Novonesis B Unsp/Adr

Welcome to the Novozymes conference call regarding the interim report for the first three months of 2023. Throughout, all participants will be in listen mode only, and afterwards, there will be a question and answer session. Today, I am pleased to leave the word to Tobias Cornelius Bjorklund, Head of Investor Relations. Please begin your meeting.

Thank you, operator, and welcome everyone to Novozymes conference call for the first quarter of 2023. My name is Tobias Björklund, and I am heading up the Investor Relations Department here at Novozymes. At this call, our CEO, Esther Barget, and our CFO, Lars Grain, will go through our performance and key events of the first quarter, as well as the outlook for 2023. Also present at this 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. 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 they involve risks and uncertainties that could cause actual results to differ materially from those described in any forward-looking statement. With that, I'm happy to hand you over to our CEO, Esther Bache. Esther, please.

Thank you. Thank you, Tobias, and welcome to our call. Please turn to slide number two. Thank you. We are off to a very good start in 2023. Our well-diversified portfolio and end market exposure is providing resilience and strength. And we grew 5% organically in the quarter, which is better than we initially expected. The end of the first quarter was very strong, with some benefit from timing of orders. And this was especially true for bioenergy and agricultural animal health and nutrition. Food, beverages, and human health declined based on a very demanding Q1 last year. Adjusting for the sales related to the large one-offs last year, growth in this business area was close to flat. And across the five business areas, we delivered solid price increases. This is very satisfactory, as our focus on commercial capabilities are showing good results. Underlying total volumes also increased. We reported a gross margin and EBIT margin in line with expectations. And while they're still down in Q1 year on year, we delivered sequential improvement from Q4 for both the gross and the EBIT margin. This is in line with our plans to reach our roughly flat year on year gross margin and EBIT margin between 25% and 26%. Additionally, free cash flow before acquisitions was negative by around 100 million kroner, mainly explained by lower trade payables. And also, ROIC including goodwill before special items was 17.7%, above the full year outlook of 16 to 17%. We are executing on our strategic plans across the full range of activities, with the shareholders' approval on March 30th at both Novozymes and Christian Hansen as important milestones. We continue the work on gaining regulatory approvals, and with the recent positive development in the US and with the filing in Europe, we follow the expected trajectory to close the combination in Q4 2023 or Q1 2024. On the innovation side, we launched three products this quarter. The publicly communicated launch is within consumer health, where we see an expansion of vitamin K2, a product that came with acquisition of Synergia. The new format allows for the inclusion of vitamin K2 also in foods and in beverages. We have a solid pipeline of new impactful product launches for the year across industries and across geographies, emphasizing our innovation leadership. After a solid start to the year, we maintain the outlook across key financial parameters and adjust the full year indication for bioenergy slightly upwards. We are confident to deliver our full year expectations, which still includes a softer start of the first half of the year following the timing effect here in Q1. And with this introduction, let's now look at each of the five business areas in more detail, starting with household care. If you could please turn to slide number three. Thank you. The first quarter performance in household care was solid, with an increase of 2% organically. This was despite the negative impact from the war in Ukraine, as well as industry volume softness in developed markets. Pricing had a positive impact on the growth in the quarter. Developed markets performed well despite the softness in industry volumes. Emerging markets were flat as growth in Latin America and Asia-Pacific were offset by the negative impact from the war in Ukraine. Additionally, the freshness technology performed in line with expectations. Turning for the full year, sales will be driven by enzymatic penetration in emerging markets and also expect the freshness platform to contribute to growth. The slightly better start to the year gives us increasing confidence in our indication of low single-digit organic growth for the year. Our growth indication includes expectations for contracting detergent volumes in developed markets as well as a certain degree of down-trading. Finally, we expect pricing to contribute to the full-year development. Could you please turn to slide number four? Thank you. Organic sales in food, beverages, and human health declined 8% in the first quarter. The soft performance was roughly in line with expectations as the comparator, on top of the very strong sales across sub-areas, also included timing effect. over roughly 5 percentage points from a large sales order. Additionally, as there were no sales from this product here in the first quarter, the total impact is higher than 5 percentage points. Adjusting for this timing effect, the underlying growth was relatively flat. We saw a positive impact from pricing in the quarter and food has the strongest underlying performance with good progress on customer activities. Human health was softer than expected as supply chain issues impacted our ability to serve demand. Additionally, a general softness in North America demand for probiotic solutions was only partially offset by our exposure to the more robust health care practitioner channel. As the soft start to the year was much as expected, we maintained the growth indication for the full year of high single digits, with all sub-areas contributing to growth and pricing being a strong component. Human health is expected to grow double digit. In general, we see good progress on the recent launches and our innovation pipeline with customers, giving us confidence in the full year indication. Please turn to slide number five. Thank you. Bioenergy sales grew 28% organically in the first quarter. The very strong performance was partially driven by timing of orders, coupled with better than expected market fundamentals towards the end of the quarter. Growth continues to benefit from the same drivers as in previous quarters, demonstrating the resilience of our portfolio and geographical exposure. Our solutions allow customers to gain market-leading yields and additional value generation in animal feed, corn oil, and fiber extraction. Growth was led by a strong penetration of innovation in North America, where the ethanol production is estimated to have a decline by 2%, according to EA. Additionally, growth benefited from capacity expansion of corn-based ethanol in Latin America and biodiesel. Also, pricing had a positive impact in the quarter. Lastly, we saw a contribution from sales of enzymes used for biomass conversion, commonly referred to as second-generation biofuels. Looking at the full year, we now expect growth in the high single digits. Growth will be driven by pricing, will be driven by market penetration enabled by innovation, capacity expansion in Latin America, and market penetration in biodiesel. Additionally, we expect growing sales from second-generation biofuels. The outlook assumes a flat to slightly declining U.S. ethanol production. Could you please turn to slide number six? Thank you. Sales in grain and tech processing declined 9% organically in the first quarter, driven by a weak development in tech and only partly offset by growth in grain. Tech was negatively impacted by significantly lower sales of enzymes for COVID-19 test kits and a soft textile market. Favourable market conditions and solid demand, together with higher grain prices, benefited the performance in grain as our yield and optimising solutions become even more attractive for our customers. The growth in grain was driven by increased market penetration in vegetable oil processing and continues to be underpinned by our innovation. And pricing had a positive impact in both grain and tech. Looking at the full year expectations, we continue to expect growth in the low to mid single digits, supported by a positive impact from pricing. Performance in grain will be driven by increased market penetration and innovation in both vegetable oil processing and starch. Tech is expected to decline, driven mainly by reduced sales of enzymes for COVID-19 test kits and a soft textile market. Please turn into slide number seven. Thank you. Agricultural animal health and nutrition sales grew 19% organically in the first quarter, driven by animal health and nutrition. Overall, there was a positive impact on pricing. The strong growth in animal health and nutrition was supported by timing of orders as well as recent product launches and end market driven volume growth. Performance in agriculture was more muted, impacted by the volatile end market and some of the stocking effects. For the full year, we expect growth to be led by the animal nutrition and health businesses. Growth will be driven by pricing, by innovation and market growth and increasing demand for sustainable solutions. The positive timing effect we saw in the first quarter is expected to reverse in the second quarter, putting pressure on the growth rate for the second quarter as it's also facing a tough competitor. All in all, we are maintaining our full year indication of growth at a rate of mid to high single digits for the business area overall. And with that, I will hand over to Lars for a review on the financials. Lars, please.