Operating profit for Danish enzyme company Novozymes improved marginally in the first quarter of 2003, despite the impact of unfavourable exchange rates. On the back of favourable developments in net financials, the company reports this week that it has also adjusted the outlook for net profit for the full year.
Rising by 13 per cent to DKK 219 million - of which DKK 214 million was generated by enzymes and DKK 5 million by microorganisms - operating profit stayed steady for the company. The operating profit margin - operating profit as a percentage of sales - stood at 15.5 per cent for enzymes and 7.7 per cent for microorganisms although the latter were negatively affected in the quarter by costs relating to company acquisitions.
Novozymes saw profit before tax elevated by a healthy 40 per cent to DKK 255 million, up from DKK 182 million in 2002. Net financials were DKK +36 million compared to DKK -12 million in 2002.
Although lower exchange rates significantly reduced the growth of sales of technical enzymes they still increased by 5 per cent. But sales of detergent enzymes were 1 per cent lower than in the same period last year.
Overall sales for the quarter were positively affected by one-off orders connected with the phasing out of certain products, but highly negatively affected by the lower exchange rates, especially the US dollar and the Brazilian real.
Despite this, sales of other technical enzymes rose by 16 per cent with enzyme sales for the production of fuel ethanol and for the textile industry continuing to show high growth rates, while sales were lower for the traditional starch industry. Sales of enzymes for smaller industries - pharmaceutical, leather and forest product industries - showed good growth rates.
Food enzymes, although showing decent growth and rising by 9 per cent, failed to match the textile and fuel ethanol enzyme sales. They were severly impacted by lower exchange rates, especially the US dollar.
Sales to the baking industry were particularly strong, while sales to the beverage industry were negatively affected by lower production in Europe and the USA.
Novozymes said this week that if the sales growth is adjusted for exchange rate developments, and the negative effect of adjustments in the distribution chain in the first quarter of 2002, the growth rate stands at 10-15 per cent, corresponding to the long-term outlook for this area.
Overall, the company remains optimistic, but distinctly cautious, for 2003. Throughout 2002 the main sales currencies fell in value compared to the Danish krone. Since 97 per cent of Novozymes' sales are international, the falling exchange rates will have a significant negative effect on the financial results for 2003.
Expectations for the turnover for the year and the operating profit remain unchanged, in spite of more unfavourable exchange rates. Thanks to positive developments in net financials - growth in profit for the year after tax has been adjusted upwards from 7-8 per cent to 10 per cent.
The company said in a statement this week that the launch of 5-7 new enzyme products in 2003, an operating margin of 17 per cent, investments in tangible fixed assets before company acquisitions on a par with the year's depreciations, and finally, net financials of DKK -10 to +10 million, are just a number of factors that have contributed to the outlook for 2003.