Novonesis B Unsp/Adr

Good morning, everyone, and welcome to Novozymes full year 2020 conference call. My name is Tobias Björklund, and I'm the head of investor relations here at Novozymes. At this call, Esther Barget, our CEO, and Lars Grain, our CFO, will review the performance for 2020, including the fourth quarter and the outlook for 2021. The rest of the executive team is also present. We expect the presentation to take roughly 30 minutes, after which we'll open up for questions. Before we begin, I would like to remind you that the information presented during the call is unaudited and that management may make forward-looking statements. These statements are based on current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in any forward-looking statements. With this, I'll now hand you over to our CEO, Ester Bashi. Ester, please.

Thank you, Tobias, and thank you all for calling in. I hope that everyone has had a good and productive start of the new year. Since we last met in October, we have had a lot of exciting and important achievements through the organisation, and I'd like to take this opportunity to mention a few of them. We have structured our business and reporting according to the new organisation set up. We have hired Amy Baric from DuPont as our new Head of Strategy and Business Transformation and Morten Rasmussen from Vestas to head up People, Sustainability and Brand. They will both join us in April. We have entered into an exciting partnership with Givodan that will focus on providing integrated food and cleaning solutions. Also, as announced this week, we have entered into the area of enzymatic biocontrol for agricultural via long-term partnership with a US-based company, FMC. We have made a second exciting acquisition in human health to accelerate our North American presence and strengthen our commercial capabilities. We had a strong four quarter from an innovation point of view, launching 11 new solutions in the quarter alone and reaching a total of 18 launches for the full year. On our journey of becoming carbon neutral, our North American headquarters located in the state of North Carolina are now 100% solar powered. As you can see, we have had a very high activity level, and this in a year that has been different in so many different ways. I am very proud of the way we as a company, we have digitally navigated through these difficult times. And now it's time to look ahead. But before we present the 2021 outlook, I'd like to spend a few minutes reviewing the results for 2020. Could please turn into slide number two? Organic sales performance was flat for the year and declined by 3% in the fourth quarter. This was all in align with expectations. The performance was mixed across the business areas, which were impacted in different directions by the pandemic during the year. Household care benefit while bioenergy and grain and tech and processing contract. Sales in emerging markets grew by 1% organically, while developed markets declined by 1%. and our earnings and cash flow were solid despite a flat organic top line, currency headlands and one-off costs. Now let's turn to the outlook where we expect sales to grow by 2-6% organically in 2021 and we expect solid earnings and cash flows. Sales growth will be driven by innovation, by stronger commercial presence and by a gradual recovery in those industries affected by the pandemic. Let us now look at each of the business areas in a little bit more detail. Please turn into slide number three. Sales in household care grew by 5% organically, driven by the freshness rollout, increased penetration in emerging markets, and supported by increased consumer demand for laundry and dishwashing detergents. Sales were flat in the fourth quarter, and this was as expected and driven mainly by the stocking and lower demand from the professional cleaning area. In addition, last year Q4's comparator was quite demanding. The rollout of the freshness platform continues to drive growth and to develop according to plan. The technology is available to consumers across most major European markets and as well as parts of the Southeast Asia, the Middle East and Africa. Looking ahead, in 2021, growth will be led by the continued penetration of our solutions with the focus on emerging markets. And along with increased penetration, we are preparing for the broad market launch of the freshness technology. This is a key milestone and it is expected to become an important growth contributor in future years. We also expecting consumer sustainability awareness to become an increasingly important trend. This is shaping up to become an exciting long term driver for increased use of enzymes and microbes across the cleaning space. Please turn into the slide number four. Excuse me. Food, beverages, and human health grew by 1% organically in 2020 compared to 2029. The performance was mixed with food doing well, benefiting from increased at-home consumption, while beverages, mainly brewing, was impacted negatively by COVID. Human health progressed well, although it only accounts for a relatively small part of the business area. In the fourth quarter, sales declined by 4%, which was roughly in line with expectations. The decline was driven by the stocking in baking, while beverages improved compared to previous quarters. We have seen exciting progress for the strategic opportunity area human health. In Q4, we launched a new product, BioFresh 4 Plus, and announced the Microbiome Labs acquisition, By acquiring microbiome labs, Novozymes has added a broad range of propurity microbiome solutions. The acquisition also creates an attractive entry point into the North American probiotics market via network of healthcare practitioners. It is a key milestone for advancing Novozymes human health activities. BioFresh 4 Plus is a clinically proven enzymatic technology for fighting bad breath, giving up to four hours of lasting effect. Additionally, in the food space, we launched three new products for baking, two of which target the broad market, Optiva LS, which allows for the reduction of added sugar in bread, and Glucyme Fortis, a cell reducer tailored to baking conditions in emerging markets. And for 2021, we expect broad-based solution growth across food, beverages and human health. Innovation and emerging market penetration supported by increased consumer dietary health awareness are the main drivers for growth in the food business. In beverages, we expect a gradual recovery following the 2020 COVID-19 related disruption. Please turn into slide number five. Bioenergy declined by 9% organically in 2020. While the performance was mixed across the regions, the decline was expected and driven by the lower ethanol demand in U.S. following COVID-19-related stay-at-home restrictions. According to the U.S. Energy Information Administration, production rates for 2020 are estimated to be down 12 to 13% compared to 2019. Outside of the US, all major regions contributed to growth. In the fourth quarter, sales declined by 4%. Similar to the full-year trend, the decline was driven by lower industry production rates in the US. However, the performance in Q4 improved compared to the lows early in the year. We also launched a new solution called Fortiva HEMI. Fortiva HEMI unlocks improvements in both corn oil and ethanol yields and is another step on our journey to provide even better full-service solutions to ethanol producers. Looking ahead, the US ethanol production is expected to gradually recover following last year's severe industry disruption, with a full recovery to 2019 production levels not expected until later. Further, uncertainty persists in the US, with high ethanol inventories, low producer margins, and continued concerns about gasoline demand. Exports more miles driven and higher blending are ways for the industry to expand. Outside the US, Novozyme solid present combined with an underlying capacity expansion is expected to support growth also in 2021. And please turn into slide number six. Grain and tech processing, a combination of the former food and beverages processing areas and what we previously referred to as tech and pharma, declined by 1% in 2020 and by 4% in the fourth quarter. The performance was mixed, with tech being the reason for the decline both for the year and in the fourth quarter. The decline was due to the negative impact of COVID-19, causing significant disruption in global textile production. While the performance was still negative compared to Q4 2019, sales declined less in the fourth quarter compared to earlier in the year. Grain posted solid growth in 2020, with the fourth quarter roughly flat. Growth in 2020 was broad-based and especially strong in grain milling and vegetable oil processing. Starch grew slightly in 2020, but declined as expected in the fourth quarter due to timing. And for 2021, grain and tech processing is expected to grow. Growth in the grain business is led by vegetable oil processing, and in tech, growth will mainly be driven by a gradual recovery in the global textile industry. Please turn into slide number seven. Agricultural, animal health and nutrition grew 1% organically in 2020 and declined by 6% in the fourth quarter. In 2020, the double-digit organic sales growth in agricultural was broad-braced across the main categories. Also, sales benefited from a one-off in the second quarter, as previously highlighted. Sales in the fourth quarter declined mainly due to timing. Animal health and nutrition declined in 2020 following a weak second half of the year, including the fourth quarter. The full year sales decline can be explained partially by inventory adjustments following a strong first half of the year and partially by related weak in-market demand for our nutritional solutions. In 2021, we will continue to build and develop the BioAg business across crops and regions, aiming for an underlying double digit organic sales growth. For animal health and nutrition, the outlook reflects persistent uncertainty. This relates particularly to the nutrition part of the business, as inventory levels in the value chain and COVID-19 implications are less clear. A strong product portfolio and partnership set up, coupled with signs of improving farm and economics following many years of challenging conditions, make us cautiously optimistic about the coming years. And that's all for me now. I will hand over to Lars. Lars, please.

Thank you, Esther. Please turn to slide eight. Let me start by reviewing the performance of our sustainability and non-financial targets. As part of the updated strategy, we adopted a new set of ambitious sustainability targets. The framework considers both our opportunities for having a positive impact through our commercial solutions and our responsibility to minimize the impact of our own operations. The targets focus on the impact Novoscience products have globally, as well as our own operations and on our employees. For each of the global challenges, we have defined long-term 2030 commitments to set the direction and mid-term 2022 targets to drive performance in line with our strategy. Here in 2020, we are already well on track to deliver on 12 out of our 13 targets set for 2022. We are very encouraged by this, and it demonstrates our relentless focus on the important ESG-related agenda. Now please turn to slide 9 for our 2020 financial performance. The Group's organic sales performance was flat for the year and declined 3% in the fourth quarter. Sales in reported Danish kroner declined 3% for the full year and 8% in the quarter. Adverse currency developments, especially in relation to the US dollar, had a significant negative impact on the reported Danish krona numbers, while the additional sales from Precision Biotics Group, which was acquired in June, had a smaller positive effect on reported numbers. We delivered a solid set of financials in 2020, despite the very challenging conditions. The gross margin increased from 55.3% in 2019 to 56.0% in 2020. The full-year gross margin benefited from lower input costs, improved production efficiency, and a one-off settlement in the second quarter related to the former Biowac setup. The adverse currency development and severance costs related to the September 1st reorganization affect the full-year gross margin negatively. The fourth quarter gross margin was 55.5%, slightly lower than the 2019 figure due to negative currency effects. The underlying full-year and fourth quarter gross margins adjusted for one-offs and currency effects were somewhat higher than in the corresponding periods of 2019. The EBIT margin ended at a solid 26.1% in 2020. This was two percentage points lower than in 2019, and the difference is explained by currency, M&A, and one-offs. If we look at the 2019 EBIT margin, it benefited from the recognition of the third income at the termination of the BIWAC alliance in the second quarter of that year, as well as proceeds from the divestment of a farmer-related royalty in the second and fourth quarters. Also, it was negatively affected by restructuring costs in the third quarter of 2019. The EBIT margin in 2020 was positively affected by the aforementioned one-off in Biowac and a contingent income from that same farmer-related royalty divested in 2019. Furthermore, the EBIT margin was adversely affected by severance costs related to the September 1st reorganization, transaction costs and P&L effects from the acquisition of Precision Biotics, as well as transaction costs related to the Microbiome Labs acquisition in the fourth quarter. Also, we incurred an impairment loss in the fourth quarter. The adjusted EBIT margin excluding one-offs and accounting for currency headwinds ended at around 27% in 2020. This was roughly one percentage point higher than the 2019 adjusted EBIT margin of around 26%. The improvement was mainly driven by a higher underlying gross margin and lower operating costs. the reported EBIT margin for the fourth quarter ended at 23.1%, which was 6.5 percentage points lower than in the fourth quarter of 2019. However, adjusted for the aforementioned one-offs, M&A and currency headwinds, the EBIT margin in the fourth quarter was roughly 26%, which was similar to the underlying EBIT margin in the fourth quarter of 2019. The return on invested capital, including goodwill, ended at 18.9% in 2020, which was 2 percentage points lower than in 2019. The decrease in ROIC was due both to lower net operating profit after tax and higher average invested capital. Net investments, excluding acquisitions, ended slightly above 900 million Danish kroner in 2020. This was slightly below the level in 2019 and equaled 7% of sales for both years. The free cash flow before acquisitions ended at a very strong 3.4 billion Danish kroner in 2020. This was 1.2 billion more than in 2019. The improvement was mainly driven by higher cash conversion from better earnings quality, the one-off in BIOWAC, as well as positive changes and timing effects in working capital. Please turn to slide 10 for the 2021 outlook. Organic sales are expected to grow by 2-6% in 2021. The upper and lower bounds will mostly depend on the pace and level of the gradual recovery in the market. Seen over the year, we project organic sales in the first quarter to decline by mid-single digits due to a tough comparator. Full-year sales in reported Danish kroner are estimated to be roughly 1 percentage point less than the organic sales growth outlook due to a negative currency effect and a positive M&A effect. For the business areas, organic sales in food, beverages and human health, and grain and tech processing will grow by mid-single digits, and bioenergy is expected to grow by mid- to high-single digits. Household care is forecasted to grow in the low single digits in 2021, following a better-than-expected performance in 2020. And we expect flat to low single-digit growth in agriculture, animal health and nutrition. The EBIT margin outlook is 25-26%, including a negative year-on-year impact from currency and M&A-related effects of close to one percentage point each. Hence, adjusting for the negative currency and M&A related effects, the implicit underlying EBIT margin is 27 to 28%. And this is an improvement compared to the underlying EBIT margins of roughly 27% in 2020 and roughly 26% in 2019. The underlying development is mainly supported by sales growth as well as productivity improvements and also includes continued reinvestments in the business. The free cash flow before acquisitions is expected at 2.7 to 3.1 billion Danish kroner. This is slightly lower than in 2020 as higher net investments and timing in working capital offsets the positive effects of higher sales and an improved operational cash flow. Net investments are expected at between 1.0 and 1.2 billion Danish kroner. This reflects maintenance, expansion and optimization capex. and the outlook for the return on invested capital, including goodwill, is around 19%. Subject to approval at the annual shareholders' meeting in March, we proposed an unchanged dividend of 5,25 kroner per share, corresponding to a payout ratio of 51.9% compared to 56.8% last year. In addition, we are initiating a share buyback program of up to 1.5 billion kroner for 2021. This is in line with our capital structure policy to return the free cash flow generated to shareholders through a combination of dividends and share buybacks at a net debt to EBITDA ratio of around one. In summary, we expect positive sales and financial developments in 2021, while being mindful of the uncertainty related to the ongoing pandemic. Before I hand back over to Esther, I would like to give you an update on how we're tracking towards our mid-term targets. You'll find them on slide 11. We set the mid-term targets back in June 2019 based on a stable world economy, a stable currency environment and excluding M&A activity. But the world has not been stable and currencies have moved. Novoscience has made two acquisitions in the human health space. We have scenarios for the 5 plus percent mid-term organic sales target in our 2021 outlook and in our plans for 2022. However, the world has changed, and so have some of the parameters from 2019, and we address these new circumstances with a relatively broad 2021 sales outlook. When it comes to our earnings, we are also on track to deliver on our mid-term targets. The implied 2021 underlying EBIT margin is 27-28%, on track towards meeting the mid-term 2022 target of 28% or higher. And the same applies to the underlying return on invested capital, including goodwill, where we see 23% as being within range. And finally, we are also on track to deliver on 12 out of our 13 ESG-related non-financial targets. With this, I'll now hand back to Esther for a wrap-up before we open up for questions. Esther, please.