Earnings Call: Q1 2018

Apr 25, 2018

Good morning, and welcome to the Novozymes Conference Call. Today, we'll review our performance for the 1st 3 months of 2018, as well as the outlook and key priorities for the year. Our presentation should take around 20 to 25 minutes, and after that, we'll take your questions. My name is Peter Holginilsen, and I'm the CEO of Novozymes. I'm joined here today by the full executive leadership team and investor relations. Please turn to Slide number 2. Sales in the first quarter grew organically by 2%, which is in line with our overall expectations. Back in February, we stated that growth would be higher in the second half of the year than in the first half. And we now reiterate the 4 to percent organic sales growth outlook and a bit behind plans in agriculture and feed. We're monitoring the geopolitical agendas and tensions that could impact trade global trade flows, particularly in agriculture, but with the current insight on these matters, we remain confident about our full year outlook. The EBIT margin was strong and close to 29%, including a negative impact from currencies. We're ramping up to support our increasing emerging market presence, but these investments are not fully reflected in the first quarter figures. So after delivering a solid first quarter, we maintain the full year outlook for the EBIT margin at around 28%. Our innovation pipeline is very healthy and progressing according to our plans. We've many near to market opportunities as well as product launches which we'll talk the markets as we see significant emerging opportunities in these markets. Our organic sales growth in the emerging markets was 6% in the first quarter. That was driven by Asia Pacific and to a lesser extent Latin America. The strongest growth contributor in the emerging markets were household care, and food and beverages. Developed markets remain crucial to Novozymes success as they represent roughly 2 thirds of overall sales. Here, we continue to expand our offerings with many new and improved solutions across all segments. Frontier for grain milling, our yeast product called Inova Drive for starch based ethanol, and our new enzyme for automatic dishwash are just a few examples. 1st quarter sales in developed markets were flat year on year, which was roughly as expected. Here, Household Care was soft whereas Bioenergy performed very well. All in all, sales were roughly as expected, also from a regional point of view. And now I hand it over to Anders to go through Household Care.anos, please. Thank you, Peter. Please turn to slide number 4. Household Care had a slightly better start to the year than expected. Sales grew by 1% organic in Q1, driven by positive developments in the emerging markets as well as continued strong growth in our dishwash segment. 2017, we talked about how diverging trends were impacting our business. These trends had to a large extent continued in 2018, with solid growth from regional customers, while our global customers continue to focus on cost optimizations. We are encouraged by our regional customers interest in stepping up performance. This is closely linked to our effort to promote tailored innovations throughout 20 customer program. We have showcased how they can use Ensign Technology as a key differentiator in the marketplace and these initiatives are driving strong growth with the regional players. Looking at the regional development of the business, we continue to see strong growth in Asia Pacific where all areas China and India, Southeast Asia, contributing to growth. Growth in the developed market was mixed, cost optimization by some of our global customers continue to put a damper on growth, while we see the dishwash segment continuing to deliver strong growth. Automatic dishwash is a very interesting market for us, partly boosted by an increased demand for phosphate free solutions as well as innovation. In Q1, we launched significant innovation for automatic dishwash with a new molecule designed to tackle dried in cereals. With this exciting news, This is exciting news, which we will talk more about later in the presentation. I'm also really excited about our first product from the freshness and hygiene platform. The product is being rolled out as planned in the emerging markets. Sales are ramping up as expected and will be more material in the second half of the year and in the years to come. If we move to Technical And Pharma, sales were down 10% for the quarter, timing was the main explanation for this. And with that, I'll hand it over to Andy, please. Thanks, Honas. Please turn to Slide 5. We had a good start to the year in food and beverages with 5% organic sales growth driven across the majority of our industry segments. We continue to invest in our portfolio of solutions to help our customers improve the quality and sustainability of their food and beverage products. I'm pleased to see our efforts continuing driven by increased uptake of our solutions for bread types consumed in Asia Pacific and Latin America. We have been increasing sales efforts in these regions, and that is paying off. To open additional opportunity, we've opened a state of the art baking lab in Turkey. It's a great place to work with regional customers for Middle East and Africa to showcase our products benefits for their business. This new facility will help to accelerate penetration in our emerging market baking business, and to open up new application areas specific to this high volume bread market. In Q1, the patent of our Fresh Keeping product NOV Mill expired in the U. S. We've worked hard to prepare for this change by proactively reducing prices while securing long term distribution and development partnerships. I feel confident that Sales of enzymes for the nutrition segment delivered solid growth in the quarter, driven largely by Safira, our unique innovation for lactose reduction in dairy. This solution is seeing good pickup across regions with Latin America giving particularly strong results. Sofia is being used by leading dairy companies in Brazil and Mexico, providing a solid growth driver for the future. Latin America is the world's 2nd largest market for lactose free products and the positive customer reaction there is great to see. Our starch business performed well in the 1st 3 months of the year across markets, driven by recent years' innovation for yield improvement. We also see continued progress on rolling out our Frontier Grain milling solution. Our beverage business ended flat compared to Q1 2017, driven by good growth in our distilling business, whereas sales to the brewing industry declined. From a regional viewpoint, emerging markets had a strong start to the year, while developed markets were roughly flat compared to last year. So summing up, we had a good start to the year with good growth across our main industry segments. We continue to work rolling out innovation and penetrating the solid opportunities we see with customers across the globe. And now, I'll hand over to Tina. Thank you, Andy. Let's start by looking at Bioenergy on Slide number 6. I'm very pleased that we in Bioenergy see a continuation a good momentum from 2017. Sales were up by 9% for the 1st 3 months, supporting the decarbonization of transportation fuels. U. S. Ethanol production is estimated to have been roughly flat in Q1 year over year, while producer margins and inventories are have slightly improved. Although this is good news, we remain cautious as margins continue to be low in a historical context and inventories are still above average. We continue to see our broad and innovative product portfolio support the good growth in the market we'll continue to work closely with our customers to optimize their production through a tailored approach. I am also very pleased that we in Q1 launched in Nova Drive, it's our 1st start space yeast product. Although this is a new area for us, we have already seen a high level of interest in our offering. We are encouraged by the positive signs in the global ethanol industry in such markets as China and Brazil. In the U. S, we see both upsides and downsides due to the discussions around biofuel policies. We base our forecast on current global political conditions. And on the shorter term, we see the current conditions for ethanol producers supporting our expectations for the As we've talked about previously, our agriculture related business is more volatile than the other industries we serve. In this business area, organic sales declined by 5% in Q1. While part of this is explained by timing, sales came in slightly lower than expected. Our performance in feed enzymes was down, mainly due to a tough comparison because our alliance partner was building inventory line in our animal health and nutrition business and are close to launch a product that should contribute to our performance in the second half of the year. Sales of animal probiotics developed positively during the first quarter, although from a small base. During Q1, we obtained in the European Union for Elterian, our probiotic solution for poultry. We now have the product registered in all main regions And this is a key milestone in our collaboration with edicel. Sales in BioAg ended down in Q1, mainly due to continued poor farm economics. Sales was also impacted by a new import tariffs on deposits in India, which led to lower expected acreage of the crop being planted in Canada. Over the coming years, we plan to introduce new breakthrough solutions from our joint R and D efforts to drive sustainable agriculture. As an example, the BioAg Alliance recently obtained approval to produce and sell Accelerant B3 60 ST for corn. The upgraded version of the corn inoculant increases yield. Production and shipment of products to Monsanto are expected later during year for the 2019 planting season. So to summarize for both areas, bag and feed had a more challenging start to 2018. This was partly explained by tough comparisons in feed and continued headwinds in agriculture. In this area, I expect innovation to support growth in the second half of the year. Bioenergy had a very good start to the year, supported by continued momentum for our broad offerings. Our first used product was fully launched in Q1, and we expect to deliver more innovation during 2018 the years to come. And now, I'll hand over to Thomas. Thank you, Tina. Please turn to Slide 8. It's been an exciting start to the year from an innovation perspective. We see many near to market opportunities and have more impactful solution coming out later this year. In the first quarter, we launched Inoverdrive, as mentioned, our 1st yeast product for conventional biofuels, This allows faster penetration, fermentations under tough conditions and at higher temperatures. Building On our strong position in enzymes for starch based ethanol, we're now able to leverage synergies between yeast and enzymes. This enables higher ethanol yields and more efficient production for our customers. In the first quarter of 2018, we also launched a brand new in time class for automatic dishwash. Adding to the 2 existing enzyme classes in this industry. This novel enzyme stems from our understanding of 5 structures. And targets dried in cereals showing solving and everyday consumer challenge. The technology supports a good traction we see in automatic dishwasher and is an exclusive launch to one customer. Within animal health, we're working on a major innovation. This insight will enable increased uptake of nutrient and improved feed conversion rates in more gastric animals through a new mode of action. So to summarize, we had a good start to the year on the innovation front with 2 product launches and a number of exciting new innovation coming out later in the Now let me take you through the financial performance for the first quarter. Overall, as mentioned by Peter earlier, sales came in as expected at 2% organic growth. Household Care was slightly better and agriculture feed slightly worse. As you know, most currencies in our exposure, in particular, the U. S. Dollar, a weaker than a year ago, and we report a negative FX impact on sales of close to 8%. With current spot rates, the price the negative currency pressure should ease as we move through the year. Gross margin was flat year on year at 57.8%. We continue to see good productivity improvements and mix effects, offsetting a slightly negative impact from currencies and input costs. Reported EBIT margin was up by 190 bps to 28.9%. This was despite a negative currency impact of around 1%. If we exclude the reorganization costs in Q1 last year, EBIT margin was on par. Investments to increase our emerging market footprint will continue to ramp up throughout 2018 and are not fully impacting the first quarter. The effective tax rate for the quarter was 20%, roughly 1% lower than last year. This relates to the transfer of IP assets to Denmark initiated in Q4 last year. Net profit came in 5% higher year on year. This was explained by higher EBIT, hedging gains, a lower provision for stock appreciation rise and the lower tax rate. Cash flow from operating activities in the first quarter was DKK 403,000,000, roughly DKK 300,000,000 lower than Q1 last year. This was driven by higher working capital, which is as expected and is explained by timing. CapEx at DKK 281,000,000 was roughly flat year on year. All in all, we delivered a solid set of financial quarter as expected. Now please turn to Slide 9 for the 2018 outlook. I'm pleased to tell you that our outlook 2018 is maintained on all parameters. 1st quarter sales were overall fully in line with our expectations. On February 7, we guided a softer first half and relatively higher growth in the second half of the year, This is due to seasonality in BioAg and the expected contribution from the freshness and hygiene platform in the second half. Overall, for the business, we expect 4 percent to 6 percent organic sales growth in 2018. We are making additional investments to support future growth, and expect an EBIT margin of around 28%. Currencies by especially the U. S. Dollar are a drag in reported trends, We hedged our 2018 exposure at $6.18 to the dollar, which is well below 2017 rates, but above the current spot rate. CapEx is expected at DKK 1,300,000,000 to DKK 1,500,000,000 and the outlook for free cash flow is between DKK 2,300,000,000 $2,600,000,000. And now I hand over to Peter for a wrap up. Peter, please. Thank you, Prisca. Please turn to Slide 11. So let me just quickly summarize our message today. 4% to 6% organic sales growth. Some of you may think it's a steep climb from 2% in Q1 to 4% to 6 percent for the that the second half of the year would be stronger than the first half already when we guided early February. When we look at the 4% to 6% full year outlook in more detail, we see only minor changes within the ranges that we provided back in February for the various segments. For the full year bioenergy and food and beverages looks a bit better, whereas agriculture gen feed looks on the soft side. From a strategic point of view, we're seeing the benefits of our more customer focused approach in the divisions. For example, we interact with new and existing customers through our top 20 program in Household Care. And by inviting regional customers to our new baking lab in Turkey. We're already seeing sales agreements materializing and this support our optimism about the shorter and longer term developments. Our innovation agenda is strong with many near to market opportunities I mentioned a few of them in my introduction, and there are many more to come. So 2018 is moving ahead according to plans, and we should be able to accelerate sales growth in 2018 beyond. That concludes today's presentation. And now we're ready to take your questions. And if you find that question And we'll now go to the first question, which is from the line of Ben Gorman of UBS. Please go ahead. I guess a a few for me. 1st of all, in terms of how much of a positive impact you saw from your automatic dishwash product Can you just clarify, would the underlying Household Care number on organic have been negative in the quarter if, if you didn't have this? This product, it sounds like, negative in sort of the major international players and, a bit more positive in terms of the local. Secondly, can you give us a bit more of an idea in terms of the innovation pipeline in Bioenergy, for the rest of this year? It sounds from the guidance that actually the second half of this year for Bioenergy could be weaker than the first. But how does the innovation sort of pipeline compared to what we had last year or is the of a massive outperformance last year versus the underlying volumes in the market And then finally, just quickly on, food and beverage. Within the starch business, any specific commentary on barch in in China, was was this actually a drag versus sort of tough comps in Q1 last year? It sounds like you had a strong performance, this time last year. And, just wondered whether this was sustainable or actually sort of normalizing. Thanks very much. Thank you for your questions. We'll let Ana talk about the importance of all the Dyswas products Armos, please? So you're right. We call out Disch as being a strong growth driver and delivering 1% growth. Of course, during the we do not guide on specific segments and outline how those are not driving growth. I think the it's important to note that what we call out as strong growth areas at DISH, and it's largely the emerging markets. And then we have some softness in the European segment. And when it comes to the innovation pipeline within biofuels, we have been introducing a whole number of different products into the segment over the last couple of years. And we continue to find ways where we can increase value from our products at our end customers production sites, be it saving in energy, be it saving in chemicals, and we will continue to do that. We introduced this first quarter, a yeast product, and we expect that we will see more geese coming into the market as the year progress. And Andy, starts in China. How's that going? Yep. Starch overall, looks good. China is an important part of that, but it's to a lesser extent than it was last year based on the reduced corn prices. So now it's more on rolling that drives growth across these different segments. Kaneergin. Please go ahead. Your line is now open. Yes, a couple of questions from my side. One is on BioAg, when I mentioned your comments relating to the Monsanto Bayer transaction You mentioned it's not expected to affect revenue for 2018. I just want to since you specifically mentioned 2018, could there be any implications in the subsequent years. Can you put some comments on how that alliance might affect your business? And then on, on, the household care, we've now seen the oil price move up. And I guess One function of that is increased commodity price inflation for your large customers. We could see that in P And T's Q1 results, but are there also some dynamic effects, I. E. A shift away from petroleum based ingredient. So what would it take before we see that? And then maybe one final question. In Bioenergy, the fact that Green Plains Energy will shift to using Energen corn from Syngenta. Could that hurt your growth rate after the 2018 corn harvest? Thanks. Thank you. Good questions. We'll let Tina start talking about BioAg and Bioenergy. Tina, please? Yes. So the question was relating to the BioMonsanto, yeah, the combination So it's right that we highlight in 2018 that we don't expect any input. If you look at where Monsanto is strong. As we've talked about before, Lars, it's in Corn and soil and it's in the Americas. A buyer comes in with a complementary footprint So from that perspective, that could be opportunities for the airlines. However, it is too early to tell how it's all well pan out. We have also talked about that, you could say, we do think that we, together with Monsanto, have developed a very important asset and will for sure secure to that we take good care of that going forward. Is there any risk buyer will want more than 50% of the economics announced? Maybe. I think it's too early to tell and delayed. That is a lot of different options how it could end. We are quite happy with what it is we have developed and how we see things going forward. On the green plains on Energen. So Energen corn is, for sure, part of the biofuel mix. It's not something which we see, it's for sure something, which is out there and which we're competing against, but it's only one enzyme, which is in the energy and 1 and still there's a lot of other insights around it, which is needed. So it's not something which, which I'm too worried about. So should we not have any impact on your business? Well, for sure, it does have some impact on the global or on the biofuel market. But in general, the performance we have seen in this quarter as well as the end of 2017 as well as what we expect for the full year is that first of all, we work closely with customers get them on a tailored enzyme offering, get them on, you could say more, more value. So a mix a positive mix effect. And then we also take some share. So overall, we are quite confident in the outlook on Bioenergy. Okay. Is higher oil prices that good are bad news? So the way we usually all about this is that longer term, this is good news and it eases the conversations we have or why enzymes are relevant. Short term, it will have less of an impact. And I think it's also important to consider that our customers need to believe in sustained longer term high oil prices If that's the case, then we will see this being a positive support to our business. We now go to the line of Michael Rasmussen of ABG Sandulkolia. Please go ahead. Your line is open. Thank you very much. Three questions, sir, please. So first of all, on the Household Care division, you have, both in the past and also in this quarter talked about cost focused large customers. Is this less in Q1 versus in the last couple of quarters or is this basically still the same. That's my first question. And secondly, after the 1st March, and when Novo Millcon X Patent, what kind of moves have you seen from competition to date? And then the last question on the Innovate Drive in Bioenergy. How many customers have you seen switched so far or asking this in another way? What is your market share in yeast at the moment? Thank you. Also good questions. So, Anna's household care and the softness at the with the large customers, please. What we've experienced in Q1 is very much the same development we also saw in 'seventeen. It's no more, no less, but it is, of course, a direct to our business that we see these cost optimizations, but with a few of our selected global customers, but no more or no less. Andy, no formal competition? Yeah. So, the patent expired in March, as you indicated, and as said in my, my part of the script, we have been preparing for that for a long time. So we haven't seen any sort of major moves from competitors You remember, no one knows been off patent in Europe for a long time, so the market has achieved a certain stability. We'll see how it develops over the year, but we're, we're comfortable with our Sure. And on market share, in beast, so we launched the product here in February. We have been out as we talk about trialing in production scale as well before, we have converted a number of customers to also commercial pricing and they continue on the product. We don't specify exactly how many wins and how much we have put you would say it's a new area for us. So we are just getting started. Great, Tina. Is it right to assume that the share of revenues is approximately the same as what we see in biomass conversion, now you had a couple of percent of revenue. So was it less. It's less. Thank you. Our next question is over to the line of at Handelsbanken. Please go ahead. Your line is now open. Thank you so much. My questions relates to the dynamics of the tariffs from India, but also how you see potential dynamics in terms of potential tariffs from Chinese on saw it being. I was just wondering because one communication from you have been that that once, if tariffs are coming from Chinese and soybeans, this would mean that you will have additional demand from the LatAm, which will not be affected by the tariffs. And so I'm just wondering, how long time does it take to sort of ships and add additional crops in LatAm. So will there be a delayed effect? And for example, in China, sorry, in India, where you also have seen sales now hitting Canada, will that shift to another market? And how long time will that take? So on the tariffs, it's a very good question. If we look at if we start out with India, So the tariffs came into play at around end last year this year. It's about 30% to 50% depending on the specific crop It's something where when we look at the expectation, planting is just happening now in Canada, And the expectation is that pulse crops will go down with the acreage will go down with about 20% to 30% It's a matter of that the engines wants to try and incentivize their own production of pulses. And they have use of inoculants compared to what they do in Canada. On the China and soybean and the global trade flows, It is difficult to predict what it is that would happen with these flows. It is so that soybeans is about half of our business in BioAg It is so that in the U. S. Wells, you could say inoculants are used to a lesser extent that it is in Latin America. For sure there is some lag effect given that the crops needs to be planted, until you can get them in. Okay. So I think the bottom line is that, of course, we observe the try to observe what's going on out there in terms of tariffs and how these the potential trade wars might be might be unfolding. It's not like this scares us a lot. We see, we see risks of some bumps on the road. But in general, we think Latin America is gonna replace whatever might happen in the US. And as Tina pointed out, we actually have higher use of our products in Latin America than we have in the US. Could we have you seen any sort of reduction in acres in the U. S. Already now in sort of reflecting the uncertainty? Or is that something that first happens? Are farmers first adjusting once things are for real or? So what we're seeing, we're, in fact, seeing Corne because going down a bit in the U. S. And soy is roughly maybe a bit lower, but it's minor moves Okay. And then a final question for you, Perla, is when you say that you are basing on the insights, you have to do political situation right now. Is it correct for me to understand that you have not included any tariffs right now? From China on in your expectations? That if these tariffs as they are known now were to come, which is a fair estimate, then we would see a up in Latin America that would compensate for it. So with the insights we have now, we're not changing our guidance. We are now over the line of Lawrence Alexander at Jefferies. Please go ahead. Your line is now open. Good morning. 3 questions, if I may. I think last time you pegs the size of the alpha amylase within your Bioanogy. I think it was roughly about half of the business, but your mix has changed over the last few years. Can you break out where alpha amyloid stands within the portfolio now. Secondly in BioAg, have you been doing any C treatment trials, in Latin America? And if so, can you give us a sense for what kind of performance you're seeing? And then lastly, Can you walk through in a little bit more detail of the bridge for getting technical and pharma back to positive growth? Thank you. So I think the first question was about how our alpha amylase portfolio performing in Bioenergy and the rough size of that portfolio, Gina, please? Yes. So elfamily leases is a lot part of what we do. I mean, we have both the group analyzers as well as the ELS analyzers and it fits roughly, you could say, the the value per gallon of ethanol is a bit more on the diversification side, a bit less on liquefaction side, but they're roughly equal. And Tina BioAg performance or performance of our products in Latin America, I think compared to the U. S. Was the question, do we know whether our products perform in Latin America? Yes, our products do perform in Latin America and Latin America is part of our business there. They have a strong tradition of using inoculants down there. So they have they're using it quite widely. And, Amaz, on the technical industries, when will we see growth? So maybe just to explain a little bit what it is you see right now, a little more than one percent of no signs is what we account as farmer business and that business has always been quite lumpy over the quarters. And that's part of the reason why While we still maintain our guidance on the technical pieces is, of course, that we expect to get some of that back during the year. And also that we expect that our forest business will continue to deliver growth primarily driven by new innovation launch we launched a couple of years ago. Thank you. I do apologize. Hans Gregersen at Nordea. Please go ahead. Good morning. Food and Beverage why is brewing not having any growth momentum for the time being? And secondly, in relationshipology, the other sectors, ag farming risk was mentioned. How do that play into, to food and beverage if there's adverse price movements in the raw materials? That's the first question. Second question, bioenergy, engaged. As far as I understand, we can see the in sum and yeast process as a combined biological process what is the scope for integrating selling of those two products and how will that affect the ramping of this product? And then finally, BioAg, You have first mentioned in soy now in some post crops that you've been hit by various factors in pharmacoeconomics What is the risk that this can spread further into other crops? Brewing. Why is brewing not growing, Andy? Thanks, Peter. So, the brewing business actually, the majority of it is in developed markets where we've seen quite a bit of consolidation. We've seen quite a bit of pressure actually on the brewers because assumption has actually gone down and is moving towards things like microbrewed beer and other beverages. So that's been a bit of a tough part of it. Now last year, we actually had a nice counterbalance in the emerging markets, especially Africa, around local raw material brews, things like Sorgum, things like Casava. We still have expectations that that will be a great driver for us. But In Q1, we actually had a situation where some of the launches from last year in Africa were actually withdrawn after sort of the market started to level on and that meant that some of our customers had excess inventory in Q1 and things will pick up in Q2 and beyond. And Andy, can you talk about the effect of raw materials pricing in the general food and beverage business? Yes. Hence, we don't see a lot of, I would say, definitive effects as we move out farther into the value chain within food. I mean, it's pretty stable. People are even habits don't change a lot just based on on slight movements in the Ag markets, and it's a lower percentage of the overall cost. So it doesn't have a big impact farther out. Thanks. And then Thomas, on use case, Yes, thank you. It's a very good question, Hans, on how enzymes and yeast work together in the ethanol process. Of course, the overall goal of an SNR processes to get the SNR yields out of the raw material applied. The enzymes, so they break down the raw materials and make it nutrient for the yeast. The yeast then converts those nutrients to ethanol. And the more you can tailor the enzyme to break down and make the right nutrients available, the more you can optimize. But of course, as you also know, we have been in the enzyme for many years and had a good business out of that without being in the East. So we're talking at the final, the fine parts of optimizing here, but are certainly optimization possibilities in this, and that's why we have moved into the east. But then, so Thomas, being a little bit more specific, if you take an enzyme cocktail from a competitor or sorry, if you take a yeast from a competitor against your inside portfolio versus your own yeast, what benefits can we see, if any? Under the right conditions, the user will see the the nutrients made available is just a little bit more optimized when you use the portfolio of enzymes and the yeast from neuroscience. But we are in the details here, hence it's not enormous differences So we have to be careful in our doing this. Of course, we get into this segment because we think there is an amortization opportunity in doing it this way. But what is the selling point then? Is it a higher yield on the yeast itself? The selling power in this specific yeast, we just introduced this robustness in the process. It's a very robust ease we have developed. And as you heard, it's picking up very well in the marketplace. I'll take the BioAg question if you allow me. I I mean, we were actually not surprised by the engine tariffs. We knew that when we did our plans for 2018. And also when we guided for 2018, obviously. The tariffs as Tina pointed out has led to a slight at least we expect a slightly lower acreage in a lower acreage in Canada. And the reason the information we've gotten from Montana about their expectations is slightly worse than what we had already built into our plans, but it's not like this surprised us at all. And again, on soybeans, I think we're well positioned in Latin America to pick up the business. So with the insight we have now. I mean, the current projections our business in a significant way. And let me just reiterate that the real driver of our business in 2018 is preparing for the much better coin in Auckland that will bring to the market in 2019 that is what is going to create the growth in the 3rd fourth quarter in BioAg. Thank you. Our next question is from the line of Gunther Segment at Bernstein. Please go ahead. Your line is open. Can I ask on your margin guidance, please? So your margin in the quarter was above your full year outlook despite the growth being below the 46% guidance. So it seems to me that things are getting easier on the profitability side. You get some operating leverage as you're confident with a 46% currencies are getting less adverse as well. So is there anything I should know about reinvestments in the remainder of the year that would keep a lid on margins? Or is that more conservative state or funds you take so early in the year? Thank you. So please get margin guidance, please. Thanks a lot. Yeah, maybe to start you are right. We are at 29.8 in the Q1, but you have to, of course, factor in the reorganization costs from that we saw in the last quarter. We see basically better mix impact in Q1, which is helping us, but we will it will level out over the year. We see deferred income, as you know, will be reduced that will also hit margin. That is a known fact. And then we also will see a small effect from increased raw material is that we don't see in Q1 yet, but we expect that, to kick in into the year. And then the overall theme, I think we have also mentioned in the announcement is you know, we are ramping up emerging markets and you see I think some of the sales growth also happening. So that was basically on an annualized impact also hit our P and L more as we go throughout the year 2018. So overall, that is the reason why we are guiding to around 28% for the full year. That's very helpful. Thank you. Our next question is over the line of Sebastian Bray. At Berenberg Bank. Please go ahead. Your line is open. Good morning and thank you for taking my questions. I would have 3 please. So the first is just a quick one on technical. What following the divestment of AlpiMedix? What is the pharma component left in this business? What does it do? The second one is on Bioenergy in China. Do you see any move amongst potential customers to was reaching the new goal set up by the Chinese government for potentially hitting E10 nationwide by 2020? And also on Bioenergy, could you please give some comments on the outlook over the next 2 to 3 years for 2G. Is this just something we should think of as being flat for the foreseeable future? Thank you. So, we'll let Thomas talk about the farmer and technical, please, Thomas? Yes, thank you. You're right. We did the divestment of Alopamedics back in December. That was our albumin business. So that has now left our books. What we have left is a business, what we call a bio catalysis, This is an area where big pharma companies are using our in science technology to produce their APIs. So that's the business we have seen develop slightly over the last many years. It's a small business, but it's an affair business And as Ana said earlier, it comes in lump. So when our customers order from us on of this, we have a royalty income coming from the, how live extension albumin Technology that was not divested. So that's the business we see in Karma now. Thank you, Thomas. And Tina, the exciting movements in China and maybe the more general outlook for 2 g, please? So on China, on their plans on getting to E10 in 2020, So we have already seen, if you look closely at the numbers, ethanol exports from the U. S. To China has, in fact, been taking place here in January, February. It depends a bit on tariffs, a bit on as well, ethanol in the U. S. Whether that makes sense. But we do expect that the startup of the E10 in China will be. Yes, they have their own business, which is running and which is good. Then they'll do some imports, then they'll gradually move towards shifting, maybe some distilling assets over to biofuel. And then they'll also be doing some building themselves, but it does take time. But it's interesting news and we do see interest also from US FMO Producers in the area. So it's all well and fine. And in China, in the F on our business there. We are present there. We've been there for many years. We have a good position. So we think things looks good there. Then on 2 g, So 2G, the way I look at 2G is that it is an interesting option. It's a growth opportunity which will materialize as we have talked about before. It's something which has taken way longer than we had hoped for, but it's still something which we expect will happen. The question is when, but I do think that, that is something which will come. Maybe if I can just add, amongst others, because that's going to be the long term solution in China. Also, if I can just have the new legislation in Brazil, the Renova Bio legislation is also incredibly interesting that also speaks about much higher volume. So of ethanol of both 1G and 2G. So there's a lot of good movements happening around the world. And also to build further on it, there's also moves in India where they rely on 2G. And then we have the European setup where they also look a lot into doing 2 d. Thank you very much. So if I could ask a quick follow-up on the, the feed business. Is this just as a quick, quick cross check, is this simply a tough comps effect based on the inventory stocking that you mentioned or is there anything here to get to pay more attention to in terms of the demand side? Yes. So it's a tough comparison compared to quarter 2017. We do, in general, see a different regional differences of itself in Latin America with very strong growth. In Asia and North America. So it's a tough comparison you should pay attention to. Our next question is from the line of Fulvio Khazole of Goldman Sachs. Please go ahead. Your line is open. I have 3 actually on the operating margins, please. On the comments of input costs potentially becoming more of a headwind. Can you just give us a sense of when you expect these to peak in terms of the quarters for this year? My second question is on the cost phasing relating to the emerging markets. Can you just give us an idea or quantify by the effect of these ramp up in costs in EMs and which cost lines could be most in acted, please? And then my third question is on depreciation. Obviously, we've seen last year and this year, CapEx running at roughly 2 times depreciation. When could these investments start to filter through to the P and L please? Thank you. Start with the operating margin and the inputs costs. We will see throughout the year, I would expect already basically starting now that you will see a slight impact, but you will not see a pronounced impact over the quarters. It's a general trend basically as we basically get them from inventories capitalized into cost of goods sold. So that's what you will be seeing. If you look at emerging markets ramp up, I think it's a general trend. If you compare Q4 with Q1, you'll already see sort of a pickup in the numbers. And this will continue throughout the rest of the year. We are adding across the globe there. I think the baking lab has been mentioned last month. So I think there's no concrete answer. I can give you there as to numbers, but I think should give you a rough guidance. And as to which lines this will hit, obviously, we are talking commercial teams there. So you're you would see that in, in sales and sales and distribution and then also some general admin. Last one was on depreciation and CapEx. If I remember, could you I think your question was around CapEx when it will hit the P and L? Yes. So obviously we've seen a lot of investments going into CapEx. So I was just wondering when do you commission these facilities or R and D centers, which could obviously lead to a higher depreciation charge. And you're talking about current CapEx in 2018. Is that correct? And also what you did in 2017. I thought it's been quite high for a while, yes. Yes. Thanks for the clarification. Yeah. So I think there's been 3 projects that have been mentioned. 1 is an ongoing project versus the Innovation Campus in Lingby. Where you saw CapEx in 2017 and you'll also see a sizable chunk in 2018, but that's, as you know, it's an innovation campus. So it's a mix of R and D facilities and an office facilities. The second project is the expansion in the U. S. That we have basically finalized you'll see that already in the capacity of 2018. And the 3rd project is our facility in India. Which is progressing well is underway and we towards the end of the year should be finalized. We now go to the Yes. Hello. Two questions from my side. First of all, the hygiene platform, and could you give us a more thorough update on this one. Any data points you could share feedback from clients, anything that could affect our conviction in this product? And secondly, just turning back to bioethanol, I say that I have been pretty impressed by your performance lately over the last couple of quarters. But how big an impact is yeast in this quarter? Could you give us any kind of indication of what the organic growth would have been with of this product, it's simply going to try to do the underlying calculations of the growth. Thank you very much. Thank you. So, Alice will talk in a very excited way about hygiene, Alice, please. Yeah. So thank you very much, Peter. Of course, this is a really exciting news. And let me share a few things for you. It is expected to hit the shelves within a couple of weeks in selected emerging market countries and ramp up is according to plan in selected emerging market country now spread out throughout the remainder of 2018. Then, of course, also carry into 2019 where we do currently expect that we'll also see more formats being introduced also to our geographies in developed market. And as you know, this is a launch we're doing with an exclusive customer, and we are not essentially disclosing which markets and countries that they are going to, you will have to carefully that yourself. Now I also want to add that our freshness in hygiene platform is not only this one product to one exclusion customer. This is a platform that Novozymes is investing heavily in. So you should expect over the course of the next years that we will come out with more technologies also to more customers. And we are reiterating our growth ambition of hitting 1,000,000,000 Dkk in revenues over the course of the next 5 to 10 years. And thanks for your kind words on bioenergy performance, but is it all yeast, Tina? No, it's not. And yeast is a small part of it. Although we are very enthusiastic about the launch and then the progress we are seeing and it's something we expect a lot from in the longer term in our current numbers. Easter is a small part of it. But let me try to maybe explain a bit more about where the numbers is coming from. So it's a global growth which we see in Bioenergy. So we see growth in the U. S, but also significant growth outside the U. S. And examples in Latin America, where we do see a number corn based ethanol facilities getting up and running, and where we see that the sales are contributing to growth. In the U. S, we see both some mix effects and we also see some market check ins. Okay. Just one follow-up question, if possible, when will you launch the hygiene platform for more than, yeah, for more than just one client? Will that be in 2019 or is it 2020 or what are we talking about? So we would be out with this on what you can call technology that we are tweaking and that will be already earlier in 2018 2019. But the real big impact from a more radical innovation is expected to hit the market in 2020 for the broad market. But I think it's important to stress that you can actually have the high heightened claims with current technology. So a lot of the human, hot and humid areas, you can actually benefit with current technologies, which will of course also try to work with our customers on showcasing what capabilities those technologies have. Thank you very much. We now go to the line of Hans Gregersen at Nordea. Thank you. Just two follow-up questions. 1 for Andy. In Europe on the newer Mule, what was the competitive behavior in Europe post then? And going back to bioenergy, a challenged question. If we look on Monsanto's guidance as an example for co lean improvement towards 2030, One could argue that we will see a significant expansion in the corn harvest. Could that lead to that? We will stay in 1G and it does not make sense to move in to achieve from either cost point of view or CapEx point of view seen from biothermal productions manufacturer's point of view. Thank you. Andy, you live through Novo Mill changes in Europe, please? Yep. So, the same patents expired in 2009 in Europe. And what we saw was over a couple year period, we saw some price erosion because of new entrants and more competition around the Freshkeeping platform. And that's basically how we modeled our, let's call it, preparation in the North American market. Was not that it would take 2 years, but to get it down to more market prices. And we've, we've done that. We've got a good base price, we believe. I'm sure there'll be some dynamics and some competition, but we feel like we're well positioned to maintain and grow our business both in the developed and especially in the emerging markets and baking. Okay, thanks. Does that answer your question? Can I, I'll give it a go at the second question? There was just a lot of noise interrupting here. So the U. S. Corn is really in first thing. And I think the longer term, you can make many difference in areas, including ones that where corn will Please have abundant in the U. S. That 2G is not a likely technology in the U. S. We are as you've heard us for the last, I think 3 or 4 years, we've been more excited about what happens in Latin American, Brazil, particular. In Asia, in China, in particular, but not only China, India too. And then in Europe, then we have actually been about the U. S. For that exact reason. Now the other thing that of course needs to be considered about the U. S. Businesses where the regulators want to take that over the next 5, 10 years. If the administration and again, we're not booking this into our numbers if they were to hike up the requested volumes of ethanol to where the original RFS were, then where the original RFS was, then I'm sure 2Q would also happen in the U. S, but that's just not very likely, at least not with current environment. So corn, a lot of corn is great for our business in North America. It is not making it, it doesn't make it very likely that the 2 d will happen in America, but it's going to happen elsewhere. I think we can we can take one additional question, please. Okay. At this stage, there are no further questions in the queue. You so much for your interest in Novozymes and all the good questions. We hope to see many of you as we get on the road over the next couple of days. Thank you. This now concludes our call. Thank you all very much for attending. You may now disconnect your