Novonesis B Unsp/Adr

Good morning, everyone, and welcome to this Novozymes conference call. Thank you all for calling in. My name is Tobias Björklund. I'm the head of investor relations. I'm joined here today by the full management team, as well as the rest of the investor relations team. Our CEO, Esther Bagé, will begin today's call by reviewing our performance in the first quarter, followed by CFO Lars Green, who will cover the financials. The presentation should take around 15 minutes. And after that, we will be happy to take your questions. Some of the matters we will discuss in this conference call are forward-looking, and I would like to remind you that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. With that, I will now hand you over to our CEO, Esther Bache. Esther, please.

Thank you, Tobias. It's a pleasure to be here speaking to you all. I started my role as CEO of Novozymes on the 1st of February, and I embrace this responsibility with a lot of pride. In Novozymes, we translate some of the world's most pressing needs into opportunities. And we answer them with science. When I look at Novozymes, I see a healthy company. I see a company with skilled people, an incredible innovation pipeline, and very strong financials. I also see a company that holds a great potential for further growth. And to unleash that potential, we simply have to do what we are designed, what we are set for, solving global needs with biology. And while doing so, we also commit to deliver higher sales, earnings, and value creation. I am a Spanish national by birth and a chemical engineer by training. I came to Novozymes with 25 years of professional experience from Dao, where I worked in a broad range of businesses, functions, and across different regions. I have had the privilege of leading strong teams, making good businesses even better, and advancing from challenging situations. I know for a fact that change rarely comes easy. It takes hard work. It takes dedication. It takes a strong purpose. It takes good leadership. And it takes clear direction. That is why I and the executive leadership team, together with the board of directors, we are determined to deliver. I look forward to leading Novozymes on its exciting journey, and I can assure you my full commitment towards delivering on our strategy, better business with biology. Now, please, if you could turn into slide number two for review of our first quarter performance. As you already know, we delivered a very strong first quarter with 10% organic growth coming from all main businesses and geographies. I am impressed with how the organisation has been able to fully meet customer specific demands and even in these very difficult and turbulent times. However, as we communicated on April 7th, the ongoing COVID pandemic has forced us to suspend the 2020 outlook. And this is still the case. The first quarter EBIT margin came in at 28.9%, which is a significant improvement on the last year. The good development was driven by efficiency gains and higher operational leverage. The cash flow for the quarter was also strong, with 825 million DKK, which is roughly twice the amount we reported on the first quarter of 2019. From an innovation perspective, we launched two new products in addition to making a new freshness solutions available to the market. And before we review the business segment, let's look at the geographical sales performance. So please, if you could turn into slide number three. In the first quarter, organic sales grew by a strong 13% in emerging markets and by a solid 8% in developed markets. The strong performance in emerging markets was mainly driven by bioenergy, household and care, and food and beverages. Sales in the developed market was led by household and care and food and beverages. And the growth on these two segments was partially supported by a higher underlying COVID-19-related consumption and consumer and customer stockpiling. Now, please turn into slide four for Households Uncared. In household and care, we had a strong start of the year with 11% organic cells growth in the first quarter. Our growth good underlying momentum continued into 2020, driven in part by our fluorescence platform, where we made a new enzyme for liquid and unit dose detergents available. This new solution is now on the shelves in many European countries. And the sales on the first quarter also benefit from the COVID-19 related demand, especially in Europe and in North America, as we saw our customers there stockpiling critical materials and where the consumers also loaded their pantries and did more laundry and more dishwashing at home. In emerging markets, we delivered strong growth in Middle East, in Africa and in Latin America, where the sales in Asia-Pacific were hampered by declining sales in China as consumers experienced COVID-19 restrictions. So looking ahead, the COVID-19 related stockpiling effects will likely be offset when the pandemic eventually subsides. But we also expect sales to benefit from continued market penetration with existing enzyme technologies and our freshness solutions. The full year sales indication for household and care remains volatile, but roughly intact. And that's based on our current insight and the assumption that both our own and our customers' logistics will continue to function relatively normally. If you could please turn into slide five. Our organic sales in food and beverage grew 11% in the first quarter. The strong performance was driven by growth in baking, in beverages and grains, while sales in food and nutrition declined slightly. The sales were particularly strong in baking, with growth from both well-established fresh-keeping and flour correction technologies, as well as from consumer health-oriented offerings such as acrylamide reduction for baked and fried goods. In the first quarter, we launched a new member of the Safira product range, Safira Fiber. Safira Fiber is a solution that converts lactose in milk into soluble dietary fiber. And this new product offers multiple consumer benefits in milk, including sweetness without added sugar. It also brings increased dietary fiber content for better digestion and reduced lactose for consumers with lactose intolerance. As a fiber grain structure, it will support the dairies to provide healthier foods to the consumers. The sales in the first quarter were affected by COVID-19 related demand. Although it's difficult to assess its impact, it's likely that stockpiling and the shift to eating at home that lead to extra demand to some of our solutions, for example, in baking. And this trend will assume to be offset when the situation eventually settles. the few year sales indication for food and beverages remains volatile, but roughly intact based on our current insight and assumption that both our own and our customers logistics will continue to function relatively normal. We could please turn into a slide six. Our bioenergy business posted a strong performance with 11% organic sales growth. The overall performance was as expected, with growth coming from the continued capacity expansion of corn-based ethanol production in Brazil, the increased penetration of our yeast technology and growing US production volumes. The first quarter sales were not significantly impacted by the southern drop of U.S. ethanol production as it only started in the last week of March. But looking at the full year, however, the social distancing and the people staying at home, that will have an impact for gasoline demand and ethanol, leading to significant drops of production volumes. Bioenergy is the segment where we see the most uncertainty for the full year. And it was also the main reason why we had to suspend the outlook. If we could please turn into slide seven for reviewing agricultural unfit. In agricultural and feed, we grew 8% organically in the first quarter, led by a strong growth in bioag and accompanied by a solid performance in feed. The growth in bioag was driven by strong inoculant sales in North America, but also enabled by the relatively easy comes. The business was transitioned very well into the new partnership model with Bayer. We have also made progress with other BioAg partners, including Syngenta, with whom we just launched Taegro, both in Europe and in Latin America. Taegro is a unique biological fungicide used to combat fungal diseases. And this technology helps farmers to protect their fruit and vegetable crops against frequently occurring diseases. And today are currently mainly combated with the use of chemical pesticides. Animal feed also benefit from inventory moves across the value chain and continue the commercialization of Valencius. Balencius is an exciting technology for improved gut and health in poultry, which together with our bioinoculants will continue to drive sales in 2020 and beyond. We continue to highlight that the full sales in agricultural and feed are subject to market uncertainty related to global farm economics, trade concerns and potential COVID-19 disruptions. And finally, let me add a few comments on technical and pharma. Organic sales in technical and pharma declined 10% in the first quarter. And this decrease was mainly caused by the timing in pharma as well as the declining sales we saw in textile due to COVID-19 disruptions in China. And with that, I will hand over to Lars for the financials and for the wrap-up. Up to you, Lars.

Thank you, Esther. Please turn to slide 8 for a review of our financial performance in the first quarter. Sales in the first quarter grew 10% organically and 9% in reported Danish kronor. The strong performance was led by double-digit growth in household care, food and beverages, and bioenergy, accompanied by solid growth in agriculture and feed, while sales in technical and pharma declined. The gross margin for the first quarter ended at 57.1%. This was a 160 basis point improvement on the first quarter of 2019 that was mainly due to productivity gains, lower input costs, and higher operational leverage resulting from the strong sales performance. The strong top line performance also had a positive impact on the EBIT margin, which ended at 28.9% for the first quarter. This was a 320 basis point improvement on the EBIT margin compared to the first quarter of 2019. In addition to the higher operational leverage driving a lower OPEX to sales ratio, the EBIT margin also benefited from the improved gross margin. The return on invested capital, including goodwill, ended at 21.3% after the first quarter of 2020. This was 300 basis points higher than in the first quarter of 2019. The improvement was due to the higher net operating profit after tax, which more than offset the increase in average invested capital. Net investments in the first quarter of 2020 amounted to 138 million Danish kroner. This was on par with the first quarter of 2019. The free cash flow before acquisitions was 825 million Danish kroner in the first quarter of 2020. This was 405 million Danish kroner higher than the free cash flow of 420 million in the first quarter of 2019. The strong development between the periods was mainly driven by higher sales and margin expansion. Even with a very good first quarter realized in the books, uncertainty persists for the full year. Our outlook for 2020 remains suspended until we get a better understanding of the implications of the current situation. As we communicated on April 7, the share buyback program totaling up to 1.5 billion Danish kroner will continue as planned and the company's dividend policy and its capital structure policy are unchanged. Please turn to slide number nine. Let me summarize the messages here today. We are operating in turbulent times with limited visibility. Despite this, it's very encouraging to see that we are able to capture growth opportunities as they arise. Novozymes is geared to deliver even in difficult times when supply chains are under pressure and access to consumers becomes more difficult. With a strong start to the year in sales, earnings, and cash flows, we are showcasing our company's strengths and what we can achieve together. That said, there is still a lot of uncertainty, especially with respect to the U.S. ethanol market and stockpiling effects. Thus, our outlook remains suspended. Looking beyond 2020, we are seeing good progress in the implementation of our strategy, Better Business with Biology, and we are working hard to drive sustainable and profitable growth. For obvious reasons, we will not be traveling in the coming days, but we will instead host a series of conference calls. We are looking forward to meeting you in that virtual setting. That concludes today's presentation, and we are now ready to take your questions. Operator, please begin.