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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

Report of Foreign Issuer Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

18 February 2004

NOVO NORDISK A/S


(Exact name of Registrant as specified in its charter)

Novo Allé
DK- 2880, Bagsvaerd
Denmark


(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F

     
Form 20-F  þ   Form 40-F  o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

     
Yes  o   No  þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g-32(b):82- __________

 


TABLE OF CONTENTS

Management report
Research and development pipeline
Risk management
Environmental and social discussion
Financial discussion
Consolidated Financial Statements — Contents list
Corporate governance
Shareholder information
Board of Directors
Executive Management
SIGNATURES


Table of Contents

(ANNUAL REPORT COVER)

(NOVO NORDISK LOGO)

 


Table of Contents

Financial highlights

                                                                   
      1999   2000   2001   2002   2003   Change   2002   2003
Net turnover   DKK million   DKK million   DKK million   DKK million   DKK million   2002-2003   EUR million   EUR million

 
 
 
 
 
 
 
 
Diabetes care
    11,777       14,578       16,624       17,665       18,723       6 %     2,374       2,516  
Biopharmaceuticals:
                                                               
 
Haemostasis management (NovoSeven®)
    1,313       2,270       3,096       3,621       3,875       7 %     485       520  
 
Growth hormone therapy
    1,721       2,107       2,164       2,131       2,220       4 %     287       298  
 
Hormone replacement therapy
    1,130       1,306       1,435       1,342       1,331       (1 %)     180       178  
 
Other
    482       550       457       428       392       (8 %)     57       52  
 
   
     
     
     
     
     
     
     
 
Total turnover
    16,423       20,811       23,776       25,187       26,541       5 %     3,383       3,564  
 
   
     
     
     
     
     
     
     
 
Europe
    7,796       9,189       10,605       10,933       11,743       7 %     1,470       1,577  
North America
    2,769       4,114       5,277       5,913       6,359       8 %     794       854  
Japan & Oceania
    3,761       4,697       4,498       4,239       4,210       (1 %)     569       565  
International Operations
    2,097       2,811       3,396       4,102       4,229       3 %     550       568  
 
   
     
     
     
     
     
     
     
 
Total turnover
    16,423       20,811       23,776       25,187       26,541       5 %     3,383       3,564  
 
   
     
     
     
     
     
     
     
 
Price and volume/mix
    15 %     16 %     17 %     11 %     15 %                        
Currency
    5 %     11 %     (3 %)     (5 %)     (10 %)                        
 
   
     
     
     
     
                         
Total growth
    20 %     27 %     14 %     6 %     5 %                        
 
   
     
     
     
     
                         
                                                                 
    1999   2000   2001   2002   2003   Change   2002   2003
Key figures   DKK million   DKK million   DKK million   DKK million   DKK million   2002-2003   EUR million   EUR million

 
 
 
 
 
 
 
 
Operating profit (EBIT)
    3,527       4,816       5,614       5,979       6,384       7 %     804       857  
Net financials
    (178 )     24       416       321       999       211 %     42       135  
Profit before taxation
    3,349       4,840       6,030       6,300       7,383       17 %     846       992  
Net profit
    2,001       3,087       3,865       4,095       4,858       19 %     551       653  
Shareholders’ funds
    15,876       16,981       20,137       22,928       25,224       10 %     3,080       3,388  
Total assets
    23,082       24,920       28,905       31,496       34,394       9 %     4,231       4,620  
Capital expenditure (net)
    1,265       2,141       3,846       4,011       2,312       (42 %)     539       309  
Free cash flow
    1,533       2,712       186       497       3,846       674 %     67       517  
                                                                 
    1999   2000   2001   2002   2003   Change   2002   2003
Per share/ADR of DKK 2   DKK   DKK   DKK   DKK   DKK   2002-2003   EUR   EUR

 
 
 
 
 
 
 
 
Earnings per share
    5.60       8.84       11.18       11.81       14.24       21 %     1.59       1.91  
Earnings per share diluted
    5.59       8.82       11.10       11.72       14.14       21 %     1.57       1.90  
Proposed dividend
    1.95       2.65       3.35       3.60       4.40       22 %     0.48       0.59  
Quoted price at year-end for B shares
    178       285       342       205       241       18 %     28       32  
                                                                   
                          Long-term
      1999   2000   2001   2002   2003   financial targets
Ratios     %   %   %   %   %   %

 
 
 
 
 
 
Growth in operating profit (EBIT)
  20.3       36.5       16.6       6.5       6.8       15  
Growth in operating profit, three-year average
  N/A       25.7       24.5       19.9       10.0          
Operating profit margin
  21.5       23.1       23.6       23.7       24.1       25  
Return on invested capital (ROIC)
  15.3       22.0       23.1       20.1       19.1       25  
Cash to earnings
  76.6       87.9       4.8       12.1       79.2          
Cash to earnings, three-year average
  48.4       66.5       56.4       34.9       32.0       60  
Net profit margin
  12.2       14.8       16.3       16.3       18.3          
Return on shareholders’ funds
  12.6       18.8       20.8       19.0       20.2          
Equity ratio
  68.8       68.1       69.7       72.8       73.3          
Change in market capitalisation
  13.7       56.2       20.4       (40.4 )     15.4          

Figures for 1999 are derived from the consolidated accounts of the former Novo Nordisk Group (prior to the demerger) — all dividend is allocated to the continuing Novo Nordisk. Key figures and per share data are translated into EUR as supplementary information — the translation is based on the currency rate at 31 December 2003 (EUR 1=DKK 7.4446).

Contents

     
4
 
Management report
7
 
Research and development pipeline
8
 
Risk management
10
 
Environmental and social discussion
11
 
Financial discussion
17
 
Consolidated financial statements
55
 
Corporate governance
58
 
Shareholder information
60
 
Management information

2   FINANCIAL HIGHLIGHTS

 


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(PHOTOS)

Lars Rebien Sørensen, president and CEO, and Mads Øvlisen, chairman of the Board of Directors.

Welcome letter

Continuing focus on operational excellence

The corporate world, and with that Novo Nordisk, faces many challenges these years, several of which are specifically related to the pharmaceutical industry. Can corporations be trusted? Public trust is of paramount importance for corporations, and especially pharmaceutical companies, who rely on public acceptance to be able to innovate and to operate.

     Whom do corporations serve? Not so many years ago, we would have said “the shareholders”, without hesitation. But increasingly business enterprises are recognising commitments to several other stakeholders — such as customers, employees, societies at large — in addition to shareholders. In order to serve the long-term interest of stakeholders, companies must regard it as a core part of their business to assume a wider responsibility and consider broadly the wide range of factors which may impact its ability to generate returns over long periods of time.

     To reflect this broader view, which for several years has guided the way Novo Nordisk conducts its business, at this year’s Annual General Meeting the Board of Directors will ask our shareholders to amend the company’s Articles of Association. After this change, the articles will specify that the company besides its financial purpose will strive to achieve its objectives in an environmentally and socially responsible way. This is the Novo Nordisk way of doing business.

     Good governance is not just a fashionable topic, but a continuous process which seeks to align the way companies are controlled and managed with the ever changing societal conditions and expectations. In fact it is never a job done — it is continuous hard work. In 2003 we strengthened our risk management system, we continued our work on board self-evaluation and developed a new long-term share-based incentive programme for executives to replace the existing share option-based scheme which will be presented at the Annual General Meeting.

     For Novo Nordisk — and for other research-based companies — innovation is our biggest challenge: the ability to consistently generate new pharmaceuticals that meet significant medical needs and hence warrant the investment of capital and efforts, as well as justifying the application of break-through technologies and animal testing.

     Our focus over the last few years has been on operational excellence. This has led to a strengthening of our business operations, manufacturing, staff and quality functions — and an overhaul of the way we conduct our research and development activities.

     We are — as the first insulin supplier — close to having a full insulin analogue portfolio. Our innovative insulin analogues will offer superior glucose control and convenience to people with diabetes. The insulin market thus changes from a generic market to a market of value-adding proprietary insulin.

     Our search for new and improved oral therapies for type 2 diabetes continues. And we believe we have an important research pipeline in this field. However, general disappointments

WELCOME LETTER   3

 


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Welcome letter continued

within research into oral antidiabetic drugs have only further strengthened the importance of insulin as the ultimate drug for treating diabetes.

     We have gained new knowledge about the potential use of NovoSeven® in critical life- or limb-threatening bleeds. In particular the confirmation from phase 2 clinical studies that NovoSeven® does reduce the need for blood transfusions in connection with traumatic injuries was highly promising and encouraging. Furthermore, we have taken the first steps to build a portfolio of new biopharmaceutical drugs within the areas of inflammation and cancer which hold promise for the longer term.

     We have strengthened our market position, especially as a result of the roll-out of our rapid-acting (NovoRapid®/NovoLog®) and our dual-acting insulin analogue preparations (NovoMix® 30/ NovoLog® Mix 70/30). In particular our business in the US has developed nicely, and enabled us to make further investments both in our US organisation, in local manufacturing and also in expanded clinical development activities for this — the world’s biggest — market for pharmaceuticals.

     We have consolidated our European organisation with its headquarters in Switzerland, and we are accelerating our expansion in the developing part of the world.

     Throughout 2003, we have tightly managed our cost base, by improving operational efficiency without sacrificing medium-to long-term growth opportunities. This has only been possible through an impressive effort, creativity and dedication from staff throughout our company. Measurement of working climate indicates that this has been accomplished without affecting employee morale. In fact morale is at an all-time high! This tells something about the quality of Novo Nordisk people.

     Our financial performance in 2003 was, considering the adverse currency environment, satisfactory. We saw significant growth in operating profit in local currencies, but the weak invoicing currencies, particularly the US dollar and Japanese yen, reduced growth rates based on Danish kroner results significantly. Our hedging practices retained earnings short term — but it is clear that the current currency environment is very challenging for European-based companies if it persists longer term.

     We are very pleased to note that the shareholders, who have loyally supported the company in 2003, were rewarded with an appreciation of Novo Nordisk’s share price.

     On the cover of this report we asked the question “What does being there mean to you?” Being there is our promise, and in the Annual Review 2003 we have given examples of what being there means to Novo Nordisk. We value all our stakeholders’ opinions and so invite readers to tell us what this means to you. E-mail your thoughts and ideas to beingthere@novonordisk.com.

     
(MADS ØVLISEN SIGNATURE)   (LARS SØRENSEN SIGNATURE)
Mads Øvlisen, chairman of the Board of Directors Lars Rebien Sørensen, president and CEO

Management report

Financial performance

Operating profit increased by 7% to DKK 6,384 million in 2003 and net profit increased by 19% to DKK 4,858 million. Sales in local currencies increased by 15% compared to 2002. Measured in Danish kroner sales increased by 5% to DKK 26,541 million in 2003. The performance in local currencies per therapy area was as follows:

  Diabetes care sales increased by 16%.

In biopharmaceuticals:

  Haemostasis management sales increased by 20%.

  Growth hormone therapy sales increased by 13%.

  Hormone replacement therapy sales increased by 5%.

Business highlights

Novo Nordisk’s business events and highlights from the year are as follows:

Research and development

Several development milestones have been met over the past year and expansion of collaborations within research continued.

  Liraglutide, also known as NN2211, achieved Clinical Proof of Concept (CPoC).

  The US Food and Drug Administration issued an Approvable Letter for insulin detemir (Levemir™).

  The European Union’s Committee for Proprietary Medicinal Products (CPMP) issued a positive opinion on NovoSeven® for prevention of bleeding during invasive procedures in people with factor VII deficiency, and treatment of Glanzmann’s thrombastenia. Late in the year NovoSeven® obtained CPoC for use in victims of traumatic injury. And in January 2004, CPoC was obtained for the use of NovoSeven® in connection with liver transplantation.

  The European Agency for the Evaluation of Medicinal Products (EMEA) approved Norditropin® SimpleXx® for treatment of children born small for gestational age.

  To expand the portfolio of potential new biopharmaceutical drugs Novo Nordisk entered into a collaboration agreement with ZymoGenetics for the preclinical development of inter-leukin-21 (IL-21), a potential cancer therapy.

  Novo Nordisk acquired the North American rights from Zymo-Genetics to develop drugs targeting the Interleukin-20 receptor, and thereby a potential therapy against severe psoriasis. Novo Nordisk now holds global rights for this application.

Development of the North American market

Solid insulin sales growth in North America in 2003 is to a large extent driven by the penetration of Novo Nordisk’s insulin analogues, in particular NovoRapid® (NovoLog® in the US). The launch of NovoMix® 30 (NovoLogMix® 70/30 in the US) in the disposable delivery device FlexPen® in late 2002 is underpinning this growth. Insulin analogues now comprise more than one-third of Novo Nordisk’s total insulin sales in North America.

The growth opportunities for Novo Nordisk in the US remain significant and Novo Nordisk is therefore increasing its sales force in the US by approximately 150 new sales representatives. The focus of these sales representatives will be key strategic products including NovoLog®, NovoLogMix® 70/30 and FlexPen®.

The development of sales of NovoSeven® in North America was very positive, and several clinical studies are ongoing to

4   MANAGEMENT REPORT

 


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support the expansion of the use of NovoSeven® into areas of critical and life- or limb-threatening bleeds.

     Sales of Norditropin® SimpleXx® for treatment of short stature continue to expand strongly.

     Regarding Novo Nordisk’s HRT portfolio in the US, in July 2003 Novo Nordisk assumed US marketing rights for Activella® and Vagifem® back from Pfizer.

Consolidation in Europe

     Novo Nordisk has consolidated its organisation in Europe, managed out of the headquarters in Zurich, Switzerland. Under difficult political market conditions Novo Nordisk managed to grow the business significantly in all major areas: in diabetes care with the continued penetration of NovoRapid® and NovoMix® 30, with NovoSeven® and with Norditropin® SimpleXx®.

Expansion in Latin America

The Brazilian anti-trust authorities granted final approval of Novo Nordisk’s acquisition of Biobrás in 2003. The decision by the Administrative Council of Economic Defence (CADE) came approximately 18 months after Novo Nordisk acquired the majority of the shares in the Brazilian pharmaceutical company.

Investments

The total investments in facilities during 2003 amounted to 2.3 billion Danish kroner, which was necessitated by the increasing demand for the company’s products.

     Production for regulatory approval has started at the bulk insulin factory in Kalundborg, Denmark, which is expected to begin producing insulin for consumer use in 2004. With a total investment of about 2.5 billion Danish kroner the factory will be Novo Nordisk’s primary supplier of insulin and insulin analogues.

     Novo Nordisk began a 1 billion Danish kroner (135 million euros) expansion of its factory in Chartres, France. The factory produces FlexPen® and Penfill®. It is Novo Nordisk’s largest production facility outside Denmark.

     Novo Nordisk intends to invest more than 200 million US dollars (1.2 billion Danish kroner) in a new production plant in Brazil, as an expansion of the former Biobrás facility, with the project initiation taking place in the first half of 2004.

Corporate governance

Developments in 2003 and proposals for 2004 are as follows:

Articles of Association

In order to serve the long-term interest of the shareholders, at the Annual General Meeting in March 2004 the Board of Directors will propose an amendment to the company’s Articles of Association to specify that the company will “strive to conduct its activities in a financially, environmentally and socially responsible way”.

Board of Directors

In March 2003, Sten Scheibye, CEO of Coloplast A/S, was elected as member of the Board of Directors. At the same time Niels Jacobsen and Jørgen Wedel were re-elected to the Board.

     Shareholder-elected board members have historically served a three-year term and could be re-elected. At the Annual General Meeting in March 2004 the Board of Directors will propose that the term of office is reduced to one year in order to facilitate a more flexible succession process. Continuity will still be ensured as the proposal will not affect the possibility of being re-elected

Audit Committee

The Board has historically worked without permanent committees. However, in line with international trends and in accordance with the Sarbanes-Oxley Act in the US the Board will in March 2004 establish an Audit Committee, which will be responsible for a number of predefined tasks such as the oversight of the external auditors and procedures for handling complaints regarding financial reporting matters.

Long-term share-based incentive programme

As from 2004 the grant of share options as long-term benefit to senior management will be replaced by a new performance-based incentive programme where Novo Nordisk B shares will annually be allocated to a bonus pool when predefined overall business-related targets have been achieved. The maximum annual allocation of shares to the bonus pool will be capped. The shares in the bonus pool will be paid out to the executives following a three-year vesting period.

Dividends and share repurchase

At the Annual General Meeting on 16 March 2004, the Board of Directors will propose a dividend for 2003 of DKK 4.40 per share of DKK 2, an increase of 22% compared to 2002 and corresponding to a pay-out ratio of 30.6%. No dividend will be paid on the company’s holding of own shares.

     During 2003 Novo Nordisk repurchased own shares worth DKK 1.6 billion — corresponding to 7,230,000 B shares — and thereby completed the share repurchase programme announced in August 2002.

     At the end of 2003, and as of 5 February 2004, Novo Nordisk A/S and its wholly-owned affiliates owned 16,542,841 of its own B shares corresponding to 4.66% of the total share capital.

Long-term financial targets

The long-term financial targets of Novo Nordisk were defined and communicated to the stock market in 2001:

  Operating profit (EBIT) growth of 15% per annum

  Operating margin (EBIT margin) of 25%

  Return on invested capital (ROIC) of 25% per annum

  Cash to earnings ratio of 60% as a three-year average.

The targets, defined as reported results measured in Danish kroner, were selected to ensure management focus on long-term growth of the business, transformation of results into cash and a significant improvement in return on invested capital. The pursuit of these long-term targets will support the creation of a competitive shareholder return. As demonstrated by the moderate growth in operating profit in both 2002 and 2003 the development in the exchange rates can have significant impact on the reported growth in operating profit in an individual year. In fact, if Novo Nordisk’s main invoicing currencies remain at their current level it is unlikely that in 2004 Novo Nordisk will be able to meet its 15% operating profit growth target. The company’s view is, however, that the 15% growth target is a re-

MANAGEMENT REPORT   5

 


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Management report

alistic target which Novo Nordisk will be able to meet in most years, based on the performance of the recurring business and assuming that currencies are relatively stable. In other words, the company’s ability to deliver on the target in a particular year will be impacted by significant changes in currency exchange rates or events of a non-recurring nature.

Outlook 2004

Novo Nordisk will with effect from 1 January 2004 prepare financial statements using International Financial Reporting Standards (IFRS). The change from historically applied Danish Generally Accepted Accounting Principles (Danish GAAP) will ensure that Novo Nordisk complies with the EU requirement for listed companies of adopting IFRS before the end of 2005.

     The guidance in this outlook section is provided using IFRS accounting principles. The adoption of IFRS will have no significant impact on the reported operating profit growth, the balance sheet or the operating free cash flow, but for reference Novo Nordisk has included a comment to the IFRS-based guidance, indicating the comparable guidance if Danish GAAP had been applied for 2004. Please refer to pages 51-53 for further details of the consequences of this change on the 2002 and 2003 financial statements.

     Expectations of a strong demand for insulin products in general and the continued market penetration of the Novo Nordisk insulin analogue portfolio, combined with the expectations of increasing NovoSeven® and Norditropin® SimpleXx® sales, underpin the expectations of a double-digit percentage point growth in sales for 2004 measured in local currencies. However, if the current level of Novo Nordisk’s major currencies remains throughout the year, the sales growth measured in DKK is expected to be high single-digit. The expected sales growth for 2004 would have been similar if Danish GAAP had been applied for 2004.

     For 2004, operating profit growth measured in local currencies and excluding the impact from non-recurring items is expected to be in line with Novo Nordisk’s long-term target of growing operating profit by 15%. However, the operating profit for 2004 measured in Danish kroner is expected to be at the level of 2003, reflecting a significant negative currency impact and a lower level of non-recurring income in 2004 compared to 2003. The expected development in operating profit from 2003 to 2004 would have been similar if Danish GAAP had been applied.

     As Novo Nordisk has hedged expected cash flows for 2004 in relation to US dollars, Japanese yen and British pounds, the negative influence from the depreciation of those main currencies versus DKK on operating profit will be partly offset by currency hedging gains included in net financials.

     Novo Nordisk’s reported ‘Net financials’ will be impacted by the change in accounting policies to IFRS as from 2004 and onwards. The key change will be that Novo Nordisk’s share of the profit & loss in both ZymoGenetics Inc and Aradigm Corporation in the future will be recorded as ‘Share of profit and loss in associated companies’ included in ‘Net financials’. Historically, using Danish GAAP Novo Nordisk’s share of net losses have been included in ‘Research and development costs’. Given the conversion to IFRS, Novo Nordisk expects ‘Net financials’ in 2004 to provide an income of DKK 250 million, reflecting

  A financial income, net (excluding Novo Nordisk’s share of loss & profit in associated companies) to be around DKK 450 million; primarily reflecting the impact of the forward contracts hedging future cash flows; and

  A negative impact from its share of profit & loss from associated companies of around DKK 200 million, reflecting expectations of net losses in ZymoGenetics Inc and Aradigm Corporation.

     The expected ‘Net financials’ for 2004 would have been an income of DKK 650 million if Danish GAAP had been applied for 2004. This higher level of expected Danish GAAP ‘Net financials’ is partly reflecting two elements: the historic treatment of Novo Nordisk’s share of losses in associated R&D companies as being included in R&D costs, and the ability to defer the recording of income related to currency options hedging future cash flows to the period in which the cash flow is realised.

     For 2004 Novo Nordisk expects the tax rate to be 33%, 1 percentage point lower than the tax rate realised in 2003. The expected tax rate for 2004 would have been similar if Danish GAAP had been applied for 2004.

     Novo Nordisk plans to invest around DKK 3 billion in fixed assets in 2004, and depreciations and amortisation are expected to be realised at the level of DKK 1.8 billion. The expected ‘investments’ and ‘depreciations and amortisation’ for 2004 would have been similar if Danish GAAP had been applied for 2004.

     The free cash flow is expected to be around DKK 3 billion. The expected ‘free cash flow’ for 2004 would have been similar if Danish GAAP had been applied for 2004.

Forward-looking statement

The above contains forward-looking statements as the term is defined in the US Private Securities Litigation Reform Act of 1995. Forward-looking statements provide our expectations or forecasts of future events such as new product introductions, product approvals and financial performance. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as ‘anticipate’, ‘estimate’, ‘expect’, ‘project’, ‘intend’, ‘plan’, ‘believe’ and other words and terms of similar meaning in connection with a discussion of future operating or financial performance.

     Such forward-looking statements are subject to risks, uncertainties and inaccurate assumptions. This may cause actual results to differ materially from expectations and it may cause any or all of our forward-looking statements here or in other publications to be wrong. Factors that may affect future results include interest rate and currency exchange rate fluctuations, delay or failure of development projects, production problems, unexpected contract breaches or terminations, government-mandated or market-driven price decreases for Novo Nordisk’s products, introduction of competing products, Novo Nordisk’s ability to successfully market both new and existing products, exposure to product liability and other lawsuits, changes in reimbursement rules and governmental laws and related interpretation thereof, and unexpected growth in costs and expenses.

     Risks and uncertainties are further described in reports filed by Novo Nordisk with the US Securities and Exchange Commission (SEC) including the company’s Form 20-F, which was filed on 27 March 2003. Please also refer to the section ‘Financial risk factors and financial risk management’ in this Annual Financial Report 2003. Novo Nordisk is under no duty to update any of the forward-looking statements or to conform such statements to actual results, unless required by law.

6   MANAGEMENT REPORT

 


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About Novo Nordisk

Novo Nordisk is a healthcare company and a world leader in diabetes care. The company has the broadest diabetes product portfolio in the industry, including the most advanced products within the area of insulin delivery systems.

     In addition, Novo Nordisk has a leading position within areas such as haemostasis management, growth hormone therapy and hormone replacement therapy. Novo Nordisk manufactures and markets pharmaceutical products and services that make a significant difference to patients, the medical profession and society.

     With headquarters in Denmark, Novo Nordisk employs approximately 18,800 full-time employees in 69 countries, and markets its products in 179 countries. Novo Nordisk’s B shares are listed on the stock exchanges in Copenhagen and London. Its ADRs are listed on the New York Stock Exchange under the symbol ‘NVO’. For more information, visit novonordisk.com.

Research and development pipeline

             
Phase   Compound   Indication   Description

 
 
 
Phase 1
The substance is tested on a limited number of healthy volunteers
  NN344


NN2501
  Type 1 and 2 diabetes


Type 2 diabetes
  A soluble, long-acting human insulin analogue for treatment of diabetes, with long duration of action and a very predictable response.

An oral tablet for the treatment of type 2 diabetes, which inhibits excessive hepatic glucose production.
 
Phase 2
The substance is tested on a limited number of patients in short-term treatment
  Liraglutide (NN2211)   Type 2 diabetes   A once-daily, long-acting derivative of the natural human hormone GLP-1 for treatment of type 2 diabetes. Liraglutide has been shown to lower blood glucose with little or no risk of inducing hypoglycaemia, and is expected to affect appetite regulation leading to weight management. Liraglutide may also have beta-cell regenerative capacity. Liraglutide has completed phase 2.
 
    Balaglitazone (NN2344)   Type 2 diabetes   A potent insulin sensitiser for the treatment of type 2 diabetes, which increases glucose uptake in the peripheral tissue.
 
    NovoSeven®   Critical bleeding   Clinical programme aimed at regulatory filing of new indications for NovoSeven®. The project aims to position NovoSeven® as the world’s first haemostatic agent for critical bleeds.
 
    ASIS   Acute Respiratory
Distress Syndrome
  A project focused on using Active Site Inhibited Seven (ASIS) for the treatment of Acute Respiratory Distress Syndrome (ARDS)
 
    Growth hormone therapy
(NN1620)
  Complicated fractures   A project focused at using growth hormone for treating complicated fractures.
 
Phase 3
The substance is tested on a large number of patients in long-term treatment
  AERx® iDMS (NN1998)

NovoMix® 50 and 70 (NN1185)
  Type 1 and 2 diabetes

Type 1 and 2 diabetes
  The AERx® insulin Diabetes Management System is a delivery system for administering insulin to people with type 1 and 2 diabetes by inhalation.
Premixed formulations of the rapid-acting insulin analogue, insulin aspart. Provide a combined rapid- and intermediate-acting insulin effect (at the ratio of 50/50 or 70/30)
 
Submitted for registration
Following clinical trials, applications for registration are submitted to the authorities in the countries where marketing approval is sought
  Levemir™
(insulin detemir, NN304)
  Type 1 and 2 diabetes   A soluble basal insulin analogue with neutral pH, providing a more predictable action profile and offering a longer duration of action compared to conventional basal insulin. Levemir™ offers clinical advantages by providing more consistent and predictable blood glucose levels leading to improved glycaemic control, lower risk of hypoglycaemia, especially at night, and no undesirable weight gain — a common side effect of other basal insulins.

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Risk management

Like in all other industries, doing business in the pharmaceutical industry involves risks. Consequently, Novo Nordisk strives towards having a risk management system in place where all significant risks are identified, assessed and managed.

Novo Nordisk has defined risk as: “Any event that could have a significant negative impact upon our ability to meet our objectives”. In this context the main objective is defined as Novo Nordisk’s ability to pursue the Vision and the long-term financial targets.

Risk management process

Novo Nordisk has recently established a consolidated risk reporting system. Key risks identified in the organisation are continuously monitored and reported through an evaluation process and through committees and line management to the senior management. The evaluation is performed on two parameters, the risk’s potential impact and by the likelihood of it occurring (both measured before and after mitigating actions). Regular feedback is provided by senior management to the appointed risk owners to ensure that Novo Nordisk focuses on the most important risks.

The figure below is a high-level illustration of the risk reporting system.

Senior management

Risk evaluation. Regular feedback (green arrows) is provided by senior management via committees and line management to the appointed risk owners to ensure that Novo Nordisk focuses on the most important risks.

(IMPACT CHART)

Committees and line management business risk evaluation

The evaluation is based on various factors for example by the risk’s potential impact and by the likelihood of it occurring.

(ARROWS)

Organisation

Key risks (red arrows) are identified in the organisation and are continuously monitored and reported through an evaluation process.

     In the future Novo Nordisk expects to link the risk management system with the Balanced Business Scorecard.

Risk factors

Novo Nordisk faces both general business risks and industry-related risks. In both cases materialisation of key risks could potentially mean that realised profits could differ significantly from the forward-looking statements made by Novo Nordisk. In order to be able to manage key risks in Novo Nordisk, the following high-level risk areas have been identified:

  corporate ethics and human resources

  development of new drugs

  manufacturing and quality

  competition

  security, litigation and financial risks.

Corporate ethics and human resources

One of Novo Nordisk’s corporate values is to be socially responsible. Thus, the company seeks to limit or reduce any risks to the environment arising from its activities. This requires an efficient use of resources, reducing emissions and waste, as well as compliance with environmental laws and relevant requirements. Risk assessments also include an evaluation of suppliers’ social and environmental performance, regardless of where they operate.

     In a global business world with intense competition for talented people, the ability to attract and retain talented individuals remains a precondition for Novo Nordisk’s ability to pursue its vision. Therefore Novo Nordisk offers employees innovative and challenging jobs, training, coaching and development, and industry competitive remuneration.

     Stem cell research is an example of risks related to corporate ethics. In 2003 the Danish government encouraged a debate to clarify the ethical issues prior to legislation on stem cell research. There was a risk that Novo Nordisk might not be able to pursue its research in this field, which is currently the most promising approach to finding a cure for type 1 diabetes. The company played an active role in the ethical and scientific clarification, publicly communicated its position on these issues and made clear its commercial interests. Subsequently, the Danish Parliament decided to allow research on human embryonic stem cells.

Development of new drugs

Developing new drugs involves substantial risks for a pharmaceutical company. Delays or failure to obtain approval from regulatory authorities could have a significant impact on Novo Nordisk’s ability to reach its long-term financial targets. Consequently, the progress of promising drug candidates until

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they reach marketing approval is subject to ongoing risk assessment. The business risk inherent in an approval process can be illustrated by Novo Nordisk’s long-acting insulin analogue, Levemir™, where the regulatory authorities in Europe asked for additional preclinical work to be carried out before potentially granting a positive opinion, which is expected to eventually lead to the launch of Levemir™ in selected markets in 2004.

     Patents and other proprietary rights are important in order to develop and maintain Novo Nordisk’s competitive position. The risk of Novo Nordisk infringing other companies’ patents or brands, as well as other companies’ potential attempts of infringement of Novo Nordisk’s patents and brands are closely monitored, and if necessary actions are initiated.

Manufacturing and quality

Novo Nordisk has concentrated the major part of its manufacturing capacity in a few sites in Denmark. Though the production sites are located in areas historically free of natural disasters, the geographical concentration and the derived inherent risk requires extra planning from a contingency perspective. This contingency planning includes implementing preventive measures against adverse events and precautionary inventory management. Further expansion of the production capacity is based on careful risk assessments taking several issues into account; like concentration of production, availability of sufficiently skilled work force and currency risk. In 2003, Novo Nordisk has announced new investment projects in production facilities outside Denmark, for example in Brazil and France.

     An example of a risk within this area is the ongoing regulatory approval of our new insulin bulk production facility in Kalundborg, Denmark, where regulatory approval is a precondition for Novo Nordisk’s long-term ability to supply insulin to market.

     Meeting quality standards for manufacturing processes is a precondition for being competitive. Quality therefore establishes a minimum threshold that companies need to meet to fulfil regulatory requirements and customer expectations.

Competition

The markets in which Novo Nordisk is operating are highly competitive. If, for example, new and more effective treatment regimes for diabetes were introduced by a competitor the impact on Novo Nordisk’s sales could be significant. In addition, a competitive market could lead to market-driven or government-mandated price decreases. In Japan, for example, government-mandated price reductions have been initiated every second year. Both competition and price are risks that can have a significant impact on Novo Nordisk’s ability to reach the long-term financial targets. Consequently, Novo Nordisk monitors economic and competition development as well as price control initiatives in all significant markets.

     Increasing parallel trade with Novo Nordisk’s products inside the European Union from low-price markets, like Spain and Greece, to higher priced markets, like Germany and the UK, may impact the profitability of the company. Possibilities for reducing this risk are few except for raising awareness regarding the potential quality defects of products being re-shipped and repacked by other manufacturers than the original manufacturer.

Security, litigation and financial risk

As a pharmaceutical company Novo Nordisk is dealing with both confidential and sensitive information. Inappropriate access and unauthorised change of this information could have negative consequences for Novo Nordisk. Consequently, procedures for access to important data and access to IT systems are established and closely monitored.

     Novo Nordisk is involved in various legal proceedings, including patent infringement suits and various other matters. Risks related to these legal proceedings are monitored closely. An example of such a risk is an ongoing dispute with Polish customs authorities who, in parallel with similar disputes with other large international pharmaceutical importers, have claimed misstatement of Novo Nordisk customs value for imported products in the period from 1999 and until the end of 2001.

     As a company with global operations, foreign exchange risk is the principle financial risk factor within Novo Nordisk and as such has a significant impact on the profit and loss account. On a 1-2 year horizon, Novo Nordisk protects itself against currency fluctuations by using financial hedging instruments, whereby the impact on the financial result from foreign exchange fluctuation is reduced and postponed. In the long term Novo Nordisk’s approach to currency risk management is to establish a better match between the sources of income and location of assets and activities in general.

     The management of financial risk has been centralised in Novo Nordisk. The overall objectives and policies for Novo Nordisk’s financial risk management are outlined in the Treasury Policy, which covers foreign exchange, investments, financing and credit risk on financial counterparts.

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Environmental and social discussion

Novo Nordisk manages its business with the Triple Bottom Line approach — a commitment to balance concerns for society and the environment with economic growth.

This discussion focuses on Novo Nordisk’s environmental and social results from 2003. This information is deemed to be material for Novo Nordisk’s future business. For a complete status on performance, progress, positions and strategic initiatives, please refer to the Sustainability Report 2003. This report has been prepared in accordance with the Global Reporting Initiative’s Guidelines and assured according to the AA1000 Assurance Standard — the emerging global standards for best practice sustainability reporting.

Linking business targets to sustainability goals

A set of twenty top-level indicators help track performance over time. They relate to six strategic areas: living our values, access to health, our employees, our use of animals, eco-efficiency and compliance, and economic contribution. The indicators have been defined through consultation with stakeholders, while methods of measuring and targets are set by Novo Nordisk’s management.

Living our values

The annual employee survey, eVoice, measures how well the vision and values are perceived to be anchored in daily business practices. Regular independent facilitations assess compliance with the Novo Nordisk Way of Management. In 2003, 99% of identified corrective actions were accomplished.

     Social and environmental responsibility extends throughout the supply chain. By 2003, suppliers covering 31% of the total value of Novo Nordisk’s purchases have been evaluated through a self-assessment questionnaire, with respect to basic labour rights and environmental management. In total 87.6% reported that they had satisfactory performance. No major violations were reported. From 2004 the programme will expand to other business areas and will include audits.

Access to health

Novo Nordisk has built its strategy for improved access to diabetes care on the World Health Organization’s (WHO) key priorities: national healthcare strategies, national healthcare capacity, best possible pricing and additional funding. Major activities in 2003 include a collaboration with the University of Oxford and WHO to create the Oxford Vision 2020, and a partnership with the UK’s National Health Service and the University of Oxford to establish the Oxford Centre for Diabetes, Endocrinology and Metabolism, which combines basic and clinical research with patient care and medical training. Novo Nordisk’s National Diabetes Programme assists governments in implementing strategies for improved diabetes care, and Novo Nordisk’s affiliates have launched more than 130 initiatives in their local markets. Novo Nordisk, the WHO and the International Diabetes Federation (IDF) drafted a Declaration of Africa on Diabetes, with a commitment to prepare an action plan.

     In 2003 the best possible pricing scheme for Least Developed Countries (LDC) was offered to the 49 LDC countries. Sixteen of these countries chose to purchase insulin under this scheme.

Our employees

As of 2002, health and safety data are collected for the entire organisation. Through a focus on prevention, the frequency of occupational injuries continues to decrease; in 2003 the rate was 5.4% as compared to 8.9% in 2002. To support the internationalisation of Novo Nordisk and to better reflect the increasing diversity in societies, all business units are engaged in Novo Nordisk’s equal opportunities programme. In 2003, 89% of the targets defined in local action plans were met.

Our use of animals

Novo Nordisk’s goal is to reduce, refine and replace animal experiments and to improve animal welfare. In 2003, the number of animals purchased fell by 10.9%. In collaboration with the Danish Animal Welfare Society Novo Nordisk has built a new state-of-the-art facility for rodents and a new rabbit facility, designed to encourage natural behaviour and minimise stress.

Eco-efficiency and compliance

A five-year environmental strategy identifies eight focus areas, the most challenging being climate change. With ISO 14001 now fully implemented at major production sites, systematic management and data collection supports new, innovate approaches.

     Since 2000, Novo Nordisk has optimised its eco-productivity by 28% for water and 53% for energy consumption. This is a measure of the ability to ‘produce more with less’ and a main environmental target. In 2003, improvements achieved were 10% for water and 24% for energy — both well above targets.

Economic contribution

Examining the interactions between the company and its key economic stakeholders, the ‘footprint’ model provides a better understanding of Novo Nordisk’s local and global contributions to society. A cash value distribution shows money flows between the company and its customers, suppliers, employees, investors and the public sector and investments for future growth.

Protecting Intellectual property rights

Benchmarking Novo Nordisk’s patent activity is one way to measure the company’s relative level of innovation and relative ability to produce assets through which it can derive value. A benchmark study in 2003 concluded that Novo Nordisk has the highest patent activity and productivity compared to its peer group. A revised patent strategy boosts patenting of processes, formulations and new medical indications.

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Financial discussion

Net profit increased by 19% to DKK 4,858 million from DKK 4,095 million in 2002. The result is significantly better than the expected growth of close to 10%, which was outlined at the start of the year — and this despite a continued negative currency impact over the course of the year. The main reason for exceeding initial expectations is better than expected operational performance both in terms of sales and costs supported by a higher level of non-recurring income.

     The reported sales growth in 2003 is the result of a solid underlying growth in sales reflecting a continued successful penetration of the diabetes care market with the insulin analogue portfolio as well as increased sales of NovoSeven®. However, the development in foreign exchange rates has had a significant negative impact on Novo Nordisk reported sales and operating profit growth. In February 2003 it was clear that if the foreign exchange rates remained at the then prevailing level versus the Danish krone for the rest of 2003 a negative impact on growth in sales of approximately 8 percentage points could be expected. During the year the major invoicing currencies for Novo Nordisk, especially the US dollar and Japanese yen, continued to decrease in value versus the Danish krone and ended at an even lower level, thus further reducing the reported growth rates.

     For 2003 sales ended at DKK 26,541 million corresponding to a growth of more than 5% over 2002 of DKK 25,187 million. In local currencies sales increased 15%, leaving the negative impact on sales growth from foreign exchange rates at approximately 10 percentage points. The higher than expected negative impact on sales from the currency development mainly relates to the average value of the US dollar and Japanese yen being 17% and 10%, respectively, lower than the average value in 2002.

     The sales of insulin analogues showed strong growth in all regions, most notably in North America and Europe. Overall the sales of insulin analogues have lived up to our aggressive expectations in 2003 and have therefore been a key driver of sales growth. Total sales of insulin and insulin delivery systems grew by 17% in local currencies, thereby exceeding Novo Nordisk’s ambition of at least 10% underlying growth in insulin sales.

     NovoSeven® continued to show strong growth rates in 2003 and was thereby also a key sales growth driver. Overall NovoSeven® in local currencies grew by 20% reflecting solid growth rates within all regions.

     Operating profit increased to DKK 6,384 million, an increase of 7% compared to DKK 5,979 million in 2002 . Measured in local currencies the growth in operating profit increased close to 30% thereby exceeding the 20% initially indicated in the outlook for the year. The main reason is a strong operational performance both in terms of sales and costs supported by a higher level of non-recurring income. When adjusted for these non-recurring items and the negative impact from decreasing foreign exchange rates Novo Nordisk was able to significantly exceed its long term target of growing operating profit by 15%.

     Operating margin increased slightly to 24.1% up from 23.7% in 2002 reflecting better operational performance. A negative impact from the currency development reduces the positive impact from better operational performance and a higher level for non-recurring income in 2003 than in 2002.

(GROWTH CHARTS)

     Novo Nordisk continuously hedges the cash flows for the

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Financial discussion

main invoicing currencies to limit the short term negative impact on both earnings and cash flow arising from fluctuations in foreign exchange rates. As a consequence the negative impact from the decreasing value of the foreign exchange rates on operating profit is to a large extent countered by hedging gains. With the exchange rates remaining the same as they were in the beginning of February 2003 it was expected that hedging gains at the level of DKK 600 million would be realised for the full year, but due to the decreasing value especially of the US dollar and Japanese yen during the year hedging gains of DKK 927 million were realised in the accounts for 2003.

     With the effective tax rate decreasing to 34% down from 35% in 2002, net profit increased to DKK 4,858 million up 19% compared to DKK 4,095 million in 2002. Thereby the increase in net profit significantly exceeded the expectations of growing net profit towards 10%. Earnings per share (diluted) increased from DKK 11.72 to DKK 14.14 in 2003, corresponding to a growth of 21%.

     Total net capital expenditure for property, plant and equipment in 2003 was realised at DKK 2.3 billion — somewhat lower than initially anticipated for the year (DKK 3.5 billion). The primary reasons being changed timing for a number of projects, where a higher proportion of resources are now expected to be realised during 2004.

     Return on invested capital (ROIC) ended at 19% down from 20% in 2002. As a large proportion of Novo Nordisk’s assets are denominated in Danish krone or Euro, ROIC is very sensitive to fluctuations in foreign exchange rates. The lower value of currencies in 2003 compared to 2002 therefore has a significant negative impact on ROIC corresponding to approximately 3 percentage points.

     The cash to earnings ratio for 2003 ended at 79% up from 12% in 2003. This is higher than initially anticipated and is primarily related to the lower than expected investment level and a reduction in the average number of credit days for trade debtors.

Sales development by segments

For the year 2003 Novo Nordisk met the initially stated sales target of growing reported sales by more than 5% — despite a continued negative impact from Novo Nordisk’s main invoicing currencies during the year. Sales increased by 15% measured in local currencies. Growth was realised both within the diabetes care and the biopharmaceuticals segments — primarily driven by innovative and strategically important products like NovoRapid®, NovoMix® 30, NovoSeven® and Norditropin® SimpleXx®.

     Novo Nordisk sales derive from two segments, diabetes care and biopharmaceuticals. The diabetes care segment is composed of insulin analogues, human insulin & insulin-related products and oral antidiabetic products. The biopharmaceuticals segment consists of haemostasis management (NovoSeven®), growth hormone therapy (Norditropin® and Norditropin® SimpleXx®) and other products (hormone replacement therapy — HRT, GlucaGen® and other products).

The diabetes care segment

     Sales of diabetes care products grew by 16% measured in local currencies compared to 2002 and by 6% measured in Danish kroner to DKK 18,723 million. Sales of insulin analogues accounted for close to 60% of the growth within the diabetes care segment in 2003 measured in local currencies.

Sales of insulin analogues, human insulin and insulin-related products

Sales of insulin analogues, human insulin and insulin-related products increased by 17% measured in local currencies and by 8% to DKK 17,283 million measured in Danish kroner. All regions contributed to growth both measured in local currencies and in Danish kroner.

     Sales of insulin analogues increased by 137% measured in local currencies and by 115% in Danish kroner to DKK 2,579 million in 2003. Novo Nordisk’s market share continued to increase in 2003 — now constituting more than 20% of the world market for insulin analogues. Solid growth rates were realised in all regions with North America as the primary growth driver followed by Europe. North America and Europe accounted for more than 80% of the growth in sales of insulin analogues. Growth in sales of insulin analogues continues to outperform the rest of the diabetes care segment and now constitutes close to 15% of Novo Nordisk’s total diabetes care sales.

(AREAS GRAPHS)

North America

Sales in North America increased by 37% in local currencies in 2003 and by 15% measured in Danish kroner, reflecting an average depreciation of the US dollar by 17%. The market share of insulin in the US continued to increase also in 2003 and close to one-third of the insulin used in the US is now provided by Novo Nordisk.

     The sales growth and market share gain in North America is primarily driven by NovoLog® and reflecting market share gains in the retail segment. Increasingly, however, also NovoLog® Mix is adding to the growth, underpinned by the US launch of

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NovoLog® Mix in vials during 2003 following the initial US launch of NovoLog® Mix in FlexPen® in late 2002. Insulin analogues now constitute more than one-third of Novo Nordisk’s total insulin sales in North America.

     Approximately 31% of insulin sales in the US were sold in a device. This compares to 28% in 2002 and underlines the potential in upgrading the US market to more advanced delivery systems.

     The growth opportunities in the US remain significant. The continued US roll-out of Novo Nordisk’s portfolio of insulin analogues provides significant growth opportunities. The business platform has furthermore been solidified by an improved reimbursement status for Novo Nordisk’s strategic insulin products amongst Pharmacy Benefit Managers and Managed Care Organisations. On this background Novo Nordisk has decided to increase the diabetes care sales force in the US by around 150 to total more than 800. Focus of these sales representatives will be key strategic products like NovoLog®, NovoLog® Mix and FlexPen®.

Europe

Sales in Europe increased by 13% in local currencies in 2003 and by 10% measured in Danish kroner, reflecting a depreciation of especially the British pound and the Polish zloty.

     Growth in Europe is driven by a continuing strong penetration of both NovoRapid® and NovoMix® within the short-acting and premixed segments, which constitute some 70% of the European market. The growth of the insulin analogues has been supported by Novo Nordisk’s portfolio of new devices — including FlexPen®, which has been very well received by the patients.

     However, also in 2003 the sales growth was dampened by price-focused healthcare reforms in a number of markets and an increased level of parallel trade. Towards the end of the year a minor increase in product inventory by wholesalers and patients was observed in a few countries on the back of expectations of changes to the co-payment systems.

Japan & Oceania

Sales in Japan & Oceania increased by 11% in local currencies in 2003 and by 2% measured in Danish kroner, reflecting a depreciation of the Japanese yen.

     In Japan, NovoRapid® continued to capture market share. The launch of NovoMix® 30 in Japan in December 2003 established Novo Nordisk as the only company in Japan with both a short-acting and premixed analogue. In Japan the short-acting and premixed market constitutes some 80% of the insulin market.

     Further, Novo Nordisk is now leading the conversion towards disposable devices, which constitutes about one-third of the market — up from one-fourth in 2002. This accelerated conversion towards disposable devices is based on the high acceptance of the newest delivery systems FlexPen® and InnoLet®.

International Operations

Sales within International Operations increased by 18% in local currencies in 2003 and by 3% measured in Danish kroner, reflecting a depreciation of especially the Brazilian real, the Turkish lira and the Chinese yuan.

     Novo Nordisk continues the roll-out of insulin analogues in International Operations, as NovoRapid® was launched in nine countries during 2003 — thereby bringing the total number of countries in which NovoRapid® has been launched in International Operations to 28. Moreover, NovoMix® has now been launched in 25 countries and is showing solid development in key markets. Also Novo Nordisk’s insulin delivery systems continued to penetrate the markets within International Operations, as approximately 46% of the insulin sales were sold in devices compared to 41% in 2002. Sales in 2003 were negatively impacted by the unstable political situation in the Middle East, as well as the negative development in some emerging market currencies.

Sales of oral antidiabetic products

Sales of oral antidiabetic products declined by 1% measured in local currencies. Even though the underlying demand remains positive, a general lowering in North America of the wholesalers’ inventory levels during the year has affected growth in sales negatively. The weakening of the US dollar resulted in a decline in sales measured in Danish kroner of 12% to DKK 1,440 million.

The biopharmaceuticals segment

     Sales within the biopharmaceuticals segment increased by 14% in local currencies compared to 2002 and by 4% measured in Danish kroner to DKK 7,818 million.

Sales of haemostasis management (NovoSeven®)

Sales of NovoSeven® increased by 20% in local currencies compared to 2002. Measured in Danish kroner sales increased by 7% to DKK 3,875 million. Sales growth for NovoSeven® was primarily driven by solid operational performance in North America followed by Europe.

     A number of factors contributed to the NovoSeven® sales growth in 2003. Due to the high penetration within spontaneous bleeds for congenital inhibitor patients the predominant part of the growth within the inhibitor segment has been generated by acquired haemophilia and usage of NovoSeven® in connection with elective surgery. Treatment of spontaneous bleeds for congenital inhibitor patients remains the largest area of use. Moreover, sales are perceived to have been positively affected by increased investigational use of NovoSeven®.

Sales of growth hormone therapy (Norditropin® and Norditropin® SimpleXx®)

In local currencies sales of human growth hormone products increased by 13% compared to 2002. Measured in Danish kroner sales increased by 4% to DKK 2,220 million; more than 90% of sales are realised through sales of Norditropin® SimpleXx®, liquid growth hormone in a dedicated device.

     Sales outside Japan increased by 22% in local currencies or 14% in Danish kroner, driven by continued market penetration by Norditropin® SimpleXx®, in North America, International Operations and Europe. Close to 65% of total growth hormone sales are realised outside Japan.

     In Japan, sales measured in local currency increased by 1% whereas sales measured in Danish kroner decreased by 9%, negatively impacted by the 10% depreciation of the Japanese

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Financial discussion

yen versus the Danish krone. Positive market growth has counteracted an impact of the government-mandated reduction in reimbursement prices from April 2002.

     The first disposable delivery device containing liquid human growth hormone, NordiFlex®, was launched by Novo Nordisk in Denmark in the fourth quarter of 2003. NordiFlex® leverages on the competences Novo Nordisk has gained from the development of FlexPen®, which has been very well received by people with diabetes.

Sales of other products

Sales of other products within the biopharmaceuticals segment, which predominantly consists of hormone replacement therapy (HRT)-related products, grew by 5% in local currencies and decreased by 3% in Danish kroner. Other sales, the largest part being sales of GlucaGen® for use in connection with gastrointestinal motility inhibition, increased by 4% measured in local currencies. Measured in Danish kroner sales decreased by 8% to DKK 392 million, primarily reflecting the depreciation of the Japanese yen.

     Sales of hormone replacement therapy (HRT) products increased by 5% in local currencies compared to 2002. Measured in Danish kroner sales decreased by 1% to DKK 1,331 million. Sales in the second half of 2003 were positively impacted by the change in the US distribution set-up for Novo Nordisk’s HRT products and by a continued market share increase for the low-dose HRT products Activelle® and Vagifem®. In the regions outside North America, sales have decreased by 17% measured in Danish kroner, broadly in line with the contraction in the overall HRT market. The general market contraction is caused by the early termination in mid-2002 of the US Women’s Health Initiative (WHI) study combined with the negative findings in the British Million Women Study.

     The dispute between Pfizer and Novo Nordisk in relation to Pfizer’s early termination of the outlicensing agreement (originally established by Pharmacia and Novo Nordisk) for certain HRT products in the US has been settled. The parties have agreed not to disclose the settlement terms, but Novo Nordisk will record a minor non-recurring income in licence fees and other operating income in 2004.

     In the US, Novo Nordisk has now partnered with a contract sales organisation which will promote the HRT portfolio, and Novo Nordisk will direct the contract sales force comprising some 100 sales representatives to a target audience of 18,000 physicians. Activella® and Vagifem® have continued to perform well in the US market despite a lack of active detailing effort during the second half of 2003.

Costs, licence fees and other operating income

The production costs increased by 12% to DKK 7,439 million leaving the gross margin at 72.0%, a decrease from 73.7% in 2002. This development is due to the negative impact from the lower average 2003 exchange rates for a number of the major invoicing currencies compared to 2002, as the majority of production costs are realised in Danish kroner or euros. Additionally, production costs in 2003 included costs related to impairment of assets and inventory adjustments. Underlying gross margin continued to show a positive development reflecting continued productivity improvements and a more favourable product mix.

     Total non-production-related costs increased by 2% to DKK 13,839 million — significantly below the sales growth. The development in costs reflects the impact from the depreciation of major currencies versus the Danish krone, but also prudence in management of the overall cost base.

     In total, licence fees and other operating income amounted to DKK 1,121 million in 2003 compared to DKK 994 million in 2002. In 2003, licence fees and other operating income included significant income related to the settlement of a patent dispute with Aventis in January 2001, of which the major part has been taken into account in the fourth quarter of 2003. Moreover, the fourth quarter included income related to the accounting effect of ZymoGenetics’ secondary public offering of new shares.

Net financials and tax

Net financials showed a net income of DKK 999 million in 2003 compared to DKK 321 million in 2002. Foreign exchange hedging gains especially related to the hedging of the US dollar, the Japanese yen and the British pound contributed with DKK 927 million in 2003 compared to DKK 311 million in 2002.

     The effective tax rate for 2003 was 34%, down from 35% in 2002, leading to a total tax expense of DKK 2,525 million in 2003.

Capital expenditure

Total net capital expenditure for property, plant and equipment in 2003 was realised at DKK 2.3 billion — somewhat lower than initially anticipated for the year. The primary reason is changed timing for a number of projects, where a higher proportion of resources is now expected to be realised during 2004. This changed timing can primarily be related to optimisation of the existing production facilities, enabling Novo Nordisk to initiate ongoing capacity investments with a slightly later timing than originally expected; this without jeopardising Novo Nordisk’s ability to deliver to the market.

(CAPITAL CHARTS)

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     Main ongoing investments during 2003 were the expansion of the FlexPen® production facilities in Hillerød, Denmark, and a new dedicated purification facility for insulin detemir in Kalundborg, Denmark.

Free cash flow

     The free cash flow for 2003 was realised at DKK 3,846 million up from DKK 497 million in 2002. This is higher than initially anticipated and is primarily related to the lower than expected investment level and a reduction in the average number of credit days for trade debtors.

Shareholders’ funds

     Total shareholders’ funds were DKK 25,224 million at the end of 2003, equalling 73.3% of total assets, compared with 72.8% at the end of December 2002. Please refer to page 21 for further elaboration hereof.

Financial risk factors and financial risk management

     Novo Nordisk has centralised management of the Group’s financial risks. The overall objectives and policies for Novo Nordisk’s financial risk management are outlined in the Novo Nordisk Treasury Policy, which is approved by the Board of Directors. The Treasury Policy consists of the Foreign Exchange Policy, the Investment Policy, the Financing Policy and the Policy regarding Credit Risk on Financial Counterparts and includes a description of allowed instruments and risk limits.

     Novo Nordisk hedges commercial exposure only and consequently does not enter into speculative positions. Novo Nordisk uses a fully integrated Treasury Management System to manage all financial positions. All positions are marked to market based on real-time quotes and risk is assessed using generally accepted standards.

Foreign exchange risk management

Foreign exchange risk is the principal financial risk factor within Novo Nordisk and as such has a significant impact on the profit and loss account and the balance sheet.

(MONEY CHARTS)

     The most of Novo Nordisk’s sales are in the major currencies EUR, USD, JPY and GBP, while a predominant part of production, research and development costs is in DKK. As a consequence Novo Nordisk’s foreign exchange risk is in decreasing order most significant in USD, JPY and GBP, leaving out the EUR for which the exchange risk is regarded as low, due to the Danish fixed rate policy vis-à-vis the EUR.

     A 5% change in USD, JPY and GBP versus DKK will have an impact of approximately DKK 210 million, DKK 130 million and DKK 75 million on operating profit, respectively. In addition, USD-related currencies will have an impact of DKK 50 million.

     The overall objective of the foreign exchange risk management is to limit the short-term negative impact on earnings and cash flows from exchange rate fluctuations, thereby increasing the predictability of the financial result.

     Novo Nordisk hedges existing assets and liabilities in major currencies, as well as future expected cash flow up to 24 months forward. Currency hedging is based upon expectations of future exchange rates and takes place using mainly foreign exchange forwards and foreign exchange options matching the due date of the hedged item. Expected future cash flows are continuously assessed using historical inflows, budgets and monthly sales forecasts. Hedge effectiveness is assessed on a regular basis.

     In 2003 USD depreciated against DKK by 16% while JPY and GBP both depreciated by 7%. During the year the hedging levels have been maintained at relatively high levels and at year-end Novo Nordisk had covered the foreign exchange exposure on the balance sheet together with 20 months of expected future cash flows in USD. For JPY and GBP the similar cover was 15 months and 8 months of future expected cash flows respectively.

     Novo Nordisk hedges invested equity in major foreign affiliates only. Equity hedging takes place using long-term cross currency swaps. At year-end hedged equity investments made up 61% of the Group’s JPY equity and 13% of the Group’s USD equity.

Interest rate risk management

Changing interest rates affect Novo Nordisk’s profit and loss account as well as the balance sheet. Novo Nordisk is mainly

FINANCIAL DISCUSSION   15


Table of Contents

Financial discussion

exposed to interest rate risk through interest-bearing assets and liabilities.

     The overall objective of the interest rate risk management is to limit the negative impact on earnings and on the balance sheet from interest rate fluctuations.

     Excess liquidity is primarily invested in short-term, high-rated, liquid bonds denominated in DKK or EUR or in money market deposits likewise in DKK or EUR. The interest rate risk of the investments is managed based on duration measured against a predefined benchmark outlined in the Investment Policy.

     The market value of the bond portfolio has been more or less unaffected by the lower interest rates throughout the year, due to a low duration on the bond portfolio. The 2 year yield for DKK has dropped from 3.15% to 2.75% in 2003.

     Novo Nordisk ensures availability of required liquidity through a combination of cash management, highly liquid investment portfolios and uncommitted as well as committed facilities.

     Novo Nordisk’s cash and cash equivalents at the end of 2003 were DKK 2,669 million compared to DKK 1,234 million in 2002. In addition to cash and cash equivalents Novo Nordisk has undrawn committed credit facilities of DKK 8,7 billion at the end of 2003 compared to DKK 8 billion in 2002.

Counter-party risk management

The use of money-market deposit and financial instruments gives rise to counter-party exposure. To manage and limit this exposure, Novo Nordisk only enters into financial instruments with financial counterparts having a satisfactory long-term credit rating. Money-market deposits are only entered into with financial counterparts having a satisfactory short-term credit rating.

     The counter-party exposure is calculated based upon the net market values of off-balance sheet instruments, and the notional amounts of short-term on balance sheet instruments.

Equity price risk management

Novo Nordisk has very limited strategic investments in both listed and non-listed companies and is at year-end consequently not exposed to significant equity risk. In addition hereto, Novo Nordisk holds investments in a limited number of listed companies which are considered as associated companies. These companies are measured at intrinsic value and hence, Novo Nordisk’s profit and loss account is not directly affected by changes in share prices.

                 
    Market value   Duration
Interest rate portfolio   DKK million   years

 
 
Bond
    1,810       0.71  
Money-market deposits
    654       0.03  
Other cash at hand
    608       0.00  
 
   
     
 
Total interest-bearing assets
    3,072       0.42  
 
   
     
 
Short-term debt
    975       0.03  
Long-term debt
    754       1.76  
 
   
     
 
Total interest-bearing liabilities
    1,729       0.79  
 
   
     
 
Net interest-bearing assets
    1,343          
 
   
         
                                         
  Aa1/   Aa2/   Aa3/   NR/   Total
Counter-party exposure, end 2003   P1   P1   P1   P1   exposure
(long-/short- term rating)*   DKK million   DKK million   DKK million   DKK million   DKK million

 
 
 
 
 
Money market deposits
    0       620       10       24       654  
Financial instruments
    235       316       508             1,059  
 
   
     
     
     
     
 
Total exposure
    235       936       518       24          
 
   
     
     
     
         
*   Long- and short-term credit ratings from Moody’s Investors Service

16   FINANCIAL DISCUSSION


Table of Contents

Consolidated Financial Statements — Contents list

The Annual Financial Report does not include the Annual Accounts of the Parent Company, Novo Nordisk A/S. The Annual Accounts of the Parent Company, Novo Nordisk A/S, have been prepared in a separate document, which can be obtained upon request from Novo Nordisk A/S and is available at novonordisk.com.

The Annual Accounts of the Parent Company, Novo Nordisk A/S, form an integral part of the complete Annual Financial Report. The complete Annual Financial Report including the Annual Accounts of the Parent Company, Novo Nordisk A/S, will be filed with Erhvervs- og Selskabs-styrelsen where a copy also can be obtained.

The accounting policies of Novo Nordisk will be changed as of 1 January 2004 to comply with the requirements under International Financial Reporting Standards (IFRS).

Disclosure of Profit and loss account, Balance sheet and notes in the Annual Financial Report has been adjusted and prepared to fulfil IFRS requirements in most areas.

In the section ‘Adoption of IFRS 2004 (unaudited)’ is shown the effect of adopting the IFRS standards in effect as of 31 December 2003 on the Group’s assets, liabilities, shareholders’ funds, financial position, results and cash flows on the years 2002 and 2003.

                         
Consolidated profit and loss account     Page     18  
Consolidated balance sheet       Page     19  
Consolidated cash flow and financial resources       Page     20  
Consolidated statement of changes in shareholders’ funds Page     21  
Notes — Accounting policies and consolidation                  
1   Accounting policies   Page     22  
2   Changes in scope of consolidation             24  
Notes — Consolidated profit and loss account                  
3   Segment information   Page     25  
4   Net turnover             26  
5   Employee costs             26  
6   Depreciation, amortisation and impairment losses             26  
7   Fees to statutory auditors             26  
8   Licence fees and other operating income (net)             26  
9   Financial income             27  
10   Financial expenses             27  
11   Income taxes             27  
12   Earnings per share             27  
Notes — Consolidated balance sheet                  
13   Intangible fixed assets   Page     28  
14   Tangible fixed assets             28  
15   Fixed asset investments             29  
16   Stocks             29  
17   Trade debtors             29  
18   Other debtors             29  
19   Current asset investments             29  
20   Share capital             30  
21   Banks and other credit institutions             30  
22   Provision for deferred tax (net)             31  
23   Provisions for pensions and other post-employment benefits             32  
24   Other provisions             33  
25   Bank loans             33  
26   Other creditors             33  
Notes — Consolidated cash flow and financial resources                  
27   Other reversals with no effect on cash flow   Page     33  
28   Cash flows from divestment of subsidiaries             34  
29   Cash flows from acquisition of subsidiaries             34  
30   Cash and cash equivalents             34  
Notes — Additional information                  
31   Employee shares and share options   Page     35  
32   Management’s remuneration, share options and shareholdings             37  
33   Derivative financial instruments             39  
34   Contingent assets, contingent liabilities and pending litigation             41  
35   Related party transactions             42  
36   Reconciliation to US GAAP             42  
Financial definitions           45  
Companies in the Novo Nordisk Group           46  
Summary of the Group 1999 - 2003           48  
Quarterly figures 2002 and 2003 (unaudited)           50  
Adoption of IFRS in 2004 (unaudited)           51  
Management Statement and Auditors’ Report           54  
     
THE NOVO NORDISK GROUP   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   17


Table of Contents

Consolidated profit and loss account

                                 
DKK million   Note   2003   2002   2001

 
 
 
 
Net turnover
    4       26,541       25,187       23,776  
Production costs
    5,6       7,439       6,633       5,979  
 
   
     
     
     
 
Gross profit
            19,102       18,554       17,797  
Sales and distribution costs
    5,6       7,799       7,479       7,215  
Research and development costs
    5,6,15       4,193       4,139       3,970  
Administrative expenses
    5,6,7       1,847       1,951       1,865  
Licence fees and other operating income (net)
    8       1,121       994       867  
 
   
     
     
     
 
Operating profit
            6,384       5,979       5,614  
 
                               
Share of profit in associated companies
    6,15       12       27       49  
Financial income
    9       1,214       475       499  
Financial expenses
    10       227       181       132  
 
   
     
     
     
 
Profit before taxation
            7,383       6,300       6,030  
 
                               
Income taxes
    11       2,525       2,205       2,165  
 
   
     
     
     
 
Net profit
            4,858       4,095       3,865  
 
           
     
     
 
Earnings per share (DKK)
    12       14.24       11.81       11.18  
Earnings per share diluted (DKK)
    12       14.14       11.72       11.10  
     
18   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   THE NOVO NORDISK GROUP


Table of Contents

Consolidated balance sheet

                         
DKK million   Note   31 Dec 2003   31 Dec 2002

 
 
 
ASSETS
                       
Intangible fixed assets
    13       220       240  
Tangible fixed assets
    14       16,828       16,205  
Investments in associated companies
    15       1,009       1,202  
Other fixed asset investments
    15       80       77  
 
         
     
 
Total fixed assets
            18,137       17,724  
 
         
     
 
Stocks
    16       6,531       5,919  
 
                               
Trade debtors
    17       3,808       3,811  
Tax receivable
            150       431  
Other debtors
    18       2,678       1,873  
 
         
     
 
Debtors
            6,636       6,115  
 
                               
Current asset investments
    19,30       1,828       315  
Cash at bank and in hand
    30       1,262       1,423  
 
         
     
 
Total current assets
            16,257       13,772  
 
         
     
 
Total assets
            34,394       31,496  
 
         
     
 
SHAREHOLDERS’ FUNDS AND LIABILITIES
                       
Share capital
    20       709       709  
Own shares
            (33 )     (19 )
Share premium account
            2,565       2,565  
Retained earnings
            21,092       19,067  
Other comprehensive income
            891       606  
 
         
     
 
Total shareholders’ funds
            25,224       22,928  
 
         
     
 
Banks and other credit institutions
    21       753       824  
Provision for deferred tax (net)
    22       1,163       1,122  
Provision for pensions
    23       179       283  
Other long-term provisions
    24       255       206  
 
         
     
 
Long-term liabilities
            2,350       2,435  
 
                               
Bank loans
    25       975       564  
Trade creditors
            1,008       864  
Tax payable
            643       271  
Other creditors
    26       4,000       4,270  
Other short-term provisions
    24       194       164  
 
         
     
 
Short-term liabilities
            6,820       6,133  
 
         
     
 
Total liabilities
            9,170       8,568  
 
         
     
 
Total shareholders’ funds and liabilities
            34,394       31,496  
 
         
     
 
     
THE NOVO NORDISK GROUP   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   19


Table of Contents

Consolidated cash flow and financial resources

                                   
DKK million   Note   2003   2002   2001

 
 
 
 
Net profit
            4,858       4,095       3,865  
Reversals with no effect on cash flow:
                               
 
Income taxes
            2,525       2,205       2,165  
 
Depreciation, amortisation and impairment losses
            1,619       1,332       1,081  
 
Interest receivable and interest payable
            (111 )     (68 )     (192 )
 
Other reversals with no effect on cash flow
    27       261       161       477  
Income taxes paid
            (1,804 )     (2,266 )     (1,900 )
Interest received and interest paid (net)
            77       134       280  
 
         
     
     
 
Cash flow before change in working capital
            7,425       5,593       5,776  
Change in working capital:
                               
(Increase)/decrease in trade debtors and other debtors
            (721 )     312       (1,127 )
(Increase)/decrease in stocks
            (571 )     (1,131 )     (847 )
Increase/(decrease) in trade creditors and other creditors
            26       107       518  
 
         
     
     
 
Cash flow from operating activities
            6,159       4,881       4,320  
Investments:
                               
Divestment of subsidiaries
    28             52        
Acquisition of subsidiaries
    29       10       (448 )      
Sale of fixed asset investments
                        17  
Purchase of intangible fixed assets and fixed asset investments
            (11 )     (81 )     (305 )
Sale of tangible fixed assets
            192       50       97  
Purchase of tangible fixed assets
            (2,504 )     (3,957 )     (3,943 )
 
         
     
     
 
Cash flow from investing activities
            (2,313 )     (4,384 )     (4,134 )
 
         
     
     
 
Free cash flow
            3,846       497       186  
 
         
     
     
 
Financing:
                               
New long-term loans
            476              
Repayment of long-term loans
            (23 )     (18 )     (39 )
Purchase of own shares
            (1,619 )     (386 )     (24 )
Sale of own shares
            15       39       34  
Dividends paid
            (1,243 )     (1,161 )     (916 )
 
         
     
     
 
Cash flow from financing activities
            (2,394 )     (1,526 )     (945 )
 
         
     
     
 
Net cash flow
            1,452       (1,029 )     (759 )
 
         
     
     
 
Unrealised gain/(loss) on exchange rates and current asset investments included in cash and cash equivalents
            (17 )     (24 )     (27 )
 
         
     
     
 
Net change in cash and cash equivalents
            1,435       (1,053 )     (786 )
Cash and cash equivalents at the beginning of the year
            1,234       2,287       3,073  
 
         
     
     
 
Cash and cash equivalents at the end of the year
    30       2,669       1,234       2,287  
Undrawn committed credit facilities
    25       8,701       7,961       5,046  
 
         
     
     
 
Financial resources at the end of the year
            11,370       9,195       7,333  
 
         
     
     
 
     
20   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   THE NOVO NORDISK GROUP


Table of Contents

Consolidated statement of changes in shareholders’ funds

                                                                 
                                    Other comprehensive income    
                                   
   
                                            Deferred        
                                    Exchange   gain/loss        
                    Share           rate   on cash   Other    
    Share   Own   premium   Retained   adjust-   flow   adjust-    
DKK million   capital   shares   account   earnings   ments   hedges   ments   Total

 
 




 
 
2003
                                                               
Balance at the beginning of the year
    709       (19 )     2,565       19,067       27       534       45       22,928  
Net profit for the year
                            4,858                               4,858  
Purchase of own shares
            (14 )             (1,605 )                             (1,619 )
Sale of own shares
                          15                               15  
Dividends declared
                            (1,243 )                             (1,243 )
Exchange rate adjustment of investments in subsidiaries
                                    6                       6  
Reversal of deferred (gain)/loss on cash flow hedges at the beginning of the year
                                            (534 )             (534 )
Deferred gain/(loss) on cash flow hedges at the end of the year
                                            698               698  
Other adjustments
                                                    115       115  
 
   
     
     
     
     
     
     
     
 
Balance at the end of the year
    709       (33 )     2,565       21,092       33       698       160       25,224  
 
   
     
     
     
     
     
     
     
 

At the end of the year proposed dividends of DKK 1,488 million are included in retained earnings. No dividend is declared on own shares.

                                                                 
2002
                                                               
Balance at the beginning of the year
    709       (16 )     2,565       16,477       112       188       102       20,137  
Net profit for the year
                            4,095                               4,095  
Purchase of own shares
            (4 )             (382 )                             (386 )
Sale of own shares
            1               38                               39  
Dividends declared
                            (1,161 )                             (1,161 )
Exchange rate adjustment of investments in subsidiaries
                                    (85 )                     (85 )
Reversal of deferred (gain)/loss on cash flow hedges at the beginning of the year
                                            (188 )             (188 )
Deferred gain/(loss) on cash flow hedges at the end of the year
                                            534               534  
Other adjustments
                                                    (57 )     (57 )
 
   
     
     
     
     
     
     
     
 
Balance at the end of the year
    709       (19 )     2,565       19,067       27       534       45       22,928  
 
   
     
     
     
     
     
     
     
 

At the end of the year proposed dividends of DKK 1,243 million are included in retained earnings. No dividend is declared on own shares.

                                                                 
2001
                                                               
Balance at the beginning of the year
    754       (63 )     2,565       13,352             327       46       16,981  
Net profit for the year
                            3,865                               3,865  
Write-down of B share capital during the year
    (45 )     45                                                
Purchase of own shares
                          (24 )                             (24 )
Sale of own shares
                          34                               34  
Employee shares sold
            2               166                               168  
Dividends declared
                            (916 )                             (916 )
Exchange rate adjustment of investments in subsidiaries
                                    112                       112  
Reversal of deferred (gain)/loss on cash flow hedges at the beginning of the year
                                            (327 )             (327 )
Deferred gain/(loss) on cash flow hedges at the end of the year
                                            188               188  
Other adjustments
                                                    56       56  
 
   
     
     
     
     
     
     
     
 
Balance at the end of the year
    709       (16 )     2,565       16,477       112       188       102       20,137  
 
   
     
     
     
     
     
     
     
 

At the end of the year proposed dividends of DKK 1,161 million are included in retained earnings. No dividend is declared on own shares.

     
THE NOVO NORDISK GROUP   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   21


Table of Contents

Notes — Accounting policies and consolidation

1   Accounting policies

The Consolidated financial statements have been prepared in accordance with the Danish Financial Statements Act, Danish Accounting Standards and other accounting regulations for companies listed on the Copenhagen Stock Exchange. The Consolidated financial statements are prepared in accordance with the historical cost convention. The accounting policies have not been changed since 2001. Disclosure of Profit and loss account, Balance sheet and notes in the Annual Financial Report has been adjusted and prepared to fulfil IFRS requirements in most areas.

BASIS OF CONSOLIDATION

The Consolidated financial statements include the financial statements of Novo Nordisk A/S (the parent company) and all the companies in which Novo Nordisk A/S directly or indirectly owns more than 50% of the voting rights or in some other way has a controlling influence (subsidiaries). Novo Nordisk A/S and these companies are referred to as the Group.

     Companies which are not subsidiaries, but in which the Group holds 20% to 50% of the voting rights or in some other way has a significant influence on the operational and financial management, are treated as associated companies.

     The Consolidated financial statements are based on the financial statements of the parent company and of the subsidiaries and are prepared by combining items of a uniform nature and eliminating intercompany transactions, shareholdings, balances and unrealised intercompany profits and losses. The Consolidated financial statements are based on financial statements prepared by applying the Novo Nordisk Group’s accounting policies.

     On acquisition of new companies, the purchase method is applied. Thus, the new company’s assets and liabilities are restated at fair values at the time of acquisition. Cost of shares in excess of net assets after revaluation is capitalised as goodwill and amortised over the expected useful life.

     Newly acquired and divested companies are included in the profit and loss account during the period of Novo Nordisk’s ownership. Comparative figures are not adjusted for disposed or newly acquired businesses.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CRITICAL ACCOUNTING POLICIES

REVENUE RECOGNITION

Revenue is recognised when it is realised or realisable and earned. Revenues are considered to have been earned when Novo Nordisk has substantially accomplished what it must do to be entitled to the revenues.

Revenue from the sale of goods is recognised when all the following specific conditions have been satisfied:

  Novo Nordisk has transferred to the buyer the significant risk and rewards of ownership of the goods

  Novo Nordisk retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold

  The amount of revenue can be measured reliably

  It is probable that the economic benefits associated with the transaction will flow to Novo Nordisk; and

  The costs incurred or to be incurred in respect of the transaction can be measured reliably.

These conditions are usually met by the time the products are delivered to the customers.

     Licence fees are recognised on an accrual basis in accordance with the terms and substance of the relevant agreement.

     As a principal rule sale of intellectual property is recorded as income at the time of the sale. Where the Group assumes an obligation in connection with a sale of intellectual property the income is recognised in accordance with the term of the obligation. On the sale of intellectual property where the final sale is conditional on future events, the amount is recorded as income at the occurrence of such future events.

     Revenue is measured at the fair value of the consideration received or receivable.

RESEARCH AND DEVELOPMENT COSTS

All research and development costs are expensed in the profit and loss account as incurred. Due to the long development period and significant uncertainties relating to the development of new products, including risks regarding clinical trials and regulatory approval, it is concluded that the Group’s development costs do not qualify for capitalisation.

     Research and development costs include the Group’s share of profit or loss including goodwill amortisation and impairment losses in associated research and development companies if the activities in these companies are considered to be within Novo Nordisk’s focus areas. Minor investments in such research and development companies in which the Novo Nordisk Group does not obtain significant influence or control are charged to the profit and loss account as research and development costs on acquisition.

DERIVATIVE FINANCIAL INSTRUMENTS

The Group uses forward exchange contracts, currency options and interest swaps to hedge forecasted transactions in foreign currencies. All contracts are measured at fair value at the balance sheet date and the value adjustments are recognised directly under shareholders’ funds. The cumulative value adjustment of these contracts is removed from shareholders’ funds and included in the profit and loss account under financial income and expenses when the hedged transaction is recognised in the profit and loss account.

     Forward exchange contracts and currency swaps hedging receivables and debt in foreign currencies are measured at fair value at the balance sheet date. Value adjustments are recognised in the profit and loss account under financial income or financial expenses, along with any value adjustments of the hedged asset or liability that is attributable to the hedged risk.

     Currency swaps used to hedge net investments in subsidiaries are measured at fair value based on the difference between the swap exchange rate and the exchange rate at the balance sheet date and the value adjustment is recognised in shareholders’ funds.

     All fair values are based on marked-to-market prices or standard pricing models.

OTHER ACCOUNTING POLICIES

NET TURNOVER

     Net turnover represents amounts invoiced excluding value added tax and after deduction of provisions for returned products, trade discounts and allowances.

TRANSLATION OF FOREIGN CURRENCIES

Monetary assets and liabilities in foreign currencies are translated into Danish kroner at the exchange rates ruling at the balance sheet date.

     Financial statements of foreign subsidiaries are translated into Danish kroner at exchange rates ruling at the balance sheet date for assets and liabilities and at average exchange rates for profit and loss items.

     All exchange rate adjustments are recognised in the profit and loss account with the exception of exchange gains and losses arising from:

     
22   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   THE NOVO NORDISK GROUP

 


Table of Contents

Notes — Accounting policies and consolidation

  The translation of foreign subsidiaries’ net assets at the beginning of the year translated at the exchange rates at the balance sheet date.

  The translation of foreign subsidiaries’ profit and loss accounts using average exchange rates whereas balance sheets are translated using the exchange rates ruling at the balance sheet date.

  The translation of long-term intercompany receivables which are considered to be an addition to net assets in subsidiaries.

  The translation of investments in associated companies.

The above exchange gains and losses are recognised in Other comprehensive income under shareholders’ funds.

     The financial statements of subsidiaries in countries with high inflation are adjusted in order to eliminate the effect of the high inflation.

LICENCE FEES AND OTHER OPERATING INCOME (NET)

Licence fees and other operating income (net) comprise licence fees and income (net) of a secondary nature in relation to the main activities of the Group. The item also includes one-off income items (net) in respect of sale of intellectual property, and capital gain on dilution or sale of investments in research and development companies with activities within Novo Nordisk’s focus areas.

INTANGIBLE FIXED ASSETS

Intangible fixed assets are stated at cost less accumulated amortisation and write-downs. Amortisation is provided under the straight-line method over the expected useful life of the asset as follows:

  Acquired patents and licences are amortised over periods up to 10 years.

  Goodwill is amortised over a period not exceeding 20 years.

Goodwill represents any cost in excess of identifiable net assets, measured at fair value, on the acquired company. Goodwill recorded under Intangible fixed assets is related to subsidiaries.

TANGIBLE FIXED ASSETS

Tangible fixed assets are measured at cost less accumulated depreciation and write-downs. The cost of self-constructed assets includes direct and indirect costs directly attributable to the construction of the assets. Interest on loans financing construction of major investments is also included in the cost of the assets. Development costs of software in relation to major IT projects for internal use are capitalised under Other equipment.

     Depreciation is provided under the straight-line method over the estimated useful lives of the assets as follows:

  Buildings; 12-50 years.

  Plant and machinery; 5 -16 years.

  Other equipment; 3-16 years.

  Minor fixed assets below DKK 100,000 and fixed assets with limited expected useful lives are charged to the profit and loss account in the year of acquisition.

LEASES

Leases of assets whereby the Group assumes substantially all the risks and rewards of ownership are capitalised as finance leases under Tangible fixed assets and depreciated over the estimated useful life of the assets, according to the periods listed above. The corresponding finance lease liabilities are included in liabilities.

     Operating lease costs are expensed on a current basis in the profit and loss account over the lease period.

FIXED ASSET INVESTMENTS

Investments in associated companies are recorded under the equity method, that is at the respective share of the associated companies’ net asset value applying Group accounting policies.

     Goodwill relating to associated companies is recorded under Investments in associated companies under Fixed assets investments.

     Other securities and investments are measured at market value at the balance sheet date. Realised and unrealised gains and losses (net) are included in financial income/financial expenses.

IMPAIRMENT OF FIXED ASSETS

Tangible fixed assets, fixed asset investments and intangible fixed assets, including goodwill, are reviewed for impairment losses when there is an indication that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset’s net selling price and value in use.

STOCKS

Raw materials and consumables are measured at cost assigned by using the first-in, first-out formula.

     Work in progress and finished goods are stated at cost assigned by using the first-in, first-out formula. Cost comprises direct production costs such as raw materials, consumables, energy and labour, and indirect production costs such as employee costs, depreciation, maintenance etc. The indirect production costs are measured based on a standard cost method which is reviewed regularly in order to ensure relevant measures of utilisation, production lead time etc.

     Stocks, where the expected sales price less completion costs and costs to execute sales (net realisable value) is lower than cost, are written down to net realisable value.

DEBTORS

Debtors are stated at amortised cost less write-downs for potential losses on doubtful debts. The write-downs are based on an individual assessment of each debtor, which also include an evaluation of payment risk associated with individual countries.

CURRENT ASSET INVESTMENTS

Current asset investments are measured at market value at the balance sheet date. Realised and unrealised capital gains and losses (net) are recorded as financial income/financial expenses.

TAX

Income taxes in the profit and loss account include tax payable for the year with addition of the change in deferred tax for the year.

     Deferred income taxes arise from temporary differences between the accounting and tax balance sheets of the individual consolidated companies and from realisable tax loss carryforward, using the liability method. Deferred income tax is furthermore provided for re-taxation of tax deductible losses realised in non-Danish affiliated companies, if the re-taxation is expected to be realised by the affiliated companies withdrawal from the Danish joint taxation scheme. The tax value of tax loss carry-forwards will be set off against deferred tax liabilities to the extent that the tax losses and other tax assets are expected to be utilised in the future taxable income. The deferred taxes are measured according to current tax rules and at the tax rates expected to be in force on the elimination of the temporary differences. Measurement of deferred taxes in Denmark is based on a tax rate of 30%.

     Tax payable/receivable includes tax payable computed on the basis of the expected taxable income for the year and adjustments for tax payable for previous years.

     The parent company has chosen to be assessed jointly for Danish tax purposes with certain of its foreign and domestic subsidiaries. The Danish jointly taxed companies are included in a Danish on-account tax payment scheme for Danish corporate income tax. All current taxes under the scheme are recorded in the parent company.

     
THE NOVO NORDISK GROUP   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   23

 


Table of Contents

Notes — Accounting policies and consolidation

EMPLOYEE BENEFITS

Wages, salaries, social security contributions, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Group. Where the Group provides long-term employee benefits, the costs are accrued to match the rendering of the services by the employees concerned.

     The Group operates a number of defined benefit and defined contribution plans throughout the world.

     The costs for the year for defined benefit plans are determined using the projected unit credit method. This reflects services rendered by employees to the dates of valuation and is based on actuarial assumptions primarily regarding discount rates used in determining the present value of benefits, projected rates of remuneration growth, and long-term expected rates of return for plan assets. Discount rates are based on the market yields of high-rated corporate bonds in the country concerned.

     Differences between assumptions and actual experiences, and effects of changes in actuarial assumptions are allocated over the estimated average remaining working lives of employees, where these differences exceed a defined corridor.

     Past service costs are allocated over the average period until the benefits become vested.

     Pension assets and liabilities in different defined benefit schemes are not offset unless the Group has a legally enforceable right to use the surplus in one plan to settle obligations in the other plan. Pension assets are only recognised to the extent that the Group is able to derive future economic benefits in the way of refunds from the plan or reductions of future contributions.

     The Group’s contributions to the defined contribution plans are charged to the income statement in the year to which they relate.

SHARE OPTIONS

Share options granted have an exercise price corresponding to the market price of the company’s shares at the time of option programme announcements or issuance, and all share options granted have been hedged by the Group’s holding of own shares. Consequently, no cost or obligation at the date of grant or in connection with any subsequent value adjustment is recognised.

PROVISIONS

Provisions are recognised where a legal or constructive obligation has been incurred, as a result of past events, and it is probable that it will lead to an outflow of resources that can be reliably estimated. Provisions are recognised for the estimated ultimate liability that is expected to arise, taking into account foreign currency effects and the time value of money.

     Provisions for product returns cover expected lost contribution because of expected future returns and are measured at the selling price value. The provisions have been calculated based on statistical measures of historical returns.

LIABILITIES

Generally liabilities are stated at amortised cost unless specifically mentioned otherwise.

OWN SHARES

Own shares are considered as a de facto capital write-down, and therefore the cost of acquisition is deducted directly from shareholders’ funds. A part of the Group’s own shares is held to hedge share options granted.

DIVIDENDS

Dividends are recorded in the period in which they are declared at the Annual General Meeting.

SEGMENT INFORMATION

Novo Nordisk operates on a worldwide basis in two business segments, diabetes care and biopharmaceuticals, which is the primary reporting format. Business segment information is disclosed in note 3. Within the business segments Novo Nordisk has more therapy areas for which net turnover is disclosed in note 4.

     Novo Nordisk operates in four main geographical areas, Europe, North America, Japan & Oceania and International Operations, which is the secondary reporting format. Geographical segment information is disclosed in note 3.

     The segment information is prepared applying the accounting policies of the Group.

CONSOLIDATED STATEMENT OF CASH FLOWS AND FINANCIAL RESOURCES

The Consolidated statement of cash flows and financial resources is presented in accordance with the indirect method commencing with net profit. The statement shows cash flows for the year, the net change in cash and cash equivalents for the year and the cash and cash equivalents at the beginning and the end of the year.

     Cash flow from operating activities comprises net profit adjusted for non-cash operating items, interest received, interest paid, income taxes paid, and changes in working capital. Working capital consists of current assets less current liabilities, excluding the items that are included in cash and cash equivalents.

     Cash flow from investing activities comprises the acquisition and sale of intangible and tangible fixed assets and fixed asset investments.

     On the acquisition or sale of companies and activities, cash flow is adjusted for additions and disposals of assets and liabilities. The purchase price is recorded as the value of the assets acquired including any goodwill and acquisition costs. The sales price is recorded after deduction of transaction costs.

     Cash flow from financing activities comprises the proceeds from and the repayment of principal on mortgage loans, other long-term debt, dividends, the proceeds from share issues, as well as the purchase and sale of own shares.

     Cash and cash equivalents comprise cash at bank and in hand and current asset investments less short-term bank loans due on demand. Besides cash and cash equivalents, undrawn committed credit facilities expiring after more than 1 year are included in financial resources.

UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)

The Group prepares a reconciliation of the effect on net turnover, net profit, shareholders’ funds and balance sheet of the application of US Generally Accepted Accounting Principles (US GAAP) in lieu of Danish principles. Note 36 discloses the US GAAP reconciliation.

2   Changes in scope of consolidation

In 2003 Novo Nordisk acquired 55% of the Algerian company Aldaph SpA for DKK 0. There is no goodwill related. Until the acquisition of these shares Aldaph SpA was an associated company of Novo Nordisk and Novo Nordisk owned 45% of the share capital. At the end of 2003 Novo Nordisk owned 100% of the capital. Aldaph SpA was included in the consolidation as from October 2003 and the acquisition was accounted for under the purchase method of accounting.

     In 2002 Novo Nordisk acquired the Brazilian diabetes care company Biobrás (Novo Nordisk Produsao Farmacêutica Do Brasil). Novo Nordisk Produsao Farmacêutica Do Brasil was included in the consolidation as from February 2002. Novo Nordisk Produsao Farmacêutica Do Brasil was acquired for DKK 423 million in cash (including transaction costs). The acquisition was accounted for under the purchase method of accounting and the related goodwill was DKK 346 million measured at the exchange rate ruling on the acquisition dates.

     In April 2002 Novo Nordisk sold the Dutch wholesaler of medical devices Hermedico BV for DKK 63 million with effect as of 1 January 2002.

     In 2001 there were no changes in the scope of consolidation.

     
24   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   THE NOVO NORDISK GROUP

 


Table of Contents

Notes — Consolidated profit and loss account

3   Segment information

Based on a changed operational structure and related reporting set-up during the year, Management has reassessed the business segments of the Novo Nordisk Group resulting in two business segments to be reported for 2003. Comparative figures for 2002 are presented even though Novo Nordisk in previous years comprised only one segment. The comparative figures have been prepared based on allocations consistent with methods applied for 2003.

Primary reporting format — Business segments

At 31 December 2003 the Novo Nordisk Group operates on a worldwide basis in two business segments — the primary reporting format:

  Diabetes care: discovery, development, manufacturing and marketing of products within the areas of insulin and delivery systems and oral antidiabetic products (OAD).

  Biopharmaceuticals: discovery, development, manufacturing and marketing of products within the therapy areas haemostasis management (NovoSeven®), growth hormone therapy, hormone replacement therapy and other products.

There are no sales or other transactions between the business segments. Costs have been split between business segments based on a specific allocation with the addition of a minor number of corporate overheads allocated systematically to the segments. Segment assets comprise the assets which are applied directly to the activities of the segment, including intangible fixed assets, tangible fixed assets, fixed asset investments, stocks, trade debtors and other debtors. Segment liabilities comprise liabilities derived from the activities of the segment, including provisions, trade creditors and other creditors.

                                 
    Diabetes   Biopharma-   Corporate/    
DKK million   care   ceuticals   unallocated   Total

 
 
 
 
2003
                               
Net turnover
    18,723       7,818             26,541  
Operating profit *)
    3,105       3,279             6,384  
Share of profit in associated companies
                12       12  
Investments in associated companies
                       
Depreciation and amortisation
    1,188       289             1,477  
Impairment losses
    107       35             142  
Additions to tangible and intangible fixed assets (net)
    1,929       391             2,320  
Fixed assets
    14,649       3,120       368       18,137  
Total assets
    24,173       5,626       4,595       34,394  
Total liabilities
    4,048       1,338       3,784       9,170  
2002
                               
Net turnover
    17,665       7,522             25,187  
Operating profit *)
    2,346       3,633             5,979  
Share of profit in associated companies
                27       27  
Investments in associated companies
    35             18       53  
Depreciation and amortisation
    987       241             1,228  
Impairment losses
    97       7             104  
Additions to tangible and intangible fixed assets (net)
    3,507       791             4,298  
Fixed assets
    14,043       3,328       353       17,724  
Total assets
    23,045       5,664       2,787       31,496  
Total liabilities
    4,151       1,292       3,125       8,568  

*)   In Diabetes care the increased operating profit from 2002 to 2003 is primarily caused by higher other operating income and lower research and development costs. In Biopharmaceuticals higher research and development costs are the primary cause to the fall in operating profit from 2002 to 2003.

Secondary reporting format — Geographic segments

The Novo Nordisk Group operates in four main geographical areas — the secondary reporting format:

  Europe: EU, EFTA, Poland, Czech Republic, Slovakia, Slovenia, Hungary and the Baltic countries

  North America: USA and Canada

  Japan & Oceania: Japan, Australia and New Zealand

  International Operations: All other countries

     Net turnover is attributed to geographical segments based on the location of the customer. There are no sales between segments. Total assets and additions to tangible and intangible fixed assets are based on the location of the assets.

                                         
            North   Japan &   International    
DKK million   Europe   America   Oceania   Operations   Total

 
 
 
 
 
2003
                                       
Net turnover
    11,743       6,359       4,210       4,229       26,541  
Additions to tangible and intangible fixed assets (net)
    2,139       63       35       83       2,320  
Tangible fixed assets
    15,996       366       282       184       16,828  
Total assets
    29,003       2,270       861       2,260       34,394  
2002
                                       
Net turnover
    10,933       5,913       4,239       4,102       25,187  
Additions to tangible and intangible fixed assets (net)
    3,897       74       12       315       4,298  
Tangible fixed assets
    15,301       425       329       150       16,205  
Total assets
    26,159       2,423       828       2,086       31,496  
     
THE NOVO NORDISK GROUP   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   25

 


Table of Contents

Notes — Consolidated profit and loss account

4   Net turnover

                         
DKK million   2003   2002   2001

 
 
 
Insulin analogues
    2,579       1,198       462  
Human insulin and insulin-related sales
    14,704       14,836       14,761  
Oral antidiabetic products (OAD)
    1,440       1,631       1,401  
 
   
     
     
 
Diabetes care total
    18,723       17,665       16,624  
Haemostasis management (NovoSeven®)
    3,875       3,621       3,096  
Growth hormone therapy
    2,220       2,131       2,164  
Hormone replacement therapy
    1,331       1,342       1,435  
Other products
    392       428       457  
 
   
     
     
 
Biopharmaceuticals total
    7,818       7,522       7,152  
 
   
     
     
 
Net turnover total
    26,541       25,187       23,776  
 
   
     
     
 

5   Employee costs

                         
DKK million   2003   2002   2001

 
 
 
Wages and salaries
    7,657       7,199       6,218  
Pensions — defined contribution plans
    516       401       263  
Pensions — defined benefit plans
    101       79       66  
Other contributions to social security
    483       444       379  
Other employee costs
    554       517       509  
 
   
     
     
 
Total employee costs
    9,311       8,640       7,435  
 
   
     
     
 
Included in the Profit and loss account under the following headings:
                       
Production costs
    2,943       2,632       2,233  
Sales and distribution costs
    2,721       2,516       2,256  
Research and development costs
    1,504       1,387       1,253  
Administrative expenses
    1,468       1,449       1,209  
 
   
     
     
 
 
    8,636       7,984       6,951  
 
   
     
     
 
Included in the Balance sheet as:
                       
Capitalised employee costs related to assets in course of construction etc
    524       482       387  
Change in employee costs included in stocks
    151       174       97  
 
   
     
     
 
Total employee costs
    9,311       8,640       7,435  
 
   
     
     
 

For information on remuneration to the Board of Directors and Executive Management please refer to note 32.

                         
    2003   2002   2001
   
 
 
Average number of full-time employees
    18,381       17,073       14,771  
Year-end number of full-time employees
    18,756       18,005       16,141  

6   Depreciation, amortisation and impairment losses

                         
DKK million   2003   2002   2001

 
 
 
Included in the Profit and loss account under the following headings:
                       
Production costs
    1,114       849       751  
Sales and distribution costs
    116       94       83  
Research and development costs *)
    197       255       150  
Administrative expenses
    188       130       93  
Share of profit in associated companies
    4       4       4  
 
   
     
     
 
Total depreciation, amortisation and impairment losses
    1,619       1,332       1,081  
 
   
     
     
 

*)   Including an impairment loss of goodwill in associated research and development companies amounting to DKK 62 million in 2002.

7   Fees to statutory auditors

                         
DKK million   2003   2002   2001

 
 
 
Fees to:
                       
PricewaterhouseCoopers:
                       
Statutory audit
    15       14       14  
Audit-related services
    4       5       8  
Tax advisory services
    16       13       23  
Other services
    4       14       7  
 
   
     
     
 
Total
    39       46       52  
 
   
     
     
 
Ernst & Young:
                       
Statutory audit
    1       1       1  
Other services
          2       2  
 
   
     
     
 
Total
    1       3       3  
 
   
     
     
 

In 2002 fees for other services to statutory auditors primarily include non-finance IT consulting services.

8   Licence fees and other operating income (net)

                         
DKK million   2003   2002   2001

 
 
 
Licence fees and settlements
    901       559       657  
Unrealised capital gains on investments in research and development companies
    85       236       48  
Net income from IT, engineering and other services
    43       55       64  
Other
    92       144       98  
 
   
     
     
 
Licence fees and other operating income (net)
    1,121       994       867  
 
   
     
     
 
     
26   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   THE NOVO NORDISK GROUP

 


Table of Contents

Notes — Consolidated profit and loss account

9   Financial income

                         
DKK million   2003   2002   2001

 
 
 
Interest receivable
    285       164       297  
Capital gain on investments etc (net)
    2              
Foreign exchange gain (net)
    927       311       202  
 
   
     
     
 
Total financial income
    1,214       475       499  
 
   
     
     
 

10   Financial expenses

                         
DKK million   2003   2002   2001

 
 
 
Interest payable
    174       96       105  
Capital loss on investments etc (net)
          41       18  
Other financial expenses
    53       44       9  
 
   
     
     
 
Total financial expenses
    227       181       132  
 
   
     
     
 
Additional interest expenses capitalised as financing interest under tangible fixed assets:
    11       14       17  

11   Income taxes

                         
DKK million   2003   2002   2001

 
 
 
Current tax on profit for the year
    2,525       2,307       1,852  
Deferred tax on profit for the year
    (19 )     (182 )     408  
 
   
     
     
 
Tax on profit for the year
    2,506       2,125       2,260  
Adjustments related to previous years (net)
    19       80       (95 )
 
   
     
     
 
Income taxes in profit and loss account
    2,525       2,205       2,165  
 
   
     
     
 
Tax on entries on shareholders’ funds related to current tax
    (150 )     15       (64 )
Tax on entries on shareholders’ funds related to deferred tax
    44       (2 )     (57 )
 
   
     
     
 
Tax on entries on shareholders’ funds
    (106 )     13       (121 )
 
   
     
     
 
Computation of effective tax rate:
                       
Statutory corporate income tax rate in Denmark
    30.0 %     30.0 %     30.0 %
Deviation in foreign subsidiaries’ tax rates compared to Danish tax rate (net)
    5.7 %     5.7 %     6.0 %
Non-tax deductible expenses less non-taxable income
    (0.2 %)     (0.6 %)     0.8 %
Other
    (1.3 %)     (0.1 %)     (0.9 %)
 
   
     
     
 
Effective tax rate
    34.2 %     35.0 %     35.9 %
 
   
     
     
 

12   Earnings per share

Earnings per share of a nominal value of DKK 2 is calculated based on an average number of shares outstanding (total number of shares excluding Novo Nordisk’s holding of own shares). Diluted earnings per share is calculated based on the average number of shares outstanding, including outstanding options on Novo Nordisk’s own shares with an exercise price below market value (options ‘in the money’).

                         
    2003   2002   2001
   
 
 
Net profit (DKK million)
    4,858       4,095       3,865  
 
   
     
     
 
Average number of shares outstanding (in 1,000 shares)
    341,173       346,685       345,713  
Average number of options ‘in the money’ outstanding (in 1,000 shares)
    2,345       2,578       2,448  
 
   
     
     
 
Average number of shares outstanding including options ‘in the money’ (in 1,000 shares)
    343,518       349,263       348,161  
 
   
     
     
 
Earnings per share (DKK)
    14.24       11.81       11.18  
Earnings per share diluted (DKK)
    14.14       11.72       11.10  
     
THE NOVO NORDISK GROUP   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   27

 


Table of Contents

Notes — Consolidated balance sheet

13   Intangible fixed assets

                                 
            Patents and   2003   2002
DKK million   Goodwill   licences   Total   Total

 
 
 
 
Cost at the beginning of the year
    302       23       325       188  
Additions during the year
    8             8       351  
Disposals during the year
          (15 )     (15 )     (107 )
Exchange rate adjustments
    8             8       (107 )
 
   
     
     
     
 
Cost at the end of the year
    318       8       326       325  
Amortisation and impairment losses at the beginning of the year
    68       17       85       174  
Amortisation for the year
    32       1       33       25  
Impairment losses for the year
    4             4        
Amortisation reversed on disposals during the year
          (15 )     (15 )     (107 )
Exchange rate adjustments
    (1 )           (1 )     (7 )
 
   
     
     
     
 
Amortisation and impairment losses at the end of the year
    103       3       106       85  
 
   
     
     
     
 
Carrying amount at the end of the year
    215       5       220       240  
 
   
     
     
     
 

14   Tangible fixed assets

                                                 
                            Payments on        
                            account and        
                            assets in        
    Land and   Plant and   Other   course of   2003   2002
DKK million   buildings   machinery   equipment   construction   Total   Total

 
 
 
 
 
 
Cost at the beginning of the year
    7,765       7,187       2,726       5,896       23,574       20,079  
Changes in consolidation
    4             4       4       12       183  
Additions during the year
    77       335       282       1,810       2,504       3,957  
Disposals during the year
    (200 )     (222 )     (286 )           (708 )     (392 )
Transfer from/(to) other items
    1,373       3,051       115       (4,539 )            
Exchange rate adjustments
    (62 )     (27 )     (42 )     (14 )     (145 )     (253 )
 
   
     
     
     
     
     
 
Cost at the end of the year
    8,957       10,324       2,799       3,157       25,237       23,574  
Depreciation and impairment losses at the beginning of the year
    2,076       3,704       1,589             7,369       6,453  
Changes in consolidation
                2             2       70  
Depreciation for the year
    322       827       290             1,439       1,199  
Impairment losses for the year
    16       66       56             138       40  
Depreciation and impairment losses reversed on disposals during the year
    (86 )     (190 )     (205 )           (481 )     (294 )
Exchange rate adjustments
    (13 )     (19 )     (26 )           (58 )     (99 )
 
   
     
     
     
     
     
 
Depreciation and impairment losses at the end of the year
    2,315       4,388       1,706             8,409       7,369  
 
   
     
     
     
     
     
 
Carrying amount at the end of the year
    6,642       5,936       1,093       3,157       16,828       16,205  
 
   
     
     
     
     
     
 

The total amount of capitalised interests included under tangible fixed assets at the end of the year amounts to DKK 382 million (DKK 410 million in 2002).

     
28   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   THE NOVO NORDISK GROUP

 


Table of Contents

Notes — Consolidated balance sheet

15   Fixed asset investments

                                         
            Other fixed asset investments        
           
       
            Amounts            
    Investments   owed by   Other        
    in associated   affiliated   securities and   2003   2002
DKK million   companies   companies   investments   Total   Total

 
 
 
 
 
Cost at the beginning of the year
    1,251       28       213       1,492       1,431  
Additions during the year
          11       5       16       94  
Disposals during the year
                (2 )     (2 )     (40 )
Transfer from other items
                            7  
 
   
     
     
     
     
 
Cost at the end of the year
    1,251       39       216       1,506       1,492  
Value adjustments at the beginning of the year
    (49 )           (164 )     (213 )     (30 )
Net profit/(loss)
    (131 )                 (131 )     (87 )
Amortisation and impairment of goodwill
    (4 )                 (4 )     (68 )
Exchange rate adjustments
    (143 )                 (143 )     (167 )
Other adjustments
    85             (11 )     74       139  
 
   
     
     
     
     
 
Value adjustments at the end of the year
    (242 )           (175 )     (417 )     (213 )
 
   
     
     
     
     
 
Carrying amount at the end of the year
    1,009       39       41       1,089       1,279  
 
   
     
     
     
     
 

Carrying amount of investments in associated companies includes net capitalised goodwill of DKK 13 million at the end of the year (DKK 17 million in 2002).

Of net loss in associated companies in 2003, a loss of DKK 147 million related to ZymoGenetics Inc and Aradigm Corporation is included in Research and development costs (DKK 182 million in 2002). In 2003 Other adjustments includes unrealised capital gains amounting to DKK 85 million net related to ZymoGenetics Inc and Aradigm Corporation (DKK 236 million in 2002).

16   Stocks

                 
DKK million   2003   2002

 
 
Raw materials and consumables
    1,128       981  
Work in progress
    3,563       3,341  
Finished goods
    1,840       1,597  
 
   
     
 
Total stocks
    6,531       5,919  
 
   
     
 
Indirect production costs included in work in progress and finished goods
    2,780       2,301  

17   Trade debtors

                 
DKK million   2003   2002

 
 
Trade debtors (gross)
    4,206       4,267  
 
   
     
 
Write-down for doubtful debtors:
               
Balance at the beginning of the year
    456       529  
Change in write-down during the year
    (28 )     (29 )
Realised losses during the year
    (30 )     (44 )
 
   
     
 
Balance at the end of the year
    398       456  
 
   
     
 
Total trade debtors
    3,808       3,811  
 
   
     
 
Trade debtors (gross) are equal to an average credit period of (days)
    58       62  

18   Other debtors

                 
DKK million   2003   2002

 
 
Prepayments to public authorities
    750        
Prepayments
    349       407  
Interest receivable
    72       18  
Market value of financial instruments
    1,051       842  
Amounts owed by affiliated companies
    110       156  
Other receivables
    346       450  
 
   
     
 
Total other debtors
    2,678       1,873  
 
   
     
 

19   Current asset investments

                 
DKK million   2003   2002

 
 
Bonds
    1,810       301  
Unit trusts and shares
    18       14  
 
   
     
 
Total current asset investments
    1,828       315  
 
   
     
 
At original acquisition cost
    1,902       388  
Bonds with maturity exceeding 12 months from the balance sheet date
    1,108       146  
Duration of the Group’s bond portfolio (years)
    0.7       1.4  
Redemption yield on the Group’s bond portfolio
    2.6 %     3.2 %
     
THE NOVO NORDISK GROUP   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   29

 


Table of Contents

Notes — Consolidated balance sheet

20   Share capital

                 
Development in share capital (DKK million)   2003   2002

 
 
A share capital
    107       107  
B share capital
    602       602  
 
   
     
 
At the end of the year
    709       709  
 
   
     
 

The A share capital remained DKK 107 million from 1999 to 2001. In 2001 the B share capital was reduced by DKK 45 million from DKK 647 million to DKK 602 million. In 1999 and 2000 the B share capital was DKK 647 million.

At the end of 2003 the share capital amounted to DKK 107,487,200 in A share capital (equal to 53,743,600 shares of DKK 2) and DKK 601,901,120 in B share capital (equal to 300,950,560 shares of DKK 2).

                         
    Number           Market
    of B shares   In % of share   value
Own shares   of DKK 2   capital   DKK million

 
 
 
Holding at the beginning of the year
    9,396,841       2.65 %     1,926  
Purchase during the year
    7,230,000       2.03 %     1,619  
Sale during the year
    (84,000 )     (0.02 %)     (15 )
Value adjustment
                    457  
 
   
     
     
 
Holding at the end of the year
    16,542,841       4.66 %     3,987  
 
   
     
     
 

Acquisition of own shares during the year is part of the share buy-back programme of up to DKK 2 billion worth of Novo Nordisk B shares announced in August 2002, which was initiated in order to align the capital structure with the expected development in free cash flow. The share buy-back programme was completed at 31 December 2003. Sale of own shares primarily relates to exercised share options.

Of own shares 4,037,703 shares are regarded as hedge for the share options issued, please refer to note 31.

21   Banks and other credit institutions

                 
DKK million   2003   2002

 
 
Mortgage debt and other secured loans with terms to maturity between 2007-2016 and interest rates at 2.3% to 5.1%
    661       167  
Unsecured loans and other long-term loans with terms to maturity between 2005-2007 and interest rates at 1.8% to 16.6%
    92       657  
 
   
     
 
At the end of the year
    753       824  
 
   
     
 
The debt is payable within the following periods as from the balance sheet date:
               
Between one and two years
    46       570  
Between two and three years
    34       48  
Between three and four years
    16       35  
Between four and five years
    153       17  
After five years
    504       154  
 
   
     
 
 
    753       824  
 
   
     
 
The debt is denominated in the following currencies:
               
DKK
    3       6  
EUR
    655       436  
USD
    3       7  
JPY
    75       352  
Other currencies
    17       23  
 
   
     
 
 
    753       824  
 
   
     
 

Adjustment of the above loans to market value at year-end 2003 would result in a cost of DKK 1 million.

     
30   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   THE NOVO NORDISK GROUP

 


Table of Contents

Notes — Consolidated balance sheet

22   Provision for deferred tax (net)

Deferred income taxes arise from temporary differences between the accounting and tax balance sheets of the individual consolidated companies and from realisable tax loss carryforward, using the liability method. The deferred taxes are measured according to current tax rules and at the tax rates expected to be in force on the elimination of the temporary differences. Measurement of deferred taxes in Denmark is based on a tax rate of 30%.

Unremitted earnings have been retained by subsidiary companies for reinvestment. No provision is made for income taxes that would be payable upon the distribution of such earnings. If the earnings were remitted, an immaterial income tax charge would result based on the tax statutes currently in effect.

No deferred tax has been calculated on differences associated with investments in subsidiaries, branches and associates, as the differences by nature are permanent differences.

                 
DKK million   2003   2002

 
 
At the beginning of the year
    1,122       1,358  
Deferred tax on profit for the year
    (19 )     (182 )
Adjustment relating to previous years
    (36 )     (82 )
Tax on entries on shareholders’ funds
    44       (2 )
Exchange rate adjustments
    52       30  
 
   
     
 
Total provisions for deferred tax (net)
    1,163       1,122  
 
   
     
 

Specification

The deferred tax assets and liabilities are allocable to the various Balance sheet items as follows:

                                                 
                    2003                   2002
DKK million   Assets   Liabilities   Total   Assets   Liabilities   Total

 
 
 
 
 
 
Tangible fixed assets
    (67 )     1,586       1,519       (62 )     1,451       1,389  
Indirect production costs
          834       834             690       690  
Unrealised profit on intercompany sales
    (854 )           (854 )     (766 )           (766 )
Write-down for doubtful debtors
    (77 )           (77 )     (118 )           (118 )
Tax loss carryforward
    (15 )           (15 )     (19 )           (19 )
Other
    (788 )     544       (244 )     (544 )     490       (54 )
 
   
     
     
     
     
     
 
 
    (1,801 )     2,964       1,163       (1,509 )     2,631       1,122  
Offset of deferred tax assets and deferred tax liabilities related to income taxes levied by the same tax authority
    1,250       (1,250 )           950       (950 )      
 
   
     
     
     
     
     
 
 
    (551 )     1,714       1,163       (559 )     1,681       1,122  
 
   
     
     
     
     
     
 

Tax loss carryforward

Deferred tax assets are recognised on tax loss carryforwards that represent income likely to be realised in the future.

The losses expire as follows:

                 
DKK million   2003   2002

 
 
Within one year
    1       3  
Two years
    4       6  
Three years
    8       2  
Four years
           
Five years
           
More than five years
    96       136  
 
   
     
 
Total
    109       147  
 
   
     
 
Hereof recognised as deferred tax assets
    46       56  
     
THE NOVO NORDISK GROUP   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   31

 


Table of Contents

Notes — Consolidated balance sheet

23   Provisions for pensions and other post-employment benefits

Most employees in the Novo Nordisk Group are covered by retirement plans primarily in the form of defined contribution plans or alternatively in defined benefit plans. Group companies sponsor these plans either directly or by contributing to independently administered funds. The nature of such plans varies according to legal regulations, fiscal requirements and economic conditions of the countries in which the employees are employed, and the benefits are generally being based on the employees’ remuneration and years of service. The obligations relate both to existing retirees’ pensions and to pension entitlements of future retirees. Other post-employment benefits consist mostly of post-retirement healthcare plans, principally in the United States.

Post-employment benefit plans are usually funded by payments from Group companies and by employees to funds independent of the Group. Where a plan is unfunded, a liability for the retirement obligation is recognised in the Group’s Balance sheet. The costs recognised for post-employment benefits are included in production costs, sales and distribution costs, research and development costs or administrative expenses.

The amounts recognised in the Profit and loss account regarding post-employment defined benefit plans are as follows:

                 
DKK million   2003   2002

 
 
Current service cost
    77       61  
Interest cost
    17       15  
Expected return on plan assets
    (3 )     (1 )
Amortisation of actuarial gains/losses recognised
    6       1  
Past service cost
    4       3  
 
   
     
 
Total expenses included in employee costs
    101       79  
 
   
     
 

The actual return on plan assets was a gain of DKK 4 million in 2003 (a loss of DKK 2 million in 2002).

The movements in the net (assets)/liabilities recognised in the Balance sheet for post-employment defined benefit plans are as follows:

                 
DKK million   2003   2002

 
 
At the beginning of the year
    283       241  
Changes in consolidation
          10  
Total expenses included in employee costs
    101       79  
Employer contributions
    (180 )     (23 )
Benefits paid
    (9 )     (7 )
Exchange rate adjustments
    (16 )     (17 )
 
   
     
 
At the end of the year
    179       283  
 
   
     
 

Amounts recognised in the Balance sheet for post-employment defined benefit plans are as follows:

                 
Present value of funded obligations
    314       191  
Fair value of plan assets
    (246 )     (94 )
 
   
     
 
 
    68       97  
Present value of unfunded obligations
    186       253  
Unrecognised actuarial (gains)/losses
    (49 )     (34 )
Unrecognised past service costs
    (26 )     (33 )
 
   
     
 
Liability in the balance sheet
    179       283  
 
   
     
 

The above amounts include non-pension post-retirement benefit plans, principally medical plans as follows:

                 
Actuarial present value of obligations due to past and present employees
    91       123  
Unrecognised actuarial (gains)/losses
    (36 )     (53 )
 
   
     
 
Net recognised (assets)/liabilities
    55       70  
 
   
     
 

Amounts recognised in the Balance sheet for post-employment defined benefit plans are pre-dominantly non-current and are reported as either long-term assets or long-term liabilities.

The actuarial assumptions used in the actuarial computations and valuations vary from country to country due to local economic and social conditions. The range of assumptions used is as follows:

         
Discount rate   2.5%     to    6.0%
Projected return on plan assets   2.0%     to    7.5%
Projected future remuneration increases   2.5%     to    3.5%
Healthcare cost trend rate   5.75%   to  11.0%
Inflation rate   2.0%     to    2.5%

For all major defined benefit plans actuarial computations and valuations are performed annually.

     
32   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   THE NOVO NORDISK GROUP

 


Table of Contents

Notes — Consolidated balance sheet

24   Other provisions

                                 
    Provisions            
    for returned   Other   2003   2002
DKK million   products   provisions   Total   Total

 
 
 
 
At the beginning of the year
    331       39       370       300  
Changes in consolidation
                      35  
Additional provisions
    195       47       242       195  
Unused amounts reversed
          (6 )     (6 )     (10 )
Used during the year
    (155 )     (4 )     (159 )     (135 )
Exchange rate adjustments
          2       2       (15 )
 
   
     
     
     
 
At the end of the year
    371       78       449       370  
 
   
     
     
     
 
Specification of provisions:
                               
Other long-term provisions
    195       60       255       206  
Other short-term provisions
    176       18       194       164  
 
   
     
     
     
 
 
    371       78       449       370  
 
   
     
     
     
 

25   Bank loans

                 
DKK million   2003   2002

 
 
Bank loans and overdrafts
    421       504  
Long-term debt, amounts falling due within one year
    554       60  
 
   
     
 
Total bank loans
    975       564  
 
   
     
 
The debt is denominated in the following currencies:
               
DKK
    68       97  
EUR
    455       188  
USD
    158       172  
JPY
    254       39  
Other currencies
    40       68  
 
   
     
 
Total bank loans
    975       564  
 
   
     
 

At year-end the Group had undrawn committed credit facilities amounting to DKK 8,701 million (DKK 7,961 million in 2002). The undrawn committed credit facilities consist of a USD 500 million, a DKK 2,000 million and a EUR 500 million facility which are committed by a number of Danish and international banks. The facilities mature in 2004, 2006 and 2007 respectively.

26   Other creditors

                 
DKK million   2003   2002

 
 
Employee costs payable
    1,312       1,087  
Taxes and duties payable
    197       273  
Accruals and deferred income
    810       1,324  
Amounts owed to affiliated companies
    53       70  
Other payables
    1,628       1,516  
 
   
     
 
Total other creditors
    4,000       4,270  
 
   
     
 

27   Other reversals with no effect on cash flow

                         
DKK million   2003   2002   2001

 
 
 
Loss from sale of tangible fixed assets
    35       48       33  
Write-down for doubtful debtors
    (28 )     (29 )     60  
Unrealised (gain)/loss on shares and bonds etc
    8       36       60  
Unrealised foreign exchange (gain)/loss
    250       96       106  
Share of (profit)/loss in associated companies
    131       87       107  
Unrealised capital gain on investments in associated companies
    (85 )     (236 )     (48 )
Other
    (50 )     159       159  
 
   
     
     
 
Other reversals with no effect on cash flow
    261       161       477  
 
   
     
     
 
     
THE NOVO NORDISK GROUP   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   33

 


Table of Contents

Notes — Consolidated cash flow and financial resources

28   Cash flows from divestment of subsidiaries

                         
DKK million   2003   2002   2001

 
 
 
Intangible fixed assets
                 
Tangible fixed assets
          4        
Current assets
          31        
Long-term liabilities
          (2 )      
Short-term liabilities
          (8 )      
 
   
     
     
 
Net assets divested
          25        
Divestment gains
          38        
Unrealised gain
                 
Addition to investments in associated companies
                 
 
   
     
     
 
Consideration received
          63        
Less divested cash and cash equivalents
          (11 )      
 
   
     
     
 
Net cash flow
          52        
 
   
     
     
 

29   Cash flows from acquisition of subsidiaries

                         
DKK million   2003   2002   2001

 
 
 
Tangible fixed assets
    (10 )     (104 )      
Current assets
    (54 )     (178 )      
Long-term liabilities
          103        
Short-term liabilities
    64       102        
 
   
     
     
 
Net assets acquired
          (77 )      
Goodwill on acquisition
          (346 )      
 
   
     
     
 
Consideration paid
          (423 )      
Acquired cash and cash equivalents
    10       (25 )      
 
   
     
     
 
Net cash flow
    10       (448 )      
 
   
     
     
 

30   Cash and cash equivalents

                         
DKK million   2003   2002   2001

 
 
 
Cash and cash equivalents consist of cash and current asset investments less short-term bank loans
    315       1,402       2,567  
Total current asset investments at the beginning of the year
    315       1,402       2,567  
Receipts from current asset investments
    (1,007 )     (1,073 )     (6,337 )
Outlays for current asset investments
    2,525       22       5,232  
Unrealised gain/(loss) on current asset investments
    (5 )     (36 )     (60 )
 
   
     
     
 
Current asset investments at the end of the year
    1,828       315       1,402  
Cash at the end of the year
    1,262       1,423       1,660  
 
   
     
     
 
Cash and current asset investments at the end of the year
    3,090       1,738       3,062  
Short-term bank loans at the end of the year
    (421 )     (504 )     (775 )
 
   
     
     
 
Cash and cash equivalents at the end of the year
    2,669       1,234       2,287  
 
   
     
     
 
Current asset investments with original maturity exceeding three months at the end of the year
    1,828       315       1,402  
Cash and current asset investments with original maturity not exceeding three months at the end of the year
    1,262       1,423       1,660  
 
   
     
     
 
Cash and current asset investments at the end of the year
    3,090       1,738       3,062  
 
   
     
     
 
     
34   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   THE NOVO NORDISK GROUP

 


Table of Contents

Notes — Additional information

31   Employee shares and share options

Employee shares

In 2003 there has been no employee share programme.

Share options

As from 1998 Novo Nordisk has established share option schemes for Executive Management and other management employees with the purpose of motivating and retaining qualified management and to ensure common goals for Management and the shareholders. Each option gives the right to purchase one Novo Nordisk B share, and in total approximately 400 employees in Novo Nordisk hold share options.

Ordinary share option plans

The granting of share options under the Group’s ordinary share option plans is subject to the achievement of shareholder value-based goals decided by the Board of Directors aligned with the Group’s long-term financial targets.

     The options are exercisable three years after the issue date and will expire after eight years. For options granted based on performance targets for the financial years 1997-1999 the exercise price was equal to the market price of the Novo Nordisk B share at the time of issuance. The exercise price for options granted based on performance targets for the financial years 2000-2003 was equal to the market price of the Novo Nordisk B share at the time the plan was established.

     For 2003 the maximum number of options were granted. The exercise price is 195.

Launch share option plan

In connection with the demerger of Novozymes A/S a specific share option plan was established for Executive Management and Senior Management Board, where the granting of the options was subject to the successful and timely completion of the demerger. The options are exercisable three years after the issue date and will expire after six years. The exercise price corresponds to the market price for the Novo Nordisk B share at the time the plan was established.

     As a prerequisite to receive the options, each participant had to establish an investment in Novo Nordisk B shares equal to one year’s gross salary. To the extent this requirement was not already met prior to the date of the demerger the required shares were bought by the participants from Novo Nordisk’s holding of own shares at a price equal to the average market price in the 20 days following the demerger of Novozymes A/S — corresponding to DKK 316. For each Novo Nordisk share invested under the scheme four options were received and the Novo Nordisk B share investment must be maintained at least until the end of the vesting period for the options, that is 31 January 2004. After this date the investment in Novo Nordisk B shares is no longer required and the Novo Nordisk B shares may be sold by the individual launch share option plan participant, whereas the launch share options may be exercised within a period of three years. The Board of Directors has been informed by some participants in the plan that they intend to divest some Novo Nordisk B shares in the trading window following the announcement of the full-year results in February 2004.

     The launch scheme was mandatory for members of Executive Management and voluntary for Senior Management Board. In 2001 and 2002 a launch option incentive programme has also been offered to newly appointed members of Senior Management Board.

Share options on Novozymes share

Options granted prior to the demerger of Novozymes A/S in 2000 have been split into one Novo Nordisk option and one Novozymes option. At the end of the year the Group’s outstanding Novozymes options amount to 333,656 with an average exercise price of DKK 96 per share of DKK 10 and a market value of DKK 42 million. These options are hedged by the Group’s holding of Novozymes A/S B shares.

Assumptions

The market value of the share options has been calculated using the Black-Scholes option pricing model.

The assumptions used are shown in the table below:

                         
    2003   2002   2001
   
 
 
Expected life of the option in years (average)
    4       4       4  
Expected volatility (based on four years historical volatility)
    35 %     39 %     36 %
Expected dividend per share (in DKK)
    4.40       3.60       3.35  
Risk-free interest rate (based on Danish government bonds)
    3.8 %     3.8 %     4.5 %
Market value of Novo Nordisk B share at the end of the year
    241       205       342  
     
THE NOVO NORDISK GROUP   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   35

 


Table of Contents

Notes — Additional information

31   Employee shares and share options (continued)

                                   
              Average        
              exercise price   Market value   Market
              per option   per option   value
Outstanding share options in Novo Nordisk   Share options   DKK   DKK   DKK million

 
 
 
 
Outstanding at the beginning of 2001
    2,458,330       188       131       321  
Granted in respect of 2001 (issued on 8 February 2002)
    684,980       332       111       76  
Launch share options granted in 2001 (issued 8 February 2002)
    10,764       332       111       1  
Assigned from Novo A/S in 2001
    29,520       194       169       5  
Exercised in 2001
    (56,000 )     188       131       (7 )
Expired/cancelled in 2001
    (2,500 )     131       131        
Value adjustment
                            113  
 
   
     
     
     
 
Outstanding at the end of 2001
    3,125,094       220       163       509  
 
   
     
     
     
 
Launch share options granted in 2002 (issued 7 February 2003)
    26,024       322       60       2  
Exercised in 2002
    (51,750 )     125       163       (8 )
Expired/cancelled in 2002
    (45,415 )     220       163       (7 )
Value adjustment
                            (319 )
 
   
     
     
     
 
Outstanding at the end of 2002
    3,053,953       223       58       177  
 
   
     
     
     
 
Granted in respect of 2003 (issued on 6 February 2004)
    1,092,500       195       86       94  
Exercised in 2003:
                               
 
of 1998 Ordinary share option plan
    (20,000 )     125       58       (1 )
 
of 1999 Ordinary share option plan
    (51,000 )     198       58       (3 )
Expired/cancelled in 2003
    (37,750 )     220       58       (2 )
Value adjustment
                            42  
 
   
     
     
     
 
Outstanding at the end of 2003
    4,037,703       216       75       307  
 
   
     
     
     
 
                                                 
                            Outstanding/        
Exercisable and outstanding   Issued   Exercised   Expired/   exercisable   Exercise price    
share options in Novo Nordisk   share options   share options   cancelled   share options   DKK   Exercise period

 
 
 
 
 
 
1997 Ordinary share option plan
    104,500       (49,000 )     (32,500 )     23,000       190       19/2 2001 – 18/2 2006  
1998 Ordinary share option plan
    355,000       (71,750 )     (53,250 )     230,000       125       25/3 2002 – 24/3 2007  
1999 Ordinary share option plan
    687,500       (51,000 )     (87,000 )     549,500       198       24/3 2003 – 23/3 2008  
 
   
     
     
     
     
     
 
Exercisable at the end of 2003
    1,147,000       (171,750 )     (172,750 )     802,500                  
2000 Ordinary share option plan
    763,000             (30,500 )     732,500       198       22/2 2004 – 21/2 2009  
2000 Launch share option plan
    718,600                   718,600       198       1/2 2004 – 31/1 2007  
2001 Ordinary share option plan
    684,980             (30,165 )     654,815       332       8/2 2005 – 7/2 2010  
2001 Launch share option plan
    10,764                   10,764       332       8/2 2005 – 7/2 2010  
2002 Launch share option plan
    26,024                   26,024       322       7/2 2006 – 6/2 2011  
2003 Ordinary share option plan
    1,092,500                   1,092,500       195       6/2 2007 – 5/2 2012  
 
   
     
     
     
     
     
 
Outstanding at the end of 2003
    4,442,868       (171,750 )     (233,415 )     4,037,703                  
 
   
     
     
     
     
     
 
     
36   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   THE NOVO NORDISK GROUP

 


Table of Contents

Notes — Additional information

32   Management’s remuneration, share options and shareholdings

For information on the Board of Directors, the members of Executive Management and of Senior Management Board, please refer to pages 60 – 61 of the Annual Financial Report.

Remuneration

It is the policy of Novo Nordisk that remuneration to the Board of Directors (10 in total), Executive Management (6 in total) and Senior Management Board (14 in total) must be at a competitive level compared to other major Danish companies and similar international pharmaceutical companies.

Board of Directors

The fee to the Board of Directors is a fixed annual fee. In addition to the fee the members’ costs in connection with participation in the meetings, such as travel and hotel expenses etc, are refunded. Besides this no other amounts or benefits are paid to the Board members.

                 
Fee to the Board of Directors (DKK million)   2003   2002

 
 
Chairman
    0.6       0.6  
Vice chairman
    0.4       0.4  
Other Board members
    1.9       1.9  
 
   
     
 
Total
    2.9       2.9  
 
   
     
 

Executive Management and Senior Management Board

The remuneration to Executive Management and Senior Management Board is based on a fixed salary, a potential cash bonus of up to four months’ salary, pension contributions of 20% to approx 30% of the cash salary including bonus and non-monetary benefits in the form of car and phone. Additionally Executive Management and Senior Management Board have participated in share option programmes up to 2003. The remuneration package for members of Senior Management Board employed in foreign subsidiaries differ from the general package in respect of other benefit and bonus schemes included in the package in order to ensure an attractive package compared to local conditions. In addition, Executive Management and Senior Management Board members receive ordinary allowances in connection with business travelling, conferences and education etc, which are based on refunding of actual costs. The size of the cash bonus depends on the achievement of individual performance targets whereas the granting of options depends on achievement of shareholder value-based goals aligned with the Group’s long-term financial targets.

                                 
    Remuneration excl share   Market value of granted
    options   share options *)
   
 
DKK million   2003   2002   2003   2002

 
 
 
 
Executive Management:
                               
Lars Rebien Sørensen
    6.8       5.1       1.7        
Jesper Brandgaard
    3.9       3.6       0.9        
Lars Almblom Jørgensen
    4.1       3.9       0.9        
Lise Kingo **)
    3.0       1.9       0.9        
Kåre Schultz
    4.1       3.8       0.9        
Mads Krogsgaard Thomsen
    3.8       3.6       0.9        
 
   
     
     
     
 
Executive Management in total
    25.7       21.9       6.2        
Senior Management Board in total
    51.5       44.6       6.6        

*)   Calculation of market values has been based on the Black-Scholes option pricing model applying the assumptions shown in note 31.

**)   Lise Kingo was appointed member of Executive Management on 22 March 2002. Her salary for the period January 2002 to March 2002 is included in the total for Senior Management Board.

In relation to severance payment, the members of Executive Management are, in the event of termination by the Company or by the individual due to a merger, acquisition or takeover by an external company, entitled to a severance payment of up to 36 months’ salary plus pension contribution.

New long-term incentive programme

As from 2004, Executive Management and Senior Management Board (approximately 25 in total) will no longer be included in the company’s stock option programme. This will be replaced by a share-based incentive programme. The new incentive programme will be based on an annual calculation of shareholder value creation compared to planned performance for the year.

The calculation of value creation will, in line with Novo Nordisk’s long-term financial targets, be based on reported operating profit after tax reduced by a WACC-based return requirement on average invested capital. A proportion of the marginal value creation will be transferred to a bonus pool for participating executives. The calculated bonus pool may, subject to the Board of Directors’ assessment, be reduced by a lower than expected performance on significant research and development projects and key sustainability projects.

The bonus pool will operate with an average maximum contribution per participant equal to eight months of salary. Once the performance-based bonus pool has been approved by the Board of Directors the pool will be converted into Novo Nordisk A/S B shares at the market price prevailing when the financial results for the year prior to the bonus year were released. The bonus pool of shares will vest over a three-year period and will hereafter be transferred to the participants provided the participant is still employed by the company. An expected maximum of 175,000 shares (corresponding to DKK 42 million at prevailing market prices) can be allocated to the bonus pool for 2004. Based on the current composition of the management approximately 40% of the bonus pool will be allotted to Executive Management members and approximately 60% to Senior Management Board members.

     
THE NOVO NORDISK GROUP   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   37

 


Table of Contents

Notes — Additional information

32   Management’s remuneration, share options and shareholdings (continued)

Management’s share options

                                         
    At the beginning   Exercised   Granted   At the end of   Market value *)
Share options in Novo Nordisk   of the year   during the year   during the year   the year   DKK million

 
 
 
 
 
Executive Management:
                                       
Lars Rebien Sørensen
    95,500             20,000       115,500       8.5  
Jesper Brandgaard
    55,280             10,000       65,280       4.8  
Lars Almblom Jørgensen
    56,780             10,000       66,780       4.9  
Lise Kingo
    27,520             10,000       37,520       2.7  
Kåre Schultz
    57,280             10,000       67,280       4.9  
Mads Krogsgaard Thomsen
    55,280             10,000       65,280       4.8  
 
   
     
     
     
     
 
 
    347,640             70,000       417,640       30.6  
Former members of Executive Management **):
                                       
Mads Øvlisen
    98,580                   98,580       7.4  
Kurt Anker Nielsen ***)
    37,840                   37,840       2.6  
 
   
     
     
     
     
 
 
    136,420                   136,420       10.0  
Senior Management Board in total ****)
    550,748       (26,024 )     77,000       601,724       44.2  
 
   
     
     
     
     
 
Total
    1,034,808       (26,024 )     147,000       1,155,784       84.8  
 
   
     
     
     
     
 

*)   Calculation of market values at year-end has been based on the Black-Scholes option pricing model applying the assumptions shown in note 31.

**)   Mads Øvlisen and Kurt Anker Nielsen are now members of the Board of Directors.

***)   In addition, Kurt Anker Nielsen has share options in Novo Nordisk, issued by Novo A/S in connection with the demerger in 2000. At the end of 2003, 26,000 of these options were outstanding.

****)   The options ‘exercised’ are expired options belonging to a former Senior Management Board member having left the company during 2003.

Management’s holding of Novo Nordisk shares

The internal rules on board members, executives and certain employees’ trading in Novo Nordisk securities only permit trading in the 15 calendar-day period following each quarterly announcement.

                                         
    At the beginning   Purchased   Sold   At the end of   Market value *)
Shares in Novo Nordisk   of the year   during the year   during the year   the year   DKK million

 
 
 
 
 
Board of Directors:
                                       
Mads Øvlisen
    51,525                   51,525       12.4  
Kurt Anker Nielsen
    33,440                   33,440       8.1  
Kurt Briner
    2,400                   2,400       0.6  
Johnny Henriksen
    300                   300       0.1  
Niels Jacobsen
    11,000                   11,000       2.7  
Ulf J Johansson
                            0.0  
Anne Marie Kverneland
    1,600                   1,600       0.4  
Sten Scheibye
          400             400       0.1  
Stig Strøbaek
    400                   400       0.1  
Jørgen Wedel
    5,555                   5,555       1.3  
 
   
     
     
     
     
 
 
    106,220       400             106,620       25.8  
Executive Management:
                                       
Lars Rebien Sørensen
    12,800                   12,800       3.1  
Jesper Brandgaard
    8,545                   8,545       2.1  
Lars Almblom Jørgensen
    8,775                   8,775       2.1  
Lise Kingo
    4,355                   4,355       1.0  
Kåre Schultz
    8,690                   8,690       2.1  
Mads Krogsgaard Thomsen
    8,835                   8,835       2.1  
 
   
     
     
     
     
 
 
    52,000                   52,000       12.5  
Senior Management Board in total **)
    89,782             (6,506 )     83,276       20.1  
 
   
     
     
     
     
 
Total
    248,002       400       (6,506 )     241,896       58.4  
 
   
     
     
     
     
 

The requirement for share ownership for Executive Management and former members of Executive Management linked to the participation in demerger launch incentives expires in January 2004. After this period it may be envisaged that launch incentive participants will reduce their shareholdings in Novo Nordisk B shares.

*)   Calculation of the market value is based on the quoted share prices at the end of the year.

**)   The shares sold were shares owned by a Senior Management Board member, who has left the company in 2003.
     
38   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   THE NOVO NORDISK GROUP

 


Table of Contents

Notes — Additional information

33   Derivative financial instruments

The major part of Novo Nordisk’s sales is in currencies other than DKK and EUR, whereas a significant part of the costs are in DKK and EUR. Novo Nordisk uses a number of financial instruments to hedge the currency exposure and in line with the group treasury policies, hedges commercial exposure only and does not enter speculative positions. Novo Nordisk applies hedge accounting on hedging activities, which are categorised into hedging of forecasted transactions (cash flow hedges), hedging of assets and liabilities (fair value hedges) and hedging of net investments.

Hedging of forecasted transactions

The table below shows the fair value of cash flow hedging activities for 2003 and 2002 specified on hedging instrument and the major currencies.

Fair values are recognised directly under shareholders’ funds until the hedged items are recognised in the Profit and loss account. At year end DKK 698 million are deferred via shareholders’ funds (DKK 534 million in 2002).

                                                 
    2003   2002
   
 
    Contract   Positive   Negative   Contract   Positive   Negative
    amount   fair values   fair values   amount   fair values   fair values
DKK million   at year-end   at year-end   at year-end   at year-end   at year-end   at year-end

 
 
 
 
 
 
Forward contracts, net sales
                                               
USD
    5,362       450             3,056       233        
JPY
    1,510       49             2,006       120        
GBP
    599       5             552       15        
Other
    283       9             394       25       2  
 
   
     
     
     
     
     
 
 
    7,754       513             6,008       393       2  
Currency options
                                               
EUR/USD (purchased USD put)
    2,675       161             1,596       79        
EUR/JPY (purchased JPY put)
    1,381       24             1,656       64        
 
   
     
     
     
     
     
 
 
    4,056       185             3,252       143        
Interest swaps
                                               
EUR/EUR
    501                                
JPY/JPY
    445                   480              
 
   
     
     
     
     
     
 
 
    946                   480              
 
   
     
     
     
     
     
 
Total hedging of forecasted transactions
    12,756       698             9,740       536       2  
 
   
     
     
     
     
     
 

The financial contracts existing at the end of the year cover expected cash flow of key currencies in the following number of months:

                 
    2003   2002
   
 
USD   20 months   17 months
JPY   15 months   18 months
GBP   8 months   8 months

The term to maturity of the swaps existing at the end of 2003 is December 2007 and December 2012 (December 2007 at the end of 2002) and the interest margins are (1.82%) and (0.26%) ((0.26%) at year end 2002).

     
THE NOVO NORDISK GROUP   CONSOLIDATED FINANCIAL STATEMENTS FOR 2003   39

 


Table of Contents

Notes — Additional information

33   Derivative financial instruments (continued)

Hedging of assets and liabilities

The table below shows the fair value of fair value hedging activities for 2003 and 2002 specified on hedging instrument and the major currencies.

All changes in fair values are recognised in the Profit and loss account which amounts to a gain of DKK 263 million in 2003 (a gain of DKK 222 million in 2002).

                                                 
    2003   2002
   
 
    Contract   Positive   Negative   Contract   Positive   Negative
    amount   fair values   fair values   amount   fair values   fair values
DKK million   at year-end   at year-end   at year-end   at year-end   at year-end   at year-end

 
 
 
 
 
 
Forward contracts
                                               
USD
    1,648       202             1,703       195        
JPY
    26       1                          
GBP
    161       9             164       8        
Other
    233       12             48       8        
 
   
     
     
     
     
     
 
 
    2,068       224             1,915       211        
Currency swaps
                                               
JPY/DKK
    624       39             624       11        
 
   
     
     
     
     
     
 
 
    624       39             624       11        
 
   
     
     
     
     
     
 
Total hedging of assets and liabilities
    2,692       263             2,539       222        
 
   
     
     
     
     
     
 

The term to maturity of the swaps existing at the end of 2003 is December 2011 (December 2011 at the end of 2002) and the interest margins are (3.19%) to 4.05% ((2.47%) to 4.05% at year end 2002).

The financial contracts existing at the end of the year fully hedge the currency exposure on assets and liabilities in the Group’s major currencies other than DKK and EUR, that is assets and liabilities in USD, JPY and GBP.

Hedging of net investments in foreign subsidiaries

The table below shows the fair value of hedging activities relating to net investments in foreign subsidiaries for 2003 and 2002 specified on hedging instrument and the major currencies. All changes in fair values relating to currency are recognised directly under Shareholders’ funds amounting to DKK 83 million in 2003 (DKK 86 million in 2002). All changes relating to interest rates are recognised on the Profit and loss account amounting to DKK 7 million in 2003 (DKK 0 million in 2002).

                                                 
    2003   2002
   
 
    Contract   Positive   Negative   Contract   Positive   Negative
    amount   fair values   fair values   amount   fair values   fair values
DKK million   at year-end   at year-end   at year-end   at year-end   at year-end   at year-end

 
 
 
 
 
 
Currency swaps
                                               
USD/DKK
    216       69             468       79        
JPY/DKK
    294       21             305       7        
 
   
     
     
     
     
     
 
 
    510       90             773       86        
 
   
     
     
     
     
     
 

The term to maturity of the swaps existing at the end of 2003 is June 2004 — September 2006 (September 2003 — July 2004 at the end of 2002) and the interest margins are 0.68% to 2.93% (0.68% to 3.27% at year end 2002).

The financial contracts existing at the end of the year hedges the following share of the major net investments:

                                 
    2003           2002    
    Net investment   % covered   Net investment   % covered
   
 
 
 
USD
    1,149       13 %     1,201       32 %
JPY
    457       61 %     437       68 %
GBP
    117       0 %     140       0 %
EUR*)
    1,580       0 %     1,234       0 %
Other
    1,023       0 %     1,082