Energy consumption and prices
The production of enzymes requires relatively large amounts of energy, and fluctuations in energy prices will therefore impact the cost of the goods we sell. The risk of a negative impact from rising energy prices is managed by optimizing the production process, for example by using gene technology, and by partially hedging energy prices for a future period. This risk is partly offset by the positive impact on sales when energy prices go up, as it becomes more profitable for our customers to replace oil-based ingredients with enzymes and to use energy-saving enzymes in their production.
Raw material consumption and prices
A significant proportion of Novozymes’ raw materials is derived from agricultural produce, and fluctuations in these commodity prices will therefore impact the cost of the goods we sell. Novozymes tries to reduce the risk of a negative impact on costs by optimizing the production process, for example by using gene technology and by ensuring the greatest possible flexibility in the use of raw materials.
Novozymes operates in many markets via sales companies and distributors, while production takes place in a small number of countries. This entails a number of transactions, etc. between Group companies. Novozymes follows the OECD principles in setting internal settlement prices for these transactions, but this is a complicated area and entails a tax risk, among other things because the area is subject to political judgment in each individual country. Novozymes regularly enters into dialog with the tax authorities to reduce this risk and, as an example, in 2009 Novozymes was the first company in Europe to enter into a Bilateral Advance Pricing Agreement (BAPA) with China. A BAPA is an agreement between the tax authorities of two countries to determine the split of a company’s profit for taxation between the countries. For Novozymes, an agreement like this creates predictability in relation to taxation.
The risk of personal injury, material damage, and other events beyond our control, as well as other losses that Novozymes may cause, is covered by an extensive insurance program to the extent that this is feasible and possible. Coverage in different areas is subject to a premium based on Novozymes’ claims history. The current price of the policies and the coverage provided may be affected by external circumstances, such as natural disasters and similar events.