2007 was an eventful year for Novozymes, and it fully met our sales and earnings expectations. The results support the strategic focus on accelerated growth in the years ahead.
Novozymes actively engaged in the global climate debate in 2007, with Novozymes’ enzymes for bioethanol production in particular attracting significant international media attention. Novozymes has consistently introduced new products and continuously achieved productivity improvements that support the company’s financial position and results. In 2007, Novozymes acquired the Canadian company Philom Bios Inc. and the enzyme activities of the Indian company Biocon Limited, providing access to new areas with high growth rates. Novozymes expanded its Executive Management and changed its organization with the aim to focus on accelerated growth and strengthening the company’s positioning. All in all, the Board of Directors is very satisfied with Novozymes’ performance during the past year.
In 2007, Novozymes’ sales were DKK 7,438 million, up 9% compared to 2006. Organic growth in local currencies, excluding the effect of acquisitions, totaled 12%. Operating profit rose by 11% to DKK 1,481 million, and the operating profit margin climbed to 19.9%. Profit after tax rose by 14% to DKK 1,042 million. Adjusted for non-recurring items, the operating profit margin totaled 18.9%, with profit after tax of DKK 986 million. Free cash flow before acquisitions was 12.9% of sales. These are very satisfactory results, especially in light of unfavorable trends in the international currency markets. The US dollar’s movement in particular had a negative impact on Novozymes’ financial performance.
Environmental and social results
Novozymes makes great effort to ensure optimum use of resources that are used in production, both in terms of cost and the environment. For 2007, the goal was that the increase in water and energy consumption should be at least one percentage point lower than the sales growth in local currencies.
Novozymes did not achieve the energy consumption target, primarily because the high sales growth put pressure on our production capacity.
Novozymes failed to achieve three social targets in 2007. Employee turnover was higher than the 8% target, mainly as a result of increasing labor shortage in Denmark and the USA. Also in 2007, a serious and life-threatening occupational accident occurred at Novozymes. The target was no serious accidents. The frequency of occupational accidents was 4.8 per million working hours, compared to a target of 4.5.
Despite the challenging conditions of external factors and high sales growth, Novozymes achieved most of its environmental and social targets for 2007. The ambition level remains high for 2008.
During the second half of 2007, the global stock markets were characterized by turbulence that appeared to be created by a combination of expected interest rate increase, rising inflation, and the early stages of a credit crisis in the USA. These factors, and the media-sensitive bioethanol market, caused the Novozymes share to be more volatile. Novozymes A/S’ share price was DKK 582 at year-end, up 20% for the year. The Novozymes share outperformed the leading OMXC20 Index on the OMX Nordic Exchange Copenhagen. At the end of 2007, the total value of the company’s B shares was DKK 31.6 billion.
During 2007, Novozymes bought back shares worth DKK 500 million. Novozymes’ equity ratio at the end of 2007 was approximately 41%. The target of a four-year-old share buy-back program was achieved. The program was initiated to adjust Novozymes’ capital structure in order to reduce the equity ratio to a level equivalent to comparable companies. The total approved scope for the program was DKK 4 billion, of which DKK 3.5 billion was used.
The Board and Executive Management continuously evaluate if Novozymes’ capital structure and equity management provide optimal conditions for continuing operations, capital costs, dividends to shareholders et cetera. There are no changes to Novozymes’ guidelines and procedures for controlling the capital structure and equity management in 2007.
In 2007, Novozymes’ efforts within environmental and social responsibility resulted in the Dow Jones Sustainability Indexes naming Novozymes as the most sustainable company within biotechnology for the seventh year in a row – both in Europe and the world. This demonstrates the belief that the efforts will contribute to the company’s growth, and this is highly satisfactory. Novozymes has also received other awards for working with sustainability and for integrating sustainability in its business foundation.
Novozymes made total payments to shareholders of DKK 778 million in 2007, which were paid out as a dividend of DKK 278 million for the 2006 financial year and share buy-backs of DKK 500 million.
The Board recommends, maintaining the current dividend policy, and that a dividend of DKK 5.00 per share is paid for the 2007 financial year.
Long-term financial targets
The Board concludes that Novozymes’ current long-term financial targets are still relevant and challenging, especially in light of the increasing costs involved in accelerating long-term growth. Novozymes’ long-term financial targets are:
Following seven years of positive and relatively stable develop-ment, Novozymes is likely to face more fluctuations. The focus on accelerated growth and the development within enzymes for the bioethanol industry and other new business areas suggest a promising future involving more growth, new competitors and scope for new partnerships. Potentially, this could mean greater uncertainty than the Executive Management, Board of Directors and shareholders have been used to.
At the beginning of 2008, Novozymes is increasing its outlook for long-term sales growth from 8-9% to 8-10%. This reflects expected higher growth, particularly within enzymes for detergents and bioethanol production. The latter is affected by the recently approved US renewable fuel standard, which has again demonstrated strong political support for bioethanol in the USA. To keep pace with future growth, Novozymes has decided to build a new enzyme production facility in the USA.
The development in Novozymes’ sales, demand for the company’s bioinnovation during 2007, and our expectations for the future confirm the Board’s view that the focus on increased growth is a timely and appropriate decision. We believe that the necessary basis and competencies are in place to keep Novozymes safely on course towards its long-term targets.