Food & Beverage continued to drive positive results in Q3 across most segments and geographies, according to Danish biotech firm Novozymes, which reports 4 percent sales growth during the first nine months of 2018. The Danish biotech firm’s solutions for low-lactose dairy, trans fat reduction and acrylamide reduction continued their good momentum in the market, supported by increasing health awareness among consumers.

The strongest driver in the first nine months of the year was the food and nutrition segment. The continued success of Saphera, a lactose removing solution for dairy, has also driven the growth and Novozymes continues to see increased interest in the low-lactose portfolio of products, along with plant protein and specialties.

“Novozymes growth in food and beverages comes as consumer trends continue to drive healthy, clean label foods with fewer additives as people are becoming increasingly aware of the health impacts of the foods and drinks they consume,” says Andy Fordyce, Novozymes’ Executive Vice President of Food & Beverage.

“I am very pleased to see that our innovations and expansion within emerging markets, enable even more customers to improve the quality and sustainability of their food and beverage products,” he says.

Within the EU and America’s, Novozymes continues to see an increase in interest in its acrylamide-removing solutions as legislation comes into effect and customers desire to continue providing great tasting and healthy baked goods to their consumers.

There was a growth in emerging markets outside of the Middle East and Novozymes continues to pursue near to market innovation opportunities with regional customers to bring baking solutions to the local recipes and baking methods.

Novozymes says it will maintain its 2018 outlook for organic sales growth of 4-6 percent, but said sales were more likely to end toward the lower part of the range. During the first nine months of 2018, Food & Beverages sales grew by 4 percent organically and were flat in DKK compared with the same period last year. In the third quarter, organic growth was 3 percent and 2 percent in DKK.

While the company’s solutions for low-lactose dairy, trans fat reduction, and acrylamide reduction continued their good momentum in the market, supported by increasing health awareness trends among consumers, enzyme sales to the starch industry were soft, due to volatile commodity pricing in Asia Pacific (China) in particular, according to the company.

Both emerging markets and developed markets posted growth for the first nine months of 2018 compared with the first nine months of 2017.

Novozymes says that organic sales growth in Food & Beverages is expected to be driven by continued step-up in commercial presence, especially in the emerging markets, as well as by new products. Baking is still expected to be impacted by price reductions in the North American fresh keeping market, while sales are expected to grow in other markets.

Enzymes for low-lactose dairy products and other health concepts are expected to maintain their positive growth rates. In general, Novozymes expects continued growth across industries, although the starch business in the Asia-Pacific and market constraints in the Middle East are expected to act as dampeners.

“We delivered solid earnings and organic revenue growth of 5 percent in the third quarter and 4 percent after the first nine months. This is overall satisfactory, and we increase the outlook for net profit growth,” Peder Holk Nielsen, President & CEO comments.

“Despite recent challenging markets in the Middle-East, we maintain our 4-6 percent organic revenue growth guidance, albeit with the likelihood that we will close the year toward the lower part of the range.”

“On our innovation efforts, we further demonstrate our strong pipeline and ability to commercialize game-changing solutions with the third-quarter launch of Balancius for animal feed,” he adds.

Profit outlook
The reported EBIT margin in the first nine months of 2018 was 28.2 percent despite headwind from currencies. For full-year 2018 Novozymes still expect an EBIT margin of around 28 percent including a negative impact from currencies, as well as a higher activity level on the commercial side,  to support growth opportunities, particularly in emerging markets.

As currencies are experiencing high volatility, in particular, the US dollar, a weakening relative to what has been assumed in the guidance for the full year (USD/DKK at 6.31) could impact the EBIT margin negatively. The DKK ~30 million lower deferred income expected in 2018 relative to 2017 also reduces the reported EBIT by an identical amount.

Sales growth and productivity improvements are expected to be supportive of margins, mitigating the effects from higher input costs, says the company.