Novozymes Targets Top of 2012 Sales Range as Enzymes Win Buyers

Novozymes A/S (NZYMB), the world’s biggest maker of enzymes for biofuel, said 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.

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 percent to 8 percent, compared with 7 percent in 2011.

Novozymes is spending 14 percent of sales on research and development to fend off DuPont Co.’s Danisco and Royal DSM NV (DSM) as well as a plethora of startup competitors. By mid-year, the Copenhagen-based supplier to Procter & Gamble Co. will introduce an enzyme that lets first-generation biofuel plants process 3 percent to 4 percent 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.

Household Products’ Growth

For enzymes used in household products, such as detergents that can wash clothes at lower temperatures, sales growth at existing operations will be a “bit higher” than 7 percent this year, Loft said Jan. 24. Demand has been buoyed by China’s emerging middle class as well as an increased presence in detergent brands in the U.S., where enzymes’ use is still at nascent levels compared with Europe.

Novozymes (NZYMB) 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 replace phosphate alternatives and nations ended the use of bone meal after the emergence of mad-cow disease, Loft said.

Though western beermakers 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.

DSM Competition

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

Poet LLC, the largest U.S. corn-based ethanol producer by installed capacity, said on Jan. 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 honored 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.”

Supplying vs Building

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.”

DuPont’s $7.1 billion acquisition of enzyme maker Danisco last year highlighted interest in the industry among chemical companies keen to escape the cyclical commodity markets that have increasingly become the domain of petrochemical suppliers in the Middle East and Asia.

Novozymes’ deals include the purchase of Merck KGaA’s bioagriculture science unit for $275 million last year that added a range of products designed to improve yields.

The company also considered a bid for Chr. Hansen Holding A/S before that company’s private equity owner, PAI Partners, staged an initial public offering in 2010. A likelihood of antitrust hurdles made it difficult for Novozymes to take its interest any further, Loft said.

Rather than a takeover, the fate of the two companies is now intertwined after Novozymes’s largest investor, Novo A/S, bought a 26 percent stake worth $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.

To contact the reporters on this story: Andrew Noel in London at anoel@bloomberg.net; Morwenna Coniam in London at mconiam@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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