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Source: Reuters

UPDATE 2-Novozymes Q1 profit rises, nudges up margin view

Published: 29 Apr 2011 03:39:59 PST

* Q1 EBIT 635 million DKK vs average forecast of 590 million

* Company nudges up 2011 sales, EBIT margin guidance

* CFO says cost development has been "satisfactory"

* Shares up 4.6 percent

COPENHAGEN, April 29 - Industrial enzymes producer Novozymes reported a forecast-beating 19 percent rise in operating profits for the first quarter, helped by cost control, and slightly upgraded its full-year guidance.

Novozymes, the world's biggest industrial enzymes maker whose products are used in the production of many consumer goods from detergents to biofuels, said it saw good underlying demand across most industries and all regions.

Earnings before interest and tax (EBIT) rose to 635 million Danish crowns ($126.3 million) in January-March from 535 million in the same quarter last year.

The result beat all forecasts of from 570 million to 615 million crowns in a Reuters poll of analysts.

At 0939 GMT Novozymes shares were up 4.6 percent to 858.50 crowns beating its all-time high set earlier this month. The stock outperformed the MSCI European pharma, biotech and life sciences index which was up 0.4 percent.

"The cost development has been quite satisfactory," Chief Financial Officer Benny Loft told Reuters, adding that the cost control was good not only in production but also in sales, marketing, R&D and administrative functions.

EBIT MARGIN UPGRADE

Loft said more cost increases could be expected to come through during the remainder of the year than in the first quarter, which would mean a lower operating profit margin than the 23.6 percent in the first quarter.

But the company nonetheless bumped up its 2011 EBIT margin forecast to around 22 percent, the top end of its previous forecast range of 21-22 percent.

Loft said that costs were set to increase partly due to recruiting to the company's R&D organisation and partly due to raw material costs.

But he added: "The cost development is running a little lower than expected."

"Raw material input cost increases have been quite significant over the past three to six months, but the impact has not really come in this first quarter, but will come through at a delay," he said.

DOLLAR HEDGED

Due to currency developments, however, Novozymes lowered its full-year sales growth expectation in Danish crowns to a range of 8-11 percent from an upgraded forecast of 10-13 percent given in February when it completed an acquisition.

Loft said that Novozymes had fully hedged its U.S. dollar exposure for 2011 and for half of 2012.

"Even though the value of the U.S. dollar is certainly coming down, this will not have an impact on our net profit, it has not had in the first quarter, and it will not in the full year," Loft said.

Novozymes, which is also a supplier of enzymes to the biofuel industry, has pinned big hopes on a breakthrough for second-generation bioethanol, the kind of biofuel made of various plant waste material rather than food crops.

Loft said that Novozymes was encouraged by Italian chemicals group Mossi & Ghisolfi Group's (M&G) building of a 13 million gallons per year (50 million litres) plant, which is expected to be the first commercial-scale plant in production.

That plant is scheduled to begin producing in 2012.

"This is an industry that will happen -- it is only a matter of time," he said. (Editing by Hans Peters and Mike Nesbit)

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