Bioenergy strength not very convincing
Novozymes reported mixed Q4 19 numbers – missing on topline but beating bottomline estimates. Sales came in at DKK 3,731m, up 1% on an organic basis, led by growth in Household. EBIT came in at DKK 922m and management proposed a final dividend of DKK 5.25/share. For FY 20, management expects topline growth of 1-5%, EBIT margin at ~27% and buybacks worth up to DKK 1.5bn. Following the Q4 numbers, we will be tweaking our estimates.
28 Jan 20
No cure for the Bioenergy pain?
Novozymes reported soft Q3 19 numbers – missing estimates. Sales came in at DKK3,704m, up 1% on organic basis – driven by Household and Agriculture & Feed. EBIT came in at DKK852m with the associated margin at 23%. However, excluding on-offs, the underlying margin came in at 30%. Management re-iterated its FY 19 guidance: top-line growth of -2% to -0%, 27-28% EBIT margin and -5% to -0% net income growth. Following the soft Q3, we will be revising our estimates marginally downwards.
11 Dec 19
No end to the pain, FY 19 guidance cut once again
In an announcement post-market close yesterday (9 October), Novozymes cut its FY 19 guidance for the third time this year (citing a slower-than expected recovery in bioenergy, a weakness in global agriculture and a softness in the US grain processing market). FY 19 organic revenue growth is now expected to be -2% to 0%, the EBIT margin at 27-28% and net profit growth of -5% to 0%. Following the latest guidance cut, we will be reducing our estimates and target price.
10 Oct 19
Soft Q2, FY 19 guidance now looks challenging
Novozymes reported soft Q2 19 numbers – missing street consensus but meeting our estimates. Sales were down 2% on an organic basis – driven by Agriculture & Feed and Food & Beverages. Q2 EBIT came in at DKK1,189m. Management re-iterated its FY 19 guidance: top-line growth of 1-3% and an EBIT margin of 28-29%. Following the largely in line Q2 numbers (vs our estimates), we do not expect any significant changes to our estimates or recommendation.
13 Aug 19
Soft start leads to FY 19 guidance cut
Novozymes reported soft Q1 2019 numbers. Sales declined 4% on an organic basis, led by an 8% drop in Bioenergy and a 6% drop in Agriculture & Feed revenue. The EBIT margin came in at 25.7%, a 3.2ppt drop from Q1 18 – driven by higher raw material and staffing costs. Following the soft Q1, management lowered FY 2019 top-line guidance to 3-5% from 3-6% earlier and continues to expect an EBIT margin of 29-30% and 5-10% growth in net income.
26 Apr 19
FY2018 muted, Middle East crisis to persist moving forward
FY2018 results slightly missed our estimates. The Middle East crisis took a heavy toll on the performance of the Household, Food & Beverage and Technical & Pharma segments. The US policy paralysis on E-15 framework negatively affected Bioenergy’s growth, which was more than offset by the robust demand originating from the emerging markets. FY2019 revenue growth outlook was widened on the lower side, while the EBIT margin outlook remained largely unchanged. We will revise our estimates downwards. No change in the stock recommendation.
25 Jan 19
Q3 performance below estimates
The Q3 results were below our estimates and market expectations. Each segment continues to tussle with its respective problems and adopt mitigating strategies. We expect Household segment to end its year in positive territory. Our optimism on the Bioenergy segment is fuelled by recent events in the US, China and Brazil. We understand that new product launches are still in the nascent stages. Thus, we opt for a watchful approach. Estimates are revised upwards. No change in stock recommendation.
25 Oct 18
Boosting Bioenergy segment was dragged by Household
The company Q2 results were below our estimates. Revenue increased 5%, in-line with our estimates, whereas operating margin came-in 60bp lower than our expectation (+27.4%). Revenue from Household declined, whereas Bioenergy’s current momentum gained further strength (benefitting from the pickup in the US and global ethanol production). Moving forward, the company’s strategy to expand the geographical outreach of its (latest) freshness and hygiene product-line is rightly placed. We have increased our estimate upward. No change in the stock recommendation.
16 Aug 18
Soft Q1 results
The company reported its Q1 results which came in below our estimates. Its biggest segment, household, came back into the black after being in the red for a quarter, benefiting from the robust demand from regional players. Both Food & Beverages and Bioenergy witnessed a weakening of last year’s growth momentum, whereas Agriculture & Feed revenue fell for the second straight quarter on the back of lower BioAg and animal feed revenue. We have revised our estimates slightly downward. No change in our stock recommendation.
04 Jul 18
Challenging market environment continues
FY 17 was a mixed bag for Novozymes, with F&B and Bioenergy thriving but the high potential Agriculture & Feed segment being held back by low crop prices in the US. With most end markets expected to remain challenging in the near term, the outlook for the company remains soft. Increased investments in R&D, manufacturing and emerging markets are likely to keep margin progression in check. We remain cautious and maintain our Sell recommendation on the stock.
13 Mar 18
Robust quarter but end-markets remain challenging
Coming on the heels of a strong Q4 16, Novozymes reported another healthy quarter with Q1 17 sales marginally ahead and net profit in-line with both consensus and our estimates. Organically, sales nudged up 3% (ahead of management’s own guidance of flat growth) to DKK3.7bn, driven by growth across all segments, with the exception of Technical & Pharma (flat growth vs. 37% in Q1 16). This, along with a 2% currency gain and a 1% acquisition impact, lifted reported sales growth to 4% (second straight quarter of yoy expansion, both organically and on a reported basis). Organically, Food & Beverages (6% vs. 4% in Q4 16 and 2% in Q1 16) and Bioenergy (6% vs. 7% in Q4 16 and -6% in Q1 16) led the charge while Household Care (1% vs. 5% both in Q4 16 and Q1 16) and Agriculture & Feed (2% vs. 22% in Q4 16 and -8% in Q1 16) disappointed. On the profitability front, the adjusted operating margin (excluding the c.DKK75m one-off cost related to layoffs) improved to c.29% from c.28% in Q1 16 supported by productivity improvements, but partially offset by adverse pricing/mix change. Despite a lower tax rate (21% vs. 22% in Q1 16), DKK12m of forex losses in the quarter meant that the net margin remained flat at 20.6% (3.6% yoy growth to DKK771m). Geographically, growth was driven by the developing markets of Latin America (+13%) and Asia-Pacific (+5%), while the developed markets of EMEA and North America (together contributing c.70% of revenue) remained soft (+3% and 0% growth, respectively). Despite the better-than-expected Q1 result, management maintained its previous guidance for the year (2-5% organic, 3-6% reported) citing end-markets risks/uncertainties. Separately, Novozymes recently announced that its CFO Benny D. Loft will be leaving the company by 1 September 2017, after 17 years with the organisation (ten years as CFO).
10 Aug 17
Changed sales pattern drives a solid Q4; end-markets uncertainties to persist
After a string of disappointing results, Novozymes ended the year on a strong footing with both Q4 and FY 16’s numbers coming slightly ahead of ours as well as consensus estimates. After a poor Q3 (sales contracted 4% and 3% on a reported and organic basis, respectively), sales rebounded 8% (6% organic and a 2% positive currency impact) to DKK3.7bn driven by surge across segments, except for Technical & Pharma (-17% reported basis and -12% organically). The outperformance was primarily driven by a sturdy performance in Agriculture & Feed (+22% vs. -3% in Q3 16, organically) and a turnaround in Bioenergy (+7% vs. -8% in Q3 16, organically) segments. Healthy performances from the larger segments – Household Care (+5% vs. -5% in Q3 16, organically) and Food & Beverages (+4% vs. -2% in Q3 16, organically) also supported the quarterly uptick. Strong sales performance percolated down to profitability too with EBIT growing 10% to DKK1,062m. For FY 16, revenue inched up 1% (2% organic and -1% currency impact) while EBIT rose by c.2% (EBIT margin slightly up to 27.9% vs. 27.7% in FY 15). The dividend has been upped by 14% to DKK4 per share, while a new share buy-back programme of DKK2bn running over FY 17 has been announced. The FY 17 sales growth guidance of 3-6% (in DKK) and 2-5% (organically) is below its long-term ambition (6-7% organically). On the profitability front, management expects EBIT growth to range 3-6% (margin: c.28%) and net profit to expand 2-5%. Also, to ramp-up capacity and fuel innovations, management intends to increase investments in the next few years (DKK1.7-1.9bn guided for FY 17 compared to DKK1.2bn in FY 16).
23 Feb 17
Weak Q3 triggers another guidance downgrade
Yet another disappointing quarter for Novozymes – in fact, it witnessed a decline at both the organic and reported level for the first time in a long period. Both sales and net income were below (all ~ 6%) our, as well as consensus, expectations as all the segments turned negative organically, except for the smaller Technical & Pharma (+16%). The reported sales decline of 4% at the group level was a function of 3% organic contraction and 1% negative currency impact, to DKK3.4bn. Segment-wise, Household Care and Food & Beverages fell by 5% and 2% (all sales growth rates in organic terms, unless otherwise specified), respectively, after 4% growth in Q2 16. Moreover, as expected, the Bioenergy segment contracted at an accelerated pace (-8% vs. -6% in both Q2 16 and Q1 16) while the Agriculture & Feed segment again turned negative (-3% vs. 13% (including the impact of deferred income) in Q2 16 and -8% in Q1 16). Lower sales translated into an adjusted operating profit decline of c.4% to DKK973m. Lower net financial expenses (DKK14m compared to DKK53m in Q3 15) and the tax burden (DKK205m vs. DKK216min 3Q 15) rendered some support to net income, which was up by c.1% to DKK750m). In effect, management has materially (for the fourth time in the year) downgraded its guidance. Organic sales are now expected to expand by c.2% from the previous 2-4% while in DKK terms it is 0-1% from the previous 1-3%, EBIT to grow by 1-2% from the previous 1-3%, net profit to increase by 8-9% from the previous 8-10%). However, the EBIT margin expectations remain unchanged at c.28%.
14 Nov 16
BioAg weakens, Household Care and Food & Beverages continue their growth momentum
Novozymes reported unsatisfactory Q2 16 results, below both consensus as well as our expectations, primarily on lower than expected sales from the Agriculture & Feed segment. After successive growth in multiple quarters, sales contracted 1% in reported figures to DKK3.4bn following a negative currency impact of 5% (pervasive across all the segments) that more than eclipsed the 4% organic sales expansion. On the positive side, both Household Care and Food & Beverages segments grew moderately at 4%. Technical & Pharma also expanded robustly, albeit at a slower pace qoq (+9% vs. +37% in Q1 16) while Bioenergy continued its deceleration (-6%). However, the major disappointment stemmed from Agriculture & Feed which, although it grew ~5% organically (excluding the impact of deferred income), reflected a substantial slowdown from last year (+19% in FY 15) and dented the expectations of solid growth for the year (now moderate growth expected). On the profitability metrics, adjusted operating profit declined c.2% to DKK961m (margin down by 40bp to 28%) while a lower net financial expense of DKK6m compared to DKK48m in Q2 15 augmented attributable net profit by 10.0% to DKK750m (margin up by 2.1ppt to 21.9%). Factoring in the Q2 sales performance and the unexpected weakness in BioAg resulting from uncertainties in the end-markets, management has downgraded its guidance for the third time this year (organic sales growth range decreased to 2-4% from the previous 3-5%). However, the sales growth range in DKK (1-3%) and other profitability forecasts (EBIT margin: ~28%, EBIT growth in DKK: 1-3% and net profit growth: 8-10%) remain unchanged.
06 Oct 16
Household Care recovering but no respite for Bioenergy
Novozymes’ Q1 16 top-line number came in slightly below our expectation (although largely in line with consensus estimates), while profitability remained strong. Sales grew 2% yoy (sales growth rates in organic terms, unless otherwise specified) and 1% in DKK (following waning currency tailwinds) to DKK3.6bn, driven by the Household Care and Technical & Pharma segments, offset partially by weakness in the Bioenergy and Agriculture & Feed segments. The adjusted EBIT margin (excluding the reorganisation costs of c.DKK70m) was up c.90bp to c.28.3% (including the DKK70m reorganisation costs, it declined c.100bp to 26.3%) led by productivity improvements and a slightly favourable product mix. Hedging gains and a lower effective tax rate allowed net profit to improve 5% to DKK745m. Following the unfavourable movement in exchange rates, the company has downgraded its FY 16 reported sales and EBIT growth guidance to 1-3% (down from the earlier 3-5%). However, organic sales growth, EBIT margin and net profit growth expectations remain unchanged at 3-5%, 28% and 8-10%, respectively. Management expects Q2 16 organic growth to be higher than in Q1 16, mainly on account of easier comps. Amid the challenges being faced by the company, it has announced major organisational and leadership changes (in February 2016), in an effort to streamline operations and become more customer centric. It has consolidated its earlier structure of five divisions into three (Household Care & Technical Industries, Agriculture & Bioenergy and Food & Beverages), appointing new heads for the three new divisions. In addition, it has formed a central Research, Innovation & Supply centre, with COO Thomas Videbæk as its head. While Thomas Nagy, Head of Supply Operations, has left the company, Per Falholt stepped down as head of R&D but is continuing to serve the company in a consulting role.
13 May 16
Crude reality check triggers FY 17-20 downgrade
Novozymes ended a turbulent FY 15 on an expectedly soft note with Q4 15 results coming in boardly in line with the muted market and our expectations. Q4 sales were up 2% yoy (organic growth rates, unless otherwise specified) to DKK3.5bn (Q3: +3%), as continued momentum in Agriculture & Feed (+18%; Q3: +20%) and Food & Beverages (+4%; Q3: +6%) as well as recovery in Technical & Pharma (+21%; Q3: -8%) partially offset the weak performance of Bioenergy (-15%; Q3: -6%). Forex benefits contributed 7ppts to the top-line (Q3: 8ppts), catapulting reported growth to 9%. Profitability, on the other hand, remained resilient, with reported EBIT witnessing growth of 14% (in DKK) to DKK962m, driven by productivity improvements, lower raw material costs as well as tight cost control in the R&D and Administrative divisions. A DKK50m write-down reversal in the quarter was fully offset by the DKK54m net write-down in intangible assets related to the Beta Renewables partnership. For the full year, while sales grew by 4% to DKK14bn (+12% in DKK), EBIT and net profit increased by 15% and 12% (in DKK) to DKK3.9bn and DKK2.8bn, respectively (lower end of the revised FY 15 guidance announced in Q3 15). The chief dampener, however, came from the conservative FY 16 guidance along with the lowering of the sales outlook for FY 17-20. For FY 16, management expects (all in DKK) both sales and EBIT growth of 3-5%, and net profit growth of 8-10%. Furthermore, it revised down its FY 17-20 organic sales growth outlook to 6-7% from the earlier 8-10%, citing low commodity prices and weaker emerging market growth. It is worth noting that the company slashed its long-term organic sales growth rate target from above 10% to 8-10% at the time of the FY 14 results. On the positive side, it continued to reward shareholders by proposing a FY 15 dividend of DKK3.5 per share (vs. DKK3.0 in FY 14) and announcing a new DKK2bn share buyback program (to be completed in FY 16).
25 Jan 16
Margin benefits temper underlying weakness
Novozymes, not surprisingly, reported another weak quarter, although slightly better than market expectations, which were tepid at best, thanks to a disappointing Q2 15. In Q3, organic sales were up 3% yoy to DKK3.5bn (better than the 1% seen in Q2, but lower than the 9% recorded in Q3 14) primarily driven by the recovery in Agriculture & Feed (+20% vs. -3% in Q2) and sustained momentum in Food & Beverages (+6%; +4% in Q2), offsetting further sluggishness in Bioenergy (-6% vs. -4% in Q2) and an unexpected decline in Technical & Pharma (-8% vs. +7% in Q2). Household Care continued to face a challenging environment, but showed a slight sequential improvement (+3% vs +2% in Q2). Currency gyrations continue to play a significant role, adding 8% to topline growth, but the impact seems to be moderating (+12% in Q2 and +11% in Q1). Profitability, on the other hand, remained resilient, driven by productivity improvements, slightly lower raw material costs, excellent cost control in R&D and Administrative divisions, as well as positive forex. While EBIT jumped 22% to DKK1.0bn (the margin improved 266bp), hedging losses limited growth at the net profit level to 17% to DKK743m (margin improved 109bp). Considering the worsening environment in Bioenergy and the slight depreciation of the US$, management has narrowed its FY 15 guidance downwards – organic sales growth is now expected to be 4-5% (vs. previously 4-7%), 12-13% reported (vs. 13-16% earlier). The company maintains EBIT margin guidance at 27-28%, but sees EBIT growth at c.15% (vs. previously 15-17%) and net profit growth at c.12% (vs. earlier 11-13%).
23 Nov 15
Weak underlying growth drives guidance downgrade
Novozymes reported a disappointing Q2 15, although currency tailwinds continued to cushion the lacklustre underlying performance. Organic sales growth came down significantly from 8% in Q1 to 1% in Q2 (to DKK3.4bn; +13% in DKK) due to the sluggish show of the Q1 star performers (all in organic terms) - Bioenergy (-4% vs. +8% in Q1) and Agriculture & Feed (-3% vs. +40% in Q1). The bigger segment, Household Care showed a sequential improvement (+2% vs. -2% in Q1), partly due to easier comparables, but continued to face a challenging environment. On the flip side, Food & Beverages, and Technical & Pharma, maintained their momentum with organic growth of 4% (+5% in Q1) and 7% (+4% in Q1), respectively. On the profitability front, margins remained resilient thanks to a positive currency impact, and tight cost control, particularly in the Administrative division. This resulted in an 18% yoy growth in EBIT to DKK930m (margin improved 125bps), but higher finance costs due to hedging losses limited growth at net profit level to 15% to DKK682m (margin improved 47bp). Following the soft results, management has downgraded its FY15 organic sales growth guidance to 4-7% from the earlier 7-9% (reported growth of 13-16% vs. an earlier expectation of 16-18%), citing issues with its Bioenergy and Household Care segments, but nudged up EBIT margin guidance to 27-28% from the earlier 27%.
28 Sep 15