Report 2018
Rethink Tomorrow
Report 2018

Invested capital

  • ROIC down from 25.6% in 2017 to 24.2%
  • Increase in average invested capital of DKK million 685
  • Net investments excl. acq. down from DKK 1,665 million in 2017 to DKK million 1,388
DKK million Note 2018 2017
Intangible assets 3.1 2,130 2,432
Property, plant and equipment 3.2 9,698 8,926
Investments in associates 42 59
Net working capital (see Net working capital section) 2,768 2,023
Financial assets, non-interest-bearing 14 16
Provisions 3.3 (229) (245)
Other non-current financial liabilities, non-interest-bearing (5) (9)
Other financial liabilities, non-interest-bearing (110) (8)
Tax, net (355) (314)
Invested capital 13,953 12,880
Average invested capital 13,417 12,732
DKK million Goodwill Acquired patents, trademarks, licenses and know-how, etc. Completed IT development projects IT development projects in progress Total
Cost at January 1, 2018 1,108 2,923 492 61 4,584
Currency translation adjustments (22) (2) - - (24)
Additions during the year - 21 14 25 60
Transfers to/(from) other items - - 27 (27) -
Cost at December 31, 2018 1,086 2,942 533 59 4,620
Amortization and impairment losses at January 1, 2018 (1,793) (359) (2,152)
Currency translation adjustments 3 (1) 2
Amortization during the year (213) (68) (281)
Impairment losses (59) - (59)
Amortization and impairment losses at December 31, 2018 (2,062) (428) (2,490)
Carrying amount at December 31, 2018

B/S

1,086 880 105 59 2,130

Impairment

In 2018, impairment losses of DKK 59 million on two specific assets were recognized and included in Cost of goods sold and Research and development costs at DKK 46 million and DKK 13 million respectively.

 

The impairment losses were the result of impairment tests performed on assets where indications of impairment had been identified due to reduced sales projections for the assets in question. The cash flow used for the impairment test of one of the assets was based on business plans for the period 2019-2023, and the terminal value used is based on the expected lifetime and cash flow over that period. For the other impaired asset, the cash flow is expected to cease in 2019.

 

A WACC of 7% was used to calculate the discounted cash flows.

 

Impairment test of goodwill

Since 2016, Management has identified two cash-generating units (CGUs): Novozymes’ main activities and the Biopharma CGU. With the Albumedix divestment in late December 2017, the activity in the Biopharma CGU – previously the Albumedix CGU – has been reduced to sales-based royalty agreements.

 

The market value of Novozymes is significantly higher than its equity, thus no further key assumptions are used in determining whether impairment of goodwill exists for Novozymes’ main activities (2017: no impairment).

 

The recoverable amount of the Biopharma CGU has been determined based on a value-in-use calculation. The expected future cash flows are based on a forecasting period of five years, reflecting the term of the royalty agreements. The key assumptions used in testing for impairment are based on Management’s expectations of future royalty payments, which are partly based on experience, as well as input from external experts. A WACC of 11% (2017: 10%) has been used to calculate the discounted cash flows for the Biopharma CGU.

 

As the value in use for the Biopharma CGU is greater than its carrying amount, no impairment has been identified (2017: no impairment).

Recognition of amortization and impairment losses by function 2018 (2017)
DKK million
  • Cost of goods sold
  • Sales and distribution
  • Research and development
  • Administration
DKK million Goodwill Acquired patents, trademarks, licenses and know-how, etc. Completed IT development projects IT development projects in progress Total
Cost at January 1, 2017 1,159 3,156 420 49 4,784
Currency translation adjustments (51) (35) (1) - (87)
Additions during the year - 7 10 82 99
Disposals during the year - (205) (7) - (212)
Transfers to/(from) other items - - 70 (70) -
Cost at December 31, 2017 1,108 2,923 492 61 4,584
Amortization and impairment losses at January 1, 2017 (1,752) (295) (2,047)
Currency translation adjustments 14 1 15
Amortization during the year (229) (72) (301)
Impairment losses (27) - (27)
Disposals during the year 201 7 208
Amortization and impairment losses at December 31, 2017 (1,793) (359) (2,152)
Carrying amount at December 31, 2017

B/S

1,108 1,130 133 61 2,432

Impairment

In 2017, an impairment loss of DKK 27 million on abandoned patents was recognized and included in Cost of goods sold and Research and development costs at DKK 15 million and DKK 12 million respectively.

 

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Management assesses the risk of impairment of the Group’s intangible assets. This requires judgment in relation to the identification of cash-generating units (CGUs) and the underlying assumptions in the Group's impairment model.

 

If there is any indication of impairment, value in use is estimated and compared with the carrying amount. The calculation of value in use is based on the discounted cash flow method using estimates of future cash flows from the continuing use. The key parameters are the expected revenue streams and the rate used to discount the cash flows.

ACCOUNTING POLICIES

Intangible assets other than goodwill are measured at cost less accumulated amortization and impairment losses. Goodwill and IT development projects in progress are not subject to amortization.

 

Costs associated with large IT projects for the development of software for internal use are capitalized if they are incurred with a view to developing new and improved systems.

 

Amortization is based on the straight-line method over the expected useful lives of the finite-lived assets, as follows:

 

  • Completed IT development projects are amortized over the useful life. IT development assets are amortized over a period of 3-5 years
  • Acquired patents, trademarks, licenses and know-how are amortized over their useful lives. The useful lives of patents and trademarks are normally identical to the patent period. Licenses are amortized over the agreement period. Recognized patents, trademarks, licenses and know-how are amortized over a period of 7-15 years

 

Expected useful lives are reassessed regularly.

 

The Group regularly reviews the carrying amounts of its finite-lived intangible assets to determine whether there is an indication of an impairment loss. An impairment loss is recognized to the extent that the asset's carrying amount exceeds its estimated recoverable amount. Impairment losses are reversed only to the extent of changes in the assumptions and estimates underlying the impairment calculation.

 

Goodwill is tested for impairment annually or whenever there is an indication that the asset may be impaired.

 
DKK million Land and
buildings
Plant and machinery Other
equipment
Assets under construction and prepayments Total
Cost at January 1, 2018 5,415 9,808 1,679 1,648 18,550
Currency translation adjustments 51 107 18 5 181
Additions during the year 121 326 87 890 1,424
Disposals during the year (8) (90) (24) - (122)
Transfers to/(from) other items 115 494 86 (695) -
Cost at December 31, 2018 5,694 10,645 1,846 1,848 20,033
Depreciation and impairment losses at January 1, 2018 (2,718) (5,789) (1,117) (9,624)
Currency translation adjustments (15) (45) (10) (70)
Depreciation for the year (168) (442) (120) (730)
Impairment losses (18) - - (18)
Disposals during the year 4 83 20 107
Depreciation and impairment losses at December 31, 2018 (2,915) (6,193) (1,227) (10,335)
Carrying amount at December 31, 2018

B/S

2,779 4,452 619 1,848 9,698
Of which assets held under finance leases 148 - - - 148

Capitalized interest and pledges

Interest of DKK 29 million (2017: DKK 10 million) has been capitalized under Additions during the year above and included as Investing activities in the statement of cash flows. Capitalization rate: 2.98% (2017: 2.05%).

 

Land and buildings with a carrying amount of DKK 355 million (2017: DKK 377 million) have been pledged as security to credit institutions. The mortgage loan expires in 2029.

 

Impairment

In 2018, an impairment loss of DKK 18 million on a building was recognized and included in Sales and distribution costs (2017: no impairment losses).

Recognition of depreciation by function 2018 (2017)
DKK million
  • Cost of goods sold
  • Sales and distribution
  • Research and development
  • Administration
DKK million Land and
buildings
Plant and machinery Other
equipment
Assets under construction and prepayments Total
Cost at January 1, 2017 5,604 9,957 1,693 856 18,110
Currency translation adjustments (291) (527) (88) (37) (943)
Additions during the year 65 294 110 1,124 1,593
Disposals during the year (8) (126) (66) (10) (210)
Transfers to/(from) other items 45 210 30 (285) -
Cost at December 31, 2017 5,415 9,808 1,679 1,648 18,550
Depreciation and impairment losses at January 1, 2017 (2,673) (5,718) (1,078) (9,469)
Currency translation adjustments 116 268 29 413
Depreciation for the year (165) (449) (125) (739)
Disposals during the year 4 110 57 171
Depreciation and impairment losses at December 31, 2017 (2,718) (5,789) (1,117) (9,624)
Carrying amount at December 31, 2017

B/S

2,697 4,019 562 1,648 8,926
Of which assets held under finance leases 59 - - - 59
ACCOUNTING POLICIES

Property, plant and equipment is measured at cost less accumulated depreciation and impairment losses. Borrowing costs in respect of construction of major assets are capitalized.

 

Depreciation is based on the straight-line method over the expected useful lives of the assets, as follows:

 

  • Buildings: 12-50 years
  • Plant and machinery: 5-25 years
  • Other equipment: 3-18 years

 

The assets’ residual value and useful life are reviewed on an annual basis, and adjusted if necessary at each reporting date.

 

The Group regularly reviews the carrying amounts of its property, plant and equipment to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. If the recoverable amount of an asset is estimated to be lower than its carrying amount, the carrying amount is reduced to the recoverable amount. Impairment losses are reversed only to the extent of changes in the assumptions and estimates underlying the impairment calculation.  

2018 2017
DKK million Dismantling and restoration Legal and other obligations Total Dismantling and restoration Legal and other obligations Total
Provisions at January 1 74 171 245 101 191 292
Reclassification to Contract liabilities - (20) (20)
Currency translation adjustments 3 (1) 2 (7) - (7)
Additions during the year 5 42 47 - 21 21
Reversals during the year - (41) (41) (20) (26) (46)
Utilization during the year - (4) (4) - (15) (15)
Provisions at December 31 82 147 229 74 171 245
Recognized in the balance sheet as follows:
Non-current

B/S

72 60 132 69 90 159
Current

B/S

10 87 97 5 81 86
Provisions at December 31 82 147 229 74 171 245

Dismantling and restoration

Dismantling and restoration relates to estimated future costs of environmental restoration – Novozymes aims for its production sites to have no negative environmental impact – and restoration of leased premises when terminating the lease and vacating the premises. These liabilities relate to established circumstances, and the costs are expected to be incurred either when concrete measures are implemented or when the sites are vacated. The expected costs and timing are by nature uncertain.

 

Amounts with regard to restoration of leased premises are considered uncertain, as the final settlements will depend on thorough inspection of the premises and negotiations with the lessor at the time of vacating. The costs are expected to be incurred in a minimum of 1 year to a maximum of 15 years.

 

Legal and other obligations

Novozymes is involved in a number of ongoing legal disputes, and provision is made for the estimated costs of these based on the current evaluation of the outcomes. The cases are expected to be finalized in 2019-2020. In Management's opinion, the outcome of these cases is not expected to give rise to any significant loss beyond the amounts provided for at December 31, 2018.

 

Other obligations includes other long-term employee benefits and other contractual obligations. Other long-term employee benefits account for only a minor amount, as the majority of Novozymes' pension plans are defined contribution plans, covering approximately 99% of employees. These obligations are mainly expected to be incurred over a long period.

 


ACCOUNTING POLICIES

Provisions are recognized where a legal or constructive obligation has been incurred as a result of past events and it is probable it will lead to an outflow of financial resources. Provisions are measured at the present value of the expected expenditure required to settle the obligation.

 

No provisions are discounted, as discounting does not have any significant impact on the carrying amounts. 

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