Annual Report (ESEF) • Jan 26, 2023
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Download Source FileUntitled The Novozymes Novozymes A/S CVR-nr.: 10007127 Krogshoejvej 36, 2880 Bagsvaerd, Denmark Novozymes Annual Report 2022 The Novozymes Report 2022 “Novozymes stands on a solid foundation. We have delivered strong growth and earnings in a volatile market environment by leveraging the strength of our well-diversified portfolio, unique production capabilities and broad market presence.” Our strategy “Unlocking growth – powered by biotech” is more relevant than ever. It is rooted in our unique ability to use the power of bio- tech to address some of the world’s biggest challenges while unlocking sustainable growth. Explore New options for growth Expand BioHealth and Human Nutrition Evolve Our core business Contents The big picture Novozymes at a glance Economic contribution Five-year summary Strategy & commitments Targets & outlook Governance Corporate governance Risk management The Novozymes stock statements Notes Statements Glossary About the Report Visit Novozymes Facebook Instagram GovernanceThe big picture 2 ContentsNovozymes A/S The Novozymes Report 2022 Contents The big picture Novozymes at a glance Economic contribution Five-year summary GovernanceThe big picture The Novozymes Report 2022 The big picture Novozymes is the world leader in biosolutions. We use the power of biotech to help our customers grow their businesses while preserving the planet’s resources and enabling better lives. Visit Novozymes at a glance Our purpose is at the heart of who we are and the guiding principle for the way we do business. It looks ahead to everything we aim to accomplish together with our customers, consumers, governments, academia and many others around us. We live up to our purpose by delivering on our strategy while staying true to our values. to have its net-zero target validated by the initiative More than countries in global transportation presence across more than revenue launched by nature 4Novozymes at a glanceNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Novozymes at a glance 1.1 9% Targets & outlook Financial Realized % EBIT margin % % Realized highlights EBIT margin 17.9% 26.4% * Special items include costs related to the proposed combination with Chr. Hansen. ** Including goodw ill . 17.6% 26.0% 63% emissions Employee engagement 100% Circular management 5Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 Sales by business area - - Full-year organic sales in North America - energy. North America Asia Latin America Sales by geography 2021: 32% Bioenergy 21% 2021: 18% & Human Health 24% 2021: 23% Grain & Tech Processing 15% 2021: 15% Health & Nutrition 12% 2021: 12% % of total sales 35% 33% 20% 12% 6Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 - - • Carezyme ® Essential – a solution • Carezyme ® Elite stain removal. • Progress Crystal bars that enables consumers to achieve - - • - - - • - • - - - Visit Shrinking the - replace these chemicals. “If we are serious about achieving climate-neutrality, we need high-performing, aordable bio-based detergents that can go mainstream, and we have solutions ready to go.” – Sandra Friis-Jensen, Marketing Director, Biological Detergents, Novozymes. Visit 28% of sales 7Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 at a time times. “Climate and food systems are inextricably linked. With solutions to increase the shelf-life of baked goods, we can help reduce food waste and thereby ease the overall demand on food systems.” – Adam Diggle, Business Unit Director, Baking, Novozymes. & Human Health - - - - graphical expansion. • Valena Pulse G – a solution that helps - - that consumers expect. • BioFresh™ Clean combination that enables consumers to healthy oral microbiome. • - • • • - • - tive biosolutions in Human Health enable consumers to live healthier lives. Visit Visit 24% of sales 8Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 Bioenergy market environment. The North American - - - - - - • Innova ® Apex • Innova ® Turbo - to generate more revenue by increasing • - - • emerging markets. • conversion. - Visit Plugging into plants - “Biofuels are essential for meeting our net- zero ambitions, and they are currently one of the most cost-eective solutions for reducing carbon emissions. In the future, biofuels from biorefineries will also help decarbonize heavy- duty transport, including marine and aviation.” – Hans Ole Klingenberg, Vice President, Marketing Industrial Biosolutions, Novozymes. Visit 21% of sales 9Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 Grain & Tech Processing • ® – biopolishing solution that • Frontia ® Prime – enables corn starch emissions. • - - • - - electricity. Visit Getting more emissions. “It’s more important than ever to get the most out of raw materials while taking better care of our environment. Biotech is essential in rethinking the way we produce now and in the future.” – Alessandro Palumbo, Sr. Global Marketing Manager, Novozymes. Visit 15% of sales 10Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 Health & Nutrition - - - - mance. • Torque ® IF Rachet ® - crops. • HiPhorius™ - • a solution that an easy spray application. • the impact on the environment. • - tion. • - • - Visit Healthier crops animals - emissions to the environment. “The industry needs to rethink the way protein is produced. Biosolutions can dramatically improve animal health and nutrition, and we are working with our customers to create the future of animal farming.” – Robert Vergo, Global Account Director, Novozymes. Visit 12% of sales 11Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 Economic contribution the shares in Novozymes. See The Novozymes stock - - positive tax contribution to society. We continu- - - We returned % of the economic value generated to society Visit Economic contribution Suppliers 44% used to purchase goods and services from our suppliers Financial & other income 4% Sales 96% Community 9% returned to the community by paying corporation tax, as well as other taxes and duties Employees 24% used for employee wages, pensions, etc. Reinvested in Novozymes 12% reinvested in Novozymes for future value generation Capital providers 11% in dividends and financial costs for our capital providers 18,362 million DKK 12Economic contributionNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Economic contribution Revenue Operating profit (EBIT) , , , , , Total assets % % % Gross margin % % EBIT margin before special items % . . . . . EBIT margin % % % x % % . . . . % No. % Women in senior management % % m Five-year summary 13Five-year summaryNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Five-year summary live better lives. GovernanceThe big picture The Novozymes Report 2022 14 - - - - ties. - - - - - We are very excited about the potential of the Novozymes-Chr. Hansen combination. By bringing together these two high performing, complementary companies with a shared purpose and advanced capabilities, we can unleash the full potential of biosolutions and generate significant value for our customers, employees, shareholders and society at large. to meet customer emis- - - - - 15Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 enzymatic combination that enables consumers oral microbiome. - co-create - - - - emissions in - - - - non- - society. Zymer external market benchmark. - our - - - our net-zero- - 16Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 - - - - - - - - Jørgen Buhl Rasmussen Chair Ester Baiget “With Novozymes standing on a very solid foundation, and aer years as an independent member of the Novozymes Board of Directors including six years as Chair, I have decided not to seek reelection to the Board at the Annual Shareholders’ Meeting on March , .” - - - turning talk into action. It has been a personal ambition - Jørgen Buhl Rasmussen Corporate governance section. 17Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 business Strategy & commitments Targets & outlook GovernanceThe big picture The Novozymes Report 2022 contribute to more than one commitment. 76% 34% 8% Strategy & commitments beverages. We enable our emissions by helping them technologies to reach a climate-neutral society. We enable customers to We rethink biosolutions that enhance - - - - gic ambition by the global biosolutions partner. 19Strategy & commitmentsNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Strategy & commitments “Some of the solutions to tackle these challenges already exist today. Biosolutions can help create resilient food systems in the face of climate change, and they can help meet the nutritional needs of a growing population,” – Claus Stig Pedersen, Head of Global Sustainability at Novozymes. - - In the spotlight 20In the spotlightNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 In the spotlight ...make crops more resilient to climate change, increase yields, and reduce the use of synthetic fertilizers... ...make better use of raw materials by gaining more end-products from the same volume of feedstocks... ...enable more nutritious and tastier plant-based products... ...reduce food waste to save on scarce resources and to help cut carbon emissions... W i t h b i o s o l u t i o n s w e c a n … Visit Visit - tural supply chains. Biosolutions can help make crops more resilient - - - - - ten times. - - tein. 21In the spotlightNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Explore New options for growth Expand BioHealth and Human Nutrition Evolve Our core business Transform food system Enable healthier lives Accelerate towards a climate-neutral society Commitments to a healthy planet 2022 strategy highlights they matter the most. - - - biosolutions. - co-create - “Unlocking growth – powered by biotech” starts with our three commitments to a healthy planet. They shape our three growth pillars, which guide our investments and priorities to grow Novozymes: Evolve our core business, Expand into the high-growth areas of BioHealth and Human Nutrition and Explore new options for growth . markets. This is an important next step on - - - neutral society. Further explore our Visit Visit Visit 22Strategy & commitmentsNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Strategy & commitments across our core business areas in technologies across multiple processes. - - - - - - - - - - - - - ronment. - - Evolve Our core business 23Strategy & commitmentsNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Expand BioHealth and Human Nutrition recycling. - - - - - - - - strengthen our biotech capabilities Human Nutrition. - - - - - TM - maintain a healthy oral microbiome. We also - yoghurts. co-creation process - Explore New options for growth 24Strategy & commitmentsNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 our “We have invested in new capabilities during 2022 and are engaging dierently with our customers in the food and health space to meet consumer demands. We are co-creating from idea to prod- uct by combining consumer insights and customer needs with our unique technologies and produc- tion capabilities. Customer co-creation centers will further accelerate this journey and allow us to immerse ourselves into our customers’ worlds – and invite them to enter the world of biotech,” – Lotte Clemmen Christensen, Vice President of Corporate Strategy & New Business Development at Novozymes. - our customers. With several application centers - prototypes. Whether it is about helping customers launch oat- - our customers to accelerate their innovation prototypes to give customers a tasting experience In the spotlight 25In the spotlightNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 In the spotlight emis- sions. emissions - - - - scoring companies in an external market bench- mark. - - - - Targets & outlook 26Targets & outlookNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Targets & outlook achieving our 2030 validated target 2022 target Status 2050 validated target 2025 target - Learn more in the Notes on Climate changeEnergy. 1 1 - 1 2022 summary 27Targets & outlookNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 energy use in our operations by implementing Climate changeEnergy. We embrace our responsibility to help societies - emis- - our value chain Scope 1 total Scope 2 total Business travel Scope 3 total Visit GovernanceThe big picture The Novozymes Report 2022 28Targets & outlook 0 200 400 600 800 1000 1200 20502025 20302018 baseline 2022 Total CO2 emissions across scopes 1+2+3 (1,000 tonnes) 63% reduction of absolute emissions from operation 82% renewable electricity purchased 65% absolute CO2 emissions reduction from operations 100% renewable electricity purchased Scope 1 Scope 2 Scope 3 75% absolute CO2 emissions reduction from operations 35% absolute CO2 emissions reduction from supply chain By 2050 we will reach net-zero SBTi verified Drive market transformation and advocate for climate action Fulfilling our promiseLeading the wayAccelerating efforts We are commited to high standards and ambitious actions to improve our footprint on the climate across scopes 1, 2 and 3. We will balance the remaining up to 10% emissions through trusted third-party verified offsets that benefit people and societies. Our operations Shi to greener heat, steam, and other energy sources Pilot emerging technologies to further decarbonize operations e.g. climate smart cooling Our supply chain Pursue supply chain partnerships to develop decarbonization technologies Explore sourcing of raw materials from regenerative agriculture Scale up decarbonization in logistics together with freight forwarders Our operations Shi to renewableselectricity acrosssites Produce more with less by continuing to make operations more efficient Recover energy to use in operations or by local communities Our supply chain Engage with key suppliers to ensure full transparency of emissions and explore joint decarbonization opportunities GovernanceThe big picture The Novozymes Report 2022 29Targets & outlook From a 2021 baseline. 2022 summary - - challenge challenge 2022 target Status 2035 long-term commitment 2025 target 2030 long-term commitment Water Learn more in the Note on Water. 30Targets & outlookNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 2022 target Status 2025 target 2030 long-term commitment our biomass - Three key circular Learn more in the Note on Waste. 2022 summary - - - - - 31Targets & outlookNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Zymers & society Include - tion. We aim to achieve that by nurturing a cul- - - Learn more in the Note on - national employees at both senior manage- - men. in the Note on . 2022 target Status 2025 target 2030 long-term commitment management 2022 summary 32Targets & outlookNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Zymers & society - - employees stay Achieve the same score as benchmark on Enable learning in our annual employee survey 2022 target Status 2025 target 2030 long-term commitment Learn more in the Note on 2022 summary - ries. - - capabilities. Thrive 33Targets & outlookNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Zymers & society activities Qualitative reporting only 2022 target Status 2030 long-term commitment Learn more in the Note on Community engagement. 2022 summary schools. - at our campuses to encourage more employ- - - - employees to live more sustainably. 34Targets & outlookNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 - - - - - . 2022 summary our commitments in our annual reporting. our commitments to a healthy planet by Enable healthier lives Water - 2022 target Status 2030 long-term commitment 35Targets & outlookNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Financial - - 2025 target Status 2030 long-term commitment - 2022 summary - - separately. 36Targets & outlookNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Sales outlook - - - - - - penetration in emerging markets. As market penetration in vegetable oil Business areas 37Targets & outlookNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 - - - - - expenses. - - - - long-term commitments to a healthy planet by Financial outlook % % % % DKKbn Net investments Women in senior management 38Targets & outlookNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Governance Corporate governance Risk management The Novozymes stock Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 Corporate governance Corporate governance - - - see The Novozymes stock. - - ship Team. governance structure in place to ensure responsible business Novozymes at any given time. . - - Visit - - - - - 2022 with the Board of Directors Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ordinary board meetings Monthly reports Annual Shareholders' Meeting Organizational performance review and succession planning Next year's budget Strategy work Review of financial performance Evaluation of collaboration between the Board of Directors and the Executive Leadership Team 40Corporate governanceNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 - - - - Visit - - spective. Visit - - Novozymes is on the right track to reach net-zero . The “The Board of Directors, the Executive Leadership team and employees are collectively responsible for integrating sustainability into Novozymes. It is deeply embedded in the way we conduct our business, and it drives our strategic direction from our innovation pipeline, to our supply chain, and to the commercialization of our products. This is what shareholders and stakeholders expect of us, it is part of our DNA, and it is the right way to do business,” – Jørgen Buhl Rasmussen, Chair of the Board. - - - - - - - skills also span innovation pipeline manage- - Visit 41Corporate governanceNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Visit - - - must be male no later than by the Annual Actual Target Despite not meeting our own gender diversity tar- get, the composition of the Board of Directors meets the gender diversity requirements set out in Danish legislation.- the . Nationality Target achieved Nordic Non-Nordic 2 4 3 Number of mandates in listed companies incl. Novozymes Target achieved 100% < 5 mandates − Gender Target not achieved Women Men 40% 71% 29% Has substantial international experience Target achieved 86% 40% Board members Tenure Target achieved 100% < 12 years Executive position Target achieved Yes No 33% 29% 71% Board governance structure Target achieved Independent Non- Independent 50% 71% 29% Lived and worked outside the Nordic countries Target achieved Yes No 0 7 1 42Corporate governanceNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 - Visit - - Visit - See more in the Note on Business ethics. - - - - - year. Remuneration Committee. Visit - 43Corporate governanceNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 - - - ments Act. - exception being: • - companies to report on corporate social responsi- bility. The Notes on in this report meet the - - - Our UNGC CoP reports can be found on our website. Visit - - • • • • https://investors.novozymes.com/investors/ corporate- governance/articles-of-association- and-reports-on- corporate-governance/ Visit 44Corporate governanceNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 - Novozymes is party to several partnership con- - - such situations. Innovation Board tenure Board tenure Share trading - - 1 - - - 1 - - - Morten Sommer - - - - 3 - - Anne Breum 3 - Preben Nielsen 3 - 3 - - - - - - - - 45Corporate governanceNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Jørgen Buhl Heine one year. Chair: . Member: . - - Improving sustainability integration into corporate - - - Chair: - rate societal impact. Member: - ments. companies. one year. Member: Mölnlycke Health Care. sustainability integration into innovation processes. 46Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 - year. Member: - companies. Member: - - Chair: Member: entrepreneurship. 47Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 Employee representative. representative. - sentative. representative. 48Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 Fanø Education - - - - Education Member: - - Education organizational culture. - Education - Member: Member: - - - zymes over the years. She has strong biotech insights - tion. 49Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 Graziela Education Member: - - Biosolutions. Education - - ages. - - Education - the value chain. - - - Education Business. - - - - - - - 50Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 Risk management Risk management - cial risks on similar terms. - - - tion in the same manner as other business risks. - - . - Novozymes operates an Enterprise Risk Manage- - - - - Risk assessment heat map Volatility of agriculture-related business Cyberattacks and information the Global political and economic instability Dynamic energy and raw material prices and supply disruptions Climate related risk Potential impact Probability 51Risk managementNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 - - - sion in one or more geographical - chain. economic activity in North America - - across the agriculture value chain. - - - - - legislation. - - have a negative impact on our pro- - to cyberattacks. threat. - - agement. - - Climate related risk 52Risk managementNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 - - - - preparatory actions. - at higher price levels than previous- - imply a risk to our gross margin lev- - - ronment. - - 53Risk managementNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Long-term risks that can potentially impact our business in the present time. - - Enterprise Risk Management process. - ing biosolutions that can tackle - - - - - - - - Visit term risks: 54Risk managementNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Climate change is becoming increas- - - currently a top concern. - supply chain. - ations. Learn more about our . Visit Climate related risk 55Risk managementNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 - Corporate governance Visit - Strategy & commitments Targets & outlook Visit - - - Risk management . Visit - Targets & outlook Visit - mate-neutral society. We actively invest in - - Environmental transparency is the essential - - Novozymes strongly supports the recommen- - Summary of our approach Learn more TCFD Recommended disclosures 56Risk managementNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 2022 Revenue Taxonomy-eligible activities Taxonomy-non-eligible activities The taxonomy-eligible activities were assessed to be: - - - - - - - - - - - - ment on an annual basis. Revenue Note on Revenue. - - . - - Visit 57Risk managementNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 Remuneration Report Each year Novozymes issues the Novozymes Remuneration Report as a separate report. The - - - - - mental targets. The remuneration policy aims to regularly against external benchmarks. - - Remuneration Committee. - Visit 58Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 - • • - tive Management comprises: • • STIP • - - petitive salary. their regular remuneration receive compensation - out in the previous years. - - - - - - tion Committee. Innovation 1 1 3 Anne Breum 3 Preben Nielsen 3 3 59Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 Variable Incentive Total variable Total Total (%) (%) (%) (%) - - - - - - - - Weight Target 40% Sales 100 20% EBIT margin 65 10% Contribution to strategy 30% 100 91 88 - 60Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 - - - - - - contributions. - - - - - - - - - For the Executive Management this means that a - - - - - 61Novozymes A/S GovernanceThe big picture The Novozymes Report 2022 The Novozymes stock The Novozymes stock - st - Share price development 2022 Novozymes OMX C25 CAP Dec DecNovJan Feb Mar Apr May Jun July Aug Sep Oct 50 60 70 80 90 100 Total shareholder return including dividends % 202020192018 2021 2022 -16% 14% 9% 55% -34% 62The Novozymes stockNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 - markets. Visit Total Ownership structure Novo Nordisk Foundation Institutional and private investors Novo Holdings A/S 25.6% of total shares 72.7% of votes 74.4% of total shares 27.3% of votes Novozymes Ownership by geography (B shares) Denmark 24% UK & Ireland 13% Rest of Europe 24% North America 32% Rest of world 7% 63The Novozymes stockNovozymes A/S GovernanceThe big picture The Novozymes Report 2022 65 73 75 77 Notes 161 Statements 167 181 Glossary 183 About the Report GovernanceThe big picture The Novozymes Report 2022 EBIT and EBIT margin DKK million EBIT EBIT margin (%) 2020 2019 2018 2021 2022 4,070 4,039 3,652 4,007 4,561 28.3 28.1 26.1 26.8 26.0 Sales and sales growth DKK million 2020 2019 2018 2021 2022 14,390 14,374 14,012 14,951 17,553 Sales Sales growth, organic (%) 4 (1) 0 6 9 Novozymes A/S 65 - - - - - - cies. • • • st - tion. - Hansen. st - - tion. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 66 Note 2022 2021 Revenue 17,553 14,951 (7,976) (6,328) 9,577 8,623 (2,271) (1,936) (2,001) (2,009) (952) (859) 2.5 276 188 4,629 4,007 Special items 2.6 (68) - 4,561 4,007 (7) (4) Financial income 5.2 533 174 Financial costs 5.2 (531) (253) 4,556 3,924 Tax 2.7 (870) (779) 3,686 3,145 3,676 3,146 Non-controlling interests 10 (1) 3,686 3,145 6.00 5.50 13.29 11.32 13.19 11.23 Note 2022 2021 3,686 3,145 income statement: 155 723 (15) (2) 140 721 (150) (173) 33 38 295 (31) (65) 7 113 (159) 253 562 3,939 3,707 3,929 3,706 Non-controlling interests 10 1 3,939 3,707 GovernanceThe big picture The Novozymes Report 2022 Cash flow from operating activities DKK million * The comparatives for 2018 have not been restated for IFRS 16 2020 2019 2018 2021 2022 3,679 3,196 4,355 4,062 4,006 Free cash flow before acquisitions DKK million 2,291 2,205 3,419 2,946 1,144 2020 2019 2018 2021 2022 Net investments DKK million Net investments Net investments (% of sales) 9.6 6.9 6.7 7.5 16.3 1,388 991 936 1,116 2,862 2020 2019 2018 2021 2022 Novozymes A/S 67 - - - - - Hansen. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 68 Note 2022 2021 3,686 3,145 6.7 1,935 2,198 2.7 (910) (627) 18 18 (131) (52) 4,598 4,682 (330) (574) (787) (556) contract liabilities 534 518 (9) (8) 4,006 4,062 6.7 (130) (169) 6.7 (2,760) (1,071) 28 124 6.7 190 (1,631) (2,672) (2,747) 1,334 1,315 Note 2022 2021 Financing 2,140 2,144 (1,602) (1,283) 193 313 (120) (103) (500) (1,500) 164 309 (1,525) (1,466) (1,250) (1,586) 84 (271) (6) 53 78 (218) 963 1,181 1,041 963 GovernanceThe big picture The Novozymes Report 2022 ROIC and average invested capital DKK million Average invested capital ROIC (%) 2020 2019 2018 2021 2022 15,038 15,301 16,606 19,411 24.2 21.1 18.9 19.3 17.6 13,417 Net interest-bearing debt (NIBD) and net interest-bearing debt-to-EBITDA DKK million NIBD NIBD/EBITDA 2020 2019 2018 2021 2022 0.5 0.8 0.8 1.0 1.0 2,535 4,049 3,871 5,225 5,807 Net working capital % of sales Inventories Net working capital Receivables Payables and deferred income 2020 2019 2018 2021 2022 -30 -20 -10 0 10 20 30 Novozymes A/S 69 - - ments. - bles. - GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 70 Note Intangible assets 3.1 4,698 5,024 3.2 3,999 3,980 3.2 4,151 4,290 3.2 1,028 1,039 3.2 2,896 876 2.7 1,623 1,637 92 30 Investments in associates 223 29 4.3 32 39 18,742 16,944 Inventories 4.1 3,803 2,992 4.2 3,454 2,948 Contract assets 4.2 151 40 Tax receivables 2.7 352 286 4.3 360 519 80 75 1,041 963 9,241 7,823 27,983 24,767 Note Common stock 5.5 562 564 13,275 11,263 13,837 11,827 Non-controlling interests 6.5 391 379 14,228 12,206 Share purchase liability 6.5 760 717 2.7 1,653 1,337 Provisions 3.4 119 153 3.6 224 543 Lease liabilities 288 360 129 98 5.3 3,619 3,680 6,792 6,888 Lease liabilities 123 122 Provisions 3.4 10 21 Contingent consideration 3.6 158 - 5.3 2,919 2,139 1,869 1,490 Contract liabilities 94 129 44 34 Tax payables 2.7 326 486 4.4 1,420 1,252 6,963 5,673 13,755 12,561 27,983 24,767 GovernanceThe big picture The Novozymes Report 2022 Movements in equity 2022 DKK million Stock buyback Compre- hensive income Equity Jan. 1, 2022 Dividend Other Equity Dec. 31, 2022 12,206 3,939 (1,525) 108 14,228 (500) * Dividend for 2022 is the proposed dividend. Shareholder return DKK million Stock buyback program Dividend 3,439 3,483 2,966 3,024 2,160 2020 2019 2018 2021 2022 Payout ratio and dividend per share % Payout ratio Dividend per share 2020 2019 2018 2021 2022 44.6 46.8 5.00 5.25 5.25 5.50 51.9 48.5 6.00 45.0 Novozymes A/S 71 - backs in 2022. - stock in 2021. Dividend 45.0%. st 50.9%. - The Novozymes stock GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 72 Total Non-controlling 564 (8) (32) 11,303 11,827 379 12,206 3,676 3,676 10 3,686 140 113 253 - 253 140 113 3,676 3,929 10 3,939 (500) (500) (500) 164 164 164 (2) 2 - - (1,524) (1,524) (1) (1,525) 123 123 123 (43) (43) 3 (40) (139) (139) (139) (2) 140 113 1,759 2,010 12 2,022 562 132 81 13,062 13,837 391 14,228 570 (727) 127 11,263 11,233 11 11,244 3,146 3,146 (1) 3,145 719 (159) 560 2 562 719 (159) 3,146 3,706 1 3,707 (1,500) (1,500) (1,500) 309 309 309 (6) 6 - - (1,465) (1,465) (1) (1,466) 75 75 75 (717) (717) 368 (349) 186 186 186 (6) 719 (159) 40 594 368 962 564 (8) (32) 11,303 11,827 379 12,206 1,660 GovernanceThe big picture The Novozymes Report 2022 Five-year operational emissions (CO 2-eqv.) 1,000 tonnes Scope 1 Scope 2 2020 2019 2018 2021 2022 161 437 330 234 218 Steam 22% (23%) Energy by source 2022 (2021) % Electricity 10% (18%) conventional Electricity 47% (38%) renewable Fuel 17% (16%) conventional Heat 1% (2%) conventional Heat 3% (3%) renewable Novozymes A/S 73 - - - - 2022. 2021. Water in 2022. - - - GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 74 Note 2022 2021 7.1 161 7.2 7.2 50 42 7.3 7.3 7.4 559 7.4 63 62 7.4 539 466 7.4 100 99 7.5 21 13 7.5 23 7 7.6 7.7 GovernanceThe big picture The Novozymes Report 2022 Number of employees No. of employees 6,427 6,125 6,185 6,527 6,781 2020 2019 2018 2021 2022 Frequency of injuries (per million working hours) 2.4 0.9 1.3 1.5 1.7 2020 2019 2018 2021 2022 Novozymes A/S 75 2021. 34% in 2021. Innovation - - that have active patent applications or active 2021. - 99%. - - - - - GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 76 Note 2022 2021 2.3 2.3 39.2 39.2 2.6 2.2 33 No. - - 1.7 1.5 0.1 0.2 1.5 1.2 Innovation 2.4 26 2.4 97 - - 69 Community engagement Responsible sourcing GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Notes Segment Revenue Employees Special items Tax Earnings per share Leases Provisions Inventories contract assets management Management remuneration Non-controlling interests Group companies Climate change Energy Water Waste Environmental compliance Labor practices & human rights Business ethics Customer engagement Community engagement Responsible sourcing GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S reporting Note 1 The Novozymes Report 2022 GovernanceThe big picture Novozymes A/S 79Notes 1.1 Significant changes and events In line with the refreshed strategy, “Unlocking growth – powered by biotech”, announced in 2021, the following significant events impacted Accounts and performance in 2022. Novozymes and Chr. Hansen to combine and create a leading global biosolutions partner Novozymes and Chr. Hansen announced on December 12, 2022, the proposed combination of the two companies to create a leading global biosolutions partner. As a consequence of the proposed combination of Novozymes and Chr. Hansen, special items are presented in the income statement for 2022. Reference is made to Note 2.6 for further information. Se Note 5.1 for information on undrawn commited credit facilities and Note 6.3 on contractual commitments related to the proposed combination. War in Ukraine Novozymes does not have any significant business activi- ties in Russia and Ukraine, and while sales to Russia have been discontinued and the sales office in Russia has been closed, this has not resulted in any significant impairment of assets. Reference is made to Notes 2.2, 3.2.and 4.2 for further details. The uncertainty regarding energy supply – with Russian gas being cut off – has led to investments in oil-based energy generators to mitigate the gas shortage and secure production stability. See note 7.2 for further information. Novozymes and our employees have supported refugees and families impacted by the war through multiple initia- tives. See note 8.6 for further information. Significant transactions In 2022, Novozymes Biotechnology merged with 21 st .BIO and a non-cash accounting gain was realized. Following the transaction, Novozymes obtained significant influence in 21 st .BIO, and 21 st .BIO is recognized as an associated company of Novozymes. Reference is made to Note 2.5 for further details. Additionally, Novozymes’ minority ownership in Albumedix has been divested, leading to a financial gain. Reference is made to Note 5.2 for more details. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 80Notes This section provides an overview of Novozymes’ principal accounting policies, the critical accounting estimates and judgments applied, a definition of materiality as well as the impact of new or amended IFRS standards and interpreta- tions. The symbols I/S , B/S and ESG show which amounts in the notes can be found in the income statement, the balance sheet, and in environ- mental data and social and governance data respectively. The accounting policies described below apply to the consolidated financial statements as a whole. Accounting policies and critical accounting esti- mates and judgments are described in the notes to which they relate to enhance understanding. The descriptions of accounting policies in the notes form part of the overall description of accounting policies. ACCOUNTING POLICIES Consolidation The consolidated financial statements comprise the financial statements of Novozymes A/S (the Parent Company) and subsidiaries controlled by Novozymes A/S, prepared in accordance with Foreign currency transactions are translated into the functional currency defined for each com- pany using the exchange rates prevailing at the transaction date. Monetary items denominated in foreign currencies are translated into the func- tional currency at the exchange rates prevailing at the reporting date. Financial statements of foreign subsidiaries are translated into DKK at the exchange rates pre- vailing at the reporting date for assets and liabili- ties, and at average exchange rates for income statement items. The following exchange rate differences, arising from translation using the exchange rate prevail- ing at the reporting date, are recognized in Other comprehensive income: • Translation of foreign subsidiaries’ net assets at the beginning of the year. • Translation of foreign subsidiaries’ income statements from average exchange rates. iXBRL reporting Novozymes is required to file its annual report in the European Single Electronic Format (‘ESEF’) and The Novozymes Report is therefore prepared Group accounting policies. The consolidated financial statements are prepared by combining items of a uniform nature and subsequently elim- inating intercompany transactions, internal stockholdings and balances, and unrealized inter- company profits and losses. Non-controlling interests’ share of subsidiaries’ net profit for the year and equity are included in the Group’s net profit and total equity, but are disclosed separately. Consolidation of the environmental, social and governance data follows the same principles as the financial reporting. Translation of foreign currencies The consolidated financial statements are pre- sented in Danish kroner (DKK), which is also the functional and presentation currency of the par- ent company. Exchange rate differences arising between exchange rates at the transaction date and the reporting date are recognized as Financial income or Financial costs. in the XHTML format that can be displayed in a standard browser. The primary statements and notes in the consolidated financial statements are tagged using inline eXtensible Business Reporting Language (iXBRL). The iXBRL tags comply with the ESEF taxonomy, which is included in the ESEF Regulation and developed based on the IFRS taxonomy published by the IFRS Foundation. Where a financial statement line item or note disclosure is not defined in the ESEF taxonomy, an extension to the taxonomy has been created. Extensions are anchored to elements in the ESEF taxonomy, except for extensions which are subtotals. The Novozymes Report submitted to the Danish Financial Supervisory Authority consists of the XHTML document together with certain technical files, all included in a file named NOVOZYMES- 2022-12-31-en.zip. 1.2 Basis of reporting GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 81Notes Non-IFRS financial measures Novozymes uses certain financial measures that are not defined in IFRS to describe the Group’s financial performance, financial position and cash flows. These financial measures may there- fore be defined and calculated differently from similar measures in other companies, and may thus not be comparable. The non-IFRS financial measures presented in The Novozymes Report are: • Organic sales growth • Special items • Operating profit (EBIT) before special items • Operating costs • Economic profit • ROIC • ROIC before special items • Free cash flow before acquisitions Definitions of non-IFRS financial measures are provided in the Glossary section of The Novozymes Report. ROIC is the adjusted operating profit (NOPAT) after tax for the last 12 months as a percentage of average invested capital. Calculation of ROIC DKK million Note 2022 2021 Operating profit (EBIT) 4,561 4,007 Exchange gains/(losses) (330) (4) Tax on adjusted operating profit 3.1, 3.2 (808) (795) Share of loss in associates (7) (4) Adjusted operating profit (NOPAT) 3,416 3,204 DKK million Note 2022 2021 Intangible assets 3.1 4,698 5,024 Property, plant and equipment 3.2 12,074 10,185 Investments in associates 223 29 Net working capital 4,244 3,535 Financial assets, non-interest-bearing 80 75 Provisions 3.4 (129) (174) Contingent consideration 3.6 (382) (543) Derivatives (101) (113) Tax, net (4) 100 Invested capital 20,703 18,118 Average invested capital 19,411 16,606 ROIC 17.6% 19.3% * Net working capital includes Inventories, Trade receivables, Contract assets, Other receivables, Assets held for sale, Deferred income, Trade payables, Contract liabilities and Other liabilities. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 82Notes Note Critical accounting estimates and judgments Estimate/ judgment Potential impact from estimates and judgments 2.2 Revenue Revenue recognition Estimate 2.6 Special items Classification of special items Judgment 2.7 Tax Group tax chargeand deferred tax assets Estimate 3.1 Intangible assets and impairment test of goodwill Impairment of intangible assets and goodwill Estimate 3.5 Business acquisitions 3.6 Contingent consideration Fair value measurement Estimate 6.5 Non-controlling interests 4.1 Inventories Cost of work in progress and finished goods Estimate 4.2 Trade receivables and contract assets Allowances for doubtful trade receivables Estimate Critical accounting estimates and judgments The preparation of the consolidated financial statements and the environmental, social and governance data requires Management to make estimates and assumptions that can have a sig- nificant effect on the application of policies and reported amounts of assets, liabilities, income, expenses and related disclosures. The estimates and underlying assumptions are based on histori- cal experience and various other factors. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Changes in esti- mates may be necessary if there are changes in the circumstances on which the estimate was based, or if more detailed information becomes available. Such changes are recognized in the period in which the estimate in question is revised. The table shows critical accounting estimates and judgments and their level of potential impact on the consolidated financial statements: The application of the Group’s accounting poli- cies may require Management to make judg- ments that can have a significant effect on the amounts recognized in the consolidated financial statements. Management judgment is required in particular when assessing the substance of trans- actions that have a complicated structure or legal form. The critical accounting estimates and judgments could potentially have a significant impact on the consolidated financial statements. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 83Notes Basis of reporting The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and further require- ments in the Danish Financial Statements Act. The financial year for the Group is January 1 – December 31. The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, with the exception of derivatives, securities, contingent consideration and share purchase liability, which are measured at fair value. The accounting policies are unchanged from last year. The consolidated environmental, social and gov- ernance data have been prepared in accordance with policies that adhere to internationally recog- nized voluntary reporting standards and princi- ples such as the UN Global Compact (UNGC). Novozymes is a signatory to the UNGC, a volun- tary policy initiative for businesses committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labor, the environment and anti-corruption. We also take inspiration from the Task Force on Climate Related Financial Disclosures (TCFD) framework for climate-re- lated disclosures. Our reporting and materiality assessments were also inspired by the GRI framework. The policies are unchanged from last year. Introduction of special items in the income statement As a consequence of the proposed combination of Novozymes and Chr. Hansen, special items are presented in the income statement from 2022. Introduction of special items has been made to provide a more transparent view of Novozymes’ recurring activities and to separate the income and costs from the proposed combination of Novozymes and Chr. Hansen from Novozymes’ operating profit. Please refer to Note 2.6 for more information. Defining materiality The Novozymes Report is based on the concept of materiality, to ensure that the content is mate- rial and relevant. If items are individually immaterial, they are aggregated with other items of a similar nature in the statements or in the notes. Novozymes pro- vides the specific disclosures required by IFRS unless the information is considered immaterial to the economic decision-making of the readers of The Novozymes Report. As for environmental, social and governance (ESG) matters, we disclose information on issues that are identified by our materiality assessment. The disclosures in the notes include information on our management approach, targets, initia- tives, and related progress. Novozymes’ materiality assessment is a system- atic and rigorous process that has been aligned with the principles of double materiality. It allows us both to evaluate whether Novozymes has an impact on the environment and society and to identify how ESG issues affect the creation of long-term value. We have established a two- phased process comprising a comprehensive assessment every three years and a refresh (light-assessment) every year. The process inte- grates input from external stakeholders, trend analyses and internal engagement with relevant departments including Investor Relations, Risk Management & Controls, Quality, Sustainability and our commercial divisions. This process results in a materiality matrix of economic and ESG issues. The matrix reflects the importance of those issues to our key stakeholders versus their impact on Novozymes, and it is used to guide our strategy and reporting. As a result of the refresh performed in 2022, no new issues were added to our materiality matrix. GovernanceThe big picture The Novozymes Report 2022 Select material issues for Novozymes Issue category ComplianceInnovation Partnerships & customer engagement Profitable growth Solid capital structure Supply chain security Corporate governance Business ethics Labor practices and human rights Diversity & inclusion Employee safety & well-being Water Waste Climate change & Energy All Economic Environmental Governance Social Novozymes A/S 84Notes Limited reporting scope The environmental data cover those activities that could have a significant impact on the environment. Sites with activities considered not to have a significant environmental impact are not included. Such sites comprise sales offices, R&D labs, and sites with limited blending and storage of products. However, measures are taken to ensure that at least 97% of the total Novozymes quantity of the measured environ- mental parameter is included in the reported numbers. Impact of new accounting standards Novozymes has adopted the following new or amended standards and interpretations from January 1, 2022: • Amendments to IFRS 3 – Business Combinations clarifying the prohibition for recognizing contingent assets acquired in a business combination and replacing outdated references to the Framework. • Amendments to IAS 37 – Provisions Contingent Liabilities and Contingent Assets specify that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’ whether being incremental costs of fulfilling that contract or an alloca- tion of other costs that relate directly to ful- filling contracts. • Amendment to IAS 16 - Property, Plant and Equipment prohibiting deductions from the cost of an item of property, plant and equip- ment of any proceeds from selling items produced while bringing that asset to the loca- tion and condition necessary for it to be capa- ble of operating in the manner intended by management. Instead, proceeds from selling such items, and the cost of producing those items, must be recognized in profit or loss. • Annual Improvements to IFRSs (2018–2020) contains minor changes to four standards. The adoption of the new and amended standards and interpretations has not had a significant impact on recognition, measurement, or disclo- sures in the consolidated financial statements for 2022 and is not anticipated to have a signifi- cant impact on future periods. New standards and interpretations not yet adopted IASB has issued new or amended accounting standards and interpretations that have not yet become effective and have consequently not been implemented in the consolidated financial statements for 2022. Novozymes expects to adopt the accounting standards and interpreta- tions as they become mandatory. None of the new or amended standards or interpretations are expected to have a significant impact on the con- solidated financial statements. For more information, refer to: www.novozymes.com/en/about-us/sustainability/materiality Visit GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Note 2 Net operating Segment Revenue Employees Special items Tax Earnings per share GovernanceThe big picture The Novozymes Report 2022 Revenue 2022 (2021) DKK million Denmark 211 (207) Rest of Europe, Middle East & Africa 5,884 (5,474) North America 5,829 (4,683) Latin America 2,063 (1,578) Asia Pacific 3,566 (3,009) 17,553 (14,951) Intangible assets and property, plant and equipment 2022 (2021) DKK million Denmark 6,747 (6,647) Rest of Europe, Middle East & Africa 788 (828) North America 5,804 (4,019) Latin America 121 (108) Asia Pacific 3,312 (3,607) 16,772 (15,209) Net investments 2022 (2021) DKK million Denmark 754 (431) Rest of Europe, Middle East & Africa 3 (-32) North America 1,941 (517) Latin America 26 (22) Asia Pacific 138 (178) 2,862 (1,116) Novozymes A/S 86Notes Segment reporting The internal reporting framework used for reporting on revenue and expenses to the Executive Leadership Team and the Board of Directors has been established to reflect and report on the global functional responsibility setup at Novozymes. This setup consolidates functions by type, and Management reviews the results of the Group as a whole to assess perfor- mance. Thus, there is only one operating seg- ment. Worldwide operations The Group operates in four geographical regions: Europe, Middle East & Africa, North America, Asia Pacific and Latin America. From a revenue perspective, U.S. is the largest single country, contributing ~31% of the Group’s revenue (2021: ~29%). The geographical distribution of revenue is based on the country in which the goods are delivered. For a number of customers, central deliveries are made to specified locations and the final desti- nation is unknown. The stated geographical dis- tribution of revenue may therefore vary from one year to the next if delivery destinations for these customers change. Most of the Group’s intangible assets and prop- erty, plant and equipment are located in Denmark, U.S., India and China. Intangible assets and property, plant and equipment, largest single countries: 2022 2021 Denmark 40% 44% U.S. 33% 25% India 11% 13% China 9% 10% 2.1 Segment GovernanceThe big picture The Novozymes Report 2022 Sales growth 2022 DKK million M&A impact Organic growth 2021 Exchange rates 2022 7% 1% 9% 17,553 14,951 Sales by currency 2022 (2021) DKK million DKK 6% (7%) EUR 33% (36%) USD 38% (35%) CNY 8% (9%) Other 15% (13%) Novozymes A/S 87Notes 2.2 Revenue DKK million 2022 2021 Consumer Biosolutions Household Care 4,988 4,763 Food, Beverages & Human Health 4,134 3,464 Agriculture & Industrial Biosolutions Bioenergy 3,748 2,702 Grain & Tech Processing 2,607 2,236 Agriculture, Animal Health & Nutrition 2,076 1,786 Revenue I/S 17,553 14,951 Emerging markets 6,441 5,448 Developed markets 11,112 9,503 Revenue I/S 17,553 14,951 Revenue to the five largest customers as a percentage of revenue 23% 25% * Developed markets comprise North America, Central Western Europe, Australia, New Zealand, Japan and South Korea. Rest of the world is considered as emerging markets. Most of Novozymes’ revenue is derived from the sale of goods to customers, with revenue being recognized when the goods are delivered. At January 1, 2022, contract liabilities amounted to DKK 129 million (2021: DKK 67 million), of which DKK 81 million was recognized as revenue in 2022 (2021: DKK 43 million). As a consequence of the war in Ukraine, Novozymes has discontinued all sales to custom- ers in Russia. This is estimated to have had a negative impact on the organic sales growth in 2022 of around 1%. Novozymes has entered into various sales agreements, including agreements where Novozymes manufactures and sells products to a partner, who undertakes the sales to end customers, and where the profit on products sold to end customers is shared between the partner and Novozymes based on predetermined profit-sharing mechanisms. Recognition of revenue requires judgment and estimates by Management in connection with determining the appropriate revenue recognition as well as the timing of recogni- tion. Critical accounting estimates and judgments GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 88Notes Novozymes produces a wide range of industrial enzymes, microorganisms and probiotics. Revenue includes the sale of goods and related services and royalties, and is recognized at an amount that reflects the consideration to which Novozymes expects to be entitled. Revenue from the straightforward sale of goods to cus- tomers is recognized when control of the goods is transferred to the customer, i.e. when goods are delivered. Variable considerations are included in revenue to the extent that they are not subject to significant uncertainty. The performance obligations in the contracts are to deliver enzymes, microorganisms and probiotics to customers, and each batch deliv- ered is considered a separate performance obligation, as each batch is distinct. Rebates Enzymes, microorganisms and probiotics are sometimes sold at a rebate. A rebate agree- ment can be set up in various ways, but com- mon to all agreements is that revenue is recognized based on the price specified in the contract, net of the estimated rebate. The rebates are estimated based on experience, as well as information related to expected orders 3–12 months in advance. The estimated rebates are reassessed at the end of each reporting period. Returns A few of Novozymes’ markets are granted a right of return. No revenue is recognized for the goods expected to be returned, as a refund liability is recognized. Estimates of the expected level of returns are based on analysis of historical returns and knowledge of the relevant markets/products. These estimates are updated at the end of each reporting period. As the goods returned are usu- ally scrapped, no inventory asset is recognized. Profit split Novozymes has entered into partnerships where Novozymes manufactures and sells products to a partner, who undertakes the sales to end customers. The profit on products sold to end customers is shared between the partner and Novozymes based on predeter- mined profit-sharing mechanisms. Revenue from these arrangements consists of sales of products to the partner and the shared profit, and is recognized in full when the goods are delivered to the other contracting party. This is done by calculating the expected profit based on insights, experience and other input factors. The calculated profit is recognized as a contract asset or contract liability until an invoice is issued. The profit realized is settled periodically. Commission Novozymes has entered into commission agree- ments where agents undertake sales to third parties in return for a commission on realized sales. Revenue from such agreements is recog- nized when the goods are delivered, as the nature of the performance obligation is to pro- vide the specified goods. Other Revenue collected on behalf of third parties is not recognized as revenue. Novozymes’ obligation to provide a refund for products that are not of the agreed quality or according to agreed specifications under the standard warranty terms is recognized as con- tract liabilities. A trade receivable is recognized when the cus- tomer obtains control of the goods and an invoice is issued, as this is the point in time when the consideration becomes unconditional and only the passage of time is required before payment is due. Typical payment terms are around 60 days. Contract liabilities consist of advance pay- ments, deferred revenue and liabilities for refund goods. The contract liabilities are recog- nized as revenue as the performance obliga- tions under the contracts are fulfilled. Accounting policies 2.2 Revenue GovernanceThe big picture The Novozymes Report 2022 Number of employees at year-end 2022 (2021) No. of employees Denmark 2,883 (2,787) Rest of Europe, Middle East & Africa 238 (214) North America 1,303 (1,238) Asia Pacific 2,038 (1,967) Latin America 319 (321) 6,781 (6,527) Employee costs 2022 (2021) DKK million Denmark 2,383 (2,276) Rest of Europe, Middle East & Africa 205 (157) North America 1,244 (1,054) Asia Pacific 655 (533) Latin America 123 (93) 4,610 (4,113) Novozymes A/S 89Notes DKK million 2022 2021 Wages and salaries 3,721 3,312 Pensions – defined contribution plans 348 304 Other social security costs 263 274 Other employee costs 151 145 Stock-based payment 127 78 Employee costs 4,610 4,113 Recognized in the income statement under the following items: Cost of goods sold 1,654 1,440 Sales and distribution costs 1,209 992 Research and development costs 1,127 1,087 Administrative costs 575 543 4,565 4,062 Change in employee costs recognized in Inventories 45 51 Employee costs 4,610 4,113 Employee costs in 2021 included severance costs related to the consolidation of research and development activities of DKK 41 million. 2.3 Employees GovernanceThe big picture The Novozymes Report 2022 Employee gender distribution 2022 (2021) Women 39% (39%) Men 61% (61%) Senior management gender distribution 2022 (2021) Women 33% (34%) Men 67% (66%) Novozymes A/S 90Notes DKK million 2022 2021 6,690 6,240 Average number of employees who work with R&D 1,279 1,330 Number of employees outside Denmark as a percentage of total number of employees 57% 57% Part-time employees 343 343 Full-time employees 6,438 6,184 Employees at December 31 ESG 6,781 6,527 Senior management 214 199 Management 1,388 1,326 Professional 1,894 1,753 Administrative 737 731 Skilled workers, laboratory technicians and other technicians 1,178 1,189 Process operators 1,370 1,329 Employees by category at December 31 ESG 6,781 6,527 The number of employees is derived from contractual obligations, but does not include employees on unpaid leave, temporary replacements, student interns, agency employees, consultants or PhD students. In the calculation of the number of full-time employees, employees with a working time ratio of 95% or more are counted as full-time employees. The average number of employees is calcu- lated as the average of the number of perma- nent employees at the end of each month. Job categories are defined as follows: Senior management comprises the CEO, executive vice presidents, vice presidents and directors. Management comprises middle managers and specialists. Professional comprises employ- ees with academic backgrounds as well as team leaders. Process operators comprises operators and unskilled workers. All of the above classifications are based on internal job categories. Accounting policies 2.3 Employees GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 91Notes DKK million Note 2022 2021 Internal and external research and development costs 528 575 Employee costs 2.3 1,127 1,087 Amortization and impairment losses, intangible assets 3.1 182 184 Depreciation and impairment losses, property, plant and equipment 3.2 164 163 Total research and development costs I/S 2,001 2,009 As a percentage of revenue 11.4% 13.4% Due to significant uncertainty associated with the development of new products, none of the development projects met the critieria for capi- talization in 2022 and 2021. In 2022, Novozymes launched 26 new products (2021: 14 new products). New products comprise products with new or improved characteristics. In 2022, Novozymes had 892 active patent fami- lies (2021: 902). Active patent families comprise the number of inventions for which Novozymes had one or more active patent applications or active patents at December 31. Research and development costs primarily comprise employee costs, internal and exter- nal costs related to the development of new products and to the ongoing optimization of production processes for existing products, and amortization, depreciation and impair- ment losses related to intangible assets and property, plant and equipment used in research and development activities. Research costs are expensed as incurred, while development costs are expensed as incurred unless the criteria for capitalization are deemed to have been met. Income received from research and collabora- tion agreements is recognized in Other oper- ating income. Accounting policies 2.4 Research and development costs GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 92Notes DKK million 2022 2021 Income and grants concerning research projects/collaborations 10 13 Gain from 21 st .BIO transaction 201 - Net gain from divestment of a pharma-related royalty - 62 Net gain from sale of buildings held for sale - 60 Other secondary income, net 65 53 Other operating income, net I/S 276 188 In 2022, Other operating income was impacted by DKK 201 million from an accounting gain related to the 21 st .BIO transaction, in which Novozymes Biotechnology ApS merged with 21 st .BIO. Following the transaction, Novozymes obtained significant influence in 21 st .BIO, and 21 st .BIO is recognized as an associated company of Novozymes. In 2021, Other operating income was impacted by DKK 60 million due to a realized gain from the sale of an administration building and by DKK 62 million from the contingent consideration relat- ing to the divestment of a pharma-related roy- alty. Contingent consideration was recognized where entitlement was obtained due to comple- tion of patent registrations. Other operating income comprises income that is not product-related and that is not defined as special items. This includes income from research and collaboration agreements, government grants, sale of licenses, patents, etc., and other income of a secondary nature in relation to the main activities of the Group. This item also includes non-recurring income items in respect of damages, outlicensing, etc., and gains and losses on divestments. Accounting policies 2.5 Other operating income, net GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 93Notes DKK million 2022 2021 Transaction costs related to the proposed combination of Novozymes and Chr. Hansen (68) - Special items I/S (68) - Special items reconcile to the income statement as specified below: 2.6 Special items Special items bridge 2022 2021 DKK million Reported income statement Special items Adjusted income statement Reported income statement Special items Adjusted income statement Revenue 17,553 - 17,553 14,951 - 14,951 Cost of goods sold (7,976) - (7,976) (6,328) - (6,328) Gross profit 9,577 - 9,577 8,623 - 8,623 Sales and distribution costs (2,271) (67) (2,338) (1,936) - (1,936) Research and development costs (2,001) - (2,001) (2,009) - (2,009) Administrative costs (952) (1) (953) (859) - (859) Other operating income, net 276 - 276 188 - 188 Operating profit (EBIT) before special items 4,629 (68) 4,561 4,007 - 4,007 Special items (68) 68 - - - - Operating profit (EBIT) I/S 4,561 - 4,561 4,007 - 4,007 GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 94Notes 2.7 Tax Tax risks In many markets, Novozymes operates through sales companies and distributors, whereas pro- duction is located in only a few countries. This leads to transactions between group companies. Novozymes follows the OECD principles in setting internal transfer prices for these transactions. This is a complicated area and entails a tax risk, because the transactions are subject to judgment in each country. The tax controversy risk for Novozymes is significantly reduced through the use of bilateral advance pricing agreements (APAs). Bilateral APAs As stated in our tax policy, Novozymes proactively engages in bilateral APAs negotiated at compe- tent authority level to increase predictability and to mitigate transfer pricing risks. Most of the inter- company transaction value within the Novozymes Group is covered by bilateral APAs. An APA is an agreement between a taxpayer and a tax authority determining the transfer pricing methodology for pricing the taxpayer’s interna- tional transactions for future years. The methodology is applied for a certain period based on the fulfilment of certain terms and con- ditions (called critical assumptions). An APA can be unilateral or bilateral. Novozymes only enters into bilateral APAs, meaning that they are negoti- ated between the competent tax authorities of the two countries involved in the transaction. An APA provides assurance with respect to the tax outcome of our international transactions, by determining in advance arm’s length pricing and the pricing methodology to be applied to the international transactions. Novozymes has entered into bilateral APAs with the tax authorities in the countries where inter- nal transactions are most significant. Included in APA-covered transactions are group internal transactions between Denmark and the U.S., China and India, respectively. Special items are used in the presentation of the income statement and include significant non-recurring income or costs not related to Novozymes’ recurring operating profit. These items are classified separately in the income statement as Special items in order to pro- vide a more transparent view of Novozymes’ operating profit. The use of special items entails management judgement in the separation from other items in the income statement. Management considers individual items in order to ensure that special items include sig- nificant non-recurring income or costs not related to Novozymes’ recurring operating profit. Special items include income or costs from the proposed combination of Novozymes and Chr. Hansen. Critical accounting estimates and judgments 2.6 Special items GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 95Notes 2.7 Tax Tax in the income statement DKK million 2022 2021 Tax payable on net profit (818) (941) Change in deferred tax (105) 139 Prior-year adjustments - current tax 76 (41) Prior-year adjustments - deferred tax (23) 64 Tax in the income statement I/S (870) (779) Calculation of effective tax rate: Corporate tax rate in Denmark (22.0)% (22.0)% Non-taxable income less non-deductible expenses (0.3)% 0.5% Difference in foreign tax rates (0.3)% 2.1% Other adjustments 3.5% (0.5)% Effective tax rate (19.1)% (19.9)% Joint taxation Novozymes A/S and its Danish subsidiaries are jointly taxed with the Danish companies of the Novo Holdings A/S Group. Joint taxation also covers withholding taxes in the form of dividend tax, royalty tax and interest tax. The Danish As the Group operates across many different countries, the calculation of the Group’s total tax charge in the income statement inherently involves estimation. Tax and transfer-pricing disputes with authorities in various countries may occur, and Management’s assessment is applied to assess the possible outcome of such disputes. The Group recognizes deferred tax assets, including the expected tax value of tax loss carryforwards, if management assesses they can be offset against positive taxable income in the foreseeable future. This judgment is made annually and based on budgets and business plans for the coming years, includ- ing planned commercial initiatives. Payments in respect of tax liabilities for an accounting period result from payments on account and on the final resolution of open items. As a result, there may be substantial differences between the tax charge recog- nized in the consolidated income statement and actual tax payments. Critical accounting estimates and judgments companies are jointly and individually liable for the joint taxation liability. Any subsequent adjustments to income taxes and withholding taxes may increase the liability. Tax for the indi- vidual companies is allocated in full on the basis of the expected taxable income. Tax in the income statement The effective tax rate for 2022 was positively impacted by the accounting gain related to 21 st . BIO and the divestment of Novozymes’ minority ownership in Albumedix. In addition, there was a positive impact from a fair value adjustment of contingent consideration. The total positive impact of 3.3 percentage points is recognized in Other adjustments. In 2021 the effective tax rate was positively impacted by a transfer of intellec- tual property from Switzerland to Denmark (2.7 percentage points), which was recognized in Difference in foreign tax rates. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 96Notes DKK million 2022 2021 Deferred tax at January 1 300 135 Currency translation adjustments 3 9 Effect of business acquisitions (7) (236) Tax related to the income statement (128) 204 Tax on equity items (198) 188 Deferred tax at December 31 (30) 300 Deferred tax assets B/S 1,623 1,637 Deferred tax liabilities B/S (1,653) (1,337) Deferred tax at December 31 (30) 300 Tax receivables and payables DKK million 2022 2021 Tax payables, net, at January 1 (200) 124 Currency translation adjustments 46 18 Tax related to business acquisitions - (26) Tax related to the income statement (742) (983) Tax on equity items 12 40 Tax paid for the current year, net 910 627 Tax payables, net, at December31 26 (200) Tax receivables B/S 352 286 Tax payables B/S (326) (486) Tax payables, net, at December31 26 (200) Of which due within 12 months 5 (40) Of which due after more than 12 months 21 (160) Tax payables, net, at December31 26 (200) Corporate income taxes paid are specified as follows: Income taxes paid in Denmark 610 460 Income taxes paid outside Denmark 300 167 Total income taxes paid 910 627 2.7 Tax Deferred tax Deferred tax assets Deferred tax liabilities DKK million 2022 2021 2022 2021 Intangible assets and property, plant and equipment 716 915 (1,447) (1,507) Inventories 295 438 (93) (246) Tax loss carry-forwards 85 53 - - Stock options 67 250 - - Other 406 442 (59) (45) 1,569 2,098 (1,599) (1,798) Offsetting items 54 (461) (54) 461 Deferred tax at December 31 B/S 1,623 1,637 (1,653) (1,337) The tax value of the unrecognized share of tax loss carry-forwards, tax credits, etc. that do not expire amounted to DKK 50 million (2021: DKK 22 million). GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 97Notes 2.8 Earnings per share Corporation tax, comprising the current tax liability, change in deferred tax for the year and possible adjustments relating to prior years, is recognized in the income statement, unless it relates to items recognized either in Other comprehensive income or directly in equity. Uncertain tax positions are assessed individually and recognized if it is probable that an amount will be paid or received. Deferred tax is measured using the balance sheet liability method and comprises all tem- porary differences between the carrying amount and the tax base of assets and liabili- ties. No deferred tax is recognized for good- will, unless amortization of goodwill for tax purposes is allowed. The tax value of tax loss carry-forwards is included in the calculation of deferred tax to the extent that the tax losses can be expected to be utilized in the future. Deferred tax is measured according to cur- rent tax rules and at the tax rate expected to be in force on elimination of temporary dif- ferences. Changes in deferred tax due to tax rate changes are recognized in the income statement, unless they relate to items recog- nized either in Other comprehensive income or directly in equity. Earnings per share is calculated as net profit attributable to shareholders of Novozymes A/S divided by the average number of shares in circulation. Diluted earnings per share is calculated as net profit attributable to shareholders of Novozymes A/S divided by the average num- ber of shares in circulation, including the dilu- tive effect of stock options “in the money.” Accounting policies Accounting policies DKK million 2022 2021 Net profit for the year 3,686 3,145 Less net profit attributable to non-controlling interests (10) 1 Net profit attributable to the shareholders of Novozymes A/S 3,676 3,146 Average number of shares Weighted average number of shares in circulation 276,644,153 277,919,162 Average dilutive effect of outstanding stock options and stock awards 2,089,765 2,308,943 Average number of diluted shares 278,733,918 280,228,105 Earnings per share, DKK 13.29 11.32 Earnings per share, diluted, DKK 13.19 11.23 2.7 Tax GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Note 3 Increase in average in 2021 to capital Leases Provisions The Novozymes Report 2022 GovernanceThe big picture Recognition of amortization and impairment losses by function 2022 (2021) DKK million Cost of goods sold 117 (92) Sales and distribution 71 (50) Research and development 182 (184) Administration 37 (39) 407 (365) Novozymes A/S 99Notes 3.1 Intangible assets and impairment test of goodwill DKK million Goodwill Acquired patents, trademarks, licenses and know-how, etc. Completed IT development projects IT development projects in progress Total Cost at January 1, 2022 2,020 5,002 839 150 8,011 Currency translation adjustments (11) (33) 1 2 (41) Additions from business acquisitions (2) - - - (2) Additions during the year - - 22 108 130 Disposals during the year - - (1) - (1) Transfers to/(from) other items - - 80 (80) - Cost at December 31, 2022 2,007 4,969 941 180 8,097 Amortization and impairment losses at January 1, 2022 (2,348) (639) (2,987) Currency translation adjustments (5) (1) (6) Amortization during the year (281) (98) (379) Impairment losses (28) - (28) Disposals during the year - 1 1 Amortization and impairment losses at December 31, 2022 (2,662) (737) (3,399) Carrying amount at December 31, 2022 B/S 2,007 2,307 204 180 4,698 Additions from business acquisitions No acquisitions were made in 2022. In 2021, Novozymes acquired DKK 2,554 million of intangible assets through the acquisition of Microbiome Labs and Synergia Life Sciences, of which DKK 1,709 million primarily related to patents and know-how (technology), customer relationships and brands. Impairment In 2022, an impairment loss of DKK 28 million on a know-how asset was recognized as the use of this know-how asset ceased. The impairment loss was recognized in Cost of goods sold and Research and development costs at DKK 13 mil- lion and DKK 15 million respectively. In 2021, an impairment loss of DKK 27 million on a know-how asset was recognized as the use of this know-how ceased. The impairment loss was recognized in Research and development costs. Impairment test of goodwill An impairment test of goodwill of Novozymes’ cash-generating units (CGUs) is performed for the entire Group, as cost bases of the cash-gen- erating units cannot be measured at CGU level. As the market value of Novozymes is significantly higher than its equity, no further key assump- tions are used to determine whether impairment of goodwill exists (2021: no impairment). GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 100Notes DKK million Goodwill Acquired patents, trademarks, licenses and know-how, etc. Completed IT development projects IT development projects in progress Total Cost at January 1, 2021 1,098 3,235 745 84 5,162 Currency translation adjustments 33 48 2 - 83 Additions from business acquisitions 889 1,709 - - 2,598 Additions during the year - 11 31 127 169 Disposals during the year - (1) - - (1) Transfers to/(from) other items - - 61 (61) - Cost at December 31, 2021 2,020 5,002 839 150 8,011 Amortization and impairment losses at January 1, 2021 (2,068) (540) (2,608) Currency translation adjustments (12) (2) (14) Amortization during the year (241) (97) (338) Impairment losses (27) - (27) Amortization and impairment losses at December 31, 2021 (2,348) (639) (2,987) Carrying amount at December 31, 2021 B/S 2,020 2,654 200 150 5,024 GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 101Notes Intangible assets other than goodwill are meas- ured at cost less accumulated amortization and impairment losses. Goodwill and IT develop- ment projects in progress are not subject to amortization. Costs associated with large IT projects for the development of software for internal use are capitalized if incurred with a view to developing new and improved systems. Amortization is based on the straight-line method over the expected useful lives of the finite-lived assets, as follows: • Completed IT development projects are amortized over their useful lives. IT devel- opment assets are amortized over a period of 3–5 years. • Acquired patents, trademarks, licenses, know-how, customer relationships and brands are amortized over their useful lives. The useful lives of patents and trademarks are normally identical to the patent period. Licenses are amortized over the contractual period. Recognized patents, trademarks, licenses, know-how, customer relationships and brands are amortized over a period of 7–20 years. Expected useful lives are reassessed annually. The Group regularly reviews the carrying amounts of its finite-lived intangible assets to determine whether there is an indication of impairment. An impairment loss is recognized to the extent that the asset’s carrying amount exceeds its estimated recoverable amount. Impairment losses are reversed only to the extent of changes in the assumptions and esti- mates underlying the impairment calculation. Goodwill is tested for impairment annually or whenever there is an indication that it may be impaired. Accounting policies Management assesses the risk of impairment of the Group’s intangible assets. This requires judgment in relation to the identification of cash-generating units (CGUs) and the underly- ing assumptions in the Group’s impairment model. If there is any indication of impairment for intangible assets other than goodwill, value in use is estimated and compared with the carry- ing amount. The calculation of value in use is based on the discounted cash flow method using estimates of future cash flows from the continuing use. The key parameters are the expected revenue streams and the rate used to discount the cash flows. Critical accounting estimates and judgments GovernanceThe big picture The Novozymes Report 2022 Recognition of depreciation and impairment losses by function 2022 (2021) DKK million Cost of goods sold 787 (762) Sales and distribution 37 (32) Research and development 164 (163) Administration 90 (94) 1,078 (1,051) Novozymes A/S 102Notes DKK million Land and buildings Plant and machinery Other equipment Assets under construction Total Cost at January 1, 2022 7,551 11,958 2,696 876 23,081 Currency translation adjustments 86 185 38 25 334 Additions from business acquisitions - (8) (1) - (9) Additions during the year 129 124 117 2,432 2,802 Disposals during the year (178) (107) (73) - (358) Transfers to/(from) other items 123 211 103 (437) - Cost at December 31, 2022 7,711 12,363 2,880 2,896 25,850 Depreciation and impairment losses at January 1, 2022 (3,571) (7,668) (1,657) (12,896) Currency translation adjustments (26) (90) (20) (136) Depreciation for the year (286) (550) (242) (1,078) Disposals during the year 171 96 67 334 Depreciation and impairment losses at December 31, 2022 (3,712) (8,212) (1,852) (13,776) Carrying amount at December 31, 2022 B/S 3,999 4,151 1,028 2,896 12,074 Capitalized interest and pledges Interest of DKK 9 million (2021: DKK 1 million) was capitalized under Additions during the year and recognized as Investing activities in the statement of cash flows. Capitalization rate: 0.82% (2021: 0.50%). Land and buildings with a carrying amount of DKK 1,366 million (2021: DKK 1,453 million) were pledged as security to credit institutions in respect of mortgage loans expiring in 2029 and 2039. Impairment No impairment loss was recognized in 2022. In 2021, an impairment loss of DKK 15 million on a building was recognized and included in Cost of goods sold. 3.2 Property, plant and equipment As a consequence of the war in Ukraine, Novozymes has discontinued all sales to Russia and closed the sales office in Moscow, Russia. The closing did not lead to any impairment of property, plant and equipment. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 103Notes DKK million Land and buildings Plant and machinery Other equipment Assets under construction Total Cost at January 1, 2021 6,986 11,017 2,364 682 21,049 Currency translation adjustments 282 528 96 37 943 Additions from business acquisitions 43 41 2 4 90 Additions during the year 185 276 214 513 1,188 Disposals during the year (43) (50) (96) - (189) Transfers to/(from) other items 98 146 116 (360) - Cost at December 31, 2021 7,551 11,958 2,696 876 23,081 Depreciation and impairment losses at January 1, 2021 (3,133) (6,881) (1,423) (11,437) Currency translation adjustments (141) (320) (62) (523) Depreciation for the year (305) (509) (222) (1,036) Impairment losses (15) - - (15) Disposals during the year 27 39 49 115 Transfers (to)/from other items (4) 3 1 - Depreciation and impairment losses at December 31, 2021 (3,571) (7,668) (1,657) (12,896) Carrying amount at December 31, 2021 B/S 3,980 4,290 1,039 876 10,185 Contractual obligations Contractual obligations to third parties relating to property, plant and equipment amounted to DKK 712 million (2021: DKK 1,328 million). Novozymes is committed to establishing the new production line in Blair, Nebraska, U.S. The capi- tal investment of roughly DKK 2 billion will span the period 2021–2023 with expected completion by the end of 2023. Most of the investment activi- ties will take place in 2022 and 2023. An accumulated amount of DKK 1,661 million has been incurred since the investment was initiated (2021: DKK 170 million). The contractual obligations to third parties relat- ing to property, plant and equipment related to the above production line amounted to DKK 335 million at December 31, 2022 (2021: DKK 1,156 million). GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 104Notes Property, plant and equipment is measured at cost less accumulated depreciation and impairment losses. Borrowing costs in respect of construction of major assets are capitalized. Depreciation is based on the straight-line method over the expected useful lives of the assets, as follows: • Buildings: 12–50 years • Plant and machinery: 5–25 years • Other equipment: 3–18 years The residual values and useful lives of the assets are reviewed on an annual basis and adjusted if necessary at each reporting date. The Group regularly reviews the carrying amounts of its property, plant and equipment to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is esti- mated in order to determine the extent of any impairment loss. If the recoverable amount of an asset is estimated to be lower than its car- rying amount, the carrying amount is reduced to the recoverable amount. Impairment losses are reversed only to the extent of changes in the assumptions and estimates underlying the impairment calculation. Accounting policies DKK million 2022 2021 Land and buildings 254 290 Plant and machinery 87 93 Other equipment 79 113 Carrying amount of lease assets 420 496 DKK million 2022 2021 Lease liabilities Less than 1 year 128 121 Between 1 and 5 years 222 267 More than 5 years 119 142 Undiscounted lease liabilities at December 31 469 530 DKK million 2022 2021 Amounts recognized in the income statement Interest on lease liabilities 19 21 Depreciation of lease assets per asset class Land and buildings 65 59 Plant and machinery 5 6 Other equipment 49 45 Depreciation of lease assets 119 110 Amounts recognized in the statement of cash flows Total cash outflow for leases 139 124 Additions to the lease assets during 2022 amounted to DKK 42 million (2021: DKK 102 million). 3.3 Leases GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 105Notes Lease assets Lease assets are ‘right-of-use assets’ from lease agreements. If, at inception, it is assessed that a contract contains a lease, a lease asset is recognized. Lease assets are ini- tially measured at the present value of future lease payments, plus the cost of obligations to refurbish the asset. Payments include fixed payments, variable lease payments depending on an index or a rate and the exercise price of purchase options that are reasonably certain to be excercised. Lease assets are depreciated using the straight-line method over the shorter of the expected lease term and the useful life of the underlying asset. Lease assets are tested for impairment whenever there is an indication that the assets may be impaired. Lease assets are depreciated as follows: • Buildings: 1–12 years • Land: 10–90 years • Plant and machinery: 1–10 years • Other equipment: 1–10 years Short-term leases and leases of low value are recognized as expenses in the income state- ment on a straight-line basis over the lease term. Novozymes’ portfolio of leases covers leases of land, buildings, plant and machinery and other equipment such as cars and transporta- tion containers. Lease liabilities Lease liabilities are initially recognized at the present value of future lease payments includ- ing payments from extension or purchase options that are considered reasonably certain to be exercised. The lease liability is measured using the implicit borrowing rate in the contracts or, where this is not available, the marginal bor- rowing rate in the countries in which Novozymes operates. Novozymes applies a sin- gle discount rate to portfolios of leases in the countries in which Novozymes operates based on contract currency and loan periods. If a lease contract is modified, the lease liabil- ity is remeasured. For building leases, lease terms are estimated taking the size of the building and its strategic importance into con- sideration. Novozymes has entered into sev- eral open-ended building leases and building leases with extension options. Lease terms of such agreements are estimated based on the strategic importance of the buildings and the estimated time frame necessary to vacate the premises. The estimated lease term is reas- sessed at each reporting date. The estimated lease terms for such contracts do not exceed 12 years. Accounting policies 3.3 Leases GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 106Notes Dismantling and restoration Dismantling and restoration relates to estimated future costs of environmental restoration. Novozymes aims for its production sites not to have a negative environmental impact. These lia- bilities relate to established circumstances, and the costs are expected to be incurred either when concrete measures are implemented or when a site is vacated. The expected costs and timing are inherently uncertain. Legal and other obligations Novozymes is involved in a number of ongoing legal disputes, and provisions are made for the estimated costs based on a current evaluation of the outcomes. Current ongoing cases are expected to be finalized in 2023–2024. In Management’s opinion, the outcomes of these cases are not expected to give rise to any signifi- cant losses beyond the amounts provided for at December 31, 2022. Provisions are recognized where a legal or constructive obligation has been incurred as a result of past events and it is proba- ble that it will lead to an outflow of finan- cial resources. Provisions are measured at the present value of the expected expend- iture required to settle the obligation. Accounting policies 2022 2021 DKK million Dismantling and restoration Legal and other obligations Total Dismantling and restoration Legal and other obligations Total Provisions at January 1 56 118 174 64 141 205 Currency translation adjustments 2 (2) - 1 1 2 Additions from business acquisitions - (35) (35) - 50 50 Additions during the year - 3 3 - 4 4 Reversals during the year - (13) (13) (9) (69) (78) Utilization during the year - - - - (9) (9) Provisions at December 31 58 71 129 56 118 174 Recognized in the balance sheet as follows: Non-current 52 67 119 51 102 153 Current 6 4 10 5 16 21 Provisions at December 31 58 71 129 56 118 174 Other obligations include other long-term employee benefits and other contractual obliga- tions. In 2021, Additions from business acquisitions of DKK 50 million were related to the acquisition of Synergia Life Sciences. In 2022, the provisions in the final opening balance of Synergia Life Sciences were reduced by DKK 35 million. In 2021, contingent consideration of DKK 62 mil- lion related to the divestment of a pharma- related royalty was recognized in Other operating income. The remaining consideration was reversed because certain patent registrations were not obtained in 2021. Other long-term employee benefits account for only a minor amount, as most of Novozymes’ pension plans are defined contribution plans, covering approximately 99% of employees. These obligations are mainly expected to be incurred over a relatively long period of time. 3.4 Provisions GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 107Notes Adjustment to prior-year business acquisitions The fair value and allocation of acquired assets, liabilities and non-controlling interests in Synergia Life Sciences was finalized in 2022, which led to a reduction of goodwill of DKK 2 mil- lion at the acquisition date. The final opening balance mainly includes changes to Property, plant and equipment, Deferred tax liabilities and Financial and other liabilities as provisionally presented in The Novozymes Report 2021. In 2021, the most probable sales and EBITDA related to PrecisionBiotics Group were reas- sessed. This led to an increase of DKK 44 million in the fair value of contingent consideration and goodwill at the acquisition date. Acquisitions in 2021 Synergia Life Sciences On December 10, 2021, Novozymes acquired 60% of the shares in Synergia Life Sciences. Synergia Life Sciences is a leading player within spore probiotics and vitamin K2-7. Synergia Life Sciences has a global footprint and adds strong developing and manufacturing capabilities in spore probiotics and vitamin K2-7 from three production sites in India. Synergia Life Sciences is a producer and supplier to Microbiome Labs, which was acquired by Novozymes early in 2021. The vitamin K2-7 portfolio is a strong complemen- tary enabler to support growth in Novozymes’ BioHealth platform. The acquisition offers a sci- entifically proven spore strain portfolio that strengthens Novozymes’ human health business and accelerates its functional food offerings. The purchase price led to the recognition of goodwill of DKK 505 million and intangible assets of DKK 991 million. Goodwill is attributa- ble to expected synergies with Novozymes’ exist- ing business operations and technologies within spore probiotics for human health and is highly synergistic to the previous acquisition of Microbiome Labs within the human health busi- ness. The goodwill is not tax deductible. The following valuation techniques have been applied in the fair value assessment of signifi- cant assets acquired: • Technology; the Relief from Royalty (RfR) method • Customer relationships; The Multi-period Excess Earnings Method (MEEM) • Brands; The Relief from Royalty (RfR) method DKK million Synergia Life Sciences 1 Fair value of acquired assets and liabilities are as follows: Intangible assets excluding goodwill 991 Property, plant and equipment 75 Inventories 8 Trade and other receivables 42 Cash and cash equivalents 112 Deferred tax liabilities, net (243) Financial and other liabilities (60) Non-controlling interests (371) Acquired net assets 554 Purchase price: Cash 982 Deferred consideration 77 Total purchase price 1,059 Goodwill 505 Cash flow for acquisition: Cash payment 982 Less cash and cash equivalents in acquired business (112) Cash outflow for acquisition 870 1. The final opening balance mainly includes changes to Property, plant and equipment, Deferred tax liabilities and Financial and other liabilities as provisionally presented in The Novozymes Report 2021. 3.5 Business acquisitions GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 108Notes Fair value measurement of the acquired assets and liabilities as well as contingent consideration requires Management to make estimates and use assumptions, as observable market prices are not available. The deter- mined fair values are associated with uncer- tainty and may be subject to subsequent adjustments. Critical accounting estimates and judgments The remaining 40% of the shares in Synergia Life Sciences are held by non-controlling interests. The non-controlling interests are recognized at its proportionate share of the acquired net iden- tifiable assets and amount to DKK 371 million. The remaining 40% is to be acquired in 2025. Reference is made to Note 6.5 concerning Non- controlling interests. The purchase price includes a deferred consider- ation of DKK 77 million, which was paid in 2022. For further details, please refer to Note 3.5 in The Novozymes Report 2021. Microbiome Labs On January 7, 2021, Novozymes acquired all shares in Microbiome Labs at a purchase price of DKK 1,107 million. Microbiome Labs offers a comprehensive suite of proprietary probiotic and microbiome solutions targeting gastrointestinal, immune, metabolic, and cognitive health. The solutions are marketed under both the compa- ny’s own supplement brands and in private label products. The branded products are sold exclu- sively through the company’s access to an extensive network of healthcare practitioners predominately consisting of medical doctors, nutritionists and naturopaths. The purchase price led to the recognition of goodwill of DKK 338 million and intangible assets of DKK 718 million. Goodwill is attributa- ble to expected synergies with Novozymes’ exist- ing business operations and technologies within probiotics and enzymes for human health. The goodwill is tax deductible. The purchase agreement includes a contingent consideration of up to DKK 825 million at the acquisition date. The consideration is contingent on the achievement of sales targets for 2022 and is recognized at the anticipated fair value of DKK 338 million at the acquisition date. Fair value is assessed by using the earn-out from the most probable sales estimates in 2022 discounted at a rate of 8%. For further details, please refer to Note 3.5 in The Novozymes Report 2021. On acquisition of companies, the identifiable assets acquired and the liabilities and contin- gent liabilities assumed are recognized at their fair values at the acquisition date. The consideration transferred includes the fair value at the acquisition date of any contin- gent consideration arrangement. Non-controlling interests in an acquired com- pany is recognized either at fair value or at the non-controlling interest’s proportionate share of the acquired company’s net identifi- able assets. This decision is made on an acquisition-by-ac- quisition basis. Goodwill may subsequently be adjusted for changes in the fair value of the consideration transferred and/or changes in the fair value of the identifiable net assets acquired until 12 months after the acquisition date, to the extent such changes relate to facts and cir- cumstances present at the acquisition date. Acquired companies are consolidated from the date of acquisition. Acquisition-related costs are expensed as incurred. Accounting policies GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 109Notes 3.6 Contingent consideration DKK million 2022 2021 Contingent consideration at January 1 543 146 Additions from business acquisitions - 382 Currency translation adjustments 19 27 Interest on contingent consideration 43 50 Fair value adjustment of contingent consideration (223) (62) Contingent consideration at December 31 382 543 Recognized in the balance sheet as follows: Non-current B/S 224 543 Current B/S 158 - Contingent consideration at December 31 382 543 PrecisionBiotics Group The purchase agreement for PrecisionBiotics Group includes a contingent consideration of up to DKK 298 million. The consideration is contingent on the achieve- ment of sales targets for 2023 and recognized at the anticipated fair value of DKK 224 million (2021: DKK 211 million). Fair value is assessed by using the earn-out from the most probable sales in 2023 discounted at a rate of 7% (2021: 7%). An interest expense of DKK 14 million has been recognized in Financial costs (2021: DKK 22 mil- lion). The contingent liability related to PrecisionBiotics Group is denominated in EUR. In 2021, the most probable sales and EBITDA were reassessed, which led to an increase in the fair value at the acquisition date of DKK 44 mil- lion in contingent consideration and goodwill. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 110Notes Microbiome Labs The purchase agreement of Microbiome Labs includes a contingent consideration of up to DKK 941 million. The consideration is contingent on the achieve- ment of sales targets for 2022 and is recognized at the anticipated fair value of DKK 158 million (2021: DKK 332 million). Based on lower-than-ex- pected realized sales in 2022, Management reas- sessed the value of the earn-out and reduced the contingent consideration by DKK 223 million (2021: DKK 62 million). The fair value adjustment was partly offset by interest and currency translation adjustments. Management’s long-term expectations to Fair value of contingent consideration is based on non-observable data (level 3 input) that requires Management to make estimates and use assumptions. Estimates are based on updated information from after the initial rec- ognition of the liability, such as budgets, sales forecasts, discount rates etc. The fair value of the contingent consideration is calculated as the present value of the most probable redemption amount using the discounted cash flow method. The determined fair value is associated with uncertainty and may be sub- ject to subsequent adjustments. Critical accounting estimates and judgments Microbiome Labs remain intact. The fair value adjustments have been recognized in Financial income. Fair value is assessed by using the earn-out from the realized sales in 2022 discounted at a rate of 8% (2021: 8%). An interest expense of DKK 29 million has been recognized in financial costs (2021: DKK 28 million). The contingent liability related to Microbiome Labs is denominated in USD and increased by DKK 20 million due to currency translation adjust- ments (2021: DKK 28 million). Contingent consideration is remeasured at fair value at each reporting date. Interest and fair value adjustments resulting from events after the acquisition date are recognized in Financial income or Financial costs. Accounting policies GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Note 4 capital Inventories GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 112Notes DKK million 2022 2021 Raw materials and consumables 603 433 Work in progress 1,333 979 Finished goods 1,867 1,580 Inventories at December 31 B/S 3,803 2,992 Cost of materials, included under Cost of goods sold 4,770 3,411 Indirect production costs capitalized in inventories at December 31 1,053 971 Write-downs expensed during the year 102 79 Reversal of write-downs during the year 44 57 * Part of the reversal of write-downs is attributable to written-down inventory being reused in production. Work in progress and Finished goods are meas- ured at cost, including indirect production costs. Indirect production costs are assessed on an ongoing basis to ensure reliable meas- urement of employee costs, capacity utilization, cost drivers and other relevant fac- tors. Changes in these parameters may have an impact on the gross margin and the overall val- uation of Work in progress and Finished goods. Critical accounting estimates and judgments Inventories are measured at the lower of cost determined on a first-in first-out basis and net realizable value. The cost of Work in progress and Finished goods comprises direct production costs such as raw materials and consumables, energy and labor directly attributable to pro- duction as well as indirect production costs such as employee costs, maintenance and depreciation of plants, etc. If the expected selling price less any comple- tion costs and costs to execute the sale (net realizable value) of inventories is lower than the carrying amount, inventories are written down to net realizable value. Novozymes has entered into a few agree- ments where Novozymes supplies goods to a customer’s premises but retains title to the inventory until the goods are consumed in the customer’s production. Such goods are derecognized from inventories in the period when they are consumed in the customer’s production. Accounting policies 4.1 Inventories GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 113Notes DKK million 2022 2021 Trade receivables, gross 3,590 3,099 Allowances (136) (151) Trade receivables at December 31 B/S 3,454 2,948 Aging of trade receivables, gross: Up to 30 days 3,350 2,886 Between 30 and 90 days 74 30 More than 90 days 166 183 Trade receivables, gross, at December 31 3,590 3,099 Changes in allowances for trade receivables: At January 1 151 163 Allowances during the year 51 30 Write-offs during the year (35) (3) Reversed allowances (31) (39) Allowances at December 31 136 151 The war in Russia/Ukraine has not led to signifi- cant losses on trade receivables or an increase in allowances. Trade receivables Novozymes has collateral of DKK 5 million (2021: DKK 3 million) held as security for trade receiva- bles in selected countries. Contract assets Contract assets amounted to DKK 151 million at December 31, 2022 (2021: DKK 40 million), and mainly related to goods delivered but not invoiced, and estimated profit splits arising from partner- ships that Novozymes has entered. The contract assets are initially recognized as revenue when goods are delivered to the other contracting party. When invoiced, the contract assets are reclassified to trade receivables. No allowance for expected credit losses had been made for contract assets at December 31, 2022 (2021: no allowance). The allowance for expected credit losses for trade receivables and contract assets is based on historical credit loss experience combined with forward-looking information on macroeconomic factors affecting the credit risk. The expected loss rates are updated at each reporting date. Critical accounting estimates and judgments Trade receivables and contract assets are measured at amortized cost less allowance for lifetime expected credit losses. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and days past due. Furthermore, an allowance for life- time expected credit losses for trade receiva- bles is recognized on initial recognition. For contract assets, the credit risk is based on an individual assessment. Trade receivables and contract assets are written off when all possible options have been exhausted and there is no reasonable expectation of recovery. The cost of allowances for expected credit losses and write-offs for trade receivables and contract assets are recognized in Sales and distribution costs. Accounting policies 4.2 Trade receivables and contract assets GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 114Notes 4.3 Other receivables 4.4 Other liabilities DKK million 2022 2021 Deposits 32 32 Prepaid expenses 174 395 Other 186 131 Other receivables at December 31 392 558 Recognized in the balance sheet as follows: Non-current B/S 32 39 Current B/S 360 519 Other receivables at December 31 392 558 DKK million 2022 2021 Employee costs payable 672 641 Stock-based payment settled in cash 21 44 Deferred consideration - 77 Other payables 727 490 Other liabilities at December 31 1,420 1,252 Recognized in the balance sheet as follows: Current B/S 1,420 1,252 Other liabilities at December 31 1,420 1,252 Prepaid expenses in 2021 included prepayments related to establishing the new production line in Blair, Nebraska, U.S. GovernanceThe big picture The Novozymes Report 2022 Note 5 Capital structure Novozymes bought back 1.1 million GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 116Notes Foreign exchange sensitivity analysis 2022 2021 DKK million Increase in exchange rates Change in net profit Change in other comprehensive income Change in net profit Change in other comprehensive income INR 5.0% 4 51 4 57 CNY 5.0% (5) 127 (1) 127 USD 5.0% (3) 325 1 244 Other 5.0% 4 64 (6) 108 Total - 567 (2) 536 Due to the international nature of Novozymes’ operations, our earnings and financial position are exposed to a number of financial risk factors. Financial risks are managed centrally for the entire Group. The Treasury Policy is approved by the Board of Directors and sets the limits for the various financial risks and the derivatives used to hedge risk. The Treasury Policy is adjusted on an ongoing basis and adapted to the market situa- tion. It contains rules on which derivatives can be used for hedging, which counterparties can be used, and the risk profile that is to be applied. Currency risk Currency risk arises due to imbalances between income and costs in each individual currency and because Novozymes has more assets than liabili- ties in foreign currencies in connection with global operations. Hedging of currency risk is carried out in the cur- rencies in which Novozymes has the largest expo- sures. Hedging is managed by entering into deriv- atives such as forward contracts, currency options and swaps. Loans and deposits in foreign currencies are also utilized for hedging purposes. Hedge effectiveness is assessed on a regular basis by comparing changes in the timing and value of the expected exposure in the relevant currencies with the timing and value changes for the designated cash flow hedging transaction. Where deemed appropriate, currency risk related to net investments in foreign subsidiaries is hedged by taking out loans and entering into swaps. Currently, there are no open transactions used to hedge equity investments. Foreign exchange sensitivity – 2022 The sensitivity analysis shows the impact on net profit and other comprehensive income of a 5% change in DKK versus the key currencies to which Novozymes was exposed on December 31, 2022. For other comprehensive income, the analysis shows the impact on currency translation of net investments and does not include the impact of cash flow hedges, as these relate to future com- mercial transactions. The sensitivity analysis reflects transaction and translation risk, and assumes that exchange rates change on December 31, 2022, while all other variables remain constant. The table shows the effect of an increase in exchange rates. A decrease in the exchange rates would have the opposite effect. Foreign exchange sensitivity – 2023 estimate Operating profit (EBIT) is exposed to exchange rate developments, as the effect of hedges is included in financial income/costs. EBIT is mainly exposed to USD and EUR. A movement of 5% in the USD/DKK exchange rate would result in a change in the expected EBIT for 2023 of around DKK 130-160 million (2022: DKK 130-160 million). A 5% movement in the EUR/DKK exchange rate would result in a change in expected EBIT for 2023 of around DKK 200 million (2022: DKK 200 million). Of the expected USD cash flows for 2023, 88% has been hedged by forward contracts at an average rate of DKK 6.98. As a result, the impact on net profit from changes in the USD/DKK exchange rate has been reduced significantly compared with the impact on EBIT. Interest rate risk Interest rate risk arises in relation to interest- bearing assets and liabilities. In accordance with Novozymes’ Treasury Policy, a minimum of 30% of loans must be at fixed interest rates. Hedging of the interest rate risk is managed by entering into fixed-rate loans and interest rate swaps. 5.1 Financial risk factors and risk management GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 117Notes With the current hedging of interest rate risk, an increase of 1 percentage point in the average interest rate on Novozymes’ net interest-bearing debt would have a negative effect on net profit of DKK 14 million (2021: negative effect of DKK 12 million). At December 31, 2022, 62% (2021: 62%) of the loan portfolio carried fixed interest rates. Credit risk Credit risk arises especially on cash and cash equivalents, derivatives, trade receivables and contract assets. The credit risk on trade receiva- bles is countered by thorough, regular analysis based on customer type, country and specific conditions. The credit risk on cash and cash equivalents as well as derivatives is mitigated by the Treasury Policy, which limits exposure solely to counterparties that have an investment-grade credit rating. The credit risk is calculated on the basis of net market values and is governed by the Treasury Policy. Novozymes has entered into net- ting agreements (ISDA or similar) with all the banks used for trading in financial instruments, which means that Novozymes’ credit risk is lim- ited to net assets. At December 31, 2022, the Group considered its maximum credit risk to be DKK 5,036 million (2021: DKK 4,219 million), which is the total of the Group’s financial assets. At December 31, 2022, the maximum credit risk related to one counterparty was DKK 386 million (2021: DKK 330 million). Liquidity risk In connection with the Group’s ongoing financing of operations, including refinancing, efforts are made to ensure adequate and flexible liquidity. This is guaranteed by using committed credit facilities and placing free funds in deposits, gov- ernment bonds or ultra-liquid mortgage bonds in accordance with the Treasury Policy. At December 31, 2022, Novozymes’ financial resources amounted to DKK 18,543 million (2021: DKK 4,748 million), consisting of net cash, cash equivalents, and undrawn committed credit facilities of DKK 17,502 million, which expire in 2023–2027. The increase in undrawn committed credit facilities compared to 2021 is related to the facility obtained to refinance existing debt following completion of the proposed combina- tion of Novozymes and Chr. Hansen. With the exception of debt to credit institutions, the maturity dates are primarily within one year. Capital structure Novozymes favors a conservative balance which is reflected by a target for net interest-bearing debt of around 1x EBITDA. At December 31, 2022, the ratio was 1.0 and thus the target is considered as met in 2022. The capital structure is mainly managed using two instruments: 1) Dividend payments where Novozymes aims for a payout ratio of around 50%. For 2022, the pay- out ratio is expected to be 45.0%, which is in line with the communicated target. 2) Stock buy- backs, where a program for DKK 500 million was executed in 2022. Adjusted for non-recurring items with no cash flow impact related to 21 st .BIO and the Microbiome Labs earnout, the payout ratio is 50.9%. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 118Notes DKK million 2022 2021 Interest income 18 18 Fair value adjustments of contingent consideration 223 62 Gains on cash flow hedges - 31 Gains on fair value hedges - 63 Gain on divestment of minority ownership in Albumedix 267 - Fair value adjustments of cash-settled stock options 25 - Financial income I/S 533 174 Interest costs (40) (31) Interest on lease liabilities (19) (21) Interest on contingent consideration (43) (50) Losses on cash flow hedges (295) - Losses on fair value hedges (20) - Other financial costs (99) (20) Other foreign exchange losses, net (15) (98) Fair value adjustments of cash-settled stock options - (33) Financial costs I/S (531) (253) Financial income/(costs), net 2 (79) Financial income and Financial costs com- prise interest income and interest costs, real- ized and unrealized foreign exchange gains and losses, gains and losses on other finan- cial assets, as well as fair value adjustments of cash-settled stock-based incentive pro- grams and contingent consideration, which are offset against Other liabilities and fair value adjustments of Other financial assets. Interest income and Interest costs are meas- ured at amortized cost for financial assets and liabilities. Financial income and Financial costs also include fair value adjustments of derivatives used to hedge assets and liabilities, and income and costs relating to cash flow hedges that are transferred from Other comprehen- sive income on realization of the hedged item. Accounting policies 5.2 Financial income and Financial costs Novozymes has divested its minority share of Albumedix, a company built with Novozymes’ technology platform. The sale resulted in a finan- cial gain of DKK 267 million. Increase in Other financial costs are mainly costs for the refinancing facility related to the pro- posed combination of Novozymes and Chr. Hansen. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 119Notes DKK million 2022 2021 Credit institutions 6,437 5,706 Derivatives 101 113 Other financial liabilities at December 31 6,538 5,819 Recognized in the balance sheet as follows: Non-current 3,619 3,680 Current 2,919 2,139 Other financial liabilities at December 31 6,538 5,819 2022 2021 DKK million Credit institutions Lease liabilities Total Credit institutions Lease liabilities Total Liabilities from financing activities at January 1 5,706 482 6,188 4,350 522 4,872 Financing cash flows 731 (120) 611 1,174 (103) 1,071 Currency translation adjustments - 10 10 2 18 20 Other changes - 39 39 180 45 225 Total liabilities from financing activities at December 31 6,437 411 6,848 5,706 482 6,188 * Other changes include changes in lease liabilities from new or terminated leases and accrued interest expenses which will be presented as operating cash flows in the statement of cash flows when paid. In 2021, Other changes included the change in category of the transitional holiday accrual (Denmark). 5.3 Other financial liabilities Credit institutions - currency 2022 (2021) DKK million EUR 2,147 (2,273) DKK 4,290 (3,433) 6,437 (5,706) Credit institutions - time to maturity 2022 (2021) DKK million Less than 1 year 2,818 (2,029) Between 1 and 5 years 2,301 (2,424) More than 5 years 1,318 (1,253) 6,437 (5,706) Loan portfolio - fixed or floating interest rate 2022 (2021) DKK million Fixed interest rate 3,979 (3,540) Floating interest rate 2,458 (2,166) 6,437 (5,706) GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 120Notes Fair value hedges The table above shows the derivatives the Group has contracted in order to hedge currency expo- sure on financial assets and liabilities that give rise to currency adjustments in the income state- ment. The forward exchange contracts mature in the period January 2023 to August 2023 (2021: January 2022 to July 2022). 2022 2021 DKK million Contract amount based on agreed rates Fairvalue Contract amount based on agreed rates Fairvalue Forward exchange contracts CNH (618) (13) (516) 43 BRL 165 2 122 1 USD (228) (20) 66 - INR 374 23 227 (9) Other 21 1 (985) 25 Fair value hedges at December 31 (286) (7) (1,086) 60 * Positive contract amounts represent a sale of the respective currency, and negative amounts represent a purchase. The fair value hedges were 100% effective, as the loss on forward exchange contracts was DKK 20 million (2021: gain of DKK 63 million), com- pared with a gain on hedged items of DKK 20 mil- lion (2021: loss of DKK 63 million). 5.4 Derivatives – hedge accounting GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 121Notes 2022 2021 DKK million Contract amount based on agreed rates Fairvalue Contract amount based on agreed rates Fairvalue Forward exchange contracts USD 2,344 16 2,103 (99) 2,344 16 2,103 (99) Interest rate swaps DKK/DKK – pays fixed rate of (0.1075%) / earns variable rate of 2.42% (2021: (0.22%)) 400 51 400 5 DKK/DKK – pays fixed rate of 0.595% / earns variable rate of 2.45% (2021: (0.1867%)) 243 12 313 (4) 643 63 713 1 Forwards Electricity price agreements – average payment of DKK 2,078 / MWh 85 (31) - - 85 (31) - - Cash flow hedges at December 31 3,072 48 2,816 (98) * Positive contract amounts represent a sale of the respective currency, and negative amounts represent a purchase. Hedge accounting consists of positive and negative fair values of derivatives, which are recognized in the balance sheet under Other financial assets and Other financial liabilities respectively. Derivatives are recognized at the transaction date. Derivatives used for fair value hedges are measured at fair value at the reporting date, and value adjustments are recognized as Financial income or Financial costs. Derivatives used for cash flow hedges and hedges of net investments in subsidiaries are measured at fair value at the reporting date, and value adjustments are recognized in Other comprehensive income. Income and costs relating to cash flow hedges and hedges of net investments in subsidiaries are transferred from Other com- prehensive income. On realization, foreign exchange contracts and interest rate swaps are recognized as Financial income and Financial costs, and electricity price agree- ments covering production-related electricity are recognized as part of Cost of goods sold. Accounting policies Cash flow hedges The table above shows the derivatives the Group has contracted to hedge currency, interest rate and electricity price exposure in future cash flows. The forward exchange contracts mature in the period January 2023 to December 2023 (2021: January 2022 to December 2022), the swaps mature in May 2026 and December 2026 (2021: May 2026 and December 2026) and the electricity price agreements mature in the period January 2023 to June 2023. At the end of 2022, the Group had hedged 88% of expected future cash flows in USD for 2023 at an average rate of DKK 6.98 (2021: 88% of expected future cash flows in USD for 2022 at an average rate of DKK 6.26). GovernanceThe big picture The Novozymes Report 2022 Treasury stock 2021 % of common stock Disposals during the year Additions during the year Treasury stock at Jan. 1, 2021 Cancellation of common stock Treasury stock at Dec. 31, 2021 2.0 1.2 (0.4) (1.1) 1.7 Treasury stock 2022 % of common stock Disposals during the year Additions during the year Treasury stock at Jan. 1, 2022 Cancellation of common stock Treasury stock at Dec. 31, 2022 1.7 0.4 (0.2) (0.3) 1.6 Novozymes A/S 122Notes 2022 2021 DKK million No. Nominal value DKK million No. Nominal value DKK million Common stock A common stock (shares of DKK 2) 53,743,600 107 53,743,600 107 B common stock (shares of DKK 2) 227,256,400 455 228,256,400 457 Common stock at December 31 281,000,000 562 282,000,000 564 Treasury stock - B stock Treasury stock at January 1 4,894,362 10 5,674,598 11 Additions during the year 1,134,982 2 3,401,975 7 Disposals during the year (628,333) (1) (1,182,211) (2) Cancellation of common stock (1,000,000) (2) (3,000,000) (6) Treasury stock at December 31 4,401,011 9 4,894,362 10 No. 2022 2021 Shares of common stock in circulation Shares of stock at January 1 277,105,638 279,325,402 Purchase of treasury stock (1,134,982) (3,401,975) Sale of treasury stock 628,333 1,182,211 Shares of common stock in circulation at December 31 276,598,989 277,105,638 Each A share entitles the holder to 20 votes, while each B share entitles the holder to two votes. Each year, the Board of Directors assesses whether the ownership structure with A and B common stock is optimal. The Board of Directors continues to believe that this is the best way to safeguard Novozymes’ long-term development to the benefit of the company’s shareholders and other stakeholders. Treasury stock is used to reduce the common stock and to hedge employees’ exercise of granted stock awards and stock options. In 2022, Novozymes canceled 1 million treasury shares, reducing the common stock to 281 mil- lion shares. 5.5 Common stock and treasury stock GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 123Notes DKK million Note 2022 2021 Trade receivables 4.2 3,454 2,948 Contract assets 4.2 151 40 Other receivables, excl. prepaid expenses 4.3 218 163 Cash and cash equivalents 1,041 963 Financial assets at amortized cost 4,864 4,114 Derivatives 70 Other financial assets 30 30 Fair value through profit and loss 58 100 Derivatives 114 5 Fair value through other comprehensive income 114 5 Financial assets 5,036 4,219 DKK million Note 2022 2021 Lease liabilities 5.3 (411) (482) Credit institutions 5.3 (6,437) (5,706) Trade payables (1,869) (1,490) Other payables, incl. deferred consideration 4.4 (727) (567) Financial liabilities at amortized cost (9,444) (8,245) Derivatives 5.3 (10) Contingent consideration 3.6 (382) (543) Fair value through profit and loss (417) (553) Derivatives 5.3 (66) (103) Fair value through other comprehensive income (66) (103) Share purchase liability 6.5 (760) (717) Fair value through equity (760) (717) Financial liabilities (10,687) (9,618) Fair value hierarchy Novozymes has no financial instruments meas- ured at fair value on the basis of quoted prices (level 1 input). For financial assets and financial liabilities meas- ured at amortized cost (level 2 input), the carry- ing amounts approximate fair value. Derivatives are measured at fair value based on observable data (level 2 input). The derivatives are not traded in an active market based on quoted prices but on individual contracts. The fair value of these assets is determined using valuation techniques that utilize market-based data such as exchange rates, interest rates, credit risk, electricity prices and volatilities. Other financial assets, contingent considerations and share purchase liability are measured at fair value based on non-observable data (level 3 input). Reference is made to Notes 3.6 and 6.5 for a description of their fair value measurement. 5.6 Financial assets and liabilities by category GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Note 6 Management remuneration Non-controlling interests Group companies in the Group GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 125Notes 6.1 Management remuneration 2022 2021 Executive Leadership Team Executive Leadership Team DKK million Board of Directors Registered executives Non- registered executives Total Board of Directors Registered executives Non- registered executives Total Salaries and other short-term benefits 10 15 32 57 10 17 27 54 Defined contribution plans - 2 3 5 - 2 3 5 Cash bonus - 11 18 29 - 11 17 28 Expensed stock-based incentive programs - 16 25 41 - 8 14 22 Remuneration 10 44 78 132 10 38 61 109 Compensation for lost incentives 8 2 10 6 3 9 Remuneration including additional payments 10 52 80 142 10 44 64 118 No. of members at December 31 11 2 6 11 2 6 General guidelines for the remuneration of the Board of Directors and the Executive Leadership Team of Novozymes A/S, as assessed by the Board of Directors in accordance with the recom- mendations of the Nomination and Remuneration Committee, are approved at the Annual Shareholders’ Meeting. A summary of the Management remuneration can be found in the Governance section of The Novozymes Report. Executive Leadership Team Members of the Executive Leadership Team receive fixed remuneration comprising a base salary, pension, and benefits. Further, significant proportions of their remuneration packages are based on performance-related pay through short and long-term incentives. Most of the variable remuneration is weighted towards the long-term, in line with Novozymes’ strategic focus and mir- roring the long-term nature of Novozymes’ investments in the business. The short and long-term incentive programs are designed to incentivize performance against selected financial, environmental, social and operational key performance indicators and indi- vidual objectives, which are directly linked to Novozymes’ strategy, and to incentivize long- term value creation and alignment with the long- term interests of shareholders, customers and other stakeholders. The annual cash bonus can- not exceed 9.5 months’ fixed base salary, of which 65% is expected to be payable at target performance. The stock-based incentive pro- grams are described in Note 6.2. Members of the Executive Leadership Team have contracts of employment containing standard conditions for executives of Danish listed compa- nies, including the periods of notice that both parties are required to give, and noncompetition clauses. If an executive officer’s contract of employment is terminated by the company with- out any misconduct on the part of the executive officer, the executive officer has a notice period of 12 months. In addition to the notice period, the executive officer has a right to termination compensation of 12 months’ base salary and pension contributions. Board of Directors The remuneration of the Board of Directors com- prises a fixed fee and is not based on incentives. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 126Notes New programs Novozymes has established stock-based incen- tive programs for the Executive Leadership Team, vice presidents, directors, and other employees. The purpose of these programs is to ensure an alignment of interests of the Management, employees and shareholders. Allocation of pro- grams has been, and remains, dependent on profit, value creation and, in some cases, sustain- ability targets being achieved, and are made based on individual base salary. The exercise price and the share price of a stock option are identical at the date of grant. In order to exercise the options, the employees must still be employed at the exercise date. This does not apply to persons who have retired, taken volun- tary early retirement or been given notice. In 2020, Novozymes introduced annual long-term incentive-based program grants with overlapping three-year performance periods, and so in 2022 a new incentive program for the Executive Leadership Team was established, covering the performance period 2022–2024. The program is a combination of stock options and stock, with half of the incentive program allocated in stock options and half in stock. The total number of stock options and stock achievable is divided into two categories: ‘target stock options and target stock’ nonfinancial targets, then none or only part of the target stock options and the target stock will be granted. The program contains a maximum-value clause, allowing the Board of Directors to choose to limit the total allocation of stock options and stock if the intrinsic value of the program exceeds twice the annual conditional grant. The total target-level fair value of the program at the date of grant was approximately DKK 40 mil- lion. The value of the stock will be expensed over the three-year qualifying period (2022–2024) and will be released in 2025. The stock options have a vesting period of four years, followed by an exercise period of five years. The fair value of the stock options will be expensed over the four-year vesting period. A new program was also established in 2022 for vice presidents and directors covering the perfor- mance period 2022–2024 (206 vice presidents and directors). The total target level fair value at grant date was approximately DKK 50 million and based on the same requirements and targets as for the Executive Leadership Team. The program is a combination of stock options and stock, with half of the incentive program allocated in stock and ‘extra stock options and extra stock’. The tar- get stock options, and target stock correspond to 65% of the maximum stock options and stock, and extra stock options and extra stock correspond to 35% of the maximum stock options and stock. The targets have 40% weight on organic sales growth, 20% weight on EBIT margin, 20% weight on ROIC, and 20% weight on nonfinancial targets. The non- financial targets are measured in relation to Climate, water & waste, workplace and diversity. Each of the nonfinancial targets carries a weight of 5%. The performance targets are as protocolled in the minutes of the board meeting approving the annual group financial statement for the year prior to the performance period. • If Novozymes reaches the targets for 2022– 2024 for organic sales growth, EBIT margin and ROIC in line with business plans and long-term aspiration and on all four measures for the nonfinancial targets, then the target stock options and the target stock will be granted. • If Novozymes manages to outperform the tar- gets, some or all of the extra stock options and extra stock may be granted. • If Novozymes does not meet the targets for 2022–2024 or if Novozymes is significantly below the targets on one or more of the four and half in stock options. The stock options have a four-year vesting period, while the stock will be released in 2025. The program contains a maximum-value clause, allowing the Executive Leadership Team to choose to limit the total allocation of stock and stock options if the intrinsic value of the program exceeds twice the annual conditional grant. For other employees, a new stock option-based incentive program was also established in 2022 covering the performance period 2022–2024. The employee program follows the same require- ments and targets as the program for the Executive Leadership Team and the program for vice presidents and directors. The Executive Leadership Team and other senior management, who are already included in an exist- ing incentive program, are excluded from this new program. The awarded stock options have a vest- ing period of four years, followed by an exercise period of five years. The target level value of the program is approximately DKK 40 million. 6.2 Stock-based payment GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 127Notes Finally awarded programs Awards in the programs covering the performance period 2020–2022 were finalized in 2022. The tar- gets for sales growth and economic profit was adjusted in 2021 to exclude 2020 performance due to the extraordinary impact from COVID-19, and the allocations related to these targets were reduced by one third. For more information, see the description in the Novozymes Remuneration Report 2021. The accumulated economic profit generated in the two-year period (2021–2022) was DKK 4.6 billion, resulting in 100% of the economic profit pool (26.5% of the total program) being awarded. Average organic sales growth during the two-year period was 7.5%, resulting in 100% of the sales growth pool (26.5% of the total program). 80% of the sustainability targets were reached (20% of the total program). In total, 69% of the original maximum of the program is being awarded. For the Executive Leadership Team, this means that a total of 45,085 shares will be released in January 2023. The number of stock options granted over the three-year period is 328,763 reflecting the realized target achievement. The program contains a maximum-value clause, allow- ing the Board of Directors to choose to limit the total allocation of stock and stock options if the intrinsic value exceeds twice the annual condi- tional grant at the end of the program. There will be no limitation on the total allocation, as the intrinsic value is DKK 16 million. The program for vice presidents and directors fol- lows the same requirements and targets as the program for the Executive Leadership Team. The final number of shares allocated under this pro- gram to be released in January 2023 is 60,768. The number of stock options granted over the three-year period is 442,539, reflecting the real- ized target achievement of 69%. Awards in the program for other employees cover- ing the performance period 2020–2022 were also finalized in 2022. The number of stock options granted over the three-year period is 785,811, reflecting the realized target achievement of 69%. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 128Notes Number of options DKK DKK million Executive Leadership Team Vice presidents and directors Other employees Total Avg. exercise price per option Grant date fair value per option Grant date fair value total OutstandingatJanuary1, 2022 899,295 3,761,733 2,349,300 7,010,328 312 Granted 235,877 318,779 557,898 1,112,554 416 82 92 Allocation adjustment 19,063 19,439 32,382 70,884 351 48 3 Exercised - (414,669) (222,654) (637,323) 264 Forfeited - (98,188) (165,200) (263,388) 366 Expired - (9,963) (6,835) (16,798) 275 OutstandingatDecember31, 2022 1,154,235 3,577,131 2,544,891 7,276,257 331 OutstandingatJanuary1, 2021 997,511 4,091,106 2,054,654 7,143,271 289 Change in Management (188,638) 188,638 - - Granted 266,279 371,321 617,963 1,255,563 385 68 85 Exercised (175,857) (811,215) (242,860) (1,229,932) 253 Forfeited - (78,117) (75,869) (153,986) 335 Expired - - (4,588) (4,588) 272 OutstandingatDecember31, 2021 899,295 3,761,733 2,349,300 7,010,328 312 Number of exercisable options at December 31, 2022 2,534,562 278 Number of exercisable options at December 31, 2021 2,493,268 268 1. The allocation of stock options for 2022–2024 will be adjusted in January 2025 based on the cumulative level of target achievement for the period. 2. The allocation of stock options for 2020–2022 has been adjusted based on the realized level of target achievement for the period (69%). 3. The weighted average share price for stock options exercised during 2022 was DKK433 (2021: DKK 448). 4. The allocation of stock options for 2021–2023 will be adjusted in January 2024 based on the cumulative level of target achievement for the period. Stock options The number of outstanding options (excl. stock awards) has developed as follows: GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 129Notes For stock options outstanding at December 31, 2022, the range of exercise prices is DKK 233- 486 per option (2021: DKK 178-486 per option), and the weighted average remaining term to maturity is five years (2021: five years). During 2022, DKK 127 million arising from stock- based payment was recognized in the income statement (2021: DKK 78 million), DKK 123 mil- lion of which was from equity-settled programs (2021: DKK 75 million) and DKK 4 million was from cash-settled programs (2021: DKK 3 mil- lion). Most programs are equity settled, and no liability Stock awards The stock allocated under the programs is used for stock awards. In 2022, 107,510 stock awards with a fair value of DKK 45 million were granted (2021: DKK 41 million) which will be expensed over the three-year period (2022–2024). is recognized for these. If allocations under the programs are made in countries where ownership of foreign stock is not permitted, the value of stock options is settled in cash instead, and a lia- bility of DKK 21 million was recognized for this in 2022 (2021: DKK 44 million). The intrinsic value of exercisable cash-settled programs in 2022 was DKK 9 million (2021: DKK 61 million). The fair value of employee services received is measured with reference to the fair value of the equity instruments granted. Fair value at grant date is measured in accordance with the Black– Scholes model, using the average exercise price, the option term and the following significant assumptions: The total number of outstanding stock awards at December 31, 2022 was 314,029 (2021: 209,193). The fair value of these at December 31, 2022 was DKK 111 million (2021: 112 million). DKK million Note 2022 2021 Expected future dividends per share DKK 38.9 38.1 Volatility % 25.9 25.3 Annual risk-free interest rate % 0.3 (0.5) Weighted average share price at grant date DKK 416 385 The Group has established stock-based incentive programs comprising equity-settled and cash-settled programs. The fair value of the employee services received in exchange for the grant of stock options and stock awards is measured with reference to the fair value of the stock options and stock awards granted. The fair value is measured using the Black–Scholes option-pricing model. The fair value of stock-based payment at the grant date is recognized as an employee cost over the period in which the stock options vest. In measuring the fair value, account is taken of the number of employees expected to gain entitlement to the options as well as the number of options the employees are expected to gain. This estimate is adjusted at the end of each reporting period such that only the number of options to which employ- ees are entitled or expected to be entitled is recognized. The value of equity-settled programs is rec- ognized in equity. The value of cash-settled programs, which are recognized as Other lia- bilities, is adjusted to fair value at the end of each reporting period, and the subsequent adjustment is recognized in the income state- ment under Financial income or Financial costs. Accounting policies Furthermore, the options are assumed to be exercised two years after expiry of the vesting period, on average, or at the option’s expiry date if within one year. Volatility is estimated using the historical volatility over the last three years. The risk-free interest rate is based on Danish government bonds with a maturity equivalent to the option’s term to maturity. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 130Notes DKK million 2022 2021 Other guarantees Other guarantees and commitments to related companies 22 29 Other guarantees and commitments 606 332 Pending litigation and arbitration Novozymes is engaged in certain legal cases. The Board of Directors and Management believe that settlement or continuation of these cases will not have a significant effect on the Group’s financial position. A liability is recognized under Provisions when the risk of a loss on a legal case is considered more likely than not. Contractual commitments The increase in contractual commitments is related to the proposed combination of Novozymes and Chr. Hansen. Contractual commitments to third parties relat- ing to Property, plant and equipment are described in Note 3.2. Contingent liabilities In the unlikely event that the proposed combina- tion of Novozymes and Chr. Hansen does not obtain regulatory approval, Novozymes may have to pay a break-up fee of up to DKK 2,342 million (EUR 315 million). Contract conditions Several of the partnership contracts to which Novozymes is a party may be terminated by the other party in the event of significant changes in ownership or control of Novozymes. Furthermore, a few contracts contain provisions that restrict Novozymes’ licenses from using specific forms of technology in such situations. 6.3 Commitments and contingencies Transactions DKK million 2022 2021 Novo Holdings A/S Sale of services - 1 Dividend payment to Novo Holdings A/S 396 382 The Novo Nordisk Group Sale of services 92 78 Sale of assets 21 6 Purchase of goods and materials (29) (80) Purchase of services (49) (36) The NNIT Group Purchase of services (34) (39) The Chr. Hansen Group Sale of goods and materials 123 89 Purchase of goods and materials - (3) Microbiogen Pty. Ltd. Purchase of services (38) (25) 21 st . BIO A/S Sale of services 14 - MagnaBioAnalytics LLC Purchase of goods and materials (1) - Purchase of services (1) - * Associate of Novozymes A/S 6.4 Related party transactions GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 131Notes Outstanding balances DKK million 2022 2021 The Novo Nordisk Group Receivables 10 10 Payables (79) (88) The NNIT Group Payables (7) (9) The Chr. Hansen Group Receivables 22 5 Microbiogen Pty. Ltd. Payables (12) (7) 21 st . BIO A/S Receivables 2 - MagnaBioAnalytics LLC Receivables 5 - * Associate of Novozymes A/S Novozymes A/S is controlled by Novo Holdings A/S, domiciled in Hellerup, Denmark, which holds 72.7% of the votes in Novozymes A/S. The remaining stock is widely held. The ultimate par- ent of the Group is the Novo Nordisk Foundation (incorporated in Denmark). Related parties are considered to be Novo Holdings A/S and the Novo Nordisk Foundation, as well as the Board of Directors and Executive Management of these entities together with their immediate families. Other related parties are considered to be the Novo Nordisk Foundation’s subsidiaries and associates, such as the Novo Nordisk Group, the NNIT Group and the Chr. Hansen Group, associates of Novozymes A/S, as well as the Board of Directors and Executive Leadership Team of Novozymes A/S together with their immediate families. Related parties also include companies in which the above per- sons have control or joint control. All agreements relating to these transactions are based on market price (arm’s length). The major- ity of the agreements are renegotiated regularly. In 2022, Novozymes has not sold or purchased any of its own B shares from Novo Holdings A/S. In 2021, Novozymes purchased from Novo Holdings A/S 765,000 of its own B shares with the approval of the Board of Directors, at a price of DKK 338 million. The transaction was based on the market price. There were no transactions with related parties other than the transactions described and nor- mal remuneration of the Board of Directors and Executive Leadership Team, which is presented in Note 6.1. Rental commitments to related parties at December 31, 2022 amounted to DKK 12 million, compared with DKK 12 million at December 31, 2021. In 2022, Novozymes Biotechnology ApS merged with 21 st .BIO. As part of the merger, Novozymes received 40% of the shares in 21 st .BIO, corre- sponding to the value of the intellectual property rights from Novozymes Biotechnology ApS of DKK 201 million. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 132Notes Fair value of the share purchase liability is based on non-observable data (level 3 input) that requires Management to make estimates and use assumptions. Estimates are based on updated information since the initial recognition of the liability, such as budgets, sales forecasts, discount rates etc. The fair value of the share purchase liability is calculated as the present value of the most probable redemption amount using the discounted cash flow method. The deter- mined fair value is associated with uncer- tainty and may be subject to subsequent adjustments. Critical accounting estimates and judgments Share purchase liability is Novozymes’s obli- gation to purchase non-controlling interests in subsidiaries and is remeasured at fair value at each reporting date. The fair value of the most likely redemption amount is initially recognized within liabilities with a corre- sponding charge directly to Equity. Interest and fair value adjustments resulting from events after the initial recognition are recog- nized in Equity under Retained earnings. Accounting policies Transactions with non-controlling interests On December 10, 2021, Novozymes acquired 60% of the shares in Synergia Life Sciences, located in India. The remaining 40% of the shares in Synergia Life Sciences are held by non-controlling interests and are recognized in the final opening balance at the proportionate share of the acquired net identifiable assets, which amounts to DKK 371 million. See details in Note 3.5. Share purchase liability The remaining 40% of the shares in Synergia Life Sciences are to be acquired in 2025 and a liabil- ity of DKK 760 million (2021: DKK 717 million) is recognized. The redemption amount is contingent on the achievement of sales targets for Synergia Life Sciences for the period April 1, 2024 to March 31, 2025. The consideration will be within the range of DKK 623 million to DKK 1,121 million and includes payment of the non-controlling interests’ stake of the net working capital and cash balances at the acquisition date of Synergia Life Sciences. Fair value of the Share purchase liability is assessed by using the most probable redemption amount, discounted at a rate of 11% (2021: 11%). Currency translation adjustments and interest of net DKK 43 million (2021: DKK 0 million) have been recognized in Equity. The share purchase liability is denominated in INR. 6.5 Non-controlling interests DKK million 2022 2021 Share purchase liability at January 1 717 - Additions from business acquisitions - 717 Currency translation adjustments (32) - Interest 75 - Share purchase liability at December 31 760 717 GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 133Notes DKK million 2022 2021 Statutory audit 9 9 Other assurance engagements - - Tax assurance services 3 3 Other services 10 1 Fees to statutory auditors 22 13 Group audit fee ratio 1.4 0.4 Audit fee policy It is Novozymes’ policy that the annual fee for nonaudit services provided by the statutory audi- tors should not exceed the annual fee for statu- tory audit services measured at Group level. The Group audit fee ratio may only exceed 1 with the approval of the Audit Committee. In 2022, approval was given for advisory services and mandatory statements of DKK 9.6 million related to the proposed combination of Novozymes and Chr. Hansen. In 2021 the group audit fee ratio was 0.4. Implementation of the EU audit reform has led to restrictions on the nonaudit services that the auditors elected at the Annual Shareholders’ Meeting may perform, including a 70% cap. The fee for nonaudit services performed for Novozymes by PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab was DKK 4 million (2021: DKK 1 million) and does not exceed the 70% cap. The services comprise tax advisory services concerning transfer pricing, advisory services related to the proposed combi- nation of Novozymes and Chr. Hansen and other general financial reporting and tax consultancy. The fee for the mandatory statements related to the proposed combination of Novozymes and Chr. Hansen are by definition not a nonaudit ser- vice in relation to 70% cap calculation. 6.6 Fees to statutory auditors DKK million Note 2022 2021 Non-cash items Accrued interest income and interest costs 146 34 (Gain)/loss on financial assets, etc., net (248) 3 Depreciation, amortization and impairment losses 3.1, 3.2 1,485 1,416 Realized loss and allowances for doubtful trade receivables 15 (14) (Gain)/loss on sale and disposal of assets (25) (92) Unrealized foreign exchange (gain)/loss 70 73 Tax 2.7 870 779 Stock-based payment 6.2 127 78 Change in provisions (44) (26) Divestment of a pharma-related royalty - (57) Gain from 21 st .BIO transaction (201) - Gain on divestment of minority ownership in Albumedix (267) - Profit/loss in associates 7 4 Non-cash items 1,935 2,198 6.7 Cash flow GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 134Notes DKK million Note 2022 2021 Business acquisitions, divestments and purchases of financial assets Divestment of minority ownership in Albumedix 5.2 267 - Acquisition of Microbiome Labs 3.5 - (761) Acquisition of Synergia Life Sciences 3.5 (77) (870) Cash flow from acquisitions, net 190 (1,631) Additions of intangible assets 3.1 130 169 Purchase of intangible assets 130 169 Additions of property, plant and equipment 3.2 2,802 1,188 Non-cash additions of property, plant and equipment - (15) Less additions to lease assets 3.3 (42) (102) Purchase of property, plant and equipment 2,760 1,071 Undrawn committed credit facilities amounted to DKK 17,502 million at December 31, 2022 (2021: DKK 3,785 million), all of which expire in 2023–2027. The increase mainly relates to a significant facility related to the proposed combination of Novozymes and Chr. Hansen. The consolidated statement of cash flows, which is compiled using the indirect method, shows cash flows from operating, investing and financing activities, and the Group’s cash and cash equivalents at the beginning and end of the year. Cash flow from operating activities comprises net profit adjusted for non-cash items, paid financial items, corporate income tax paid and change in working capital. Cash flow from investing activities comprises payments relating to the acquisition and sale of companies and non-controlling interests, intangible assets, and property, plant and equipment. Cash flow from financing activities comprises proceeds from borrowings, repayment of principal on interest-bearing debt, repayment of lease liabilities, payment of dividends, pro- ceeds from stock issues, and the sale of treasury stock and other securities. Cash and cash equivalents comprises cash at bank and in hand less current bank loans due on demand. Accounting policies GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 135Notes 6.9 Group companies No events of importance to the consolidated financial statements have occurred after the reporting date. ISO 14001-certified sites. All major companies are ISO 9001 certified. Production Sales and marketing Research and development Holding companies, etc. Activity Percentage of shares owned Parent Company Novozymes A/S, Denmark Subsidiaries Novozymes BioAg S.A., Argentina 100 Novozymes Australia Pty. Ltd., Australia 100 Novozymes Belgium BV, Belgium 100 Novozymes Latin America Ltda., Brazil 100 Novozymes BioAg Productos Para Agricultura Ltda., Brazil 100 Novozymes BioAg Limited, Canada 100 Activity Percentage of shares owned Novozymes Canada Limited, Canada 100 Novozymes (China) Biotechnology Co. Ltd., China 100 Novozymes (China) Investment Co. Ltd., China 100 Novozymes (Shenyang) Biologicals Co. Ltd., China 100 Suzhou Hongda Enzyme Co. Ltd., China 96 Novozymes OneHealth Biotechnology (Shanghai) Co. Ltd., China 100 Novozymes Bioindustrial A/S, Denmark 100 Novozymes Bioindustrial China A/S, Denmark 100 Novozymes Biopharma DK A/S, Denmark 100 Novozymes BioAg A/S, Denmark 100 Novozymes France S.A.S., France 100 Novozymes Deutschland GmbH, Germany 100 Novozymes Berlin GmbH, Germany 100 Novozymes Greece Single Member SA, Greece 100 Novozymes Hong Kong Ltd., Hong Kong 100 Novozymes South Asia Pvt. Ltd., India 100 Riata Life Sciences Pvt. Ltd., India 60 Synergia Life Sciences Pvt. Ltd., India 60 PT Novozymes Indonesia Biotechnology, Indonesia 100 PrecisionBiotics Group Ltd., Ireland 100 Novozymes Italia S.r.l., Italy 100 Novozymes Japan Ltd., Japan 100 Novozymes Kenya Ltd., Kenya 100 Novozymes Malaysia Sdn. Bhd., Malaysia 100 6.8 Events after the reporting date GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 136Notes Activity Percentage of shares owned Novozymes Mexicana, S.A. de C.V., Mexico 100 Novozymes Mexico, S.A. de C.V., Mexico 100 Novozymes Nederland B.V., Netherlands 100 Novozymes RUS LLC, Russia 100 Novozymes Singapore Pte. Ltd., Singapore 100 Novozymes South Africa (Pty) Ltd., South Africa 100 Novozymes Korea Limited, South Korea 100 Novozymes Spain S.A., Spain 100 Novozymes Sweden AB, Sweden 100 Novozymes Switzerland AG, Switzerland 100 Novozymes Switzerland Holding AG, Switzerland 100 Novozymes (Thailand) Ltd., Thailand 100 Novozymes Enzim Dis Ticaret Ltd. Sirketi, Turkey 100 Novozymes UK Ltd., U.K. 100 Novozymes BioAg, Inc., U.S. 100 Novozymes Biologicals, Inc., U.S. 100 Novozymes Blair, Inc., U.S. 100 Novozymes, Inc., U.S. 100 Physicians Exclusive LLC (d.b.a) Microbiome Labs, U.S. 100 Novozymes North America, Inc., U.S. 100 Novozymes US, Inc., U.S. 100 Activity Percentage of shares owned Joint operations/associates Grundejerforeningen Smørmosen, Denmark Grundejerforeningen Hallas Park, Denmark 21 st .BIO A/S, Denmark 42.70 Microbiogen PTY Ltd., Australia 23.10 Tecnol s.r.l. in liqudiazione (formerly Beta Renewables S.p.A.), Italy 9.95 MagnaBioAnalytics LLC, U.S. 19.35 * Owned directly by Novozymes A/S. 6.9 Group companies GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Note 7 Climate change Energy Water Waste Environmental compliance Environmental Mandatory statement on Corporate social responsibility, cf. section 99a in the Danish Financial Statements Act The Notes on Environmental data and Social and Governance data forms the reporting required by section 99a in the Danish Financial Act. Topic Our business p 19-25 Content of commitments, management approach, targets, data, initiatives, and related progress on corporate social responsibility issues: Climate and environment Notes on Environmental data Social matters Notes on Human rights Note on Anti-corruption and bribery Note on Business Ethics The Novozymes Report 2022 GovernanceThe big picture Novozymes A/S 138Notes - - 2 emissions 2 - - net-zero targets by SBTi. - 2 2 7.1 Climate change 2022 2021 Natural gas 40 4 3 HCFCs 2 2 Scope 1 46 43 1 1 Electricity 50 112 Steam 64 62 115 175 ESG 161 218 2022 2021 115 175 332 316 GovernanceThe big picture The Novozymes Report 2022 Five-year operational emissions (CO 2-eqv.) 1,000 tonnes Scope 1 Scope 2 2020 2019 2018 2021 2022 161 437 330 234 218 Novozymes A/S 139Notes 2 emissions comprise scope 1 2 - 2 2 2 - 2 Accounting policies 7.1 Climate change - 2 . - 2 transport sector potentially save 65 million 2 emissions in 2022 by enabling the - GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 140Notes textile applications. We manage energy in our operations through a our local communities. - 2022 2021 Natural gas 762 717 Biogas 30 20 39 29 831 766 Electricity – conventional 506 56 77 141 141 Steam ESG 66 76 7.2 Energy Five-year energy consumption 4,831 4,574 4,475 4,699 4,840 1,000 GJ 2020 2019 2018 2021 2022 GovernanceThe big picture The Novozymes Report 2022 Renewable electricity sources 2022 (2021) Wind power 42% (52%) Solar 20% (25%) Hydro 3% (4%) Biomass 35% (19%) Novozymes A/S 141Notes - other areas. state that the - - - Accounting policies 7.2 Energy - - ble electricity. - - - - - GovernanceThe big picture The Novozymes Report 2022 Water withdrawal by primary source 1,000 m ³ Drinking water Industrial waterSteam 2020 2019 2018 2021 2022 8,205 7,845 7,998 8,538 8,720 Novozymes A/S 142Notes - - - - 2022 2021 Steam ESG 7.3 Water m - - - our operational basins. GovernanceThe big picture The Novozymes Report 2022 Wastewater by treatment method 1,000 m ³ 2020 2019 2018 2021 2022 Novozymes-treated to external water recipient Novozymes-treated to external treatment Novozymes-treated to irrigation Untreated to external treatment 6,766 6,306 6,147 6,471 6,610 Novozymes A/S 143Notes - - Accounting policies 2022 2021 ESG 7.3 Water - eration the local context. - - - - - - - - GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 144Notes - cessing biosolutions enable our customers to - - - - - - - - 7.4 Waste Biomass - - - tural activities. - - tion. - 2022 2021 2022 2021 463.5 53.1 550.5 - 2.4 - 1.4 ESG - - Total waste by disposal method 2022 (2021) Used in agriculture 96.4% (96.5%) Recycling 2.3% (1.9%) Incineration with energy recovery 0.5% (0.6%) Landfill and incineration without energy recovery 0.8% (1.0%) GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 145Notes - - - Accounting policies 7.4 Waste - recover non-recyclable plastics. Circular Packaging - - into our packaging strategy. 2022 2021 Incineration 2.2 2.1 3.6 2.2 Recycling 11.4 6.5 Incineration 1.4 1.1 0.2 0.1 Recycling 1.7 2.6 ESG - Non-biomass waste - or incineration. - - GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 146Notes - - - - receive. to ensure environmental compliance are our operations. - - - - - - - improvements to the air ventilation system to - Accounting policies 7.5 Environmental compliance GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 147Notes - - - - lenge ourselves to see not only the possibilities - - - - - - - GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 148Notes - - - - - - - - mental sustainability. Product safety - - - - other external partners. Hazardous substance management - - - GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Labor practices & human rights Business ethics Customer engagement Community engagement Responsible sourcing employees Women in senior management Mandatory statement on Corporate social responsibility, cf. section 99a in the Danish Financial Statements Act The Notes on Environmental data and Social and Governance data forms the reporting required by section 99a in the Danish Financial Act. Topic Our business p 19-25 Content of commitments, management approach, targets, data, initiatives, and related progress on corporate social responsibility issues: Climate and environment Notes on Social matters Notes on Social and Governance data Human rights Note on Anti-corruption and bribery Note on Business Ethics The Novozymes Report 2022 GovernanceThe big picture Novozymes A/S 150Notes - - - - - - legislation. - Principles. We publish an annual statement Labor practices in the labor market. 2022 2021 % 1.0 0.9 % 2.1 3.4 % 7.5 % % 1.7 1.2 process operators % 4.1 3.6 All employees ESG % 2.6 2.2 Average age years 41.9 42.0 Average seniority years 9.2 9.7 No. 23 GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 151Notes - - - company. - Accounting policies Human rights GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 152Notes - - Our approach We are committed to nurture a culture of diversity, equity and inclusion. By 2030, we aim to achieve gender balance across all professionals and in se- nior management. This means that, we will strive for a minimum of 45% women and 45% men across all professionals and in senior management. To deliver on our long-term ambition, we work with milestone targets. In 2022, we concluded our non- financial milestone target of Nurture Diversity Index and launched a new milestone target for 2025. We aim to achieve a minimum 35% women in senior management and of 45% women across all professionals by 2025. - - - being. men in 2021. - - hygiene. organization. 2022 2021 Women Men Women Men In senior management ESG % 33 67 34 66 In management % 40 60 39 61 % 45 55 44 56 % 43 57 41 59 GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 153Notes - tions. - Accounting policies - external speakers to give talks to our employees - - - GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 154Notes - - - - employee survey serves as an important tool to - - - - - - - employees manage these changes through clear - - - 2022 2021 17 16 - - - 1 3 - 20 17 2022 2021 No. 564 657 ESG Per million 1.7 1.5 - Well-being GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 155Notes 2022 2021 - - 1 2 - - - - 1 2 2022 2021 No. - - ESG Per million 0.1 0.2 2022 2021 Average training cost spent per employee % 0.7 0.6 - - better. rotations. - - - - ers at Novozymes. Accounting policies GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 156Notes - operations. position statements. We promote a strong com- - ethical business practices. any concerns through the relevant grievance annual compliance training in business integrity - We have a Corporate Business Integrity - ness integrity matters across Novozymes. - - - - ness integrity violations. Novozymes has a global - - business integrity cases are thoroughly investi- - seek to ensure that our commercial partners con- - in 2022. GovernanceThe big picture The Novozymes Report 2022 Reporting channels for potential fraud 2022 (2021) Whistleblower 25% (35%) Internal tip-off 55% (53%) External tip-off 20% (12%) 40 (49) Investigation outcome for whistleblows and in-/external tip-offs 2022 (2021) Substantiated 38% (41%) Not substantiated 45% (39%) Other 17% (20%) * Not fraud investigations. 40 (49) Novozymes A/S 157Notes - - - - - tive positions. company in the Novozymes Group has vio- Accounting policies internal grievance channels. corruption cases. throughout 2023-2024. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 158Notes - ships are material to our business. We seek to - tions. - - We also aim to bring value through our online ser- - - - tives in a transparent manner. - - arise. Accounting policies that our customers still strongly value the con- - - lenging business environment in 2022. - - - tions. Learn more about customer co-creation in the GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 159Notes - - cally in programs that create value to society. We inspire each other to make change happen to - employees to live more sustainably. ship teams. - - Engaging with our local communities - - - - Helping to educate the next generation - - Empowering employees to live more sustainably our campuses to encourage more employees to GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 160Notes - - - - - chain. - - - - grabbing. - - chain. Human Rights. - - - tric vehicle charging stations to promote cleaner - - GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 161Statements The Board of Directors and the Executive Management have today considered and approved the Annual Report of Novozymes A/S for the financial year January 1 – December 31, 2022. The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and further requirements in the Danish Financial Statements Act, and the Parent Company Financial Statements have been pre- pared in accordance with the Danish Financial Statements Act. Management’s Review has been prepared in accordance with the Danish Financial Statements Act. In our opinion, the accounting policies used are appropriate, and the Group’s internal controls relevant to preparation and presentation of the Annual Report are adequate. The Consolidated Financial Statements and the Parent Company Financial Statements give a true and fair view of the financial position at December 31, 2022 of the Group and the Parent Company and of the results of the Group and the Parent Company operations and consolidated cash flows for the financial year January 1 – December 31, 2022. In our opinion, Management’s Review includes a true and fair account of the development in the operations and financial circumstances of the Group and the Parent Company, of the results for the year, and of the financial position of the Group and the Parent Company as well as a description of the most significant risks and elements of uncer- tainty facing the Group and the Parent Company. Novozymes’ Consolidated environmental data and the Consolidated social and governance data and the related notes have been prepared in accordance with the reporting principles of mate- riality, inclusivity, responsiveness and the accounting policies. In our opinion, they give a true and fair view of the organisation’s environ- mental, social and governance performance in accordance with these principles. In our opinion, the Annual Report of Novozymes A/S for the financial year January 1 - December 31, 2022 identified as NOVOZYMES-2022-12- 31-en.zip has in all material respects been pre- pared in compliance with the ESEF Regulation. We recommend that the Annual Report be adopted at the Annual Shareholders’ Meeting. Chair Vice Chair GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 162Statements To the shareholders of Novozymes A/S Our opinion In our opinion, the Consolidated Financial Statements give a true and fair view of the Group’s financial position at December 31, 2022 and of the results of the Group’s operations and cash flows for the financial year January 1 to December 31, 2022 in accordance with International Financial Reporting Standards as adopted by the EU and further requirements in the Danish Financial Statements Act. Moreover, in our opinion, the Parent Company Financial Statements give a true and fair view of the Parent Company’s financial position at December 31, 2022 and of the results of the Parent Company’s operations for the financial year January 1 to December 31, 2022 in accord- ance with the Danish Financial Statements Act. In our opinion, the Consolidated environmental data and the Consolidated social and governance data for the financial year January 1 to December 31, 2022 are prepared in accordance with the accounting policies for the Consolidated environmental data and the Consolidated social and governance data. Our opinions are consistent with our Auditor’s Long-form Report to the Audit Committee and the Board of Directors. What we have audited The Consolidated Financial Statements of Novozymes A/S, pages 64-72 and 77-136 for the financial year January 1 to December 31, 2022 comprise the consolidated income statement and statement of comprehensive income, the consolidated balance sheet, the consolidated statement of equity, the consolidated cash flow statement and the notes, including significant accounting policies. The Parent Company Financial Statements of Novozymes A/S, pages 167-180 for the financial year January 1 to December 31, 2022 comprise the income statement, the balance sheet, the statement of equity and the notes, including sig- nificant accounting policies. These are collectively referred to as the “Financial Statements”. The Consolidated environmental data and the Consolidated social and governance data of Novozymes A/S, pages 73-76 and 137-160 for the financial year January 1 to December 31, 2022 comprise the environmental performance and consolidated data, the social and govern- ance performance and consolidated data and the related notes, including significant accounting policies. These are collectively referred to as the “Environmental, Social and Governance Data.” Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and the additional requirements applicable in Denmark. Our responsibilities under those stand- ards and requirements are further described in the Auditor’s responsibilities for the audit of the Financial Statements and the Environmental, Social and Governance Data section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (IESBA Code) and the additional ethical requirements applicable in Denmark. We have also fulfilled our other ethical responsibilities in accordance with these require- ments and the IESBA Code. To the best of our knowledge and belief, prohib- ited non-audit services referred to in Article 5(1) of Regulation (EU) No 537/2014 were not pro- vided. Appointment We were appointed as auditors of Novozymes A/S for the first time after the initial public offer- ing on March 21, 2001. We have been reap- pointed annually by shareholder resolution for a total period of uninterrupted engagement of 22 years, including the financial year 2022. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 163Statements Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Financial Statements for 2022. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Revenue recognition Novozymes has entered into various sales agree- ments that are subject to interpretation, which increases the inherent complexity of revenue recog- nition. Additionally, the volume of transactions and geographical spread of the Group’s operations increase complexity, including in respect of occur- rence and timing of revenue. We focus on this area because of the significance to the Consolidated Financial Statements, as well as the inherent complexity in both revenue recognition and individual sales agreements including different terms therein. Refer to Note 2.2 to the Consolidated Financial Statements. We considered the appropriateness of the Group’s accounting policies for revenue recognition and assessed compliance with applicable financial reporting stand- ards. We updated our understanding of relevant controls, including Group controlling procedures and IT systems, and business processes regarding the revenue recogni- tion. For the controls, we assessed whether they were designed and implemented to effectively address the risk of material information. We tested relevant controls, including monitoring controls, implemented to ensure the occurrence and timing of revenue recognised. We discussed the judgements related to the recognition and classification of reve- nue with Management. We performed substantive procedures regarding returns, delivery terms and rebates in order to assess the principles applied for occurrence and timing of reve- nue. We applied data analysis in our testing of revenue transactions in order to identify and test transactions outside the ordinary transaction flow. Finally, we assessed the adequacy of disclosures relating to revenue recognition. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 164Statements Statement on Management’s Review Management is responsible for Management’s Review, pages 3-63 and 181-182. Our opinion on the Financial Statements and on the Environmental, Social and Governance Data does not cover Management’s Review, and we do not express any form of assurance conclusion thereon. In connection with our audit of the Financial Statements, our responsibility is to read Management’s Review and, in doing so, consider whether Management’s Review is materially inconsistent with the Financial Statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. Moreover, we considered whether Management’s Review includes the disclosures required by the Danish Financial Statements Act. Based on the work we have performed, in our view, Management’s Review is in accordance with the Consolidated Financial Statements, the Parent Company Financial Statements and the Environmental, Social and Governance Data and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstate- ment in Management’s Review. Management’s responsibilities for the Financial Statements and the Environmental, Social and Governance Data Management is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and further requirements in the Danish Financial Statements Act and for the preparation of parent company financial state- ments that give a true and fair view in accord- ance with the Danish Financial Statements Act, and for such internal control as Management determines is necessary to enable the prepara- tion of financial statements that are free from material misstatement, whether due to fraud or error. Furthermore, Management is responsible for pre- paring the Environmental, Social and Governance Data in accordance with the accounting policies for the Environmental, Social and Governance Data, and for such internal control as Management determines is necessary to enable the preparation of Environmental, Social and Governance Data that are free from material mis- statement, whether due to fraud or error. In preparing the Financial Statements, Management is responsible for assessing the Group’s and the Parent Company’s ability to con- tinue as a going concern, disclosing, as applica- ble, matters related to going concern and using the going concern basis of accounting unless Management either intends to liquidate the Group or the Parent Company or to cease opera- tions, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Statements and the Environmental, Social and Governance Data Our objectives are to obtain reasonable assur- ance about whether the Financial Statements and the Environmental, Social and Governance Data as a whole are free from material misstate- ment, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assur- ance, but is not a guarantee that an audit con- ducted in accordance with ISAs and the addi- tional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements and the Environmental, Social and Governance Data. As part of an audit in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material mis- statement of the Financial Statements and the Environmental, Social and Governance Data, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, inten- tional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the cir- cumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Parent Company’s inter- nal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. • Conclude on the appropriateness of Management’s use of the going concern basis of accounting and based on the audit evi- dence obtained, whether a material uncer- tainty exists related to events or conditions that may cast significant doubt on the Group’s and the Parent Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 165Statements required to draw attention in our auditor’s report to the related disclosures in the Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group or the Parent Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the Financial Statements, including the disclosures, and whether the Financial Statements represent the underly- ing transactions and events in a manner that gives a true and fair view. • Obtain sufficient appropriate audit evidence regarding the financial information, environ- mental, social and governance data of the entities or business activities within the Group to express an opinion on the Consolidated Financial Statements and the Environmental, Social and Governance Data. We are responsible for the direction, supervi- sion and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with gov- ernance regarding, among other matters, the planned scope and timing of the audit and signif- icant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with rel- evant ethical requirements regarding independ- ence, and to communicate with them all relation- ships and other matters that may reasonably be thought to bear on our independence and, where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclo- sure about the matter. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 166Statements Report on compliance with the ESEF Regulation As part of our audit of the Financial Statements we performed procedures to express an opinion on whether the annual report of Novozymes A/S for the financial year January 1 to December 31, 2022 with the filename NOVOZYMES-2022-12- 31-en.zip is prepared, in all material respects, in compliance with the Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (the “ESEF Regulation”) which includes requirements related to the preparation of the annual report in XHTML format and iXBRL tagging of the Consolidated Financial Statements including notes. Management is responsible for preparing an annual report that complies with the ESEF Regulation. This responsibility includes: • The preparing of the annual report in XHTML format; • The selection and application of appropriate iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to ele- ments in the taxonomy, for all financial infor- mation required to be tagged using judgment where necessary; • Ensuring consistency between iXBRL tagged data and the Consolidated Financial Statements presented in human-readable for- mat; and • For such internal control as Management determines necessary to enable the prepara- tion of an annual report that is compliant with the ESEF Regulation. Our responsibility is to obtain reasonable assur- ance on whether the annual report is prepared, in all material respects, in compliance with the ESEF Regulation based on the evidence we have obtained, and to issue a report that includes our opinion. The nature, timing and extent of proce- dures selected depend on the auditor’s judg- ment, including the assessment of the risks of material departures from the requirements set out in the ESEF Regulation, whether due to fraud or error. The procedures include: Testing whether the annual report is prepared in XHTML format; • Obtaining an understanding of the company’s iXBRL tagging process and of internal control over the tagging process; • Evaluating the completeness of the iXBRL tagging of the Consolidated Financial Statements including notes; • Evaluating the appropriateness of the compa- ny’s use of iXBRL elements selected from the ESEF taxonomy and the creation of extension elements where no suitable element in the ESEF taxonomy has been identified; • Evaluating the use of anchoring of extension elements to elements in the ESEF taxonomy; and • Reconciling the iXBRL tagged data with the audited Consolidated Financial Statements. In our opinion, the annual report of Novozymes A/S for the financial year January 1 to December 31, 2022 with the file name NOVOZYMES-2022- 12-31-en.zip is prepared, in all material respects, in compliance with the ESEF Regulation. Statsautoriseret Revisionspartnerselskab CVR No 3377 1231 mne23331 GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Income statement Balance sheet Accounting policies Revenue Employee costs Intangible assets Leases Investments in associates GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Financial statements for Novozymes A/S 168 Note 2022 2021 Revenue 2.1 2.3 2.4 3.5 Financial income 4.1 260 165 Financial costs 4.1 Tax 4.4 6.00 5.50 GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Financial statements for Novozymes A/S 169 Note Intangible assets 3.1 3.2 3.4 Investments in associates 3.5 223 29 3.6 15 9 302 311 293 Work in progress 620 494 931 292 Tax receivables 66 47 3.6 415 209 213 230 Note Common stock 562 564 Treasury stock 260 3.7 650 264 914 711 Lease liabilities 130 - 332 Lease liabilities 47 46 656 3.9 599 657 GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Financial statements for Novozymes A/S 170 Revaluation Retained dividend Total 564 238 564 - 238 22 - 27 - - 164 164 441 - 113 113 21 21 B/S 562 - 260 81 GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Financial statements for Novozymes A/S 171 1.1 Accounting policies Note section 1 - - - - - - - - ment losses. - - - - - - - - contributions to the investment in the respective - - Share purchase liabilities are obligations to - value through the income statement. Dividend GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Financial statements for Novozymes A/S 172 2.1 Revenue 2.2 Employee costs Note section 2 2022 2021 211 204 North America Latin America 796 Revenue I/S 2022 2021 - 240 - 60 42 20 I/S 2022 2021 267 - I/S 2022 2021 196 23 19 160 - GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Financial statements for Novozymes A/S 173 3.1 Intangible assets Note section 3 velopment costs. 2022 2021 Total Total 112 - - 21 102 123 - - - - 919 136 Impairment losses - - - - B/S 199 136 GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Financial statements for Novozymes A/S 174 - 2022 2021 Land and under Total Total 22 54 513 627 453 - 42 - - 608 Impairment losses - - - - 145 20 19 146 B/S 514 608 Note section 3 GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Financial statements for Novozymes A/S 175 2022 2021 46 92 43 168 206 2022 2021 Less than 1 year 47 46 61 92 More than 5 years 71 179 218 2022 2021 Interest on lease liabilities 4 4 9 10 6 6 30 27 45 43 3.3 Leases Note section 3 GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Financial statements for Novozymes A/S 176 2022 267 B/S 2022 201 329 B/S 223 Note section 3 company. 2022 2021 206 115 142 75 430 218 Non-current B/S 15 9 Current B/S 415 209 430 218 3.5 Investments in associates GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Financial statements for Novozymes A/S 177 2022 2021 2022 2021 Intangible assets - - - - Inventories - - Stock options 51 - - - - 51 188 51 B/S - - 2022 2021 21 35 174 B/S Note section 3 - Group. Labs. Microbiome Labs. - - - - - - - GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Financial statements for Novozymes A/S 178 Note section 4 2022 2021 23 22 223 62 14 I/S 260 165 I/S 2022 2021 4.1 Financial income - - 2022 2021 - GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Financial statements for Novozymes A/S 179 Note section 5 2022 2021 Sales - 1 396 Sales 113 Purchases The NNIT Group Purchases Sales 114 Purchases - Royalty income 6 - Royalty expenses - Purchases Purchases 2022 2021 Receivables 10 10 Payables The NNIT Group Payables Receivables 20 5 Receivables 6 - Payables - Payables Receivables 5 - - - GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S Financial statements for Novozymes A/S 180 2022 2021 6 6 - - 2 2 10 - 18 8 - - - Note section 5 5.4 Contingent liabilities 2022 2021 343 344 546 176 - - in Note 3.2. - statements concerning non-controlling interests. - GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 181 Glossary revenue. amortization. assets. - ing liabilities. - interest-bearing current assets. - rate. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 182 Glossary capital. Chr. Hansen. - - - lency basis in this report. Climate neutral or net-zero emissions are greenhouse gases to the atmosphere are bal- - The International Panel on Climate Change the climate system. - Gender balance Scope 3 - energy recovery. GovernanceThe big picture The Novozymes Report 2022 Novozymes A/S 183About the Report About the Report Editor in chief Finance Neha Ganesh Taís Pinheiro Fokus Translations Rethink Consultancy Financial Supervisory Authority. - Governance. The Novozymes Report. - - in the report - lar meaning. - - - - - - - - - GovernanceThe big picture The Novozymes Report 2022 Facebook Instagram Explore highlights from the Novozymes Report on report.novozymes.com Visit The Novozymes Report 2022 Annual reportAuditor's report on audited financial statementsParsePort XBRL Converter2022-01-012022-12-312021-01-012021-12-31529900T6WNZXD2R3JW38Novozymes A/SReporting class D10007127Krogshoejvej362880BagsvaerdDenmark+4544460000https://investors.novozymes.com/investors/corporate-governance/articles-of-association-and-reports-on-corporate-governance/https://investors.novozymes.com/investors/corporate-governance/articles-of-association-and-reports-on-corporate-governance/Bagsværd2023-01-26Ester BaigetPresident & CEOLars GreenCFOJørgen Buhl RasmussenChairCornelis (Cees) de JongVice ChairAnne BreumHeine DalsgaardSharon JamesAnders Hentze KnudsenKasim KutayPreben NielsenMorten Alexander SommerKim StrattonJens Øbro529900T6WNZXD2R3JW3810007127Novozymes A/SKrogshoejvej 362880 BagsvaerdOpinionBasis for OpinionHellerup2023-01-26Lars BaungaardState Authorized Public Accountantmne2333133771231PricewaterhouseCoopers Statsautoriseret RevisionspartnerselskabStrandvejen442900HellerupMichael Groth HansenState Authorized Public Accountantmne3322833771231PricewaterhouseCoopers Statsautoriseret RevisionspartnerselskabStrandvejen442900Hellerup529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember529900T6WNZXD2R3JW382022-12-31cmn:ConsolidatedMember529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember1529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember2529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember1529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember2529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember3529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember4529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember5529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember6529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember7529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember8529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember9529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember10529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember11529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember1529900T6WNZXD2R3JW382022-01-012022-12-31cmn:ConsolidatedMember2529900T6WNZXD2R3JW382022-01-012022-12-31529900T6WNZXD2R3JW382021-01-012021-12-31529900T6WNZXD2R3JW382021-12-31529900T6WNZXD2R3JW382022-12-31529900T6WNZXD2R3JW382020-12-31529900T6WNZXD2R3JW382021-12-31ifrs-full:IssuedCapitalMember529900T6WNZXD2R3JW382022-01-012022-12-31ifrs-full:IssuedCapitalMember529900T6WNZXD2R3JW382022-12-31ifrs-full:IssuedCapitalMember529900T6WNZXD2R3JW382021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember529900T6WNZXD2R3JW382022-01-012022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember529900T6WNZXD2R3JW382022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember529900T6WNZXD2R3JW382021-12-31ifrs-full:ReserveOfCashFlowHedgesMember529900T6WNZXD2R3JW382022-01-012022-12-31ifrs-full:ReserveOfCashFlowHedgesMember529900T6WNZXD2R3JW382022-12-31ifrs-full:ReserveOfCashFlowHedgesMember529900T6WNZXD2R3JW382021-12-31ifrs-full:RetainedEarningsMember529900T6WNZXD2R3JW382022-01-012022-12-31ifrs-full:RetainedEarningsMember529900T6WNZXD2R3JW382022-12-31ifrs-full:RetainedEarningsMember529900T6WNZXD2R3JW382021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember529900T6WNZXD2R3JW382022-01-012022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember529900T6WNZXD2R3JW382022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember529900T6WNZXD2R3JW382021-12-31ifrs-full:NoncontrollingInterestsMember529900T6WNZXD2R3JW382022-01-012022-12-31ifrs-full:NoncontrollingInterestsMember529900T6WNZXD2R3JW382022-12-31ifrs-full:NoncontrollingInterestsMember529900T6WNZXD2R3JW382020-12-31ifrs-full:IssuedCapitalMember529900T6WNZXD2R3JW382021-01-012021-12-31ifrs-full:IssuedCapitalMember529900T6WNZXD2R3JW382020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember529900T6WNZXD2R3JW382021-01-012021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember529900T6WNZXD2R3JW382020-12-31ifrs-full:ReserveOfCashFlowHedgesMember529900T6WNZXD2R3JW382021-01-012021-12-31ifrs-full:ReserveOfCashFlowHedgesMember529900T6WNZXD2R3JW382020-12-31ifrs-full:RetainedEarningsMember529900T6WNZXD2R3JW382021-01-012021-12-31ifrs-full:RetainedEarningsMember529900T6WNZXD2R3JW382020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember529900T6WNZXD2R3JW382021-01-012021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember529900T6WNZXD2R3JW382020-12-31ifrs-full:NoncontrollingInterestsMember529900T6WNZXD2R3JW382021-01-012021-12-31ifrs-full:NoncontrollingInterestsMember529900T6WNZXD2R3JW382021-01-012021-12-31cmn:ConsolidatedMemberiso4217:DKKiso4217:DKKxbrli:sharesxbrli:pure
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