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Novozymes: Full-year earnings outlook maintained after early-April upgrade. Narrowed sales growth guidance following weakness in US bioethanol.

Novozymes announced its results for the first three months of 2019. All businesses developed roughly as expected except for a weaker US bioethanol industry. Organic sales growth of -4 %: Household Care -3 %, Food & Beverages -2 %, Bioenergy -8 %, Agriculture & Feed -6 %, Technical & Pharma +5 %. EBIT margin 25.7 %. Net profit 14 % lower year on-year (y/y). Free cash flow before acquisitions DKK 0.4 billion.

Peder Holk Nielsen, President & CEO: “The first – quarter decline in sales was no surprise – we communicated this back in January. We also expected US bioethanol to be down, but the decline was larger than we ha d foreseen. The flood s in the Midwest have made it tougher for our customers. With the problems continuing in to April, it will be difficult to reach the top end of the guided organic sales growth range , and we adjust our outlook to 3 – 5 %. We’ re confident sales growth will increase during the year as innovations, the freshness platform, BioAg seasonality and Bioenergy all step up, and the Middle East comparison gets easier.”

Highlights Q1 2019:

  • All businesses roughly as expected except for Bioenergy. A declining US bioethanol market has been further impacted by the Midwest flooding since mid-March
  • As expected, negative impact from the Middle East, feed enzymes and the planned price reductions in US baking enzymes
  • Developed markets flat; 10 % organic sales decline in emerging markets, with the Middle East as the main drag
  • EBIT margin soft but as expected at 25.7 %, mainly due to lower gross margin from lower sales and a planned increase in sales and distribution costs
  • Net profit down 14 % y/y due to lower EBIT and hedging losses
  • Free cash flow before acquisitions DKK 0.4 billion; net investments DKK 0.1 billion

2019 outlook: Organic sales growth 3 – 5 %; an expected 1 %-point added to growth in DKK. US bioethanol production in Q1 was more negative than expected, especially in the wake of flooding in the Midwest in March, continuing into April. The 3 – 5 % range reflects both strong new product performance and geopolitical uncertainty. Stronger growth in 2H vs. 1H y/y for multiple reasons. EBIT margin at 29 – 30 % supported by solid productivity gains and release of full deferred income as communicated on April 4 following the new BioAg setup. Net profit growth of 5 – 10 %. CAPEX at DKK 1.0-1.3 billion. FCF bef. acq. at DKK 2.0-2.4 billion. ROIC expected at ~24 % (~25 % excl. IFRS 16 Leases). Stock buyback program of up to DKK 2bn to be initiated April 25, 2019.

The entire earnings report can be downloaded at

Novozymes announced its results for the first quarter of 2018. Q1 organic sales growth of 2 % in line with our expectations: Household Care +1 %, Food & Beverages +5 %, Bioenergy +9 %, Agriculture & Feed -5 %, Technical & Pharma -10 %. EBIT margin at 28.9 %. FCF before acquisitions DKK 403 million. 2018 outlook maintained on all parameters.

Peder Holk Nielsen, President & CEO of Novozymes: “We’re well in line to deliver on our full-year sales growth outlook of 4-6 %, and margins are strong despite a significant currency headwind. We continue to see good progress on our key priorities, including increasing presence with new and existing customers to cater for their individual needs. There is still some uncertainty in the agriculture-related business, including from recent geopolitical tensions. However, with current insight, we remain firm about accelerating sales growth throughout 2018 and beyond.”

Highlights Q1:

  • Organic sales growth of 2 % and -6 % in DKK. USD/DKK decline of 13 % in Q1 y/y
  • Growth in Household Care, Food & Beverages and Bioenergy
  • Agriculture & Feed and Technical & Pharma lower, mainly due to continued pressure from certain agriculture markets, as well as timing in Pharma
  • 6 % organic growth in emerging markets; developed markets on par with last year
  • Strong product development: launch of first yeast solution – Innova® Drive – for conventional biofuels, EU approval of probiotic solution Alterion® for poultry, approval of microbial corn bioyield product Acceleron® B-360 ST for the US and the EU, and launch of a new enzyme class for automatic dishwash enabling easy removal of dried-in cereals
  • Strong EBIT margin of 28.9 %, up due to timing of emerging markets’ ramp-up costs and despite currency headwind. Q1 2017 at 27.0 % (~29 % excluding reorganization costs)
    Free cash flow before acquisitions at DKK 403 million
  • Dividend payout of DKK 4.50/share. 42 % payout ratio
  • Full-year 2018 outlook maintained: Organic sales growth 4-6 % (growth relatively stronger in 2H y/y), EBIT margin ~28 %, FCF before acquisitions DKK 2.3-2.6 billion, ROIC 24-25 %