Novonesis B Unsp/Adr

And thank you everyone for joining us here today. I'm joined by the NovoScience management team and the rest of our investigations team. My name is Tobias Bjorklund and I'm the head of Investor Relations. Earlier today, yesterday, we released our full year interim report for the first half of 2020 after having pre-announced our sales and preliminary EBIT margin on July 8th. At this call, we will review our performance and key events from the first six months of the year. The call will take around 50 minutes, including time for questions. Before we begin, I would like to remind you that the information presented at this 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 statements. With this introduction, I will now hand you over to our CEO, Esther Bache. Esther, please.

Thank you. Thank you, Tobias, and thank you all for calling in. As you all know, we announced our sales and preliminary EBIT for the first six months of 2020 on July 8th. Therefore, the focus of today's call will be on a review of full financial performance for the first half of the year, as well as the reinstated full year outlook for 2020. During the first half of the year, our main priorities were to ensure the safety of our employees and the continuity of our services to our customers and supply chain partners. I am proud to say that we succeeded in that effort, while also delivering on sales, earnings, and cash flows. We continue to progress on the projects in our innovation pipeline. In the second quarter, we launched five exciting products, and we continued the commercialization of our recently launched solutions, such as freshness in household care and Valencia in animal feed. In other words, our innovation machine is running close to full throttle. And even in these unprecedented conditions, we are introducing high-performance and sustainable solutions to the world. As societies carefully reopen across the world, we have decided to reinstate the outlook for 2020. But before we dive deeper into that, let me spend a few minutes on our performance for the first six months of the year. Could you please turn into slide number two? In the first half of the year, the business was both positively and negatively impacted by events related to the COVID-19 pandemic. Changing consumer behavior, such as stockpiling, increased focus on personal hygiene, and more at home food consumption had a positive impact on both our household and care and food-related businesses. At the same time, stay-at-home orders and social distancing had a significant negative impact on our bioenergy, beverages, and textile businesses. Overall, we delivered a solid set of numbers in the first half of 2020. Total sales grew organically by 4%, with strong cash flows and solid earnings. Agricultural and feed grew organically by 17%, household and care by 11%, and food and beverages delivered 7% growth. At the opposite end of the spectrum, technical and pharma and bioenergy declined by 22% and 15%, respectively. And looking at the second quarter performance, sales declined by 2% organically, which is sound considering the severe headwinds in the U.S. ethanol market and the textile global industry. We delivered a healthy first-half EBIT margin at 27.5% and a strong free cash flow before acquisitions of 2.1 billion DKK. And as countries and economies carefully reopen, Novozymes now reinstate its full year 2020 outlook. We expect an organic sales performance of minus 2 to plus 2%, with the development in the U.S. ethanol industry being the main source of uncertainty. And last, we'll go later in the call for the details of the full financial outlook a bit later. Please turn into this number three. In the first half, organic sales in emerging markets grew by 9%. and developed markets grew by 1%. Growth was broad-based across all major regions except North America, where the severe decline in the U.S. ethanol production had a significant negative impact on overall growth in the developed markets. The decline in the North American bioenergy businesses was the main reason for the second quarter organic decline of the 5% in developed markets. Sales in emerging markets grew 4% in the quarter, primarily driven by household and care, but somehow hampered by the development in the textile businesses. Could you please turn into slide number four? Thank you. Sales in household and care grew by 11% organically in both the first half and the second quarter of 2020. The strong sales performance was led by increased enzymatic penetration of laundry and dishwashing detergents, the continued rollout of the freshness platform, as well as the COVID-19 induced stockpiling and changes to the consumer behavior. COVID-19-related stockpiling continued from March into April but eased through the end of the quarter. And on the innovation front, we launched our first enzymatic solution for cleaning medical and surgical instruments and devices. This is a very interesting and relevant area with more exciting projects in the pipeline. And looking ahead, enzymatic penetration into more detergents, especially in the emerging markets, and the rollout of the freshness will continue to drive growth. However, the stocking by both the customers and the consumers is expected to hamper growth in the second half. We move into slide five. Food and beverages sales in the first half grew by 7% organically. The sales performance was led by strong growth in baking, followed by solid results in both starch and food and nutrition, while beverages declined slightly. Sales of enzymes for food production benefit from more at-home consumption due to the COVID-19, where enzymes for beverages, especially for brewing, were impacted negatively by the lower on-site demand. In the second quarter, the sales of food and beverages grew 3% organically. with positive contributions from baking and food and nutrition, offsetting the decline in beverages. Starch sales were flat in the second quarter. On the innovation front, food and beverages delivered two new solutions in the second quarter, Quora Boost and Protana Prime. Quora Boost increases the yield of vegetable oil processors by retaining oil that is usually wasted in the gum fraction. And Protana Prime enables testier meat alternatives by the extraction of the natural flavor from plant proteins. Looking ahead, the positive effects of increased at-home food consumption are expected to ease, while beverages will likely still be affected by the COVID-19-related restrictions. And please turn into the slide six. Bioenergy sales in the first half of the year declined by 15%, as COVID-induced stay-at-home restrictions severely disrupted U.S. demand from ethanol in March and onwards. This resulted in a 13% decline in global organic sales for bioenergy in the second quarter. The U.S. production rates improved towards the end of the quarter from the lows in April and May. Outside of North America, the expansion of starch-based ethanol capacity in Brazil generated a minor positive sales contribution in the second quarter, while sales to the European producers declined. And we still believe there is a high level of uncertainty to the production levels for U.S. and the global ethanol volume for the remainder of the year. And please turn into the slide seven. Sales in agricultural and feed grew 17% organically in the first half and 20% in the second quarter. Both feed and ag biobusinesses contributed to growth in the first half and the second quarter. The feed businesses performed well in the second quarter, likely supported by the inventory changes in the value chain. This was also seen in the first quarter. Organic growth for the bio-ag business was positively impacted by one of settlements related to the former bio-ag setup. Adjusted for this factor, agricultural unfit would still have posted healthy double-digit organic sales growth in the second quarter. And looking at the fall year, we expect continued penetration of the lanches, our binoculars, for corn, anti-agro, all contributing to growth. However, global farm economics, trade economics, and COVID-19 continue to be sources of uncertainty for the businesses. Organic sales in technical and pharma declined by 22% in the first half and 34% in the second quarter. The decline was due to COVID-19, related impacts on the apparel and textile industry, as well as the continuation of last year's decline in Chinese textile production. And with that, I will hand it to our CFO, Lars.

Thank you, Esther. Please turn to slide 8. Organic sales declined by 2% in the second quarter, but was up by 4% for the first six months of 2020. Household care and agriculture and feed posted strong double-digit growth in the first half, while our bioenergy and technical and pharma declined significantly. We delivered a solid set of financials despite the very challenging conditions. The gosh margin was up by 120 basis points to 56.3% in the first half. The improvement was driven by higher operational leverage, improved production efficiencies, as well as slightly lower input costs compared to 2019. The gross margin of 55.4% in the second quarter benefited from a one-off settlement related to the former Biowac setup. The first half EBIT margin was 27.5% or 250 basis points lower than for the same period of last year, as the 2019 EBIT margin was supported by the recognition of deferred income related to the termination of the former Biowac alliance and proceeds from the divestment of a pharma-related royalty. Excluding one-offs in both 2019 and 2020, the EBIT margin grew roughly 200 basis points from around 25% in the first half of 2019 to an underlying EBIT margin of roughly 27% in the same period of 2020. This corresponds to double-digit growth in underlying EBITs. The improvement from 2019 to 2020 was mainly driven by increased cross-profit as well as hiring and travel-related savings. The return on invested capital, including goodwill, was 19.3% in the first half of 2020. This was 260 basis points lower than for the same period of 2019. The ROIC declined due to both higher average invested capital and the lower net operating profits after tax. The average invested capital in 2019 benefited from the deferred income related to the now terminated BIWAC alliance. Together with the acquisition of Precision Biotics Group in 2020, these were the main explanations of the increase in average invested capital from 2019 to 2020. The net operating profits after tax declined due to the lower reported EBIT from the non-recurring income in 2019. Net investments excluding acquisitions were 364 million DKK in the first half of 2020. This was slightly less than for the same period of 2019. Our free cash flow before acquisitions was 2,051 million Danish kroner in the first six months. This was 833 million Danish kroner higher than for the same period of 2019. The strong improvement was mainly due to higher sales, cross-margin expansion, savings on operating expenses, and improved net working capital. In the second quarter, Cash flows also benefited from the BIWAC settlement and a postponement of tax payments from the second to the third quarter of 2020. Please turn to slide 9 for the reinstated 2020 outlook. After careful consideration, we have decided to reinstate the full-year outlook for 2020. We expect an organic sales performance from minus 2 to plus 2 in 2020, organic sales in household care, Fruit and beverages and agriculture and feed are expected to deliver solid mid-single digit growth, while bioenergy and technical and pharma are subject to the most uncertainty in terms of full year performance. In the scenario of a 2% decline in organic sales, we assume sales in bioenergy will decline significantly more in the second half than the 15% decline seen in the first half. Also, sales in technical and pharma would continue to decline severely. In the scenario of a 2% organic sales growth, we assume that the decline in US ethanol production will be more in line with the current EIA outlook of around 12% and that the pressure on our technical business will ease. The full year EBIT margin expectation is lowered to around 26% from around 27% in January. Gains from productivity improvements and cost controls are expected to be outweighed by negative effects from deteriorating currencies, lower operational leverage and added amortization from the acquisition of precision biotics. The outlook for ROIC, including goodwill, is expected at 18-19%, which is 2 percentage points lower than the outlook from January. This is due to lower sales, lower EBIT margin, negative impact from currencies and the negative effects from the precision biotics acquisition on both net operating profits after tax and the invested capital. And finally, free cash flow before acquisitions is expected at between 2.4 and 2.8 billion Danish kroner, reflecting a good underlying cash generation. With this walkthrough of the financials and our reinstated outlook, I'll pass the words back to Esther.