Evolva faces COVID-19 headwinds despite record order intake

26 Aug 2020 --- Evolva’s half-year 2020 results reveal a record order intake of CHF6.2 million (US$6.8 million) driven by the Health Ingredients sector. However, only CHF3.8 million (US$4.2 million) could be realized due to COVID-19-related delays at contract manufacturing organizations (CMOs). The company has also faced other pandemic headwinds, flagging stagnating customer demand in Flavors and Fragrances (F&F). Overall, the company anticipates cash outflows to be above the 2019 level, part of which will be related to a scale-up of production capacities and a major product launch.

“We are on track to achieve strategic mid-term targets. We are moving toward a commercial company with innovative technology and a product-based revenue model,” Oliver Walker, CEO of Evolva, tells NutritionInsight. 

The company saw an operating loss (EBIT) of CHF12.6 million (US$13.9 million), which was compared to the loss of CHF 9.6 million (US$10.6 million) in the same period of last year. EBITDA was CHF-8.3 million (US$-9.1 million) while operating free cash flow was CHF-14.0 million (US$-15.4 million). Overall, total revenue was CHF4.0 million (US$4.4 million), a 38 percent drop from HY1 2019. 

Product-related revenue, however, notably increased by 27 percent to CHF3.8 million (US$4.2 million) as a result of higher market demand. Health Ingredients saw accelerated sales across regions. The company recently launched Veri-te Aqua, a soluble resveratrol product, which was developed based on a market need, particularly in functional beverages, for a completely transparent and fully solubilized resveratrol solution. 

Evolva also recently revealed the results of Resveratrol Supporting Healthy Aging in Women (RESHAW), which 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 study further boosted the already strong commercial interest for the product, according to the company.

Moves across sectors
Evolva also receives royalty payments on all Eversweet sales. The first commercial-scale production of the non-artificial, zero-calorie stevia sweetener started late last year at Cargill’s fermentation production facility in Nebraska. Evolva anticipates its royalty income to grow over time.

Meanwhile, under its F&F sector, Evolva is set to launch EVE-X157/Z4 by the end of the year. It will be for use in flavors, fragrances and health ingredients, but more information has not been disclosed. The company says the segment is also seeing early signs of recovery from COVID-19. 

As part of Health Protection, the company completed the registration of nootkatone as a novel active ingredient in the US, with it intending to eventually expand the application of nootkatone beyond the US.

Additionally, the decline of R&D revenue by 94 percent to CHF0.2 million (US$0.2 million) reflects the completion of an R&D contract with the US Biomedical Advanced Research and Development Authority (BARDA) in 2020. The company also says this is part of its transition to a product-based, commercial company. 

Notably, Evolva is also set to expand its business following a recent agreement with Nice & Green for the issuance and subscription of convertible notes. The notes may be drawn in tranches depending on the operational requirements and investment opportunities to continue to grow the company’s business activities. In addition to scaling production capacities, the investments may be used to build necessary stock levels.Total revenue would have at least matched the HY 2019 figure if COVID-19 had not created difficulties.

Supply chain bottlenecks
As Evolva reports, total revenue would have at least matched the HY 2019 figure if COVID-19 had not created difficulties. As some customers were impacted by the COVID-19 situation and consequently postponed their orders, inventory, and hence net working capital levels were exceptionally high for most products. Since these products have a reasonably long shelf time, Evolva does not expect any negative quality impact. The unrealized Health and Ingredients orders will be shipped in H2 2020.

With the partial easing of lockdown, the company is confident it can compensate for the shortfall during the second half of 2020.

“During the first half of the year, COVID-19 negatively impacted mainly F&F sales and some CMOs’ operations. Customer demand in F&F stagnated due to lockdown measures. On the other hand, some CMOs suffered delays in their activities, which triggered shortages in the supply to Evolva. Despite these adverse impacts, company performance remained resilient, with increased commercial demand and record order levels in Health Ingredients. The financing situation remains comfortable,” states the company. 

Despite a challenging global environment, Evolva expects product-related revenue to double over the prior year. As this becomes the main driver to the top line and assuming COVID-19 will continue to cause some extraordinary expenses over the second half of 2020, EBITDA loss for the full-year is expected to be above the prior year level. However, gross profit on product sales are expected to improve in the second half of the year.

By Katherine Durrell