The global trends we are seeing and the growth we have experienced in recent years have led us to set ambitious new long-term targets, which will set out the path for moving our business to the next level. The previous targets were defined when we became a publicly traded company eight years ago. Those targets reflected a need to prove the robustness and profitability of our business. We believe this has been proved.
New long-term targets
Our new long-term targets define what we believe we should strive for going forward, not only financially, but also in regard to doing business while supporting sustainable development.
Our long-term target does not include sales of enzymes for conversion of biomass (i.e., second-generation bioethanol). At present, it is too early to estimate a reliable growth path for this enzyme application beyond a marginal scale. However, if we are successful within this area, then our long-term growth target will be increased.
Our long-term target of annual sales growth of more than 10% assumes organic growth across the business, with different industries expected to take the lead in different years. Growth in the enzyme business will remain the main contributor to organic sales growth, but once the foundation has been established for BioBusiness, this area is also expected to contribute significantly to overall growth.
Our aim is to build BioBusiness into a DKK multibillion business in 5–10 years. This is a challenging ambition, requiring focus, dedication, and investments, but we believe in this and are confident that we are making progress toward that goal. Although we are targeting organic growth, we continue to pursue acquisitions within areas where there is a technology and competency fit.
Going forward productivity improvements are expected to continue at the same high level as seen historically. This is pivotal in allowing us to increase the long-term operating profit margin to more than 20%. The operational leverage experienced in the enzyme business is mainly the result of productivity improvements and forms an integral part of our business model. Our application of gene technology and efficient use of fermentation equipment make it possible to produce even more, without needing to expand production capacity.
The ambition is for BioBusiness to close in on the profit margin for Enzyme Business. However, given that BioBusiness is an area under development, the profit margin will continue to be unfavorably affected by R&D and business development costs, as well as a relatively high investment level, as these have to be incurred to enable future sales.
Our customers’ choice makes a difference
Going forward we will strengthen our insight into our customers’ businesses, their industries, and the world at large. With this insight we can create meaningful and forward-looking solutions, and live up to our promise to anticipate future requirements and “Rethink Tomorrow.”
Alongside our growth target, the positioning of enzyme technology as a solution for reducing our customers’ and end users’ CO2 emissions is another ambition closely connected to our sales growth. Through optimizing our R&D pipeline by using product lifecycle assessments (LCA s), we will actively increase the reductions in CO2 emissions achieved by our customers and end users when they apply our products or our customers’ products.
This should help pave the way for positioning our technology as part of the solution and for making a difference globally. In other words, the target of reductions of 75 million tons of CO2 emissions by 2015 cannot be achieved by sales growth alone – the carbon footprint of our products needs to be improved as well.
Investments, ROIC, and cash flow
Novozymes has historically grown sales by around 8% annually, without having had to invest much more than maintenance requirements (~6% of revenue). In order to grow above this level for a sustained period of time, additional production capacity is needed. Thus, organic growth of more than 10% p.a. implies an increased need for investments in the coming years. Total investments in 2009–2010 are expected to be DKK 2.5–2.8 billion. The investments to be made are slightly different from previously as the potential sales growth is conditional on available capacity, for example in second-generation bioethanol and BPI. If Novozymes does not invest upfront, a market may not develop and sales growth may not be enabled. Beyond 2010, it is currently expected that investments will decline to a level of around 8% of revenue.
It is expected that the operating cash flow generated can cover annual investment needs.
We believe that the investments will support our long-term ROIC target of more than 22%.
Sustainable utilization of resources
Increasing internal resource efficiency can contribute to the targeted positive development in the operating margin. Energy efficiency and water efficiency are two aspects of this. With regard to energy efficiency, the associated reduction in greenhouse gas emissions is increasingly important.
While targeting high growth in the coming years, we want to reduce CO2 emissions from energy consumption in absolute terms. Our long-term target is to reduce our overall CO2 emissions from energy consumption to our 2007 level. Over the last decade, energy efficiency in our production has been considerably improved, so going even further has become increasingly difficult.
One significant supplement to the improvements in energy efficiency is green energy supply. In Denmark, our use of electricity is being converted to be based solely on renewable energy sources by 2012 (see box).
Green energy commitment
In 2008 we entered into a partnership with DONG Energy to reduce our use of conventional energy based on fossil fuels and to increase the demand for green energy in Denmark. We will increase energy efficiency and use the projected savings to buy renewable energy that will be supplied from a forthcoming offshore wind turbine park.
The agreement outlines how Novozymes in Denmark will be 100% CO2 neutral for electricity by 2012. This represents a considerable contribution to our overall target of reducing our CO2 emissions to 2007 level by 2012 while growing our business.
Balancing stakeholder engagement
Partnering and stakeholder engagement in a broader sense are becoming increasingly important to our way of doing business. Mutual benefits from combining complementary competencies and the need to improve mutual understanding by means of active dialog are often significant.
Generally, the response from stakeholders is immensely important to our ability to develop an appropriate approach to sustainability. Independent ratings, benchmarks, and awards based on well-defined criteria are valuable responses to what we do. Obtaining independent feedback of this nature is important, and it is a goal for us to consistently be one of the very best among our peers in this respect. Accordingly, such ratings have triggered focus on specific areas where we need to improve performance. We have set out to improve from what others may consider an already good position but, to us, continuous improvement, high standards, and a leading position will enable us to achieve wider impact. Our first target is obtaining a Gold Class rating from SAM (Sustainable Asset Management) by 2010, based on the Dow Jones Sustainability Index data.
We have initiated the development and continuous application of a more systematic and active approach to engagement. We want to increase transparency and further enhance stakeholder dialog as an integrated element in the way we do business. This will influence internal routines, written standards, and procedures. We will review approaches to corporate citizenship and philanthropy, and we will implement new supplier performance evaluations covering 80% of purchase spending.
Attracting and retaining employees
Keeping up with high growth in terms of organizational structures presents a leadership challenge with regard to recruitment and retention of people. We have set a long-term goal of being a preferred employer globally. Although we are doing quite well, we will have to work harder to achieve this, as simply maintaining our current status is not enough. We will focus on simplifying processes, nurturing a networking culture, and ensuring a strong global positioning of our brand, in order to maintain and further improve our status as a preferred employer.
In recent years, companies in general have experienced increasingly higher employee turnover, and competition for skilled employees has been intense. Considering our ambition with regard to growth, being a preferred employer is important. We want to be among the most attractive employers, to have motivated and engaged employees, and to have strong succession management. We will measure and improve employee satisfaction and motivation. In the first instance our target on a scale of 0–100 is to improve the score for “satisfaction and motivation” to at least index 75 in our internal employee survey in 2010 (see “Employee satisfaction”). For comparison, our external benchmark is currently 66.