Annual Report 2017
www.danfoss.com
Contents
Management’s review
Financial statements
Overview
2017 at a glance
Selected key events in 2017
Danfoss around the world
Outlook 2018
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
Group Executive Team
5
7
8
10
11
14
15
18
19
23
25
27
29
31
33
Management’s statement
Independent Auditor's Report
Group
Group accounts
Group notes
Definition of the financial ratios
Group companies
Parent
Management's review
Parent accounts and notes
35
36
41
47
87
89
93
94
Engineering
Tomorrow
2/117
Annual Report 2017 The Danfoss Group
Danfoss A/S
Nordborgvej 81
6430 Nordborg
Denmark
Tel.: +45 7488 2222
CVR no. 20165715
Email: danfoss@danfoss.com
Click to navigate
2017 at a glance Outlook 2018 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 2017 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 on February 22, 2018.
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 2017, which focuses on legally required
information and includes the financial results for the fiscal
year.
2. Sustainability Report 2017, 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 2017, 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.
Visit our website – danfoss.com – to learn more about
how Danfoss is helping to realize the vast potential for
better infrastructure, improved living standards, higher
energy efficiency and food supply for our growing world.
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:
www.facebook.com/danfoss
www.twitter.com/danfoss
www.youtube.com/danfossgroup
www.linkedin.com/company/danfoss
https://www.instagram.com/danfoss_group/
3/117
Annual Report 2017 The Danfoss Group
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Overview
4/117
Annual Report 2017 The Danfoss Group Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
2017 at a glance
Key figures
See the financial highlights on page 18
Sales DKKbn
43.3
Sales EURbn
5.8
Growth in local currency
EBIT margin
12%
11.1%
Employees worldwide
26,645
Patent families
1,399
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 off-highway machinery. We also operate in the field of
renewable energy, as well as district energy infrastructure for
cities and urban communities.
The Group is a technology provider, 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 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%
22%
37%
17%
32%
24%
24%
9%
27%
Western Europe
Eastern Europe
North America
Asia-Pacific
Latin America
Africa-Middle East
Danfoss Power Solutions
Danfoss Cooling
Danfoss Drives
Danfoss Heating
Read more about markets on pages 8 and 19
Read more about segments on pages 16 and 22
5/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
2017 at a glance
Key figures
Free cash flow before
M&A / DKKbn
3.3
Free cash flow before
M&A / EURm
445
Leverage ratio
40.9%
Net interest-bearing
debt to EBITDA ratio
1.2
See the financial highlights on page 18
Equity ratio
46.0%
Results in line with expectations
In 2017, the Danfoss Group delivered the highest sales growth
in local currency in six years, and we achieved strong results
in line with expectations after significant investments in
digitalization and growth initiatives.
During 2017, Danfoss harvested from our targeted efforts to
accelerate growth. In addition, we saw a pick-up in the market
in several countries and sectors. Sales increased 10% to DKK
43.3bn, corresponding to a local currency growth of 12%.
Earnings (EBIT) improved 13% to DKK 4.8bn, leading to an EBIT
margin of 11.1% and net profit of DKK 3.3bn, up 13% on last
year. The cash generation was kept high with a free cash flow
before M&A of DKK 3.3bn and a free cash flow of DKK 2.5bn.
The Group’s overall strong performance was driven by a
broadly-based momentum in all four business segments,
led by Danfoss Power Solutions that delivered a very strong
performance. All regions contributed with growth, but China
and North America stood out with a significant increase in sales.
See the financial review on page 19
Results compared to outlook
Results in 2017
Outlook for 2017
Sales increased 12% in local
currency, corresponding to sales
growth above market average.
Market share expected
to be maintained or
expanded
In 2017, the operating profit (EBIT)
reached DKK 4.8bn, corresponding
to an EBIT margin of 11.1% against
10.9% in 2016.
Profitability expected
to be at level with
2016
Sales and growth
Earnings
Sales DKKbn Sales growth in local currency
EBIT DKKbn EBIT margin
Innovation spend
R&D spend DKKbn % of sales
44
42
40
38
36
34
32
30
14%
12%
10%
8%
6%
4%
2%
0%
5.0
4.8
4.6
4.4
4.2
4.0
3.8
3.6
3.4
3.2
3.0
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
6/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Selected key events in 2017
05.19.17
Opening software
development hub
Danfoss opens another competence
center for developing software
solutions, which Danfoss will be using
for future connected products, cloud-
based solutions and applications. The
new hub is located in the science park,
Scion, at the Technical University of
Denmark (DTU).
07.03.17
Launching Danfoss City
To save energy, Danfoss solutions
find their way into our homes, offices,
supermarkets and elsewhere. To show
customers and society how Danfoss
products touch their lives, the website
city.danfoss.com is launched. Danfoss
City comprises four main themes –
Food Life, Work Life, Travel Life, and
Urban Life.
10.10.17
Producing power modules in NY
Danfoss Silicon Power welcomes the first employees
to its factory in Utica, New York, where silicon-
carbide (SiC) power modules will be produced. SiC
power modules can reduce the power consumption
in electric cars by 10%, the energy consumption
in data centers by 5%, and significantly lower the
weight of an airplane. The factory will be fully
operational by mid-2018 and is expected to create
hundreds of jobs in the coming years.
11.02.17
New world-class facilities in China
Danfoss opens a new Application
Development Center (ADC) for its Power
Solutions business and inaugurates
the first assembly line for the Cooling
technology, Turbocor®, in China. The two
new facilities represent the latest technology
development and help us meet the needs of
our customers in China and other countries
in the Asia-Pacific region.
01.17
02.17
03.17
04.17
05.17
06.17
07.17
08.17
09.17
10.17
11.17
12.17
06.01.17
Acquisition of software expert
Acquiring new technology and digital competencies
is an important part of our digital transformation,
and the acquisition of Prosa – with strong expertise
in IoT, smart equipment and user-interface design –
was yet another great step on that exciting journey.
Combining Prosa’s software competencies with
Danfoss’ application expertise will enable us to
provide more connected products and services to
our customers.
07.01.17
Management change
As of July 1, 2017, Kim
Fausing takes over as
President & CEO of Danfoss.
He will continue the Core
& Clear strategy, focusing
on profitable growth and
digitalization. Prior to this,
he served as COO in Danfoss
for nine years.
09.07.17
Acquisition of sensor technology
Danfoss continues to invest in growth
initiatives. In 2017, an example is the
acquisition of the Kavlico thin-film
technology used in sensors for higher
application temperature and pressure.
With this step, Danfoss focuses on specific
customer needs and strengthens the
portfolio with new technology.
11.01.17
Acquisition of electric solutions
Danfoss continues to invest in innovation to
enable further growth. In 2017, we acquired
Visedo, a world-leading expert in electric solutions
for the off-highway and marine markets. With
this step, Danfoss is responding to the growing
customer demand for electric solutions to
reduce emissions and pollution, and to increase
productivity. Electrification is a fast-developing
area and holds tremendous potential for Danfoss.
7/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Products sold in more than 100 countries around the world
Western Europe
23 factories
Sales companies in 17 countries
10,360 employees
37%
share of
Group sales
Eastern Europe
16 factories
Sales companies in 12 countries
4,769 employees
9%
share of
Group sales
North America
14 factories
Sales companies in 2 countries
3,957 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 systems. Germany is our
largest market in the region, but countries like Italy, France,
Denmark, and the United Kingdom are also among our top
markets in the region.
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 plans to
improve energy systems in Europe, including the Eastern
European countries.
The US is our largest country in terms of sales. We have a
strong position and presence in this mature market, where
many of Danfoss’ global key customers are located. Energy
efficiency in buildings, a changing refrigerant landscape and
reshoring together with infrastructure investments are major
trends in North America, representing a growth potential for
Danfoss.
Asia-Pacific
15 factories
Sales companies in 11 countries
5,911 employees
22%
share of
Group sales
Latin America
3 factories
Sales companies in 5 countries
1,367 employees
5%
share of
Group sales
Africa-Middle East
1 factory
Sales companies in 3 countries
281 employees
3%
share of
Group sales
China is our top market in the Asia-Pacific region. Countries
like India, Japan, and South Korea are also among our large
markets in the region, which is also a significant region in
terms of sourcing and production. The region holds significant
growth opportunities for Danfoss, especially within urban
district energy projects, build-up of the food chain and air-
conditioning markets as well as construction markets.
Brazil and Mexico are the two largest countries in terms of sales
in Latin America. In this region, Danfoss 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 and food chain.
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.
8/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Innovation around the world
The right technology can keep the world cool,
hot, and powered up with the least amount of
energy. Danfoss partners with customers and
universities to boost research, optimize solutions,
and help educate the skilled engineers of
tomorrow. Annual investments in innovation are
kept at a high level of 4% of sales, which is above
industry average.
Examples of Danfoss innovative solutions
23 R&D sites
65 university
partnerships
22 customer
test facilities
Innovative ideas are brought
to life at the many Danfoss
Research and Development
(R&D) sites.
Danfoss works closely with
universities, e.g. within
innovative research and
support to the education of
engineers and technicians.
New solutions are explored
and optimized for customer
applications in Application
Development Centers (ADC)
and test laboratories.
Danfoss awarded for its Turbocor® compressors
Smarter heating with Danfoss LinkTM
In 2017, Danfoss was awarded for its innovative Turbocor®
technology: Bronze Winner in the Edison Awards and an
Innovation Award at the China Refrigeration Expo. Danfoss
is the pioneer and leader of oil-free, magnetic bearing,
variable speed centrifugal compressors for high-efficiency
air-conditioning chillers. Because Turbocor® compressors
are frictionless, with no wearing parts, the compressors
maintain high performance over time, helping end-users to
lower maintenance costs and achieve significant energy-
savings compared with traditional systems.
Energy efficiency saves money, reduces air pollution,
strengthens competitiveness and delivers short payback
time on investments. Well-proven Danfoss technologies help
increase energy efficiency. For example, Danfoss LinkTM is
the easiest way to smart heating, saves up to 30% on home
heating costs, and enables people to control home heating
from anywhere – directly on a smartphone with the Danfoss
LinkTM app. Danfoss LinkTM is the only system that effortlessly
helps people control both electronic radiator thermostats
and floor heating.
Spearheading autonomous off-highway vehicles
In the future, the way of transporting goods and people will
eventually be without involvement from an operator.
Autonomous vehicles are also expected to take over most
off-road applications, which is why Danfoss has been on the
autonomous driving technology path for some time. In 2017,
DAVIS – Danfoss Autonomous Vehicle Integration System –
was introduced at the trade fair for agricultural machinery,
Agritechnica, in Germany. The early prototype introduction of
DAVIS provided valuable feedback and insights from customers
about their needs for autonomous driving systems of the
future, and how Danfoss can take the lead when developing
the autonomous driving technologies of tomorrow.
9/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Outlook 2018
In 2018, management expects top-line growth
above market level with a profitability on par
with 2017, while further fueling significant
investments in digitalization to drive growth and
long-term sustainable value creation.
Specific key factors, which could affect the Group’s financial performance in 2018:
In 2018, our key focus continues to be on ensuring profitable
growth. In 2017, we grew faster than most of the markets and
industries we operate in, and we expect this development to
continue in 2018.
• 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.
We expect to maintain a high level of investments in new
technologies and digitalization and at the same time maintain
the profitability measured as margin at the 2017 level.
• The strong cash flow performance is expected to
continue in 2018, enabling the financing of future
potential acquisitions and further investments in new
technology.
For the global industrial sector, the growth projections
have improved during 2017. In 2018, the improved global
economic environment is expected to continue at least
through the first half of the year, but with less visibility for
the second half of the year.
• The current global geopolitical environment is
characterized by somewhat continued uncertainty.
Accordingly, sudden changes in major markets could have
a negative impact on the Group’s performance.
•
Increasing prices on commodities, such as crops, metals and
oil, which are driving demand in the global agriculture, marine,
oil, gas and mining sectors, are associated with considerable
volatility, leading to low visibility as well as direct impact on
sourced materials.
• Fluctuations in foreign exchange rates may affect the top-
line growth.
2018 expectations
Based on the above, we expect to maintain or expand our
market share, while maintaining the profitability measured as
margin at the 2017 level, following significant investments in
digitalization.
Forward-looking statements
Read more about risks on page 27 and financial risks in Note 16, page 68
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.
10/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
term value creation. We are confident that our strategy, driven by
our engaged and capable teams around the world, will enable us
to continue to deliver profitable growth, while at the same time
ensuring even sharper focus on safety, quality, on-time delivery
and continuous improvements across our business to the benefit
of our customers.
On behalf of the Group Executive Team.
Kim Fausing
President & CEO
"In 2017, we recorded an increasing demand for our
technologies, which led to strong sales growth of 12% in
local currency – driven by high growth rates across our
four business segments and all regions with a significant
impact from North America and China."
A year of strong
profitable growth
In 2017, we continued our momentum,
delivering strong financial results, while
investing heavily in the future and making
significant progress in moving Danfoss forward
as a customer-focused technology leader.
Global megatrends are rapidly transforming the world. At
Danfoss, through our dedicated people, smart technologies
and deep application knowledge, we are seizing these
opportunities to offer solutions to our customers. Take
electrification. The transition from fossil to green energy will
make electricity the world’s most important energy carrier.
With electrification comes great opportunities to enhance the
flexibility, efficiency and environmental performance of almost
any application or system. One area where we already see the
impact of electrification is off-highway machinery. Here we
have seen customer demand grow and to further strengthen
our capabilities in this area, we acquired the world-leading
expert in electric solutions for the marine and off-highway
market, Visedo Oy, in November 2017.
Now, demographic changes such as a growing population and
urbanization are trends that challenge the world. By 2030, we
will be 8.6 billion people on the planet. That’s 1 billion more than
today. And as the population grows, urbanization is accelerating
with 50 million people moving to the world’s cities every year.
Accordingly, the need for new infrastructure for transportation,
water, power, heating, cooling, food and waste handling will be
massive, which again could potentially accelerate the pressure
on the global climate. Already today, our cities account for more
than 75% of the total global greenhouse gas emissions. However,
at Danfoss, knowing how energy efficiency can help us get
more from less, we are looking optimistically towards the future.
We are already offering many solutions – the answer is there. In
fact, the International Energy Agency estimates that compared
to renewables or fuel switching, energy efficiency is the most
important contributor to global greenhouse gas reductions.
So, a low-carbon world does not just depend on how much
clean energy we produce. When building the cities of tomorrow,
it starts with the construction machines and transportation
systems, which must be powered in the most energy efficient
way. And by using the best available technologies it is possible
to halve the energy consumption in our buildings. Also, our
energy systems must be able to connect electricity, heating and
cooling and integrate various energy sources, such as recovered
energy from, for instance, data centers or supermarkets. These
are a few examples of how energy-efficient technologies can
help the world move in the right direction to deliver on the
global action plan to keep global warming below 2°C, as set out
in the United Nations’ Paris Agreement.
Digitalization represents another major opportunity. Every day,
the digital transformation is picking up speed, and it is a catalyst
for long-term competitive advantage. We use digital technology
to create new business opportunities and better services,
and we leverage the transition towards more connected
and smarter systems to drive increased customer value. One
example from the past year is our prototype-introduction of
the Danfoss Autonomous Vehicle Integration System, DAVIS,
for off-highway machinery. With solutions like that in mind, we
are investing in growing our digital skills and acquiring new
capabilities – to make sure we remain an industry frontrunner.
And things really are moving forward. In 2017, we recorded an
increasing demand for our technologies, which led to strong
sales growth of 12% in local currency – driven by high growth
rates across our four business segments and all regions with a
significant impact from North America and China. Accordingly,
we continued our momentum and finished the year in a strong
financial position, having significantly lifted our earnings and
sustained a high cash generation – while at the same time
investing massively in the future. We, the Group Executive Team,
have focused on running Danfoss with discipline and have
maintained our commitment to generating sustainable, long-
11/117
Annual Report 2017 The Danfoss Group
Our business
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
The Danfoss business links to global trends,
which drive future growth opportunities
for Danfoss, and represent areas where we
contribute to sustainable global development.
Examples of how Danfoss’ technology and solutions are
creating value for our customers and 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 of waste, e.g. safe food
processing, storage, and transportation.
Global energy demand is rising as populations
grow 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
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.
13/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Business model
Our business model drives competitive
advantage through our core competencies
across the business segments: leading positions,
application knowledge, and innovation. Key
elements are an aligned approach across the
Group, our operational setup with extensive,
global coverage, and a strong regional presence.
Suppliers
Climate
Infrastructure
Application
knowledge
Close to customers
Innovation
Differentiate through
new technology
Customers
Competitive
advantage
Leading
positions
Exploit scale
Quality and reliability
Increased customer value through
top product quality and excellence
in on-time delivery – worldwide.
Energy
Food
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 sales and R&D teams
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.
The business model is made operational by the Core & Clear strategy, see page 15
14/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Strategy
Strategic focus areas
Our aspiration and promise to customers
reflect how we work and set the framework for
the Danfoss strategy, Core & Clear.
Core & Clear portfolio
Free & Agile
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 do strategic acquisitions to fuel our
growth regionally and add new technologies. In addition to
the core businesses, the focus is on a few new businesses
adjacent to the core, and on strong globalization of the
businesses.
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.
The Core & Clear strategy forms the foundation of all our
strategic activities and makes the business model operational.
Living the strategy and delivering on the strategic focus areas
is how we strive to meet our aspiration every day to drive
long-term sustainable results.
In short, Core means that we concentrate on our core
business and core competencies, where we create the most
value. Clear means that we focus on earning customer loyalty
through quality, reliability and innovation.
Customer & Innovation
Passion & Performance
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.
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.
“First of all, we want our employees to be safe. This is fundamental for being able to focus on
increased customer value through top product quality and excellence in on-time delivery. In
addition to this, we innovate to differentiate, and we develop and acquire new technologies
to drive strong differentiation. We provide the technologies that enable our customers to be
successful in their markets.”
We passionately push boundaries on results and
reputation by investing in a passionate and performance-
oriented work culture to deliver stronger financial results and
increased stakeholder value, and to be a great place to work.
Kim Fausing
President & CEO
15/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Business segments
Danfoss Power Solutions
Danfoss Cooling
Danfoss Drives
Danfoss Heating
6,815
employees worldwide
22
factories in 11 countries
More than 20 sales offices in
17 countries
6,396
employees worldwide
13
factories in 10 countries
4,652
employees worldwide
11
factories in 7 countries
5,339
employees worldwide
26
factories in 12 countries
More than 100 sales offices in
37 countries
More than 80 sales offices in
50 countries
More than 100 sales offices in
57 countries
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, electric and electronic
components optimized for total machine
management:
• Hydrostatic pumps and motors
• Electronic components and software
• Orbital motors
• Steering solutions
• Hydraulic and electro-hydraulic
proportional valves
• Electric motors, converters and storage
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
& 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.
16/117
Annual Report 2017 The Danfoss Group
Our performance
Click to navigate
2017 at a glance Outlook 2018 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
Financial highlights
PROFIT AND LOSS ACCOUNTS
PROFIT AND LOSS ACCOUNTS
PROFIT AND LOSS ACCOUNTS
PROFIT AND LOSS ACCOUNTS
Net sales
Net sales
PROFIT AND LOSS ACCOUNTS
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.
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 and impairment (EBITDA)
Operating profit before depreciation, amortization and impairment (EBITDA)
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 excl. other operating income and expenses, etc.
Operating profit excl. other operating income and expenses, etc.
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.
Share of profit from associates and joint ventures after tax
Share of profit from associates and joint ventures after tax
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
Operating profit (EBIT)
Operating profit (EBIT)
Share of profit from associates and joint ventures after tax
Operating profit (EBIT)
Operating profit (EBIT)
Financial items, net
Financial items, net
Operating profit (EBIT)
Financial items, net
Financial items, net
Net profit
Net profit
Financial items, net
Net profit
Net profit
Net profit
BALANCE SHEET
BALANCE SHEET
BALANCE SHEET
BALANCE SHEET
Total non-current assets
Total non-current assets
BALANCE SHEET
Total non-current assets
Total non-current assets
Total assets
Total assets
Total assets
Total assets
Total non-current assets
Total shareholders' equity
Total shareholders' equity
Total shareholders' equity
Total shareholders' equity
Total assets
Net interest-bearing debt
Net interest-bearing debt
Net interest-bearing debt
Net interest-bearing debt
Total shareholders' equity
Net assets
Net assets
Net assets
Net assets
Net interest-bearing debt
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 STATEMENT
Cash flow from investing activities
Cash flow from investing activities
Cash flow from investing activities
Cash flow from investing activities
Cash flow from operating 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
Cash flow from investing activities
Acquisition of subsidiaries and activities
Acquisition of subsidiaries and activities
Acquisition of subsidiaries and activities
Acquisition of intangible assets and property, plant and equipment
Acquisition of other investments, etc.
Acquisition of other investments, etc.
Acquisition of other investments, etc.
Acquisition of subsidiaries and activities
Free cash flow
Free cash flow
Free cash flow
Free cash flow
Acquisition of other investments, etc.
Free cash flow before M&A
Free cash flow before M&A
Free cash flow before M&A
Free cash flow before M&A
Free cash flow
Cash flow from financing activities
Cash flow from financing activities
Cash flow from financing activities
Cash flow from financing activities
Free cash flow before M&A
Cash flow from financing activities
FINANCIAL RATIOS
FINANCIAL RATIOS
FINANCIAL RATIOS
FINANCIAL RATIOS
Local currency growth (%)
Local currency growth (%)
Local currency growth (%)
Local currency growth (%)
FINANCIAL RATIOS
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. (%)
Local currency growth (%)
EBITDA margin (%)
EBITDA margin (%)
EBITDA margin (%)
EBITDA margin (%)
EBITDA 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, excl. other operating income, etc. (%)
EBITDA margin (%)
EBIT margin (%)
EBIT margin (%)
EBIT margin (%)
EBIT margin (%)
EBIT margin, excl. other operating income, etc. (%)
Return on invested capital (ROIC)
Return on invested capital (ROIC)
Return on invested capital (ROIC)
Return on invested capital (ROIC)
EBIT margin (%)
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 invested capital (ROIC)
Return on equity (%)
Return on equity (%)
Return on equity (%)
Return on equity (%)
Return on invested capital (ROIC) after tax
Equity ratio (%)
Equity ratio (%)
Equity ratio (%)
Equity ratio (%)
Return on equity (%)
Leverage ratio (%)
Leverage ratio (%)
Leverage ratio (%)
Leverage ratio (%)
Equity 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
Leverage ratio (%)
Dividend pay-out ratio (%)
Dividend pay-out ratio (%)
Dividend pay-out ratio (%)
Dividend pay-out ratio (%)
Net interest bearing debt to EBITDA ratio
Dividend per 100 DKK share
Dividend per 100 DKK share
Dividend per 100 DKK share
Dividend per 100 DKK share
Dividend pay-out ratio (%)
Dividend per 100 DKK share
Acquisition of intangible assets and property, plant and equipment
Acquisition of subsidiaries and activities
Acquisition of other investments, etc.
DKKm
DKKm
DKKm
DKKm
DKKm
2013
2013
2013
2013
2014
2014
2014
2014
2015
2015
2015
2015
2016
2016
2016
2016
EURm
EURm
EURm
EURm
EURm
2017
2017
2017
2017
2016
2016
2016
2016
2017
2017
2017
2017
2013
33,628
33,628
33,628
33,628
5,549
5,549
33,628
5,549
5,549
5,304
5,304
5,549
5,304
5,304
3,870
3,870
5,304
3,870
3,870
8
8
3,870
8
8
3,624
3,624
8
3,624
3,624
-369
-369
3,624
-369
-369
2,285
2,285
-369
2,285
2,285
2,285
2014
34,375
34,375
34,375
6,079
6,079
34,375
6,079
5,661
5,661
6,079
5,661
4,356
4,356
5,661
4,356
-187
-187
4,356
-187
3,925
3,925
-187
3,925
-449
-449
3,925
-449
2,290
2,290
-449
2,290
2,290
34,375
6,079
5,661
4,356
-187
3,925
-449
2,290
2015
38,031
38,031
38,031
38,031
6,148
6,148
38,031
6,148
6,148
6,021
6,021
6,148
6,021
6,021
4,235
4,235
6,021
4,235
4,235
67
67
4,235
67
67
4,097
4,097
67
4,097
4,097
-356
-356
4,097
-356
-356
2,597
2,597
-356
2,597
2,597
2,597
2016
39,247
39,247
39,247
39,247
6,240
6,240
39,247
6,240
6,240
6,076
6,076
6,240
6,076
6,076
4,388
4,388
6,076
4,388
4,388
32
32
4,388
32
32
4,262
4,262
32
4,262
4,262
-324
-324
4,262
-324
-324
2,935
2,935
-324
2,935
2,935
2,935
2017
43,342
43,342
43,342
43,342
6,868
6,868
43,342
6,868
6,868
6,570
6,570
6,868
6,570
6,570
5,094
5,094
6,570
5,094
5,094
13
13
5,094
13
13
4,797
4,797
13
4,797
4,797
-364
-364
4,797
-364
-364
3,308
3,308
-364
3,308
3,308
3,308
2016
5,271
5,271
5,271
5,271
838
838
5,271
838
838
816
816
838
816
816
589
589
816
589
589
4
4
589
4
4
572
572
4
572
572
-44
-44
572
-44
-44
394
394
-44
394
394
394
2017
5,827
5,827
5,827
5,827
923
923
5,827
923
923
883
883
923
883
883
685
685
883
685
685
2
2
685
2
2
645
645
2
645
645
-49
-49
645
-49
-49
445
445
-49
445
445
445
16,052
26,116
11,443
4,116
15,476
16,052
16,052
16,052
26,116
26,116
26,116
16,052
11,443
11,443
11,443
26,116
4,116
4,116
4,116
11,443
15,476
15,476
15,476
4,116
15,476
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
25,822
36,883
25,822
13,242
36,883
11,439
13,242
22,432
11,439
22,432
26,168
37,219
15,424
9,640
22,613
26,168
26,168
26,168
37,219
37,219
37,219
26,168
15,424
15,424
15,424
37,219
9,640
9,640
9,640
15,424
22,613
22,613
22,613
9,640
22,613
28,162
28,162
28,162
28,162
40,567
40,567
40,567
40,567
28,162
17,286
17,286
17,286
17,286
40,567
9,548
9,548
9,548
9,548
17,286
24,332
24,332
24,332
24,332
9,548
24,332
28,908
28,908
28,908
28,908
41,562
41,562
41,562
41,562
28,908
19,125
19,125
19,125
19,125
41,562
7,814
7,814
7,814
7,814
19,125
24,503
24,503
24,503
24,503
7,814
24,503
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
3,788
5,457
3,788
2,325
5,457
1,284
2,325
3,273
1,284
3,273
3,883
5,583
2,569
1,050
3,291
3,883
3,883
5,583
5,583
2,569
2,569
1,050
1,050
3,291
3,291
3,883
5,583
3,883
2,569
5,583
1,050
2,569
3,291
1,050
3,291
4,444
4,444
4,444
4,444
-917
-917
-917
-917
4,444
-1,004
-1,004
-1,004
-1,004
-917
0
0
0
0
-1,004
87
87
87
87
0
3,527
3,527
3,527
3,527
87
3,513
3,513
3,513
3,513
3,527
-3,623
-3,623
-3,623
-3,623
3,513
-3,623
4,351
4,351
4,351
4,351
-10,576
-10,576
-10,576
-10,576
4,351
-996
-996
-996
-996
-10,576
-7,377
-7,377
-7,377
-7,377
-996
-2,203
-2,203
-2,203
-2,203
-7,377
-6,225
-6,225
-6,225
-6,225
-2,203
3,389
3,389
3,389
3,389
-6,225
6,194
6,194
6,194
6,194
3,389
6,194
4,667
4,667
4,667
4,667
-1,619
-1,619
-1,619
-1,619
4,667
-1,176
-1,176
-1,176
-1,176
-1,619
-223
-223
-223
-223
-1,176
-220
-220
-220
-220
-223
3,048
3,048
3,048
3,048
-220
3,397
3,397
3,397
3,397
3,048
-3,416
-3,416
-3,416
-3,416
3,397
-3,416
5,161
5,161
5,161
5,161
-3,676
-3,676
-3,676
-3,676
5,161
-1,678
-1,678
-1,678
-1,678
-3,676
-1,872
-1,872
-1,872
-1,872
-1,678
-126
-126
-126
-126
-1,872
1,485
1,485
1,485
1,485
-126
3,416
3,416
3,416
3,416
1,485
-1,302
-1,302
-1,302
-1,302
3,416
-1,302
5,521
5,521
5,521
5,521
-3,014
-3,014
-3,014
-3,014
5,521
-2,092
-2,092
-2,092
-2,092
-3,014
-765
-765
-765
-765
-2,092
-157
-157
-157
-157
-765
2,507
2,507
2,507
2,507
-157
3,307
3,307
3,307
3,307
2,507
-2,777
-2,777
-2,777
-2,777
3,307
-2,777
1
1
1
1
16.5
16.5
16.5
16.5
1
15.8
15.8
15.8
15.8
16.5
11.5
11.5
11.5
11.5
15.8
10.8
10.8
10.8
10.8
11.5
22.2
22.2
22.2
22.2
10.8
15.9
15.9
15.9
15.9
22.2
18.2
18.2
18.2
18.2
15.9
43.8
43.8
43.8
43.8
18.2
36.0
36.0
36.0
36.0
43.8
0.8
0.8
0.8
0.8
36.0
35.0
35.0
35.0
35.0
0.8
78.3
78.3
78.3
78.3
35.0
78.3
3
3
3
3
17.7
17.7
17.7
17.7
3
16.5
16.5
16.5
16.5
17.7
12.7
12.7
12.7
12.7
16.5
11.4
11.4
11.4
11.4
12.7
19.4
19.4
19.4
19.4
11.4
13.2
13.2
13.2
13.2
19.4
18.4
18.4
18.4
18.4
13.2
35.9
35.9
35.9
35.9
18.4
86.4
86.4
86.4
86.4
35.9
2.0
2.0
2.0
2.0
86.4
21.8
21.8
21.8
21.8
2.0
48.9
48.9
48.9
48.9
21.8
48.9
2
2
2
2
16.2
16.2
16.2
16.2
2
15.8
15.8
15.8
15.8
16.2
11.1
11.1
11.1
11.1
15.8
10.8
10.8
10.8
10.8
11.1
16.3
16.3
16.3
16.3
10.8
11.4
11.4
11.4
11.4
16.3
17.6
17.6
17.6
17.6
11.4
41.4
41.4
41.4
41.4
17.6
62.5
62.5
62.5
62.5
41.4
1.6
1.6
1.6
1.6
62.5
20.4
20.4
20.4
20.4
1.6
51.8
51.8
51.8
51.8
20.4
51.8
4
4
4
4
15.9
15.9
15.9
15.9
4
15.5
15.5
15.5
15.5
15.9
11.2
11.2
11.2
11.2
15.5
10.9
10.9
10.9
10.9
11.2
16.3
16.3
16.3
16.3
10.9
12.0
12.0
12.0
12.0
16.3
17.2
17.2
17.2
17.2
12.0
42.6
42.6
42.6
42.6
17.2
55.2
55.2
55.2
55.2
42.6
1.6
1.6
1.6
1.6
55.2
17.0
17.0
17.0
17.0
1.6
50.2
50.2
50.2
50.2
17.0
50.2
12
12
12
12
15.8
15.8
15.8
15.8
12
15.2
15.2
15.2
15.2
15.8
11.8
11.8
11.8
11.8
15.2
11.1
11.1
11.1
11.1
11.8
17.8
17.8
17.8
17.8
11.1
13.0
13.0
13.0
13.0
17.8
17.3
17.3
17.3
17.3
13.0
46.0
46.0
46.0
46.0
17.3
40.9
40.9
40.9
40.9
46.0
1.2
1.2
1.2
1.2
40.9
18.1
18.1
18.1
18.1
1.2
60.2
60.2
60.2
60.2
18.1
60.2
693
693
693
693
-494
-494
-494
-494
693
-226
-226
-226
-226
-494
-251
-251
-251
-251
-226
-17
-17
-17
-17
-251
199
199
199
199
-17
459
459
459
459
199
-175
-175
-175
-175
459
-175
4
4
4
4
15.9
15.9
15.9
15.9
4
15.5
15.5
15.5
15.5
15.9
11.2
11.2
11.2
11.2
15.5
10.9
10.9
10.9
10.9
11.2
16.3
16.3
16.3
16.3
10.9
12.0
12.0
12.0
12.0
16.3
17.2
17.2
17.2
17.2
12.0
42.6
42.6
42.6
42.6
17.2
55.2
55.2
55.2
55.2
42.6
1.6
1.6
1.6
1.6
55.2
17.0
17.0
17.0
17.0
1.6
50.2
50.2
50.2
50.2
17.0
50.2
742
742
742
742
-405
-405
-405
-405
742
-281
-281
-281
-281
-405
-103
-103
-103
-103
-281
-21
-21
-21
-21
-103
337
337
337
337
-21
445
445
445
445
337
-373
-373
-373
-373
445
-373
12
12
12
12
15.8
15.8
15.8
15.8
12
15.2
15.2
15.2
15.2
15.8
11.8
11.8
11.8
11.8
15.2
11.1
11.1
11.1
11.1
11.8
17.8
17.8
17.8
17.8
11.1
13.0
13.0
13.0
13.0
17.8
17.3
17.3
17.3
17.3
13.0
46.0
46.0
46.0
46.0
17.3
40.9
40.9
40.9
40.9
46.0
1.2
1.2
1.2
1.2
40.9
18.1
18.1
18.1
18.1
1.2
60.2
60.2
60.2
60.2
18.1
60.2
18/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Financial review
In 2017, the Danfoss Group delivered the
highest sales growth in local currency in six
years, and we achieved strong results in line
with expectations after high investments in
digitalization and growth initiatives. Sales
increased to DKK 43,342m, corresponding to
12% growth in local currency, and earnings
(EBIT) improved 13% to DKK 4,797m,
leading to an EBIT margin of 11.1%. The cash
generation remained strong with a free cash
flow before M&A of DKK 3,307m.
Sales
Overall, 2017 was characterized by a strong growth in local
currency of 12% (2016: 4%). Net sales increased DKK 4,095m
to DKK 43,342m (2016: DKK 39,247m), up 10% on the previous
year, due to a currency effect of -2% impacting the top-line
growth measured in DKK.
The Group’s overall strong sales performance was driven
by a broadly-based momentum in all four business
segments. In particular, Danfoss Power Solutions delivered
a strong performance. To take market share, Danfoss is
driving targeted growth initiatives, e.g., new application
development centers and sales activities towards specific
vertical markets. Furthermore, full-year sales from the
acquisitions of Sondex and White Drive Products, which
were completed the previous year, contributed to lifting
the Group sales in 2017.
Development in key markets
In 2017, Danfoss’ strong growth was driven by a
significant increase in sales in China and North America,
but all regions contributed with growth. The Group
benefitted from its investments in growth initiatives.
Danfoss saw a market recovery in several countries
and sectors, but at the same time, the geopolitical
environment continued to hold some uncertainty. Some
markets saw improvement, due to increasing investment
levels, for example within construction and infrastructure
in China and North America. In China, demand for
Danfoss technologies was furthermore supported by a
strong political focus on energy efficiency and reduction
of carbon emissions (CO2).
segments with a high growth impact from Danfoss
Heating.
In North America, sales increased significantly on last year,
despite a mixed performance across business segments
and products. Danfoss Power Solutions and Danfoss
Drives showed double-digit growth rates, driven by their
own growth initiatives and a higher activity level within
construction and infrastructure.
In Asia-Pacific, the significant increase in sales was driven
by high double-digit growth rates in China, where all
business segments delivered a very strong performance.
In Western Europe, Danfoss saw growth across the
countries and business segments. Danfoss Power
Solutions and Danfoss Heating showed double-digit
growth rates, driven by their own growth initiatives and
the gradually building growth traction in the European
countries.
In Latin America, the increasing sales were mainly driven
by Brazil, where growth traction is building. Overall, the
region continues to be characterized by mixed market
conditions across countries and products. All business
segments saw growth in the region with high impact from
Danfoss Cooling and Danfoss Power Solutions.
In Eastern Europe, Danfoss saw a high growth impact
from Russia, where growth seemed to take hold. The
performance in Eastern Europe varied across the business
In Africa-Middle East, all the business segments delivered
a good performance. However, some markets in the region
were characterized by low visibility and uncertainty.
See Note 1, page 48, for more information on business and geographical segment reporting
19/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 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
50
45
40
35
30
25
20
15
10
5
0
20%
18%
16%
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%
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Earnings
Operating profit excluding other income and expenses
improved 16% to DKK 5,094m (2016: DKK 4,388m). Operating
profit (EBIT) improved 13% to DKK 4,797m (2016: DKK 4,262m),
due to the increased earnings in all segments, leading to an
EBIT margin of 11.1% (2016: 10.9%).
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 30 and Note 11, page 61.
Assets and liabilities
Total assets increased 2% to DKK 41,562m (2016: DKK
40,567m), as the net working capital declined, mainly due to
an increase in trade payables, which was partly offset by the
increase in inventories and receivables.
The positive development in earnings was driven by the
increased sales in combination with a disciplined cost
development despite increased spending on digitalization
and strategic growth initiatives.
Other operating income and expenses, net, was an expense
of DKK 310m (2016: expense of DKK 158m), mainly due to
restructuring costs related to continuous organizational
adjustments in several countries.
Profit before tax improved 13% to DKK 4,433m (2016: DKK
3,938m), leading to a net profit of DKK 3,308m (2016: DKK
2,935m), up 13% on last year. The net profit improvement was
mainly driven by the improved EBIT. The effective tax rate for
2017 was 25.4% (2016: 25.5%).
At December 31, 2017, the net interest-bearing debt was
DKK 7,814m (2016: DKK 9,548m), leading to a net interest-
bearing debt to EBITDA ratio of 1.2 (2016: 1.6). The acquisitions
completed in 2017 were financed by the strong operating
cash flow. Currently, Danfoss has a BBB credit rating assigned
by Standard & Poor’s with a stable outlook, see Note 11, page
61, for more information.
The non-current interest-bearing debt maturing after more
than 12 months amounted to DKK 7,617m (2016: DKK
6,980m), corresponding to 92% (2016: 68%) of the total
interest-bearing debt. At year end, the Group had unutilized
and long-term committed credit facilities of DKK 7.6bn (2016:
7.8bn) in addition to cash and cash equivalents and ordinary
operating credits.
At December 31, 2017, the equity increased 11% to DKK
19,125m (2016: DKK 17,286m), due to accumulated profits.
Consequently, the equity ratio, calculated as equity relative
to total assets, was 46.0% (2016: 42.6%), and the return on
equity was 17.3% (2016: 17.2%).
Cash flow
Cash performance for 2017 was driven by a strong cash
generation across the Group. Ensuring a strong cash
performance remains a key priority, and the result for the
year reflects our consistent efforts to manage our payables
and inventory as well as ensure timely payment for our
products, solutions and services, as the strong growth is
consuming more net working capital.
20/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Cash flow
Net working capital
Number of employees
Cash flow from operating activities DKKbn
Free cash flow before M&A DKKbn
Free cash flow DKKbn
Net working capital (NWC) DKKbn NWC % of sales
Headcount
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
8.0
6.0
4.0
2.0
0
20.0%
27,000
15.0%
10.0%
5.0%
26,000
25,000
24,000
23,000
22,000
21,000
0%
20,000
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Free cash flow amounted to DKK 2,507m (2016: DKK
1,485m). In 2016, the cash flow was impacted by the
completed acquisitions, leading to higher net investments
last year.
The cash flow before mergers and acquisitions was maintained
at a high level of DKK 3,307m (2016: DKK 3,416m), driven by
the strong cash flow from operations.
Cash flow from financing activities was DKK -2,777m (2016:
DKK -1,302m), due to a higher level of repayment of loans in
2017.
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-adding solutions in the business segments.
The acquisitions, below, support the innovation activities of
Danfoss, and in the long run, we expect to see many more
innovative solutions resulting from the acquisitions.
The research and development spend grew 6% to DKK 1,741m
(2016: DKK 1,645m), corresponding to 4.0% (2016: 4.2%) of sales.
On September 7, Danfoss acquired the Kavlico thin-film
technology, which is used in sensors for higher application
temperature and pressure. The acquisition enables a complete
Danfoss offering for heavy-duty pressure sensors to mobile
hydraulics and industrial engines.
During the year, Danfoss filed 105 (2016: 144) new patent
applications, and 340 (2016: 351) patents were granted to the
Group. At year end, Danfoss had a total of 1,399 (2016: 1,408)
patent families.
Acquisitions
On June 1, 2017, Danfoss acquired the Italy-based software
company Prosa, which has expertise in user-experience
design and speed in bringing new solutions to market within
connected cooling applications. With this step, Danfoss
will expand its offering through the development of new
connectivity solutions for applications along the cold chain
and further strengthen its position to deliver new innovative
products and services.
On November 1, 2017, Danfoss acquired Visedo Oy, a world-
leading expert in electric solutions for the marine and off-
highway market, based in Finland. With this step, Danfoss
enables access to electric solutions, which will further strengthen
the business and market position of Danfoss Power Solutions.
Employees
The Danfoss Group had 26,645 (2016: 25,292) employees at
year end. The increase is mainly due to the higher activity level.
Events occurring after the balance sheet date
We are not aware of any events after the balance sheet date of
December 31, 2017, which expectedly could have a material
impact on the Group’s financial position.
21/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Business segments review
See further financial information on the segments in Note 1, page 48
Danfoss Power Solutions
Danfoss Cooling
Danfoss Drives
Danfoss Heating
Financial results 2017 / DKKm
Financial results 2017 / DKKm
Financial results 2017 / DKKm
Financial results 2017 / DKKm
Sales
Growth in local currency
Reported growth
EBIT*
EBIT margin*
13,923
19%
17%
2,277
16.4%
Sales
Growth in local currency
Reported growth
EBIT*
EBIT margin*
11,885
7%
6%
1,882
15.8%
Sales
Growth in local currency
Reported growth
EBIT*
EBIT margin*
10,255
7%
6%
979
9.5%
Sales
Growth in local currency
Reported growth
EBIT*
EBIT margin*
7,259
15%
14%
848
11.7%
Danfoss Power Solutions delivered a very
strong performance with significant sales
growth and profitability well above last
year. Growth was driven by investment in
successful growth initiatives with market share
gains and a pick-up in the off-highway market,
in particular within global construction
and distribution. Danfoss Power Solutions
delivered growth across all regions with a high
impact from North America and China.
Danfoss Cooling delivered a strong
performance with sales above and
profitability slightly below last year’s level.
The performance varied across regions
and product categories, as some markets
are fast-growing and others characterized
by a low-growth environment. China had
a significant impact on growth, and the
Southern European countries as well as Brazil
also showed good growth.
Danfoss Drives continued the positive
development with sales and profitability ahead
of last year. The Danfoss Silicon Power business
contributed with double-digit growth. The
global drives market was characterized by
somewhat low growth, but Danfoss Drives
delivered growth in most regions, led by
strong growth in China. North America and the
Southern European countries also contributed
well to the increased sales.
Danfoss Heating delivered strong growth,
including a significant effect from the
acquisition of Sondex completed in 2016.
The profitability was stable compared with
last year, driven by a strong performance
within district energy and non-residential
heating. Sales increased in all regions with a
high impact from the Central and Northern
European countries as well as Russia.
* Segment EBIT excluding corporate costs not allocated to segments
22/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 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
Financial highlights, Quarterly
Financial highlights, Quarterly
Financial highlights, Quarterly
DKKm
DKKm
DKKm
DKKm
DKKm
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.
PROFIT AND LOSS ACCOUNTS
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)
Net sales
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 income and expenses, etc.
Operating profit before depreciation, amortization, impairment and other operating income and expenses, etc.
Operating profit excl. other income and expenses, etc.
Operating profit excl. other income and expenses, etc.
Operating profit excl. other income and expenses, etc.
Operating profit (EBIT)
Operating profit before depreciation, amortization and impairment (EBITDA)
Operating profit (EBIT)
Operating profit (EBIT)
Operating profit (EBIT)
Financial items
Operating profit excl. other income and expenses, etc.
Financial items
Financial items
Financial items
Profit before tax
Operating profit (EBIT)
Profit before tax
Profit before tax
Profit before tax
Net profit
Financial items
Net profit
Net profit
Net profit
Profit before tax
BALANCE SHEET
Net profit
BALANCE SHEET
BALANCE SHEET
BALANCE SHEET
Total non-current assets
Total non-current assets
Total non-current assets
Total non-current assets
Total assets
BALANCE SHEET
Total assets
Total assets
Total assets
Total shareholders’ equity
Total non-current assets
Total shareholders’ equity
Total shareholders’ equity
Total shareholders’ equity
Net interest-bearing debt
Total assets
Net interest-bearing debt
Net interest-bearing debt
Net interest-bearing debt
Net assets
Total shareholders’ equity
Net assets
Net assets
Net assets
Net interest-bearing debt
CASH FLOW STATEMENT
Net assets
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 STATEMENT
Cash flow from investing activities
Cash flow from investing activities
Cash flow from investing activities
Acquisition of intangible assets and property,plant and equipment
Cash flow from operating 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
Cash flow from investing activities
Acquisition of subsidiaries and activities
Acquisition of subsidiaries and activities
Acquisition of subsidiaries and activities
Acquisition of other investments, etc.
Acquisition of intangible assets and property,plant and equipment
Acquisition of other investments, etc.
Acquisition of other investments, etc.
Acquisition of other investments, etc.
Acquisition of subsidiaries and activities
Free Cash flow
Free Cash flow
Acquisition of other investments, etc.
Free cash flow before M&A
Free cash flow before M&A
Free Cash flow
Cash flow from financing activities
Cash flow from financing activities
Free cash flow before M&A
FINANCIAL RATIOS
Cash flow from financing activities
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. (%)
FINANCIAL RATIOS
EBITDA margin, excl. other operating income, etc. (%)
EBITDA margin, excl. other operating income, etc. (%)
EBITDA margin, excl. other operating income, etc. (%)
EBITDA margin (%)
Local currency growth (%)
EBITDA margin (%)
EBITDA margin (%)
EBITDA margin (%)
EBIT margin, excl. other operating income, etc. (%)
EBITDA 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 (%)
EBITDA margin (%)
EBIT margin (%)
EBIT margin (%)
EBIT margin (%)
Equity ratio (%)
EBIT margin, excl. other operating income, etc. (%)
Equity ratio (%)
Equity ratio (%)
Equity ratio (%)
Leverage ratio (%)
EBIT margin (%)
Leverage ratio (%)
Leverage ratio (%)
Leverage ratio (%)
Net interest-bearing debt to EBITDA ratio
Equity ratio (%)
Net interest-bearing debt to EBITDA ratio
Net interest-bearing debt to EBITDA ratio
Net interest-bearing debt to EBITDA ratio
Leverage ratio (%)
Number of employees
Net interest-bearing debt to EBITDA ratio
Number of employees
Number of employees
Number of employees
Free Cash flow
Free Cash flow
Free cash flow before M&A
Free cash flow before M&A
Cash flow from financing activities
Cash flow from financing activities
Q1 2016 Q2 2016 Q3 2016 Q4 2016
Q1 2016 Q2 2016 Q3 2016 Q4 2016
Q1 2016 Q2 2016 Q3 2016 Q4 2016
Q1 2016 Q2 2016 Q3 2016 Q4 2016
2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
2017
2017
2017
2017
See definition of the financial ratios in Note 26, page 87
Q1 2016 Q2 2016 Q3 2016 Q4 2016
10,123
10,123
10,123
10,123
1,377
1,377
1,377
1,377
1,279
10,123
1,279
1,279
1,279
885
1,377
885
885
885
800
1,279
800
800
800
-71
885
-71
-71
-71
729
800
729
729
729
685
-71
685
685
685
729
685
9,729
9,729
9,729
9,729
1,731
1,731
1,731
1,731
1,695
9,729
1,695
1,695
1,695
1,262
1,731
1,262
1,262
1,262
1,250
1,695
1,250
1,250
1,250
-71
1,262
-71
-71
-71
1,180
1,250
1,180
1,180
1,180
822
-71
822
822
822
1,180
822
9,423
9,423
9,423
9,423
1,435
1,435
1,435
1,435
1,422
9,423
1,422
1,422
1,422
984
1,435
984
984
984
971
1,422
971
971
971
-94
984
-94
-94
-94
877
971
877
877
877
616
-94
616
616
616
877
616
9,972
9,972
9,972
9,972
1,697
1,697
1,697
1,697
1,680
9,972
1,680
1,680
1,680
1,257
1,697
1,257
1,257
1,257
1,241
1,680
1,241
1,241
1,241
-88
1,257
-88
-88
-88
1,152
1,241
1,152
1,152
1,152
812
-88
812
812
812
1,152
812
2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
39,247
11,144
10,866
10,866
11,144
39,247
10,866
11,144
39,247
10,866
11,144
39,247
1,544
1,813
6,240
1,544
1,813
6,240
1,544
1,813
6,240
1,544
1,813
6,240
1,565
1,692
6,076
10,866
11,144
39,247
1,565
1,692
6,076
1,565
1,692
6,076
1,565
1,692
6,076
1,111
1,361
4,388
1,544
1,813
6,240
1,111
1,361
4,388
1,111
1,361
4,388
1,111
1,361
4,388
1,133
1,240
4,262
1,692
6,076
1,565
1,133
1,240
4,262
1,133
1,240
4,262
1,133
1,240
4,262
-78
-131
-324
1,111
1,361
4,388
-78
-131
-324
-78
-131
-324
-78
-131
-324
3,938
1,109
1,056
4,262
1,133
1,240
1,056
1,109
3,938
1,056
1,109
3,938
1,056
1,109
3,938
884
797
2,935
-78
-131
-324
884
797
2,935
884
797
2,935
884
797
2,935
1,056
1,109
3,938
884
797
2,935
10,650
10,650
10,650
10,650
1,937
1,937
1,937
1,937
1,814
10,650
1,814
1,814
1,814
1,510
1,937
1,510
1,510
1,510
1,388
1,814
1,388
1,388
1,388
-88
1,510
-88
-88
-88
1,299
1,388
1,299
1,299
1,299
936
-88
936
936
936
1,299
936
10,682
10,682
10,682
10,682
1,574
1,574
1,574
1,574
1,499
10,682
1,499
1,499
1,499
1,112
1,574
1,112
1,112
1,112
1,036
1,499
1,036
1,036
1,036
-67
1,112
-67
-67
-67
969
1,036
969
969
969
691
-67
691
691
691
969
691
25,560
25,560
25,560
25,560
37,568
37,568
37,568
37,568
15,880
25,560
15,880
15,880
15,880
9,301
37,568
9,301
9,301
9,301
22,733
15,880
22,733
22,733
22,733
9,301
22,733
439
439
439
439
-244
-244
-244
-244
-240
439
-240
-240
-240
0
-244
0
0
0
-5
-240
-5
-5
-5
195
0
195
195
195
195
-5
195
195
195
4
195
4
4
4
195
4
0
0
0
0
15.2
15.2
15.2
15.2
15.1
0
15.1
15.1
15.1
10.4
15.2
10.4
10.4
10.4
10.3
15.1
10.3
10.3
10.3
42.3
10.4
42.3
42.3
42.3
58.6
10.3
58.6
58.6
58.6
1.5
42.3
1.5
1.5
1.5
58.6
1.5
23,316
23,316
23,316
23,316
25,663
25,663
25,663
25,663
38,184
38,184
38,184
38,184
15,851
25,663
15,851
15,851
15,851
9,484
38,184
9,484
9,484
9,484
22,813
15,851
22,813
22,813
22,813
9,484
22,813
1,596
1,596
1,596
1,596
-643
-643
-643
-643
-588
1,596
-588
-588
-588
4
-643
4
4
4
-59
-588
-59
-59
-59
953
4
953
953
953
976
-59
976
976
976
-622
953
-622
-622
-622
976
-622
4
4
4
4
17.0
17.0
17.0
17.0
16.8
4
16.8
16.8
16.8
12.6
17.0
12.6
12.6
12.6
12.4
16.8
12.4
12.4
12.4
41.5
12.6
41.5
41.5
41.5
59.8
12.4
59.8
59.8
59.8
1.5
41.5
1.5
1.5
1.5
59.8
1.5
23,517
23,517
23,517
23,517
27,473
27,473
40,517
40,517
16,574
16,574
10,244
10,244
24,319
24,319
27,473
27,473
40,517
40,517
27,473
16,574
16,574
40,517
10,244
10,244
16,574
24,319
24,319
10,244
24,319
3,412
3,412
3,412
3,412
-2,889
-2,889
-2,889
-2,889
-949
3,412
-949
-949
-949
-1,868
-2,889
-1,868
-1,868
-1,868
-72
-949
-72
-72
-72
523
-1,868
523
523
523
2,428
-72
2,428
2,428
2,428
-239
523
-239
-239
-239
2,428
-239
4
4
4
4
17.8
17.8
17.8
17.8
17.4
4
17.4
17.4
17.4
13.0
17.8
13.0
13.0
13.0
12.9
17.4
12.9
12.9
12.9
40.9
13.0
40.9
40.9
40.9
61.8
12.9
61.8
61.8
61.8
1.6
40.9
1.6
1.6
1.6
61.8
1.6
25,234
25,234
25,234
25,234
28,162
28,162
28,162
28,162
40,567
40,567
40,567
40,567
17,286
28,162
17,286
17,286
17,286
9,548
40,567
9,548
9,548
9,548
24,332
17,286
24,332
24,332
24,332
9,548
24,332
5,161
5,161
5,161
5,161
-3,676
-3,676
-3,676
-3,676
-1,679
5,161
-1,679
-1,679
-1,679
-1,872
-3,676
-1,872
-1,872
-1,872
-126
-1,679
-126
-126
-126
1,485
-1,872
1,485
1,485
1,485
3,416
-126
3,416
3,416
3,416
-1,302
1,485
-1,302
-1,302
-1,302
3,416
-1,302
9
9
9
9
13.6
13.6
13.6
13.6
12.6
9
12.6
12.6
12.6
8.7
13.6
8.7
8.7
8.7
7.9
12.6
7.9
7.9
7.9
42.6
8.7
42.6
42.6
42.6
55.2
7.9
55.2
55.2
55.2
1.6
42.6
1.6
1.6
1.6
55.2
1.6
25,292
25,292
25,292
25,292
28,162
28,162
28,162
28,162
40,567
40,567
40,567
40,567
17,286
28,162
17,286
17,286
17,286
9,548
40,567
9,548
9,548
9,548
24,332
17,286
24,332
24,332
24,332
9,548
24,332
5,161
5,161
5,161
5,161
-3,676
-3,676
-3,676
-3,676
-1,679
5,161
-1,679
-1,679
-1,679
-1,872
-3,676
-1,872
-1,872
-1,872
-126
-1,679
-126
-126
-126
1,485
-1,872
1,485
1,485
1,485
3,416
-126
3,416
3,416
3,416
-1,302
1,485
-1,302
-1,302
-1,302
3,416
-1,302
4
4
4
4
15.9
15.9
15.9
15.9
15.5
4
15.5
15.5
15.5
11.2
15.9
11.2
11.2
11.2
10.9
15.5
10.9
10.9
10.9
42.6
11.2
42.6
42.6
42.6
55.2
10.9
55.2
55.2
55.2
1.6
42.6
1.6
1.6
1.6
55.2
1.6
25,292
25,292
25,292
25,292
28,203
28,203
28,203
28,203
42,210
42,210
42,210
42,210
18,023
28,203
18,023
18,023
18,023
9,340
42,210
9,340
9,340
9,340
24,901
18,023
24,901
24,901
24,901
9,340
24,901
528
528
528
528
-386
-386
-386
-386
-367
528
-367
-367
-367
-7
-386
-7
-7
-7
-12
-367
-12
-12
-12
143
-7
143
143
143
151
-12
151
151
151
-22
143
-22
-22
-22
151
-22
12
12
12
12
14.7
14.7
14.7
14.7
14.0
12
14.0
14.0
14.0
10.4
14.7
10.4
10.4
10.4
9.7
14.0
9.7
9.7
9.7
42.7
10.4
42.7
42.7
42.7
51.8
9.7
51.8
51.8
51.8
1.5
42.7
1.5
1.5
1.5
51.8
1.5
25,528
25,528
25,528
25,528
27,704
27,704
41,649
41,649
17,639
17,639
10,038
10,038
25,233
25,233
27,704
27,704
41,649
41,649
27,704
17,639
17,639
41,649
10,038
10,038
17,639
25,233
25,233
10,038
25,233
980
980
980
980
-834
-834
-834
-834
-698
980
-698
-698
-698
-83
-834
-83
-83
-83
-53
-698
-53
-53
-53
147
-83
147
147
147
240
-53
240
240
240
-205
147
-205
-205
-205
240
-205
11
11
11
11
16.3
16.3
16.3
16.3
15.2
11
15.2
15.2
15.2
12.2
16.3
12.2
12.2
12.2
11.1
15.2
11.1
11.1
11.1
42.4
12.2
42.4
42.4
42.4
56.9
11.1
56.9
56.9
56.9
1.6
42.4
1.6
1.6
1.6
56.9
1.6
25,828
25,828
25,828
25,828
27,506
27,506
27,506
27,506
41,348
41,348
41,348
41,348
18,356
27,506
18,356
18,356
18,356
8,714
41,348
8,714
8,714
8,714
24,603
18,356
24,603
24,603
24,603
8,714
24,603
2,686
2,686
2,686
2,686
-1,278
-1,278
-1,278
-1,278
-1,128
2,686
-1,128
-1,128
-1,128
-95
-1,278
-95
-95
-95
-55
-1,128
-55
-55
-55
1,407
-95
1,407
1,407
1,407
1,513
-55
1,513
1,513
1,513
-1,558
1,407
-1,558
-1,558
-1,558
1,513
-1,558
13
13
13
13
18.2
18.2
18.2
18.2
17.0
13
17.0
17.0
17.0
14.2
18.2
14.2
14.2
14.2
13.0
17.0
13.0
13.0
13.0
44.4
14.2
44.4
44.4
44.4
47.5
13.0
47.5
47.5
47.5
1.4
44.4
1.4
1.4
1.4
47.5
1.4
26,161
26,161
26,161
26,161
28,908
28,908
28,908
28,908
41,562
41,562
41,562
41,562
19,125
28,908
19,125
19,125
19,125
7,814
41,562
7,814
7,814
7,814
24,503
19,125
24,503
24,503
24,503
7,814
24,503
5,521
5,521
5,521
5,521
-3,014
-3,014
-3,014
-3,014
-2,092
5,521
-2,092
-2,092
-2,092
-765
-3,014
-765
-765
-765
-157
-2,092
-157
-157
-157
2,507
-765
2,507
2,507
2,507
3,307
-157
3,307
3,307
3,307
-2,777
2,507
-2,777
-2,777
-2,777
3,307
-2,777
12
12
12
12
14.2
14.2
14.2
14.2
14.4
12
14.4
14.4
14.4
10.2
14.2
10.2
10.2
10.2
10.4
14.4
10.4
10.4
10.4
46.0
10.2
46.0
46.0
46.0
40.9
10.4
40.9
40.9
40.9
1.2
46.0
1.2
1.2
1.2
40.9
1.2
26,645
26,645
26,645
26,645
2017
43,342
43,342
43,342
43,342
6,868
6,868
6,868
6,868
6,570
43,342
6,570
6,570
6,570
5,094
6,868
5,094
5,094
5,094
4,797
6,570
4,797
4,797
4,797
-364
5,094
-364
-364
-364
4,433
4,797
4,433
4,433
4,433
3,308
-364
3,308
3,308
3,308
4,433
3,308
28,908
28,908
28,908
28,908
41,562
41,562
41,562
41,562
19,125
28,908
19,125
19,125
19,125
7,814
41,562
7,814
7,814
7,814
24,503
19,125
24,503
24,503
24,503
7,814
24,503
5,521
5,521
5,521
5,521
-3,014
-3,014
-3,014
-3,014
-2,092
5,521
-2,092
-2,092
-2,092
-765
-3,014
-765
-765
-765
-157
-2,092
-157
-157
-157
2,507
-765
2,507
2,507
2,507
3,307
-157
3,307
3,307
3,307
-2,777
2,507
-2,777
-2,777
-2,777
3,307
-2,777
12
12
12
12
15.8
15.8
15.8
15.8
15.2
12
15.2
15.2
15.2
11.8
15.8
11.8
11.8
11.8
11.1
15.2
11.1
11.1
11.1
46.0
11.8
46.0
46.0
46.0
40.9
11.1
40.9
40.9
40.9
1.2
46.0
1.2
1.2
1.2
40.9
1.2
26,645
26,645
26,645
26,645
Key figures and financial ratios are calculated in accordance with ‘Recommendations & Financial Ratios 2015’ published by the Danish Finance Society, and supplemented by certain key ratios defined in Note 26.
Key figures and financial ratios are calculated in accordance with ‘Recommendations & Financial Ratios 2015’ published by the Danish Finance Society, and supplemented by certain key ratios defined in Note 26.
Number of employees
26,161
Key figures and financial ratios are calculated in accordance with ‘Recommendations & Financial Ratios 2015’ published by the Danish Finance Society, and supplemented by certain key ratios defined in Note 26.
Key figures and financial ratios are calculated in accordance with ‘Recommendations & Financial Ratios 2015’ published by the Danish Finance Society, and supplemented by certain key ratios defined in Note 26.
25,292
25,234
25,292
23,316
23,517
25,828
25,528
26,645
26,645
Key figures and financial ratios are calculated in accordance with ‘Recommendations & Financial Ratios 2015’ published by the Danish Finance Society, and supplemented by certain key ratios defined in Note 26.
23/117
Annual Report 2017 The Danfoss Group
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Governance
24/117
Annual Report 2017 The Danfoss Group Click to navigate
2017 at a glance Outlook 2018 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 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
2016
2017
Health and safety
2016
2017
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 other energy (ton)
CO2 intensity (kg CO2/DKKm)*
569
405
164
14.5
69
233,716
202,803
30,913
6.0
594
433
161
13.7
73
244,515
214,057
30,458
5.6
* Energy intensity: MWh consumed energy per DKKm net sale / Energy productivity: DKKm
net sale per GWh consumed energy / CO2 intensity: Ton CO2 emitted per DKKm net sale
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)
121
3.3
2,309
63
3.0
17.7
96.9
135
3.4
1,406
36
2.9
18.8
86.9
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.
Climate Strategy 2030
In 2015, we launched our “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 our energy
consumption.
Since 2007, Danfoss has reduced its energy intensity by 43%
through energy-saving projects in the 27 largest factories,
accounting for 84% of the total energy consumption.
More than 170 technical projects have been initiated – all
with a payback time of maximum three years. For example,
Danfoss drives are being installed to adjust the speed of fans
and pumps, heat pumps are being installed to recover the
heat from production halls, and a wide range of adjustment
valves, temperature sensors and pressure transmitters are
also in use to drive Danfoss’ own energy consumption down.
Business ethics and human rights
In 2017, we continued our efforts to ensure high ethical
standards and good business conduct by the new initiative
“Taking Ethics to the next level”. Combined with a review
of all cases from Danfoss’ Ethics Hotline and the Danfoss
advice function “AskUs”, a tailor-made ethics course has been
developed and more than 140 leaders in China have been
trained.
We have long monitored our impact on human rights and
mitigated where relevant. Danfoss is committed to living
up to the UN Guiding Principles for Human Rights. During
2017, our process for human rights due diligence has been
deployed in Danfoss China, Asia-Pacific and India. The due
diligence process is focused on integrating human rights
considerations to the organization and ensuring regional
ownership.
Engaged employees
One of our strategic targets is to maintain Danfoss as a great
place to work. In 2017, the global employee engagement
survey showed high engagement as well as a high level
of commitment and loyalty in the organization. Strong
teamwork, global career opportunities and continuous focus
on professional and personal development also contribute
to driving the high employee engagement.
Safety First!
“Safety First!” is our systematic approach to a safe
workplace, where focus is on clear and aligned procedures
and standards to ensure a safe and healthy workplace and
avoid accidents across all Danfoss sites. The global “Safety
at Danfoss” program enhances the focus on safety for all
Danfoss employees, visitors, and all other people working
within or for Danfoss. Safety shoes and safety glasses are
mandatory for anyone entering warehouses or the shop
floor in any of our factories worldwide and all other areas
where construction, repair and maintenance are performed.
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 3.4 in
2017 versus 3.3 the previous year. 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.
25/117
Annual Report 2017 The Danfoss Group
Click to navigate
In 2018, we will focus on reducing the LTIF by at least 10%
from the 2017 level, utilizing our new Global Incident
Management System and optimized root cause analysis.
Diversity
The target has been to increase the percentage of female
managers to 20% by 2017 from 18% in 2014. In 2017, the
percentage of female managers increased to 19%. We are still
aiming for the 20% ratio, but have to accept that it will take
more time to reach the target than was anticipated in 2014.
In 2018, the target will be reviewed as part of the work with
the updated sustainability program.
Danfoss aims at a gender composition in the Board of
Directors, which reflects that of the rest of the Group, and has
a target of having at least one female member of the Board
of Directors, who is elected at the Annual General Meeting
(AGM). Danfoss meets this target.
Prioritized Sustainable Development Goals
Goal
How we support this goal
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.
Through internal actions and by supporting local and global
initiatives and organizations, Danfoss is an active support to
the Sustainable Development Goals (SDGs).
If we are to achieve a low-carbon society, it requires action
from all of us. Danfoss is working with several global
organizations, e.g. the Sustainable Energy for All, to increase
focus on smart energy thinking, leading to lower energy
consumption and costs as well as lower greenhouse gas
emissions.
We continue to support the Global Compact, which together
with the SDGs is one of the governing principles in our
sustainability efforts.
Read more in the Sustainability Report 2017 at
www.danfoss.com > Sustainability > Sustainability reporting
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 and
smart 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 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 and waste.
Behaviors in Action
Earn Customer Loyalty
•
•
Establish trust & respect
Think customer in everything we do
Embrace Diversity
• Value differences
• Be inclusive
Go Beyond the Ordinary
• Push boundaries to innovate and
continously improve
Learn from successes as well as mistakes
•
How we work, think and treat the people
around us.
Honor Commitments
• Be entrusted to take ownership
• Deliver as promised
Lead by Example
•
• Role model the way
Show & encourage engagement
Think Danfoss
•
•
Take initiatives to leverage synergies
Support others in succeeding
26/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Risk
management
and compliance
This section provides an overview of the Danfoss
risk management and compliance activities, its
governance and identified Group risks.
To grow and stay profitable in increasingly complex business
environments, Danfoss must manage risks and opportunities
effectively. We take a systematic and holistic approach to
managing risk. Maintaining efficient risk management is a
cornerstone 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
CEO and CFO is responsible for our risk management, ensuring
that risk management policies and processes are effective at
all relevant levels. Responsibility for the actual performance of
risk management activities lies with the 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 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.
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
to ensure effective risk monitoring.
Risk communication
Takes place top-down and bottom-up in the organization so as 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 Committee, which
provides overall supervision of the risk management process and
monitors selected group risks as well as potential new risks.
Risk assessment
Risks are assessed according
to the company-wide risk
assessment guideline.
Risk treatment
Depending on the result
of the risk assessment and
the corresponding risk
acceptance level at Danfoss,
risks are either accepted,
avoided, mitigated, or
transferred.
27/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Specific risk areas
Risk area
Mitigation
Danfoss has developed a data
privacy handbook and data privacy
e-learning, which are ready for
implementation in 2018. Thus, a
framework for compliance with
the General Data Protection
Regulation is in place, so that the
focus for the upcoming months is
on the improvement of operational
processes.
Data privacy regulation
Data privacy concerns exist
wherever personal data is
collected and stored – digitally or
otherwise. They could arise from
inappropriate handling of sensitive
and ordinary personal data about
employees, customers, suppliers,
etc. The General Data Protection
Regulation will be enforced as of
May 25, 2018. Among other things,
the regulation will increase our
responsibility regarding how we
protect and process personal data.
One ERP project
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 serve our
customers digitally. The system is
the foundation to run the business
and enable growth.
As part of the One ERP project,
Danfoss has established a strong
project governance. A specific
project risk management function
identifies project risks, assesses
them, and prepares mitigation plans,
which are being implemented and
monitored regularly.
Disruption of IT Systems
A potential cyberattack could
disrupt our IT systems, which
would restrain the ability of a
Danfoss manufacturing site to
produce or deliver on time. This
might have a significant impact on
business operations and customer
satisfaction and consequently
damage Danfoss’ reputation.
Danfoss has completed various
activities to manage the risk of a
disruption of IT systems. Business
continuity and disaster- recovery
plans as well as back-up processes
and data centers are regularly
reviewed, tested and improved.
There is continuous monitoring
and learning about incidents
occurring outside Danfoss, triggering
the identification of potential
vulnerabilities at Danfoss, which
would need to be contained and
mitigated.
Risk overview
Like its industry peers, Danfoss is exposed to several risks.
While there is no single risk that would threaten the Group’s
existence, either at present or in the future, Danfoss is more
generally exposed to the following general and basic risks:
• Global market conditions and megatrends, including a
sustained stronger focus on energy-efficient and socially
sustainable solutions.
• Fair and equal access to markets.
• Geopolitical conflicts.
• Global economic growth.
• Developments in key markets.
• 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 Group Executive Team has defined three risk
areas, which – due to their nature – are currently of specific
importance to Danfoss. The three areas are described in the
overview to the left. The overview does not include financial
risks, which are described in Note 16, page 68.
Compliance
We want to stay compliant and act ethically with integrity. We
support a 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.
To walk the talk and minimize the risk of non-compliance, we
have developed and implemented compliance programs in
several areas.
Compliance programs
Compliance areas are addressed through compliance
programs, which consider the business environment that
Danfoss operates in, including industries, geography, and size.
These systemized programs contain clear ownership, policy
28/117
Annual Report 2017 The Danfoss Group
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 2017, a high focus continued to be on the data privacy
project, paving the way for compliance with the EU data privacy
regulation, when it comes into effect on May 25, 2018. Based on
its Binding Corporate Rules approved by the EU data protection
authorities, Danfoss has prepared a data privacy handbook,
developed trainings and completed other elements required by
the new legislation.
The export control compliance program was further
strengthened by including processes for product and
sanctioned party screening into the upcoming roll-in of One
ERP, our new common Enterprise Resource Planning (ERP/SAP)
system. An enhanced due diligence on business partners has
further lowered the risk of corruption.
Compliance hotlines
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 2017, it
provided answers to 47 (2016: 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 relating to internal standards and
legislation. The Ethics Hotline will also be used for data privacy
complaints. In 2017, a total number of 71 (2016: 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.
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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 determines how
the business is managed within this framework. The Group
structure supports management values and determines
a clear distribution of management responsibilities. 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 in Danfoss.
Management structure
Danfoss has a two-tier management system consisting of the
Board of Directors and the Group Executive Team, including
the CEO and CFO. The Board of Directors sets out the general
direction for the company by approving strategies and targets,
and the Group Executive Team develops and executes the
strategy and handles the day-to-day management.
The Board of Directors
The Danfoss Board consists of eight members elected at the
Annual General Meeting (AGM) and three employee-elected
members. The next employee election takes place in 2018,
where four representatives will be elected. The Board appoints
a Chairman and one or two Vice-Chairmen from among its
members.
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 AGM. Pursuant
to Danish legislation, employee representatives serve on the
Board for four years and may be re-elected.
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.
Audit Committee
The entire Board performs the function of the Audit
Committee. 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 2017.
Internal audit
Danfoss has an internal audit function to carry out
independent internal checks. The internal audit function
presents its conclusions directly to the Audit Committee or its
Chairman. The internal audit function provides independent
and objective audits to ensure:
• The Group has a comprehensive set of internal
management and control procedures and processes,
as well as segregation of duties and functions. This also
includes the Group’s IT systems.
• The Group follows good administrative practice.
The internal audit function visited several Group companies
in 2017. No matters of material importance to the Group’s
overall risk management and control environment were
detected.
29/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Shareholders with more than 5% of share capital
Shareholder
Shares Votes
The Bitten and Mads Clausen Foundation,
Nordborg, Denmark, and its subsidiaries
50.16% 86.12%
Clausen Controls A/S, Sønderborg, Denmark
26.26%
5.44%
Henrik Mads Clausen, Lake Forest, USA
11.04%
2.29%
Karin Clausen, Holte, Denmark
7.25%
1.50%
In November 2014, Danfoss filed a Euro Medium Term Program
on the Irish Stock Exchange, and consequently, Danfoss is a
class D company with listed bonds.
Danfoss has to comply with the rules set out in section 107b,
subsection 1, no. 6, of the Danish Financial Statements Act
applicable to companies with listed bonds, including the
exceptions regarding issuers of bonds above EUR 100,000.
Shareholders
Danfoss’ share capital amounts to DKK 997m and is divided
into two share classes: Class A shares accounting for DKK 425m
and Class B shares accounting for DKK 572m. A-shares entitle
holders to ten votes for every DKK 100 nominal value of shares
held. B-shares entitle holders to one vote for every DKK 100
nominal value of shares held.
Class A shareholders 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 99.86% of the votes.
See note 11, page 61, for more information.
At the end of 2017, Danfoss had approximately 2,700
registered shareholders. Approximately three in four
shareholders were resident in Denmark.
Share price development
The price of Danfoss shares is set once a year, based on a
valuation prepared by Danske Markets immediately before
the AGM held in April. The price was first set in 2001, when
Danfoss issued its first employee shares and was DKK 749
per share. The calculation of the share price is based on 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 2017, the price was set
at DKK 6,100 per share, and the new price will be announced
at the 2018 Danfoss AGM.
Dividends and General Meeting
The AGM will be held in Nordborg on April 20, 2018. The Board
of Directors will recommend that a dividend of 18.1% of the
Group’s net profit be paid for 2017, corresponding to DKK 60.2
per DKK 100 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 2017,
which is available at the corporate website www.danfoss.com.
30/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Board of
Directors
The presentations
include the Board
members, their
positions and
competencies as of
February 22, 2018.
The complete presentations
are available at
www.danfoss.com.
Jørgen M. 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
Per Falholt
Member of the Board of
Directors
Connie Hedegaard
Member of the Board of
Directors
Born: 1948
Position with Danfoss A/S:
• Chairman of the Board of
Born: 1959
Position: President & CEO of
Sandvik AB
Directors since 2009. Elected to
the Board of Directors in 1985.
Position with Danfoss A/S:
• Member of the Board of
Directors since 2010. Considered
independent board member
Born: 1976
Position: Vice President, Oil Free
Solutions, Danfoss Turbocor
Compressors, Inc.
Position with Danfoss A/S:
• Member of the Board of
Directors since 2014
Born: 1958
Position: Founder of Per Falholt
Global R&D Advisory Services A/S
Born: 1960
Position: Chairman of the Board of
KR Foundation and CONCITO
Position with Danfoss A/S:
• Member of the Board of
Position with Danfoss A/S:
• Member of the Board of
Directors since 2017. Considered
independent board member
Directors since 2016. Considered
independent board member
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 current positions:
• Chairman of the Board of
Applied Biomimetic A/S,
Denmark
• Member of the Board of Fonden
Universe Science Park, Denmark
• Member of the Board of
miniBOOSTER Hydraulics A/S,
Denmark
• Member of the Board of Blue
Equity Management A/S,
Denmark
• CEO in Geogaf ApS, Denmark
Decoration:
• Chamberlain 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
Special competencies:
• Master of Science in technology,
Special competencies:
• Master of Business
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
Administration, University of
Georgia, USA
• Bachelor of Science in
Engineering, University of
Southern Denmark
Other current positions:
• Member of the Board of
miniBOOSTER A/S, Denmark
• Member of the Board of
LineStream Technologies, Inc.
31/117
Annual Report 2017 The Danfoss Group
Special competencies:
• MSc in history and comparative
literature
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
• Member of the Board of Aarhus
University, Denmark
• Member of the Board of
NORDEX
• Member of Volkswagen’s
Sustainability Board
Special competencies:
• IMD (International Institute for
Management Development),
Special Project, Lecturer
• IMD, Business programs
• Novo Nordisk Executive
leadership program
• MSc Chemical Engineering,
Technical University of Denmark
(DTU)
Other current positions:
• Chairman of the Board of
Governors, DTU (Technical
University of Denmark)
• Member of Executive Board and
Vice Chairman in DHI, Denmark
• Board member in Cytovac A/S,
Denmark
• Chairman for ATV Science and
Engineering project, Denmark
• Scientific Consultant, Corbion,
the Netherlands
• Programme Manager, LIFE-
project, Novo Nordisk Foundation
• Chairman of the Board of
Directors, Universe Science Park,
Denmark
• Chairman of the Board of
Directors, Medical Cannabis
Association Denmark
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Jürgen Reinert
Member of the Board of
Directors
Jörg Stratmann
Member of the Board of
Directors
Born: 1968
Position: CTO (Chief Technology
Officer) and COO (Chief
Operations Officer), SMA
Technology AG
Position with Danfoss A/S:
• Member of the Board of
Directors since 2015. Considered
independent board member
Special competencies:
• Doctorate in Electrical
Engineering, Aachen University
of Technology, Germany
• Master of Science in
Engineering, University of
Pretoria, South Africa
• Bachelor of Science in
Engineering, University of
Pretoria, South Africa
Other current positions:
• Member of the Board of
Kraftelektronik AB, Sweden
Born: 1969
Position: Board member and
General Manager, MAHLE Group
Position with Danfoss A/S:
• Member of the Board of
Directors since 2017. Considered
independent board member
Special competencies:
• PhD thesis, Technical University
Berlin, Germany
• Mechanical Engineering
and Economics
(Wirtschaftsingenieurwesen),
Technical University Berlin,
Germany
Other current positions:
• Member of the Management
Board of MAHLE Group and
Head of Business Unit Thermal
Systems
• Chairman of the Management
Board, MAHLE Behr Group
Sandra Nørgaard
Bertelsen
Member of the Board of
Directors
Born: 1982
Position: HR Director, HR
Operations NER, Danfoss A/S,
Denmark
Position with Danfoss A/S:
• Employee-elected member
of the 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
Jens Peter Rosendahl
Nielsen
Member of the Board of
Directors
Born: 1963
Position: Senior Shop Steward at
Danfoss, Nordborg, Denmark
Born: 1957
Position: Senior Shop Steward at
Danfoss, Kolding, Denmark
Position with Danfoss A/S:
• Employee-elected member
of the Board of Directors since
2014
Position with Danfoss A/S:
• Employee-elected member
of the Board of Directors since
2006
Special competencies:
• Electrician
Other current positions:
• Member of the Board of Danfoss
Employee Foundation, Denmark
• Member of the Board of Danish
El Federal in South Jutland,
Denmark
Special competencies:
• Machinist
• Cooperation courses and
experience from other board
memberships
Other current positions:
• Chairman of the Board of the
Danfoss Employee Foundation,
Denmark
• Member of the Board of Metal
Kolding and LO-Kolding,
Denmark
William Ervin Hoover Jr.
Member of the Board of
Directors and Chairman of the
Audit Committee
Born: 1949
Position: Director
Position with Danfoss A/S:
• Member of the Board of
Directors since 2007. Considered
independent board member
• Professional experience with
supply chain, performance
transformation, organization
changes, and mergers and
acquisitions
Special competencies:
• Master of Business
Administration, Harvard
University
Other current positions:
• Chairman of the Board of
ReD Associates Holding A/S,
Denmark
• Deputy Chairman of the Board
of GN Store Nord A/S (Great
Nordic), Denmark
• Member of the Board of Lego
Foundation, Denmark
• Member of the Board of
Specialist People Foundation
• Member of the Board of
Neopost A/S
32/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Group
Executive Team
The presentations include the members of the
top management team as of February 22, 2018.
The complete presentations are available at www.danfoss.com.
Kim Fausing
President & CEO
Jesper V. Christensen
Executive Vice President
& CFO
Eric Alström
Segment President,
Danfoss Power Solutions
Jürgen Fischer
Segment President,
Danfoss Cooling
Vesa Laisi
Segment President,
Danfoss Drives
Lars Tveen
Segment President,
Danfoss Heating
Born: 1964
Employed with Danfoss since 2007
Registered officer with the Danish
Business Authority since 2008
Born: 1969
Employed with Danfoss since 1993
Registered officer with the Danish
Business Authority since 2013
Board activities:
• Deputy Chairman in SMA Solar
Technology AG, Germany
• Board member in Hilti AG,
Liechtenstein
Board activities:
• Board member in Danish
Crown A/S, Denmark
• Board member in the
Confederation of Danish
Industries, Denmark
• Board member in The
Manufacturing Industry,
Denmark
Born: 1966
Employed with Danfoss since 2012
Born: 1963
Employed with Danfoss since 2008
Born: 1957
Employed with Danfoss since 2014
Born: 1963
Employed with Danfoss since 1989
Board activities:
• Deputy Chairman in Hempel
A/S, Denmark
Board activities:
• Member of the Steering Board
of the European Partnership for
Energy and the Environment,
EPEE
Board activities:
• Board Chairman in the
ProjectZero Foundation,
Denmark
• Board member in The Energy
Industry, Denmark
• Board member in The Danish
Energy Agency, EUDP, Denmark
• Board member in Green Energy
Denmark
• Board member in SKAKO A/S,
Denmark
33/117
Annual Report 2017 The Danfoss Group
Statements
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Management’s
statement
The Board of Directors and the CEO and CFO have today
considered and adopted the Annual Report of Danfoss A/S for
the financial year January 1 – December 31, 2017.
We recommend that the Annual Report be adopted at the
Annual General Meeting.
Board of Directors
Jørgen M. Clausen, Chairman
Björn Klas Otto Rosengren
Mads-Peter Clausen
Per Falholt
Connie Hedegaard
The Annual Report has been prepared 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 financial position at December 31, 2017, of the Group
and the Parent Company and of the results of the Group and
Parent Company operations and cash flows for 2017.
In our opinion, Management’s Review includes a true and fair
account of the development in the operations and financial
circumstances of the Group and the Parent Company, of the
results for the year and of the financial position of the Group
and the Parent Company as well as a description of the most
significant risks and elements of uncertainty facing the Group
and the Parent Company.
Nordborg, February 22, 2018
William Erwin Hoover Jr.
CEO and CFO
Jürgen Reinert
Jörg Stratmann
Sandra Nørgaard Bertelsen
Kim Fausing
Lars Grau
Jesper V. Christensen
Jens Peter Rosendahl Nielsen
35/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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, 2017 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, 2017 in
accordance with International Financial Reporting Standards
as adopted by the EU and further requirements in the Danish
Financial Statements Act.
Our opinion is consistent with our Auditor's Long-form
Report to the Audit Committee and the Board of Directors.
What we have audited
The Consolidated Financial Statements and Parent Company
Financial Statements of Danfoss A/S for the financial year
January 1 to December 31, 2017, pp 41-91 and 94-116
comprise income statement, statement of comprehensive
income, statement of financial position, statement of cash
flows, statement of changes in equity and notes, including
summary of significant accounting policies for the Group as
well as for the Parent Company. Collectively referred to as the
“Financial Statements”.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs) and the 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.
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
additional requirements applicable in Denmark. We have also
fulfilled our other ethical responsibilities in accordance with
the IESBA Code.
To the best of our knowledge and belief, prohibited non-
audit services referred to in Article 5(1) of Regulation (EU) No
537/2014 were not provided.
Appointment
We were first appointed auditors of Danfoss A/S on April 25,
2014 for the financial year 2014. We have been reappointed
annually by shareholder resolution for a total period of
uninterrupted engagement of 4 years including the financial
year 2017.
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 2017. 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.
36/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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.
We evaluated the Group’s model for valuation of
deferred tax assets including the forecast used to
estimate the expected future taxable income.
Key audit matter
How our audit addressed
the key audit matter
Key audit matter
Uncertain tax positions
Intangible assets and acquisitions of businesses
In 2017, the Group acquired the Visedo group.
Further, the purchase price allocations relating to
prior year acquisitions have been finalised during
2017.
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 Group’s strategy.
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;
•
long term growth rates; and
• discount rates applied in discounting future
cash flows.
Refer to Note 7, 20 and 27 in the Consolidated
Financial Statements.
We audited the purchase price allocation for
the acquisition of the Visedo group and the
reassessments of purchase price allocations
relating to prior year acquisitions. Our procedures
included assessment of valuation models and key
assumptions applied by Management.
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 and 17 and 27 in the
Consolidated Financial Statements.
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.
Furthermore, we assessed the appropriateness of
disclosures in the Financial Statements.
37/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Statement on Management’s Review
Management is responsible for Management’s Review, pp
5-33 and 93.
Our opinion on the Financial Statements does not cover
Management’s Review, and we do not express any form of
assurance conclusion 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 Consolidated
Financial Statements and the Parent Company 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 responsibilities 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 the 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 the 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
attention in our Auditor’s Report to the related disclosures
in the Financial Statements or, if such disclosures are
38/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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 those charged with governance
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 those charged with governance 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 those charged with
governance, 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, February 22, 2018
PricewaterhouseCoopers
Statsautoriseret Revisionspartnerselskab
CVR no 3377 1231
Mogens Nørgaard Mogensen
State Authorised Public Accountant
mne21404
Claus Lindholm Jacobsen
State Authorised Public Accountant
mne23328
39/117
Annual Report 2017 The Danfoss Group
Group accounts
and notes
Click to navigate
2017 at a glance Outlook 2018 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
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
4
5
6
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
2017
43,342
-28,169
15,173
-1,741
-6,342
-1,996
5,094
-310
13
4,797
20
-384
4,433
-1,125
3,308
3,005
303
3,308
41/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 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 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 Cost of Sales 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
2016
2,935
-25
-3
-28
-112
16
-21
27
-4
-94
-122
2,813
2,536
277
2,813
2017
3,308
126
-97
29
-467
9
133
-9
-29
-363
-334
2,974
2,748
226
2,974
42/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 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
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
43/117
Annual Report 2017 The Danfoss Group
e
t
o
N
7
8
3
15
14
9
10
17
16
16
2016
2017
17,195
17,652
7,521
2,503
108
25
810
3,446
7,924
2,435
164
60
673
3,332
28,162
28,908
4,707
6,033
334
1
821
7,189
509
4,913
6,419
123
73
907
7,522
219
12,405
12,654
40,567
41,562
Click to navigate
2017 at a glance Outlook 2018 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
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
44/117
Annual Report 2017 The Danfoss Group
e
t
o
N
11
12
14
15
16
16
12
13
16
17
16
2016
2017
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
18,279
847
19,125
788
1,750
1,016
7,617
351
11,522
323
688
5,775
27
402
8
3,692
10,915
23,281
22,437
40,567
41,562
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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 of other investments, etc.
Acquisition of other investments, etc.
CASH FLOW FROM INVESTING ACTIVITIES
CASH FLOW FROM INVESTING ACTIVITIES
FREE CASH FLOW
FREE CASH FLOW
Cash repayment of interest-bearing debt
Cash repayment of interest-bearing debt
Cash proceeds from interest-bearing debt
Cash proceeds from interest-bearing debt
Repurchase of treasury shares
Repurchase of treasury shares
Disposal of minority interests
Disposal of minority interests
Addition of minority interests
Addition 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
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 definition of Free cash flow before M&A
The cash flow statement cannot be derived on the basis of the Annual Report alone. The definition of Free cash flow before M&A
is available under financial ratios in Note 26, page 87
is available under financial ratios in Note 26, page 87
45/117
Annual Report 2017 The Danfoss Group
e
t
o
e
N
t
o
N
18
18
19
19
17
17
20
20
20
20
21
21
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
-4,132
-4,132
3,842
3,842
-268
-268
-61
-61
7
7
-518
-518
-172
-172
-1,302
-1,302
183
183
319
319
7
7
509
509
3,416
3,416
2017
2017
4,433
4,433
2,042
2,042
470
470
6,945
6,945
1
1
-335
-335
22
22
6,633
6,633
-1,112
-1,112
5,521
5,521
-479
-479
-1,790
-1,790
177
177
-773
-773
8
8
-157
-157
-3,014
-3,014
2,507
2,507
-6,078
-6,078
4,430
4,430
-404
-404
-13
-13
3
3
-499
-499
-216
-216
-2,777
-2,777
-270
-270
509
509
-20
-20
219
219
3,307
3,307
Click to navigate
2017 at a glance Outlook 2018 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, 2016
BALANCE AS OF JANUARY 1, 2016
Net profit
Net profit
Foreign exchange adjustments of foreign companies
Foreign exchange adjustments of foreign companies
Fair value adjustment of hedging instruments
Fair value adjustment of hedging instruments
Actuarial gain/loss (-) on pension and healthcare plans
Actuarial gain/loss (-) on pension and healthcare plans
Tax on other comprehensive income
Tax on other comprehensive income
Total other comprehensive income
Total other comprehensive income
Total comprehensive income for the period
Total comprehensive income for the period
Dividends to shareholders
Dividends to shareholders
Purchase of minority interests
Purchase of minority interests
Additions through acquisition of subsidiaries
Additions through acquisition of subsidiaries
Purchase of treasury shares
Purchase of treasury shares
Capital increase
Capital increase
Capital reduction
Capital reduction
Total transactions with owners
Total transactions with owners
BALANCE AS OF DECEMBER 31, 2016
BALANCE AS OF DECEMBER 31, 2016
Net profit
Net profit
Foreign exchange adjustments of foreign companies
Foreign exchange adjustments of foreign companies
Fair value adjustment of hedging instruments
Fair value adjustment of hedging instruments
Actuarial gain/loss (-) on pension and healthcare plans
Actuarial gain/loss (-) on pension and healthcare plans
Tax on other comprehensive income
Tax on other comprehensive income
Total other comprehensive income
Total other comprehensive income
Total comprehensive income for the period
Total comprehensive income for the period
Dividends to shareholders
Dividends to shareholders
Purchase of minority interests
Purchase of minority interests
Purchase of treasury shares
Purchase of treasury shares
Capital increase
Capital increase
Total transactions with owners
Total transactions with owners
BALANCE AS OF DECEMBER 31, 2017
BALANCE AS OF DECEMBER 31, 2017
l
a
e
t
r
l
i
a
a
p
e
h
t
a
r
i
S
a
c
p
h
a
1,024
S
c
1,024
i
m
u
m
m
u
e
i
m
r
p
e
r
515
p
515
e
r
a
e
h
r
S
a
h
S
i
g
n
g
g
n
d
i
g
e
H
d
e
H
s
e
v
s
r
e
e
v
s
r
e
e
r
s
e
-49
r
-49
23
23
-538
-538
-515
-515
-28
-28
-28
-28
996
996
6
6
-1
-1
5
5
5
5
-44
-44
124
124
-27
-27
97
97
97
97
y
c
n
y
e
c
r
n
r
e
u
r
C
r
u
C
n
o
n
i
t
o
a
i
l
t
s
a
n
l
a
s
r
n
t
a
657
r
t
657
-126
-126
16
16
-3
-3
-113
-113
-113
-113
544
544
-390
-390
9
9
-2
-2
-383
-383
-383
-383
1
1
1
1
997
997
76
76
76
76
76
76
53
53
160
160
46/117
Annual Report 2017 The Danfoss Group
s
e
r
s
a
e
h
r
s
a
h
n
s
w
n
o
w
-865
o
-865
e
v
r
e
e
v
s
r
e
e
R
s
e
R
-267
-267
-23
-23
1,127
1,127
837
837
-28
-28
-402
-402
-77
-77
-479
-479
-507
-507
2,172
2,172
s
e
v
s
r
e
e
v
s
r
e
e
r
s
e
r
-25
-25
-3
-3
-28
-28
2,144
2,144
12
12
-19
-19
s
e
v
s
r
r
e
e
e
v
h
s
r
r
e
t
e
e
O
R
h
s
e
t
12,888 12,631
O
R
12,888 12,631
2,172
2,172
-126
-126
22
22
-25
-25
-7
-7
-136
-136
2,036
2,036
12
12
-19
-19
-267
-267
566
566
269
269
14,464 14,936
14,464 14,936
2,405
2,405
-390
-390
133
133
126
126
-126
-126
-257
-257
2,148
2,148
1
1
-402
-402
-77
-77
-478
-478
16,900 16,606
16,900 16,606
126
126
-97
-97
29
29
2,434
2,434
1
1
-561
-561
-568
-568
2,405
2,405
1
1
d
e
s
d
o
e
p
s
o
o
p
r
P
o
r
P
s
d
n
s
d
e
d
n
i
e
v
d
i
d
i
v
530
i
d
530
500
500
500
500
-530
-530
-530
-530
500
500
600
600
600
600
-500
-500
-500
-500
600
600
,
y
t
i
,
y
u
t
q
i
u
E
q
E
i
i
S
/
s
A
r
S
e
/
s
s
d
A
r
s
l
e
o
o
s
d
f
s
h
n
l
o
o
e
a
f
r
h
D
n
a
e
a
h
n
r
D
s
a
h
14,700
n
s
14,700
2,672
2,672
-126
-126
22
22
-25
-25
-7
-7
-136
-136
2,536
2,536
-518
-518
-19
-19
-267
-267
-804
-804
16,432
16,432
3,005
3,005
-390
-390
133
133
126
126
-126
-126
-257
-257
2,748
2,748
-499
-499
-402
-402
-901
-901
18,279
18,279
y
t
i
y
r
o
t
i
n
r
o
i
M
n
M
i
i
t
s
e
t
r
s
e
e
t
r
n
e
i
t
724
n
724
263
263
14
14
14
14
277
277
-171
-171
-70
-70
87
87
7
7
-147
-147
854
854
303
303
-77
-77
-77
-77
226
226
-216
-216
-21
-21
3
3
-234
-234
846
846
y
t
l
a
i
y
u
t
t
l
q
o
a
i
u
T
e
t
q
o
15,424
T
e
15,424
2,935
2,935
-112
-112
22
22
-25
-25
-7
-7
-122
-122
2,813
2,813
-689
-689
-89
-89
87
87
-267
-267
7
7
-951
-951
17,286
17,286
3,308
3,308
-467
-467
133
133
126
126
-126
-126
-334
-334
2,974
2,974
-715
-715
-21
-21
-402
-402
3
3
-1,135
-1,135
19,125
19,125
Click to navigate
2017 at a glance Outlook 2018 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 Change in liabilities arising from financing activities
Note 23 Contingent liabilities, assets and security
Note 24 Related parties
Note 25 Events after the balance sheet date
Note 26 Basis for preparation and accounting policies
Note 27 Critical accounting estimates
47/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 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
For further information on the business segments see page 16.
GEOGRAPHICAL SEGMENTS
r
e
w
o
P
s
s
o
f
n
a
D
s
n
o
i
t
u
o
S
l
g
n
i
l
o
o
C
s
s
o
f
n
a
D
696
11,948 11,194
206
-23
1,828
1,683
s
e
v
i
r
D
s
s
o
f
n
a
D
9,619
422
51
825
1,683
1,828
825
8,536
373
1,430
6,317 12,930
223
17
1,318
272
42
1,296
2016
s
a
e
r
a
r
e
h
t
O
P
U
O
R
G
g
n
i
t
a
e
H
s
s
o
f
n
a
D
r
e
w
o
P
s
s
o
f
n
a
D
s
n
o
i
t
u
o
S
l
g
n
i
l
o
o
C
s
s
o
f
n
a
D
s
e
v
i
r
D
s
s
o
f
n
a
D
g
n
i
t
a
e
H
s
s
o
f
n
a
D
2017
s
a
e
r
a
r
e
h
t
O
P
U
O
R
G
6,336
137
150 39,247
1,814
353
32
4
4,262
-782
-324
-324
3,938
708 -1,106
708
661
13,923 11,837 10,206
376
14
979
192
-3
1,882
2,277
2,277
1,882
979
6,007
155
6,777 40,567
1,678
59
683 18,553 23,281
655
9,408
511
1,927
6,399 12,824
208
345
25
1,540
1,415
7,220
178
156 43,342
1,772
365
14
3
4,797
848 -1,189
-364
-364
4,433
848 -1,553
7,001 41,562
5,930
2,092
868
160
11
35
-1
857 16,698 22,437
6,404
6,025
4,653
5,146
3,064 25,292
6,815
6,396
4,652
5,339
3,443 26,645
e
p
o
r
u
E
n
r
e
t
s
e
W
e
p
o
r
u
E
n
r
e
t
s
a
E
k
r
a
m
n
e
D
a
c
i
r
e
m
A
h
t
r
o
N
a
c
i
r
e
m
A
n
i
t
a
L
c
i
f
i
c
a
P
a
i
s
A
2016
P
U
O
R
G
e
p
o
r
u
E
n
r
e
t
s
e
W
e
p
o
r
u
E
n
r
e
t
s
a
E
k
r
a
m
n
e
D
a
c
i
r
e
m
A
h
t
r
o
N
a
c
i
r
e
m
A
n
i
t
a
L
c
i
f
i
c
a
P
a
i
s
A
2017
P
U
O
R
G
t
s
a
E
e
d
d
M
l
i
-
a
c
i
r
f
A
t
s
a
E
e
d
d
M
l
i
-
a
c
i
r
f
A
Net sales
Total non-current assets **)
Sales in North America mainly relates to the USA.
1,420 13,793
3,366
8,246
9,349
1,850
1,223 39,247
1,597 14,640
3,688
9,722 10,314
2,034
1,347 43,342
4,780 13,417
800
1,886
6,209
120
140 27,352
5,193 14,546
920
2,121
5,196
120
139 28,235
*) 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.
48/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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.
49/117
Annual Report 2017 The Danfoss Group
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
2017
20
-384
-1,085
-104
-1,553
2017
1,015
724
4,620
577
65
7,001
2017
10,457
3,974
1,016
1,192
60
16,698
Click to navigate
2017 at a glance Outlook 2018 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
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.
Remuneration to the Group Executive Team and the Board of Directors:
Salaries
Pension costs
Bonuses
Severance payments
Group Executive Team
Board of Directors' fee
Total
Total remuneration for registered and former registered members of the Group Executive Team amounts to DKK190m (2016:115m)
Due to change of management structure the remuneration reflects the Group Executive Team from 2017. For further information see Corporate Governance/Management-section.
In 2017 total remuneration for 4 former members (2016: 1) of Group Executive Team is included in salaries, pensions, bonuses and severance payments.
2016
9,087
107
732
583
33
10,542
24,034
25,292
2017
9,824
236
815
605
28
11,508
25,934
26,645
2016
2017
52
16
101
4
173
6
179
58
22
104
66
250
6
256
50/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 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
Depreciation of property, plant and equipment
Depreciation/amortization and impairment losses
Classification of amortization/impairment of intangible assets by functions:
Cost of sales
Selling and distribution costs
Administrative expenses
C. OTHER OPERATING INCOME AND EXPENSES
Gain on disposal of activities
Gain on disposal of intangible assets
Gain on disposal of property, plant and equipment
Government grants
Reversal of restructuring costs
Other
Other operating income
Loss on disp. of intangible fixed assets
Loss on disp. 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 Denmark, Germany and France.
D. FEES TO AUDITORS APPOINTED AT THE ANNUAL GENERAL MEETING
Audit fee
Tax and VAT advice
Other fees
Total fee to Group Auditor
2016
658
1,156
1,814
403
226
29
658
2017
658
1,114
1,772
410
223
25
658
2016
2017
-1
18
22
6
22
67
-1
-28
-113
-83
-225
-158
3
8
36
3
47
97
-1
-11
-239
-156
-407
-310
2016
2017
20
13
3
36
20
3
6
29
Fees for other services than statutory audit of the financial statements provided by PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab (PricewaterhouseCoopers Denmark) amounted to DKK 5m (2016:11m).
Other services than statutory audit of the financial statements comprise services relating to transfer pricing, tax audits, due diligence and agreed-upon procedures, as well as accounting advices.
51/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 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
Disposals
Cost as of December 31
Adjustments as of January 1
Foreign exchange adjustments in foreign companies
Net profit/value adjustment
Dividends
Disposal / Transfer
Adjustments as of December 31
Carrying amount as of December 31
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
Investments in
associates and
joint ventures
Other
investments
2,602
29
2,631
-119
2
13
-21
-93
-210
2,421
135
1
-1
135
-115
-6
-121
14
2017
TOTAL
2,737
1
29
-1
2,766
-234
2
7
-21
-93
-331
2,435
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 2017, 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 2016.
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 24 Related parties.
52/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
Net income
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, 2017, was DKK 9.4bn (2016: 6.5bn).
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
For further information on associates and joint ventures, please see the list of "Group companies".
Associates
Joint Ventures
-4
-4
24
-20
-1
-21
161
Associates
Joint Ventures
911
1,387
24
2,322
161
161
2016
TOTAL
-24
-1
-25
185
2016
TOTAL
911
1,387
185
2,483
Associates
Joint Ventures
-4
-1
-5
10
-1
-1
-2
95
Associates
Joint Ventures
927
1,389
10
2,326
95
95
53/117
Annual Report 2017 The Danfoss Group
SMA Solar Technology AG
2016
Germany
20%
2017
Germany
20%
6,999
484
220
3,328
5,636
2,166
2,344
4,454
911
5
6,620
335
223
2,873
6,293
2,047
2,596
4,523
927
13
2017
TOTAL
-5
-2
-7
105
2017
TOTAL
927
1,389
105
2,421
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 4 Financial income
DKKm
Interest from banks, etc.
Calculated expected return on defined benefit plan assets
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
Borrowing costs recognized in the cost of assets
Interest on financial liabilities measured at amortized cost
2016
2017
25
4
29
25
16
4
20
16
2016
2017
-293
-2
-33
-1
-12
-12
-353
-295
-309
-1
-26
-31
-17
-6
6
-384
-310
54/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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%
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
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
2017
-1,345
242
-22
-1,125
22.0%
3.8%
-2.4%
-3.7%
-0.1%
-0.3%
5.6%
0.5%
25.4%
2017
-1,125
-29
-97
-1,251
The enactment of US tax reform as of December 22, 2017, has impacted the total taxes. Effect of change in corporate tax rate is impacted by an income from adjusting deferred tax assets and liabilities and Other taxes are
impacted by an expense from transition tax.
55/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 7 Intangible assets
DKKm
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
Internally
developed
software
1,489
11
1
-17
222
-25
1,681
1,076
11
-6
91
-22
1,150
Goodwill
11,699
27
1,092
12,818
1,168
15
1,183
Brand
Technology
Customer
relations
Patents,
trademarks and
other rights
Development
costs
Total
Other
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
Cost as of January 1, 2017
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Transfers
Additions
Disposals
Cost as of December 31, 2017
Amortization and impairment losses as of January 1, 2017
Foreign exchange adjustments in foreign companies
Transfers
Amortization
Disposals
Amortization and impairment losses as of December 31, 2017
12,818
-416
734
13,136
1,183
-74
1,109
1,681
-57
-275
469
-35
1,783
1,150
-50
-152
83
-35
996
1,161
-73
1,088
36
20
4,799
-241
261
4,819
2,314
-161
310
2,887
-153
66
2,800
1,577
-112
214
56
2,463
1,679
327
-2
277
129
-16
715
263
153
11
-15
412
530
-20
2
512
485
-18
-1
20
486
Carrying amount as of December 31, 2017
12,027
787
1,032
2,356
1,121
303
26
Additions/disposals through acquisitions/sales of subsidiaries are further described in Note 20 Acquisition and sale of subsidiaries and activities.
56/117
Annual Report 2017 The Danfoss Group
10,748
110
432
237
-142
11,385
5,233
73
658
-139
5,825
5,560
11,385
-546
329
2
598
-51
11,717
5,825
-341
658
-50
6,092
5,625
TOTAL
22,447
137
1,524
237
-142
24,203
6,401
88
658
-139
7,008
17,195
24,203
-962
1,063
2
598
-51
24,853
7,008
-415
658
-50
7,201
17,652
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 7 Intangible assets (continued)
DKKm
IMPAIRMENT TESTS
At the end of 2017, 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 2018-2027. 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
1,175
1,021
2%
13%
Danfoss
Drives
Danfoss
Cooling
Danfoss
Heating
5,725
2%
12%
2,049
2,668
2%
13%
2%
10%
2016
Other
18
2%
11%
Danfoss
Power
Solutions
1,760
949
2%
11%
Danfoss
Drives
Danfoss
Cooling
Danfoss
Heating
5,730
1,892
2,626
2%
11%
2%
11%
2%
10%
2017
Other
19
2%
11%
The weighted average growth rate until 2027 is based on past performance/management expectation of market development etc. and is estimated to be 3-7% 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 2016. The net cash flow during the terminal period from 2028 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 recoverable amounts lower than the carrying amounts. The same conclusion was made for 2016.
57/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 7 Intangible assets (continued)
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, Propulsys Inc. (White Drive Products Group) (USA)
in 2016 and Visedo Oy (Finland) in 2017. At the end of 2017, the carrying amount of Brand, Technology and Customer relations acquired in connection with business combinations amounts to DKK 2.6bn, or approximately 57%
of the corresponding Group carrying amount . The carrying amount of Technology and Customer relations is amortized until 2030 and 2032, respectively.
Danfoss Drives
The goodwill allocated to Danfoss Drives Segment derives primarily from the acquisition of Vacon (Finland) in December 2014. At the end of 2017, the carrying amount of Technology and Customer relations acquired in connection
with business combinations amounts to DKK 1.4bn, or approximately 31% of the corresponding Group 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 2017, the carrying amount of
Technology and Customer relations acquired in connection with business combinations amounts to DKK 200m, or approximately 4% of the corresponding Group 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 Wärme AB (Sweden) in 2005 and Sondex Holding A/S (Denmark) in 2016. At the end of 2017,
the carrying amount of Technology and Customer relations acquired in connection with business combinations amounts to DKK 337m, or approximately 8% of the corresponding Group carrying amount. The carrying amount of
Technology and Customer relations is amortized until 2028.
Other intangible assets
At the end of 2017, Danfoss had Software in progress amounting to DKK 727m and DKK 0m capitalized development expenditure in progress. Capitalized software in progress is mainly developed internally.
In 2017, 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 no impairment of current development assets (2016: 0m).
58/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 8 Property, plant and equipment
DKKm
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
Cost as of January 1, 2017
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Transfers
Additions
Disposals
Cost as of December 31, 2017
Depreciation and impairment losses as of January 1, 2017
Foreign exchange adjustments in foreign companies
Transfers
Depreciation
Disposals
Depreciation and impairment losses as of December 31, 2017
Carrying amount as of December 31, 2017
Land and
buildings
Plant and
machinery
Equipment
Assets under
construction
5,814
13
274
151
86
-85
6,253
2,593
4
220
-13
2,804
3,449
6,253
-196
11
221
271
-26
6,534
2,804
-46
4
236
-21
2,977
3,557
9,335
-70
226
418
350
-39
10,220
7,056
-83
766
-20
7,719
2,501
10,220
-205
17
478
274
-145
10,639
7,719
-84
-51
711
-132
8,163
2,476
1,557
12
14
61
73
-84
1,633
1,067
10
170
-78
1,169
464
1,633
-42
2
238
337
-372
1,796
1,169
-33
47
167
-211
1,139
657
692
1
9
-630
1035
1,107
1,107
1107
-46
-939
1112
1,234
1,234
TOTAL
17,398
-44
523
1,544
-208
19,213
10,716
-69
1,156
-111
11,692
7,521
19,213
-489
30
-2
1,994
-543
20,203
11,692
-163
1,114
-364
12,279
7,924
Assets held under finance leases amounts to a total carrying amount of DKK 306m (2016: DKK 130m).
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 options to acquire the leased buildings & equipment at favorable prices at the expiry of the leases.
59/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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 write-down 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
60/117
Annual Report 2017 The Danfoss Group
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
2017
2,092
571
2,250
4,913
445
235
70
21,718
2017
6,572
-195
6,377
42
6,419
13
-191
7
-26
-15
30
-195
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 11 Share capital
SHAREHOLDERS HOLDING MORE THAN 5% OF THE SHARES OR 5% OF THE VOTES
The Bitten and Mads Clausen Foundation, Nordborg, Denmark
Clausen Controls A/S, Sønderborg, Denmark
Henrik Mads Clausen, Lake Forest, USA
Karin Clausen, Holte, Denmark
DISTRIBUTION OF SHARES
A Shares
B Shares
Total Shares
Nominal
value
100 DKK
100 DKK
Number
4,250,000
5,707,111
9,957,111
2016
DKKm
425.0
570.7
995.7
Number
4,250,000
5,719,625
9,969,625
SHARES
50.16%
26.26%
11.04%
7.25%
Nominal
value
100 DKK
100 DKK
VOTES
86.12%
5.44%
2.29%
1.50%
2017
DKKm
425.0
572.0
997.0
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 Annual General Meeting to be adopted. The share capital is fully paid in.
The number of B shares has in 2017 been impacted by a capital increase of 12,514 shares due to subscription of shares as a result of exercises in the share incentive programs.
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 The Bitten and Mads Clausen Foundation
Sold in the year
Capital reduction
Holding as of December 31
2016
50.2
51.8
2016
236,504
8,648
50,979
-600
-288,942
6,589
2017
60.2
50.2
2017
6,589
16,351
62,403
-300
85,043
The shareholders meeting of Danfoss A/S has authorized Danfoss A/S to buy back up to 10% of Danfoss A/S’ share capital.
The total cost in 2017 for own shares amounts to DKK 480m (2016: 292m). The total selling price relating to treasury shares amounted to DKK 1m in 2017 (2016: 2m).
The Group's holding of treasury shares represents 0.9% (2016: 0.1%) of the Group's share capital. The value of treasury shares held amounts to DKK 519m (2016: 32m).
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 2017 the net-interest-bearing debt to EBITDA ratio was 1.2 (2016: 1.6) on a reported basis.
Danfoss aims to use the free cash flow before M&A for acquisitions that will develop the business further and to repay interest-bearing debt, and for dividend distribution to shareholders according to policy.
61/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 12 Provisions
DKKm
Provisions for warranty comprise expected costs arising during the warranty period of the Group's products.
The Group's provision for restructuring mainly relates to expected costs for severance payments. Contingent consideration consists of earn-out relating to 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
Transfered to other debt
Transfered to pension and healthcare obligations
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
395
-18
-3
-191
-50
204
337
Warranty
237
99
2
337
Contingent
consideration
320
-18
-200
284
386
Contingent
consideration
29
181
176
386
Other
357
-16
70
-8
-17
-53
-14
67
1
387
Other
57
178
152
387
2017
TOTAL
1,072
-34
67
-8
-17
-262
-264
556
1
1,111
2017
TOTAL
323
458
330
1,111
62/117
Annual Report 2017 The Danfoss Group
Click to navigate
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
2016
4,904
25.0%
1.2%
0.0-0.2%
See below
2017
6,100
26.0%
1.1%
0.0-0.2%
Since Danfoss has no listed shares, 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 2017 of DKK 6,100 was most recently adjusted at the Annual General Meeting in 2017 and will next be fixed at the Annual General Meeting in 2018.
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 1,932
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 1,932
Changes in the share price/fair value:
Options/warrants - exercise price at 1,932
Disposal due to subscription of shares:
Options/warrants - exercise price at 1,932
Granted options/warrants 31 December:
Options/warrants - exercise price at 1,932
Granted
(year)
2007
Granted
(number)
97,121
Fair value
at grant date
(DKK each)
983
Earliest
exercise
May 2010
Latest
exercise
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
0
0
2,915
1,249
4,164
10,414
10,414
-10,414
-10,414
0
0
37
37
16
16
-53
-53
0
0
The total provision as of December 31, 2017, for 2004 and subsequent share incentive programs has been calculated at DKK 0m (2016: 37m) 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 16m (2016: 12m), with DKK 14m (2016: 10m) in the Parent Company and DKK 2m (2016: 2m) in the subsidiaries.
63/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
2016
-1,087
-22
-121
17
29
-3
-1,187
2017
-1,187
35
-69
-1
242
-97
-1,077
2016
Deferred tax
asset
2017
Deferred tax
asset
55
67
369
852
310
-217
1,436
-626
810
39
289
197
527
263
-199
1,116
-443
673
Deferred tax
liability
Deferred tax
liability
1,581
348
100
529
65
2,623
-626
1,997
939
642
103
444
65
2,193
-443
1,750
The tax asset related to tax loss carry-forwards of DKK 64m net (2016: 93m) is largely related to companies that have suffered tax losses within 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 199m (2016: 217m). The amount is not recognized as an asset, as the tax losses carried forward are not expected to be utlized. 12% of the
amount (2016: 14%) has a remaining period of 3 years or less, whereas the share with a remaining period of 10 years or more totals 75% (2016: 83%).
Of the deferred tax liability of DKK 1,750m (2016: 1,997m), DKK 65m (2016: 65m) can be attributed to taxes relating to joint taxation with foreign subsidiaries in previous years. The Group has deferred tax liabilities concerning temporary
differences in foreign subsidiaries, associates and joint ventures of DKK 112m (2016: 542m). 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.
64/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
2016
Gross liability Net Liability
59%
38%
-6%
9%
100%
22%
40%
35%
3%
100%
2017
Gross liability Net Liability
70%
38%
-19%
11%
100%
23%
39%
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 (2016: 300) active employees. Danfoss is working on minimizing the defined benefit risk by integrated risk management and by changing the nature of existing plans.
During 2017, closing the Cash Balance Plan in the US for future accruals has reduced the Defined Benefit risk for Danfoss. The previous US liability has changed character to a legacy liability, and therefore Danfoss will adjust the US
asset/liability risk management based on the new pattern of payments.
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
Defined benefit plan obligations are presented in the statement of financial position as follows:
Pension benefit plan assets
Pension and healthcare plan obligations
Plans with a surplus have been recognized on the basis that future economic benefits are available to the Group in the form of a reduction in future contributions or a cash refund.
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
Pension income from prior years, curtailments etc.
Plan participants' contribution liabilities
Disbursed benefits from the Group
Disbursed benefits from plan assets
Net transfer from provisions
Provision as of December 31
65/117
Annual Report 2017 The Danfoss Group
2016
3,954
-2,874
1,080
108
1,188
1,080
2016
3,813
-167
33
126
-39
338
10
-37
-123
3,954
2017
3,729
-2,877
852
164
1,016
852
2017
3,954
-238
29
108
-75
118
-9
11
-34
-152
17
3,729
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
Plan assets as of December 31
2016
2,704
-182
97
10
274
94
-123
2,874
2017
2,874
-197
86
11
169
86
-152
2,877
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 481m (2016: 548m).
EXPENSES RELATING TO PENSION AND HEALTHCARE OBLIGATIONS
Pension costs for the year
Calculated interest on liabilities
Calculated expected return on assets
Pension income from prior years, curtailments etc.
Expensed in the income statement
Pension cost stated under cost of sales
Pension cost stated under selling and distribution costs
Pension cost stated under administrative expenses
Other operating income and expenses
Interest concerning pension and healthcare obligations posted under financial items
ESTIMATED MATURITY OF PROVISIONS
Within 1 year
Between 1 and 5 years
After more than 5 years
66/117
Annual Report 2017 The Danfoss Group
2016
2017
33
126
-97
62
17
4
12
29
62
2016
163
690
3,101
3,954
28
108
-86
-9
41
13
3
12
-9
22
41
2017
146
614
2,969
3,729
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 15 Pension and healthcare obligations (continued)
DKKm
PENSION PLAN ASSETS ARE SPECIFIED AS FOLLOWS:
Shares and similar securities
Listed corporate bonds
Bonds
Other
1,066
972
630
206
2,874
2016
37%
34%
22%
7%
100%
1,081
954
637
205
2,877
2017
38%
33%
22%
7%
100%
Plans in which the pension funds are invested in financial instruments are exposed to risk. 38% (2016: 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
2016
Weighted
average
3.0%
3.5%
Range
1.4-4.1%
1.8-4.5%
2017
Weighted
average
2.7%
3.6%
Range
1.9-3.6%
1.8-4.4%
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 149m to defined benefit plans in 2018 (2017: DKK 131m).
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
2016
3,954
-288
+306
+22
-21
+119
-118
2017
3,729
-257
+294
+19
-18
+123
-121
67/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 16 Financial risks and instruments
DKKm
FINANCIAL RISKS
Danfoss's profitability, cash flow and balance sheet are exposed to financial market risks, as a consequence of the Group's multinational business profile. The risks factors include currency, commodity, credit, interest rate and liquidity
risks. The Group's risk management activities focus on risk mitigation, with particular emphasis on protecting the Group's cash flow and profitability in local currency.
The risk management activity of the Group is governed by the Treasury Policy, which is approved and reviewed annually by the Board of Directors. Group Treasury is the function responsible for executing the Treasury Policy and
managing the Group's financial market risks in accordance with it. In general, the aim of Group Treasury’s risk management activities is to mitigate risk and reduce the volatility of the Group's cash flows and earnings in local currency
and not to engage in speculative transactions that increases the financial risk of the Group.
For a description of accounting policies and procedures, such as applied recognition criteria and basis of measurement, please see the disclosure under Note 26 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 assets and liabilities 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 balance sheet risk and all significant future cash flow risk for a 12-month period on a rolling and layered
basis.
Is the risk that the P&L and Equity of Danfoss, when measured in DKK are impacted adversely by currency movements when consolidating the financial statements of subsidiaries. Translation risk (Reporting risk)
2. Translation risk:
is generally not hedged. However, it is partly mitigated by keeping an appropriate capital structure in the subsidiaries of the Group of equity and debt in local currency, and by drawing the Group's financing facilities in foreign
currency to match the assets of the Group.
3. Economic/structural risk (strategic risk): This risk is not in scope for financial risk management. Economic/Structural currency risk is dealt with statically by keeping an appropriate balance between the geographical footprint of end
markets and sourcing markets.
NOMINAL POSITION
Receivables and payables
Cash and loans 1)
Derivative financial instruments for hedging of fair value 2)
Derivative financial instruments for hedging of future cash flow
EUR
DKK
-347
296
142
-3,233
USD
DKK
-254
1,517
-1,356
-254
GBP
DKK
-5
-81
83
-295
2016
Total
-606
1,732
-1,131
-3,782
EUR
DKK
-278
302
73
-2,993
USD
DKK
-205
2,028
-2,078
-844
2017
Total
-514
2,278
-1,914
-4,110
GBP
DKK
-31
-52
91
-273
1) Besides the loans included, loans of EUR 634m (2016: 634m) is used for hedging of net investments (equity hedge). The impact on the Group's equity is DKK -7m (2016: 17m).
2) Financial instruments for hedging of fair value is also including the exposure related to inventories in countries applying foreign currency pricelists.
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.
1%
1
-78
10%
-9
-35
10%
-30
-8
-143
1%
1
-76
10%
-25
-110
10%
1
-26
-23
-212
68/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 16 Financial risks and instruments (continued)
DKKm
COMMODITY RISK
Movements in 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 with
suppliers, active price adjustment and in some cases financial hedging. If commodity exposure is considered material, the price should be fixed for a period of between 6 months and 12 months.
Danfoss has not undertaken financial hedging of commodities in 2017 or 2016.
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 risks towards banks and towards other
financial partners are 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 219m (2016: 509m) represents the maximum exposure risk related to cash and cash equivalents.
Trade receivables are distributed on a large 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 is carried out on all customers, and any provision for bad debt is made on the basis of this credit assessment and the payment behavior. This assessments 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
2016
2017
238
98
17
5,680
6,033
267
64
13
6,075
6,419
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 on its debt portfolio should not exceed a maximum of 0.1% of Group annual revenue in case of a one-percentage-point parallel shift in interest rates across the interest rate 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 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
-22
-22
2016
Equity
-22
57
35
Income
statement
-7
-7
2017
Equity
-7
28
21
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.
69/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 16 Financial risks and instruments (continued)
DKKm
LIQUIDITY RISK
It is Danfoss' financing policy to have a long-term credit rating of minimum "BBB " according to the Standard & Poor’s metric, a liquidity reserve of minimum DKK 3bn, in terms of accessible cash and non-terminable credit facilities
with an average maturity profile of at least 3 years.
At the end of 2017, Danfoss' credit rating from Standard and Poor’s was "BBB/A2 with a stable outlook" and the liquidity reserve equaled DKK 7.6bn (2016: 7.8bn). 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 conditions in general. The average maturity profile on non-terminable credit facilities
was above 3 years at the end of 2017. The Danfoss Group's loan agreements contain no financial covenants.
The major part of the Group's cash and cash equivalents of DKK 219m (2016: 509m) is placed on short-term deposits.
THE GROUP'S DEBT CATEGORIES AND MATURITIES
Bank debt and corporate bond
Mortgage debt
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
9,556
560
130
4,604
25
101
14,976
l
a
u
t
c
a
r
t
n
o
C
w
o
l
f
h
s
a
c
10,067
596
152
4,604
25
162
15,606
Maturity
)
*
s
r
a
e
y
5
-
1
1,946
23
47
2016
5
r
e
v
O
s
r
a
e
y
4,756
568
83
38
2,054
5,407
r
a
e
y
1
-
0
3,365
5
22
4,604
25
124
8,145
i
g
n
y
r
r
a
C
t
n
u
o
m
a
7,468
526
311
5,775
27
8
14,115
l
a
u
t
c
a
r
t
n
o
C
w
o
l
f
h
s
a
c
8,035
550
331
5,775
27
8
14,726
Maturity
)
*
s
r
a
e
y
5
-
1
6,154
8
162
2017
5
r
e
v
O
s
r
a
e
y
1,048
539
123
6,324
1,710
r
a
e
y
1
-
0
833
3
46
5,775
27
8
6,692
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 23. Contingent liabilities assets and security.
Non-current liabilities
Current liabilities
2016
2017
6,982
7,994
14,976
7,617
6,498
14,115
70/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
Derivative financial instruments for the hedging of future cash flows
Financial assets used as hedging instruments
Trade receivables
Other receivables
Cash and cash equivalents
Loans and receivables
Interest-bearing debt
Trade payables and other debt
Financial liabilities measured at amortized cost
Derivative financial instruments for 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
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
2017
Fair
value
14
14
13
60
73
Carrying
amount
14
14
13
60
73
6,419
907
219
7,545
6,419
907
219
7,545
8,305
9,845
18,150
8,508
9,845
18,353
8
8
8
8
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 2016.
71/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 16 Financial risks and instruments (continued)
DKKm
FAIR VALUE HIERARCHY AS OF DECEMBER 31 FOR THE GROUP
2016
2017
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
Derivative financial instruments for the hedging of future cash flows
Total financial assets
FINANCIAL LIABILITIES:
Derivative financial instruments for the hedging of the fair value of recognized assets and liabilities
Derivative financial instruments for the hedging of future cash flows
Contingent consideration
Interest-bearing debt
Total financial liabilities
1
1
36
65
10,482
10,583
20
20
320
320
20
1
21
36
65
320
10,482
10,903
13
60
73
8
14
14
14
13
60
87
8
8,508
8,516
386
386
386
8,508
8,902
72/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 16 Financial risks and instruments (continued)
DKKm
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE BASED ON LEVEL 3
Carrying amount as of January 1, assets/liabilities (-)
Foreign exchange adjustments in foreign companies
Acquisitions
Disposals/Reversals
Gain/loss (-) in the income statement
Carrying amount as of December 31, assets/liabilities (-)
Gain/loss (-) in the income statement is recognized under other operating income and expenses, and financial income and expenses.
Fair value of the majority of the financial instruments is determined using discounted cash flow analysis.
DERIVATIVES AS OF DECEMBER 31 FOR THE GROUP
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
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
USD
EUR
Other currencies
Forward exchange contracts
Interest swaps
Derivatives end of year
-1,632
-3,293
322
2,616
-42
1
-52
-93
-7
-100
2016
2017
Financial
Instruments
Level 3
-53
-1
-250
16
-12
-300
-300
1
-284
192
19
-372
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
15
-10
5
5
r
a
e
y
1
n
a
h
t
s
s
e
l
e
u
D
31
-6
25
50
17
67
2017
s
r
a
e
y
5
r
e
t
f
a
e
u
D
s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D
-7
-7
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
46
-6
15
55
10
65
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
-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
s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D
2
2
-4
-2
2016
s
r
a
e
y
5
r
e
t
f
a
e
u
D
t
c
a
r
t
n
o
c
t
a
t
n
u
o
m
A
l
i
a
p
c
n
i
r
p
/
e
c
i
r
p
-3,131
-3,326
988
2,362
At the end of 2017, unrealized gain/loss(-) on derivatives hedging foreign currency risk recognized in equity amounted to DKK 50m (2016: -57m).
At the end of 2017, unrealized gain/loss(-) on derivatives hedging floating interest payments recognized in equity amounted to DKK 10m (2016: -7m).
Forward exchange contracts are primarily used for hedging future sales in foreign currencies. Interest rate products are used to convert floating-rate liabilities to fixed rates.
DKK 1m was taken to income in 2017 (2016: -2m) as a consequence of testing for effectiveness.
73/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
2016
-225
-5
24
-855
-29
1,078
4
-8
334
326
-8
2017
-8
4
-1,112
21
1,345
29
279
123
402
279
74/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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.
Note 19 Change in working capital
DKKm
Change in inventories
Change in receivables
Change in trade payables and other debt
2016
1,814
13
-32
-29
353
-529
1,590
2017
1,772
1
-13
-20
384
-82
2,042
2016
-15
-395
1,101
691
2017
-530
-821
1,821
470
75/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 20 Acquisition and sale of subsidiaries and activities
DKKm
Company/activity
Propulsys Inc.
Sondex Holding A/S
Company/activity
Kavlico thin-film sensor technology from Sensata Technologies
Prosa S.r.l.
Visedo Oy
*) 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
Acquisition
Acquisition
Country
USA
Denmark
Country
Germany
Italy
Finland
Consolidated
from/until
Holding
acquired/sold
Net sales per
year *)
No. of
employees
Consideration
paid
2016
September
September
100%
100%
701
961
623
1,090
**
**
2017
Consolidated
from/until
Holding
acquired/sold
Net sales per
year *)
No. of
employees
Consideration
paid
June
June
November
100%
100%
100%
16
22
51
40
16
85
**
**
**
2016 Acquisitions:
In 2016 Sondex Holding A/S and Propulsys Inc. were acquired. Sondex is among the market leaders within Gasket Heat Exchangers, and has sales activities across the world, while production mainly takes place in Denmark,
Poland and Romania. Propulsys Inc. will, in combination with the Motors business in Power Solutions Segment, be the market leader within Orbital hydraulic motors. Propulsys Inc. primarily has sales in the USA, China and
Germany. The net sales included in the consolidated statement of comprehensive income for 2016 for 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 for 2016 is impacted by interest as well as Purchase Price Allocation (PPA) expenses relating to reversal of inventory step-up to fair value and amortization on intangible assets of a total DKK 55m.
Had Sondex and Propulsys been consolidated from January 1, 2016, the combined Group net sales for 2016 would have been DKK 40,263m and Profit before tax for 2016 would have been DKK 3,972m. Included in this impact on
the combined Profit before tax, is the calculated interest on the acquisitions as well as further PPA expenses and amortizations of a total DKK 37m.
The Purchase Price Allocation regarding the acquisitions in 2016 was finalized in 2017. The change in goodwill amounted to DKK -18m compared to the initial accounting.
2017 acquistions and disposals:
The largest acquisition in 2017 was the purchase of Visedo Oy, which was acquired on 1 November. The company is a technology leader in high-efficiency hybrid and electrical solutions, which are used in commercial and
off-highway vehicles and in the marine sector. Its sales activities are mainly in Europe and its production and R&D center are located in Finland. Visedo will be a separate business in the Power Solution Segment. Danfoss also
acquired two smaller entities, which are both part of the Cooling Segment. Disposals in 2017 were related to Sondex Pump business, which was sold to one of the former owners of Sondex Holding A/S. Acquisition-related costs,
e.g. due diligence costs, of DKK 10m (2016: 18m) have been charged to expenses in the consolidated income statement for the year ending December 31, 2017.
The net sales included in the consolidated statement of comprehensive income of the acquired companies in 2017 are under DKK 50m and impact on Profit before tax is around DKK -25m, with a significant part coming from PPA
expenses.
The preliminary Purchase Price Allocation accounting has calculated total goodwill of DKK 752 m. 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 2017 related to Purchase Price Allocation is included in the statement below.
76/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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 24m (2016: 6m)
Note 21 Acquisition/ Sale of other investments
DKKm
Purchase of shares and other securities
Increase/decrease of lending
2016
Acquisitions
2017
Acquisitions
2016
Disposals
2017
Disposals
-459
-524
-13
-465
-375
-185
322
154
224
-1,321
-1,075
-2,396
185
-2,211
249
87
-1,875
-327
-30
-30
31
21
-25
24
155
40
-141
-734
-875
26
-849
77
-772
1
9
1
-6
5
3
8
8
8
3
3
2016
-59
-67
-126
2017
-35
-122
-157
Purchase of shares and other securities in 2017 is related to capital injection in joint ventures in BD Kompressor Holding GmbH & Co.KG and Leanheat Oy. In 2016, the purchase was also related to capital injection in the
BD Kompressor Holding GmbH & Co.KG and capital injection in Linestream Technology Inc. Further information is provided in Note 3 Investments.
77/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 22 Change in liabilities arising from financing activities
DKKm
Carrying amount as of January 1, 2017
Cash repayment
Cash proceeds
Acquisitions of subsidiaries
Acquisitions of lease liabilities
Other
Carrying amount as of December 31, 2017
The Group's other change in liabilities arising from financing activities mainly consists of foreign exchanges adjustments.
Short-term
borrowings
3,266
-2,707
100
24
31
-26
688
Long-term
borrowings
6,980
-3,371
4,330
173
-495
7,617
TOTAL
10,246
-6,078
4,430
24
204
-521
8,305
78/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 23 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
Carrying amount of interest-bearing liabilities with security in assets
2016
856
41
718
2017
827
15
874
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
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
The Group expensed DKK 446m in operating lease payments in 2017 (2016: 458m) and they relate mainly to buildings and equipment. There were no significant contingent lease payments in 2017 or 2016.
OPERATING LEASES (LEASE INCOME)
Operating lease payments fall due as follows:
Less than 1 year
Between 1 and 5 years
The Group recognized operating lease income of DKK 16m in 2017 (2016: 25m). The above rentals relate mainly to buildings.
CONTRACTUAL OBLIGATIONS
Service contract commitment other than leases
Inventories
Property, plant and equipment
Purchase commitments
Hereof commitments relating to succeeding year
79/117
Annual Report 2017 The Danfoss Group
2016
8
15
2016
565
659
252
1,476
1,199
2016
2017
226
459
217
137
140
1
190
367
206
129
113
2017
11
12
2017
403
992
354
1,749
1,561
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 24 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 and the Group Executive 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 50.16% of the shares in Danfoss A/S and controls 86.12% 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 (2016: 25m).
In the financial year, the Bitten and Mads Clausen Foundation sold shares in Danfoss A/S at a value of DKK 381m back to the company (2016: 250m).
Around 98% of Danfoss A/S' dividend payments are related to the Bitten and Mads Clausen Foundation and shareholders from the Clausen family.
BOARD OF DIRECTORS AND GROUP EXECUTIVE TEAM
In the financial year, no transactions took place with the Board of Directors and Group Executive 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 2023. The rent payment amounted to DKK 2m in 2017 (2016: 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 (2016: 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 Group Executive Team, 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
2016
316
103
2017
307
116
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 25 Events after the balance sheet date
Subsequent to December 31, 2017 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.
80/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 26 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, 2017, 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 further requirements in
the Danish Financial Statements Act. 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, contingent considerations from business
combinations 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 2017. None of those standards and interpretations
have affected recognition and measurement in 2017, nor are they
expected to have a material effect on Danfoss A/S in the 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 2017
Annual Report.
IFRS 15: Revenue from contracts with customers is a new standard
effective for financial years beginning on or after January 1, 2018.
The standard may potentially affect revenue recognition in a number
of areas, including the timing of revenue recognition, recognition of
variable considerations, allocation of revenue from multi-element
and principal/agent assessment. The Group has assessed the effects
of the new standard and, once implemented, expects to achieve the
following:
•
The majority of the revenue is generated from the sale of
products to sales terms not effected by the new standard.
•
The remaining revenue is related to sale of service, such as
installation service, after-sales service and project sale. In
materiality, revenue is recognized over time for these services.
• A few additional variable considerations have been identified
which will require a change in initial recognition, but these will
not have a material impact on revenue.
• A few principal/agent assessments will be changed due to the
new standard, but these will not have a material impact on
revenue.
The new standard includes a number of new disclosure
requirements.
•
IFRS 9: Financial instruments is a new standard effective for
financial years beginning on or after January 1, 2018. The standard
introduces an expected loss model for impairment losses on loans
and receivables. The number of classification categories for financial
assets is reduced to three: amortized cost, fair value through profit or
loss, and fair value through other comprehensive income. Simplified
rules on hedge accounting are introduced. The Group has assessed
the effects of the new standard and, once implemented expects to
achieve the following:
•
Expected loss model for impairment losses on loans and
receivables has been reviewed and compared with the current
only incurred credit losses model, most significantly related to
Trade Receivables. There will not be any material impact from
implementation of the expected loss model.
The reduced number of classification categories does not impact
recognition of financial instruments.
The relaxed requirements for hedge effectiveness will not impact
hedge accounting as the current hedging meets the requirements
of an economic relationship between the hedged item and
hedging instrument, and for the ‘hedged ratio’ to be the same as
the one that is actually used for risk management purposes.
The new standard introduces expanded disclosure requirements
and changes in presentation. These are expected to change the
nature and extent of disclosures about financial instruments.
•
•
•
IFRS 16: Leases is a new standard effective for financial years
beginning on or after January 1, 2019. Going forward, the lessee is
required to recognize all leases as a lease liability and a lease asset
in the balance sheet, with two exceptions: short-term leases (less
than 12 months) and leases relating to low-value assets. The Group
81/117
Annual Report 2017 The Danfoss Group
has non-cancellable operating lease commitments at the reporting
date of DKK 1.0bn, of which a majority relates to buildings, see Note
23 Contingent liabilities, assets and security. However, the Group
has not determined the final impact on assets, liabilities, profit and
classification of cash flow.
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 holds more than 50% of the voting rights, or
otherwise controls 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. Un-realized 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.
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 26 Basis for preparation and accounting policies (continued)
The companies included in the Group are disclosed in the section
“Danfoss Group Companies”.
Business combinations
Newly acquired or established companies are recognized in the
consolidated financial statements from the acquisition date, and
divested companies are recognized in the consolidated income
statement until the time of divestment. Comparative figures are not
restated for newly acquired companies. Unless divested companies
are classified as discontinued operations, comparative figures are not
restated.
When the Danfoss Group takes over control of acquired companies,
the purchase method is applied. This means that the identifiable
assets and liabilities, including contingent liabilities, of the acquired
companies are stated at fair value at the acquisition date.
Identifiable intangible assets are recognized if they can be separated
or arise from a contractual right. The tax effect of revaluations is
recognized. The time of takeover is the day when the Danfoss Group
de facto obtains control of the acquired company.
The consideration for a business comprises the fair value of the
consideration agreed upon, in the form of assets transferred, liabilities
assumed and equity instruments issued. If part of the consideration is
contingent on future events or in compliance with agreed conditions,
that part of the consideration is recognized at fair value at the
acquisition date. Costs attributable to business combinations are
recognized directly in the income statement when incurred.
When a business is taken over in more than one transaction (step
acquisition), previously acquired investments are revalued at fair
value at the acquisition date, and value adjustments are recognized
in the income statement under other operating income or other
operating expenses. Management estimates the fair value of the
total investment acquired immediately on completion of the step
acquisition. Fair value is measured at the cost of the total investment
acquired.
If uncertainty exists at the acquisition date concerning the
identification or measurement of acquired assets, liabilities or
contingent liabilities, initial recognition is made at provisional fair
values. If it subsequently becomes apparent that the fair value of
identifiable assets and liabilities, including contingent liabilities, differs
from the assumed fair value at the acquisition date, the calculation is
adjusted retroactively, including goodwill, until 12 months following
the acquisition. The effect of the adjustments is recognized in the
opening equity and comparative figures are restated, if material.
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 flow, in accordance with
the structure in the internal financial reporting. Such cash flow does
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
82/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 26 Basis for preparation and accounting policies (continued)
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
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.
Research and development cost
Research and development costs include costs that do not qualify
for capitalization including costs, like wages and salaries and
consumables.
Selling and distribution costs
Selling and distribution costs comprise costs related to distribution
of products sold during the year and sales staff, advertising and
exhibition expenses etc., including depreciation. Furthermore,
provisions for bad debt are included.
Administrative expenses
Administrative expenses comprise expenses in relation to
administrative staff, management, office premises, office expenses etc.,
including depreciation.
Other operating income and expenses
Other operating income and expenses comprise items secondary to
the principal activities of the companies, including gains/losses on
disposal of non-current assets and companies, impairment losses,
employee termination expenses and government grants. Government
grants related to income are recognized at their fair value where there
is a reasonable assurance that the grant will be received and the
group will comply with all attached conditions. Government grants
related to purchase of property, plant and equipment are deducted at
the carrying amount of the asset.
Share of profit from investments in associates and joint ventures
The proportionate share of the results of associates and joint ventures
after tax is recognized in the consolidated income statement after
elimination of the proportionate share of intra-group profits/losses
and less goodwill impairment.
Financial income and expenses
Financial income and expenses comprise interest income and
expenses, realized and unrealized gains and losses on securities,
debt and transactions denominated in foreign currencies,
amortization of financial assets and liabilities and surcharges and
refunds under the Tax Prepayment Scheme etc. Also included is
the interest element of finance leases and gains and losses on
derivative financial instruments, which are not designated as
hedging arrangements.
Borrowing costs incurred in relation to general borrowing activities or
loans which relate directly to the purchase, construction or development
of qualifying assets, are allocated to the cost of such assets.
Balance sheet
Intangible assets
Goodwill
Goodwill is initially recognized in the balance sheet at cost and
allocated to cash-generating units as described under “Business
combinations”. Subsequently, goodwill is measured at cost less
accumulated impairment losses. Goodwill is not amortized.
Development projects, software, patents and licenses
Development projects that are clearly defined and identifiable,
where the technical feasibility, sufficient resources and a potential
future market or utilization opportunity within the company is
demonstrated, and where the company intends to produce, market
or use the project, are recognized as intangible assets provided
that the cost can be measured reliably and that there is sufficient
assurance that future earnings or the net selling price 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 8 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.
83/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 26 Basis for preparation and accounting policies (continued)
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 and expenses’.
Property, plant and equipment
Land and buildings, plant and machinery and equipment are
measured at cost less accumulated depreciation and impairment
losses.
Cost comprises the purchase price, expenses for materials,
components, sub-suppliers, direct salary expenses, borrowing costs
incurred from specific and general borrowing, which directly pertain
to the construction of the individual asset and for self-produced assets
as well as indirect construction costs. Where individual components of
an item of property, plant and equipment have different useful lives,
they are accounted for as separate items, and depreciated separately.
Subsequent costs, e.g. in connection with replacement of
components of property, plant and equipment, are recognized in the
carrying amount of the asset, if it is probable that the costs will result
in future economic benefits. All costs incurred for ordinary repairs and
maintenance are recognized in the income statement as incurred.
Depreciation is provided on a straight-line basis over the expected
useful lives, which are as follows:
Buildings and building components
Plant and machinery
Equipment
10-30 years
4-8 years
2-6 years
The depreciable amount of an asset is determined based on the
residual value of the asset less any impairment charges. The residual
value is determined at the acquisition date and reassessed annually.
If the residual value exceeds the carrying amount of the asset,
depreciation is discontinued. When changing the depreciation period
or the residual value, the effect on the depreciation is recognized
prospectively as a change in accounting estimates.
Depreciation is recognized in the income statement under ‘Costs of
sale’, ‘Distribution costs’ or ‘Administrative expenses’.
Gains and losses on disposal of property, plant and equipment are
determined as the difference between the selling price less costs to
sell and the carrying amount at the selling date. Gains or losses are
recognized in the income statement under ‘Other operating income
and 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
84/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 26 Basis for preparation and accounting policies (continued)
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 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 of foreign
companies’.
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 own shares
The reserve for own shares comprises the acquisition cost for the
company’s portfolio of treasury shares. The dividend from treasury
shares is recognized directly in the retained earnings in equity. Gains
and losses from the sale of treasury shares are recognized in share
premium.
Provisions
A provision is recognized in the balance sheet when the Group
has a legal or constructive obligation as a result of a past event
in the financial year or previous years, and it is probable that the
settlement of the obligation may lead to an outflow of the Group’s
financial resources, which can be reliably measured at the balance
sheet date. The amount recognized as a provision is Management’s
best estimate of the expenses required to settle the obligation.
In measuring provisions, the costs required to settle the liability
are discounted if the effect is material to the measurement of the
liability.
For the measurement, a pre-tax discount factor is used which
reflects the current market interest rate level and the specific risks
related to the liability. Changes in present values for the financial
year are recognized under financial expenses.
Warranty provisions are recognized as the underlying goods and
services are sold based on warranty costs incurred in the financial
year and in previous years.
Provisions for restructuring and employee termination costs
are made when the Group has agreed on a detailed and formal
plan, and the Group has started implementing the plan or has
announced the plan to the persons affected. Restructuring
provisions do not include costs for the ongoing operations during
the restructuring phase.
Share-based remuneration
The Board, Group Executive Team and several senior employees
are covered by option and warrant schemes based on the Parent
Company’s shares.
The value of services received in exchange for granted options/
warrants is measured at the fair value of the options/warrants.
For share options and warrants where the option or warrant holder
has the right to receive cash settlement of the option or warrant, fair
value of the instruments is initially measured at the grant date and
recognized in the income statement as personnel costs over the
vesting period.
Subsequently, the fair value of the instruments is measured at the
balance sheet date and changes in fair values are recognized in the
income statement under financial items.
On initial recognition of the share options and warrants, the Company
estimates the number of options and warrants expected to vest, cf.
the service condition described in note 13 ‘Share incentive programs’.
That estimate is subsequently revised for changes in the number of
options expected to vest. Accordingly, recognition is based on the
number of options ultimately vested.
The fair value of granted instruments is measured based on the
Black-Scholes model (warrant and option pricing model) taking into
account the terms and conditions upon which the instruments were
granted.
Employee shares
On the granting of employee shares, any bonus element is
recognized as an expense under personnel costs. The counter entry
is recognized directly in equity. The bonus element is determined at
the subscription date as the difference between the fair value and the
subscription price of the shares.
85/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 26 Basis for preparation and accounting policies (continued)
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.
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 judgment is applied to assess
the possible outcome of such disputes. The most probable outcome is
used as measurement method.
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.
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.
86/118
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 26 Basis for preparation and accounting policies (continued)
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 comprises 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.
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.
Invested Capital
Net interest bearing debt added to Shareholders’ Equity
Segment liabilities comprise both non-current and current liabilities
derived from segment operations, including trade payables and
warranty obligations as well as other provisions.
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
Free cash flow before M&A
Free cash flow before acquisition of subsidiaries, proceeds from
disposal of subsidiaries and acquisitions/sales of other investments
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.
Key figures and financial ratios are calculated in accordance with
‘Recommendations & Financial Ratios 2015’ published by the Danish
Finance Society, and supplemented by certain key ratios.
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
87/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 27 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 goodwill, investments in associates and joint
ventures, assessment of depreciation, amortization and impairment
of non-current assets, measurement of deferred tax assets and
measurement of provisions and pension and healthcare obligations.
The estimates used are based on Management assumptions which are
assessed to be reliable, but which are inherently subject to uncertainty.
Accordingly, Danfoss is subject to risks and uncertainties which may
cause actual results to differ from these estimates. For the Group,
the measurement of intangible assets could be materially affected
by significant changes in estimates and assumptions on which the
measurement is based.
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 some degree of uncertainty due to changes 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 26, and the value of non-current assets is
disclosed in note 7, Intangible assets and note 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. The assessment of deferred tax
assets regarding tax loss carryforwards is based on the expected
future taxable income of the respective units and the expiration date
of the losses. Please see note 14, Deferred tax assets and liabilities for
unrecognized deferred tax assets.
In the course of conducting business globally, transfer pricing disputes
with tax authorities may occur and 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 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 23, 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.
88/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Group companies
Per December 31, 2017
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.
Belgium
• Danfoss N.V./S.A.
• Danfoss Power Solutions BVBA
• Hydro-Gear Europe BVBA
Bulgaria
• Danfoss EOOD
Croatia
• Danfoss d.o.o.
Czech Republic
• Danfoss s.r.o.
• Sondex CZ s.r.o.
Denmark
• BetterHome ApS– 25%
• Danfoss A/S
• Danfoss Compressors Holding A/S
• Danfoss Distribution Services A/S
• Danfoss International A/S
• Danfoss IXA A/S - 64%
• Danfoss Power Electronics A/S
• Danfoss Power Solutions ApS
• Danfoss Power Solutions Holding ApS
• Danfoss Power Solutions Holding II ApS
• Danfoss Redan A/S
• Danfoss Semco A/S - 60%
• Gemina Termix Production A/S
• Issab Holding ApS
• Sondex A/S
• Sondex Holding A/S
• Sondex Service A/S
• Sondex Rusland Holding ApS
• Sondex Teknik A/S
• Sondex Unit A/S
Estonia
• Danfoss AS
Finland
• Danfoss Power Solutions Oy Ab
• Oy Danfoss Ab
• Leanheat Oy – 23%
• Sondex Tapiro Oy Ab
• Vacon Oy
• Visedo Oy
France
• BD Kompressor France S.a.r.l
• Danfoss Commercial Compressors S.A.
• Danfoss Power Solutions SAS
• Danfoss S.a.r.l.
• Sondex France S.a.r.l.
Germany
• BD Kompressor Holding GmbH & Co.
KG – 50% (joint venture)
• Danfoss Esslingen GmbH
• Danfoss Flensburg GmbH
• Danfoss GmbH
• Danfoss Power Solutions GmbH & Co. OHG
• Danfoss Power Solutions Holding GmbH
• Danfoss Power Solutions Informatic GmbH
• Danfoss Sensors GmbH
• Danfoss Silicon Power GmbH
• Danfoss Werk Offenbach GmbH
• SMA Solar Technology AG – 20%
• Sondex Deutschland GmbH
• White Drive Products GmbH
Great Britain
• Danfoss Limited
• Danfoss Power Solutions Ltd.
• Senstronics Holding Ltd. – 50% (joint venture)
• Sondex (UK) Limited
• Vacon Drives (UK) Ltd.
Hungary
• Danfoss Kft.
• Sondex Kft
Iceland
• Danfoss hf.
Italy
• Danfoss Power Solutions S.r.l.
• Danfoss S.r.l.
• Prosa S.r.l
• Sondex Italia S.r.l.
Kazakhstan
• Danfoss LLP
Latvia
• Danfoss SIA
Lithuania
• Danfoss UAB
The Netherlands
• Advitronic Engineering B.V.
• Danfoss B.V.
• Danfoss Power Solutions B.V.
• Sondex B.V.
• Sondex Holding Netherlands B.V.
• Visedo Netherlands B.V.
Norway
• Danfoss AS
• Danfoss Power Solutions AS
Poland
• Danfoss Poland Sp. z.o.o.
• Danfoss Power Solutions Sp. z.o.o.
• Danfoss Saginomiya Sp. z.o.o. – 50%
(joint venture)
• Elektronika S.A. – 50% (joint venture)
• Sondex Braze Sp. z.o.o.
• Sondex Poland Sp. z.o.o.
• Sondex Polska Sp. z.o.o.
• Sondex Sp. z.o.o.
Romania
• Danfoss District Heating S.R.L.
• Danfoss S.R.L.
• S.C. Sondex Romania S.R.L.
• S.C. Sondex Productions S.R.L.
89/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Group companies
Russia
• AO Ridan
• AO Vacon Drives – in liquidation
• Danfoss Dzerzhinsk LLC
• Danfoss LLC
• Danfoss Power Solutions LLC
• T Plus Danfoss LLC
Serbia
• Danfoss d.o.o.
Slovakia
• Danfoss Power Solutions a.s.
• Danfoss spol. s.r.o.
• Sondex PHE s.r.o. – in liquidation
Slovenia
• Danfoss Trata d.o.o.
Spain
• Danfoss Power Solutions S.A.
• Danfoss S.A.
Sweden
• Danfoss AB
• Danfoss Power Solutions AB
• Danfoss Värmepumpar AB
• EP Technology AB
Switzerland
• Danfoss AG
Ukraine
• Danfoss T.o.v.
AFRICA – MIDDLE EAST
Turkey
• DAF Enerji Sanayi Ve Ticaret Anonim Sirketi – 87%
• Danfoss Otomasyon ve Kontrol Urunleri Tic Ltd.
• Sondex Dis Ticaret Limited Sti.
• Sondex-Tanpera – 51%
United Arab Emirates
• Danfoss FZCO – 95%
• Gulf Sondex FZCO
Saudi Arabia
• Sondex Saudi Arabia
South Africa
• Danfoss (Pty) Ltd.
• Independent Refrigeration Supplies (Pty) Ltd.
– in liquidation
• Sondex South Africa Pty. Ltd. – 80%
NORTH AMERICA
Canada
• Danfoss Inc.
USA
• Danfoss LLC
• Danfoss Power Solutions Inc.
• Danfoss Power Solutions Hopkinsville, LLC
• Danfoss Silicon Power LLC
• Danfoss Power Solutions Manufacturing
Hopkinsville, LLC
• Danfoss Power Solutions Real Estate Hopkinsville,
LLC
• Danfoss Power Solutions (US) Company
• Danfoss Power Solutions Work Function, LLC
• Danfoss Turbocor Compressors Inc.
• Hydro-Gear Inc. – 60%
• Hydro-Gear Limited Partnership– 60%
• K Products LLC
• Polaris Plate Heat Exchangers, LLC
• Sondex, Inc.
• Sondex Properties, Inc.
• Vacon, LLC
• White Hydraulics, Inc.
LATIN AMERICA
Argentina
• Danfoss S.A.
Brazil
• Danfoss do Brasil Indústria e Comércio Ltda.
• Danfoss Power Solutions Ind. e. Com.
Electrohidraulica Ltda.
• Sondex Brasil Ltda.
• Sondex ICP Latin America
• Vacon America Latina Ltda.
Chile
• Danfoss Industrias Ltda.
Colombia
• Danfoss S.A.
Mexico
• Danfoss Industries S.A. de C.V.
Venezuela
• Danfoss S.A.
90/117
Annual Report 2017 The Danfoss Group
ASIA-PACIFIC
Australia
• Danfoss (Australia) Pty. Ltd.
• Danfoss Power Solutions Pty. Ltd.
• Sondex Australia Pty. Ltd.
• Sondex Engineering Pty. Ltd.
P. R. of China
• Danfoss Automatic Controls Management
(Shanghai) Co. Ltd.
• Danfoss (Anshan) Controls Co. Ltd.
• Danfoss Industries Ltd.
• Danfoss ( Tianjin) Ltd.
• Danfoss Micro Channel Heat Exchanger (Jiaxing)
Co., Ltd.
• Danfoss Plate Heat Exchanger (Hangzhou) Co.,
Ltd.
• Danfoss Power Solutions (Jiangsu) Co., Ltd.
• Danfoss Power Solutions (Shanghai) Co. Ltd.
• Danfoss Power Solutions Trading (Shanghai) Co.,
Ltd.
• Danfoss Power Solutions (Zhejiang) Co., Ltd.
• Danfoss Semco ( Tianjin) Fire Protection
Equipment Co., Ltd. – 60%
• Danfoss Shanghai Hydrostatic Transmission Co.
Ltd. – 60%
• K Products Company Ltd.
• Sondex Heat Exchangers (Ningbo) Co. Ltd.
• Sondex Heat Exchangers (Taicang) Co. Ltd.
• Tau Energy Holdings (HK) Ltd.
• Vacon China Drives Co. Ltd.
• Visedo (Asia) Ltd.
• White (China) Drive Products. Ltd.
• Zheijang Holip Electronic Technology Co. Ltd.
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Thailand
• Danfoss (Thailand) Co. Ltd.
New Zealand
• Danfoss (New Zealand) Ltd.
• Sondex NZ Ltd.
Group companies
India
• Danfoss Industries Pvt. Ltd.
• Danfoss Power Solutions India Pvt. Ltd.
• Sondex Heat Exchangers India Pvt. Ltd.
Indonesia
• PT Danfoss Indonesia
• PT Sondex Indonesia
Iran
• Danfoss Pars Private Joint Stock Company
Japan
• Daikin-Sauer-Danfoss Ltd. – 45%
• Danfoss Power Solutions Ltd.
Malaysia
• Danfoss Industries Sdn Bhd.
• Sondex Heat Exchangers Malaysia Sdn. Bhd.
Philippines
• Danfoss Inc.
Singapore
• Danfoss Industries Pte. Ltd.
• Danfoss Power Solutions Pte. Ltd.
• Sondex South East Asia Pte. Ltd.
South Korea
• Danfoss Ltd.
• Danfoss Power Solutions Ltd.
• Sondex Korea LLC
Taiwan
• Danfoss Co. Ltd.
91/117
Annual Report 2017 The Danfoss Group
Parent accounts
and notes
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Management's
review for
Danfoss A/S
(Part of Management's review)
Danfoss A/S is the parent company of the Danfoss Group. In
addition to holding the shares of most of the other Danfoss
Group companies, an important function of the company is
to fund the Group’s activities. The company also constitutes
the corporate framework for some of Danfoss’ Danish activities
and therefore includes a number of Danfoss’ Danish factories
and Group functions. At the end of 2017, Danfoss A/S had
2,779 employees.
Profit before other operating income and expenses was DKK
806m (2016: DKK 566m), and the operating profit was DKK
655m (2016: DKK 506m).
Financial income and expenses amounted to a net income
of DKK 1,908m (2016: DKK 2,381m), mainly attributable to a
decrease in distributed dividends from subsidiaries.
Profit after tax was DKK 2,311m (2016: DKK 2,723m).
At the end of 2017, the equity stood at DKK 22,084m (2016:
DKK 20,662m). The increase was mainly attributable to
recognition of the profit for the year less dividends paid to the
owners.
In 2018, Danfoss A/S expects net sales to be on the same level
as in 2017 and expects to report a profit.
93/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 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
2016
8,355
-6,422
1,933
-288
-602
-477
566
-60
506
2,699
-318
2,887
-164
2,723
2017
9,238
-7,067
2,171
-295
-650
-452
774
-119
655
2,230
-322
2,563
-252
2,311
500
2,223
2,723
600
1,711
2,311
94/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 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 flow
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
2016
2,723
2017
2,311
6
-1
5
9
26
-8
27
32
-1
-1
17
-4
13
12
2,755
2,323
95/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 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
Derivative financial instruments (positive fair value)
Other receivables
RECEIVABLES
TOTAL CURRENT ASSETS
TOTAL ASSETS
96/117
Annual Report 2017 The Danfoss Group
e
t
o
N
5
6
7
10
9
2016
2017
968
1,334
1,572
1,751
25,779
25,779
26,386
26,386
28,319
29,471
655
634
273
694
9,201
1
19
102
10,290
310
687
9,795
73
127
10,992
10,945
11,626
39,264
41,097
Click to navigate
2017 at a glance Outlook 2018 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
Corporation tax
Derivative financial instruments (negative fair value)
Other debt
CURRENT LIABILITIES
TOTAL LIABILITIES
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
97/117
Annual Report 2017 The Danfoss Group
e
t
o
N
9
8
9
9
9
10
9
2016
2017
20,662
22,084
59
285
16
6,731
2
128
7,221
42
37
2,953
925
84
6,537
21
335
289
15
7,205
117
7,961
48
271
1,055
121
8,742
23
32
84
698
11,381
760
11,052
18,602
19,013
39,264
41,097
Click to navigate
2017 at a glance Outlook 2018 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
Cash repayment of (-)/cash proceeds from loans to subsidiaries
Acquisition (-)/sale of other investments, etc.
CASH FLOW FROM INVESTING ACTIVITIES
FREE CASH FLOW
Cash repayment of interest-bearing debt
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.
98/117
Annual Report 2017 The Danfoss Group
e
t
o
N
11
10
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
2017
2,563
-2,111
202
654
398
-248
1,432
2,236
-200
2,036
-402
-527
156
-937
112
1
-1,597
-145
439
-3,742
3,842
831
-268
-518
145
-6,078
4,337
2,205
-404
-499
-439
0
0
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Statement of changes in equity
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
s
e
v
r
e
s
e
r
r
e
h
t
O
s
e
v
r
e
s
e
R
d
e
s
o
p
o
r
P
s
d
n
e
d
i
v
i
d
y
t
i
u
q
e
l
a
t
o
T
BALANCE AS OF JANUARY 1, 2016
1,024
515
-31
-865
17,519
16,623
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
Purchase of treasury shares
Capital increase
Capital reduction
Total transactions with owners
BALANCE AS OF DECEMBER 31, 2016
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
Purchase of treasury shares
Capital increase
Total transactions with owners
BALANCE AS OF DECEMBER 31, 2017
35
-8
27
27
-4
17
-4
13
13
9
-267
-23
1,127
837
-28
-402
-77
-479
-507
173
173
173
281
2,223
-173
6
-1
5
2,055
12
-561
-549
19,025
1,711
-281
-1
-1
2,223
35
6
-9
32
2,255
12
-267
-23
566
288
19,166
1,711
17
-1
-4
12
281
1,429
1,723
1
1
1
-402
-77
-478
454
20,455
20,411
23
-538
-515
-28
-28
996
1
1
997
76
76
76
99/117
Annual Report 2017 The Danfoss Group
530
500
18,692
2,723
35
6
-9
32
2,755
-518
-267
-785
20,662
2,311
17
-1
-4
12
2,323
-499
-402
500
-530
-530
500
600
600
-500
-500
600
-901
22,084
Click to navigate
2017 at a glance Outlook 2018 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 Change in liabilities arising from financing activities
Note 13 Contingent liabilities, assets and security
Note 14 Related parties
Note 15 Events after the balance sheet date
Note 16 General accounting policies for Danfoss A/S
Note 17 Significant accounting estimates for Danfoss A/S
100/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 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
Remuneration to Group Executive Team and Board of Directors:
Salaries
Pension costs
Bonuses
Severance payments
Group Executive Team
Board of Director's fee
Total
Total remuneration for registered and former registered members of Executive Management amounts to DKK190m (2016:115m)
Due to change of management structure the remuneration reflects the Group Executive Team from 2017.
In 2017 total remuneration for 4 former members (2016: 1) of Group Executive Team is included in salaries, pensions, bonuses and severance payments.
2016
1,740
21
12
132
1,905
2,604
2,629
2017
1,754
89
11
143
1,997
2,734
2,779
2016
2017
45
13
87
4
149
6
155
50
19
90
66
225
6
231
101/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 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
Depreciation of property, plant and equipment
Depreciation/amortization and impairment losses
Classification of amortization/impairment of intangible assets by functions:
Cost of sales
Selling and distribution costs
Administrative expenses
Other operating expenses
DKKm
C. OTHER OPERATING INCOME AND EXPENSES
Other
Other operating income
Loss on disp. of property, plant and equipment
Restructuring costs
Other
Other operating expenses
Other operating income and expenses
D. FEES TO AUDITORS APPOINTED AT THE ANNUAL GENERAL MEETING
Audit fee
Tax and VAT advice
Other fees
Total fee to Group Auditor
102/117
Annual Report 2017 The Danfoss Group
2016
2017
52
52
199
251
29
14
9
52
53
53
199
252
28
14
11
53
2016
2017
12
12
-8
-21
-43
-72
-60
1
1
-1
-89
-30
-120
-119
2016
2017
4
11
1
16
5
2
4
11
Click to navigate
2017 at a glance Outlook 2018 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
Foreign exchange gains, net
Interest from banks, etc.
Reversal of impairment on loans
Interest on financial assets measured at amortized cost
2016
2,139
519
28
12
1
2,699
531
2017
1,432
432
192
173
1
2,230
433
103/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 3 Financial expenses
DKKm
Interest to banks, etc.
Foreign exchange losses, net
Impairment/loss on disposal of subsidiaries and associates/joint ventures
Interest to subsidiaries
Fair value adjustment of share options and warrants
Loss on other investments
Interest element on discounted liabilities
Interest on financial liabilities measured at amortized cost
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
104/117
Annual Report 2017 The Danfoss Group
2016
-207
-56
-31
-10
-12
-2
-318
-240
2016
-142
-36
14
-164
22.0%
0.2%
-16.3%
0.3%
-0.5%
5.7%
2016
-164
-8
-1
-173
2017
-201
-62
-34
-17
-6
-2
-322
-237
2017
-248
-4
-252
22.0%
-0.8%
-12.3%
1.0%
-0.1%
9.8%
2017
-252
-4
-256
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 5 Intangible assets
DKKm
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
Cost as of January 1, 2017
Addition through merger with subsidiaries
Additions
Disposals
Cost as of December 31, 2017
Amortization and impairment losses as of January 1, 2017
Amortization
Disposals
Amortization and impairment losses as of December 31, 2017
Carrying amount as of December 31, 2017
IMPAIRMENT TESTS
Goodwill
Software
Patents,
trademarks,etc.
Development
costs
462
462
462
462
17
479
479
696
207
-28
875
450
36
-28
458
417
875
402
-26
1,251
458
39
-26
471
780
304
-65
239
200
15
-65
150
89
239
-3
236
150
14
-3
161
75
147
-41
106
146
1
-41
106
106
106
106
106
Total
Other
1,147
207
-134
1,220
796
52
-134
714
506
1,220
402
-29
1,593
714
53
-29
738
855
TOTAL
1,609
207
-134
1,682
796
52
-134
714
968
1,682
17
402
-29
2,072
714
53
-29
738
1,334
Goodwill in Danfoss A/S of DKK 479m (2016: 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 2017, 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 at 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 2016.
105/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 6 Property, plant and equipment
DKKm
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
Cost as of January 1, 2017
Transfers
Additions
Disposals
Cost as of December 31, 2017
Depreciation and impairment losses as of January 1, 2017
Transfers
Depreciation
Disposals
Depreciation and impairment losses as of December 31, 2017
Carrying amount as of December 31, 2017
Assets held under finance leases amounts to a total carrying amount of DKK 11m (2016: DKK 21m).
Land and
buildings
Plant and
machinery
Equipment
Assets under
construction
1,832
20
45
-10
1,887
1,176
46
-3
1,219
668
1,887
101
13
-1
2,000
1,219
50
1,269
731
2,126
46
44
-49
2,167
1,920
69
-45
1,944
223
2,167
86
14
-33
2,234
1,944
-2
66
-31
1,977
257
588
26
27
-45
596
304
84
-45
343
253
596
157
294
-322
725
343
2
83
-166
262
463
174
-92
346
428
428
428
-344
216
300
300
TOTAL
4,720
462
-104
5,078
3,400
199
-93
3,506
1,572
5,078
537
-356
5,259
3,506
199
-197
3,508
1,751
106/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
16,904
2,102
-286
18,720
-1,084
51
-18
126
-925
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
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
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
18,720
1,213
-405
19,528
-925
187
-23
343
-418
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
5,660
-674
-32
4,954
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
-42
5
-37
2017
L
A
T
O
T
26,860
-674
1,213
-438
26,961
-1,081
-6
192
-23
343
-575
s
t
n
e
m
t
s
e
v
n
i
r
e
h
t
O
134
-1
133
-114
-6
-120
Carrying amount as of December 31
17,795
5,660
2,304
20
25,779
19,110
4,954
2,309
13
26,386
Where possible, "Other investments" are recognized at fair value. Alternatively, they are recognized at cost less accumulated impairment losses.
At the end of 2017, 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 2016.
Additions for the year to "Investments in subsidiaries" is mainly the acquisition of Visedo Oy and Prosa S.r.l. Disposal for the year of "Investments in subsidiaries" mainly relates to the closing of Avenir Energie.
Impairment losses for the year on "Investments in subsidiaries" of DKK 23m 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.
Reversed impairment for the year on "Investments in subsidiaries" of DKK 187 is primarily related to Danfoss Distribution Services A/S and Danfoss District Heating SRL who have improved earnings in recent years.
Impairment losses/reversed impairment are reported as financial expenses/financial income.
Additions for 2016 to "Investments in subsidiaries" is mainly the acquisition of Sondex Holding A/S. Disposal for 2016 of "Investments in subsidiaries" mainly relates to the closing of Danfoss Polypower A/S.
Impairment losses for 2016 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.
Further information on subsidiaries, associates and joint ventures is provided in Note 2 Financial income, Note 3 Financial expenses, Note 9 Financial risks and instruments, and Note 14 Related parties.
107/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 8 Deferred tax
DKKm
CHANGES IN DEFERRED TAXES
Deferred taxes as of January 1 (net) *)
Adjustments concerning previous years
Deferred tax recognized in the income statement
Deferred tax recognized in other comprehensive income
Deferred taxes as of December 31 (net) *)
*) Liability (-)
SPECIFICATION OF DEFERRED TAXES
Liabilities
Set-off within the same legal entities and jurisdiction
Deferred tax assets
Intangible assets
Property, plant and equipment and financial assets
Current assets
Liabilities
Deferred tax regarding Danish joint taxation
Set-off within the same legal entities and jurisdiction
Deferred tax liabilities
2016
-237
-10
-36
-2
-285
2017
-285
-4
-289
2016
Deferred tax
asset
2017
Deferred tax
asset
61
-61
0
55
-55
0
Deferred tax
liability
Deferred tax
liability
52
87
23
119
65
346
-61
285
44
82
36
117
65
344
-55
289
Of the deferred tax liability of DKK 289m (2016: 285m), DKK 65m (2016: 65m) 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 29m (2016: 41m). 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.
108/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
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
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
7,023
444
8,742
9
1,055
121
23
7,514
464
8,742
9
1,055
121
23
Maturity
)
*
s
r
a
e
y
5
-
1
6,109
7
5
r
a
e
y
1
-
0
378
2
8,742
4
1,055
121
23
2017
5
r
e
v
O
s
r
a
e
y
1,027
455
5,217
17,417
17,928
10,325
6,121
1,482
The maturity analysis is based on all non-discounted cash flow, including estimated interest payments. Interest payments are estimated according to existing market conditions. The non-discounted cash flow from deri-
vative financial instruments is 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 13 Contingent liabilities, assets and security.
THE ABOVE DEBT IS RECORDED AS FOLLOWS:
Non-current liabilities
Current liabilities
2016
6,733
10,604
17,337
2017
7,205
10,212
17,417
109/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
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
Derivative financial instruments for the hedging of future cash flows
Financial assets used as hedging instruments
Derivative financial instruments for financial hedging
Financial assets, measured at fair value in the income statement
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
13
13
310
687
9,795
127
10,919
10
10
63
63
7,476
121
8,742
1,955
18,294
2017
Fair
value
13
13
310
687
9,795
127
10,919
10
10
63
63
7,680
121
8,742
1,955
18,498
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 at 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 2016.
110/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 9 Financial risks and instruments (continued)
DKKm
FAIR VALUE HIERARCHY AS OF DECEMBER 31 FOR DANFOSS A/S
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
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
l
a
t
o
t
n
I
l
a
t
o
t
n
I
FINANCIAL ASSETS:
Other investments
Derivative financial instruments for the hedging of future cash flow
Derivative financial instruments for financial hedging
Total financial assets
FINANCIAL LIABILITIES:
Derivative financial instruments for the hedging of future cash flow
Derivative financial instruments for financial hedging
Contingent consideration (recorded under provisions)
Interest-bearing debt
Total financial liabilities
20
20
19
19
20
20
7
79
19
9,919
10,024
7
79
9,919
10,005
10
63
73
7,680
7,680
13
13
297
297
111/117
Annual Report 2017 The Danfoss Group
2017
13
10
63
86
297
7,680
7,977
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 9 Financial risks and instruments (continued)
DKKm
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE BASED ON LEVEL 3
Carrying amount as of January 1, assets/liabilities (-)
Acquisitions
Disposals/Reversals
Gain/loss (-) in the income statement
Carrying amount as of December 31
Gain/loss (-) in the income statement is recognized under other operating income and expenses, and financial income and expenses.
Fair value of the majority of the the financial instruments is determined using discounted cash flow analysis.
DERIVATIVES AS OF DECEMBER 31 FOR DANFOSS A/S
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
USD
EUR
Other currencies
Forward exchange contracts
Interest swaps
Derivatives end of year
-1,544
-3,288
187
2,616
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
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
s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D
-4
-4
2016
s
r
a
e
y
5
r
e
t
f
a
e
u
D
t
c
a
r
t
n
o
c
t
a
t
n
u
o
m
A
l
i
a
p
c
n
i
r
p
/
e
c
i
r
p
-3,091
-3,150
988
2,362
At the end of 2017, unrealized gain/loss(-) on derivatives hedging floating interest payments recognized in equity amounted to DKK 10m (2016: -7m).
112/117
Annual Report 2017 The Danfoss Group
2016
2017
Financial Instruments
Level 3
1
-284
5
-6
-284
2017
s
r
a
e
y
5
r
e
t
f
a
e
u
D
7
6
-12
1
s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D
-7
-7
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
52
-5
16
63
63
r
a
e
y
1
n
a
h
t
s
s
e
l
e
u
D
17
17
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
52
-5
16
63
10
73
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 10 Corporation tax
DKKm
Corporation tax payable/receivable (-) as of January 1
Paid during the year
Adjustments concerning previous years
Current tax expenses in income statement
Current tax expenses in other comprehensive income
Corporation tax payable/receivable (-) as of December 31
The above corporation tax is recorded as follows:
Assets
Liabilities
Note 11 Adjustment for non-cash transactions
DKKm
Depreciation/amortization and impairment
Gain(-)/loss on disposal of tangible assets and business activities
Financial income
Financial expenses
Other, including provisions
Adjustment for non-cash transactions
Note 12 Change in liabilities arising from financing activities
DKKm
Carrying amount as of January 1, 2017
Cash repayment
Cash proceeds
Acquisitions of lease liabilities
Other
Carrying amount as of December 31, 2017
Other change in liabilities arising from financing activities mainly consists of foreign exchanges adjustments.
113/117
Annual Report 2017 The Danfoss Group
2016
2017
-149
5
-24
142
7
-19
19
-19
-19
-200
-1
248
4
32
32
32
2016
251
7
-2,699
318
-156
-2,279
2017
252
1
-2,230
322
-456
-2,111
Short-term
borrowings
Long-term
borrowings
2,953
-2,707
7
4
14
271
6,731
-3,371
4,330
5
-490
7,205
TOTAL
9,684
-6,078
4,337
9
-476
7,476
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 13 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
Carrying amount of interest-bearing liabilities with security in assets
2016
2017
653
21
460
717
11
453
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
Danfoss A/S is party to a small number of disputes, lawsuits and legal actions, including tax disputes. It is the view of the Management that the outcome of these legal actions will have no other significant impact on Danfoss A/S'
financial position beyond what has been recognized and stated in the Annual Report.
OPERATING LEASES (LEASE EXPENSES)
Operating lease payments fall due as follows:
Buildings:
Less than 1 year
Between 1 and 5 years
More than 5 years
Equipment, etc.:
Less than 1 year
Between 1 and 5 years
OPERATING LEASES (LEASE INCOME)
Operating lease payments fall due as follows:
Less than 1 year
Between 1 and 5 years
The operating lease income in Danfoss A/S primarily relates to the letting of buildings to the subsidiaries.
CONTRACTUAL OBLIGATIONS
Service contract commitment other than leases
Inventories
Property, plant and equipment
Hereof commitments relating to succeeding year
114/117
Annual Report 2017 The Danfoss Group
2016
2017
13
42
42
35
39
12
35
33
34
22
2016
2017
10
12
3
2016
2017
441
208
54
493
308
319
28
525
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 14 Related parties
For more information about related parties, see Note 24 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
Disposal of intangible assets and property, plant and equipment
2016
4
103
2017
2
120
2016
7,670
2,969
12
2017
8,307
3,168
4
Transactions besides the above transactions between Danfoss A/S and subsidiaries are described in Note 2 Financial income, Note 3 Financial expenses, Note 7 Investments, and Note 9 Financial risks and instruments.
Note 15 Events after the balance sheet date
Subsequent to December 31, 2017, 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.
115/117
Annual Report 2017 The Danfoss Group
Click to navigate
2017 at a glance Outlook 2018 CEO comment Business model Strategy Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 16 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, 2017, 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 further requirements in the Danish Financial Statements Act.
Unless otherwise indicated, the Annual Report is presented in DKK rounded to the nearest million.
The Board of Directors and the Group Executive Team reviewed and approved the Annual Report 2017 on February 22, 2018, and it will be presented for approval at the Annual General Meeting to be held on April 20, 2018. The
Annual General Meeting has the power to amend and reissue the financial statements.
Besides the following section, the accounting policies for Danfoss A/S are the same as for the Danfoss Group. Please refer to Note 26 in the consolidated financial statements for the Danfoss Group. The impact of new accounting
standards, as described in Note 26 in the consolidated financial statements for the Danfoss Group is also assessed as immaterial to Danfoss A/S.
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. This reserve will be reversed as the development projects have effect on the income statements. The amount is
presented net of deferred tax.
COMPARATIVE FIGURES
Some comparative figures have been adjusted to improve comparability.
Note 17 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.
116/117
Annual Report 2017 The Danfoss Group
Further information available
on Danfoss’ website: www.danfoss.com
Date of publication: February 22, 2018
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