Earnings Call: Q4 2019

Jan 23, 2020

Good morning, and welcome to the Novozymes Conference Call. My name is Peter Hultnilsen and I'm CEO of Novozymes. I'm joined here today by the Executive Leadership Team And Investor Relations. We'll start by reviewing our performance and key events for 2019, and we'll discuss the outlook for 2020. Our presentation should take around 30 minutes and afterwards afterwards, we'll be happy to answer your questions. Please turn to Slide 2. Despite an improvement in the second half of the year, sales performance in 2019 was unsatisfactory. Organic sales grew 1% in fourth quarter, but declined 1% in the year. As expected, The first half was negatively impacted by the annualized effects of sanctions and the general economical distress in the Middle East. On top of that, the challenged it was challenged by severe weather conditions in the U. S. Midwest. Hospital Care performed well, especially in the second half and delivered on the especially our Bioenergy business and our ag and feed businesses. We had good traction with Frontier for grain milling, and a strong momentum in the nutrition business. But as food and beverage was also impacted by the U. S. Weather, the Middle East as well as challenging, a challenging Chinese starch business, food and beverage was below our expectations in terms of sales. All in all, it was a tough year in terms of sales performance. We're reporting good financials with a 28.1 percent EBIT margin and DKK 2,200,000,000 in free cash flow. This is what's satisfactory. 2019 was also a year of change, with the launch of our Better Business with biology strategy, the implementation is progressing according to plans and positions Novozymes to deliver stronger performance. Now let's turn to the outlook. Novozymes sales is expected to grow by 1% to 5% organically in 2020. That includes the effects from portfolio changes. Growth will be driven by innovation broader commercial presence and flow in 2020. The wide sales outlook indicates some uncertainty. It is especially related to the ag exposed businesses. The growth outlook for Household Care And Food And Beverage are narrow around the midpoint of the overall company range. While we see more uncertainty in both bioenergy and ag and feed. Earnings for the year are expected to be solid, driven by operational improvements. We expect an EBIT margin of around 27%, which is roughly 1 percentage point above the 26% underlying margin of 2019. We expect a free cash flow of DKK 2,500,000,000 to DKK 2,900,000,000, which improves on the free cash on the free cash to sales ratio. We propose a dividend of R5.25 per share, and a stock buyback program of DKK1.5 billion, which is in line with our capital structure policy. All in all, We're positioning the business for stronger sales growth, stronger earnings and stronger cash generation. Before we move onto the segment review, I'll cover the geographical performance. Please turn to Slide 3. In the fourth quarter, emerging markets grew by 5% organically. This was mainly driven by Household Care And Bioenergy, Developed markets declined by 1% in fourth quarter due to weak North American performance in Bioenergy and BioAg. For the full year, sales to both developed and emerging markets declined by 1% organically. Developed markets declined mainly due to challenging agricultural markets in the U. S. And emerging markets were down, mainly due to sanctions and the economic distress in the Middle East. There was also some weakness in starch processing in China. With that, I'll now hand it over to Amos to review the developments in Household Care. Anas, please? Thank you, Peter. Please turn to slide number 4. Sales in Household Care grew 5% organically in the 4th quarter, driven by strong growth, from the Freshman's platform and good performance with local customers. Sales in China rebounded after a slow start to the year. Together with solid growth in the Americas, Europe and India, this shaped our good fourth quarter performance. Organic sales grew 1% in 2019, and it was encouraging to see a 5% growth in the second half of the year. Some of the positive developments surfaced after being overshadowed by negative effects from economic disturbance and sanctions in the Middle East in the first half. Overall, the full year performance was largely driven by positive contributions from freshness and local customers. The development of our freshness platform progressed well during 2019. Products containing our technology are now on the shelves in selected countries Cross Southeast Asia, the Middle East and Europe. Furthermore, we achieved all key innovation milestones we aimed for going into the year. And we are well on our way to launch more freshness innovations in the coming years. Growth for local customers in 2019 was driven by both developed and emerging markets. It was encouraging to see strong growth in both India and Africa following recent years focused investments. Looking at 2020, we expect a solid momentum with local customers to continue. Fueled by an even stronger regional setup and more solutions tailored to emerging markets. In addition, we expect continued growth from our freshness platform as the technology is rolled out to more country, more countries. Now moving on to Technical And Pharma. Organic sales in Technical And Pharma declined 4% in the 4th quarter and 3% in 2019 overall. The negative development in 2019 was primarily caused by the textile business as production shifted away from China to countries with lower enzyme pinstration. Now, Andy, over to you. Thanks, Anas. Please turn to Slide 5. For food and beverages business, Q4 came in at 2% organic growth, continuing the modest recovery after a difficult first half of the year. For the quarter, sales and baking were robust and food nutrition and brewing showed solid growth. Starch and beverage alcohol continued to decline. For the full year, the recovery in Q3 and Q4 were not enough to overcome the first half weakness. So all in all, F and B declined 1% organically for the full year. 2019 was a difficult year for our starch processing business. Sales in China were under pressure from adverse commodity prices. Further, developed markets suffered from severe weather conditions in the U. S. Midwest and general weakness in the high fructose sweetener market. On a positive note, our newly launched Grand Milling solution, Frontier, has been doing well and has been received by customers in multiple geographies. This gives us confidence we we saw improvement in the developed market business as fresh keeping prices showed some stabilization. At the same time, China and Southeast Asia continue to post high growth as we capture demand in those providing the beginnings of a recovery from the earlier decline. All in all, this means we end the year flat in baking. Sales in the Food And Nutrition business continued to post good growth in 2019, strong consumer demand for high quality, healthy and sustainable food fit very well with our innovative solutions, especially our protein ingredients and planet traction solutions were in high demand with broad based sales growth throughout the year. Sales and beverages grew slightly in 2019, driven by solid growth in brewing and Juice wine, while sales to distillers contracted. Brewing growth was strong in most regions and balanced across application segments. Summing up 2019, it was a disappointing year in food and beverages, where poor results in the starch processing and selected baking markets meant we didn't deliver on our growth ambition for the year. Looking forward to 2020, we expect our recently launched innovations in Grain Milling, food nutrition and vegetable oil processing to drive growth. That combined with stabilization in starch and baking, meaning we expect to return to positive organic sales for the coming year. From a geographical viewpoint, growth will be broad based, and we expect emerging markets to return to higher growth rates than developed markets. We estimate organic sales growth for food and beverages in 2020 will be around the midpoint of the 1 to 5 Novozymes overall outlook but with a more narrow range than the company outlook as a whole. And with that, that's all from me. Tina, please. Thank you, Andy. Let's start by looking at Bioenergy on Slide 6. 2019 was a tough and unpredictable year for our Bioenergy business. For the full year, organic sales declined by 3%, while sales in the 4th quarter grew by 2%, which was an improvement compared to the 1st 9 months. During the year, the U. S. Ethanol industry was challenged by low producer margins, elevated inventories and severe weather conditions in the U. S. Midwest. According to the U. S. Energy Information Administration, the production decline eased somewhat in the 4th quarter and ended at minus 2% for the year. As I've mentioned on earlier calls, our customers pulled back significantly more than the 2%. On the positive side, our yeast platform continued to perform very well and Brazil is on an exciting journey towards increased production of stats based ethanol. The Brazilian production reached close to 1,000,000 gallons in 2019 and Novozymes is well positioned in the region with a strong setup of tailored solution and industry expertise. In the U. S, The Environmental Protection Agency finalized a more flexible regulation for wafer pressure, allowing for up to 15% ethanol blends all year round. This removed one of the more significant barriers to wider sales of E15 in the U. S. In December, the renewable fuel obligations for 2020 was announced at roughly 1,000,000,000 gallons of which 1,000,000,000 is starch based. Looking at other countries, China recently indicated that it will not implement a countrywide E10 blend already in 2020. This is in line with Novozymes' expectations and does not impact the sales outlook. Growth in 2020 is expected to be driven by the continued capacity expansion in Brazil We expect a flat volume development in the U. S. Market for 2020 as low ethanol producer margins, elevated inventory inventories and small refiner exemptions are sources of uncertainty. And now please turn to slide 7 for an update on agriculture and feed 2019 was a weak year in terms of organic sales in our ag and feed business. Organically, sales declined by 5% for the year and by 9% in fourth quarter. The performance in Q4 was expected and mainly due to weak farm economics and lower Latin American planting. As mentioned in previous quarters, The decline in BioAg was mainly due to the severe weather conditions in the U. S. Midwest, amplified by weak farm economic But despite the headwinds, BioRise our new corn inoculant launch in partnership with Bayer is doing well. Feed sales were flat in 2019. Balenchers, our solution for improved gut health and poultry, continue to gain momentum together with our partner DSM. When it comes to the 2020 outlook for ag and feed, We are aware of the uncertain situation in the ag related markets, which is primarily due to the global farm economics and trade related concerns. Feed performance will be driven by the continued commercialization of valentures. And in agriculture, performance will be supported by its penetration of corn inoculins in the North American market. And with that, I'll hand over to you Thomas. In the fourth quarter, we launched 3 new products, 2 of which were for the broad market. Over the course of the year, we launched a total of 20 new products with 9 solutions for the broad market and 11 tailored to specific customers. Some of the more significant launches were Frontier G8, and the 2 new yeast solutions in over force and in overfit. Frontier Jade is the latest addition to our Grain milling platform. Specifically developed for the Chinese market. The product extracts additional value from corn by releasing more starch and more protein. Inoverforce, which was launched back in second quarter, is a yeast that in combination with our enzymes, deliver the most reliable inflection of solution available in the market. In the same quarter, we also launched Inuit, a non TMEs that enables penetration in Latin America and Europe. 2019 was a year of change as we aligned our activities with the updated strategy, better business with biology. To operate our pipeline in a more focused way, we have selected the most impactful innovations and as a result, reduced the total number of projects from more than 1000000 to around 1000000. Looking at our strategic opportunity areas, we decided to merge the new water activities. And structurally, we have consolidated our investments in contamination removal where we focus on nitrogen together with our existing water platform. This will leverage the technology investment and secure commercial execution across the board platform. Our investment in human, oral and gut health as well as advanced specialty proteins are progressing well. We are evaluating new candidates and will provide an update as they are included in our strategic opportunity framework. I'd also like to present our sustainability and non financial targets. So please turn to the next slide. As part of the updated strategy, we have adopted a new set of ambitious sustainability target. The framework considers both our opportunities for having a positive impact through our Commercial Solutions and our responsibility to minimize the impact from our own operations. The targets focus on people and the 3 global challenges its climate, its water and its production and consumption. For each of the global challenges, we have defined long term 2030 commitments to set the direction and midterm 2022 targets to drive performance in line with our strategy. We'll keep you updated and hold ourselves accountable by reporting our progress on an annual basis. We'll focus on reducing CO2 emissions from operation by increasing the share of renewable electricity and by reducing our overall energy consumption. We're also developing programs to achieve 0 waste and ensure our site uses water in a sustainable manner in balance with conditions. We continue to have strong emphasis on safety, well-being in the workplace and maintain a low number of occupational incidents. On the people side, we want to enable learnings and grow for our employees as well as nurturing diversity within the organization That's all from me, and I'll hand you over to Lars. Thank you, Thomas. Please turn to slide 10. Despite the pickup in the second half of the year, our overall sales performance in 2019 was unsatisfactory with 1% organic sales decline. The more air exposed areas in the business were under pressure, while Household Care performed as expected. Stronger U. S. Dollar meant that the reported Danish kroner performance was flat year on year. The gross margin ended at 55.3% in 2019, which was 2.1 percentage points below last year. The decline was mainly due to lower operational leverage, lower buyback deferred income, and restructuring effects. The reported 2019 EBIT margin of 28.1 percent was as expected and roughly on par with the reported margin in 2018. Both the full year and 4th quarter EBIT margins were affected by 1 offs. The 4th quarter margin benefited from lower employment costs, following the August restructuring. Furthermore, an income related to the divested Pharma asset improved the 4th quarter EBIT by roughly 1,000,000. In addition to the restructuring and 4th quarter Farmer income effects, The full year EBIT margin also benefited from the divestment of the pharma related assets and recognition of deferred biowag income in the second quarter. The net effect of those items amounted to around 200 basis points for the full year, and consequently, the underlying EBIT margin was roughly 26%. The effective tax rate was 17% in 2019, which was 1% lower than 2018. The effective tax rate was lower, mainly due to reduced uncertainty in the tax position related to advanced pricing agreements. Net profit declined by 2% for the year, as the positive development in the effective tax rate wasn't enough to compensate for losses on currency hedges and lower operating profit. In the 4th quarter, net profit grew 10% as it was positively impacted by 1 offs and a lower effective tax rate. The free cash flow before acquisitions was 1,000,000,000 in 2019, which was roughly 1,000,000 less than in 2018. While the cash flow benefited from lower CapEx, this was more than offset by the lower cash flow from operations. Now please turn to Slide number 11, for the 2020 outlook. For 2020, we expect organic sales growth of 1% to 5%. This includes the negative impact from portfolio changes as we align the business with our updated strategy. The relatively broad sales outlook range reflects uncertainty, especially in our more ag exposed businesses. Consequently, the expected growth ranges for Bioenergy And Agriculture And Feed are wider than the overall company range and narrower around the midpoint for household care and food and beverages. Organic sales in Technical And Pharma are expected to be slightly below the midpoint of the overall company range. The EBIT margin is expected to improve by around 100 basis points from the underlying level of around 26% in 2019, to around 27% for 2020. The increase will be driven by a mix of sales growth, productivity improvements, and lower input costs. The savings from the third quarter restructuring will have a positive effect on margins, particularly early in the year. This will gradually subside as resources are reinvested to support our updated strategy, better business with biology. Applying current spot rates for the major currencies, we expect a neutral currency effect for both sales and EBIT margin for 2020. The free cash flow is expected to increase to SEK2.5 billion to SEK2.9 billion, supported by higher sales lower net investments and roughly flat developments in net working capital. Net investments are expected to be between 0.8 and DKK 1,000,000,000 in 2020. This reflects an adequate level of maintenance, expansion and optimization CapEx. The return on invested capital, including goodwill, is expected to be between 20% 21%, which is roughly on par with the 2019 level. Subject to approval at the annual shareholders meeting in February, we proposed a dividend of per share This is 5% higher than last year and corresponds to a payout ratio of 46.8% compared to 44.6% the year before. In addition, we are announcing a share buyback program of up to DKK 1,500,000,000 for 2020. This is in line with our financial strategy to return the free cash flow generation to shareholders through a combination of dividends and stock buyback at a net debt to EBITDA ratio of around 1. In summary, we expect positive sales and financial developments in 2020, while at the same time acknowledging the ag related uncertainties that hit us hard in 2019. With that, I'll hand it over to you Peter for some final remarks. Thank you, Lars. Please turn to slide number 11. Let me summarize the message here today. Although we saw an improvement in the second half Our AC exposed businesses were marked by uncertainty and impacted by the severe weather conditions in the U. S. Midwest. We expect to do better in 2020. And a stronger focus on execution and follow-up. Novozymes sales are expected to grow by 1% to 5% organically. The broad outlook range reflects uncertainty, especially in the more ag exposed businesses. And includes an expected negative impact from portfolio changes as highlighted at the Strategy Update. Earnings and cash flow are expected to develop well. Before we open for questions, I would like to note This is my last conference call. It's been fantastic to be a part of Novozymes and the Novo Group over the past 35 years, and it's been a privilege to serve on the executive team for 25 years. Next Saturday, I'll hand over to Estebacher I'm confident Esther and the team will develop Novozymes' unique position and technology, while driving the company to deliver on our strategy which we title Better Business with Biology. Novozymes Processes unique technology and know how, and it is positioned well not only to deliver organic growth and solid returns to shareholders, but also to find biological answers for better lives in a growing world together with our customers. Personally, I want to thank you all for your interest in Novozymes. And for our interactions since we IPO ed in 2000. That concludes today's presentation, and we're now ready to take your questions. Operator, please Our first question is from Jonas Guilpa from Danske Bank. Please go ahead. Your line is open. Yes, good morning and thank you for taking my questions. First of all, a question on the underlying EBIT margin in 2019. If I take the numbers that you have, that you talk about during the year, then if I have to get to the around 200 basis points impact on full year, I need to include the restructuring benefits. So just if you could confirm that I need to do that also. Then on Household Care, could you just tell us is your is the global the negative impact from global players using less enzymes, is that still outweighing the growth you see from local customers? And then on Bioenergy, how much did your sales customers decline in Q4? In the U. S? The first one is a pretty easy one. That's a confirmation. That's a yes you need to include the restructurings. Then, Anders on Household Care Police? It's correct. We expect to have lower growth with our global players in 2020 and that what we've commented on the last years is expected to continue now We do expect performance to pick up also with the 3 global accounts in 2020. And on Bioenergy, Jonas sales to customers, they continue to pull back more than the average market. Okay. And then just a follow-up. And then on your EBIT margin guidance for 2020, is benefits from restructuring then coming on top of the guided 27% or is it included in the 27% guidance? So I'll try to answer that one, Jonas. So, as Peter confirmed, the benefits of the restructuring are included in our one offs as we consider them in the underlying 26 percent EBIT margin for 'nineteen. We are planning to reinvest the resources we released as a result of the restructuring, and as I said in my, in my little summary here, that will come potentially gradually over the year. So it is included in our guidance of 27 percent EBIT margin for the year that we will reinvest the savings from the restructuring we did in Q3 of 2019. Perfect. Thank you very much. Next question is from Theodore Lee Joseph from Goldman Sachs. Please go ahead. Your line is open. Hi, thanks for taking my question. I've got 2 actually more on capital allocation First is I'm interested in finding out actually what informs your decision in setting how much shares to buyback given your balance sheet is still below your target leverage. Your growth trajectory looks positive and your free cash flow generation is also expected to grow year on year. My second question is whether you can remind me on what your maintenance CapEx actually is? And can you talk us through the assumptions of the bottom end and top end of your new CapEx guidance? Yes. Thank you for that question. So our capital allocations, as we announced in June in with the updated strategy, we target a capital structure where our net debt to EBITDA will be around 1 and that we plan to return all cash flow generated to shareholders through a combination of dividends and share buybacks. So as we also look to increase our payout ratio to a level of 50, What we are now proposing is fully in line with what we said back in June, namely an increase in the payout ratio from 45% approximately last year, 47 next year. And so a solid step on the way to the 50. And likewise, we are now proposing a new or have a approved a new buyback program of DKK 1,500,000,000. And so again, a solid step towards the one level between EBITDA and net debt. So we ended last year at 0.8%, significant up compared to 0.5% the year before. So what we are proposing now is really just the confirmation of the capital structure strategy that we announced in June. So when it comes to CapEx, we expect maintenance or sort of like a CapEx level of 7% to 8% to be the level that we assume will be required to support our future growth included in the new strategy. So our guidance of 0.8 to around 1 this year is actually slightly lower than that level. And this reflects the fact that we have a solid CapEx, solidly the capacity available. We are still going to prepare and invest where needed to secure, we can also supply for the future. But we are also including in this maintenance investments so that we make sure our facilities are all the time up to speed and up to the quality standards that is required. So that's the background for our guidance on capital expenses in 2020. Next question is from the line of Sam Samsstrom from SEB. Please go ahead. Your line is open. I just had a question, first of all, on your margin guidance of 27%. How I mean, you have, of course, lower cost, I guess, in the first part of of 2020 given that you are going to need to hire a lot of people, which is what you have communicated. So I was just wondering, what is the underlying margin when we get to the end of 2020. So for modeling purposes, what should we sort of factor in after that? Because I guess the cost there will be higher when we get end of the year. And then secondly, on ag and feed, if you could remind us, I mean, ag used to be like 50%. How big part of the division is it now? And also now that you have the agreement with the buyer, is your visibility low and then in the past, you used to be very good at poker on what the contribution would be from a Monsanto deal, but it seems like you have less visibility now. And would it be fair now with this agreement and lower visibility to maybe revise on lower longer term outlook for BioAg in the future. Thanks for your questions. We'll let Lars have a go again at margin. Last please? Yes. So So as I said, yes, we will invest and reinvest the resources we released back at the restructuring August, which means that we would gradually do that during the year. But rather than sort of look at the higher costs and lower margins relatively speaking. At the end of the year, you should also think about the growth rate picking up and also our expectation that we will deliver against the strategic ambition of 5 plus percent in 20212022. And so this is, we consider a step on delivering also on the margin expectations that we announced in June, which is that we will approach the 28% in 2022. So, so the guidance is valid for the entire year. And we consider it a step towards a higher margin of 28 to a last extent, driven by further productivity improvements in our gross margin, but also operational leverage from growing volumes and an increase in organic sales for the next 3 years. So I was just wondering what the margin level would be if If your growth didn't pick up I. E, how much higher will your cost level be in the end of the year more or less is what I'm asking? But so I'm not going to speculate what will happen if we are not delivering on our margin. So when so our guidance is 27% for the year is a solid step and we continue and expect to continue to increase the margin towards the 28% in 2022. So I think the next question was Just could you remind me, sir, on the 1, on Alan ag? Yeah, yeah. First of all, how big part of of active feeders at now? And then secondly, on the buy agreement, it seems like the visibility is lower than when you had the Montana agreement. And then the back of that, is it would it be fair to arise the longer term outlook down for BioAg? I mean, can you still do double digit growth for the longer term? Good. So thank you for that. So ag is around a third of the ag and feed segment And so that's excluding the deferred income that we used to have in our sales earlier on. So, of course, when you operate through a partner. There is a step between you and the market. And that is what sometimes sort of convolutes, you can say, our reported sales and then the end use in the market, but we'll try and help everyone understand to the best of our ability what that difference is so that we can also continue to grow. We still have expectations, that there'll be continued expansion of use of our products in the BioX space also in the future. And next question is from Laurence Alexander from Jefferies. Good morning. Can you flush out a little bit the comment around of the products for upgrading the protein content in corn, and when we should see sort of more detail on that as a commercial platform And can you on what's your expected rate of share creep? So for the buyback, how much of the buyback is needed just to offset your standard option dilution. Thanks for your questions, Lawrence. Will Tina talk about? I guess it's in DDGS protein content in DDGS, Tina, please? Yes. So it is a field which 4 years have been the focus of Novozymes and the focus of a number of players in the field. We announced an early collaboration agreement here in December. So it is early days, and we're just getting started. So you'll have to wait some time until you see the impact of that. And on the buybacks last, please? Yes. So we're announcing a a new buyback program of DKK 1,500,000,000. I'm not sure I understand, Lawrence, you are question related to dilution. Can you just elaborate what that was all about? Just do you have any share creep that you need to offset due to any incentive comp? So any options from our incentive programs would have a very marginal impact, if any, on our earnings per share. So, so I don't consider that significant in any sense on our earnings per share. Thank you. Next question is from last up on from Carnegie. In Household Care, can you comment on plans for rolling out the freshness platform in the U. S, please? And then a question on net working capital in your printed annual report. I can see your working capital grew from 2.8000000to3.5000000000. Can you put some comments on how you see the various value drivers in working capital are developed in 2020 just so I can understand the cash flow guidance. Thanks for your questions. Alice Freshness, please. So we're looking at it from an innovation perspective and we are on the target of we set out to do. We're not going to give any specific guidance on when we expect to launch in North America, and that's simply by agreement with our innovation partner in this space. And last, net working capital, please? Yes. So, so you're right. In the books, our net working capital increased. When you look at that number, you have to, remember also what, what constituted our net working capital when we started the year. So, the 300,000,000 or so, which we recorded as deferred income in the 2nd quarter when we terminated the BioAg Alliance helps our net working capital entering the year. So, so it's included in the starting balance. So roughly half of the increase is simply a reflection of the deferred liability, which is no longer in our net working capital. Another component is lower CapEx spend, and therefore, also lower payables related to our capital expenditures So, so there is a direct correlation between the lower CapEx and also lower liabilities, to our vendors. Then we have actually seen a reduction in our inventory. So we have also managed our inventory to a slightly lower level. With a slight increase on the other hand in our accounts receivable, that is primarily because we see a change in the customer and regional mix So with stronger growth in some of the offerings, some of the emerging markets and a, at decline in our growth or actually a decline in our sales in the U. S. There is a mix impact of our accounts receivable in that space. As we move forward, we see that development overall improve. So we see networking capital at more or less the same level in 2020 as we saw it in 2019. And then just a household question relating to Sean's question before with AC being 1 third of air and feed. So if feed is flat in Q4, is it mathematically fair to assume the egg part is down between 25% 30% Thanks. Yes, it is roughly that range. Thank you very much. Thanks for answering my questions. And next question is from Anton Brink from Kepler Cheuvreux. Please go ahead. Your line is now open. Yes. Good morning, all. Two questions from my side. Firstly, what has been the reason not to guide on net profit growth you used to do that? Is there anything else besides the tax, significant tax rate increase in 2020? Next to that, can you elaborate a bit on the Tech And Pharma 1 off gain in Q4? I don't think that was expected. What's exactly happening, So, so I can take your question on net profit. So, we are giving you, all the information you need to calculate the the impact and expected development on net profit. So, so we are not, you could say, giving less insights to that level. We actually trying to give you exactly what is the difference between EBIT and net profit. So in our view, it's it's actually more transparent than what it was before. The one off we have in our P and L in the 4th quarter relates to the farmer related assets. So the, the royalty stream that we sold in the second quarter, there was a at that point in time, a contingent liability that was reduced in the 4th quarter. So, so therefore, we recorded an to the level of SEK 40,000,000 in the fourth quarter of our P and L. Okay. But implicitly for 2020, we shouldn't expect any other operating income. We have not planned for any such in 2020. So any one off or nonrecurring or any of that nature is not built into our guidance for the year? Okay. Thank you. Next question is from Michael Nowak from Nordea Markets. Please go ahead. Your line is now open. Just two follow-up questions on the business areas. So on Household Care, end the year pretty strongly on 5% growth notes for the second half of the year. And then you're guiding sort of towards the midpoint of 1 to 5 in 2020. Is that all related to sort of the drag from large internationals? Because I would have assumed that you should be able to accelerate with the freshness launch and no negative comps, etcetera, in 2020. So just to get a more, get a feeling for what is actually driving the sort of the midpoint of the 1 to 5 and the same for Bioenergy, maybe more sort of an understanding of the larger ranges than 1 to 5, what should drive by energy sales growth to say sort of above 5 in the 2020? Thanks for two good questions on HouseholdCan by Ernie. Anna's Household Care. 5% is it going to continue? So thanks for the question. We're of course pleased with the 5% but also let me remind you this is exactly what we expected. We always said all along that second half would be better. Of course, we're coming in with good momentum But let me also remind me that we delivered only 1% growth in 2019. And although, the second half has been really strong, We also had to accept that, the first half of twenty nineteen was weak. So the guidance that we have now is with the narrow around the midpoint of the 1 to 5 is what we believe is a solid guidance. And yes, we are still seeing some softness among our 3 global accounts. But again, it's evening compared to what we've been through the last 3, 4 years Thank you. And on Bioenergy, so we are guiding for we are expecting for 2020 flat volumes, So the key driver to get to the higher end of the range or is if we have more volumes in the U. S, if production ramps up significantly. It's also, if we get earlier starts of plans in Brazil compared to what it is, we have anticipated last but not least, if our innovations get a better footprint than what it is we have expected. And why should volumes in the U. S. Ramped up significantly? We have E15. Yes, we have E15 as one of as one of the drivers. And we also in our numbers is having some assumptions on how it is our customer are going to behave. And then maybe if I can just add, of course, we do not have the excellent insights on it, but if if the trade war with China would be resolved, I think that would also lead to higher ethanol volumes in the U. S. Manufactured volumes. Of course. Yes. So that's not built into our guidance. So as Tina says, we assume flat production volumes in the U. S. So, there are certainly things in ethanol that can go better than next question is from Annette Lyhr from Hans Mountain. Please go ahead. Your line is now open. Just to get back to Michael's question on E15. Can you say how much of an effect you expect from my understanding there is a lot of the gasoline tank that is not capable of using or providing E15. What should be changed here and how much has you included in the flat U. S. P. R. In ethanol market statement for IN-fifty? Then just getting back to the market, can you tell us, I mean, I can see that this one off from the earnout from a Pharma asset of $40,000,000 is around 100 basis points. But how much is the lower staff cost in the Q4? Is that another 100 basis point or how much have you saved in this respect? That is my question. Thank you. Thanks for your questions. So first, E15, Tina, how much do we have in the books? Very minor to So we are not anticipating on a big rollout. It is a gradual increase, which we expect to see. And on the margin, Sorry, on the margin and error, the restructuring benefits in the 4th quarter, is roughly 200 basis points, so to speak, of benefit from released resources, And so combined with the nonrecurring pharma, 1, other ordinary income, this means that, that the margin of the fourth quarter is around 26%. And so as we sort of reinvest those resources, and grow, our top line. That's what bring us to 27% for the mark for the year of 2020. But, adjusting for the savings in the 4th quarter, that brings us to an underlying of 26 also in the 4th quarter. Thank you. Then returning to Tina's answer on the E-fifteen. Can you share with us how long time we will take before you see an effect? Or how should we see this, I would say, more investments in infrastructure in U. S. Gas stations be ready to sell E15. So, and it currently does a couple of 100,000,000 rollout of that because we need to have the infrastructure in place as well. So it'll be a gradual rollout of it as Peter was alluding to earlier, I think, in terms of volumes, the biggest tick up, which it is you'll see is if China does something on the tariffs, which they currently have off ethanol. Currently, China have 70% import tariff on U. S. Based ethanol. So that if a change to that wouldn't mean a significant change to the volumes. Our next question is from Nicola Tang from Exane BNP Paribas. Please go ahead. Your line is open. Hi, everyone. Thanks for taking my questions. And the first was Fatima actually on the land use and can you in the ramp up of that? Has that seemed to be sort of one of the main drivers for the feed business into 2020? I think you mentioned also about actual total annual revenue of 1,000,000 to 1,000,000. And the second question was for Anders on Household Care. It seems like you saw quite a nice pickup in China. And so, is it a pick up in market or is this a one off, what it relates to you from roll out? Can you explain that? Yes. So on the launches, we are in the early days of rolling it out. We are testing with a lot of players as we also, in 'nineteen, got European registration we also have here a couple of numbers, which we have been talking about in terms of the expectations to the product. It is still in the early days. And on Household Care, China, we have during 2019 had some challenges with a few other competitors in the year and team that worked through. That is easening and again, making our business coming back to the level that we actually expected it to be throughout the entire 2019. So it's good to see that business is coming back and actually also thinking about 'twenty, I'm hopeful that, that will actually also continue into 'twenty. Thank you. I was wondering if I could just sneak in one more. You talked about the 1 to 5 organic guidance including some assumptions around impacts of portfolio reallocation. Are there specific divisions where you think they're could be a larger impact from this. Could you comment? As we communicated on, on June, I 16th, I believe it was in the Capital Markets Day on 17th. We are now implementing the, executing on the strategy, and we've made changes to some of our positioning in portfolios in some of the portfolios. Of course, we have a budget for or we have assumptions to how that's going to pan out, but we do not have full visibility yet. We have included the expectation and also the uncertainty around this in our overall guidance. And when you look at it across the various segments, it's it's not one particular segment. It's a bit here and there. As you may remember, we are we're navigating more than 30 different business portfolios in the totality of the business and when you look at the five segments that we report on here, you have a bit in every one of them. Next question is from Silk Cook from JP Morgan. Please go ahead. Your line is open. We're doing well. And yourself. Good. Thank you. In your local currency growth outlook, 2020, what are your pricing assumptions in that outlook? If you have any, And what was the pricing behavior of the 4th quarter? And I was also wondering whether you can discuss your local currency growth and household care in the 4th quarter by region. Thank you. We'll let Les talk about pricing and pricing evolution in the business, please. Yes. So, so the impact on pricing in the fourth quarter were more or less aligned with the level we saw for the full year. So no significant change in that context. So, so as we move forward, we have built in and overall expectation that with our growth, with our key customers, we will, of course, have some contracts where we will see increased volume, pricing not significantly different from where we were and the impact from where we were last year. So that is the lower local currency guidance that we have built in of 1% to 5%. Okay. So the next question is from Charley Greg from Citi. Please go ahead. Your line is now open. Hi, everyone. Thank you for taking my questions. Just two, looking firstly at Household Care, I know it's hard to give color here, but if you had to say if you could say how far you're through with your kind of European rollout, a very big database. Do you think you're at the beginning there? Do you think you're coming towards the end? Any color that would be really helpful. And then looking at adding feed, Could you first clarify how the corn business progress in 2019? And then looking to 2020, Obviously, you've had a big falloff in saw a acreage in the U. S. In 2019, a lot of out consultants that are calling for that to bounce back into 2020. How do you think your legacy toy business would develop in the context of expanding U. S. To acreage? Thanks for your questions. Onos, can you get some put some flavor on the freshness rollout in Europe, please? So Europe is, of course, part of our guidance. So we expect that to ramp up during 2020. We do not specific guidance on where we are, but of course, a lot of the growth that we anticipate will be coming from, from that geography. And on the corn inoculant, So, that is rolling out according to plan. We are getting on more and more, more and more acreage, we sold into around 16,000,000 to 20,000,000 acres for use in 2019 and we see a nice step up on that into 2020. And you're right. On the soy business, that has not been performing well in 2019. And therefore, We do expect to see some improvement of that into next year. Our soy business has not been doing well here in in 2019. Next question is from Sebastian Bray from Berenberg. Good morning and thank you for taking my questions. I would have 2 please. The first is on the potential use of cost savings, which benefited Q4 How certain is it that these cost savings are reinvested? What I'm asking is that, is there a chance that 2 to 3 core into the year, the margins come in above your guidance because the projects into which these cost savings should be reinvested if not yet identified? What's the certainty of this not having an impact on the margins next year or in 2020? The second one is on Bioenergy. China has pushed out seemingly indefinitely its E10 target and the uptake of if it doesn't look like it's going to have a big impact on the number in 2020. I'm thinking on a 3 to 5 year view, aside from yeast, what is going to drive growth in this segment? Thanks for your questions. I'll take the first one. We have a fairly elap rate and solid plans for how we're going to expand the cost base. We're going to invest in In the portfolio, we're going to invest in, in particular, in customer facing activities in the emerging markets. I think we have we have prudent plans in place. So I wouldn't expect a large deviation in terms of how the cost is going to build up over 2020. Of course, there can be delays. I think we have, we previously faced issues with recruiting people in the emerging markets. Sometimes we've been, we've been, it turns out we've been overly ambitious. I think we've taken stock of that, and we've put in a a good plan for the buildup in 2020. And then I'll let Tina take the question on the Chinese 10% inclusion, policy, Tina, please? Yes. So, as we have talked about a number of times, we have not paid a D10 in 2020 in China. So that doesn't change anything. In terms of more longer term, how we look at the bioenergy business, we see continued pickup and continued plants getting online in Brazil. It is also so that the Chinese announcement talked about that constructed or products in construction and product and plans in planning would be, would be built. So that means that there will for the years to come still be capacity getting online also in China. And then we still see a number of innovation opportunities within the refinery broad space can be in within the yeast space. It's within the yield space and also other aspects where we can help improve the economies of biorefineries. And good luck to you and future Peter as well. Thank you very much. And, time is kind of running out here. So I think has to be, this had to be our last question. We'll be on the road over the next few weeks and I hope that we'll get to see many of you as we, as we travel. I'll be on the road next or, yes, the end of this week and next weeks, I'll probably also see some of you But for now, I want to thank you for your interest in Novozymes and for attending this call today. Thank you very much.