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Novozymes pressured by weak US biofuels market

08.17.2012  | 

Bioethanol production and profitability has been hampered by the drought in the US, which has pushed up the prices for corn, the main ingredient in the production of biofuel. Additional pressure has been added by a decline in overall fuel consumption in the US, the Novozymes executive said.

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By FLEMMING EMIL HANSEN

COPENHAGEN--Danish industrial enzymes producer Novozymes lowered its growth expectations for 2012 because severe drought in the U.S and lower fuel consumption will cut into enzyme sales for biofuel production this year, but the long-term outlook remains optimistic, the company's chief financial officer said.

“The bioethanol industry is pressured at the moment. It's very difficult to convince producers they should use more enzymes in the production,” Benny Loft said in a Thursday interview, explaining why the company lowered its growth guidance despite posting consensus-beating second-quarter results.

Bioethanol production and profitability has been hampered by the drought in the US, which has pushed up the prices for corn, the main ingredient in the production of biofuel.

Additional pressure has been added by a decline in overall fuel consumption in the US, Mr. Loft said. With more than 50% of global bioethanol production, the US is the defining market for Novozymes' biofuel enzymes business.

For 2012, the US biofuel output estimate has been lowered to 13.4 billion gallons from 14.2 billion gallons, but Novozymes still expects the market to return to growth in the longer term.

“The problems in the corn-based bioethanol production should be little more than a blip. We still hope the output will go to 15 billion gallons within a couple of years,” Mr. Loft said, adding that hopes are still high that the next-generation biofuel technology will create a sustainable boom in the sector.

“The journey in second-generation bioethanol is only just beginning, and it will be a huge market for enzymes in coming years,” Mr. Loft said.

In the short term, however, the industry crisis has caused Novozymes to postpone the launch of a new and more efficient enzyme from late summer to year-end, he said.

“Our starch segment has also performed below our initial expectations in the first half, but the rest of our business segments are running really well, and the customer interest remains strong,” Mr. Loft said.

For the second quarter, Novozymes reported a 9% increase in net profit and 12% growth in sales. It lowered the full-year organic sales growth expectations to between 3% and 5%, from between 4% and 8% previously, but also yanked up the guidance for growth in earnings before interest and tax to between 11% and 14%, from 9% to 12% previously.

“The higher Ebit expectation can be ascribed largely to broad-based cost cuts. Due to the considerable macroeconomic uncertainty we faced at the beginning of the year, we asked that all employees show restraint in their spending. They've been very good at that,” Mr. Loft said.


Dow Jones Newswires



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