Annual Report 2015
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Contents
Management Review
Financial Statements
62
63
64
72
110
114
124
Management statement
Independent auditor’s report
Group Accounts
Group Notes
Group Companies
Parent Accounts
Parent Notes
4
6
8
10
12
14
22
30
42
48
54
Engineering Tomorrow
Danfoss at a glance
2015 highlights
A strong global footprint
CEO comment
The Core & Clear strategy
Business model and segments
Financial review and outlook
Sustainability
Risk management and compliance
Corporate Governance
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.
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.
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.
This is what drives us. To realize more of the potential of
this amazing world. And engineer the dreams of tomorrow,
today. 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 aim
to deliver unprecedented quality, reliability and innovation in
everything we do.
Watch how Danfoss is ‘Engineering
Tomorrow’ here.
4
Annual Report 2015 · The Danfoss Group We are
engineering tomorrow
5
Annual Report 2015 · The Danfoss Group 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.
Key facts
61
factories in 20 countries and
Danfoss sells its products in
more than 100 countries
23,420
employees dedicated to engineering
solutions that make a difference to people
and businesses worldwide
1,381
patent families
HEADQUARTERED IN
NORDBORG, DENMARK
WESTERN
EUROPE
EASTERN
EUROPE
39%
9 %
3%
AFRICA-
MIDDLE EAST
Sales distribution by regions
NORTH
AMERICA
24%
5%
LATIN
AMERICA
6
Annual Report 2015 · The Danfoss Group DANFOSS AT A GLANCE
The Danfoss heritage
Leading global positions
Danfoss has grown from a one-man business into a world
leading company, by having a clear focus on quality and
innovative engineering right from the beginning
1933
2015
Danfoss was founded by engineer Mads
Clausen
Danfoss is a privately-held company
and controlled by the Bitten and Mads
Clausen Foundation.
Since the Core & Clear strategy was initiated in 2010, the Danfoss
Group has significantly strengthened its global position. Today,
the Group’s four business segments: Danfoss Power Solutions,
Danfoss Cooling, Danfoss Drives and Danfoss Heating are among
the world leaders in the markets where they are active.
Sales distribution by business segments
Danfoss
Power Solutions
11.6 / bn DKK
1.6 / bn EUR
Danfoss Cooling
10.8 / bn DKK
1.4 / bn EUR
Danfoss Group
38.0/ bn DKK
5.1/ bn EUR
Danfoss Drives
9.8 / bn DKK
1.3 / bn EUR
Danfoss Heating
5.8 / bn DKK
0.8 / bn EUR
Our climate strategy by 2030
20%
ASIA-
PACIFIC
50% 50%
Reduction of energy intensity in our
buildings and production processes
Reduction of the CO2 intensity
in consumed energy
Our approach to sustainability
We play an active role in sustainable global development
where social responsibility, the environment and climate
considerations go hand-in-hand with sound business
development. Our approach rests on two pillars:
• Danfoss will continue to be a reliable business partner;
• Danfoss is a world-leader in the supply of technologies;
solutions that support the growing need for sustainable
food supply, modern infrastructure, efficient energy
utilization, and better climate control.
7
Annual Report 2015 · The Danfoss Group 2015 highlights
Total net sales
38,031
5,099
m DKK
m EUR
Financials in brief
Sales growth
11%
11%
R&D spend
1,607
215
Free cash flow (before M&A)
3,397
456
In 2015, the Danfoss Group maintained good performance and
delivered financial results in line with expectations. The year was
characterized by continuing low, global growth conditions and the
business environment remained mixed across markets and regions.
The demand for energy efficiency and increased focus on
climate-friendly solutions were strong drivers for Danfoss
technologies supporting an improved performance in the
two business segments Danfoss Cooling and Danfoss Drives.
On the other hand, for the Danfoss Power Solutions business
segment, results were impacted by a downturn in the global
mobile hydraulics market due to low activity levels in the
global agricultural sector as well as lower construction
activity in China. Also, Danfoss Heating had a challenging
year due to the economic downturn in Russia and slowdown
in China.
For the Group, net sales were at DKK 38,031m against DKK
34,375m in 2014. The improvement corresponds to 11% growth.
In local currency, growth was 5%. EBIT excluding other operating
income/expenses was DKK 4,235m against DKK 4,356m. EBIT
was improved to DKK 4,097m against DKK 3,925m last year,
which is equal to an increase of 4%. Net profit was at DKK
2,597m record-high and 13% above last year. The free cash flow
before M&A was DKK 3,397m against DKK 3,389m in the year-
earlier period.
In conclusion, the Group’s performance in 2015 was satisfactory.
2015 Expectations compared to results
Expectations
Results
Net sales including the full-year impact of the
acquisition of Vacon expected to grow by 9-14%.
Danfoss generated net sales of DKK 38,031m equal to
11% growth
Operating profit, EBIT excluding other income and
expenses, expected to be on par with 2014.
EBIT excluding other income and expenses reached
DKK 4,235m against DKK 4,356m
Net sales
bn DKK the last five years
EBIT
bn DKK the last five years
R&D
spend the last five years
Gains from divestments
4.4
4.2
4.0
3.8
3.6
3.4
3.2
3.0
5.0%
4.4%
3.8%
3.2%
2.6%
2.0%
2011
2012
2013
2014
2015
2011 2012
2013
2014
2015
2011
2012
2013
2014
2015
40
38
36
34
32
30
8
Annual Report 2015 · The Danfoss Group
2015 HIGHLIGHTS
EBIT excluding other income and expenses
EBIT
4,235
568
4,097
549
Equity
15,424
2,067
Equity ratio
41.4%
41.4%
Most important events in 2015
Successful Vacon merger
In December 2014, Danfoss acquired the Finnish drives
manufacturer Vacon, and the new Danfoss Drives
business segment was formed by merging Vacon and the
Danfoss drives business, Power Electronics. The merger
has been successful and the first year has gone well for
Danfoss Drives. While merging the two businesses, the
business segment has managed to keep a firm focus on
serving customers, harvesting synergies and maintaining
strong performance. Combining the two companies,
Danfoss Drives is now the world’s second-largest AC
drives manufacturer.
Strong innovation year
In 2015, we invested a record-high DKK 1,607m in
innovation. Focus was very much on digitalization, and
several new innovative products utilizing technologies
within connectivity and big data were launched during
the year. Examples are the digital actuator Novocon, the
new electro-hydraulic steering solution for off high-way
machinery called PVED-CLA, and the Danfoss Link heating
system controlled by your smartphone.
Successful safety program
The key performance indicator in measuring employee
safety, the Lost Time Injury Frequency (LTIF), dropped
from 4.4 in 2014 to 3.4 in 2015. This significant
improvement was obtained via our new global "Safety
on the shop floor" program which during 2015 was
implemented in all Danfoss factories around the world.
Quality at the next level
In 2015, another 19 Danfoss factories became compliant
with the ISO/TS16949 quality standard - one of the world’s
strictest quality standards. A significant milestone in the
roll-out as three business segments; Danfoss Cooling,
Danfoss Drives, and Danfoss Heating are now fully
compliant with the TS16949 requirements.
M&A’s
Danfoss acquired DAF Enerji; a company within the
district heating market in Turkey. Turkey is a country with
a high growth potential for Danfoss and especially for
the Danfoss Heating Business segment; proved in 2015
by Danfoss Heating growing above 30% in local currency
in Turkey. The acquisition is a key element in further
strengthening our heating business and taking the next
step to further accelerate growth in Turkey.
Danfoss also acquired the Dutch software company
Advitronic Engineering B.V. This is an investment in
capabilities and technology related to connectivity
and Internet of Things. This will strengthen the Danfoss
Cooling business segment, in particular, and the business
segments’ position within the food retail industry
worldwide as an innovative partner in smart store
solutions and enterprise management systems.
Lowering the energy consumption
Danfoss launched in November 2015 a new climate
strategy, which builds on what the company has already
achieved. Danfoss’ energy intensity, measured as energy
consumption per million DKK net sales, has been reduced
by 29% since 2007. The new strategy requires Danfoss to
cut the company’s energy intensity by 50% before 2030.
Meaning that we only use half as much energy to keep
the wheels of business running. The consumed energy
shall by 2030 emit half as much CO2 per MWh.
Global climate agreement
At COP21 in Paris, 196 countries reached a historic
agreement to limit global warming. All 196 countries have
submitted plans for how they will contribute to this green
transition. Several of these plans include initiatives to
increase energy efficiency e.g. via district energy systems
and wastewater treatment. Accordingly, for Danfoss being
a company that engineers energy efficient solutions that
enable the world of tomorrow to do more with less, the
framework of the agreement holds concrete, vast long-
term potential.
9
Annual Report 2015 · The Danfoss Group A strong global footprint
Danfoss has a strong global footprint with 61 factories in 20 countries,
and the Group sells its products in more than 100 countries.
North America
Latin America
Western Europe
12 factories
Sales companies in 2 countries
3,406 employees
3 factories
Sales companies in 5 countries
1,203 employees
20 factories
Sales companies in 17 countries
9,536 employees
24%
share of
net sales
5%
share of
net sales
39%
share of
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 has a strong presence in this
market. 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.
Danfoss has been present in Latin
America for many decades, with sales
companies in the main countries all
around the region. Brazil is Danfoss’
largest country in terms of net sales in
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.
Accordingly, the region holds great
potential for the business segments
Danfoss Cooling and Danfoss Power
Solutions, in particular.
Western Europe 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 Western
Europe region. The Western European
countries continue to 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 continues to be a growth pocket
with huge potential for Danfoss.
10
Annual Report 2015 · The Danfoss Group A STRONG GLOBAL FOOTPRINT
Eastern Europe
Africa-Middle East
Asia-Pacific
12 factories
Sales companies in 12 countries
3,908 employees
1 factory
Sales companies in 3 countries
195 employees
13 factories
Sales companies in 11 countries
5,172 employees
9%
share of
net sales
3%
share of
net sales
20%
share of
net sales
Russia, followed by Poland and Czech
Republic are the top three markets in
this region. Danfoss was one of the first
companies to rapidly set up a business
in the Eastern European countries, when
the region opened up. Today, Danfoss
has a strong organization and enjoys a
good reputation. In combination, the
fairly cold climate, an increased focus on
energy efficiency and the large number
of district heating systems hold great
potential for Danfoss. The investments
in new energy systems are significant.
One concrete example illustrating the
potential is that in the period from
2015 to 2020 the European Union plan
to invest up to EUR 17bn in increased
energy efficiency in the Eastern European
countries.
The Africa and Middle East region is
the most diversified region in Danfoss.
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 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. One of
the countries in this region with a large
growth potential is Turkey: cold winters
and hot summers create a demand for
heating and cooling technologies.
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. Despite the economic growth
rates slowing down over recent years
China continues to hold major potential
within urban district heating projects
and the build up of the food cold chain,
which Danfoss helps to develop. The
second-largest market in the region is
India, which is also identified as offering a
significant growth potential for Danfoss.
In particular, within the food cold chain
and air conditioning markets.
11
Annual Report 2015 · The Danfoss Group Danfoss is
well positioned
Thanks to four strong business segments with leading
market positions and clear competitive advantages
Danfoss is driving long-term value creation.
“The key to our sustained strong
performance lies in a persistent focus on
sustainable, long-term value creation and
utilizing our distinct, core competencies:
Leading Positions, Application Knowledge,
and Innovation.”
12
Annual Report 2015 · The Danfoss Group CEO COMMENT
In 2015, we continued our ambitious journey to further
improve Danfoss’ global position. We delivered good financial
performance with results in line with expectations, and despite
mixed market conditions our market share developed positively.
At Group level, our net sales grew by 11%, and 5% in local
currency, while operating profit (EBIT) was improved by 4%.
Furthermore, net profit increased by 13% to the record-level
of DKK 2.6bn and also growing slightly faster than the topline.
Finally, the free cash flow before M&A matched the high
2014-level. The key to our sustained strong performance lies
in a persistent focus on sustainable, long-term value creation
and utilizing our distinct, core competencies: Leading Positions,
Application Knowledge and Innovation.
Creating customer value
For several years we have invested above industry average in
innovation, and 2015 was no exception. The Danfoss Group
reinvested 4.2% of net sales or a little more than DKK 1.6bn in
research and development. These investments resulted in the
launch of many new innovative products utilizing new digital
technology; concrete examples are the first intelligent electro-
hydraulic steering solution for off-high-way machinery or the
Danfoss Link heating system controlled by your smartphone.
Furthermore, significant highlights of the year were the opening
of our new Application Development Center (ADC) in Nordborg,
Denmark, and breaking ground to the next ADC in Florida, US.
At an ADC facility we can demonstrate performance and test
customer applications enhanced with Danfoss solutions in a real-
life environment.
A year of digitalization
Our Application Development Centers around the world are
key to leveraging our deep application knowhow and new
technologies to drive innovation in close cooperation with our
customers. During 2015, in line with our focus on innovation
as a driver of increased customer value we took acquisition
steps to further strengthen the Groups innovation profile.
We acquired the Dutch company Advitronic Engineering B.V.;
specialized in technology that connect all vital control systems
in supermarkets and utilizing collected data to optimize the
applications and systems. Furthermore, in September, we
engaged in a partnership with the American software company
LineStream Technologies Inc., which produces software-based
control solutions for configuration of automation systems.
Organizing for growth
Having strong core businesses with leading market positions
globally is a key element in driving competitive advantage.
When in December 2014 we acquired the Finnish drives
manufacturer Vacon and merged it with the Danfoss drives
business, we secured a position as a world leading player in
the drives market. The merger paved the way for establishing
four strong business segments with complementary product
and market portfolios: Danfoss Power Solutions, Danfoss
Cooling, Danfoss Drives and Danfoss Heating. We successfully
implemented this new organizational structure in the first
quarter of 2015, and during the year we have further tailored
the business to accelerate growth by strengthening the regional
organization bringing Danfoss even closer to our customers.
Looking ahead
In the short term, visibility remains low, and we anticipate the
overall global low growth scenario and mixed market conditions
to continue. More specifically, we expect the challenging market
conditions in Russia to continue. We also expect that the global
mobile hydraulics market will remain fairly soft. This is a cyclical
market sensitive to fluctuations in especially the agricultural
sector. Conversely, we see the momentum in the US economy
driving increased investments in several industries. And also in
Europe, we see growth rates slowly gaining more traction.
On the long term, the constant need for new infrastructure and
safe food supply remain drivers of the demand for the kind of
solutions that we provide. Furthermore, the growing awareness
of the potential and need for investing in increased energy
efficiency and climate-friendly solutions will drive increased
demand for innovative technologies. In this perspective, it
is very positive that the COP21 in Paris ended with a historic
agreement. This is a strong signal that across the globe nations
and cities are willing to create the much-needed green
transition. As experts in energy-efficiency and having the
solutions ready, Danfoss is well positioned, and we have good
reason to be optimistic about the future.
Continuing the journey
2015 was a good year for Danfoss. More than 23,400 colleagues
made sure that our customers experienced great commitment
and engagement. Now, we are very much looking forward to
continuing the cooperation together with all our stakeholders
to make sure, that the coming year will be characterized by
innovation, dedication and great results.
On behalf of the Danfoss Executive Committee,
Niels B. Christiansen
13
Annual Report 2015 · The Danfoss Group "In short, Core means that we
concentrate our efforts on the areas
where we create the most value
and where we possess unique
competencies. Clear means that we
focus on our customers, constantly
reduce complexity and increase
transparency."
14
Annual Report 2015 · The Danfoss Group The
Core & Clear
strategy
15
Annual Report 2015 · The Danfoss Group The Core & Clear strategy
The Danfoss Core & Clear strategy forms the foundation of all our strategic
activities, and our business model is made operational through Core & Clear.
In short, Core means that we concentrate our efforts on the areas where we
create the most value and where we possess unique competencies. Clear
means that we focus on earning customer loyalty through quaility, reliability
and innovation.
The four focus areas:
CORE & CLEAR PORTFOLIO
means having strong leading
positions globally and 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
PASSION & PERFORMANCE
means building capabilities
and engagement to drive
strong performance and
execute on the Danfoss
strategy
CUSTOMER & INNOVATION
means providing value to
customers by delivering on our
promise of quality, reliability,
and innovation based on
customer needs
16
Annual Report 2015 · The Danfoss Group THE CORE & CLEAR STRATEGY
Our promise:
Earn customer loyalty through excellence in
QUALITY
RELIABILITY
INNOVATION
The Danfoss strategy Core & Clear is
founded in four overarching focus areas,
each representing one of the Group’s
strategic priorities to deliver on our
promise to our customers.
• We have few, strategic bold
adjacencies. Over time, these
adjacencies shall mature, grow and be
transferred to our core businesses.
• We have a strong focus on continuously
The four focus areas: Core & Clear
Portfolio, Free & Agile, Customer &
Innovation and Passion & Performance.
Core & clear portfolio
Core & Clear Portfolio is about having
strong, leading positions globally with
the core businesses being positioned as
number one or two in their markets. This
is achieved through organic growth as
well as acquisitions of well-performing
companies. Besides the core businesses,
focus is on a few, strategic businesses
adjacent to the core, and on strong
globalization of the businesses.
3 key priorities:
• We have made acquisitions as well
as divestments to build a portfolio
of core businesses in market-leading
positions, and acquisitions will
continue to contribute to accelerate
profitable growth.
globalizing, and positioning the
business to reap scale advantages and
leverage the growth opportunities in
emergingn as well as mature markets.
2015 highlights
New organization implemented
The focus on having the core businesses
positioned as number one and two in
their markets has been part of Core &
Clear since 2010. One important brick in
this puzzle fell into place on the verge
of 2015, as Danfoss made the strategic
acquisition of the Finnish drives
manufacturer Vacon. The Danfoss drives
business, Power Electronics and Vacon,
is a perfect match with complementary
product and market portfolios. With this
acquisition, Danfoss secured a position
as one of the world’s leading players
in the drives market. Moreover, the
closing of the Vacon deal paved the way
for establishing a new organizational
structure with four strong and market-
leading business segments.
The reorganization into these four
segments took effect from the beginning
of 2015 and was implemented during
the first quarter of the year. This new
organization is tailored to empower
the business segments to execute on
the Get Going part of the Core & Clear
journey. The four business segments
are: Danfoss Power Solutions, Danfoss
Cooling, Danfoss Drives, and Danfoss
Heating.
Free & agile
Free & Agile is about ensuring the
Group’s ability to rapidly adapt to market
developments and having a flexible and
competitive Supply Chain. Focus is on
constantly maintaining a strong free
cash flow, utilizing our scale, and having
a one-company approach to drive
improvements and transparency.
3 key priorities:
• Via Danfoss Business System
programs, we are using best practice
processes and standards across
the Group, and our employees are
enabled to minimize losses, optimize
profitability, increase reliability, drive
innovation, and secure high quality
across the entire Supply Chain.
17
Annual Report 2015 · The Danfoss Group THE CORE & CLEAR STRATEGY
• Solid financial performance is in the
heart of the Core & Clear strategy, and
we drive strong cash performance
by reducing days of trade working
capital, inventories and lead time and
having a well-structured procurement
process with a strong focus on quality
and delivery.
• We are using a “One Company – One
Way” approach to align processes
across Danfoss, by aiming for global
coverage to gain maximum scale, and
by outsourcing non-core activities per
default.
2015 highlights
Continued strong cash flow
Alongside, we have launched the Get
Going part of Core & Clear, where
focus is on accelerating profitable
growth, attention remains very much
on ensuring that what we call "the
Basics" are continuously improved
ensuring that the Group stays agile
and our foundation remains strong.
In particular, we have strong focus on
maintaining a constant strong free
cash flow. In 2015, the Group delivered
a strong cash performance of DKK
3,397m driven by reduced days of
trade working capital. Inventories and
lead time, procurement, and CAPEX
are kept under good control. Strong
cash performance allows us to invest
in developing Danfoss and grow the
business.
Safety first
To ensure employees’ health and
safety our new global "Safety on the
shop floor" program was during 2015
implemented in all factories around the
world. The program contributed to the
continued improvement of employee
safety and the key performance indicator
in measuring employee safety, the
Lost Time Injury Frequency (LTIF), was
improved by 22% in 2015 compared to
the year before.
Continued productivity improvements
In 2015, Danfoss obtained substantial
productivity improvements contributing
to improving an already competitive
and flexible supply chain. Starting
out the year at already high levels, at
Group level we achieved double-digit
productivity improvements across our
factories. Also at business segment level,
for the first time all segments achieved
double digit productivity improvement.
At the same time, we continued to
reduce complexity in the business, and
improving transparency across product
families and business areas. Continuing
to streamline our procurement activities,
we have further reduced the number of
suppliers to bring benefits in the form
of closer cooperation, less complexity,
better quality, faster delivery, and better
prices.
Customer & innovation
Customer & Innovation is about
providing value to customers by
delivering on our promise of quality,
reliability and innovation. We constantly
focus on what matters most for our
customers and what value Danfoss can
offer. We do so by using our in-depth
application knowledge, understanding
our customers’ needs, being easy to do
business with and innovating products
that drive differentiation.
3 key priorities:
• To further accelerate growth we invest
in opportunities with high potential in
the business segments, geographical
areas, and across segments.
• Quality and delivery are what matter
most to our customers. Therefore,
18
Annual Report 2015 · The Danfoss Group THE CORE & CLEAR STRATEGY
The Core & Clear tracks:
Core & Clear is executed in different tracks:
GET GOING
GET THE BASICS RIGHT
2010
2014
2017
Get the Basics Right
Get the Basics Right provides a strong and scalable
foundation for all activities in Danfoss. Focus is on what
we call our "engine room", e.g. high quality, on-time
deliveries, less complexity, improved customer focus,
optimized procurement, improved and more fine-tuned
processes everywhere in the organization.
Get Going
Get Going has a strong focus on accelerating profitable
growth by taking market share; what we call building
a powerful sales machine including having leading
business positions, a strong brand, an innovation
pipeline with growth impact, and investing in the best
opportunities for growth.
we strive to always improve on these
key parameters, using systematic
approaches and common best
practice processes.
• We see innovation as a way to drive
profitable growth, and product
technologies relevant to the core
businesses are systematically sourced,
developed and shared across Danfoss.
2015 highlights
Digitalization driving innovation
For Danfoss, 2015 marked a temporary
peak of a new innovation era with
digitalization as a key lever, and across
all four business segments we launched
several new products utilizing the
benefits of connectivity, software and big
data.
One example is the digital actuator
NovoCon®. The digital actuator connects
the heating or cooling system to the
building management systems creating
a perfect connection between superior
hydronic performance and building
automation. The benefits of this digital
solution are time savings during
installation, remote commissioning and
fine tuning, access to system data, and
remote identification of valve blockages
or installation errors.
We also launched a new electro-
hydraulic steering solution for off-
highway machinery called PVED-CLS; the
industry’s first intelligent steering option
with full safety integration. Being directly
connected with GPS and by using
sensors, this steering solution ensures
precise, unwavering drive trajectories,
and with this automation comes easier
operation, higher productivity and
reduced driver fatigue.
A third example was the introduction
of Danfoss Link™ system that provides
intelligent and energy-efficient heating
solutions for smart home heating.
The system can be controlled via your
smartphone, and it automatically
regulates and controls the temperature
for radiators and floor heating to
provide perfect indoor comfort for
homeowners while reducing overall
heating costs.
Acquisitions of innovative technologies
During the year, we have successfully
landed strategic acquisitions of
innovative technologies. We acquired
30% of the American software company
LineStream Technologies Inc. LineStream
produces software-controlled solutions
for the automation sector. With the
investment, Danfoss and LineStream
enter into a partnership, which will
simplify commissioning of Danfoss’
frequency converters and improve
performance. Furthermore, we acquired
the Dutch software company Advitronic
Engineering B.V. Advitronic Engineering
is an investment in capabilities related
to connectivity and Internet of Things,
and this investment will strengthen our
business and position within the food
retail industry and smart store solutions
for supermarkets worldwide.
Quality taken to the next level
We invest significantly to stay at the
forefront of global engineering and
quality standards. A key element of
this journey is for all business areas to
comply with the ISO/TS16949 quality
standard. This is one of the world’s
strictest quality standards. In 2015,
another 19 Danfoss factories achieved
the goal. In total, 38 factories are now
fully compliant. This achievement marks
a significant milestone in the roll-out
as three business segments, Danfoss
Cooling, Danfoss Drives, and Danfoss
Heating are now compliant with the
standard requirements. Danfoss Power
Solutions will be fully compliant by the
end of 2016.
19
Annual Report 2015 · The Danfoss Group THE CORE & CLEAR STRATEGY
Passion & performance
We want Danfoss to be a great and
safe place to work. And Passion
& Performance is about building
capabilities and engagement to
drive strong performance and
execute on the Danfoss strategy.
Focus is on a strong performance
orientation, common processes and
tools, a systematic development of
competencies creating a high level of
engagement, and at the same time
improved performance.
3 key priorities:
• Our employees are our most
important asset, and we drive passion
and performance through leadership,
diversity, and winning teams.
• We have solid management tools and
KPIs on all relevant areas providing a
fact-based foundation for decision-
making across the Group.
• Danfoss Business System is how we
drive global coverage of best practice
tools and processes.
2015 highlights
Employee engagement
The successful implementation of the
many strategic initiatives relies strongly
on engaged employees committed and
capable of turning strategic direction
into action and strong results. Danfoss
conducts employee engagement
surveys every other year, and the
2015 survey showed continued high
employee engagement at 76 measured
on a scale from 1 to 100; a high level
compared to external benchmarks. Due
to updates in the surveys over the years,
results cannot be directly compared;
however engagement is significantly
above the score of 67 in 2007 where
we started monitoring the employee
engagement.
Performance management
Twice a year, we conduct a survey
on Performance Management. Here,
we measure our leaders’ ability to
communicate clarity of direction and
having quality dialogues in setting
objectives and providing regular
feedback. The survey results show that
our leaders continue to have a strong
focus on performance, which is critical
to our success. In second half-year
2015, the survey overall result was 79
on a scale from 1 to 100. In 2010, when
Core & Clear was launched, the score
was 62.
Employee development
We have a systematic approach to
developing employee competencies
and talent management programs.
This ensures that we have skilled
employees, solid leadership, and a
strong talent pipeline. In 2015, this
approach to employee development was
further improved by the development
of a globally aligned performance
management process. The new process
supports the execution of the Core &
Clear strategy through creating one
common and simple approach towards
managing performance using clear
objective setting, on-going dialogues
with the employees to review the
objectives as well as development needs.
Furthermore, the updated process
enables quality in the regular dialogues
continuing to create clarity of direction
and engagement.
20
Annual Report 2015 · The Danfoss Group
THE CORE & CLEAR STRATEGY
Our aspiration:
We are engineering tomorrow.
We passionately push boundaries
on results and reputation.
Our way of working
As an organization, we place our customers and employees at the center of
everything we do. Our behaviors in action guide us in bringing our Core & Clear
strategy to life.
Earn customer loyalty
Embrace diversity
Go beyond the ordinary
• Establish trust and respect
• Think customer in everything we do
• Value differences
• Be inclusive
We earn customer loyalty when we act
to serve the customer in everything we
do - no matter what our role is. We can be
counted on to work with the customer
always in the forefront of our minds and
we strive to earn respect and trust from all
our customers.
We embrace diversity when we
value and encourage the viewpoint,
experience and knowledge of those
who are different from ourselves and
when we work with purpose to learn
and grow as one Danfoss.
• Push boundaries to innovate and
continuously improve
• Learn from successes as well as mistakes
We go beyond the ordinary with a mindset
where we strive to learn, grow and improve
on a continued basis. We remain curious
to explore how to improve and find ways
to push ourselves to successfully fulfill our
Danfoss goals and our own potential.
Honor commitments
Lead by example
Think Danfoss
• Be entrusted to take ownership
• Deliver as promised
• Show and encourage engagement
• Role model the way
• Take initiatives to leverage synergies
• Support others in succeeding
We honor commitments when we live
up to our promises and keep our word.
We honor commitments in the way we
service customers, the way we keep our
promises to each other as colleagues and
in how we deliver our results.
We lead by example when we act as role
models every day and encourage others
to do the same to build engagement. We
lead by example when we foster a positive
atmosphere at work.
We think Danfoss when we think
beyond our own team and seek the
advantages of working across. Thinking
Danfoss is an expression of our passion
to succeed as one.
21
Annual Report 2015 · The Danfoss Group "Our business model is based on a
strong “One Company” approach and
our three distinct core competencies
common to the Group’s four business
segments: Leading Positions,
Application Knowledge, and
Innovation."
22
Annual Report 2015 · The Danfoss Group Business
model and
segments
23
Annual Report 2015 · The Danfoss Group Our business model
The Danfoss business model is designed to drive sustainable, long-term
value creation. The model is based on our distinct, core competencies driving
competitive advantage, thereby creating the foundation for our four business
segments to utilize global growth opportunities within infrastructure, food,
climate and energy.
Business model
Climate
Infrastructure
Application
knowledge
Close to customers
Innovation
Differentiate through
new technology
Competitive
advantage
Leading
positions
Exploit scale
Energy
Food
Danfoss Core Competences
The business model is based on a
strong “One Company” approach
and our three distinct core
competencies common to the
Group’s four business segments:
Leading Positions, Application
Knowledge, and Innovation.
Leading Positions
In the global manufacturing industry, global reach, size, and scale
matter. Therefore we must be a significant player in the markets
where we operate, and it is a key element in Danfoss’ business
model that our business segments hold leading positions as either
number one or two in their industries. Moreover, to drive scale
advantages, increased customer value, and a world-class supply
chain we have developed Danfoss Business System; a systematic
approach with programs to drive continuous improvements via
aligned best practice processes across the Group. The Danfoss
Business System programs focus on four key elements. In order of
24
Annual Report 2015 · The Danfoss Group priority: Safety, Quality, Delivery, and Cost. First of all, we want our
employees to be safe. And a production environment characterized
by a high level of safety is a prerequisite for being able to focus
on increased customer value through top product quality and
excellence in on-time delivery. Finally, to maintain competitiveness,
we are constantly focused on improving our productivity and
utilizing our scale to drive lower cost.
Application Knowledge
Across the Group, deep customer application knowledge
and unique technical expertise are what make Danfoss stand
out from our competitors. We know our customers and their
applications so well that we can stay one step ahead. A key
element in the Danfoss business model is our operational setup
with extensive, global coverage and strong regional presence.
This setup is designed to ensure local empowerment and high
proximity and close cooperation with global as well as local
customers. Furthermore, we invest in initiatives that enable our
BUSINESS MODEL AND SEGMENTS
R&D engineers to turn their deep knowhow and application
understanding into customer advantages by improving the
performance or enhancing our customers’ products.
Innovation
Innovation is in our DNA. We focus our innovation in the core;
meaning that we are focused on constantly developing our
technologies, products, and processes in the core businesses. It is
our unique application knowledge and our ability to understand
customer needs combined with access to new and advanced
technologies that drive our innovation. Further, we innovate to
differentiate, and we develope and acquire new technologies to
drive strong differentiation. We want to provide our customers with
solutions they are going to need tomorrow - thereby putting them
in a better position.
The Danfoss Growth Themes
Our business model focuses on utilizing global opportunities within our four
growth themes: infrastructure, food, energy and climate. The four themes are
linked to our business model as overall themes driving future global growth
opportunities for Danfoss – and at the same time areas where Danfoss makes a
difference and why what we do matters.
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 fit for developing the cities of tomorrow.
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.
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.
CLIMATE
Danfoss combines a comfortable and healthy indoor climate
with energy and cost savings, and protection of the environment.
Danfoss supplies technology for renewable energy within wind,
solar and automotive. 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.
25
Annual Report 2015 · The Danfoss Group BUSINESS MODEL AND SEGMENTS
Danfoss Power Solutions
Danfoss Power Solutions is one of the world’s leading players in the mobile
hydraulics market. The business segment is highly specialized in mobile
hydraulics and provides world-class solutions for the construction, agriculture,
and other off-highway vehicle markets.
Solutions
As one of the industry’s largest players, Danfoss Power Solutions
works in partnership with its customers to design, manufacture
and sell a complete range of engineered hydraulic and
electronic components – all optimized for system solutions
– including hydrostatic transmissions, mobile electronics and
software, orbital motors, steering components and proportional
valves. Power Solutions’ proven competencies continue to
provide industry-leading products to push, pull, propel, lift,
haul, harvest and more, with the precision, power density, and
efficiency only hydraulics can provide.
Customers and industries
Power Solutions provides innovative products and solutions
to OEMs (original equipment manufacturers) and distributors
for market segments such as agriculture, construction, road
building, material handling, turf care and specialty markets.
Power Solutions components and solutions are found in
applications like backhoe loaders, wheel loaders, excavators,
skid steer loaders, concrete pumps, rollers, pavers, road
graders, cranes, aerial lifts, fork lift trucks, telehandlers, tractors,
agricultural sprayers, combines, snow clearing, street sweepers,
forestry equipment and lawn mowers.
Innovative industry pioneer
Power Solutions is an industry pioneer in a mature market. The
business segment introduced the first hydrostatic transmissions,
orbital motors, steering units and load-sensing proportional
valves. Today, seamless integration of electronics, software and
hydraulics results in optimized total machine management.
Danfoss Power Solutions continuously invests in research
and development activities that support its identified growth
opportunities. These growth opportunities include areas
like seamlessly integrated electronic controls, telematics,
electrification and other intelligent solutions.
Key facts
5,792 employees
Sales activities in more than 80 countries
18 factories in 10 countries
In 2015, Power Solutions’ net sales amounted to DKK 11.6bn
Net sales
31%of the Danfoss Group’s net sales
Top 3 regions
NORTH
AMERICA
WESTERN
EUROPE
ASIA-
PACIFIC
26
Annual Report 2015 · The Danfoss Group BUSINESS MODEL AND SEGMENTS
Danfoss Cooling
Danfoss Cooling is a leading player in the air-conditioning and refrigeration
industry with the most complete offering. The business segment is an industry
frontrunner in energy-efficient engineering and strong application expertise
within commercial refrigeration, industrial refrigeration, air-conditioning, and
supermarket refrigeration.
Solutions
With more than 10,000 components, including compressors,
valves, sensors and heat exchangers, Danfoss Cooling provides
its customers with innovative, energy-saving and precise control
solutions. The business segment supplies components and
solutions to air-conditioning systems in many different
buildings like hotels, airports, shopping malls, train stations and
other buildings that need energy-efficient and comfortable
air conditioning. Danfoss Cooling also provides customers
with solutions on a global scale within commercial, industrial
and supermarket refrigeration systems. Furthermore, Danfoss
Cooling is a market leader with innovative solutions like variable
speed scroll compressors and the pioneering Danfoss Turbocor
oil-free compressors.
Customers and industries
Danfoss Cooling sells its products via original equipment
manufacturers (OEMs), wholesalers, contractors and installers,
and in food retail, the segment also sells service oriented
solutions directly to the end-users. The segment offers
solutions to typical air conditioning applications like chillers
and rooftop air-conditioning systems in commercial and
residential buildings. Danfoss Cooling also targets the food
and beverage industry, supermarkets with total store solutions,
and makes cold storage and cold room solutions for the
industrial refrigeration market. Moreover, Danfoss Cooling plays
an important role in refrigerated transportation, refrigerated
food processing applications - for example dairies, breweries,
slaughterhouses, fisheries, as well as water treatment.
Strong foundation for growth
Danfoss Cooling has a very strong market position due to
broad product solutions and global presence. The segment
addresses the global need for safe, reliable and energy-efficient
refrigeration and air conditioning. Danfoss identified growth
themes, namely infrastructure, food, climate, and energy also
drive demand for Danfoss Cooling solutions. Leveraging on
the cooling application expertise, the segment continuously
develops new solutions to introduce new technologies e.g.
within connectivity, new refrigerants, the game-changing
Turbocor oil-free compressor technology and the segment’s
unique innovative heat exchanger technology.
Key facts
5,890 employees
Sales activities in more than 100 countries
11 factories in 8 countries
In 2015, Danfoss Cooling net sales amounted to DKK 10.8bn
Net sales
28%of the Danfoss Group’s net sales
Top 3 regions
NORTH
AMERICA
WESTERN
EUROPE
ASIA-
PACIFIC
27
Annual Report 2015 · The Danfoss Group
BUSINESS MODEL AND SEGMENTS
Danfoss Drives
Danfoss Drives is a leading player in the market for low voltage AC drives. The key
competitive advantage for Danfoss Drives is unique expertise and application
knowledge, and Danfoss Drives is driven by passion to develop, manufacture and
sell the best AC drives in the world and provide customers with efficient product
lifecycle services.
Key facts
4,811 employees
Sales activities in 80 countries
13 factories in 7 countries
In 2015, Danfoss Drives’ net sales amounted to DKK 9.8bn.
Net sales
26%of the Danfoss Group’s net sales
Top 3 regions
NORTH
AMERICA
WESTERN
EUROPE
ASIA-
PACIFIC
Solutions
AC drives enable optimal process control and energy-efficient
speed control of electric motors. AC drives are used, for
example, in pumps, fans, elevators, escalators, conveyors and
compressors. Danfoss Drives solutions also play a key role when
energy is produced from renewable sources. The segments
technology allows significant energy savings to be obtained
and clean energy to be produced from renewable sources,
such as wind. Danfoss Silicon Power is also part of the Danfoss
Drives business segment. It develops and manufactures power
modules and stacks for automotive, renewable and industrial
applications.
Customers and industries
Danfoss Drives supplies AC drives to nearly all industry segments
and to civil engineering projects. Typical customer sectors
include food & beverage, refrigeration, machine manufacturing,
water treatment, building automation, marine and offshore,
renewable energy generation, and mining as well as elevators
and escalators, heating, ventilation, and air-conditioning (HVAC)
systems. Danfoss Drives sells its products via multiple sales
channels and directly to end-users.
Growth potential in drives
The outlook for long-term growth in the AC drives market is
positive. The growth potential in the market can be seen in
the fields which are also the Danfoss growth themes, namely
infrastructure, food, energy and climate. Increased energy-
efficiency from using AC drives is key to achieving a more
sustainable energy usage of tomorrow. Moreover, the efficient
use of energy is a precondition for global growth and increased
prosperity.
28
Annual Report 2015 · The Danfoss Group BUSINESS MODEL AND SEGMENTS
Danfoss Heating
Danfoss Heating is a key player within the heating industry. The business segment
is leading in a number of advanced heating components and systems that deliver
comfort and energy efficiency and enhanced heating performance in residential
and commercial buildings as well as in district energy systems.
Solutions
Danfoss Heating supplies heating components and systems within
residential heating, commercial heating, and district energy for
optimal comfort while reducing energy consumption. Within each
business area, Danfoss Heating is a leading player and offers a wide
range of energy efficiency solutions to customers globally. The
products and solutions from Danfoss Heating do not only deliver
superior performance and value
today, but also create a sustainable platform for tomorrow to meet
pressing demands for energy efficiency.
Customers and industries
Typical customer applications include district heating and cooling
applications, hydronic balancing of systems, hydronic
or electric floor heating, heat pumps, oil burner components and
self-acting or connected radiator thermostats. Danfoss Heating
works in both the electrical and hydronic channels with distributors,
HVAC designers and original equipment manufacturers (OEMs),
and is active in reaching end-consumers and installers through a
mix of channels. Danfoss Heating plays an important role in district
energy systems and offers complete solutions, ranging from critical
components, substations, monitoring, and service. Danfoss Heating
delivers one of the broadest and strongest product ranges in the
industry within residential buildings. Danfoss Heating is one of the
leading hydronic experts in the commercial domain and works
closely with building management companies, designers, and
installers to ensure optimal balancing and energy efficiency in e.g.
office buildings, schools, and hotels.
High potential linked to growth themes
The emergence of climate and energy as a political priority has
spurred an increased interest in district heating and cooling as
well as energy efficiency gains to be realized within buildings.
Following COP21 in Paris, the 196 countries being part of the
agreement to limit global warming have submitted plans for how
they will contribute to this green transition. Several of these plans
include initiatives to increase energy efficiency e.g. via district
energy systems. Danfoss Heating strongly supports and actively
engages in the development of new energy models that will make
energy systems more secure, competitive and sustainable in the
long run to address climate change and air pollution.
Key facts
3,948 employees
Sales activities in more than 100 countries
19 factories in 11 countries
In 2015, Danfoss Heating’s net sales amounted to DKK 5.8bn.
Net sales
15%of the Danfoss Group’s net sales
Top 3 regions
EASTERN
EUROPE
WESTERN
EUROPE
ASIA-
PACIFIC
29
Annual Report 2015 · The Danfoss Group
"Overall, the need for new infrastructure,
efficient food supply, energy efficiency
and climate-friendly solutions remained
the overall drivers of the demand for
Danfoss technologies."
30
Annual Report 2015 · The Danfoss Group Financial
review and
outlook
31
Annual Report 2015 · The Danfoss Group FINANCIAL HIGHLIGHTS
DKKm
PROFIT AND LOSS ACCOUNTS
Net sales
Operating profit before depreciation, amortization, impairment and
other operating income and expenses etc.
Operating profit before depreciation, amortization and impairment (EBITDA)
Operating profit excl. other operating income and expenses etc.
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
Local currency growth (%)
EBITDA margin excl. other operating income etc. (%)
EBITDA margin (%)
EBIT margin excl. other operating income etc. (%)
EBIT margin (%)
Return on invested capital (ROIC)
Return on invested capital (ROIC) after tax
Return on equity (%)
Equity ratio (%)
Leverage ratio (%)
Net interest bearing debt to EBITDA ratio
Dividend pay-out Ratio (%)
Dividend per 100 DKK share
2011
2012
2013
2014
2015
33,904
34,007
33,628
34,375
38,031
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
3,372
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
6,148
6,021
4,235
67
4,097
-356
3,741
0
2,597
26,168
37,219
15,424
9,640
22,613
4,667
-1,619
-1,176
-223
-220
3,048
3,397
-3,416
23,430
23,092
22,463
24,117
23,420
8
15.7
17.5
10.8
12.5
23.1
17.5
9.0
44.8
36.8
0.8
25.0
31.5
-3
16.0
16.9
11.0
11.1
21.4
15.2
17.8
51.1
19.0
0.5
17.1
39.2
2
16.5
15.8
11.5
10.8
22.2
15.9
18.2
43.8
36.0
0.8
35.0
78.3
5
17.7
16.5
12.7
11.4
19.4
13.2
18.4
35.9
86.4
2.0
21.8
48.9
5
16.2
15.8
11.1
10.8
16.3
11.4
17.6
41.4
62.5
1.6
20.4
51.8
In situations where the ratios have been defined according to "Recommendations & Key Figures 2015", as prepared by the Danish Association of
Financial Analysts, the ratios are computed according to these definitions.
32
Annual Report 2015 · The Danfoss Group
Financial review
In 2015, for the Group, net sales were at DKK 38,031m against DKK 34,375m in
the same period last year. The improvement corresponds to 11% growth. In
local currency, growth was 5%. EBIT was DKK 4,097m against DKK 3,925m last
year, which is 4% above last year. Net profit was at DKK 2,597m record-high and
13% above last year. The free cash flow before M&A was DKK 3,397m against
DKK 3,389m in the year-earlier period.
In 2015, the Danfoss Group increased its net sales to DKK
38,031m against DKK 34,375m in 2014, corresponding to an 11%
improvement, making 2015 a record year in terms of reported
net sales. In local currency, the net sales growth was 5%.
Across the Group’s four business segments (Danfoss Power
Solutions, Danfoss Cooling, Danfoss Drives, and Danfoss
Heating), the year was characterized by varying sales
performance. The varying performance reflected the overall
continued global low-growth environment and the generally
very mixed market conditions; however, it also demonstrated
the natural diversification effect at Group level.
Part of the aim of our Core & Clear strategy is to strengthen the
core businesses via organic sales growth and acquisitions of well-
performing companies. Accordingly, both organic growth and
acquisitive growth are key elements in driving long-term value
creation and we measure growth including both elements.
In December 2014, Danfoss acquired the Finnish drives
manufacturer Vacon. Consequently, the additional sales
from this acquisition have also contributed to lifting the
Group’s net sales in 2015. Furthermore, compared to 2014,
changes in exchange rates, driven by appreciation of the US
dollar, continued to have a positive impact on the top line of
approximately 6%.
Net sales / bn DKK
40
38
36
34
32
30
2011
2012
2013
2014
2015
In conclusion, in 2015, the Danfoss Group delivered sales
performance in line with expectations.
Market trends
The need for new infrastructure, efficient food supply, energy
efficiency and climate-friendly solutions remained the overall
drivers of the demand for Danfoss technologies.
In particular, the globally increasing awareness of the potential
in energy efficiency and the need for creating more sustainable
and climate-friendly energy systems were strong market drivers.
However, as mentioned above, the global, overall market
conditions continued to be characterized by low growth, and
the business environment was mixed across markets and
regions. Most significantly, the mobile hydraulics market, where
Danfoss Power Solutions operates, was down due to lower
construction activity and low crop prices.
As expected, the business environment in Russia remained
difficult, and the Chinese market continued to slow down.
Conversely, high growth potential countries like Mexico, India,
and Turkey continued with strong growth, and also markets in
the US and Europe showed a positive trend in 2015. Thus, for
the Danfoss Group, the year confirmed the overall global trend
of a change in the macroeconomic scenario. Major emerging
markets like Russia and Brazil have declined, while China has
slowed down and at the same time growth momentum seems
to be gradually building in some of the more mature regions
and new emerging economies.
In Europe, market conditions varied. In the Eastern European
region, in the areas outside Russia, the growth momentum
increased during the year, driven by improved performance in
the Danfoss Heating and Danfoss Drives business segments. In
Russia, the activity level continued to be significantly impacted
by the economic downturn, and market conditions remained
difficult. The volatility in the Russian market continued to be
high and closely related to the fluctuations of the Ruble and
oil prices. Consequently, net sales in Russia measured in DKK
dropped significantly compared to last year. Danfoss’ strategy in
33
Annual Report 2015 · The Danfoss Group FINANCIAL REVIEW AND OUTLOOK
Key figures
DKKm
2014
2015
Income statement
Net sales
EBIT
Net profit
Balance sheet
Intangible fixed assets
Property, plant and equipment
Total assets
34,375
3,925
2,290
15,732
6,558
36,883
38,031
4,097
2,597
16,046
6,682
37,219
Other information
Net investment excluding M&A
Depreciation/amortization/Impairment
996
1,738
1,176
1,926
Number of employees
Number of employees
Key figures
EBIT margin
24,117
23,420
11.4
10.8
Russia is to persist and defend the strong market position, and
in local currency, sales in Russia were close to the level of 2014.
For the whole Eastern European region sales grew by 6% in local
currency. The Western European region grew by 9% in local
currency. During the year, the most significant market change
in the region took place in the Southern European countries, in
particular in Spain, where a positive growth trend has emerged,
mainly driven by improved sales performance in the Danfoss
Cooling business segment.
In the Americas, except for a downturn in the mobile hydraulics
market impacting the Power Solutions business segment, 2015
was a good year for Danfoss. In the North America region, the
Danfoss Drives business segment, in particular, continued to
drive strong sales growth, while also Danfoss Cooling benefitted
from the overall positive trend in the US economy. For the
Danfoss Power Solutions business segment, however, the sales
in the region declined. Consequently, at Group level, net sales
in local currency in North America continued to be at level
with last year. However, excluding Danfoss Power Solutions the
growth was double-digit in local currency. In Latin America,
sales were 7% above last year in local currency, driven by
strong sales growth in markets like Mexico, Argentina and Chile
whereas sales in Brazil declined.
In Asia-Pacific, growth was 4% in local currency compared to
the same period last year. In 2015, the business environment in
the region was impacted by the Chinese economy’s continuing
slowdown, which has led to varying activity levels across
sectors within China. To some extent this also affected the Asia-
Pacific markets outside China. As a result the Danfoss business
segments faced mixed business conditions in the region and
for the Group sales in China declined. Especially Danfoss Power
Solutions and Danfoss Heating have been impacted by lower
activity in the construction sector. On the other hand, the
Group’s targeted investments in India continued to pay off with
a significant positive momentum with high double digit sales
growth in local currency.
In Africa and the Middle East region, sales grew by 14% mostly
driven by a continued strong sales momentum in Turkey.
Earnings
In 2015, EBIT excluding other operating income and expenses
amounted to DKK 4,235m against DKK 4,356m in 2014. Earnings
are compared to 2014, impacted by a combination of factors,
such as a slightly lower gross profit margin due to the current
market conditions for some of the business segments, and
Danfoss spending relatively more on R&D related activities,
and sales and distribution, while administrative expenses were
maintained at the same relative ratio as in 2014. Compared to
2014, the Group’s earnings were impacted by integration costs,
including purchase price allocations and amotizations related to
the first year of Vacon ownership.
Share of profit from associates and joint ventures after tax
contributed in 2015 with DKK 67m against DKK -187m in
2014. Danfoss acquired 20% of SMA, the German producer
of Solar Inverters in 2014. SMA was loss-making in 2014 but
has recovered again in 2015 after finishing the restructuring
announced at the end of 2014, hence affecting Danfoss’ share
of profits from associates positively compared to 2014.
EBIT / bn DKK
Gains from divestments
4.4
4.2
4.0
3.8
3.6
3.4
3.2
3.0
2011
2012
2013
2014
2015
34
Annual Report 2015 · The Danfoss Group
FINANCIAL REVIEW AND OUTLOOK
EBIT amounted to DKK 4,097m, against DKK 3,925m last year,
which is equal to an increase of 4%.
Financial items totaled an expense of DKK 356m, against an
expense of DKK 449m in 2014 and the reduction is mainly due
to fewer negative currency adjustments concerning Rubles
compared to 2014. Compared to last year, interests increased
due to the financing of the acquisition of Vacon.
Thus, profit before tax increased by 8% to DKK 3,741m.
Net profit increased to the record-level of DKK 2,597m against
DKK 2,290m in 2014. This is equal to an improvement of 13%.
Consequently, net profit grew slightly faster than net sales in 2015.
The main drivers of the improved net profit were an increase in
EBIT, reduced financial expenses, and a lower effective tax rate
compared to 2014.
In conclusion, the Group delivered satisfactory earnings.
Balance sheet
Total assets amounted to DKK 37,219m against DKK 36,883m last
year. Total assets were impacted by foreign exchange changes
mainly on the US dollar, by approximately DKK 1.1bn and
approximately DKK 300m from acquisitions. On the other hand cash
and purchace price amortizations reduced the balance sheet by
DKK 900m.
The US dollar effect mainly affects Goodwill, Property, Plant
and Equipment. Inventories and receivables increased slightly;
however as a percentage of net sales (activity level) the ratio
was reduced compared to last year by approximately 1% point.
The Group’s equity stood at DKK 15,424m at December 31,
2015, compared to DKK 13,242m at December 31, 2014. The
increase is mainly due to accumulated profits for the year
and resulted in an improvement of the equity ratio to 41.4%
against 35.9% last year.
Net interest bearing debt / bn DKK
12
10
8
6
4
2
0
2011
2012
2013
2014
2015
The return on equity was 17.6% compared to 18.4% in 2014.
The decline was a result of a higher equity due to accumulated
earnings and a positive currency impact.
During the second half of 2015 net interest-bearing debt was
brought down by strong positive cash flows, and stood at DKK
9,640m at December 31, 2015, compared to DKK 11,439m at the
same time last year. The level of debt at December 31, 2015 is
equal to 1.6 × EBITDA of the last four quarters compared to the
level of 2.0 × EBITDA at the same time last year. In conclusion,
the debt level is well within the Group’s target range of 0 to 2
times EBITDA of the last four quarters. The Group management
considers the level of debt to be satisfactory.
Interest-bearing debt included DKK 9,280m (97%) noncurrent
debt maturing after more than 12 months. At December 31,
2015, the Group had unutilized and long-term committed
credit facilities of DKK 8.2bn. In addition to this, Danfoss had
cash and cash equivalents and ordinary operating credits.
Cash flow statement
The Danfoss Group’s free cash flow was positive with DKK
3,048 m in 2015 against DKK -6,225m last year. In 2014 Danfoss
acquired Vacon Plc. The Group’s free cash flow before mergers
and acquisitions was maintained at a high level of DKK 3,397m,
against DKK 3,389m in 2014.
The Group cash flow was driven by an increase in cash flow
generated from operations, whereas net investments were
higher than last year.
Cash flow from financing activities was mainly affected by the
repayment of loans related to the Vacon acquisition.
Innovation
In 2015, Danfoss continued its high level of investments in
research and development of new products and technologies.
The Group’s innovation activities were concentrated around
digitalization of the portfolio and on developing energy-
efficient and performance-enhancing solutions in the Group’s
core business areas. The Danfoss Group spent DKK 1,607m on
product development in 2015, compared to DKK 1,331m in
2014. Measured as a percentage of sales, investment was 4.2%
against 3.9% in 2014.
During the year, Danfoss filed 166 new patent applications, and
225 patents were granted to the Group. At December 31, 2015,
the Group had 1,381 patents.
Employees
The Danfoss Group had 23,420 employees at December 31,
2015, compared to 24,117 at the year-earlier date.
35
Annual Report 2015 · The Danfoss Group FINANCIAL REVIEW AND OUTLOOK
Danfoss Power Solutions
For Danfoss Power Solutions, 2015 was characterized by a declining mobile
hydraulics market; however, considering the challenging market situation the
segment maintained good performance
Net sales / bn DKK
14
12
10
8
6
4
2
0
2011
2012
2013
2014
2015
Key figures
DKKm
Income statement
Net sales
Segment EBIT*
Balance sheet
Intangible fixed assets
Property, plant and equipment
Total assets
Other information
Net investment excluding M&A
Depreciation/amortization/Impairment
Key figures
Segment EBIT margin
2014
2015
11,406
1,703
11,566
1,579
4,045
1,903
8,838
355
756
4,008
1,445
8,334
334
742
14.9
13.6
* Segment EBIT excluding corporate costs not allocated to segments
36
Throughout 2015, Danfoss Power Solutions experienced difficult
market conditions. The global mobile hydraulics market has
been significantly impacted by the downturn in the agricultural
market and also the weakening construction and oil and gas
markets in both the US and Europe. Furthermore, the Chinese
mobile industry market and the distribution business in the US
decreased significantly during the year.
Consequently, the business segment’s net sales declined in
most regions. In North America, net sales were, due to the
appreciation of the US dollar, slightly above the same period last
year. However, in local currency, net sales were below last year in
particular due to weakening of the agricultural and construction
markets in the US. In China, net sales also declined significantly
following the downturn of the construction and road building
business. On the other hand, the business segment saw growth
in the other parts of Asia-Pacific region. And, also, in parts of
Europe the segment recorded some growth.
Financial development
The business segment’s net sales amounted to DKK 11,566m,
against DKK 11,406m in 2014, equal to a sales decline of -8% in
local currency and an increase of 1% in DKK. The sales decline in
local currency reflected the soft market conditions in 2015.
In 2015, Segment EBIT (excluding corporate costs not allocated
to the business segment) amounted to DKK 1,579m, against
DKK 1,703m last year. The lower sales in local currency are
the main reason for the lower earnings; however impact was
reduced by the segments continued focus on procurement
savings, productivity improvements as well as keeping good
control of costs.
Annual Report 2015 · The Danfoss Group
Danfoss Cooling
In 2015, profitability in Danfoss Cooling ended well above last year driven by the
increased sales in several regions.
FINANCIAL REVIEW AND OUTLOOK
For Danfoss Cooling, 2015 was a good year characterized by
continued strong performance. Currency fluctuations had a
positive impact on the segment’s sales, but also in local currency
sales were above last year. The business segment’s net sales
increased in 2015 especially in the markets for refrigeration and
airconditioning controls, commercial compressors and heat
exchangers.
From a regional market point of view, the market conditions
varied. In North America, the segment saw significant growth
driven by a combination of the appreciation of the US dollar and
increased momentum in the US economy in general. In Europe,
the business segment saw more mixed market conditions with
good growth momentum in the Eastern and Southern parts
of the region. In Asia-Pacific, the pattern of mixed markets also
led to slightly declining sales in some parts of the region, while
the segment recorded double digit growth in India. Finally, the
increased focus Africa and Middle East region also resulted in
growth.
Financial development
The business segment’s net sales amounted to DKK 10,796m,
against DKK 9,959m in 2014, equal to a sales growth of 3% in
local currency and 8% in DKK.
In 2015, Segment EBIT (excluding corporate costs not allocated
to the business segment) amounted to DKK 1,533m, against DKK
1,349m last year. The main reasons for the positive development
were the increased sales, as well as procurement savings, and
continued productivity improvements.
Net sales / bn DKK
14
12
10
8
6
4
2
0
2011
2012
2013
2014
2015
Key figures
DKKm
Income statement
Net sales
Segment EBIT*
Balance sheet
Intangible fixed assets
Property, plant and equipment
Total assets
Other information
Net investment excluding M&A
Depreciation/amortization/Impairment
2014
2015
9,959
1,349
2,039
715
5,480
123
266
10,796
1,533
2,245
673
5,952
140
261
Key figures
Segment EBIT margin
13.5
14.1
* Segment EBIT excluding corporate costs not allocated to segments
37
Annual Report 2015 · The Danfoss Group
FINANCIAL REVIEW AND OUTLOOK
Danfoss Drives
Danfoss Drives had a good 2015. Despite the ongoing merger activities the
segment managed to keep a firm focus on maintaining high performance
Net sales / bn DKK
14
12
10
8
6
4
2
0
2011
2012
2013
2014
2015
Key figures
DKKm
Income statement
Net sales
Segment EBIT*
Balance sheet
Intangible fixed assets
Property, plant and equipment
Total assets
Other information
Net investment excluding M&A
Depreciation/amortization/Impairment
Key figures
Segment EBIT margin
2014
2015
6,478
441
9,775
963
7,758
768
13,100
132
236
7,628
726
13,070
161
452
6.8
9.8
* Segment EBIT excluding corporate costs not allocated to segments
38
In December 2014, Danfoss acquired the Finnish drives
manufacturer Vacon. Following the acquisition, Vacon and the
former Danfoss drives business, Power Electronics, were merged,
creating the new business segment; Danfoss Drives.
And the first year has gone well for Danfoss Drives. The segment
has managed to maintain strong focus on serving the customers
while the merger activities have been planned and executed in
a staged and prioritized manner. During the year, the business
segment gained more market share in spite of the merger
activities and in general low-growth conditions in the drives
market. The business segment’s net sales increased in 2015 in key
industries. From a regional point of view, Danfoss Drives recorded
the highest growth rates in India and Asia-Pacific. But, also, several
parts of Europe and North America showed growth.
Financial performance
The business segment’s net sales amounted to DKK 9,775m,
against DKK 6,478m in 2014. The additional sales from the
acquisition of Vacon have contributed significantly to lifting
the business segment’s net sales in 2015. Including sales from
Vacon, the business segment had growth of 44% in local
currency and 51% in DKK.
In 2015, Segment EBIT (excluding corporate costs not allocated
to the business segment) amounted to DKK 963m, against DKK
441m last year, although 2015 was negatively impacted by one-
off costs related to the acquisition of Vacon. The main reason
for the increase is the incorporation of Vacon. Furthermore, the
successful transfer of the former Danfoss solar inverter business
to German SMA solar technology AG, as well as increased
sales, procurement savings from the consolidated spend, and
continued productivity improvements contributed to the
increased earnings.
Annual Report 2015 · The Danfoss Group
Danfoss Heating
For Danfoss Heating, 2015 was characterized by good growth momentum in
several parts of Europe, while Russia remained a challenge
FINANCIAL REVIEW AND OUTLOOK
2015 was a year of mixed market conditions for Danfoss Heating.
With Russia being one of the key markets for Danfoss Heating,
especially in the district heating business, the difficult business
environment in the region continued to be the key challenge for
the business segment. However, despite the market slowdown
in the region, the demand for energy and cost efficiency in
Russia remains high. Danfoss Heating managed to maintain a
strong position in Russia and continued the development of
its business in the region and support to local customers, as
the demand for energy and cost efficiency in Russia remains
significant.
In China, the heating market was relatively challenging as
the business environment in the region was impacted by the
continued slowdown in the Chinese economy. In Europe, Danfoss
Heating saw positive growth trends in most countries. The
increased momentum in Europe to some extent counterbalanced
the negative sales development in Russia and China. The business
segment recorded the highest growth rates in the Northern and
Eastern parts of Europe.
Financial performance
The business segment’s net sales amounted to DKK 5,821m,
against DKK 6,203m in 2014, equal to a sales decline of -1%
in local currency and -6% in DKK. The sales decline primarily
reflects the difficult market conditions in Russia.
In 2015, Segment EBIT (excluding corporate costs not allocated
to the business segment) amounted to DKK 740m, against
DKK 1,105m last year. The lower sales, but also intensified price
pressure in several markets, were the main reason for the lower
earnings. However, the impact was reduced by the segments
continued focus on productivity improvements and efficiency
programs across the value chain as well as good control of the
fixed expenses.
Net sales / bn DKK
14
12
10
8
6
4
2
0
2011
2012
2013
2014
2015
Key figures
DKKm
Income statement
Net sales
Segment EBIT*
Balance sheet
Intangible fixed assets
Property, plant and equipment
Total assets
Other information
Net investment excluding M&A
Depreciation/amortization/Impairment
2014
2015
6,203
1,105
1,711
400
3,630
122
142
5,821
740
1,836
390
3,667
90
128
Key figures
Segment EBIT margin
17.6
12.6
* Segment EBIT excluding corporate costs not allocated to segments
39
Annual Report 2015 · The Danfoss Group
FINANCIAL REVIEW AND OUTLOOK
FINANCIAL HIGHLIGHTS, QUARTERLY
DKKm
Q1 2014 Q2 2014 Q3 2014 Q4 2014
2014
Q1 2015 Q2 2015 Q3 2015 Q4 2015
2015
PROFIT AND LOSS ACCOUNTS
Net sales
Operating profit before depreciation, amortization,
impairment and other operating income and expenses etc.
Operating profit before depreciation, amortization and
impairment (EBITDA)
Operating profit excl. other income and expenses etc.
Operating profit (EBIT)
Financial items
Profit before tax
Net profit
8,303
8,617
8,784
8,670
34,375
9,385
9,854
9,483
9,309
38,031
1,401
1,450
1,802
1,426
6,079
1,411
1,556
1,749
1,432
6,148
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
1,352
930
871
-87
783
509
1,481
1,070
997
-91
906
608
1,745
1,275
1,273
-132
1,141
778
1,443
960
956
-46
911
702
6,021
4,235
4,097
-356
3,741
2,597
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
Local currency 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
Western Europe
Eastern Europe
Asia Pacific
North America
Latin America
Africa - Middle East
Total
Number of employees
Western Europe
Eastern Europe
Asia Pacific
North America
Latin America
Africa - Middle East
Total
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
25,822
36,883
13,242
11,439
22,432
26,561
39,341
14,762
11,300
23,754
25,994
38,533
14,602
11,519
23,799
25,689
37,538
14,856
10,350
22,847
26,168
37,219
15,424
9,640
22,613
26,168
37,219
15,424
9,640
22,613
405
-178
-215
0
37
227
228
-490
8
16.9
16.2
12.0
11.0
45.2
32.8
0.7
3,436
743
1,431
2,054
437
202
8,303
9,133
3,893
4,868
3,058
1,227
107
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
3,291
904
1,629
2,100
456
237
8,617
9,069
3,972
4,982
3,217
1,282
111
22,633
2,754
-3,593
4,351
-10,576
4,351
-10,576
-711
0
-2,882
-839
2,090
609
-996
-7,377
-2,203
-6,225
3,389
6,194
-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
3,328
1,184
1,701
1,854
495
222
8,784
9,045
3,972
4,988
3,251
1,252
114
22,622
7
16.4
13.1
10.7
7.5
35.9
86.4
2.0
3,267
1,010
1,782
1,911
468
232
8,670
9,911
4,010
5,372
3,428
1,278
118
24,117
5
17.7
16.5
12.7
11.4
35.9
86.4
2.0
13,322
3,841
6,542
7,921
1,856
893
34,375
9,911
4,010
5,372
3,428
1,278
118
24,117
437
-242
-147
-17
-79
195
291
-304
6
15.0
14.4
9.9
9.3
37.5
76.5
2.0
3,776
679
1,705
2,511
472
242
9,385
9,724
3,996
5,336
3,432
1,286
127
23,901
1,121
-641
-359
-112
-170
480
686
-797
5
15.8
15.0
10.9
10.1
37.9
78.9
2.0
3,676
834
2,039
2,559
469
277
9,854
9,637
3,915
5,302
3,453
1,340
128
23,775
2,986
-949
-656
-111
-182
2,037
2,257
-2,347
5
18.4
18.4
13.4
13.4
39.6
69.7
1.8
3,637
1,004
2,024
2,087
470
261
9,483
9,558
3,893
5,223
3,410
1,266
138
23,488
4,667
-1,619
-1,176
-223
-220
3,048
3,397
-3,416
5
15.4
13.1
10.7
10.3
41.4
62.5
1.6
3,561
888
1,947
2,121
475
317
9,309
9,536
3,908
5,172
3,406
1,203
195
23,420
4,667
-1,619
-1,176
-223
-220
3,048
3,397
-3,416
5
16.2
15.8
11.1
10.8
41.4
62.5
1.6
14,650
3,405
7,715
9,278
1,886
1,097
38,031
9,536
3,908
5,172
3,406
1,203
195
23,420
In situations where the ratios have been defined according to "Recommendations & Key Figures 2015", as prepared by the Danish Association of
Financial Analysts, the ratios are computed according to these definitions.
40
Annual Report 2015 · The Danfoss Group Outlook 2016
FINANCIAL REVIEW AND OUTLOOK
Our key focus continues to be on ensuring long-term
profitability of the business by having a scalable and flexible
business model, while investing in the core businesses to
maintain the market position and grow by expanding market
share. Based on an agile business foundation enabling quick
response, we can proactively adapt to changing market
conditions and new business opportunities.
Overall, the outlook in regard to the development of the
global economic environment remains weak; visibility is low
and volatility continues to be high. For the global industrial
sector, in particular, the growth projections are in general
subdued. However, we do also see increasing momentum in
some markets and regions like India, Turkey and Mexico, and
we are in a good position to take advantage of these growth
opportunities.
Key factors which can impact the Group’s sales performance in
2016:
• Low prices on commodity goods – such as crops, metals and
oil – affecting the global agriculture, marine, oil & gas and
mining sectors negatively and, potentially, impacting the
activity levels in the markets where our business segments,
Danfoss Power Solutions and Danfoss Drives, are operating.
•
Continued volatility and fluctuations in foreign exchange
rates may have a negative effect on sales.
• The Group’s continued strategic initiatives to accelerate
profitable growth and investments in markets with high
growth potential are well underway and expected to generate
a positive impact on the market share development. Impact
from the initiatives is dependent on the development of the
global market conditions during 2016.
• The strong cash flow performance is expected to continue
in 2016, and to the extent that we are successful in acquiring
well-performing companies, this can add to the sales growth.
2016 expectations
Based on the above, we expect to maintain or expand our
market share while maintaining our EBIT margin at level with
2015.
Forward-looking statements
The Annual Report contains forward-looking statements. Such
statements are subject to risks and uncertainties as various factors,
many of which are beyond Danfoss’ control, may cause actual
development and results to differ materially from expectations
contained in the Annual Report.
41
Annual Report 2015 · The Danfoss Group 42
Annual Report 2015 · The Danfoss Group "Water and wastewater facilities
typically use 25-40% of the total power
use in a city. In the Danish city of
Aarhus, a wastewater facility equipped
with Danfoss solutions produces 90%
more energy than it consumes while
at the same time cleaning the city’s
wastewater. In fact, the wastewater
plant is functioning as a combined
heat and power plant: It’s a power
producing wastewater plant."
Sustainability
43
Annual Report 2015 · The Danfoss Group Sustainability
Danfoss treasures sustainable results and plays an active role in
sustainable global development. Danfoss became a signatory
to the UN Global Compact Initiative in 2002 and continues
to support the Global Compact as governing principles in
the Group’s sustainability efforts. Danfoss prepares an annual
sustainability report that serves as the Communication on
Progress report to the UN and as Danfoss’ report on corporate
responsibility, as required under section 99a of the Danish
Financial Statements Act. The full Sustainability Report is
available at www.danfoss.com/sustainability/sustainability-
reporting.
Climate Strategy 2030
Danfoss launched in November 2015 an ambitious Climate
Strategy 2030, which builds on what the company has already
achieved since the first climate strategy was launched in 2008.
Danfoss’ energy intensity measured as energy consumption
per mDKK net sales has been reduced by 29% since 2007. The
new strategy requires Danfoss to reduce the energy intensity by
50% before 2030 and only use half as much energy to keep the
wheels of business running. The consumed energy shall by 2030
emit less than half as much CO2 per MWh.
To achieve the goals, Danfoss will initiate a range of new measures
from 2016: We will assess stimulation mechanisms for green
transformation including advantages and implications of an
internal carbon price to drive further investments in energy
savings; all production line processes will be thoroughly scrutinized
and measures taken to lower energy use; the focus on building
renovation and refurbishment will be strengthened; regular energy
audits will be performed in the largest factories and high attention
will be given to emissions from the transport of goods to drive the
already achieved reductions further.
Danfoss’ global energy-saving project includes the 21 largest
factories and will reduce the energy used to supply the
buildings with heating, cooling and lighting by 35%. The
projects will, when the implementation is finished in 2017,
reduce more than 16% off the total energy consumption in the
factories and reduce the energy costs significantly. More than
160 local projects have been initiated and the project will be
realized with a simple payback time of less than 3 years.
Energy efficiency
In 2015, Danfoss emitted 234,000 tons of CO2 from the
company’s consumption of electricity and heat. This is 5,000
tons more than in 2014, which primarily is caused by increased
electricity consumption in those countries where the CO2
intensity of the electricity is high (China, India and Poland).
Implemented energy savings in other countries did not fully
compensate for the increases. The overall CO2 intensity in all
energy used in 2015 increased slightly from 393 kg CO2/MWh in
2014 to 398 CO2/MWh.
Danfoss’ total energy consumption remained unchanged from
2014 while the energy intensity decreased by 9.4% to 15.4
MWh/mDKK in 2015 against 17.0 MWh/mDKK in 2014. This was
caused by increased sales without increased consumption of
energy.
Safety First!
Protecting the environment and improving the health, working
environment and safety of our employees has always been
deeply rooted in Danfoss. Our Core & Clear strategy is built on
the employees as Danfoss’ most important asset, and we drive
passion and performance through leadership, diversity and
winning teams.
“Safety First!” is the Group’s systematic approach to a safe
workplace. Focus is on having clear, aligned procedures and
standards to ensure a safe working environment and avoiding
accidents across all Danfoss sites.
In 2015, Danfoss implemented a global safety program “Safety
on the shop floor”. The project enhances the focus on safety
in all factories around the world. From 2015, safety shoes and
safety glasses are mandatory for anyone entering the shop floor
in any Danfoss factory worldwide. Hearing protection is also
mandatory for employees working at machines with a high
noise-level and safe walkways have been identified and marked
for pedestrians in all factories.
The activities implemented through “Safety on the shop floor”
are clear signals of Danfoss’ continued dedication to aligned and
very high health and safety standards across the Group. With
44
Annual Report 2015 · The Danfoss Group SUSTAINABILITY
Danfoss products are reducing energy consumption
Everywhere: from houses and office
buildings to supermarkets and factories
worldwide, Danfoss products are reducing
energy consumption on a daily basis. In
total, Danfoss products save millions of
kilowatt hours, huge amounts of money,
and tons of CO2.
For example, recycling heat, through
District Energy networks, opens the
way to massively reducing carbon
emissions, particularly in urban centers,
where heat demand is most intense.
These reductions are achieved without
limiting economic and industrial
output or endangering living standards.
District Energy is widely used in some
of Europe’s most advanced economies,
where productivity and high living
standards go hand in hand with real
carbon savings: District Energy lets
Copenhagen save 665,000 tons of CO2
annually, while Helsinki saves 1.5m tons
per year. According to the International
Energy Agency, over 35 billion tons of
carbon emissions could be avoided by
2050 through the use of modern district
heating and cooling. This equals 58 %
of global carbon emissions reductions
required to keep the global rise in
temperature to 2-3 degrees Celsius.
Another obvious area of improving
energy efficiency in cities is the water
sector. The water and wastewater
facilities in cities account for the largest
consumption of electricity in cities. This is
often overlooked. Water and wastewater
facilities typically use 25-40% of the total
power use in a city. In the Danish city of
Aarhus, a wastewater facility equipped
with Danfoss solutions produces 90%
more energy than it consumes while
at the same time cleaning the city’s
wastewater. In fact, the wastewater plant
is functioning as a combined heat and
power plant: It’s a power producing
wastewater plant. The excess heat is
led into the district heating system
in the city, and thereby reducing the
city’s carbon footprint.
Danfoss’ frequency converters
controls electric motors so they
only run at the speed necessary
to obtain the desired effect, this
saves up to 50% energy. Electric
Motor-driven Systems are extremely
energy consuming when it comes to
end-use appliances and consume at
least 7000 TWh/year globally, which
is roughly equivalent to 45% of all
end-use electricity consumption
world-wide. With 70-80% of new
motor installations not controlled by
drives and a 10-15 years lifetime of
motors, the installed base of motors
not controlled by drives – provides a
large energy savings potential.
45
Annual Report 2015 · The Danfoss Group SUSTAINABILITY
the program Danfoss continued the postive trend within safety.
Danfoss’ total LTIF – Lost Time Injury Frequency was reduced to
3.4 in 2015 from 4.4 the year before - a significant reduction of
22%. The LTIF is the number of accidents that result in absence
from work of one or more calendar days in addition to the day of
the accident per one million hours worked.
The Lost Day Rate in 2015 was 59 (the number of days with
absence from work due to Lost Time Injuries per one million
working hours). This is a reduction from 66 in 2014.
The reductions were achieved through a dedicated focus on
safety in the factories, the implementation of aligned safety
rules across the business segments but first and foremost by
the dedicated management, safety staff, and employees at all
Danfoss’ factories around the world.
Ethical conduct
In order to maintain and develop Danfoss’ position and good
reputation on the global market, it is key that we create results in
an ethical manner. The Danfoss name must always be associated
with respect for human rights, proper working conditions, and
social and environmental considerations.
In 2015, Danfoss continued the company’s efforts to ensure high
ethical standards and business conduct. A main element is the
Ethics Handbook that supports the employees in living up to the
Danfoss values and policies by describing our ethical guidelines.
The Ethics Handbook is fully implemented in all legal entities,
lastly by introducing it to the 1,600 new colleagues joining
Danfoss following the acquisition of Vacon in December 2014.
Danfoss has stepped-up the efforts to maintain high ethical
standards by updating the global e-learning program on ethics,
Ethics@work based on actual ethics cases or questions raised in
the company. More than 3,300 people managers and employees
have been trained in Ethics@work during 2015.
Danfoss has for many years monitored and mitigated its human
right impact to prevent and mitigate any potential or actual
negative impact on human rights in its value chains. Danfoss
continued in 2015 the implementation of the “UN Guiding
Principles on Human Rights” that requires companies to conduct
human rights due diligence. As a part of Danfoss’ Sustainability
Program, a process was initiated in 2015 to scope the future
human rights due diligence process as an integrated part of the
Group’s operations.
Our people
In order to deliver on our promises to customers every day
our employees are empowered to make an impact, to exceed
expectations, and to achieve sustainable results. Our employees
have the right to a safe and healthy working environment where
discrimination is prohibited and personal well-being is promoted.
One of Danfoss’ strategic targets is to make the company
a great place to work. Danfoss aspires to be world class in
Human Resource management, enabling accelerated profitable
growth by means of a high-performing and engaged Danfoss
organization. The organization strives to foster a collaborative,
agile and flexible organization where employees make a
difference and leaders inspire people to deliver the best results.
Real impact, strong teamwork, global career opportunities and
continuous focus on development make Danfoss a great place to
work.
During 2015, Danfoss launched a new engagement survey,
called Voice, for the entire Group. Voice covers areas such as
employee engagement, performance enablement, strategy,
behaviors, and leadership.
The results of the first One Company engagement survey for the
Danfoss Group show a high engagement score of 76 on a scale
from 1 to 100. 93% of the employees filled out the survey and
gave their feedback about what works well and what needs to
be improved.
Other results show that 27% of the employees are "fiery
advocates" - meaning they are highly loyal and committed
to Danfoss. The study also shows that more than half of the
employees, 52%, believe that the managers show strong
leadership, with a balanced focus on performance and people
skills. Due to updates of the survey questions the results cannot
be directly compared with those of previous engagement
surveys. However, we consider the results to be within the best
quartile of benchmark.
Diversity
Danfoss believes the diversity of its employee base builds a
competitive advantage towards customers through creativity,
46
Annual Report 2015 · The Danfoss Group SUSTAINABILITY
innovation and local customer understanding. As a global
company, we are focused on maintaining an inclusive work
environment encouraging and harnessing our employee’s
opinions, knowledge, collaboration and diverse perspectives.
pipeline as well as attracting female leaders to join at all levels.
We have made great progress in China and Eastern Europe with
over 25% female leadership. We will continue our aspiration to
reach 20% overall by 2017.
Danfoss is specifically looking at hiring and developing more
female leaders, engaging the different generations and ensuring
strong local leaders facing our customers.
The Group’s overall goal was 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 30% were women
in 2015. The percentage of female managers remained in 2015
at 18%.
Although Danfoss hasn’t reached its goal of 20%, we continue
to focus on developing the female leaders currently in our talent
Danfoss aims for the composition of its top governing body
to reflect the diversity of the rest of the Group. The Board of
Directors has one female member, elected by the employees;
However no members elected by the General Assembly are
female. 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 elected by the General
Assembly. 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.
47
Annual Report 2015 · The Danfoss Group 48
Annual Report 2015 · The Danfoss Group "We take a systematic and holistic
approach to managing risk.
Maintaining efficient risk management
is a cornerstone in Danfoss as well as a
prerequisite for running a business and
responding rapidly and flexibly when
conditions change."
Risk
management
and
compliance
49
Annual Report 2015 · The Danfoss Group Risk management
and compliance
This section provides an overview of the Danfoss Risk Management and
compliance activities, its governance and defined Group risks.
In order to grow and stay profitable in increasingly complex
business environments, Danfoss must manage risks
and opportunities effectively. We take a systematic and
holistic approach to managing risk. Maintaining efficient
risk management is a cornerstone in 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 of Directors
performs risk oversight and the Audit Committee assesses the
effectiveness of the Danfoss Risk Management.
"To mitigate cyber risk, Danfoss is in
the process of renewing IT Security
governance with security policies
covering all necessary areas. In
addition, Danfoss raises security
processes and procedures to a higher
maturity level combined with the
implementation of critical controls."
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 Audit, 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 assesses the
effectiveness and adequacy of the current risk management
standards.
• Group Risk Management, whose duties include responsibility
for the content of the Group’s risk management program.
• Group Ethics & Compliance, whose duties include responsibility
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.
50
Annual Report 2015 · The Danfoss Group RISK MANAGEMENT AND COMPLIANCE
"Danfoss has implemented ethical
guidelines and compliance programs.
Compliance is verified through follow-
up procedures that include internal
inspections and other measures"
51
Annual Report 2015 · The Danfoss Group RISK MANAGEMENT AND COMPLIANCE
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 Group Risk Management function
annually prepares a report on the most significant risks which is
submitted to the Risk & Compliance Committee. Subsequently it
is submitted to the Board of Directors, the Audit Committee and
the Executive Committee. The Risk & Compliance Committee
provides overall supervision of the risk management process
and monitors selected group risks as well as potential new risks.
Risk profile
While there is no single risk threatening the Group’s survival, it
is exposed, in its aggregate risk profile, to a number of external
and internal risks.
Every identified risk is assessed and reviewed by a standardized
guideline on a regular basis.
Important risks 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 enforcement in areas such as anti-corruption, competition
law, export control and good business ethics. Good regulation
across the globe will help ensure a level playing field, which
is seen as an advantage for Danfoss. For this reason, we are
strongly focused on compliance, and the Group has established
internal programs and control mechanisms to minimize the risk
of unethical behaviour.
Training and compliance follow-up
Compliance efforts are based on extensive preventive programs,
comprised by clear rules and guidelines and targeted employee
communication and training. Follow-up procedures to verify the
effectiveness of these compliance efforts form an integral part
of internal controls and audits, as do spot checks conducted by
our internal audit function.
We have compliance programs in a number of areas (e.g.
anti-corruption and ethical behavior). A specific focus in 2015
was the introduction of a revised Export Control compliance
manual and the application for authority approval of newly
developed Corporate Binding Rules concerning data privacy.
Furthermore, all people managers completed a revised online
training , Ethics@work, enabling them to guide themselves, their
employees and their colleagues in making the right decisions
and living up to our values and policies.
Compliance hotlines
In addition to the compliance programs, Danfoss also has a
query function AskUs, where employees can seek 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 2015, AskUs received 85 enquiries from
employees seeking guidance on how to properly follow ethical
guidelines or compliance requirements in a specific situation.
We also have a whistle-blower function, the Ethics Hotline,
where employees can report suspected breaches of internal
guidelines and legislation anonymously. A total of 93 cases
were reported to the Ethics Hotline in 2015. In all substantiated
cases, correcting actions has been taken, including necessary
disciplinary action. None of the ethics cases have had material
impact on Danfoss.
"In addition to the compliance
programs, Danfoss also has a query
function AskUs, where the Group’s
employees can seek answers to any
questions and doubts they may have
regarding ethics and compliance."
52
Annual Report 2015 · The Danfoss Group RISK MANAGEMENT AND COMPLIANCE
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 an area
of growing focus from several stakeholders, with increased level
of regulation and sanctions being introduced worldwide in areas
such as anti-corruption, export control and competition law.
Unethical or outright illegal conduct by Danfoss employees or
agents acting on our behalf, 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 training, internal inspections and other measures. In
addition, Danfoss has an AskUs 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.
Data privacy regulation
Data privacy concerns exist wherever personally identifiable
information is collected and stored – in digital form or otherwise.
They could arise from an inappropriate handling of sensitive data
concerning employees, customers, suppliers etc.
A stricter data protection regulation, taking into account the
enormous technological changes of the last 20 years, has
been agreed upon in the European Union. It is expected to be
adopted in 2016. The new rules will become applicable two
years thereafter. Among other things the regulation will increase
the responsibility of companies regarding data privacy and
breaches against the regulation may result in fines up to 4% of a
company’s annual revenue.
Cyber risk
Using digital technologies, devices and media bring
opportunities but also risks to Danfoss. These risks could be
hacker attacks, data theft, and other forms of cyber-crime and
generally affect confidentiality, integrity and availability. In
particular, the increasing cloud computing and the associated
increased business use of private terminals or security risks by
external access to corporate IT via smartphones and tablets
represent a risk to the Danfoss Group.
Risk mitigation measures
Danfoss has performed a data classification and completed a
data flow analysis. Binding Corporate Rules have been defined
and submitted to relevant authorities for approval. While waiting
for the formal approval, Danfoss will adjust relevant processes
and systems to comply with the Binding Corporate Rules.
Risk mitigation measures
To mitigate cyber risk, Danfoss is in the process of renewing
IT Security governance with security policies covering all
necessary areas. In addition, Danfoss raises security processes
and procedures to a higher maturity level combined with the
implementation of critical controls.
53
Annual Report 2015 · The Danfoss Group "Legislation provides the general
framework for the Group’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 Group’s management, owners and
other stakeholders."
54
Annual Report 2015 · The Danfoss Group Corporate
Governance
55
Annual Report 2015 · The Danfoss Group 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 Group holds itself.
Legislation provides the general framework for the Group’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 Group’s management, owners and other stakeholders. The
Group’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 Committee 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 at the General Assembly, four
(Kasper Rørsted, William Ervin Hoover, Jürgen Reinert and Björn
Rosengren) are independent. Henrik Poulsen resigned from the
Board in December 2015. The Board of Directors will assemble in
plenary sitting at the General Assembly of Danfoss A/S on April
29, 2016.
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 Group’s requirements at all times.
Audit Committee
The duties and responsibilities of an 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.
Bill Hoover is chairman of the Audit Committee, and conducts
regular meetings with the corporate finance functions and
Internal Audit outside Board meetings. The Committee’s
activities and tasks are set out in its rules of procedure, and it
held five meetings in 2015.
Internal audit function
The Group’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.
The internal audit function visited a number of Group companies
in 2015. 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 class D company with listed bonds.
Danfoss has to comply with the rules set out in section
107b, section 1 no. 6, of the Danish Financial Statements
56
Annual Report 2015 · The Danfoss Group CORPORATE GOVERNANCE
Act applying to companies with listed bonds, including the
exceptions regarding issuers of bonds above EUR 100,000.
For the complete account of Danfoss’ corporate governance,
please see the corporate website at www.danfoss.com/
corporategovernance2015.
Dividends and General Meeting
The Annual General Meeting will be held in Nordborg on April
29, 2016. The Board of Directors will recommend to the General
Meeting that a dividend of 20.4% of the Group’s net profit be
paid in 2015, corresponding to DKK 51.8 per 100 DKK share.
Shareholders
Danfoss’ share capital amounts to DKK 1,024m and is divided
into two share classes: A-shares accounting for DKK 425m and
B-shares accounting for DKK 599m. 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 99.83% of the votes. At the end of 2015, Danfoss
had approximately 2,900 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 2015,
the price was set at DKK 4,267 per share. The new price will be
announced at the 2016 Danfoss Annual General Meeting in April.
Shareholders with more
than 5% of share capital
The Bitten og Mads Clausen Foundation, Nordborg, Denmark
49.77% shares
85.68% votes
Clausen Controls A/S, Sønderborg, Denmark
25.56% shares
5.40% votes
Henrik Mads Clausen, Lake Forrest, USA
10.74% shares
2.26% votes
Karin Clausen, Holte, Denmark
7.05% shares
1.49% votes
57
Annual Report 2015 · The Danfoss Group
CORPORATE GOVERNANCE
Danfoss Board of directors
Competencies
Other positions
Jørgen Mads Clausen
Chairman of the Board of Directors
Born: 1948
Position with Danfoss A/S
Chairman of the company’s Board of Directors since 2009.
Member since 1985.
Mads-Peter Clausen
Member of the Board of Directors
Born: 1976
Position: Senior M&A Associate Danfoss A/S
Position with Danfoss A/S
Member of the company’s Board of Directors since 2014.
William Ervin Hoover Jr.
Member of the Board of Directors
Born: 1949
Position: Director
Position with Danfoss A/S
Member of the company’s Board of Directors since 2007.
Kasper Bo Rørsted
Member of the Board of Directors
Born: 1962
Position: CEO of Henkel A/G & Co. KGaA
Position with Danfoss A/S
Member of the company’s Board of Directors since 2009.
Björn Klas Otto Rosengren
Member of the Board of Directors
Born: 1959
Position: CEO and President of Sandvik AB
Position with Danfoss A/S
Member of the company’s Board of Directors since 2010.
Jürgen Reinert
Member of the Board of Directors
Born: 1968
Position: CTO (Chief Technology Officer), SMA Technology AG
Position with Danfoss A/S
Member of the company’s Board of Directors since 2015.
Education:
Master of Business Administration, University of
Wisconsin, Madison, USA
Bachelor of Science in Engineering, DTU (Technical
University of Denmark)
Professional experience managing a Danish-based
international company and from other board
memberships.
Chairman of the Board of Applied Biomimetic A/S
Member of the Board of Fonden Universe Science Park
Member of the Board of miniBOOSTER Hydraulics A/S
Member of the Board of Blue Equity Management A/S
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
Education:
Master of Business Administration, University of
Georgia
Bachelor of Science in Engineering, University of
Southern Denmark
Member of the Board of miniBOOSTER Hydraulics A/S
Education:
Master of Business Administration, Harvard University
Professional experience with supply chain,
performance transformation, organization changes
and mergers and acquisitions.
Chairman of the Board of ReD Associates Holding A/S.
Deputy Chairman of the Board of GN Store Nord A/S (Great Nordic).
Member of the Board of Sanistål A/S
Member of the Board of Lego Foundation
Member of the Board of Specialist People Foundation
Member of the Supervisory Board of Bertelsmann SE & Co. KGaA
Member of the Board of Anheuser-Busch InBev SA
Member of the Board of Directors of Outotec
Member of the Board of Kraftelektronik AB
Education:
International Business School, Copenhagen
Harvard Business School, Executive Programs
Professional experience in managing major
international companies in Switzerland, the UK and
Germany.
Education:
Master of Science in technology, Chalmers University
of Technology, Gothenburg
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.
Education:
Doctorate in Engineering
Doctorate in Motor Control, Aachen University of
Technology
Master of Science in Engineering, University of
Pretoria, South Africa
Bachelor of Science in Engineering, University of
Pretoria, South Africa
Jens Peter Rosendahl Nielsen
Member of the Board of Directors
Education:
Machinist
Member of the Board of Metal Kolding and LO-Kolding
Born: 1957
Position: Senior Shop Steward at Danfoss Kolding
Cooperation courses and experience from other
board memberships.
Position with Danfoss A/S
Employee elected member of the company’s Board of Directors since 2006.
Lars Grau
Member of the Board of Directors
Education:
Electrician
Member of the Board of Danfoss Employee Foundation
Member of the Board of Danish El Federal in South Jutland
Born: 1963
Position: Senior Shop Steward at Danfoss Nordborg
Cooperation courses and experience from other
board memberships.
Position with Danfoss A/S
Employee elected member of the company’s Board of Directors since 2014.
Sandra Nørgaard Bertelsen
Member of the Board of Directors
Born: 1982
Position: Senior Legal Advisor, Danfoss A/S
Position with Danfoss A/S
Employee elected member of the company’s Board of Directors since 2014.
Education:
Master of Laws, Aarhus University
Bachelor of Laws, Aarhus University
Cooperation courses and experience from other
board memberships
58
Annual Report 2015 · The Danfoss Group
CORPORATE GOVERNANCE
59
Annual Report 2015 · The Danfoss Group CORPORATE GOVERNANCE
Executive Committee
Niels Bjørn Christiansen
President and CEO of Danfoss A/S
Kim Fausing
Executive Vice President and COO of Danfoss A/S
Jesper Vaagelund Christensen
Executive Vice President and CFO of Danfoss A/S
Born: 1966
Member since 2004
Born: 1964
Member since 2008, (2,400 warrants)
Born: 1969
Member since 2013
Companies with considerable board activities
• Chairman of the Board of Axcel A/S
• Member of the Board of AP Moller-Maersk A/S
• Member of the Board of William Demant Holding A/S
• Vice Chairman of the Board of the Confederation of
Danish Industry
• Member of the Board of DTU, Technical University of
Denmark
Companies with considerable board activities
• Deputy Chairman of the Board of Velux A/S
• Deputy Chairman of the Board of SMA Solar
Technology AG
• Member of the Board of Hilti AG
Danfoss Leadership Team
Niels B. Christiansen
President and CEO, Danfoss A/S (born 1966)
Kim Fausing
Executive Vice President and COO, Danfoss A/S (born 1964)
Jesper V. Christensen
Executive Vice President and CFO, Danfoss A/S (born 1969)
Anne Wilkinson
Senior Vice President, Corporate HR (born 1965)
Mette Refshauge
Senior Vice President, Corporate Communication (born 1973)
Jürgen Fischer
Segment President, Danfoss Cooling (born 1963)
Lars Tveen
Segment President, Danfoss Heating (born 1963)
Eric Alström
Segment President, Danfoss Power Solutions (born 1966)
Vesa Laisi
Segment President, Danfoss Drives (born 1957)
Peter Martin
Senior Vice President, Group IT (born 1964). Entered the Danfoss Leadership Team in 2015.
60
Annual Report 2015 · The Danfoss Group
CORPORATE GOVERNANCE
61
Annual Report 2015 · The Danfoss Group CORPORATE GOVERNANCE
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, 2015.
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, 2015, 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, 2015.
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.
Board of Directors
Jørgen M. Clausen
Chairman
Jürgen Reinert
Sandra N. Bertelsen
We recommend that the Annual General Meeting approves the
Annual Report.
Mads-Peter Clausen
Nordborg, March 15, 2016
Lars Grau
Executive Committee
William Erwin Hoover
Niels B. Christiansen
Jens Peter Nielsen
Jesper V. Christensen
Björn Rosengren
Kim Fausing
Kasper Rørsted
62
Annual Report 2015 · The Danfoss Group Independent auditor’s report
To the Shareholders of Danfoss A/S
CORPORATE GOVERNANCE
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 2015, 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 2015 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 2015 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, 15 March 2016
PricewaterhouseCoopers
Statsautoriseret Revisionspartnerselskab
CVR No 33 77 12 31
Mogens Nørgaard Mogensen
State Authorised Public Accountant
Claus Lindholm Jacobsen
State Authorised Public Accountant
63
Annual Report 2015 · The Danfoss Group
6464
Annual Report 2015 · The Danfoss Group Group
Accounts
and notes
6565
Annual Report 2015 · The Danfoss Group 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
6
2014
34,375
-22,209
12,166
2015
38,031
-24,700
13,331
-1,324
-4,943
-1,543
4,356
-244
-187
3,925
37
-486
3,476
-1,186
2,290
-1,607
-5,764
-1,725
4,235
-205
67
4,097
70
-426
3,741
-1,144
2,597
2,104
186
2,290
2,381
216
2,597
6666
Annual Report 2015 · The Danfoss Group 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
2014
2,290
2015
2,597
-283
96
-187
783
-21
-134
-25
42
645
458
14
-5
9
610
16
341
-271
-19
677
686
2,748
3,283
2,503
245
2,748
3,011
272
3,283
6767
Annual Report 2015 · The Danfoss Group
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
7
8
3
15
14
9
10
17
16
2014
2015
15,732
16,046
6,558
6,682
2,249
84
39
1,160
3,532
2,452
107
26
855
3,440
25,822
26,168
4,085
4,170
5,167
441
14
638
6,260
5,325
527
12
698
6,562
CASH AND CASH EQUIVALENTS
16
716
319
TOTAL CURRENT ASSETS
TOTAL ASSETS
11,061
11,051
36,883
37,219
6868
Annual Report 2015 · The Danfoss Group 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
11
12
14
15
16
16
12
13
16
17
16
2014
2015
12,284
958
13,242
14,700
724
15,424
396
1,964
1,279
11,063
37
250
14,989
619
81
1,109
3,572
12
295
106
2,858
8,652
366
1,942
1,216
9,280
28
324
13,156
617
42
796
3,864
22
302
224
2,772
8,639
23,641
21,795
36,883
37,219
6969
Annual Report 2015 · The Danfoss Group
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
17
20
20
21
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
2015
3,741
1,953
299
5,993
18
-286
5
5,730
-1,063
4,667
-204
-1,096
124
-234
11
-220
-1,619
-6,225
3,048
7,150
-14
5
-789
-158
6,194
-31
737
10
716
-2,325
-312
-38
-493
-248
-3,416
-368
716
-29
319
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
-6,225
7,376
1
2,237
3,389
3,048
234
-11
126
3,397
The cash flow statement cannot be derived on the basis of the Annual Report alone.
7070
Annual Report 2015 · The Danfoss Group STATEMENT OF CHANGES IN EQUITY
STATEMENT OF CHANGES IN EQUITY
DKKm
DKKm
L
A
L
T
A
I
P
T
A
I
P
C
A
E
C
R
E
A
R
H
A
S
H
S
1,022
1,022
I
M
U
M
U
M
I
E
M
R
E
P
R
E
P
R
E
A
R
H
A
S
H
S
409
409
i
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
19
19
i
-159
-159
37
37
-122
-122
-122
-122
n
o
n
i
t
o
a
i
l
t
s
a
n
l
s
a
n
r
t
a
y
r
t
c
y
n
c
e
n
r
r
e
u
r
C
r
u
C
-617
-617
724
724
-21
-21
5
5
708
708
708
708
1
1
1
1
1,023
1,023
1,023
1,023
54
54
54
54
463
463
463
463
-70
-70
-70
-70
-501
-501
-501
-501
-103
-103
-103
-103
91
91
91
91
554
554
16
16
-3
-3
567
567
567
567
70
70
-16
-16
54
54
54
54
1
1
1
1
1,024
1,024
52
52
52
52
515
515
-364
-364
-364
-364
-865
-865
-49
-49
657
657
BALANCE AS OF JANUARY 1, 2014
BALANCE AS OF JANUARY 1, 2014
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
Adjustment to prior years
Adjustment to prior years
COMPREHENSIVE INCOME IN 2015
COMPREHENSIVE INCOME IN 2015
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
Disposals through sale of subsidiaries
Disposals through sale of subsidiaries
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, 2015
BALANCE AS OF DECEMBER 31, 2015
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
-431
-431
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
9,385
9,385
S
E
S
V
E
R
V
E
R
S
E
E
S
R
E
R
8,356
8,356
I
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
800
800
S
R
S
E
R
D
E
L
D
O
L
H
O
E
H
R
E
A
R
H
A
S
H
S
Y
T
Y
I
U
T
I
Q
U
E
Q
E
10,587
10,587
S
/
A
S
/
S
A
S
S
O
S
F
O
N
F
A
N
D
A
D
N
N
I
I
,
,
T
S
T
E
S
R
E
E
R
T
E
N
T
I
N
Y
I
T
Y
I
R
T
I
O
R
N
O
N
M
M
856
856
I
I
Y
T
Y
I
U
T
I
Q
U
E
Q
L
E
A
L
T
A
O
T
T
O
T
11,443
11,443
1,604
1,604
1,604
1,604
500
500
2,104
2,104
186
186
2,290
2,290
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
247
247
247
247
11,058 10,545
11,058 10,545
1,851
1,851
1,851
1,851
554
554
86
86
14
14
-24
-24
630
630
2,481
2,481
14
14
-5
-5
9
9
1,860
1,860
500
500
-800
-800
-800
-800
500
500
500
500
530
530
530
530
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
247
247
12,531
12,531
59
59
59
59
245
245
-158
-158
-1
-1
16
16
-143
-143
958
958
-247
-247
711
711
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
13,242
13,242
2,381
2,381
216
216
2,597
2,597
554
554
86
86
14
14
-24
-24
630
630
3,011
3,011
7
7
7
7
-500
-500
-493
-493
-38
-38
-38
-38
-364
-364
-395
-395
12,888 12,631
12,888 12,631
-31
-31
-38
-38
-311
-311
-842
-842
14,700
14,700
-500
-500
530
530
56
56
56
56
272
272
-248
-248
-11
-11
-259
-259
724
724
610
610
86
86
14
14
-24
-24
686
686
3,283
3,283
-741
-741
-11
-11
-38
-38
-311
-311
-1,101
-1,101
15,424
15,424
7171
Annual Report 2015 · The Danfoss Group
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
7272
Annual Report 2015 · The Danfoss Group Note 1 SEGMENT REPORTING (continued)
Note 1 SEGMENT REPORTING
DKKm
DKKm
GEOGRAPHICAL SEGMENTS
MAIN BUSINESS SEGMENTS
Net sales
Total non-current assets *)
INCOME STATEMENT
Net sales
Depreciation/amortization/Impairment
Share of profit from associates and joint ventures after tax
Operating profit (EBIT)
Financial Items
Profit before tax
2014
2015
2014
g
n
i
l
f
o
o
C
s
s
o
Denmark
n
a
D
1,276
2,538
9,959
266
2015
8
1,349
r
e
w
o
P
s
s
o
n
a
D
f
s
n
o
i
t
u
o
S
l
11,406
756
1,703
1,703
1,349
Denmark
g
n
i
t
a
e
H
s
s
o
n
a
D
f
s
e
v
i
r
f
D
Western
s
s
o
Europe
n
a
D
12,046
13,962
6,203
142
6,478
236
-195
441
Asia
P
U
Pacific
O
R
G
6,542
1,866
s
a
e
Eastern
r
a
Europe
r
e
h
t
O
3,841
855
329 34,375
1,738
338
-187
3,925
-449
3,476
1,105
-673
-449
Eastern
1,105 -1,121
Europe
Western
441
Europe
g
n
i
l
o
o
C
s
s
o
n
a
D
f
r
e
w
o
P
s
s
o
n
a
D
f
s
North
n
o
America
i
t
u
o
S
l
7,921
5,320
11,566 10,796
261
-6
1,533
1,579
742
s
e
v
i
r
f
D
Latin
s
s
o
America
n
a
D
1,856
120
9,775
452
73
963
g
n
i
t
a
Africa -
e
H
Middle
s
s
o
East
n
a
D
f
893
1
5,821
128
Asia
Pacific
1,579
North
America
1,533
Latin
963
America
740
-718
Africa -
-356
Middle
740 -1,074
East
s
a
e
r
a
r
e
h
t
O
P
U
Total
O
R
G
34,375
24,662
73 38,031
1,926
343
67
4,097
-356
3,741
Total
Net sales
Total non-current assets *)
BALANCE SHEET
Total assets *)
*) Deferred tax assets are not included.
Net investments excluding M&A
Investment in associates and joint ventures
The geographical distribution of "Net sales" is based on the external customers' country of residence.
Total liabilities *)
The distribution of "Total non-current assets" is based on the actual geographical location of the assets.
5,480 13,100
132
2,361
1,128
5,835 36,883
996
2,361
454 18,396 23,641
13,358
13,629
3,405
765
1,293
2,954
8,838
355
3,630
122
2,651
1,012
123
264
7,714
1,953
9,278
5,751
1,886
110
1,097
151
38,031
25,313
8,334
334
2,591
5,952 13,070
161
11
1,230
140
115
1,042
450
3,667
90
6,195 37,219
1,176
126
490 16,440 21,794
OTHER INFORMATION
Number of employees
6,111
5,898
4,878
4,114
3,116 24,117
5,792
5,890
4,811
3,948
2,979 23,420
*) Central functions' assets and liabilities, cash and cash equivalents, interest-bearing debt and deferred tax liabilities/assets have been recorded in the
column "Other areas".
A new organizational structure with four business segments took effect from the beginning of 2015. The change is also incorporated in the comparison
Note 1 SEGMENT REPORTING (continued)
figures for 2014. The four segments, "Danfoss Power Solutions", "Danfoss Cooling", "Danfoss Drives" and "Danfoss Heating" and their Product and Services
are further described in separate sections in the Financial review.
DKKm
GEOGRAPHICAL SEGMENTS
Net sales
Total non-current assets *)
Net sales
Total non-current assets *)
*) Deferred tax assets are not included.
2014
Denmark
Western
Europe
Eastern
Europe
Asia
Pacific
North
America
Latin
America
1,276
2,538
12,046
13,962
3,841
855
6,542
1,866
7,921
5,320
1,856
120
2015
Denmark
Western
Europe
Eastern
Europe
Asia
Pacific
North
America
Latin
America
1,293
2,954
13,358
13,629
3,405
765
7,714
1,953
9,278
5,751
1,886
110
Africa -
Middle
East
893
1
Africa -
Middle
East
1,097
151
Total
34,375
24,662
Total
38,031
25,313
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.
7373
Annual Report 2015 · The Danfoss Group
Note 1 SEGMENT REPORTING (continued)
DKKm
SPECIFICATION OF OTHER AREAS - NET SALES
Others
Net sales
SPECIFICATION OF OTHER AREAS - PROFIT BEFORE TAX
Financial income
Financial expenses
Central functions, not allocated*)
Other
Profit before tax
SPECIFICATION OF OTHER AREAS - ASSETS
Cash, current & non-current tax receivables
Other receivables
Central functions not allocated tangible and intangible fixed assets*)
Central functions not allocated *)
Other
Total assets
SPECIFICATION OF OTHER AREAS - LIABILITIES
Interest bearing debt, current & non-current tax liabilities
Other debt
Defined benefit plans
Central functions not allocated *)
Other
Total Liabilities
*) Central functions, not allocated, are primarily administrative expenses and central functions' assets and liabilities.
2014
329
329
2014
37
-486
-563
-111
-1,121
2014
2,317
382
2,903
138
95
5,835
2014
14,432
2,032
518
1,246
168
18,396
2015
73
73
2015
70
-426
-591
-127
-1,074
2015
1,701
376
3,729
297
92
6,195
2015
12,320
2,174
455
1,274
217
16,440
7474
Annual Report 2015 · The Danfoss Group Note 2 EXPENSES AND OTHER OPERATING INCOME
DKKm
A. PERSONNEL EXPENSES
Salaries and wages
Severance payments
Social security
Pension cost - Defined contribution plans
Pension cost - 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
*) Expenses for defined benefit plans are described in Note 15. Pension and healthcare obligations.
Board of Directors:
Directors' fees
Executive Committee:
Salaries
Pension costs
Bonuses
Danfoss Leadership Team excluding Executive Committee:
Salaries
Pension costs
Bonuses
Total compensation
2014
7,821
180
646
496
30
-3
9,170
22,494
24,117
2015
8,701
115
699
597
35
10,147
23,594
23,420
2014
2015
6
6
23
8
52
83
17
2
21
40
129
6
6
30
10
59
99
21
5
21
47
152
Bonuses of total DKK 80m (2014: 73m) can be divided into long-term and short-term bonuses with DKK 36m and DKK 44m respectively (2014: 31m and
42m respectively).
7575
Annual Report 2015 · The Danfoss Group 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 activities
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 disp. of intangible fixed assets
Loss on disp. of property, plant and equipment
Impairment on intangible assets
Impairment on of property, plant and equipment
Restructuring costs
Other
Other operating expenses
Other operating income and expenses
Impairment for the year is based on expected value in use or fair value.
Restructuring cost in both years mainly relates to terminations in France, Denmark, Germany, China and USA.
Impairment loss in 2014 relates to buildings.
D. FEES TO AUDITORS APPOINTED AT THE ANNUAL GENERAL MEETING
Audit fee
Tax and VAT advice
Other fees
Total fee to Group Auditor
2014
2015
511
511
1,155
77
-5
1,227
1,738
323
145
43
511
694
11
705
1,211
14
-4
1,221
1,926
452
203
39
11
705
2014
2015
30
106
5
50
191
-3
-7
-27
-77
-185
-136
-435
-244
17
1
60
4
40
122
-3
-37
-11
-14
-119
-143
-327
-205
2014
2015
18
9
5
32
20
11
3
34
7676
Annual Report 2015 · The Danfoss Group Note 3 INVESTMENTS
DKKm
Cost as of January 1
Foreign exchange adjustments in foreign companies
Additions
Addition through aquisition of subsidiaries
Disposals
Cost as of December 31
Adjustments as of January 1
Foreign exchange adjustments in foreign companies
Net profit/value adjustment
Dividends
Disposal
Adjustments as of December 31
2014
n
i
s
t
n
e
m
t
s
e
v
n
I
d
n
a
s
e
t
a
c
o
s
s
a
i
s
e
r
u
t
n
e
v
t
n
o
i
j
91
-3
2,364
-22
2,430
-40
4
-187
-7
16
-214
s
t
n
e
m
t
s
e
v
n
i
r
e
h
t
O
135
5
140
-103
-4
-107
2015
n
i
s
t
n
e
m
t
s
e
v
n
I
d
n
a
s
e
t
a
c
o
s
s
a
i
s
e
r
u
t
n
e
v
t
n
o
i
j
2,430
9
126
-5
2,560
-214
6
67
-5
5
-141
L
A
T
O
T
226
-3
2,364
5
-22
2,570
-143
4
-191
-7
16
-321
s
t
n
e
m
t
s
e
v
n
i
r
e
h
t
O
140
-5
135
-107
3
2
-102
L
A
T
O
T
2,570
4
126
-5
2,695
-321
9
69
-5
5
-243
Carrying amount as of December 31
2,216
33
2,249
2,419
33
2,452
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 2015, 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 2014.
Additions for the year to "Investments in associates and joint ventures" mainly relate to participation in BD Kompressor Holding GmbH & Co.KG in
Germany and Linestream Technology Inc. in the USA.
Additions for the year 2014 of "Investments in associates and joint ventures" mainly relate to the acquisition of SMA Solar Technology AG.
Disposal for the year 2014 of "Investments in associates and joint ventures" relates to the sale of Promeos GmBH and Flexucell ApS.
Further information on associates and joint ventures is provided in Note 4. Financial income, Note 5. Financial expenses, Note 16. Financial risks
and instruments and Note 23. Related parties.
7777
Annual Report 2015 · The Danfoss Group
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
SUMMARIZED BALANCE SHEET (Q3 2015 NUMBERS)
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Equity
Group share of equity as of December 31
2015
l
G
A
y
g
o
o
n
h
c
e
T
l
r
a
o
S
A
M
S
Germany
20%
7,459
239
3,651
5,005
2,222
2,395
4,038
862
On the basis of the stock exchange quotation, the fair value of SMA Solar Technology AG as of December 31, 2015 was DKK 13.4bn (2014: 4.0bn).
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
2014
2015
i
s
e
t
a
c
o
s
s
A
-1
-1
805
1,364
2,169
i
t
n
o
J
s
e
r
u
t
n
e
V
9
-1
8
47
47
47
L
A
T
O
T
8
-1
7
47
i
s
e
t
a
c
o
s
s
A
i
t
n
o
J
s
e
r
u
t
n
e
V
-6
1
-5
L
A
T
O
T
-6
1
-5
10
154
164
805
1,364
47
2,216
862
1,393
10
2,265
862
1,393
164
2,419
154
154
For further information on associates and joint ventures please see the list of "Danfoss Group Companies".
7878
Annual Report 2015 · The Danfoss Group
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
Loss on other investments
Borrowing costs recognized in the cost of assets
Interest on financial liabilities at amortized cost amounts to
2014
2015
14
23
37
14
65
3
2
70
65
2014
2015
-190
-4
-55
-206
-29
-4
2
-486
-194
-297
-2
-34
-87
-6
-426
-299
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.
7979
Annual Report 2015 · The Danfoss Group 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 23.5% (2014: 24.5%)
Tax exempt income/non-deductible expenses
Effect of change in corporate tax rate
Income from associates and joint ventures after tax
Adjustment of net tax assets
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
2014
-1,072
-117
3
-1,186
24.5%
4.6%
-0.2%
1.3%
0.2%
4.3%
-0.6%
34.1%
2014
-1,186
42
96
-1,048
2015
-954
-176
-14
-1,144
23.5%
3.5%
-2.3%
-0.2%
-0.6%
1.5%
4.3%
0.9%
30.6%
2015
-1,144
-19
-5
-1,168
8080
Annual Report 2015 · The Danfoss Group Note 7 INTANGIBLE ASSETS
DKKm
Cost as of January 1
Foreign exchange adjustments in foreign companies
Additions 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
2014
Good-
will
5,269
275
5,514
11,058
1,087
14
1,101
Software
Brand
Techno-
logy
Customer
relations
Patents,
trade-
marks etc.
Develop-
ment
costs
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
1,728
120
699
-3
2,544
856
67
200
-67
- 1,570
147
-2
1,068
388
53
8
-4
445
347
53
15
-
415
591
18
7
-34
582
398
11
59
-34
434
TOTAL
Other
7,373
458
2,033
397
98
-147
10,212
3,501
251
303
511
-129
4,437
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
30
148
5,775
15,732
Cost as of January 1
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Transfers
Additions
Disposals
Disposals through sale of subsidiaries
Cost as of December 31
Amortization and impairment losses as of January 1
Foreign exchange adjustments in foreign companies
Transfers
Amortization
Impairments
Disposals
Amortization and impairment losses as of December 31
2015
Good-
will
11,058
370
273
-2
11,699
1,101
67
1,168
Patents,
trade-
marks etc.
Develop-
ment
costs
Software
Brand
1,271
43
1,060
65
14
192
-31
Techno-
logy
Customer
relations
4,310
213
11
2,544
130
-4
-1
-3
1,489
1,125
4,533
2,667
1,570
115
1,068
76
17
297
204
950
46
1
100
11
-32
1,076
445
9
4
-7
13
-112
352
415
8
-1
10
- -1
1,981
17
-3
1,345
-113 -21
495
319
582
21
-21
434
16
66
TOTAL
Other
10,212
481
11
7
205
-168
4,437
261
694
11
-170
5,233
582
10,748
TOTAL
21,270
851
284
7
205
-168
-2
22,447
5,538
328
694
11
-170
6,401
Carrying amount as of December 31
10,531
413
1,108
2,552
1,322
33
87
5,515
16,046
Additions/disposals through acquisitions/sale of subsidiaries are further described in Note 20 Acquisition and sale of subsidiaries and activities
IMPAIRMENT TESTS
At the end of 2015, impairment tests were performed on the carrying amount of goodwill and brand (assets with indefinite useful lives). The impairment tests
were performed on business segments 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 business segment 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 CGU's is compared to the carrying amounts of the assets. The expected cash flow is based on the budgets for the years 2016-2025 prepared and approved
by the management in the respective CGU's and Group management. The budgets were elaborated for a 10-year period in accordance with the fact that
decisions on acquisitions are made on the basis of the 10-year budgets. The primary variables are sales, EBIT, working capital and investments. The discount rates
are set under consideration of a market-based cost of equity and cost of debt.
In 2014, the impairment tests were performed on the divisional level instead of on business segments level. Besides that, the principle remains unchanged.
8181
Annual Report 2015 · The Danfoss Group
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 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
Goodwill at the end of 2015
Brand with indefinite useful life at the end of 2015
Expected growth in net cash flow during the terminal period in %
Discount rate before tax in % as of December 31
2014
Danfoss
Power
Solutions
947
941
2%
12%
2015
Danfoss
Power
Solutions
1,021
1,006
2%
14%
`
Danfoss
Drives
Danfoss
Cooling
Danfoss
Heating
5,602
1,758
1,631
2%
11%
2%
13%
2%
11%
Danfoss
Drives
Danfoss
Cooling
Danfoss
Heating
5,757
2,001
1,734
2%
13%
2%
13%
2%
11%
Other
19
2%
11%
Other
18
2%
13%
The weighted average growth rate until 2025 is based on past performance/management expectation of market development etc. and is estimated to be between
2-7% for the business segments, which is at or above the general market development. The growth in Net sales is driven from continuous high investments in
innovation and market development. The expected average EBIT margins used in the impairment tests are considered reasonable taking past performance and
initiatives in the business segments into consideration.
The EBIT margin is expected to remain unchanged during the terminal period, as well as 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 2014. The net cash flow during the
terminal period from 2026 and onwards is estimated at a 2% annual growth, which is assumed to be at or below the expected growth in the markets addressed by
Danfoss.
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 2014.
Danfoss Power Solutions
The Goodwill allocated to Danfoss Power Solutions derives from the Danfoss Group's acquisition of the additional 38.2% of the share capital in Sauer-Danfoss
Inc. (USA) in 2008. The brand recognized in that connection has an indefinite useful life. At the end of 2015, the carrying amount of Brand, Technology and
Customer relations acquired in connection with business combinations amounts to DKK 3.0bn or approximately 59% of the total corresponding carrying amount.
The carrying amount of Technology and Customer relations is amortized until 2023 and 2020 respectively.
Danfoss Drives
The Goodwill allocated to Danfoss Drives Segment derives primarily from the acquisition of Vacon (Finland) in December 2014. At the end of 2014, the carrying
amount of Technology and Customer relations acquired in connection with business combinations amounts to DKK 1.7bn or approximately 35% of the
corresponding total carrying amount. The carrying amount of Technology and Customer relations is amortized until 2026 and 2029 respectively.
Danfoss Cooling
The Goodwill allocated to Danfoss Cooling Segment derives primarily from the acquisitions of Scroll Technologies (USA) in 2006 and Danfoss Turbocor
Compressors (USA) in 2012. At the end of 2015, the carrying amount of Technology and Customer relations acquired in connection with business combinations
amounts to DKK 216m or approximately 4% of the corresponding total carrying amount. The carrying amount of Technology and Customer relations is
amortized until 2032 and 2019 respectively.
Danfoss Heating
The Goodwill allocated to Danfoss Heating Segment derives primarily from the acquisition of the DEVI Group (Denmark) in 2003 and Thermia Warme AB (Sweden)
in 2005. At the end of 2015, the carrying amount of Technology and Customer relations acquired in connection with business combinations amounts to DKK 83m
or approximately 2% of the corresponding total carrying amount. The carrying amount of Technology and Customer relations is amortized until 2020 and
2025 respectively.
Other intangible assets
At the end of 2015, Danfoss had Software in progress amounting to DKK 175m and DKK 0m capitalized development expenditure in progress. Capitalized software
in progress is mainly accumulated internally.
In 2015, the Group performed impairment tests on 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 led to an impairment of current
development assets of DKK 11m (2014: 0m).
8282
Annual Report 2015 · The Danfoss Group Note 8 PROPERTY, PLANT AND EQUIPMENT
DKKm
Cost as of January 1
Foreign exchange adjustments in foreign companies
Additions 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
Cost as of January 1
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Transfers
Additions
Disposals
Disposals through sale of subsidiaries
Cost as of December 31
Depreciation and impairment losses as of January 1
Foreign exchange adjustments in foreign companies
Transfers
Depreciation
Impairment
Disposals
Disposals through sale of subsidiaries
Depreciation and impairment losses as of December 31
Carrying amount as of December 31
Hereof assets held under finance leases
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
5
1,804
26
-250
69
-97
1,552
1,234
3
-244
138
-91
1,040
512
37
811
22
-690
537
680
680
2015
Land and
buildings
Plant and
machinery
Equipment
Assets under
construction
5,425
114
186
247
-158
5,814
2,442
8
5
214
10
-86
2,593
3,221
110
8,550
110
2
378
315
-20
9,335
6,167
31
12
849
-3
7,056
2,279
3
1,552
-60
40
72
-44
-3
1,557
1,040
-64
-17
148
-40
-1
1,067
490
28
680
49
-611
575
-1
692
692
TOTAL
15,559
200
197
-397
1,141
-493
16,207
9,053
17
-303
1,155
72
-345
9,649
6,558
42
TOTAL
16,207
213
2
-7
1,209
-223
-3
17,398
9,649
-25
1,211
10
-129
-1
10,716
6,682
141
Additions/disposals through acquisitions/sale of subsidiaries are further described in Note 20 Acquisition and sale of subsidiaries and activities
The Group's finance leases mainly concerns land & buildings and IT equipment. The Group has an option to acquire the leased buildings & equipment at
favorable prices at the expiry of the leases. The leased assets are pledged as collateral for the lease liabilities.
8383
Annual Report 2015 · The Danfoss Group 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 in foreign companies
Additions through acquisition of subsidiaries
Change in provisions
Realized loss
Provision for bad debts as of December 31
2014
1,609
475
2,001
4,085
404
215
50
16,694
2014
5,246
-156
5,090
77
5,167
9
-170
4
-28
-15
53
-156
2015
1,639
437
2,094
4,170
421
319
81
18,737
2015
5,465
-181
5,284
41
5,325
7
-156
-15
-22
12
-181
8484
Annual Report 2015 · The Danfoss Group 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
2014
2015
No.
4,250,000
Nominal value
100 DKK
No.
4,250,000
Nominal value
100 DKK
A shares
DKKm
425.0
A shares
DKKm
425.0
SHARES
49.77%
25.56%
10.74%
7.05%
VOTES
85.68%
5.40%
2.26%
1.49%
No.
5,979,143
Nominal value
100 DKK
B shares
DKKm
597.9
No.
10,229,143
Total shares
DKKm
1,022.9
No.
5,991,443
Nominal value
100 DKK
B shares
DKKm
599.1
No.
10,241,473
Total shares
DKKm
1,024.1
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
2014
48.9
78.3
2015
51.8
48.9
2014
134,178
17,641
-600
151,219
2015
151,219
15,578
70,307
-600
236,504
The primary purpose of holding treasury shares is to secure the share option programme in Danfoss A/S. The total cost in 2015 for own shares
amounts to DKK 366m (2014: 72m). The total selling price relating to treasury shares amounted to DKK 2m in 2015 (2014: 2m). The Group's holding
of treasury shares represents 2.3% (2014: 1.5%) of the Group's share capital. The value of treasury shares held amounts to DKK 1,009m (2014: 622m).
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 2015 the net-interest bearing debt to EBITDA ratio was 1.6
(2014: 2.0) on a reported basis.
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.
8585
Annual Report 2015 · The Danfoss Group Note 12 PROVISIONS
DKKm
Provisions as of January 1
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Transfered to other debt
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
Provisions as of December 31
2015
2015
Warranty
Restruc-
turing
Contingent
consideration
Other
TOTAL
504
21
-46
-198
-75
232
438
47
-42
-2
5
8
464
17
1
-120
-20
107
2
451
1,015
38
1
-46
-360
-97
430
2
983
86
86
Warranty
Restruc-
turing
Contingent
consideration
Other
TOTAL
329
108
1
438
8
8
27
59
86
253
77
121
451
617
244
122
983
Provisions for warranty comprise expected costs arising during the warranty period of the Group's products. As of December 31 receivables of DKK 37m to
provisions for warranty were recognized (2014: 61m).
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.
8686
Annual Report 2015 · The Danfoss Group 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
2014
4,116
22.0%
1.0%
0.1-0.8%
See below
2015
4,267
22.0%
1.0%
0.0-0.2%
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 2015 of 4,267 was most recently adjusted
at the Annual General Meeting in 2015 and will next be fixed at the Annual General Meeting in 2016.
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.
The programs are treated as cash-settled share-based payment transactions since Danfoss A/S has an obligation to buy back shares under the
share option programs. As a consequence, a provision is made in the balance sheet for this obligation.
Information on relevant programs:
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
Granted
(year)
2005
2006
2007
2009
Granted
(number)
86,459
84,895
97,121
139,050
Fair value
at grant date
(DKK each)
564
762
983
365
Earliest
exercise
Latest
exercise
May 2008 May 2015
May 2009 May 2016
May 2010 May 2017
May 2012 May 2015
8787
Annual Report 2015 · The Danfoss Group 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
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
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
Warrants - exercise price at 1,100
Options/warrants - exercise price at 1,522
Options/warrants - exercise price at 1,932
2,400
2,400
2,400
2,400
3,713
4,713
19,848
3,650
31,924
-3,713
-1,633
-7,334
-3,650
-16,330
3,080
12,514
15,594
2,857
2,531
2,120
2,979
186
173
139
186
3,045
2,745
2,335
3,167
2,704
2,259
11
12
47
11
81
1
4
5
-11
-5
-17
-11
-44
8
34
42
The total provision as of December 31, 2015 for 2004 and subsequent share incentive programs has been calculated at DKK 42m (2014: 81m) and is
recognized under current liabilities.
The changes in the share price/fair value of the programs are in the income statement recognized under financial items as an expense of DKK 6m
(2014: 29m), with DKK 5m (2014: 23m) in the parent company and DKK 0m (2014: 6m) in the subsidiaries.
8888
Annual Report 2015 · The Danfoss Group Note 14 DEFERRED TAX
DKKm
CHANGES IN DEFERRED TAXES
Deferred taxes as of January 1 (net) *)
Foreign exchange adjustment in foreign companies
Additions through acquisition of subsidiaries
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
2014
-382
9
-386
-28
-117
100
-804
2015
-804
-29
-64
-8
-176
-6
-1,087
2014
Deferred
tax
asset
2015
Deferred
tax
asset
70
160
341
734
438
-197
1,546
-386
1,160
58
148
393
700
402
-310
1,391
-536
855
2014
Deferred
tax
liability
2015
Deferred
tax
liability
1,724
204
83
275
64
2,350
-386
1,964
1,663
223
88
431
73
2,478
-536
1,942
The tax asset related to tax loss carry-forwards of DKK 92m net (2014: 241m) 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.
The tax value of unrecognized tax assets related to tax loss carry-forwards amounts to DKK 310m (2014: 197m). The amount is not recognized as an asset,
as the tax losses carried forward are not expected to be utilized. 15% of the amount (2014: 14%) has a remaining period of 3 years or less, whereas the
share with a remaining period of 10 years or more totals 75% (2014: 84%).
Of the deferred tax liability of DKK 1,942m (2014: 1,964m), DKK 73m (2014: 64m) 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 431m (2014: 573m). 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.
8989
Annual Report 2015 · The Danfoss Group
Note 15 PENSION AND HEALTHCARE OBLIGATIONS
The major part of the Group's pension plans are fully funded defined contribution plans which are managed by pension and insurance companies.
However, a few of the 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 geographical split in 2015 of the net liability is Germany 53%, the USA 41% and others 6% (2014: 49%, 36% and 15% respectively).
The pension plans are based on the individual employee´s salary and years of service in the company. The plans have varying requirements for risk
diversification and for matching assets strategies.
All material defined benefit plans have been computed by independent actuaries.
THE GROUP'S DEFINED BENEFIT PLAN OBLIGATIONS
Present value of defined benefit plan obligations
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
Foreign exchange adjustments in foreign companies
Additions through business combinations
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
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
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
2014
3,732
-2,537
1,195
84
1,279
2014
2,973
236
65
30
127
46
435
-3
7
-28
-117
-39
3,732
2014
2,085
179
28
95
7
198
89
-117
-27
2,537
2015
3,813
-2,704
1,109
107
1,216
2015
3,732
263
35
127
-6
-104
6
-41
-142
-57
3,813
2015
2,537
208
96
6
-96
120
-142
-25
2,704
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 USA. Unfunded plans amount to approximately
DKK 565m (2014: 629m)
9090
Annual Report 2015 · The Danfoss Group Note 15 PENSION AND HEALTHCARE OBLIGATIONS (continued)
EXPENSES RELATING TO PENSION AND HEALTHCARE OBLIGATIONS
2014
2015
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
30
127
-95
-3
59
14
6
10
-3
32
59
2014
154
660
2,918
3,732
2015
996
950
605
153
2,704
35
127
-96
66
17
5
13
31
66
2015
163
708
2,941
3,812
2015
37%
35%
22%
6%
100%
2014
1,381
501
478
177
2,537
2014
54%
20%
19%
7%
100%
Plans in which the pension funds are invested in financial instruments are exposed to risk. 37% (2014: 54%) 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 defined benefit plan assets
2014
Range
0.8-3.9%
1.5-4.1%
2.3-5.4%
2014
Weighted
average
3.4%
3.6%
3.5%
2015
Range
2.0-4.3%
1.8-4.2%
2.0-4.3%
2015
Weighted
average
3.6%
3.5%
3.6%
Life expectancy is based on relevant statistics available on the individual countries included in the calculation.
The estimated return on defined benefit 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 142m to defined benefit plans in 2016 (2015: DKK 133m).
SENSITIVITY ANALYSIS
Reported defined benefit plan obligations
Increase in discount rate of 0.5 percentage point affects the defined benefit plan obligations by
Decrease in discount rate of 0.5 percentage point affects the defined benefit plan obligations by
Increase in future salary increase of 0.5 percentage point affects the defined benefit plan obligations by
Decrease in future salary increase of 0.5 percentage point affects the defined benefit plan obligations by
Increase in average life expectancy of 1 year affects the defined benefit plan obligations by
Decrease in average life expectancy of 1 year affects the defined benefit plan obligations by
2014
3,732
-267
+292
+53
-53
+107
-106
2015
3,812
-273
+283
+21
-19
+111
-111
9191
Annual Report 2015 · The Danfoss Group
Note 16 FINANCIAL RISKS AND INSTRUMENTS
FINANCIAL RISKS
The Group's profitability and cash flow are exposed to financial market risks, among other factors as a consequence of Danfoss' international business
profile. These risks include currency, commodity, credit, interest rate and liquidity risks. The Group's risk management activities focus on mitigation, with
particular emphasis on protecting the Group's cash flow and profitability in local currency on a 15-month horizon.
It is the policy of the Group not to take speculative positions in the financial markets. The Group's treasury activities are therefore aimed at mitigating 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: Consolidated exposures and expected future cash flows in foreign currencies on a 15 months’ horizon are covered on an ongoing
basis except in cases where a natural hedge exists or in cases where hedging is not practically possible.
2. Translation risk: The Group is primarily exposed to EUR, USD and USD-related currencies. In general Danfoss does not cover translation risks, as these
do not directly affect the underlying cash flows. Danfoss does, however, to some extent 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. It is controlled as far as possible at a strategic level, as Danfoss aims for products to
be sourced as close as possible to our local markets.
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
2014
EUR
DKK
-469
-4,756
3,982
USD
DKK
-92
-386
294
GBP
DKK
-19
-181
195
Total
-580
-5,323
4,471
2015
EUR
DKK
-586
-4,910
597
USD
DKK
-55
2,241
-2,317
GBP
DKK
-15
-193
219
Total
-656
-2,862
-1,501
-2,382
-465
-366
-3,213
-3,433
-864
-330
-4,627
Probable increase in exchange rate
Hypothetical impact on profit and loss for the year
Hypothetical impact on Equity
1%
-2
-36
10%
-18
-65
10%
-37
-20
-138
1%
-2
-83
10%
-13
-99
10%
1
-32
-14
-214
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 and cash flow. It is Danfoss’ policy to ensure that significant risks related to
raw materials are reduced through the combination of fixed price agreements with suppliers, active price adjustment and in some cases financial hedging.
If raw material consumption is considered material it is hedged for a minimum of 6 months and a maximum of 18 months.
Danfoss has not undertaken financial hedging of raw materials in 2015 nor 2014.
9292
Annual Report 2015 · The Danfoss Group 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 counterparty risk). It is Danfoss' policy to minimize the risk of
losses from credit risk. The counterparty risk towards banks and other financial partners is managed by only using solid regional and global financial
partners with a credit rating of minimum "A-" or better according to Standard & Poor’s credit rating metric.
The carrying amount of DKK 319m (2014: 716m) 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 does not differ significantly 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 debt 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
2014
2015
228
94
49
4,796
5,167
193
81
5,051
5,325
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, cash funds and pension obligations. The Group makes use of both fixed and
floating-rate loans, as well as interest rate derivatives to manage this risk. As per Danfoss’ treasury policy the interest rate risk should at all times maximum
equal 0.1% of Group annual revenue in case of a one percentage point shift in interest rates across the curve, when measured on the cash flow of the
Group.
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)
2014
Income
State-
ment
-33
-33
2015
Income
State-
ment
-20
1
-19
Equity
-33
84
51
Equity
-20
50
30
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.
The stated sensitivities are based on the recognized financial assets and liabilities at December 31. Adjustments have not been made for instalments,
borrowing, etc. All hedging of floating-rate loans is deemed 100% effective.
9393
Annual Report 2015 · The Danfoss Group Note 16 FINANCIAL RISKS AND INSTRUMENTS (continued)
LIQUIDITY RISK
It is Danfoss' financial policy to have a long term credit rating of "BBB " according to the Standard & Poor’s metric as a minimum, liquidity reserves of
minimum DKK 3bn, in terms of non-terminable credit facilities and accessible cash and a staggered maturity profile of non-terminable credit facilities with an
average maturity profile of minimum 3 years.
At the end of 2015, Danfoss' credit rating from Standard and Poor’s was "BBB/A2 with a stable outlook" and the liquidity reserve equaled DKK 8.2bn
(2014: 7.0bn). In addition to this, Danfoss had cash in some subsidiaries and significant amounts of short-term credit lines. The Group considers the liquidity
reserve to be adequate in relation to current plans and the market situation in general. The average maturity profile on non-terminable credit facilities was
well above 3 years at the end of 2015. The Danfoss Group's loan agreements contain no financial covenants.
The major part of the Group's cash and cash equivalents of DKK 319m (2014: 716m) is placed on short-term deposits with an interest rate below 1% p.a.
THE GROUP'S DEBT CATEGORIES AND MATURITIES
2014
Maturity
2015
i
g
n
y
r
r
a
C
t
n
u
o
m
a
10,882
1,187
63
40
3,572
12
143
15,899
l
a
u
t
c
a
r
t
n
o
C
w
o
l
f
h
s
a
c
11,527
1,612
63
42
3,572
12
146
16,974
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
19
30
4,386
6,167
1,465
16
1
7,649
i
g
n
y
r
r
a
C
t
n
u
o
m
a
8,717
1,189
34
136
3,864
22
251
14,214
l
a
u
t
c
a
r
t
n
o
C
w
o
l
f
h
s
a
c
9,300
1,568
34
162
3,864
22
286
15,236
Maturity
r
a
e
y
1
-
0
863
30
18
21
3,864
22
235
5,053
)
*
s
r
a
e
y
5
-
1
5
r
e
v
O
s
r
a
e
y
3,597
113
49
51
3,810
4,840
1,425
16
92
6,373
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
2014
2015
11,100
4,799
15,899
9,308
4,906
14,214
9494
Annual Report 2015 · The Danfoss Group
2014
2015
Carrying
amount Fair value
Carrying
amount Fair value
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
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
33
33
14
14
33
33
14
14
5,167
638
716
6,521
5,167
638
716
6,521
12,172
6,692
18,864
12,265
6,692
18,957
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 liabilites used as hedging instruments
2
141
143
2
141
143
Derivative financial instruments for financial hedging
Financial liabilities measured at fair value via the income statement
33
33
12
12
33
33
12
12
5,325
698
319
6,342
5,325
698
319
6,342
10,076
6,982
17,058
10,126
6,982
17,108
180
70
250
1
1
180
70
250
1
1
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 is estimated to be equal to the carrying amount.
The methods applied remain unchanged compared to 2014.
FAIR VALUE HIERARCHY AS OF DECEMBER 31 FOR THE GROUP
2014
Quoted
prices
Level 1
Observ-
able
input
Level 2
Non-
observ-
able
input
Level 3
33
33
14
14
2
141
In total
33
14
47
2
141
12,265
12,408
12,265
12,408
2015
Quoted
prices
Level 1
Observ-
able
input
Level 2
Non-
observ-
able
input
Level 3
33
33
86
86
86
12
12
180
70
1
10,126
10,377
In total
33
12
45
180
70
1
86
10,126
10,463
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
Contingent consideration
Interest-bearing debt
Total financial liabilities
9595
Annual Report 2015 · The Danfoss Group Note 16 FINANCIAL RISKS AND INSTRUMENTS (continued)
DKKm
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE BASED ON LEVEL 3
Carrying amount as of January 1
Foreign exchange adjustments in foreign companies
Addition through aquisition of subsidiaries
Gain/loss (-) in the income statement
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
2014
t
c
a
r
t
n
o
c
t
a
t
n
u
o
m
A
l
i
a
p
c
n
i
r
p
/
e
c
i
r
p
t
n
e
m
j
t
s
u
d
a
e
u
a
v
l
t
e
k
r
a
m
n
o
)
-
(
s
s
o
l
/
n
a
G
i
USD
EUR
Other currencies
Forward exchange contracts
Interest swaps
Other derivatives
Derivatives end of year
-29
1,455
-479
2,733
5
-2
-94
-91
-37
-1
-129
d
e
z
i
n
g
o
c
e
r
)
-
(
s
s
o
l
/
n
a
G
i
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
n
i
3
-3
10
10
-2
8
r
a
e
y
1
n
a
h
t
s
s
e
l
e
u
D
13
1
-104
-90
-90
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
2015
t
c
a
r
t
n
o
c
t
a
t
n
u
o
m
A
s
r
a
e
y
5
r
e
t
f
a
e
u
D
l
i
a
p
c
n
i
r
p
/
e
c
i
r
p
t
n
e
m
j
t
s
u
d
a
e
u
a
v
l
t
e
k
r
a
m
n
o
)
-
(
s
s
o
l
/
n
a
G
i
-3,137
-3,249
-307
2,244
-198
1
1
-195
-43
d
e
z
i
n
g
o
c
e
r
)
-
(
s
s
o
l
/
n
a
G
i
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
n
i
-175
16
-9
-167
-1
-238
-168
2014
2015
Other
invest-
ments
Level 3
Other
invest-
ments
Level 3
33
-2
2
33
2
s
r
a
e
y
5
r
e
t
f
a
e
u
D
32
5
-4
33
-4
s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D
-1
-1
2
-28
-28
r
a
e
y
1
n
a
h
t
s
s
e
l
e
u
D
-22
-14
8
-28
-14
-42
At the end of 2015, unrealized gain/loss(-) on derivatives hedging foreign currency risk recognized in equity amounted to DKK -28m (2014: -100m).
At the end of 2015, unrealized gain/loss(-) on derivatives hedging floating interest payments recognized in equity amounted to DKK -42m (2014: -37m).
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 1m was taken to expense in 2015 (2014: 0m) as a consequence of testing for effectiveness.
9696
Annual Report 2015 · The Danfoss Group
Note 17 CORPORATION TAX
DKKm
Corporation tax payable/receivable (-) as of January 1
Foreign exchange adjustment in foreign companies
Additions 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
2014
-23
-25
6
-1,107
-31
1,072
-38
-146
441
295
-146
2014
1,738
-99
187
-37
486
-293
1,982
2015
-146
6
-1,063
6
954
18
-225
527
302
-225
2015
1,926
-37
-67
-70
426
-225
1,953
2014
2015
105
-13
104
196
5
73
221
299
9797
Annual Report 2015 · The Danfoss Group Note 20 ACQUISITION AND SALE OF SUBSIDIARIES AND ACTIVITIES
Note 20 ACQUISITION AND SALE OF SUBSIDIARIES AND ACTIVITIES
DKKm
DKKm
2014
2014
Company/activity
Company/activity
Vacon
Vacon
2015
2015
Country
Country
Consolidated
Consolidated
from/until
from/until
Holding
acquired/sold
Holding
acquired/sold
Net sales
per year *)
Net sales
per year *)
No. of
employees
Conside-
No. of
ration paid
employees
Conside-
ration paid
Acquisition
Acquisition
Finland
Finland
December
December
100%
100%
3,002
3,002
1,610
7,506
1,610
7,506
Net sales
per year *)
No. of
employees
Holding
acquired/sold
Consolidated
Consolidated
from/until
from/until
Holding
acquired/sold
Country
Country
December
October
February
January
Turkey
Acquisition
Acquisition Netherlands
Acquisition New Zealand
Estonia
Sale
Acquisition
Turkey
Acquisition Netherlands
Acquisition New Zealand
Estonia
Sale
Company/activity
Company/activity
DAF Enerji
DAF Enerji
Advitronic Engineering B.V.
Advitronic Engineering B.V.
Vacon Drives sales activity New Zealand (asset deal)
ProEkspert
Vacon Drives sales activity New Zealand (asset deal)
ProEkspert
*) Net sales in the financial year prior to the acquisition or sale.
** According to non-disclosure obligations the purchase prices are not stated
*) Net sales in the financial year prior to the acquisition or sale.
** According to non-disclosure obligations the purchase prices are not stated
Danfoss did not acquire other companies / activities in 2014 than Vacon. The outstanding shares (1.5%) of Vacon was acquired in 2015, mainly by a squeeze out
procedure concerning the outstanding shares in Vacon. The outstanding shares of 1.5% were included in the total acquisition price with a corresponding
Danfoss did not acquire other companies / activities in 2014 than Vacon. The outstanding shares (1.5%) of Vacon was acquired in 2015, mainly by a squeeze out
liability of 120 mDKK in Other Debt under Current Liabilities in 2014. The payment made in 2015 matches the liability made in 2014.
procedure concerning the outstanding shares in Vacon. The outstanding shares of 1.5% were included in the total acquisition price with a corresponding
The Purchase Price Allocation related to Vacon was finalized in 2015. Goodwill was increased with 130 mDKK, while other net assets were reduced with
liability of 120 mDKK in Other Debt under Current Liabilities in 2014. The payment made in 2015 matches the liability made in 2014.
a similar amount. The revaluation does not have any cash flow impact.
The Purchase Price Allocation related to Vacon was finalized in 2015. Goodwill was increased with 130 mDKK, while other net assets were reduced with
a similar amount. The revaluation does not have any cash flow impact.
Besides paying for the remaining shares in VACON, the Danfoss Group sold 1 company and acquired 3 companies/activities in 2015 :
December
October
February
January
60%
100%
100%
75%
60%
100%
100%
75%
55
8
3
123
56
9
6
43
Net sales
per year *)
56
9
6
43
Conside-
No. of
ration paid
employees
55
8
3
123
Conside-
ration paid
**
**
**
**
**
**
**
**
Besides paying for the remaining shares in VACON, the Danfoss Group sold 1 company and acquired 3 companies/activities in 2015 :
The Danfoss Group sold their ownership of 75.2% in ProEkspert AS in Estland in January 2015 and acquired a sales activity in New Zealand in February 2015.
The Danfoss Group sold their ownership of 75.2% in ProEkspert AS in Estland in January 2015 and acquired a sales activity in New Zealand in February 2015.
On October 19, 2015, the Danfoss Group acquired 100% of the shares in Advitronic Engineering B.V in the Netherlands. For the Danfoss Group the
acquisition is a step up in solutions related to Internet of Things and Connectivity in the food retail industry. Part of the acquisition price has been paid, while
On October 19, 2015, the Danfoss Group acquired 100% of the shares in Advitronic Engineering B.V in the Netherlands. For the Danfoss Group the
the a remaining part will be paid in the period 2016-2019 dependent upon the R&D progress in the company. The expected payment for the remaining
acquisition price has been included with a corresponding liability in Other Debt.
acquisition is a step up in solutions related to Internet of Things and Connectivity in the food retail industry. Part of the acquisition price has been paid, while
the a remaining part will be paid in the period 2016-2019 dependent upon the R&D progress in the company. The expected payment for the remaining
On December 22, 2015, the Danfoss Group paid and acquired 60% of the shares in DAF Enerji in Istanbul, Turkey. The company is a market leader in the flat
acquisition price has been included with a corresponding liability in Other Debt.
station segment in Turkey. The rationale for the acquisition is to get a stronger presence and foothold including manufacturing facilities in Turkey. The remaining
40% of the shares in the company will be acquired in the period 2016-2018, where the price is decided on the basis of the financial performance of the company.
On December 22, 2015, the Danfoss Group paid and acquired 60% of the shares in DAF Enerji in Istanbul, Turkey. The company is a market leader in the flat
The expected payment for the remaining shares has been included in the total acquisition price with a corresponding liability in Other Debt.
station segment in Turkey. The rationale for the acquisition is to get a stronger presence and foothold including manufacturing facilities in Turkey. The remaining
40% of the shares in the company will be acquired in the period 2016-2018, where the price is decided on the basis of the financial performance of the company.
The goodwill of 143mDKK arising from the acquisitions is attributable to the value of staff, know-how and synergies expected from combining the operations
The expected payment for the remaining shares has been included in the total acquisition price with a corresponding liability in Other Debt.
of the Danfoss Group and the acquired businesses. None of the goodwill recognized is expected to be deductible for income tax purposes.
The goodwill of 143mDKK arising from the acquisitions is attributable to the value of staff, know-how and synergies expected from combining the operations
The initial accounting for the acquisition of DAF Enerji and Advitronic Energineering BV is preliminary because of the short time span between the acquisition
of the Danfoss Group and the acquired businesses. None of the goodwill recognized is expected to be deductible for income tax purposes.
date and the time of the financial statements being authorized for issue. In accordance with IFRS 3, the accounting will be finalized within 12 months.
Acquisition-related costs, e.g. due diligence costs, of DKK 3m have been charged to other operating expenses in the consolidated income statement for the year
The initial accounting for the acquisition of DAF Enerji and Advitronic Energineering BV is preliminary because of the short time span between the acquisition
ending December 31, 2015.
date and the time of the financial statements being authorized for issue. In accordance with IFRS 3, the accounting will be finalized within 12 months.
Acquisition-related costs, e.g. due diligence costs, of DKK 3m have been charged to other operating expenses in the consolidated income statement for the year
There has not been any significant acquisitions and disposals of companies/activities after the reporting period.
ending December 31, 2015.
The following table summarizes the consideration paid/received for acquired/sold companies and the fair value of assets and liabilities at the closing date.
Revaluation done in 2015 related to the Purchase Price Allocation for Vacon is not included under 2015.
There has not been any significant acquisitions and disposals of companies/activities after the reporting period.
2014
Acquisitions
2015
Acquisitions
2014
Disposals
2015
Disposals
2
-64
-2
2014
Disposals
2015
Acquisitions
2014
Acquisitions
The following table summarizes the consideration paid/received for acquired/sold companies and the fair value of assets and liabilities at the closing date.
Revaluation done in 2015 related to the Purchase Price Allocation for Vacon is not included under 2015.
Intangible assets, except goodwill
Property, plant and equipment
Other non-current assets, including deferred tax assets
Inventories
Intangible assets, except goodwill
Receivables
Property, plant and equipment
Cash and cash equivalents
Other non-current assets, including deferred tax assets
Interest-bearing debts
Inventories
Provisions, including deferred tax liabilities
Receivables
Trade and other payables
Cash and cash equivalents
Net assets acquired
Interest-bearing debts
Goodwill(-)/profit on disposal
Net assets including goodwill(-)/profit on disposal
Provisions, including deferred tax liabilities
Cash and cash equivalents
Trade and other payables
Consideration, net of cash
Net assets acquired
Change in short term payable/receivable
Goodwill(-)/profit on disposal
Minority interest
Net assets including goodwill(-)/profit on disposal
Net cash paid(-)/received
Cash and cash equivalents
Consideration, net of cash
Change in short term payable/receivable
Minority interest
Net cash paid(-)/received
-2,033
-197
-113
-290
-636
-242
121
609
547
-2,234
-5,514
-7,748
242
-7,506
120
10
-7,376
-2,033
-197
-113
-290
-636
-242
121
609
547
-2,234
-5,514
-7,748
242
-7,506
120
10
-7,376
-11
-22
-9
4
20
19
-65
-143
-208
9
-199
-35
-11
-22
-9
4
20
19
-65
-143
-208
9
-199
-35
-8
24
19
43
-20
23
-6
-6
11
-64
-2
10
20
-3
2
-3
-3
-234
-3
2
-3
-3
-234
-1
-1
2
10
20
-8
24
19
43
-20
23
-6
-6
11
2015
Disposals
9898
Annual Report 2015 · The Danfoss Group
Note 21 ACQUISITION(-)/SALE OF OTHER INVESTMENTS
DKKm
Sale of shares and other securities
Purchase of shares and other securities
Increase/decrease of lending
2014
19
-2,256
34
-2,203
2015
-126
-94
-220
Purchase of shares and other securities is related to purchase of shares in LineStream Technologies Inc. and BD Kompressor Holding GmbH & Co. KG.
In 2014, the Group purchased shares in SMA Solar Technology AG. Further information is provided in Note 3. Investments.
9999
Annual Report 2015 · The Danfoss Group 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
2014
735
38
1,239
2015
755
44
1,352
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
2014
2015
268
674
303
148
150
5
226
522
223
140
137
1
The Group expensed DKK 494m in operating lease payments in 2015 (2014: 413m) and they relate mainly to buildings and equipment. There were no
significant contingent lease payments in 2015 or 2014.
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 27m in 2015 (2014: 32m). 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
2014
2015
8
6
2014
382
463
137
821
6
14
1
2015
405
758
144
1,092
100100
Annual Report 2015 · The Danfoss Group 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 49.77% of the shares in Danfoss A/S and controls 85.68% 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 (2014: 25m).
In the financial year, Bitten & Mads Clausen Foundation sold shares in Danfoss A/S at at value of DKK 300m back to the company (2014: 0m).
Around 97% 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 2015 (2014: 2m). Besides that, companies in which Mads-Peter Clausen and Jørgen M. Clausen
have significant ownership interests have sold goods and services of less than DKK 5m (2014: 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
2014
177
128
2015
273
117
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, 2015 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.
101101
Annual Report 2015 · The Danfoss Group Note 25 BASIS FOR PREPARATION AND ACCOUNTING POLICIES
Danfoss A/S is a company domiciled in Denmark. The Annual Report for the
period January 1-December 31, 2015, comprises the consolidated financial
statements of Danfoss A/S and its subsidiaries (the Group).
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 consolidated financial statements of the Group have been prepared
in accordance with International Financial Reporting Standards (IFRS) as
adopted by the EU and Danish disclosure requirements for listed companies.
Unless otherwise indicated, the Annual Report is presented in DKK rounded
to the nearest million.
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 carrying amount
before the reclassification and fair value less costs to sell.
Changes in accounting policies
Danfoss A/S has implemented the standards and interpretations that have
taken effect for 2015. None of those standards and interpretations has
affected recognition and measurement in 2015, nor are they expected to
have a material effect on Danfoss A/S in future.
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 2015.
An assessment of the impact of the standards and interpretations in
question has been initiated. The new standards and interpretations are
expected to be implemented from their mandatory effective dates.
Accounting policies
The accounting policies set out below have been consistently applied in
respect of the financial year and the comparative figures.
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.
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.
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.
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.
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.
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.
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 cash-generating units is
based on the Group’s cash flows, in accordance with the structure in the
102102
Annual Report 2015 · The Danfoss Group
Note 25 BASIS FOR PREPARATION AND ACCOUNTING POLICIES (continued)
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.
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.
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
under financial items. Non-monetary assets and liabilities denominated
in foreign currencies are recognized at the foreign exchange rates at the
transaction date.
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.
On disposal of partially-owned foreign subsidiaries, the part of the
translation reserve related to minority interests is not 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.
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.
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.
Research and development cost
Research and development costs include costs that do not qualify for
capitalization including costs, like wages and salaries and consumables.
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.
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
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.
103103
Annual Report 2015 · The Danfoss Group
Note 25 BASIS FOR PREPARATION AND ACCOUNTING POLICIES (continued)
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.
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.
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 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.
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
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
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.
Assets held under operating leases are systematically expensed over the
lease period.
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.
104104
Annual Report 2015 · The Danfoss Group
Note 25 BASIS FOR PREPARATION AND ACCOUNTING POLICIES (continued)
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
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.
Equity
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
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
105105
Annual Report 2015 · The Danfoss Group Note 25 BASIS FOR PREPARATION AND ACCOUNTING POLICIES (continued)
sold based on warranty costs incurred in the financial year and in previous
years.
assets is recognized in the balance sheet under pension and healthcare
obligations.
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 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 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.
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.
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.
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
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
106106
Annual Report 2015 · The Danfoss Group
Note 25 BASIS FOR PREPARATION AND ACCOUNTING POLICIES (continued)
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.
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.
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.
Statement of Cash flows
The statement of cash flows shows the cash flows from operating, investing
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 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 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 and cash equivalents
Cash and cash equivalents comprise bank account deposits and cash
balances.
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 2015”.
The financial ratios in the annual report are calculated in the following
manner:
Local currency growth
Sales growth adjusted for exchange rate translation effects.
EBITDA margin excluding other operating income, etc.
Operating profit (EBIT) before depreciation, amortization, impairment and
other operating income and expenses and profit from associates / joint
ventures /Net sales
EBITDA margin
Operating profit (EBIT) before depreciation, amortization, impairment/Net
sales
EBIT margin excluding other operating income, etc.
Operating profit (EBIT) excluding other operating income and expenses and
profit from associates / joint ventures /Net sales
EBIT margin
Operating profit (EBIT)/Net sales
Return on Invested Capital (ROIC)
Operating profit (EBIT)/average invested capital
Invested Capital
Net interest bearing debt added to Shareholders’ Equity
Return on Invested Capital (ROIC) after tax
EBIT after tax/average invested capital excluding tax
107107
Annual Report 2015 · The Danfoss Group Note 25 BASIS FOR PREPARATION AND ACCOUNTING POLICIES (continued)
Invested Capital excluding tax
Net interest bearing debt and tax balance sheet items (net) added to
Shareholders’ Equity
EBIT after tax
Operating profit (EBIT) reduced with tax on profit
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
Dividend pay-out ratio
Total dividends distributed to shareholders/Net profit
Dividend ratio per share
Total dividends distributed to shareholders/total shares
108108
Annual Report 2015 · The Danfoss Group 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 Group 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, Danfoss 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 Group’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.
109109
Annual Report 2015 · The Danfoss Group
Group companies
Per December 31, 2015
The companies are owned 100% by Danfoss unless otherwise stated after
the company name.
Danfoss A/S, Nordborg, Denmark
(Parent Company)
France
• Avenir Energie, Valence
• Danfoss S.a.r.l., Elancourt
• Danfoss Commercial Compressors S.A., Trévoux
• Danfoss Power Solutions SAS, Elancourt
• Vacon France SAS, Saint-Pierre-du-Perray
Germany
• BD Kompressor Holding GmbH & Co. KG, Lollar (50%) (joint venture)
• 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
• SMA Solar Technology AG, Niestetal (20%)
• Vacon GmbH, Essen
Great Britain
• Danfoss Limited, Denham, Buckinghamshire
• Danfoss Power Solutions Ltd., Swindon
• Danfoss UK Limited, Denham, Buckinghamshire
• Senstronics Holding Ltd., London (50%) (joint venture)
• Vacon Drives (UK) Ltd, Hinckley, Leicestershire
Hungary
• Danfoss Ktf., Budapest
Iceland
• Danfoss hf., Reykjavik
Ireland
• Danfoss Ireland Ltd., Dublin
Italy
• Danfoss Power Solutions S.r.l., Castenaso, Bologna
• Danfoss S.r.l., Turin
• Vacon S.r.l., Postal Bozen
• Vacon SpA, Reggio Emilia
Kazakhstan
• Danfoss LLP, Almaty
Latvia
• Danfoss SIA, Riga
Lithuania
• Danfoss UAB, Vilnius
The Netherlands
• Advitronic Engineering B.V., Giessen
• Danfoss B.V., Rotterdam
• Danfoss Power Solutions B.V., Rotterdam
• Vacon Benelux B.V., Gorinchem
• Subsidiary
• Associate or joint venture
EUROPE
Austria
• Danfoss Gesellschaft m.b.H., Guntramsdorf
• Vacon AT Antriebssysteme GmbH, Leobersdorf
Belgium
• Danfoss N.V./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
• BetterHome ApS, Frederiksberg (25%)
• Danfoss A/S, Nordborg
• Danfoss Compressors Holding A/S, Nordborg
• Danfoss Distribution Services A/S, Rødekro
• Danfoss International A/S, Nordborg
• Danfoss IXA A/S, Vejle (60%)
• Danfoss PolyPower A/S, Nordborg - in liquidation
• Danfoss Power Electronics A/S, Gråsten
• Danfoss Power Solutions ApS, Nordborg
• Danfoss Power Solutions Holding ApS Nordborg
• Danfoss Power Solutions Holding II ApS Nordborg
• Danfoss Redan A/S, Hinnerup
• Danfoss Semco A/S, Odense (60%)
• Gemina Termix Production A/S, Sunds
• Issab Holding ApS, Nordborg
• Vacon Drives A/S, Sønderborg
Estonia
• Danfoss AS, Tallinn
Finland
• Oy Danfoss Ab, Espoo
• Danfoss Power Solutions Oy Ab, Espoo
• Vacon Oy, Vaasa
110110
Annual Report 2015 · The Danfoss Group 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 Power Solutions Sp .z.o.o., Wroclaw
• Danfoss Saginomiya Sp. z.o.o., Grodzizsk Mazowiecki (50%) (joint venture)
• Elektronika S.A., Gdynia (50%) (joint venture)
• Vacon Sp. z o.o., Grodzisk Mazowiecki
Romania
• Danfoss District Heating S.r.l., Popesti-Leordeni
• Danfoss s.r.l., Popesti-Leordeni
Russia
• Danfoss Dzerzhinsk LLC, Nizhny Novgorod
• Danfoss Power Solutions LLC, Moscow
• Danfoss LLC, Istra, Moscow
• T Plus Danfoss LLC, Perm
• ZAO Danfoss, Moscow – in liquidation
• ZAO Ridan, Nizhny Novgorod
• ZAO Vacon Drives, Moscow - in liquidation
Serbia
• Danfoss d.o.o., Novi Beograd
Slovakia
• Danfoss Power Solutions a.s. Povazska Bystrica
• Danfoss spol. S.r.o., Zlaté Moravce
Slovenia
• Danfoss Trata d.o.o., Ljubljana-Sentvid
Spain
• Danfoss Power Solutions S.A., Alcobendas, Madrid
• Danfoss S.A., Alcobendas, Madrid
• Vacon Drives Ibérica S.A., Terrassa, Barcelona
Sweden
• Danfoss AB, Linköping
• Danfoss Power Solutions AB, Älmhult
• Danfoss Värmepumpar AB, Arvika
• EP Technology AB, Malmö
• Vacon AB, Solna
Switzerland
• Danfoss AG, Frenkendorf
Ukraine
• Danfoss T.o.v., Kiev
AFRICA – MIDDLE EAST
South Africa
• Danfoss (Pty) Ltd., Rivonia, Johannesburg
• Elsmark Investment Holdings (Pty) Limited, Johannesburg - in liquidation
Turkey
• DAF Enerji Sanayi Ve Ticaret Anonim Sirketi, Istanbul (60%)
• Danfoss Otomasyon ve Kontrol Urunleri Tic Ltd., Istanbul
• Vacon Motor Kontrol Sis. Ltd. Sti., Istanbul
United Arab Emirates
• Danfoss FZCO, Dubai
NORTH AMERICA
Canada
• Danfoss Inc., Mississauga, Ontario
• Turbocor Inc., St. Laurent
• Vacon Canada Inc., Stoney Creek, Ontario
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
LATIN AMERICA
Argentina
• Danfoss S.A., Buenos Aires
Brazil
• Danfoss do Brasil Indústria e Comércio Ltda., Osasco, São Paulo
• Danfoss Power Solutions Ind. e. Com. Electrohidraulica Ltda.,
Osasco, São Paulo
• Vacon America Latina Ltda., São Paulo (97%)
Chile
• Danfoss Industrias Ltda., Santiago
Colombia
• Danfoss S.A., Bogota
Mexico
• Danfoss Industries S.A. de C.V., Apodaca, Monterrey
• Danfoss S.A. de C.V., Monterrey
• Vaasa Control de Mexico, Mexico City
Venezuela
• Danfoss S.A., Estado Carabobo, Valencia
111111
Annual Report 2015 · The Danfoss Group
Philippines
• Danfoss Inc., Makati City, Manila
Singapore
• Danfoss Industries Pte. Ltd., Singapore
• Danfoss Power Solutions China Holding Pte. Ltd., Singapore - in liquidation
• Danfoss Power Solutions 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., New Taipei City
Thailand
• Danfoss (Thailand) Co. Ltd., Bangkok
Group companies (continued)
ASIA-PACIFIC
Australia
• Danfoss (Australia) Pty. Ltd., Mulgrave Vic
• Danfoss Power Solutions Pty. Ltd., Huntingwood; NSW
• Vacon Pacific Pty Ltd, Melbourne
P. R. of China
• Daikin-Sauer-Danfoss Hydraulics (Suzhou) Co. Ltd., Suzhou
• Danfoss Automatic Controls Management (Shanghai) Co. Ltd., Shanghai
• Danfoss (Anshan) Controls Co. Ltd., Anshan
• Danfoss Energy Products (Guiyang) Co., Ltd., Guiyang – in liquidation
• Danfoss Industries Limited, Hong Kong
• Danfoss (Tianjin) Limited, Tianjin
• Danfoss Micro Channel Heat Exchanger (Jiaxing) Co., Ltd., Haiyan
• Danfoss Plate Heat Exchanger (Hangzhou) Co., Ltd. Zheijang
• Danfoss Power Solutions (Shanghai) Co. Ltd., Shanghai
• Danfoss Power Solutions (Zhejiang) Co., Ltd., Zhejiang
• Danfoss Power Solutions Trading (Shanghai) Co., Ltd., Shanghai
• Danfoss Semco (Tianjin) Fire Protection Equipment Co., Ltd., Tianjin (60%)
• Danfoss Shanghai Hydrostatic Transmission Co. Ltd., Shanghai (60%)
• Tau Energy Holdings (HK) Limited, Hong Kong
• Vacon China Drives Co. Ltd., Suzhou
• Zheijang Holip Electronic Technology Co. Ltd., Haiyan
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
Malaysia
• Danfoss Industries Sdn Bhd, Shah Alam, Kuala Lumpur
New Zealand
• Danfoss (New Zealand) Ltd., Auckland
112112
Annual Report 2015 · The Danfoss Group 113113
Annual Report 2015 · The Danfoss Group 114
Annual Report 2015 · The Danfoss Group Parent
Company
Accounts
and notes
115
Annual Report 2015 · The Danfoss Group 116
Annual Report 2015 · The Danfoss Group Management report
for Danfoss A/S (Part of
Management review)
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 2,574
employees at the end of 2015.
The profit before other operating income and expenses
was DKK 500m against DKK 739m in 2014. The company’s
operating profit was DKK 393m against DKK 664m the
previous year.
Financial income and expenses amounted to a net income
of DKK 7,961m against a net income of DKK 3,722m the
previous year. This was mainly attributable to an increase in
distributed dividends from subsidiaries.
The profit after tax in 2015 was DKK 8,340m against DKK
4,327m the previous year.
Equity stood at DKK 18,692m at the end of 2015 against
DKK 11,164m at the end of 2014. The increase was mainly
attributable to recognition of the profit for the year less
dividends paid to the owners.
Danfoss A/S expects net sales for 2016 to be on a level with
the 2015 figures, and the company expects to report a profit
in 2016.
117
Annual Report 2015 · The Danfoss Group 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
1
1
2
3
4
2014
8,110
-5,878
2,232
-225
-696
-572
739
-75
664
4,242
-520
4,386
-59
4,327
2015
7,799
-5,873
1,926
-293
-583
-550
500
-107
393
8,470
-509
8,354
-14
8,340
500
3,827
4,327
530
7,810
8,340
118
Annual Report 2015 · The Danfoss Group 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
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
2014
4,327
2015
8,340
-4
1
-3
-54
34
5
-15
-18
-5
1
-4
-19
14
1
-4
-8
TOTAL COMPREHENSIVE INCOME
4,309
8,332
119
Annual Report 2015 · The Danfoss Group
STATEMENT OF FINANCIAL POSITION
As of December 31
DKKm
ASSETS
NON-CURRENT ASSETS
INTANGIBLE ASSETS
PROPERTY, PLANT AND EQUIPMENT
Investments
OTHER NON-CURRENT ASSETS
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
INVENTORIES
Trade receivables external
Trade receivables from subsidiaries
Short-term loans to subsidiaries
Receivables from associates and joint ventures
Receivable corporation tax
Other receivables
RECEIVABLES
TOTAL CURRENT ASSETS
TOTAL ASSETS
e
t
o
N
5
6
7
10
2014
2015
696
813
1,300
1,320
14,969
14,969
23,686
23,686
16,965
25,819
642
612
210
603
12,698
30
102
13,643
232
425
8,741
1
149
134
9,682
14,285
10,294
31,250
36,113
120
Annual Report 2015 · The Danfoss Group 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
Debt to associates and joint ventures
Derivative financial instruments (negative fair value)
Other debt
CURRENT LIABILITIES
TOTAL LIABILITIES
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
e
t
o
N
8
9
9
9
9
2014
2015
11,164
18,692
49
193
25
10,880
37
114
11,298
79
81
979
620
105
6,175
102
647
8,788
65
237
24
8,911
28
110
9,375
149
81
501
708
97
5,705
18
217
570
8,046
20,086
17,421
31,250
36,113
121
Annual Report 2015 · The Danfoss Group
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.
Loans to subsidiaries
Acquisition (-)/sale of other investments etc.
CASH FLOW FROM INVESTING ACTIVITIES
e
t
o
N
11
10
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
2015
8,354
-7,734
246
866
267
-212
8,154
9,075
-87
8,988
-191
-202
38
-3,273
1
-1,492
4
-5,115
FREE CASH FLOW
-7,160
3,873
Cash repayment of (-)/cash proceeds from interest-bearing debt
Cash repayment of (-)/cash proceeds from borrowings from subsidiaries
Repurchase of treasury shares
Dividends paid to shareholders in the Parent Company
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
-2,598
-470
-312
-493
-3,873
7,316
646
-14
-789
7,159
-1
1
0
The cash flow statement cannot be derived on the basis of the Annual Report alone.
122
Annual Report 2015 · The Danfoss Group STATEMENT OF CHANGES IN EQUITY
STATEMENT OF CHANGES IN EQUITY
DKKm
DKKm
BALANCE AS OF 1 JANUARY 2014
BALANCE AS OF 1 JANUARY 2014
COMPREHENSIVE INCOME IN 2014
Net profit
COMPREHENSIVE INCOME IN 2014
Net profit
Other comprehensive income
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 other comprehensive income
Total comprehensive income for the period
Total comprehensive income for the period
TRANSACTIONS WITH OWNERS
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
Total transactions with owners
BALANCE AS OF 31 DECEMBER 2014
BALANCE AS OF 31 DECEMBER 2014
COMPREHENSIVE INCOME IN 2015
Net profit
COMPREHENSIVE INCOME IN 2015
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 31 DECEMBER 2015
Total transactions with owners
L
A
T
I
P
A
C
E
R
A
H
S
1,022
L
A
T
I
P
A
C
E
R
A
H
S
s
e
v
r
e
s
e
r
g
n
g
d
e
H
i
-12
s
e
v
r
e
s
e
r
g
n
g
d
e
H
i
I
M
U
M
E
R
P
n
w
o
e
v
r
e
s
e
R
s
e
r
a
h
s
n
w
o
e
v
r
e
s
e
R
-431
s
e
v
r
e
s
e
r
r
e
h
t
O
5,871
s
e
v
r
e
s
e
r
r
e
h
t
O
s
e
r
a
h
s
S
E
V
R
E
S
E
R
5,428
E
R
A
H
S
I
M
U
M
E
R
E
P
R
A
H
S
409
Y
T
I
U
Q
E
L
A
T
O
T
7,659
Y
T
I
U
Q
E
L
A
T
O
T
S
D
N
E
D
V
D
I
I
D
E
S
O
P
O
R
P
S
D
N
E
D
V
D
I
I
800
D
E
S
O
P
O
R
P
S
E
V
R
E
S
E
R
1,022
409
-12
-431
5,871
5,428
800
7,659
3,827
3,827
500
4,327
3,827
3,827
500
4,327
-4
1
-3
3,824
-4
1
-3
-20
-4
6
-18
3,809
-20
-4
6
-18
-20
-4
6
-18
500
4,309
-20
-4
6
-18
3,824
3,809
500
4,309
-20
5
-15
-15
-20
5
-15
-15
1
1
54
54
-70
-70
11
11
11
11
-70
-59
1
1
54
54
463
1,023
-27
-501
-70
-70
9,706
11
9,178
11
-70
-59
-800
-800
-789
-15
-804
-800
500
-800
11,164
-789
-15
-804
1,023
463
-27
-501
9,706
9,178
500
11,164
7,810
7,810
530
8,340
-5
1
-4
-4
-5
1
-4
-4
1
1
52
52
-364
-364
7,810
-5
1
-4
7,806
-5
1
-4
7,806
7
7
7
7,810
-5
-5
2
-8
-5
-5
2
-8
7,802
530
8,340
-5
-5
2
-8
530
8,332
-5
-5
2
-8
-500
7,802
7
-364
-357
-500
7
-364
-357
530
530
8,332
-493
-311
-804
-500
-500
18,692
-493
-311
-804
1,024
1
1
515
52
52
-31
-865
17,519
-364
-364
16,623
7
BALANCE AS OF 31 DECEMBER 2015
1,024
515
-31
-865
17,519
16,623
530
18,692
123
Annual Report 2015 · The Danfoss Group
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
124
Annual Report 2015 · The Danfoss Group 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
2014
1,654
17
14
130
1,815
2,694
2,675
2015
1,543
18
12
132
1,705
2,604
2,574
2014
2015
6
6
23
8
52
83
11
1
8
20
109
6
6
30
10
59
99
14
1
10
25
130
Bonuses of total DKK 69m (2014: 60m) can be divided into long-term and short-term bonuses with DKK 31m and DKK 38m respectively
(2014: 25m and 35m respectively).
125
Annual Report 2015 · The Danfoss Group Note 1 EXPENSES AND OTHER OPERATING INCOME (continued)
2014
2015
70
70
189
-2
187
257
45
15
10
70
67
9
76
184
184
260
42
14
11
9
76
2014
2015
1
2
2
5
-2
-17
-61
-80
-75
31
1
32
-1
-9
-19
-110
-139
-107
2014
2015
5
6
2
13
5
6
1
12
DKKm
B. DEPRECIATION/AMORTIZATION AND IMPAIRMENT LOSSES
Classification by nature:
Amortization of intangible assets
Impairment on 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
Other operating 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
Impairment
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
126
Annual Report 2015 · The Danfoss Group Note 2 FINANCIAL INCOME
DKKm
Dividend from subsidiaries and associates/joint ventures
Interest from subsidiaries
Interest from banks etc.
Gain on other investments
Gain on disposal of shares subsidiaries and associates/joint ventures
Interest on financial assets measured at amortized cost amounts to
Note 3 FINANCIAL EXPENSES
DKKm
Foreign exchange losses, net
Interest to banks etc.
Interest to subsidiaries
Impairment/loss on disposal of subsidiaries and associates/joint ventures
Impairment/loss on loans
Fair value adjustment of share options and warrants
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
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 healthcare plans (other comprehensive income)
Total taxes
2014
4,092
149
1
4,242
150
2015
8,153
266
48
2
1
8,470
314
2014
2015
-227
-135
-29
-91
-10
-23
-4
-1
-520
-168
2014
-206
154
-7
-59
24.5%
1.6%
-23.8%
0.9%
0.2%
-2.1%
1.3%
-234
-184
-39
-33
-11
-6
-2
-509
-225
2015
-100
16
70
-14
23.5%
0.1%
-22.9%
0.3%
-0.8%
0.2%
2014
2015
-59
5
1
-53
-14
1
1
-12
127
Annual Report 2015 · The Danfoss Group 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
Transfers
Additions
Disposals
Cost as of December 31
Amortization and impairment losses as of January 1
Transfers
Amortization
Impairments for the year
Disposals
Amortization and impairment losses as of December 31
Carrying amount as of December 31
2014
Goodwill
Software
Patents,
trademarks,
etc. *)
Develop-
ment
costs
AAA
Total
Other
TOTAL
462
462
462
471
36
-11
496
382
35
-10
407
89
232
87
-7
312
173
19
-7
185
127
147
147
113
16
129
850
123
-18
955
668
70
-17
721
18
234
1,312
123
-18
1,417
668
70
-17
721
696
2015
Goodwill
Software
Patents,
trademarks,
etc. *)
Develop-
ment
costs
AAA
Total
Other
TOTAL
462
462
462
496
10
191
-1
696
407
1
34
9
-1
450
246
312
-8
304
185
-1
16
147
147
129
17
200
146
955
2
191
-1
1,147
721
67
9
-1
796
104
1
351
1,417
2
191
-1
1,609
721
67
9
-1
796
813
*) The amounts under Patents, trademarks etc. are mainly related to patents.
IMPAIRMENT TESTS
Goodwill in Danfoss A/S of DKK 462m (2014: 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 2015, 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 2014.
128
Annual Report 2015 · The Danfoss Group Note 6 PROPERTY, PLANT AND EQUIPMENT
DKKm
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
Cost as of January 1
Transfers
Additions
Disposals
Cost as of December 31
Depreciation and impairment losses as of January 1
Depreciation
Disposals
Depreciation and impairment losses as of December 31
Carrying amount as of December 31
Hereof assets held under finance leases
2014
Land and
builidngs
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
111
592
12
18
-3
619
246
57
-3
300
319
37
2015
Land and
buildings
Plant and
machinery
Equipment
Assets under
construction
1,773
25
35
-1
1,832
1,130
46
1,176
656
2,181
37
29
-121
2,126
1,954
81
-115
1,920
206
111
-67
130
174
174
619
3
19
-53
588
300
57
-53
304
284
28
TOTAL
4,593
128
-37
4,684
3,231
189
-2
-34
3,384
1,300
37
Total
4,684
-2
213
-175
4,720
3,384
184
-168
3,400
1,320
28
The financial leases mainly concern IT equipment. The leased assets are pledged as collateral for the lease liabilities.
129
Annual Report 2015 · The Danfoss Group
Note 7 INVESTMENTS
DKKm
2014
2015
n
i
s
t
n
e
m
t
s
e
v
n
I
i
s
e
i
r
a
d
i
s
b
u
s
13,579
71
13,650
-1,000
17
-109
-1,092
Costs as of January 1
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
i
s
e
i
r
a
d
i
s
b
u
s
m
o
r
f
n
i
s
t
n
e
m
t
s
e
v
n
I
d
n
a
s
e
t
a
c
o
s
s
a
i
s
e
r
u
t
n
e
v
t
n
o
i
j
l
s
e
b
a
v
e
c
e
R
i
971
83
-971
83
108
2,258
-20
2,346
-68
4
16
-48
s
t
n
e
m
t
s
e
v
n
i
r
e
h
t
O
134
134
-103
-1
-104
L
A
T
O
T
14,792
2,412
-991
16,213
-1,171
-1
21
-109
16
-1,244
n
i
s
t
n
e
m
t
s
e
v
n
I
i
s
e
i
r
a
d
i
s
b
u
s
13,650
3,299
-45
16,904
-1,092
60
-52
-1,084
i
s
e
i
r
a
d
i
s
b
u
s
m
o
r
f
n
i
s
t
n
e
m
t
s
e
v
n
I
d
n
a
s
e
t
a
c
o
s
s
a
i
s
e
r
u
t
n
e
v
t
n
o
i
j
s
t
n
e
m
t
s
e
v
n
i
r
e
h
t
O
l
s
e
b
a
v
e
c
e
R
i
83
5,470
-21
5,532
2,346
134
2,346
134
-48
4
-104
2
L
A
T
O
T
16,213
8,769
-66
24,916
-1,244
2
64
-52
-44
-102
-1,230
Carrying amount as of December 31
12,558
83
2,298
30
14,969
15,820
5,532
2,302
32
23,686
Where possible, "Other investments" are recognized at fair value. Alternatively, they are recognized at cost less accumulated impairment losses.
At the end of 2015, 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 2014.
Impairment losses for the year on "Investments in subsidiaries" of DKK 52m mainly relates to 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 International A/S (Denmark).
Disposal for the year of "Investments in subsidiaries" relates to the closing of Danfoss Heat Pumps UK Ltd.
Impairment losses for 2014 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 2014 to "Investments in subsidiaries" is mainly capital injection in Danfoss Power Solutions Holding II ApS (Denmark).
Additions for 2014 to "Investments in associates/joint ventures" relates to the acquisition of SMA Solar Technology AG.
Disposal for 2014 of "Investments in associates/joint ventures" mainly relates to the sale of Promeos GmBH.
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.
130
Annual Report 2015 · The Danfoss Group
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 taxes as of December 31 (net) *)
*) Liability (-)
SPECIFICATION OF DEFERRED TAXES
Current assets
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
2014
-340
-7
154
-193
2015
-193
-60
16
-237
2014
Deferred
tax
asset
2015
Deferred
tax
asset
114
114
-114
0
21
109
130
-130
0
2014
Deferred
tax
liability
2015
Deferred
tax
liability
51
101
17
74
64
307
-114
193
46
89
11
148
73
367
-130
237
Of the deferred tax liability of DKK 237m (2014: 193m), DKK 73m (2014: 64m) can be attributed to tax 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 73m (2014: 67m). The liabilities are not recognized because the Danfoss A/S decides on their utilization and it is likely that the liabilities will not be
recognized in the foreseeable future.
131
Annual Report 2015 · The Danfoss Group
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
2014
2015
i
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
l
a
u
t
c
a
r
t
n
o
C
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
13
37
4,356
7,451
r
a
e
y
1
-
0
1,034
26
28
6,175
20
620
105
102
8,110
i
g
n
y
r
r
a
C
t
n
u
o
m
a
8,349
1,042
5,705
21
708
97
18
245
16,185
l
a
u
t
c
a
r
t
n
o
C
w
o
l
f
h
s
a
c
8,929
1,374
5,705
23
708
97
18
278
17,132
Maturity
r
a
e
y
1
-
0
)
*
s
r
a
e
y
5
-
1
5
r
e
v
O
s
r
a
e
y
592
25
3,497
99
4,840
1,250
5,705
10
708
97
18
227
7,382
13
51
3,660
6,090
Bank debt and corporate bond
Mortgage debt
Employee bonds
Borrowings from subsidiaries
Finance lease liabilities
Trade payables
Trade payables to subsidiaries
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 12. Contingent liabilities, assets and security.
THE ABOVE DEBT IS RECORDED AS FOLLOWS:
Non-current liabilities
Current liabilities
2014
2015
10,917
7,981
18,898
8,939
7,246
16,185
132
Annual Report 2015 · The Danfoss Group
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
Loans and receivables
Interest-bearing debt
Trade payables to subsidiaries
Borrowing from subsidiaries
Trade payables and other debt
Financial liabilities measured at amortized cost
Derivative financial instruments for the hedging of future cash flows
Financial liabilities used as hedging instruments
Derivative financial instruments for financial hedging
Financial liabilities measured at fair value in the income statement
2014
Carrying
amount Fair value
30
30
30
30
210
603
12,698
102
13,613
11,859
105
6,175
1,381
19,520
37
37
102
102
210
603
12,698
102
13,613
11,953
105
6,175
1,381
19,614
37
37
102
102
2015
Carrying
amount Fair value
32
32
232
425
8,741
134
9,532
32
32
232
425
8,741
134
9,532
9,412
97
5,705
1,406
16,620
9,462
97
5,705
1,406
16,670
42
42
203
203
42
42
203
203
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 2014.
FAIR VALUE HIERARCHY AS OF 31 DECEMBER FOR DANFOSS A/S
2014
2015
FINANCIAL ASSETS:
Other investments
Total financial assets
FINANCIAL LIABILITIES:
Derivative financial instruments for the
hedging of future cash flows
Derivative financial instruments for
financial hedging
Interest bearing debts
Total financial liabilities
Quoted
prices
Level 1
Observ-
able
input
Level 2
Non-
observ-
able input
Level 3
30
30
37
102
11,953
12,092
In total
30
30
37
102
11,953
12,092
Quoted
prices
Level 1
Observ-
able
input
Level 2
Non-
observ-
able input
Level 3
In total
32
32
32
32
42
203
9,462
9,707
42
203
9,462
9,707
133
Annual Report 2015 · The Danfoss Group Note 9 FINANCIAL RISKS AND INSTRUMENTS (continued)
DKKm
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE BASED ON LEVEL 3
Carrying amount as of 1 January
Gain/loss (-) in the income statement
Carrying amount as of 31 December
Gain/loss (-) in the income statement for assets owned as of 31 December
Gain/loss (-) in the income statement is recognized under financial income and expenses.
DERIVATIVES AS OF 31 DECEMBER FOR DANFOSS A/S
2014
2015
t
c
a
r
t
n
o
c
t
a
t
n
u
o
m
A
l
i
a
p
c
n
i
r
p
/
e
c
i
r
p
1,455
-532
2,733
USD
EUR
Other currencies
Forward exchange contracts
Interest swaps
Derivatives end of year
t
n
e
m
l
j
t
s
u
d
a
e
u
a
v
t
e
k
r
a
m
n
o
)
-
(
s
s
o
l
/
n
a
G
i
-2
-100
-102
-37
-139
r
a
e
y
1
n
a
h
t
s
s
e
l
e
u
D
d
e
z
i
n
g
o
c
e
r
)
-
(
s
s
o
l
/
n
a
G
i
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
n
i
-2
-100
-102
-102
s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D
-37
-37
s
r
a
e
y
5
r
e
t
f
a
e
u
D
t
c
a
r
t
n
o
c
t
a
t
n
u
o
m
A
l
i
a
p
c
n
i
r
p
/
e
c
i
r
p
-3,082
-3,064
-307
2,244
t
n
e
m
l
j
t
s
u
d
a
e
u
a
v
t
e
k
r
a
m
n
o
)
-
(
s
s
o
l
/
n
a
G
i
-192
-13
1
-204
-43
-247
2014
2015
Other
invest-
ments
Level 3
Other
invest-
ments
Level 3
31
-1
30
-1
s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D
30
2
32
2
s
r
a
e
y
5
r
e
t
f
a
e
u
D
r
a
e
y
1
n
a
h
t
s
s
e
l
e
u
D
-14
-14
-28
-28
d
e
z
i
n
g
o
c
e
r
)
-
(
s
s
o
l
/
n
a
G
i
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
n
i
-192
-13
1
-204
-1
-205
At the end of 2015, unrealized gain/loss(-) on derivatives hedging floating interest payments recognized in equity amounted to DKK -42m (2014: -37m).
134
Annual Report 2015 · The Danfoss Group
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
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
2014
122
-352
206
-6
-30
30
-30
2015
-30
-87
-130
100
-2
-149
149
-149
2014
257
1
-4,242
520
-6
-3,470
2015
260
-30
-8,470
509
-3
-7,734
135
Annual Report 2015 · The Danfoss Group 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
2014
623
37
1,073
2015
637
28
1,064
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.
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
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
2014
2015
15
35
44
32
20
12
29
49
27
20
2014
2015
18
1
12
2014
2015
178
235
16
376
211
258
31
406
136
Annual Report 2015 · The Danfoss Group 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
2014
2015
3
51
3
79
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
2014
7,349
2,625
81
11
2015
7,007
2,750
28
4
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, 2015 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.
137
Annual Report 2015 · The Danfoss Group Note 15 GENERAL ACCOUNTING POLICIES FOR DANFOSS A/S
Danfoss A/S is a company domiciled in Denmark. The Annual Report for the period January 1 to December 31, 2015, comprises the
financial statements of Danfoss A/S.
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.
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 2015 on March 15, 2016, and it will be presented
for approval at the Annual General Meeting to be held on April 29, 2016.
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' 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.
Impairments are recognized in Danfoss A/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' 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’ 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.
138
Annual Report 2015 · The Danfoss Group 139
Annual Report 2015 · The Danfoss Group A
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