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?

Thank you very much, Rainer. Please, could you please turn to slide number 12? Thank you. Let me summarize our message here today. We delivered a strong and broad-based 8% organic sales growth for the year. NovoNesi's diverse portfolio of innovative bio-solutions, broad market reach, and unique scalable production setup capabilities drives the performance. Momentum continues to be solid, with a strong start of the year. We expect a broad-based 5-8 organic sales growth, which is mainly volume-driven, with continued positive pricing across both divisions. We have taken also the active decision to exit certain countries, and if we would exclude the impact of that, organic growth for the year would be 6-9%. We delivered an adjusted EBITDA margin of 36.1% in 2024. And with stronger sales growth and cost and sales synergies materializing, margins follow suite. For 2025, we expect between 37% and 38% adjusted EBITDA margin, driven by multiple positive factors, while leaving room for significant reinvestments to support the performance for the business. We continue to focus on prioritization. This is key. to our success as opportunities are plenty. Our focus is on selecting the opportunities with the highest growth potential and with the highest return profile. And we will continue to do exactly this by allocating the resources and efforts to where they matter the most, driving value for our customers and the stakeholders and our shareholders. And with that, we're now ready to open for the Q&A. Operator, please.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question, make a star and one on their telephone. You will hear a tone to confirm that you have entered the question queue. If you wish to move yourself from the question queue, you can press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Alex Jones from Bank of America. Please go ahead.

Thank you. Good morning, everyone. Two questions, if I can, please. The first on the revenue synergies, Esther, you talked about continued confidence in hitting the 200 million target. Can you expand a little bit on that? Give us an idea of how much visibility you have and whether there's any figures you can give on the size of the synergy pipeline, whether that's risked or unrisked at this stage. And then the second, on the margin, you're talking about reinvesting in the commercial organization in markets and geographies where you see particular growth potential. Could you give us a little more detail on which areas in particular you're investing in at the moment and into 2025 and how quickly you'd expect that to pay off in terms of faster growth? Thank you.

Excellent. Thank you, Alex. I love these questions because they give robust and trust on the exciting future ahead of us. On the revenue synergies, let me start answering on that and then bring it back. Also invite into the room all Amy, Tina and Jacob. There is several aspects that give me the comfort on the 200 million run rate and that we are in a good track. First, we already see the results. The very, very, I mean, this is the most important. We see since day one the pull from our customers, the curiosity and the eagerness to gather the cross-fertilization of the synergies. And we already see sales, the seeds and the fruits already in place. We see that in dairy, in high protein. We see that. bringing enzymes and bringing even better solutions for plant-based, for dairy and food and beverages, cross-fertilization of the solutions that we have from Christian Hansen in our broader portfolio. We see that in silage. We see that in human health. we see those solutions already and those synergies in place. We have in the plan for 2025, 1% of the growth, 1% of this beautiful 528, it's going to come from the fruit and the impact of those synergies contributing into growth. And then we see the healthiness of the pipeline, of the cross-fertilization, of the growth synergies, leading to the 200 million. And we already see the very nice momentum in R&D for the accelerated long-term from the new fruits of innovation. You'll have to wait a little bit more on the outcome of those ones to materialize, but it's really well on traction. So that's the first one, and I will let then my colleagues here to build up and also then put further color on the investments that we're making. We are a growth company, and growth companies, they need to continue to invest. And one of the, and Reiner mentioned, we're going to continue to invest on CapEx, on to bring the capability to produce and the bottleneck and investments on how to continue to... supply those solutions in the market beyond the efforts on productivity, and we're going to continue to invest in our most precious asset, which is people. Particularly in commercial, we're creating customer co-creation capabilities across all fronts, especially in emerging geographies, where we continue to bring in the space on how we stay closer to our customers for tailor-made solutions, and bring the capability to create powder labs in emerging geographies on how we are developing solutions or how we are doing the same across food and beverages and creating those capabilities in place. But I'll pause here and I'll leave. Jacob, if you want to start and then Amy and then Tina put a little bit more color.

Yeah, I can start. So overall, I've always been, you know, a true believer of bringing these two companies together. And it's clear that we can see it right now because all the synergies are coming through. We are mobilizing already this year around a number of exciting opportunities. And then we are definitely going to unlock additional over the following years. Some of the things we're doing is taking the expertises of enzymes into the broader dairy play and customers bring synergies. We are combining our activities in brewing. We are combining our activities in plant-based. A number of things where we already see we are winning substantial opportunities with customers and we are building a strong pipeline. Then also we are combining our teams around the world, bringing a stronger scale, and as Esther mentioned, we are adding additional capacity of co-creation, application resources, frontline people, And we can see that just around New Year here, we'll expand our direct presence with several hundred more customers, which is going to generate growth on the combined sales force. So I'm very optimistic about the outlook for our combined sales synergies.

Sure. Maybe if I can just build on that. I mean, I think one of the key areas that we see as a driver for outperforming market growth next year and also delivering on the synergies is our strain to solution capabilities. So our ability to combine strains to make unique customer products. And customized solutions. And just as reference, we actually launched more than 100 customized products in 2024. And we are scaling our capabilities. And that's actually one of our key areas of commercial investment is in the ability to continue to scale and grow that capability to launch even more. as we go forward and that will support our base business as well as obviously Synergy projects combining strains from both legacy companies to create customized solutions working with our customers. So our main investments are that strained solution customization engine scaling that for growth and then also in frontline sales capabilities with a particular focus on North America and China.

And I can add on the animal and plant side, just for example, on the animal silage solutions where we have chosen to add in further commercial sales force in order to accelerate the growth of these solutions. This is, for example, in Latin America and North America. And then also as an example in the plant space, we had a quite strong presence from the legacy Novozyme site in India as an example. And there we are testing and pushing also some of the legacy Hansen solution in order to benefit from the scale we are having from both legacies and thereby further accelerate also in plant and animal.

Thank you much. Next question, please.

The next question comes from the line of Sorin Samsu from SEB. Please go ahead.

Yes, good morning, everyone. So first question on your comment that the year will be front and loaded. Maybe if you could just elaborate on what divisions will mainly drive this. And then second question was on the pricing and household care, if you can give us the impact of pricing in Q4. And then finally, what level of productivity gains have you assumed in your margin guidance in 2025?

Thanks. Thank you, Søren. I'll pass the word to Rainer and only give you the comfort that we see already a good start of the year on this front-loading.

So basically, it's exactly how we say we see good momentum and a strong performance so far coming or at the beginning of the year. That coupled also, of course, that investments into the what my colleagues just pointed out, into our operational capabilities will gradually increase over 2025. That, of course, leads to a better performance, also in profitability. Sales growth, we just said, is the momentum, strong momentum we see overall in January, and it's actually across both divisions. So it's really, as we always are, it's across both divisions, across all areas.

The next question comes from the line of Charles Eden from UBS. Please go ahead.

Hi, morning. Thanks for taking my questions. First one, for 2025, can you just talk a little bit around your expectations on raw material inflation and how your energy cost bill will evolve, I guess, as hedges in place? But how are you expecting that to trend in 2025? And then secondly, for the planned exit for some of the legacy Christian Hansen markets, does this have any benefit or headwind, for that matter, on gross margin or EBITDA margin? And then, if I can just sneak in a clarification, are you planning to report quarterly EBITDA in 2025? I think that was the initial plan following the combination, but I just wondered if that's still the case. Thank you.

So... So basically, I can take those. So regarding inflation, basically, we expect an improvement in the gross profit, as I lined out. That's driven by actually continue to be lower input cost, also including energy. We see our energy or expectations for energy is actually in 2025, that's a little bit over 5% lower than in 2024. So continued improvement here, and also lower input costs. Basically, raw materials will add to a positive development in the gross margin. The other part was regarding quarterly EBITDA. Yes, we are moving in 2025 to quarterly profitability and full financial statements. As you have seen also in the SEA, we actually already provided you the quarterly pro forma 2024 results for the group in this relation.

And thank you, Rainer. And Tina, could you build on Soren's question on household care and pricing?

Yeah, I can. I can. So household care for the year, as well as for Q4, has been stronger than the group performance of pricing, which were 2%.

The next question comes from the line of Thomas Lind from Nordea. Please go ahead.

Hi, good morning everyone. One, two, maybe three questions here all regarding food and beverage. Just looking at Q4 and the 6% organic revenue growth down from double-digit in Q2 and Q3, could you please just elaborate on what's driving this? Then the second question you're saying here, upselling is driving growth. And maybe if you could also elaborate a little bit on what is the exact upselling here. Is this primarily bioprotection? And what is the penetration rate of bioprotection today? And then finally, conversion in cheese here is also driving growth. If you could also help with the conversion levels in cheese and yogurt, those would be my questions. Thanks.

Thank you, Thomas. It really sounds like three questions, more than two, and I will let Jacob to answer them.

Yeah, so the first question is about the quarter result, Q4. So you should really see it as a half-year result in line with the overall result of the year, so it's a bit of a timing effect. If we look to the upselling component, which is indeed quite powerful last year, and we see that continue into 2025, It's a range of bringing new innovations to market. Yes, you're right that bioprotection has been a strong component. We are seeing strong double-digit growth in that area across our meat activities, across our dairy activities. But it's broader than that. It's also productivity improvements. Many customers really need us to help them optimize their recipes, reduce cost of production, efficiency in production, et cetera. And then it's new innovations we are bringing together with the customers to market. Among the productivity improvements is really also the conversion in cheese, where we are seeing a good outcome from many years of hard work convincing them to go with our solutions. And that is also a continued journey you will be expecting in the future as we are still only at a two-thirds of the world cheese market on the DVS solutions. So overall, a good comfort that the continued momentum of, let's say, the last half year will continue into 2025 with some of the same good dynamics as you have seen there.

The next question comes from the line of Sebastian Brey from Bloomberg. Please go ahead.

Hello, good morning, and thank you for taking my questions. My first one is on pricing. Are there some segments for which this is expected to be flat or down in 2025, or would this be universally up across the board? Put another way, which ones will be up most and which ones will be up least in your view? The second question is on energy costs. Are these now hedged and locked in, or is there any spot exposure left in Europe in the 5% year-on-year decline? And the third question is on CAPEX. Do you have any major growth projects, aside from general capacity expansions, that you would flag at this stage, given that the CAPEX is a little elevated to where it's been historically? Thank you.

Thank you, Sebastian. Pricing is across the board, and it is across all segments in a homogeneously distributed way. And then I will let Rainer build on energy and capex.

Yeah, so regarding energy, and let's call it specific electricity, actually, we are hedged 85% into 2025. So in Europe and globally, that actually translates to around 25%. And regarding CAPEX, basically, this is really for production capacity, right? We're coming now into a phase where we really need to put, as I always say, put some steel in the ground. That, of course, is a multi-year CAPEX program, which right now we are really investing in upstream and also downstream capacity. So therefore, yes, you see that elevated capex level, but it's absolutely necessary in order to fuel and to support our future growth journey.

Thank you. The next question comes from the line of Lars Topholm from Carnegie. Please go ahead.

Yes, thank you. Two quick questions on the outlook. One is on the pending HMO application in China. Is a positive outcome of that included in the outlook? And if it's not, can you put some words on if there would be a meaningful stocking up effect, for example, if you got that approval? And then a second one, Esther, in your introduction, you mentioned you are seeing a normalization in the growth of household care in 2025. By normalization, does that mean the run rate you expect for 2025 is also the run rate we should assume after that? Thank you.

Thank you, Lars. Good question. So it is positive improvements or changes on HMO would be an upside. And we'll let Amy bring a further color on where we stand on this very attractive position for us and the momentum that we see. And then on household care, we're seeing normalization after extraordinary year. And then we will share more also, not only for household care, but across all segments on the strategic guidance when we speak in August. Amy?

Yeah, sure. So, Lars, you read it correctly. And as Esther said, we have not included significant sales into China as part of our outlook for 2025. And really, the rationale behind that is just to avoid speculating on what is a very rapidly evolving and dynamic regulatory process. So, you know, if that were to come in earlier in the year, we would see an upside and we will see that we are actively engaged. And I think that the positive behind that is that we continue to be really positive about the market demand, the customer pull for HMOs, not only the 2FL, which is sort of the medium term outlook, but also the five mix in the longer term outlook. where we also continue to advance through the regulatory process. But again, we've excluded that from the outlook for this year just simply due to the uncertainty of the regulatory timeline.

One tiny household question, in addition, if I may. It goes to the alternative protein. So if you take into account both the deferred revenue and the actual revenue in Q4, which proportion of human health is alternative protein now?

I'm not sure we understood what you're saying. Lars, could you please repeat the question?

Yes, so in human health, there's a revenue contribution from alternative protein, and that's consisting of two revenue streams. One is deferred revenue, which you recognize. That's a small number, I know. But then there's also an actual revenue. So my question is, of the total revenue in human health, which proportion comes from alternative protein?

If you want to tell me. That's so beautiful, the way that you hinted at it. So we always share with you proudly and charmingly, hopefully, also the momentum of what we see. We feel very pleased about the momentum in advanced proteins. Also, we see the positive momentum also in dietary supplements and being a contributor of growth in 2025. Amy has shared about the potential upsides. Would there be in HMR with the conversations with the Chinese authorities, and that's the information that we're sharing on how we see the business.

Okay. Thanks a lot.

You're most welcome, Lars. Next question.

The next question comes from the line of Alex Lowing from Barclays. Please go ahead.

Yeah, hi. Morning all. A couple of questions from my side. We've heard some food peers talking a lot more about customer interest in enzymatic solutions to reduce sugar instead of high-intensity sweeteners. Is this something that you're also seeing and playing into? Do you think it could accelerate with the new health secretary's agenda in the US? That would be the first one. The second one, your guidance, you know, you caveat slightly saying it assumes the current levels of tariffs. I appreciate it's very difficult to predict what will happen on this front. But could you maybe kind of lay out the main risk exposures as you see them for NovoNASIS on this front? Thanks.

Thank you, Shara. And I will let Jaco put more color on, yes, the opportunity we see on the pull from consumers, not only in North America, but particularly in North America, of lower sugar added, lower salt, healthier nutrients, and cleaner label. And that opens a window for accelerating of our penetration of solutions. Regarding tariffs, you describe it beautifully. We're watching, of course, very closely as events flow. We have shown multiple times the strength of the robustness of our portfolio and also the value of the diversification of our global footprint. North America is a strong market for us, also strong from a regional perspective with more than 20 different sites that we present. And we feel very, very comfortable in our capability to continue to be a partner of growth from our customers and continue to be supporting the opportunities we're seeing in the region. Jacob?

Yeah, so sugar production is definitely a big theme for most producers. We see that in bakery, and we see that in yogurts as two key examples. If you go into a yogurt, you can actually keep the good, nice flavor of sweetness, but with cultures and enzymes, you can... you can reduce the the amount of sugar in the recipe quite dramatically and that's what we are seeing a lot of solutions coming out with in addition i need to mention the the protein trend right now everybody's looking to increase protein in the their recipes and we have had great success last year and a lot of projects in particular in high protein yogurt drinking yogurts in particular, where it's a combination of healthier, less sugar, but then it's also higher protein at the right taste profile.

The next question comes from the line of Shetan Udeshi from J.P. Morgan. Please go ahead.

Yeah, hi, morning. Thanks for taking my question. I was just wanting to talk about the reinvestments that you're talking about. And if my math is correct, I actually see in H2 2024, your underlying OPEX is already up something like high single digit versus H1. But just fundamentally, how should we think about these reinvestments from a mid to long term perspective? Are these reinvestments just helping you achieve the growth that you are doing now or Or will these investments actually help you achieve faster growth than you are doing now? So I'm not looking for any specific number or guidance. I'm just trying to triangulate whether this is more a defensive investment just to sustain what you have now, or is it more an offensive investment to accelerate your growth into the future? Thank you.

It's a beautiful question. We are a growth company, and we're investing for growth. We're investing for long-term, sustainable, profitable growth. And that investment grows across all forms. We're investing on people, people in commercial, people in R&D. We continue to invest on productivity, on operations too, and we also invest on assets and capabilities to support that accelerated growth.

But you referred to accelerated growth, so meaning the aim is to do better than what you're doing over time.

We said in the strategy period that we were committed to a 6-8 and accelerated growth. That's what we said. That's the wording that we continue to stay true. And then you'll have to wait for August that we come to the updated guidance for the new strategy period.

That's clear.

Thank you. The next question comes from the line of Andre Tormund, Danske Bank. Please go ahead.

Yes, thanks for taking my question. So the first one, just coming back to HMO, because I notice it's not mentioned in the growth part of human health or what to say in the outlook. So is there a specific reason for that, and shouldn't it grow faster? quite good just on the back of a weak 2024, even without the China effect. That's the first question. The second question is in terms of household care. And just to hear if you would comment on current trading for household care in 2025 and how confident you are that the really strong growth you have seen in 2024 won't continue to surprise to the upside in 2025.

Thank you.

Amy and Tina, please. Sure. So on HMO, I mean, you're absolutely right that the underlying growth is strong. And if you look at a stacked growth from a very strong 2023, we see strong double-digit growth in HMOs over a two- to three-year stacked period. Then the timing of those orders is such that you're right that we don't see – HMOs being a meaningful contributor to significant growth in the human health space in 2025. Of course, that is excluding any uptick in China. I think the important thing to underlying that, and the reason I refer to the stacked growth, is that that stacked growth is more representative of what we see in the market and the actual consumption of growth.

And on household care, so what we are sharing is that planetary health will be growth-wise aligned to the group and with agriculture, energy and tech being growing more than household care. But specifically in household care, yes, there are upsides. We do also please expect first half to be stronger than second half.

The next question comes from the line over Georgina Frazier from Goldman Sachs. Please go ahead.

Hi there. Good morning. Thank you for taking my questions. I've got two left that are on innovation. The first is I wanted to understand, Esther, how you think about your R&D spend. You mentioned in the opening remarks that your prioritization is super important because you have so many opportunities. So when you're looking at your R&D activities, what is the timeframe for potential payback that you have in mind? Or do you consider more of a portfolio with lots of different timelines? And then my second question, somewhat related, could you talk to us about what it is exactly that you're doing on the Danish AI supercomputer? Thank you.

Wow. Those are good questions, Georgina. And I will let also Klaus build up on both of them. Innovation is the driver of whom we are. And we continue to invest on innovation across all fronts. Innovation on protecting the core. Innovation on driving the adjacencies. Innovation of co-creating with our customers. Innovation on productivity. Innovation also on explorative areas. And we look at this from a portfolio investment, risk management portfolio, balancing short-term, long-term opportunities and the contribution to the company. We're investing in R&D, and we're going to continue to be investing in R&D. AI is also a strong component of whom we are on the way that we design, on the way that we bring to scale, and we have thought of the edge capabilities that feels us very comfortable on not only our current position, but also the sustainability of what we have in place. Klaus?

Yes, thank you, Mr. You explained it very nicely. We do run a portfolio of plus 200 different programs. Some of them actually have payback time shorter than one year, so some of it materializes. What we do in R&D materializes in a year. Amy spoke to some of that, the customization of products that exist for sales here now. We have optimization that pays back already this year, contributing to bottom line. And then, of course, we have a portfolio you know, ranging for few years and into longer timelines when it comes to bio-ag and animal and more complicated health programs. So it's really... a diverse portfolio with different timelines and risks. And that's what we, of course, manage to the best that we can. It does have to pay back. Investing in R&D in NovoNesis is a good revenue generator and a good return on investment. I'll guarantee you that. On AI, the supercomputer is actually a sponsored supercomputer from the Novo Nordisk Foundation. As such, we don't have special rights to use that supercomputer, but we do collaborate with other collaborators on looking on, for example, structure prediction and design of enzymes and so on and so forth. So what we do on AI, we actually have our own supercomputer. We have our own GPU set up here in our facilities where we can run internal programs, as Esther alluded to. This goes into our discovery. So the ability to design even, you could say, from very low homology enzymes, new functionalities. and so on and so forth. So we run, you could say, behind the scenes, our own supercomputers, and then the very large GPU from NVIDIA is managed by the Novo Nordisk Foundation.

Excellent. It's always comforting to hear a CTO speak as a CFO and talk about return and investments and the beautiful contribution that that only brings to this company. There's no more questions in the line, I see. And with that, we consider this call closed. Thank you very much for your time. Looking forward for continued conversations with many of you in the next coming days. Thank you. Bye.