Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Novonesis AS (NVZMF, Financial) delivered a strong organic sales growth of 7% in the first half of 2024, with a notable 10% growth in the second quarter.
- The company launched 21 new products in the first half of the year, including 13 in the second quarter, indicating a robust innovation pipeline.
- Adjusted EBITDA margin improved to 35.3% for the first half, an increase of 1.5 percentage points year-over-year.
- The company increased its full-year outlook for organic sales growth to 7% to 8%, driven by product launches and continued market penetration.
- Employee engagement and customer momentum are strong, with cost synergies at an 80% run rate and sales synergies expected to materialize from 2025 onwards.
Negative Points
- The first half of 2024 saw a flat development in the human health segment, impacted by order timing and a strong performance in the previous year.
- Energy costs continued to be a temporary drag on the gross margin, although they are expected to benefit in the second half of the year.
- The company faced a non-cash impairment loss of EUR 31 million related to the discontinuation of activities in Russia.
- The adjusted EBIT margin was 22.3%, which, despite being an improvement, indicates room for further enhancement.
- The integration process, while on track, requires continuous prioritization to ensure the best use of resources and maintain business continuity.
Q & A Highlights
Q: Can you remind us how large the Russian business was from a sales and EBITDA perspective, and the timeline for discontinuation? Will this exit be a headwind to organic sales growth?
A: We announced we would stop supplying to our Russian customers by mid-next year. The EUR31 million impairment is related to the purchase price allocation for Russia. The exit will be treated as a headwind to organic sales growth. (Ester Baiget, CEO; Rainer Lehmann, CFO)
Q: For the guidance of mid-single-digit EPS accretion by year three, what is the base figure?
A: The base figure is the legacy Novozymes EPS, which was a little over EUR2 per share at the time of the deal. (Rainer Lehmann, CFO)
Q: Why has the dividend payout ratio gone down compared to legacy entities? Are you planning to supplement it with buybacks?
A: We believe we need those funds to reinvest into our future growth. Our goal is to be in the range of previous-year dividends and to increase nominal amounts as profitability grows. (Rainer Lehmann, CFO)
Q: Do you see any effect from the postponement or cancellation of renewable diesel plants on your bioenergy business?
A: Biodiesel is a smaller part of our bioenergy business. We see strong growth in biofuel, which is the biggest driver. (Tina Fanø, EVP of Planetary Health Biosolutions)
Q: Can you provide more color on the first areas of revenue synergies expected to materialize from 2025?
A: Revenue synergies will come from combo solutions of enzymes and microbials, cross-channel launches, and accelerated product launches. (Jacob Paulsen, EVP of Food & Beverage Biosolutions; Amy Byrick, EVP of Human Health Biosolutions; Tina Fanø, EVP of Planetary Health Biosolutions)
Q: Can you elaborate on the investment case for the APS business despite softer plant-based protein end markets?
A: The APS facility can be utilized for other business areas needing capacity, keeping the investment case intact. We continue to pursue the precision fermentation platform for high-value proteins. (Rainer Lehmann, CFO; Amy Byrick, EVP of Human Health Biosolutions)
Q: What was the absolute amount of PPA impact in terms of euro million, and how much synergies did you realize in H1?
A: The PPA impact was around EUR110 million. Cost synergies realized in H1 are implied in our guidance, with 1 percentage point impact on revenue. (Rainer Lehmann, CFO)
Q: Why did your customer agree to pay EUR110 million upfront for advanced protein solutions?
A: The deferred revenue reflects the contractual commitments and the potential we see in the market. (Ester Baiget, CEO)
Q: Are you still expecting HMO approvals in China by the end of this year? How will sales or profitability progress in 2025?
A: Yes, we are on track for regulatory approval of 2'-FL HMO in China by the end of this year, with sales expected to start in 2025. (Amy Byrick, EVP of Human Health Biosolutions)
Q: Which parts of your portfolio would be most vulnerable to a macroeconomic slowdown?
A: Segments like textile could be more exposed, while food and dairy are more resilient. Our solutions provide sustainable value growth, which is crucial in a competitive environment. (Ester Baiget, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
