Evolva reports Full Year Results for 2020, with significant increase in customer demand for Health Ingredients and product expansion

Evolva Holding SA / Key word(s): Annual Results

25-Feb-2021 / 07:00 CET/CEST
Release of an ad hoc announcement pursuant to Art. 53 KR
The issuer is solely responsible for the content of this announcement.

Reinach, February 25, 2021 - Evolva (SIX:EVE), the Swiss biotech company focused on the research, development and commercialization of ingredients based on nature, announced today the results for the full year 2020 and corporate highlights.

Highlights

• Total order intake exceeded CHF 10m for the first time (+71% over 2019 and an order backlog of CHF 3.6m) with market share gains across business segments. Strong momentum in Health Ingredients with growing demand for resveratrol
• Organic sales growth of 18% over prior year - significantly behind potential due to delays in manufacturing and sluggish demand in Flavors and Fragrances
• Further progress in portfolio expansion. After nootkatone in Health Protection, the launch of L-arabinose was a further important step in growing Evolva's health offering
• Planned updates of CMO[1] network completed, but scaling up of manufacturing resveratrol at new CMOs delayed as the pandemic continued
• Extraordinary costs of CHF 3.6m mainly related to scaling up manufacturing driving reported EBITDA[2] loss of CHF 16.7m
• On comparable basis, product-based EBITDA loss adjusted for extraordinary costs[3] reduced to CHF 14.1m from CHF 18.4m in 2019
• 2021 guidance: reported EBITDA and operating free cash flow are expected to be around 2020 levels due to delays and investments in scaling up manufacturing, which will result in extraordinary costs of CHF 6.1m

Commenting on the full year 2020, Oliver Walker, CEO of Evolva, said: «We are confident that the progress we have made in growing customer demand, product portfolio and manufacturing will start to bear fruit in the second half of 2021, once scale up in manufacturing will be mostly completed. We remain on track to deliver on our commitment to achieve cash break-even by 2023.»

COVID-19 Update
The spread of coronavirus has required extraordinary effort from the Evolva team. We've focused on ensuring the safety of the people and their families and introducing the necessary protective measures at Evolva's facilities.

During the second half of the year, COVID-19 continued to negatively impact Flavors and Fragrances (mainly beverages and fine fragrances) and the operations at some of Evolva's CMOs. On the other hand, some CMOs suffered delays in their activities, which triggered shortages in the supply of resveratrol to Evolva. Despite turbulent times, company performance remained resilient, with increased commercial demand, significant order levels in Health Ingredients and significant growth of markets addressable by Evolva. We have secured sufficient funds to support the ongoing business activities.

Commercial Operations

• Flavors and Fragrances: At the beginning of the year, Evolva executed an agreement with International Flavors and Fragrances (IFF) to further develop and expand commercialization of vanillin. Additionally, Evolva launched Valencene 94%, its highest purity natural valencene, meeting the Flavouring Regulation (EC) No. 1334/2008's minimum purity level of 94%. The commercial launch of L-arabinose is further proof of Evolva's innovative strength. As a reducing sugar, L-arabinose is frequently applied in the production of maillard reaction flavours, which are a key building block for savoury flavours such as chicken and beef.

• Health Ingredients: Continued its market penetration in the core US and EU markets, a reflection of ongoing new product developments, incubating partnerships with key accounts on strategic projects and the efficiency of the strong distribution partners in these regions. In addition, Veri-te(TM) resveratrol considerably broadened its customer base in Asia where there is a strong interest in using the Veri-te(TM) brand.
  
  Thanks to the various innovative product formats and applications, Veri-te(TM) is now used in a wide range of market segments including dietary supplements, functional beverages, cosmetics and API (Active Pharmaceutical Ingredients).
  
  A recent study, called Resveratrol Supporting Healthy Aging in Women (RESHAW), conducted as a two-year clinical trial by the University of Newcastle in Australia, demonstrated that subjects taking Veri-te resveratrol experienced enhanced cognitive performance, improved arterial function, increased healthy blood flow, and improved bone mineral density. The results of this and other studies clearly boosted the already strong commercial interest for the product. This includes global healthcare companies and FMCGs[4].
  
  The launch of L-arabinose confirms Evolva's ability to deliver innovative solutions to address customers' and consumers' needs. In addition to the reducing sugar characteristics, studies show that L-arabinose as sugar blocker can support healthy blood sugar levels and weight management. L-arabinose works by inhibiting the sucrase enzyme and by that the resorption of sugar in the small intestine. It also has potential application as a prebiotic.

• Health Protection: The US Environmental Protection Agency (EPA) registered nootkatone as a novel active ingredient for use in insecticides and insect repellents in August 2020. Following the registration of nootkatone (NootkaShield(TM)), Evolva continued to support leading customers in their activities to develop first end-user products. At this stage, this includes especially the development of end user applications. As formulation work is taking longer due to COVID-19, first supply volumes are expected in 2022.

• Other products: Evolva receives royalty payments on all EVERSWEET(TM) sales, a non-artificial, zero-calorie stevia sweetener. The first commercial-scale production of EVERSWEET(TM) has started on November 14, 2019 at Cargill's fermentation production facility in Blair, Nebraska (USA). Evolva anticipates its royalty income to grow over time. For more information on EVERSWEET(TM) visit: avansya.com.

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¹CMO = Contract manufacturing organization resp. contract manufacturer
²EBITDA = Earnings before interest and taxes, depreciation and amortization
³EBITDA excluding revenues and expenses from R&D contracts and adjusting for extraordinary costs related to delays in scaling up manufacturing at new CMOs and increase of US Defence Threat Reduction Agency (DTRA) accrual
⁴FMCG = Fast moving consumer goods company

Financial key figures
 

1) EBITDA = Earnings before interest and taxes, depreciation and amortization    
2) Extraordinary costs related to delays in scaling up manufacturing at new CMOs and increase of DTRA accrual
3) EBITDA excluding extraordinary costs

Financial Performance
Evolva's product demand continued to grow significantly in 2020, except for ingredients vastly used in market segments currently challenged by the pandemic. Fine fragrances and beverages have been especially affected. The supply of Evolva's key product resveratrol, for which demand continues to increase significantly, was hampered by ongoing delays at CMOs. As the project with BARDA (activities supporting the registration of nootkatone for pest control applications with the US EPA) has been largely completed in 2019 (with R&D revenue of CHF 4.1m), total revenue lowered from CHF 11.6m in 2019 to CHF 7.5m (-35%) in 2020.

Gross profit decreased from CHF 5.4m in 2019 to CHF -1.9m, mainly as a function of the completion of the BARDA project, which generated a significant gross profit in 2019. Additionally, COVID-19 and the delays in scaling up manufacturing of resveratrol at the new CMOs triggered extraordinary costs of CHF 2.9m. Excluding these extraordinary impacts and the gross profit from R&D revenues, the product-based gross profit improved to CHF 0.3m from CHF -0.7m in 2019.

Despite the need to increase DTRA accrual by CHF 0.7m (following final evaluation), Evolva's total operating expenses decreased by 13% (CHF -2.9m). The pandemic and the associated lockdown measures in the individual markets have led to execute a larger portion of the company's activities leveraging the potential of digitization.

The improvement of the operating cost basis could not offset the unexpected expenses related to the delays in scaling up of resveratrol at new CMOs. As a result, EBITDA came in at a loss of -16.7m CHF (-27% over 2019), in line with the latest communication to the capital market. Considering product-based business and excluding extraordinary costs related to the delays in manufacturing and the increase of DTRA accrual, EBITDA improved from CHF -18.4m in prior year to CHF -14.1m.

The change in the financial result represents mainly unrealized foreign exchange losses and gains from outstanding balances with subsidiaries which have been revaluated with current exchange rate. Change in income taxes entirely resulted from deferred tax adjustments.

Balance sheet and cash flow
Intangible assets decreased by CHF 10m. This results mainly from the regular amortization in the amount of CHF 6.5m, additions from capitalized product and development costs in the amount of CHF 4.4m and translation effects amounting to CHF 8.1m in 2020. Evolva is reviewing, improving, and testing its commercial manufacturing processes with the aim to implement new processes that reduce manufacturing costs. In addition, new product blends are developed and tested for commercialization.

Cash position decreased to CHF 19.7m at year-end 2020. The change over prior year results from CHF -23.4m operating cash flow, CHF -5.6m cash flow from investing activities and 8.9m cash flow from financing activities.

2021 Outlook
As the pandemic continues, the guidance assumes there will not be a return to normal for most of the year. Evolva expects ongoing growing demand for Health Ingredients, but sluggish demand in Flavors and Fragrances.

Supply volumes are expected to gradually increase in the course of 2021 as a result of the emphasis on overcoming manufacturing challenges - especially for resveratrol -, with a larger contribution to sales and profit in the second half of the year.

The extraordinary costs related to delays in and scaling up manufacturing of resveratrol and L-arabinose are in total CHF 6.1m in 2021. Nevertheless, EBITDA is expected to somewhat improve over prior year levels.

Disclaimer
This press release contains specific forward-looking statements, e.g. statements including terms like believe, assume, expect or similar expressions. Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may result in a substantial divergence between the actual results, financial situation, development or performance of the company and those explicitly or implicitly presumed in these statements. Against the background of these uncertainties readers should not place undue reliance on forward-looking statements. The company assumes no responsibility to update forward-looking statements or to adapt them to future events or developments.