Chr. Hansen A/S

Ledelsesberetning

Management's review Financial review Unusual events For the financial year ending 31 December 2023, Chr. Hansen A/S was a company within the Chr. Hansen Holding A/S Group and was 100% owned by Chr. Hansen Holding A/S. On 12 December 2022, Chr. Hansen Holding A/S and Novozymes A/S announced that the two companies had entered into an agreement to create a leading global biosolutions partner through a statutory merger with Novozymes A/S as the continuing entity. On 30 March 2023, the extraordinary general meetings of Chr. Hansen Holding A/S and Novozymes A/S both approved the proposed combination with a significant majority. On 29 January 2024, all necessary approvals had been obtained, and the final registration of the statutory merger with the Danish Business Authority was successfully completed. Consequently, subsequent to year-end, Chr. Hansen A/S is a fully owned subsidiary of Novozymes A/S. The Company has changed the financial reporting period from 1 September – 31 August to 1 January - 31 December. The transition period covers 1 September 2022 – 31 December 2023. Consequently, the current financial year covers a 16 months period while the comparative financial year covers a 12 months period. The financial reporting period has been changed to reflect the financial reporting period of Novozymes A/S. As the merger was approved subsequent to year-end, Chr. Hansen A/S cannot apply the exemption rules in the Danish Financial Statements Act applied in previous years and therefore has to prepare consolidated financial statements for the financial year ending 31 December 2023 with corresponding comparative figures. The exemption rules are expected to be applied for the financial year 2024. Please refer to note 9 Investments for an overview of subsidiaries included in the Consolidated Financial Statements for Chr. Hansen A/S. This Management’s review covers the environment that Chr. Hansen A/S operated under prior to the merger being approved on 29 January 2024. Principal activities Chr. Hansen is a global, differentiated bioscience company that develops natural ingredient solutions for the food, nutritional, pharmaceutical, and agricultural industries. The Chr. Hansen A/S Group is organized into two business units. The business units are Food Cultures & Enzymes and Health & Nutrition. Food Cultures & enzymes Chr. Hansen is the market leader on the cultures and enzymes market. Our goal is to deliver innovative solutions of the highest quality on the culture and enzymes market. It is an important part of Chr. Hansen’s strategy to continuously enable our customers to improve their business with new concepts which create value in dairy products and processes and at the same time optimize food safety. Health & Nutrition Besides the animal and feed industry, the division is developing new products for the food supplement industry and the pharmaceutical industry, first and foremost based on probiotic cultures. Chr. Hansen is one of the global leaders within the areas. The business area within microbiome has continued its development in the financial year 2022/23. Management's review Development in activities and financial position Due to the change of the financial reporting period, the financial year 2022/23 comprise 16 months and the comparison period comprises 12 months (financial year 2021/22). The financial year 2022/23 was a year with good progress on our strategic ambition and a solid financial performance. With a sustainable business model combined with an adaptable organization, Chr. Hansen A/S Group has demonstrated the attractiveness of the markets we serve. The Chr. Hansen A/S Group reached revenue in 2022/23 of DKK 9,776 million, equal to an increase in revenue of 7% (based on a 12-months period for 2022/23 assuming even monthly revenue for the 16 months of the financial year). In total, DKK 1,142 million was spent on research and development expenditure, corresponding to 12% of total revenue. DKK 160 million was capitalized in 2022/23 (DKK 101 million in 2021/22). Thereby, capitalized research and development spending has increased compared to the previous financial year. Operating profit (EBIT) amounted to DKK 1,803 million compared to DKK 1,452 million in 2021/22. This translates into an EBIT margin of 18% compared to 21% in the previous financial year. Financial expenses are impacted by the impairment of receivables from joint ventures in the amount of DKK 527 million. Further the investment in joint ventures is recognized at DKK 0. Profit before tax amounted to DKK 960 million compared to DKK 1,298 million in the previous financial year. Profit for the financial year amounted to DKK 574 million in the financial year 2022/23, compared to DKK 1,010 million in 2021/22. Total assets amounted to 15,098 million at 31 December 2023 compared to 14,585 million at 31 August 2022. Total equity amounted to 8,549 million at 31 December 2023 equivalent to an equity ratio of 57%. This compared to total equity of 8,975 million and an equity ratio of 62% at 31 August 2022. Dividend in the amount of DKK 1,000 million was approved at the Annual General Meeting held 13 January 2023 and was paid to the sole shareholder Chr. Hansen Holding A/S. Cash flow from operating activities amounted to DKK 2,729 million for the financial year compared to DKK 2,287 in 2021/22. Cash flow from investing activities amounted to an outflow of DKK 1,488 million and was impacted by investments in intangible assets of DKK 309 million and in property, plant and equipment (excl. lease assets) of DKK 786 million. The average number of employees was 2,462 at 31 December 2023 compared to 2,476 at 31 August 2022. The results for the financial year 2022/23 are in line with expectations. Uncertainty regarding recognition and measurement Management acknowledges that certain areas with significant estimates and judgments may be linked with uncertainty regarding recognition and measurement due to the nature or complexity of the assessments that are performed. Certain complex construction projects entail significant judgement as to which costs are eligible for capitalization. Based on current information, Management has assessed which costs are eligible for capitalization. This is considered a judgment, as new information may change Management's assessment and could have a significant impact on the capitalized costs. Other than this, no uncertainty regarding recognition and measurement has been identified by Management. Management's review Outlook for 2024 The 2024 financial year will consist of a 12-month period. Revenue is expected to be at the same level compared to a comparable 12-month period of the preceding year. Profit for the year is expected to be at the same level compared to a comparable 12-months period of the preceding year when disregarding the impairment of receivables from joint ventures. The Chr. Hansen Group is a sub-group within Novonesis. Refer to Novonesis to see outlook for the full Novonesis Group. Intellectual capital (Creative and committed employees) As a knowledge-based company Chr. Hansen is highly dependent on having committed and motivated employees, as well as skilled managers. Chr. Hansen therefore invests in the development of competences through ambitious development programs for employees and managers. Besides this competence-based platform, we are ready to further develop our activities within our existing business areas. Environmental matters In Chr. Hansen, we take our responsibility to do business in a sustainable way very seriously. We have constant focus on creating value while keeping our impact on the surrounding society to a minimum and securing a good working environment for all our employees. A Sustainability Board ensures that sustainability is effectively anchored in the organization. The Sustainability Board ensures ownership, involvement and commitment from the entire business in defining, prioritizing and executing on sustainability objectives. Enabling climate action The world is facing widespread and intensifying climate change, which calls for climate action. Our continuous commitment to UN Global Compact underlines our climate ambition as a part of the United Nation’s 10 principles on social and environmental aspects of sustainability. We are on a focused decarbonization journey towards 2030 having two Science Based Targets that will form the basis of our strategy to reduce our carbon footprint. In Logistics, we are i.e. minimizing air freight by moving to more sea transport while exploring low-carbon fuels in dialogue with freight forwarders. Furthermore Chr. Hansen focuses on renewable electricity and the sites in Denmark are covered by renewable electricity. With the ambition of making the key packaging solutions recyclable at the customer end, Chr. Hansen supports a circular economy for packaging materials. Management's review Building an inclusive culture for a diverse workforce As a company driven by science and innovation, our future relies on our ability to generate ideas, create solutions, and approach problems in new ways. To achieve this, we need a workforce of employees with diverse socio-economic backgrounds, experiences and points of view. We strive to develop a diverse workforce and an engaged, innovative and open-minded culture, where each employee’s unique differences are not only acknowledged and encouraged, but where they add value and make our organization stronger. While we are proud of the diversity of our workforce today, we acknowledge that we still have more work to do, primarily in terms of improving our gender diversity and developing more varied skillsets among teams of employees. Recognizing that diversity challenges are unique to teams and locations, Chr. Hansen works on a range of parameters to help raise the bar, for example by focusing on unconscious bias and developing engaging and inspiring leaders. We work with diversity broadly yet believe that gender is an important parameter to pay attention to. This year, the percentage of female managers was 41% compared to 46% of female employees and we will continue to work with this in order to meet the target of having equal ratio between female employees and female managers. Diversity metrics are also included in the corporate leadership team’s remuneration, reflecting the degree to which it represents a strategic objective. Research and development activities For Chr. Hansen A/S, innovation is an important contributor to business growth. More than 30% of the total number of employees in Chr. Hansen A/S, are working with research and development. Chr. Hansen A/S generally patents all new products of commercial value. The patents protect our investments in research and development and increase the value of our business. In addition, we make sure that our product technology and application methods are protected by a wide patent portfolio. Risk Management In Chr. Hansen A/S, we view risk management as an integrated part of managing the business. We strive to make sure that we do business in a prudent way where we assess and manage both financial and non- financial risks to protect our employees, assets and reputation. At least once a year, the Board of Directors reviews the risk exposure associated with the activities of Chr. Hansen A/S. Guidelines are adopted for areas of risk, and the development is monitored to secure that identified risks are accounted for, including strategic, operational and financial risks. Risk Risks relate to future events or developments that may have an influence on the company achieving its targets. Relevant risks are identified, monitored and reported to the Executive Board and the Board of Directors through an Enterprise Risk Management process following an annual cycle. Furthermore, the identified risks are presented to and discussed by Management on a quarterly basis. The purpose of this process is to identify risks as early as possible and enable Management to proactively adapt business processes and controls to meet, manage or mitigate these risks. Management's review Identified risks are evaluated based on their possible safety, business or financial impact and the likelihood of the risk materializing. Clear roles and responsibilities are assigned for major risks, and mitigation initiatives are identified, prioritized and launched. The most significant risks identified and reported to the Board of Directors are described below, including measures taken to mitigate these. Chr. Hansen A/S continues to work on identifying and evaluating relevant risks, and the list does not include all risks that could ultimately affect the Company. Production risk Chr. Hansen A/S Group has three production sites in Denmark and production sites in Germany and France, and each site carefully monitors product safety and delivery performance to manage all potential risks. This consolidation of production allows capacity to be optimized to reduce production costs. To minimize the risk of production breakdowns or failures, Chr. Hansen has implemented a risk prevention program where regular audits are conducted, which ensures preventive maintenance and replacements. The company also maintains idle capacity for key processes. As production processes are optimized and automated, dependence on robust IT systems and infrastructure increases. Chr. Hansen continues to reduce complexity in IT systems and conduct regular restore tests. With this concentrated production setup, there is a risk of a production breakdown interrupting the company’s operations and leading to a loss of income in both the short term and the longer term due to long lead times on the replacement of key equipment. The causes might be contamination of production equipment, key equipment breakdown, fire, terrorism and natural disasters. The risk and effect of a production breakdown are mitigated through maintenance, insurance, fire safety measures, behaviour-based training, continuous improvements to operational pro-cesses and business continuity plans including alternative production possibilities. Product safety The majority of Chr. Hansen's products are sold to the food & beverage, human health, animal health and plant protection industries. Most products are components in customers’ end products that are consumed as food, beverages or dietary supplements. To ensure the highest product safety, Chr. Hansen has an extensive quality assurance and food safety program covering the entire value chain, from the sourcing of raw materials until the finished products are delivered to customers. The risk assessment performed in the food safety program includes an evaluation of the use of our products in customers’ end products. Chr. Hansen’s food safety program is certified according to internationally recognized food safety standards. The Danish production sites are FSSC 22000 certified. Financial risks As an international business, Chr. Hansen A/S Group is exposed to a number of financial risks relating to currency fluctuations, funding, liquidity, credit and counterparty risks. Chr. Hansen A/S Group trades primarily in EUR and USD, however trading may also take place in other currencies. The currency exposure is limited to the extent possible by having revenue and costs in the same currency. Further to limit the impact the corporate Treasury department performs hedging in accordance with the approved Treasury Procedure. The credit risk of Chr. Hansen A/S Group is considered limited as the customer base is diverse and represents multiple industries and businesses having large and medium-sized partners. The credit risk is monitored closely, and a risk assessment is made of new customers. To limit the counterparty risk, Chr. Hansen A/S Group deals only with financial institutions that have a satisfactory long-term credit rating. Management's review Legal risks Chr. Hansen A/S is from time-to-time party to legal proceedings arising in the ordinary course of business. The legal department is focused on analysing possible risks in a timely manner and mitigating them in an appropriate way using both internal and, if necessary, external capabilities. Despite the focus from Chr. Hansen on these matters, the outcome of legal proceedings cannot be predicted with certainty. Health, safety & security Chr. Hansen is committed to continuously improving both the physical and psychological working environment for its employees. The company has implemented several initiatives to underline the importance of a safe working environment. Monitoring and follow-up of incidents have been strengthened from departmental level to the Executive Board. There is also focus on behaviour in relation to IT security due to the increased risk of cybercrime. Subsequent Events On 12 December 2022, it was announced that the Company’s immediate parent company, Chr. Hansen Holding A/S, had entered into an agreement with Novozymes A/S to create a new leading global biosolutions partner through a statutory merger of the two Companies with Novozymes A/S as the continuing company and Chr. Hansen Holding A/S being dissolved. The merger was approved by the European Commission 29 January 2024 whereby Chr. Hansen Holding A/S ceased to exist and hence subsequent to year-end, the Chr. Hansen Group is owned by Novozymes A/S. The approval by the European Commission was conditional upon divestment of part of the global Lactase enzyme business. The divestment was completed by the end of April 2024. Other than this, no subsequent events materially affecting the financial statements have occurred.