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.