THE NOVOZYMES REPORT 2009 SEKTIONSNAVN Artikelnavn
WELCOME TO THE NOVOZYMES REPORT 2009
This year, Novozymes is publishing all the relevant information website contains the Novozymes Report (which pursuant to for the Novozymes Report in its online reporting universe at section 149 of the Danish Financial Statements Act is an extract of www.report2009.novozymes.com. The Novozymes Report 2009 the Company’s Annual Report) and the Financial Statements of is available in English in a full online version, and this year – for the parent company Novozymes A/S. Together these form the the first time – a series of videos tells our main stories in addition Company’s Annual Report, which will be filed with the Danish to the written material. Another special feature is My Report, Commerce and Companies Agency. The Annual Report is available which makes it possible for you to compile a customized pdf on www.novozymes.com as a separate publication in Danish. download of the parts of the report that you find most relevant. Hence the printed version of the full report will no longer be The audit covers financial, environmental, and social data, and available; however, a printed summary of the report is still PwC has audited as well as performed the assurance on all published in both English and Danish. content within the “Report,” “Outlook,” “Management,” and “Accounts” sections in the Novozymes Report 2009. On The reporting website is dedicated to the Novozymes Report the website these are marked “Audited by PwC.” See also the 2009 and other information relevant to the investor community, statements in the report. but the site is also worth a visit for anyone else with an interest in Novozymes. We continuously supplement with information PwC has not audited the sections of the report found online such as quarterly reports, company announcements, news, under the heading “Supplementary reporting.” “Supplementary and teleconferences published on our corporate website, reporting” includes our “Communication on Progress” with www.novozymes.com. respect to Global Compact, our report index based on the Global Reporting Initiative (GRI), and detailed sustainability data from All the photos in the report show Novozymes employees from our activities in Brazil, China, Denmark, India, Sweden, the UK, around the world. It has been our intention to illustrate the and the US. human touch behind our organization and express our corporate personalities of spark, passion, openness, and science. The report has been produced in accordance with International Financial Reporting Standards (IFRS), the Danish Financial Reporting and audits Statements Act, and the additional requirements of NASDAQ The Novozymes Report 2009 has been audited by Pricewater- OMX Copenhagen A/S for presentation of financial statements houseCoopers (PwC). As part of their work, PwC has been the by listed companies. It has also been prepared as an element sustainability assurance provider and has provided an assurance of Novozymes’ reporting according to the Global Reporting report based on the AA1000 Assurance Standard (2008). The Initiative’s G3 Guidelines for Sustainability Reporting.
EXPLORE OUR REPORTING UNIVERSE www.novozymes.com www.report2009.novozymes.com
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REPORT 2 Letter from the Board of Directors 4 Key figures 6 Company profile 8 Sales and markets 15 Financial and sustainability discussion 21 The Novozymes stock OUTLOOK 25 Letter from the CEO 27 Long-term targets 31 Expectations for 2010 MANAGEMENT 35 Board of Directors and Executive Management 37 Corporate governance 39 Risk management 42 Risk factors ACCOUNTS 46 Accounting policies for the Novozymes Group 51 Income statement 52 Statement of comprehensive income 53 Balance sheet 54 Statement of shareholders' equity 55 Statement of cash flows and financial resources 56 Environmental and social data 58 Notes 82 Companies in the Novozymes Group 83 Statements THE NOVOZYMES REPORT 2009 REPORT 2 REPORT Letter from the Board of Directors
FOCUS ON MANAGING THE BUSINESS IN A VOLATILE ENVIRONMENT
2009 was a volatile year across industries and in the biofuel and brewing industries, both of which across geographical regions. The world was experienced a relatively challenging and turbulent year. impacted by a series of far-reaching events However, our solutions have often proved to be competitive that made it difficult for the global economy. in a variety of different industries and with commodity prices The impact of the financial crisis began to be felt in 2008 at different levels. With the unique and environmental but there was an even stronger impact in 2009, affecting advantages that Novozymes’ biological solutions offer, we Novozymes as well as many other companies negatively see a solid and diversified platform for growth.
during the year. Despite the challenging circumstances, Continuously investing in the future Novozymes delivered growth in both sales and earnings. Novozymes wants to leverage the company’s technological platform and leading position, by continuously investing in Focus on managing the business future growth opportunities. History has shown that At the beginning of the year, we had high expectations not continued focus on strategic investments – such as research only for Novozymes’ sales and financial performance, but and development, business development, and production – also for our environmental and social performance. Despite even in the challenging times of a global recession, usually the depressed markets and an early reduction of full-year opens up opportunities when the economy recovers and sales growth expectations, we delivered on all the other normal growth is restored. A relatively conservative financial as well as on all but one of the environmental and approach to Novozymes’ capital structure has resulted in a social targets set at the beginning of the year. We also healthy balance sheet and a strong cash position. This managed to deliver positive organic sales growth. We regard enables us to make investments in future growth this as an achievement considering the unfavorable market opportunities despite a volatile and unpredictable business conditions. There was a strong focus throughout the year environment around us. on managing the business, and this not only led to relatively strong earnings and cash flow, but also created an Environmental and social commitment organization that is more agile and prepared for future We are aware of the important role business plays in society. growth. Contributing to the environmental, social, and economic aspects of sustainable development has always been an Solid platform for growth integral part of our strategy. In 2009, our products enabled
To some extent, Novozymes’ sales are dependent on the customers to save around 27 million tons of CO2 emissions. developments in global energy and raw material prices. Over At the same time, we made more efficient use of both the past year, we were particularly affected by developments energy and water in our production processes. 3 REPORT Letter from the Board of Directors
From 2009 onwards, under Danish law large companies will be required to report on corporate social responsibility (CSR). The requirements are linked to the principles of the United Nations Global Compact and address which CSR issues should be discussed in a company’s business strategy and business activities. A discussion of human rights, labor rights, environmental impact, and also mitigation of corruption should be presented in the annual report. These elements have been an integral part of Novozymes’ reporting for many years, and we are pleased to see that their integration into business will now become mandatory.
You can read more about Novozymes’ work related to CSR and corporate governance at www.novozymes.com/corporategovernance and at www.novozymes.com/sustainability .
Participating in Novozymes’ development In 2007 Novozymes announced a four-year stock option program aimed at rewarding all employees when certain objectives were met. Stock options were granted for 2007, 2008, and 2009 as most of those objectives were met. In order for stock options to be granted, the budget had to confirm that reaching DKK 10 billion in sales in 2010 was possible. Unfortunately, due to the global recession and the weakening of currencies, Novozymes no longer deems it possible to reach the ambition of sales of DKK 10 billion in 2010. Consequently, there will be no allocation of stock options for 2010.
Discussions concerning executive compensation have intensified following the recent economic developments globally. Benchmarking against other companies shows that we have a competitive compensation scheme that rewards performance and ensures that the interests of top management are in line with those of shareholders.
To summarize, we look back on 2009 as a year characterized by a high level of volatility and a challenging business environment. Despite this, Novozymes performed well. We are now looking to the future with confidence, knowing that we are on the right track to achieve the new long-term targets set at the beginning of 2009. Novozymes is in better shape than ever and ready to grasp the growth opportunities that lie ahead.
We would like to thank our employees for their efforts, and our shareholders and other stakeholders for their support during the year.
January 2010
The Board of Directors Novozymes A/S
4 REPORT Key figures
KEY FIGURES
RESOURCE CONSUMPTION RELATIVE TO SALES NET INVESTMENTS DEVELOPMENT
% % DKK million
Development in water consumption Net investments (DKK million) Development in energy consumption Net investments (% of revenue)
RESEARCH AND DEVELOPMENT NUMBER OF EMPLOYEES BY REGION
% DKK million
R&D costs (DKK million) Europe/MEA R&D costs (% of revenue) North America Asia Pacific Latin America 5 REPORT Key figures
Key figures
2009 2008 2007 2006 2005
Income statement (DKK million) Revenue 8,448 8,146 7,438 6,802 6,281 Research and development costs 1,207 1,096 995 880 793 EBITDA 2,252 2,060 1,971 1,809 1,668 Operating profit 1,688 1,504 1,481 1,340 1,206 Financial items, net (67) (85) (96) (122) (56) Profit before tax 1,621 1,419 1,385 1,218 1,150 Net profit 1,194 1,062 1,042 911 861
Balance sheet (DKK million) Non-current assets 5,991 5,641 5,218 4,379 3,970 Current assets 4,899 4,284 3,653 3,586 3,339 Total assets 10,890 9,925 8,871 7,965 7,309 Common stock 650 650 650 650 696 Shareholders' equity 5,841 4,476 3,667 3,393 3,794 Non-current liabilities 2,528 2,563 2,810 2,634 2,073 Current liabilities 2,521 2,886 2,394 1,938 1,442 Net interest-bearing debt 949 1,380 1,769 1,455 877
Investments and cash flows (DKK million) Cash flow from operating activities 1,817 1,697 1,714 1,534 1,326 Cash flow from investing activities, net (978) (942) (1,467) (953) (335) Of which investments in property, plant and equipment, net (972) (885) (721) (463) (324) Free cash flow 839 755 247 581 991 Cash flow from financing activities (523) 287 (631) (851) (1,136) Net cash flow 316 1,042 (384) (270) (145)
Key ratios (%) Revenue outside Denmark as a percentage of total revenue 98.5 98.5 98.2 98.2 96.9 Research and development costs as a percentage of revenue 14.3 13.5 13.4 12.9 12.6 EBITDA margin 26.7 25.3 26.5 26.6 26.6 Operating profit margin 20.0 18.5 19.9 19.7 19.2 Net profit margin 14.1 13.0 14.0 13.4 13.7 Effective tax rate 26.3 25.2 24.8 25.2 25.1 Equity ratio 53.6 45.1 41.3 42.6 51.9 Return on equity 23.1 26.1 29.5 25.4 22.2 ROIC including goodwill 20.3 19.5 21.7 20.2 19.3 ROIC excluding goodwill 21.8 21.2 23.4 21.1 19.8 WACC 7.0 7.4 8.1 7.5 5.9
Environmental and social data Growth in water consumption % (4.3) (2.2) 11.7 7.7 0.1 Growth in energy consumption % (5.4) 0.2 13.3 5.8 1.4 Total waste recycled % 44.5 45.0 43.4 42.1 30.6 Significant spills No. 0 0 0 0 1 Rate of employee turnover % 6.7 11.3 9.0 8.0 6.6 Rate of absence % 2.3 2.2 2.2 2.3 2.5 Fatalities No. 0 0 0 0 0 Frequency of accidents with absence per million working hours 5.1 4.9 4.8 3.7 4.6 6 REPORT Company profile
COMPANY PROFILE
Novozymes is the world leader in We subscribe to the International Chamber of bioinnovation. Our business is industrial Commerce’s Charter for Sustainable Development
enzymes, microorganisms, and Enzyme Business biopharmaceutical ingredients. We help companies make more from less as our The development, production, and distribution of enzymes solutions save energy and raw materials, and are a major part of our business, currently accounting for reduce waste. The result is higher quality, 92% of sales. Enzymes, which are found in all living lower costs, and a better environment. Our organisms, are biodegradable proteins that catalyze biological solutions are used in the biochemical reactions. Enzyme technologies can typically production of numerous products such as replace conventional chemicals, getting more out of raw biofuels, detergents, food, and animal feed. materials and making production processes more efficient. In other words, Novozymes provides efficient solutions that In 2009, we achieved revenue of DKK 8,448 million based help companies save energy and water, increase yields, and on a large portfolio of products and services worldwide. Our hence save costs. business consists of two segments: Enzyme Business and We are constantly striving to expand our markets by BioBusiness. Around 14% of our revenue is spent on introducing innovations within existing markets as well as research and development, and we currently hold more than developing new concepts. With a 47% share of the global 6,000 patents, which indicates the possibilities when nature enzyme market in 2009, we retained our position as the and technology join forces. We number over 5,200 world leader in enzymes. employees globally.
We divide the enzyme market into four main areas: Rethink Tomorrow
We use biotechnology to challenge convention and find Detergent enzymes sustainable solutions. We ask the world to “Rethink Enzymes are widely used in detergents for laundry and Tomorrow.” Our solutions are based on a unique dishwashing. The technology is well established and delivers technology platform that provides a wealth of opportunity a clean wash as well as stain removal. Certain enzymes allow for the world’s industries. Gene technology, microbial consumers to wash laundry at lower temperatures and still techniques, and fermentation technology are some of the get their clothes clean. Detergent enzymes are our largest biotechnological tools on which we base our business. product area. Combining industrial insight with this technology platform, we partner with customers across a broad range of Technical enzymes industries to create tomorrow’s industrial biosolutions that Technical enzymes are mainly used in the transformation of not only improve the use of our planet’s resources but also starch into different kinds of sugars. This functionality is our customers’ business. used in the starch conversion and biofuel industries. In 2010, we expect our enzymes to enable large-scale Sustainability is integrated production of advanced biofuels from agricultural residues. Sustainability is an integral part of our business, and we Technical enzymes are also used for many other applications enable our customers to optimize their use of raw materials in, for example, the textile, leather, and forest product and energy, thereby reducing the environmental impact of industries. their operations. In 2009 alone, the worldwide application Food enzymes of our bioinnovation enabled reductions in CO2 emissions of approximately 27 million tons. Enzymes for the food and beverage industries enhance, among other things, quality and efficiency in the We believe that decency and responsibility in business are manufacture of products such as bread, wine, juice, beer, about being aware of and acting upon important and alcohol. Enzymes can, for instance, be used to reduce stakeholder relations, as well as being committed to waste by keeping bread fresh for longer and to reduce CO2 international agreements and universal values: emissions by eliminating the malting process in brewing.
We subscribe to the United Nations Global Compact Feed enzymes We support the United Nations Declaration of Human Adding enzymes to animal feed increases its nutritional Rights value. This leads to better feed utilization and helps the We support the United Nations Convention on Biological environment as fewer nutrients are released through Diversity manure. 7 REPORT Company profile
BioBusiness instance, are used in industrial and municipal wastewater Enzymes are produced by the fermentation of treatment, as well as to reduce the need for phosphate microorganisms. Within BioBusiness we use the same type fertilizer and to improve yields in agriculture. of fermentation technology to produce proteins that are Biopharmaceutical ingredients used, for example, in the pharmaceutical industry and in Biopharmaceutical ingredients are proteins and other household applications. We sell microorganisms for various biological substances used in the pharmaceutical industry. applications in a range of industries. We see a lot of Our proteins replace the proteins from humans and animals opportunities in BioBusiness to use our existing that have traditionally been used in the industry. These technologies across a broader range of applications, entail a risk of transferring disease but this is not the case leveraging the core competencies that Novozymes has with our proteins, which also offer further advantages such developed within industrial enzymes. as cost savings. Our biopharmaceutical ingredients offer
Microorganisms customers alternative solutions or help them to develop Microorganisms are a diverse group of microscopic better drugs and devices. For example, hyaluronic acid (HA) organisms such as fungi, bacteria, and yeasts. They are products can improve drug delivery and the moisturizing found everywhere in nature, where they both form and properties of eye drops. degrade organic materials. Our microorganisms, for 8 REPORT Sales and markets
SALES AND MARKETS
Although the global recession made 2009 a Enzyme Business challenging year, Novozymes achieved Enzyme sales grew by 1% in LCY and by 4% in DKK in 2009. positive sales growth in local currency. Sales were affected by the volatile and uncertain business environment experienced across a wide range of industries. In 2009, sales were characterized by low visibility and high From quarter to quarter and from industry to industry, sales volatility from one quarter to the next. Given the global development was uneven over the year. recession, it was satisfactory to see sales growing by 2% in local currency (LCY). Sales in Danish kroner (DKK) increased The overall enzyme market was stable in 2009. The value of by 4%, resulting in total revenue of DKK 8,448 million in the global market was approximately DKK 16 billion based 2009. on our estimates. The enzyme industry did not see any major new market entrants in 2009, and the overall global competitive positioning between the players in the industry
2009 SALES BY INDUSTRY 2009 MARKET SHARE WITHIN ENZYMES FOR INDUSTRIAL USE
Detergent enzymes (32%) Technical enzymes (31%) Novozymes (47%) Danisco (21%)
Food enzymes (21%) Feed enzymes (8%) DSM (6%) Others (26%)
Microorganisms (5%) Biopharmaceutical ingredients (3%) 9 REPORT Sales and markets
did not change either. Novozymes maintained its global Enzyme sales to the textile industry were lower in 2009 due market share at 47%. to lower global consumption of textiles and the continued fashion trend for darker denims, which do not require Detergent enzymes enzyme treatment for a stonewashed look. Sales of enzymes for the detergent industry continued to develop positively, with sales growth of 6% in LCY and 7% Food enzymes in DKK. The main driver behind this growth was the fact that Enzyme sales to the food industries were 3% lower in LCY mid- and low-tier detergents now contain more enzymes in and 1% lower in DKK. The main reason for this was weaker order to improve performance. This entailed not only sales to the brewing industry. Lower raw material prices increased penetration of basic enzymes, but also higher use discouraged the use of enzymes, and beer volumes on key of more advanced enzymes. Sales were, however, impacted markets were down. Enzyme sales to the baking industry negatively by consumers trading down to detergents with increased slightly in LCY compared to 2008 as global bread fewer or no enzymes. In the US, mid- and low-tier brands volumes remained stable and demand for healthy concepts still contain fewer enzymes than corresponding brands in for baked goods increased. Europe. In consequence, enzyme sales in the US were affected more negatively by the trading down than enzyme Feed enzymes sales in Europe. Sales of feed enzymes were 5% lower in LCY and 3% lower in DKK. The lower sales were primarily caused by lower Technical enzymes animal feed volumes and strong competition in the Technical enzyme sales grew by 1% in LCY and by 5% in European phytase enzyme market. Feed enzymes that aim to DKK. The positive sales development in LCY was the result of increase protein uptake in poultry showed a good increased sales to both the starch and biofuel industries. development in 2009, albeit from low starting levels. Novozymes is currently the only company offering a product Enzyme sales to the biofuel industry experienced positive for this application: RONOZYME® ProAct. The product has sales growth of 3% in LCY and 7% in DKK. However, been introduced in parts of Latin America, Asia, and Africa, Novozymes’ biofuel enzyme sales lagged behind the overall and is awaiting approval on the key European and US development in the market for biofuel enzymes. From late markets. 2008 to mid-2009, lower oil prices decreased the demand for biofuels in the US. In combination with overcapacity in the industry and volatile corn prices, this meant financial More beer from less barley difficulties for biofuel producers. Some of Novozymes’ customers were hit particularly hard and subsequently went In 2009, Novozymes launched an enzyme product out of business, which is why Novozymes lost some market called Ondea® Pro, which enables breweries to produce share in the US from 2008 to 2009. Novozymes’ enzyme beer from unmalted barley and thereby saves resources, sales were affected most at the beginning of the year, but reduces CO2 emissions, and lowers costs. market share improved during 2009 as sales picked up. The malting of barley involves soaking the grain in Novozymes’ market share remained above 60% throughout water to allow it to germinate. The grain is then dried – the year. Enzyme sales to the European biofuel industry a process that utilizes both water and energy. By showed good growth in LCY, although the industry is still avoiding this step, CO2 emissions can be significantly small compared to the US industry. reduced. But the benefits are not limited to reducing the carbon footprint. Compared to the conventional brewing process, Novozymes has documented a 7% reduction in the amount of barley required to produce FIVE-YEAR SALES DEVELOPMENT IN ENZYME BUSINESS beer, thereby improving land utilization for society and
DKK million decreasing operating costs for brewers. The new enzyme optimizes raw material utilization and reduces the carbon footprint in one simple process, making it a game changer for the brewing industry.
The resulting beer can either be blended into existing brands or sold as a standalone product. Novozymes expects the main use of the product to be in blends of barley and malt beer. The Danish brewer Harboe has tested the concept in full-scale production and launched a climate-friendly beer on the market in October. Detergent enzymes Technical enzymes
Food enzymes Feed enzymes For more information on the life cycle assessment for this enzyme application, see Kløverpris et al. (2009). 10 REPORT Sales and markets
BioBusiness Sales within BioBusiness grew by 8% in LCY and by 6% in Sugar is the new oil DKK. Sales of biopharmaceutical ingredients (BPI) experienced a positive development in 2009, while sales of In late 2009, Novozymes announced new agreements microorganisms were flat. Within BPI, sales were positively with two of Latin America's most influential companies affected by cell culture ingredients, Protein A, and plectasin. to convert sugarcane and sugarcane waste into plastic In the case of microorganisms, there was an increase in and energy. The agreements are perfectly aligned with sales to the bioagricultural (BioAg) industry of more than Novozymes’ dream of developing a bio-based society in 40% in LCY. which biorefineries convert agricultural materials into energy, chemicals, and other materials, thereby Microorganisms replacing oil as a raw material. Sales of microorganisms were flat in LCY and increased by 2% in DKK. This was driven by better than expected sales in Due to the complexity and early stages of the the BioAg segment, which grew by more than 40% in LCY. technology used in these projects, no outcome is Our sustainable solutions allow farmers to use less fertilizer expected within the short term. The initial development under certain conditions while still achieving at least the work alone is expected to run for at least five years. same crop yields. The industry is still in a relatively early Sugarcane into plastic development phase, and Novozymes sells primarily on the Novozymes and Braskem, the largest petrochemical Canadian market. company in Latin America, have agreed to co-develop Microorganism sales to both the institutional & household technology for the large-scale production of cleaning and the wastewater treatment segments declined polypropylene from sugarcane. Water bottles, drinking due to the global recession and ongoing pruning activities. straws, washing machines, and car bumpers are currently made using polypropylene plastic primarily In July 2009, the turf and landscape business was divested derived from oil. The market for polypropylene plastic is as part of the strategic focus on the core microorganism estimated to be worth around USD 66 billion, with an segments. The divestment had a negative effect on annual growth rate of 4%. microorganism sales in 2009 of 4 percentage points. Braskem and Novozymes will try to develop an Biopharmaceutical ingredients alternative green plastic based on Novozymes’ core Sales of BPI grew organically by 23% in LCY and by 13% in fermentation technology and Braskem’s expertise in DKK. This strong growth was partly due to higher sales of chemical technology and plastics. cell culture ingredients and Protein A for our customers’ clinical trials, production, and purification of Sugarcane waste into energy biopharmaceuticals. Furthermore, a milestone was achieved Novozymes and Cetrel, the largest provider of in the production and sales of the antimicrobial peptide environmental solutions for the manufacturing industry plectasin. in Latin America, have entered into a research agreement to turn sugarcane waste into the environmentally friendly energy biogas.
Using Cetrel’s know-how in waste stream treatment and Novozymes’ biotech expertise, the aim is to enable FIVE-YEAR SALES DEVELOPMENT IN BIOBUSINESS sugar and biofuel production plants in Brazil to turn bagasse, the residue from sugarcane production, into DKK million biogas using enzymes. The biogas can be used to
produce electricity for the production facilities, and surplus electricity can be sold to the general market through the electricity grid.
Microorganisms Biopharmaceutical ingredients 11 REPORT Sales and markets
Sales by region Higher yields and fertilizer efficiency Sales in Europe, the Middle East, and Africa (Europe/MEA) grew by 4% in LCY and by 5% in DKK. Enzyme sales to the Sales of microorganisms for agriculture are developing biofuel industry and the detergent industry increased, well, and there are several reasons for this. Rising whereas enzyme sales to the food and feed industries were fertilizer prices have encouraged farmers to look for lower. Sales of BPI also developed well in 2009. alternative or complementary methods and, as prices rise, any further increases in yield are now even more Sales in North America were up by 1% in LCY and by 2% in valuable. DKK. Sales to the detergent, biofuel, and food industries affected North America sales positively, as did Novozymes’ main microbial-based product for microorganism sales to the BioAg industry. Sales to the agriculture, JumpStart®, is used to enhance phosphate feed and BPI industries were lower compared to 2008. uptake in crops such as corn, wheat, canola, and soybeans, plus many others depending on the region. Sales in the Asia Pacific region were up by 1% in LCY and by 6% in DKK. This was due primarily to increased sales of JumpStart® is a soluble powder containing spores from detergent and starch enzymes, whereas enzyme sales to the a naturally occurring soil fungus (Penicillium bilaii). The textile, food, and feed industries were lower. product is applied to crop seeds before seeding. After seeding, the fungus colonizes the plant roots. The Sales in Latin America were 1% lower in LCY and 2% lower fungus releases natural acids into the in DKK. Enzyme sales to the food industry increased, microenvironment around the roots, influencing the whereas enzyme sales to the feed and detergent industries
release of the phosphate bound in the soil minerals. decreased.
This makes the phosphate available to the plants, leading to stronger plants, higher yields (6% on average), and considerable reductions in the use of fertilizer. A cleaner solution From a product life cycle perspective, JumpStart® significantly reduces the environmental impacts of crop production. The use of JumpStart® reduces a broad range of environmental impacts from climate change to water pollution. With regard to the latter, the utilization of otherwise inaccessible phosphate in soil reduces the leaching of phosphate that may adversely affect aquatic environments by causing eutrophication. JumpStart® also helps preserve scarce phosphorus resources by reducing the use of phosphate fertilizer.
2009 SALES BY REGION
Europe/MEA (38%) North America (36%)
Latin America (7%) Asia Pacific (19%) 12 REPORT Sales and markets
Product launches in 2009
Cellic® CTec A unique cellulase complex for cost-effective hydrolysis for production of biofuel from cellulosic feedstock. The product offers high conversion efficiency on acid and neutral pretreated feedstocks.
Cellic® HTec A hemicellulase complex that provides a hydrolysis boost option over Cellic® CTec, i.e., improves C5 sugar yields.
CellPrime® rAlbumin AF-G A recombinant animal-free cell culture supplement replacing human- or bovine-derived serum albumin in industrial-scale mammalian cell culture applications.
Ondea® Pro An enzyme for the brewing industry to produce beer from pure unmalted barley. This enables the breweries to save on raw materials and cost, and also reduces the carbon footprint of beer production.
Easyzyme® A detergent enzyme for laundry bars, which makes it easier to hand-wash clothes and enables fewer rinses and reduced water consumption.
Gold Crust® A baking enzyme enhancing crust color and decreasing baking time, as well as reducing crust separation in prebaked breads.
Lipoclean® A detergent enzyme removing fat and grease stains. It enables substitution of surfactants to a greater degree as part of the multienzymatic DREAM concept.
Opticake® Fresh 50 BG An enzyme providing longer-lasting freshness in cakes and improved quality.
Novamyl® Pro A baking enzyme that further enhances freshness in breads and improves quality. 13 REPORT FOCUS Sales and markets
BIOFUELS – A GREEN ALTERNATIVE TO FOSSIL FUELS
In 2009, Novozymes’ sales of enzymes to the biofuel If produced and used correctly, biofuels will make a industry represented approximately 18% of total revenue. significant contribution to the sustainable energy solutions Novozymes supplies enzymes that are used in the that society needs, and that is why Novozymes is working production of biofuel. Enzymes convert the biological hard to realize the full potential of converting biomass into material into sugars, which are then fermented into biofuel. fuel. We therefore applaud the political goodwill that the US Enzymes also improve production efficiency and overall and other nations are showing toward the development of a biofuel output. strong and sustainable biofuel industry.
The biofuel market Novozymes is continuously striving to improve the commercial viability of advanced biofuels and the carbon The US market for biofuels is the world’s largest, with clear benefits of conventional biofuels. Advanced biofuels, for legislative targets in place, in particular the Renewable Fuel Standard (RFS), which mandates a minimum percentage of example cellulosic biofuel, are produced from agricultural residues such as corn cobs and stover, bagasse, woodchips, biofuels to be blended into gasoline. This supports a market and municipal waste. We currently have around 150 for biofuel in the US and reduces US dependence on imported fossil fuels. employees working on the conversion of biomass for advanced biofuels. This is Novozymes’ single largest research In the US, the level of biofuel blended into gasoline is project ever. approximately 8%, whereas in Europe it is currently 2%. The Biofuels are a major step toward meeting increasing fuel target within the EU is 5.75% renewable energy in 2010 demands with renewable resources. Biofuels currently offer and 10% in 2020, which includes biofuels. Over the last five the only immediately available cost-efficient alternative to years, Novozymes’ sales of enzymes to the biofuel industry have experienced average organic growth of more than fossil fuels within transportation. Conventional biofuels 30% annually. currently reduce CO2 emissions by up to 50%, whereas
advanced biofuels have the potential to reduce CO2 Advanced biofuels closer to commercial scale emissions by 90% compared to gasoline (Liska A.J. et al. By 2010, new enzymes from Novozymes will make it (2009): Improvements in Life Cycle Energy Efficiency and possible to produce advanced biofuels from agricultural Greenhouse Gas Emissions of corn ethanol, Journal of residues in large-scale production. With these enzymes on Industrial Ecology. EU Commission (2007): Well-to- the market and the available technologies, it will be possible Wheels analysis version 3, Joint Research Institute). to produce advanced biofuels in the US at around USD 2.25
For and against per gallon. The costs used to be a barrier to commercial The debate on biofuels has been going on for many years production, but Novozymes has made great progress in bringing down the enzyme cost and will be able to provide with shifting intensity. Issues in the debate include enzymes at around USD 0.50 per gallon of biofuel in 2010. deforestation, climate change, land use, and food prices. The debate is important, and Novozymes maintains that A number of demonstration plants have already started there is a need for international agreements on the methodology for measuring the impact of biofuels and operating in different parts of the world, and more are making comparisons with traditional fossil fuels. Novozymes expected to come online in the next few years to demonstrate the technology and economics on a larger actively supports the efforts by governments, NGOs, scientists, and business to establish objective criteria for scale. The first commercial-scale plants are expected to start operating within a few years. how biofuels can support sustainable development.
We put special focus on the issues related to land use and Get a deeper insight into Novozymes and biofuels: Watch videos about the public debate, the political challenges, the emissions of greenhouse gases. Calculating greenhouse gas
emissions from indirect changes in land use is an extremely market situation, critical factors, etc. complex task, and there is a number of methodological and data-related problems with calculating indirect land use changes (ILUC). Together with international experts and authorities, Novozymes is very much engaged in establishing a scientifically consistent approach to the ILUC methodology with the aim of providing valid input for the debate.
14 REPORT FOCUS Sales and markets
CLEAN CLOTHES AND A REDUCED ENVIRONMENTAL FOOTPRINT
Novozymes’ enzymes are used in both household and consumption and CO2 emissions in the wash process by industrial laundry detergents as well as automatic enabling consumers to get the same wash performance at dishwashing detergents. For many years, enzymes have been lower temperatures. Their potential impact is significant. Life the key to boosting the performance of detergents. Specific cycle assessment shows that if every household in Europe enzymes break down dirt and stains into water-soluble (see ref.) changed from washing at 40 to 30 °C and from 60 molecules that are washed away, leaving clothes and dishes to 40 °C, and every household in the US (estimated) clean. Today Novozymes’ detergent enzymes increasingly changed from “hot” to “warm” and from “warm” to
play a central role in replacing conventional chemicals in “cold” washes, we could save up to 32 million tons of CO2, detergent formulations and in allowing consumers to turn which is equivalent to taking 8 million cars off the road. down the wash temperature while maintaining the same High-performing, low-temperature wash solutions will wash performance, saving energy and reducing CO2 remain a key focus area for Novozymes in the coming years, emissions. and we will participate actively in driving an ambitious vision for a more sustainable laundry value chain. (Ref.: Nielsen Efficient reformulation and compaction P.H. and Skagerlind P. (2007): Cost-neutral replacement of Novozymes’ research shows that formulators can now surfactants with enzymes, Household and Personal Care replace up to 25% of surfactants and other conventional Today, 4/2007). ingredients in their formulations with efficient multienzyme solutions. The result is no loss of performance or an With this in mind, in May 2009 Novozymes, along with improved wash performance at the same or an even lower leading players in the detergent industry, hosted a CEO cost, while improving the environmental footprint of the meeting on Cooperation and Innovation in the Laundry detergent. Value Chain in connection with the World Business Summit for Climate Change. And in December 2009, the detergent The prices of many detergent ingredients, for example industry convened at the Copenhagen Detergent surfactants, have varied widely in the past, often influenced Sustainability Summit hosted by Novozymes to shape by changes in oil prices. Bio-based solutions such as actions toward a more sustainable future for the industry. enzymes, on the other hand, have not been influenced by oil To equip the industry with the tools to translate price fluctuations, and prices have remained stable. sustainability into business growth, Novozymes brought key In addition, by replacing high-volume ingredients such as representatives such as WWF, Marks & Spencer, Unilever, surfactants with low-volume enzymes, detergents can Reckitt Benckiser, Henkel, McBride, Whirlpool, P&G, and become more compact. Compaction is a strong trend in the A.I.S.E. together at the summit to discuss sustainability. US, and the same trend is also becoming evident in Europe. Encouraging consumers to lower the wash In addition to giving consumers the convenience of smaller temperature packages, compact detergents require less storage, In June 2009, Novozymes launched I do 30, a campaign that transportation, and shelf space, which translates into encourages consumers in Europe to make a difference by packaging and cost savings as well as CO 2 emission turning down the temperature on their washing machines reductions. to 30 °C and thereby reducing CO2 emissions. This is a way
Taking a value chain approach to innovation of exerting pressure on political decision-makers to support Sustainability is a key driver for future innovation. Our vision strong climate policies that encourage climate-friendly is that the detergent industry will become one of the first everyday actions such as low-temperature washes. At the UN industries to deliver what the world is looking for: a radical Climate Change Conference in Copenhagen in December, reduction in environmental impact throughout a product’s the campaign signatures, representing 16,000 people from life cycle. Using enzymes achieves this without a decrease in all over the world, were handed to Danish Prime Minister wash performance and without any loss of convenience to Lars Løkke Rasmussen, as the host of COP15. the consumer. This is only possible by rethinking the entire value chain, driving innovation, and encouraging cooperation along the value chain toward a shared vision of a radically reduced footprint.
Novozymes’ solutions will play a key role in making this shift as detergent enzymes are readily biodegradable and therefore reduce aquatic toxicity when used to replace traditional chemicals. Furthermore, they reduce energy 1615 REPORT Financial and sustainability discussion
FINANCIAL AND SUSTAINABILITY DISCUSSION
2009 showed a strong earnings development. Favorable exchange rate levels, productivity 2009 key financial performanceperformance improvements, a cautious cost approach, and an increase in organic sales were the main Sales growth, LCY 2% drivers. Free cash flow before acquisitions Sales growth, DKK 4% increased due to higher net profit and a Growth in operating profit 12% lower investment level than initially expected. Operating profit margin 20.0% Novozymes met all but one of its environmental and social targets. Growth in net profit 12% Free cash flow beforbeforee acquisitionsacquisitions DKK 839m The following section presentspresents thethe realizedrealized financial,financial, Net investments DKK 978m environmental, and social datadata forfor thethe year.year. AnAn overviewoverview of of data and key figuresfigures cancan bebe foundfound in in Accounts andand Key ROIC 20.3% figures, while anan overviewoverview ofof reportingreporting inin accordanceaccordance with with
the Global ReportingReporting InitiativeInitiative (GRI)(GRI) guidelinesguidelines cancan be be found found under Supplementary reporting.
Financial performance The financial performance inin 20092009 metmet allall earnings earnings expectations published at thethe beginningbeginning ofof thethe year. year. The The expectations for sales developmentdevelopment werewere adjustedadjusted downward after the firstfirst quarterquarter ofof 20092009 asas a a consequence consequence of the global recession.recession. TheThe revisedrevised salessales expectationsexpectations announced after the firstfirst quarterquarter werewere metmet forfor the the full full year. year.
REVENUE GROSS MARGIN
DKK million %
16 REPORT Financial and sustainability discussion
Revenue related to IFRS adjustments of acquired activities and closure Total sales increased by 2% in local currency (LCY). Exchange of activities, which had a combined effect of approximately 7 rate levels, especially in the first half of 2009, impacted sales percentage points on the gross margin. As a consequence, in DKK positively by 2 percentage points, with the USD in the gross profit margin improvement in 2009 was particular being a contributing factor. In 2009, sales in DKK approximately 7 percentage points. amounted to DKK 8,448 million, an increase of 4% Other operating costs increased by 6% to DKK 3,076 million compared to 2008. in 2009 due to the increased activity level initiated in 2008 and exchange rate levels. Flexibility and cost cautiousness Costs and Other operating income from the organization helped to reduce the growth in other Total costs excluding net financials and tax were DKK 6,824 operating costs in 2009. million in 2009, an increase of 2%, mainly attributable to Sales and distribution costs, including business higher sales costs, distribution costs, and R&D costs, but development, rose by 5%, representing 13% of revenue somewhat offset by lower cost of goods sold. Cost of goods sold was 1% lower, positively affected by productivity R&D costs rose by 10%, representing 14% of revenue Administrative costs rose by 1%, representing 9% of improvements and negatively impacted by currency effects.
Overall, Novozymes’ input prices in 2009 were slightly lower revenue than in 2008. This had a small positive impact on the cost of Other operating income increased by DKK 17 million to DKK goods sold. In 2008, cost of goods sold was negatively 64 million in 2009. The development was mainly related to affected by acquired inventories; hence the underlying the US Department of Energy-funded cellulosic biofuel decrease in cost of goods sold in 2009 was slightly lower enzyme project DECREASE. than 1%. For 2009, the gross margin was 55.6% compared to 53.5% Depreciation and amortization rose to DKK 564 million in in 2008. Exchange rate developments, productivity 2009, an increase of 1%, mainly explained by a higher level of invested capital compared to 2008. improvements, and an improved gross margin in
BioBusiness were the reasons behind the strong Operating profit
development. Operating profit increased by 12% to DKK 1,688 million in The gross profit margin for Enzyme Business was 57.4%, an 2009 compared to DKK 1,504 million in 2008. The improvement of slightly more than 1 percentage point on operating profit margin was 20.0% for 2009 compared to 2008. The gross margin was positively affected by favorable 18.5% in 2008. Exchange rate levels in combination with exchange rates and productivity improvements, partly offset the improved gross margin and low growth in operating by higher depreciation. costs had a positive impact on the operating profit margin.
BioBusiness’ gross profit margin was 34.5% in 2009, an Net financial items improvement of 14 percentage points on 2008. The gross Net financial costs for 2009 decreased by DKK 18 million to margin was favorably affected by higher BioAg sales and DKK 67 million compared to DKK 85 million in 2008. This pruning of lower-margin products. In 2008, the gross profit decrease was primarily due to a significantly higher net margin for BioBusiness was unfavorably affected by one-offs
R&D/SALES RATIO OPERATING PROFIT MARGIN
% %
17 REPORT Financial and sustainability discussion
currency hedging/revaluation gain. The decrease was hyaluronic acid facility built on existing premises in Tianjin, somewhat offset by the reduced gain of DKK 40 million China. The 2009 investment level was lower than expected relating to employee stock option schemes compared to at the beginning of the year, primarily due to the restaging 2008. Net interest expenses increased by DKK 34 million to of the Nebraska facility; with an expected total investment of DKK 140 million in 2009, which also impacted net financials USD 160–200 million, this facility will be built over three negatively. years instead of two as first anticipated. The slower development in demand during 2009 and stronger In 2009, Novozymes hedged the majority of its exposure to productivity improvements freed up capacity in existing the USD at USD/DKK 548. The volatile development in the facilities, enabling the restaging. Novozymes expects the USD during 2009 resulted in a currency hedging loss for the plant in Nebraska to be finalized by the end of 2011 and beginning of the year, but a currency hedging gain in the fully operational in the middle of 2012. The cGMP latter part of the year. In 2009, Novozymes realized a hyaluronic acid plant in Tianjin is expected to be finalized currency gain of DKK 56 million, which was DKK 90 million late 2010, and production is expected to start in 2011. higher than in 2008.
Free cash flow before acquisitions reached DKK 839 million Net interest-bearing debt was DKK 949 million at December against DKK 755 million in 2008. The increase in free cash 31, 2009, against DKK 1,380 million at year-end 2008. flow was primarily a result of the higher operating cash
flow. Profit before tax and net profit for the year Profit before tax increased by 14% to DKK 1,621 million Balance sheet and Statement of shareholders’ from DKK 1,419 million in 2008. In 2009, the effective tax equity rate was 26.3% compared to 25.2% in 2008. Net profit Shareholders’ equity was DKK 5,841 million on December increased by 12% to DKK 1,194 million against DKK 1,062 31, 2009, compared to DKK 4,476 million at year-end 2008. million in 2008. Shareholders’ equity was increased by comprehensive income and decreased by dividend payments of DKK 326 Cash flow, investments, and acquisitions million. Shareholders’ equity represented 54% of the Cash flow from operating activities increased by 7% to DKK balance sheet total compared to 45% at year-end 2008. Net 1,817 million for 2009, up from DKK 1,697 million in 2008. debt-to-equity was 16% at year-end 2009 compared to The positive development was primarily the result of higher 31% at year-end 2008. This reduction is the result of both net profit and higher non-cash costs such as depreciation lower net debt of DKK 431 million and increased equity. and unrealized foreign exchange losses. Development in working capital affected operating cash flow negatively. For 2009, the return on invested capital was 20.3% Increased receivables were to some extent offset by reduced compared to 19.5% for 2008, primarily explained by the inventories and higher payables. higher operating profit. On December 31, 2009, the holding of treasury stock was 2.8 million B shares, Net investments excluding acquisitions were DKK 978 equivalent to 4.3% of the total number of shares million in 2009, compared to DKK 942 million in 2008. The outstanding. continued relatively high investment level was the result of the commencement of two new production facilities: the enzyme facility in Nebraska, USA, and the cGMP
NET INTEREST-BEARING DEBT (NIBD) AND FIVE-YEAR CASH FLOW AND ACQUISITION EQUITY RATIO OVERVIEW
% DKK million DKK million
NIBD (DKK million) Free cash flow before acquisitions Equity ratio (%) Acquisitions 18 REPORT Financial and sustainability discussion
Sustainability performance reduction in our customers’ CO2 emissions. The target was Novozymes’ level of ambition increased in 2009 compared adjusted according to sales growth to a reduction of 27 to previous years. Some of the sustainability targets were million tons of CO2 emissions. The actual reductions for replaced, new measures were introduced, and the targets 2009 are estimated to be 27 million tons, and the target
for some key indicators were raised. The purpose was to was therefore met.
bring Novozymes’ sustainability targets more in line with our Stakeholder engagement strategic ambitions. In 2009, Novozymes completed the implementation of a
All sustainability targets but one were met. new comprehensive supplier performance management system. The system covers all aspects of management from Novozymes' sustainability targets are centered on four approval of new suppliers to performance evaluation. The themes: target was to cover 80% of our purchasing by the end of
Utilization of resources 2009. At the end of 2009, 88% of purchasing was covered, Climate change impact and the target was met. Stakeholder engagement In 2009, Novozymes also introduced a new target to identify Employer performance the most important issues and engage with key
Utilization of resources stakeholders in a more systematic way. In order to address this target, a new set of tools was developed, and internal Water consumption is a key indicator of efficiency and workshops were held in Europe, the Americas, and Asia. The environmental impact. The 2009 target was that the purpose of the workshops was to train key functions to increase in water consumption should be at least 2% lower incorporate the new tools into the management of day-to- than sales growth. The target had been raised compared to day stakeholder relations. the previous year, when the difference should be at least
1%. In 2009, sales (in local currency) grew by 2%, while Compliance and complaints water consumption fell by 4%, and the target was therefore In contrast to previous years, Novozymes did not explicitly achieved with a total relative performance improvement of state a target in 2009 for compliance and complaints. 6%. However, it is obvious that the company continuously aims Similarly for energy consumption, the 2009 target was that to comply with regulations and to minimize complaints. the increase in energy consumption should be at least 2% Even though there is no specific target, there is still a need lower than sales growth. In 2009 energy consumption fell to monitor and report on these parameters. In 2009, 17 by 5% so the target was achieved with a total relative breaches of regulatory limits were registered worldwide. performance improvement of 7%. These breaches were mainly related to concentrations of pollutants in wastewater (12 out of 17). Climate change impact Novozymes received 33 complaints from neighbors in 2009. It is important for Novozymes to be able to position our Neighbors living close to factories can be troubled in some enzyme technology as part of the solution to address locations, mainly by odors and noise. By way of comparison, climate change. Accordingly, Novozymes introduced a new in 2008 there were 38 complaints. target linking sales of enzymes to the corresponding Novozymes always strives to avoid significant spills such as the release of chemicals into watercourses or soil. There
FREQUENCY OF OCCUPATIONAL ACCIDENTS were no significant spills in 2009.
Update on environmental case Occupational accidents per million working hours In 2003, high nitrate levels were found in the groundwater around Novozymes’ site in Franklinton, North Carolina, USA. Subsequent measurements were submitted to the authorities in early 2008. The data are still under review by the authorities.
Employer performance In 2008, competition for employees was intense, and companies generally experienced high employee turnover. The abrupt slowdown of the economy from the last quarter
of 2008 and in 2009 changed the picture and very much Routine activities Total * The split between routine and nonroutine affected employee turnover rates throughout the year. This activities is not available for 2005 and 2006 19 REPORT Financial and sustainability discussion
is part of the reason for the employee turnover rate of 7% in In 2008 employees were granted 99% and Executive 2009, which should be compared to the target of less than Management 97%. The two incentive programs differ in 9%. terms of targets and timing. The general guidelines for Executive Management’s incentive program can be found at Every year Novozymes’ employees have the opportunity to www.novozymes.com/corporategovernance. The guidelines express their opinions in a survey. In 2009, the average score were approved at the Annual Shareholders’ Meeting in for “Satisfaction and motivation” was 77 compared to a March 2008. Further details can be found in Note 24 to the target of 72. The corresponding result for “Opportunities financial statements. for professional and personal development” was 74, compared to a target of 69. Thus both targets were reached. Events occurring after the end of the year No significant events have occurred after December 31, The 2009 target for absence from work was a rate of below 2009. 3%. With absence of 2%, this target was achieved.
The frequency of occupational accidents in 2009 increased to 5.1 accidents per million working hours from 4.9 in 2008. As the target was a frequency below 4.5, the target was not met. Initiatives to address and mitigate hazards in the working environment have been successful, and the frequency of occupational accidents related to routine activities has declined accordingly. However, injuries occurring when employees are doing nonroutine activities increased, for example when traveling between meetings. New initiatives have been initiated to address this issue.
The target to completely avoid fatal occupational accidents was met in 2009.
Incentive programs Novozymes met the majority of the financial and sustainability targets defined for the employee stock option program in 2009. Management has therefore approved a pro rata allocation of 81% of the year’s stock options to employees and managers.
Incentive program for Executive Management As far as Executive Management’s incentive program is concerned, most of the sustainability targets were met, and the targets for economic profit in 2009 were met in full, triggering a pro rata allocation of 99%. 20 REPORT Financial and sustainability discussion
Life cycle assessments support better Reaching REACH management REACH stands for “Registration, Evaluation, Life cycle assessment (LCA) is an environmental Authorisation and Restriction of Chemicals” and is the assessment method that covers all materials and new European Union (EU) regulation on chemicals, processes in the value chain – from raw material replacing some 40 existing EU regulations and extraction through production and use to final directives on chemicals. disposal. Product life cycle assessments of Novozymes’ Following the United Nations’ agreements on the products show that there are major environmental implementation of sustainable development, by advantages in using enzymes in industrial production. adopting REACH the EU has established a regulatory LCA methods have matured to the point where they are framework to ensure that chemicals are produced and now standardized, recognized as valid documentation, used in ways that reduce significant adverse effects on and widely used by companies, industries, and human health and the environment. authorities worldwide. According to REACH Novozymes’ enzymes for industries Generally speaking, LCA is a very important way of such as detergents, leather, textiles, and biofuels are addressing Novozymes' impacts – both positive and regarded as chemicals and therefore require REACH negative – in a wider perspective. LCA has been registration. systematically used at Novozymes since 2005, and the Novozymes welcomes REACH results are playing an increasing role in managing product development and marketing our products. An important objective of the new regulation is to encourage the replacement of dangerous substances In addition, in the past two years so-called pipeline with superior substances or technologies as LCAs have been conducted. These address products economically and technically viable alternatives become and solutions in Novozymes’ development pipeline. The available. results are used to manage product development as well as to assess and optimize the sustainability profiles In essence, REACH is in line with Novozymes’ business of new products prior to their launch. strategy to strive to replace harsh chemicals with safer biological solutions and minimize adverse effects. We For further information, please see the specific LCA expect the role of our enzymatic and other biological studies that Novozymes has conducted during the past solutions as substitutes for harsh chemicals to increase. five years. These studies have all been reviewed by a third party. Novozymes is implementing all the requirements of REACH as they come into force in order to ensure continuous supply to our customers.
Novozymes takes pride in complying with REACH to meet safety standards in the use, handling, and distribution of our products. We will act and communicate to assure our customers and business partners that Novozymes – as part of their supply chain – is in compliance with REACH. 21 REPORT The Novozymes stock
THE NOVOZYMES STOCK
Novozymes’ stock performed well in 2009, The average daily trading volume of Novozymes’ stock in with a 29% increase in price. Performance 2009 was 164,441 shares, or DKK 72 million, making it the was especially strong in the last two months eighth most actively traded stock on NASDAQ OMX of the year. Copenhagen A/S. At year-end 2009, the total market value of Novozymes B shares was DKK 29.3 billion. The Novozymes stock is listed on NASDAQ OMX Copenhagen A/S and included in the OMX Copenhagen 20 Novozymes’ share price increased by 29% during the year. In index (OMXC20). The stock is listed under ticker code NZYM comparison, the increase in the OMXC20 was 36%, Dow B and ISIN DK0010272129. Novozymes is registered with Jones Chemicals Europe Index 44%, and NASDAQ the Danish Commerce and Companies Agency under 10 00 Biotechnology Index 16%. 71 27. Over the last five years, Novozymes’ stock has generated an Novozymes’ overall financial ambition is to provide its average annual return to shareholders, including dividends, shareholders with competitive returns. Shareholder value is of more than 20%. This can be compared to the five-year created by share price appreciation, dividend payments, and average return of 3% for the OMXC20, 0% for MSCI PAN stock buy-backs. Europe, -1% for Dow Jones World Sustainability Index, 16% for Dow Jones Chemicals Europe Index, and 2% for Novozymes’ share price development NASDAQ Biotechnology Index. At the end of 2009, the common stock of DKK 650 million, Dividend or 65 million shares, was unchanged from the level at the end of 2008. Novozymes’ dividend policy is a payout ratio of around 30% of net profit. The Board of Directors proposes that the Annual Shareholders’ Meeting approve a dividend of DKK Novozymes’ stock (DKK) 2009 2008 5.75 per share for the 2009 financial year. This will result in an expected total dividend payment of approximately DKK Price, year-end 540 418 358 million. Total market value, year-end 29.3 22.7 (billion)* Earnings per share, diluted 18.93 16.86 Dividend per share 5.75** 5.25
* B shares ** Proposed
2009 INDEXED SHARE PRICE DEVELOPEMENT FIVE-YEAR INDEXED SHARE PRICE DEVELOPMENT
Index Index
Novozymes B Dow Jones Sustainability World Index Novozymes B Dow Jones Sustainability World Index NASDAQ Biotech Dow Jones Chemicals Europe NASDAQ Biotech Dow Jones Chemicals Europe
OMXC20 MSCI PAN Europe OMXC20 MSCI Pan Europe 22 REPORT The Novozymes stock
Distribution 2009 2008 2007 2006 2005 Equity analysts (DKK) The following companies had coverage of Novozymes Dividend 358* 326 309 278 255 in 2009: (million) Stock buy-back 0 0 500 1,107 1,053 ABG Sundal Collier (million) Alm. Brand Markets Carnegie Total (million) 358* 326 809 1,385 1,308 Cheuvreux Net profit 1,194 1,062 1,042 911 861 Credit Suisse (million) Danske Markets Equities Payout ratio 30.0%* 30.7% 29.7% 30.5% 29.7% Goldman Sachs Number of Gudme Raaschou Bank shares Handelsbanken Capital Markets outstanding, J.P. Morgan Securities year-end Jyske Bank (million) 62.2 62.0 61.8 61.8 63.9 Nordea Markets Proactive Independent Ideas, PI-Ideas Dividend per 5.75* 5.25 5.0 4.5 4.0 SEB Enskilda Equities share Standard & Poor’s Investment Services Equity Research * Proposed Sydbank UBS In general, Novozymes’ decision to buy back stock is based Vontobel on an assessment of the need for capital structure optimization, and whether excess capital can be invested in profitable growth opportunities. Stock buy-back may also be carried out to cover employee stock option obligations. Sustainability ratings
Providing information on sustainability performance on request to analysts, rating agencies, and asset Dividend dates, 2010 managers is an important element of Novozymes’ Resolution adopted at the March 3 interaction with its shareholders. Novozymes Annual Shareholders' Meeting continuously seeks to improve our sustainability Last day of trading with right to March 3 reporting and processes, and values this interaction dividend for 2009 highly. Among other things, in 2009 Novozymes: First day of trading without right March 4 Was reconfirmed as a member of the Dow Jones to dividend for 2009 Sustainability Index and regained sector leader Disbursement of dividend March 9 position Was included in the list of the World’s Most Ethical Companies by the Ethisphere Institute Achieved a 70 out of 100 score in the Carbon Disclosure Project, Nordic Report Was reconfirmed as a member company of the FTSE4Good Index Was added again to the KLD Global Climate 100 Index (GC100) Was reselected for the sixth time as one of the world’s 20 top sustainable companies by SustainableBusiness.com Was added again to the list of the 100 most sustainable corporations in the world by The Global 100 Most Sustainable Corporations in the World project 23 REPORT The Novozymes stock
Shareholders notify the company if they hold at least 5% of the company’s common stock. No shareholders, except Novo Novozymes’ stock consists of two types: A and B shares, A/S, hold more than 5% of Novozymes’ common stock. both with a nominal value of DKK 10 per share. All A common stock is held by Novo A/S, and an A share carries 10 times as many votes as a B share. Dialog and contact Visit our Investor site at www.novozymes.com/Investor A stock B stock Total for investor relations guidelines, presentations, group financial statements, and other information for both Common private and institutional shareholders. stock 107,487,200 542,512,800 650,000,000 (DKK) If you have questions for Investor Relations, please contact: Number 10,748,720 54,251,280 65,000,000 of shares Tobias Cornelius Bjorklund Number 1,074,872,000 542,512,800 1,617,384,800 Senior Director Investor Relations of votes Tel.: +45 4446 8682 Voting Fax: +45 4446 9999 66.5 33.5 100 rights (%) E-mail: [email protected] Thomas Steenbech Bomhoff Novo A/S holds 25.5% of the total outstanding common Senior Investor Relations Manager stock and, through its holding of the A common stock and a Tel.: +1 919 494 3483 proportion of the B common stock (5,826,280 shares), Fax: +1 919 494 3473 controls 70.1% of the votes. Novo A/S is fully owned by the E-mail: [email protected] Novo Nordisk Foundation, which is why Novozymes is included in the consolidated financial statements of the Martin Riise Novo Nordisk Foundation. Novo A/S is domiciled in Investor Relations Manager Gladsaxe, Denmark. Tel.: +45 4446 0738 Fax: +45 4446 9999 At the end of 2009 Novozymes had roughly 53,000 E-mail: [email protected] shareholders, of which around 98% are private investors, mainly in Denmark. Thirty institutional shareholders own approximately 54% of the B stock (this includes Novozymes A/S’ holding of treasury stock and Novo A/S’ holding). Financial calendar Investors outside Denmark hold approximately 53%.
Novozymes holds 5.2% of the B stock, equivalent to 4.3% Event 2010 Date of the total number of shares outstanding. Group financial statement for January 21 According to the Danish Companies Act, shareholders must 2009 Annual Shareholders’ Meeting March 3 Group financial statement for April 29 SHAREHOLDER DISTRIBUTION OF B COMMON the first quarter of 2010 STOCK Group financial statement for August 12
the first half of 2010 Group financial statement for October 28 the first nine months of 2010 Group financial statement for January 21 2010
Denmark (31%) North America (14%) UK (30%) Novo A/S (11%) Own shares (5%) Rest of World (2%)
Rest of Europe (7%) THE NOVOZYMES REPORT 2009 OUTLOOK 25 OUTLOOK Letter from the CEO
CONCRETE ACTIONS AND DARING VISIONS TO CHANGE THE WORLD
We need to rethink the future. Fundamental At Novozymes we have a vision of a bio-based society where changes are needed in the world’s energy, agricultural materials will replace oil as a production industrial, and agricultural sectors. Our resource. Biotechnology can convert agricultural materials biotechnology is ready to step in and play an into sugar as a step toward creating environmentally friendly important role in building a sustainable energy, materials, and chemicals for making our everyday society. At Novozymes we dare to envisage products. our technologies changing the world. Together with our customers, we go to In the long run, we are convinced that sugar will be the new places where we have not been before. On oil, but the full-scale bio-based society is still just a dream at this journey of exploration, we try to change present, and dreams alone will not solve the world’s climate mindsets and prove that cost savings and change issues. If we want a better tomorrow, we need to resource savings often go hand in hand. implement existing sustainable technologies today. Biotechnology is one such technology, ready to take us In December, Copenhagen hosted the United Nations toward a sustainable society. In 2009, a report from WWF
Climate Change Conference (COP15). World leaders, concluded that industrial biotechnology can reduce CO2 ministers, officials, and organizations from almost 200 emissions by 1–2.5 billion tons per year by 2030 if the countries participated, and Novozymes was present on the existing technologies are fully deployed – so let’s get sidelines, arranging a number of events in connection with started! the conference. We had high hopes, but the outcome was disappointing as no concrete targets to curb global climate Innovation will make the difference change were set. Finding ways of substituting oil with agricultural materials is We are aware of the complexity of the challenge, but we are a good example of what our employees and partners can also convinced that business must play an important role in achieve together. Our ambition is to change the world providing solutions to part of the challenge. Closer together with our customers. To do that, innovation is cooperation between governments and business would turn essential, and we are continuously exploring new avenues. hope into action and pave the way for concrete, sustainable That is how we maintain our position as a world leader in solutions. bioinnovation.
Dreams alone will not solve climate change issues In challenging times for the world and business, it is natural During the run-up to the COP15 conference a lot of dreams to cut back and focus on short-term results. But at and ideas about climate-friendly technologies were revealed. Novozymes we firmly believe that our ability to innovate is 26 OUTLOOK Letter from the CEO
the key to solving some of the world’s most pressing challenges and, at the same time, the engine that will help WWF report: Biotechnology is part of us regain our high sales growth. So, despite the economic the solution downturn, we have maintained our focus and high
investment level within innovation, spending around 14% In September 2009, WWF published a report
of our revenue on research and development. concluding that industrial biotechnology can produce dramatic reductions in greenhouse gas emissions and Growth and sustainability go hand in hand provide strong progress toward a green and Sustainability is an integrated part of what we do and how sustainable economy. The findings are based on we do it. We expect sustainability to be an increasingly contributions and data from industry and scientific important factor in our customers’ choice of technology. experts, WWF Denmark, and peer-reviewed research Reduction of CO2 emissions is the top priority on the global from Novozymes. agenda right now, but the focus has to be broadened as Use all proper means sustainability is about much more than CO2 reductions – and so are our solutions. The political challenges are huge, not least because the world needs radical changes now. Vague and indistinct Sustainability is a parameter of vital importance to our compromises that encourage only incremental change partners as well as our employees. In this year’s survey of will not do the trick. If we want a better tomorrow, we employee satisfaction, we actually surpassed the target set need to implement existing alternative and better for 2010, among other things as a result of our continuous technologies today. focus on sustainability. This year we have added new long- Technical and theoretical solutions are within reach. term sustainability targets and stretched the existing ones to New sources of energy such as wind and solar power reflect the diversity of our business and to put our are seen as obvious elements of the technological commitment into action. For instance, we have increased our solution, but it may not be quite as obvious to look at targets to improve water efficiency and renewable energy industrial biotechnology as a technology that can be sourcing. used in the fight against climate change. Nevertheless,
WWF has calculated that industrial biotechnology could However, it is not only organizations that can help in solving bring about greenhouse gas reductions of 1–2.5 billion climate change. As consumers, we can make a huge tons per year by 2030. difference through the way we act. A good example is within the detergent industry, where consumers can get Society needs to be aware of and utilize different clean clothes, save money on their electricity bill, and help dimensions of industrial biotechnology: improved make a real difference to the environment just by turning efficiency, substitution of fossil fuels, substitution of down the temperature dial on their washing machines. oil-based materials, and the creation of a closed-loop system with the potential to eliminate waste. Let’s act, and help each other to change the world! A political task
Broad deployment of biotech solutions will create jobs and pave the way for a cleaner environment, but it takes political decisions to make the fundamental changes. Novozymes and WWF have come together to encourage politicians to further the integration of biotechnology
into strategies for reducing climate change and to
Steen Riisgaard support the application of low-carbon biotechnology in President and CEO industry. More information: Read the report from WWF Denmark Visit WWF's visual guide to 'Transformative Climate solutions' 27 OUTLOOK Long-term targets
LONG-TERM TARGETS
Novozymes wants to change the world own and our customers’ impact on the environment. together with our customers. By being Consequently we expect to be able to grow sales, margins, innovative and providing our customers with and ROIC. valuable solutions based on our industrial insight, we can help them change the world – Despite 2009 being a challenging year from a sales growth while growing our company. perspective, there is still a growing need for sustainable solutions – both now and beyond the current global Novozymes’ long-term targets economic crisis.
The link between focusing on sustainable development and Financial targets: improving Novozymes’ sales and earnings is quite strong. • Organic sales growth of more than 10% p.a. Our insight and understanding of our customers’ needs help them reduce their direct and indirect environmental • Operating profit margin of more than 20% impact, and this ultimately benefits Novozymes’ sales. • Return on invested capital (ROIC) of more than 22% Furthermore, focus on improving water and energy efficiency in our own production benefits earnings. Sustainability targets: Growth driven by different industries We are striving to achieve more than 10% average organic • Enable a 75 million ton reduction in CO2 emissions per
year by 2015 through our customers' application of growth per year. our products Just as today, Enzyme Business is expected to be the • Improve energy efficiency by 50% in 2015 compared strongest absolute growth contributor in a longer-term to 2005 perspective. Different industries will contribute differently to • Reduce our CO2 emissions by 50% in 2015 compared growth in a specific year. This has always been the case for to 2005 Novozymes’ business and is expected to continue to be the
• Increase energy supply from renewable and CO2- case in the years ahead. There are numerous growth drivers neutral sources to 50% in 2020 impacting each industry differently, and current long-term • Improve water efficiency by 40% in 2015 compared to trends should enable many of our industries to deliver organic growth. Sales of enzymes for advanced biofuels are 2005 not included in the target as it is too early to discern a • Be recognized as a global leader within sustainability reliable growth trend for this application. When a more • Be a preferred employer globally reliable growth outlook for these advanced biofuels is identified, the long-term growth target will be adjusted to Novozymes wants to secure the right balance between reflect this opportunity. better business, cleaner environment, and better lives. Never has that vision been more relevant to the world, and for us BioBusiness activities are also expected to contribute that opens a window of opportunity. We have proved the positively to the organic growth rate, but due to its current robustness of our business and our ability to deliver growth size – representing roughly 8% of total sales in 2009 – the in both sales and earnings, while at the same time keeping a overall impact is smaller from an absolute growth strong focus on environmental and social responsibility. perspective. However, we want to grow BioBusiness into a multibillion DKK business by 2018. From a relative growth At the beginning of 2009, Executive Management and the perspective, BioBusiness should grow at a faster pace than Board of Directors decided it was time for the organization Enzyme Business. This requires the successful development to take on new challenges, and the new ambition and commercialization of products in our pipeline, as well as "Changing the world together with our customers" was success for our customers’ biopharmaceutical products communicated. This turns our attention toward greater currently in different phases of development. This will be a goals and sets our sights on more demanding long-term challenge and is to some extent outside our control, but we targets. are making progress toward our ambitious target. We are also pursuing ways of supporting the target through With this new ambition, new targets were set for our ability acquisitions within areas where we see a technological and to launch new products and concepts, as well as for our a competency fit. 28 OUTLOOK Long-term targets
environmental impact, increasing cost efficiency, and long- Earnings development supported by productivity term risk management. In addition to the efficiency targets, improvements it is our ambition to use 50% renewable or CO2-neutral A unique cornerstone of Novozymes’ business model is energy by 2020. productivity improvements within Enzyme Business. We expect to be able to continue to increase throughput in our Novozymes has defined a new CO2 efficiency target related production facilities and reduce the relative enzyme cost by to our own production and a target for absolute CO2 at least the same rate as we have achieved in the past. emission reductions in a product life cycle perspective. The Increasing productivity, combined with making the enzymes latter represents Novozymes’ overall carbon footprint. Please more potent, is important to our ambition of maintaining see Environmental and social data and Accounting policies an operating profit margin of more than 20%. for more details on present environmental impact. The new long-term emission reduction target has replaced and Investing in growth improved on the target presented last year, when the In BioBusiness, we are working on improving profitability baseline year was 2007 instead of 2005. through continued product pruning and optimization of the production facilities. Compared to Enzyme Business, lead Critical prerequisites for Novozymes to reach the times are longer in BioBusiness as many products are goals included in customers’ biopharmaceutical phase studies. When it comes to our targets for sourcing energy and This requires relatively high upfront investments and R&D reducing CO2 emissions, it should be stressed that we are expenditure on our part before more substantial sales dependent on factors outside our control. The target for developments can be realized. energy sourcing will require close cooperation with energy Historically, annual organic sales growth of around 8% has suppliers. Fulfillment of targets partly depends on markets been achieved with a maintenance investment level of for energy and the availability of preferred energy sources. around 6–7% of sales, as productivity improvements have Novozymes is particularly dependent on energy markets in enabled us to continuously increase throughput in existing China and the US.
production facilities. However, the higher annual sales Providing solutions growth target requires additional investments. Hence, until Key indicators for resource consumption and climate change 2011, the investment level as a percentage of sales will be are in focus when defining long-term targets. However, higher than historical levels. After 2011, and if no new, sustainability also takes other areas into consideration. currently unknown opportunities arise, investments should Other challenges such as phosphate scarcity and unequal be less than 8% of sales, supporting 10% average annual distribution of food are further areas where modern organic sales growth. biotechnology may provide solutions. Similarly, social
challenges such as supporting human rights, fighting We need to invest upfront to enable a market to materialize, poverty, and managing anticorruption are increasingly and we cannot afford to be short of production capacity finding a place on the business agenda. when demand is expected to pick up. The higher level of
investment needed until 2011 is expected to be financed Novozymes always aims to be responsive by addressing through operating cash flow. Given the expectation of issues in our sphere of influence and by not compromising improved profit margins and improved utilization of fixed on business ethics. assets, the long-term ROIC target of more than 22% is
expected to be reached through improved earnings and the To fulfill our ambition to change the world, we need aforementioned improvement in the utilization of fixed motivated and engaged employees. Novozymes therefore assets. continuously strives to be a preferred employer globally. We
Minimizing environmental impact are always looking for the right people and aim to support Throughout 2009, we have refined our existing long-term them in challenging current conventions while shaping a
environmental targets. In a mid- to long-term perspective, brighter future. the target years are 2015 and 2020, while the baseline year is 2005. These years refer to national and international We believe that sustainability will increasingly define negotiations on different climate change targets, and markets and it is our long-term ambition to be recognized Novozymes has decided to use the same years as reference as a company demonstrating leadership and setting the
points for our improvements. standards with regard to sustainability.
We have set targets for resource efficiency with regard to energy and water. Energy efficiency will be improved by 50%, whereas water efficiency will be improved by 40%. These indicators are linked directly to minimizing 29 OUTLOOK Long-term targets
Every drop counts
Water is increasingly being recognized as a critical sustainable development issue in international politics. The availability of freshwater per capita is steadily decreasing on a global scale, and in many regions water resources cannot meet demand. Around 20% of the world’s population lack access to safe drinking water, and 40% are without adequate sanitation. In March 2009, government representatives plus NGOs and companies from 110 countries explicitly put water on the international agenda at the World Water Forum in Istanbul.
Business, of course, is an important player in this context. Water constraints pose a potential financial risk for businesses, either directly or indirectly. Business may be part of the problem, but business may also have the solutions to the challenges in the form of know-how and technology.
Novozymes’ ambition is to address the challenges. That means demonstrating resource efficiency and managing resource supply. Furthermore, Novozymes wants to account for the overall impact of our technology from a life cycle perspective and improve our technology in order to contribute to increased resource efficiency.
In 2009, a comprehensive project explored Novozymes’ role, risks, and opportunities in a world where water supplies are increasingly constrained. We are striving to make water a manageable issue in the daily business. Our current use of water and handling of wastewater have been evaluated, and appropriate measures have been taken at both local and regional level. One important outcome of the project has been new short- term and long-term targets for water consumption.
The use of water at our own sites and in the world outside is now an integral element in Novozymes’ strategy. 30 OUTLOOK FOCUS Long-term targets
RESEARCH, DEVELOPMENT, AND INNOVATION
Innovation plays a central role for a growth company such as samples to samples for customers. Furthermore, we have Novozymes. A considerable share of Novozymes’ revenue is created working platforms for teams across projects, areas, allocated to research and development (R&D) each year, and and sites to facilitate collaboration. With the introduction of many employees across the globe are engaged in the “electronic laboratory notebook,” traditional paper- innovation. based laboratory notebooks have become obsolete, changing the way we record experimental work and freeing Novozymes is associated with innovation, and customers up more time in the labs for creativity and innovation. and strategic partners recognize us as being amongst the best in our field. Connect & innovate While Novozymes has always developed products and Developing for today and tomorrow business areas in collaboration with customers and partners, Novozymes has a track record of continuously delivering we are experiencing a paradigm shift within the field of new products and technologies. The formula for our success innovation. For Novozymes and our customers, this new is a good balance between short-term product openness is leading to greater communication, wider improvements, mid-term development of new concepts, and sharing of knowledge, and endless opportunities. long-term radical innovation in our pipeline. In this way, we are able to meet the demands of today and tomorrow. At present, new concepts and radical innovation constitute a large proportion of our pipeline. Both areas are associated For Novozymes, innovation is more than just the creation of with greater risk than short-term product development due future products. Optimizing our production to maximize to a higher level of uncertainty. We therefore seek partners output and reduce costs is part of our ability to meet our with the relevant knowledge or sufficient demand to reduce customers’ demands. Significant optimization of this kind is these uncertainties. Greater openness about innovation has possible due to the nature of our business where we can created greater visibility and enables us to scout around for find new ways of getting more from our production strains, the best connections. At Novozymes, we will continue to whether by using traditional methods of optimizing the develop our partnership skills and to search for the best production parameters or by optimizing the enzyme itself, partners for fruitful collaborations. for example by means of screening or protein engineering.
Innovation management Novozymes’ organizational structure and working methods have been designed to create the optimal environment for innovation and support a pioneering culture, creating a balance between a systematic approach and the space to let ideas develop freely. The organization incubates new ideas, concepts, and business areas both within and outside the enzyme field. But in 2009 a new Innovation Office was also set up to manage the front-end pipeline across our businesses, and a number of interactive forums have been created.
Knowledge management Novozymes has R&D functions all over the world, and the approach and methods vary from place to place. We embrace the educational and cultural diversity in the Group, believing that it strengthens our overall capabilities, but we also acknowledge the challenge of utilizing our global R&D community to the full.
To manage, trace, and share the enormous quantity of ideas, information, learning, research data, etc., we have consolidated all our databases and local data into one single database covering the entire R&D workflow from soil 31 OUTLOOK Expectations for 2010
EXPECTATIONS FOR 2010
For 2010, Novozymes expects positive Sales expectations developments in both sales and earnings. In 2010, Novozymes expects sales growth of 2–6% in local There is still uncertainty as to how things will currency. Divestments are expected to impact sales growth develop in 2010, and we address this by negatively by 0.5 percentage points. We expect a continued giving a wide guidance range. high level of uncertainty about the growth of the markets where we are active, and we have taken account of this Expectations for 2010 uncertainty by giving a wide range to our estimates for the year.
Financial targets: Our sales growth expectations are based on the • Sales growth of 2–6% in local currency (LCY), 1–5% assumptions that there will be no weakening of demand in in DKK the major industries and that US biofuel production for 2010 will be 12–12.5 billion gallons. Fulfillment of the • Operating profit growth of 3–7% expectations further requires the technical and market • Operating profit margin of around 20% assumptions for newly launched products and concepts • Net profit growth of 9–13% across industries to materialize. • ROIC of around 20% Exchange rates, especially the development of the USD, are • CAPEX of DKK 1.0–1.1 billion expected to have a negative impact on sales growth. As a • Free cash flow before acquisitions of DKK 700–800 result, sales in DKK are expected to grow by 1–5% for the million year, using the spot rates for the most important currencies as of January 20, 2010. Sustainability targets: Due to the global recession and the weakening of
• Enable a 28–29 million ton reduction in CO2 currencies, Novozymes no longer deems it possible to reach emissions in 2010 through our customers' the ambition of sales of DKK 10 billion in 2010. The 10-in- application of our products 10 ambition was launched in 2007 to focus on sales growth • Improve energy efficiency by 30% in 2010 compared in the business. This ambition was complemented by the to 2005 existing long-term growth targets launched at the beginning of 2009. • Reduce CO2 emissions by 25% in 2010 compared to
2005 Earnings expectations • Improve water efficiency by 20% in 2010 compared Operating profit is expected to grow by 3–7% in DKK for to 2005 2010. Increased sales activities and strong productivity • Establish specific action plans for all suppliers with improvements are expected to improve gross profit. A performance issues dynamic and continuously cost-conscious organization will contribute to the positive development in operating profit. • Reach a score of at least 75 for employees’ Strong productivity improvements will also have a positive "satisfaction and motivation” in the 2010 employee effect on our water and energy consumption, enabling our survey environmental impact to be reduced. • Reach a score of at least 70 for employees’ "opportunities for professional and personal Net profit in DKK is expected to grow by 9–13% in 2010. development” in the 2010 employee survey While current exchange rate levels are expected to affect • Keep the frequency of occupational accidents below sales and operating profit growth negatively, hedging 4.5 per million working hours contracts are expected to impact net profit positively. In late • Keep employee absence below 3% 2008, Novozymes entered into hedging contracts for the USD and the JPY covering 2009 and 2010. Net cash flow for • Keep employee turnover between 4% and 9% the USD exposure is hedged at a DKK/USD rate of 591 for • Gold Class rating by SAM in the Sustainability the full year, whereas DKK/JPY cash flow exposure is hedged Yearbook at 6.53 for the full year.
32 OUTLOOK Expectations for 2010
Investments, ROIC, and cash flow expectations In 2010, Novozymes expects to enable a 28–29 million ton reduction in CO2 emissions through the application of our Investments are expected to be in the range of DKK 1.0–1.1 products by our customers (2009: 27 million tons). billion, similar to the investment level in 2009. The new USD 160–200 million enzyme production facility in the US, initiated in 2009 and to be built over a period of three years, Supply chain management makes up roughly DKK 200–300 million of the 2010 Managing sustainability in supply chains is still a focus area. investment needs. The new hyaluronic acid facility in China, Our 2010 target is a follow-up to ensure realization of expected to be completed at the end of 2010, makes up benefits from the management system. Action plans will be around DKK 200 million. drawn up for all suppliers with performance issues, and the knowledge gained from the new system will thereby be Cash flow from operations is expected to be sufficient to utilized in improving performance. cover the expected investment needs. Free cash flow before acquisitions is expected to be in the range of DKK 700–800 Employee focus million, on par with what was realized in 2009. Our ambition is to make it even better to be a Novozymes employee, and a set of targets addresses this. The original ROIC is expected to be around 20%, on par with the level target for 2010 for employee satisfaction and motivation seen in 2009. A relatively higher level of invested capital was set at a score of 75 back in 2008. This was achieved affects ROIC negatively, whereas increased earnings impact already in 2009 and focus is on keeping the high level. ROIC positively. Employees’ "opportunities for professional and personal development” is another important indicator, and this Currency assumptions target has been raised by one point compared to last year. In The 2010 outlook is based on exchange rates for the addition to these indicators, we continuously work on company’s key currencies remaining at the spot rates on reducing the number of occupational accidents as well as January 20, 2010, for the full year. Novozymes’ key absence from work. currencies are: EUR, USD, JPY, and CNY.
The target for employee turnover is set at a range that (DKK) EUR USD JPY CNY reflects the present job market and Novozymes’ aims with Average exchange rate 2009 745 536 5.73 78.47 regard to attraction and retention of employees. It is seen as preferable to have a turnover above 4% and below 9%. Spot rate January 20, 2010 744 527 5.78 77.14
Change in estimated average Stakeholder engagement exchange rate for Novozymes expects sustainability to be a very significant 2010 compared to average 0% -2% 1% -2% lever in support of our overall efforts to grow the business. exchange rate in 2009 It is therefore valuable to us when partners, employees, customers, NGOs, or other stakeholders evaluate our
performance within this area. Analysts and rating agencies As relatively more sales than costs are realized in currencies continuously assess the overall sustainability performance of other than DKK, operating profit is disproportionately companies, and we use the most valid ones to compare affected by movements in currencies. For the most important Novozymes to peers in this respect. We have chosen the currency, the USD, a 5% movement either up or down Dow Jones Sustainability Index and SAM’s rating as would result in a change in operating profit for the year of yardsticks, although a number of alternative ratings are just around DKK 45–65 million, all other things being equal as valuable. It is our goal to achieve a Gold Class rating by (see Currency exposure in Note 36). SAM in the Sustainability Yearbook.
Environmental impact reductions We have chosen 2005 as the baseline year for setting targets for reducing the environmental impact from energy
and water consumption and CO2 emissions. Targets for 2010 for improving resource efficiency are 30% and 20% for energy and water respectively.
In 2010, CO2 emissions are expected to be 25% lower than in 2005. The scope for this target for emission reductions is based on emissions from Novozymes’ own production sites and from energy suppliers. It is also crucial for Novozymes to look at the broader picture in order to see emissions and other forms of impact from a product life cycle perspective. 33 OUTLOOK Expectations for 2010
Working at Novozymes is great!
Every year Novozymes’ employees have the opportunity to express their opinions in a survey called People's Opinion. The survey is standardized and operated by a third party, and is used by many other companies around the world, which gives Novozymes a valuable benchmark for the results. In 2009, 94% of employees responded to the survey.
Two aspects of the survey are used as key indicators: “Satisfaction and motivation” and “Opportunities for professional and personal development.” These scores are reported externally, and specific targets have been set for both. Satisfaction and motivation From a total score of 70 points in 2008, the target for 2009 was to improve to 72. However, the 2009 score actually increased by seven points to 77. The global recession and financial crisis have generally led to an increase in job satisfaction. However, these external events can only explain an improvement of a few points, and most of the increase at Novozymes can be attributed to the numerous initiatives taken within the organization.
Novozymes’ reputation and the content of daily work are the most important drivers of motivation among employees. Reputation, which was already well above the benchmark, increased by four points to 86 – a strong indication that employees are generally very proud to work for Novozymes. Opportunities for professional and personal development Developing employees’ skills and competencies is a key factor both for the employees and for Novozymes. In the survey, employees state that “opportunities for professional and personal development” at Novozymes are very important. Novozymes is keen to provide these opportunities, and consequently a target of 69 points was set for 2009. The actual score for 2009 was 74 points, thus exceeding our target by five points. THE NOVOZYMES REPORT 2009 MANAGEMENT 35 MANAGEMENT Board of Directors and Executive Management
BOARD OF DIRECTORS AND EXECUTIVE MANAGEMENT
Board of Directors Executive Management Mathias Uhlén Born 1954. Professor, the Royal Institute of Technology (Kungliga Tekni- ska Högskolan), Stockholm (Sweden). Member of the Board since 2007. Elected for one year at a time.
Board positions Member: KTH Holding AB, Atlas Antibodies AB, Biotage AB, Affibody AB, SweTree Genomics AB, Nordiag AS, and Skanditek Industriförvaltning AB
Special competencies: Broad experience in research and biotechnology Thomas Nagy Born 1963. Executive Vice Ulla Morin President, Stakeholder Born 1954. Laboratory Technician. Relations. Employee representative. Member Thomas Videbæk of the Board since 2001. Elected Born 1960. Executive Vice President, Board positions for four years at a time. BioBusiness. Chairman: The Danish– American Business Forum
Steen Riisgaard Benny Loft Born 1951. President and CEO. Born 1965. Executive Vice President and CFO. Kurt Anker Nielsen* Board positions Born 1945. Vice Chairman of the Board. Chair- Chairman: WWF (World Wide Fund Board positions man of the Audit Committee. Member of the for Nature) Denmark Member: The Blue Planet Board since 2000. Elected for one year at a time. and Axellia Pharmaceuticals Member: Egmont International, Board positions Holding A/S, Rockwool International Chairman: Reliance A/S A/S, and EuropaBio Member: The Novo Nordisk Foundation Member and Chairman of the audit commit- tee: Novo Nordisk A/S, Vestas Wind Systems A/S, ZymoGenetics, Inc. (USA), and LifeCycle Pharma A/S
Special competencies: Expertise in financial and accounting matters, and in-depth knowledge of Novozymes’ business 36 MANAGEMENT Board of Directors and Executive Management
Different competencies are represented within Executive Management and the Board of Directors to ensure the best possible management of the company. Members possess broad international management experience, thorough biotech expertise, and in-depth knowledge of Novozymes’ business.
Per Falholt Henrik Gürtler* Born 1958. Executive Vice President, Born 1953. CEO, Novo A/S. Chairman of the Research & Development. Board since 2000. Elected for one year at a time. Board positions Member: IT Practice A/S Board positions Chairman: Copenhagen Airports A/S and COWI A/S Member: Novo Nordisk A/S Peder Holk Nielsen Born 1956. Executive Vice Søren Henrik Jepsen Special competencies: In-depth knowledge of President, Enzyme Business. Born 1947. Regulatory Affairs Manager. Novozymes’ business, and expertise in manag- Employee representative. Member of ing and working in an international biotechnol- Board positions the Board since 2005. Elected for four ogy company Member: Hempel A/S years at a time.
Walther Thygesen Born 1950. CEO, Thrane & Thrane A/S. Jerker Hartwall Michael Munksø Paul Petter Aas Member of the Board since 2000. Member Born 1952. CEO, AarhusKarlshamn AB Born 1966. Operator. Born 1946. Senior Vice President, of the Audit Committee. Elected for one year (Sweden). Member of the Board since Employee representative. Yara International ASA (Norway). at a time. 2000. Member of the Audit Committee. Member of the Board Member of the Board since 2000. Elected for one year at a time. since 2009. Elected for Elected for one year at a time. Board positions four years at a time. Chairman: Hewlett-Packard Denmark and Board positions Special competencies: Extensive The Growth Foundation (Vækstfonden) Chairman: Aarhus United A/S international management experi- Member: Investea Holding A/S ence Special competencies: Expertise in finan- Special competencies: Expertise in financial cial matters and extensive international matters, and in-depth expertise and wide- management experience ranging international experience within IT
* These board members are not regarded as independent in the sense of the definition contained in the Nørby Report. 37 MANAGEMENT Corporate governance
CORPORATE GOVERNANCE
When the cooperation between the Board of information at an individual level increases the level of Directors and Executive Management was information for stakeholders evaluated, the result for 2009 was very Some members of the Board of Directors serve on more satisfactory. The Board of Directors places than three other boards. Novozymes has in each case great emphasis on the new challenges a evaluated whether the board member is capable of global recession brings and how to make sure devoting the necessary time to their membership of they are reflected in the way the Board Novozymes' Board operates. The recent establishment of an Due to the limitations of the law, the articles of Audit Committee has strengthened the association of the parent companies Novo A/S and the Board’s focus on auditing, accounting, Novo Nordisk Foundation, and Novozymes’ ownership internal control, and reporting. structure, the Board of Directors reserves the right in certain circumstances to reject takeover bids without Novozymes’ management systems have been developed over consulting the shareholders many years and are constantly adjusted to reflect changes in legal requirements, new business developments, and A detailed review of Novozymes’ positions on the individual stakeholder expectations. A cornerstone of the management recommendations can be found under Corporate systems is Novozymes’ corporate governance setup. Governance/The Nørby Report at www.novozymes.com. Novozymes also acts within the parameters of the Charter Corporate governance is the name commonly given to the for companies in the Novo Group, which Novozymes has frameworks and guidelines for business management, adopted and reformulated in The Novozymes Touch. This including the overall structures and principles that regulate lays down our values, commitments, and fundamentals. the interaction between a company’s management bodies, Within this framework, we have also committed ourselves to the shareholders, and other stakeholders. As every company principles derived from other international charters and is unique, there is no exact standard for “good corporate standards as listed below: governance.” However, a number of valid principles have been developed and stated in recommendations, guidelines, Novozymes subscribes to the International Chamber of or law. Novozymes’ goal is to have management systems in Commerce’s Charter for Sustainable Development place that at all times ensure openness and transparency, Novozymes supports the United Nations Convention on providing stakeholders with relevant insight into the Biological Diversity business – and, of course, effective management. Novozymes supports the United Nations Declaration of Human Rights In accordance with Danish legislation, Novozymes has a two- Novozymes subscribes to the United Nations Global tier management system comprising the Board of Directors Compact and Executive Management, with no individual a member of Changes since last year both. The division of responsibility between the Board of In 2009, the election of employee representatives to the Directors and Executive Management is clearly laid down Board of Directors took place. As a result of this, Michael and described in Rules of procedure for the Board of Munksø has replaced Arne Juul Hansen as one of the three Directors and Guidelines for Executive Management employee representatives. Arne Juul Hansen did not run for available at www.novozymes.com. election. The employee representatives are elected for a
Charters and recommendations period of four years. In laying down the management principles for Novozymes, the Board of Directors has followed the Corporate Governance Recommendations that form part of the disclosure requirements applicable to companies listed on NASDAQ OMX Copenhagen A/S.
The Board of Directors considers that Novozymes complies with the recommendations, with three exceptions:
Information on the remuneration of the company’s Management is provided at an aggregate rather than an individual level. Novozymes does not consider that 38 MANAGEMENT Corporate governance
Self-assessment of the Board of Directors One of the responsibilities of the Board of Directors is to assess each year whether the ownership structure with A The Board’s main responsibilities are to: and B common stock is optimal. The Board of Directors Ensure the best possible day-to-day management of the maintains that this is the best way of safeguarding company and the right organizational structure Novozymes’ long-term development and thus benefits the Supervise the financial development and Executive company’s shareholders and other stakeholders. Management’s day-to-day running of the company Participate in overall management and determining the In addition, the Audit Committee performs an annual strategy of the company assessment of its own performance to determine the correct scope and depth of its work. As the Audit Committee was For an overview of the tasks performed to fulfill these established in 2008, the assessment in 2009 was the first
responsibilities, see A year with the Board in this section. one to take place, and the external auditors were also asked
to evaluate whether the performance of the Committee As part of the efforts to ensure that Novozymes has well- fulfilled the requirements of the Audit Committee's Charter. functioning management systems in place at all times, the Only minor improvement areas were identified. The Audit Board of Directors and Executive Management assess Committee and the Management are of the opinion that whether the main responsibilities have been fulfilled as well the setup of the Audit Committee has strengthened the as the quality of collaboration between the two bodies. The Board’s focus on auditing, accounting, internal control, and assessment is carried out on an annual basis and was once reporting. again positive in 2009, with only minor areas for improvement identified. This time, emphasis was placed on the fact that the global recession leads to new challenges and that the Board of Directors must take these into account to make sure they are reflected in the way the Board operates.
39 MANAGEMENT Risk management
RISK MANAGEMENT
For many years, Novozymes has had a vision The Novozymes Touch describes the vision, values, and of creating value in the broadest sense. management principles of the company. It outlines the code Novozymes aims to create a cleaner of behavior and philosophy of Novozymes. By following the environment, better lives, and better right behavior and principles, we are able to reduce the risk business. The way Novozymes is managed of misconduct by Novozymes. reflects this, as management systems are set up to seek opportunities within all these To secure compliance with the management systems and areas while at the same time reducing risk the Novozymes Touch, both facilitations and quality and securing compliance with rules and management audits are used. Each year, a report on regulations. compliance is submitted to Executive Management and the Board of Directors. Identifying and managing risk are integrated into the management systems at Novozymes. We define risks as
“events or tendencies that can prevent the company from Timely and correct reporting achieving its overall targets – including financial, Novozymes attaches great importance to reporting in a environmental, and social targets – or negatively affect our timely and correct way, as this is seen as key to building a image or our future results and activities.” Novozymes trustworthy company. strives to identify risks as early as possible and, once they have been identified, we act and follow up on them. Novozymes’ risk management and internal controls relating to financial reporting are organized with a view to: Risks are not only caused by external factors affecting our Presentation of management accounts that allow the achievement of targets but can also be caused by internal Group’s performance to be measured and monitored procedures, such as errors leading to the misstatement of Presentation of financial statements that provide a true information, malfunctioning of products, etc. Novozymes and fair view without material misstatement, and comply strives to minimize these procedural risks through the with International Financial Reporting Standards, as extensive use of quality management systems and ISO adopted by the EU, and other additional disclosure certifications, which includes detailed control and action requirements for the annual reports of listed companies requirements both covering global procedures as well as specific requirements dependent on location, business area Novozymes’ internal controls and risk management systems and function. are updated on an ongoing basis and have been designed with a view to discovering and eliminating errors and 40 MANAGEMENT Risk management
defects in the financial statements. However, as there is were introduced to small but highly relevant groups of always a risk of misuse of assets, unexpected losses, etc., the people across Novozymes who interact with external internal controls and risk management systems can only stakeholders on a daily basis. The overall objective is to provide reasonable and not absolute assurance that all improve the management of stakeholder relations, and the material errors and defects are discovered and rectified. plan is to present the new tools to a wider group at Novozymes. The internal controls and risk management systems also cover environmental and social data in The Novozymes Moreover, countless meetings with, among others, Report. investors, politicians, customers, neighbors, and NGOs are held every year. These meetings are a valuable learning A more detailed description of Novozymes’ risk experience for everyone involved and are also of benefit to management and internal controls concerning the financial our business. reporting process can be found at www.novozymes.com. Together with the description of corporate governance, this The dialogs Novozymes has with stakeholders are also a forms the statutory report on corporate governance that is chance for us to promote our points of view, our solutions, required from 2009 according to the Danish Financial etc. We want to ensure that this is done in a respectful way Statements Act, Section 107b. that does not create a risk of harming Novozymes’ reputation. Novozymes has therefore set down principles for The financial reporting process is monitored by the Audit ethical ways to influence our stakeholders. In other words, Committee. As part of this monitoring, all cases of fraud we have a management standard defining good business and concerns raised by internal and external persons, etc., practice for dealing with authorities, policy-makers, and are reported to the Audit Committee. In 2009, eight cases political parties. were reported. Of these, four led to the dismissal of Long-term scenarios employees. Executive Management conducts an annual evaluation of Fulfilling reporting requirements on sustainability the opportunities for future growth. The basis for this From 2009, a new Danish law has made it mandatory to evaluation is reports on long-term scenarios regarding each report on corporate responsibility. However, Novozymes of the business areas, supplemented by selected key already fulfills these requirements as integrated financial, scenarios. The reports contain sensitivity analyses and, for environmental, and social reporting has been included in expansion projects and larger investment proposals, a our annual reporting for many years. Furthermore, calculation of the net present value of the investment is Novozymes provides additional information in accordance included. with the GRI and the UN Global Compact, which requires member companies to publish a Communication on Part of this scenario work involves identifying potential Progress. bottlenecks for future growth, such as the need to expand production capacity. The information in the annual report and the
Communication on Progress together form the statutory Changes in external factors are included in the scenario report on corporate responsibility that is required according work. For example, the current emphasis on environmental to the Danish Financial Statements Act, Section 99a. measures aims to reduce CO2 emissions, but what lies
Managing risks through stakeholder engagement beyond CO2 reductions? One project emerged from this While Novozymes aims to do business in accordance with work and has been finalized in 2009. As a result, Novozymes our values, we also have to stay in touch with the needs of has strengthened the focus on water availability and consumption. society. One way of identifying risks, opportunities, and new trends, and at the same time living up to Novozymes' Some of the scenarios presented to Executive Management ambition of being open and honest, is to engage with our stakeholders. Living up to our stakeholders’ expectations spring from risks identified by the enterprise risk
has a high priority as we wish to maintain a good management setup.
reputation. Novozymes therefore sets targets for sustainable Enterprise risk management setup performance and strives to be the best among our peers. As well as the activities mentioned above to identify risk, Novozymes has a formal process to continually map and Novozymes focuses on providing our stakeholders with mitigate risks. All business units and vice presidents relevant information to give them an insight into our systematically report new risks and any changes to business. To determine who our stakeholders are and how previously defined risks. This process ensures that top best to interact with them, a systematic approach has been management has a high level of risk awareness, with developed. In 2009, two new tools for mapping involvement and ownership throughout the organization. stakeholders and for planning stakeholder engagement 41 MANAGEMENT Risk management
Reported risks are collated and mapped by the Risk Management Office on the basis of probability and possible Novozymes and COP15 consequences. Risks are assessed based on both financial In December 2009, Copenhagen hosted the United impact and the impact on reputation, and the reporting Nations Climate Change Conference (COP15). The covers both financial and nonfinancial risks. conference was seen as decisive concerning solutions to
meet the climate challenges facing the world. But after The aim of risk management at Novozymes is to ensure two weeks of intense negotiations, the 194 nations did proactive management of the key risks, so that efforts to not succeed in reaching a legally binding agreement. reduce both probability and unwanted consequences will be Instead, the Copenhagen Accord that came out of the made where possible. conference is a political declaration – a list of intentions
that is being criticized for not setting any concrete Every six months, risks are reported to the Risk Management targets to curb global climate change. Office. Based on the mapping of these, a shortlist of approximately 30 risks judged to be the most significant is Novozymes is aware of the complexity of the challenge reported to Executive Management. Twice a year, the most and acknowledges the enormous amount of work that significant risks are also presented to the Board of Directors. took place before and during the conference, but we are disappointed at the outcome. This systematic and analytical approach to risk management The words “technology,” “technology development,” enables Novozymes to achieve greater transparency and and “technology transfer” appear again and again in gives a stronger basis for making decisions about investing the Copenhagen Accord. The words appear in resources. In addition, it provides Management with the paragraphs addressing very concrete needs, clearly opportunity to discuss risks and undertake the necessary illustrating the need for legitimate business actions in relation to the Group’s risk profile. involvement. There is a need for open and effective
cooperation between governments and the business The following section Risk factors describes a number of world as businesses have the necessary competencies to critical risks along with measures that Novozymes has develop and transfer technology. More effective implemented to reduce them. The list is not in any order of utilization of these kinds of competencies would be a priority and is not exhaustive. way of dealing with part of the challenge.
Novozymes was present at the conference to make political leaders and other decision-makers aware of biotechnology as a route for reducing climate change. We managed to establish many relations at the conference that will be highly relevant in the years to come. It is essential for Novozymes to position
biotechnology as part of the solution to curb CO2
emissions. In 2009, around 27 million tons of CO2 were avoided due to the application of enzymes sold by Novozymes. A range of activities During COP15, Novozymes carried out a whole range of activities . Representatives from the company participated in numerous events to position biotechnology, promote relations with customers, and build networks. Together with partners, Novozymes hosted a side event about the global potential of biofuels and another about sustainable agriculture and food production. The company also participated in a climate-friendly car parade in Copenhagen with flexfuel Volvos powered by advanced biofuel. One eye-catching event was a fashion summit at the Royal Opera House, where Novozymes exhibited our ideas about how biotechnology can help the fashion world to become more sustainable. 42 MANAGEMENT Risk factors
RISK FACTORS
Identifying and managing risk are integrated Customer concentration into the management systems at Novozymes. We define risks as “events or tendencies that A relatively small number of customers account for a high can prevent the company from achieving its proportion of Novozymes’ revenue in certain product areas, overall targets – including financial, which means that Novozymes is also affected by the trends environmental, and social targets – or in these customers’ markets. Novozymes works closely with negatively affect our image or our future its major customers to limit risks, for example by means of results and activities.” joint development projects and joint production planning, including the integration of IT systems. Novozymes strives to identify risks as early as possible and, once they have been identified, we act and follow up on Innovation them. Novozymes strives to maintain its position as market leader by continually launching new and improved, high-quality This section describes a number of critical risks along with products that meet customers’ needs. Novozymes’ projected measures that Novozymes has implemented to reduce them. sales are not dependent on single large product launches, The list is not in any order of priority and is not exhaustive. as we constantly have several new products in the pipeline. This year we have described financial risks in Note 36 to the This places high demands on the Group’s research and financial statements. development, requiring development to keep pace with customer needs. Failure here would entail the risk of a Sales-related risks negative impact on Novozymes’ sales targets. Novozymes Markets, customers, and sales channels allocates around 14% of revenue to research and Novozymes sells our products worldwide and is subject to development to ensure sufficient resources for future the financial and political risks that this naturally entails. innovation. Growth in individual markets is therefore influenced by the local economic situation and local legislation. Novozymes Enzymes produced using GMOs works together with our agents, distributors, and other Novozymes produces a large number of enzymes using business partners to ensure that they know and do not genetically modified organisms (GMOs). Without this violate Novozymes’ business integrity rules when selling our technology, it would be necessary to use larger quantities of products. raw materials, water, and energy, and in many cases commercial production of an enzyme would not be profitable. The use of gene technology is the subject of 43 MANAGEMENT Risk factors
ongoing debate around the world, mainly concerning Environmental and social aspects genetically modified crops or foods containing GMOs. Novozymes’ fundamental values include environmental and Novozymes ’ use of gene technology has only featured in the social responsibility. These are key to the way in which debate to a limited degree, as the Group’s end-products do Novozymes conducts business and are significant to all not contain GMOs. However, it is possible that Novozymes’ activities. These values are underpinned by a number of production and sales to the food and feed industries in targets for environmental and social responsibility. particular may be affected by the public debate on gene
technology and the impact this may have on consumer Reputation demand. Novozymes is heavily dependent on being able to attract and retain skilled people, and the Group’s reputation is an Read more about Novozymes’ use of gene technology at important parameter in this. Novozymes tries to maintain a www.novozymes.com. good reputation by means of openness and transparency in both internal and external communications. Work is also Supply chain management carried out on an ongoing basis to reduce the risk of Novozymes has sharpened its focus on integrating situations arising that could damage Novozymes’ sustainability and risk management into the selection and reputation. Current legislation must be complied with at all evaluation of key suppliers. In order to identify risks and times, and Novozymes is committed to setting an even opportunities in the global purchasing processes, an higher standard in various areas. advanced supplier performance management system has
been developed. Having a positive impact on our surrounding environment is Sustainability is a performance parameter in the system and important to Novozymes. Therefore we try to conduct is evaluated alongside commercial and quality parameters. business so that our environmental impact is part of the Instead of relying only on supplier self-evaluations, the solution to current environmental problems. Novozymes’ supplier evaluation process is supplemented with media targets of achieving significant reductions in CO2 emissions research, dialog, and the critical insight of Novozymes’ and in water and energy consumption are examples of this. purchasers. The system helps rank and compare suppliers Animal testing according to risk and opportunity and provides an overview Novozymes uses animal testing in connection with the of the global supplier pool. The system is also designed to development and approval of products where this is help the purchasing function identify the suppliers who demanded by public authorities. The use of animal testing is typically pose the biggest risks. Suppliers with critical issues the subject of ongoing public debate and as such are subject to further questions or an audit. constitutes a risk to Novozymes’ reputation and business.
The current product portfolio involves relatively few animal As maintaining optimal production is critical for Novozymes, tests, but this may change as a result of the development of there is a strong focus, among other things, on the new business areas. reliability of deliveries from suppliers. To safeguard supplies,
cooperation agreements have been entered into with a Novozymes is continuously trying to minimize the number of number of key suppliers. These cooperation agreements animal tests by further refining the methods used and using also help to reduce the sensitivity to fluctuations in the price alternatives wherever possible. of raw materials and energy.
Business partners and acquisitions Competitors In Novozymes’ relations with business partners, the Historically, Novozymes has experienced constant price company seeks to reduce the risk of being associated with pressure in its markets. Competition from producers based environmental and social conditions that could impact in low-cost countries, particularly China and India, will negatively on Novozymes’ reputation. always be a challenge. One of the ways in which the Group
is trying to counter this challenge is by using its technology On entering into agreements with new business partners or to continuously optimize production, thereby reducing costs acquiring new companies or activities, Novozymes takes per unit produced so that production remains at the environmental and social issues into consideration on a par forefront and competitive. with the financial considerations.
Patent strategy Other risks Novozymes’ technology is the basis of our business, and the
Group pursues an active patent strategy by protecting new Energy consumption and prices discoveries as early as possible. This prevents new products, The production of enzymes requires relatively large amounts processes, etc., from being copied. of energy, and fluctuations in energy prices will therefore impact the cost of the goods we sell. The risk of a negative impact from rising energy prices is managed by optimizing the production process, for example by using gene 44 MANAGEMENT Risk factors
technology, and by partially hedging energy prices for a future period. This risk is partly offset by the positive impact on sales when energy prices go up, as it becomes more profitable for our customers to replace oil-based ingredients with enzymes and to use energy-saving enzymes in their production.
Raw material consumption and prices A significant proportion of Novozymes’ raw materials is derived from agricultural produce, and fluctuations in these commodity prices will therefore impact the cost of the goods we sell. Novozymes tries to reduce the risk of a negative impact on costs by optimizing the production process, for example by using gene technology and by ensuring the greatest possible flexibility in the use of raw materials.
Global organization Novozymes operates in many markets via sales companies and distributors, while production takes place in a small number of countries. This entails a number of transactions, etc. between Group companies. Novozymes follows the OECD principles in setting internal settlement prices for these transactions, but this is a complicated area and entails a tax risk, among other things because the area is subject to political judgment in each individual country. Novozymes regularly enters into dialog with the tax authorities to reduce this risk and, as an example, in 2009 Novozymes was the first company in Europe to enter into a Bilateral Advance Pricing Agreement (BAPA) with China. A BAPA is an agreement between the tax authorities of two countries to determine the split of a company’s profit for taxation between the countries. For Novozymes, an agreement like this creates predictability in relation to taxation.
Insurance The risk of personal injury, material damage, and other events beyond our control, as well as other losses that Novozymes may cause, is covered by an extensive insurance program to the extent that this is feasible and possible. Coverage in different areas is subject to a premium based on Novozymes’ claims history. The current price of the policies and the coverage provided may be affected by external circumstances, such as natural disasters and similar events. THE NOVOZYMES REPORT 2009 ACCOUNTS 46 ACCOUNTS Accounting policies for the Novozymes Group
ACCOUNTING POLICIES
The consolidated financial statements of the Novozymes Group have "Improvements to IFRSs 2009," etc. been prepared in accordance with the International Financial Reporting Amendments to IFRS 2 "Group Cash-settled Share-based Payment Standards (IFRS) as adopted by the EU and additional Danish Transactions" requirements on the presentation of accounts. Novozymes has prepared IFRS 9 "Financial Instruments" its consolidated financial statements in accordance with all the IFRS Revised IAS 24 "Related Party Disclosures" standards in force. The consolidated financial statements have been Amendments to IFRIC 14 "Prepayment of a Minimum Funding prepared on a going concern basis and under the historical cost Requirement" convention, with the exception of the following items, which are IFRIC 19 "Extinguishing Financial Liabilities with Equity Instruments" recognized at fair value: Implementation of these will lead to further specifications in the Notes Available-for-sale financial assets but no material changes in recognition and measurement. Derivatives
Some of the information required pursuant to IFRS is contained in the Significant accounting policies
sections Report and Management. The rest will be found in the Consolidation following sections. The consolidated financial statements comprise the financial statements of Novozymes A/S (the parent company) and all the companies in which The Novozymes Report does not contain the financial statements for the the Group owns more than 50% of the voting rights or otherwise has parent company, Novozymes A/S. The financial statements for the parent control or similar de facto control (subsidiaries), as well as joint ventures. company can be found online under Financial statements for Novozymes The consolidated financial statements are based on the financial A/S at www.report2009.novozymes.com. Together, the Novozymes statements for the parent company and for the subsidiaries, and are Report and the financial statements for the parent company, Novozymes prepared by combining items of a uniform nature and subsequently A/S, form the Annual Report that will be sent to the Danish Commerce eliminating intercompany transactions, internal stockholdings and and Companies Agency. balances, and unrealized intercompany profits and losses. All the Reporting of selected environmental and social data is based on an financial statements used for consolidation are prepared in accordance
assessment of which data are of particular significance for with the Group’s accounting policies. Novozymes’ earnings capacity in the longer term. We also believe these The Group’s holdings in joint ventures regarded as jointly controlled data to be of greatest relevance to our key stakeholders. Information on entities are consolidated using the proportionate consolidation method Novozymes’ use of the GRI indicators will be found in the online report by including its proportional share of their assets, liabilities, revenue, under Supplementary reporting. and costs line by line.
Environmental and social data are an integrated part of the Novozymes Business combinations Report and are covered by the statutory audit performed by the auditor On acquisition of new companies, the assets, liabilities, and contingent elected by the Annual Shareholders’ Meeting. 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 Impact of new accounting standards acquisition and changes in the fair value of the acquired identifiable In 2009, the following standards and interpretations with relevance for assets, liabilities, and contingent liabilities since the acquisition date Novozymes were brought into effect and implemented: until 12 months afterward. Newly acquired companies are recognized as
"Improvements to IFRSs 2008" from the date of acquisition, and no adjustment is made to comparative Amendment to IFRS 2 "Share-based Payment – Vesting Conditions figures. Goodwill is allocated to business activities in order to test for and Cancellations" impairment. Revised IFRS 3 "Business Combinations" Translation of foreign currencies Amendment to IFRS 7 "Financial Instruments: Disclosures" The consolidated financial statements are presented in Danish kroner Revised IAS 1 "Presentation of Financial Statements" (DKK). Foreign currency transactions are translated into the functional Revised IAS 23 "Borrowing Costs" currency using the exchange rates prevailing at the transaction date. Revised IAS 27 "Consolidated and Separate Financial Statements" Monetary items denominated in foreign currencies are translated into Amendment to IAS 32 "Classification of Rights Issues" the functional currency at the exchange rates prevailing at the balance IFRIC 13 and 16–18 sheet date. Financial statements of foreign subsidiaries are translated Amendments to IFRIC 9 and IAS 39 "Embedded Derivatives" into Danish kroner at the exchange rates prevailing at the balance sheet The implementation of these has led to further specifications in the date for assets and liabilities, and at average exchange rates for income Notes, but no changes in recognition and measurement except that statement items. borrowing costs relating to qualifying assets DKK 7 million must be Goodwill arising on the acquisition of new companies is treated as an capitalized from 2009 pursuant to IAS 23, but comparative figures need asset belonging to the new foreign subsidiaries and translated into not be restated. The Statement of comprehensive income is new and Danish kroner at the exchange rates prevailing at the balance sheet date. includes items previously shown in the Statement of shareholders’ equity. In addition, IFRS 3 now requires that acquisition costs are Realized and unrealized foreign exchange gains and losses are expensed and makes it possible to use the full goodwill method. recognized under Financial income or Financial costs, with the exception of unrealized gains and losses relating to hedging of future cash flows, Standards and interpretations issued by IASB but not adopted by the EU which are recognized in Other comprehensive income. The following and therefore not implemented as at December 31, 2009, comprise: exchange rate differences are also recognized in Other comprehensive income, translated at the exchange rates prevailing at the balance sheet date: 47 ACCOUNTS Accounting policies for the Novozymes Group
Translation of foreign subsidiaries’ net assets at the beginning of the information on the other contracting party’s realized sales, and a liability year is recognized for the distribution of the profit, which is calculated and Translation of foreign subsidiaries’ income statements from average settled with final effect once a year. exchange rates to the exchange rates prevailing at the balance sheet The Group has entered into commission agreements where agents date undertake sales to third parties in return for commission on realized Translation of long-term intercompany balances, which are sales. These sales are recognized when they are realized. A liability is considered to be an addition to net assets in subsidiaries recognized when it is permitted for goods to be returned and this is Fair value adjustment of financial liabilities that qualify for hedging of likely. net assets in foreign subsidiaries
Research and development costs Stock-based payment Research costs are expensed as incurred. Development costs pertaining The Group’s employees are covered by stock option programs to ongoing optimization of production processes for existing products, comprising equity-settled and cash-settled programs. or to development of new products, where lack of approval by the The fair value of the employee services received in exchange for the grant authorities, approval by customers, and other uncertainties mean the of stock options is computed using the value of the granted stock development costs do not fulfill the criteria for recognition in the options. The fair value of the granted stock options is calculated using balance sheet, are expensed as incurred. the Black–Scholes model. Other operating income, net The fair value of stock-based payment on the grant date is recognized as Other operating income, net, comprises grants from public authorities an employee cost over the period in which the stock options are vested. and customers for research projects and collaborations, and income, net, In measuring the fair value, account is taken of the number of of a secondary nature in relation to the main activities in the Group. This employees expected to gain entitlement to the options as well as the item also includes non-recurring income items, net, in respect of number of options the employees are expected to gain. This estimate is damages, outlicensing, etc. 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 Tax Corporation tax, comprising the current tax liability, change in deferred recognized. tax for the year, and possible adjustments relating to previous years, is The value of equity-settled programs is offset against Shareholders’ recognized in the income statement, except to the extent that it relates equity. The value of cash-settled programs, which are offset against to items recognized either in Other comprehensive income or directly in Other payables, is adjusted to fair value at the end of each period, and Shareholders’ equity. Deferred tax is measured using the balance- the subsequent adjustment in fair value is recognized in the income sheet liability method and comprises all temporary differences between statement under Financial income or Financial costs. the accounting and tax values of assets and liabilities. No deferred tax is recognized for goodwill, unless amortization of goodwill for tax Government grants purposes is allowed. Deferred tax is measured and recognized to cover Government grants received relating to research and development costs retaxation of losses in jointly taxed foreign subsidiaries if this is expected are recognized under Other operating income, net, based on the to be realized on the divestment of stock or when recapture of tax losses percentage completion of the projects. Grants received relating to becomes applicable. The tax value of tax-loss carry-forwards is included investments in property, plant and equipment are offset against the cost in the calculation of deferred tax to the extent that the tax losses can be price of the eligible assets. expected to be utilized in the future.
Segment information Deferred tax is measured according to current tax rules and at the tax The consolidated financial statements provide information on the rate expected to be in force on elimination of the temporary differences. Group’s operating segments in a manner that is consistent with the Changes in deferred tax due to tax rate changes are recognized in the internal reporting that goes to the Board of Directors and Executive income statement, except to the extent that they relate to items Management. In addition, information is provided on geographical recognized either in Other comprehensive income or directly in allocation. Shareholders’ equity.
Leases Novozymes A/S and its Danish subsidiaries are jointly taxed with the Operating lease costs are recognized in the income statement on a Danish companies in the Novo A/S Group. The tax for the individual straight-line basis over the period of the lease. Liabilities relating to non- companies is allocated in full on the basis of the expected taxable cancelable contracts are specified in the Notes. income.
Key figures Intangible assets Key figures are mainly prepared in accordance with the Intangible assets are measured at cost less accumulated amortization "Recommendations and Key Figures 2005" of the Danish Society of and impairment losses. Financial Analysts, although certain key figures are adapted to the Novozymes Group. Costs associated with large IT projects for the development of software for internal use are capitalized if they are incurred with a view to Revenue developing new and improved systems. Amortization is based on the Revenue covers sales of goods and services for the year less goods straight-line method over the expected useful lives of the assets, as returned, and volume and cash discounts. Sales are recognized at the follows: 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 Completed IT development projects are amortized over the useful life. received. Booked IT development assets are amortized over 3–5 years Acquired patents, licenses, and know-how are amortized over their The Group has entered into few agreements where the other useful lives. Patents are amortized over their useful lives, normally contracting party undertakes sales to third parties and the profit is identical to the patent period, and licenses are amortized over the distributed between the Group and the other contracting party on the agreement period. Booked patents, licenses, and know-how are basis of a predetermined formula. Sales are recognized using amortized over 7–20 years 48 ACCOUNTS Accounting policies for the Novozymes Group
on the balance sheet date, and value adjustments are recognized as Some assets are amortized over a shorter period. Financial income or Financial costs.
Property, plant and equipment Derivatives used to hedge future cash flows are measured at fair value Property, plant and equipment is measured at cost less accumulated on the balance sheet date, and value adjustments are recognized in depreciation and impairment losses. Borrowing costs in respect of Other comprehensive income. construction of major assets are capitalized. Derivatives used to hedge net investments in foreign subsidiaries are Depreciation is based on the straight-line method over the expected measured at fair value, and value adjustments are recognized in Other useful lives of the assets, as follows: comprehensive income.
Buildings: 12–50 years Income and costs relating to cash flow hedges and hedging of net Plant: 5–16 years investments in subsidiaries are transferred from Other comprehensive Other equipment: 3–16 years income on realization of the hedged item and are recognized as The assets’ residual value and useful life are reviewed on an annual Financial income or Financial costs. basis, and adjusted if necessary at each balance sheet date. Derivatives are recognized on the settlement date, while other financial Gains and losses on the sale or disposal of assets are recognized in the instruments are recognized on the transaction date. income statement under the same functions as the associated Available-for-sale financial assets is the remaining financial assets not depreciation charges. included in the above categories. Available-for-sale financial assets are Impairment of intangible assets and property, plant and itemized in the balance sheet as Other financial assets and are measured equipment at fair value (share price) on the balance sheet date. Unrealized fair value Intangible assets, and property, plant and equipment are reviewed for adjustments are recognized in Other comprehensive income. Value impairment losses when there is an indication that the assets have adjustments are transferred from Other comprehensive income to diminished in value beyond the level of normal amortization or Financial income or Financial costs when realized. Write-offs are depreciation. Goodwill is also subject to impairment testing each year, recognized as Financial costs. and when there is an indication that the assets have become impaired. Financial liabilities are entered in the balance sheet under the following An impairment loss resulting from an asset having diminished in value items: Other financial liabilities, Trade payables, and as part of Other beyond the level of normal amortization or depreciation is recognized at payables. the amount by which the cost exceeds its recoverable amount. Dividend
Inventories The dividend proposed for the financial year is shown under Retained Inventories are measured at cost determined on a first-in first-out basis earnings in the Statement of shareholders’ equity. or net realizable value where this is lower. Treasury stock The cost of Work in progress and Finished goods comprises direct The cost price and proceeds from the sale of treasury stock are production costs such as raw materials and consumables, energy, and recognized directly in Shareholders’ equity as a separate item. Among labor directly attributable to production, and indirect production costs other things, the company’s holding of treasury stock is used to hedge such as employee costs, and maintenance and depreciation of plant, etc. employees’ exercise of granted stock options.
If the expected selling price less any completion costs and costs to Provisions execute sales (net realizable value) of inventories is lower than the cost, Provisions are recognized where a legal or constructive obligation has the inventories are written down to net realizable value. 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 Cash at bank and in hand value of the expected expenditure required to settle the obligation. Cash at bank and in hand comprises cash balances and funds held at financial institutions. Trade payables and Other payables Trade payables and Other payables are measured at amortized cost. Financial assets and liabilities The Novozymes Group categorizes financial assets and liabilities as Pension obligations and other long-term employee benefits follows: Financial assets/liabilities at fair value through profit or loss, Costs relating to defined contribution plans are recognized in the Loans and receivables, Hedge accounting, Available-for-sale financial income statement in the financial year to which they relate. assets, and Financial liabilities. Costs and liabilities relating to defined benefit plans are stated using Financial assets/liabilities measured at fair value through profit or loss is the projected unit credit method. Liabilities for the major plans are the part of derivatives that cannot be designated as hedge accounting, calculated annually by an external actuary. Actuarial gains and losses are e.g., accrued interest on currency swaps and time value of currency recognized in the income statement over the employees’ expected options. Loans and receivables are non-derivatives with fixed or average remaining working life if these differences exceed 10% of either determinable payments that are not listed on an active market. Loans the present value of the liability or the fair value of the plan assets in the and receivables are entered in the balance sheet under the following previous year, whichever is the higher. Pension assets can only be items: Trade receivables, Other receivables, and Cash at bank and in recognized to the extent that the Group is able to achieve future hand. The items are measured at amortized cost or net realizable value financial benefits in the form of refunds from the pension plan or a equivalent to nominal value less allowances for doubtful receivables, reduction in future benefits. whichever is lower. Costs relating to other long-term employee benefits are accrued over the Hedge accounting consists of positive and negative fair values of employees’ expected average remaining working life. derivatives, which are itemized in the balance sheet under Other Statement of cash flows and financial resources financial assets and Other financial liabilities respectively. The Statement of cash flows and financial resources for the Group, Derivatives used to hedge assets and liabilities are measured at fair value which is compiled using the indirect method, shows cash flows from 49 ACCOUNTS Accounting policies for the Novozymes Group
operating, investing, and financing activities, and the Group’s cash and cash equivalents at the beginning and end of the year. Energy The energy consumption includes both quantities consumed in the Cash flow from operating activities comprises net profit adjusted for production process and in other areas. non-cash expenses, paid financial items, corporate tax paid, and change in working capital. Cash flow from investing activities comprises Internally generated energy is measured as fuel consumption converted payments relating to the acquisition and sale of companies and minority to energy on the basis of the lower combustion value and weight by 2 stock, intangible assets, and property, plant and equipment. volume, except in the US where legal requirements for reporting of CO state that the higher combustion value is to be applied. The associated
Cash flow from financing activities comprises proceeds from emissions of CO2, SO2, and NOx are calculated on the basis of the borrowings, repayment of principal on interest-bearing debt, payment amount of fuel consumed using local conversion factors where possible. of dividends, proceeds from stock issues, and the purchase and sale of If these are not available, annually determined conversion factors from treasury stock and other securities. Danish authorities and suppliers are used.
Cash and cash equivalents comprises cash at bank and in hand less Externally generated energy is the input to Novozymes of externally
current bank loans due on demand. Financial resources comprises cash generated electricity, heat, and steam. The associated emissions of CO2,
and cash equivalents plus undrawn committed credit facilities expiring in SO2, and NOx are calculated using annually determined conversion more than one year. factors from power plants or their organizations.
Accounting policies for environmental and social Fuel consumption does not include fuel for transportation. data When calculating the target for energy consumption development The accounting policies for environmental and social data are compared to sales growth in local currency, a correction is applied to
unchanged from last year. account for changes in inventory. This is to ensure that the energy The environmental and social data in the Annual Report are based on consumption target accurately reflects the consumption applicable to data for the parent company and for all subsidiaries, combining items of the products sold in the period. a uniform nature compiled using the same methods, unless specifically Raw materials and packaging stated otherwise below. The selection of parameters to report on is Raw materials and packaging comprises materials for fermentation, based on an evaluation of what Novozymes considers to be responsible, recovery, granulation, wastewater and sludge treatment, and packaging relevant, and of value for its stakeholders when measuring sustainable of products. Consumption of raw materials and packaging is converted
performance. into kilograms. Acquired companies are recognized as from the date of acquisition, Wastewater
and comparative figures are not restated. Wastewater is measured as the volume discharged by Novozymes. COD,
Environment dry matter, BOD5, nitrogen, and phosphorus in the wastewater are calculated on the basis of samples taken at the point of discharge. The environmental data cover those activities that, based on an overall
environmental assessment, could have a significant impact on Biomass the environment, see Group companies. Biomass is measured or calculated on the basis of volume or weight produced and transported from Novozymes as liquid fertilizer
(NovoGro®) or converted to a fertilizer product with a higher dry matter Sites with activities considered not to have a significant impact are not content (NovoGro 30 or compost). The nitrogen and phosphorus included. Such sites comprise sales offices, R&D labs, and sites with contents in the fertilizer are measured in spot checks. limited blending and storage of products.
Waste Resource consumption from construction work in relation to new Waste is the registered volume of waste broken down into hazardous production plants is not included, unless the resource consumption and nonhazardous waste, and by disposal method. Disposal methods (water and energy) is registered by meters that measure resource include landfill, incineration, recycling, and other. The amount recycled is consumption at Novozymes' premises. Resource consumption from the quantity sent to a certified service provider for recycling . production trials at new facilities is included.
Emissions to air of ozone-depleting substances Water Emissions to air of ozone-depleting substances is measured as Water includes drinking water, industrial water, and steam. The reported consumption of CFCs, HCFCs, and halons. quantities are stated on the basis of the metered intake of water to
Novozymes, and include both quantities consumed in the production Environmental impact potentials process and in other areas. The reported quantities of steam are The environmental impact potentials for global warming and ozone converted to volume of running water and therefore subject to layer depletion are calculated on the basis of data published by the US calculation. Environmental Protection Agency (US EPA) and the Montreal Protocol published by UNEP (United Nations Environment Programme). Drinking water is water of drinking water quality. Acidification is calculated on the basis of data published by “Udvikling Industrial water is water from lakes or groundwater from own wells that af Miljøvenlige Industriprodukter” (UMIP), published by the Institute for is not of drinking water quality, but which is suitable for certain Product Development at the Technical University of Denmark. industrial processes, for example for use in cooling towers. Environmental compliance When calculating the target for water consumption development Breaches of regulatory limits is measured as the number of incidents compared to sales growth in local currency, a correction is applied to considered to be in nonconformity to environmental permits or account for changes in inventory. This is to ensure that the water requirements under environmental law. consumption target accurately reflects the consumption applicable to Unintended releases of GMOs is spill of fermentation liquid to recipients the products sold in the period. that, based on criteria such as amount, type of recipient, and public 50 ACCOUNTS Accounting policies for the Novozymes Group
authority specifications, is considered to have an impact on the environment. Training costs Training costs is the costs of seminars and internal and external training Minor GMO spills not considered to have an impact on the courses, translated into Danish kroner at the average exchange rates. environment are not included in this figure. Training costs is also shown as a percentage of total employee costs.
Significant spills is measured as the number of spills of chemicals, oil, Occupational health and safety etc. into water, air, or soil, and includes both on-site and transport- Occupational accidents related spills. Significance is assessed both on the basis of extent of the Occupational accidents with absence is defined as the number of spill and impact on the environment. reported work-related accidents involving at least one day’s absence Minor spills not considered to have an impact on the environment are after the day on which the accident occurred.
not included in this figure. Occupational diseases Neighbor complaints is the number of registered environmental Occupational diseases is defined as the number of new reported cases complaints, primarily related to odor and noise. of work-related diseases. In accordance with Danish legislation, employees working in noisy areas must be tested for hearing disorders. Animals for testing Identified cases are reported as occupational diseases even though it This item covers the number of animals used for all commenced internal may not be possible to establish whether the disorder is related to and external testing undertaken for Novozymes. working at Novozymes.
Social responsibility Consequences of occupational accidents and occupational diseases Number of employees The consequences of occupational accidents with absence and The number of employees is calculated as the actual number of occupational diseases are measured by recording the work situation employees at year-end, excluding employees on unpaid or parental once the outcome of the incident has stabilized, for example whether leave, temporary hires, student interns, and PhD students. the employee has returned to his or her original job, and the total number of (calendar) days of absence. In calculating the number of full-time employees, employees with a working-time ratio of 95% or over are stated as full-time employees. Frequencies of occupational accidents and occupational diseases The frequencies of occupational accidents with absence and Job categories occupational diseases are calculated per million working hours. Senior management comprises the CEO, executive vice presidents, vice presidents, and directors. Management comprises middle managers and specialists. Professional comprises employees with academic Knowledge backgrounds, as well as team leaders. Administrative comprises Number of new products administrative personnel. Skilled workers, laboratory technicians, and The number of new products with new or improved characteristics other technicians comprises skilled workers, laboratory technicians, and launched during the year. other technicians. Process operators comprises operators and unskilled workers. Number of active patent families The number of inventions for which there are one or more active patent Employee turnover applications or active patents at year-end. Employee turnover is measured as the number of permanent employees who left the Group during the financial year, compared to the average number of permanent employees in the financial year. The average number of permanent employees is calculated as the average number of permanent employees at the end of each quarter.
Growth in number of employees, organic The organic growth in number of employees is measured as the number of employees at year-end less the number of employees gained via acquisitions and the number of employees at the beginning of the year.
Growth in number of employees, acquisitions The growth in number of employees via acquisitions is measured as the number of employees gained via acquisition of new companies.
Age and seniority Age and seniority are calculated as the average age and seniority in whole years per employee.
Absence 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 Expatriation refers to Novozymes employees being temporarily assigned to undertake tasks outside their home country for a period of more than six months. 51 ACCOUNTS Income statement
Income statement
Note 2009 2008 DKK million DKK million
1, 2 Revenue 8,448 8,146 3, 5 Cost of goods sold 3,748 3,787 Gross profit 4,700 4,359
3, 5 Sales and distribution costs 1,118 1,061 3, 5 Research and development costs 1,207 1,096 3, 4, 5 Administrative costs 751 745 6 Other operating income, net 64 47 Operating profit 1,688 1,504
7 Financial income 153 263 8 Financial costs 220 348 Profit before tax 1,621 1,419
9 Corporation tax 427 357 Net profit 1,194 1,062
Attributable to: Shareholders in the parent company 1,194 1,062 Minority interests - - 1,194 1,062
Proposed dividend per share DKK 5.75 DKK 5.25
18 Earnings per share DKK 19.24 DKK 17.17 18 Earnings per share, diluted DKK 18.93 DKK 16.86 52 ACCOUNTS Statement of comprehensive income
Statement of comprehensive income
Note 2009 2008 DKK million DKK million
Net profit 1,194 1,062
13 Fair value adjustment of Novo Nordisk stock - (15) 13 - transfered to Financial income/costs (29) (38) Currency translation of subsidiaries and minority interests 84 48 Hedges of net investments in foreign subsidiaries - (14) Tax related to hedges of net investments in foreign subsidiaries 5 4 Cash flow hedges 195 18 - transfered to Financial income/costs (75) (62) Tax related to cash flow hedges 5 5 Other comprehensive income 185 (54)
Comprehensive income for the year, total 1,379 1,008
Attributable to: Shareholders in the parent company 1,380 1,007 Minority interests (1) 1 1,379 1,008 53 ACCOUNTS Balance sheet
Balance sheet
Note Dec. 31, 2009 Dec. 31, 2008 DKK million DKK million
ASSETS
10 Intangible assets 1,124 1,179 11 Property, plant and equipment 4,804 4,319 12 Deferred tax assets 62 68 13 Other financial assets 1 75 Total non-current assets 5,991 5,641
14 Inventories 1,535 1,557 15 Trade receivables 1,468 1,450 16 Tax receivables 210 18 17 Other receivables 215 146 13 Other financial assets 187 116 Cash at bank and in hand 1,284 997 Total current assets 4,899 4,284
Total assets 10,890 9,925
LIABILITIES AND SHAREHOLDERS' EQUITY
18 Common stock 650 650 18 Treasury stock (1,624) (1,791) Other reserves 154 (32) Retained earnings 6,651 5,638 19 Minority interests 10 11 Total shareholders' equity 5,841 4,476
12 Deferred tax liabilities 694 850 20 Long-term employee benefits 13 16 21 Provisions 125 121 22 Other financial liabilities 1,696 1,576 Total non-current liabilities 2,528 2,563
22 Other financial liabilities 632 1,092 21 Provisions 30 33 Trade payables 531 630 16 Tax payables 97 161 23 Other payables 1,231 970 Total current liabilities 2,521 2,886
Total liabilities 5,049 5,449
Total liabilities and shareholders' equity 10,890 9,925 54 ACCOUNTS Statement of shareholders' equity
Statement of shareholders' equity
Attributable to shareholders in the company Available-for- Common Treasury Currency sale financial Cash flow Retained Minority stock stock translation 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, 2009 650 (1,791) (139) 29 78 5,638 11 4,476
Comprehensive income for the year, total - - 90 (29) 125 1,194 (1) 1,379 Sale of treasury stock 36 36 Dividend (326) (326) Stock-based payment 61 61 Tax related to equity items 131 84 215 Changes in shareholders' equity - 167 90 (29) 125 1,013 (1) 1,365
Shareholders' equity at December 31, 2009 650 (1,624) (49) - 203 6,651 10 5,841
Shareholders' equity at January 1, 2008 650 (1,837) (176) 82 117 4,821 10 3,667
Comprehensive income for the year, total 37 (53) (39) 1,062 1 1,008 Sale of treasury stock 24 24 Dividend (309) (309) Stock-based payment 40 40 Tax related to equity items 22 24 46 Changes in shareholders' equity - 46 37 (53) (39) 817 1 809
Shareholders' equity at December 31, 2008 650 (1,791) (139) 29 78 5,638 11 4,476
The proposed dividend of DKK 358 million for 2009 is included in Retained earnings.
Reference is made to Note 18 concerning treasury stock and average number of shares.
55 ACCOUNTS Statement of cash flows and financial resources
Statement of cash flows and financial resources
Note 2009 2008 DKK million DKK million
Net profit 1,194 1,062
31 Reversal of non-cash expenses 1,539 993 Corporation tax paid (594) (129) Interest received 61 94 Interest paid (210) (198) Cash flow before change in working capital 1,990 1,822
Change in working capital: (Increase)/decrease in receivables (264) (199) (Increase)/decrease in inventories 43 (243) Increase/(decrease) in trade payables and other liabilities 48 317 Cash flow from operating activities 1,817 1,697
Investments: 10 Purchase of intangible assets (11) (57) Sale of intangible assets 5 - Sale of property, plant and equipment 37 17 11 Purchase of property, plant and equipment (1,009) (902) Cash flow from investing activities (978) (942)
Free cash flow 839 755
Financing: Long-term borrowings 607 555 Repayments of borrowings (854) - Sale of Novo Nordisk A/S stock 14 17 18 Sale/(purchase) of treasury stock, net 36 24 Dividend paid (326) (309) Cash flow from financing activities (523) 287
Net cash flow 316 1,042
Unrealized gain/(loss) on currencies and financial assets included in cash and cash equivalents 3 20 Net change in cash and cash equivalents 319 1,062
Cash and cash equivalents at January 1 743 (319) 32 Cash and cash equivalents at December 31 1,062 743
33 Undrawn committed credit facilities 3,000 3,000 Financial resources at December 31 4,062 3,743 56 ACCOUNTS Environmental and social data
Environmental and social data
Note 2009 2008
ENVIRONMENT
Consumption of resources 37 Water 1,000 m3 5,064 5,693 38 Internally generated energy 1,000 GJ 802 920 Externally generated energy 1,000 GJ 2,728 3,089 Energy, total 1,000 GJ 3,530 4,009 Raw materials 1,000 tons 355 414 Packaging 1,000 tons 12 13
Wastewater 39 Volume 1,000 m3 3,714 3,922 Dry matter Tons 370 283 BOD5 Tons 777 700 COD Tons 1,832 2,377 Nitrogen Tons 195 160 Phosphorus Tons 77 40
Biomass Volume, NovoGro® 1,000 m3 248 311 Volume, NovoGro® 30 1,000 m3 128 150 Volume, compost 1,000 m3 51 68 Nitrogen Tons 2,450 2,453 Phosphorus Tons 774 750
Waste Nonhazardous waste Tons 7,610 8,477 Hazardous waste Tons 1,393 1,492 40 Waste, total Tons 9,003 9,969 Percentage of total waste recycled % 44.5 45.0
Emissions to air Ozone-depleting substances, HCFCs Kg 524 1,725 CO 41 2 1,000 tons 430 522 SO 2 Tons 1,157 1,350 NO x Tons 993 1,152
Environmental impact potentials 1,000 tons CO -eqv. 42 Global warming 2 431 524 Kg CFC -eqv. 43 Ozone layer depletion 11 29 77 Tons SO -eqv. Acidification 2 1,852 2,157
Environmental compliance, etc. Breaches of regulatory limits, groundwater No. 27 22 Breaches of regulatory limits, other No. 17 19 Unintended releases of GMOs No. 0 0 Significant spills No. 0 0 Neighbor complaints No. 33 38
Animals for testing Enzyme Business No. 820 923 BioBusiness No. 1,940 2,020 57 ACCOUNTS Environmental and social data
Environmental and social data
Note 2009 2008
SOCIAL
Employee statistics 44 Employees, total No. 5,275 5,146 44 45 Women % 36.2 35.6 44 Men % 63.8 64.4 46 Rate of employee turnover % 6.7 11.3 Average age Years 39.8 39.7 Seniority Years 9.0 8.7 47 Rate of absence % 2.3 2.2 Expatriates No. 71 65
Training costs Average spent per employee DKK 6,506 6,469 Costs as percentage of total employee costs % 1.4 1.5
HEALTH AND SAFETY Occupational accidents and diseases Fatalities No. 0 0 48 Accidents with absence No. 43 39 Of which life-threatening accidents No. 0 0 Of which accidents requiring professional first aid No. 39 33 49 50 Occupational diseases No. 27 18 Frequency of occupational accidents Per million working hours 5.1 4.9 Frequency of occupational accidents requiring professional first aid Per million working hours 4.6 4.1 Frequency of occupational diseases Per million working hours 3.2 2.2
KNOWLEDGE Processes and technology New products No. 9 8 Active patent families No. 1,018 1,033 58 ACCOUNTS Notes
Index of notes
Financial notes
Note 1 - Segment information Note 2 - Revenue Note 3 - Employee costs Note 4 - Fees to statutory auditor Note 5 - Depreciation, amortization, and impairment losses Note 6 - Other operating income, net Note 7 - Financial income Note 8 - Financial costs Note 9 - Tax Note 10 - Intangible assets Note 11 - Property, plant and equipment Note 12 - Deferred tax Note 13 - Other financial assets Note 14 - Inventories Note 15 - Trade receivables Note 16 - Tax receivable and payable Note 17 - Other receivables Note 18 - Common stock Note 19 - Minority interests Note 20 - Provisions for pensions and similar obligations Note 21 - Provisions Note 22 - Other financial liabilities Note 23 - Other payables Note 24 - Stock-based payment, and remuneration Note 25 - Foreign currencies in the balance sheet Note 26 - Derivatives Note 27 - Commitments and contingent liabilities Note 28 - Joint ventures Note 29 - Related party transactions Note 30 - Government grants Note 31 - Non-cash expenses Note 32 - Cash and cash equivalents Note 33 - Expiration date for undrawn committed credit facilities Note 34 - Acquisition of activities and companies Note 35 - Accounting estimates and judgments Note 36 - Financial risk factors
Notes concerning environmental and social data
Note 37 - Water allocated to primary source Note 38 - Internally generated energy allocated to primary source Note 39 - Treated wastewater for irrigation Note 40 - Total waste volume by disposal method Note 41 - CO emissions by internally and externally generated energy 2 Note 42 - Global warming, CO -equivalents 2 Note 43 - Ozone layer depletion, CFC -equivalents 11 Note 44 - Employee statistics Note 45 - Percentage of women by job category Note 46 - Job creation Note 47 - Rate of absence by job category Note 48 - Consequences of occupational accidents Note 49 - Consequences of occupational diseases Note 50 - Types of occupational diseases 59 ACCOUNTS Notes
Note 1 - Segment information
Novozymes' operating segments reflect the way the activities are organized and controlled. Although revenue within Enzyme Business can be subdivided into further activities, the activities are considered to be integrated, as most of the production facilities are common to the segment as a whole, see also the section on Company profile. Gross profit is the primary parameter used when Management evaluates the performance of the segments.
The functions for Sales and distribution, Research and development, and Administrative are considered as working for both segments and their costs are therefore allocated to the Corporate function. Sales between the individual segments are deducted from the revenue of the selling company and amount to DKK 24 million in 2009 (DKK 24 million in 2008).
When evaluating the performance of BioBusiness, it should be considered that the activities within this segment are focused on building capacity for future sales, and the gross profit is therefore affected by costs for idle capacity. In addition, 2008 was affected by costs for closure of activities, including related impairment losses.
2009 2008 Enzyme Enzyme Income statement Business BioBusiness Corporate Total Business BioBusiness Corporate Total DKK million DKK million DKK million DKK million DKK million DKK million DKK million DKK million
Revenue 7,798 650 8,448 7,533 613 - 8,146 Cost of goods sold 3,322 426 3,748 3,300 487 - 3,787 Gross profit 4,476 224 - 4,700 4,233 126 - 4,359 Sales and distribution costs 1,118 1,118 1,061 1,061 Research and development costs 1,207 1,207 1,096 1,096 Administrative costs 751 751 745 745 Other operating income, net 64 64 47 47 Operating profit 1,688 1,504
Capital expenditure Intangible assets - - 11 11 - 32 25 57 Property, plant and equipment 731 171 107 1,009 585 52 265 902 Capital expenditure, total 731 171 118 1,020 585 84 290 959
Depreciation, amortization, and impairment losses Intangible assets 22 12 58 92 22 33 42 97 Property, plant and equipment 315 42 115 472 282 69 108 459 Depreciation, amortization, and impairment losses, total 337 54 173 564 304 102 150 556
Assets Inventories 1,411 124 - 1,535 1,386 171 - 1,557 Trade receivables 1,400 68 - 1,468 1,391 59 - 1,450
60 ACCOUNTS Notes
Geographical allocation Note 3 - Employee costs 2009 2008 DKK million DKK million 2009 2008 DKK million DKK million Revenue Denmark 129 120 Wages and salaries 2,019 1,865 Rest of Europe, Middle East, and Africa 3,083 2,937 Pensions - defined contribution plans 178 126 North America 3,046 2,981 Pensions - defined benefit plans 6 5 Asia Pacific 1,595 1,502 Other social security costs 137 116 Latin America 595 606 Other employee costs 116 115 Stock-based payment 64 42 Revenue, total 8,448 8,146 Employee costs, total 2,520 2,269
Assets Recognized in the income statement Denmark 5,026 4,684 under the following items: Rest of Europe, Middle East, and Africa 435 468 Cost of goods sold 996 873 North America 1,650 1,504 Sales and distribution costs 493 428 Asia Pacific 1,856 1,822 Research and development costs 652 576 Latin America 179 173 Administrative costs 391 386 Assets, total 9,146 8,651 2,532 2,263 Recognized in the assets as: Capital expenditure Change in employee costs recognized in Denmark 270 451 inventories (12) 6 Rest of Europe, Middle East, and Africa 26 30 Employee costs, total 2,520 2,269 North America 370 174 Asia Pacific 332 294 Geographical distribution: Latin America 22 10 Denmark 1,534 1,378 Capital expenditure, total 1,020 959 Rest of Europe, Middle East, and Africa 225 189 North America 482 432 The geographical allocation is made on the basis of the Group's revenue, Asia Pacific 223 210 assets, and capital expenditure. The geographical distribution of revenue Latin America 56 60 is based on the country in which the customer is domiciled. With a Employee costs, total 2,520 2,269 number of strategic customers, central deliveries are made to specified locations, and the final recipient is unknown. The stated geographical Average number of employees in the distribution of revenue may therefore vary significantly from year to year Group 5,217 4,993 if the delivery destination for these strategic customers changes. Number of employees outside Denmark as a percentage of total number of employees 54% 54% Note 2 - Revenue Reference is made to Note 44 concerning the geographical distribution of employees. 2009 2008 DKK million DKK million
Detergent enzymes 2,672 2,498 Note 4 - Fees to statutory auditor Technical enzymes 2,600 2,479 Food enzymes 1,801 1,812 2009 2008 Feed enzymes 725 744 DKK million DKK million Microorganisms 415 405 Biopharmaceutical ingredients 235 208 Fees to the auditor elected by the Annual Shareholders' Meeting, PricewaterhouseCoopers: Revenue, total 8,448 8,146
Fees to statutory auditor, total 23 20
- of which pertaining to audit 9 10 In 2009 the fees for tax, other assurance engagements, and other services were DKK 12, 1, and 1 million respectively. 61 ACCOUNTS Notes
Note 5 - Depreciation, amortization, and impairment losses Note 7 - Financial income
2009 2008 2009 2008 DKK million DKK million DKK million DKK million
Recognized in the income statement under the following Interest income 65 91 items: Exchange gains on derivatives, net 47 106 Cost of goods sold 358 351 Other foreign exchange gains, net 9 - Sales and distribution costs 18 15 Stock-based payment and gain on sale of Research and development costs 80 80 securities 23 63 Administrative costs 16 13 Dividends, etc., net 9 3 Depreciation and impairment losses, Financial income, total 153 263 property, plant and equipment, total 472 459
Recognized in the income statement under the following
items: Cost of goods sold 34 55 Note 8 - Financial costs Sales and distribution costs 24 10 Research and development costs 22 22 2009 2008 Administrative costs 12 10 DKK million DKK million Amortization and impairment losses, intangible assets, total 92 97 Interest costs 212 197 Other foreign exchange losses, net - 140 Depreciation, amortization, and Other financial costs 15 11 impairment losses, total 564 556 Capitalized interest (interest rate used 3.4% p.a.) (7) - Of which Impairment losses totaled DKK 0 million in 2009 (DKK 15 million Financial costs, total 220 348 in 2008 on buildings, included in Cost of goods sold).
Of which Impairment losses on goodwill and know-how totaled DKK 0 million in 2009 (DKK 15 million in 2008, included in Cost of goods sold). Note 9 - Tax
2009 2008 DKK million DKK million Note 6 - Other operating income, net Tax payable on net profit 456 444 2009 2008 Change in deferred tax 10 (101) DKK million DKK million Adjustment for previous years (39) 14 Tax in the income statement 427 357 Income and grants concerning research projects/collaborations 56 24 Calculation of effective tax rate: Other operating income, net 8 23 Corporation tax in Denmark 25.0% 25.0% Other operating income, net, total 64 47 Non-deductible expenses 1.5% (0.1)% Difference in foreign tax rates (0.7)% 1.6% One-off impact of change in tax rate - (1.4)% Other adjustments 0.5% 0.1% Effective tax rate 26.3% 25.2%
62 ACCOUNTS Notes
Note 10 - Intangible assets
Acquired Completed IT patents, li- IT development development censes, and projects in projects* know-how Goodwill progress* Total DKK million DKK million DKK million DKK million DKK million
Cost at January 1, 2009 229 1,010 461 56 1,756 Currency translation - 26 32 - 58 Additions during the year - - - 11 11 Disposals during the year (19) (44) (37) - (100) Transfer (to)/from other items 22 - - (22) - Cost at December 31, 2009 232 992 456 45 1,725
Amortization and impairment losses at January 1, 2009 217 314 46 577 Currency translation - 4 1 5 Amortization for the year 8 84 - 92 Amortization and impairment losses reversed on disposals for the year - (39) (34) (73) Amortization and impairment losses at December 31, 2009 225 363 13 601
Carrying amount at December 31, 2009 7 629 443 45 1,124
Cost at January 1, 2008 229 1,011 537 31 1,808 Currency translation - (33) (64) - (97) Acquisition of companies - - (12) - (12) Additions during the year - 32 - 25 57 Cost at December 31, 2008 229 1,010 461 56 1,756
Amortization and impairment losses at January 1, 2008 205 245 37 487 Currency translation - (5) (2) (7) Amortization for the year 12 70 - 82 Impairment losses for the year - 4 11 15 Amortization and impairment losses at December 31, 2008 217 314 46 577
Carrying amount at December 31, 2008 12 696 415 56 1,179
* Assets developed internally 63 ACCOUNTS Notes
The carrying amount of goodwill was tested for impairment at December 31, 2009. This did not reveal any need to write down the carrying amounts for impairment, while write-downs of DKK 15 million were made in 2008 based on a concrete assessment of a goodwill asset and a know-how asset.
The impairment tests compared the discounted cash flow of the individual cash-generating units to the carrying amounts of the units. Cash flow is based on budgets and business plans for the period 2010–2024. Refer to Company profile for a description of the individual business areas.
For the Enzyme Business no formal impairment test has been performed as the expected profit in 2010 within this business area exceeds the value of goodwill DKK 183 million significantly.
Material assumptions used in calculating the discounted cash flow are based on an assessment of the individual unit as follows:
Biopharmaceutical 2009 Microorganisms ingredients Goodwill 109 151 Expected sales growth 7.5% 10–15% Sales growth, terminal value 3.0% 0.8%
Biopharmaceutical 2008 Microorganisms ingredients Goodwill 136 127 Expected sales growth 7.5% 10–15% Sales growth, terminal value 3.0% 0.6%
In 2009, a lower discount rate (7.0%) was used for all segments compared with 2008 (8.5%), primarily because the risk-free interest rate has decreased during 2009. The test for impairment in 2009 included a sensitivity analysis based on a discount rate on par with 2008. A test on this basis would not give rise to impairment. 64 ACCOUNTS Notes
Note 11 - Property, plant and equipment
Assets under con- Land and Plant and Other struction and buildings machinery equipment prepayments Total DKK million DKK million DKK million DKK million DKK million
Cost at January 1, 2009 3,126 4,774 1,030 781 9,711 Currency translation 23 1 (1) 1 24 Additions during the year 140 170 73 626 1,009 Disposals during the year (39) (118) (57) - (214) Transfer (to)/from other items 188 296 18 (502) - Cost at December 31, 2009 3,438 5,123 1,063 906 10,530
Depreciation and impairment losses at January 1, 2009 1,319 3,386 687 5,392 Currency translation 13 1 (2) 12 Depreciation for the year 103 280 89 472 Depreciation and impairment losses eliminated on disposals during the year (20) (93) (37) (150) Depreciation and impairment losses at December 31, 2009 1,415 3,574 737 5,726
Carrying amount at December 31, 2009 2,023 1,549 326 906 4,804
Cost at January 1, 2008 2,940 4,234 977 677 8,828 Currency translation 33 55 18 9 115 Acquisition of companies 8 2 - - 10 Additions during the year 105 179 64 554 902 Disposals during the year (11) (41) (87) (5) (144) Transfer (to)/from other items 51 345 58 (454) - Cost at December 31, 2008 3,126 4,774 1,030 781 9,711
Depreciation and impairment losses at January 1, 2008 1,211 3,105 670 4,986 Currency translation 4 47 12 63 Depreciation for the year 112 247 85 444 Impairment losses for the year 15 - - 15 Depreciation and impairment losses eliminated on disposals during the year (4) (33) (79) (116) Transfer (to)/from other items (19) 20 (1) - Depreciation and impairment losses at December 31, 2008 1,319 3,386 687 5,392
Carrying amount at December 31, 2008 1,807 1,388 343 781 4,319
Obligations to third parties relating to capital expenditure are DKK 486 million at December 31, 2009, compared to DKK 173 million at December 31, 2008.
Geographical distribution 2009 2008 DKK million DKK million Denmark 2,317 2,333 Rest of Europe, Middle East, and Africa 186 151 North America 1,067 818 Asia Pacific 1,166 976 Latin America 68 41 Carrying amount at December 31 4,804 4,319 65 ACCOUNTS Notes
Note 12 - Deferred tax
2009 2008 DKK million DKK million
Deferred tax at January 1 (782) (892) Currency translation 11 (13) Tax related to the income statement (67) 68 Tax on shareholders' equity items 206 55 Deferred tax at December 31 (632) (782)
Deferred tax assets 62 68 Deferred tax liabilities (694) (850) Deferred tax at December 31 (632) (782)
Deferred Deferred tax assets tax liabilities Total DKK million DKK million DKK million Intangible assets and property, plant and equipment 48 (747) (699) Deferred tax relating to inventories 216 (237) (21) Tax-loss carry-forwards and balance re recapture of tax losses 28 (18) 10 Stock options 175 - 175 Liabilities, etc. 327 (424) (97) 794 (1,426) (632) Offsetting items (732) 732 - Deferred tax at December 31, 2009 62 (694) (632)
Due after more than 12 months - (487) Unrecognized share of tax-loss carry-forwards, etc. (mainly expiring in 2015 and 2016) 30 -
Deferred Deferred tax assets tax liabilities Total DKK million DKK million DKK million Intangible assets and property, plant and equipment 69 (692) (623) Deferred tax relating to inventories 221 (209) 12 Tax-loss carry-forwards and balance re recapture of tax losses 45 (18) 27 Stock options 118 - 118 Liabilities, etc. 228 (544) (316) 681 (1,463) (782) Offsetting items (613) 613 - Deferred tax at December 31, 2008 68 (850) (782)
Due after more than 12 months - (779) Unrecognized share of tax-loss carry-forwards, etc. (mainly expiring in 2015 and 2016) 47 -
Tax-loss carry-forwards are recognized in deferred tax assets to the extent that the losses are expected to be realized in the form of future taxable profits. 66 ACCOUNTS Notes
Note 13 - Other financial assets
2009 2008 2009 2008 DKK million DKK million DKK million DKK million
Changes in allowances for doubtful trade receivables: Available-for-sale financial assets - 46 At January 1 126 86 Derivatives 187 130 Allowances during the year 59 71 Other financial assets 1 15 Write-offs during the year (14) 4 Other financial assets at December 31 188 191 Reversed allowances (46) (35)
Allowances at December 31 125 126 Non-current assets 1 75 Current assets 187 116 The cost is included in Sales and distribution costs.
Available-for-sale financial assets comprised the Group's holding of Allocation of overdue net receivables (not written off) by maturity Novo Nordisk B stock, which was acquired with a view to hedge the period is as follows: stock option obligation, cf. Note 24. Up to 30 days 148 185 A gain on stock of DKK 29 million has been transferred from Other Between 30 days and 90 days 34 82 comprehensive income to Financial income relating to the realization. Between 91 days and 365 days 2 45 In 2008 the market value adjustment was a loss of DKK 15 million, and DKK 38 million was transferred to Financial income. Allowances at December 31 184 312
Note 14 - Inventories Note 16 - Tax receivable and payable
2009 2008 2009 2008 DKK million DKK million DKK million DKK million
At January 1 (143) 158 Raw materials and consumables 237 243 Work in progress 411 342 Currency translation 3 (5) Finished goods 887 972 Tax related to the income statement (360) (426) Inventories at December 31 1,535 1,557 Tax on other comprehensive income 2 9 Tax on shareholders' equity items 17 (8) Cost of materials, included under Cost of goods sold, is DKK 2,017 Tax paid on account for the current year, million, compared to DKK 2,119 million in 2008. net 621 279 Tax received on account for previous Expensed write-downs on inventories 57 50 years, net (27) (150) Reversal of write-downs on inventories 14 8 Tax receivable/(payable) at December 31 113 (143)
Some of the reversal of write-downs can be attributed to written-down Tax receivable 210 18 inventories being reused in production. Tax payable (97) (161) Tax receivable/(payable) at December 31 113 (143) Of which due after more than 12 months 5 -
Note 15 - Trade receivables
2009 2008 Note 17 - Other receivables DKK million DKK million
2009 2008 Trade receivables 1,536 1,508 DKK million DKK million Allowances for doubtful trade receivables (125) (126) 1,411 1,382 Deposits 31 10 Prepaid expenses 83 64 Amounts owed by related companies 57 68 Other receivables 101 72 Trade receivables at December 31 1,468 1,450 Other receivables at December 31 215 146
Other receivables primarily fall due within 1 year from the balance sheet date.
67 ACCOUNTS Notes
Note 18 - Common stock
2009 2008 2009 2008 DKK million DKK million % % Common stock Percentage of common stock Percentage of common stock at January 1 4.7% 4.9% Nominal value Disposals during the year (0.4)% -0.2% A common stock 107 107 Percentage of common stock at B common stock 543 543 December 31 4.3% 4.7% Common stock at December 31 650 650 2009 2008 2009 2008 DKK million DKK million No. No. Profit basis for earnings per share 1,194 1,062 Shares of common stock A shares of DKK 10 10,748,720 10,748,720 2009 2008 B shares of DKK 10 54,251,280 54,251,280 No. No. Shares of common stock at December 31 65,000,000 65,000,000 Average number of shares: Average shares of stock 62,053,218 61,869,489 Each A share gives an entitlement to 100 votes, while each B share Adjustment for stock options 1,017,809 1,132,822 gives an entitlement to 10 votes. The common stock was written down Average number of diluted shares 63,071,027 63,002,311 in 2005 and 2006.
2009 2008
No. No. Note 19 - Minority interests Shares of common stock in circulation Shares of stock at January 1 61,956,473 61,802,280 Sale of treasury stock 218,772 154,193 2009 2008 DKK million DKK million Shares of common stock in circulation at December 31 62,175,245 61,956,473 Minority interests at January 1 11 10 Currency translation (1) 1 2009 2008 Minority interests at December 31 10 11 DKK million DKK million
Treasury stock - B stock
Carrying amount Carrying amount at January 1 1,791 1,837 Disposals during the year (36) (24) Other (131) (22) Carrying amount at December 31 1,624 1,791
Nominal value Nominal value at January 1 30 32 Disposals during the year (2) (2) Nominal value at December 31 28 30
2009 2008 No. No. Shares of treasury stock Shares of stock at January 1 3,043,527 3,197,720 Disposals during the year (218,772) (154,193) Shares of stock at December 31 2,824,755 3,043,527 68 ACCOUNTS Notes
Note 20 - Provisions for pensions and similar obligations 2009 2008 DKK million DKK million The Group has entered into pension agreements with a significant number of its employees. Most of the pension plans are defined Change in the net liability: contribution plans, and only a small number are defined benefit plans. A Opening net liability 16 16 health insurance plan has also been established in the US. Currency translation 0 0
Total pension costs expensed in the Some of the pension plans are funded by payments from Group income statement 6 5 companies. However, some plans are not funded, and a liability has been Contributions paid (9) (5) recognized in the balance sheet for these plans. Other changes 0 0 Closing net liability 13 16 As well as pension agreements, a few countries also have plans covering other long-term employee benefits that meet local requirements for The actuarial valuations of the most significant defined benefit plans are insuring employees in the event of termination, etc. based on the following assumptions:
2009 2008 2009 2008 DKK million DKK million Discount rates 4.0% 4.6% Amounts recognized in the income statement re defined benefit Expected rate of return on plan assets 3.5% 4.3% pension plans: Future salary increases 1.4% 1.3% Current service costs 6 4 Annual increase in healthcare costs 10.0% 7.3% Interest costs 2 2
Expected return on plan assets (2) (3) Service costs relating to changes to plans 0 2 Total amount recognized in the income statement re defined benefit plans 6 5 Note 21 - Provisions
The actual return on plan assets was a gain of DKK 11 million (a loss of 2009 2008 DKK 8 million in 2008). DKK million DKK million
2009 2008 DKK million DKK million Provisions at January 1 154 215 Currency translation 2 (15)
Amounts recognized in the balance sheet Additions during the year 7 38 re defined benefit pension plans: Reversals during the year (1) (31) Present value of fully/partly funded Utilization during the year (7) (53) obligations 56 51 Provisions at December 31 155 154 Fair value of plan assets (58) (54) Current 30 33 Net value (2) (3) Non-current 125 121 Present value of unfunded obligations 13 16 Unrecognized part of plan assets 2 3 Provisions include remainder of purchase price in connection with Liability recognized in the balance sheet 13 16 acquisitions, which was DKK 17 million in 2009 (DKK 21 million in 2008), of which DKK 5 million (DKK 8 million in 2008) is expected to be settled within one year, while the rest will be settled over a period of up to eight years.
Provisions also include items relating to liabilities for restoring rental premises to their original condition on moving out, pending litigation, and other long-term employee benefits with the exception of pensions and similar obligations. These are expected to be settled over a longer period.
69 ACCOUNTS Notes
Note 22 - Other financial liabilities
Less Between Between After 2009 2008 than 1 1 and 2 2 and 5 5 DKK million DKK million DKK million year years years years
Credit institutions 2,214 2,400 Financial liabilities at Derivatives 95 246 December 31, 2009 Other financial liabilities 19 22 Other financial liabilities 559 80 572 1,022 Trade payables 531 - - - Other financial liabilities at December 31 2,328 2,668 Other payables 1,076 - - - Gross settlement of Non-current 1,696 1,576 derivatives (outflow) 35 27 45 20 Current 632 1,092
The figures below show the inflow from the above gross settlement of The credit institutions are payable within the following periods from the derivatives, so as to provide an adequate and fair picture of the actual balance sheet date: draw on liquidity. Less than 1 year 559 911 Between 1 and 2 years 80 497 Gross settlement of Between 2 and 3 years 5 - derivatives (inflow) 13 12 20 8 Between 3 and 4 years 562 - Between 4 and 5 years 5 557 After 5 years 1,003 435 Less Between Between After Credit institutions at December 31 2,214 2,400 than 1 1 and 2 2 and 5 5 DKK million year years years years The debt is denominated in the following currencies: Financial liabilities at CAD - 15 December 31, 2008 CNY 209 302 Other financial liabilities 911 497 557 457 DKK 614 601 Trade payables 630 - - - EUR 966 373 Other payables 1,004 - - 38 Gross settlement of GBP - 3 derivatives (outflow) 40 18 24 - INR 89 88 JPY - 6 The figures below show the inflow from the above gross settlement of USD 336 1,007 derivatives, so as to provide an adequate and fair picture of the actual Other - 5 draw on liquidity. Credit institutions at December 31 2,214 2,400 Gross settlement of Debt to credit institutions runs to 2010–2036 at interest rates between derivatives (inflow) 23 15 28 - 1.7% and 12.5%.
The interest rates on the above variable loans will be adjusted in 2010. Note 23 - Other payables The carrying amount of credit institutions corresponds to the fair value.
2009 2008 Analysis of time to maturity of financial liabilities DKK million DKK million This table analyzes financial liabilities settled by financial assets, including derivatives, broken down by payment periods, based on the contractual due date. The amounts are shown undiscounted, so the figures cannot Employee costs payable 530 426 be directly reconciled with the respective items in the balance sheet. Taxes and duties payable 40 5 Accruals and deferred income 98 81 Stock-based payment 25 49 Other payables 538 409 Other payables at December 31 1,231 970 70 ACCOUNTS Notes
Note 24 - Stock-based payment, and remuneration
Novozymes has established stock option programs for Executive Management, other managers, and other employees. The purpose of the stock option programs is to ensure common goals for Executive Management, other managers, other employees, and shareholders. Allocation of options is, and has been, dependent on profit and value-creation targets being achieved, and the achievement of selected sustainability targets.
A new stock option program for all employees was launched in 2009. This program forms part of the program announced previously covering the period 2007–2010, with annual allocations conferring the right to purchase one share at a nominal price of DKK 10 per stock option. Allocations are made on the basis of the individual employee's basic salary and in accordance with the business targets – both financial and nonfinancial – set by the Board of Directors for each year. The stock options have a vesting period of four years, followed by an exercise period of five years. In order to exercise the options, the employee must still be employed on the exercise date. This does not apply to persons who have retired, taken a voluntary early retirement pension, or been given notice.
The targets set for 2009 were partly achieved, triggering an allocation of 81% of the maximum possible allocation to other managers and other employees, while the allocation to Executive Management is 99% of the possible maximum.
Executive Management has previously also been allocated stock options with a maturity period of between six and eight years. For other managers and other employees the stock options have previously been allocated with a maturity of eight years.
The above-mentioned stock option programs are primarily equity settled, and no liability is recognized for these. In the case of allocations in countries where ownership of foreign stock is not permitted, the value of the stock options is settled in cash, and a liability of DKK 25 million has been recognized for this in 2009 (DKK 19 million in 2008). The intrinsic value of the programs in 2009 was DKK 26 million (DKK 15 million in 2008).
All the liabilities relating to Novo Nordisk stock options (DKK 29 million in 2008) and divestment of stock relating to stock options granted to Novo A/S employees (1,700 in 2008) have expired.
Number Exercise Remaining of options price per term to Executive Other Other that can be option maturity Stock options in Novozymes A/S Management managers employees Total exercised in DKK (years)
Outstanding at January 1, 2008 210,148 1,246,483 1,154,656 2,611,287 1,623,842 266* 5**
Additions during the year 245,857 302,079 248,389 796,325 Options exercised in 2008 (91,611) (74,192) (165,803) 152* Terminations in 2008 (53,332) (31,390) (84,722) Outstanding at December 31, 2008 456,005 1,403,619 1,297,463 3,157,087 1,447,748 298* 5**
Additions during the year 157,581 159,523 125,079 442,183 Options exercised in 2009 (17,380) (76,555) (137,742) (231,677) 161* Terminations in 2009 (18,158) (14,537) (32,695) Outstanding at December 31, 2009 596,206 1,468,429 1,270,263 3,334,898 1,211,474 327* 5** 71 ACCOUNTS Notes
Number Exercise Remaining Market of options price per term to value in Executive Other Other that can be option maturity DKK Stock options in Novozymes A/S Management managers employees Total exercised in DKK (years) million
Outstanding program 2001 - 34,968 - 34,968 34,968 159 - 13 Outstanding program 2001 - - 149,094 149,094 149,094 186 - 53 Outstanding program 2002 7,700 73,000 148,893 229,593 229,593 169 1 84 Outstanding program 2003 24,720 314,750 458,349 797,819 797,819 148 2 310 Outstanding program 2006 10,437 349,453 - 359,890 - 344 5 72 Outstanding program 2006 - 4,290 - 4,290 - 400 5 1 Outstanding program 2007 149,911 220,031 167,528 537,470 - 495 6 61 Outstanding program 2007 - 26,244 - 26,244 - 585 8 1 Outstanding program 2007 - 8,349 - 8,349 - 596 6 1 Outstanding program 2008 245,857 255,527 221,620 723,004 - 390 7 135 Outstanding program 2008 - 17,294 - 17,294 - 417 8 1 Outstanding program 2008 - 8,544 - 8,544 - 403 7 1 Outstanding program 2009 157,581 152,695 124,779 435,055 - 443 8 73 Outstanding program 2009 - 3,284 - 3,284 - 529 8 1 Outstanding at December 31, 2009 596,206 1,468,429 1,270,263 3,334,898 1,211,474 327* 5** 807
* The exercise price is a weighted average of several option programs. ** Remaining term to maturity is stated as a weighted average of the outstanding options.
Market value is calculated on the basis of the Black–Scholes model for valuation of options. The historical volatility over the last year is used when calculating the value of the options at year-end. The risk-free interest is based on Danish government bonds with a maturity equivalent to the option's expected remaining term to maturity. The expected maturity is fixed at one year after the expiry of the binding period, or the option's expiry date if this is within one year.
The following assumptions are used when calculating market value at the end of the period:
2009 2008 Dividend per share, DKK 5.75 5.25 Volatility, % 30.3 55.4 Average risk-free interest, % 1.6 2.9 Share price 540 418
Holdings of and trading in Novozymes A/S stock by the Board of Directors and Executive Management
Board of Executive Number of shares Directors Management Total
Stock portfolio at January 1, 2008 15,665 22,411 38,076 Change in Board of Directors (920) - (920) Purchase of stock during the year 820 16,351 17,171 Sale of stock during the year - (10,200) (10,200) Stock portfolio at December 31, 2008 15,565 28,562 44,127
Purchase of stock during the year - 2,027 2,027 Sale of stock during the year - (2,027) (2,027) Stock portfolio at December 31, 2009 15,565 28,562 44,127
The stock portfolio had a market value of DKK 18 million at December 31, 2008, and DKK 24 million at December 31, 2009, based on the listed share price at year-end 2008 and 2009 respectively. 72 ACCOUNTS Notes
Holdings, exercise, and allocations of Novozymes A/S stock options by and to Executive Management
Options at Additions Exercised Options at Market January 1, during during Dec. 31, value in Number of stock options 2009 the year the year 2009 DKK million
Steen Riisgaard 137,456 36,366 (8,500) 165,322 31.1 Per Falholt 79,438 24,243 (8,880) 94,801 14.9 Benny D. Loft 73,917 24,243 - 98,160 15.5 Peder Holk Nielsen 79,438 24,243 - 103,681 18.3 Thomas Nagy 42,878 24,243 - 67,121 12.0 Thomas Videbæk 42,878 24,243 - 67,121 12.0 Holdings of stock options 456,005 157,581 (17,380) 596,206 103.8
The employee-elected board members also hold stock options in Novozymes A/S, granted in connection with stock option allocations in previous years covering all employees in Novozymes A/S on the relevant dates.
2009 2008 DKK million DKK million Remuneration to Executive Management: Salaries 25 24 Pensions 5 5 Total remuneration to Executive Management 30 29
Total remuneration to the Board of Directors 4 5
2009 2008 No. No. Number of Executive Management members 6 6
In 2007 a new four-year stock option program was adopted with annual allocations to Executive Management. A general condition for the annual allocations was that the budget for the coming year would in all probability lead to revenue of DKK 10 billion in 2010. Additionally, the allocation is based on achievement of financial and nonfinancial targets that are set each year. The exercise price is calculated on the basis of the average closing price on NASDAQ OMX Copenhagen A/S on the first five trading days after the publication of the financial statements. The annual allocation for 2010 has been canceled as the general condition for the allocation has not been met.
The program contains a maximum clause that allows the Board of Directors to limit the number of stock options that are allocated to Executive Management over the four years. This limitation can be implemented if the intrinsic value of the total allocated stock options exceeds DKK 200 million at the time of computation in January 2011.
In 2009 the financial targets had a weighting of 0–75% and the nonfinancial targets a weighting of 0–25%. As the financial targets were achieved but one of the nonfinancial targets was not, the Board of Directors decided to allocate 157,581 stock options, corresponding to 99% of the maximum available allocation, to Executive Management.
The total value of the options allocated for 2009, based on the Black–Scholes model, was DKK 31 million at the grant date, DKK 7 million of which has been recognized in the income statement for 2009. The intrinsic value of the 553,349 stock options that have been allocated to the current Executive Management over the four-year program was DKK 59 million at December 31, 2009.
Members of Executive Management have contracts of employment containing standard conditions for members of Executive Management of Danish listed companies, including the periods of notice that both parties are required to give and competition clauses. If the executive officer's contract of employment is terminated by the company, without there having been misconduct on the part of the executive officer, the executive officer has the right to compensation, which, depending on the circumstances, may amount to a maximum of three years' salary and pension contributions.
73 ACCOUNTS Notes
Note 25 - Foreign currencies in the balance sheet
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, 2009, calculated as the total of each Group company's assets and liabilities in a currency other than its own. The table also shows the derivatives used to hedge these assets and liabilities.
Exchange rate at Currency Net currency Dec. 31, 2009 DKK million exposure Derivatives exposure (for 100 units)
AUD (8) 11 3 464.05 CNY (14) - (14) 76.04 CHF (661) 249 (412) 500.17 EUR 526 (1,230) (704) 744.15 JPY 60 (40) 20 5.62 USD 523 (618) (95) 519.01 Other 5 88 93 - 431 (1,540) (1,109)
Transaction risk is the possibility of gains/losses on transactions that are open on the balance sheet date as a result of subsequent exchange rate changes. Gains/losses are recognized in the income statement.
Hedging of investments in foreign subsidiaries (translation risk)
Net investment Exchange rate at in foreign Net assets with Dec. 31, 2009 DKK million subsidiaries Derivatives translation risk (for 100 units)
AUD 168 - 168 464.05 BRL 172 - 172 298.45 CAD 144 - 144 494.81 CHF 651 - 651 500.17 CNY 1,149 - 1,149 76.04 EUR 64 - 64 744.15 GBP 162 - 162 823.17 INR 90 - 90 11.10 SEK 209 - 209 72.28 USD 652 - 652 519.01 Other 86 - 86 - 3,547 - 3,547
Translation risk is the possibility of gains/losses arising from translation of net assets in subsidiaries as a result of subsequent exchange rate changes. Gains/losses are recognized in the statement of comprehensive income. 74 ACCOUNTS Notes
Note 26 - Derivatives
Cash flow hedges
The table below shows the derivatives that the Group has contracted to hedge currency exposure, interest rate exposure, or price exposure on future cash flows. The total fair value adjustment at year-end is entered directly in Shareholders' equity and will be taken to the income statement as the financial contracts are realized, with the exception of currency translation and accrued interest on currency swaps used for interest hedging, as these do not qualify as cash flow hedges and are therefore entered directly in the income statement.
2009 2008 Contract Contract amount amount based on Market value based on Market value DKK million agreed rates Dec. 31 agreed rates Dec. 31
Forward exchange contracts (sales) JPY 118 15 216 1 USD 1,418 164 2,031 84 1,536 179 2,247 85
Interest rate swaps DKK/DKK - pays fixed rate of 2.95% / earns variable rate of 1.55% 307 (3) EUR/EUR - pays fixed rate of 3.06% / earns variable rate of 1.38% 112 (2) EUR/EUR - pays fixed rate of 3.58% / earns variable rate of 1.38% 112 (3) USD/USD - paid fixed rate of 3.73% / earned variable rate of 1.83% in 2008 244 (2) CAD/CAD - paid fixed rate of 6.77% / earned variable rate of 1.62% in 2008 15 (3) 531 (8) 259 (5) Currency swaps EUR/DKK - pays fixed rate of 4.27% / earns variable rate of 1.55% (compared to 4.92% in 2008) 250 (16) 250 (13) EUR/USD - pays fixed rate of 4.03% / earns variable rate of 0.25% 383 (61) EUR/USD - paid fixed rate of 3.84% / earned variable rate of 1.53% in 2008 527 (89) EUR/USD - paid fixed rate of 4.03% / earned variable rate of 1.47% in 2008 384 (55) 633 (77) 1,161 (157)
Forwards Electricity price agreement (average payment of DKK 288/MWh) (2008: 335/MWh) 74 3 120 (18)
2,774 97 3,787 (95)
The forward exchange contracts fall due in the period January 2010 to December 2010 (January 2009 to June 2010 at the end of 2008), while the interest rate and currency swaps fall due in the period June 2010 to July 2017 (June 2009 to July 2017 at the end of 2008). Electricity agreements have been contracted for the period January 2010 to December 2011.
The Group's future net cash flows in USD and JPY are hedged over the following periods:
2009 2008
USD 12 months 18 months JPY 12 months 12 months 75 ACCOUNTS Notes
Hedges of net investments in foreign subsidiaries
The table below shows the derivatives that the Group has contracted to hedge currency exposure on investments in subsidiaries. Gains or losses on market value adjustments (excluding accrued interest) at year-end are entered directly in Shareholders' equity.
2009 2008 Contract Contract amount amount based on Market value based on Market value DKK million agreed rates Dec. 31 agreed rates Dec. 31
Currency loan USD - paid variable rate of 1.85% in 2008 244 33 - - 244 33
There is no hedge ineffectiveness.
Fair value hedges
The table below shows the derivatives that the Group has contracted to hedge currency exposure on financial assets and liabilities that give rise to currency adjustments in the income statement, and derivatives that no longer fulfil the criteria for cash flow hedges. Gains or losses on market value adjustments at year-end are entered in the income statement.
2009 2008 Contract 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) AUD (net purchase) (11) - 118 7 CAD (net purchase) (7) - (26) - CHF (net purchase) (249) (2) (322) 16 GBP (net purchase) (124) 2 (90) (7) KRW (net purchase) - - (34) (1) JPY 40 (1) 51 (5) SEK 43 - 18 - USD 618 6 88 5 310 5 (197) 15
The forward exchange contracts fall due in the period January 2010 to December 2010 (February 2009 to June 2009 at the end of 2008).
The gain on forward exchange contracts was DKK 46 million (DKK 0 million in 2008), compared to a loss on the hedged items of DKK 17 million (DKK 13 million in 2008).
The carrying amounts for the categories Loans and receivables and Other financial liabilities at December 31, 2009, are DKK 2,967 million and DKK 3,853 million respectively (DKK 2,593 million and DKK 3,870 million in 2008). For the categories Hedge accounting (asset), Available-for-sale financial assets, and Hedge accounting (liability) the carrying amounts are shown in the balance sheet or the notes.
The derivatives are not traded on an active marked based on quoted prices, but are individual contracts. The fair value of the derivatives is determined using valuation techniques that maximize the use of observable market data, where available (Level 2). 76 ACCOUNTS Notes
Note 27 - Commitments and contingent liabilities Note 28 - Joint ventures
2009 2008 Novozymes A/S has interests in two joint ventures, namely two DKK million DKK million houseowners' associations run as jointly controlled entities with Novo Commitments Nordisk A/S. The objects of the associations are the operation and Rental commitments expiring within the following periods from the maintenance of common facilities. balance sheet date: Novozymes' share of the net profit, assets, and liabilities of the two joint Within 1 year 57 46 ventures is included in the consolidated financial statements on a Between 1 and 2 years 43 37 proportionate basis as follows: Between 2 and 3 years 34 32 Between 3 and 4 years 29 29 2009 2008 Between 4 and 5 years 29 25 DKK million DKK million After 5 years 78 62 Rental commitments at December 31 270 231 Non-current assets 39 41 Of which commitments to related companies at December 31, 2009, Current assets 33 45 amount to DKK 33 million, compared to DKK 37 million at December 31, Total assets at December 31 72 86 2008. The above rental commitments relate to non-cancelable operating lease contracts, primarily for buildings and offices. Non-current liabilities (59) (63) Current liabilities (13) (23) The following amount has been Total liabilities at December 31 (72) (86) recognized in the consolidated income statement in respect of rentals 70 66 Net profit - -
Other liabilities Novozymes A/S has not assumed any material contingent liabilities in connection with its interests in these joint ventures. Contractual obligations to third parties relating to capital expenditure, etc. 486 173 Note 29 - Related party transactions
Other guarantees Novozymes A/S is controlled by Novo A/S, which holds 70.1% of the
votes in Novozymes A/S. The remaining stock is widely held. The ultimate Other guarantees and commitments to parent of the Group is the Novo Nordisk Foundation (incorporated in related companies 76 80 Denmark).
Other guarantees and commitments 149 113 Related parties are considered to be the Novo Nordisk Foundation and
its subsidiaries, i.e. the Novo and Novo Nordisk Groups, and the directors of these entities, and the Board of Directors and Executive Management Pending litigation and arbitration of Novozymes A/S, together with their immediate families. Related Novozymes is engaged in certain legal proceedings. In the opinion of parties also include companies in which the above persons have the Board of Directors and Executive Management, settlement or significant interests. continuation of these proceedings will not have a material effect on the Group's financial position. A liability has been recognized under All agreements relating to these transactions are based on the list prices Provisions in case the risk of a loss should arise. used for sale to third parties where such list prices exist, or the price has been set at what is regarded as market price. The material terms of these Contract conditions agreements are renegotiated regularly. The Group has had the following Several of the partnership contracts to which Novozymes is a party could transactions with related parties: be terminated by the opposite party in the event of significant changes concerning ownership or control of Novozymes. Furthermore, a few contracts contain provisions that restrict Novozymes' licenses to use 2009 2008 specific forms of technology in such situations. DKK million DKK million Sale of goods, materials, and services Liability for the debts and obligations of Novo Nordisk A/S As a result of the Demerger of Novo Nordisk A/S into two companies, Sale of goods and materials: Novo Nordisk A/S and Novozymes A/S are jointly and severally liable in - The Novo Nordisk Group 38 35 accordance with Section 136, subsection 2 of the Danish Companies Act for debts and obligations arising after January 1, 2000, but relating to the Sale of services: period before January 1, 2000, that cannot be clearly attributed to either - The Novo Nordisk Group 80 112 Novo Nordisk A/S or Novozymes A/S. Liability will be distributed Total sale of goods, materials, and proportionately between the two companies. services 118 147
77 ACCOUNTS Notes
2009 2008 Note 31 - Non-cash expenses DKK million DKK million Purchase of goods, materials, services, and assets 2009 2008 DKK million DKK million Purchase of goods and materials:
- Novo Nordisk A/S (79) (77) Financial gain/loss on sale of assets 9 8 - Minority shareholders in subsidiaries (53) (47) Allowances for doubtful trade receivables 12 40 Tax 655 412 Purchase of services: Depreciation, amortization, and - NNIT A/S (54) (67) impairment losses 564 556 - Novo Nordisk A/S (55) (59) Stock-based payment 64 41 - NNE Pharmaplan A/S (170) (81) (Gain)/loss on financial assets, etc., net (23) (63) - Minority shareholders in subsidiaries - (2) Unrealized foreign exchange (gain)/loss 124 (63) Total purchases of goods, materials, Accrued interest income and interest costs 140 105 services, and assets (411) (333) Change in provisions (5) (44) Other items (1) 1 There have not been any material transactions with the Novo Nordisk Non-cash expenses, total 1,539 993 Foundation or with Management of Novozymes A/S, Novo A/S, the Novo Nordisk Foundation, or the Novo Nordisk Group, other than normal remuneration. The remuneration of the Board of Directors and Executive Management is presented in Note 24. Note 32 - Cash and cash equivalents 2009 2008 DKK million DKK million 2009 2008 DKK million DKK million Receivables: The Novo Nordisk Group 30 30
Minority shareholders in subsidiaries 15 - Credit institutions - current (see Note 22) (559) (911) Receivables at December 31 45 30 Of which bank loan repayable in 2010 337 657
(222) (254) 2009 2008 Cash at bank and in hand 1,284 997 DKK million DKK million Cash and cash equivalents at December 31 1,062 743 Payables:
The Novo Nordisk Group (51) (63) Payables at December 31 (51) (63) Note 33 - Expiration date for undrawn committed credit facilities
DKK 1 billion (DKK 1 billion in 2008) of the undrawn committed credit Note 30 - Government grants facilities expires within one year. Expiration of the remaining DKK 2 billion (DKK 2 billion in 2008) of the undrawn committed credit facilities During the financial year the Novozymes Group has received grants of exceeds 3 years. DKK 38 million for research and development, compared to DKK 17 million in 2008. Government grants are recognized under Other operating income, net.
Government grants includes grants from the EU for various research projects and from the US Department of Energy for biomass.
78 ACCOUNTS Notes
Note 34 - Acquisition of activities and companies Provisions and contingent liabilities There were no acquisitions of activities or companies in 2008 or 2009. Management assesses the need for provisions and contingent liabilities on an ongoing basis. This assessment takes account of the likelihood of Novozymes being obliged to expend financial resources and the amount Note 35 - Accounting estimates and judgments at which the liabilities are expected to be settled. As these assessments are based on estimates of the future, they are subject to a high level of uncertainty and may give rise to changes in amounts in future In accordance with generally accepted accounting principles, calculation accounting periods. Further information can be found in Note 21. The of the carrying amount of certain assets and liabilities requires estimates carrying amount of provisions was DKK 155 million at the end of 2009 and judgments to be made concerning future events. Estimates and (2008: DKK 154 million). 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 Stock options result of which the estimates and judgments made are subject to a Calculation of cash-settled stock option programs is based on the Black– certain degree of intrinsic uncertainty. Scholes model. The input variables for this model include assumptions about the stock option's expected volatility and term to maturity. These input variables are based on estimates, and impact the recognized Impairment testing employee costs and employee liabilities. The calculation is performed Annual impairment testing of goodwill is based on the value in use of once and is not adjusted in future accounting periods. An estimate of the the individual cash-generating unit, using the discounted cash flow number of employees expected to utilize the share options in the future method. The calculation is based on budgets approved by Management. is taken into account in calculating the cost. The estimate is based Cash flows after the budget period are extrapolated using individual on expected rate of employee turnover and is updated every growth rates. The discount rate used for the calculation does not contain year. Further information on stock options can be found in Note 24. possible impacts of future risks, as these are included in future cash flows.
The cash flows and growth rates take account of previous experiences, and represent Management's best estimate of future developments. In See also Note 36 about Financial risk factors. combination with the discount rate, however, these judgments may have a significant impact on the calculated values. This year's impairment testing has not given rise to any write-downs. Further information can be found in Note 10. The total carrying amount of goodwill at the end of 2009 was DKK 443 million (2008: DKK 415 million).
Inventories Inventories are measured at cost including indirect production costs. The costs are assessed on an ongoing basis to ensure optimal measurement of expected raw material consumption, payroll costs, capacity utilization, and other relevant factors. Changes in the parameters may have an impact on the value of inventories. If the net realizable value of the inventories is lower than cost, the inventories are written down to net realizable value. Inventories are continuously assessed for indications of impairment on the basis of an individual valuation of the product or product group and the products’ expected sales. The carrying amount of inventories was DKK 1,535 million at the end of 2009 (2008: DKK 1,557 million).
Deferred tax assets and liabilities Deferred tax assets and liabilities are recognized in the financial statements. Determining the value of these assets and liabilities also requires a judgment by Management. The value of deferred tax assets takes account of Management’s expectations of future taxable income and whether this is sufficient to utilize the temporary differences and cover unused tax losses. The carrying amount of deferred tax assets and liabilities was DKK 62 million and DKK 694 million respectively at the end of 2009 (2008: DKK 68 million and DKK 850 million).
Allowances for doubtful trade receivables Allowances for doubtful trade receivables are based on a country-specific credit rating by external rating agencies. However, the allowances also reflect Management's judgment and review of the individual receivables based on individual customer creditworthiness and current economic trends. If customers’ financial situations change in the future, this may give rise to additional indications of impairment in future accounting periods. The carrying amount of allowances for doubtful trade receivables was DKK 125 million at the end of 2009 (2008: DKK 126 million). 79 ACCOUNTS Notes
Note 36 - Financial risk factors Novozymes’ credit risk is limited to net assets. At December 31, 2009, the maximum credit risk related to one counterparty was DKK 500 million Novozymes’ international operations mean that the income statement (2008: DKK 332 million). The credit risk of debtors is countered by and balance sheet are exposed to a number of financial risk factors. thorough, regular analyses based on customer type, country, and specific Financial risks are managed centrally for the entire Group. The use of conditions. Generally, customers are creditworthy. financial instruments is governed by the treasury policy approved by Novozymes’ Board of Directors. The treasury policy is unchanged from Liquidity risk previous years, and contains rules for which financial instruments can be In connection with the Group’s ongoing financing of operations, used for hedging, the counterparties that can be used, and the risk including refinancing risk, efforts are made to ensure adequate and profile that is to be applied. Financial instruments are used to hedge flexible liquidity. This is guaranteed by placing deposits in cash and ultra- existing assets, liabilities, and future net cash flow. liquid negotiable instruments, and using binding credit facilities.
Currency exposure Currency exposure arises due to imbalances between income and costs in each individual currency and because Novozymes has more assets than liabilities in foreign currencies in connection with its many foreign companies. Operating profit is most exposed to the EUR, USD, and JPY.
A 0.50% movement in the EUR would, other things being equal, result in a change in operating profit of around DKK 10–15 million. A movement of 5% in the USD would result in a change in operating profit of around DKK 45–65 million. A movement of 5% in the JPY would result in a change of around DKK 5–10 million in operating profit.
A 5% movement in the CNY would, other things being equal, result in a change in Shareholders' equity of around DKK 57 million, while a movement of 5% in the USD or CHF would result in a change in Shareholders' equity of around DKK 33 million.
Novozymes’ policy is to hedge existing net assets in foreign currencies and expected future net exposure from the Group’s operations. Hedging of exchange rate exposure is carried out through a combination of loans, forward exchange contracts, swaps, and options. The exchange rate hedging transactions are carried out to minimize risks and thereby increase the predictability of the Group’s financial results.
Currency exposure relating to investments in foreign subsidiaries is hedged where this is deemed appropriate. Currency exposure is managed primarily by taking out loans and entering into swaps. Currency swaps, which are used to hedge participating interests, generally have a maturity period of over 12 months.
Interest rate exposure Interest rate exposure arises in relation to interest-bearing assets and liabilities. An increase of 1 percentage point in the average interest rate on Novozymes’ net interest-bearing assets would have a positive effect on profit before tax of around DKK 5 million. In accordance with Novozymes’ treasury policy, a minimum of 30% of loans must be at fixed interest rates. At year-end 2009, 67% of the loan portfolio was at fixed interest rates, based on financial instruments.
According to Novozymes’ treasury policy, free funds may only be invested in government bonds, ultra-liquid mortgage credit bonds, and money market deposits.
Credit risk Credit risk arises especially on cash and cash equivalents, derivatives, and customer sales. The credit risk on cash and cash equivalents and derivatives is managed by only trading in derivatives and placing deposits only with banks that have a credit rating of at least A2 (Moody’s) or A (S&P). The credit risk is calculated on the basis of net market values and is governed by the Group’s treasury policy. Novozymes has entered into netting agreements (ISDA) with all the banks used for trading in financial instruments, which means that 80 ACCOUNTS Notes
Note 37 - Water allocated to primary source Note 41 - CO2 emissions by internally and externally generated energy 2009 2008 1,000 m3 1,000 m3 2009 2008 1,000 tons 1,000 tons Drinking water 3,123 3,486 Industrial water 1,699 1,913 Internally generated energy 44 57 Steam 242 294 Externally generated energy 386 465 CO emissions, total Water, total 5,064 5,693 2 430 522
Note 38 - Internally generated energy allocated to primary Note 42 - Global warming, CO2-equivalents source 2009 2008 2009 2008 1,000 tons 1,000 tons 1,000 GJ 1,000 GJ Internally generated energy 44 57 Coal - - Externally generated energy 386 465 Gas oil 34 38 Ozone-depleting substances, HCFCs 1 2 CO -equivalents, total Heavy fuel oil 154 181 2 431 524 Light fuel oil 9 12 Natural gas 605 689 Note 43 - Ozone layer depletion, CFC11-equivalents Internally generated energy, total 802 920 2009 2008 Kg Kg Note 39 - Treated wastewater for irrigation HCFCs 29 77 CFC -equivalents, total 2009 2008 11 29 77 1,000 m3 1,000 m3
Volume 673 476 Note 44 - Employee statistics
2009 2008 2009 2008 tons tons No. No.
Nitrogen 16 10 Women 1,910 1,830 Phosphorus 31 16 Men 3,365 3,316 Employees, total 5,275 5,146 Note 40 - Total waste volume by disposal method Full-time employees 4,968 4,853 2009 2008 Part-time employees 307 293 Tons Tons Employees, total 5,275 5,146
Incineration 1,448 1,108 Denmark 2,414 2,362 Landfilling 2,963 3,663 Rest of Europe, Middle East, and Africa 432 429 Recycling 4,003 4,484 North America 850 842 Other 589 714 Asia Pacific 1,397 1,333 Waste, total 9,003 9,969 Latin America 182 180 Employees, total 5,275 5,146
Senior management 169 160 Management 766 739 Professional 1,407 1,270 Administrative 577 619 Skilled workers, laboratory technicians, and other technicians 1,007 953 Process operators 1,349 1,405 Employees, total 5,275 5,146
81 ACCOUNTS Notes
Note 45 - Percentage of women by job category Note 48 - Consequences of occupational accidents
2009 2008 2009 2008 % % No. No.
Senior management 18.9 19.4 Return to original job 38 35 Management 31.3 30.2 Return to a different job in the same department 1 1 As there is a particular focus on the percentage of women at Transfer to a different job in another management level, the percentage of women is only reported for Senior department - 1 management and Management and not for other job categories. No longer employed by Novozymes, but still able to work 1 1 Out of work or early retirement - 1 Case pending 3 - Note 46 - Job creation Occupational accidents, total 43 39
2009 2008 Total days of absence 629 1,003 No. No. For comparison purposes, cases that were pending at the end of 2008 Net growth in number of employees, have been updated in line with information available at the end of 2009. organic 129 213 The derived figure for total days of absence has also been updated. Terminations 327 503
Note 47 - Rate of absence by job category Note 49 - Consequences of occupational diseases
2009 2008 2009 2008 % % No. No.
Senior management, management, Return to original job 23 14 professional, and administrative 1.4 1.2 Return to a different job in the same Skilled workers, laboratory technicians, department 2 1 other technicians, and process operators 3.3 3.2 Transfer to a different job in another department 1 2 Rate of absence has been broken down by grouped job categories based Out of work or early retirement - - on whether the work carried out is primarily office based, and is No longer employed by Novozymes, but therefore not stated per job category. still able to work - 1 Case pending 1 - Occupational diseases, total 27 18
Total days of absence 102 755
For comparison purposes, cases that were pending at the end of 2008 have been updated in line with information available at the end of 2009. The derived figure for total days of absence has also been updated.
Note 50 - Types of occupational diseases
2009 2008 No. No.
Musculoskeletal disorders 5 8 Skin diseases 2 2 Identified hearing disorders 12 8 Stress related 2 - Enzyme allergy 6 - Occupational diseases, total 27 18
82 ACCOUNTS Notes
COMPANIES IN THE NOVOZYMES GROUP
Group companies Issued common Percentage of Country Activity stock/paid-up stock shares owned
Novozymes Biologicals Argentina SA Argentina ARS 12,000 100 Novozymes Australia Pty. Ltd. Australia AUD 500,000 100 Novozymes Biopharma Holdings AU Ltd. Australia AUD 30,000,001 100 Novozymes Biopharma AU Ltd. Australia AUD 78,684,909 100 Novozymes Austria GmbH Austria EUR 36,337 100 Novozymes Belgium BVBA Belgium EUR 18,600 100 Novozymes Latin America Ltda. Brazil BRL 23,601,908 100 Novozymes Biologicals Ltd. Canada CAD 4,079,799 100 Novozymes Biologicals Investment Inc. Canada CAD 100 100 Novozymes (China) Biotechnology Co. Ltd. China CNY 859,058,400 100 Novozymes (China) Investment Co. Ltd. China CNY 816,449,373 100 Novozymes (Shenyang) Biologicals Co. Ltd. China CNY 31,793,578 100 Qingdao Huayuan Fine Bio-Products Co. Ltd. China CNY 27,000,000 100 Suzhou Hongda Enzyme Co. Ltd. China CNY 356,744,150 96 Novozymes (China) Biopharma Co. Ltd. China CNY 180,997,382 100 Novozymes A/S Denmark DKK 650,000,000 - Novozymes Adenium Biotech A/S Denmark DKK 600,000 100 Novozymes Bioindustrial A/S Denmark DKK 1,000,000 100 Novozymes Bioindustrial China A/S Denmark DKK 729,700,000 100 Novozymes Biopharma DK A/S Denmark DKK 611,000 100 Novozymes Biologicals Holding A/S Denmark DKK 500,000 100 Novozymes Biologicals France S.A. France EUR 650,000 100 Novozymes France S.A. France EUR 45,735 100 Novozymes Deutschland GmbH Germany EUR 255,646 100 Novozymes Hong Kong Ltd. Hong Kong HKD 768,285,140 100 Novozymes Biopharma Hong Kong Co. Ltd. Hong Kong HKD 209,606,121 100 Novozymes South Asia Pvt. Ltd. India INR 1,550,000,020 100 Novozymes Italia S.r.l. Italy EUR 10,400 100 Novozymes Japan Ltd. Japan JPY 300,000,000 100 Novozymes Malaysia Sdn. Bhd. Malaysia MYR 6,666,414 100 Novozymes Mexicana, S.A. de C.V. Mexico MXN 338,100 100 Novozymes Mexico, S.A. de C.V. Mexico MXN 35,224,200 100 Novozymes Netherlands BVBA Netherlands EUR 18,000 100 Novozymes Singapore Pte. Ltd. Singapore SGD 59,071,000 100 Novozymes South Africa (Pty) Ltd. South Africa ZAR 100 100 Novozymes Korea Limited South Korea KRW 3,300,000,000 100 Novozymes Spain S.A. Spain EUR 360,607 100 Novozymes Biopharma Sweden AB Sweden SEK 28,001,000 100 Novozymes Switzerland AG Switzerland CHF 5,000,000 100 Novozymes Switzerland Holding AG Switzerland CHF 3,000,000 100 Novozymes Enzim Dis Ticaret Limited Sirketi Turkey TRY 21,000 100 Novozymes Biopharma UK Ltd. UK GBP 22,535,113 100 Novozymes UK Ltd. UK GBP 1,000,000 100 Novozymes Biologicals, Inc. USA USD 3,000,000 100 Novozymes Biologicals, Ltd. USA USD 10,000 100 Novozymes Biopharma US, Inc. USA USD 1 100 Novozymes Blair, Inc. USA USD 1 100 Novozymes, Inc. USA USD 1,000 100 Novozymes North America, Inc. USA USD 17,500,000 100 Novozymes US, Inc. USA USD 115,387,497 100
Joint ventures Country Activity Proportion of ownership interest Hallas Park houseowners’ association Denmark 50 Smørmosen houseowners’ association Denmark 50
ISO 14001-certified sites. All major companies are also ISO 9001 certified. Production Sales & Marketing Research & Development Holding companies, etc. 83 ACCOUNTS Statements
STATEMENT OF THE BOARD OF DIRECTORS AND EXECUTIVE MANAGEMENT
The Board of Directors and Executive Management have today considered and approved the Annual Report of Novozymes A/S for the financial year January 1 – December 31, 2009.
The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU, and the Parent Company financial statements are prepared in accordance with the Danish Financial Statements Act. Moreover, the Annual Report is prepared in accordance with additional Danish disclosure requirements for listed companies.
In our opinion, the accounting policies used are appropriate, and the Group’s internal controls relevant to preparation and presentation of the Annual Report are adequate. The Annual Report therefore provides a true and fair view of the assets, liabilities, and financial position at December 31, 2009, of the Group and the Parent Company, and of the results of the Group's and the Parent Company's operations and consolidated cash flows for the financial year 2009.
We further consider that the Management’s review in the Annual Report gives a true and fair view of the development in the Group’s and the Parent Company's activities and business, the profit for the year, and the Group’s and the Parent Company's financial position as a whole, and a description of the most significant risks and uncertainties to which the Group and the Parent Company is subject.
In our opinion, Novozymes A/S adheres to the AA1000 AccountAbility principles, and environmental and social data are stated in accordance with the accounting policies.
We recommend that the Annual Report be adopted by the Annual Shareholders’ Meeting.
Bagsvaerd, January 21, 2010
Executive Management
Steen Riisgaard President & CEO
Benny D. Loft Per Falholt Peder Holk Nielsen Thomas Nagy Thomas Videbæk
Board of Directors
Henrik Gürtler Kurt Anker Nielsen Paul Petter Aas Jerker Hartwall Søren Jepsen Chairman Vice-Chairman
Ulla Morin Michael Munksø Walther Thygesen Mathias Uhlén
84 ACCOUNTS Statements
INDEPENDENT AUDITOR'S REPORT
+To the Shareholders of Novozymes A/S
We have audited the Consolidated Financial Statements, the Financial Statements and Management’s Review including environmental and social data, of Novozymes A/S for the financial year January 1 - December 31, 2009. The Consolidated Financial Statements and the Financial Statements comprise Income Statement, Balance Sheet, Statement of Shareholders’ Equity and Notes for both the Group and the Company as well as Statement of Comprehensive Income and Statement of Cash Flows and Financial Resources for the Group. The Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU, and the Financial Statements are prepared in accordance with the Danish Financial Statements Act. Moreover, the Consolidated Financial Statements and the Financial Statements are prepared in accordance with additional Danish disclosure requirements for listed companies. Management’s Review is prepared in accordance with Danish disclosure requirements for listed companies and environmental and social data are prepared in accordance with accounting policies used for environmental and social data.
Management’s Responsibility
Management is responsible for the preparation and fair presentation of the Consolidated Financial Statements and the Financial Statements in accordance with the above-mentioned legislation and disclosure requirements. This responsibility includes: designing, implementing, and maintaining internal controls relevant to the preparation and fair presentation of Consolidated Financial Statements and Financial Statements that are free from material misstatement, whether due to fraud or error. This responsibility also includes selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Furthermore, Management is responsible for preparing a Management’s Review that includes a true and fair account in accordance with Danish disclosure requirements for listed companies and for preparing environmental and social data in accordance with accounting policies used for environmental and social data.
Auditor’s Responsibility and Basis of Opinion
Our responsibility is to express an opinion on the Consolidated Financial Statements, the Financial Statements and Management’s Review, including environmental and social data, based on our audit. We conducted our audit in accordance with Danish Auditing Standards. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the Consolidated Financial Statements, the Financial Statements and Management’s Review, including environmental and social data, are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Consolidated Financial Statements, the Financial Statements and Management’s Review, including environmental and social data. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Consolidated Financial Statements, the Financial Statements and Management’s Review, including environmental and social data, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the Company’s preparation and fair presentation of the Consolidated Financial Statements and Financial Statements and to the preparation of a Management’s Review, including environmental and social data, that includes a true and fair account in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the Consolidated Financial Statements, the Financial Statements and Management’s Review, including environmental and social data.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Our audit has not resulted in any qualification. 85 ACCOUNTS Statements
Opinion
In our opinion, the Consolidated Financial Statements give a true and fair view of the financial position of the Group at December 31, 2009 and of the results of the Group’s operations and cash flows for the financial year January 1 - December 31, 2009 in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for listed companies.
In our opinion, the Financial Statements give a true and fair view of the financial position of the Company at December 31, 2009 and of the results of the Company operations for the financial year January 1 - December 31, 2009 in accordance with the Danish Financial Statements Act and additional Danish disclosure requirements for listed companies.
In our opinion, Management’s Review includes a true and fair account of the development in the operations and financial circumstances of the Group and the Company, of the results for the year and of the financial position of the Group and the Company as well as a description of the most significant risks and elements of uncertainty facing the Group and the Company in accordance with Danish disclosure requirements for listed companies, and environmental and social data are prepared in accordance with accounting policies used for environmental and social data.
Bagsvaerd, January 21, 2010
PricewaterhouseCoopers Statsautoriseret Revisionsaktieselskab
Kim Füchsel Torben Jensen State Authorized Public Accountant State Authorized Public Accountant 86 ACCOUNTS Statements
INDEPENDENT ASSURANCE REPORT ON NOVOZYMES' SUSTAINABILITY REPORTING FOR 2009 AND NOVOZYMES' ADHERENCE TO AA1000 ACCOUNTABILITY PRINCIPLES
To the Management of Novozymes A/S
We have been engaged to obtain moderate assurance (review) as to whether Novozymes adheres to the AA1000 AccountAbility principles and to obtain reasonable assurance (audit) as to the statement of the Board of Directors and Executive Management, Management’s review, accounting policies and the quantitative environmental and social data in Novozymes A/S’ Annual Report for the financial year 2009.
Criteria for the preparation of reporting on data The criteria for the preparation of the environmental and social data are evident from the accounting policies described on pages 49-50. These contain information on which of Novozymes’ activities and functions are included in the reporting, types of data, Management’s reasons for choosing the data included and the accounting policies and methods applied.
Management’s responsibility Adherence to the principles of inclusivity, materiality and responsiveness is the responsibility of Management. Furthermore, Management is responsible for preparing the environmental and social data, including for establishing data collection and registration, and internal control systems, with a view to ensuring reliable reporting, specifying acceptable reporting criteria, and choosing data to be collected for intended users of the Annual Report.
Assurance provider’s responsibility As assurance provider, it is our responsibility, on the basis of our work, to make observations and recommendations on the nature and extent of Novozymes' adherence to the AA1000 AccountAbility principles as well as to express an opinion on the reliability of the environmental and social data in the Annual Report.
Scope, standards, limitations, and criteria used Our team of experts has competencies within performing assurance of environmental and social data and within assessing such data and information. In addition, our team is highly experienced in sustainability management as well as in handling social and environmental related issues. Also, we have not been responsible for the preparation of any part of the report, and we are independent as defined in the AA1000 Assurance Standard (2008) (AA1000AS (2008)). We thus consider our team qualified to conduct this independent assurance engagement.
We have planned and performed our work based on AA1000AS (2008), using the criteria in the standard to perform a Type 2 engagement and to obtain a moderate level of assurance (review) as to Novozymes’ adherence to the AA1000 AccountAbility principles of inclusivity, materiality and responsiveness. Moreover, we have planned and performed our work in accordance with the International Standard on Assurance Engagements (ISAE) 3000, “Assurance engagements other than audits or reviews of historical financial information”, to obtain reasonable assurance (audit) of the quantitative environmental and social data in the Annual Report.
Our assurance methodology has included procedures to obtain evidence for the environmental and social data in the Annual Report. The procedures selected depend on our judgment, including the assessment of the risks of material data misstatements. In making those risk assessments, we have considered internal controls relevant to the preparation and fair presentation of environmental and social data in order to design assurance procedures which are appropriate under the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Novozymes’ internal controls.
Methodology, approach, limitation and scope of work Based on an assessment of materiality and risk, our work has included:
(i) Enquiries and interviews with members of Executive Management, staff from the sustainability development department, as well as management of different functions at headquarters regarding Novozymes’ adherence to the AA1000 AccountAbility principles of inclusivity, materiality and responsiveness, including Management’s commitment to the principles, the existence of systems and procedures to support adherence to the principles and the embedding of the principles at corporate level.
(ii) Sample testing of key processes and controls which form part of management reporting systems, processes, and procedures, and obtained evidence supporting the environmental and social data disclosed in the Annual Report. Our assurance on environmental and social data has been undertaken at selected reporting units and combined with analytical assurance procedures on data covering the Novozymes Group.
Conclusion Nothing has come to our attention causing us to believe that Novozymes does not adhere to the AA1000 AccountAbility principles. 87 ACCOUNTS Statements
In our opinion, the environmental and social data in the Annual Report 2009 have been stated in accordance with the criteria mentioned.
Observations and recommendations According to the AA1000AS (2008), we are required to include observations and recommendations for improvements in relation to adherence to AA1000 AccountAbility principles.
With regard to the fundamental AA1000 AccountAbility principle of inclusivity:
Management has a strong commitment to inclusivity and stakeholder engagement. At its headquarters in Bagsvaerd, Novozymes plays an active role in relation to stakeholder engagement. In 2009, Novozymes designed and developed a stakeholder mapping tool and a stakeholder engagement planning tool which - when implemented throughout the Group - will form the basis of a more structured and systematic stakeholder mapping and engagement planning.
With regard to the AA1000 AccountAbility principle of materiality:
Management takes the principle of materiality into consideration when making decisions regarding sustainability at management level. Also, the organization has in place relevant governance bodies to discuss, evaluate, and determine the materiality of sustainability issues.
With regard to the AA1000 AccountAbility principle of responsiveness:
Novozymes is committed to being responsive to stakeholders. This is evident from the wide range of media, forums and forms used by Novozymes to communicate on sustainability issues. Based on our observations, we recommend that Novozymes continues to work on raising awareness of sustainability across the organisation as well as continues the efforts to ensure that an ongoing systematic approach to sustainability trend spotting, stakeholder mapping and engagement is embedded also at site level.
Bagsvaerd, January 21, 2010
PricewaterhouseCoopers Statsautoriseret Revisionsaktieselskab
Kim Füchsel Birgitte Mogensen State Authorized Public Accountant State Authorized Public Accountant SEKTIONSNAVN Artikelnavn
Forward-looking statements The Novozymes Report 2009 contains forward-looking statements, including Novozymes’ financial outlook for 2010, which, by their very nature, are associated with risks and uncertainties that may cause actual results to differ materially from expectations. The uncertainties may include unexpected developments in the international currency exchange and securities markets, market- driven price decreases for Novozymes’ products, and the introduction of competing products within Novozymes’ core areas. See “Risk management.”
Editorial team Editor: Kirsten Laugesen, Corporate Communications, [email protected], tel. +45 4446 1099 Finance: Jens Breitenstein, Finance, [email protected], tel. +45 4446 1087 Jan Paulsen, Finance, [email protected], tel. +45 4446 3208 Investor Relations: Tobias Bjorklund, Investor Relations, [email protected], tel. +45 4446 8682 Sustainability: Claus Frier, Sustainability Development, [email protected], tel. +45 4446 4587 Assistance: Tanja Bengtsson, Finance, [email protected], tel. +45 4446 1239
Text: The editorial team from Novozymes, headed by Corporate Communications Photos: Niclas Jessen Design & web: Bysted A/S Copywriting: Peter Goddard Proofreading and Danish translation: Borella projects
© Novozymes A/S