Novozymes A/S

CSE:NZYM B

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, welcome to Novozymes' Q1 Conference Call. [Operator Instructions] Today, I am pleased to present Tobias Cornelius Bjorklund, Head of Investor Relations. Dear speakers, please go ahead.

[Tobias Björklund, executive]

Thank you very much, operator, and welcome, everyone, to Novozymes' first quarter 2022 conference call. 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 and key events in the first quarter as well as the outlook for the full year. Also attending today's call are Tina Fanoe, EVP, Agriculture and Industrial Biosolutions; Amy Byrick, EVP, Strategy and Business Transformation; Anders Lund, EVP, Consumer Biosolutions; and Claus Fuglsang, CSO, EVP of Research and Development. The entire call will last for about 45 minutes, including time for questions at the end.

As always, I would like to remind you that the information presented during the call is unaudited and that management may make forward-looking statements. These statements are based on current expectations and beliefs, and they involve risks and uncertainties that could cause actual results to differ materially from those described in any forward-looking statements.

With that, I'm now pleased to hand you over to our CEO, Ester Baiget. Ester, please.

[Ester Baiget, executive]

Thank you. Thank you, Tobias. And welcome, everyone, to our first quarter conference call. Could you please turn to Slide #2? Normally, I would go straight to the quarterly highlights and the outlook of the year. And despite being a very satisfactory quarter, we're saddened about the deeply unsetting situation and the consequences of the war in Ukraine. Our thoughts are with the people who have become victims of the invasion.

Under these conditions of war and as previously announced, Novozymes is not accepting orders from our Russian and Belarusian customers. And in addition to the situation, has made it very difficult and unsafe to ship products to Ukraine. Novozymes' overall exposure to the markets in Russia, Belarus and Ukraine was limited to around 1.5% of group sales in 2021. Most of it concerns Household Care in Russia.

Now let's turn to the first quarter performance and our increased full year outlook. The year started strong, and we delivered a very satisfactory organic sales growth of 10%, with double-digit growth in 3 of our 5 business areas. The main growth drivers were Food, Beverages & Human Health, which partially benefited from timing; and Bioenergy. This was followed by a very satisfactory performance in Agricultural, Animal Health & Nutrition and Grain & Tech Processing.

The performance in Household Care was soft compared to the rest of the businesses. However, it was much in line with our expectations on the back of a high competitor from Q1 last year and the fact that the war in Ukraine started to impact our numbers towards the end of the quarter.

The performance was strong across the regions, with 10% growth in developed markets and 8% growth in emerging markets.

Turning to our financials. We delivered a solid EBIT margin, ROIC and free cash flow. The effect from higher input and logistic costs was substantial, and we saw a neutral impact from pricing on the top line.

Regarding innovation, we introduced 2 new products. Together with our partner of DSM, we launched HiPhorious, a phytase solutions for poultry in Animal Nutrition. And in addition, we had a smaller launch in baking target penetrating -- targeting healthy pulse bread with higher protein and fiber content.

Across our ventures, the path to commercialize a solution for enzymatic carbon capture and sustainable plastics are making good progress together with our partners.

For the full year, we have increased our organic sales growth outlook from previously 3% to 7% to now 4% to 8% whilst maintaining expectations for the EBIT margin, ROIC and free cash flow, despite higher input and logistic costs. The main reason for the increased organic sales growth outlook is better underlying demand, coupled also with the expectation that pricing will be slightly positive for the year. We continue to work on pricing in close collaboration with our customers, and we expect these efforts to provide a stronger support as the year progresses. The outlook also includes a negative sales impact to the war in Ukraine of slightly more than 1 percentage point, mainly impacting Household Care.

With that overview, let's now look at each of the 5 business areas in more detail. Let's start with Household Care. Could you please turn to Slide #3? Thank you.

The first quarter performance in Household Care was soft with a decline of 4% organically. Nonetheless, this was much in line with our expectations given a high absolute comparator from Q1 last year and with the war in Ukraine impacting sales towards the end of the quarter. Latin America and Asia delivered solid performance, whereas sales in Europe was impacted by reduced market volumes. Additionally, the Freshness technology performed in line with our expectations.

Turning to the full year. Sales will be driven by increased enzymatic penetration in emerging markets with somehow -- somewhat softer performance in developed markets, including flat European detergent volumes. Additionally, Freshness and applications outside of laundry are expected to grow. As a direct consequence of the war in Ukraine, we have adjusted the 2022 organic sales growth indication for Household Care to between 0% to 2% from previously 2% to 4%. Could you please turn to Slide #4? Thank you.

Organic sales in Food, Beverages & Human Health grew 18% in the first quarter, with Food especially doing very, very well. Part of the very strong performance was due to timing. And adjusting for this, the underlying growth for the business area was roughly 13%. Beverages did well and delivered a strong growth, particularly in the brewing segment. Both Food and Beverages benefited from innovation, favorable market conditions and supportive consumer demand. Human Health performing in line with our expectations in the first quarter off a back of a strong first quarter last year. The business is doing an excellent job integrating Synergia, the recently acquired probiotics and vitamin K2-7 manufacturer, which create a lot of excitement.

Following the strong start of the year and the good momentum, we have raised the full year organic sales growth indicator for Food, Beverages & Human Health and now expect the business area to organically -- to grow organically in the low teens from previously high single digits. All 3 subsegments are expected to grow. Performance in Food and Beverages will be driven by market penetration and the health-focused solutions as well as raw material optimization and ingredient substitution. In Human Health, we expect solid double-digit growth driven by innovation, cross-selling and regional expansion. Could you please turn to Slide #5?

Bioenergy sales grew 27% organically in the first quarter. The very strong performance was driven by multiple factors. First of all, U.S. ethanol production in the first quarter of last year was subdued by lower demand due to COVID-19 restrictions and industry supply challenges due to the Texas freeze. According to estimates from the Energy Information Administration, U.S. ethanol production was up around 12% to 13% in the first quarter of 2022 compared to the same period last year. Additionally, we are seeing increased demand following for high production margins and the continued corn-based capacity expansion in Latin America.

Growth was also supported by innovative solutions in yeast and fiber. For example, Fiberex solution launched last year is beginning to penetrate both the North and the Latin American markets. Lastly, growth was supported by continued market penetration with enzymatic solutions for biodiesel production.

Looking at the full year, we expect growth to be supported by U.S. ethanol production recovery from COVID-19 and continued capacity expansion in Latin America. However, we do not expect U.S. ethanol production growth to be as strong as in the first quarter as the comparators are also becoming more normalized. This is also supported by EIA full year estimates, which remains in the 3% to 4% range. As a result of the favorable market conditions and market penetration enabled by innovation, we raise our full year growth indication from previously low to mid-single digit to now high single digit. Could you please turn into Slide #6?

Sales in Grain & Tech Processing grew 8% organically in the first quarter, led by a strong growth in Grain. Favorable market conditions and solid demand, together with higher grain prices, boosted the performance in Grain as our yield and throughput optimizing solutions become even more attractive for customers.

Combined with increased market penetration in vegetable oil processing and innovation, this resulted in growth across all Grain sub-areas. Textiles declined in the face of a tough comparison from last year and due to lower sales of diagnostic enzymes for COVID-19 test kits.

Looking at our full year expectation, we expect growth to be broad-based with good performance across most sub-areas in both Grain and Tech. The good performance in the first quarter and more favorable market conditions, especially in Grain, increases our full year indication for Grain & Tech Processing from previously flat to low single digit to now low single to mid-single-digit growth. Could you please turn to Slide #7?

Agricultural, Animal Health & Nutrition sales grew 12% organically in the first quarter, led by a strong performance in the Animal business as well as growth in Agricultural despite a tough comparator. The strong growth in Animal Health & Nutrition was driven by innovation and end market-driven volume growth. As expected, favorable market conditions with higher soft commodity prices supported demand for yield-optimizing solutions, especially in Animal Health & Nutrition.

In the first quarter, we launched HiPhorious in collaboration with DSM. This new solution raises the market standards for phytase technology, delivering consistent improvements in phosphorus utilization and thereby helping the farmers achieve sustainable and profitable animal protein production.

For the full year, we expect growth to be led by double-digit growth in Agricultural and solid growth in the Animal Nutrition and Health businesses. Innovation and a more diversified commercial model are the key enablers of the strong developments expected in Agricultural. Innovation will also be a key growth driver in Animal Nutrition business alongside end market-driven volume growth. All in all, we are maintaining our full year indication of growth at the rate of the high single digit to low teens for the business area overall.

And with that, I'll hand over to Lars for a review of the financials. Lars, please?

[Lars Green, executive]

Thank you, Ester. Please turn to Slide #8 for a review of our financial performance. We have had a very satisfactory start to the year, with sales in the first quarter growing 10% organically and 16% in reported Danish kroner. This included a 5 percentage point positive effect from currency and 1 percentage point positive effect from M&A following the recent acquisition of Synergia Life Sciences.

We delivered a gross margin of 55.5% in the first quarter in line with expectations. This was 2.7 percentage points below the same quarter last year as gains from productivity improvements, operating leverage and neutral sales prices were not enough to counter the severe headwinds from higher input and logistics costs.

The EBIT margin ended at 26.1% for the first quarter, which was 3.5 percentage points lower than in the first quarter of the previous year. The EBIT margin for the first quarter of last year included 3 one-offs in total. Two one-off gains in the other operating income were a contingent income from our divested pharma-related royalty and the proceeds of the sale of a noncore administrative building. The third one-off was a negative effect of costs related to the consolidation of certain R&D activities. The net effect of the 3 one-offs was positive at 1.5 percentage points for the quarter, equating to an underlying EBIT margin, adjusted for one-offs, of roughly 28%.

The contraction in the year-on-year EBIT margin was impacted by the decline in the gross margin, which I've just explained, as well as a negative effect of close to 1 percentage point from a one-off provision we have taken this year in relation to uncertain receivables from customers in Russia. Adjusted for the one-off provision, the underlying EBIT margin for the first quarter of 2022 ended at roughly 27%. And consequently, the underlying EBIT margin declined by roughly 1 percentage point between the 2 periods, mainly due to higher input and logistics costs.

The return on invested capital, including goodwill, was 18.1% in the first quarter of 2022. This was 0.7 percentage points lower than in the first quarter of last year. While higher net operating profit after tax had a positive effect on ROIC, it was not enough to offset the negative effect from higher invested capital that mainly resulted from the recent acquisition of Synergia Life Sciences.

Free cash flow before acquisitions was DKK 386 million in the first quarter. This was a decrease of DKK 318 million, mainly due to higher net investments, which increased due to the ongoing construction of our new production line for advanced protein solutions in the U.S. Also, net working capital was affected negatively by higher inventories, mainly as an effect of higher input costs.

Now please turn to Slide 9 for the 2022 outlook. The year has started very well with strong sales growth and solid financials. Although the war in Ukraine will have a bigger effect on group sales in the coming quarters, we are experiencing good overall momentum and raise our organic sales growth outlook from previously 3% to 7% to now 4% to 8%. The primary reason for the upgrade are the strong start to the year, the good momentum and the supportive market environment. Additionally, our dialogues with customers about prices are progressing well, and we now expect a slightly positive full year effect after a roughly neutral effect in the first quarter.

Our sales growth range remains relatively broad because of uncertainties associated with volatile market conditions, the pandemic, the war in Ukraine and global supply chain constraints. Sales in reported Danish kroner are expected to end around 6 percentage points higher than organic sales, and this includes an M&A effect of roughly 1 percentage point related to the Synergia acquisition.

We maintain our outlook for the EBIT margin at a solid 25% to 26% for 2022. The EBIT margin for 2022 will benefit from operating leverage, productivity improvements as well as a slightly positive effect from both pricing and currencies. Logistics and input costs have risen significantly, and we expect the gross margin to decline by around 2 percentage points in 2022 compared to 2021. This includes mitigating efforts from price increases that are expected to have a slightly positive effect for the year after a roughly neutral impact in the first quarter.

Going back to the outlook for 2022, we maintain our expectations for ROIC, including goodwill, at 16% to 17%. Compared to 2021, the development is going to be negatively affected by mainly higher invested capital, including acquisitions. And finally, the outlook for free cash flow before acquisitions is also maintained at DKK 1.7 billion to DKK 2.1 billion. This accounts for significantly higher net investments compared to last year, mainly due to the roughly DKK 1 billion we expect to invest in 2022 alone on the ongoing construction at the new production line for Advanced Protein Solutions in the U.S.

On a final note, we continue to invest in the business in accordance with our strategic direction in unlocking growth powered by biotech from last year. This is the key to release the full potential of Novozymes and securing our long-term ambitions and targets.

With this, I'll now hand back to Ester for a wrap-up before we open up for questions. Ester, please.

[Ester Baiget, executive]

Thank you. Thank you, Lars. Could you please turn to Slide #10? Thank you. Let me summarize our key messages today. We delivered a very satisfactory start to the year with 10% organic sales growth and solid financials. We see good traction with the pricing initiatives being implemented across all business areas in close collaboration with our valued customers and partners.

Following the strong start of the year and good momentum, the full year organic sales growth outlook has been lifted to 4% to 8%, including a slightly more than 1 percentage points negative impact relating to the war in Ukraine. We are in a very good place with our well-diversified portfolio of solutions and opportunities, both for the short term and the longer term. We will continue to invest where it matters the most, and we are ready to unlock further growth opportunities together with our customers in a world that is strongly in need of a more sustainable future.

And with that, we're ready to open up to questions. Operator, please, could you begin?

[Operator]

[Operator Instructions] Our first question comes from Gunther Zechmann, Bernstein.

[Gunther Zechmann, analyst]

I'll start with a couple, please. Firstly, on the Bioenergy growth. Can you indicate whether that's been market share gains or whether there's been any one-off factors such as order patterns or customer stocking? Just looking at the growth and what you guided for the full year, it implies that you will only grow 3% for the next 3 quarters. So if it was market share gain, wouldn't you expect that this would stay higher until you lap the higher comps?

And then the second one, if I can pick you up, Ester, on your earlier remarks that you've made. Good progress in plastic recycling and in carbon capture, could you share what progress that is, please?

[Ester Baiget, executive]

Thank you, Gunther, for your questions. On the comments on plastic recycling and carbon capture, I'll let Amy further build up on that. Mainly, it's the momentum that we see with our partners and with our customers and the activities and with new investments and also the already proof points of our -- of the technology of enzymatic solutions bringing positive results. And then I'll let Tina comment on Bioenergy, where, yes, there is a factor of a soft comparator versus last year but also a lot of self-help leading to the good results of the quarter.

[Amy Byrick, executive]

Super. So let me start first on carbon capture. And I think the caveat, of course, to both of these is that it's still early days in terms of the technology. The excitement is reaching some really critical milestones in the development of the technology and also demonstrating and starting to demonstrate in pilot facilities.

So in particular, on carbon capture, some of the key milestones we've achieved, we're starting to actually see successful large-scale implementation in Saipem's plant in Canada, where we're actually starting to see that the technology is actually operating to expectations at commercial scale. So that's a really big achievement in terms of seeing a 30-ton carbon dioxide per day carbon capture plant operating to expectations.

On the sustainable plastics side, I think, similarly, we commercialized the first commercial batch produced in our Kalundborg facility of the enzyme for Carbios and seeing that producing to expectations with desired yields at a commercial scale. And then also, you've probably seen that Indorama announced the intent to invest with Carbios, so that is -- that would be the first enzymatic plastic recycling plant on the market in operations. So that -- it's an announcement of intent, but that is an intent to be operational by 2025. So really some key milestones in what is still a long-term development plan.

[Tina Fanø, executive]

And then on the Bioenergy side, yes, it is a very strong quarter in the Bioenergy space, and it's driven mostly by the U.S. but also with strong performance in Latin America. The other geographies is, in fact, also contributing to the performance.

If you look at market numbers, and you know we have discussed this in a number of these calls with the EIA estimates. And EIA estimate that Q1 performance was roughly 12% to 14%, and for the full year, they expect that the year will end at roughly 3%. So EIA is, in fact, anticipating a flat performance for the rest of the year given that it becomes more and more tough comparisons.

If you look at our numbers, we saw a very good quarter, and that's also why it is that we are lifting our expectations to this segment from low to mid-single to high single-digit growth. So we do also see that strong performance. And for the full year, we do expect it to come from innovation, and that has also been one of the drivers for our strong performance here. It's both on the fiber side as well as on the yeast side. We see Latin America -- and as you know, that depends a lot on when does new plant get online and when does that annualize. We see some traction in biodiesel as well, and then, again, the underlying U.S. production. But as you also know, it is -- there is uncertainty. It is a volatile business. And we feel, you could say, comfortable with the high to single-digit expectation for the full year.

[Operator]

Our next question comes from Nicola Tang, BNP Paribas Exane.

[Ming Tang, analyst]

I wanted to start by asking a little bit about pricing. You're talking about now guiding to the slightly positive price versus net neutral previously. I was wondering if we should see this kind of 1% upgrade to your guidance is mainly price-driven. Or how should we think about your expectations around volumes within your guide?

And the second thing, also related to pricing. I think within that original guidance, the net neutral pricing, you're assuming some volume erosion just based on the negotiations with customers. Obviously, since then, you've announced the price increases reflect input costs as well. But I was wondering whether you -- so far, based on the price negotiations, more on the strategic side, whether you've actually seen signs of volume erosion or whether that was just a cautious assumption at the start of the year.

[Ester Baiget, executive]

Thank you, Nicola, for the question. I'll start giving you the flavor on the conversation with the customers, and then I'll pass the word to Lars to bring further color on the impact on the guidance. We feel very pleased with the dialogue and the momentum with the conversations of our customers. As you know, we price our solutions based on value. And yes, these conditions of increasing raw material prices, they are opening the door to -- they are forcing or they're bringing the opportunity and open the door to the conversations on refresh the pricing and the value, the fair share of value that we deserve.

We have seen so far in this quarter a neutral impact on revenue, on price. But as the year evolves, based on the good momentum and the solid conversations of our customers, we are aiming for a positive contribution on pricing. Worth to say that this is not something we started now. We have been already, at least since the last couple of years, in a strong momentum of enhancing our commercial excellence capabilities on bringing the tools and the mindset and the training to our sales organization to maximize the value extraction through price. And we see, yes, now they're starting to collect the fruits and more to come as the year progresses. Lars?

[Lars Green, executive]

Yes. Thanks, Ester. So in terms of the assumptions we have on what is driving our outlook for the year, our increased outlook is primarily volume-driven, and only a slight price contribution is what we have built in as our expectations. We believe that the range we're providing is catering for the risks associated with these discussions. So we are not sort of articulating any specific risk related to these discussions. So we believe that we are well covered in the range. And this is one of the many uncertainties we have in the world right now, including also the pandemic that is resurging in China, the whole war situation around Ukraine, and of course, the volatile supply chain and input cost conditions, we believe this is well covered in the range of 4% to 8%, where pricing is now a slight positive contribution.

[Ming Tang, analyst]

Would you mind if I squeeze in another one?

[Ester Baiget, executive]

We don't mind. Squeeze in a short another one, Nicola.

[Ming Tang, analyst]

It's a short one also, I guess, on the same topic. This is the first time we've really seen the whole industry go for price increases. It's not something we've really seen before. I was wondering whether you expect or you're seeing any of your customers kind of showing, demonstrating stocking behavior in anticipation of the fact that you and some of your peers might also be raising prices. And that's just a question across the board as opposed to a specific industry.

[Ester Baiget, executive]

We are a small portion of the total cost of our customers. We have [ precious ] portion of the value that our customers generate, and we see a strong demand. But the demand that we see, it is driven by the intrinsic value that our solutions bring in, value in agricultural, value on maximizing the yield and extracting the protein on the plant-based alternative, value on producing bio-based solutions and value that we bring in across all the fronts. So that's the driver of the demand and then that's also the strong demand, underlying demand, the one that Lars was talking about, the one that gives us the confidence that, the will and our aim to also aspire as we did last year at the high end of our guidance.

[Operator]

Our next question comes from Michael Novod, Nordea.

[Michael Novod, analyst]

It's Michael Novod from Nordea. Just one question regarding the EBIT margin. So maybe, Lars, you can elaborate a bit on why you don't see slightly stronger leverage on the EBIT margin. Also given the prior question regarding pricing, you see better organic sales performance, and I'm fully aware, of course, there is a provision to -- regarding the Russia, Ukraine and Belarus situation. But I would still expect that you saw larger margin leverage. Or is it just because you're taking a sort of conservative approach this early in the year and also the uncertainty around the cost input for the rest of the year?

[Ester Baiget, executive]

Thank you, Michael. So Lars, could you please?

[Lars Green, executive]

Yes, absolutely. Thanks, Michael, for the question. So what we have embedded in our outlook for the EBIT margin is also a continued increase in the input and logistics costs. And therefore, as we also indicate now, we believe the gross margin will be roughly 2 percentage points below that of last year. And so the slightly better outlook for pricing, we believe, can compensate for what has happened since we provided our guidance back in January. But we are not seeing this adding net-net more to the margin.

We do see leverage obviously contribute for the year but no significant change since we provided the outlook back in January. So I would say we feel that the 25% to 26% is still a good guidance and reflecting the increase in costs but also the positive contributions from the leverage and marginal from pricing versus what we started the year with.

[Operator]

Our next question comes from Charles Bentley, Jefferies.

[Charles Bentley, analyst]

Great. Can I just ask on the split of pricing and volume? Can you give us the split for Q1 and then also what you might expect the pricing contribution to be specifically for the full year?

Secondly, just on exit rates, can you just give us an indication on kind of how Grain & Tech and Food & Bev progressed through the quarter? I mean, did they exit as strongly as they started it?

And then finally, just a follow-up on that question on margins. I mean -- so if I look at it, 27% underlying EBIT for Q1, and that's with gross margins down kind of 2.7% versus 2% expected for the full year. So is it that you expect kind of incremental cost pressure in kind of -- you mentioned logistics, so is that where you kind of see the incremental pressure that kind of gets you to the guidance range?

[Ester Baiget, executive]

Thank you, Charles. Pricing has a neutral effect on Q1 on revenue, and we're aiming for positive contribution of pricing for the year-end on revenue. And then as Lars has indicated, there are also other aspects that contribute to the margin, which is the continued effort on productivity and also the higher leverage. But I'll let Lars further build on the financials. And then, Tina. You, Anders, follow on the question on Food.

[Lars Green, executive]

So if I start on the margin, then we also continue to invest in the long-term value of our business. So therefore, as we sort of look at the margin by quarter, I think we feel that the 26.1% we delivered here for the first quarter brings us well on track to deliver on the full year guidance. So I think trying to place the first quarter in isolation versus the long term or the full year outlook is maybe taking it to a detail too far. So what's important is that we continue to invest in our business. And therefore, we believe 25% to 26% for the full year is the right guidance.

[Anders Lund, executive]

And on Food & Beverages, we come out very strong, 18%. We also call out that 5% of those is timing, where we got one order accelerated into Q1. So sort of the underlying momentum right now in Q1 is 13%. And we do upgrade our guidance on the segment, so we expect there will be sort of continued momentum. It's driven by sort of very strong market demand that we continue to see. It's driven by raw material optimization. And then, of course, innovation and penetration. We have launched a good technology for oat drinks for low lactose dairy. We're enjoying a low carb penetration raw material optimization in Africa and also quite a lot of emerging market penetration.

So it's fairly broad-based, and it's all the segments. In addition, we are seeing Human Health continued delivering very, very strong demand in the market. So all lights again this quarter are green, and that's also why we upgrade the guidance for Food & Beverages. Tina?

[Tina Fanø, executive]

And on Grain & Tech, we are reporting 8% growth, which is a very strong quarter, and that's also why we are lifting our expectations to the segments from flat to low single to low to mid-single-digit growth. And it's coming from underlying market demand where yield becomes more valuable, the solutions we are providing becomes more valuable. We see good growth, for example, in vegetable oil processing. And also some of our innovations like grain milling is also driving the growth both in the quarter and for the year. But underlying, Grain is not a high-growth business. As you know, it is a more steady, lower growth business, and that's what we expect for the year, and that's why we have the indication for the full year.

[Ester Baiget, executive]

Maybe building on these 2 comments and also the one that you -- the question before on Bioenergy and the promising steps on the long-term growth for the ventures. It's worth to put on the table here the diversity of our portfolio, the strength of the diversity of our portfolio, of the markets that we're present, and then the fantastic work from the operations and supply chain team that continue, continue to supply our customers, continue to respond to very volatile market dynamics, and then we translate them into top line growth, into value generation for our shareholders.

[Operator]

Our next question comes from Lars Topholm, Carnegie.

[Lars Topholm, analyst]

Yes. First of all, congrats with an excellent quarter. It's really impressive. I do have a couple of questions. One of them is really silly. But if I look at your guidance and factor in the currency tailwinds, it looks to me as if you guide 2% to 7% organic growth for the rest of the year. You grew 10% organically in Q1. And of course, I realize there's a war going on in the Ukraine and there's a one-off stocking effect in Food & Beverage, but your comps are also becoming quite a bit less challenging in the coming quarters. If I look at a 2-year organic growth stack at least, you have a bigger effect from pricing. So I just wonder, what am I missing because to me, it looks extraordinary that you should see this big deceleration in organic growth?

And then a completely different question. In Household Care, of course, momentum isn't great. But I wonder, are you getting any customer interest in chemical replacement as a function of the higher oil price? And is that anything that with a little luck could give some momentum shift in your Household Care business, if not this year, then looking into 2023 based on the dialogue you have with your customers right now?

[Ester Baiget, executive]

Thank you, Lars. Yes, very good quarter. We feel very pleased of it. Impressive, it's very good results. And then we also like the question you're bringing in because that implicitly shows your trust on our aim to deliver on the high end of the guidance. But I will let Lars bring further color on the volatility that we see which explains the full range. And then Anders to bring color on not luck, but how are we going to translate the momentum with science that we see in the industry into top line growth for the long term with sustainability and chemical replacement. Thank you.

[Lars Green, executive]

Yes. And so how do -- the question is really how do we translate the 10% organic sales growth in the first quarter into 4% to 8% for the full year. And I think first place to start is the timing of this one delivery to a customer in the food space. And so if we adjust for that, also on the total Novozymes numbers, then we are closer to the 8% for the quarter. And so what we now know is that we have had only very little effect towards the end of the quarter from the war in Ukraine. So that 1 maybe plus percent impact on our outlook is going to come in the remainder of the year. We know also that there are risks associated now with the whole pandemic situation. And so therefore, factoring those in -- those effects in as well.

And then as Tina has explained earlier on here today how 27% growth in Bioenergy is not the run rate for the full year, then I think we feel that the 4% to 8% is the appropriate range for the year. As Ester said, our ambition is to deliver to the top end, but we believe the risk profile means that a prudent guidance would be 4% to 8%.

[Lars Topholm, analyst]

So Lars, my take that your comps are getting easier, is that wrong?

[Lars Green, executive]

So when we look at the full year, Lars, then that's the effect. I mean, you can say in Household Care, Q1 was a tough comparator. In Bioenergy, it was the opposite. So I think net-net, that's how we look at the business, that 4% to 8% for the year is the right guidance.

[Lars Topholm, analyst]

But Lars, if I look at your 2-year organic growth stack, it was 13% in Q1, it will be 7% in Q2, it will be 4% in Q3 and Q4, and this is for the group. So this takes into account some divisions have easy comps and some have tough comps. So I just wondered, is that an observation you agree? Am I missing the obvious thing here?

[Lars Green, executive]

So Lars, your numbers here is one way of looking at it. And there are many perspectives that we can apply, and that's what we have done to all of our business areas. And therefore, we feel that the 10% run rate we had in Q1 is higher than what we will see for the full year. And I think you have also heard us explain why some -- at least where the questions have been so far, why we feel that the first quarter will develop into a different outlook for the full year by area. We feel actually quite excited about the 4% to 8%, and we feel that's a good guidance. And I don't think I can add any further color on it now, Lars. So...

[Lars Topholm, analyst]

That's perfectly fair, Lars. Thank you very much for elaborating. Then the Household Care question.

[Anders Lund, executive]

Yes, Lars. So on chemical replacement, I think let me start going back a little bit of what's happening. So we're seeing a massive raw material inflation in the marketplace and that's, of course, a disruption. So the value of our technology is going up. And from that perspective, I see the same as you. This is -- there should be an opportunity for Novozymes. Short term, it's also a stress to the industry. So we are seeing some of our customers simply being in survival mode. And of course, that causes us also then to consider how do they optimize.

Now longer term, this is definitely an opportunity. And more importantly, on our side, we are shifting our conversations quite a lot these days, with customers maybe going a little bit away from sort of high-end innovation to talk more about how we can support them on getting their equation, the cost equation more in balance. Because while we are increasing prices in Novozymes, it is by no means to the same standard that some of the chemicals are increasing in price. So over time, this should turn into an opportunity. But it's too early to tell how much that will translate into growth. I see it long term as a positive for Novozymes.

[Lars Topholm, analyst]

And just a quick follow-up, Anders. Have you found a new customer in Germany to replace Sopronem and Thurn, which went bust last year? Because I think Lidl is still continuing their private label detergent, so I guess someone must produce it.

[Anders Lund, executive]

That's right. This is a very, very difficult equation, and it's not one customer that takes over the entire supply of those businesses that went out of business. So it's spread all over. Who takes up what volumes, we don't have full transparency of that. What I've always said is that, of course, people will wash and they will be able to buy their laundry detergent. So over time, this will neutralize. I think it's part of the pain that we still endure in Europe this quarter simply because we didn't have that business. But we expect to pick it up. Will we pick it up 100%? I don't know. We can't tell.

[Operator]

Our last question comes from Alex Jones, Bank of America.

[Alexander Jones, analyst]

If I could just ask 2. One, returning to the Bioenergy point. I think, Tina, earlier you mentioned sort of the EIA's cautious outlook for the rest of the year. In terms of your guidance, is it just a function of the uncertainty on how the market looks for the ethanol market overall? Or is there also caution on whether Novozymes' market share might decrease slightly having been very, very strong this quarter?

And then the second question, you've alluded a couple of times to surround the COVID situation, I guess, referring to Chinese lockdowns. Could you elaborate on those a little bit more? And anything you've seen in the initial few weeks of those that is a cause for concern?

[Ester Baiget, executive]

Thank you for the very good questions. I'll elaborate on the second one and then pass it to you, Tina, on Bioenergy. We have seen, as all of you, the disruptions in China mainly triggered by the lockdowns, disruptions on -- not only on the quality of the citizens and the capability for them to go and continue with their normal lives, but also disruptions on supply chain, disruptions on some industries and suppliers that had to be shut down. And then it's -- what I'm very, very pleased to communicate and to share, it is the continued operation of all our plants in China and also us continuing to be able to deliver and ship the products within Asia and then from China to the rest of the world.

The work that the team has done, it's simply impressive. It is just a continuity of a terrific work that we did last year and the year before. And it shows also once more the ductility of our footprint, the resilience and the strength of our team and that keeps -- not surprising us, but keeps delivering in what it is increasingly every day a more and more demanding and volatile environment. And then to you, Tina.

[Tina Fanø, executive]

Yes. So on the Bioenergy comment, Alex, we do see most of it relating to market. But I want to stress that in Bioenergy, it's one of the areas where we have a very strong market leader position. We have very strong customer intimacy and interactions, and we work very closely with them. So we have a very strong position, and that is what we, you would say, expect to keep for the full year. So this is more a matter of market and then it's a matter of how does the innovations pick up. I mentioned both the fiber as well as the yeast innovations.

But I also think it's important to remember, and we have also talked about that a number of times, that the EIA numbers is a good estimate in the U.S. for how the market evolves, but there's not a direct correlation to how does our customers perform. We've talked about that both when our customers ran harder and also when they ran softer than the market. So it's not a direct link there.

And then also the U.S. market is -- it's a significant part. It is the biggest part of our Bioenergy segment. But we do also have activities outside, both in biodiesel but also in other geographies. You'll remember, we talked about the corn cracking and how it is the importance of getting more out of the corn kernel. So that's more how we look at the market. So market is a part of it, but it's not the full part of it. Innovation matters also here, and that's a very significant part of it.

[Ester Baiget, executive]

Well said, Tina. Lots of self-help in Bioenergy to drive these very good figures. We'll squeeze in one last question, operator, please?

[Operator]

Our next question comes from Søren Samsøe, SEB.

[Soren Samsoe, analyst]

Yes. I had a question regarding the timing effect you saw in the Food & Beverage of 5%. Is that -- is the buildup in inventories ahead of price increases? And if you can confirm that the strong growth you saw in Q1, that, that is not affected by any kind of related customer building to price increases.

And then secondly, just on Bioenergy, I was very impressed by the high growth. And you say that innovation is the first reason for that. Could you be more specific and elaborate a little bit on what innovation you're referring to here?

[Ester Baiget, executive]

Thank you, Søren. To the first question, it's a very easy answer, it's no. It's not stock buildup. It is one sale of the volume in Q1 and not because of stock buildup drivers. Tina?

[Tina Fanø, executive]

And on Bioenergy, the innovations which I'm talking to is in -- the most important ones are in fiber and then it's on the yeast solutions. That's the 2 main areas. So when I say fiber, what I mean with that is we have developed some solutions would help the customers improve their, you could say, sustainability score, their carbon intensity, which is very important, for example, in markets like California in the U.S. And that means that customers can, you can say, get a preference for these markets and can also demand. It creates a different value there. So that's the -- that, coupled with yeast, is the main innovations.

But when I look at the segment, it is the market growth. The market growth was high, as you all have seen from the EIA, which we just talked about in Q1. It is the fiber and yeast innovations. It is Latin America, in particular. And then it's also in biodiesel where we see more and more traction. So that's the reason for the 27% and then our full year expectation as we have lifted to the high single digit.

[Ester Baiget, executive]

Thank you, Søren. And thank you all for joining the call today and looking forward for continuing the dialogue with many of you face-to-face or in separate conversations, and thank you for your time.