Novonesis B Unsp/Adr

Thank you, operator, and welcome everyone to Novozymes conference call for 2023. So my name is Tobias Björklund, as mentioned, and I'm the head of investor relations at Novozymes and now NovoNesis. At this call, our CEO, Esther Bagé, and our CFO, Rainer Lehmann, will review Novozymes 2023 unaudited performance and key events of the year. Also attending today's calls 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, all in Novozymes. The entire call will take about 50 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 statement. With that, I'll now hand you over to our CEO, Esther Bajé. who will lead the very last conference call for Novozymes as a standalone company. Esther, please.

Thank you. Thank you, Tobias, and welcome everyone. Could you please turn to slide number three? Before we start the presentation of our 2023 performance, I would like to take this opportunity to thank our employees, our shareholders, and all our stakeholders for their support over the past 13 months. Three days ago, we completed the combination with Christian Hansen, creating our new company, NovoNesis, and marking the start of a new era of BioSolutions. Working with our customers, NovoNesis will enable an acceleration of the use of BioSolutions across multiple markets. And by combining these two amazing companies, we are set to create even greater shareholder value. I would like to also welcome Rainer Lehmann, our CFO at Novozymes and NovoNesis. Rainer joined us on November 1st and brings a wealth of knowledge on how to lead, optimize, and drive efficient finance organization, focusing on returns, cash utilization, and process efficiencies. I am very excited to have Rainer on board. And together with the rest of our new leadership team, we are in a very strong position to execute on and build NovoNess' future. With that, let us now look to the 2023 performance for Novozymes. Overall, we performed very well in 2023 and in line with expectations. Organic sales growth of 5% was driven by pricing with flat volumes. In the fourth quarter, organic sales growth stood at solid 6%, with pricing at around 4% and volumes growing by roughly 2%. Pricing for the year and the fourth quarter continued to be roughly similar across business areas, although slightly less positive in household care. As mentioned, the overall growth performance for the year was very much in line with expectations we provided at the beginning of the year. We were expecting a stronger second half of the year, and the results we are presenting today confirm just that. We continue to see that our well-diversified portfolio of solutions and broad market exposure provides stability and growth in a volatile market. The solid 6% organic sales growth in the fourth quarter was driven by bioenergy at 20% as well as household care at 10%. Agricultural, animal health and nutrition was impacted by timing issues and continued the stocking in bioag, whereas grain and tech processing reversed the declining trend and posted growth. The ongoing stocking trend in the food-related part of the business continued longer than expected as customers optimised inventories at the end of the year. Coupled with a strong comparator, food, beverages and human health declined. Adjusting for a one-off in the first quarter, the segment was roughly flat for the year. During the year, we launched 80 new solutions and we initiated dialogues and increased our market penetration of new innovation and new product launches, driving performance across business areas. As expected, we delivered year-on-year as well as sequential gross margin expansion in the fourth quarter. The expansion in the fourth quarter was a bit softer than anticipated as our sales mix was impacted by lower-than-expected sales in human health and bio-ac solutions. Price increases and productivity improvements continue to contribute to offset the effect of higher input costs. We delivered a solid 25.4 EBIT margin before special items for the full year. The performance was in line with our expectations and well aligned with our full year outlook at between 25 to 26%. The underlying EBIT margin BSI for the year was slightly higher than the reported and around 26% for the fourth quarter. Our strong free cash flow in the fourth quarter took the full year figure to 2.1 billion kroner, following lower net investments after a cycle at elevated levels. Novozymes is in a good place with supportive growth drivers for both the short and the longer term, driving sustainable, profitable growth. We continue to invest for growth to secure the right portfolio of solutions for our customers. One example is our advanced protein facility in Blair, Nebraska, that was taken online in December with first commercial sales in January. With this, let's now look at each of the five business areas in more detail, starting with household care. Please turn to slide number four. Thank you. Household care delivered 5% organic growth. Growth was driven by continued innovation and penetration across both developed and emerging markets, more than offsetting the negative impact from industry volume softness in the first half of the year. Growth in developed markets was driven by innovation, including the freshness technology, and performance was solid in both laundry and dishwash. Softer consumer demand and down trading had a negative impact on volumes in the first half of the year, and we saw market conditions stabilizing in the second half. In emerging markets, we saw continued penetration of enzymatic solutions across formats as the main growth driver. Latin America, the Middle East, and Africa delivered the strongest growth rates, and pricing had a positive impact through the year. Organic sales growth in the fourth quarter was strong at 10%, supported by pricing. Growth was led by emerging markets, with a strong growth across regions driven by innovation and penetration of enzymatic solutions. In developed markets, we saw solid growth as we continued to bring value to our customers through innovation, enabling better performance and stronger claims. 2023 was a good year for our household care business, with multiple growth drivers. These same drivers will continue to support the business over the coming years. Household care benefits from a stronger regional innovation and presence, a focus on superior cleanliness, and the growing demand for sustainability and energy-reducing technologies, creating a pool for bio-based solutions. Please turn to slide number five. Thank you. Food, beverages, and human health declined 2% organically in 2023. Sales were negatively impacted by roughly two percentage points, as the first quarter comparator includes sales of a specific enzyme solution, which has not been sold this year. Adjusting for this effect, we saw roughly flat performance with positive impact from pricing. The stocking across the value chain in food and beverages in combination with software and market demand had a negative impact. We saw an improvement during the second part of the year compared to the first half, although the year remained overall in negative territory. Excluding the Q1 comparator impact, food had the strongest relative performance of the soup areas, including a positive impact from recent innovation in baking. Human health was soft, as supply chain constraints impacted our ability to accommodate the demand in the first healthcare practitioner channel in the first half of the year. And additionally, there was a general softness in North America demand for probiotic solutions. Looking at the fourth quarter, food, beverages, and human health declined 4% organically. Performance was softer than expected on a tough competitor as we grew 16% in the fourth quarter of 2022. Lower volumes were only partially offset by positive pricing. The softer than expected performance on a tough competitor was driven by the timing of orders from year-end inventory, optimization among customers, especially in baking, and some impact from a more volatile than expected order pattern. Overall, the stocking trend continued to level off compared to previous quarters. Additionally, while human health declined year on year, there was a sequential growth in the fourth quarter, although at a slower pace than anticipated. Over the last three years, we have delivered annual average organic revenue growth of 7% in food, beverages, and human health in a market characterized by a high level of volatility. Going forward, we will continue to benefit from a strong pull for sustainable solutions, clean labor, and health, allowing our innovating solutions to penetrate the different underlying markets. In human health, we see growth momentum returning following the supply chain constraints, and we have seen stronger second half of the year compared to the first half. In addition, our advanced proteins facility in Blair, Nebraska, has come online, ready to support our growth journey. Please turn to slide number six. Bioenergy sales grew 23% organically in 2023. It was another very strong year as our innovation in this industry continued to drive value for our customers. 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. Market fundamentals were favorable, with solid and stable producer margins for most of the year, and the EAA estimates that U.S. ethanol production increased by around 2%. Growth also benefited from capacity expansion of corn-based ethanol in Latin America and biodiesel. And we saw very strong growth in enzymes used for biomass conversion, commonly referred to as second-generation biofuels, although from a small base. Additionally, pricing had a positive impact. The fourth quarter organic sales growth of 20% was ahead of our expectations, driven by factors similar to those for the full-year performance, and supported by solid market fundamentals, including higher-than-expected volume growth in the North American ethanol production of 4%, according to the EAA. The ability to diversify our portfolio of solutions and create more and better innovation to customers in the bioenergy business has taken us to a different place compared to the past. We have unlocked a diverse set of structural growth levers that will continue to drive performance going forward. These ones include diversification of the bioethanol producer's revenue stream, enabling our customers to generate more value from the side streams of ethanol production, geographical expansion of ethanol production, and penetration in areas where we're early in the market development, such as biodiesel production through enzymatic solutions, expansion of the biomass conversion into ethanol, and sustainable aviation fuels. Please turn to slide number seven. Thank you. Sales in grain and tech processing declined 6% organically in 2023, explained by the decline in tech. As expected, tech was adversely impacted by the significantly lower sales of enzymes for COVID-19 test kits, and also much softer than expected textile market. Growth in grain was driven by increased market penetration in vegetable oil processing and distilling, and continues to be underpinned by our innovations. This was partially offset by the stocking impacted by a softer grain market. Pricing had a positive impact in both grain and tech. Four-quarter organic sales were up 2%. Growth was supported by pricing and mainly driven by grain as the impact from the stocking started to level off. Tech showed a slight improvement. Looking ahead, growth in grain and tech processing continues to be supported by demand for sustainable solutions and efficiency gains, as well as growth in emerging markets driving demand for industrialized food production and process optimization. Please turn to slide number eight. Agricultural animal health and nutrition sales increased 3% organically in 2023, driven by animal health and nutrition and supported by pricing. Growth in animal health and nutrition continued to be driven by innovation, with recent product launches doing well, and higher market-driven demand for our sustainable solutions. Performance in agriculture was soft, impacted by destocking in the value chain and volatile end market demand. Fourth quarter organic sales declined 7%, with a negative performance in both animal health and nutrition and agricultural that was partially offset by positive pricing. Animal health and nutrition was impacted by the timing of large orders, and the underlying innovation-driven momentum continued. Agricultural continued to be impacted by destocking and a volatile end market. We see promising growth drivers ahead that will be powered by this growing demand for sustainable and yield-optimising solutions in food and crop production, innovation and better access to a market supportive of biological solutions, a key to unlock this vast potential over the coming years. And we have a strong portfolio and pipeline of solutions supporting future growth. And with that, I will hand over to Rainer for a review of the financials. Rainer, please.

Good morning to all of you and thank you, Esther. Please, let's turn to slide number nine. Let me start by introducing myself first. My name is Rainer Lehmann and I'm the new CFO of Novozymes and now NovoNesis. I'm very excited and humbled by the opportunity to join the company on our future journey as an even stronger global leader in biosolutions. I've spent most of my career in the biopharma sector, leading and setting up efficient processes with the focus of sustainable, profitable growth and to create attractive shareholder returns. This is also a journey that I, together with the leadership team, will drive in NovoNesses, starting immediately. I look forward to seeing many of you in the future. With that, let us have a look at 2023. As Novozymes just closed the combination with Christian Hansen on January 29th, and the annual report now is expected to be released on February 8th, this announcement only contains unaudited numbers. Full audited financial statements, as well as non-financial numbers, will be released with the annual report on February 8th. This result update allows us to provide you selected numbers for Novozymes stand-alone as early as possible. So, let's move on to the results. Sales grew 5% organically and 2% in the reported Danish krona. Currencies and divestments provided a 3 percentage point headwind during the period. For the fourth quarter, sales grew by 6% organically and increased by 2% in Danish krona, as currencies and divestments had a 4 percentage point negative impact. Pricing contributed around 5% for the year and roughly 4% in the fourth quarter. The gross margin was 54.3%. It was slightly below last year's gross margin, mainly due to the high input costs and partly offset by continued progress in pricing and productivity improvements. The fourth quarter gross margin was 54%, which was 50 base points higher than last year, and 20 base points higher than in the third quarter. While we had anticipated a stronger Q4 gross margin, it was slightly lower than expected, mainly due to the sales mix. The EBIT margin before special items was 25.4%. The decrease of 100 basis points from last year was mainly related to lower operating income and the lower gross margin, as well as a somewhat negative currency effect. The underlying EBIT margin before special items for the year was around 25.5%, which was in line with the underlying margin before special items in 2022. In addition to a receivable provision and some extraordinary employee-related costs in the fourth quarter, we adjust the 2023 figure for the positive effect of the wastewater divestment and the negative one-off cost associated with the resource alignment in the commercial area, both of which occurred in the first quarter of 2023. For 2022, we adjust for the large positive effect of the 21st bioaccounting gain and other small one-off adjustments relating to the first half of 2022. Additionally, currencies affected the margin somewhat negatively for the period. Looking at the fourth quarter, the EBIT margin before special items was 25.1%, 170 base points higher than in the same quarter of last year. The one-off adjustments for Q4 were mainly related to a provision of uncertain receivables in Argentina, as well as extraordinary employee-related costs. Adjusted for this, the underlying EBIT margin before special items was around 26% for the quarter. or around three percentage points better than for Q4 of last year. The underlying improvement was the result of an improved gross margin, a lower OPEX to sales ratio, and higher operating income. Currencies had a negative impact on the year-on-year performance. Special Int items impacted the reported EBIT margin by 576 million kroner for the year. For the fourth quarter, the impact on the reported EBIT margin was 202 million kroner. In both periods, special items were entirely due to costs related to the combination with Christian Hansen. Net profit amounted to slightly more than 3 billion kroner. The decrease compared to the same period last year was mainly due to higher special items and lower other operating income as the divestment of albumatics benefited last year's performance. Also, the effective tax rate was higher in 2023 compared to 2022. Return on invested capital, including Goodwill, before special items, ended at 16.5% compared to 17.9% for the same period last year. The difference being explained by a lower profit, primarily due to lower positive year-on-year one-offs, and higher invested average capital. The 16.5% for the year was right in the middle of the 16-17% that we had in our outlook since the beginning of the year. Free cash flow excluding expositions was 2.1 billion Danish kroner for the year and well within the anticipated 1.8 to 2.2 billion kroner range. The realized amount was roughly 1 billion higher compared to 22, mainly due to the expected lower net investments. Now, please turn to slide number 10 for an update on the flow of events and communications relating to NovoNessus. Since December 12th, 22, when we first announced our intention to combine with Christian Hansen, both companies have worked diligently towards the closing. Since our last update at the Q3 earnings release, we have gained approval in South Korea and the EU. Last Friday, the European Commission approved Carey Group as a buyer of part of the global lactase enzyme business. We registered with the Danish business authorities on January 29th, and by doing so, gained full regulatory approval and completed all registrations. Now, the integration work starts, leveraging from the more than 20 work streams we have already started. Let us now look at what the process looks like with regards to what and when you can expect more information about NovoNesis. Please turn to slide 11. We provided details to the flow of communication for NovoNesis in the deal closing statement three days ago. I just wanted to recap it here briefly. We will issue Novozyme's 2023 annual report next week on February 8th. As we are consolidating and validating numbers and making sure we provide you with the correct baselines and expectations, we will provide pro forma numbers for NovoNesis, including revenue, organic revenue growth, key financial numbers, as well as a 2024 outlook no later than by March 31st, 2024. We are dedicated to make sure we provide you the right level of transparency to be able to follow our performance. The key value driver for NovoNesis is our organic revenue growth, and we will provide full update on this each quarter going forward. Profitability will be provided at the half and full year announcements, but will of course indirectly be considered each quarter as we comment on the full year outlook. We will provide operating profitability numbers for the two divisions, food and health, and planetary health, to ensure better transparency compared to what you were used to for legacy Novozymes. We'll provide revenue numbers for the four sales areas as defined in the closing announcement from Monday this week and believe this gives the right balance of information for a company of this size. We will of course make sure to provide comments and further performance insights to what the underlying sales drivers are for each sales area, making sure we give the relevant level of transparency. The dividend for the September 1st to December 31st period will follow the payout ratio applied for the previous interim dividend for legacy Novozymes. The proposed dividend for the period will be announced by the Board of Directors of NovoNesis in connection with the notice to convene the Annual Shareholders Meeting, which will be held on April 30th. Last but not least, We're happy to announce that on June 18th, we'll host a Capital Markets Day in London, where we'll provide more color on NovoNesses and what this exciting new era in biosolutions will look like. We look forward to seeing you there. And with this, I'll hand now back to Esther for a wrap-up. Esther?