Q2 - Novozymes

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Q2 - Novozymes

Key messages in 1H 2006• Healthy development in sales in linewith expectations• EBIT growth from continuousproductivity gains and solid freecash flow continued• Four products launched in 2Q 2006Key financialsSales growth, DKKSales growth, localcurrencyEBIT growthYTD 1H20068 %5 %10 %• Joint development agreement with China Resources Alcohol Corporation(CRAC) within biomass-to-fuel ethanol• Acquisition of UK-based Delta Biotechnology Ltd supports the platform ofingredients for the biopharmaceutical industry• Execution of share capital reduction of 6.6% or DKK 46 million (nominal)• Overall strategy retained - business development activities initiated withincertain areas• Free cash flow 2006 expectations up DKK 100 million2Unlocking the magic of nature


1H 2006 sales development1,000800Sales in DKK million6004009909977999967527912000Technical -detergent340344156184Technical - Food Feed Microorganismsothers1H 2005 1H 20063Unlocking the magic of nature


Detergent enzymes - business update• 1H 2006 sales up 1% in DKK and onpar in local currencySales in DKK million• Short-term impact from higheringredient costs has stabilised• Continued growth in sales inemerging markets990997• FY 2006 sales expectations retainedat slightly positive, both in DKK andlocal currency1H 2005 1H 2006SALES CAGR ’00–’05 of -3%2,0001,0002,4042,1402,0502,0522,0382,01402000 2001 2002 2003 2004 20054Unlocking the magic of nature


Other technical enzymes - business update• Sales up 21% in DKK and 17% inlocal currencySales in DKK million• Fuel ethanol enzymes remain themain growth contributor• Continued good growth in enzymesfor starch conversion due toincreased demand for sweeteners799966• Increased penetration of enzymesfor textile mills in Asia• FY 2006 sales growth expected tobe 15-20% in both DKK and localcurrency1,8001H 2005 1H 2006SALES CAGR ’00–’05 of 9%9001,1441,2371,3501,4411,5151,72002000 2001 2002 2003 2004 20055Unlocking the magic of nature


Food enzymes - business update• Sales up 5% in DKK and 2% in localcurrencySales in DKK million• Good growth within baking fromnewly implemented US-distributionset up752791• Increasing demand for enzymes tobeverage alcohol and processedfoods1H 2005 1H 2006• Wine and juice below expectations• Slower penetration in the dairyindustry• FY 2006 sales growth expected tobe mid single-digit both in DKK andin local currency1,5001,0005000Sales CAGR ’99-’05 of 5%1,1871,3871,4821,4131,4391,4912000 2001 2002 2003 2004 20056Unlocking the magic of nature


Microorganisms - business update• Sales up 18% in DKK and 14% inlocal currencySales in DKK million• Main growth driver continues to bethe institutional & householdcleaning industry156184• Continued expansion outside mainUS-market supporting geographicaldiversification• FY 2006 sales expected to growabove long-term expectations inboth DKK and local currency4003002001001H 2005 1H 2006Growth through acquisitions ’01-’032052612983080702001 2002 2003 2004 20058Unlocking the magic of nature


R&D news• Confident outlook for the project pipeline;• 6 - 8 new product launches expected during 2006• Product launches in Q2:• Liquanase ® , enzyme for the detergent industry• Cerezyme ® , enzyme for the brewing industry• BPX-1, enzyme for the fuel ethanol industry• Novo BioClean, microorganism for the institutional & household cleaningindustry10Unlocking the magic of nature


Strong pipeline to support sales growth~13% of sales invested in R&D, ~800 peopleTechnical enzymesDetergent:New, improved cleaningand fabric careproperties,new concepts, improveddish washing products.Other technical:New technologies andimproved processes forstarch and fuel ethanol,Bioprocesses.New industries:Digestion disorders.Food enzymesImproved doughproducts, non-breadproducts.New concepts forbrewing.Food specialties – dairyproducts, oils & fats.Feed enzymesImproved phosphorusrelease, vegetableprotein, aquaculture.MicroorganismsInstitutional &Household cleaning:Odour reduction, oil &grease degradation.Plant care: Biofungicides,growth enhancement,expand application ofexisting products.Waste treatment:Ammonia and nitritecontrol, colour removal,hydrocarbondegradation.Biopolymer and PharmaproteinsHyaluronic acid andpotentially otherbiopolymers.Antimicrobial peptides.New technology forantibody production.Cell cultures substrates.Approx. 85% of R&D resources Approx. 5%of R&D resourcesUnlocking the magic of natureUp to 10% ofR&D resources11


Currency risk management• Favourable currency rates supportgrowth in sales and EBIT, while netfinancials are affected negatively,depending on hedging activities(DKK)Average 2005Spot April 25, 2006USD6.006.00JPY ’005.455.25CNY73,2574,91• Novozymes' policy is to hedgeexisting net assets in foreigncurrency, and expected future netexposure from the company'soperationsSpot August 7, 2006Est. average for 2006*Est. average 2006compared with avg.exch. rate 20055.815.95-1%5.055.15-5%72,8674,301%• 2006 net cash flow in USD and JPYis hedged and included in financialoutlook:- approx. DKK 5.86/USD- approx. DKK 5.57/JPY ‘00Impact to operating profit from a 5% change in thevalue of (annualised):USDJPYDKK 30-40 millionDKK 5-15 million*Estimated average calculated as anaverage of YTD + Spot August 7th 200613Unlocking the magic of nature


Expectations for 2006Provided that current exchange rates remain unchanged for the rest of the year,the expectations for 2006 are:Sales growthOperating profit growthOperating marginNet financialsNet profit growthCash flow before acquisitionsReturn on invested capital after tax7-9%7-9%Around 19%DKK minus ~100 million5-7%DKK 850-950 million18-19%14Unlocking the magic of nature


Business development update• Overall strategy retained - including new initiatives to enhancebusiness opportunities• Increasing investments in enzymes for the fuel ethanolindustry• Strategic initiative for long-term growth, launched in 2005,progresses as planned• Platform of ingredients for the pharmaceutical industryUnlocking the magic of nature15


Novozymes strategy•New productsEnzymes forindustrial use•New applications and markets•New business in new industries•Broad white biotechMicroorganisms forindustrial use•New products•New applications and markets•New business in new industriesSolutions for the biopharmaceuticalindustryNew innovative products,technologies and ingredientsfor the biopharmaceuticalindustryExamples of potential projects under New Business Development*Paper/pulp*Chemical synthesis*Mineral oil- enhanced extraction-refining*Waste reduction&handling*Biomass-to-plastic/fibre*Sustainable agriculture & animal husbandryExplore technology potential in* Antimicrobial peptides* Expression of monoclonal antibodies* Media for cell cultures* Biopolymers– Hyaluronic acid* Manufacturing of biophamaceuticalsBase of proven biotech competencies and technologies16Unlocking the magic of nature


GroPep acquisition proposalNovozymes proposes to acquire 100% of issued shares ofGroPep Ltd.• AUD 2.05 per share• Transaction value of approximately DKK 375 million on a cashand debt free basis (excl. of cost of option scheme)• Premium• 40% over the last sales price of GroPep shares on FridayAugust 11, 2006• 40% over the volume-weighted average share price ofGroPep shares in one month period prior to proposal• 33% over the volume-weighted average share price ofGroPep shares in the three months period prior to proposal• “Scheme of arrangement”17Unlocking the magic of nature


Key messages in 1H 2006• 1H 2006 in line with expectations• Healthy development in sales• EBIT growth from continuous productivity gains and solid free cash flowcontinued• Four products launched in 2Q 2006• Joint development agreement with CRAC within biomass-to-fuel ethanol• Acquisition of UK-based Delta Biotechnology Ltd supports the platform ofingredients for the biopharmaceutical industry• Overall strategy retained - development activities initiated within certainareas• Execution of share capital reduction of 6.6% or DKK 46 million (nominal)• Free cash flow 2006 expectations up DKK 100 millionUnlocking the magic of nature18


Forward-looking statementsThis presentation and its related comments contain forwardlookingstatements, including financial expectations.Forward-looking statements are by their very nature associatedwith risks and uncertainties that may cause actual results to differmaterially from expectations.The uncertainties may include unexpected developments in theinternational currency exchange and securities markets, marketdrivenprice decreases for Novozymes’ products and theintroduction of competing products within Novozymes’ core areas.19Unlocking the magic of nature


Appendices20Unlocking the magic of nature


Novozymes - brief introduction• Demerged from Novo Nordisk in 2000• World leader in Industrial Enzymes & Microorganisms• Market leader in all main industries• More than 4,200 employees• Main production in USA, China and Denmark• More than 600 products sold in 130 countries in 40 different industries• More than 4,300 active patents• Sales USD ~1bn• Strong profitability and solid generation of cash flow(2005 EBIT margin 19.2%, free cash flow DKK 991 million)• ~13% of sales invested in R&D• B shares listed on the Copenhagen Stock Exchange21Unlocking the magic of nature


Main product linesEnzymes for industrial use• Biological protein-based catalysts that drive chemical reactions• Replace traditional chemistry and provide increased efficiency, lowerenergy and resource consumption in industries worldwideMicroorganisms for industrial use• Biological cell factories that produce enzymes where needed• Address household, industrial and agricultural problems withenvironmentally safe technology22Unlocking the magic of nature


Enzymes and microorganisms are used everywhereUnlocking the magic of nature23


The Novozymes business caseBiotech-based world leader in enzymes & microorganisms...with a unique triple leverage on its biotech expertise• Innovation-driven topline growthNew products, applications, markets, all expanding the use of industrial biotechnologywith a green, sustainable potential• Continued productivity growthSystematic production optimisation provides higher profitability and asset productivity;liberates capacity, delays investments, ensures high cash flow• Opportunities in new areasStrategy to leverage expertise outside enzymes - acquisition-based microorganismbusiness and projects in biopolymers and biopharmaceuticals….and high profitability and cash flow• 2005 sales of ~USD 1 billion, operating margin of 19.2%, free cash flow 16% of salesand return on invested capital of 19.3%Unlocking the magic of nature24


New products, applications and marketsdeliver sales growth and profitability1990-2005 net sales CAGR of 8%7.0006.0005.000Sales and EBIT margin developmentSalesOperating marginMargin increasedespite currency20%18%16%14%DKK million4.0003.0002.0001.00012%10%8%6%4%2%Per cent01990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005Year0%25Unlocking the magic of nature


Biotech-based world leader in enzymes & microorganismThe potentialWorldwide markets for chemicals,food ingredients, feed additivies, etc.Enzymesfor industrial use- market size approx.DKK 13.2 billion /USD 2.2 billionMicroorganismsfor industrial use- market size approx.DKK 0.6 billion /USD 0.1 billionOthers20%Captive5%BASF4%Novozymes45%DSM6%Others50%Novozymes50%Danisco/Genencor20%26Unlocking the magic of nature


Current business composition- new products, applications, markets to drive sales growth of 8-9%Business areaDetergent enzymes(Technical enzyme)Technical enzymesFood enzymesFeed enzymesMicroorganismsMain marketsDetergentStarch, textile, fuelethanolBaking, brewing, foodspecialitiesAnimal feedCleaning, plant care,waste treatmentMarket share45-50%(combined)45-50%(combined)30-35%45-50%Approx. 50%MaincompetitorsDanisco, captiveproducersDanisco, captiveproducersDSM, Danisco, ABEnzymesBASF, DaniscoSmaller, local playersExp. long-termavg. salesgrowthslightly positive10-15%10-15%~10%~10%% of totalNZ sales USD~1bnTechnical -detergent32%Technical -Technical -other27%detergent32%Food24%Feed12%Microorganisms5%Technical -other27%27Unlocking the magic of nature


Biotech provides productivity growthOptimising theproductionmicroorganismOptimising the industrialproductionOptimising the enzymeproducedOne microorganism10 12 microorganismsCreating a more potentTest-tube sizeFermentation tank size30-160 m enzyme for the same0.00001 cm 3 3application• Genetic engineering• New microorganism• New raw materials• New process regulation• New equipment• Protein engineering- site specificmutagenesis- random mutagenesis- gene shuffling28Unlocking the magic of nature


Novozymes strategy•New productsEnzymes forindustrial use•New applications and markets•New business in new industries•Broad white biotechMicroorganisms forindustrial use•New products•New applications and markets•New business in new industriesSolutions for the biopharmaceuticalindustryNew innovative products,technologies and ingredientsfor the biopharmaceuticalindustryExamples of potential projects under New Business Development*Paper/pulp*Chemical synthesis*Mineral oil- enhanced extraction-refining*Waste reduction&handling*Biomass-to-plastic/fibre/fuel*Sustainable agriculture & animal husbandryExplore technology potential in* Antimicrobial peptides* Expression of monoclonal antibodies* Media for cell cultures* Biopolymers-Hyaluronicacid* Manufacturing of BiophamaceuticalsBase of proven biotech competencies and technologies29Unlocking the magic of nature


Biotech provides productivity growthBiotech provides productivity growth- tangible benefits¹Optimising theproduction microorganismOptimising theindustrial productionOptimising theenzyme producedProductivityincrease %30252015105026Higher productivity benefits the P&L...1913106141081613752000 2001 2002 2003 2004 2005201918171615Productivity, water Productivity, energy EBIT marg…reduces the need for investments and increases assetturnover......and paves the way for high cash flow generation andROICDKK million60040020004913834924825323345233924953384623352000 2001 2002 2003 2004 2005110100908070% of salesDKK million1,00050006556556784878475759828001,0801,0809919912000 2001 2002 2003 2004 2005252015105ROIC %Depreciation Inv. bf. acquisitions Inv. cap. in % of salesCash flow bf. acquisitions Free cash flow ROIC1 2000-2004 partly restated using IFRSUnlocking the magic of nature30


All long-term financial targets metWith the IPO in 2000, we formulatedthe following long-term financialtargets:• Growth in operating profit ofat least 10%• Operating profit margin ofaround 17%Per cent252015105010% EBIT CAGR since IPO22.09.59.110.75.03.52000 2001 2002 2003 2004 2005• Return on average invested capitalafter tax (ROIC) of at least 15%Per cent201918171617.7% avg. EBIT margin since IPO18.217.517.1 17.316.719.2Per cent2015105Steady improvement in ROIC to above 15%19.317.415.513.612.510.21502000 2001 2002 2003 2004 20052000 2001 2002 2003 2004 200531Unlocking the magic of nature


Continued distribution of excess cash flowDKK million1,40035%• Dividend policy - dividend pay-outratio of 30%1,20030%• Dividend per share up by 14% for20051,00080060040020001,0538473924241858217 231 257124 146 1622000 2001 2002 2003 2004 200525%20%15%10%5%0%• Increased share buy-backprogramme from DKK 2.5 to DKK 4billion to be finalised by end of2007.DKK 2.5bn has been exercised as oftoday• Share buy-backs of DKK 1bn in 2006.1H 2006 share buy-back was DKK558 millionDividend Share buy back Pay-out ratio32Unlocking the magic of nature


Balance sheetDKK millionFixed assetsInventories & ReceivablesCash & financial assetsTotal assetsShareholders’ equity incl.minority interestsMinority interestsProvisionsLong-term debtShort-term debtOther current liabilitiesNet debtWorking capital, avg.- relative to sales, rolling 4QInvested capital, avg.- relative to sales, rolling 4QROIC1H 20063,9222,6537907,3653,509386571,747731,3791,0301,20618%4,62371%19.7%FY 20053,9702,7346057,3093,794336541,4191681,2748771,17219%4,64374%19.3%33Unlocking the magic of nature


Shareholder structure• Two share classes; A and B sharesA sharesB sharesTotal• B shares listed on the CopenhagenStock Exchange under symbol “NZYMB”• “A” share capital and 6,999,280 Bshares held by Novo A/S, themanagement company of the NovoNordisk Foundation• Novo A/S owns 27.2% of share capitaland has 70.2% of votes• Other major shareholders includeDanish ATP and large internationalinstitutions in Europe, the US andAsia/Pacific5%Capital(DKKm)Shares ofDKK 10Share ofcapitalShare ofvotes18%18%107.5542.5650.010,748,720 54,251,280 65,000,00016.5% 83.5% 100.0%66,5% 33.5% 100.0%Approx. distribution of B shares2%37%10% 10%Ownership data as of January 10, 2006DenmarkNovo A/SOwn sharesUKRest of EuropeNorth AmericaOther34Unlocking the magic of nature


How we produce enzymes? (I/II)Microorganisms & raw materialsFermentationExhaust airWastewaterFilter aidsWaterRecoveryBiomassWastewaterSolid & liquid productsStabilisersCelluloseWaxStabilisation/granulationUnlocking the magic of nature


How we produce enzymes? (II/II)• Fermentation• Fermentation of one of a number of specifically selectedproduction microorganisms (bacteria or fungi) understerile conditions• Production of the desired enzyme by consumption ofcarbohydrates, proteins, salts, water and energy• Transfer of the fermented broth to recovery• Recovery• Filtration of the fermentation broth• Purification of the liquid phase containing the enzyme• Concentration of the liquid enzyme to desired enzymaticactivity• Stabilisation and standardisation of a liquid product - or• Standardisation of a liquid concentrate for granulation• Granulation• Formulation and standardisation of the enzyme intosolid granules to encapsulate the enzyme - and providethe right property of the product (solubility, colour, etc.)36Unlocking the magic of nature


GroPep proposal - Strategy & rationale• Strengthen Novozymes position within the recombinantingredients market• Perfect fit to Novozymes’ current activities• GroPep Ltd. holds a market leading position within its field• Good strategic match from a technology standpointrHSA / Recombumin®rTransferrinCelliance-agreementLONG TM R 3 IGF-137Unlocking the magic of nature


About GroPep Ltd.• Based in Adelaide, Australia with local listing (GRO)• Develops, manufactures and commercialises biologically activeproteins for cell culture and biomedical research• Main activity is within cell culture ingredients and the sale ofLONG TM R 3 IGF-1• Biopharmaceutical drug development programme• 80 employees and approximately 20%of revenues are spent on R&D• Robust margins38Unlocking the magic of nature


GroPep financial figuresGroPep key financial figures:AUDm(Year end 30 Jun)03/04 4 04/05 4 1H05 5 1H06 5Total revenues 13.1 16.7 7.8 8.4Pre tax profit 1.0 3.1 1.3 2.1Net profit 1.0 6.5 0.8 1.5GroPep segmented results 2004/2005 4 :AUDm(Year end 30 Jun)BiologicalproductsConsolidatedTotal revenues 14.2 16.7Pre tax profit 6.3 3.1Source: GroPep accounts4) In accordance with previous GAAP (Australian GAAP)5) In accordance with AIFRS (AUS equivalent to IFRS)39Unlocking the magic of nature


Ways of producing fuel ethanol - dry milling processRaw materialProduction processIndexedproductioncostSugarcaneExtractionFermentation > FeedResidues-> > FeedFUEL ETHANOL~100100Pre-treatmentEnzymes FermentationResidues-> > FeedResidues-> > Burn it off?*>150Unlocking the magic of nature*In the US Department of EnergyBiomass-model the lignin residuewas burned to power the productionplant40


Recognised as a leader in sustainabilityNovozymes has been recognised on several occasions for its effortsin corporate sustainability:• Currently rated healthcare market sector leader in corporatesustainability in Europe and the World by Dow Jones SustainabilityIndexes• Member of other SRI indices• FTSE4Good indices• Kempen/SNS Smaller Europe SRI Index• Nordic Sustainability Index• Other achievements• Selected for global top-20 list of SRI investments by SustainableBusiness.com• Selected for ODDO securities SRI Selected list41Unlocking the magic of nature


Novozymes’ IR-teamNovozymes A/S is the biotech-based world leader in enzymes and microorganisms.Tickers: Reuters; NZYMb.CO, Bloomberg; NVZMF, Thomson; NZYM B.DK.Further investor relations information is available from the company homepage on the Internet atwww.novozymes.com/investors.IR contacts:Lene AaboeTel.: +45 4446 0082Cell: +45 3077 0082Fax: +45 4442 1002E-mail: lefr@novozymes.comUS-basedTobias C. BjorklundUS Cell: +1 919 649 2565DK Cell: +45 3079 8682Fax: +45 4442 1002E-mail: tobb@novozymes.comIan S.E. ChristensenTel.: +45 4446 0341Cell.: +45 3077 0341Fax: +45 4442 1002E-mail: isec@novozymes.com42Unlocking the magic of nature


Biotech-based world leaderin enzymes & microorganismsNovozymeswww.novozymes.comUnlocking the magic of nature

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