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Regulatory situation BioGaia’s products are currently sold in some 90 countries around the world. Due to their differing regulatory systems, the length of time ­between contract and product launch varies between countries. In most countries the products are registered as dietary supplements but in certain markets, like ­Turkey, Hong Kong and Peru, they are registered as a category of pharmaceuticals. There is always a risk that the rules will be changed in the different markets with a resulting negative impact on sales, at least for a limited period of time. In the EU, the use of nutrition and health claims is regulated by the European Food Safety Authority (EFSA). The EFSA rules, apply to food products that are marketed to consumers with various claims about preventative health effects, for example that a lower intake of cholesterol reduces the risk for cardiovascular disease or a food product’s ability to improve the immune defence. In order to make a health claim for a product and in marketing, EFSA approval is required. In the case of BioGaia’s products, the distributors show the clinical studies to healthcare professionals (doctors, midwives, etc.) who then recommend the products to patients because the patient in question is in more or less urgent need of the product’s probiotic effects. As a result, the EFSA rules are not applicable to the majority of BioGaia’s products. As the products are primarily recommended by healthcare professionals, such as doctors and nurses, in most countries there is no need to make general health claims in the marketing materials as would be the case if the company was marketing a yoghurt or beverage directly to consumers. If it becomes necessary to use another type of marketing for future products, BioGaia will apply for approval of its health claims from the EFSA. Together with partners BioGaia is assessing the opportunities to register its products under the existing regulations as Food for Special Medical Purposes, natural remedies or other registration categories depending on the type of product and the country involved. Employees BioGaia’s operations are wholly dependent on the employees’ expertise, and they therefore make up the company’s most valuable resource. In order to attract and retain skilled and motivated employees, BioGaia strives to create a culture in which all employees are given the opportunity to develop, influence their own work situation and maintain a good balance between work and leisure in order to avoid stress. Product liability insurance BioGaia’s partners require the company to have product liability insurance as protection against liability claims for third party damage. BioGaia has product liability insurance that provides coverage up to SEK 60 million per claim up to a maximum of SEK 120 million per year. The insurance is valid worldwide. BioGaia’s assessment is that these insurance amounts are relevant and adequate for the company’s operations. PARENT COMPANY Subsidiary CapAble AB CapAble, which is owned 90.1% by BioGaia AB and 9.9% by the company’s President, was started in November 2008 to manufacture and sell the patented LifeTop Cap. The shares in the subsidiary CapAble amount to a total of SEK 6.9 million in the Parent Company. CapAble has operated at a loss since the start in 2008. Profit/loss before tax and group contributions for 2016 was SEK -3.6 million (-3.5). BioGaia made total conditional shareholder contributions to the subsidiary CapAble of SEK 6.0 million in 2009 and 2010. BioGaia AB made total group contributions of SEK 18.7 million during the period 2010-2016. On the balance sheet date, assets in CapAble were reported at SEK 6.9 million in the Parent Company. BioGaia’s assessment is that CapAble will show profitability in the future, for which reason there was no indication of impairment on the balance sheet date.

FINANCIAL RISK MANAGEMENT The overall objective of the Group’s finance function is to secure cost-effective financing for the Group’s operations and group companies and to provide secure cash management with a market-based return on investment. The overall objective of financial risk management is to minimize the risk for negative effects on the Group’s earnings. Consequently, the Group’s financial investments must have a low risk profile. Below is a description of the Group’s assessed risk exposure and the related risk management. For more information, see Note 29. Currency risk BioGaia has revenue primarily in EUR, but also in USD, SEK, CHF and JPY, and expenses primarily in SEK, EUR, JPY and USD. In 2016 the company had a cash flow surplus of approximately EUR 23.8 million (14.5), a cash flow surplus/deficit of JPY 29.4 million (-62.0) and a cash flow surplus of USD 11.1 million (12.8). Growth in sales has also led to increased currency risks, for which reason the company has taken currency hedges in EUR, and since 2015 also in USD. For more information, see Notes 10, 11, 23 and 29. Interest rate and liquidity risk The Group has no external loans. For cash and cash equivalents, the company has a liquidity policy in which the basic principles are that investment risks should always be minimized and investments should be made primarily in Swedish kronor. To minimize currency risk, other currencies may also be considered. The company’s excess liquidity may be invested only in bank accounts, commercial paper or other fixed income securities with very limited risk. This means that no investments may be made in shares, equity funds, options, etc. Credit risks BioGaia’s credit risks are tied to trade receivables. When signing agreements with new customers, BioGaia always carries out an assessment of the customer’s financial position. The company has routines for collection of past due accounts receivable and additional evaluation of the customers’ financial position is carried out when needed in order to minimize risks. Cash flow risk Cash flow including IBT amounted to SEK 14.0 million (15.1). Cash flow included dividends of SEK 86.7 million (86.4) and tax payments of SEK 43.4 million (50.1). BioGaia’s former subsidiary IBT was distributed to BioGaia’s shareholders in March 2016. Excluding IBT, cash flow was SEK 58.4 million (56.1). Because cash and cash equivalent at 31 December 2016 amounted to SEK 243.1 million (226.9), no infusion of capital is necessary during the coming 12-month period. Price risk BioGaia buys most of its goods on the international market and has several alternative suppliers, which reduces the company’s price risk. BioGaia’s price to distributors is largely the same for all, but can vary with respect to the order volume. Certain markets are subject to aggressive price competition towards consumers. However, BioGaia’s strategy is not to compete in terms of price but to instead convince doctors of the effectiveness and safety of the products by showing the results of clinical studies.

EMPLOYEES The number of employees in the Group at 31 December 2016 (excluding discontinued operations in IBT) was 109 (101), consisting of 61 women and 48 men. The management team includes three men and five women. In 2016, 21 new employees were hired and 13 left the company. See Note 4 for additional information about employees and personnel expenses. BioGaia’s incentive scheme for the employees BioGaia currently has no incentive scheme in place for the employees and during 2016 and 2015 paid only basic salary to the employees. The warrant programme that was resolved on by the Annual General Meeting 2012 expired on 1 June 2015. A total of 65,500 warrants were redeemed and the share capital now amounts to SEK 17,336,462. The subscription price for the share was SEK 241.90 and the company was thus provided with proceeds of SEK 15.8 million in 2015.

B I O G A I A A N N U A L R E P O R T 2016

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Profile for BioGaia

2016 Financial information and Notes BioGaia  

2016 Financial information and Notes BioGaia  

Profile for biogaia