BRAIN Biotech AG (BNN.DE) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to our Q2 -- Q3 fiscal year conference call today, August 31, to present and discuss the BRAIN AG 9-month financials. My name is Michael Schneiders, and I'm the Head of Investor Relations at BRAIN and will lead you through this conference call. The protagonists with me in the room are Adriaan Moelker, our CEO; Manfred Bender, the running CFO; and Lukas Linnig, our CFO in scene from October 1. [Operator Instructions] The presentation will refer to the slide deck we have been distributing this morning. Now I hand over to Adriaan Moelker, our CEO, to start the presentation.

Yes. Good morning, everybody. Adriaan Moelker here. Already my third conference call, having started on the 1st of February, so it's starting to become a bit more routine. Thanks, everyone, for joining and joining this call where we've had a pretty good quarter, I think. So we're kind of pleased with that. Having said that, there's lots of challenges around the corner that I will take you through as well. Later on, we'll do the financial review with Manfred Bender and Lukas Linnig, but I'll take you through a few slides that I thought would be interesting and that, by the way, we will talk in more detail about during the Capital Markets Day on September 15. So if we go to Page 3, I'm sure you have it in front of you, this is BRAIN. This should not be a lot of news to you, a summary of what we are and what we do. Important is the line on the top and is also on the next page, Page 4, which is a Mission and Vision. And I thought I'd stop there for a second and explain for those who haven't seen it yet what the Mission and Vision are. Mission is what an organization is or does, and Vision is what an organization desires to become. And I've taken that definition because there is an infinite number of definitions on both terms, but this is how we're working with it. Our mission is to create breakthrough products and solutions for nutrition, health and the environment. And the focus is, in many ways, on nutrition, but also health, think about the cosmetics, and the SolasCure business is important to us. Then thirdly, honestly, the environment, and environment plays in many different ways in our products. It could be by projects on, I don't know, CO2 capture. It could be on the mining, but also the fact that enzymes, in general, make processes more efficient, more energy efficient. And in large, work for the environment, I think, is very important here. Then the Vision, what we've articulated and I'll read it out to you. We will be the White Biotech Specialists. Focus on the word specialists. We're not a commodity player. We're not one of the massive players in this industry. We will always be a specialist, finding and exploring high-value niches, and this is core. We're looking for those high-value niches in our products business and novel solutions in the Science business. In the Science business, we look for the breakthroughs. We look for the big targets. We look for the exciting new things. But in the Products business, we'll look for the niches to be profitable. We will be much more agile than others. This is where we're going to differentiate. This is what strategy is to me, is what differentiates you from others. And the agility, the way we can maneuver as a smaller company versus the larger ones is, I think, absolutely critical. And we will always look to produce products in-house or with partners. And I mentioned that during the conference call 3 months ago, where we are in the transition from a science-only business 25 years ago to a science-plus products and now a science-plus major project -- products and production initiatives going forward. So that's where the transition is reflected and where we desire to move. Then the next page, Page 5. We built this slide because we get lots of questions now how is BRAIN organized and how does it all fit together. And I think this one crystallizes the way the pieces hang together. During the Capital Markets Day, again, I'm going to take you through that in more detail. But here on one page, you can see the investment in SolasCure on the top left, but also how the investment in breakthroughs on the left with EUR 5 million annual investment, then on to substantial annual revenues in the contract research, call it, Tailor-Made Solutions business. And then on the right, the Substantial Products business with EUR 26 million annual revenues and an EBITDA margin of over 10%. This is how it hangs together. And I mean, you will do your own math on the valuation of the pieces, obviously. But this is how we look at the business, and it's multifaceted. It has different pieces, and it hangs together in this way. So I'll be happy to debate that and discuss it and explain it more during the Capital Markets Day. Then on to the next page, why invest in BRAIN? A question I often get, both professionally and privately, but the products address the big societal topics; health, nutrition and the environment. I explained that to you already. We have big upsides on the breakthrough inventions. That is a new product development business on the left of the previous slide, where we look for really big breakthroughs, including where SolasCure came from, and for instance, DOLCE. We're well-positioned to capture the high-growth, high-margin niches in the Product business as is reflected in the Vision. We will reshape the BioIndustrial business to move from a purchase-for-resale model mainly, example, WeissBioTech is largely purchased for resale. And we're going to move that on to production model, utilizing our fermentation capacity in Cardiff and our ability to do contract manufacturing with partners. And that has a significant value upside in terms of margin optimization, bringing products in house and being really the masters of our own destiny. And this is very near and dear to my heart. It's also what I've been in the past, of course, in my previous employers in enzymes and one where I really want and need to take the business. Fifth, strong target markets. You will all know that our larger competitors have very solid CAGRs and EBITDA levels that are typically in the 25-plus, but certainly often in the 30-plus range. So that is a healthy target market. We do have space for bolt-on acquisitions. There's multiple targets that we consider. Clearly, I cannot talk about this, but we had known that bolt-on acquisitions are there to accelerate the growth, and it's a priority to me. Seven is the UN Sustainability Development Goals, really linked to number one, health, nutrition, environment. And we play into many of these, which, from an ESG perspective, and being seen as an ESG company is very important to me. Finally, and somewhat underrepresented in the last year, but hopefully, we'll accelerate that again, is the number eight, the funded research. We will be looking for funding from governments and finance some of our R&D work with that. What we will do, however, is not look what funding is there and then adapt our program. So we will look what we strategically want to do, what we need to do, where we desire to invest and then look to derisk that investment through funding, which, in my mind, is the right way going forward. So in total, multiple triggers to strong revenue and margin growth. Then on Page #7, I do not want to elaborate too much on that, but we have known that we play in, at least, 6 SDGs, and we look to continue and expand that and do the right thing for the environment, for the sustainability and for the health of society, which for our people is always a very important reason to join BRAIN as well. Next, the targets on Page 8. We've had this fiscal year significant organic growth despite COVID-19. We have an improvement of our EBITDA. We're preparing the organization, I explained that last time, for profitability and growth. We reshuffled the deck. There's changes in the Board. There's no doubt you've all seen. And we've strengthened the financial flexibility through the capital increase in June. We're presenting the new strategy, and that should be an exciting day, I think, when we can share some of the thoughts that are there and the strategies we're going to deploy. Then on the Capital Markets Day. As I said, on the midterm goals, we'll share those targets at the Capital Markets Day. On Page 9 then, on the Strategic Initiatives. And we designed this graphic to also explain to our people how their work ties to the strategy that I -- and the Mission and Vision that I just explained, making it very tangible, where people work and how they can contribute to the success of the company. This was important to me to make the transition from strategies that for your people are often quite far away to make it tangible and to allow them to be motivated and supportive of the goals of the company. So it talks about revenue growth. It talks about innovation pipeline management, number two; continuous productivity improvement, number three; accretive M&A, number four; and continuous corporate culture development. And talk about some -- a few examples, continuous productivity improvements. On the bottom there, the strain development is absolutely critical in our transition from a Science business to a Products business. We need strains. We need prediction hosts that are on an industrial level and where we can compete in the marketplace and produce enzymes, proteins, bioactives economically. And that then cascades down into the organization where people have connection with the corporate strategy and see where their work helps contribute. The other one that I'd like to highlight here maybe is the culture development. I think it's very, very important in BRAIN, in that we keep the good people, that we develop the right talent, that we have the HR systems to identify the gaps that we might have and work diligently on those because, essentially, we are in a knowledge industry here where the people are our main asset. And talent management, the culture development and the innovation and the creativity plus teamwork is absolutely critical for our success going forward. Next, a few words on the NBD, Page #10. A key message to you is the team has come together many times in BRAIN to discuss what our criteria should be to prioritize or deprioritize our project portfolio. And you know well that I've said in previous calls that I'm looking to optimize the project portfolio, that I'm looking to accelerate the most promising projects and maybe to decelerate or put on the shelf those programs where I think there is less to be gained. Now the process we've done is to be able to do that is that you then, of course, need to know, how am I going to measure these projects. And you need a list of criteria. And the criteria that we selected are on the left. This is a consensus list, if you like. Risk-sharing partner, number one; commercial success chance, technical success chance, numbers 2 and 3; cost to breakeven; time to breakeven; strategic fit; and the NPV. Now we look through all our projects and map them on these 7 criteria. We weigh those, and we come up with a, let's call it a, matrix, where we have the likelihood of success and the revenues that we might get. We have multiple analysis tools to map these criteria, and the process then will -- then is that we sit together as a team and say, "Okay. And what is now the conclusion from this?" Sometimes it's easy, where we say, "This is a no-brainer. We will accelerate this program." Sometimes it's easy, where we say, "This is not the right thing to do." And in some cases, clearly, we have a debate and we decide to put things on the shelf or maybe to decelerate them slightly. Key message is that this is a team effort now, that we are clear about the criteria, that we can be clear towards our partners, how we look at projects. And the one thing that I would want to stress here is the #1 criteria is risk-sharing partner. I'm being a little strict here in terms of demanding partnerships, demanding partners that actually have skin in the game. And I use that as an indicator of interest, as an indicator of market need, as an indicator of true commitment, so to decrease, let's call it, adventures that we think are a good idea, but a partner would not pay for. So that is what I've been telling you, I think, in the last few conference calls, but this is what we've now been following through on. All of that leading to pipeline and project management on the right, where we do the methodical steps that most larger companies do with distinct phases, stage engaged process, critical milestones, project manager is clear and the Board deciding on the next steps and being totally and entirely involved in the project steps. Next page, Page 11, will be on the Capital Markets Day again, which then brings me to Page 12. And I'm happy to give the word to Manfred Bender, who will explain the numbers.

Okay. Thank you, Adriaan, and good morning also from my side. Welcome to our conference call. I will run through the past numbers to the past quarters. I will do that quite quickly. And when we come then to an outlook, I will hand over to Lukas Linnig, who will be the coming CFO of BRAIN, but you know that. However, so let's start with the slide, Page 12. Some major events of Q3 of this fiscal year. I think, very important is, so far, the BRAIN group had no major negative effects materialize, either on the business side or on the human resources side, so we had no significantly affected people in our group. So we are quite happy with that so far, and I will come to that a little bit more in detail on a later slide. How did business develop? Well, just to point at some things out, we had seen a very dynamic growth in BioScience business. We divide our business in 2 segments, BioScience and BioIndustrial. While BioIndustrial is the product-driven business, BioScience is our R&D business. So this developed quite dynamic. And on the other hand side, on the other segment, which is worth pointing out, BioIndustrial 9-month EBITDA margin raised from 11.5% to 13.3%. That means this business, which anyway is profitable, became more profitable even if the organic sales was not very high and the reported sales was even -- development was even negative. So we could -- we lost some unprofitable business and gained some more profitable business. That's a good news. We -- in total, we significantly reduced our net loss from EUR 7.9 million minus to minus EUR 6.1 million. It's still a loss, but it's a good development. And we were able to increase, but you know that, to increase our cash position by issuing 1.8 million new shares. So we received about 5 -- EUR 15 million proceeds, and we have quite a good cash position with that now for financing, not first of all, our operating business, but more investments, M&A and so on, a lot of things which are important to create our future. Also in that quarter, we bought a minority stake in the subsidiary, WeissBioTech. So now we own 100% and are able to decide quickly and hands on, which makes us much more flexible. And I don't know why this is mentioned there as a major event of Q3. I will leave BRAIN end of September and hand over to Lukas Linnig, who is also a part of the presentation today. I don't know why this is mentioned as a major event. But, however -- in fact, Lukas and me, we worked now together for 1.5 years, and I think this will be a smooth handover because, anyway, we do everything together. So this will be a good development. Let's come to the next Page 13, which shows the revenue development divided by the 2 segments and the accumulated numbers. Revenues increased from EUR 27.9 million in total to EUR 29.6 million. That's an increase of 5.8% in total, while the industrial business or the products business decreased from 23 -- EUR 20.3 million to EUR 19.1 million, with a decrease of 5.9%. But the Science -- BioScience business significantly increased from EUR 7.6 million by 37.5% to EUR 10.5 million. You know that we sold our or divested our Monteil business last year in Q2. So if we take into account the effect coming from that missing business now, we show you on the next -- on the right corner, we show you an organic growth rate or organic growth development. And there we see that, organically, that means, without the Monteil business in the previous year, we were able to grow by 12.2% in total group-wise. We've shown a development of plus 2.1% in industrial business and our product business, which is still quite good for the time being in the corona epidemic and so on. And last but not least, we see based on long-term running contracts and milestone payments a very nice development of BioScience with a plus of 37.5%. Next slide on Page 14 shows the adjusted EBITDA. And for the total group, it improved by 73.3%, especially with the strong development of BioScience segment contributed to this improved EBITDA or adjusted EBITDA. As I mentioned earlier, even the BioIndustrial segment improved, its adjusted EBITDA margin to 13.3%, which is a nice margin despite low organic sales growth. The overall BRAIN group grew organically by 12.2% year-on-year. Revenues in the segment BioIndustrial was very negatively impacted due to delays in commissioning and of new production facilities in biocatalysts and rails and in Germany in Büttelborn, with the move from the facility of WeissBioTech from France to Germany. Worth mentioning is going 2 steps back to Page 12 again. The number you find right in the middle of that page is the adjusted EBITDA number for the isolated Q3 2019-2020. I would like to mention this number because it's the first time we have a profitable adjusted EBITDA or positive adjusted EBITDA quarter-on-quarter. Most likely, that will not be sustainable for the fourth quarter, but that's part of the outlook Lukas will make later. But I think it shows that, in general, the company has made its homework and is on a good path. And as you heard from Adriaan in his presentation earlier, there are -- a lot of things are moving, and I guess, in the right direction. A short look at the cash flow statement on Page 15. As you know, we have sufficient cash on hand with EUR 18.8 million now, of course, mainly because of the capital increase we made early June. However, the company is well-positioned now for financing activities, which will be necessary to grow our business. Nevertheless, there is one negative point, which we should frankly mention as well. The company is still burning cash, and that's an issue. Then the new Board has to solve together with all the team. I guess that it's well known to the Board, and it has a high priority on the agenda. But it is what it is. We are investing a lot in research and development, and this is a consequence of that. It's not really cash burn. It's investment in the future of the company, and it's important as well. Let me close my quarterly review with the short -- with some short comments on the COVID-19 situation. As I said earlier, we had no significant impact on our business as well as on our employees. That's fine. It's very good. So we did a lot to avoid that impact. I don't need to repeat that. It's what you see everywhere in the industry and in the social life. Of course, safety of our employees has highest priority for us and the continuity of business. And so far, we managed that quite well. We installed the COVID-19 Task Force, which prepares a lot of different things like hygiene concept and so on, which quite -- worked quite well so far, and we are optimistic that this will continue. Nevertheless, there is some impact on our business, especially on the business of SolasCure. SolasCure is facing some delay in the clinical trials of their products because the clinics don't have that much test capacity available in that time now. That impacts our development of SolasCure unfortunately. But however, that seems to be more or less the only significant impact on our business, in general. But with that, I can come to the outlook and hand over to Lukas, who will comment on the outlook for the rest of the year. Lukas, please. Thank you.

Thanks, Manfred. And good morning to everybody in the call as well from my side. Maybe one more comment, as this is the first thing on the outlook slide as well. BRAIN has quite long-lasting contracts in the BioScience business. And in the BioIndustrial business, we have a strong focus on nutrition, no enzymes. And therefore, we were, so far, not really affected by the COVID-19 situation. However, as Manfred mentioned, that it is, of course, a huge challenge for business development to acquire new long-term partnerships and contracts to be able to increase the BioScience business significantly. And that brings me to the current outlook. I think Manfred already talked about SolasCure and our good growth for this year despite COVID-19. And alongside with that, we had a couple of good quarters in terms of EBITDA. However, we do not expect this to continue in Q4. So we don't expect the very good Q2 and Q3 trend for EBITDA development in Q4. This is for several reasons, which come up from the Board changes we recently had, which arise from slightly lower revenues expected in Q4 and some operational effects, especially in our subsidiaries. Next part, more with regard to that will, of course, be discussed on the Capital Markets Day, and we will give a more midterm guidance there as well. With regard to our current management focus, or to put it differently, what keeps us busy right now, and there's a couple of things I'd like to mention. And Adriaan outlined further and before that we are in a transfer process, in a transfer process from a pure science company, pure R&D-based company, to a more production-orientated company with a strong R&D capability. And this is, of course, something where we have to prepare the organization, made several changes, such as introducing a new head of sales, which has been done with Martin Langer. Many of you know him probably. And there's other things that we needed and still need to do. For example, the discussed business prioritization and the new business development pipeline that Adriaan outlined earlier. Other things we are working on are building our -- or reinforcing our M&A pipeline. As you all know, we have some good acquisitions, especially with Biocatalysts. But since then, we were not that quick with new M&A. So this is something we are reinforcing. We are working on several leads right now, which we cannot disclose too much details about, of course, but this is something for the midterm that will keep us busy. One more important thing is the development of a host organism or the development, which ties in into our strategy as well as we need a good enzyme host to be able to produce more products, to be able to have to produce them at a competitive price and sell them in the market. So this ties all into our holistic strategy. In addition to that, we -- especially in the finance department, we have introduced a new -- some new tools. We work together with the subs much closer. We are engaging best-practice transfers between BRAIN AG and the subs and between the subs, and we are discussing and working on potential centralizing of several corporate functions, such as regulatory in one of our subs or R&D in Zwingenberg and so on. Yes, this is what keeps us busy right now. I don't think we need to elaborate a lot on our shareholder structure. You might have seen that Lloyd Fonds has become a major shareholder or a large shareholder during the capital increase. With regards to the next slide, BRAIN in the media, I think it's something interesting to read, nothing I would go through here in detail. You can find all the different media things that we have outlined here. And then I hand over back to Michael for the financial calendar.

Thank you very much, Lukas. I'd just like to stress that we are going to have our Capital Markets Day on September 15. Then of course, please join us there on the web or live at Zwingenberg. Anybody wants to register, please send an e-mail to Investor Relations. Well, thanks, Lukas, Adriaan and Manfred, for your presentation.

[Operator Instructions] We now will start essentially our Q&A session. [Operator Instructions] We'll kick off with Markus Mayer from Baader Bank. Now you're unmuted. Sorry, Markus.

Okay. No worries. No worries. First of all, congrats for this very good Q3 results. I have three questions. And afterwards, then maybe I can ask other questions. First of all, on the product mix effect at BioIndustrial. You've mentioned this that this, in particular, kicked in, in the third quarter. This is a product mix effect, which is also sustainable then going forward? That would be my first question. Should I ask the question one by one? Or should I already ask you...

No. Could you repeat that question, Markus? I didn't quite get it. It was noisy.

Okay. So sorry for the background noise. I'm directly from Tuscany from a holiday. So the first question, on the product mix effect, you elaborated, for BioIndustrial. Is this product mix effect is sustainable? That will be my first question.

Okay. You can ask all three questions, then we answer them all together.

Okay, okay. Then I will ask the second question. The second question is basically on how the minority buyout in the WeissBioTech will change the P&L like-for-like? That would be also helpful. And the last one, I would be interested in -- if you could quantify the one-off effect you expect for the fourth quarter.

I think I have all questions to look at. Okay, one-off -- okay. With regard to the product mix, we have seen -- or you have seen that the growth was not very high in BioIndustrial. And this is due to a shift in -- if there's someone unmuted, could you -- yes, much better. You can see in our P&L that BioIndustrial was not growing that substantially, which was driven by some reduced revenues, especially in the bioethanol business. This business is not as profitable as other parts of the enzyme business. Therefore -- and in the current situation, I would expect the product mix to be sustainable, [indiscernible] that we can have our higher margins going forward as well. With regard to the minority buyout, in the P&L, you will not see a significant effect. This is mainly due to the fact that the subsidiary was fully consolidated beforehand. So there was no minorities shown. You will see an effect on the balance sheet, as we had some financial liabilities accounted for in the past. But these numbers, we will show in our 12-month report. And with regard to the Q4 one-off effect, we have -- there's some numbers which we can comment on already. And I would target the one-off effect from personnel costs from the Board changes within the area of low to mid-6 digit. And there are some other effects, which we cannot comment on yet, but which will be shown in our 12 months report as well.

All right. Then we will continue with Falko Friedrichs from Deutsche Bank.

I would have three, please, as well. Firstly, on the topic of having risk-sharing partner. You mentioned that a couple of times. Can you share at which point in the development you would definitely like to have that risk-sharing partner? And then secondly, on Slide #5, you show the allocated EUR 5 million of annual investment into your breakthrough product. Can you give us a feeling for how that EUR 5 million has developed over the last 2 years and sort of at which rate do you expect this to increase going forward? And then thirdly, you obviously haven't touched much on your product, the breakthrough product development today, given you have the Capital Markets Day. But there's a good amount of nervousness in the market among quite a few investors that bigger projects could fall away. So is there any way you could give us some initial flavor, especially with regards to the DOLCE project and whether a certain degree of nervousness is justified or whether that is a bit overdone?

Thank you, Falko, for your questions. I think on the risk-sharing partner, I hand over to Adriaan.

Risk-sharing partners, Falko, and good question, is -- my preference is to have a partner preferably as early on as possible in the program. I support greatly technology development, let's say, on bioinformatics or fermentation improvements or general biotech tools that one needs to have anyhow. But on products, on collaborations, I am quite insistent to have partners early on to derisk, to have better information to have a more balanced business case and to have a true commitment from the market -- sorry, and to have that commitment upfront. It's not always possible. You need some time, you need a trigger to interest partners, of course. But the early on availability of a risk-sharing partner is in many ways, shapes and forms and all of my experience has been one of the biggest predictors of project success. On the EUR 5 million investment, Lukas, do you want to comment on that one?

Yes. I can comment on that one and give back to you for the third question again.

Sure.

With regards to the investment, I think we have shown in our annual report in the last years, we have shown a total group investment of, I think, around about EUR 7 million. And if we look at our investment in own-and-partner new business development, and this is probably between EUR 5 million and EUR 6.5 million in the past. I would not expect that to increase significantly over the next years. It will probably be within the range of EUR 5 million to EUR 7 million somewhere. So what you see here only is only on the very big projects, the EUR 5 million investment. Of course, there is some other R&D expenses here and there for product development in enzymes or for other developments that we have ongoing. So the total investment will -- is likely to remain more or less stable in the area between EUR 5 million and EUR 7 million. And now I hand back for the new business development pipeline question.

Yes, Falko. The third question, new product development nervousness. I understand the nervousness. And I think I'm consistent in saying in the past few calls that we would go through the pipeline line by line, product by product, initiative by initiative. I can't say which programs we're going to accelerate, deprioritize or put on ice. What I am able to say is that some will be indeed accelerated and some will go on the shelf waiting for a partner. It doesn't mean they're killed, these projects. It means they are looking for a partner to give me the confidence that actually we've got something that we can monetize. The other thing could happen as well is where we have an NBD project. And in our terminology, that means we take the risk ourselves, that we convert the model from an NBD project to a TMS-heavy project, in other words, look for funding to get the project financed, where we think -- for instance, where project continues to make sense, but take lower financial risk ourselves and get paid for the efforts. So sorry not to be able to give you yet the view for September 15, but you should expect us to give more clarity on the relative side, on the timing and on the categorization, if you like, of where we see the project going for the future at least the next year or so.

And if I may add on that, Adriaan. I think the fear is quite understandable in the markets and the nervousness. And what we will discuss as well is new products or new developments that we did not communicate or show to the market so far. So I think that there's probably a mix of excitement and nervousness with regard to the product development pipeline. And I'm really looking forward to the discussions on the Capital Markets Day.

It's an excellent addition. Look, there's new things that are going to come on the list, Falko. So you could be nervous, but you could also be excited. So let's see.

That's a good mix. Very helpful.

All right. Let's continue with Christian Ehmann from FMR.

Can you hear me?

Yes, we can.

Yes. I have only two left. So first of all, could you give us a little bit of a sneak peek concerning your breakthrough invention? So what will be your focus in this regard? Which area are you trying to work on? And second, if you -- will you change your habit of giving us or the investors the full-year guidance in the next fiscal year, for example?

Second one first. Yes. Take the second question first, Lukas.

I think what I can comment on already is that we will most likely not give you guidance that we will reach x percent guidance for this quarter and for the full year and we expect this amount of EBITDA. Our business is too volatile to give a clear guidance, which is reliable for you and for us. What we will do, however, is to communicate our midterm plans, which are less affected by the volatility of shorter-term business. And we will give a guidance on mid-term expected margin as well as midterm expected growth.

My earlier question...

Yes. It needs to be -- Christian, it's a little bit the same question as Falko had. Let me try and say one thing then. I mean, our mission is to be in nutrition, health and the environment. And nutrition is mentioned first for a reason. So if I can put any focus already is we're going to be looking favorably through the nutrition projects, particularly because they are so near and dear to our core and to our partners. So that is where we have the risk-sharing partnerships. That's where we have a lot of the breakthroughs. That's where we have a path to profitability and the connection, of course, to our existing products business. So you should be looking into that direction. Not saying that some of the other projects will not be pursued or successful, but saying there will be a focus on the nutrition side of things, for sure.

Very helpful. I will be looking forward to the Capital Markets Day then.

And last, but not least, Dennis Berzhanin from Pareto.

Yes. This is Dennis Berzhanin from Pareto. Still have a couple left. The first one is on guidance. I appreciate all the clarity on the expected development in the fourth quarter and so you just -- hello?

Yes. Can you hear me?

Yes, yes. Okay. So you just confirmed the guidance, but you did mention that the company's conference makes progress in the project direction, but possibly at a slower pace. Is this referred to both top line and bottom line? I'm just looking to understand exactly how investors should interpret this break. And then you just provide clarity on the Q4 EBITDA and that it should not match Q2 and Q3 positive direction? What are some -- can you be specific in terms of what are some of the operational effects that would cause this figure to be lower? And then finally, on BioIndustrial. Just trying to understand how much of the effect in Q3 was from the weakness in bioethanol, alcoholic beverages from the corona pandemic. It seems the organic growth was organically down 6.5%. So I want to understand how much of that was this factor and if there are any other factors to consider.

Okay. Thank you. Handing over to Lukas for the question, basically, on a slower pace of Q4 that only regards to top line and EBITDA.

Dennis, thanks for your questions. With regard to Q4, we have some uncertainty left with regard to our top line, as there is some projects which are not clear if they will materialize on -- in Q4 already or not. The main driver for EBITDA -- for the lower EBITDA in Q4, we cite some lower revenues in BioScience segments, which are expected, is costs that we have, on the one hand, as I mentioned earlier, from the Board alignment; and on the other hand, operational effects, which leads to your second question, and that is mainly coming -- arising from the compensation schemes in subsidiaries, which due to the form of the project -- sorry, the program will materialize for the most part this year in Q4. So we will have -- we will see some effects there, which is the main operational effect that we outlined in our presentation. On bioethanol, there is not one single number, which is connected to the COVID-19 effect. What we do see though is that our customers have much lower revenues in the markets because our customers sell the products to the bioethanol market. We are not the last business between the processing facilities. Therefore, there is other intermediate, which leads to the fact that we saw reduced orders earlier this year already, which had driven our decreased revenues, especially in WeissBiotech. There is not one single number that described the bioethanol reduction. With the negative cost, we could, of course, discuss what the total reduction of bioethanol is, but it would be hard to see what amount relates to the COVID-19 situation. It, kind of, separates that as fact. In general, bioethanol is a soft business. Fortunately, for us, it's only a small part of our business. Unfortunately, for us, it's low margin. So then you have a positive mix effect. Having said that, be aware that our food enzymes business has been very resilient and has continued very strongly despite this pandemic and actually hasn't skipped a beat. So that's the situation anyone can read on bioethanol that, that market is decelerating, people are charging less. And bioethanol, in general, is a bit under scrutiny with that.

Are there any last questions from any on the phone?

Yes. I would have so -- 3 other questions. It's Markus from Baader Bank. May I ask them one by one?

Yes. Go ahead.

Again, coming to the operational division. On BioScience, this lower losses, can you walk us through what was -- how this effect came? Or what kind of -- basically, what kind of triggers led to this lower loss? That would be my first question of BioScience. And the second question would be on the disruptions from COVID-19. Is that SolasCure is facing delays? Maybe you can shed some light on how long you think these delays might be? And secondly, on the nutrition products, maybe other larger chemical companies saw even an acceleration of their demand in their nutrition products due to COVID-19. Have you also seen this effect in your product portfolio? Or do you expect this kind of effect to be visible then in the next quarter on the nutrition side?

We will first take the SolasCure.

Okay. We will start with the SolasCure question. I'll tackle the SolasCure first, Adriaan here; and then Lukas will take care of the other two. On SolasCure, the topic is this, we're facing clinical trials with Aurase, and those need hospitals with patients. Now it turns out that the patients for wound cleaning that are the target for the SolasCure Aurase solution are exactly the patients that are at risk of COVID-19, namely the older with pre-existing conditions and so on and so forth. So the hospitals are very careful not to admit any unnecessary visitors in hospitals, and the patients are not available. So that delay has been roughly half a year. In the meantime, we have been doing all sorts of other things, of course, on Aurase with regard to improvements and processes and productivity improvement. So we've not lost that time entirely, but we've had to wait half a year to get back into the clinics. The other thing is true, too, is that some clinics are more effective than others. So we're shifting gears to other clinics where patients are available. Difficult to say what is going to happen even next week on COVID-19, of course. But if all things continue as they are today, with the alternative test centers and with the delays we've had, we think we can limit the effect on, let's call it, a 6- to 9-month delay.

Okay. Thanks. Markus, Lukas here now. I will take the other 2 questions. With regard to the better margins in BioScience, there's very simple explanation. If you look at the total cost basis, it did not immensely change. But what you do see is a significantly increased revenue. And in BioScience, we are -- the BioScience business is not scalable on -- in the big picture, but if we look at the FTEs we have here in Zwingenberg, we can always allocate them to different projects. And if we do new Tailor-Made Solutions business or if we sell another FTE, there is much lower marginal cost than compared to the BioIndustrial business. Therefore, if we continue to have more FTEs sold, have more business with external partners, which is funded by these partners, we can reduce our EBITDA loss there much more up to the point when we don't have sufficient FTEs left, so to speak, that we can allocate to the different projects. And therefore, our big picture, the model is not that well scalable. But in the short or midterm, selling new FTEs or selling more TMS business can be a very important bit of the strategy to become more profitable. With regard to the nutrition side of COVID-19, we have kind of a mix effect. What we do see is that the wine season was very bad, and we have actually great -- I can't believe that we have wine and that is just thrown away because the wine producers need to -- want to have higher prices. Therefore, we are, of course, having a reduced business with wine yeast products. On the other hand, we see some positive effects on the nutrition side as well. So there's not really one clear answer. Are we in a good position here or not? We have a mix effect.

Are there any other questions left on the conference call?

Falko is here. I would have one follow-up question, please. With regards to the BioScience segment, so when looking at the economic environment, there's obviously a lot of companies under some stress, also probably some of your chemical clients. Do you expect that your BioScience segment could feel that over the next couple of months, in a sense that it might be more difficult to sign new follow-on contracts because your customers can't spend as much on those? It would be helpful to get some color.

I think it's important to explain where -- Lukas here, again, I'm sorry. I think it's important to explain where our customers are and in which areas they are playing. We are, of course, having some customers in the chemical field. And this has been one of the largest part in the more earlier years of BRAIN, but it's more shifting to more nutrition-based part of our customers. So we have a lot of customers that are much more active in the areas of nutrition and health than in the pure chemicals area. And this drives, of course, that they are still interested to do projects. I was actually expecting to slow -- that to slow down much more. But so far, things look good with regard to the customers we already had connections to beforehand. What's much more difficult, and this is why I'm -- I want to be clear about our guidance and about the fact that we are unsure if there might be future negative development or not, that it's much harder to connect to new customers that we hadn't worked with before. Because getting a new customer is much easier to visit them, and if you visit them and discuss in person then only doing the video calls. And I think we have something with regard to that in our Capital Markets Day prepared for you as well.

Absolutely. Adriaan here. During the Capital Markets Day, we'll share the pipeline of new project acquisition. And knowing that, that is an important KPI is the number of leads, the number of negotiations, the number of contracts, the number of deals closed. We'll share that. And this has been the focus in the last 6 months really after I joined is to get that pipeline healthy and filled and methodical in terms of acquisitions and conversion rate to contracts.

Are there any further questions on the call? Well, if not, thank you very much for joining us and hope to see you and speak to you on the Capital Markets Day. Thanks a lot. Have a great start to the week. Thank you. Bye.