January 27, 2012

 

Novozymes 2012 sales to be at its forecast top end

 

 

Sales growth in 2012 will probably be at the top end of its forecast range as customers turn to its ingredients for animal feed, drugs and detergents, Novozymes A/S said.

 

BioBusiness, a unit using biotechnology and microorganisms to make drug-ingredients, is poised to expand at a "double- digit" rate excluding acquisitions, Chief Financial Officer Benny Loft said in an interview in London. Novozymes forecasts companywide sales growth at existing businesses of 4-8%, compared with 7% in 2011.

 

Novozymes is spending 14% of sales on research and development to fend off DuPont Co.'s Danisco and Royal DSM NV as well as a plethora of start up competitors. By mid-year, the Copenhagen-based supplier to Procter & Gamble Co. will introduce an enzyme that lets first-generation bio fuel plants process 3-4% more corn feedstock, cutting waste.

 

"They are still the leader in the industry and their innovation is as strong as ever," Jens Thomsen, an analyst at Silkeborg, Denmark-based Jyske Bank, said by phone. "They have good growth prospects globally."

 

Even with "quite low visibility for 2012," Novozymes' sales growth may be at the high end of company forecasts, Thomsen said. The global economic slowdown makes the increase more likely to be in the middle or lower end of the range, Richard Koch, a Stockholm-based analyst at Cheuvreux, said in a phone interview.

 

Novozymes is experiencing "nice growth" in Brazil and "good traction" in Europe for catalysts used in animal feed to boost the uptake of proteins, as chemists replaces phosphate alternatives and nations ended the use of bone meal after the emergence of mad-cow disease, Loft said.

 

Though western beer makers are cautious about using enzymes, the products are being more readily embraced by brewers in emerging markets to overcome variations in raw-material quality such as barley, he said.

 

Novozymes shares have fallen about 9% from a week- ago high, weighed down by investor concern that a US customer is seeking supplies from Heerlen, Netherlands-based DSM in place of the Danish manufacturer's products.

 

Poet LLC, the largest US corn-based ethanol producer by installed capacity, said on January 23 that it will form a joint venture with DSM to produce second-generation cellulosic ethanol and license the technology worldwide. Novozymes provides enzymes to Poet and was expected to supply the Sioux Falls, South Dakota-based company's Project Liberty facility, according to Rune M. Dahl, an analyst at DnB Markets in London.

 

Novozymes' existing supply contracts with Poet will be honoured and no major financial effects are expected, Loft said. The result of the contest as DSM's products go head-to-head with Novozymes' technology has yet to be seen, and the best second- generation enzyme technology will prevail, he said.

 

The Danish company is "able to cope with increased competition," Jyske Bank's Thomsen said. "They are used to head-on-head competition with Danisco."

 

The Danish manufacturer is supplying enzymes to the first commercially viable second-generation bioethanol plant in Italy, and the facility will be operational in 2012, one year before the DSM project, according to Loft.

 

"Investing in plants is not part of our plans," the CFO said. "Maybe in time we will review our strategy if we find it's not working, but we don't need a big announcement."

 

Rather than a takeover, the fate of the two companies is now intertwined after Novozymes' largest investor, Novo A/S, bought a 26% stake worth US$714 million in Chr. Hansen this month. The two manufacturers are likely to strengthen R&D ties, yet they'll be run as separate businesses, Loft said, adding that Novo having board seats at both companies won't pose a problem.