Welcome to the Novozymes First Half 2021 Conference Call. [Operator Instructions] 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 Bjorklund, and I'm the Head of Investor Relations here at Novozymes. At this call, our CEO, Ester Baiget; and our CFO, Lars Green, will review our performance for the first half of 2021 as well as the outlook for the full year. Also present at this call are Tina Fano, EVP, Agriculture & Industrial Supply Solutions; Amy Byrick, EVP Strategy & Business Transformation; Anders Lund, EVP, Consumer Biosolutions; and Claus Fuglsang, CSO, EVP of Research & Development. The entire call will take about 60 minutes, including time for questions at the end. 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 to differ materially from those described in any forward-looking statements. By that, I'll now hand you over to our CEO, Ester Baiget. Ester, please.

Thank you. Thank you, Tobias, and thank you all for calling in. Please turn now to Slide #2. And before we dive into our first half performance, 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, Ester. The world faces an ever-increasing challenge of how to feed a growing population within the limitations of our earth 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. 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 2050 with plant-based meat increasing from only 1% to 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 by feeding the world sustainably. Due to competitive reasons, we're unable to disclose the name of the customer or specific contract's details. But I'm very excited about this opportunity and the milestone it marks as our first large-scale commercial agreement and investment on our strategic journey to be a leader in novel proteins. After this 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 contracts 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 Novozymes. In order to meet the growing demand for plant-based solutions, Novozymes has committed to invest DKK 2 billion 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 '23, approximately DKK 300 million 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 and '24, 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, Novozymes' total strategic opportunity area of Advanced Protein Solutions is expected to reach at least DKK 1 billion in annual revenue. With that, I'll hand back to Ester for a review of our first half performance. Ester, please?

Thank you. Thank you, Lars. A 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 & Tech Processing, Bioenergy, and Food, Beverages & Human Health. Sales in Household Care and in Agricultural, Animal Health & Nutrition declined, as expected, as both businesses areas faced difficult comparators. In light of the good first half results, we are narrowing the 2021 outlook for organic sales growth upwards to 4% to 6% with all business areas expected to grow. The updated sales outlook remains subject to COVID-19-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 second quarter, of which 2 in 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 #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-19-related surcharge. Sales in the second quarter declined 6%. This was in line with expectations, driven by destocking and came on top of a high comparator from the second quarter last year. Our partnership with Givaudan is progressing well and has had a very good and productive start. In the second quarter, we filed for the first 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 #4. Food, Beverages & Human Health performed very well and grew by 14% organically in the first half. The strong growth was broad-based across subareas and regions. They 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 second quarter, performance was strong and sales grew 18% organically. Growth came on top of a softer comparator and included also the positive timing effects. Performance was 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&D strength, we just launched a new product, Alflorex Immune. It's our first launch into attractive immune stimulation segment. Looking ahead for the full year, following better-than-expected first half, the full year expectation for Food, Beverages & 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 expected to be broad-based across subareas 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 following last year, which was severely affected by COVID-19 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 prepandemic levels, U.S. ethanol production continued to improve and ended significantly higher than last year. The 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 second quarter grew significantly year-on-year as production in the second quarter of last year was severely impacted by the first wave of COVID-19 restrictions. This rebound was naturally also as the main growth driver behind the 54% sales growth in our Bioenergy business in the second quarter. The very strong growth also benefited from positive developments outside 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 #6. Thank you. First half sales in Grain & Tech Processing grew 17% organically. This was above expectations mainly due to customer stock building. The strong performance was driven by growth across most 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 second quarter. The performance was amplified by stock building, but also driven by growth in textile and increased market penetration in vegetable oil processing. For the full year, we expect sales to grow at mid-single digits with growth across most areas. Growth in Grain will be driven by innovation and market penetration, although recovery in the global textile industry will be a key contributor to growth in Tech. Performance in the second half is expected to moderate as the comparator becomes more difficult and we expect negative effect from destocking. And please turn now into Slide #7. Agricultural, Animal Health & Nutrition sales declined 9% organically in the first half of 2021. The decline was expected and due to negative base effects from the roughly DKK 60 million one-off related for -- to the former BioAg setup in Q2 2020, also as well as the stockpiling in Animal Nutrition in the first half of last year. Innovations, such as Balancius and ProAct 360, performed well in the market. Sales in the business area declined 19% organically in the second quarter, mainly due to the previously mentioned BioAg one-off, and sales in Animal Health & Nutrition declined against a 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 & 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, Ester. Please turn to Slide #8. Sales in the first 6 months of the year grew 6% organically and by 3% in reported Danish kroner. This includes a 5 percentage point headwind from currencies and a 2 percentage points contribution from M&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 second quarter EBIT margin was also strong at 27.7%, 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&A-related effects, the EBIT margin for the first half of 2021 was roughly 29% and this was around 2 percentage points above the roughly 27% adjusted EBIT margin for the first half of 2020. The adjusted EBIT margin in the second quarter of 2021 was roughly 28%, around 3 percentage points above the adjusted EBIT margin or roughly 25% for the second quarter 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 1.8 billion in the first half and DKK 1.1 billion in the second 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-19-related postponement of certain tax payments in Denmark. The return on invested capital, including goodwill, was 22.2% in the first half of 2021 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 '21 with all business areas contributing. Growth will be driven by innovation, a stronger commercial presence and execution as well as continued recovery of COVID-19 affected markets. Sales in reported Danish kroner, net of currency and M&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&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&A-related effects, the expected EBIT margin for 2021 is around 28%, supported by the net positive one-offs recognized in the first quarter. The outlook for the return on invested capital, including goodwill, is raised to between 19% and 20% and includes negative currency and M&A-related effects totaling roughly 2 percentage points year-on-year. The free cash flow before acquisitions is expected at DKK 2.5 billion to DKK 2.9 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 million investment in the new production line in Blair. With this, I'll hand back to Ester for a wrap-up before we open up for questions. Ester, 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, with solid organic sales growth and a strong financial performance. We've also announced a very exciting long-term value-created investment in Advanced Protein Solutions. We are upgrading our full year outlook for organic sales to 4% to 6%; the EBIT margin to around 26%; ROIC, including goodwill, to 19% to 20%; and free cash flow before acquisitions to DKK 2.5 billion to DKK 2.9 billion. Some of you might recall that after the full year conference call, we mentioned 4 progress areas for 2021 to allow you to follow our strategy execution from a different angle. One of those deliverables was to engage in at least 3 large commercial or R&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 third 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 a strong voice of the global stage and we have pushed this agenda at several events, including the World Economic Forum and at the UN Global Compact Leaders. Finally, before we move to the Q&A session, I want to remind everybody about our coming Capital Markets Day on September 28. We wanted to meet in person, 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, focus on our R&D pipeline and streamlined the 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 profitable and sustainable growth at the Capital Markets Day on September 28. Let that be the final words before we start the Q&A. Operator, please begin.

We have a few questions in the queue. The first is from the line of Michael Novod at Nordea Markets.

Yes. And a few questions. So first of all, to Advanced Protein Solutions. When you sort of start to produce, how do you expect sales to ramp towards the DKK 1 billion and potentially more than DKK 1 billion? Is that sort of a gradual sales? Or with this anchor onboard, do you then expect it to be a more swift ramp towards the DKK 5 billion -- the DKK 1 billion? 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 you any signs that they are either more bullish on the future or bearish on the future in terms of return to normal prepandemic levels around the cleaning, hygiene focus, et cetera?

Thank you. I would ask Lars to answer the -- to give guidance on the ramp-up of the sales in proteins. And then Tina, if you could take the question on COVID testing. And please, Anders, 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 is some clarity on this that once we have completed the construction of this facility, then we believe that within those first 5 years of operations, we can generate in the area of Advanced Protein Solutions sales of at least DKK 1 billion. So I think this is as precise as we can be at this stage. But we wanted to give you comfort that there is also a return waiting after investing DKK 2 billion 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 & Tech Processing segment. And in the Grain & Tech Processing, roughly 2/3 is in Grain and 1/3 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 -- yes.

Okay. Less than what?

You wanted? It's less than -- way less than 10%, yes. It's way less than 10%.

Just a few perspectives on Household Care. Q1 was stronger than expected. And we called out that we expected some destocking in the second quarter, 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 they are 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 the business. 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 ‘19 levels as we go forward.

Our next question comes from the line of Søren Samsøe of SEB. Søren Samsøe: 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, 5 reasons: higher raw material prices, higher freight costs, M&A effect, currency effect and then reinvestments. Those 5 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 first quarter. So that's a small percent that we have of contribution in the first half year. 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, first 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 attached, so to speak, to the products 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 a 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 that looking at quarters and not the full year, that is associated with some volatility. And so I would encourage you to sort of focus more on the full year margin developments because by quarter, both the numerator and denominator is exposed to, if 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. Søren Samsøe: 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 could 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've talked about in the past, I guess, when you are growing mid-single digits.

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 is not related to any particular product, but rather the overall 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 amortization, so that will be the same quarter-by-quarter. So there is no difference in that contribution there. I think maybe just a little nuance. As we also said, the gross margin in the first quarter 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 build 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 going forward, we’ll be able to continue to deliver productivity improvements in our facilities year-by-year.

Okay. Our next question comes from the line of Nicola Tang at Exane BNP Paribas.

The first was on Food & Bev 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 sort of 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 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 was just a basic question. Can you explain a bit what your offering is here? Is it more for the cultured meat side? Or is it for plant-based? And a lot of players have talked about the benefits of -- in alternative proteins, 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 in 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 billion sales target on a 5-year view, is that mainly focused with your anchor customer? Or is that assuming sort of other wins as well?

Thank you, Nicola. I will let Anders go deeper and elaborate on the question regarding Food & Beverages. And then please, Amy, if we can bring a color and the perspective on Advanced Proteins.

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 & 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 & 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 rate 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, Nicola, 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 ingredient. 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 true to the core of our biotech capabilities and expanding that into the 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 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.

And our next question comes from the line of Alexander Jones at Bank of America.

I've got 3 questions, please. The first on Grain & Tech, if you could just talk a little bit about the sort of second half outlook there. Implied guidance is negative. So if there's anything there apart from stock building that we're expecting, that would be helpful. The second one is a wider question on stock building. Whether you've started to see any reversal of that so far in the third quarter 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 billion number in terms of what market growth or market size that's expecting by sort of the end of this decade? That would be great.

Thank you. The question of the stock building probably it's 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 buildup as one of the drivers of the growth that we saw in the first 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 in the market. It's a lot of self-help in Food & Beverage. It's 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-help 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 & Tech. And then Amy, if you can build up on our plant-based proteins again. Thank you.

Yes. With pleasure. So if we look at the Grain & 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're also stating in the question. But also we see some textile volatility. As we talked about before with the question from Michael, this is a quite diverse segment consisting both of Grain & Tech and also including textile. And we are seeing that our performance is surpassing that what we hear from the big retailers like H&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 '20, we grew minus 3%, if you can say it that way, minus 3% in first half '20, 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 Grain & Tech. And over to you, Amy.

Super. Thanks. So regarding the overall market size and I'll just watch me, I'm only speaking in dollars here rather than kroner. If we look at -- if we start with plant-based meat, the actual meat industry today globally is about USD 1 trillion industry. So if we look at sort of the current penetration of about 1%, that leads us -- it's a roughly USD 10 billion 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 we've seen increasing the penetration of the $1 trillion 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 billion.

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 we go through the earnings release of that.

And our next question comes from the line of Sebastian Bray at Berenberg Bank.

I would have 2, please. I'd like to come back to this point on Advanced Protein Solutions. If on a DKK 2 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 DKK 400 million or so of EBIT, which on DKK 1 billion of slightly more of sales would be close to 40% EBIT margins. What exactly is it that Novozymes is doing, which is so sophisticated here 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 one, if this reasoning is correct? And number two, what exactly Novozymes is 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. 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 ourselves 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 when nutrition and how to fill the world sustainably, it's one of the most pressing challenges we're facing today. We're covering that through many different angles, through BioAg, 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 for the plant-based segment. As Amy said, we're not covering the specific contract details of a customer. We've never done that, and we're going to continue honoring what is in the confidentiality agreement. And then, 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 ROIC in – when we are fully up and running. And so that’s how the mathematics work. So we cannot disclose, you can say, the details of where we are in this supply chain and how this works specifically for this particular contract. But your 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 first quarter, that was a one-off. So it is not recurring and you should not expect it to be repeated in 2022.

That comes from the line of Lars Topholm of Carnegie.

Congrats with great results. And thank you very much for a quarterly cash flow statement, first time in 20 years, really went out. One question goes to your probiotic acquisitions because a couple of your peers have struggled a bit to grow in probiotics procurement. So I just wonder if you can put some comments on the performance of those 2 companies.

Anders, could you take this one?

Thanks, Lars. So the performance we have on probiotics remains 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, et cetera, drags margins up or if all that is largely neutral.

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 following the product mix we have in this quarter.

That's from the line of Gunther Zechmann of Bernstein.

Just one overarching question on the destocking that you expect. Could you help us disentangle how much of the growth you expect in the second half on relatively easy comparables is underlying? And if you could rank order the divisional destocking? There's 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 it 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 a destocking already through Q2 in Household Care. We have not seen that one in Food & Beverages. We have not seen it in either in Grain & tech, as Tina mentioned. Also if we look for the comparison, the first half last year, we had a high level also of inventories in our Animal Health & Nutrition, which will be easing and then leading to the final expectations that we're bringing off growth for the segment in this area. So yes, moving parts. But 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 order that is there. We did that in Q1. We did it 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 America as we penetrate, also we make it happen despite all the challenges and constraints we see in supply chain. Lars, do you want to build that, Lars? No. So I'll just pass it directly to Tina. 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 second 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 continued conversations with many of you the following days. And then especially looking forward at our session in September and outlining -- further outlining the steps to continue to build on our strategy. Thank you.