Novozymes A/S (NSISB) Earnings Call Transcript & Summary

Welcome to the Novozymes 2023 Results. [Operator Instructions] Today, I'm pleased to leave the word to Tobias Cornelius Björklund, Head of Investor Relations. Please begin your meeting.

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, Ester Baiget; and our CFO, Rainer Lehmann, will review Novozymes' 2023 unaudited performance and key events of the year. Also attending today's calls are Tina Fanø, EVP, Agriculture & Industrial Biosolutions; Amy Byrick, EVP Strategy & Business Transformation; Anders Lund, EVP Consumer Biosolutions; and Claus 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 statements. With that, I'll now hand you over to our CEO, Ester Baiget, who will lead the very last conference call for Novozymes as a standalone company. Ester, please?

Thank you. Thank you, Tobias, and welcome, everyone. Could you please turn to Slide #3. 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 Chr. 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 1 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 to execute on and build Novonesis' 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 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 the expectations we provided at the beginning of the year. We are expecting a stronger second half -- 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 us 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 & Nutrition was impacted by timing issues and continued destocking in BioAg whereas Grain & Tech Processing reversed the declining trend and posted growth. The ongoing destocking trend in the food-related part of the business continued longer than expected as customers optimized inventories at the end of the year. Coupled with a strong comparator, Food, Beverages & 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 18 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 BioAg solutions. Price increases and productivity improvements continued 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 b.s.i. 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 DKK 2.1 billion 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 are continuing 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 #4. 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 areas -- 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 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 stronger regional innovation and presence, a focus on superior cleanness and the growing demand for sustainability and energy-reducing technologies, creating a pull for bio-based solutions. Please turn now to Slide #5. Thank you. Food, Beverages & Human Health declined 2% organically in 2023. Sales were negatively impacted by roughly 2 percentage points as the first quarter comparator included 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. Destocking across the value chain in Food & Beverages, in combination with softer end 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 sub 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 health -- in health care 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 & Human Health declined 4% organically. Performance was softer than expected on a tough comparator 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 comparator 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 destocking 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 3 years, we have delivered annual average organic revenue growth of 7% in Food, Beverages & 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 label 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 a stronger second half of the year compared to the first half. In addition, our Advanced Protein facility in Blair, Nebraska has come online ready to support our growth journey. Please turn to Slide #6. 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 EIA estimates that U.S. ethanol production increased by around 2%. Growth also benefit 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 EIA. 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 producers revenue stream, enabling our customers to generate more value from the [ site ] 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 #7. Thank you. Sales in Grain & 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 destocking impacted by a softer grain market. Pricing had a positive impact in both Grain and Tech. Fourth quarter organic sales grew -- were up 2%. Growth was supported by pricing and mainly driven by Grain as the impact from destocking started to level off. Tech show a slight improvement. Looking ahead, growth in Grain & 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 #8. Agricultural, Animal Health & Nutrition sales increased 3% organically in 2023, driven by Animal Health & Nutrition and supported by pricing. Growth in Animal Health & Nutrition continued to be driven by innovation with recent product launches doing well and higher end market-driven demand for our sustainable solutions. Performance in Agricultural 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 & Nutrition and Agricultural that was partially offset by positive pricing. Animal Health & 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-optimizing 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, Ester. Please let's turn to Slide #9. And 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 a focus on sustainable, profitable growth and to create attractive shareholder returns. This is also a journey that I, together with the leadership team, will drive in Novonesis, 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 Chr. Hansen on January 29 and the annual report now is expected to be released on February 8, this announcement only contains unaudited numbers. Full audited financial statements as well as nonfinancial numbers will be released with the annual report on February 8. This result update allows us to provide you selected numbers for Novozymes standalone as early as possible. So let's move on to the results. Sales grew 5% organically and 2% in the reported Danish kroner. 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 kroner 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 were 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 percentage points higher -- sorry, 50 basis points higher than last year and 20 basis 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 other 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 receivable provision and some extraordinary employee-related costs in the fourth quarter, we adjusted 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.BIO accounting 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 basis points higher than 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 3 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 items impacted the reported EBIT margin by DKK 576 million for the year. For the fourth quarter, the impact on the reported EBIT margin was DKK 202 million. In both periods, special items were entirely due to costs related to the combination with Chr. Hansen. Net profit amounted to slightly more than DKK 3 billion. 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 Albumedix benefited last year's performance. Also, the effective tax rate was higher in 2023 compared to '22. 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 invested average capital. The 16.5% for the year was right in the middle of the 16% to 17% that we had in our outlook since the beginning of the year. Free cash flow, excluding acquisitions, DKK 2.1 billion for the year and well within the anticipated DKK 1.8 billion to DKK 2.2 billion range. The realized amount was roughly DKK 1 billion higher compared to '22 mainly due to the expected lower net investments. Now please turn to Slide #10 for an update on the flow of events and communications regarding -- relating to Novonesis. Since December 12, '22, when we first announced our intention to combine with Chr. 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 Kerry Group as a buyer of part of the global lactase enzyme business. We registered with the Danish Business Authority on January 29, 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 of -- for Novonesis in the deal closing statement 3 days ago. I just wanted to recap it here briefly. We will issue Novozymes 2023 annual report next week on February 8. 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 31, 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 2 divisions, Food & Health and Planetary Health, to ensure better transparency compared to what you were used to for legacy Novozymes. We will provide revenue numbers for the 4 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 1 to December 31 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 30. Last, but not least, we're happy to announce that on June 18 we will host the Capital Markets Day in London where we will provide more color on Novonesis 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 Ester for wrap-up. Ester?

Thank you. Thank you, Rainer. Please turn to Slide #12. Thank you. Let me summarize our main messages today. We delivered solid performance in 2023, executing on all outlook parameters. The results for 2023 and the fourth quarter are additional proof points to the strength of our well-diversified portfolio and broad market exposure. This gives us comfort for the future. We reached a significant milestone by taking our Advanced Protein facility into operations late last year, and we are already shipping and selling products here in January. The work to close the combination with Chr. Hansen has completed, and we are now set stronger to accelerate the next area of biosolutions with the full power of Novonesis. Novonesis is the combination of best-in-class capabilities to deliver superior long- and short-term performance, including the execution of synergies. We will enable more and better biosolutions with the capability to deliver higher, sustainable and profitable growth. This will be to the benefit of customers, consumers, shareholders and the world we live in. And with those concluding remarks, we're now ready to open for questions. Operator, if you could please begin the Q&A session, we'd appreciate that. Thank you.

[Operator Instructions] The first question comes from Alex Jones with Bank of America.

Two, if I may. The first one, just on Food & Beverage. You talked about sort of Q4 being impacted by volatile order timing and destocking into year-end. Can you guys give us a bit of an idea how trends have changed, if at all, into Q1, whether growth has improved, volumes turned positive, would be very helpful. And then the second question, just on the integration. Perhaps, Ester, can you give us a bit of an idea in the first couple of months what your priorities are in terms of managing that integration and making sure it goes smoothly?

Excellent questions, Alex. I'll let Hannes give you the comfort of the underlying fundamentals of Food and the positive momentum moving forward. But I'll -- and then I will answer your question on integration with the main priority for not only the next couple of months, but also moving forward. So yes, we are in a place of extraordinary comfort and satisfaction of combining these 2 companies. And now the work -- the joy really begins. The main priorities for the near future, the first 100 days, it is internally people, people, people: ensuring our teams are aligned, ensuring we're putting the energy in the right direction, ensuring we continue precious care and attention to our customers and the rest of the organization rally to delivering the value added solutions and deliver on the expectations and moving firmly on the 6% to 8% growth that we committed to and also the 29% EBIT margin expectations for the first period. Then also spending time with customers, bringing the voice of Novonesis and the broader toolbox capabilities that we have as a value -- a stronger value enabler for our customers. We're getting an extraordinary level of traction here, and that's going to be a big area of component of my time. But then, Alex, please be reminded, it's okay, it's good that you asked me about my time, but it's everybody's, SLT. And the next -- the whole organization time, the one that is relevant: we are going to be focused on delivering to our commitments, continue to keep the house firmly on delivering up to expectations, focus on customers and then see implementation of the 22 streams that we have been working on how we extract the value of the synergies without dropping the ball and the precious attention to our customers. And Anders, leaving it up to you.

Thanks, Ester. And on sort of the year-end and what we have seen here in Q4, we saw some continued destocking. But maybe more importantly, we saw some inventory adjustments by some of our larger customers, especially in the baking area and with distributors. When we look towards next year, we believe that the food and beverage market will return to growth, but low single volume growth is what the anticipation is.

The next question comes from the line of Lars Topholm with Carnegie.

Congrats with the good quarter. A couple of questions on my side. One is on Bioenergy and the growth there, and I wonder if you can add some color to the growth you're seeing in the U.S. So what I'm interested in is in Q4 where underlying volumes grow 4%, how much faster does your U.S. business grow? And to the extent that growth is driven by increased penetration, which percentage of your customers have already taken on board that additional product offering? And for how long can you continue to increase penetration there? Then a second question to Rainer because I could read on Marketwire that you had stated growth in the second half of Q4 had been stronger than in the first half of Q4. I just wonder if you can add some comments to that.

Thank you, Lars. I'll let Tina bring further color on the drivers of growth, which is, yes, penetration. It's also value creation with unlimited -- unleashed potential from biosolutions that we are only starting to dip in and then pass the word to Rainer afterwards. So Tina, first?

Yes. Can you hear me?

Yes. Yes.

Very good. Very good. So North America in Q4, but also for the full year was the biggest contributor of growth. And I'm not going to -- and if you look at it, then Latin America was following that, given that Latin America, although getting to a decent size, it is a little -- smaller than -- or significantly smaller than North America, so therefore, the growth rate for Latin America was bigger. In terms of what were the growth drivers in North America, Lars, it is the growth drivers from penetration, from innovation, it is also from biodiesel. So there is a number of growth drivers. It's not one thing, which is driving the growth, it is, in fact, across the board. It is the fiber, it is the yeast, it is the traditional enzymes as well where we also have done some launches. So it's many things supporting the growth.

But Tina, I'm now wondering if there's anything suggesting this is a 2023 phenomenon and then this journey comes to an end? Or if you're just at the beginning of this journey or in the middle, what's the matter?

Yes. So Lars, what I would say is that it's a talk to, in the call, to the fundamental growth drivers and we see these moving ahead also into 2024. We do expect to outgrow the underlying volume market also in 2024, we also talked about that in the Q3. But the exact and how much and where we are is something which we'll have to come back with. But it's not so -- you shouldn't expect that this is going to come to a stop, but you also have to take into consideration that it becomes tougher as we get into 2024. So that's unfortunately where I have to leave it for now.

That's fair enough, Tina.

Good, Lars. And to your question, what I said on Marketwire was actually the second half of 2023 was stronger than the first half of 2023. So we basically...

Okay. That's not what the...

Unfortunately, probably was not translated the right way. I'm sorry about that.

Fantastic. No problem at all, Rainer.

Which is exactly what we -- I mean it's strongly consistent with what we projected, right? We came into the year knowing that we had one-offs in Food. On Q1, we came into a year knowing that the first half would be softer than the second half -- or the second half would be stronger, and that we have delivered according to expectations.

The next question comes from the line of Alex Sloane with Barclays.

I've got two, please. Firstly, I wondered, could you give us any color on how the input cost outlook is for [ Novonesis for ] and your confidence that the price increases that you've taken in '23 can prove sticky in this context? And then the second one is just a follow-up on the Food, Beverage & Human Health. I think you referenced an expectation of the [indiscernible] volume growth for '24. Is that right that you're talking about the market there? And would you expect to grow ahead of the market?

Excellent. Thank you, Alex. I'll give a little bit of color on the first question, [ chip in ] and put even more data and then Hannes to elaborate on Food. To your comments on the cost, yes, we're seeing the easing of the input cost and that will continue to be there. We're extremely pleased [ with gross margin ] expansion versus same quarter last year. It just feels so good to say that, gross margin expansion versus same quarter last year. And this is the collection of the fruit of a lot of work across many areas. Yes, it was easing of input cost and energy. Volume growth also, we saw volume growth in Q4 and productivity improvements that continue to contribute in the bottom line. And you would see those drivers then as a continuity moving forward. We feel -- we finished the year as expected [indiscernible] we would reach gross margin expansion on the year-end and that we're moving into the place of gross margin expansion. And we see all the underlying fundamentals, the pricing, the volume, the productivity, the pull from our solutions and then the lower cost has continued to be [indiscernible] please further build.

There's really not that much to add, Ester, to be honest. No, but we clearly see the easing of input cost, which would obviously be reflected going forward. And then keep in mind, the guidance, we keep -- we'll issue at the end of margin.

And on Food and Beverage, yes, it's important to stress that this market that is low single digit -- again, this is not an anticipation of where we expect to end the year. We have a lot going on in the Food & Beverage arena. We have a lot of innovation coming. We have best [indiscernible] technology. We have Lumista Gold in brewing. We have Vertera ProBite in plant-based. So we have a lot of underlying drivers for growth for next year. In addition to that, we expect pricing to continue to be a positive contributor. And then the agenda that's been on the table for many years is penetration in emerging markets. So when we say low single digits, it's the underlying sort of market volumes.

And Blair, maybe it will be -- I would be remiss if we would not add Blair. We just -- we started last year, our plant. And then we already have received the material in January with material being produced, material being shipped and sales contributing. And we're going to be seeing them as a contributor for this year.

The next question come from the line of Charles Eden with UBS.

A couple for me, please. Firstly, on the first shipment of the Advanced Protein Solutions in Blair that you mentioned occurred in January, can you confirm you still expect to deliver those within 5 years? And can you also provide any color on how you would expect to progress towards this target, i.e., relatively straight line, front end loaded, back end loaded? And I was wondering now it's formally started shipping, are you able to confirm the identity of the anchor customer formally? Secondly, on Household Care. You mentioned Q4 was driven by strong innovation and pricing. Are you able to identify -- or quantify rather the contribution from pricing within the 10% organic sales growth in Q4? Any pull forward from Q1 into Q4 and specifically in Household Care? And then, sorry, just to sneak another one in, just on the gross margin, following up on the last question, there's a comment in the release around a negative mix impact in Q4. Is that simply a comment referencing Household Care versus other divisions? Or has there also been a notable mix change within divisions?

That was long 2 questions, Charles, but maybe let me give you a short, short answer on the first one and Amy, please, to build [indiscernible] on the DKK 1 billion for the pipeline of protein. And no, we're not sharing the name of the anchor customer. And then Hannes will further build up on the Household Care. Maybe let me briefly answer also the question on the gross margin. As you know, the -- our -- all of our solutions have comparable margins across the whole envelope. That's the beauty of the total book that we're bringing in. But then with BioAg on OneHealth with higher gross margins, which we have seen softer in the second half. We have seen OneHealth stronger in the second half than we projected, but that recovery has been softer than the one that we were projecting leading then to a slight hinder on the gross margin overall. Amy?

Sure, yes, just to build on [ wanting to see ] our first shipment out the door to our anchor customer, indeed. I think the DKK 1 billion in 5 years, we still see that pipeline as we continue to build the new pipeline of proteins. It will be somewhat -- some degree of back end loading in terms of the phasing of that. And then the pipeline, as we've spoken about on previous calls, very much building that pipeline in taste and texture and also in the Health and Nutrition space.

And on Household Care, the impact of pricing in Q4 was similar to the average of [indiscernible] so that's not the main driver. The main is very strong innovation contribution, including Freshness for the quarter then we are seeing more wins on biological detergents, especially in the emerging markets that's also driving growth. And then, of course, pricing did contribute, but not in '23.

The next question comes from the Gunther Zechmann with Bernstein.

Could you just help us break down the 10% organic sales growth in Household Care, please? Any way to slice and dice that? How much of that comes from innovation you mentioned several times in the press release. Will that go through price/mix or volume mainly? And what was the underlying pricing in Household Care, please? And then secondly, could you just run us through what you see across the business lacking an explicit outlook for at least for the start of the year in January and insofar as your order book visibility is for [indiscernible]?

Could you just maybe repeat a little bit the second question? Sorry, Gunther it was not very clear to understand you.

Sure. If you could just run us through the business, what you've seen for the start of the year. I know you don't provide an explicit outlook for the full year yet, but what you're seeing and what your order book tells you for February or as far as your visibility goes.

Okay. Thank you. So the first question is no, we're not going to be able to provide you the information of the -- of how the year is starting. I can't tell you the demand. What we see in the market remains intact and remains very strong. We've seen destocking behind us in Food. We see the continued pull of our solutions across all segments. Hannes guide you before on the drivers on Food, on Health, on [ clean labor ]. We see the Blair and those material shipment. We see the pull for biosolutions on replacing fossil base. Pulls in Bioenergy, not only gasoline but also coming from new other potential solutions like SAF or biodiesel. We see the biomass coming in. We see the Grain picking up with also the destocking behind. And Household Care, beautiful growth coming from everything you said, from innovation, from pricing. Maybe it's a little lower than the rest of the business, but [ we saw ] those underlying drivers, we see them remaining intact. But we'll have to wait till March to come to you with a little bit more precise on how does it look like. Latest March, latest March. Thank you for the reminder. Latest March.

As a little bit more color, we communicated we did 4% across the business on pricing for the quarter. As Ester said, a little bit lower in Household Care. But if you look at the 2 other drivers that I mentioned, then I won't give you the exact number, but they're sort of fairly equally split that innovation delivers a significant part, including Freshness. And then the biological detergents product, [ I think that's to be ] our third. And then if you take sort of that, then you can get to the 10% on average.

The next question will come from the line of [indiscernible] .

All -- a few questions from my side. First of all, on Bioenergy, if you've seen the gross margins coming down, they are still positive though, I was just wondering whether you see this impacting your business in 2024? Or if that's only a problem if they become negative? And then the other question was regarding customers in Argentina. Maybe just tell us how big is Argentina roughly of the total sales? And if these provisions cover the main part of the problem? Or is there a risk that more comes from there?

Tina, if you could answer the question on Bioenergy and then, Rainer, please on the provisions. Do we still have Tina on the line or we lost her?

Am I on the line? Can you [indiscernible] yes, and also the year -- in the beginning of the year. And yes, we talked about the gross margin and inventories is important. However, you cannot make [indiscernible] without adding [indiscernible] for doing it. And [indiscernible] is also helping our customers improving that gross margin. Given the diversification, which we're enabling them to do [indiscernible] you get a bit of [indiscernible]. But I would say expect the fourth -- I mean, yes, the [ base ] is higher. Yes, it is looking at flattish [indiscernible] . We still see good movements we see on [indiscernible] and information.

Thank you, Tina. Rainer?

And really the DKK 40 million difference between the attributes of Argentina, it's more [indiscernible] to take into account [indiscernible].

Okay. So a big [indiscernible] to come?

No, no, no.

The next question come from the line of [indiscernible].

Just first on [indiscernible] EBIT margin into Q4 has increased. What is the actual figure just to make sure we [indiscernible] pricing for '24 [indiscernible] is it [indiscernible]?

Too early to talk about that [indiscernible] as a driver of our growth. At the time [indiscernible] [ 5% ] is we what we delivered this year, had an exceptional year. Price looked to be a contributor of growth [indiscernible] As usual, as we've always been saying, this is a company that's growing from volume, we're growing [indiscernible]. So you should expect pricing to continue to be the driver of growth [indiscernible] of volume and then [indiscernible] and not to mention for next year also with the ease of the raw materials. And Rainer, I will pass it to you to clarify.

So the underlying margin basically in Q4 is 26%. And for the whole year, it's 25.5%, so right on previous year level, underlying versus underlying. Does that clarify?

Next question please.

The next question comes from the line of Nicola Tang with BNP Paribas, please go ahead.

How quickly can you start to work on cross-selling in this area where, I guess, this was an area where there's overlap with Chr. Hansen, which could be addressed more quickly?

Thank you. Amy, please?

Yes, absolutely. So as you see [indiscernible] in Human Health stronger than the first half and then, again, the sequential quarterly growth Q4 versus Q3 versus Q2. I think, again, yes, slower than we had anticipated and that's basically just a slower recovery, particularly in the HCP channel where we had the CMO-related supply chain issues earlier in the year. And we see the momentum building, we see the business coming back, but it's just been slower than we had anticipated when we started on that journey. So that's really the key driver that we see. In terms of where we look going forward, strong momentum, strong market pull, continued strong relevance and dialogue with customers about the relevance of the solutions we bring. And yes, Nicola, excited as well about the sort of complementarity of the portfolio of products, but also of channels. When we look at the new Novonesis combination, and the ability to combine our innovation pipelines and bring that to market, I think you're -- we are focused and already active in the first 2 days of sort of starting to share and train sales teams across. So it's still too early to give any view of when we'll see those synergies coming in, but really excited about the potential that the complementarity of the portfolios. And maybe just one other comment in addition to that complementarity, also that we can leverage the strength of the engine room, the end-to-end value chain from the legacy Chr. Hansen organization to really smooth our ability to deliver on the underlying growth potential that we see in the business.

The next question comes from Sebastian Bray with Berenberg.

I have three, please. The first is on the contribution of 2G bioethanol to growth in '23 and potentially in '24. Is Novozyme the effectively the sole supplier in this market? I can't find any other enzyme producers that are offering 2G solutions at this stage, for the first one. The second is on Household Care, given the acceleration in growth in 2023 Q4. Relative to prepandemic developed markets volume levels, has there been any growth in developed markets since 2019, pardon me, in volume terms? My last one is on energy. Are the hedges for energy for 2024 now concluded?

Thank you, Sebastian. And then I'll pass the very good questions to Tina, Hannes and then Rainer on hedging. Maybe Tina, if you want to start with also Bioenergy.

Can you hear me?

Yes.

Yes, indeed.

Perfect. So 2G or biomass is below 5% of the segment. And Sebastian, we are quite pleased with where we are. It has been, you could say, a long road in the biomass industry and we are happy with that. We've stayed focused on it and is ready to support the market because, as you say, it is a building industry and it is, from the inside, doesn't, you could say, much other out there. But less than 5% of the segment.

Hannes?

Yes. And on volumes in Household Care, it's been super volatile in the period through COVID. So you may remember that we had a lot -- we had a spike in 2020 because of this hygiene scare then we had a decline in '21. A little bit more stabilization in '23, and then we saw quite some decline, especially in Europe and North America in '23. So I haven't done the full math of every 4 years on the averages, but I think we're actually basically quite flat. And the growth that we are seeing right now is not driven by underlying market volume growth. It's driven by the innovations that we deliver, and it's driven by the sustainability agenda and where we are able to argue for actually an alternative way of doing laundry through biological means, that's the driver of growth.

And coming to the hedging, basically more than 2/3 of 2024 actually we are already hedging. We're also looking even beyond that. So there, we're in good shape overall as a risk mitigation and strategy.

The last question comes from the line of André Thormann with Danske Bank.

I'll just stick to one question here. In terms of Freshness, then can you maybe give some flavor on how much are you selling of this solution currently in DKK? And do you still expect this above DKK 1 billion in [ 2028 ]?

Hannes?

So as we said, innovation is a significant part of what we see right now in Household Care. Freshness is a part of that and actually a significant part. We're not giving you sort of a detail on where we are in the journey. What is important is that on the path towards the DKK 1 billion, we need to find a way to unlock the North American market and we don't have a solution, that we have a clear time line. We have a lot of efforts going into it from an R&D perspective, but that is the unlock on that journey. And of course, by the time we have more confidence in that on timing, we will let you know.

Thank you. And thank you all for your time calling in. Thank you also to the legacy Novozymes SLT for calling in. Some of us around the globe, as you see already, focusing on customers and bringing the voice of Novonesis. Very good year. We are in a really good place, in a place of comfort for unleashing the potential of biosolutions, showing the world that the era of biosolutions has started and delivering on the expectations and the commitments that we put in place. More to come before the end, March. And then I'm looking forward also for the dialogue with each of you in the next coming days. Thank you.