Thank you operator. Welcome everyone. Thank you for joining us. My name is Tobias Björklund, and I'm the Head of Investor Relations at Novozymes. At this call, Ester Baiget, Chief Executive Officer of Novozymes, and Lars Green, our Chief Financial Officer, will go through our performance for the first nine months of 2020, the outlook for the full year, and comment on the recent changes to our organizational setup. We expect the presentation to take roughly 20 minutes, after which we will open up for questions.
Also with us today, we have the rest of the management team, namely Anders Lund, Executive Vice President Consumer Biosolutions, Tina Fanø, Executive Vice President Industrial Biosolutions, Thomas Videbæk, Interim Executive Vice President of Strategy and Business Transformation, as well as People, Sustainability, and Brand, Claus Fuglsang, Chief Science Officer, and Graziela Malucelli, Chief Operating Officer. We expect the entire call to take 50 minutes.
Before we begin, I would like to remind you that the information presented at the call is unaudited and that management may make forward-looking statements. These statements are based on current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in any forward-looking statements. With this, I will now hand you over to Ester Baiget. Ester, please.
Thank you, Tobias. Thank you all for calling in. Please turn to slide number two. Before we dive into our performance, I'd like to take this opportunity to share our thoughts on the organization setup we announced on September 1st. The new setup has a clear link to our strategy, Better Business with Biology. The strategy provides a solid foundation, and the recent changes allow us to further drive Novozymes ahead more forcefully. It enables us to center ourself around our customers even more. We have created two divisions following the simple logic of where Novozymes solution fit in the value chain. In Consumer Biosolutions, we gather the segments that have a direct end consumer impact, and in Agricultural and Industrial Biosolutions, we have group areas with focus on yield and process optimization.
With Novozymes' strong foundation and commitment to innovation and production, these two important areas are now represented by dedicated Executive Vice Presidents who report to me. I'll let Claus and Graziela introduce themselves in a minute. Apart from these new roles, we're also well into the process of hiring two new executive positions currently headed up by Thomas Videbæk. Now I'll hand over to our Chief Science Officer, Claus, and before we hear from our Chief Operating Officer, Graziela. Claus, please.
Thank you, Ester. Good morning, everyone. My name is Claus Fuglsang. I'm heading up Research and Development. I've been working with research in enzymes and microbes for my entire professional life and have been part of Novozymes since 1993. I know the potential of biological solutions, and I'm really excited to be part of a world-class R&D organization that helps to unfold this potential every day. I'm committed to ensuring more and a much closer involvement of commercial people and business development in our better translation of consumer needs or customer needs to drive the pipeline for success and growth while still allowing our passion for world-class science and sustainability to shine through. Now I'll hand over to Graziela. Graziela, please.
Thank you, Claus, and hello to all of you. My name is Graziela Malucelli, and I am heading Operations, Supply, and Quality. I have been with Novozymes since 1998, and I am very excited to now represent Novozymes' global supply chain in our executive leadership team. My area serves as the home for these activities, from suppliers through production, all the way to our customers. We ensure a safe work environment to deliver the highest quality and secure continuous productivity improvements, all in the effort to be the best and most reliable supplier of biological solutions for our customers. With this, I will hand back to you, Ester.
Thank you, Claus and Graziela. The new setup is a continuation of our path to deliver a stronger performance. We're taking the next steps to direct the organization towards a simpler and more responsive setup. I am truly excited about where we're heading as a company and the impact we can have, we will have on our customers, consumers, and the world we live in. Let's now turn to the nine months performance. Organic sales grew 1% in the nine-month period and declined by 3% in the third quarter. COVID-19 has impacted our sales in different ways, depending on the end market exposure. Household care and food and beverages were positively impacted by COVID-19 effects in the first half of the year as end consumers changed habits, and we also saw stockpiling in the value chain.
As expected, we saw destocking in these two segments in the third quarter, in which we also had tougher comparisons from last year. For both the Bioenergy and Technical and Pharma segments, we have seen negative COVID-19 effects as ethanol and textile production has declined. On a positive note, however, the headwinds eased somehow in the third quarter. Sales in agricultural and feed grew moderately in the first nine months, despite a significant third quarter decline in feed. Our earnings and cash flows are solid despite the modest organic top-line growth, and the EBIT margin came in at 27% for the first nine months and at 26.1% in the third quarter. The free cash flow before acquisitions was strong at DKK 2.7 billion. Please turn into slide number three for a review our geographical performance.
Emerging markets grew by 3% in the first nine months, while developed markets were flat. Sales in Europe, Middle East, and Africa region, as well as Latin America, grew, mainly driven by household care. Asia and Pacific declined primarily due to textile. North America was significantly impacted by weakness in the U.S. ethanol market. In the third quarter, emerging and developed markets declined by 6% and 2% respectively. Developed markets were negatively impacted by de-stocking inventory adjustments in feed and decline in U.S. ethanol production. In emerging markets, we saw a negative impact from de-stocking, decline in textile production, as well as inventory adjustments in the feed business. Could you please turn to slide number four? Sales in household care grew by 7% organically in the first nine months of 2020.
In the third quarter, we saw a slight organic decline of 1%, following our unexpected de-stocking, and as well a tougher comparison. The rollout of the Freshness platform continued to develop according to plan, and demand for better performing products in emerging markets continues to drive higher enzyme inclusion. On the innovation front, we recently launched Microvia, which is a first-step solution into the area of using beneficial bacteria to provide superior and continuous deep cleaning on hard surfaces. Looking at the remaining of the year, the Freshness platform is expected to continue to be an important growth driver for household care. The novel Freshness technology is currently being rolled out in Europe across multiple formats. We face a tougher comparison also in the fourth quarter and expect the COVID-19 related de-stocking to continue.
However, these developments are difficult to predict and depends on the impact of potentially reinforced COVID-19 restrictions. Please turn into slide number five. Food and beverages sales grew by 5% organically in the first nine months of the year. The performance was led by strong growth in baking, as sales were supported by more at home consumption due to COVID-19. On the other hand, enzymes for beverages, especially for brewing, were impacted negatively by lower demand due to social distancing. In the third quarter, sales grew modestly at 1%, partially due to a more difficult comparison in the third quarter relative to the first half. Starch performed well in the quarter, mainly due to timing, but this was to a large extent offset by de-stocking in baking and a continued COVID-19 related decline in beverages. In the fourth quarter, we expect continued de-stocking.
However, this development is also uncertain, and it depends on the impact of potentially reinforced COVID-19 restrictions. Please turn into slide six. Bioenergy sales for the first nine months declined by 11% and 5% in the third quarter. While sales outside the U.S. grew, sales in the U.S. were severely impacted by lower ethanol production following COVID-19 induced stay at home restrictions. The ethanol production, as well as our sales in the U.S., started to improve towards the end of the second quarter from the lows in April and May. Production rates in the first nine months are indicated to be down by around 15% compared to last year, according to the U.S. Energy Information Administration. In the third quarter, we introduced the Fiberex platform, which improves the conversion of corn into ethanol and other high-value products.
Looking ahead, we continue to adapt and tailor our offerings to individual plants and market conditions, and we are conscious about the prevailing uncertainty in the U.S. ethanol market. Please turn into slide number seven. Sales in agricultural and feed grew 4% organically in the first nine months, but declined by 19% in the third quarter. Agriculture delivered healthy growth in the first nine months, driven by solid demand for upstream corn inoculants overcoming the drop in sales of downstream solutions. Following a positive performance in the first half of the year, including a DKK 60 million positive one-off in the second quarter, we saw a decline in the third quarter, mainly due to timing. Sales to the feed industry declined in the nine-month period.
Following the growth in the first half of the year, the feed business declined in the third quarter due to inventory adjustments as a response to lower market demand. We had expected inventory adjustments, but they were larger than anticipated. For the rest of the year, we're still operating in an environment where the global farm economics and COVID-19 impacts remain sources of uncertainty. Organic sales in technical and pharma declined by 15% in the first nine months, mainly due to the negative impact of COVID-19 causing a decline in textile production. Sales in the third quarter grew by 2% as the pressure on textile eased, and we also saw supported growth on the pharma business. With this, I will now hand over to our Chief Financial Officer Lars, who will take with you through the financials.
Thank you, Ester. Please turn to slide eight. As highlighted by Ester, organic sales declined by 3% in the third quarter, but grew by 1% for the first nine months. In Danish krone, sales declined by 7% in the quarter and by 1% for the first nine-month period. Currencies, especially the U.S. dollar, were a drag on our reported Danish krone numbers, whereas the acquisition of PrecisionBiotics Group in June had a slight positive effect in the third quarter. Earnings and cash flow performance for the first nine months and the third quarter was solid despite challenging market conditions, a negative currency environment, and the recent acquisition having a dilutive effect on our EBIT margin. The gross margin ended at 56.2% for the first nine months and 56.1% for the third quarter.
This was an increase of 1 and 0.7 percentage points respectively compared to the same periods of last year. The gross margin development was supported by productivity improvements, lower input costs, and one-offs. The gross margin was positively impacted by a BioAg one-off in the second quarter, and in the third quarter, negatively impacted by severance costs related to the recent organizational changes. The total severance cost of around DKK 90 million were distributed roughly evenly in COGS, R&D, and sales and distribution. The reported EBIT margin for the first nine months was 27%, or 60 basis points lower than for the same period of last year. Both this and last year's EBIT margins were impacted by one-offs. In 2019, the margin was positively affected by the termination of the former BioAg Alliance and the divestment of a pharma-related royalty in the second quarter.
In addition, the EBIT margin in the third quarter of 2019 was impacted by restructuring costs following the updated strategy. In 2020, the EBIT margin was positively affected by a BioAg one-off in the second quarter and negatively affected by severance costs in the third quarter. Currencies were slightly dilutive to margins. In summary, the EBIT margin excluding one-offs, was roughly one percentage point higher for the first nine months of 2020 than for the same period of last year. The reported EBIT margin in the third quarter of 2020 increased by slightly more than 3 percentage points relative to last year to 26.1%. If adjusted for the previously mentioned one-offs in the third quarter last year and this year, the underlying EBIT margin was down by roughly 1 percentage point to around 29%.
The return on invested capital, including goodwill, declined by roughly 1 percentage point due to higher average invested capital and a lower net operating profit after tax. Net investments excluding acquisitions were close to DKK 600 million in the first nine months of 2020, and this was roughly on par with the same period of 2019. The free cash flow before acquisitions for the nine-month period was DKK 2,716,000,000. This was DKK 665 million more than for the same period of 2019. The improvement was driven by stronger cash conversion from better earnings quality, as well as a postponed Danish tax payment following the Danish government's COVID-19 related support. In the third quarter, cash flow was DKK 665 million.
This was roughly DKK 170 million less than in the third quarter of last year and can be explained by higher investments and lower payables as the third quarter last year included a provision for severance costs related to the reorganization. Please turn to slide nine for the 2020 outlook. We continue to see unusually high COVID-19 related uncertainty prevailing in the marketplace, and consequently maintain the full year 2020 organic sales outlook of -2% to +2%. With increasing confidence, we consider the midpoint of the range the most likely scenario. The upper and lower end of the overall organic sales growth range of +2% and -2%, respectively, mainly depends on the magnitude of destocking and at-home consumption in household care and food and beverages, as well as potential changes to the current trajectory of textile and U.S. ethanol production affecting bioenergy and technical and pharma.
On a segment level, household care and food and beverages are expected to deliver mid-single-digit organic growth. Agriculture and feed, low single-digit organic growth, while bioenergy and technical and pharma are expected to deliver double-digit organic sales declines. We are raising the outlook on earnings, and the EBIT margin is now expected at between 26% and 27%, up from previously around 26%. This is driven by diligent cost controls as well as lower travel and hiring costs, offsetting higher investments in digital capabilities. As a reference, the underlying EBIT margin in 2019 was around 26%. The outlook for ROIC, including goodwill, is maintained at between 18%- 19%. The outlook for free cash flow before acquisitions is also increased and now expected at between DKK 2.6 billion and DKK 3 billion.
This is the result of a stronger earnings outlook, as well as less negative impact on receivables from COVID-19 than previously expected. Turning to our balance sheet, we have a very solid position with a net debt to EBITDA leverage of 0.9 x, even with the recent acquisition, dividend payments, and our stock buyback program. On that note, the 2020 stock buyback program totaling DKK 1.5 billion completed on August 24. I'd like to remind you that we will report sales for the full year based on the new structure anchored in the two divisions, Consumer Biosolutions and Agriculture and Industrial Biosolutions. We will continue to share sales details on five segments, allowing for the same level of transparency as you had previously. We will provide you with five-year historical data on the new sales structure well ahead of year-end.
I'll now hand back to Ester for a wrap-up before we open for questions. Ester, please.
Thank you, Lars. Please turn to slide 10. Let me summarize our key messages today. Our performance in the first nine months was satisfactory, especially considering the implications of COVID-19. Our versatile portfolio and innovation agenda, combined with the organization's agility, has allowed us to rapidly adapt to a changing environment. This, together with an increased customer focus also in the innovation cycle, sets the scene for stronger performance going forward. Looking at 2020, we continue to see considerable COVID-19 related uncertainty for the remainder of the year. Consequently, we maintain the outlook for organic sales at -2% to +2%, and are increasingly gaining confidence that the midpoint of the range is the most likely outcome. Following a solid earnings performance, we raised our EBIT margin and free cash flow guidance.
The results we achieved over the past nine months have only been possible thanks to our dedicated employees and their ability to maintain focus. I am grateful for their commitment, I am confident our more customer-centric approach will increase our impact, not only for our customers and consumers, but also on the world we live in. With this, I would like to thank you all for attending our call this morning. We're now ready to take your questions. Operator, please begin.
Thank you. Ladies and gentlemen, if you wish to ask a question, please dial zero one on your telephone's keypad now to enter the queue. Once your name is announced, you may ask your question. If you find that it is answered before it is your turn to speak, you can dial zero two to cancel. Once again, that's zero one to ask a question, and zero two if you need to cancel. In the interest of time, please limit yourself to one or two questions per turn. You may rejoin the queue to ask further questions. Our first question comes from the line of Gunther Zechmann of Bernstein. Please go ahead. Your line is now open.
Hi. Good morning. Thanks for taking my questions. Can I start with bioenergy, please, for you, Tina? It's quite noticeable the outperformance versus the market in Q3. I've got the market down 11%, and you did minus 5% organic sales growth. I appreciate you have a slightly different customer mix from the overall market, but can you give some color around what you see in the U.S. market versus export market versus international markets, please? I'll start with that.
Tina?
Yeah. Hi, Gunther. It's right that our performance in Q3 of -5 % is more than what EIA has reported for the U.S. As I know you also know, and as you're also hinting to in your question, we have a more broad portfolio. I would say in the U.S., it's roughly in line with what we see there. However, what we have been doing over the years is that we have built, you could say, our presence more broadly. Outside the U.S., in particular in Latin America, we do see good growth. I also think it's a clear signal, too, as you know, that you can't take a direct read over from the EIA numbers to our performance also because we serve a different customer base and also because of that we have a more broad geographical spread. You also asked about exports.
Right now in the U.S., there are limited exports. One of the reasons is Brazil has been one of the key export markets. Here mid-September, in fact, Brazil extended with 90 days the no tariff quota, which is giving some hope for that more exports from the U.S. could happen. Overall, there are limited exports these days from the U.S. to other parts. I think that covered all your questions. Right, Gunther?
Great, Tina. Thank you very much. If I'm allowed a second question, can I just ask what your view, Ester, is on capital allocation? You mentioned several times that this is one of the most important parts of your job, and you've recently announced the acquisition of PrecisionBiotics. Would there be any scenario where you cannot use share buyback program, or how do you think about the balance between shareholder returns and acquisitions, please?
We're committed to our announcements and to the investments or to the share buyback program under the shareholder dividends. That's a space that we stay informed and committed to. At the same time, what we are reinforcing as a team, it is the capital allocation, the cash allocation on where are we better allocating those resources to strengthen our capability to continue or to become the growth company that we deserve. That means that, yes, acquisitions are an alternative. It's a constant question that we make ourselves in the leadership team on what is the best resource of the cash to give the return and to translate, yes, this society needs, these opportunities into bio-based solutions. We have a fantastic innovation machine. We have incredible production capabilities, and we're committed to continue to invest on them.
We also have the responsibility on other options in the space that would be complementary and bringing a stronger push or a complementary fit to accelerate growth to the facilities and the capabilities that we have.
Thank you, Ester. Thank you, Tina.
Thank you. Our next question comes from the line of Søren Samsøe of SEB. Please go ahead. Your line is now open.
Thank you. First, a question on your cost, where you said last year you let go of 300 people, which you said you would rehire. If you could quantify how many you have rehired in Q3, and also how many you have rehired in the first nine months. That's the first question. On your growth in Ag and Feed, it's down 19%. Given that Ag is a relatively small part of the division today, Ag must be down more than 50% or something. Can you confirm that? Finally, if you could talk a little bit about your product launches, for example, the Fiberex looks quite interesting. If you could talk a little bit about that. Thank you.
Thanks, Søren. I'll take the first question on the cost development. As you rightly point out, we are committed to reinvest the resources we released last year in supporting the future growth of the business. As we also have been speaking about during the year, it has been more difficult to do so in the way that we had foreseen at the beginning of the year. Therefore, we have not hired as many people this year as we had expected. We have also had less spending on accounts such as travel and entertainment. On the other hand, we have reallocated some of that resource to accelerate some of the digital platforms that we are now using to also communicate and interact with our customers. I think it is a question that is broader than just talking about how many people we are.
We have, during the year, recruited people, so we are more people now than we were at the beginning of the year. I think it is more relevant to look at the total cost levels. There, we have not yet put in place, you could say, or invested all of the money we released last year. We will, at any point in time, and also looking forward, consider how do we best support the future growth of the business. We will also do that as we put in place our plans for the coming period.
And on-
Does that also mean then that it sounds a little bit like you say that you are now going away from the statement that you will rehire the 300 people? Does that mean that we can expect the cost levels to be lower going forward?
I don't think we have said that we would hire 300 people. I think we have said that we would reinvest the DKK 300 million that we released last year. We're still committed to do that. My comment should rather be seen in the light of we would, at any point in time, make sure that we reinvest those money in the most sensible way. At the beginning of the year, we were looking more at hiring people. We have now learned that digital solutions is also an alternative, so we would find the most appropriate mix for how we invest our resources to have the highest impact on our future growth.
Søren, then over to your questions. First Ag and Feed, and then on Fiberex. On Ag and Feed, you're right, in Q3, we are down -19%, and most of that is, in fact, coming from Feed. Please bear in mind that this is one of our volatile segments. In BioAg, it's mostly due to timing. If you look at the nine-month performance, we are up 4%, which in fact is BioAg driven. If I dive into the Feed component of this, then there has been a misalignment between what we have seen as in-market performance and then our sales in the first half. That's also why we have flagged it a number of times before. Here in Q3, we saw these inventory adjustments. It is more than anticipated. We are working with DSM how to do that better.
There is a long-term growth in the market, and we should get our share of that. If you deep dive into the Feed element of our business, then we do see good demand for our new launches, for our Balancius particularly. It is part of the reason why we have lowered from the mid-single digit performance to the low single digit. I think one of the reasons we are also looking at is that one of the things we are looking into together with our partners is that it seems like the more consumption at home is also leading to some less meat consumption. That's one of the things we are looking into. That's on the Ag and Feed. I hope that answers your question. On the Fiberex.
Yes, thank you.
Yep. On the Fiberex, it's an extra tool in the toolbox that help producers to differentiate, especially in low carbon ethanol markets. It helps our producers differentiate and do good no matter what kind of conditions they are. This is an extra tool to the toolbox to get extra yield out of your bushel of corn.
Okay, thanks for the answers.
Thank you. Our next question comes from the line of Nicola Tang of Exane BNP Paribas. Please go ahead. Your line is now open.
Thanks, everyone. Hi there. It was actually, my first one was a follow-up to the last question, so it is for Tina on Ag and Feed. Can you just clarify, like more on the Ag side, that your downgrading assumption to the full year outlook is really mainly associated with all the stuff you just said on Feed rather than change in expectations on Ag for the full year? Could you just explain a little bit more about what you were saying about the timing of Ag? Is that now more pushed into Q4? The second question was on the free cash flow guidance. I noticed that the lower end of your guidance is below what you've achieved year to date. I just wondering if you could give some color on the moving parts as we go into Q4. Thank you.
Let me start with maybe a super short answer. Yes. It is the changes due to the downgrade on feed. Ag is performing according to expectations. We see good uptake of our new solutions, the corn upstream inoculant, as well as the biocontrol.
On the cash flow, as you rightly point out, we have generated DKK 2.7 billion of cash flow in the first nine months. We are, after the nine months, within the range for our guidance of the full year. As also said in my comments, remember that part of that cash flow is generated because the Danish government has postponed some payment terms for withholding tax and VAT, and we expect that to return to normal levels in Q4. You could say the underlying of level of cash flow is actually lower than what you see this year in the reported numbers. Therefore, there is actually a logic to it. I'll also remind you that the Q4 is typically a low cash flow quarter because we have a very significant tax payments in Denmark in Q4.
The guidance for the full year is actually much in line with historic patterns of the cash flow over the year.
Thank you.
Thank you. Our next question comes from the line of Lars Topholm of Carnegie. Please go ahead. Your line is now open.
Thank you also. Two questions from me, actually follow-ups on some of the previous questions. Regarding the discussion of reinvesting DKK 300 million, just so I also understand it, how much of the DKK 300 million have already been reinvested, and what is the residual that you implicitly need to reinvest next year? On the cash flow, you still don't provide a quarterly cash flow, but if you did, your cash flow from operations would be down from DKK 1,010 million- DKK 894 million, and that means your Q3 EBITDA to cash conversion fell from 94% in the first half of the year to just 74% in Q3. I wonder if you can explain what that is, and what level of cash conversion I should be looking at going forward.
If it's different from the run rate of 74%, can you please take me through what the moving parts will be? Thank you.
Thank you, Lars. When we talk about the reinvestments, remember that already in the fourth quarter of last year, we started reinvesting. You could say the full year of last year started to include some of that reinvestment. You can say that some of the margin expansion that we have seen this year on the gross margin is, you could say, underlying is in line with what we have expected. The challenge, of course, is that with a lower leverage on the top line, we have less margin expansion on the overall EBIT level. That is what is driving, you can say, the primary EBIT margin down compared to the original guidance. On reinvesting, we are still not fully there, because as I said before, we have not been able to invest in all the launches of new people in emerging markets.
On the other hand, we have reallocated some of that investment to digital campaigns and digital tools. There is still some of it in front of us. It is becoming harder and harder, you can say, to separate the hot and cold water in terms of where do we see the savings and where do we invest. I would just reiterate that we are committed to invest the money we released, and do that in the best possible way to support the future growth. On the cash, remember-
I understand, as a ballpark figure, Lars, how much do you still need? Are you 50% there or more than 50% there? I'm just trying to see what I should put into my model for margins next year, please.
Yeah. I would say we have reinvested more than half of the resources we released last year. That gives you an indication about the level. As I said, we are committed to invest all that is needed, and the full amount as we move forward. Of course, want to do it where it makes sense, and will at all times make our decisions about how can we best possible support the future growth. On cash, I think you have to, in your analysis of Q3, you have to take a look at the gross profit levels, because there you see the decline in gross profit of more than DKK 100 million, which actually corresponds to the reduction in cash flow. In the earnings last year, there was a large provision that did not carry a cash component in the quarter.
Therefore, when you see an increase in the EBIT this year, it doesn't reflect what would be the, you could say, the corresponding potential for cash. I would say that the ability of us to convert cash this year is as good as it was last year. As you can see in our guidance, we have not seen any impact on our ability to collect in 2020 that we had feared earlier on in the year. Therefore, we are raising our guidance for cash flow, because we basically see a stronger ability to convert cash in 2020 than what we had feared a couple of months ago.
Lars, I was asking to the cash conversion. If your gross profit is lower, so is your EBITDA. It's still a fact that only 74% of that EBITDA is converted into operating cash flow. I assume that can't be explained by a decline in gross profit. What explains it?
In the EBITDA number from last year, there was a very large cost that was not generating cash in Q3. When you compare quarter-to-quarter, that provision has to be deducted. And that's actually why-
No, that isn't my question. You're not answering my question. My question is, first half this year, cash conversion 94%. Q3 this year, cash conversion 74%. What explains that decline? It's not related to where you are compared to last year.
Lars, as we have also said before, when you look at cash flow, that is much more volatile quarter- by- quarter. Therefore, I think looking at the overall ability to convert cash, you have to look at that for longer periods of time. My message to you is that we have not seen a decline in our ability to convert cash in the third quarter. We are collecting cash from our receivables without any trouble. We are seeing a level of cash conversion in our numbers for the first nine months that are in line with our past performance, and actually better than what we forecasted a couple of months ago. If you have follow-up questions on this, I'll happily take them afterwards. Let's take a discussion after the call here, so if we can sort out any details that may still be outstanding.
Perfect. Thank you, Lars.
Thank you. Our next question comes from the line of Sebastian Bray of Berenberg Bank. Please go ahead. Your line is now open.
Good morning. Thank you for taking my questions. I would have two, please, both margin related. The first is more of an in principles question. The business has very tough comparable numbers moving into H1 2021. I'm thinking on a full year basis, what is the level of top line growth that Novozymes would need to generate to avoid any impacts related to negative operating leverage? In other words, through the cycle, what is the minimum level of top line growth at which we would not see EBIT margin erosion? That's the first question. The second one is on the specifics of the margin bridge to 2021. Am I right in saying that the list of factors to take into account here are FX, severance costs? Are there any of those that go into 2021? Are there any other effects to be aware of that might change?
I'm thinking of corona related travel picking up here. A summary would be helpful. Thank you.
Well, thank you for those questions. Very tough ones I have to say, because the world is living now through a very challenging year with impacts from corona. Obviously, we are also in the middle of that. Therefore, it is really difficult to make predictions about the future. Which by the way, is also why we have maintained a very broad range at this point in time in our top line guidance compared to what we would do in a normal year. I think I have to answer your question in a more general way, saying that what will give us margin expansion is leverage on the top line. We are still seeing the underlying fundamental drivers of top line growth as what we announced last year with The Better Business with Biology.
We have to see, obviously, where the world is heading and what the conditions are. Therefore, when we come with the concrete guidance for 2021, those factors and assumptions will be part of that guidance. The margin expansion we see still coming from gross margin. We see the opportunity to continue to have productivity improvements and leverage the scale from basically producing more units from the facilities we have, and sharing the fixed cost on more units. When you talk sort of the bridge and what do you need to remember going into 2021, foreign exchange obviously has an impact, because we have sales distributed slightly different than our cost base. With a lower U.S. dollar, we will have a negative impact from the currencies on the margin, like we have seen in the third quarter of this year.
Severance cost, of course, is a one-off. We saw that in the third quarter of this year. We also called out the one-off BioAg income in Q2 as something that is non-recurring and has a slight impact on the margin. Those are some of the factors you have to take into account. I think fundamentally it's important for us to focus on how do we basically leverage the key value drivers of our business, focus on executing on Better Business with Biology, and then come 1st or 2nd of February, we'll come back with concrete guidance for 2021.
Understood. Thank you for taking my questions.
Thank you. Our next question comes from the line of Michael Novod of Nordea Markets. Please go ahead. Your line is now open.
Yes, thanks a lot. Just have one follow-up question, to ag and feed. Obviously you are not having the same mix, of course, at all as Bayer has, but still looking into 2021, how do you think around the Ag and Feed business? If we look broadly around that business for the last three, four years, it has not been impressive. There's been a lot of different one-offs, but still it's not been an impressive business development. Now we saw Bayer take a massive impairment on 2021 due to challenging ag markets. I was just thinking around your thoughts on your overall business in this area going into 2021 in a market environment where generally economic conditions are not particularly favorable. Thanks a lot.
Hi, Michael, you're right that there has been some tough market conditions in the area. However, that doesn't necessarily mean that's also what we see. Already, I would say through these relatively tough times, we have seen good penetration of our innovations. The upstream corn, the Balancius, the whole health area in livestock husbandry, there is a lot of opportunities. We still believe that this is an area which holds innovation potential and a business potential for Novozymes. It is an area where there is huge value pools, where there is a significant need for sustainable solutions, both on the Ag side and on the animal side. It has to be driven by innovation and strong science-based performance, which helps drive growth.
You think it is a growth area going forward, or just that innovation can just keep it flat to only slightly declining?
Yes.
Is this a growth area going forward?
Yeah.
Growth potential given your numbers in the past couple of years for ag, and that this comment is still a viable comment.
Yes.
One last question, or two.
Thank you. Our next question comes from the line of Thomas Wrigglesworth of Citi. Please go ahead.
Thanks very much for the opportunity to ask questions. I was wondering if you could share with us what your expectations are for the Consumer Biosolutions, so household care and food and beverage, in regards to how COVID wave two will play out versus COVID wave one, and what your thinking will order patterns look like from customers and how that may develop. My second question, again, thinking about is around the development, we're now lapping Freshness's introduction into HPC. How should we think about the Freshness growth going forwards into 2021 and beyond? Thank you.
Yeah. Thanks for the question. I don't have a crystal ball on COVID, and I really think it's going to be a challenge both putting sort of our expectation together, because you can have a lot of different assumptions. Let me try with a few assumptions. If we continue with a second wave that is equal to the first one or even worse, I actually think that it will have a positive effect on the businesses that we have also seen in 2020. That means that we'll see elevated level of hygiene needs and cleaning and laundry. We'll probably also see more in-home consumption when it comes to food and beverages. I think you'll see the same drivers as you have seen in 2020. Then you can think of many different permutations of how a second wave can look.
I think the best guidance I have is that if it looks similar to what we've seen, we will also see the same effects. In terms of Freshness, we are on the plan, as we've been throughout the last couple of years. We're seeing, as Ester also said, it's being rolled out in Europe, and we are actually seeing very positive development and momentum in the conversation with our development partners. Let me also remind you that we are planning for certain segments to come out with broad market technology in the middle of 2021, which we also have expectations to. Of course, there's a ramp-up of broad market technology, so the effect of 2021 may not be that substantial. Of course, it's an expectation that longer term, also broad market Freshness will be meaningful for Novozymes.
We have a couple of more minutes for one last question.
Okay.
Thank you. Our final question comes from the line of Jonas Guldborg of Danske Bank. Please go ahead. Your line is now open.
Yeah. Good morning, all. Just two questions. First, a follow-up on the cash flow for Q4. Maybe Lars, you could just try and give us the figure of how much delayed taxes and VAT is going to be released in Q4. A little bit of, if you could talk a little bit of the destocking in food and beverages, how it has impacted Q3, and how close are we to normalized inventories, and how should we see Q4 relative to Q3 in that perspective? Thank you.
First on the cash flow. The impact of the postponed payment terms from the Danish government is roughly DKK 150 million or so. That's the benefit we have seen in the first nine months of the year.
In terms of destocking in food and beverages, we maintain the guidance on the overall segment. De-stocking is mainly related to baking, we are still committed to mid-single digit growth for food and beverage overall.
Thank you. With this, I would like to thank you all for attending our call this morning, and I'm looking forward to continue the conversations with many of you with the next forthcoming days.