For the coming year Novozymes expects organic sales growth of 8–13% in DKK, 3–8% in LCY, and growth in net profit of 5–10%. A slowdown in the global economy is reducing growth levels, while exchange rate levels increase performance in DKK. Investment levels are high in preparation for higher future sales growth, bringing cash flow for 2009 down.
Our 2009 expectations are not on a level with our 2008 performance; this is primarily due to the economic slowdown. Our new long-term financial targets represent levels that we need to reach over the coming years, so it is not surprising that 2009 outlook falls below these ambitious levels. We have set ambitious sustainability targets for 2009, and in the years to come we expect to see such targets increasingly becoming business drivers.
The 2009 outlook supports our ambition of reaching “10 in 10,” in other words revenue of DKK 10 billion in 2010. Alongside associated sustainability goals within stakeholder engagement, climate change, resource efficiency, and employer performance, these expectations constitute the targets for the stock option programs for Executive Management and other employees in 2009.
The 2009 outlook is based on exchange rates for the company’s key currencies remaining at the spot rates on January 21, 2009. Novozymes’ key currencies are the EUR, USD, JPY, and CNY.
A movement of 5% in the USD would result in a change in operating profit of around DKK 45–65 million (see “Currency exposure” in Financial risk factors).
Expectations for 2009
Sustainable utilization of resources
Novozymes will continue focusing on reductions in both energy and water consumption. The target in 2009 is to limit the growth in consumption to be at least 2 percentage points lower than realized sales growth. Novozymes considers this target to be ambitious, and further efficiency gains will require comparatively far greater effort to realize.
The focus is on the potential for increased water efficiency in our own production, and on exploring water availability and consumption scenarios in our supply chain.
Investments and cash flow
Total expected investments in 2009 are DKK 1.3–1.5 billion. This includes the building of a new enzyme plant in Nebraska, USA, at a cost of USD 160–200 million in 2009–2010. Compared to the initial announcement, this roughly represents a doubling of the capacity to be built as well as investment cost, in order to ensure that future demand from the growing biofuels market can be met in the years to come.
Final scaling is dependent on external factors to be resolved in the coming months.
Furthermore, in 2009 DKK 200–300 million will be invested in expansion of enzyme capacity at existing facilities, among other things to optimize flexibility for the detergent industry. Finally, in 2009–2010 BioBusiness will build a plant for production of high-grade Bacillus-based hyaluronic acid (bHA) in Tianjin, China, on our existing site. Total investment is expected to be DKK 200–300 million, evenly distributed over the period.
It is expected that the operational cash flow generated will remain at historic levels and be able to cover the investment need, leaving free cash flow before acquisitions positive. For 2009 cash flow is expected to be DKK 100–300 million.
Balancing stakeholder engagement
Active engagement with stakeholders in the broadest sense will be further embedded into day-to-day business. One target for 2009 is to introduce new processes throughout Novozymes. We will develop and provide tools and training on stakeholder dialog, stakeholder mapping, and issues mapping to all sites worldwide. An important starting point is the ten principles in the United Nations Global Compact.
Suppliers are important stakeholders and very often close partners. Being able to evaluate suppliers’ sustainability performance is therefore crucial. In 2009 we will implement a new Supplier Performance Management (SPM) system, which will systematically measure, report, and store information reflecting commercial, quality, and sustainability issues.
Attracting and retaining competent employees
A comprehensive employee survey is used to measure Novozymes’ performance as an employer on an annual basis. We need to compete effectively for competent people, and to be an attractive employer we must provide safe and modern working conditions and attractive jobs. The selection of targets is used to maintain focus and drive improvements. Targets are based on direct measures.
Investing in BioBusiness
When building the bHA facility, Novozymes will include preparatory steps for potentially establishing a cluster of facilities at the site intended to produce bulk active pharmaceuticals and ingredients for the pharmaceutical industry. This preparation will facilitate a stepwise expansion as business opportunities develop and are confirmed.
The market potential for bHA is completely different from that for sHA (Streptococcus-based HA). Novozymes closed its sHA production at the beginning of 2008 owing to lack of market potential. This facility cannot be used for pharmaceutical production as it is not approved as a cGMP facility. The decision to build a bHA plant is based on a thorough review, including of experiences from sHA production and market involvement.