Simris Group Interim Report January-June 2023

Q2, APRIL - JUNE 2023
· Net revenue increased by 182% to SEK 677k (240k) driven by an increase in sales of Omega-3 and sales of cyanobacterial standards.
· Personnel and other external costs increased by 64% to
SEK -6 999k (-4 257k) largely driven by the new costs of staff acquired with the Cyano Biotech acquisition.
· Comparing personnel and other external costs on a “like-for-like basis” (i.e., excluding Cyano Biotech), costs increased by 22% vs Q2 2022 driven largely by investments in the launch of our new Omega-3 product in the USA.
· With the additional investments outlined above, EBITDA declined by 59% to SEK -6 439k (-4 050k). On a “like-for-like basis” the EBITDA declined by 13%.
· With the additional investments outlined above, the EBIT/ Operating result declined by 116% to SEK -10 315k (-4 767k). On a “like-for-like basis” the EBIT declined by 11%.

JANUARY - JUNE 2023
· Net revenue decreased by 66% to SEK 1 165k (3 446k). Whilst it was possible to make B2B sales of biomass in H1 2022, this was not possible during H1 2023, due to the planned pause in production over winter for essential maintenance and upgrades.
· Personnel & other external costs increased by 71% to SEK -13 290k (-7 774k) behind investments in the algae farm, marketing of Omega-3 products in USA, and the additional personnel at Simris Biologics.
· Comparing personnel and other external costs on a like-for-like basis (i.e., excluding Cyano Biotech), costs increased by 27% vs Jan-Jun 2022.
· EBITDA declined by 67% to SEK -12 438k (-7 470k). On a “like-for-like basis” the EBITDA declined by 25%.
· EBIT/ Operating result declined by 123% to SEK -19 910k (-8 911k). On a “like-for-like basis” the EBIT declined by 22%

KEY EVENTS IN Q2
· On 17th April 2023 Simris published its Annual Report for 2022 and announced that the Board had resolved to move the Company’s Annual General Meeting (AGM) from 15th May to 29th May 2023.
· On 21st April 2023 Simris confirmed an increase to its flexible funding facility from The Brand Laboratories (TBL), a company associated with Simris’ Chairman, Steven Schapera.
· On 27th April 2023, Simris gave notice of its Annual General Meeting (AGM).
· On 28th April 2023, Simris confirmed increased distribution of its reformulated Omega-3 product via a launch on Amazon.com in the USA and confirmed listings in two Swedish pharmacy chains.
· On 2nd May 2023, Simris announced it has received a significant order for biomass worth up to 4,0MSEK.
· On 5th May 2023, Simris announced the term extension on the second, and final, payment for the acquisition of Cyano Biotech, and a matching term extension to its funding facility from TBL.
· On 8th May 2023, Simris released its Interim Report for Q1, 2023.
· On 29th May 2023, Simris held its AGM and published a bulletin confirming the resolutions made during the meeting.

KEY EVENTS AFTER Q2
· On 5th July 2023, Simris announced an extension to the term of the flexible funding facility from TBL, a company associated with the Simris Chairman, Steven Schapera.
· On 5th July 2023, the Board of Simris proposed that an Extraordinary General Meeting (EGM) resolves on a rights issue of no more than ca. SEK 24,3m and a Shareholder proposed a directed issue of no more than ca. SEK 26,6m. Detailed information related to the capital raising can be found at https://simrisgroup.com/financial-information/rights-issue-2023/
· On 5th July 2023, Simris announced that it was bringing forward the date of the Interim Report for Quarter 2 from 9th August to 24th July 2023.
· On 5th July 2023, Simris gave notice of an EGM of Simris Group AB to be held on 24th July 2023 to resolve on a capital raising comprised of a rights issue in combination with a directed issue. Detailed information about the agenda for the EGM can be found at https://simrisgroup.com/financial-information/corporate-governance/.
On 17th July 2023, Simris CEO published a letter to the shareholders.

WORDS FROM THE CEO
When Simris' new board was assembled in May 2021, they knew they were faced with the formidable challenge of turning around an ailing microalgae grower with a single focus on extracting Omega-3 EPA. The company had already been listed for 5 years, had consumed all of the cash it had raised in that time, and had very little to show for it other than a loss-making microalgae farm, and a loss-making nutrition brand that didn't have European Food Safety approval for its Omega-3 product. A year later, In May 2022, I was brought in to lead a financial turnaround that would include transforming the company from a loss-making, low-margin, enterprise selling non-EU compliant Omega-3 into a profitable, high-margin, enterprise operating in the fast-growing biopharma space. We quickly moved to close on the acquisition of Cyano Biotech, since renamed Simris Biologics. This was to be the platform upon which we could make the transformation, as it provided the vehicle we needed to enter the highly-profitable biopharma world, and in particular, the market for Antibody Drug Conjugates (ADCs). At the same time, we laid down a new plan to do everything possible to lift the productivity of the Hammenhög farm, and we switched to growing higher margin fucoxanthin (for which we had secured a customer). Finally, we "re-set" our Simris nutrition brand, reformulated to ensure global regulatory compliance, and relaunched it with a D2C focus in the USA and Sweden.
Continued losses in any business are not sustainable, and Simris is no different, however many of the new costs we have here are one-off costs associated with the turnaround. Shutting down the Hammenhog facility for three months over winter so we could perform long-overdue maintenance meant sales were suspended not just for the three months the systems were "down" but also for the next six months whilst the farm was recommissioned and had produced sufficient biomass for downstream processing to begin. Likewise, relaunching the reformulated Simris Omega 3 requires significant up-front investment in inventory, packaging, marketing, and distribution. Fortunately, we are currently growing biomass to fulfil the 4m SEK order received and expect shipments to begin next month. Likewise, the re-formulated Omega-3 product was launched in the USA in April and sales are increasing albeit slowly in a highly competitive space. So, whilst the financial results are not good, they are not unexpected. Without question this is the most painful, but necessary, stage of the transformation process. The first half of 2023 was focused on making the necessary investments to support the operational changes. We anticipate that we will begin to see a return on those investments during the second half of the year.
There is no question in my mind that it will be Simris Biologics, and its ADC payloads, that will deliver the most value to Simris shareholders. This part of our business will be profitable upon securing its first license agreement and holds the potential to create significantly more value for shareholders than would ever be possible from the sale of Omega-3 or algal biomass. Unlocking this potential is, and must be, the priority of the business. However, we are also mindful that Simris has, over the years, invested heavily in its algae farm and in the Simris Omega-3 brand. We must therefore ensure we have made every effort possible for them to perform, and that we have all the relevant data points to ensure we are able to make fully informed decisions about their future. For now, it's looking favourable, but it will be another 3-6 months before we can safely say that profitability for these two verticals is within reach.
To enable the business to complete its transformation and unlock the full potential of the value within its assets, it must be properly capitalised. Now, the Board has called for an EGM to decide on a capital raising comprised of a rights issue combined with a directed issue. Funds from a successful capital raising will enable Simris to complete payment for the Cyano Biotech acquisition, strengthen the Company’s balance sheet through the conversion of a loan into shares, and provide the runway required to support the business until it secures its first ADC license agreement. Based upon the positive results in the development of ADC products, and in our commercial relationships, we believe we will sign within the coming 12-18 months.
Despite the financial performance of the business year to date I am more confident about the long-term potential of the business than at any other time. I work very closely with the Simris Board, and not a day goes by when revenue and profit is not discussed. Each month we review all aspects of our operations, and each quarter we review all aspects of our strategy. Of course, our objective is for all areas of the business to be profitable but if this cannot be achieved in a reasonable timeframe then we will again review our options and are prepared to take any tough decisions necessary to complete the turnaround and to reach profitability before end 2024.

The report is published on Simris Groups website: https://simrisgroup.com/financial-information/financial-reports/