Novonesis A S

Thank you very much, operator, and welcome everyone to the NovoNesis conference call relating to the full year performance of 2024. My name is Tobias Björklund, and as said, I'm heading up Investor Relations here at NovoNesis. In this call, our CEO, Esther Barchett, and our CFO, Reiner Lehmann, will review our pro forma performance for the year, as well as the outlook for 2025. Attending today's call, we also have Jacob Paulsen, EVP of Food and Beverage Biosolutions, Amy Byrick, EVP of Human Health Biosolutions, Tina Fehrner, EVP of Planetary Health Biosolutions, and Klaus-Krone Fuglsang, Chief Scientific Officer. The conference call will take about one hour, including Q&A. Please change to the next slide. and this is 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 they involve risks and uncertainties that could cause actual results to differ materially from those described in any forward-looking statement. With that, I will now hand you over to our CEO, Esther Baggett. Esther, please.

Thank you. Thank you, Tobias, and welcome, everyone. Thank you for joining us this morning. Could you please turn to slide number three? Thank you. I would like to start off with expressing my sincere gratitude to all of our stakeholders. Thank you to our shareholders for their continued confidence and support. Thank you to our customers and suppliers for their continued partnership. And I really want to extend a special thank you to our incredible employees. Your unwavering commitment and continued focus on customer centricity have been crucial to the success of the integration. I would also like to take this opportunity to say a few words about Jacob. It was announced last Friday that he has decided to take a role at another company. I am excited for him on this opportunity. However, I'm also sad to see him leave. Jacob has been important to NovoNesis, and he has been a strong leader of the food and beverages business, creating an excellent team around him. We're far ahead in the process to find a replacement, and we'll let you know soon in more due course. Jacob, who is sitting here with us in the room. Jacob, my sincere thank you to you for your time and for your significant contribution to NovoNesis. We will miss you, Jacob, but also we wish you all the very, very, very best. With this said, let us now look at our performance. This year has been truly remarkable. We successfully brought together two strong organizations to create NovoNesis, and we're now operating as a unified company. I'm incredibly pleased to say that our performance clearly demonstrates we are delivering on the promises we made. In terms of the integration, we have achieved all the key milestones we are seeking for. We have set the organization and established a unified company culture while securing that our house is in order. We have maintained a high employee engagement through this transition with a score of 82, and we are well above industry benchmarks. Customer centricity has been a key focus during the integration, and we have seamless collaboration across functions, allowing us to respond effectively and efficiently to customers' evolving needs. We have successfully positioned NovoNesis as the leading biosolutions company. Our innovative solutions and industry expertise differentiates us from competition, and we clearly see the increased interest in NovoNesis when we're engaging directly with our customers as well as trade shows and industry events. We have made significant progress in unlocking the three-year cost synergy program. achieving already an 80% run rate in the first year. We are on track to realize the four-year revenue synergy program of 200 million euros run rate, with initial contributions expected by 2025 of 1% of the organic sales growth outlook. our commitment to sustainability is integral to who we are. 83% of our revenue is documented and aligned to six of the United Nations Sustainable Development Goals. Additionally, we are well on track to deliver our long-term sustainability ambition. Since 2018, we have reduced our scope one and two CO2 emissions by 63%, and at the same time, growing the business by more than 25% for the same period. and 93% of the electricity that we use is from renewable sources. If we now move on the performance for the year, we deliver a strong broad-based organic growth of 8%, driven by a 6% volume increase and a 2% contribution from pricing. Emerging markets were particularly strong, delivering 12% growth for the year. Looking at the four quarters specifically, we saw continued broad-based organic sales growth of 7%, also supported by a 2% contribution from pricing. The strong sales growth coupled with cost synergies and operational excellence led to 36.1% pro forma adjusted EBITDA margin for the year, an increase of 2.3 percentage points compared to 2023. Close to 30% of our revenue comes from products launched within the past five years. And in 2024, we launched 45 new products across industries and geographies. solidifying our innovation leadership in biosolutions. With our expertise, with our global reach, with our passionate team, NovoNesys is well positioned to lead the way toward a healthier planet and healthier lives. We've consistently delivered on our promises, building a robust foundation. Our deep customer focus, combined with our R&D and production capabilities, prepare us to meet the growing demand for biosolutions. We are pleased with our progress and where we stand, also recognizing that the integration process is a journey. We're continuing to drive synergistic capabilities and we keep focus on business continuity. We're validating and confirming our view of growth acceleration for the next strategy period. And we will share this with you in August in relation to the first half year announcement. Two weeks ago, we announced the acquisition of DSM for Munich part of the Feed Ensum Alliance, unlocking further value in a core business. We expect to close this deal in the course of 2025, and I am very pleased we will now drive the full value chain in animal solutions, delivering stronger revenue growth and earnings accretion for Nobonesses. All in all, 2025 will also be a good year. a year where we expect continued strong growth performance of 5% to 8%, which includes around one percentage point negative effect from the decision to exit Russia and Belarus for the legacy Christian Hansen businesses. Additionally, we expect continued strong earnings development with a 37% to 38% outlook for the adjusted EBITDA margin. With that, we're now ready to dive into the divisional performance in more detail. Could you please start and turn to slide number four? Thank you. Food and health biosolutions deliver 7% organic sales growth in 2024 and 7% in the fourth quarter. Within food and health, food and beverages represent 74% of sales and human health represents 26%. For 2025, we expect this division to deliver organic sales growth within the same range as for the group, with relatively stronger growth in human health. Please turn to slide number five. Thank you. Food and beverages delivered 8% organic sales growth in 2024. This was mainly driven by volume, while pricing impacted positively in line with the group. Growth was broadly anchored across geographies and sub areas, and driven mainly by dairy. The strong growth in dairy was driven by both fresh dairy and cheese, supported by upselling and a strong customer adoption of innovation, Dairy growth was anchored across all regions. China, which is a small part of our dairy business, saw a slightly negative development as our innovation momentum was offset by the declining Chinese dairy market. In fresh dairy, we see an increasing demand for our tailored solutions in the high-protein space. Cheese is benefiting from good momentum in conversions and the adoption of solutions for productivity improvements. Baking delivers solid performance and benefited from increased penetration and innovation. Across remaining sub-areas, we also saw a solid development. Our solutions in food and beverages enable customers to reformulate, enable our customers to create better solutions for consumers to enjoy cleaner labeled products, including less fat, less salt, and less sugar. In plant-based solutions, we have seen a growing momentum during 2024, with an increasing activity with our customers and supported by a strong value proposition in combining both cultures and enzymes for better taste, better texture and healthier nutrients. Looking at the fourth culture, organic growth was 6% driven by dairy, with both fresh dairy and cheese contributing. Performance across the remaining sub-areas was solid. Growth in 2025 in food and beverages is expected to be driven by all sub-areas, including also a positive impact from synergies. Momentum is expected to continue to be strong and only partially impacted by the exit from center countries during the second quarter for legacy Christian Hansen businesses. The exit of those countries is expected to impact fully organic sales growth in food and beverages by around three percentage points. Please turn to slide number six. Thank you. Human health delivered 5% organic growth in 2024. We have seen the expected growth acceleration in the second half of 2024 at double digits, where the first half was impacted by a strong comparable from last year. Growth was mainly volume-driven, with pricing contributed positively. Advanced protein solutions contributed strongly and in line with expectations as we continue to scale up production and supply to the Anchor customer. Additionally, the sales growth included around 1 percentage point of deferred revenue following the updated contractual agreement. Dietary supplements was flat as the US market growth was muted. We experienced strong growth in Asia Pacific as we see increased demand for our solutions in this growing market. The women's health and infant nutrition categories show it the strongest growth. And HMO face a high comparable and decline as expected. The fourth quarter delivered 10% organic sales growth. Growth was driven by all segments, including a low single digit amount of the full revenue. For 2025, growth in human health will be driven by a continued positive momentum in dietary supplements. supported by a positive impact from cross-selling synergies and by advanced protein solutions. The full revenue will contribute by around one percentage point. Please turn to slide number seven. Thank you. Planetary Health Biosolutions delivered 9% organic sales growth in 2024 and 7% in the fourth quarter. Household care represents 35% of the division, and agriculture and tech represents 65%. For 2025, we expect this division to deliver organic sales growth within the same range as for the group, with relative stronger growth in agricultural, energy, and tech. Please turn to slide number eight. Thank you. Household care delivered 13% organic sales growth in 2024. Growth was driven by increased penetration and innovation across both emerging and developed markets. Additionally, solid industry volume growth as well as pricing supported the performance. In emerging markets, we benefited from early years commercial investments, enabling NovoNesis to cater for local demand. Developed markets were driven by innovation, with a solid impact from the freshness platform, including also the recently launched Luminos. In the fourth quarter, organic sales increased by 7%. The expected slowdown towards the end of the year materialised to a lesser extent, and growth continued to be driven by increased penetration and innovation, as well as pricing. Industry volumes were also supportive in the quarter. and pricing continued to be solid with innovation also as a driver of growth. During the quarter, we launched one new product, making three in total for 2024. For 2025, we expect growth in household care to normalize after a very strong 2024. Key growth drivers continue to be innovation, increased penetration in both developed and emerging markets, continuous support from pricing, and industry volume growth. And please turn to slide number nine. Agricultural energy and tech deliver organic sales growth for 6% in 2024. This was driven by double digit growth in energy and supported by both agricultural and tech. Growth was driven mainly by volume and pricing also contributed positively in line with the group. The strong performance in energy was led by Latin America and India, driven by capacity expansion of corn-based ethanol production and supported by the ramp-up volumes for second-generation ethanol. A solid performance in North America was driven by increased penetration and innovation, including ethanol production growth of around 3 percent, according to EAA. Additionally, biodiesel contributed positively, mainly driven by emerging markets. Growth in agricultural was supported by both animal and plant. Solid underlying growth in animal was impacted by a demanded year-on-year comparable due to order timing, while growth in plant was impacted by the stocking. Tech was driven by bioprocessing, including processing aids for biopharma production, as well as grain processing. In the fourth quarter, organic sales growth was 6%, led by agricultural and energy. The drivers for energy were the same as those for the full-year performance. Strong growth in agricultural was led by animal, with increasing penetration of innovation, and growth in tech was driven by bioprocessing. In the quarter, we launched several exciting solutions across the sub-areas. And I would like to highlight Avursa Advance, which is one product in a series of innovative solutions accelerating the penetration of enzymes in the production process of biodiesel. For 2025, growth in agricultural, energy, and tech is expected across all sub-areas, supported by a positive impact from synergies, mainly in agricultural. Growth is expected to be driven and led by energy, driven by a continuity capacity expansion in emerging markets and penetration of innovation in North America. And now, let me hand over to Rainer for a review of the 2024 financials and the outlook for 2025. Rainer, please.

Thank you, Esther, and good morning, everyone. Also, welcome to today's call from my side. Let's turn to slide number 10. Do please note that all figures presented today have been calculated on a pro forma basis. In 2024, sales grew 8% organically and 5% in reported euro, as currencies gave around a 2 percentage point headwind and divestments impacted growth negatively by around 1 percentage point. The divestment is related to the merger-driven separation of the lactase enzyme business, which was fully completed in Q4. In the fourth quarter, sales grew by 7% organically and 4% in euro, with similar impacts for currencies and M&A as for the year. As you are aware, since the beginning of 2024, we have been applying a hyperinflation cap for our organic sales growth. Without this cap, our organic sales growth for the year would have been roughly 11%, and for the fourth quarter, it would have been close to 10%. Let's now have a look at our profitability. The pro forma reported gross margin was 47.4% for the year. When adjusting for the impact of the purchase price allocation, including the one-time inventory step-up from the combination, we delivered a gross margin of 56.7%. This is an improvement of 170 basis points year on year. Productivity improvements, economies of scale, and lower input costs, including the cost of energy, led to this improvement, which was particularly true for the second half of the year. Pricing also had a positive impact. The pro forma adjusted EBITDA margin was 36.1%. This was 230 basis points higher than last year and was driven by the improvement in the gross margin of 170 base points, by lower net operating costs, as well as less depreciation and slightly higher other operating income, contributing together another 60 basis points. The pro forma adjusted EBIT margin was 22% for the full year. This metric is adjusted for special items and the one-time PPA inventory step-up. Special items amounted to 199 million euros and included, besides the integration and transaction expenses, non-cash impairment losses related to the discontinuation of activities in Russia and a few discontinued research and development projects as part of the process to conclude on the merger-related portfolio activities. Additionally, a gain on the divestment of the lactase enzyme business is also included in special items. The diluted adjusted earnings per share was €1.28, a decrease of 15% compared to the year before. If we adjust for the merger-related PPA amortization, the earnings per share was €1.73, an increase of 15% compared to the year before. With this performance, we are already well ahead of our originally anticipated 2025 target that was established in December 22 when the merger was announced. Cash flow was solid for 2024. Operating cash flow amounted to 1.03 billion euro, while free cash flow excluding acquisitions was 667.5 million euro for the year, compared to 459.2 million last year. The year-on-year improvement is driven by the operational performance and lower net investment and is supported by an improvement in working capital. The working capital improvement included the one-off payment in the first half of the year from the anchor customer in Advanced Protein Solutions. With this, let us now turn to slide number 11 to talk about the 2025 outlook. Please note that the outlook and modeling assumptions presented today do not include any impact from the acquisition of DSM-Firminic's part of the feed enzyme alliance, which is expected to close in the course of 2025. The outlook is also based on current levels of global trade tariffs. Based on the performance in 2024, coupled with strong momentum going into 2025, we expect an organic sales growth in the range of 5 to 8 percent for the year. Excluding the impact from the withdrawal from certain countries, we expect the range to be one percentage point higher, being then six to nine percent. Organic sales growth will be driven mainly by volumes, and pricing is expected to contribute around one percentage point across both divisions. Sales synergies are included in the outlook and are expected to contribute around one percentage point, mainly benefiting the food and beverage, human health, and agriculture, energy, and tech areas. Net, both divisions are indicated to grow within the group outlook range, including the negative impact from exiting certain countries impacting the food and health division. We expect a strong start to the year. This is mainly attributable to the sales momentum we are experiencing so far, the fact that investments into our cost base will continue to gradually increase throughout the year, and that comparables are lower. Within the first half of the year, we expect the first quarter to be stronger than the second quarter. In addition, the second half of the year will be impacted by the exit from certain countries, and keep in mind that we are facing here higher comparables as well. The gross margin is expected to continue to develop positively in 2025, driven by lower input cost, productivity improvements, and economies of scale. The outlook for the adjusted EBITDA margin is expected to be between 37 and 38 percent, supported by stronger gross margin development, and includes the full-year effect of the so far achieved cost synergies at an 80 percent run rate, as well as minor contribution from sales synergies. Currencies net will only have a minor positive impact on the margin using current spot rates versus average rates for 2024. The margin outlook also includes significant investments into the business as we continue to invest into our commercial presence to support and drive growth, ensuring continued long-term performance and returns. As Esther outlined before, cost synergies are already at an 80 percent run rate of the three-year cost synergy target of 80 to 90 million euro. We're very happy with our progress here. NovoNesse's Board of Directors will propose a dividend of 420 Danish kroner per share or 56 Eurocent to be approved at the Annual General Meeting. This will be equal to a total dividend payout for the year of 6.2 Danish kroner or 83 Eurocent per share, which is equal to what we paid out in dividends last year. The total payout ratio is slightly higher than the policy of a full-year dividend payout ratio between 40% to 60% of adjusted net profit. For modeling purposes for 2025, current spot currency rates are benefiting euro sales by a good percentage point. And as said before, the impact on the adjusted EBITDA margin is minor. We expect around €30 million in special items in 2025 related to the combination and initial expenses related to the implementation of a new SAP system. Net financials are expected to be around €80 million and a normalised effective tax rate of around 24% is a good assumption for 2025. We're not only reinvesting in our operational capabilities, but we are also investing in additional CAPEX to meet increasing demand for our solutions. We expect to invest between 10 to 12 percent of sales, mainly in expansion projects, supporting long-term growth and efficiencies. Net debt to EBITDA is expected to be around one, which is below the indicated level of 1.3 to 1.7 times. Please note, though, that the acquisition of DSM-Firmini's share of the Feed Enzyme Alliance is fully debt financed and adds 1.5 billion to net debt when the deal closes in the course of 2025, and therefore will add one turn to the leverage. We expect our strong cash generation to allow for deleveraging to the current target range of 1.3 to 1.7 times net debt EBITDA within the next two years. Additionally, the Board of Directors has approved the initiation of a 2025 share buyback program at a total value of 100 million euro, mainly in order to be able to satisfy long-term incentive programs. We are comfortable with the 2025 outlook, despite the global uncertainties around us. We're in a good place with room to expand our footprint to support a stronger future for NovoNesis. With this, I hand over to you, Esther, again. Esther?