Enzyme giant Novozymes reports solid growth

By Anthony Fletcher

- Last updated on GMT

Related tags Cent Enzyme Stock market Profit

Continual productivity improvements are behind Novozymes' solid
performance since it was floated on the stock market in 2000,
according to CEO Steen Riisgaard.

"We have increased our EBITA year on year since we were launched on the stock market,"​ he told FoodNavigator.com​. "Over the last six years we have improved productivity to ensure higher yields.

"What this shows is our ability to significantly increase our profitability."

Riisgaard was speaking after the Danish enzyme giant reported an operating profit of 9 per cent for the first nine months of 2005 and a net profit of 14 per cent.

Sales in the first nine months were 4 per cent higher than in the equivalent period of 2004, measured in DKK, while the operating profit margin for year to date was 19.5 per cent, compared with 18.6 per cent in 2004.

Return on invested capital (ROIC) rose to 19.8 per cent from 17.5 per cent in 2004.

This is despite rather lacklustre growth for enzymes is coming in at about 2 to 3 per cent year on year. But there are signs that certain sectors such as the bakery enzyme market, which currently constitutes about a third of the overall food enzyme market, could continue to bring strong gains.

"We saw good development in a number businesses in the third quarter,"​ said Riisgaard. "In the food business, our baking segment is developing nicely, while the sale of brewing enzymes has picked up after a decline."

Riisgaard also points to the success of the firm's edible fats and oils business, which has picked up on the back of growing concern over nutrition and health. Novozymes has developed technology that allows margarine to be produced without trans fats, a major issue since new labelling regulations in the US compel food makers to label trans fats on their packaging.

"This concern is now being felt in Europe,"​ said Riisgaard. "But in Europe, chemical technology has been available for a few years now."

Increasing efficiency and productivity has long been a driving concern of the company. The firm recently took on Fiske, a subsidiary of Dutch chemical firm Univar as the firm's main European distributor for enzymes in key food and beverage sectors including cereal foods, brewing, juice, vegetable and fruit processing, dairy, flavour, nutrition plus meat, egg and fish processing.

The positive results have enabled Novozymes to offer an optimistic outlook. Growth in operating profit is being adjusted upwards from just above 8 per cent to just above 9 per cent, and net profit is expected to increase by 10 to 11 per cent compared with the previous outlook of 9 to 10 per cent.

The outlook for free cash flow before acquisitions is being adjusted upwards to DKK 950-1,000 million from the previous figure of DKK 800-900 million. It has also been decided to increase share buy-backs for the current year by a further DKK 200 million, bringing the total figure for 2005 up to DKK 1,050 million.

Novozymes dominates the enzyme market with about a 50 to 60 per cent share. US biotech firm Genencor, that now belongs to Danisco after acquisition clearance earlier this year, falls into second place with an approximate 30 per cent slice.

While the volumes of pure enzyme protein produced are very small, their value reached over $2 billion (€1.53bn) in 2004. A recent report from Business Communications Company estimates that by 2009 the market will reach €1.83 billion.

Recent research from market analysts Frost and Sullivan pinpoints these enzymes as the fastest growing segment with a compound annual growth rate of about 7.2 per cent. The market for bakery enzymes came in at €32.1 million in 2003, expected to climb to €52.3 million by 2010.

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