BRAIN Biotech AG

XETRA:BNN

Earnings Call Transcript 2020-Q2

[Michael Schneiders, Head of Investor Relations]

Welcome, everybody, on the call to our Q2 fiscal year conference today, May 29. We will present and discuss the BRAIN 6-month financials. My name is Michael Schneiders. I'm the new Head of Investor Relations at BRAIN and will lead you through this conference call. The participants in the room with me are Adriaan Moelker, our CFO (sic) [ CEO ]; Manfred Bender, our running CFO; and Lukas Linnig, our CFO in scene from the 1st of October. We will try to put everybody on mute now and unmute the line basically after our first presentation for the Q&A session. The presentation will refer to the slide deck we have been distributing to you this morning.And now I'm going to hand quickly over to Lukas Linnig, who would like to introduce himself to you on this call.

[Lukas Linnig, Unit Head of Finance & Controlling]

Hello, everybody. This is Lukas Linnig, and it's a great pleasure for me to be able to introduce myself today. As I said, I'm Lukas Linnig. I started my career in venture capital in Munich where I was working in several start-up companies and where I was working at an incubator company which was actually a great time, and I learned a lot about building businesses, innovative businesses and making them profitable.After that time, I worked for a financial consultancy company called FAS AG in Frankfurt. And during that time, one of my customers was BRAIN AG, for instance, and I was supporting BRAIN AG as a consultant during the IPO. And in 2017 then, I joined BRAIN, being responsible for finance and accounting. And the year later, legal came into my area as well. And I was responsible for finance controlling and legal as the vice president. This is the position that I have today as well. And the Chair of the Supervisory Board or the Supervisory Board in total asked me if I wanted to become the CFO from October onwards, as Manfred decided that he was going to leave us. And I'm really happy to take that challenge, and I'm looking forward to that new time starting in October. But for now, I'm handing over to Manfred, who is going to present to you the financial numbers for the first 6 months.

[Manfred Bender, CFO & Member of Management Board]

So yes, hello all together also from my side. Thank you, Lukas, for handing over to me. So I'm responsible for the charts. Lukas will be responsible for the future. But I'm pleased to announce or to discuss with you the numbers for 6 months 2019/'20. Just a short summary, conclusion over the numbers. Q2 has been, again, as Q1 as well, been better than the quarter of the previous year. We have seen nice growth in revenues and the improvement in earnings and EBITDA. So we are on a good path to deliver what we guided, a significant growth for the full year and an improved profitability or reduce the operating loss. Of course you know that. So we are on a good path there.And the second message, as a summary, is we have not seen yet, and we do not expect further, we have not seen yet a significant impact coming from the corona pandemic on our business. So business continues as usual and is nicely growing. So that was the summary at first, but let me go more into details. And as it is the conference call following the announcement of our quarterly numbers, I would not go through all the slides. But I would like to start on Page 23 of our presentation with the numbers. And later on, Adriaan Moelker, our CEO, will add some information to you. The BRAIN Group's revenues increased by 7.6% to a level of EUR 19.9 million, so close to EUR 20 million from -- coming from EUR 18.5 million. That's nice in the current circumstances. But even better is the organic growth. We divested the Monteil business last year in June. So without that impact coming from the divestment, our organic growth would have been 14.1%. I guess this is a good success for our year 2020, which is outstanding. The BioScience segment, that's outstanding good, increased its revenues by 31.9% to a level of 68 -- EUR 6.8 million, mainly due to new and follow-up projects. The revenues of the BioIndustrial segment decreased slightly to -- by 1.8% to EUR 13.1 million due to some delays in the commissioning of new production facilities. As you know, we moved from France to Büttelborn, the facility of WeissBioTech. And we have some delays in the ramp-up of the production there. Organically, revenues of that segment, BioIndustrial, increased by 6.5%. The reported group EBITDA amounted to EUR 0.9 million. In the previous year, it was -- minus EUR 0.9 million. In the previous year, this was minus EUR 1.8 million. So you can see a clear and significant improvement against the previous year. The BioIndustrial segment has been able to increase its EBITDA margin. You know the BioIndustrial segment is profit-making. It increased its EBITDA margin to a level of 11.7% coming from 10.6% in the previous year. The adjusted group EBITDA amounted to minus EUR 0.7 million coming from minus EUR 1.7 million in the previous year. Adjustments have mainly been driven by higher employee remuneration from option accounting adjustments amounting to 150k -- EUR 155,000 for personnel expense resulting from the stock option program. The gross cash flow has been at minus EUR 3.5 million, at a similar level as in the previous year. Our cash position as of March 31, 2020, amounted now to EUR 6.4 million. So now to follow some pictures of this, which show that development year-over-year. As I said, the segment BioScience performed excellent. Revenues in the segment BioIndustrial decreased slightly due to delays in the commissioning of new production facilities. Organic growth is at 6.5%. The organic growth of the group overall was 14.1%, as I mentioned earlier.In both segments, we have realized material expenses cost savings. The material expense ratio in the BioScience segment as well as the group decreased due to the rise in revenues. Personnel expenses grew slightly compared to the previous year. The group's adjusted personnel expense ratio remained stable compared to this year -- compared to the year 2018/'19. In the BioScience segment, the personnel expense ratio decreased, and that's important because that's the main cost factor in the BioScience segment, decreased by 8 percentage points compared to the previous year. In BioIndustrial, the personnel expense ratio remained stable compared to the previous year. Next slide shows an overview of the other expenses. In the group, other expenses decreased significantly due to cost savings. In BioScience segment, the other expense ratio decreased by 5 percentage points compared to the year before. And as a result of the net effects, EBITDA of 6 months '19 -- 2019/2020, the group's EBITDA improved by 50.5% compared to the prior year, especially the segment BioScience strongly contributed to an improved EBITDA. The BioIndustrial segment improved its EBITDA by 8.6% despite a decline in sales. That's the short story about the 6-month numbers from my side. And I would like to hand over to Adriaan Moelker for some additional comments before we are prepared for your questions.

[Adriaan Moelker, Chairman of the Management Board & CEO]

Okay. Good morning, everyone, and welcome, again. My second conference call after we start in February. So now we're in May, and very happy to report the numbers that Manfred just clarified. I think excellent progress on a lot of the financials, on a lot of the businesses. So for me, the first 3 months have been really, really good and positive. And what I thought I should do and what I've prepared for you is on Page 18, is my 100-day observations because, obviously, anyone who can count -- I mean you can see that the 100 days are over and the famous 100 days, I thought, I'd report to you what I found in the company. First, on the strengths is, there's lots of strengths in BRAIN. And I thank the previous management, and I thank all the employees and the investors for building these trends: strong team culture; very good trusting workforce; exceptionally broad technology on microorganisms, enzymes, proteins, bioactives; and very strong partnership capability and network. We have an amazing network of people that we work with. We've got some good acquisitions done. Biocatalysts was certainly a great one down in Cardiff in Wales and a strong driver for our profitability and profitability growth in the BioIndustrial segment. So that's absolutely wonderful. The spinout of SolasCure, I think, has been a good one, and we're still very happy with that business. Also, I'd like to note is that the cost per FTE, even though our -- the personnel expenses are substantial in the BioScience part, the cost per FTE actually is under control. And quite frankly, we're sitting in reasonably cost-efficient facilities, which is also a strength. There's also cost-awareness culture here that is undoubted. And importantly, I have seen that there's quite a number of impressive talent. And I'm not talking about leadership, but I'm talking across the company. I'm talking about the scientists, talk about the business heads, talk about the technology unit leaders, the team leaders. There's quite a breadth of talent in the company that I'm very, very happy to build on.Clearly, we've been improving the profitability year-on-year, and this year is a good example. And there should be no mistake that we're on a journey to profitability, and we're totally committed to getting to profitability as soon as it's reasonably possible. We have good IR mentality, I think, in terms of we're aware -- I found that the people in-house here are aware of what is expected on The Street and what the investors ask. And there is creative business models that I've been pleased to see, joint venture, spinouts, running it ourselves, licensing out. So all of that is very good. On the challenges side, there's quite a few things as well that I think can be improved. And clearly, you should understand that on the challenges, this is sort of our, let's say, our list of priorities that we're working on diligently every day to resolve all of these challenges. This is not a list of challenges where we say, oh, interesting, let's not do something about it, no. All of these are being worked on very, very hard. Start with number one, organizational structure. I found it to be overly complex for the size and scale of the business. And the accountabilities, responsibilities were insufficiently clear. So what I've done in the first 3 months is actually restructured slightly and aligned the responsibilities. And for example, the Head of R&D, Michael Krohn; and the Head of Business Development now, Martin Langer, are important members of the leadership team and have clarity about the goals and responsibilities. On the business side of things, I've seen that there's been great progress on the technology, but too little focus on the monetization of the efforts in the deals that were made, in the commercialization and the going to market with our real products. So that's what we're working on to accelerate, go to market, to monetize our investment and to work with partners to get sometimes additional funding or earlier revenues. The go-to-market view and approach needs to be refocused, so that means being more aware of the business out there, being more aware of the potential in the market and the real segments that we can address. So that has to do with market research and marketing. We're working on that. What I've also seen, though, is a small sales force. And clearly, in BRAIN AG here in Zwingenberg, we are in a research business. How do you sell research? How do you sell projects? Call that a sales force or not, what I've done is to restructure all of that under Martin Langer and establish a business development department that essentially is our sales force, but much more focused, where the earlier efforts were more dispersed in the organization. The M&A strategy and pipeline I found to be somewhat underdeveloped. We're working diligently to look at bolt-on acquisitions as well as more transformative acquisitions. Clearly, I can't say anything about that here. But myself being from the industry, knowing lots of parties, obviously, this is a priority and actually fun to do as well to look at how we can grow BRAIN through acquisition. Next, the interaction with the subsidiaries needs to be institutionalized. What I mean with that is performance managing the subsidiaries and really working collaboratively with the MDs in the subsidiary companies to improve the numbers, whether is that -- whether that is on cost, whether it's on revenue, on growth or on net working capital, also one of my favorite topics. So true interaction, collaborative work with the subs is what we're doing now. We should improve the government and grant funding. We have great opportunity to get additional funding for the things we want to do anyhow, and working collaboratively with governments and partners is a priority to BRAIN. And finally, and very, very important thing here is the enzyme host strain development is something where I see a gap in BRAIN as well to be able to produce economically and flexibly in Cardiff in our fermentation capacity. This is one key area of investment where we're going to focus. On the HR tools and systems, and I talked about the talent, clearly, all the talent we've got needs to be developed, and I found the tools and systems to be somewhat underdeveloped. So talent management will be key and will be strengthened. We will focus on performance management and goal setting as well as on the cost structure of all of that. The overheads compared to the current revenue base, and that really doesn't belong in the HR tools, by the way, but the overheads compared to the current revenues are relatively high. And that is something that we're also going to look at. So on one side, we have good cost awareness, but we do have certain overheads where we think there is opportunity to improve. And that's what I'm working on, too. With regard to capital markets, and most on the call today here are from the capital markets, of course, we are totally aware that the clarity of the pipeline needs improvement. We need to be clearer about what can be expected, what should be expected, whilst not being able to disclose everything, of course, but there's a need for action here. While we're doing that, my goal is also to bring more focus to the R&D pipeline. So we have greater focus on the more promising projects and maybe de-prioritize some of the ones where I think they're not going to be successful. And then finally, the growth plans and initiatives, we need to give all of you good insight into how we're going to develop the business. But I think I've given you a flavor of all the things we're working on. The top 10, let's say, are on that challenges list. I'll stop here, and I'll hand over back to Michael Schneiders here for coordination for the Q&A.

[Michael Schneiders, Head of Investor Relations]

Thank you very much, Adriaan, Manfred and Lukas for the introductory remarks. [Operator Instructions]

[Michael Schneiders, Head of Investor Relations]

So I'd like actually to open the floor here for Dennis Berzhanin from Pareto Securities.

[Dennis Berzhanin, Analyst]

I have a few. One is on BioIndustrial performance in the second quarter. It appears to be a pretty strong adjusted EBITDA growth in Q2. Were there any of the start-up investments that have further impact in Q2 as they have in Q1? And in terms of the EBITDA margin segment, should we expect, going forward, the high margin to remain sustainable? Or should it come down to a more normalized level of roughly 12% that we have seen for the half?And in terms of delays for commissioning of the new production facilities, could you provide a little bit more color to that? Are there delays still ongoing? Will they impact the second half?

[Michael Schneiders, Head of Investor Relations]

If I got you right, the 3 questions were basically about the CapEx, on the margin sustainability of BioIndustrial and basically the current run rate of commissioning of the new plant. Is that correct?

[Dennis Berzhanin, Analyst]

Exactly.

[Michael Schneiders, Head of Investor Relations]

I hand over to Manfred to answer these questions.

[Manfred Bender, CFO & Member of Management Board]

Yes, sure. Thank you. I hope I understood all questions right. If not, so please let me know. You know that BioIndustrial margin is at a nice level now. And I guess after we moved to Büttelborn and ramped up the production facility there, we should have had all major costs related to that. And so because of that and given that we developed the business further as well as we did in the first 2 quarters, I would expect that this margin which you've seen in Q2 is more or less stable. The second one was about CapEx spending. CapEx spending in the second half of the year are expected to be somewhat lower than it was in the first half of the year. So there, we'll have a decreasing trend. And what was the last question, sorry, about...

[Dennis Berzhanin, Analyst]

In terms of the production facilities in general. You mentioned that there's, in the presentation, that there's been delays in -- from recognizing revenue from these production facilities that were enacted since last quarter, at least. Should we continue to see the impact of those delays? Or should we see the revenues coming from those starting in the near term?

[Michael Schneiders, Head of Investor Relations]

If I get you right, Dennis, the question is basically in terms of the ramp-up phase of the new production facilities and if you see any type of margin impact going forward.

[Manfred Bender, CFO & Member of Management Board]

Yes. So I guess I already answered that question partly. Yes, the ramp-up will happen now, and it already started. It will lead to some better business in the second half of the year. And with that, the margin as well, as I said earlier, will remain stable at least.

[Dennis Berzhanin, Analyst]

Perfect. Perfect. Great. And just one follow-up, if I may. In terms of the cash balance, the current cash balance is down to roughly EUR 6 million. How do you feel about that level? Do you see a need for further funding?

[Manfred Bender, CFO & Member of Management Board]

So first of all, first assumption is we will need less cash in the second half of the year than we needed in the first half of the year for CapEx spending and the investment in SolasCure and so on. So cash burn will be lower in the second half of the year. So that means that it's still valid that the remaining cash position should be fine for the daily business or financing our daily business.For any further investment, CapEx spending or significant CapEx spending, Adriaan talked about this or he gave you some ideas about his plans that we are a growth company and that we invest in further growth and so on. So for investment in further growth, is it production facilities, is it M&A and other things like that, of course, we take that into the option -- or we need to take the option then to increase capital, of course. But for daily business, we should be fine with the cash position.

[Lukas Linnig, Unit Head of Finance & Controlling]

And maybe, Dennis, Lukas here. One further comment regarding the EBITDA margin. I think what Manfred wanted to say is -- as the line was not too good, I think what we should say here is that going forward, we would expect that the 6-month EBITDA margin would be more stable. We had a very bad margin in the first quarter and a very good margin in the second quarter. And therefore, I think if we look at the numbers, I would suggest that the 6-month numbers are a good predictor for the next quarters going forward.

[Manfred Bender, CFO & Member of Management Board]

You're right, Lukas. Thank you for adding that. I always think in the cumulative numbers.

[Michael Schneiders, Head of Investor Relations]

Thank you very much, Dennis. So we'd like to move on to Christian Ehmann from FMR.

[Christian Ehmann, Equity Analyst]

First of all, congratulations on a good second quarter in light of these difficult times. In line with my colleague's question, what are your expectations for the BioScience and Industrial segments for the rest of the year in terms of revenue?And second question would be to the pipeline. So can we expect a further reduction from the pipeline in the future in the coming months? And what do you mean by carbon dioxide for biochemicals? What are those biochemicals exactly? Or what are you thinking of?And in terms of enzyme host strain development, which was talked about by Mr. Moelker, what are your goals there? And what are your expectations?

[Michael Schneiders, Head of Investor Relations]

Well, I think we start first the financial question. So in terms of the expectations on the outlook, I hand over to Lukas.

[Lukas Linnig, Unit Head of Finance & Controlling]

Thanks for your questions. I think with regard to the revenue growth, we have stated in our report that we do confirm our guidance of a strong growth, which we expect to be double digit for the full year as well, of course, unorganically. And if we look at the numbers, we see, of course, that BioScience performed much stronger than it did in BioIndustrial. This is, of course, driven by the fact that we sold Monteil last year. Therefore, if we look at the organic growth in BioIndustrial, we are, of course, not fully happy with that yet, but we do see some improvement here.

[Michael Schneiders, Head of Investor Relations]

I think for the 2 other questions, I'm going to pass it over to Adriaan for that.

[Adriaan Moelker, Chairman of the Management Board & CEO]

Can you repeat the other 2 questions, Michael? Did you write them down?

[Michael Schneiders, Head of Investor Relations]

Yes. So one question was basically on the CO2 for biochemical, what that refers to, so the [ reduction ] of the pipeline. And the second thing or question was regarding the host strain development for enzymes, what you mentioned in your 100-day report.

[Adriaan Moelker, Chairman of the Management Board & CEO]

Yes. CO2 for biochemicals, there are certain assets that we're looking to produce here. I cannot be more specific about that due to confidentiality, but it is capturing CO2 through a fermentation process to produce something, let's say, for the bioeconomy to create sustainable chemicals. Still far away from market, by the way, so it can still change quite substantially.With regard to the host strains, I'm sure you're aware that we've got certain host strains that we're really good at, for instance, the yeast Pichia, and E. coli is also a host organism of choice for BRAIN and its subsidiary companies. We're looking more broadly how we can expand the host organisms creatively so we can express our proprietary proteins, enzymes, what have you, more efficiently and more economically, which will be important for the long-term future for BRAIN.And this is, in our transition from more of a research company to more of an industrial company, is one of the key priorities. We can do that ourselves, we can do it with partners, all of that is still open. But the fact of the matter is that in moving from research to more industrial, this is an important project.

[Christian Ehmann, Equity Analyst]

I'm sorry, do you mean the addition of new host strains or development of the available ones like E. coli?

[Adriaan Moelker, Chairman of the Management Board & CEO]

Well, the thing is most host strains, we've got in-house already. So it is about improving the ones that we've got and maybe in-licensing certain technologies or knowledge or knowhow to improve what we've got. And we're also open to new collaborations to see what we can do with partners, knowing very well that a partnership is a faster way than doing it all ourselves. So if you look at our hosts, I mean, we've got aspergillus, we've got bacillus, we've got Pichia, we have got E. coli, we've got Yarrowia. We've got all of these. It's a matter of improving those in the smartest way possible.

[Christian Ehmann, Equity Analyst]

And regarding future pipeline reductions?

[Adriaan Moelker, Chairman of the Management Board & CEO]

Well, with regard to pipeline reduction, I said focus. So what you should expect then, on Page 17, you see the current pipeline. What we're working on or what we're working on now is reshuffling that pipeline, as I said, focusing on the ones where we think we have the biggest opportunity and maybe reducing it with others. So there'll be a focus. What is also going to happen, certain products, let's take the starch processing enzyme, is going to market. So it's going to go off the project list because it's commercial, and it is driving our growth in the product business that we all love. So some products -- some projects will go off the list, some will go on the list. And we have several key projects in our labs right now that we want to present to you in the next version of this deck. We're not ready yet, but that is what you should expect and what I meant by saying clarity on the pipeline.

[Michael Schneiders, Head of Investor Relations]

Thanks for your questions. Let's move on to Manuel Mühl from DZ Bank AG.

[Manuel Mühl;DZ Bank AG;Analyst]

Manuel Mühl here. And congrats on these good numbers, especially in this harder environment. Now the first question would be regarding M&A strategy. So this is something you said and said multiple times here in this slide deck. So I'm wondering how much of a room or space do you have to continue doing M&A given that your cash position has quite significantly been reduced now to around EUR 6 million, and whether this is still like the key focus to grow not only organically, but inorganically? So perhaps if you could give us your thoughts on that one.The second one would be regarding your point where you said you would like to improve government funding, perhaps if you could give us a bit of an idea here. This is clearly probably a process which will take longer until you apply for potential subsidiaries and until you get them. So this might take a longer time. So where you are in that process, that would be quite interesting.And the third thing would be regarding the sales force. You said you found them to be a bit on the shorter end or on the smaller side. So I was wondering, like, how are you going to improve your sales team and potentially move forward with the commercialization of the company as a whole? So yes, those would be points I would be quite interested in.

[Michael Schneiders, Head of Investor Relations]

Yes. I think Manuel had many questions. But for everybody in the room, that's good. So I think we'll start with Manfred on M&A strategy.

[Manfred Bender, CFO & Member of Management Board]

The M&A strategy, maybe Adriaan can add some words about the strategy of our M&A strategy. But about the financials, you're right, with a cash position of EUR 6 million, we cannot do big steps in terms of M&A. But as I said earlier, that would be one case which would make it necessary to increase capital. And with new capital, we would finance such an M&A transaction. So you're absolutely right, with EUR 6 million, this is sufficient cash for daily business but not for any M&A.

[Michael Schneiders, Head of Investor Relations]

Adriaan, do you want to add something on strategy in terms of how we approach M&A strategy?

[Adriaan Moelker, Chairman of the Management Board & CEO]

Well, we're going to look broadly into the market because we have broad and new technologies. So we're looking across the product platforms we've got, the enzymes, microorganisms, bioactive. So we've got quite a broad scope of what we're looking for. Then we've got existing products businesses where you could look at formulators, at technology that you could buy going forward or volume, volume in terms of products. What we're lacking in the products business somewhat is critical mass, and that's what we're looking to establish here. So these are some ideas without being specific. But again, we've got a wish list. And -- to dance, I mean you have to be with several as well. So we're looking for ways forward, but the wealth of opportunity is really quite substantial.

[Michael Schneiders, Head of Investor Relations]

Lukas, our expert on government funding.

[Lukas Linnig, Unit Head of Finance & Controlling]

Yes. Manuel, I think I can take that question. In the past, as you know, we had 2 larger programs, mainly the NatLifE and ZeroCarb programs, in which we received quite substantial funding over the last years. As you know, both of those ran out last year, one early mid last year and one in September. And as of today, we only have smaller programs running. But what we are working on right now is to look for opportunities for funding, but a funding with a very specific focus on the things that we already do. So we are going through all of this and saying, okay, we are going to do this project, this project and that project, and we might get funding for this or that.And this, of course, takes some time. There is ongoing discussions. There's ongoing work. But this is nothing that you get from 1 year to the other. So I would suggest that you will see over the next 1 or 2 years, you will see a decline in funding. We might be able to get funding earlier, but I don't want to promise anything here which we can't hold. But in the midterm, I suggest -- or I think that we will be able to increase that again, so maybe to give you a little bit guidance on that.

[Michael Schneiders, Head of Investor Relations]

Then we will hand over to Adriaan to tell a bit about the go-to-market approach for the sales force.

[Adriaan Moelker, Chairman of the Management Board & CEO]

Yes. The sales force, well, I meant small sales force, and good question. To be able to develop commercially faster, you need a good sales force. And this ties together with the organization. So changing the organization under Martin Langer to have a sales force, call it, business developed, is step number one. So make the accountability very clear. B, take people from the organization. Now we see have the capability, the talent and the interest to do this job because it's an important job to develop into that area and focus their jobs on being in key account management, business development sales, if you like.So organizing it under Martin and ring-fencing a team that is going to creatively go to market to sell our services and solutions. That's what I meant to say. I don't think we're essentially deficient in terms of capability. It's more a question of alignment, prioritization and education and training as well of the people. And I'm actually quite bullish about the prospects for that team where I said some of the key talents that I found in the company are clearly in that team. So that's something good to work on and to develop the business with.

[Michael Schneiders, Head of Investor Relations]

Thank you, Manuel. Then I'd like to move on to Falko Friedrichs from Deutsche Bank.

[Falko Friedrichs, Research Analyst]

Three questions, please. Firstly, can you update us on the SolasCure wound care product? Whether all clinical time lines can be held in this current corona environment and when you expect approval for the product?Secondly, one of the biggest questions we get asked is on the time line for the launch of your DOLCE products. Can you share your latest thoughts on when we can expect these products on the market?And then thirdly, are you looking into opportunities to potentially restructure some of the contracts for your own product developments that prior management teams have signed and potentially make them a bit more attractive for BRAIN?

[Michael Schneiders, Head of Investor Relations]

Thank you, Falko. On -- I think on the update on SolasCure, I'll pass over to Lukas.

[Lukas Linnig, Unit Head of Finance & Controlling]

Falko, nice to speak to you. Yes, on SolasCure, of course, things are not too easy right now due to COVID. We do face some delays here, which are mainly driven due to the fact that test centers are simply closed for non-COVID-19 purposes. This is the reason why we will have a short delay -- or we will have a delay here. And we hope that test centers open soon again for non-COVID testings. Besides that, the development and everything within the company progresses quite well, and we are actually very happy with what happened in SolasCure.You saw that quite a substantial amount of what we have spent in the last quarter was actually money that we invested into SolasCure because we strongly believe in the company, and we strong -- and we see a very strong and good development there. And therefore, we were very happy to be able to participate in that capital increase. And even though this reduced our cash position, we feel that we invested in a very strong asset here going forward. I think the next question was on DOLCE.

[Michael Schneiders, Head of Investor Relations]

It was on DOLCE and also -- yes.

[Adriaan Moelker, Chairman of the Management Board & CEO]

Yes, DOLCE, a few things I can say about DOLCE. One, the program has delivered candidates, where we're talking with our partners about how to best go forward on these candidates. So proof-of-concept is there. The efficacy against sucrose is there. All of that is very positive. And now we're in discussion with the partners how are we exactly going to go into the, let's call it, precommercial phase. i.e., ramp up, production, these kinds of things. These discussions are ongoing now, and slightly early to say what that will deliver. And we are looking to inform you in September about the new pipeline, if you like, including DOLCE.But let it be known that the high-intensity sweetener solution in DOLCE is still many, many years out from today because this has got to do with the scale-up, ramp-up and then slowly penetrating the market in terms of product sales. So it's years out, but from a project portfolio, from a candidate identification and from options that we've got, it is very real.

[Michael Schneiders, Head of Investor Relations]

Yes, another question he had was basically on the contract structure and if you're looking to restructuring of the contract.

[Adriaan Moelker, Chairman of the Management Board & CEO]

I don't quite know how to answer that. What is -- maybe you can elaborate with the contract structure?

[Lukas Linnig, Unit Head of Finance & Controlling]

The question is if we are planning to renegotiate contracts with the customer. And of course, everywhere we can, we try to do that. And there is situations in the project phase where we might come up with something that our customers did not expect or where we have something where we already have a strong IP base or knowledge base or something in that area, and those are the kind of situations when we have the possibility to renegotiate contracts and structures with the customer. And Aryan, maybe you want to add something as well.

[Adriaan Moelker, Chairman of the Management Board & CEO]

Yes. I mean you don't know everything when you go into a project, right? So you find out new things and you need, together with your partners, need to figure out the best way and the most reasonable and fair way forward. Of course, we're always going to sit together with our partners to discuss the way forward with the new information we've got, with the new candidate we've got and with the new situation that is there. It's a dynamic field. Clearly, this is our everyday bread and butter, is working with our partners and doing that in a fair and trustworthy way.

[Falko Friedrichs, Research Analyst]

Okay, great. Just one quick follow-up. In this latest capital increase for SolasCure, did you keep your stake? Or were you slightly diluted?

[Lukas Linnig, Unit Head of Finance & Controlling]

We participated exactly at our shareholding. So it was not changed at -- not even at the last percentage digit.

[Michael Schneiders, Head of Investor Relations]

Let's move on, last but not least, to Markus Mayer from Baader Bank.

[Markus Mayer, Lead Analyst of Chemicals]

Three questions from my side as well. Maybe the first one for Manfred and Lukas. Could you explain this large net working capital outflow in the second quarter? And also if you expect a reversing in the third quarter.The second question -- or most likely, the second and the third question was more for Adriaan. Could you give us a kind of feeling how the first half of the third quarter development and also, if you see that the growth drivers of the first half are moving into the second half as well?And then the last question is, do you believe that the demand weakness for third-party research in the BioScience segment could be a risk due to COVID-19 as some of your clients might cancel or delay innovation projects or cut costs?

[Lukas Linnig, Unit Head of Finance & Controlling]

Markus, thanks for your questions. First of all, regarding the net working capital, of course, we saw quite a bad net working capital. To be honest, it was not what we wanted, but it was kind of what we expected. Because last year, in the first 6 months, we had a very, very good working capital, which was driven through several -- or due to several factors. And this year, it turned out differently. As Aryan said earlier, we are working on net working capital topic very, very hard. And we are going to improve our working capital. Even though I would not expect that for the full year this year, we would see a positive working capital effect, but I would rather say that we will be able to reverse part of the negative working capital swing compared to last year over the next quarters. But I would not expect to fully recover from that this year.The second question?

[Michael Schneiders, Head of Investor Relations]

Was the second half of the year growth drivers, whether there's any problem at quarter -- at the start of the quarter and continued the same pace as we have seen in the last quarters.

[Lukas Linnig, Unit Head of Finance & Controlling]

Okay. Manfred, do you want to take this away? Take it.

[Manfred Bender, CFO & Member of Management Board]

So well, I can say a few words about that without detailed numbers. So the answer is quite short. The beginning of the second half is similar to what we've seen in the first half. So we see further nice growth, and this is developing further well without going into any details in that question.

[Lukas Linnig, Unit Head of Finance & Controlling]

And it's worth mentioning that we're actually very happy about that and that we don't see a major COVID-19 effect, not after the second quarter and not in that, of course, as well.

[Adriaan Moelker, Chairman of the Management Board & CEO]

Yes. And then the third question, on the third-party research, the contract research, a valid concern on your part that, that might fall away. I have the same concern. And quite frankly, that concern has not materialized. The project pipeline is very broad and very rich. And let's not forget, I mean, contract research is not a monthly business. It's like 0.5-year, 1-year, 2-year type contracts. So it's not like it's going to fall away all of a sudden. But besides the long-term nature of it, I have to be honest and say, there's a very good pipeline with interested parties that look for BRAIN to deliver solutions. So it's not a concern of mine, quite frankly.

[Markus Mayer, Lead Analyst of Chemicals]

Okay. And maybe I can steal a fourth question on M&A. It's basically an add-on question to the questions before. You have so many things you have elaborated on the challenges you see in the company. Should we expect that you firstly look at the -- have an internal focus before do you then look on external challenges or kind of opportunities?

[Adriaan Moelker, Chairman of the Management Board & CEO]

Well, I'd like to have the cake and eat it too. So whilst I'm figuring out the internal, clearly, we're working on the external simultaneously. And the reason is that an M&A target or any deal has a long incubation period. And so we're doing that simultaneously. But the limitation actually has been the travel and not being able to go out to places much and doing everything on conference calls. So -- but the pipeline development has been a priority at the same time as we're upgrading the internal processes and organization. So we're doing both. Yes, I'm keeping busy. Thank you.

[Michael Schneiders, Head of Investor Relations]

Thank you very much, Markus. Are there any other remaining last questions from our analysts?

[Markus Mayer, Lead Analyst of Chemicals]

If I may, I have -- would have 2 further questions.

[Michael Schneiders, Head of Investor Relations]

Then you may.

[Markus Mayer, Lead Analyst of Chemicals]

Yes? Okay. Then you -- I'll go ahead. On the personnel costs at BioScience, you said that the cost ratio decreased. Maybe a few words more on this. Is this something you also have in mind going further if your third-party research pipeline remains as you have right now in your kind of order book? That would be the first question.And then also on the start-up costs you had in the first half, you basically have, right now, you have this ramping up of the capacities. Should we think that there are no further start-up costs in the second half?

[Michael Schneiders, Head of Investor Relations]

I think Lukas is going to take the first question.

[Lukas Linnig, Unit Head of Finance & Controlling]

Okay. Great. Regarding the personnel expenses, in this quarter, we had a very good ratio, which was driven by strong revenues we have. And it was also from several projects. But when we look forward, it will depend on the business models and the milestone licenses and so on we get because it always depends on the mix of revenues we have. This is especially true, for example, if we get a bigger milestone, which we haven't had very large milestones in this quarter, but if we have a really big milestone, you will always have a much better personnel expense ratio because there is no FTEs working for that milestone. Or if they're working for that, they -- we are receiving R&D payments quarterly as well. Therefore, it's not that easy to predict where the personnel expense ratio will be going forward, and this will heavily depend on the mix of revenue streams we receive and especially on milestones and licenses we get.

[Markus Mayer, Lead Analyst of Chemicals]

Could I have an add-on question on this one? Let's assume you take a full year and not a quarter, yes, so basically -- and assume that the milestone payments would be the same every year, should we then expect improvement or a further improvement of the cost ratio?

[Lukas Linnig, Unit Head of Finance & Controlling]

Of course. If you take into account that we grow in total in terms of revenues and we have cost improvements in terms of scaling effect, we would, of course, improve our margins, EBITDA margins, but also our personnel expense ratio.

[Manfred Bender, CFO & Member of Management Board]

Okay. Second question -- the second part of your question was about the ramp-up phase in Büttelborn and the remaining cost for that. So I would not say there will be no cost for the ramp-up of production in the second half of the year, but less than in the first half.

[Markus Mayer, Lead Analyst of Chemicals]

And could you maybe help us to more quantify it? How big was the start-up cost in Q2 and kind of a feeling on the remaining start-up costs?

[Lukas Linnig, Unit Head of Finance & Controlling]

Lukas here. Maybe I think we should not quantify it in too much detail. But what I think we can say that you will see, that you will most likely see is a significant drop in the investments over the second half of the year.

[Michael Schneiders, Head of Investor Relations]

Thank you, Markus. Any further question from the analysts? Well, if not, so are there any other questions from other investors on the line? And please be kind to speak up now and state your name and organization first. Well, there seems to be no further questions. Thank you very much for your interest and the vital discussion. Before we end the call, I'd like to remind you of our next important dates: August 31, we're going to have the 9 months; and January 14, the annual report. If you have any further questions, do not hesitate to contact IR. And otherwise, have a great day and enjoy the long weekend. Thank you very much.