VI. Notes to the consolidated balance sheet

12 Intangible assets

The following table shows the composition and changes:

The goodwill reported as at 30 September 2023 arises from the acquisition of AnalytiCon Group (AnalytiCon Discovery GmbH, AnalytiCon Discovery LLC) in the 2013/14 financial year, the acquisition of Biocatalysts Group (Biocatalysts Ltd., Biocatalysts Inc.) in the 2017/18 financial year, and the acquisition of Breatec Group (Weriol Group BV, Breatec BV and Panei BV) in the 2021/22 financial year.

Impairment tests

Goodwill existed at the following cash-generating units (CGUs) as at the reporting date:

The “Biocatalysts” CGU consists of the goodwill from the acquisition of Biocatalysts Ltd., including its subsidiary Biocatalysts Inc., and is attributable to the BioProducts segment.

The “Breatec” CGU comprises the goodwill from the acquisition of Weriol Group BV, including its subsidiary Breatec BV, and is attributable to the BioProducts segment.

The “Natural Products Chemistry” CGU consists of the goodwill from the acquisition of AnalytiCon Discovery GmbH and its subsidiary AnalytiCon Discovery LLC, and is attributable to the BioScience segment.

Biocatalysts

For the Biocatalysts unit, an IAS 36 impairment test was performed again as at 30 September 2023. Planning is based on a significant rise in sales revenues and successive margin improvements. As planned, this would be in line with the significant increases in recent years as well as in the 2022/23 financial year. Continued strong growth is to be achieved by further expanding business relationships with both existing and new customers. Furthermore, an even stronger focus on customer-specific enzymes and proprietary product developments is planned, which should contribute to a further improvement in revenue as well as to a margin improvement. Net cash flows beyond the detailed planning phase were modelled on a terminal growth rate that reflects growth rates derived from current market information (financial year under review: 1.00 %, previous year: 1.00 %). A value-in-use applying discounted cash flows was calculated based on five-year planning. No impairment was determined in the impairment test on 30 September 2023.

An increase in the weighted average cost of capital by 1.0 percentage points or a reduction in the EBITDA margin in the perpetual return by 2.0 percentage points would also have led to no impairment.

The Management Board assumes that the calculated sensitivities suitably and sufficiently reflect the potential deviations from plan in each case.

Breatec

For the Breatec unit, an IAS 36 impairment test was performed again as at 30 September 2023. Planning is based on significant revenue growth and successive margin improvements. Continued strong growth is to be achieved by further expanding business relationships with both existing and new customers. Furthermore, an even stronger focus on customer-specific enzymes is planned, which should contribute to a further improvement in revenue as well as to a margin improvement. Net cash flows beyond the detailed planning phase were modelled on a terminal growth rate that reflects growth rates derived from current market information (financial year under review: 1.00 %, previous year: 1.00 %). A value-in-use applying discounted cash flows was calculated based on five-year planning. No impairment was determined in the impairment test on 30 September 2023.

An increase in the weighted average cost of capital by 1.0 percentage points or a reduction in the EBITDA margin in the perpetual return by 2.0 percentage points would also have led to no impairment.

The Management Board assumes that the calculated sensitivities suitably and sufficiently reflect the potential deviations from plan in each case.

Natural Products Chemistry

Thanks to positive market feedback and its successful performance in recent financial years, the “Natural Products Chemistry” unit in its planning assumes significant revenue growth and a positive trend in its EBITDA margin. The expected trend in revenue and earnings is mainly driven by the growth potential in the area of projects/services (including the project of AnalytiCon Discovery GmbH with Pharvaris N.V. regarding the novel oral bradykinin B2 receptor antagonist (PHA121)) as well as the resultant positive effects on the personnel expense ratio. Net cash flows beyond the detailed planning phase were modelled on a terminal growth rate that reflects growth rates derived from current market information (financial year under review and the previous year: 1.00 %). A value-in-use applying discounted cash flows was calculated based on five-year planning. No impairment was determined in the impairment test on 30 September 2023.

An increase in the weighted average cost of capital by 1.0 percentage points or a reduction in the EBITDA margin in the perpetual return by 2.0 percentage points would have also led to no impairment.

The Management Board assumes that the calculated sensitivities suitably and sufficiently reflect the potential deviations from plan in each case.

The other intangible assets that are material to the consolidated financial statements consist of the intangible assets identified as part of the purchase price allocation, as shown in the following table.

In accordance with the accounting policies presented above, no development costs were capitalized in the 2022/23 financial year or in the previous year, as it is not possible to distinguish research and development phases due to the alternating process, and consequently not all of the criteria specified in IAS 38 were met.

Research and development expenses of € 4,979 thousand (previous year: € 4,870 thousand) are reported in the statement of comprehensive income mainly under the items “personnel expenses”, “cost of materials”, and “other expenses”, as well as in amortization charges.

13 Property, plant and equipment

Investments in property, plant and equipment in the 2022/23 financial year were attributable primarily to the technical expansion of research, development, and manufacturing infrastructure. The following table shows the composition and changes of property, plant and equipment:

Land and buildings serve partly as collateral for bank loans. Not all of the land and buildings of BRAIN Biotech AG that are included in this item were assigned as collateral. More detail can be found in section (21) Financial liabilities.

Information on lease liabilities is provided in section (21) Financial liabilities.

The following table presents the total cash outflows for leases.

14 Equity-accounted investments

Enzymicals AG

The carrying amount of the interest in the associated company Enzymicals AG⁵ reports the following changes:

The interest held by BRAIN Biotech AG continued to amount to 24.095 % in the 2022/23 financial year. This participating interest is allocated to the BioScience segment. There were no unrecognized losses in the current financial year (previous year: € 0 thousand).

The following tables show the aggregated results and balance sheet data of Enzymicals AG and the amounts of profit or loss for the period and equity attributable to BRAIN Biotech AG in line with its interest (24.095 %). The figures for Enzymicals AG were calculated based on the accounting principles of the German Commercial Code (HGB), as the Management Board is of the opinion that no material valuation differences exist in relation to IFRS.

The difference in prior periods between the recognized valuation of the participating interest and the proportional equity attributable to BRAIN Biotech AG of € 166 thousand reflected goodwill.

SolasCure Ltd.

The carrying amount of the interest in the associated company SolasCure Ltd. reports the following changes:

In the 2022/23 financial year, BRAIN Biotech AG participated in a capital increase at SolasCure Ltd. The capital increase amounted to € 2.8 million (in which BRAIN participated in an amount of € 0.4 million) and led to the aforementioned change in the interest held. As a consequence, the capital increase led to a dilution of the interest held in SolasCure Ltd. This participating interest is allocated to the BioScience segment. There were no unrecognized losses in the current financial year (previous year: € 0 thousand).

The following tables show the aggregated results and balance sheet data of SolasCure Ltd. and the amounts of profit or loss for the period and equity attributable to BRAIN Biotech AG in line with its 34.16 % interest (35.51 % on 30 September 2022). The disclosures reflect the financial statements of SolasCure Ltd. prepared in accordance with IFRS as adopted by the European Union.

In addition to the remaining elimination of unrealized results of intra-group transactions, the difference between the amount recognized for the participating interest and the proportionate equity attributable to BRAIN Biotech AG is attributable to goodwill of € 254 thousand.

15 Inventories

Inventories consist of the following:

Inventories included impairment losses on raw materials and supplies of € 54 thousand (prior year: € 170 thousand), and work in progress and finished goods of € 441 thousand (prior year: € 83 thousand). Reversals of impairment losses of € 0 thousand were applied (previous year: € 0 thousand).

16 Trade receivables

Trade receivables consist of the following:

The presented carrying amounts of receivables correspond to the fair values.

Trade receivables generally have a term of up to one year. Credit default rates in a range of between 0.5 % and 10 % were applied in order to calculate the total lifetime ECL. Total lifetime ECLs of € 52 thousand (previous year: € 75 thousand) were recognized on the portfolio as at the 30 September 2023 reporting date, which are recorded in a separate allowance account.

The following table shows the past due structure of trade receivables as at 30 September 2023.

The following table shows the past due structure of trade receivables as at 30 September 2022.

The following table shows the changes in impairment losses:

The impairment rate amounted to 0.5 % in the 2022/23 financial year (previous year: 0.9 %).

Further information on impairments and the credit risks pertaining to trade receivables is provided in section VII. Financial instruments / risks from financial instruments.

17 Other financial assets

Other financial assets consist of the following:

18 Other non-current and current assets

Other non-current assets consist of the following:

Other current assets consist of the following:

All current assets have a remaining term of up to one year. The portfolio of other assets was neither overdue nor impaired as at the reporting date. Default risk is regarded as low, as in the previous year.

19 Cash and cash equivalents / statement of cash flows

Cash and cash equivalents are held mainly at banks in Germany and in the UK.

In the statement of cash flows, other non-cash expenses and income include the following items:

20 Equity

Changes to the equity capital position are shown in the consolidated statement of changes in equity.

Subscribed capital

The subscribed share capital amounts to € 21,847,495 (previous year: € 21,847,495) and is divided into 21,847,495 ordinary shares (previous year: 21,847,495), to each of which a proportional amount of the share capital of € 1.00 is attributable. The shares are fully paid-in registered shares. The shares are listed in the Prime Standard stock market segment of the Frankfurt Stock Exchange.

Authorized capital

With an AGM resolution on 9 March 2022, authorized capital of € 4,369,499 was created (Authorized Capital 2022/I). Authorized Capital 2022/I was entered in the commercial register on 28 March 2022. The Management Board was authorized, with Supervisory Board assent, to increase the company’s share capital in the period until 8 March 2027, once or on several occasions, albeit by a maximum nominal amount of € 4,369,499 through issuing up to 4,369,499 new ordinary registered shares against either cash capital contributions and/or non-cash capital contributions, whereby shareholders’ statutory subscription rights can be wholly or partly excluded. If the new shares are issued against cash capital contributions, shareholders’ statutory subscription rights can be wholly or partially excluded if the new shares’ issue price is not significantly less than the stock market price of the company’s shares already listed on the date when the issue price is finally determined, and the total number of shares issued in this manner under exclusion of subscription rights does not exceed 10 % of the share capital.

Accordingly, authorized capital of € 4,369,499 was reported as at the 30 September 2023 reporting date.

Conditional capital

Pursuant to Section 5 (3), (4), (5) and (6) of the company’s bylaws, the share capital is conditionally increased by € 2,184,749 through the issue of up to 2,184,749 new ordinary registered shares (Conditional Capital 2023/I) and by a further € 63,000 through the issue of up to 63,000 new ordinary registered shares (Conditional Capital 2015/II), by issuing up to 1,233,600 new ordinary registered shares (Conditional Capital 2019/I) and by issuing up to 888,148 new ordinary registered shares (Conditional Capital 2023/II).

The conditional capital of 1,986,136 existing as at 30 September 2022 (Conditional Capital 2021/I) was cancelled by resolution of the Annual General Meeting on 8 March 2023.

Conditional Capital 2023/I serves exclusively to grant shares to the holders of bonds with warrants and convertible bonds that the company issues based on the authorization of the Management Board by way of AGM resolution passed on 8 March 2023. The conditional capital increase is to be implemented through issuing up to 2,184,749 new ordinary registered shares only to the extent that the holders of convertible bonds and/or bonds with warrants utilize their conversion rights or warrant rights, or the holders of convertible bonds that are obligated to convert satisfy their obligation to convert, and to the extent that other forms of satisfaction are not deployed to service the bonds. An increase in the share capital from Conditional Capital 2023/I had not been implemented as at the 30 September 2023 reporting date.

Conditional Capital 2015/II serves exclusively to service subscription rights arising from stock options that are granted – pursuant to the AGM resolution dated 8 July 2015 as part of a stock option plan comprising up to 63,000 stock options that carry subscription rights to shares of BRAIN Biotech AG with a term of up to eight years – to the members of the company’s Management Board, members of affiliated companies’ management boards, as well as managers and other company employees in senior positions. The conditional capital increase is to be implemented only to the extent that the holders of issued subscription rights utilize them, and the company does not grant treasury shares or cash settlement to satisfy these subscription rights. An increase in the share capital from Conditional Capital 2015/II had not been implemented as at the 30 September 2023 reporting date.

At the Annual General Meeting on 7 March 2019, Conditional Capital 2015/II was reduced from originally € 1,272,581 to € 123,000, as this capital was to remain exclusively for hedging stock options already issued. At the Annual General Meeting on 8 March 2023, the conditional capital was reduced by a further € 60,000 to € 63,000. The authorization to issue further stock options from Conditional Capital 2015/II was revoked at the same Annual General Meeting and replaced by a new authorization (see following section).

By resolution of the Annual General Meeting on 7 March 2019, the share capital was conditionally increased by € 1,682,578 through the issue of up to 1,682,578 new no-par-value registered shares (Conditional Capital 2019/I). Conditional Capital 2019/I was reduced by € 448,978 from the original € 1,682,578 to € 1,233,600 at the Annual General Meeting on 8 March 2023. The conditional capital serves exclusively to service subscription rights from stock options granted to members of the company’s Management Board and other senior company managers. The Management Board is authorized, with the approval of the Supervisory Board, to determine the further details of the implementation of the conditional capital increase. The conditional capital increase is to be implemented only to the extent that the holders of issued subscription rights utilize them, and the company does not grant treasury shares or cash settlement to satisfy these subscription rights. An increase in the share capital from Conditional Capital 2019/I had not been implemented as at the 30 September 2023 reporting date.

Conditional Capital 2023/II serves exclusively to service subscription rights arising from stock options that are granted – pursuant to the AGM resolution dated 8 March 2023 as part of a stock option plan comprising up to 888,148 stock options that carry subscription rights to shares of BRAIN Biotech AG with a term of up to eight years – to the members of the company’s Management Board and other company employees in senior positions. The conditional capital increase is to be implemented only to the extent that the holders of issued subscription rights utilize them, and the company does not grant treasury shares or cash settlement to satisfy these subscription rights. An increase in the share capital from Conditional Capital 2023/II had not been implemented as at the 30 September 2023 reporting date.

Stock options

An AGM resolution dated 8 March 2023 authorized the Management Board, with Supervisory Board approval, to issue as part of a stock option plan until 7 March 2028 up to 888,148 stock options with subscription rights to shares of BRAIN Biotech AG with a term of up to six years, with the condition that each stock option grant the right to subscribe for one share, and according to further provisions. As far as issuing shares to members of the Management Board of BRAIN Biotech AG is concerned, this authorization is valid for the Supervisory Board alone. The AGM conditionally increased the share capital by € 888,148 to hedge and service the stock options (Conditional Capital 2023/II).

Capital reserves

The capital reserves contain the share premium from the issuance of shares, net of transaction costs after taxes, as well as the expenses from granting stock options. For more information about share-based compensation, please refer to the remarks in Section “Share-based payment and other long-term employee benefits”. Capital reserves as per German commercial law are published in the separate financial statements for BRAIN Biotech AG prepared according to German Commercial Code (HGB) accounting policies.

Other reserves

Currency translation differences are recognized in other reserves.

Retained earnings

Retained earnings in the 2022/23 financial year reduced mainly to reflect profit or loss attributable to shareholders of BRAIN Biotech AG. In addition, retained earnings changed due to a net effect from the exercise of put/call agreements and the acquisition of non-controlling interests in fully consolidated Group companies.

The following table shows the non-controlling interests during the 2022/23 financial year:

The previous year’s non-controlling interests are shown in the following table:

The changes in the non-controlling interests are as follows:

In May 2023, the remaining 9.35 % minority interest in Biocatalysts Ltd. was acquired as part of the purchase of treasury shares.

In April 2023, the call option to acquire the 11.03 % minority interest in BRAIN UK Ltd. was exercised by BRAIN UK II Ltd.

The following section presents summarized financial information for subsidiaries with non-controlling interests of significance to the Group.

As at 30 September 2023, non-current assets include the interests (acquired from BRAIN Biotech AG) in the consolidated companies Breatec BV, WeissBioTech GmbH and Biosun Biochemicals Inc.

Apart from legal restrictions, BRAIN Biotech AG is not subject to any restrictions limiting its access to the subsidiaries’ assets, to utilize such assets or to settle the subsidiaries’ liabilities.

21 Financial liabilities

The financial liabilities consist of the following:

As at the 30 September 2023 reporting date, contributions by silent partners include a € 900 thousand (previous year: € 1,200 thousand) contribution by Hessen Kapital I, Wiesbaden, and a € 3,000 thousand (previous year: € 3,000 thousand) contribution by Hessen Kapital II GmbH. Interest liabilities amounted to € 61 thousand as at 30 September 2023 (previous year: € 0 thousand).

The contribution of Hessen Kapital I GmbH was repaid as planned in the financial year at 20 % as of 30 June 2023. The remaining 60 % is due on 30 June 2024. Of the contribution by Hessen Kapital II GmbH, 20 % is repayable on 31 March 2026, a further 20 % on 31 March 2027 and 60 % on 31 March 2028.

The company pays fixed remuneration equivalent to nominal 7.0 % p. a. (previous year: 7.0 %) on the contribution of Hessen Kapital I GmbH and a profit participation equivalent to the ratio between the nominal level of the silent partnership and the nominal level of the equity of BRAIN Biotech AG, albeit to a maximum of 2.5 % of the contribution and not more than 50 % of the profit for the year.

The company pays fixed remuneration equivalent to nominal 6.0 % p. a. (previous year: 6.0 %) on the contribution of Hessen Kapital II GmbH and a profit participation equivalent to the ratio between the nominal level of the silent partnership and the nominal level of the equity of BRAIN Biotech AG, albeit to a maximum of 1.5 % of the contribution and not more than 50 % of the profit for the year.

BRAIN Biotech AG is entitled to call the silent partner contributions rendered by Hessen Kapital I GmbH and Hessen Kapital II GmbH before the agreed dates. However, due to the negative consequences this would have for the company (prepayment penalties), effectively this option has no economic value for the company. The silent partnerships do not participate in any losses. No obligation exists to provide additional funding.

Land charges exist with compulsory enforcement clauses on land owned by BRAIN Biotech AG with a notional value of € 2.5 million (previous year: € 2.5 million). All land charges serve to secure bank borrowings, which amounted to € 1,661 thousand at the end of the reporting period (previous year: € 875 thousand). The land charges rank behind an unassigned land charge in favor of the owner amounting to € 0.5 thousand (previous year: € 0.5 thousand).

At the Biocatalysts Ltd. subsidiary, € 2,753 thousand (previous year: € 1,778 thousand) of financial liabilities are secured by € 3,585 thousand (previous year: € 2,521 thousand) of land charges on operating property.

Other than standard retention of title from individual contracts, no other liabilities are secured by liens or similar rights. The carrying amount of the collateral furnished at the end of the reporting period stood at € 5,212 thousand (€ 5,367 thousand as of 30 September 2022).

The nominal interest rate on the fixed interest loans lies between 1.15 % (previous year: 1.15 %) and 8.12 % (previous year: 6.10 %) p.a. Some of the Group’s liabilities are subject to variable interest rates depending on the Bank of England’s base rate.

The following table shows the undiscounted nominal amounts due at the financial liabilities’ terms:

The contractually agreed due dates for principal and interest payments and for profit- related payments are shown in the following overview:

The following table shows the change in financial liabilities analyzed by cash and non-cash changes:

22 Other liabilities

Other liabilities include € 1,273 thousand (previous year: € 1,335 thousand) for the Biocatalysts Ltd. growth share program, of which € 578 thousand is current and € 694 thousand non-current.

Current other liabilities consist of the following:

Miscellaneous other liabilities include customer credits of € 45 thousand (previous year: € 181 thousand).

23 Deferred income

Deferred income consists of current deferred income of € 2,932 thousand (compared with € 1,990 thousand in the previous year) and non-current deferred income of € 518 thousand (compared with € 766 thousand in the previous year).

Deferred income totaling € 196 thousand (previous year: € 472 thousand) derives from transactions with SolasCure Ltd. Deferred income partly includes prepayments received from customers for service obligations not yet performed as at the balance sheet date. These are shown separately in section (25) Prepayments received. A contribution of € 2,901 thousand is attributable to benefit obligations that have not yet been fulfilled (previous year: € 2,103 thousand). It is expected that a contribution of € 2,786 thousand of this amount can be recognized in revenue within one year. Deferred income of € 3,125 thousand (previous year: € 2,792 thousand) was fully recognized in revenue in the 2022/23 financial year.

24 Provisions

25 Prepayments received

Prepayments received relate primarily to research and development services and future supplies and have a maturity of up to one year. The total amount of € 0 thousand (previous year: € 13 thousand) is attributable to current benefit obligations not yet rendered.

26 Trade payables

Trade payables have a term of up to one year.