Letter from the Board of Directors:

Focus on managing the business in a volatile environment


Audited by PwC

2009 was a volatile year across industries and across geographical regions. The world was impacted by a series of far-reaching events that made it difficult for the global economy.

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The impact of the financial crisis began to be felt in 2008 but there was an even stronger impact in 2009, affecting Novozymes as well as many other companies negatively during the year. Despite the challenging circumstances, Novozymes delivered growth in both sales and earnings.

Focus on managing the business

At the beginning of the year, we had high expectations not only for Novozymes’ sales and financial performance, but also for our environmental and social performance. Despite the depressed markets and an early reduction of full-year sales growth expectations, we delivered on all the other financial as well as on all but one of the environmental and social targets set at the beginning of the year. We also managed to deliver positive organic sales growth. We regard this as an achievement considering the unfavorable market conditions. There was a strong focus throughout the year on managing the business, and this not only led to relatively strong earnings and cash flow, but also created an organization that is more agile and prepared for future growth.

Solid platform for growth

To some extent, Novozymes’ sales are dependent on the developments in global energy and raw material prices. Over the past year, we were particularly affected by developments in the biofuel and brewing industries, both of which experienced a relatively challenging and turbulent year.

However, our solutions have often proved to be competitive in a variety of different industries and with commodity prices at different levels. With the unique and environmental advantages that Novozymes’ biological solutions offer, we see a solid and diversified platform for growth.

Continuously investing in the future

Novozymes wants to leverage the company’s technological platform and leading position, by continuously investing in future growth opportunities. History has shown that continued focus on strategic investments – such as research and development, business development, and production – even in the challenging times of a global recession, usually opens up opportunities when the economy recovers and normal growth is restored. A relatively conservative approach to Novozymes’ capital structure has resulted in a healthy balance sheet and a strong cash position. This enables us to make investments in future growth opportunities despite a volatile and unpredictable business environment around us.

Environmental and social commitment

We are aware of the important role business plays in society. Contributing to the environmental, social, and economic aspects of sustainable development has always been an integral part of our strategy. In 2009, our products enabled customers to save around 27 million tons of CO2 emissions. At the same time, we made more efficient use of both energy and water in our production processes.

From 2009 onwards, under Danish law large companies will be required to report on corporate social responsibility (CSR). The requirements are linked to the principles of the United Nations Global Compact and address which CSR issues should be discussed in a company’s business strategy and business activities. A discussion of human rights, labor rights, environmental impact, and also mitigation of corruption should be presented in the annual report. These elements have been an integral part of Novozymes’ reporting for many years, and we are pleased to see that their integration into business will now become mandatory.

You can read more about Novozymes’ work related to CSR and corporate governance at www.novozymes.com/corporategovernance  and at www.novozymes.com/sustainability .

Participating in Novozymes’ development

In 2007 Novozymes announced a four-year stock option program aimed at rewarding all employees when certain objectives were met. Stock options were granted for 2007, 2008, and 2009 as most of those objectives were met. In order for stock options to be granted, the budget had to confirm that reaching DKK 10 billion in sales in 2010 was possible. Unfortunately, due to the global recession and the weakening of currencies, Novozymes no longer deems it possible to reach the ambition of sales of DKK 10 billion in 2010. Consequently, there will be no allocation of stock options for 2010.

Discussions concerning executive compensation have intensified following the recent economic developments globally. Benchmarking against other companies shows that we have a competitive compensation scheme that rewards performance and ensures that the interests of top management are in line with those of shareholders.

To summarize, we look back on 2009 as a year characterized by a high level of volatility and a challenging business environment. Despite this, Novozymes performed well. We are now looking to the future with confidence, knowing that we are on the right track to achieve the new long-term targets set at the beginning of 2009. Novozymes is in better shape than ever and ready to grasp the growth opportunities that lie ahead.

We would like to thank our employees for their efforts, and our shareholders and other stakeholders for their support during the year.

January 2010

The Board of Directors
Novozymes A/S

My Report