Annual Report 2016
www.danfoss.com
Contents
Management’s review
Financial statements
Overview
2016 at a glance
Key events in 2016
Danfoss around the world
Outlook 2017
CEO comment
Our business
Business model
Strategy
Our performance
Financial highlights
Financial review
Financial highlights, Quarterly
Governance
Sustainability
Risk management and compliance
Corporate governance
Board of Directors
Executive Committee and leadership team
5
7
8
10
11
13
16
19
20
24
27
29
32
34
36
Management statement
Independent auditor’s report
Group
Group accounts
Group notes
Definition of the financial ratios
Group companies
Parent
Parent accounts
Parent notes
38
39
44
50
91
93
98
104
Engineering
Tomorrow
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Annual Report 2016 The Danfoss Group
Danfoss A/S
Nordborgvej 81
6430 Nordborg
Denmark
Tel.: +45 7488 2222
CVR no. 20165715
Email: danfoss@danfoss.com
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Introduction to
the Danfoss Group
annual reporting
This Annual Report 2016 is published as an electronic
publication only and made available at www.danfoss.com. The
annual report has been prepared and published in English and
is released as company announcement no. 1/2017 on March
2, 2017.
The Annual Report has been presented in accordance with
International Financial Reporting Standards as adopted by
the EU and further requirements in the Danish Financial
Statements Act.
Tailored annual reporting
Danfoss has tailored the annual reporting towards the needs
of our various stakeholders with three annual publications:
1. Annual Report 2016, which focuses on legally required
information and includes the financial results for the fiscal
year.
2. Sustainability Report 2016, which constitutes the Group’s
“Communication on Progress” (COP) under the UN Global
Compact and provides an insight into our initiatives within
corporate social responsibility and sustainability.
3. Corporate Governance Report 2016, which comprises the
Group’s compliance on the recommendations of corporate
governance.
These publications constitute the total annual reporting of
the Danfoss Group and can be read individually or combined
depending on interests.
Danfoss also releases interim announcements after each
quarter of the financial year.
Additional publications
During 2017, Danfoss will release the Group Magazine. This
magazine gives an overview of who we are and what we do
in a concise and easy-to-read format. This publication does
not replace the annual report and does not contain all the
information needed to give an equally complete picture of
the Danfoss Group’s performance, financial position, and
future prospects as is provided in the annual report. The Group
Magazine is produced in English and made available in hard
copy and for download at www.danfoss.com.
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Annual Report 2016 The Danfoss Group
Reference to other pages in this annual report
Reference to other reports, which can be downloaded
from danfoss.com
Reference to danfoss.com
Follow us here:
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www.twitter.com/danfoss
http://plus.google.com/+danfoss
www.youtube.com/danfossgroup
www.linkedin.com/company/danfoss
Overview
Every city can welcome more,
while using less
Magnetic compressors cut energy use in São Paulo
office building
Danfoss Turbocor® compressors in the air-conditioning system
helped the Pátio Victor Malzoni office building save 10 percent
on energy and earn important environmental rating.
Read the case story at
www.danfoss.com > About > Engineering Tomorrow
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
2016 at a glance
Key figures
See the financial highligts on page 19
Sales DKKbn
39.2
Sales EURbn
5.3
Local currency growth
EBIT margin
6%
10.9%
Employees worldwide
25,292
Patent families
1,408
Danfoss in brief
Sales split on regions
Sales split on segments
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. Our products and services are used in
areas such as refrigeration, air conditioning, heating, motor
control, and mobile machinery. We also operate in the field of
renewable energy, as well as district energy infrastructure for
cities and urban communities.
The Group is divided into four business segments: Danfoss
Power Solutions, Danfoss Cooling, Danfoss Drives, and Danfoss
Heating. Danfoss Power Solutions is a leading player in
hydraulic systems and components for powering off-highway
mobile machinery. Danfoss Cooling is a market leader in the
air-conditioning and refrigeration industry. Danfoss Drives’
key expertise lies in low-voltage AC drives, power modules,
and stacks for a number of industries. Danfoss Heating enjoys
leading positions within residential heating, commercial
heating, and district energy.
Danfoss is a privately-owned company, which has grown and
improved its skills and expertise in energy-efficient solutions
over more than 80 years. Danfoss was founded by Mads
Clausen, and today the company is controlled by the Bitten
and Mads Clausen Foundation.
5% 3%
21%
16%
30%
39%
25%
24%
8%
Western Europe
Eastern Europe
North America
Asia-Pacific
Latin America
Africa-Middle East
29%
Danfoss Power Solutions
Danfoss Cooling
Danfoss Drives
Danfoss Heating
See pages 8 and 20 for more information on the markets
See pages 15 and 23 for more information on the business segments
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Annual Report 2016 The Danfoss Group
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
2016 at a glance
Key figures
See the financial highligts on page 19
Free cash flow before M&A / DKKbn
Free cash flow before M&A / EURbn
3.4
0.5
Leverage ratio
55.2%
NIBD to EBITDA ratio
Equity ratio
1.6
42.6%
Results in line with expectations
In 2016, the Danfoss Group continued its positive performance
and delivered satisfactory financial results in line with
expectations.
up 13% on last year. The results were driven by a strong
performance in Danfoss Cooling and good growth traction in
Danfoss Power Solutions.
The year was characterized by continuing low global growth
conditions with a mixed business environment across markets
and sectors. Sales grew 3% to DKK 39.2bn, corresponding to
6% growth in local currency. EBIT improved 4% to DKK 4.3bn,
leading to an EBIT margin of 10.9% and net profit of DKK 2.9bn,
The strong free cash flow before M&A was kept high at DKK
3.4bn, and the free cash flow ended at DKK 1.5bn, due to the
acquisitions completed in the third quarter of 2016.
See the financial review on page 20
Outlook compared to results
Outlook for 2016
Results in 2016
Market share
expected to be
maintained or
expanded
Sales increased 6% in local currency, mainly
driven by increased market share in a market
which we estimate to have been flat or even
slightly declining.
EBIT margin
expected to be
at level with 2015
In 2016, the operating profit (EBIT) reached
DKK 4,262m, corresponding to an EBIT
margin of 10.9% against 10.8% in 2015.
Sales and growth
Earnings
Innovation spend
Sales DKKbn Sales growth in local currency
EBIT DKKbn EBIT margin
R&D spend DKKbn % of sales
40
38
36
34
32
30
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
4.4
4.2
4.0
3.8
3.6
3.4
3.2
3.0
14%
12%
10%
8%
6%
4%
2%
0%
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
4.4%
4.3%
4.2%
4.1%
4.0%
3.9%
3.8%
3.7%
3.6%
3.5%
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Key events in 2016
Ramp-up of digital
transformation
5/31/16
Danfoss wants to take the lead in
using digitalization to leverage
customer value and differentiation,
due to smarter and more
intelligent products, faster design
of new technologies, a more
flexible production, and efficient
cross-segment cooperation
worldwide. As a foundation,
the roll-out of a new common
Enterprise Resource Planning
(ERP/SAP) system is accelerated.
Acquisition of Sondex
8/31/16
Danfoss creates a world-leading
player in heat transfer solutions
through the acquisition of Sondex
Holding A/S, a global company
headquartered in Denmark that
produces and markets heat
transfer technologies.
Link™ campaign
in Germany
10/18/16
Danfoss launches the Link™
campaign in Germany, including
TV commercials and social media.
The campaign shows that the
introduction of a smart home is
easy and money-saving without
losing comfort in the home.
Moving from talk to action
at COP22 in Marrakesh
11/7/16
As part of business efforts to
encourage timely action on
climate, Danfoss organizes
solution panels with public and
private partners. Together with
the United Nations Environment
Programme, Danfoss showcased
the opportunity of district energy
for cities at COP22.
New application
development center
12/6/16
To advance climate-friendly
technologies, a new application
development center is
inaugurated in Tallahassee, Florida.
The test lab facility enables
Danfoss to serve both industry and
customers in meeting the targets
for low global warming potential
refrigerants and higher energy
efficiency levels.
04.16
05.16
06.16
07.16
08.16
09.16
10.16
11.16
12.16
Market launch of
new energy meters
3/31/16
Danfoss introduces the new
generation of energy meters,
SonoSelect™ and SonoSafe™,
in China. This new digitalized
heat meter platform is made
user-friendly using SonoApp and
has a long operating life with a
diagnostic function.
Acquisition of
White Drive Products
9/8/16
Danfoss acquires a leading
manufacturer of hydraulic drive
products, the US-based Propulsys
Inc., parent company of White
Drive Products Group, thereby
creating the world’s number one
in the hydraulic orbital motor
market.
Partnership with
Leanheat
9/30/16
Danfoss invests in the Finnish
innovator Leanheat, which offers
advanced and intelligent energy
optimization solutions for multi-
family houses and district heating
segments. The partnership enables
access to software technologies,
which will further strengthen the
business and position of Danfoss
Heating.
Fueling strategic technology
approach
10/14/16
To further strengthen the digital
ability of Danfoss, increased efforts
are put into building and driving a
world-class, strategic technology
approach, e.g. through systematic
screening of new technologies,
increased use of 3D printing,
software simulation in product
development, etc. As key steps, new
senior positions are established
within technology.
Incubation hub in Berlin
to strengthen digital
innovation
10/20/16
To accelerate Danfoss’ digital
transformation, an incubation hub
is established in Berlin to boost
the development and testing of
new digital products and viable
business models within digital and
IoT (Internet of Things).
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Products sold in more than 100 countries around the world
Western Europe
21 factories
Sales companies in 17 countries
9,858 employees
39%
share of
Group sales
Eastern Europe
15 factories
Sales companies in 12 countries
4,426 employees
8%
share of
Group sales
North America
14 factories
Sales companies in 2 countries
3,675 employees
24%
share of
Group sales
Western Europe represents the largest share of Group sales
and continues to hold interesting growth opportunities, as the
EU is pushing for improved energy efficiency. Germany is the
largest market in the region, but countries like Italy, France,
Denmark, and Sweden are also among the top markets of
Danfoss.
Russia, Poland, and the Czech Republic are the top three
markets in Eastern Europe. The fairly cold climate and a
large number of district energy systems represent growth
opportunities for Danfoss, supported by the EU’s ambitious
plans to improve energy efficiency in Europe, including
Eastern European countries.
The US is the largest country in terms of sales. Danfoss has a
strong position and presence in this mature market, which
is the world’s largest manufacturing economy and location
for many of Danfoss’ global key customers. Energy efficiency
in buildings, a changing refrigerant landscape and reshoring
are major trends in North America, representing a growth
potential for Danfoss.
Asia-Pacific
15 factories
Sales companies in 11 countries
5,809 employees
21%
share of
Group sales
Latin America
3 factories
Sales companies in 5 countries
1,281 employees
5%
share of
Group sales
Africa-Middle East
1 factory
Sales companies in 3 countries
243 employees
3%
share of
Group sales
China, India, and South Korea are the top three markets in the
Asia-Pacific region, which is otherwise a significant region in
terms of sourcing and production. The region holds significant
growth opportunities for Danfoss, especially within the build-
up of the food cold chain, air-conditioning markets, and urban
district energy projects.
Brazil and Mexico are the two largest countries in terms of sales
in Latin America, where Danfoss has sales companies in all the
main countries. In this region, Danfoss mainly delivers solutions
for the air-conditioning market and for the food chain, ranging
from production and processing to refrigerated transportation
and storage. The region represents a growth opportunity for
Danfoss, especially within improvement and expansion of the
infrastructure.
Generally, the Africa-Middle East region is characterized by a
growing population, increasing urbanization, and focus on
more efficient energy systems. Key challenges, such as scarcity
in power supply and an almost non-existent food cold chain,
represent growth opportunities. However, the political and
economic situation in some parts of the region are leading to
volatile market conditions characterized by low visibility.
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Innovation around the world
Annual investments in innovation correspond to
more than 4% of sales, which is above industry
average. Danfoss partners with customers and
universities to optimize solutions, boost research,
and help educate the skilled engineers of
tomorrow.
Western Europe
Eastern Europe
R&D sites
7
24
University
partnerships
R&D sites
5
12
University
partnerships
R&D sites
Innovative ideas are brought
to life at the many Danfoss
research and development
(R&D) sites.
University partnerships
Danfoss works closely with
universities in everything,
ranging from innovative
research to helping educate
engineers and technicians.
Customer test facilities
New solutions are explored
and optimized for customer
applications in Application
Development Centers and
test laboratories.
North America
6
8
R&D sites
University
partnerships
Asia-Pacific
3
15
R&D sites
University
partnerships
Latin America
1
6
R&D site
University
partnerships
8
Customer
test facilities
2
Customer
test facilities
5
Customer
test facilities
6
Customer
test facilities
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Outlook 2017
In 2017, management expects top line growth
above market level with a profitability on par
with 2016, while fueling significant investments
in digitalization to drive a long-term sustainable
value creation.
In 2017, our key focus continues to be on ensuring profitable
growth. In 2016, we grew faster than the markets and the
industries in which we are present, and we expect to continue
this development in 2017.
We expect to accelerate our investments in digitalization
and at the same time maintain the profitability measured as
margin at the same level as in 2016.
In 2017, the global economic environment is expected to
continue the soft development characterized by low visibility
and high volatility. For the global industrial sector, the growth
projections are still subdued.
However, Danfoss is experiencing positive developments
within some sectors in key markets, e.g. Europe and North
America, and increasing momentum in high potential growth
markets, e.g. India and China.
Specific key factors, which could affect
the Group’s financial performance in 2017:
• The Group’s continued strategic initiatives to accelerate
profitable growth, organic as well as acquisitive, are
expected to generate a positive impact on the market
share development.
• To the extent that we are successful in acquiring well-
performing companies, this can add to the sales growth.
• The current global geopolitical environment is
characterized by continued volatility and low visibility.
Accordingly, sudden changes in major markets could have
a negative impact on the Group’s performance.
• Relatively low prices on commodities, such as crops, metals
and oil, affecting the global agriculture, marine, oil, gas,
and mining sectors, may continue to subdue demand in
the markets, where Danfoss Power Solutions and Danfoss
Drives are operating.
• The strong cash flow performance is expected to continue
• Fluctuations in foreign exchange rates may have a negative
in 2017, enabling the financing of future potential
acquisitions and further investments in new technology.
effect on the topline growth measured in DKK.
• Strong earnings allow for significant investments in
digitalization, while maintaining a healthy profitability.
2017 expectations
Based on the above, we expect to maintain or expand our market
share, while maintaining the profitability measured as margin at
the 2016 level, following significant investments in digitalization.
Forward-looking statements
Read more about risks on page 29 and financial risks in Note 16, page 72
This annual report includes forward-looking statements on
various matters, e.g. expected earnings, future expansion of
market share, future profitable growth. Such statements are
subject to risks and uncertainties, because various factors,
many of which are beyond Danfoss’ control, may cause
actual developments and results to differ materially from the
expectations set out in the annual report.
Such factors include, but are not limited to, general economic
and business conditions, changes in commodity prices
impacting the demand for Danfoss’ solutions and services,
competition in the industrial sectors, in which the business
segments are operating, fluctuations in foreign exchange
rates, interest rates, and raw material prices, changes in climate
policy, legislation, regulation or standards, and uncertainty in
connection with acquisitions or potential acquisitions and
divestments.
Unless required by law, Danfoss is under no duty and
undertakes no obligation to update or revise any forward-
looking statements after the publication of this annual
report.
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Driving
profitable growth
A digital future holds great potential for
Danfoss – and we are well prepared. Standing
on a strong foundation, we can benefit from
future opportunities to drive profitable growth,
partly organic and partly through acquisitions.
This is the recipe for long-term sustainable
development within Danfoss.
Our 2016 financial performance reflects a year of significant
achievements for Danfoss, demonstrating the value of our
Core & Clear strategy and sustainable business model. Through
effective execution of the strategy and growth initiatives, our
highly engaged teams around the world improved customer
value and business results.
We want to seize the opportunities held by a digital future,
while improving our efficiency and competitive edge. We have
obtained a robust financial position that allows us to invest
and expand. In 2016, we acquired companies which are a
great match for Danfoss both in terms of market positions and
competencies. We also came even closer to our customers
by opening yet another application development center, this
time in Tallahassee, Florida, which enables us to demonstrate
performance and test customer applications enhanced with
Danfoss solutions in a real-life environment.
customers to interact directly and seamlessly across devices,
offering a differentiated customer experience and access to fast,
easy, and relevant information and tools. Harvesting the potential
in IoT (Internet of Things) by offering connected products and
services, intelligent data, and user-friendly control systems is
key in our digital development. As is building a new common IT
architecture, which will enable us to meet the needs of a digital
future – fast and flexible.
“We keep strengthening our businesses and
investing in innovation to offer customers
improved value-added products. In the more
long-term perspective, the key to driving future
growth in the Danfoss Group lies in our digital
transformation.”
In 2016, our strong financial performance allowed for re-investing
4.2% of sales in innovation, which is above industry average. And
at the same time, we recorded a positive impact from our strategic
growth initiatives, leading to 6% local currency growth and an
improved EBIT performance of 4%. Accordingly, considering the
market, we have again delivered satisfactory results – and when
the underlying global economy improves, we are in a good
position to further accelerate sustainable profitable growth.
perspective, the key to driving future growth in the Danfoss Group
lies in our digital transformation.
On behalf of the Executive Committee, I want to thank the
management team and our more than 25,000 employees for
their significant contributions and continued dedication to making
2016 a good year for Danfoss. We will continue the great efforts to
drive our business for long-term sustainable value creation.
Currently, a lot of attention is on Danfoss’ digital transformation.
As an industry front-runner, we are well prepared to take
advantage of the countless opportunities of digitalization for
the benefit of our customers. Substantial investments in R&D
and into developing strong digital capabilities will enable our
Looking ahead, the need for new infrastructure, safe food
supply, increased energy efficiency, and improved climate-
friendly solutions will drive continued growth. Further, we keep
strengthening our businesses and investing in innovation to offer
customers improved value-added products. In the more long-term
Niels B. Christiansen
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Annual Report 2016 The Danfoss Group
Our business
Every supermarket can ensure
freshness and save energy
Supermarkets as the backbone of smart cities
What cools your products at your local supermarket can
at the same time heat your home – let’s do more with
less! The key to this concept are supermarkets connected
with electricity and heating networks, enabled by Danfoss
technologies.
Read the case story at
www.danfoss.com > About > Engineering Tomorrow
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Business model
The Danfoss business model drives
competitive advantage and sustainable,
long-term value creation. The model
creates a foundation for our four business
segments to take advantage of global growth
opportunities.
The business model is based on a strong “One
Company” approach. Key elements are our operational
setup with extensive, global coverage and strong
regional presence as well as our competitive
advantage across the business segments: leading
positions, application knowledge, and innovation.
Suppliers
Global growth trends
Climate
Infrastructure
Danfoss
Heating
16% of
Group sales
Danfoss
Power Solutions
30% of
Group sales
Danfoss
Drives
25% of
Group sales
Competitive
advantage
Leading
positions
Application
knowledge
Innovation
Danfoss
Cooling
29% of
Group sales
Energy
Food
Customers
Quality and reliability
Increased customer value through
top product quality and excellence
in on-time delivery – worldwide.
See description of business segments on page 15
Leading positions
Application knowledge
Innovation
In the global manufacturing industry, global reach, size, and
scale matter. Therefore, it is a key element in our business model
that the business segments hold leading positions as either a
number one or two in their industries. To drive scale advantages,
increased customer value, and a world-class supply chain, we
have a unique business system with a strong focus on safety,
quality, delivery, and cost.
Across the Group, customer application knowledge and
deep technical expertise are driving differentiation as well as
customer value. The operational setup is designed to ensure
local empowerment and close cooperation with customers.
We invest in initiatives that enable our R&D engineers to
turn their know-how and application understanding into
performance-enhancing advantages for our customers.
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 innovation at Danfoss.
We invest above industry average to take full advantage of
innovation and take the lead within IoT and connectivity.
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Annual Report 2016 The Danfoss Group
The business model is made operational by the Core & Clear strategy, see pages 16-17
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35-50%
energy savings with oil-free
variable speed compressors
for heating, ventilation, and
air-conditioning systems
50%
increase in
power plant efficiency
with combined heat
and power solutions
20-50%
energy savings with
aqua variable speed
drives in water
applications
10-15%
energy savings
from control valves
in heating and
cooling systems
40%
energy savings from variable
speed drives controlling fans
and pumps
Global growth
opportunities
Our business model capitalizes on four global
growth trends: infrastructure, food, energy,
and climate. These trends drive future growth
opportunities for Danfoss and represent areas,
where we contribute to a sustainable global
development.
Examples of how Danfoss’ technology and solutions are
creating value for our customers and the society as a whole
98%
of the available solar
energy goes to the grid
with solar inverters
6%
more efficient
farm machines
with hydraulic motors
10-25%
energy savings with
variable speed drives in
refrigeration systems
30%
fuel savings with electronic
throttling valves for
refrigeration systems in trucks
90-95%
reuse of heat with heat
recovery ventilation for optimal
comfort and energy savings
50-75%
energy savings with
air and ground source
heat pumps
Infrastructure
Food
Energy
Climate
The global population is moving into cities,
creating a demand for infrastructure. By
providing energy-saving solutions and
technologies we help build the infrastructure
– roads, buildings, and energy systems – for
the world’s growing cities in a sustainable
and efficient way.
A growing world population needs more
and better food. We help meet this need
by increasing agricultural productivity and
keeping food cold and fresh from field to
fork with a minimum waste, e.g. safe food
processing, storage, and transportation.
Global energy demand is rising as population
grows and standards of living increase. No
matter what we do, the goal is to optimize
performance, increase energy-efficiency, and
minimize waste. This means that our customers
and society as a whole get more from less.
Global emissions must be reduced to
limit the global warming. Our innovative
technologies help lower emissions and
improve people’s health and comfort,
outdoors and indoors, by optimizing heating,
ventilation, and air-conditioning systems.
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Business segments
Danfoss Power Solutions
Danfoss Cooling
Danfoss Drives
Danfoss Heating
Employees
6,404
Factories
worldwide
20
Sales offices
worldwide
>20
Employees
6,025
Factories
worldwide
11
Sales offices
worldwide
> 100
Employees
4,653
Factories
worldwide
9
Sales offices
worldwide
>80
Employees
5,146
Factories
worldwide
31
Sales offices
worldwide
> 100
Leading player and industry pioneer in the
mobile hydraulics market.
Market leader and industry front-runner in the
air-conditioning and refrigeration industry.
Leading player in the market for low-voltage
AC drives.
Market leader within residential and
commercial heating and district energy.
Products and solutions
Engineered hydraulic and electronic
components optimized for total machine
management:
• Hydrostatic transmissions
• Mobile electronics/software
• Orbital motors
• Steering components
• Proportional valves
The components are part of applications such
as tractors, road graders, cranes, lawn mowers,
and more, helping to lift, push, pull, etc.
Customers and industries
• Original equipment manufacturers (OEMs)
• Distributors
Operating within, e.g., agricultural,
construction, road building, material
handling, turf care, and specialty markets.
Products and solutions
Components for cooling control solutions:
• Compressors and high-pressure pumps
• Valves and controllers
• Sensors
• Heat exchangers
• Condensing units
The components are part of applications such
as chillers, rooftop air-conditioning systems,
and cold storage solutions, used in residential
and commercial buildings, e.g. hotels, airports,
supermarkets, shopping malls, and more.
Customers and industries
• Original equipment manufacturers (OEMs)
• Wholesalers, distributors and contractors
•
Installers and end-users
Operating within, e.g., air conditioning,
commercial and industrial refrigeration (food &
beverage processing, transportation, storage),
and water treatment incl. reverse osmosis.
Products and solutions
AC drives enable optimal process and speed
control of electric motors:
• Low- and medium-voltage AC drives
• Stacks and power modules
The components are used to provide optimal
operation of pumps, fans, chillers, conveyors,
shafts, energy management (hybrid), and
power conversion.
Customers and industries
• Original equipment manufacturers (OEMs)
• Distributors and system integrators
•
Installers and end-users
Operating within, e.g., machine
manufacturing, water treatment, food &
beverage, building automation, marine
and offshore, mining, renewable energy
generation, heating, ventilation, and air-
conditioning (HVAC) systems.
Products and solutions
Advanced components and service for:
• Heating/cooling systems
• Radiator valves and thermostats
• Floor heating and heat pumps
• Heat cost allocators
• Heat exchangers
The components are used in buildings such
as single or multi-family houses, schools,
office buildings, and more.
Customers and industries
• Original equipment manufacturers (OEMs)
• Distributors and designers
Installers and end-users
•
Operating within, e.g., heating, ventilation,
and air-conditioning (HVAC) systems,
hydronic balancing, and district energy.
15/123
Annual Report 2016 The Danfoss Group
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Strategy
The Core & Clear journey
Our aspiration and promise to customers
reflect how we work and set the framework for
the Danfoss strategy, Core & Clear.
Since the beginning of the Core & Clear journey, the
foundation of the core businesses has continuously been
strengthened, and today we are in a robust financial position
to accelerate sustainable profitable growth, driven by the
digital transformation.
The Core & Clear strategy forms the foundation of all our
strategic activities and makes the business model operational.
Living the strategy and delivering on strategic focus areas is
how we strive to meet our aspiration every day to drive long-
term sustainable results.
Core means that we focus on our core businesses and core
competencies to maintain strong, leading market positions in
our businesses – as a number one or two globally.
Clear means that we focus on the customers, constantly
reduce complexity, and ensure transparency in our
performance and governance – meaning the roles and
responsibilities in our organization.
Our Aspiration
We are engineering tomorrow is the essence of Danfoss’
identity – coupling Danfoss’ innovative engineering and
respected quality and reliability with a constant desire to drive
growth and realize the potential of tomorrow.
We passionately push boundaries on results and
reputation by investing in a passionate and performance-
oriented work culture to deliver stronger financial results,
increased stakeholder value, and profitable growth.
2014
Get Going
Get Going has a strong focus on
accelerating profitable growth by
taking market share; what we call
building a powerful global sales
engine, including having leading
business positions, a strong brand,
an innovation pipeline with growth
impact, and investing in the best
opportunities for growth.
2010
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.
2016
Digital Transformation
The digital transformation focuses
on four key priorities that hold the
biggest potential for increased
customer value: We deliver a best-in-
industry digital customer experience;
We take the lead on connected
products and services; We take
advantage of new digital technologies
to speed up innovation; We have one
common IT architecture with fast
implementation of our new common
Enterprise Resource Planning (ERP/
SAP) system. Accordingly, the digital
transformation reflects that we are
strongly positioned to take advantage
of the growth potential held by a
digital future.
16/123
Annual Report 2016 The Danfoss Group
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Progress on the strategic focus areas
Core & Clear portfolio
Free & Agile
Customer & Innovation
Passion & Performance
Core & Clear portfolio is about having
strong, leading positions globally with
the core businesses being number one
or two globally. This is achieved through
organic growth as well as acquisitions of
well-performing companies within the
core businesses. We also perform strategic
acquisitions to fuel our growth regionally
and add new technologies. In addition to
the core businesses, the focus is on a few
businesses adjacent to the core, and on
strong globalization of the businesses.
Key priorities
• Market-leading positions via organic
and acquisitive growth
• Few, strategic bold adjacencies
Free & Agile is about ensuring the Group’s
agility and ability to deliver strong results
by having the flexibility to adapt to market
developments, while delivering profitable
growth and a strong free cash flow. Key is
a strong supply chain, with safety, quality,
delivery, and cost as key elements, and a
strong IT infrastructure to fully benefit from
the digital opportunities. Focus is on utilizing
our scale and having a "One Company"
approach to drive improvements and
transparency.
Key priorities
• Solid financial performance
• Utilizing scale advantages
Customer & Innovation is about earning
customer loyalty by delivering on our
promise of quality, reliability, and innovation.
We constantly focus on what matters most
for the customers and what value Danfoss
can offer by using our in-depth application
knowledge, understanding the customers’
needs, being easy to do business with, and
innovating products that drive differentiation.
Passion & Performance is about building
capabilities and engagement to drive
strong performance and execute on the
Core & Clear strategy. Focus is on strong
performance management, common
processes and tools, and a systematic
development of competencies to create a
high level of engagement and improved
performance. We want Danfoss to be a great
place to work.
Key priorities
•
Increased customer value through
innovation and digitalized products
and services
• Develop a strong and differentiated
customer experience
Key priorities
• Leadership, diversity, and high-
performing teams
• Best practice tools and processes
Highlights 2016
• Danfoss Power Solutions became the
Highlights 2016
• Healthy earnings, satisfactory growth and
world’s number one for hydraulic orbital
motors with the acquisition of White Drive
Products.
• The acquisition of Sondex Holding A/S
confirms Danfoss’ strategic focus on
building leading positions and will further
strengthen our position within heat
transfer solutions.
• Market share gain and growth above
industry and market level, driven by
Danfoss Cooling and Danfoss Power
Solutions.
strong cash generation.
See the financial review on pages 19-25
• Accelerated implementation of one
common Enterprise Resource Planning
(ERP/SAP) system across the Group to
create the best foundation for the digital
transformation.
• Factories in Danfoss Power Solutions,
Danfoss Cooling, Danfoss Drives, and
Danfoss Heating compliant with the
quality program TS 16949, as planned.
Highlights 2016
• Market introduction of new platform of
Joystics (JS1-H), Turbocor® compressors,
SonoSelect™ and SonoSafe™ energy
meters, and VACON® 3000 Medium
Voltage drives opens up a new business
area for Danfoss.
• Ramp-up of the digital transformation
to ensure front-runner positioning,
reaping the potential within areas such as
industrial IoT, Big Data, and E-commerce.
• Further strengthening of regional setup
to get closer to customers worldwide and
improve local presence.
Highlights 2016
• Development of competencies and digital
capabilities, e.g. by introducing new
ways of working across regions, business
segments, and functions.
• Strong focus on recruitment excellence
and a proactive approach, engaging with
and recruiting new talents through social
media.
• Strong results in employee survey related
to Danfoss as a workplace, leadership, and
performance management.
Read more about recruitment in the Sustainability
Report 2016 at www.danfoss.com > Sustainability >
Sustainability reporting
17/123
Annual Report 2016 The Danfoss Group
Our
performance
Every urban development can
set the standard in innovation
A vision for the future: putting water at the heart
of smart cities
Driven by digitalization, wastewater treatment plants
can drive energy efficiency and generate cost-effective
renewable energy. With the help of Danfoss Drives, a Danish
water treatment plant not only ensures clean water, but also
produces more electricity and heating than it consumes
itself.
Read more about the game-changer approach at www.danfoss.com >
About > Engineering Tomorrow
Click to navigate
2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Financial highlights
Financial highlights
Financial highlights
Financial highlights
PROFIT AND LOSS ACCOUNTS
PROFIT AND LOSS ACCOUNTS
PROFIT AND LOSS ACCOUNTS
PROFIT AND LOSS ACCOUNTS
Net sales
Net sales
Net sales
Net sales
Operating profit before depreciation, amortization, impairment and other operating income and expenses, etc.
Operating profit before depreciation, amortization, impairment and other operating income and expenses, etc.
Operating profit before depreciation, amortization, impairment and other operating income and expenses, etc.
Operating profit before depreciation, amortization, impairment and other operating income and expenses, etc.
Operating profit before depreciation, amortization and impairment (EBITDA)
Operating profit before depreciation, amortization and impairment (EBITDA)
Operating profit before depreciation, amortization and impairment (EBITDA)
Operating profit before depreciation, amortization and impairment (EBITDA)
Operating profit excl. other operating income and expenses, etc.
Operating profit excl. other operating income and expenses, etc.
Operating profit excl. other operating income and expenses, etc.
Operating profit excl. other operating income and expenses, etc.
Share of profit from associates and joint ventures after tax
Share of profit from associates and joint ventures after tax
Share of profit from associates and joint ventures after tax
Share of profit from associates and joint ventures after tax
Operating profit (EBIT)
Operating profit (EBIT)
Operating profit (EBIT)
Operating profit (EBIT)
Financial items, net
Financial items, net
Financial items, net
Financial items, net
Net profit
Net profit
Net profit
Net profit
BALANCE SHEET
BALANCE SHEET
BALANCE SHEET
BALANCE SHEET
Total non-current assets
Total non-current assets
Total non-current assets
Total non-current assets
Total assets
Total assets
Total assets
Total assets
Total shareholders' equity
Total shareholders' equity
Total shareholders' equity
Total shareholders' equity
Net interest-bearing debt
Net interest-bearing debt
Net interest-bearing debt
Net interest-bearing debt
Net assets
Net assets
Net assets
Net assets
CASH FLOW STATEMENT
CASH FLOW STATEMENT
CASH FLOW STATEMENT
CASH FLOW STATEMENT
Cash flow from operating activities
Cash flow from operating activities
Cash flow from operating activities
Cash flow from operating activities
Cash flow from investing activities
Cash flow from investing activities
Cash flow from investing activities
Cash flow from investing activities
Acquisition of intangible assets and property, plant and equipment
Acquisition of intangible assets and property, plant and equipment
Acquisition of intangible assets and property, plant and equipment
Acquisition of subsidiaries and activities
Acquisition of subsidiaries and activities
Acquisition of subsidiaries and activities
Acquisition (-)/sale of other investments, etc.
Acquisition (-)/sale of other investments, etc.
Acquisition (-)/sale of other investments, etc.
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
Free cash flow
Free cash flow before M&A
Free cash flow before M&A
Free cash flow before M&A
Cash flow from financing activities
Cash flow from financing activities
Cash flow from financing activities
Free cash flow
Free cash flow before M&A
Cash flow from financing activities
DKKm
DKKm
DKKm
DKKm
EURm
EURm
EURm
EURm
2012
2012
2012
2012
2013
2013
2013
2013
2014
2014
2014
2014
2015
2015
2015
2015
2016
2016
2016
2016
2015
2015
2015
2015
2016
2016
2016
2016
34,007
34,007
5,454
5,454
5,750
5,750
3,729
3,729
-2
-2
3,767
3,767
-421
-421
2,339
2,339
34,007
34,007
5,454
5,454
5,750
5,750
3,729
3,729
-2
-2
3,767
3,767
-421
-421
2,339
2,339
33,628
33,628
5,549
5,549
5,304
5,304
3,870
3,870
8
8
3,624
3,624
-369
-369
2,285
2,285
33,628
33,628
5,549
5,549
5,304
5,304
3,870
3,870
8
8
3,624
3,624
-369
-369
2,285
2,285
34,375
34,375
6,079
6,079
5,661
5,661
4,356
4,356
-187
-187
3,925
3,925
-449
-449
2,290
2,290
34,375
34,375
6,079
6,079
5,661
5,661
4,356
4,356
-187
-187
3,925
3,925
-449
-449
2,290
2,290
38,031
38,031
6,148
6,148
6,021
6,021
4,235
4,235
67
67
4,097
4,097
-356
-356
2,597
2,597
38,031
38,031
6,148
6,148
6,021
6,021
4,235
4,235
67
67
4,097
4,097
-356
-356
2,597
2,597
39,247
39,247
6,240
6,240
6,076
6,076
4,388
4,388
32
32
4,262
4,262
-324
-324
2,935
2,935
39,247
39,247
6,240
6,240
6,076
6,076
4,388
4,388
32
32
4,262
4,262
-324
-324
2,935
2,935
17,038
17,038
27,768
27,768
14,193
14,193
2,691
2,691
16,775
16,775
17,038
17,038
27,768
27,768
14,193
14,193
2,691
2,691
16,775
16,775
16,052
16,052
26,116
26,116
11,443
11,443
4,116
4,116
15,476
15,476
16,052
16,052
26,116
26,116
11,443
11,443
4,116
4,116
15,476
15,476
25,822
36,883
13,242
11,439
22,432
25,822
36,883
13,242
11,439
22,432
25,822
25,822
36,883
36,883
13,242
13,242
11,439
11,439
22,432
22,432
26,168
26,168
37,219
37,219
15,424
15,424
9,640
9,640
22,613
22,613
26,168
26,168
37,219
37,219
15,424
15,424
9,640
9,640
22,613
22,613
28,162
28,162
40,567
40,567
17,286
17,286
9,548
9,548
24,332
24,332
28,162
28,162
40,567
40,567
17,286
17,286
9,548
9,548
24,332
24,332
4,245
4,245
-1,321
-1,321
-1,169
-1,169
-191
-191
39
39
2,924
2,924
3,019
3,019
-2,779
-2,779
4,245
4,245
-1,321
-1,321
-1,169
-1,169
-191
-191
39
39
2,924
2,924
3,019
3,019
-2,779
-2,779
4,444
4,444
-917
-917
-1,004
-1,004
0
0
87
87
3,527
3,527
3,513
3,513
-3,623
-3,623
4,351
4,444
4,444
4,351
-10,576
-917
-917
-10,576
-996
-1,004
-1,004
-996
-7,377
0
0
-7,377
-2,203
87
87
-2,203
-6,225
3,527
3,527
-6,225
3,389
3,513
3,513
3,389
6,194
-3,623
-3,623
6,194
4,351
4,351
-10,576
-10,576
-996
-996
-7,377
-7,377
-2,203
-2,203
-6,225
-6,225
3,389
3,389
6,194
6,194
4,667
4,667
-1,619
-1,619
-1,176
-1,176
-223
-223
-220
-220
3,048
3,048
3,397
3,397
-3,416
-3,416
4,667
4,667
-1,619
-1,619
-1,176
-1,176
-223
-223
-220
-220
3,048
3,048
3,397
3,397
-3,416
-3,416
5,161
5,161
-3,676
-3,676
-1,678
-1,678
-1,872
-1,872
-126
-126
1,485
1,485
3,416
3,416
-1,302
-1,302
5,161
5,161
-3,676
-3,676
-1,678
-1,678
-1,872
-1,872
-126
-126
1,485
1,485
3,416
3,416
-1,302
-1,302
5,099
5,099
824
824
807
807
568
568
9
9
549
549
-47
-47
348
348
5,099
5,099
824
824
807
807
568
568
9
9
549
549
-47
-47
348
348
5,271
5,271
838
838
816
816
589
589
4
4
572
572
-44
-44
394
394
5,271
5,271
838
838
816
816
589
589
4
4
572
572
-44
-44
394
394
3,507
4,987
2,067
1,292
3,030
3,507
4,987
2,067
1,292
3,030
3,507
3,507
4,987
4,987
2,067
2,067
1,292
1,292
3,030
3,030
3,788
5,457
2,325
1,284
3,273
3,788
5,457
2,325
1,284
3,273
3,788
3,788
5,457
5,457
2,325
2,325
1,284
1,284
3,273
3,273
626
626
-217
-217
-157
-157
-30
-30
-30
-30
409
409
456
456
-458
-458
5
5
16.2
16.2
15.8
15.8
11.1
11.1
10.8
10.8
16.3
16.3
11.4
11.4
17.6
17.6
41.4
41.4
62.5
62.5
1.6
1.6
20.4
20.4
51.8
51.8
626
626
-217
-217
-157
-157
-30
-30
-30
-30
409
409
456
456
-458
-458
5
5
16.2
16.2
15.8
15.8
11.1
11.1
10.8
10.8
16.3
16.3
11.4
11.4
17.6
17.6
41.4
41.4
62.5
62.5
1.6
1.6
20.4
20.4
51.8
51.8
693
693
-494
-494
-226
-226
-251
-251
-17
-17
199
199
459
459
-175
-175
6
6
15.9
15.9
15.5
15.5
11.2
11.2
10.9
10.9
16.3
16.3
12.0
12.0
17.2
17.2
42.6
42.6
55.2
55.2
1.6
1.6
17.0
17.0
50.2
50.2
693
693
-494
-494
-226
-226
-251
-251
-17
-17
199
199
459
459
-175
-175
6
6
15.9
15.9
15.5
15.5
11.2
11.2
10.9
10.9
16.3
16.3
12.0
12.0
17.2
17.2
42.6
42.6
55.2
55.2
1.6
1.6
17.0
17.0
50.2
50.2
FINANCIAL RATIOS
FINANCIAL RATIOS
FINANCIAL RATIOS
FINANCIAL RATIOS
Local currency growth (%)
Local currency growth (%)
Local currency growth (%)
Local currency growth (%)
EBITDA margin, excl. other operating income, etc. (%)
EBITDA margin, excl. other operating income, etc. (%)
EBITDA margin, excl. other operating income, etc. (%)
EBITDA margin, excl. other operating income, etc. (%)
EBITDA margin (%)
EBITDA margin (%)
EBITDA margin (%)
EBITDA margin (%)
EBIT margin, excl. other operating income, etc. (%)
EBIT margin, excl. other operating income, etc. (%)
EBIT margin, excl. other operating income, etc. (%)
EBIT margin, excl. other operating income, etc. (%)
EBIT margin (%)
EBIT margin (%)
EBIT margin (%)
EBIT margin (%)
Return on invested capital (ROIC)
Return on invested capital (ROIC)
Return on invested capital (ROIC)
Return on invested capital (ROIC)
Return on invested capital (ROIC) after tax
Return on invested capital (ROIC) after tax
Return on invested capital (ROIC) after tax
Return on invested capital (ROIC) after tax
Return on equity (%)
Return on equity (%)
Return on equity (%)
Return on equity (%)
Equity ratio (%)
Equity ratio (%)
Equity ratio (%)
Equity ratio (%)
Leverage ratio (%)
Leverage ratio (%)
Leverage ratio (%)
Leverage ratio (%)
Net interest bearing debt to EBITDA ratio
Net interest bearing debt to EBITDA ratio
Net interest bearing debt to EBITDA ratio
Net interest bearing debt to EBITDA ratio
Dividend pay-out ratio (%)
Dividend pay-out ratio (%)
Dividend pay-out ratio (%)
Dividend pay-out ratio (%)
Dividend per 100 DKK share
Dividend per 100 DKK share
Dividend per 100 DKK share
Dividend per 100 DKK share
-3
-3
16.0
16.0
16.9
16.9
11.0
11.0
11.1
11.1
21.4
21.4
15.2
15.2
17.8
17.8
51.1
51.1
19.0
19.0
0.5
0.5
17.1
17.1
39.2
39.2
-3
-3
16.0
16.0
16.9
16.9
11.0
11.0
11.1
11.1
21.4
21.4
15.2
15.2
17.8
17.8
51.1
51.1
19.0
19.0
0.5
0.5
17.1
17.1
39.2
39.2
2
2
16.5
16.5
15.8
15.8
11.5
11.5
10.8
10.8
22.2
22.2
15.9
15.9
18.2
18.2
43.8
43.8
36.0
36.0
0.8
0.8
35.0
35.0
78.3
78.3
2
2
16.5
16.5
15.8
15.8
11.5
11.5
10.8
10.8
22.2
22.2
15.9
15.9
18.2
18.2
43.8
43.8
36.0
36.0
0.8
0.8
35.0
35.0
78.3
78.3
5
5
17.7
17.7
16.5
16.5
12.7
12.7
11.4
11.4
19.4
19.4
13.2
13.2
18.4
18.4
35.9
35.9
86.4
86.4
2.0
2.0
21.8
21.8
48.9
48.9
5
5
17.7
17.7
16.5
16.5
12.7
12.7
11.4
11.4
19.4
19.4
13.2
13.2
18.4
18.4
35.9
35.9
86.4
86.4
2.0
2.0
21.8
21.8
48.9
48.9
5
5
16.2
16.2
15.8
15.8
11.1
11.1
10.8
10.8
16.3
16.3
11.4
11.4
17.6
17.6
41.4
41.4
62.5
62.5
1.6
1.6
20.4
20.4
51.8
51.8
5
5
16.2
16.2
15.8
15.8
11.1
11.1
10.8
10.8
16.3
16.3
11.4
11.4
17.6
17.6
41.4
41.4
62.5
62.5
1.6
1.6
20.4
20.4
51.8
51.8
6
6
15.9
15.9
15.5
15.5
11.2
11.2
10.9
10.9
16.3
16.3
12.0
12.0
17.2
17.2
42.6
42.6
55.2
55.2
1.6
1.6
17.0
17.0
50.2
50.2
6
6
15.9
15.9
15.5
15.5
11.2
11.2
10.9
10.9
16.3
16.3
12.0
12.0
17.2
17.2
42.6
42.6
55.2
55.2
1.6
1.6
17.0
17.0
50.2
50.2
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Annual Report 2016 The Danfoss Group
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Financial review
In 2016, Danfoss maintained momentum and
delivered results in line with expectations. A
6% local currency growth led to increased
sales of DKK 39,247m, and EBIT improved to
DKK 4,262m with an EBIT margin of 10.9%.
Cash generation remained strong with a free
cash flow before M&A of DKK 3,416m.
Sales
Overall, improved sales performance characterized 2016. The
underlying growth in local currency was 6% (2015: 5%), leading
to a DKK 1,216m increase in net sales to DKK 39,247m (2015: DKK
38,031m). Contrary to last year, a negative currency effect of 3%
impacted the topline growth measured in DKK.
All business segments contributed to obtaining local currency
growth, which includes organic as well as acquisitive growth,
as both elements are key to driving the long-term value
creation of Danfoss. The positive development in net sales
was mainly driven by Danfoss Cooling and Danfoss Heating
and satisfactory growth traction in Danfoss Power Solutions,
considering the market. Danfoss Drives delivered sales in local
currency just above last year’s level, due to challenging market
conditions and varying performance across regions.
Growth was mainly driven by our targeted sales growth
initiatives. The strategic refocusing of sales activities towards
specific, vertical markets with a strong growth potential, e.g.
supermarkets, multifamily houses, office buildings, family
houses, and airports, showed a continued positive effect on
the market share development.
Additional sales from the acquisitions completed in the third
quarter 2016 also contributed to lifting Group sales in the
fourth quarter 2016.
Market developments
A higher awareness of the potential of energy efficiency in
addition to legislative requirements and a growing need for
creating more sustainable and climate-friendly energy systems
are the basic drivers of demand for Danfoss technologies.
Moreover, a growing need for safe food supply and modern
infrastructure is driving demand in new emerging economies.
The global economy was characterized by low growth
throughout 2016. The global trend of changes in the macro-
economic scenarios continued, where major potential growth
markets like Russia and Brazil slowed down, while growth
momentum was gradually building in some of the more
mature markets in Europe and the US. Furthermore, some
countries in Asia, Africa, and the Middle East, were rising.
Danfoss experienced a mixed business environment across
markets and regions in 2016. Some sectors and countries
were characterized by good growth, for example the cold
chain and countries like India and Italy, while others were
impacted by the continued low prices on commodities.
Accordingly, activity and investment levels were low within
the construction, agriculture, marine, off-shore, and mining
sectors, leading to challenging conditions in the markets for
mobile hydraulics and low-voltage AC drives, in which Danfoss
Power Solutions and Danfoss Drives are operating.
Brazil, Russia, India, and China remain an important part of
Danfoss’ strategic sales platform. Combined, these developing
markets delivered local currency growth of 9% (2015: 3%)
and represented 21% (2015: 21%) of Group reported sales. We
aim to continue to grow our footprint in these markets in a
balanced and controlled manner.
In Europe, sales increased on last year despite varying market
conditions across the countries in the region. With almost half
of the Group sales coming from Europe, the overall growth
traction in this region had a positive impact on the financial
performance of the Group.
In Western Europe, growth momentum increased during the
year with the Southern European countries, e.g. Italy and France,
being the principal drivers. Also the Northern and Central
European countries developed positively, e.g. Denmark and
Switzerland, driven by Danfoss Heating and Danfoss Drives.
In Eastern Europe, including Russia, sales were close to the
level of last year. However, several countries in the region
showed double-digit growth rates, e.g. Hungary and Ukraine,
whereas the market conditions remained difficult in Russia,
where the activity level continued to be curtailed by the
economic situation. Nevertheless, in local currency, sales in
Russia ended close to the level of last year.
In North America, sales were just above last year’s level, due
to a mixed performance across segments and products.
Danfoss Cooling benefitted from the overall positive trend
in the US economy, whereas Danfoss Power Solutions
and Danfoss Drives were impacted by challenging market
conditions, e.g. in the agricultural and mining sectors.
The Asia-Pacific region delivered a significant increase in
sales, driven by a strong sales performance in the cold chain
and good growth in China. Growth momentum in India also
remained very strong with a double-digit growth rate in local
currency.
In Latin America, sales were close to the level of last year.
Mixed market conditions and the soft economic situation
in Brazil curtailed the sales performance, but positive
developments towards the end of 2016 indicated a recovery.
The Africa-Middle East region delivered sales significantly above
last year, mainly driven by Danfoss Heating and a continued
strong sales performance in the cold chain in Turkey.
See Note 1, page 51, for more information on business and geographical segment reporting
20/123
Annual Report 2016 The Danfoss Group
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Sales and EBIT margin
Net interest-bearing debt (NIBD)
Equity
Sales DKKbn EBIT margin
NIBD DKKbn NIBD ratio
Danfoss A/S share of equity DKKbn Minority interest DKKbn Equity ratio
40
38
36
34
32
30
28
26
14%
12%
10%
8%
6%
4%
2%
0%
14
12
10
8
6
4
2
0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
20
16
12
8
4
0
60%
50%
40%
30%
20%
10%
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Earnings
Operating profit (EBIT) improved 4% to DKK 4,262m (2015:
DKK 4,097m), driven by Danfoss Cooling and Danfoss Power
Solutions, leading to an EBIT margin of 10.9% (2015: 10.8%).
The earnings development was driven by continuous
efficiency improvements in procurement and production
and lower administrative expenses measured as a
percentage of sales, partly offset by increased spending on
strategic growth initiatives. The research and development
spend grew 2% to DKK 1,645m (2015: DKK 1,607m),
corresponding to 4.2% (2015: 4.2%) of sales.
Other operating income and expenses, net, was an expense
of DKK 158m (2015: expense of DKK 205m), mainly due to
restructuring costs related to organizational changes in several
countries. Financial income and expenses, net, was an expense
of DKK 324m (2015: expense of DKK 356m).
Profit before tax improved 5% to DKK 3,938m (2015: DKK
3,741m), leading to net profit of DKK 2,935m (2015: DKK 2,597m),
up 13% on last year. The net profit improvement was mainly
attributable to improved earnings and a lower effective tax rate
for 2016 of 25.5% (2015: 30.6%), related to the effect of changes
in deferred tax and the lower corporate tax rate in Denmark.
addition to cash and cash equivalents and ordinary operating
credits.
Capital structure
We want to maintain a strong balance sheet and to strike an
optimal balance between reinvesting capital back into our
business and paying out returns to our owners. See more
information on dividends in the corporate governance section
on page 33 and Note 11, page 65.
At December 31, 2016, the net interest-bearing debt stood at DKK
9,548m (2015: DKK 9,640m), leading to a net interest-bearing debt
to EBITDA ratio of 1.6 (2015: 1.6). The acquisitions completed in
the third quarter were for the main part financed by the strong
operating cash flows. Currently, Danfoss has a BBB credit rating
assigned by Standard & Poor’s with a stable outlook, see Note 11,
page 65, for more information.
The non-current interest-bearing debt maturing after more
than 12 months amounted to DKK 6,980m (2015: DKK 9,280m),
corresponding to 68% (2015: 92%) of the total interest-bearing
debt. At year end, the Group had unutilized and long-term
committed credit facilities of DKK 7.8bn (2015: 8.2bn) in
Assets and liabilities
Total assets increased 9% to DKK 40,567m (2015: DKK
37,219m). The higher level can primarily be ascribed to the
acquisitions completed in the third quarter 2016.
At December 31, 2016, the equity was DKK 17,286m (2015: DKK
15,424m), due to accumulated profits. Consequently, the equity
ratio, calculated as equity relative to total assets, was 42.6%
(2015: 41.4%), and the return on equity was 17.2% (2015: 17.6%).
Cash flow
Cash performance for 2016 was driven by a strong cash
generation across the Group. Ensuring a strong cash
performance remains a key priority, and the result reflects our
consistent efforts to ensure timely payment for our products,
solutions, and services in addition to focusing on strong
working capital management. These efforts were once again
reflected in our cash flows for the year.
Free cash flow stood at DKK 1,485m (2015: DKK 3,048m),
21/123
Annual Report 2016 The Danfoss Group
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Free cash flow before M&A
Net working capital
Number of employees
Free cash flow before M&A DKKbn
Free cash flow DKKbn
Net Working capital (NWC) DKKbn NWC % of sales
Headcount
6.0
4.0
0.0
-2.0
-4.0
-6.0
-8.0
6.0
5.0
4.0
3.0
2.0
1.0
0
12.0%
26,000
10.0%
25,000
8.0%
24,000
6.0%
23,000
4.0%
22,000
2.0%
21,000
0.0%
20,000
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
mainly affected by the acquisitions, leading to higher net
investments compared to last year. The cash flow before
mergers and acquisitions was maintained at a high level of
DKK 3,416m (2015: DKK 3,397m), driven by the strong cash
flow from operations.
innovator, Leanheat, was announced during the third quarter
2016. Partnering with Leanheat enables access to software
technologies, which will further strengthen our business
within advanced energy optimization solutions for multi-
family houses and district heating.
is a leading manufacturer of hydraulic drive products with
an annual revenue of approximately DKK 650m. Closing of
the transaction took place on September 8, 2016, and the
company was included in the financial statements as of
September 9, 2016.
The higher cash flow from operations can be explained
by the increase in earnings combined with the declining
development in the net working capital measured against
sales, where the increase in trade payables was able to offset
the increase in inventories and receivables.
Cash flow from financing activities was DKK -1,302m (2015:
DKK -3,416m). The significant change was mainly attributable
to repayment of loans in 2015.
Innovation
Ensuring a high level of investments in innovation remains
a key priority to drive the long-term sustainable growth for
Danfoss. The innovation activities were concentrated around
digitalization of the portfolio and on developing energy-
efficient and value-added solutions in the core business
segments. For example, a new partnership with the Finnish
During the year, Danfoss filed 144 (2015: 166) new patent
applications, and 351 (2015: 225) patents were granted to the
Group. At year-end, Danfoss had a total of 1,408 (2015: 1,381)
patent families.
Acquisitions
On July 7, 2016, Danfoss signed an agreement to acquire
full ownership of Sondex Holding A/S, Denmark. The
company is a leader in heat transfer technologies with
an annual revenue of approximately DKK 1bn. Closing of
the transaction took place on August 31, 2016, and the
company was included in the financial statements as of
September 1, 2016.
On July 12, 2016, Danfoss announced an agreement for the
acquisition of the U.S.-based Propulsys, Inc., which is the
parent company of White Drive Products Group. The company
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Annual Report 2016 The Danfoss Group
Employees
The Danfoss Group had 25,292 (2015: 23,420) employees at
year-end. The increase is mainly due to the acquisitions, where
Sondex Holding A/S contributed with around 1,100 employees
and White Drive Products 600 employees worldwide.
Subsequent events
We are not aware of any events after the balance sheet date of
December 31, 2016, which expectedly could have a material
impact on the Group’s financial position.
Click to navigate
2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Business segments review
Danfoss Power Solutions
Danfoss Cooling
Danfoss Drives
Danfoss Heating
Financial results 2016 / DKKm
Financial results 2016 / DKKm
Financial results 2016 / DKKm
Financial results 2016 / DKKm
Sales
11,948
Sales
11,243
Sales
9,652
Sales
6,371
Growth in local currency
Reported growth
3%
3%
Growth in local currency
Reported growth
7%
4%
Growth in local currency
Reported growth
EBIT*
1,683
EBIT*
1,828
EBIT*
1%
-2%
825
Reported growth
EBIT*
Growth in local currency
13%
EBIT margin*
14.1%
EBIT margin*
16.3%
EBIT margin*
8.5%
EBIT margin*
9%
708
11.1%
Financial performance 2016
Danfoss Power Solutions delivered
satisfactory growth in local currency, partly
due to M&A effect. Growth combined with a
strong focus on continuous improvements in
the supply chain led to improved profitability.
Financial performance 2016
Danfoss Cooling delivered good growth
in local currency. Growth combined with
continuous productivity improvements led
to improved profitability well above last
year’s level.
Financial performance 2016
Danfoss Drives, which also comprises
Danfoss Silicon Power and the shareholding
in SMA Solar Technology AG, posted sales
in local currency just above last year with
profitability below the level of last year.
Market developments 2016
Danfoss Power Solutions experienced a
continued soft market situation within global
construction and agriculture, which led
to overall low activity levels in the mobile
hydraulics market. Conversely, the turf market
developed positively. Danfoss Power Solutions
saw minor positive growth rates throughout
all global regions, apart from a decline in
North America, driven by negative growth
within the agricultural and material handling
markets.
Market developments 2016
Danfoss Cooling continued the strong
momentum, and 2016 confirmed the positive
growth trend in the business. Growth in sales
was recorded in many of the key markets,
such as North America, China, and most parts
of Europe. The increased focus on growth
opportunities in India, the Middle East, and
Africa continued to benefit Danfoss Cooling.
Market developments 2016
Danfoss Drives was impacted by a slowdown
in the global drives market, which negatively
affected the activity levels in several global,
heavy industry sectors. More positive market
developments towards the end of the
year were not able to fully offset the weak
beginning of the year. North America and
Asia-Pacific realized lower sales, while sales
growth was recorded in most parts of Europe,
mainly driven by continued double-digit
growth in the Silicon Power business.
Financial performance 2016
Danfoss Heating delivered strong growth in
local currency, partly due to M&A effect, and
posted profitability close to the level of last
year.
Market developments 2016
Danfoss Heating continued to realize sales
growth in the European and Chinese markets
during 2016. The performance was positively
supported by the strong political focus on
energy efficiency and reductions of carbon
emissions (CO2). The positive development in
Europe and China helped offset the impact
of the continued weak market conditions
and the volatile economic situation in Russia,
where the activity level in the construction
market, new build, and renovation, remained
at a relatively low level.
* Segment EBIT excluding corporate costs not allocated to segments
See further financial information on the segments in Note 1, page 51
23/123
Annual Report 2016 The Danfoss Group
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Financial highlights, Quarterly
Financial highlights, Quarterly
DKKm
DKKm
Q1 2015 Q2 2015 Q3 2015 Q4 2015
2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
2016
PROFIT AND LOSS ACCOUNTS
Net sales
PROFIT AND LOSS ACCOUNTS
Operating profit before depreciation, amortization, impairment and other operating income and expenses, etc.
Operating profit before depreciation, amortization and impairment (EBITDA)
Net sales
Operating profit before depreciation, amortization, impairment and other operating income and expenses, etc.
Operating profit excl. other income and expenses, etc.
Operating profit before depreciation, amortization and impairment (EBITDA)
Operating profit (EBIT)
Operating profit excl. other income and expenses, etc.
Financial items
Operating profit (EBIT)
Profit before tax
Financial items
Net profit
Profit before tax
Net profit
BALANCE SHEET
Total non-current assets
BALANCE SHEET
Total assets
Total non-current assets
Total shareholders’ equity
Total assets
Net interest-bearing debt
Total shareholders’ equity
Net assets
Net interest-bearing debt
Net assets
CASH FLOW STATEMENT
Cash flow from operating activities
CASH FLOW STATEMENT
Cash flow from investing activities
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 of intangible assets and property,plant and equipment
Acquisition(-) and sale of other investments, etc.
Acquisition of subsidiaries and activities
Acquisition(-) and sale of other investments, etc.
Free Cash flow
Free cash flow before M&A
Free Cash flow
Cash flow from financing activities
Free cash flow before M&A
Cash flow from financing activities
KEY FIGURES
Local currency growth (%)
KEY FIGURES
EBITDA margin, excl. other operating income, etc. (%)
Local currency growth (%)
EBITDA margin (%)
EBITDA margin, excl. other operating income, etc. (%)
EBIT margin, excl. other operating income, etc. (%)
EBITDA margin (%)
EBIT margin (%)
EBIT margin, excl. other operating income, etc. (%)
Equity ratio (%)
EBIT margin (%)
Leverage ratio (%)
Equity ratio (%)
Net interest-bearing debt to EBITDA ratio
Leverage ratio (%)
Net interest-bearing debt to EBITDA ratio
Q1 2015 Q2 2015 Q3 2015 Q4 2015
9,309
1,432
1,443
9,309
1,432
960
1,443
956
960
-46
956
911
-46
702
911
702
9,854
1,556
1,481
9,854
1,556
1,070
1,481
997
1,070
-91
997
906
-91
608
906
608
9,385
1,411
1,352
9,385
1,411
930
1,352
871
930
-87
871
783
-87
509
783
509
9,483
1,749
1,745
9,483
1,749
1,275
1,745
1,273
1,275
-132
1,273
1,141
-132
778
1,141
778
2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
10,123
38,031
1,377
6,148
1,279
6,021
10,123
38,031
1,377
6,148
885
4,235
1,279
6,021
800
4,097
4,235
885
-71
-356
4,097
800
729
3,741
-71
-356
685
2,597
3,741
729
2,597
685
9,972
1,697
1,680
9,972
1,697
1,257
1,680
1,241
1,257
-88
1,241
1,152
-88
812
1,152
812
9,423
1,435
1,422
9,423
1,435
984
1,422
971
984
-94
971
877
-94
616
877
616
9,729
1,731
1,695
9,729
1,731
1,262
1,695
1,250
1,262
-71
1,250
1,180
-71
822
1,180
822
26,561
39,341
26,561
14,762
39,341
11,300
14,762
23,754
11,300
23,754
25,994
38,533
25,994
14,602
38,533
11,519
14,602
23,799
11,519
23,799
437
-242
437
-147
-242
-17
-147
-79
-17
195
-79
291
195
-304
291
-304
6
15.0
6
14.4
15.0
9.9
14.4
9.3
9.9
37.5
9.3
76.5
37.5
2.0
76.5
2.0
1,121
-641
1,121
-359
-641
-112
-359
-170
-112
480
-170
686
480
-797
686
-797
5
15.8
5
15.0
15.8
10.9
15.0
10.1
10.9
37.9
10.1
78.9
37.9
2.0
78.9
2.0
25,689
37,538
25,689
14,856
37,538
10,350
14,856
22,847
10,350
22,847
2,986
-949
2,986
-656
-949
-111
-656
-182
-111
2,037
-182
2,257
2,037
-2,347
2,257
-2,347
5
18.4
5
18.4
18.4
13.4
18.4
13.4
13.4
39.6
13.4
69.7
39.6
1.8
69.7
1.8
26,168
37,219
26,168
15,424
37,219
9,640
15,424
22,613
9,640
22,613
4,667
-1,619
4,667
-1,176
-1,619
-223
-1,176
-220
-223
3,048
-220
3,397
3,048
-3,416
3,397
-3,416
5
15.4
5
15.5
15.4
10.3
15.5
10.3
10.3
41.4
10.3
62.5
41.4
1.6
62.5
1.6
26,168
37,219
26,168
15,424
37,219
9,640
15,424
22,613
9,640
22,613
4,667
-1,619
4,667
-1,176
-1,619
-223
-1,176
-220
-223
3,048
-220
3,397
3,048
-3,416
3,397
-3,416
5
16.2
5
15.8
16.2
11.1
15.8
10.8
11.1
41.4
10.8
62.5
41.4
1.6
62.5
1.6
25,560
37,568
25,560
15,880
37,568
9,301
15,880
22,733
9,301
22,733
25,663
38,184
25,663
15,851
38,184
9,484
15,851
22,813
9,484
22,813
439
-244
439
-240
-244
0
-240
-5
0
195
-5
195
195
4
195
4
2
15.2
2
15.1
15.2
10.4
15.1
10.3
10.4
42.3
10.3
58.6
42.3
1.5
58.6
1.5
1,596
-643
1,596
-588
-643
4
-588
-59
4
953
-59
976
953
-622
976
-622
6
17.0
6
16.8
17.0
12.6
16.8
12.4
12.6
41.5
12.4
59.8
41.5
1.5
59.8
1.5
27,473
40,517
27,473
16,574
40,517
10,244
16,574
24,319
10,244
24,319
3,412
-2,889
3,412
-949
-2,889
-1,868
-949
-72
-1,868
523
-72
2,428
523
-239
2,428
-239
5
17.8
5
17.4
17.8
13.0
17.4
12.9
13.0
40.9
12.9
61.8
40.9
1.6
61.8
1.6
28,162
40,567
28,162
17,286
40,567
9,548
17,286
24,332
9,548
24,332
5,161
-3,676
5,161
-1,679
-3,676
-1,872
-1,679
-126
-1,872
1,485
-126
3,416
1,485
-1,302
3,416
-1,302
9
13.6
9
12.6
13.6
8.7
12.6
7.9
8.7
42.6
7.9
55.2
42.6
1.6
55.2
1.6
2016
39,247
6,240
6,076
39,247
6,240
4,388
6,076
4,262
4,388
-324
4,262
3,938
-324
2,935
3,938
2,935
28,162
40,567
28,162
17,286
40,567
9,548
17,286
24,332
9,548
24,332
5,161
-3,676
5,161
-1,679
-3,676
-1,872
-1,679
-126
-1,872
1,485
-126
3,416
1,485
-1,302
3,416
-1,302
6
15.9
6
15.5
15.9
11.2
15.5
10.9
11.2
42.6
10.9
55.2
42.6
1.6
55.2
1.6
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Financial highlights, Quarterly
Financial highlights, Quarterly
DKKm
DKKm
Q1 2015 Q2 2015 Q3 2015 Q4 2015
2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
2016
Q1 2015 Q2 2015 Q3 2015 Q4 2015
GEOGRAPHICAL SEGMENTS
Total net sales
GEOGRAPHICAL SEGMENTS
Western Europe
Total net sales
Eastern Europe
Western Europe
Asia-Pacific
Eastern Europe
North America
Asia-Pacific
Latin America
North America
Africa-Middle East
Latin America
Total
Africa-Middle East
Total
Number of employees
Western Europe
Number of employees
Eastern Europe
Western Europe
Asia-Pacific
Eastern Europe
North America
Asia-Pacific
Latin America
North America
Africa-Middle East
Latin America
Total
Africa-Middle East
Total
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.
3,702
969
3,702
2,193
969
2,119
2,193
492
2,119
254
492
9,729
254
9,729
9,677
4,450
9,677
5,899
4,450
3,671
5,899
1,274
3,671
263
1,274
25,234
263
25,234
3,903
810
3,903
2,062
810
2,434
2,062
445
2,434
318
445
9,972
318
9,972
9,483
3,900
9,483
5,212
3,900
3,411
5,212
1,301
3,411
210
1,301
23,517
210
23,517
3,814
658
3,814
1,698
658
2,585
1,698
414
2,585
254
414
9,423
254
9,423
9,471
3,874
9,471
5,157
3,874
3,402
5,157
1,207
3,402
205
1,207
23,316
205
23,316
14,650
3,405
14,650
7,715
3,405
9,278
7,715
1,886
9,278
1,097
1,886
38,031
1,097
38,031
9,536
3,908
9,536
5,172
3,908
3,406
5,172
1,203
3,406
195
1,203
23,420
195
23,420
3,561
888
3,561
1,947
888
2,121
1,947
475
2,121
317
475
9,309
317
9,309
9,536
3,908
9,536
5,172
3,908
3,406
5,172
1,203
3,406
195
1,203
23,420
195
23,420
3,637
1,004
3,637
2,024
1,004
2,087
2,024
470
2,087
261
470
9,483
261
9,483
9,558
3,893
9,558
5,223
3,893
3,410
5,223
1,266
3,410
138
1,266
23,488
138
23,488
3,676
834
3,676
2,039
834
2,559
2,039
469
2,559
277
469
9,854
277
9,854
9,637
3,915
9,637
5,302
3,915
3,453
5,302
1,340
3,453
128
1,340
23,775
128
23,775
3,776
679
3,776
1,705
679
2,511
1,705
472
2,511
242
472
9,385
242
9,385
9,724
3,996
9,724
5,336
3,996
3,432
5,336
1,286
3,432
127
1,286
23,901
127
23,901
3,793
929
3,793
2,293
929
2,212
2,293
499
2,212
397
499
10,123
397
10,123
9,858
4,426
9,858
5,809
4,426
3,675
5,809
1,281
3,675
243
1,281
25,292
243
25,292
2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
2016
15,212
3,366
15,212
8,246
3,366
9,350
8,246
1,850
9,350
1,223
1,850
39,247
1,223
39,247
9,858
4,426
9,858
5,809
4,426
3,675
5,809
1,281
3,675
243
1,281
25,292
243
25,292
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.
See definition of the financial ratios in Note 25, page 91
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Governance
Every home can increase
comfort and reduce bills
Heating concept cut energy use by 94% in
residential complex
In Germany, an old residential complex was completely
renovated. While living standards have increased, the
demand for heating has declined by 94%. A heating
concept from Danfoss played an important role in this.
Read the case story at
www.danfoss.com > About > Engineering Tomorrow
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Sustainability
Danfoss treasures sustainable results and plays an
active role in a 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.
Energy and emissions
2015
2016
Health and safety
2015
2016
Total energy consumption [GWh]
Electricity consumption (GWh)
Energy for heating (GWh)
Energy intensity [MWh/DKKm]
Energy productivity [DKKm/GWh]
Total CO2 emission [ton]
CO2 emission from electricity [ton]
CO2 emission from heating [ton]
CO2 intensity [kg CO2/MWh]
CO2 intensity [kg CO2/DKKm]
587
395
192
15.4
65
234,400
198,654
35,786
400
6.2
569
405
164
14.5
69
233,716
202,803
30,913
410
5.9
Lost time injuries (LTI)
Lost time injury frequency (LTIF)
Days of absence
Lost day rate (LDR)
Medical treatment incident rate (MTIR)
Minor incident rate (MIR)
Near-miss incident rate (NMIR)
127
3.4
2,205
59
3.2
20.2
78.7
121
3.3
2,309
63
3.0
17.7
96.9
This is a summary of Danfoss’ annual sustainability report,
which 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.
drives are being installed to adjust the speed of fans and
pumps, Danfoss heat exchangers are used to recover the heat
from compressed-air systems, and a wide range of adjustment
valves, temperature sensors, and pressure transmitters are also
in use to drive Danfoss’ own energy consumption down.
Climate Strategy 2030
In 2015, Danfoss launched an ambitious “Climate Strategy
2030”, which requires Danfoss to reduce its energy intensity as
well as the CO2 intensity by 50% before 2030. To achieve these
goals, we have initiated several measures to further reduce
the company’s energy consumption and drive investments in
greener technology in buildings and processes.
Since 2007, Danfoss has reduced the company’s energy
intensity by 40% through energy saving projects in the 25
largest factories, accounting for 84% of the total energy
consumption.
Read detailed information in the Sustainability Report 2016 at
www.danfoss.com > Sustainability > Sustainability reporting.
More than 170 technical projects have been initiated – all with
a payback time of maximum three years. For example, Danfoss
Our people
One of our strategic targets is to maintain Danfoss as 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 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.
Safety First!
Protecting the environment and improving the health,
working environment, and safety of the company’s employees
have always been deeply rooted in Danfoss. “Safety First!”
is our systematic approach to a safe workplace. Focus is on
clear, aligned procedures, and standards to ensure a safe
working environment and avoiding accidents across all
Danfoss sites. The global “Safety on the shop floor” initiative
enhances the focus on safety in all factories around the world.
Safety shoes and safety glasses are mandatory for anyone
entering the shop floor in any of our factories 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.
Danfoss’ total LTIF – Lost Time Injury Frequency – was reduced
to 3.3 in 2016 from 3.4 the previous year – a reduction of 3%.
The LTIF is the number of incidents that result in absence from
work of one or more days beyond the day of the incident per
one million hours worked. The improvements are achieved
through a continued focus on safety and by highly dedicated
management teams, safety staff, and employees at all our
factories around the world.
Diversity
We are focusing on hiring and developing more female
leaders, engaging the different generations, and ensuring
strong local leaders to face our customers and employees.
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The goal is to increase the percentage of female managers
to 20% by 2017 from 18% in 2014. In 2016, the percentage
of female managers remained at 18%. Although we have not
reached the goal of 20%, a continuous focus will remain on
developing the female leaders currently in our talent pipeline
as well as attracting female leaders to join at all levels.
In 2016, Danfoss met the target of raising the number of
women serving on the Board to at least one of seven members
elected at the General Meeting, as the former EU Commissioner
for Climate Action and Danish Minister Connie Hedegaard
was elected to the Board of Directors. Accordingly, in 2016, the
Board of Directors had two female members, one elected by the
employees and one elected at the General Meeting.
Business ethics and human rights
We have continued our efforts to ensure high ethical
standards and good business conduct by updating our
Ethics Handbook and training people managers. All new
managers are trained and tested via our global e-learning
program on ethics, Ethics@work, as a part of their
onboarding, while all other managers and directors are
trained and tested every second year.
We have long monitored our impact on human rights and
mitigated where relevant. Danfoss is committed to live up to
the UN Guiding Principles for Human Rights and has carried
out a pilot project on human rights due diligence and
integration in its Eastern Europe Region. The pilot project
results will be used to develop the roll-out of similar projects
in Danfoss’ other regions during 2017 and 2018.
Prioritized Sustainable Development Goals – the opportunity of a lifetime
When the United Nation’s member states agreed on a new
plan to manage the world in a more sustainable way, it was
not only good news for the global community, but also for
Danfoss. We welcome the Global Goals and support that
now is the time to take action. Through company-internal
actions and by supporting local and global initiatives and
organizations, Danfoss is an active support to the Sustainable
Development Goals.
If we are to succeed, it requires action from all of us – and
as an industry leader, Danfoss believes that we need to be
leading by acting. Danfoss is already working with several
global organizations, e.g. the Alliance to Save Energy, to
increase focus on energy productivity, leading to huge
avoided energy costs and lower greenhouse gas emissions.
Energy efficiency and sustainability are not about limiting our
options or comfort. On the contrary, they are about innovation
and creating new opportunities. We see new solutions
emerging where we are able to combine digitalization,
innovation, and energy efficiency to create sustainable
solutions. This not only improves our environmental footprint,
but also frees money to be spent elsewhere.
Read more in the Sustainability Report 2016 at
www.danfoss.com > Sustainability > Sustainability reporting
Goal
How we support this goal
SDG 6: Clean water and sanitation
Danfoss is providing solutions for water and
wastewater handling to optimize and reduce
energy consumption.
SDG 7: Affordable and clean energy
Danfoss is a world leader in energy-efficient
technologies that enable customers and
societies to get more from less.
SDG 11: Sustainable cities and communities
We help build roads, buildings, and energy
systems for the world’s growing cities and
support progress for people, communities, and
businesses across the world.
SDG 12: Responsible consumption
and production
Our sustainable technologies and service
concepts ensure the perfect conditions for food
in temperature controlled environments and help
achieve near-zero downtime on store applications
to improve food safety and reduce food loss.
SDG 13: Climate action
Providing products that meet the global climate
challenge. Innovative technologies lower
emissions and increase human well-being
by optimizing heating, ventilation, and air-
conditioning systems.
SDG 17: Partnerships for the goals
Danfoss engage with multiple stakeholders
through partnerships and direct engagement
with policy makers and thought leaders to
proactively shape the future of the energy
system, efficient buildings, and food chains,
thinking energy efficiency first.
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Risk
management
and compliance
This section provides an overview of the Danfoss
risk management and compliance activities, its
governance and identified Group risks.
Risk management process
Risk management takes place at all managerial
levels, which includes risk identification,
assessment, treatment, and monitoring
supported by documentation, communication,
and reporting of risks:
Risk identification
Risks are identified using
Danfoss’ risk identification and
analysis tools.
In order to grow and stay profitable in increasingly complex
business environments, Danfoss must manage risks and
opportunities effectively. Danfoss takes a systematic and
holistic approach to managing risk. Maintaining efficient
risk management is a cornerstone at Danfoss as well as a
prerequisite for running a profitable business and acting
rapidly and flexibly, when conditions change.
Risk 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. 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.
For a detailed description of the internal controls and risk management
structure in relation to financial reporting, reference is made to the
statutory report on corporate governance, cf. Article 107b of the Danish
Financial Statements Act. See www.danfoss.com > About > Financial
information > Corporate Governance.
Risk monitoring
Quarterly risk reviews
considering current
information about identified
risks and measurement
of the risk management
process performance.
Risk documentation
Standardized documentation in a risk repository among other things
to ensure an effective risk monitoring.
Risk communication
Takes place top-down and bottom-up in the organization in order to
create risk awareness and consider potential escalation.
Risk reporting
Takes place on an ongoing basis between the various managerial
levels, for example at quarterly business review meetings and at
quarterly Risk Committee meetings. In addition, the Group Risk
Management function annually prepares a report on the most
significant risks, which is submitted to the Board of Directors and
the Audit Commmittee that provide overall supervision of the risk
management process and monitor selected group risks as well as
potential new risks.
Risk assessment
Risks are assessed according to
the company-wide used risk
assessment guideline.
Risk treatment
Depending on the risk
assessment and risk
acceptance level, risks
are accepted, avoided,
mitigated, or transferred.
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Like its industry peers, Danfoss is
exposed to a number of risks.
While there is no single risk
threatening the Group’s survival,
Danfoss is more generally exposed to
the following general and basic risks.
Compliance
Determined to be an ethical company, we work persistently
to stay compliant and act with integrity. We fully support
a healthy transparent business practice and recognize our
responsibility as a global organization. Working together with
governments, NGOs, and other global enterprises, Danfoss
actively participates in creating a level and fair playing field. In
order to walk the talk and minimize the risk of non-compliance,
we have developed and implemented compliance programs
in several areas.
Compliance programs
Taking into account the business environment, Danfoss
is operating in, including industries, geography, and size,
compliance areas are determined and addressed through
compliance programs. These systemized programs contain
clear ownership, policy setting, operational procedures as
well as recurring training and awareness activities. To ensure
progress, all activities are monitored and regularly audited by
the internal audit function.
In 2016, Danfoss had its Binding Corporate Rules approved
by the EU data protection authorities, paving the way for
compliance with the EU data privacy regulation, when it
comes into effect in 2018. The export control compliance
program was further strengthened, introducing improved
processes for product and sanctioned party screening.
Lowering the risk of corruption, an upgraded process for
integrity screening of certain business partners was finalized,
and more than 9,300 employees were trained in anti-
corruptive behavior.
• Fair and equal access to markets.
Compliance hotlines
To support the ethical ambition and the active compliance
programs, we operate two hotlines, which are available for
our business partners and employees. One such hotline is
the dilemma-driven “AskUs”, which provides the employees
with the opportunity to seek ethical guidance before acting.
This hotline has been in place since 2012, and during 2016,
it provided answers to 90 dilemmas posed by the Group’s
employees and managers. Danfoss also offers a whistleblower
hotline, the Ethics Hotline, which enables employees and
business partners to anonymously report any concern they
may have in regards to internal standards and legislation. In
2016, a total number of 112 reports were managed by the
Ethics Hotline. Corrective actions, including disciplinary action,
were taken for all substantiated allegations, and none of the
reports have had a material impact on Danfoss.
Risk overview
Like its industry peers, Danfoss is exposed to a number of risks.
While there is no single risk threatening the Group’s survival,
Danfoss is more generally exposed to the following general
and basic risks:
• Global market conditions and mega-trends, including a
sustained stronger focus on energy-efficient and socially
sustainable solutions.
• Competition, especially from China and India.
• Geopolitical conflicts.
• Global economic growth.
• Developments in 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 our 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 our ability to fund new
growth.
In addition, the Executive Committee has defined three
specific risk areas of the risk management process that,
due to their special nature, are currently of particular
importance to Danfoss. The three areas are described below.
This overview does not include financial risks, which are
described in Note 16, page 72.
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Specific risk areas
See Note 16, page 72, for further information on financial risks
Data privacy regulation
Product compliance
One ERP project
Data privacy concerns exist wherever personally identifiable
information is collected and stored – digitally or otherwise. They
could arise from inappropriate handling of sensitive and ordinary
personal data about employees, customers, suppliers, etc.
A stricter piece of EU legislation has been adopted in April 2016
– The General Data Protection Regulation. This new regulation
replaces the current EU Data Protection Directive from 1995.
The regulation takes into account the enormous technological
changes of the past 20 years. The regulation will be enforced as
of May 25, 2018. Among other things, the regulation will increase
the responsibility of companies regarding the protection and
processing of personal data. Violation of the regulation may
result in fines of up to 4% of the Group’s net sales. Also, it opens
up for groups action lawsuits aimed at companies claimed to
be in violation of the regulation. The limits for negotiations and
settlements are at this point unknown.
Risk mitigation measures
Danfoss has performed a data classification and completed
a data flow analysis. Binding Corporate Rules have been
approved by the relevant authorities. Danfoss is in the process
of implementing the relevant processes and systems to
comply with the Binding Corporate Rules.
This risk deals with the potential failure to comply with an
increasing number of safety and environmentally related
product regulations. Non-compliance could have severe
consequences for Danfoss: Damage to relationships with
customers, loss of business or reputation, and possibly
lawsuits. Ensuring compliance with product-related legislation
is important to uphold Danfoss’ “license to sell”.
The One ERP project will migrate several, currently used ERP
systems into one platform in order to give Danfoss the agility
and speed needed to provide a best-in-industry digital customer
experience. It is the biggest project ever launched in Danfoss.
Due to the high amount of resources invested in addition to
applying new technology, uncertainty and risks remain, which
need to be monitored closely.
Risk mitigation measures
In its journey to implement a Group-wide product compliance
and transparency program, Danfoss established a Product
Compliance Team and defined key priorities, methodology, and
governance. The target is to ensure a similar approach regarding
the handling of product legislation throughout the Group.
Danfoss Group Regulatory is responsible for monitoring existing
and upcoming legislation and coordinates the Group’s efforts to
ensure alignment and efficient implementation of the legislation.
“Ensuring compliance with
product-related legislation is important
to uphold Danfoss’ “license to sell”.
Risk mitigation measures
As part of the One ERP project, Danfoss established a
strong project governance, including a program office,
steering committee, and interface to the Enterprise Risk
Management function. A specific project risk management
function identified project risks, assessed them, and prepared
mitigation plans, which are being implemented.
The One ERP project will migrate
several, currently used ERP systems into
one platform in order to give Danfoss
the agility and speed needed to provide
a best-in-industry digital customer
experience.
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Corporate
Governance
This is a summary of Danfoss’ annual statutory report on
corporate governance, which serves as our legally required
reporting on governance and internal controls, cf. section
107b of the Danish Financial Statements Act.
Legislation provides the overall framework for the Group’s
governance, but corporate governance also determines
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, the 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, and 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 seven members elected at
the Annual General Meeting and three employee-elected
members. The Board appoints a Chairman and one or two
Vice-Chairmen from among its members.
The Chairman of the Audit Committee conducts regular
meetings with the corporate functions and Internal Audit
outside Board meetings. The Committee’s activities and tasks
are set out in its rules of procedure. Four meetings were held
in 2016.
The Board of Directors has the overall responsibility for the
company’s activities. Shareholder-elected board members are
elected for the term until the following year’s annual general
meeting re-election. Pursuant to Danish legislation, employee
representatives serve on the Board for terms of four years and
may stand for re-election.
Internal Audit
Danfoss has an internal audit function to carry out
independent internal checks. The internal audit function
presents its conclusions directly to the Board’s Audit
Committee or its Chairman. The internal audit function
provides independent and objective auditing to ensure:
The Board of Directors meets at least five times a year and
holds extraordinary meetings when required. The Board
regularly assesses the aggregate competencies of its members
to ensure consistency with the Group’s requirements at all
times.
Audit Committee
At Danfoss, the entire Board performs the function of the
Audit Committee.
• The Group follows good administrative practice.
• The Group has a comprehensive set of internal
management and control procedures, as well as
segregation of duties and functions, in addition to business
processes in place in all essential areas of activity. This also
includes the Group’s IT systems.
The internal audit function visited a number of Group
companies in 2016. No matters of material importance to the
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Shareholders with more than 5% of share capital
Shareholder
Shares Votes
The Bitten and Mads Clausen Foundation,
Nordborg, Denmark, and its subsidiaries
50.72% 86.10%
Clausen Controls A/S, Sønderborg, Denmark
26.29%
5.43%
Henrik Mads Clausen, Lake Forrest, USA
11.04%
2.29%
Karin Clausen, Holte, Denmark
7.26%
1.50%
profit be paid in 2016, corresponding to DKK 50.2 per 100 DKK
share.
For a detailed description of Danfoss’ position on the recommendations
issued by the Committee on Corporate Governance in May 2013, revised
November 2014, reference is made to the Statutory Report on Corporate
Governance 2016, which is available at the corporate website www.danfoss.
com > About > Financial information > Corporate Governance.
Group’s overall risk management and control environment
were detected.
In November 2014, Danfoss filed 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
Act applying to companies with listed bonds, including the
exceptions regarding issuers of bonds above EUR 100,000.
Shareholders
Danfoss’ share capital amounts to DKK 995.7m and is divided
into two share classes: A-shares accounting for DKK 425m and
B-shares accounting for DKK 570.7m. 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 99.84% of the votes.
See note 11, page 65, for more information.
At the end of 2016, Danfoss had approximately 2,800
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 immediately before
the Annual General Meeting held in April. The price was first
set in 2001, when Danfoss issued its first employee shares
and 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 2016, the price was set at DKK 4,904 per share, and the
new price will be announced at the 2017 Danfoss Annual
General Meeting.
Dividends and General Meeting
The Annual General Meeting will be held in Nordborg on
April 28, 2017. The Board of Directors will recommend to the
General Meeting that a dividend of 17.0% of the Group’s net
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Board of
Directors
The presentations include the board members,
their positions and competencies as of March
2, 2017.
Jørgen Mads Clausen
Chairman of the Board of
Directors
Björn Klas Otto Rosengren
Vice-Chairman of the Board of
Directors
Mads-Peter Clausen
Member of the Board of
Directors
Connie Hedegaard
Member 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
Special competencies
• 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
Other positions
• 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
Born: 1959
Position: CEO and President of
Sandvik AB
Born: 1976
Position: Vice President, Oil Free
Solutions, Danfoss Turbocor
Compressors, Inc.
Position with Danfoss A/S
• Member of the company’s Board
of Directors since 2010
Position with Danfoss A/S
• Member of the company’s Board
• Considered independent board
of Directors since 2014
member
Special competencies
• 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
Special competencies
• Master of Business
Administration, University of
Georgia
• Bachelor of Science in
Engineering, University of
Southern Denmark
Other positions
• Member of the Board of
miniBOOSTER Hydraulics A/S
• Member of the Board of
LineStream Technologies, Inc.
Born: 1960
Position: Chairman of the Board of
the sustainability foundation, KR
Foundation, and the green think
tank, CONCITO
Position with Danfoss A/S
• Member of the company’s Board
of Directors since 2016
• Considered independent board
member
Special competencies
• MSc in history and comparative
literature
• 2010–2014 EU Climate
Commissioner
• 2004–2009 Danish Minister for
Environment and Minister for
Climate and Energy
Other current positions
• Chairman of the Board of the
sustainability foundation, KR
Foundation
• Chairman of the Board of the
green think tank, CONCITO
• Chairman of OECD’s Round Table
on Sustainable Development
• Board member of Aarhus
University, Denmark
• Member of the Board of
NORDEX
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William Ervin Hoover Jr.
Member of the Board of
Directors and Chairman of the
Audit Committee
Jürgen Reinert
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
• Considered independent board
member
Special competencies
• Master of Business
Administration, Harvard
University
• Professional experience with
supply chain, performance
transformation, organization
changes, and mergers and
acquisitions.
Other positions
• Chairman of the Board of ReD
Associates Holding A/S
• Deputy Chairman of the Board
of GN Store Nord A/S
Born: 1968
Position: CTO (Chief Technology
Officer) and COO (Chief
Operations Officer), SMA
Technology AG
Position with Danfoss A/S
• Member of the company’s Board
of Directors since 2015
• Considered independent board
member
Special competencies
• Doctorate in Electrical
Engineering, Aachen University
of Technology
• Master of Science in
Engineering, University of
Pretoria, South Africa
• Bachelor of Science in
Engineering, University of
Pretoria, South Africa
Other positions
• Member of the Board of
• Member of the Board of Sanistål
Kraftelektronik AB
Kasper Bo Rørsted
Member of the Board of
Directors
Born: 1962
Position: CEO of Adidas
Position with Danfoss A/S
• Member of the company’s Board
of Directors since 2009
• Considered independent board
member
Special competencies
• International Business School,
Copenhagen
• Harvard Business School,
Executive Programs
• Professional experience in
managing major international
companies in Switzerland, the
UK, and Germany
Other positions
• Member of the Supervisory
Board of Bertelsmann SE & Co.
KGaA
A/S
• Member of the Board of Lego
Foundation
• Member of the Board of
Specialist People Foundation
• Member of the Board of
Neopost A/S
Sandra Nørgaard
Bertelsen
Member of the Board of
Directors
Born: 1982
Position: Senior HR Manager, Legal
Consultancy, Danfoss A/S
Position with Danfoss A/S
• Employee-elected member
of the company’s Board of
Directors since 2014
Special competencies
• Master of Laws, Aarhus
University, Denmark
• Bachelor of Laws, Aarhus
University, Denmark
• Cooperation courses and
experience from other board
memberships
Lars Grau
Member of the Board of
Directors
Born: 1963
Position: Senior Shop Steward at
Danfoss Nordborg
Position with Danfoss A/S
• Employee-elected member
of the company’s Board of
Directors since 2014
Special competencies
• Electrician
• Cooperation courses and
experience from other board
memberships
Other positions
• Member of the Board of Danfoss
Employee Foundation
• Member of the Board of Danish
El Federal in South Jutland
Jens Peter Rosendahl
Nielsen
Member of the Board of
Directors
Born: 1957
Position: Senior Shop Steward at
Danfoss Kolding
Position with Danfoss A/S
• Employee-elected member
of the company’s Board of
Directors since 2006
Special competencies
• Machinist
• Cooperation courses and
experience from other board
memberships
Other positions
• Chairman of the Board of
Danfoss Employee Foundation
• Member of the Board of Metal
Kolding and LO-Kolding
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Executive
Committee
and
Leadership Team
The presentations include the members of
the management team as of March 2, 2017.
Leadership team
Executive Committee
Niels Bjørn Christiansen
President & CEO
Born: 1966
Member of the Executive
Committee since 2004
Considerable board activities
• Chairman of the Board of Axcel
• Member of the Board of A.P.
Moller-Maersk A/S
• Member of the Board of William
Demant Holding A/S
• Member of the Board of
DTU, Technical University of
Denmark
Jesper Vaagelund
Christensen
Executive Vice President
& CFO
Born: 1969
Member of the Executive
Committee since 2013
Considerable board activities
• Member of the Board of Danish
Crown A/S
Kim Fausing
Executive Vice President & COO
Born: 1964
Member of Executive Committee
since 2008
(2,400 warrants)
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
Eric Alström
Segment President,
Danfoss Power Solutions
Born: 1966
Employed since 2012
Jürgen Fischer
Segment President,
Danfoss Cooling
Born: 1963
Employed since 2008
Vesa Laisi
Segment President,
Danfoss Drives
Born: 1957
Employed since 2014
Peter Martin
Senior Vice President,
Group IT
Born: 1964
Employed since 2013
Mette Refshauge
Senior Vice President,
Corporate Communication
Born: 1973
Employed since 2013
Lene Reitzel
Senior Vice President,
Corporate HR
Born: 1969
Employed since 2017
Lars Tveen
Segment President,
Danfoss Heating
Born: 1963
Employed since 1989
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Statements
Every town can stay warm
with fewer resources
Small village makes big impact on climate
protection
A small village in Germany shows how small communities
can achieve great things. From photovoltaic solar panels
and a biogas co-generation plant, the village generates
four times the energy it consumes itself. Thanks to Danfoss
technology, waste heat from the power plant can be
optimally used for heating and hot water in homes and
buildings, while surplus power is sold.
Read the case story at
www.danfoss.com > About > Engineering Tomorrow
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Management
statement
Board of Directors
Jørgen Mads Clausen, Chairman
Björn Klas Otto Rosengren
Mads-Peter Clausen
Connie Hedegaard
The Board of Directors and the Executive Committee have
today discussed and approved the Danfoss A/S Annual Report
for the financial year January 1 to December 31, 2016.
The Annual Report has been presented in accordance with
International Financial Reporting Standards as adopted by
the EU and further 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, 2016, and of the results of
the Group’s and the Parent Company’s operations and cash
flows of the financial year January 1 to December 31, 2016.
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 and the Parent Company.
We recommend that the Annual General Meeting approves
the Annual Report.
William Erwin Hoover Jr.
Nordborg, March 2, 2017
Executive Committee
Jürgen Reinert
Kasper Bo Rørsted
Niels Bjørn Christiansen
Sandra Nørgaard Bertelsen
Jesper Vaagelund Christensen
Lars Grau
Kim Fausing
Jens Peter Rosendahl Nielsen
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Independent
auditor’s report
To the shareholders of Danfoss A/S
Report on the audit of the Consolidated Financial
Statements and Parent Company Financial Statements
Our 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 December 31, 2016, and of the results of the
Group’s and the Parent Company’s operations and cash flows
for the financial year January 1 to December 31, 2016, in
accordance with International Financial Reporting Standards
as adopted by the EU and further requirements in the Danish
Financial Statements Act.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs) and additional requirements
applicable in Denmark. Our responsibilities under those
standards and requirements are further described in the
Auditor’s Responsibilities for the Audit of the Financial
Statements section of our report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
What we have audited
Danfoss A/S’ Consolidated Financial Statements and the Parent
Company Financial Statements for the financial year January 1
to December 31, 2016, pp 44-95 and 98-122, comprise income
statement, statement of comprehensive income, statement
of financial position, statement of cash flows, statement of
changes in equity, and notes to the financial statements.
Collectively referred to as the “financial statements”.
Independence
We are independent of the Group in accordance with the
International Ethics Standards Board for Accountants’ Code
of Ethics for Professional Accountants (IESBA Code) and the
ethical requirements that are relevant to our audit of the
financial statements in Denmark. We have also fulfilled our
other ethical responsibilities in accordance with the IESBA
Code.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of
the financial statements for 2016. These matters were
addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
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Key Audit Matter
How our audit addressed
the Key Audit Matter
Intangible assets and acquisitions of businesses
In 2016, the Group acquired the Sondex and
White Drive Products groups.
We focused on this area as the identification
and valuation of intangible assets following
acquisitions are subject to judgment.
Further, intangible assets might be impaired due
to changes in the global economic situation and
changes in the strategy of the Group.
We focused on this area as the determination
of whether or not an impairment charge for
intangible assets is necessary involves significant
estimates and judgments made by Management,
including especially:
• estimation of future cash flows and the key
assumptions underlying Management’s
expectations;
• expected synergies;
•
• discount rates applied in discounting future
long term growth rates; and
cash flows.
Refer to Note 7, 20, and 26 in the Consolidated
Financial Statements.
We audited the purchase price allocations for
acquisitions in 2016. Our procedures included
assessment of valuation models and key
assumptions applied by Management, and
disclosures.
Our audit procedures included assessing the
Group’s impairment model. We monitored the
process of identifying impairment indicators and
the process for impairment testing at the cash
generating unit level.
In addition, we obtained impairment tests
prepared by Management and evaluated the
reasonableness of estimates and judgments made
by Management in preparing these.
Special focus was given to the key drivers of the
future cash flows, including net revenue growth,
cost development, efficiency improvements,
capital expenditure and working capital as well
as the discount rates and long-term growth rates
applied.
We tested the reliability of Management’s
estimates by comparing budgeted figures to actual
figures for the past years, and followed up on
whether planned synergies were achieved.
We discussed the development in market
conditions with Management.
Furthermore, we assessed the appropriateness of
disclosures in the financial statements.
Key Audit Matter
Uncertain tax positions
The Group operates in a complex multinational tax
environment where transfer pricing assessments
can be challenged by the tax authorities in the
different countries. As a result, the Group is on an
ongoing basis part in tax disputes with domestic
and foreign tax authorities.
We focused on this area as the valuation of tax
assets and liabilities is associated with uncertainty
and judgment.
Refer to Notes 6, 14, 17, and 26 in the Consolidated
Financial Statements.
How our audit addressed
the Key Audit Matter
We evaluated relevant controls regarding
completeness of records of uncertain tax positions
and Management’s procedure for estimating the
valuation of tax assets and liabilities relating to tax
disputes.
In understanding and evaluating Management’s
judgments, we considered the status of recent
and current tax authority audits and enquiries, the
outcome of previous claims, judgmental positions
taken in tax returns and current estimates and
developments in the tax environment.
In addition, we read correspondence with
tax authorities and evaluated the adequacy
of Management’s key assumptions to assess
Management’s estimates and disclosures.
We evaluated the Group’s model for valuation of
deferred tax assets including the forecast used to
estimate the expected future taxable income.
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Reporting on Management’s Review
Management is responsible for Management’s Review, pp
5-36 and 97.
Our opinion on the financial statements does not cover
Management’s Review, and we do not express any form of
assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read Management’s Review and, in doing
so, consider whether Management’s Review is materially
inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially
misstated.
Moreover, we considered whether Management’s Review
includes the disclosures required by the Danish Financial
Statements Act.
Based on the work we have performed, in our view,
Management’s Review is in accordance with the financial
statements and has been prepared in accordance with the
requirements of the Danish Financial Statements Act. We did not
identify any material misstatement in Management’s Review.
Management’s Responsibility for the 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 further requirements in the Danish
Financial Statements Act, and for such internal control
as Management determines is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, Management is
responsible for assessing the Group’s and Parent Company’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the
going concern basis of accounting unless Management either
intends to liquidate the Group or Parent Company or to cease
operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit
of the Financial Statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs and the
additional requirements applicable in Denmark will always
detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken
on the basis of these financial statements.
As part of an audit in accordance with ISAs and the additional
requirements applicable in Denmark, we exercise professional
judgment and maintain professional scepticism throughout
the audit. We also:
•
Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate
to provide a basis for our opinion. The risk of not detecting
a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations or the
override of internal control.
• Obtain an understanding of internal control relevant to
the audit 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
Group’s and the Parent Company’s internal control.
• Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and
related disclosures made by Management.
• Conclude on the appropriateness of Management’s use of
the going concern basis of accounting and based on the
audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast
significant doubt on the Group’s and the Parent Company’s
ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to draw
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attention in our auditor’s report to the related disclosures
in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of
our Auditor’s Report. However, future events or conditions
may cause the Group or the Parent Company to cease to
continue as a going concern.
• Evaluate the overall presentation, structure and content
of the financial statements, including the disclosures, and
whether the financial statements represent the underlying
transactions and events in a manner that achieves fair
presentation.
• Obtain sufficient appropriate audit evidence regarding
the financial information of the entities or business
activities within the Group to express an opinion on the
Consolidated financial statements. We are responsible for
the direction, supervision and performance of the group
audit. We remain solely responsible for our audit opinion.
We communicate with the Board of Directors regarding,
among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our
audit.
We also provide the Board of Directors with a statement
that we have complied with relevant ethical requirements
regarding independence, and to communicate with them
all relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with the Board of Directors,
we determine those matters that were of most significance in
the audit of the financial statements of the current period and
are therefore the key audit matters. We describe these matters
in our Auditor’s Report unless law or regulation precludes
public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should
not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
Copenhagen, March 2, 2017
PricewaterhouseCoopers
Statsautoriseret Revisionspartnerselskab
CVR no 33 77 12 31
Mogens Nørgaard Mogensen
State Authorised Public Accountant
Claus Lindholm Jacobsen
State Authorised Public Accountant
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Annual Report 2016 The Danfoss Group
Group
Accounts
and notes
Every machine can
improve efficiency
Robust and efficient in harsh environments
A Swedish forestry machine manufacturer put new Danfoss
hydraulic technology on the forwarder machines used to
collect, load, and unload timber from the forest. One year
later, productivity was up and fuel consumption down.
Read the case story at
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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
2015
38,031
-24,700
13,331
-1,607
-5,764
-1,725
4,235
-205
67
4,097
70
-426
3,741
-1,144
2,597
2,381
216
2,597
2016
39,247
-25,407
13,840
-1,645
-6,068
-1,739
4,388
-158
32
4,262
29
-353
3,938
-1,003
2,935
2,672
263
2,935
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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 income statement
Foreign exchange adjustments on translation of foreign currency into DKK
Fair value adjustment of hedging instruments:
Hedging of net investments in subsidiaries
Hedging of future cash flows
Hedging transferred to gross profit in the income statement
Tax on hedging instruments
Items that can be reclassified to income statement
OTHER COMPREHENSIVE INCOME AFTER TAX
TOTAL COMPREHENSIVE INCOME
Attributable to:
Shareholders of Danfoss A/S
Minority interests
e
t
o
N
15
14
2015
2,597
2016
2,935
14
-5
9
610
16
-201
271
-19
677
686
3,283
3,011
272
3,283
-25
-3
-28
-112
16
-21
27
-4
-94
-122
2,813
2,536
277
2,813
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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
CASH AND CASH EQUIVALENTS
TOTAL CURRENT ASSETS
TOTAL ASSETS
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e
t
o
N
7
8
3
15
14
9
10
17
16
16
2015
2016
16,046
17,195
6,682
2,452
107
26
855
3,440
7,521
2,503
108
25
810
3,446
26,168
28,162
4,170
5,325
527
12
698
6,562
319
4,707
6,033
334
1
821
7,189
509
11,051
12,405
37,219
40,567
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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
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e
t
o
N
11
12
14
15
16
16
12
13
16
17
16
2015
2016
14,700
724
15,424
366
1,942
1,216
9,280
28
324
13,156
617
42
796
3,864
22
302
224
2,772
8,639
16,432
854
17,286
402
1,997
1,188
6,980
2
363
10,932
670
37
3,266
4,604
25
326
99
3,322
12,349
21,795
23,281
37,219
40,567
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Statement of cash flows
Statement of cash flows
January 1 to December 31
DKKm
January 1 to December 31
DKKm
Profit before tax
Profit before tax
Adjustments for non-cash transactions
Adjustments for non-cash transactions
Change in working capital
Change in working capital
CASH FLOW GENERATED FROM OPERATIONS
CASH FLOW GENERATED FROM OPERATIONS
Interest received
Interest received
Interest paid
Interest paid
Dividends received
Dividends received
CASH FLOW FROM OPERATIONS BEFORE TAX
CASH FLOW FROM OPERATIONS BEFORE TAX
Paid tax
Paid tax
CASH FLOW FROM OPERATING ACTIVITIES
CASH FLOW FROM OPERATING ACTIVITIES
Acquisition of intangible assets
Acquisition of intangible assets
Acquisition of property, plant and equipment
Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment
Proceeds from sale of property, plant and equipment
Acquisition of subsidiaries
Acquisition of subsidiaries
Proceeds from disposal of subsidiaries
Proceeds from disposal of subsidiaries
Acquisition (-)/sale of other investments, etc.
Acquisition (-)/sale of other investments, etc.
CASH FLOW FROM INVESTING ACTIVITIES
CASH FLOW FROM INVESTING ACTIVITIES
FREE CASH FLOW
FREE CASH FLOW
Cash repayment of (-)/cash proceeds from interest-bearing debt
Cash repayment of (-)/cash proceeds from interest-bearing debt
Repurchase of treasury shares
Repurchase of treasury shares
Addition/disposal of minority interests
Addition/disposal of minority interests
Dividends paid to shareholders in the Parent Company
Dividends paid to shareholders in the Parent Company
Dividends paid to minority shareholders
Dividends paid to minority shareholders
CASH FLOW FROM FINANCING ACTIVITIES
CASH FLOW FROM FINANCING ACTIVITIES
NET CHANGE IN CASH AND CASH EQUIVALENTS
NET CHANGE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents as of January 1
Cash and cash equivalents as of January 1
Foreign exchange adjustment of cash and cash equivalents
Foreign exchange adjustment of cash and cash equivalents
CASH AND CASH EQUIVALENTS AS OF DECEMBER 31
CASH AND CASH EQUIVALENTS AS OF DECEMBER 31
STATEMENT OF FREE CASH FLOW ADJUSTMENT FOR ACQUISITION AND DISPOSAL OF SUBSIDIARIES, etc. (M&A)
STATEMENT OF FREE CASH FLOW ADJUSTMENT FOR ACQUISITION AND DISPOSAL OF SUBSIDIARIES, etc. (M&A)
Free cash flow
Free cash flow
Acquisition of subsidiaries
Acquisition of subsidiaries
Proceeds from disposal of subsidiaries
Proceeds from disposal of subsidiaries
Acquisition (-)/sale of other investments
Acquisition (-)/sale of other investments
FREE CASH FLOW BEFORE M&A
FREE CASH FLOW BEFORE M&A
The cash flow statement cannot be derived on the basis of the Annual Report alone.
The cash flow statement cannot be derived on the basis of the Annual Report alone.
48/123
Annual Report 2016 The Danfoss Group
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18
18
19
19
17
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20
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20
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2015
3,741
3,741
1,953
1,953
299
299
5,993
5,993
18
18
-286
-286
5
5
5,730
5,730
-1,063
-1,063
4,667
4,667
-204
-204
-1,096
-1,096
124
124
-234
-234
11
11
-220
-220
-1,619
-1,619
3,048
3,048
-2,325
-2,325
-312
-312
-38
-38
-493
-493
-248
-248
-3,416
-3,416
-368
-368
716
716
-29
-29
319
319
3,048
3,048
234
234
-11
-11
126
126
3,397
3,397
2016
2016
3,938
3,938
1,590
1,590
691
691
6,219
6,219
65
65
-283
-283
15
15
6,016
6,016
-855
-855
5,161
5,161
-237
-237
-1,525
-1,525
84
84
-1,875
-1,875
3
3
-126
-126
-3,676
-3,676
1,485
1,485
-290
-290
-268
-268
-54
-54
-518
-518
-172
-172
-1,302
-1,302
183
183
319
319
7
7
509
509
1,485
1,485
1,875
1,875
-3
-3
59
59
3,416
3,416
Click to navigate
2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Statement of changes in equity
Statement of changes in equity
DKKm
DKKm
BALANCE AS OF JANUARY 1, 2015
BALANCE AS OF JANUARY 1, 2015
Net profit
Net profit
Foreign exchange adjustments of foreign companies
Fair value adjustment of hedging instruments
Foreign exchange adjustments of foreign companies
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
Dividends to shareholders
Disposals through sale of subsidiaries
Dividends to shareholders
Purchase of minority interests
Disposals through sale of subsidiaries
Capital increase/purchase of treasury shares
Purchase of minority interests
Total transactions with owners
Capital increase/purchase of treasury shares
Total transactions with owners
BALANCE AS OF DECEMBER 31, 2015
BALANCE AS OF DECEMBER 31, 2015
Net profit
Net profit
Foreign exchange adjustments of foreign companies
Fair value adjustment of hedging instruments
Foreign exchange adjustments of foreign companies
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
Dividends to shareholders
Purchase of minority interests
Dividends to shareholders
Additions through acquisition of subsidiaries
Purchase of minority interests
Capital increase/purchase of treasury shares
Additions through acquisition of subsidiaries
Capital reduction
Capital increase/purchase of treasury shares
Total transactions with owners
Capital reduction
Total transactions with owners
BALANCE AS OF DECEMBER 31, 2016
BALANCE AS OF DECEMBER 31, 2016
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567
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567
567
567
657
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23
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23
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-28
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-28
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996
996
-44
-44
544
544
49/123
Annual Report 2016 The Danfoss Group
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1,851
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1,851
1,851
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14
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14
630
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630
2,481
2,481
7
7
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-395
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12,888 12,631
12,888 12,631
2,172
2,172
2,172
2,172
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22
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22
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2,036
2,036
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12
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269
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269
14,464 14,936
14,464 14,936
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2,144
2,144
12
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12
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3,011
3,011
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14,700
14,700
2,672
2,672
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2,536
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16,432
16,432
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216
216
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272
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-11
-259
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724
263
263
14
14
14
14
277
277
-171
-70
-171
87
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-147
-147
854
854
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2,597
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14
686
-24
686
3,283
3,283
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-11
-741
-38
-11
-311
-38
-1,101
-311
-1,101
15,424
15,424
2,935
2,935
-112
22
-112
-25
22
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-25
-122
-7
-122
2,813
2,813
-689
-89
-689
87
-89
-260
87
-260
-951
-951
17,286
17,286
Click to navigate
2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
50/123
Annual Report 2016 The Danfoss Group
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 1 Segment reporting
DKKm
BUSINESS SEGMENTS
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
STATEMENT OF FINANCIAL POSITION
Total assets *)
Net investments, excluding M&A
Investments in associates and joint ventures
Total liabilities *)
OTHER INFORMATION
Number of employees
GEOGRAPHICAL SEGMENTS
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3,741
740
-718
-356
740 -1,074
3,667
90
6,196 37,219
1,176
126
490 17,646 21,794
451
2015
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9,619
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11,948 11,194
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1,683
1,683
1,828
825
8,536
373
1,430
6,317 12,930
223
17
1,318
272
42
1,296
2016
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1,814
353
32
4
4,262
-782
-324
-324
3,938
708 -1,106
708
6,007
155
6,777 40,567
1,678
59
683 18,553 23,281
655
5,792
5,890
4,811
3,948
2,979 23,420
6,404
6,025
4,653
5,146
3,064 25,292
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Net sales
Total non-current assets **)
Sales in North America mainly relates to USA.
1,293 13,358
3,405
2,954 13,629
765
7,714
1,953
9,278
5,751
1,886
1,097 38,031
1,420 13,793
3,366
110
151 25,313
4,780 13,417
800
8,246
1,886
9,349
6,209
1,850
1,223 39,247
120
140 27,352
*) Central functions' assets and liabilities, cash and cash equivalents, interest-bearing debt and deferred tax liabilities/assets have been included in the column "Other areas".
**) Deferred tax assets are not included.
The geographical distribution of "Net sales" is based on the external customers' country of residence and the distribution of "Total non-current assets" is based on the actual geographical location of the assets.
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Note 1 Segment reporting (continued)
DKKm
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
Pension and healthcare plans
Central functions not allocated *)
Other
Total Liabilities
*) Central functions, not allocated, are primarily administrative expenses and assets and liabilities in central functions.
2015
70
-426
-591
-127
-1,074
2015
1,701
376
3,729
297
92
6,195
2015
12,320
3,062
1,216
830
217
17,646
2016
29
-353
-793
11
-1,106
2016
1,653
596
4,030
274
224
6,777
2016
12,570
3,665
1,188
921
209
18,553
52/123
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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 *)
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
Bonuses of total DKK 101m (2015: 80m) can be divided into long-term and short-term bonuses with DKK 45m and DKK 56m, respectively (2015: 36m and 44m, respectively).
In additon, severance payments of DKK 4m are recognized in the income statement under other operating income and expenses (2015: 0m)
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Annual Report 2016 The Danfoss Group
2015
8,701
115
699
597
35
10,147
23,594
23,420
2016
9,087
107
732
583
33
10,542
24,034
25,292
2015
2016
6
6
30
10
59
99
21
5
21
47
152
6
6
30
11
74
115
23
4
27
54
175
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 2 Expenses and other operating income (continued)
DKKm
B. DEPRECIATION/AMORTIZATION AND IMPAIRMENT LOSSES
Classification by nature:
Amortization of intangible assets
Impairment of intangible assets
Depreciation of property, plant and equipment
Impairment 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
2015
2016
694
11
705
1,211
14
-4
1,221
1,926
452
203
39
11
705
658
658
1,156
1,156
1,814
403
226
29
658
54/123
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 2 Expenses and other operating income (continued)
DKKm
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
Reversal of restructuring costs
Other
Other operating income
Loss on disp. of intangible fixed assets
Loss on disp. of property, plant and equipment
Impairment of intangible assets
Impairment of property, plant and equipment
Restructuring costs
Other
Other operating expenses
Other operating income and expenses
Restructuring costs in both years mainly relate to terminations in France, Denmark, Germany, China, Spain and USA.
D. FEES TO AUDITORS APPOINTED AT THE ANNUAL GENERAL MEETING
Audit fee
Tax and VAT advice
Other fees
Total fee to Group Auditor
2015
2016
17
1
60
4
7
33
122
-3
-37
-11
-14
-119
-143
-327
-205
-1
18
6
44
67
-1
-28
-113
-83
-225
-158
2015
2016
20
11
3
34
20
13
3
36
55/123
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 3 Investments
DKKm
Cost as of January 1
Foreign exchange adjustments in foreign companies
Additions
Additions 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
Carrying amount as of December 31
Investments in
associates and
joint ventures
Other
investments
2,430
9
126
-5
2,560
-214
6
67
-5
5
-141
2,419
140
-5
135
-107
3
2
-102
33
2015
TOTAL
2,570
4
126
-5
2,695
-321
9
69
-5
5
-243
2,452
Investments in
associates and
joint ventures
2,560
-17
59
2,602
-141
4
32
-14
-119
2,483
Other
investments
135
135
-102
-1
-12
-115
20
2016
TOTAL
2,695
-17
59
2,737
-243
3
20
-14
-234
2,503
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 2016, 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 flows from associates and joint
ventures is compared with their carrying amount. The principles are unchanged compared to the impairment tests performed in 2015.
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.
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Note 3 Investments (continued)
DKKm
MATERIAL ASSOCIATES AND JOINT VENTURES
Summarized information for associates and joint ventures which are material to Danfoss, has been amended to reflect adjustments made for differences in the accounting policy. The financial information is stated
below at their full values, not according to Danfoss' proportionate ownership interests. As SMA Solar Technology AG is a listed company, the stated financial information below is based on publicly available information.
Place of business
Share of ownership
SUMMARIZED PROFIT AND LOSS STATEMENT (PROVISIONAL NUMBER)
Revenue
EBIT
SUMMARIZED BALANCE SHEET (Q3 NUMBERS)
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Equity
Group share of equity as of December 31
Group share of dividend received
On the basis of the stock exchange quotation, the fair value of SMA Solar Technology AG as of December 31, 2016, was DKK 6.5bn (2015: 13.4bn).
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
Associates
Joint Ventures
-6
1
-5
154
154
154
10
862
1,393
10
2,265
2015
TOTAL
-6
1
-5
164
862
1,393
164
2,419
Associates
Joint Ventures
-4
-4
24
911
1,387
24
2,322
-20
-1
-21
161
161
161
For further information on associates and joint ventures, please see the list of "Danfoss Group Companies".
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SMA Solar Technology AG
2015
Germany
20%
2016
Germany
20%
7,459
239
3,651
5,005
2,222
2,395
4,038
862
6,999
484
3,328
5,636
2,166
2,344
4,454
911
5
2016
TOTAL
-24
-1
-25
185
911
1,387
185
2,483
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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
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
Interest on financial liabilities measured at amortized cost
2015
2016
65
3
2
70
65
2015
-297
-2
-34
-87
-6
-426
-299
25
4
29
25
2016
-293
-2
-33
-1
-12
-12
-353
-295
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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 22.0% (2015: 23.5%)
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
2015
-935
-176
-33
-1,144
23.5%
4.8%
-2.3%
-0.2%
-0.6%
1.5%
3.0%
0.9%
30.6%
2015
-1,144
-19
-5
-1,168
2016
-1,078
29
46
-1,003
22.0%
5.0%
-1.2%
-0.2%
-0.8%
1.9%
-1.2%
25.5%
2016
-1,003
-4
-3
-1,010
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Note 7 Intangible assets
DKKm
Cost as of January 1, 2015
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Transfers
Additions
Disposals
Disposals through sale of subsidiaries
Cost as of December 31, 2015
Amortization and impairment losses as of January 1, 2015
Foreign exchange adjustments in foreign companies
Transfers
Amortization
Impairments
Disposals
Amortization and impairment losses as of December 31, 2015
Goodwill
Software
Brand
Technology
Customer
relations
Patents,
trademarks, etc.
Development
costs
Total
Other
11,058
370
273
-2
11,699
1,101
67
1,168
1,271
43
-
14
192
-31
1,489
950
46
1
100
11
-32
1,076
1,060
65
-
1,125
-
-
17
4,310
213
11
-1
4,533
1,570
115
297
2,544
130
-4
-3
2,667
1,068
76
204
445
9
4
-7
13
-112
352
415
8
-1
10
582
21
-21
582
434
16
66
- -1
1,981
17
-3
1,345
-113
319
-21
495
Carrying amount as of December 31, 2015
10,531
413
1,108
2,552
1,322
33
87
Cost as of January 1, 2016
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Transfers
Additions
Disposals
Cost as of December 31, 2016
Amortization and impairment losses as of January 1, 2016
Foreign exchange adjustments in foreign companies
Transfers
Amortization
Disposals
Amortization and impairment losses as of December 31, 2016
11,699
27
1,092
12,818
1,168
15
1,183
1,489
11
1
-17
222
-25
1,681
1,076
11
-6
91
-22
1,150
1,125
16
20
1,161
17
1
18
4,533
50
216
4,799
1,981
35
298
2,667
32
188
2,887
1,345
25
207
36
2,314
1,577
352
-
7
27
15
-74
327
319
-1
6
13
-74
263
582
1
-10
-43
530
495
2
31
-43
485
Carrying amount as of December 31, 2016
11,635
531
1,125
2,485
1,310
64
45
Additions/disposals through acquisitions/sales of subsidiaries are further described in Note 20 Acquisition and sale of subsidiaries and activities
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Annual Report 2016 The Danfoss Group
10,212
481
11
7
205
-168
10,748
4,437
261
-
694
11
-170
5,233
5,515
10,748
110
432
-
237
-142
11,385
5,233
73
658
-139
5,825
5,560
TOTAL
21,270
851
284
7
205
-168
-2
22,447
5,538
328
694
11
-170
6,401
16,046
22,447
137
1,524
-
237
-142
24,203
6,401
88
658
-139
7,008
17,195
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Note 7 Intangible assets (continued)
DKKm
IMPAIRMENT TESTS
At the end of 2016, 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 respective business segments for optimum synergy. One consequence 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. As part of the impairment test, the net present
value of the estimated net cash flow from the CGU's is compared to the carrying amount of the net assets. As acquisitions in Danfoss are made on the basis of 10-years projections, the expected cash flow is calculated on the basis
of estimates for the years 2017-2026. The estimates are prepared and approved by the management in the respective CGU's and Group Management. 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.
The most significant goodwill allocations as well as the most significant assumptions for the performed impairment tests have been described below.
Goodwill as of December 31
Brand with indefinite useful life as of December 31
Expected growth in net cash flow during the terminal period in %
Discount rate before tax in %
Danfoss
Power
Solutions
1,021
1,006
2%
14%
Danfoss
Drives
Danfoss
Cooling
Danfoss
Heating
5,757
2%
13%
2,001
1,734
2%
13%
2%
11%
2015
Other
18
2%
13%
Danfoss
Power
Solutions
1,175
1,021
2%
13%
Danfoss
Drives
Danfoss
Cooling
Danfoss
Heating
5,725
2,049
2,668
2%
12%
2%
13%
2%
10%
2016
Other
18
2%
11%
The weighted average growth rate until 2026 is based on past performance/management expectation of market development etc. and is estimated to be 2-5% for the business segments, which is at or above the general
market development. The growth in net sales is driven by 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 and working capital as a percentage of sales are expected to remain unchanged during the terminal period. Investments are assumed to be at the same level as the depreciations. These assumptions are unchanged
compared to the impairment tests performed in 2015. The net cash flow during the terminal period from 2027 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 2015.
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 and Propulsys Inc. (White Drive Products Group) (USA)
in 2016. At the end of 2016, the carrying amount of Brand, Technology and Customer relations acquired in connection with business combinations amounts to DKK 2.8bn, or approximately 56% of the total corresponding carrying
amount. The carrying amount of Technology and Customer relations is amortized until 2026 and 2028, respectively.
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Note 7 Intangible assets (continued)
Danfoss Drives
The Goodwill allocated to Danfoss Drives Segment derives primarily from the acquisition of Vacon (Finland) in December 2014. At the end of 2016, the carrying amount of Technology and Customer relations acquired in connection
with business combinations amounts to DKK 1.6bn, or approximately 32% 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 2016, the carrying amount of
Technology and Customer relations acquired in connection with business combinations amounts to DKK 191m, 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, Thermia Warme AB (Sweden) in 2005 and Sondex Holding A/S (Denmark) in 2016. At the end of 2016,
the carrying amount of Technology and Customer relations acquired in connection with business combinations amounts to DKK 379m, or approximately 8% of the corresponding total carrying amount. The carrying amount of
Technology and Customer relations is amortized until 2028.
Other intangible assets
At the end of 2016, Danfoss had Software in progress amounting to DKK 308m and DKK 0m capitalized development expenditure in progress. Capitalized software in progress is mainly accumulated internally.
In 2016, 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 impairment of current development assets of DKK 0m (2015: 11m)
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Note 8 Property, plant and equipment
DKKm
Cost as of January 1, 2015
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Transfers
Additions
Disposals
Disposals through sale of subsidiaries
Cost as of December 31, 2015
Depreciation and impairment losses as of January 1, 2015
Foreign exchange adjustments in foreign companies
Transfers
Depreciation
Impairment
Disposals
Disposals through sale of subsidiaries
Depreciation and impairment losses as of December 31, 2015
Carrying amount as of December 31, 2015
Cost as of January 1, 2016
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Transfers
Additions
Disposals
Cost as of December 31, 2016
Depreciation and impairment losses as of January 1, 2016
Foreign exchange adjustments in foreign companies
Depreciation
Disposals
Depreciation and impairment losses as of December 31, 2016
Carrying amount as of December 31, 2016
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
5,814
13
274
151
86
-85
6,253
2,593
4
220
-13
2,804
3,449
8,550
110
2
378
315
-20
9,335
6,167
31
12
849
-3
7,056
2,279
9,335
-70
226
418
350
-39
10,220
7,056
-83
766
-20
7,719
2,501
1,552
-60
40
72
-44
-3
1,557
1,040
-64
-17
148
-40
-1
1,067
490
1,557
12
14
61
73
-84
1,633
1,067
10
170
-78
1,169
464
680
49
-611
575
-1
692
692
692
1
9
-630
1,035
1,107
1,107
TOTAL
16,207
213
2
-7
1,209
-223
-3
17,398
9,649
-25
1,211
10
-129
-1
10,716
6,682
17,398
-44
523
1,544
-208
19,213
10,716
-69
1,156
-111
11,692
7,521
Assets held under finance leases amounts to a total carrying amount of DKK 130m (2015: DKK 141m).
Additions/disposals through acquisitions/sales 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.
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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
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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
2016
1,897
492
2,318
4,707
444
401
36
19,364
2016
6,165
-191
5,974
59
6,033
10
-181
-4
-6
-17
17
-191
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Note 11 Share capital
SHAREHOLDERS HOLDING MORE THAN 5% OF THE SHARES OR 5% OF THE VOTES
Bitten and Mads Clausen Foundation, Nordborg, Denmark
Clausen Controls A/S, Sønderborg, Denmark
Henrik Mads Clausen, Lake Forrest, USA
Karin Clausen, Holte, Denmark
DISTRIBUTION OF SHARES
A Shares
B Shares
Total Shares
Nominal
value
100 DKK
100 DKK
Number
4,250,000
5,991,473
10,241,473
2015
DKKm
425.0
599.1
1,024.1
Number
4,250,000
5,707,111
9,957,111
SHARES
50.71%
26.29%
11.04%
7.26%
Nominal
value
100 DKK
100 DKK
VOTES
86.10%
5.43%
2.29%
1.50%
2016
DKKm
425.0
570.7
995.7
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.
The number of B shares has in 2016 been effected by a capital increase of 4,580 shares due to subscription of shares as a result of exercises in the share incentive programs and by a capital reduction of 288,942 shares due to
cancellation of treasury shares.
DIVIDEND PER SHARE (DKK)
Proposed dividend per 100 DKK share
Dividend from last year 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 and Mads Clausen Foundation
Sold in the year
Capital reduction
Holding as of December 31
2015
51.8
48.9
2016
50.2
51.8
2015
151,219
15,578
70,307
-600
236,504
2016
236,504
8,648
50,979
-600
-288,942
6,589
The primary purpose of holding treasury shares is to secure the share option program in Danfoss A/S. The total cost in 2016 for own shares amounts to DKK 292m (2015: 366m). The total selling price relating to treasury shares
amounted to DKK 2m in 2016 (2015: 2m). The Group's holding of treasury shares represents 0.1% (2015: 2.3%) of the Group's share capital. The value of treasury shares held amounts to DKK 32m (2015: 1,009m).
CAPITAL STRUCTURE
The Capital structure of Danfoss is intended to ensure sufficient financial flexibility and stability over the cycle for the company to reach its strategic goals. It is the policy of the Group to have a “BBB credit rating”, and the Group aims
for a net-interest-bearing debt to EBITDA ratio and cash flow generation to net-interest-bearing debt 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 2016 the net-interest-bearing debt to EBITDA ratio was 1.6 (2015: 1.6) on a reported basis.
Danfoss aims to use the free cash flow before M&A for acquisitions that will develop the existing business further and to repay interest bearing debt, or for dividend distribution to shareholders according to policy.
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Note 12 Provisions
DKKm
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 (2015: 37m).
The Group's provision for restructuring mainly relates to expected costs for severance payments. 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.
Provisions as of January 1
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Provisions used
Reversal of unused provisions
Additional provisions recognized
Interest element on provisions
Provisions as of December 31
Estimated maturity of above provisions:
Within 1 year
Between 1 and 5 years
After more than 5 years
Provisions as of December 31
Warranty
Restructuring
Contingent
consideration
438
4
20
-222
-89
244
395
8
-7
-1
2
2
86
-16
250
320
Warranty
Restructuring
286
107
1
395
2
2
Contingent
consideration
266
54
320
Other
451
2
-213
-21
134
2
355
Other
116
92
148
355
2016
TOTAL
983
6
20
-458
-111
630
2
1,072
2016
TOTAL
670
253
149
1,072
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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
and warrants are:
Share price
Expected volatility
Expected dividends
Risk-free interest rate
Exercise prices and terms of maturity for the programs
2015
4,267
22.0%
1.0%
0.0-0.2%
See below
2016
4,904
25.0%
1.2%
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 2016 of 4,904 was most recently adjusted at the Annual General Meeting in 2016 and will next be fixed at the Annual General Meeting in 2017.
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. 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 1,522
Options/warrants - exercise price at 1,932
Holdings and grants/disposals of options and warrants in relation to the 2004 and subsequent programs are specified below:
Granted options/warrants 1 January:
Options/warrants - exercise price at 1,522
Options/warrants - exercise price at 1,932
Changes in the share price/fair value:
Options/warrants - exercise price at 1,522
Options/warrants - exercise price at 1,932
Disposal due to subscription of shares:
Options/warrants - exercise price at 1,522
Options/warrants - exercise price at 1,932
Options/warrants - exercise price at 1,932
Granted
(year)
2006
2007
Granted
(number)
84,895
97,121
Fair value
at grant date
(DKK each)
762
983
Earliest
exercise
May 2009
May 2010
Latest
exercise
May 2016
May 2017
The Board
(number)
Executive
Committee
(number)
Executives
(number)
Other
(number)
Fair value
(DKK each)
Fair value
(DKKm)
2,400
2,400
2,400
2,400
3,080
12,514
15,594
-3,080
-2,100
-5,180
10,414
10,414
2,704
2,259
675
656
3,381
2,972
2,915
8
34
42
2
10
12
-10
-7
-17
37
37
The total provision as of December 31, 2016 for 2004 and subsequent share incentive programs has been calculated at DKK 37m (2015: 42m) 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 12m (2015: 6m), with DKK 10m (2015: 5m) in the parent company and DKK 2m (2015: 0m) in the subsidiaries.
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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
2015
-804
-29
-64
-8
-176
-6
-1,087
2016
-1,087
-22
-121
17
29
-3
-1,187
2015
Deferred tax
asset
2016
Deferred tax
asset
58
148
393
700
402
-310
1,391
-536
855
55
67
369
852
310
-217
1,436
-626
810
Deferred tax
liability
Deferred tax
liability
1,663
223
88
431
73
2,478
-536
1,942
1,581
348
100
529
65
2,623
-626
1,997
The tax asset related to tax loss carry-forwards of DKK 93m net (2015: 92m) 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 217m (2015: 310m). The amount is not recognized as an asset, as the tax losses carried forward are not expected to be utlized. 14% of the
amount (2015: 15%) has a remaining period of 3 years or less, whereas the share with a remaining period of 10 years or more totals 83% (2015: 75%).
Of the deferred tax liability of DKK 1,997m (2015: 1,942m), DKK 65m (2015: 73m) 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 542m (2015: 431m). 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.
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Note 15 Pension and healthcare obligations
DKKm
In most countries, Danfoss offers defined contribution plans which are fully funded. 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 of defined benefit plans is as follows:
Germany
USA
UK
Other
Total
2015
Gross liability Net Liability
53%
41%
-3%
9%
100%
22%
40%
35%
3%
100%
2016
Gross liability Net Liability
59%
38%
-6%
9%
100%
22%
40%
35%
3%
100%
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. The majority of the liabilities are
either due to deferred members and pensioners, or they are linked to minimum-return guarantees. However some of the defined benefit plans in the UK and the USA are still linked to final salary for a closed, limited group of less than
300 active employees. Danfoss is working on minimizing the defined benefit risk by integrated risk management and by changing the nature of existing plans.
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
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
Plan participants' contribution liabilities
Disbursed benefits from the Group
Disbursed benefits from plan assets
Net transfer to provisions
Provision as of December 31
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2015
3,813
-2,704
1,109
107
1,216
2015
3,732
263
35
127
-6
-104
6
-41
-142
-57
3,813
2016
3,954
-2,874
1,080
108
1,188
2016
3,813
-167
33
126
-39
338
10
-37
-123
3,954
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Note 15 Pension and healthcare obligations (continued)
DKKm
DEVELOPMENT IN THE FAIR VALUE OF PLAN ASSETS
Plan assets as of January 1
Foreign exchange adjustments in foreign companies
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
2015
2,537
208
96
6
-96
120
-142
-25
2,704
2016
2,704
-182
97
10
274
94
-123
2,874
A few countries may require that the liability is funded, but this is not the case in most 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 548m (2015: 565m).
EXPENSES RELATING TO PENSION AND HEALTHCARE OBLIGATIONS
Pension costs for the year
Calculated interest on liabilities
Calculated expected return on assets
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
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
2015
2016
35
127
-96
66
17
5
13
31
66
2015
163
708
2,941
3,812
33
126
-97
62
17
4
12
29
62
2016
163
690
3,101
3,954
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Note 15 Pension and healthcare obligations (continued)
DKKm
PENSION PLAN ASSETS ARE SPECIFIED AS FOLLOWS:
Shares and similar securities
Listed corporate bonds
Bonds
Other
996
950
605
153
2,704
2015
37%
35%
22%
6%
100%
1,066
972
630
206
2,874
2016
37%
34%
22%
7%
100%
Plans in which the pension funds are invested in financial instruments are exposed to risk. 37% (2015: 37%) 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
2015
Weighted
average
3.6%
3.5%
Range
2.0-4.3%
1.8-4.2%
2016
Weighted
average
3.0%
3.5%
Range
1.4-4.1%
1.8-4.5%
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 according to the composition of the assets and considering the general expectations with regard to economic
developments. The Group expects to pay in DKK 131m to defined benefit plans in 2017 (2016: DKK 142m).
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
2015
3,812
-273
+283
+21
-19
+111
-111
2016
3,954
-288
+306
+22
-21
+119
-118
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Note 16 Financial risks and instruments
DKKm
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: It covers both the balance sheet risk, i.e. the risk, related to receivables and payables denominated in foreign currency, and the risk related to future cash flows in foreign currency.
Both risk types have direct cash flow and earnings impact and therefore are the primary focus of Danfoss’ currency hedging strategy. The hedging policy is to cover all significant balance sheet risk and 15 months of cash flow risk
on a rolling basis, except in cases where a natural hedge exists and in cases where hedging is not practically possible.
2. Translation risk: The Group is primarily exposed to EUR, USD and USD-related currencies. Translation risk is primarily managed by keeping an appropriate balance between equity and debt in local currency in the various legal
entities in the Danfoss Group, and in some case by drawing Group financing facilities in matching foreign currency to offset residual equity risk. Danfoss does generally not hedge currency Translation Risk except as mentioned above.
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.
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
Probable increase in exchange rate
Hypothetical impact on profit and loss for the year
Hypothetical impact on equity
A decrease in the exchange rates as stated would have had the opposite effect on the profit and equity.
The stated sensitivities are based on the recognized financial assets and liabilities at December 31.
EUR
DKK
-586
-4,910
597
-3,433
USD
DKK
-55
2,241
-2,317
-864
1%
-2
-83
10%
-13
-99
GBP
DKK
-15
-193
219
-330
10%
1
-32
2015
Total
-656
-2,862
-1,501
-4,627
-14
-214
EUR
DKK
-347
-4,417
142
-3,233
USD
DKK
-254
1,517
-1,356
-254
1%
1
-78
10%
-9
-35
2016
Total
-606
-2,981
-1,131
-3,782
-8
-143
GBP
DKK
-5
-81
83
-295
10%
-30
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Note 16 Financial risks and instruments (continued)
DKKm
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 a combination of fixed price agreements
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 2016 or 2015.
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 509m (2015: 319m) 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 assessment rating is carried out of customers, and any provision for bad debt is made on the basis of this credit assessment. The assessment also serves as the basis for the terms of payment offered to 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
2015
2016
193
81
5,051
5,325
238
98
17
5,680
6,033
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 equal a maximum of 0.1% of Group annual revenue in case of a one percentage-point shift in interest rates across the curve.
All things being equal, an 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)
Income
statement
-20
1
-19
2015
Equity
-20
50
30
Income
statement
-22
-22
2016
Equity
-22
57
35
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.
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Note 16 Financial risks and instruments (continued)
DKKm
LIQUIDITY RISK
It is Danfoss' policy to have a long-term credit rating of "BBB " according to the Standard & Poor’s metric, 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 at least 3 years.
At the end of 2016, Danfoss' credit rating from Standard and Poor’s was "BBB/A2 with a stable outlook" and the liquidity reserve equaled DKK 7.8bn (2015: 8.2bn). 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 above 3 years at the end of 2016. The Danfoss Group's loan agreements contain no financial covenants.
The major part of the Group's cash and cash equivalents of DKK 509m (2015: 319m) is placed on short-term deposits.
THE GROUP'S DEBT CATEGORIES AND MATURITIES
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.
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
)
*
s
r
a
e
y
5
-
1
3,597
113
49
2015
5
r
e
v
O
s
r
a
e
y
4,840
1,425
16
92
51
3,810
6,373
r
a
e
y
1
-
0
863
30
18
21
3,864
22
235
5,053
i
g
n
y
r
r
a
C
t
n
u
o
m
a
l
a
u
t
c
a
r
t
n
o
C
w
o
l
f
h
s
a
c
9,556
560
10,067
596
130
4,604
25
101
14,976
152
4,604
25
162
15,606
Maturity
)
*
s
r
a
e
y
5
-
1
1,946
23
2016
5
r
e
v
O
s
r
a
e
y
4,756
568
47
83
38
2,054
5,407
r
a
e
y
1
-
0
3,365
5
22
4,604
25
124
8,145
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
2015
2016
9,308
4,906
14,214
6,982
7,994
14,976
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Note 16 Financial risks and instruments (continued)
DKKm
FINANCIAL INSTRUMENTS BY CATEGORY
Other investments
Financial assets measured at fair value via the income statement
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
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
Derivative financial instruments for financial hedging
Financial liabilities measured at fair value via the income statement
2015
Fair
value
33
33
12
12
Carrying
amount
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
2016
Fair
value
20
20
1
1
Carrying
amount
20
20
1
1
6,033
821
509
7,363
6,033
821
509
7,363
10,246
8,314
18,560
10,482
8,314
18,796
36
65
101
36
65
101
The value of derivative financial instruments is measured according to generally accepted valuation techniques based on relevant observable swap curves 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 par value. 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 2015.
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Note 16 Financial risks and instruments (continued)
DKKm
FAIR VALUE HIERARCHY AS OF DECEMBER 31 FOR THE GROUP
2015
2016
l
e
b
a
v
r
e
s
b
O
l
e
b
a
v
r
e
s
b
o
t
u
p
n
i
t
u
p
n
i
n
o
N
d
e
t
o
u
Q
s
e
c
i
r
p
Level 1
Level 2
Level 3
l
a
t
o
t
n
I
l
e
b
a
v
r
e
s
b
O
l
e
b
a
v
r
e
s
b
o
t
u
p
n
i
t
u
p
n
i
n
o
N
d
e
t
o
u
Q
s
e
c
i
r
p
Level 1
Level 2
Level 3
l
a
t
o
t
n
I
FINANCIAL ASSETS:
Other investments
Derivative financial instruments for the hedging of the fair value of recognized assets and liabilities
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
12
12
180
70
1
10,126
10,377
33
33
86
86
33
12
45
180
70
1
86
10,126
10,463
1
1
36
65
20
20
20
1
21
36
65
10,482
10,583
320
320
320
10,482
10,903
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DKKm
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE BASED ON LEVEL 3
Carrying amount as of January 1
Foreign exchange adjustments in foreign companies
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
t
c
a
r
t
n
o
c
t
a
t
n
u
o
m
A
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
l
i
a
p
c
n
i
r
p
/
e
c
i
r
p
USD
EUR
Other currencies
Forward exchange contracts
Interest swaps
Derivatives end of year
-3,137
-3,249
-307
2,244
-198
1
1
-195
-43
-238
d
e
z
i
n
g
o
c
e
r
)
-
(
s
s
o
l
/
n
a
G
i
t
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e
m
e
t
a
t
s
e
m
o
c
n
i
n
i
-175
16
-9
-167
-1
-168
r
a
e
y
1
n
a
h
t
s
s
e
l
e
u
D
-22
-14
8
-28
-14
-42
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
2015
2016
Other Investments
Level 3
33
-1
-12
20
-12
2016
s
r
a
e
y
5
r
e
t
f
a
e
u
D
33
-2
2
33
2
s
r
a
e
y
5
d
n
a
1
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e
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w
t
e
b
e
u
D
2
2
-4
-2
d
e
z
i
n
g
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r
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-
(
s
s
o
l
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n
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G
i
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
n
i
-32
1
-5
-36
-36
r
a
e
y
1
n
a
h
t
s
s
e
l
e
u
D
-10
-49
-59
-3
-62
2015
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
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r
p
t
n
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m
j
t
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t
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k
r
a
m
n
o
)
-
(
s
s
o
l
/
n
a
G
i
-1,632
-3,293
322
2,616
-42
1
-52
-93
-7
-100
At the end of 2016, unrealized gain/loss(-) on derivatives hedging foreign currency risk recognized in equity amounted to DKK -57m (2015: -28m).
At the end of 2016, unrealized gain/loss(-) on derivatives hedging floating interest payments recognized in equity amounted to DKK -7m (2015: -42m).
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 2m was taken to expense in 2016 (2015:1m) as a consequence of testing for effectiveness.
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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
Adjustment for non-cash transactions
The Group's other adjustments for non-cash transactions mainly consists of provisions, derivatives and defined benefit plans.
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Annual Report 2016 The Danfoss Group
2015
-146
6
-1,063
25
935
18
-225
527
302
-225
2015
1,926
-37
-67
-70
426
-225
1,953
2016
-225
-5
24
-855
-29
1,078
4
-8
334
326
-8
2016
1,814
13
-32
-29
353
-529
1,590
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Note 19 Change in working capital
DKKm
Change in inventories
Change in receivables
Change in trade payables and other debt
2015
5
73
221
299
2016
-15
-395
1,101
691
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Note 20 Acquisition and sale of subsidiaries and activities
DKKm
Company/activity
DAF Enerji
Advitronic Engineering B.V.
Vacon Drives sales activity New Zealand (asset deal)
ProEkspert
Company/activity
Propulsys Inc.
Sondex Holding A/S
*) Net sales in the financial year prior to the acquisition or sale.
** According to non-disclosure obligations, purchase prices are not stated.
Acquisition
Acquisition
Acquisition
Sale
Acquisition
Acquisition
Country
Turkey
Netherlands
New Zealand
Estonia
Country
USA
Denmark
Consolidated
from/until
Holding
acquired/sold
Net sales per
year *)
No. of
employees
Consideration
paid
2015
December
October
February
January
60%
100%
100%
75%
56
9
6
43
55
8
3
123
**
**
**
**
2016
Consolidated
from/until
Holding
acquired/sold
Net sales per
year *)
No. of
employees
Consideration
paid
September
September
100%
100%
701
961
623
1090
**
**
The Purchase Price Allocation regarding the acquisitions in 2015 of DAF Enerji and Advitronic Energineering BV was finalized in 2016. There were no signifcant changes compared to the initial accounting.
Acquistions in 2016 comprise Sondex Holding A/S and Propulsys Inc.
On August 31, 2016, Sondex Holding A/S was acquired. The company is among the market leaders within gasket Heat Exchangers and will be part of a newly founded business unit, Heating Heat Exchangers, which is part of the
Heating Segment. Sondex Holding A/S has sales activities across the world, while production is mainly taking place in Denmark, Poland and Romania. The main part of the acquisition price has been paid, while the remaining part is
based on an earn-out agreement with an EBIT target. The remaining part is expected to be paid in 2017.
On September 8, 2016, Propulsys Inc. was acquired. The company, combined with the present Motors business in Power Solution Segment, will be the market leader within orbital hydraulic motors. Propulsys Inc. primarily has sales
activities in the USA, China and Germany, while production is taking place in USA and China.
Acquisition-related costs, e.g. due diligence cost, of DKK 18m have been charged to expenses in the consolidated income statement for the year ending December 31, 2016.
The net sales included in the consolidated statement of comprehensive income since the acquisitions in 2016, Sondex and Propulsys, was DKK 580m. These two acquisitions also contributed to Profit before tax of DKK -10m over
the same period. The Profit before tax is impacted by interest as well as Purchase Price Allocation (PPA) expenses relating to reversal of inventory step-up to fair value and amotization on intangibles assets of total DKK 55m.
Had Sondex and Propulsys been consolidated from January 1, 2016, the combined Group net sales would have been DKK 40,263m and Profit before tax would have been DKK 3,972m. Included in this impact on the combined Profit
before tax, is the calculated interest on the acquistions as well as further PPA expenses and amortizations of total DKK 37m.
The preliminary Purchase Price Allocation accounting has calculated total goodwill of DKK 1,075m. Goodwill arising from the acquisitions is attributable to the value of staff, know-how and synergies expected from combining the
operations of the Danfoss Group and the acquired businesses. None of the goodwill recognized is expected to be deductible for income tax purposes. The final calculation will take place within 12 months from the acquisition date,
but no material changes in the allocation of the purchase prices are expected.
Revaluation done in 2015 and 2016 related to Purchase Price Allocation is not included in the below statement.
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Note 20 Acquisition and sale of subsidiaries and activities (continued)
DKKm
The following table summarizes the consideration paid/received for acquired/sold companies, and the fair value of assets and liabilities at the closing date.
Intangible assets, except goodwill
Property, plant and equipment
Other non-current assets, including deferred tax assets
Inventories
Receivables *)
Cash and cash equivalents
Interest-bearing debts
Provisions, including deferred tax liabilities
Trade and other payables
Net assets acquired
Goodwill(-)/profit on disposal
Net assets, including goodwill(-)/profit on disposal
Cash and cash equivalents
Consideration, net of cash
Change in short-term payables/ receivables / provisions
Minority interests
Net cash paid(-)/received
*) receivables in acquisitions includes provision for bad debt of DKK 6m(2015:0m)
Note 21 Acquisition(-)/ Sale of other investments
DKKm
Purchase of shares and other securities
Increase/decrease of lending
2015
Acquisitions
2016
Acquisitions
2015
Disposals
2016
Disposals
-64
-2
-11
-22
-9
4
20
19
-65
-143
-208
9
-199
-35
-234
-459
-524
-13
-465
-375
-185
322
154
224
-1,321
-1,075
-2,396
185
-2,211
249
87
-1,875
2
10
20
-8
24
19
43
-20
23
-6
-6
11
3
3
2015
-126
-94
-220
2016
-59
-67
-126
Purchase of shares and other securities in 2016 is related to capital injection in joint ventures in BD Kompressor Holding GmbH & Co.KG and Linestream Technology Inc. In 2015, the Group purchased shares in LineStream Technologies
Inc. and BD Kompressor Holding GmbH & Co. KG. Further information is provided in Note 3 Investments.
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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
2015
755
44
1,352
2016
856
41
718
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 Israel 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
2015
2016
226
522
223
140
137
1
226
459
217
137
140
1
The Group expensed DKK 458m in operating lease payments in 2016 (2015: 494m) and they relate mainly to buildings and equipment. There were no significant contingent lease payments in 2016 or 2015.
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Note 22 Contingent liabilities, assets and security (continued)
DKKm
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 25m in 2016 (2015: 27m). 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
2015
6
14
1
2015
405
758
144
1,092
2016
8
15
2016
565
659
252
1,199
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Note 23 Related parties
Danfoss A/S’ related parties comprise the Bitten and 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 AND MADS CLAUSEN FOUNDATION, OTHER SHAREHOLDERS AND OTHER RELATED COMPANIES
The Bitten and Mads Clausen Foundation, which holds 50.71% of the shares in Danfoss A/S and controls 86.10% of the voting power, has the controlling influence.
In the financial year a limited number of transactions have taken place between the Bitten and 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 (2015: 25m).
In the financial year, the Bitten and Mads Clausen Foundation sold shares in Danfoss A/S shares at value of DKK 250m back to the company (2015: 300m).
Around 97% of Danfoss A/S' dividend payments is related to the Bitten and Mads Clausen Foundation and shareholders of the Clausen family.
BOARD OF DIRECTORS, EXECUTIVE COMMITTEE AND OTHER MEMBERS OF THE 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 2016 (2015: 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 (2015: 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 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
2015
273
117
2016
316
103
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, 2016 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.
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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, 2016, comprises the
consolidated financial statements of Danfoss A/S and its subsidiaries
(the Group).
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 2016. None of those standards and
interpretations has affected recognition and measurement in 2016,
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 2016.
Most significant are IFRS 15 ‘Revenue from Contracts with Customers’
and IFRS 16 ‘Leases’. At this stage management does not expect
to adopt the new standards before the mandatory effective dates,
January 1, 2018 and January 1, 2019, respectively. Management is
currently assessing the effects of applying the new standards to the
Group’s financial statements.
For IFRS 15 ‘Revenue from Contracts with Customers’ management
is currently assessing areas such as delivery terms, timing of revenue
recognition, customer loyalty programs, accounting for certain costs
incurred in fulfilling a contract and rights of return. Since the revenue
in the Group mainly relates to sales of products to professional
customers, management does not expect that the new rules will
have any material impact on the Groups financial statements. The
Group will make more detailed assessments of the impact over the
next twelve months and will implement the standard prospectively
without change of comparative figures.
For IFRS 16 ‘Leases’ the Group has non-cancellable operating lease
commitments at the reporting date of DKK 1.2B of which a majority
relates to buildings, see note 22 ‘Contingent liabilities, assets and
security’. However, the Group has not yet determined to what extent
these commitments will result in the recognition of an asset and
liability for future payments and how this will affect the Group’s profit
and classification of cash flows.
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 the
accounting policies of Danfoss A/S.
Investments in subsidiaries are set off against the proportionate
share of the subsidiaries’ fair value of the identifiable net assets
and recognized contingent liabilities at the acquisition date. On
consolidation, intra-Group income and expenses, shareholdings, intra-
Group balances and dividends and realized and un-realized profits
and losses on transactions between the consolidated companies
are eliminated. Unrealized losses are eliminated in the same way as
unrealized profits, provided that no impairment has occurred.
In the consolidated financial statements, the items of subsidiaries are
recognized in full. The minority interests’ proportionate share of the
profit/loss for the year is recognized as part of the Group’s profit/loss
for the year and as a separate share of the Group’s equity.
The companies included in the Group are disclosed in the section
“Danfoss Group Companies”.
Business combinations
Newly acquired or established companies are recognized in the
consolidated financial statements from the acquisition date, and
divested companies are recognized in the consolidated income
statement until the time of divestment. Comparative figures are not
restated for newly acquired companies. Unless divested companies
are classified as discontinued operations, comparative figures are not
restated.
When the Danfoss Group takes over control of acquired companies,
the purchase method is applied. This means that the identifiable
assets and liabilities, including contingent liabilities, of the acquired
companies are stated at fair value at the acquisition date.
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
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Note 25 Basis for preparation and accounting policies (continued)
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.
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 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.
On recognition in the consolidated financial statements of companies
with a functional currency other than DKK, the income statements
are translated at the exchange rates at the transaction date, and
the balance sheet items are translated at the exchange rates at the
balance sheet date.
An average exchange rate for each month is used as the exchange
rate at the transaction date to the extent that this does not
significantly distort the presentation of the underlying transactions.
Foreign exchange differences arising on translation of the opening
balance of equity of such enterprises at the exchange rates at the
balance sheet date and on translation of the income statements from
the exchange rates at the transaction date to the exchange rates
at the balance sheet date are recognized directly in equity under
a separate translation reserve. The foreign exchange adjustment is
allocated between the equity of the Parent Company and of the
minority shareholders.
Foreign exchange adjustments of balances which are considered
part of the total net investment in companies with a different
functional currency than DKK are recognized directly in the equity
under a separate reserve for foreign exchange adjustments. Likewise,
foreign exchange gains or losses are recognized in the consolidated
financial statements (directly in the equity under a separate reserve
for foreign exchange adjustments) concerning the part of loans and
derivative financial instruments, which has been allocated for currency
hedging of net investments made in these companies and which
effectively protects against similar currency rate gains or losses on net
investments in the company.
On disposal of wholly-owned foreign units, the foreign exchange
adjustments which have been accumulated in equity via other
comprehensive income and which can be ascribed to the unit are
reclassified from “Translation reserve” to the income statement,
together with any gains or losses from the disposal.
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
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Note 25 Basis for preparation and accounting policies (continued)
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.
financial assets and liabilities and surcharges and refunds under the
Tax Prepayment Scheme etc. Also included is the interest element of
finance leases and gains and losses on derivative financial instruments
which are not designated as hedging arrangements.
Borrowing costs incurred in relation to general borrowing activities
or loans which relate directly to the purchase, construction or
development of qualifying assets, are allocated to the cost of such
assets.
Research and development cost
Research and development costs include costs that do not qualify
for capitalization including costs, like wages and salaries and
consumables.
Balance sheet
Intangible assets
Selling and distribution costs
Selling and distribution costs comprise costs related to distribution
of products sold during the year and sales staff, advertising and
exhibition expenses etc., including depreciation. Furthermore,
provisions for bad debt are included.
Administrative expenses
Administrative expenses comprise expenses in relation to
administrative staff, management, office premises, office expenses etc.,
including depreciation.
Other operating income and expenses
Other operating income and expenses comprise items secondary to
the principal activities of the companies, including gains/losses on
disposal of non-current assets and companies, impairment losses and
employee termination expenses.
Share of profit from investments in associates and joint ventures
The proportionate share of the results of associates and joint ventures
after tax is recognized in the consolidated income statement after
elimination of the proportionate share of intra-Group profits/losses
and less goodwill impairment.
Financial income and expenses
Financial income and expenses comprise interest income and
expenses, realized and unrealized gains and losses on securities, debt
and transactions denominated in foreign currencies, amortization of
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 amount at the selling date. Gains or losses are recognized
in the income statement under ‘Other operating income’ or ‘Other
operating expenses’.
Property, plant and equipment
Land and buildings, plant and machinery and equipment are
measured at cost less accumulated depreciation and impairment
losses.
Cost comprises the purchase price, expenses for materials,
components, sub-suppliers, direct salary expenses, borrowing costs
incurred from specific and general borrowing which directly pertain
to the construction of the individual asset and for self-produced
assets as well as indirect construction costs. Where individual
components of an item of property, plant and equipment have
different useful lives, they are accounted for as separate items, and
depreciated separately.
Subsequent costs, e.g. in connection with replacement of
components of property, plant and equipment, are recognized in the
carrying amount of the asset, if it is probable that the costs will result
in future economic benefits. All costs incurred for ordinary repairs and
maintenance are recognized in the income statement as incurred.
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Note 25 Basis for preparation and accounting policies (continued)
Depreciation is provided on a straight-line basis over the expected
useful lives, which are as follows:
Buildings and building components 15-30 years
4-8 years
Plant and machinery
2-6 years
Equipment
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.
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.
Currency translation reserve
Foreign exchange differences arising on the translation of the opening
balance of equity of foreign companies at the exchange rates at the
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Note 25 Basis for preparation and accounting policies (continued)
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 sold based on warranty costs incurred in the financial year
and in previous years.
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.
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
Pension obligations and defined benefit healthcare plans
The Group has entered into pension schemes and similar
arrangements with the majority of the Group’s employees. In addition,
the Group has healthcare plans contributing with payment for
medical expenses for certain employee groups in the USA after their
retirement.
Contributions to defined contribution plans, where the Group
currently pays fixed pension payments to independent pension
funds, are recognized in the income statement in the period to which
they relate, and any contributions outstanding are recognized in the
balance sheet as other debt.
For defined benefit pension and healthcare plans, the Group is under
an obligation to pay a specific benefit upon retirement (e.g. a fixed
amount or a percentage of the exit salary). For these plans, an annual
actuarial calculation (Projected Unit Credit method) is made of the
present value of future benefits under the defined benefit plan.
The present value is determined on the basis of assumptions about
the future development in variables such as salary levels, interest
rates, inflation and mortality. The present value is determined only
for benefits earned by employees from their employment with the
Group. The actuarial present value less the fair value of any plan assets
is recognized in the balance sheet under pension and healthcare
obligations.
Pension and healthcare costs for the year are recognized in the
income statement based on actuarial estimates and financial
expectations at the beginning of the year. Any difference between the
expected development in assets and liabilities and realized amounts
determined at year end constitutes actuarial gains or losses and
is recognized directly in other comprehensive income. If changes
in benefits relating to services rendered by employees in previous
years result in changes in the actuarial present value, the changes
are recognized as past service costs. Past service costs are recognized
immediately, provided that the benefits have already vested. If the
benefits have not vested, the past service costs are expensed in the
income statement over the period in which the changed benefits vest.
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Note 25 Basis for preparation and accounting policies (continued)
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.
assess the possible outcome of such disputes. The most probably
outcome is used as measurement method.
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.
Income statement
The current and deferred taxes for the year are recognized in the
income statement, except for tax related to transactions recognized in
the statement of comprehensive income or directly in equity.
Surcharges, premiums and refunds relating to tax payments are
recognized in financial income and expenses.
Balance sheet
Current tax payable and receivable are recognized in the balance
sheet as tax computed on the taxable income for the year, adjusted
for tax paid under the tax prepayment scheme. In the course of
conducting business globally, transfer pricing disputes with tax
authorities may occur and management judgments is applied to
Deferred tax liabilities and deferred tax assets are measured according
to the balance sheet liability method, which means that all temporary
differences between the carrying amount and the tax base of assets
and liabilities are recognized in the balance sheet as deferred tax
liabilities and deferred tax assets, respectively. Exceptions are any tax
incurred by selling shares in subsidiaries and which the Group can
identify as being a tax liability and tax relating to goodwill which is
not deductible for tax purposes. Deferred tax assets are recognized at
the expected value of their utilization; either as a set-off against tax on
future income or as a set-off against deferred tax liabilities in the same
legal tax entity and jurisdiction. Adjustment is made for deferred tax
resulting from elimination of unrealized intra-Group profits and losses.
Deferred tax is measured according to the tax rules and at the tax rates
applicable in the respective countries at the balance sheet date when
the deferred tax is expected to crystallize as current tax.
Derivative financial instruments
Derivative financial instruments, such as forward exchange contracts
or options and commodity contracts, are recognized and measured
at fair value. Positive and negative fair values of derivative financial
instruments are shown as separate items in the balance sheet. Set-off
of positive and negative values is only made when the Company has
the right and the intention to settle several financial instruments net.
Provided that the documentation requirements etc. are met, hedge
accounting is applied to the instruments. In connection with hedging
of future sales and purchase transactions (cash flows), changes in
the fair value of instruments qualifying for hedge accounting are
recognized in the statement of comprehensive income under the
hedging reserve until the hedged transaction is realized.
At this point, gains or losses relating to such hedging transactions are
transferred from the statement of comprehensive income and are
recognized in the same item as the hedged transaction. If the instruments
do not qualify for hedge accounting, changes in market value are
recognized directly in the income statement under financial items.
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.
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, other receivables
and payables, cash and interest-bearing liabilities.
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Note 25 Basis for preparation and accounting policies (continued)
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 and trade
receivables.
Segment liabilities comprise both non-current and current liabilities
derived from segment operations, including trade payables 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
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
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Note 26 Critical accounting estimates
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 business combinations, goodwill,
investments in associates and joint ventures, assessment of
depreciation, amortization and impairment of non-current assets,
measurement of tax assets and liabilities 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.
Business combinations
Identifiable assets and liabilities, including contingent liabilities, of newly
acquired or established companies are recognized at fair value at the
acquisition date. The most significant assets acquired generally comprise
goodwill, technology, customer relations, inventory and property, plant
and equipment. As no active market exists for the majority of acquired
assets, liabilities and contingent liabilities, in particular in respect of
acquired intangible assets, Management makes significant estimates
of fair value. The methods applied are based on discounted cash flow
models based on key assumptions including royalty rates (technology),
churn rates (Customer relations) and expected future cash flows
related to the specific asset. Furthermore Management estimates the
Weighted-Average Cost of Capital (WACC) and a risk premium for the
assumed inherent risk for the specific asset. Estimates of fair value are
associated with uncertainty and may possibly be adjusted subsequently.
Business combinations are described in detail in note 20 Acquisition and
sale of subsidiaries and activities.
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 significant uncertainty due to increased volatility in
the global economic situation and changes in the strategy of the
Group. 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 and liabilities
Deferred taxes, including the tax value of tax loss carryforwards, are
recognized at their expected value. Management 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.
In the course of conducting business globally, transfer pricing
disputes with tax authorities may occur and significant management
judgments is applied to assess the possible outcome of such disputes.
The most probably outcome is used as measurement method, and
management believes that the provision made for uncertain tax
positions not yet settled with local authorities is adequate. However,
the actual obligation may deviate and is dependent on the results
of the litigations and settlements with the relevant tax authorities.
Corporation tax is disclosed in note 17, Corporation tax.
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.
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Group companies
Per December 31, 2016
The companies are owned 100% by Danfoss unless
otherwise stated after the company name.
Danfoss A/S, Nordborg, Denmark
(Parent Company)
• Subsidiary
• Associate or joint venture
EUROPE
Austria
• Danfoss Gesellschaft m.b.H., Guntramsdorf
• Vacon AT Antriebssysteme GmbH, Leobersdorf
Belgium
• Danfoss NV/SA, 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., Prague
• Sondex CZ s.r.o., Prague
• Vacon s.r.o., Prague
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 – 62%
• Danfoss Power Electronics A/S, Gråsten
• Danpumps A/S, Horsens
• Danfoss Power Solutions ApS, Nordborg
• Danfoss Power Solutions Holding ApS, Nordborg
• Danfoss Power Solutions Holdin g II ApS, Nordborg
• Danfoss Redan A/S, Hinnerup
• Danfoss Semco A/S, Odense – 60%
• Gemina Termix Production A/S, Sunds
• Issab Holding ApS, Nordborg
• Sondex Holding A/S, Kolding
• Sondex Service A/S, Kolding
• Sondex A/S, Kolding
• Sondex Rusland Holding Aps, Kolding
• Sondex Unit A/S, Odense
• Sondex Teknik A/S, Glostrup
• Sondex Pumps A/S, Kolding
• Vacon Drives A/S, Gråsten
Estonia
• Danfoss AS, Tallinn
Finland
• Danfoss Power Solutions Oy Ab, Espoo
• Oy Danfoss Ab, Espoo
• Sondex Tapiro Oy Ab, Vanta
• Vacon Oy, Vaasa
France
• Avenir Energie, Valence
• Danfoss S.a.r.l., Elancourt
• Danfoss Commercial Compressors S.A., Trévoux
• Danfoss Power Solutions SAS, Elancourt
• Sondex France S.a.r.l., Saint Genis Laval
• 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%
• Sondex Deutschland GmbH, Winsen/Luhe
• Vacon GmbH, Essen
• White Drive Products GmbH, Opfenbach
Great Britain
• Danfoss Limited, Denham, Buckinghamshire
• Danfoss Power Solutions Ltd., Swindon
• Danfoss UK Limited, Denham, Buckinghamshire
• Senstronics Holding Ltd.,
London – 50% (joint venture)
• Sondex (UK) Limited, Hayes, Middelsex
• Vacon Drives (UK) Ltd., Hinckley, Leicestershire
Hungary
• Danfoss Kft., Budapest
• Sondex Hőcserélők Magyarország Kft., Budapest
Iceland
• Danfoss hf., Reykjavik
Ireland
• Danfoss Ireland Ltd., Dublin
Italy
• Danfoss Power Solutions S.r.l., Castenaso, Bologna
• Danfoss S.r.l., Turin
• Sondex Italia S.r.l., Salvirola (CR)
• 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
• Sondex B.V., WR Purmerend
• Sondex Holding Netherlands B.V., WR Purmerend
• Vacon Benelux B.V., Gorinchem
Norway
• Danfoss AS, Skui, Oslo
• Danfoss Power Solutions AS, Skui, Oslo
• Vacon AS, Holmestrand
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)
• Sondex Poland Sp. z.o.o., Gdansk
• Sondex Sp. z.o.o., Gdansk
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Annual Report 2016 The Danfoss Group
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Group companies
• Sondex Braze Sp. z.o.o., Nowa Wies Leborska
• Sondex Polska Sp. z.o.o., Warszawa
• Vacon Sp. z.o.o., Grodzisk Mazowiecki
Romania
• Danfoss District Heating S.R.L., Popesti-Leordeni
• Danfoss S.R.L., Popesti-Leordeni
• S.C. Sondex Romania S.R.L., Rascruci
• S.C. Sondex Productions S.R.L., Satu-Mare
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
• AO Ridan, Nizhny Novgorod
• AO 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
• Sondex PHE s.r.o., Bosany – in liquidation
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
Turkey
• DAF Enerji Sanayi Ve Ticaret Anonim Sirketi,
Istanbul – 73,3%
• Danfoss Otomasyon ve Kontrol Urunleri Tic Ltd.,
Istanbul
• Sondex-Tanpera, Istanbul – 51%
• Sondex Dis Ticaret Limited Sti., Istanbul
United Arab Emirates
• Danfoss FZCO, Dubai – 95%
• Gulf Sondex FZCO, Dubai – 90%
Saudi Arabia
• Sondex Saudi Arabia
South Africa
• Danfoss (Pty) Ltd., Rivonia, Johannesburg
• Elsmark Investment Holdings (Pty) Limited,
Johannesburg – in liquidation
• Sondex South Africa Pty. Ltd., Edenvale, Gauteng
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
• Danfoss Power Solutions (US) Company,
Ames, Iowa
• Danfoss Power Solutions Inc., Ames, Iowa
• Hydro-Gear Inc., Sullivan, Illinois – 60%
• Hydro-Gear Limited Partnership,
Sullivan, Illinois – 60%
• K Products Company, Inc., Hopkinsville
• Polaris Plate Heat Exchangers, LLC.
• Propulsys, Inc., Hopkinsville
• Sondex Properties, Inc., Louisville, Kentucky
• Sondex, Inc., Louisville, Kentucky
• Tenacis, Inc., Hopkinsville
• Vacon LLC, Chambersburg, Pennsylvania
• White Hydraulics, Inc., Hopkinsville
• WH Manufacturing, Inc., Hopkinsville
• White Drive Products, Inc., Hopkinsville
LATIN AMERICA
Argentina
• Danfoss S.A., Buenos Aires
Brazil
• Danfoss do Brasil Indústria e Comércio Ltda.,
Osasco, São Paulo
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Annual Report 2016 The Danfoss Group
• Danfoss Power Solutions Ind. e. Com.
Electrohidraulica Ltda., Osasco, São Paulo
• Sondex Brasil Ltda., São Paulo
• Sondex ICP Latin America, Louveira, São Paulo
• Vacon America Latina Ltda., São Paulo – 97%
Chile
• Danfoss Industrias Ltda., Santiago
Colombia
• Danfoss S.A., Bogota
Mexico
• Danfoss S.A. de C.V., Monterrey
• Vaasa Control de Mexico S.A. de C.V., Mexico City
– in liquidation
Venezuela
• Danfoss S.A., Estado Carabobo, Valencia
ASIA-PACIFIC
Australia
• Danfoss (Australia) Pty. Ltd., Mulgrave Vic
• Danfoss Power Solutions Pty. Ltd.,
Huntingwood, NSW
• Sondex Australia Pty. Ltd., Rowville
• Sondex Engineering Pty. Ltd., Melbourne
• 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 Industries Limited, Hong Kong
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Group companies
• 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%
• K Products Company Ltd., Zhenjiang
• Sondex Heat Exchangers (Taicang) Co., Ltd.,
Taicang, Jiangsu
• Sondex Heat Exchangers (Ningbo) Co., Ltd.,
Ningbo, Zhejiang
• Tau Energy Holdings (HK) Limited, Hong Kong
• Vacon China Drives Co., Ltd., Suzhou
• White (China) Drive Products. Ltd., Zhenjiang
• Zheijang Holip Electronic Technology Co., Ltd.,
Haiyan
India
• Danfoss Industries Pvt. Ltd., Chennai
• Danfoss Power Solutions India Pvt. Ltd., Pune
• Sondex Heat Exchangers India Pvt. Ltd., Gujaret
• Vacon Drives & Control Pvt. Ltd., Chennai
Indonesia
• PT Danfoss Indonesia, Jakarta
• PT Sondex Indonesia, Tangerang
Iran
• Danfoss Pars Private Joint Stock Company
Japan
• Daikin-Sauer-Danfoss Ltd., Osaka – 45%
• Danfoss Power Solutions Ltd., Osaka
Malaysia
• Danfoss Industries Sdn Bhd, Shah Alam, Kuala
Lumpur
• Sondex Heat Exchangers Malaysia Sdn. Bhd.,
Selangor
Philippines
• Danfoss Inc., Makati City, Manila
Singapore
• Danfoss Industries Pte. Ltd., Singapore
• Danfoss Power Solutions Pte. Ltd., Singapore
• Sondex South East Asia Pte. Ltd., Singapore
South Korea
• Danfoss Ltd., Seoul
• Danfoss Power Solutions Ltd., Seoul
• Sondex Korea LLC, Gyeongsangnam-Do
Taiwan
• Danfoss Co. Ltd., New Taipei City
Thailand
• Danfoss (Thailand) Co. Ltd., Bangkok
New Zealand
• Danfoss (New Zealand) Ltd., Auckland
• Sondex NZ Ltd., Pukete Hamilton
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Parent
company
Accounts
and notes
Every skyscraper can
save more energy
U.S. Steel Tower paves the way towards
a future of energy efficient buildings
After several retrofit projects, the U.S. Steel Tower in
Pittsburgh, Penn., USA, has installed more than 150 Danfoss
VLT® Drives, which are producing more than $1.1 million
in documented energy savings and helping to give the
building a greener reputation.
www.danfoss.com > About > Engineering Tomorrow
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Annual Report 2016 The Danfoss Group Click to navigate
2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Management
report for
Danfoss A/S
(Part of Management review)
At the end of 2016, equity stood at DKK 20,662m (2015: DKK
18,692m). 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 2017 to be on a level with
the 2016 figures, and the company expects to report a profit
in 2017.
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 2,629 employees at the
end of 2016.
The profit before other operating income and expenses was
DKK 566m (2015: DKK 500m). The company’s operating profit
was DKK 506m (2015: DKK 393m).
Financial income and expenses amounted to a net income
of DKK 2,381m (2015: net income of DKK 7,961m). This was
mainly attributable to an increase in distributed dividends
from subsidiaries in 2015.
The profit after tax was DKK 2,723m (2015: DKK 8,340m).
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Annual Report 2016 The Danfoss Group
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
2015
7,799
-5,873
1,926
-293
-583
-550
500
-107
393
8,470
-509
8,354
-14
8,340
2016
8,355
-6,267
2,088
-288
-602
-632
566
-60
506
2,699
-318
2,887
-164
2,723
530
7,810
8,340
500
2,223
2,723
98/123
Annual Report 2016 The Danfoss Group
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
TOTAL COMPREHENSIVE INCOME
2015
8,340
2016
2,723
-5
1
-4
-19
14
1
-4
-8
6
-1
5
9
26
-8
27
32
8,332
2,755
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Annual Report 2016 The Danfoss Group
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
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Annual Report 2016 The Danfoss Group
e
t
o
N
5
6
7
10
2015
2016
813
968
1,320
1,572
23,686
23,686
25,779
25,779
25,819
28,319
612
655
232
425
8,741
1
149
134
9,682
273
694
9,201
1
19
102
10,290
10,294
10,945
36,113
39,264
Click to navigate
2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
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Annual Report 2016 The Danfoss Group
e
t
o
N
8
9
9
9
9
2015
2016
18,692
20,662
65
237
24
8,911
28
110
9,375
149
81
501
708
97
5,705
18
217
570
8,046
59
285
16
6,731
2
128
7,221
42
37
2,953
925
84
6,537
21
84
698
11,381
17,421
18,602
36,113
39,264
Click to navigate
2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Statement of cash flow
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
Proceeds from disposal of subsidiaries
Loans to subsidiaries
Acquisition (-)/sale of other investments, etc.
CASH FLOW FROM INVESTING ACTIVITIES
FREE CASH FLOW
Cash repayment of (-)/cash proceeds from interest-bearing debt
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
CASH AND CASH EQUIVALENTS AS OF DECEMBER 31
The cash flow statement cannot be derived on the basis of the Annual Report alone.
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Annual Report 2016 The Danfoss Group
e
t
o
N
11
10
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
2016
2,887
-2,279
-45
563
572
-229
2,139
3,045
5
3,050
-207
-448
3
-1,957
2
-588
-3,195
3,873
-145
-2,598
-470
-312
-493
-3,873
0
100
831
-268
-518
145
0
Click to navigate
2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Statement of changes in equity
DKKm
BALANCE AS OF JANUARY 1, 2015
1,023
463
-27
-501
l
a
t
i
p
a
c
e
r
a
h
S
i
m
u
m
e
r
p
e
r
a
h
S
i
g
n
g
d
e
H
s
e
v
r
e
s
e
r
n
w
o
e
v
r
e
s
e
R
s
e
r
a
h
s
t
n
e
m
p
o
l
e
v
e
d
r
o
f
e
v
r
e
s
e
R
d
e
z
i
l
a
t
i
p
a
c
s
t
c
e
j
o
r
p
Net profit
Fair value adjustment of hedging instruments
Actuarial gain/loss (-) on pension and healthcare plans
Tax on other comprehensive income
Total other comprehensive income
Total comprehensive income for the period
Dividends to shareholders
Capital increase/purchase of treasury shares
Total transactions with owners
BALANCE AS OF DECEMBER 31, 2015
Net profit
Software development costs
Fair value adjustment of hedging instruments
Actuarial gain/loss (-) on pension and healthcare plans
Tax on other comprehensive income
Total other comprehensive income
Total comprehensive income for the period
Dividends to shareholders
Capital increase/purchase of treasury shares
Capital reduction
Total transactions with owners
BALANCE AS OF DECEMBER 31, 2016
-5
1
-4
-4
-31
35
-8
27
27
-4
-364
-364
-865
-290
1,127
837
-28
1
1
1,024
52
52
515
23
-538
-515
-28
-28
996
103/123
Annual Report 2016 The Danfoss Group
s
e
v
r
e
s
e
r
r
e
h
t
O
9,706
7,810
-5
1
-4
7,806
7
7
17,519
2,223
-173
6
-1
5
s
e
v
r
e
s
e
R
9,178
7,810
-5
-5
2
-8
7,802
7
-364
-357
16,623
2,223
35
6
-9
32
173
173
2,055
2,255
12
-561
-549
12
-290
566
288
173
19,025
19,166
d
e
s
o
p
o
r
P
s
d
n
e
d
i
v
i
d
500
530
530
-500
-500
530
500
500
-530
y
t
i
u
q
e
l
a
t
o
T
11,164
8,340
-5
-5
2
-8
8,332
-493
-311
-804
18,692
2,723
35
6
-9
32
2,755
-518
-267
-530
500
-785
20,662
Click to navigate
2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
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Annual Report 2016 The Danfoss Group
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 1 Expenses and other operating income
DKKm
A. PERSONNEL EXPENSES
Salaries and wages
Severance payments
Social security
Pension cost - 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
Bonuses
Danfoss Leadership Team, excluding Executive Committee:
Salaries
Pension costs
Bonuses
Total compensation
Bonuses of total DKK 87m (2015: 69m) can be divided into long-term and short-term bonuses with DKK 39m and DKK 48m, respectively (2015: 31m and 38m, respectively).
Severance payments of DKK 4m are recognized in the income statement under other operating income and expenses (2015: 0m)
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Annual Report 2016 The Danfoss Group
2015
1,543
18
12
132
1,705
2,604
2,574
2016
1,740
21
12
132
1,905
2,604
2,629
2015
2016
6
6
30
10
59
99
14
1
10
25
6
6
30
11
74
115
15
2
13
30
130
151
Click to navigate
2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 1 Expenses and other operating income (continued)
DKKm
B. DEPRECIATION/AMORTIZATION AND IMPAIRMENT LOSSES
Classification by nature:
Amortization of intangible assets
Impairment of intangible assets
Depreciation of 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
2015
2016
67
9
76
184
260
42
14
11
9
76
52
52
199
251
29
14
9
52
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Annual Report 2016 The Danfoss Group
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 1 Expenses and other operating income (continued)
DKKm
C. OTHER OPERATING INCOME AND EXPENSES
Gain on disposal of property, plant and equipment
Other
Other operating income
Loss on disp. of property, plant and equipment
Impairment losses
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
2015
2016
31
1
32
-1
-9
-19
-110
-139
-107
12
12
-8
-21
-43
-72
-60
2015
2016
5
6
1
12
4
11
1
16
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Annual Report 2016 The Danfoss Group
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 2 Financial income
DKKm
Dividend from subsidiaries and associates/joint ventures
Interest from subsidiaries
Reversal of impairment/gain on disposal of subsidiaries and associates/joint ventures
Interest from banks, etc.
Reversal of impairment on loans
Gain on other investments
Interest on financial assets measured at amortized cost
Note 3 Financial expenses
DKKm
Interest to banks, etc.
Foreign exchange losses, net
Interest to subsidiaries
Impairment/loss on disposal of subsidiaries and associates/joint ventures
Impairment/loss on loans
Loss on other investments
Fair value adjustment of share options and warrants
Interest element on discounted liabilities
Interest on financial liabilities measured at amortized cost
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Annual Report 2016 The Danfoss Group
2015
8,153
266
1
48
2
8,470
314
2015
-184
-234
-39
-33
-11
-6
-2
-509
-225
2016
2,139
519
28
12
1
2,699
531
2016
-207
-56
-31
-12
-10
-2
-318
-240
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2016 at a glance Outlook 2017 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
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
2015
-100
16
70
-14
23.5%
0.1%
-22.9%
0.3%
-0.8%
0.2%
2015
-14
1
1
-12
2016
-142
-36
14
-164
22.0%
0.2%
-16.3%
0.3%
-0.5%
5.7%
2016
-164
-8
-1
-173
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Note 5 Intangible assets
DKKm
Cost as of January 1, 2015
Transfers
Additions
Disposals
Cost as of December 31, 2015
Amortization and impairment losses as of January 1, 2015
Transfers
Amortization
Impairments for the year
Disposals
Amortization and impairment losses as of December 31, 2015
Carrying amount as of December 31, 2015
Cost as of January 1, 2016
Additions
Disposals
Cost as of December 31, 2016
Amortization and impairment losses as of January 1, 2016
Amortization
Disposals
Amortization and impairment losses as of December 31, 2016
Carrying amount as of December 31, 2016
IMPAIRMENT TESTS
Goodwill
Software
Patents,
trademarks,etc.
Development
costs
462
462
462
462
462
462
496
10
191
-1
696
407
1
34
9
-1
450
246
696
207
-28
875
450
36
-28
458
417
312
-8
304
185
-1
16
200
104
304
-65
239
200
15
-65
150
89
147
147
129
17
146
1
147
-41
106
146
1
-41
106
Total
Other
955
2
191
-1
1,147
721
67
9
-1
796
351
1,147
207
-134
1,220
796
52
-134
714
506
TOTAL
1,417
2
191
-1
1,609
721
67
9
-1
796
813
1,609
207
-134
1,682
796
52
-134
714
968
Goodwill in Danfoss A/S of DKK 462m (2015: 462m) is mainly a consequence of Danfoss A/S having merged with other Danish subsidiaries, in particular the merger with DEVI A/S in 2010.
At the end of 2016, impairment tests have been performed on the carrying amount of goodwill (assets with indefinite useful lives). The impairment tests were perfomed 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 recovable amount lower than the carrying amount. The same conclusion was
made for 2015.
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Note 6 Property, plant and equipment
DKKm
Cost as of January 1, 2015
Transfers
Additions
Disposals
Cost as of December 31, 2015
Depreciation and impairment losses as of January 1, 2015
Depreciation
Disposals
Depreciation and impairment losses as of December 31, 2015
Carrying amount as of December 31, 2015
Cost as of January 1, 2016
Transfers
Additions
Disposals
Cost as of December 31, 2016
Depreciation and impairment losses as of January 1, 2016
Depreciation
Disposals
Depreciation and impairment losses as of December 31, 2016
Carrying amount as of December 31, 2016
Assets held under finance leases amounts to a total carrying amount of DKK 21m (2015: DKK 28m).
Land and
buildings
Plant and
machinery
Equipment
Assets under
construction
TOTAL
1,773
25
35
-1
1,832
1,130
46
1,176
656
1,832
20
45
-10
1,887
1,176
46
-3
1,219
668
2,181
37
29
-121
2,126
1,954
81
-115
1,920
206
2,126
46
44
-49
2,167
1,920
69
-45
1,944
223
619
3
19
-53
588
300
57
-53
304
284
588
26
27
-45
596
304
84
-45
343
253
111
-67
130
174
174
174
-92
346
428
428
4,684
-2
213
-175
4,720
3,384
184
-168
3,400
1,320
4,720
462
-104
5,078
3,400
199
-93
3,506
1,572
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Note 7 Investments
DKKm
Costs as of January 1
Foreign exchange adjustments, etc.
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
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
l
s
e
b
a
v
e
c
e
R
i
i
s
e
i
r
a
d
i
s
b
u
s
83
m
o
r
f
5,470
-21
5,532
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
2015
L
A
T
O
T
s
t
n
e
m
t
s
e
v
n
i
r
e
h
t
O
2,346
134
16,213
134
-104
2
8,769
-66
24,916
-1,244
2
64
-52
-102
-1,230
2,346
-48
4
-44
l
s
e
b
a
v
e
c
e
R
i
i
s
e
i
r
a
d
i
s
b
u
s
m
o
r
f
5,532
158
-30
5,660
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
16,904
2,102
-286
18,720
-1,084
51
-18
126
-925
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
2,346
2,346
-44
4
-2
-42
2016
L
A
T
O
T
24,916
158
2,102
-316
26,860
-1,230
-12
55
-20
126
-1,081
s
t
n
e
m
t
s
e
v
n
i
r
e
h
t
O
134
134
-102
-12
-114
Carrying amount as of December 31
15,820
5,532
2,302
32
23,686
17,795
5,660
2,304
20
25,779
Where possible, "Other investments" are recognized at fair value. Alternatively, they are recognized at cost less accumulated impairment losses.
At the end of 2016, 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 making
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 2015.
Additions for the year to "Investments in subsidiaries" is mainly the acquisition of Sondex Holding A/S. Disposal for the year of "Investments in subsidiaries" mainly relates to the closing of Danfoss Polypower A/S.
Impairment losses for the year on "Investments in subsidiaries" of DKK 18m mainly relates to Danfoss IXA A/S. The impairment losses are mainly due to the fact that the entities in question have been loss making.
Impairment losses/reversed impairment are reported as financial expenses/financial income.
Additions for 2015 to "Investments in subsidiaries" is mainly a capital injection in Danfoss International A/S (Denmark). Disposal for 2015 of "Investments in subsidiaries" relates to the closing of Danfoss Heat Pumps UK
Ltd. Disposal for 2015 of "Investments in subsidiaries" relates to the closing of Danfoss Heat Pumps UK Ltd.
Impairment losses for 2015 on "Investments in subsidiaries" of DKK 52m mainly relates to Danfoss District Heating S.R.L (Romania). The impairment losses are mainly due to the fact that the entities in question have
been loss making. Impairment losses/reversed impairment are reported as financial expenses/financial income.
Further information on subsidiaries, associates and joint ventures is provided in the Note 2 Financial income, Note 3 Financial expenses, Note 9 Financial risks and instruments, and Note 13 Related parties.
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Note 8 Deferred tax
DKKm
CHANGES IN DEFERRED TAXES
Deferred taxes as of January 1 (net) *)
Adjustments concerning previous years
Deferred tax recognized in the income statement
Deferred tax recognized in other comprehensive income
Deferred taxes as of December 31 (net) *)
*) Liability (-)
SPECIFICATION OF DEFERRED TAXES
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
2015
2016
-193
-60
16
-237
-237
-10
-36
-2
-285
2015
Deferred tax
asset
2016
Deferred tax
asset
21
109
130
-130
0
61
61
-61
0
Deferred tax
liability
Deferred tax
liability
46
89
11
148
73
367
-130
237
52
87
23
119
65
346
-61
285
Of the deferred tax liability of DKK 285m (2015: 237m), DKK 65m (2015: 73m) 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 41m (2015: 73m). The liabilities are not recognized, because Danfoss A/S decides on their utilization and it is likely that the liabilities
will not be recognized in the foreseeable future.
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Note 9 Financial risks and instruments
DKKm
FINANCIAL INSTRUMENTS
Below are relevant financial instrument specifications 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
Bank debt and corporate bond
Mortgage debt
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.
i
g
n
y
r
r
a
C
t
n
u
o
m
a
l
a
u
t
c
a
r
t
n
o
C
w
o
l
f
h
s
a
c
8,349
1,042
5,705
21
708
97
18
245
16,185
8,929
1,374
5,705
23
708
97
18
278
17,132
Maturity
)
*
s
r
a
e
y
5
-
1
3,497
99
13
51
3,660
r
a
e
y
1
-
0
592
25
5,705
10
708
97
18
227
7,382
2015
5
r
e
v
O
s
r
a
e
y
4,840
1,250
6,090
i
g
n
y
r
r
a
C
t
n
u
o
m
a
l
a
u
t
c
a
r
t
n
o
C
w
o
l
f
h
s
a
c
9,224
443
6,537
17
925
84
21
86
17,337
9,734
473
6,537
18
925
84
21
147
17,939
Maturity
)
*
s
r
a
e
y
5
-
1
1,914
10
9
38
1,971
r
a
e
y
1
-
0
3,064
2
6,537
9
925
84
21
109
10,751
2016
5
r
e
v
O
s
r
a
e
y
4,756
461
5,217
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 deri-
vative 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
2015
8,939
7,246
16,185
2016
6,733
10,604
17,337
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Note 9 Financial risks and instruments (continued)
DKKm
FINANCIAL INSTRUMENTS BY CATEGORY
Other investment
Financial assets measured at fair value in the income statement
Trade receivables
Trade receivables from subsidiaries
Short-term loans to subsidiaries
Other receivables
Loans and receivables
Interest-bearing debt
Debt 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 liabilites used as hedging instruments
Derivative financial instruments for financial hedging
Financial liabilities measured at fair value in the income statement
Carrying
amount
32
32
232
425
8,741
134
9,532
9,412
97
5,705
1,406
16,620
42
42
203
203
2015
Fair
value
32
32
232
425
8,741
134
9,532
9,462
97
5,705
1,406
16,670
42
42
203
203
Carrying
amount
20
20
273
694
9,201
102
10,270
9,684
84
6,537
1,772
18,077
7
7
79
79
2016
Fair
value
20
20
273
694
9,201
102
10,270
9,919
84
6,537
1,772
18,312
7
7
79
79
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 par value. 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
2015.
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d
e
t
o
u
Q
s
e
c
i
r
p
l
e
b
a
v
r
e
s
b
O
t
u
p
n
i
l
e
b
a
v
r
e
s
b
o
t
u
p
n
i
n
o
N
Level 1
Level 2
Level 3
2016
l
a
t
o
t
n
I
20
20
19
19
20
20
7
79
19
9,919
10,024
7
79
9,919
10,005
l
a
t
o
t
n
I
2015
32
32
42
203
25
9,462
9,732
Note 9 Financial risks and instruments (continued)
DKKm
FAIR VALUE HIERARCHY AS OF DECEMBER 31 FOR DANFOSS A/S
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
Contingent consideration
Interest-bearing debt
Total financial liabilities
d
e
t
o
u
Q
s
e
c
i
r
p
l
e
b
a
v
r
e
s
b
O
t
u
p
n
i
l
e
b
a
v
r
e
s
b
o
t
u
p
n
i
n
o
N
Level 1
Level 2
Level 3
32
32
25
25
42
203
9,462
9,707
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Note 9 Financial risks and instruments (continued)
DKKm
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE BASED ON LEVEL 3
Carrying amount as of January 1
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 DANFOSS A/S
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
t
c
a
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o
c
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a
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o
m
A
l
i
a
p
c
n
i
r
p
/
e
c
i
r
p
USD
EUR
Other currencies
Forward exchange contracts
Interest swaps
Derivatives end of year
-3,082
-3,064
-307
2,244
-192
-13
1
-204
-43
-247
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
r
a
e
y
1
n
a
h
t
s
s
e
l
e
u
D
-14
-14
s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D
-28
-28
2015
2016
Other investments
Level 3
32
-12
20
-12
2016
s
r
a
e
y
5
r
e
t
f
a
e
u
D
30
2
32
2
s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D
-4
-4
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
-39
1
-41
-79
-79
r
a
e
y
1
n
a
h
t
s
s
e
l
e
u
D
-3
-3
n
o
)
-
(
s
s
o
l
/
n
a
G
i
t
n
e
m
j
t
s
u
d
a
e
u
a
v
l
t
e
k
r
a
m
-39
1
-41
-79
-7
-86
2015
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
-1,544
-3,288
187
2,616
At the end of 2016, unrealized gain/loss(-) on derivatives hedging floating interest payments recognized in equity amounted to DKK -7m (2015: -42m).
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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
2015
2016
-30
-87
-130
100
-2
-149
149
-149
-149
5
-24
142
7
-19
19
-19
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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
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
2015
260
-30
-8,470
509
-3
-7,734
2016
251
7
-2,699
318
-156
-2,279
2015
637
28
1,064
2016
653
21
460
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 Israel 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
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2015
2016
12
29
49
27
20
13
42
42
35
39
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
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.
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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 Israel and North America, the outcomes of which are not yet known.
Note 12 Contingent liabilities, assets and security (continued)
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
DKKm
impact on Danfoss A/S' financial position beyond what has been recognized and stated in the Annual Report.
2015
637
28
1,064
2016
653
21
460
OPERATING LEASES (LEASE INCOME)
OPERATING LEASES (LEASE EXPENSES)
Operating lease payments fall due as follows:
Operating lease payments fall due as follows:
Buildings:
Less than 1 year
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.
More than 5 years
CONTRACTUAL OBLIGATIONS
Equipment, etc.:
Note 12 Contingent liabilities, assets and security (continued)
Less than 1 year
Service contract commitment other than leases
Between 1 and 5 years
Inventories
DKKm
Property, plant and equipment
Hereof commitments relating to succeeding year
OPERATING LEASES (LEASE INCOME)
Operating lease payments fall due as follows:
Less than 1 year
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
2015
2015
2016
2016
12
12
29
49
2015
27
211
20
258
31
406
2015
12
10
13
42
42
2016
35
441
39
208
54
493
2016
10
2015
2016
211
258
31
406
441
208
54
493
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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
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
2015
3
79
2016
4
103
2015
7,007
2,750
28
4
2016
7,670
2,969
12
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, 2016 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.
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Note 15 General accounting policies for Danfoss A/S
Danfoss A/S is a public limited company domiciled in Denmark. The Annual Report for the period January 1 to December 31, 2016, 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 2016 on March 2, 2017, and it will be presented for approval at the Annual General Meeting to be held on April 28, 2017.
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 indication of impairment, an impairment test is made. If the recoverable amount is lower than
cost, investments are writen down to this lower value. Impairments are recognized in Danfoss A/S’ 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.
RESERVE FOR CAPITALIZED DEVELOPMENT PROJECTS
Danfoss A/S has established a non-distributable reserve in equity regarding development projects capitalized in 2016 and later. This reserve will be reversed as the development projects have effect on the income state-
ments. The amount is presented net of deferred tax.
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 indication 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.
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Further information available
on Danfoss’ website: www.danfoss.com
Date of publication: March 2, 2017
Contact address:
Danfoss A/S
Nordborgvej 81
6430 Nordborg
Denmark
Tel.: +45 7488 2222
CVR no. 20165715 (registration number with the Danish Business Authority)
Email: danfoss@danfoss.com