Annual Report 2007/08 WorldReginfo - 5c078612-21ee-45de-9077-fb65bd323aeb Contents Strategic focus and financial targets Strategic focus and financial targets .....................................2 Danisco has a broad product portfolio in food ingredients, Letter from the CEO ....................................................................3 enzymes and bio-based solutions. We hold leading positions in Key figures and financial ratios ................................................4 several key product categories within food ingredients, and our Management's review ...................................................................5 subsidiary Genencor is a growth engine of industrial biotech. Business segments .......................................................................15 We believe that in 20 years from now we will be living in a Shareholder information ..........................................................16 bio-based economy, and Danisco is already geared to capture a Innovation .........................................................................................21 substantial part of this growth. Sustainable development .........................................................26 Sustainability verification statement...................................30 Vision The organisation ...........................................................................33 To be the first choice provider of bio-based ingredients to Corporate governance .............................................................37 industry globally. Risk management .........................................................................43 Management's statement ........................................................47 Mission Independent auditor's report ...............................................48 To help our customers increase their competitiveness through innovative, sustainable and bio-based ingredient solutions that meet market demand for healthier and safer products. Proforma balance sheet ...........................................................50 Quarterly key figures .................................................................52 Strategy Group annual accounts.............................................................54 To create value through: Income statement ...................................................................55 • organic and acquisitive growth by leveraging and strengthening Balance sheet .............................................................................56 our market access, applications and technology platforms Statement of recognised income and expenses ...58 • talented and engaged people Cash flow statement .............................................................59 Notes .............................................................................................60 Financial targets Our ambitions are organic growth at the level of 5-7% over a business cycle, a long-term EBIT margin (including corporate Parent company annual accounts .................................... 102 and central R&D costs but excluding share-based payments) Income statement ................................................................ 103 of at least 13.5%, and a capital structure, which over time will Balance sheet .......................................................................... 104 correspond to debt defined as a net interest-bearing debt/ Statement of changes in equity .................................... 106 EBITDA (including Bio Chemicals projects) ratio at the level of Notes .......................................................................................... 107 2.5-4.0. A reduction of the capital base will be in the form of dividends and/or share buybacks. Board of Directors ................................................................... 114 The above statements exclude the Sugar business. Executive Board ......................................................................... 119 Executive Committee ............................................................. 120 Definition of key figures and financial ratios ............. 122 Danisco's divisions .................................................................... 123 Contact Danisco ........................................................................ 124 In the case of discrepancies between the Danish and English versions of the Annual Report, the Danish version prevails. 2 STRATEGIC FOCUS AND FINANCIAL TARGETS REVIEW WorldReginfo - 5c078612-21ee-45de-9077-fb65bd323aeb Letter from the CEO Danisco is currently undergoing a transformation. We kick- Ingredients margins, forcing us to pass on substantial price started 2007/08 by divesting Flavours in June and in August increases to our customers. Meanwhile, the cost pressure that we announced plans to spin off Sugar, a process we have we experienced during 2007/08 – and which we are still facing – since accelerated further. As a consequence, we chose to is simply part of a much wider global agricultural challenge with align our platform with the ongoing strategy process, including far-reaching repercussions for global consumers, industry and the organisational adjustments with effect from 1 May 2008. Going environment alike. More than ever, our knowledge and solutions forward, this will create a new Enablers cluster and will also help our customers counter these challenges. We will continue bring together Cultures and Sweeteners under one umbrella, to address these challenges through bio-based and sustainable REVIEW Bio Actives, allowing us to generate further growth synergies innovation in both food ingredients and enzyme applications. from their joint strategic platform. Sugar continued to manoeuvre successfully through a challenging We are now ready to move into the growth phase of our period of reform for the European sugar industry. The year strategic development – ‘Becoming first choice’ – which brought greater clarity regarding the future of the EU sugar will move our focus nearer to our customers and to our regime and we upgraded our long-term targets for Sugar in markets. We will emphasise value creation through organic March. The process of demerging or selling Sugar is in its final and acquisitive growth by leveraging our R&D platform and phases, and regardless of its ultimate ownership structure we market access to become the preferred provider of bio-based remain confident that Sugar will be well prepared for a bright ingredients and solutions to industry globally. Our recently and sustainable future outside of Danisco. announced joint venture with DuPont on bioethanol exemplifies how we strive to innovate our entire business approach Finally, let me conclude by thanking all of our stakeholders, through our technology platform. The initiative addresses a not least our customers, who have continued to show great global environmental challenge by focusing our research efforts trust in us; our committed employees, who are core in shaping on finding sustainable solutions in collaboration with another Danisco; and our shareholders, who have expressed continued industry leader. confidence in our potential and strategy. In 2007/08, the price of many key raw materials such as vegetable oils and energy more than doubled – an unprecedented development in the history of Danisco. Tom Knutzen Raw materials hiked our cost base and put pressure on our CEO Tom Knutzen Søren Bjerre-Nielsen Mogens Granborg WorldReginfo - 5c078612-21ee-45de-9077-fb65bd323aeb Key figures and financial ratios GROUP (DKKm) 2003/04 2004/05 2005/06 2006/07* 2007/08 Income statement Revenue 16,397 17,835 20,912 18,802 18,778 EBITDA before special items 3,001 3,050 3,289 3,078 3,198 Operating profit before share-based payments and special items 2,138 2,213 2,372 2,013 2,109 Operating profit before special items 2,108 2,086 2,159 2,034 2,151 Special items 83 (128) (768) (179) (417) Amortisation of goodwill (409) - - - - Operating profit 1,782 1,958 1,391 1,855 1,734 Net financial expenses (242) (264) (497) (506) (365) Profit before tax 1,540 1,694 894 1,349 1,369 Profit from continuing operations 1,009 1,251 633 940 771 Profit from discontinued operations - - (11) 139 528 Profit for the year 1,009 1,251 622 1,079 1,299 Cash flow Cash flow from operating activities 1,667 1,378 2,646 2,203 1,436 Cash flow from investing activities 51 (6,482) (1,420) (1,178) (1,235) of which net investments in intangible assets (106) (119) (178) (118) (297) of which net investments in property, plant and equipment (670) (695) (1,067) (1,036) (938) of which purchase and sale of enterprises and activities (42) (5,665) (159) (60) 1 of which purchase and sale of financial assets 869 (3) (16) 36 (1) Free cash flow 1,718 (5,104) 1,226 1,025 201 Balance sheet Assets 25,307 32,802 32,262 31,385 27,943 Equity attributable to equity holders of the parent 11,612 11,953 12,408 12,644 12,259 Equity 11,900 12,286 12,726 12,949 12,542 Net interest-bearing debt 8,291 13,847 13,224 12,222 9,545 Invested capital 19,405 27,369 26,566 25,843 23,312 Financial ratios (%) EBITDA margin 18.3 17.1 15.7 16.4 17.0 EBIT margin 12.8 11.7 10.3 10.8 11.5 RONOA** 16.2 15.4 14.5 14.5 14.8 ROIC** 9.9 8.9 7.3 8.1 8.5 ROE 8.5 10.2 4.6 8.4 9.9 NIBD/EBITDA ratio 2.9 3.3 3.8 3.7 3.0 Share data Average number of shares ‘000 49,907 49,584 48,909 48,728 48,030 Average number of shares, diluted ‘000 49,930 49,860 49,373 49,010 48,137 Number of shares at year-end, diluted ‘000 49,785 49,300 49,256 48,943 47,520 Earnings per share: EPS DKK 19.52 24.23 11.52