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Novozymes enjoys 4 percent growth in Food & Beverage enzymes, despite overall earnings miss

Global biotechnology company, Novozymes, has released its results for the first half. Earnings before interest and tax (EBIT) for the quarter came in at DKK957 million (US$147 million) with its household care sector showing particular weakness. The company still beat estimates with its second-quarter net profit and revenue, but shares have fallen after reporting earnings that missed analysts’ expectations.

The leading enzymes supplier reported that Food & Beverages sales grew by 4 percent organically and were flat in DKK compared with the same period last year. In the second quarter, organic growth was 4 percent and flat in DKK y/y. All main categories grew in the first half of 2018 compared with the same period in 2017, with nutrition and starch being the main drivers. Novozymes solution for low-lactose dairy products continues its good momentum in the market. Performance in the second quarter was mixed, with good uptake in nutrition, beverages and enzymes for oils and fats, whereas baking continued to see the impact from our pricing strategy in North America. Finally, sales growth for starch-processing enzymes slowed due to recent moves in commodity prices in Asia. Overall, emerging markets performed well in the first half, while developed markets were roughly flat compared with the first half of 2017.

“Food & Beverages (organic: +4 percent 1H 2018 y/y) organic sales growth is expected to be driven by continued step-up in commercial presence, especially in the emerging markets, as well as by new products. Baking is still expected to be impacted by price reductions in the North American fresh keeping market, while sales are expected to perform well in other markets. Enzymes for low-lactose dairy products are expected to maintain their positive growth rate. In general, we expect continued solid growth across industries,” a statement read.

“We've had a satisfactory first half of the year both revenues- and earnings-wise. The factors that are pulling in our business are slightly different from what we expected,” Peder Holk Nielsen, the CEO of Novozymes told Squawk Box Europe today.

“Bio-energy not only in North America but also around the world is actually doing better than we expected. And then we have a little bit of weakness in household care, but the balance of that is that we reiterate our guidance and we believe in 4-6 percent growth organically for the full year,” he added.

Its bio-energy division saw sales growth of 14 percent for the period, whereas household care declined by 1 percent. Novozymes added that it was maintaining its full-year 2018 outlook on all parameters.

Andrew Fordyce, Executive Vice President, Food & Beverages, Novozymes, tells. “Within Food & Beverages, we continue to see solid growth and to advance our strategic growth priorities.”

“Through innovation in our growth platforms and by expanding our footprint within emerging markets we are enabling even more customers to improve the quality and sustainability of their food and beverage products to bring better food to more people.”

“We saw continued growth across most segments and geographies and are progressing with launches of our new, transformative technologies,” he notes.

“In Baking, one of our core businesses, we saw healthy growth in our emerging markets. There are hundreds of different types of flatbread in MEA, and we are adapting our solutions to local recipes and regions by working closely with our customers at our state of the art Innovation & Technology Center in Istanbul. Within the EU and the Americas, we continue to see an increase in interest in our acrylamide-removing solutions as legislation comes into effect and our customers desire to continue providing great tasting and healthy baked goods to consumers,” Fordyce explains.

For Grain Milling and Vegetable Oil Processing – 2018 was a year with a focus on Novozyme's most significant new launches within grain milling and vegetable oil processing, according to Fordyce. “Frontia provides corn millers with a competitive advantage by introducing enzymatic separation to their wet milling process. It improves yield by releasing more starch and proteins from corn, thereby boosting output, mill efficiency and capacity while reducing water and electricity consumption.”

“Within Vegetable Oil Processing we are seeing strong sales growth across multiple segments including enzymes for eliminating trans fats and vegetable oil degumming solutions,” he adds.

“Food & Nutrition was the strongest driver in the first half of the year was our food and nutrition segment with double-digit growth,” says Fordyce. “Trends continue towards healthy, “clean label” foods with fewer additives and consumers are more aware than ever of the health impacts of the foods they consume. A great example of this is the success of Saphera, our lactose removing solution for dairy, which has driven the growth of the segment. We continue to see increased interest in our low-lactose portfolio of products, along with plant protein and specialties.”

Highlights of the results include:

  • Organic sales growth of +4 percent in the first half (Q2: +5 percent)
  • Food & Beverages +4 percent
  • Bioenergy +14 percent
  • Agriculture & Feed +3 percent
  • Technical & Pharma -6 percent.
  • EBIT margin at 28.1 percent
  • Net profit growth +5 percent
  • Full-year 2018 outlook maintained

“Overall, I’m satisfied with our performance in the first half year. Bioenergy performed very well, whereas Household Care was softer than expected. Our innovation pipeline is solid, and a stronger commercial and emerging market focus are paying off. We’re launching a new, exciting product for animal health, and both our freshness & hygiene platform for laundry and the new corn inoculant are making good progress. And while uncertainty around global trade and agricultural markets persists, we remain committed to our 2018 guidance,” says Nielsen.

The company reported organic sales growth of +4 percent (Q2: +5 percent) and -4 percent in DKK. USD/DKK decline of 10 percent in H1 year on year. Household Care results were softer than expected, as Q2 was impacted by customers’ region-specific challenges in Brazil and North America.

Freshness and hygiene platform in Household Care developing according to plan with first commercial product available in stores in the Philippines. Preparation of BioAg’s B-360 corn inoculant in Q2 after regulatory approval in Q1.

EBIT margin of 28.1 percent (1H 2017: 27.1 percent; 28.5 percent excluding reorganization costs) was impacted by currency headwind, increasing input costs and lower deferred income, according to the company.

Organic sales growth of 4-6 percent with continuing high uncertainty around global trade and agricultural markets is also expected. Household Care is still expected to grow organically for the full year, supported by the freshness and hygiene platform.

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