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Click below to download The Novozymes Report 2015 in PDF format.

  •  The big picture
  •  Our business
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###FACTBOX ENTERPRISE MIX###

 

Risk management framework

Novozymes periodically runs an Enterprise Risk Management (ERM) process during which the key risks to the company are identified, assessed, mitigated and reported at different levels in the organization. The most significant risks are reviewed and assessed by the Executive Leadership Team and the Board of Directors.

The process is anchored in Corporate Finance and ensures that top management has a high level of risk awareness, with involvement and ownership throughout the organization. Novozymes’ risk reporting covers both financial and nonfinancial risks, which are collated and mapped on the basis of probability and impact. All relevant risks are shared with vice presidents of functions and regions, who then act to mitigate risks.

Novozymes' key risks
On the basis of risk analyses, Novozymes’ Board of Directors wants to highlight three key risks, illustrated in the heat map to the right, that may impact the company and that have evolved in 2015. These risks are described in more detail below along with information on their potential impact and mitigation efforts.

 

 

Competition

Description
As the market for industrial enzymes grows and attracts increased attention from players from adjacent industries and other geographies, Novozymes’ leading position is exposed to competition from existing and potential new competitors.

###FACTBOX:RISKMAP###

Competitive threats could come from two areas in particular, namely the detergent industry and Chinese competitors supplying enzymes to various industries.

Potential impact
In detergents, increased competition could come from established enzyme manufacturers offering new competitive solutions or from the entry of new players with a broader technology platform, for example offering nonenzyme-based products in combination with enzymes.

Fierce competition, especially among detergent producers in the mid- and low-tier segments, could entice detergent producers to look for options to lower their production costs. This could include removing enzymes from detergents or opting for less effective enzymes at the expense of wash performance.

Continued customer focus on cost cutting could impact Novozymes negatively if we are not able to respond quickly enough with suitable solutions catering to this demand. This also increases the importance of positioning Novozymes’ sustainable solutions as a competitive first choice for customers.

The entry of new players into the enzyme market from other industries such as chemicals could result in a shift in the competitive landscape and reduce sales and challenge market share, hence narrowing the gap to market leaders such as Novozymes and DuPont. Also, consolidation among competitors in the industry could impact the competitive landscape, depending on the nature of the consolidating parties and their combined potential. In case of the recently announced merger of Dow Chemicals and DuPont, it is still too early to say whether this will have any impact on Novozymes.

###FACTBOX VIDEO### In China, competition is driven by a growing enzyme market in general, especially in the feed and technical industries. The competition is further intensified by Chinese enzyme manufacturers exploring overseas markets. This could challenge Novozymes’ ability to grow in the strategically important Chinese market where future growth potential remains high.

Mitigation
Novozymes has a unique competitive advantage through its approach to innovation and production globally. By accelerating local innovation, Novozymes constantly seeks to optimize production strains and production capacity tailored to local market needs in various tiers of the market in order to maintain its leading position and competitiveness in the industrial enzyme market.

More than 20% of Novozymes’ global workforce works in R&D, and we spend around 14% of revenue on R&D. Household Care claims a large share of this investment, with dedicated researchers primarily working out of Copenhagen, Beijing and Bangalore.

Their focus is to ensure continuous development of our existing product portfolio while expanding the use of our technology by developing new concepts for new applications. Furthermore, we devote a significant part of our resources to long-term radical innovation in order to ensure our long-term growth.

To defend against competition from established and potential new entrants into the industrial enzyme market, Novozymes focuses on delivering a strong innovation pipeline and novel solutions.

###ARTICLE BIOFUELS###

Starch-based ethanol

Description
Novozymes has long offered enzymatic solutions that optimize the conversion of grains such as corn, barley, wheat and rye into starch-based ethanol used as an alternative to traditional fossil fuels.

In 2015, the U.S. corn ethanol industry was affected by low margins. On top of this, the industry is beginning to see the emergence of new and potentially game-changing technologies that could impact the demand for enzymes in the long run.

These challenging market conditions are likely to continue in 2016 and could intensify.

More than 20% of Novozymes’ global workforce works in R&D, and we spend around 14% of revenue on R&D. Household Care claims a large share of this investment, with dedicated researchers primarily working out of Copenhagen, Beijing and Bangalore.

Potential impact
Ethanol producers' margins decreased in 2015. Ethanol prices decreased, and this spurred producers to sharpen their focus on lowering costs. It challenged the value proposition of maximizing ethanol yield with Novozymes' yield-enhancing solutions. More attractive pricing of animal feed, a by-product of the ethanol production process, is also tempting producers to shift focus away from Novozymes’ yield-enhancing solutions.

If oil prices remain at their current level in 2016, the pressure on ethanol prices will be sustained. And if the current low-margin environment persists, this could result in increasing and accelerated pressure to lower costs further and so challenge Novozymes’ overall sales to the industry.

Mitigation
To address lower margins in starch-based ethanol, Novozymes is crafting an even broader product portfolio that still delivers premium yield and value, while also becoming more competitive in mid- and lower-tier segments where customers are asking for enzymes that provide basic performance benefits. In terms of broadening our product portfolio, Novozymes Avantec® Amp, launched in October 2015, improves yield in corn ethanol production, reduces the consumption of chemicals and improves the ethanol producer’s earnings.

Novozymes continuously invests in R&D to develop more enzyme solutions for improving yield and profitability to ensure that the industry is a commercial alternative to traditional fossil fuels. We also monitor developments in new technologies.

Protection of knowledge

Description
Novozymes’ business is driven by innovation in the form of pioneering biotechnology. Safeguarding sensitive business information and intellectual property is key to successfully protecting and maintaining Novozymes’ competitive edge.

Potential impact
Novozymes is a knowledge company, and any infringement of our unique technologies or theft of production strains or plans for unique innovation projects under development could lead to loss of business opportunities with new or existing customers.

Cybercrime is a growing problem and could impact Novozymes in several ways. The most significant impact could be on intellectual property, which could be compromised.

Mitigation
Novozymes pursues an active patent strategy by protecting new discoveries, production strains, formulations and relevant know-how and processes as early as possible. With more than 7,000 patents granted or pending, Novozymes has an extensive patent portfolio that we actively defend to prevent and stop infringement by competitors. At the same time, competitors’ activities are constantly monitored to ensure that Novozymes’ innovation does not infringe any existing patents, enabling resources and costs for product development to be saved through early intervention. As part of a separate risk assessment, we also constantly analyze and evaluate how we handle and safeguard our production strains.

To mitigate the risk of cyberattacks, Novozymes’ IT Security continually monitors and implements key security procedures and behaviors to prevent data theft.

The risk is mitigated through a global information security strategy, IT governance, perimeter protection and access control. We are also educating our employees about secure storage of sensitive information at all our sites; this includes prohibiting the use of storage devices and taking immediate action on data violations.