UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________

FORM 20-F/A
______________________________
(Mark One)
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
  OR
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
  OR
o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
  OR 
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-82318
   __________________________
NOVO NORDISK A/S
(Exact name of Registrant as specified in its charter)
 
Not applicable The Kingdom of Denmark
(Translation of Registrant’s name into English)  (Jurisdiction of incorporation or organization)
______________________________
Novo Allé
DK-2880 Bagsværd
Denmark
(Address of principal executive offices)

Jesper Brandgaard
Executive Vice President and Chief Financial Officer
Tel: +45 4444 8888
E-mail: jbr@novonordisk.com
Novo Allé
DK-2880 Bagsværd
Denmark
(Name, Telephone, E-mail and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class:
Name of each exchange on which registered:
B shares, nominal value DKK 1 each
New York Stock Exchange*
American Depositary Receipts, each representing one B share
New York Stock Exchange
______________________________
* Not for trading, but only in connection with the registration of American Depositary Receipts, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report:
                         A shares, nominal value DKK 1 each:                                                                                107,487,200
                         B shares, nominal value DKK 1 each:                                                                                452,512,800

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
   Yes ý                            No¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports to Section 13 or 15(d) of the Securities Exchange Act of 1934.
    Yes ¨                              No ý

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days,
      Yes ý                              No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
      Yes ¨                              No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerý    Accelerated filer¨     Non-accelerated filer¨
 
 
 

 

 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filling:
U.S. GAAP ¨        International Financial Reporting Standards as issued          Other ¨
by the International Accounting Standards Board ý

 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 ¨              Item 18 ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes¨                     Noý

 
 

 

EXPLANATORY NOTE
 
This Annual Report on Form 20-F/A ("Amended Form 20-F") is being filed by the Registrant as Amendment No. 1 to its Annual Report on Form 20-F for the year ended December 31, 2012, which was filed with the Securities and Exchange Commission on February 6, 2013 (the "Original 20-F Filing"). The sole purpose of this Amended Form 20-F is to amend our disclosure in Items 8 and 18 to (i) include a statement of changes in equity for the year ended December 31, 2010 and (ii) expand our disclosure on adjustments to income and deferred income taxes in note 2.4 to our consolidated financial statements.
 
Except as otherwise stated herein, this Amended Form 20-F does not, and does not purport to, amend, update or restate any information in any Items or sections of the Original 20-F Filing, or reflect any events having occurred after the filing of the Original 20-F Filing on February 6, 2013. The filing of this Amended Form 20-F, and the inclusion of newly executed certifications (as Exhibits 12 and 13), should not be understood to mean that any other statements contained in the Original 20-F Filing are true and complete as of any date subsequent to February 6, 2013. Accordingly, this Amended Form 20-F should be read in conjunction with the Original Form 20-F filing and the documents filed with or furnished to the Securities and Exchange Commission by the Registrant subsequent to February 6, 2013, including any amendments to such documents.
 
 
1

 

 
CONTENTS

       Page
 
AMENDMENTS TO PART 1
3
ITEM 8
FINANCIAL INFORMATION
3
     
AMENDMENTS TO PART II
3
ITEM 15
CONTROLS AND PROCEDURES
3
     
AMENDMENTS TO PART III
3
ITEM 18
FINANCIAL STATEMENTS
3
ITEM 19
EXHIBITS
7
SIGNATURES
8
 

 
2

 

 
AMENDMENTS TO PART I
 
ITEM 8                      FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Refer to Item 18 for the financial statements and the accompanying notes.

Legal proceedings
Reference is made to Note 5.4 ‘Commitments and contingencies’ in the financial statements regarding legal proceedings.
 
Dividend policy
At the Annual General Meeting on March 20, 2013, the Board of Directors proposed a dividend of DKK 18.00 per share corresponding to a pay-out ratio of 45%. No dividends were paid on the Company’s holding of its treasury shares. It is the intention of the Board of Directors that the payout ratio of Novo Nordisk should be at the level of comparable pharmaceutical companies.


SIGNIFICANT CHANGES
No significant events have occurred since the date of the annual financial statements.


AMENDMENTS TO PART II
 
ITEM 15
CONTROLS AND PROCEDURES

This Amended Form 20-F does not, and does not purport to, amend, update or restate any information in Items 15 of the Original 20-F Filing.


AMENDMENTS TO PART III

ITEM 18                      FINANCIAL STATEMENTS

The following financial statements are filed as part of this annual report on Form 20-F/A.
 
 
Page
Index to Consolidated financial statements
F-1
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Income statement and Statement of comprehensive income
F-3
Consolidated Balance sheet
F-4
Consolidated Statement of cash flows
F-5
Consolidated Statement of changes in equity
F-6
Notes to the Consolidated Financial Statements
F-7
 
 
3

 
 
RECONCILIATION OF NON-IFRS FINANCIAL MEASURES

In the Financial statements, Novo Nordisk discloses certain financial measures of the Group’s financial performance, financial position and cash flows that reflect adjustments to the most directly comparable measures calculated and presented in accordance with IFRS. The inclusion of non-IFRS measures has been expressly permitted by the Danish Business Authorities and thereby exempted from the prohibition in Item 10(e)(1)(ii)(C) of Regulation S-K. However, these non-IFRS financial measures may not be defined and calculated by other companies in the same manner and may thus not be comparable with such measures.

The non-IFRS financial measures presented in the Financial statements are:
·
Free cash flow;
·
Cash to earnings;
·
Operating profit after tax to net operating assets;
·
Financial resources at the end of the year;
·
Underlying sales growth in local currencies.

Free cash flow
Novo Nordisk defines free cash flow as ‘net cash generated from operating activities less net cash used in investing activities’ excluding ‘Net change in marketable securities’.

Management believes free cash flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to make investments, fund acquisitions and for certain other activities. A positive free cash flow shows that the Group is able to finance its activities and that external financing is thus not necessary for the Group’s operating activities. Therefore, management believes that this non-IFRS liquidity measure provides useful information to investors in addition to the most directly comparable IFRS financial measure ‘Net cash generated from operating activities’.

The following table shows a reconciliation of free cash flow to ‘Net cash generated from operating activities’.

Reconciliation of free cash flow
         
DKK Million
2012
2011
2010
         
 
Free cash flow
18,645
18,112
17,013
+
Net purchase of marketable securities
(501)
(197)
(2,913)
+
Net cash used in investing activities
4,070
3,459
5,579
=
Net cash generated from operating activities
22,214
21,374
19,679

Cash to earnings
Cash to earnings is defined as ‘free cash flow as a percentage of net profit’.

Management believes that Cash to earnings is an important performance metric because it measures the Group’s ability to turn earnings into cash and is, therefore, in the eyes of management a meaningful measure for investors to understand the development of the Group’s net cash generated from operating activities. Because management wants this measure to capture the ability of the Group’s operations to generate cash, free cash flow is used as the numerator instead of net cash flow.

 
4

 

The following table shows the reconciliation of Cash to earnings to the most comparable IFRS financial measure ‘Cash flow from operating activities/earnings in %’:

Reconciliation of cash to earnings
         
DKK Million
2012
2011
2010
         
 
Free cash flow
18,645
18,112
17,013
/
Net profit (as reported in Annual Report)
21,432
17,097
14,403
=
Cash to earnings (as reported in the Annual Report) in %
87.0%
105.9%
118.1%
         
         
 
Net cash generated from operating activities
22,214
21,374
19,679
/
Net profit (as reported in the Annual Report)
21,432
17,097
14,403
=
Cash flow generated from operating activities / Net profit in %
103.6%
125.0%
136.6%

Operating profit after tax to net operating assets
Operating profit after tax to net operating assets is defined as ‘operating profit after tax (using the effective tax rate) as a percentage of average stocks, debtors, tangible, intangible fixed assets and deferred tax assets less non-interest bearing liabilities including provisions and deferred tax liabilities (where average is the sum of above assets and liabilities at the beginning of the year and at year-end divided by two)’.

Management believes Operating profit after tax to net operating assets is a useful measure in providing investors and management with information regarding the Group’s performance. The calculation of the financial target Operating profit after tax to net operating assets is a widely accepted measure of earnings efficiency in relation to total capital employed. Management believes that the income level relative to total capital employed, as measured by Operating profit after tax to net operating assets, is an effective measure of increases or decreases, as the case may be, in shareholder value generation.

The following table reconciles Operating profit after tax to net operating assets with ‘Operating profit/equity in %’, the most directly comparable IFRS financial measure:

Reconciliation of Operating profit after tax to net operating assets
     
         
DKK Million
2012
2011
2010
         
 
Operating profit after tax
22,724
17,452
14,886
/
Average non-interest bearing balance sheet items
22,943
22,406
23,390
=
Operating profit after tax to net operating assets (as reported in the Annual Report) in %
99.0%
77.9%
63.6%
         
 
 
5

 

 
 
Numerator
     
 
Reconciliation of Operating profit after tax to Operating profit
     
         
 
Operating profit after tax
22,724
17,452
14,886
/
(1 minus effective tax rate) in %
77.1%
78.0%
78.8%
=
Operating profit (as reported in the Annual Report)
29,474
22,374
18,891
         
 
Denominator
     
 
Reconciliation of Average non-interest bearing balance sheet items to Equity
 
         
 
Non-interest bearing balance sheet items at the beginning of the year
21,970
22,841
23,939
+
Non-interest bearing balance sheet items at the end of the year
23,916
21,970
22,841
 
/
2
     
=
Average non-interest bearing balance sheet items as used in Operating profit after tax to net operating assets
22,943
22,406
23,390
         
 
Non-interest bearing balance sheet items at the end of the year
23,916
21,970
22,841
+
Other financial assets
228
273
297
+
Marketable securities
4,552
4,094
3,926
+
Derivative financial instruments
931
48
108
+
Cash at bank and in hand
11,553
13,408
12,017
-
Loans
-
(502)
(504)
-
Current debt
(500)
(351)
(562)
-
Derivative financial instruments
(48)
(1,492)
(1,158)
=
Equity (as reported in the Annual Report)
40,632
37,448
36,965
         
 
Operating profit (as reported in Annual Report)
29,474
22,374
18,891
/
Equity
40,632
37,448
36,965
=
Operating profit/Equity in %
72.5%
59.7%
51.1%

Financial resources at the end of the year
Financial resources at the end of the year is defined as the sum of cash and cash equivalents at the end of the year, bonds with original term to maturity exceeding three months and undrawn committed credit facilities.

Management believes that the Financial resources at the end of the year is an important measure of the Group’s financial strength from an investor’s perspective, capturing the robustness of the Group’s financial position and its financial preparedness for unforeseen developments.

Reconciliation of financial resources at the end of the year
         
DKK Million
2012
2011
2010
         
 
Financial resources at the end of the year
20,454
21,983
20,359
-
Marketable securities at the end of the year
(4,552)
(4,094)
(3,926)
-
Undrawn committed credit facilities
(4,849)
(4,832)
(4,473)
=
Cash and cash equivalents at the end of the year (as reported in the Annual report)
11,053
13,057
11,960

 
6

 
 
Underlying sales growth in local currencies
Underlying sales growth in local currencies is defined as sales for the year measured at prior year average exchange rates compared with sales for prior year measured at prior year average exchange rates.

Management believes that the underlying sales growth in local currencies is relevant information for investors in order to understand the underlying development in sales by adjusting for the impact of local currency fluctuations.

ITEM 19
EXHIBITS

List of exhibits:

Exhibit No.
 
Description
 
Method of filing
         
12.1
 
Certification of Lars Rebien Sørensen, President and Chief Executive Officer of Novo Nordisk, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.
 
Filed together with this
Form 20-F/A for 2012.
12.2
 
Certification of Jesper Brandgaard, Executive Vice President and Chief Financial Officer of Novo Nordisk, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.
 
Filed together with this
Form 20-F/A for 2012.
13.1
 
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
 
Filed together with this
Form 20-F/A for 2012.
15.3
 
Consent of independent registered public accounting firm.
 
Filed together with this
Form 20-F/A for 2012.

 
7

 

SIGNATURES

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this amendment to its Annual Report on its behalf.

NOVO NORDISK A/S


/s/ Lars Rebien Sørensen
  /s/ Jesper Brandgaard  
Name: Lars Rebien Sørensen
  Name:
Jesper Brandgaard
 
Title:   President and Chief Executive Officer
 
  Title:
Executive Vice President and
Chief Financial Officer
 

Bagsværd, Denmark
Date: June 28, 2013

 
8

 


NOVO NORDISK GROUP

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 1

 
 
Page
Index to Consolidated financial statements
F-1
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Income statement and Statement of comprehensive income
F-3
Consolidated Balance sheet
F-4
Consolidated Statement of cash flows
F-5
Consolidated Statement of changes in equity
F-6
Notes to the Consolidated Financial Statements
F-7
 


1 The complete annual report that complies with the Danish Financial Statements Act is available at the Danish Business Authorities
 
 
F-1

 

 
Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Novo Nordisk A/S

In our opinion, the Consolidated Financial Statements listed in the accompanying index appearing under Item 19 (pages 56-93) present fairly, in all material respects, the financial position of Novo Nordisk A/S and its subsidiaries (the Company) as of 31 December 2012 and 31 December 2011, and the results of their operations and their cash flows for each of the three years in the period ended 31 December 2012 expressed in DKK and incorporated by reference to the Registrant’s Annual Report (the pages 56-93 listed in Item 19 of the Form 20-F) furnished to the SEC on Form 6-K dated 6 February 2013 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB), and with International Financial Reporting Standards as adopted by the EU. Also in our opinion, the Company has maintained, in all material respects, effective internal control over financial reporting as of 31 December 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Novo Nordisk Management on Internal Control Over Financial Reporting, appearing in Item 15 in this Form 20-F. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ PricewaterhouseCoopers
Statsautoriseret Revisionspartnerselskab
Bagsværd, Denmark
January 30, 2013
 
 
F-2

 
 

Consolidated financial statements Statement of comprehensive income for the year ended 31 December

 
Income statement and Statement of comprehensive income for the year ended 31 December
 
                         
DKK million
 
Note
   
2012
   
2011
   
2010
 
Income statement
                       
                         
Sales
    2.1 2.2       78,026       66,346       60,776  
Cost of goods sold
    2.2 2.3       13,465       12,589       11,680  
Gross profit
            64,561       53,757       49,096  
 
                               
Sales and distribution costs
    2.2 2.3       21,544       19,004       18,195  
Research and development costs
    2.2 2.3       10,897       9,628       9,602  
Administrative costs
    2.2 2.3       3,312       3,245       3,065  
Licence fees and other operating income, net
    2.2 5.6       666       494       657  
Operating profit
            29,474       22,374       18,891  
                                 
Financial income
    4.8       125       514       1,452  
Financial expenses
    4.8       1,788       963       2,057  
Profit before income taxes
            27,811       21,925       18,286  
                                 
Income taxes
    2.4       6,379       4,828       3,883  
Net profit for the year
            21,432       17,097       14,403  
                                 
                                 
                                 
                                 
Earnings per share
                               
Basic earnings per share (DKK)
    4.1       39.09       30.24       24.81  
Diluted earnings per share (DKK)
    4.1       38.85       29.99       24.60  
                                 
                                 
Statement of comprehensive income
                               
                                 
Net profit for the year
            21,432       17,097       14,403  
                                 
Other comprehensive income:
                         
Items that will not be reclassified subsequently to the Income statement:
                         
Remeasurements on defined benefit plans
    3.7       (281 )     -       -  
                                 
Items that will be reclassified subsequently to the Income statement, when specific conditions are met:
                               
Exchange rate adjustments of investments in subsidiaries
            (172 )     (173 )     300  
Cash flow hedges, realisation of previously deferred (gains)/losses
            1,182       658       (422 )
Cash flow hedges, deferred gains/(losses) incurred during the period
            849       (1,170 )     (643 )
Other items
            35       (20 )     4  
Tax on other comprehensive income, income/(expense)
    2.4       (587 )     190       346  
Other comprehensive income for the year, net of tax
            1,026       (515 )     (415 )
                                 
                                 
Total comprehensive income for the year
            22,458       16,582       13,988  

 
F-3

 
 

Consolidated financial statements Balance sheet at 31 December

 
Balance sheet at 31 December
                 
                   
DKK million
 
Note
   
2012
   
2011
 
ASSETS
                 
                   
Intangible assets
    3.1       1,495       1,489  
Property, plant and equipment
    3.2       21,539       20,931  
Deferred income tax assets
    2.4       2,244       2,414  
Other financial assets
    4.7       228       273  
Total non-current assets
            25,506       25,107  
                         
Inventories
    3.3       9,543       9,433  
Trade receivables
    3.4       9,639       9,349  
Tax receivables
            1,240       883  
Other receivables and prepayments
    3.5       2,705       2,376  
Marketable securities
    4.7       4,552       4,094  
Derivative financial instruments
    4.4       931       48  
Cash at bank and on hand
    4.5       11,553       13,408  
Total current assets
            40,163       39,591  
                         
Total assets
            65,669       64,698  
                         
                         
EQUITY AND LIABILITIES
                       
                         
Share capital
    4.1       560       580  
Treasury shares
    4.1       (17 )     (24 )
Retained earnings
            39,001       37,111  
Other reserves
            1,088       (219 )
Total equity
            40,632       37,448  
                         
Loans
    4.2       -       502  
Deferred income tax liabilities
    2.4       732       3,206  
Retirement benefit obligations
    3.7       760       439  
Provisions
    3.6       1,907       2,324  
Total non-current liabilities
            3,399       6,471  
                         
Current debt
    4.2       500       351  
Trade payables
    4.7       3,859       3,291  
Tax payables
            593       1,171  
Other liabilities
    3.8       8,982       8,534  
Derivative financial instruments
    4.4       48       1,492  
Provisions
    3.6       7,656       5,940  
Total current liabilities
            21,638       20,779  
Total liabilities
            25,037       27,250  
                         
Total equity and liabilities
            65,669       64,698  
 
 
F-4

 
 

Consolidated financial statements Statement of cash flows for the year ended 31 December

 
Statement of cash flows for the year ended 31 December
                       
                         
DKK million
 
Note
   
2012
   
2011
   
2010
 
Net profit for the year
          21,432       17,097       14,403  
                               
                               
Adjustment for non-cash items
    5.3       11,253       9,117       8,449  
Change in working capital
    4.6       274       434       297  
Interest received
            207       332       218  
Interest paid
            (61 )     (215 )     (252 )
Income taxes paid
    2.4       (10,891 )     (5,391 )     (3,436 )
Net cash generated from operating activities
            22,214       21,374       19,679  
 
                               
 
                               
Proceeds from the divestment of ZymoGenetics, Inc.
            -       -       1,155  
Purchase of intangible assets and other financial assets
            (250 )     (259 )     (513 )
Proceeds from sale of property, plant and equipment
            53       70       68  
Purchase of property, plant and equipment
    3.2       (3,372 )     (3,073 )     (3,376 )
Net purchase of marketable securities
            (501 )     (197 )     (2,913 )
Net cash used in investing activities
            (4,070 )     (3,459 )     (5,579 )
                                 
Repayment of loans
    4.2       (502 )     (507 )     -  
Purchase of treasury shares, net
    4.1       (11,896 )     (10,595 )     (8,820 )
Dividends paid
    4.1       (7,742 )     (5,700 )     (4,400 )
Net cash used in financing activities
            (20,140 )     (16,802 )     (13,220 )
                                 
Net cash generated from activities
            (1,996 )     1,113       880  
                                 
Cash and cash equivalents at the beginning of the year
    4.5       13,057       11,960       11,034  
Exchange gains/(losses) on cash and cash equivalents
            (8 )     (16 )     46  
                                 
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
    4.5       11,053       13,057       11,960  
                                 
                                 
Additional information:1
                               
                                 
Cash and cash equivalents at the end of the year
    4.5       11,053       13,057       11,960  
Marketable securities at the end of the year
    4.7       4,552       4,094       3,926  
Undrawn committed credit facilities 2
            4,849       4,832       4,473  
Financial resources at the end of the year
            20,454       21,983       20,359  
                                 
                                 
Net cash generated from operating activities
            22,214       21,374       19,679  
Net cash used in investing activities
            (4,070 )     (3,459 )     (5,579 )
Net purchase of marketable securities
            501       197       2,913  
Free cash flow
            18,645       18,112       17,013  

1 Additional non-IFRS measures. Please refer to p F-40 for definitions.

2 The undrawn committed credit facility is a EUR 650 million (EUR 650 million in 2011 and EUR 600 million in 2010) facility committed by a portfolio of international banks. The facility matures in 2016.
 
 
F-5

 
 

Consolidated financial statements Statement of changes in equity

 
Statement of changes in equity at 31 December                                                
                                                 
   
Share capital
   
Treasury
shares
   
Retained earnings
   
Other reserves
   
Total other reserves
   
Total
 
DKK million              
Exchange rate adjustment
   
Cash flow hedges
   
Tax and other items
           
2012
                                               
                                                 
Balance at the beginning of the year
    580       (24 )     37,111       398       (1,184 )     567       (219 )     37,448  
                                                                 
Net profit for the year
                    21,432                                       21,432  
Other comprehensive income for the year1
                    (281 )     (172 )     2,031       (552 )     1,307       1,026  
Total comprehensive income for the year
                    21,151       (172 )     2,031       (552 )     1,307       22,458  
                                                                 
Transactions with owners:
                                                               
Dividends (note 4.1)
                    (7,742 )                                     (7,742 )
Share-based payments (note 5.1)
                    308                                       308  
Tax credit related to share option scheme
                    56                                       56  
Purchase of treasury shares (note 4.1)
            (15 )     (12,147 )                                     (12,162 )
Sale of treasury shares (note 4.1)
            2       264                                       266  
Reduction of the B share capital (note 4.1)
    (20 )     20                                               -  
Balance at the end of the year
    560       (17 )     39,001       226       847       15       1,088       40,632  
 
                                                                 
                                                                 
     
Share capital
     
Treasury shares
     
Retained earnings
     
Other reserves
     
Total other reserves
     
Total
 
DKK million                      
Exchange rate adjustment
     
Cash flow hedges
     
Tax and other items
               
2011
                                                               
                                                                 
Balance at the beginning of the year
    600       (28 )     36,097       571       (672 )     397       296       36,965  
                                                                 
Net profit for the year
                    17,097                                       17,097  
Other comprehensive income for the year1
                            (173 )     (512 )     170       (515 )     (515 )
Total comprehensive income for the year
                    17,097       (173 )     (512 )     170       (515 )     16,582  
                                                                 
Transactions with owners:
                                                               
Dividends (note 4.1)
                    (5,700 )                                     (5,700 )
Share-based payments (note 5.1)
                    319                                       319  
Purchase of treasury shares (note 4.1)
            (18 )     (10,821 )                                     (10,839 )
Sale of treasury shares (note 4.1)
            2       242                                       244  
Tax on sale of treasury shares
                    (123 )                                     (123 )
Reduction of the B share capital (note 4.1)
    (20 )     20                                               -  
Balance at the end of the year
    580       (24 )     37,111       398       (1,184 )     567       (219 )     37,448  
 
                                                                 
     
Share capital
 
     
Treasury shares
     
Retained earnings
     
Other reserves
     
Total other reserves
     
Total
 
                       
Exchange rate adjustment
     
Cash flow hedges
     
Tax and other items
               
DKK million
                                                               
2010
                                                               
                                                                 
Balance at the beginning of the year
    620       (32 )     34,435       271       393       47       711       35,734  
                                                                 
Net profit for the year
                    14,403                                       14,403  
Other comprehensive income for the year
                            300       (1,065 )     350       (415 )     (415 )
Total comprehensive income for the year
                    14,403       300       (1,065 )     350       (415 )     13,988  
                                                                 
Transactions with owners:
                                                               
Dividends (note 4.1)
                    (4,400 )                                     (4,400 )
Share-based payments (note 5.1)
                    463                                       463  
Purchase of treasury shares (note 4.1)
            (20 )     (9,478 )                                     (9,498 )
Sale of treasury shares (note 4.1)
            4       674                                       678  
Reduction of the B share capital (note 4.1)
    (20 )     20                                               -  
Balance at the end of the year
    600       (28 )     36,097       571       (672 )     397       296       36,965  

1 Please refer to Statement of comprehensive income p F-3.
 
 
F-6

 
 

Consolidated financial statements

 
Notes
 
As Novo Nordisk’s business continues to develop, the company remains focused on simplifying and streamlining its integrated reporting. In 2012 Novo Nordisk has restructured the Consolidated financial, social and environmental statements to increase focus on what drives the company’s performance in accordance with the Triple Bottom Line business principle.

Within each of the financial, social and environmental statements, the notes have been grouped into sections based on how Novo Nordisk views its business. Each of the statements includes an overview of the sections and notes, and each of the sections has an introduction explaining the link between how the company does business and how this is reflected in Novo Nordisk’s  financial, social and environmental statements.  The disclosures in the notes are structured to provide full transparency on the disclosed amounts, describing the relevant accounting policy, key accounting estimates and numerical disclosure for each note.
 
Sections in the Consolidated financial statements

Section 1 ‘Basis of preparation’
Introduces our financial accounting policies in general and an overview of Management’s key accounting estimates.
 
1.1 Summary of significant accounting policies
F-8
1.2 Other accounting policies
F-8
1.3 Other general accounting policies
F-9
   
Section 2 ‘Results for the year’
 
Comprises the notes related to the result for the year including operating segments, taxes and employee benefits.
 
   
2.1 Sales and sales rebates
F-10
2.2 Segment information
F-11
2.3 Employee costs
F-14
2.4 Income and deferred income taxes
F-14
   
Section 3 ‘Operating assets and liabilities’
 
Relates to the assets that form the basis for the activities of Novo Nordisk, and the related liabilities.
 
   
3.1 Intangible assets
F-16
3.2 Property, plant and equipment
F-17
3.3 Inventories
F-18
3.4 Trade receivables
F-18
3.5 Other receivables and prepayments
F-19
3.6 Provisions
F-19
3.7 Retirement benefit obligations
F-20
3.8 Other liabilities
F-21
   
Section 4 ‘Capital structure and financing items’
 
Encompasses notes related to capital structure and financing items.
 
   
4.1 Share capital and earnings per share
F-22
4.2 Debt
F-23
4.3 Financial risk
F-23
4.4 Derivative financial instruments
F-25
4.5 Cash and cash equivalents
F-28
4.6 Change in working capital
F-28
4.7 Financial assets and liabilities
F-28
4.8 Financial income and expenses
F-31
   
Section 5 ‘Other disclosures’
 
Includes other statutory notes and notes of secondary importance from the perspective of the company.
 
   
5.1 Share-based payment schemes
F-32
5.2 Management’s holdings of Novo Nordisk shares
F-34
5.3 Adjustments for non-cash items
F-35
5.4 Commitments and contingencies
F-36
5.5 Related party transactions
F-38
5.6 Licence fees and other operating income
F-38
5.7 Fee to statutory auditors
F-38
5.8 Companies in the Novo Nordisk Group
F-39
5.9 Financial definitions
F-40
 
 
F-7

 
 

Consolidated financial statements

 
Section 1 -  Basis of preparation of the Consolidated financial statements

 
Novo Nordisk presents its Consolidated financial statements on the basis of the latest developments in international financial reporting, and the company strives for early adoption of EU endorsed IFRS accounting standards.
 
All affiliates in the Novo Nordisk Group follow the same Group accounting policies. This section describes the significant accounting policies and other accounting policies in general, including Management’s key accounting estimates and the new IFRS requirements. A detailed description of accounting policies and key accounting estimates related to specific reported amounts is presented in each note to the relevant financial items.
 
1.1 Summary of significant accounting policies
 
The Consolidated financial statements included in this Annual Report have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), as well as in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union.
 
Furthermore, the annual report has been prepared in accordance with additional Danish disclosure requirements for annual reports of listed companies.
 
Measurement basis
 
The Consolidated financial statements have been prepared on the historical cost basis except for the revaluation of available-for-sale financial assets such as derivative financial instruments measured at fair value through the income statement, and equity investments and marketable securities measured at fair value through other comprehensive income.

The principal accounting policies set out below have been applied consistently in the preparation of the Consolidated financial statements for all the years presented.
 
Principal accounting policies
 
Novo Nordisk’s accounting policies are described in relation to the individual notes to the Consolidated financial statements. Considering all the accounting policies applied in the preparation of the Consolidated financial statements, Management regards the following as the most significant accounting policies for the recognition and measurement of reported amounts:
 
·      Sales and sales rebates (notes 2.1 and 3.6)
Revenue is only recognised when, in Management’s judgement, the significant risks and rewards of ownership have been transferred and when the Group does not retain managerial involvement in or effective control over the goods sold. Our gross sales are subject to various deductions that are composed primarily of rebates and discounts to retail customers, government agencies, wholesalers, health insurance companies and managed healthcare organisations. These deductions represent estimates of the related obligations, requiring the use of judgement when estimating the effect of these sales deductions on gross sales for a reporting period.
 
·      Research and development (note 3.1).
Internal research costs are fully charged to the consolidated income statement in the period in which they are incurred, consistent with industry practice. Novo Nordisk considers that regulatory and other uncertainties inherent in the development of new products preclude the capitalisation of internal development costs as an intangible asset until marketing approval from the regulatory authority is obtained (highly probable) in a relevant major market.
 
·      Derivative financial instruments (note 4.4).
Novo Nordisk hedges commercial exposures, with foreign exchange risk being the principal financial risk for the Group. The overall objective of foreign exchange risk management is to limit the short-term negative impact on earnings and cash flow from exchange rate fluctuations, thereby increasing the predictability of the financial results. The purpose of hedge accounting is to match the impact of the hedged item and the hedging instrument in the consolidated income statement. Management has chosen to present the result of hedging activities as part of financial items. Thus, as the majority of Novo Nordisk’s sales are in EUR, USD, JPY, CNY and GBP, Sales will be impacted by exchange rate fluctuations whereas the impact from exchange rate fluctuations on Profit before income taxes depends on the results of the hedging activities.
 
In addition, the following other accounting policies are considered relevant to an understanding of the Consolidated financial statements:
 
·      Income taxes (note 2.4)
·      Intangible assets and Property, plant and equipment including impairment (notes 3.1 and 3.2)
·      Inventories (note 3.3)
·      Trade receivables and allowances for doubtful trade receivables (note 3.4)
·      Provisions for legal disputes (note 3.6).
 
Key accounting estimates
 
The use of reasonable estimates is an essential part of the preparation of consolidated financial statements. Given the uncertainties inherent in our business activities, Management must make certain estimates and judgements that affect the application of accounting policies and reported amounts of assets, liabilities, sales, costs, cash flow and related disclosures at the date(s) of the Consolidated financial statements.

Management bases its estimates on historical experience and various other assumptions that are held to be reasonable under the circumstances. The estimates and underlying assumptions are reviewed on an ongoing basis and, if necessary, changes are recognised in the period in which the estimate is revised. Management considers the carrying amounts recognised in relation to the key accounting estimates mentioned below to be reasonable and appropriate based on currently available information. However, the actual amounts may differ from the amounts estimated as more detailed information becomes available.

Management regards the following as the key accounting estimates and assumptions used in the preparation of the Consolidated financial statements:

·      Rebates and sales discounts and provisions for sales rebates (notes 2.1 and 3.6)
·      Indirect production costs (note 3.3)
·      Allowance for doubtful trade receivables (note 3.4)
·      Deferred income tax assets and liabilities (note 2.4)
·      Provisions for legal disputes (note 3.6).

Please refer to the specific notes for further information on the key accounting estimates and assumptions applied.
 
1.2 Other accounting policies
 
Changes in accounting policies and disclosures
 
Early adoption of new or amended IFRSs
IAS 19R ‘Employee benefits’ was revised by IASB in June 2011 with an effective date on or after 1 January 2013 and endorsed by the EU in June 2012. Novo Nordisk has early adopted the amendment in 2012 and is thus not utilising the option to defer the recognition of actuarial gains and losses from defined benefit post-employment plans, known as the corridor approach, and is instead recognising all actuarial gains and losses in Other comprehensive income as these occur. Early adoption also involves immediate recognition of all past service costs, and replacing interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate used to discount to the net defined benefit obligation (asset).
 
 
F-8

 
 

Consolidated financial statements

 
As retrospective application of these changes would have only an immaterial impact on each previous financial year, Novo Nordisk has fully adopted the amendment in 2012 without restating previous years’ comparable amounts and disclosures. Thus, while the adoption has not had an initial impact on the Income statement in 2012, the implementation decreased Other comprehensive income and Equity by DKK 250 million, decreased Deferred income tax liabilities by DKK 31 million and increased Retirement benefit obligation by DKK 281 million.
 
Please refer to note 3.7 for a detailed description of the new accounting policy for retirement benefit obligations.
 
Furthermore, Novo Nordisk has early adopted the amendment to IAS 1 ‘Presentation of financial statements’, effective for annual periods beginning on or after 1 July 2012. The amendment requires items of Other comprehensive income, classified by nature, to be grouped into those that will be reclassified subsequently to the Income statement when specific conditions are met and those that will not.
 
Adoption of new or amended IFRSs
 
Based on an assessment of new or amended and revised accounting standards and interpretations (‘IFRSs’) issued by IASB and IFRSs endorsed by the European Union effective on 1 January 2012, it has been assessed that the application of the new IFRSs has not had a material impact on the Consolidated financial statements in 2012 and Novo Nordisk does not anticipate any significant impact on future periods from the adoption of these new IFRSs.

New or amended IFRSs that have been issued but have not yet come into effect and have not been early adopted
In addition to the above, IASB has issued a number of new or amended and revised accounting standards and interpretations that have not yet come into effect. The following are the most significant:
 
·      IASB has issued IFRS 9 ‘Financial Instruments’, which is applicable for reporting periods starting on or after 1 January 2015. This is part of the IASB’s project to replace IAS 39, and the new standard will substantially change the classification and measurement of financial instruments and hedging requirements. The new standards and the amendment have not yet been endorsed by the European Union. Novo Nordisk has assessed the impact of the standard and determined that it, in its current wording, will not have any significant impact on the Consolidated financial statements.

·      IASB has issued re-exposure drafts on IAS 18 ‘Revenue’ and IAS 17 ‘Leasing’. The revised IAS 18 is expected to have only immaterial impact on the Consolidated financial statements. The change in lease accounting is expected to require capitalisation of the majority of the Group’s lease contracts, which will have some impact on the Group’s assets, liabilities and financial ratios, but no significant impact on net profit. However, the final impact may change depending on the final wording of the standards.
 
1.3 Other general accounting policies
 
Defining materiality
 
Novo Nordisk’s Consolidated financial statements are a result of processing large numbers of transactions and aggregating those transactions into classes according to their nature or function. When aggregated, the transactions are presented in classes of similar items in the Consolidated financial statements. If a line item is not individually material, it is aggregated with other items of a similar nature in the statements or in the notes.
 
There are substantial disclosure requirements throughout IFRS. Novo Nordisk provides specific disclosures required by IFRS unless the information is considered immaterial to the economic decision-making of the users of these financial statements or not applicable.
 
Principles of consolidation
 
The Consolidated financial statements incorporate the financial statements of Novo Nordisk A/S and entities controlled by Novo Nordisk A/S.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with Novo Nordisk policies. All intra-Group transactions, balances, income and expenses are eliminated in full when consolidated.

Translation of foreign currencies
Functional and presentation currency
Items included in the financial statements of each of Novo Nordisk’s entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The Consolidated financial statements are presented in Danish kroner (DKK), which is also the functional and presentation currency of the parent company.

Translation of transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income statement.

Translation differences on non-monetary items, such as financial assets classified as available for sale including equity investments, are recognised in Other comprehensive income.

Translation of Group companies
Financial statements of foreign subsidiaries are translated into Danish kroner at the exchange rates prevailing at the end of the reporting period for assets and liabilities, and at average exchange rates for income statement items.

All effects of exchange rate adjustment are recognised in the Income statement, with the exception of exchange rate adjustments of investments in subsidiaries arising from:
 
      the translation of foreign subsidiaries’ net assets at the beginning of the year at the exchange rates at the end of the reporting period
▪      the translation of foreign subsidiaries’ income statements using average exchange rates, whereas balance sheet items are translated using the exchange rates prevailing at the end of the reporting period
▪      the translation of non-current intra-Group receivables that are considered to be an addition to net investments in subsidiaries.
 
The above exchange rate adjustments are recognised in Other comprehensive income.
 
Statement of cash flows
 
The Statement of cash flows is presented in accordance with the indirect method commencing with Net profit for the year.
 
 
F-9

 
 

Consolidated financial statements

 
Section 2 - Results for the year
 
This section comprises notes in relation to the results for the year, including disclosure on operating segments, and provides additional information related to two of Novo Nordisk’s four long-term financial targets: Operating profit margin and Growth in operating profit.
 
Continued growth in the number of patients and innovative new products drive Novo Nordisk’s growth in sales. Novo Nordisk expects growth in operating profit to be higher than sales growth, thereby increasing operating margin. This is expected to be enabled by gross margin expansion from both product mix and pricing as well as further productivity improvements in the manufacturing areas. For non-production related activities, the operating margin expansion is expected to be supported by a modest development in administrative costs and scale advantages within sales and marketing, whereas continued investment is envisioned for the research and development activities, which are expected to grow at least in line with sales. Novo Nordisk continues to invest in innovation while contributing to society by paying corporate taxes in the countries where it operates. The Management review section ‘2012 performance and 2013 outlook’ on p 6 gives a detailed description of the results for the year.
 
2.1 Sales and sales rebates
 
Accounting policies
Revenue from goods sold is recognised when all the following conditions are met:
 
      Novo Nordisk has transferred the significant risks and rewards of ownership of the goods to the buyer.
■      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 the entity.
■      The costs incurred or to be incurred in respect of the transaction can be measured reliably.
 
Sales are measured at the fair value of the consideration received or receivable.  When sales are recognised, Novo Nordisk also records estimates for a variety of sales deductions, including rebates, discounts, refunds, incentives and product returns. Sales deductions are reported as a reduction of revenue. Where contracts contain customer acceptance provisions, Novo Nordisk recognises sales when the acceptance criteria are satisfied.
 
Revenue recognition for new product launches is based on specific facts and circumstances relating to those products, including estimated demand and acceptance rates for well-established products with similar market characteristics. Where shipments of new products are made on a sale or return basis, without sufficient historical experience for estimating sales returns, revenue is only recorded when there is evidence of consumption or when the right of return has expired.
 
Key accounting estimates – rebates and sales discounts
Sales discounts and sales rebates are predominantly issued in Region North America. In this region, significant sales rebates are paid in connection with US public healthcare insurance programmes, namely Medicare and Medicaid, as well as rebates to managed healthcare plans. The most significant discounts are offered under contracts with institutions, mostly hospitals and government agencies. In addition, political pressure to contain healthcare costs has led several other countries to impose significant price reductions on pharmaceutical products. Concerted austerity measures have been implemented by governments in countries in Region Europe, while government-mandated price cuts have been introduced in Region China, Japan and major countries in Region International Operations.
 
Medicaid and Medicare rebates have been calculated using a combination of historical experience, product and population growth, price increases, the impact of contracting strategies and specific terms in the individual agreements. For Medicaid, the calculation of rebates involves interpretation of relevant regulations that are subject to challenge or change in interpretative guidance by government authorities. Although accruals are made for Medicaid and Medicare rebates at the time sales are recorded, the actual rebates related to the specific sale will typically be invoiced to Novo Nordisk up to nine months later. Due to the time lag, the rebate adjustments to sales in any particular period may incorporate adjustments of accruals for prior periods.
 
Rebates are offered to a number of managed healthcare plans. These rebate programmes allow the customer to receive a rebate after attaining certain performance parameters relating to formulary status and pre-established market share milestones relative to competitors. Since they are contractually agreed upon, rebates are estimated according to the specific terms in each agreement, historical experience, anticipated channel mix, product growth rates and market share information. Novo Nordisk considers the sales performance of products subject to managed healthcare rebates and other contract discounts, and adjusts the provision periodically to reflect actual experience.

Wholesaler charge-backs relate to contractual arrangements existing between Novo Nordisk and indirect customers, mainly in the US, whereby products are sold at contract prices lower than the list price originally charged to wholesalers. A wholesaler charge-back represents the difference between the invoice price to the wholesaler and the indirect customer’s contract price. Provisions are calculated for estimated charge-backs using a combination of factors such as historical experience, current wholesaler inventory levels, contract terms and the value of claims received but not yet processed. Wholesaler charge-backs are generally settled within one to three months of the liability being incurred.
 
In certain non-US countries, Novo Nordisk also provides rebates to governments and other entities mandated by laws or government regulations. Furthermore, Novo Nordisk enters into pay-for-performance arrangements with certain healthcare providers. Under these agreements, Novo Nordisk may be required to make refunds to the healthcare providers if anticipated treatment outcomes do not meet predefined targets. Potential refunds are estimated and recorded as a reduction of revenue at the time the related revenues are recorded.
 
Provisions for sales deductions are adjusted to actual amounts as rebates and discounts are processed. Please refer to section 3.6 for further information on sales-related provisions.
 
Gross-to-net sales reconciliation
DKK million
2012
2011
2010
       
Gross sales
103,948
84,386
75,811
US Medicaid and Medicare rebates
 
(7,519)
 
(5,075)
 
(4,124)
US managed healthcare rebates
(4,390)
(2,551)
(2,494)
US wholesaler charge-backs
(8,196)
(5,894)
(4,994)
Non-US healthcare plans and programme rebates
 
(901)
 
(695)
 
(543)
Sales returns and discounts
(4,916)
(3,825)
(2,880)
Total gross-to-net sales adjustments
 
(25,922)
 
(18,040)
 
(15,035)
Total net sales
 
78,026
 
66,346
 
60,776
 
 
F-10

 
 

Consolidated financial statements

 
2.2 Segment information
Accounting policies
Operating segments are reported in a manner consistent with the internal reporting provided to Management and the Board of Directors.
 
BUSINESS SEGMENTS

Novo Nordisk operates in two business segments based on therapies: Diabetes care and Biopharmaceuticals.

The Diabetes care business segment includes research, development, manufacturing and marketing of products within the areas of insulin, GLP-1 and related delivery systems, oral antidiabetic products (OAD) and obesity.

The Biopharmaceuticals business segment includes research, development, manufacturing and marketing of products within the areas of haemophilia, growth hormone therapy, hormone replacement therapy, inflammation therapy and other therapy areas.

Segment performance is evaluated on the basis of operating profit consistent with the Consolidated financial statements. Financial income and expenses and income taxes are managed on a Group basis and are not allocated to business segments.

There are no sales or other transactions between the business segments. Costs have been split between business segments according to a specific allocation with the addition of a minor number of corporate overhead costs allocated systematically between the segments. Licence fees and other operating income have been allocated to the two segments based on the same principle. Segment assets comprise the assets that are applied directly to the activities of the segment, including intangible assets, property, plant and equipment, other financial assets, inventories, trade receivables, and other receivables and prepayments.

No single customer represents more than 10% of the total sales and no operating segments have been aggregated to form the reported business segments.
 
Business segments
 
2012
2011
2010
2012
2011
2010
2012
2011
2010
DKK million
                 
                   
Segment sales
Diabetes care
Biopharmaceuticals
Total
                   
NovoRapid ® / NovoLog®
15,693
12,804
11,900
           
NovoMix® / NovoLog®Mix
9,342
8,278
7,821
           
Levemir®
9,786
7,683
6,880
           
Total modern insulins
34,821
28,765
26,601
           
Human insulins
11,302
10,785
11,827
           
Victoza®
9,495
5,991
2,317
           
Protein-related products
2,511
2,309
2,214
           
Oral antidiabetic products (OAD)
2,758
2,575
2,751
           
Diabetes care total sales
60,887
50,425
45,710
           
                   
NovoSeven®
     
8,933
8,347
8,030
     
Norditropin®
     
5,698
5,047
4,803
     
Hormone replacement therapy
     
2,163
2,054
1,892
     
Other products
     
345
473
341
     
Biopharmaceuticals total sales
     
17,139
15,921
15,066
     
                   
Segment key figures
                 
Total sales
60,887
50,425
45,710
17,139
15,921
15,066
78,026
66,346
60,776
  Change in DKK (%)
20.7%
10.3%
21.9%
7.7%
5.7%
11.0%
17.6%
9.2%
19.0%
  Change in local currencies (%)
14.5%
12.6%
15.7%
2.4%
7.6%
5.4%
11.6%
11.4%
13.0%
 
Cost of goods sold
11,435
10,762
10,131
2,030
1,827
1,549
13,465
12,589
11,680
Sales and distribution costs
18,894
16,476
14,815
2,650
2,528
3,380
21,544
19,004
18,195
Research and development costs
7,322
6,402
6,744
3,575
3,226
2,858
10,897
9,628
9,602
Administrative costs
2,604
2,485
2,260
708
760
805
3,312
3,245
3,065
Licence fees and other operating income, net
464
285
342
202
209
315
666
494
657
Operating profit
21,096
14,585
12,102
8,378
7,789
6,789
29,474
22,374
18,891
                   
Depreciation, amortisation and impairment losses included in costs
2,167
2,051
1,887
526
686
580
2,693
2,737
2,467
Additions to Intangible assets and Property, plant and equipment
2,800
2,654
3,068
770
678
795
3,570
3,332
3,863
                   
Assets allocated to business segments
36,030
34,853
34,947
9,119
8,998
7,906
45,149
43,851
42,853
Assets not allocated to business segments 1
           
20,520
20,847
18,549
Total assets
           
65,669
64,698
61,402

1 The part of total assets that has not been allocated to either of the two business segments includes Cash at bank and on hand, Marketable securities, Derivative financial instruments and tax assets.
 
 
F-11

 
 

Consolidated financial statements

 
GEOGRAPHICAL SEGMENTS

Novo Nordisk operates in five geographical regions:

·      North America: the US and Canada
·      Europe: the EU, EFTA, Albania, Bosnia-Hercegovina, Croatia, Macedonia, Serbia, Montenegro and Kosovo
·      Japan & Korea: Japan and Korea
·      Region China: China, Hong Kong and Taiwan
·      International Operations: all other countries
 
 Sales are attributed to geographical regions according to the location of the customer. Allocation of property, plant and equipment, trade receivables, allowances for trade receivables and total assets are based on the location of the assets.

The country of domicile is Denmark, which is part of Region Europe. Denmark is immaterial in relation to Novo Nordisk’s activities in terms of geographical size and the operational business segments. Less than 1% of the total sales is realised in Denmark. Sales to external customers attributed to the US are collectively the most material to the company. The US is the only country where sales contribute more than 10% of total sales. Sales to the US represent more than 90% of sales in Region North America.
 
Geographical segments

 
2012
2011
2010
2012
2011
2010
DKK million
North America
Europe
             
Sales by business segment:
           
      NovoRapid® / NovoLog®
9,033
6,934
6,501
3,707
3,464
3,258
      NovoMix® / NovoLog®Mix
2,488
2,088
2,099
2,544
2,623
2,562
      Levemir®
5,290
3,711
3,229
2,833
2,577
2,410
  Modern insulins (insulin analogues)
16,811
12,733
11,829
9,084
8,664
8,230
  Human insulins
1,959
1,762
2,156
2,642
3,032
3,532
  Victoza®
5,930
3,716
1,457
2,427
1,620
753
  Other diabetes care
1,998
1,705
1,646
965
1,210
1,536
  Diabetes care total
26,698
19,916
17,088
15,118
14,526
14,051
             
  NovoSeven®
4,397
3,951
4,043
2,206
2,310
2,180
  Norditropin®
1,721
1,394
1,320
1,741
1,705
1,823
  Other biopharmaceuticals
1,404
1,325
1,158
642
627
610
  Biopharmaceuticals total
7,522
6,670
6,521
4,589
4,642
4,613
             
Total sales by business and geographical segment
34,220
26,586
23,609
19,707
19,168
18,664
             
Underlying sales growth in local currencies1
19.2%
17.9%
22.4%
2.0%
2.4%
4.6%
Currency effect (local currency impact)
9.5%
(5.3%)
6.8%
0.8%
0.3%
1.8%
Total sales growth as reported
28.7%
12.6%
29.2%
2.8%
2.7%
6.4%
             
Property, plant and equipment
1,500
1,329
987
16,200
15,681
15,669
Trade receivables
2,278
2,081
1,689
3,688
3,652
3,437
Allowance for doubtful trade receivables
(18)
(22)
(19)
(239)
(333)
(200)
Total assets
5,867
5,465
3,680
47,663
47,202
46,654
1 additional non-IFRS measure. Please refer to p 93 for definitions.

 
F-12

 
 

Consolidated financial statements

 
Geographical segments

 
2012
2011
2010
2012
2011
2010
DKK million
International Operations
Japan & Korea
             
Sales by business segment:
           
      NovoRapid® / NovoLog®
1,408
1,100
965
1,175
1,057
987
      NovoMix® / NovoLog®Mix
1,708
1,482
1,377
1,028
970
913
      Levemir®
1,106
942
843
386
363
349
  Modern insulins (insulin analogues)
4,222
3,524
3,185
2,589
2,390
2,249
  Human insulins
3,073
2,581
2,588
768
960
1,101
  Victoza®
613
322
37
455
327
70
  Other diabetes care
632
583
553
493
430
394
  Diabetes care total
8,540
7,010
6,363
4,305
4,107
3,814
             
  NovoSeven®
1,526
1,485
1,245
646
482
461
  Norditropin®
780
651
530
1,442
1,285
1,120
  Other biopharmaceuticals
234
221
197
224
349
265
  Biopharmaceuticals total
2,540
2,357
1,972
2,312
2,116
1,846
             
Total sales by business and geographical segment
11,080
9,367
8,335
6,617
6,223
5,660
             
Underlying sales growth in local currencies1
16,2%
17.1%
22.3%
(1.5%)
5.1%
3.3%
Currency effect (local currency impact)
2.1%
(4.7%)
(0.4%)
7.8%
4.8%
12.5%
Total sales growth as reported
18.3%
12.4%
21.9%
6.3%
9.9%
15.8%
             
Property, plant and equipment
1,508
1,672
1,929
174
207
213
Trade receivables
2,177
2,052
1,995
335
377
446
Allowance for doubtful trade receivables
(710)
(535)
(408)
(3)
(2)
0
Total assets
6,660
6,419
6,327
989
1,388
1,158
 
 
2012
2011
2010
2012
2011
2010
DKK million
Region China
Total
             
Sales by business segment:
           
      NovoRapid® / NovoLog®
370
249
189
15,693
12,804
11,900
      NovoMix® / NovoLog®Mix
1,574
1,115
870
9,342
8,278
7,821
      Levemir®
171
90
49
9,786
7,683
6,880
  Modern insulins (insulin analogues)
2,115
1,454
1,108
34,821
28,765
26,601
  Human insulins
2,860
2,450
2,450
11,302
10,785
11,827
  Victoza®
70
6
0
9,495
5,991
2,317
  Other diabetes care
1,181
956
836
5,269
4,884
4,965
  Diabetes care total
6,226
4,866
4,394
60,887
50,425
45,710
             
  NovoSeven®
158
119
101
8,933
8,347
8,030
  Norditropin®
14
12
10
5,698
5,047
4,803
  Other biopharmaceuticals
4
5
3
2,508
2,527
2,233
  Biopharmaceuticals total
176
136
114
17,139
15,921
15,066
             
Total sales by business and geographical segment
6,402
5,002
4,508
78,026
66,346
60,776
             
Underlying sales growth in local currencies1
16.3%
11.7%
19.9%
11.6%
11.4%
13.0%
Currency effect (local currency impact)
11.7%
(0.7%)
7.6%
6.0%
(2.2%)
6.0%
Total sales growth as reported
28.0%
11.0%
27.5%
17.6%
9.2%
19.0%
             
Property, plant and equipment
2,157
2,042
1,709
21,539
20,931
20,507
Trade receivables
1,161
1,187
933
9,639
9,349
8,500
Allowance for doubtful trade receivables
(54)
0
0
(1,024)
(892)
(627)
Total assets
4,490
4,224
3,583
65,669
64,698
61,402

 
F-13

 
 

Consolidated financial statements

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

Employee costs
DKK million
2012
2011
2010
       
Wages and salaries
17,301
16,127
14,520
Share-based payment costs (note 5.1)
308
319
463
Pensions – defined contribution plans
1,302
1,155
1,052
Pensions – retirement benefit obligations (note 3.7)
150
(2)
210
Other social security contributions
1,358
1,189
1,067
Other employee costs
1,779
1,491
1,510
Total employee costs for the year
22,198
20,279
18,822
Employee costs included in property, plant and equipment1
(533)
(496)
(559)
Change in employee costs included in inventories
(70)
(37)
76
Total employee costs expensed in the Income statement
21,595
19,746
18,339
       
Included in the Income statement:
   
Cost of goods sold
4,627
4,302
4,006
Sales and distribution costs
8,784
7,961
7,240
Research and development costs
4,298
3,980
3,697
Administrative costs
2,205
1,993
2,059
Licence fees and other operating income, net
1,681
1,510
1,337
Total employee costs
21,595
19,746
18,339
       
1This reflects annual gross employee costs included in property, plant and equipment, which subsequently will be included in depreciation of tangible fixed assets.
       
Average number of full-time employees
33,061
31,499
29,423
Year-end number of full-time employees
34,286
32,136
30,014
 
Remuneration to Executive Management and Board of Directors
 
DKK million
     
Salary and cash based incentive
37
35
32
Pension
9
9
8
Other benefits
1
1
1
Executive Management in total 1
47
45
41
Fee to Board of Directors2
9
9
7
 
1Excluding share-based payments, as these are allocated in the joint pool between Executive Management and other members of the Senior Management Board. Please refer to note 5.1 and  ’Remuneration’ pp 49-51, for further information on remuneration to the Board of Directors, Executive Management and other members of Senior Management Board.
 
2Excluding social security taxes paid amounting to less than DKK 1 million (less than DKK 1 million in 2011).
 
2.4 Income and deferred income taxes
 
Income taxes

Accounting policies
The tax expense for the period comprises current and deferred tax and interest on tax cases ongoing or settled during the year, including adjustments to previous years. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income.

Income taxes expensed
     
DKK million
2012
2011
2010
       
Current tax on profit for the year
6,001
4,534
3,477
Deferred tax on profit for the year
645
257
495
Tax on profit for the year
6,646
4,791
3,972
Adjustments recognised for current tax of prior periods
4,042
277
504
Adjustments recognised for deferred tax of prior periods
(4,309)
(240)
(593)
Income taxes in the Income statement
6,379
4,828
3,883
 
In 2012, adjustments caused by events that occurred in the current year related to current and deferred tax of prior periods predominantly arise from tax payments on tax disputes related to transfer pricing and reversal of associated tax liability recognised in prior periods.
 
Computation of effective tax rate:
     
Statutory corporate income tax rate in Denmark
25.0%
25.0%
25.0%
Deviation in foreign subsidiaries’ tax rates compared with the Danish tax rate (net)
(2.1%)
(3.0%)
(2.5%)
Non-taxable income less non-tax-deductible expenses (net)
0.1%
(0.2%)
(1.2%)
Other
(0.1%)
0.2%
(0.1%)
Effective tax rate
22.9%
22.0%
21.2%
       
Tax on other comprehensive income for the year, (income)/expense
587
(190)
(346)
       
Tax on other comprehensive income for the year relates to tax on deferred (gains)/losses on cash flow hedges and internal profit. In addition DKK 12 million has been recognised as current tax in other comprehensive income in 2012.
       
Income taxes paid
 
     
Income taxes paid in Denmark
7,895
2,825
1,826
Income taxes paid outside Denmark
2,996
2,566
1,610
Total income taxes paid
10,891
5,391
3,436

The income taxes of DKK 7,895 million paid in Denmark in 2012 include adjustments arising from tax disputes primarily related to transfer pricing.
 
 
F-14

 
 

Consolidated financial statements

 
Deferred income taxes
 
Accounting policies
Deferred income taxes arise from temporary differences between the accounting and taxable values of the individual consolidated companies and from realisable tax-loss carry-forwards using the liability method. The tax value of tax-loss carry-forwards is included in deferred tax assets to the extent that the tax losses and other tax assets are expected to be utilised in future taxable income. The deferred income taxes are measured according to current tax rules and at the tax rates expected to be in force on elimination of the temporary differences. Unremitted earnings are generally retained by subsidiaries for reinvestment, hence no provision is made for income taxes that would be payable upon the distribution of such earnings unless a concrete distribution of earnings is planned.
 
Key accounting estimate – deferred income tax assets and liabilities
 
Novo Nordisk is subject to income taxes around the world. Significant judgement is required in determining the worldwide accrual for income taxes, deferred income tax assets and liabilities, and provision for uncertain tax positions. Novo Nordisk recognises deferred income tax assets if it is probable that sufficient taxable income will be available in the future against which the temporary differences and unused tax losses can be utilised. Management has considered future taxable income in assessing whether deferred income tax assets should be recognised.

Development in deferred income tax assets and liabilities
DKK million
           
2012
2011
                 
At the beginning of the year
       
(792)
(1,018)
Reclassification from Other liabilities (note3.8)
       
(739)
-
Deferred tax on profit for the year
       
(645)
(257)
Adjustment relating to previous years
       
4,309
240
Deferred tax on items recognised in Other comprehensive income
       
(575)
190
Exchange rate adjustments
       
(46)
53
Total deferred tax assets/(liabilities), net
     
1,512
(792)
           
           

DKK million
 
Property, plant and equipment
Intangible assets
Inventories
Tax-loss carry-forward
Other
Offset within countries
Total
                 
2012
               
Net deferred tax asset/(liability) at 1 January
(1,060)
244
1,599
87
(1,662)
-
(792)
Reclassification from Other liabilities
       
(739)
 
(739)
Income/(charge) to the Income statement
66
(106)
(185)
(17)
3,906
 
3,664
Income/(charge) to Other comprehensive income
   
(78)
 
(497)
 
(575)
Exchange rate adjustment
(3)
(5)
-
(4)
(34)
 
(46)
Net deferred tax asset/(liability) at 31 December
(997)
133
1,336
66
974
-
1,512
Classified as follows:
             
Deferred tax asset at 31 December
176
436
2,560
66
1,421
(2,415)
2,244
Deferred tax liability at 31 December
(1,173)
(303)
(1,224)
-
(447)
2,415
(732)
               
2011
             
Net deferred tax asset/(liability) at 1 January
(1,279)
545
1,431
113
(1,828)
-
(1,018)
Income/(charge) to the Income statement
227
(316)
127
(21)
(34)
 
(17)
Income/(charge) to Other comprehensive income
   
41
 
149
 
190
Exchange rate adjustment
(8)
15
-
(5)
51
 
53
Net deferred tax asset/(liability) at 31 December
(1,060)
244
1,599
87
(1,662)
-
(792)
 
Classified as follows:
             
Deferred tax asset at 31 December
173
550
2,880
87
980
(2,256)
2,414
Deferred tax liability at 31 December
(1,233)
(306)
(1,281)
-
(2,642)
2,256
(3,206)
               
Further to the above, the tax value of tax-loss carry-forward of DKK 208 million (DKK 221 in 2011) has not been recognised in the balance sheet due to the likelihood that the tax losses will not be realised in the future. Of the unrecognised tax-loss carry-forward, DKK 3 million expires within one year, DKK 11 million between two to five years and DKK 194 million after more than five years.

Section 3 - Operating assets and liabilities

 
F-15

 
 

Consolidated financial statements

 
This section specifies the operating assets that form the basis for the activities of Novo Nordisk, and related liabilities. These net assets impact Novo Nordisk’s long-term target for ‘Operating profit after tax to net operating assets (OPAT/NOA)’.
 
Novo Nordisk operates with a relatively high OPAT/NOA due to a low level of acquired intangible assets and a stable operating asset base despite significant business growth. This is driven by Novo Nordisk’s organic growth strategy with limited acquisition of rights or businesses, and reflects the fact that, in line with industry practice, Novo Nordisk does not capitalise internal development costs until regulatory approval is highly probable. The overall approach to managing operating assets is to retain assets for research, development and production activities under the company’s own control, and generally to lease non-core assets related to administration and distribution. Furthermore, to maintain high quality in the company’s products and the capability at all times to deliver products to customers, Novo Nordisk ensures that the total production capacity and inventory levels reflect this priority.
 
3.1 Intangible assets
Accounting policies
Patents and licences, including acquired patents and licences for in-process research and development projects, are carried at historical cost less accumulated amortisation and any impairment loss. Amortisation is calculated using the straight-line method to allocate the cost of patents and licences over their estimated useful lives. Estimated useful life is the shorter of the legal duration and the economic useful life. The amortisation of patents and licences begins, at the earliest, on production of pre-launch inventory or after regulatory approval has been obtained.

Internal development of computer software and other development costs related to major IT projects for internal use that are directly attributable to the design and testing of identifiable and unique software products controlled by Novo Nordisk are recognised as intangible assets if the recognition criteria are met. The computer software has to be a significant business system and the expenditure must lead to the creation of a durable asset.  Amortisation is calculated using the straight-line method over the estimated useful life of 3-10 years. The amortisation commences when the asset is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by Management.

Impairment of assets
Intangible assets with an indefinite useful life and intangible assets not yet available for use are not subject to amortisation and are tested annually for impairment irrespective of whether there is any indication that they may be impaired.

Assets that are subject to amortisation, such as intangible assets in use or with definite useful life, and other non-current assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Factors considered material that could trigger an impairment test include the following:

§
Development of a competing drug
§
Changes in the legal framework covering patents, rights or licences
§
Advances in medicine and/or technology that affect the medical treatments
§
Lower-than-predicted sales
§
Adverse impact on reputation and/or brand names
§
Changes in the economic lives of similar assets
§
Relationship with other intangible assets or property, plant and equipment
§
Changes or anticipated changes in participation rates or reimbursement policies.

If the carrying amount of intangible assets exceeds the recoverable amount based upon the existence of one or more of the above indicators of impairment, any impairment is measured based on discounted projected cash flows. Impairments are reviewed at each reporting date for possible reversal.

Intangible assets
       
DKK million
   
2012
2011
         
Cost at the beginning of the year
   
2,538
2,277
Additions during the year
   
198
259
Disposals during the year
   
(18)
(1)
Effect of exchange rate adjustment
   
(6)
3
Cost at the end of the year
   
2,712
2,538
         
Amortisation and impairment losses at the beginning of the year
   
1,049
819
Amortisation for the year
   
160
107
Impairment losses for the year
   
32
125
Amortisation and impairment losses reversed on disposals during the year
   
(18)
(1)
Effect of exchange rate adjustment
   
(6)
(1)
Amortisation and impairment losses at the end of the year
   
1,217
1,049
Carrying amount at the end of the year
   
1,495
1,489
 
Specified as:
       
Patents and licenses
   
762
696
Internally developed software
   
532
518
Other intangible assets
   
201
275
Total
   
1,495
1,489
 
Hereof intangible assets not yet in use amount to DKK 669 million (DKK 980 million in 2011), primarily patents and licences in relation to development projects.
 
In 2012, an impairment loss of DKK 32 million (DKK 125 million in 2011) related to patents has been recognised due to discontinuation of development projects. Impairment tests in 2012 and 2011 of assets not yet in use were based upon Management’s projections and anticipated net present value of future cash flows from cash-generating units. Management has used a pre-tax discount rate (WACC) of 8% based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values used are based on the expected life of products, forecasted life cycle and cash flow over that period, and the useful life of the underlying assets.
Amortisation and impairment losses
DKK million
 
2012
2011
2010
         
Cost of goods sold
 
81
47
42
Sales and distribution costs
 
50
35
13
Research and development costs
 
47
139
19
Licence fees and other operating income, net
 
14
11
6
Total amortisation and impairment losses
 
192
232
80
 
 
F-16

 
 

Consolidated financial statements

 
3.2 Property, plant and equipment
 
Accounting policies
Property, plant and equipment is measured at historical cost less accumulated depreciation and any impairment loss. The cost of self-constructed assets includes costs directly attributable to the construction of the assets. Subsequent cost is included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to Novo Nordisk and the cost of the item can be measured reliably. In general, constructions of major investments are self-financed and thus no material interest on loans is capitalised as part of the cost. 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: 3–10 years
·
Land: not depreciated.

The depreciation commences when the asset is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by Management.

The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. An asset’s carrying amount is written down to its recoverable amount if the asset’s carrying amount is higher than its estimated recoverable amount (please refer to note 3.1 for a description of impairment of assets).  Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the Income statement.
 
 
Property, plant and equipment
         
DKK million
Land and
buildings
Plant and
machinery
Other
equipment
Payments on
account and
assets in
course of
construction
Total
   
   
2012
         
Cost at the beginning of the year
14,600
17,845
3,080
4,815
40,340
Additions during the year
171
136
220
2,845
3,372
Disposals during the year
(287)
(350)
(111)
-
(748)
Transfer from/(to) other items
1,020
553
192
(1,765)
-
Effect of exchange rate adjustment
(159)
(162)
(22)
(17)
(360)
Cost at the end of the year
15,345
18,022
3,359
5,878
42,604
           
Depreciation and impairment losses at the beginning of the year
5,525
11,888
1,996
-
19,409
Depreciation for the year
655
1,445
313
-
2,413
Impairment losses for the year
18
68
2
-
88
Depreciation and impairment losses reversed on disposals during the year
(263)
(315)
(91)
-
(669)
Effect of exchange rate adjustment
(54)
(111)
(11)
-
(176)
Depreciation and impairment losses at the end of the year
5,881
12,975
2,209
-
21,065
           
Carrying amount at the end of the year
9,464
5,047
1,150
5,878
21,539
           
2011
         
Cost at the beginning of the year
13,598
17,243
2,861
4,516
38,218
Additions during the year
312
262
293
2,206
3,073
Disposals during the year
(228)
(522)
(167)
-
(917)
Transfer from/(to) other items
982
937
85
(2,004)
-
Effect of exchange rate adjustment
(64)
(75)
8
97
(34)
Cost at the end of the year
14,600
17,845
3,080
4,815
40,340
           
Depreciation and impairment losses at the beginning of the year
5,048
10,806
1,857
-
17,711
Depreciation for the year
623
1,471
289
-
2,383
Impairment losses for the year
29
93
-
-
122
Depreciation and impairment losses reversed on disposals during the year
(165)
(462)
(157)
-
(784)
Effect of exchange rate adjustment
(10)
(20)
7
-
(23)
Depreciation and impairment losses at the end of the year
5,525
11,888
1,996
-
19,409
Carrying amount at the end of the year
9,075
5,957
1,084
4,815
20,931

 
F-17

 
 

Consolidated financial statements

 
Depreciation and impairment
DKK million
 
2012
2011
2010
         
Cost of goods sold
 
1,909
1,833
1,790
Sales and distribution costs
 
46
60
47
Research and development costs
 
416
494
441
Administrative costs
 
53
58
56
Licence fees and other operating income, net
 
77
60
53
Total depreciation
 and impairment losses
 
2,501
2,505
2,387
 
3.3 Inventories
 
Accounting policies
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out method. Cost comprises direct production costs such as raw materials, consumables and labour as well as indirect production costs (IPC). Production costs for work in progress and finished goods include IPC such as employee costs, depreciation, maintenance etc.

If the expected sales prices less completion costs to execute sales (net realisable value) are lower than the carrying amount, a write-down is recognised for the amount by which the carrying amount exceeds its net realisable value.

Inventory manufactured prior to regulatory approval is capitalised as an asset but provided for until there is a high probability of regulatory approval of the product. Before that point, a provision is made against the carrying amount of inventory to its recoverable amount and recorded as R&D costs. At the point when a high probability of regulatory approval is obtained, the provision recorded is reversed, up to no more than the original cost.
 
Key accounting estimate – Indirect production costs
 
IPC are measured using a standard cost method, which is reviewed regularly to ensure relevant measures of utilisation, production lead time and other relevant factors. Changes in the parameters for calculation of IPC could have an impact on the gross margin and the overall valuation of inventories.

Inventories
   
DKK million
2012
2011
     
Raw materials
1,512
1,432
Work in progress
4,910
5,035
Finished goods
3,985
3,781
Total inventories (gross)
10,407
10,248
Inventory write-downs at year-end
864
815
Total inventories (net)
9,543
9,433
     
Indirect production costs included in work in progress and finished goods (net)
4,894
5,125
Share of total inventories (net)
51%
54%
     
     
Movements in the inventory write-downs
Inventory write-downs at the beginning of the year
815
1,301
Inventory write-downs during the year
845
303
Utilisation of inventory write-downs
(532)
(500)
Reversal of inventory write-downs
(264)
(289)
Inventory write-downs at the end of the year
864
815
 
3.4 Trade receivables
 
Accounting policies
Trade receivables are, if collection is expected within one year (or in the normal operating cycle of the business if longer), classified as Current assets. If not, they are presented as Non-current assets.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowances for doubtful trade receivables.
 
The allowances are deducted from the carrying amount of Trade receivables and the amount of the loss is recognised in the Income statement under Sales and distribution costs. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against Sales and distribution costs in the income statement.
 
Key accounting estimate – Allowance for doubtful trade receivables

Novo Nordisk maintains allowances for doubtful trade receivables in anticipation of estimated losses resulting from the subsequent inability of customers to make required payments. If the financial circumstances of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required in future periods. When evaluating the adequacy of the allowance for doubtful trade receivables, Management analyses trade receivables and examines historical bad debt, customer concentrations, customer creditworthiness, current economic trends and changes in customer payment terms. Please refer to note 4.3 for a general description of credit risk.

As a result of the generally troubled economic climate in Europe and the Eurozone countries, Novo Nordisk has increased its focus on the development in the outstanding trade receivables from this region. Payment history as well as current economic conditions and indicators are taken into account in the valuation of trade receivables.

Furthermore, as a result of the significant increase in sales to countries within Region International Operations, and the fact that many of these countries have low credit ratings, the relative impact of Region International Operations on the allowance for doubtful trade receivables is increasing. Hence, Novo Nordisk continues to monitor the credit exposure related to this region.

Please refer to note 2.2 for a geographical split of trade receivables and allowances for doubtful trade receivables.

 
F-18

 
 

Consolidated financial statements

 
Trade receivables
   
DKK million
2012
2011
     
Trade receivables (gross)
10,663
10,241
Allowances at the end of the year
1,024
892
Trade receivables (net)
9,639
9,349
     
Trade receivables (net) are equal to an average credit period of 45 days (51 days in 2011).
 
 
Age analysis of trade receivables
Non-impaired trade receivables
   
- Not yet due
8,950
8,503
- Overdue by between 1 and 179 days
629
712
- Overdue by between 180 and 359 days
60
134
- Overdue by more than 360 days
0
0
Trade receivables with credit risk exposure
9,639
9,349
Impaired trade receivables
1,024
892
Trade receivables (gross)
10,663
10,241
     
Movement in allowances for doubtful trade receivables
Carrying amount at the beginning of the year
892
627
Confirmed losses
(35)
(66)
Reversal of allowances for confirmed losses
(13)
(18)
Allowances for possible losses during the year
189
361
Effect of exchange rate adjustment
(9)
(12)
Allowances at the end of the year
1,024
892
 
3.5 Other receivables and prepayments
 
Accounting policies
 
Other receivables and prepayments are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
 
Other receivables comprise miscellaneous duties and work in progress for third parties etc. Prepayments are payments made to ongoing research and development activities and concerning subsequent financial years etc.
 
Other receivables and prepayments
   
DKK million
2012
2011
     
Prepayments
1,033
935
Interest receivable
87
113
Amounts owed by related parties
184
88
Deposit
524
558
VAT receivable
185
122
Other receivables
692
560
Total other receivables and prepayments
2,705
2,376
 
3.6 Provisions
 
Accounting policies
Provisions for sales rebates and discounts granted to government agencies, wholesalers, retail pharmacies, managed care and other customers are recorded at the time the related revenues are recorded or when the incentives are offered. They are calculated on the basis of historical experience and the specific terms in the individual agreements.

Provisions for legal disputes are recognised where a legal or constructive obligation has been incurred as a result of past events and it is probable that there will be an outflow of resources that can be reliably estimated. In this case, Novo Nordisk arrives at an estimate on the basis of an evaluation of the most likely outcome. Disputes for which no reliable estimate can be made are disclosed as contingent liabilities.

Novo Nordisk issues credit notes for expired goods as a part of normal business. Where there is historical experience or a reasonably accurate estimate of expected future returns can otherwise be made, a provision for estimated product returns is recorded. The provision is measured at gross sales value.

Provisions are measured at the present value of the anticipated expenditure for settlement of the legal or constructive obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as interest expense.


Key accounting estimate – Provisions for sales rebates
Novo Nordisk records provisions and accruals for expected sales rebates, wholesaler charge-backs and other rebates, including Medicaid and Medicare in the US and similar rebates in other countries.

Such estimates are based on analyses of existing contractual or legal obligations, historical trends and the Group’s experience. They are calculated on the basis of a percentage of sales for each product as defined by the contracts with the various customer groups.

Provisions for sales rebates are adjusted to actual amounts as rebates, discounts and returns are processed. Please refer to note 2.1 for further information on sales rebates and provision.
 
Novo Nordisk considers the provision established for sales rebates to be reasonable and appropriate based on currently available information. However, the actual amount of rebates and discounts may differ from the amounts estimated by Management as more detailed information becomes available.
 

Key accounting estimate – Provisions for legal disputes
Provisions for legal disputes consist of various types of provisions linked to ongoing legal disputes. Management makes judgements about provisions and contingencies, including the probability of pending and potential future litigation outcomes which, by their very nature, are dependent on inherently uncertain future events. When determining likely outcomes of litigations etc, Management considers the input of external counsels on each case, as well as known outcomes in case law.

Although Management believes that the total provisions for legal proceedings are adequate based upon currently available information, there can be no assurance that there will not be any changes in facts or matters or that any future lawsuits, claims, proceedings or investigations will not be material.

 
F-19

 
 

Consolidated financial statements

 
Provisions
           
DKK million
Provisions for sales rebates
Provisions for legal disputes 1
Provisions for product returns
Other
provisions 2
2012
Total
2011
Total
At the beginning of the year
5,666
1,554
555
489
8,264
6,667
Additional provisions, including increases to existing provisions
12,912
41
263
203
13,419
10,511
Amount used during the year
(10,954)
-
(238)
(63)
(11,255)
(8,228)
Adjustments, including unused amounts reversed during the year
(187)
(513)
-
(68)
(768)
(782)
Effect of exchange rate adjustment
(85)
(25)
2
11
(97)
96
At the end of the year
7,352
1,057
582
572
9,563
8,264
Classified as follows:
           
Non-current liabilities
-
1,057
349
501
1,907
2,324
Current liabilities
7,352
-
233
71
7,656
5,940

1 Please refer to note 5.4 for further information on commitments and contingencies.
2 Other provisions consist of various types of provision including employee benefits such as jubilee benefits etc.
 
 
3.7 Retirement benefit obligations
 
Accounting policies
Novo Nordisk operates a number of defined contribution plans throughout the world. Novo Nordisk’s contributions to the defined contribution plans are charged to the Income statement in the year to which they relate. In a few countries, Novo Nordisk still operates defined benefit plans; these are primarily located in Japan, Germany, the US and Switzerland. 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 valuation dates and is based on actuarial assumptions primarily regarding discount rates used in determining the present value of benefits and projected rates of remuneration growth. Discount rates are based on the market yields of high-rated corporate bonds in the country concerned.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to other comprehensive income in the period in which they arise.

Past service costs are recognised immediately in the Income statement.

Pension assets are only recognised to the extent that Novo Nordisk is able to derive future economic benefits such as refunds from the plan or reductions of future contributions.

The Group’s defined benefit plans are pension plans and medical plans and are usually funded by payments from Group companies and by employees to funds independent of Novo Nordisk. Where a plan is unfunded, a liability for the retirement obligation is recognised in the balance sheet.  Costs recognised for post-employment benefits are included in Cost of goods sold, Sales and distribution costs, Research and development costs, and Administrative costs.

Other post-employment benefits mostly comprise post-retirement healthcare plans, principally in the US.

Please refer to note 1.2 for a description of the changed accounting policy for retirement benefit obligations.

 
F-20

 
 

Consolidated financial statements

 
Retirement benefit obligations

DKK million
2012
2011
 
 
Pension plans
Medical benefits
Total
Total
At the beginning of the year
1,125
238
1,363
1,452
Current service costs
111
21
132
155
Interest costs
37
10
47
52
Remeasurement (gains)/losses1
188
35
223
(29)
Past service costs
-
-
-
(27)
Benefits paid
(75)
(5)
(80)
(75)
Curtailments2
-
-
-
(241)
Exchange rate adjustment
(36)
(4)
(40)
43
Other
20
(1)
19
33
At the end of the year
1,370
294
1,6643
1,3633
1 Remeasurement relates primarily to change in financial assumptions.
2 Curtailment relates to changes in defined benefit plans in Japan and the US in 2011.
3 Present value of partly funded retirement benefit obligations amounts to DKK 1,229 million (DKK 1,071 million in 2011). Present value of unfunded retirement benefit obligations amounts to DKK 435 million (DKK 292 million in 2011).

Fair value of plan assets
     
DKK Million
2012
2011
At the beginning of the year
859
766
Interest income
31
28
Remeasurement gains/(losses)
7
(20)
Employer contributions
93
128
Benefits paid to employees
(80)
(75)
Exchange rate adjustment
(23)
20
Other
17
12
At the end of the year
904
859

 
Net retirement benefit obligations at the end of the year (unfunded) 1
760
504
1 Unrecognised remeasurements in 2011 amounted to DKK 65 million. Net retirement benefit obligation recognised in the Balance sheet in 2011 amounted to DKK 439 million.
 
The amount recognised in the Balance sheet is reported as non-current liabilities.

Net retirement benefit obligation
DKK Million
2012
2011
At the beginning of the year
439
569
Costs recognised in the Income statement1
150
(25)
Remeasurements recognised in Other comprehensive income2
281
-
Exchange rate adjustment recognised in Other comprehensive income3
(17)
23
Employer contributions
(93)
(128)
At the end of the year
760
439
1 Costs recognised in Income statement include service costs, net interests, curtailments and other.
2 Remeasurements charged to Other comprehensive income including effect of change in accounting policy in 2012 amounting to DKK 65 million.
3 Recognised in Other comprehensive income as part of Exchange rate adjustments of investments in subsidiaries.
 
Please refer to note 5.4 for maturity analysis of net retirement benefit obligation.

Novo Nordisk does not expect the contributions over the next five years to differ significantly from current contributions.

Weighted average asset allocation of funded retirement obligations
 
2012
2011
 
 
DKK million
 
%
 
DKK million
 
%
         
Coverage insurance 1
607
67%
575
67%
Equities
67
7%
49
5%
Bonds
214
24%
152
18%
Cash at bank
9
1%
75
9%
Property
7
1%
8
1%
Total
904
100%
859
100%
 
1 Novo Nordisk’s defined benefit plans in Germany and Switzerland are reimbursed by the international insurer Allianz regardless of the value of the plan assets. The  risk related to the funding in these countries is therefore counterparty risk against Allianz.

Assumptions used for valuation
 
2012
2011
Discount rate
3%
4%
Projected future remuneration increases
2%
2%
Medical cost trend rate
3%
3%
Inflation rate
2%
2%
     
Actuarial valuations are performed annually for all major defined benefit plans. Assumptions regarding future mortality are based on actuarial advice in accordance with published statistics and experience in each country.

Significant actuarial assumptions for the determination of the retirement benefit obligation are discount rate and expected future remuneration increases. The sensitivity analyses below have been determined based on reasonably likely changes in the assumptions occurring at the end of the period.

DKK million
1 %-point increase
1 %-point decrease
Discount rate
(237)
309
Future remuneration
77
(57)
 
3.8 Other liabilities
 
Other liabilities
 
DKK million
2012
2011
     
Employee costs payable
3,748
3,369
Accruals
3,697
2,9921
VAT and duties payable
703
537
R&D clinical trials
229
211
Other payables 2
605
1,425
Total other liabilities
8,982
8,534
1 Including reclassification to deferred income tax liabilities of DKK 739 million in 2012 (note 2.4).
2Other payables primarily relates to royalty payments and deferred income.
 
 
F-21

 
 

Consolidated financial statements

 
Section 4 - Capital structure and financing items
 
This section encompasses notes related to Novo Nordisk’s capital structure and financing items. Further information on the company’s capital structure can be found in ‘Shares and capital structure’ on pp 44-45.
 
Novo Nordisk’s guiding principle on capital structure is that excess cash flow - after funding of organic growth opportunities, research and development, and potential licensing and acquisitions - is returned to the company’s shareholders. Novo Nordisk applies a pharmaceutical industry average payout ratio to dividend payments, complemented by share repurchase programmes. The main financial risk is foreign exchange exposure, where Novo Nordisk intends to reduce the short-term impact from the movement in key currencies by hedging future cash flows.
 
4.1 Share capital and earnings per share
 
Share capital
     
DKK million
A share
capital
B share
capital
Total share capital
Development in share capital:
     
2008
107
527
634
2009
-
(14)
(14)
2010
-
(20)
(20)
2011
-
(20)
(20)
At the beginning of the year
107
473
580
2012
-
(20)
(20)
At the end of the year
107
453
560
 
At the end of 2012, the share capital amounted to DKK 107 million in A share capital (equal to 107 million A shares of DKK 1) and DKK 453 million in B share capital (equal to 453 million B shares of DKK 1).
 
Treasury shares
 
Accounting policies
Treasury shares are deducted from the share capital at their nominal value of DKK 1 per share. Differences between this amount and the amount paid to acquire or received for disposing of, treasury shares are deducted from Retained earnings.
 
 
2012
2011
 
Market value DKK
million
As % of share capital
before cancellation
As % of share capital
after cancellation
Number of B Shares
of DKK 1 (million)
Number of B Shares
of DKK 1 (million)
           
Holding at the beginning of the year
16,131
4.2%
 
24
28
Cancellation of treasury shares
(13,200)
(3.4%)
 
(20)
(20)
Holding of treasury shares, adjusted for cancellation
2,931
0.8%
0.8%
4
8
Purchase during the year
12,162
 
2.6%
15
18
Sale during the year
(266)
 
(0.3%)
(2)
(2)
Value adjustment
1,135
   
-
-
Holding at the end of the year
15,962
 
3.1%
17
24
 
The purchase of treasury shares during the year relates to the remaining part of the 2011 share repurchase programme totalling DKK 1.1 billion and the DKK 12 billion share repurchase programme of Novo Nordisk B shares for 2012 of which DKK 1 billion remains at year end. The programme ends at 29 January 2013. The purpose of the programmes is to reduce the company’s share capital. Sale of treasury shares relates to exercised share options, long-term share-based incentive programme, employee share savings programmes and employee shares.
 
At year-end the holding of treasury shares amounts to 17,416,676 shares (24,440,186 shares in 2011). At year-end 3.5 million shares of the holding of treasury B shares are regarded as hedges for the long-term share-based incentive programme and share options to employees.
 
Dividend
At the end of 2012, proposed dividends (not yet declared) of DKK 9,715 million (DKK 18.00 per share) are included in Retained earnings.
The declared dividend included in Retained earnings was DKK 7,742 million (DKK 14.00 per share) in 2011 and DKK 5,700 million (DKK 10.00 per share) in 2010. No dividend is declared on treasury shares.
 
 
F-22

 
 

Consolidated financial statements

 
Earnings per share
 
Accounting policies
 
Earnings per share (EPS) is presented as both basic earnings per share and diluted earnings per share.
 
Basic earnings per share is calculated as net profit divided by the average number of shares outstanding.
 
Diluted earnings per share is calculated as net profit divided by the sum of average number of shares outstanding, including the dilutive effect of share options ‘in the money’ . The dilutive effect of share options ‘in the money’ is calculated as the difference between the following:
 
1) the number of shares that could have been acquired at fair value with proceeds from the exercise of the share options
2) the number of shares that would have been issued assuming the exercise of the share options.
 
The difference (the dilutive effect) is added to the denominator as an issue of shares for no consideration.
 
         
DKK million
 
2012
2011
2010
         
Net profit for the year
 
21,432
17,097
14,403
         
Average number of shares outstanding
in 1,000 shares
548,338
565,433
580,438
Dilutive effect of outstanding share bonus pool and options ‘in the money’ 1
in 1,000 shares
3,330
4,699
5,039
Average number of shares outstanding, including dilutive effect of options ‘in the money’
in 1,000 shares
551,668
570,132
585,477
         
Basic earnings per share 1
DKK
39.09
30.24
24.81
Diluted earnings per share 1
DKK
38.85
29.99
24.60
1 For further information on outstanding share bonus pool and options, refer to note 5.1.
 
4.2 Debt
 
Accounting policies
Loans are recognised initially at fair value, net of transaction costs incurred. Loans are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Income statement over the period of the loans using the effective interest method. Loans are classified as Current debt unless Novo Nordisk has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.
Debt
   
DKK million
2012
2011
     
Loans 1
-
502
Current debt (bank overdrafts)
500
351
Derivative financial instruments (note 4.4)
48
1,492
Total debt
548
2,345
     
     
The debt is denominated in the following currencies:
   
DKK
20
82
EUR
1
501
USD
53
983
JPY
0
404
Other currencies
474
375
Total debt
548
2,345
1 A loan of DKK 502 million with maturity in 2022 has been repaid during 2012.

4.3 Financial risk
Novo Nordisk has centralised management of the Group’s financial risks. The overall objectives and policies for the company’s financial risk management are outlined in an internal 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 permitted financial instruments and risk limits.

Novo Nordisk only hedges commercial exposures and consequently does not enter into derivative transactions for trading or speculative purposes. 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
Foreign exchange risk is the principal financial risk for Novo Nordisk and as such has a significant impact on the Income statement, Other comprehensive income, the Balance sheet and the Statement of cash flows.

The majority of Novo Nordisk’s sales are in EUR, USD, JPY, CNY and GBP. Consequently, Novo Nordisk’s foreign exchange risk is most significant in USD, JPY, CNY and GBP, while the EUR exchange rate risk is regarded as low due to the Denmark’s fixed-rate policy towards EUR.

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

Novo Nordisk hedges existing assets and liabilities in key currencies as well as future expected cash flows up to a maximum of 24 months forward. During 2012, the hedging horizon varied between 11 and 13 months for USD, JPY, CNY and GBP. Currency hedging is based upon expectations of future exchange rates and mainly uses foreign exchange forwards and foreign exchange options matching the due dates of the hedged items. Expected cash flows are continually assessed using historical inflows, budgets and monthly sales forecasts. Hedge effectiveness is assessed on a regular basis.

 
F-23

 
 

Consolidated financial statements

 
Key currencies
Exchange rate
DKK per 100
USD
JPY
CNY
GBP
 
2012
Average
579
7.27
92
918
End of year
566
6.57
91
913
Year-end change
-1.6%
-11.5%
0.0%
2.6%
 
2011
Average
536
6.73
83
859
End of year
575
7.42
91
890
Year-end change
2.5%
7.7%
7.1%
2.7%

The financial contracts existing at the end of the year cover the expected future cash flow for the following number of months:

 
 
2012
 
2011
USD
12 months
12 months
JPY
13 months
12 months
CNY1
12 months
12 months
GBP
12 months
12 months
1 USD used as proxy when hedging Novo Nordisk’s CNY currency exposure.

Foreign exchange sensitivity analysis:
A 5% increase/decrease in the following currencies will impact Novo Nordisk’s operating profit as outlined in the table below:
 
 
DKK million
Estimated for
2013
 
2012
USD
975
775
JPY
200
170
CNY
110
100
GBP
85
75

A 5% increase/decrease in all other currencies versus EUR and DKK would affect the hedging instruments’ impact on Other comprehensive income and the Income statement as outlined in the table below:

DKK million
5% increase in all currencies against DKK and  EUR
5% decrease in all currencies against DKK and  EUR
 
2012
Other comprehensive income
(1,313)
1,376
Income statement
(117)
106
Total
(1,430)
1,482
 
2011
Other comprehensive income
(1,011)
1,026
Income statement
54
(38)
Total
(957)
988

The higher foreign exchange sensitivities in 2012, compared with 2011, are primarily a result of higher expected future cash flow.

The financial instruments included in the foreign exchange sensitivity analysis are the Group’s Cash, Trade receivables and Trade payables, Current and non-current loans, Current and non-current financial investments, Foreign exchange forwards and Foreign exchange options hedging transaction exposure, Interest rate swaps and Cross-currency swaps.

Not included are anticipated currency transactions, investments and non-current assets.

Interest rate risk
In general, DKK and EUR interest rates declined in 2012. The Danish two-year interest rate was 0.53% at the end of 2012, down from 1.08% at the end of 2011. The three-month Cibor interest rate was 0.28% at the end of 2012, down from 1.00% at the end of 2011.

Changes in interest rates affect Novo Nordisk’s financial instruments. At the end of 2012, a 1 percentage point increase in the interest rate level
 would, all else being equal, result in a decrease in the fair value of Novo Nordisk’s financial instruments of DKK 20 million (a decrease in the fair value of DKK 17 million in 2011).

The financial instruments included in the sensitivity analysis consist of marketable securities, deposits, current and non-current loans, interest rate swaps and cross-currency swaps. Not included are foreign exchange forwards and foreign exchange options due to the limited effect that a parallel shift in interest rates in all currencies has on these instruments.

Liquidity risk
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 uses cash pools for optimisation and centralisation of cash management. For non-cash pool affiliates, surplus cash above the balance required for working capital management is deposited centrally.

Credit risk
Credit risk arises from the possibility that counterparties to transactions may default on their obligations, causing financial losses for the Group. Novo Nordisk considers its maximum credit risk on financial assets to be DKK 17,036 million (2011: DKK 17,550 million). In addition, Novo Nordisk considers its maximum credit risk on Trade receivables, Other receivables less prepayments and Other financial assets to be DKK 11,539 million (2011: DKK 11,024 million). Please refer to note 4.7 for details of the Group’s total financial assets.

To manage credit risk on financial counterparties, Novo Nordisk only enters into derivative financial contracts and money market deposits with financial counterparties possessing a satisfactory long-term credit rating from both Standard and Poor’s and Moody’s. Furthermore, maximum credit lines defined for each counterparty diversify the overall counterparty risk. The credit risk on bonds is limited as investments are made in highly liquid bonds with solid credit ratings. The table below shows Novo Nordisk’s credit exposure on cash, fixed-income marketable securities and financial derivatives.
 
Credit exposure on Cash at bank or on hand, Marketable securities and Derivative financial instruments (market value)

DKK million
Cash at bank or on hand
Marketable securities
Derivative financial instruments
Total
 
2012
AAA-range
 
4,544
 
4,544
AA-range
6,930
 
466
7,396
A-range
4,011
 
180
4,191
BBB-range
469
 
285
754
Not rated or below BBB-range
143
8
 
151
Total
11,553
4,552
931
17,036
 
2011
AAA-range
 
4,083
 
4,083
AA-range
6,223
 
16
6,239
A-range
7,156
 
32
7,188
BBB-range
       
Not rated or below BBB-range
29
11
 
 
 
40
Total
13,408
4,094
48
17,550

Credit risk on Trade receivables and Other receivables and prepayments is less material as Novo Nordisk has no significant concentration of credit risk, with exposure being spread over a large number of counterparties and customers. However, due to the troubled economic climate in the Eurozone, the Group continues to focus on the development in the outstanding trade receivables from this region.
 
 
F-24

 
 

Consolidated financial statements

 
Novo Nordisk also continues to monitor the credit exposure in Region International Operations due to the increasing sales and low credit ratings of many countries in this region.

Please refer to note 2.2 for split of allowance for trade receivables by geographical segment.

4.4 Derivative financial instruments
 
Accounting policies

The derivative financial instruments are used to manage the exposure to market risk. None of the derivatives are held for trading. However, not all derivatives are designated for hedge accounting.

Novo Nordisk uses forward exchange contracts and currency options to hedge forecast transactions and assets and liabilities. Currently, net investments in foreign subsidiaries are not hedged.

Upon initiation of the contract, Novo Nordisk designates each derivative financial contract that qualifies for hedge accounting as one of:
 
 
§
hedges of the fair value of a recognised asset or liability or a firm commitment (fair value hedge)
§
hedges of the fair value of a forecast financial transaction (cash flow hedge)
§
hedges of a net investment in a foreign operation (net investment hedge).

All contracts are initially recognised at fair value and subsequently remeasured at their fair values based on current bid prices at the end of the reporting period.

Forward exchange contracts recognised as hedging assets or liabilities in foreign currencies are measured at fair value at the end of the reporting period. Value adjustments are recognised in the Income statement along with any value adjustments of the hedged asset or liability that is attributable to the hedged risk.

The value adjustments on forward exchange contracts designated as hedges of forecast transactions are recognised directly in Other comprehensive income, given hedge effectiveness. The cumulative value adjustment of these contracts is transferred from Other comprehensive income to the Income statement as a reclassification adjustment under Financial income or Financial expenses when the hedged transaction is recognised in the Income statement.

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 end of the reporting period. The value adjustment is recognised in Other comprehensive income.

Furthermore, Novo Nordisk uses currency option hedges of forecast transactions. Currency options are initially recognised at cost, which equals fair value of considerations paid, and subsequently remeasured at their fair values at the end of the reporting period. The cumulative value adjustment of the currency options for which hedge accounting is applied, which is the intrinsic value of the options, is transferred from Other comprehensive income to the Income statement as a reclassification adjustment under Financial income or Financial expenses when the hedged transaction is recognised in the Income statement. Gains and losses on currency options that do not meet the  criteria for hedge accounting are recognised directly in the Income statement under Financial income or Financial expenses.

The fair value of financial assets and liabilities is measured on the basis of quoted market prices of financial instruments traded in active markets. If an active market exists, fair value is based on the most recently observed market price at the end of the reporting period.

If a financial instrument is quoted in a market that is not active, Novo Nordisk bases its valuation on the most recent transaction price. Adjustment is made for subsequent changes in market conditions, for instance by including transactions in similar financial instruments that are assumed to be motivated by normal business considerations.
 
Capital structure
 
Novo Nordisk’s capital structure is characterised by a substantial equity ratio. This is in line with the general capital structure of the pharmaceutical industry and reflects the inherent long-term investment horizons in an industry with typically more than 10 years’ development time for pharmaceutical products. Novo Nordisk’s equity ratio, calculated as equity to total liabilities, was 61.9% at the end of the year (57.9% at the end of 2011).

 
If an active market does not exist, the fair value of standard and simple financial instruments, such as foreign exchange forward contracts, interest rate swaps, currency swaps and unlisted bonds, is measured according to generally accepted valuation techniques. Market-based parameters are used to measure fair value.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the Income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the Income statement under Financial income or Financial expenses.

 
F-25

 
 

Consolidated financial statements

 
 
 
 
Hedging activities
2012
 
2011
DKK million
Contract amount at year-end
Positive fair value at year-end
Negative fair value at year-end
 
Contract amount at year-end
Positive fair value at year-end
Negative fair value at year-end
               
Forward contracts, cash flow hedges
25,639
732
   
18,906
 
1,256
Currency options, cash flow hedges
2,755
134
   
4,805
116
 
Forward contracts, fair value hedges
2,521
95
48
 
2,534
 
176
Cross-currency swaps, net investment hedges1
       
166
 
56
Total currency-related instruments
30,915
961
48
 
26,411
116
1,488
               
Interest rate swaps, cash flow hedges
       
250
 
4
Total interest-related instruments
-
-
-
 
250
-
4
               
Total hedging activities
30,915
961
48
 
26,661
116
1,492
Total derivatives included in:
             
Derivative financial instruments (current assets)
 
931
     
48
 
Derivative financial instruments (current liabilities)
   
48
     
1,492
Equity, Other reserves
 
30
     
68
 
1 No net investment hedge exist at year-end 2012. In 2011, the financial contract existing at the end of the year hedged 13% of the net investments in JPY.
 

Presentation in the Income statement and Other comprehensive income
       
         
   
2012
   
2011
DKK million
 
Positive fair value at year-end
Negative fair value at year-end
   
Positive fair value at year-end
Negative fair value at year-end
Cash flow hedges for which hedge accounting is not applied
 
19
     
48
8
Fair value hedges
 
95
48
     
176
Total fair value adjustments through the Income statement
 
114
48
   
48
184
               
Cash flow hedges for which hedge accounting is applied
 
847
     
68
1,252
Net investment hedges (included in exchange rate adjustment)
           
56
Total fair value adjustments through Other comprehensive income
 
847
-
   
68
1,308
               
Total fair value adjustments
 
961
48
   
116
1,492

 
F-26

 
 

Consolidated financial statements

 
Hedging of forecast transactions (cash flow hedge)


Hedging of forecast transactions qualifying for hedge accounting
             
 
2012
 
2011
 
DKK million
Contract amount at year-end
 
Positive fair value at year-end
 
Negative fair value at year-end
 
Contract amount at year-end
 
Positive fair value at year-end
Negative fair value at year-end
 
               
USD
19,939
 
409
     
14,250
   
896
JPY, GBP and other currencies
5,700
 
323
     
4,656
   
360
Total forward contracts (forecasted cash flow)
25,639
 
732
 
-
 
18,906
 
-
1,256
                     
USD
2,402
 
72
     
4,007
 
66
 
JPY
353
 
43
     
798
 
2
 
Total currency options (forecasted cash flow)
2,755
 
115
 
-
 
4,805
 
68
-
                     
Total interest rate swaps (variable payments on debt instruments) EUR/EUR
-
 
-
 
-
 
250
 
-
(4)
Total cash flow hedges for which hedge accounting is applied
28,394
 
847
 
-
 
23,961
 
68
1,252

Other forecast transaction hedges for which hedge accounting is not applied
Currency options and interest rate swaps for which hedge accounting is not applied
-
19
-
 
-
48
8

Total contracts of forecast transactions
28,394
866
-
 
23,961
116
1,260


Hedging of assets and liabilities (fair value hedge)
 

 
2012
 
2011
DKK million
Contract amount at year-end
 
Positive fair value at year-end
 
Negative fair value at year-end
 
Contract amount at year-end
 
Positive fair value at year-end
Negative fair value at year-end
                     
USD
698
     
30
 
478
   
81
JPY
444
 
95
     
731
   
72
GBP
365
     
18
 
376
   
7
Other
1,014
         
949
   
16
Total forward contracts
2,521
 
95
 
48
 
2,534
 
-
176
                     
The table above shows the fair value of fair value-hedging activities for 2012 and 2011 specified by hedging instrument and the major currencies. All changes in fair values are recognised in the Income statement, amounting to a net gain of DKK 47 million in 2012 (a net loss of DKK 176 million in 2011).  As the hedges are highly effective, the net gain or loss on the hedged items is similar to the net loss or gain on the hedging instruments.

The financial contracts existing at the end of the year hedge the currency exposure on assets and liabilities in the Group’s major currencies other than DKK and EUR, ie primarily assets and liabilities in USD, JPY and GBP. ‘Other’ comprises AUD at DKK 475 million (DKK 399 million in 2011), CAD at DKK 138 million (DKK 170 million in 2011) and PLN at DKK 401 million (DKK 380 million in 2011).
 
 
F-27

 
 

Consolidated financial statements

 
4.5 Cash and cash equivalents
 
Accounting policies
Cash and cash equivalents consist of cash and marketable securities with original maturity of less than three months offset by short-term bank loans. Financial resources consist of cash and cash equivalents, bonds with original term to maturity exceeding three months and undrawn committed credit facilities expiring after more than one year.
 
Cash and cash equivalents
DKK million
2012
2011
2010
       
Cash at bank and on hand (note 4.3)
11,553
13,408
12,017
Bank overdrafts (note 4.2)
(500)
(351)
(57)
Cash and cash equivalents at the end of the year
11,053
13,057
11,960
       
 
4.6 Change in working capital
 
Accounting policies
 
Working capital is defined as current assets less current liabilities. It measures how much in liquid assets Novo Nordisk has available for the business.
 
Change in working capital
DKK million
2012
2011
2010
       
Trade receivables
(290)
(849)
(1,437)
Other receivables and prepayments
(329)
27
(441)
Inventories
(110)
256
327
Trade payables
568
385
664
Other liabilities
448
580
1,141
Exchange rate adjustments
(13)
35
43
Total change in working capital
274
434
297
 
4.7 Financial assets and liabilities
 
Accounting policies
 
Novo Nordisk classifies its investments in the following categories:

·
Available-for-sale financial assets
·
Loans and receivables
·
Financial assets at fair value through the Income statement (derivatives).

The classification depends on the purpose for which the investments were made. Management determines the classification of its investments on initial recognition and re-evaluates this at the end of every reporting period to the extent that such a classification is permitted and required.

Recognition and measurement
Purchases and sales of investments are recognised on the settlement date. Investments are initially recognised at fair value.

Available-for-sale financial assets and financial assets at fair value are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method.

Fair value disclosures are made separately for each class of financial instruments at the end of the reporting period.

Derecognition
Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred, and Novo Nordisk has transferred substantially all risks and rewards of ownership.

Available-for-sale financial assets
Available-for-sale financial assets consist of equity investments and marketable securities and are included in Other financial assets unless Management intends to dispose of the investment within 12 months of the end of the reporting period. If that is the case, the current part is included in Other receivables and prepayments.

Unrealised gains and losses arising from changes in the fair value of financial assets classified as available for sale are recognised in Other comprehensive income. When financial assets classified as available for sale are sold or impaired, the accumulated fair value adjustments are included in the Income statement.

The fair values of quoted investments (including bonds) are based on current bid prices at the end of the reporting period. Financial assets for which no active market exists are carried at fair value based on a valuation methodology or at cost if no reliable valuation model can be applied.

Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. If collection is expected within one year (or in the normal operating cycle of the business if longer), they are classified as Current assets. If not, they are presented as Non-current assets.

Trade receivables and Other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for allowances. Provision for allowances is made for trade receivables when there is objective evidence that Novo Nordisk will not be able to collect all amounts due according to the original terms of the receivables.
 
The provision for allowances is deducted from the carrying amount of Trade receivables and the amount of the loss is recognised in the Income statement under Sales and distribution costs. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against Sales and distribution costs in the Income statement.

 
F-28

 
 

Consolidated financial statements

 
 Financial assets and liabilities
         
DKK million
 
Available-for-sale financial assets at fair value
Financial assets measured at fair value through the Income statement
Loans and receivables
Cash and cash equivalents
 
 
Total
2012
           
           
Other financial assets
147
 
81
 
228
Trade receivables (note 3.4)
   
9,639
 
9,639
Other receivables (note 3.5)
   
2,705
 
2,705
 - less prepayments (note 3.5)
   
(1,033)
 
(1,033)
Marketable securities (bonds) (note 4.3)1
4,552
     
4,552
Derivative financial instruments (note 4.4)
 
931
   
931
Cash at bank and on hand (note 4.5)
     
11,553
11,553
Total financial assets at the end of the year by category
4,699
931
11,392
11,553
28,575
           
   
Financial liabilities measured at fair value through the Income statement
Financial liabilities measured at amortised cost
Financial liabilities measured at fair value through Other comprehensive income
 
 
Total
DKK million
         
           
Current debt (note 4.2)
   
500
 
500
Trade payables
   
3,859
 
3,859
Other liabilities (note 3.8)
   
8,982
 
8,982
- less VAT and duties payable (note 3.8)
   
(703)
 
(703)
Derivative financial instruments (note 4.4)
 
48
   
48
Total financial liabilities at the end of the year by category
 
48
12,638
-
12,686
           
 

DKK million
 
2011
 
Available-for-sale financial assets at fair value
Financial assets measured at fair value through the Income statement
Loans and receivables
Cash and cash equivalents
 
 
Total
           
           
           
Other financial assets
230
 
43
 
273
Trade receivables (note 3.4)
   
9,349
 
9,349
Other receivables (note 3.5)
   
2,376
 
2,376
- less prepayments (note 3.5)
   
(935)
 
(935)
Marketable securities (bonds) (note 4.3)1
4,094
     
4,094
Derivative financial instruments (note 4.4)
 
48
   
48
Cash at bank and on hand (note 4.5)
     
13,408
13,408
Total financial assets at the end of the year by category
4,324
48
10,833
13,408
28,613
 
1 Including Danish AAA-rated mortgage bonds issued by Danish credit institutions governed by the Danish Financial Supervisory Authority of DKK 4,544 million (DKK 4,083 million in 2011); refer to note 4.3. Redemption yield on the bond portfolio is 0.73%.
 
 
F-29

 
 

Consolidated financial statements

 
 Financial assets and liabilities (continued)
 
Financial liabilities measured at fair value through the Income statement
Financial liabilities measured at amortised cost
Financial liabilities measured at fair value through Other comprehensive income
Total
 
 
DKK million
       
         
Loans (note 4.2)
 
502
 
502
Current debt (note 4.2)
 
351
 
351
Trade payables
 
3,291
 
3,291
Other liabilities (note 3.8)
 
8,534
 
8,534
- less VAT and duties payable (note 3.8)
 
(537)
 
(537)
Derivative financial instruments (note 4.4)
184
 
1,308
1,492
Total financial liabilities at the end of the year by category
184
12,141
1,308
13,633


Maturity analysis
         
DKK million
 
Equity investments
Maturity
< 1 year
Maturity
> 1 year
< 5 years
Maturity
> 5 years
 
 
Total
 
2012
         
           
           
Other financial assets
147
   
81
228
Trade receivables (note 3.4)
 
9,639
   
9,639
Other receivables (note 3.5)
 
2,705
   
2,705
- less prepayments (note 3.5)
 
(1,033)
   
(1,033)
Marketable securities (bonds) (note 4.3)
 
3,318
1,234
 
4,552
Derivative financial instruments (note 4.4)
 
845
86
 
931
Cash at bank and on hand (note 4.5)
 
11,553
   
11,553
Total assets at the end of the year by maturity
147
27,027
1,320
81
28,575

           
           
           
Current debt (note 4.2)
 
500
   
500
Trade payables
 
3,859
   
3,859
Other liabilities (note 3.8)
 
8,982
   
8,982
- less VAT and duties payable (note 3.8)
 
(703)
   
(703)
Derivative financial instruments (note 4.4)
 
48
   
48
Total liabilities at the end of the year by maturity
 
12,686
-
-
12,686

2011
         
           
           
Other financial assets
230
   
43
273
Trade receivables (note 3.4)
 
9,349
   
9,349
Other receivables (note 3.5)
 
2,376
   
2,376
- less prepayments (note 3.5)
 
(935)
   
(935)
Marketable securities (bonds) (note 4.3)
 
2,311
1,783
 
4,094
Derivative financial instruments (note 4.4)
 
48
   
48
Cash at bank and on hand (note 4.5)
 
13,408
   
13,408
Total assets at the end of the year by maturity
230
26,557
1,783
43
28,613
 
 
F-30

 
 

Consolidated financial statements

 
         
         
         
Financial assets and liabilities (continued)
Loans (note 4.2)
 
196
306
502
Current debt (note 4.2)
351
   
351
Trade payables
3,291
   
3,291
Other liabilities (note 3.8)
8,534
   
8,534
- less VAT and duties payable (note 3.8)
(537)
   
(537)
Derivative financial instruments (note 4.4)
1,400
92
 
1,492
Total liabilities at the end of the year by maturity
13,039
288
306
13,633

For a description of the credit quality of financial assets such as Trade receivables, Cash at bank and on hand, Marketable securities, Current debt and Derivative financial instruments, refer to notes 4.3 and 4.4.
 
 
Fair value measurement hierarchy
 
DKK million
Active market
data
Directly or indirectly observable market data
Not based on observable market data
Total
         
2012
       
Total financial assets at fair value
4,625
931
74
5,630
         
Total financial liabilities at fair value
-
48
-
48
         
         
2011
       
Total financial assets at fair value
4,153
48
1712
4,372
         
Total financial liabilities at fair value
-
1,492
-
1,492
2 Including reclassification of DKK 39 million regarding investment in associated company.

Financial assets and liabilities measured at fair value can be categorised using the fair value measurement hierarchy above. There have not been any transfers between the categories ’Active market data’ and ’Directly or indirectly observable market data’ during 2012 or 2011.
 
4.8 Financial income and expenses
 
Accounting policies
The activity of the financial assets and liabilities and borrowings generates the financial income and expenses in Novo Nordisk. For 2012, ‘Share of profit or loss of associated companies’ has been reclassified as part of financial income, disclosed as ‘Income from other financial assets’. The net financials in the Income statement are mainly related to foreign exchange elements and can be specified as follows:
 
Financial income
DKK million
2012
2011
2010
       
Interest income
124
274
235
Foreign exchange gain (net)
-
-
86
Foreign exchange gain on derivatives (net)
-
240
61
Income from other financial assets
1
-
1,070
Total financial income
125
514
1,452
 
Financial expenses
DKK million
2012
2011
2010
       
Interest expenses
58
275
500
Foreign exchange loss (net)
161
256
-
Forward contracts loss (net)1
39
1,276
2,049
Loss on currency options (net)
147
200
82
Loss on investments etc.
118
27
23
Other financial expenses
83
99
46
Cash flow hedge transferred from other comprehensive income (net)1
1,182
(1,170)
(643)
Total financial expenses
1,788
963
2,057
1 Comparative figures for 2011 and 2010 have been adjusted to align with the 2012 presentation. Total financial expenses are unchanged for 2011 and 2010.

 
F-31

 
 

Consolidated financial statements

 
Section 5 - Other disclosures
 
 
This section includes other statutory notes or notes that are of secondary importance for understanding the financial performance of Novo Nordisk. A list of subsidiaries in the Novo Nordisk Group is also included here.
 
5.1 Share-based payment schemes
 
Accounting policies
Share-based compensation
Novo Nordisk operates equity-settled, share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options or shares is recognised as an expense and allocated over the vesting period.

The total amount to be expensed over the vesting period is determined by reference to the fair value of the options or shares granted, excluding the impact of any non-market vesting conditions. The fair value is fixed at the grant date. Non-market vesting conditions are included in assumptions about the number of options or shares that are expected to vest. At the end of each reporting period, Novo Nordisk revises its estimates of the number of options or shares that are expected to vest. Novo Nordisk recognises the impact of the revision of the original estimates, if any, in the Income statement and in a corresponding adjustment to Equity (change in proceeds) over the remaining vesting period. Adjustments relating to prior years are included in the Income statement in the year of adjustment.

Share-based payment
DKK million
2012
2011
2010
Employee shares
50
96
241
Long-term share-based incentive programme (Senior Management Board)
73
57
64
Long-term share-based incentive programme and share options (Management group below Senior Management Board) 1
185
166
158
Share-based payment expensed in the Income statement
308
319
463
 
1 Includes long-term share-based incentive programme for 2007-2012.
 
Employee shares
In 2010, a general employee share programme was implemented in Denmark with exercise in the same year. Outside Denmark the programme was structured as share options with the same initial benefit per employee as in Denmark. The cost of the programme outside Denmark is amortised over the period 2010-2013.
 
Long-term share-based incentive programme
For a description of the programme, please refer to ‘Remuneration’ in ‘Governance, leadership and shares’, pp 49-51.
 
On 30 January 2013, the Board of Directors approved the establishment, for members of the Senior Management Board, of a joint pool for the financial year 2012 by allocating a total of 97,381 Novo Nordisk B shares. This allocation amounts on average to eight months’ fixed base salary plus pension contribution per participant, corresponding to a value at launch of the programme of DKK 73 million. This amount was expensed in 2012. The share price used for the conversion was the average share price (DKK 751) for Novo Nordisk B shares on NASDAQ OMX Copenhagen in the period 2-16 February 2012. Based on the split of participants when the joint pool was established, approximately 30% of the pool will be allocated to members of Executive Management and 70% to other members of the Senior Management Board.
 
The shares allocated to the joint pool for 2009 (177,066 shares), corresponding to a value at launch of the programme of DKK 54 million expensed in 2009, were released to the individual participants subsequent to the approval of the Annual Report 2012 by the Board of Directors and after the announcement of the 2012 full-year financial results on 31 January 2013.
 
For the management group below the Senior Management Board, a share-based incentive programme with similar performance criteria was introduced in 2007.
 
The shares allocated to the joint pool for 2009 (605,218 shares), corresponding to a value at launch of the programme of DKK 186 million amortised over the period 2009-2012, were released to the individual participants subsequent to the approval of the Annual Report 2012 by the Board of Directors and after the announcement of the 2012 full-year financial results on 31 January 2013. The number of shares to be transferred (541,321) is lower than the original number of shares allocated to the share pool as some participants had left the company before the release conditions of the programme were met.
 
The total number of shares in the joint pools relating to the years 2010, 2011 and 2012 is as follows:
 
Year allocated to pool
Number of shares
Amount
DKK million
Vesting
Senior Management Board      
2010
168,576
64
2014
2011
89,712
57
2015
2012
97,381
73
2016
 
355,669
 

  Management group below Senior Management Board
2010
548,936
208
2014
2011
297,133
188
2015
2012
311,847
234
2016
Cancelled
(35,428)
   
 
1,122,488
 
     
Total
1,478,157
 

Share options
Each option gives the right to purchase one Novo Nordisk B share. All share options are hedged by treasury shares. No ordinary share options have been granted since 2006 as the long-term incentive programme from 2007 onwards has been share-based.
 
The options are exercisable three years after the issue date and will expire after eight years. The exercise price for options granted based on performance targets for the financial years 2000-2006 was equal to the market price of the Novo Nordisk B share at the time the plan was established. The options can only be settled in shares.
 
The internal rules for trading in Novo Nordisk securities by board members, executives and certain employees only permit trading in the 15-calendar-day period following each quarterly announcement.

Assumptions
The fair value of the Novo Nordisk B share options has been calculated using the Black-Scholes option-pricing model.
 
The expected volatility is calculated as one-year historical volatility (average of daily volatilities).
 
The assumptions used are shown in the table below:
 
 
F-32

 
 

Consolidated financial statements

 
       
 
2012
2011
2010
       
Expected life of the option in years (average)
1
2
4
Expected volatility
21%
23%
21%
Expected dividend per share (in DKK)
18.00
14.00
10.00
Risk-free interest rate (based on Danish government bonds)
0.00%
0.20%
2.00%
Novo Nordisk B share price at the end of the year (in DKK)
916.50
660
629
 
         
   
Average
 
Calculated fair value
   
exercise price
 
per option1
   
per option
   
Outstanding share options in Novo Nordisk
Share options
DKK
 
 DKK
         
Outstanding at the end of 2010
3,436,894
110
 
498
         
Exercised in 2011 – ordinary share option plans
(624,760)
74
   
Exercised in 2011 – employee share options
(506,300)
     
Cancelled in 2011
(126,500)
     
Outstanding at the end of 2011
2,179,334
153
 
504
         
Exercised in 2012 – ordinary share option plans
(835,094)
142
   
Exercised in 2012 – employee share options
(1,150)
     
Cancelled in 2012
(63,750)
     
Employee share options – NNIT
7,060
     
Outstanding at the end of 2012
1,286,400
130
 
760

1 The fair value has been calculated using the Black-Scholes model with the parameters existing at year-end of the respective year.
 
Management’s share options
         
 
At the beginning
Exercised
 
At the end of
Fair value 2
Share options in Novo Nordisk
of the year
 during the year
 
the year
DKK million
           
Executive Management
-
-
 
-
-
Other members of the Senior Management Board
101,325
44,650
 
56,675
41
Total
101,325
44,650
 
56,675
41

 
2 The fair value has been calculated using the Black-Scholes model with the parameters existing at year-end of the respective year.

 
 
     

Exercisable and outstanding share options in Novo Nordisk
     
Outstanding/
exercisable
share options
   
Issued
share options
Exercised
share options
Cancelled
Exercise
price
DKK
 
Exercise period
             
2004 Ordinary share option plan
1,618,832
(1,430,166)
(118,000)
70,666
134
31/1/08 – 30/1/13
2005 Ordinary share option plan
1,640,468
(1,178,875)
(159,368)
302,225
 153
31/1/09 – 30/1/14
2006 Ordinary share option plan
2,229,084
(1,406,782)
(187,053)
635,249
175
31/1/10 – 30/1/15
Exercisable at the end of 2012
5,488,384
(4,015,823)
(464,421)
1,008,140
   
2010 Employee share options
273,000
(1,800)
-
271,200
0
1/12/13
Employee share options - NNIT
7,060
-
-
7,060
0
1/12/14
Outstanding at the end of 2012 3
5,768,444
(4,017,623)
(464,421)
1,286,400
   
             

3 All share options will vest if there is a change of control of Novo Nordisk A/S.
 
 
F-33

 
 

Consolidated financial statements

 
Average market price of Novo Nordisk B shares per trading period in 2012
Average
 market price
DKK
Exercised
share options
     
2 February – 16 February
751
425,594
27 April – 11 May
830
81,200
9 August – 23 August
944
174,175
31 October – 14 November
909
155,275
Total exercised options
 
836,244

5.2  Management’s holdings of Novo Nordisk shares
 
The internal rules for trading in Novo Nordisk securities by board members, executives and certain employees only permit trading in the 15-calendar-day period following each quarterly announcement.

 
At the beginning
Additions
Sold/transferred
At the end of
Market value 1
 
of the year
 during the year
during the year
the year
DKK million
           
           
Sten Scheibye
800
   
800
0.7
Göran Ando
1,600
500
 
2,100
1.9
Bruno Angelici
500
   
500
0.5
Henrik Gürtler
-
   
-
-
Liz Hewitt
-
400
 
400
0.4
Ulrik Hjulmand-Lassen
1,057
24
 
1,081
1.0
Thomas Paul Koestler
1,600
   
1,600
1.5
Anne Marie Kverneland
2,475
24
(54)
2,445
2.2
Kurt Anker Nielsen
81,704
 
(3,300)
78,404
71.8
Søren Thuesen Pedersen
324
24
(25)
323
0.3
Hannu Ryöppönen
2,250
   
2,250
2.1
Stig Strøbæk
390
   
390
0.4
Board of Directors in total
92,700
972
(3,379)
90,293
82.8
           
           
Lars Rebien Sørensen
54,970
15,578
(15,578)
54,970
50.4
Jesper Brandgaard
27,937
10,405
(4,700)
33,642
30.8
Lise Kingo
344
10,431
(5,381)
5,394
4.9
Kåre Schultz
51,217
10,405
(4,598)
57,024
52.3
Mads Krogsgaard Thomsen
48,605
10,548
(12,705)
46,448
42.6
Executive Management in total
183,073
57,367
(42,962)
197.478
181.0
           
Other members of the Senior Management Board
144,450
144,070
(108,957)
179,563
164.5
           
Joint pool for Executive
Management and other members of the Senior Management Board 2
567,012
97,381
(156,240)
3 508,153
465.7
Total
987,235
299,790
(311,538)
975,487
894.0

1 Calculation of the market value is based on the quoted share price of DKK 916.50 at the end of the year.
2 The annual allocation to the joint pool is locked up for three years before it is transferred to the participants employed at the end of each three-year period. Based on the split of participants when the joint pool was established, approximately 30% of the pool will be allocated to the members of Executive Management and approximately 70% to other members of the Senior Management Board. In the lock-up period, the joint pool may potentially be reduced in the event of lower-than-planned value creation in subsequent years.
3 Excludes 24,582 shares currently assigned to three retired Senior Management Board members.

 
F-34

 
 

Consolidated financial statements

 
5.3 Adjustments for non-cash items

For the purpose of presenting the cash flow statement, non-cash items with effect on the Income statement must be reversed to identify the actual cash flow effect from the Income statement. The adjustments are specified as follows:

Adjustments for non-cash items
       
DKK million
 
2012
 
2011
2010
Reversals of non-cash income statement items
       
Income taxes (note 2.4)
 
6,379
4,828
3,883
Depreciation, amortisation and impairment losses (notes 3.1 and 3.2)
 
2,693
2,737
2,467
Interest income and interest expenses, net (note 4.8)
 
(66)
1
265
Share-based payment costs (note 5.1)
 
308
319
463
Other financial income and expenses
 
-
4
(1,070)
         
Changes in non-cash balance sheet items
       
Increase/(decrease) in provisions and retirement benefit obligations (notes 3.6 and 3.7)
 
1,620
1,467
2,382
Of which remeasurement of retirement benefit obligations
 
(281)
-
-
Other adjustments
       
(Gains)/losses from sale of property, plant and equipment
 
21
(3)
71
Unrealised (gain)/loss from marketable securities
 
43
28
(43)
Reclassification from working capital (other liabilities)
 
739
-
-
Other, including unrealised exchange (gain)/loss etc.
 
(203)
(264)
31
Total adjustments for non-cash items
 
11,253
9,117
8,449

 
F-35

 
 

Consolidated financial statements

 
5.4 Commitments and contingencies
Commitments
 
The total contractual obligations and recognised non-current debt as at 31 December 2012 can be specified as follows:
Payments due by period
 
       
 
DKK million
 
Less than
1 year
   
1-3
years
   
3-5
years
   
More than 5 years
   
Total
 
Retirement benefit obligations
    23       44       42       651       760  
Total non-current liabilities recognised in the Balance sheet
    23       44       42       651       760  
                                         
Operating leases 1
    881       1,311       884       1,968       5,044  
Purchase obligations
    1,955       1,241       34       -       3,230  
Research and development obligations
    1,506       1,218       191       -       2,915  
Total obligations not recognised in the Balance sheet
    4,342       3,770       1,109       1,968       11,189  
Total contractual
obligations
    4,365       3,814       1,151       2,619       11,949  
 
As at 31 December 2011, the contractual obligations and recognised non-current debt can be specified as follows:
Payments due by period
       
 
DKK million
 
Less than
1 year
   
1-3
years
   
3-5
years
   
More than 5 years
   
Total
 
Loans
    -       97       99       306       502  
Retirement benefit obligations
    13       26       24       376       439  
Total non-current liabilities recognised in the Balance sheet
    13       123       123       682       941  
                                         
Interest payments related to loans
    6       11       9       13       39  
Operating leases 1
    848       1,283       882       1,999       5,012  
Purchase obligations
    1,920       1,975       4       -       3,899  
Research and development obligations
    1,241       1,448       85       -       2,774  
Total obligations not recognised in the Balance sheet
    4,015       4,717       980       2,012       11,724  
Total contractual obligations
    4,028       4,840       1,103       2,694       12,665  
 
1 No material finance lease obligations exist in 2012 and 2011.
  
The operating lease commitments are related to non-cancellable operating leases primarily related to premises, company cars and office equipment. Approximately 70% of the commitments are related to leases outside Denmark. The lease costs for 2012 and 2011 were DKK 1,100 million and DKK 1,059 million, respectively.
 
The purchase obligations primarily relate to contractual obligations in connection with investments in property, plant and equipment as well as purchase agreements regarding medical equipment and consumer goods. Novo Nordisk expects to fund these commitments with existing cash and cash flow from operations.
 
Research and development obligations entail uncertainties in relation to the period in which payments are due because a proportion of the obligations are dependent on milestone achievements. The due periods disclosed are based on Management’s best estimate. Novo Nordisk has engaged in research and development projects with a number of external enterprises. Most of these obligations relate to a post-approval study on the LEADER® programme.
 
DKK million
2012
2011
Other guarantees
635
589
Other guarantees primarily relate to guarantees issued by Novo Nordisk in relation to rented property
   
     
Security for debt
200
1,385
Land, buildings and equipment etc. at carrying amount
   
 
World Diabetes Foundation
At the Annual General Meeting of Novo Nordisk A/S in 2002, the shareholders agreed on a donation to the World Diabetes Foundation (WDF), obligating Novo Nordisk A/S for a period of 10 years from 2001 to make annual donations to the Foundation of 0.25% of the net insulin sales of the Group in the preceding financial year.
 
At the Annual General Meeting in 2008, a new donation in addition to the existing obligation was agreed to by the shareholders. According to this agreement, Novo Nordisk is obliged to make annual donations to the Foundation of 0.01% in the period 2008-2010 and 0.125% in the period 2011-2017 of the net insulin sales of the Group in the preceding financial year.
 
The annual donation in the period 2012-2017 will not exceed the lower of DKK 80 million or 15% of the taxable income of Novo Nordisk A/S in the financial year in question.
 
In 2012, the donation amounts to DKK 64 million (DKK 65 and 69 million in 2011 and 2010), which is recognised in Administrative costs in the Income statement. The 2012 donation includes an extra donation of DKK 11 million to support predetermined WDF activities (DKK 14 million in 2011).

Contingencies
 
Novo Nordisk is currently involved in pending litigations, claims and investigations arising out of the normal conduct of its business. While provisions that Management deems to be reasonable or appropriate have been made for probable losses, there are uncertainties connected with these estimates. Novo Nordisk does not expect the pending litigations, claims and investigations, individually and in the aggregate, to have a material impact on Novo Nordisk’s financial position, operating profit or cash flow in addition to the amounts accrued.
 
See note 3.6 for the principles for accounting estimates and judgements about pending and potential future litigation outcomes.
 
Pending litigation against Novo Nordisk
Along with a majority of the hormone therapy product manufacturers in the US, Novo Nordisk is a defendant in product liability lawsuits related to hormone therapy products. There are currently 38 cases against Novo Nordisk involving individuals who allege to have used a Novo Nordisk hormone therapy product. These products (Activella® and Vagifem®) have been sold and marketed in the US since 2000. Until July 2003, the products were sold and marketed exclusively in the US by Pharmacia & Upjohn Company (now Pfizer Inc.). According to infor-
 
 
F-36

 
 

Consolidated financial statements

 
mation received from Pfizer, 45 individuals (compared with 66 individuals in 2011) currently allege, in relation to similar lawsuits against Pfizer Inc., that they too have used a Novo Nordisk hormone therapy product. Novo Nordisk does not expect the pending claims to have a material impact on Novo Nordisk’s financial position, operating profit or cash flow.
 
In November 2006, Novo Nordisk A/S and the Italian affiliate Novo Nordisk Farmaceutici S.p.A. were sued by A. Menarini Industrie Farmaceutiche Riunite s.r.l. and Laboratori Guidotti S.p.A. (‘Menarini’) in the Civil Court in Rome. Menarini claims that Novo Nordisk breached an alleged contract with Menarini for the sale and distribution of insulin and insulin analogues in the Italian market or, alternatively, has incurred a pre-contractual or extra-contractual liability arising from negotiations between the parties. Novo Nordisk disputes the claims made by Menarini. A hearing on the matter is scheduled to take place in July 2013. Novo Nordisk cannot predict how long the litigation will take or when it will be able to provide additional information. Novo Nordisk does not expect the pending claim to have a material impact on Novo Nordisk’s financial position, operating profit or cash flow.
 
Novo Nordisk, along with 93 other defendants, has been named in a lawsuit filed in 2009 in the United States by the Republic of Iraq. The lawsuit alleges damages related to the defendants’ participation in the United Nations’ defunct Oil for Food Program. Nordisk does not expect the pending claim to have a material impact on Novo Nordisk’s financial position, operating profit or cash flow.
 
In addition to the above, the Novo Nordisk Group is engaged in certain litigation proceedings. In the opinion of Management, settlement or continuation of these proceedings is not expected to have a material effect on Novo Nordisk’s financial position, operating profit or cash flow.
 
Pending claims against Novo Nordisk and investigations involving Novo Nordisk
 
In May 2009, Novo Nordisk entered into a Deferred Prosecution Agreement (DPA) for a three-year period with the US Department of Justice relating to certain actions undertaken by Novo Nordisk under the Oil For Food Programme for Iraq. Novo Nordisk had to comply with the terms of the DPA in order for the case to be dismissed. Novo Nordisk has subsequently enacted a detailed programme to ensure compliance with the DPA, including a reinforced governance structure, enhanced third-party due diligence systems and periodic testing of systems, policies and procedures. The DPA expired on 27 June 2012, and the U.S. District Court for the District of Columbia has dismissed the case. Accordingly, the DPA no longer imposes any obligations on Novo Nordisk.
 
In February 2011, the office of the US Attorney for the District of Massachusetts served Novo Nordisk with a subpoena calling for the production of documents regarding potential criminal offences relating to the company’s marketing and promotion practices for the following products: NovoLog®, Levemir® and Victoza®. This matter is now being conducted by the US Attorney for the District of Columbia. Novo Nordisk is cooperating with the US Attorney in this investigation. Novo Nordisk does not expect the pending claims to have a material impact on Novo Nordisk’s financial position, operating profit or cash flow.
 
In June 2005 Novo Nordisk filed a patent infringement lawsuit against Caraco Pharmaceutical Laboratories, Ltd. (`Caraco´), a generic pharmaceutical company, and its Indian parent, Sun Pharmaceutical Industries, Ltd., in the US District Court for the Eastern District of Michigan regarding Caraco’s abbreviated new drug application (`ANDA´) for a generic version of Prandin® (repaglinide). In January 2011, the District Court ruled that Novo Nordisk’s US Patent No. 6,677,358 (the ‘358 patent’), which is directed toward the use of repaglinide in combination with metformin for the treatment of type 2 diabetes, is invalid and unenforceable. Novo Nordisk immediately appealed this decision on the merits to the US Court of Appeals for the Federal Circuit. Briefing in the appeal is completed; oral argument is expected to occur in Q1 2013, with a decision mid 2013.
 
Novo Nordisk is involved in patent infringement litigation with three additional ANDA applicants for generic versions of Prandin®: Paddock Laboratories, Aurobindo Pharma Ltd. and Sandoz Inc. The collateral estoppel decision in the Paddock case has been appealed to the Federal Circuit and will be taken up by the Federal Circuit as a companion case to the Caraco appeal, with oral argument following the Caraco oral argument. The collateral estoppel decision in the Aurobindo case has been appealed to the Federal Circuit and is stayed pending the Federal Circuit appeal of the decision on the merits in the Caraco case. Cases involving Sandoz in the US District Courts for the Eastern District of Michigan and New Jersey are stayed pending the Federal Circuit appeal of the decision on the merits in the Caraco case. Additionally, Novo Nordisk is involved in a patent infringement lawsuit with Lupin Ltd. in the US District Court for the Southern District of New York in which Novo Nordisk asserts that Lupin’s ANDA for a generic version of PrandiMet® (repaglinide/metformin HCl) infringes Novo Nordisk’s ‘358 patent’. This case is stayed pending the Federal Circuit appeal of the decision on the merits in the Caraco case.
 
Also pending before the District Court for the Eastern District of Michigan is a consolidated class action where a putative class of direct purchasers of Prandin® asserts that Novo Nordisk has violated US antitrust laws in delaying the entry of generic versions of Prandin®. This case is stayed pending the Federal Circuit appeal of the decision on the merits in the Caraco case.
 
At present, it is unclear whether or when a generic version of Prandin® or PrandiMet® will be available in the US market.
 
Novo Nordisk does not expect the pending claims related to Prandin® to have a material impact on Novo Nordisk’s financial position, operating profit or cash flow.
 
In addition to the above, the Novo Nordisk Group is engaged in various ongoing tax audits and investigations. In the opinion of Management, these pending audits and investigations are not expected to have a material effect on Novo Nordisk’s financial position, operating profit or cash flow.
 
Disclosure regarding change of control
 
The EU Takeover Bids Directive, as partially implemented by the Danish Financial Statements Act, contains certain rules relating to listed companies on disclosure of information that may be of interest to the market and potential takeover bidders, in particular in relation to disclosure of change of control provisions.

For information on the ownership structure of Novo Nordisk, please refer to `Shares and capital structure´ on pp 44-45. For information on change of control clauses in share option programmes, please refer to note 5.1, ‘Share-based payment schemes’ and in relation to employee contracts for Executive Management of Novo Nordisk, please refer to `Remuneration´ pp 49-51.

In addition, Novo Nordisk discloses that the Group does not have significant agreements to which the Group is a party and which take effect, alter or terminate upon a change of control of the Group following implementation of a takeover bid.

 
F-37

 
 

Consolidated financial statements

 
5.5 Related party transactions
 
Novo Nordisk A/S is controlled by Novo A/S (incorporated in Denmark), which owns 25.5% of the shares in Novo Nordisk A/S, representing 73.5% of the total number of votes, excluding treasury shares. The remaining shares are widely held. The ultimate parent of the Group is the Novo Nordisk Foundation (incorporated in Denmark). Both entities are considered related parties.
 
Other related parties are considered to be the Novozymes Group due to joint ownership, associated companies, the directors and officers of these entities, and Management of Novo Nordisk A/S.
 
In 2012, Novo Nordisk A/S acquired 5,100,000 B shares, worth DKK 4.2 billion, from Novo A/S as part of the DKK 12.0 billion share repurchase programme. The transaction price was DKK 823 per share and was calculated as the average market price from 27 April to 1 May 2012 in the open window following the announcement of the financial results for the first quarter of 2012.
 
In 2011, Novo Nordisk A/S acquired 5,100,000 B shares, worth DKK 2.9 billion, from Novo A/S as part of the DKK 12.0 billion share repurchase programme. The transaction price was DKK 571 per share and was calculated as the average market price from 4 to 10 August 2011 in the open window following the announcement of the financial results for the second quarter of 2011.
 
In 2010, Novo Nordisk A/S acquired 5,100,000 B shares, worth DKK 2.6 billion, from Novo A/S as part of the DKK 9.5 billion share repurchase programme. The transaction price was DKK 503 per share and was calculated as the average market price from 5 to 10 August 2010 in the open window following the announcement of the financial results for the second quarter of 2010.
 
The Group has had the following material transactions with related parties, (income)/expense:
 
DKK million
2012
2011
2010
       
Novo Nordisk Foundation
     
Donations to Steno Diabetes Center A/S via Novo Nordisk
(46)
     (45)
(38)
       
Novo A/S
     
Services provided by Novo Nordisk
(2)
         (2)
 (3)
Purchase of Novo Nordisk B shares
4,198
     2,912
2,567
Sale of treasury shares (related to share options)
-
         -
(2)
       
Novozymes
     
Services provided by Novo Nordisk
(255)
     (268)
 (395)
Services provided by Novozymes
92
       73
83
 
There have not been any material transactions with any director or officer of Novo Nordisk, Novozymes, Novo A/S, the Novo Nordisk Foundation or associated companies. For information on remuneration to the Management of Novo Nordisk, please refer to `Remuneration´ pp 49-51, and note 2.3 ‘Employee costs’. There have not been and are no loans to the Board of Directors or Executive Management in 2012, 2011 or 2010.
 
There are no material unsettled transactions with related parties at the end of the year.
 
5.6 Licence fees and other operating income
Accounting policies
Licence fees and other operating income comprise licence fees and income of a secondary nature in relation to the main activities of Novo Nordisk. Non-Novo Nordisk-related net profit from the two wholly owned subsidiaries NNIT A/S and NNE Pharmaplan A/S is recognised as other operating income. Licence fees are recognised on an accrual basis in accordance with the terms and substance of the relevant agreement. Licence fees and other operating income also include income from sale of intellectual property rights.
 
5.7  Fee to statutory auditors
DKK million
2012
2011
2010
       
Statutory audit
25
24
25
Audit-related services
4
5
6
Tax advisory services
12
13
15
Other services
6
3
4
Total fee to statutory auditors
47
45
50

 
F-38

 
 

Consolidated financial statements

 
5.8  Companies in the Novo Nordisk Group

Company and country
Percentage of shares owned
Activity
Company and country
Percentage of shares owned
Activity
Parent company
   
International Operations
   
Novo Nordisk A/S, Denmark
-
▲■●□
Aldaph SpA, Algeria
100
▲■
     
Novo Nordisk Pharma Argentina S.A., Argentina
100
Subsidiaries by region
   
Novo Nordisk Pharmaceuticals Pty. Ltd., Australia
100
     
Novo Nordisk Pharma (Private) Limited, Bangladesh
100
Europe
   
Novo Nordisk Produção Farmacêutica do Brasil Ltda., Brazil
100
Novo Nordisk Pharma GmbH, Austria
100
Novo Nordisk Farmacêutica do Brasil Ltda., Brazil
100
SA Novo Nordisk Pharma NV, Belgium
100
Novo Nordisk Farmacêutica Limitada, Chile
100
Novo Nordisk Pharma d.o.o., Bosnia-Hercegovina
100
Novo Nordisk Pharma Operations A/S, Denmark
100
Novo Nordisk Pharma EAD, Bulgaria
100
Novo Nordisk Region International Operations A/S,  Denmark
100
Novo Nordisk Hrvatska d.o.o., Croatia
100
Novo Nordisk Egypt LLC, Egypt
100
Novo Nordisk s.r.o., Czech Republic
100
Novo Nordisk India Private Limited, India
100
FeF Chemicals A/S, Denmark
100
▲■
Novo Nordisk Service Centre (India) Pvt. Ltd., India
100
Novo Nordisk Region Europe A/S, Denmark
100
PT. Novo Nordisk Indonesia, Indonesia
100
Steno Diabetes Center A/S, Denmark
100
●□
Novo Nordisk Pars, Iran
100
Novo Nordisk Farma OY, Finland
100
Novo Nordisk Ltd, Israel
100
Novo Nordisk, France
100
Novo Nordisk Pharma SARL, Lebanon
100
Novo Nordisk Production SAS, France
100
Novo Nordisk Pharma (Malaysia) Sdn Bhd, Malaysia
100
Novo Nordisk Pharma GmbH, Germany
100
Novo Nordisk Pharma Operations (BAOS) Sdn Bhd, Malaysia
100
Novo Nordisk Hellas Epe., Greece
100
Novo Nordisk Mexico S.A. de C.V., Mexico
100
Novo Nordisk Hungária Kft., Hungary
100
Novo Nordisk Servicios Profesionales S.A. de C.V., Mexico
100
Novo Nordisk Limited, Ireland
100
Novo Nordisk Farmacéutica S.A. de C.V., Mexico
100
Novo Nordisk S.P.A., Italy
100
Novo Nordisk Pharma SAS, Morocco
100
UAB Novo Nordisk Pharma, Lithuania
100
Novo Nordisk Pharmaceuticals Ltd., New Zealand
100
Novo Nordisk Farma dooel, Macedonia
100
Novo Nordisk Pharma Limited, Nigeria
100
Novo Nordisk B.V., Netherlands
100
Novo Nordisk Pharma (Private) Limited, Pakistan
100
Novo Nordisk Scandinavia AS, Norway
100
Novo Nordisk Pharmaceuticals (Philippines) Inc., Philippines
100
Novo Nordisk Pharma Sp. z.o.o., Poland
100
Novo Nordisk Limited Liability Company, Russia
100
Novo Nordisk Comércio Produtos Farmacẽuticos Lda., Portugal
100
Novo Nordisk Production Support LLC, Russia
100
Novo Nordisk Farma S.R.L., Romania
100
Novo Investment Pte Limited, Singapore
100
Novo Nordisk Pharma d.o.o. Belgrade (Serbia), Serbia
100
Novo Nordisk Pharma (Singapore) Pte Ltd., Singapore
100
Novo Nordisk Slovakia s.r.o., Slovakia
100
Novo Nordisk (Pty) Limited, South Africa
100
Novo Nordisk, trženje farmacevtskih izdelkov d.o.o., Slovenia
100
Novo Nordisk Pharma (Thailand) Ltd., Thailand
49
Novo Nordisk Pharma S.A., Spain
100
Novo Nordisk Tunisie SARL, Tunisia
100
Novo Nordisk Scandinavia AB, Sweden
100
Novo Nordisk Saglik Ürünleri Tic. Ltd. Sti., Turkey
100
Novo Nordisk FemCare AG, Switzerland
100
Novo Nordisk Pharma Gulf FZ-LLC, United Arab Emirates
100
Novo Nordisk Health Care AG, Switzerland
100
Novo Nordisk Venezuela Casa de Representación C.A., Venezuela
100
Novo Nordisk Pharma AG, Switzerland
100
     
Novo Nordisk Holding Limited, United Kingdom
100
Region China
   
Novo Nordisk Limited, United Kingdom
100
Novo Nordisk (China) Pharmaceuticals Co., Ltd., China
100
▲■
     
Beijing Novo Nordisk Pharmaceuticals Science & Technology Co., Ltd., China
100
     
Novo Nordisk Region China A/S, Denmark
100
North America
   
Novo Nordisk Hong Kong Limited, Hong Kong
100
Novo Nordisk Canada Inc., Canada
100
Novo Nordisk Pharma (Taiwan) Ltd., Taiwan
100
Novo Nordisk Region North America II A/S, Denmark
100
     
Novo Nordisk US Holdings Inc., United States
100
Other subsidiaries
   
Novo Nordisk Pharmaceutical Industries Inc., United States
100
NNIT A/S 1, Denmark
100
Novo Nordisk Inc., United States
100
NNE Pharmaplan A/S 1, Denmark
100
           
Japan & Korea
   
▲ Production
   
Novo Nordisk Region Japan & Korea A/S, Denmark
100
 ■ Sales and marketing
   
Novo Nordisk Pharma Ltd., Japan
100
▲■
 ● Research and development
   
Novo Nordisk Pharma Korea Ltd., South Korea
100
 □ Services/investments
   

1 In addition to the listed companies, NNIT A/S and NNE Pharmaplan A/S have their own subsidiaries.

 
F-39

 
 

Consolidated financial statements

 
5.9 Financial definitions

ADRs
An American Depositary Receipt (or ADR) represents ownership in the shares of a non-US company and trades in US financial markets.
 
Basic earnings per share (EPS)
Net profit divided by the average number of shares outstanding.
 
Diluted earnings per share
Net profit divided by average number of shares outstanding, including the dilutive effect of share options ‘in the money’ . The dilutive effect of share options ‘in the money’ is calculated as the difference between the following:
 
1) the number of shares that could have been acquired at fair value with proceeds from the exercise of the share options
2) the number of shares that would have been issued assuming the exercise of the share options.
 
The difference (the dilutive effect) is added to the denominator as an issue of shares for no consideration.
 
Effective tax rate
Income taxes as a percentage of profit before income taxes.
 
Equity ratio
Total equity at year-end as a percentage of total assets at year-end.
 
Gross margin
Gross profit as a percentage of sales.
 
Net profit margin
Net profit as a percentage of sales.
 
Number of shares outstanding
The total number of shares, excluding the holding of treasury shares.
 
Operating profit margin
Operating profit as a percentage of sales.
 
Other comprehensive income (OCI)
Other comprehensive income comprises all items recognised in Equity for the year other than those related to transactions with owners of the company. Examples of items that are required to be presented in OCI are:
 
·      Foreign exchange rate adjustments in foreign subsidiaries
·      Actuarial gains and losses arising on defined benefit plans
·      Changes in fair value of financial instruments in a cash flow hedge.
 
Payout ratio
Total dividends for the year as a percentage of net profit.
 
Return on equity (ROE)
Net profit for the year as a percentage of shareholders’ equity (average).


Non-IFRS financial measures
 
In the Annual Report, Novo Nordisk discloses certain financial measures of the Group’s financial performance, financial position and cash flows that reflect adjustments to the most directly comparable measures calculated and presented in accordance with IFRS. These non-IFRS financial measures may not be defined and calculated by other companies in the same manner, and may thus not be comparable with such measures.
 
The non-IFRS financial measures presented in the Annual Report are:
·       Cash to earnings
·       Financial resources at the end of the year
·       Free cash flow
·       Operating profit after tax to net operating assets
·       Underlying sales growth in local currencies.
 
Cash to earnings
Cash to earnings is defined as ‘free cash flow as a percentage of net profit’.
 
Financial resources at the end of the year
Financial resources at the end of the year is defined as the sum of cash and cash equivalents at the end of the year, bonds with original term to maturity exceeding three months and undrawn committed credit facilities.
 
Free cash flow
Novo Nordisk defines free cash flow as ‘net cash generated from operating activities less net cash used in investing activities’ excluding ‘Net change in marketable securities’.
 
Operating profit after tax to net operating assets (OPAT/NOA)
Operating profit after tax to net operating assets is defined as ‘operating profit after tax (using the effective tax rate) as a percentage of average inventories, receivables, property, plant and equipment, intangible assets and deferred tax assets less non-interest-bearing liabilities including provisions and deferred tax liabilities (where average is the sum of the above assets and liabilities at the beginning of the year and at year-end divided by two)’.
 
Underlying sales growth in local currencies
Underlying sales growth in local currencies is defined as sales for the year measured at prior year average exchange rates compared with sales for prior year measured at prior year average exchange rates.

F-40