Steen Riisgaard - Enzyme Business
Thanks to Lars Rebien Sørensen. I will now go through the major developments in 1997 and the outlook for Novo Nordisk's other core business, Enzyme Business. The business in which we use our key competencies in biotechnology to solve industrial problems.
1997 was a good year for the Enzyme Business. We set some very ambitious goals going into the year and we met almost all of them.
Slide 24 - Enzyme Business - Sales Development 1993-1997
Helped by the appreciation of the USD, sales grew by 16% in 1997. This is the strongest sales growth for the Enzyme Business since 1992. The sales growth was driven by an underlying volume growth of 9%, but even more important, prices remained stable for the second consecutive year, a reflection of the new competitive situation that emerged after the industry consolidation in 1995 and 1996.
Going forward we are optimistic that prices will start to increase in 1998.
Although a volume growth of 9% is significant measured against most standards, it is not entirely what we predicted. For several years we have estimated the average annual volume growth in the industry to be in the 10-15% range. It seems, however, as if the penetration of our new products is somewhat slower than we would like it and therefore we expect the annual volume growth to be at the lower end of the 10-15% range or around 10% on an annual basis.
Novo Nordisk continues to be, by far, the largest player in the market for industrial enzymes. Compared to competition we increased our market share in 1997. Our estimated market share is now 44%, up 1%-point compared to 1996.
In 1997, we continued introduction of a range of new enzymes.
Our efforts in the emerging markets gave good results with sales growth rates well above average.
And we saw, and still see, significant results of the productivity programmes which we introduced during the years of consolidation in the industry.
Slide 26 - Status in Selected Industries
Let me now talk about some of the developments within three of the most important industries within which we operate. This will give you an idea about the dynamics of the enzyme market as well as of Novo Nordisk's strong position.
In the Detergent Industry, we saw a very strong sales performance in 1997. This is first and foremost due to the change in competitive situation in the technical enzyme market. There are only two suppliers left and in this situation we were able to pick-up additional business. Prices remained stable, which again is a reflection of the new competitive situation. Probably the most important contributing factor to the volume growth in the Detergent Industry was the increased use of enzymes in detergents - a result of a deeper global penetration and an increased number of multi-enzyme brands.In the Baking Industry we also noticed a strong sales growth which, in particular, was driven by our product NovamylTM which is designed for bread improvement by way of antistaling. Novamyl Ô is a proprietary product, and the strong sales performance can partly be attributed to this fact. This is but one example of the importance of having the best R&D and patenting skills in the business. NovamylÔ, by the way, is also a very illustrative example of the synergy existing between the industries where we operate. NovamylÔ was originally developed for the Starch Industry, before it turned out to be a success in the Baking Industry. Being the major player as well as the only company with a presence in all market segments, gives us tremendous leverage opportunities across industries.
The Textile Industry changed dramatically in 1997. For one, the total demand for enzymes decreased due to a shift in the fashion area from blue jeans to darker coloured clothes. But the competitive scene also changed in that we faced competition from a number of minor enzyme manufacturers. Consequently, we lost market share in this industry in 1997.
To counter this development, we introduced a range of new enzyme products for the Textile Industry in the latter part of 1997. With the introduction of these products we expect to regain the lost market share and to completely rebound by the end of 1998.
Besides introduction of new products for the Textile Industry, we introduced several other new products in 1997 as can be seen from this slide. In total, we introduced 8 new enzyme products in 1997. With nine introductions in 1996 we expect that we will fulfill our goal of introducing approximately 30 new products in the three year period from 1996 to 1998.
The new products will be introduced across all industries, and will be supplemented by a whole range of upgraded versions of existing products with increased performance which will help us sustain the existing business.
Our business performance in the emerging markets was very satisfactory in 1997. We are experiencing good growth rates in emerging markets such as China, Central and Eastern Europe, Latin America and South East Asia.
Novo Nordisk is by far the enzyme producer with the strongest presence in the emerging markets. The picture we see in these markets is that as the purchasing power increases, the consumption of enzymes increases even faster. Our strategy then is to build an even stronger position in these markets, so that we can continue to benefit from this trend and so far we have been very successful.
Operating in emerging markets can be turbulent as evidenced by the crisis in South East Asia which emerged in 1997. However, due to the fact that we do business in a number of different industries and because we have a physical presence in these markets our exposure is less than average. Long-term, we strongly believe that all these markets will offer important opportunities.
Slide 29 - Chinese Enzyme Market
The Chinese market deserves special attention. Not only is China a country where we see a strong growth in the use of enzymes, but it is also in China that we are establishing our third major production site.
The main enzyme consuming industries in China are Textile, Starch, Detergent, Brewing and Juice. These are the industries where historically, enzymes have been introduced first. We expect these industries to grow fast as the economic development in China continues. Further, we expect additional enzyme consuming industries to start picking-up speed as the necessary competencies are being established.
Although there are maybe as many as 100 local enzyme producers in China, only a handful of those can be considered as significant, and none is even close to Novo Nordisk with regard to product quality and size. The number of local producers is decreasing rapidly as we increase our business in China. We believe that, in time, the Chinese legal system will develop into what is practised in the West, and combined with our unique product portfolio, and the patent protection that goes along with it, we expect also China to become a market where Novo Nordisk is the undisputed leader within industrial enzymes.
Besides our new plant in Tianjin near Beijing, which I will revert to in a moment, we have in fact already established local production in China. Through a 62%-owned joint-venture with a local enzyme producer we are already producing for the Chinese market. Besides a cost advantage compared to imports, this gives us a very fine opportunity to learn how to run a Chinese operation before our major site is finished.
The Tianjin plant is progressing according to schedule. In fact, the inauguration will take place next month. Besides being on time, we have managed to also keep our budget without sacrificing on quality. An achievement in a new territory of which we are quite pleased.
With this plant, we pass a milestone for Enzyme Business. We have now established our three strategic sites. One for Europe placed in Denmark, one for the Americas placed in North Carolina, and one for Asia Pacific placed in Tianjin, China.
Slide 30 - Focus our Productivity
This also means that we are now finished with major infrastructure investments, and from now on we will be able to expand production capacity at a significantly lower investment level than earlier.
This productivity increases seen over the past years in Enzyme Business will further contribute to lowering investment levels. Increased productivity is the result of cost containment and limited manning growth and - most importantly - our strong focus on getting our cross-functional business processes to run smoothly.
So in conclusion, we believe we are very much on the right track.
We have a strong pipeline, and we have proved that we are capable of launching many new products.
The emerging markets are developing nicely, although we have recently seen a "hick-up" in Asia.
Prices are stable and we have our eyes set on price increases.
Finally, the organisation is leaner and more efficient in working together creating increased productivity and reduced investment levels.
