Audited by PwC

Financial and sustainability discussion

2008 was a very satisfactory year for Novozymes, in which all financial and environmental targets were met. Novozymes realized high organic sales growth and good earnings development, and improved sustainability performance. Expansion of production and R&D facilities increased the investment level.

The following section presents the realized financial, environmental, and social data for the year. An overview of data and key figures can be found in Accounts and Key figures, while an overview of reporting in accordance with the Global Reporting Initiative (GRI) guidelines can be found under Supplementary reporting.

Financial results
The financial performance in 2008 met all the expectations published at the beginning of the year. This is very satisfactory.

2008 key financial performance DKK
Sales growth 10%
Growth in operating profit* 7%
Growth in operating profit 2%
Operating profit margin 18.5%
Growth in net profit* 8%
Growth in net profit 2%
Free cash flow before acquisitions DKK 755m
Net investments DKK 942m


* Excluding 2007 one-off item of DKK 75m (DKK 56m after tax)

Total sales for the year rose by 13% in LCY. Activities acquired contributed 2 percentage points. Exchange rate developments during the year were volatile, especially for the USD, impacting negatively on sales in DKK. Growth in DKK was 10%, bringing revenue up to DKK 8,146 million.

Costs and Other operating income
Total costs excluding net financials and tax were DKK 6,689 million in 2008, an increase of 10% mainly attributable to higher sales. Cost of goods sold rose by 9%, negatively affected by high raw material and energy prices but positively affected by productivity improvements. Overall, Novozymes’ input prices in 2008 were slightly higher than last year.

For 2008 the gross margin was 53.5% compared to 53.1% last year. Exchange rate developments and acquisitions both reduced the gross margin, while productivity improvements impacted positively.

Other operating costs increased by 12% to DKK 2,902 million in 2008, mainly as a result of increased R&D and sales activities.

  • Sales and distribution costs rose by 15%, representing 13% of revenue
  • R&D costs rose by 10%, representing 13.5% of revenue
  • Administrative costs rose by 10%, representing 9% of revenue

Depreciation and amortization charges rose to DKK 556 million in 2008, an increase of 13% compared to 2007, reflecting the higher investment level in 2008 as well as impairment losses relating to BioBusiness.

Operating profit
Operating profit increased by 7% to DKK 1,504 million in 2008, excluding the one-off item in 2007. Including the DKK 75 million one-off item Novozymes received in 2007, operating profit increased by 2%.

The operating profit margin was 18.5% for 2008 compared to 18.9% last year, excluding the one-off item. Including the one-off item, the operating profit margin for 2007 was 19.9%. Currency in particular affected operating margin unfavorably compared to last year.

Net financial items
Net financial costs for 2008 decreased by DKK 11 million to DKK 85 million compared to last year. This decrease includes the effect of a reduction of DKK 63 million in the liability relating to employee stock options.

Net interest expenses increased by DKK 28 million to DKK 106 million compared to 2007 as a result of higher interest rates and lower interest income. Net interest-bearing debt was DKK 1,380 million at December 31, 2008, against DKK 1,769 million at year-end 2007. There was also a DKK 34 million net negative impact from foreign exchange during the year. USD and JPY hedging contracts contributed slightly positively, whereas unhedged currencies, such as the INR and CHF, contributed negatively to the overall foreign exchange position.

Profit before tax and net profit for the period
Profit before tax increased by 2% to DKK 1,419 million from DKK 1,385 million in 2007. Net profit increased by 2% to DKK 1,062 million against DKK 1,042 million in 2007. Adjusting for the one-off item in 2007, profit before tax and net profit both increased by 8%.

World’s largest enzyme production facility
In November 2008 Novozymes inaugurated the latest expansion of its Hongda production facility in Taicang, China, making it the largest enzyme fermentation facility in the world. Among other things, the Chinese expansion will supplement Novozymes’ US production of fuel ethanol enzymes until the new plant in the US is completed late 2010. By then the growing demand within China will take up the new capacity.

Cash flow, investments, and acquisitions
Cash flow from operating activities was DKK 1,697 million for 2008 against DKK 1,714 million in 2007. However, adjusting for the one-off item in 2007, cash flow from operating activities was up by 2%. The development in net interest expenses, receivables, and higher inventory affected operating cash flow negatively, whereas increased payables impacted positively.

Net investments excluding acquisitions were DKK 942 million in 2008, compared to DKK 735 million in 2007. The main reasons for the increased investment level were the expansion of enzyme production in China and the expansion of R&D facilities, especially in Denmark and the US, including purchase of a previously rented facility in Denmark at DKK 70 million.

Free cash flow before acquisitions was DKK 755 million against DKK 963 million for 2007. Adjusting for the one-off item, free cash flow before acquisitions was DKK 907 million for 2007. The reduction in free cash flow can mainly be explained by the higher investment level in 2008.

Balance sheet and Statement of shareholders’ equity
Shareholders’ equity was DKK 4,476 million at December 31, 2008, against DKK 3,667 million at year-end 2007. Shareholders’ equity was increased by net profit for the period and reduced by currency translation adjustments in respect of subsidiaries’ net assets and dividend payments of DKK 309 million. Shareholders’ equity represented 45% of the balance sheet total against 41% at year-end 2007. Net debt-to-equity was 31% at year-end 2008, compared to 48% at year-end 2007. This reduction is the result of both reduced net debt and increased equity.

For 2008 return on invested capital was 19.5% compared to 21.7% for 2007. This development can be explained by the favorable impact of the 2007 one-off item and the high investment level in 2008.

At December 31, 2008, the holding of treasury stock was 3.0 million B shares, equivalent to 4.7% of the total number of shares outstanding.

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