2006 was another satisfactory year for Novozymes. The company lived up to its expectations for sales and earnings, and its financial results and market position in 2006 are considered very satisfactory.
This performance can be attributed largely to continued innovation, product launches and productivity improvements.
2006 saw the acquisition of a number of interesting assets, including Delta Biotechnology Ltd and GroPep Ltd, which are expected to contribute to the development of a new business area within biopharmaceutical ingredients and so to future growth.
Financial results
Novozymes generated sales of DKK 6,802 million in 2006, an increase of 8% compared with 2005. Organic growth was just above 7%. Operating profit grew by 11% to DKK 1,340 million, and the operating profit margin climbed to 19.7%. Net profit increased by 6% to DKK 911 million. Free cash flow before acquisitions was DKK 1,058 million.
Environmental and social results
Novozymes is continuing to work on more efficient utilisation of resources. The original targets for 2006 were maximum increases of 7% and 9% in the consumption of water and energy respectively, based on sales growth of 7% in local currencies. As the realised growth for 2006 calculated in local currencies was 9%, the targets were revised to 9% for water and 11% for energy to reflect the higher level of activity. Novozymes met both these targets.
A number of other targets were also set for Novozymes’ environmental and social performance in 2006; with the exception of the target for employee turnover, all quantitative targets were met.
Shareholder value
Novozymes A/S’ B share ended the year at DKK 486, corresponding to an increase of 41% over the year. There was some turbulence on the stock market in 2006, due partly to disappointing figures for the European economy, fears of rising interest rates and inflation, and volatile oil prices. The Novozymes share outperformed the Copenhagen Stock Exchange’s OMXC20 blue-chip index, which gained 12% in 2006.
Novozymes’ market capitalisation was DKK 31.6 billion at the end of 2006, an increase of DKK 7.6 billion since the start of the year and DKK 20.3 billion since the company was first listed on the stock exchange in 2000. Novozymes has also paid a total of DKK 1,135 million in dividends to shareholders since the stock exchange listing in 2000. The proposed dividend for 2006 is DKK 278 million. The Board is extremely pleased with this performance.
For the sixth year in a row, Novozymes was ranked by Dow Jones Sustainability Indexes as the most sustainable biotechnology share, both in Europe and worldwide. This ranking backs Novozymes’ continued work on economic, environmental and social responsibility as a source of value in the company’s long-term growth.
Novozymes made total payments to shareholders of DKK 1,362 million in 2006, breaking down into a dividend of DKK 255 million for the 2005 financial year and share buy-backs of DKK 1,107 million. The Board recommends a payout of DKK 4.50 per share, which is in line with the existing dividend policy.
Novozymes has regularly bought back shares and cancelled them in recent years, so reducing its share capital. These buy-backs have formed part of the adjustment of the company’s capital structure initiated in 2004, when the Board approved a buy-back programme with a ceiling of DKK 2.5 billion, subsequently extended to DKK 4 billion. Since floating in 2000, Novozymes has bought back shares for a total of DKK 4,016 million, DKK 3 billion of which under the above ceiling.
The Annual Meeting of Shareholders on March 1, 2006 resolved to write down the company’s share capital by DKK 46 million. Following this write-down, the company has share capital of DKK 650 million, corresponding to 65 million shares. The ceiling for the year’s buy-backs was raised during the year from DKK 1,000 million to DKK 1,350 million. Novozymes bought back shares for DKK 1,107 million in 2006. This leaves Novozymes’ equity ratio at around 43%, which means that the aims of the capital adjustment programme have been achieved. Share buy-backs of up to DKK 500 million are anticipated in 2007 under the existing DKK 4 billion buy-back programme.
Novozymes has two classes of share: A and B. All of the A shares are owned by the holding company Novo A/S, which holds the voting majority in Novozymes. The Board still considers it an advantage for Novozymes to have a stable, long-term shareholder with a sharp focus on the company delivering shareholder value.
Long-term financial targets
In 2005 the Board confirmed that the long-term financial expectations for Novozymes formulated in connection with its admission to the stock exchange in 2000 had been fulfilled.
Given the current earnings levels, Novozymes wishes to develop and extend the existing business and focus on long-term growth, while retaining the company’s existing financial targets. In the light of the sharper focus on acquisitions and increased investment in long-term growth opportunities introduced in 2005, the Board has therefore again decided to retain the company’s long-term financial targets. These are:
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Annual growth in operating profit of at least 10%
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Operating profit margin of around 17%
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Return on average invested capital after tax of at least 15% per annum
