Novozymes Report Slump in Q2 Results, CEO Says Company is Still on Track for Full Year Earnings

10 Aug 2016 --- Danish company Novozymes reported the outlook for full-year organic sales growth was adjusted to 2-4%, down from previously 3-5% in 2015. The adjustment reflects uncertainty in most of the industries in which Novozymes operates.

In the first half of 2016, sales grew by 3% organically and were flat in Danish Krone (DKK) compared with the first half of 2015. EBIT was on par, and the EBIT margin was 27.2%, also on par with the first half of 2015. Adjusting for the restructuring costs in Q1, the EBIT margin would have expanded to above 28% and EBIT growth to around 4% compared with the first half of 2015. Net profit grew by 8%. Net investments were DKK 542 million ($81.2 million), free cash flow before acquisitions was DKK 1,354 million ($202.9 million) and ROIC (incl. goodwill) was 25.4%.

Peder Holk Nielsen, President & CEO of Novozymes, comments: “Our business improved in the second quarter. We delivered strong earnings, and we increased our sales growth although we had aimed higher. We're on track to reach our full-year profit target, but we adjust our sales expectations due to the performance in the second quarter and the uncertainty facing many of our markets. Our pipeline of sustainable biological solutions remains strong, and we'll soon launch exciting, new innovation in BioAg.”

Sales to the Food & Beverages industries increased by 3% organically and by 1% in DKK compared with the first half of 2015. 

Sales to the Agriculture & Feed industries increased by 1% organically and declined by 6% in DKK compared with the first half of 2015. This development was driven by strong growth in animal feed, although some of the growth was positively impacted by timing. 

Sales development in BioAg was negative, primarily due to the changed production and sales pattern to our partner, as well as weaker demand for inoculants for soybeans in the US. Poor economics for farmers caused some to forgo the inoculant treatment, resulting in the lower demand.

Novozymes recognized DKK 84 million ($12.5 million) of deferred income as revenue compared with DKK 149 million ($22.3 million) in the first half of 2015. Enzyme sales to the animal feed market grew strongly in the first half, driven by both protein-enhancing solutions and energy uptake products, whereas sales of phytases were flat. There is growing interest from poultry farmers in trialing the new probiotic Alterion, but sales are still low.

Food & Beverages sales growth is expected to be driven by a continued good performance by all major segments – baking, brewing and starch. Organic growth for the full year is expected to be in line with the company sales guidance, according to analysts.

Agriculture & Feed sales are now expected to deliver moderate sales growth, whereas Novozymes previously expected Agriculture & Feed growth to be solid. Both areas are expected to contribute positively. 

Expectations for the upcoming launch of the new corn inoculant are unchanged, and the intention is still to start selling the product to our partner this year. Novozymes now expects to recognize less than DKK 200 million ($29.9 million) of the deferred BioAg income as revenue in 2016, down from DKK 210 million ($31.4 million).