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Novozymes A/S
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Good morning, and welcome to the Novozymes conference call. My name is Peder Holk Nielsen and I'm the CEO of Novozymes. I'm joined here today by the Executive Leadership Team and Investor Relations. Today we'll review our performance for the first 9 months of 2018 and key events for the year. Our presentation should take around 25, and after that, we'll take your questions.Please turn to Slide #2. We delivered a satisfactory set of numbers in the first 9 months. Organic sales growth was 4%, including 5% in the third quarter. Both earnings and cash flow were solid.Our innovation pipeline is strong. We have several near-term market opportunities and we're commercializing products from a majority of our priority innovation platforms. We support our innovations with solid investments in commercial activities, including increased presence in growth markets such as Southeast Asia and Africa.While there's good momentum in the overall business, there are variations between industries. Bioenergy and BioAg are performing well. Household Care and Food & Beverage both grew in the quarter, but came in below our expectations as they are impacted by instability in markets in the Middle East. We expect this challenge to continue through the fourth quarter. Despite this, we maintain our full year organic growth guidance, but believe it's more likely we'll finish the year with organic sales growth in the lower part of the 4% to 6% range.For EBIT margin, we report a solid 28.2% after the first 9 months, including 28.5% in the third quarter. Net profit grew by 3% for the first 9 months and we're increasing our full year outlook from flat to now 1% to 3% growth.But let's move onto a closer look of the regional sales development. Please turn to Slide #3. It's satisfying to see that both emerging and developed markets overall are posting growth. Latin America grew by 8% after the 9 months and was mainly driven by increased corn ethanol production in Brazil and by Food & Beverage.In Asia-Pacific, Household Care is performing well, whereas our starch business is a bit challenged by the lower spread between starch and sugar prices. Growth in the developed markets was driven by strong Bioenergy and BioAg sales in North America, whereas Household Care is still challenged.With this quick review, I'll hand it over to Anders to go through Household Care. Anders, please.
Thank you, Peder. Please turn to Slide #4. Household Care grew organically by 2% in the third quarter and ended flat after the first 9 months of the year. We continued to see good momentum with regional customers, particularly in the emerging markets. China delivered strong growth, supported by new innovation and growth of liquid detergents. Africa and Southeast Asia also delivered solid growth in the third quarter.The emerging markets are more dynamic and we experience weakness in the Middle Eastern markets, where economic distress and trade conflicts create instability. This was especially true in the third quarter, where sales came in lower than expected.As I've communicated earlier, our laundry business is negatively impacted by some of our large global customers and it dampens the overall growth for Household Care, especially in the developed markets.From an innovation perspective, I'm very excited that our first product of the freshness & hygiene platform ramp-up gained positive attention. We see good development in the Philippine market and the technology is gaining traction on social media. Detergents that include the technology will launch in more emerging markets during the fourth quarter, before a broader rollout next year.Outside laundry, our dishwash business delivered solid growth. This was driven partly by the recent addition of a new enzyme class and by increased demand for phosphate-free automatic dishwash detergents.Moving onto Technical & Pharma, organic sales declined by 9% in the third quarter and by 7% for the first 9 months of the year. Timing remains the main explanation for the decrease and relates primarily to Pharma. In addition, third quarter sales was weak as the textile business performed below expectations, again due to challenging Middle Eastern markets.Rounding off, I'm happy to announce that we will launch a new enzyme technology that allows wastewater plants to reduce water content in the sludge in the fourth quarter. This helps plants reduce chemical usage, energy consumption and overall disposal costs. While initial sales are expected to be limited, we're excited about the new launch as it brings significant benefits to wastewater operators and to the environment.And with that, I'll hand it over to Andy.
Thanks, Anders. Please turn to Slide 5. Overall, we're satisfied with how Food & Beverages developed over the first 9 months. The business grew 4% organically compared with last year and we're making good progress commercializing our innovation platforms, including Frontia for grain milling and Palmora for vegetable oil processing. I'm also happy with the increased traction for our solutions that address the growing level of health awareness among consumers.While performance for the first 9 months of the year was satisfactory, our Q3 result presented a mixed picture. Beverages & Food Nutrition both had a strong quarter, while baking and starch were somewhat weaker.As mentioned in the Q2 conference call, demand in certain Middle Eastern markets are under pressure because of the economic distress and tension from trade conflicts. We see this negative effect creating drag in our third quarter sales. Food Nutrition delivered another strong quarter driven by Saphera, our product for lactose reduction in dairy.In starch, there's good traction for our new grain milling technology, but commodity price movements in Asia-Pacific are creating headwinds. Outside Asia-Pacific, the starch business performed well.In baking, our revenue is down as expected due to planned freshkeeping reductions. Some of the pricing headwind is balanced by increased volumes as well as growth in the emerging markets. The freshkeeping price effect is expected to be annualized by the end of the first quarter of 2019.Our solutions for acrylamide reduction in baked and fried goods continues to do well in Europe following new EU regulations that came into force earlier this year. In Beverages, sales were up nicely in the third quarter with brewing doing well following a soft start to the year.Summing up, there's solid progress in the Food & Beverages business. Our growth platforms are advancing as we target innovation towards new segments such as palm oil and grain milling. Our emerging market expansion is showing good progress and delivering results, although the Middle East is putting a damper on our performance, especially in Q3.We're currently working through some headwinds in baking and starch, but once these are resolved, we expect an improved overall result for the business with healthy growth.With that, I'll pass it to Tina.
Thank you, Andy. Let's start by looking at Bioenergy on Slide 6. Nine months into the year, I'm very pleased to report that Bioenergy continues to deliver strong growth. Organic growth was up 14% and third quarter growth was a touch better at 15%.Sales of enzymes for convectional biofuels benefit from our strong technology base and innovative product portfolio. And our recently launched yeast product, Innova Drive, is increasingly contributing to growth. In early October, we launched yet another yeast product under the name of Innova Lift. This product strengthens an already broad product portfolio.Similar to the first half, U.S. and global ethanol production grew by an estimated 2% in the third quarter. The trend with elevated inventories and tight margins for ethanol producers are still the same. Latin America is performing very well, with Brazilian producers expanding into corn-based ethanol production. A number of plants are operating, with more expected to come on-stream over the next few years.And finally, we're happy to see that E15 in the U.S. now appears more likely to be implemented by the Environmental Protection Agency. There's still some legislative hurdles to be overcome, but longer term this is a good supportive measure for the U.S. ethanol industry for Novozymes and for the environment.Now let's turn to Slide 7 for an update on Agriculture & Feed. Organically, sales in Agriculture & Feed grew by 5% in the first 9 months, including a healthy 10% in the third quarter. In BioAg, both the second and the third quarter were good. As you might recall, we were able to produce and ship some of our new combined corn inoculant volumes to our aligned partner in the second quarter. These shipments continued in the third quarter and most of the estimated 2018 volumes have now been shipped.Sales to the animal feed industry grew in the third quarter, but are still down after the first 9 months. The Latin American market and Brazil in particular remained challenging. We saw a strong development in animal probiotics, and while it's still early days for our new gut health enzyme Balancius, we are excited by the positive feedback and increased number of customer trials.So to summarize the message for the first 9 months, Bioenergy continued its strong performance; animal feed is negative due to Latin America, more specifically the Brazilian market; BioAg posted good growth explained by timing and sale of the corn inoculant combination product; and last but not least, the launch of Balancius in September and Innova Lift here in October are 2 good examples of our strong innovation that Thomas will talk more about. So now over to you, Thomas.
Thank you, Tina. Please turn to Slide #8. As mentioned by my colleagues, we're commercializing products coming out of the priority innovation platforms. The unique freshness & hygiene product is ramping up according to plan. In animal health & nutrition, we recently launched Balancius, an improved chicken -- for improved chicken gut health. In BioAg, we launched the new corn inoculant for higher and more sustainable yeast.For the latest addition solutions for water, we are preparing to launch the first product for wastewater treatment later this year. And on top of that, I'm also excited about the broadening of our yeast portfolio with Innova Lift.Let me share some of the more details around the most recent activities. Balancius, which is the first muramidase for feed application, uses a completely new mode of action to improve digestion and gut health in animals. This enzyme degrades the bacterial cell debris in the gut that prevents optimal digestion and absorption of nutrients. For now, it's registered for use in chickens and we are looking to expand into other species.Earlier this year, Novozymes entered the yeast market for conventional biofuels with the launch of Innova Drive, and now we are introducing Innova Lift, our latest addition to the portfolio. It's designed for ethanol plants with longer fermentation times and improved yields up to 4% compared with conventional dry yeast.So to sum up, I'm happy that our impactful innovations are reaching the market with attractive value propositions and strong sustainability impact, helping our customers produce more with less.That's all for me and I'll pass you over to Prisca.
Thank you, Thomas. Please turn to Slide 9. Nine months into the year, our financial performance was satisfactory. Our reported sales in Danish krone were down 2%, comprising 4% organics sales growth, 5% negative currency impact and 1% from the divestment of Albumedix in December 2017.For the third quarter in isolation, organic growth was 5%, negative currencies were 2% and the divestment of Albumedix impacted roughly 1%, so giving a total of 2% growth in Danish krone.The gross margin was at 57.5%. Productivity gains benefited the gross margin, whereas higher input costs lowered deferred income and currencies were all negative factors. At 28.2%, the reported EBIT margin was 30 bps higher than last year. Adjusted for reorganization cost in the first half of the year, the EBIT margin was down 70 bps. This is mainly the result of negative currencies, but also higher input costs and lower deferred income.The effective tax rate was 18.5%, 1.5% lower than last year. This relates to the transfer of IP assets from Switzerland to Denmark, which we initiated at the end of 2017. While hedging losses were DKK 48 million higher than in the first month compared to the same period last year, net profit came in 3% higher year-on-year. This was driven by a lower tax rate as well as the absence of a DKK 60 million write-down of a financial guarantee in Q3 last year.Free cash flow was approximately DKK 2 billion. This is DKK 100 million lower than last year, which is mainly a result of an unfavorable development in working capital. This in turn is explained by timing in receivables and inventories. While payables ended lower as less deferred income was released to the income statement as we had expected.CapEx stood close to DKK 900 million for the first 9 months, which is roughly DKK 100 million lower than last year. I'm pleased to report that we are now initializing the trial production at our new facility near Mumbai, India. All in all, we delivered a satisfactory set of financials.Now please turn to Slide #10 for the 2018 outlook. With organic sales growth after the first 9 months of 4%, we maintain our guidance of 4% to 6% for the full year. We are experiencing difficult Middle Eastern markets that are impacted by trade sanctions and economic distress. But despite this, we expect to end the year towards the lower part of the 4% to 6% full year range. On reported sales, with the spot rates as of yesterday, we expect a negative currency impact of roughly 3% for the full year. This is similar to what we expected after the first half.If we now look at the various segments, we expect Bioenergy to end the year on a strong note despite tougher comparables in the first quarter -- in the fourth quarter, sorry. For Agriculture & Feed, we expect to finish in positive territory for the year, driven by good BioAg performance, whereas animal feed will be challenged. And the instability in the Middle Eastern markets is expected to somewhat dampen expectations in Household Care, Food & Beverage and for Technical & Pharma.As we communicated earlier, we'll continue to invest in commercial presence to support future growth. And currencies, as you know, will remain a drag in reported terms at the current spot rates. All in all, we maintain our guidance of an EBIT margin of around 28% for the full year.As you know, we have hedged our 2018 exposure at the rate of DKK 6.18 to the U.S. dollar, which is well below the current spot rate and the average rate for 2017. The effective tax rate is now expected to be around 19%. And we increased the outlook for the full year net profit growth from around 0% to now 1% to 3%.The outlook for CapEx is maintained at DKK 1.3 billion to DKK 1.5 billion and the outlook for free cash flow at between DKK 2.3 billion to DKK 2.6 billion.And now I'll hand you over to Peder for a wrap up. Peder, please.
Thanks, Prisca. Please turn to Slide #11. So let me summarize our messenger here today. Overall sales performance after the first 9 months is satisfactory and earnings are solid. We are on track to deliver in the 4% to 6% full year organic sales growth range. It does though look as if it's more likely we end the year towards the lower part of the range, and this is despite difficult markets in the Middle East has affected and will continue to affect our business.From a strategic point of view, we're moving ahead according to plans. We're expanding our emerging market activities, we focus on the commercialization of our innovative solutions, and we enter the market with more of our impactful innovation platforms. Freshness & hygiene is one of them and it's off to a good start.In the third quarter, we presented several new innovations to the market. We launched our new corn inoculant, B-360, for higher and more sustainable corn yields and we launched Balancius for improved gut health in chickens. In early October, we added a new yeast product for the ethanol industry. We possess a unique toolbox and technology that has a very favorable position. Our enzymes and microbes create a more sustainable world with more efficient use of water, energy and raw materials.As a side note, Hurricane Florence unfortunately led us to cancel our Capital Markets Day in -- Days in Raleigh in September. We've decided to host a 3-hour session focusing on the R&D and BioAg part of the original event. This will be a webcasted event on November 19th. I hope you'll be able to make time for this. We'll send out invitations shortly.And this concludes today's presentation and now we're ready to take your questions. Operator, please begin.
[Operator Instructions] And the first question comes from the line of Jonas Guldborg from Danske Bank.
A couple of questions from my side. First of all, if you could kind of elaborate a bit on how the dialog with your big clients in Household Care is going with regards to the oil price? It's still at higher levels than seen over the last couple of years. So if we could get some update on this. And then on Bioenergy, you see a 15% organic growth in the quarter. Market is growing 2%. Could you kind of breakdown the rest of the growth into what is yeast, what is market share, what is growth from LATAM and so forth?
Thanks for your question. So while Tina is preparing for the details of Bioenergy, we'll let Anders talk about the big customers in Household Care. Anders, please.
So generally, what happens when oil prices go up, the formulations -- the detergent formulations are challenged on cost. And of course that's an opportunity and we of course bring that forward in the dialogs with customers. Now it's not as if enzymes and surfactants, for example, are one to one replaceable, but of course, it favors enzyme inclusion when the overall raw materials go up. But I think the important thing is that they need to see this as a sustainable long-term event before they will make the switches. But we have seen historically when these things happen that it opens an opportunity.
And on Bioenergy, so the growth is a composition of several things. I mean, for sure, there are the market growth. Then there's also Brazilian ethanol coming on line. We have some better price and mix. We have taken some share. And then I think a very important part of it is also the innovations we have brought out, both the yeast, which we brought out earlier in the year, but also earlier innovations are continuing to contribute to the growth.
Okay. Are you able to say how much yeast is impacting the number?
No.
And the next question comes from the line of Søren Samsøe from SEB.
It's Søren from SEB. First a question on Household Care. You are now saying that you don't expect growth to fall or drop for the full year, which would indicate flattish growth in Q4. If you just confirm that, because you've earlier said that the year would be backend loaded? And related to that, also if you could elaborate a bit on the hygiene platform? I would have expected that you have launched in more markets than Philippines in Q3. What's the reason why this has not happened? And then regarding Food & Beverage, starch conversion seems to now not grow anymore in Asia-Pacific. Does this mean that we should expect growth for the division to come down a notch from the good growth you've had the last 6 quarters?
Thank you very much for your questions. Another Household Care question for Anders please.
So what has happened since we talked last is that we have seen a worsening in the situation in the Middle East and that is essentially the reason why we now talk about we do not expect Household Care to decline. Of course 9 months into the year and we are flat. Improving that full year will mean that we'll have to have a rather substantial pick up in Q4. And with the challenges in the Middle East, we now guide slightly more negatively. In terms of the hygiene rollout, I think it's very important to stress that we are on the plan as we have already -- always expected. We are selling in more markets, into the emerging markets, but our customers are not yet commercializing with their campaign. So I think it's important to stress that we are not only in the Philippines. We are in more markets. And then they will start to pick up their campaigns later in Q4 and in 2019.
And, Andy, starch in Asia-Pacific and Food & Beverage growth in general please?
Yes. So the starch business is comprised of 2 parts. One is the refining part. That's the part that's challenged in Asia-Pacific right now. And it's actually quite a regular cycle, where sugar prices move up and down compared to starch sources and customer switch in between the 2. Right now we're seeing a bit of headwind because of high starch prices and lower sugar prices, but that's not a sort of structural change. The other part of the starch business is grain milling, which is brand new in an area that we're moving into and penetrating. So that provides a longer term sort of positive growth driver for the business going forward. So I'm not overly worried about starch becoming a problem. There's actually good opportunities there. When you look at Food & Beverage in general, we've just seen very high comps from last year and we're actually averaging out at a lower rate, but those comps actually get easier going forward. And we think we're in good shape to continue good growth over the long-term.
And the next question comes from the line of Laurence Alexander from Jefferies.
On BioAg, can you speak a little bit about how you think about the impact of lower crop prices affecting farmer reception of the new products or of your products in 2019 and 2020? And one of your very distant peers in the Ag industry flagged some adverse changes in the regulatory environment. Have you seen anything in BioAg in the biologicals arena where regulatory standards are starting to tighten?
Thank you. We'll let Tina have a go at that. Tina, please.
Yes. So on the lower crop prices, you are right. In the beginning of the year, we also called out that the continued depressed Ag cycle continues to be in place and for sure that is a drag on the industry as such. One of the things which I think is important for us and what we have talked about for quite some time now is that innovation is important even in a depressed market. And that's also what we are seeing with the B-300, B-360 launch, that we need to innovate in order to be able to create a good performance in a depressed market. On the regulatory BioAg situation, no, it's not so that we see any major change there.
And the next question comes from the line of Annette Lykke from Handelsbanken.
Tina, could you share with us a little bit of information on how you see Innova Lift compared to one of your competitors in terms of yield improvement? And also still confirm that you see the market size for yeast to -- I think you have said $200 million before. Then on the soft market for Household Care and your instruction of hygienic enzymes, will this mean that some of the formulations you were working on for liquid and pets -- or potash, are this changing? How do you see the timing of launching in more soft markets? That's the question for me.
Yes. Thanks. So one in Innova Lift and Innova Drive. We see Innova Lift to be particularly strong at long fermentation times, so some of the plans run at long fermentation times. While Innova Drive is better for shorter fermentation times. It's also true a number of competitors have products out there, but we are quite comfortable with the performance our products are delivering. On the market, you are correct -- you're correct on the market size, Annette.
Okay. Can you say anything specific on yield improvement?
Yeah. So as we alluded to in the call, I mean, with Innova lift you see up to 4% yield increase, but for sure it depends on how you run the plants, what are the conditions and so forth. But we see an uptick in performance for both Lift and Drive. And especially when the plants are, you could say, under stress conditions, so when it's hot, when you have a lot of solids, when you have a lot of acids and so forth, that's typically times where the yeasts are, you could say, lowering the ethanol yield simply because they cannot perform under these circumstances. While the yeast we are bringing out is something from a unique background and they are more tough than the traditional yeasts in the market.
So what you're saying in average your products are delivering high yield, but sometimes eBOOST can do higher because I think we see data around 6% yield improvement for that product?
Okay. I'll not comment on competition's products. But we are quite comfortable with the performance as you also can see in our numbers.
I think -- just to add, with the limited insight, though, I think the -- you should look at these 200-and-some ethanol plants in the U.S. as individual plants and they operate in different ways. They have different unit operations. And obviously, we do not expect our Innova platform to gain a 100% of the market. But we think we have found some really interesting niches, where we can help customers drive their performance to a better level. We'll now have to see how it picks up. We are very excited about the first yeast we brought to market and it has enough volume for us to sit here and talk about it. It matters. And we also think Innova Lift is going to be a real significant addition to that portfolio. So with that, I will give Anders a chance to talk about hygiene & freshness. Anders, please.
Yes. So thanks for the question. If anything, we're actually in front of our plan on freshness & hygiene. And what we have said is actually where we are -- we are exactly where we plan to be. So we're rolling it out into the emerging markets in '18. We'll have a broader rollout out of the powder version in '19. In late '19, early '20, we'll be rolling out the liquid version. And then as we have said all along, the North American market has some specific challenges that has -- will take the launch of the solution to North America somewhat out into the future and that we're right now working on something like '22 for North American rollout.
And the next question comes from the line of [ Nicola Cheng ] from Exane BNP Paribas.
Firstly, on the Middle East. Could you talk a little bit more about that? Is it that we're seeing an impact from sanctions specifically or is it weak demand because of geopolitical tensions? In other words, I'm wondering whether the -- some of the business has gone to 0 because of sanctions or whether -- and whether we should assume this has gone forever or could come back maybe after Q4? And secondly, on Bioenergy. Can you remind us how big Brazil is as a percentage of your Bioenergy business as I understand it's relatively small, but I guess it could grow? And can you give any details in terms of your market share in the corn ethanol market in Brazil and how much use capacity you think is being added within the Brazilian ethanol production capacity mix?
Thank you very much. We'll let Prisca have a go at the Middle East, so to say. Prisca, please.
Yes. So you're right. As we've pointed out, Middle East is dampening our expectation for the full year growth. Now it is a mix of things. So yes, there is obviously reinstated U.S. sanctions towards Iran, but we also see -- we saw obviously the weakening of the Turkish lira and the whole economy in Turkey is actually under pressure. And we also see weaker markets such as Saudi Arabia and Egypt. So it's a mix of things that we saw. As Andy pointed out, we already saw signs of that in Q2, but we see more of it in Q3. And on your question going forward, obviously it's very hard for me to comment on future developments. We expect the trend definitely continuing into Q4, which is why we're calling out the likelihood of ending at the lower part of the range. But it's very hard for me to give you any insight into beyond that, because obviously visibility is quite low for us.
Thank you, Prisca. And then, Tina --
Okay, that's clear. Sorry.
-- on Brazil. Oh, go on.
Just to follow on that, sorry. Would you like to quantify how big those countries are please in terms of your...
I didn't -- could you repeat that? I didn't acoustically understand it. Could you repeat the question please?
Are you able to quantify the group sales exposure to these specific countries?
So what I can say is that we -- for 2018, we estimate the impact to be closer to a percentage point in growth, which is also the reason why we're pointing towards the lower end of the range. Beyond that, it's hard for me to comment at this point of time. I hope that helps a bit.
Then, Tina, on Bioenergy in Brazil. Tina, please.
Yes. So right now, Brazil is moving really fast on corn ethanol. They did a new piece of legislation here in 2017 and we expect that the output will triple to around 0.4 billion gallons this year compared to where we were in '17. Right now, investments in corn ethanol capacity gives a better return than it does in sugar sugarcane crushing right now. So that is helping producers to move to corn ethanol, and a lot of them do it also as bolt-on to the sugar cane operations. We expect that over the years to come, in the next 4 or 5 years, that there will be another tripling of the amount of corn ethanol mills. So it's a significant boost up there we have. And in terms of market share, was the second part of your question, we do have a quite nice position in Latin America, above the average for the segment.
And yeast in Brazil?
Yeast in Brazil. So yeast in Brazil is still -- we're not playing that much there. When we talk yeast, it's North America so far, first generation yeast so far.
And the next question comes from the line of Lars Topholm from Carnegie.
A couple of questions on my side. Tina, in your presentation you mentioned that in BioAg most of the sell-in had now taken place, I assume slightly earlier than last year. Just to help me out, what does that imply for BioAg growth in the fourth quarter?
Okay. So that implies that there will be a tough comparison, because we had the growth in Q4 last year. But overall for the full year, Lars, we do expect a strong performance in BioAg. So you need to look at it at a yearly number. But the comparison for Q4 will be tough.
But I need to guess the last quarter, Tina. So I know I have to look at the full year, but there's just one quarter left for guessing. So are you implying it won't grow in Q4?
What I'm saying, we are not guiding on individual quarters, Lars, but overall BioAg will be delivering a strong performance for the full year.
And then on Bioenergy. So you've obviously had an extremely impressive growth for the first 9 months. Comps are getting somewhat tougher in Q4. And I have this slight fear that Green Plains shifting to energy and it might hurt you in Q4. Are you foreseeing any significant change in momentum in Bioenergy in Q4 compared to the year-to-date momentum?
So in terms of -- I do not expect any impact from energy and Green Plains on our numbers in Q4. I expect the momentum to continue. However, as you rightfully are pointing out, comps will be more difficult.
And then maybe a final question to you, cash flow, because now your cash conversion is down. And, Prisca, you mentioned it's partly because of higher net working capital, which is about timing. So can you comment on what causes this timing and will we see net working capital go down again towards end of Q4 or what can you comment on that?
Yes. Thanks for the question, Lars. So maybe first of all, cash flow in Q3, as you've seen, was pretty strong. I also want to say that there was a little bit of a timing impact there as the quarter ended on a Sunday, so -- but nevertheless, we have strong cash generation in Q3. As for the working capital, so I think it's twofold of the story. Working capital has come down somewhat since the mid of the year, but obviously it's still on fairly high levels, particularly the part where it's about receivables and inventories. We expect still timing to impact. So we expect some improvement there. The payables part there's a mix of things, but the deferred income part of course that's, as expected, going down. So I think overall the most important thing we stick to our free cash flow guidance. And I would see that the timing will help us in that part of the working capital. I hope that has clarified a little bit.
And then one final very brief question from me. Is there any particular reason why you don't disclose the full cash flow statement for the quarter?
No, there's no particular reason. And we disclosed the 9 months statement. And of course, we're always looking into what we can improve, so we'll definitely look into your inputs there.
And the next question comes from the line of Ben Gorman from UBS.
And just a few quick ones for me. Just coming back to BioAg and Feed, maybe if we could just clarify a few things coming into the comps again on Q4. Because it looks like Feed actually grew in Q3 against an easy comp. So I was just wondering what the comp in Feed specifically looks like going into Q4 and whether you expect that to be down in that quarter? And then whether you're still seeing the negative impact from the tariffs and the impact on Canadian pulses? So that's the first question on -- from BioAg. Secondly, on Bioenergy. I'm just wondering what you're seeing in terms of China at the moment. So whether you're seeing them continuing to ramp-up and potentially the growth contribution from that region? And then finally, just if you can clarify the deferred income for the quarter and what you think that that does into year-end in terms of impact on the EBIT line?
So on the Feed and BioAg split, so we do not report on Feed and BioAg individually. But what I can say is that for the quarter, as you rightfully say, we do have growth also from the Feed part of it or the animal health and nutrition part of it. In general, though, the animal health and nutrition business is challenged for the full year and -- while BioAg, as we talked about earlier here in the call, is doing very well. In the animal health and nutrition space, the probiotics part is doing very well, while the Feed, particularly Latin America, is not doing well. And you're also right that we do have in the Ag and Feed segment a significant step up from Q3 to Q4, so we have a very tough comparison for Q4, as we have talked about before. Then you asked about pulses and BioAg and India, and you're right, that that has been hitting our sales, yes, for the full year. On China and Bioenergy, we do see that the provinces are starting to put legislation in place and -- so they are starting to get ready for the E10, but it is still early days for them to get through it. But we are starting to see things happening, but still at a low level. On deferred income, I'll leave that to Prisca.
Yes. So thank you for your question. So in Q3, we saw about 0.2%, so 20 bps, impact from deferred income. Now if you want to look at year-to-date, on Page 4 of our stock exchange announcement you see the full year -- sorry, you see the 9 months number, which is DKK 108 million in this year compared to DKK 122 million of last year. So I think you can from that extrapolate then also the full year trend.
And the next question comes from the line of Hans Gregersen from Nordea.
Bioethanol. There's been some changes in the U.S. regarding E15. I wanted to know if you can give a little bit of perception on how you see the market outlook from this affecting the industry in, let's say, in a 1 to 3 year outlook? Going back to Household Care in terms of the hygiene or freshness, you mentioned that we could see more rollout in 2019. I understand you cannot give specific countries, but could you allude to is it more developed versus emerging markets and, let's say, a number of markets, just giving a little bit of insight into that? And then for Andy on baking, could you talk about how the Novamyl volume performance has been? I understand of course that you have seen negative price, but I was more interested on the underlying volume development? And then finally for Peder. For the webcast you have announced, will you still release the original full CMD slide deck?
Thank you for your questions. I will let Tina take the E15 question, North America. Tina, please.
Perfect. So on E15, yes, it is for sure a good support to the biofuel industry in the U.S. with the possibility to getting the ban on E15 in the summer month lifted. However, there is still a number of things which needs to happen before that gets into place. So there is some legislation which EPA needs to secure before that comes real. And then when that's done -- so that's the first thing to be done. Then infrastructure and customer or consumer habits also needs to be adapted to E15. So it's not something which will happen -- which will have an impact short-term, but it is for sure a support to the biofuel producers in the U.S., and in the long run, it is a positive for the industry. Growth Energy has been out with some estimates on how much they expect it to be by 2021. You can see these numbers there. But you also have to remember that so far there is less than 1% of E15 stations in the U.S.
But Tina, could you just explain to us? You said there's some legislation for EPA that needs to get done. Is that something EPA can decide internally or does it has to get political approvement?
Yes, so what we can see is that here EPA have started to do the investigations and they need to put that piece of legislation in -- or gets that in place. So it's with the EPA, who needs to secure that it happens.
And for the part...
And did you just state the -- Tina, you mentioned Growth Energy. What was the number?
So what Growth Energy are saying is that they expect that the number of stations will increase from around -- from less than 1% today to up to 9% by 2021.
So I think -- we of course view this as very positive news. It's going to add volume and also make the whole business proposition for our customers in the U.S. better. It's a bit too early to be really arms up on it because -- I mean, I was naively expecting that it would add like 50% volume if you go from 10 to 15, but I don't think it's that simple. Now we need to see the legislation get in place, and I'm sure there are political risks around that, although the market is quite upbeat about it. And then secondly, we need to see it travel to market and that's where the roughly 9%, 10% volume growth gets into play that could come off E15 over some years. So we'll have to see what happens. And of course we'll be more specific about what we expect in '19 when we get to guide for '19. And on '19, Anders, Household Care please.
Yes. Specifically, on the hygiene & freshness powder rollout, we will see rollout in both developed and more emerging markets throughout the course of '19. I think it's important to remind ourselves of that our sales actually get booked quite some months before you will see the actual campaigns in the market. So we have our rollout plans and we will have the effect before you will see it in the marketplace.
And as you mentioned also that the U.S. there were some Technical problems. Is that only related to liquids or is that also powders?
So it's not a Technical problem. It's been in our plans all along. The issue we have in North America relates to the fact that they have more dilute formulations or dilute wash conditions, and that means that the effect of our technology needs to be more potent than what we currently need in the European liquid markets and for that matter other liquid markets that use front loaders machines. We are working very actively together with a partner on finding solutions and we actually have a number of leads that looks to be quite solid, but we do not have the final formulations yet for the North American market. But that has been the plan all along, that we will only get to those markets later.
Thank you, Anders. Then, Anders -- Andy, on Novamyl volumes in the U.S. Andy, please.
Yes. So we've seen a slight bump in volume, but that's not been able to overcome the price glide path. The bigger positive for baking has been growth outside of the North American market, even in freshkeeping.
Thanks, Andy. On Hurricane Florence, apologies for having to cancel it. We're trying our best to do a repeat. I mean, the Capital Markets Day was supposed to be more educational. So we're taking the core of that and we're doing that as a webcast. Obviously, in a webcast of 3 hours we cannot cover the entire program, so I cannot promise you that there weren't slides that we have prepared that will not show. I think slides has to come with a commentary. As you can see in this slide deck, we concentrate on research and innovation as we had planned. There will be a lot about some of the innovation platforms that we're taking to market now and that will matter to growth going forward, freshness & hygiene, grain milling and animal health. We'll do some deep dives on the BioAg and we'll do some post sessions on the new products in BioAg. So we'll try to cover most of it, but of course, we cannot cover a 2-day program, including exciting visits to our facilities. And I tell you people that we're really unhappy we're not getting the pleasure of doing the show. They had prepared it very well. I hope we'll get a chance later on. But for this year, it's going to be a webcast that will concentrate on these pieces.
And the next question comes from the line of Michael Rasmussen from ABG.
Three questions from my side please. First of all, what number of product launches are you expecting to bring to the market in 2019 versus 2018 please? My second question is on yeast in the U.S. So what is your estimated market share currently on Innova Drive here? And then the final question, a bit of a follow up on the E15 discussions. What about asset -- I understand obviously that the outcome can't be -- can vary a lot between maybe the 0% and the 50%. But assuming that the market needs to bring new ethanol capacity to the market, do you think it will be conventional corn ethanol plants or are you looking at 2G plans now that they seem to be a little bit more reliable or imports or anything thirdly?
Thank you. So I think we've finally got a question for Thomas. Thomas, please.
Yes. So thank you very much for that. Over the last number of years, we have been having product launches in the range of 15, 20 launches a year and that's also what we expect to do this year. So somewhere along the lines of what you've been looking at the last year and the year before that.
And on yeast in the U.S. and market share, so it is still early days. We launched the product here in -- the first product here in February and then with the follow up product here in October. But it is a nice part of our growth, but it is still a smaller market share number. Then on E -- I think the question was on E15. There was some breaking up of the line, so I'm not sure I fully understood it. But what I heard was whether it would be conventional or 2G in order to get to E15. I think that in the U.S. it --
I think it was breaking up.
Was that correct, Michael?
Yes, yes.
Yes, yes. So on E15, it will mostly be starch-based ethanol.
I think with the technologies that we have -- and you may remember that in '13 and '14, we were able to change mix to our favor because yield was really important. If you combine all these technologies and you look at the installed capacity in the U.S. today, there's a lot of extra volume that can come out of the existing capacity. So with the current expectations for volume demand that's driven by E15, I think it's likely that it will be the existing plans that actually just do more, which will be really good news for us.
And the next question comes from the line of Klaus Kehl from Nykredit Markets.
Just 2 follow up questions from me. First of all, there's no -- I guess it's no big secret that Brazil is starting to impact the numbers. But at the same time, it might still be very early days for Brazil in bioethanol. So could you give us any kind of idea what impact it has here in '18 in order to get a feeling for what it could be in '19 and '20? That will be my first question. And secondly, did you say that the market potential for your yeast products is in the range of USD 200 million, yes, was that correctly understood? That was my questions.
I think we'll save Tina's voice a bit. I'll actually take both of them. First of all, Brazil is actually one of the pioneers in bioethanol, just to get that right. But most of the volume in Brazil is cane ethanol, which is about 1/3 of the U.S. total volumes. So it's by far -- I mean, it's a very clear #2 when it comes to the world of ethanol. Brazil is expanding in 2 ways. Brazil is expanding its output through corn ethanol, where we're just at the beginning I think. There's a ramp-up that's happening. There will be a lot more coming. Corn is grown in the northwestern part of the country and corn is than pretty much with American -- the American way converted into ethanol. On top of that, we're also excited about the biomass opportunities in Brazil because they -- and probably the most serious entities in the world is working in Brazil to pass some extra volume from 2G. And again, Brazil is trying to get its current 5 billion gallon output to increase to about the double of it. Exactly how that is going to work and what the balance is going to be, we don't know. Of course, in this world of trade conflicts, there's also new channels of exports and imports that we need to -- or our customers need to think about. But in my mind, Brazil is a significant ethanol country and with a very large potential for additional volume. The yeast total market is about USD 200 million and we're trying to find interesting segments of that market where our technology can really get to play. So it's not our products that we see get to $200 million. It's the total market.
And we have a follow up question from Ben Gorman from UBS.
Just a quick follow up on E15. I just wanted to clarify some of the logic on the sort of limitations of E15 growing the market significantly, as you mentioned. I just wanted to clarify that you were talking about 1% of petrol stations offering it, going to 9% by 2021. And you mentioned sort of in the region of 10% growth, guessing just purely on the back of that infrastructure growth. And can you clarify a few reasons why you think that it wouldn't grow the market 50%? I mean, obviously if gasoline prices are as high in comparison to ethanol prices sort of on an ongoing basis, which I know is a big question, then it would be odd for it not to increase by more. Can you just clarify why you think that's the case?
Obviously, we would love it to grow more. I just think -- I mean, we're listening to our customers, people who are close to the American market, people who are close to -- I mean, the trade between gasoline and ethanol and they are estimating lower than 50%. Now we'll have to see where it goes and we'll be much more specific about 2019 when we get to January. Of course, we're trying to extract as much information from the American market as possible. So I don't -- it's not because we have any particular insights. We're listening to our customers. Obviously, all of us would like it to go as high as possible.
[Operator Instructions] As there are no further questions, I'll hand back to the speakers.
Thank you so much and thank you for all your questions. Thanks for the interest in Novozymes. And then again, it's going to be a webcast on November 19th, but we'll try to make it as exciting as you can make a webcast. And I hope we'll be able to really convey some of the things, some of the new innovation pieces that's going to drive the business over the next 5 years. So I would encourage you to sign up and accept the invitation. But of course, we also know that it's a short timeline. But you'll get invitations shortly and I hope you'll sign up.Thank you so much for your interest. Thank you.