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Latest Content

BioAg weakens, Household Care and Food & Beverages continue their growth momentum

  • 06 Oct 16

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.

Household Care recovering but no respite for Bioenergy

  • 13 May 16

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.

Crude reality check triggers FY 17-20 downgrade

  • 25 Jan 16

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).

Margin benefits temper underlying weakness

  • 23 Nov 15

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%).


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