innovating for household care - euroland

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guide

INNOVATING FOR GROWTH IN HOUSEHOLD CARE

Ole Kirk, VP Household Care R&D

Danske Markets Innovation Seminar, Copenhagen, May 13, 2014

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guide 2

Safe Harbor Statement

This presentation and its related comments contain forward-looking statements, including financial expectations.

Forward-looking statements are by their very nature associated with risks and uncertainties that may cause actual results to differ materially from expectations.

The uncertainties may include unexpected developments in the international currency exchange and securities markets, market-driven price decreases for Novozymes’ products, and the launch of competing products in Novozymes’ core areas.

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• FY 2013 Sales of DKK 11,746 million; 24.7% EBIT margin

• Innovation driven topline; 13-14% annual R&D/Sales (~ 7,000 granted & pending patents)

• Long-term targets: > 10% sales growth from 2015, > 24% EBIT margin, > 22% ROIC

• Roughly 2/3 of sales and earnings stem from consumer products

Novozymes – The World Leader in Bioinnovation

2013 Sales by geography

2013 Sales by industry

Household

Care 36%

Food &

Beverages 27%

Bioenergy

16%

Agricultur

e & Feed

14%

Technical

& Pharma

7%

3

33%

10%

38%

19%

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• All three segments use enzymes today

• Vast majority of Novozymes HHC sales are for powder & liquid laundry detergent

The world of consumer cleaning - A total retail value of around DKK 400 billion

Source: Euromonitor from trade sources/national statistics, 2014

Laundry detergents (powder & liquid, tablets)

DKK 296 billion

17 million tons

Hand wash, soap bars and fine fabric detergents

DKK 71 billion

8 million tons

Automatic dishwasher

DKK 33 billion

1 million tons

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2.0 1.8 1.9

2.1 2.1 2.0 2.0

2.3

2.6 2.6

3.3 3.5

4.0 4.2

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

• Diversified growth since IPO; more customers in more geographies

• Clear market leader with >60% market share

• Confident that current growth rates are sustainable

• Risk: HHC industry balance shifts to price competition from cost/performance

Household Care in Novozymes – 36% of sales with strong market position and growth

5

+6% +11%

Novozymes Household Care sales, DKK billion & DKK CAGR

Snapshot: 2000

• 2/3 of HHC was P&G + Unilever

• 2/3 of HHC was developed markets

Snapshot: 2013

• Top 5 customers: ~60% of sales

• Developed markets: ~ 55% of sales

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• Smarter chemistry such as enzymes are one of the reasons for chemistry’s larger role in washing together with better surfactants and polymers

Chemistry’s role in washing has increased over the last 50 years

Chemistry

Mechanics Temperature

Time

Washing anno 1959 Washing anno 2014

Source:Dr. Sinners circle of washing

Temp.

Chemistry

Time

Mech.

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• Catalytic and not stoichiometric, resulting in low volume needed

• Performance optimized for water quality and temperature

• Green, renewable ingredient

• Stable enzyme cost development

• Ability to remove soils that chemistry cannot

• Stability is hard to achieve – especially in liquids

• Enzymes have a specific mode of action – e.g. cannot bleach, yet

7

• Other active ingredients are primarily surfactants and minerals acting as inorganic catalysts/binders

• Competing against petrochemicals is tough – chemistry has been used for a long time

Enzyme performance vs. other active ingredients

Enzyme performance vs. other active ingredients

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Customers’ strategic agenda:

Enzyme innovation can address all aspects of detergent producers’ strategic agenda

Growth in emerging markets

Reduce costs and volatility

Improve performance -at low temp.

Build brand position and share

Innovation agenda: 1. Enable cold-water

performance across existing portfolio

2. Improve enzyme stability to cater for wider application and long supply chains

3. Discover new activities

4. Drive down cost of enzyme technology

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Improving wash performance at lower temperatures is a constant evolution

Savin

ase

® Everlase

®

Lip

ex

®

Sta

inzym

e®

Mannaw

ay

®

Sta

inzym

e® P

lus

1985 1980 1990 1995 2000 2005 2010 2015

En

zym

e d

osag

e (

%)

Sta

in r

em

oval in

dex

Typical enzyme dosage in EU powder detergents

Avg. washing temp. for automatic washes in EU, AISE, August 2013

1.2

1.0

0.8

0.6

0.4

0.2

0

130

120

110

100

90

80

62°

41°

Celluzym

®

Lip

ola

se

®

Cellucle

an

®

Xpect®

Care

zym

e® P

rem

ium

Espera

se

®

Care

zym

e®

Wash temperature Powder detergent performance on 20 stains at 40°C

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Enzyme innovation can address key brand differentiators and support brand building

Stain removal &

performance

Sustainability: Cold-water wash

& green ”low-chem” solutions

Ease-of-use: Compaction and

unit-doses

Number of products launched globally with “cold wash” or “low temperature” claims

Environmental claims in laundry detergents globally

28 69 76

117

245

544

848

943

1134

1146 1160

0

200

400

600

800

1000

1200

1400

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

42 38 52

64

87 86

161 171

191 205

212

0

50

100

150

200

250

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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Sources: Agglomerations, purchasing.com, Colin A. Houston & Associates, ICISpricing.com, Reuters, World Bank, Novozymes

Reducing COGS and input volatility. A game of constant optimization of detergent formulations

• Enzyme systems are price stable and can replace other ingredients

• Compaction is key to lower COGS

• No matter that enzymes can address input volatility and costs, all ingredients incl. enzymes are always at risk for being formulated out constant need for driving cost/performance to reduce risk

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Emerging markets are driving automatic detergent volume growth

• Novozymes are in all main emerging markets, serving local as well as global producers

• Powder share expected to go from 68% in 2013 to 64% by 2018 led by compaction and shift to liquids

Source: Euromonitor 2014

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Powder in ‘000 tons Liquid in ‘000 tons

0

500

1,000

1,500

2,000

2,500

3,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

SEA

China

IN

1.8% -

4.3%

4.6%

1.6% LATAM

CWE

EEMEA

NA

J&K

-3.5%

3.7%

-3.1%

-9.6%

CAGR 13-18

SEA

China

IN

14.1%

7.9%

13.7%

12.1% LATAM

CWE

EEMEA

NA

J&K

3.9%

4.9%

3.9%

-0.2%

CAGR 13-18

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Technology adoption – Novozymes goes to market with a unique and synergistic enzyme system

Source: NZ Technical

Performance

Multi- enzyme solution

Enzyme synergy

Protease

Proteins

• Sebum

• Blood

• Grass

• Milk

• Egg

• Meat

Amylase

Starches

• Wheat

• Corn

• Potato

• Sauces

• Processed

foods

Lipase

Natural

fats/oils

• Oil/lard

• Sebum

• Personal

care

• Lotions

Cellulase

Cellulose and

beta-glucan

• Cereals

• Baby food

• Fabric and

color care

• Whiteness

Mannanase

Thickeners

• Processed

foods

• Chocolate

and drinks

• Ice-cream

• Lotions

Pectinase

Pectin

• Fruits

• Fruit/jam stains

• Veg. stains

• Yoghurt

Sum

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Future

Enzymes 0-20% of raw material costs

Enzymes >10% of raw materials globally

Today

Enzymes 0-12% of raw material costs

Enzymes 3-5% of raw materials globally

14

Enzyme systems are an important, yet still relatively low part of detergent raw material costs

Source: Agglomerations and Novozymes estimates

Surfactants 37%

Builders 34%

Enzymes 6%

Perfume 4%

Others 7%

Bleach 8%

Polymers 4%

Raw mat. cost distribution in top-tier powder detergent

Surfactants 68%

Builders 8%

Enzymes 12%

Perfume 7%

Others 4% Polymers 1%

Raw mat. cost distribution in top-tier liquid detergent

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Novozymes drives enzyme inclusion and growth in Household Care from three angles

Time

Enzyme inclusion

Drive innovation and set new standards for biochemicstry

1

2 Move brands to higher inclusion formulations

Penetrate new brands

3

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Enzyme inclusion

Time

2 Move brands to

higher inclusion

formulations

Penetrate new

brands 3

16

Novozymes is pioneering enzyme innovation in HHC

Drive innovation and set new standards for biochemicstry

1

• +50 years experience

• +100 scientists working in HHC

• 6 enzyme classes, 23 product lines

• 8 new products (non-exclusive) and 2 technology platforms launched within last 5 years

• R&D partnerships with global leaders

• Received innovation awards from P&G, Unilever, Henkel within last 3 years

• Strong patent portfolio across enzymes, basic technology, formulation and production

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Enzyme inclusion

Time

Drive innovation and

set new standards for

biochemicstry

1

Penetrate new

brands 3

17

Novozymes drives enzyme inclusion and growth in Household Care from three angles

2 Move brands to

higher inclusion

formulations

• Serving ~300 customers across brands and tiers

• Enzymes included in +100 countries

• +15,000 full-scale wash tests conducted per year

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Drive innovation and

set new standards for

biochemicstry

1

2 Move brands to

higher inclusion

formulations

Time

Enzyme inclusion

18

Breaking new territory – still ways to go as 1/3 of brands don’t contain enzymes

Penetrate new brands 3

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000

2005

2010

2015

Share of detergents

with enzymes

0

100

200

300

400

500

600

700

800

900

1000

2000

2002

2004

2006

2008

2010

2012

# of detergents containing

enzymes launched globally

Europe

LATAM

AP

MEA

NA

Summary -Household Care is a cornerstone of Novozymes’ growth ambitions

-Enzyme innovation offers unique opportunities and value for detergent producers

-Novozymes is the market leader and uniquely positioned with key global and local customers

-Growth stems from a diversified group of customers, geographies and agendas

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innovating for household care - euroland

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