Novonesis B Unsp/Adr

Welcome to the Novozymes conference call regarding the Inpelling Report for the first half year of the 2023. Throughout, all participants have been listened only mode, and afterwards there will be a question and answer session. Today, I am pleased to leave the words to Tobias Cornelius Björklund, Head of Investor Relations. Please begin your meeting.

Thank you, operator, and welcome everyone to Novozymes conference call for the first half of 2023. My name is, as mentioned, Tobias Björklund, and I'm the head of investor relations here at Novozymes. At this call, our CEO, Esther Barget, and our CFO, Lars Green, will review our performance and key events of the first six months of the year, as well as the outlook for the full 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 they involve risks and uncertainties that could cause actual results to differ materially from those described in any forward-looking statement. With that introduction, I'll now hand over to our CEO, Esther Bache. Esther, please.

Thank you. Thank you, Tobias, and welcome everyone. Please turn to slide number three. Overall, the first six months of the year were much in line with expectations, and we delivered organic sales growth of 3%. Reported volumes declined by 3%, while underlying volumes went down slightly less, and pricing was positive by roughly 6%. In the second quarter, organic sales growth stood at 2%, with pricing at a similar level as for the first half year. Pricing, both for the first half and the second quarter, was roughly similar across business areas. However, slightly less positive in household care. Household care and agricultural animal health and nutrition delivered according to expectations in the first half of the year. Bioenergy has clearly outperformed, whereas food, beverages and human health, and grain and tech processing both were more challenged. Consequently, we're adjusting the sales growth indication by business area for the year and narrow the fully organic sales growth outlook to 4-6%, following the stocking and lower consumer demand, mainly in the food-related parts of the businesses. As earnings are similar across business areas, we delivered a 25% EBIT margin before special items for the half year and 24% for the second quarter. This is in line with expectations and reflects the benefit from pricing initiatives. It offsets by higher input costs and reduced leverage on the higher fixed cost base. We are pleased to see the strength developing in the gross margin with sequential improvements since Q3 2022. And we maintain our view of a flat year-on-year gross margin for the full year. Price initiatives and our productivity improvements are key levers to enable this development, offsetting the higher input costs. We are in a good place when it comes to earnings and returns and maintain the full year outlook for both EBIT margin for special items at 25% to 26% and ROIC including goodwill before special items at 16% to 17%. As initially assumed, we continue to expect a stronger second half of the year driven by multiple factors, including the benefit from product launches, continued market penetration, as well as a softer comparator. We expect the stocking to level off in the second half. The stocking and lower consumer demand impacted especially the food-related part of our business in the first half of the year. Consequently, we're adjusting downward our organic sales growth indications for food, beverages, and human health, and for grain and tech processing. Whereas, we're raising the growth indication for bioenergy, following a very strong performance for the year to date. Net, and as mentioned, we expect solid 4% to 6% organic sales growth for the year. We have engaged in exciting new collaborations, and we highlight two of them here. The first project explores the possibility of producing food protein from captured carbon dioxide. We are doing this in collaboration with the Novo Nordisk Foundation, the Bill and Melinda Gates Foundation, as well as few other relevant industry players. This is a project where the two foundations inject the required capital, 200 million DKK for now, and Novozymes contributes its strong technology toolbox. Using CO2 to produce fruit protein is part of solving both the future food supply and environmental challenges, especially as the global population grows. Secondly, in advanced protein solutions, we have teamed up with Arla Food Ingredients to explore opportunities in precision fermentation of protein ingredients, with initial focus being on medical nutrition. both projects clearly signal the picture of what biotechnology, and with that Novozymes, has to offer in a world of increasing scarce resources, where consumer health solutions can be based on natural, cost-efficient fermentation technologies. As a final introductory remark, we're addressing the distribution of an interim dividend to owner Novozyme shareholders ahead of the closing of the combination with Christian Hansen, which is still expected to take place in Q4 2023 or in Q1 2024. With this, let's now look at each of the five business areas in more detail, starting with household care. Could you please turn to slide number four? Thank you. Household care delivered 1% organic growth, despite the negative impact from the war in Ukraine impacting the first quarter and industry volume softness in developed markets impacting the first half year. Softener consumer demand and down trading had a negative impact on our volumes. This was more than upset by innovation across geographies, including the freshness technology. In emerging markets, we see continued penetration of enzymatic solutions as the main growth driver, with the strongest growth in Latin America. and pricing had a positive impact. Organic sales growth in the second quarter was flat. We have seen the same trend since Q3 2022, with lower consumer demand in developed markets, as well as down trading having a negative impact on industry volumes and our sales, also here in the second quarter. Growth in emerging markets was driven by penetration of enzymatic solutions led by Latin America. The full-year organic sales indication for household care is maintained at low single-digit growth. We expect performance to be driven by enzymatic penetration in emerging markets, and we also expect the freshness platform to contribute to growth. The outlook includes the expectation of the consumer downtrend levelling off, as well as stable in-market volumes in developed markets in the second half of the year. Finally, we expect pricing to continue to contribute to the full-year developments. Please turn to slide number five. Thank you. Food, beverages, and human health had the soft first half and declined 6% organically. Organic sales were negatively impacted by roughly four percentage points as the first quarter comparator included sales of a specific enzyme solution, which is not expected to be sold this year. We saw a positive impact from pricing, partially offsetting the negative volumes. The underlying slightly negative growth was below expectations and driven by the stocking across the value chain in food and beverages in combination with weaker and market demand. Excluding the timing impact, food had the relatively strongest performance for the soup areas with good progress on customer activities. Human health was soft, as supply chain constraints impacted our ability to accommodate demand in the robust healthcare practitioner channel, and additionally, there was a general softness in North American demand for probiotic solutions. Looking at the second quarter, food, beverages and human health declined 3% organically. The performance was softer than expected and driven by the stocking in the value chain across sub-areas in combination with weaker end market demand. And this was partially offset by pricing. Innovation is key to drive growth, and we are very excited about our public launch of NovaMeal Best Bite in baking. The solution is based on a new molecule that enhances the eating experience and keeps bread much fresher for longer and additionally reduces the need for added sugar. We have seen a very positive response in the market with strong sales pipeline building up. Human health was soft as per the first half year. However, we did see an improvement in the North American probiotic market towards the end of the second quarter and going into the third quarter. Additionally, we now expect to have resolved the supply chain constraints that impacted our ability to accommodate demand in the first half. For the full year, we adjust our indication of organic sales growth to low single digits from previously high single digits following higher than expected stocking effects, the reduced end market as well as lower growth expectations in human health, where we now expect single digit growth following the soft developments of the first half of the year. We still expect a strong second half in human health as we will again be able to accommodate demand for our solutions now that the short-term supply chain constraints have been resolved and supported by the improving trend in the North American probiotic markets. Overall, for the business area, we also expect a stronger second half of the year as we expect the stocking to level off, increase market penetration with support from product launches and a positive impact from pricing. Excuse me. And could you please turn to slide number six? Thank you. Bioenergy sales grew 27% organically in the first half. The strong performance was supported by solid market fundamentals and driven by the continued penetration of innovation and geographical expansion. Growth was driven by innovation and strong penetration in North America, creating additional value for our customers. Ethanol production is estimated to have declined by 1%, according to the EIA. Growth also benefited from capacity expansion of corn-based ethanol in Latin America and biodiesel, and we saw a very strong growth of enzymes used for biomass conversion, commonly referred to as second-generation biofuels, although from a small base. Additionally, pricing had a positive impact. The second quarter organic sales growth of 26% was driven by factors similar to those for the first quarter and supported by solid market fundamentals. The EAA estimated the U.S. ethanol production was flat year on year. Looking at the full year, we now expect growth in the mid-teens following a stronger than expected year-to-day performance driven by a stronger market fundamentals and a faster penetration of recent innovations. We have a tougher competitor in the second half of the year, so we expect reduced growth relative to the first half. Growth for the year will be driven by pricing, market penetration enabled by innovation, capacity expansion in Latin America, and market penetration in biodiesel. Additionally, we expect growing sales from second-generation biodiesels. The outlook assumes flat to slightly declining U.S. ethanol production. Please turn to slide number seven. Sales in grain and tech processing declined 11% organically in the first six months, driven by the decline in tech. Tech was negatively impacted by significantly lower sales of enzymes for COVID-19 test kits, as expected, and a much softer than expected textile market. Performance in grain was driven by increased market penetration in vegetable oil processing and continues to be underpinned by innovative strength. This was offset by a softer grain market impacted by the stocking as demand is normalizing. Pricing had a positive impact in both grain and tech. Second quarter organic sales declined 14%, driven by factors similar to those of the first quarter, including a further softening of the textile market and this stocking impacting the food-related grain exposure. Looking at the full year, we now expect growth to decline by the low single digits from previously low to mid single digit growth. Performance is expected to be supported by pricing and growth in grain will be led by market penetration in vegetable oil processing. Tech is expected to decline. driven mainly by reduced sales of enzymes for COVID-19 test kits and a much softer than expected textile market following a slower recovery in the global textile production. Please turn to slide number eight. Thank you. Agricultural animal health and nutrition sales increased 7% organically in the first half, driven by animal health and nutrition and supported by pricing. Growth in animal health and nutrition continued from innovation with recent product launches doing well and higher end market driven demand. Performance in agricultural was soft, impacted by destocking and a volatile end market. The second quarter organic sales declined 7%, driven by a tough comp in agricultural and, as expected, a negative timing effect from Q1. The negative developments in agricultural, additionally impacted by destocking and a volatile end market, were only partially offset by positive pricing and a better-than-expected performance in animal health and nutrition. For the full year, we maintain the indication at mid to high single-digit growth, led by animal health and nutrition. Growth will be driven by pricing, innovation, end-market growth, and increasing demand for sustainable solutions. And with that, I'll hand over to Lars for a review of the financials. Lars, please.