Novonesis B Unsp/Adr

Welcome to the Novozymes Conference Call regarding the results for the first nine months of 2022. Throughout all participants will be in listen-only mode, and afterwards there will be a question-and-answer session. Today, I am pleased to announce Tobias Connedis-Birkeland.

So thank you, operator, and good morning, everyone, and welcome to our first nine months results of 2022. My name is Tobias Björklund, and I'm the head of investor relations here at Novozymes. At this call, our CEO, Esther Bagé, and our CFO, Lars Grimm, will review our performance and key events for the first nine months of 2022, as well as the outlook for the year. Also attending today's call are Tina Feiner, EVP Agriculture and Industrial Biosolutions, Amy Byrick, EVP Strategy and Business Transformation, Anders Lund, EVP Consumer Biosolutions, and Klaus Fuglsang, CSO and EVP of Research and Development. The entire call will take about 45 minutes, including time for questions at the end. As always, 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 that, I'll now hand you over to our CEO, Esther Bache. Esther, please.

Thank you. Thank you, Tobias. And welcome, everyone. Please turn to slide number two. Our results for the first nine months were very satisfactory. We delivered a strong organic sales growth of 9%, including a solid 6% in the third quarter. Timing impacted a few of the segments here in Q3, especially in food and agricultural, and we're confident about their performance for the full year, solidifying our upgraded 8% to 9% organic sales growth outlook, also based on the strong start to the fourth quarter. On another strong note, the performance in both bioenergy and grain and tech processing exceeded our own expectations and did very well after the nine months as well as in the third quarter. Both emerging and developed markets delivered solid growth of 10% and 7% respectively, driven by broad-based growth across the areas. Turning to our financials, we delivered a solid EBIT margin, ROIC including goodwill and free cash flow. The effects of higher input, energy and logistics costs are visible. And in Q3, we saw further pressure on the gross margin. That said, pricing is increasingly turning more positive and with the strongest contribution expected for Q4. We see an overall positive pricing effect for the full year and increasingly so for 2023. When it comes to our innovation agenda, we introduced 13 new products in the first nine months of the year, including seven in the third quarter, of which three are available to the broad market. We launched solutions to enter the companion animal segment in China with biological cat litter odor control. We launched a solution to drive a stronger penetration in the laundry software market segment. And we launched a solution for polishing textiles to improve and extend their lifetime. And we also have additional engagement around the freshness concept for the laundry detergent with an exclusive partner solution launched in the third quarter. Through the year, we have been able to capitalize on the strength of our well-diversified portfolio and end market exposure, capturing additional growth opportunities as they arise and constantly raising our outlook for the year. With a strong start to Q4, we feel very comfortable about conforming the upgraded outlook, as well as the sales indications provided for each of the five business areas. We have increased organic sales growth indication for bioenergy and grain and tech processing, while maintaining the indications for all the other business areas. On the financial metrics, we maintain the outlook for the EBIT margin and ROIC, including Goodwill. The free cash flow before acquisitions is reduced by 400 million denis kroner due to higher capex. This is related to facing between 2022 and 2023 of the advanced protein solution production line in Blair, which is progressing very well within the timeline and investment level of 2 billion kroners. In the third quarter, we took part in the United Nations General Assembly in New York, where discussions around the need to accelerate the green transition are as strong as ever. And Novozymes has a clear role to play in enabling this transition. I am very pleased to announce two of the locations of our customer co-creation centers. We have selected the Raleigh-Durham area of North Carolina for U.S. center and Limby in the north of Copenhagen in Denmark for our European center. Our work on pricing continues diligently in close collaboration with customers, and our efforts have provided a stronger support as the year has progressed. The resulting benefit is expected to be the strongest in the fourth quarter, ending the full year at the positive pricing overall. We feel increasingly comfortable about the next year EBIT margin of 25% or higher, as more than two-thirds of the price increases are already committed. We continue to have a strong support from Novozyme's unique capabilities when it comes to driving productivity improvements as well as gaining operational leverage. And with that overview, let's now look at each of the five business areas in more detail. And let's start with household care. Please, can you turn into slide number three? Thank you. Organic sales in household care were flat in the first nine months of the year and grew 4% in Danish kroner. The performance was in line with expectations and included a negative effect from the war in Ukraine. Emergent markets performance was strong in the period and was driven mainly by Latin America and Asia-Pacific. Developed markets declined slightly, mainly due to the continued softness in the European laundry volumes. Sales in the third quarter declined 1% organically and grew 4% in Danish kroner. This was very much in line with our expectations and included a slightly negative impact from the war in Ukraine compared to the first two quarters. Sales in developed markets performed well in the third quarter, driven by solid demand in the North American market, which more than offset the softness in Europe detergent market volumes. European consumers transitioning to private label cleaning solutions are not necessarily impacting Novozymes, as our penetration is broad across farmers, across tiers, across players. In emerging markets, third quarter organic sales decline, primarily due to the negative impact from the war in Ukraine. The full year sales indication for household care is maintained at flat to 2% growth, This includes a negative impact from the war in Ukraine of around 2 percentage points, which we have been talking through already through the year. We expect to see enzymatic penetration to continue to drive growth in emerging markets and the freshness platform to contribute positively both in emerging and developed markets. This is further supported by the increased customer engagement we are seeing in terms of the freshness concept and the exclusive partner solution launch in the third quarter. Our outlook also includes a slight contraction of the European laundry detergent volumes. To run off household care, we expect a solid performance in the fourth quarter, driven by innovation, our freshness platform, and increased penetration in emerging markets. Could you please turn to slide number four? Thank you. Food, beverages, and human health delivered good results in the first nine months of the year, reporting 8% organic growth and 18% growth in reported currencies. The performance was well diversified, driven by broad market innovation, favorable market conditions, and customer requirements to mitigate increased input costs. There has been volatility between quarters this year due to customers' order patterns, and we already see a positive timing effect in the fourth quarter. Growth in food was broad-based, supported by innovation, increased penetration, and ingredient substitution across sub-areas. Beverages perform very well due to higher consumption of low-carb beer, as well as from increased use of local raw materials in beer production. Human health sales perform well based on the strong underlying demand, driven by cross-selling and geographical expansion of our unique solutions that also now include the Synergia product portfolio. Zooming into the third quarter, food, beverages and human health grew 2% organically, which was soft. Performance was impacted by conform quarter-to-quarter volatility and timing of orders in food. We continue to see good sales performance in Q3 from plant-based protein solutions in key markets. Beverages performed very well in the third quarter, especially in emerging markets, capitalizing on the favorable market conditions in raw material optimization and consumers' increasing appetite for low-carb beer. The third quarter performance in human health was solid, with double-digit organic sales growth and sound underlying demand. We maintain our indication for the full year, with organic sales growth in line with the low teens, including a strong performance in the fourth quarter, especially in food and human health. Innovation and increased penetration will continue to be key growth drivers, and we expect customers to continue their focus on raw material optimization. Could you please turn into slide five? Bioenergy sales grew 26% organically in the first nine months. The performance was strong, driven by innovation and favorable market conditions across regions and applications. Growth was led by strong performance in North America, supported by the continued recovery of US ethanol production, capacity expansion of corn-based ethanol in Latin America, as well as biodiesel, resulting in double-digit growth in both developed and emerging markets. The impressive growth was unlocked by leveraging Novozyme's diversified and innovative toolbox for solutions. They allow our customers to gain market-leading yields, returns, and additional value generation in DDGs, core oil, and fiber extraction. Growth was further supported by a solid market environment, enhancing the value of our innovation. According to EIA, U.S. ethanol production was up by around 4% in the first nine months. The third quarter organic sales growth of 32% was driven by similar factors as those for the first nine months, and EIA estimate for the US ethanol production was up by around 1% year-on-year. In addition, sales of enzymes used for biomass conversion, commonly referred to as second-generation biofuels, did well and contributed to growth in the third quarter. Looking at the full year, we expect growth to be driven by innovation, by product value optimization, as well as higher focus on yield and throughput. Additionally, we expect growth to be supported by 3-4% higher U.S. ethanol production, as well as growing Latin American demand. Following the strong performance after the first nine months, we have raised the organic sales growth indication for bioenergy from previously mid-teens to now high-teens. The implied growth of the fourth quarter in bioenergy is estimated to be roughly flat, mainly due to a strong competitor from last year, volatility around year-on-year demand, and limited contribution from second-generation solutions. Could you please turn to slide number six? Thank you. Sales in grain and tech processing grew 11% organically in the first nine months. The strong performance was led by double-digit growth in grain, with a strong growth in both developed and emerging markets, driven by favorable market conditions and innovation. Tech processing also grew organically, although at a lower rate, supported by sales of enzymes used before COVID-19 and testing kits. In the third quarter, grain and tech processing sales grew 7% organically. Similar to the nine-month performance, the growth in grain was broad, with double-digit growth in both developed and emerging markets. Sales in tech processing declined mainly due to soft performance in textile, as well as lower sales of enzymes for COVID-19 testing kits. Also, in the third quarter, and in line with our strategic direction, Novozymes assigned an agreement to the best selected products in its microbial wastewater treatment business. The transition is expected to close at the beginning of 2023. Looking at the full year, we expect growth to be broad-based, with innovation-driven performance and supportive market conditions, primarily in-grain. Grain is led by solid and market-demanding grain, market penetration, in vegetable oil processing, as well as innovation. In tech, growth is expected mainly from higher sales of enzymes for COVID-19 testing kits. Following a strong performance in the first nine months and continued good momentum expected in Q4, the full year organic growth indication for grain and tech processing is now around 10%. Could you please turn to slide number seven, please? Thank you. Agricultural animal health and nutrition sales grew 7% organically in the first nine months, led by a strong growth in animal health and nutrition, especially in developed markets. The performance in agricultural was soft and declined due to timing in the third quarter. Innovation and favorable market conditions, partially linked to higher soft commodity prices, boosted the demand for yield-enhancing solutions across the sub-areas. Third-quarter sales declined 7% organically year-on-year. Similar to the nine-month period, animal health and nutrition grew very well, while agricultural declined due to the timing of orders between the third and the fourth quarter. For the full year, organic sales growth will be led by strong growth in animal health and nutrition, complemented by solid growth in agricultural, with conformed acceleration in the fourth quarter. Growth in animal health and nutrition will primarily be driven by innovation, as well as end-market volume growth. For agricultural, innovation and more diversified commercial model are key enablers for increased market penetration of our bio-yield and bio-control solutions. Including the third quarter sales decline, the full year organic growth indication for agricultural, animal health and nutrition is maintained at high single digits to low teens, following a conformed outlook for a solid Q4 performance. And with that, I'll hand over to Lars for a review of the financials. Lars, please.