Sales to the Household Care industry were flat organically and down 2% in DKK compared with 2017. Sales were a bit softer than initially expected due to challenging Middle Eastern markets in the second half of the year, as well as a truck strike in Brazil and a customer’s North American distribution issues in the second quarter of the year.
Sales to local customers maintained their good momentum throughout the year, and sales of enzymes for dishwashing solutions continued to deliver strong performance.
The emerging markets delivered solid performance driven by local customers.
In China, penetration with enzymatic
solutions for laundry detergents continues as
the demand for liquid detergent formulations
continues to grow.
As expected, some of our global customers continued to reduce enzyme dosing during 2018, particularly in the developed markets.
The rollout of the first product from the freshness platform is tracking according to plan, although as expected, the contribution from the platform was minor in 2018.2019 outlook
Organic sales growth is expected to be supported by a broader rollout for the freshness platform and increased penetration in emerging markets, where we tap into consumer trends with our innovative enzymes for both liquid and powder detergents. The development of the freshness platform is tracking according to plan, and we expect to ship to more emerging markets through the year and to Europe in late 2019. The dose reductions at some of our large customers are likely to continue, although at a lower level. This puts a dampener on growth. We expect low-single-digit organic sales growth for Household Care, including annualization of the Middle Eastern impact.
Food & Beverages sales grew by 5% organically and by 2% in DKK.
Food & Beverages delivered solid and wide-ranging growth. Both emerging and developed markets posted growth in 2018 compared with 2017. Food & nutrition and beverages were the most significant growth contributors, while baking experienced a slight decline. This decline was caused by two main factors: the planned price decreases in the North American freshkeeping market and loss of business in the Middle East. However, sales of baking enzymes to the European and African markets performed well, almost offsetting the negatives.2019 outlook
Organic sales growth is expected to be driven by continued step-up in commercial presence, especially in the emerging markets, as well as by ramp-up of newly launched innovations, such as Frontia® and Palmora®. There is a modest positive expectation for baking, including planned price decreases in the US coming to an end in the first quarter. Food & nutrition is expected to continue its good momentum, supported by the enduring health awareness trends. We expect continued solid growth across all industries with mid-single-digit organic sales growth, including annualization of the Middle Eastern impact.
“The world needs to produce 70% more food by 2050 than today to feed a growing global population. Our enzymes can reduce food waste, replace food additives, and improve the quality and nutritional value of food,” says Andrew Fordyce, Executive Vice President, Food & Beverages.
Sales to Bioenergy grew by 12% organically and by 6% in DKK compared with 2017.
The strong growth within enzymes for conventional biofuels continued throughout the year, driven by broad technology offerings and tailored customer solutions. Our newly launched yeast products, Innova® Drive and Innova® Lift, posted good growth in the second half of the year, albeit from a low base. Latin America continued to perform well, supported by new starch-based ethanol production capacity.
US and global ethanol production is estimated to be up ~1% in 2018 compared with 2017. Ethanol producer margins were under pressure, and inventory levels elevated.
“Our products for Bioenergy convert plant materials and waste to biofuels. Using these biofuels reduces CO2 emissions by 50-90% compared with conventional gasoline,” says Tina Sejersgård Fanø, Executive Vice President, Agriculture & Bioenergy.2019 outlook
Organic sales growth is expected to be driven mainly by increased penetration from innovation as well as volume growth outside the US market. We expect US ethanol production in 2019 to be slightly lower than in 2018, with ethanol inventory levels remaining high into 2019. As such, we expect first-quarter US ethanol production to decline, before improving for the rest of the year. We expect high-single-digit growth in Bioenergy for the full year.
In Agriculture & Feed, sales increased by 3% organically and were down 3% in DKK compared with 2017.
BioAg performed very well in 2018. While agricultural markets in general were challenged by low crop prices and poor farm economics, growth in Novozymes’ BioAg business was driven mainly by the combined Acceleron® B-300 SAT/B-360 ST corn product for the US market.
Sales to the feed industry declined during 2018, as challenging feed enzyme markets, especially in Latin America, put pressure on volumes. Animal health sales developed well across the major geographies.
During 2018, Novozymes recognized DKK
169 million of deferred income as revenue,
compared with DKK 202 million in 2017.
Deferred income does not impact the calculation of organic sales growth rates; it impacts realized sales growth in DKK but has no cash flow impact.
Sales to the agriculture-related markets are subject to uncertainty, due primarily to global farm economics and trade-related concerns. We are negotiating with Bayer regarding the future setup of the BioAg business, which is also a source of uncertainty. Feed sales are expected to grow modestly for the year. We expect a low-single-digit decrease to a mid-single-digit increase in organic sales.
Novozymes expects to recognize roughly DKK 113 million of the deferred income in BioAg as revenue in 2019.
Sales to Technical & Pharma declined by 6% organically and by 22% in DKK in 2018. The divestment of Albumedix late 2017 impacted revenue negatively by DKK ~150 million. The divestment has no impact on organic sales growth.
Performance was weak across the various technical industries, as well as in Pharma. Sales to the textile industry were below expectations, following weak performance in the Middle East.2019 outlook
The business was impacted by the challenging markets in the Middle East during the second half of 2018, a situation that is expected to continue in the first half of 2019. We expect low-single-digit organic sales growth for the year, including annualization of the Middle Eastern impact.