Revenue weak but margins strong Novozymes issued mixed Q219 numbers this morning (enumerated on Table 1 overleaf) reporting a 17.7% increase in FD EPS to DKK3.12 (INVe DKK2.78) from a 24.2% increase in EBIT to DKK1189m (INVe DKK1016m) despite a 1.1% decrease in revenue to DKK3458m (INVe at DKK3686m). A LFL revenue decline of 2.0% (INVe +3.6%) was somewhat balanced by a 0.9% FX tailwind (INVe 2.3%). In its Q119 IMS, management kept margin guidance unchanged at between 28% and 29% but tweaked sales growth guidance from a 3-6% range to a 3-5% range. This guidance has now been further reduced to organic sales growth of 1-3% augmented by a 0.5-1.0% addition from FX giving reported revenue growth of 1.5% to 4.0%. EBIT margin guidance was retained at 28-29%, as was net profit growth in the 3-8% range. All division reported LFL revenue declines Every division reported a LFL revenue decline in the quarter which was unexpected. Household Care reported a 1.0% LFL revenue decline. A 1.4% FX tailwind resulted in reported revenue growth of 0.4% to DKK1122m (INVe DKK1140m). A 3.0% revenue decline in Food & Beverages was somewhat mitigated by a 1.6% FX tailwind tempering the reported revenue decline to 1.4% to DKK1028m (INVe DKK1118m). In Bioenergy, while organic revenue declined by 1.0%, a 4.0% FX tailwind saw reported revenue increase by 3.0% to DKK716m (INVe DKK776m). The Agriculture & Feed division reported a LFL revenue decline of 7.0% (INVe -1.0%) which was further impacted by a 1.4% FX headwind resulting in an 8.4% decline in reported revenue to DKK404m (INVe DKK440m). The Technical & Pharma division reported a 6.5% decrease in revenue in the quarter to DKK188m (INVe DKK211m) comprising a 2.0% LFL revenue decline and 4.5% FX tailwind. All to do in H2 Weakness in Household Care (32.4% of H119 revenue) was attributed to challenges in the Middle East due to “economic distress” in some markets, while in Food and Beverages (29.7% of H119 revenue), weakness was attributed to poor sales in baking (Middle East again flagged) and baking price adjustments in North America. Starch sales “stabilized” in Q219. Coming into the H119 results, the market was expecting a 2.6% increase in net income from a similar increase in reported revenue, with an EBIT margin of 28.0% (source: Bloomberg) (we had net income 2.2%; revenue 3.8%; EBIT margin 28.0%). With revenue expectations reduced, if guidance is to be incorporated into forecasts, a marked expansion of margins in H219 is required. We are having to believe that H1 weakness will be made up in H2 strength, which might be hard to accept at face value, potentially leading to price weakness.