Novonesis A S

Thank you, operator, and welcome everyone to NOVA Nesis conference call for the first half year of 2024. My name is Tobias Björklund, as mentioned, and I'm heading up the investor relations here at NOVA Nesis. At this call, our CEO, Esther Barchett, and our CFO, Rainer Lehmann, will review our pro forma performance and the key events of the first six months of the year, as well as the outlook for the full year. Attending today's call, we also have Jacob Paulsen, EVP of Food and Beverage Biosolutions, Amy Byrick, EVP of Human Health Biosolutions, Tina Feiner, EVP of Planetary Health Biosolutions, and Klaus-Krone Fuglsang, Chief Scientific Officer. The conference call will take about 45 minutes, including Q&A. Please change to the next slide. As usual, I would like to remind you that the information presented during the call is unaudited and that management may make forward-looking statements. These statements are based on current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in any forward-looking statement. With that small introduction, I now hand you over to our CEO, Esther Bachet. Esther, please.

Thank you. Thank you, Tobias. And welcome, everyone. Please turn to slide number three. We delivered organic sales growth of 7% in the first half of the year. Volumes increased by some 5%, while prices were up by around 2%. In the second quarter, organic sales growth stood at a strong and broad base 10%, with pricing also around 2%. The adjusted EBITDA margin came in at 35.3% for the first half year, an increase of 1.5 percentage points. The adjusted EBITDA margin for the two segments is comparable, with planetary health slightly higher than group average. In food and health, we are investing relatively more resources to growth initiatives and projects. This is in line with the strategic choices we have made in the present years strengthening and exploring bio solutions in the growing food and health space. The innovation agenda is strong with 21 product launches in the first months, including 13 in the second quarter. And we expect a continued high rate of new innovation entering the market in the second half of the year. We see strong demand for our solutions across the businesses with a strong momentum here in the first months of the second half. Consequently, we increase the full year outlook for organic sales growth to seven to 8%. Organic sales growth in the second half of the year is expected to be at least on a par with the first half. This is driven by multiple factors, including the benefits from product launches and continued market penetration, and despite a more demanding comparable. Following the increased growth outlook, we now expect the adjusted EBITDA margin to be 35.5% to 36.5%. The gross margin is expected to be stronger in the second half of the year, as energy prices will also benefit positively. Pricing and our unique ability to deliver productivity improvements continue to be solid contributors to the gross margin as well. We are on a very good trajectory when it comes to the integration. Employee engagement is strong. Momentum with customers is high. And we focus on business continuity. We continue to drive cost and sales synergies, where cost synergies are at 80% run rate. And sales synergies are expected to materialize from 2025 and onwards. As there is an abundance of opportunities, prioritization continues to be key in everything we do. ensuring the best use of our resources. As a final introductory remark, we are addressing the distribution of an interim dividend and as approved by the Board at 2 DKK per share. With this, let's now look at each of the divisions in more detail, starting with food and health biosolutions. Could you please turn to slide number four? Thank you. Looking at the divisions, food and health biosolutions deliver 6% organic sales growth in the first half and 9% in the second quarter. Within food and health, food and beverages represent 75% of the sales, while human health represents the remaining 26%. Adjusted EBITDA margin for the first half was 34%, which is an increase of 0.8% percentage points compared to the first half of 2023. Food and health biosolutions is now expected to grow organically around group average after strong development in food and beverages, including good momentum into the second half of the year. Human health has performed broadly in line with expectations, and we continue to expect an improvement in the second half of the year. Now, let's look in more detail at the performance of the two sales areas. Please, turn to the slide number five for food and beverages. Food and beverages delivered 8% organic growth in the first half of 2024. Growth was broadly anchored across geographies and sub-areas, driven mainly by dairy and supported by a solid performance in baking. we have seen a normalisation of end markets and the destocking impact of last year's performance has leveled off. The strong growth in dairy was supported by both fresh dairy and cheese, driven by pricing, upselling and a strong customer adoption of innovation. Dairy growth was anchored across all regions, including a positive contribution from China. Baking delivered a solid performance and benefited from increased penetration of innovation. Across the other sub-areas, beverages, meat and plant-based, we also saw a positive development. Looking at the second quarter, organic growth was 11%, with a strong performance across sub-areas and supported by more favorable end markets. On the innovation front, we launched four new products during the second quarter for food and beverages, making it eight in total for the first half of 2024. Highlights include a new lipase enzyme for the cheese industry, which is a great example of how the combined capabilities is already delivering superior solutions. We are also excited about the many opportunities in the plant-based area, where we're seeing the benefits of going to customers with combined and synergistic culture and enzyme solutions. Here, we launch a new enzyme from improved Yunami flavors in plant-based food. For the full year, growth in food and beverages is expected to be driven by broad performance across all sub-areas. Please, turn to slide number six. Thank you. In human health, we saw a flat development for the first half of 2024, which was broadly in line with expectations. The first half was negatively impacted by order timing in HMO, as a very strong performance last year led to a soft start of 2024. In dietary supplements, performance in Asia-Pacific was strong, as we see increased demand for our solutions in this growing market. However, order timing also impacted first-half year performance in dietary supplements. Advanced protein solutions contributed strongly and in line with expectations, as we continued to scale up sales to the anchor customer. The first sales were realised in the first quarter, following a successful on-schedule start-up from the plant. Additionally, sales benefit from a low single-digit million euro amount of the firm revenue, following an updated contractual agreement with the anchor customer in Advanced Protein Solutions for plant-based meat. The second quarter showed 5% organic growth with a solid improvement from the first quarter, as expected. Growth was driven by a strong development in advanced protein solutions and also by a positive development in dietary supplements. Overall, we have seen accelerating growth momentum through the quarter and also into the second half. During the second quarter, we launched two new solutions for human health, leveraging our innovation in the complementary go-to-market channels. For the full year 2024, we expect strong growth in human health, driven by sales of advanced protein solutions to the anchor customers and dietary supplements. And please turn to slide number seven for a look into planetary health. Planetary Health BioSolutions delivered 8% organic sales with the first half of the year and 11% in the second quarter. Household care represents 35% of the division, while agricultural, energy and tech represents 65%. The adjusted EBITDA margin was 36.3% for the first half of 2024, which is an increase of two percentage points compared to the same period last year. The indication for planetary health biosolutions is now to deliver organic sales growth around group average for the year. This is mainly due to a stronger performance in household care, including a better start to the second half of the year compared to expectations. Please turn to slide number eight for household care. Thank you. Household care delivered 15% organic sales growth in the first half of 2024. All regions showed double-digit growth, which was driven by increased penetration in emerging markets, innovation in developed markets and pricing. In emerging markets, we are collecting the fruits of prior investments, as we see the impact of a stronger regional presence enabling our solutions to cater for local demand. Developed markets were driven by innovation, with a solid impact from the freshness platform, including the recently launched LUMINIUS. The industrial volume growth supported the strong performance in the first half, which also benefited from positive timing. In the second quarter, organic sales increased 16%, driven by the same factors as in the first half of the year. In household care, we are seeing end-market growth normalising, with, to some extent, a restocking effect. For 2024, growth in household care is expected to be driven by increased penetration in both developed and emerging markets, also supported by pricing. Please turn to slide number eight for agricultural energy and tech. Thank you. Agricultural energy and tech delivered organic sales growth of 4% in the first half of 2024. Growth was driven by double-digit growth in energy and supported by tech. Agricultural declined from a demanding year-on-year comparable in animal due to timing, while plant was impacted by destocking. The strong performance in energy was led by Latin America and driven by capacity expansion of corn-based ethanol production and supported by the ramp up of volumes for the second generation ethanol. In North America, performance was driven by increased penetration of innovation and ethanol production growth of 2% according to EAA. In addition, biodiesel contributed also positively. Performance in tech was driven by grain processing. In the second quarter, organic sales growth 9%, driven by all areas and led by double digit growth in energy, which was driven by the same factors as the first half year performance. Agricultural was back to growth in the second quarter, with both animal and plant contributing, driven by penetration and innovation. Growth in tech was driven by grain processing. For the full year, growth in agricultural energy and tech is expected across all sub-areas led by energy. And now, let me hand over to Rainer for a review of the financials and the outlook for 2024. Rainer.

Thank you, Esther. Good morning, everyone, and also welcome to today's call from my side. Let's turn to slide 10. Do please note that all historical figures presented today have been calculated on a pro forma basis, including six months of both Novozymes and Christian Hansen legacy. Also note that Outlook 2024 is based on 12 months pro forma numbers for the consolidated business. For further details, please refer to the company announcement published on March 21st this year. Let's come to the performance. Sales grew 7% organically and 5% in reported euro in the first half of the year, as currencies and divestments each provided around one percentage point headwind. The divestment is related to the now completed merger-driven separation of the lactase enzyme business. In the second quarter, sales grew by 10% organically and 8% in euro, with similar impacts for currencies and M&A as for the first half of the year. As you are aware, we are applying since the beginning of 2024 a hyperinflation cap for our organic sales growth. Without this cap, the organic sales growth for H1 would have been a good 10%, and for the second quarter, it would have been 13%. Let's now have a look at our profitability. The pro forma reported gross margin was 42.4% in the first half of the year. When adjusting for the impact of the purchase price allocation, including the one-time inventory step-up, as a result of the combination, we delivered a gross margin of 55.7%. This is an improvement of 70 basis points year on year. As expected, this was the result of achieved economies of scale, lower input costs, and positive pricing, as well as productivity improvements. Energy costs continue to be a temporary drag but are expected to benefit the gross margin in the second half of the year. The adjusted EBITDA margin was 35.3 percent. That was 1.5 percentage points higher than last year and was driven by the improvement in the gross margin, as well as lower operating costs, including cost synergies. Planetary health reported a 36.3 adjusted EBITDA margin and food and health 34 percent. As Esther explained in her introductory remarks, it was as expected, following the higher allocation of resources to food and health. The adjusted EBIT margin was 22.3% in the first half of the year. We adjust this KPI only for special items and the one-time PPA inventory step-up. Special items amounted to 129.5 million euro and included, besides integration and transaction expenses, a non-cash impairment loss of 31 million euro related to the discontinuation of our activities in Russia. Net profit amounted to 34.7 million euro in the period. When adjusting for special items, the one-time inventory step-up, and the related tax impacts, the adjusted net profit was 297.1 million euro. Moving on to our cash flow. Cash flow was solid. Operating cash flow amounted to €540.7 million, while free cash flow excluding acquisitions was €387 million in the first half of the year, compared to €182.6 million in the same period last year. The year-on-year improvement is driven by the increase in operational profitability, supported by a slight improvement in working capital and lower net investments. In addition, the updated agreement with our anchor customer in Advanced Protein Solutions generated a positive cash payment which equaled roughly one-fifth of the operational cash flow. Just as a side note, the investment case for the APS facility in Blair, Nebraska, in the U.S. continues to be intact following the flexible production setup and inclusion in the global production network. The proceeds are treated as deferred revenue. Let me also say a few words regarding the joint venture Bactera that we were pursuing together with Lonza. As a quick reminder, Bacteria was established in 2019 by legacy Christian Hansen to explore a live biotherapeutic opportunity. Although the long-term opportunities in this market continue to be attractive, the strategic review led to the conclusion to wind down those activities. As a result, the investment as well as any other assets related to the joint venture was impaired and already accounted for, in the opening balance sheet of NovoNesis. Therefore, we do not expect any material financial impact on NovoNesis going forward. With this, let us now turn to slide number 11 for an update on the 2024 outlook. Based on the first half-year performance, coupled with a strong momentum going into the first months of the second half of the year, we increased the organic sales growth outlook, which is now expected to be at 7% to 8%. Growth will be driven mainly by volumes and with a similar positive pricing impact across both segments. Both segments are expected to grow around the group outlook range. The gross margin is expected expected to improve in the second half compared to the first half, mainly because we will continue to see the impact of lower input cost as well as the positive impact from lower energy prices. The outlook for the adjusted EBITDA margin is now expected to be between 35.5 and 36.5, benefiting from pricing, productivity improvements, and leverage on the fixed cost base, and includes cost synergies of around one percentage point. We also continue to invest in the business to secure long-term performance and returns. NovoNesse's board of directors has approved an interim dividend to be distributed on September 3rd at an amount of 2 DKK per share, or 27 euro cents. The last trading day was dividend is August 29th, 2024. That is part of the intended full year dividend payout ratio between 40 to 60% of our adjusted net profit. For modeling purposes for 2024, we adjust the assumptions following the discontinuation of activities in Russia, which impacts special items negatively by some €30 million, and a slight increase to the assumption for net financial costs. To round off, and building on the results on the first half of the year and the development, good momentum in the beginning of the second half, we are confident to deliver on our full-year outlook. With this, I'll now hand back to Esther for a wrap-up before we open up for questions.

Thank you. Thank you, Rainer. Please turn to slide number 12. Let me summarize our message here today. We deliver 7% organic growth in the first half with a strong momentum into the first months of the second half. Our diverse portfolio of innovative bio solutions, broad market reach, and unique production setup drives the performance. The integration is on track, with a strong employee engagement and with a full organisation now in place. A strong focus on business continuity, a strong focus on culture has enabled us to create the right momentum on both the long-term and the short-term agenda, including also the execution of synergies. We continue to stay true to our strong rationale on prioritization. We focus our resources where they matter the most, and as innovation is key to our long-term success, we invest behind it. We are uniquely placed to enable the transition towards a more efficient and sustainable world. As NovoNesis, we enable this transition faster and with greater impact. And this is especially true in a world in strong needs of biosolutions for healthier lives and for a healthier planet. And with that, we're now ready for the opening the Q&A. And operator, please.

We now begin the question and answer session. Anyone wish to ask a question may press star and one on their telephone. If you wish to remove yourself from the question queue, you may press star and two. Anyone with a question, we'll press Start at 1 at this time. The first question is from Charles Eden with UBS. Please go ahead.

Hi, good morning. Two questions for me, please. Firstly, on the impairment of the Russian operations, can you remind us how large that business was from a sales and EBITDA perspective for the pro forma business? And then, I guess, the timeline for discontinuations. Have you fully stopped selling into this market now? And I guess, will this exit be treated as a headwind to organic sales growth? And then my second one is just a clarification. For the guidance of mid-single-digit EPS accretion by year three, so I guess by 2026, can you confirm what you're using as the base figure for this, please? I assume it's the Novozymes standard EPS, which was a little over two euros per share at the time of the deal. Is that correct? Thank you.

Thank you, Charles, for the questions. A little bit on color on Russia, on the timing. We announced we would stop supplying to our Russian customers by the mid-next year, and that's the process that we are in. So you should expect a continuous business presence till then, with also sunsetting our presence by the mid-next year. And then, Rainer, if you could comment also on the other items on Russia and EPS. Absolutely.

So let me continue on the Russia, the 31 million euro impairment. That basically derived, as you are aware, as part of the purchase price allocation, we, of course, allocate intangibles to the different regions, to the different technologies, and so on and so forth. And once we withdraw now and we communicate that we're exiting the Russian business, we of course have to impound the associated part that we attribute for this PPA into Russia. So this 30 million is actually the one-time effect related that we relate to that business. And when it comes to EPS, you're absolutely right. So the basis is of course the legacy Novozymes 168. I think that is important to keep in mind. When we, in our EPS that we're showing here, is showing right now 64 cents for the first half year, keep in mind that this includes the purchase price amortization, which is roughly 18 euro cents. If you add the 18 euro cents to our disclosed 64 cents, you are actually at an 82 euro cent EPS that is comparable to the 168. Now, we do not guide on EPS, but if you do the math for the second half of the year, assume actually the same performance, which basically we say we're going to perform a bit stronger. It will lead to the fact that we're going to end up maybe around slightly diluted for the first year and going forward in incremental increase on the EPS. So a mid single digit increase over three years on that baseline would then lead to roughly 176, 178, which is in line with the predictions originally about 175 and actually a little bit ahead.

Thank you, Rainer. Thank you. Next question, please.

The next question is from Alex Jones with Bank of America.

Please go ahead. Thank you. Good morning. Two questions from me as well, please. The first, you're keeping a similar dividend payout ratio as you've guided previously to the legacy Novozymes and Christian Hansen businesses, but given the adjusted EPS definition doesn't add back merger-related amortization, as you just said, the de facto dividend payout from cash EPS has therefore gone down compared to the legacy entities. Can you tell us a little bit about the rationale for that? Are you planning to supplement it with buybacks? Do you see a greater need for organic or inorganic CapEx, or is there some other rationale for that? And then just secondly on bioenergy, I think during the quarter we've seen a number of renewable diesel plants to postpone or cancel startups due to the LCFS and wind prices having fallen. Do you see any effect of that so far, or do you expect any impact on the sort of conversion of your fiber conversion enzymes or your biodiesel enzymes in order to drive growth in bioenergy? Thank you.

Excellent. Thank you, Alex. I will let Reiner and Tina follow up on your questions.

Sure. So regarding the dividend, yes, correct. We basically do not adjust for amortization on the net profit. It was a decision we made. We believe we need those funds also to reinvest into our future growth to strengthen NovoNesis going forward. So therefore, that was our definition. It will lead, if you actually calculate that, to 2DKK. And if you make projections, our goal is to be in the range of previous year dividend as well. And from there on, then you most likely, that's our intention, of course, with increasing profitability, of course, to increase then in a nominal amount the dividend going forward. And then I pass on to Tina.

Thank you so much. And on biodiesel, biodiesel is a smaller part of our bioenergy business. And we do see strong growth in all the three segments we have here, biodiesel, biomass or 2G ethanol and biofuel. So we do see strong growth. The smaller parts is biodiesel and biomass. So the biggest driver is the performance in biofuel, which is strong.

Next question, please.

The next question is from Søren Samse with SEB. Please go ahead.

Yes, good morning to all of you. Two questions. First, on the cash flow improvement, maybe even talk about the main drivers. Of course, you know about the one-time 1 million euro payment, but there's still underlying improvements. That could be interesting to hear the building blocks. And then the second question on the cost facilities, maybe even put a number on the number of FTEs you have reduced the workforce with since the beginning of the merger, and also in what areas have these reductions been made, and are there more potential in that regard? Thank you.

Thank you, Sorin. I will build on your question on the cost synergies and then let us, Rainer, to follow up on the yes improvements on cash flow. Regarding cost synergies, it's important that we remind us the principles behind the cost synergies in place. We have both. Costiness from OPEX, but also on the cost of goods sold. Important to consider that it's not only on the way that we structure, but also on the goods that we purchase and how we operate. That they both are contributing to the 80% run rate that we are already today on the target. From the cost synergies, from a structured point of view, here the driver and the mindset behind has been mainly efficiency of the organization. Eliminating duplication of roles, preventing duplication of roles, a streamlined organization, reducing the span of control, reducing the number of layers, and setting a strong foundation, even a stronger foundation for future growth. And that's what we are in. So, yes, we see the benefits of the cost synergies, which we are very pleased as a very good foundation also for the investments of the future that will be in sales, that will be in T&D, that will be in applied research, and that they will continue to be on building the capabilities of the future on how we innovate in R&D. I think the best example of showing that we continue to invest for the future, it's also the 15% growth in emerging geographies. Here it's a way of showing we're collecting the fruits of the investments we have done. Resources on sales, resources in co-creation capabilities, where we continue to stay very close to our customers. Rainer?

So on the cash flow, let me comment to follow, of course, driven by, let's say, that's why I called it operational profitability. Keep in mind that our current, let's say, net profit that we start the cash flow calculation on includes the inventory step-up of 183 million, right? This is a pure accounting topic that fortunately is now flushed out. the first six months and therefore if you compare like for like actually the the net profit we see a nice increase on a performer basis in addition of course the operating cash flow has been affected by the one-time payment from our anchor customer which we said it's one-fifth of it so a little bit over 100 million when you do the math and that was keep in mind though as well a one-time effect That's it so far. Networking capital, to be honest, was pretty much nominal, flat year over year.

Is it answering your question? Sorry.

Go ahead. The next question is from Alex. Please go ahead.

Yeah. Hi, morning, all. A few questions for me. Firstly, just on the revenue synergies, you indicate those will materialize from 2025. Could you provide some more color on the first areas of revenue synergies you expect to hit the P&L next year? What solutions are gaining most traction and where will this first show up in the portfolio? And the second one, just on the APS business, I mean, you referenced in the statement that the investment case, I think, is still intact, despite softer plant-based protein end markets, as you flagged at the CMD. So maybe could you please elaborate on this and how you're using the Blair facility to unlock opportunities in proteins in other end markets? Thanks very much.

Thank you. Thank you, Alex. I'll let Tina and Amy and Jacob bring a color on examples of synergies. Basically, they are across all areas and they are the cross-fertilization of existing solutions in the markets that we present and also creating the foundation of the innovation of the new solutions with now a stronger portfolio. But maybe, Jacob, you want to start with a couple of...

Yeah, I can start. So it's actually all about combo solutions of enzymes and microbials that now come together even stronger in the solutions. We recently launched, as you saw here, an enzyme, a lipase enzyme, which is a great example, something we couldn't have achieved without the common strength of the two companies. That is one solution for the cheese industry that will We are working on plenty of solutions within the plant-based space, cross synergies across the beverages. So a number of things that are already in action with customers.

I can just maybe give a few examples of early revenue synergies from the human health area. The real focus in this space short term is really the cross channel launches. And so we see launching legacy Christian Hansen products and solutions through our consumer health facing channels. And we see good traction there. And then we also see, which is also a fun one to see, which is the acceleration of launches. And that's relevant for both of the launches actually that we announced here in Q2, where we're leveraging the value chain and leveraging the expertise to actually accelerate our ability to launch new products into the market. So good traction, both from the product portfolio mix, but also through the channel mix and complementarity.

And for us in Planetary Health, it is more about various channels, where it is we can cross-sell into the various channels, given we had a complementary footprint in Legacy Hansen and Legacy Novozymes. And then I think for us in Planetary Health, what we are most excited about is, in fact, the innovation capabilities coming together and longer term enabling us to develop completely new solutions. And we also get the scale and the muscle in order to do even more on the innovation front.

Reiner and Amy, if you could build up on the return of the investment and Blair and then Protein platform.

And I think it's important to understand that the APS facility and that is the beauty about having an operations, a global operations network that we can really reutilize assets. specifically also, for example, on the big fermentation capacity that is built there for other business and sales areas that are actually needing the capacity. So, therefore, the case is still accretive, and we said in year three at the end of the day. So, this is basically the overall case is intact on a lower basis, but also with utilization of assets within our global production capacities.

And I think as we spoke about a capital's market today, we continue to pursue the precision permutation platform more broadly, you know, developing solutions into medical nutrition and other high-value proteins.

Thanks very much.

The next question is from Chitan Udeshi with JP Morgan. Please go ahead.

Yeah, hi. Thanks, Monique. I have a couple of quick just questions. Can you quantify what was the absolute amount of PPA impact in terms of euro-million and also how much absolute euro-million synergies did you actually realize in H1? And the second question I had was just on the customer prepayment for advanced protein. I'm just curious. Why did your customer agree to pay you, you know, 110 million euros so much upfront in terms of, you know, compared to when they will be consuming these products? Is this because, you know, it's some sort of a penalty that they did not take or offtake the agreed volumes? Can you just discuss to the extent you can just the mechanics around this contract and one-off payment? And last question, sorry. There's a huge gap between emerging markets and developed markets in terms of growth in Q2 and also H1. Is that something you expect to continue in H2? Or do you see developed markets coming back in terms of growth so far in third quarter? Thank you.

Excellent. Thank you for the broad and very good questions, Chita. I love the way you said, can you disclose what you can from the contract? Because as you know, it's a confidential contract, and we would not be in the position to disclose the terms. You know we have an anchor customer, and we build the capability on Blair, build thinking also on a site integrated with all the needs of biosolutions, but then with a strong focus also in protein. And the deferred revenue that you see is a reflection of the dynamics and also the contractual commitments in place with also the strong commitment of the potential we see in this market. And again, the use of the asset of all the other applications that also we're fulfilling with. Regarding emerging markets, a little bit of color before I pass the word on Reiner on finance. We're extremely pleased of the 16% growth in emerging geographies. It's a lot of work behind making that happen. We invested in sales organization. We invested in co-creation capabilities, the powder lab on India, a breaking lab in dairy. We see the growth in China in China. in growing with our cultures, with yogurts recovering from years of not growth. We see growth in Latin America. We see the penetration of bioenergy, biomass also in India. It's many, many, many, many dots that they come from two drivers. One, the pool of bio solutions on a wall of need of solutions that drive efficiency, yield and productivity to our customers sustainably. And then also a lot of work on having the right hands, the right solutions, the right capability to be in the regions. So and we are committed to both. emerging geographies, domestic geographies, where we also see a growth and we're going to continue to be being the presence of those areas. Reiner.

Yes, and regarding the amortization that is basically included in the first half, it's basically around 110 million euros. So majority in cost of goods in this regard, but also then partially in S&D and R&D. Just also going forward, that's going to be roughly around 24 million a month. So it's substantial. That's why we, of course, are also making sure that you have the relevant visibility in this regard. When it comes to cost synergies, they're basically, I mean, this is implied in our guidance. One percentage point of the impact in 2025 of the revenue will be cost synergies.

Thank you. The next question is from Lars Koppholm with Carnegie. Please go ahead.

Yeah, congrats with a very good call. I have a couple of questions also. So one is on the deferred revenue. If you can comment on the pace of recognizing it going forward, is that stable or will that be accelerating? And maybe, Rainer, when you said net working capital was flat year in year, is that stable? before or after you include the deferred revenue, which I assume you book as a payable. And then a second question is on some of the potential new businesses. I just wonder if you can give a status on CO2 capture, on PET recycling, and maybe also on sustainable aviation fuel. What's the market readiness? What's your status? When could we potentially see some revenue? Thank you.

Excellent. Rainer, and then Claus.

So on the deferred revenue, it is backloaded, to be honest. So it's not a linear function in this regard. So it's more affecting towards the end, let's say, third of the contract duration. But we will be transparent and also say, okay, what is the impact going forward in this regard? To be honest, in the volume and the size of our company right now, being there around 4 billion euros with that profitability, it is really the impact is on the decimal place on an EBITDA level. And then on the lower part of the decimal place.

And then the rest was the... Yeah, Klaus and then Dino and SAF.

Sure. But if I start on SAF, there's twofold. One is an oil to aviation fuel, so waste oil to aviation fuel, which is moving forward. Then you have also considerations of using the ethanol chain to convert to jet fuel as well. This is still in its infancy, I would say. And other alternatives are explored in that area as well. So other fermentation routes to SAF. So SAF for now, for us, continues right now to be a waste oil game, but with options outside in the ethanol chain. On PET, we are of course watching closely how our partner is doing on the build-out of the first large-scale facility in France with Indorama and Carbius, and expect that that will come online, and then we will be delivering towards that. On carbon capture, one thing is the collaboration with SIPEM and the scaling of that technology on the enzymatic technology, but I would also say there are optionalities outside this, both in existing carbon capture processes where you can accelerate accelerate release, you could say, of the captured carbon through enzymatic processes. There are other interesting applications for the technology that goes into other industries that we are exploring. So it's not a single sort of, you could say, bet on Saipem here. It's actually a broad-based, but still in its infancy.

And Lars, I heard you asking also, when are we going to see the revenue of those solutions? This is an investment for the long term. This is optionality that we bring in for the long term growth. And it takes time. And many of them, they also come coupled with needs of changing regulation. for those solutions to be penetrated in the market. So the beauty of our company is that we deliver today of the solutions that we have. We're growing on adjacencies, we're expanding our toolbox, and then we're also seeding the foundation for the long-term growth. And we see good momentum, as Klaus has just mentioned, across all those areas.

I just had one small follow-up to Rainer. So, I of course agree in the big picture the deferred revenue matters very little, but for human health specifically, I assume it could matter a bit more. Just to make it clear, this effect is not included in organic growth, is it?

The deferred revenue is part of our organic growth.

Okay, so is this a factor that could maybe add a percent to organic growth in human health going forward?

As I said, it's a low single-digit euro amount that we are having as deferred revenue. Human health overall is far more substantial than that, so that is not the case.

Okay, that's very clear. Thank you, guys, for answering my questions, and congrats.

Thank you, Lars.

The next question is from Sebastian Bray with Berenberg. Please go ahead.

Hello, good morning, and thank you for taking my question. So I would have two, please. The first is on the sequential step-up, H2 versus H1, implied by the upper end of the 35.5% to 36.5% EBITDA margin guidance. I was intrigued by two things. One was a comment earlier, in the half-year report saying that energy costs were still a headwind in the first half of the year. Is this likely to remain the case in the second half of the year? And what else, aside from cost synergies, would drive up the margin? Because at the upper end of the EBITDA margin guidance for the full year, of 36.5%. It looks as if H2 margins could be about two percentage points higher than H1, which reads positively for 2025. But what are the moving parts between the first half and the second half? My second question is on the freshness or hygiene platform rollout. The press release makes reference to pre-stocking by customers and expectation of launches. From memory, the first Freshness Platform products came out in 2019. Is it right to say that these are a wave of products which are going to end customers other than the original anchor in this area? Thank you.

Very good question, Sebastian. Rainer and Tina, please.

Yeah. So on the improvement on the specific EBITDA for the second half of the year, Of course, coming from, absolutely correct, from the gross margin, we see here two impacts. Hedging, we were still impacted by hedging contracts that we made at the end of last year that bleed into 2022 that are running out, where we then now profit from the true lower energy cost, which we'll add favorably. And in addition, we also see the impact of lower input cost more dramatically in the second half than in the first half, due to the basically, when you revalue your standards at the beginning of the year, you still have that impact over the first six months. You capitalize the difference over the first six months, which also runs out. So therefore, the second half of the year, you're absolutely right, we'll see stronger gross margins or expectation in the first half.

And on the freshness platform, it is something we are rolling out broadly. It is, you could say, an innovation area which is very keen to us and which we believe matters a lot for the detergent industry. And we do innovate both for all our customers, ANCA customers or whatever we should call them, our key customers, the CPGs, but also the broader market.

Maybe to expand a little bit, this is not a single technology fix. This is a platform of technology that goes across segments, geographies, and so on. And remember, segments are widely different today than 10 years ago, being liquid, being unit dose, being solid formats, and then across geographies and CPGs. So a series of innovations.

And maybe just to add on that, I mean, the newest one is the Luminos, which is a key contributor as well.

Plenty to celebrate in household care. Next question, please.

The next question is from Andre Thorman with Denske Bank. Please go ahead.

Yes, thanks for taking my question. The first is in terms of household care. I just wonder now you have seen very strong growth in the first half. Can you maybe pin out what we should keep in mind for the second half? Can growth continue this strong or or should it come down due to tougher comps and also some of these restocking effects? That's the first question. The second is in terms of cash flow. I just want to be sure here you say it's a solid cash flow, but if you adjust for the compensation and also the elevated capex you had last year, would it also be a solid cash flow? That's my question. Thanks.

Thank you, Andre. I will let Tina answer the question on household care. I love it when the question implicitly comes with the answer. And then, Tina, please build up on that. And then, Ryan, please on cash flow.

Yeah. So you're so right, Andre. I mean, the tougher comps is, you could say, getting into the second half. So from that perspective, you should expect the growth rate of household care coming down. We do, for the company, we guide the 7 to 8 percent and indicate that planetary health will be in line and household care is expected to be above that with agriculture, energy and tech. Stronger growth in the second half, though less than, for example, household care in the company average.

And let me comment on the operating cash flow. Basically, of course, it was influenced, as I mentioned, that's why we pointed out by the one-time impact of a little bit over 100 million euros. That's basically only one of our take. So if you compare it then to the pro forma of last year, you still see a nice improvement of the cash flow driven by operational activities and also by the stronger profitability.

Beautiful. Last question. Operator, please.

The last question is from Georgina Fraser with Goldman Sachs. Please go ahead.

Hi. Good morning, everyone. Thank you for fitting me in at the end. First question is, are you still expecting the HMO approvals in China by the end of this year? And if you could give some visibility of how you're expecting sales or profitability to progress in 2025. And then I guess the last question of the call is, And one of the things that we're all worried about is weaker consumer sentiment and slowing end markets. If we were to see a macroeconomic slowdown, which parts of your portfolio would you see as being most vulnerable? And would you expect pricing to be under pressure in that situation? Maybe if you could highlight any businesses that you believe are in more of a low cycle environment today, that would be very helpful. Thank you.

Excellent. Amy, if you could expand the yes, and then I'll build on the second question.

Sure, absolutely. So, yeah, the short answer is yes, we are on track and we still see the path towards regulatory approval of our 2FL HMO in China before the end of this year. It's too early for us to give guidance on sales, but we would expect to see sales of 2FL starting in 2025. Of course, we are also making progress on the regulatory approval for the rest of the 5HMO mix, but that is more leaning and continuing to progress, as we've said in the past, towards likely 2026 approval.

And then, Georgina, building on your question, we have a pretty resilient and broad market exposure. We are present in more than 30 different markets, and also we have a global asset footprint with multiple assets that enable us to swing and to absorb the volatility of the market. So it gives us resilience, and it gives us the capability to react to a volatile market. It is true also that our solutions, they provide value, sustainable value growth for our customers. They enable sustainable value growth. That means bringing, yes, cleaner labor, yes, solutions enabled to wash at lower temperature, yes, lower CO2 emissions, but at the same time, productivity, savings. And that it's more precious also in an environment where cost becomes, or where competitiveness becomes even more precious, because that's what we bring in. Savings on productivity, on producing more efficiency, and then at the same time, enabling a sustainable solution, good for the final customers. And then maybe building in your question on where we would have the biggest exposure, I mean, we're not immune to overall demand. And some segments have a higher level of exposure. If you take, for example, the textile segment, that's a space that typically you see when consumers start being concerned about the pocket money and their reduced expenses. Typically, you see a reduction on garments and also on export of fabric meters from China and a reduction on the consumer space. That's a space that we would then eventually see, could see, or could see an exposure. At the same time, we're extremely resilient in areas which is food, in dairy particularly, or in animal, where maybe you would use more eggs, or you would buy more chickens, or you would fulfill your nutritional needs also with solutions that will drive our demand. And at the same time, again, The main principle of how we grow, it is through generating and enabling value for our customers, and that's through even more and more valuable in a world of more demanding conditions. Long, long answer, but maybe the best way of summarizing is we are in a good place. We are in a very good place. We continue to deliver on the integration. We continue to keep the put on the federal on staying close with our customers. And the first half of the year and the strong start with the first two months of the second half, that puts us in a very high place of comfort. Also coupled with a strong employee engagement and the good momentum in the industries that we're in. And maybe with that very long answer, I would thank you for your time and close it for the call today. I'm looking forward to continue the conversations with many of you.