Investing in growth

Audited by PwC

In BioBusiness, we are working on improving profitability through continued product pruning and optimization of the production facilities. Compared to Enzyme Business, lead times are longer in BioBusiness as many products are included in customers’ biopharmaceutical phase studies. This requires relatively high upfront investments and R&D expenditure on our part before more substantial sales developments can be realized.

Historically, annual organic sales growth of around 8% has been achieved with a maintenance investment level of around 6–7% of sales, as productivity improvements have enabled us to continuously increase throughput in existing production facilities. However, the higher annual sales growth target requires additional investments. Hence, until 2011, the investment level as a percentage of sales will be higher than historical levels. After 2011, and if no new, currently unknown opportunities arise, investments should be less than 8% of sales, supporting 10% average annual organic sales growth.

We need to invest upfront to enable a market to materialize, and we cannot afford to be short of production capacity when demand is expected to pick up. The higher level of investment needed until 2011 is expected to be financed through operating cash flow. Given the expectation of improved profit margins and improved utilization of fixed assets, the long-term ROIC target of more than 22% is expected to be reached through improved earnings and the aforementioned improvement in the utilization of fixed assets.

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