Strategy and long-term targets

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Novozymes envisions a future where our biological solutions create the necessary balance between better business, cleaner environment, and better lives.

Novozymes is a business-to-business company providing sustainable biological solutions. We compete by understanding customers’ business needs, turning insights into cost-efficient and innovative biological solutions. We aim to drive the world toward sustainability together with our customers by making better use of the world’s resources to meet needs for food, feed, fuel, and other consumables.

Our technological foundation is biotechnology, enzymes, and microorganisms. Wherever we choose to operate, our aim is to be the market leader. We operate with a triple bottom line and are thus committed to continuously improving our financial, environmental, and social performance.

Our strategic agenda is three-fold: drive innovation, expand opportunities, and improve productivity.

Drive innovation

Novozymes aims to deliver growth by bringing sustainable and innovative solutions to the market together with our customers. As the world’s premier industrial enzyme producer with the greatest breadth and reach, we drive the industry forward by rethinking how and where enzymes can be applied. Our solutions address the need to improve industrial processes and products, making them more cost-efficient and sustainable, and enabling our customers to produce more with less. We regard sustainability as an integral part of our business and a significant driver of business opportunities and long-term customer relationships. We are committed to research and development, in which we invest around 14% of annual sales and employ more than 20% of our global workforce, and we are one of the world’s most active patent filers in our field with a portfolio of close to 7,000 patents granted or pending.

Expand opportunities

Novozymes aims to build on our foundation in enzyme technology and explore biological business opportunities in other areas as well. Biological solutions such as microorganisms and proteins other than enzymes can also address the need for more sustainable, safe, and cost-efficient solutions, improve industrial processes, and reduce the consumption of raw materials, water, and energy. We lead the way in selected fields where Novozymes holds a competitive advantage due to our technological platform and organizational capabilities, and aim to turn a portfolio of opportunities into significant business areas that can sustain the company’s growth and returns over time.

Improve productivity

Novozymes aims to deliver sustainable returns on our innovations by constantly improving the use of both our own and nature’s resources throughout our business and especially in our production processes. We use sophisticated technologies to improve the efficiency of our fermentation production processes, the strains that produce our enzymes, and the performance of the enzymes themselves. This enables us to increase output from existing facilities and reduce consumption of raw materials, water, and energy, making for a flexible production setup that improves our margins, returns, and environmental footprint.

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"As the world’s premier industrial enzyme producer with the greatest breadth and reach, we drive the industry forward by rethinking how and where enzymes can be applied."
"We use sophisticated technologies to improve the efficiency of our fermentation production processes, the strains that produce our enzymes, and the performance of the enzymes themselves."
The biofuel future in the US
The US has enough biomass to produce 90 billion gallons of ethanol per year to replace oil and thereby reduce greenhouse gas emissions.
The sustainability trend
Sustainability is a lasting trend, even though the world's primary focus in 2011 has been on the financial crisis.
Biopharma highlights and expectations
The pharmaceutical area is experiencing great momentum right now, and the future looks promising.

Strategic update

Overall, there are no changes to the strategic direction outlined in 2009 and further described in The Novozymes Report 2010. Novozymes continues to focus on sustainable growth through innovation, market presence, and operational excellence.

Innovation

Novozymes’ main competitive advantage is related to our innovation efforts. Since 2000, Novozymes has invested more than DKK 10 billion in R&D and has launched roughly 100 new products. The aim with our innovation capabilities is to continue to explore the opportunities our technology holds, not only bringing new and sustainable market-expanding products and solutions to the market, but also improving the existing product portfolio. Our broad and diversified market approach is built around the same technology platform. This allows us to leverage competencies and innovation skills across industries and geographies, and we expect to continue to invest roughly 14% of sales in R&D, resulting in not only more innovative products, but also improved productivity in Novozymes’ own facilities.

Regarding Novozymes’ innovation efforts in the area of converting cellulose to fermentable sugars, we continue to see exciting developments. Last year, we believed the first large-scale commercial cellulosic ethanol plants would be up and running by 2012/2013. This has now been confirmed, as our partners are building plants around the world, with the first one ready in 2012 in Italy. These first plants will give the proof of concept that could accelerate the building of further plants, allowing the world to meet the increasing demand for more sustainable liquid fuels. We are also seeing other exciting developments when it comes to our solutions being used to enable cost-efficient conversion of starch and cellulose to sugars, and further developing these sugars into bio-based chemical compounds. Novozymes already has collaborations in place in this area, but would expect more to come as industrial players search for alternatives to today’s petrochemical-derived solutions. Novozymes will enable even more cost-efficient conversion of cellulose to sugars in 2012 with the launch of the next generation of our Cellic® CTec product range.

Market presence

Novozymes is focusing not only on our innovative efforts, but also on building a strong market presence across industries and geographies. Although Novozymes already has a strong global presence, part of the additional DKK 150 million investment in R&D and business-building activities disclosed in The Novozymes Report 2010 was directed toward building an even stronger presence, especially in emerging markets. Our innovative solutions do not sell themselves, and an active approach to building close customer relationships is part of Novozymes’ continued success within both Enzyme Business and BioBusiness. One example is the acquisition of EMD/Merck Crop Bioscience early in 2011, where we built a stronger position in the exciting BioAg industry. The bulk of our activities in the BioAg industry are currently related to pulse crops in North and South America, but we aim to expand into other crops and other parts of the world. To enable this, we need a presence in the markets where we want to expand, and we need to build relationships with customers to understand and develop the right technologies for their specific needs.

Operational excellence

Operational excellence covers every aspect of Novozymes’ operations. Our ability to make continuous productivity improvements allows us to improve profitability and returns, as we can delay investments in new capacity. This is a unique and key feature of Novozymes’ operations and is expected to continue, but it requires investments in R&D for this purpose. Operational excellence also incorporates systems, structures, and processes. Our organization around R&D and sales structures allows us to be present and understand local needs and requirements, while at the same time leveraging our global knowledge base. Our global financial systems enable swift and stringent reporting, which reduces the risk of errors, and the establishment of centralized financial hubs provides efficient support for a growing company.
 
By continuously focusing on innovation, market presence, and operational excellence, Novozymes is able to increase returns to shareholders. In 2011, Novozymes not only improved sales, profitability, and returns, but was also able to communicate an increased dividend payout ratio (from around 30% to around 35% over the next 2–3 years) and the initiation of a new share buyback program (DKK 2 billion over the next 2 years).

Investments

Novozymes has invested relatively heavily in recent years. We have built for future growth in both Enzyme Business and BioBusiness. Higher realized growth levels and the long-term growth expectation of more than 10% communicated in 2009 required more enzyme production capacity, and the decision to become a strong player in the area of hyaluronic acid required a dedicated cGMP production facility. As these relatively large investment programs come to an end in 2012 with the finalization of the enzyme production facility in the US, we expect an investment level of not more than 8% relative to revenue to be sufficient to cater for annual revenue growth of around 10%.

Acquisitions

Part of Novozymes’ strategy is to acquire companies and technologies where we see a strategic fit in terms of either technology or market access. We continuously optimize our product and technology portfolio to make sure we have the right set of tools and offerings. In 2011, we acquired EMD/Merck Crop BioScience to position and develop Novozymes as a strong player in the exciting BioAg arena. We also divested part of our Biopharma operation as we no longer saw a need for the capacity and technology at the facility in Lund, Sweden. We will continue to explore exciting technology and market access acquisitions in 2012 and beyond, and our strong balance sheet puts us in a position to act should we find anything suitable, no matter the health of the financial markets.

Biopharma ready for growth

Novozymes has made a number of changes to better position ourselves for future growth in the biopharma industry. In autumn 2010, Novozymes decided to discontinue our antimicrobial peptide (AMP) portfolio. This process was completed in 2011 when Novozymes found a good developer for the arenicin project in Adenium Biotech and decided to include plectasin in our exploratory work on developing AMPs for industrial use.

The decision to discontinue these projects triggered a review of the role of our Swedish operation. A divestment of the Swedish plant and the cell culture ingredient business was found to be the best option for the long-term prospects of the unit, as well as making the remaining biopharma business more focused. Novozymes accepted an offer from US-based Repligen Corporation in October, and the deal was finalized in December 2011.

Headquartered in Massachusetts, Repligen is a biopharmaceutical company listed on NASDAQ with annual sales of approximately USD 30 million. Novozymes considers Repligen a strong owner of the business with its dedicated focus on biomanufacturing and commitment to bioprocessing. 

Focus on medical devices as well as drug delivery and formulation
The changes leave Novozymes with a stronger foundation in biopharma where we believe that our competencies add significant value in terms of profitable growth. We are focusing on improving medical devices as well as drug delivery and formulation, with a streamlined product portfolio consisting of our products and technologies within albumin and hyaluronic acid (HA).

2011 brought considerable progress for both technologies. Novozymes opened a new facility in China supplying the world’s first recombinant HA for medical devices as well as drug delivery and formulation, and we signed several new agreements for recombinant albumin for medical devices and drug delivery. Novozymes also ramped up the commercialization of our second-generation albumin and albumin fusion technologies, which have potential in the development of new and improved drugs in a number of therapeutic areas, as they can extend the half-life of drugs and so significantly reduce dosing frequency and increase efficacy.

Novozymes continues to see strong interest in these products and technologies from pharmaceutical companies, among others, and we are confident about the long-term value creation of our biopharma business.

"Since 2000, Novozymes has invested more than DKK 10 billion in R&D and has launched roughly 100 new products."

Long-term targets

Our long-term targets reflect Novozymes' integrated business approach. Besides our ambitions for sales growth and financial returns, the environmental and social areas of particular importance to our business are resource efficiency, environmental footprint, and sustainability leadership.

This year, we have added a new target related to our values (Touch the World) to sharpen focus on the importance of living them throughout the organization.


Novozymes’ long-term targets

Financial targets:
Organic sales growth of more than 10% p.a.*
EBIT margin of more than 20%
Return on invested capital of more than 22%

Excluding sales of enzymes for cellulosic ethanol.

Sustainability targets:
Enable a 75 million ton reduction in CO2 emissions in 2015 through our customers' application of our products
Improve energy efficiency by 50% in 2015 compared to 2005
Improve CO2 efficiency by 50% in 2015 compared to 2005
Increase energy supply from renewable and CO2-neutral sources to 50% in 2020
Improve water efficiency by 40% in 2015 compared to 2005
Be recognized as a global leader in sustainability
Be a preferred employer globally
Live Touch the World throughout the organization
"Organic sales growth of more than 10% p.a."