Annual Report • Jan 25, 2008
Annual Report
Open in ViewerOpens in native device viewer
This year, Novozymes has once again collected all the report material in our online reporting universe at www.report2007.novozymes.com.
The reporting universe is a website dedicated to the annual report and other information. We continuously supplement the annual report with information such as stock exchange announcements, news and teleconferences – and, as an entirely new feature this year, we will focus on a relevant theme every quarter, publishing articles in connection with the quarterly announcements.
The reporting universe makes information more accessible and meets users' different needs. In fact, individual users can compose their own version of the report using the "My Report" function. Teleconferences, for example, will also be available as podcasts. The reporting universe should be seen in the context of the rest of www.novozymes.com, with special updates and links to other pages on Novozymes' website. Comments and feedback on the reporting universe and the Novozymes Report 2007 are very welcome and should be sent to the editorial team.
The Novozymes Report 2007 has been audited by PricewaterhouseCoopers (PwC), which also examined and assessed the report on the basis of the AA1000 Assurance Standard.
The audit covers financial, social and environmental data, and PwC has audited all of the articles in The Novozymes Report 2007. Online, these are marked "+§ Audited by PwC". See also the statements in the report. PwC has not audited the section of the report found online under the heading Supplementary reporting.
Supplementary reporting includes our "Communication on progress" with respect to Global Compact, our reports based on the Global Reporting Initiative (GRI), and data from our activities in Brazil, China, Denmark, Great Britain, India, Sweden and the USA.
The report has been produced in accordance with International Financial Reporting Standards (IFRS), The Danish Financial Statements Act, and the additional requirements of the OMX Nordic Exchange Copenhagen for submitted accounts. It has also been prepared in accordance with the Global Reporting Initiative G3 Guidelines for Sustainability Reporting.
In the event of any discrepancy between the printed report and the online report, the printed report is to take precedence.
The climate and sustainable development became major issues on the global agenda in 2007. This is good news for the world – and for Novozymes.
These are exciting times. Times when one revolutionary scientific result replaces another; when the whole planet has become our market and workplace; and when the world has woken up to the realization that an extensive and global effort is needed to solve climate problems. This is a time when many hands and minds must work together to keep the world on track – and when it is clear that sustainability makes sound sense in business.
Novozymes offers bioinnovation: biotech-based innovation that can replace traditional means of meeting industry needs – efficiently, cost-effectively and environmentally friendly. In this way our products help our customers – and the world – on their way towards more sustainable development. The outside world has realized this.
There is solid documentation that our enzymes have a positive influence on the environment. At a rough estimate, the world saves 100 kg of CO2 emissions every time our customers use 1 kg of Novozymes' enzymes. This means that our products have reduced CO2 emissions by about 20 million tons in 2007 alone – mainly because using enzymes saves energy compared with traditional processes. In comparison, Denmark must reduce its CO2 emissions by approximately 13 million tons per year during 2008-2012, according to the Kyoto Protocol obligations.
In a world where global companies are expected to focus more and more on sustainability, and where CO2 taxes and high energy prices are a reality, these facts drive increased demand for our innovation, products and service. And this is helping Novozymes grow.
This is clearly visible in the bioethanol industry. Here, alternatives to oil-based fuels are developed, and enzymes play a vital role in this process. We notice these effects in Novozymes, as our sales to the bioethanol industry rose considerably in 2007. We can also see it in our sales of detergent enzymes, which showed impressive growth in 2007 after several years of relative stagnation. Here too, one argument suggests that the benefits of adding enzymes to detergents will increase as oil prices climb – partly because enzymes make it possible to achieve good wash results at lower temperatures.
The growing global environmental awareness thus provides good opportunities for Novozymes – the more expensive raw materials and energy are, the more valuable our techno-logy and our innovation become. Our financial results already show this development: In 2007, we achieved 14% growth in sales in local currencies and 5% in earnings, and we are well on our way to fulfilling our ambition of reaching DKK 10
billion in sales by 2010. In fact, Novozymes' growth outlook is so positive that we have increased long-term expectations. We now believe that we may achieve "10 in 10" through organic growth alone. This is one of the reasons why we have decided to build a new site in the USA – to meet the increasing demand for our enzymes.
2007 was an eventful year in other areas as well. We believe that the best ideas are created in dialog with others, and have therefore joined a number of interesting partnerships around the world. Through them, we can help a wide range of industries to develop technologies and products for the future.
With the acquisition of Biocon Limited's enzyme activities, we welcomed 150 new colleagues in India. Biocon's enzyme activities are a good strategic match for our existing enzyme business, and this acquisition will give us a very strong position in the Indian enzyme market. The use of enzymes is still limited in India, but India's increasing prosperity offers good potential for growth.
At the end of the year, we also welcomed 83 new Canadian colleagues following the acquisition of Philom Bios Inc., a manufacturer of microorganisms for agriculture.
All in all, 2007 has been a very good and exciting year for Novozymes. And a year when the world really began to take notice of the positive gains linked to our bioinnovation in addressing climate change. We must understand how to fully exploit this opportunity. Novozymes adopted a new slogan in 2007 – Rethink Tomorrow – and that is exactly what we must do. We must help our customers to rethink tomorrow – for the benefit of the customers, the world and Novozymes.
Steen Riisgaard, President and CEO
Sales Sales rose by 9%
| Sales: | DKK 7,438 million |
|---|---|
| Operating profit: | DKK 1,481 million |
| Net profit: | DKK 1,042 million |
| Operating profit margin: | 19.9% |
| Free cash flow before acquisitions as a percentage of sales: | 12.9% |
| Return on invested capital (ROIC): | 21.7% |
| Water consumption, 1,000 m3 : |
5,364 |
| Energy consumption, 1,000 GJ: | 3,694 |
| Frequency of occupational accidents: | 4.8 |
| Frequency of occupational diseases: | 1.7 |
Operating profit rose by 11%
Free cash flow before acquisitions as a percentage of sales Operating profit margin
Index using 2000 as a base year
Return on invested capital
The frequency of occupational accidents rose to 4.8
Frequency of occupational accidents Frequency of occupational diseases
Novozymes sells more than 700 products to more than 40 different industries in 130 countries. Sales of enzymes account for 93% of Novozymes' business, while microorganisms and biopharmaceutical products comprise 4% and 3%, respectively.
Novozymes' bioinnovation is the basis for a wide range of industrially manufactured products. Our products use nature's own resources to improve companies' production capacity and product quality. They also help to save water and energy, make better use of raw materials and reduce waste.
We expect the increasing focus on sustainable development to continue in the years ahead, both within industry and in society as a whole. This trend will be driven mainly by concern over limited future resources and the environmental consequences of rising production and energy consumption. The focus on sustainability has already generated growth in Novozymes – through increased sales of enzymes to the bioethanol industry, for example – and there is considerable growth potential in both existing and new industries and applications.
Novozymes saw very satisfactory growth in sales in 2007, with growth in enzymes for detergents and the bioethanol industry exceeding expectations. Total sales rose by 9% to DKK 7,438 million compared to 6,802 million in 2006.
About two percentage points of the growth was generated by acquisitions made by Novozymes in 2006 and 2007. Calculated in local currencies, the growth was 14%, while organic growth comprised 12% in 2007.
With a 93% share of sales, enzymes for industrial applications are Novozymes' prime business segment. They are divided into the following categories:
In 2007, sales to the detergent industry rose by 10% in DKK, up 12% in local currencies. This is highly satisfactory and a positive development from previous years' low growth rates. The development in sales was due to increased sales in Europe, reformulation of detergents to contain more enzymes, and a higher market share. The consumption of detergents containing enzymes is also increasing in developing countries – a trend that will continue in the future.
Novozymes launched the following detergent enzymes in 2007:
Distribution of sales in percent
Novozymes expects approximately 5% growth in sales of detergent enzymes in 2008 and to maintain market share, which increased in 2007. The outlook for long-term sales growth has been increased to 3-5%, which is above the general market growth level. This change is based on an expected continued increase in enzyme content in detergents, which was observed throughout 2007.
0 03 04 05 06 07 500 1,000 1,500 2,000 2,500 DKK million
The most important products in this area are enzymes for the starch, textile and bioethanol industries. This business area also covers enzymes for the leather and forest products industries, and other small industries.
Sales of technical enzymes rose by 14% in 2007 in DKK, up 22% in local currencies, which was very satisfactory. The primary reason for this high growth rate was the continued significant increase in sales of enzymes to the bioethanol industry, driven by growth in the American market and a higher market share. Sales of enzymes to the bioethanol industry now accounts for 13% of Novozymes' total sales.
There are two main enzyme suppliers to the current bioethanol industry and this is not expected to change. For the next 3-4 years, Novozymes' sales to the bioethanol industry are expected to grow by an average of 20-25% per year. The realized growth will depend on American market developments. In 2008, the production of bioethanol in the USA is expected to increase and enzyme prices are also expected to increase slightly.
Enzymes for the starch industry, which are used to manufacture sweeteners, recorded positive sales growth in 2007. This development was due to continuously increasing demand for
alternatives to sugar, and increasing demand for sweeteners in general.
Sales to the textile industry experienced a fall in sales of enzymes for treating denim – a consequence of current fashion trends. The growth comes from the textile mills, where enzymes are used to manufacture cotton textiles and other products. For some years, Novozymes has been working on penetrating this industry, and developments in 2007 indicate that we are on the brink of success.
Novozymes launched the following technical enzymes in 2007:
We expect the majority of the trends behind the growth in 2007 to continue in 2008, and expect total sales growth of 25-30% for technical enzymes. Sales of enzymes to the bioethanol industry will be pivotal to future growth, and the industry is expected to constitute an increasing share of Novozymes' total sales. Expected long-term growth for technical enzymes is increased. In particular, this reflects expectations for a high growth level in enzymes for bioethanol production in the coming years, primarily to first-generation bioethanol production, following the recently adopted renewable fuel standard in the USA.
Sales of technical enzymes
This area contains enzymes for the baking, brewing, beverage alcohol, juice, wine, dairy, and oils & fats industries, as well as other smaller industries. In 2007, sales of food enzymes rose by 6% in DKK, up 9% in local currencies. Increased sales to the brewing industry and enzymes for processed foods, especially in the Asian markets, contributed to the growth.
Sales of detergent enzymes
Enzymes for the baking industry is the largest product area within food enzymes, and Novozymes sells both through distributors and directly to major industrial bakeries. Novozymes sells worldwide, and demand is increasing in developing countries as a result of growing prosperity. In 2007, growth was also driven by the increased penetration of fresh-keeping enzymes to the baking industry in Europe.
Sales of enzymes for beverage alcohol fell compared to 2006. This was due to lower demand for alcohol and to a partial shift towards using sugar instead of cereals in alcohol production because of higher cereal prices. When sugar is used, enzymes are not needed in the manufacturing process.
Novozymes launched the following food enzymes in 2007:
Sales of food enzymes are expected to continue to increase in 2008. Enzymes for the baking industry will continue their growth from 2007, partly based on increased penetration of fresh-keeping enzymes, but generally all industries will show good growth. The long-term growth outlook is lowered slightly to approximately 10%. This is still significantly above the market's expected growth. Penetration of existing products and the effect of market-expanding concepts are still expected to drive future growth.
Sales of food enzymes
Sales of feed enzymes rose by 1% in DKK in 2007, 5% in local currencies. The underlying moderate growth in volumes sold was offset by declining prices in the feed
market. Novozymes, together with its alliance partner DSM Nutritional Products, maintained its market share. In the alliance, productivity improvements are shared between the partners. This has an effect on Novozymes' sales to its alliance partner as settlement is made via pricing.
Novozymes launched the following feed enzyme in 2007:
› Ronozyme® NP
Novozymes expects relatively low growth in sales of feed enzymes in 2008, as price pressure is expected to continue until market-expanding innovation is introduced. In the European market, Novozymes' largest market for feed enzymes, product approval takes about three years from the time a new product is ready – which is longer than in any other enzyme industry. Novozymes expects to introduce market-expanding innovation within the next 1-2 years.
The expected long-term sales growth is maintained and supported by current research projects.
This segment includes the sales of microorganisms for institutional and household cleaning, wastewater treatment, aquaculture and plant care.
At the beginning of 2007, Novozymes decided to discontinue a product line to improve profitability. Low growth in the market in general could not compensate for the lower sales resulting from the discontinuation. As a result of this decision Novozymes lost market share. The total sales ended 11% lower than in 2006. Calculated in local currencies, sales were 5% lower than in 2006.
The market for microorganisms has a low degree of transparency and is characterized by a number of minor, local players with relatively short-term focus. In addition, it is generally more difficult to obtain patent protection in this market than, for example, in the enzyme market. A review of the market share analysis, has lead to an upward adjustment of the global market size and a corresponding downward adjustment of Novozymes' market share.
Organic growth in 2008 is expected to fall short of our longterm expectations, as we will make further adjustments to streamline the product portfolio and improve profitability. The December 2007 acquisition of Philom Bios Inc. will increase sales in 2008 by about 20% compared to 2007.
The long-term growth outlook is maintained, supported by existing research and market-expanding projects. The acquisition of Philom Bios Inc., which provides access to the sustainable agriculture market, is an example of an initiative that supports long-term growth.
Sales of microorganisms
This segment spans recombinant ingredients and new technologies for the biopharmaceutical industry.
In 2007, focus was on integrating the activities we purchased in 2006, and completing a cGMP production expansion of the plant in Lund, Sweden. We entered into several partnership agreements regarding the development of biopharmaceutical ingredients for future pharmaceutical production. These agreements target sales some years into the future and follow Novozymes' long-term strategy for this segment. Sales totaled DKK 224 million in 2007, a 67% increase.
This increase can be attributed to the effect of acquired activities.
In 2008, sales are expected to be approximately 15% lower than in 2007. This is due to an expected decline in contract volumes and because sales in 2007 to clinical trials are not expected in 2008. Expectations for long-term growth remain unchanged.
Sales of biopharmaceutical ingredients
Novozymes further consolidated its position as the global market leader within enzymes for industrial use by one percentage point to an estimated 47% market share. The global market share within industrial microorganisms is estimated to be 30-40% due to a revised market assessment and a slight decrease in market share.
Market shares within enzymes for industrial use
Novozymes actively engaged in the global climate debate in 2007, with Novozymes' enzymes for bioethanol production in particular attracting significant international media attention. Novozymes has consistently introduced new products and continuously achieved productivity improvements that support the company's financial position and results. In 2007, Novozymes acquired the Canadian company Philom Bios Inc. and the enzyme activities of the Indian company Biocon Limited, providing access to new areas with high growth rates. Novozymes expanded its Executive Management and changed its organization with the aim to focus on accelerated growth and strengthening the company's positioning. All in all, the Board of Directors is very satisfied with Novozymes' performance during the past year.
In 2007, Novozymes' sales were DKK 7,438 million, up 9% compared to 2006. Organic growth in local currencies, excluding the effect of acquisitions, totaled 12%. Operating profit rose by 11% to DKK 1,481 million, and the operating profit margin climbed to 19.9%. Profit after tax rose by 14% to DKK 1,042 million. Adjusted for non-recurring items, the operating profit margin totaled 18.9%, with profit after tax of DKK 986 million. Free cash flow before acquisitions was 12.9% of sales. These are very satisfactory results, especially in light of unfavorable trends in the international currency markets. The US dollar's movement in particular had a negative impact on Novozymes' financial performance.
Novozymes makes great effort to ensure optimum use of resources that are used in production, both in terms of cost and the environment. For 2007, the goal was that the increase in water and energy consumption should be at least one percentage point lower than the sales growth in local currencies.
Novozymes did not achieve the energy consumption target, primarily because the high sales growth put pressure on our production capacity.
Novozymes failed to achieve three social targets in 2007. Employee turnover was higher than the 8% target, mainly as a result of increasing labor shortage in Denmark and the USA. Also in 2007, a serious and life-threatening occupational accident occurred at Novozymes. The target was no serious accidents. The frequency of occupational accidents was 4.8 per million working hours, compared to a target of 4.5.
Despite the challenging conditions of external factors and high sales growth, Novozymes achieved most of its environmental and social targets for 2007. The ambition level remains high for 2008.
During the second half of 2007, the global stock markets were characterized by turbulence that appeared to be created by a combination of expected interest rate increase, rising inflation, and the early stages of a credit crisis in the USA. These factors, and the media-sensitive bioethanol market, caused the Novozymes share to be more volatile. Novozymes A/S' share price was DKK 582 at year-end, up 20% for the year. The Novozymes share outperformed the leading OMXC20 Index on the OMX Nordic Exchange Copenhagen. At the end of 2007, the total value of the company's B shares was DKK 31.6 billion.
During 2007, Novozymes bought back shares worth DKK 500 million. Novozymes' equity ratio at the end of 2007 was approximately 41%. The target of a four-year-old share buyback program was achieved. The program was initiated to adjust Novozymes' capital structure in order to reduce the equity ratio to a level equivalent to comparable companies. The total approved scope for the program was DKK 4 billion, of which DKK 3.5 billion was used.
The Board and Executive Management continuously evaluate if Novozymes' capital structure and equity management provide optimal conditions for continuing operations, capital
costs, dividends to shareholders et cetera. There are no changes to Novozymes' guidelines and procedures for controlling the capital structure and equity management in 2007.
In 2007, Novozymes' efforts within environmental and social responsibility resulted in the Dow Jones Sustainability Indexes naming Novozymes as the most sustainable company within biotechnology for the seventh year in a row – both in Europe and the world. This demonstrates the belief that the efforts will contribute to the company's growth, and this is highly satisfactory. Novozymes has also received other awards for working with sustainability and for integrating sustainability in its business foundation.
Novozymes made total payments to shareholders of DKK 778 million in 2007, which were paid out as a dividend of DKK 278 million for the 2006 financial year and share buybacks of DKK 500 million.
The Board recommends, maintaining the current dividend policy, and that a dividend of DKK 5.00 per share is paid for the 2007 financial year.
The Board concludes that Novozymes' current long-term financial targets are still relevant and challenging, especially in light of the increasing costs involved in accelerating longterm growth. Novozymes' long-term financial targets are:
Following seven years of positive and relatively stable development, Novozymes is likely to face more fluctuations. The focus on accelerated growth and the development within enzymes for the bioethanol industry and other new business areas suggest a promising future involving more growth, new competitors and scope for new partnerships. Potentially, this could mean greater uncertainty than the Executive Management, Board of Directors and shareholders have been used to.
At the beginning of 2008, Novozymes is increasing its outlook for long-term sales growth from 8-9% to 8-10%. This reflects expected higher growth, particularly within enzymes for detergents and bioethanol production. The latter is affected by the recently approved US renewable fuel standard, which has again demonstrated strong political support for bioethanol in the USA. To keep pace with future growth, Novozymes has decided to build a new enzyme production facility in the USA.
The development in Novozymes' sales, demand for the company's bioinnovation during 2007, and our expectations for the future confirm the Board's view that the focus on increased growth is a timely and appropriate decision. We believe that the necessary basis and competencies are in place to keep Novozymes safely on course towards its longterm targets.
Novozymes has the following expectations for its financial, social and environmental performance in 2008:
Financial expectations:
By far, most of Novozymes' sales are generated outside Denmark. Therefore, fluctuations in the exchange rates of the sales currencies will have a significant impact on the financial results. The company's financial expectations are based on the spot rates on January 23, 2008 for its most important currencies, including the US dollar.
Social and environmental targets:
The targets for "Satisfaction & Motivation" and "Opportunities for professional and personal development" are based on the results of the annual employee survey, People's Opinion, and on an index developed by the analysis and consulting company Ennova.
For Novozymes, contributing to sustainable development for society, especially to solve global climate problems, has high priority. By replacing conventional technologies, enzyme technology often reduces CO2 emissions considerably, and has the potential to become part of a lasting solution. In 2008, Novozymes will intensify its work in this area through the following objectives:
› New Life Cycle Assessment (LCA) procedures will be introduced to ensure that potential CO2 reductions are part of the decision-making process when developing new products. This is the first step towards setting targets for the total CO2 reduction potential of our 2009 pipeline, and pursuing the related business opportunities.
The enzyme business had a very satisfactory year, with nine product launches. Full confidence continues in the scope and quality of current research projects.
In 2007, detergent enzyme growth rates were stronger than seen in recent years. This made a significant contribution to the year's total growth. This is attributable to increased sales in Europe, continued growth in developing countries, and stabilization on the North American market.
Sales of enzymes for bioethanol production also contributed considerably to the growth in sales in 2007. This area is continuing to attract great attention from the media, politicians, customers, investors and others.
In the bioethanol field, Novozymes entered into several commercial and research alliances in 2007, with a focus on the technology of tomorrow, where it will be possible to produce bioethanol from biomass such as agricultural by-products. In September, Novozymes entered into a partnership with Brazilian CTC regarding research into processes for the production of fuel ethanol based on sugarcane by-products (bagasse) that is currently either incinerated or used in sugar and ethanol factories. Research within enzymes for bioethanol production based on biomass is the largest focus area in Novozymes, and there are many indications that in four years Novozymes will be strongly positioned to commercialize this area.
In 2007, Novozymes made its largest acquisition to date. The acquisition of Indian Biocon Limited's enzyme activities is considered very attractive and will strengthen Novozymes in several market segments. Novozymes' position and opportunity for harnessing the rapid growth in the Indian market is now even stronger.
Productivity improvements were especially high in 2007 and played an important role in the 5% growth in Novozymes' operating profit (excluding non-recurring items). This is despite increasing raw material and energy prices and unfavorable exchange rate developments. These improvements also helped free up the production capacity needed to keep pace with increased sales in 2007. In the light of high growth rates, and the development of sales in enzymes for the bioethanol industry in particular, Novozymes initiated an expansion of its production capacity in China.
The microorganisms business faced many challenges in 2007, especially in the American market. In addition, Novozymes decided to discontinue an unprofitable product line, which resulted in a slight reduction of market share.
Novozymes acquired the Canadian company Philom Bios Inc. in 2007, which will support future activities in the growing sustainable agriculture market.
During 2007, the business area was further consolidated and several potential products were tested by customers. This business area developed as expected in 2007. Novozymes is still focusing on long-term growth opportunities within this area. This is supported by the various collaboration agreements that have been entered into.
Mid-year, Novozymes completed an organizational restructuring. This was done to increase the focus on accelerated growth in all areas without losing focus on overall profitability. In the restructuring, two organizational units, Enzymes Business and BioBusiness, were established. In addition, HR, Communications and Sustainability Development were consolidated as Stakeholder Relations and are now represented by an Executive Vice President.
No important court cases are currently pending. However, it is worth noting that the lawsuit against Danisco concerning enzymes for the production of bioethanol on the American market was concluded in 2007. The court ruled in favor of Novozymes, which received approximately DKK 75 million in damages.
See the Risk factors section for more information on Novozymes' business risks.
At the Annual General Meeting for Novozymes A/S on March 5, 2008, the Board recommends that the total remuneration of the Board comprise DKK 4 million. Furthermore, the Board recommends approval of the general guidelines for Executive Management's incentive program. The guidelines are in line with the previously approved and presented incentive program for 2007-2010.
In January 2008, Novozymes announced the closure of the streptococcal-based production of hyaluronic acid (sHA) in China. The decision is of no financial importance for Novozymes and will have no influence on the outlook. The production was acquired in 2006, and significant changes in market conditions lead to the closure. Commercial risks are necessary for Novozymes in order to expand its business and ensure long-term growth. At times, such risks can lead to decisions of this kind.
In the beginning of 2008, uncertainty prevailed on the financial markets, which lead to a general fall in share prices – including the Novozymes share.
The following section presents the realized financial, environmental and social data for the year in relation to Novozymes' targets and expectations for the financial year.
An overview of data and key figures can be found in Accounts, while an overview of reporting in accordance with the Global Reporting Initiative (GRI) guidelines can be found under Supplementary reporting in the online version of the Novozymes Report 2007.
With one exception, the financial performance in 2007 met the expectations announced with the publication of the Group's financial statement for 2007. Non-recurring items had a positive effect on the financial performance.
Sales grew by 9% to DKK 7,438 million from DKK 6,802 million in 2006. Approximately two percentage points of this growth can be attributed to acquisitions. Growth in local currencies was 14%, equivalent to organic growth of 12%.
Sales of enzymes grew by 9% in DKK terms and 14% in local currencies. This development was driven primarily by increased sales of enzymes for the detergent and bioethanol industries. The overall growth exceeded expectations at the beginning of the year and is highly satisfactory.
Sales of microorganisms fell by 11% in DKK terms and 5% in local currencies, which was due mainly to Novozymes closing down an unprofitable product line as well as low overall growth in the business area.
Sales of biopharmaceutical ingredients grew by 67% in DKK terms and 64% in local currencies. This development is related to the effect of the 2006 acquisitions.
Please see Sales and markets for a detailed description of the developments in our specific industries.
Novozymes achieved organic growth in sales of industrial enzymes in 2007 that was higher than the growth in the enzyme market as a whole. Our own estimates suggest that Novozymes improved its position as the world's leading producer of enzymes in 2007 increasing its market share to approximately 47%, an increase of one percentage point from 2006.
Calculation of the market for microorganisms was expanded in 2007, so that the global market is more accurately represented. However, due to the market's character, the market share analysis is still somewhat uncertain. The global market share within industrial microorganisms is now estimated to be 30-40%, which reflects a slight fall compared to 2006. Novozymes does not provide estimates for the market share of biopharmaceutical ingredients.
Total costs excluding net financials and tax grew by 9% to DKK 6,080 million in 2007.
Cost of goods sold rose by 11% to DKK 3,489 million. Continued optimization and productivity improvements offset partly the growth in raw material and energy prices. The gross margin fell from 53.7% in 2006 to 53.1% in 2007. This was due mainly to the relatively low sales margin on products from 2006 acquisitions as well as negative exchange rate movements through 2007, in particular concerning the USD and JPY.
Sales and distribution costs rose by 9% to DKK 921 million and comprised 12% of 2007 sales. The rise was due to a higher level of activity. Research and development costs rose by 13% to DKK 995 million or 13% of 2007 sales, an increase of approximately half a percentage point. The increase includes more research spending in several projects, but particularly in enzymes for the production of second-generation fuel ethanol. Administration costs rose by 4% to DKK 675 million in 2007, which corresponds to 9% of sales. Employee costs totaled DKK 2,147 million, compared to DKK 1,958 million in 2006. The average number of employees increased to 4,684 from 4,272 in 2006.
Depreciation, amortization and write-downs increased by 4% to DKK 490 million in 2007 from DKK 469 million in 2006, which can be attributed to increased investments and acquisitions.
License fees and Other operating Income totaled DKK 123 million in 2007, compared to the previous year's DKK 59 million. This was due to Novozymes receiving DKK 75 million in compensation from Danisco in 2007.
Operating profit rose by 11% to DKK 1,481 million from DKK 1,340 million last year. Movements in exchange rates in 2007 significantly affected earnings growth negatively. The operating profit margin was 19.9%, compared to 19.7% in 2006. Excluding non-recurring items, operating profit was DKK 1,406 million, representing growth of 5%.
Net financial costs were DKK 96 million compared to DKK 122 million in 2006. The fall in the level of costs was due to a net foreign exchange gain of DKK 5 million in 2007 compared to a net foreign exchange loss of DKK 50 million in 2006. Overall, the net interest costs increased in 2007, since the company's net interest-bearing debt increased as a result of the acquisitions in 2007 and higher interest rates.
The net foreign exchange gains were due primarily to realized and unrealized gains on the hedging of exposure to the USD and JPY in particular.
Net interest-bearing debt grew to DKK 1,769 million from DKK 1,455 million in 2006.
| (DKK million) | 2007 | 2006 |
|---|---|---|
| Net foreign exchange gains/(losses) | 5 | (50) |
| Net interest costs | (78) | (26) |
| Total financials | (23) | (46) |
| Total financials | (96) | (122) |
Novozymes generated profit before tax of DKK 1,385 million and net profit of DKK 1,042 million, corresponding to an increase of 14% for both. The effective tax rate was just below 25%.
Earnings per share (diluted) were DKK 16.47 in 2007, compared to DKK 14.09 in 2006.
Net investments excluding acquisitions totaled DKK 735 million in 2007, compared to DKK 476 million in 2006. The increase was due partly to the expansion of research facilities in Denmark and India; a new customer center in Iowa, USA; and investments in cGMP production facilities in Lund, Sweden.
Free cash flow before acquisitions was DKK 963 million, corresponding to a fall of 9% from 2006. The cash flow was used for acquisitions, payment of the dividend for 2006, and share buybacks.
In 2007, Novozymes made two acquisitions totaling DKK 716 million. In October 2007, Novozymes purchased the enzyme activities of Biocon Limited. This acquisition will give us a very strong position in the Indian enzyme market, good distribution channels, local application knowledge and a global position in enzymes for the wine and juice industries. In December 2007, Novozymes purchased the Canadian company Philom Bios Inc., ensuring Novozymes access to and greater knowledge of the North American market for sustainable agriculture – a new market for Novozymes' microorganisms business.
| (DKK million) | 2007 | 2006 |
|---|---|---|
| Cash flow from operating activities | 1,714 | 1,534 |
| Investments before acquisitions | (735) | (476) |
| Purchase of minority interests | (16) | 0 |
| Cash flow before acquisitions | 963 | 1,058 |
| Acquisitions | (716) | (477) |
| Free cash flow | 247 | 581 |
| Dividend paid | (278) | (255) |
| Purchase of treasury shares | (500) | (1,107) |
Average invested capital as a percentage of sales was 69% in 2007 and 70% in 2006. The return after tax on invested capital (ROIC) rose to 21.7% in 2007, compared to 20.2% in 2006. After adjustments for non-recurring items, ROIC was 20.6% in 2007.
| (DKK million) | 2007 | 2006 |
|---|---|---|
| Average invested capital | 5,142 | 4,767 |
| Return on invested capital | 21.7% | 20.2% |
Shareholders' equity amounted to DKK 3,667 million at the end of 2007, compared to DKK 3,393 million at the end of 2006. Shareholders' equity was increased by the net profit for the year and reduced by currency translation adjustments in respect of subsidiaries' net assets, dividend payments, and share buy-backs. Shareholders' equity amounted to 41% of the balance sheet total, compared to 43% at the end of 2006.
At year-end 2007, the holding of treasury shares consisted of approximately 3.2 million B shares, equivalent to 4.9% of the share capital. Novozymes spent DKK 500 million on share buy-backs in 2007. The company's share capital is DKK 650 million.
| (DKK million) | 2007 | 2006 |
|---|---|---|
| Shareholders' equity at January 1 | 3,359 | 3,761 |
| Net profit | 1,048 | 909 |
| Dividend paid | (278) | (255) |
| Purchase of treasury shares | (388) | (996) |
| Currency translation adjustments, etc. | (84) | (60) |
| Shareholders' equity excl. minority interests | 3,657 | 3,359 |
| Minority interests | 10 | 34 |
| Shareholders' equity at December 31 | 3,667 | 3,393 |
Novozymes achieved the financial targets defined for the employee stock option program in 2007, but did not achieve all non-financial targets. The Board has therefore approved a pro rata allocation of the year's stock options to employees.
Regarding the Executive Management's incentive program, the non-financial targets were partly achieved and the targets for economic profit in 2007 were achieved 100%.
The Board will submit the general guidelines for the 2008 Executive Management incentive program for approval at the Annual General Meeting. The recommendations will follow the incentive program for 2007-2010 that was previously presented and approved.
The exercise price is calculated based on the average of the closing price on the OMX Nordic Exchange Copenhagen on the first five working days after publication of the annual report for 2007. This determines the underlying number of shares in the program. The stock options have a qualifying period of one year and a vesting period of three years, followed by an exercise period of five years. Based on Executive Management's current basic salaries, the value of the program for 2008 using the Black-Scholes model will total a maximum of DKK 29.9 million. The stock option program will be accrued and expensed over four years, equivalent to the program's service period. The carrying amount for 2008 is approximately DKK 8 million.
The recommendations for the Executive Management incentive program is available at www.novozymes.com from February 8, 2008. Moreover, a complete description of the environmental and social targets can be found in the Board of Directors' report.
The 2007 target was to disassociate growth in water and energy consumption from business growth. The consumption should not increase more than 1% below sales growth percentage. Sales grew 14% in local currencies, whereas water and energy consumption rose by 12% and 13.3%, respectively. The water consumption target was achieved, but the energy consumption target was not. This can be explained by the heavy pressure on production capacity in 2007 due to soaring sales. We will retain the disassociation target in 2008 and onwards.
Global climate change and related challenges facing society will necessitate ambitious business targets for reducing greenhouse gas emissions. For years, Novozymes has worked hard to ensure energy is used efficiently, and has indirectly addressed CO2 emissions from its own production, while developing a more wide-ranging approach to the problem. Using resources efficiently and reducing CO2 emissions from its own production are vital for Novozymes' long-term competitiveness and will remain in focus, as described in Water and energy above.
In recent years, we have analyzed the company's contribution to reducing CO2 emissions seen from a product lifecycle perspective (see also www.novozymes.com). Novozymes can make a significant difference in this area through innovation and modern biotechnology. One target for 2007 was to continue developing a method for illustrating the potential of enzyme products for reducing greenhouse gas emissions. Our targets for 2008 will boost efforts in this area and will take our 2007 target a step further. A second target for 2007 involved reducing greenhouse gases by more than 35,000 tons based on growth in selected industries – a reduction resulting from our customers' use of enzyme technology. This target was not met, but a reduction of 21,000 tons of CO2 was realized.
From 2006 to 2007, we continued our efforts to recycle waste at our factories. Altogether, 43.4% was recycled, which meant we achieved our target of maintaining a high percentage of recycling.
The target for reducing emissions of ozone-depleting substances (HCFCs) has been gradually increased in recent years. As a result, we are focusing more on control and replacing old refrigeration units. These measures reduced emissions of HCFCs to 1,059 kg in 2007, and we therefore met our target of reducing emissions to 2,300 kg in 2007. Our target for 2008 is to limit emissions to less than 2,000 kg.
Novozymes monitors concentrations of nitrate in groundwater close to the factory in Franklinton, North Carolina, USA. In 2007, 21 breaches of regulatory limits were registered (see also Update on environmental cases below). Furthermore, 17 breaches of regulatory limits were registered for Novozymes in general. These breaches related mainly to wastewater. The 17 breaches are twice as many as in 2006. A considerable part of those related to acquisitions and enlargements of factories during 2007. As a follow-up, new wastewater treatment plants have been established at those locations.
Novozymes received 31 complaints from neighbors, who can be troubled in some locations mainly by odors and noise from our factories. In 2006, there were 14 complaints and the increase in 2007 was caused mainly by construction work. Naturally, observing limits and reducing inconvenience to a bare minimum are part of our everyday operations.
Novozymes has a target of completely avoiding significant spills (including the release of chemicals and oil into water, air or soil). In 2007, there were no significant spills.
In 2003, high nitrate levels were found in the groundwater around Novozymes' site in Franklinton, North Carolina (see The Novozymes Report 2003). Novozymes submitted a comprehensive report to the authorities in 2006. Additional measurements taken in 2007 will be submitted to the authorities in early 2008, and Novozymes expects further guidance from the authorities later in the year.
In 2005, there was a discharge of products and raw materials at Novozymes Biologicals Inc., in Salem, Virginia, USA. This resulted in the contamination of a nearby creek. Novozymes has been working with the authorities to ensure satisfactory closure of this issue. The matter is still open.
Novozymes and the Kenyan authorities (Kenya Wildlife Service) entered into an agreement in 2007 permitting the commercial exploitation of Kenya's microbiological diversity. This cooperation agreement involves characterization of the biodiversity at specific locations in Kenya, and includes the transfer of technology and know-how to Kenya. Novozymes will have the right to commercially exploit Kenya's microbial diversity in return for financial compensation. We have signed several similar agreements based on principles of fair exploitation of biological resources stated in the United Nations' Convention on Biological Diversity with countries in various parts of the world.
A total of 5,575 laboratory animals were used in testing in 2007, a rise of 28% from 2006. This increase should be seen in the light of the general growth and wider scope of Novozymes' business. Animal testing is required for the continuing development of new products, especially products for the biopharmaceutical industry. Fish, mice and rats constituted about 97% of the animals. Fish, which accounted for about half of this figure, are used in the analysis of the environmental impact of certain products. Novozymes strives constantly to minimize the number of laboratory animals used – fewer animals per product – and to ensure that the animals used are treated responsibly (see also Novozymes' position on animal testing at www.novozymes.com).
Demand is increasing and competition for employees is intense in several of the countries where Novozymes operates, especially in Denmark and the USA, where many of our employees are based. Currently, companies in these countries are generally experiencing increasing employee turnover. It has therefore been necessary to adapt Novozymes' target to
the new circumstances. Novozymes' target for 2007 was an employee turnover of less than 8%. This was not achieved – the actual figure was 9%. The target for 2008 is 12%. This is equivalent to 9%, excluding the closure of the hyaluronic acid production facilities in China in January 2008, which resulted in the loss of 132 employees. This is still an ambitious target, and with supplementary targets for satisfaction and motivation and opportunities for professional and personal development, we are now focusing even more on ensuring that Novozymes is an attractive workplace.
The target for 2007 was an absence rate of no more than 3%. With absence of 2.2%, this target was achieved. Each percentage point is equivalent to around 45 employees not working for a whole year. Keeping absence as low as possible is therefore a priority.
The frequency of occupational accidents fell significantly from 2004 to 2006. From 2006 to 2007, the frequency rose from 3.7 to 4.8 occupational accidents per million working hours. As the target for 2007 was to keep the frequency under 4.5, the target was not met. Unfortunately, despite the target of avoiding life-threatening or serious occupational accidents, one employee was involved in such an accident in 2007. The third of our occupational health and safety targets was to completely avoid fatal occupational accidents, and this was achieved.
Novozymes has focused on diversity management in recent years with a view to targeting diversity at work as a business asset. It is a matter of respecting differences and exploiting the potential inherent in being different.
In this area, Novozymes reports only data on the distribution of men and women in the organization (see the figure).
For many years, we have run comprehensive employee surveys every two years. In 2007, for the first time, we conducted a new kind of employee survey, called People's Opinion which will be run annually in cooperation with Ennova, an analysis and consulting company.
This year, all our employees were asked to answer 66 questions on subjects such as job satisfaction, development opportunities, workload, management, teamwork and remuneration. The survey showed that employees are generally satisfied and rated Novozymes' reputation and top management relatively high.
The survey is based on:
We have used standard questions and related indexes from Ennova to develop new targets for 2008 – "Satisfaction & Motivation" and "Opportunities for professional and personal development". We have also looked at various benchmarks to put our performance into perspective. In Novozymes' 2007 survey, the average "Satisfaction & Motivation" was index 70 while the result for "Opportunities for professional and personal development" was index 68. In both cases, the results are above relevant comparative benchmarks. The ambition, however, is that our efforts for developing and maintaining Novozymes as an attractive workplace should be reflected in next year's results. The targets for 2008 are to increase "Satisfaction & Motivation" to index 71 and "Opportunities for professional and personal development" to index 69.
The target for 2007 was to develop a step-by-step procedure for how and when to further develop cooperation with suppliers on issues of sustainability. In line with this target, we developed a new method in 2007 for responsible purchasing that considers the risks and opportunities in our supply chain. Our target for 2008 is to carry out a pilot test of this new responsible purchasing model in all regions with the aim of implementing it in 2009.
Read more about Novozymes' targets and expectations at www.novozymes.com > Investor
Gender distribution
Manufacturers all over the world are facing increasingly strict demands from the outside world. Regardless of whether you are a textile manufacturer in China, a bioethanol producer in the USA or the owner of a brewery in Eastern Europe, you must be able to develop better products faster, cheaper and smarter than your competitors. And in recent years yet another demand has arisen: Products and production are increasingly being assessed for environmental friendliness.
With Novozymes' bioinnovation, our customers and business partners can meet these demands by using new and more effective biotech-based processes instead of traditional industrial methods. In this way, Novozymes is challenging conventions and creating value – both for our customers and the planet.
In 2007, Novozymes launched 10 new products – a record number for a single year. In their own ways, all these products help our customers to live up to the new demands.
One of these products, Ultraflo® Max, is a new enzyme for the brewing industry, which gives producers better beer filtration, regardless of the quality of malt they use. With better filtration, more beer runs through the filters, reducing blockages and production stoppages – which ensures increased brewing capacity, better use of raw materials and lower costs.
Another new product is Stainzyme® Plus – a detergent enzyme for low temperature detergents. The product makes our customers more competitive in Western Europe, where consumers are becoming aware of the environmental benefits of washing at lower temperatures. It also gives access to new markets for detergent manufacturers in areas including Asia, where washing at lower temperatures is already common.
A final example of a new Novozymes product from 2007 is Acrylaway™ – a ground-breaking new enzyme that reduces acrylamide, a potentially carcinogenic substance, in food products such as biscuits, cookies and snacks.
Acrylamide forms when starchy food is baked, fried or grilled at high temperatures – and Acrylaway™ can reduce acrylamide content in food products by 50-90%, helping to make food safer for consumers.
Acrylaway™ – an enzyme that reduces the content of acrylamide, a potentially carcinogenic substance found in starchy food that has been baked, fried or grilled at high temperatures
HyaCare® – a safe hyaluronic acid product for use in, for example, cosmetics and biomedicines
Mannaway® – an enzyme for detergents that efficiently removes stains containing guar gum, also known as mannan, which can be found in substances such as ketchup or chocolate
Ronozyme® NP – an enzyme for the feed industry that improves animals' nutritional digestion while reducing emissions of environmentally harmful phosphor from slurry
Saczyme® – producers of beverage alcohol and spirits can use the enzyme to efficiently convert their raw materials into sugar, which can then be fermented into alcohol
Spirizyme® Ultra – an enzyme used in the production of first-generation biofuel that improves production capacity
Stainzyme® Plus – an enzyme for detergents that efficiently removes starch-based stains at low temperatures, even in small doses
Sucrozyme – an enzyme for the manufacture of sweeteners
Ultraflo® Max – an enzyme for the brewing industry that ensures longer and more uniform filtering processes to increase brewing capacity and reduce production costs
Viscoferm® – an enzyme for the beverage alcohol industry that reduces viscosity and so increases the effect of raw materials while reducing water and energy consumption in production
At Novozymes, in cooperation with companies worldwide, we want to rethink tomorrow and create more sustainable ways to do business. This is possible through bioinnovation – advances based on biotechnology that replace traditional industrial production methods with more sustainable methods. We believe that industry will use biotechnological processes to a much larger degree in the years ahead to manufacture a wide range of products including foods and medicines. And we believe that it is possible to find solutions that can help create the future by breaking with conventions and traditional mindsets.
For many years, Novozymes has enjoyed a positive and stable financial development. But in 2005, when we set ourselves the aim of achieving sales of DKK 10 billion in 2010, we knew it would challenge the entire organization. Back then, Novozymes' sales totaled about DKK 6.3 billion.
Now, three years later, it is clear that Novozymes is on the right course. With sales of DKK 7.4 billion, "10 in 10" is not unrealistic, though we still have much hard work to do.
"10 in 10" was launched as a new strategic initiative to support Novozymes' long-term financial targets. "10 in 10" is composed of three elements:
Includes new potential applications for enzymes and other areas outside of enzymes: microorganisms, biopharmaceutical ingredients and biopolymers. In 2007, we united the areas outside the enzyme business into one organizational unit, BioBusiness, to provide better focus and strength to the business.
Novozymes is always looking for new acquisition opportunities, both within the enzyme business and in new business areas. In 2007, we made two acquisitions, with Biocon Limited's enzyme activities being the largest purchase in Novozymes' history. Novozymes also bought the Canadian company Philom Bios Inc., which develops, manufactures and sells microbial products for the agricultural industry.
While the financial key figures point in the right direction, we at Novozymes remain very aware of our vision to contribute to sustainable development and achieve "10 in 10" in a socially and environmentally responsible manner. Therefore, we continuously follow up on our environmental and social targets.
In 2007, further increasing resource efficiency proved a challenge in terms of energy consumption. This was due mainly to the increasing growth in sales, which put pressure on our production capacity. Naturally, these challenges have led to intensified efforts to establish what we can do locally and globally to ensure further optimization.
Novozymes' positive business development is created by all our competent employees. Achieving "10 in 10" depends largely on employees being motivated and constantly developing, and on Novozymes continually finding better ways to solve tasks. Therefore, as we increase our work pace, we are focusing on activities that ensure we have skilled, happy and motivated employees.
There is increased demand for labor in many of the countries where Novozymes is represented. And in 2007 we streamlined our global recruitment processes to ensure a continuous influx of employees and a good recruitment program.
We also work globally to enhance Novozymes' image as an attractive workplace. This is especially important for attracting skilled employees in China and the USA, where Novozymes is less well known than in Denmark, for example.
We work continuously to increase individual employees' competencies, and to ensure that our workforce is ready to address the challenges ahead. As a global organization, we have a lot to offer, including internal job rotation, career development, postings abroad, and post-graduate training. These opportunities make individual employees a major asset within the company. But they also make our employees attractive to other companies, and this has led to increased employee turnover. However, we still retain employees more successfully than benchmark companies in Denmark. We attribute this to our focus on creating an attractive workplace. Building on this, we have set targets for 'Motivation & Satisfaction' and 'Opportunities for professional and personal development' in 2008.
At Novozymes, we want to exploit the benefits of being a global organization to increase our employees' motivation and development, while ensuring efficient work procedures. For instance, our employees work together and build up networks across national borders, despite different time zones and cultures. That is why we focus on managing diversity. We have also begun a project to improve the frameworks for building internal networks across borders and functions.
The increased pace and dynamics in the company are posing greater demands on both managers and employees. So in 2007, we developed new tools for managers to prevent and manage stress. These involve helping managers to identify early signs of stress in employees so that action can be taken earlier. Employees are also offered stress management courses and counseling.
Bioethanol stimulates growth in Novozymes and worldwide debate 25 The Novozymes Report 2007
Bioethanol stimulates growth for Novozymes and worldwide debate
The production of bioethanol for fuel has increased in recent years, creating rapid growth for Novozymes. For society, biofuels create both opportunities and challenges, and we take these issues seriously.
In 2007, sales of enzymes to the bioethanol industry comprised 13% of Novozymes' total enzyme sales. Enzymes for bioethanol is our fastest-growing product area, and we are very optimistic about future developments. In fact, we anticipate an average increase in sales of 20-25% annually over the next 3-4 years.
Novozymes is the largest supplier of enzymes to the bioethanol industry. Most of the global production of ethanol from corn takes place in the USA, so it is mainly sales to the American market that are on the increase – and the American market is so important to Novozymes that we are now expanding our production capacity in the USA.
But all around the world, exciting markets are opening for Novozymes' enzymes for bioethanol production. Novozymes has entered into partnerships with companies including POET in the USA, Abengoa in Spain, and COFCO in China. Most recently, in September 2007, Novozymes began a partnership with the Brazilian sugarcane industry's technical center CTC (Centro de Tecnologia Canavieira) with a view to developing bioethanol from bagasse – a by-product from the production of sugar from sugarcane.
In 2007, there has been widespread debate about the advantages and disadvantages of using bioethanol instead of petrol. Novozymes advocates the use of bioethanol, for several compelling reasons:
In the USA, parts of the corn-producing Midwest have experienced an economic upswing, and the demand will also have a positive effect in developing countries. The increasing demand for starchy raw materials can give farmers in developing countries the opportunity to sell their crops on the biofuel market.
However, it is necessary to be aware of possible challenges associated with using biofuel:
› Rising food prices
This applies particularly to the price of corn, which has increased considerably since mid-2006. Many factors have influenced price rises – including the increased production of first-generation biofuel. A bad harvest in some parts of the world in 2006, combined with increased demand in India and China, has also had a major impact. About 8% of the global corn production in 2006 was used to produce ethanol.
› The risk of increased use of fertilizers and deforestation Producing biofuel can lead to an increase in the use of fertilizers, which are harmful to aquatic environments. In some areas of the world, rain forests and other vulnerable areas are being converted to cultivate crops used for biofuel production. Novozymes is actively working towards introducing a global certification scheme designed to prevent this. The certification scheme will ensure that the biofuels sold are produced in a socially and environmentally responsible way.
At www.biomass.novozymes.com you can find more information on the opportunities and challenges of using bioethanol and on Novozymes' opinions.
Read more at www.biomass.novozymes.com
Novozymes produces enzymes used in the production of both first- and second-generation bioethanol.
First-generation bioethanol is produced from sugar or starchy raw materials such as wheat or corn. With the help of enzymes, these are converted into sugar that can be fermented into bioethanol.
Second-generation bioethanol is based on cellulose-rich byproducts from agriculture and forestry, such as straw, corn stover or sugarcane by-products. The process is more challenging, but the result is the same as for first-generation bioethanol: Enzymes convert the raw material into sugar, which can then be fermented into bioethanol and used as an alternative to petrol.
Novozymes anticipates that the enzyme technology necessary for producing second-generation bioethanol will be sufficiently developed to be commercially attractive by about 2011.
On October 1, 2007, Novozymes announced the successful purchase of Biocon Limited's enzyme activities. Biocon is one of India's leading biotech companies and specializes in biopharmaceutical products, contract research, clinical research and enzymes. Before the divestment of the enzyme activities, the company was the leading enzyme producer in India and had a good position on the global enzyme market in the juice and wine industries.
The purchase of Biocon Limited's enzyme activities is an important step for Novozymes in our efforts to increase sales in new markets. The Indian market has experienced strong growth in recent years, and although the use of enzymes is still at a relatively low level, interest in the benefits of using enzymatic solutions in India is intensifying – particularly due to the increasing affluence of the population. The Indian enzyme market is expected to grow by more than 15% annually over the next 10 years.
Biocon Limited's enzyme activities represent a good strategic match for Novozymes' existing enzyme business. The acquisition has given us a strong distribution network and good knowledge of the local market, which would have taken a
long time to build from scratch. In India it is important to know your business associates, and trust and well-established customer relationships are vital. It is a major advantage for Novozymes that customers already know Biocon Limited's employees.
With the purchase, Novozymes has also acquired better research facilities in India. This will make it easier for us to demonstrate our products to customers.
Novozymes has had a presence in the Indian market for a long time. As far back as 1983, the first enzyme activities were established in Bangalore – the city also known as India's Silicon Valley. Novozymes' Indian headquarters is in the International Technology Park, but we have production and repackaging facilities at other locations in Bangalore.
With the 150 employees from Biocon, we now have about 200 employees in India. They work within research and development, sales, production, finance and IT.
Biocon Limited's enzyme activities are more than a strategic and business-related match for Novozymes' business. Like Novozymes, Biocon Limited has a long-term tradition for running a sustainable business and demonstrating corporate social responsibility. Also like Novozymes, Biocon Limited stands for a number of specific initiatives that benefit employees and the local community, including:
Read more about Novozymes' corporate social responsibility traditions at www.novozymes.com > Sustainability
After several years of slow growth in sales of enzymes for detergents, producers have begun buying more of Novozymes' enzymes. The reasons for growth include increased sales in Western Europe and increasing prosperity in Asia and Latin America.
After several years of low growth, detergent producers have begun buying more of Novozymes' enzymes. Compared with sales in 2006, sales of enzymes for detergents rose by 10% in 2007. This meant sales totaled DKK 2,239 million.
In terms of the individual markets, there are various reasons for the renewed growth.
One important reason is that Novozymes has gained a larger market share in Western Europe. The growth is due mainly to producers increasing the enzyme content of European detergents – and two new products, Stainzyme® Plus and Mannaway®, have sold particularly well.
Another reason for the increased sales of detergent enzymes can be found in Asia and Latin America. For some time at Novozymes, we have felt the effects of a more wealthy population. This has resulted in more washing machines being purchased, which, in turn, has led to increased detergent sales.
The higher affluence means that more and more people can afford to buy higher quality detergents, which typically contain the most enzymes.
Reducing washing temperature from 40 to 30°C means that:
At Novozymes, we are also aware that consumers are demanding energy-efficient products. In Europe, there is a long tradition of washing clothes in water that is 40, 60 or even 90°C. In Asia, clothes are washed in cold water, which saves energy and reduces CO2 emissions. And in this area in particular, Novozymes' enzymes have some unique qualities. With enzymes such as Stainzyme® Plus and Polarzyme® clothes can be washed clean at temperatures as low as 20°C. These enzymes are used in cold-water detergents, which are beginning to gain ground in Western Europe.
Throughout Novozymes' history, enzymes for detergents have been our largest business area. At present, sales to the detergent industry comprise about 30% of the company's total sales. In the long term, sales of enzymes for detergents are expected to rise by 3-5% – slightly more than general market growth.
A company like Novozymes always needs innovation and new ideas to stay one step ahead of tomorrow's challenges. That is why Novozymes enters into partnerships with other companies.
Novozymes' focus on accelerated growth means that we turned up the heat on research efforts in 2007. More than 13% of our total sales were invested in research and development in 2007.
At the same time, Novozymes is carrying out even more research in cooperation with external parties. In 2007, over 30% of the market-expanding research projects – projects aimed at developing new products or reaching out to new industries – were carried out in partnerships of various kinds.
One reason for this trend is that partnerships enable Novozymes to develop new products quickly. A business partner adds a unique insight into the final process or market where our products will be used. This allows us to consider all aspects of the development from the very start.
The trend is also due to the increasing number of enquiries Novozymes receives from companies who are becoming aware of our bioinnovation. For example, bioinnovation gives companies the opportunity to optimize their production, improve their products or reduce the impact on the environment.
One of Novozymes' most successful and innovative partnerships is with POET, an American bioethanol producer. The cooperation was based on developing an enzyme that could convert corn into bioethanol at a lower temperature and in a simpler process. This would allow POET to save energy and reduce the number of steps in the process compared with the usual methods. POET and Novozymes developed the enzyme in just over a year and the partnership has led to more new enzyme products, which POET now uses in production.
Novozymes has very different types of partnerships. In many research and development partnerships, Novozymes finances the development of a product that fulfils the partner's needs – and when the right product is developed, the partner is obliged to buy it.
In other partnerships, the partners agree to share both the costs and benefits. And in a third kind, Novozymes is paid for developing a special product tailored to suit a partner's specific needs, and when product development is finished, the rights are transferred to the partner.
Most Novozymes partnerships involve customers or technology partners, but we also have partnerships with other kinds of organizations, including educational institutions, NGOs and various interest groups.
Novozymes' research projects are carried out in partnerships or conducted by Novozymes alone. The following summary shows the distribution of all our R&D resources in the core areas:
(about 85% of R&D resources)
› Enzymes that enhance the yield of increasingly expensive raw materials for food production
› New concepts for the brewing industry
Novozymes' technology platform provides a wealth of opportunities for the world's industries and ensures Novozymes a good foundation for future growth inside and outside the enzymes area.
Novozymes' current market situation and product portfolio is strong and the future looks promising for our long-term value creation. This is because Novozymes' technology platform offers sustainable solutions that are well suited to the challenges of global development – such as the need to improve the balance between social, environmental and economic factors.
Three global trends are focusing attention on Novozymes' products and research:
› Sustainable production
A sharper focus on global climate problems is boosting consumer and industry demand for sustainable technology. So there is plenty of scope for Novozymes' technology, which reduces pollution, CO2 emissions and the need for environmentally harmful chemicals. Novozymes also works on developing products for sustainable agricultural production to encourage sustainability throughout the entire production cycle.
Increasing oil prices and limited reserves in the long term are highlighting the need for alternatives to oil-based products and processes. Novozymes' technology can be used for the manufacture of biofuels and chemicals based on carbohydrates and biomass. High prices and rising demand for other raw materials are also adding to the universal call for technology that improves resource utilization. Novozymes' bioinnovation can do just that.
› Better food quality
Efficient, safe and environmentally friendly processing of food products is in focus worldwide. Interest in technology that can ensure a better uptake of nutrients is also intensifying. We are looking forward to seizing this exciting opportunity to exploit our technology platform in this area.
Gene technology, microbial techniques and fermentation technology are some of the biotechnological tools on which Novozymes bases its business. This platform enables Novozymes to offer a wide range of different solutions to industries worldwide.
The enzyme business currently comprises more than 90% of Novozymes' sales and, in the future, will also make up the most important part of Novozymes' business. But in recent years, this technology platform has also enabled us to expand our business outside the
enzyme area. We have now united these activities into one organizational unit, BioBusiness, to provide the necessary focus on growth. The new activities open doors to new and exciting markets for Novozymes and help us to develop and diversify our long-term business.
The threat of climate change with major consequences for the environment, society and humanity as a whole calls for joint efforts and responsibility.
For Novozymes, it is altogether about responsibility, risk management and business opportunities. Our ambition is to help limit global warming as much as possible, mainly by exploiting the opportunities available in our modern biotechnology. Enzyme technology for industrial processes has a wealth of unexplored potential for limiting emissions of greenhouse gases.
But Novozymes is also an energy consumer. For many years we have successfully set and achieved goals for energy efficiency in our own production, and over the past 10 years we have increased our efficiency by more than 50%. Energy savings and the rationalization of Novozymes' own production will always be high on our agenda. Our goal is to continue ensuring that business growth and the emission of greenhouse gases do not follow hand in hand.
The scope of Novozymes' climate strategy is wideranging, as the products' entire life cycle is in focus:
The strategy encourages a joint effort and partnerships with customers and suppliers, as this is the key to unlocking the great potential for limiting the emission of greenhouse gases.
Born 1938. Former CEO, Sophus Berendsen A/S. Member of the Board since 2000. Elected for one year at a time
Chairman: C.W. Obel A/S, Fritz Hansen A/S, NKB Private Equity III DK A/S, NKB Private Equity III Euro A/S, NKB Private Equity IV DK ApS and NKB Private Equity IV Euro ApS
Vice Chairman: Skandinavisk Holding A/S and Skandinavisk Tobakskompagni A/S
Member: Novo A/S, Lomax A/S and BTX Group Holding A/S Chairman of the Audit Committee: BTX Group
Wide-ranging industrial experience, long-term knowledge of acquisitions and familiarity with the Novo Group
Born 1954. Laboratory Technician. Employee representative. Member of the Board since 2001. 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
Born 1945. Vice Chairman of the Board. Senior Vice President. Member of the Board since 2000. Elected for one year at a time
Special competencies: Expertise in financial matters and in-depth knowledge of Novozymes' business
Born 1965. Executive Vice President and CFO, Investor Relations, IT & Legal Affairs
Other board positions: Member: The Blue Planet Thomas Videbæk Born 1960. Executive Vice President, BioBusiness
Born 1953. Chairman of the Board since 2000. CEO, Novo A/S. Elected for one year at a time
Other board positions: Chairman: Copenhagen Airports A/S (Københavns Lufthavne A/S) Vice Chairman: COWI A/S Member: Brødrene Hartmanns Fond and Novo Nordisk A/S
Special competencies: In-depth knowledge of Novozymes' business and experience in managing and working in an international biotechnology company
Peder Holk Nielsen Born 1956. Executive Vice President, Enzymes Business
Other board positions: Member: Hempel A/S
Steen Riisgaard Born 1951. President and CEO
Other board positions: Member: Egmont International Holding A/S, The Egmont Foundation and World Wide Fund for Nature (WWF) in Denmark
Born 1950. CEO, Thrane & Thrane A/S. Member of the Board since 2000. Elected for one year at a time
Other board positions: Chairman: Hewlett-Packard Denmark and Growth Foundation (Vækstfonden) Member: Investea A/S and Investea Holding A/S
Special competencies: In-depth IT expertise and wide-ranging international experience
Thomas Nagy Born 1963. Executive Vice President, Stakeholder Relations
Other board positions: Member: Biotechnology Industry Organization, Washington DC, USA
Born 1947. Manager. Employee representative. Member of the Board since 2005. Elected for four years at a time
Born 1952. CEO, Aarhus-Karlshamn AB, Sweden. Member of the Board since 2000. Elected for one year at a time
Other board positions: Chairman: Aarhus United A/S
Special competencies: Extensive international management experience
Born 1951. Operator. Employee representative, Member of the Board since 2001. Elected for four years at a time
Born 1958. Executive Vice President, Research & Development
Other board positions: Member: IT Practice A/S
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
Other board positions:
Member: KTH Holding AB, Atlas Antibodies AB, Biotage AB, Affibody AB, SweTree Genomics AB, Nordiag AS and Skanditek Industriförvaltning AB Member of the following organizations: Royal Swedish Academy of Engineering Sciences (Kungliga Ingenjörsvetenskapsakademien), Royal Swedish Academy of Sciences (Kungliga Vetenskapsakademien), Human Genome Organization, European Molecular Biology Organization and Human Proteome Organization
Special competencies: Broad experience in research and biotechnology
* Board members elected by the Annual General Meeting. These members are not regarded as independent in the sense of the definition contained in the Nørby Report.
Corporate governance concerns the frameworks for business management, including the overall principles and structures regulating interaction between the company's management bodies. The aim is to establish good corporate governance, including openness and transparency, to give stakeholders relevant insight into the business.
In line with the 'comply or explain' principle, the Board has considered the revised Corporate Governance Recommendations that form part of the disclosure obligations for companies listed on the OMX Nordic Exchange Copenhagen.
The Board is of the opinion that Novozymes conforms to the OMX Nordic Exchange Copenhagen's recommendations in the most appropriate and satisfactory manner. The company complies with the revised recommendations with two exceptions:
In 2006, the European Commission initiated an investigation into whether the control structure of listed companies compromises the company's financial results. In 2007, the European Commission concluded, on the basis of its investigation and a number of independent studies, that the control structure has no negative impact on the company's results. It also concluded that the principle of freedom of contract for control structures is used in all European countries.
The European Commission then shelved any plans to instigate changes in this area.
This conclusion is supported by Novozymes' financial results, position in the world of research, and contributions to the environment, sustainability and social factors. The Board is of the opinion that retaining the A and B shareholder structure is the best way to safeguard Novozymes' long-term development and that this will also benefit the company's stakeholders.
In 2007, as in previous years, the Board and Executive Management assessed the quality of their mutual cooperation. The outcome was generally positive; however, to further improve cooperation certain practical agreements have been entered into.
You can see a detailed description of Novozymes' approach to corporate governance and its management and control systems, including an update on the revised Corporate Governance Recommendations from OMX Nordic Exchange Copenhagen, at www.novozymes.com.
The Board of Directors and the Management have considered and approved the Annual Report for 2007 of Novozymes A/S.
The consolidated financial statements are presented in accordance with the International Financial Reporting Standards (IFRS), as adopted by the EU, and the Parent Company financial statements are presented in accordance with the Danish Financial Statements Act. In addition, the Annual Report has been prepared in accordance with the additional Danish annual report requirements for listed companies.
In our opinion, the accounting policies used are appropriate, the Group's internal controls relevant to preparation and presentation of an annual report are adequate. The Annual Report gives therefore a true and fair view of the Group's and the Parent Company's assets, liabilities and financial position at December 31, 2007 and of the results of the Group's and the Parent Company's operations and consolidated cash flows for the financial year 2007.
The Annual Report is recommended for approval by the Annual General Meeting.
Steen Riisgaard President and CEO
Per Falholt Benny D. Loft Thomas Nagy Peder Holk Nielsen Thomas Videbæk
Board of Directors:
| Henrik Gürtler | Kurt Anker Nielsen | Paul Petter Aas | Arne Juul Hansen | Jerker Hartwall |
|---|---|---|---|---|
| Chairman | Vice-Chairman | |||
Søren Henrik Jepsen Ulla Morin Walther Thygesen Mathias Uhlén Hans Werdelin
We have audited the Annual Report of Novozymes A/S for 2007, which comprises the Statement of the Board of Directors and the Management, Management's Report, accounting policies, income statement, balance sheet, statement of shareholders' equity, statement of cash flows and notes for the Group as well as for the Parent Company, and environmental, social and knowledge data for the Group. 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. Further, the Annual Report is prepared in accordance with additional Danish disclosure requirements for annual reports of listed companies.
Management is responsible for the preparation and fair presentation of the Annual Report in accordance with the said legislation and accounting standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of an Annual Report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Our responsibility is to express an opinion on the Annual Report based on our audit. We conducted our audit in accordance with International and Danish Auditing Standards. Those standards require that we comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance as to whether the Annual Report is free from material misstatement. An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the Annual Report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the Annual Report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Entity's preparation and fair presentation of the Annual Report 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 Entity's internal control. 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 Annual Report.
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 Annual Report gives a true and fair view of the financial position at December 31, 2007 of the Group and of the results of the Group operations and consolidated cash flows for the financial year 2007, in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for annual reports of listed companies.
In addition, in our opinion, the Annual Report gives a true and fair view of the financial position at December 2007, of the Parent Company and of the results of the Parent Company operations for the financial year 2007 in accordance with the Danish Financial Statements Act and additional Danish disclosure requirements for annual reports of listed companies.
Gladsaxe, January 24, 2008
PricewaterhouseCoopers Statsautoriseret Revisionsaktieselskab
Kim Füchsel Torben Jensen State Authorized Public Accountant State Authorized Public Accountant
The environmental and social data and information presented in the Annual Report on which this Assurance Report is based, also form part of our audit of the Annual Report. As further agreed with Management, we have performed work to draw conclusions in relation to each of the key principles of the AA1000 Assurance Standard: materiality, completeness and responsiveness, and to evaluate the environmental and social responsibility data and information in the Annual Report for 2007, as well as underlying systems, processes and competences that support performance.
The environmental and social responsibility reporting is the responsibility of Company Management. Our responsibility is to draw a conclusion, as well as make recommendations on the environmental and social responsibility reporting in the Annual Report.
We planned and performed our work based on the AA1000 Assurance Standard, and in accordance with the International Standard on Assurance Engagements (ISAE) 3000, "Assurance Engagements other than Audits or Reviews of Historical Financial Information (revised)", to obtain reasonable assurance that the environmental and social responsibility reporting in the Annual Report is free from material misstatements and that the information has been presented in accordance with the accounting policies applied. On the basis of an assessment of materiality and risk, our assurance work included an examination on a sample basis, of management and reporting systems, processes and competences that support Novozymes' performance, as well as systems, procedures and evidence that support the social and environmental data and information disclosed in the Annual Report. Our assurance work also included interviews with members of Management and subject matter experts in key environmental and social performance areas, as well as an assessment of stakeholder engagement and Novozymes' understanding of non-financial impacts, including its sphere of influence. In addition, we performed an assessment of the reporting against peer reporting, media reports and industry knowledge. Our activities were undertaken at selected reporting units in Brazil, China, Denmark and the USA. We believe that the work performed provides a reasonable basis for our conclusion.
Based on the work performed, we state our conclusion in relation to each of the key principles of the AA1000 Assurance Standard: materiality, completeness and responsiveness.
In our opinion, the Annual Report, while mainly addressing corporate financial stakeholders, provides a fair and balanced representation of material aspects of Novozymes' environmental and social performance.
Reported qualitative and quantitative environmental and social indicators form part of operational decision-making at Novozymes, as well as an element in Management's balanced scorecards.
The presentation of data and information related to Novozymes' environmental and social performance are comparable with previous years and assists key stakeholders in interpreting the Annual Report in relation to their decision-making needs.
In our opinion, the environmental and social responsibility data and information in the Annual Report have been included as a result of relevant activities for identifying and understanding environmental and social performance and impacts. Stakeholder engagement is mostly driven through selected initiatives focused on established issues and stakeholders. Novozymes identifies and manages material aspects of its environmental and social performance within and beyond the boundaries of its direct management control, including animal welfare and energy consumption. As an example, Novozymes explores how its technologies and product portfolio can help reduce customers' products' environmental impact.
The boundaries of Novozymes' environmental and social impacts are expanding as a result of new acquisitions and business partnerships, as well as the use and application of its technologies and products in new products and markets. Processes relating to the identification, assessment and management of environmental, social, and health and safety impacts, in the due diligence and post-deal phases of acquisitions, have been improved.
In our opinion, the environmental and social responsibility data and information in the Annual Report address aspects material to Novozymes' key corporate stakeholders. In general, reported indicators and targets related to environmental and social performance are linked to relevant policies and management systems.
Responsiveness is generally supported by well-functioning management systems, which include use of internal and external environmental and social audits as well as value-based audits (facilitations). In 2007, Novozymes made important progress in exploring with other stakeholders opportunities for contributing to the realization of the United Nations Millennium Development Goals. Also, Novozymes actively engaged in the global debate on climate change – specifically the debate on use of biofuels, which resulted in the postponement of some projects.
In our opinion, the existing management and reporting systems, as well as internal control systems, support the reliability and accuracy of the environmental and social data and information in the Annual Report.
According to the AA1000 Assurance Standard, we are required to include recommendations for improvements in relation to environmental and social responsibility. The recommendations, as well as our statement of independence and competence to undertake this assignment in line with the requirements of the AA1000 Assurance Standard are stated under Supplementary reporting in the online report. Our recommendations do not affect the conclusion stated above.
Gladsaxe, January 24, 2008
PricewaterhouseCoopers Statsautoriseret Revisionsaktieselskab
Kim Füchsel State Authorized Public Accountant Helle Bank Jørgensen State Authorized Public Accountant
The consolidated financial statements of the Novozymes Group have been prepared in accordance with the International Financial Reporting Standards (IFRS), as adopted in 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 accounting policies are unchanged from the previous year. The consolidated financial statements have been prepared 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 Board of Director's report and Risk factors. The rest will be found in the following sections.
Reporting of selected environmental, social and knowledge data is based on an assessment of which data is of particular significance for Novozymes' long-term earnings capacity. We also believe this data to be of greatest relevance to our key stakeholders. Information on Novozymes' use of the GRIindicators will be found in the online report under Supplementary reporting.
Environmental, social and knowledge data is an integrated part of the Annual Report and is covered by the statutory audit performed by the auditor elected by the Annual General Meeting.
In 2007, the following standards and their interpretations were brought into force and implemented:
The implementation has not resulted in recognition and measurement changes. However, the use of IFRS 7 and the amendments to IAS 1 have resulted in more information being given about the Groups financial instruments and specific accounts items having more accurate titles. This has also resulted in more information being given about the Group's capital management guidelines.
As of December 31, 2007, standards and interpretations (decided on, but not implemented and brought into force) include:
Their implementation will lead to further specification in the Notes, but no material changes in recognition and measurement.
Novozymes' management considers the following accounting policies as most significant to the Group.
Sales covers sales of goods and services for the year less goods returned, 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.
The Novozymes Group categorizes financial assets and liabilities as follows: Loans and receivables, Hedge accounting, Available-for-sale financial assets and Financial liabilities.
Loans and receivables are non-derivatives with fixed or determinable payments that are not noted 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 a lower net realizable value equivalent to nominal value less allowances for doubtful receivables. Assessment of allowances is based on a specific assessment and a general assessment. The specific assessment is based on information about suspension of payments, bankruptcy, non-payments, etc. The general assessment is based on historic data about payment statistics and similar according to the risk types: country and customer type.
Hedge accounting consists of positive and negative fair values of derivatives, which are itemized respectively in the balance sheet under Other financial assets and Other financial liabilities.
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 expected future cash flows are measured at fair value on the balance sheet date, and value adjustments are recognized directly in Shareholders' equity.
Derivatives used to hedge net investments in foreign subsidiaries are measured at fair value, and value adjustments are recognized directly in Shareholders' equity.
Income and costs relating to cash flow hedges and hedging of net investments in subsidiaries are transferred from Shareholders' equity on realization of the hedged item and are recognized as Financial income or Financial costs.
The fair value of derivatives is calculated using rates obtained from stock exchanges or other reliable data sources. All share options are valued using the Black-Scholes model.
Derivatives are recognized on the settlement date, while other financial instruments are recognized on the transaction date.
Available-for-sale financial assets are 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 directly in Shareholders' equity. Value adjustments are transferred from Shareholders' equity to Financial income or Financial costs when realized. Write-downs are recognized as Financial costs.
Financial liabilities are entered in the balance sheet under the following items: Other financial liabilities, Trade payable and as a part of Other liabilities.
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.
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 a controlling influence (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 shareholdings 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, revenues 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 identifiable assets, liabilities and contingent liabilities acquired since the acquisition date until 12 months afterwards. 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 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 Shareholders' equity under Cash flow hedges. The following exchange rate differences are also recognized directly in Shareholders' equity under Currency translations, translated at the exchange rates prevailing at the balance sheet date:
The Group employees are covered by share option programs. The programs comprise both equity-settled and cash-settled programs.
The fair value of the employee services received in exchange for the grant of share options is computed using the value of the granted share options. The fair value of the granted share options is calculated using the Black-Scholes model.
The fair value of share-based payment on the grant date is recognized as an employee cost over the period in which the right to the share options is accrued. 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 current liabilities, 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 items.
Government grants received which relate to research and development costs are recognized under Other operating income, net, based on the percentage completion of the projects. Grants received which relate to investments in property, plant and equipment are offset against the cost price of the grant-entitled assets.
The consolidated accounts provide information on the Group's geographical segments, which is the secondary segment. Novozymes' business activities are considered to be integrated, as a result of which most of the production facilities and most research and development activities are common to the Group as a whole.
Operating lease costs are recognized in the income statement on a straight-line basis over the period of the lease. Liabilities relating to non-cancellable 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.
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 factors of uncertainty 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. The 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 any adjustments relating to previous years, is recognized in the income statement at the amount attributable to net profit, and directly in Shareholders' equity at the amount attributable to items recognized in Shareholders' equity. Deferred tax is measured using the 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 sale of shares 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 where they can be attributed to net profit, and directly in Shareholders' equity where they can be attributed to items recognized in Shareholders' equity.
Novozymes A/S and its Danish subsidiaries are jointly taxed with the Danish companies in the Novo and Novo Nordisk Groups. 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 on the development of software for internal use are capitalized if they are incurred with a view to developing new and improved systems. Associated borrowing costs are expensed in the financial year in which they are incurred. 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 are measured at cost less accumulated depreciation and impairment losses. Borrowing costs in respect of construction of major assets are expensed in the financial year in which they are incurred.
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 items as the associated depreciation charges.
Property, plant and equipment and intangible assets are reviewed for impairment losses when there is an indication that the assets have diminished in value beyond the level of normal 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 depreciation is recognized at the amount by which the book value 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 sales price less any completion costs and costs to execute sales (net realizable value) of inventories is lower than the carrying amount, the inventories are written down to net realizable value.
Cash at bank and in hand comprises the cash balance and funds held at financial institutions.
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 shares are recognized directly in Shareholders' equity as a separate item. Among other things, the company's holding of treasury shares is used to hedge employees' exercise of granted share options.
Other liabilities 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, corporation tax paid and change in working capital. Cash flow from investing activities comprises payments relating to the acquisition and sale of companies and minority shares, intangible assets and property, plant and equipment.
Cash flow from financing activities comprises proceeds from borrowings, repayment of principal on interest-bearing borrowings, payment of dividends, proceeds from share issues, and the purchase and sale of treasury shares 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, social and knowledge data are unchanged from last year.
The environmental, social and knowledge data in the Annual Report is 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.
Acquired companies are recognized as from the date of acquisition, and no adjustment is made to comparative figures.
The environmental data covers those activities which, based on an overall environmental assessment, could have a significant impact on the environment, compared with the overview of companies in the Novozymes Group.
Water includes drinking water, industrial water and steam, and is stated on the basis of the metered intake of water to Novozymes.
Internally generated energy is measured as fuel consumption converted to energy on the basis of lowest combustion value and weight by volume. Emissions of CO2 , SO2 and NOx are calculated on the basis of the amount of fuel consumed using annually determined conversion factors from Danish authorities and suppliers.
Externally generated energy is the input to Novozymes of externally generated electricity, heat and steam. Emissions of CO2 , SO2 and NOx are calculated using annually determined conversion factors from power plants or their organizations.
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 measured as proportional flow, based on samples taken at point of discharge.
Biomass is measured as the volume 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 product are measured.
Waste is the registered volume of waste broken down into hazardous and non-hazardous waste, and by disposal method.
Emissions to air of ozone-depleting substances are measured as consumption of CFCs, HCFCs and halons.
The environmental impact potentials for global warming, ozone layer depletion and acidification are calculated on the basis of "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 reported to the authorities. Unintended releases of GMOs is measured as the number of discharges of GMOs not subject to the general regulatory limits for GMOs and which we and the authorities view as significant. Significant
spills is measured as the number of spills of chemicals, oil, etc. into water, air or soil. Significance is assessed both on the basis of extent of the spill and impact on the environment. Neighbor complaints is the number of registered environmental complaints.
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 Ph.D students.
In calculating the number of full-time employees, employees with a working time ratio of 95% or over are stated as fulltime 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 with 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 the 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 the 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 rates of exchange. Training costs are 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 the number of new reported cases of work-related diseases. The consequences of occupational accidents 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) absence days. The frequency of occupational accidents with absence and diseases is 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.
Novozymes has established a formal process for mapping risks. The process ensures involvement and ownership in the organization as well as proactive management of the most significant risks. Novozymes defines risks as "events or tendencies that can prevent the company from achieving the overall goals – including financial environmental and social goals – or negatively affect our future results and activities".
The goal for strategic risk management is to ensure that the most significant risks are proactively managed and that the appropriate management levels are given the attention necessary. With a systematic and analytical approach to risk management, Novozymes achieves greater transparency resulting in a stronger decision-making foundation for investing resources in new opportunities and growth. In addition, it provides management the opportunity to discuss risks and take necessary actions concerning the company's risk profile and the willingness of Executive Management and the Board of Directors to take risks.
As part of the annual strategy process, Novozymes conducts an evaluation of the long-term growth opportunities. As part of this work, risk factors and measures to limit risks are identified, and these are then managed by the respective units. The most significant business risks are reported to Executive Management and the Board of Directors each quarter.
The following section describes a number of the most significant identified risks and the measures which Novozymes has implemented. The list is not in any order of priority and is not exhaustive.
Novozymes sells its products worldwide, and we are subject to the financial and political risks which this naturally entails. Growth in individual markets is therefore influenced by the local economic situation and local legislation.
A small number of customers account for a high proportion of our sales in certain product areas, which means that Novozymes is affected by the trend in these customers' market conditions. We work closely with our major customers to limit this risk, for
example by means of joint production planning, joint development projects and integration of IT systems.
We try to maintain our position as market leader by continually launching new and improved high-quality products which meet our customers' needs. This places high demands on our research and development, requiring development to keep pace with our customers' needs. Failure here would entail the risk of a negative impact on Novozymes' sales targets. Novozymes allocates approximately 13% of sales to research and development to ensure sufficient resources to future innovation.
Novozymes produces a large number of enzymes using genetically modified organisms. 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 and GMOs is the subject of regular debate around the world, mainly concerning foods containing GMOs. Novozymes' use of gene technology has only featured in the debate to a limited degree. 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.
Historically, Novozymes has experienced constant price pressure in its markets, while there is considered to be a risk of increasing competition in the future from producers based in low-cost countries, particularly China and India. One of the ways in which we are trying to counter this risk is by using our technology to optimize production, thereby reducing costs per unit produced.
To maintain optimal production Novozymes is dependent, among other things, on reliability of deliveries from suppliers and, to safeguard this, 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 to which Novozymes is subject. Opportunities to pass on increases in raw material prices, for example, to our customers in a business-to-business market with large international customers are limited because of our relatively poor negotiating position in relation to major customers.
Novozymes' technology is the basis of our business, and the company pursues an active patent strategy by protecting new discoveries as early as possible in order to stop our products, etc. being copied.
Environmental and social responsibility in how we run our business are among Novozymes' fundamental values. This is significant to all business activities and is underpinned by a number of targets for environmental and social responsibility.
Novozymes is heavily dependent on being able to attract and retain skilled employees in a labor market characterized by falling unemployment and growing competition, and the company's reputation is an important parameter in this respect.
Novozymes tries to maintain its current reputation through open and transparent communication, both internally and externally. Efforts are also under way to reduce the risk of situations arising which could impair Novozymes' reputation. The Group business integrity principles are one example of this. To uphold Novozymes' reputation, we play an active role in making good any damage that we may inadvertently cause, for example to the environment.
Novozymes uses animal testing in connection with the development and approval of products. The use of animal testing is the subject of public debate and as such constitutes a risk to Novozymes' reputation. The current product portfolio involves relatively few animal tests, but this may change as a
result of the development of new business areas. We are continuously trying to reduce the number of animal tests by further refining the methods used and replacing test methods wherever possible.
Also in our relations with business partners, we seek to reduce the risk of being associated with environmental and social aspects which could impact negatively on Novozymes' reputation. This is done partly by asking suppliers of raw materials for enzyme production to perform a self-assessment of their compliance with internationally recognized standards and conventions. Novozymes' business partners are also informed about our business integrity principles.
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. This policy contains rules on the financial instruments that 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 and liabilities or expected 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 subsidiaries. Operating profit is most exposed to the EUR, USD and JPY. A 2.25% movement in the EUR would, other things being equal, result in a change in operating profit of around DKK 45-55 million. A movement of 5% in the USD would result in a change in operating profit in the region of DKK 40-60 million. A movement of 5% in the JPY would result in a change in the region of DKK 5-10 million.
Initially, Novozymes' policy is to hedge existing net assets in foreign currencies and expected future net exposure from the company's operations. Hedging of exchange rate exposure is carried out through a combination of currency loans, forward exchange contracts, currency swaps and options. The exchange rate hedging transactions are based on Novozymes' expectations of future exchange rate movements and are carried out to minimize the risk of loss and therefore 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 currency loans and entering into currency 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. A change of one percentage point in the average interest rate on Novozymes' net interest-bearing assets would have an effect on profit before tax of DKK 5 million. In accordance with Novozymes' treasury policy, a minimum of 30% of loans must be fixed interest loans. At year-end 2007, 63% of the loan portfolio was at fixed rates of interest based on financial instruments. According to Novozymes' treasury policy, free funds may only be invested in government bonds, extremely liquid domestic mortgagecredit bonds and money-market deposits.
Credit risk is managed at Group level. Credit risk occurs especially on available funds, derivatives and customer sales. Credit risk of available funds is managed by dealing in financial instruments and placing deposits only with banks that have a Moody's credit rating of at least A2 or an S&P rating of A. Credit risk is calculated on the basis of net market values and is governed by the company's treasury policy. Novozymes has entered into netting agreements (ISDA) with all the banks used for dealing in financial instruments, which means that Novozymes' credit risk is limited to net assets. At December 31, 2007, the maximum credit risk related to one counterparty was equivalent to DKK 66 million. The credit risk of debtors is countered by thorough, regular analyses based on customer type, country and specific conditions. Generally, customers are highly creditworthy.
In connection with the Group's ongoing financing of operations, including refinancing risk, the finance function shall ensure adequate and flexible liquidity. This is guaranteed by placing deposits in cash and extremely liquid negotiable instruments, and using binding credit facilities.
The manufacture of industrial enzymes requires high amounts of energy, and the trend in energy prices will therefore impact cost of goods sold. The risk of a negative impact from rising energy and CO2 prices is managed through optimizing the production process, for example, by using gene technology, and by partially hedging energy prices for a future period.
A significant proportion of Novozymes' raw materials are derived agricultural products, and the movement in food prices will therefore affect production costs. Novozymes makes efforts to reduce the risk of a negative impact 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 is restricted to a small number of countries. This entails a number of internal transactions, etc., which are covered by internal settlement prices. Novozymes follows the OECD principles in setting internal settlement prices, but this is a complicated area and always entails a tax risk as the area is subject to political judgment in each individual country. Novozymes regularly enters into dialogue with the tax authorities in the countries involved to reduce this risk.
The risk of personal injury, material damage and other events beyond the company's control, and any losses that Novozymes may cause, are covered by an extensive insurance program. Cover in different areas is subject to a deductible based on Novozymes' claims history. However, the current price of the policies and the cover provided may be affected by external circumstances, such as natural disasters and similar.
| Note | 2007 | 2006 | |
|---|---|---|---|
| DKK million DKK million | |||
| 1, 2 | Sales | 7,438 | 6,802 |
| 3, 5 | Cost of goods sold | 3,489 | 3,147 |
| Gross profit | 3,949 | 3,655 | |
| 3, 5 | Sales and distribution costs | 921 | 844 |
| 3, 5 | Research and development costs | 995 | 880 |
| 3, 4, 5 | Administrative costs | 675 | 650 |
| 6 | Other operating income, net | 123 | 59 |
| Operating profit | 1,481 | 1,340 | |
| 7 | Financial income | 130 | 134 |
| 8 | Financial costs | 226 | 256 |
| Profit before tax | 1,385 | 1,218 | |
| 9 | Corporation tax | 343 | 307 |
| Net profit | 1,042 | 911 | |
| Attributable to: | |||
| Shareholders in the parent company | 1,048 | 909 | |
| Minority interests | (6) | 2 | |
| 1,042 | 911 | ||
| Proposed dividend per share | DKK 5.00 | DKK 4.50 | |
| 18 | Earnings per share | DKK 16.93 | DKK 14.46 |
| 18 | Earnings per share, diluted | DKK 16.47 | DKK 14.09 |
| Attributable to shareholders in the company | ||||||||
|---|---|---|---|---|---|---|---|---|
| Available-for | ||||||||
| Treasury | Currency | sale financial | Cash flow | Retained | Minority | |||
| Share capital | shares | translations | assets | hedges | earnings | interests | Total | |
| DKK million DKK million DKK million DKK million DKK million DKK million DKK million DKK million | ||||||||
| Shareholders' equity at | ||||||||
| January 1, 2007 | 650 | (1,449) | (67) | 77 | 76 | 4,072 | 34 | 3,393 |
| Currency translation of | ||||||||
| subsidiaries and minority | ||||||||
| interests | (135) | (1) | (136) | |||||
| Fair value adjustment of | ||||||||
| derivatives | 32 | 40 | 26 | 98 | ||||
| Transferred to Financial | ||||||||
| income and Financial cost | (35) | 16 | (19) | |||||
| Tax related to equity | ||||||||
| components | (6) | (1) | 29 | 22 | ||||
| Items recognized directly in | ||||||||
| shareholders' equity | - | - | (109) | 5 | 41 | 29 | (1) | (35) |
| Net profit | 1,048 | (6) | 1,042 | |||||
| Total income for the year | - | - | (109) | 5 | 41 | 1,077 | (7) | 1,007 |
| Purchase of treasury shares | (500) | (500) | ||||||
| Sale of treasury shares | 112 | 112 | ||||||
| Dividend | (278) | (1) | (279) | |||||
| Share-based payment | 20 | 20 | ||||||
| Other adjustments | (70) | (16) | (86) | |||||
| Other movements in | ||||||||
| shareholders' equity | - | (388) | - | - | - | (328) | (17) | (733) |
| Shareholders' equity at | ||||||||
| December 31, 2007 | 650 | (1,837) | (176) | 82 | 117 | 4,821 | 10 | 3,667 |
The proposed dividend of DKK 309 million for 2007 is included in Retained earnings.
Reference is made to Note 18 concerning treasury shares and average number of shares.
| Attributable to shareholders in the company | ||||||||
|---|---|---|---|---|---|---|---|---|
| Available-for | ||||||||
| Treasury | Currency | sale financial | Cash flow | Retained | Minority | |||
| Share capital | shares | translations | assets | hedges | earnings | interests | Total | |
| DKK million DKK million DKK million DKK million DKK million DKK million DKK million DKK million | ||||||||
| Shareholders' equity at | ||||||||
| January 1, 2006 | 696 | (1,659) | 68 | 60 | (6) | 4,602 | 33 | 3,794 |
| Currency translation of | ||||||||
| subsidiaries and minority | ||||||||
| interests | (161) | (3) | (164) | |||||
| Fair value adjustment of | ||||||||
| derivatives | 35 | 38 | 98 | 171 | ||||
| Transferred to Financial | ||||||||
| income and Financial cost | (21) | (8) | (29) | |||||
| Tax related to equity | ||||||||
| components | (9) | (8) | 119 | 102 | ||||
| Items recognized directly in | ||||||||
| shareholders' equity | - | - | (135) | 17 | 82 | 119 | (3) | 80 |
| Net profit | 909 | 2 | 911 | |||||
| Total income for the year | - | - | (135) | 17 | 82 | 1,028 | (1) | 991 |
| Purchase of treasury shares | (1,107) | (1,107) | ||||||
| Sale of treasury shares | 111 | 111 | ||||||
| Write-down of share capital | (46) | 1,206 | (1,160) | - | ||||
| Dividend | (255) | (1) | (256) | |||||
| Share-based payment | 19 | 19 | ||||||
| Other adjustments | (162) | 3 | (159) | |||||
| Other movements in | ||||||||
| shareholders' equity | (46) | 210 | - | - | - | (1,558) | 2 | (1,392) |
| Shareholders' equity at | ||||||||
| December 31, 2006 | 650 | (1,449) | (67) | 77 | 76 | 4,072 | 34 | 3,393 |
The proposed dividend of DKK 278 milllion for 2006 is included in Retained earnings.
Reference is made to Note 18 concerning treasury shares and average number of shares.
| Note | Dec. 31, 2007 Dec. 31, 2006 DKK million DKK million |
||
|---|---|---|---|
| ASSETS | |||
| 10 | Intangible assets | 1,321 | 769 |
| 11 | Property, plant and equipment | 3,842 | 3,553 |
| 12 | Deferred tax assets | 47 | 45 |
| 13 | Other financial assets | 8 | 12 |
| Total non-current assets | 5,218 | 4,379 | |
| 14 | Inventories | 1,322 | 1,326 |
| 15 | Trade receivables | 1,344 | 1,193 |
| 16 | Tax receivables | 207 | 248 |
| 17 | Other receivables | 124 | 145 |
| 13 | Other financial assets | 196 | 177 |
| Cash at bank and in hand | 460 | 497 | |
| Total current assets | 3,653 | 3,586 | |
| Total assets | 8,871 | 7,965 |
| 18 | Share capital | 650 | 650 |
|---|---|---|---|
| 18 | Treasury shares | (1,837) | (1,449) |
| Other reserves | 23 | 86 | |
| Retained earnings | 4,821 | 4,072 | |
| 19 | Minority interests | 10 | 34 |
| Total shareholders' equity | 3,667 | 3,393 | |
| 12 | Deferred tax liabilities | 939 | 756 |
| 20 | Long-term employee benefits | 16 | 15 |
| 21 | Provisions | 131 | 134 |
| 22 | Other financial liabilities | 1,703 | 1,708 |
| Other non-current liabilities | 21 | 21 | |
| Total non-current liabilities | 2,810 | 2,634 | |
| 22 | Other financial liabilities | 814 | 461 |
| 21 | Provisions | 84 | 20 |
| Trade payables | 422 | 386 | |
| 16 | Tax payables | 49 | 50 |
| 23 | Other current liabilities | 1,025 | 1,021 |
| Total current liabilities | 2,394 | 1,938 | |
| Total liabilities | 5,204 | 4,572 | |
| Total liabilities and shareholders' equity | 8,871 | 7,965 |
| Note | 2007 | 2006 DKK million DKK million |
|
|---|---|---|---|
| Net profit | 1,042 | 911 | |
| 31 | Reversal of non-cash expenses | 1,028 | 996 |
| Corporation tax paid | (186) | (120) | |
| Interest received | 98 | 133 | |
| Interest paid | (159) | (147) | |
| Cash flow before change in working capital | 1,823 | 1,773 | |
| Change in working capital: | |||
| (Increase)/decrease in receivables | (113) | (80) | |
| (Increase)/decrease in inventories | 39 | (48) | |
| Increase/(decrease) in trade payables and other liabilities | (35) | (111) | |
| Cash flow from operating activities | 1,714 | 1,534 | |
| Investments: | |||
| 10 | Purchase of intangible assets | (14) | (13) |
| Sale of property, plant and equipment | 8 | 29 | |
| 11 | Purchase of property, plant and equipment | (729) | (492) |
| 34 | Acquisition of companies | (716) | (477) |
| Purchase of minority interests | (16) | - | |
| Cash flow from investing activities | (1,467) | (953) | |
| Free cash flow | 247 | 581 | |
| Financing: | |||
| Non-current borrowings | - | 385 | |
| 13 | Sale of shares in Novo Nordisk A/S | 35 | 15 |
| 18 | Purchase of treasury shares, net | (388) | (996) |
| Dividend paid | (278) | (255) | |
| Cash flow from financing activities | (631) | (851) | |
| Net cash flow | (384) | (270) | |
| Unrealized gain/(loss) on currencies and financial assets included in cash and cash equivalents | |||
| (6) | (26) | ||
| Net change in cash and cash equivalents | (390) | (296) | |
| Cash and cash equivalents at January 1 | 71 | 367 | |
| 32 | Cash and cash equivalents at December 31 | (319) | 71 |
| Drawn uncommitted credit facillities | 319 | - | |
| 33 | Undrawn committed credit facilities | 3,000 | 3,000 |
| Financial resources at December 31 | (3,000) | 3,071 |
| Note | 2007 | 2006 | ||
|---|---|---|---|---|
| ENVIRONMENT | ||||
| Consumption of resources | ||||
| 36 Water | 3 1,000 m |
5,364 | 4,893 | |
| 37 Internally generated energy | 1,000 GJ | 856 | 846 | |
| Externally generated energy | 1,000 GJ | 2,838 | 2,476 | |
| Energy, total | 1,000 GJ | 3,694 | 3,322 | |
| Raw materials | 1,000 tons | 350 | 323 | |
| Packaging | 1,000 tons | 13 | 12 | |
| Wastewater | ||||
| 38 Volume | 3 1,000 m |
3,894 | 3,564 | |
| Dry matter | Tons | 370 | 315 | |
| BOD5 | Tons | 473 | 748 | |
| COD | Tons | 2,046 | 1,756 | |
| Nitrogen | Tons | 161 | 166 | |
| Phosphorus | Tons | 45.1 | 36 | |
| Biomass | ||||
| Volume, NovoGro® | 3 1,000 m |
274 | 280 | |
| Volume, NovoGro® 30 | 3 1,000 m |
131 | 116 | |
| Volume, compost | 3 1,000 m |
51 | 45 | |
| Nitrogen | Tons | 1,878 | 1,598 | |
| Phosphorus | Tons | 700 | 609 | |
| Waste | ||||
| Non-hazardous waste | Tons | 9,112 | 7,662 | |
| Hazardous waste | Tons | 1,201 | 975 | |
| 39 Waste, total | Tons | 10,314 | 8,637 | |
| Percentage of total waste recycled | % | 43.4 | 42.1 | |
| Emissions to air | ||||
| Ozone-depleting substances, HCFCs | Kg | 1,059 | 1,310 | |
| 40 CO2 | 1,000 tons | 486 | 406 | |
| SO2 | Tons | 1,274 | 1,120 | |
| NOx | Tons | 1,075 | 945 | |
| Environmental impact potentials | ||||
| 41 Global warming | 1,000 tons CO2 -eqv. |
488 | 408 | |
| 42 Ozone layer depletion | Kg CFC11-eqv. | 42 | 52 | |
| Acidification | Tons SO2 -eqv. |
2,024 | 1,781 | |
| Environmental compliance, etc. | ||||
| Breaches of regulatory limits, groundwater | No. | 21 | 22 | |
| Breaches of regulatory limits, other | No. | 17 | 8 | |
| Unintended releases of GMOs | No. | 0 | 0 | |
| Significant spills | No. | 0 | 0 | |
| Neighbor complaints | No. | 31 | 14 | |
| Animals for testing | ||||
| Enzyme related | No. | 1,482 | 1,621 | |
| Other Business areas | No. | 4,093 | 2,718 |
| Note | 2007 | 2006 | ||
|---|---|---|---|---|
| SOCIAL | ||||
| Employee statistics | ||||
| 43 Employees, total | No. | 4,933 | 4,544 | |
| 43, 44 Women | % | 35.3 | 35.8 | |
| Men | % | 64.7 | 64.2 | |
| 45 Rate of employee turnover | % | 9.0 | 8.0 | |
| Average age | Years | 39.4 | 39.8 | |
| Seniority | Years | 8.7 | 8.9 | |
| 46 Rate of absence | % | 2.2 | 2.3 | |
| Expatriates | No. | 65 | 58 | |
| Training costs | ||||
| Average spent per employee | DKK | 5,887 | 6,721 | |
| Costs as percentage of total employee costs | % | 1.4 | 1.6 | |
| HEALTH AND SAFETY | ||||
| Occupational accidents and diseases | ||||
| Fatalities | No. | 0 | 0 | |
| 47 Accidents with absence | No. | 36 | 27 | |
| Of which are life-threatening accidents | No. | 1 | 0 | |
| Of which accidents requiring professional first aid | No. | 31 | 21 | |
| 48 Occupational diseases | No. | 13 | 11 | |
| Frequency of occupational accidents | Per million working hours | 4.8 | 3.7 | |
| Frequency of occupational accidents requiring professional first aid | Per million working hours | 3.9 | 2.9 | |
| Frequency of occupational diseases | Per million working hours | 1.7 | 1.5 | |
| KNOWLEDGE | ||||
| Processes and technology | ||||
| New products | No. | 10 | 8 | |
| Active patent families | No. | 1,019 | 974 |
| Geographical segments | |
|---|---|
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Sales | ||
| Denmark | 132 | 125 |
| Rest of Europe, Middle East and | ||
| Africa | 2,907 | 2,730 |
| North America | 2,412 | 2,066 |
| Asia Pacific | 1,466 | 1,401 |
| Latin America | 521 | 480 |
| Total | 7,438 | 6,802 |
| Segment assets | ||
| Denmark | 4,056 | 3,550 |
| Rest of Europe, Middle East and | ||
| Africa | 501 | 491 |
| North America | 1,456 | 1,212 |
| Asia Pacific | 1,727 | 1,553 |
| Latin America | 191 | 180 |
| Total | 7,931 | 6,986 |
| Capital expenditure | ||
| Denmark | 708 | 352 |
| Rest of Europe, Middle East and | ||
| Africa | 84 | 192 |
| North America | 238 | 75 |
| Asia Pacific | 403 | 394 |
| Latin America | 9 | 10 |
| Total | 1,442 | 1,023 |
The allocation to geographical segments is made on the basis of the Group's sales, segment assets and capital expenditure. The geographical distribution of sales 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 sales may therefore vary significantly from year to year if the delivery destination for these strategic customers changes.
| 2007 | 2006 | ||
|---|---|---|---|
| DKK million DKK million | |||
| Detergent enzymes | 2,239 | 2,040 | |
| Technical enzymes | 2,263 | 1,977 | |
| Food enzymes | 1,699 | 1,603 | |
| Feed enzymes | 705 | 700 | |
| Microorganisms | 308 | 348 | |
| Biopharmaceutical ingredients | 224 | 134 | |
| Total sales | 7,438 | 6,802 |
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Wages and salaries | 1,723 | 1,597 |
| Pensions - defined contribution | ||
| plans | 154 | 136 |
| Pensions - defined benefit plans | 6 | 3 |
| Other social security costs | 137 | 110 |
| Other employee costs | 107 | 92 |
| Share-based payment | 20 | 20 |
| Total employee costs | 2,147 | 1,958 |
| Recognized in the income statement | ||
| under the following items: | ||
| Cost of goods sold | 876 | 760 |
| Sales and distribution costs | 403 | 365 |
| Research and development costs | 523 | 467 |
| Administrative costs | 371 | 358 |
| 2,173 | 1,950 | |
| Recognized in the assets as: | ||
| Change in employee costs | ||
| recognized in inventories | (26) | 8 |
| Total employee costs | 2,147 | 1,958 |
| Geographical distribution: | ||
| Denmark | 1,291 | 1,203 |
| Rest of Europe, Middle East and | ||
| Africa | 229 | 182 |
| North America | 385 | 383 |
| Asia Pacific | 186 | 139 |
| Latin America | 56 | 51 |
| Total employee costs | 2,147 | 1,958 |
| Average number of employees in | ||
| the Group | 4,684 | 4,272 |
| Number of employees outside | ||
| Denmark as a percentage of total | ||
| number of employees | 55% | 51% |
Reference is made to Note 43 concerning geographical distribution of employees
| 2007 DKK million DKK million |
2006 | |
|---|---|---|
| Fees to the auditor elected by the Annual General Meeting, PricewaterhouseCoopers |
||
| Total fee | 18 | 18 |
| of which pertaining to audit | 9 | 9 |
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Recognized in the income statement under the | ||
| following items: | ||
| Cost of goods sold | 296 | 271 |
| Sales and distribution costs | 13 | 13 |
| Research and development costs | 71 | 72 |
| Administrative costs | 15 | 17 |
| Depreciation and impairment losses, | ||
| property, plant and equipment | 395 | 373 |
| Recognized in the income statement under the | ||
| following items: | ||
| Cost of goods sold | 44 | 50 |
| Sales and distribution costs | 14 | 12 |
| Research and development costs | 32 | 25 |
| Administrative costs | 5 | 9 |
| Amortization and impairment | ||
| losses, intangible assets | 95 | 96 |
| Total depreciation, amortization and | ||
| impairment losses | 490 | 469 |
Of which impairment losses on goodwill is DKK 22 million in 2007, included in Cost of goods sold and Research and development costs (DKK 11 million in each item), while impairment losses on know-how of DKK 15 million have been included in Cost of goods sold in 2006.
| 2007 | 2006 | ||
|---|---|---|---|
| DKK million DKK million | |||
| Income and grants concerning | |||
| research projects/-co-operations | 15 | 21 | |
| Compensation from Danisco | 75 | - | |
| Other operating income, net | 33 | 38 | |
| Other operating income, net | 123 | 59 |
| 2007 | 2006 DKK million DKK million |
||
|---|---|---|---|
| Interest income | 105 | 130 | |
| Other foreign exchange profit | 22 | - | |
| Gains on securities, etc., net | 3 | 4 | |
| Financial income | 130 | 134 |
| 2007 | 2006 |
|---|---|
| DKK million DKK million | |
| 183 | 156 |
| 17 | 45 |
| 5 | |
| 12 | 13 |
| 14 | 37 |
| 226 | 256 |
| - |
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Tax payable on net profit | 284 | 332 |
| Change in deferred tax | 60 | 55 |
| Adjustment for previous years | (1) | (80) |
| Tax in the income statement | 343 | 307 |
| Calculation of effective tax rate: | ||
| Corporation tax in Denmark | 25.0 % | 28.0 % |
| Non-deductible expenses | 0.9 % | 1.2 % |
| Difference in foreign tax rates | 1.2 % | (2.3)% |
| Impact of change in tax rate | (2.6) % | - |
| Other adjustments | 0.3 % | (1.7)% |
| Effective tax rate | 24,8 % | 25.2 % |
| Acquired | IT | ||||
|---|---|---|---|---|---|
| Completed IT | patents, li | 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, 2007 | 260 | 792 | 231 | 17 | 1,300 |
| Currency translation | - | (5) | (10) | - | (15) |
| Acquisition of companies | - | 328 | 316 | - | 644 |
| Additions during the year | - | - | - | 14 | 14 |
| Disposals during the year | (31) | (104) | - | - | (135) |
| Cost at December 31, 2007 | 229 | 1,011 | 537 | 31 | 1,808 |
| Amortization and impairment losses at January 1, 2007 | 221 | 295 | 15 | 531 | |
| Currency translation | (1) | (3) | - | (4) | |
| Amortization for the year | 16 | 57 | - | 73 | |
| Impairment losses | - | - | 22 | 22 | |
| Disposals for the year | (31) | (104) | - | (135) | |
| Amortization and impairment losses at December 31, 2007 | 205 | 245 | 37 | - | 487 |
| Carrying amount at December 31, 2007 | 24 | 766 | 500 | 31 | 1,321 |
| Cost at January 1, 2006 | 247 | 465 | 135 | 20 | 867 |
| Currency translation | (1) | 1 | (8) | - | (8) |
| Acquisition of companies | - | 324 | 104 | - | 428 |
| Additions during the year | 3 | 2 | - | 8 | 13 |
| Transfer from other items | 11 | - | - | (11) | - |
| Cost at December 31, 2006 | 260 | 792 | 231 | 17 | 1,300 |
| Amortization and impairment losses at January 1, 2006 | 195 | 226 | 15 | 436 | |
| Currency translation | (1) | - | - | (1) | |
| Amortization for the year | 27 | 54 | - | 81 | |
| Impairment losses for the year | - | 15 | - | 15 | |
| Amortization and impairment losses at December 31, 2006 | 221 | 295 | 15 | - | 531 |
| Carrying amount at December 31, 2006 | 39 | 497 | 216 | 17 | 769 |
* Assets developed internally
The carrying amount of intangible assets, including goodwill, was reviewed for impairment losses at December 31, 2007. This did not reveal any need to write down the book values for impairment but during the year a write-down of DKK 22 million based on a concrete valuation of a goodwill asset related to streptococcal-based production of hyaluronic acid in China.
The impairment tests compared the discounted cash flow of the individual cash-generating units with the carrying amounts of the units. Cash flow is based on budgets and business plans for the period 2008-2018.
Material assumptions used in calculating the terminal value is based on an assumptions of a individual unit are as follows:
| Biopharmaceuticals | ||
|---|---|---|
| Microorganisms | ingrediens | |
| Expected growth in turnover | 10% | 10-15% |
| Growth in sales terminal value | 3% | 6% |
| Discount factor | 12% | 15% |
| Plant, property | ||||||
|---|---|---|---|---|---|---|
| and equipment | ||||||
| Land and | Plant and | Other | under | |||
| property | machinery | equipment | construction | Total | ||
| DKK million | DKK million | DKK million | DKK million | DKK million | ||
| Cost at January 1, 2007 | 2,874 | 3,968 | 1,072 | 499 | 8,413 | |
| Currency translation | (62) | (77) | (26) | (15) | (180) | |
| Acquisition of companies | 38 | 16 | 1 | - | 55 | |
| Additions during the year | 51 | 132 | 54 | 492 | 729 | |
| Disposals during the year | (4) | (26) | (159) | - | (189) | |
| Transfer (to)/from other items | 43 | 221 | 35 | (299) | - | |
| Cost at December 31, 2007 | 2,940 | 4,234 | 977 | 677 | 8,828 | |
| Depreciation and impairment losses at January 1, 2007 | 1,151 | 2,956 | 753 | 4,860 | ||
| Currency translation | (18) | (53) | (19) | (90) | ||
| Depreciation for the year | 82 | 224 | 89 | 395 | ||
| Impairment losses for the year | - | |||||
| Depreciation and impairment losses eliminated on | ||||||
| disposals during the year | (4) | (22) | (153) | (179) | ||
| Depreciation and impairment losses at December 31, 2007 | 1,211 | 3,105 | 670 | - | 4,986 | |
| Carrying amount at December 31, 2007 | 1,729 | 1,129 | 307 | 677 | 3,842 | |
| Cost at January 1, 2006 | 2,900 | 3,816 | 1,072 | 381 | 8,169 | |
| Currency translation | (98) | (98) | (32) | (8) | (236) | |
| Acquisition of companies | 35 | 52 | 3 | - | 90 | |
| Additions during the year | 21 | 85 | 53 | 333 | 492 | |
| Disposals during the year | (3) | (19) | (70) | (10) | (102) | |
| Transfer (to)/from other items | 19 | 132 | 46 | (197) | - | |
| Cost at December 31, 2006 | 2,874 | 3,968 | 1,072 | 499 | 8,413 | |
| Depreciation and impairment losses at January 1, 2006 | 1,104 | 2,831 | 757 | 4,692 | ||
| Currency translation | (30) | (66) | (23) | (119) | ||
| Depreciation for the year | 80 | 208 | 85 | 373 | ||
| Depreciation and impairment losses eliminated on | ||||||
| disposals during the year | (3) | (17) | (66) | (86) | ||
| Depreciation and impairment losses at December 31, 2006 | 1,151 | 2,956 | 753 | - | 4,860 | |
| Carrying amount at December 31, 2006 | 1,723 | 1,012 | 319 | 499 | 3,553 |
Obligations to third parties relating to capital expenditure are DKK 72 million at December 31, 2007, compared with DKK 83 million at December 31, 2006.
| Geographical distribution: | 2007 | 2006 | |
|---|---|---|---|
| DKK million | DKK million | ||
| Denmark | 2,148 | 1,968 | |
| Rest of Europe, Middle East and Africa | 190 | 129 | |
| North America | 731 | 749 | |
| Asia Pacific | 726 | 666 | |
| Latin America | 47 | 41 | |
| Carrying amount at December 31 | 3,842 | 3,553 |
| 2007 | 2006 | |
|---|---|---|
| DKK million | DKK million | |
| Deferred tax at January 1 | (711) | (532) |
| Currency translation | 14 | 18 |
| Acquisition of companies | (31) | (7) |
| Tax on shareholders' equity items | (77) | (97) |
| Tax for the year | (87) | (93) |
| Deferred tax at December 31 | (892) | (711) |
| Deferred tax assets | 47 | 45 |
| Deferred tax liabilities | (939) | (756) |
| Deferred tax at December 31 | (892) | (711) |
| Deferred | Deferred | ||
|---|---|---|---|
| tax assets | tax liabilities | Total | |
| DKK million | DKK million | DKK million | |
| Intangible assets and property, plant and equipment | 5 | (704) | (699) |
| Deferred tax relating to inventories | 124 | (187) | (63) |
| Tax-loss carry-forwards and balance re. recapture of tax losses | 41 | (16) | 25 |
| Share options | 172 | - | 172 |
| Liabilities and other | 242 | (569) | (327) |
| 584 | (1,476) | (892) | |
| Netting | (537) | 537 | - |
| Deferred tax at December 31, 2007 | 47 | (939) | (892) |
| Of which due after more than 12 months | - | - | (446) |
| Unrecognized share of tax-loss carry-forwards, etc. | 25 | - | - |
| Recognized tax-loss carry-forwards, previously unrecognized | - | - | - |
| Deferred | Deferred | ||
|---|---|---|---|
| tax assets | tax liabilities | Total | |
| DKK million | DKK million | DKK million | |
| Intangible fixed assets and property, plant and equipment | 9 | (642) | (633) |
| Deferred tax relating to inventories | 85 | (135) | (50) |
| Tax-loss carry-forwards and balance re. recapture of tax losses | 15 | (19) | (4) |
| Share options | 271 | - | 271 |
| Liabilities and other | 218 | (513) | (295) |
| 598 | (1,309) | (711) | |
| Netting | (553) | 553 | - |
| Deferred tax at December 31, 2006 | 45 | (756) | (711) |
| Of which due after more than 12 months | - | - | (696) |
| Unrecognized share of tax-loss carry-forwards, etc. | - | - | - |
| Recognized tax-loss carry-forwards, previously unrecognized | 6 | - | - |
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.
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Available-for-sale financial assets | 116 | 133 |
| Derivatives | 88 | 56 |
| Other financial assets at December | ||
| 31 | 204 | 189 |
| Non-current assets | 8 | 12 |
| Current assets | 196 | 177 |
Available-for-sale financial assets, comprising the Group´s holding af Novo Nordisk B share which has been acquired with a view to hedging the share option obligation, cf. note 24. All the shares have been absorbed as current assets. A gain of DKK 40 million on revaluation to market value has been recognized in shareholders equity in 2007, and DKK 35 million has been transferred from shareholders equity to the financial income relating to realization of shares. In 2006 the market value has been DKK 38 million, and DKK 21 million has been transferred to financial income.
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Raw materials and consumables | 251 | 201 |
| Work in progress | 317 | 338 |
| Finished goods | 754 | 787 |
| Inventories | 1,322 | 1,326 |
The material consumption, included under Cost of goods sold, is DKK 1,897 million, compared with DKK 1,668 million in 2006.
| Expensed write-downs on inventories | 50 | 30 |
|---|---|---|
| Reversal of write-downs on | ||
| inventories | 9 | 9 |
Some of the reversal of write-downs can be attributed to the written-down inventories being reused in production.
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Trade receivables | 1,361 | 1,238 |
| Allowances for doubtful trade | ||
| receivables | (86) | (103) |
| 1,275 | 1,135 | |
| Amounts owed by affiliated | ||
| companies | 69 | 58 |
| Trade receivables at December 31 | 1,344 | 1,193 |
| 2007 | 2006 |
|---|---|
| DKK million DKK million |
| At December 31 | 86 | 103 |
|---|---|---|
| Reversed allowances | (47) | (17) |
| Write-offs during the year | 4 | 2 |
| Allowances during the year | 26 | 22 |
| At January 1 | 103 | 96 |
| The year´s change in allowances for doubtful trade receivables: |
The cost is included in sales and distribution costs
Due but not written down are as follows:
| 287 | 152 | |
|---|---|---|
| Between 91 days and 365 days | 25 | 6 |
| Between 30 days and 90 days | 50 | 27 |
| Up to 30 days | 212 | 119 |
| Decadence: |
See the part about Risk factors
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| At January 1 | 198 | 270 |
| Currency translation | 6 | (16) |
| Acquisition of companies | 5 | 4 |
| Tax on shareholders' equity items | 18 | 34 |
| Tax relating to the year | (255) | (214) |
| Tax paid on account for the current | ||
| year, net | 286 | 360 |
| Tax received on account for | ||
| previous years, net | (100) | (240) |
| Tax receivable/(payable) at | ||
| December 31 | 158 | 198 |
| Corporation tax receivable | 207 | 248 |
| Corporation tax payable | (49) | (50) |
| Tax receivable/(payable) at | ||
| December 31 | 158 | 198 |
| Of which due after more than 12 | ||
| months | 4 | 55 |
| 2007 | 2006 | ||
|---|---|---|---|
| DKK million DKK million | |||
| Public authorities | - | 7 | |
| Deposits | 13 | 13 | |
| Prepaid expenses | 44 | 54 | |
| Other receivables | 67 | 71 | |
| Other receivables at December 31 | 124 | 145 |
Other receivables primarily fall due within 1 year from the balance sheet date.
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Share capital | ||
| Nominal value | ||
| A share capital | 107 | 107 |
| B share capital | 543 | 543 |
| Share capital at December 31 | 650 | 650 |
| 2007 | 2006 | |
| No. | No. | |
| Number of shares | ||
| A shares of DKK 10 | 10,748,720 10,748,720 | |
| B shares of DKK 10 | 54,251,280 54,251,280 | |
| Total shares | 65,000,000 65,000,000 |
Each A share gives entitlement to 100 votes, while each B share gives entitlement to 10 votes.
The share capital was written down in 2004, 2005 and 2006.
| 2007 | 2006 | |
|---|---|---|
| No. | No. | |
| Number of shares in circulation | ||
| Number of shares at January 1 | 61,805,506 63,911,100 | |
| Purchase of treasury shares | (908,825) | (2,756,632) |
| Sale of treasury shares | 905,599 | 651,038 |
| Number of shares at December 31 | 61,802,280 61,805,506 |
| 2007 | 2006 DKK million DKK million |
|
|---|---|---|
| Treasury shares - B shares | ||
| Cost | ||
| Cost at January 1 | 1,449 | 1,659 |
| Additions during the year | 500 | 1,107 |
| Disposals during the year | (112) | (111) |
| Write-down of share capital | - | (1,206) |
| Cost at December 31 | 1,837 | 1,449 |
| Nominal value | ||
| Nominal value at January 1 | 32 | 57 |
| Additions during the year | 1 | 28 |
| Disposals during the year | (1) | (7) |
| Write-down of share capital | - | (46) |
| Nominal value at December 31 | 32 | 32 |
| 2007 | 2006 | |
| No. | No. | |
| Number of shares | ||
| Number of shares at January 1 | 3,194,494 | 5,688,900 |
| Additions during the year | 908,825 | 2,756,632 |
| Disposals during the year | (905,599) | (651,038) |
| Write-down of share capital | - | (4,600,000) |
| Number of shares at December 31 | 3,197,720 | 3,194,494 |
| 2007 | 2006 | |
|---|---|---|
| Percent | Percent | |
| Percentage of share capital | ||
| Percentage of share capital at | ||
| January 1 | 4.9 % | 8.2 % |
| Adjustment to figure at beginning | ||
| of year as a result of write-down of | ||
| share capital | 0.0 % | 0.6 % |
| Additions during the year | 1.4 % | 4.2 % |
| Disposals during the year | (1.4%) | (1.0)% |
| Write-down of share capital | - | (7.1)% |
| Percentage of share capital at | ||
| December 31 | 4.9 % | 4.9 % |
Acquisitions of treasury shares took place to hedge stock options.
| 2007 | 2006 DKK million DKK million |
|
|---|---|---|
| Basis result for earning per share | 1,042 | 911 |
| 2007 | 2006 | |
| No. | No. | |
| Average number of shares: | ||
| Average number of shares | 61,914,753 62,874,459 | |
| Adjustment for share options | 1,709,281 | 1,629,118 |
| Average number of diluted shares | 63,624,034 64,503,577 |
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Minority interests at January 1 | 34 | 33 |
| Currency translation | (1) | (3) |
| Purchase of minority shares | (16) | 3 |
| Share of net profit | (6) | 2 |
| Dividend paid | (1) | (1) |
| Minority interests at December 31 | 10 | 34 |
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 USA.
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 which meet local requirements for insuring employees in the event of termination, etc.
| 2007 | 2006 DKK million DKK million |
|
|---|---|---|
| Amounts recognized in the income statement re defined benefit pension plans: |
||
| Current service costs | 6 | 7 |
| Interest costs | 2 | 2 |
| Expected return on plan assets Service costs relating to changes to |
(3) | (3) |
| plans | 1 | (3) |
| Total amount re. defined benefit plans recognized in the income statement |
6 | 3 |
The actual return on plan assets was a positive return of DKK 1 million (2006: a positive return of DKK 2 million).
| 2007 | 2006 |
|---|---|
| DKK million DKK million |
Amounts recognized in the balance sheet re. defined benefit pension plans:
Present value of fully/partly funded
| obligations | 63 | 76 |
|---|---|---|
| Fair value of plan assets | (75) | (84) |
| (12) | (8) | |
| Present value of unfunded | ||
| obligations | 18 | 12 |
| Unrecognized actuarial gains/(losses) | 6 | 8 |
| Unrecognized part of benefit assets | 4 | 3 |
| Liability recognized in the balance | ||
| sheet | 16 | 15 |
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Movement in the net liability: | ||
| Opening net liability | 15 | 17 |
| Currency translation | (1) | (1) |
| Total amount expensed in the | ||
| income statement | 6 | 3 |
| Contributions paid | (6) | (6) |
| Other changes | 2 | 2 |
| Closing net liability | 16 | 15 |
The actuarial valuations of the most significant defined benefit plans have been based on the following assumptions:
| 2007 | 2006 | |
|---|---|---|
| Discount rates | 3.3 % | 2.9 % |
| Expected rates of return on plan | ||
| assets | 4.3 % | 3.5 % |
| Future salary increases | 1.3 % | 1.3 % |
| Annual increase in healthcare costs | 7.3 % | 7.6 % |
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Provisions at January 1 | 154 | 74 |
| Currency translation | (4) | 0 |
| Acquisition of companies | 70 | 40 |
| Additions during the year | 8 | 47 |
| Previous years reversed | (2) | (6) |
| Utilization during the year | (11) | (1) |
| Provisions at December 31 | 215 | 154 |
| Current | 84 | 20 |
| Non-current | 131 | 134 |
Provisions includes remainder of purchase price in connection with acquisitions which was DKK 87 million in 2007 (2006: DKK 27 million), of which DKK 57 million is expected to be settled within one year, while the rest will be settled over a period of up to 10 years.
Provisions also includes 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.
Significant assumptions about future events used in estimating provisions are based on the Management´s best estimate of settlement of the obligations.
| 2007 | 2006 DKK million DKK million |
|
|---|---|---|
| Credit institutions | 2,324 | 2,063 |
| Derivatives | 193 | 106 |
| Other financial liabilities at | ||
| December 31 | 2,517 | 2,169 |
| Non-current | 1,703 | 1,708 |
| Current | 814 | 461 |
The credit institutions are payable within the following periods from the balance sheet date:
| Less than one year | 779 | 426 |
|---|---|---|
| Between 1 and 2 years | 639 | - |
| Between 2 and 3 years | 329 | 714 |
| Between 3 and 4 years | - | 366 |
| Between 4 and 5 years | - | - |
| After 5 years | 577 | 557 |
| Credit institutions at December 31 | 2,324 | 2,063 |
| CAD | 23 | - |
|---|---|---|
| CNY | 97 | - |
| DKK | 1,054 | 929 |
| EUR | 15 | 27 |
| GBP | 50 | - |
| INR | 65 | - |
| JPY | 18 | 24 |
| SEK | 16 | - |
| USD | 973 | 1,080 |
| Other | 13 | 3 |
| Credit institutions at December 31 | 2,324 | 2,063 |
The maturity of loans in credit institutions is 2008-2017 with interest rates between 1.1% and 14.5%
The interest on the above loans will be adjusted in 2008.
The carrying amount of credit institutions correspond the fair value.
See the part about Risk factors.
This table analyses the financial liablilties including derivatives split on payment terms based on the due dates in the contracts. The amounts are shown undiscounted so the figures can not balance directly to 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, 2007 | ||||
| Other financial liabilities | 779 | 639 | 329 | 577 |
| Supplier of goods and | ||||
| services | 422 | - | - | - |
| Other liabilities | 1,493 | - | - | - |
| Gross settlement of | ||||
| derivatives (outflow) | 62 | 40 | 40 | 3 |
Below is shown the inflow of the above gross settlements of derivatives to show an adequate and fair picture of the actual draw of the liquidity.
| Gross settlement of | ||||
|---|---|---|---|---|
| derivatives (inflow) | 72 | 45 | 45 | 3 |
| Less | Between | Between | After | |
|---|---|---|---|---|
| Than 1 | 1 and 2 | 2 and 5 | 5 | |
| DKK million | year | years | years | years |
| December 31, 2006 | ||||
|---|---|---|---|---|
| Other financial liabilities | 426 | - | 1,080 | 557 |
| Supplier of goods and | ||||
| services | 386 | - | - | - |
| Other liabilities | 1,327 | - | - | - |
| Gross settlement of | ||||
| derivatives (payments) | 65 | 63 | 70 | 13 |
Below is the inflow of the above gross settlements of derivatives to show an adequate and fair picture of the actual draw of the liquidity.
| Gross settlement of | ||||
|---|---|---|---|---|
| derivatives (inflow) | 82 | 79 | 78 | 12 |
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Employee costs payable | 419 | 406 |
| Taxes and duties payable | 6 | 20 |
| Accruals and deferred income | 69 | 74 |
| Share-based payment | 115 | 114 |
| Other current liabilities | 416 | 407 |
| Other current liabilities at | ||
| December 31 | 1,025 | 1,021 |
Novozymes has established stock option programs for the Management, managers and other employees. The purpose of the stock option programs is to ensure common goals for Management, employees and shareholders. Allocation of options is and has been dependent on profit and value-creation targets being achieved.
The Management has previously been granted stock options with a maturity period between six and eight years, which after three years give the holder the right to purchase one stock with a nominal value of DKK 10 per option. For managers and other employees the stock options have been granted with a maturity period of eight years and after three years give the holder the right to purchase one stock with a nominal value of DKK 10 per option.
A new stock option program for all employees was launched in 2007. The programs cover the period 2007-2010 with annual allocations. The allocations are made according to the basic salary and on the basis of targets set by the Board of Directors for each year. The exercise price is calculated on the basis of the average closing price on the OMX Nordic Exchange Copenhagen A/S on the first five trading days after publication of the financial statements. The stock options have a binding period of three years, followed by an exercise period of five years. In order to exercise the options, the employee must still be employed. This does not apply to persons who have retired, taken a voluntary early retirement pension or been given notice.
All the financial targets set for 2007 were achieved, while not all the non-financial targets were achieved. Options corresponding to 95% of the maximum number available for 2007 will be allocated at the beginning of 2008.
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 33 million (2006: DKK 37 million) was recognized for this in 2007. The intrinsic value of the programs in 2007 was DKK 32 million (2006: DKK 37 million).
At December 31, 2007 the Group's outstanding Novo Nordisk A/S stock options totaled 348,186, with an average exercise price of DKK 99 per share of DKK 1 and a market value of DKK 82 million, which is recognized as a liability. These options are hedged by the Group's holding of Novo Nordisk A/S shares, which are recognized at market value. In 2007 the Management and managerial staff exercised 196,720 Novo Nordisk A/S options.
The Group is obliged to divest stocks to Novo A/S with regard to options allocated to employees who were transferred to Novo A/S in connection with the Demerger. The stocks will be divested when the employees exercise their options, and Novozymes A/S is committed to reimburse expenses equivalent to the value of the stocks at the time of the transition of the employees to Novo A/S. A total of 5,100 stocks were divested in 2007, such that the obligation at December 31, 2007 totaled 2,300 stocks. This obligation is hedged by the holding of treasury shares.
| Stock options in Novozymes A/S | Management | Other managerial staff |
Other staff |
Total | Number of options that can be exercised |
Exercise price per option in DKK |
Remaining term to maturity (years) |
|---|---|---|---|---|---|---|---|
| Outstanding at January 1, 2006 | 115,250 | 1,078,122 | 1,893,497 | 3,086,869 | 800,787 | 158* | 5** |
| Additions during the year | 8,279 | 417,906 | - | 426,185 | |||
| Options exercised in 2006 | (47,150) | (264,080) | (369,518) | (680,748) | 167* | ||
| Terminations in 2006 | (9,000) | (18,569) | (14,250) | (41,819) | |||
| Outstanding at December 31, 2006 | 67,379 | 1,213,379 | 1,509,729 | 2,790,487 | 857,939 | 183* | 5** |
| Additions during the year | 179,374 | 244,642 | 200,034 | 624,050 | |||
| Changes in Management | (19,005) | 19,005 | - | - | |||
| Options exercised in 2007 | (17,600) | (205,125) | (532,529) | (755,254) | 153* | ||
| Terminations in 2007 | - | (25,418) | (22,578) | (47,996) | |||
| Outstanding at December 31, 2007 | 210,148 | 1,246,483 | 1,154,656 | 2,611,287 | 1,623,842 | 266* | 5** |
| Number | Exercise | Remaining | Market | |||||
|---|---|---|---|---|---|---|---|---|
| Other | of options | price per | term to | value in | ||||
| managerial | Other | that can be | option | maturity | DKK | |||
| Stock options in Novozymes A/S | Management | staff | staff | Total | exercised | in DKK | (years) | million |
| Outstanding program 1999 | - | 5,502 | - | 5,502 | 5,502 | 101 | 0 | 3 |
| Outstanding program 2000 | 2,200 | 15,017 | - | 17,217 | 17,217 | 101 | 1 | 8 |
| Outstanding program 2000 | - | 44,200 | - | 44,200 | 44,200 | 150 | 1 | 19 |
| Outstanding program 2001 | 6,300 | 80,118 | - | 86,418 | 86,418 | 159 | 2 | 37 |
| Outstanding program 2001 | - | - | 225,586 | 225,586 | 225,586 | 186 | 2 | 90 |
| Outstanding program 2002 | 7,700 | 91,000 | 181,352 | 280,052 | 280,052 | 169 | 3 | 116 |
| Outstanding program 2003 | 33,600 | 365,530 | 565,737 | 964,867 | 964,867 | 148 | 4 | 420 |
| Outstanding program 2006 | 10,437 | 374,691 | - | 385,128 | - | 344 | 7 | 104 |
| Outstanding program 2006 | - | 4,290 | - | 4,290 | - | 400 | 7 | 1 |
| Outstanding program 2007 | 149,911 | 225,947 | 181,981 | 557,839 | - | 495 | 8 | 105 |
| Outstanding program 2007 | - | 31,490 | - | 31,490 | - | 585 | 10 | 1 |
| Outstanding program 2007 | - | 8,698 | - | 8,698 | - | 596 | 8 | 1 |
| Outstanding at December 31, 2007 | 210,148 | 1,246,483 | 1,154,656 | 2,611,287 | 1,623,842 | 905 |
* The exercise price is an 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 for 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 period of maturity equivalent to the option's expected remaining term to maturity. The expected period of 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:
| 2007 | 2006 | |
|---|---|---|
| Dividend per share, DKK | 5.00 | 4.50 |
| Volatility, % | 25.8 | 26.5 |
| Average risk-free interest, % | 4.2 | 3.9 |
| Share price | 582 | 486 |
Holdings of and trading in Novozymes A/S stocks by the Board of Directors and Management
| Board of | |||
|---|---|---|---|
| Number of stocks | Directors Management | Total | |
| Stock portfolio at January 1, 2006 | 11,997 | 9,019 | 21,016 |
| Change in Management | - | (1,705) | (1,705) |
| Purchase of stocks during the year | - | 48,150 | 48,150 |
| Sale of stocks during the year | (4,000) | (54,553) | (58,553) |
| Stock portfolio at December 31, 2006 | 7,997 | 911 | 8,908 |
| Change in Management | - | (14,420) | (14,420) |
| Purchase of stocks during the year | 7,668 | 5,100 | 12,768 |
| Allocation of stocks during the year | - | 152,145 | 152,145 |
| Sale of stocks during the year | - | (121,325) | (121,325) |
| Stock portfolio at December 31, 2007 | 15,665 | 22,411 | 38,076 |
The stock portfolio had a market value of DKK 4 million at December 31, 2006 and DKK 22 million at December 31, 2007, based on the listed prices at year-end 2006 and 2007 respectively.
| Number of stock options | Options at January 1, 2007 |
Additions during the year |
Exercised during the year |
Options at Dec. 31, |
Market value in 2007 DKK million |
|---|---|---|---|---|---|
| Steen Riisgaard | 31,800 | 48,919 | - | 80,719 | 22.9 |
| Per Falholt | 9,000 | 32,614 | - | 41,614 | 10.1 |
| Benny D. Loft | 8,279 | 32,614 | (4,800) | 36,093 | 7.1 |
| Peder Holk Nielsen | 9,300 | 32,614 | (300) | 41,614 | 10.1 |
| Thomas Videbæk * | 8,279 | 1,575 | (4,800) | 5,054 | 1.2 |
| Thomas Nagy * | 11,179 | 1,575 | (7,700) | 5,054 | 1.2 |
| Holdings of stock options | 77,837 | 149,911 | (17,600) | 210,148 | 52.6 |
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.
| 2007 | 2006 | |
|---|---|---|
| DKK million | DKK million | |
| Remuneration to Management: | ||
| Salaries | 20 | 20 |
| Pensions | 5 | 4 |
| Total remuneration to the Management | 25 | 24 |
| Total remuneration to the Board of Directors | 4 | 3 |
A stock-based incentive program has been adopted for the Management for the period 2004-2006. The targets for the program, which were based on the economic value added, were achieved in 2006, and the allocation of stocks took place in 2007. The Management received a total of 152,145 B shares in 2007.
In 2007 a new four-year stock option program was adopted with annual allocations to the Management. A general condition for the annual allocations is that the budget for the coming year will in all probability lead to sales of DKK 10 billion in 2010. Further, the allocation is based on acheivement of financial and non-financial targets that are set each year. The exercise price is calculated on the basis of the average closing price on the OMX Nordic Exchange Copenhagen A/S on the first five trading days after the publication of the financial statements.
The program contains a maximum clause that allows the Board of Directors to limit the number of stock options that are allocated to the Management over the 4 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 2007 the financial targets had a weighting of 0-75% and the non-financial targets had a weighting of 0-25%. As the financial targets were acheived but some of the non-financial targets were not, the Board of Directors has decided to allocate 179,374 stock options, corresponding to 95% of the maximum available allocation, to Management and Arne W. Schmidt, who retired from the Management in 2007. The allocation applies to the Management team in place at the time the program was adopted.
The total value of the options allocated for 2007, based on the Black-Scholes-model, is DKK 25 million, of which DKK 6 million has been recognized in the income statement for 2007. The intrinsic value of the 146,761 stock options which have been allocated to the current Management over the four-year program was DKK 13 million at December 31, 2007.
Members of the Management have contracts of employment containing standard conditions for members of the Management of Danish listed companies, including with regard to 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.
Hedging of assets and liabilities in foreign currency (transaction risk)
The table below shows the Group's assets and liabilities in foreign currencies at December 31, 2007, 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.
| Currency | Net currency | Dec. 31, 2007 | ||
|---|---|---|---|---|
| DKK million | exposure | Derivatives | exposure | (for 100 units) |
| USD | 102 | (210) | (108) | 507.53 |
| EUR | 321 | (1,161) | (840) | 745.66 |
| CNY | 90 | - | 90 | 69.49 |
| JPY | 39 | (40) | (1) | 4.49 |
| CHF | (641) | 343 | (298) | 449.08 |
| AUD | 171 | (155) | 16 | 445.68 |
| Other | (174) | (174) | ||
| 82 | (1,397) | (1,315) |
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.
| Net investment | ||||
|---|---|---|---|---|
| DKK million | in foreign subsidiaries |
Derivatives | Net assets with translation risk |
Dec. 31, 2007 (for 100 units) |
| AUD | 104 | - | 104 | 445.68 |
| BRL | 110 | - | 110 | 284.67 |
| CAD | 121 | - | 121 | 518.22 |
| CHF | 630 | (275) | 355 | 449.08 |
| CNY | 783 | - | 783 | 69.49 |
| EUR | 95 | - | 95 | 745.66 |
| INR | 112 | - | 112 | 12.89 |
| USD | 622 | (244) | 378 | 507.53 |
| Other | 124 | - | 124 | - |
| 2,701 | (519) | 2,182 |
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 directly in Currency translation under Shareholders' equity.
See the part about Risk factors.
The table below shows the derivatives that the Group has contracted to hedge currency exposure or interest rate exposure to expected 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 (DKK 171 million in 2007, compared with DKK (82) million in 2006).
| 2007 | 2006 | |||
|---|---|---|---|---|
| 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 | 84 | 2 | 107 | 6 |
| 84 | 2 | 107 | 6 | |
| Currency options (purchased put options) | ||||
| USD | 972 | 60 | 824 | 31 |
| 972 | 60 | 824 | 31 | |
| Interest rate swap | ||||
| USD/USD - pays fixed rate of 3.73% / earns variable rate of 5.38% (compared | ||||
| with 5.36% in 2006) | 244 | 1 | 244 | 7 |
| CAD/CAD - pays fixed rate of 6.77% / earns variable rate of 6.16% | 22 | (1) | - | - |
| 266 | - | 244 | 7 | |
| Currency swaps | ||||
| EUR/DKK - pays fixed rate of 4.27% / earns variable rate of 4.93% (compared | ||||
| with 3.88% in 2006) | 250 | 1 | 250 | (4) |
| EUR/USD - pays fixed rate of 3.84% / earns variable rate of 4.91% (compared | ||||
| with 5.37% in 2006) | 527 | (100) | 527 | (52) |
| EUR/USD - pays fixed rate of 4.03% / earns variable rate of 4.86% (compared | ||||
| with 5.37% in 2006) | 384 | (58) | 384 | (24) |
| 1,161 | (157) | 1,161 | (80) | |
| 2,483 | (95) | 2,336 | (36) |
There are no ineffectiveness in cash flow hedging due to 100% hedge accounting.
The forward exchange contracts and currency options fall due in the period January 2008 to December 2008 (January 2007 to December 2007 at the end of 2006), while the interest rate and currency swaps fall due in the period June 2009 - July 2017 (June 2009-March 2013 at the end of 2006).
The Group's expected future net cash flows in USD and JPY are hedged as follows:
| 2007 | 2006 | |
|---|---|---|
| USD | 12 months | 12 months |
| JPY | 6 months | 7 months |
The table below shows the derivative which 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. Accrued interest (2007: DKK 1 million, 2006: DKK 1 million) is entered in the income statement.
| 2007 | 2006 | |||
|---|---|---|---|---|
| Contract | Contract | |||
| amount | amount | |||
| based on | Market value | based on | Market value | |
| DKK million | agreed rates | Dec. 31 | agreed rates | Dec. 31 |
| Currency swap | ||||
| CHF/DKK - pays fixed rate of 3.62% / earns fixed rate of 5.27% | 275 | 6 | 275 | (2) |
| 275 | 6 | 275 | (2) | |
| Currency loan | ||||
| USD - pays variable rate of 4.94% (compared with 5.59% in 2006) | 244 | 41 | 244 | 18 |
| 244 | 41 | 244 | 18 | |
| 519 | 47 | 519 | 16 |
There are no ineffectiveness in hedging of net investment in foreing subsidiaries due to hedge accounting.
The currency swap falls due in September 2008 (September 2008 at the end of 2006), while the loan falls due in June 2009 (June 2009 at the end of 2006).
The table below shows the derivatives which the Group has contracted to hedge currency exposure on financial assets and liabilities which give rise to currency adjustments in the income statement, and derivatives which no longer fulfil the criteria for hedging of cash flows. Gains or losses on market value adjustments at year-end are entered in the income statement.
| 2007 | 2006 | |||
|---|---|---|---|---|
| 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) | ||||
| CHF (net purchase) | 344 | (5) | 407 | (3) |
| AUD | 155 | (1) | 307 | (5) |
| GBP | 11 | (2) | 11 | - |
| JPY | 40 | 1 | 54 | 2 |
| SEK | 185 | - | 86 | - |
| USD | 210 | 1 | 482 | (4) |
| 945 | (6) | 1,347 | (10) |
The forward exchange contracts fall due in the period January 2007 to June 2008 (January 2007 to October 2007 at the end of 2006).
The gain on forward exchange contracts was DKK 23 million (2006: DKK (4) million) compared with a loss on the hedged items of DKK 26 million (2006: DKK 12 million).
The sensitiveness and the description of the credit risk, liquidity risk and marked risk are described under the part of Risk factors.
The carrying amount for the categories Loans and receivables and Other financial liabilities is at December 31, 2007 respectively DKK 1,928 million and DKK 3,587 million (2006: DKK 1,835 million and DKK 3,283 million). For the categories Hedge accounting (asset), Available-for-sale financial asset and Hedge acocounting (liability) the carrying amount appear from the Balance sheet and the Notes.
DKK million DKK million
Commitments
Rental commitments expiring within the following periods from the balance sheet date:
| Within 1 year | 38 | 40 |
|---|---|---|
| Between 1 and 2 years | 32 | 29 |
| Between 2 and 3 years | 27 | 24 |
| Between 3 and 4 years | 24 | 21 |
| Between 4 and 5 years | 19 | 20 |
| After 5 years | 65 | 83 |
| Rental commitments at December 31 | 205 | 217 |
Of which commitments to affiliated companies at December 31, 2007 amount to DKK 42 million, compared with DKK 51 million at December 31, 2006. The above rental commitments relate to noncancelable operational leasing contracts, primarily for buildings and offices.
| The following amounts have been recognized in the consolidated income statement in respect of rental |
64 | 60 |
|---|---|---|
| Other liabilities | ||
| Contractual obligations to third parties relating to investments in assets, etc. |
72 | 83 |
| Other guarantees | ||
| Other guarantees and commitments to affiliated companies |
79 | 85 |
| Other guarantees and commitments | 71 | 157 |
Novozymes is engaged in certain legal proceedings. In the opinion of the Board of Directors and 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 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 which cannot be clearly attributed to either Novo Nordisk A/S or Novozymes A/S. Liability will be distributed proportionally 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:
| 2007 | 2006 | ||
|---|---|---|---|
| DKK million DKK million | |||
| Non-current assets | 41 | 40 | |
| Current assets | 47 | 48 | |
| Total assets | 88 | 88 | |
| Non-current liabilities | (63) | (69) | |
| Current liabilities | (25) | (19) | |
| Total liabilities | (88) | (88) | |
| Net profit | - | - |
Novozymes A/S has not assumed any material contingent liabilities in connection with its interests in these joint ventures.
Related parties are considered to be the Novo Nordisk Foundation, the Novo and Novo Nordisk Groups, the directors of these entities, the Board of Directors and Management of Novozymes A/S, together with their immediate families. Related parties also include companies in which the above persons have significant interests.
The Group has had the following transactions with related parties:
| 2007 | 2006 DKK million DKK million |
|
|---|---|---|
| Sale of goods, materials and services | ||
| Sale of goods and materials: | ||
| - the Novo Nordisk Group | 48 | 63 |
| - minority shareholders in | ||
| subsidiaries | 28 | 36 |
| Sale of services: | ||
| - Novo A/S | - | 4 |
| - the Novo Nordisk Group | 111 | 94 |
| 187 | 197 | |
| Purchase of goods, materials, services and assets |
| Purchase of goods and materials: | ||
|---|---|---|
| - Novo Nordisk A/S | (62) | (48) |
| - minority shareholders in | ||
| subsidiaries | (24) | - |
| Purchase of services: | ||
| - Novo A/S | - | (8) |
| - NNIT A/S | (56) | (58) |
| - Novo Nordisk Servicepartner A/S | (12) | (37) |
| - Novo Nordisk A/S | (57) | (17) |
| - Novo Nordisk Engineering A/S | (66) | (47) |
| - minority shareholders in subsidiaries | (1) | (10) |
| (278) | (225) | |
| - Novo A/S | - | (241) |
|---|---|---|
| - | (241) |
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 Management is presented in Note 24.
| 2007 | 2006 | ||
|---|---|---|---|
| DKK million DKK million | |||
| Receivables: | |||
| Novo A/S | 2 | 1 | |
| The Novo Nordisk Group | 58 | 62 | |
| Minority shareholders in subsidiaries | - | 3 | |
| Receivables at December 31 | 60 | 66 |
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Payables: | ||
| Novo A/S | - | (1) |
| The Novo Nordisk Group | (46) | (32) |
| Payables at December 31 | (46) | (33) |
During the financial year the Novozymes Group has received grants of DKK 8 million for research and development, compared with DKK 9 million in 2006. Government grants are recognized under Other operating income, net. Government grants includes EU grants for various research projects.
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Financial gain/loss due to sale of | ||
| assets | 7 | (13) |
| Allowances for doubtful trade | ||
| receivables | (21) | 5 |
| Corporation tax | 343 | 307 |
| Depreciation, amortization and | ||
| impairment losses | 490 | 469 |
| Share-based payment | 20 | 19 |
| (Gain)/loss on financial assets, etc., net | 16 | 36 |
| Unrealized foreign exchange | ||
| (gain)/loss | 22 | 108 |
| Accrued interest income and interest | ||
| costs | 78 | 26 |
| Change in provisions | 67 | 41 |
| Others items | 6 | (2) |
| Non-cash expenses | 1,028 | 996 |
| 2007 | 2006 | ||
|---|---|---|---|
| DKK million DKK million | |||
| Credit institutions - current | (779) | (426) | |
| Cash at bank and in hand | 460 | 497 | |
| Cash and cash equivalents at | |||
| December 31 | (319) | 71 |
The current term to expiration of the undrawn committed credit facilities exceeds 1 year.
| Biocon enzymes business | Philom Bios Inc. | Total | ||||
|---|---|---|---|---|---|---|
| Carrying | Fair | Carrying | Fair | Carrying | Fair | |
| amount | value on | amount | value on | amount | value on | |
| prior to | date of | prior to | date of | prior to | date of | |
| acquisition | acquisition | acquisition | acquisition | acquisition | acquisition | |
| The assets and liabilities arising from acquisitions are as follows: | ||||||
| Intangible assets | - | 318 | 1 | 59 | 1 | 377 |
| Property, plant and equipment | 7 | 9 | 37 | 37 | 44 | 46 |
| Inventories | 23 | 29 | 21 | 24 | 44 | 53 |
| Receivables and prepayments | 40 | 40 | 7 | 7 | 47 | 47 |
| Cash and cash equivalents | - | - | 8 | 8 | 8 | 8 |
| Liabilities | 9 | 9 | 34 | 55 | 43 | 64 |
| Acquired net assets | 61 | 387 | 40 | 80 | 101 | 467 |
| Goodwill on acquisitions | 218 | 39 | 257 | |||
| Total purchase price | 605 | 119 | 724 | |||
| Less: | ||||||
| Cash and cash equivalents in acquired | ||||||
| companies | - | 8 | 8 | |||
| Cash outflow from acquistion of companies | 605 | 111 | 716 | |||
| The acquired assets and goodwill comprise the following: | ||||||
| Cash consideration | 593 | 116 | 709 | |||
| Direct costs attributable to the acquisitions | 12 | 3 | 15 | |||
| Total purchase price | 605 | 119 | 724 | |||
| Fair value of acquired net assets | 387 | 80 | 467 | |||
| Goodwill | 218 | 39 | 257 |
On October 1, 2007 Novozymes purchased the activities in the enzyme part of Biocon Limited. The total purchase price was DKK 605 million including discounting of future payments to achieve certain business targets.
The fair value figures stated are to a certain extent based on measurements made by an external assessor, but a few items have been calculated using information available, and may be changed subsequently if new information comes to light.
On December 10, 2007 Novozymes purchased the stocks in Philom Bios Inc. The total purchase price was DKK 119 million.
The fair value figures stated for Philom Bios Inc. are based on a preliminary measurement, as it was not possible to complete the measurements by the time the financial statements were prepared due to the short period of ownership.
Goodwill represents the difference between the value of the acquired companies/activities and the value allocated to the specified net assets. Goodwill is thus an expression for assets for which a value cannot be measured reliably, including early-stage research projects and expected synergies arising in connection with amalgamation with the existing business.
Sales of DKK 20 million and a minor loss have been recognized in the group´s income statement for 2007 for the acquired companies. It has not been possible to disclose the combined sales and result from the beginning of the financial year as the financial years and accounting policies of the acquisitions did not conform to those of the Novozymes Group, and because no separate financial statements were prepared for Biocon's enzyme activities in the period as these were an integrated part of the Biocon group.
| GroPep Ltd | Others | |||||
|---|---|---|---|---|---|---|
| Final | Preliminary statement of statement of |
Final | Preliminary statement of statement of |
|||
| fair value | fair value | fair value | fair value | |||
| on date of | on date of | on date of | on date of | |||
| acquisition | acquisition | Changes | acquisition | acquisition | Changes | |
| The assets and liabilities arising from acquisitions are as follows: | ||||||
| Intangible assets | 197 | 247 | (50) | 74 | 74 | - |
| Property, plant and equipment | 58 | 49 | 9 | 41 | 41 | - |
| Inventories | 44 | 38 | 6 | 70 | 70 | - |
| Receivables and prepayments | 12 | 19 | (7) | 57 | 57 | - |
| Cash and cash equivalents | 51 | 51 | - | 13 | 13 | - |
| Liabilities | 27 | 31 | 4 | 211 | 191 | (20) |
| Acquired net assets | 335 | 373 | (38) | 44 | 64 | (20) |
| Goodwill on acquisitions | 116 | 78 | 38 | 46 | 26 | 20 |
| Total purchase price | 451 | 451 | 90 | 90 | ||
| Less: | ||||||
| Cash and cash equivalents in acquired companies | 51 | 51 | - | 13 | 13 | - |
| Cash outflow from acquisions of companies | 400 | 400 | 77 | 77 |
The preliminary statements of fair value on the acquisition date given in the financial statements for 2006 were finalized in 2007. The corrections have been recognized in the respective items and included in additions where specified.
In conformity with generally accepted accounting principles, calculation of the carrying amount of certain assets and liabilities requires estimates and judgments of 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 natural uncertainty.
Judgments and estimates critical to Novozymes' presentation of financial statements include those made in determining allowances for doubtful trade receivables, recognition of indirect production costs in inventories, determination of provisions and calculation of corporation tax.
Annual impairment testing of goodwill is also based on a number of assumptions when establishing expected cash flows for a number of years ahead. This naturally entails a certain degree of uncertainty.
| 2007 | 2006 | |
|---|---|---|
| 3 1,000 m |
3 1,000 m |
|
| Drinking water | 3,275 | 3,122 |
| Industrial water | 1,807 | 1,548 |
| Steam | 282 | 223 |
| Water, total | 5,364 | 4,893 |
| 2007 | 2006 | |
|---|---|---|
| 1,000 GJ | 1,000 GJ | |
| Coal | 17 | 20 |
| Gas oil | 40 | 77 |
| Heavy fuel oil | 184 | 205 |
| Light fuel oil | 11 | 12 |
| Natural gas | 604 | 532 |
| Internally generated energy, total | 856 | 846 |
| 2007 | 2006 | |
|---|---|---|
| 3 1,000 m |
3 1,000 m |
|
| Volume | 679 | 646 |
| Nitrogen, tons | 11 | 15 |
| Phosphorus, tons | 14 | 10 |
| 2007 | 2006 Tons |
||
|---|---|---|---|
| Tons | |||
| Incineration | 1,553 | 1,184 | |
| Landfilling | 3,348 | 3,039 | |
| Recycling | 4,476 | 3,633 | |
| Other | 937 | 781 | |
| Waste, total | 10,314 | 8,637 |
| 2007 | 2006 | |
|---|---|---|
| 1,000 tons 1,000 tons | ||
| Internally generated energy | 54 | 55 |
| Externally generated energy | 432 | 351 |
| CO2 emissions, total |
486 | 406 |
| 2007 | 2006 | |
|---|---|---|
| 1,000 tons 1,000 tons | ||
| Internally generated energy | 54 | 55 |
| Externally generated energy | 432 | 351 |
| Ozone-depleting substances, HCFCs | 2 | 2 |
| CO2 -equivalents, total |
488 | 408 |
| Kg | Kg |
|---|---|
| 42 | 52 |
| 42 | 52 |
| 2007 | 2006 | |
|---|---|---|
| No. | No. | |
| Women | 1,743 | 1,625 |
| Men | 3,190 | 2,919 |
| Employees, total | 4,933 | 4,544 |
| Full-time employees | 4,661 | 4,284 |
| Part-time employees | 272 | 260 |
| Employees, total | 4,933 | 4,544 |
| Denmark | 2,220 | 2,234 |
| Rest of Europe, Middle East and Africa | 405 | 406 |
| North America | 791 | 659 |
| Asia Pacific | 1,336 | 1,064 |
| Latin America | 181 | 181 |
| Employees, total | 4,933 | 4,544 |
| Senior management | 150 | 141 |
| Management | 661 | 596 |
| Professional | 1,231 | 1,131 |
| Administrative | 564 | 542 |
| Skilled workers, laboratory technicians and | ||
| other technicians | 998 | 876 |
| Process operators | 1,329 | 1,258 |
| Employees, total | 4,933 | 4,544 |
| 2007 | 2006 % |
|
|---|---|---|
| % | ||
| Senior management | 16.7 | 17.0 |
| Management | 30.6 | 28.2 |
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.
| 2007 No. |
2006 | |
|---|---|---|
| No. | ||
| Net growth in number of employees, | ||
| organic | 156 | 197 |
| Net growth in number of employees, | ||
| acquisitions | 233 | 279 |
| Resignation | 387 | 319 |
| 2007 | 2006 % |
|
|---|---|---|
| % | ||
| Senior management, Management, | ||
| professional and administrative | 1.2 | 1.2 |
| Skilled workers, laboratory technicians, | ||
| other technicians and process operators | 3.4 | 3.5 |
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.
| 2007 No. |
2006 | |
|---|---|---|
| No. | ||
| Return to original job | 28 | 25 |
| No longer employed by Novozymes, | ||
| but still able to work | 1 | 0 |
| Out of work or retirement | 3 | 0 |
| Case pending | 4 | 2 |
| Occupational accidents, total | 36 | 27 |
| Total days of absence | 881 | 556 |
For the purpose of comparison, cases which were pending at the end of 2006 have been updated in line with information available at the end of 2007. The derived figure for total days of absence has also been updated.
| 2007 No. |
2006 No. |
|
|---|---|---|
| Return to original job | 8 | 5 |
| Return to a different job in the same | ||
| department | 0 | 0 |
| Transfer to a different job in another | ||
| department | 1 | 1 |
| No longer employed by Novozymes, | ||
| but still able to work | 0 | 1 |
| Out of work or early retirement | 1 | 1 |
| Case pending | 3 | 3 |
| Occupational diseases, total | 13 | 11 |
| Total days of absence | 254 | 204 |
| DKK million | 2007 | 2006 | 2005 | 2004 | 2003 | |
|---|---|---|---|---|---|---|
| Income statement | ||||||
| Sales | 7,438 | 6,802 | 6,281 | 5,988 | 5,775 | |
| Research and development costs | 995 | 880 | 793 | 780 | 749 | |
| EBITDA | 1,971 | 1,809 | 1,668 | 1,584 | 1,505 | |
| Operating profit | 1,481 | 1,340 | 1,206 | 1,089 | 998 | |
| Financial items, net | (96) | (122) | (56) | (33) | 32 | |
| Profit before tax | 1,385 | 1,218 | 1,150 | 1,056 | 1,030 | |
| Net profit | 1,042 | 911 | 861 | 775 | 746 | |
| Balance sheet | ||||||
| Fixed assets | 5,218 | 4,379 | 3,970 | 3,908 | 4,206 | |
| Current assets | 3,653 | 3,586 | 3,339 | 3,168 | 3,292 | |
| Total assets | 8,871 | 7,965 | 7,309 | 7,076 | 7,498 | |
| Share capital | 650 | 650 | 696 | 726 | 754 | |
| Shareholders' equity | 3,667 | 3,393 | 3,794 | 3,947 | 4,079 | |
| Non-current liabilities | 2,810 | 2,634 | 2,073 | 1,865 | 1,970 | |
| Current liabilities | 2,394 | 1,938 | 1,442 | 1,264 | 1,449 | |
| Net interest-bearing debt | 1,769 | 1,455 | 877 | 638 | 782 | |
| Investments and cash flows | ||||||
| Cash flow from operating activities | 1,714 | 1,534 | 1,326 | 1,287 | 1,374 | |
| Cash flow from investing activities, net | (1,467) | (953) | (335) | (207) | (574) | |
| Of which investments in property, plant and equipment, net | (729) | (463) | (324) | (279) | (389) | |
| Free cash flow | 247 | 581 | 991 | 1,080 | 800 | |
| Cash flow from financing activities | (631) | (851) | (1,136) | (1,029) | (998) | |
| Net cash flow | (384) | (270) | (145) | 51 | (198) | |
| Key figures | ||||||
| Sales outside Denmark as a percentage of sales | % | 98.2 | 98.2 | 96.9 | 95.8 | 96.2 |
| Research and development costs as a percentage of sales | % | 13.4 | 12.9 | 12.6 | 13.0 | 13.0 |
| EBITDA margin | % | 26.5 | 26.6 | 26.6 | 26.5 | 26.1 |
| Operating profit margin | % | 19.9 | 19.7 | 19.2 | 18.2 | 17.3 |
| Net profit margin | % | 14.0 | 13.4 | 13.7 | 12.9 | 12.9 |
| Effective tax rate | % | 24.8 | 25.2 | 25.1 | 26.6 | 27.6 |
| Equity ratio | % | 41.3 | 42.6 | 51.9 | 55.8 | 54.4 |
| Return on equity | % | 29.5 | 25.4 | 22.2 | 19.3 | 18.2 |
| ROIC including goodwill | % | 21.7 | 20.2 | 19.3 | 17.4 | 15.5 |
| ROIC excluding goodwill | % | 23.4 | 21.1 | 19.8 | 18.1 | 16.0 |
| WACC | % | 8.1 | 7.5 | 5.9 | 5.8 | 6.0 |
| Country | Activity | Issued share capital/paid-up capital |
Percentage of shares owned |
||
|---|---|---|---|---|---|
| Novozymes Australia Pty. Ltd. | Australia | AUD | 500,000 | 100 | |
| Novozymes GroPep Holding Pty. Ltd. | Australia | AUD | 30,000,001 | 100 | |
| Novozymes Biopharma AU Ltd. | Australia | AUD | 101,184,909 | 100 | |
| Novozymes Austria GmbH | Austria | EUR | 36,337 | 100 | |
| Novozymes Belgium BV | Belgium | EUR | 18,600 | 100 | |
| Novozymes Latin America Ltda. | Brazil | BRL | 23,601,906 | 100 | |
| Philom Bios Inc. | Canada | CAD | 4,079,799 | 100 | |
| Philom Bios Investments, 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 | 82 | |
| Suzhou Hongda Enzyme Co. Ltd. | China | CNY | 356,744,150 | 96 | |
| Novozymes A/S | Denmark | DKK | 650,000,000 | 100 | |
| Novozymes Bioindustrial A/S | Denmark | DKK | 1,000,000 | 100 | |
| Novozymes Bioindustrial China A/S | Denmark | DKK | 729,700,000 | 100 | |
| Novozymes Biopolymer A/S | Denmark | DKK | 710,000 | 100 | |
| Novozymes Biopolymer Holding A/S | Denmark | DKK | 710,000 | 100 | |
| Novozymes Biopharma DK A/S | Denmark | DKK | 2,500,000 | 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 | 10.000 | 100 | |
| Novozymes South Asia Pvt. Ltd. | India | INR | 50,000,020 | 100 | |
| Novozymes Italia S.r.l. | Italy | EUR | 10,400 | 100 | |
| Novozymes Biologicals Japan Ltd. | Japan | JPY | 30,000,000 | 100 | |
| Novozymes Japan Ltd. | Japan | JPY | 300,000,000 | 100 | |
| Novozymes Malaysia Sdn. Bhd. | Malaysia | MYR | 6,666,414 | 100 | |
| Novozymes Mexico, S.A. de C.V. | Mexico | MXN | 35,224,200 | 100 | |
| Novozymes Mexicana, S.A. de C.V. | Mexico | MXN | 338,100 | 100 | |
| Novozymes Netherlands B.V. | Netherlands | EUR | 18,000 | 100 | |
| Novozymes Singapore Pte. Ltd. | Singapore | SGD | 2,000,000 | 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, 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 | |
| Novozymes Biopolymer US, Inc. | USA | USD | 1 | 100 | |
| Novozymes Biopharma US, Inc. | USA | USD | 1 | 100 | |
| Philom Bios Ltd. | USA | USD | 100 | 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 price of the Novozymes B share ended the year at DKK 582, up DKK 96, or 20%, from the beginning of the year.
The Novozymes share performed 16 percentage points better than the OMXC20 Index on the OMX Nordic Exchange Copenhagen, which climbed 4% during the year. The Novozymes share generally performed better than or equal to other relevant stock indexes.
In 2007, for the seventh year in a row, Dow Jones Sustainability Indexes named Novozymes as the listed biotechnology company with the greatest capacity to create long-term shareholder value.
The total value of Novozymes' B shares at the end of the year comprised DKK 31.6 billion. Measured by turnover, the share was the eigth most traded share on the OMX Nordic Exchange Copenhagen in 2007. In 2006, the share was the eleventh most traded share. In daily trading, the share turnover varied greatly during the year. On an average day during the year, over 277,000 shares were traded.
At year-end, the share capital comprised DKK 650 million, or 65 million shares.
Novozymes invested a total of DKK 500 million in share buy-backs in 2007, and holdings of treasury shares made up 4.9% of the total share capital at year-end.
– relative price movements against relevant share indexes
| Share-related key figures | 2007 | 2006 |
|---|---|---|
| Share price (DKK) | ||
| – high | 705.0 | 497.5 |
| – low | 461.0 | 327.0 |
| – year-end | 582.0 | 486.0 |
| Year-end capitalization and turnover (DKK billion) | ||
| – B shares | 31.6 | 26.4 |
| Turnover, all trades | 39.6 | 23.0 |
| No. of shares, average (million) | ||
| – diluted | 63.6 | 64.5 |
| No. of shares, year-end (million) | ||
| – issued | 65.0 | 65.0 |
| – outstanding | 61.8 | 61.8 |
| – diluted | 63.4 | 63.7 |
| Shares not strategically owned (free float) | 2007 | 2006 |
| – all shares | 74.5% | 74.5% |
| – B shares | 89.3% | 89.3% |
| Key figures | ||
| Earnings per share, diluted (DKK) | 16.47 | 14.09 |
| Cash flow from operating activities per share, | ||
| diluted (DKK) | 26.94 | 23.78 |
| Dividend per share (DKK) | 5.00 | 4.50 |
| Year-end dividend yield (%) | 0.9 | 0.9 |
Novozymes A/S' B shares are listed on the OMX Nordic Exchange Copenhagen and are traded under ticker code NZYM B and ISIN DK0010272129 with a nominal value of DKK 10.
| Share capital (DKK) |
Votes | Votes (%) |
|
|---|---|---|---|
| A shares | 107,487,200 | 1,074,872,000 | 66.5 |
| B shares | 542,512,800 | 542,512,800 | 33.5 |
| Total | 650,000,000 | 1,617,384,800 | 100 |
The A share capital is held by Novo A/S, which is wholly owned by the Novo Nordisk Foundation. In addition, Novo A/S holds 5,826,280 B shares, which overall gives Novo A/S 25.5% of the total share capital and 66.8% of the votes. This is why Novozymes is included in the consolidated statements of the Novo Nordisk Foundation. Novo A/S is domiciled in Gladsaxe, Denmark.
Novozymes' holding of treasury shares has been included when calculating the numbers and percentages of votes held.
| Name | % of B share capital |
% of total share capital |
|---|---|---|
| Novo A/S, Gladsaxe | 10.7% | 25.5% |
| Novozymes A/S, Gladsaxe, Denmark | 5.9% | 4.9% |
| Danish ATP, Hillerød, Denmark | 6.3% | 5.3% |
| Institutional Investors, etc. | 60.3% | 50.3% |
| Private Investors | 16.8% | 14.0% |
| Total | 100% | 100% |
It is estimated that the number of private shareholders is about 50,000 to 60,000.
| % of | % of total | |
|---|---|---|
| Country/region | B share capital | share capital |
| Denmark | 56% | 63% |
| Rest of Europe | 22% | 18% |
| North America | 22% | 19% |
| Rest of the world | 0% | 0% |
| Total | 100% | 100% |
The Board of Directors proposes a dividend of DKK 5.00 per share for 2007, compared to DKK 4.50 per share for 2006. The dividend is disbursed in DKK less the statutory 28% deduction of Danish withholding tax. Shareholders resident in some countries may be eligible for a refund of withholding tax deducted in Denmark, subject to the double-taxation agreements in force between Denmark and the countries concerned.
| Resolution adopted at | |
|---|---|
| the Annual General Meeting | March 5, 2008 |
| Last day of trading with right | |
| to dividend for 2007 | March 5, 2008 |
| First day of trading without right | |
| to dividend for 2007 | March 6, 2008 |
| Calculation date | March 6, 2008 |
| Disbursement of dividend | March 9, 2008 |
| March 5, 2008 | Annual General Meeting |
|---|---|
| April 24, 2008 | First quarter 2008 Group financial |
| statement | |
| August 14, 2008 | First half 2008 Group financial statement |
| October 31, 2008 | First nine months of 2008 Group finan |
| cial statement | |
The shareholder magazine The Zymes is distributed twice a year to all shareholders registered by name, in connection with the notice convening the Annual General Meeting and after the publication of the financial statement for the first half of the year.
The following 19 companies were covering the company at year-end:
Visit Investor på www.novozymes.com for investor relations guidelines and information for both private and institutional shareholders, or contact Investor Relations:
Tel.: +45 4446 0852 Mobile: +45 3077 0852 Fax: +45 4442 1002 [email protected]
Tel.: +1 919 494 3483 Mobile: +1 919 649 2565 Fax: +1 919 494 3450 [email protected]
Tel.: +45 4446 0341 Mobile: +45 3077 0341 Fax: +45 4446 1002 [email protected]
Novozymes is registered with the Danish Commerce and Companies Agency under: 10 00 71 27
The financial statements of Novozymes A/S have been prepared in accordance with the Danish Financial Statements Act (accounting class D) and the regulations of the OMX Nordic Exchange Copenhagen on the presentation of accounts by listed companies. The accounting policies are unchanged from last year.
As the accounting policies for Novozymes A/S only differ from those of the Group, which follow IFRS, with respect to a few items, only the accounting policies which differ from the Group's are detailed below. Reference is made to the accounting policies for the Novozymes Group for the other items.
Revenue is recognized in the income statement as it is earned. Value adjustments of financial assets and liabilities measured at fair value or amortized cost are also recognized in the income statement. All costs incurred in generating the year's revenue are also recognized in the income statement, including depreciation, amortization and impairment losses.
Assets are recognized in the balance sheet when it is considered probable that future economic benefits will accrue to the company, and the value of the asset can be measured on a reliable basis. Liabilities are recognized in the balance sheet when they are considered probable and can be measured on a reliable basis. When first recognized, assets and liabilities are measured at cost. Thereafter assets and liabilities are measured as described below for each item of the accounts.
The recognition and measurement principles take due account of predictable losses and risks occurring prior to the presentation of the financial statements that confirm or refute the conditions prevailing on the balance sheet date.
Acquisition of new companies is treated by use of the purchase method, and the assets and liabilities of each new company are thus restated at fair value at the time of acquisition. Goodwill is recognized as an asset in the balance sheet and amortized over the expected useful life. Goodwill from acquisitions is adjusted for changes in recognition and measurement of net assets until one full financial year after the date of acquisition. Amortization of goodwill is allocated in the financial statements to the functions to which it relates. Newly acquired companies are recognized as from the date of acquisition and no adjustment is made to comparative figures.
The accounting policies for intangible fixed assets follow those of the Group, with the exception of goodwill, which is amortized over the useful life, not exceeding 20 years.
Participating interests in subsidiaries are recognized using the equity method, i.e. at the respective proportion of the shareholders' equity of subsidiaries with addition of goodwill.
The company's share of the net profits of subsidiaries less unamortized intercompany profits on inventories is recognized in the income statement of the parent company. If the shareholders' equity of subsidiaries is negative, receivables from the subsidiaries will be offset against the parent company's share of the negative equity on the basis of a concrete assessment. If the parent company has a legal or constructive obligation to cover the company's negative equity, a provision is recognized.
To the extent that it exceeds dividends received from such subsidiaries, net revaluation of participating interests in subsidiaries is recognized in the net revaluation reserve under Shareholders' equity.
From the time of the Demerger, shares in Novo Nordisk A/S are recognized in the balance sheet as Securities under Current assets. Shares in Novo Nordisk A/S are used to hedge share option commitments for which Novozymes A/S is liable, and are recognized at the option prices.
The dividend proposed for the financial year is shown as a separate item under Shareholders' equity.
| 2007 | 2006 | ||
|---|---|---|---|
| Note | DKK million DKK million | ||
| 1 | Net turnover | 4,010 | 3,853 |
| 2 | Cost of goods sold | 2,320 | 2,057 |
| Gross profit | 1,690 | 1,796 | |
| 2 | Sales and distribution costs | 530 | 516 |
| 2 | Research and development costs | 810 | 632 |
| 2, 3 | Administrative costs | 403 | 457 |
| Other operating income, net | 769 | 758 | |
| Operating profit | 716 | 949 | |
| 7 | Income before tax on participating interests in subsidiaries | 678 | 370 |
| 4 | Financial income | 63 | 59 |
| 4 | Financial costs | 106 | 155 |
| Profit before tax | 1,351 | 1,223 | |
| Corporation tax | 340 | 309 | |
| Net profit | 1,011 | 914 | |
| Proposed appropriation of net profit | |||
| Dividend to shareholders | 309 | 278 | |
| Revaluation reserve according to the equity method | 147 | (15) | |
| Retained earnings | 555 | 651 | |
| 1,011 | 914 | ||
| Proposed dividend per share | DKK 5.00 | DKK 4.50 |
| Share capital DKK million |
Revaluation reserve according to the equity method DKK million |
Treasury shares DKK million |
Retained earnings DKK million |
Proposed dividend DKK million |
Total DKK million |
|
|---|---|---|---|---|---|---|
| Shareholders' equity at January 1, 2007 | 650 | 647 | (1,449) | 3,200 | 279 | 3,327 |
| Net profit | 147 | 864 | 1,011 | |||
| Dividend: | ||||||
| Dividend paid | (293) | (293) | ||||
| Dividend paid relating to treasury shares | 14 | 14 | ||||
| Proposed dividend, gross | (325) | 325 | - | |||
| Proposed dividend relating to treasury shares | 16 | (16) | - | |||
| Treasury shares: | ||||||
| Purchase of treasury shares | (500) | (500) | ||||
| Sale of treasury shares | 112 | 112 | ||||
| Currency translation of investments in | ||||||
| subsidiaries, etc. | (134) | (134) | ||||
| Value adjustment of hedging instruments | 67 | 67 | ||||
| Other adjustments | (18) | (18) | ||||
| Shareholders' equity, December 31, 2007 | 650 | 794 | (1,837) | 3,670 | 309 | 3,586 |
| Share capital DKK million |
Revaluation reserve according to the equity method DKK million |
Treasury shares DKK million |
Retained earnings DKK million |
Proposed dividend DKK million |
Total DKK million |
|
|---|---|---|---|---|---|---|
| Shareholders' equity at January 1, 2006 | 696 | 662 | (1,659) | 3,797 | 256 | 3,752 |
| Net profit | (15) | 929 | 914 | |||
| Dividend: | ||||||
| Dividend paid | (278) | (278) | ||||
| Dividend paid relating to treasury shares | 23 | 23 | ||||
| Proposed dividend, gross | (292) | 292 | - | |||
| Proposed dividend relating to treasury shares | 14 | (14) | - | |||
| Treasury shares: | ||||||
| Purchase of treasury shares | (1,107) | (1,107) | ||||
| Sale of treasury shares | 111 | 111 | ||||
| Write-down of share capital | (46) | 1,206 | (1,160) | - | ||
| Currency translation of investments in | ||||||
| subsidiaries, etc. | (175) | (175) | ||||
| Value adjustment of hedging instruments | 107 | 107 | ||||
| Other adjustments | (20) | (20) | ||||
| Shareholders' equity, December 31, 2006 | 650 | 647 | (1,449) | 3,200 | 279 | 3,327 |
Reference is made to Note 18 in the consolidated financial statements concerning treasury shares and average number of shares.
| Dec. 31, 2007 Dec. 31, 2006 | |||
|---|---|---|---|
| Note | DKK million DKK million | ||
| ASSETS | |||
| Completed IT development projects | 47 | 48 | |
| Acquired patents, licenses and know-how | 476 | 232 | |
| Goodwill | 3 | 3 | |
| IT development projects in progress | 31 | 33 | |
| 5 | Intangible fixed assets | 557 | 316 |
| Land and property | 965 | 1,001 | |
| Production equipment and machinery | 565 | 579 | |
| Other equipment | 169 | 196 | |
| Property, plant and equipment under construction | 482 | 261 | |
| 6 | Property, plant and equipment | 2,181 | 2,037 |
| Participating interests in subsidiaries | 2,354 | 2,136 | |
| Other securities and participating interests | 50 | 56 | |
| 7 | Financial fixed assets | 2,404 | 2,192 |
| Total fixed assets | 5,142 | 4,545 | |
| Raw materials and consumables | 102 | 95 | |
| Work in progress | 193 | 238 | |
| Finished goods | 431 | 431 | |
| Inventories | 726 | 764 | |
| Trade receivables | 438 | 404 | |
| Amounts owed by affiliated companies | 2,084 | 1,244 | |
| Tax receivable | 105 | 131 | |
| 8 | Other receivables | 147 | 119 |
| Receivables | 2,774 | 1,898 | |
| Securities | 34 | 55 | |
| Cash at bank and in hand | 92 | 84 | |
| Total current assets | 3,626 | 2,801 | |
| Total assets | 8,768 | 7,346 |
| Dec. 31, 2007 Dec. 31, 2006 | |||
|---|---|---|---|
| Note | DKK million DKK million | ||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||
| 9 | Share capital | 650 | 650 |
| Revaluation reserve according to the equity method | 794 | 647 | |
| Treasury shares | (1,837) | (1,449) | |
| Retained earnings | 3,670 | 3,200 | |
| Proposed dividend | 309 | 279 | |
| Total shareholders' equity | 3,586 | 3,327 | |
| Provisions for deferred tax | 320 | 231 | |
| Other provisions | 12 | 11 | |
| Total provisions | 332 | 242 | |
| 10 | Credit institutions | 1,682 | 1,708 |
| Total non-current liabilities | 1,682 | 1,708 | |
| Credit institutions | 625 | 435 | |
| Trade payables | 233 | 219 | |
| Amounts owed to affiliated companies | 1,829 | 954 | |
| Other payables | 481 | 461 | |
| Total current liabilities | 3,168 | 2,069 | |
| Total liabilities | 4,850 | 3,777 | |
| Total liabilities and shareholders' equity | 8,768 | 7,346 |
Notes regarding:
11 Segment information
12 Contingent liabilities and pending litigation
13 Related party transactions
14 Joint ventures
15 Statement of cash flows
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Geographical distribution: | ||
| Denmark | 131 | 121 |
| Rest of Europe, Middle East and Africa | 2,599 | 2,428 |
| North America | 536 | 497 |
| Asia Pacific | 561 | 642 |
| Latin America | 183 | 165 |
| Total net turnover | 4,010 | 3,853 |
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Wages and salaries | 1,105 | 1,062 |
| Pensions—defined contribution plans | 104 | 97 |
| Other social security costs | 18 | 17 |
| Other employee costs | 65 | 43 |
| Total employee costs | 1,292 | 1,219 |
Reference is made to Note 24 in the consolidated financial statements concerning remuneration to the Board of Directors and Management.
| Average number of employees in | ||
|---|---|---|
| Novozymes A/S | 2,237 | 2,201 |
| 2007 | 2006 | ||
|---|---|---|---|
| DKK million DKK million | |||
| Fees to the auditor elected by the Annual General Meeting of Shareholders, PricewaterhouseCoopers |
|||
| Total fee | 8 | 8 | |
| of which pertaining to audit | 4 | 4 |
| 2007 | 2006 | ||
|---|---|---|---|
| DKK million DKK million | |||
| Interest income relating to subsidiaries | 57 | 29 | |
| Interest costs relating to subsidiaries | 42 | 22 |
| Acquired | IT | |||||
|---|---|---|---|---|---|---|
| Completed IT | patents, | development | ||||
| development | licenses and | projects in | ||||
| projects | know-how | Goodwill | progress | Total | ||
| DKK million DKK million DKK million DKK million DKK million | ||||||
| Cost at January 1, 2007 | 265 | 444 | 4 | 33 | 746 | |
| Acquisitions during the year | - | 273 | - | - | 273 | |
| Additions during the year | 9 | - | - | 11 | 20 | |
| Disposals during the year | (31) | (104) | - | - | (135) | |
| Transfer (to)/from other items | 13 | - | - | (13) | - | |
| Cost at December 31, 2007 | 256 | 613 | 4 | 31 | 904 | |
| Amortization and impairment losses, January 1, 2007 | 217 | 212 | 1 | 430 | ||
| Amortization and impairment losses for the year | 23 | 29 | 52 | |||
| Amortization and impairment losses eliminated on disposals during the | ||||||
| year | (31) | (104) | - | (135) | ||
| Amortization and impairment losses at December 31, 2007 | 209 | 137 | 1 | 347 | ||
| Carrying amount at December 31, 2007 | 47 | 476 | 3 | 31 | 557 |
| Property, | |||||
|---|---|---|---|---|---|
| Production | plant and | ||||
| equipment | equipment under |
||||
| Land and | and | Other | |||
| property | machinery | equipment | construction | Total | |
| DKK million DKK million DKK million DKK million DKK million | |||||
| Cost at January 1, 2007 | 1,739 | 2,793 | 717 | 261 | 5,510 |
| Additions during the year | - | 61 | 17 | 300 | 378 |
| Disposals during the year | - | (21) | (98) | (119) | |
| Transfer (to)/from other items | 7 | 56 | 16 | (79) | - |
| Cost at December 31, 2007 | 1,746 | 2,889 | 652 | 482 | 5,769 |
| Depreciation and impairment losses, January 1, 2007 | 738 | 2,214 | 521 | 3,473 | |
| Depreciation and impairment losses for the year | 43 | 130 | 57 | 230 | |
| Depreciation and impairment losses eliminated on disposals during the | |||||
| year | - | (20) | (95) | (115) | |
| Depreciation and impairment losses at December 31, 2007 | 781 | 2,324 | 483 | 3,588 | |
| Carrying amount at December 31, 2007 | 965 | 565 | 169 | 482 | 2,181 |
The latest official evaluation of the company's properties for property tax purposes amounts to DKK 1,106 million.
| Other securities | |||
|---|---|---|---|
| Participating | and | ||
| interests in | participating | ||
| subsidiaries | interests | Total | |
| DKK million | DKK million | DKK million | |
| Cost at January 1, 2007 | 1,674 | 56 | 1,730 |
| Additions during the year | 219 | 3 | 222 |
| Disposals during the year | (51) | (9) | (60) |
| Cost at December 31, 2007 | 1,842 | 50 | 1,892 |
| Revaluation reserve at January 1, 2007 | 462 | 462 | |
| Profit before tax | 678 | 678 | |
| Corporation tax on profit for the year | (198) | (198) | |
| Dividends received | (333) | (333) | |
| Currency adjustment | (134) | (134) | |
| Other adjustments | 37 | 37 | |
| Revaluation reserve at December 31, 2007 | 512 | 512 | |
| Carrying amount at December 31, 2007 | 2,354 | 50 | 2,404 |
Participating interests in subsidiaries are detailed in the overview of companies in the Novozymes Group in the consolidated financial statements.
| 2007 | 2006 | |
|---|---|---|
| DKK million DKK million | ||
| Public authorities | - | 8 |
| Prepaid expenses | 19 | 23 |
| Hedging instruments | 80 | 44 |
| Other receivables | 48 | 44 |
| Total other receivables at December | ||
| 31 | 147 | 119 |
Reference is made to Note 18 in the consolidated financial statements concerning treasury shares and share capital.
| Note 10 - Credit institutions | ||
|---|---|---|
| 2007 | 2006 | |
| DKK million DKK million | ||
| Non-current loans in credit institutions | ||
| that fall due after 5 years amount to | 557 | 557 |
Reference is made to Note 1 in the consolidated financial statements concerning segment information.
| Note 12 - Contingent liabilities and pending litigation | ||||
|---|---|---|---|---|
| 2007 | 2006 |
DKK million DKK million
Rental and leasing commitments expiring within the following periods from the balance sheet date:
| Within 1 year | 17 | 19 |
|---|---|---|
| Between 1 and 2 years | 13 | 14 |
| Between 2 and 3 years | 10 | 11 |
| Between 3 and 4 years | 9 | 10 |
| Between 4 and 5 years | 7 | 9 |
| After 5 years | 15 | 22 |
| Total contingent liabilities at | ||
| December 31 | 71 | 85 |
The above rental and leasing commitments are related to noncancelable operational leasing contracts.
| 44 | 38 |
|---|---|
| 2007 | 2006 DKK million DKK million |
|
|---|---|---|
| Other contingent liabilities | ||
| Contractual obligations to third parties relating to capital expenditure |
63 | 51 |
| Other guarantees and commitments to third parties |
41 | 96 |
| Other guarantees and commitments to affiliated companies |
590 | 157 |
Reference is made to Note 27 in the consolidated financial statements concerning pending cases.
Reference is made to Note 27 in the consolidated financial statements concerning liability for the debts and obligations of Novo Nordisk A/S.
Reference is made to Note 29 in the consolidated financial statements concerning transactions with related parties.
Reference is made to Note 28 in the consolidated financial statements concerning joint ventures.
Reference is made to the Statement of cash flows and financial resources in the consolidated financial statements.
Bioethanol Fuel produced using fermentable sugars from cereals, corn (maize) or other grains (first generation), or from cellulosic biomass such as straw, stalks (stover) and other plant waste (second generation).
Biopolymers Relatively large chains (= polymers) of molecules that are found in all living (= bio: human beings, animals and plants), for example in the form of proteins or carbohydrates.
Corporate governance Systems used to manage and control a company. In essence, corporate governance deals with internal processes; the general principles to which companies' management should comply; and how companies' management structures and tasks can most effectively be organized and implemented in practice.
Diluted Average number of shares outstanding including in-the-money share options.
Dow Jones Sustainability Indexes Global indexes that analyze and rank companies' performance on the basis of business and sustainability criteria. They provide asset managers with benchmarks for managing sustainability portfolios.
EBITDA Operating profit excluding depreciation and amortization.
Earnings per share (diluted) Net profit divided by the weighted average number of shares outstanding (diluted).
Enzymes Proteins that are found naturally in all living organisms. Enzymes act as catalysts, helping to convert one substance into another.
Equity ratio Total shareholders' equity at year-end as a percentage of total liabilities and total shareholders' equity at year-end.
Free cash flows Cash flow from operating and investing activities.
The market value of interest-bearing liabilities (financial liabilities and other non-current liabilities) less the market value of cash at bank and in hand and other easily convertible interest-bearing current assets.
Calculation of the frequency of occupational accidents and occupational diseases:
no. of occupational accidents × 1.000.000 no. of employees × 1.600 and no. of occupational diseases × 1.000.000 no. of employees × 1.600
Operating profit margin Operating profit as a percentage of net sales.
Proteins Molecules which are found in all living organisms and which are essential for all vital processes. Enzymes are proteins.
Recombinant ingredients The biopharmaceutical industry produces many medicines based on proteins, which can only be obtained from the organs or blood of animals or humans. There is a risk of infections being transmitted from animals to humans or from humans to humans. Novozymes manufactures these ingredients using gene technology, also known as recombinant ingredients. Recombinant ingredients do not transmit diseases and also give more consistent quality.
Recombinant means composed of smaller units that originate from different sources and do not naturally occur in the same molecule or chromosome.
Return on equity Profit as a percentage of average shareholders' equity.
Return on invested capital (ROIC) Operating profit after tax as a percentage of average invested capital. Operating profit is adjusted for net foreign exchange loss/gain.
WACC Weighted average cost of capital.
The Novozymes Report 2007 contains forward-looking statements, including Novozymes' financial outlook for 2008, that are, due to their nature, 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.
Environment and Bioethics: Claus Frier, Sustainability Development, [email protected], tel.: +45 4446 4587 Social responsibility and Business integrity: Mette Gyde Møller, Sustainability Development, [email protected], tel.: +45 4446 0434 Board of Directors and Shareholders: Ian Christensen, Investor Relations, [email protected], tel.: +45 4446 0341 Accounts and Data: Jens Breitenstein, Finance, [email protected], tel.: +45 4446 1087 Editor: Johan Melchior, Corporate Communications, [email protected], tel.: +45 4446 0690
Editorial team: Novozymes Corporate Communications Text: Novozymes Corporate Communications Photos: Åsa Tällgård, Portfolio-CPH, Jan Sommer and Piotr & Co. Design: Bysted A/S Translation and proofreading: Eye for Image ApS Printing: Quickly Tryk A/S
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.