Novo Nordisk Annual Report 2021
Contents
Introducing Novo Nordisk
Strategic Aspirations
Key risks Management
Consolidated statements
Additional information
Novo Nordisk Annual Report 2021 69
Sensitivity of an immediate 5% increase in all other currencies rates on
4.3 Financial risks
Management has assessed the following key financial risks:
Type
Financial risk
Foreign exchange risk
High
Credit risk
Low
Liquidity risk
Low
Interest rate risk
Low
Hedge accounting is applied to match the impact of the hedged item and
the hedging instrument in the consolidated income statement. The currency
hedging strategy balances risk reduction and cost of hedging by use of
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. Management has
chosen to classify the result of hedging activities as part of financial items.
31 December versus DKK and EUR1
DKK million
2021
2020
Sensitivity of all currencies
Income statement
113
299
Other comprehensive income
(2,677)
(1,893)
Total
(2,564)
(1,594)
Sensitivity of USD
Key currencies figures
Income statement
USD
CNY
JPY
CAD
GBP
Other comprehensive income
Average exchange rate applied (DKK per 100)
Total
(87)
2
(2,218)
(1,380)
(2,305)
(1,378)
2021
629
97
5.73
502
865
2020
654
95
6.13
488
839
2019
667
97
6.12
503
852
1. An immediate 5% decrease would have the opposite impact of the above.
The foreign exchange sensitivity analysis comprises effects from the Group's
cash, trade receivables and trade payables, current loans, current and non-
current financial investments, lease liabilities and foreign exchange forwards.
Anticipated currency transactions, investments in foreign subsidiaries and
non-current assets are not included.
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 use of
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, and all positions are marked-to-market.
Foreign exchange risk
Foreign exchange risk is the most important financial risk for Novo Nordisk
and can have a significant impact on the income statement, statement
of comprehensive income, balance sheet and cash flow statement. The
majority of Novo Nordisk's sales are in USD, EUR, CNY, JPY, CAD and GBP. The
foreign exchange risk is most significant in USD, CNY and JPY, while the EUR
exchange rate risk is regarded as low because of Denmark's fixed exchange
rate policy towards EUR.
The overall objective of foreign exchange risk management is to reduce the
short-term negative impact of exchange rate fluctuations on earnings and
cash flow, thereby contributing to 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.
Year-end exchange rate applied (DKK per 100)
2021
2020
2019
657
103
5.70
517
885
606
93
5.88
474
824
668
96
6.11
511
877
Financial contracts coverage at year end
Months
USD
CNY1
JPY
CAD
GBP
2021
12
0
12
9
11
2020
10
6
12
9
11
Foreign exchange rate sensitivity analysis
At year-end, an immediate 5% increase/decrease in the disclosed currencies
versus DKK and EUR is estimated by Management to have the following
impact on Novo Nordisk's operating profit for the next 12 months.
Sensitivity on operating profit of an immediate 5% increase in key
currencies¹
DKK million
USD
CNY
JPY
CAD
2022
2021
2,350
1,900
360
230
200
GBP
120
460
200
140
110
1. An immediate 5% decrease would have the opposite impact of the above.
1. Chinese yuan traded offshore (CNH) is used to hedge Novo Nordisk's CNY currency
exposure.
The table above shows financial contracts existing at year-end to cover the
expected future cash flow for the disclosed number of months. During 2021,
the hedging horizon varied between 9 months and 12 months for USD, JPY,
CAD and GBP. Average hedge rate for USD cash flow hedges is 628 at the
end of 2021 (640 at the end of 2020).View entire presentation