The full-year 2012 guidance reflects the uncertainty about the global economy. It is difficult to predict at what pace global demand might deteriorate in the event of further negative economic sentiment or signals. Although Novozymes has proven relatively resilient in recessionary economies (last shown in 2009) thanks to the characteristics of some of the markets our products and technologies serve and the advantages they offer, our sales are also partly dependent on consumption and GDP growth. The full-year organic sales growth guidance of 4–8% addresses the current level of uncertainty.
Adjusting the 2012 sales growth expectation for the roughly 1 %-point negative impact of divestments and acquisitions during 2011, the full-year LCY sales growth expectation is 3–7%. Based on exchange rates at January 18, 2012, sales growth in DKK is expected at 7–11%.
Within Enzyme Business, Household Care Enzymes are expected to be the strongest contributor to full-year sales growth. Feed Enzymes, included in the Feed & Other Technical Enzymes area, are also expected to be a relatively strong contributor to full-year sales growth. The full-year sales outlook is based on the expectation that the US biofuel industry will produce roughly 14.2 billion gallons of ethanol in 2012, up by 2–3% compared to 2011. Full-year Bioenergy Enzymes sales should also benefit from the introduction of new and more efficient products and should be able to outpace the underlying growth in ethanol volumes.
BioBusiness sales are expected to grow in double digits organically, with positive contributions from Microorganisms and Biopharma. Novozymes BioAg sales are weather sensitive, as seen in the 2011 US Midwest flooding and late planting season, which impacted Novozymes’ BioAg sales negatively, but should be able to deliver healthy growth under normal weather conditions. The other Microorganisms industries should also develop well. The divestment of Novozymes Biopharma’s operation in Lund, Sweden, will have a negative sales impact of roughly DKK 90 million in 2012, which will impact both LCY and DKK sales growth negatively. This has been included in the guidance.
EBIT growth is expected at 9–12%. Compared to 2011, there are positive effects from the absence of the IFRS adjustment of acquired inventories at EMD/Merck Crop BioScience, slightly more beneficial currency exchange rates, the divestment of Novozymes Biopharma’s slightly loss-making operation in Lund, Sweden, and continued productivity improvements. Pulling the other way are higher raw material prices, full staffing costs and low capacity utilization at the HA facility in China, and higher staffing costs at the new enzyme facility in Nebraska, USA, together with continued investments in R&D and business-building activities to support our long-term growth ambition. The projects within the additional DKK 150 million investment in R&D and business-building activities described in The Novozymes Report 2010 were all initiated in 2011 and have full-year effect in 2012.
As a result of the above, the 2012 expectation for the EBIT margin is 22–23%.
Net profit is expected to grow by 5–8%. USD exposure for 2011 was hedged at 5.85 DKK/USD. USD exposure for 2012 has been hedged at 5.70 DKK/USD, and 75% of expected 2013 DKK/USD exposure has been hedged at 5.60.
Investment and cash flow expectations
As expected previously, the relative investment level should start to decline. For 2012, we expect around DKK 1.2 billion in investments. Besides maintenance CAPEX, the main part of the investments relates to the finalization of the Nebraska enzyme facility. Part of the expected investments in the Nebraska enzyme facility that were planned to take place in 2011 has been included in the expected CAPEX figure for 2012.
Free cash flow before acquisitions is expected at around DKK 1.5 billion, mainly as a result of higher net profit and the lower CAPEX.
Return on invested capital is expected at around 20%, slightly lower than in 2011 due to the acquisition of EMD/Merck Crop BioScience in 2011 having its full impact in 2012.
Exchange rates at year-end
The outlook is based on exchange rates for the company’s key currencies remaining at the closing rates on January 18, 2012, for the full year.
|Average exchange rate 2010
|Average exchange rate 2011
|Closing rate January 18, 2012
|Estimated average exchange rate 2012*
|Change in estimated exchange rate 2012 compared to average exchange rate 2011
|* Estimated average exchange rate is calculated as the average exchange rate YTD combined with the closing rate ROY.|
Note: Other things being equal, a 5% movement in the USD is expected to have an annual impact on EBIT of DKK 60–80 million.