Novonesis (NOVO-B.CO) has reported a strong performance in the first half of 2024, with a 7% organic sales growth and a notable increase in its adjusted EBITDA margin to 35.3%.
The company anticipates maintaining this growth momentum throughout the year, projecting a full-year organic sales increase of 7% to 8%. Novonesis also expects to distribute an interim dividend of DKK 2 per share and forecasts a full-year dividend payout ratio of 40% to 60% of adjusted net profit.
Despite the discontinuation of activities in Russia impacting special items by approximately EUR 30 million, the company remains confident in achieving its full-year outlook.
Key Takeaways
- Novonesis reports 7% organic sales growth in H1 2024, with a 10% growth in Q2.
- Adjusted EBITDA margin rose to 35.3%, with a full-year expectation of 35.5% to 36.5%.
- Interim dividend set at DKK 2 per share, with a payout ratio of 40%-60% of net profit expected.
- Strong demand and new innovations anticipated in H2, alongside cost and sales synergies.
- Gross margin improved by 70 basis points year-over-year, attributed to economies of scale and productivity.
Company Outlook
- Full-year organic sales growth projected at 7% to 8%.
- Adjusted EBITDA margin forecasted to be between 35.5% and 36.5% for 2024.
- Dividend payout ratio expected to be 40%-60% of adjusted net profit.
- Long-term investments in CO2 capture, PET recycling, and sustainable aviation fuel planned.
Bearish Highlights
- Discontinuation of Russian operations to negatively affect special items by EUR 30 million.
- Household Care growth rate expected to slow down in H2.
- Textile segment may be vulnerable to reduced consumer spending.
Bullish Highlights
- Strong demand for Novonesis solutions, with new innovations launching in H2.
- Bioenergy business experiencing growth across all segments except biodiesel.
- Company's diversified portfolio provides resilience against market volatility.
Misses
- One-time impact of over EUR 100 million on operating cash flow.
- Postponement and cancellation of renewable diesel plants, though with little impact on Bioenergy growth.
Q&A Highlights
- Dividend payout ratio and impact of merger-related amortization on cash EPS discussed.
- Cost synergies and workforce reduction aimed at streamlining and eliminating role duplication.
- Regulatory approval for 2'-FL HMO in China expected by end of year, with sales starting in 2025.
Novonesis has delivered a robust financial performance in the first half of 2024, with a 7% increase in organic sales and a 5% rise in volume. The company's adjusted EBITDA margin has improved by 1.5 percentage points to 35.3%, reflecting strong demand for its solutions and successful integration efforts. Novonesis is also focusing on growth in the food and health space and plans to launch new innovations later in the year.
The company's financial health is further evidenced by its ability to pay an interim dividend of DKK 2 per share, with a full-year dividend payout ratio expected to be between 40% and 60% of adjusted net profit. Despite the negative impact of exiting Russian operations, Novonesis is confident in its ability to meet its full-year targets.
Novonesis's growth is not without its challenges. The company expects the growth rate in Household Care to decrease in the second half of the year, and the textile segment may be more exposed to a potential macroeconomic slowdown. However, Novonesis has a resilient and diversified portfolio that allows it to navigate market volatility effectively.
The earnings call also revealed that Novonesis is making strategic long-term investments in areas such as CO2 capture, PET recycling, and sustainable aviation fuel, which will contribute to the company's sustainability goals and future profitability. With a strong start to the year and continued momentum, Novonesis is poised to deliver on its promises to shareholders and customers alike.
InvestingPro Insights
Novonesis's recent financial report highlights a robust performance with significant organic sales growth and an improved EBITDA margin. InvestingPro data and tips further illuminate the company's position and future prospects.
InvestingPro Data shows that Novonesis boasts a market capitalization of 31.98 billion USD, reflecting its substantial presence in the market. The company's P/E ratio stands at 79.14, suggesting a high valuation by investors based on earnings. Additionally, the revenue growth over the last twelve months as of Q2 2024 is a notable 27.85%, indicating a strong upward trend in the company's sales.
An InvestingPro Tip points out that analysts anticipate sales growth in the current year, aligning with the company's own projections. However, it's important to note that two analysts have revised their earnings expectations downwards for the upcoming period, which could signal caution for investors considering the stock's future earnings potential.
Novonesis's stock is also trading near its 52-week high, which, along with an RSI that suggests the stock is in overbought territory, could mean that the stock's price is peaking.
For investors looking for a deeper analysis, InvestingPro offers additional tips, including insights on the company's dividend consistency, with Novonesis having maintained dividend payments for 24 consecutive years, and its moderate level of debt, which could provide a balanced risk profile for the stock.
To explore further insights and tips, including a total of 15 InvestingPro Tips for Novonesis, investors can visit https://www.investing.com/pro/NVZMF. These tips offer a comprehensive view of the company's financial health and market position, helping to inform investment decisions in a dynamic market environment.
Full transcript - Novozymes (OTC:NVZMY) A/S (NVZMF) Q2 2024:
Tobias Björklund: Thank you, operator, and welcome, everyone, to Novonesis' conference call for the first half year of 2024. My name is Tobias Björklund, as mentioned, and I'm heading up the Investor Relations here at Novonesis. At this call, our CEO, Ester Baiget; and our CFO, Rainer Lehmann, will review our pro forma performance and the key events over the first 6 months of the year as well as the outlook for the full year. Attending today's call, we also have Jacob Paulsen, EVP of Food & Beverage Biosolutions; Amy Byrick, EVP of Human Health Biosolutions; Tina Fanø, EVP of Planetary Health Biosolutions; and Claus Crone Fuglsang, Chief Scientific Officer. The conference call will take about 45 minutes, including Q&A. Please change to the next slide. As usual, 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 small introduction, I'll now hand you over to our CEO, Ester Baiget. Ester, please?
Ester Baiget: Thank you. Thank you, Tobias, and welcome, everyone. Please turn to Slide #3. We delivered organic sales growth of 7% in the first half of the year. Volumes increased by some 5% while prices were up by around 2%. In the second quarter, organic sales growth stood at a strong and broad-based 10%, with pricing also around 2%. The adjusted EBITDA margin came in at 35.3% for the first half year, an increase of 1.5 percentage points. The adjusted EBITDA margin for the 2 segments is comparable, with planetary health slightly higher than group average. In food and health, we are investing relatively more resources to growth initiatives and projects. This is in line with the strategic choices we have made in the recent years, strengthening and exploring biosolutions in the growing food and health space. The innovation agenda is strong, with 21 product launches in the first months, including 13 in the second quarter. And we expect a continued high rate of new innovation entering the market in the second half of the year. We see strong demand for our solutions across the businesses, with a strong momentum here in the first months of the second half. Consequently, we increased the full year outlook for organic sales growth to 7% to 8%. Organic sales growth in the second half of the year is expected to be at least on a par with the first half. This is driven by multiple factors, including the benefits from product launches and continued market penetration and despite a more demanding comparable. Following the increased growth outlook, we now expect the adjusted EBITDA margin to be 35.5% to 36.5%. The gross margin is expected to be stronger in the second half of the year as energy prices would also benefit positively. Pricing and our unique ability to deliver productivity improvements continued to be solid contributors to the gross margin as well. We are on a very good trajectory when it comes to the integration. Employee engagement is strong. Momentum with customers is high, and we focus on business continuity. We continue to drive cost and sales synergies, where cost synergies are at 80% run rate and sales synergies are expected to materialize from 2025 and onwards. As there is an abundance of opportunities, prioritization continues to be key in everything we do, ensuring the best use of our resources. As a final introductory remark, we are addressing the distribution of an interim dividend and as approved by the Board at DKK 2 per share. With this, let's now look at each of the divisions in more detail, starting with Food & Health Biosolutions. Could you please turn to Slide #4? Thank you. Looking at the divisions. Food & Health Biosolutions delivered 6% organic sales growth in the first half and 9% in the second quarter. Within food and health, Food & Beverages represents 74% of the sales while Human Health represents the remaining 26%. Adjusted EBITDA margin for the first half was 34%, which is an increase of 0.8 percentage points compared to the first half of 2023. Food & Health Biosolutions is now expected to grow organically around group average after a strong development in Food & Beverages, including good momentum into the second half of the year. Human Health has performed broadly in line with expectations, and we continue to expect an improvement in the second half of the year. Now let's look in more detail at the performance of the 2 sales areas. Please turn to the Slide #5 for Food & Beverages. Food & Beverages delivered an 8% organic sales growth in the first half of 2024. Growth was broadly anchored across geographies and subareas, driven mainly by Dairy and supported by a solid performance in Baking. We have seen a normalization of end markets, and the destocking impact of last year's performance has leveled off. The strong growth in Dairy was supported by both fresh dairy and cheese, driven by pricing, upselling and strong customer adoption of innovation. Dairy growth was anchored across all regions, including a positive contribution from China. Baking delivered a solid performance and benefited from increased penetration of innovation. Across the other subareas, Beverages, Meat and Plant-based, we also saw a positive development. Looking at the second quarter, organic growth was 11%, with a strong performance across subareas and supported by more favorable end markets. On the innovation front, we launched 4 new products during the second quarter for Food & Beverages, making it 8 in total for the first half of 2024. Highlights include the new lipase enzyme for the cheese industry, which is a great example of how the combined capabilities is already delivering superior solutions. We are also excited about the many opportunities in the Plant-based area, where we're seeing the benefits of going to customers with combined and synergistic culture and enzyme solutions. Here, we launched a new enzyme from improved umami flavors in plant-based food. For the full year, growth in Food & Beverages is expected to be driven by broad performance across all subareas. Please turn to Slide #6. Thank you. In Human Health, we saw a flat development for the first half of 2024, which was broadly in line with expectations. The first half was negatively impacted by order timing in HMO as a very strong performance last year led to soft start of 2024. In Dietary supplements, performance in Asia Pacific was strong as we see increased demand for our solutions in this growing market. However, order timing also impact first half year performance in Dietary supplements. Advanced Protein Solutions contributed strongly and in line with expectations as we continue to scale up sales to the anchor customer. The first sales were realized in the first quarter following a successful on-schedule start-up from the plan. Additionally, sales benefit from a low single-digit million euro amount of the full revenue following an updated contractual agreement with an anchor customer in Advanced Protein Solutions for plant-based meat. The second quarter showed 5% organic growth with a solid improvement from the first quarter, as expected. Growth was driven by a strong development in Advanced Protein Solutions and also by a positive development in Dietary supplements. Overall, we have seen accelerating growth momentum through the quarter and also into the second half. During the second quarter, we launched 2 new solutions for Human Health, leveraging our innovation in the complementary go-to-market channels. For the full year 2024, we expect strong growth in Human Health, driven by sales of Advanced Protein Solutions to the anchor customers and Dietary supplements. And please turn to Slide #7 for a look into planetary health. Planetary Health Biosolutions delivered 8% organic sales with the first half of the year and 11% in the second quarter. Household Care represents 35% of the division while Agricultural, Energy & Tech represents 65%. The adjusted EBITDA margin was 36.3% for the first half of 2024, which is an increase of 2 percentage points compared to the same period last year. The indication for Planetary Health Biosolutions is now to deliver organic sales growth around group average for the year. This is mainly due to a stronger performance in Household Care, including a better start to the second half of the year compared to expectations. Please turn to Slide #8 for Household Care. Thank you. Household Care delivered 15% organic sales growth in the first half of 2024. All regions showed double-digit growth, which was driven by increased penetration in emerging markets, innovation in developed markets and pricing. In emerging markets, we are collecting the fruits of prior investments as we see the impact of a stronger regional presence, enabling our solutions to cater for local demand. Developed markets were driven by innovation with a solid impact from the Freshness platform, including the recently launched Luminous. The industry volume growth supported the strong performance in the first half, which also benefit from positive timing. In the second quarter, organic sales increased 16%, driven by the same factors as in the first half of the year. In Household Care, we are seeing end market growth normalizing with, to some extent, a restocking effect. For 2024, growth in Household Care is expected to be driven by increased penetration in both developed and emerging markets, also supported by pricing. Please turn to Slide #8 for Agriculture, Energy & Tech. Thank you. Agriculture, Energy & Tech delivered organic sales growth of 4% in the first half of 2024. Growth was driven by double-digit growth in Energy and supported by Tech. Agriculture declined from a demanding year-on-year comparable in Animal due to timing while Plant was impacted by destocking. The strong performance in Energy was led by Latin America and driven by capacity expansion of corn-based ethanol production and supported by the ramp-up of volumes for the second-generation ethanol. In North America, performance was driven by increased penetration of innovation and ethanol production growth of 2% according to EIA. In addition, biodiesel contributed also positively. Performance in Tech was driven by grain processing. In the second quarter, organic sales growth 9%, driven by all areas and led by double-digit growth in Energy, which was driven by the same factors as the first half year performance. Agricultural was back to growth in the second quarter, with both Animal and Plant contributing driven by penetration and innovation. Growth in Tech was driven by grain processing. For the full year, growth in Agricultural, Energy & Tech is expected across all subareas led by Energy. And now, let me hand over to Rainer for a review of the financials and the outlook for 2024. Rainer?
Rainer Lehmann: Thank you, Ester. Good morning, everyone, and also welcome today's call from my side. Let's turn to Slide 10. Do please note that all historical figures presented today have been calculated on a pro forma basis, including 6 months of both Novozymes and Chr. Hansen legacy. Also note that outlook 2024 is based on 12 months pro forma numbers for the consolidated business. For further details, please refer to the company announcement published on March 21 this year. Let's come to the performance. Sales grew 7% organically and 5% in reported euro in the first half of the year as currencies and divestments each provided around 1-percentage-point headwind. The divestment is related to the now completed merger-driven separation of the lactase enzyme business. In the second quarter, sales grew by 10% organically and 8% in euro, with similar impacts for currencies and M&A as for the first half of the year. As you are aware, we are applying, since the beginning of 2024, a hyperinflation cap for our organic sales growth. Without this cap, the organic sales growth for H1 would have been a good 10%, and for the second quarter, it would have been 13%. Let's now have a look at our profitability. The pro forma reported gross margin was 42.4% in the first half of the year. When adjusting for the impact of the purchase price allocation, including the onetime inventory step-up as a result of the combination, we delivered a gross margin of 55.7%. This is an improvement of 70 basis points year-on-year. As expected, this was the result of achieved economies of scale, lower input costs and positive pricing as well as productivity improvements. Energy costs continued to be a temporary drag but are expected to benefit the gross margin in the second half of the year. The adjusted EBITDA margin was 35.3%. That was 1.5 percentage points higher than last year and was driven by the improvement in the gross margin as well as lower operating costs, including cost synergies. Planetary health reported a 36.3% adjusted EBITDA margin and food and health, 34%. As Ester explained in her introductory remarks, it was as expected following the higher allocation of resources to food and health. The adjusted EBIT margin was 22% -- 22.3% in the first half of the year. We adjust this KPI only for special items and the onetime PPA inventory step-up. Special items amounted to EUR 129.5 million and included, besides integration and transaction expenses, a noncash impairment loss of EUR 31 million related to the discontinuation of our activities in Russia. Net profit amounted to EUR 34.7 million in the period. When adjusting for special items, the onetime inventory step-up and the related tax impacts, the adjusted net profit was EUR 297.1 million. Moving on to our cash flow. Cash flow was solid. Operating cash flow amounted to EUR 540.7 million while free cash flow, excluding acquisitions, was EUR 387 million in the first half of the year compared to EUR 182.6 million in the same period last year. The year-on-year improvement is driven by the increase in operational profitability, supported by a slight improvement in working capital and lower net investments. In addition, the updated agreement with our anchor customer in Advanced Protein Solutions generated a positive cash payment, which equaled roughly 1/5 of the operational cash flow. Just as a side note, the investment case for the APS facility in Blair, Nebraska in the U.S. continues to be intact following the flexible production setup, inclusion in the global production network. The proceeds are treated as deferred revenue. Let me also say a few words regarding the joint venture Bacthera that we were pursuing together with Lonza. As a quick reminder, Bacthera was established in 2019 by legacy Chr. Hansen to explore a live biotherapeutic opportunity. Although the long-term opportunities in this market continue to be attractive, a strategic review led to the conclusion to wind down those activities. As a result, the investment as well as any other assets related to the joint venture was impaired and already accounted for in the opening balance sheet of Novonesis. Therefore, we do not expect any material financial impact on Novonesis going forward. With this, let us now turn to Slide #11 for an update on the 2024 outlook. Based on the first half year performance, coupled with a strong momentum going into the first months of the second half of the year, we increased the organic sales growth outlook, which is now expected to be at 7% to 8%. Growth will be driven mainly by volumes and with a similar positive pricing impact across both segments. Both segments are expected to grow around the group outlook range. The gross margin is expected to improve in the second half compared to the first half, mainly because we will continue to see the impact of lower input costs as well as the positive impact from lower energy prices. The outlook for the adjusted EBITDA margin is now expected to be between 35.5% and 36.5%, benefiting from pricing, productivity improvements and leverage on the fixed cost base and includes cost synergies of around 1 percentage point. We also continue to invest in the business to secure long-term performance and returns. Novonesis' Board of Directors has approved an interim dividend to be distributed on September 3 at an amount of DKK 2 per share or EUR 0.27. The last trading day with dividend is August 29, 2024. That is part of the intended full year dividend payout ratio between 40% to 60% of our adjusted net profit. For modeling purposes for 2024, we adjust the assumptions following the discontinuation of activities in Russia, which impact special items negatively by some EUR 30 million and a slight increase to the assumption for net financial costs. To round off, and building on the results on the first half of the year and the development, good momentum in the beginning of the second half, we are confident to deliver on our full year outlook. With this, I'll now hand back to Ester for a wrap-up before we open up for questions.
Ester Baiget: Thank you. Thank you, Rainer. Please turn to Slide #12. Let me summarize our message here today. We delivered 7% organic growth in the first half, with a strong momentum into the first months of the second half. Our diverse portfolio of innovative biosolutions, broad market reach and unique production setup drives the performance. The integration is on track, with a strong employee engagement and with a full organization now in place. A strong focus on business continuity, a strong focus on culture has enabled us to create the right momentum on both the long-term and the short-term agenda, including also the execution of synergies. We continue to stay true to our strong rationale on prioritization. We focus our resources where they matter the most. And as innovation is key to our long-term success, we invest behind it. We are uniquely placed to enable the transition towards a more efficient and sustainable world. As Novonesis, we enable this transition faster and with greater impact. And this is especially true in a world in a strong need of biosolutions for healthier lives and for a healthier planet. And with that, we're now ready for the -- opening the Q&A. And operator, please?
Operator: [Operator Instructions] The first question is from Charles Eden with UBS.
Charles Eden: Two questions for me, please. Firstly, on the impairment of the Russian operations, can you remind us how large that business was from a sales and EBITDA perspective for the pro forma business and then, I guess, the time line for this discontinuation? Have you fully stopped selling into this market now? And I guess will this exit be treated as a headwind to organic sales growth? And then my second one is just a clarification. For the guidance of mid-single-digit EPS accretion by year 3, so I guess by 2026, can you confirm what you're using as the base figure for this piece? I assume it's the Novozymes' stand-alone EPS, which was a little over EUR 2 per share at the time of the deal. Is that correct?
Ester Baiget: Thank you, Charles, for the question. A little bit on color on Russia on the timing. We announced we would stop supplying to our Russian customers by the mid next year. And that's the process that we are in. So you should expect a continuous business presence till then with also sunsetting our presence by the mid next year. And then Rainer, if you could comment also on the other items on Russia and EPS?
Rainer Lehmann: Absolutely. So let me continue on the Russia, the EUR 31 million impairment. That basically derived, as you are aware, as part of the purchase price allocation. We, of course, allocate intangibles to the different regions, to the different technologies and so on and so forth. And once we withdraw now, and we clearly communicated that we're exiting the Russian business, we, of course, have to impair the associated parts that we attribute for this PPA into Russia. So this EUR 30 million is actually the onetime effect related -- that we relate to that business. And when it comes to EPS, you're absolutely right. So the basis is, of course, the legacy Novozymes, EUR 1.68. I think that is important to keep in mind. When we -- and our EPS that we are showing here is showing right now EUR 0.64 for the first half year. Keep in mind that this includes the purchase price amortization, which is roughly EUR 0.18. If you add the EUR 0.18 to our disclosed EUR 0.64, you are actually at an EUR 0.82 EPS that is comparable to the EUR 1.68. Now we do not guide on EPS. But if you do the math for the second half of the year, assume actually the same performance, which basically we say we're going to perform a bit stronger, it will lead to the fact that we're going to end up maybe around slightly diluted for the first year and, going forward, incremental increase on the EPS. So a mid-single-digit increase over 3 years on that baseline would then lead to roughly EUR 1.76, EUR 1.78, which is in line with the predictions originally about EUR 1.75 and actually a little bit ahead.
Operator: The next question is from Alex Jones with Bank of America (NYSE:BAC).
Alex Jones: Two questions from me as well, please. The first, you're keeping a similar dividend payout ratio as you've guided previously to the legacy Novozymes and Chr. Hansen businesses. But given the adjusted EPS definition doesn't add back merger-related amortization, as you just said, the factor dividend payout from cash EPS has, therefore, gone down compared to the legacy entities. Can you tell us a little bit about the rationale for that? Are you planning to supplement it with buybacks? Do you see a greater need for organic or inorganic CapEx? Or is there some other rationale for that? And then just secondly, on Bioenergy, I think during the quarter, we've seen a number of renewable diesel plants to postpone or cancel start-ups due to the LCFS and RIN prices having fallen. Do you see any effect of that so far? Or do you expect any impact on the sort of conversion of your fiber conversion enzymes or your biodiesel enzymes in order to drive growth in Bioenergy?
Ester Baiget: Excellent. Thank you, Alex. I will let Rainer and Tina follow up on your questions.
Rainer Lehmann: Sure. So regarding the dividend, yes, correct. We basically do not adjust for amortization on the net profit. It was a decision we made. We believe we need those funds also to reinvest into our future growth to strengthen Novonesis going forward. So therefore, that was our definition. It will lead -- if you actually calculate that to DKK and if you make projections, our goal is to be in the range of previous year dividend as well. And from there on, then you -- most likely, that's our intention, of course, with increasing profitability, of course, to increase then in a nominal amount the dividend going forward. And I pass on to Tina.
Tina Fano: Thank you so much. And on biodiesel, biodiesel is a smaller part of our Bioenergy business, and we do see strong growth in all the 3 segments we have here, biodiesel, biomass or 2D ethanol and biofuel. So we do see strong growth. The smaller part is biodiesel and biomass. So the biggest driver is the performance in biofuel, which is strong.
Operator: The next question is from Søren Samsøe with SEB.
Søren Samsøe: Yes. Two questions. First, on the cash flow improvement. Maybe you can talk about the main drivers. Of course, you know about the onetime EUR 1 million payment, but there are still underlying improvements that could be interesting to hear the building blocks. And then the second question on the cost synergies, maybe you can put a number on the number of FTEs you've reduced the workforce with -- since the beginning of the merger. And also in what areas have these reductions been made? And are there more potential in that regard?
Ester Baiget: Thank you, Søren. I will build on your question on the cost synergies and then let -- ask Rainer to follow up on the, yes, improvements on cash flow. Regarding cost synergies, it's important that we remind us the principles behind the cost synergies in place. We have both cost synergies from OpEx but also on the cost of goods sold. Important to consider that we -- it's not only on the way that we are structured but also on the goods that we purchase and how we operate, that they both are contributing to the 80% run rate that we are already today on the target. From the cost synergies from a structure point of view, here, the driver of -- and the mindset behind has been mainly efficiency of the organization, eliminating duplication of roles, preventing duplication of roles, a streamlining of the organization, reducing the span of control, reducing the number of layers and setting a strong foundation, even a stronger foundation for future growth. And that's what we are in. So yes, we see the benefits of the cost synergies, which we are very pleased, as a very good foundation also for the investments of the future that will be in sales, that will be in TS&D, that will be in applied research and that they will continue to be on building the capabilities of the future on how we innovate in R&D. I think the best example of showing that we continue to invest for the future, it's also the 15% growth in emerging geographies. Here, it's a way of showing we're collecting the fruits of the investments we have done: resources on sales, resources in co-creation capabilities, where we continue to stay very close to our customers. Rainer?
Rainer Lehmann: So on the cash flow, let me comment to follow, of course, driven by, let's say, that's why I call it operational profitability. Keep in mind that our current, let's say, net profit that we start the cash flow calculation on includes the inventory step-up of EUR 183 million, right? This is a pure accounting topic that fortunately is now flushed out in the first 6 months. And therefore, if you compare like-for-like, actually the net profit, we see a nice increase on a pro forma basis. In addition, of course, the operating cash flow has been affected by the onetime payment from our anchor customer, which we said it's 1/5 of it, so a little bit over EUR 100 million when you do the math. And that was, keep in mind though as well, a onetime effect. That's it so far. Net working capital, to be honest, was pretty much nominal flat year-over-year.
Ester Baiget: Is it answering your question, Søren -- go ahead.
Operator: The next question is from Alex Sloane with Barclays (LON:BARC).
Alex Sloane: A few questions from me. Firstly, just on revenue synergies, you indicate those will materialize from 2025. Could you provide some more color on the first areas of revenue synergies you expect to hit the P&L next year? What solutions are gaining most traction? And where will this first show up in the portfolio? And the second one, just on the APS business. I mean you referenced in the statement that the investment case, I think, is still intact despite softer Plant-based protein end markets as you flagged at the CMD. So maybe could you please elaborate on this and how you're using the Blair facility to unlock opportunities in proteins in other end markets?
Ester Baiget: Thank you, Alex. I'll let Tina and Amy and Jacob bring color on examples of synergies. Basically, they are across all areas. And they have a cross-fertilization of existing solutions in the markets that we present and also creating the foundation of the innovation of the new solutions with now a stronger portfolio. But maybe, Jacob, you want to start with a couple of...
Jacob Paulsen: Yes, I can start. So it's actually all about combo solutions of enzymes and microbials that now come together even stronger in the solutions. We recently launched, as you saw here, an enzyme and lipase enzymes, which is a great example, something we couldn't have achieved without the common strengths of the 2 companies. That is one solution for the cheese industry that will -- we are working on plenty of solutions within the Plant-based space, cross-synergies across the Beverages. So a number of things that are already in action with customers.
Amy Byrick: I can just maybe give a few examples of early revenue synergies from the Human Health area. The real focus in this space short term is really the cross-channel launches. And so we see launching legacy Chr. Hansen products and solutions through our consumer health-facing channels, and we see good traction there. And then we also see -- it was also a fun one to see, which is the acceleration of launches, and that's relevant for both of the launches actually that we announced here in Q2, where we're leveraging the value chain and leveraging the expertise to actually accelerate our ability to launch new products into the market. So good traction both from the product portfolio mix but also through the channel mix and complementarity.
Tina Fano: And for us, in planetary health, it is more about various channels where it is we can cross-sell into the various channels given we had a complementary footprint in legacy Hansen and legacy Novozymes. And then I think for us in planetary health, what we are most excited about is, in fact, the innovation capabilities coming together and longer term, enabling us to develop completely new solutions. And we also get the scale and the muscle in order to do even more on the innovation front.
Ester Baiget: Rainer and Amy, if you could build up on the return of the investment on Blair and then protein platform.
Rainer Lehmann: And I think here it's important to understand that the APS facility, and that is the beauty about having an operation -- a global operations network that we can really reutilize assets. Specifically also, for example, on the big fermentation capacity is built there for other business and sales areas that are actually needing the capacity. So therefore, the case is still accretive, and we said in year 3 at the end of the day. So this is basically the overall case is intact on a lower basis but also with utilization of assets within our global production capacities.
Amy Byrick: And I think as we -- and we spoke about at Capital Markets Day, we continue to pursue the precision fermentation platform more broadly, developing solutions into medical nutrition and other high-value proteins.
Operator: The next question is from Chetan Udeshi with JPMorgan (NYSE:JPM).
Chetan Udeshi: I have a couple of quick just question. Maybe can you quantify what was the absolute amount of PPA impact in terms of euro million? And also, how much absolute euro million synergies did you actually realize in H1? And the second question I had was just on the customer prepayment for advanced protein. I'm just curious, why did your customer agree to pay you EUR 110 million so much upfront in terms of -- compared to when they will be consuming these products? Is this because it's some sort of a penalty that they did not take or offtake the agreed volumes? Can you just discuss, to the extent you can, just the mechanics around this contract and one-off payment? And last question, sorry. There's a huge gap between emerging markets and developed markets in terms of growth in Q2 and also H1. Is that something you expect to continue in H2? Or do you see developed markets coming back in terms of growth so far in third quarter?
Ester Baiget: Excellent. Thank you for the broad and very good questions, Chetan. I love the way you said can you disclose what you can from the contract because, as you know, it's a confidential contract and we would not be in the position to disclaim -- to disclose the terms. You know we have an anchor customer, and we build the capability on Blair, build thinking also on a site integrated with all the needs of biosolutions but then with a strong focus also in protein. And the deferred revenue that you see is a reflection of the dynamics and also the contractual commitments in place with also the strong commitment of the potential we see in this market and, again, the use of the asset of all the other applications that also we're fulfilling with. Regarding emerging markets, a little bit of color before I pass the word on Rainer on finance, we're extremely pleased of the 16% growth in emerging geographies. It's a lot of work behind making that happen. We invested in sales organization. We invested in co-creation capabilities, the powder lab on India, a breaking lab in Dairy. We see the growth in China in growing with our cultures with the yogurts recovering from years of not growth. We see growth in Latin America. We see the penetration of bioenergy, biomass, also in India. It's many, many, many dots that they come from 2 drivers. One, the pool of biosolutions on a world of need of solutions that drive efficiency, yield and productivity to our customers sustainably and then also a lot of work on having the right hands, the right solutions, the right capability to be in the regions. So -- and we are committed to both, emerging geographies, domestic geographies where we also see growth. And we're going to continue to be being the presence of those areas. Rainer?
Rainer Lehmann: Yes. And regarding the amortization that is basically included in the first half, it's basically around EUR 110 million. So majority in cost of goods in this regard but also then partially in S&D and R&D. Just also going forward, that's going to be roughly around EUR 24 million or around EUR 25 million -- EUR 24 million a month. So it's substantial. That's why we, of course, are also making sure that you have the relevant visibility in this regard. When it comes to cost synergies, they're basically -- I mean this is implied in our guidance. 1 percentage point of the impact in 2025 of the revenue will be cost synergies.
Operator: The next question is from Lars Topholm with Carnegie.
Lars Topholm: Yes. Congrats with a very good quarter. I have a couple of questions also. So one is on the deferred revenue. If you can comment on the pace of recognizing it going forward, is that stable? Or will that be accelerating? And maybe, Rainer, when you said net working capital was flat year-on-year, is that before or after you include the deferred revenue, which I assume you book as a payable? And then a second question is on some of the potential new business. So just wonder if you can give a status on CO2 capture, PET recycling and maybe also on sustainable aviation fuel, what's the market readiness? What's your status? When could we potentially see some revenue here?
Ester Baiget: Excellent. Rainer and then Claus.
Rainer Lehmann: Yes. So on the deferred revenue, it is backloaded, to be honest. So it's not a linear function in this regard. So it's more affecting towards the end, let's say, 1/3 of the contract duration. But we will be transparent, also say, okay, what is the impact going forward in this regard. To be honest, in the volume and the size as our company right now, being there around EUR 4 billion with that profitability, it is really the impact is on the decimal place on an EBITDA level and in a lower part of the decimal place. And then the rest was the -- I think this...
Ester Baiget: Yes, Claus and then Tina on SAF.
Claus Crone Fuglsang: Sure. But if I start on SAF, that's twofold. One is an oil to aviation fuel, so waste oil to aviation fuel, which is moving forward. Then you have also considerations of using the ethanol chain to convert to jet fuel as well. This is still in its infancy, I would say. And other alternatives are explored in that area as well. So other fermentation routes to SAF. So SAF for now, for us, continues right now to be a waste oil game but with options outside in the ethanol chain. On PET, we're, of course, watching closely how our partner is doing on the build-out of the first large-scale facility in France with Indorama and Carbios and expect that, that will come online, and then we will be delivering towards that. On carbon capture, one thing is the collaboration with Saipem and the scaling of that technology on the enzymatic technology. But I would also say there are optionalities outside this, both in existing carbon capture processes where you can accelerate release, you could say, of the captured carbon through enzymatic processes. There are other interesting applications for the technology that goes into other industries that we are exploring. So it's not a single sort of, you would say, bet on Saipem here. It's actually a broad-based but still in its infancy.
Ester Baiget: And last, I heard you asking also when are we going to see the revenue of those solutions. This is an investment for the long term. This is optionality that we bring in for the long-term growth. And it takes time. And many of them, they also come coupled with needs of changing regulation for those solutions to be penetrated in the market. So the beauty of our company is that we deliver today of the solutions that we have. We're growing on adjacencies, we're expanding our toll books, and then we're also seeding the foundation for the long-term growth. And we see good momentum, as Claus has just mentioned, across all those areas.
Lars Topholm: Yes. And I just had one small follow-up to Rainer. So of course, agree in the big picture, the deferred revenue matters very little. But for Human Health specifically, so it could matter a bit more. Just to make it clear, this effect is not included in organic growth, is it?
Rainer Lehmann: The deferred revenue is part of our organic growth.
Lars Topholm: Okay. So is this a factor that could maybe add 1% to organic growth in Human Health going forward?
Rainer Lehmann: As I said, it's a low single-digit euro amount that we are having as deferred revenue. Human Health overall is far more substantial than that. So that is not the case.
Lars Topholm: Okay. That's really clear. And congrats.
Operator: The next question is from Sebastian Bray with Berenberg.
Sebastian Bray: I would have 2, please. The first is on the sequential step-up, H2 versus H1 implied by the upper end of the 35.5% to 36.5% EBITDA margin guidance. I was intrigued by 2 things. One was a comment in the half year report saying that energy costs were still a headwind in the first half of the year. Is this likely to remain the case in the second half of the year? And what else aside from cost synergies would drive up the margin? Because at the upper end of the EBITDA margin guidance for the full year, of 36.5%, it looks as if H2 margins could be about 2 percentage points higher than H1, which reads positively for 2025. But what are the moving parts between the first half and the second half EBIT? My second question is on the Freshness or hygiene platform rollout. The press release makes reference to prestocking by customers in expectation of launches. From memory, the first Freshness platform products came out in 2019. Is it right to say that these are a wave of products which are going to end customers other than the original anchor in this area?
Ester Baiget: Very good questions, Sebastian. Rainer and Tina, please.
Rainer Lehmann: Yes. So on the improvement on the specific EBITDA for the second half of the year, of course, coming from -- absolutely correct, from the gross margin. We see here 2 impacts. Hedging, we were still impacted by hedging contracts that we made last -- at the end of last year that bleed into 2022 that are running out where we then now profit from the true lower energy cost, which will add favorably. And in addition, we also see the impact of lower input cost more dramatically in the second half than in the first half due to the -- basically when you revalue your standards at the beginning of the year and you still have that impact over the first 6 months, you capitalize the difference over the first 6 months, but also runs out. So therefore, the second half of the year, you're absolutely right, we'll see stronger gross margins, our expectation in the first half.
Tina Fano: And on the Freshness platform, it is something we are rolling out broadly. It is, and you could say, an innovation area which is very keen to us and which we believe matters a lot for the detergent industry. And we do innovate both for all our customers, anchor customers or whatever we should call them, our key customers, the CPGs, but also the broader market.
Claus Crone Fuglsang: And maybe to expand a little bit, this is not a single technology fix. This is a platform of technologies, so it goes across segments, geographies and so on. And remember, segments are widely different today than 10 years ago, being liquid, being unit dose, being solid formats and then across geographies and CPGs, so a series of innovations.
Tina Fano: And maybe just to add on that, I mean, the newest one is Luminous, which is a key contributor as well.
Ester Baiget: Plenty to celebrate in Household Care.
Operator: The next question is from André Thormann with Danske Bank.
André Thormann: The first is in terms of Household Care. I just wonder now you have seen very strong growth in the first half. Can you maybe pin out what we should keep in mind for the second half? Can growth continue this strong? Or should it come down due to tougher comps and also some of these restocking effects? That's the first question. The second is in terms of cash flow. I just want to be sure here. You say it's a solid cash flow. But if you adjust for the compensation and also the elevated CapEx you had last year, would it also be a solid cash flow? That's my question.
Ester Baiget: Thank you, André. I will let Tina answer the question on Household Care. I love it when the question implicitly comes with the answer. Then Tina, please build up on that, and then Rainer, please, on cash flow.
Tina Fano: Yes. So you're so right, André. I mean the tougher comps is, you could say, getting into the second half. So from that perspective, you should expect the growth rate of Household Care coming down. However, we do -- for the company, we guide the 7% to 8% and indicate that planetary health will be in line and Household Care is expected to be above that with Agriculture, Energy & Tech stronger growth in the second half, though less than, for example, Household Care and the company average.
Rainer Lehmann: And let me comment on the operating cash flow. Basically, of course, it was influenced, as I mentioned, that's why we pointed out, by the onetime impact of a little bit over EUR 100 million. That's basically only one-off I would take. So if you compare it then to the pro forma of last year, you still see a nice improvement of the cash flow driven by operational activities and also by the stronger profitability.
Ester Baiget: Beautiful. Last question, operator, please?
Operator: The last question is from Georgina Fraser with Goldman Sachs (NYSE:GS).
Georgina Fraser: First question is, are you still expecting the HMO approvals in China by the end of this year? And if you could give some visibility of how you're expecting sales or profitability to progress in 2025? And then my -- I guess, the last question of the call, one of the things that we're all worried about is weaker consumer sentiment and slowing end markets. If we were to see a macroeconomic slowdown, which parts of your portfolio would you see as being most vulnerable? And would you expect pricing to be under pressure in that situation? Maybe if you could highlight any businesses that you believe are in more of a low-cycle environment today, that would be very helpful.
Ester Baiget: Excellent. Amy, if you could expand the yes, and then I'll build on the second question.
Amy Byrick: Sure. Absolutely. So yes, the short answer is, yes, we are on track, and we still see the path towards regulatory approval of our 2'-FL HMO in China before the end of this year. It's too early for us to give guidance on sales, but we would expect to see sales of 2'-FL starting in 2025. Of course, we are also making progress on regulatory approval for the rest of the 5 HMO mix. But that is more leaning and continuing to progress, as we've said in the past, towards likely 2026 approval.
Ester Baiget: And then, Georgina, building on your question, we have a pretty resilient and broad market exposure. We are present in more than 30 different markets, and that gives -- and also we have a global asset footprint with multiple process that enable us to swing and to absorb the volatility of the market. So it gives us resilience, and it gives us the capability to react to a volatile market. It is true also that our solutions, they provide value -- sustainable value growth for our customers. They enable sustainable value growth. That means bringing, yes, cleaner label; yes, solutions enable to wash at lower temperature; yes, product -- yes, lower CO2 emissions but, at the same time, productivity savings. And that is more precious also in an environment where cost becomes -- or where competitiveness becomes even more precious because that's what we bring: savings on productivity, on producing more efficiency and then, at the same time, enabling a sustainable solution good for the final customers. And then maybe building in your question on where we would have the biggest exposure, I mean we're not immune to overall demand. And some segments have a higher level of exposure. If you take, for example, the textile segment, that's a space that typically you see when consumers start being concerned about the pocket money and they reduce expenses. Typically, you see a reduction on garments and also on export of fabric meters from China and a reduction on the consumer spend. That's a space that we would then eventually see -- or could see an exposure. At the same time, we're extremely resilient in areas which is food, in dairy, particularly, where -- or in animal, where maybe you would use more eggs or you would buy more chickens or you would -- you go fulfill your nutritional needs also with solutions that will drive our demand. And at the same time, again, the main principle of how we grow, it is through generating and enabling value for our customer, and that's true even more and more valuable in a world of more demanding conditions. Long, long answer, but maybe the best way of summarizing is we are in a good place. We are in a very good place. We continue to deliver on the integration. We continue to keep the foot on the pedal on staying close with our customers. And the first half of the year and the strong start with the first 2 months of the second half, that puts us in a very high place of comfort, also coupled with a strong employee engagement and the good momentum in the industries that we're in. And maybe with that very long answer, I would thank you for your time and close it for the call today and looking for continued conversations with many of you. Thank you very much.
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