2005 was another successful year for Novozymes. We met most of the targets we had set ourselves, although sales growth was below our long-term expectations. 2005 was also a year when we looked ahead and launched new initiatives to support future growth.
In 2005 we demonstrated continued solid earnings capacity, with high profit margins and high free cash flow. Sales growth was driven by our capacity for innovation, but was held back by 2005 being a difficult year for the detergent industry. Productivity improvements have again had a positive effect on results.
New initiatives to support growth
Over the last five years Novozymes has generally achieved very good results. In 2005 we again met all of the long-term financial targets that we set in 2000. Our earnings are high and still rising, and we have considerable financial resources. In 2005 we confirmed our long-term financial expectations and launched new initiatives to support future growth.
We expect to be able to keep on raising productivity, but instead of allocating these gains to the bottom line we plan to invest earnings exceeding our long-term financial targets in research and business development within enzymes and microorganisms. We will use these extra resources partly to build new business in new industries and partly to exploit new opportunities in industrial biotechnology.
These new initiatives will also have a knock-on effect on our future pipeline. We will be concentrating on a smaller number of projects with greater potential, while at the same time having more long-term projects.
Biotechnology on the agenda
Looking at the world around us, politicians and other decision-makers are now hailing biotechnology as one of the key technologies of tomorrow. In particular there is a clear move towards broad support for industrial (white) biotechnology. For a long time investment has focused on pharmaceutical biotechnology, but it now looks like more investment is being channelled into industrial biotechnology. This indicates that this technology is on the verge of an expansive growth phase, and Novozymes is well placed in this context as the processes in industrial biotechnology almost always involve enzymes.
One reason for this broad interest in industrial biotechnology is that it addresses problems such as pollution, global climate change and shortages of water and energy. Enzymatic solutions typically reduce emissions of carbon dioxide and the consumption of water and energy in industrial processes. Moreover, high oil prices favour biological solutions which replace oil-based petrochemicals and support the production of alternative fuels. These perspectives also mean that rising oil prices will typically increase the value of our pipeline and existing business.
Value is also created externally
For several years we have argued that our solutions create added value for society by improving the balance between better business, cleaner environment and better lives. In 2005 we came a long way in documenting just this. A series of in-depth lifecycle assessments of our products has confirmed their positive impact on the environment. A conservative estimate based on the overall results suggests that each year the use of enzymes from Novozymes reduces industry's carbon dioxide emissions by at least 13 million tons, which is equivalent to Denmark's total commitment under the Kyoto Protocol for 2012.
Finally it should be pointed out that 2005 was not only the year when we celebrated five years as a listed company; we were also named the world's most sustainable biotechnology share by Dow Jones Sustainability Indexes for the fifth consecutive year. We are very proud of this, because it acknowledges that we are on the right track.
Steen Riisgaard, President and CEO