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 nine months of 2018 and key events for the year. Our presentation should take around 25 minutes, and after that, we'll take your questions. Please turn to slide number two. We delivered a satisfactory set of numbers in the first nine 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-to-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 and 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%-6% range. For EBIT margin, we report a solid 28.2% after the first nine months, including 28.5% in the third quarter. Net profit grew by 3% for the first nine months, and we're increasing our full-year outlook from flat to now 1%-3% growth. Let's move on to a closer look of the regional sales development.
Please turn to slide number three. It's satisfying to see that both emerging and developed markets overall are posting growth. Latin America grew by 8% after the first nine months and was mainly driven by increased corn ethanol production in Brazil and by food and beverage. In Asia Pacific, household care is performing well, whereas our starch business is a bit challenged by the lowest 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 number four. Household care grew organically by 2% in the third quarter and ended flat after the first nine months of the year. We continue to see good momentum with regional customers, particularly in the emerging markets. China delivers strong growth, supported by new innovation and growth of liquid detergents. Africa and Southeast Asia also deliver solid growth in the third quarter. The emerging markets are more dynamic, and we are experiencing 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 and hygiene platform ramped up and 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 dishwasher business delivers solid growth. This was driven partly by the recent addition of a new enzyme class and by increased demand for phosphate-free automatic dishwasher detergents. Moving on to technical and pharma, organic sales declined by 9% in the third quarter and by 7% for the first nine 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 their 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 are excited about the new launch as it brings significant benefits to wastewater operators and to the environment. With that, I'll hand it over to Andy.
Thanks, Anders. Please turn to slide five. Overall, we're satisfied with how food and beverages developed over the first nine 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 nine months of the year was satisfactory, our Q3 result presented a mixed picture. Beverages and 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 is good traction for our new grain milling technology, 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 fresh keeping price reductions. Some of the pricing headwind is balanced by increased volumes as well as growth in the emerging markets. The fresh keeping 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 in 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 six. 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 conventional biofuels benefit from our strong technology base and innovative product portfolio. 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 InnovaLift. This product strengthened 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. 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 are 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 seven for an update on agriculture and feed. Organically, sales in agriculture and feed grew by 5% in the first nine 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 alliance 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 nine months. The Latin American market, and Brazil in particular, remains challenging. We saw 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. To summarize the message for the first nine 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.
Last but not least, the launch of Balancius in September and InnovaLift here in October are two good examples of our strong innovation that Thomas will talk more about. Now over to you, Thomas.
Thank you, Tina. Please turn to slide number eight. As mentioned by my colleagues, we're commercializing products coming out of the priority innovation platforms. The unique freshness and hygiene product is ramping up according to plan. In animal health and nutrition, we recently launched Balancius for improved chicken gut health. In BioAg, we launched the new corn inoculant for higher and more sustainable yields. For the latest addition, solutions for water, we are preparing to launch the first product for wastewater treatment later this year. On top of that, I'm also excited about the broadening of our yeast portfolio with InnovaLift. 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.
It uses a completely new mode of action to improve digestion and gut health in animals. This enzyme degrades the bacteria 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. Now we are introducing InnovaLift, our latest addition to the portfolio. It's designed for ethanol plants with longer fermentation times and improves yields up to 4% compared with conventional dry yeast.
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 from me, and I'll pass you over to Prisca.
Thank you, Thomas. Please turn to slide nine. Nine months into the year, our financial performance was satisfactory. Our reported sales in Danish kroner were down 2%, comprising 4% organic 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%, giving a total of 2% growth in Danish kroner. The gross margin was at 57.5%. Productivity gains benefited the gross margin, whereas higher input costs, lower deferred income, and currencies were all negative factors. At 28.2%, the reported EBIT margin was 30 basis points higher than last year. Adjusted for reorganization costs in the first half of the year, the EBIT margin was down 70 basis points.
This is mainly the result of negative currencies, 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 nine 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. Please turn to slide number 10 for the 2018 outlook. With organic sales growth after the first nine months of 4%, we maintain our guidance of 4%-6% for the full year. We are experiencing difficult Middle Eastern markets that are impacted by trade sanctions and economic distress. Despite this, we expect to end the year towards the lower part of the 4%-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. We now look at the various segments, we expect Bioenergy to end the year on a strong note, despite tougher comparables in the fourth quarter, sorry. For Agriculture & Bioenergy, we expect to finish in positive territory for the year, driven by good BioAg performance, whereas animal feeds will be challenged. The instability in the Middle Eastern markets is expected to somewhat dampen expectations in Household Care, Food & Beverages, and Technical Industries. As we communicated earlier, we'll continue to invest in commercial presence to support future growth, 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 6.18 Danish kroner to the US 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%. We increased the outlook for the full-year net profit growth from around 0% to 1%-3%. The outlook for CapEx is maintained at DKK 1.3 billion-DKK 1.5 billion and the outlook for free cash flow at between DKK 2.3 billion and DKK 2.6 billion. Now I'll hand you over to Peder Holten Nielsen for a wrap-up. Peder Holten Nielsen, please.
Thanks, Prisca. Please turn to slide number 11. Let me summarize our message here today. Overall sales performance after the first nine months is satisfactory and earnings are solid. We are on track to deliver in the 4%-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. 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. We enter the market with more of our impactful innovation platforms. Freshness and 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 B360 for higher and more sustainable corn yields. 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 Raleigh in September. We've decided to host a three-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. This concludes today's presentation. Now we're ready to take your questions. Operator, please begin.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. The first question comes from the line of Jonas Guldberg from Danske Bank. Please go ahead. Your line is open.
Thank you. Good morning, everybody. A couple of questions from my side. First of all, if you could kind of elaborate a bit on how the dialogue with your big clients in Household Care is going with regards to the oil price. We are still at higher levels than seen over the past couple of years. If you could get some update on this. On Bioenergy, you see a 15% organic growth in the quarter. Market is growing 2%. Could you kind of break down the rest of the growth into what is yeast, what is market share, what is growth from LATAM, and so forth? Thank you.
Thanks for your questions. While Tina is preparing for the details of Bioenergy, we will let Anders talk about the big customers in Household Care. Anders, please.
Generally, what happens when oil prices go up, the detergent formulations are challenged on cost. Of course, that is an opportunity, and we of course, bring that forward in the dialogues with customers. Now, it is not as if enzymes and surfactants, for example, are one-to-one replaceable. Of course, it favors enzyme inclusion when the overall raw materials go up. I think the important thing is that they need to see this as a sustainable long-term event before they will make the switches. We have seen historically when these things happen, that it opens an opportunity.
On Bioenergy, the growth is a composition of several things. I mean, for sure there is the market growth. There is also Brazilian ethanol coming online. We have some better price and mix. We have taken some share. 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.
Okay, fair enough. Thank you.
The next question comes from the line of Søren Samsøe from SEB. Please go ahead. Your line is open.
Yes, hello, it's Søren from SEB. First question on Household Care. You're now saying that you don't expect the 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 back-end loaded. Related to that also, if you could elaborate a bit on the hygiene platform. I would have expected that you had launched in more markets than Philippines in Q3. What's the reason why this has not happened? Then regarding Food and Beverage, starch conversion seems to now not grow anymore in Asia Pacific. Does this mean that we should expect the growth for the division to come down a notch from the good growth you've had the last six quarters? Thank you.
Thank you very much for your questions. Another Household Care question for Anders, please.
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, nine months into the year, and we are flat. Improving that full year will mean that we'll have to have a rather substantial pickup in Q4. 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 always expected. We are selling in more markets into the emerging markets, but our customers not yet out commercializing with their campaigns.
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.
Andy, starch in Asia Pacific and Food & Beverages growth in general, please.
Yeah. The starch business is comprised of two parts. One's 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 customers switch in between the two. 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. I'm not overly worried about starch becoming a problem. There's actually good opportunities there.
When you look at Food and 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.
Okay. Thank you very much.
The next question comes from the line of Laurence Alexander from Jefferies. Please go ahead. Your line is open.
Good morning. On BioAg, can you speak a little bit about how you're thinking about the impact of lower crop prices affecting farmer reception of the new products or of your products in 2019 and 2020? 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.
Yeah. 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. 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. That's also what we're seeing with the B300/B360 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.
Okay, good. Thank you.
The next question comes from the line of Anette Lykke from Handelsbanken. Please go ahead. Your line is open.
Thank you very much. Tina, could you share with us a little bit of information on how you see InnovaLift compared to one of your competitors in terms of yield improvements? Still confirm that you see the market size for yeast to, I think you have said the 200 million before. On the soft market for household care and your introduction of hygienic enzymes. Will this mean that some of the formulations you were working on for liquid and pads or pods are just changing? How do you see the timing of launching in more soft markets? That's the question for me. Thank you.
Yes. Thanks. On InnovaLift and Innova Drive, we see InnovaLift to be particularly strong at long fermentation times. Some of the plants 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.
Can you say anything specific?
You're correct on the market size, Anette.
Can you say anything specific on yield improvements?
As we alluded to in the call, with InnovaLift, 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. We see an uptick in performance for both Lift and Drive, and especially when the plants are, you could say, under stress conditions. 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 tougher than the traditional yeasts in the market.
What you're saying in there is your products are delivering a high yield, but sometimes eBoost can do higher because I think we see data around 6% yield improvement for that product.
Okay. I will not comment on competition's products, but we are quite comfortable with the performance as you also can see in our numbers.
Okay.
I think just to add, with the limited insight though, I think you should look at these 200 and some ethanol plants in the U.S. as individual plants. They operate in different ways. They have different unit operations. Obviously, we do not expect our Innova platform to gain 100% of the market. We think we've 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're 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. We also think InnovaLift is going to be a real significant addition to that portfolio. With that, I will give Anders a chance to talk about hygiene and freshness. Anders, please.
Thanks for the question. If anything, we are actually in front of our plan on freshness and hygiene. What we have said is actually where we are. We are exactly where we plan to be. We are rolling it out into the emerging markets in 2018. We'll have a broader rollout of the powder version in 2019. In late 2019, early 2020, we'll be rolling out the liquid version. As we have said all along, the North American market has some specific challenges that will take the launch of the solution to North America somewhat out into the future. That we're right now working on something like 2022 for a North American rollout.
Okay. Thank you very much.
The next question comes from the line of Nicola Tang from Exane BNP Paribas . Please go ahead.
Hi, everyone. Thanks for taking my questions. 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 some of the business has gone to zero because of sanctions or whether we should assume that this is gone forever, or it could come back maybe after Q4. 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. Can you give any details in terms of your market share in the corn ethanol market in Brazil, and how much capacity you think is being added within the Brazilian ethanol production capacity? Thanks.
Thank you very much. We'll let Prisca have a go at the Middle East, so to say. Prisca, please.
You're right. As we pointed out, Middle East is dampening our expectation for the full-year growth. It is a mix of things. Yes, there is obviously reinstated U.S. sanctions towards Iran. We also saw, obviously, the weakening of the Turkish lira and the whole economy in Turkey is actually under pressure. We also see weaker markets such as Saudi Arabia and Egypt. 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. On your question, going forward, obviously, it's very hard for me to comment on future developments. We expect the trend definitely continuing to Q4, which is why we're calling out the likelihood of ending at the lower part of the range.
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. Tina on Brazil.
Just to follow on that. Sorry. Would you be able to quantify how big those countries are for you in terms of your group sales?
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?
What I can say is that for 2018, we estimate the impact to be closer to a percentage point in growth, which is also the reason we are pointing towards the low end of the range. Beyond that, it is hard for me to comment at this point in time. I hope that helps a bit.
Okay, thanks.
Tina on bioenergy in Brazil. Tina, please.
Right now, Brazil is moving really fast on corn ethanol. They did a new piece of legislation here in 2017, we expect that the output will triple to around 0.4 billion gallons this year compared to where we were in 2017. Right now, investments in corn ethanol capacity gives a better return than it does in sugarcane crushing right now, that is helping producers to move to corn ethanol, a lot of them do it also as bolt-on to the sugarcane operations. We expect that over the years to come, the next four or five years, that there will be another tripling of the amount of corn ethanol mills. It's a significant boost up there we have.
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.
Yeast in Brazil?
Yeast in Brazil, we're not playing that much there. When we talk yeast, it's North America so far. First generation yeast so far.
Thank you.
The next question comes from the line of Lars Topholm from Carnegie. Please go ahead. Your line is open.
Yes, 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, that implies that there'll be a tough comparison because we had the growth in Q4 last year. Overall, for the full year, Lars, we do expect a strong performance in BioAg. You need to look at it at a yearly number.
I need to guess the last quarter, Tina. I know I have to look at the full year, but there's just one quarter left for guessing. Are you implying it won't grow in Q4?
What I'm saying, we are not guiding on individual quarters, Lars, overall, BioAg will be delivering a strong performance for the full year.
Okey-dokey. On bioenergy, you've obviously had an extremely impressive growth for the first nine months. Comps are getting somewhat tougher in Q4. I have this slight fear that Green Plains shifting to Energen might hurt you in Q4. Are you foreseeing any significant change in momentum in bioenergy in Q4 compared to the year-to-date momentum?
In terms of, I do not expect any impact from Energen 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.
Okay. Then maybe a final question to your cash flow, because now your cash conversion is down. Prisca, you mentioned it is partly because of higher net working capital, which is about timing. Can you comment on what causes this timing, and will we see net working capital go down again towards the end of Q4, or what can you comment on that?
Yeah. Thanks for the question, Lars. Maybe first of all, cash flow in Q3, as you have 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. Nevertheless, we have strong cash generation in Q3. As for the working capital, I think it is twofold of the story. Working capital has come down somewhat since the mid of the year. Obviously, it is still on fairly high levels, particularly the part where it is about receivables and inventories. We expect still timing to impact, we expect some improvement there. The payables part, there is a mix of things, but the deferred income part, of course, that is as expected, going down.
I think overall, the most important thing, we stick to our free cash flow guidance, I would see that the timing will help us in that part of the working capital. I hope that has clarified a little bit.
Then one final, very brief question from me. Is there any particular reason why you do not disclose a full cash flow statement for the quarter?
No, there's no particular reason. We disclose the nine months statement, of course, we're always looking into what we can improve. We'll definitely look into your inputs there.
Thanks, Prisca. Thank you for taking my questions.
The next question comes from the line of Ben Gorman from UBS. Please go ahead.
Hi, guys. Just a few quick ones from me. Just coming back to BioAg and Feed, maybe if we could just clarify a few things coming into the comp again on Q4. It looked like Feed actually grew in Q3 against an easy comp. I was just wondering what the comp in Feed specifically looks like going into Q4, whether you expect that to be down, in that quarter. Whether you're still seeing the negative impact from the tariffs and the impact on Canadian pulses. That's the first question from BioAg. Secondly, on Bioenergy. I'm just wondering what you're seeing in terms of China at the moment. Whether you're seeing them continue to ramp up and potentially the growth contribution from that region.
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. Thanks very much.
On the Feed and the BioAg split, we do not report on Feed and BioAg individually. 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. 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. You are also right that we do have in the Ag and Feed segment, a significant step up from Q3 to Q4. We have a very tough comparison for Q4, as we have talked about before.
You asked about pulses and BioAg in India, you are right that that has been hitting our sales, for the full year. On China and Bioenergy, we do see that the provinces are starting to put legislation in place. They are starting to get ready for the intent, it is still early days for them to get through it. We are starting to see things happening, but still at a low level. On deferred income, I will leave that to Prisca.
Thank you for your question. In Q3, we saw about 2.2%, 20 basis points impact from deferred income. If you want to look at year to date on page four of our stock exchange announcement, you see the nine months number, which is DKK 108 million in this year compared to DKK 122 of last year. I think you can from that extrapolate then also the full year trend.
Okay, thanks very much, guys.
The next question comes from the line of Hans Claassen from Nordea. Please go ahead.
Yes, good morning. Bioethanol, there's been some changes in the U.S. regarding E15. Tina, I was hoping you could give a little bit of perception on how you see the market outlook from this affecting the industry in, let's say, in a one to three year outlook. Going back to household care in terms of the hygiene and 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 number of markets, just giving a little bit of insight into that. 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 in the underlying volume development.
Then finally for Peder, for the webcast you have announced, will you still release the original full CMD slide deck? Thank you.
Thank you for your questions. I will let Tina take the E15 question in North America. Tina, please.
Perfect. 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 months lifted. However, there is still a number of things which needs to happen before that gets into place. There is some legislation which EPA needs to secure before that comes real. When that's done, that's the first thing to be done, then infrastructure and the customer or consumer habits also needs to be adapted to E15. It's not something which will have an impact short term, but it is for sure a support to the biofuel producers in the U.S. 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. You also have to remember that so far, there's less than 1% of E15 stations in the U.S.
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 have to get political approval?
Yeah, what we can see is that here EPA has started to do the investigations, they need to put that piece of legislation or get that in place. It's with the EPA who needs to secure that it happens.
Thank you.
Just to state the-
Tina, you mentioned Growth Energy. What was the number? Thank you.
What Growth Energy are saying is that they expect that the number of stations will increase from less than 1% today to up to 9% by 2021.
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 was naively expecting that it would add 50% volume if you go from 10 to 15, but I don't think it's that simple. 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. 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. We'll have to see what happens.
Of course, we'll be more specific about what we expect in 2019 when we get to guide for 2019. On 2019, Anders, household care, please.
Specifically on the hygiene and freshness powder rollout, we will see rollout in both developed and more emerging markets throughout the course of 2019. 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. We have our rollout plans, and we'll have effect before you will see it in the marketplace.
Anders, you mentioned also that the U.S., there were some technical problems. Is that only related to liquids, or is that also powders?
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. 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 loader 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. That has been the plan all along, that we would only get to those markets later.
Thank you, Anders. Then Andy on Novamyl volumes in the U.S. Andy, please.
Yeah, 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 fresh keeping.
Thanks, Andy. On Hurricane Florence, apologies for having to cancel it. We're trying our best to do a repeat. The Capital Markets Day was supposed to be more educational. We're taking the core of that, and we're doing that as a webcast. Obviously, in a webcast of three hours, we cannot cover the entire program, so I cannot promise you that there weren't slides that we have prepared that we'll 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'll be a lot about some of the innovation platforms that we take into market now, and that will matter to growth going forward, freshness and hygiene, grain milling, and animal health.
We'll do some deep dives on the BioAg, and we'll do some poster sessions on the new products in BioAg. We'll try to cover most of it, but of course, we cannot cover a two-day program, including exciting visits to our facilities. I tell you, people were really unhappy with 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.
Thank you.
The next question comes from the line of Michael Rasmussen from ABG. Please go ahead.
Thank you so much. 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. What is your estimated market share currently on Innova Drive there? The final question, a bit of a follow-up on the E15 discussions. What about capacity? I understand obviously that the outcome can vary a lot between maybe the zero and the 50%. 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 plants now that they seem to be a little bit more reliable or imports or anything, thirdly? Thank you.
Thank you. I think we've finally got a question for Thomas. Thomas, please.
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. Somewhere along the lines of what you have been looking at the last year and the year before that.
On yeast in the U.S. and market share, it is still early days. We launched the first product here in February, and then with the follow-up product here in October. It is a nice part of our growth, but it is still a smaller market share number. On E15, I think the question was on E15. That wasn't breaking up off the line, I'm not sure I fully understood it. What I heard was whether it would be conventional or 2G in order to get to E15.
Exactly, yes. That's correct.
I think that in the U.S. it Was that correct, Michael?
Yes.
Yeah. On E15, it will mostly be starch-based ethanol.
Thank you very much.
I think with the technologies that we have, you may remember that in 2013 and 2014, 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. With the current expectations for volume demand that's driven by E15, I think it's likely that it will be the existing plants that actually just do more, which will be really good news for us.
Great. That's very interesting. Thank you so much.
The next question comes from the line of Klaus Kehl from Nykredit Markets . Please go ahead.
Yes, hello. Just two follow-up questions from me. First of all, I guess it's no big secret that Brazil is starting to impact the numbers. At the same time, it must still be very early days for Brazil in bioethanol. Could you give us any kind of idea what impact it has here in 2018 in order to get a feeling for what it could be in 2019 and 2020? That would be my first question. Secondly, did you say that the market potential for your yeast products is in the range of $200 million? Yeah, 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. Most of the volume in Brazil is cane ethanol, which is about a third of the U.S. total volumes. It's by far a very clear number two when it comes to the world of ethanol. Brazil is expanding in two 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'll be a lot more coming. Corn is growing in the northwestern part of the country, corn is then pretty much the American way converted into ethanol.
On top of that, we're also excited about the biomass opportunities in Brazil because they have probably the most serious entities in the world working in Brazil to add some extra volume from 2G. Again, Brazil is trying to get its current 5 billion gallon output increased 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 our customers need to think about. In my mind, Brazil is a significant ethanol country with a very large potential for additional volume. The yeast total market is about $200 million, we're trying to find interesting segments of that market where our technology can really get to play.
It's not our products that we see get to $200 million, it's the total market.
Okay. Thank you very much.
We have a follow-up question from Ben Gorman of UBS. Please go ahead.
Hi, thanks. 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 as significantly as you mentioned. I just wanted to clarify that you were talking about 1% of the petrol stations offering it going to 9% by 2021, and you mentioned sort of in the region of 10% growth, I'm guessing just purely on the back of that infrastructure growth. Can you clarify a few reasons why you think that it wouldn't grow the market 50%? 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. We're listening to our customers, people who are close to the American market, people who are close to the trade between gasoline and ethanol, and they are estimating lower than 50%. 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. 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.
Okay, thanks.
Just as a reminder, if you do wish to ask a question, please press 01 on your telephone keypad now. 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. Again, it's going to be a webcast on November 19th. We'll try to make it as exciting as you can make a webcast. 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 five years. I would encourage you to sign up and accept the invitation. Of course, we also know that it's a short timeline. You'll get invitation shortly, and I hope you'll sign up. Thank you so much for your.