Annual Report • Jan 21, 2010
Annual Report
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This year, Novozymes is publishing all the relevant information for the Novozymes Report in its online reporting universe at www.report2009.novozymes.com. The Novozymes Report 2009 is available in English in a full online version, and this year – for the first time – a series of videos tells our main stories in addition to the written material. Another special feature is My Report, which makes it possible for you to compile a customized pdf download of the parts of the report that you find most relevant. Hence the printed version of the full report will no longer be available; however, a printed summary of the report is still published in both English and Danish.
The reporting website is dedicated to the Novozymes Report 2009 and other information relevant to the investor community, but the site is also worth a visit for anyone else with an interest in Novozymes. We continuously supplement with information such as quarterly reports, company announcements, news, and teleconferences published on our corporate website, www.novozymes.com.
All the photos in the report show Novozymes employees from around the world. It has been our intention to illustrate the human touch behind our organization and express our corporate personalities of spark, passion, openness, and science.
The Novozymes Report 2009 has been audited by PricewaterhouseCoopers (PwC). As part of their work, PwC has been the sustainability assurance provider and has provided an assurance report based on the AA1000 Assurance Standard (2008). The
website contains the Novozymes Report (which pursuant to section 149 of the Danish Financial Statements Act is an extract of the Company's Annual Report) and the Financial Statements of the parent company Novozymes A/S. Together these form the Company's Annual Report, which will be filed with the Danish Commerce and Companies Agency. The Annual Report is available on www.novozymes.com as a separate publication in Danish.
The audit covers financial, environmental, and social data, and PwC has audited as well as performed the assurance on all content within the "Report," "Outlook," "Management," and "Accounts" sections in the Novozymes Report 2009. On the website these are marked "Audited by PwC." See also the statements in the report.
PwC has not audited the sections of the report found online under the heading "Supplementary reporting." "Supplementary reporting" includes our "Communication on Progress" with respect to Global Compact, our report index based on the Global Reporting Initiative (GRI), and detailed sustainability data from our activities in Brazil, China, Denmark, India, Sweden, the UK, and the US.
The report has been produced in accordance with International Financial Reporting Standards (IFRS), the Danish Financial Statements Act, and the additional requirements of NASDAQ OMX Copenhagen A/S for presentation of financial statements by listed companies. It has also been prepared as an element of Novozymes' reporting according to the Global Reporting Initiative's G3 Guidelines for Sustainability Reporting.
www.novozymes.com
www.report2009.novozymes.com
2009 was a volatile year across industries and across geographical regions. The world was impacted by a series of far-reaching events that made it difficult for the global economy.
The impact of the financial crisis began to be felt in 2008 but there was an even stronger impact in 2009, affecting Novozymes as well as many other companies negatively during the year. Despite the challenging circumstances, Novozymes delivered growth in both sales and earnings.
At the beginning of the year, we had high expectations not only for Novozymes' sales and financial performance, but also for our environmental and social performance. Despite the depressed markets and an early reduction of full-year sales growth expectations, we delivered on all the other financial as well as on all but one of the environmental and social targets set at the beginning of the year. We also managed to deliver positive organic sales growth. We regard this as an achievement considering the unfavorable market conditions. There was a strong focus throughout the year on managing the business, and this not only led to relatively strong earnings and cash flow, but also created an organization that is more agile and prepared for future growth.
To some extent, Novozymes' sales are dependent on the developments in global energy and raw material prices. Over the past year, we were particularly affected by developments
in the biofuel and brewing industries, both of which experienced a relatively challenging and turbulent year.
However, our solutions have often proved to be competitive in a variety of different industries and with commodity prices at different levels. With the unique and environmental advantages that Novozymes' biological solutions offer, we see a solid and diversified platform for growth.
Novozymes wants to leverage the company's technological platform and leading position, by continuously investing in future growth opportunities. History has shown that continued focus on strategic investments – such as research and development, business development, and production – even in the challenging times of a global recession, usually opens up opportunities when the economy recovers and normal growth is restored. A relatively conservative approach to Novozymes' capital structure has resulted in a healthy balance sheet and a strong cash position. This enables us to make investments in future growth opportunities despite a volatile and unpredictable business environment around us.
We are aware of the important role business plays in society. Contributing to the environmental, social, and economic aspects of sustainable development has always been an integral part of our strategy. In 2009, our products enabled customers to save around 27 million tons of CO2 emissions. At the same time, we made more efficient use of both energy and water in our production processes.
From 2009 onwards, under Danish law large companies will be required to report on corporate social responsibility (CSR). The requirements are linked to the principles of the United Nations Global Compact and address which CSR issues should be discussed in a company's business strategy and business activities. A discussion of human rights, labor rights, environmental impact, and also mitigation of corruption should be presented in the annual report. These elements have been an integral part of Novozymes' reporting for many years, and we are pleased to see that their integration into business will now become mandatory.
You can read more about Novozymes' work related to CSR and corporate governance at www.novozymes.com/corporategovernance and at www.novozymes.com/sustainability .
In 2007 Novozymes announced a four-year stock option program aimed at rewarding all employees when certain objectives were met. Stock options were granted for 2007, 2008, and 2009 as most of those objectives were met. In order for stock options to be granted, the budget had to confirm that reaching DKK 10 billion in sales in 2010 was possible. Unfortunately, due to the global recession and the weakening of currencies, Novozymes no longer deems it possible to reach the ambition of sales of DKK 10 billion in 2010. Consequently, there will be no allocation of stock options for 2010.
Discussions concerning executive compensation have intensified following the recent economic developments globally. Benchmarking against other companies shows that we have a competitive compensation scheme that rewards performance and ensures that the interests of top management are in line with those of shareholders.
To summarize, we look back on 2009 as a year characterized by a high level of volatility and a challenging business environment. Despite this, Novozymes performed well. We are now looking to the future with confidence, knowing that we are on the right track to achieve the new long-term targets set at the beginning of 2009. Novozymes is in better shape than ever and ready to grasp the growth opportunities that lie ahead.
We would like to thank our employees for their efforts, and our shareholders and other stakeholders for their support during the year.
January 2010
The Board of Directors Novozymes A/S
| 2009 | 2008 | 2007 | 2006 | 2005 | ||
|---|---|---|---|---|---|---|
| Income statement (DKK million) | ||||||
| Revenue | 8,448 | 8,146 | 7,438 | 6,802 | 6,281 | |
| Research and development costs | 1,207 | 1,096 | 995 | 880 | 793 | |
| EBITDA | 2,252 | 2,060 | 1,971 | 1,809 | 1,668 | |
| Operating profit | 1,688 | 1,504 | 1,481 | 1,340 | 1,206 | |
| Financial items, net | (67) | (85) | (96) | (122) | (56) | |
| Profit before tax | 1,621 | 1,419 | 1,385 | 1,218 | 1,150 | |
| Net profit | 1,194 | 1,062 | 1,042 | 911 | 861 | |
| Balance sheet (DKK million) | ||||||
| Non-current assets | 5,991 | 5,641 | 5,218 | 4,379 | 3,970 | |
| Current assets | 4,899 | 4,284 | 3,653 | 3,586 | 3,339 | |
| Total assets | 10,890 | 9,925 | 8,871 | 7,965 | 7,309 | |
| Common stock | 650 | 650 | 650 | 650 | 696 | |
| Shareholders' equity | 5,841 | 4,476 | 3,667 | 3,393 | 3,794 | |
| Non-current liabilities | 2,528 | 2,563 | 2,810 | 2,634 | 2,073 | |
| Current liabilities | 2,521 | 2,886 | 2,394 | 1,938 | 1,442 | |
| Net interest-bearing debt | 949 | 1,380 | 1,769 | 1,455 | 877 | |
| Investments and cash flows (DKK million) | ||||||
| Cash flow from operating activities | 1,817 | 1,697 | 1,714 | 1,534 | 1,326 | |
| Cash flow from investing activities, net | (978) | (942) | (1,467) | (953) | (335) | |
| Of which investments in property, plant and equipment, net | (972) | (885) | (721) | (463) | (324) | |
| Free cash flow | 839 | 755 | 247 | 581 | 991 | |
| Cash flow from financing activities | (523) | 287 | (631) | (851) | (1,136) | |
| Net cash flow | 316 | 1,042 | (384) | (270) | (145) | |
| Key ratios (%) | ||||||
| Revenue outside Denmark as a percentage of total revenue | 98.5 | 98.5 | 98.2 | 98.2 | 96.9 | |
| Research and development costs as a percentage of revenue | 14.3 | 13.5 | 13.4 | 12.9 | 12.6 | |
| EBITDA margin | 26.7 | 25.3 | 26.5 | 26.6 | 26.6 | |
| Operating profit margin | 20.0 | 18.5 | 19.9 | 19.7 | 19.2 | |
| Net profit margin | 14.1 | 13.0 | 14.0 | 13.4 | 13.7 | |
| Effective tax rate | 26.3 | 25.2 | 24.8 | 25.2 | 25.1 | |
| Equity ratio | 53.6 | 45.1 | 41.3 | 42.6 | 51.9 | |
| Return on equity | 23.1 | 26.1 | 29.5 | 25.4 | 22.2 | |
| ROIC including goodwill | 20.3 | 19.5 | 21.7 | 20.2 | 19.3 | |
| ROIC excluding goodwill | 21.8 | 21.2 | 23.4 | 21.1 | 19.8 | |
| WACC | 7.0 | 7.4 | 8.1 | 7.5 | 5.9 | |
| Environmental and social data | ||||||
| Growth in water consumption | % | (4.3) | (2.2) | 11.7 | 7.7 | 0.1 |
| Growth in energy consumption | % | (5.4) | 0.2 | 13.3 | 5.8 | 1.4 |
| Total waste recycled | % | 44.5 | 45.0 | 43.4 | 42.1 | 30.6 |
| Significant spills | No. | 0 | 0 | 0 | 0 | 1 |
| Rate of employee turnover | % | 6.7 | 11.3 | 9.0 | 8.0 | 6.6 |
| Rate of absence | % | 2.3 | 2.2 | 2.2 | 2.3 | 2.5 |
| Fatalities | No. | 0 | 0 | 0 | 0 | 0 |
| Frequency of accidents with absence per million working hours | 5.1 | 4.9 | 4.8 | 3.7 | 4.6 |
Novozymes is the world leader in bioinnovation. Our business is industrial enzymes, microorganisms, and biopharmaceutical ingredients. We help companies make more from less as our solutions save energy and raw materials, and reduce waste. The result is higher quality, lower costs, and a better environment. Our biological solutions are used in the production of numerous products such as biofuels, detergents, food, and animal feed.
In 2009, we achieved revenue of DKK 8,448 million based on a large portfolio of products and services worldwide. Our business consists of two segments: Enzyme Business and BioBusiness. Around 14% of our revenue is spent on research and development, and we currently hold more than 6,000 patents, which indicates the possibilities when nature and technology join forces. We number over 5,200 employees globally.
We use biotechnology to challenge convention and find sustainable solutions. We ask the world to "Rethink Tomorrow." Our solutions are based on a unique technology platform that provides a wealth of opportunity for the world's industries. Gene technology, microbial techniques, and fermentation technology are some of the biotechnological tools on which we base our business. Combining industrial insight with this technology platform, we partner with customers across a broad range of industries to create tomorrow's industrial biosolutions that not only improve the use of our planet's resources but also our customers' business.
Sustainability is an integral part of our business, and we enable our customers to optimize their use of raw materials and energy, thereby reducing the environmental impact of their operations. In 2009 alone, the worldwide application of our bioinnovation enabled reductions in CO2 emissions of approximately 27 million tons.
We believe that decency and responsibility in business are about being aware of and acting upon important stakeholder relations, as well as being committed to international agreements and universal values:
We subscribe to the International Chamber of Commerce's Charter for Sustainable Development
The development, production, and distribution of enzymes are a major part of our business, currently accounting for 92% of sales. Enzymes, which are found in all living organisms, are biodegradable proteins that catalyze biochemical reactions. Enzyme technologies can typically replace conventional chemicals, getting more out of raw materials and making production processes more efficient. In other words, Novozymes provides efficient solutions that help companies save energy and water, increase yields, and hence save costs.
We are constantly striving to expand our markets by introducing innovations within existing markets as well as developing new concepts. With a 47% share of the global enzyme market in 2009, we retained our position as the world leader in enzymes.
We divide the enzyme market into four main areas:
Enzymes are widely used in detergents for laundry and dishwashing. The technology is well established and delivers a clean wash as well as stain removal. Certain enzymes allow consumers to wash laundry at lower temperatures and still get their clothes clean. Detergent enzymes are our largest product area.
Technical enzymes are mainly used in the transformation of starch into different kinds of sugars. This functionality is used in the starch conversion and biofuel industries. In 2010, we expect our enzymes to enable large-scale production of advanced biofuels from agricultural residues. Technical enzymes are also used for many other applications in, for example, the textile, leather, and forest product industries.
Enzymes for the food and beverage industries enhance, among other things, quality and efficiency in the manufacture of products such as bread, wine, juice, beer, and alcohol. Enzymes can, for instance, be used to reduce waste by keeping bread fresh for longer and to reduce CO2 emissions by eliminating the malting process in brewing.
Adding enzymes to animal feed increases its nutritional value. This leads to better feed utilization and helps the environment as fewer nutrients are released through manure.
Enzymes are produced by the fermentation of microorganisms. Within BioBusiness we use the same type of fermentation technology to produce proteins that are used, for example, in the pharmaceutical industry and in household applications. We sell microorganisms for various applications in a range of industries. We see a lot of opportunities in BioBusiness to use our existing technologies across a broader range of applications, leveraging the core competencies that Novozymes has developed within industrial enzymes.
Microorganisms are a diverse group of microscopic organisms such as fungi, bacteria, and yeasts. They are found everywhere in nature, where they both form and degrade organic materials. Our microorganisms, for
instance, are used in industrial and municipal wastewater treatment, as well as to reduce the need for phosphate fertilizer and to improve yields in agriculture.
Biopharmaceutical ingredients are proteins and other biological substances used in the pharmaceutical industry. Our proteins replace the proteins from humans and animals that have traditionally been used in the industry. These entail a risk of transferring disease but this is not the case with our proteins, which also offer further advantages such as cost savings. Our biopharmaceutical ingredients offer customers alternative solutions or help them to develop better drugs and devices. For example, hyaluronic acid (HA) products can improve drug delivery and the moisturizing properties of eye drops.
In 2009, sales were characterized by low visibility and high volatility from one quarter to the next. Given the global recession, it was satisfactory to see sales growing by 2% in local currency (LCY). Sales in Danish kroner (DKK) increased by 4%, resulting in total revenue of DKK 8,448 million in 2009.
Enzyme sales grew by 1% in LCY and by 4% in DKK in 2009. Sales were affected by the volatile and uncertain business environment experienced across a wide range of industries. From quarter to quarter and from industry to industry, sales development was uneven over the year.
The overall enzyme market was stable in 2009. The value of the global market was approximately DKK 16 billion based on our estimates. The enzyme industry did not see any major new market entrants in 2009, and the overall global competitive positioning between the players in the industry
did not change either. Novozymes maintained its global market share at 47%.
Sales of enzymes for the detergent industry continued to develop positively, with sales growth of 6% in LCY and 7% in DKK. The main driver behind this growth was the fact that mid- and low-tier detergents now contain more enzymes in order to improve performance. This entailed not only increased penetration of basic enzymes, but also higher use of more advanced enzymes. Sales were, however, impacted negatively by consumers trading down to detergents with fewer or no enzymes. In the US, mid- and low-tier brands still contain fewer enzymes than corresponding brands in Europe. In consequence, enzyme sales in the US were affected more negatively by the trading down than enzyme sales in Europe.
Technical enzyme sales grew by 1% in LCY and by 5% in DKK. The positive sales development in LCY was the result of increased sales to both the starch and biofuel industries.
Enzyme sales to the biofuel industry experienced positive sales growth of 3% in LCY and 7% in DKK. However, Novozymes' biofuel enzyme sales lagged behind the overall development in the market for biofuel enzymes. From late 2008 to mid-2009, lower oil prices decreased the demand for biofuels in the US. In combination with overcapacity in the industry and volatile corn prices, this meant financial difficulties for biofuel producers. Some of Novozymes' customers were hit particularly hard and subsequently went out of business, which is why Novozymes lost some market share in the US from 2008 to 2009. Novozymes' enzyme sales were affected most at the beginning of the year, but market share improved during 2009 as sales picked up. Novozymes' market share remained above 60% throughout the year. Enzyme sales to the European biofuel industry showed good growth in LCY, although the industry is still small compared to the US industry.
Enzyme sales to the textile industry were lower in 2009 due to lower global consumption of textiles and the continued fashion trend for darker denims, which do not require enzyme treatment for a stonewashed look.
Enzyme sales to the food industries were 3% lower in LCY and 1% lower in DKK. The main reason for this was weaker sales to the brewing industry. Lower raw material prices discouraged the use of enzymes, and beer volumes on key markets were down. Enzyme sales to the baking industry increased slightly in LCY compared to 2008 as global bread volumes remained stable and demand for healthy concepts for baked goods increased.
Sales of feed enzymes were 5% lower in LCY and 3% lower in DKK. The lower sales were primarily caused by lower animal feed volumes and strong competition in the European phytase enzyme market. Feed enzymes that aim to increase protein uptake in poultry showed a good development in 2009, albeit from low starting levels. Novozymes is currently the only company offering a product for this application: RONOZYME® ProAct. The product has been introduced in parts of Latin America, Asia, and Africa, and is awaiting approval on the key European and US markets.
In 2009, Novozymes launched an enzyme product called Ondea® Pro, which enables breweries to produce beer from unmalted barley and thereby saves resources, reduces CO2 emissions, and lowers costs.
The malting of barley involves soaking the grain in water to allow it to germinate. The grain is then dried – a process that utilizes both water and energy. By avoiding this step, CO2 emissions can be significantly reduced. But the benefits are not limited to reducing the carbon footprint. Compared to the conventional brewing process, Novozymes has documented a 7% reduction in the amount of barley required to produce beer, thereby improving land utilization for society and decreasing operating costs for brewers. The new enzyme optimizes raw material utilization and reduces the carbon footprint in one simple process, making it a game changer for the brewing industry.
The resulting beer can either be blended into existing brands or sold as a standalone product. Novozymes expects the main use of the product to be in blends of barley and malt beer. The Danish brewer Harboe has tested the concept in full-scale production and launched a climate-friendly beer on the market in October.
For more information on the life cycle assessment for this enzyme application, see Kløverpris et al. (2009).
Sales within BioBusiness grew by 8% in LCY and by 6% in DKK. Sales of biopharmaceutical ingredients (BPI) experienced a positive development in 2009, while sales of microorganisms were flat. Within BPI, sales were positively affected by cell culture ingredients, Protein A, and plectasin. In the case of microorganisms, there was an increase in sales to the bioagricultural (BioAg) industry of more than 40% in LCY.
Sales of microorganisms were flat in LCY and increased by 2% in DKK. This was driven by better than expected sales in the BioAg segment, which grew by more than 40% in LCY. Our sustainable solutions allow farmers to use less fertilizer under certain conditions while still achieving at least the same crop yields. The industry is still in a relatively early development phase, and Novozymes sells primarily on the Canadian market.
Microorganism sales to both the institutional & household cleaning and the wastewater treatment segments declined due to the global recession and ongoing pruning activities.
In July 2009, the turf and landscape business was divested as part of the strategic focus on the core microorganism segments. The divestment had a negative effect on microorganism sales in 2009 of 4 percentage points.
Sales of BPI grew organically by 23% in LCY and by 13% in DKK. This strong growth was partly due to higher sales of cell culture ingredients and Protein A for our customers' clinical trials, production, and purification of biopharmaceuticals. Furthermore, a milestone was achieved in the production and sales of the antimicrobial peptide plectasin.
In late 2009, Novozymes announced new agreements with two of Latin America's most influential companies to convert sugarcane and sugarcane waste into plastic and energy. The agreements are perfectly aligned with Novozymes' dream of developing a bio-based society in which biorefineries convert agricultural materials into energy, chemicals, and other materials, thereby replacing oil as a raw material.
Due to the complexity and early stages of the technology used in these projects, no outcome is expected within the short term. The initial development work alone is expected to run for at least five years.
Novozymes and Braskem, the largest petrochemical company in Latin America, have agreed to co-develop technology for the large-scale production of polypropylene from sugarcane. Water bottles, drinking straws, washing machines, and car bumpers are currently made using polypropylene plastic primarily derived from oil. The market for polypropylene plastic is estimated to be worth around USD 66 billion, with an annual growth rate of 4%.
Braskem and Novozymes will try to develop an alternative green plastic based on Novozymes' core fermentation technology and Braskem's expertise in chemical technology and plastics.
Novozymes and Cetrel, the largest provider of environmental solutions for the manufacturing industry in Latin America, have entered into a research agreement to turn sugarcane waste into the environmentally friendly energy biogas.
Using Cetrel's know-how in waste stream treatment and Novozymes' biotech expertise, the aim is to enable sugar and biofuel production plants in Brazil to turn bagasse, the residue from sugarcane production, into biogas using enzymes. The biogas can be used to produce electricity for the production facilities, and surplus electricity can be sold to the general market through the electricity grid.
Sales of microorganisms for agriculture are developing well, and there are several reasons for this. Rising fertilizer prices have encouraged farmers to look for alternative or complementary methods and, as prices rise, any further increases in yield are now even more valuable.
Novozymes' main microbial-based product for agriculture, JumpStart®, is used to enhance phosphate uptake in crops such as corn, wheat, canola, and soybeans, plus many others depending on the region.
JumpStart® is a soluble powder containing spores from a naturally occurring soil fungus (Penicillium bilaii). The product is applied to crop seeds before seeding. After seeding, the fungus colonizes the plant roots. The fungus releases natural acids into the microenvironment around the roots, influencing the release of the phosphate bound in the soil minerals. This makes the phosphate available to the plants, leading to stronger plants, higher yields (6% on average), and considerable reductions in the use of fertilizer.
From a product life cycle perspective, JumpStart® significantly reduces the environmental impacts of crop production. The use of JumpStart® reduces a broad range of environmental impacts from climate change to water pollution. With regard to the latter, the utilization of otherwise inaccessible phosphate in soil reduces the leaching of phosphate that may adversely affect aquatic environments by causing eutrophication. JumpStart® also helps preserve scarce phosphorus resources by reducing the use of phosphate fertilizer.
Sales in Europe, the Middle East, and Africa (Europe/MEA) grew by 4% in LCY and by 5% in DKK. Enzyme sales to the biofuel industry and the detergent industry increased, whereas enzyme sales to the food and feed industries were lower. Sales of BPI also developed well in 2009.
Sales in North America were up by 1% in LCY and by 2% in DKK. Sales to the detergent, biofuel, and food industries affected North America sales positively, as did microorganism sales to the BioAg industry. Sales to the feed and BPI industries were lower compared to 2008.
Sales in the Asia Pacific region were up by 1% in LCY and by 6% in DKK. This was due primarily to increased sales of detergent and starch enzymes, whereas enzyme sales to the textile, food, and feed industries were lower.
Sales in Latin America were 1% lower in LCY and 2% lower in DKK. Enzyme sales to the food industry increased, whereas enzyme sales to the feed and detergent industries decreased.
Europe/MEA (38%) North America (36%) Latin America (7%) Asia Pacific (19%)
| Cellic® CTec | A unique cellulase complex for cost-effective hydrolysis for production of biofuel from cellulosic feedstock. The product offers high conversion efficiency on acid and neutral pretreated feedstocks. |
|---|---|
| Cellic® HTec | A hemicellulase complex that provides a hydrolysis boost option over Cellic® CTec, i.e., improves C5 sugar yields. |
| CellPrime® rAlbumin AF-G | A recombinant animal-free cell culture supplement replacing human- or bovine-derived serum albumin in industrial-scale mammalian cell culture applications. |
| Ondea® Pro | An enzyme for the brewing industry to produce beer from pure unmalted barley. This enables the breweries to save on raw materials and cost, and also reduces the carbon footprint of beer production. |
| Easyzyme® | A detergent enzyme for laundry bars, which makes it easier to hand-wash clothes and enables fewer rinses and reduced water consumption. |
| Gold Crust® | A baking enzyme enhancing crust color and decreasing baking time, as well as reducing crust separation in prebaked breads. |
| Lipoclean® | A detergent enzyme removing fat and grease stains. It enables substitution of surfactants to a greater degree as part of the multienzymatic DREAM concept. |
| Opticake® Fresh 50 BG | An enzyme providing longer-lasting freshness in cakes and improved quality. |
| Novamyl® Pro | A baking enzyme that further enhances freshness in breads and improves quality. |
In 2009, Novozymes' sales of enzymes to the biofuel industry represented approximately 18% of total revenue. Novozymes supplies enzymes that are used in the production of biofuel. Enzymes convert the biological material into sugars, which are then fermented into biofuel. Enzymes also improve production efficiency and overall biofuel output.
Novozymes is continuously striving to improve the commercial viability of advanced biofuels and the carbon benefits of conventional biofuels. Advanced biofuels, for example cellulosic biofuel, are produced from agricultural residues such as corn cobs and stover, bagasse, woodchips, and municipal waste. We currently have around 150 employees working on the conversion of biomass for advanced biofuels. This is Novozymes' single largest research project ever.
Biofuels are a major step toward meeting increasing fuel demands with renewable resources. Biofuels currently offer the only immediately available cost-efficient alternative to fossil fuels within transportation. Conventional biofuels currently reduce CO2 emissions by up to 50%, whereas advanced biofuels have the potential to reduce CO2 emissions by 90% compared to gasoline (Liska A.J. et al. (2009): Improvements in Life Cycle Energy Efficiency and Greenhouse Gas Emissions of corn ethanol, Journal of Industrial Ecology. EU Commission (2007): Well-to-Wheels analysis version 3, Joint Research Institute).
The debate on biofuels has been going on for many years with shifting intensity. Issues in the debate include deforestation, climate change, land use, and food prices. The debate is important, and Novozymes maintains that there is a need for international agreements on the methodology for measuring the impact of biofuels and making comparisons with traditional fossil fuels. Novozymes actively supports the efforts by governments, NGOs, scientists, and business to establish objective criteria for how biofuels can support sustainable development.
We put special focus on the issues related to land use and emissions of greenhouse gases. Calculating greenhouse gas emissions from indirect changes in land use is an extremely complex task, and there is a number of methodological and data-related problems with calculating indirect land use changes (ILUC). Together with international experts and authorities, Novozymes is very much engaged in establishing a scientifically consistent approach to the ILUC methodology with the aim of providing valid input for the debate.
If produced and used correctly, biofuels will make a significant contribution to the sustainable energy solutions that society needs, and that is why Novozymes is working hard to realize the full potential of converting biomass into fuel. We therefore applaud the political goodwill that the US and other nations are showing toward the development of a strong and sustainable biofuel industry.
FOCUS
The US market for biofuels is the world's largest, with clear legislative targets in place, in particular the Renewable Fuel Standard (RFS), which mandates a minimum percentage of biofuels to be blended into gasoline. This supports a market for biofuel in the US and reduces US dependence on imported fossil fuels.
In the US, the level of biofuel blended into gasoline is approximately 8%, whereas in Europe it is currently 2%. The target within the EU is 5.75% renewable energy in 2010 and 10% in 2020, which includes biofuels. Over the last five years, Novozymes' sales of enzymes to the biofuel industry have experienced average organic growth of more than 30% annually.
By 2010, new enzymes from Novozymes will make it possible to produce advanced biofuels from agricultural residues in large-scale production. With these enzymes on the market and the available technologies, it will be possible to produce advanced biofuels in the US at around USD 2.25 per gallon. The costs used to be a barrier to commercial production, but Novozymes has made great progress in bringing down the enzyme cost and will be able to provide enzymes at around USD 0.50 per gallon of biofuel in 2010.
A number of demonstration plants have already started operating in different parts of the world, and more are expected to come online in the next few years to demonstrate the technology and economics on a larger scale. The first commercial-scale plants are expected to start operating within a few years.
Get a deeper insight into Novozymes and biofuels: Watch videos about the public debate, the political challenges, the market situation, critical factors, etc.
Novozymes' enzymes are used in both household and industrial laundry detergents as well as automatic dishwashing detergents. For many years, enzymes have been the key to boosting the performance of detergents. Specific enzymes break down dirt and stains into water-soluble molecules that are washed away, leaving clothes and dishes clean. Today Novozymes' detergent enzymes increasingly play a central role in replacing conventional chemicals in detergent formulations and in allowing consumers to turn down the wash temperature while maintaining the same wash performance, saving energy and reducing CO2 emissions.
Novozymes' research shows that formulators can now replace up to 25% of surfactants and other conventional ingredients in their formulations with efficient multienzyme solutions. The result is no loss of performance or an improved wash performance at the same or an even lower cost, while improving the environmental footprint of the detergent.
The prices of many detergent ingredients, for example surfactants, have varied widely in the past, often influenced by changes in oil prices. Bio-based solutions such as enzymes, on the other hand, have not been influenced by oil price fluctuations, and prices have remained stable.
In addition, by replacing high-volume ingredients such as surfactants with low-volume enzymes, detergents can become more compact. Compaction is a strong trend in the US, and the same trend is also becoming evident in Europe. In addition to giving consumers the convenience of smaller packages, compact detergents require less storage, transportation, and shelf space, which translates into packaging and cost savings as well as CO2 emission reductions.
Sustainability is a key driver for future innovation. Our vision is that the detergent industry will become one of the first industries to deliver what the world is looking for: a radical reduction in environmental impact throughout a product's life cycle. Using enzymes achieves this without a decrease in wash performance and without any loss of convenience to the consumer. This is only possible by rethinking the entire value chain, driving innovation, and encouraging cooperation along the value chain toward a shared vision of a radically reduced footprint.
Novozymes' solutions will play a key role in making this shift as detergent enzymes are readily biodegradable and therefore reduce aquatic toxicity when used to replace traditional chemicals. Furthermore, they reduce energy
consumption and CO2 emissions in the wash process by enabling consumers to get the same wash performance at lower temperatures. Their potential impact is significant. Life cycle assessment shows that if every household in Europe (see ref.) changed from washing at 40 to 30 °C and from 60 to 40 °C, and every household in the US (estimated) changed from "hot" to "warm" and from "warm" to "cold" washes, we could save up to 32 million tons of CO2, which is equivalent to taking 8 million cars off the road. High-performing, low-temperature wash solutions will remain a key focus area for Novozymes in the coming years, and we will participate actively in driving an ambitious vision for a more sustainable laundry value chain. (Ref.: Nielsen P.H. and Skagerlind P. (2007): Cost-neutral replacement of surfactants with enzymes, Household and Personal Care Today, 4/2007).
FOCUS
With this in mind, in May 2009 Novozymes, along with leading players in the detergent industry, hosted a CEO meeting on Cooperation and Innovation in the Laundry Value Chain in connection with the World Business Summit for Climate Change. And in December 2009, the detergent industry convened at the Copenhagen Detergent Sustainability Summit hosted by Novozymes to shape actions toward a more sustainable future for the industry. To equip the industry with the tools to translate sustainability into business growth, Novozymes brought key representatives such as WWF, Marks & Spencer, Unilever, Reckitt Benckiser, Henkel, McBride, Whirlpool, P&G, and A.I.S.E. together at the summit to discuss sustainability.
In June 2009, Novozymes launched I do 30, a campaign that encourages consumers in Europe to make a difference by turning down the temperature on their washing machines to 30 °C and thereby reducing CO2 emissions. This is a way of exerting pressure on political decision-makers to support strong climate policies that encourage climate-friendly everyday actions such as low-temperature washes. At the UN Climate Change Conference in Copenhagen in December, the campaign signatures, representing 16,000 people from all over the world, were handed to Danish Prime Minister Lars Løkke Rasmussen, as the host of COP15.
2009 showed a strong earnings development. Favorable exchange rate levels, productivity improvements, a cautious cost approach, and an increase in organic sales were the main drivers. Free cash flow before acquisitions increased due to higher net profit and a lower investment level than initially expected. Novozymes met all but one of its environmental and social targets. 2009 improvements, a cautious cost approach, and an increase in organic sales were the main acquisitions and expected. but its targets.
The following section presents the realized financial, environmental, and social data for the year. An overview of data and key figures can be found in Accounts and Key figures, while an overview of reporting in accordance with the Global Reporting Initiative (GRI) guidelines can be found under Supplementary reporting. section presents the realized financial, and social data for the year. An overview of data and key figures can be found in Accounts and figures, while an overview of reporting in accordance with Global Reporting Initiative (GRI) guidelines can be found reporting.
The financial performance in 2009 met all earnings expectations published at the beginning of the year. The expectations for sales development were adjusted downward after the first quarter of 2009 as a consequence of the global recession. The revised sales expectations announced after the first quarter were met for the full year. performance in 2009 met all earnings published the beginning of the year. The expectations for sales development were adjusted downward after the first quarter of 2009 as a consequence of the global recession. The revised sales expectations announced after the first quarter were met for the full year.
| Sales growth, LCY Sales |
2% |
|---|---|
| Sales growth, DKK DKK |
4% |
| Growth in operating profit Growth in operating profit |
12% |
| Operating profit margin | 20.0% |
| Growth in net profit | 12% |
| Free cash flow before acquisitions flow before acquisitions |
DKK 839m |
| Net investments | DKK 978m DKK |
| ROIC ROIC |
20.3% 20.3% |
Total sales increased by 2% in local currency (LCY). Exchange rate levels, especially in the first half of 2009, impacted sales in DKK positively by 2 percentage points, with the USD in particular being a contributing factor. In 2009, sales in DKK amounted to DKK 8,448 million, an increase of 4% compared to 2008.
Total costs excluding net financials and tax were DKK 6,824 million in 2009, an increase of 2%, mainly attributable to higher sales costs, distribution costs, and R&D costs, but somewhat offset by lower cost of goods sold. Cost of goods sold was 1% lower, positively affected by productivity improvements and negatively impacted by currency effects. Overall, Novozymes' input prices in 2009 were slightly lower than in 2008. This had a small positive impact on the cost of goods sold. In 2008, cost of goods sold was negatively affected by acquired inventories; hence the underlying decrease in cost of goods sold in 2009 was slightly lower than 1%.
For 2009, the gross margin was 55.6% compared to 53.5% in 2008. Exchange rate developments, productivity improvements, and an improved gross margin in BioBusiness were the reasons behind the strong development.
The gross profit margin for Enzyme Business was 57.4%, an improvement of slightly more than 1 percentage point on 2008. The gross margin was positively affected by favorable exchange rates and productivity improvements, partly offset by higher depreciation.
BioBusiness' gross profit margin was 34.5% in 2009, an improvement of 14 percentage points on 2008. The gross margin was favorably affected by higher BioAg sales and pruning of lower-margin products. In 2008, the gross profit margin for BioBusiness was unfavorably affected by one-offs related to IFRS adjustments of acquired activities and closure of activities, which had a combined effect of approximately 7 percentage points on the gross margin. As a consequence, the gross profit margin improvement in 2009 was approximately 7 percentage points.
Other operating costs increased by 6% to DKK 3,076 million in 2009 due to the increased activity level initiated in 2008 and exchange rate levels. Flexibility and cost cautiousness from the organization helped to reduce the growth in other operating costs in 2009.
Other operating income increased by DKK 17 million to DKK 64 million in 2009. The development was mainly related to the US Department of Energy-funded cellulosic biofuel enzyme project DECREASE.
Depreciation and amortization rose to DKK 564 million in 2009, an increase of 1%, mainly explained by a higher level of invested capital compared to 2008.
Operating profit increased by 12% to DKK 1,688 million in 2009 compared to DKK 1,504 million in 2008. The operating profit margin was 20.0% for 2009 compared to 18.5% in 2008. Exchange rate levels in combination with the improved gross margin and low growth in operating costs had a positive impact on the operating profit margin.
Net financial costs for 2009 decreased by DKK 18 million to DKK 67 million compared to DKK 85 million in 2008. This decrease was primarily due to a significantly higher net
R&D/SALES RATIO
currency hedging/revaluation gain. The decrease was somewhat offset by the reduced gain of DKK 40 million relating to employee stock option schemes compared to 2008. Net interest expenses increased by DKK 34 million to DKK 140 million in 2009, which also impacted net financials negatively.
In 2009, Novozymes hedged the majority of its exposure to the USD at USD/DKK 548. The volatile development in the USD during 2009 resulted in a currency hedging loss for the beginning of the year, but a currency hedging gain in the latter part of the year. In 2009, Novozymes realized a currency gain of DKK 56 million, which was DKK 90 million higher than in 2008.
Net interest-bearing debt was DKK 949 million at December 31, 2009, against DKK 1,380 million at year-end 2008.
Profit before tax increased by 14% to DKK 1,621 million from DKK 1,419 million in 2008. In 2009, the effective tax rate was 26.3% compared to 25.2% in 2008. Net profit increased by 12% to DKK 1,194 million against DKK 1,062 million in 2008.
Cash flow from operating activities increased by 7% to DKK 1,817 million for 2009, up from DKK 1,697 million in 2008. The positive development was primarily the result of higher net profit and higher non-cash costs such as depreciation and unrealized foreign exchange losses. Development in working capital affected operating cash flow negatively. Increased receivables were to some extent offset by reduced inventories and higher payables.
Net investments excluding acquisitions were DKK 978 million in 2009, compared to DKK 942 million in 2008. The continued relatively high investment level was the result of the commencement of two new production facilities: the enzyme facility in Nebraska, USA, and the cGMP
NET INTEREST-BEARING DEBT (NIBD) AND
hyaluronic acid facility built on existing premises in Tianjin, China. The 2009 investment level was lower than expected at the beginning of the year, primarily due to the restaging of the Nebraska facility; with an expected total investment of USD 160–200 million, this facility will be built over three years instead of two as first anticipated. The slower development in demand during 2009 and stronger productivity improvements freed up capacity in existing facilities, enabling the restaging. Novozymes expects the plant in Nebraska to be finalized by the end of 2011 and fully operational in the middle of 2012. The cGMP hyaluronic acid plant in Tianjin is expected to be finalized late 2010, and production is expected to start in 2011.
Free cash flow before acquisitions reached DKK 839 million against DKK 755 million in 2008. The increase in free cash flow was primarily a result of the higher operating cash flow.
Shareholders' equity was DKK 5,841 million on December 31, 2009, compared to DKK 4,476 million at year-end 2008. Shareholders' equity was increased by comprehensive income and decreased by dividend payments of DKK 326 million. Shareholders' equity represented 54% of the balance sheet total compared to 45% at year-end 2008. Net debt-to-equity was 16% at year-end 2009 compared to 31% at year-end 2008. This reduction is the result of both lower net debt of DKK 431 million and increased equity.
For 2009, the return on invested capital was 20.3% compared to 19.5% for 2008, primarily explained by the higher operating profit. On December 31, 2009, the holding of treasury stock was 2.8 million B shares, equivalent to 4.3% of the total number of shares outstanding.
FIVE-YEAR CASH FLOW AND ACQUISITION
Novozymes' level of ambition increased in 2009 compared to previous years. Some of the sustainability targets were replaced, new measures were introduced, and the targets for some key indicators were raised. The purpose was to bring Novozymes' sustainability targets more in line with our strategic ambitions.
All sustainability targets but one were met.
Novozymes' sustainability targets are centered on four themes:
Water consumption is a key indicator of efficiency and environmental impact. The 2009 target was that the increase in water consumption should be at least 2% lower than sales growth. The target had been raised compared to the previous year, when the difference should be at least 1%. In 2009, sales (in local currency) grew by 2%, while water consumption fell by 4%, and the target was therefore achieved with a total relative performance improvement of 6%.
Similarly for energy consumption, the 2009 target was that the increase in energy consumption should be at least 2% lower than sales growth. In 2009 energy consumption fell by 5% so the target was achieved with a total relative performance improvement of 7%.
It is important for Novozymes to be able to position our enzyme technology as part of the solution to address climate change. Accordingly, Novozymes introduced a new target linking sales of enzymes to the corresponding
reduction in our customers' CO2 emissions. The target was adjusted according to sales growth to a reduction of 27 million tons of CO2 emissions. The actual reductions for 2009 are estimated to be 27 million tons, and the target was therefore met.
In 2009, Novozymes completed the implementation of a new comprehensive supplier performance management system. The system covers all aspects of management from approval of new suppliers to performance evaluation. The target was to cover 80% of our purchasing by the end of 2009. At the end of 2009, 88% of purchasing was covered, and the target was met.
In 2009, Novozymes also introduced a new target to identify the most important issues and engage with key stakeholders in a more systematic way. In order to address this target, a new set of tools was developed, and internal workshops were held in Europe, the Americas, and Asia. The purpose of the workshops was to train key functions to incorporate the new tools into the management of day-today stakeholder relations.
In contrast to previous years, Novozymes did not explicitly state a target in 2009 for compliance and complaints. However, it is obvious that the company continuously aims to comply with regulations and to minimize complaints. Even though there is no specific target, there is still a need to monitor and report on these parameters. In 2009, 17 breaches of regulatory limits were registered worldwide. These breaches were mainly related to concentrations of pollutants in wastewater (12 out of 17).
Novozymes received 33 complaints from neighbors in 2009. Neighbors living close to factories can be troubled in some locations, mainly by odors and noise. By way of comparison, in 2008 there were 38 complaints.
Novozymes always strives to avoid significant spills such as the release of chemicals into watercourses or soil. There were no significant spills in 2009.
In 2003, high nitrate levels were found in the groundwater around Novozymes' site in Franklinton, North Carolina, USA. Subsequent measurements were submitted to the authorities in early 2008. The data are still under review by the authorities.
In 2008, competition for employees was intense, and companies generally experienced high employee turnover. The abrupt slowdown of the economy from the last quarter of 2008 and in 2009 changed the picture and very much affected employee turnover rates throughout the year. This
is part of the reason for the employee turnover rate of 7% in 2009, which should be compared to the target of less than 9%.
Every year Novozymes' employees have the opportunity to express their opinions in a survey. In 2009, the average score for "Satisfaction and motivation" was 77 compared to a target of 72. The corresponding result for "Opportunities for professional and personal development" was 74, compared to a target of 69. Thus both targets were reached.
The 2009 target for absence from work was a rate of below 3%. With absence of 2%, this target was achieved.
The frequency of occupational accidents in 2009 increased to 5.1 accidents per million working hours from 4.9 in 2008. As the target was a frequency below 4.5, the target was not met. Initiatives to address and mitigate hazards in the working environment have been successful, and the frequency of occupational accidents related to routine activities has declined accordingly. However, injuries occurring when employees are doing nonroutine activities increased, for example when traveling between meetings. New initiatives have been initiated to address this issue.
The target to completely avoid fatal occupational accidents was met in 2009.
Novozymes met the majority of the financial and sustainability targets defined for the employee stock option program in 2009. Management has therefore approved a pro rata allocation of 81% of the year's stock options to employees and managers.
As far as Executive Management's incentive program is concerned, most of the sustainability targets were met, and the targets for economic profit in 2009 were met in full, triggering a pro rata allocation of 99%.
In 2008 employees were granted 99% and Executive Management 97%. The two incentive programs differ in terms of targets and timing. The general guidelines for Executive Management's incentive program can be found at www.novozymes.com/corporategovernance. The guidelines were approved at the Annual Shareholders' Meeting in March 2008. Further details can be found in Note 24 to the financial statements.
No significant events have occurred after December 31, 2009.
Life cycle assessment (LCA) is an environmental assessment method that covers all materials and processes in the value chain – from raw material extraction through production and use to final disposal. Product life cycle assessments of Novozymes' products show that there are major environmental advantages in using enzymes in industrial production.
LCA methods have matured to the point where they are now standardized, recognized as valid documentation, and widely used by companies, industries, and authorities worldwide.
Generally speaking, LCA is a very important way of addressing Novozymes' impacts – both positive and negative – in a wider perspective. LCA has been systematically used at Novozymes since 2005, and the results are playing an increasing role in managing product development and marketing our products.
In addition, in the past two years so-called pipeline LCAs have been conducted. These address products and solutions in Novozymes' development pipeline. The results are used to manage product development as well as to assess and optimize the sustainability profiles of new products prior to their launch.
For further information, please see the specific LCA studies that Novozymes has conducted during the past five years. These studies have all been reviewed by a third party.
REACH stands for "Registration, Evaluation, Authorisation and Restriction of Chemicals" and is the new European Union (EU) regulation on chemicals, replacing some 40 existing EU regulations and directives on chemicals.
Following the United Nations' agreements on the implementation of sustainable development, by adopting REACH the EU has established a regulatory framework to ensure that chemicals are produced and used in ways that reduce significant adverse effects on human health and the environment.
According to REACH Novozymes' enzymes for industries such as detergents, leather, textiles, and biofuels are regarded as chemicals and therefore require REACH registration.
An important objective of the new regulation is to encourage the replacement of dangerous substances with superior substances or technologies as economically and technically viable alternatives become available.
In essence, REACH is in line with Novozymes' business strategy to strive to replace harsh chemicals with safer biological solutions and minimize adverse effects. We expect the role of our enzymatic and other biological solutions as substitutes for harsh chemicals to increase.
Novozymes is implementing all the requirements of REACH as they come into force in order to ensure continuous supply to our customers.
Novozymes takes pride in complying with REACH to meet safety standards in the use, handling, and distribution of our products. We will act and communicate to assure our customers and business partners that Novozymes – as part of their supply chain – is in compliance with REACH.
Novozymes' stock performed well in 2009, with a 29% increase in price. Performance was especially strong in the last two months of the year.
The Novozymes stock is listed on NASDAQ OMX Copenhagen A/S and included in the OMX Copenhagen 20 index (OMXC20). The stock is listed under ticker code NZYM B and ISIN DK0010272129. Novozymes is registered with the Danish Commerce and Companies Agency under 10 00 71 27.
Novozymes' overall financial ambition is to provide its shareholders with competitive returns. Shareholder value is created by share price appreciation, dividend payments, and stock buy-backs.
At the end of 2009, the common stock of DKK 650 million, or 65 million shares, was unchanged from the level at the end of 2008.
| Novozymes' stock (DKK) | 2009 | 2008 |
|---|---|---|
| Price, year-end | 540 | 418 |
| Total market value, year-end (billion)* |
29.3 | 22.7 |
| Earnings per share, diluted | 18.93 | 16.86 |
| Dividend per share | 5.75** 5.25 | |
| * B shares ** Proposed |
The average daily trading volume of Novozymes' stock in 2009 was 164,441 shares, or DKK 72 million, making it the eighth most actively traded stock on NASDAQ OMX Copenhagen A/S. At year-end 2009, the total market value of Novozymes B shares was DKK 29.3 billion.
Novozymes' share price increased by 29% during the year. In comparison, the increase in the OMXC20 was 36%, Dow Jones Chemicals Europe Index 44%, and NASDAQ Biotechnology Index 16%.
Over the last five years, Novozymes' stock has generated an average annual return to shareholders, including dividends, of more than 20%. This can be compared to the five-year average return of 3% for the OMXC20, 0% for MSCI PAN Europe, -1% for Dow Jones World Sustainability Index, 16% for Dow Jones Chemicals Europe Index, and 2% for NASDAQ Biotechnology Index.
Novozymes' dividend policy is a payout ratio of around 30% of net profit. The Board of Directors proposes that the Annual Shareholders' Meeting approve a dividend of DKK 5.75 per share for the 2009 financial year. This will result in an expected total dividend payment of approximately DKK 358 million.
| Distribution (DKK) |
2009 | 2008 | 2007 | 2006 | 2005 |
|---|---|---|---|---|---|
| Dividend (million) |
358* | 326 | 309 | 278 | 255 |
| Stock buy-back (million) |
0 | 0 | 500 | 1,107 | 1,053 |
| Total (million) | 358* | 326 | 809 | 1,385 | 1,308 |
| Net profit (million) |
1,194 | 1,062 | 1,042 | 911 | 861 |
| Payout ratio | 30.0%* 30.7% 29.7% 30.5% 29.7% | ||||
| Number of shares outstanding, year-end |
|||||
| (million) | 62.2 | 62.0 | 61.8 | 61.8 | 63.9 |
| Dividend per share |
5.75* | 5.25 | 5.0 | 4.5 | 4.0 |
| * Proposed |
In general, Novozymes' decision to buy back stock is based on an assessment of the need for capital structure optimization, and whether excess capital can be invested in profitable growth opportunities. Stock buy-back may also be carried out to cover employee stock option obligations.
| Resolution adopted at the Annual Shareholders' Meeting |
March 3 |
|---|---|
| Last day of trading with right to dividend for 2009 |
March 3 |
| First day of trading without right to dividend for 2009 |
March 4 |
| Disbursement of dividend | March 9 |
The following companies had coverage of Novozymes in 2009:
Providing information on sustainability performance on request to analysts, rating agencies, and asset managers is an important element of Novozymes' interaction with its shareholders. Novozymes continuously seeks to improve our sustainability reporting and processes, and values this interaction highly. Among other things, in 2009 Novozymes:
Novozymes' stock consists of two types: A and B shares, both with a nominal value of DKK 10 per share. All A common stock is held by Novo A/S, and an A share carries 10 times as many votes as a B share.
| A stock | B stock | Total | |
|---|---|---|---|
| Common stock (DKK) |
107,487,200 542,512,800 | 650,000,000 | |
| Number of shares |
10,748,720 54,251,280 | 65,000,000 | |
| Number of votes |
1,074,872,000 542,512,800 1,617,384,800 | ||
| Voting rights (%) |
66.5 | 33.5 | 100 |
Novo A/S holds 25.5% of the total outstanding common stock and, through its holding of the A common stock and a proportion of the B common stock (5,826,280 shares), controls 70.1% of the votes. Novo A/S is fully owned by the Novo Nordisk Foundation, which is why Novozymes is included in the consolidated financial statements of the Novo Nordisk Foundation. Novo A/S is domiciled in Gladsaxe, Denmark.
At the end of 2009 Novozymes had roughly 53,000 shareholders, of which around 98% are private investors, mainly in Denmark. Thirty institutional shareholders own approximately 54% of the B stock (this includes Novozymes A/S' holding of treasury stock and Novo A/S' holding). Investors outside Denmark hold approximately 53%.
Novozymes holds 5.2% of the B stock, equivalent to 4.3% of the total number of shares outstanding.
According to the Danish Companies Act, shareholders must
Denmark (31%) North America (14%)
notify the company if they hold at least 5% of the company's common stock. No shareholders, except Novo A/S, hold more than 5% of Novozymes' common stock.
Visit our Investor site at www.novozymes.com/Investor for investor relations guidelines, presentations, group financial statements, and other information for both private and institutional shareholders.
If you have questions for Investor Relations, please contact:
Senior Director Investor Relations Tel.: +45 4446 8682 Fax: +45 4446 9999 E-mail: [email protected]
Senior Investor Relations Manager Tel.: +1 919 494 3483 Fax: +1 919 494 3473 E-mail: [email protected]
Investor Relations Manager Tel.: +45 4446 0738 Fax: +45 4446 9999 E-mail: [email protected]
| Event 2010 | Date |
|---|---|
| Group financial statement for 2009 |
January 21 |
| Annual Shareholders' Meeting | March 3 |
| Group financial statement for the first quarter of 2010 |
April 29 |
| Group financial statement for the first half of 2010 |
August 12 |
| Group financial statement for the first nine months of 2010 |
October 28 |
| Group financial statement for 2010 |
January 21 |
We need to rethink the future. Fundamental changes are needed in the world's energy, industrial, and agricultural sectors. Our biotechnology is ready to step in and play an important role in building a sustainable society. At Novozymes we dare to envisage our technologies changing the world. Together with our customers, we go to places where we have not been before. On this journey of exploration, we try to change mindsets and prove that cost savings and resource savings often go hand in hand.
In December, Copenhagen hosted the United Nations Climate Change Conference (COP15). World leaders, ministers, officials, and organizations from almost 200 countries participated, and Novozymes was present on the sidelines, arranging a number of events in connection with the conference. We had high hopes, but the outcome was disappointing as no concrete targets to curb global climate change were set.
We are aware of the complexity of the challenge, but we are also convinced that business must play an important role in providing solutions to part of the challenge. Closer cooperation between governments and business would turn hope into action and pave the way for concrete, sustainable solutions.
During the run-up to the COP15 conference a lot of dreams and ideas about climate-friendly technologies were revealed. At Novozymes we have a vision of a bio-based society where agricultural materials will replace oil as a production resource. Biotechnology can convert agricultural materials into sugar as a step toward creating environmentally friendly energy, materials, and chemicals for making our everyday products.
In the long run, we are convinced that sugar will be the new oil, but the full-scale bio-based society is still just a dream at present, and dreams alone will not solve the world's climate change issues. If we want a better tomorrow, we need to implement existing sustainable technologies today. Biotechnology is one such technology, ready to take us toward a sustainable society. In 2009, a report from WWF concluded that industrial biotechnology can reduce CO2 emissions by 1–2.5 billion tons per year by 2030 if the existing technologies are fully deployed – so let's get started!
Finding ways of substituting oil with agricultural materials is a good example of what our employees and partners can achieve together. Our ambition is to change the world together with our customers. To do that, innovation is essential, and we are continuously exploring new avenues. That is how we maintain our position as a world leader in bioinnovation.
In challenging times for the world and business, it is natural to cut back and focus on short-term results. But at Novozymes we firmly believe that our ability to innovate is
the key to solving some of the world's most pressing challenges and, at the same time, the engine that will help us regain our high sales growth. So, despite the economic downturn, we have maintained our focus and high investment level within innovation, spending around 14% of our revenue on research and development.
Sustainability is an integrated part of what we do and how we do it. We expect sustainability to be an increasingly important factor in our customers' choice of technology. Reduction of CO2 emissions is the top priority on the global agenda right now, but the focus has to be broadened as sustainability is about much more than CO2 reductions – and so are our solutions.
Sustainability is a parameter of vital importance to our partners as well as our employees. In this year's survey of employee satisfaction, we actually surpassed the target set for 2010, among other things as a result of our continuous focus on sustainability. This year we have added new longterm sustainability targets and stretched the existing ones to reflect the diversity of our business and to put our commitment into action. For instance, we have increased our targets to improve water efficiency and renewable energy sourcing.
However, it is not only organizations that can help in solving climate change. As consumers, we can make a huge difference through the way we act. A good example is within the detergent industry, where consumers can get clean clothes, save money on their electricity bill, and help make a real difference to the environment just by turning down the temperature dial on their washing machines.
Let's act, and help each other to change the world!
Steen Riisgaard President and CEO
In September 2009, WWF published a report concluding that industrial biotechnology can produce dramatic reductions in greenhouse gas emissions and provide strong progress toward a green and sustainable economy. The findings are based on contributions and data from industry and scientific experts, WWF Denmark, and peer-reviewed research from Novozymes.
The political challenges are huge, not least because the world needs radical changes now. Vague and indistinct compromises that encourage only incremental change will not do the trick. If we want a better tomorrow, we need to implement existing alternative and better technologies today.
Technical and theoretical solutions are within reach. New sources of energy such as wind and solar power are seen as obvious elements of the technological solution, but it may not be quite as obvious to look at industrial biotechnology as a technology that can be used in the fight against climate change. Nevertheless, WWF has calculated that industrial biotechnology could bring about greenhouse gas reductions of 1–2.5 billion tons per year by 2030.
Society needs to be aware of and utilize different dimensions of industrial biotechnology: improved efficiency, substitution of fossil fuels, substitution of oil-based materials, and the creation of a closed-loop system with the potential to eliminate waste.
Broad deployment of biotech solutions will create jobs and pave the way for a cleaner environment, but it takes political decisions to make the fundamental changes. Novozymes and WWF have come together to encourage politicians to further the integration of biotechnology into strategies for reducing climate change and to support the application of low-carbon biotechnology in industry.
Novozymes wants to change the world together with our customers. By being innovative and providing our customers with valuable solutions based on our industrial insight, we can help them change the world – while growing our company.
Novozymes wants to secure the right balance between better business, cleaner environment, and better lives. Never has that vision been more relevant to the world, and for us that opens a window of opportunity. We have proved the robustness of our business and our ability to deliver growth in both sales and earnings, while at the same time keeping a strong focus on environmental and social responsibility.
At the beginning of 2009, Executive Management and the Board of Directors decided it was time for the organization to take on new challenges, and the new ambition "Changing the world together with our customers" was communicated. This turns our attention toward greater goals and sets our sights on more demanding long-term targets.
With this new ambition, new targets were set for our ability to launch new products and concepts, as well as for our
own and our customers' impact on the environment. Consequently we expect to be able to grow sales, margins, and ROIC.
Despite 2009 being a challenging year from a sales growth perspective, there is still a growing need for sustainable solutions – both now and beyond the current global economic crisis.
The link between focusing on sustainable development and improving Novozymes' sales and earnings is quite strong. Our insight and understanding of our customers' needs help them reduce their direct and indirect environmental impact, and this ultimately benefits Novozymes' sales. Furthermore, focus on improving water and energy efficiency in our own production benefits earnings.
We are striving to achieve more than 10% average organic growth per year.
Just as today, Enzyme Business is expected to be the strongest absolute growth contributor in a longer-term perspective. Different industries will contribute differently to growth in a specific year. This has always been the case for Novozymes' business and is expected to continue to be the case in the years ahead. There are numerous growth drivers impacting each industry differently, and current long-term trends should enable many of our industries to deliver organic growth. Sales of enzymes for advanced biofuels are not included in the target as it is too early to discern a reliable growth trend for this application. When a more reliable growth outlook for these advanced biofuels is identified, the long-term growth target will be adjusted to reflect this opportunity.
BioBusiness activities are also expected to contribute positively to the organic growth rate, but due to its current size – representing roughly 8% of total sales in 2009 – the overall impact is smaller from an absolute growth perspective. However, we want to grow BioBusiness into a multibillion DKK business by 2018. From a relative growth perspective, BioBusiness should grow at a faster pace than Enzyme Business. This requires the successful development and commercialization of products in our pipeline, as well as success for our customers' biopharmaceutical products currently in different phases of development. This will be a challenge and is to some extent outside our control, but we are making progress toward our ambitious target. We are also pursuing ways of supporting the target through acquisitions within areas where we see a technological and a competency fit.
A unique cornerstone of Novozymes' business model is productivity improvements within Enzyme Business. We expect to be able to continue to increase throughput in our production facilities and reduce the relative enzyme cost by at least the same rate as we have achieved in the past. Increasing productivity, combined with making the enzymes more potent, is important to our ambition of maintaining an operating profit margin of more than 20%.
In BioBusiness, we are working on improving profitability through continued product pruning and optimization of the production facilities. Compared to Enzyme Business, lead times are longer in BioBusiness as many products are included in customers' biopharmaceutical phase studies. This requires relatively high upfront investments and R&D expenditure on our part before more substantial sales developments can be realized.
Historically, annual organic sales growth of around 8% has been achieved with a maintenance investment level of around 6–7% of sales, as productivity improvements have enabled us to continuously increase throughput in existing production facilities. However, the higher annual sales growth target requires additional investments. Hence, until 2011, the investment level as a percentage of sales will be higher than historical levels. After 2011, and if no new, currently unknown opportunities arise, investments should be less than 8% of sales, supporting 10% average annual organic sales growth.
We need to invest upfront to enable a market to materialize, and we cannot afford to be short of production capacity when demand is expected to pick up. The higher level of investment needed until 2011 is expected to be financed through operating cash flow. Given the expectation of improved profit margins and improved utilization of fixed assets, the long-term ROIC target of more than 22% is expected to be reached through improved earnings and the aforementioned improvement in the utilization of fixed assets.
Throughout 2009, we have refined our existing long-term environmental targets. In a mid- to long-term perspective, the target years are 2015 and 2020, while the baseline year is 2005. These years refer to national and international negotiations on different climate change targets, and Novozymes has decided to use the same years as reference points for our improvements.
We have set targets for resource efficiency with regard to energy and water. Energy efficiency will be improved by 50%, whereas water efficiency will be improved by 40%. These indicators are linked directly to minimizing
environmental impact, increasing cost efficiency, and longterm risk management. In addition to the efficiency targets, it is our ambition to use 50% renewable or CO2-neutral energy by 2020.
Novozymes has defined a new CO2 efficiency target related to our own production and a target for absolute CO2 emission reductions in a product life cycle perspective. The latter represents Novozymes' overall carbon footprint. Please see Environmental and social data and Accounting policies for more details on present environmental impact. The new long-term emission reduction target has replaced and improved on the target presented last year, when the baseline year was 2007 instead of 2005.
When it comes to our targets for sourcing energy and reducing CO2 emissions, it should be stressed that we are dependent on factors outside our control. The target for energy sourcing will require close cooperation with energy suppliers. Fulfillment of targets partly depends on markets for energy and the availability of preferred energy sources. Novozymes is particularly dependent on energy markets in China and the US.
Key indicators for resource consumption and climate change are in focus when defining long-term targets. However, sustainability also takes other areas into consideration. Other challenges such as phosphate scarcity and unequal distribution of food are further areas where modern biotechnology may provide solutions. Similarly, social challenges such as supporting human rights, fighting poverty, and managing anticorruption are increasingly finding a place on the business agenda.
Novozymes always aims to be responsive by addressing issues in our sphere of influence and by not compromising on business ethics.
To fulfill our ambition to change the world, we need motivated and engaged employees. Novozymes therefore continuously strives to be a preferred employer globally. We are always looking for the right people and aim to support them in challenging current conventions while shaping a brighter future.
We believe that sustainability will increasingly define markets and it is our long-term ambition to be recognized as a company demonstrating leadership and setting the standards with regard to sustainability.
Water is increasingly being recognized as a critical sustainable development issue in international politics. The availability of freshwater per capita is steadily decreasing on a global scale, and in many regions water resources cannot meet demand. Around 20% of the world's population lack access to safe drinking water, and 40% are without adequate sanitation. In March 2009, government representatives plus NGOs and companies from 110 countries explicitly put water on the international agenda at the World Water Forum in Istanbul.
Business, of course, is an important player in this context. Water constraints pose a potential financial risk for businesses, either directly or indirectly. Business may be part of the problem, but business may also have the solutions to the challenges in the form of know-how and technology.
Novozymes' ambition is to address the challenges. That means demonstrating resource efficiency and managing resource supply. Furthermore, Novozymes wants to account for the overall impact of our technology from a life cycle perspective and improve our technology in order to contribute to increased resource efficiency.
In 2009, a comprehensive project explored Novozymes' role, risks, and opportunities in a world where water supplies are increasingly constrained. We are striving to make water a manageable issue in the daily business. Our current use of water and handling of wastewater have been evaluated, and appropriate measures have been taken at both local and regional level. One important outcome of the project has been new shortterm and long-term targets for water consumption.
The use of water at our own sites and in the world outside is now an integral element in Novozymes' strategy.
Innovation plays a central role for a growth company such as Novozymes. A considerable share of Novozymes' revenue is allocated to research and development (R&D) each year, and many employees across the globe are engaged in innovation.
Novozymes is associated with innovation, and customers and strategic partners recognize us as being amongst the best in our field.
Novozymes has a track record of continuously delivering new products and technologies. The formula for our success is a good balance between short-term product improvements, mid-term development of new concepts, and long-term radical innovation in our pipeline. In this way, we are able to meet the demands of today and tomorrow.
For Novozymes, innovation is more than just the creation of future products. Optimizing our production to maximize output and reduce costs is part of our ability to meet our customers' demands. Significant optimization of this kind is possible due to the nature of our business where we can find new ways of getting more from our production strains, whether by using traditional methods of optimizing the production parameters or by optimizing the enzyme itself, for example by means of screening or protein engineering.
Novozymes' organizational structure and working methods have been designed to create the optimal environment for innovation and support a pioneering culture, creating a balance between a systematic approach and the space to let ideas develop freely. The organization incubates new ideas, concepts, and business areas both within and outside the enzyme field. But in 2009 a new Innovation Office was also set up to manage the front-end pipeline across our businesses, and a number of interactive forums have been created.
Novozymes has R&D functions all over the world, and the approach and methods vary from place to place. We embrace the educational and cultural diversity in the Group, believing that it strengthens our overall capabilities, but we also acknowledge the challenge of utilizing our global R&D community to the full.
To manage, trace, and share the enormous quantity of ideas, information, learning, research data, etc., we have consolidated all our databases and local data into one single database covering the entire R&D workflow from soil samples to samples for customers. Furthermore, we have created working platforms for teams across projects, areas, and sites to facilitate collaboration. With the introduction of the "electronic laboratory notebook," traditional paperbased laboratory notebooks have become obsolete, changing the way we record experimental work and freeing up more time in the labs for creativity and innovation.
FOCUS
While Novozymes has always developed products and business areas in collaboration with customers and partners, we are experiencing a paradigm shift within the field of innovation. For Novozymes and our customers, this new openness is leading to greater communication, wider sharing of knowledge, and endless opportunities.
At present, new concepts and radical innovation constitute a large proportion of our pipeline. Both areas are associated with greater risk than short-term product development due to a higher level of uncertainty. We therefore seek partners with the relevant knowledge or sufficient demand to reduce these uncertainties. Greater openness about innovation has created greater visibility and enables us to scout around for the best connections. At Novozymes, we will continue to develop our partnership skills and to search for the best partners for fruitful collaborations.
For 2010, Novozymes expects positive developments in both sales and earnings. There is still uncertainty as to how things will develop in 2010, and we address this by giving a wide guidance range.
In 2010, Novozymes expects sales growth of 2–6% in local currency. Divestments are expected to impact sales growth negatively by 0.5 percentage points. We expect a continued high level of uncertainty about the growth of the markets where we are active, and we have taken account of this uncertainty by giving a wide range to our estimates for the year.
Our sales growth expectations are based on the assumptions that there will be no weakening of demand in the major industries and that US biofuel production for 2010 will be 12–12.5 billion gallons. Fulfillment of the expectations further requires the technical and market assumptions for newly launched products and concepts across industries to materialize.
Exchange rates, especially the development of the USD, are expected to have a negative impact on sales growth. As a result, sales in DKK are expected to grow by 1–5% for the year, using the spot rates for the most important currencies as of January 20, 2010.
Due to the global recession and the weakening of currencies, Novozymes no longer deems it possible to reach the ambition of sales of DKK 10 billion in 2010. The 10-in-10 ambition was launched in 2007 to focus on sales growth in the business. This ambition was complemented by the existing long-term growth targets launched at the beginning of 2009.
Operating profit is expected to grow by 3–7% in DKK for 2010. Increased sales activities and strong productivity improvements are expected to improve gross profit. A dynamic and continuously cost-conscious organization will contribute to the positive development in operating profit. Strong productivity improvements will also have a positive effect on our water and energy consumption, enabling our environmental impact to be reduced.
Net profit in DKK is expected to grow by 9–13% in 2010. While current exchange rate levels are expected to affect sales and operating profit growth negatively, hedging contracts are expected to impact net profit positively. In late 2008, Novozymes entered into hedging contracts for the USD and the JPY covering 2009 and 2010. Net cash flow for the USD exposure is hedged at a DKK/USD rate of 591 for the full year, whereas DKK/JPY cash flow exposure is hedged at 6.53 for the full year.
Investments are expected to be in the range of DKK 1.0–1.1 billion, similar to the investment level in 2009. The new USD 160–200 million enzyme production facility in the US, initiated in 2009 and to be built over a period of three years, makes up roughly DKK 200–300 million of the 2010 investment needs. The new hyaluronic acid facility in China, expected to be completed at the end of 2010, makes up around DKK 200 million.
Cash flow from operations is expected to be sufficient to cover the expected investment needs. Free cash flow before acquisitions is expected to be in the range of DKK 700–800 million, on par with what was realized in 2009.
ROIC is expected to be around 20%, on par with the level seen in 2009. A relatively higher level of invested capital affects ROIC negatively, whereas increased earnings impact ROIC positively.
The 2010 outlook is based on exchange rates for the company's key currencies remaining at the spot rates on January 20, 2010, for the full year. Novozymes' key currencies are: EUR, USD, JPY, and CNY.
| (DKK) | EUR USD JPY CNY |
|---|---|
| Average exchange rate 2009 | 745 536 5.73 78.47 |
| Spot rate January 20, 2010 | 744 527 5.78 77.14 |
| Change in estimated average exchange rate for |
|
| 2010 compared to average exchange rate in 2009 |
0% -2% 1% -2% |
As relatively more sales than costs are realized in currencies other than DKK, operating profit is disproportionately affected by movements in currencies. For the most important currency, the USD, a 5% movement either up or down would result in a change in operating profit for the year of around DKK 45–65 million, all other things being equal (see Currency exposure in Note 36).
We have chosen 2005 as the baseline year for setting targets for reducing the environmental impact from energy and water consumption and CO2 emissions. Targets for 2010 for improving resource efficiency are 30% and 20% for energy and water respectively.
In 2010, CO2 emissions are expected to be 25% lower than in 2005. The scope for this target for emission reductions is based on emissions from Novozymes' own production sites and from energy suppliers. It is also crucial for Novozymes to look at the broader picture in order to see emissions and other forms of impact from a product life cycle perspective.
In 2010, Novozymes expects to enable a 28–29 million ton reduction in CO2 emissions through the application of our products by our customers (2009: 27 million tons).
Managing sustainability in supply chains is still a focus area. Our 2010 target is a follow-up to ensure realization of benefits from the management system. Action plans will be drawn up for all suppliers with performance issues, and the knowledge gained from the new system will thereby be utilized in improving performance.
Our ambition is to make it even better to be a Novozymes employee, and a set of targets addresses this. The original target for 2010 for employee satisfaction and motivation was set at a score of 75 back in 2008. This was achieved already in 2009 and focus is on keeping the high level. Employees' "opportunities for professional and personal development" is another important indicator, and this target has been raised by one point compared to last year. In addition to these indicators, we continuously work on reducing the number of occupational accidents as well as absence from work.
The target for employee turnover is set at a range that reflects the present job market and Novozymes' aims with regard to attraction and retention of employees. It is seen as preferable to have a turnover above 4% and below 9%.
Novozymes expects sustainability to be a very significant lever in support of our overall efforts to grow the business. It is therefore valuable to us when partners, employees, customers, NGOs, or other stakeholders evaluate our performance within this area. Analysts and rating agencies continuously assess the overall sustainability performance of companies, and we use the most valid ones to compare Novozymes to peers in this respect. We have chosen the Dow Jones Sustainability Index and SAM's rating as yardsticks, although a number of alternative ratings are just as valuable. It is our goal to achieve a Gold Class rating by SAM in the Sustainability Yearbook.
Every year Novozymes' employees have the opportunity to express their opinions in a survey called People's Opinion. The survey is standardized and operated by a third party, and is used by many other companies around the world, which gives Novozymes a valuable benchmark for the results. In 2009, 94% of employees responded to the survey.
Two aspects of the survey are used as key indicators: "Satisfaction and motivation" and "Opportunities for professional and personal development." These scores are reported externally, and specific targets have been set for both.
From a total score of 70 points in 2008, the target for 2009 was to improve to 72. However, the 2009 score actually increased by seven points to 77. The global recession and financial crisis have generally led to an increase in job satisfaction. However, these external events can only explain an improvement of a few points, and most of the increase at Novozymes can be attributed to the numerous initiatives taken within the organization.
Novozymes' reputation and the content of daily work are the most important drivers of motivation among employees. Reputation, which was already well above the benchmark, increased by four points to 86 – a strong indication that employees are generally very proud to work for Novozymes.
Developing employees' skills and competencies is a key factor both for the employees and for Novozymes. In the survey, employees state that "opportunities for professional and personal development" at Novozymes are very important. Novozymes is keen to provide these opportunities, and consequently a target of 69 points was set for 2009. The actual score for 2009 was 74 points, thus exceeding our target by five points.
THE NOVOZYMES REPORT 2009 MANAGEMENT
Board of Directors Executive Management Mathias Uhlén
Born 1954. Professor, the Royal Institute of Technology (Kungliga Tekniska Högskolan), Stockholm (Sweden). Member of the Board since 2007. Elected for one year at a time.
Member: KTH Holding AB, Atlas Antibodies AB, Biotage AB, Affibody AB, SweTree Genomics AB, Nordiag AS, and Skanditek Industriförvaltning AB
Special competencies: Broad experience in research and biotechnology
Born 1963. Executive Vice President, Stakeholder Relations.
Board positions Chairman: The Danish– American Business Forum Ulla Morin Born 1954. Laboratory Technician. Employee representative. Member of the Board since 2001. Elected for four years at a time.
Thomas Videbæk Born 1960. Executive Vice President, BioBusiness.
Board positions Chairman: WWF (World Wide Fund for Nature) Denmark
Member: Egmont International, Holding A/S, Rockwool International A/S, and EuropaBio
Benny Loft Born 1965. Executive Vice President and CFO.
Board positions Member: The Blue Planet and Axellia Pharmaceuticals
Born 1945. Vice Chairman of the Board. Chairman of the Audit Committee. Member of the Board since 2000. Elected for one year at a time.
Chairman: Reliance A/S Member: The Novo Nordisk Foundation Member and Chairman of the audit committee: Novo Nordisk A/S, Vestas Wind Systems A/S, ZymoGenetics, Inc. (USA), and LifeCycle Pharma A/S
Special competencies: Expertise in financial and accounting matters, and in-depth knowledge of Novozymes' business
Different competencies are represented within Executive Management and the Board of Directors to ensure the best possible management of the company. Members possess broad international management experience, thorough biotech expertise, and in-depth knowledge of Novozymes' business.
Born 1958. Executive Vice President, Research & Development.
Board positions Member: IT Practice A/S
Born 1947. Regulatory Affairs Manager. Employee representative. Member of the Board since 2005. Elected for four years at a time.
Born 1953. CEO, Novo A/S. Chairman of the Board since 2000. Elected for one year at a time.
Board positions Chairman: Copenhagen Airports A/S and COWI A/S Member: Novo Nordisk A/S
Special competencies: In-depth knowledge of Novozymes' business, and expertise in managing and working in an international biotechnology company
Peder Holk Nielsen Born 1956. Executive Vice President, Enzyme Business.
Board positions Member: Hempel A/S
Born 1950. CEO, Thrane & Thrane A/S. Member of the Board since 2000. Member of the Audit Committee. Elected for one year at a time.
Chairman: Hewlett-Packard Denmark and The Growth Foundation (Vækstfonden) Member: Investea Holding A/S
Special competencies: Expertise in financial matters, and in-depth expertise and wideranging international experience within IT
Born 1952. CEO, AarhusKarlshamn AB (Sweden). Member of the Board since 2000. Member of the Audit Committee. Elected for one year at a time.
Board positions Chairman: Aarhus United A/S
Special competencies: Expertise in financial matters and extensive international management experience
Employee representative. Member of the Board since 2009. Elected for four years at a time.
Born 1946. Senior Vice President, Yara International ASA (Norway). Member of the Board since 2000. Elected for one year at a time.
Special competencies: Extensive international management experience
* These board members are not regarded as independent in the sense of the definition contained in the Nørby Report.
When the cooperation between the Board of Directors and Executive Management was evaluated, the result for 2009 was very satisfactory. The Board of Directors places great emphasis on the new challenges a global recession brings and how to make sure they are reflected in the way the Board operates. The recent establishment of an Audit Committee has strengthened the Board's focus on auditing, accounting, internal control, and reporting.
Novozymes' management systems have been developed over many years and are constantly adjusted to reflect changes in legal requirements, new business developments, and stakeholder expectations. A cornerstone of the management systems is Novozymes' corporate governance setup.
Corporate governance is the name commonly given to the frameworks and guidelines for business management, including the overall structures and principles that regulate the interaction between a company's management bodies, the shareholders, and other stakeholders. As every company is unique, there is no exact standard for "good corporate governance." However, a number of valid principles have been developed and stated in recommendations, guidelines, or law. Novozymes' goal is to have management systems in place that at all times ensure openness and transparency, providing stakeholders with relevant insight into the business – and, of course, effective management.
In accordance with Danish legislation, Novozymes has a twotier management system comprising the Board of Directors and Executive Management, with no individual a member of both. The division of responsibility between the Board of Directors and Executive Management is clearly laid down and described in Rules of procedure for the Board of Directors and Guidelines for Executive Management available at www.novozymes.com.
In laying down the management principles for Novozymes, the Board of Directors has followed the Corporate Governance Recommendations that form part of the disclosure requirements applicable to companies listed on NASDAQ OMX Copenhagen A/S.
The Board of Directors considers that Novozymes complies with the recommendations, with three exceptions:
information at an individual level increases the level of information for stakeholders
A detailed review of Novozymes' positions on the individual recommendations can be found under Corporate Governance/The Nørby Report at www.novozymes.com.
Novozymes also acts within the parameters of the Charter for companies in the Novo Group, which Novozymes has adopted and reformulated in The Novozymes Touch. This lays down our values, commitments, and fundamentals. Within this framework, we have also committed ourselves to principles derived from other international charters and standards as listed below:
In 2009, the election of employee representatives to the Board of Directors took place. As a result of this, Michael Munksø has replaced Arne Juul Hansen as one of the three employee representatives. Arne Juul Hansen did not run for election. The employee representatives are elected for a period of four years.
The Board's main responsibilities are to:
For an overview of the tasks performed to fulfill these responsibilities, see A year with the Board in this section.
As part of the efforts to ensure that Novozymes has wellfunctioning management systems in place at all times, the Board of Directors and Executive Management assess whether the main responsibilities have been fulfilled as well as the quality of collaboration between the two bodies. The assessment is carried out on an annual basis and was once again positive in 2009, with only minor areas for improvement identified. This time, emphasis was placed on the fact that the global recession leads to new challenges and that the Board of Directors must take these into account to make sure they are reflected in the way the Board operates.
One of the responsibilities of the Board of Directors is to assess each year whether the ownership structure with A and B common stock is optimal. The Board of Directors maintains that this is the best way of safeguarding Novozymes' long-term development and thus benefits the company's shareholders and other stakeholders.
In addition, the Audit Committee performs an annual assessment of its own performance to determine the correct scope and depth of its work. As the Audit Committee was established in 2008, the assessment in 2009 was the first one to take place, and the external auditors were also asked to evaluate whether the performance of the Committee fulfilled the requirements of the Audit Committee's Charter. Only minor improvement areas were identified. The Audit Committee and the Management are of the opinion that the setup of the Audit Committee has strengthened the Board's focus on auditing, accounting, internal control, and reporting.
For many years, Novozymes has had a vision of creating value in the broadest sense. Novozymes aims to create a cleaner environment, better lives, and better business. The way Novozymes is managed reflects this, as management systems are set up to seek opportunities within all these areas while at the same time reducing risk and securing compliance with rules and regulations.
Identifying and managing risk are integrated into the management systems at Novozymes. We define risks as "events or tendencies that can prevent the company from achieving its overall targets – including financial, environmental, and social targets – or negatively affect our image or our future results and activities." Novozymes strives to identify risks as early as possible and, once they have been identified, we act and follow up on them.
Risks are not only caused by external factors affecting our achievement of targets but can also be caused by internal procedures, such as errors leading to the misstatement of information, malfunctioning of products, etc. Novozymes strives to minimize these procedural risks through the extensive use of quality management systems and ISO certifications, which includes detailed control and action requirements both covering global procedures as well as specific requirements dependent on location, business area and function.
The Novozymes Touch describes the vision, values, and management principles of the company. It outlines the code of behavior and philosophy of Novozymes. By following the right behavior and principles, we are able to reduce the risk of misconduct by Novozymes.
To secure compliance with the management systems and the Novozymes Touch, both facilitations and quality management audits are used. Each year, a report on compliance is submitted to Executive Management and the Board of Directors.
Novozymes attaches great importance to reporting in a timely and correct way, as this is seen as key to building a trustworthy company.
Novozymes' risk management and internal controls relating to financial reporting are organized with a view to:
Novozymes' internal controls and risk management systems are updated on an ongoing basis and have been designed with a view to discovering and eliminating errors and
defects in the financial statements. However, as there is always a risk of misuse of assets, unexpected losses, etc., the internal controls and risk management systems can only provide reasonable and not absolute assurance that all material errors and defects are discovered and rectified.
The internal controls and risk management systems also cover environmental and social data in The Novozymes Report.
A more detailed description of Novozymes' risk management and internal controls concerning the financial reporting process can be found at www.novozymes.com. Together with the description of corporate governance, this forms the statutory report on corporate governance that is required from 2009 according to the Danish Financial Statements Act, Section 107b.
The financial reporting process is monitored by the Audit Committee. As part of this monitoring, all cases of fraud and concerns raised by internal and external persons, etc., are reported to the Audit Committee. In 2009, eight cases were reported. Of these, four led to the dismissal of employees.
From 2009, a new Danish law has made it mandatory to report on corporate responsibility. However, Novozymes already fulfills these requirements as integrated financial, environmental, and social reporting has been included in our annual reporting for many years. Furthermore, Novozymes provides additional information in accordance with the GRI and the UN Global Compact, which requires member companies to publish a Communication on Progress.
The information in the annual report and the Communication on Progress together form the statutory report on corporate responsibility that is required according to the Danish Financial Statements Act, Section 99a.
While Novozymes aims to do business in accordance with our values, we also have to stay in touch with the needs of society. One way of identifying risks, opportunities, and new trends, and at the same time living up to Novozymes' ambition of being open and honest, is to engage with our stakeholders. Living up to our stakeholders' expectations has a high priority as we wish to maintain a good reputation. Novozymes therefore sets targets for sustainable performance and strives to be the best among our peers.
Novozymes focuses on providing our stakeholders with relevant information to give them an insight into our business. To determine who our stakeholders are and how best to interact with them, a systematic approach has been developed. In 2009, two new tools for mapping stakeholders and for planning stakeholder engagement
were introduced to small but highly relevant groups of people across Novozymes who interact with external stakeholders on a daily basis. The overall objective is to improve the management of stakeholder relations, and the plan is to present the new tools to a wider group at Novozymes.
Moreover, countless meetings with, among others, investors, politicians, customers, neighbors, and NGOs are held every year. These meetings are a valuable learning experience for everyone involved and are also of benefit to our business.
The dialogs Novozymes has with stakeholders are also a chance for us to promote our points of view, our solutions, etc. We want to ensure that this is done in a respectful way that does not create a risk of harming Novozymes' reputation. Novozymes has therefore set down principles for ethical ways to influence our stakeholders. In other words, we have a management standard defining good business practice for dealing with authorities, policy-makers, and political parties.
Executive Management conducts an annual evaluation of the opportunities for future growth. The basis for this evaluation is reports on long-term scenarios regarding each of the business areas, supplemented by selected key scenarios. The reports contain sensitivity analyses and, for expansion projects and larger investment proposals, a calculation of the net present value of the investment is included.
Part of this scenario work involves identifying potential bottlenecks for future growth, such as the need to expand production capacity.
Changes in external factors are included in the scenario work. For example, the current emphasis on environmental measures aims to reduce CO2 emissions, but what lies beyond CO2 reductions? One project emerged from this work and has been finalized in 2009. As a result, Novozymes has strengthened the focus on water availability and consumption.
Some of the scenarios presented to Executive Management spring from risks identified by the enterprise risk management setup.
As well as the activities mentioned above to identify risk, Novozymes has a formal process to continually map and mitigate risks. All business units and vice presidents systematically report new risks and any changes to previously defined risks. This process ensures that top management has a high level of risk awareness, with involvement and ownership throughout the organization. Reported risks are collated and mapped by the Risk Management Office on the basis of probability and possible consequences. Risks are assessed based on both financial impact and the impact on reputation, and the reporting covers both financial and nonfinancial risks.
The aim of risk management at Novozymes is to ensure proactive management of the key risks, so that efforts to reduce both probability and unwanted consequences will be made where possible.
Every six months, risks are reported to the Risk Management Office. Based on the mapping of these, a shortlist of approximately 30 risks judged to be the most significant is reported to Executive Management. Twice a year, the most significant risks are also presented to the Board of Directors.
This systematic and analytical approach to risk management enables Novozymes to achieve greater transparency and gives a stronger basis for making decisions about investing resources. In addition, it provides Management with the opportunity to discuss risks and undertake the necessary actions in relation to the Group's risk profile.
The following section Risk factors describes a number of critical risks along with measures that Novozymes has implemented to reduce them. The list is not in any order of priority and is not exhaustive.
In December 2009, Copenhagen hosted the United Nations Climate Change Conference (COP15). The conference was seen as decisive concerning solutions to meet the climate challenges facing the world. But after two weeks of intense negotiations, the 194 nations did not succeed in reaching a legally binding agreement. Instead, the Copenhagen Accord that came out of the conference is a political declaration – a list of intentions that is being criticized for not setting any concrete targets to curb global climate change.
Novozymes is aware of the complexity of the challenge and acknowledges the enormous amount of work that took place before and during the conference, but we are disappointed at the outcome.
The words "technology," "technology development," and "technology transfer" appear again and again in the Copenhagen Accord. The words appear in paragraphs addressing very concrete needs, clearly illustrating the need for legitimate business involvement. There is a need for open and effective cooperation between governments and the business world as businesses have the necessary competencies to develop and transfer technology. More effective utilization of these kinds of competencies would be a way of dealing with part of the challenge.
Novozymes was present at the conference to make political leaders and other decision-makers aware of biotechnology as a route for reducing climate change. We managed to establish many relations at the conference that will be highly relevant in the years to come. It is essential for Novozymes to position biotechnology as part of the solution to curb CO2 emissions. In 2009, around 27 million tons of CO2 were avoided due to the application of enzymes sold by Novozymes.
During COP15, Novozymes carried out a whole range of activities . Representatives from the company participated in numerous events to position biotechnology, promote relations with customers, and build networks. Together with partners, Novozymes hosted a side event about the global potential of biofuels and another about sustainable agriculture and food production. The company also participated in a climate-friendly car parade in Copenhagen with flexfuel Volvos powered by advanced biofuel. One eye-catching event was a fashion summit at the Royal Opera House, where Novozymes exhibited our ideas about how biotechnology can help the fashion world to become more sustainable.
Identifying and managing risk are integrated into the management systems at Novozymes. We define risks as "events or tendencies that can prevent the company from achieving its overall targets – including financial, environmental, and social targets – or negatively affect our image or our future results and activities."
Novozymes strives to identify risks as early as possible and, once they have been identified, we act and follow up on them.
This section describes a number of critical risks along with measures that Novozymes has implemented to reduce them. The list is not in any order of priority and is not exhaustive.
This year we have described financial risks in Note 36 to the financial statements.
Novozymes sells our products worldwide and is subject to the financial and political risks that this naturally entails. Growth in individual markets is therefore influenced by the local economic situation and local legislation. Novozymes works together with our agents, distributors, and other business partners to ensure that they know and do not violate Novozymes' business integrity rules when selling our products.
A relatively small number of customers account for a high proportion of Novozymes' revenue in certain product areas, which means that Novozymes is also affected by the trends in these customers' markets. Novozymes works closely with its major customers to limit risks, for example by means of joint development projects and joint production planning, including the integration of IT systems.
Novozymes strives to maintain its position as market leader by continually launching new and improved, high-quality products that meet customers' needs. Novozymes' projected sales are not dependent on single large product launches, as we constantly have several new products in the pipeline. This places high demands on the Group's research and development, requiring development to keep pace with customer needs. Failure here would entail the risk of a negative impact on Novozymes' sales targets. Novozymes allocates around 14% of revenue to research and development to ensure sufficient resources for future innovation.
Novozymes produces a large number of enzymes using genetically modified organisms (GMOs). Without this technology, it would be necessary to use larger quantities of raw materials, water, and energy, and in many cases commercial production of an enzyme would not be profitable. The use of gene technology is the subject of
ongoing debate around the world, mainly concerning genetically modified crops or foods containing GMOs. Novozymes' use of gene technology has only featured in the debate to a limited degree, as the Group's end-products do not contain GMOs. However, it is possible that Novozymes' production and sales to the food and feed industries in particular may be affected by the public debate on gene technology and the impact this may have on consumer demand.
Read more about Novozymes' use of gene technology at www.novozymes.com.
Novozymes has sharpened its focus on integrating sustainability and risk management into the selection and evaluation of key suppliers. In order to identify risks and opportunities in the global purchasing processes, an advanced supplier performance management system has been developed.
Sustainability is a performance parameter in the system and is evaluated alongside commercial and quality parameters. Instead of relying only on supplier self-evaluations, the supplier evaluation process is supplemented with media research, dialog, and the critical insight of Novozymes' purchasers. The system helps rank and compare suppliers according to risk and opportunity and provides an overview of the global supplier pool. The system is also designed to help the purchasing function identify the suppliers who typically pose the biggest risks. Suppliers with critical issues are subject to further questions or an audit.
As maintaining optimal production is critical for Novozymes, there is a strong focus, among other things, on the reliability of deliveries from suppliers. To safeguard supplies, cooperation agreements have been entered into with a number of key suppliers. These cooperation agreements also help to reduce the sensitivity to fluctuations in the price of raw materials and energy.
Historically, Novozymes has experienced constant price pressure in its markets. Competition from producers based in low-cost countries, particularly China and India, will always be a challenge. One of the ways in which the Group is trying to counter this challenge is by using its technology to continuously optimize production, thereby reducing costs per unit produced so that production remains at the forefront and competitive.
Novozymes' technology is the basis of our business, and the Group pursues an active patent strategy by protecting new discoveries as early as possible. This prevents new products, processes, etc., from being copied.
Novozymes' fundamental values include environmental and social responsibility. These are key to the way in which Novozymes conducts business and are significant to all activities. These values are underpinned by a number of targets for environmental and social responsibility.
Novozymes is heavily dependent on being able to attract and retain skilled people, and the Group's reputation is an important parameter in this. Novozymes tries to maintain a good reputation by means of openness and transparency in both internal and external communications. Work is also carried out on an ongoing basis to reduce the risk of situations arising that could damage Novozymes' reputation. Current legislation must be complied with at all times, and Novozymes is committed to setting an even higher standard in various areas.
Having a positive impact on our surrounding environment is important to Novozymes. Therefore we try to conduct business so that our environmental impact is part of the solution to current environmental problems. Novozymes' targets of achieving significant reductions in CO2 emissions and in water and energy consumption are examples of this.
Novozymes uses animal testing in connection with the development and approval of products where this is demanded by public authorities. The use of animal testing is the subject of ongoing public debate and as such constitutes a risk to Novozymes' reputation and business. The current product portfolio involves relatively few animal tests, but this may change as a result of the development of new business areas.
Novozymes is continuously trying to minimize the number of animal tests by further refining the methods used and using alternatives wherever possible.
In Novozymes' relations with business partners, the company seeks to reduce the risk of being associated with environmental and social conditions that could impact negatively on Novozymes' reputation.
On entering into agreements with new business partners or acquiring new companies or activities, Novozymes takes environmental and social issues into consideration on a par with the financial considerations.
The production of enzymes requires relatively large amounts of energy, and fluctuations in energy prices will therefore impact the cost of the goods we sell. The risk of a negative impact from rising energy prices is managed by optimizing the production process, for example by using gene
technology, and by partially hedging energy prices for a future period. This risk is partly offset by the positive impact on sales when energy prices go up, as it becomes more profitable for our customers to replace oil-based ingredients with enzymes and to use energy-saving enzymes in their production.
A significant proportion of Novozymes' raw materials is derived from agricultural produce, and fluctuations in these commodity prices will therefore impact the cost of the goods we sell. Novozymes tries to reduce the risk of a negative impact on costs by optimizing the production process, for example by using gene technology and by ensuring the greatest possible flexibility in the use of raw materials.
Novozymes operates in many markets via sales companies and distributors, while production takes place in a small number of countries. This entails a number of transactions, etc. between Group companies. Novozymes follows the OECD principles in setting internal settlement prices for these transactions, but this is a complicated area and entails a tax risk, among other things because the area is subject to political judgment in each individual country. Novozymes regularly enters into dialog with the tax authorities to reduce this risk and, as an example, in 2009 Novozymes was the first company in Europe to enter into a Bilateral Advance Pricing Agreement (BAPA) with China. A BAPA is an agreement between the tax authorities of two countries to determine the split of a company's profit for taxation between the countries. For Novozymes, an agreement like this creates predictability in relation to taxation.
The risk of personal injury, material damage, and other events beyond our control, as well as other losses that Novozymes may cause, is covered by an extensive insurance program to the extent that this is feasible and possible. Coverage in different areas is subject to a premium based on Novozymes' claims history. The current price of the policies and the coverage provided may be affected by external circumstances, such as natural disasters and similar events.
THE NOVOZYMES REPORT 2009 ACCOUNTS
The consolidated financial statements of the Novozymes Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and additional Danish requirements on the presentation of accounts. Novozymes has prepared its consolidated financial statements in accordance with all the IFRS standards in force. The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, with the exception of the following items, which are recognized at fair value:
Some of the information required pursuant to IFRS is contained in the sections Report and Management. The rest will be found in the following sections.
The Novozymes Report does not contain the financial statements for the parent company, Novozymes A/S. The financial statements for the parent company can be found online under Financial statements for Novozymes A/S at www.report2009.novozymes.com. Together, the Novozymes Report and the financial statements for the parent company, Novozymes A/S, form the Annual Report that will be sent to the Danish Commerce and Companies Agency.
Reporting of selected environmental and social data is based on an assessment of which data are of particular significance for Novozymes' earnings capacity in the longer term. We also believe these data to be of greatest relevance to our key stakeholders. Information on Novozymes' use of the GRI indicators will be found in the online report under Supplementary reporting.
Environmental and social data are an integrated part of the Novozymes Report and are covered by the statutory audit performed by the auditor elected by the Annual Shareholders' Meeting.
In 2009, the following standards and interpretations with relevance for Novozymes were brought into effect and implemented:
The implementation of these has led to further specifications in the Notes, but no changes in recognition and measurement except that borrowing costs relating to qualifying assets DKK 7 million must be capitalized from 2009 pursuant to IAS 23, but comparative figures need not be restated. The Statement of comprehensive income is new and includes items previously shown in the Statement of shareholders' equity. In addition, IFRS 3 now requires that acquisition costs are expensed and makes it possible to use the full goodwill method.
Standards and interpretations issued by IASB but not adopted by the EU and therefore not implemented as at December 31, 2009, comprise:
Implementation of these will lead to further specifications in the Notes but no material changes in recognition and measurement.
The consolidated financial statements comprise the financial statements of Novozymes A/S (the parent company) and all the companies in which the Group owns more than 50% of the voting rights or otherwise has control or similar de facto control (subsidiaries), as well as joint ventures. The consolidated financial statements are based on the financial statements for the parent company and for the subsidiaries, and are prepared by combining items of a uniform nature and subsequently eliminating intercompany transactions, internal stockholdings and balances, and unrealized intercompany profits and losses. All the financial statements used for consolidation are prepared in accordance with the Group's accounting policies.
The Group's holdings in joint ventures regarded as jointly controlled entities are consolidated using the proportionate consolidation method by including its proportional share of their assets, liabilities, revenue, and costs line by line.
On acquisition of new companies, the assets, liabilities, and contingent liabilities of each new company are recognized at fair value at the time of acquisition. Goodwill is adjusted for changes in the purchase price after acquisition and changes in the fair value of the acquired identifiable assets, liabilities, and contingent liabilities since the acquisition date until 12 months afterward. Newly acquired companies are recognized as from the date of acquisition, and no adjustment is made to comparative figures. Goodwill is allocated to business activities in order to test for impairment.
The consolidated financial statements are presented in Danish kroner (DKK). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the transaction date. Monetary items denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date. Financial statements of foreign subsidiaries are translated into Danish kroner at the exchange rates prevailing at the balance sheet date for assets and liabilities, and at average exchange rates for income statement items.
Goodwill arising on the acquisition of new companies is treated as an asset belonging to the new foreign subsidiaries and translated into Danish kroner at the exchange rates prevailing at the balance sheet date.
Realized and unrealized foreign exchange gains and losses are recognized under Financial income or Financial costs, with the exception of unrealized gains and losses relating to hedging of future cash flows, which are recognized in Other comprehensive income. The following exchange rate differences are also recognized in Other comprehensive income, translated at the exchange rates prevailing at the balance sheet date:
The Group's employees are covered by stock option programs comprising equity-settled and cash-settled programs.
The fair value of the employee services received in exchange for the grant of stock options is computed using the value of the granted stock options. The fair value of the granted stock options is calculated using the Black–Scholes model.
The fair value of stock-based payment on the grant date is recognized as an employee cost over the period in which the stock options are vested. 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 period such that only the number of options to which employees are entitled, or expected to be entitled, is recognized.
The value of equity-settled programs is offset against Shareholders' equity. The value of cash-settled programs, which are offset against Other payables, is adjusted to fair value at the end of each period, and the subsequent adjustment in fair value is recognized in the income statement under Financial income or Financial costs.
Government grants received relating to research and development costs are recognized under Other operating income, net, based on the percentage completion of the projects. Grants received relating to investments in property, plant and equipment are offset against the cost price of the eligible assets.
The consolidated financial statements provide information on the Group's operating segments in a manner that is consistent with the internal reporting that goes to the Board of Directors and Executive Management. In addition, information is provided on geographical allocation.
Operating lease costs are recognized in the income statement on a straight-line basis over the period of the lease. Liabilities relating to noncancelable contracts are specified in the Notes.
Key figures are mainly prepared in accordance with the "Recommendations and Key Figures 2005" of the Danish Society of Financial Analysts, although certain key figures are adapted to the Novozymes Group.
Revenue covers sales of goods and services for the year less goods returned, and volume and cash discounts. Sales are recognized at the time of risk transfer relating to the goods sold, provided that the revenue can be measured on a reliable basis and is expected to be received.
The Group has entered into few agreements where the other contracting party undertakes sales to third parties and the profit is distributed between the Group and the other contracting party on the basis of a predetermined formula. Sales are recognized using
information on the other contracting party's realized sales, and a liability is recognized for the distribution of the profit, which is calculated and settled with final effect once a year.
The Group has entered into commission agreements where agents undertake sales to third parties in return for commission on realized sales. These sales are recognized when they are realized. A liability is recognized when it is permitted for goods to be returned and this is likely.
Research costs are expensed as incurred. Development costs pertaining to ongoing optimization of production processes for existing products, or to development of new products, where lack of approval by the authorities, approval by customers, and other uncertainties mean the development costs do not fulfill the criteria for recognition in the balance sheet, are expensed as incurred.
Other operating income, net, comprises grants from public authorities and customers for research projects and collaborations, and income, net, of a secondary nature in relation to the main activities in the Group. This item also includes non-recurring income items, net, in respect of damages, outlicensing, etc.
Corporation tax, comprising the current tax liability, change in deferred tax for the year, and possible adjustments relating to previous years, is recognized in the income statement, except to the extent that it relates to items recognized either in Other comprehensive income or directly in Shareholders' equity. Deferred tax is measured using the balancesheet liability method and comprises all temporary differences between the accounting and tax values of assets and liabilities. No deferred tax is recognized for goodwill, unless amortization of goodwill for tax purposes is allowed. Deferred tax is measured and recognized to cover retaxation of losses in jointly taxed foreign subsidiaries if this is expected to be realized on the divestment of stock or when recapture of tax losses becomes applicable. 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 current tax rules and at the tax rate expected to be in force on elimination of the temporary differences. Changes in deferred tax due to tax rate changes are recognized in the income statement, except to the extent that they relate to items recognized either in Other comprehensive income or directly in Shareholders' equity.
Novozymes A/S and its Danish subsidiaries are jointly taxed with the Danish companies in the Novo A/S Group. The tax for the individual companies is allocated in full on the basis of the expected taxable income.
Intangible assets are measured at cost less accumulated amortization and impairment losses.
Costs associated with large IT projects for the development of software for internal use are capitalized if they are 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 assets, as follows:
Some assets are amortized over a shorter period.
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:
The assets' residual value and useful life are reviewed on an annual basis, and adjusted if necessary at each balance sheet date.
Gains and losses on the sale or disposal of assets are recognized in the income statement under the same functions as the associated depreciation charges.
Intangible assets, and property, plant and equipment are reviewed for impairment losses when there is an indication that the assets have diminished in value beyond the level of normal amortization or depreciation. Goodwill is also subject to impairment testing each year, and when there is an indication that the assets have become impaired.
An impairment loss resulting from an asset having diminished in value beyond the level of normal amortization or depreciation is recognized at the amount by which the cost exceeds its recoverable amount.
Inventories are measured at cost determined on a first-in first-out basis or net realizable value where this is lower.
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 production, and indirect production costs such as employee costs, and maintenance and depreciation of plant, etc.
If the expected selling price less any completion costs and costs to execute sales (net realizable value) of inventories is lower than the cost, the inventories are written down to net realizable value.
Cash at bank and in hand comprises cash balances and funds held at financial institutions.
The Novozymes Group categorizes financial assets and liabilities as follows: Financial assets/liabilities at fair value through profit or loss, Loans and receivables, Hedge accounting, Available-for-sale financial assets, and Financial liabilities.
Financial assets/liabilities measured at fair value through profit or loss is the part of derivatives that cannot be designated as hedge accounting, e.g., accrued interest on currency swaps and time value of currency options. Loans and receivables are non-derivatives with fixed or determinable payments that are not listed on an active market. Loans and receivables are entered in the balance sheet under the following items: Trade receivables, Other receivables, and Cash at bank and in hand. The items are measured at amortized cost or net realizable value equivalent to nominal value less allowances for doubtful receivables, whichever is lower.
Hedge accounting consists of positive and negative fair values of derivatives, which are itemized in the balance sheet under Other financial assets and Other financial liabilities respectively.
Derivatives used to hedge assets and liabilities are measured at fair value
on the balance sheet date, and value adjustments are recognized as Financial income or Financial costs.
Derivatives used to hedge future cash flows are measured at fair value on the balance sheet date, and value adjustments are recognized in Other comprehensive income.
Derivatives used to hedge net investments in foreign subsidiaries are measured at fair value, and value adjustments are recognized in Other comprehensive income.
Income and costs relating to cash flow hedges and hedging of net investments in subsidiaries are transferred from Other comprehensive income on realization of the hedged item and are recognized as Financial income or Financial costs.
Derivatives are recognized on the settlement date, while other financial instruments are recognized on the transaction date.
Available-for-sale financial assets is the remaining financial assets not included in the above categories. Available-for-sale financial assets are itemized in the balance sheet as Other financial assets and are measured at fair value (share price) on the balance sheet date. Unrealized fair value adjustments are recognized in Other comprehensive income. Value adjustments are transferred from Other comprehensive income to Financial income or Financial costs when realized. Write-offs are recognized as Financial costs.
Financial liabilities are entered in the balance sheet under the following items: Other financial liabilities, Trade payables, and as part of Other payables.
The dividend proposed for the financial year is shown under Retained earnings in the Statement of shareholders' equity.
The cost price and proceeds from the sale of treasury stock are recognized directly in Shareholders' equity as a separate item. Among other things, the company's holding of treasury stock is used to hedge employees' exercise of granted stock options.
Provisions are recognized where a legal or constructive obligation has been incurred as a result of past events, and it is probable it will lead to an outflow of financial resources. Provisions are measured at the present value of the expected expenditure required to settle the obligation.
Trade payables and Other payables are measured at amortized cost.
Costs relating to defined contribution plans are recognized in the income statement in the financial year to which they relate.
Costs and liabilities relating to defined benefit plans are stated using the projected unit credit method. Liabilities for the major plans are calculated annually by an external actuary. Actuarial gains and losses are recognized in the income statement over the employees' expected average remaining working life if these differences exceed 10% of either the present value of the liability or the fair value of the plan assets in the previous year, whichever is the higher. Pension assets can only be recognized to the extent that the Group is able to achieve future financial benefits in the form of refunds from the pension plan or a reduction in future benefits.
Costs relating to other long-term employee benefits are accrued over the employees' expected average remaining working life.
The Statement of cash flows and financial resources for the Group, 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 expenses, paid financial items, corporate tax paid, and change in working capital. Cash flow from investing activities comprises payments relating to the acquisition and sale of companies and minority stock, intangible assets, and property, plant and equipment.
Cash flow from financing activities comprises proceeds from borrowings, repayment of principal on interest-bearing debt, payment of dividends, proceeds from stock issues, and the purchase and 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. Financial resources comprises cash and cash equivalents plus undrawn committed credit facilities expiring in more than one year.
The accounting policies for environmental and social data are unchanged from last year.
The environmental and social data in the Annual Report are based on data for the parent company and for all subsidiaries, combining items of a uniform nature compiled using the same methods, unless specifically stated otherwise below. The selection of parameters to report on is based on an evaluation of what Novozymes considers to be responsible, relevant, and of value for its stakeholders when measuring sustainable performance.
Acquired companies are recognized as from the date of acquisition, and comparative figures are not restated.
The environmental data cover those activities that, based on an overall environmental assessment, could have a significant impact on the environment, see Group companies.
Sites with activities considered not to have a significant impact are not included. Such sites comprise sales offices, R&D labs, and sites with limited blending and storage of products.
Resource consumption from construction work in relation to new production plants is not included, unless the resource consumption (water and energy) is registered by meters that measure resource consumption at Novozymes' premises. Resource consumption from production trials at new facilities is included.
Water includes drinking water, industrial water, and steam. The reported quantities are stated on the basis of the metered intake of water to Novozymes, and include both quantities consumed in the production process and in other areas. The reported quantities of steam are converted to volume of running water and therefore subject to calculation.
Drinking water is water of drinking water quality.
Industrial water is water from lakes or groundwater from own wells that is not of drinking water quality, but which is suitable for certain industrial processes, for example for use in cooling towers.
When calculating the target for water consumption development compared to sales growth in local currency, a correction is applied to account for changes in inventory. This is to ensure that the water consumption target accurately reflects the consumption applicable to the products sold in the period.
The energy consumption includes both quantities consumed in the production process and in other areas.
Internally generated energy is measured as fuel consumption converted to energy on the basis of the lower combustion value and weight by volume, except in the US where legal requirements for reporting of CO2 state that the higher combustion value is to be applied. The associated emissions of CO2, SO2, and NOx are calculated on the basis of the amount of fuel consumed using local conversion factors where possible. If these are not available, annually determined conversion factors from Danish authorities and suppliers are used.
Externally generated energy is the input to Novozymes of externally generated electricity, heat, and steam. The associated emissions of CO2, SO2, and NOx are calculated using annually determined conversion factors from power plants or their organizations.
Fuel consumption does not include fuel for transportation.
When calculating the target for energy consumption development compared to sales growth in local currency, a correction is applied to account for changes in inventory. This is to ensure that the energy consumption target accurately reflects the consumption applicable to the products sold in the period.
Raw materials and packaging comprises materials for fermentation, recovery, granulation, wastewater and sludge treatment, and packaging of products. Consumption of raw materials and packaging is converted into kilograms.
Wastewater is measured as the volume discharged by Novozymes. COD, dry matter, BOD5, nitrogen, and phosphorus in the wastewater are calculated on the basis of samples taken at the point of discharge.
Biomass is measured or calculated on the basis of volume or weight produced and transported from Novozymes as liquid fertilizer (NovoGro®) or converted to a fertilizer product with a higher dry matter content (NovoGro 30 or compost). The nitrogen and phosphorus contents in the fertilizer are measured in spot checks.
Waste is the registered volume of waste broken down into hazardous and nonhazardous waste, and by disposal method. Disposal methods include landfill, incineration, recycling, and other. The amount recycled is the quantity sent to a certified service provider for recycling .
Emissions to air of ozone-depleting substances is measured as consumption of CFCs, HCFCs, and halons.
The environmental impact potentials for global warming and ozone layer depletion are calculated on the basis of data published by the US Environmental Protection Agency (US EPA) and the Montreal Protocol published by UNEP (United Nations Environment Programme). Acidification is calculated on the basis of data published by "Udvikling af Miljøvenlige Industriprodukter" (UMIP), published by the Institute for Product Development at the Technical University of Denmark.
Breaches of regulatory limits is measured as the number of incidents considered to be in nonconformity to environmental permits or requirements under environmental law.
Unintended releases of GMOs is spill of fermentation liquid to recipients that, based on criteria such as amount, type of recipient, and public
authority specifications, is considered to have an impact on the environment.
Minor GMO spills not considered to have an impact on the environment are not included in this figure.
Significant spills is measured as the number of spills of chemicals, oil, etc. into water, air, or soil, and includes both on-site and transportrelated spills. Significance is assessed both on the basis of extent of the spill and impact on the environment.
Minor spills not considered to have an impact on the environment are not included in this figure.
Neighbor complaints is the number of registered environmental complaints, primarily related to odor and noise.
This item covers the number of animals used for all commenced internal and external testing undertaken for Novozymes.
The number of employees is calculated as the actual number of employees at year-end, excluding employees on unpaid or parental leave, temporary hires, student interns, and PhD students.
In calculating the number of full-time employees, employees with a working-time ratio of 95% or over are stated as full-time employees.
Senior management comprises the CEO, executive vice presidents, vice presidents, and directors. Management comprises middle managers and specialists. Professional comprises employees with academic backgrounds, as well as team leaders. Administrative comprises administrative personnel. Skilled workers, laboratory technicians, and other technicians comprises skilled workers, laboratory technicians, and other technicians. Process operators comprises operators and unskilled workers.
Employee turnover is measured as the number of permanent employees who left the Group during the financial year, compared to the average number of permanent employees in the financial year. The average number of permanent employees is calculated as the average number of permanent employees at the end of each quarter.
The organic growth in number of employees is measured as the number of employees at year-end less the number of employees gained via acquisitions and the number of employees at the beginning of the year.
The growth in number of employees via acquisitions is measured as the number of employees gained via acquisition of new companies.
Age and seniority are calculated as the average age and seniority in whole years per employee.
Absence is stated as time lost due to the employee's own illness, including pregnancy-related sick leave, and occupational accidents and diseases. The rate of absence is calculated as the number of registered days of absence as a percentage of the total number of normal working days in one year, less holidays and public holidays.
Expatriation refers to Novozymes employees being temporarily assigned to undertake tasks outside their home country for a period of more than six months.
Training costs is the costs of seminars and internal and external training courses, translated into Danish kroner at the average exchange rates. Training costs is also shown as a percentage of total employee costs.
Occupational accidents with absence is defined as the number of reported work-related accidents involving at least one day's absence after the day on which the accident occurred.
Occupational diseases is defined as the number of new reported cases of work-related diseases. In accordance with Danish legislation, employees working in noisy areas must be tested for hearing disorders. Identified cases are reported as occupational diseases even though it may not be possible to establish whether the disorder is related to working at Novozymes.
The consequences of occupational accidents with absence and occupational diseases are measured by recording the work situation once the outcome of the incident has stabilized, for example whether the employee has returned to his or her original job, and the total number of (calendar) days of absence.
The frequencies of occupational accidents with absence and occupational diseases are calculated per million working hours.
The number of new products with new or improved characteristics launched during the year.
The number of inventions for which there are one or more active patent applications or active patents at year-end.
| Note | 2009 | 2008 | |
|---|---|---|---|
| DKK million | DKK million | ||
| 1, 2 | Revenue | 8,448 | 8,146 |
| 3, 5 | Cost of goods sold | 3,748 | 3,787 |
| Gross profit | 4,700 | 4,359 | |
| 3, 5 | Sales and distribution costs | 1,118 | 1,061 |
| 3, 5 | Research and development costs | 1,207 | 1,096 |
| 3, 4, 5 | Administrative costs | 751 | 745 |
| 6 | Other operating income, net | 64 | 47 |
| Operating profit | 1,688 | 1,504 | |
| 7 | Financial income | 153 | 263 |
| 8 | Financial costs | 220 | 348 |
| Profit before tax | 1,621 | 1,419 | |
| 9 | Corporation tax | 427 | 357 |
| Net profit | 1,194 | 1,062 | |
| Attributable to: | |||
| Shareholders in the parent company | 1,194 | 1,062 | |
| Minority interests | - | - | |
| 1,194 | 1,062 | ||
| Proposed dividend per share | DKK 5.75 | DKK 5.25 | |
| 18 | Earnings per share | DKK 19.24 | DKK 17.17 |
| 18 | Earnings per share, diluted | DKK 18.93 | DKK 16.86 |
| Note | 2009 DKK million |
2008 DKK million |
|
|---|---|---|---|
| Net profit | 1,194 | 1,062 | |
| 13 | Fair value adjustment of Novo Nordisk stock | - | (15) |
| 13 | - transfered to Financial income/costs | (29) | (38) |
| Currency translation of subsidiaries and minority interests | 84 | 48 | |
| Hedges of net investments in foreign subsidiaries | - | (14) | |
| Tax related to hedges of net investments in foreign subsidiaries | 5 | 4 | |
| Cash flow hedges | 195 | 18 | |
| - transfered to Financial income/costs | (75) | (62) | |
| Tax related to cash flow hedges | 5 | 5 | |
| Other comprehensive income | 185 | (54) | |
| Comprehensive income for the year, total | 1,379 | 1,008 | |
| Attributable to: | |||
| Shareholders in the parent company | 1,380 | 1,007 | |
| Minority interests | (1) | 1 | |
| 1,379 | 1,008 | ||
| Note | Dec. 31, 2009 Dec. 31, 2008 DKK million |
DKK million | |
|---|---|---|---|
| ASSETS | |||
| 10 | Intangible assets | 1,124 | 1,179 |
| 11 | Property, plant and equipment | 4,804 | 4,319 |
| 12 | Deferred tax assets | 62 | 68 |
| 13 | Other financial assets | 1 | 75 |
| Total non-current assets | 5,991 | 5,641 | |
| 14 | Inventories | 1,535 | 1,557 |
| 15 | Trade receivables | 1,468 | 1,450 |
| 16 | Tax receivables | 210 | 18 |
| 17 | Other receivables | 215 | 146 |
| 13 | Other financial assets | 187 | 116 |
| Cash at bank and in hand | 1,284 | 997 | |
| Total current assets | 4,899 | 4,284 | |
| Total assets | 10,890 | 9,925 |
| 18 | Common stock | 650 | 650 |
|---|---|---|---|
| 18 | Treasury stock | (1,624) | (1,791) |
| Other reserves | 154 | (32) | |
| Retained earnings | 6,651 | 5,638 | |
| 19 | Minority interests | 10 | 11 |
| Total shareholders' equity | 5,841 | 4,476 | |
| 12 | Deferred tax liabilities | 694 | 850 |
| 20 | Long-term employee benefits | 13 | 16 |
| 21 | Provisions | 125 | 121 |
| 22 | Other financial liabilities | 1,696 | 1,576 |
| Total non-current liabilities | 2,528 | 2,563 | |
| 22 | Other financial liabilities | 632 | 1,092 |
| 21 | Provisions | 30 | 33 |
| Trade payables | 531 | 630 | |
| 16 | Tax payables | 97 | 161 |
| 23 | Other payables | 1,231 | 970 |
| Total current liabilities | 2,521 | 2,886 | |
| Total liabilities | 5,049 | 5,449 | |
| Total liabilities and shareholders' equity | 10,890 | 9,925 |
| Attributable to shareholders in the company | ||||||||
|---|---|---|---|---|---|---|---|---|
| Available-for | ||||||||
| Common | Treasury Currency sale financial Cash flow stock stock translation assets hedges |
Retained | Minority | |||||
| earnings | interests | Total | ||||||
| DKK million | DKK million | DKK million | DKK million | DKK million | DKK million | DKK million | DKK million | |
| Shareholders' equity at | ||||||||
| January 1, 2009 | 650 | (1,791) | (139) | 29 | 78 | 5,638 | 11 | 4,476 |
| Comprehensive income for | ||||||||
| the year, total | - | - | 90 | (29) | 125 | 1,194 | (1) | 1,379 |
| Sale of treasury stock | 36 | 36 | ||||||
| Dividend | (326) | (326) | ||||||
| Stock-based payment | 61 | 61 | ||||||
| Tax related to equity items | 131 | 84 | 215 | |||||
| Changes in shareholders' | ||||||||
| equity | - | 167 | 90 | (29) | 125 | 1,013 | (1) | 1,365 |
| Shareholders' equity at | ||||||||
| December 31, 2009 | 650 | (1,624) | (49) | - | 203 | 6,651 | 10 | 5,841 |
| Shareholders' equity at | ||||||||
| January 1, 2008 | 650 | (1,837) | (176) | 82 | 117 | 4,821 | 10 | 3,667 |
| Comprehensive income for | ||||||||
| the year, total | 37 | (53) | (39) | 1,062 | 1 | 1,008 | ||
| Sale of treasury stock | 24 | 24 | ||||||
| Dividend | (309) | (309) | ||||||
| Stock-based payment | 40 | 40 | ||||||
| Tax related to equity items | 22 | 24 | 46 | |||||
| Changes in shareholders' | ||||||||
| equity | - | 46 | 37 | (53) | (39) | 817 | 1 | 809 |
| Shareholders' equity at | ||||||||
| December 31, 2008 | 650 | (1,791) | (139) | 29 | 78 | 5,638 | 11 | 4,476 |
The proposed dividend of DKK 358 million for 2009 is included in Retained earnings.
Reference is made to Note 18 concerning treasury stock and average number of shares.
| Note | 2009 | 2008 | |
|---|---|---|---|
| DKK million DKK million | |||
| Net profit | 1,194 | 1,062 | |
| 31 | Reversal of non-cash expenses | 1,539 | 993 |
| Corporation tax paid | (594) | (129) | |
| Interest received | 61 | 94 | |
| Interest paid | (210) | (198) | |
| Cash flow before change in working capital | 1,990 | 1,822 | |
| Change in working capital: | |||
| (Increase)/decrease in receivables | (264) | (199) | |
| (Increase)/decrease in inventories | 43 | (243) | |
| Increase/(decrease) in trade payables and other liabilities | 48 | 317 | |
| Cash flow from operating activities | 1,817 | 1,697 | |
| Investments: | |||
| 10 | Purchase of intangible assets | (11) | (57) |
| Sale of intangible assets | 5 | - | |
| Sale of property, plant and equipment | 37 | 17 | |
| 11 | Purchase of property, plant and equipment | (1,009) | (902) |
| Cash flow from investing activities | (978) | (942) | |
| Free cash flow | 839 | 755 | |
| Financing: | |||
| Long-term borrowings | 607 | 555 | |
| Repayments of borrowings | (854) | - | |
| Sale of Novo Nordisk A/S stock | 14 | 17 | |
| 18 | Sale/(purchase) of treasury stock, net | 36 | 24 |
| Dividend paid | (326) | (309) | |
| Cash flow from financing activities | (523) | 287 | |
| Net cash flow | 316 | 1,042 | |
| Unrealized gain/(loss) on currencies and financial assets included in cash and cash equivalents | 3 | 20 | |
| Net change in cash and cash equivalents | 319 | 1,062 | |
| Cash and cash equivalents at January 1 | 743 | (319) | |
| 32 | Cash and cash equivalents at December 31 | 1,062 | 743 |
| 33 | Undrawn committed credit facilities | 3,000 | 3,000 |
| Financial resources at December 31 | 4,062 | 3,743 |
| Note | 2009 | 2008 | ||
|---|---|---|---|---|
| ENVIRONMENT | ||||
| 37 | Consumption of resources | 5,064 | 5,693 | |
| 38 | Water Internally generated energy |
1,000 m3 1,000 GJ |
802 | 920 |
| Externally generated energy | 1,000 GJ | 2,728 | 3,089 | |
| Energy, total | 1,000 GJ | 3,530 | 4,009 | |
| Raw materials | 1,000 tons | 355 | 414 | |
| Packaging | 1,000 tons | 12 | 13 | |
| Wastewater | ||||
| 39 | Volume | 1,000 m3 | 3,714 | 3,922 |
| Dry matter | Tons | 370 | 283 | |
| BOD5 | Tons | 777 | 700 | |
| COD | Tons | 1,832 | 2,377 | |
| Nitrogen | Tons | 195 | 160 | |
| Phosphorus | Tons | 77 | 40 | |
| Biomass | ||||
| Volume, NovoGro® | 1,000 m3 | 248 | 311 | |
| Volume, NovoGro® 30 | 1,000 m3 | 128 | 150 | |
| Volume, compost | 1,000 m3 | 51 | 68 | |
| Nitrogen | Tons | 2,450 | 2,453 | |
| Phosphorus | Tons | 774 | 750 | |
| Waste | ||||
| Nonhazardous waste | Tons | 7,610 | 8,477 | |
| Hazardous waste | Tons | 1,393 | 1,492 | |
| 40 | Waste, total | Tons | 9,003 | 9,969 |
| Percentage of total waste recycled | % | 44.5 | 45.0 | |
| Emissions to air | ||||
| Ozone-depleting substances, HCFCs | Kg | 524 | 1,725 | |
| 41 | CO2 | 1,000 tons | 430 | 522 |
| SO2 | Tons | 1,157 | 1,350 | |
| NOx | Tons | 993 | 1,152 | |
| Environmental impact potentials | ||||
| 42 | Global warming | 1,000 tons CO2 -eqv. |
431 | 524 |
| 43 | Ozone layer depletion | Kg CFC11-eqv. | 29 | 77 |
| Acidification | Tons SO2-eqv. | 1,852 | 2,157 | |
| Environmental compliance, etc. | ||||
| Breaches of regulatory limits, groundwater | No. | 27 | 22 | |
| Breaches of regulatory limits, other | No. | 17 | 19 | |
| Unintended releases of GMOs | No. | 0 | 0 | |
| Significant spills | No. | 0 | 0 | |
| Neighbor complaints | No. | 33 | 38 | |
| Animals for testing | ||||
| Enzyme Business | No. | 820 | 923 | |
| BioBusiness | No. | 1,940 | 2,020 |
| Note | 2009 | 2008 | |||
|---|---|---|---|---|---|
| SOCIAL | |||||
| Employee statistics | |||||
| 44 | Employees, total | No. | 5,275 | 5,146 | |
| 44 | 45 | Women | % | 36.2 | 35.6 |
| 44 | Men | % | 63.8 | 64.4 | |
| 46 | Rate of employee turnover | % | 6.7 | 11.3 | |
| Average age | Years | 39.8 | 39.7 | ||
| Seniority | Years | 9.0 | 8.7 | ||
| 47 | Rate of absence | % | 2.3 | 2.2 | |
| Expatriates | No. | 71 | 65 | ||
| Training costs | |||||
| Average spent per employee | DKK | 6,506 | 6,469 | ||
| Costs as percentage of total employee costs | % | 1.4 | 1.5 | ||
| HEALTH AND SAFETY | |||||
| Occupational accidents and diseases | |||||
| Fatalities | No. | 0 | 0 | ||
| 48 | Accidents with absence | No. | 43 | 39 | |
| Of which life-threatening accidents | No. | 0 | 0 | ||
| Of which accidents requiring professional first aid | No. | 39 | 33 | ||
| 49 | 50 | Occupational diseases | No. | 27 | 18 |
| Frequency of occupational accidents | Per million working hours | 5.1 | 4.9 | ||
| Frequency of occupational accidents requiring professional first aid | Per million working hours | 4.6 | 4.1 | ||
| Frequency of occupational diseases | Per million working hours | 3.2 | 2.2 | ||
| KNOWLEDGE | |||||
| Processes and technology | |||||
| New products | No. | 9 | 8 | ||
| Active patent families | No. | 1,018 | 1,033 |
Novozymes' operating segments reflect the way the activities are organized and controlled. Although revenue within Enzyme Business can be subdivided into further activities, the activities are considered to be integrated, as most of the production facilities are common to the segment as a whole, see also the section on Company profile. Gross profit is the primary parameter used when Management evaluates the performance of the segments.
The functions for Sales and distribution, Research and development, and Administrative are considered as working for both segments and their costs are therefore allocated to the Corporate function. Sales between the individual segments are deducted from the revenue of the selling company and amount to DKK 24 million in 2009 (DKK 24 million in 2008).
When evaluating the performance of BioBusiness, it should be considered that the activities within this segment are focused on building capacity for future sales, and the gross profit is therefore affected by costs for idle capacity. In addition, 2008 was affected by costs for closure of activities, including related impairment losses.
| Enzyme Enzyme Business BioBusiness Corporate Total Business BioBusiness Corporate Total DKK million DKK million DKK million DKK million DKK million DKK million DKK million DKK million 7,798 650 8,448 7,533 613 - 8,146 3,322 426 3,748 3,300 487 - 3,787 4,476 224 - 4,700 4,233 126 - 4,359 1,118 1,118 1,061 1,061 Research and development costs 1,207 1,207 1,096 1,096 Administrative costs 751 751 745 745 Other operating income, net 64 64 47 47 Operating profit 1,688 1,504 - - 11 11 - 32 25 57 731 171 107 1,009 585 52 265 902 731 171 118 1,020 585 84 290 959 Depreciation, amortization, and impairment losses Intangible assets 22 12 58 92 22 33 42 97 Property, plant and 315 42 115 472 282 69 108 459 337 54 173 564 304 102 150 556 Assets Inventories 1,411 124 - 1,535 1,386 171 - 1,557 1,400 68 - 1,468 1,391 59 - 1,450 |
2009 | 2008 | |||||
|---|---|---|---|---|---|---|---|
| Income statement | |||||||
| Revenue | |||||||
| Cost of goods sold | |||||||
| Gross profit | |||||||
| Sales and distribution costs | |||||||
| Capital expenditure | |||||||
| Intangible assets | |||||||
| Property, plant and | |||||||
| equipment | |||||||
| Capital expenditure, total | |||||||
| equipment | |||||||
| Depreciation, amortization, | |||||||
| and impairment losses, | |||||||
| total | |||||||
| Trade receivables |
| 2009 | 2008 | |
|---|---|---|
| DKK million DKK million | ||
| Revenue | ||
| Denmark | 129 | 120 |
| Rest of Europe, Middle East, and Africa | 3,083 | 2,937 |
| North America | 3,046 | 2,981 |
| Asia Pacific | 1,595 | 1,502 |
| Latin America | 595 | 606 |
| Revenue, total | 8,448 | 8,146 |
| Assets | ||
| Denmark | 5,026 | 4,684 |
| Rest of Europe, Middle East, and Africa | 435 | 468 |
| North America | 1,650 | 1,504 |
| Asia Pacific | 1,856 | 1,822 |
| Latin America | 179 | 173 |
| Assets, total | 9,146 | 8,651 |
| Capital expenditure | ||
| Denmark | 270 | 451 |
| Rest of Europe, Middle East, and Africa | 26 | 30 |
| North America | 370 | 174 |
| Asia Pacific | 332 | 294 |
| Latin America | 22 | 10 |
| Capital expenditure, total | 1,020 | 959 |
The geographical allocation is made on the basis of the Group's revenue, assets, and capital expenditure. The geographical distribution of revenue is based on the country in which the customer is domiciled. With a number of strategic customers, central deliveries are made to specified locations, and the final recipient is unknown. The stated geographical distribution of revenue may therefore vary significantly from year to year if the delivery destination for these strategic customers changes.
| 2009 | 2008 DKK million DKK million |
|
|---|---|---|
| Detergent enzymes | 2,672 | 2,498 |
| Technical enzymes | 2,600 | 2,479 |
| Food enzymes | 1,801 | 1,812 |
| Feed enzymes | 725 | 744 |
| Microorganisms | 415 | 405 |
| Biopharmaceutical ingredients | 235 | 208 |
| Revenue, total | 8,448 | 8,146 |
| 2009 | 2008 | |
|---|---|---|
| DKK million DKK million | ||
| Wages and salaries | 2,019 | 1,865 |
| Pensions - defined contribution plans | 178 | 126 |
| Pensions - defined benefit plans | 6 | 5 |
| Other social security costs | 137 | 116 |
| Other employee costs | 116 | 115 |
| Stock-based payment | 64 | 42 |
| Employee costs, total | 2,520 | 2,269 |
| Recognized in the income statement | ||
| under the following items: | ||
| Cost of goods sold | 996 | 873 |
| Sales and distribution costs | 493 | 428 |
| Research and development costs | 652 | 576 |
| Administrative costs | 391 | 386 |
| 2,532 | 2,263 | |
| Recognized in the assets as: | ||
| Change in employee costs recognized in | ||
| inventories | (12) | 6 |
| Employee costs, total | 2,520 | 2,269 |
| Geographical distribution: | ||
| Denmark | 1,534 | 1,378 |
| Rest of Europe, Middle East, and Africa | 225 | 189 |
| North America | 482 | 432 |
| Asia Pacific | 223 | 210 |
| Latin America | 56 | 60 |
| Employee costs, total | 2,520 | 2,269 |
| Average number of employees in the | ||
| Group | 5,217 | 4,993 |
| Number of employees outside Denmark as | ||
| a percentage of total number of | ||
| employees | 54% | 54% |
Reference is made to Note 44 concerning the geographical distribution of employees.
| 2009 DKK million DKK million |
2008 | ||
|---|---|---|---|
| Fees to the auditor elected by the Annual Shareholders' Meeting, PricewaterhouseCoopers: |
|||
| Fees to statutory auditor, total | 23 | 20 | |
| - of which pertaining to audit | 9 | 10 |
In 2009 the fees for tax, other assurance engagements, and other services were DKK 12, 1, and 1 million respectively.
| 2009 | 2008 DKK million DKK million |
|
|---|---|---|
| Recognized in the income statement under the following | ||
| items: | ||
| Cost of goods sold | 358 | 351 |
| Sales and distribution costs | 18 | 15 |
| Research and development costs | 80 | 80 |
| Administrative costs | 16 | 13 |
| Depreciation and impairment losses, | ||
| property, plant and equipment, total | 472 | 459 |
| Recognized in the income statement under the following items: |
||
| Cost of goods sold | 34 | 55 |
| Sales and distribution costs | 24 | 10 |
| Research and development costs | 22 | 22 |
| Administrative costs | 12 | 10 |
| Amortization and impairment losses, | ||
| intangible assets, total | 92 | 97 |
| Depreciation, amortization, and | ||
| impairment losses, total | 564 | 556 |
Of which Impairment losses totaled DKK 0 million in 2009 (DKK 15 million in 2008 on buildings, included in Cost of goods sold).
Of which Impairment losses on goodwill and know-how totaled DKK 0 million in 2009 (DKK 15 million in 2008, included in Cost of goods sold).
| 2009 | 2008 DKK million DKK million |
|
|---|---|---|
| Income and grants concerning research projects/collaborations |
56 | 24 |
| Other operating income, net | 8 | 23 |
| Other operating income, net, total | 64 | 47 |
| 2009 | 2008 | |
|---|---|---|
| DKK million DKK million | ||
| Interest income | 65 | 91 |
| Exchange gains on derivatives, net | 47 | 106 |
| Other foreign exchange gains, net | 9 | - |
| Stock-based payment and gain on sale of | ||
| securities | 23 | 63 |
| Dividends, etc., net | 9 | 3 |
| Financial income, total | 153 | 263 |
| 2009 | 2008 DKK million DKK million |
|
|---|---|---|
| Interest costs Other foreign exchange losses, net |
212 - |
197 140 |
| Other financial costs | 15 | 11 |
| Capitalized interest (interest rate used | ||
| 3.4% p.a.) | (7) | - |
| Financial costs, total | 220 | 348 |
| 2009 | 2008 | |
|---|---|---|
| DKK million DKK million | ||
| Tax payable on net profit | 456 | 444 |
| Change in deferred tax | 10 | (101) |
| Adjustment for previous years | (39) | 14 |
| Tax in the income statement | 427 | 357 |
| Calculation of effective tax rate: | ||
| Corporation tax in Denmark | 25.0% | 25.0% |
| Non-deductible expenses | 1.5% | (0.1)% |
| Difference in foreign tax rates | (0.7)% | 1.6% |
| One-off impact of change in tax rate | - | (1.4)% |
| Other adjustments | 0.5% | 0.1% |
| Effective tax rate | 26.3% | 25.2% |
| Acquired | |||||
|---|---|---|---|---|---|
| Completed IT | patents, li | IT development | |||
| development | censes, and | projects in | |||
| projects* | know-how | Goodwill | progress* | Total | |
| DKK million | DKK million | DKK million | DKK million | DKK million | |
| Cost at January 1, 2009 | 229 | 1,010 | 461 | 56 | 1,756 |
| Currency translation | - | 26 | 32 | - | 58 |
| Additions during the year | - | - | - | 11 | 11 |
| Disposals during the year | (19) | (44) | (37) | - | (100) |
| Transfer (to)/from other items | 22 | - | - | (22) | - |
| Cost at December 31, 2009 | 232 | 992 | 456 | 45 | 1,725 |
| Amortization and impairment losses at January 1, 2009 | 217 | 314 | 46 | 577 | |
| Currency translation | - | 4 | 1 | 5 | |
| Amortization for the year | 8 | 84 | - | 92 | |
| Amortization and impairment losses reversed on disposals for the | |||||
| year | - | (39) | (34) | (73) | |
| Amortization and impairment losses at December 31, 2009 | 225 | 363 | 13 | 601 | |
| Carrying amount at December 31, 2009 | 7 | 629 | 443 | 45 | 1,124 |
| Cost at January 1, 2008 | 229 | 1,011 | 537 | 31 | 1,808 |
| Currency translation | - | (33) | (64) | - | (97) |
| Acquisition of companies | - | - | (12) | - | (12) |
| Additions during the year | - | 32 | - | 25 | 57 |
| Cost at December 31, 2008 | 229 | 1,010 | 461 | 56 | 1,756 |
| Amortization and impairment losses at January 1, 2008 | 205 | 245 | 37 | 487 | |
| Currency translation | - | (5) | (2) | (7) | |
| Amortization for the year | 12 | 70 | - | 82 | |
| Impairment losses for the year | - | 4 | 11 | 15 | |
| Amortization and impairment losses at December 31, 2008 | 217 | 314 | 46 | 577 | |
| Carrying amount at December 31, 2008 | 12 | 696 | 415 | 56 | 1,179 |
* Assets developed internally
The carrying amount of goodwill was tested for impairment at December 31, 2009. This did not reveal any need to write down the carrying amounts for impairment, while write-downs of DKK 15 million were made in 2008 based on a concrete assessment of a goodwill asset and a know-how asset.
The impairment tests compared the discounted cash flow of the individual cash-generating units to the carrying amounts of the units. Cash flow is based on budgets and business plans for the period 2010–2024. Refer to Company profile for a description of the individual business areas.
For the Enzyme Business no formal impairment test has been performed as the expected profit in 2010 within this business area exceeds the value of goodwill DKK 183 million significantly.
Material assumptions used in calculating the discounted cash flow are based on an assessment of the individual unit as follows:
| Biopharmaceutical | ||
|---|---|---|
| 2009 | Microorganisms | ingredients |
| Goodwill | 109 | 151 |
| Expected sales growth | 7.5% | 10–15% |
| Sales growth, terminal value | 3.0% | 0.8% |
| Biopharmaceutical | ||
| 2008 | Microorganisms | ingredients |
| Goodwill | 136 | 127 |
| Expected sales growth | 7.5% | 10–15% |
| Sales growth, terminal value | 3.0% | 0.6% |
In 2009, a lower discount rate (7.0%) was used for all segments compared with 2008 (8.5%), primarily because the risk-free interest rate has decreased during 2009. The test for impairment in 2009 included a sensitivity analysis based on a discount rate on par with 2008. A test on this basis would not give rise to impairment.
| Assets | |||||
|---|---|---|---|---|---|
| under con | |||||
| Land and | Plant and | Other | struction and | ||
| buildings | machinery | equipment | prepayments | Total | |
| DKK million | DKK million | DKK million | DKK million | DKK million | |
| Cost at January 1, 2009 | 3,126 | 4,774 | 1,030 | 781 | 9,711 |
| Currency translation | 23 | 1 | (1) | 1 | 24 |
| Additions during the year | 140 | 170 | 73 | 626 | 1,009 |
| Disposals during the year | (39) | (118) | (57) | - | (214) |
| Transfer (to)/from other items | 188 | 296 | 18 | (502) | - |
| Cost at December 31, 2009 | 3,438 | 5,123 | 1,063 | 906 | 10,530 |
| Depreciation and impairment losses at January 1, 2009 | 1,319 | 3,386 | 687 | 5,392 | |
| Currency translation | 13 | 1 | (2) | 12 | |
| Depreciation for the year | 103 | 280 | 89 | 472 | |
| Depreciation and impairment losses eliminated on disposals | |||||
| during the year | (20) | (93) | (37) | (150) | |
| Depreciation and impairment losses at December 31, 2009 | 1,415 | 3,574 | 737 | 5,726 | |
| Carrying amount at December 31, 2009 | 2,023 | 1,549 | 326 | 906 | 4,804 |
| Cost at January 1, 2008 | 2,940 | 4,234 | 977 | 677 | 8,828 |
| Currency translation | 33 | 55 | 18 | 9 | 115 |
| Acquisition of companies | 8 | 2 | - | - | 10 |
| Additions during the year | 105 | 179 | 64 | 554 | 902 |
| Disposals during the year | (11) | (41) | (87) | (5) | (144) |
| Transfer (to)/from other items | 51 | 345 | 58 | (454) | - |
| Cost at December 31, 2008 | 3,126 | 4,774 | 1,030 | 781 | 9,711 |
| Depreciation and impairment losses at January 1, 2008 | 1,211 | 3,105 | 670 | 4,986 | |
| Currency translation | 4 | 47 | 12 | 63 | |
| Depreciation for the year | 112 | 247 | 85 | 444 | |
| Impairment losses for the year | 15 | - | - | 15 | |
| Depreciation and impairment losses eliminated on disposals | |||||
| during the year | (4) | (33) | (79) | (116) | |
| Transfer (to)/from other items | (19) | 20 | (1) | - | |
| Depreciation and impairment losses at December 31, 2008 | 1,319 | 3,386 | 687 | 5,392 | |
| Carrying amount at December 31, 2008 | 1,807 | 1,388 | 343 | 781 | 4,319 |
Obligations to third parties relating to capital expenditure are DKK 486 million at December 31, 2009, compared to DKK 173 million at December 31, 2008.
| Geographical distribution | 2009 | 2008 |
|---|---|---|
| DKK million | DKK million | |
| Denmark | 2,317 | 2,333 |
| Rest of Europe, Middle East, and Africa | 186 | 151 |
| North America | 1,067 | 818 |
| Asia Pacific | 1,166 | 976 |
| Latin America | 68 | 41 |
| Carrying amount at December 31 | 4,804 | 4,319 |
| 2009 | 2008 | |
|---|---|---|
| DKK million | DKK million | |
| Deferred tax at January 1 | (782) | (892) |
| Currency translation | 11 | (13) |
| Tax related to the income statement | (67) | 68 |
| Tax on shareholders' equity items | 206 | 55 |
| Deferred tax at December 31 | (632) | (782) |
| Deferred tax assets | 62 | 68 |
| Deferred tax liabilities | (694) | (850) |
| Deferred tax at December 31 | (632) | (782) |
| Deferred | Deferred | ||
|---|---|---|---|
| tax assets | tax liabilities | Total | |
| DKK million | DKK million | DKK million | |
| Intangible assets and property, plant and equipment | 48 | (747) | (699) |
| Deferred tax relating to inventories | 216 | (237) | (21) |
| Tax-loss carry-forwards and balance re recapture of tax losses | 28 | (18) | 10 |
| Stock options | 175 | - | 175 |
| Liabilities, etc. | 327 | (424) | (97) |
| 794 | (1,426) | (632) | |
| Offsetting items | (732) | 732 | - |
| Deferred tax at December 31, 2009 | 62 | (694) | (632) |
| Due after more than 12 months | - | (487) | |
| Unrecognized share of tax-loss carry-forwards, etc. (mainly expiring in 2015 and 2016) | 30 | - |
| Deferred | Deferred | ||
|---|---|---|---|
| tax assets | tax liabilities | Total | |
| DKK million | DKK million | DKK million | |
| Intangible assets and property, plant and equipment | 69 | (692) | (623) |
| Deferred tax relating to inventories | 221 | (209) | 12 |
| Tax-loss carry-forwards and balance re recapture of tax losses | 45 | (18) | 27 |
| Stock options | 118 | - | 118 |
| Liabilities, etc. | 228 | (544) | (316) |
| 681 | (1,463) | (782) | |
| Offsetting items | (613) | 613 | - |
| Deferred tax at December 31, 2008 | 68 | (850) | (782) |
| Due after more than 12 months | - | (779) | |
| Unrecognized share of tax-loss carry-forwards, etc. (mainly expiring in 2015 and 2016) | 47 | - |
Tax-loss carry-forwards are recognized in deferred tax assets to the extent that the losses are expected to be realized in the form of future taxable profits.
| 2009 | 2008 DKK million DKK million |
|
|---|---|---|
| Available-for-sale financial assets | - | 46 |
| Derivatives | 187 | 130 |
| Other financial assets | 1 | 15 |
| Other financial assets at December 31 | 188 | 191 |
| Non-current assets | 1 | 75 |
| Current assets | 187 | 116 |
Available-for-sale financial assets comprised the Group's holding of Novo Nordisk B stock, which was acquired with a view to hedge the stock option obligation, cf. Note 24.
A gain on stock of DKK 29 million has been transferred from Other comprehensive income to Financial income relating to the realization. In 2008 the market value adjustment was a loss of DKK 15 million, and DKK 38 million was transferred to Financial income.
| 2009 | 2008 | ||
|---|---|---|---|
| DKK million DKK million | |||
| Raw materials and consumables | 237 | 243 | |
| Work in progress | 411 | 342 | |
| Finished goods | 887 | 972 | |
| Inventories at December 31 | 1,535 | 1,557 |
Cost of materials, included under Cost of goods sold, is DKK 2,017 million, compared to DKK 2,119 million in 2008.
| Expensed write-downs on inventories | 57 | 50 |
|---|---|---|
| Reversal of write-downs on inventories | 14 | 8 |
Some of the reversal of write-downs can be attributed to written-down inventories being reused in production.
| 2009 | 2008 DKK million DKK million |
|
|---|---|---|
| Trade receivables | 1,536 | 1,508 |
| Allowances for doubtful trade receivables | (125) | (126) |
| 1,411 | 1,382 | |
| Amounts owed by related companies | 57 | 68 |
| Trade receivables at December 31 | 1,468 | 1,450 |
| 2009 | 2008 | ||
|---|---|---|---|
| DKK million DKK million | |||
| Changes in allowances for doubtful trade receivables: | |||
| At January 1 | 126 | 86 | |
| Allowances during the year | 59 | 71 | |
| Write-offs during the year | (14) | 4 | |
| Reversed allowances | (46) | (35) |
Allowances at December 31 125 126
The cost is included in Sales and distribution costs.
Allocation of overdue net receivables (not written off) by maturity period is as follows: Up to 30 days 148 185 Between 30 days and 90 days 34 82 Between 91 days and 365 days 2 45 Allowances at December 31 184 312
| 2009 | 2008 | |
|---|---|---|
| DKK million DKK million | ||
| At January 1 | (143) | 158 |
| Currency translation | 3 | (5) |
| Tax related to the income statement | (360) | (426) |
| Tax on other comprehensive income | 2 | 9 |
| Tax on shareholders' equity items | 17 | (8) |
| Tax paid on account for the current year, | ||
| net | 621 | 279 |
| Tax received on account for previous | ||
| years, net | (27) | (150) |
| Tax receivable/(payable) at December 31 | 113 | (143) |
| Tax receivable | 210 | 18 |
| Tax payable | (97) | (161) |
| Tax receivable/(payable) at December 31 | 113 | (143) |
| Of which due after more than 12 months | 5 | - |
| 2009 DKK million DKK million |
2008 | |
|---|---|---|
| Deposits | 31 | 10 |
| Prepaid expenses | 83 | 64 |
| Other receivables | 101 | 72 |
| Other receivables at December 31 | 215 | 146 |
Other receivables primarily fall due within 1 year from the balance sheet date.
| 2009 | 2008 | |
|---|---|---|
| DKK million DKK million | ||
| Common stock | ||
| Nominal value | ||
| A common stock | 107 | 107 |
| B common stock | 543 | 543 |
| Common stock at December 31 | 650 | 650 |
| 2009 | 2008 | |
| No. | No. | |
| Shares of common stock | ||
| A shares of DKK 10 | 10,748,720 | 10,748,720 |
| B shares of DKK 10 | 54,251,280 | 54,251,280 |
| Shares of common stock at December 31 | 65,000,000 | 65,000,000 |
Each A share gives an entitlement to 100 votes, while each B share gives an entitlement to 10 votes. The common stock was written down in 2005 and 2006.
| 2009 | 2008 | |
|---|---|---|
| No. | No. | |
| Shares of common stock in circulation | ||
| Shares of stock at January 1 | 61,956,473 | 61,802,280 |
| Sale of treasury stock | 218,772 | 154,193 |
| Shares of common stock in circulation at | ||
| December 31 | 62,175,245 | 61,956,473 |
| 2009 | 2008 | |
| DKK million DKK million | ||
| Treasury stock - B stock | ||
| Carrying amount | ||
| Carrying amount at January 1 | 1,791 | 1,837 |
| Disposals during the year | (36) | (24) |
| Other | (131) | (22) |
| Carrying amount at December 31 | 1,624 | 1,791 |
| Nominal value | ||
| Nominal value at January 1 | 30 | 32 |
| Disposals during the year | (2) | (2) |
| Nominal value at December 31 | 28 | 30 |
| 2009 | 2008 | |
| No. | No. | |
| Shares of treasury stock | ||
| Shares of stock at January 1 | 3,043,527 | 3,197,720 |
| Disposals during the year | (218,772) | (154,193) |
| Shares of stock at December 31 | 2,824,755 | 3,043,527 |
| 2009 | 2008 | |
|---|---|---|
| % | % | |
| Percentage of common stock | ||
| Percentage of common stock at January 1 | 4.7% | 4.9% |
| Disposals during the year | (0.4)% | -0.2% |
| Percentage of common stock at | ||
| December 31 | 4.3% | 4.7% |
| 2009 | 2008 | |
| DKK million DKK million | ||
| Profit basis for earnings per share | 1,194 | 1,062 |
| 2009 | 2008 | |
| No. | No. | |
| Average number of shares: | ||
| Average shares of stock | 62,053,218 | 61,869,489 |
| Adjustment for stock options | 1,017,809 | 1,132,822 |
| Average number of diluted shares | 63,071,027 | 63,002,311 |
| 2009 | 2008 DKK million DKK million |
||
|---|---|---|---|
| Minority interests at January 1 | 11 | 10 | |
| Currency translation | (1) | 1 | |
| Minority interests at December 31 | 10 | 11 |
The Group has entered into pension agreements with a significant number of its employees. Most of the pension plans are defined contribution plans, and only a small number are defined benefit plans. A health insurance plan has also been established in the US.
Some of the pension plans are funded by payments from Group companies. However, some plans are not funded, and a liability has been recognized in the balance sheet for these plans.
As well as pension agreements, a few countries also have plans covering other long-term employee benefits that meet local requirements for insuring employees in the event of termination, etc.
| 2009 | 2008 | |
|---|---|---|
| DKK million DKK million | ||
| Amounts recognized in the income statement re defined benefit pension plans: |
||
| Current service costs | 6 | 4 |
| Interest costs | 2 | 2 |
| Expected return on plan assets | (2) | (3) |
| Service costs relating to changes to plans | 0 | 2 |
| Total amount recognized in the income | ||
| statement re defined benefit plans | 6 | 5 |
The actual return on plan assets was a gain of DKK 11 million (a loss of DKK 8 million in 2008).
| 2009 | 2008 | |
|---|---|---|
| DKK million DKK million | ||
| Amounts recognized in the balance sheet | ||
| re defined benefit pension plans: | ||
| Present value of fully/partly funded | ||
| obligations | 56 | 51 |
| Fair value of plan assets | (58) | (54) |
| Net value | (2) | (3) |
| Present value of unfunded obligations | 13 | 16 |
| Unrecognized part of plan assets | 2 | 3 |
| Liability recognized in the balance sheet | 13 | 16 |
| 2009 | 2008 | |
|---|---|---|
| DKK million DKK million | ||
| Change in the net liability: | ||
| Opening net liability | 16 | 16 |
| Currency translation | 0 | 0 |
| Total pension costs expensed in the | ||
| income statement | 6 | 5 |
| Contributions paid | (9) | (5) |
| Other changes | 0 | 0 |
| Closing net liability | 13 | 16 |
The actuarial valuations of the most significant defined benefit plans are based on the following assumptions:
| 2009 | 2008 | |
|---|---|---|
| Discount rates | 4.0% | 4.6% |
| Expected rate of return on plan assets | 3.5% | 4.3% |
| Future salary increases | 1.4% | 1.3% |
| Annual increase in healthcare costs | 10.0% | 7.3% |
| 2009 DKK million DKK million |
2008 | |
|---|---|---|
| Provisions at January 1 | 154 | 215 |
| Currency translation | 2 | (15) |
| Additions during the year | 7 | 38 |
| Reversals during the year | (1) | (31) |
| Utilization during the year | (7) | (53) |
| Provisions at December 31 | 155 | 154 |
| Current | 30 | 33 |
| Non-current | 125 | 121 |
Provisions include remainder of purchase price in connection with acquisitions, which was DKK 17 million in 2009 (DKK 21 million in 2008), of which DKK 5 million (DKK 8 million in 2008) is expected to be settled within one year, while the rest will be settled over a period of up to eight years.
Provisions also include items relating to liabilities for restoring rental premises to their original condition on moving out, pending litigation, and other long-term employee benefits with the exception of pensions and similar obligations. These are expected to be settled over a longer period.
| 2009 DKK million |
2008 DKK million |
|
|---|---|---|
| Credit institutions | 2,214 | 2,400 |
| Derivatives | 95 | 246 |
| Other financial liabilities | 19 | 22 |
| Other financial liabilities at December 31 | 2,328 | 2,668 |
| Non-current | 1,696 | 1,576 |
| Current | 632 | 1,092 |
The credit institutions are payable within the following periods from the balance sheet date:
| Less than 1 year | 559 | 911 |
|---|---|---|
| Between 1 and 2 years | 80 | 497 |
| Between 2 and 3 years | 5 | - |
| Between 3 and 4 years | 562 | - |
| Between 4 and 5 years | 5 | 557 |
| After 5 years | 1,003 | 435 |
| Credit institutions at December 31 | 2,214 | 2,400 |
The debt is denominated in the following
currencies:
| CAD | - | 15 |
|---|---|---|
| CNY | 209 | 302 |
| DKK | 614 | 601 |
| EUR | 966 | 373 |
| GBP | - | 3 |
| INR | 89 | 88 |
| JPY | - | 6 |
| USD | 336 | 1,007 |
| Other | - | 5 |
| Credit institutions at December 31 | 2,214 | 2,400 |
Debt to credit institutions runs to 2010–2036 at interest rates between 1.7% and 12.5%.
The interest rates on the above variable loans will be adjusted in 2010.
The carrying amount of credit institutions corresponds to the fair value.
This table analyzes financial liabilities settled by financial assets, including derivatives, broken down by payment periods, based on the contractual due date. The amounts are shown undiscounted, so the figures cannot be directly reconciled with the respective items in the balance sheet.
| Less | Between | Between | After | |
|---|---|---|---|---|
| than 1 | 1 and 2 | 2 and 5 | 5 | |
| DKK million | year | years | years | years |
| Financial liabilities at | ||||
| December 31, 2009 | ||||
| Other financial liabilities | 559 | 80 | 572 | 1,022 |
| Trade payables | 531 | - | - | - |
| Other payables | 1,076 | - | - | - |
| Gross settlement of | ||||
| derivatives (outflow) | 35 | 27 | 45 | 20 |
The figures below show the inflow from the above gross settlement of derivatives, so as to provide an adequate and fair picture of the actual draw on liquidity.
| Gross settlement of | ||||
|---|---|---|---|---|
| derivatives (inflow) | 13 | 12 | 20 | 8 |
| Less than 1 |
Between 1 and 2 |
Between 2 and 5 |
After 5 |
|
|---|---|---|---|---|
| DKK million | year | years | years | years |
| Financial liabilities at | ||||
| December 31, 2008 | ||||
| Other financial liabilities | 911 | 497 | 557 | 457 |
| Trade payables | 630 | - | - | - |
| Other payables | 1,004 | - | - | 38 |
| Gross settlement of | ||||
| derivatives (outflow) | 40 | 18 | 24 | - |
The figures below show the inflow from the above gross settlement of derivatives, so as to provide an adequate and fair picture of the actual draw on liquidity.
| Gross settlement of | ||||
|---|---|---|---|---|
| derivatives (inflow) | 23 | 15 | 28 | - |
| 2009 DKK million DKK million |
2008 | |
|---|---|---|
| Employee costs payable | 530 | 426 |
| Taxes and duties payable | 40 | 5 |
| Accruals and deferred income | 98 | 81 |
| Stock-based payment | 25 | 49 |
| Other payables | 538 | 409 |
| Other payables at December 31 | 1,231 | 970 |
Novozymes has established stock option programs for Executive Management, other managers, and other employees. The purpose of the stock option programs is to ensure common goals for Executive Management, other managers, other employees, and shareholders. Allocation of options is, and has been, dependent on profit and value-creation targets being achieved, and the achievement of selected sustainability targets.
A new stock option program for all employees was launched in 2009. This program forms part of the program announced previously covering the period 2007–2010, with annual allocations conferring the right to purchase one share at a nominal price of DKK 10 per stock option. Allocations are made on the basis of the individual employee's basic salary and in accordance with the business targets – both financial and nonfinancial – set by the Board of Directors for each year. The stock options have a vesting period of four years, followed by an exercise period of five years. In order to exercise the options, the employee must still be employed on the exercise date. This does not apply to persons who have retired, taken a voluntary early retirement pension, or been given notice.
The targets set for 2009 were partly achieved, triggering an allocation of 81% of the maximum possible allocation to other managers and other employees, while the allocation to Executive Management is 99% of the possible maximum.
Executive Management has previously also been allocated stock options with a maturity period of between six and eight years. For other managers and other employees the stock options have previously been allocated with a maturity of eight years.
The above-mentioned stock option programs are primarily equity settled, and no liability is recognized for these. In the case of allocations in countries where ownership of foreign stock is not permitted, the value of the stock options is settled in cash, and a liability of DKK 25 million has been recognized for this in 2009 (DKK 19 million in 2008). The intrinsic value of the programs in 2009 was DKK 26 million (DKK 15 million in 2008).
All the liabilities relating to Novo Nordisk stock options (DKK 29 million in 2008) and divestment of stock relating to stock options granted to Novo A/S employees (1,700 in 2008) have expired.
| Executive | Other | Other | Number of options that can be |
Exercise price per option |
Remaining term to maturity |
||
|---|---|---|---|---|---|---|---|
| Stock options in Novozymes A/S | Management | managers | employees | Total | exercised | in DKK | (years) |
| Outstanding at January 1, 2008 | 210,148 | 1,246,483 | 1,154,656 2,611,287 | 1,623,842 | 266* | 5** | |
| Additions during the year | 245,857 | 302,079 | 248,389 | 796,325 | |||
| Options exercised in 2008 | (91,611) | (74,192) (165,803) | 152* | ||||
| Terminations in 2008 | (53,332) | (31,390) | (84,722) | ||||
| Outstanding at December 31, 2008 | 456,005 | 1,403,619 | 1,297,463 3,157,087 | 1,447,748 | 298* | 5** | |
| Additions during the year | 157,581 | 159,523 | 125,079 | 442,183 | |||
| Options exercised in 2009 | (17,380) | (76,555) | (137,742) (231,677) | 161* | |||
| Terminations in 2009 | (18,158) | (14,537) | (32,695) | ||||
| Outstanding at December 31, 2009 | 596,206 | 1,468,429 | 1,270,263 3,334,898 | 1,211,474 | 327* | 5** |
| Number | Exercise Remaining | Market | ||||||
|---|---|---|---|---|---|---|---|---|
| of options | price per | term to | value in | |||||
| Executive | Other | Other | that can be | option | maturity | DKK | ||
| Stock options in Novozymes A/S | Management | managers employees | Total | exercised | in DKK | (years) | million | |
| Outstanding program 2001 | - | 34,968 | - | 34,968 | 34,968 | 159 | - | 13 |
| Outstanding program 2001 | - | - | 149,094 | 149,094 | 149,094 | 186 | - | 53 |
| Outstanding program 2002 | 7,700 | 73,000 | 148,893 | 229,593 | 229,593 | 169 | 1 | 84 |
| Outstanding program 2003 | 24,720 | 314,750 | 458,349 | 797,819 | 797,819 | 148 | 2 | 310 |
| Outstanding program 2006 | 10,437 | 349,453 | - | 359,890 | - | 344 | 5 | 72 |
| Outstanding program 2006 | - | 4,290 | - | 4,290 | - | 400 | 5 | 1 |
| Outstanding program 2007 | 149,911 | 220,031 | 167,528 | 537,470 | - | 495 | 6 | 61 |
| Outstanding program 2007 | - | 26,244 | - | 26,244 | - | 585 | 8 | 1 |
| Outstanding program 2007 | - | 8,349 | - | 8,349 | - | 596 | 6 | 1 |
| Outstanding program 2008 | 245,857 | 255,527 | 221,620 | 723,004 | - | 390 | 7 | 135 |
| Outstanding program 2008 | - | 17,294 | - | 17,294 | - | 417 | 8 | 1 |
| Outstanding program 2008 | - | 8,544 | - | 8,544 | - | 403 | 7 | 1 |
| Outstanding program 2009 | 157,581 | 152,695 | 124,779 | 435,055 | - | 443 | 8 | 73 |
| Outstanding program 2009 | - | 3,284 | - | 3,284 | - | 529 | 8 | 1 |
| Outstanding at December 31, 2009 | 596,206 1,468,429 | 1,270,263 3,334,898 | 1,211,474 | 327* | 5** | 807 |
* The exercise price is a weighted average of several option programs.
** Remaining term to maturity is stated as a weighted average of the outstanding options.
Market value is calculated on the basis of the Black–Scholes model for valuation of options. The historical volatility over the last year is used when calculating the value of the options at year-end. The risk-free interest is based on Danish government bonds with a maturity equivalent to the option's expected remaining term to maturity. The expected maturity is fixed at one year after the expiry of the binding period, or the option's expiry date if this is within one year.
The following assumptions are used when calculating market value at the end of the period:
| 2009 | 2008 | |
|---|---|---|
| Dividend per share, DKK | 5.75 | 5.25 |
| Volatility, % | 30.3 | 55.4 |
| Average risk-free interest, % | 1.6 | 2.9 |
| Share price | 540 | 418 |
Holdings of and trading in Novozymes A/S stock by the Board of Directors and Executive Management
| Board of | Executive | ||
|---|---|---|---|
| Number of shares | Directors | Management | Total |
| Stock portfolio at January 1, 2008 | 15,665 | 22,411 | 38,076 |
| Change in Board of Directors | (920) | - | (920) |
| Purchase of stock during the year | 820 | 16,351 | 17,171 |
| Sale of stock during the year | - | (10,200) | (10,200) |
| Stock portfolio at December 31, 2008 | 15,565 | 28,562 | 44,127 |
| Purchase of stock during the year | - | 2,027 | 2,027 |
| Sale of stock during the year | - | (2,027) | (2,027) |
| Stock portfolio at December 31, 2009 | 15,565 | 28,562 | 44,127 |
The stock portfolio had a market value of DKK 18 million at December 31, 2008, and DKK 24 million at December 31, 2009, based on the listed share price at year-end 2008 and 2009 respectively.
| Number of stock options | Options at January 1, 2009 |
Additions during the year |
Exercised during the year |
Options at Dec. 31, 2009 |
Market value in DKK million |
|---|---|---|---|---|---|
| Steen Riisgaard | 137,456 | 36,366 | (8,500) | 165,322 | 31.1 |
| Per Falholt | 79,438 | 24,243 | (8,880) | 94,801 | 14.9 |
| Benny D. Loft | 73,917 | 24,243 | - | 98,160 | 15.5 |
| Peder Holk Nielsen | 79,438 | 24,243 | - | 103,681 | 18.3 |
| Thomas Nagy | 42,878 | 24,243 | - | 67,121 | 12.0 |
| Thomas Videbæk | 42,878 | 24,243 | - | 67,121 | 12.0 |
| Holdings of stock options | 456,005 | 157,581 | (17,380) | 596,206 | 103.8 |
The employee-elected board members also hold stock options in Novozymes A/S, granted in connection with stock option allocations in previous years covering all employees in Novozymes A/S on the relevant dates.
| 2009 | 2008 | |
|---|---|---|
| DKK million | DKK million | |
| Remuneration to Executive Management: | ||
| Salaries | 25 | 24 |
| Pensions | 5 | 5 |
| Total remuneration to Executive Management | 30 | 29 |
| Total remuneration to the Board of Directors | 4 | 5 |
| 2009 | 2008 | |
| No. | No. | |
| Number of Executive Management members | 6 | 6 |
In 2007 a new four-year stock option program was adopted with annual allocations to Executive Management. A general condition for the annual allocations was that the budget for the coming year would in all probability lead to revenue of DKK 10 billion in 2010. Additionally, the allocation is based on achievement of financial and nonfinancial targets that are set each year. The exercise price is calculated on the basis of the average closing price on NASDAQ OMX Copenhagen A/S on the first five trading days after the publication of the financial statements. The annual allocation for 2010 has been canceled as the general condition for the allocation has not been met.
The program contains a maximum clause that allows the Board of Directors to limit the number of stock options that are allocated to Executive Management over the four years. This limitation can be implemented if the intrinsic value of the total allocated stock options exceeds DKK 200 million at the time of computation in January 2011.
In 2009 the financial targets had a weighting of 0–75% and the nonfinancial targets a weighting of 0–25%. As the financial targets were achieved but one of the nonfinancial targets was not, the Board of Directors decided to allocate 157,581 stock options, corresponding to 99% of the maximum available allocation, to Executive Management.
The total value of the options allocated for 2009, based on the Black–Scholes model, was DKK 31 million at the grant date, DKK 7 million of which has been recognized in the income statement for 2009. The intrinsic value of the 553,349 stock options that have been allocated to the current Executive Management over the four-year program was DKK 59 million at December 31, 2009.
Members of Executive Management have contracts of employment containing standard conditions for members of Executive Management of Danish listed companies, including the periods of notice that both parties are required to give and competition clauses. If the executive officer's contract of employment is terminated by the company, without there having been misconduct on the part of the executive officer, the executive officer has the right to compensation, which, depending on the circumstances, may amount to a maximum of three years' salary and pension contributions.
The table below shows the Group's assets and liabilities in foreign currencies at December 31, 2009, calculated as the total of each Group company's assets and liabilities in a currency other than its own. The table also shows the derivatives used to hedge these assets and liabilities.
| DKK million | Currency exposure |
Derivatives | Net currency exposure |
Dec. 31, 2009 (for 100 units) |
|
|---|---|---|---|---|---|
| AUD | (8) | 11 | 3 | 464.05 | |
| CNY | (14) | - | (14) | 76.04 | |
| CHF | (661) | 249 | (412) | 500.17 | |
| EUR | 526 | (1,230) | (704) | 744.15 | |
| JPY | 60 | (40) | 20 | 5.62 | |
| USD | 523 | (618) | (95) | 519.01 | |
| Other | 5 | 88 | 93 | - | |
| 431 | (1,540) | (1,109) |
Transaction risk is the possibility of gains/losses on transactions that are open on the balance sheet date as a result of subsequent exchange rate changes. Gains/losses are recognized in the income statement.
| DKK million | Net investment in foreign subsidiaries |
Derivatives | Net assets with translation risk |
Exchange rate at Dec. 31, 2009 (for 100 units) |
|---|---|---|---|---|
| AUD | 168 | - | 168 | 464.05 |
| BRL | 172 | - | 172 | 298.45 |
| CAD | 144 | - | 144 | 494.81 |
| CHF | 651 | - | 651 | 500.17 |
| CNY | 1,149 | - | 1,149 | 76.04 |
| EUR | 64 | - | 64 | 744.15 |
| GBP | 162 | - | 162 | 823.17 |
| INR | 90 | - | 90 | 11.10 |
| SEK | 209 | - | 209 | 72.28 |
| USD | 652 | - | 652 | 519.01 |
| Other | 86 | - | 86 | - |
| 3,547 | - | 3,547 |
Translation risk is the possibility of gains/losses arising from translation of net assets in subsidiaries as a result of subsequent exchange rate changes. Gains/losses are recognized in the statement of comprehensive income.
The table below shows the derivatives that the Group has contracted to hedge currency exposure, interest rate exposure, or price exposure on future cash flows. The total fair value adjustment at year-end is entered directly in Shareholders' equity and will be taken to the income statement as the financial contracts are realized, with the exception of currency translation and accrued interest on currency swaps used for interest hedging, as these do not qualify as cash flow hedges and are therefore entered directly in the income statement.
| 2009 | 2008 | |||
|---|---|---|---|---|
| Contract | Contract | |||
| amount | amount | |||
| based on | Market value | based on | Market value | |
| DKK million | agreed rates | Dec. 31 | agreed rates | Dec. 31 |
| Forward exchange contracts (sales) | ||||
| JPY | 118 | 15 | 216 | 1 |
| USD | 1,418 | 164 | 2,031 | 84 |
| 1,536 | 179 | 2,247 | 85 | |
| Interest rate swaps | ||||
| DKK/DKK - pays fixed rate of 2.95% / earns variable rate of 1.55% | 307 | (3) | ||
| EUR/EUR - pays fixed rate of 3.06% / earns variable rate of 1.38% | 112 | (2) | ||
| EUR/EUR - pays fixed rate of 3.58% / earns variable rate of 1.38% | 112 | (3) | ||
| USD/USD - paid fixed rate of 3.73% / earned variable rate of 1.83% in 2008 | 244 | (2) | ||
| CAD/CAD - paid fixed rate of 6.77% / earned variable rate of 1.62% in 2008 | 15 | (3) | ||
| 531 | (8) | 259 | (5) | |
| Currency swaps | ||||
| EUR/DKK - pays fixed rate of 4.27% / earns variable rate of 1.55% (compared to | ||||
| 4.92% in 2008) | 250 | (16) | 250 | (13) |
| EUR/USD - pays fixed rate of 4.03% / earns variable rate of 0.25% | 383 | (61) | ||
| EUR/USD - paid fixed rate of 3.84% / earned variable rate of 1.53% in 2008 | 527 | (89) | ||
| EUR/USD - paid fixed rate of 4.03% / earned variable rate of 1.47% in 2008 | 384 | (55) | ||
| 633 | (77) | 1,161 | (157) | |
| Forwards | ||||
| Electricity price agreement (average payment of DKK 288/MWh) (2008: | ||||
| 335/MWh) | 74 | 3 | 120 | (18) |
| 2,774 | 97 | 3,787 | (95) |
The forward exchange contracts fall due in the period January 2010 to December 2010 (January 2009 to June 2010 at the end of 2008), while the interest rate and currency swaps fall due in the period June 2010 to July 2017 (June 2009 to July 2017 at the end of 2008). Electricity agreements have been contracted for the period January 2010 to December 2011.
| 2009 | 2008 | |
|---|---|---|
| USD | 12 months | 18 months |
| JPY | 12 months | 12 months |
The table below shows the derivatives that the Group has contracted to hedge currency exposure on investments in subsidiaries. Gains or losses on market value adjustments (excluding accrued interest) at year-end are entered directly in Shareholders' equity.
| 2009 | 2008 | |||
|---|---|---|---|---|
| Contract | Contract | |||
| amount | amount | |||
| based on | Market value | based on | Market value | |
| DKK million | agreed rates | Dec. 31 | agreed rates | Dec. 31 |
| Currency loan | ||||
| USD - paid variable rate of 1.85% in 2008 | 244 | 33 | ||
| - | - | 244 | 33 |
The table below shows the derivatives that the Group has contracted to hedge currency exposure on financial assets and liabilities that give rise to currency adjustments in the income statement, and derivatives that no longer fulfil the criteria for cash flow hedges. Gains or losses on market value adjustments at year-end are entered in the income statement.
| 2009 | 2008 | |||
|---|---|---|---|---|
| Contract amount |
Contract amount |
|||
| based on | Market value | based on | Market value | |
| DKK million | agreed rates | Dec. 31 | agreed rates | Dec. 31 |
| Forward exchange contracts (sales) | ||||
| AUD (net purchase) | (11) | - | 118 | 7 |
| CAD (net purchase) | (7) | - | (26) | - |
| CHF (net purchase) | (249) | (2) | (322) | 16 |
| GBP (net purchase) | (124) | 2 | (90) | (7) |
| KRW (net purchase) | - | - | (34) | (1) |
| JPY | 40 | (1) | 51 | (5) |
| SEK | 43 | - | 18 | - |
| USD | 618 | 6 | 88 | 5 |
| 310 | 5 | (197) | 15 |
The forward exchange contracts fall due in the period January 2010 to December 2010 (February 2009 to June 2009 at the end of 2008).
The gain on forward exchange contracts was DKK 46 million (DKK 0 million in 2008), compared to a loss on the hedged items of DKK 17 million (DKK 13 million in 2008).
The carrying amounts for the categories Loans and receivables and Other financial liabilities at December 31, 2009, are DKK 2,967 million and DKK 3,853 million respectively (DKK 2,593 million and DKK 3,870 million in 2008). For the categories Hedge accounting (asset), Available-for-sale financial assets, and Hedge accounting (liability) the carrying amounts are shown in the balance sheet or the notes.
The derivatives are not traded on an active marked based on quoted prices, but are individual contracts. The fair value of the derivatives is determined using valuation techniques that maximize the use of observable market data, where available (Level 2).
Rental commitments expiring within the following periods from the balance sheet date:
2009 2008 DKK million DKK million
| Rental commitments at December 31 | 270 | 231 |
|---|---|---|
| After 5 years | 78 | 62 |
| Between 4 and 5 years | 29 | 25 |
| Between 3 and 4 years | 29 | 29 |
| Between 2 and 3 years | 34 | 32 |
| Between 1 and 2 years | 43 | 37 |
| Within 1 year | 57 | 46 |
Of which commitments to related companies at December 31, 2009, amount to DKK 33 million, compared to DKK 37 million at December 31, 2008. The above rental commitments relate to non-cancelable operating lease contracts, primarily for buildings and offices.
| The following amount has been recognized in the consolidated income |
||
|---|---|---|
| statement in respect of rentals | 70 | 66 |
| Other liabilities | ||
| Contractual obligations to third parties relating to capital expenditure, etc. |
486 | 173 |
| Other guarantees | ||
| Other guarantees and commitments to related companies |
76 | 80 |
| Other guarantees and commitments | 149 | 113 |
Novozymes is engaged in certain legal proceedings. In the opinion of the Board of Directors and Executive Management, settlement or continuation of these proceedings will not have a material effect on the Group's financial position. A liability has been recognized under Provisions in case the risk of a loss should arise.
Several of the partnership contracts to which Novozymes is a party could be terminated by the opposite party in the event of significant changes concerning ownership or control of Novozymes. Furthermore, a few contracts contain provisions that restrict Novozymes' licenses to use specific forms of technology in such situations.
As a result of the Demerger of Novo Nordisk A/S into two companies, Novo Nordisk A/S and Novozymes A/S are jointly and severally liable in accordance with Section 136, subsection 2 of the Danish Companies Act for debts and obligations arising after January 1, 2000, but relating to the period before January 1, 2000, that cannot be clearly attributed to either Novo Nordisk A/S or Novozymes A/S. Liability will be distributed proportionately between the two companies.
Novozymes A/S has interests in two joint ventures, namely two houseowners' associations run as jointly controlled entities with Novo Nordisk A/S. The objects of the associations are the operation and maintenance of common facilities.
Novozymes' share of the net profit, assets, and liabilities of the two joint ventures is included in the consolidated financial statements on a proportionate basis as follows:
| 2009 | 2008 | |
|---|---|---|
| DKK million DKK million | ||
| Non-current assets | 39 | 41 |
| Current assets | 33 | 45 |
| Total assets at December 31 | 72 | 86 |
| Non-current liabilities | (59) | (63) |
| Current liabilities | (13) | (23) |
| Total liabilities at December 31 | (72) | (86) |
| Net profit | - | - |
Novozymes A/S has not assumed any material contingent liabilities in connection with its interests in these joint ventures.
Novozymes A/S is controlled by Novo A/S, which holds 70.1% of the votes in Novozymes A/S. The remaining stock is widely held. The ultimate parent of the Group is the Novo Nordisk Foundation (incorporated in Denmark).
Related parties are considered to be the Novo Nordisk Foundation and its subsidiaries, i.e. the Novo and Novo Nordisk Groups, and the directors of these entities, and the Board of Directors and Executive Management of Novozymes A/S, together with their immediate families. Related parties also include companies in which the above persons have significant interests.
All agreements relating to these transactions are based on the list prices used for sale to third parties where such list prices exist, or the price has been set at what is regarded as market price. The material terms of these agreements are renegotiated regularly. The Group has had the following transactions with related parties:
| 2009 | 2008 | |
|---|---|---|
| DKK million DKK million | ||
| Sale of goods, materials, and services | ||
| Sale of goods and materials: | ||
| - The Novo Nordisk Group | 38 | 35 |
| Sale of services: | ||
| - The Novo Nordisk Group | 80 | 112 |
| Total sale of goods, materials, and | ||
| services | 118 | 147 |
| 2009 | 2008 | |
|---|---|---|
| DKK million DKK million | ||
| Purchase of goods, materials, services, and assets | ||
| Purchase of goods and materials: | ||
| - Novo Nordisk A/S | (79) | (77) |
| - Minority shareholders in subsidiaries | (53) | (47) |
| Purchase of services: | ||
| - NNIT A/S | (54) | (67) |
| - Novo Nordisk A/S | (55) | (59) |
| - NNE Pharmaplan A/S | (170) | (81) |
| - Minority shareholders in subsidiaries | - | (2) |
| Total purchases of goods, materials, | ||
| services, and assets | (411) | (333) |
There have not been any material transactions with the Novo Nordisk Foundation or with Management of Novozymes A/S, Novo A/S, the Novo Nordisk Foundation, or the Novo Nordisk Group, other than normal remuneration. The remuneration of the Board of Directors and Executive Management is presented in Note 24.
| 2009 | 2008 | |
|---|---|---|
| DKK million DKK million | ||
| Receivables: | ||
| The Novo Nordisk Group | 30 | 30 |
| Minority shareholders in subsidiaries | 15 | - |
| Receivables at December 31 | 45 | 30 |
| 2009 | 2008 | |
| DKK million DKK million | ||
| Payables: | ||
| The Novo Nordisk Group | (51) | (63) |
| Payables at December 31 | (51) | (63) |
During the financial year the Novozymes Group has received grants of DKK 38 million for research and development, compared to DKK 17 million in 2008. Government grants are recognized under Other operating income, net.
Government grants includes grants from the EU for various research projects and from the US Department of Energy for biomass.
| 2009 DKK million DKK million |
2008 | |
|---|---|---|
| Financial gain/loss on sale of assets | 9 | 8 |
| Allowances for doubtful trade receivables | 12 | 40 |
| Tax | 655 | 412 |
| Depreciation, amortization, and | ||
| impairment losses | 564 | 556 |
| Stock-based payment | 64 | 41 |
| (Gain)/loss on financial assets, etc., net | (23) | (63) |
| Unrealized foreign exchange (gain)/loss | 124 | (63) |
| Accrued interest income and interest costs | 140 | 105 |
| Change in provisions | (5) | (44) |
| Other items | (1) | 1 |
| Non-cash expenses, total | 1,539 | 993 |
| 2009 DKK million DKK million |
2008 | |
|---|---|---|
| Credit institutions - current (see Note 22) | (559) | (911) |
| Of which bank loan repayable in 2010 | 337 | 657 |
| (222) | (254) | |
| Cash at bank and in hand | 1,284 | 997 |
| Cash and cash equivalents at December 31 | 1,062 | 743 |
DKK 1 billion (DKK 1 billion in 2008) of the undrawn committed credit facilities expires within one year. Expiration of the remaining DKK 2 billion (DKK 2 billion in 2008) of the undrawn committed credit facilities exceeds 3 years.
There were no acquisitions of activities or companies in 2008 or 2009.
In accordance with generally accepted accounting principles, calculation of the carrying amount of certain assets and liabilities requires estimates and judgments to be made concerning future events. Estimates and judgments are based on historical experiences and other factors which Management considers reasonable and relevant. These assumptions may be incomplete or inaccurate, and unexpected events may occur, as a result of which the estimates and judgments made are subject to a certain degree of intrinsic uncertainty.
Annual impairment testing of goodwill is based on the value in use of the individual cash-generating unit, using the discounted cash flow method. The calculation is based on budgets approved by Management. Cash flows after the budget period are extrapolated using individual growth rates. The discount rate used for the calculation does not contain possible impacts of future risks, as these are included in future cash flows. The cash flows and growth rates take account of previous experiences, and represent Management's best estimate of future developments. In combination with the discount rate, however, these judgments may have a significant impact on the calculated values. This year's impairment testing has not given rise to any write-downs. Further information can be found in Note 10. The total carrying amount of goodwill at the end of 2009 was DKK 443 million (2008: DKK 415 million).
Inventories are measured at cost including indirect production costs. The costs are assessed on an ongoing basis to ensure optimal measurement of expected raw material consumption, payroll costs, capacity utilization, and other relevant factors. Changes in the parameters may have an impact on the value of inventories. If the net realizable value of the inventories is lower than cost, the inventories are written down to net realizable value. Inventories are continuously assessed for indications of impairment on the basis of an individual valuation of the product or product group and the products' expected sales. The carrying amount of inventories was DKK 1,535 million at the end of 2009 (2008: DKK 1,557 million).
Deferred tax assets and liabilities are recognized in the financial statements. Determining the value of these assets and liabilities also requires a judgment by Management. The value of deferred tax assets takes account of Management's expectations of future taxable income and whether this is sufficient to utilize the temporary differences and cover unused tax losses. The carrying amount of deferred tax assets and liabilities was DKK 62 million and DKK 694 million respectively at the end of 2009 (2008: DKK 68 million and DKK 850 million).
Allowances for doubtful trade receivables are based on a country-specific credit rating by external rating agencies. However, the allowances also reflect Management's judgment and review of the individual receivables based on individual customer creditworthiness and current economic trends. If customers' financial situations change in the future, this may give rise to additional indications of impairment in future accounting periods. The carrying amount of allowances for doubtful trade receivables was DKK 125 million at the end of 2009 (2008: DKK 126 million).
Management assesses the need for provisions and contingent liabilities on an ongoing basis. This assessment takes account of the likelihood of Novozymes being obliged to expend financial resources and the amount at which the liabilities are expected to be settled. As these assessments are based on estimates of the future, they are subject to a high level of uncertainty and may give rise to changes in amounts in future accounting periods. Further information can be found in Note 21. The carrying amount of provisions was DKK 155 million at the end of 2009 (2008: DKK 154 million).
Calculation of cash-settled stock option programs is based on the Black– Scholes model. The input variables for this model include assumptions about the stock option's expected volatility and term to maturity. These input variables are based on estimates, and impact the recognized employee costs and employee liabilities. The calculation is performed once and is not adjusted in future accounting periods. An estimate of the number of employees expected to utilize the share options in the future is taken into account in calculating the cost. The estimate is based on expected rate of employee turnover and is updated every year. Further information on stock options can be found in Note 24.
See also Note 36 about Financial risk factors.
Novozymes' international operations mean that the income statement and balance sheet are exposed to a number of financial risk factors. Financial risks are managed centrally for the entire Group. The use of financial instruments is governed by the treasury policy approved by Novozymes' Board of Directors. The treasury policy is unchanged from previous years, and contains rules for which financial instruments can be used for hedging, the counterparties that can be used, and the risk profile that is to be applied. Financial instruments are used to hedge existing assets, liabilities, and future net cash flow.
Currency exposure arises due to imbalances between income and costs in each individual currency and because Novozymes has more assets than liabilities in foreign currencies in connection with its many foreign companies. Operating profit is most exposed to the EUR, USD, and JPY.
A 0.50% movement in the EUR would, other things being equal, result in a change in operating profit of around DKK 10–15 million. A movement of 5% in the USD would result in a change in operating profit of around DKK 45–65 million. A movement of 5% in the JPY would result in a change of around DKK 5–10 million in operating profit.
A 5% movement in the CNY would, other things being equal, result in a change in Shareholders' equity of around DKK 57 million, while a movement of 5% in the USD or CHF would result in a change in Shareholders' equity of around DKK 33 million.
Novozymes' policy is to hedge existing net assets in foreign currencies and expected future net exposure from the Group's operations. Hedging of exchange rate exposure is carried out through a combination of loans, forward exchange contracts, swaps, and options. The exchange rate hedging transactions are carried out to minimize risks and thereby increase the predictability of the Group's financial results.
Currency exposure relating to investments in foreign subsidiaries is hedged where this is deemed appropriate. Currency exposure is managed primarily by taking out loans and entering into swaps. Currency swaps, which are used to hedge participating interests, generally have a maturity period of over 12 months.
Interest rate exposure arises in relation to interest-bearing assets and liabilities. An increase of 1 percentage point in the average interest rate on Novozymes' net interest-bearing assets would have a positive effect on profit before tax of around DKK 5 million. In accordance with Novozymes' treasury policy, a minimum of 30% of loans must be at fixed interest rates. At year-end 2009, 67% of the loan portfolio was at fixed interest rates, based on financial instruments.
According to Novozymes' treasury policy, free funds may only be invested in government bonds, ultra-liquid mortgage credit bonds, and money market deposits.
Credit risk arises especially on cash and cash equivalents, derivatives, and customer sales. The credit risk on cash and cash equivalents and derivatives is managed by only trading in derivatives and placing deposits only with banks that have a credit rating of at least A2 (Moody's) or A (S&P). The credit risk is calculated on the basis of net market values and is governed by the Group's treasury policy. Novozymes has entered into netting agreements (ISDA) with all the banks used for trading in financial instruments, which means that
Novozymes' credit risk is limited to net assets. At December 31, 2009, the maximum credit risk related to one counterparty was DKK 500 million (2008: DKK 332 million). The credit risk of debtors is countered by thorough, regular analyses based on customer type, country, and specific conditions. Generally, customers are creditworthy.
In connection with the Group's ongoing financing of operations, including refinancing risk, efforts are made to ensure adequate and flexible liquidity. This is guaranteed by placing deposits in cash and ultraliquid negotiable instruments, and using binding credit facilities.
| 2009 1,000 m3 |
2008 1,000 m3 |
|
|---|---|---|
| Drinking water | 3,123 | 3,486 |
| Industrial water | 1,699 | 1,913 |
| Steam | 242 | 294 |
| Water, total | 5,064 | 5,693 |
| 2009 1,000 GJ |
2008 1,000 GJ |
|
|---|---|---|
| Coal | - | - |
| Gas oil | 34 | 38 |
| Heavy fuel oil | 154 | 181 |
| Light fuel oil | 9 | 12 |
| Natural gas | 605 | 689 |
| Internally generated energy, total | 802 | 920 |
| 2009 1,000 m3 |
2008 1,000 m3 |
|
|---|---|---|
| Volume | 673 | 476 |
| 2009 tons |
2008 tons |
|
| Nitrogen Phosphorus |
16 31 |
10 16 |
| 2009 | 2008 | ||
|---|---|---|---|
| Tons | Tons | ||
| Incineration | 1,448 | 1,108 | |
| Landfilling | 2,963 | 3,663 | |
| Recycling | 4,003 | 4,484 | |
| Other | 589 | 714 | |
| Waste, total | 9,003 | 9,969 |
| 2009 1,000 tons |
2008 1,000 tons |
|
|---|---|---|
| Internally generated energy | 44 | 57 |
| Externally generated energy | 386 | 465 |
| CO2 emissions, total |
430 | 522 |
| 2009 | 2008 | |
|---|---|---|
| 1,000 tons | 1,000 tons | |
| Internally generated energy | 44 | 57 |
| Externally generated energy | 386 | 465 |
| Ozone-depleting substances, HCFCs | 1 | 2 |
| CO2 -equivalents, total |
431 | 524 |
| 2009 Kg |
2008 | ||
|---|---|---|---|
| Kg | |||
| HCFCs | 29 | 77 | |
| CFC11-equivalents, total | 29 | 77 |
| 2009 | 2008 | |
|---|---|---|
| No. | No. | |
| Women | 1,910 | 1,830 |
| Men | 3,365 | 3,316 |
| Employees, total | 5,275 | 5,146 |
| Full-time employees | 4,968 | 4,853 |
| Part-time employees | 307 | 293 |
| Employees, total | 5,275 | 5,146 |
| Denmark | 2,414 | 2,362 |
| Rest of Europe, Middle East, and Africa | 432 | 429 |
| North America | 850 | 842 |
| Asia Pacific | 1,397 | 1,333 |
| Latin America | 182 | 180 |
| Employees, total | 5,275 | 5,146 |
| Senior management | 169 | 160 |
| Management | 766 | 739 |
| Professional | 1,407 | 1,270 |
| Administrative | 577 | 619 |
| Skilled workers, laboratory technicians, and | ||
| other technicians | 1,007 | 953 |
| Process operators | 1,349 | 1,405 |
| Employees, total | 5,275 | 5,146 |
| 2009 % |
2008 % |
||
|---|---|---|---|
| Senior management | 18.9 | 19.4 | |
| Management | 31.3 | 30.2 |
As there is a particular focus on the percentage of women at management level, the percentage of women is only reported for Senior management and Management and not for other job categories.
| 2009 | 2008 No. |
||
|---|---|---|---|
| No. | |||
| Net growth in number of employees, | |||
| organic | 129 | 213 | |
| Terminations | 327 | 503 |
| 2009 | 2008 % |
||
|---|---|---|---|
| % | |||
| Senior management, management, | |||
| professional, and administrative | 1.4 | 1.2 | |
| Skilled workers, laboratory technicians, | |||
| other technicians, and process operators | 3.3 | 3.2 |
Rate of absence has been broken down by grouped job categories based on whether the work carried out is primarily office based, and is therefore not stated per job category.
| 2009 | 2008 | |
|---|---|---|
| No. | No. | |
| Return to original job | 38 | 35 |
| Return to a different job in the same | ||
| department | 1 | 1 |
| Transfer to a different job in another | ||
| department | - | 1 |
| No longer employed by Novozymes, but | ||
| still able to work | 1 | 1 |
| Out of work or early retirement | - | 1 |
| Case pending | 3 | - |
| Occupational accidents, total | 43 | 39 |
| Total days of absence | 629 | 1,003 |
For comparison purposes, cases that were pending at the end of 2008 have been updated in line with information available at the end of 2009. The derived figure for total days of absence has also been updated.
| 2009 No. |
2008 No. |
|
|---|---|---|
| Return to original job | 23 | 14 |
| Return to a different job in the same | ||
| department | 2 | 1 |
| Transfer to a different job in another | ||
| department | 1 | 2 |
| Out of work or early retirement | - | - |
| No longer employed by Novozymes, but | ||
| still able to work | - | 1 |
| Case pending | 1 | - |
| Occupational diseases, total | 27 | 18 |
| Total days of absence | 102 | 755 |
For comparison purposes, cases that were pending at the end of 2008 have been updated in line with information available at the end of 2009. The derived figure for total days of absence has also been updated.
| 2009 No. |
2008 No. |
|
|---|---|---|
| Musculoskeletal disorders | 5 | 8 |
| Skin diseases | 2 | 2 |
| Identified hearing disorders | 12 | 8 |
| Stress related | 2 | - |
| Enzyme allergy | 6 | - |
| Occupational diseases, total | 27 | 18 |
| Country | Activity | Issued common stock/paid-up stock |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| Novozymes Biologicals Argentina SA | Argentina | ARS | 12,000 | 100 | |||||
| Novozymes Australia Pty. Ltd. | Australia | AUD | 500,000 | 100 | |||||
| Novozymes Biopharma Holdings AU Ltd. | Australia | AUD | 30,000,001 | 100 | |||||
| Novozymes Biopharma AU Ltd. | Australia | AUD | 78,684,909 | 100 | |||||
| Novozymes Austria GmbH | Austria | EUR | 36,337 | 100 | |||||
| Novozymes Belgium BVBA | Belgium | EUR | 18,600 | 100 | |||||
| Novozymes Latin America Ltda. | Brazil | BRL | 23,601,908 | 100 | |||||
| Novozymes Biologicals Ltd. | Canada | CAD | 4,079,799 | 100 | |||||
| Novozymes Biologicals Investment Inc. | Canada | CAD | 100 | 100 | |||||
| Novozymes (China) Biotechnology Co. Ltd. | China | CNY | 859,058,400 | 100 | |||||
| Novozymes (China) Investment Co. Ltd. | China | CNY | 816,449,373 | 100 | |||||
| Novozymes (Shenyang) Biologicals Co. Ltd. | China | CNY | 31,793,578 | 100 | |||||
| Qingdao Huayuan Fine Bio-Products Co. Ltd. | China | CNY | 27,000,000 | 100 | |||||
| Suzhou Hongda Enzyme Co. Ltd. | China | CNY | 356,744,150 | 96 | |||||
| Novozymes (China) Biopharma Co. Ltd. | China | CNY | 180,997,382 | 100 | |||||
| Novozymes A/S | Denmark | DKK | 650,000,000 | - | |||||
| Novozymes Adenium Biotech A/S | Denmark | DKK | 600,000 | 100 | |||||
| Novozymes Bioindustrial A/S | Denmark | DKK | 1,000,000 | 100 | |||||
| Novozymes Bioindustrial China A/S | Denmark | DKK | 729,700,000 | 100 | |||||
| Novozymes Biopharma DK A/S | Denmark | DKK | 611,000 | 100 | |||||
| Novozymes Biologicals Holding A/S | Denmark | DKK | 500,000 | 100 | |||||
| Novozymes Biologicals France S.A. | France | EUR | 650,000 | 100 | |||||
| Novozymes France S.A. | France | EUR | 45,735 | 100 | |||||
| Novozymes Deutschland GmbH | Germany | EUR | 255,646 | 100 | |||||
| Novozymes Hong Kong Ltd. | Hong Kong | HKD | 768,285,140 | 100 | |||||
| Novozymes Biopharma Hong Kong Co. Ltd. | Hong Kong | HKD | 209,606,121 | 100 | |||||
| Novozymes South Asia Pvt. Ltd. | India | INR | 1,550,000,020 | 100 | |||||
| Novozymes Italia S.r.l. | Italy | EUR | 10,400 | 100 | |||||
| Novozymes Japan Ltd. | Japan | JPY | 300,000,000 | 100 | |||||
| Novozymes Malaysia Sdn. Bhd. | Malaysia | MYR | 6,666,414 | 100 | |||||
| Novozymes Mexicana, S.A. de C.V. | Mexico | MXN | 338,100 | 100 | |||||
| Novozymes Mexico, S.A. de C.V. | Mexico | MXN | 35,224,200 | 100 | |||||
| Novozymes Netherlands BVBA | Netherlands | EUR | 18,000 | 100 | |||||
| Novozymes Singapore Pte. Ltd. | Singapore | SGD | 59,071,000 | 100 | |||||
| Novozymes South Africa (Pty) Ltd. | South Africa | ZAR | 100 | 100 | |||||
| Novozymes Korea Limited | South Korea | KRW | 3,300,000,000 | 100 | |||||
| Novozymes Spain S.A. | Spain | EUR | 360,607 | 100 | |||||
| Novozymes Biopharma Sweden AB | Sweden | SEK | 28,001,000 | 100 | |||||
| Novozymes Switzerland AG | Switzerland | CHF | 5,000,000 | 100 | |||||
| Novozymes Switzerland Holding AG | Switzerland | CHF | 3,000,000 | 100 | |||||
| Novozymes Enzim Dis Ticaret Limited Sirketi | Turkey | TRY | 21,000 | 100 | |||||
| Novozymes Biopharma UK Ltd. | UK | GBP | 22,535,113 | 100 | |||||
| Novozymes UK Ltd. | UK | GBP | 1,000,000 | 100 | |||||
| Novozymes Biologicals, Inc. | USA | USD | 3,000,000 | 100 | |||||
| Novozymes Biologicals, Ltd. | USA | USD | 10,000 | 100 | |||||
| Novozymes Biopharma US, Inc. | USA | USD | 1 | 100 | |||||
| Novozymes Blair, Inc. | USA | USD | 1 | 100 | |||||
| Novozymes, Inc. | USA | USD | 1,000 | 100 | |||||
| Novozymes North America, Inc. | USA | USD | 17,500,000 | 100 | |||||
| Novozymes US, Inc. | USA | USD | 115,387,497 | 100 | |||||
| Joint ventures | Country | Activity | Proportion of ownership interest |
Hallas Park houseowners' association Denmark 50 Smørmosen houseowners' association Denmark 50
ISO 14001-certified sites. All major companies are also ISO 9001 certified.
Production
Sales & Marketing
Research & Development
Holding companies, etc.
The Board of Directors and Executive Management have today considered and approved the Annual Report of Novozymes A/S for the financial year January 1 – December 31, 2009.
The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU, and the Parent Company financial statements are prepared in accordance with the Danish Financial Statements Act. Moreover, the Annual Report is prepared in accordance with additional Danish disclosure requirements for listed companies.
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 Annual Report therefore provides a true and fair view of the assets, liabilities, and financial position at December 31, 2009, of the Group and the Parent Company, and of the results of the Group's and the Parent Company's operations and consolidated cash flows for the financial year 2009.
We further consider that the Management's review in the Annual Report gives a true and fair view of the development in the Group's and the Parent Company's activities and business, the profit for the year, and the Group's and the Parent Company's financial position as a whole, and a description of the most significant risks and uncertainties to which the Group and the Parent Company is subject.
In our opinion, Novozymes A/S adheres to the AA1000 AccountAbility principles, and environmental and social data are stated in accordance with the accounting policies.
We recommend that the Annual Report be adopted by the Annual Shareholders' Meeting.
Bagsvaerd, January 21, 2010
Steen Riisgaard President & CEO
We have audited the Consolidated Financial Statements, the Financial Statements and Management's Review including environmental and social data, of Novozymes A/S for the financial year January 1 - December 31, 2009. The Consolidated Financial Statements and the Financial Statements comprise Income Statement, Balance Sheet, Statement of Shareholders' Equity and Notes for both the Group and the Company as well as Statement of Comprehensive Income and Statement of Cash Flows and Financial Resources for the Group. The Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU, and the Financial Statements are prepared in accordance with the Danish Financial Statements Act. Moreover, the Consolidated Financial Statements and the Financial Statements are prepared in accordance with additional Danish disclosure requirements for listed companies. Management's Review is prepared in accordance with Danish disclosure requirements for listed companies and environmental and social data are prepared in accordance with accounting policies used for environmental and social data.
Management is responsible for the preparation and fair presentation of the Consolidated Financial Statements and the Financial Statements in accordance with the above-mentioned legislation and disclosure requirements. This responsibility includes: designing, implementing, and maintaining internal controls relevant to the preparation and fair presentation of Consolidated Financial Statements and Financial Statements that are free from material misstatement, whether due to fraud or error. This responsibility also includes selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Furthermore, Management is responsible for preparing a Management's Review that includes a true and fair account in accordance with Danish disclosure requirements for listed companies and for preparing environmental and social data in accordance with accounting policies used for environmental and social data.
Our responsibility is to express an opinion on the Consolidated Financial Statements, the Financial Statements and Management's Review, including environmental and social data, based on our audit. We conducted our audit in accordance with Danish Auditing Standards. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the Consolidated Financial Statements, the Financial Statements and Management's Review, including environmental and social data, are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Consolidated Financial Statements, the Financial Statements and Management's Review, including environmental and social data. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the Consolidated Financial Statements, the Financial Statements and Management's Review, including environmental and social data, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the Company's preparation and fair presentation of the Consolidated Financial Statements and Financial Statements and to the preparation of a Management's Review, including environmental and social data, that includes a true and fair account in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the Consolidated Financial Statements, the Financial Statements and Management's Review, including environmental and social data.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Our audit has not resulted in any qualification.
In our opinion, the Consolidated Financial Statements give a true and fair view of the financial position of the Group at December 31, 2009 and of the results of the Group's operations and cash flows for the financial year January 1 - December 31, 2009 in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for listed companies.
In our opinion, the Financial Statements give a true and fair view of the financial position of the Company at December 31, 2009 and of the results of the Company operations for the financial year January 1 - December 31, 2009 in accordance with the Danish Financial Statements Act and additional Danish disclosure requirements for listed companies.
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 Company, of the results for the year and of the financial position of the Group and the Company as well as a description of the most significant risks and elements of uncertainty facing the Group and the Company in accordance with Danish disclosure requirements for listed companies, and environmental and social data are prepared in accordance with accounting policies used for environmental and social data.
Bagsvaerd, January 21, 2010
PricewaterhouseCoopers Statsautoriseret Revisionsaktieselskab
Kim Füchsel Torben Jensen State Authorized Public Accountant State Authorized Public Accountant
We have been engaged to obtain moderate assurance (review) as to whether Novozymes adheres to the AA1000 AccountAbility principles and to obtain reasonable assurance (audit) as to the statement of the Board of Directors and Executive Management, Management's review, accounting policies and the quantitative environmental and social data in Novozymes A/S' Annual Report for the financial year 2009.
The criteria for the preparation of the environmental and social data are evident from the accounting policies described on pages 49-50. These contain information on which of Novozymes' activities and functions are included in the reporting, types of data, Management's reasons for choosing the data included and the accounting policies and methods applied.
Adherence to the principles of inclusivity, materiality and responsiveness is the responsibility of Management. Furthermore, Management is responsible for preparing the environmental and social data, including for establishing data collection and registration, and internal control systems, with a view to ensuring reliable reporting, specifying acceptable reporting criteria, and choosing data to be collected for intended users of the Annual Report.
As assurance provider, it is our responsibility, on the basis of our work, to make observations and recommendations on the nature and extent of Novozymes' adherence to the AA1000 AccountAbility principles as well as to express an opinion on the reliability of the environmental and social data in the Annual Report.
Our team of experts has competencies within performing assurance of environmental and social data and within assessing such data and information. In addition, our team is highly experienced in sustainability management as well as in handling social and environmental related issues. Also, we have not been responsible for the preparation of any part of the report, and we are independent as defined in the AA1000 Assurance Standard (2008) (AA1000AS (2008)). We thus consider our team qualified to conduct this independent assurance engagement.
We have planned and performed our work based on AA1000AS (2008), using the criteria in the standard to perform a Type 2 engagement and to obtain a moderate level of assurance (review) as to Novozymes' adherence to the AA1000 AccountAbility principles of inclusivity, materiality and responsiveness. Moreover, we have planned and performed our work in accordance with the International Standard on Assurance Engagements (ISAE) 3000, "Assurance engagements other than audits or reviews of historical financial information", to obtain reasonable assurance (audit) of the quantitative environmental and social data in the Annual Report.
Our assurance methodology has included procedures to obtain evidence for the environmental and social data in the Annual Report. The procedures selected depend on our judgment, including the assessment of the risks of material data misstatements. In making those risk assessments, we have considered internal controls relevant to the preparation and fair presentation of environmental and social data in order to design assurance procedures which are appropriate under the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Novozymes' internal controls.
Based on an assessment of materiality and risk, our work has included:
(i) Enquiries and interviews with members of Executive Management, staff from the sustainability development department, as well as management of different functions at headquarters regarding Novozymes' adherence to the AA1000 AccountAbility principles of inclusivity, materiality and responsiveness, including Management's commitment to the principles, the existence of systems and procedures to support adherence to the principles and the embedding of the principles at corporate level.
(ii) Sample testing of key processes and controls which form part of management reporting systems, processes, and procedures, and obtained evidence supporting the environmental and social data disclosed in the Annual Report. Our assurance on environmental and social data has been undertaken at selected reporting units and combined with analytical assurance procedures on data covering the Novozymes Group.
Nothing has come to our attention causing us to believe that Novozymes does not adhere to the AA1000 AccountAbility principles.
In our opinion, the environmental and social data in the Annual Report 2009 have been stated in accordance with the criteria mentioned.
According to the AA1000AS (2008), we are required to include observations and recommendations for improvements in relation to adherence to AA1000 AccountAbility principles.
With regard to the fundamental AA1000 AccountAbility principle of inclusivity:
Management has a strong commitment to inclusivity and stakeholder engagement. At its headquarters in Bagsvaerd, Novozymes plays an active role in relation to stakeholder engagement. In 2009, Novozymes designed and developed a stakeholder mapping tool and a stakeholder engagement planning tool which - when implemented throughout the Group - will form the basis of a more structured and systematic stakeholder mapping and engagement planning.
With regard to the AA1000 AccountAbility principle of materiality:
Management takes the principle of materiality into consideration when making decisions regarding sustainability at management level. Also, the organization has in place relevant governance bodies to discuss, evaluate, and determine the materiality of sustainability issues.
With regard to the AA1000 AccountAbility principle of responsiveness:
Novozymes is committed to being responsive to stakeholders. This is evident from the wide range of media, forums and forms used by Novozymes to communicate on sustainability issues.
Based on our observations, we recommend that Novozymes continues to work on raising awareness of sustainability across the organisation as well as continues the efforts to ensure that an ongoing systematic approach to sustainability trend spotting, stakeholder mapping and engagement is embedded also at site level.
Bagsvaerd, January 21, 2010
PricewaterhouseCoopers Statsautoriseret Revisionsaktieselskab
Kim Füchsel State Authorized Public Accountant Birgitte Mogensen State Authorized Public Accountant
The Novozymes Report 2009 contains forward-looking statements, including Novozymes' financial outlook for 2010, which, by their very nature, are associated with risks and uncertainties that may cause actual results to differ materially from expectations. The uncertainties may include unexpected developments in the international currency exchange and securities markets, marketdriven price decreases for Novozymes' products, and the introduction of competing products within Novozymes' core areas. See "Risk management."
Editor: Kirsten Laugesen, Corporate Communications, [email protected], tel. +45 4446 1099 Finance: Jens Breitenstein, Finance, [email protected], tel. +45 4446 1087 Jan Paulsen, Finance, [email protected], tel. +45 4446 3208 Investor Relations: Tobias Bjorklund, Investor Relations, [email protected], tel. +45 4446 8682 Sustainability: Claus Frier, Sustainability Development, [email protected], tel. +45 4446 4587 Assistance: Tanja Bengtsson, Finance, [email protected], tel. +45 4446 1239
Text: The editorial team from Novozymes, headed by Corporate Communications Photos: Niclas Jessen Design & web: Bysted A/S Copywriting: Peter Goddard Proofreading and Danish translation: Borella projects
© Novozymes A/S
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