Strategy Growth and priorities for 2020
Peder Holk Nielsen, Benny D. Loft, CEO, Novozymes CFO, Novozymes Forward-Looking Statements
This presentation and its related comments contain forward-looking statements, including statements about future events, future financial performance, plans, strategies and expectations. Forward-looking statements are associated with words such as, but not limited to, "believe," "anticipate," "expect," "estimate," "intend," "plan," "project," "could," "may," "might" and other words of similar meaning.
Forward-looking statements are by their very nature associated with risks and uncertainties that may cause actual results to differ materially from expectations, both positively and negatively. The risks and uncertainties may, among other things, include unexpected developments in i) the ability to develop and market new products; ii) the demand for Novozymes’ products, market-driven price decreases, industry consolidation, and launches of competing products or disruptive technologies in Novozymes’ core areas; iii) the ability to protect and enforce the company’s intellectual property rights; iv) significant litigation or breaches of contract; v) the materialization of the company’s growth platforms, notably the opportunity for marketing biomass conversion technologies or the development of microbial solutions for broad-acre crops; vi) the political conditions, such as acceptance of enzymes produced by genetically modified organisms; vii) the global economic and capital market conditions, including, but not limited to, currency exchange rates (USD/DKK and EUR/DKK in particular, but not exclusively), interest rates and inflation; viii) significant price decreases on input and materials that compete with Novozymes’ biological solutions. The company undertakes no obligation to update any forward-looking statements as a result of future developments or new information.
2 Welcome to our Capital Market Days
Tuesday, May 5 Wednesday, May 6
Plenum presentation: Strategy Plenum presentation: Business development 12:30–13:15 08:30–08:50 – Growth & priorities for 2020 – Platforms for the future
Partner guest: Plenum presentation: Sustainability Track 1: BioAgriculture 13:15–13:45 – Leading the way Technology, accomplishments 09:00–09:50 and priorities Plenum presentation: Innovation 14:00–14:45 – Competitive advantages in a changing Track 2: Biomass conversion Partner guest: environment Break-out On the cusp of commercialization 10:00–10:50 sessions Track 1: Household Care Partner guest: (rotation) Innovation & emerging markets 15:00–15:50 Track 3: Animal Health & Partner guest: Nutrition Track 2: Bioenergy Partner guest: 11:00–11:50 An alliance for growth Break-out Advancing grain-based ethanol 16:00–16:50 sessions (rotation)
Track 3: Food & Beverages Partner guest: Food for a growing world 17:00–17:50
3 Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages
Session outline
• Perspectives on development • Current position • Strategic direction • Long-term targets and financial priorities, CFO Benny D. Loft
4 15 years of innovation-driven returns
Strong absolute returns since 2000 Sales DKKm EBIT margin R&D/Sales ROIC 2.5x sales 30% 14,000 4x EBIT
28% 5x net profit 12,000 DKK ~30bn In operating cash flows 26%
24% 10,000 Driven by topline and leverage 22% 8,000 ~7% organic sales CAGR 20% +5.4 %-points gross margin 6,000 18% +10.5 %-points EBIT margin +12.9 %-points ROIC 16% 4,000
14% 2,000 12% Innovation is the recipe
10% 0 DKK 16bn invested in R&D +100 new solutions marketed
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Novozymes has consistently outperformed global GDP – through volatile oil price cycles
Organic growth has outperformed global GDP Novozymes’ quarterly sales in DKK and oil prices by ~4 %-points on avg. 12.0% 140 3,500
10.0% 120 3,000
8.0% 100 2,500
6.0% 80 2,000 million
4.0% 60 1,500
USD/bbl DKK DKK 2.0% 40 1,000
0.0% 20 500
-2.0% 0 0
NZ org. sales growth Global GDP growth (WB/IMF) WTI Q avg. Revenue
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Diversification through market-expanding innovation has been key to our consistency
Sales by segment 2000 2014 Sales by geographical split 14 100% 12 LATAM 80% Technical & Pharma 10 8 60% Agriculture & Feed AP 6 NA 40% Bioenergy
37%31% DKK billion 4 Food & Beverages EMEA 20% 2 Household Care 0 0%
2000 2014
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Diversity in end markets: Lower top 5 customer concentration: Geographically, we have succeeded in Bioenergy, Agriculture & Feed have Strong growth in new areas has growing all regions emerged decreased dependency on Household Care
7 Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages
More than 100 new “public” molecules and technologies launched across markets
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Household Care
Food & Beverages
Bioenergy
Agriculture & Feed
Technical & Pharma
Total launches 8 6 9 7 8 10 8 9 8 6 6 11 8 2
= Product launch
8 Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages
Investing for long-term growth; People, CAPEX and M&A
DKK ~11bn in CAPEX 2000-2014 2x employees – from 3,208 FTE to 6,454 FTE 7,000 NA EMEA 2000-04 6,000 2005-09 5,000 Latin America 2010-14 4,000 Asia Pacific 3,000 North America
APAC 2,000 Denmark (incl. EMEA) LATAM 1,000 0 2000 2014
EMD Natural TJ BioAg Alliance with DKK ~5bn spent on acquisitions CropBioscience Industries Technologies Monsanto Earth Bioscience BioAg Philom Bios Turfal >1.5bn DKK
Biocon Enzymes BETA Iogen Enzymes Renewables Enzymes > 500m DKK Biopharma BioGaia Delta GroPep Divestment Biopharma (Lund) >100m DKK Sybron Jefferies Semco Roots Biologicals Octen Gamlen Divestment Roots
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 <100m DKK
9 Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages
Our set of competitive advantages across the value chain has led to a unique market-leading position
Scale Quality Sustainability High barriers
• Production: 5 core • Superior logistical • Triple bottom line • More than 7,000 plants in 3 regions agility due to full patents • Trusted long-term control of value Others • Research & partner • Diverse biotech 26%andand chain captivecaptive Development: 2/3 know how and Others26%26% • Pioneering life of total investment • Right quality for investments Novozymes cycle assessment Novozym of industry customers and needed to eses48% documentation 48%48% regulatory compete 6%DSM DSM 6%6% • Technical requirements services: half of • Customer DupontGenencor commercial partnerships (DuPont)(DuPont) 2020%20%% organization “on site” • Manufacturing expertise • Market & technology coverage Source: Novozymes estimate
10 Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages
11 Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages
New purpose is instrument for long-term impact
Who are we? What’s our role in the world? How do we create (2000−2007) (2007−2015) the biggest impact? (2015−)
Touch the World values Touch the World values The Novozymes’ Touch Dare to lead; Dare to lead; Spark; Passion; Trust and earn trust; Trust and earn trust; Openness; Science Connect to create, Connect to create, Unlock Passion Unlock Passion
Vision: "We imagine Vision: “We imagine a future where our a future where our biological solutions biological solutions ….” ….”
Ambition: Change 10 in 10 the world together with our customers
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Our new strategy puts partnerships front and center for success in creating impact
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Working in partnerships is embedded in how we do business. But we can do better and more!
Novozymes has a strong Partner benefits track record of New solutions partnerships We enable partners to bring new, better or lower-cost products to market
Sustainability Working hand- in-hand with We enable partners to market partners is in sustainability claims and reach own sustainability goals our DNA
Cost reduction Our solutions reduce costs by Unquestionable focus, longevity, saving raw materials, energy, reliability, scale and history of water and chemicals partner collaboration makes Novozymes an ideal partner
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Long-term financial targets reflect starting point and priorities
2020 financial targets: 2020 impact targets: Top-line growth is seen as best means for ensuring Let’s create the impact the world needs long-term sustainable earnings growth
We want to maintain high profitability and deliver …and put pressure on ourselves to act with speed strong returns on capital
8-10% ≥25% ≥26% REACH EDUCATE CATALYZE 6 billion people with our 1 million people about the 5 global partnerships for organic sales growth ROIC incl. goodwill EBIT margin biological solutions potential of biology change on average
DELIVER SAVE ENABLE
10 transformative 100 million tons of CO2 Novozymes' employees innovations to develop
15 Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages
Growth until 2020 expected to be driven by established industries with additional growth from platforms
~7% Long-term Novozymes’ organic growth organic growth target average, 2010-2014 8-10%
~7% Established industries are 1 Growth platforms’ organic growth the basis for growth average, 2010-2014
Growth platforms expected to 2 ~7% enable 8-10% growth Established industries’ organic growth average, 2010-2014 Diversification in revenue 3 Growth platforms Established industries streams important for solidity - BioAg - Household Care - Biomass Conversion - Grain-based ethanol - Animal Health & Nutrition - Food & Beverages - Pharma - Technical 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
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What are the opportunities for further leverage?
Gross margin Technology development supports future 80.0% productivity improvements, but many unknowns, such as input costs and 70.0% competition 60.0% Gross margin S&D costs A potential area for increased investments, 50.0% depending on go-to-market models 40.0% R&D costs Expected to fluctuate around 14% of sales 30.0% EBIT margin
Admin. Costs 20.0% Expected to marginally decrease as R&D costs function of growth 10.0% S&D costs Adm. costs EBIT margin We target an EBIT margin ≥26% 0.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
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Financial priorities; - Innovation, growth & shareholders
2015 to 8-10% ~14% ~8% 40% 2bn + Organic R&D CAPEX Dividend 2015 Initiatives & 2020: sales payout buyback returns growth ratio
Net-Interest-Bearing-Debt/EBITDA ROIC expected at ≥ 25%: 1.0 NIBD DKKm 2,500 • Growth in net profit 0.8 NIBD/EBITDA 2,000 • Deferred income from 0.6 1,500 The BioAg Alliance decreasing 0.4 1,000 0.2 500 • Less growth in invested capital 0.0 0 -0.2 -500 NIBD/EBITDA target: 0‒1
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Conclusion
• Strong competitive position built on heritage and compounded investments in technology and assets
• We have a long term view on investments - with partners, in R&D, in people and in facilities
• Strategic direction reflects priority of growth and to make an impact on the world in partnership!
• And remaining a highly profitable company along the way
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