Novozymes’ long-term targets reflect its integrated business approach. The company’s ambitions include higher sales growth and financial returns, the most efficient use of resources, reducing the environmental footprint of production processes and continuing to lead the way within sustainability.
|Financial targets for the period 2013-2017:|
|•||Average organic sales growth of more than 10%|
|•||EBIT margin of more than 24%|
|•||Return on invested capital of more than 22%|
|The average organic sales growth target is expected to be reached from 2015 and onward.|
|The targets are based on the following assumptions and are contingent upon no major acquisitions being made:|
|•||The global economy stabilizes|
|•||The biofuel market in the U.S. moves toward E15|
|•||Novozymes sells enzymes to at least 15 biomass conversion plants by 2017, with a ramp-up in 2015-2016|
|•||Ensure 100% supplier adherence to Novozymes' supplier program for commercial, quality and sustainability performance in 2015|
|•||Enable a 75 million ton reduction in CO2 emissions in 2015 through the application of Novozymes' products|
|•||Improve water efficiency by 40% in 2015 compared with 2005|
|•||Improve energy efficiency by 50% in 2015 compared with 2005|
|•||Improve CO2 efficiency by 50% in 2015 compared with 2005|
|•||Increase energy supply from renewable and CO2-neutral sources to 50% of total energy supply in 2020|
|•||Be recognized as a global leader within sustainability|
|•||Be a globally preferred employer, attracting global talent as a diverse and inclusive workplace|
The long-term targets, launched in January 2013, are integrated into Novozymes’ business strategy and business initiatives, and emphasize the company’s engagement and collaboration with business partners and other stakeholders.
The targets also serve as a performance benchmark, allowing Novozymes to see which initiatives are working and which should be re-evaluated. As market growth drivers and company performance evolve, Novozymes may reassess these targets and make appropriate adjustments.
Growth is expected to be well diversified and come from all sales areas during the period 2014-2017, with Household Care and Bioenergy sales among the strongest contributors. For the growth platform Biomass Conversion, sales are expected to materialize slowly in 2014 and contribute more significantly to sales growth from 2015. Furthermore, assuming approvals from the relevant authorities, The BioAg Alliance with Monsanto is expected to drive significant sales growth from 2015 within BioAg.
Novozymes’ long-term targets assume that the company will supply at least 15 biomass conversion plants by the end of 2017. In 2013, Novozymes signed a number of supply agreements, and Novozymes still expects this assumption to hold. The 15 plants will come via Beta Renewables and through close partnerships with other leading global biomass, ethanol and chemicals companies. By the end of 2013, Novozymes had signed supply agreements for planned facilities taking it around a third of the way toward the 15.
Novozymes also assumes that the U.S. biofuel market will move toward E15. Currently, there are political discussions in the U.S. about the Renewable Fuel Standard and the role of biofuels in the American energy mix. The penetration of E15 or other higher-ethanol blends is therefore slow, but this is not unexpected.
Novozymes has delivered on this target for the last two years. The target allows Novozymes to retain the flexibility to invest in the business and pursue opportunities for long-term growth, while keeping the EBIT margin at an ambitious level.
As CAPEX is normalizing while sales are growing and productivity improvements continue to be realized, Novozymes expects to achieve the ROIC target of 22% (incl. goodwill) within a couple of years. This outlook includes the impact from The BioAg Alliance agreement with Monsanto.
“Long-term targets serve as a performance benchmark, allowing Novozymes to see which initiatives are working and which should be re-evaluated.”
Global food demand is set to double by 2050, yet global crop yields are struggling to keep pace. However, applying the right blends of microorganisms can improve yields, making it cost-effective for farmers to invest in biological technologies while also contributing to the development of more sustainable agriculture.
Agricultural biological technologies offer natural solutions to improve plant health and combat disease in both broad-acre crops, such as corn and soy, and high-value crops, such as leafy greens, fruit and vegetables. The global market for these solutions is currently worth $2.3 billion and has shown mid-teens sales growth in each of the last several years. That is just a fraction of the $180 billion market in agrochemical crop input and signals a growing opportunity. However, farmers sometimes have to be convinced of, and introduced to, the benefits of adopting biological technologies, and that can prove challenging given how widely farming differs by region, crop, soil type and income level, among other factors.
A targeted, partnership-led response is needed if Novozymes is to succeed in this varied customer landscape.
The BioAg Alliance: more choices for farmers globally
In December, Novozymes and Monsanto entered a strategic alliance for the research, development and commercialization of sustainable solutions for agriculture. The BioAg Alliance unites Novozymes’ capacity for researching, developing and producing microbial solutions with Monsanto’s strengths in microbial discovery, advanced biology, field testing and sales. By doing so, the two companies expect to deliver an entirely new category of more effective microbial solutions for broad-acre crops, fruit and vegetables. The partners will co-manage the alliance and equally co-fund R&D efforts while maintaining independent and complementary internal and external discovery research programs to identify microbial targets that can help farmers.
“BioAg in Novozymes has had impressive growth rates, but rather than growing incrementally, The BioAg Alliance makes it possible to leap ahead,” says Thomas Videbæk, Novozymes’ Executive Vice President for Business Development. “The alliance takes us to a new frontier of product development and sales. Together with Monsanto, we enhance the possibility for our current portfolio and speed up the potential for finding solutions that can help boost global agriculture.”
A million successes, more competition
The BioAg Alliance is a good illustration of how Novozymes is able to develop and transform its market approach in selected industries. This flexibility is especially needed to adapt to the varied customer landscape within agriculture.
For instance, agriculture in Asia is characterized by small holdings, land fragmentation and scarcity, and reduced scope for diversification. Novozymes has nevertheless been able to offer biosolutions to over a million farmers in Asia by working through a network of distributors in the region.
“It has taken years of intensive work to break into these markets where Novozymes was previously unknown,” says Trevor Thiessen, Novozymes’ Vice President for BioAg. “We've had to customize our products and conduct numerous training programs to achieve a greater impact and expand our base here.”
In contrast, competition is growing in developed agricultural markets such as the U.S., Canada and Latin America, as more and more agrochemical companies enter the biological market by acquiring other players. Novozymes has responded by offering excellent innovation alongside top-notch technical support, which has helped build customer loyalty.
“In 2013, Novozymes delivered and brought us a product that we call First Up® ST for soybeans,” says Mike Powell from Helena Chemical Company, a Novozymes customer in the seed inoculant business for a number of years. ”This product allowed Helena to bring more value to the market and strengthen our relationship with customers.”
Novozymes is currently a leading player within biofertilizers. Sales in this area have grown historically by around 15% per year and are expected to grow at a similar rate in the future.
“Together with Monsanto, our aim is to further penetrate existing markets and expand into new markets, strengthen the R&D pipeline and deliver more choices for farmers globally,” says Thiessen.