Risk factors


Audited by PwC

All businesses are exposed to a wide range of risk factors. Novozymes strives to identify and mitigate risks that could affect our financial, environmental, or social performance and/or reputation as early as possible.

This section describes a number of critical risks along with measures that Novozymes has taken to reduce them. The list is not in any order of priority and is not exhaustive.

Financial risks are presented in Note 37 to the financial statements.

Sales-related risks

Markets, customers, and sales channels

Novozymes sells products worldwide and is subject to the financial and political risks this naturally entails. Growth in individual markets is therefore influenced by the local economic situation and local legislation. Novozymes works together with our agents, distributors, and other business partners to ensure that they know and do not violate Novozymes’ business integrity rules when selling our products.

Customer concentration

A relatively small number of customers account for a high proportion of Novozymes’ sales in certain product areas, which means that Novozymes is also affected by trends in these customers’ markets. Novozymes works closely with our major customers to limit risks, for example by means of joint development projects and joint production planning, including the integration of IT systems.

Innovation

Novozymes strives to maintain our position as market leader by continually launching new and improved, high-quality products that meet customers’ needs. Novozymes’ projected sales are not dependent on single large product launches, as we constantly have several new products in the pipeline. This places high demands on the Group’s research and development, requiring it to keep pace with customer needs. Failure here would entail the risk of a negative impact on Novozymes’ sales targets. Novozymes allocates around 14% of sales to research and development to ensure sufficient resources for future innovation.

Enzymes produced using GMOs

Novozymes produces a large number of enzymes using genetically modified organisms (GMOs). Without this technology, it would be necessary to use larger quantities of raw materials, water, and energy, and in many cases commercial production of an enzyme would not be viable. The use of gene technology is the subject of ongoing debate around the world, mainly concerning genetically modified crops or foods containing GMOs. Novozymes’ use of gene technology has only featured in the debate to a limited degree, as the Group’s end products do not contain GMOs. However, it is possible that Novozymes’ production and sales to the food and feed industries in particular may be affected by the public debate on gene technology and the impact this may have on consumer demand.

Read more about Novozymes’ use of gene technology at www.novozymes.com.

Supply chain management

Novozymes has sharpened our focus on integrating sustainability and risk management into the selection and evaluation of key suppliers. In order to identify risks and opportunities in our global purchasing processes, an advanced supplier performance management system has been developed.

Sustainability is a performance parameter in the system and is evaluated alongside commercial and quality parameters. Instead of relying only on supplier self-evaluations, the supplier evaluation process is supplemented with media research, dialogue, and the critical insight of Novozymes’ purchasers. The system helps rank and compare suppliers according to risk and opportunity and provides an overview of the global supplier pool. The system is also designed to help the purchasing function identify the suppliers who typically pose the biggest risks. Suppliers with critical issues are subject to further questions or an audit.

As maintaining optimal production is critical for Novozymes, there is a strong focus on the reliability of deliveries from suppliers. To safeguard supplies, cooperation agreements have been entered into with a number of key suppliers. These agreements also help to reduce sensitivity to fluctuations in the price of raw materials and energy.

Competition

Historically, Novozymes has experienced constant price pressure in our markets. Competition from producers based in low-cost countries, particularly China and India, will always be a challenge. One of the ways in which we are trying to counter this challenge is by using our technology to continuously optimize production, thereby reducing costs per unit produced so that production remains at the forefront and competitive.

Patent strategy

Novozymes’ technology is the basis of our business, and we pursue an active patent strategy by protecting new discoveries as early as possible. This prevents new products, processes, etc., from being copied.

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