GNI Group Ltd. (2160)

Cosnsolidated Financial Result FY2022

The following information was originally prepared and published by GNI Group Ltd. in Japanese as it contains timely disclosure materials to be submitted to the Tokyo Stock Exchange. This English summary translation is for reference purposes only. To the extent there is any discrepancy between this English translation and the original Japanese version, please refer to the Japanese version. The following information was prepared in accordance with International Financial Reporting Standards ("IFRS").

Consolidated Financial Results for FY2022 (IFRS)

February 15, 2023

Company Name:

GNI Group Ltd.

Tokyo Stock Exchange

Stock Code:

2160

URL https://www.gnipharma.com

Representative:

Ying Luo, Director, Representative Executive Officer, President, and CEO

Inquiries:

Joseph Francis Meyer, Director, Executive Officer, CFO

TEL: +81-3-6214-3600

Annual General Shareholder Meeting Date

March 30, 2023

Annual financial report (Yuho) disclosure date:

March 31, 2023

Scheduled dividend payment commencement date:

-

Supplementary materials prepared for financial results:

Yes

Financial result briefing meeting:

Yes (For institutional investors and analysts)

(Amounts of less than one million yen are rounded down)

1. Consolidated Financial Results for FY2022 (January to December)

  1. Consolidated Operating Results

(Percentages are shown as year-on-year changes)

Profit attributable

Total

Revenue

Operating profit

Profit before tax

Profit for the year

comprehensive

to owners of the

income for the

parent

year

Million

%

Million

%

Million

%

Million

%

Million

%

Million

%

yen

yen

yen

yen

yen

yen

FY2022

17,418

37.3

1,377

(15.2)

767

(30.6)

(800)

-

456

(57.2)

256

(83.8)

FY2021

12,690

29.8

1,624

(13.1)

1,107

(38.7)

55

(96.0)

1,066

(15.3)

1,577

61.2

Ratio of profit for

Basic earnings

Diluted earnings

the year to equity

Ratio of profit before

Ratio of operating

per share

per share

attributable to

tax to total assets

profit to revenue

owners of the parent

Yen

Yen

%

%

%

FY2022

9.61

9.52

2.3

2.4

7.9

FY2021

22.72

22.08

7.1

4.1

12.8

(2) Consolidated Financial Position

Total equity

Ratio of total equity

Total equity

attributable to

attributable to

Total assets

Total equity

attributable to

owners of the parent

owners of the

owners of the parent

to total assets

parent per share

Million yen

Million yen

Million yen

%

Yen

FY2022 end

33,906

19,879

21,038

62.0

443.03

FY2021 end

30,296

19,266

18,860

62.3

397.38

(3) Consolidated Cash Flows

Cash flows from operating

Cash flows from investing

Cash flows from financing

Cash and cash equivalents

activities

activities

activities

as of the end of period

Million yen

Million yen

Million yen

Million yen

FY2022

393

(4,116)

(646)

11,049

FY2021

552

(260)

2,853

14,352

GNI Group Ltd. (2160)

Cosnsolidated Financial Result FY2022

2. Dividends

Dividends per share

Dividend

Ratio of dividend to

Total amount

total equity attributable

payout ratio

Q1-end

Q2-end

Q3-end

Year-End

Total

of dividends

to owners of the parent

(consolidated)

(consolidated)

Yen

Yen

Yen

Yen

Yen

Million yen

%

%

FY2021

-

-

-

0.00

0.00

-

-

-

FY2022

-

-

-

0.00

0.00

-

-

-

FY2023 (Forecast)

-

-

-

0.00

0.00

-

3. Consolidated Earnings Forecasts for FY2023 (January to December)

(Percentages are shown as year-on-year changes)

Revenue

Operating profit

Profit before tax

Profit for the year

Profit attributable

Basic earnings

to owners of the

per share

parent

Million

%

Million

%

Million

%

Million

%

Million

%

Yen

yen

yen

yen

yen

yen

FY2023

17,100 ~

(1.8) ~

700 ~

(49.2) ~

(100) ~

(113.0) ~

(500) ~

n/a

1,100 ~

141.1 ~

22.30 ~

20,900

20.0

1,400

1.6

200

(74.0)

0

1,400

206.9

33.41

Note: Amendment from the forecast most recently published: No

Notes:

  1. Changes in Significant Subsidiaries during the Period under Review: Yes
    (Changes in specified subsidiaries resulting in a change in the scope of consolidation) New: Micren Healthcare Co., Ltd.
    Excluded: N.A.
  2. Changes in Accounting Policies and Changes in Accounting Estimates ① Changes in accounting policies that are required under IFRS: N.A.

②

Changes in accounting policies other than ① : N.A.

③

Changes in accounting estimates: N.A.

(3) Number of Shares Issued (Common Stock)

①

Number of shares issued as of the end of the

FY2022

47,487,843 shares

FY2021

47,462,943 shares

period (including treasury stock)

②

Number of treasury stock as of the end of the

FY2022

1,391 shares

FY2021

1,313 shares

period

③

Average number of shares for the period

FY2022

47,473,964 shares

FY2021

46,924,021 shares

  • This consolidated financial report is not subject to audit procedures by certified public accountants or an auditing firm.
  • Explanation Concerning the Proper Use of Financial Results Forecasts and Other Relevant Specific Items
    Forward-looking statements including earnings forecasts contained in this report are based on currently available information and management's assumptions and beliefs regarding uncertainties that may impact future earnings forecasts. The Company cautions readers that actual results may differ materially from forecasts due to a variety of factors. For the assumptions that underpin financial results forecasts as well as other related items, please refer to "1. (5) Outlook for the fiscal year ending December 31, 2023."
    The Group is planning to conduct a corporate presentation meeting for institutional investors and analysts on February 17, 2023. Briefing materials used at that session will be posted on the Group's website.

GNI Group Ltd. (2160)

Cosnsolidated Financial Result FY2022

Contents

1. Analysis of Operating Results and Financial Position ……………………………………………………...

2

(1)

Analysis of operating results …………………………………………………………………………..

2

(2)

Analysis of financial position ………………………………………………………………………….

5

(3)

Analysis of cash flows ………………………………………………………………………….……...

5

(4)

Research and development activities …………………………………………………………………..

6

(5)

Outlook for the fiscal year ending December 31, 2023 ………………………………………………..

7

2. Basic Policy on the Selection of Accounting Standards …………………………………………………….

7

3. Consolidated Financial Statements and Notes …………………………………………………….………...

8

(1)

Consolidated statements of financial position ………………………………………………………....

8

(2)

Consolidated statements of income and consolidated statements of comprehensive income …………

9

(3)

Consolidated statements of changes in equity ………………………………………………………....

11

(4)

Consolidated statements of cash flows ……………………………………………………….………..

13

(5)

Notes to consolidated financial statements ……………………………………………………….……

15

(Notes related to going concern assumptions) …………………………………………………………

15

(Basis of preparation) ………………………………………………………………………………….

15

(Segment information) …………………………………………………………………………………

15

(Earnings per share) ……………………………………………………………………………………

19

(Important subsequent events) …………………………………………………………………………

19

- 1 -

GNI Group Ltd. (2160)

Cosnsolidated Financial Result FY2022

1. Analysis of Operating Results and Financial Position

  1. Analysis of operating results

GNI Group ("we" or "the Group"), consists of GNI Group Ltd. ("the Company" or "Tokyo Headquarter) in Japan and its subsidiaries, most notably two major revenue / profit contributing subsidiaries (Beijing Continent Pharmaceutical Co., Ltd. ["Continent"] and Berkeley Advanced Biomaterials LLC ["BAB"]). Additionally, the Group holds two major entities that are cost centers by design: one is dedicated to oncology-related R&D investment spending Cullgen, Inc. ["Cullgen"]; the other entity is the Tokyo Headquarter which provides essential group-wide corporate planning, accounting, banking and administrative services as a listed member of the TSE's Growth board. Several smaller subsidiaries also provide the Group with strategic growth optionality. In the Pharmaceutical Segment these are Shanghai Ruifu International Trade Co., Ltd. ("Reef"), Shanghai Genomics, Inc. ("SG"), Shanghai Genomics Technology, Ltd. ("SGT"). In the Medical Device Segment in addition to BAB, we invested in Q4 2022 and took control of 60% of a regulatory and Designated Marketing Authorization Holder ("DMAH") consulting specialist business whose customers are offshore medical device product manufacturers seeking access to Japan. Please note that the Group's consolidated financials are heavily influenced by income / loss from investments, tax, currency-exchange rate, and non-cash items. The Company's ownership percentage in each subsidiary may also have a significant impact on profit attributable to owners of the parent.

In 2022, the Group's revenue in the Pharmaceutical Segment grew even while facing the most challenging pandemic conditions in modern China history, although the pace was slower than we expected at the beginning of the year. The group's revenue from the Pharmaceutical Segment was JPY 14.9 billion, up 37.6% compared with 2021, including RMB 688.6 million from CONTINENT, up 18.8% from 2021. Continent's Operating and Net Profits reached RMB 189.5 and 151.6 million, respectively, the highest in history.

Higher operating profit of Continent is partially offset by many factors: one-timewrite-off of RMB 20.4 million (JPY 395.3 million) of IPO listing expenses incurred before we decided not to pursue HKEX listing further but rather to seek the transactions with Catalyst Biosciences, Inc. ("CBIO") in the U.S. (please refer to the disclosure on December 27, 2022); significantly increased R&D spending at Cullgen for targeted protein degradation ("TPD") drug platform with multiple IND1)-enabling studies to build a future pipeline in cancer and inflammatory diseases; and slightly elevated selling expenses due to frequent lockdowns during COVID-19 pandemics in China. In addition, due to the challenges which buffeted the global biotech sector in 2022, the value of our shares in private company CellCarta (formerly Reveal) was reduced by 51.3% to USD 2.4 million after a third-party appraisal, and the value of our shares in public company, Societal, formerly known as Recro Pharma, was reduced by 12.9% to USD 251.4 thousand. As a result, the segment profit of the entire Pharmaceutical Segment (including Continent, Cullgen, Reef, SGT, SG) was JPY 431 million, down 56.1% compared with 2021. At Continent alone without the one-time expenses of the lapsed IPO, its Operating Profit would have been RMB 209 million.

1): Investigational New Drug. Request for authorization from the authority to administer a clinical trial of a drug

Our Medical Device Segment has also resumed steady growth in the U.S. and achieved a record revenue of JPY 2.5 billion, up 31.4% compared with 2021. High inflation rate in the U.S. slightly impacted the segment profit of the Medical Device Segment, which was JPY 946 million in 2022, up 47.5% from 2021. We expect this segment's revenue will also continue to grow in 2023.

Finally, additional spending was recorded at the Group's headquarter in Japan due to additional spending on professional services for M&A activities and enhancement of management team by hiring more executives / managers.

Taken together, although the Group's consolidated revenue for the entire fiscal year 2022 was JPY17.4 billion, up 37.3% YoY reaching the record high in the Group's history, the Group's full-year consolidated operating profit came out to be JPY 1.3 billion, down 15.2% YoY. The Group's consolidated full-year profit before tax was JPY 767 million, down 30.6% YoY primarily due to non- cash accrual of the interest expenses of USD 6.4 million related to Cullgen's past financing as the financial expenses. As a results of discussions with the auditor, our assignment of F351 IP ex-China to CBIO as a part of our reverser merger generated Other Income of JPY 432.2 million based on the value of our initial ownership of 6,266,521 common shares of CBIO under IFRS at December end, 2022. We note that, on the other hand, our tax advisors have opined that USD 35 million in economic value of the transaction, agreed upon by both the buyer and the seller, will be considered as income for tax purposes in Japan.

Recently, the biotech sectors in the global stock markets have started to warm up. We will watch for signs of improvement because these factors will significantly impact our consolidated full-year profit in 2023.

Finally, the Group's consolidated full-year loss after tax was JPY 800 million. Income tax expense was JPY 1.5 billion yen, which was

- 2 -

GNI Group Ltd. (2160)

Cosnsolidated Financial Result FY2022

high compared to profit before tax of JPY 767 million. The reason is that while the income generated by Continent, BAB and other profitable subsidiaries are taxed respectively, the loss incurred by cost centers like Cullgen and Tokyo Headquarter cannot be recognized as deferred tax assets because taxable income is not anticipated in the foreseeable future in those entities.

The Group's full-year consolidated profit attributable to owners of the parent was JPY 456 million, down 57.2% YoY. Profit attributable to owners of the parent is higher than profit / loss after tax primarily because the above loss is distributed to the other owners of Cullgen, and only the loss that belongs to the Company is booked in our profit attributable to owners of the parent. Please note that the Group's holding is higher in profitable subsidiaries such as Continent (56.0%) and BAB (100%) than in R&D-heavy Cullgen (28.3%) in 2022.

Beijing Continent Pharmaceutical Co., Ltd., just like all the other companies operating in China, has been negatively impacted by the multi-month lockdowns in many places in the country and followed by a rapid spread of infections in December after the zero- COVID policy is lifted in China. However, Continent achieved 19% YoY growth in RMB terms, which is a marvelous achievement. Net profit reached RMB 151.6 million in 2022. COVID-19 impacts throughout China have caused Continent to delay by three months the clinical trial for F351 vs the original target of patient enrollment completion in the middle of 2023. Continent is carefully monitoring the pandemic situation and devising a measure, such as increasing the test sites, to catch up after the turmoil calms down. Please note that Continent has terminated its plan to list on the HKEX for the foreseeable future. Consequently, it has written off the accumulated IPO expenses of RMB 17.0 million that had been capitalized.

Berkeley Advanced Biomaterials LLC grew steadily in the US during 2022. Its revenue for the whole year grew by 10.4% YoY in local currency terms and has been a steady source of cash distributions to GNI USA. For BAB, we see 2023 as an important year to embark upon business expansion of its bone replacement raw material for usage in various aesthetics applications internationally. The Group has also decided to invest USD 1.3 million into Shanghai Ruixing Medical Equipment Co., Ltd. ("Ruixing") in 2022, specializing in derma filler, utilizing the similar bone filler platform. We are excited to pursue a wider use of the biomaterial platform in 2023. Ruixing is planning to change its name to Osderma Medical later this year.

In Japan, as announced in October 7 and December 1, 2022, the Company further expanded Medical Device Segment by investing JPY 360 million for a 60% controlling position in the regulatory consulting firm, Micren Healthcare Co., Ltd. ("Micren"), formerly owned 100% by a subsidiary of EPS Holdings, Inc, EP Mediate Co., Ltd. With 10 staffs and approximately 30 clients, Micren is a Designated Marketing Authorization Holder (DMAH) and in-country caretaker service provider for foreign Medical Device companies seeking to access the Japan market. Micren's financial results will be included into our consolidated financial results starting 2023.

Cullgen, Inc represents the Group's investment into the cutting-edge drug discovery platform of targeted protein degradation (TPD). We believe it is the single most important investment for the Group's long-term future. Cullgen filed their first IND for a cancer drug candidate using a TRK degrader in 2022 when the COVID-19 lockdown in Shanghai was at its peak. The subject enrollment of Phase I clinical trial for TRK degrader is expected in Q1 2023. Multiple other IND-enabling programs are also progressing. In 2022, R&D spending increased by 13.6% in the U.S. and 33.2% in China, respectively, in local currency terms. Please note that, due to JPY depreciation to USD, R&D expense increase coming from Cullgen has a higher impact in JPY on the Group's consolidated financial results. To generate a return on our investment in Cullgen, we will seek listing of Cullgen in the future.

As disclosed on December 27, 2022, the Group has entered into a series of strategic transactions with CBIO, a Nasdaq-listed biotechnology company. Utilizing CBIO as a platform, this corporate event forms a base for secular advancement of our fibrosis drug development in the USA while leveraging the Group's well-established clinical research and drug development platform in China. For more information about the CBIO reverse merger, please refer to our disclosure on December 27, 2022 and subsequent FAQ's published on December 30, 2022 and January 18, 2023

The exchange rates used for the Group's fiscal year 2022 consolidation are as follows:

Statements of financial position

Statements of income

1 USD = 132.70 JPY

1 USD = 130.77 JPY

1 RMB = 19.01 JPY

1 RMB = 19.38 JPY

  • Operating results by segment Pharmaceutical Segment

- 3 -

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GNI Group Limited published this content on 15 February 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 February 2023 07:24:08 UTC.