Earnings Call: Q2 2021

Aug 12, 2021

Welcome to the Novozymes First Half twenty twenty one Conference Call. Throughout the call, all participants will be on listen only mode, so there's no need to mute your own individual lines. And afterwards, there'll be a question and answer session. Today, I am pleased to present Tobias Cornelius Bjorklund, Head of Investor Relations. Please begin your meeting. Thank you, operator, and welcome, everyone. As stated, my name is Tobias Bjerklund, and I'm the Head of Investor Relations here at Novozymes. At this call, our CEO, Sergey and our CFO, Lars Green, will review our performance for the first half of twenty twenty one as well as the outlook for the full year. Also present at this call are Tina Feiner, EVP, Agriculture and Industrial Biosolutions Amy Bayrick, EVP, Strategy and Business Transformation Anders Lund, EVP, Consumer Biosolutions and Claus Fulsang, CSO, EVP of Research and Development. The entire call will take about 60 minutes, including time for will be conducting a question and answer session. Before we begin, 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 will differ materially from those described in any forward looking statements. By that, I'll now hand you over to our CEO, Esther Bashir. Esther, please. Thank you. Thank you, Tobias, and thank you all for calling in. Please turn to Slide 2. And before we dive into our first half and participants, I would like to ask Amy and Lars to put a few words to the just recently announced and very exciting investment in Advanced Protein Solutions. In addition to being a very strong business case, the deal is also an important milestone in the execution of Novozymes' strategy, better business with biology. Amy, please. Thank you, Esther. The world faces an ever increasing challenge of how to feed a growing population within the limitations of our risk boundaries. The increasing consumption of plant based foods is the single biggest change in the food and beverage industry since the industrialization of food chains. Have been working on. At Novozymes, we established the advanced protein solutions as a strategic opportunity area 2 years ago and have been working to develop business models and products which leverage our biotechnology capabilities to play a role in the alternative protein revolution. The global demand for protein is expected to double by 2,050, with plant based meat increasing from only 1% are expected to be between 2% and 5% penetration by volume already by 2025. This investment follows the agreement by Novozymes to enter into a long term contract with an anchor customer and key player in the plant based industry and delivers on Novozymes' stated purpose of creating better lives in a growing world are by feeding the world sustainably. Due to competitive reasons, we're unable to disclose the name of the customer or specific contracts details, but I'm very excited about this opportunity and the milestone it marks as our 1st large scale commercial agreement and investment on our strategic journey to be a leader in novel proteins. After the short introduction, I'll ask Lars to go over the financials of the investment. Lars? Thank you, Amy, and hello to all of you. The long term contract we have just entered is an attractive opportunity and a strong business case with excellent growth prospects and high returns, supporting the long term shareholder value creation at Novoscience. In order to meet the growing demand for plant based solutions, Novoscience has committed to invest DKK 2,000,000,000 in a new state of the art production line at our existing manufacturing site in Blair, Nebraska in the United States. The construction will start very soon, and we anticipate the facility to be completed before the end of 2023. While the majority of the investment activities are planned for 2022 and 'twenty three, approximately DKK 300,000,000 is expected in 2021. This has been reflected in our full year expectations for net investments and the outlook for free cash flow before acquisitions. The investment is forecasted to support Novozymes' long term growth ambitions from 2024 and onwards And is expected to be accretive to the EBIT margin, ROIC including goodwill and earnings per share from 2025. During the construction phase and ramp up of the facility that takes place between 2022 2024, the investment is projected to have a modest negative impact on EBIT margin and a negative impact on both ROIC including goodwill and free cash flow due to the CapEx investment. Within 5 years from commencing production, Novozyme's total strategic opportunity area of Advanced Protein Solutions is expected to reach at least DKK 1,000,000,000 in annual revenue. With that, I'll hand back to Esther for a review of our first half performance. Esther, please. Thank you. Thank you, Lars. Are very exciting project indeed. And now let's go back to the first half and second quarter performance. We have had a very good start to the year with 6% organic sales growth in the first half and 9% in the second quarter. The good sales performance is also reflected on our earnings number. We delivered a strong EBIT margin, a strong ROIC, including goodwill and a strong and a solid free cash flow. Sales in both the second quarter and in the first half as a whole were driven by double digit growth in Grain and Tech and Processing, Bioenergy and Food and Beverages and Human Health. Sales in Household Care and in Agricultural, Animal Health and Nutrition declined as expected as both businesses areas faced difficult competitors. In light of the good first half results, we are narrowing the 2021 outlook for organic sales growth upwards reached 4% to 6%, with all business areas expected to grow. The updated sales outlook remains subject to COVID-nineteen related uncertainties and assumes some destocking in the second half of the year. We're also updating the full year outlook for the EBIT margin and ROIC including goodwill. When it comes to innovation, we've launched 6 products so far this year, including 3 in the Q2, of which 2 went Biofuels and 1 was in Human Health. And with that, let's now review each of the 5 businesses areas in more detail, and let's start with Household Care. Could you please turn into Slide number 3? Thank you. Sales in Household Care declined 2% organically in the first half, as expected. Growth from the rollout of the Freshness platform and increased market penetration in emerging markets, they weren't enough to overcome the high comparator following the last year COVID-nineteen and related surcharge. Sales in the 2nd quarter declined 6%. This was in line with expectations driven by destocking and came on top have a high comparator from the Q2 last year. Our partnership with Givaudan is progressing well and has had a very good and productive start. In the Q2, we filed for the 1st joint IP and we also celebrated multiple joint customer wins. Looking ahead for the year, we will continue to focus on penetrating the emerging markets. The freshness platform will continue to grow with a broad market launch just around the corner. And we will continue to enable Home Care solutions in collaboration with our customers and our partners. In summary, we maintained the full year expectation for low single digit growth. Please turn to Slide number 4. Food, beverages and human health performed very well and grew by 14% organically in the first half. The strong growth was broad based across super areas and regions, and it exceeded expectations partly due to higher than expected consumer demand and also by stock building. Human Health grew double digit and performed well, which was in line with expectations and we are very, very pleased with the good performance we see in this promising area. In the Q2, performance was strong and sales grew 18% organically. Growth came on top of a softer competitor and included also the positive timing effects. Performance was are especially strong with our health focused solutions in dairy and plant based proteins. The integration of our recently acquired human health assets is going very well. And as an example of the combined R and D strengths, we just launched a new product, Alpharex Immune. Have a very strong start to the year. Are following better than expected first half, the full year expectation for Food, Beverages and Human Health is increased. We now estimate the business to grow organically in the high single digits, including a negative effect from destocking in the second half. Growth is expecting to be broad based across sub areas and across regions. In the Food Business, Innovation and emerging market penetration as well as an increased consumer health focus remain the key drivers of growth. Beverages is expected to grow from a gradual recovery in brewing growing last year, which was severely affected by COVID-nineteen restrictions. And Human Health is estimated to grow organically in the double digits, driven by innovation and driven by cross selling. Could you please turn into Slide 5? Thank you. Organic sales in Bioenergy grew 16% in the first half. Although still below the pre pandemic levels, U. S. Ethanol production continued to improve and ended significantly higher than last year. To recovery in the U. S. Production and continued capacity expansion in Latin America, these 2 were the 2 main growth drivers behind the strong start of the year. U. S. Ethanol production in the Q2 grew significantly year on year as production in the Q2 of last year was severely impacted by the first wave of COVID-nineteen restrictions. This rebound was naturally also as the main growth driver behind the 54% sales growth in our Bioenergy business in the Q2. The very strong growth also benefited from positive developments outside in U. S, led by strong growth in Latin America. In the second quarter, we further strengthened our broad and market leading offering to ethanol producers with 2 launch of new solutions, improving both ethanol and corn on yields with better process robustness. For the full year, we expect sales in Bioenergy to grow at mid to high single digit, being driven by the gradual recovery in U. S. Ethanol production, The continued capacity expansion of corn based ethanol production in Latin America and market penetration supported by innovation. Please turn into Slide number 6. Thank you. First half sales in Grain and Tech Processing grew 7 16% organically. This was above expectations, mainly due to customer stock building. The strong performance was driven by growth across most of areas led by starch processing, vegetable oil processing as well as the recovery in textile and sales of diagnostic enzymes for COVID test kits. Sales grew 18% organically in the 2nd quarter. The performance was amplified by stock building but also driven by growth still an increased market penetration in vegetable oil processing. For the full year, we expect sales to grow at mid single digits with growth across most of areas. Growth in Grain will be driven by innovation and market penetration. On the recovery in the global textile industry will be a key contributor to growth in text. Performance in the second half is expected to moderate as the competitor becomes more difficult and we expect negative effect from destocking. And please turn now into Slide 7. Agricultural, Animal Health and Nutrition sales declined 9% organically in the first half of twenty twenty one. The decline was expected and due to negative base effects from the roughly DKK 60,000,000 one off related for to the former BioAg setup in Q2 2020, also as well as stockpiling in Animal Nutrition in the first half of last year. And innovations such as Valencios and Product 360 performed well in the market. Sales in the business area declined 19% organically in the 2nd quarter, mainly due to the previously mentioned buyer one off, sale and sales in Animal Health and Nutrition declined against stockpiling inflated comparator. However, this decline was less than expected as in market demand improved. Our outlook for 2021 has been upgraded slightly to low single digit growth from previously to flat to low single digit growth. Agricultural business is expected to be the main contributor to the full year growth performance. Adjusted for the 2020 one off, we expect double digit growth in agricultural driven by expansion across crops and regions. Sales in Animal Health and Nutrition is expected to grow slightly following somewhat better than expected performance in the first half of the year. And with that, I will now hand over to Lars for a look on the financials. Lars, please. Thank you, Esther. Please turn to Slide 8. Sales in the 1st 6 months of the year grew 6% organically and by 3% in reported Danish kroner. This includes a 5 percentage points headwind from currencies and a 2 percentage points contribution from M and A. The gross margin in both the first half and in the second quarter was very strong. The margin expansions for both periods were mainly driven by higher production efficiency and productivity improvements, but was also supported by timing effects and a minor benefit from acquisitions. Year on year currencies impacted both periods somewhat negatively. The reported EBIT margin was strong at 28.6%, 110 basis points above the margin in the first half of last year. The development was driven by gross margin expansion and an increase in other operating income. This was partly offset by higher operating costs, currency headwinds and the inclusion of the 2 Human Health acquisitions. The 2nd quarter EBIT margin was also strong at 27.7 percent corresponding to 180 basis points increase compared to the last year And mainly explained by the same factors as for the first half. Adjusted for one offs, year on year currency developments and M and A related effects, the The EBIT margin for the first half of twenty twenty one was roughly 29%, and this was around 2 percentage points above the roughly 27% adjusted EBIT margin for the first half of twenty twenty. The adjusted EBIT margin in the Q2 of 2021 was roughly 28%, are around 3 percentage points above the adjusted EBIT margin or roughly 25% for the Q2 of 2020. The adjusted EBIT margin developments in the first half and in the second quarter were driven by an improved gross margin from operational leverage and timing effects. This was partly offset by higher operating costs. Free cash flow, excluding acquisitions, was solid at DKK 1,800,000,000 in the first half and DKK 1,100,000,000 in the 2nd quarter. This was slightly below last year, where the cash flow benefited from the one off settlement related to the former BioAg setup and the COVID-nineteen related postponement of certain tax payments in Denmark. The return on invested capital, including goodwill, was 22.2% in the first half of twenty twenty one and 20.3% in the second quarter. This was 2.9 and 3.1 percentage points higher, respectively, than in the same periods of 2020. Both the first half and the second quarter improvements were due to higher net operating profit after tax, which more than offset an increase in average invested capital following the 2 Human Health acquisitions. Please turn to Slide 9 for the 2021 outlook. Although uncertainty related to the pandemic remains and we still expect to see some customer destocking in the second half, We are narrowing our outlook range for organic sales growth upwards to 4% to 6% and for the EBIT margin to around 26%. We also raised the outlook for ROIC, including goodwill, to 19% to 20%. Organic sales are expected to grow by 4% to 6% in 2021, will all business areas contributing. Growth will be driven by innovation, a stronger commercial presence and execution as well as continued recovery of COVID-nineteen affected markets. Sales in reported Danish kroner, net of currency and M and A related effects, are expected to be slightly less than 1 percentage points lower than the organic sales growth. The EBIT margin outlook of around 26% includes a negative year on year impact from currencies of roughly 1 percentage point and approximately a 1 percentage point negative impact from acquisitions. The M and A effect is attributable to amortization and integration costs, and the currency headwind is expected to derive mainly from the U. S. Dollar. We expect second half margin to benefit somewhat less from operational leverage, and we'll run maintenance programs for selected production facilities. The margin will benefit from sales growth and productivity improvements, while higher raw material and freight costs in the second half as well as continued commercial investments will impact the margin negatively. Adjusted for year on year currency developments and M and A related effects, The expected EBIT margin for 2021 is around 28%, supported by the net positive one offs recognized in the Q1. The outlook for the return on invested capital, including goodwill, is raised to between 19% 20% and includes negative currency and M and A related effects totaling roughly 2 percentage points year on year. The free cash flow before acquisitions is expected at DKK 2 DKK0.5 billion to DKK2.9 billion, supported by higher sales and an improved operating cash flow. While the underlying free cash flow outlook is increased, it now also includes the roughly DKK 300,000,000 investment in the new production line in Blair. With this, I'll hand back to Esther for a wrap up before we open up for questions. Esther, please. Thank you. Thank you, Lars. Please turn to Slide 10. We delivered a very satisfactory set of results for the first half of the year in Advanced Protein Solutions. We are upgrading our full year outlook for organic sales to 4% to 6%, the EBIT margin to around 26 percent ROIC, including goodwill, to 19% to 20% and free cash flow before acquisitions to 2.5 to 2.9. Some of you might recall that after the full year conference call, we mentioned have 4 progress areas for 2021 to allow you to follow our strategy execution from a different angle. 1 of those deliverables was to engage in at least 3 large commercial or R and D collaborations during 2021. Through the long term agreement with a key leader in the plant based industry and the previously announced partnership with FMC, we have already reached 2 of the 3 engagements we set to achieve during the year as a whole. The second deliverable was on innovation, which is fundamental to who we are. Halfway into the year, more than 30% of our sales have come through solutions launched during the last 5 years, which is in line with what we are aiming for. The 3rd deliverable regards digitalization as an indicator of our progress to reach more customers. We have generated more than 50% of our sales leads digitally so far this year. This is also well aligned with the 50% ambition we set at the beginning of the year. And finally, The world is in dire need for sustainable solutions. This was highlighted mostly recently in the United Nations report on climate change. And we want to be strong voice of the global stage. And we have pushed this agenda at several events, including the World Economic Forwarding and at the UN Global Compact Leaders. Finally, before we move to the Q and A session, I want to remind everybody about our coming Capital Markets Day on September 28. We wanted to maintain Pearson, but unfortunately, the recent resurgence of the pandemic and continued travel restrictions around the world has not made that possible. The event will instead be run fully virtual out here from here, from Denmark. Novozymes has a stronger foundation today, thanks to better business with biology strategy. We have implemented a strict portfolio logic across the business, focused on our R and D pipeline and streamlined organization to get even closer to our customers. And we look forward to further outline our next steps and strategic priorities on how we continue to drive have a strong financial performance. Let that be the final words before we start the Q and A. Operator, please begin. Thank you. We have a few questions in the queue. The first is from the line of Michael Novod at Nordea Markets. And a few questions. So first of all, to and Advanced Protein Solutions, when you sort of start to produce, how do you expect sales to ramp towards the €1,000,000,000 and potentially more than €1,000,000,000 is that sort of a gradual sales? Or with this anchor on board, do you then expect it to be a more swift ramp towards the SEK 5,000,000,000 the SEK 1,000,000,000? And then secondly, on COVID testing, can you try to quantify how much it actually makes up of your second quarter numbers? And then lastly, on the Household Care business, you did see some destocking in the quarter. How do you see this going forward with the big soapers? Are they sort of done in adjusting their inventories? And do you have any signs that they are either more are bullish on the future or bearish on the future in terms of return to normal pre pandemic levels around the cleaning, hygiene focus, etcetera. Thank you. I would ask Lars to answer the to give guidance on the ramp up of the sales on proteins. And then, Tina, if you could take the question on COVID testing. And please, Hannes, on the impact of destocking on Household Care. Thank you. Yes. Thanks, Michael, for that question. So standing here in 2021, it's a little too early To give very precise guidance on how that potential is going to ramp up over that period. So what we wanted to give you some clarity Jan, is that once we have completed the construction of this facility, then we believe that within those first five years of operations, we can generate in the area of Advanced Protein Solutions sales of at least $1,000,000,000 So I think this is as precise as we can be at this stage, but we wanted to give you comfort that there was also a return waiting after investing CHF 2,000,000,000 over the next couple of years. So that's the level of detail that we can provide at this stage. Okay. And on the COVID testing, So it's reported under the Grain and Tech Processing segment. And in the Grain and Tech Processing, roughly twothree is In grain and onethree is in the tech part. And the biggest, biggest part of the tech part is in textile. So it is a minor number you're looking at, Michael. So it's less than the Okay. Yes. Good. Less than what? You want it? It's less than way less than 10%. I was about to say something. Yes. It's way less than 10%. Just a few perspective on Household Care. Q1 was stronger than expected, and we called out that we expected some destocking in the Q2 that has happened. We believe that we are through most of the destocking we have in Household Care. We are on our plan. I think that's important to stress. And we also maintain the guidance we have in Household Care, but it's also clear to say that there is volatility in the business. And that means that the full range from 1% to 3% is in play. I think if I look at the largest risk areas, then there is still supply chain challenges in the market. We see chemical prices there going up, And that is a short term risk. And then, of course, what we can speculate in terms of what's happening on the COVID agenda is also going to put at least some volatility to in terms of destocking, again, I think not only are we done with the large ones, I think that goes for everyone, But we did see elevated cleaning levels in 2020. Those have come down, and you also see that in our numbers in the first half. But we expect that, that will sort of probably normalize to more closer to 2019 levels as we go forward. Are welcome. Thanks a lot. Thank you. And our next question comes from the line of Surin Samsel of SEB. Please go ahead. Your line is open. Thank you. Hello, everyone. I hope you can hear me. I had a question regarding the EBIT margin for the second half. In first half, you have a margin above 28%. Guidance indicates that it should be below 24% in the second half. You mentioned, as I can see it, five reasons, Higher raw material prices, higher freight costs, M and A effect, currency effect and then reinvestments, those five reasons, could you try to quantify the effect in the second half for each of them, please? Lars, could you please answer? Yes. So first of all, just reminding you that the first half EBIT margin was also impacted by one offs that we realized in the Q1. So that's a small percent that we have of contribution in So as you point out, to get to around 26% on average for the year, that gives us a second half That is just below 24%. And what will bring us there is that the gross margin in the first half year was, 1st of all, supported by very strong leverage from the sales growth. We see a bit less sales growth in The second half and a bit less leverage on the gross margin from that effect. The input costs and the freight costs that started to increase in the beginning of the year, they are now sort of they are now a test, so to speak, to the product we start selling here in the second half, so we will see the gross margin also being negatively impacted by those. And maybe that's 2% to 3% in total On the gross margin that we expect second half will be lower than first half. And then operational expenses is the residual 1% to 2%. I think if you look at the first half, we have we are executing on the investment plan that we have sort of put forward. But unfortunately, the world has not yet allowed us to sort of fully travel and entertain customers and engagements with customers. So we do see an increase in activity level also in the second half. And then finally, I'll just remind you also Looking at quarters and not the full year, that is associated with some volatility. And so what I would encourage you to sort of focus more posed to, you can say, just small variations can have sort of a sizable impact. But those are the factors that will bring the EBIT margin below 26% in the second half And to a 26% on average for the year. Okay. That's helpful. But some follow ups on that. First of all, you mentioned new products or other products you will sell in second half that will have a negative impact to gross margin. Maybe you can elaborate what products are we talking about? Secondly, can you tell us whether there will be more PPA effects from acquisitions in the second half versus the first half? And if yes, how much is that? And finally, if you can indicate what is the sort of you normally talk about the effect from productivity improvements every year, is it still around mid single digits? Is that the level we are talking about? That's what you talked about in the past, I guess, when you are growing mid single digit. Thank you. Yes. So I don't think I mentioned new product size. I think what I said is that The total leverage from our total sales will be less in the second half than it was in the first half. So it was not related to any particular product, but rather the overall will leverage from our total volumes. So on PPA, I mean, once we have sort of closed The acquisition, we do a purchase price allocation, as you say, and that involves an amortization of intangible assets. That's a linear of assets, that's a linear amortization. So that will be the same quarter by quarter. There is no difference in that contribution there. I think maybe just a little nuance. As we also said, the gross margin in the Q1 was, to a little extent, also impacted by the acquired businesses. So actually, we have solid gross margins from Products coming with the acquired entities. So that's, of course, also continuing in the second half and built into this. So just a little flavor on that. And then finally, yes, we are still seeing the same level of productivity improvements in our facilities. So there is no change in that speed, and we foresee also that we're going forward. We'll be able to continue to deliver productivity improvements in our facilities this year year by year. Okay. Thank you very much. Okay. Our next question comes from the line of Michele Tang at Exane BNP Paribas. Please go ahead. Your line is open. Hi, everyone. Thanks for taking my questions. The first was on Food and Beverage and just sort of shorter term. Is there any way to kind of either quantify the stocking impact that you saw in Q2 or just talk a little bit about how you expect those destocking to play out in the second half. And I think you mentioned this customer raw material optimization. Can you just explain a bit what was going on? And is that something that was just in Q2? Or And will we see that for the rest of the year? And then the second sort of set of questions, I guess, were on the advanced Protein side. And the first one is just a basic question. Can you explain a bit what your offering is here? Is it the benefits of having an integrated solutions approach, which is a bit different from what you're offering. So can you explain a little bit Your unique position and your product offering. And then just a final one, is the agreement with the anchor customer, is this an exclusive relationship? So when we think about that sort of DKK 1,000,000,000 sales target are on a 5 year view. Is that mainly focused with your anchor customer? Or is that assuming sort of other wins as well? Thanks a lot. Thank you, Nicolas. I will let Hannes go deeper and elaborate on the question regarding food and beverages. And then please, Amy, We can bring color on the perspective on advanced proteins. Thank you. So when we call out the stocking effect that we expect that will happen in the second half of this year, then it relates to basically all our businesses performing really, really well. So baking continues to be strong. Beverages is, of course, growing on a soft base and then food and protein also delivering very, very high growth. And when we then compare to how our customers and the demand in the market, then we are seeing that our performance is substantially higher. And also when we compare to other food companies, then Again, we are coming out stronger. And that means that also when we talk to customers, they are saying that they are building higher stock levels. And from that perspective, we have called out that we expect some of that to level off in the second half of this year. So we'll see some leveling. It's difficult to say how much. We expect half of the growth that we have in Food and Beverage to be sort of sustainable and good performance. And the other half is probably something where we do expect a significant part of that relates to stocking effects, but also to the effects that you called out on commodity prices. Small segments in our food and beverage businesses can be replaced by chemistry, more vitamins versus enzymes. And we see that in some pockets that especially on our baking business where we can replace vitamin C. And when vitamin C prices are very high, we see sort of a higher growth rates in that segment. We have a number of those. And if you want more details around it, we can take you through. All of them are sort of relatively small. But of course, when you total it all up, it actually starts to become meaningful. Sure. And then, Nicole, on your question on the plant based focus. I mean, the focus of our advanced protein solutions is really to apply our expertise in manufacturing fermentation derived proteins and really expanding that more in the application area into the protein based food ingredients. So making sure we're really leveraging our core competence and expanding that into a new area. We have a portfolio of product development initiatives within this Advanced Protein Solutions SOA. You talked about the question on integrated solutions versus ingredients. Our focus again is really trying to stay are true to the core of our biotech capabilities and expanding that into this space. So our focus is on protein based food ingredients made by fermentation, but then applying that into areas where we can bring sensorial, nutritional, health benefits, As well as potentially into novel solutions for our customers where we combine, some of our food and beverage enzymes with a broader pipeline of of protein products, so really trying to stay true to that core and leveraging our biotechnology from a strategic perspective. In terms of your question on the specific customer relationship, obviously, we can't give details on the contract. But again, the numbers that we've disclosed in here are linked to our SOA, including sort of this relationship as well as our SOA pipeline of product development, in the future. That's great. Thanks so much. Thank you. And our next question comes from the line of Alexander Jones at Bank of America. Please go ahead. Your line is open. Great. Thanks very much. Good morning. I've got have 3 questions, please. The first on Grain and Tech, if you could just talk a little bit about the sort of second half outlook there. I think the implied guidance is negative. So if there's anything there apart from stock building that we are expecting, that would be helpful. The second one is a wider should on stock building, whether you've started to see any reversal of that so far in the Q3 or whether it's still something that You're waiting customers to show in their behavior. And then the final one, just following up on the protein point. Could you give us a bit more color around The DKK 1,000,000,000 number in terms of what market growth or market size that's expecting by are sort of the end of this decade. That would be great. Thank you. Thank you. The question of the stock building, probably at corporate level. So let me maybe build elaborate on that. If you recall, we mentioned and we described in our previous quarter that we were seeing stock build up as one of the drivers of the growth that we saw in the quarter and we have seen some destocking in Household Care that as expected, and that's part of the driver of the results that we have seen during the quarter. We have not seen that destocking happening yet in the food space, and that's probably one of the reasons why we are outgrowing the market. It's a lot of self help in Food and Beverages, a lot of the penetration of our innovation, the growth in emerging markets and also the recovery of some segments that we saw easing last year because of COVID. So self care market, but also stock buildup that we're expecting the downside or the destocking at the second half of the year. With that, I will ask Tina to follow-up on the outlook on Grain and Tech. And then Amy, if you can build up on plant based proteins again. Thank you. Yes, with pleasure. So if we look at the Grain and Tech, then we saw hardly any destocking here so far. So that means That all destocking, which we expect, will come in the second half. So that's clearly an element, as you also are stating in the question. But also, we see some textile volatility. As we talked about before with a question from Michael, this is a quite diverse segment consisting both of grain and tech And also including textile. And we are seeing that our performance is surpassing that, what we hear from the big retailers like H and M and so forth. So there are some stocking in the supply chain, and that's also why we expect some textile volatility. Also, we talked about the COVID testings. So COVID testings are going down, which also leads to less. So that's also an element of that segment. And last but not least, you have to remember the comparisons. So in first half of 'twenty, we grew minus 3%, if you can Say it that way, minus 3% in first half 'twenty, while in second half, it was plus 2%. So therefore, the comparisons will be tougher For the second half. So these are the elements leading to the performance in Crane and Tek. And over to you, Amy. Super, thanks. So regarding the overall market size, and I'll just watch, I'm going to be speaking in dollars here rather than krona. If we look at if we start with plant based meat, the actual meat industry today globally is about a 1,000,000,000,000 Dollar Industry. So if we look at sort of the current penetration of about 1%, that leads us it's a roughly US10 $1,000,000,000 business today. That's been growing in about 46% growth rate. It was the single highest growth category in the U. S. In the last year and is expected to continue to grow 30% plus in the years to come. And so that's where, you know, where we've seen increasing the penetration of the $1,000,000,000,000 global meat market with plant based increasing 2% to 5% already by 2025. And then broader, the plant based dairy market, which is even more mature than the plant based meat, where we already have about a 10% penetration or not we, sort of the plant based has a 10% penetration of the dairy market today, and that's estimated to be about a global market size of about $20,000,000,000 And maybe building on your specific question on Q3. As you know, we don't comment on the Q3 results so far, so you'll have to wait until will go through the earnings release of that. Great. Thank you. Thank you. Our next question comes from the line of Sebastian Bray at Berenberg Bank. Please go ahead. Your line is open. Hello. Good morning and thank you for taking my questions. I would have 2, please. I'd like to come back to this point on Advanced Protein Solutions. If on a DKK2 billion investment, there is going to be no ROIC dilution to the group level of around 20%, It would imply that this facility needs to generate €400,000,000 or so of EBIT, which on €1,000,000,000 or slightly more sales would be close to 40% EBIT margins. What exactly is it that Novozymes is doing, which is so sophisticated hear that it is able to achieve this margin. Is it just taking soy and pea protein and processing it into a more palatable form? Is there something special going on with heme? Could you give us a sense of, number 1, if this reasoning is correct? And number 2, what exactly Novozymes are doing here. Is it just taking plant protein and making it more palatable or something else? My second question is a technical one on the other operating income. Could you remind me if the pharma related royalty income is recurring in the sense that we'll see it in 2022, 2023 and so on or if this is just a series of payments that terminate at some stage. Thank you. Thank you. I'll cover a little bit the First part of your question and then I'll pass it to Lars. We don't call ourselves a sophisticated company. We call us as a science based company who brings Biological solutions to answer society needs and plant based proteins, it is a key pressing need for the society, a growing world with a growing population, where nutrition and how to fill the world sustainably is one of the most pressing challenges we're facing today. We're covering that through many different angles, through bio ag, through animal feed and health through food and beverages. And now with the step ahead, we're making in Advanced Proteins, we're also bringing in our toolbox fermented novel proteins are for the plant based segment. As Amy said, we're not covering the specifics, contract details of a customer. We've never done that, and we're going to continue are honoring what is in the confidentiality agreement. And Lars, I'll pass it to you. Thank you. Yes. So I'll just refer to the guidance that we have given on the financial implications of this agreement here in our announcement of this morning. And so we do see this business opportunity be accretive to our EBIT margin, so above our current levels of 26% for this year. So that's, of course, how we arrive at the opportunity to also become accretive to our RIC In the when we are fully up and running. And so that's how the mathematics work. So we cannot disclose, you can say, that the details of where we are in this supply chain and how this works specifically for this particular contracts, but you are sort of inferred calculations are obviously sort of also what is behind our Guidance for the financials once up and running. And yes, there was a question also. I'm just reminded here by my colleagues, sorry, on the other ordinary income. And so the pharma related royalty income we had in the Q1, that was a one off. So it is not recurring, and you should not expect it will be repeated in 2022. Let's go into our last question, please. Thank you. That comes from the line of Lars Topham of Carnegie. Please go ahead. Your line is open. Thank you. Congrats with great results and thank you very much for a quarterly cash flow statement. First time in 20 years, really went on. One question goes to your probiotic acquisitions because a couple of your peers have struggle a bit to grow in probiotics for humans. So I just wonder if you can put some comments on the performance of those 2 companies? Thanks. Hannes, could you take this one? Thanks, Lars. So the performance we have on probiotics remain intact and they're strong and we're delivering good double digits. Maybe one thing to think about is that our business is actually set up in a slightly different way. So a lot of our growth is coming through sort of a different channel, which is health care practitioners. And here we are seeing that we are not as impacted as some of the Other players in the industry that are sort of more broad based in with bigger brands. So I think from that perspective, that's probably the major difference between what you see in our strong numbers and what you see in sort of the broad market. And then I have an additional question, which really goes to the product mix Because the different business areas contribute slightly different to sales compared to what the picture usually is. So I just wonder if you can put some words on, for example, being very strong in food, beverage, etcetera, it drags margins up are if all that is largely neutral. Thanks. Yes. So The margins we have on our different industries are more similar than maybe one should assume. So I don't think there is a significant impact or there is no significant impact from the product mix we have in this half year. And it's basically related to the fact that our facilities that produce Our enzymes and microbes, they are sort of fully fledged. They produce for different industries, so it's the same facilities across. So for that reason, we also have similar sort of productivity for different product lines. So no significant difference are following the product mix we have in this quarter. We have a little bit more time. Thank you very much, Hen. Thank you, Lars. Do we have time for one more last question, please? That's from the line of Gunther Sejtman of Bernstein, please go ahead. Your line is open. Hi, good morning. Thanks for squeezing me in. Just one overarching question on the destocking that you expect to could you help us disentangle how much of the growth you expect in the second half on relatively easy comparables It's underlying. And if you could rank order the divisional destocking of hardly any division you don't talk about destocking. So you've given us a good idea already about the timing of it and how much you already have seen. But could you rank order the divisions of how much we should expect in the second half because the guidance at the midpoint looks relatively low given the comparables from last year. And then on the bioethanol business, that's one area where you have outgrown the end market very strongly in Q2, More than 10 percentage points. So is that sustainable? Is that more customer mix? Is that biodiesel? Is that yeast? If you could give some more color, how much of that we should expect going forward, please. Thank you. I'll briefly cover a little bit. I'll pass To Lars and then also let Tina build on bioethanol. As you mentioned, we have seen stocking buildup in the first half of the year, particularly in the first quarter across almost all segments, which was triggered by the uncertainties of the supply chain. We have seen destocking already through Q2 in Household Care. We have not seen that one in Food and Beverages. We have not seen it in Either in grain and tech, as Tina mentioned. If also, if we look for the comparison, the first half last year, we had high level also of inventories expectations that we're bringing off growth for the segment in this area. So yes, moving parts that we also don't have a crystal ball. What we can tell you that we do is we're staying very close to our customers and then we're ensuring that we meet every single port order that is there. We did that in Q1. We did in Q2. And our guidance, the 4% to 6% range, encompass the full spectrum of, yes, the expectation that, that destocking is going to take place. And then we will continue to be there, continuing close to our customers and continue to make sure that when the market grows, as it has done in bioethanol, and Tina is going to be talking about that, in U. S. And recovers, we're sitting there. And when it grows in Latin Americas, we penetrate. Also, we make it happen despite all the challenges and constraints we see in supply chain. Lars do you want to build up Lars? No? So I'll just pass it directly to Dina. Thank you. Yes. So thanks for the question on Bioenergy. So as you rightly say, bioenergy consists of both the bioethanol and the biodiesel and even a bit of biomass sales. The way, way, way biggest part of it is the bioethanol. If you look at It's 95 ish percent if you look at the half year. So it's a significant number. And of that, we have The biggest part of our business is in North America still. As we have talked about before, North America is the main area. In the first half, it's roughly, I would say, 70%. And then Latin America is a fast growing follow-up for the You could say in the 30%. So that's a significant part of that. Not many years ago, it was, in fact, Europe, which was the 2nd biggest, But now it is Latin America in our numbers. So it is, you could say, a mixture of both geographies as well as businesses, But it is still very much a North American bioethanol based business. In terms of outlook for the year, what we are looking at is that, as you know, last year was such a roller coaster, if I can call it that. So there are differences in the comparator. And given the very, very, very low Q2 last year, we have some quite nice numbers this year. But overall, we are quite we are looking at expecting to end the year at mid- to high single digit, which is unchanged from where we were before. Thank you, Tina. And that would be the closing words for the session today. Thank you very much for all your questions. Looking forward have a discussion with many of you the following days and then especially looking forward, our will be in the session in September and outline further aligning the steps to continue to build on our strategy. Thank you.