Evolva Holding S.A.

Hello, and welcome, everybody. Thank you for participating in our half year results 2020 call.

Before we start, I’ll just read you the safe harbor statement. During this call, we'll make forward-looking statements about the event and circumstances that have not yet occurred, including projections of Evolva’s operating activities, our strategic plans, and the anticipated financial impact on our business and financial results in 2020 and beyond.

Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors, which may materially different from any future results, performance, or achievements expressed or implied by such statements. In today's call, Oliver Walker and André Pennartz will elaborate on the progress achieved in the first half of the year and will then be available for a Q&A session.

Before we begin, I'd like to note that the press release, the presentation and the financial statements are already available on the Evolva website. And with that, I'll hand it over to Oliver.

Thank you, Barbara. Good morning, good afternoon and a warm welcome also from my side.

We are living in challenging times. But we are increasingly learning to live with it, as COVID-19 has become part of our daily life.

In this challenging environment around the globe, we have delivered resilient performance. But let us jump directly into the slide deck and have a first look at slides five and six, the highlights of the first half year.

We have completed the transformation to a product based company. The registration of nootkatone with EPA marks a major milestone in building our company.

With this, we have now all commercial building blocks in place to grow our business to and beyond cash breakeven. Customer demand for our product has significantly increased.

This is highlighted the clearest by record order intake of CHF 6.2 million, strongly driven by Health Ingredients Resveratrol. These we could not realize in full due to supply shortages caused by COVID-19 at some of our CMOs.

Still sales grew by 27% over prior year, despite the low demand for Flavors & Fragrances product caused by COVID-19 too. Since sales volumes have become sufficiently big in size, we have started to move our major product to commercial scale contract manufacturing organization.

This step is needed to support future growth and to realize competitive product cost. These CMOs are predominantly European based, to create the necessary proximity to our technology functions based in Switzerland.

We will see a first positive effect of these changes in the second half of the year, for which we target positive gross margin. The supply delays at CMOs and the lower demand in F&F has impacted our reported EBITDA.

Underlying product-based EBITDA, however has improved, Andre will go into more details on that subject. With the soon completion of the BARDA project, R&D revenues have started to fade out as plan and our financial performance has become vastly product-based.

Consequently, we are starting to increasingly reference to product-based financial performance tool. Slide 6 shows the performance we have realized with you to the main KPIs we'll track.

As you can see, we have by now developed an innovation pipeline that is delivering new products on a regular basis. After the highlights, we now have a look at our strategic priorities.

For this, we moved first to slide 8. As you can see from this slide, our strategic priorities have moved towards delivering a constant flow of innovation, refined approaches in our commercial activities and putting together, a set of commercial scale CMOs to support as I have already mentioned, the next phase of development of our company, which is to realize profitable growth.

On slide 9. The completion of the transformation to a commercial company with a revenue based model becomes very clear.

Now to slide 10. With the constant flow of innovation, our product portfolio is becoming increasingly diversified and sales volumes are considerably growing.

Consequently and as already mentioned earlier, we are onboarding commercial scale CMOs that can support growth and enable profitable sales in future years. The next slide is the familiar one that we have shown already at former results conference calls.

Two update to commence to it. First, we have meanwhile started to open the bigger market segments shown on the right hand, lower corner, and we call that Vanillin to the graph two.

Second, we have become a driving force in the residential market segment, thus lifting market growth rate above 10% annually. Let me wrap up these last slides with slide 12.

We have successfully completed the transformation from an R&D stage organization with a services-based revenue model to what you can see now Evolva being a commercial company with innovative technology at its core and the product-based revenue model. We'll go now on to the next chapter, the business update, which starts with slide 14.

As shown on an earlier slide, we are increasingly diversifying our product portfolio. However, focusing on these three business segments and being able to market products with clear perceived differentiation and a competitive cost position too.

Moving on to slide 15. While we see early signs of recovery of the demand for our F&F products, new innovative products will further drive growth of this commercial business too.

For the new compounds which we coded EVE-X157, we have started commercial terms discussions with multiple customers. And we have made progress in optimizing Vanillin for expanded commercialization in future years.

Let's go to slide 16 on Health Ingredients. Our commercial strategy for Health Ingredients is built on leveraging health benefits of resveratrol by promoting results gained through clinical studies and by providing a portfolio of resveratrol variants that meet the needs of customers.

Persistent execution of corresponding commercial activities led to a significant increase of customer demand and major consumer packaged goods companies and multi-level marketing companies to evaluate resveratrol. Our recently launched soluble version of resveratrol, Veri te Aqua, is adding to this trend, as it has been designed to be used in functional beverages, a fast-growing market segment.

In the first half of the year, Health Ingredients were the main driver to our record order intake. Due to the delays at some of our CMOs as already mentioned, we had to even stop accepting customer orders for around two months as timing of shipment was unclear during the lockdown.

This has clarified in the meantime and we can again recognize a nice order intake, story continues. And we continue on slide 17.

The registration of nootkatone as a novel active for pest control applications is the people who step towards building, a commercial health protection business with a registration comes along a 10-year exclusivity in an estimated US$350 million market. This is the U.S.

alone. Since the publication of the registration, the list of companies interested to develop and market consumer products containing nootkatone is growing on a daily basis.

Based on the sales pipeline and the dedication shown by interested companies and considering the required time to register an end-use the product with EPA, we are on track for first sales late 2021-2022. While starting to build our U.S.

Health Protection business, we are evaluating expansion to countries facing their regulatory approval on U.S. regulatory approval.

On the next slide, slide 18, you'll find some update comments on EverSweet. There are no material developments since the last communication, but given the positive feedback Avansya is receiving from customers on the repetitive basis, we anticipate royalty income to grow over time.

With this, I hand over to André for the presentation of our financials. André, please.

Thank you, Oliver. Ladies and gentlemen, I'm pleased to welcome you to the financial section of our first half results presentation.

Moving to slide 20, as already mentioned by Oliver, Evolva has transformed from an R&D stage organization into a product-based company. As a consequence, the development of product-related revenue will determine the success of the Evolva in the future.

Product-related revenue increased to CHF3.8 million from CHF3 million as a result of higher marketing margin, particular driven by Health Ingredients. However, Evolva customers as well as suppliers have been negatively impacted due to COVID-19 and the lockdown measures in the majority of the markets, especially our valencene and nootkatone products within the fine fragrance market were impacted.

Our CMOs were impacted by a shortage of raw materials and the delay of delivery of needed production equipment. As a result, they were not able to deliver on time the materials required for orders of approximately CHF2.4 million.

The decline of R&D revenue reflects mainly the completion of R&D contract with BARDA and it's aligned with our guidance given to the market. Our gross profit development is mainly the result of the fading out and it also reflects an extraordinary impact driven by COVID-19 of CHF5 million due to the shortfall in the phrase -- in the F&F segment and increased costs with CMOs.

With the partial easing of lockdown measures, we are confident to compensate the shortfall during the second half of 2020. Our implemented systematic cost control and further efficiencies gained from the optimization of our organization resulted in a reduction of 400,000 cost within our operational expenses.

Excluding the extraordinary interest in a provision related to the former R&D collaboration with DTRA, our OpEx had decreased by 9%. Evolva’s cash position decreased to CHF25.3, of which CHF40 million results from operating free cash flow.

With this I move to the slide 21. As already explained previously, our cash position decreased to CHF25.3 million and this was mainly the result of higher cash outflow of the operating activities.

Because of the positive demands and order momentum, Evolva needed to increase the net working capital to satisfy customer needs. As a consequence, our inventory of finished and semi-finished products increased by CHF1.7 million.

Our safe inventory and operational planning helps us to better understand the demand of the product. And with the partial releasing of lockdown measures, we are confident to neutralize that increase during the second half of 2020.

Since our products have reasonable long shelf time, we do not expect any negative quality impact. Furthermore, our trade and other receivables increased by CHF1.7 million, mainly because of increased product sales in the second quarter 2020 and increased tax receivables.

As addressed by Oliver, Evolva entered in June 2020 into an agreement with Nice & Green to secure our financial needs and further grow operations worldwide. With this, I will move to slide 22.

You can see a breakdown of the individual components that contribute to the movement of Evolva’s EBITDA. Starting from our first half EBITDA 2019 of minus CHF5.5 million, the fading out of R&D negatively impacted our EBITDA by CHF3.3 million.

As a result, we get the first half of 2019 product-based EBITDA of minus CHF8.8 million. As a positive factor driven by our implemented systematic cost control approach together with further efficiency gains as a result of the optimization of the organization, we were able to improve the product-based EBITDA by CHF1.8 million as explained by Oliver in the introduction.

Evolva was affected negatively by the lockdown activities as a result of the pandemic, as well as needed to capture an extraordinary expense of CHF0.7 million for the increase of the provision related to DTRA. Both negatively impacted our first half product-based EBITDA by minus CHF1.5 million.

The first deferred contribution from the new collaboration agreement with IFF supported positively EBITDA. With this I have finished the financial part of our first half 2020 result presentation.

And I’ll hand back to Oliver.

Thank you, André. Now before we get into questions-and-answers, let me go through our updated outlook for 2020, which you'll find on slide 24.

The outlook assumes no further lockdown measures being imposed due to COVID-19 and business environment being largely consistent over the rest of the year 2020. Despite this challenging global environment, we expect product related to revenue to double over prior year.

As COVID-19 will still have some impact as well in the second half of the year, we expect EBITDA loss to be above prior year level. However, important to note, sales in the second half of the year will generate positive gross profit.

Because of COVID-19 and the investments mainly into building our new CMO network, as already explained in the previous outlook, explained in March 2020, cash outflows will be above the 2019 level, so no change. With this, we conclude our presentation and we can start with the Q&A part of our call.

For this, I hand back to Barbara or respectively the operator to start the Q&A.

Hi, good morning. I have two questions.

First of all, in terms of nootkatone and the U.S. EPA approval and registration, can you perhaps give us a bit more detail in terms of interest outside the U.S., perhaps in Asia?

You refer in the press release to other countries who might follow sort of U.S. EPA registration protocols.

And secondly, in terms of the CMOs, you say that in the first half, there were some delays in terms of actually fulfilling the contract? How confident are you that they can compensate for the H1 delays in H2?

You've explained that you've increased your network, et cetera. Do you think that you can basically make up all the backorder for H1 in H2?

Thank you.

Thank you, Sara. Very good question.

So, number one, I take actually the second as number one, CMO related question. Yes, we absolutely think of not only making up for the 2.4.

So to deliver the backlog, but actually to continue growing the Resveratrol business segment, because the inflow of orders is really significant, and it continues and what I hinted to with the CPG companies and the MLM companies, the really big once, we don't have actually the culmination point in front of us long, long -- not -- that will still go a lot of -- how to say, we will see a lot of growth before we see sort of culmination. So in this respect, the very positive momentum continues.

Now, going back to the CMOs, as we are following the light strategy today, indeed we are, depending on CMOs, we have -- we try sometimes even to have multiple CMOs in place, which is costly, unfortunately, but what I can tell you is, we have done the necessary tech transfer, we gave them the necessary support. We have seen -- starting productions and first commercial batches we have received from the new CMOs as well.

We have agreements in place. Again, what I said is, COVID, we expect to be consistent.

No one has the interest of another lockdown. They have started to live and learn to operate with some limitations, COVID-19 related.

And they have the capacities and they have actually the necessary equipment to realize the cost efficiencies that we have visibility, clear visibility on, and this is, as you could see, one of the charts with the diversified portfolio, applicable actually to all of our products. So we know that we can actually generate nice gross profit margins with the whole product portfolio.

And it was really the need to switch over to the CMOs. So having settled our assets, there is actually no reason why for the CMOs not to perform.

It's also generating how to save money through actually producing for us and us actually generating business with our customers. So in this respect, I'm actually not confident only because of being confident, but there is reason to be confident.

Okay. Thank you.

And with regard to nootkatone?

Oh, sorry. Exactly, nootkatone interest outside U.S.

well, the thing is actually that, I think globally, there are a lot of companies, its different level, however for a country. I mean in U.S., there are sort of CMOs.

There are industrial companies. There are big CPG, small CPGs, really some garage companies everyone is excited and interested, including consumers.

And we are pretty much flooded with a lot of – of calls we have prepared to how to say digest actually all that slops absolutely positive to the positive – or to create positive momentum towards also going forward. But, in fact, outside the U.S., it is mainly in the professional community so far, not yet on a consumer level.

But that doesn't matter too much. And as I said, we are looking into countries that are basing their regulatory approval on the U.S.

regulatory approval that we have already received, which should be then sort of a fast track registration really fast, which is more of a notification almost and there are some Asian countries where that this is clearly applying. In EU, which is certainly very interesting and as we follow the EU regulations in Switzerland too, I would like to actually to get that also to our Swiss folks product.

And this will take us a little bit longer. We try these days to connect with EU to get on to sort of also emergency program.

But that probably will still take its time, and therefore to bridge somehow, the gaps to EU, we are looking into these other countries where actually the registration will be sort of easier. So the interest is sort of global.

I think, if you look into like pet segments as an example, just to highlight one of the segments. We are actually getting into you have like in U.S., you have Fipronil, an active that is being sort of sold, used with frontline, one of the products that probably many of you know having dogs, and Fipronil has been banned for human applications or application with human beings.

And a lot of – people actually expected being banned actually as well for animals. So then the industry will be left over with nothing.

And I think, there are some market segments really which need success to existing chemicals. And this is a global – globally applicable situation, not only valid for the U.S., but it will take time, as I said, actually, outside the U.S.

also to get the registrations done. And that's the reason why we want to bridge for the countries I have mentioned.

Okay. Thank you.

Welcome.

Good morning, and thank you for taking my questions. Just a follow-on on gross margins.

Where about at the moment are underlying products gross margins relative to the target is about 40% that I think you've always mentioned in the past. And what I'm trying to reconcile is, I believe in the past the company has stated there is gross margins through resveratrol and this could turn to positive.

If that is the case, is the only reason there was no gross profit in H1, the fact because of Corona cause on CDMOS? That's my first question.

Thank you, Sebastian. Good question to get into to clarify the situation further.

So the situation is as follows on with F&F, so which is valencene and nootkatone, predominantly we are already generating actually these target margins. We are even above slightly.

So in this respect, we are already there. The big share how to say missing one so far was actually resveratrol, which was requiring really to move resveratrol as a compound to a new CMO, because these initial ones and that's the thing if you have smaller production volumes, you cannot get go to the commercial scale.

CMOs they are not interested really. Now we have like qualified, one can even say.

And these bigger CMOs, actually this commercial scale CMOs they can really go for bigger volumes, but also much lower cost. And I also mentioned and I think this is now like 15 months, 18 months ago, we started to have visibility that with the processes, with the strain that we have, the resveratrol production strain, actually we will achieve absolutely the target margin that you have mentioned.

The thing was only to get to the right volume in order to actually really get the interest and then also drive the necessary economies of scale with new CMOs, which is also needed, by the way as we are hitting bigger and bigger customers, because these bigger customers are looking for bigger volumes being supplied. And, therefore, that is another reason why actually we have to go to a commercial scale CMOs.

So, while having visibility for resveratrol as well to the target margins from a technical point of view, we just had to do this step actually moving there. And that's the reason for all our actually efforts that we have mentioned so often, the investment that leads to this cash outflow, which is predominantly really driven by investments into the new CMO network, plus the build-up of inventory where we can, for some product categories we are just simply sold out because of the reasons mentioned.

So we are preparing for actually period -- the new period, new phase, which has actually start already in the second half of positive growth profit margins, they will still expand. That's also clear, not with the first batches that already targets profit margins.

But that will actually ramp up so that we are both next year into position to have actually a much nicer profit margin on the gross profit level. And that we have really the necessary, how to say capacity on a CMO level to support growth, because as I said, I mean, first half we even have sometimes, okay, that was lockdown specific, but we have to even stop taking orders, which is the most painful thing because we are facing this very big, actually customer demand.

Can I ask about the expected sales split? Am I right in saying that a large majority of this year's sales are expected to be resveratrol?

Yes, that's that somehow as a large it's a -- how to say, dominating part, it’s true. It's not the vast majority, that's not true, because we still have a nice F&F basis and there is really that the industry is having more faith again and starts to order again and the fine fragrance probably will still take a little bit of time until they are getting back on track.

This is also clear, but F&F it's still relevant. And with the launch of what we called it EVE-X157, we actually will -- which we will launch with first commercial sales around the year end, we will launch a significant compound, I mean, this is the -- what is the yellow bubble actually on the bubble chart, right, attractive market, which is the 250 million market segment and we have a very competitive cost position, and we have a clearly functioning compound.

So, in this respect, actually F&F will also grow a lot in size over the next years. And then rebalancing again the expected business split, but you're right for the second half actually of the year and therefore for the full year 2020, it is certainly quite dominated or the larger part is Healthy Ingredients.

And last one from a capital need, if there is an underlying operating cash flow burn of CHF10 million to CHF15 million for each half year at Evolva, could we just go through the potential items other than the operating ones, that Evolva will need to come to EBITDA breakeven. And I'm thinking in particular with the CHF5 million payout to the U.S.

Defense Agency, I think Defense Threat Reduction Agency, there -- is there any potential incremental investment in facilities that Evolva will need to make either on its own or in combination with CDMOs? That could add to this figure, let's say, CHF10 million, CHF15 million to implementation capacity are partly owned or are other any other sources of capital outflow we should be thinking of?

Yes. No, no.

And at -- by the way, again, thanks for that question, because we cannot extend sometimes our initial speeches for too long, but this is a really very good question needed in order to clarify, so we will not have two times CHF15 million cash outflow this year, that's by far too much. So, what you can do is actually you can still go back to the guidance in March and add a few millions -- really, if you only, as you can see in the EBITDA bridge, et cetera, that André has explained, because that's the COVID effect that in terms of cash outflows for CMOs, so far we do not see actually a large need of really investments.

That's not the case. So, it will be less.

And afterwards, I will say, once we are having that behind us, we get into a more regular mode again of investment. So, that should normalize.

And if we have one of these bigger CPG companies sort of giving us order then many times, it happens actually, that they are even financing, separate production lines is required, because then we talk really about much bigger volumes, which we hopefully get into over the next few years pretty quickly. And therefore, there should be sort of still a normalization.

You said own manufacturing capacity, so far, actually, we have built our business model on a capitalized strategy, I think what is important is to keep capital discipline. So we will not get into excessive, investments and so on, like, let's say in the past, my predecessor sometimes wanted to get into.

So, if we ever get into old manufacturing, then it actually has to be very quickly accretive to our financials for various reasons and it has to clearly pay itself, because otherwise, your investment after the investment, after the investment that cannot be the case. So, you can actually rely on the earlier guidance that we have given now for 2020, the normalization for the subsequent years.

And if ever, they would be sort of getting larger into manufacturing, you can rely on us that we actually would only go into it, if we see a clear positive business case actually for investors, for all stakeholders, including the capital market.

All right. Thank you for taking my questions.

Very much welcome, Sebastian.

Yeah, yes. Hello, everybody.

Just – as three if I may. First question, first is I didn't understand you – for nootkatone you always closed contracts or continued product produce at nootkatone or you're just in conversations?

The second question is from the 350 million market potential you mentioned before, what do you expect will be your piece of cake that is 350 million respective for your – for your products? And the third question is for EVERSWEET, and – are the production costs now or on a level where the product is comparative to other sweeteners like corn sugars or how you make their progress?

So there were my three questions.

Thank you very much, Michael. Very good questions too.

Happy to answer actually, at least one. So nootkatone for health protection you certainly talk about, now in the first question.

The – we actually do not get into agreement really supply, I have to say, longer term supply agreements with customers, because we have something very unique on our end, nootkatone being registered, we have this 10 year exclusivity, and we want to make sure that actually everyone is running like hell for getting some market share. The second is, we have this trend towards more natural and we have some of the bigger market participants, which are somehow locked into this chemical stuff with sweet and so on.

And they want to actually move over to also more natural, but we want to see them first demonstrating that they really do this move really are both in terms of positioning and more natural product in the marketplace. So, such actually this would be a dangerous thing to give away sort of flexibility, also margin potential by entering into agreement, some people then going in for exclusivity and so one, which I have no intention – we have no intention actually to do so.

And everyone is like running onto pet segment, because of the reasons that I've said, I mean, there, they are really everyone wants to be in the pole position. Everyone wants to be sort of first and that's sort of the situation, I think everyone likes that has a turnkey sort of – of how to say market instruments at hand, which we have with nootkatone.

Then the US$350 million market is on a compound level. So our partners, I mean, they -- if we can, I mean, there are always partners, certainly, even if we have no longer term agreements, customers are our partners.

And they are already on the next level in terms of value chain. So, for them, it's actually in the billion, what is the market potential for them to get.

So the $350 million is actually our level. So the compound level and it's too early to say how much we actually will be.

One indication perhaps maybe, but which is maybe only, I mean, the more natural ingredients, they are today, I think, trending towards 10% market share. Fact is that, if you look at lemon, you look eucalyptus, whether you look at some other of these naturals, its hard to see that they really are effective.

I mean, they are natural yes, but they could see they don't have -- not at all to the same extent we have. So, we have a frequency that is comparable to BIT and other chemicals and because of that, I think we are also have a better sort of, let's say alternatives to the chemicals, but where then exactly the market will, how to say, go to, is the big question.

So, we can -- our market share in the overall $350 million depends on the consumer in the end, on CPG companies that we have, the right ones also, not only big ones, but also small ones. We proudly partner with small customers, especially, because they are much more innovative.

They are actually really also positioning products completely different. They are interested parties from cosmetics, actually, industry that see business opportunities from other areas.

So, therefore, it's too early to be said, but I think it is not a 1% or so, it should be more. That's also underpinned by the fact that CDC, the Center for Disease Control in the U.S., government agency, even EPA is now issuing communication, positive communication about us, our compounds.

So, I think, there is huge support, and they wouldn't do that for a fraction of the market share. They do that because they believe that we should become sort of more relevant, I call it, sort of, market participant.

But what that exactly means that's too early to be said. EverSweet, cost competitive position.

You’ve mentioned also very good question. I think, already, the initial strain that we had provided was in manufacturing at the different level.

There is a technical level and then in manufacturing, you can actually create quite some efficiencies which Cargill also has done, even in the initial phases. So at that time, it was already cost competitive and with the improved improvements that were contributed from the Sam’s end on our strain, actually, initial strain, it is now not a question of cost, but it's really a question of this -- how to say, customers of Cargill.

Yeah. Just eventually doing these product launches that, it's a long journey, a little bit comparable to what we are sometimes see on our end as well.

It takes quite some time to actually -- to ramp up a CMO there, where the CMO on their own right, Cargill manufacturers in Blair, Nebraska, but that was also not going without any delay. They had some delays.

They took DSM sometime, not a lot actually, they were really fast, but still it takes a little bit of time and they have to resample customers not because of the of the test part, but because of the manufacturing part. So, because the granularity perhaps of the powder was slightly different and if you have mass manufacturers like or CPG companies like Coca Cola or Pepsi et cetera, everything has to work out, manufacturing really very nicely.

So, they wanted to retest the new powder coming out of the new improved strain in order to make sure that they do not suffer any breakdowns in manufacturing process et cetera. So, this is a long journey and then in the end on top comes that, a Coca Cola and you can see that from all their ads and so on, they are also looking into trying to figure out what we consumers think, which is the mega trend is clear, but how to migrate from today product mix to a new product mix?

That's the big question. And that’s by the way; a big analogy to look at on it's the same.

So as a big company relying on chemicals, this whole shift to something more natural or it's a huge challenge because it is marketing claims, it believes that they have created with consumers and so on that you have to change and it's not easy actually to do that. That's the reason sometimes you need new market participants in the case of beverages, I mean, they are companies like Danone et cetera.

They want to play also role on the beverage front, which was not the case some years ago. And because of all these of these, obviously, supporting facts, I think we can be absolutely positive that we will see sometimes royalties really nicely growing.

But it has taken time.

Just the third one, can you claim nootkatone EverSweet as natural or is this forbidden at the moment because it's a biotech product?

Yeah. The natural is not defined by FDA or another agency.

So no one can actually use the natural unless it is coming from plants and from plants then these extraction mode even has to be super, super clean, because otherwise it's still not natural, so even plant extraction is many times not natural. So in this respect, that's also why EPA talks about the first bio pesticide, which is actually the key thing also for consumers.

That it's a bio pesticide and not a chemical compound that has been artificially designed by some great chemists; it is sort of a more artificial design. So, our compound is based on nature.

And for this reason, actually we have everything in place that is needed to make the difference.

Okay. And is this problem for the consumers that you can't claim that’s natural, do you see that as a problem or is it…?

No, the consumer, the U.S. consumers they are completely used to this that natural is really very limited existing industry as it sound, I don’t know one at least variants of, how to convey the message of natural without using the word natural, that’s like bio pesticides, I think this is also clear.

And, therefore, consumers they are completely used to that, that's not at all of a concern.

Okay. Thank you.

Okay. Thank you very much.

Welcome.

Thank you. Great question.

Yes. Hi.

I just want to ask you a few questions. Firstly, on gross margin, on the second half, just to continue the discussion from one of the previous questions.

On the second half, what is your expectation for gross margin? Will we be already in on the 40% plus range?

And can you give us a feeling for 2021? Then second question on resveratrol, what kind of run rate will we see this -- in the second half of next year?

Are we moving from niche healthcare to more mainstream products, vitamins or food products such as yogurt et cetera? And then just wanted to discuss the run rate for next year in terms of revenue growth, for the second half, they were close to year-on-year of 200% and admittedly, it's because of the backlog.

What kind of growth rates could we see in 2021 on the back of all these product launches? Can you give us a sense for turnover in 2021 or growth rates in 2021?

Thank you.

Very much welcome. I will happily go into it, Jonathan.

So, let's take the last first. The growth rates, I mean, 2021, we do not comment yet, because that's -- that we will do with the full year numbers giving a guidance for 2021.

But I'll give you an indication coming from the other end. We now clearly see from a commercial demand -- customer demand perspective, across our portfolio, plus what I mentioned on product costs, actually, we have visibility to target profit margin.

And we know what it takes on the OpEx front in order to actually how to say grow to what I sometimes mentioned being the breakeven sales around CHF35 million. It's just the numbers, right?

And this we hold off absolutely. And that's the reason why we made the statement, cash breakeven by 2023.

I mean, that's absolutely clear feasible. It takes some things to be executed, absolutely, but that's like always.

But we have visibility actually to achieve that target. If you take the CHF35 million and actually calculate backwards, then you end up with a growth rate, which are absolutely okay.

I would say there is perhaps some upside potential if -- and that's the big if and which we cannot influence too much. If one or two of the CPG companies really come in with resveratrol, they may alter this whole development.

But they -- as in the case of EverSweet, big CPG being Coca Cola, it takes them a while until actually they come out with products and the CPG is now for resveratrol that are showing clear substantiate interest, they are of the same nature. The good thing is, by the way, a little war story, but that's an important one, two have these bigger multinationals, they actually -- because of the how to say quality -- the high quality of the last studies, the clinical studies that we have communicated, they abstained from establishing an own study and will reference to our study which is actually a third-party study supported heavily by industry insiders, by research, scientific community, et cetera.

So, that should help to shorten a little bit of lead time to launch a product launch. But still these big multinational sometimes, they do iteration rounds not on the compound, but because of the marketing claim doesn't fit yet 100% and that can drag for half a year, for a year just a marketing claim, not on the compound again on the – on just the general product.

So, and therefore, it is – this is a speculation when such kind of bigger multinationals come in. We still have a quite some substantive customers in size that in between we can serve and that will keep up very nice growth rate as well.

On this new compound, as I already said, EVE-X157, and again, sorry for the coding, but it's the due to competitive reasons. We have discussions which go now into commercial discussions, which shows you that actually the interest is not only remotely there, but actually tangible and we have overqualified, it's all fine in terms of sampling of the material.

So we can be also positive from that end. There are a lot of elements in our product portfolio that are really positive.

So therefore to achieve this breakeven revenue is absolutely feasible. I don't know, I mean, if COVID is all over sudden and spreading, we have huge lockdowns for 12 months, what – every then the world may look different.

So that's the caveat always. I mean, that's always a caveat, but we all are in the same boat of estimating that situation.

But if it halfway okay, like it is now, actually this mid-term target to 2023 is absolutely feasible. Long answer to this number three question, but it's probably an important one.

Gross margin question to go back to your first question second half, it will not yet be as I indicated, the target gross profit margin that we are achieving, for the simple reason, it takes some patches until CMOs actually are achieving sort of, let's say, very good levels of productivity. We are not – it's not chemistry and even there it takes sometimes – some time, there is a little alchemy element in it and to which you have to actually control, which goes back to experience learning curve.

But for next year, actually, we should absolutely approach that level on a CMO, depending actually again on the CMOs executing, but step-by-step, we actually will approach that one, not only for F&F, but also for Health Ingredients so for a structural. Then the resveratrol run rate, your second question and whether we are moving from niche to mainstream, I think I have already answered with the comments on bigger CPGs multi-level marketing company.

I mean, there is a potential that resveratrol is becoming bigger. How big actually that's also – it's a little bit like nootkatone, NootkaShield and Health Protection, there is a big potential, but still we have to make it.

We have to see these big CPG's coming in. I don't want to call that out now crying victory at all, because we still have to see it.

But the only thing that we can say is by now, resveratrol, having been launched quite some time actually to the market. And there is also a lot of research, 13,000 papers on it, et cetera.

But what was missing somehow it’s a little bit more solid clinical studies which we are providing now plus more application-oriented studies that help actually the customers to create new products, because many times, it's creating a new product. Because its new health benefits that they are addressing, and will also is -- that's a little bit of luck, but eventually, that's also fine.

Resveratrol is perfectly, really spot-on to take benefit of this trend towards healthy aging, longevity, et cetera. So, this is -- we are coming from the age of sort of the period of -- you have to be strong when working and have energy and so on.

And actually, there is a big trend as population is aging, and that people are realizing that, there is quite some how to say, also profit pool that can be -- can be leveraged this trend towards healthy aging actually has emerged significantly, and resveratrol is just the compound that very nicely fits the health benefits of resveratrol nicely fit actually this trend to -- how to say, take benefit from.

And on resveratrol, tons of sales to reach EBITDA breakeven, does not include larger contracts with FMCG right or multi-level marketing companies of this --

Absolutely.

Right. Right.

And can you -- can you tell us where you're asking the discussions with these FMCG companies or multi-level marketing companies, meaning have they -- are there any product development or is it just initial contacts or curiosity? How deep is the -- is there -- how deep in the process are they?

That's a very good question, which I have to be a little bit generic on, because they don't want to, how to say, being sort of recognized certainly in a discussion like this one here to competitive reasons for them. So, the thing is actually they are and that's as far as I can go there are two types of these CPGs.

One is that, sometimes the headquarter is working on some ideas, around resveratrol. And then there are also subsidiaries large subsidiaries of such a CPG.

And in one case, it's even the headquarter -- the business segment headquarter plus the local large subsidiary that is working with Resveratrol. The larger subsidiaries, they are much faster, because they have a specific idea as an example of functional beverage, so they know what exactly what they want to go for.

Functional beverage, I mean, in the end, it's certainly still complexity, right? I mean, you can argue Coca Cola is also just a bottle and some liquid in it, but that has huge complexities and the same applies to functional beverages.

But it is somehow then still easier because these local subsidiaries which are in big markets, they are knowing exactly what they actually want to go for. And therefore it's, let's say, more specific discussions that probably are also, how to say, and that will definitely lead earlier to some commercial upside.

But again, I am more than careful in going into any timeline, because it will be just, how to say, coming out with fantasy numbers or with, just I don't know, whatever, because of these CPG sometimes really iterating all of a sudden on a little detail and all of a sudden another six months, 12 months et cetera, are gone, are going by. So, therefore, that's as much as I can give you.

I think we -- it is already great that they have evaluated resveratrol. Some of them, they have put the check box actually already there.

With resveratrol, that's all fine. So, it's not about off anymore.

It's about the product to work on, some other store having more specific ideas, which is even easier. But still, it may take some time.

So, it's unclear what the timeline is. If we once we know more, we will let you know.

But before it is -- mode is general trend information that we can, sort of, communicate only.

All right. Thank you.

Welcome.

Hello. Last one from me, the resveratrol, can I ask where it's being used predominantly at the moment, is it going into functional foods, or is it being sold as pills into the consumer health segment?

I'm just interested in hearing what in category terms is currently driving the product growth?

Yeah, that's a very good question. So, it is actually in various application areas.

We cannot even exactly know. I cannot give you an exact split because sometimes our customers certainly do not disclose their sales split.

They are customers that have actually some, how do you call that power bars. At the same time, they have also some pills, then they have some stick pack format that they are having put resveratrol into.

I think from this end it is to -- how to say, used in various application, including pouches, which are very -- how to say, sort of, up in Asia. Pouches are really popular there.

And let’s say the latest trend that is now upcoming is really functional beverages. There the industry have to realize first that resveratrol actually is really nicely qualifying for it, which is time that it takes, is absolutely clear, but that’s the latest let’s say the type of application that we see being taken up to the exact place.

As I told you, I cannot give you because multiple customers have multiple of these product types and how they use it, where exactly, what the volumes are? Again, this is even something they will never disclose.

Thank you.

Welcome.

Hello, thanks for taking my questions. Just one on this provision DTRA related.

Can you tell exactly, what it is for? And second for EverSweet, you mentioned that it depends now on the customers of Cargill to actually launch these products, does it imply that right now there are no major product launches.

And that's the income; your license income is very small, almost very small in H1? Thanks.

Welcome. So the EVERSWEET actually, it is constantly growing the royalty income, but it's yet rather small, but it's growing and it's becoming sort of visible at least, when we have a stream of payments et cetera.

Because it's not – it is soon not smaller than customers sort of orders or whatever, so in this respect actually it is growing. The odd product launch is absolutely taking place, so that it's not that there are no product launches, I would say there is a massive amount even of product launches, as they have sampled pretty much the world with EVERSWEET, as they have tracks to really customers around the globe.

So there will be these whole products actually rollout to test but they have just taken time because of the reasons I have explained. To make a long story short and not to steal the show from André on DTRA.

DTRA they were actually some projects in early years – more than 10 years ago that started and finished actually in the early 10th. I don't know 12 or 13, the last project, so it's before our time.

It was more a farmer related some project actually, for the DTRA. And there was – how to say some over-invoicing taking place actually of the folks in the old days.

So it's sort of you can also look at it like there was a loan for quite some time at no costs that we enjoyed at Evolva and now it’s repay actually this amount of money, as there has been over-invoicing. Over-invoicing was not intentional, it is just as you can learn from anyone, having such kinds of agreements, you have to be very, very careful when applying the rules – default rules as they are being called, because there are so many actually loopholes, et cetera and mistakes that you can make, as that actually there is probably no company in the world that is ever not having to repay at least some amount.

And I think it was in the CHF 30 million somewhere, the total invoices for all these – for all these projects, so were actually quite substantial projects, Evolva was running at that time. And so it's an old echo from the past actually, that we have with DTRA.

I think the only thing important to note now is that with the 700,000, we actually think now that's the end. And eventually there will be a cash payments, which we don't know when that actually will be as the longer it still takes the better.

Certainly, don't write that, but that's actually it and then this old stuff actually will have been sort of put to bed and into the archives as well.

Thank you. And can you just give an indication of the EVERSWEET income right now?

I mean, is it around 100,000 for example?

No, it's bigger than that.

Okay. Yeah.

Thank you.

And it will grow. No worries.

Okay, yes. Sure.

Thanks.

Welcome.

Yes. Hi.

Good morning. I just have a question related to the new product, you tend to launch by the end of the year.

So I mean, you still required to have approval to launch it? Maybe that's the first question related to it.

And then secondly on the financial impact, what are your expectations. I mean, will it be a rather quick sales curve to expect and also you mentioned the CHF 35 million phase level for the breakeven, so is this new product somehow baked into this expectation?

Thanks.

Welcome. So, yes, it is baked into these expectations to some extent or at a certain volume.

We do not need any regulatory approvals to sell, that's not needed. And now in terms of the take-up, et cetera, I think the -- again, the indications that I can give you is, number one, it's a $250 million market segment, this is the natural part only, there is a much larger synthetic part, which we may get into as well, because we really have a very good cost position.

But we start with the $250 million market first. And then, it is not a market where there are thousands of customers, so it's a more concentrated, how to say, marketplace.

So, as I indicated, several customers we talk, actually, we have discussions, not with very tiny ones, but actually with relevant customers, so in this respect, we can be rather positive that it should be sort of a nice ramp up that we will going to see. Still we have to make it and it's always two to tango, but we have the necessary ingredients to succeed.

We have just the right compound in terms of its function. We are perfectly positioned in between like resveratrol, in between of not waste natural and synthetic.

So it's the same positioning, technically wise, so which is actually very positive. And third, we have, I would say, a cost competitive position, which means that it’s all the ingredients we need actually to succeed and we can leverage our F&F network that we have already built with valencene and nootkatone.

So in this respect, it's positive, but now we have to make it.

Okay. Thank you.

Welcome.

Good. And thanks a lot.

And I actually hand over to Barbara to close the call. Thanks a lot.

Yeah, I just want to point out that the full year result 2020 will be announced on February 25, 2021, and the Annual General Meeting of Evolva will take place on April 8, 2021. Thank you very much for your ongoing interest in Evolva.

We look forward to delivering a strong second half of the year, and we wish you a safe time ahead. Thank you.

Thanks a lot. Have a good time.

Bye-bye.