exemption pursuant to section 4 no. 14b UStG as being relevant. Given that the tax authorities did not view the matter any differently in the tax inspection for 2004 to 2006 and that we believe the risk of any conflicting ruling to be low in light of the current interpretation of the legal situation post 2009, we consider that this risk no longer jeopardises the company's existence, in contrast to prior years. Significant events in the reporting period The Supervisory Board appointed Dirk Hessel as an additional member of the Executive Board of co.don AG hat with effect from 15.6.15. On 15.7.15 he assumed overall responsibility as CEO and chairman of the Executive Board from Dr. Andreas Baltrusch, who is leaving the company after six successful years as CEO at his own request, in order to pursue other entrepreneurial activities. Page 9 of 11
Declaration by the legal representatives We declare that to the best of our knowledge and in accordance with the applicable accounting principles for interim reporting, the condensed interim financial statements give a true and fair view of the net assets, financial position and results of operations of the company and that the course of business, including the business result and the position of the company, are portrayed in such a way in the Management Report that a true and fair view is conveyed and that the main opportunities and risks of the company s expected future development are described. Teltow, 4.8.15 Executive Board Dirk Hessel CEO Vilma Methner COO CSO Condensed notes to the interim financial statements These financial statements for the first half of 2015 were prepared in accordance with German commercial law (HGB). Unless stated otherwise, the same accounting principles were applied as for the commercial law financial statements for the financial year 2014. A detailed description of these accounting principles can be found in the annual report published for 2014. For comparison with the income statement for the period 1 January 2015 to 30 June 2015 we have provided the income statement for the period 1 January 2014 to 30 June 2014. The figures for the first half of 2014 have been taken from the unaudited interim financial statements. For comparison with the unaudited balance sheet for the first half year as of 30 June 2015 we have provided the audited balance sheet prepared in accordance with German commercial law as of 31 December 2014. The condensed financial statements as of 30 June 2015 and the interim management report have been neither audited nor reviewed by the auditors. Page 10 of 11
Contact co.don AG Matthias Meißner Telephone +49 (0)3328 43 46 0 Investor Relations Fax +49 (0)3328 43 46 43 Warthestraße 21 Email ir@codon.de D 14513 Teltow URL www.codon.de WKN A1K022 ISIN DE000A1K0227 Page 11 of 11