Sauer-Danfoss Inc. Annual Report 2014

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FY2014 Annual Report · Sauer-Danfoss Inc.

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Annual Report
Annual Report 2014
Danfoss lorem ipsum dolorem
Danfoss accelerates growth

2014

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Group

Accounts and notes

Group companies

Parent company

Management report

Parent accounts and notes

CONTENTS

Danfoss at a glance

2014 at a glance

Financial highlights

CEO comment

Core & Clear status

Engineering Tomorrow

Quality, Reliability and Innovation

Regional overview

Financial review

2015 Outlook

Sustainability

Corporate Governance

Risk management and compliance

Management statement

Independent auditor’s report

Danfoss at a glance

Danfoss engineers technologies that enable the world of tomorrow to do more
with less. We meet the growing need for infrastructure, food supply, energy
efficiency and climate-friendly solutions.

HEADQUARTERED IN
NORDBORG, DENMARK

TOP 3 REGIONS:
EUROPE,
NORTH AMERICA
AND ASIA-PACIFIC

Key facts

factories in 19 countries
and Danfoss sells its products
in more than 100 countries

24,100

Employees

1200

Patent families

Strong global position

The four elements of the Group’s strategy Core & Clear

Since the Core & Clear strategy was initiated in 2010,
the Danfoss Group has significantly strengthened
its global position. Financially, the Group stands
on a robust foundation driven by continuous high
profitability and strong free cash flow. By focusing
on the core and targeted acquisitions, the Danfoss
businesses are world leaders in the markets where
we are active.

CORE AND CLEAR

FREE AND AGILE

CUSTOMER AND INNOVATION

PASSION AND PERFORMANCE

Annual Report 2014 · The Danfoss Group · Danfoss®Danfoss Growth Themes

Our Climate strategy: 3x25

INFRASTRUCTURE
We help build the roads, buildings and energy
systems for the world’s growing cities and
support progress for people, communities
and businesses across the world.

FOOD
Our solutions meet the constant need for
more and better food by improving agricul-
tural productivity and keeping food fresh all
the way to consumers with minimum waste.

ENERGY
No matter what we do, the goal is to optimize
performance, increase efficiency and mini-
mize waste. This means that our technologies
enable our customers and society as a whole
to get more from less.

BY 2025
25%
25%

LESS CO2 EMISSIONS

MORE RENEWABLE ENERGY

Our approach to sustainability

CLIMATE
While meeting the global climate challenge, our
products also contribute to human productivity
and well-being indoors by optimizing heating,
ventilation and air conditioning systems.

– Follow the UN Global Compact
– Guidelines, training and programs that govern

our behavior

– Code of Conduct for suppliers and regular audits

to verify compliance

The Danfoss heritage

Danfoss has grown from a solo enterprise into a world
leader, by having a clear focus on quality and innovative
engineering right from the beginning

1933
2014

Danfoss was founded
by Mads Clausen

Danfoss is a privately-held company and
controlled by the Bitten and Mads Clausen
Foundation.

Annual Report 2014 · The Danfoss Group · Danfoss®2014 at a glance

In 2014, Danfoss maintained a strong
momentum in its core business
and delivered strong financial
results. The year was characterized
by continuing low, global growth
conditions. However, the need for
infrastructure, food supply, energy
efficiency and climate-friendly
solutions continued to be the strong
drivers of the demand for Danfoss
technologies.

TOTAL NET SALES / m DKK

34,375

SALES GROWTH IN LOCAL CURRENCY

R&D SPENT / m DKK

1,331

FREE CASH FLOW (BEFORE M&A) / m DKK

3,389

OPERATING PROFIT / m DKK

4,356

excluding other income and expenses

EQUITY / m DKK

13,242

EQUITY RATIO

36%

2014 Expectations
compared to results

Net sales
Net sales expected to
show moderate growth
in local currency terms

Danfoss generated
total net sales of DKK
34,375m equal to 4%
growth in local currency

Operating
profit
Operating profit (EBIT)
expected to increase
at least in line with net
sales

13%

Operating profit
(EBIT) excluding other
operating income and
expenses grew by 13%
to reach DKK 4,356m.

Financials in brief

The Group’s total net sales reached a record level of DKK
34,375m against DKK 33,628m in 2013, while operating profit
(EBIT) excluding other operating income and expenses grew
by 13% to reach DKK 4,356m, making 2014 the strongest year
in the history of Danfoss in terms of profitability. The free cash
flow was maintained at a high level, however slightly below
the record level of 2013.

The Climate & Energy business segment had sales growth of
4% in local currency, and operating profit (EBIT) was improved
to DKK 2,878m from DKK 2,561m.

The Power Solutions business segment had sales growth of
5% in local currency, and operating profit (EBIT) improved to
DKK 1,703m from DKK 1,593m.

2015 outlook in brief

Net sales including full-year impact of the acquisition of Vacon
is expected to grow by 5-10%.

Underlying profitability is expected to slightly improve
through the continuous operational improvements and
the targeted strategic initiatives already launched. However,
integration cost in the first year of Vacon ownership is
expected to keep operating profit (EBIT) excluding other
income and expenses on par with 2014.

Annual Report 2014 · The Danfoss Group · Danfoss®
Sales distribution by region

OTHER
EUROPE

11%

40%

NORTH
AMERICA

24%

19%

LATIN
AMERICA

AFRICA/
MIDDLE EAST

ASIA/
PACIFIC

2014 highlights

Danfoss entered the next phase of the Group strategy
Core & Clear focusing on growing by taking market share –
organically and through acquisitions.

Danfoss acquired the Finnish drives manufacturer Vacon.
Combining the two companies has created a Nordic-based
global leading player in the low voltage drives market.

Danfoss and the world’s largest producer of solar inverters,
German SMA Solar Technology AG (SMA), entered a
strategic partnership.

Danfoss and Bosch Thermotechnik GmbH signed a contract
to form a joint venture to develop and manufacture a new
innovative and energy-efficient oil-free compressor
technology.

A new campus in India was officially inaugurated. The new
facilities will secure a strong foundation and support in
the development and quest for accelerated growth in the
region.

The Group issued a 7-year corporate Euro bond. This
disposition further strengthened Danfoss’s financial
position by diversifying the Group’s funding on several
sources.

Danfoss introduced a bold new brand platform and visual
identity to support the growth agenda: Engineering
Tomorrow.

Regional highlights

2014 was the year of a strong comeback for North
America with a growth rate of 9% in local currency
and a very positive impact on the Group’s sales
performance.

The Group continued its vigilant focus on the growth
potential in India and saw growth in local currency of 10%.

Considering the difficult market conditions, Danfoss
had a satisfactory year in Russia with sales close to the
level of 2013.

In China, the year began with sales above 2013 level,
but over the quarters the growth decreased, and China
ended up just above 2013 level for the full year.

In total, 2014 was a year of mixed market conditions in
the BRIC countries and the share of sales was at year
end at 22% and at level with last year.

2014 was characterized by continued low growth in
Europe. In contrast, Japan and Turkey had growth rates
in local currency of 24 and 22% respectively.

NORTH AMERICA 9% GROWTH RATE
INDIA 10% GROWTH RATE
JAPAN 24% GROWTH RATE
TURKEY 22% GROWTH RATE

Annual Report 2014 · The Danfoss Group · Danfoss®Danfoss solutions
make more
out of less

lower energy
consumption

Record low energy
consumption in Zurich’s
tallest building

The Prime Tower in Zurich, Switzerland, sets new
standards for low energy consumption. Thousands
of state-of-the-art valves and efficient control of
electrical motors installed in the refrigeration and
heating system deliver cuts energy consumption
by 7%, and make Prime Tower one of the most
energy-efficient buildings in Europe.

Annual Report 2014 · The Danfoss Group · Danfoss®FINANCIAL HIGHLIGHTS

FINANCIAL HIGHLIGHTS

DKKm

INCOME STATEMENT
Net sales
Operating profit before depreciation, amortization, impairment and
other operating income and expenses
Operating proﬁt before depreciation, amortization and impairment (EBITDA)
Operating profit excl. other operating income and expenses
Share of profit from associates and joint ventures after tax
Operating profit (EBIT)
Financial items, net
Profit before tax from continuing operations
Profit from discontinued operations
Net profit

BALANCE SHEET
Total non-current assets
Total assets
Total shareholders' equity
Net interest-bearing debt
Net assets

CASH FLOW STATEMENT
Cash flow from operating activities
Cash flow from investing activities

Acquisition of intangible assets and property, plant and equipment
Acquisition of subsidiaries and activities
Acquisition (-)/sale of other investments etc.

Free cash flow
Free cash flow before M&A
Cash flow from financing activities

NUMBER OF EMPLOYEES
Number of employees

FINANCIAL RATIOS
Organic net sales growth (%)
EBITDA margin excl. other operating income and expenses (%)
EBITDA margin (%)
EBIT margin excl. other operating income and expenses (%)
EBIT margin (%)
Return on invested capital (ROIC) after tax (%)
Return on invested capital (ROIC) (%)
Return on equity (%)
Equity ratio (%)
Leverage ratio (%)
Net interest bearing debt to EBITDA ratio
Dividend pay-out ratio (%)
Dividend ratio per share (%)

2010

2011

2012

2013

2014

31,550

33,904

34,007

33,628

34,375

5,209
5,067
3,400
14
3,278
-334
2,944
-829
1,378

18,703
29,868
11,700
6,675
18,167

3,387
-741
-634
-132
25
2,646
2,792
-2,037

5,327
5,941
3,653
16
4,242
-1,024
3,218
-931
1,314

17,422
28,124
12,597
4,634
17,037

3,359
-209
-1,220
1,106
-95
3,150
2,078
-2,530

5,454
5,750
3,729
-2
3,767
-421
3,346
0
2,339

17,038
27,768
14,193
2,691
16,775

4,245
-1,321
-1,169
-191
39
2,924
3,019
-2,779

5,549
5,304
3,870
8
3,624
-369
3,255
0
2,285

16,052
26,116
11,443
4,116
15,476

4,444
-917
-1,004
0
87
3,527
3,513
-3,623

6,079
5,661
4,356
-187
3,925
-449
3,476
0
2,290

25,822
36,883
13,242
11,439
22,432

4,351
-10,576
-996
-7,377
-2,203
-6,225
3,389
6,194

23,392

23,430

23,092

22,463

24,117

25
16.5
16.1
10.8
10.4
8.8
13.1
12.3
39.2
62.2
1.3
7.5
10.0

10
15.7
17.5
10.8
12.5
17.5
23.1
9.0
44.8
36.8
0.8
25.0
31.5

-2
16.0
16.9
11.0
11.1
15.2
21.4
17.8
51.1
19.0
0.5
17.1
39.2

1
16.5
15.8
11.5
10.8
15.9
22.2
18.2
43.8
36.0
0.8
35.0
78.3

4
17.7
16.5
12.7
11.4
13.2
19.4
18.4
35.9
86.4
2.0
21.8
48.9

In situations where the ratios have been defined according to "Recommendations & Key Figures 2010", as prepared by the Danish Association of
Financial Analysts, the ratios are computed according to these definitions.

Annual Report 2014 · The Danfoss Group · Danfoss®
CEO COMMENT

Danfoss accelerates growth

A strong and eventful 2014 has further strengthened Danfoss’ global position,
and we are well underway with initiatives to accelerate profitable growth.

This Annual Report shows how Danfoss has become more
agile, competitive and is in a robust financial position. Danfoss
saw several remarkable highlights in 2014. At the same time,
2014 was financially very strong, with the global need for
infrastructure, food supply, energy efficiency and climate-
friendly solutions continuing to drive demand for Danfoss
technologies. Through our strategic initiatives, we continued
strengthening the already solid foundation of the core
businesses, and our results were at a continued high level.

Continuing the strong results
Danfoss obtained increasingly strong financial results
during 2011, 2012 and 2013 – and 2014 was no exception.
As expected, the global economy was characterized by
low visibility and low growth. Despite the challenging
conditions, the Group maintained momentum, and we are
pleased to see that we fully met our expectations. We saw
high growth rates in North America and India, while the
developments in China and Europe were more modest.
Despite the difficult conditions in Russia, we managed to
continue to deliver satisfactory performance in the region.
In local currency, the Group’s total net sales grew by 4%.
Operating profit (EBIT) before other income and expenses
increased by 13%, making 2014 the strongest year ever.
Meanwhile, with DKK 3,389m the free cash flow before M&A
remained at a high level.

Continuous improvements are part of our DNA
Our strong results obtained in spite of low, global economic
growth can be ascribed to our persistent strategic focus
on improving quality, reliability and innovation. Under our
strategy Core & Clear, we have made a systematic effort

over the past five years to get the basics right and delivering
ongoing improvements has become part of our DNA. Once
again, in 2014 we increased productivity, we further improved
product quality, and our ability to make on-time deliveries
according to customer requests was also further improved.
The fact that we have created a world-class production and
supply chain is best documented through the improved
customer satisfaction rates seen over the past few years.

Danfoss aims to grow faster
We will continue to focus on strengthening the platform
created during the first phase of Core & Clear: Get the Basics
Right. But, on the basis of the strong financial position and
improved supply chain, we also want to make Danfoss grow
even faster. Consequently, we launched the next phase of Core
& Clear in 2014: Get Going. The objective is clear: accelerating
profitable growth. Several milestones have already been set on
the journey towards growth. Innovation is one of our growth
drivers. Therefore, in 2014 we continued to invest above industry
average in research and development. We have strengthened
our organization and production capacity in regions having

“

Once again, in 2014 we increased
productivity, we further improved
product quality, and our ability to
make on-time deliveries according
to customer requests was also
further improved.”

Annual Report 2014 · The Danfoss Group · Danfoss®major growth potential, and as of 2015 we have reorganized
into four new business segments. These organizational changes
aim to better utilize high potential growth pockets around the
world and accelerate growth in the core businesses. Another
milestone in the implementation of Get Going was the launch
of our new brand platform: Engineering Tomorrow. Engineering
Tomorrow is a strong and unique brand which unites all of the
Danfoss businesses and allows us to stand out in the market and
strengthen our position further.

Strengthening our core businesses
Our strategic target is to achieve a strong leading position in
the markets where we play. Throughout 2014, we worked to
meet this ambition. With the partnership with German SMA
Solar Technology AG, we joined forces with the world’s largest
company within solar inverters. The year’s most significant
highlight was without a doubt the acquisition of the Finnish
drives manufacturer Vacon, made at the year-end. The Vacon
and Danfoss drives businesses complement each other to a
large extent and, combined, the two units already make up
one of the world’s largest drives manufacturers, and through
sound profitability and investments in growth opportunities,
we aspire to further improve our market position.

Optimistic view on 2015
It is people that drive great results. The dedicated effort of 24,100
colleagues, who succeeded in building strong relationships
and loyalty among customers, suppliers and partners was the
key to the strong performance and results we obtained in 2014.
We are well underway accelerating growth. This is why we take
an optimistic approach to 2015, although visibility remains
low in regards to the development of the global economic

The Danfoss Executive Committee; Niels B. Christiansen, Danfoss
President & CEO, Kim Fausing, Executive Vice President & COO, and
Jesper V. Christensen, Executive Vice President & CFO.

“

The dedicated effort of 24,100
colleagues, who succeeded in
building strong relationships and
loyalty among customers, suppliers
and partners was the key to the
strong performance and results
we obtained in 2014. We are well
underway accelerating growth.
This is why we take an optimistic
approach to 2015.”

environment due to among other factors the expected
continued difficult market conditions and currency devaluation
in Russia. However, we are convinced that we will maintain the
positive development through ongoing improvement of our
business, an intensified focus on how to serve our customers
in the best possible way, and carefully selected investments in
growth opportunities. Combined: our customers, partners and
employees will all benefit from our initiatives.

On behalf of the Danfoss Executive Committee,

Niels B. Christiansen

Annual Report 2014 · The Danfoss Group · Danfoss®
CORE & CLEAR STATUS

Entering the next phase:
Get Going

Danfoss has entered the next phase of the Group strategy Core & Clear and
the focus is on growing by taking market share – organically and through
acquisitions.

Having conducted a successful implementation of the first
phase of the Group strategy, Get the Basics Right, Danfoss
started the next phase in 2014: Get Going.

growth, as we have taken in improving the basics. There
will be no ‘quick fixes’, but a long haul,” says Niels B.
Christiansen.

Niels B. Christiansen, Danfoss CEO & President, says:

“We have spent several years thoroughly getting the
basics right. Now we are in a financially strong position
and we have become much more agile. At the same time
we have developed a world-class scalable and flexible
supply chain. Consequently, we have entered the next
phase of the strategy.”

Continuing the basics
Since 2010, Core & Clear has formed the basis for initiatives
to push boundaries on results and reputation in Danfoss.
The past few years have seen a positive impact of the
dedicated implementation. Product quality is the best in
class and further improving, and Danfoss has strengthened
its leading positions, increased investments in innovation,
improved customer focus, reduced complexity and
improved productivity annually by double-digits. Meanwhile,
satisfaction among customers and employees has gone up.

“Get the Basics Right has become part of our DNA. Get the
Basics Right is the platform of our growth journey, and we
will continue to harvest the full potential of improving the
basics, while focusing on making Danfoss grow faster,” says
Niels B. Christiansen.

Get Going is about profitable growth
Today, Danfoss is in a strong global position within
technologies and solutions which accommodate the
increasing demand for food supply, modern infrastructure,
efficient energy utilization and climate-friendly solutions.
Targeted investments in growth – organically and through
acquisitions – are set to further enhance the current position.

“We will accelerate growth and grow faster than the
market. To achieve this ambition, we will make sound
investments in growth opportunities. We will take the
same thorough and systematic approach to accelerating

Part of the growth will be generated by introducing new
technologies and products. Consequently, the Group
continues to make significant investments in innovation to
differentiate the products and application portfolio from
those of the competitors. Moreover, Danfoss dedicates
resources to geographical areas with extensive growth
potential, and increases investments in branding and
marketing activities. The customers will also be directly
affected by the Get Going initiatives.

In the words of Niels B. Christiansen:

“Our focus on customers has become and will become
even more explicit in this new phase of the strategy,
where we will invest more in development of solutions
to enhance the customers’ experience of interacting with
Danfoss and continue to earn their loyalty.”

Finally, focused acquisitions which are set to strengthen Danfoss’
core businesses are also part of the initiatives to accelerate
growth.

“Our strong financial position enables us to acquire
companies to strengthen our core businesses. Considering
the continued global, low growth environment,
acquisitions are simply another way of taking market
share and strengthening our global position,” says Niels B.
Christiansen.

NIELS B. CHRISTIANSEN
Danfoss President & CEO

Annual Report 2014 · The Danfoss Group · Danfoss®13

Annual Report 2014 · The Danfoss Group · Danfoss®CORE & CLEAR STATUS

2014
Core & Clear highlights

LAUNCHING THE ENGINEERING TOMORROW BRAND
“We are introducing a bold new brand platform and visual
identity to support our growth agenda. The aim is to
update and sharpen our position in the market,” says Mette
Refshauge, head of Danfoss Corporate Communication &
Reputation.

Read more on page 32 and 33

Annual Report 2014 · The Danfoss Group · Danfoss®About the Core & Clear strategy

THE FOUR CORE ELEMENTS

CORE & CLEAR PORTFOLIO
means having strong
leading positions globally in
the core businesses being
positioned as number one
or two in the markets

FREE & AGILE
means ensuring the Group’s
ability to rapidly adapt
to market developments
and having a flexible and
competitive supply chain

CUSTOMER & INNOVATION
means providing value to
customers by delivering
on our promise of quality,
reliability and innovation
based on customer needs

PASSION & PERFORMANCE
means building capabilities
and engagement to drive
strong performance and
execute on the Danfoss
strategy

THE PHASES OF CORE & CLEAR EXPLAINED

GET GOING

GET THE BASICS RIGHT
2010

2014

2017

Get the Basics Right provides a strong and scalable foundation
for all activities in Danfoss. The drivers are:

Get Going is about accelerating profitable growth by taking
market share. The drivers are:

CORE & CLEAR PORTFOLIO
• Core businesses positioned as number one or two

in the markets where Danfoss is present

• Adjacent businesses with significant revenue and

clear differentiation from competitors

• Strong globalization of the portfolio and focus on

organic growth

FREE & AGILE
• A world-class supply chain giving Danfoss
competitive advantages and flexibility

• A strong focus on generating cash flow and handle

market fluctuations profitably

CUSTOMER & INNOVATION
• Danfoss offering its customers a distinctive,

measureable and sustainable value proposition
• A dedicated focus on what matters most to the

customers: quality and delivery
Innovation from the core

•

PASSION & PERFORMANCE
• A systematic development of employees and
leaders to create high level of engagement

• Global coverage of Danfoss Business System ensuring

alignment with common processes and tools
• Our strong performance orientation, KPIs and

quarterly follow ups

CORE & CLEAR PORTFOLIO
• Building leading positions via acquisitions

strengthening the core businesses and invest in
new growth businesses

CUSTOMER & INNOVATION
•

•

‘Engineering Tomorrow’ as one strong brand,
sharpening the Group’s identity and improving
impact in sales and marketing activities
Investing in the best opportunities that have the
potential to accelerate growth: infrastructure,
food, energy and climate. This also includes
making the most of geographical opportunities
Innovate to differentiate utilizing our deep
understanding of customer applications
combined with developing and sourcing of new
technology and modular approach

• Earning customer loyalty by becoming easier to

do business with

PASSION & PERFORMANCE
• Driving passion and performance through
leadership, diversity and winning teams
• Focusing on our employer brand, linking to

Engineering Tomorrow to attract the best talent
• Building leadership and talent pipelines through

systematic talent management

CORE & CLEAR STATUS

Milestones in the
Core & Clear journey

Danfoss developed the Group strategy Core & Clear to push boundaries on
results and reputation, thereby expanding its world-leading position.

HERE IS A COLLECTION OF SOME OF THE MILESTONES IN THE FIRST FIVE YEARS OF CORE & CLEAR

LAUNCH OF CORE & CLEAR
The strategy was launched to
strengthen the Group’s results
and reputation. For the first
period of the strategy, focus
was solely on ‘Get the Basics
Right’.

SYSTEMATIC CUSTOMER INVOLVEMENT
The Group introduced new processes for the systematic
involvement of customers from the early stages of product
development. The aim is to ensure that Danfoss keeps a sharp focus
on customers and their needs.

BUILDING A WORLD-CLASS SUPPLY CHAIN
In order to make Danfoss more agile and strengthen the core
businesses, the development of a world-class production and
supply chain was initiated. This includes productivity improvement,
focus on procurement with strong global category management
and building even stronger quality management capabilities.

IDENTIFYING AND REFOCUSING
ON THE CORE BUSINESSES
To focus entirely on the core,
Danfoss has divested non-core
businesses. The first business to
be sold was Danfoss Household
Compressors, with an annual
turnover of DKK 3bn.

2010

2011

2012

CORE BUSINESS
PORTFOLIO IN PLACE
With the divestitures of
Danfoss Water Controls
and Danfoss Geared
Motors in 2011, Danfoss
achieved a key target of the
strategy by having carried
out the most significant
adjustments in the
business portfolio.

FULL OWNERSHIP OF DANFOSS TURBOCOR
Danfoss gets full ownership of Danfoss Turbocor
Compressors, and the innovative, variable speed, oil-
free compressor technology with outstanding energy
efficiency performance.

SIGNIFICANT COMPLEXITY REDUCTION
The reduced complexity of the business carried out
since the launch of Core & Clear becomes visible and
thereby increases transparency. The number of part
numbers is reduced. Complexity on the supplier side
is also reduced while purchasing is concentrated with
fewer, but larger, suppliers.

ONE COMPANY – ONE WAY
Danfoss Business System, a
center of best practice, is a
key lever in driving global
coverage of aligned work
processes, tools and core
business capabilities.

Annual Report 2014 · The Danfoss Group · Danfoss®
GET GOING PHASE LAUNCHED
After four years of Get the Basics
Right, the Get Going phase
of the Core & Clear strategy is
launched, adding a strong focus
on accelerating profitable growth
to the continuous improvement of
the basics.

NEW BRAND CONCEPT:
ENGINEERING TOMORROW
As part of the growth initiatives,
the concept ‘Engineering
Tomorrow’ is launched, uniting
the Danfoss business under a
new strong brand platform.

ALLIANCE WITH SMA
Danfoss enters a strategic partnership
with SMA Solar Technology AG by
acquiring 20% of the shares of the
German world leader in solar inverters.

HIGH INVESTMENTS IN INNOVATION
In 2013, Danfoss introduced a record number of
products to the market. Relative to its size, with
around 4% of annual sales, Danfoss allocates above
industry average resources to innovation.

INCREASING CUSTOMER LOYALTY
2013 was the third straight year of rising customer
loyalty, bearing witness to the effect of greater
customer focus under Core & Clear.

FULL OWNERSHIP
OF SAUER-DANFOSS
Danfoss acquires the remaining share of
Sauer-Danfoss Inc. and gets full ownership.
Sauer-Danfoss is renamed Danfoss Power
Solutions.

2013

2014

STRENGTHENED FINANCIAL POSITION
The focus on improving profitability and generating
a high free cash flow pays off. In 2012, the debt level
reaches the desired level of 0 to 2 x EBITDA, and
Danfoss’ financial position is significantly strengthened.

GLOBAL SERVICES GLOBALLY
Solid efficiency gains and improved process quality
through Global Services rolled-out in all sales entities
and factories globally, covering all general administration
processes, finance, real estate and logistics.

ALL-TIME HIGH
EMPLOYEE ENGAGEMENT
In the 2013 Employee Perception Study,
employee engagement reached an
all-time high of 78 out of 100. In 2009,
the score was 73. Also, the measuring of
performance management has gone up
with an increased share of leaders rated
‘excellent’ by employees.

ACQUISITION OF VACON
By acquiring the Finnish company
Vacon, Danfoss transforms its drives
business into a world leader in its field.

FOUR STRONG SEGMENTS TO
SUPPORT ACCELERATED GROWTH
To support the growth agenda, the
Danfoss organization is restructured
into four segments: Danfoss Power
Solutions, Danfoss Cooling, Danfoss
Drives and Danfoss Heating (effective as
of January 2015).

Annual Report 2014 · The Danfoss Group · Danfoss®About the acquisition

In September 2014, Danfoss announced a public tender
offer to acquire all the shares of Vacon. By the end of
November, Danfoss had obtained approvals from all
the relevant authorities. In early December, the deal
was formally closed at an aggregated purchase price of
approximately EUR 1bn. At the time of the acquisition,
Vacon employed around 1,600 people and in 2013 its
revenues amounted to approximately EUR 403m.

About drives

Danfoss Drives is dedicated the so-called ‘low voltage
drives’, which control the speed of electric motors so that
they can run with variable speed enhancing the energy-
efficiency of the motor. The drives are used in a wide
range of industries and applications to control processes
and for saving energy. Innovative drives can deliver
solutions in all the Danfoss growth areas; infrastructure,
food, energy and climate.

Annual Report 2014 · The Danfoss Group · Danfoss®CORE & CLEAR STATUS

Creating a
stronger drives business

In 2014, Danfoss acquired the Finnish drives manufacturer Vacon. Danfoss and
Vacon have complementary product and market portfolio and are a perfect match.
Combining the two companies has created a Nordic-based global leading player.

The global drives manufacturer Vacon becoming part of
the Danfoss Group was the single most significant event in
2014. The combination of Vacon and Danfoss has created
one of the world’s leading players in the drives market, which
contains a substantial future growth potential.

“The potential of drives is huge. Less than 20% of motors
are controlled by drives today, and we see variable speed
drives as a core technology and solution in many future
applications in order to live up to new energy
efficient standards,“ says Niels B. Christiansen.

He continues:
“As a very strong and innovative player, Vacon was a
perfect match for our strategic ambition of ensuring a
long-term growth trajectory. Our new Drives segment can
invest further in both innovation and in the sales force
and gain scale, which is a key success factor in the drives
business.”

Danfoss has formed a dedicated business segment called
Danfoss Drives with Vesa Laisi, former CEO of Vacon, as
President.

“We want our core businesses to be number one or two
in the markets where we operate. With this acquisition,
we create a new drives business with a leading market
position,” says Niels B. Christiansen.

NIELS B. CHRISTIANSEN
Danfoss President & CEO

Annual Report 2014 · The Danfoss Group · Danfoss®Accelerating growth
under a new strong brand
A new brand platform makes Danfoss
stand out in the industry and supports
the strategic growth agenda

As part of entering the next phase of the Core & Clear
journey, Get Going, Danfoss’ new brand concept ’Engineering
Tomorrow´ was launched in the second half-year of 2014. The
brand concept unites all Danfoss businesses under one strong
brand platform.

“We have introduced a bold new brand platform and visual
identity to support our growth agenda. The aim is to update
and sharpen our position in the market while building on
the strong foundation we have,” says Mette Refshauge, head
of Danfoss Corporate Communication & Reputation.

This updated brand platform is the result of a detailed process
that builds on input from hundreds of internal and thousands
of external stakeholders across the globe.

Mette Refshauge explains:
“We know that we are in a low growth environment with
a growth agenda. We also know that we have untapped
potential when it comes to differentiating ourselves and
we stand out reaching all our stakeholders, from potential
customers and employees to decision-makers and public
authorities. Our brand plays an important role in unfolding
this potential and accelerating profitable growth.”

Why ‘Engineering Tomorrow’?
‘Engineering Tomorrow’ summarizes what Danfoss does.
Engineering is about know-how, quality, solving challenges
and experience.

“Engineering is really what Danfoss is all about and the
strong foundation of our heritage. Also, engineering is a key
driver in our societies as we need to get more from less”, says
Mette Refshauge.

Tomorrow is about innovation, understanding needs, growth
and progress.

“We aspire to unfold the potential of tomorrow, and our
solutions and products are already a key element to address
tomorrow’s challenges in infrastructure, food, climate and
energy technologies,” says Mette Refshauge.

METTE REFSHAUGE
Head of Danfoss Corporate
Communication & Reputation

Annual Report 2014 · The Danfoss Group · Danfoss®ENGINEERING TOMORROW

We are
engineering tomorrow

At Danfoss, we see opportunities everywhere – from feeding
a growing population, to saving energy, to letting everyone
enjoy a more comfortable, better quality of life. We aim to rise
to ever more complex challenges and, through knowledge
and hard work, engineer solutions that achieve more with less.

Quality, innovation and reliability are rooted in our DNA.
Our technologies and products can be trusted to push
the boundaries for what is possible, deliver exceptional
performance and answer the real needs of our customers.

With leading expertise in refrigeration and air conditioning,
controls for electric motors, heating systems for buildings
and cities, and hydraulic solutions to power agricultural and
construction machinery, our impact can be felt everywhere.
This is what drives us. To realize more of the potential of this
amazing world. And engineer the dreams of tomorrow, today.

We engineer technologies that enable the world of tomorrow
to do more with less. Our ambition is to realize the vast
potential for better infrastructure, improved food supply,
higher energy productivity and more climate-friendly
solutions. For our customers, we deliver unprecedented
quality, reliability and innovation in everything we do.

Our innovative engineering first began in 1933, and today
Danfoss is a world leader, employing 24,100 people and
serving customers in more than 100 countries.

Watch the movie about
how Danfoss is ‘Engineering
Tomorrow’ here.

Annual Report 2014 · The Danfoss Group · Danfoss®ENGINEERING TOMORROW

Engineering impact
where it counts

Danfoss engineers technologies that enable the world of tomorrow to do more
with less. Danfoss solutions meet the growing need for infrastructure, food
supply, energy efficiency and climate-friendly solutions.

CASE: INFRASTRUCTURE

Water supply and waste water
treatment in Kazan, Russia
Kazan is one of Russia’s key economic, scientific and sports cities, and has
a population of approximately 1,200,000. To provide such a large city with
water, the municipal unitary enterprise, Vodokanal, is rapidly developing
its capacity and introducing state-of-the-art equipment.

The enterprise services more than 2,000 km of water-
supply and sewage networks, along with various hydraulic
structures.

Vodokanal’s energy-consuming facilities include about 150
water-supply and sewage pumping stations.

To ensure energy efficiency and a failure-proof operation,
Danfoss and a partner have developed engineering
solutions, which utilize variable frequency drives for different
pumping operations.

converters and soft starters. The frequency converters control
the pumps, optimizing operating procedures. This saves
a great deal of electricity; for example, a 50% reduction in
energy consumption has been achieved at pumping station
No. 45.

For Vodokanal, the use of variable frequency drives and soft
starters saves a considerable amount of resources; reducing
production costs in the process. Thus, the primary target of
providing a reliable water supply for the people of Kazan has
been achieved.

The pumping equipment in water-supply and sewage
pumping stations are regulated by Danfoss’ frequency

Annual Report 2014 · The Danfoss Group · Danfoss®50%

reduction in energy
consumption at
pumping station

INFRASTRUCTURE
By 2030, a further 1.5 billion people will live
in cities. The demand for infrastructure to
support this is massive. We help build the roads,
buildings and energy systems for the world’s
growing cities and support progress for people,
communities and businesses across the world. A
well-functioning infrastructure is the vehicle for
transforming low and middle income countries
into emerging or developing nations. Our
solutions are developing the cities of tomorrow.

Annual Report 2014 · The Danfoss Group · Danfoss®FOOD
We help meet the constant need for more and
better food by improving agricultural productivity
and keeping food fresh all the way to consumers
in the most efficient and safe way with minimum
waste. Our products are everywhere, whether you
look in a grain harvester, at the workings of the
cold room and conveyor belt at a slaughterhouse
or behind the refrigeration counters of a
supermarket.

Annual Report 2014 · The Danfoss Group · Danfoss®ENGINEERING TOMORROW

42%

fuel saving from
using fewer
components

CASE: FOOD

New coffee harvester
increases productivity by 50%
Together with TDI Máquinas Agrícolas, a Brazilian manufacturer of
agricultural machines, Danfoss has designed a new coffee bean harvester
that meets the world’s growing need for food supply - and which may
create a new standard for coffee bean harvesting.

Intensive research by TDI and Danfoss engineering teams
led them to a hydraulic solution with fewer hydraulic
components and fewer mechanical controls, making the
machine less complex and more efficient. The outcome has
been a coffee bean harvester that provides fuel savings of
about 42% and increases productivity by 50% compared to
conventional models.

The harvester uses different Danfoss products on its
conventional hydraulic circuit. In this new TDI coffee
harvester are, among other things, S45 piston pumps
and PVG proportional control valves; solutions that make
the circuit more simple and achieve fuel savings, and less

heating in the circuit. Furthermore, the system can have
interchangeable parts, or be easily adapted to accommodate
new functions.

All functions have been incorporated and are controlled
by Danfoss’ PLUS+1® technology, which includes a
microcontroller, joystick and display. This allows the user
to easily interact with the machine through the display
installed in the cabin. Also, the electronic control functions
generate better crop yield, as parameters set by the
operator are controlled by the program, reducing chances
of errors or losses.

Annual Report 2014 · The Danfoss Group · Danfoss®ENGINEERING TOMORROW

1.5m EUR

saved annually from
using variable speed
compressors

CASE: ENERGY

Keeping data safe while saving energy

The need for data centers to house computer systems is rapidly increasing,
with a resulting rise in energy consumption. However, solutions are at
hand that will help keep consumption down. A data center owner has
had highly efficient cooling units installed, which use Danfoss technology,
and now saves 33% energy annually.

Quite a lot of the energy consumption in a data center
is used for heat removal, to keep data safe at the right
temperature and humidity. A UK based climate solutions
company, has installed cooling units for a scalable data
center, which use Danfoss variable speed compressors. This
has resulted in an excellent power usage effectiveness rating
of 1.21 for the data center. In a recent survey, the average
rating of more than 500 data centers was 1.8. The low power
use means that the owner saves 33% energy and 1.5m EUR
annually.

The installation in the data center consists of 12 highly-
efficient cooling units, each supplied with multiple variable-
speed fans and compressors in order to minimize energy use
and ensure quick and precise temperature control.
For security reasons, we cannot reveal the name and
the location of the data center, because the information
managed by the servers is often very sensitive.

Annual Report 2014 · The Danfoss Group · Danfoss®ENERGY
No matter what we produce, the goal is to
optimize performance, increase efficiency and
minimize waste. This means that, today we are
a world leader in the field of energy-efficient
technologies that enable our customers and
society as a whole to get more from less. Energy
that we don’t use doesn’t pollute and doesn’t cost
money. By picking the low-hanging fruits that
energy-efficient technologies offer, we can meet
the growing energy demand, boost the economy
and afford renewable energy sources.

Annual Report 2014 · The Danfoss Group · Danfoss®CLIMATE

Danfoss combines a comfortable and healthy
indoor climate with energy and cost savings,
and protection of the environment. Danfoss
supply technology for renewable energy within
wind, solar and automotive. Thinking about the
indoor climate is really about the future of the
outdoor climate. While meeting the global climate
challenge, Danfoss’ products also contribute
to human productivity and well-being indoors
by optimizing heating, ventilation and air
conditioning systems to suit individual needs and
lifestyles.

Annual Report 2014 · The Danfoss Group · Danfoss®ENGINEERING TOMORROW

Perfect
temperature
control from using
the Danfoss LinkTM
central Controller
System

CASE: CLIMATE

Intelligent house full of Danfoss tech
Across the world, demands on new homes are rising. So, when a family of
four in Aarhus, Denmark, built their dream home, they expected a whole
new level of comfort and control.

The family wanted to create a home where everything is
interconnected – from furnishing to energy systems. To meet
their expectations, they chose Danfoss One®: an intelligent
home solution which makes heating and ventilation systems
communicate together and automatically adjusts to the
needs of the homeowners, ensuring optimal comfort, air
quality and temperature at all times, while keeping energy
bills to an absolute minimum.

The solution is controlled by the Danfoss Link™ Central
Controller system. This intuitive system ensures perfect
temperature control and stability in the house, because it
adjusts automatically to the family’s energy usage pattern.
The heat pump, for example, only starts heating when
it receives a signal from the under-floor heating system.
Moreover, the system automatically regulates the quantity of
fresh air, or lowers the temperature depending on the time of
day or the season of the year.

The family has not yet lived in their new home for a full
year, but the members point to several advantages of the
intelligent home solution: they never have to worry about
the indoor climate. It’s never too cold nor too hot, and
energy efficiency is optimal.

”We wanted to have state-of-the-art energy control systems
to prepare our home for the future – and that’s what we have
now,” they point out.

Danfoss One® in short:
Danfoss One® is the central part of a system which efficiently
integrates floor heating, ventilation and heat pump in
houses. Optimal energy optimization is obtained through
electronic and wireless communication between the
components. Everything is controlled centrally using the
Danfoss Link™ Central Controller, which leads to perfect
temperature control and stability.

Annual Report 2014 · The Danfoss Group · Danfoss®QUALITY, RELIABILITY AND INNOVATION

Building a world-class
supply chain

In 2014, Danfoss continued to improve productivity and reduce complexity.
The Group has adopted best practice tools and processes to support the
constant quest for improvement and going beyond the ordinary.

In a period marked by a global economic low-growth
environment, Danfoss has been able to achieve strong results
despite difficult market conditions. A key contributor is a
global supply chain giving Danfoss competitive advantages.

“To deliver great results, we have to be free and agile.
During the first five years of working with our strategy,
Core & Clear, we have had a strong focus on ensuring the
Group’s ability to rapidly adapt to market developments
and improve our competitiveness,” says Executive Vice
President and COO, Kim Fausing.

Implementing best practice processes
Danfoss Business System (DBS) is a key lever in driving
continuous improvement of Danfoss’ supply chain. DBS is
using methods that streamline operations and supply chain
to minimize losses, optimize profitability and secure top
quality across the entire supply chain.

“Our approach to ensuring optimal processes is highly
systematical and implemented in every corner of Danfoss.
It is, more than anything, our commitment to align
and optimize processes across the entire supply chain
including everything from procurement, the shop floor
and to logistics that enables us to deliver high quality,
increase productivity and ensure on-time delivery,” says
Kim Fausing. And he adds: “Like in production, we have
harvested strong productivity gains in our administrative
functions through the global roll-out of our Global
Services covering all general administration processes,
finance, real estate and logistics.”

Improvements continued in 2014
Starting out the year at already high levels, Danfoss achieved
double-digit productivity enhancements across the Group’s
factories. At the same time, the Group continued to cut

the number of product codes, reducing complexity in the
business and improving transparency across product families
and business areas.

Procurement savings have over recent years significantly
boosted Danfoss’ competitiveness. The total savings on
procurement reached an all-time high in 2014 exceeding
the record level of 2013. Continuing to accelerate the impact
from the global category management, Danfoss has further
cut the number of suppliers it uses to bring benefits in the
form of less complexity, faster delivery and better prices, and
a supplier quality program has been implemented across the
Group.

“Combined, the many efforts we put in to working smarter
and more efficiently have resulted in a world-class supply
chain which benefits our customers through improved
quality, reliability and on-time delivery,” says Kim Fausing.

And he continues:
“We will keep on harvesting the full potential. Particularly
by continued complexity reduction and further initiatives
to utilize our global scale to drive enhanced productivity
thereby allowing us to focus even more on how to add
value to our customers.”

KIM FAUSING
Executive Vice President
and COO

Annual Report 2014 · The Danfoss Group · Danfoss®About Danfoss
Business System

Danfoss Business System (DBS) is how Danfoss drive processes
and performance. DBS started with the Danfoss Productivity
Program, followed by programs for Procurement, Sales &
Marketing and Innovation.

All programs consist of the same building blocks:
• Clearly defined tools and processes for each core process
• Structured execution approach for step changes and

continuous improvement

• Structured capability building approach covering all levels in

line organization

• Stretched target setting and a systematic performance

management approach

Consolidated procurement
improves productivity

Scale is an important parameter when it comes to
procurement. By consolidating procurement spend across the
Group into a global category management system, Danfoss
has obtained significant synergies and scale leading to
procurement savings and in the end improved productivity.

As procurement scale is vital to stay competitive in the drives
and solar inverter markets, synergies and increased scale was
a part of the strategic rationale behind the acquisition of the
drives company Vacon and the strategic partnership with
the solar inverter company SMA Solar Technology AG. The
combined procurement volume coming from these bold
moves enables increased procurement savings on materials
and parts for drives and solar inverters.

Annual Report 2014 · The Danfoss Group · Danfoss®QUALITY, RELIABILITY AND INNOVATION

Earning the
customer’s loyalty

Danfoss’ customer promise is quality, reliability and innovation. Every day,
Danfoss employees strive to push boundaries on these longstanding
cornerstones.

Danfoss Executive Vice President and COO Kim Fausing explains:
“We are recognized for high quality and being a reliable and
innovative business partner by our customers. We have as a
part of our strategic focus invested significantly to keep us
at the forefront of the development as we continue to create
solutions that set the global engineering standard.”

At Danfoss, it is crucial that earning the customer’s loyalty is
not just talk, but something that the customers experience
when working with Danfoss.

KIM FAUSING
Executive Vice President
and COO

QUALITY
Berendsen Fluid Power is one of North America’s largest
distributors of hydraulic and pneumatic products and
services. With over 400 employees in more than 45 different
cities the company is available to serve customer needs in
fluid power applications through-out the US and Canada.
Berendsen Fluid Power is a full-line distributor of Danfoss
Power Solutions products and solutions.

Ranjit Salan, Customer Service Representative at Berendsen
Fluid Power, says: “I am thankful to represent Danfoss.
Always excellent service and the Danfoss people always try
and go that extra mile to satisfy me. We much appreciate
the people, product and quality of the products. They sell
themselves. Thank you!”

In 2014, Danfoss continued with a dedicated follow-up
process, and the Group raised its product quality even
further. Much of the improvement was achieved through the
systematic approach and aligned processes implemented
across the Group through the Danfoss Business System. The
goal is for all business areas to comply with ISO/TS16949, one
of the toughest quality standards in the world, by the end
of 2016. In 2014, five more factories were certified to ISO/
TS16949, bringing the current total to 19.

RELIABILITY
GIndustries produce a complete range of solutions for
comfort and industrial process cooling, focusing on high
efficiency and environmentally sustainable products.
GIndustries have more than 20 years of cooperation with
Danfoss.

Paolo Baldissin, CEO at G.I. HOLDING Group, says:
“With Danfoss we can find the right balance between
price, logistics and development. They always inform us up
front and act fast to fix any issues that might occur.”

At Danfoss, ease of doing business, excellent service,
extensive component insight and application knowledge
and delivery performance are some of the cornerstones
in being a reliable business partner. In 2014 via systematic
follow-up, Danfoss further improved its on-time delivery
performance and the increased customer focus has been
emphasized with the launch of the next phase in the Group’s
strategy. Executive Vice President and COO Kim Fausing says:

“We build our business on trust and integrity. In everything
from product design to sales, delivery and service, we stand
by our customers, respond to their needs and keep our
promises. Being a reliable business partner to our customers
is an asset that every day we work hard to protect.”

Annual Report 2014 · The Danfoss Group · Danfoss®INNOVATION
The GEA Group is one of the largest providers for equipment
and process technology particularly for the long-term
growth industry of food and beverage where it ranks among
the market and technology leaders. Danfoss’ variable speed
drives is part of the GEA Group’s efficient solutions for
demanding production processes.

innovation from the core and creating solutions that enable
the customers to make more out of less. In 2014, measured
as a percentage of sales, the investment in innovation was
3.9%. Overall, Danfoss invested DKK 1,331m in innovation
in 2014. During the year, Danfoss filed 274 new patent
applications and was granted 213 patents. At December 31,
2014, the Group had a total of 1986 patents.

Mario Giannini, Head of Supply Chain at GEA Process
Engineering, says:
“I think that Danfoss’ level of innovation is quite, quite
high, and this is important to us. GEA and Danfoss are also
in contact in developing new innovative solutions for our
customers. And this is normally achieved only from what
I call strategic suppliers. Danfoss produces intelligent
products and the products are, let’s say, much more
sophisticated. This enables us to deliver something better
to the customers than our competitors. We always have as
a final goal: what is good for our customer? And through
Danfoss, this can be achieved.”

Danfoss has strengthened its innovation capacity and
product development programs during the Core & Clear
journey. Compared to other players in the industries, relative
to its size Danfoss is among the companies spending the
most on innovation. Danfoss focuses the investments in

Annual Report 2014 · The Danfoss Group · Danfoss®REGIONAL OVERVIEW

A strong
global footprint

Danfoss has a strong global footprint with 63 factories in 19 countries, and the
Group sells its products in more than 100 countries. Danfoss is headquartered
in Nordborg, Denmark.

NORTH AMERICA

13 factories
Sales companies in 3 countries
4,286 employees

24%

share of
total net sales

North America is a strategically
important market for Danfoss. The US is
Danfoss’ largest country in terms of net
sales. Danfoss holds a strong position
and strong presence in this market
with double digit sales growth in 2014
and vast potential for further growth
in all core business areas. This mature
market has a strong economy; it is the
largest manufacturing economy in the
world, and the home for Danfoss’ top,
global customers. Energy efficiency
in buildings, a changing refrigerant
landscape, and reshoring are major
trends in North America that represent
significant growth opportunities for
Danfoss.

NORTH
AMERICA

LATIN AMERICA

2 factories
Sales companies in 5 countries
420 employees

share of
total net sales

Danfoss has been present i Latin
America for many decades, with sales
companies in the main countries all
around the region. Having food as
one of the most important exported
commodities, Danfoss supports the
region with numerous solutions from
production to processing and from
transportation to storage. Also within
improvement and expansion of the
infrastructure in the region, Danfoss
plays a key role. Brazil is the largest
market in the region.

LATIN
AMERICA

Annual Report 2014 · The Danfoss Group · Danfoss®EU is the number one region in Danfoss
in terms of net sales, with Germany
being the largest market in the region.
Danfoss has a very strong footprint in
the EU. Despite being a mature market,
the EU countries still hold a number
of growth opportunities for Danfoss,
particularly due to ambitious plans to
improve energy efficiency in the region.
‘Energiewende’, which is the transition
of Germany’s energy portfolio to be
dominated by renewable energy, energy
efficiency and sustainable development,
is a concrete example of how a mature
market is still a growth pocket with huge
potential for Danfoss.

Russia is the largest market in this region.
Danfoss was one of the companies to
rapidly set up a business in Russia, when
the country opened up. Today, Danfoss
has a strong organization and enjoys a
good reputation. In combination, the
cold climate, an increased focus on
energy efficiency in Russia and the large
number of district heating systems hold
huge potential for Danfoss. Another
country with a large growth potential is
Turkey: cold winters and hot summers
create a demand for heating and cooling
technologies. As part of the initiatives to
accelerate growth, Danfoss accelerates
investments in Turkey.

OTHER EUROPE

33 factories
Sales companies in 20 countries
12,617 employees

2 factories
Sales companies in 7 countries
1,341 employees

40%

share of
total net sales

OTHER
EUROPE

AFRICA/
MIDDLE
EAST

11%

share of
total net sales

ASIA-
PACIFIC

AFRICA/MIDDLE EAST

Sales companies in 2 countries
61 employees

share of
total net sales

The Africa/Middle East region is the
most diversified region in Danfoss with
more than 66 countries. Despite being
characterized by a volatile business
climate in parts of the region, Africa and
the Middle East are also representing
a promising potential, with in general
a growing population and increasing
urbanization, fast-growing economies
on the African continent and focus on
more efficient energy systems in the oil
producing countries. Also, a wide range
of Danfoss solutions are addressing key
challenges in the region such as the
scarcity in power supply, as well as within
the almost non-existent food cold chain.

ASIA-PACIFIC

13 factories
Sales companies in 12 countries
5,392 employees

19%

share of
total net sales

Asia-Pacific is Danfoss’ largest region
in terms of sourcing, and a large
proportion of Danfoss production is
located there. China is the Group’s
largest market in the region, and the
country’s high growth rates, which
have been obtained over the few past
years, is one of the reasons that the
BRIC countries’ share of the Group
net sales have reached 22%. China
continues to hold major potential
within urban district heating projects
in particular, which Danfoss helps to
develop. The second-largest market
in the region is India, which is also
identified as offering a huge growth
potential for Danfoss. Therefore, in
2014, Danfoss opened a large new
India Campus, including production
and development facilities.

Annual Report 2014 · The Danfoss Group · Danfoss®TOP GROWTH AREAS IN 2014, IN LOCAL CURRENCY

TURKEY

NORTH
AMERICA

22%

24%

10%

INDIA

JAPAN

Annual Report 2014 · The Danfoss Group · Danfoss®FINANCIAL REVIEW

Continued strong
financial performance

In 2014, Danfoss maintained a strong momentum in its core businesses and
likewise delivered strong financial results. Sales were up by 4% in local currency,
earnings reached a new record level while free cash flow was maintained at a
high level.

In 2014, Danfoss increased its total net sales to the record
level of DKK 34,375m against DKK 33,628m in 2013, which
was satisfactory and in line with expectations. In local
currency sales grew by 4%.

2014 was characterized by the continuing low, global growth
conditions. However, the need for infrastructure, food supply,
energy efficiency and climate-friendly solutions continued to
be the drivers of the demand for Danfoss technologies. The
Group had growth throughout all quarters.

From a geographical point of view, the Group continued its
vigilant focus on a few high potential growth opportunities.
India is one of these opportunities. Due to urbanization
and the need for an efficient cold-chain to keep food
fresh and lowering food waste in the Indian agriculture
and food-industry, the region holds great potential for
Danfoss’ cooling and air-conditioning business. In 2014, the
region delivered growth of 10% in local currency. Another
geographical opportunity with a promising potential for the
Group is Turkey, where a growing population and a climate
of very hot summers and cold winters drives the demand
for energy efficient heating and cooling solutions. In 2014,
Danfoss further strengthened its presence in the country,
and although being a relatively new market for Danfoss,
Turkey proved its potential with a growth rate of 22% in local
currency.

The BRIC countries have for some years been the primary
growth markets for Danfoss, and Brazil, Russia, India and China
still hold great potential for the Group. As mentioned above,
growth in India was double-digit, whereas sales in Brazil after
a record level in 2013 declined slightly. In China, the year
began with sales well above 2013 level, but over the quarters
the growth decreased, and China ended up just above 2013

level for the full year. In Russia, considering the difficult market
conditions with a Russian economy impacted by international
sanctions and declining oil prices, thus a significant decline for
the Ruble, Danfoss had a satisfactory year in the region with
sales close to the level of 2013. In total, 2014 was a year of
mixed market conditions in the BRIC countries and the share
of total sales coming from Brazil, Russia, India and China was at
year end at 22% compared to 22% in 2013.

Still coping with the aftermath of the financial crisis and also
impacted by the economic effects of the trade sanctions against
Russia, Europe was characterized by low growth overall.

Whereas 2014 was marked by low growth in some regions,
it was also the year of a strong comeback for North America.
The trend of growth picking up in the region started already
in the second half of 2013. Almost one-quarter of the Groups
net sales came from North America, and a growth rate of 9%
in local currency had a very positive impact on the Group’s
sales performance in 2014. Also, in the Asia-Pacific region, the
Group saw a positive trend in sales, driven by increasing sales
in several countries. Japan, one of the largest markets in the
region, had a growth rate of 24% in local currency.

Operating profit (EBIT) excluding other operating
income and expenses grew by 13% to reach DKK 4,356m,
up from DKK 3,870m in 2013. The main drivers of these
improved results were the growing sales and operational
improvements such as procurement savings, productivity
increase and reduced complexity, combined with good cost
control. Accordingly, EBIT was in line with the expected level,
which was satisfactory. Earnings were particularly strong in
mid-year, which is traditionally Danfoss’ peak season. 2014
was the strongest year in the history of Danfoss in terms of
profitability.

Annual Report 2014 · The Danfoss Group · Danfoss®FINANCIAL REVIEW

Operating profit (EBIT) amounted to DKK 3,925m, against
DKK 3,624m in 2013 equal to an increase of 8%.

manufacturer Vacon and 20% of the shares in the German
solar inverter company SMA Solar Technology AG.

Financial items totaled an expense of DKK 449m, against an
expense of DKK 369m in 2013.

Net profit was at DKK 2,290m against DKK 2,285m in 2013.

Balance sheet
Equity stood at DKK 13,242m at December 31, 2014, compared
to DKK 11,443m at December 31, 2013. The strong earnings
are the main reason for the positive development in equity.

The return on equity was 18.4% compared to 18.2% in 2013.

Total assets amounted to DKK 36,883m at December 31,
2014, against DKK 26,116m at the year-earlier date. This
change was due to Danfoss acquiring the Finnish drives
manufacturer Vacon and 20% of the shares in the German
solar inverter company SMA Solar Technology AG.

Net interest-bearing debt stood at DKK 11,439m at December
31, 2014, compared with DKK 4,116m at the year-earlier date.
This change was also due to M&A activities in 2014, where
Danfoss acquired Vacon at the total price of DKK 7.748m and
20% of the shares in SMA Solar Technology AG at the total
price of DKK 2,257m. The level of debt is equal to 2.0 × EBITDA
for the last four quarters, which is in line with the target range
of 0 to 2 times EBITDA for the last four quarters. The Group
management considers the level of debt to be satisfactory.

Interest-bearing debt included DKK 11,063m (97%) non-
current debt maturing after more than 12 months. At
December 31, 2014, the Group had unutilized and non-
terminable long-term credit commitments of DKK 7.0bn. In
addition to this, Danfoss had cash and cash equivalents and
ordinary operating credits.

Cash flow statement
The free cash flow before mergers and acquisitions was
maintained at a very high level, driven by strong earnings
and improvements to the working capital. Free cash flow
before mergers and acquisitions amounted to DKK 3,389m,
against DKK 3,513m at December 31, 2013.

Cash flow from operating activities of DKK 4,351m and
DKK -10,576m cash flow from investing activities amounts
to a free cash flow of DKK -6,225m, against DKK 3,527m in
2013. This change was mainly due to M&A activities of DKK
9,614m in 2014, where Danfoss acquired the Finnish drives

Innovation
In 2014, the Group’s innovation activities were concentrated
on developing energy-efficient and performance-enhancing
solutions in the Group’s core business areas. Danfoss spent
DKK 1,331m on product development in 2014, compared
to DKK 1,383m in 2013. Measured as a percentage of sales,
investment was 3.9% against 4.1% in 2013. During the year,
Danfoss filed 274 new patent applications, and 213 patents
were granted to the Group. At December 31, 2014, the Group
had 1,986 patents.

Employees
Being able to attract and retain people with the right
knowledge and skills is essential for Danfoss to retain and
expand its leading market position in its core business areas.
Danfoss makes an ongoing structured effort to build and
develop employee qualifications through on-the-job
training, courses and other learning activities.

In addition, Danfoss holds frequent employee performance
reviews in support of the continuing development of
employee qualifications, ensuring consistency between
levels of responsibility and levels of competency.

Danfoss seeks to develop and attract employees from
all over the world. It is therefore of great importance to
embrace diversity at all levels of the Group. In 2015 Danfoss
introduced Danfoss behaviors in action where employees are
guided in how to interact with each other and create a best
in Class Company.

The Group’s latest Survey of Performance Management
measures the extent to which the organization is working
in accordance with the Danfoss strategy. In 2015 the
score maintained at a high score. The high score gives
an indication of a strong culture and commitment to the
company’s long term strategy.

The Danfoss Group had 24,117 employees at December
31, 2014, including approximately 1,600 employees joining
the Group following the Vacon acquisition. The Group had
22,463 at the year-earlier date. The Group’s employees
were distributed as follows by geography: 8,658 in Europe
excluding Denmark (2013: 7,772), 4,286 in North America
including Mexico (2013: 3,920), 420 in Latin America (2013:
412), 5,392 in Asia-Pacific including China (2013: 4,889) and
61 in Africa-Middle East (2013: 55). At December 31, 2014,

Annual Report 2014 · The Danfoss Group · Danfoss®EMPLOYEES 2014

THE DANFOSS
GROUP IN TOTAL

NORTH
AMERICA

EUROPE

4,286

8,658

5,300

24,117

DENMARK

420

5,392

LATIN
AMERICA

AFRICA/
MIDDLE EAST

ASIA/
PACIFIC

Danfoss had 5,300 employees in Denmark compared to 5,415
a year earlier.

Acquisitions, business expansions
and establishments in 2014
In May, Danfoss and the world’s largest producer of solar
inverters, German SMA Solar Technology AG (SMA), entered a
strategic partnership. Danfoss bought 20% of the shares in SMA
at a price of EUR 302m, making Danfoss an anchor investor in
SMA. As a part of the partnership, SMA took over the rights to all
Danfoss solar products, including sales and service.

In October, Danfoss and Bosch Thermotechnik GmbH
signed an agreement to form a joint venture to develop and
manufacture a new innovative and energy-efficient oil-free
compressor technology. The joint venture is owned in equal
shares by Bosch Thermotechnik and Danfoss.

In November, the Group’s new campus in India was officially
inaugurated. The campus is a giant leap forward for Danfoss in
India, and the new facilities, including R&D and production, will
secure a strong foundation and support in the development
and quest for accelerated growth in the region.

In December, Danfoss completed its acquisition of the
Finnish drives company Vacon. Danfoss acquired all shares
of Vacon at a price of EUR 34 per share and a total purchase
price of EUR 1,038m (DKK 7,748m). In connection with the
Vacon acquisition, the company will be delisted from the
Helsinki stock exchange during 2015.

In December, the Group issued a 7-year corporate Euro
bond of EUR 500m under the established Euro Medium
Term Note program (EMTN) program with a capacity of EUR
1,000m in total. This transaction provided the Group with
funding for the M&A activities at attractive terms and further
strengthened its financial position by diversifying the Group’s
funding on several sources.

Accounting policies
The Annual Report has been prepared in accordance
with International Financial Reporting Standards (IFRS)
and Danish disclosure requirements for annual reports
of companies in Reporting Class D. Changes have been
made to the accounting policies in 2014 as a result of the
implementation of new standards and interpretations. The
changes have not had a material effect on recognition nor
measurement.

Danfoss A/S has, starting from 2014, decided to include
share of profit from associates and joint ventures after tax in
Operating profit (EBIT). Before 2014, it was classified below
Operating Profit (EBIT).

Danfoss considers associates and joint ventures to be
an integrated part of the Group, as the shareholdings in
associates and joint venture participate in generating the
operating profit of the consolidated Group. Comparison
figures for 2013 have been increased with DKK 8m in order to
reflect this change. No key figures other than Operating
profit (EBIT) are impacted.

Annual Report 2014 · The Danfoss Group · Danfoss®Danfoss solutions
make more
out of less

90%

of the surplus
heat i reused

Industry heats the
houses in Hamburg

Up to 60% of the energy used at power plants in
Europe is emitted as surplus heat. This is inefficient
and leads to CO2 emissions which could have been
avoided. At HafenCity in Hamburg, Germany, the
reasoning is different: Europe’s largest and highly
ambitious city development project uses surplus
heat from industrial companies and power plants
to heat the majority of the houses in the area.
District heating technology makes it possible to
utilize 90% of the energy from the power plants.

Annual Report 2014 · The Danfoss Group · Danfoss®FINANCIAL HIGHLIGHTS

FINANCIAL HIGHLIGHTS, QUARTERLY

DKKm

PROFIT AND LOSS ACCOUNTS
Net sales
Operating profit before depreciation, amortization,
impairment and other operating income and expenses
Operating profit before depreciation, amortization and
impairment (EBITDA)
Operating profit excl. other income and expenses
Operating profit (EBIT)
Financial items
Profit before tax
Net profit

BALANCE SHEET
Total non-current assets
Total assets
Total shareholders’ equity
Net interest-bearing debt
Net assets

CASH FLOW STATEMENT
Cash flow from operating activities
Cash flow from investing activities

Acquisition of intangible assets and property,
plant and equipment
Acquisition of subsidiaries and activities
Acquisition(-) and sale of other investments etc.

Free Cash flow
Free cash flow before M&A
Cash flow from financing activities

KEY FIGURES
Organic net sales growth ( %)
EBITDA margin excl. other operating income etc. (%)
EBITDA margin (%)
EBIT margin excl. other operating income etc. (%)
EBIT margin (%)
Equity ratio (%)
Leverage ratio (%)
Net interest bearing debt to EBITDA ratio

GEOGRAPHICAL SEGMENTS
Total net sales
EU
Rest of Europe
Asia
North America
Africa
Pacific
Latin America
Middle East
Total

Number of employees
Europe excl. Denmark
North America incl. Mexico
Latin America
Asia-Pacific incl. China
Africa - Middle East
Denmark
Total exclusive sold companies/activities

Q1 2013 Q2 2013 Q3 2013 Q4 2013

2013

Q1 2014 Q2 2014 Q3 2014 Q4 2014

2014

8,063

8,752

8,712

8,100

33,628

8,303

8,617

8,784

8,670

34,375

1,106

1,408

1,688

1,347

5,549

1,401

1,450

1,802

1,426

6,079

1,057
679
638
-36
603
422

1,340
987
911
-133
778
556

1,590
1,273
1,175
-96
1,079
708

1,317
931
900
-104
796
598

5,304
3,870
3,624
-369
3,255
2,285

1,341
996
913
-80
833
555

1,448
1,043
1,042
-83
959
632

1,737
1,394
1,323
-86
1,237
828

1,135
924
647
-201
447
274

5,661
4,356
3,925
-449
3,476
2,290

17,024
28,546
14,637
2,767
17,332

16,691
28,450
10,445
6,721
17,089

16,127
27,472
10,942
5,421
16,284

16,052
26,116
11,443
4,116
15,476

15,760
26,436
11,946
3,913
15,785

18,029
29,064
11,783
6,639
15,953

18,737
29,811
13,030
5,874
15,796

25,822
36,883
13,242
11,439
22,432

435
-56

-167
0
111
378
365
-530

-4
13.7
13.1
8.5
7.9
51.3
18.9
0.5

3,268
803
1,242
2,081
51
128
400
90
8,063

7,973
3,994
441
4,894
57
5,684
23,043

1,265
-340

-471
0
131
925
918
-974

-1
16.1
15.3
11.3
10.4
36.7
64.3
1.2

3,377
944
1,551
2,113
68
128
449
122
8,752

8,041
4,039
427
4,950
58
5,640
23,155

2,623
-505

-612
2
105
2,118
2,121
-2,202

3
19.4
18.2
14.6
13.5
39.8
49.5
1.0

3,405
1,153
1,604
1,811
65
149
435
90
8,712

7,972
3,946
418
4,936
58
5,512
22,842

4,444
-917

-1,004
0
87
3,527
3,513
-3,623

5
16.6
16.3
11.5
11.1
43.8
36.0
0.8

3,266
1,011
1,493
1,661
46
133
401
90
8,100

7,772
3,920
412
4,889
55
5,415
22,463

4,444
-917

-1,004
0
87
3,527
3,513
-3,623

1
16.5
15.8
11.5
10.8
43.8
36.0
0.8

13,316
3,911
5,890
7,666
230
538
1,685
392
33,628

7,772
3,920
412
4,889
55
5,415
22,463

405
-178

-215
0
37
227
228
-490

7
16.9
16.2
12.0
11.0
45.2
32.8
0.7

3,480
735
1,324
2,151
60
120
339
94
8,303

7,727
3,861
424
4,887
58
5,329
22,286

1,071
-2,673

-456
0
-2,217
-1,602
660
1,340

3
16.8
16.8
12.1
12.1
40.5
56.3
1.2

3,378
862
1,528
2,212
70
121
344
102
8,617

7,754
4,077
422
5,002
59
5,319
22,633

2,754
-3,593

4,351
-10,576

-711
0
-2,882
-839
2,090
609

-996
-7,377
-2,203
-6,225
3,389
6,194

3
20.5
19.8
15.9
15.1
43.7
45.1
1.0

3,427
1,110
1,600
1,946
61
128
406
106
8,784

7,682
4,105
398
5,007
62
5,368
22,622

3
16.4
13.1
10.7
7.5
35.9
86.4
2.0

3,320
982
1,687
2,004
74
122
375
106
8,670

8,658
4,286
420
5,392
61
5,300
24,117

4
17.7
16.5
12.7
11.4
35.9
86.4
2.0

13,607
3,689
6,139
8,313
264
491
1,464
408
34,375

8,658
4,286
420
5,392
61
5,300
24,117

Annual Report 2014 · The Danfoss Group · Danfoss®FINANCIAL REVIEW

Danfoss Climate & Energy

Segment description
The Danfoss Climate & Energy segment covered five
areas: refrigeration and air-conditioning controls, power
electronics, heating solutions, commercial compressors, and
district energy. The segment played a leading role in R&D,
production, sales and service of mechanical and electronic
products and solutions sold on the global market for cooling
and air conditioning, comfort and heating, control of electric
motors, and for a number of industries in which energy
efficiency is important.

Market and regional trends
Sales trends in the Danfoss Climate & Energy segment were
as expected for 2014, with the segment gaining gradually
stronger traction throughout the year. As for the whole
Danfoss Group, the year was for the segment characterized
by low growth market conditions. However, the global
megatrends such as the need for intelligent cooling and
heating infrastructure and keeping food fresh from the field
all the way to the consumer continued to drive the demand
for the segment’s energy-efficient, climate-friendly solutions
and technologies.

The refrigeration and air-conditioning business, which
supplies energy-saving components for a wide range of
refrigeration and air-conditioning systems, and the power
electronics business, which, among other things, produces
variable speed drives for the energy efficient control of
electric motors, performed especially well during the year.
Also, the district energy business performed strongly in 2014
benefitting from an increased global awareness of the great-
scale energy efficiency potential that countries and cities can
achieve from district energy. Another remarkable contributor
- also with great potential - to the positive development
in the segment was the Danfoss Turbocor compressor: a
relatively new, innovative, variable speed, oil-free compressor
technology with outstanding energy efficiency performance.
With a double-digit global growth rate in 2014, the Turbocor
compressor also proved its potential in the commercial air-
conditioning market.

Overall, the segment continued to see a steady level of
demand for energy-efficient solutions.

Seen from a regional perspective, the segment maintained
or grew its market share in all regions. Growth staged a
comeback in North America, reaching 9% in local currency
for the full-year. Also in India and Turkey, the bold strategic

moves to utilize the growth potential of the regions paid off.
India had 9% growth, while Turkey reached 28%, both in local
currency. The European market ended up at last year’s level.
Sales to the Russian market were maintained at the 2013
level, which was satisfactory considering the difficult market
conditions in the region. In China and Brazil the segment had
low single-digit growth.

Segment development
The work to develop the core businesses in the segment
continued in 2014.

At the beginning of the year, Danfoss entered a strategic
partnership with German SMA Solar Technology AG (SMA).
This alliance is in line with the Core & Clear strategy’s ambition
to be a number one or two in the markets where Danfoss
operates. The potential of the two significant players joining
forces is significant, and already during 2014 the benefits from
increased procurement scale began to materialize.

At year end, a significant strengthening of the segment’s drives
business was made with the acquisition of the Finnish drives
manufacturer Vacon. The combination of Vacon and Danfoss
has created one of the world’s leading players in the drives
market. Joining forces also means that the new drives business
will be able to invest further in both innovation and in the
sales force and gain additional scale, which is a key success
factor in the global drives market. The ambition for the new
drives business is to grow faster than the drives market.

The segment’s spent on product development remained
at the very high level of 4.0% of net sales leading to a
significant number of new and updated products brought
to the market during the year. Also, the segment continued
to expand its position on the Indian market with the
inauguration of a new production and innovation campus in
Chennai.

Financial performance
For the full-year, the segment had sales growth of 4% in
local currency and 1% in DKK. Net sales amounted to DKK
22,669m, against DKK 22,330m in 2013. Due to the increased
sales and substantial productivity improvements and
increasing procurement savings, profitability in the segment
was significantly improved from an operating profit (EBIT)
of DKK 2,561m last year to DKK 2,878m in 2014, equal to an
improvement of 12%, lifting the EBIT margin to 12.7% from
11.5% in 2013.

Annual Report 2014 · The Danfoss Group · Danfoss®SALES DISTRIBUTION BY REGION 2014 (2013)

OTHER EUROPE

NORTH
AMERICA

15% (16%)

13% (12%)

44% (44%)

20% (20%)

5% (5%)

3% (3%)

LATIN
AMERICA

AFRICA/
MIDDEL EAST

ASIA/
PACIFIC

NET SALES & EBIT bn. DKK

FINANCIAL HIGHLIGHTS

Net sales

EBIT

4.0

3.2

2.4

1.6

DKKm

2013

2014

INCOME STATEMENT
Net sales
Operating profit (EBIT)

BALANCE SHEET
Intangible assets
Property, plant and equipment
Total assets

OTHER INFORMATION
Net investments excluding M&A
Depreciation/amortization

NUMBER OF EMPLOYEES
Number of employees

KEY FIGURES
EBIT margin

22,330
2,561

3,966
4,140
14,336

695
855

22,669
2,878

11,621
4,396
25,249

658
880

13,657

14,891

11.5%

12.7%

FINANCIAL REVIEW

Danfoss Power Solutions

Segment description
The Danfoss Power Solutions covered four areas: hydrostatics,
work function, controls and stand-alone business operations.
Within each business area, the segment played a leading
position in R&D, design, manufacture and sale of innovative
and performance-enhancing hydraulic and electronic
systems and components used in mobile machinery
operating in the agriculture, construction, materials handling,
and specialty equipment markets.

Market and regional trends
Danfoss Power Solutions began 2014 with a positive
momentum. The demand for the segment’s efficiency- and
performance-enhancing hydraulic and electronic systems
and components used in mobile machinery continued,
driven by global megatrends such as the need for better
infrastructure in growing cities and improving the efficiency
in food production across the world. This was experienced
in all regions with positive trends in the construction, road
building and material handling markets and solid execution
of sales growth plans. In the second half of the year, the
segment experienced weakening sales on the mobile
hydraulics market in China and the agricultural market
in North America and Europe. Despite the weakening
markets in the latter part of the year the total sales grew by
5% in local currency. The segment’s growth performance
was spread across several geographic markets with North
America reporting 8% growth in local currency. The bold
strategic move to utilize the growth potential of the India
region paid off and the strong growth experienced in

2013 continued in the region growing 13% in 2014, in local
currency. Europe ended up at the same level as the year
before, especially driven by Germany maintaining a high level
of sales.

Segment development
Danfoss Power Solutions’ spent on product development
increased slightly to 3.6% of net sales.

The segment has throughout 2014 continued to further
optimize the factory footprint, which has resulted in
changes in Slovakia, Denmark, Poland, Italy and Sweden.
Consequently, the usage of square meters has been reduced
and cost levels have been lowered.

The segment also upheld its long-term investment in
developing the Chinese market, further developing innovative
products and ramping up the new factory in Haiyan which
manufactures products tailored to the Chinese market.

Financial performance
For the full-year, the segment had sales growth of 5% in
local currency and 4% in DKK. Net sales amounted to DKK
11,406m, against DKK 10,989m in 2013. Due to continuing
implementation of improvement activities, among other
things leading to procurement cost savings and productivity
enhancements, as well as a strong focus on costs earnings
was also improved. Operating profit (EBIT) grew by 7% to DKK
1,703m, against DKK 1,593m the previous year, lifting the EBIT
margin to 14.9% from 14.5% in 2013.

Annual Report 2014 · The Danfoss Group · Danfoss®SALES DISTRIBUTION BY REGION 2014 (2013)

OTHER EUROPE

NORTH
AMERICA

3% (4%)

31% (31%)

47% (45%)

16% (16%)

3% (4%)

0% (0%)

LATIN
AMERICA

AFRICA/
MIDDLE EAST

ASIA/
PACIFIC

NET SALES & EBIT bn. DKK

FINANCIAL HIGHLIGHTS

Net sales

EBIT

2.4

2.0

1.6

1.2

0.8

DKKm

2013

2014

INCOME STATEMENT
Net sales
Operating profit (EBIT)

BALANCE SHEET
Intangible assets
Property, plant and equipment
Total assets

OTHER INFORMATION
Net investments excluding M&A
Depreciation/amortization

NUMBER OF EMPLOYEES
Number of employees

KEY FIGURES
EBIT margin

10,989
1,593

11,406
1,703

4,023
2,080
8,821

377
772

4,045
1,903
8,838

347
744

6,320

6,111

14.5%

14.9%

Annual Report 2014 · The Danfoss Group · Danfoss®

OUTLOOK 2015

Expectations for 2015

Net sales

Net sales including full-year impact of the acquisition of
Vacon is expected to grow by 5-10%.

Operating profit

Underlying profitability is expected to slightly improve
through the continuous operational improvements and the
targeted strategic initiatives already launched. However,
integration cost in the first year of Vacon ownership is
expected to keep operating profit (EBIT) excluding other
income and expenses on par with 2014.

The Danfoss Group is proactively adapting to market conditions
on the basis of dynamic contingency and scenario planning.
The key focus is to invest in the core businesses to accelerate
profitable growth, while ensuring the long-term profitability of
the business by having a scalable and flexible business model.

During 2014, the global financial volatility increased
due to among other factors the decreasing growth
rates in some emerging markets, lower oil prices and
the sanctioned trade cooperation between the EU and
Russia. This has resulted in a more uncertain outlook
in regards to the development of the global economic
environment and Danfoss expects the global, low growth
scenario to continue in 2015. However, the global need
for infrastructure, food supply, energy efficiency and
climate-friendly solutions is expected to continue to drive
the demand for Danfoss technologies and solutions. In
addition, the effects of already conducted and further

targeted investments in leading market positions for the
core businesses and geographical areas and markets with
high growth potential is expected to generate a positive
impact on the Group’s results.

Based on the above, net sales including full-year impact of the
acquisition of Vacon is expected to grow by 5-10%.

Underlying profitability is expected to slightly improve through
the continuous operational improvements and the targeted
strategic initiatives already launched. However, integration
cost in the first year of Vacon ownership is expected to keep
operating profit (EBIT) excluding other income and expenses on
par with 2014.

The expectations do not include the impact of potential
divestments, discontinued activities or acquisition of
companies/activities.

Annual Report 2014 · The Danfoss Group · Danfoss®

Danfoss solutions
make more
out of less

34%

lower CO2
emissions

Making a small supermarket
an international first-mover

In Denmark, SuperBrugsen supermarkets always
make shoppers feel welcome. But in the town of
Høruphav, Danfoss has engineered a very special
kind of warmth. The supermarket has been
equipped with an innovative CO2 refrigeration
system that keeps food fresh and cool while
providing the entire store with a constant source
of heating. The local supermarket used to use gas
to heat water, particularly in the deli section and
the bakery. However, the new CO2 system has cut
the annual gas bill by more than DKK 200,000, and
reduced CO2 emissions by 34%.

Annual Report 2014 · The Danfoss Group · Danfoss®SUSTAINABILITY

Sustainability

Danfoss treasures sustainable results and aims to play an active
role in sustainable global development. More than a decade
ago, Danfoss became a signatory to the UN Global Compact
Initiative. Danfoss continues to support the Global Compact as a
governing principle in the Group’s sustainability efforts. Danfoss
prepares an annual sustainability report that also serves as the
Communication on Progress report it submits to the UN. This
report serves as Danfoss’ report on corporate responsibility, as
required under section 99a of the Danish Financial Statements
Act. The report is available on Danfoss’ website at www.danfoss.
com/sustainability2014.

Sustainability program
In 2014, Danfoss continued implementing the Group’s
sustainability program that combines existing and new
initiatives. During the implementation period from 2014 to
2017, this program will guide the work on sustainability in
four focus areas of: energy efficiency; environment, health
and safety; ethical behavior and finally product compliance
and transparency.

Energy efficiency
The so-called 3×25 climate strategy commits Danfoss to
cutting CO2 emissions by 25% while increasing the share of
renewable energy used by 25% (relative to the 2007 level) by
the year 2025.

Danfoss has in 2014 committed to align with the Caring for
Climate “Business Leadership Criteria on Carbon Pricing”. The
company furthermore supports the “Statement on Putting
a Price on Carbon” initiated by The World Bank Group and
the United Nations Global Compact to demonstrate strong
global support and action towards pricing carbon.

In 2014, Danfoss emitted approximately 218,000 tons of CO2
from electricity and heat consumption. This is 3.7% more
than in 2013. The increase was attributable to an increased
electricity consumption in the Chinese factories by 21% and
an increased share of fossil fuels in the Danish electricity mix.
The CO2 emissions in the remaining parts of the Group fell as
a result of energy saving activities.

At the 15 largest factories, Danfoss continued the efforts to
reduce energy consumption and CO2 emissions. The energy-
saving projects focuses primarily on energy consumption in
buildings, whereas the energy used for production processes
and transportation will be added as focal points from 2015.
Danfoss expects the projects to reduce the global energy
consumption by 35,000 MWh. This will cut approximately
15,000 tons or 6% off the Group’s CO2 emissions.

The solar park established in 2014 at the headquarters in
Nordborg produced more electricity than expected and
ended up producing 2.2 million kWh CO2 neutral energy.
This corresponds to the consumption of 500 households and
supplies the main administration building in Nordborg with
all electricity needed for the 23,000 m2 building.

In Chennai, India, a solar cell park has been constructed at
Danfoss’ new campus. The campus is among the first of the
industries in India certified to LEED Platinum (Leadership in
Energy and Environmental Design) which means that they
live up to very specific requirements in terms of the water
and electricity consumed in the buildings.

Environment, health and safety
Taking care of both employees and the surrounding
environment is deeply rooted in the Group. Therefore
Danfoss has, for many years, worked systematically to reduce
any negative effects of the production activities.

In 2014, Danfoss initiated a global safety program – Safety on
the shop floor. The project enhances the focus on safety in all
Danfoss factories around the world. From 2015, safety shoes
and safety glasses will be mandatory for anyone entering
the shop floor in any Danfoss factory worldwide. Hearing
protection will also be mandatory for employees working at
machines with a high noise-level and safe walkways will have
to be identified for pedestrians in all factories.

This is a clear signal of Danfoss’ continued dedication to
common, aligned, and very high health and safety standards
across the Group. For the coming years this work will continue.

Annual Report 2014 · The Danfoss Group · Danfoss®18%

female managers
in 2014

1,100

tons lower CO2
emissions due to
new solar park in
Nordborg

Danfoss’ total LTIF – Lost Time Injury Frequency was 4.4 in
2014, versus 4.7 in 2013. The LTIF – Lost Time Injury Frequency
is the number of accidents that results in absence from work
of one or more calendar days in addition to the day of the
accident per one million hours worked.

key employees have completed the Group’s Competition
Compliance Program. In 2015, Danfoss will launch a
compliance program covering export control rules. All
managers within Danfoss will also have to conduct a new,
extensive ethics e-learning in 2015.

The injured employees were absent for a total of 2,458 days,
corresponding to an average absence of 15 days per accident.
This is a 12% reduction from 2013.

The Lost Day Rate in 2014 was 66 (the number of days with
absence from work due to Lost Time Injuries per one million
working hours). This is a reduction from 82 in 2013.

The reductions are achieved through a dedicated focus on
safety in the factories and the implementation of aligned
safety rules across the segments.

Ethical behavior
In 2014, Danfoss updated the Danfoss Ethics Handbook,
which sets out guidelines for responsible behavior which all
employees and managers must observe.

The updated Ethics Handbook was also distributed to all
employees in the Group’s new segment Danfoss Power
Solutions’ in 2014. To accompany the Ethics Handbook,
Danfoss Group Sustainability has developed a voluntary test
to increase the understanding of business ethics.

In 2014, Danfoss strengthened the company’s focus on
compliance with internationally defined human rights
through the development of assessment tools and pilot
assessments in two Asian countries.

The assessments provided valuable information about the
actual and potential human rights status in the assessed
countries and will in 2015 be followed up by site visits and
mitigation activities to ensure that Danfoss continuously
limits the company’s human rights risks. Danfoss continued
in 2014 to focus on ethical behavior training for all people
managers, and more than a thousand managers and other

Diversity
Danfoss considers diversity among its employees to be
an asset that brings value with it competitive advantages
as well as added creativity and innovation. In particular,
Danfoss emphasizes diversity in its recruitment policy. When
recruiting a new employee, the objective is to identify at
least three qualified candidates that together represent
diversity in terms of culture, nationality, gender and age.
If two or more candidates are equally qualified, Danfoss
will aim towards diversity among its employees and in the
workplace in the final selection process.

A dedicated initiative aims at raising the number of female
managers throughout the Group. The Group’s overall goal is
to increase the percentage of female managers to 20% by
2015 from 18% in 2014, in order to ensure that the Group’s
managers increasingly reflect the diversity of the Danfoss
workforce, of which 29% were women in 2014.

Danfoss aims for the composition of its top governing body
to reflect the diversity of the rest of the Group. Women are
underrepresented in the Group, and the Board of Directors
has as yet no female members, other than an employee
elected representative.

At its annual meeting in 2017, Danfoss will attempt to raise
the number of women serving on the Board to at least one
of the six members. In order to achieve that goal, the Board
will, before recommending candidates for the Board, work to
identify at least one candidate representing diversity. Should
two candidates be equally qualified, the Board of Directors
will recommend the candidate representing diversity for
election by the shareholders.

Annual Report 2014 · The Danfoss Group · Danfoss®CORPORATE GOVERNANCE

Corporate Governance

Corporate governance is a crucial aspect of the way Danfoss runs its business.
Key concepts like responsibility, integrity and openness about the Group’s
activities form the basis for the high standards of corporate governance to
which the Danfoss Group holds itself.

Legislation provides the general framework for the
company’s governance, but corporate governance is also
about how the business is managed within this framework.
The Group structure supports Danfoss’ management
values and determines a clear distribution of management
responsibilities. This structure and these well-defined
principles drive the interaction between the company’s
management, owners and other stakeholders. The
company’s Articles of Association and a comprehensive set
of internal management and control procedures also form
part of corporate governance at Danfoss.

Management structure
Danfoss has a two-tier management system consisting of its
Board of Directors and the Executive Committee. The Board
of Directors lays the general course for the company by
approving strategies and targets. The Executive Management
develops the strategy and handles the day-to-day
management of the company and execution of the strategy.

The Board of Directors
The Danfoss Board consists of six members elected at the
Annual General Meeting and three employee-elected
members. Of the six members elected by the shareholders,
four (Henrik Poulsen, Kasper Rørsted, William Ervin Hoover
and Björn Rosengren) are independent.

The Board of Directors meets at least five times a year.
In addition, the Board holds extraordinary meetings as
and when required. The Board regularly assesses the
aggregate competencies of its members to ensure that
they are consistent with the company’s requirements at
all times.

Audit Committee
The duties and responsibilities of Danfoss’ Audit Committee,
as well as its powers, can either be organized in an
independent committee or be executed by the entire Board.
At Danfoss, the entire Board performs the function of the
Audit Committee. The Committee’s activities and tasks are
set out in its rules of procedure, and it held four meetings in
2014.

Internal audit function
The company’s internal audit function presents its
conclusions directly to the Board’s audit committee or its
chairman. The internal audit function is intended to provide
independent and objective auditing to ensure:
• The Group follows good administrative practice.
• The Group has comprehensive internal controls and

business processes in place in all essential areas of activity.

• The Group’s IT systems have adequately segregated

functions.

Annual Report 2014 · The Danfoss Group · Danfoss®COMPOSITION OF THE BOARD OF DIRECTORS 1)

NATIONALITY

INDEPENDENT

AUDIT COMMITTEE

Jørgen Mads Clausen (Chairman)

Henrik Poulsen (Vice-Chairman)

Mads-Peter Clausen

William Ervin Hoover

Kasper Rørsted

Björn Rosengren

Lars Grau 2)

Jens Peter Nielsen 2)

Sandra N. Bertelsen 2)

Bitten Clausen (Honorary Member)

Yes

•
•
•
•
•
•
•
•
•

1) From the Annual General Meeting held in April 2014 to the 2015 Annual General Meeting
2) Elected by the employees

• Chairman of the Audit Committee

SHAREHOLDERS WITH MORE
THAN 5% OF SHARE CAPITAL

Bitten og Mads Clausens Fond,
Nordborg, Denmark
46,33% SHARES
84,96% VOTES

Clausen Controls A/S,
Sønderborg, Denmark
25,59% SHARES
5,40% VOTES

Henrik Mads Clausen, Lake Forrest, USA
10,75% SHARES
2,26% VOTES

Karin Clausen, Holte, Denmark
7,06% SHARES
1,49% VOTES

The internal audit function visited a number of Group
companies in 2014. No matters of material importance to the
Group’s overall risk management and control environment
were detected.

Danfoss filed in November 2014 a Euro Medium Term
Program on the Irish Stock Exchange and is therefore as
of that date considered a listed company. Danfoss has to
comply with the rules applying to listed companies with
listed bonds including the exceptions regarding issuers of
bonds above EUR 100.000 as set out in section 107b of the
Danish Financial Statements Act. For the complete account
of Danfoss’ corporate governance, please see the corporate
website at www.danfoss.com/corporategovernance2014.

Shareholders
Danfoss’ share capital amounts to DKK 1,023m and is divided
into two share classes: A-shares accounting for DKK 425m
and B-shares accounting for DKK 598m. A-shares entitle
holders to ten votes for every DKK 100 nominal value of
shares held. A-shareholders also have a pre-emption right
to A-shares in the event of share capital increases. Apart
from this, no shares carry special rights. The Bitten and Mads
Clausen Foundation and the Clausen family hold all issued
A-shares and a number of B-shares corresponding to 98,64%
of the votes. At the end of 2014, Danfoss had approximately

3,000 registered shareholders. Approximately three in four
shareholders were resident in Denmark.

Share price development
The Danfoss share price is set once a year, based on a
valuation prepared by Danske Markets (a division of Danske
Bank A/S) immediately before the Annual General Meeting
held in April. The price was first set in 2001 when Danfoss
issued its first employee shares. The 2001 price was DKK 749
per share. The share price is calculated on the basis of the
financial performance of Danfoss, the Group’s expectations
for the upcoming year, its ability to meet expectations,
the financial development of a number of comparable
companies and their expectations for the future, as well
as general developments in the stock market. In 2014, the
price was set at DKK 4,116 per share. The new price will be
announced at the 2015 Danfoss Annual General Meeting in
April.

Dividends and General Meeting
The Annual General Meeting will be held in Nordborg on
April 24, 2015. The Board of Directors will recommend to the
General Meeting that a dividend of 21,8% of the Group’s net
profit be paid in 2014, corresponding to 48.9% per share.

Annual Report 2014 · The Danfoss Group · Danfoss®

Board of Directors

Jørgen M. Clausen
Chairman (born 1948)
Member since 1985

Henrik Poulsen
CEO and President of Dong Energy
Deputy Chairman (born 1967)
Member since 2014

Mads-Peter Clausen
Senior M&A Associate Danfoss A/S
Board member (born 1976)
Member since 2014

William Erwin Hoover Jr.
Director (born 1949)
Member since 1993

Kasper Rørsted
CEO of Henkel AG & Co. KGaA (born 1959)
Member since 2010

Björn Rosengren
CEO and President of Wärtsilä Corporation
(born 1959)
Member since 2010

Lars Grau
Employee-elected Board member
Shop steward at Danfoss Nordborg (born 1963)
Member since 2014

Sandra N. Bertelsen
Employee-elected Board member
Senior Legal Advisor (born 1982)
Member since 2014

COMPANIES WITH CONSIDERABLE BOARD ACTIVITIES

OTHER POSITIONS

Chairman of: Danish Energy Industries Federation,
The InnovationsFonden

Board member of: Bitten and Mads Clausen
Foundation, Fonden for Universe Science Parken

Board member of: ISS A/S

Member of Shareholders’ Committee: Danske Bank A/S

Board member of: miniBOOSTER A/S

Bachelor of Science Engineering, MBA
Professional experience managing a Danish-based international
company and from other board memberships

Decoration:
Kammerherre title bestowed by H. M. The Queen of Denmark
Knight 1st Class of the Order of the Dannebrog, Denmark
Verdienstkreuz erster Klasse of the Federal Republic of Germany

Master of Science in Finance & Accounting, Aarhus University
Bachelor of Science in International Business, Aarhus University
Professional experience in managing major companies in
Denmark

MBA, University of Georgia
Bachelor of Science in Engineering, University of Southern
Denmark

Chairman of: ReD Associates Holding A/S

Vice-Chairman of: GN Store Nord A/S (Great Nordic)

Member of the board of: Sanistål A/S, Neopost S/A and
Lego Foundation

Board member of: Bertelsmann AG

B.A., Dartmouth College
MBA, Havard University
Professional experience with supply chain, performance
transformation, organization changes and mergers &
acquisitions

Professional experience in managing major international
companies in Switzerland, the UK and Germany

Board member of: Outotec Oy

Master of Science in technology, Chalmers University of
Technology
Head of a global company focusing on profitable growth,
international and cultural experience from stays and jobs in China,
North America, Switzerland, Netherlands, Finland and Sweden

Cooperation courses and experience from other board
memberships

Master of Laws, Aarhus Universitet
Bachelor of Laws, Aarhus Universitet

Cooperation courses and experience from other board
memberships

Jens Peter Nielsen
Employee-elected Board member
Senior Shop Steward at Danfoss Kolding (born 1957)
Member since 2006

Chairman of: Group Club Danfoss Denmark and
Danfoss Employee Foundation
Board member of: Metal Kolding and LO-Kolding

Bitten Clausen
Honorary member

Annual Report 2014 · The Danfoss Group · Danfoss®Executive Committee

Niels B. Christiansen
President and CEO of Danfoss A/S
(born 1966)
Member since 2004

Kim Fausing
Executive Vice President and COO of Danfoss A/S
(born 1964)
Member since 2008, (2,400 warrants)

Jesper V. Christensen
Executive Vice President and CFO of Danfoss A/S
(born 1969)
Member since 2013

COMPANIES WITH CONSIDERABLE BOARD ACTIVITIES
Chairman of: Board of Axcel A/S
Board member of: AP Moller-Maersk A/S, William
Demant Holding A/S

COMPANIES WITH CONSIDERABLE BOARD ACTIVITIES
Vice-Chairman of: Velux A/S, SMA Solar Technology AG
Board member of: Hilti AG, Danish-German Chamber
of Commerce

Danfoss Leadership Team

Niels B. Christiansen President and CEO of Danfoss A/S (born 1966)

Jürgen Fischer

Segment President (born 1963)

Kim Fausing

Executive Vice President and COO of Danfoss A/S (born 1964)

Lars Tveen

Segment President (born 1963)

Jesper V. Christensen Executive Vice President and CFO of Danfoss A/S (born 1969)

Eric Alström

Segment President (born 1966)

Anne Wilkinson

Senior Vice President, Corporate HR (born 1965)

Vesa Laisi

Segment President (born 1957)

Mette Refshauge

Senior Vice President, Corporate Communication (born 1973)

Annual Report 2014 · The Danfoss Group · Danfoss®54

Annual Report 2014 · The Danfoss Group · Danfoss®RISK MANAGEMENT AND COMPLIANCE

Risk management
and compliance

This section briefly describes the Danfoss Risk Management and compliance
activities, its governance and defined Group risks.

Danfoss takes a systematic and holistic approach to
managing risk. Maintaining efficient risk management is a
cornerstone at Danfoss as well as a prerequisite for running
a business and responding rapidly and flexibly when
conditions change.

Governance
As per Board Procedure, the Danfoss Board performs risk
oversight and the Audit Committee assesses effectiveness of
the Danfoss Risk Management.

Overall, the Executive Committee is responsible for risk
management at Danfoss. It ensures that risk management
policies and processes are effective at all relevant
levels. Responsibility for the actual performance of risk
management activities lies with the company’s respective
managers and corporate functions.

The structure for handling risk management at Danfoss
includes:
• Internal Auditing, which performs independent internal
reviews and submits the outcome directly to the Board’s
audit committee.

• The Risk & Compliance Committee, set up by the Executive
Committee, approves methodologies and generic process
design regarding risk management and takes position

on critical Group Risks, and assesses effectiveness and
adequacy of current risk management standards.
• Group Risk & Compliance, whose duties include
responsibility for the content of the Group’s risk
management program, for preparing and implementing
the Group’s compliance programs and for the Group’s
whistle- blower function.

• Corporate Treasury, the central unit that manages the
Group’s financial risks, and provides insurance services.
• The day-to-day management is in charge of activities
aimed at safeguarding assets and earnings, handling
business risks, monitoring and interpreting legislation
and standards, and managing IT security, patents and
trademark rights, product quality, fire prevention,
environmental and occupational health and safety
standards, etc.

Risk reporting and control
Risks are reported on an ongoing basis between the various
managerial levels, for example at quarterly business review
meetings. In addition, the Risk & Compliance function annually
prepares a report on the most significant risks which they
submit to the Board of Directors and the Audit Committee. The
Risk & Compliance Committee provides overall supervision
of the risk management process and monitors selected
corporate risks as well as potential new risks.

Annual Report 2014 · The Danfoss Group · Danfoss®RISK MANAGEMENT AND COMPLIANCE

Risk profile
While there is no single risk factor threatening the Group’s
survival, it is exposed, in its aggregate risk profile, to a
number of external and internal risk factors.

Specific measurement criteria have been defined in order
to provide the best basis for assessment of the Group’s
performance in relation to its specific risk exposure, along with
the risks themselves also being assessed on a regular basis.

Important risk factors relate to the following conditions:
• Global market conditions and mega-trends, including a

sustained stronger focus on energy- efficient and socially
sustainable solutions

• Fair and equal access to markets
• Competition, especially from China and India
• Geopolitical conflicts
• Global economic growth
• Key markets, such as the US, Germany, China, Russia, Brazil

and India

• The Danfoss Growth themes: Infrastructure, food, energy

and climate

• Customer relations and reputation, including Danfoss’

ability to build business on trust and integrity

• Competitive strength and innovation, including the ability

to support customers in providing efficient solutions,
attractive cost levels and high product quality

• Financial sustainability, including the Group’s ability to fund

new growth

Compliance
Danfoss wishes to maintain and continually improve its
reputation as a company that conducts itself properly and
responsibly. This means that Danfoss will do its utmost to
live up to its legal and ethical responsibilities. As a global
enterprise, Danfoss supports the growing international focus
on regulation and legislation in areas such as anti-corruption,
competition law, export control and good business ethics.
Better regulation across the globe would help ensure a
level playing field, which would be a huge advantage for a
company like Danfoss. For this reason, Danfoss is strongly
focused on compliance with current rules and legislation,

and the Group has established internal programs and control
mechanisms to minimize the risk of rule violations.

Training and compliance follow-up
Compliance efforts are based on an extensive program of
prevention based on employee training and clear rules and
guidelines. Follow-up procedures to verify the effectiveness
of such rules form an integral part of internal controls and
audits at Danfoss, as do spot checks conducted by the
company’s internal auditing function.

The Group has compliance programs in a number of areas
(e.g. anti-corruption and ethical behaviors). A special focus
in 2014 was the roll-out of the Competition law compliance
manual in the organization. It was mandatory for employees
who are in connection with business partner or industry
organizations to attend respective training program
(eLearning) and pass a test at the end of the course.

As part of the competition compliance program, a dawn-raid
manual has also been released and implemented.
Furthermore, as part of the Export Control program,
processes regarding product screening which deals with
identification of possible dual-use products within the
portfolio of Danfoss have been established.

Compliance hotlines
In addition to the compliance programs, Danfoss has also
a query function AskUs, where the Group’s employees can
find answers to any questions and doubts they may have
regarding ethics and compliance. The purpose of AskUs is
to minimize uncertainty among the Group’s employees and
prevent unintended non-compliance. In 2014, AskUs received
75 enquiries from employees seeking guidance on how best
to follow ethical guidelines or compliance requirements in a
specific situation. Danfoss also has a whistle-blower function,
the Ethics Hotline where employees can report suspected
breaches of internal guidelines and legislation anonymously
and without involving a manager. A total of 123 cases were
reported to the Ethics Hotline in 2014. Disciplinary action has
been taken in all substantiated cases: none of these cases have
had significant consequences for Danfoss.

Annual Report 2014 · The Danfoss Group · Danfoss®
Risk overview

Like its industry peers, Danfoss is exposed to a number of
general and basic risks. These are risks relating to customers
and markets, factories and suppliers in the supply chain, law
and regulatory regimes, and internal processes and systems.
Danfoss’ exposure to such risks is similar to the general risk
exposure of its peers.

The Executive Committee has defined three specific risk
areas of the risk management process that, due to their
special nature, are of particular importance to Danfoss. The
three areas are described in the table below. This overview
does not include financial risk, which is described in Note 16
to the financial statements on financial risk and instruments.

ETHICAL CONDUCT
The ethical behavior of companies and their employees is
increasingly becoming a focus of attention, with stricter laws
and possible sanctions being introduced worldwide in areas
such as anti-corruption, data protection law and competition
law.

Unethical or outright illegal conduct by Danfoss employees
could cause considerable damage to Danfoss’ reputation and
result in substantial financial sanctions.

RISK MITIGATION MEASURES
Danfoss has implemented ethical guidelines and compliance
programs. Compliance is verified through follow-up
procedures that include internal inspections and other
measures. In addition, Danfoss has an “AskUs” enquiry
function, from which employees can seek advice and
guidance on ethical conduct. Danfoss also operates an Ethics
Hotline which employees can use to anonymously report
suspected violations of the law or internal guidelines.

GEOPOLITICAL AND
ECONOMIC RISKS IN RUSSIA
Danfoss provides heating solutions for both public- and
private-sector customers in Russia. Demand is closely
correlated with the condition of and changes in the Russian
economy and the ongoing progress of urban renovation
projects in the country. Danfoss also sells a number of
different products to Russian industry, which also to a great
extent relies on raw materials extraction and processing.

The Russian market has in recent months undergone
significant changes. The Ukraine conflict and following
stricter export control regulations but also the decrease of
the world market prices for energy and commodities have
a significant impact on Russia’s economy and the value of
the Russian Ruble. It is likely that the expected GDP decline
and currency devaluation in Russia to some extent will affect
Danfoss’ performance in the region in 2015.

RISK MITIGATION MEASURES
Danfoss considers Russia a significant market with a great
deal of potential that management at both Group and
business segment level monitors closely and systematically:
an ongoing process of monitoring general economic trends
in the country, changes in national and local legislation
and the content of Danfoss’ internal reporting. To maintain
market share and profitability Danfoss applies the Group’s
commercial tools and ensures superior commercial
execution. At Group level, the risks in Russia are balanced
by Danfoss’ presence in other growth markets. Furthermore,
Danfoss is investigating opportunities for natural hedging
by increasing purchases from Russian suppliers and local
manufacturing.

FOOD PRICE TRENDS

Rising and falling food prices have an impact on the financial
position of the agricultural sector and thus on its ability
to invest in renovation and new equipment. For example,
because Danfoss develops and manufactures solutions for
this sector, any fluctuations in its financial situation will have
a direct effect on the business.

RISK MITIGATION MEASURES
Danfoss aims to balance this cyclical exposure partly by
cultivating new markets in several different regions, other
segments and other sectors and by having an adaptable
and flexible supply chain. The risk will also be balanced
by offering customers solutions that can directly improve
efficiency or otherwise reduce their operating costs.

Annual Report 2014 · The Danfoss Group · Danfoss®MANAGEMENT STATEMENT

Management statement

The Board of Directors and Executive Committee have today
discussed and approved the Danfoss A/S Annual Report for
the financial year January 1-December 31, 2014.

The Annual Report has been presented in accordance
with the International Financial Reporting Standards and
additional Danish disclosure requirements in the Danish
Financial Statements Act.

In our opinion, the consolidated financial statements and
the parent company financial statements give a true and
fair view of the Group’s and the Parent Company’s assets,
liabilities and financial position at December 31, 2014, and
of the results of the Group’s and the Parent Company’s
operations and cash flows of the financial year January
1-December 31, 2014.

We also consider the Management’s review to give a true
and fair view in the development of the Group’s and Parent
Company’s operations and financial matters, of the results
for the year and the overall financial position of the Parent
Company related to the companies included in the Group
accounts and describes the significant risks and uncertainties
of the group’s and the Parent Company.

We recommend that the Annual General Meeting approves
the Annual Report.

BOARD OF DIRECTORS

Jørgen M. Clausen
Chairman

Sandra N. Bertelsen

Mads-Peter Clausen

Lars Grau

William Erwin Hoover

NORDBORG, MARCH 24, 2015

EXECUTIVE COMMITTEE

Jens Peter Nielsen

Niels B. Christiansen

Henrik Poulsen

Jesper V. Christensen

Björn Rosengren

Kim Fausing

Kasper Rørsted

Annual Report 2014 · The Danfoss Group · Danfoss®INDEPENDENT AUDITORS REPORT

Independent auditor’s report

To the Shareholders of Danfoss A/S

Report on Consolidated Financial Statements
and Parent Company Financial Statements
We have audited the Consolidated Financial Statements and
the Parent Company Financial Statements of Danfoss A/S
for the financial year 1 January to 31 December 2014, which
comprise income statement, statement of comprehensive
income, statement of financial position, statement of
changes in equity, statement of cash flows and notes,
including summary of significant accounting policies, for the
Group as well as for the Parent Company. The Consolidated
Financial Statements and the Parent Company Financial
Statements are prepared in accordance with International
Financial Reporting Standards as adopted by the EU and
Danish disclosure requirements for listed companies.

Management’s Responsibility for
the Consolidated Financial Statements
and the Parent Company Financial Statements
Management is responsible for the preparation of
Consolidated Financial Statements and Parent Company
Financial Statements that give a true and fair view in
accordance with International Financial Reporting Standards
as adopted by the EU and Danish disclosure requirements
for listed companies, and for such internal control as
Management determines is necessary to enable the
preparation of Consolidated Financial Statements and Parent
Company Financial Statements that are free from material
misstatement, whether due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on the Consolidated
Financial Statements and the Parent Company Financial
Statements based on our audit. We conducted our audit in
accordance with International Standards on Auditing and
additional requirements under Danish audit regulation. This
requires that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance whether the
Consolidated Financial Statements and the Parent Company
Financial Statements are free from material misstatement.

An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the
Consolidated Financial Statements and the Parent Company
Financial Statements. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of
material misstatement of the Consolidated Financial Statements
and the Parent Company Financial Statements, whether

due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the Company’s
preparation of Consolidated Financial Statements and Parent
Company Financial Statements that give a true and fair view
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control. An audit
also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates
made by Management, as well as evaluating the overall
presentation of the Consolidated Financial Statements and the
Parent Company Financial Statements.

We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.

The audit has not resulted in any qualification.

Opinion
In our opinion, the Consolidated Financial Statements and the
Parent Company Financial Statements give a true and fair view
of the Group’s and the Parent Company’s financial position at 31
December 2014 and of the results of the Group’s and the Parent
Company’s operations and cash flows for the financial year 1
January to 31 December 2014 in accordance with International
Financial Reporting Standards as adopted by the EU and Danish
disclosure requirements for listed companies.

Statement on the Management’s Review
We have read Management’s Review in accordance with the
Danish Financial Statements Act. We have not performed
any procedures additional to the audit of the Consolidated
Financial Statements and the Parent Company Financial
Statements. On this basis, in our opinion, the information
provided in Management’s Review is consistent with the
Consolidated Financial Statements and the Parent Company
Financial Statements.

Nordborg, 24 March 2015
PricewaterhouseCoopers
Statsautoriseret Revisionspartnerselskab

Mogens Nørgaard Mogensen
State Authorised Public Accountant

Claus Lindholm Jacobsen
State Authorised Public Accountant

Annual Report 2014 · The Danfoss Group · Danfoss®
60

Annual Report 2014 · The Danfoss Group · Danfoss®Group
Accounts and notes

Annual Report 2014 · The Danfoss Group · Danfoss®INCOME STATEMENT

January 1 to December 31

DKKm

Net sales
Cost of sales
GROSS PROFIT

Research and development costs
Selling and distribution costs
Administrative expenses
OPERATING PROFIT EXCLUDING OTHER OPERATING INCOME AND EXPENSES

Other operating income and expenses
Share of profit from associates and joint ventures after tax
OPERATING PROFIT (EBIT)

Financial income
Financial expenses
PROFIT BEFORE TAX

Tax on profit
NET PROFIT

Attributable to:
Shareholders in Danfoss A/S
Minority interests

e
t
o
N

1
2

2
2
2

2
3
1

4
5
1

2013
33,628
-21,766
11,862

2014
34,375
-22,209
12,166

-1,359
-5,063
-1,570
3,870

-254
8
3,624

33
-402
3,255

-970
2,285

-1,324
-4,943
-1,543
4,356

-244
-187
3,925

37
-486
3,476

-1,186
2,290

2,037
248
2,285

2,104
186
2,290

Annual Report 2014 · The Danfoss Group · Danfoss®STATEMENT OF COMPREHENSIVE INCOME

January 1 to December 31

DKKm

NET PROFIT

OTHER COMPREHENSIVE INCOME
Actuarial gain/loss (-) on pension and healthcare plans
Tax on actuarial gain/loss on pension and healthcare plans
Items that cannot be reclassified to profit or loss

Foreign exchange adjustments on translation of foreign currency into DKK etc.
Fair value adjustment of hedging instruments:
Hedging of net investments in subsidiaries
Hedging of future cash flows
Hedging transferred to net sales in the income statement
Tax on hedging instruments
Items that can be reclassified to profit or loss

OTHER COMPREHENSIVE INCOME AFTER TAX

TOTAL COMPREHENSIVE INCOME

Attributable to:
Shareholders of Danfoss A/S
Minority interests

e
t
o
N

15
14

2013
2,285

2014
2,290

207
-80
127

-550

149
25
53
-57
-380

-253

-283
96
-187

783

-21
-134
-25
42
645

458

2,032

2,748

1,866
166
2,032

2,503
245
2,748

Annual Report 2014 · The Danfoss Group · Danfoss®

STATEMENT OF FINANCIAL POSITION

As of December 31

DKKm
ASSETS

NON-CURRENT ASSETS

INTANGIBLE ASSETS

PROPERTY, PLANT AND EQUIPMENT

Investments
Pension benefit plan assets
Non-current receivables
Deferred tax assets
OTHER NON-CURRENT ASSETS

TOTAL NON-CURRENT ASSETS

CURRENT ASSETS

INVENTORIES

Trade receivables
Receivable corporation tax
Derivative financial instruments (positive fair value)
Other receivables
RECEIVABLES

e
t
o
N

3
15

10
17
16

2013

2014

8,054

15,732

6,506

6,558

83
42
27
1,340
1,492

2,249
84
39
1,160
3,532

16,052

25,822

3,849

4,085

4,428
266
57
727
5,478

5,167
441
14
638
6,260

CASH AND CASH EQUIVALENTS

737

716

TOTAL CURRENT ASSETS

TOTAL ASSETS

10,064

11,061

26,116

36,883

Annual Report 2014 · The Danfoss Group · Danfoss®STATEMENT OF FINANCIAL POSITION

As of December 31

DKKm
LIABILITIES AND SHAREHOLDERS’ EQUITY

SHAREHOLDERS’ EQUITY

Equity, shareholders in Danfoss A/S
Minority interests
TOTAL SHAREHOLDERS’ EQUITY

LIABILITIES

Provisions
Deferred tax liabilities
Pension and healthcare benefit plan obligations
Borrowings
Derivative financial instruments (negative fair value)
Other non-current debt
NON-CURRENT LIABILITIES

Provisions
Liabilities under share incentive programs
Borrowings
Trade payables
Debt to associates and joint ventures
Corporation tax
Derivative financial instruments (negative fair value)
Other debt
CURRENT LIABILITIES

TOTAL LIABILITIES

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

e
t
o
N

12
14
15
16
16

12
13
16

17
16

2013

2014

10,587
856
11,443

12,284
958
13,242

486
1,722
930
3,093
16
225
6,472

426
99
1,806
3,023
10
243
5
2,589
8,201

396
1,964
1,279
11,063
37
250
14,989

619
81
1,109
3,572
12
295
106
2,858
8,652

14,673

23,641

26,116

36,883

Annual Report 2014 · The Danfoss Group · Danfoss®
STATEMENT OF CASH FLOWS

January 1 to December 31

DKKm

Profit before tax
Adjustments for non-cash transactions
Change in working capital
CASH FLOW GENERATED FROM OPERATIONS
Interest received
Interest paid
Dividends received
CASH FLOW FROM OPERATIONS BEFORE TAX
Paid tax
CASH FLOW FROM OPERATING ACTIVITIES

Acquisition of intangible assets
Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment
Acquisition of subsidiaries etc.
Proceeds from disposal of subsidiaries etc.
Acquisition (-)/sale of other investments etc.
CASH FLOW FROM INVESTING ACTIVITIES

FREE CASH FLOW

Cash repayment of (-)/cash proceeds from interest-bearing debt
Repurchase of treasury shares
Addition/disposal of minority interests
Dividends paid to shareholders in the Parent Company
Dividends paid to minority shareholders
CASH FLOW FROM FINANCING ACTIVITIES

NET CHANGE IN CASH AND CASH EQUIVALENTS

Cash and cash equivalents as of January 1
Foreign exchange adjustment of cash and cash equivalents
CASH AND CASH EQUIVALENTS AS OF DECEMBER 31

e
t
o
N

18
19

20
20
21

2013
3,255
2,287
296
5,838
29
-259
7
5,615
-1,171
4,444

-91
-1,118
205

87
-917

2014
3,476
1,982
196
5,654
15
-218
7
5,458
-1,107
4,351

-99
-1,134
237
-7,376
-1
-2,203
-10,576

3,527

-6,225

1,179
-116
-4,092
-396
-198
-3,623

-96

888
-55
737

7,150
-14
5
-789
-158
6,194

-31

737
10
716

-6,225
7,376
1
2,237
3,389

STATEMENT OF FREE CASH FLOW ADJ. FOR ACQUISITION AND DISPOSAL OF SUBSIDIARIES ETC. (M&A)

Free cash flow
Acquisition of subsidiaries etc.
Proceeds from disposal of subsidiaries etc.
Acquisition (-)/sale of other investments
FREE CASH FLOW BEFORE M&A

20
20
21

3,527

-14
3,513

The cash flow statement cannot be derived on the basis of the Annual Report alone.

Annual Report 2014 · The Danfoss Group · Danfoss®STATEMENT OF CHANGES IN EQUITY
STATEMENT OF CHANGES IN EQUITY

DKKm
DKKm

s
e
r
s
a
e
h
r
a
s
h
n
s
w
n
o
w
e
o
v
e
r
e
v
s
r
e
e
R
s
e
R
-275
-275

s
e
v
s
e
r
e
v
s
r
e
e
r
s
e
r
e
r
h
r
e
t
O
h
t
O

S
E
S
V
E
R
V
E
R
S
E
E
S
R
E
R
10,638 10,065
10,638 10,065

I
I

S
D
S
N
D
E
N
D
E
I
D
V
V
D
D
D
E
D
S
E
O
S
P
O
O
P
R
O
P
R
P
400
400

1,237
1,237

800
800

2,037
2,037

L
A
L
T
A
I
P
T
A
I
P
C
A
E
C
R
E
A
R
H
A
S
H
S
1,020
1,020

M
U
M
U
M
I
E
M
R
E
P
R
E
P
R
E
A
R
H
A
S
H
S
370
370

n
o
n
i
t
o
a
i
l
t
s
a
n
l
a
s
n
r
t
a
y
r
t
c
n
y
c
e
n
r
r
e
u
r
C
r
u
C
-257
-257

-472
-472

149
149

-37
-37
-360
-360
-360
-360

s
e
v
s
e
r
e
v
s
r
e
e
r
s
e
g
r
n
g
g
n
d
g
e
d
H
e
H
-41
-41

80
80

-20
-20
60
60
60
60

2
2
2
2
1,022
1,022

39
39
39
39
409
409

-156
-156
-156
-156
-431
-431

19
19

-617
-617

724
724

-21
-21

5
5
708
708
708
708

-159
-159

37
37
-122
-122
-122
-122

1
1
1
1
1,023
1,023

54
54
54
54
463
463

-70
-70
-70
-70
-501
-501

-103
-103

91
91

BALANCE AS OF JANUARY 1, 2013
BALANCE AS OF JANUARY 1, 2013
COMPREHENSIVE INCOME IN 2013
COMPREHENSIVE INCOME IN 2013
Net profit
Net profit
Other comprehensive income
Other comprehensive income
Foreign exchange adjustments on
Foreign exchange adjustments on
translation of foreign currencies
translation of foreign currencies
Fair value adjustment of hedging
Fair value adjustment of hedging
instruments
instruments
Actuarial gain/loss (-) on pension and
Actuarial gain/loss (-) on pension and
healthcare plans
healthcare plans
Tax on other comprehensive income
Tax on other comprehensive income
Total other comprehensive income
Total other comprehensive income
Total comprehensive income for the period
Total comprehensive income for the period
TRANSACTIONS WITH OWNERS
TRANSACTIONS WITH OWNERS
Dividends to shareholders
Dividends to shareholders
Purchase of minority interest
Purchase of minority interest
Capital increase/purchase of treasury shares
Capital increase/purchase of treasury shares
Total transactions with owners
Total transactions with owners
BALANCE AS OF DECEMBER 31, 2013
BALANCE AS OF DECEMBER 31, 2013
COMPREHENSIVE INCOME IN 2014
COMPREHENSIVE INCOME IN 2014
Net profit
Net profit
Other comprehensive income
Other comprehensive income
Foreign exchange adjustments on
Foreign exchange adjustments on
translation of foreign currencies
translation of foreign currencies
Fair value adjustment of hedging
Fair value adjustment of hedging
instruments
instruments
Actuarial gain/loss (-) on pension and
Actuarial gain/loss (-) on pension and
healthcare plans
healthcare plans
Tax on other comprehensive income
Tax on other comprehensive income
Total other comprehensive income
Total other comprehensive income
Total comprehensive income for the period
Total comprehensive income for the period
TRANSACTIONS WITH OWNERS
TRANSACTIONS WITH OWNERS
Dividends to shareholders
Dividends to shareholders
Purchase of minority interest
Purchase of minority interest
Capital increase/purchase of treasury shares
Capital increase/purchase of treasury shares
Total transactions with owners
Total transactions with owners
BALANCE AS OF DECEMBER 31, 2014
BALANCE AS OF DECEMBER 31, 2014

-472
-472

229
229

209
209
-137
-137
-171
-171
1,066
1,066

4
4
-2,623
-2,623
-156
-156
-2,775
-2,775
8,356
8,356

209
209
-80
-80
129
129
1,366
1,366

4
4
-2,623
-2,623

-2,619
-2,619
9,385
9,385

1,604
1,604

724
724

-180
-180

-283
-283
138
138
399
399
2,003
2,003

-283
-283
96
96
-187
-187
1,417
1,417

11
11
-2
-2

11
11
-2
-2
-70
-70
-61
-61
10,811 10,298
10,811 10,298

9
9

800
800

-400
-400

-400
-400
800
800

500
500

-800
-800

-800
-800
500
500

S
R
S
E
R
D
E
L
D
O
L
H
O
S
E
/
H
A
S
R
E
/
A
S
A
R
H
S
A
S
O
S
H
S
F
O
S
Y
N
F
T
A
Y
N
I
U
D
T
A
I
Q
U
N
D
E
Q
N
E
11,855
11,855

-472
-472

229
229

209
209
-137
-137
-171
-171
1,866
1,866

T
S
T
E
S
R
E
E
R
T
E
N
T
I
N
Y
I
T
Y
I
R
T
O
I
R
N
O
N
M
M
2,338
2,338

248
248

-78
-78

-2
-2

-82
-82
166
166

-396
-396
-2,623
-2,623
-115
-115
-3,134
-3,134
10,587
10,587

-179
-179
-1,469
-1,469

-1,648
-1,648
856
856

2,104
2,104

186
186

724
724

-180
-180

-283
-283
138
138
399
399
2,503
2,503

-789
-789
-2
-2
-15
-15
-806
-806
12,284
12,284

59
59

59
59
245
245

-158
-158
-1
-1
16
16
-143
-143
958
958

Y
T
Y
I
U
T
I
Q
U
E
Q
L
E
A
L
T
A
O
T
T
O
T
14,193
14,193

2,285
2,285

-550
-550

227
227

207
207
-137
-137
-253
-253
2,032
2,032

-575
-575
-4,092
-4,092
-115
-115
-4,782
-4,782
11,443
11,443

2,290
2,290

783
783

-180
-180

-283
-283
138
138
458
458
2,748
2,748

-947
-947
-3
-3
1
1
-949
-949
13,242
13,242

Annual Report 2014 · The Danfoss Group · Danfoss®

Notes

Note 1 SEGMENT REPORTING
Note 2 EXPENSES AND OTHER OPERATING INCOME
Note 3 INVESTMENTS
Note 4 FINANCIAL INCOME
Note 5 FINANCIAL EXPENSES
Note 6 TAX ON PROFIT
Note 7 INTANGIBLE ASSETS
Note 8 PROPERTY, PLANT AND EQUIPMENT
Note 9 INVENTORIES
Note 10 TRADE RECEIVABLES
Note 11 SHARE CAPITAL
Note 12 PROVISIONS
Note 13 SHARE INCENTIVE PROGRAMS
Note 14 DEFERRED TAX
Note 15 PENSION AND HEALTHCARE OBLIGATIONS
Note 16 FINANCIAL RISKS AND INSTRUMENTS
Note 17 CORPORATION TAX
Note 18 ADJUSTMENT FOR NON-CASH TRANSACTIONS
Note 19 CHANGE IN WORKING CAPITAL
Note 20 ACQUISITION AND SALE OF SUBSIDIARIES AND ACTIVITIES
Note 21 ACQUISITION(-)/SALE OF OTHER INVESTMENTS
Note 22 CONTINGENT LIABILITIES, ASSETS AND SECURITY
Note 23 RELATED PARTIES
Note 24 EVENTS AFTER THE BALANCE SHEET DATE
Note 25 BASIS FOR PREPARATION AND ACCOUNTING POLICIES
Note 26 CRITICAL ACCOUNTING ESTIMATES

Annual Report 2014 · The Danfoss Group · Danfoss®Note 1 SEGMENT REPORTING

DKKm

MAIN BUSINESS SEGMENTS

2013

e
t
a
m

i
l

C
s
s
o

n
a
D

y
g
r
e
n
E
&

r
e
w
o
P
s
s
o

n
a
D

s
n
o
i
t
u
o
S

INCOME STATEMENT
Net sales
internal net sales
Net sales, external
Depreciation/amortization
Net gain/loss (-) upon disposal of activities
Impairment losses on tangible fixed assets
Reversal of impairment losses on tangible fixed assets
Share of profit from associates and joint ventures after tax
Operating profit (EBIT)
Financial income
Financial expenses
Profit before tax

BALANCE SHEET
Total assets *)
Net investments excluding M&A
Impairment losses
Investment in associates and joint ventures
Total liabilities *)

OTHER INFORMATION
Number of employees

2014

e
t
a
m

i
l

C
s
s
o

n
a
D

y
g
r
e
n
E
&

r
e
w
o
P
s
s
o

n
a
D

s
n
o
i
t
u
o
S

P
U
O
R
G

33,628

22,669 11,406

s
a
e
r
a

r
e
h
t
O

300
-29
329
41
-3
61
3

-656
37
-486
-1,105

22,640 11,406
744

880

4
2
-187
2,878

1,703

2,878

1,703

s
a
e
r
a

r
e
h
t
O

309
-49
358
44
-3
4

1
-530
33
-402
-899

22,330 10,989
25
22,306 10,964
772
-1

855

5
2
7
2,561

1,593

2,561

1,593

14,336
695
9
39
4,338

8,821
377

2,959
-61

12
7,903

2,432

25,249
658
4
2,361
5,498

8,838
347
12

2,796
-49
61

2,651 15,492

33,628
1,671
-4
9
2
8
3,624
33
-402
3,255

26,116
1,011
9
51
14,669

P
U
O
R
G

34,375

34,375
1,665
-3
77
5
-187
3,925
37
-486
3,476

36,883
956
77
2,361
23,641

13,657

6,320

2,486

22,463

14,891

6,111

3,115

24,117

*) Cash and cash equivalents, interest-bearing debt and deferred tax liabilities/assets have been recorded in the column "Other areas".

The two segments, "Danfoss Climate & Energy" and "Danfoss Power Solutions" are further described in separate sections in the Financial review.

Annual Report 2014 · The Danfoss Group · Danfoss®

Note 1 SEGMENT REPORTING (continued)

DKKm

PRODUCTS AND SERVICES

Heating, Ventilation and Air Conditioning (HVAC)
Hydraulics
Other

GEOGRAPHICAL SEGMENTS

2013

Denmark

1,288
4,296

2014

Denmark

1,276
3,973

Net sales
Total non-current assets *)

*) Deferred tax assets are not included.

2013

2014

22,102
11,222
304
33,628

22,402
11,651
322
34,375

Other
EU

12,028
4,020

Other
Europe

3,911
207

North
America

7,666
4,768

Asia

5,890
1,362

Africa

Pacific

230

538
11

Latin
America

1,685
48

Middle
East

392

Total

33,628
14,712

Other
EU

12,331
13,393

Other
Europe

3,689
142

North
America

8,313
5,395

Asia

6,139
1,713

Africa

Pacific

264

491
2

Latin
America

1,464
44

Middle
East

408

Total

34,375
24,662

The geographical distribution of "Net sales" is based on the external customers' country of residence.
The distribution of "Total non-current assets" is based on the actual geographical location of the assets.

Annual Report 2014 · The Danfoss Group · Danfoss®Note 1 SEGMENT REPORTING (continued)

DKKm

SPECIFICATION OF OTHER AREAS - EXTERNAL NET SALES

Non-reportable segments
Total net sales

SPECIFICATION OF OTHER AREAS - PROFIT BEFORE TAX

Financial income
Financial expenses
Non-reportable segments
Central functions, not allocated*)
Other
Profit before tax

SPECIFICATION OF OTHER AREAS - ASSETS

Non-reportable segments
Central functions not allocated *)
Other
Total assets

SPECIFICATION OF OTHER AREAS - LIABILITIES

Non-reportable segments
Central functions not allocated *)
Interest bearing debt
Other
Total Liabilities

2013

358
358

2013

33
-402
-88
-435
-7
-899

2013

164
2,796
-1
2,959

2013

313
2,689
4,899
2
7,903

2014

329
329

2014

37
-486
-87
-508
-61
-1,105

2014

117
2,680
-1
2,796

2014

54
3,264
12,172
2
15,492

*) Central functions, not allocated, are primarily administrative expenses and central functions' assets and liabilities, deferred tax as well
as cash and cash equivalents.

Annual Report 2014 · The Danfoss Group · Danfoss®Note 2 EXPENSES AND OTHER OPERATING INCOME

DKKm

A. PERSONNEL EXPENSES

Salaries and wages
Severance payments
Share-based remuneration *)
Social security
Defined contribution plans
Defined benefit plans excluding gains from reductions and redemptions **)
Gains from reductions and redemptions

Average number of employees
Total number of employees as of end of the year

*) Benefits cf. further information in Note 13. Share incentive programs.
**) Expenses for defined benefit plans are described in Note 15. Pension and healthcare obligations.

Board of Directors:
Directors' fees

Executive Committee:
Salaries
Pension costs re. defined contribution plans
Bonuses

Danfoss Leadership Team excluding Executive Committee:
Salaries
Pension costs re. defined contribution plans
Bonuses

Total compensation

2013

7,841
185
3
696
454
36

9,215

2014

7,821
180

646
496
30
-3
9,170

23,030
22,463

22,494
24,117

2013

2014

6
6

21
7
53
81

22
3
24
49
136

6
6

23
8
52
83

17
2
21
40
129

Bonuses of total DKK 73m (2013: 77m) can be divided into long-term and short-term bonuses with DKK 31m and DKK 42m respectively (2013: 28m and
49m respectively).

Annual Report 2014 · The Danfoss Group · Danfoss®Note 2 EXPENSES AND OTHER OPERATING INCOME (continued)

DKKm

B. DEPRECIATION/AMORTIZATION AND IMPAIRMENT LOSSES

Classification by nature:

Amortization of intangible assets
Impairment on intangible assets

Depreciation of property, plant and equipment
Impairment on property, plant and equipment
Reversal of impairment losses on property, plant and equipment

Depreciation/amortization and impairment losses

Classification of intangible assets by functions:

Cost of sales
Selling and distribution costs
Administrative expenses
Other operating expenses

C. OTHER OPERATING INCOME AND EXPENSES

Gain on disposal of intangible assets
Gain on disposal of property, plant and equipment
Reversal of impairment losses on property, plant and equipment
Other
Other operating income

Loss on disposal of activities
Loss on disposal of property, plant and equipment
Impairment
Restructuring costs
Other
Other operating expenses

Other operating income and expenses

2013

2014

478
2
480

1,193
7

1,200

1,680

305
145
28
2
480

511

1,155
77
-5
1,227

1,738

323
145
43

511

2013

2014

82
127

-3
-34
-9
-186
-149
-381

-254

30
106
5
50
191

-3
-34
-77
-185
-136
-435

-244

Impairment for the year is based on expected value in use or fair value.
Restructuring cost in 2014 mainly relates to terminations in France, Denmark, Germany, China and the USA.
Impairment loss in 2014 relates to buildings. Other includes DKK 52m costs related to acquisitions of Vacon and SMA Solar Technology AG.
Restructuring cost in 2013, mainly related to terminations in France, Denmark, Germany, China and the USA.
In 2013, the item Other included DKK 110m in one-off costs relating to acquisition of outstanding shares in Sauer-Danfoss Inc.

D. FEES TO AUDITORS APPOINTED AT THE ANNUAL GENERAL MEETING

Audit fee
Tax and VAT advice
Other fees
Total fee to Group Auditor

2013

2014

21
6
4
31

18
9
5
32

Annual Report 2014 · The Danfoss Group · Danfoss®Note 3 INVESTMENTS

DKKm

Costs as of January 1
Foreign exchange adjustments etc.
Additions
Addition through aquisition of subsidiaries
Disposals
Costs as of December 31

Adjustments as of January 1
Foreign exchange adjustments etc.
Net profit/value adjustment
Dividends
Disposal
Adjustments as of December 31

Carrying amount as of December 31

2013

s
t
n
e
m

t
s
e
v
n

d
n
a
s
e
t
a
c
o
s
s
a

s
e
r
u
t
n
e
v

t
n
o

153
-1

-61
91

-73

9
-7
31
-40

2014

s
t
n
e
m

t
s
e
v
n

d
n
a
s
e
t
a
c
o
s
s
a

s
e
r
u
t
n
e
v

t
n
o

91
-3
2,364

-22
2,430

-40
4
-187
-7
16
-214

L
A
T
O
T

287
-2
2

-61
226

-179
1
11
-7
31
-143

s
t
n
e
m

t
s
e
v
n

r
e
h
t
O

135

140

-103

-4

-107

L
A
T
O
T

226
-3
2,364
5
-22
2,570

-143
4
-191
-7
16
-321

2,216

2,249

s
t
n
e
m

t
s
e
v
n

r
e
h
t
O

134
-1
2

135

-106
1
2

-103

Where possible, "Other investments" are recognized at fair value. Alternatively, they are recognized at cost less accumulated impairment losses.

Where indicators for impairment were present at the end of 2014, impairment tests were performed on the carrying amount of "Investments in
associates and joint ventures". Main indicators are loss giving activities, or if the carrying amount is higher than the equity in the local accounts or,
where relevant, higher than valuation using a listed share price. When performing the impairment test, the present value of cash flow from associates
and joint ventures is compared with their carrying amount. The principles are unchanged compared to the impairment tests performed in 2013.
Additions for the year to "Investments in associates and joint ventures" mainly relate to the acquisition of SMA Solar Technology AG.
Disposal of "Investments in associates and joint ventures" relates to the sale of Promeos GmBH and Flexucell ApS.

Disposal for the year 2013 of "Investments in associates and joint ventures" relates to the sale of Danfoss Sanhua Micro Channel Heat Exchanger Co Ltd.

Further information on associates and joint ventures is provided in the notes Note 4. Financial income, Note 5. Financial expenses, Note 16. Financial
risks and instruments and Note 23. Related parties.

Annual Report 2014 · The Danfoss Group · Danfoss®

Note 3 INVESTMENTS (continued)

DKKm

MATERIAL ASSOCIATES AND JOINT VENTURES

Summarized information for associates and joint ventures that are material to Danfoss has been amended to reflect adjustments made for differences in
accounting policy. The financial information is stated below at their full values, not Danfoss' proportionate ownership interests. Due to that SMA Solar
Technology AG is a listed company, the stated financial information below is based on public information available.

Place of Business
Share of ownership

SUMMARIZED PROFIT AND LOSS STATEMENT (OFFICIAL GUIDANCE)
Revenue

EBIT before restructuring charges

SUMMARIZED BALANCE SHEET (Q3 2014 NUMBERS)
Non-current assets
Current assets

Non-current liabilities
Current liabilities

Equity

Group share of equity as of December 31

2014

G
A
y
g
o
o
n
h
c
e
T

r
a
o
S
A
M
S

Germany
20%

5,778

-857

4,366
4,810

2,180
1,973

5,023

805

On the basis of the stock exchange quotation, the fair value of SMA Solar Technology AG as of December 31, 2014 was DKK 4.0b.

IMMATERIAL ASSOCIATES AND JOINT VENTURES

In addition to the interests in associates and joint ventures disclosed above, Danfoss also has interests in a number of individually immaterial associates
and joint ventures.

Danfoss' proportionate share of:

Profit or loss from continuing operations
Other comprehensive income
Total comprehensive income

Carrying amount as of December 31

RECONCILIATION OF CARRYING AMOUNT

Group share of equity of material associates and joint ventures
Goodwill concerning material associates and joint ventures
Carrying amount of immaterial associates and joint ventures
Total carrying amount as of December 31 of associates and joint ventures

2013

2014

s
e
t
a
c
o
s
s
A

1
1

s
e
r
u
t
n
e
V

t
n
o
J

L
A
T
O
T

t
n
o
J

s
e
t
a
c
o
s
s
A

-1

50
50

51
51

805
1,364

2,169

s
e
r
u
t
n
e
V

9
-1
8

47
47

L
A
T
O
T

8
-1
7

805
1,364
47
2,216

For further information on associates and joint ventures please see the list of "Danfoss Group Companies".

Annual Report 2014 · The Danfoss Group · Danfoss®

Note 4 FINANCIAL INCOME

DKKm

Interest from banks etc.
Calculated expected return on defined benefit plan assets
Gain on other investments

Interest on financial assets measured at amortized cost amounts to

Note 5 FINANCIAL EXPENSES

DKKm

Interest to banks etc.
Interest element on discounted liabilities
Calculated interest on defined benefit plans
Foreign exchange losses, net
Fair value adjustment of share options and warrants
Impairment/loss on loans
Loss on other investments
Borrowing costs recognized in the cost of assets

Interest on financial liabilities at amortized cost amounts to

2013

2014

29
2
2
33

2013

-192

-40
-151
-14
-7

2
-402

-192

14
23

2014

-190
-4
-55
-206
-29

-4
2
-486

-194

An effective interest rate equal to Group's weighted average general borrowing costs was used for the calculation of borrowing costs pertaining to the
cost of assets. No specific loans have been raised for the construction or development of assets.

Note 6 TAX ON PROFIT

DKKm

Current tax expense
Change in deferred tax
Adjustments concerning previous years

Tax on profit is defined as:
Tax on profit before tax
Adjustment of tax in foreign subsidiaries calculated at 24.5% (2013: 25.0%)
Tax exempt income/non-deductible expenses
Adjustment of net tax assets
Income from associates and joint ventures after tax
Effect of change in corporate tax rate
Other taxes
Adjustments concerning previous years
Effective tax rate

Tax on profit (income statement)
Tax on fair value adjustment of hedging instruments (other comprehensive income)
Tax on actuarial gain/loss on pension and healthcare plans (other comprehensive income)
Total taxes

2013

-1,129
195
-36
-970

25.0%
2.7%
-0.9%
-0.4%
-0.1%
-1.3%
2.7%
2.1%
29.8%

2013

-970
-57
-80
-1,107

2014

-1,072
-117
3
-1,186

24.5%
4.6%
-0.2%
0.2%
1.3%

4.3%
-0.6%
34.1%

2014

-1,186
42
96
-1,048

Annual Report 2014 · The Danfoss Group · Danfoss®Note 7 INTANGIBLE ASSETS

DKKm

Cost as of January 1
Foreign exchange adjustments in foreign companies
Additions
Disposals
Cost as of December 31

Amortization and impairment losses as of January 1
Foreign exchange adjustments in foreign companies
Amortization
Impairments
Disposals
Amortization and impairment losses as of December 31

Carrying amount as of December 31

Cost as of January 1
Foreign exchange adjustments in foreign companies
Addition through acquisition of subsidiaries
Transfers
Additions
Disposals
Cost as of December 31

Amortization and impairment losses as of January 1
Foreign exchange adjustments in foreign companies
Transfers
Amortization
Disposals
Amortization and impairment losses as of December 31

2013

Good-
will

5,390
-121

5,269

1,089
-2

1,087

4,182

2014

Good-
will

5,269
275
5,514

11,058

1,087
14

1,101

Software

Brand

Techno-
logy

3,136
-83

902
-22

1,770
-42

Custo-
mer
relations

Patents,
trade-
marks etc.

Develop-
ment
costs

TOTAL
Other

672
1
63
-3
733

534

49
2
-6
579

154

391
-3
3
-3
388

334
-2
22

-7
347

572
-5
24

591

331
-3
70

398

7,443
-154
90
-6
7,373

3,095
-61
478
2
-13
3,501

193

3,872

8,054

880

3,053

1,728

1,161
-34
194

1,321

880

1,732

735
-22
143

856

872

Software

Brand

Techno-
logy

Custo-
mer
relations

Patents,
trade-
marks etc.

Develop-
ment
costs

TOTAL
Other

733
4
88
397
83
-34
1,271

579
4
303
90
-26
950

880
60
120

1,060

3,053
203
1,126

-72
4,310

1,321
116

200
-67
1,570

1,728
120
699

-3
2,544

856
67

147
-2
1,068

591
18

7
-34
582

398
11

59
-34
434

7,373
458
2,033
397
98
-147
10,212

3,501
251
303
511
-129
4,437

388
53

8
-4
445

347
53

415

TOTAL

12,833
-275
90
-6
12,642

4,184
-63
478
2
-13
4,588

TOTAL

12,642
733
7,547
397
98
-147
21,270

4,588
265
303
511
-129
5,538

Carrying amount as of December 31

9,957

321

1,060

2,740

1,476

148

5,775

15,732

Addition through acquisition of subsidiaries relates to Vacon. For further information, see Note 20. Acquisition and sale of subsidiaries and activities.

IMPAIRMENT TESTS

At the end of 2014, impairment tests have been performed on the carrying amount of goodwill and brand (assets with indefinite useful lives). The impairment tests
were performed on divisions representing the base level of cash generating units (CGUs) to which the carrying amount of goodwill and brand can be allocated
with reasonable accuracy. The basis for determining the recoverable amount is value in use for all cash generating units.

Acquired activities and companies are integrated as quickly as possible into the division for optimum synergy. One of the consequences is that soon after it will not
be possible to allocate the carrying amount of goodwill to the acquired companies and activities with reasonable accuracy, and thus it will no longer be possible
to perform impairment tests on these individual acquisitions. At the impairment test, the net present value of the estimated net cash flow from the CGUs is
compared with the carrying amounts of the assets. The expected cash flow is based on budgets and forecasts for the years 2015-2024 prepared and approved by
management in the respective CGUs and Group management. The forecasts were elaborated for a 10-year period in accordance with the fact that decisions on
acquisitions are made on the basis of 10-year forecasts. The primary variables are sales, EBIT, working capital and investments. The discount rates are set under
consideration of the individual CGU's size, main geographical markets, risks and the coherence with Danfoss' core business areas.

The principals are unchanged compared to the impairment tests performed in 2013.

Annual Report 2014 · The Danfoss Group · Danfoss®Note 7 INTANGIBLE ASSETS (continued)

The most significant goodwill allocations as well as the most significant assumptions for the performed impairment tests have been described below.

Goodwill at the end of 2013
Brand with indefinite useful life at the end of 2013
Expected growth in net cash flow during the terminal period in %
Discount rate before tax in % as of December 31

Goodwill at the end of 2014
Brand with indefinite useful life at the end of 2014
Expected growth in net cash flow during the terminal period in %
Discount rate before tax in % as of December 31

2013

Danfoss
Power
Electro-
nics

Danfoss
Heating
Solutions

Danfoss
Commer-
cial Com-
pressors

Danfoss
Power
Solutions

Danfoss
Refrigera-
tion &
A/C
Controls

1,232

1,041

2%
13%

872
880
2%
13%

523

2%
13%

2014

Danfoss
Power
Electro-
nics

Danfoss
Heating
Solutions

Danfoss
Commer-
cial Com-
pressors

Danfoss
Power
Solutions

Danfoss
Refrigera-
tion &
A/C
Controls

5,602

1,230

1,176

2%
11%

2%
13%

947
941
2%
12%

582

2%
12%

Other

425

2%
13%

Other

420

2%
11%

Management does not assess that a reasonable change in the fundamental assumptions used in the impairment tests will result in a recoverable amount lower
than the carrying amount. The same conclusion was made for 2013.

Danfoss Power Electronics
The Goodwill allocated to Danfoss Power Electronics derives primarily from the Acquisition of Vacon (Finland) in December 2014. The carrying amount of
Technology and Customer relations acquired in connection with business combinations amounts end 2014 to DKK 1.9b or approximately 37% of the
corresponding total carrying amount.
The carrying amount of Technology and Customer relations recognized in connection with the acquisition of Vacon is amortized until 2026 and 2029 respectively.
The impairment test was performed before the acquisition of Vacon. Danfoss expects significant synergies in the form of a decreasing operating cost
ratio for the combined Drives business, which is confirmed in the business case for acquiring Vacon.
EBIT and cash flow were at a satisfactory level in 2014 and remained at the same levels compared to the year before. The result and cash flow is expected at a
satisfactory level in the future. The weighted average growth rate until 2024 is estimated to be approximately 5%, which is at or above the general market
development.
The net cash flow during the terminal period from 2025 and onwards is estimated at a 2% annual growth level, which is assumed to be at or below the market
development.
The EBIT margin is expected to remain unchanged during the terminal period, and so is the working capital as a percentage of sales. Investments are assumed to
be at the same level as the depreciations. These assumptions are unchanged compared to the impairment tests performed in 2013.

Danfoss Heating Solutions
The Goodwill allocated to Danfoss Heating Solutions (HS) derives primarily from the acquisition of the DEVI Group (Denmark) in 2003 and Thermia Wärme AB
(Sweden) in 2005. The carrying amount of Technology and Customer relations acquired in connection with business combinations amounts end 2014 to DKK 25m
or approximately 1% of the corresponding total carrying amount.
EBIT and cash flow were at a satisfactory level in 2014 and remained at the same levels compared to the year before. The result and cash flow is expected at a
satisfactory level in the future. The weighted average growth rate until 2024 is estimated to be approximately 4%, which is at or above the general market
development and therefore assuming an increasing market share. The growth in Net sales is driven from strong R&D investments in products and expected high
growth from emerging markets like China and Russia.
The net cash flow during the terminal period from 2025 and onwards is estimated at a 2% annual growth level, which is assumed to be at or below the market
development.
The EBIT margin is expected to remain unchanged during the terminal period, and so is the working capital as a percentage of sales. Investments are assumed to
be at the same level as the depreciations. These assumptions are unchanged compared to the impairment tests performed in 2013.

Danfoss Commercial Compressors
The Goodwill allocated to Danfoss Commercial Compressors (CC) derives primarily from the acquisitions of Scroll Technologies, USA in 2006 and Danfoss Turbocor
Compressors, USA in 2012. The carrying amount of Technology and Customer relations acquired in connection with business combinations amounts end 2014
to DKK 186m or approximately 4% of the corresponding total carrying amount.
EBIT and cash flow were at a satisfactory level in 2014. EBIT improved compared to the year before, whereas cash flow remained unchanged. The result and cash
flow is expected to increase further in the future. The weighted average growth rate until 2024 is estimated at approximately 3%, which is at or above the general
market development. The increased EBIT and Cash flow is mainly driven from increased operating efficiency.
The net cash flow during the terminal period from 2025 and onwards is estimated at a 2% annual growth level, which is assumed to be at or below the market
development.
The EBIT margin is expected to remain unchanged during the terminal period, and so is the working capital as a percentage of sales. Investments are assumed to
be at the same level as the depreciations. These assumptions are unchanged compared to the impairment tests performed in 2013.

Annual Report 2014 · The Danfoss Group · Danfoss®

Note 7 INTANGIBLE ASSETS (continued)

Danfoss Power Solutions
The Goodwill allocated to Danfoss Power Solutions (PS) derives from the Danfoss Group's acquisition of the additional 38.2% of the share capital in Sauer-Danfoss
Inc. in 2008. The brand recognized in that connection has an indefinite useful life. The carrying amount of Brand, Technology and Customer relations acquired
in connection with business combinations amounts end 2014 to DKK 3.1b or approximately 58% of the total corresponding carrying amount.
The carrying amount of Technology and Customer relations is amortized until 2023 and 2020 respectively.
EBIT and cash flow were at a satisfactory level in 2014 and remained at the same levels compared to the year before. The result and cash flow is expected at a
satisfactory level in the future. The weighted average growth rate until 2024 is estimated to be approximately 3%, which is at or above the general market
development.
The net cash flow during the terminal period from 2025 and onwards is estimated at a 2% annual growth level, which is assumed to be at or below the market
development.
The EBIT margin is expected to remain unchanged during the terminal period, and so is the working capital as a percentage of sales. Investments are assumed to
be at the same level as the depreciations. These assumptions are unchanged compared to the impairment tests performed in 2013.

Danfoss Refrigeration & A/C Controls
The Goodwill allocated to Danfoss Refrigeration and A/C Controls (RC) derives primarily from the acquisition of Aztec Energy Partners, USA in 2006 and Chatleff LLC,
USA in 2007. The carrying amount of Technology and Customer relations acquired in connection with business combinations amounts end 2014 to DKK 38m
or approximately 1% of the total corresponding carrying amount.
EBIT and cash flow were at a satisfactory level in 2014 and improved compared to the year before. The result and cash flow is also expected at a satisfactory level in
the future. The weighted average growth rate until 2024 is estimated at approximately 4% which is at or above the general market development.
The higher growth is mainly driven from an expansion of the product portfolio.
The net cash flow during the terminal period from 2025 and onwards is estimated at a 2% annual growth level, which is assumed to be at or below the market
development.
The EBIT margin is expected to remain unchanged during the terminal period, and so is the working capital as a percentage of sales. Investments are assumed to
be at the same level as the depreciations. These assumptions are unchanged compared to the impairment tests performed in 2013.

Other intangible assets
Software in progress amounts to DKK 76m. Of the entire Group's development activities capitalized development expenditure in progress amounts to DKK 16m.
Development activities in progress are related to a larger amount of development projects in several segments. Software and capitalized development expenditure
were mainly built up internally.
In 2014, the Group performed impairment tests for the carrying amount of software and development in progress. The project development process related to the
actual expenses and achieved milestones has been evaluated according to the approved project and business plans. This has not led to an impairment of current
development assets.

Annual Report 2014 · The Danfoss Group · Danfoss®

Note 8 PROPERTY, PLANT AND EQUIPMENT

DKKm

Cost as of January 1
Foreign exchange adjustments in foreign companies
Transfers
Additions
Disposals
Cost as of December 31

Depreciation and impairment losses as of January 1
Foreign exchange adjustments in foreign companies
Transfers
Depreciation
Impairment
Disposals
Depreciation and impairment losses as of December 31

Carrying amount as of December 31

Hereof assets held under finance leases

Cost as of January 1
Foreign exchange adjustments in foreign companies
Addition through acquisition of subsidiaries
Transfers
Additions
Disposals
Cost as of December 31

Depreciation and impairment losses as of January 1
Foreign exchange adjustments in foreign companies
Transfers
Depreciation
Impairment
Disposals
Depreciation and impairment losses as of December 31

Carrying amount as of December 31

Hereof assets held under finance leases

2013

Land and
buildings

Plant and
machinery

Equipment

Assets under
construction

5,248
-94
138
69
-261
5,100

2,365
-26
-87
186
7
-175
2,270

2,830

7,862
-51
226
242
-435
7,844

5,025
-2
87
843

-404
5,549

2,295

2,012
-34
27
98
-299
1,804

1,319
-25

164

-224
1,234

570

527
-34
-391
712
-3
811

811

2014

Land and
buildings

Plant and
machinery

Equipment

Assets under
construction

5,100
26
24
291
237
-253
5,425

2,270
5
50
188
60
-131
2,442

2,983

7,844
126
173
252
298
-143
8,550

5,549
9
-109
829
12
-123
6,167

2,383

1,804
26

-250
69
-97
1,552

1,234
3
-244
138

-91
1,040

512

811
22

-690
537

680

TOTAL

15,649
-213

1,121
-998
15,559

8,709
-53

1,193
7
-803
9,053

6,506

TOTAL

15,559
200
197
-397
1,141
-493
16,207

9,053
17
-303
1,155
72
-345
9,649

6,558

The Group's finance leases mainly concern machinery and IT equipment. The Group has an option to acquire the leased machinery at favourable prices at
the expiry of the leases. The leased assets are pledged as collateral for the lease liabilities.

Annual Report 2014 · The Danfoss Group · Danfoss®Note 9 INVENTORIES

DKKm

Raw materials and consumables
Work in progress
Finished goods and goods for resale
Inventories

Write-downs of inventories
Carrying amount of inventories stated at net realizable value
Expensed adjustment of inventories to net realizable value included in cost of sales
Cost of goods sold included in cost of sales

Note 10 TRADE RECEIVABLES

DKKm

Trade receivables before provision for bad debts
Provision for bad debts
Trade receivables
Receivables from associates and joint ventures
Total trade receivables

Hereof trade receivables due after 1 year

Provision for bad debts as of January 1
Foreign exchange adjustments
Additions through acquisition of subsidiaries
Change in provisions
Realized loss
Provision for bad debts as of December 31

2013

1,508
458
1,883
3,849

384
327
75
16,309

2014

1,609
475
2,001
4,085

404
215
50
16,694

2013

4,595
-170
4,425
3
4,428

-151
7

-35
9
-170

2014

5,246
-156
5,090
77
5,167

-170
4
-28
-15
53
-156

Annual Report 2014 · The Danfoss Group · Danfoss®Note 11 SHARE CAPITAL

SHAREHOLDERS HOLDING MORE THAN 5% OF THE SHARES OR 5% OF THE VOTES

Bitten & Mads Clausen Foundation, Nordborg, Denmark
Clausen Controls A/S, Sønderborg, Denmark
Henrik Mads Clausen, Lake Forrest, USA
Karin Clausen, Holte, Denmark

DISTRIBUTION OF SHARES

2013

2014

No.
4,250,000

Nominal value
100 DKK

No.
4,250,000

Nominal value
100 DKK

A shares
DKKm
425.0

SHARES
46.33%
25.59%
10.75%
7.06%

VOTES
84.96%
5.40%
2.26%
1.49%

No.
5,965,743

Nominal value
100 DKK

B shares
DKKm
596.6

No.
10,215,743

Total shares
DKKm
1,021.6

No.
5,979,143

Nominal value
100 DKK

B shares
DKKm
597.9

No.
10,229,143

Total shares
DKKm
1,022.9

Class A shares entitle the holder to ten votes for each share while Class B shares entitle the holder to one vote for each share. The holders of class A
shares also have pre-emptive rights to class A shares in the event of any increases in share capital. Otherwise no shares have special rights.

Resolutions regarding amendments to the Articles of Association or Danfoss A/S’ dissolution require at least two-thirds of the votes cast as well as two-
thirds of the voting share capital represented at the general meeting to be adopted. The share capital is fully paid in.

DIVIDEND PER SHARE (DKK)

Proposed dividend per 100 DKK share
Dividend paid per 100 DKK share

Dividend payment to shareholders has no tax consequences for Danfoss A/S.

DEVELOPMENT IN THE GROUP'S HOLDING OF TREASURY SHARES (NO. OF B-SHARES OF 100 DKK)

Holding as of January 1
Acquired in the year
Acquired from Bitten & Mads Clausen Foundation
Sold in the year
Holding as of December 31

2013

78.3
39.2

2014

48.9
78.3

2013

89,142
18,584
28,902
-2,450
134,178

2014

134,178
17,641

-600
151,219

The primary purpose of holding treasury shares is to secure the share option programme in Danfoss A/S. The total cost in 2014 for own shares
amounts to DKK 72m (2013: 164m). The total selling price relating to treasury shares amounted to DKK 2m in 2014 (2013: 8m). The Group's holding
of treasury shares represents 1.48% (2013: 1.31%) of the Group's share capital. The value of treasury shares held amounts to DKK 622m (2013: 464m).

CAPITAL STRUCTURE

The Capital structure of Danfoss is intended to ensure sufficient financial flexibility and stability for the company to reach its strategic goals. It is the
policy of the Group to always qualify for a “BBB credit rating”, and the Group aims for the net-interest bearing debt to EBITDA ratio and cash flow
generation to be in line with this policy over the cycle.

Danfoss is currently rated “BBB/A2 with a stable outlook“ by Standard and Poor’s. End of 2014 the net-interest bearing debt to EBITDA ratio was 2.0 (2013:
0.8) on a reported basis. The increase is due to the acquisition of Finish Vacon in December 2014 and the acquisition of a 20% share in German SMA Solar
Technology AG in early part of 2014.

Danfoss aims to use the free cash flow before M&A to repay interest bearing debt and for acquisitions that will develop the existing business further,
or for dividend distribution to shareholders according to policy.

Annual Report 2014 · The Danfoss Group · Danfoss®Note 12 PROVISIONS

DKKm

Provisions as of January 1
Foreign exchange adjustments etc.
Additions through acquisition of subsidiaries
Provisions used
Reversal of unused provisions
Additional provisions recognized
Interest element on provisions
Provisions as of December 31

Estimated maturity of above provisions:

Within 1 year
Between 1 and 5 years
After more than 5 years

2014

Restruc-
turing

Contingent
considera-
tion

Warranty

Other

TOTAL

458
10
82
-240
-78
272

504

-60
-5
19

-1

360
20
7
-79
-80
234
2
464

2013

426
347
139
912

912
30
89
-379
-164
525
2
1,015

2014

619
337
59
1,015

Provisions for warranty comprise expected costs arising during the warranty period of the Group's products. As of December 31 receivables of DKK 61m
related to provisions for warranty were recognized (2013: 60m).

The Group's provision for restructuring mainly relates to expected costs for termination benefits. Contingent consideration consists of earn out
acquisitions. The Group's other provisions mainly consist of certain employee expenses, including jubilee costs.

Provisions have been discounted to net present value if the values are significant.

Annual Report 2014 · The Danfoss Group · Danfoss®Note 13 SHARE INCENTIVE PROGRAMS

In the Danfoss Group, share incentive programs exist only in Danfoss A/S. The programs are described below.

The calculation of fair values for the balance sheet as of the balance sheet dates and for stating the values as per the grant dates is based on the
Black-Scholes model. The assumptions for the calculation of outstanding options and warrants are:

Share price
Expected volatility
Expected dividends
Risk-free interest rate
Exercise prices and terms of maturity for the programs

2013

3,460
37.0%
1.0%
0,6-0,9%

See below

2014

4,116
22.0%
1.0%
0,1-0,8%

Since Danfoss is not a listed company, the above share price calculation, which has been made by an independent third party, has been based on a
comparison with a number of comparable domestic and international listed companies. The share price for 2014 of 4,116 was most recently adjusted
at the Annual General Meeting in 2014 and will next be fixed at the Annual General Meeting in 2015.

SHARE INCENTIVE PROGRAMS ESTABLISHED IN 2004 AND SUBSEQUENT PROGRAMS

In 2004 and 2007, Danfoss A/S established share incentive programs for the Board and a warrant program for executive committee members
and senior managers. The condition for participation in the program was for the executive committee members and the senior managers to purchase
compulsory shares. The main condition for achieving the right to be granted options/warrants was for RONA to exceed a certain minimum
level for the respective financial years. The granted options and warrants give the right to purchase/subscribe for class B shares (at 100 DKK each) at
fixed exercise prices 3 years after the allotment date at the earliest.

In 2009, Danfoss A/S set up a new warrant program for executive committee members and senior managers. Participation in the 2009 program
was not conditional on the purchase of shares. Also, no minimum RONA level was defined for the program.

Since Danfoss A/S has an obligation to buy back shares under the share option programs, provision is made in the balance sheet for this obligation.

Information on the 2004 and subsequent programs

Options/warrants - exercise price at 1,222
Options/warrants - exercise price at 1,522
Options/warrants - exercise price at 1,932
Options/warrants - exercise price at 1,808
Warrants - exercise price at 1,100

Granted
(year)

Granted
(number)

2005
2006
2007
2008
2009

86,459
84,895
97,121
59,053
139,050
466,578

Fair value
at grant
date
(DKK each)

564
762
983
895
365

Earliest
exercise

Latest
exercise

May 2008 May 2015
May 2009 May 2016
May 2010 May 2017
May 2011 May 2014
May 2012 May 2015

Annual Report 2014 · The Danfoss Group · Danfoss®Note 13 SHARE INCENTIVE PROGRAMS (continued)

Holdings and grants/disposals of options and warrants in relation to the 2004 and subsequent programs are specified below:

The Board
(number)

Executive
Committee
(number)

Executives
(number)

Other
(number)

Fair value
(DKK each)

Fair value
(DKKm)

Granted options/warrants 1 January:
Options/warrants - exercise price at 1,222
Options/warrants - exercise price at 1,522
Options/warrants - exercise price at 1,932
Options/warrants - exercise price at 1,808
Warrants - exercise price at 1,100

Changes in the share price/fair value:
Options/warrants - exercise price at 1,222
Options/warrants - exercise price at 1,522
Options/warrants - exercise price at 1,932
Options/warrants - exercise price at 1,808
Warrants - exercise price at 1,100

Disposal due to subscription of shares:
Options/warrants - exercise price at 1,222
Options/warrants - exercise price at 1,522
Options/warrants - exercise price at 1,932
Options/warrants - exercise price at 1,808
Warrants - exercise price at 1,100

Granted options/warrants 31 December:
Options/warrants - exercise price at 1,222
Options/warrants - exercise price at 1,522
Options/warrants - exercise price at 1,932
Warrants - exercise price at 1,100

150

2,400
1,875

4,275

-150

-1,875

2,400

5,406
6,346
23,582
4,725
8,600
48,659

-1,693
-1,633
-3,734
-4,725
-4,950
-16,735

3,713
4,713
19,848
3,650
31,924

2,195
1,941
1,689
1,646
2,310

662
590
431
659
669

2,893
2,594
2,182
2,308
3,016

2,857
2,531
2,120
2,979

12
12
44
11
20
99

4
4
11
4
6
29

-5
-4
-8
-15
-15
-47

11
12
47
11
81

The total provision as of December 31, 2014 for 2004 and subsequent share incentive programs has been calculated at DKK 81m (2013: 99m) and is
recognized under current liabilities.

DKKm

RECOGNITION OF PROGRAMS IN THE INCOME STATEMENT

Subsidiaries
Parent company
The Danfoss Group

2013

2014

Financial items

2013

2014

Personnel expenses

4
10
14

6
23
29

Annual Report 2014 · The Danfoss Group · Danfoss®Note 14 DEFERRED TAX

DKKm

CHANGES IN DEFERRED TAXES

Deferred taxes as of January 1 (net) *)
Additions through acquisition of subsidiaries
Foreign exchange adjustment in foreign companies
Adjustments concerning previous years
Deferred tax recognized in the income statement
Deferred tax recognized in other comprehensive income
Deferred taxes as of December 31 (net) *)

*) Liability (-)

SPECIFICATION OF DEFERRED TAXES

Intangible assets
Property, plant and equipment and financial assets
Current assets
Liabilities
Tax loss carry-forwards
Non-capitalized tax assets regarding tax losses

Set-off within the same legal entities and jurisdiction
Deferred tax assets

Intangible assets
Property, plant and equipment and financial assets
Current assets
Liabilities
Deferred tax regarding Danish joint taxation

Set-off within the same legal entities and jurisdiction
Deferred tax liabilities

2013

-549

-19
71
195
-80
-382

2014

-382
-386
9
-28
-117
100
-804

2013
Deferred
tax
asset

2014
Deferred
tax
asset

102
80
219
573
650
-185
1,439
-99
1,340

70
160
341
734
438
-197
1,546
-386
1,160

2013
Deferred
tax
liability

2014
Deferred
tax
liability

1,263
227
68
198
65
1,821
-99
1,722

1,724
204
83
275
64
2,350
-386
1,964

The tax asset related to tax loss carry-forwards of DKK 241m net (2013: 465m) is largely related to companies that have suffered tax losses in the last
three financial years. This tax asset is expected to be utilized within 3 years primarily through higher future taxable income in the respective companies.

Of the total capitalized tax asset concerning tax loss carry forwards, 14% (2013: 4%) has a remaining period of 3 years or less, whereas the share of tax loss
carry-forwards with a remaining period of 10 years or more totals 84% (2013: 77%).

The tax value of unrecognized tax assets related to tax loss carry-forwards amounts to DKK 197m (2013: 185m). The amount is not recognized as an
asset, as the tax losses carried forward are not expected to be utilized.

Of the deferred tax liability of DKK 1.964m (2013: 1.722m), DKK 64m (2013: 65m) can be attributed to taxes relating to joint taxation with foreign
subsidiaries in previous years. The Group has deferred tax liabilities concerning temporary differences in foreign subsidiaries, associates and joint
ventures of DKK 1.534m (2013: 1.131m). The liabilities are not recognized because the Group decides on their utilization and it is likely that the liabilities
will not be recognized in the foreseeable future.

Annual Report 2014 · The Danfoss Group · Danfoss®
Note 15 PENSION AND HEALTHCARE OBLIGATIONS

The major part of the Group's pension plans are defined contribution plans funded by pension and insurance companies. However, a number of
foreign subsidiaries have obligations concerning defined benefit plans which are unfunded or only partly funded.

It is the Group’s policy that pension and healthcare plans within the Group should generally be arranged as defined contribution plans. However, in
countries like the USA, the UK and Germany there is a tradition for defined benefit plans.
The defined benefit plans still open for new employees are mainly located in Danfoss Power Solutions (US) Company and Danfoss Power Solutions
GmbH & Co. OHG (Germany).
Geographical split of net liability is Germany 49% (2013: 52%), US 36% (2013: 30%) and others 15% (2013: 18%).
The pension plans are based on the individual employee´s salary and years of service in the company. The plans have no requirements for risk
diversification or for matching strategies.
A few countries may require that the liability is funded but this is not the case for the majority of the countries. Defined benefit plans that are unfunded
are mainly related to pension plans in some of the German subsidiaries and the healthcare plan in the US. Unfunded plans amount to approximately
DKK 629m (2013: DKK 535m). All material defined benefit plans have been computed by independent actuaries.

THE GROUP'S DEFINED BENEFIT PLAN OBLIGATIONS

Present value of provisions
Fair value of plan assets

Pension benefit plan assets
Pension and healthcare plan obligations

DEVELOPMENT IN THE PRESENT VALUE OF DEFINED BENEFIT PLAN OBLIGATIONS

Provision as of January 1
Additions through business combinations
Foreign exchange adjustments
Pension costs for the year
Calculated interest on plan liabilities
Actuarial gains(-)/losses from changes in demographic assumptions
Actuarial gains(-)/losses from changes in financial assumptions
Gains from reductions and redemptions
Plan participants' contribution liabilities
Disbursed benefits from the Group
Disbursed benefits from plan assets
Net transfer to provisions
Provision as of December 31

DEVELOPMENT IN THE FAIR VALUE OF PLAN ASSETS

Plan assets as of January 1
Additions through acquisition of subsidiaries
Foreign exchange adjustments
Calculated interest on plan assets
Plan participants' contribution asset
Return for the year on plan assets excluding calculated interest
Payments by the Group
Disbursed benefits
Net transfer to provisions
Plan assets as of December 31

2013

2,973
-2,085
888
42
930

2013

3,128

-76
37
115
16
-111

7
-38
-105

2,973

2013

1,941

-65
77
8
111
114
-105
4
2,085

2014

3,732
-2,537
1,195
84
1,279

2014

2,973
65
236
30
127
46
435
-3
7
-28
-117
-39
3,732

2014

2,085
28
179
95
7
198
89
-117
-27
2,537

Annual Report 2014 · The Danfoss Group · Danfoss®Note 15 PENSION AND HEALTHCARE OBLIGATIONS (continued)

EXPENSES RELATING TO PENSION AND HEALTHCARE OBLIGATIONS

2013

2014

Pension costs for the year
Calculated interest on liabilities
Calculated expected return on assets
Gains from reductions and redemptions
Expensed in the income statement

Pension cost stated under cost of sales
Pension cost stated under selling and distribution costs
Pension cost stated under administrative expenses
Other operating income and expenses
Interest concerning pension and healthcare obligations posted under financial items

ESTIMATED MATURITY OF PROVISIONS

Within 1 year
Between 1 and 5 years
After more than 5 years

PENSION PLAN ASSETS ARE SPECIFIED AS FOLLOWS:

Shares and similar securities
Listed corporate bonds
Bonds
Other

37
115
-78

13
8
15

38
74

2013

137
596
2,240
2,973

2014

1,381
501
478
177
2,537

30
127
-95
-3
59

14
6
10
-3
32
59

2014

154
660
2,918
3,732

2014

54%
20%
19%
7%
100%

2013

869
574
486
156
2,085

2013

42%
28%
22%
8%
100%

Plans in which the pension funds are invested in financial instruments are exposed to risk. 54% (2013: 42%) of the funds are invested in shares, which
have historically been subject to value fluctuations.

SIGNIFICANT ASSUMPTIONS FOR CALCULATION OF PENSION AND HEALTHCARE OBLIGATIONS AND RELATED COSTS

Discount rate
Estimated future salary increase
Estimated return on plan assets

2013

Range

2.0-9.9%
2.0-7.0%
1.5-8.0%

2013
Weighted
average

4.3%
3.6%
3.9%

2014

Range

0.8-3.9%
1.5-4.1%
2.3-5.4%

2014
Weighted
average

3.4%
3.6%
3.5%

Life expectancy is based on relevant statistics available on the individual countries included in the calculation.

The estimated return on the plan assets is based on external actuarial calculations and determined based on the composition of the assets and
considering the general expectations with regard to economic developments.

The Group expects to pay in DKK 133m to defined benefit plans in 2015 (2013: DKK 117m).

SENSITIVITY ANALYSIS

Reported defined benefit liability

Sensitivity on discount rate:
Increase in discount rate of 0.5 percentage point affects the defined benefit plan liability by
Decrease in discount rate of 0.5 percentage point affects the defined benefit plan liability by

Sensitivity regarding future salary:
Increase in future salary increase of 0.5 percentage point affects the defined benefit plan liability by
Decrease in future salary increase of 0.5 percentage point affects the defined benefit plan liability by

Sensitivity on average life expectancy:
Increase in average life expectancy of 1 year affects the defined benefit plan liability by
Decrease in average life expectancy of 1 year affects the defined benefit plan liability by

2013

2,973

-194
+216

+55
-54

+104
-103

2014

3,732

-267
+292

+53
-53

+107
-106

Annual Report 2014 · The Danfoss Group · Danfoss®Note 16 FINANCIAL RISKS AND INSTRUMENTS

FINANCIAL RISKS

Danfoss Group's rate of profitability and cash flow are exposed to financial risks, among other factors as a consequence of Danfoss' international
business profile. These risks include currency, commodity, credit, interest rate and liquidity risks. Risk management activities focus on risk coverage
and mitigation, with a particular emphasis on reducing fluctuations in the company’s cash flows and profitability in local currency within a 15
month horizon.

It is the Group's policy not to undertake active speculation regarding financial risks. The Group's financial control is therefore solely aimed at
controlling and reducing the financial risks that are a direct result of the Group's operations, investments and financing activities.

For a description of accounting policies and procedures such as applied recognition criteria and basis of measurement, please see the disclosure
under Note 25. Basis for preparation and accounting policies.

CURRENCY EXPOSURE

Currency exposure consists of three elements:

1. Transaction risk: Major consolidated risks and 15 months’ expected cash flows in foreign currency are covered on an ongoing basis except in cases
where natural hedge exists or in cases where hedge is not practically possible.

2. Translation risk: The Group is primarily exposed to EUR, USD and USD-related currencies. Danfoss does not generally cover translation risks, as
these do not directly affect the underlying cash flows. Danfoss does however in some cases reduce translation risks through financing in local
currencies.

3. Economic/structural risk (strategic risk): Economic/structural currency exposure cannot be covered effectively using financial instruments and is
therefore not part of Danfoss’ financial risk management strategy. However, it is controlled in as far as possible at a strategic level, as Danfoss aims
for products to be produced as close as possible to the customer.

NOMINAL POSITION

Receivables and payables
Cash and loans
Derivative financial instruments for hedging of fair value
Derivative financial instruments for hedging of future
cash flows

SENSITIVITY

2013

EUR
DKK

-298
-2,096
2,387

USD
DKK

-76
-1,710
-146

GBP
DKK

-4
-80
85

Total

-378
-3,886
2,326

2014

EUR
DKK

-469
-4,756
3,982

USD
DKK

-92
-386
294

GBP
DKK

-19
-181
195

Total

-580
-5,323
4,471

-340

-298

-241

-879

-2,382

-465

-366

-3,213

Probable increase in exchange rate
Hypothetical impact on profit and loss for the year
Hypothetical impact on Equity

-31

10%
-15
-223

10%

-24

-15
-278

1%
-2
-36

10%
-18
-65

10%

-37

-20
-138

A decrease in the exchange rates as stated would have had the opposite effect on the profit and equity.

COMMODITY RISK

Movements in global commodity prices can affect the Group's earnings. It is Danfoss’ policy to ensure that significant risks related to raw mate-
rials are reduced through the combination of fixed price agreements with suppliers, active price adjustment and in some cases financial hedging.
The raw material consumption is hedged for a minimum of six months and a maximum of 18 months, if they are considered essential.
Danfoss has not performed financial hedging of raw materials in 2014 nor 2013.

Annual Report 2014 · The Danfoss Group · Danfoss®Note 16 FINANCIAL RISKS AND INSTRUMENTS (continued)

CREDIT RISK

The Group’s credit risks primarily apply to trade receivables and bank deposits (the so-called counterpart risk). It is Danfoss' policy to minimize the risk
of one or several of Danfoss' financial partners not being able to fulfill a commitment. The counterparty risk is prevented, in so far as possible, by only
using solid regional and global financial partners with a minimum credit rating of "A-" according to Standard & Poors credit rating terminology.

The carrying amount of DKK 716m (2013: 737m) represents the maximum exposure risk related to cash and cash equivalents.

Trade receivables are distributed on a number of customers and geographical areas. The geographical distribution is not significantly different from
the allocation of Net sales according to note 1. Segment reporting. A systematic credit rating is carried out of customers and any provision for bad
debts is made on the basis of this credit rating. The rating also serves as the basis for the terms of payment offered to the customers. Historically, the
Group has only had limited losses on bad debts.

Ageing of trade receivables as of December 31:

Overdue less than 30 days
Overdue from 30 to 90 days
Overdue more than 90 days
Neither impaired nor overdue at the reporting date
Net carrying amount

2013

2014

74
73
13
4,268
4,428

228
94
49
4,796
5,167

The carrying amount of trade receivables is estimated to represent their fair value and the maximum credit risk as well.

INTEREST RATE RISK

The Group’s interest rate risk derives primarily from interest-bearing debt and cash funds. The Group makes use of both fixed and floating-rate loans,
as well as derivative interest rate products.

All things being equal, a reasonably likely increase in the interest rate amounting to one percentage point compared to the interest rate level on the
balance sheet date, would have had the following hypothetical impact on the profit for the year and equity at the end of the year:

Cash and debt with floating interest rates
Hedge instruments (interest swaps)

2013

Income
State-
ment

-5

2014

Income
State-
ment

-33

Equity

-5
53
48

Equity

-33
84
51

A decrease in the interest rate level amounting to one percentage point, compared to the interest rate level as of the balance sheet date, would have
had the opposite effect on the profit and the equity.

The stated sensitivities are based on the recognized financial assets and liabilities at December 31, 2014. In 2014, adjustments have not been made for
instalments, borrowing, etc. All hedging of floating-rate loans is deemed 100% effective. Furthermore the calculated expected fluctuations are based
on the current market situation and expectations for the market development in interest rate levels.

Annual Report 2014 · The Danfoss Group · Danfoss®Note 16 FINANCIAL RISKS AND INSTRUMENTS (continued)

LIQUIDITY RISK

Danfoss’ policy is to ensure at all times that the Group has the liquidity necessary to meet its obligations and to finance its planned strategic action.
The Group minimizes its liquidity risk through a combination of effective liquidity management and planning, by establishing non-terminable credit
facilities and by ensuring that cash funds are liquid and accessible. It is Danfoss' policy to have a "BBB credit rating" and to have a significant liquidity
reserve of minimum DKK 3bn and a staggered maturity profile with an average maturity profile of minimum 3 years.

At the end of 2014, Danfoss' liquidity reserve in the form of unused non-terminable long-term credit facilities was recorded at DKK 7.0bn (2013: 5.8bn).
In addition to this, Danfoss had cash and significant amounts of short-term credit lines. The Group considers the liquidity reserve to be sufficient in
relation to the current plans and the market situation in general. The Danfoss Group's loan agreements comprise no financial covenants.

The major part of the Group's cash and cash equivalents of DKK 716m (2013: 737m) is placed on short-term deposit with an interest rate below 1% p.a.

THE GROUP'S DEBT CATEGORIES AND MATURITIES

2013

Maturity

2014

g
n
y
r
r
a
C

t
n
u
o
m
a

-
c
a
r
t
n
o
C

a
u
t

w
o

l
f

h
s
a
c

3,538
1,210
88
63
3,023
10
21
7,953

3,590
1,645
89
67
3,023
10
35
8,459

r
a
e
y
1
-
0

1,738
53
44
29
3,023
10
25
4,922

)
*
s
r
a
e
y

5
-
1

5
r
e
v
O

s
r
a
e
y

g
n
y
r
r
a
C

t
n
u
o
m
a

-
c
a
r
t
n
o
C

a
u
t

w
o

l
f

h
s
a
c

1,141
113
28
38

10
1,330

711
1,479
17

2,207

10,882
1,187
63
40
3,572
12
143
15,899

11,527
1,612
63
42
3,572
12
146
16,974

Maturity

r
a
e
y
1
-
0

1,141
29
47
22
3,572
12
116
4,939

)
*
s
r
a
e
y

5
-
1

5
r
e
v
O

s
r
a
e
y

4,219
118

30
4,386

6,167
1,465
16
1

7,649

Bank debt and corporate bond
Mortgage debt
Employee bonds
Finance lease liabilities
Trade payables
Debt to associates and joint ventures
Derivative financial liabilities

*) Maturity is evenly spread over the period.

The maturity analysis is based on all non-discounted cash flows including estimated interest payments. Interest payments are estimated according to
existing market conditions. The non-discounted cash flows from derivative financial instruments are presented in gross amounts, unless the parties
have a contractual right or obligation to make net settlements. Operating lease liabilities and liabilities relating to the purchase of property, plant and
equipment are not included in this specification, but are included in Note 22. Contingent liabilities assets and security.

Non-current liabilities
Current liabilities

2013

2014

3,109
4,844
7,953

11,100
4,799
15,899

Annual Report 2014 · The Danfoss Group · Danfoss®

Note 16 FINANCIAL RISKS AND INSTRUMENTS (continued)

DKKm

FINANCIAL INSTRUMENTS BY CATEGORY

Other investments
Financial assets available-for-sale

Derivative financial instruments for the hedging of the fair value of recognized assets and liabilities
Derivative financial instruments for the hedging of future cash flows
Financial assets used as hedging instruments

Trade receivables
Other receivables
Cash and cash equivalents
Loans and receivables

Interest-bearing debt
Trade payables and other debt
Financial liabilities measured at amortized cost

Derivative financial instruments for financial hedging
Financial liabilities measured at fair value via the income statement

2013

2014

Carrying
amount Fair value

32
32

18
39
57

32
32

18
39
57

4,428
727
737
5,892

4,899
5,847
10,746

4,854
5,847
10,701

19
19

2
2

19
19

2
2

33
33

5,167
638
716
6,521

12,172
6,692
18,864

12,265
6,692
18,957

2
141
143

The value of derivative financial instruments is measured according to generally accepted valuation techniques based on relevant observable swap
prices and exchange rates. The market value of the interest-bearing debt is recognized as the present value of expected future instalment and interest
payments. The discount rate applied is the Group's current borrowing rate on loans for corresponding terms. The short-term, floating-rate debt at
banks is stated at the price of 100. The fair value of trade receivables and trade payables with short credit terms are estimated to be equal the carrying
amount. The methods applied remain unchanged compared to 2013.

FAIR VALUE HIERARCHY AS OF DECEMBER 31 FOR THE GROUP

2013

Quoted
prices
Level 1

Observ-
able
input
Level 2

Non-
observ-
able
input
Level 3

39
57

19
1
4,854
4,874

In total

39
89

19
2
4,854
4,875

2014

Quoted
prices
Level 1

Observ-
able
input
Level 2

Non-
observ-
able
input
Level 3

141

12,265
12,408

In total

141

12,265
12,408

FINANCIAL ASSETS:
Other investments
Derivative financial instruments for the hedging of the
fair value of recognized assets and liabilities
Derivative financial instruments for the hedging of
future cash flows
Total financial assets

FINANCIAL LIABILITIES:
Derivative financial instruments for the hedging of the
fair value of recognized assets and liabilities
Derivative financial instruments for the hedging of
future cash flows
Derivative financial instruments for financial hedging
Interest-bearing debt
Total financial liabilities

Annual Report 2014 · The Danfoss Group · Danfoss®Note 16 FINANCIAL RISKS AND INSTRUMENTS (continued)

DKKm

FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE BASED ON LEVEL 3

Carrying amount as of January 1
Addition through aquisition of subsidiaries
Gain/loss (-) in the income statement
Purchase
Carrying amount as of December 31

Gain/loss (-) in the income statement for assets owned as of December 31

Gain/loss (-) in the income statement is recognized under financial income and expenses.

DERIVATIVES AS OF DECEMBER 31 FOR THE GROUP

2013

2014

e
c
i
r
p
t
c
a
r
t
n
o
c

t
a

t
n
u
o
m
A

230
363
391

n
o

)
-
(

s
s
o
l
/
n
a
G

USD
EUR
Other currencies
Forward exchange contracts
Interest swaps
Other derivatives
Derivatives end of year

t
n
e
m

t
s
u
d
a
e
u
a
v

t
e
k
r
a
m

41
3
9
53
-17
-1
35

d
e
z
i
n
g
o
c
e
r

)
-
(

s
s
o
l
/
n
a
G

t
n
e
m
e
t
a
t
s
e
m
o
c
n

13
4

17
-1
-1
15

r
a
e
y
1
n
a
h
t

s
s
e

e
u
D

28
-1
9
36

s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D

-16

s
r
a
e
y
5
r
e
t
f
a
e
u
D

e
c
i
r
p
t
c
a
r
t
n
o
c

t
a

t
n
u
o
m
A

-29
1,455
-479

t
n
e
m

t
s
u
d
a
e
u
a
v

t
e
k
r
a
m

n
o

)
-
(

s
s
o
l
/
n
a
G

5
-2
-94
-91
-37
-1
-129

2013

2014

Other
invest-
ments
Level 3

32
5
-4

-4

s
r
a
e
y
5
r
e
t
f
a
e
u
D

2
2
32

s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D

-11

-11
-37
1
-47

d
e
z
i
n
g
o
c
e
r

)
-
(

s
s
o
l
/
n
a
G

t
n
e
m
e
t
a
t
s
e
m
o
c
n

3
-3
10
10

-2
8

r
a
e
y
1
n
a
h
t

s
s
e

e
u
D

13
1
-104
-90

-90

At the end of 2014, unrealized gain/loss(-) on derivatives recognized in equity amounted to DKK -137m (2013: 20m).

Forward exchange contracts are primarily used for hedging future sales in foreign currencies. Interest rate products are used to convert floating-rate
liabilities to fixed rates.

DKK 0m was taken to income in 2014 (2013: 1m) as a consequence of testing for effectiveness.

Annual Report 2014 · The Danfoss Group · Danfoss®

Note 17 CORPORATION TAX

DKKm

Corporation tax payable/receivable (-) as of January 1
Foreign exchange adjustment in foreign companies
Addition through aquisition of subsidiaries
Paid during the year
Adjustments concerning previous years
Current tax expenses in income statement
Current tax expenses in other comprehensive income
Corporation tax payable/receivable (-) as of December 31

The above corporation tax is recorded as follows:
Assets
Liabilities

Note 18 ADJUSTMENT FOR NON-CASH TRANSACTIONS

DKKm

Depreciation/amortization and impairment
Gain(-)/loss on disposal of tangible assets and business activities
Share of profit from associates and joint ventures after tax
Financial income
Financial expenses
Other, including provisions
Adjustment for non-cash transactions

Note 19 CHANGE IN WORKING CAPITAL

DKKm

Change in inventories
Change in receivables
Change in trade payables and other debt

2013

-115
-29

-1,171
106
1,129
57
-23

266
243
-23

2013

1,680
-8
-8
-33
402
254
2,287

2014

-23
-25
6
-1,107
-31
1,072
-38
-146

441
295
-146

2014

1,738
-99
187
-37
486
-293
1,982

2013

2014

-28
-359
683
296

105
-13
104
196

Annual Report 2014 · The Danfoss Group · Danfoss®Note 20 ACQUISITION AND SALE OF SUBSIDIARIES AND ACTIVITIES

On December 2, 2014, the Danfoss group paid and acquired 97.9% of the share capital and obtained control of Vacon, a producer of frequency converters.
In order to gain possession of all the shares in Vacon, Danfoss submitted an application on December 2, 2014 to the Redemption Committee of the Finland Chamber
of Commerce for the commencement of arbitration proceedings with regard to the squeeze-out procedure concerning the minority shares in Vacon. At the end of
2014 Danfoss holds 98.5% of the share capital of Vacon, and the remaining 1.5% of the share capital has or will be acquired during 2015. End of December 2014 the
remaining outstanding shares of 1.5% with a value of DKK 120m has been included in the total acquisition price with a corresponding liability in Other Debt under
Current Liabilities. The liability is calculated as the number of outstanding shares multiplied with the agreed share price of 34 EUR.

Combining the two companies will create a new drives business with the clear ambition to build a leading position in the market. The Danfoss Group also expects to
reduce cost through economies of scales.

The goodwill of DKK 5,514m arising from the acquisition is attributable to the value of staff, know-how and synergies expected from combining the operations of the
Danfoss group and Vacon. None of the goodwill recognized is expected to be deductible for income tax purposes.

The following table summarizes the consideration paid for Vacon, the fair value of assets acquired and liabilities assumed at the acquisition date.

DKKm

Intangible assets, except goodwill
Property, plant and equipment
Other non-current assets, including deferred tax assets
Inventories
Receivables
Cash and cash equivalents
Interest-bearing debts
Provisions, including deferred tax liabilities
Trade and other payables
Net assets acquired
Goodwill(-)/profit on disposal
Net assets including goodwill(-)/profit on disposal
Cash and cash equivalents
Consideration, net of cash
Change in short term payable/receivable
Minority interest
Net cash paid(-)/received

2013
Acquisitions

2014
Acquisitions

2013
Disposals

2014
Disposals

-2,033
-197
-113
-290
-636
-242
121
609
547
-2,234
-5,514
-7,748
242
-7,506
120
10
-7,376

-3
-3

-3
3

-3
-3

-3
2

-1

Included in the acquired assets are trade receivables with a fair value of DKK 566m. The gross contractual amount for trade receivables due is DKK 594m, of which
DKK 28m is expected to be uncollectible.

The initial accounting for the acquisition of Vacon is preliminary because of the short time span between the acquisition date and the time the financial statements
are authorized for issue. The acquisition has been accounted for in a preliminary manner, which in accordance with IFRS 3 will be finalized within 12 months.

Acquisition-related costs, e.g. due diligence cost, of DKK 44m have been charged to other operating expenses in the consolidated income statement for the year
ended December 31, 2014.

The Net sales included in the consolidated statement of comprehensive income since start of December 2014 contributed by Vacon PLC was DKK 260m. Vacon also
contributed Profit before tax of DKK -57m over the same period. The Profit before tax is impacted by interest as well as Purchase Price Allocation (PPA) expenses
related to reversal of inventory step-up to fair value and amortizations on intangibles assets of DKK 81m.

Had Vacon been consolidated from January 1, 2014, the combined Group Net sales would be DKK 37,160m and Profit before tax would be DKK 3,444m. The
combined Profit before tax is impacted by Vacon related interest as well as PPA expenses and amortizations of DKK 335m.

ACQUISITION AND SALE OF SUBSIDIARIES AND ACTIVITIES AFTER THE REPORTING PERIOD
There have not been any significant acquisitions and disposals of companies/activities after the reporting period.

ACQUISITION AND SALE OF SUBSIDIARIES AND ACTIVITIES 2013
The Group neither acquired nor sold any subsidiaries or activities in 2013.

Note 21 ACQUISITION(-)/SALE OF OTHER INVESTMENTS

DKKm

Sale of shares and other securities
Purchase of shares and other securities
Increase/decrease of lending

2013

73
87

2014

19
-2,256
34
-2,203

Purchase of shares and other securities is relating to purchase of shares in SMA Solar Technology AG. Further information is provided in Note 3.
Investments.

Annual Report 2014 · The Danfoss Group · Danfoss®Note 22 CONTINGENT LIABILITIES, ASSETS AND SECURITY

DKKm

SECURITY

Carrying amount of land and buildings pledged as security for bank loans and mortgages
Leasing assets pledged as security for leasing commitments
Secured loans from financial institutions

2013

706
66
1,283

2014

735
38
1,239

In connection with disposal of subsidiaries, ordinary guarantees and warranties have been issued. These guarantees and warranties are considered to
have no impact on the Group's financial position beyond what has been stated in the annual report.

CONTINGENT LIABILITIES

At the beginning of 2009 the European Commission's Directorate General for Competition along with a number of other competition authorities
initiated investigations of, among others, Danfoss Household Compressors on suspicion of breach of competition regulations. These Investigations
have all been concluded.
Civil lawsuits against Danfoss are still pending in Europe and North America, the outcomes of which are not yet known.

In addition, Danfoss A/S is party to a small number of disputes, lawsuits and legal actions, including tax disputes.
It is the view of the Management that the outcome of these legal actions will have no other significant impact on Danfoss A/S' financial position
beyond what has been recognized and stated in the Annual Report.

OPERATING LEASES (LEASE EXPENSES)
Operating lease payments fall due as follows:

Buildings:
Less than 1 year
Between 1 and 5 years
More than 5 years

Equipment etc.:
Less than 1 year
Between 1 and 5 years
More than 5 years

2013

2014

198
522
318

160
190
5

268
674
303

148
150
5

The Group expensed DKK 413m in operating lease payments in 2014 (2013: 446m) and they relate mainly to buildings and equipment. There were no
significant contingent lease payments in 2014 or 2013.

OPERATING LEASES (LEASE INCOME)
Operating lease payments fall due as follows:

Less than 1 year
Between 1 and 5 years
More than 5 years

The Group recognized operating lease income of DKK 32m in 2014 (2013: 47m). The above rentals relate mainly to buildings.

CONTRACTUAL OBLIGATIONS

Service contract commitment other than leases
Inventories
Property, plant and equipment
Hereof commitments relating to succeeding year

2013

2014

14
9
5

8
6

2013

2014

412
336
241
817

382
463
137
821

Annual Report 2014 · The Danfoss Group · Danfoss®Note 23 RELATED PARTIES

Danfoss A/S’ related parties comprise Bitten & Mads Clausen Foundation and other shareholders with significant ownership interests, cf.
Note 11. Share capital, as well as subsidiaries, associates, joint ventures, the Board of Directors, the Executive Committee and other members of
the Danfoss Leadership Team. Further, related parties comprise companies in which the above-mentioned persons have significant interests.

BITTEN & MADS CLAUSEN FOUNDATION, OTHER SHAREHOLDERS AND OTHER RELATED COMPANIES

The Bitten and Mads Clausen Foundation, which holds 46.33% of the shares in Danfoss A/S and controls 84.96% of the voting power, has the
controlling influence.

In the financial year a limited number of transactions have taken place between Bitten & Mads Clausen Foundation, its other subsidiaries and certain
shareholders of the Clausen Family. The transactions comprise of service and financial transactions and they have been made according to the arm's
length principle or on a cost covering basis. The total payment to the Danfoss Group does not exceed DKK 25m (2013: 25m). In the financial year,
Bitten & Mads Clausen Foundation did not sell shares in Danfoss A/S back to the company (2013: 100m). Around 94% of Danfoss A/S' dividend
payments is related to Bitten & Mads Clausen Foundation and shareholders of the Clausen Family.

BOARD OF DIRECTORS, EXECUTIVE COMMITTEE AND OTHER MEMBERS OF DANFOSS LEADERSHIP TEAM

In the financial year, no transactions took place with the Board of Directors, the Executive Committee or other members of the Danfoss Leadership
Team other than the transactions as a result of conditions of employment, except for the following:
The Group has a rental agreement for a property in Italy with Chairman of the Board Jørgen M. Clausen. The rental agreement runs until and
including 2017. The rent payment amounted to DKK 2m in 2014 (2013: 2m). Besides that, companies in which Peter M. Clausen and Jørgen M. Clausen
have significant ownership interests have sold goods and services of less than DKK 5m (2013: 5m) to the Danfoss Group. All transactions were
performed on an arm's length basis.

For further information about the salaries of the board and the Executive Committee see the Note 2. Expenses and other operating income, section
A. Personnel expenses and Note 13. Share incentive programs.

DKKm

TRANSACTIONS WITH ASSOCIATES AND JOINT VENTURES

Sales of goods and services
Purchases of goods and services

2013

21
91

2014

177
128

Transactions besides the above transactions with joint ventures and associates are described in Note 3. Investments, Note 4. Financial income, Note 5.
Financial expenses and Note 16. Financial risks and instruments.

Note 24 EVENTS AFTER THE BALANCE SHEET DATE

Subsequent to December 31, 2014 there have been no further events with any significant effect on the financial statements beyond what has been
recognized and disclosed in the Annual Report.

Annual Report 2014 · The Danfoss Group · Danfoss®Note 25 BASIS FOR PREPARATION AND ACCOUNTING POLICIES

Danfoss A/S is a public limited company domiciled in Denmark. The
Annual Report for the period January 1-December 31, 2014, comprises the
consolidated financial statements of Danfoss A/S and its subsidiaries (the
Group), according to the requirements of the Danish Financial Statements Act.

The consolidated financial statements and the financial statements of
Danfoss A/S have been prepared in accordance with the International
Financial Reporting Standards (IFRS) as adopted by the EU and Danish
disclosure requirements pursuant to the Danish Financial Statements Act.
Unless otherwise indicated, the Annual Report is presented in DKK rounded
to the nearest million.

The Board of Directors and the Executive Committee reviewed and
approved the Annual Report 2014 on March 24, 2015, and it will be
presented for approval at the Annual General Meeting to be held on April
24, 2015.

The annual report has been prepared on the basis of the historical cost
convention except for the following assets and liabilities, which are
measured at fair value: derivative financial instruments, financial instruments
classified as available for sale, liabilities related to share options and warrants
as well as pension and healthcare obligations. Non-current assets and
disposal Groups held for sale are measured at the lower of carrying amount
before the reclassification and fair value less costs to sell.

The accounting policies have been consistently applied in respect of the
financial year and the comparative figures.

The accounting policies are consistent with those applied in the previous
year except for the following changes:

Changes in presentation of Operating profit (EBIT) in profit and loss
Danfoss A/S has, starting from 2014, decided to include share of profit from
associates and joint ventures after tax in Operating profit (EBIT). Before 2014
it was classified below Operating Profit (EBIT).

Danfoss considers associates and joint ventures to be an integrated part of
the Group, as the shareholdings in associates and joint venture participate
in generating the operating profit of the consolidated Group. Comparison
figures for 2013 have been increased with 8 million DKK in order to reflect
this change. No key figures other than Operating profit (EBIT) are impacted.

Changes in accounting policies
Danfoss A/S has implemented the standards and interpretations that have
taken effect for 2014. None of those standards and interpretations have
affected recognition and measurement in 2014, nor are they expected to
have a material effect on Danfoss A/S in future.

Consolidated financial statements
The consolidated financial statements comprise the Parent Company,
Danfoss A/S and subsidiaries in which Danfoss A/S directly or indirectly hold
more than 50% of the voting rights or otherwise control the company’s
financial and operating policies with a view to obtaining a yield or other
benefits from its activities. Companies in which the Group has between
20% and 50% of the voting rights and exercises a significant influence, but
does not control, are considered associates or joint ventures when the joint
venture conditions of IFRS 11 are met. When assessing whether Danfoss
A/S exercises control or significant influence or joint control, potential
voting rights which can be utilized at the balance sheet date are taken into
account.

The consolidated financial statements are prepared by aggregating the
financial statements of the Parent Company and the individual subsidiaries,
which have all been prepared in accordance with t h e accounting policies
of Danfoss A/S.

Investments in subsidiaries are set off against the proportionate share of
the subsidiaries’ fair value of the identifiable net assets and recognized
contingent liabilities at the acquisition date. On consolidation, intra-Group
income and expenses, shareholdings, intra-Group balances and dividends
and realized and un-realized profits and losses on transactions between the
consolidated companies are eliminated. Unrealized losses are eliminated
in the same way as unrealized profits, provided that no impairment has
occurred.

In the consolidated financial statements, the items of subsidiaries are
recognized in full. The minority interests’ proportionate share of the profit/
loss for the year is recognized as part of the Group’s profit/loss for the year
and as a separate share of the Group’s equity.

The companies included in the Group are disclosed in the section “Danfoss
Group Companies”.

Business combinations
Newly acquired or established companies are recognized in the
consolidated financial statements from the acquisition date, and divested
companies are recognized in the consolidated income statement until the
time of divestment. Comparative figures are not restated for newly acquired
companies. Unless divested companies are classified as discontinued
operations, comparative figures are not restated.

When the Danfoss Group takes over control of acquired companies, the
purchase method is applied. This means that the identifiable assets and
liabilities, including contingent liabilities, of the acquired companies are
stated at fair value at the acquisition date.

New financial reporting regulations
A number of standards and interpretations have been issued that are not
mandatory for Danfoss A/S in the preparation of the Annual Report for 2014.

Identifiable intangible assets are recognized if they can be separated or arise
from a contractual right. The tax effect of revaluations is recognized. The
time of takeover is the day when the Danfoss Group de facto obtains control
of the acquired company.

An assessment of the impact of the standards and interpretations in
question has been initiated and the expectation is that these will not have
any material impact on the financial reporting of Danfoss. The new standards
and interpretations are expected to be implemented from their mandatory
effective dates.

Accounting policies

The consideration for a business comprises the fair value of the
consideration agreed upon, in the form of assets transferred, liabilities
assumed and equity instruments issued. If part of the consideration is
contingent on future events or in compliance with agreed conditions, that
part of the consideration is recognized at fair value at the acquisition date.
Costs attributable to business combinations are recognized directly in the
income statement when incurred.

Annual Report 2014 · The Danfoss Group · Danfoss®Note 25 BASIS FOR PREPARATION AND ACCOUNTING POLICIES (continued)

When a business is taken over in more than one transaction (step
acquisition), previously acquired investments are revalued at fair value at
the acquisition date, and value adjustments are recognized in the income
statement under other operating income or other operating expenses.
Management estimates the fair value of the total investment acquired
immediately on completion of the step acquisition. Fair value is measured at
the cost of the total investment acquired.

If uncertainty exists at the acquisition date concerning the identification
or measurement of acquired assets, liabilities or contingent liabilities, initial
recognition is made at provisional fair values. If it subsequently becomes
apparent that the fair value of identifiable assets and liabilities, including
contingent liabilities, differs from the assumed fair value at the acquisition
date, the calculation is adjusted retroactively, including goodwill, until
12 months following the acquisition. The effect of the adjustments is
recognized in the opening equity and comparative figures are restated.
Subsequently, goodwill is not adjusted. Changes in estimates of contingent
consideration are recognized directly in the income statement.

under financial items. Non-monetary assets and liabilities denominated
in foreign currencies are recognized at the foreign exchange rates at the
transaction date.

On recognition in the consolidated financial statements of companies
with a functional currency other than DKK, the income statements are
translated at the exchange rates at the transaction date, and the balance
sheet items are translated at the exchange rates at the balance sheet date.
An average exchange rate for each month is used as the exchange rate at
the transaction date to the extent that this does not significantly distort the
presentation of the underlying transactions. Foreign exchange differences
arising on translation of the opening balance of equity of such enterprises
at the exchange rates at the balance sheet date and on translation of the
income statements from the exchange rates at the transaction date to the
exchange rates at the balance sheet date are recognized directly in equity
under a separate translation reserve. The foreign exchange adjustment is
allocated between the equity of the Parent Company and of the minority
shareholders.

Any excess of the cost over the fair value of the identifiable assets and
liabilities, including contingent liabilities (goodwill), is recognized as goodwill
under intangible assets. Goodwill is not amortized, but is subject to annual
impairment tests. The initial impairment test is carried out before the end
of the acquisition year. Upon acquisition, goodwill is allocated to the cash-
generating units, which form the basis for subsequent impairment tests.
Identification of cashgenerating units is based on the Group’s cash flows, in
accordance with the structure in the internal financial reporting. Such cash
flows do not always follow the legal structure of the Group.

Goodwill and fair value adjustments related to the acquisition of a foreign
unit with a functional currency other than the Danfoss Group’s presentation
currency are treated as assets and liabilities belonging to the foreign unit
and converted to the functional currency of the foreign unit at the exchange
rate on the transaction day.

Foreign exchange adjustments of balances which are considered part of
the total net investment in companies with a different functional currency
than DKK are recognized directly in the equity under a separate reserve
for foreign exchange adjustments. Likewise, foreign exchange gains or
losses are recognized in the consolidated financial statements (directly
in the equity under a separate reserve for foreign exchange adjustments)
concerning the part of loans and derivative financial instruments, which
has been allocated for currency hedging of net investments made in these
companies and which effectively protects against similar currency rate gains
or losses on net investments in the company.

On disposal of wholly-owned foreign units, the foreign exchange
adjustments which have been accumulated in equity via other
comprehensive income and which can be ascribed to the unit are
reclassified from “Translation reserve” to the income statement, together
with any gains or losses from the disposal.

Gain or loss on disposal of subsidiaries, associates or joint ventures are stated
as the difference between the sales amount or the disposal amount and the
carrying amount of net assets, including goodwill at the date of disposal, less
disposal costs.

On disposal of partially-owned foreign subsidiaries, the part of the
translation reserve related to minority interests is not recognized in the
income statement.

Minority interests
On initial recognition, minority interests are measured either at fair value
or at their proportionate share of the fair value of the acquired company’s
identifiable assets, liabilities and contingent liabilities. In the case of the
former, goodwill is recognized in respect of the minority interests’ ownership
share in the acquired company, whereas in the latter case, goodwill is not
recognized as a part of minority interests. The measurement of minority
interests is determined for each transaction and stated in the notes under
the description of acquired companies.

Foreign currency translation
For each of the reporting enterprises in the Group, a functional currency
is determined. The functional currency is the currency used in the
primary financial environment in which the reporting enterprise operates.
Transactions denominated in currencies other than the functional currency
are considered transactions denominated in foreign currencies. On initial
recognition, transactions denominated in foreign currencies are translated
to the functional currency at the exchange rates at the transaction date.
Monetary assets and liabilities denominated in foreign currencies are
translated at the exchange rates at the balance sheet date. Currency gains
and losses arising on translation are recognized in the income statement

Repayments of balances, which are considered part of the net investment,
are not considered a partial disposal of the subsidiary.

Income statement

Net sales
Net sales of goods for resale and finished goods are recognized in the
income statement, provided that delivery and transfer of risk to the
purchaser has taken place before the year end, and that the income can be
reliably measured and payment is expected to be received. Net sales are
measured at the fair value of the consideration agreed, excluding VAT, duties
and discounts in relation to the sale. Related service income is recognized
in the income statement as the services are performed. Accordingly, the
recognized sale corresponds to the sales value of the work performed
during the year. The sale of services is recognized in the income
statement when the aggregated income and expenses of the service
contract can be reliably measured, and it is probable that the Group will
receive the financial benefits, including payments.

Cost of sales
Cost of sales comprises costs incurred in generating the year’s net sales.

Annual Report 2014 · The Danfoss Group · Danfoss®Note 25 BASIS FOR PREPARATION AND ACCOUNTING POLICIES (continued)

Such costs include cost of sales or manufacturing costs, including direct and
indirect costs for raw materials and consumables, wages and salaries, rent
and leases, and depreciation.

can cover cost of sales, selling and distribution costs and administrative
expenses and development costs. Other development costs are recognized
in the income statement when incurred.

Research and development cost
Research and development costs include costs that do not qualify for
capitalization including costs, like wages and salaries and consumables.

Selling and distribution costs
Selling and distribution costs comprise costs related to distribution of
products sold during the year and sales staff, advertising and exhibition
expenses etc., including depreciation. Furthermore, provisions for bad debt
are included.

Administrative expenses
Administrative expenses comprise expenses in relation to administrative
staff, management, office premises, office expenses etc., including
depreciation.

Other operating income and expenses
Other operating income and expenses comprise items secondary to the
principal activities of the companies, including gains/losses on disposal
of non-current assets and companies, impairment losses and employee
termination expenses.

Share of profit from investments in associates and joint ventures
The proportionate share of the results of associates and joint ventures after
tax is recognized in the consolidated income statement after elimination
of the proportionate share of intra-Group profits/losses and less goodwill
impairment.

Financial income and expenses
Financial income and expenses comprise interest income and expenses,
realized and unrealized gains and losses on securities, debt and transactions
denominated in foreign currencies, amortization of financial assets and
liabilities and surcharges and refunds under the Tax Prepayment Scheme etc.
Also included is the interest element of finance leases and gains and losses
on derivative financial instruments which are not designated as hedging
arrangements.

Borrowing costs incurred in relation to general borrowing activities or loans
which relate directly to the purchase, construction or development of
qualifying assets, are allocated to the cost of such assets.

Balance sheet

Intangible assets

Goodwill
Goodwill is initially recognized in the balance sheet at cost and allocated to
cash-generating units as described under “Business combinations.
Subsequently, goodwill is measured at cost less accumulated impairment
losses. Goodwill is not amortized.

Development projects, software, patents and licenses
Development projects that are clearly defined and identifiable, where the
technical feasibility, sufficient resources and a potential future market or
utilization opportunity within the company is demonstrated, and where the
company intends to produce, market or use the project, are recognized as
intangible assets provided that the cost can be measured reliably and that
there is sufficient assurance that future earnings or the net selling price

Recognized development projects are measured at cost less accumulated
amortization and impairment. Cost includes direct and indirect expenses,
including salaries and borrowing costs incurred from specific and general
borrowing directly pertaining to the development of development projects.

Completed development projects, including software, are generally
amortized on a straight-line basis over 4 to 5 years. Development projects in
progress are not amortized, but are annually tested for impairment.

Patents and licenses are measured at cost less accumulated amortization
and impairment. Patents are amortized on a straight-line basis over the
patent period and licenses are amortized over the shorter of the contract
period and the useful life. Patent and contract periods are normally 5-10
years.

Other intangible assets
Other intangible assets, including intangible assets acquired in a business
combination, which typically comprise technology and customer relations,
are amortized on a straight-line basis over the expected useful life, which is
typically a period of 10 to 20 years. Intangible assets, including trademarks,
with indefinite useful lives are not amortized, but are tested annually for
impairment.

Gains and losses on the disposal of intangible assets are determined as
the difference between the selling price less costs to sell and the carrying
amount at the selling date. Gains or losses are recognized in the income
statement under Other operating income or Other operating expenses.

Property, plant and equipment
Land and buildings, plant and machinery and equipment are measured at
cost less accumulated depreciation and impairment losses.

Cost comprises the purchase price, expenses for materials, components,
sub-suppliers, direct salary expenses, borrowing costs incurred from specific
and general borrowing which directly pertain to the construction of the
individual asset and for self-produced assets as well as indirect construction
costs. Where individual components of an item of property, plant and
equipment have different useful lives, they are accounted for as separate
items, and depreciated separately.

Subsequent costs, e.g. in connection with replacement of components
of property, plant and equipment, are recognized in the carrying amount
of the asset, if it is probable that the costs will result in future economic
benefits. All costs incurred for ordinary repairs and maintenance are
recognized in the income statement as incurred.

Depreciation is provided on a straight-line basis over the expected useful
lives, which are as follows:

Buildings and building components
Plant and machinery
Equipment

15-30 years
4-10 years
2-6 years

The depreciable amount of an asset is determined based on the residual
value of the asset less any impairment charges. The residual value is
determined at the acquisition date and reassessed annually. If the
residual value exceeds the carrying amount of the asset, depreciation is

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discontinued. When changing the depreciation period or the residual value,
the effect on the depreciation is recognized prospectively as a change in
accounting estimates.

Depreciation is recognized in the income statement under Costs of sale,
Distribution costs or Administrative expenses.

Gains and losses on disposal of property, plant and equipment are
determined as the difference between the selling price less costs to sell and
the carrying amount at the selling date. Gains or losses are recognized in
the income statement under other operating income or other operating
expenses.

The cost of assets held under finance leases is recognized at the acquisition
date at the lower of fair value of the assets and the present value of the
future lease payments. For the calculation of the net present value, the
interest rate implicit in the lease or the Group’s alternative interest rate is
used as discount rate. Assets held under finance leases are depreciated and
amortized like other property, plant and equipment.

any costs of completion and selling (net realizable value) is lower than
cost, inventories are written down to this lower value. Cost is calculated
on the basis of the weighted average method or the FIFO method. The
cost of work in progress and finished goods comprises the cost of raw
materials and consumables, conversion costs and other costs directly or
indirectly attributable to the goods. Indirect production overheads comprise
maintenance and depreciation of production facilities and plant as well as
administration and management of factories.

Receivables
Receivables are measured at amortized cost. Receivables are written
down for bad debt losses in case of evidence of impairment on the basis
of customers’ anticipated ability to pay and expectations of any changes
to this ability, taking into account historical payment patterns, terms of
payment, customer segment, creditworthiness and prevailing market
conditions in the individual markets. Impairment losses are calculated as the
difference between carrying amount and present value of expected cash
flows, including the expected realizable value of any collateral provided.
The discount rate is the effective interest rate used at the time of initial
recognition of the receivable.

Assets held under operating leases are systematically expensed over the
lease period.

Equity

Impairment of non-current assets
Goodwill and intangible assets with indefinite useful lives are tested annually
for impairment, initially before the end of the acquisition year. Similarly,
development projects in progress are subject to an annual impairment test.
Deferred tax assets are subject to annual impairment tests and are recognized
only to the extent that it is probable that the assets will be utilized.

The carrying amount of other non-current assets is tested annually for
evidence of impairment. When there is evidence that assets may be
impaired, an impairment test is made. Impairment is tested by calculating
the recoverable amount. The recoverable amount is the higher of an asset’s
fair value less expected costs to sell and its value in use. The value in use
is determined as the present value of expected future cash flows from the
asset or the cash-generating unit (CGU). If the fair value or value in use
cannot be determined on individual assets, the recoverable amount is
determined as the fair value of expected future cash flows from activities or
the cash-generating unit (CGU) to which the asset belongs.

Impairment losses are recognized in the income statement if the carrying
amount of an asset or a cash-generating unit exceeds the recoverable
amount.

Impairment of assets is reversed to the extent of changes in the assumptions
and estimates underlying the impairment calculation. Impairment is only
reversed to the extent that the asset’s new carrying amount does not exceed
the carrying amount of the asset after depreciation or amortization, had the
asset not been impaired. However, impairment of goodwill is never reversed.

Financial assets
Investments in associates and joint ventures are measured in the consolidated
financial statements according to the equity method at the proportionate
share of the enterprises including additional value from acquisitions, including
goodwill and deduction or addition of proportionate shares of unrealized
intra-group profits and losses. Investments in associates and joint ventures are
tested for impairment, when evidence of impairment exists.

Inventories
Inventories are measured at cost. Where the estimated selling price less

Share capital
The share capital comprises the nominal portion of the amounts paid in
accordance with the subscription for shares. Share capital can only be
released according to the rules relating to capital reduction.

Share premium
Share premium comprises amounts not included in the nominal share
capital which have been paid by the shareholders in connection with capital
increases, and gains and losses from the sale of treasury shares. The reserve
is part of the company’s free reserves.

Reserve for proposed dividends
Dividends are recognized as a liability at the date when they are adopted at
the Annual General Meeting. Proposed dividends for the financial year are
included in equity under proposed dividends.

Hedging reserve
In connection with hedging of future sales and purchase transactions
(cash flows), changes in the fair value of instruments qualifying for hedge
accounting (documentation etc.) are recognized in the statement of
comprehensive income under hedging reserve, until the hedged transaction
is realized. The recognized changes in the fair value are recognized in the
hedging reserve under equity.

Translation reserve
Foreign exchange differences arising on the translation of the opening
balance of equity of foreign companies at the exchange rates at the balance
sheet date, and on translation of income statements from the exchange
rates at the transaction date to the exchange rates at the balance sheet date
are recognized directly in a separate translation reserve in the statement of
comprehensive income under the item Foreign exchange adjustments.

Foreign exchange adjustments of non-current balances with foreign
subsidiaries and associates, which are considered additions to or deductions
from the subsidiaries’ equity as well as foreign exchange adjustments
of hedging transactions for the purpose of hedging the Group’s net
investments in subsidiaries, are also recognized directly in the consolidated
statement of comprehensive income. The translation reserve in the equity

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comprises the parent company shareholders’ share of the foreign exchange
adjustments. On complete or partial disposal of a foreign entity or on
repayment of balances which constitute part of the net investment in the
foreign entity, the share of the cumulative amount of the exchange
differences recognized in other comprehensive income relating to that
foreign entity is recognized in the income statement when the gain or loss
on disposal is recognized..

Reserve for treasury shares
The reserve for treasury shares comprises the acquisition cost for the
company’s portfolio of treasury shares. The dividend from treasury shares is
recognized directly in the retained earnings in equity. Gains and losses from
the sale of treasury shares are recognized in share premium.

Provisions
A provision is recognized in the balance sheet when the Group has a legal
or constructive obligation as a result of a past event in the financial year or
previous years, and it is probable that the settlement of the obligation may
lead to an outflow of the Group’s financial resources which can be reliably
measured at the balance sheet date. The amount recognized as a provision
is Management’s best estimate of the expenses required to settle the
obligation. In measuring provisions, the costs required to settle the liability
are discounted if the effect is material to the measurement of the liability.

For the measurement, a pre-tax discount factor is used which reflects the
current market interest rate level and the specific risks related to the liability.
Changes in present values for the financial year are recognized under
financial expenses.

Warranty provisions are recognized as the underlying goods and services are
sold based on warranty costs incurred in the financial year and in previous
years.

Provisions for restructuring and employee termination costs are made when
the Group has agreed on a detailed and formal plan, and the Group has
started implementing the plan or has announced the plan to the persons
affected. Restructuring provisions do not include costs for the ongoing
operations during the restructuring phase.

Share-based remuneration
The Board, Executive Committee and several senior employees are covered
by option and warrant schemes based on the Parent Company’s shares.

The value of services received in exchange for granted options/warrants is
measured at the fair value of the options/warrants.

For share options and warrants where the option or warrant holder has the
right to receive cash settlement of the option or warrant, fair value of the
instruments is initially measured at the grant date and recognized in the
income statement as personnel costs over the vesting period.

Subsequently, the fair value of the instruments is measured at the balance
sheet date and changes in fair values are recognized in the income
statement under financial items.

On initial recognition of the share options and warrants, the Company
estimates the number of options and warrants expected to vest, cf. the
service condition described in note 13 Share incentive programs. That
estimate is subsequently revised for changes in the number of options
expected to vest. Accordingly, recognition is based on the number of
options ultimately vested.

The fair value of granted instruments is measured based on the Black-
Scholes model (warrant and option pricing model) taking into account the
terms and conditions upon which the instruments were granted.

Employee shares
On the granting of employee shares, any bonus element is recognized as
an expense under personnel costs. The counter entry is recognized directly
in equity. The bonus element is determined at the subscription date as the
difference between the fair value and the subscription price of the shares.

Pension obligations and defined benefit healthcare plans
The Group has entered into pension schemes and similar arrangements with
the majority of the Group’s employees. In addition, the Group has healthcare
plans contributing with payment for medical expenses for certain employee
Groups in the USA after their retirement.

Contributions to defined contribution plans, where the Group currently
pays fixed pension payments to independent pension funds, are recognized
in the income statement in the period to which they relate, and any
contributions outstanding are recognized in the balance sheet as other
debt.

For defined benefit pension and healthcare plans, the Group is under an
obligation to pay a specific benefit upon retirement (e.g. a fixed amount or a
percentage of the exit salary). For these plans, an annual actuarial calculation
(Projected Unit Credit method) is made of the present value of future
benefits under the defined benefit plan. The present value is determined on
the basis of assumptions about the future development in variables such
as salary levels, interest rates, inflation and mortality. The present value is
determined only for benefits earned by employees from their employment
with the Group. The actuarial present value less the fair value of any plan
assets is recognized in the balance sheet under pension and healthcare
obligations.

Pension and healthcare costs for the year are recognized in the income
statement based on actuarial estimates and financial expectations at the
beginning of the year. Any difference between the expected development
in assets and liabilities and realized amounts determined at year end
constitutes actuarial gains or losses and is recognized directly in other
comprehensive income. If changes in benefits relating to services rendered
by employees in previous years result in changes in the actuarial present
value, the changes are recognized as past service costs. Past service costs
are recognized immediately, provided that the benefits have already vested.
If the benefits have not vested, the past service costs are expensed in the
income statement over the period in which the changed benefits vest.

If a pension or healthcare plan constitutes a net asset, the asset is only
recognized if it offsets future refunds from the plan or will lead to reduced
future payments to the plan.

Other long-term employee benefits
Similarly, other long-term employee benefits are recognized based on an
actuarial calculation. However, actuarial gains and losses are recognized in
the income statement immediately. Other long-term employee benefits
include jubilee benefits.

Financial liabilities
Financial liabilities are initially recognized at fair value less transaction
costs. Subsequently, they are measured at cost/amortized cost. Amortized
cost implies the recognition of a constant effective interest rate to
maturity. Amortized cost is calculated as initial cost less any principal

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repayments and plus or less the cumulative amortization of any difference
between cost and nominal amount. Any capitalized residual obligation on
finance leases is recognized in the balance sheet as a liability. The interest
element of the lease payment is expensed in the income statement under
financial items.

Corporation tax and deferred tax
Companies belonging to Danfoss A/S are generally liable to pay tax in the
countries where they are domiciled. The current tax includes both Danish
and foreign income taxes.

Income statement
The current and deferred taxes for the year are recognized in the income
statement, except for tax related to transactions recognized in the statement
of comprehensive income or directly in equity.

Surcharges, premiums and refunds relating to tax payments are recognized
in financial income and expenses.

Balance sheet
Current tax payable and receivable are recognized in the balance sheet
as tax computed on the taxable income for the year, adjusted for tax paid
under the tax prepayment scheme. Deferred tax liabilities and deferred tax
assets are measured according to the balance sheet liability method, which
means that all temporary differences between the carrying amount and
the tax base of assets and liabilities are recognized in the balance sheet
as deferred tax liabilities and deferred tax assets, respectively. Exceptions
are any tax incurred by selling shares in subsidiaries and which the Group
can identify as being a tax liability and tax relating to goodwill which is
not deductible for tax purposes. Deferred tax assets are recognized at the
expected value of their utilization; either as a set-off against tax on future
income or as a set-off against deferred tax liabilities in the same legal tax
entity and jurisdiction. Adjustment is made for deferred tax resulting from
elimination of unrealized intra-Group profits and losses. Deferred tax is
measured according to the tax rules and at the tax rates applicable in the
respective countries at the balance sheet date when the deferred tax is
expected to crystallize as current tax.

Derivative financial instruments
Derivative financial instruments, such as forward exchange contracts or
options and commodity contracts, are recognized and measured at fair
value. Positive and negative fair values of derivative financial instruments
are shown as separate items in the balance sheet. Set-off of positive and
negative values is only made when the Company has the right and the
intention to settle several financial instruments net.

Provided that the documentation requirements etc. are met, hedge
accounting is applied to the instruments. In connection with hedging of
future sales and purchase transactions (cash flows), changes in the fair
value of instruments qualifying for hedge accounting are recognized in the
statement of comprehensive income under the hedging reserve until the
hedged transaction is realized.

At this point, gains or losses relating to such hedging transactions are
transferred from the statement of comprehensive income and are
recognized in the same item as the hedged transaction. If the instruments
do not qualify for hedge accounting, changes in market value are
recognized directly in the income statement under financial items.

and financing activities for the year, and cash equivalents at the beginning
and the end of the year. The cash flow effect of acquisitions and disposals of
companies is shown separately under cash flows from investing activities.

Cash flows relating to acquired companies are recognized in the statement
of cash flows at the acquisition date, and cash flows relating to divested
companies are included until the disposal date.

Cash flows from investing activities
Cash flows from investing activities comprise payment in connection
with the acquisition and disposal of companies and activities, intangible
assets and property, plant and equipment as well as securities classified as
investing activities. Acquisitions of assets under finance leases are treated as
non-cash transactions.

Cash flows from financing activities
Cash flows from financing activities comprise changes in the size or
composition of the share capital, the raising and repayment of long-term
and short-term bank debt, acquisition of minority interests, acquisition and
disposal of treasury shares and payment of dividends to shareholders.

Cash flows from operating activities
Cash flows from operating activities are calculated according to the indirect
method on the basis of profit before tax/profit before tax from continuing
operations and adjusted for non-cash operating items, changes in working
capital, paid financial items, received dividend and paid corporation taxes.

Cash and cash equivalents
Cash and cash equivalents comprise bank account deposits and cash
balances.

Segment information
The segment information applies to the internal management reporting and
is prepared according to the Group’s accounting policies. Segment income,
expenses, assets and liabilities comprise those items which can be allocated
on a reliable basis. Items which are not allocated primarily include income
and expenses incurred by corporate functions, deferred tax (assets and
liabilities), receivable and payable tax, cash and interest-bearing liabilities.

Non-current segment assets are those non-current assets which are used
directly for segment operations, including intangible assets and property,
plant and equipment as well as investments in associates and joint ventures.
Current assets are those current assets which are used directly for segment
operations, including inventories, trade receivables and other receivables.

Segment liabilities comprise both non-current and current liabilities derived
from segment operations, including trade payables, other debt and warranty
obligations as well as other provisions.

Trade between segments takes place on market terms or on a cost recovery
basis.

Financial ratios
Earnings per share (EPS) and diluted earnings per share (DEPS) are calculated
in accordance with IAS 33.

Where defined, other financial ratios are calculated in accordance with the
Danish Society of Financial Analysts’ guidelines on the calculation of financial
ratios, “Recommendations and Financial Ratios 2010”.

Statement of Cash flows
The statement of cash flows shows the cash flows from operating, investing

The financial ratios in the annual report are calculated in the following

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manner:

Organic net sales growth
Sales growth adjusted for additions and disposals of companies and
exchange rate effects.

EBIT margin excluding other operating income, etc.
Operating profit excluding other operating income and expenses/Net sales

EBIT margin
Operating profit (EBIT )/Net sales

EBITDA margin
EBITDA/Net sales

EBITDA margin excluding other operating income etc.
Operating profit before depreciation, amortization, impairment
and other operating income and expenses/Net sales

EBIT after tax
Operating profit (EBIT) reduced with tax on profit

Invested Capital
Net interest bearing debt added to Shareholders Equity

Invested Capital excluding tax
Net interest bearing debt and tax balance sheet items (net)
added to Shareholders Equity

Return on Invested Capital (ROIC)
EBIT/average invested capital

Return on Invested Capital (ROIC) after tax
EBIT after tax/average invested capital excluding tax

Return on equity
Net profit after minority interests’ share/Average equity excluding minority
interests

Equity ratio
Equity/total assets

Leverage ratio
Interest bearing debt/equity at year end

Net interest bearing debt to EBITDA ratio
(Interest bearing debt less interest bearing assets)/EBITDA

EBITDA
Operating profit (EBIT ) before depreciation, amortization and impairment

Dividend pay-out ratio
Total dividends distributed to shareholders/Net profit

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Annual Report 2014 · The Danfoss Group · Danfoss®Note 26 CRITICAL ACCOUNTING ESTIMATES

Provisions
As part of its normal business policy, Danfoss provides its products with
ordinary and extended warranties. Warranty provisions are recognized based
on actual historical warranty costs and expected changes in future warranty
costs related to the Group’s products. Future warranty costs may differ
from past experience. The Company assesses other provisions, contingent
assets and contingent liabilities and the likely outcome of pending or future
lawsuits on an ongoing basis. The outcome depends on future events that are
inherently uncertain.

In assessing the likely outcome of lawsuits and tax disputes etc., Management
bases its assessment on internal and external legal assistance and common
practice. Further information is disclosed in note 12, Provisions and note 22,
Contingent liabilities, assets and security.

Defined benefit plans and healthcare obligations
The group has established defined benefit plans with certain employees at
some of the Group’s foreign companies. The plans place the group under an
obligation to pay a certain benefit in connection with retirement (e.g. in
the form of a fixed amount at retirement or a share of the employee’s exit
salary). The pension obligations are determined by discounting the pension
obligations at the present value. The present value is determined on the
basis of assumptions about the future development in economic variables
such as interest rates, inflation, mortality and disability probabilities, which
are subject to some degree of uncertainty. External actuaries are used for the
measurement of all significant defined benefit plans. The assumptions used
are disclosed in note 15, Pension plans and healthcare obligations.

As a consequence of the accounting policies, determining the carrying
amount of certain assets and liabilities requires estimates of how future events
will affect the value of these assets and liabilities at the balance sheet date.
The volatility of the global economy and the financial markets has made it
more difficult to forecast the development of some future key assumptions
– such as liquidity risk, credit risk, interest level and capital management
etc. Therefore, Danfoss provides additional information about items in the
consolidated financial statements whose carrying amount is at risk of being
adjusted considerably over the next few years. Estimates which are significant
for the preparation of the financial statements include goodwill, investments
in associates and joint ventures, assessment of depreciation, amortization
and impairment of non-current assets, measurement of deferred tax assets
and measurement of provisions and pension and healthcare obligations. The
estimates used are based on Management assumptions which are assessed to
be reliable, but which are inherently subject to uncertainty.

Accordingly, the Company is subject to risks and uncertainties which
may cause actual results to differ from these estimates. For the Group, the
measurement of intangible assets could be materially affected by significant
changes in estimates and assumptions on which the measurement is based.

Impairment of goodwill
In performing the annual impairment test of goodwill, an assessment is made
of whether the individual units of the enterprise (cash generating units) to
which goodwill relates will be able to generate sufficient positive net cash
flows to support the value of goodwill and other net assets of the unit.

Due to the nature of the Company’s operations, estimates have to be made of
expected cash flows many years into the future, which will be subject to some
degree of uncertainty. This uncertainty is reflected in the chosen discount rate.
The impairment test of goodwill and the particularly sensitive parts of the test
are described in detail in note 7 Intangible assets.

Impairment of associates and joint ventures
Danfoss performs impairment tests concerning investments in associates and
joint ventures whenever indicators for impairment are present.

Due to the nature of the operations of the investments, estimates have to
be made of expected cash flows many years into the future, which will be
subject to some degree of uncertainty. The investments in associates and joint
ventures are described in more detail in note 3 Investments.

Useful life and residual value of non-current assets
Non-current assets are measured at cost less accumulated amortization,
depreciation and impairment. Amortization and depreciation is made on a
straight-line basis over the useful lives of the assets, taking into account the
asset’s residual value. Expected useful lives and residual values are determined
based on historical experience and expectations of the future use of the non-
current assets. The expectations for future use and residual values may not
be met, which may lead to a future reassessment of useful lives and residual
values and a need for impairment write-downs or the incurrence of losses on
the disposal of the non-current assets.

The amortization and depreciation periods used are described in the
accounting policies in note 25, and the value of non-current assets is disclosed
in notes 7, Intangible assets and 8, Property, plant and equipment.

Measurement of recognized tax assets
Deferred taxes, including the tax value of tax loss carryforwards, are recognized
at their expected value. The assessment of deferred tax assets regarding tax
loss carryforwards is based on the expected future taxable income of the
respective units and the expiration date of the losses. Please see note 14,
Deferred tax assets and liabilities for unrecognized deferred tax assets.

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Annual Report 2014 · The Danfoss Group · Danfoss®GROUP COMPANIES

Per December 31, 2014
The Companies are owned 100% by Danfoss unless otherwise stated after
the company name.

EUROPE

AUSTRIA
Danfoss Gesellschaft m.b.H., Guntramsdorf
Vacon AT Antriebssysteme GmbH, Leobersdorf – 70%

BELGIUM
N.V. Danfoss S.A., Groot-Bijgaarden
Danfoss Power Solutions BVBA, Groot-Bijgaarden
Hydro-Gear Europe BVBA, Tongeren
Vacon Benelux NV/SA, Heverlee

BULGARIA
Danfoss EOOD, Sofia

CROATIA
Danfoss d.o.o., Zagreb

CZECH REPUBLIC
Danfoss s.r.o., Praha
Vacon s.r.o., Praha

DENMARK
Danfoss A/S, Nordborg (Parent company)
Danfoss Compressors Holding A/S, Nordborg
Danfoss Distribution Services A/S, Rødekro
Danfoss Power Electronics A/S, Gråsten
Danfoss International A/S, Nordborg
Danfoss IXA A/S, Vejle – 60%
Danfoss PolyPower A/S, Nordborg
Danfoss Redan A/S, Hinnerup
Danfoss Semco A/S, Odense – 60%
Gemina Termix Production A/S, Sunds
Issab Holding ApS, Nordborg
Danfoss Power Solutions ApS, Nordborg
Danfoss Power Solutions Holding ApS, Nordborg
Danfoss Power Solutions Holding II ApS, Nordborg
BetterHome ApS, Frederiksberg – 25%
DecuTech ApS (being dissolved) – 23%
Vacon Drives A/S, Sønderborg

ESTONIA
Danfoss AS, Tallinn
Proekspert AS, Tallinn – 75%

FINLAND
Oy Danfoss Ab, Espoo
Danfoss Power Solutions Oy Ab, Espoo
Vacon Plc, Vaasa

FRANCE
Avenir Energie, Valence
Danfoss Commercial Compressors S.A., Trévoux
Danfoss S.a.r.l., Trappes
Danfoss Power Solutions SAS, Dammarie-lès-Lys
Vacon France SAS, Saint Pierre du Perray

106

GERMANY
Danfoss Esslingen GmbH, Esslingen
Danfoss Flensburg GmbH, Flensburg
Danfoss GmbH, Offenbach/Main
Danfoss Silicon Power GmbH, Flensburg
Danfoss Werk Offenbach GmbH, Offenbach/Main
Danfoss Power Solutions GmbH & Co. OHG, Neumünster
Danfoss Power Solutions Informatic GmbH, Neumünster
Danfoss Power Solutions Holding GmbH, Neumünster
Vacon GmbH, Essen
SMA Solar Technology AG, Kassel – 20% (associated company)

GREAT BRITAIN
Danfoss Heat Pumps UK Ltd., South Yorkshire
Danfoss Limited, Denham
Danfoss UK Limited, Denham
Danfoss Randall Limited, Bedford
Senstronics Holding Ltd., London – 50% (joint venture)
Danfoss Power Solutions Ltd., Swindon
Vacon Drives (UK) Ltd, Leicestershire

HUNGARY
Danfoss Ktf., Budapest

ICELAND
Danfoss hf., Reykjavik

IRELAND
Danfoss Ireland Ltd., Dublin
DEVI HEAT Ltd., Dublin

ITALY
Danfoss S.r.l., Torino
Danfoss Power Solutions S.r.l.., Castenaso
Vacon S.r.l., Postal
Vacon SpA, Reggio Emilia

LATVIA
SIA Danfoss, Riga

LITHUANIA
Danfoss UAB, Vilnius

THE NETHERLANDS
Danfoss B.V., Rotterdam
Danfoss Power Solutions B.V., Rotterdam
Vacon Benelux B.V., Gorinchem

NORWAY
Danfoss AS, Skui, Oslo
Danfoss Power Solutions AS, Skui, Oslo
Vacon AS, Holmestrand – 80%

POLAND
Danfoss Poland Sp. z.o.o., Grodzisk Mazowiecki
Danfoss Saginomiya Sp. z.o.o., Grodzisk
Mazowiecki – 50% (joint venture)
Elektronika S.A., Gdynia – 50% (joint venture)
Danfoss Power Solutions Sp .z.o.o., Wroclaw
Vacon sp. z o.o., Warsaw

Annual Report 2014 · The Danfoss Group · Danfoss®PORTUGAL
Danfoss Lda. (being dissolved), Carnaxide

ROMANIA
Danfoss s.r.l., Bucharest
Danfoss District Heating S.r.l., Bucharest

RUSSIA
Danfoss Dzerzhinsk LLC, Nizhny Novgorod
OOO Danfoss, Istra
ZAO Danfoss, Moscow
ZAO Ridan, Nizhny Novgorod
Danfoss Power Solutions LLC, Moscow
ZAO Vacon Drives, Moscow

SCHWITZERLAND
Danfoss AG, Frenkendorf

SERBIA
Danfoss d.o.o., Beograd

SLOVAKIA
Danfoss spol. S.r.o., Zlaté Moravce
Danfoss Power Solutions a.s. Povazska Bystrica

SLOVENIA
Danfoss Trata d.o.o., Ljubljana

SPAIN
Danfoss S.A., Madrid
Danfoss Power Solutions S.A., Madrid
Vacon Drives Ibérica S.A., Terrassa

SWEDEN
Danfoss AB, Linköping
Danfoss Värmepumpar AB, Arvika
Danfoss East Investment AB, Linköping
EP Technology AB, Malmö
Danfoss Power Solutions AB, Solna
Vacon AB, Solna

TURKEY
Danfoss Otomasyon ve Urunleri Tic Ltd., Istanbul
Vacon Motor Kontrol Sis. Ltd. Sti., Istanbul

UKRAINE
Danfoss T.o.v., Kiev

NORTH AMERICA

CANADA
Danfoss Inc., Mississauga, Ontario
Turbocor Inc., Dorval
Vacon Canada Inc., Stratford, Ontario

MEXICO
Danfoss Industries S.A. de C.V., Apodaca, Monterrey
Danfoss S.A. de C.V., Monterrey
Vaasa Control de Mexico, Mexico City

USA
Danfoss LLC, Baltimore
Danfoss Turbocor Compressors Inc., Tallahassee, Florida
Hydro-Gear Inc., Sullivan, Illinois – 60%
Hydro-Gear Limited Partnership, Sullivan, Illinois – 60%
Danfoss Power Solutions (US) Company, Ames, Iowa
Danfoss Power Solutions Inc., Ames, Iowa
Vacon Inc., Chambersburg, Pennsylvania

SOUTH AMERICA

ARGENTINA
Danfoss S.A., Buenos Aires

BRAZIL
Danfoss do Brasil Indústria e Comércio Ltda., São Paulo
Danfoss Power Solutions Ltda., São Paulo
Vacon America Latina Ltda., São Paulo – 97%

CHILE
Danfoss Industries Ltda., Santiago

COLOMBIA
Danfoss S.A., Santiago de Cali

VENEZUELA
Danfoss S.A., Valencia

AFRICA

SOUTH AFRICA
Danfoss (Pty) Ltd., Rivonia, Johannesburg
Elsmark Investment Holdings (Pty) Limited in liquidation, Johannesburg

ASIA

PHILIPPINES
Danfoss Inc., Manila

UNITED ARAB EMIRATES
Danfoss FZCO, Dubai

107

Annual Report 2014 · The Danfoss Group · Danfoss®AUSTRALIA

AUSTRALIA
Danfoss (Australia) Pty. Ltd., Mt. Waverly
Danfoss Power Solutions Pty. Ltd., Huntingwood
Vacon Pacific Pty Ltd, Melbourne

NEW ZEALAND
Danfoss (New Zealand) Ltd., Auckland

GROUP COMPANIES (continued)

INDIA
Danfoss Industries Pvt. Ltd., Chennai
Danfoss Power Solutions India Pvt. Ltd., Pune
Vacon Drives & Control Pvt. Ltd, Chennai

INDONESIA
PT Danfoss Indonesia, Jakarta

JAPAN
Daikin-Sauer-Danfoss Ltd., Osaka – 45%
Danfoss Power Solutions Ltd., Osaka

KAZAKHSTAN
Danfoss LLP, Almaty

CHINA
Danfoss (Anshan) Controls Co. Ltd., Anshan
Danfoss Energy Products (Guiyang) Co., Ltd., Guiyang
Danfoss Automatic Controls Management (Shanghai) Co. Ltd., Shanghai
Danfoss ( Tianjin) Limited, Tianjin
Danfoss Industries Limited, Hong Kong
Tau Energy Holdings (HK) Limited, Hong Kong
Zheijang Holip Electronic Technology Co. Ltd., Zheijang
Danfoss Plate Heat Exchanger (Hangzhou) Co., Ltd. Zheijang
Danfoss Micro Channel Heat Exchanger (Jiaxing) Co., Ltd., Haiyan
Danfoss Semco ( Tianjin) Fire Protection Equipment Co., Ltd., Tianjin – 60%
Danfoss Shanghai Hydrostatic Transmission Co. Ltd., Shanghai – 60%
Danfoss Power Solutions (Shanghai) Co. Ltd., Shanghai
Danfoss Power Solutions (Zhejiang) Co., Ltd.
Danfoss Power Solutions Trading (Shanghai) Co., Ltd.
Vacon China Drives Co. Ltd., Suzhou

MALAYSIA
Danfoss Industries Sdn Bhd, Selangor

SINGAPORE
Danfoss Industries Pte. Ltd., Singapore
Danfoss Power Solutions Pte. Ltd. Singapore
Danfoss Power Solutions China Holding Pte. Ltd., Singapore
Vacon Pte. Ltd., Singapore

SOUTH KOREA
Danfoss Ltd., Seoul
Danfoss Power Solutions Ltd., Seoul
Vacon Korea Ltd., Seoul

TAIWAN
Danfoss Co. Ltd., Tapei

THAILAND
Danfoss ( Thailand) Co. Ltd., Bangkok

108

Annual Report 2014 · The Danfoss Group · Danfoss®110

Annual Report 2014 · The Danfoss Group · Danfoss®Parent Company
Accounts and notes

111

Annual Report 2014 · The Danfoss Group · Danfoss®112

Annual Report 2014 · The Danfoss Group · Danfoss®MANAGEMENT REPORT

Management report for
Danfoss A/S (Parent company)

Danfoss A/S is the parent company of the Danfoss Group.
In addition to holding the shares of most of the other
Danfoss Group companies, an important function of the
company is to fund the Group’s activities. The company also
constitutes the corporate framework for some of Danfoss’
Danish activities and therefore includes a number of Danfoss’
Danish factories and Group functions. Danfoss A/S had 2,675
employees at the end of 2014.

Net sales in 2014 ended at DKK 8,110m, which is at the same
level as in 2013.

The profit before other operating income and expenses
was DKK 739m against DKK 759m in 2013. The company’s
operating profit was DKK 664m against DKK 724m the
previous year.

Financial income and expenses amounted to a net income
of DKK 3,722m against a net income of DKK 2,236m the
previous year. This was mainly attributable to an increase in
distributed dividends from subsidiaries.

The profit after tax in 2014 was DKK 4,327m against DKK
2,584m the previous year.

Equity stood at DKK 11,164m at the end of 2014 against
DKK 7,659m at the end of 2013. The increase was mainly
attributable to recognition of the profit for the year less
dividends paid to the owners.

In 2014, Danfoss A/S issued a 7-year corporate Euro bond of
EUR 500m under the established Euro Medium Term Note
program (EMTN).

The subsidiary Gemina Ejendomsselskab A/S and its
assets merged with Danfoss A/S in 2014. The merger was
recognized in accordance with IFRS (International Financial
Reporting Standards) in 2013, and, consequently, the
comparison figures for 2013 have been adjusted.

Danfoss A/S expects net sales for 2015 to be on a level with
the 2014 figures, and the company expects to report a profit
in 2015.

113

Annual Report 2014 · The Danfoss Group · Danfoss®INCOME STATEMENT

January 1 to December 31

DKKm

Net sales
Cost of sales
GROSS PROFIT

Research and development costs
Selling and distribution costs
Administrative expenses
OPERATING PROFIT EXCLUDING OTHER OPERATING INCOME AND EXPENSES

Other operating income and expenses
OPERATING PROFIT (EBIT)

Financial income
Financial expenses
PROFIT BEFORE TAX

Tax on profit
NET PROFIT

Attributable to:
Proposed dividends reserve
Other reserves

e
t
o
N

1
1
1

2
3

2013
8,117
-5,914
2,203

-295
-643
-506
759

-35
724

2,534
-298
2,960

-376
2,584

2014
8,110
-5,878
2,232

-225
-696
-572
739

-75
664

4,242
-520
4,386

-59
4,327

800
1,784
2,584

500
3,827
4,327

114

Annual Report 2014 · The Danfoss Group · Danfoss®STATEMENT OF COMPREHENSIVE INCOME

January 1 to December 31

DKKm

NET PROFIT

OTHER COMPREHENSIVE INCOME
Actuarial gain/loss (-) on pension and health care plans
Tax on actuarial gain/loss on pension and health care plans
Items that cannot be reclassified to profit or loss

Fair value adjustment of hedging instruments:
Hedging of future cash flows
Hedging transferred to financial expenses in the income statement
Tax on hedging instruments
Items that can be reclassified to profit or loss

OTHER COMPREHENSIVE INCOME AFTER TAX

2013
2,584

2014
4,327

-4
1
-3

-1
54
-14
39

-4
1
-3

-54
34
5
-15

-18

TOTAL COMPREHENSIVE INCOME

2,620

4,309

115

Annual Report 2014 · The Danfoss Group · Danfoss®

STATEMENT OF FINANCIAL POSITION

As of December 31

DKKm
ASSETS

NON-CURRENT ASSETS

INTANGIBLE ASSETS

PROPERTY, PLANT AND EQUIPMENT

Investments
Non-current receivables
OTHER NON-CURRENT ASSETS

TOTAL NON-CURRENT ASSETS

CURRENT ASSETS

INVENTORIES

Trade receivables external
Trade receivables from subsidiaries
Short-term loans to subsidiaries
Receivable corporation tax
Derivative financial instruments (positive fair value)
Other receivables
RECEIVABLES

CASH AND CASH EQUIVALENTS

TOTAL CURRENT ASSETS

TOTAL ASSETS

e
t
o
N

10
9

2013

2014

644

696

1,362

1,300

13,621
3
13,624

14,969

15,630

16,965

649

642

210
603
12,698
30

102
13,643

206
662
2,476

38
116
3,498

4,148

14,285

19,778

31,250

116

Annual Report 2014 · The Danfoss Group · Danfoss®STATEMENT OF FINANCIAL POSITION

As of December 31

DKKm
LIABILITIES AND SHAREHOLDERS’ EQUITY

SHAREHOLDERS’ EQUITY

LIABILITIES

Provisions
Deferred tax liabilities
Pension and healthcare benefit plan obligations
Borrowings
Derivative financial instruments (negative fair value)
Other non-current debt
NON-CURRENT LIABILITIES

Provisions
Liabilities under share incentive programs
Borrowings
Trade payables
Trade payables to subsidiaries
Borrowings from subsidiaries
Corporation tax
Derivative financial instruments (negative fair value)
Other debt
CURRENT LIABILITIES

TOTAL LIABILITIES

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

e
t
o
N

9
9

10
9

2013

2014

7,659

11,164

52
340
25
2,882
16
82
3,397

61
99
1,584
557
169
5,529
122
4
597
8,722

49
193
25
10,880
37
114
11,298

79
81
979
620
105
6,175

102
647
8,788

12,119

20,086

19,778

31,250

117

Annual Report 2014 · The Danfoss Group · Danfoss®
STATEMENT OF CASH FLOWS

January 1 to December 31

DKKm

Acquisition of intangible assets
Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment
Acquisition of subsidiaries etc.
Proceeds from disposal of subsidiaries etc.
Loans to subsidiaries
Acquisition (-)/sale of other investments etc.
CASH FLOW FROM INVESTING ACTIVITIES

FREE CASH FLOW

Cash repayment of (-)/cash proceeds from interest-bearing debt
Repurchase of treasury shares
Dividends paid to shareholders in Danfoss A/S
CASH FLOW FROM FINANCING ACTIVITIES

NET CHANGE IN CASH AND CASH EQUIVALENTS

Cash and cash equivalents as of January 1
CASH AND CASH EQUIVALENTS AS OF DECEMBER 31

The cash flow statement cannot be derived on the basis of the Annual Report alone.

e
t
o
N

2013
2,960
-1,690
195
1,465
155
-231
1,670
3,059
-487
2,572

-31
-152
84
-3,949
750
-672
31
-3,939

2014
4,386
-3,470
123
1,039
149
-192
4,095
5,091
-352
4,739

-123
-125
5
-71
-1
-9,334
-2,250
-11,899

-1,367

-7,160

1,871
-116
-396
1,359

-8

9
1

7,962
-14
-789
7,159

-1

118

Annual Report 2014 · The Danfoss Group · Danfoss®STATEMENT OF CHANGES IN EQUITY
STATEMENT OF CHANGES IN EQUITY

DKKm

BALANCE AS OF JANUARY 1, 2013
Merger with subsidiary
BALANCE AS OF JANUARY 1, 2013
Merger with subsidiary
COMPREHENSIVE INCOME IN 2013
Net profit
COMPREHENSIVE INCOME IN 2013
Other comprehensive income
Net profit
Fair value adjustment of hedging instruments
Other comprehensive income
Actuarial gain/loss (-) on pension and healthcare plans
Fair value adjustment of hedging instruments
Tax on other comprehensive income
Actuarial gain/loss (-) on pension and healthcare plans
Total other comprehensive income
Tax on other comprehensive income
Total comprehensive income for the period
Total other comprehensive income

TRANSACTIONS WITH OWNERS
Total comprehensive income for the period
Dividends to shareholders
TRANSACTIONS WITH OWNERS
Capital increase/purchase of treasury shares
Dividends to shareholders
Total transactions with owners
Capital increase/purchase of treasury shares
BALANCE AS OF DECEMBER 31, 2013
Total transactions with owners

COMPREHENSIVE INCOME IN 2014
BALANCE AS OF DECEMBER 31, 2013
Net profit
COMPREHENSIVE INCOME IN 2014
Other comprehensive income
Net profit
Fair value adjustment of hedging instruments
Actuarial gain/loss (-) on pension and healthcare plans
Other comprehensive income
Tax on other comprehensive income
Fair value adjustment of hedging instruments
Total other comprehensive income
Actuarial gain/loss (-) on pension and healthcare plans
Tax on other comprehensive income
Total comprehensive income for the period
Total other comprehensive income
TRANSACTIONS WITH OWNERS
Total comprehensive income for the period
Dividends to shareholders
Capital increase/purchase of treasury shares
TRANSACTIONS WITH OWNERS
Total transactions with owners
Dividends to shareholders
Capital increase/purchase of treasury shares
BALANCE AS OF DECEMBER 31, 2014
Total transactions with owners

L
A
T
I
P
A
C
E
R
A
H
S

1,020

L
A
T
I
P
A
C
E
R
A
H
S

M
U
M
E
R
P
E
R
A
H
S

370

M
U
M
E
R
P
E
R
A
H
S

s
e
v
r
e
s
e
r
g
n
g
d
e
H

-51

n
w
o
e
v
r
e
s
e
R

s
e
v
r
e
s
e
r
g
n
g
d
e
H

s
e
r
a
h
s

n
w
o
e
v
r
e
s
e
-275
R

s
e
r
a
h
s

1,020

370

-51

-275

-51

1,020

370

-51

-275

-14
39

2
2

39
39

-156
-156

s
e
v
r
e
s
e
r

r
e
h
t
O

s
e
v
r
e
s
e
r

r
e
h
t
O

S
E
V
R
E
S
E
R

D
E
S
O
P
O
R
P

S
D
N
E
D
V
D

S
E
V
R
E
S
E
R

D
E
S
O
P
O
R
P

S
D
N
E
D
V
D

Y
T
I
U
Q
E
L
A
T
O
T

3,756
4,082
4
4
3,756
4,082
3,760
4,086
4
4
3,760
4,086

1,784

400

800

5,546
4
5,546
5,550
4
5,550

2,584

400

1,784

1,784
53
-4
-13
36

53
-4
-13
36

-4
1
1,820
-3

800

2,584

53
-4
-13
36

800

2,620

53
-4
-13
36

-4
1
-3

1,781

1,781
4

1,820
4
-156
-152

800

-400

-396
-115
-511

2,620

1,022

2
2

409

39
39

-12

-431

-156
-156

5,871

5,428
4

800

7,659

-400

1,022

409

-12

-431

-20

5
-15

-15

-20

5
-15

-15

1
1

54
54

-70
-70

5,871

5,428

3,827

500

800

4,327

7,659

3,827

500

4,327

-4
1
-3

3,824

-20
-4
6
-18

-4
1
3,809
-3

-20
-4
6
-18

500

4,309

3,824

3,809
11
-70
-59

500

-800

-789
-15
-804

4,309

1,023

1
1

463

54
54

-27

-501

-70
-70

9,706

9,178

500

11,164

-800

-396
-115
-511

-20
-4
6
-18

-789
-15
-804

4
-156
-152

-20
-4
6
-18

11
-70
-59

BALANCE AS OF DECEMBER 31, 2014

1,023

463

-27

-501

9,706

9,178

500

11,164

119

Annual Report 2014 · The Danfoss Group · Danfoss®

Notes

Note 1 EXPENSES AND OTHER OPERATING INCOME
Note 2 FINANCIAL INCOME
Note 3 FINANCIAL EXPENSES
Note 4 TAX ON PROFIT
Note 5 INTANGIBLE ASSETS
Note 6 PROPERTY, PLANT AND EQUIPMENT
Note 7 INVESTMENTS
Note 8 DEFERRED TAX
Note 9 FINANCIAL RISKS AND INSTRUMENTS
Note 10 CORPORATION TAX
Note 11 ADJUSTMENT FOR NON-CASH TRANSACTIONS
Note 12 CONTINGENT LIABILITIES, ASSETS AND SECURITY
Note 13 RELATED PARTIES
Note 14 EVENTS AFTER THE BALANCE SHEET DATE
Note 15 GENERAL ACCOUNTING POLICIES FOR DANFOSS A/S
Note 16 SIGNIFICANT ACCOUNTING ESTIMATES FOR DANFOSS A/S

120

Annual Report 2014 · The Danfoss Group · Danfoss®Note 1 EXPENSES AND OTHER OPERATING INCOME

DKKm

A. PERSONNEL EXPENSES

Salaries and wages
Severance payments
Social security
Defined contribution plans

Average number of employees
Total number of employees as of end of the year

Board of Directors:
Directors' fees

Executive Committee:
Salaries
Pension costs re. defined contribution plans
Bonuses

Danfoss Leadership Team excluding Executive Committee:
Salaries
Pension costs re. defined contribution plans
Bonuses

Total compensation

2013

1,567
24
14
118
1,723

2,792
2,708

2014

1,654
17
14
130
1,815

2,694
2,675

2013

2014

5
5

20
7
53
80

15
2
13
30
115

6
6

23
8
52
83

11
1
8
20
109

Bonuses of total DKK 60m (2013: 66m) can be divided into long-term and short-term bonuses with DKK 25m and DKK 35m respectively
(2013: 22m and 44m respectively).

121

Annual Report 2014 · The Danfoss Group · Danfoss®Note 1 EXPENSES AND OTHER OPERATING INCOME (continued)

DKKm

B. DEPRECIATION/AMORTIZATION AND IMPAIRMENT LOSSES

Classification by nature:

Amortization of intangible assets

Depreciation of property, plant and equipment
Reversal of impairment losses on property, plant and equipment

Depreciation/amortization and impairment losses

Classification of intangible assets by functions:

Cost of sales
Selling and distribution costs
Administrative expenses

C. OTHER OPERATING INCOME AND EXPENSES

Gain on disposal of property, plant and equipment
Reversal of impairment losses on property, plant and equipment
Other
Other operating income

Loss on disposal of property, plant and equipment
Restructuring costs
Other
Other operating expenses

Other operating income and expenses

D. FEES TO AUDITORS APPOINTED AT THE ANNUAL GENERAL MEETING

Audit fee
Tax and VAT advice
Other fees
Total fee to Group Auditor

2013

2014

68
68

200

268

54
7
7
68

70
70

189
-2
187

257

45
15
10
70

2013

2014

41
46

-1
-24
-56
-81

-35

1
2
2
5

-2
-17
-61
-80

-75

2013

2014

5
2
1
8

5
6
2
13

122

Annual Report 2014 · The Danfoss Group · Danfoss®Note 2 FINANCIAL INCOME

DKKm

Dividend from subsidiaries and associates/joint ventures
Gain on disposal of shares subsidiaries and associates/joint ventures
Foreign exchange gains, net
Interest from subsidiaries
Interest from banks etc.
Gain on other investments

Interest on financial assets measured at amortized cost amounts to

Note 3 FINANCIAL EXPENSES

DKKm

Foreign exchange losses, net
Interest to banks etc.
Impairment/loss on disposal of subsidiaries and associates/joint ventures
Interest to subsidiaries
Fair value adjustment of share options and warrants
Impairment/loss on loans
Interest element on discounted liabilities
Loss on other investments

Interest on financial liabilities at amortized cost amounts to

Note 4 TAX ON PROFIT

DKKm

Current tax expense
Change in deferred tax
Adjustments concerning previous years

Tax on profit is defined as:
Tax on profit before tax
Tax exempt income/non-deductible expenses
Dividends exempt of tax
Effect of change in corporate tax rate
Other taxes
Adjustments concerning previous years
Other adjustments
Effective tax rate

Tax on profit (income statement)
Tax on fair value adjustment of hedging instruments (other comprehensive income)
Tax on actuarial gain/loss on pension and health care plans (other comprehensive income)
Total taxes

2013

1,597
548
233
149
6
1
2,534

155

2014

4,092

149
1

4,242

150

2013

2014

-164
-88
-11
-10
-26
1

-298

-174

2013

-315
-1
-60
-376

25.0%
-1.5%
-13.5%
-0.8%
1.2%
0.5%
1.8%
12.7%

2013

-376
-14
1
-389

-227
-135
-91
-29
-23
-10
-4
-1
-520

-168

2014

-206
154
-7
-59

24.5%
1.6%
-23.8%

0.9%
0.2%
-2.1%
1.3%

2014

-59
5
1
-53

123

Annual Report 2014 · The Danfoss Group · Danfoss®Note 5 INTANGIBLE ASSETS

DKKm

Cost as of January 1
Additions
Disposals
Cost as of December 31

Amortization and impairment losses as of January 1
Amortization
Disposals
Amortization and impairment losses as of December 31

Carrying amount as of December 31

Cost as of January 1
Additions
Disposals
Cost as of December 31

Amortization and impairment losses as of January 1
Amortization
Disposals
Amortization and impairment losses as of December 31

Carrying amount as of December 31

*) The amounts under Patents, trademarks are mainly related to patents.

IMPAIRMENT TESTS

2013

Goodwill

Software

Patents,
trade-
marks*)

Develop-
ment
costs

Total
Other

462

444
29
-2
471

351
34
-3
382

232
2
-2
232

161
13
-1
173

147

92
21

113

823
31
-4
850

604
68
-4
668

182

2014

Goodwill

Software

Patents,
trade-
marks*)

Develop-
ment
costs

Total
Other

462

471
36
-11
496

382
35
-10
407

232
87
-7
312

173
19
-7
185

127

147

113
16

129

850
123
-18
955

668
70
-17
721

234

TOTAL

1,285
31
-4
1,312

604
68
-4
668

644

TOTAL

1,312
123
-18
1,417

668
70
-17
721

696

Goodwill in Danfoss A/S of DKK 462m (2013: 462m) is mainly a consequence of Danfoss A/S merging together with other Danish subsidiaries,
in particular the merger with DEVI A/S in 2010. At the end of 2014, impairment tests have been performed on the carrying amount of goodwill (assets
with indefinite useful lives). The impairment tests were performed on Danfoss A/S representing the base level of cash generating units (CGUs) to which
the carrying amount of goodwill can be allocated with reasonable accuracy. The impairment test method is similar to the impairment test performed
on group level described in note 7. Intangible assets in the Danfoss group accounts.

Management does not assess that a reasonable change in the fundamental assumptions used in the impairment tests will result in a recoverable
amount lower than the carrying amount. The same conclusion was made for 2013.

124

Annual Report 2014 · The Danfoss Group · Danfoss®Note 6 PROPERTY, PLANT AND EQUIPMENT

DKKm

Cost as of January 1
Merger with subsidiary
Transfers
Additions
Disposals
Cost as of December 31

Depreciation and impairment losses as of January 1
Merger with subsidiary
Depreciation
Disposals
Depreciation and impairment losses as of December 31

Carrying amount as of December 31

Hereof assets held under finance leases

Cost as of January 1
Transfers
Additions
Disposals
Cost as of December 31

Depreciation and impairment losses as of January 1
Depreciation
Reversal of impairments for the year
Disposals
Depreciation and impairment losses as of December 31

Carrying amount as of December 31

Hereof assets held under finance leases

2013

Land and
buildings

Plant and
machinery

Equipment

Assets under
construction

TOTAL

1,664
24
19

-3
1,704

1,040
13
38
-3
1,088

616

2,253

46
2
-151
2,150

1,937

103
-143
1,897

253

-78
148
-2
147

147

786

13
20
-227
592

343

59
-156
246

346

2014

Land and
buildings

Plant and
machinery

Equipment

Assets under
construction

1,704
59
10

1,773

1,088
42

1,130

643

2,150
41
24
-34
2,181

1,897
90
-2
-31
1,954

227

147
-112
76

111

592
12
18
-3
619

246
57

-3
300

319

4,782
24

170
-383
4,593

3,320
13
200
-302
3,231

1,362

TOTAL

4,593

128
-37
4,684

3,231
189
-2
-34
3,384

1,300

The financial leases mainly concern IT equipment. The leased assets are pledged as collateral for the lease liabilities.

125

Annual Report 2014 · The Danfoss Group · Danfoss®Note 7 INVESTMENTS

DKKm

2013

s
t
n
e
m

t
s
e
v
n

s
e
i
r
a
d
i
s
b
u
s

9,837
-2
3,949
-205
13,579

-911

18
-107

-1,000

Costs as of January 1
Merger with subsidiaries
Additions
Disposals
Costs as of December 31

Adjustments as of January 1
Value adjustment
Reversed impairment
Impairment for the year
Disposal
Adjustments as of December 31

s
e
b
a
v
e
c
e
R

s
e
i
r
a
d
i
s
b
u
s

m
o
r
f

1,003

-32
971

Carrying amount as of December 31

12,579

971

s
t
n
e
m

t
s
e
v
n

d
n
a
s
e
t
a
c
o
s
s
a

s
e
r
u
t
n
e
v

t
n
o

155

2
-49
108

-89

3
-1
19
-68

s
t
n
e
m

t
s
e
v
n

r
e
h
t
O

133

134

-104
1

-103

L
A
T
O
T

11,128
-2
3,952
-286
14,792

-1,104
1
21
-108
19
-1,171

2014

s
t
n
e
m

t
s
e
v
n

s
e
i
r
a
d
i
s
b
u
s

s
t
n
e
m

t
s
e
v
n

d
n
a
s
e
t
a
c
o
s
s
a

s
e
i
r
a
d
i
s
b
u
s

m
o
r
f

s
e
b
a
v
e
c
e
R

s
e
r
u
t
n
e
v

t
n
o

s
t
n
e
m

t
s
e
v
n

r
e
h
t
O

L
A
T
O
T

13,579

971

108

134

14,792

13,650

-1,000

17
-109

-1,092

83
-971
83

2,258
-20
2,346

-68

16
-48

2,412
-991
16,213

-1,171
-1
21
-109
16
-1,244

134

-103
-1

-104

13,621

12,558

2,298

14,969

Where possible, "Other investments" are recognized at fair value. Alternatively, they are recognized at cost less accumulated impairment losses.

At the end of 2014, impairment tests were performed on the carrying amount of "Investments in subsidiaries, associates and joint ventures", if indicators
for impairment were present. Main indicators are loss giving activities, or if the carrying amount is higher than the equity in the local accounts or,
where relevant, higher than valuation using a listed share price. When performing the impairment test, the present value of cash flow from subsidiaries,
associates and joint ventures is compared with their carrying amount. The principles are unchanged compared to the impairment tests performed
in 2013.

Impairment losses for the year on "Investments in subsidiaries" of DKK 109m mainly relates to Danfoss PolyPower A/S (Denmark) and
Danfoss District Heating S.r.l (Romania). The impairment losses are mainly due to that the entities in question have been loss making.
Impairment losses are reported as financial expenses.

Additions for the year to "Investments in subsidiaries" is mainly capital injection in Danfoss Power Solutions Holding II ApS (Denmark).

Additions for the year to "Investments in associates and joint ventures" relates to the acquisition of SMA Solar Technology AG.
Disposal for the year of "Investments in associates and joint ventures" mainly relates to the sale of Promeos GmBH.

Impairment losses for 2013 on "Investments in subsidiaries" of DKK 107m mainly relates to Tau Energy Holdings (Hong Kong) Limited and Avenir
Energie (France). The impairment losses are mainly due to that the entities in question have been loss making. Impairment losses are reported as
financial expenses.

Additions for 2013 to "Investments in subsidiaries" is mainly the acquisition of the remaining shares in Sauer-Danfoss Inc.
Disposal for 2013 of "Investments in associates/joint ventures" relates to the sale of Danfoss Sanhua Micro Channel Heat Exchanger Co Ltd.

Further information on subsidiaries, associates and joint ventures is provided in the Notes 2. Financial income, 3. Financial expenses, 9. Financial risks
and instruments and 13. Related parties.

126

Annual Report 2014 · The Danfoss Group · Danfoss®

Note 8 DEFERRED TAX

DKKm

CHANGES IN DEFERRED TAXES

Deferred taxes as of January 1 (net) *)
Adjustments concerning previous years
Deferred tax recognized in the income statement
Deferred tax recognized in other comprehensive income
Deferred taxes as of December 31 (net) *)

*) Liability (-)

SPECIFICATION OF DEFERRED TAXES

Liabilities

Set-off within the same legal entities and jurisdiction
Deferred tax assets

Intangible assets
Property, plant and equipment and financial assets
Current assets
Liabilities
Deferred tax regarding Danish joint taxation

Set-off within the same legal entities and jurisdiction
Deferred tax liabilities

2013

2014

-324
-16
-1
1
-340

-340
-7
154

-193

2013
Deferred
tax
asset

63
63
-63
0

2013
Deferred
tax
liability

41
101
20
176
65
403
-63
340

2014
Deferred
tax
asset

114
114
-114
0

2014
Deferred
tax
liability

51
101
17
74
64
307
-114
193

Of the deferred tax liability of DKK 193m (2013: 340m), DKK 64m (2013: 65m) can be attributed to taxes relating to joint taxation with foreign subsidiaries
in previous years. Danfoss A/S has deferred tax liabilities concerning temporary differences in foreign subsidiaries and associates and joint ventures of
DKK 395m (2013: 403m). The liabilities are not recognized because Danfoss A/S decides on their utilization and it is likely that the liabilities will not be
recognized in the foreseeable future.

127

Annual Report 2014 · The Danfoss Group · Danfoss®Note 9 FINANCIAL RISKS AND INSTRUMENTS

DKKm

FINANCIAL INSTRUMENTS

Relevant financial instrument specifications have been made below regarding Danfoss A/S. A description of financial risks can be found in the Group
section, see Note 16. Financial risks and instruments, to which reference is made.

CONTRACTUAL PAYMENTS ON FINANCIAL LIABILITIES

2013

2014

g
n
y
r
r
a
C

t
n
u
o
m
a

3,348
1,041
61
5,529
49
557
169
20
10,774

-
c
a
r
t
n
o
C

a
u
t

w
o

l
f

h
s
a
c

3,395
1,422
62
5,529
52
557
169
20
11,206

Maturity

)
*

s
r
a
e
y

5
-
1

5
r
e
v
O

s
r
a
e
y

1,099
99
28

16
1,271

709
1,298

2,007

r
a
e
y
1
-
0

1,587
25
34
5,529
23
557
169
4
7,928

g
n
y
r
r
a
C

t
n
u
o
m
a

10,759
1,041
28
6,175
31
620
105
139
18,898

-
c
a
r
t
n
o
C

a
u
t

w
o

l
f

h
s
a
c

11,403
1,414
28
6,175
33
620
105
139
19,917

Maturity

)
*

s
r
a
e
y

5
-
1

5
r
e
v
O

s
r
a
e
y

4,202
104

6,167
1,284

37
4,356

7,451

r
a
e
y
1
-
0

1,034
26
28
6,175
20
620
105
102
8,110

Bank debt and corporate bond
Mortgage debt
Employee bonds
Borrowings from subsidiaries
Finance lease liabilities
Trade payables
Trade payables to subsidiaries
Derivative financial liabilities

*) Maturity is evenly spread over the period.

The maturity analysis is based on all non-discounted cash flows including estimated interest payments. Interest payments are estimated according
to existing market conditions. The non-discounted cash flows from derivative financial instruments are presented in gross amounts, unless the
parties have a contractual right or obligation to make net settlements. Operating lease liabilities and liabilities relating to the purchase of property,
plant and equipment are not included in this specification, but are included in Note 12. Contingent liabilities, assets and security.

THE ABOVE DEBT IS RECORDED AS FOLLOWS:

Non-current liabilities
Current liabilities

2013

2014

2,898
7,876
10,774

10,917
7,981
18,898

128

Annual Report 2014 · The Danfoss Group · Danfoss®

Note 9 FINANCIAL RISKS AND INSTRUMENTS (continued)

DKKm

FINANCIAL INSTRUMENTS BY CATEGORY

Other investment
Financial assets available-for-sale

Trade receivables
Trade receivables from subsidiaries
Short-term loans to subsidiaries
Other receivables
Cash and cash equivalents
Loans and receivables

Derivative financial instruments for financial hedging
Financial assets, measured at fair value in the income statement

Interest-bearing debt
Trade payables to subsidiaries
Borrowings from subsidiaries
Trade payables and other debt
Financial liabilities measured at amortized cost

Derivative financial instruments for the hedging of future cash flows
Financial liabilites used as hedging instruments

Derivative financial instruments for financial hedging
Financial liabilities measured at fair value in the income statement

2013

Carrying
amount Fair value

31
31

206
662
2,476
116
1
3,461

38
38

31
31

206
662
2,476
116
1
3,461

38
38

4,499
169
5,529
1,234
11,431

4,471
169
5,529
1,234
11,403

18
18

2
2

18
18

2
2

2014

Carrying
amount Fair value

30
30

210
603
12,698
102

13,613

11,859
105
6,175
1,381
19,520

11,953
105
6,175
1,381
19,614

37
37

102
102

37
37

102
102

The value of derivative financial instruments is measured according to generally accepted valuation techniques based on relevant observable swap
prices and exchange rates. The market value of the interest-bearing debt is recognized of the present value of expected future instalment and interest
payments. The discount rate applied was the Group's current borrowing rate on loans for corresponding terms. The short-term floating-rate
bank debt is stated at the price of 100. The fair value of trade receivables and trade payables with short credit terms is estimated to be equal to the
carrying amount. The methods applied remain unchanged compared to 2013.

FAIR VALUE HIERARCHY AS OF DECEMBER 31 FOR DANFOSS A/S

2013

Quoted
prices
Level 1

Observ-
able
input
Level 2

Non-
observ-
able
input
Level 3

38
38

FINANCIAL ASSETS:

Other investments
Derivative financial instruments for the hedging of
future cash flows
Derivative financial instruments for financial hedging
Total financial assets

FINANCIAL LIABILITIES:

Derivative financial instruments for the hedging of
future cash flows
Derivative financial instruments for financial hedging
Interest-bearing debt
Total financial liabilities

18
1
4,471
4,490

2014

Quoted
prices
Level 1

Observ-
able
input
Level 2

Non-
observ-
able
input
Level 3

In total

37
102
11,953
12,092

In total

38
69

18
2
4,471
4,491

129

Annual Report 2014 · The Danfoss Group · Danfoss®Note 9 FINANCIAL RISKS AND INSTRUMENTS (continued)

FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE BASED ON LEVEL 3

Carrying amount as of January 1
Gain/loss (-) in the income statement
Purchase
Carrying amount as of December 31

Gain/loss (-) in the income statement for assets owned as of December 31

Gain/loss (-) in the income statement is recognized under financial income and expenses.

DERIVATIVES AS OF DECEMBER 31 FOR DANFOSS A/S

2013

2014

e
c
i
r
p
t
c
a
r
t
n
o
c

t
a

t
n
u
o
m
A

-46
248
391

n
o

)
-
(

s
s
o
l
/
n
a
G

USD
EUR
Other currencies
Forward exchange contracts

Interest swaps
Other derivatives
Derivatives end of year

t
n
e
m

t
s
u
d
a
e
u
a
v

t
e
k
r
a
m

10
38

-17
-2
19

s
r
a
e
y
5
r
e
t
f
a
e
u
D

e
c
i
r
p
t
c
a
r
t
n
o
c

t
a

t
n
u
o
m
A

1,455
-532

d
e
z
i
n
g
o
c
e
r

)
-
(

s
s
o
l
/
n
a
G

t
n
e
m
e
t
a
t
s
e
m
o
c
n

10
38

-1
-2
35

r
a
e
y
1
n
a
h
t

s
s
e

e
u
D

-1

s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D

-1

-16
1
-16

r
a
e
y
1
n
a
h
t

s
s
e

e
u
D

d
e
z
i
n
g
o
c
e
r

)
-
(

s
s
o
l
/
n
a
G

t
n
e
m
e
t
a
t
s
e
m
o
c
n

-2
-100
-102

t
n
e
m

t
s
u
d
a
e
u
a
v

t
e
k
r
a
m

n
o

)
-
(

s
s
o
l
/
n
a
G

-2
-100
-102

-37

-139

-102

2013

2014

Other
invest-
ments
Level 3

31
-1

-1

s
r
a
e
y
5
r
e
t
f
a
e
u
D

29
1
1
31

s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D

-37

At the end of 2014, total deferred gains and losses on derivatives recognized in equity amounted to DKK -37m (2013: -16m).

130

Annual Report 2014 · The Danfoss Group · Danfoss®

Note 10 CORPORATION TAX

DKKm

Corporation tax payable/receivable (-) as of January 1
Paid during the year
Adjustments concerning previous years
Current tax expenses in income statement
Current tax expenses in other comprehensive income
Corporation tax payable/receivable (-) as of December 31

The above corporation tax is recorded as follows:
Assets
Liabilities

Note 11 ADJUSTMENT FOR NON-CASH TRANSACTIONS

DKKm

Depreciation/amortization and impairment
Gain(-)/loss on disposal of tangible assets and business activities
Financial income
Financial expenses
Other, including provisions
Adjustment for non-cash transactions

2013

237
-487
43
315
14
122

122
122

2014

122
-352

206
-6
-30

-30

2013

268
-4
-2,534
298
282
-1,690

2014

257
1
-4,242
520
-6
-3,470

131

Annual Report 2014 · The Danfoss Group · Danfoss®Note 12 CONTINGENT LIABILITIES, ASSETS AND SECURITY

DKKm

SECURITY

Carrying amount of land and buildings pledged as security for bank loans and mortgages
Leasing assets pledged as security for leasing commitments
Secured loans from financial institutions

2013

591
54
1,090

2014

623
37
1,073

In connection with disposal of subsidiaries, ordinary guarantees and warranties have been issued. These guarantees and warranties are considered to
have no impact on the financial position beyond what has been stated in the annual report.

CONTINGENT LIABILITIES

At the beginning of 2009, the European Commission's Directorate General for Competition along with a number of other competition authorities
initiated investigations of, among others, Danfoss Household Compressors on suspicion of breach of competition regulations. These Investigations
have all been concluded.
Civil lawsuits against Danfoss are still pending in Europe and North America, the outcomes of which are not yet known.

OPERATING LEASES (LEASE EXPENSES)
Operating lease payments fall due as follows:

Buildings:
Less than 1 year
Between 1 and 5 years
More than 5 years

Equipment etc.:
Less than 1 year
Between 1 and 5 years

OPERATING LEASES (LEASE INCOME)
Operating lease receivables fall due as follows:

Less than 1 year
Between 1 and 5 years

The operating lease income in Danfoss A/S primarily relates to the letting of buildings to the subsidiaries.

CONTRACTUAL OBLIGATIONS

Service contract commitment other than leases
Inventories
Property, plant and equipment
Hereof commitments relating to succeeding year

2013

2014

15
46
61

36
42

15
35
44

32
20

2013

2014

18
1

2013

2014

263
165
19
338

178
235
16
376

132

Annual Report 2014 · The Danfoss Group · Danfoss®Note 13 RELATED PARTIES

For more information about related parties, see Note 23. Related parties in Group section.

DKKm

TRANSACTIONS WITH ASSOCIATES AND JOINT VENTURES

Sales of goods and services
Purchases of goods and services

2013

2014

3
48

3
51

Transactions besides the above transactions with joint ventures and associates are described in Note 2. Financial income, Note 3. Financial expenses,
Note 7. Investments and Note 9. Financial risks and instruments.

TRANSACTIONS BETWEEN DANFOSS A/S AND THE SUBSIDIARIES

Sales of goods and services
Purchases of goods and services
Purchases of intangible assets and property, plant and equipment
Disposal of intangible assets and property, plant and equipment

2013

6,813
2,871

2014

7,349
2,625
81
11

Transactions besides the above transactions between Danfoss A/S and subsidiaries are described in Note 2. Financial income, Note 3. Financial expenses,
Note 7. Investments and Note 9. Financial risks and instruments.

Note 14 EVENTS AFTER THE BALANCE SHEET DATE

Subsequent to December 31, 2014 there have been no further events with any significant effect on the financial statements beyond what has been
recognized and disclosed in the Annual Report.

133

Annual Report 2014 · The Danfoss Group · Danfoss®Note 15 GENERAL ACCOUNTING POLICIES FOR DANFOSS A/S

Danfoss A/S is a public limited company domiciled in Denmark. The Annual Report for the period January 1 to December 31, 2014, comprises the financial
statements of Danfoss A/S according to the requirements of the Danish Financial Statements Act.

The financial statements of Danfoss A/S have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by
the EU and Danish disclosure requirements for listed companies pursuant to the Danish Financial Statements Act.
Unless otherwise indicated, the Annual Report is presented in DKK rounded to the nearest million.

The Board of Directors and the Executive Committee reviewed and approved the Annual Report 2014 on March 24, 2015, and it will be presented for
approval at the Annual General Meeting to be held on April 24, 2015.

Besides the following section the accounting policies for Danfoss A/S are the same as for the Danfoss Group. Please refer to note 25 in the consolidated
financial statements for the Danfoss Group.

INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
In Danfoss A/S’s financial statements, investments in subsidiaries, associates and joint ventures are measured at cost. In case of evidence of impairment,
an impairment test is made. If the recoverable amount is lower than cost, investments are writen down to this lower value.
Impairments are recognized in Danfoss A/S’s income statement under financial expenses. Reversal of impairments are recognized under financial
income.

Dividends from investments in subsidiaries, associates and joint ventures are recognized in Danfoss A/S’s income statement under financial income
in the year when the dividends are declared.

CORPORATION TAX AND DEFERRED TAX
Danfoss A/S is jointly taxed with its Danish subsidiaries and sister subsidiaries. Current tax and deferred tax is allocated between the jointly taxed
companies. The jointly taxed companies are taxed under the tax prepayment scheme.

Note 16 SIGNIFICANT ACCOUNTING ESTIMATES FOR DANFOSS A/S

Significant accounting estimates for Danfoss A/S concern investments in subsidiaries, associates and joint ventures.

In Danfoss A/S’s financial statements, investments in subsidiaries, associates and joint ventures are measured at cost. In case of evidence of impairment,
an impairment test is made. If the recoverable amount is lower than cost, investments are written down to this lower value.

Due to the nature of the operations of the investments, estimates have to be made of expected cash flows many years into the future, which will be
subject to some degree of uncertainty. The investments in subsidiaries, associates and joint ventures are described in more detail in Note 7. Investments.

134

Annual Report 2014 · The Danfoss Group · Danfoss®135