Audited by PwC

Letter from the Board of Directors:

Strong growth and robustness in turbulent times

In 2008 Novozymes met all financial expectations, despite a global financial crisis, high raw material and energy prices, and unfavorable exchange rates. We realized high organic sales growth and achieved good earnings development.

2008 was a year characterized by uncertainty, volatility, and a slowdown in global activity affecting individuals, businesses, and the world economy. Despite these concerning issues, 2008 also saw a strong global commitment to mitigating global climate change. For us, this commitment, and the strong development in our business in 2008, confirmed that opportunities for growth and to make a difference are within our reach – if we stretch.

Inspiring growth
We realized sales growth of 10% in DKK and 13% in local currencies in 2008. Our high growth was partly due to high raw material and energy prices. This represents a net opportunity for us; in other words, the positive impact of high prices on our sales is greater than the negative impact on our cost base. Faced with high prices, our customers respond by focusing on getting more from less. Our technology enables this through efficient raw material utilization and reduced energy consumption. Although raw material prices fell at the end of the year, our technology remains competitive at lower prices, as our solutions have been developed for such situations. High prices help our technology to penetrate faster, but are not a requirement for our solutions to be economically attractive to our customers.

We had good earnings development in 2008, despite high input price levels and unfavorable exchange rate developments. However, just as our customers benefit from our technology, we benefit from it too, through continuous productivity improvements, which can help us offset the unfavorable effects of high energy prices, etc. We are very pleased with an operating margin of 18.5% for 2008 and the confirmation of continued potential for optimization.

Bioinnovation is becoming a pivotal element in resolving current and future environmental and economic challenges, such as scarcity of natural resources. There is no doubt that our business benefits from initiatives to mitigate the negative environmental impact of industrial production. In 2008 we sold enzymes that enabled our customers to reduce CO2 emissions by approximately 28 million tons. However, being part of the solution does not free us of our responsibility to minimize our own environmental impact. So it is very satisfying that we managed to keep the development in our own water and energy consumption significantly below our high sales growth.

Supporting sustainable development makes business sense, as we believe this will be the only way to remain economically fit in the long term. We set sustainability targets to ensure progress and preparedness for future demands. It is with great satisfaction and inspiration for the future that we conclude 2008, having met all our financial expectations and fulfilled almost all of our environmental and social targets.

Robust business and cautiousness valued in a downturned market
The Novozymes stock started the year on a rough track. However, as the financial crisis deepened, our stock outperformed the OMX Copenhagen 20 index. Overall, the Novozymes stock came out of 2008 better than most benchmark indexes. Like many others, the stock experienced high volatility, ending the year with a 28% decrease in price over the year.

We pursue a cautious approach to financial gearing, which in times when credit is tight ensures that we still maintain a high level of freedom to pursue long-term objectives and to prioritize business needs over capital structure. Our equity ratio was 45% at the end of 2008, and if required we have access to significant committed credit facilities.

New level of ambition
During 2008 the Board of Directors and Executive Management together reviewed the development of the business to ensure responsiveness to the evolving global environment. To us, the strong financial and nonfinancial performance confirms the robustness of our business. It has also made us believe that we can and should do more on a global level. We have therefore raised our level of ambition through new long-term targets (see the new targets here). All this is focused on growing the business while making a difference. Our increased financial targets are supplemented by targets to reduce environmental impact and improve resource utilization to ensure that our technology is part of the solution. The new targets are challenging, but achievable if we keep doing our utmost and invest in growth opportunities.

Although it seems inevitable that the economic slowdown will continue, we remain confident in the long-term opportunities. For 2009 and beyond, we hope that, despite the financial crisis and economic slowdown, focus will remain on resolving global climate issues, and society and businesses will not give in to shortsightedness. Novozymes will be affected by the slowdown but we expect growth also in 2009, although below our new long-term targets.

January 2009

The Board of Directors
Novozymes A/S

New long-term targets

"The global trends we are seeing and the growth we have experienced in recent years have led us to set ambitious new long-term targets, which will set out the path for moving our business to the next level."

See our new long-term targets.

Management in Novozymes

See a presentation of the members of Novozymes' Management here:

Board of Directors and Executive Management