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Good morning, everyone, and welcome to Novozymes First Quarter Conference Call. My name is Tobias Bjorklund, and I'm the Head of Investor Relations here at Novozymes. At this call, our CEO, Ester Baiget; and our CFO, Lars Green, will review our performance for the first quarter and the outlook for the full year. Our executive team, including its 2 newest members, Amy Byrick and Morten Rasmussen are also present. The entire call will last for around 50 minutes, including time for questions at the end.Before we begin, I would like to remind you that the information presented during 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'll now hand you over to our CEO, Ester Baiget. Ester, please.
Thank you, Tobias, and thank you all for calling in today. Before we dive into our performance, I'd like to take this opportunity to extend my warmest welcome to Amy and Morten. Most of you will remember that back in September of last year, we simplified our organizational structure in order to strengthen our customer focus and streamline the innovation process. As part of that organizational change, we created 2 new EVP areas. The first new area is Strategy & Business Transformation, will be headed by Amy. Her main responsibility is to anchor the strategic direction of the company with focus on commercial excellence, digital transformation and new business development.The second area is People, Sustainability & Brand, which will be headed by Morten. It is his responsibility to drive our already market-leading sustainability effort as well as our human resource, branding and public relationship agendas.With that brief introduction, I'll now hand over to Amy and Morten, so that each can say a few words about themselves. Amy, if you would go first, please?
Thanks, Ester, and good morning, everyone. My name is Amy Byrick. And as Ester mentioned, I'll be heading the area of Strategy & Business Transformation. Prior to joining Novozymes, I spent almost 2 decades working in the Food & Beverage space, first with Amcor and later at DuPont. I've held various roles within strategy, marketing, sales and general management. And most recently, I led the Global Food & Beverage business unit in DuPont Nutrition & Biosciences. I'm very much looking forward to working with the team of people with just a tremendous appetite for change as well as an amazing energy, focus and dedication to accelerate growth.And now I'll hand over to Morten.
Thank you, Amy, and hello to you all. My name is Morten Enggaard Rasmussen, and I'm the new EVP of People, Sustainability & Brand. I've spent the past 13 years of my career at Vestas, the world's leading Danish wind turbine manufacturer, where I built and developed high-performing teams across North America, Europe and Asia, with a particular focus on sustainable growth. Here at Novozymes, I look forward to continue the development of the company's strong brand, sustainability effort and overall technology leadership. I'm also very happy to continue my career with a company that is a key enabler in the shift towards a sustainable world. With this, I'll hand back over to you, Ester.
Thank you. Thank you, Amy and Morten. And after these introductions, let's move on to the first quarter performance. If you could please turn into Slide #2.I'm very pleased with our good start to the year. Our fourth quarter sales grew organically by 3%, and earnings were strong. This was achieved despite continued COVID-19 implications and a difficult comparator from last year. Sales ended better than what we expected, mainly driven by customer stock building to the supply chain concerns and faster-than-anticipated recovery in emerging markets. But we also saw better underlying performance in certain businesses, particularly in Food, Beverages & Human Health and in Grain & Tech Processing.Earnings were strong in the first quarter with an EBIT margin of 29.6% and ROIC, including goodwill of 23.4%, and free cash flow before acquisitions at just over DKK 700 million.In the quarter, we launched 3 new products. The acquisition of Microbiome Labs was closed, and the Biota Data Science platform was purchased. Both additions are expected to play clear roles in advancing our already promising human health area.On the operational agenda, we have enabled a consolidation of R&D locations and activities around the world, making sure we can work as efficient, as focused as possible and leveraging our state-of-the-art R&D capabilities even more.While we maintain the full year outlook on all parameters, the good start of the year has increased our comfort about delivering on them. We expect a reversal of the timing factors that benefit performance in the first quarter. And although we are carefully optimistic, we still see continued COVID-19-related uncertainty and global supply chain volatility.So now let's look at each of the business areas in more detail, and let's start with Household Care. If you could please turn to Slide #3. Thank you. Household Care had a solid start to the year, growing 2% organically and exceeding expectations. The continued rollout of the Freshness technology in Europe and further penetration in emerging markets performed in line with expectations. And in addition, the 2 main reasons for the stronger first quarter performance were customer build out, especially in emerging markets and a faster than expected recovery in China from the COVID-19 affected comparable from Q1 last year.Although we had a better-than-expected start to the year, timing factors were the main explanation. And we expect those positive first quarter timing factors to reverse during the year. And the full year performance for Household Care is subject to supply chain, volatility and continued COVID-19 uncertainty.During 2021, we will continue to focus on penetrating in emerging markets. Freshness will continue to grow as we prepare for the upcoming broad market launch in the second half of the year. And we will continue to enable sustainable home care products in collaborations with our customers.Could you please turn to Slide #4? Organic sales in Food, Beverages & Human Health grew 11% in the first quarter. The performance was strong and significantly exceeded expectations, mainly due to customer stock building and faster recovery in emerging markets. And in addition to the timing benefits, the first quarter performance was also driven by a better momentum in the underlying performance. Also barriers contributed to growth except for baking, which declined. Outside of baking, food performed very well, led by dairy and protein ingredients. Within dairy, sales of our Saphera product range did well, and our protein ingredients also performed very well. Our protein solutions are key enablers in the production of plant-based proteins, which are rapidly increasing in demand amongst our customers.Beverages grew slightly, driven by juice and wine, and it was partially offset by a modest decline in brewing. Human Health performed very well with strong growth, driven by innovation, cross-selling and customer stock building.Looking ahead for the year, organic sales is expected to grow broadly across sub areas. Innovation, emerging market penetration as well as an increased customer health focus are the main drivers of growth in the food businesses. Beverages are expected to grow from a gradual recovery in brewing following a year which was severely affected by the COVID-19 restrictions. And Human Health is estimated to grow organically by double digits, driven by innovation and cross-selling.The positive timing in the first quarter is expected to reverse during the year. And the better-than-expected start, it's currently not expected to have a significant positive effect to the full year performance of the business area.Could you please turn on Slide #5? Thank you. Bioenergy sales declined 9% organically in the first quarter as U.S. demand for gasoline and hence, ethanol remains weak due to COVID-19 restrictions. U.S. ethanol production and demand are still significantly lower than in the first quarter of 2020, which was largely unaffected by COVID-19. Our first quarter decline in the U.S. was below external estimates of the industry production decline due to a more difficult comparator. Sales outside the U.S. grew, driven mainly by Latin American capacity expansion and market penetration with the Innova Solutions.Looking at the remainder of 2021, we expect the U.S. ethanol production to gradually improve as COVID-19 restrictions are lifted. However, we don't expect sales to return to pre-COVID levels already this year. Full year growth will be driven by the U.S. recovery, innovation and continued expansion of corn-based ethanol production in Latin America. Our full year performance for the bioenergy area depends mainly on the level of recovery in U.S. ethanol production.Please let's turn into Slide #6. Thank you. Sales in Grain & Tech processing grew 16% organically in the first quarter. This was significantly above expectations with growth across most sub areas. The drivers where customers stop building a faster recovery than initially expected and a better momentum in the underlying performance. Sales of our grain processes solutions grew led by applications for grain milling, vegetable oil and starch processing. Sales in Tech grew partially driven by the positive timing of sales of diagnostic enzymes for COVID-19 tests and higher demand for textile solutions, as the global textile industry continues to recover from the COVID-19 induce disruption of 2020.Growth from Grain milling, vegetable oil processing and recovery in the textile business expected to be the main drivers for 2021. The full year expectations includes the better first quarter momentum in underlying performance and the business area is subject to the same uncertainties and timing considerations, as mentioned earlier, for Household Care and Food, Beverages & Human Health.So please turn into Slide #7. Organic sales in Agricultural, Animal Health & Nutrition ended flat in the first quarter as growth in agricultural was offset by declining Animal Health & Nutrition sales. Performance was stronger-than-expected due to timing of orders in the value chain. The agricultural business performed well, with growth mainly driven by higher demand for corn and soy solution. Strong sales growth of Balancius, our enzymatic solution for gut health was offset by a decline in Animal Health & Nutrition, which was up against a demanding competitor. However, the decline for the quarter was less than expected.In the first quarter, we launched ProAct 360. This new solution delivers greater cost savings to farmers as well as stronger sustainable solution from increased protein absorption and hence, lower waste.And looking ahead for the rest of the year, we expect the agricultural business and the rollout of Balancius to be main growth drivers. The agricultural business is expected to grow across crops and regions, resulting in double-digit growth for the year when adjusting for the DKK 60 million one-off in the second quarter of 2020.Sales in Animal Health & Nutrition are expected to improve over the coming 9 months, leading to a roughly flat full year performance. The full year expectation is subject to the same uncertainties and timing considerations as mentioned from most of the other businesses. And with that, I'll now hand the word over to Lars for a look of the financials. Lars, please?
Thank you, Ester. Please turn to Slide 8. Sales in the first quarter grew 3% organically. Sales in reported Danish kroner were flat, including a 6 percentage point headwind from currencies and a 3 percentage point contribution from M&A. On that note, the integration of the recent Human Health acquisitions is progressing very well and according to plan.The 3% organic sales growth was better than expected, mainly due to customer stock building from supply chain concerns, supported by a faster market recovery, especially in emerging markets and a better momentum in the underlying performance of some businesses.The gross margin was strong at 58.2%. This was an increase of 110 basis points compared to the first quarter last year despite unfavorable currency developments. The margin increase was mainly driven by higher production efficiency and productivity improvements, and recent acquisitions were also beneficial to the development.The reported EBIT margin was strong at 29.6%, 70 basis points above last year's first quarter margin. The development was driven by gross margin expansion and higher other operating income, somewhat offset by higher R&D costs, currency headwinds and negative acquisition-related effects.R&D costs mainly increased due to a one-off charge relating to the consolidation of R&D locations and activities. The increase in other operating income was due to the sale of a noncore administrative building in Denmark and the contingent income from the divested pharma-related royalty.The EBIT margin in the first quarter was around 29% when adjusting for the net positive effects from one-offs of roughly 1.5 percentage points, negative acquisition-related effects and year-on-year currency headwinds.Free cash flow, excluding acquisitions, was solid at DKK 704 million. While net profit grew, the free cash flow was below last year. The decrease between the 2 periods was expected and mainly due to timing following the strong cash flow in the fourth quarter of last year as well as higher investments. The return on invested capital, including goodwill, was 23.4% in the first quarter of 2021, which was 2.1 percentage points higher than in the same period of 2020. The improvement was due to the higher net operating profit after tax, including one-offs, partly offset by increased invested capital due to the recent acquisitions.Please turn to Slide 9 for the 2021 outlook. As Ester mentioned, we maintain the 2021 outlook across all parameters. Organic sales are expected to grow by 2% to 6% in 2021, driven by stronger commercial presence, innovation and execution as well as the recovery of COVID-19 affected markets.Although we saw a stronger start to the year than expected, it was mainly due to customers building inventory and a faster-than-anticipated recovery in emerging markets. Looking ahead, the uncertainty persists, especially due to timing factors, supply chain volatility and the pandemic.During last year, we learned how fast potential COVID related restrictions could affect our performance. We still assume that reaching either the upper or lower end of the 2% to 6% range will mainly depend on the pace and level of market recovery following the COVID-19 pandemic.Full year sales performance in reported Danish kroner are estimated to be roughly 1 percentage point less than the organic sales growth outlook, mainly due to a negative currency effect, partly offset by M&A.Turning to the business areas. Food, Beverages & Human Health and Grain & Tech Processing are expected to grow organically by mid-single digits, while Bioenergy is expected to grow by mid to high single digits. Household Care is forecasted to grow low single digits on top of the solid performance in 2020. For Agriculture, Animal Health & Nutrition, we expect flat to low single-digit growth. This confirms the full year indicational growth levels per business area provided at the February 2 announcement.The EBIT margin outlook is maintained at 25% to 26%, including a negative year-on-year impact from currencies of roughly 1 percentage point and approximately a 1 percentage point negative impact from acquisitions. Currencies, especially the U.S. dollar will at current spot rates continue to be a drag in reported terms. But we have fully hedged our U.S. dollar exposure in 2021 at an average rate of DKK 6.38 to USD 1, as you can read in today's announcement.The free cash flow before acquisitions is expected at DKK 2.7 billion to DKK 3.1 billion. This is slightly lower than in 2020 as higher net investments and the timing of working capital offsets the positive effects of a higher sales and an improved operating cash flow.The outlook for return on invested capital, including goodwill, is maintained at around 19%, and includes negative currency and M&A-related effects totaling roughly 2 percentage points.In summary, we had a strong and better-than-expected start to the year, especially considering the high comparatives from last year. While the pandemic continues to impact and create uncertainties in communities and to the economy, we are carefully optimistic to the year and confirm the 2021 outlook.With this, I'll now hand back to Ester for a wrap-up before we open up for questions. Ester, please?
Thank you, Lars. And please turn to Slide #12. Let me summarize our key messages today. We delivered stronger-than-expected start to the year with 3% organic sales growth and strong earnings. The sales performance was driven by mainly customer stock building, a faster-than-anticipated recovery, especially in emerging markets, but also a better underlying performance in some businesses. Considering the still high level of COVID-19-related uncertainty, global supply chain volatility and an expected rest of the year reversal of the positive first quarter timing effects, will maintain the full year outlook.And as a final remark, I'm very grateful for all the hard work the organization continues to put in during these uncertain times. It is highly rewarding to see that we, as a company, we are setting us stronger on our trajectory towards sustainable growth. And with this, we're now ready to take your questions. Operator, please begin.
[Operator Instructions] Our first question comes from the line of Michael Novod from Nordea.
Maybe starting on the top line. So could you sort of quantify the overall positive impact from stock building because it obviously looks quite conservative on your full year numbers, given the strong start to Q1? So maybe give a bit more quantification on that. And also whether you already now see larger customers sort of telling you guys that it's going to be sort of a slow momentum for the rest of the year? Otherwise, it seems very conservative. And then secondly, on profitability. Do you see sort of an underlying stronger trend in profitability going forward due to COVID, i.e., that all the optimization going on in Novozymes will also lead longer-term to a much, much stronger profitability level? Also bearing in mind what you guys are sort of turning out in the first quarter, which looks extremely strong, also adjusting for one-offs. So those 2 questions, please.
Thank you, Michael. I'll take the first question, and then I'll pass also to Lars to build up on it and to comment on the profitability. Yes, it's been a good start of the year with 3% growth and especially strong growth in emerging geographies with 17% growth. It is true that a strong component of it, majority of it, more than half relative to what it was our original expectations, it's driven by stock buildup. It's a high level of uncertainty we've seen across the globe and specifically probably in emerging geographies, specifically in Asia, and constraints uncertainty in the supply chain due to the recent unexpected events in the value chain, such as the Texas freeze or such as the blocking of Canal Suez, leading to customers building up inventory and then being that a strong component of our growth. But it's also true that there is a stronger underlying performance in many of our businesses. And this comes only by walking the talk on what we said we would do. It comes by the implementation of the innovation. We see the rollout of the platforms in place, in Freshness, in Animal & Health and Balancius. We see traction from our new developments in food for dairy and for protein base solutions, and by delivering on the acquisitions that we implemented and staying formally within on what it is a commitment of double-digit growth for the year. So yes, good start of the year. But at the same time, we humble. We know it can change very fast. We saw last year how it changed, and we see that COVID still very present of us. And this is why we are still cautiously -- we're cautiously optimistic, but we feel very confident and that keeping the guidance in place is the right thing to do. And with that, I'll pass it to you, Lars.
Thanks, Ester. So on profitability, as you point out, Michael, the 29.6% in the first quarter was impacted by one-offs of roughly 1.5 percentage points. And then also, I'd like to point out that we had a very strong gross margin in the first quarter, which we do not believe we can sustain for the full year at this level. We had a very high leverage from the strong start to the year. And we also had operational run rates, which, on average, will come down during the rest of the year. So the first quarter was unusually strong, and therefore, not something we believe we can sustain for the full year. We believe 25% to 26% is still the right guidance for the year. We believe that and hope we can increase the activity level during the rest of the year as societies hopefully gradually open up. So when you ask about the long-term prospects, I think the best guidance we can give is still to take the starting point, the 28% we guided back in June of '19 for the long term; take out 1% from the currency rates where they are today compared to the time in June of '19 and 1% related to our 2 acquisitions. And that's where we are sort of headed strategically over the next 1 to 2 years. So I don't think there is any reason on the back of the first quarter to change that expectations on our profitability.
Our next question comes from the line of Søren Samsøe from SEB.
I had 2 questions. First of all, was you -- in February, you guided us that, of course, the growth would decline mid-single digit, and now you are posting positive growth. So I was just wondering if you could quantify how much of this is actually due to stock build, the difference between those 2 numbers? Then the second question is regarding the volume growth, you do see -- if that is only value driven? Or if you see any sort of positive price/mix effects? And also maybe comment on you -- any signs of that ambition that you have of raising price/mix in some business areas? If that is starting to work? Or if you more see that coming late on?
Lars, could you please take the question?
Yes. So as we said in our introductory remarks, we believe that the majority or at least more than half of the stronger performance in Q1 compared to what we thought early February, we would do in Q1, is related to timing and supply chain impacts. And then the residual stem from stronger or faster recovery, in particular in China as a key market, and a little bit from the momentum of some of the businesses. But the majority, we believe, is timing related. And therefore, we also maintain our full year guidance.The growth this quarter is primarily coming from volume. No significant impact from price or mix effects. So those are much in line with what we have seen in the past. So it is primarily a volume-driven growth that we see in the quarter.
And no indications or hopes that your sort of strategy on -- in terms of value and price/mix will start working during this year?
Well, so -- absolutely. I mean we are working with our customers. We are building on our competencies in the area of pricing. And we are talking value when we talk prices with our customers. So I think we can just confirm that what the work we started in this area, actually long-term ago -- but a long time ago, but sort of reinforced and repeated in connection with the updated strategy in June of '19. This is progressing, and we are following our plans.
Our next question comes from the line of Lars Topholm from Carnegie.
Congrats with a strong quarter. It's not good for my recommendation, but still very nice to see. Well done, guys. A couple of questions on my side. It's sort of -- a bit more detail. So Ester, in your presentation, you mentioned your protein business and your exposure to plant based. Can you put some comments on how big this business is maybe as a percentage of the whole Food, Beverages & Human Health business? And likewise, the enzymes for COVID-19 tests, which percentage of divisional sales is that? And a second question goes to PPA amortizations, related to the acquisitions. How much is that for the quarter? And what run rate do you see in the coming quarters where, I guess, we have a full impact of PPA amortizations?
Thank you, Lars, for your kind words and also the knowledge of the good results. Yes, we have seen this quarter -- we're starting to collect, as I said in my original comments, the fruits of the efforts made in the past on innovation across key segments such as Food, and also in the testing of COVID facilities. For protein, particularly here, what we're talking is about the enzymatic solutions that they provide functionalization to plant-based protein, giving a better experience to the consumers, and then leading to better overall performance.On the testing of COVID, here, we had been a work of that we started already a while ago with a key customer on this segment. Again, we provide enzymatic solutions that they do help on the capability of supplying us such a strong need for the societies as it is the COVID testing, and we're very pleased and very proud to be part of this. They both are contributions to the growth of the quarter. I'm not sure we're disclosing particularly the details, but with the meaningful love to mention that there is an area that has been providing an upside to what it was the original expectation because of also the timing effects that we're seeing faster than what was originally anticipated was in plan. But we're seeing the projection as it was -- from collecting the fruits of what we did in the past. And I'll pass it to you, Lars, for the second question.
Yes. Ester, sorry, just to follow up on that. Can you indicate whether each of these businesses adds a full percentage point to organic growth for their respective divisions? Are we talking a smaller impact than a full percentage point of organic growth?
Yes. The answer will be yes, Lars.
Yes, what?
Yes, 1 full percentage point.
1%?
Yes. Thank you. Thank you for your persistency too, Lars.
So yes, at least 1 percentage point for each of those divisions. So on the purchase price amortization and the run rates, so we closed the second acquisition of Microbiome Labs in the beginning of the quarter. So almost for the full quarter, we have had amortizations for both acquisitions. When you look at the increase in R&D cost for the quarter, then roughly half was related to the one-offs, and the majority of the other half is related to the 2 acquisitions, partly the amortizations and partly the ongoing activity level. So consider the acquired assets, intangible assets that we will amortize over typically maybe 15 years or so, some a little shorter, some a little longer, probably more short than longer than that depending on what type of assets we are talking about. So those would be the run rates, and they would typically be sort of linear over time. So I think that gives you an idea about the level of amortizations and the run rates we have in each quarter, both in Q1 and also going forward.
Can you help me to do that math, Lars, that's much, much easier for me. And, of course, want to credit your net profit for what is PPA amortizations. So it's to your own benefit. What are we talking about in bold figures here?
Yes. So what I can do is, as I said, we had a 1% for the full year impact on the EBIT margin from the acquisitions. And so if you look at the R&D line and you take roughly half from the one-offs, the other half mainly for these -- for the activity and the run rate of amortizations, then you're probably speaking DKK 40 million, DKK 50-ish million for that in combined. So that's what I can help you with on the math side.
But that's not all PPA amortization, isn't? That also includes normal depreciation as mentioned.
So but the vast majority is the amortization of intangibles on the purchase price allocation. That is the key and, by far, largest contribution.
Our next question comes from the line of Nicola Tang from Exane BNP Paribas.
The first was on emerging markets. You mentioned a few times the recovery in emerging markets and particularly China. I was wondering if it was all related to China, where, I guess, the comp would have been quite easy in Q1? Or was it a more widespread emerging market recovery? And are there any sort of countries or specific areas that you would call out? And then the second question was on Grain & Tech. I was wondering, could you give a bit more color on which markets saw the sort of largest stocking effect? And a reminder how we think about the stocking dynamics of last year? Because I think you had quite a big destock in Q2 2020. So if you could just remind me of the dynamics of this division, that would be helpful.
Very good. I'll make a general remark on the growth in margin geographies. But then Lars, Anders, if you could particularly go deep in Household Care and then Tina take the question on Grain. The growth has been holistically across the company, I would say, in emerging geographies. We've seen penetration in -- of our solutions in bioethanol in Latin America. We've seen a good -- faster-than-anticipated recovery in China that has had an impact. But we've also seen continued penetration of our solutions in Africa, in Middle East and across all Asia. So it's a holistic growth leading to the 17%. But specifically for Household Care, that has been relevant. Anders, maybe you could build up on that.
Yes. So thanks for the question. So it's actually both the Household Care and Food & Beverages. But if you take Household Care, most of the very, very strong performance we see in Q1 relates to a recovery. So you may remember, we had a rather weak development last year in China, and that reversed. So I wouldn't say we are totally out of the woods in China yet, but definitely, it's a significant contributor.When you look at the Food & Beverages, we also have a very, very strong quarter in Food & beverages in China. And that's, again, it's fairly broad-based. Baking is doing well. Beverages is doing very well, and that's also a recovery from the brewing business that we so was quite impacted last year in Q1. And then we are doing extremely well in Food & Protein. And in Food & Protein, it's both meat and dairy analogs, but it's also related to the strong performance in regular dairy products that we are seeing good developments. So it's broad-based in China. And again, a lot of it relates to a weak Q1 in 2020.
And on -- specifically on the Grain & Tech, it is, in fact, if we zoom in on China, it is both on the Grain part as well as the Tech part where we see good performance. On the Grain, it's in -- particularly in starts processing and in vegetable oil processing that we see, it has grown double digits. So it's a good start to the year. And that is a mix of a faster recovery and then a better performance. Also on textile, we see strong performance here in Q1. We see a faster recovery in the textile industry. And also, as I'm sure you remember, we saw a relatively fast shutdown on the textile industry in China last year. And also, that was one of the reasons why we last year had a weak Grain & Tech in Q2. So that is exactly due to textile was hit by COVID. I hope that answers the question?
Yes, it does.
Next question comes from the line of Sam Perry from Crédit Suisse.
Would it please be possible to give some color on the exit rates that you're seeing into the second quarter? If you look at the Nielsen data, specifically in the U.S., we've seen a reversion from sort of mid-single-digit to low double-digit growth, all the way down to double-digit decline into 2Q. Is that something that you're seeing across your business at all?
You mean, particularly for Household Care or in a general trend?
For Food categories, but also in Household Care products as well, I guess? So have you seen any of those trends across any of the product areas in your business?
Anders, could you take it?
Yes. So it's a good question, and we are in dialogue with many of our customers, and they do see some softness in the market, especially in Europe, where we expect some softness. And then we expect some of the reversal of the strong developments we've had in emerging markets that was related to concerns about product supply reliability. So that is something we expect in April, but also in the -- maybe the coming months of Q2.
Our next question comes from the line of [indiscernible] from Redburn.
Just going back to sort of the timing and stocking effects in Q1. And I was just wondering if you could give us an indication of how quickly you expect that to unwind? I mean do you expect that slowly over the year or a particularly negative impact into Q2 as a result? And could you also please give us an update on how you're seeing the raw material situation evolving? And any expected impact on gross margin in the coming quarters?
I'll answer the first one and then I'll pass it to Lars for the raw material. First, we have to take in perspective that April is probably not a solid month to take as a comparison as we saw last year. A significant decline buy or sell, energy and in many, many moving parts, triggered by -- exactly by the pandemic. So it's not necessarily a good reference to take as a comparison. But holistically, the same way that we have seen a strong level of buildup in our customers triggered by the uncertainties of the supply chain. With those ones easing, with the Canal Suez blocking not on the table -- not more relevant aspects like the Texas Freeze, we're expecting the sunsetting or the redeployment of those build up inventories to take place within Q2 and within Q3. Lars?
Yes. So on raw materials, there are some of the input costs that we use in our production that is also impacted by the general increase in commodity prices and also transportation cost. Of course, we feel the increasing rates. So what we see and expect is that in the second half of the year, we do expect to see an impact, not -- I would say, not a significant one, but we will see a marginal impact on our gross margin in the second half of the year. And obviously, if that continues, that will then be a full year effect going into 2022. I should also say that this is included in our guidance. So as we sort of look at the -- some of the nonrecurring incomes in the quarter, then we're also considering the impact of input costs and combined those, sort of, to some extent, offset each other. And that's why we also maintained the guidance on EBIT margin.
Great. Can I just ask sort of 1 follow-up on the stocking effect. Could you just run me through how you've come to the conclusions that, that was a big stocking effect? Is this sort of direct commentary from your customers? Or is this your own market analysis? Or how do we get confidence that, that was what drove the big beat?
It's a combination of both. And maybe, Anders, you can build upon and also Tina from your individual areas.
Yes. So of course, we pay close attention to all the market data we can get our hands on. And then we compare it to our sales performance. And here, we're seeing some discrepancy, and we see that in some of our large markets, both in North America and in Europe. And from that perspective, I think we have a good indication that especially on Household Care that, that's an effect. Then additionally, we are in close contact with all our customers. And here, we know that some have ordered simply because of concerns of supply reliability. So I think on Household Care, we have a good sense that this is a reality, and we also expect to see that development, and that's built into our plans for Q2 and 3.
And on Grain & Tech, it is both a combination as it was for analysis area. It is a matter of what the external data as well as dialogues with our customers. On the Agricultural, Animal Health & Nutrition, we do see part of it being due to the buildup of ProAct 360, which we are about to launch. And whenever -- when we launch new products, we see an uptick.
There are no further questions at this point in time. So I'll hand back to the speakers for final remarks.
Well, thank you very much for joining us. Pleasure and delighted to take your questions, and looking forward to continue the conversations with many of you. Wish you a nice day.