www.danfoss.com
Annual Report
2018
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Annual Report 2018 The Danfoss Group Contents
Management’s review
Financial statements
About this report
CEO comment
Introduction
2018 at a glance
Danfoss around the world
Outlook 2019
Our business
Business model
Strategy
Business segments
Our performance
Financial highlights
Financial review
Business segments review
Financial highlights, Quarterly
Governance
Sustainability
Risk management and compliance
Corporate governance
Board of Directors
Group Executive Team
Statements
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
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8
10
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18
20
21
24
25
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This Annual Report 2018 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 28, 2019.
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 2018, which focuses on legally required
information and includes the financial results for the
fiscal year.
2. Sustainability Report 2018, which constitutes the
Group’s “Communication on Progress” (COP) under the
UN Global Compact and provides an insight into our
initiatives within sustainability and corporate social
responsibility.
3. Corporate Governance Report 2018, 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.
Annual Report 2018 The Danfoss Group
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Danfoss has
never been
more relevant
“In 2018, we delivered a year of strong
growth and significant investments in the
future, leading to a robust result within
range of our guidance.”
digital development of our entire value chain from R&D to the
shop floor, where robots, increased use of data and 3D printing
allow us to deliver better and more flexible services and solutions
faster to our customers.
All of this is about teamwork. At Danfoss, we are a team of
27,795 excited colleagues deeply engaged in working with our
customers to find the best solutions for their needs – to enable
their success in a changing world.
Kim Fausing
President & CEO
Global mega-trends transform our world. Massive urbanization,
food supply for a growing population and climate change,
in combination with the increasing global focus on the Paris
Agreement and UN’s Sustainable Development Goals, fit right
into our business context. The potential is huge – by combining
our application know-how and innovative engineering to create
smart sustainable solutions, we help our customers to build
more competitive positions. We also play a significant role in
the transition towards more electrification and lower carbon
emissions, making the world’s energy consumption more
sustainable. That is how Danfoss helps to build a better future –
with a short payback time – this is actually good business.
In 2018, we delivered a year of strong growth and significant
investments in the future, leading to a robust result within range
of our guidance – despite increasing market volatility towards
the end of the year. We grew 7 percent in local currency – a
result of our ability to continuously win market share through
strategic growth initiatives and investments in industry-leading
technologies. This continuous, strong financial performance
including a low leverage ratio allows us to continue to expand
and develop Danfoss as a leader within our industries.
We continued to strengthen the business and invested in new
technologies and our digital transformation to drive growth and
customer relevance across the globe. We invested a record EUR
255m, equal to 4.2 percent of sales, into innovation. During the
year, we closed on four acquisitions, and we have announced the
acquisition of another two companies. This will strengthen our
core businesses, digital offerings and solutions for electrification.
The key reason for our significant investments is to offer our
customers innovative and competitive solutions. We see a
clear pull for solutions to reduce emissions as well as ensuring
efficiency and productivity gains. This is driving electrification,
enabling off-highway vehicles, vessels and cars to go hybrid
or electric and widespread use of digital technology to make
infrastructure and buildings smart and more efficient.
The potential of digital technologies offering connected products
and services, data intelligence, and user-friendly control systems
is key in our digital transformation. In 2018, we gained further
momentum in the implementation of our new common IT
platform, One ERP, which in the future will help us deliver a best-
in-industry customer experience. We also made progress in the
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Annual Report 2018 The Danfoss Group Introduction
Food retail from case to cloud
Danfoss solutions for food retail offer high
efficient refrigeration systems optimized for
CO2 refrigeration and other natural refrigerants.
Danfoss solutions are cost- and energy-efficient
and help to secure food safety and reduce the
carbon footprint of supermarket refrigeration
systems.
Explore the Danfoss businesses on danfoss.com
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Annual Report 2018 The Danfoss Group Click to navigate
CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
2018 at a glance
Highlights
See the financial highlights on page 20
Employees
27,795
Factories
71
R&D sites
23
Sales EURbn
6.1
Growth in local currency
EBIT margin
7%
10.6%
Danfoss in brief
Sales split on regions
Sales split on segments
We engineer technologies, which enable the world to reduce
energy consumption and ensure an efficient use of resources.
We produce and sell an extensive range of products and
solutions for refrigeration, air conditioning, heating, motor
control and off-highway machinery. We also provide solutions
for renewable energy, such as solar and wind power, as well as
district energy infrastructure for cities.
Danfoss is a global Group, 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 electronic controls for powering off-
highway vehicles used in construction, agriculture and road-
building industries. Danfoss Cooling is a market leader in the
air-conditioning and refrigeration industry. Danfoss Drives is a
leading player within low and medium voltage AC drives, power
modules and stacks for several industries. Danfoss Heating
enjoys leading positions within residential and commercial
heating as well as district energy.
Danfoss is a privately owned company, founded by Mads Clausen
in 1933. Today, the company is controlled by Bitten & Mads
Clausen's Foundation.
4% 3%
15%
23%
38%
35%
23%
24%
8%
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 7 and 21
Read more about segments on pages 18 and 24
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Annual Report 2018 The Danfoss Group Click to navigate
CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
2018 at a glance
Highlights
EBIT EURm
648
Free cash flow
before M&A / EURm
362
Leverage ratio
36.2%
Net interest-bearing
debt to EBITDA ratio
1.0
Equity ratio
46.1%
See the financial highlights on page 20
Strong growth and robust results
2018 showed strong growth and robust results considering the
global economic environment. We maintain our long-term focus
on strengthening Danfoss through high investments in our digital
transformation, growth initiatives and new technology to create the
best possible basis for future growth.
In 2018, Danfoss delivered 7% growth in local currency, leading
to net sales of EUR 6,098m. Earnings (EBIT) reached EUR 648m,
corresponding to an EBIT margin of 10.6%, and net profit was up
4% on last year to EUR 463m. Cash flow was according to plan with
a free cash flow before mergers and acquisitions of EUR 362m.
The growth was broadly based, but particularly Danfoss Power
Solutions had very strong growth. Regionally, we saw strong
growth in North America, Western Europe and Asia-Pacific, the
latter driven by strong growth in China.
The year reflected increased spending on innovation and
digitalization, enabling new solutions for our customers.
Furthermore, the year reflected increasing commodity prices
and newly imposed tariffs, which were partly offset by improved
internal efficiency and effective pricing management.
See the financial review on page 21
Results compared to outlook
Outlook for 2018
Results in 2018
Maintain or expand
our market share.
Sales increased 7% in local currency,
corresponding to sales growth above
market average.
Maintain profitability
measured as margin
at the 2017 level.
Results came within range of 2017 with
operating profit (EBIT) reaching EUR
648m, corresponding to an EBIT margin
of 10.6%. In 2017, EBIT was EUR 645m,
corresponding to an EBIT margin of 11.1%.
Sales and growth
Sales
Sales growth in local currency
Earnings
EBIT
EBIT margin
Innovation spend
R&D spend
% of sales
EURbn
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
%
14
12
10
8
6
4
2
0
EURm
700
600
500
400
300
200
100
0
%
14
12
10
8
6
4
2
0
EURm
300
250
200
150
100
50
0
%
6
5
4
3
2
1
0
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
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Annual Report 2018 The Danfoss Group
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses 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
Eastern Europe
North America
22 factories
Sales companies in 17 countries
10,753 employees
38%
share of
Group sales
15 factories
Sales companies in 12 countries
5,057 employees
8%
share of
Group sales
15 factories
Sales companies in 2 countries
4,269 employees
24%
share of
Group sales
Western Europe represents the largest share of Group sales and
continues to hold interesting growth opportunities, as the EU is
pushing for improved energy efficiency. Germany is 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 efficiency 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 significant market, where many of
Danfoss’ global key customers are located. Energy efficiency in
buildings, a changing refrigerant landscape and reshoring together
with agricultural and infrastructure investments are major trends in
North America, representing a growth potential for Danfoss.
Asia-Pacific
Latin America
Africa-Middle East
15 factories
Sales companies in 11 countries
6,111 employees
23%
share of
Group sales
3 factories
Sales companies in 5 countries
1,353 employees
4%
share of
Group sales
1 factory
Sales companies in 3 countries
252 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 cold-chain and air-conditioning markets
as well as infrastructure and 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 cold 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,
agricultural and cold 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 cold chain, represent
growth opportunities. However, the political and economic
situation in some parts of the region are leading to volatile
market conditions.
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Annual Report 2018 The Danfoss Group
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Outlook 2019
In 2019, Danfoss expects to expand
or maintain its market share, while
increasing the profitability compared
with the 2018 level and at the same time
continuing the high level of investments
in digitalization and electrification to drive
future growth and long-term sustainable
value creation.
In 2019, our key focus continues to be on ensuring profitable
growth. In 2018, we grew faster than most of the markets and
industries we operate in, and we expect this development to
continue in 2019.
We expect to maintain a high level of investments in our digital
transformation, new digital technologies and electric solutions
and at the same time increase the profitability measured as margin
compared with the 2018 level.
For the global industrial sector, the growth projections have become
softer towards the end of 2018, and the visibility for 2019 is low, as
we see uncertainty increasing in several markets. This can mainly
be ascribed to the increasing uncertainty globally, created by the
current geopolitical environment, and in particular the ongoing
trade conflicts and the impact from Brexit. Accordingly, sudden
changes in Danfoss' key regions and significant markets could have
a negative impact on the Group’s performance.
2019 expectations
Based on the above, for 2019, Danfoss expects to expand or
maintain its market share, while increasing the profitability
measured as margin compared with the 2018 level, following
continued investments in digitalization and electrification.
Specific key factors, which could affect the Group’s financial performance in 2019:
• The current global geopolitical environment is
characterized by a high level of uncertainty and low
visibility. Accordingly, sudden changes in major markets
could have a negative impact on the demand for Danfoss
products and solutions and the Group’s performance in
general.
• 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.
• The solid cash flow performance is expected to continue,
enabling the financing of future potential acquisitions to
add new technologies to the portfolio and companies,
which constitute a strategic good match to our business
segments.
•
Increasing prices on commodities, such as crops, metals
and oil, which are driving demand in the global agriculture,
marine and other heavy industry sectors, are associated
with considerable volatility, leading to low visibility as well
as having a direct impact on our own raw materials.
• Fluctuations in foreign exchange rates may affect top-line
growth.
Forward-looking statements
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, the geopolitical
environment, 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 or our
own raw material prices, changes in climate policy, legislation,
regulation or standards, and uncertainty in connection with
acquisitions or potential acquisitions and divestments.
Unless required by law, Danfoss is under no duty and
undertakes no obligation to update or revise any forward-
looking statements after the publication of this Annual
Report.
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Annual Report 2018 The Danfoss Group Our business
Postgraduate Program
We are building a better future and talents are
playing a vital part. Our global Postgraduate
Program opens great opportunities to develop a
career, for example, by working across functions
and borders, exploring different cultures, and
being part of the Danfoss family. Read more in
the Sustainability Report 2018.
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Annual Report 2018 The Danfoss Group Click to navigate
CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Business model
Our business model builds on competitive
advantages: Application knowledge,
innovation and leading positions. Key
elements are an aligned approach across
the Group, our operational setup with
extensive, global coverage, and a strong
regional presence close to customers.
Climate change
Application
knowledge
Close to customers
Innovation
Differentiate through
new technology
Competitive
advantage
Food supply
Digitalization
Leading
positions
Exploit scale
Urbanization
Electrification
Mega-trends
Our business model links to global mega-trends,
which are driving new opportunities for Danfoss. Our
mechanical, electrical and software engineering enable
bold innovation and constant improvement. The mega-
trends change the way we do business, our customers’
needs and expectations, and inspire us to engineer
a sustainable, energy-efficient future. We engineer
tomorrow.
The mega-trends, which are described at the following
pages, are addressing our prioritized Sustainable
Development Goals (SDGs). We have incorporated the
SDGs into our Sustainability Program. Read more about
our Sustainability Program and how we contribute to the
SDGs in the Sustainability Report 2018.
Application knowledge
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
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.
Leading positions
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.
Our shared operating model further helps to drive scale
advantages, increased customer value and a world-class
supply chain, and we share a unique business system with
a strong focus on safety, quality, delivery, and cost.
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Digitalization
The world has gone digital. Every day, the
digital transformation is picking up speed,
transforming our society, our energy systems,
and the industries we operate in.
What we do
To increase customer value, Danfoss develops and provides digital
solutions and advanced services based on innovative software
and connectivity. Some examples are the modern thermostat
Danfoss Link® used in heating solutions and BELT telematics used
in off-highway machinery, providing customers additional data
and analytics for optimal management. Furthermore, we are
improving the digital customer experience with better end-to-
end processes between our supply chain and our customers,
enabled by the new common IT system, One ERP, in combination
with the corporate website, danfoss.com.
In our innovation, we use digital technology to bring speed into
Research & Development, for example by using simulation and
3D printing, and we optimize our production by implementing
smart technology. Just one example is the Danfoss refrigeration
and air-conditioning compressor factory in Wuqing, China, where
operators are supplied with components by autonomous robot
vehicles and use intelligent bluetooth-connected tools, which
automatically detect if an assembly process is being incorrectly
performed. The factory has been recognized as one of the world's
smartest factories by the World Economic Forum from among
1,000 candidate sites.
A full digital district
energy solution
Advances in computing power and
efficiency have enabled more powerful and
sophisticated analytics, such as artificial
intelligence (AI) and automation. Danfoss
software tools provide a full suite of digital
software for district energy utilities. Connected
field devices integrate with optimization
systems – improving energy efficiency and
reducing operational cost.
Danfoss MyDrive Connect
Internet of Things is the concept of connecting
everyday objects to networks to enable
people to remotely control processes or
manage devices. An app connected to a
wireless display unit placed on the outside of
an otherwise inaccessible air-handling unit,
enables our customer to perform the same
troubleshooting as would previously have
been done via the display inside the unit –
creating speed and cost-efficiency in their
daily work.
Sources: Digitalization & Energy, International Energy Agency, 2017 / Peter Asmus, Principal Research Analyst at Navigant Research, 2017
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Electrification
The world is engaged in a global
transition from fossil to green energy.
As electricity generation shifts to more
renewable sources, electrification creates
further environmental benefits by shifting
many end-uses away from fossil fuel
sources.
What we do
With electrification comes great opportunities to enhance the
flexibility, efficiency and environmental performance of almost
any application or system, leading to increased customer value.
Danfoss has a range of innovative technologies, for example
solutions used for power conversion in wind turbines and solar.
Several of our technologies can also be seen in automotive
applications, for example customized silicon carbide (SiC) power
modules, which are used in electric and hybrid cars. In the off-
highway market, we help manufacturers to meet goals related
to efficiency and to meet strengthened emissions regulations
by providing electric solution technology for hybrid and electric
vehicles with integrated and smarter systems. In the marine
and offshore industry, we help shipyard and vessel owners to
optimize operational performance and minimize environmental
impact by providing flexibility in design and installation.
As we have seen customer demand grow, we are investing
heavily to further strengthen our capabilities within
electrification. For example, with the acquisitions of the
technology businesses Visedo in 2017 and AXCO-Motors in
2018, which have made Danfoss the world’s number one
in electric solutions for off-highway and marine transport
technology.
Electric and hydraulic
solutions
Infrastructure and transportation are
important for the cities of tomorrow. Off-
highway mobile vehicles, such as construction
machines, are benefiting from available
Danfoss electric solution technology to
achieve improved productivity, increased
energy efficiency and significant reductions of
noise and emissions.
Electric vehicles and charging
The global energy transition is leading to
widespread electrification, which allows
us to manage, control and optimize power
conversion efficiently. Danfoss AC drives are
used for converting electrical power from
one form to another. Danfoss also provides
innovative technologies and customized
power modules, which are used in a wide
range of automotive applications, such as
electric traction inverters, electrical power
steering and chargers, leading to sustainable
energy consumption and reduced emissions.
Sources: Bloomberg, New Energy Outlook, 2017 / International Energy Agency, Energy Technology Perspectives, 2017
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Urbanization
Today there are 7.6 billion people on the
planet. By 2050, the world population
will reach a total of 9.8 billion people, and
as the population grows, urbanization is
accelerating. Each year, around 77 million
people move from rural to urban areas,
meaning, that by 2050, 70 percent of the
population will be living in cities against
54 percent today.
What we do
The growing population and increased urbanization will lead to
higher living standards and a demand for comfort. To support
this, the need for construction and refurbishment of residential
and commercial buildings will be massive. Moreover, the urban
growth will entail new infrastructure for transportation, water,
power, heating, cooling, and waste handling.
In all this infrastructure, Danfoss has the technologies, which
can save energy and increase efficiency – and by adding
the digital dimension to our solutions, and contributing to
connecting the world’s energy systems, we are part of making
the urbanization sustainable. A few examples are our skillfully
engineered components, solutions and services used in road-
building machinery and district energy systems, for heating and
air conditioning of buildings, refrigeration in supermarkets, as
well as precision motor control in elevators, lifts and escalators.
Waterborne systems for
heating in multi-family homes
Efficient cities are key in reducing greenhouse
gas emissions and improving the health
of the world’s population as well as overall
quality of life. In the cities of tomorrow,
renewable-generated electricity and
waterborne systems are being increasingly
integrated, creating one integrated smart-
energy system. Danfoss provides automation
and energy-control solutions enabled by
cloud and connectivity, helping to increase
energy efficiency and reduce energy
consumption and operational cost.
Danfoss drives
Moving people and goods are crucial to our
modern ways of living. Ensuring reliable
elevators, lifts and escalators depends on
high-precision motor control. Using available
Danfoss technology such as variable frequency
control of all fans, pumps and lifts, it is possible
to ensure optimal energy efficiency, while
keeping safety and comfort at the highest
level, and achieving significant CO2 reduction.
Sources: NOAA, Global Climate Change Indicators, 2018 / International Energy Agency, Energy Technology Perspectives, 2016
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Enabling higher productivity
The world’s growing population is driving
increased demand for food. Ensuring
efficient and productive farming practices
in agricultural machines, such as tractors,
sprayers and harvesters, is therefore crucial.
Danfoss solutions support and enable smart
farming solutions, increasing the productivity
of every acre of land.
Food supply
A third of all food produced for human
consumption is either lost or wasted due
to an incomplete cold chain. Furthermore,
food wastage has a major environmental
impact: Food that is harvested, but
ultimately lost or wasted, consumes about
a quarter of all water used by agriculture
and accounts for about 8 percent of
global greenhouse gas emissions.
What we do
Danfoss products and solutions play a vital role in food supply,
from helping to optimize the harvest on farms and the efficiency
in the food production to making refrigerated transportation and
storage of food possible worldwide.
Danfoss offers a broad range of digital techniques to monitor and
optimize agricultural production processes. By combining sensors,
robots, GPS, mapping tools and data-analytics software, farmers
receive feedback in real time and can then deliver water, pesticide
or fertilizer in calibrated doses just to the areas that need it.
Furthermore, our cold chain solutions help to secure that products
remain at the correct temperature and humidity, optimizing food
safety and security – while lowering the CO2 footprint. One example
is our cost-effective and energy-efficient cold-room solutions, saving
up to 20 percent in energy costs. Or take our food retail solutions,
which offer highly efficient refrigeration systems optimized for CO2
refrigeration and other natural refrigerants. They provide a low total
cost of ownership, while at the same time reducing the carbon
footprint of the supermarket refrigeration system.
Energy-efficient cold-room
solutions
Global food security and minimized food
wastage can be ensured by temperature
control. Using state-of-the-art cold storage,
food items can be stored at varying loads –
ensuring high-quality food safety and minimal
food loss from farm to fork. Danfoss cold-
room solutions are cost-effective and energy
efficient, reducing operational expenditure by
saving 15-20 percent in energy costs vis-à-vis
conventional cold stores.
Sources: FAO, Global Food Losses and Waste, 2014 / FAO, Food wastage footprint, 2013
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Climate change
The planet's average surface temperature
has risen about 1.1 degrees Celsius since the
late 19th century, a change driven largely by
increased carbon dioxide and other human-
made emissions into the atmosphere. Most
of the warming has occurred in the past 35
years, with 17 of the 18 warmest years on
record occurring since 2001.
What we do
Danfoss contributes to combatting climate change through our
energy-efficient and electrification technologies, allowing the
world to get more from less. This mindset is built into all our
technologies. No matter what we produce, the goal is always to
optimize performance, increase efficiency, and minimize impact
on the environment.
Through our innovative technologies, we have a huge impact on
the solutions needed for the world to mitigate the most serious
effects of global warming. Just one example is the technology
we provide, which enables off-highway machines, ferries and
cars to go hybrid or electric.
Furthermore, Danfoss delivers technologies and solutions
for connected smart energy systems, creating enormous
opportunities to reduce carbon emissions. A few examples are
connecting electricity, heating and cooling, and the integration of
various energy sources, such as renewables and recovered energy
from data centers or supermarkets. This will contribute to creating
the synergies needed to increase efficiency and deliver on the
United Nation's global action plan to keep global warming below
two degrees Celsius as set out in the Paris Agreement.
Air conditioning of buildings
Energy efficiency is the largest contributor to
global greenhouse gas reductions towards
2050. Danfoss’ wide portfolio and unique
technical expertise in every core component
supporting chiller optimization result in energy
savings of up to 40 percent during operation.
The Danfoss oil-free Turbocor® series of
centrifugal compressors use environmentally
friendly refrigerants and deliver the highest
energy efficiency on the market.
Energy-efficient hybrid
machinery
Sustainable energy consumption depends on
efficiency and the ability to integrate more
sustainable energy sources. Danfoss provides
full electric power and control solutions for
hybrid off-highway vehicles, leading to higher
flexibility, energy efficiency and environmental
performance.
Sources: United Nations, World Population Prospects, 2017 / World Resources Institute, Accelerating Building Efficiency, 2016 / United Nations, SDG facts & figures, 2015
15/117
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Strategy
Core & Clear – Going Great
Every day we strive to meet our aspiration
through our strategy “Core & Clear – Going
Great”, which is bringing our customers into
the center of everything we do.
Our aspiration
We engineer tomorrow and build a better future
Our strategy
Our Aspiration
To engineer is to unleash opportunities. All over the world,
engineering solves challenges and drives progress in our
society. Our four businesses provide the energy-efficient
systems and innovative solutions, which are needed to
build a better future.
We want to be a faster, more agile and less complex Danfoss,
bringing the customer perspective into the middle of everything
we do. The Core & Clear strategy continues, and the key elements
of the previous phases of Core & Clear have been integrated into
the new phase Going Great, which was launched in 2018.
There are four strategic focus areas to Going Great: Leading
Portfolio, Customers & Growth, Innovative Solutions, and Lean &
Agile. All of this is built on Our Foundation, which is our high-
performing, diverse teams, who make the strategy come alive.
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 are 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 businesses
and core competencies, where we create the most value. "Clear"
means that we focus on earning customer loyalty through
excellence in quality, reliability and innovation which is our clear
promise to our customers.
Leading Portfolio
Customers & Growth
Innovative Solutions
Lean & Agile
Our foundation
High-performing diverse teams
Our Foundation
Going Great has a strong focus on people and the power
of our high-performing, diverse teams, driving innovation
and better results. We focus our energy on how we
achieve our ambitious goals through frontline passion,
entrepreneurship to reduce complexity and development
of highly competent and engaged teams. Our Behaviors are
further described in the Sustainability Report 2018.
16/117
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Core & Clear – Going Great
Our aspiration
We engineer tomorrow and build a better future
Our Strategy
Four focus areas contain our strategic initiatives and define how we will develop Danfoss.
Our strategy
Leading Portfolio
Customers & Growth
Innovative Solutions
Lean & Agile
Our foundation
High-performing diverse teams
Leading Portfolio
Leading Portfolio is about accelerating growth and
strengthening our leading positions as number one
or two globally in the respective industries of the four
business segments. This is achieved through organic
growth as well as acquisitions of well-performing
companies. We also do strategic acquisitions to add
new technologies to the product portfolio.
Customers & Growth
Customers & Growth is about putting our customers'
needs at the center of everything we do in every
part of Danfoss to fuel and accelerate our profitable
growth momentum. We constantly focus on excellent
customer service by being fast, easy and relevant to do
business with. A key lever is a best-in-industry digital
infrastructure with a seamless end-to-end digital
customer experience.
Innovative Solutions
Innovative Solutions is about higher customer
value. Customers should turn to Danfoss for
connected products and solutions and value-adding
services. We use our deep application knowledge,
new technology and digitalization to drive the
differentiation. To fuel the digital transformation,
we invest significantly in electronics and software
capabilities, and we use incubation projects to
accelerate. Speed is a key lever, for example by
increasing use of 3D printing and simulation.
Lean & Agile
Lean & Agile is about becoming faster, more agile
and less complex. We want to be the best at safety,
quality, delivery and cost in the markets, in which
we operate. We are building a flexible supply chain
that reacts fast to the needs of the customer. Key is a
strong IT infrastructure and smart factories. To create
increased competitive advantage, we stay focused
on being lean and agile – Harvesting the potential
of digital technologies and fighting unnecessary
complexity.
17/117
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses 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
7,625
employees worldwide
25
6,179
employees worldwide
15
4,645
employees worldwide
11
4,898
employees worldwide
24
factories in 12 countries
factories in 10 countries
factories in 7 countries
factories in 11 countries
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 solutions are part of applications such as
tractors, harvesters, road graders, cranes and
vessels, helping to move, lift, push and pull.
Customers and industries
• Original equipment manufacturers (OEMs)
• Distributors
Products and solutions
Cooling solutions are energy efficient and
minimize the impact of cooling on global
warming:
• Compressors and condensing units
• Valves and electronic controllers
• Sensors
• High-pressure pumps
• Heat exchangers
The solutions are part of applications such as
chillers, rooftop air-conditioning systems and
cold-storage solutions used in residential and
commercial buildings.
Customers and industries
• Original equipment manufacturers (OEMs)
• Distributors and contractors
Installers and end-users
•
Operating within agricultural, construction,
road building, marine and specialty markets.
Operating within food retail, air conditioning and
industrial and commercial refrigeration.
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 solutions are used to provide optimal
operation of pumps, fans, chillers, conveyors,
electric vehicles, hybrid systems and power
conversion.
Customers and industries
• Original equipment manufacturers (OEMs)
• Distributors and system integrators
•
Installers and end-users
Operating within machine manufacturing,
water treatment, food & beverage, heating,
ventilation and air-conditioning (HVAC)
systems, marine & offshore, automotive and
renewable energy generation.
Products and solutions
Advanced components, solutions and service
for:
• Heating and cooling systems
• Radiator valves and thermostats
• Floor heating and heat pumps
• Heat cost allocators
• Heat exchangers
The solutions are used in buildings such as
single or multi-family houses, office buildings
and in district heating networks.
Customers and industries
• Original equipment manufacturers (OEMs)
• Distributors and designers
Installers and end-users
•
Operating within heating, ventilation and
air-conditioning (HVAC) systems, hydronic
balancing and district energy.
18/117
Annual Report 2018 The Danfoss Group Our performance
Digital factory
The digital journey has started... the one where
robots and data become a larger part of our
daily lives. In 2018, we have made a crucial
step forward in the digital development of our
innovation and factories, where 3D printing,
robots and increased use of data allow us to
deliver even better quality to our customers –
faster and more flexible.
19/117
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Financial highlights
Financial highlights
Financial highlights
Financial highlights
Financial highlights
Financial highlights
EURm
EURm
EURm
EURm
EURm
EURm
PROFIT AND LOSS ACCOUNTS
PROFIT AND LOSS ACCOUNTS
PROFIT AND LOSS ACCOUNTS
PROFIT AND LOSS ACCOUNTS
PROFIT AND LOSS ACCOUNTS
PROFIT AND LOSS ACCOUNTS
Net sales
Net sales
Net sales
Net sales
Net sales
Net sales
Operating profit before depreciation, amortization, impairment and other operating income and expenses, etc.
Operating profit before depreciation, amortization, impairment and other operating income and expenses, etc.
Operating profit before depreciation, amortization, impairment and other operating income and expenses, etc.
Operating profit before depreciation, amortization, impairment and other operating income and expenses, etc.
Operating profit before depreciation, amortization, impairment and other operating income and expenses, etc.
Operating profit before depreciation, amortization, impairment and other operating income and expenses, etc.
Operating profit before depreciation, amortization and impairment (EBITDA)
Operating profit before depreciation, amortization and impairment (EBITDA)
Operating profit before depreciation, amortization and impairment (EBITDA)
Operating profit before depreciation, amortization and impairment (EBITDA)
Operating profit before depreciation, amortization and impairment (EBITDA)
Operating profit before depreciation, amortization and impairment (EBITDA)
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 excl. other income and expenses, etc.
Operating profit excl. other income and expenses, etc.
Operating profit excl. other income and expenses, etc.
Share of profit from associates and joint ventures after tax
Share of profit from associates and joint ventures after tax
Share of profit from associates and joint ventures after tax
Share of profit from associates and joint ventures after tax
Share of profit from associates and joint ventures after tax
Share of profit from associates and joint ventures after tax
Operating profit (EBIT)
Operating profit (EBIT)
Operating profit (EBIT)
Operating profit (EBIT)
Operating profit (EBIT)
Operating profit (EBIT)
Financial items, net
Financial items, net
Financial items, net
Financial items, net
Financial items, net
Financial items, net
Net profit
Net profit
Net profit
Net profit
Net profit
Net profit
BALANCE SHEET
BALANCE SHEET
BALANCE SHEET
Total non-current assets
Total non-current assets
Total non-current assets
Total assets
Total assets
Total assets
Total shareholders' equity
Total shareholders' equity
Total shareholders' equity
Net interest-bearing debt
Net interest-bearing debt
Net interest-bearing debt
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 investing activities
Cash flow from investing activities
Cash flow from investing activities
BALANCE SHEET
BALANCE SHEET
BALANCE SHEET
Total non-current assets
Total non-current assets
Total non-current assets
Total assets
Total assets
Total assets
Total shareholders' equity
Total shareholders' equity
Total shareholders' equity
Net interest-bearing debt
Net interest-bearing debt
Net interest-bearing debt
CASH FLOW STATEMENT
CASH FLOW STATEMENT
Cash flow from operating activities
Cash flow from operating activities
Cash flow from investing activities
Cash flow from investing activities
CASH FLOW STATEMENT
Cash flow from operating activities
Cash flow from investing activities
Acquisition of intangible assets and property, plant and equipment
Acquisition of intangible assets and property, plant and equipment
Acquisition of intangible assets and property, plant and equipment
Acquisition/disposal of subsidiaries and activities
Acquisition/disposal of subsidiaries and activities
Acquisition/disposal of subsidiaries and activities
Acquisition of other investments, etc.
Acquisition of other investments, etc.
Acquisition of other investments, etc.
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/disposal of subsidiaries and activities
Acquisition/disposal of subsidiaries and activities
Acquisition/disposal of subsidiaries and activities
Acquisition of other investments, etc.
Acquisition of other investments, etc.
Acquisition of other investments, etc.
Free cash flow
Free cash flow
Free cash flow
Free cash flow before M&A
Free cash flow before M&A
Free cash flow before M&A
Cash flow from financing activities
Cash flow from financing activities
Cash flow from financing activities
Free cash flow
Free cash flow
Free cash flow
Free cash flow before M&A
Free cash flow before M&A
Free cash flow before M&A
Cash flow from financing activities
Cash flow from financing activities
Cash flow from financing activities
FINANCIAL RATIOS
FINANCIAL RATIOS
FINANCIAL RATIOS
FINANCIAL RATIOS
FINANCIAL RATIOS
FINANCIAL RATIOS
Local currency growth (%)
Local currency growth (%)
Local currency growth (%)
Local currency growth (%)
Local currency growth (%)
Local currency growth (%)
EBITDA margin, excl. other operating income, etc. (%)
EBITDA margin, excl. other operating income, etc. (%)
EBITDA margin, excl. other operating income, etc. (%)
EBITDA margin, excl. other operating income, etc. (%)
EBITDA margin, excl. other operating income, etc. (%)
EBITDA margin, excl. other operating income, etc. (%)
EBITDA margin (%)
EBITDA margin (%)
EBITDA margin (%)
EBITDA margin (%)
EBITDA margin (%)
EBITDA margin (%)
EBIT margin, excl. other operating income, etc. (%)
EBIT margin, excl. other operating income, etc. (%)
EBIT margin, excl. other operating income, etc. (%)
EBIT margin, excl. other operating income, etc. (%)
EBIT margin, excl. other operating income, etc. (%)
EBIT margin, excl. other operating income, etc. (%)
EBIT margin (%)
EBIT margin (%)
EBIT margin (%)
EBIT margin (%)
EBIT margin (%)
EBIT margin (%)
Return on invested capital (ROIC)
Return on invested capital (ROIC)
Return on invested capital (ROIC)
Return on invested capital (ROIC)
Return on invested capital (ROIC)
Return on invested capital (ROIC)
Return on invested capital (ROIC) after tax
Return on invested capital (ROIC) after tax
Return on invested capital (ROIC) after tax
Return on invested capital (ROIC) after tax
Return on invested capital (ROIC) after tax
Return on invested capital (ROIC) after tax
Return on equity (%)
Return on equity (%)
Return on equity (%)
Return on equity (%)
Return on equity (%)
Return on equity (%)
Equity ratio (%)
Equity ratio (%)
Equity ratio (%)
Equity ratio (%)
Equity ratio (%)
Equity ratio (%)
Leverage ratio (%)
Leverage ratio (%)
Leverage ratio (%)
Leverage ratio (%)
Leverage ratio (%)
Leverage ratio (%)
Net interest bearing debt to EBITDA ratio
Net interest bearing debt to EBITDA ratio
Net interest bearing debt to EBITDA ratio
Net interest bearing debt to EBITDA ratio
Net interest bearing debt to EBITDA ratio
Net interest bearing debt to EBITDA ratio
Dividend pay-out ratio (%)
Dividend pay-out ratio (%)
Dividend pay-out ratio (%)
Dividend pay-out ratio (%)
Dividend pay-out ratio (%)
Dividend pay-out ratio (%)
Dividend per 100 DKK share
Dividend per 100 DKK share
Dividend per 100 DKK share
Dividend per 100 DKK share
Dividend per 100 DKK share
Dividend per 100 DKK share
Key figures and financial ratios are defined in Note 25.
Key figures and financial ratios are defined in Note 25.
Key figures and financial ratios are defined in Note 25.
Key figures and financial ratios are defined in Note 25.
Key figures and financial ratios are defined in Note 25.
Key figures and financial ratios are defined in Note 25.
2014
2014
2014
4,611
4,611
4,611
815
815
815
784
784
784
584
584
584
-25
-25
-25
526
526
526
-60
-60
-60
307
307
307
3,469
3,469
3,469
4,955
4,955
4,955
1,779
1,779
1,779
1,537
1,537
1,537
584
584
584
-1,419
-1,419
-1,419
-133
-133
-133
-990
-990
-990
-296
-296
-296
-835
-835
-835
455
455
455
830
830
830
3
3
3
17.7
17.7
17.7
17.0
17.0
17.0
12.7
12.7
12.7
11.4
11.4
11.4
19.4
19.4
19.4
13.2
13.2
13.2
18.4
18.4
18.4
35.9
35.9
35.9
86.4
86.4
86.4
2.0
2.0
2.0
21.8
21.8
21.8
6.6
6.6
6.6
2015
2015
2015
5,099
5,099
5,099
824
824
824
798
798
798
568
568
568
9
9
9
549
549
549
-47
-47
-47
348
348
348
3,507
3,507
3,507
4,987
4,987
4,987
2,067
2,067
2,067
1,292
1,292
1,292
626
626
626
-217
-217
-217
-157
-157
-157
-30
-30
-30
-30
-30
-30
409
409
409
456
456
456
-458
-458
-458
2
2
2
16.2
16.2
16.2
15.7
15.7
15.7
11.1
11.1
11.1
10.8
10.8
10.8
16.3
16.3
16.3
11.4
11.4
11.4
17.6
17.6
17.6
41.4
41.4
41.4
62.5
62.5
62.5
1.6
1.6
1.6
20.4
20.4
20.4
6.9
6.9
6.9
20/117
2014
2016
2014
2016
2014
2016
2015
2017
2015
2017
2015
2017
2016
2018
2016
2018
2016
2018
2017
2017
2017
2017
2017
2017
2018
2018
2018
2018
2018
2018
DKKm
DKKm
DKKm
DKKm
DKKm
DKKm
4,611
815
784
584
-25
526
-60
307
5,271
4,611
4,611
5,271
5,271
838
815
815
838
838
811
784
784
811
811
589
584
584
589
589
4
-25
4
-25
4
572
526
526
572
572
-44
-60
-44
-60
-44
394
307
307
394
394
5,099
824
798
568
9
549
-47
348
5,827
5,099
5,099
5,827
5,827
923
824
824
923
923
882
798
798
882
882
685
568
568
685
685
2
9
2
9
2
645
549
549
645
645
-49
-47
-47
-49
-49
445
348
445
348
445
6,098
5,271
5,271
6,098
6,098
929
838
838
929
929
926
811
811
926
926
685
589
589
685
685
-33
4
-33
4
-33
648
572
572
648
648
-45
-44
-44
-45
-45
463
394
463
394
463
5,271
838
811
589
4
572
-44
394
3,788
3,469
3,469
3,788
3,788
5,457
4,955
4,955
5,457
5,457
2,325
1,779
1,779
2,325
2,325
1,284
1,537
1,284
1,537
1,284
3,469
4,955
1,779
1,537
3,883
3,507
3,507
3,883
3,883
5,583
4,987
4,987
5,583
5,583
2,569
2,067
2,067
2,569
2,569
1,050
1,292
1,050
1,292
1,050
3,507
4,987
2,067
1,292
3,886
3,788
3,788
3,886
3,886
5,760
5,457
5,457
5,760
5,760
2,654
2,325
2,325
2,654
2,654
962
1,284
962
1,284
962
3,788
5,457
2,325
1,284
693
584
584
693
693
-494
-1,419
-1,419
-494
-494
-226
-133
-133
-226
-226
-251
-990
-990
-251
-251
-17
-296
-17
-296
-17
199
-835
-835
199
199
459
455
455
459
459
-175
830
-175
830
-175
584
-1,419
-133
-990
-296
-835
455
830
4
3
4
3
4
15.9
17.7
15.9
17.7
15.9
15.4
17.0
15.4
17.0
15.4
11.2
12.7
11.2
12.7
11.2
10.9
11.4
10.9
11.4
10.9
16.3
19.4
16.3
19.4
16.3
12.0
13.2
12.0
13.2
12.0
17.2
18.4
17.2
18.4
17.2
42.6
35.9
42.6
35.9
42.6
55.2
86.4
55.2
86.4
55.2
1.6
2.0
1.6
2.0
1.6
17.0
21.8
17.0
21.8
17.0
6.7
6.6
6.7
6.6
6.7
3
17.7
17.0
12.7
11.4
19.4
13.2
18.4
35.9
86.4
2.0
21.8
6.6
742
626
626
742
742
-405
-217
-217
-405
-405
-281
-157
-157
-281
-281
-103
-30
-30
-103
-103
-21
-30
-21
-30
-21
337
409
409
337
337
445
456
456
445
445
-373
-458
-373
-458
-373
626
-217
-157
-30
-30
409
456
-458
12
2
12
2
12
15.8
16.2
15.8
16.2
15.8
15.1
15.7
15.1
15.7
15.1
11.8
11.1
11.8
11.1
11.8
11.1
10.8
11.1
10.8
11.1
17.8
16.3
17.8
16.3
17.8
13.0
11.4
13.0
11.4
13.0
17.3
17.6
17.3
17.6
17.3
46.0
41.4
46.0
41.4
46.0
40.9
62.5
40.9
62.5
40.9
1.2
1.6
1.2
1.6
1.2
18.1
20.4
18.1
20.4
18.1
8.1
6.9
8.1
6.9
8.1
2
16.2
15.7
11.1
10.8
16.3
11.4
17.6
41.4
62.5
1.6
20.4
6.9
673
693
693
673
673
-227
-494
-494
-227
-227
-302
-226
-226
-302
-302
88
-251
-251
88
88
-13
-17
-13
-17
-13
446
199
199
446
446
362
459
459
362
362
-424
-175
-424
-175
-424
693
-494
-226
-251
-17
199
459
-175
7
4
7
4
7
15.2
15.9
15.2
15.9
15.2
15.2
15.4
15.2
15.4
15.2
11.2
11.2
11.2
11.2
11.2
10.6
10.9
10.6
10.9
10.6
17.9
16.3
17.9
16.3
17.9
13.4
12.0
13.4
12.0
13.4
17.0
17.2
17.0
17.2
17.0
46.1
42.6
46.1
42.6
46.1
36.2
55.2
36.2
55.2
36.2
1.0
1.6
1.0
1.6
1.0
17.4
17.0
17.4
17.0
17.4
8.1
6.7
8.1
6.7
8.1
4
15.9
15.4
11.2
10.9
16.3
12.0
17.2
42.6
55.2
1.6
17.0
6.7
43,342
5,827
5,827
5,827
43,342
43,342
6,868
923
923
923
6,868
6,868
6,557
882
882
882
6,557
6,557
5,094
685
685
685
5,094
5,094
13
2
2
13
2
13
4,797
645
645
645
4,797
4,797
-364
-49
-49
-49
-364
-364
3,308
445
445
3,308
445
3,308
3,883
5,583
2,569
1,050
28,908
3,883
28,908
3,883
28,908
41,562
5,583
5,583
41,562
41,562
19,125
2,569
2,569
19,125
19,125
7,814
1,050
7,814
1,050
7,814
5,521
742
742
5,521
5,521
-3,014
-405
-405
-3,014
-3,014
-2,092
-281
-281
-2,092
-2,092
-765
-103
-103
-765
-765
-157
-21
-157
-21
-157
2,507
337
337
2,507
2,507
3,307
445
445
3,307
3,307
-2,777
-373
-2,777
-373
-2,777
742
-405
-281
-103
-21
337
445
-373
12
12
12
12
12
12
15.8
15.8
15.8
15.8
15.8
15.8
15.1
15.1
15.1
15.1
15.1
15.1
11.8
11.8
11.8
11.8
11.8
11.8
11.1
11.1
11.1
11.1
11.1
11.1
17.8
17.8
17.8
17.8
17.8
17.8
13.0
13.0
13.0
13.0
13.0
13.0
17.3
17.3
17.3
17.3
17.3
17.3
46.0
46.0
46.0
46.0
46.0
46.0
40.9
40.9
40.9
40.9
40.9
40.9
1.2
1.2
1.2
1.2
1.2
1.2
18.1
18.1
18.1
18.1
18.1
18.1
60.2
8.1
8.1
60.2
8.1
60.2
6,098
929
926
685
-33
648
-45
463
45,452
6,098
6,098
45,452
45,452
6,926
929
929
6,926
6,926
6,899
926
926
6,899
6,899
5,101
685
685
5,101
5,101
-243
-33
-243
-33
-243
4,827
648
648
4,827
4,827
-332
-45
-45
-332
-332
3,446
463
3,446
463
3,446
3,886
5,760
2,654
962
29,022
3,886
29,022
3,886
29,022
43,009
5,760
5,760
43,009
43,009
19,822
2,654
2,654
19,822
19,822
7,184
962
962
7,184
7,184
5,014
673
673
673
5,014
5,014
-1,689
-227
-227
-227
-1,689
-1,689
-2,247
-302
-302
-302
-2,247
-2,247
653
88
88
88
653
653
-96
-13
-13
-96
-13
-96
3,325
446
446
446
3,325
3,325
2,700
362
362
362
2,700
2,700
-3,165
-424
-424
-3,165
-424
-3,165
7
7
7
7
7
7
15.2
15.2
15.2
15.2
15.2
15.2
15.2
15.2
15.2
15.2
15.2
15.2
11.2
11.2
11.2
11.2
11.2
11.2
10.6
10.6
10.6
10.6
10.6
10.6
17.9
17.9
17.9
17.9
17.9
17.9
13.4
13.4
13.4
13.4
13.4
13.4
17.0
17.0
17.0
17.0
17.0
17.0
46.1
46.1
46.1
46.1
46.1
46.1
36.2
36.2
36.2
36.2
36.2
36.2
1.0
1.0
1.0
1.0
1.0
1.0
17.4
17.4
17.4
17.4
17.4
17.4
60.2
8.1
8.1
60.2
8.1
60.2
2017
2017
2017
2018
2018
2018
43,342
43,342
6,868
6,868
6,557
6,557
5,094
5,094
13
13
4,797
4,797
-364
-364
3,308
3,308
43,342
6,868
6,557
5,094
13
4,797
-364
3,308
45,452
45,452
6,926
6,926
6,899
6,899
5,101
5,101
-243
-243
4,827
4,827
-332
-332
3,446
3,446
45,452
6,926
6,899
5,101
-243
4,827
-332
3,446
28,908
28,908
41,562
41,562
19,125
19,125
7,814
7,814
28,908
41,562
19,125
7,814
29,022
29,022
43,009
43,009
19,822
19,822
7,184
7,184
29,022
43,009
19,822
7,184
5,521
5,521
-3,014
-3,014
-2,092
-2,092
-765
-765
-157
-157
2,507
2,507
3,307
3,307
-2,777
-2,777
5,521
-3,014
-2,092
-765
-157
2,507
3,307
-2,777
5,014
5,014
-1,689
-1,689
-2,247
-2,247
653
653
-96
-96
3,325
3,325
2,700
2,700
-3,165
-3,165
5,014
-1,689
-2,247
653
-96
3,325
2,700
-3,165
12
12
15.8
15.8
15.1
15.1
11.8
11.8
11.1
11.1
17.8
17.8
13.0
13.0
17.3
17.3
46.0
46.0
40.9
40.9
1.2
1.2
18.1
18.1
60.2
60.2
12
15.8
15.1
11.8
11.1
17.8
13.0
17.3
46.0
40.9
1.2
18.1
60.2
7
7
15.2
15.2
15.2
15.2
11.2
11.2
10.6
10.6
17.9
17.9
13.4
13.4
17.0
17.0
46.1
46.1
36.2
36.2
1.0
1.0
17.4
17.4
60.2
60.2
7
15.2
15.2
11.2
10.6
17.9
13.4
17.0
46.1
36.2
1.0
17.4
60.2
Annual Report 2018 The Danfoss Group
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Financial review
Sales and EBIT margin
Sales
EBIT margin
Equity
Danfoss A/S share of equity
Minority interest
Equity ratio
After high investments in digitalization
and growth initiatives, Danfoss continued
to deliver robust results considering the
global economic environment: 7% growth
in local currency led to net sales of EUR
6,098m. Earnings (EBIT) reached EUR 648m,
corresponding to an EBIT margin of 10.6%.
Cash flow was in line with expectations with
a free cash flow before M&A of EUR 362m.
EURbn
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
%
14
12
10
8
6
4
2
0
EURbn
3.2
2.8
2.4
2.0
1.6
1.2
0.8
0.4
0.0
%
80
70
60
50
40
30
20
10
0
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Sales
In 2018, Danfoss delivered 7% growth in local currency. Net sales
grew EUR 271m to EUR 6,098m (2017: 5,827m). The reported
growth was 5% after a negative currency impact of -2%, mainly
due to the decline in the US dollar in comparison with last year.
Growth was broadly based, but particularly Danfoss Power
Solutions continued the very strong growth momentum. From
a regional perspective, we had strong growth in the mature
markets of North America and Western Europe. The Asia-Pacific
region was also a significant growth driver, driven by strong
growth in China mainly in the first six months of 2018.
During the second half of 2018, Danfoss experienced a slow-
down in growth in some markets, especially in China, due to the
uncertainty created by the current geopolitical environment and,
in particular, ongoing trade conflicts. However, in general, we see
a clear pull in the market to make infrastructure and buildings
smart and efficient and also to drive electrification forward.
was driven by continued high activity levels within construction
and road building.
In Asia-Pacific, growth was driven by increased sales in China
across the Danfoss business segments. The demand in China was
supported by high national investments within construction and
road building, in addition to a strong political focus on energy
efficiency and reduction of carbon emissions, which is benefiting
the sales of Danfoss components and solutions across the
business.
In Western Europe, growth was driven by the Danfoss Power
Solutions and Danfoss Drives segments. Demand was driven
by increasing investment levels within infrastructure, which is
benefiting the sales of Danfoss digital technologies and electronic
control systems.
See Note 1,
page 49, for more information on business and geographical segment reporting
In North America, all Danfoss business segments showed growth
led by a very strong performance in the Danfoss Power Solutions
segment. For Danfoss Power Solutions, specifically, the demand
Earnings
Operating profit (EBIT) amounted to EUR 648m (2017: 645m),
leading to an EBIT margin of 10.6% (2017: 11.1%). A combination
of improved internal efficiency as well as effective pricing
management was partly offsetting the impact from higher
commodity prices and newly imposed tariffs. The EBIT was
positively impacted by the gain from the divestment of the heat
pump business Thermia, but negatively impacted by one-off
costs related to integration of acquired companies and factory
consolidation. Furthermore, 2018 saw a negative impact from the
20% shareholding of SMA Solar Technology AG.
Profit before tax amounted to EUR 603m (2017: 596m), leading
to a net profit of EUR 463m (2017: 445m), up 4% on last year. The
effective tax rate for 2018 was 23.2% (2017: 25.4%).
Assets and liabilities
At December 31, 2018, total assets increased 3% to EUR 5,760m
(2017: 5,583m), driven by the higher activity level, which resulted
in increased trade working capital.
Equity increased 3% to EUR 2,654m (2017: 2,569m), mainly
influenced by the profit of the year, dividend payments and share
buyback. Consequently, the equity ratio, calculated as equity
relative to total assets, was 46.1% (2017: 46.0%), and the return on
equity was 17.0% (2017: 17.3%).
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Net interest-bearing debt (NIBD)
NIBD
NIBD ratio
Cash flow
Cash flow from operating activities
Free cash flow before M&A
Free cash flow
Innovation spend
R&D spend
% of sales
EURbn
2.0
1.5
1.0
0.5
0.0
%
4
3
2
1
0
EURm
1,000
500
0
-500
-1,000
EURm
300
250
200
150
100
50
0
%
6
5
4
3
2
1
0
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Net interest-bearing debt was reduced by EUR 88m to EUR 962m
(2017: 1,050m), leading to a net interest-bearing debt to EBITDA
ratio of 1.0 (2017: 1.2). The acquisitions completed in 2018 were
financed by the cash flow. The Group has a BBB credit rating
assigned by Standard & Poor's with a stable outlook, see Note 11,
page 62, for more information.
The non-current interest-bearing debt maturing after more
than 12 months amounted to EUR 1,007m (2017: 1,023m),
corresponding to 95% (2017: 92%) of the total interest-bearing
debt. At year end, the Group had unutilized and long-term
committed credit facilities of EUR 1.1bn (2017: 1.0bn) in addition
to cash and cash equivalents and ordinary operating credits.
Cash flow
Ensuring a strong cash performance remains a key priority for
Danfoss, as we aim to use the free cash flow before mergers and
acquisitions (M&A) for acquisitions, which will further strengthen our
business, for repayment of interest-bearing debt and for dividend
distribution to owners. See more information on dividends in the
corporate governance section on page 32 and Note 11, page 62.
The free cash flow amounted to EUR 446m (2017: 337m),
mainly due to the proceeds from the divestment of the heat
pump business Thermia. In 2017, the cash flow was impacted
by acquisitions, leading to a higher cash flow from investing
activities last year.
support the innovation activities of Danfoss, and we expect to see
continuously innovative solutions resulting from our acquisitions in
the short to medium term.
Cash flow from operating activities of EUR 673m (2017:
742m) was impacted by changes in working capital, due to
the higher activity level. The sales growth is consuming more
working capital, and for that reason we work consistently with
management of our payables and inventories as well as ensuring
timely payment for our products, solutions and services.
Consequently, the free cash flow before M&A amounted to EUR
362m (2017: 445m). The lower level can mainly be ascribed to
the planned one-off export VAT payment in the beginning of
2018, following a legislative change in Denmark, the higher trade
working capital driven by growth, and increased investments in
digitalization and production capacity.
In 2018, the research and development spend increased 9% to
EUR 255m (2017: 234m), corresponding to 4.2% of sales (2017:
4.0%). During the year, Danfoss filed 156 (2017: 105) new patent
applications, and 534 (2017: 340) patents were granted to the Group.
At year-end, Danfoss had a total of 1,543 (2017: 1,399) patent families.
Divestment and acquisitions
Danfoss has a long-term focus on strengthening the business by
offering the best possible solutions for our customers and partners.
In 2018, Danfoss completed one divestment and four acquisitions,
which have added new digital technologies and electric solutions
to the product portfolio. Furthermore, we announced the
acquisition of another two companies in 2018.
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
On April 16, 2018, Danfoss announced the divestment of the
company Thermia, which includes Danfoss Värmepumpar AB in
Sweden and its activities in Finland and Norway. With this strategic
step, Danfoss ensures a clear focus on the core of the heat pump
activities, delivering advanced components and technologies for
heat pumps.
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Net working capital
Net working capital (NWC)
NWC % of sales
Number of employees
Headcount
EURm
500
400
300
200
100
0
%
10
8
6
4
2
0
28,000
26,000
24,000
22,000
20,000
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
27,795
employees worldwide
+1,150
in 2018
On July 12, 2018, Danfoss announced an agreement to acquire
the remote-control business from the Spanish company
Ikusi. The remote-control business includes equipment and
technologies for wireless operation and control of truck-mounted
cranes, winches, off-road machines, and other applications.
The acquisition reflects Danfoss’ strategic focus on utilizing
connectivity as a competitive advantage.
On August 31, 2018, Danfoss announced the acquisition of
the Finnish business AXCO-Motors – a technology leader in
large mobile electric solutions. The business includes design,
manufacturing, sales and service for electric motors and
generators for hydro, marine and mobile electric solutions. The
acquisition reflects Danfoss’ strategic focus on adding more
electric products to the product portfolio and will enable Danfoss
to serve customers with a total package of optimal solutions to
reduce emissions and benefit from the efficiency and productivity
gains that these electric solutions bring in off-highway mobile
machines.
On October 24, 2018, Danfoss announced the acquisition of the
majority shares of Artemis Intelligent Power Ltd. (AIP), an R&D
and engineering company based in Scotland, specializing in
hydraulic system development. The acquisition includes AIP’s
Digital Displacement® technology, which will provide Danfoss
with a competitive advantage in developing innovative products
and systems for off-highway mobile machines. The transaction is
subject to necessary approvals and is expected to close in the first
half of 2019.
On November 9, 2018, Danfoss announced the acquisition of the
privately held Danish company OE3i Holding ApS, which develops
and provides innovative software, digital solutions and advanced
services for planning and optimizing energy. With this technology
acquisition, Danfoss will accelerate and increase its already strong
market position in the district energy industry.
On November 15, 2018, Danfoss announced the acquisition of
AAIM Controls Inc., located in Waynesboro, Pennsylvania, USA. The
company enjoys a leading position in the industrial refrigeration
market in North America and offers a strong portfolio and broad
expertise in electronic regulation and control automation. The
acquisition will enable Danfoss to meet customer requirements
for bundled solutions and complete systems.
strengthen Danfoss' innovative and efficient product offerings
to the agriculture market and confirms our strategic focus on
building leading positions. The transaction is subject to necessary
approvals and is expected to close in the first half of 2019.
Employees
On December 31, 2018, the number of employees had increased
by 1,150 to 27,795 employees, mainly due to the higher activity
level.
Events occurring after the balance sheet date
On January 21, 2019, Danfoss entered into a definitive merger
agreement with the publicly traded company UQM Technologies
Inc. located in Colorado, United States, pursuant to which
Danfoss will acquire all outstanding common shares of UQM.
The transaction includes the entire business of UQM, comprising
design, manufacturing, sales and services for high-efficiency
electric motors, generators, power electronic controllers and fuel
cell compressor drives. The transaction is subject to necessary
approvals and is expected to close in the second quarter of 2019.
On December 19, 2018, Danfoss announced the acquisition of
the privately held Hydraulik Nord Fluidtechnik, a supplier of
hydraulic steering based in Germany. The acquisition will further
We are not aware of any other events after the balance sheet date
of December 31, 2018, which expectedly could have a material
impact on the Group’s financial position.
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses 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 49
Danfoss Power Solutions
Danfoss Cooling
Danfoss Drives
Danfoss Heating
Financial results 2018 / EURm
Financial results 2018 / EURm
Financial results 2018 / EURm
Financial results 2018 / EURm
Sales
2,109
Sales
1,617
Sales
1,420
Sales
Growth in local currency
Reported growth
EBIT*
16%
13%
338
Growth in local currency
Reported growth
EBIT*
4%
2%
239
Growth in local currency
Reported growth
EBIT*
5%
3%
119
Growth in local currency
Reported growth
EBIT*
929
-3%
-4%
120
EBIT margin*
16.0%
EBIT margin*
14.7%
EBIT margin*
8.4%
EBIT margin*
12.9%
Danfoss Power Solutions delivered very strong
sales growth and a profitability at level with
last year. Growth was driven by successful
growth initiatives and a continued upturn in
the off-highway market, in particular within
global construction and road building. The
segment delivered growth across the world
with North America, Asia-Pacific and Western
Europe being significant growth drivers.
Danfoss Cooling delivered solid growth
and a profitability below last year. The sales
performance varied across the regions and
product categories, as some markets are
growing fast, and others are characterized by
lower growth. The segment saw the highest
growth rates in the Asia-Pacific and Western
Europe regions.
Danfoss Drives delivered solid growth and a
profitability below last year. However, when
excluding the result from the 20% shareholding
in SMA Solar Technology AG, Danfoss Drives
delivered a good improvement in profitability.
The sales performance was driven by the drives
part of the segment. The segment saw growth
across the world with a significant impact from
Western Europe and Asia-Pacific.
Danfoss Heating delivered negative growth,
due to the effect of the divestment of the
heat pump business Thermia. The profitability
was above last year, helped by the gain
from the divestment. Sales varied across
the regions with the highest growth rates in
North America and Asia-Pacific, whereas the
segment saw challenging market conditions in
Russia and Turkey.
* Segment EBIT excluding corporate costs not allocated to segments
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses 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
EURm
EURm
EURm
See definition of the financial ratios in Note 25, page 87
EURm
Q1 2017 Q2 2017 Q3 2017 Q4 2017
Q1 2017 Q2 2017 Q3 2017 Q4 2017
Q1 2017 Q2 2017 Q3 2017 Q4 2017
2017
Q1 2018 Q2 2018 Q3 2018 Q4 2018
Q1 2018 Q2 2018 Q3 2018 Q4 2018
Q1 2018 Q2 2018 Q3 2018 Q4 2018
2018
2017
2017
PROFIT AND LOSS ACCOUNTS
PROFIT AND LOSS ACCOUNTS
PROFIT AND LOSS ACCOUNTS
Net sales
Net sales
Net sales
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.
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 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 before depreciation, amortization and impairment (EBITDA)
Operating profit (EBIT)
Operating profit (EBIT)
Operating profit (EBIT)
Operating profit excl. other income and expenses, etc.
Financial items
Financial items
Financial items
Operating profit (EBIT)
Profit before tax
Profit before tax
Profit before tax
Financial items
Net profit
Net profit
Net profit
Profit before tax
Net profit
BALANCE SHEET
Total non-current assets
BALANCE SHEET
Total assets
Total non-current assets
Total shareholders’ equity
Total assets
Net interest-bearing debt
Total shareholders’ equity
Net interest-bearing debt
CASH FLOW STATEMENT
Cash flow from operating activities
CASH FLOW STATEMENT
Cash flow from investing activities
Cash flow from operating activities
Cash flow from investing activities
BALANCE SHEET
BALANCE SHEET
Total non-current assets
Total non-current assets
Total assets
Total assets
Total shareholders’ equity
Total shareholders’ equity
Net interest-bearing debt
Net interest-bearing debt
CASH FLOW STATEMENT
CASH FLOW STATEMENT
Cash flow from operating activities
Cash flow from operating activities
Cash flow from investing activities
Cash flow from investing activities
Acquisition of intangible assets and property, plant and equipment
Acquisition of intangible assets and property, plant and equipment
Acquisition/disposal of subsidiaries and activities
Acquisition/disposal of subsidiaries and activities
Acquisition of other investments, etc.
Acquisition of other investments, etc.
Acquisition of intangible assets and property, plant and equipment
Acquisition/disposal of subsidiaries and activities
Acquisition of intangible assets and property, plant and equipment
Acquisition of other investments, etc.
Acquisition/disposal 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
Cash flow from financing activities
Cash flow from financing activities
Free cash flow
Free cash flow before M&A
Free cash flow
Cash flow from financing activities
Free cash flow before M&A
Cash flow from financing activities
FINANCIAL RATIOS
Local currency growth (%)
FINANCIAL RATIOS
EBITDA margin, excl. other operating income, etc. (%)
Local currency growth (%)
EBITDA margin (%)
EBITDA margin, excl. other operating income, etc. (%)
EBIT margin, excl. other operating income, etc. (%)
EBITDA margin (%)
EBIT margin (%)
EBIT margin, excl. other operating income, etc. (%)
Equity ratio (%)
EBIT margin (%)
Leverage ratio (%)
Equity ratio (%)
Net interest-bearing debt to EBITDA ratio
Leverage ratio (%)
Net interest-bearing debt to EBITDA ratio
Number of employees
FINANCIAL RATIOS
FINANCIAL RATIOS
Local currency growth (%)
Local currency growth (%)
EBITDA margin, excl. other operating income, etc. (%)
EBITDA margin, excl. other operating income, etc. (%)
EBITDA margin (%)
EBITDA margin (%)
EBIT margin, excl. other operating income, etc. (%)
EBIT margin, excl. other operating income, etc. (%)
EBIT margin (%)
EBIT margin (%)
Equity ratio (%)
Equity ratio (%)
Leverage ratio (%)
Leverage ratio (%)
Net interest-bearing debt to EBITDA ratio
Net interest-bearing debt to EBITDA ratio
Number of employees
Number of employees
3,792
3,792
5,675
5,675
2,423
2,423
1,256
1,256
3,725
3,725
5,600
5,600
2,372
2,372
1,350
1,350
1,498
1,498
244
244
228
228
183
183
167
167
-18
-18
149
149
107
107
1,437
1,437
212
212
205
205
150
150
139
139
-9
-9
130
130
93
93
Q1 2017 Q2 2017 Q3 2017 Q4 2017
1,460
206
1,460
205
206
149
205
152
149
-10
152
142
-10
119
142
119
3,883
5,583
3,883
2,569
5,583
1,050
2,569
1,050
742
-405
742
-281
-405
-103
-281
-21
-103
337
-21
445
337
-373
445
-373
12
14.2
12
14.0
14.2
10.2
14.0
10.4
10.2
46.0
10.4
40.9
46.0
1.2
40.9
1.2
25,828
26,645
25,828
1,432
261
1,432
244
261
203
244
187
203
-12
187
175
-12
126
175
126
3,696
5,556
3,696
2,466
5,556
1,171
2,466
1,171
361
-172
361
-152
-172
-13
-152
-7
-13
189
-7
203
189
-210
203
-210
13
18.2
13
17.0
18.2
14.2
17.0
13.0
14.2
44.4
13.0
47.5
44.4
1.4
47.5
1.4
25,528
26,161
25,528
1,437
212
1,437
205
212
150
205
139
150
-9
139
130
-9
93
130
93
3,792
5,675
3,792
2,423
5,675
1,256
2,423
1,256
71
-52
71
-49
-52
-1
-49
-2
-1
19
-2
20
19
-3
20
-3
12
14.7
12
14.3
14.7
10.4
14.3
9.7
10.4
42.7
9.7
51.8
42.7
1.5
51.8
1.5
25,528
1,498
244
1,498
228
244
183
228
167
183
-18
167
149
-18
107
149
107
3,725
5,600
3,725
2,372
5,600
1,350
2,372
1,350
132
-112
132
-94
-112
-11
-94
-7
-11
20
-7
32
20
-28
32
-28
11
16.3
11
15.2
16.3
12.2
15.2
11.1
12.2
42.4
11.1
56.9
42.4
1.6
56.9
1.6
25,828
132
132
-112
-112
-94
-94
-11
-11
-7
-7
20
20
32
32
-28
-28
12
12
14.7
14.7
14.3
14.3
10.4
10.4
9.7
9.7
42.7
42.7
51.8
51.8
1.5
1.5
11
11
16.3
16.3
15.2
15.2
12.2
12.2
11.1
11.1
42.4
42.4
56.9
56.9
1.6
1.6
71
71
-52
-52
-49
-49
-1
-1
-2
-2
19
19
20
20
-3
-3
3,696
3,696
5,556
5,556
2,466
2,466
1,171
1,171
1,432
1,432
261
261
244
244
203
203
187
187
-12
-12
175
175
126
126
2017
5,827
923
5,827
882
923
685
882
645
685
-49
645
596
-49
445
596
445
3,883
5,583
3,883
2,569
5,583
1,050
2,569
1,050
742
-405
742
-281
-405
-103
-281
-21
-103
337
-21
445
337
-373
445
-373
12
15.8
12
15.1
15.8
11.8
15.1
11.1
11.8
46.0
11.1
40.9
46.0
1.2
40.9
1.2
26,161
26,645
26,161
361
361
-172
-172
-152
-152
-13
-13
-7
-7
189
189
203
203
-210
-210
13
13
18.2
18.2
17.0
17.0
14.2
14.2
13.0
13.0
44.4
44.4
47.5
47.5
1.4
1.4
3,890
3,890
5,804
5,804
2,679
2,679
1,037
1,037
1,474
1,474
232
232
222
222
174
174
166
166
-10
-10
156
156
113
113
1,567
1,567
245
245
266
266
184
184
204
204
-12
-12
192
192
140
140
Q1 2018 Q2 2018 Q3 2018 Q4 2018
1,529
208
1,529
195
208
145
195
100
145
-11
100
88
-11
88
88
88
3,847
3,847
3,886
5,821
5,821
5,760
3,886
2,471
2,471
2,654
5,760
1,269
962
1,269
2,654
962
673
-227
673
-302
-227
88
-302
-13
88
446
-13
362
446
-424
362
-424
8
8
4
15.7
15.7
13.6
4
17.0
12.8
17.0
13.6
11.8
11.8
9.5
12.8
13.0
13.0
6.5
9.5
42.5
42.5
46.1
6.5
51.3
36.2
51.3
46.1
1.4
1.4
1.0
36.2
1.0
27,141
27,795
27,141
1,528
244
1,528
243
244
182
243
178
182
-12
178
167
-12
122
167
122
3,862
5,853
3,862
2,571
5,853
1,138
2,571
1,138
334
-88
334
-184
-88
101
-184
-5
101
246
-5
148
246
-237
148
-237
9
9
7
15.7
15.7
16.0
7
15.1
15.9
15.1
16.0
11.8
11.8
11.9
15.9
11.3
11.3
11.7
11.9
46.2
46.2
43.9
11.7
38.7
44.3
38.7
43.9
1.2
1.2
1.2
44.3
1.2
26,926
27,753
26,926
5,827
5,827
1,567
923
923
245
1,567
882
882
266
245
685
685
184
266
645
645
204
184
-49
-12
-49
204
596
192
596
-12
445
140
445
192
140
3,883
3,883
3,847
5,583
5,583
5,821
3,847
2,569
2,569
2,471
5,821
1,050
1,269
1,050
2,471
1,269
742
742
99
-405
11
-405
-281
99
-111
-281
-103
11
131
-103
-111
-21
-9
-21
131
337
110
337
-9
445
445
-17
110
-373
-115
-373
-17
-115
12
12
8
15.8
15.8
15.7
8
15.1
17.0
15.1
15.7
11.8
11.8
11.8
17.0
11.1
11.1
13.0
11.8
46.0
46.0
42.5
13.0
40.9
51.3
40.9
42.5
1.2
1.2
1.4
51.3
1.4
26,645
27,141
26,645
1,460
1,460
1,474
206
206
232
1,474
205
205
222
232
149
149
174
222
152
152
166
174
-10
-10
-10
166
142
156
142
-10
119
113
119
156
113
3,883
3,883
3,890
5,583
5,583
5,804
3,890
2,569
2,569
2,679
5,804
1,050
1,037
1,050
2,679
1,037
742
742
48
-405
-48
-405
-281
48
-49
-281
-103
-48
0
-103
-49
-21
1
-21
0
337
0
337
1
445
0
445
0
-373
2
-373
0
2
12
9
12
14.2
14.2
15.7
9
14.0
15.1
14.0
15.7
10.2
10.2
11.8
15.1
10.4
10.4
11.3
11.8
46.0
46.0
46.2
11.3
40.9
38.7
40.9
46.2
1.2
1.2
1.2
38.7
1.2
26,645
26,926
26,645
99
99
11
11
-111
-111
131
131
-9
-9
110
110
-17
-17
-115
-115
48
48
-48
-48
-49
-49
0
0
1
1
0
0
0
0
2
2
3,862
3,862
5,853
5,853
2,571
2,571
1,138
1,138
1,528
1,528
244
244
243
243
182
182
178
178
-12
-12
167
167
122
122
2018
6,098
929
6,098
926
929
685
926
648
685
-45
648
603
-45
463
603
463
3,886
5,760
3,886
2,654
5,760
962
2,654
962
673
-227
673
-302
-227
88
-302
-13
88
446
-13
362
446
-424
362
-424
7
7
7
16.0
16.0
15.2
7
15.9
15.2
15.9
15.2
11.9
11.9
11.2
15.2
11.7
11.7
10.6
11.2
43.9
43.9
46.1
10.6
44.3
36.2
44.3
46.1
1.2
1.2
1.0
36.2
1.0
27,753
27,795
27,753
334
334
-88
-88
-184
-184
101
101
-5
-5
246
246
148
148
-237
-237
2018
2018
6,098
6,098
929
929
926
926
685
685
648
648
-45
-45
603
603
463
463
3,886
3,886
5,760
5,760
2,654
2,654
962
962
673
673
-227
-227
-302
-302
88
88
-13
-13
446
446
362
362
-424
-424
7
7
15.2
15.2
15.2
15.2
11.2
11.2
10.6
10.6
46.1
46.1
36.2
36.2
1.0
1.0
1,529
1,529
208
208
195
195
145
145
100
100
-11
-11
88
88
88
88
3,886
3,886
5,760
5,760
2,654
2,654
962
962
673
673
-227
-227
-302
-302
88
88
-13
-13
446
446
362
362
-424
-424
4
4
13.6
13.6
12.8
12.8
9.5
9.5
6.5
6.5
46.1
46.1
36.2
36.2
1.0
1.0
27,795
27,795
27,795
27,795
Number of employees
Key figures and financial ratios are defined in Note 25.
Key figures and financial ratios are defined in Note 25.
Key figures and financial ratios are defined in Note 25.
Key figures and financial ratios are defined in Note 25.
25,528
25,828
26,161
26,645
26,645
26,926
27,141
27,753
27,795
27,795
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Annual Report 2018 The Danfoss Group
Governance
The E-ferry Ellen
The groundbreaking E-Ferry will soon be
launched in Denmark with the help of Danfoss.
The fully electric-powered ferry will have the
largest battery capacity at sea for this type of
vessel and will operate without CO2 emissions.
Ellen is one of the world's most powerful electric
ferries and will be deployed between the Danish
islands of Ærø and Als, the latter being the
location of the Danfoss headquarters in Denmark.
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Sustainability
Sustainability is an important and integrated
part of the way we operate our business.
While our products and services are helping
the world to grow in a more sustainable
way, we also look inwards to optimize our
own production and services.
Energy and emissions
2017
2018
Total energy consumption (GWh)
Energy intensity (MWh/EURm)*
Energy productivity (EURm/GWh)*
Total CO2 emissions (1000 tons)
CO2 intensity (tons CO2/EURm)*
594
106
9.5
244
43.4
638
105
9.5
264
43.4
* Energy intensity: MWh consumed energy per EURm net sales / Energy productivity: EURm net sales
per GWh consumed energy / CO2 intensity: Tons CO2 emitted per EURm net sales
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.
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.
Our commitment to sustainability
In 2018, we revised our Sustainability Program to reduce
complexity and highlight the importance of working with the
Sustainable Development Goals and contributing to an improved
knowledge of sustainability in society. We aim to further
strengthen and develop our Sustainability Program in line with
requirements under the Paris Agreement and science-based
targets.
Danfoss is working with several global organizations, e.g.
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.
Our Climate Strategy 2030
We want our customers and the world to use less energy, but we
have not forgotten our own footprint. With the Danfoss Climate
Strategy 2030, we set ambitious targets for our own business back
in 2015. Our aim is to halve the energy intensity of our operations
as well as halving the CO2 intensity of the energy used, in both
cases measured against the base year 2007.
To achieve our climate targets, we have implemented many
measures to reduce our energy consumption and drive greener
technology investments in buildings and processes, and we are
well underway. Since 2007, we have reduced the energy intensity
of our operations by 43% and the CO2 intensity of the energy used
by 25%, mainly through energy-saving projects in the largest
factories, accounting for 84% of the total energy consumption.
See more details in the Sustainability Report 2018.
Business ethics and human rights
In 2018, Danfoss continued the initiative "Taking Ethics to the
next level". We commit to live up to the UN Guiding Principles for
Human Rights and have deployed human rights due diligence and
integration in Russia, Brazil and Mexico. To ensure a high degree of
local ownership for the due diligence process, focus is on building
capacity to handle human rights aspects at country level.
Companies are required to report which of the human rights
are most salient to them; meaning which of the rights could be
most severely impacted by the operation of the company. This is
detailed in the Sustainability Report 2018.
Regulations like the UK Modern Slavery Act and California
Transparency Act require Danfoss to handle issues like forced
labor, if we were to be faced with this. Outsourced facility
management services, like cleaning and construction, have been
included in the human rights due diligence process in Russia,
Brazil and Mexico.
Diversity
Our high-performing, diverse and engaged teams are the
foundation for achieving our ambitions to significantly grow and
develop Danfoss. In 2018, a survey on performance management
reached an overall score of 80 on a 100-point scale, showing that
Danfoss leaders have set a clear direction and had an ongoing
dialogue with their teams.
We aim to employ a diverse workforce that reflects society in
terms of culture, nationality, gender and age. In 2018, employees
of more than 100 different nationalities worked in the Danfoss
Group. The diversity target has been to increase the percentage of
female managers to 20% by 2017 from 18% in 2014. In 2018, the
percentage of female managers was 19%, which is the same as
in 2017. We recognize that we need to make further steps and in
2019, the target will be reviewed.
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
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Health and safety
2017
2018
Lost time injuries (LTI)
Lost time injury frequency (LTIF)
135
3.4
123
2.8
having at least one female member of the Board of Directors,
who is elected at the Annual General Meeting. Danfoss meets this
target.
Safety First!
The global “Safety First!” program was established in 2015 as
Danfoss’ systematic approach to a safe workplace. Focus is
on clear, aligned procedures and processes to ensure a safe
working environment and prevent accidents across all Danfoss
sites. The program enhances the focus on safety for all Danfoss
employees, visitors, and all other people working within or for
Danfoss.
Danfoss’ total LTIF – Lost Time Injury Frequency – was 2.8 in 2018
versus 3.4 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. While the
overall incidence rate on injuries was reduced, a fatal incident
tragically occurred in 2018, when a Danfoss operations employee
in the US suffered injuries while at work.
We aim to be amongst the leaders when it comes to safety and
have set a goal of reducing the Group LTIF by 50% by the end
of 2019 from the 2017 result. To achieve the ambitious target
of halving the global LTIF in only two years, priorities focus on
enhanced safety processes and tools. In 2018, programs focusing
on hand & finger injuries, trips & slips, and machine safety were
developed and launched. Further programs for safety leadership,
powered industrial vehicles, and safety awareness are being
developed and implementation will commence in the first
quarter of 2019.
Prioritized Sustainable Development Goals
Through internal actions and by supporting local and global
initiatives and organizations, Danfoss is an active supporter of
the Sustainable Development Goals (SDGs). We contribute to
all SDGs, but we focus our efforts towards the four SDGs, which
touch our core business:
SDG 6:
Clean water
and sanitation
SDG 7:
Affordable
and clean energy
SDG 11:
Sustainable cities
and communities
SDG 12:
Responsible consumption
and production
We provide solutions for
water and wastewater
handling to optimize and
reduce energy consumption.
This leads to increased
energy efficiency and
lower operating costs in,
for example, a wastewater
treatment plant.
Danfoss is a world leader
in energy-efficient
technologies. Improved
energy efficiency helps us
meet the growing demand
for energy and ensure access
to reliable and modern
energy, which all can afford.
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.
Our sustainable technologies
and service concepts ensure
the perfect conditions for food
in temperature-controlled
environments and help
achieve near-zero downtime
on store applications to
improve food safety and
reduce food loss and waste.
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Risk management
and compliance
We manage risks and opportunities
effectively to grow and stay profitable
in increasingly complex business
environments.
Danfoss takes 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
in a rapid and flexible way when conditions change.
Risk Governance
Overall, the Board of Directors performs risk oversight and
the Audit Committee assesses the effectiveness of the Risk
Management process. The Group Executive Team is responsible
for executing risk management, ensuring that policies and
processes are effective at all relevant levels. Responsibility for the
day-to-day risk management activities lies with the respective
managers and corporate functions.
Compliance
We support 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 many areas.
Compliance programs
Our systemized compliance programs contain clear ownership,
policy setting, operational procedures as well as recurring
training and awareness activities. To ensure progress, all
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 among other
things 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 that provide overall supervision of the risk
management process and monitor selected group risks as well as
potential new risks.
Risk assessment
Risks are assessed according
to the company-wide risk
assessment guidelines.
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.
For a 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.
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activities are monitored and regularly audited by the internal
audit function.
In 2018, we maintained a high focus on the data privacy
processes and implementation of the EU data privacy regulation,
which came into effect on May 25, 2018. Based on our Binding
Corporate Rules, approved by the Danish data protection
authorities, we implemented a Data Privacy Handbook,
developed training and completed other activities to comply with
the new legislation.
Furthermore, the Export Control Compliance Program was
strengthened by including processes for secondary sanctioned
party screening. Along with the implementation of our new
common IT solution, One ERP, all import and export transactions
are screened against sanction lists. We have also started to work
rules and guidance pertaining to a anti-money laundering into
the Compliance Program.
Compliance hotlines
We operate two hotlines, which are available for our business
partners and employees. One such hotline is the whistleblower
hotline, the Ethics Hotline, which enables employees and
business partners to anonymously report any concern they
might have concerning internal standards and legislation. The
Ethics Hotline is also set up to serve as channel for data privacy
complaints. In 2018, a total number of 77 reports were managed
by the Ethics Hotline. Corrective actions, including disciplinary
action, were taken for all substantiated allegations, and none of
the reports have had a material impact on Danfoss.
Risk overview
Like its industry peers, Danfoss is exposed to risks. No single risk
can threaten the existence of Danfoss – now or in the future – but
Danfoss is exposed to the following general and basic risks:
• Global market conditions, including a sustained stronger focus
on energy-efficient and socially sustainable solutions.
• The five global mega-trends which affect Danfoss, our
technologies and the way we do business. The mega-trends are
described on page 11-15.
• Fair and equal access to markets.
• 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, high product
quality and attractive cost levels.
• Financial sustainability, including our ability to fund new
growth.
The Group Executive Team has defined an additional three risks, which
are currently very important due to their nature. These three specific
risks are described in the overview below, which does not include
financial risks. Financial risks are described in Note 15, page 68.
Specific risk areas
Disruption of IT Systems
One ERP project
Geopolitical conflicts
See Note 15, page 68, for further information on financial risks
Risk
A disruption of IT systems, for example caused by a cyber-attack, would
restrict 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.
Mitigation
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 datacenters are regularly
reviewed, tested and improved.
There is continuous monitoring and learning about incidents occurring
outside Danfoss, triggering the check of related potential vulnerabilities
at Danfoss, to be followed by corresponding containment and mitigation.
Risk
Implementing the IT platform, One ERP (Enterprise Resource Planning),
across Danfoss is a fundamental part of our digital transformation,
enabling growth and a best-in-industry Digital Customer Experience. The
project will migrate several, currently used ERP systems into one platform
to reduce complexity, give Danfoss the agility and speed to focus on
innovation, and support connected products and services. Migration of
Danfoss operations to the new system holds risks of stopping or slowing
business services, which could impact our customers and damage
Danfoss' reputation.
Mitigation
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.
Risk
Increasing geopolitical conflicts create uncertainty and low visibility in
some of our significant markets.
Mitigation
A close monitoring of the effects and consequences of these geopolitical
developments is in place to prepare mitigation plans and thereby mitigate
the impacts on Danfoss and Danfoss' stakeholders. Overall, we aim at
driving more localization in our supply chain. Below are some examples:
• Brexit: a task force is focusing on logistics risks to Great Britain and
delivery to Ireland.
• Trade and tariff conflict between US and China: Drive more
localization and a flexible supply chain.
• Trade sanctions: Danfoss continues to follow trade sanctions and
closely monitors political situations to take appropriate action.
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Corporate
governance
This is a summary of Danfoss’ annual
statutory report on corporate governance,
which serves as our legally required
reporting on governance and internal
controls, cf. section 107b of the Danish
Financial Statements Act.
Legislation provides the overall framework for the Group’s
governance, but corporate governance 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
within 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 Board of Directors consists of eight members elected at
the Annual General Meeting (AGM) and four employee-elected
members. The Board of Directors 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 members of the Board
of Directors 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 most
recent employee election took place in 2018.
The Board of Directors meets at least five times a year and holds
extraordinary meetings, when required. All members of the
Board of Directors are expected to participate in the meetings.
The aggregate competencies of the members of the Board of
Directors are regularly assessed to ensure consistency with the
Group’s requirements.
Audit Committee
The entire Board of Directors 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 2018.
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
2018. No matters of material importance to the Group’s overall
risk management and control environment were detected.
Bond program
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 complies 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.
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Shareholders
At the end of 2018, Danfoss had approximately 2,650 registered
shareholders. Approximately three in four shareholders were
resident in Denmark.
Share capital
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. Bitten & Mads Clausen's Foundation and
the Clausen family hold all issued A-shares and several B-shares
corresponding to 99.86% of the votes.
See note 11, page 62, for more information.
Share price
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 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 several comparable companies and
their expectations for the future, as well as general developments
in the stock market. In 2018, the price was set at DKK 6,981 per
share.
Dividends and Annual General Meeting
The AGM will be held in Sønderborg, Denmark, on April 26, 2019.
The Board of Directors will recommend that a dividend of 17.3%
of the Group’s net profit be paid for 2018, corresponding to EUR
8.1 or DKK 60.2 per DKK 100 share.
For a detailed description of Danfoss’ position on the
recommendations issued by the Committee on Corporate
Governance, reference is made to the Statutory Report on
Corporate Governance 2018, which is available at the corporate
website www.danfoss.com.
Shareholders
with more than 5% of share capital
Shareholder
Shares Votes
Bitten & Mads Clausen's Foundation,
Nordborg, Denmark, and its subsidiaries
47.93% 86.13%
Clausen Controls A/S, Sønderborg, Denmark 26.26%
5.47%
Henrik Mads Clausen, Lake Forest, USA
11.04%
2.29%
Karin Clausen, Holte, Denmark
6.24%
1.30%
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Board of Directors
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
Nationality: Danish
Appointed: 2009
Special competencies:
Professional experience managing
a Danish-based global company
and extensive knowledge of
engineering, strategy, organization
and performance, and business
administration. Long-time experience
from other board memberships.
Other current positions:
• Chairman of the Board of Applied
Biomimetic A/S.
• Member of the Board of Fonden
Universe Science Park.
• Member of the Board of
miniBOOSTER Hydraulics A/S.
• Owner of SaltPower ApS, Denmark
Born: 1959
Nationality: Swedish
Appointed: 2010
Considered independent
Special competencies:
International experience from
executive management positions
in global corporations focusing
on profitable growth. Extensive
experience with strategy
development and execution,
performance transformation and
business administration.
Other current positions:
• President & CEO of Sandvik AB.
Born: 1976
Nationality: Danish
Appointed: 2014
Special competencies:
International experience from
executive management positions
and strong strategic, organizational
and communicative skills.
Extensive knowledge of business
administration, engineering and
board work.
Other current positions:
• Senior Director, Oil Free Solutions,
Danfoss A/S.
• Member of the Board of
miniBOOSTER A/S, Denmark.
Born: 1958
Nationality: Danish
Appointed: 2017
Considered independent
Born: 1960
Nationality: Danish
Appointed: 2016
Considered independent
Special competencies:
Professional experience from
Research & Development, product
innovation and development of
new biotechnologies for products,
applications and processes. Extensive
experience with talent development,
global partnerships and relations.
Other current positions:
• Chairman of the Board of
Governors, Technical University of
Denmark (DTU).
• Board member in Cytovac A/S,
Denmark.
• Scientific Consultant, Corbion, the
Netherlands.
• Chairman of the Board of Fonden
Universe Science Park.
• Chairman of the Board of Medical
Cannabis Association Denmark.
• Strategy consultant at the Novo
Nordisk foundation.
• Chairman of the Board of DHI
Foundation.
Special competencies:
Professional experience as Minister
and EU Commissioner with extensive
knowledge of climate, environmental
and energy challenges on an
international level. Expert on the
global sustainable development and
the green transition.
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.
• Chairman of Berlingske Media.
• Member of the Board of Aarhus
University, Denmark.
• Member of the Board of NORDEX.
• Member of Volkswagen's
Sustainability Board.
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William Ervin Hoover Jr.
Member of the Board of Directors
and Chairman of the Audit
Committee
Born: 1949
Nationality: American
Appointed: 2007
Considered independent
Special competencies:
International experience with
management, mergers and
acquisitions, performance
transformation, organizational
changes and supply chain. Extensive
knowledge of business administration
and board work.
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, Denmark
Annual Report 2018 The Danfoss Group Click to navigate
CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Board of Directors
Jürgen Reinert
Member of the Board of Directors
Mika Vehviläinen
Member of the Board of Directors
Sandra Nørgaard Bertelsen
Member of the Board of Directors
Marianne Godballe
Member of the Board of Directors
Lars Grau
Member of the Board of Directors
Jens Peter Rosendahl Nielsen
Member of the Board of Directors
Born: 1968
Nationality: German
Appointed: 2015
Considered independent
Born: 1961
Nationality: Finnish
Appointed: 2018
Considered independent
Special competencies:
International experience with
executive management and
business administration as well as
strong strategic, organizational and
communicative skills. Expert within
electrical engineering (drives, electric
vehicles, renewable energy) and
science, and extensive knowledge
from other board positions.
Other current positions:
• Chief Executive Officer (CEO) in
SMA Technology AG, Germany
• Member of the Board of
Kraftelektronik AB, Sweden.
Special competencies:
Professional experience with
executive management of
multinational corporations
and extensive experience with
performance transformation,
organizational changes, mergers and
acquisitions, and Internet of Things.
Other current positions:
• President and CEO in Cargotec.
• Chairman of the Innovation and
Competence development for
Artificial Intelligence, Ministry of
Trade and Industry, Finland.
Born: 1982
Nationality: Danish
Appointed: 2014
Special competencies:
Employee-elected member of the
Board of Directors.
Other current positions:
• HR Director, HR Operations North
Europe, Danfoss A/S, Denmark.
Born: 1984
Nationality: Danish
Appointed: 2018
Born: 1963
Nationality: Danish
Appointed: 2014
Born: 1957
Nationality: Danish
Appointed: 2006
Special competencies:
Employee-elected member of the
Board of Directors.
Special competencies:
Employee-elected member of the
Board of Directors.
Other current positions:
• Shop Steward and skilled worker at
Danfoss Nordborg, Denmark.
• Member of the Board of Danish El
Federal in South Jutland, Denmark.
Other current positions:
• Senior Design Technician and shop
steward, Danfoss A/S, Industrial
Automation, Nordborg, Denmark.
• Member of the Board of Danfoss
Employee Foundation, Denmark.
• Chairman of ”TL-klubben”, Danfoss
A/S SydDanmark.
• Local President of Junior Chamber
International, Sønderborg, Denmark.
Special competencies:
Employee-elected member of the
Board of Directors.
Other current positions:
• Senior Shop Steward and skilled
worker at Danfoss Kolding, Denmark.
• Chairman of the Board of Danfoss
Employee Foundation, Denmark.
• Member of the Board of Metal
Kolding and LO-Kolding, Denmark.
The presentations include the Board members, their positions and competencies as of February 28, 2019
The complete presentations are available at www.danfoss.com
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Group Executive Team
Kim Fausing
President & CEO
Born: 1964
Employed at Danfoss since 2007
Registered officer with the Danish
Business Authority since 2008
Board activities:
• Deputy Chairman in SMA Solar
Technology AG, Germany
• Board member in Hilti AG,
Liechtenstein
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: 1969
Employed at Danfoss since 1993
Born: 1966
Employed at Danfoss since 2012
Born: 1963
Employed at Danfoss since 2008
Born: 1957
Employed at Danfoss since 2014
Born: 1963
Employed at Danfoss since 1989
Registered officer with the Danish
Business Authority since 2013
Board activities:
• Deputy Chairman in Hempel A/S,
Denmark
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
Board activities:
• Member of the Steering Board
of the European Partnership for
Energy and the Environment, EPEE
• Member of the Global Panel on
Access to Cooling, part of the
Cooling for All initiative
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
The presentations include the members of the top management team as of February 28, 2019
The complete presentations are available at www.danfoss.com
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Annual Report 2018 The Danfoss Group Statements
Application software for cranes
Danfoss is active in the crane business. We offer
a flexible and broad mix of products that are
easy to install and simple to commission. The
Danfoss crane application software package
takes advantage of the latest innovations in
digitalization, which allows our customers
to increase productivity by working smarter,
minimize downtime by using connected
intelligent products, and prevent failures by
acting in time.
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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, 2018.
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, 2018, of the Group and
the Parent Company and of the results of the Group and Parent
Company operations and cash flows for 2018.
In our opinion, the 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.
Board of Directors
Jørgen M. Clausen, Chairman
Björn Klas Otto Rosengren
Mads-Peter Clausen
Per Falholt
Connie Hedegaard
William Erwin Hoover Jr.
Jürgen Reinert
Mika Vehviläinen
Sandra Nørgaard Bertelsen
Marianne Godballe
We recommend that the Annual Report be adopted at the Annual
General Meeting.
Nordborg, February 28, 2019
CEO and CFO
Kim Fausing
Lars Grau
Jesper V. Christensen
Jens Peter Rosendahl Nielsen
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Independent
Auditor's Report
To the shareholders of Danfoss A/S
Report on the audit of the Consolidated Financial Statements
and Parent Company Financial Statements
Our opinion
In our opinion, the Consolidated Financial Statements and the
Parent Company Financial Statements give a true and fair view
of the Group’s and the Parent Company’s financial position at
December 31, 2018 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, 2018 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, 2018, pp 42-90 and 93-116 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 5 years including the financial year January 1 to
December 31, 2018.
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 2018. These matters were addressed in the
context of our audit of the Financial Statements as a whole, and
in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
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Key audit matter
Intangible assets
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 Notes 7, 19 and 26 in the Consolidated Financial Statements.
Uncertain tax positions
The Group operates in a complex multinational tax environment where
transfer pricing assessments can be challenged by the tax authorities in
the different countries. As a result, the Group is on an ongoing basis part
in tax disputes with domestic and foreign tax authorities.
We focused on this area as the valuation of tax assets and liabilities is
associated with uncertainty and judgment.
Refer to Notes 6, 13, 16 and 26 in the Consolidated Financial Statements.
How our audit addressed
the key audit matter
Our audit procedures included assessing the Group’s impairment model.
We inspected 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.
Statement on Management’s Review
Management is responsible for Management’s Review, pp 3-35
and 92.
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 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.
We did not identify any material misstatement in Management’s
Review.
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.
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.
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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.
Aarhus, February 28, 2019
PricewaterhouseCoopers
Statsautoriseret Revisionspartnerselskab
CVR no 33771231
Claus Lindholm Jacobsen
State Authorised Public Accountant
mne23328
Mads Melgaard
State Authorised Public Accountant
mne34354
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 skepticism 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.
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 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.
• Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate
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
40/117
Annual Report 2018 The Danfoss Group Group accounts and notes
The thermostat
Driven by urban growth, the need for construction
and refurbishment of residential and commercial
buildings is projected to be massive. The radiator
thermostat Danfoss Eco™ improves comfort and
indoor climate, while reducing the energy bill.
Since 1943, Danfoss has manufactured around
350 million radiator thermostats, thereby reducing
650 million tons of CO2. In 2018, Danfoss Eco™ was
recognized with three prestigious design awards:
a Ret Dot, a Danish Design Award, and a German
Design Award.
41/117
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Income statement
January 1 to December 31
EURm
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
42/117
e
t
o
N
1
2
2
2
2
2
3
4
5
6
2017
5,827
-3,787
2,040
2018
6,098
-4,035
2,063
-234
-853
-268
685
-42
2
645
3
-52
596
-151
445
404
41
445
-255
-855
-268
685
-4
-33
648
3
-48
603
-140
463
424
39
463
Annual Report 2018 The Danfoss Group Click to navigate
CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Statement of comprehensive income
January 1 to December 31
EURm
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 EUR
Recycling of foreign exchange adjustments on disposal of foreign companies
Fair value adjustment of hedging instruments:
Hedging of net investments in subsidiaries
Hedging of future cash flows
Hedging transfered to inventory
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
14
13
2017
445
2018
463
17
-13
4
-63
1
18
-1
-4
-49
-45
400
369
31
400
-9
1
-8
-5
6
-2
-9
-4
3
-11
-19
444
399
45
444
43/117
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Statement of financial position
As of December 31
EURm
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
44/117
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Annual Report 2018 The Danfoss Group
e
t
o
N
7
8
3
14
13
9
10
16
15
15
2017
2018
2,371
1,064
328
22
8
90
448
2,311
1,169
292
19
7
88
406
3,883
3,886
660
862
17
10
122
1,011
29
1,700
5,583
755
864
39
1
165
1,069
50
1,874
5,760
Annual Report 2018 The Danfoss Group Click to navigate
CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Statement of financial position
As of December 31
EURm
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
Other non-current debt
NON-CURRENT LIABILITIES
Provisions
Borrowings
Trade payables
Debt to associates and joint ventures
Corporation tax
Derivative financial instruments (negative fair value)
Other debt
CURRENT LIABILITIES
TOTAL LIABILITIES
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
e
t
o
N
11
12
13
14
15
12
15
16
15
2017
2018
2,455
114
2,569
108
235
136
1,023
47
1,549
43
92
776
4
54
1
495
1,465
3,014
5,583
2,525
129
2,654
112
228
133
1,007
53
1,533
49
56
883
2
65
9
509
1,573
3,106
5,760
45/117
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Annual Report 2018 The Danfoss Group
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Statement of cash flows
January 1 to December 31
EURm
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
Acquisition of other investments, etc.
CASH FLOW FROM INVESTING ACTIVITIES
FREE CASH FLOW
Cash repayment of interest-bearing debt
Cash proceeds from interest-bearing debt
Purchase of treasury shares
Disposal of minority interests
Addition of minority interests
Dividends paid to shareholders in the Parent Company
Dividends paid to minority shareholders
CASH FLOW FROM FINANCING ACTIVITIES
NET CHANGE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents as of January 1
Foreign exchange adjustment of cash and cash equivalents
CASH AND CASH EQUIVALENTS AS OF DECEMBER 31
FREE CASH FLOW BEFORE M&A
e
t
o
N
17
18
16
19
19
20
21
21
2017
596
274
64
934
-45
3
892
-150
742
-64
-241
24
-104
1
-21
-405
337
-817
596
-54
-2
-67
-29
-373
-36
68
-3
29
445
2018
603
270
-13
860
3
-37
4
830
-157
673
-64
-247
9
-41
129
-13
-227
446
-816
751
-249
3
-80
-33
-424
22
29
-1
50
362
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 25, page 87
46/117
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Statement of changes in equity
Statement of cash flows
Statement of cash flows
January 1 to December 31
January 1 to December 31
EURm
EURm
EURm
Profit before tax
Adjustments for non-cash transactions
Profit before tax
Change in working capital
Adjustments for non-cash transactions
CASH FLOW GENERATED FROM OPERATIONS
Change in working capital
BALANCE AS OF JANUARY 1, 2017
Interest received
CASH FLOW GENERATED FROM OPERATIONS
Net profit
Interest paid
Interest received
Dividends received
Interest paid
Foreign exchange adjustments of foreign companies
CASH FLOW FROM OPERATIONS BEFORE TAX
Dividends received
Fair value adjustment of hedging instruments
Paid tax
CASH FLOW FROM OPERATIONS BEFORE TAX
Actuarial gain/loss (-) on pension and healthcare plans
CASH FLOW FROM OPERATING ACTIVITIES
Paid tax
Tax on other comprehensive income
Acquisition of intangible assets
CASH FLOW FROM OPERATING ACTIVITIES
Total other comprehensive income
Acquisition of property, plant and equipment
Acquisition of intangible assets
Total comprehensive income for the period
Proceeds from sale of property, plant and equipment
Acquisition of property, plant and equipment
Dividends to shareholders
Acquisition of subsidiaries
Proceeds from sale of property, plant and equipment
Purchase of minority interests
Proceeds from disposal of subsidiaries
Acquisition of subsidiaries
Purchase of treasury shares
Acquisition of other investments, etc.
Proceeds from disposal of subsidiaries
Capital increase
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of other investments, etc.
Total transactions with owners
FREE CASH FLOW
CASH FLOW FROM INVESTING ACTIVITIES
BALANCE AS OF DECEMBER 31, 2017
Cash repayment of interest-bearing debt
FREE CASH FLOW
Cash proceeds from interest-bearing debt
Cash repayment of interest-bearing debt
Net profit
Purchase of treasury shares
Cash proceeds from interest-bearing debt
Foreign exchange adjustments of foreign companies
Disposal of minority interests
Purchase of treasury shares
Fair value adjustment of hedging instruments
Addition of minority interests
Disposal of minority interests
Actuarial gain/loss (-) on pension and healthcare plans
Dividends paid to shareholders in the Parent Company
Addition of minority interests
Tax on other comprehensive income
Dividends paid to minority shareholders
Dividends paid to shareholders in the Parent Company
Total other comprehensive income
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid to minority shareholders
Total comprehensive income for the period
CASH FLOW FROM FINANCING ACTIVITIES
NET CHANGE IN CASH AND CASH EQUIVALENTS
Dividends to shareholders
Cash and cash equivalents as of January 1
NET CHANGE IN CASH AND CASH EQUIVALENTS
Purchase of treasury shares
Foreign exchange adjustment of cash and cash equivalents
Cash and cash equivalents as of January 1
Capital increase
CASH AND CASH EQUIVALENTS AS OF DECEMBER 31
Foreign exchange adjustment of cash and cash equivalents
Total transactions with owners
CASH AND CASH EQUIVALENTS AS OF DECEMBER 31
FREE CASH FLOW BEFORE M&A
BALANCE AS OF DECEMBER 31, 2018
i
m
u
m
e
r
p
e
r
a
h
S
l
a
t
i
p
a
c
e
r
a
h
S
134
i
g
n
g
d
e
H
s
e
v
r
e
s
e
r
-6
y
c
n
e
r
r
u
C
n
o
i
t
a
l
s
n
a
r
t
73
e
v
r
e
s
e
R
s
e
r
a
h
s
n
w
o
-4
10
10
10
134
-53
1
-52
-52
17
-4
13
13
7
21
-13
2
-11
-11
-5
-2
1
-6
-6
134
10
-4
15
-54
-10
-64
-68
-249
-249
-317
s
e
v
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e
s
e
r
r
e
h
t
O
1,943
323
17
-13
4
327
2,270
344
-9
1
-8
336
1
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o
s
N
e
v
r
e
s
17
e
R
18
2,006
323
-53
18
17
16
-17
-35
288
19
-54
19
-10
20
-64
2,230
21
344
21
-5
-15
-9
4
-25
319
1
-249
1
2,607
-248
2,301
d
e
s
o
p
o
r
P
e
t
o
N
s
d
n
e
d
i
v
i
d
67
17
18
81
16
81
-67
19
19
20
-67
81
21
21
80
80
-81
-81
80
,
2017
y
596
t
i
u
274
q
E
64
934
-45
3
892
-150
742
-64
-241
24
-104
1
-21
-405
337
-817
596
-54
-2
-67
-29
-373
-36
68
-3
29
445
l
s
r
e
d
o
h
e
r
a
h
s
S
/
A
2017
s
s
596
o
f
n
274
a
D
64
n
934
i
y
t
i
r
o
n
M
i
2,207
404
-53
18
17
-17
-35
369
-67
-54
-45
3
892
-150
742
-64
-241
24
-104
1
-21
-405
337
-817
596
-54
-2
424
-5
-15
-9
4
-25
399
-67
-29
-373
-121
2,455
-80
-249
-36
68
-3
29
-329
2,525
445
i
-10
115
2018
t
s
e
603
r
e
270
t
n
-13
860
41
3
-37
4
830
-157
673
-10
-64
31
-247
-29
9
-3
-41
129
-13
-32
-227
114
446
-816
39
751
6
-249
3
-80
6
-33
45
-424
-33
22
29
3
-1
-30
50
129
362
445
2018
603
y
270
t
l
a
i
u
-13
t
q
o
T
e
860
2,322
3
-37
4
-63
830
18
-157
17
673
-17
-64
-45
-247
400
9
-96
-41
-3
129
-54
-13
-227
446
-816
751
-249
1
-15
3
-9
-80
4
-33
-19
-424
444
-153
2,569
463
22
-113
29
-249
-1
3
50
-359
2,654
362
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 25, page 87
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 25, page 87
47/117
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses 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 Deferred tax
Note 14 Pension and healthcare obligations
Note 15 Financial risks and instruments
Note 16 Corporation tax
Note 17 Adjustment for non-cash transactions
Note 18 Change in working capital
Note 19 Acquisition and sale of subsidiaries and activities
Note 20 Acquisition/sale of other investments
Note 21 Change in liabilities arising from financing activities
Note 22 Contingent liabilities, assets and security
Note 23 Related parties
Note 24 Events after the balance sheet date
Note 25 Basis for preparation and accounting policies
Note 26 Critical accounting estimates
Note 27 Group companies
48/117
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 1 Segment reporting
EURm
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 18.
GEOGRAPHICAL SEGMENTS
r
e
w
o
P
s
s
o
f
n
a
D
s
n
o
i
t
u
o
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l
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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
1,872
89
1,591
26
306
253
1,372
51
2
132
g
n
i
t
a
e
H
s
s
o
f
n
a
D
971
24
114
306
253
132
114
2017
P
U
O
R
G
5,827
240
2
645
-49
596
s
a
e
r
a
r
e
h
t
O
21
50
-160
-49
-209
r
e
w
o
P
s
s
o
f
n
a
D
s
n
o
i
t
u
o
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l
g
n
i
l
o
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C
s
s
o
f
n
a
D
s
e
v
i
r
D
s
s
o
f
n
a
D
2,109
90
338
1,617
29
1
239
1,420
47
-34
119
g
n
i
t
a
e
H
s
s
o
f
n
a
D
929
23
120
338
239
119
120
2018
P
U
O
R
G
6,098
244
-33
648
-45
603
s
a
e
r
a
r
e
h
t
O
23
55
-168
-45
-213
1,264
69
259
860
46
3
207
1,723
28
190
796
21
2
115
940
117
2,243
5,583
281
5
3,014
1,370
91
915
51
1,690
33
304
219
213
698
24
3
117
1,087
103
1
2,253
5,760
302
4
3,106
6,815
6,396
4,652
5,339
3,443 26,645
7,625
6,179
4,645
4,898
4,448 27,795
e
p
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t
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p
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n
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t
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L
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2017
P
U
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G
e
p
o
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u
E
n
r
e
t
s
e
W
e
p
o
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a
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2018
P
U
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G
t
s
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E
e
d
d
M
l
i
-
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s
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d
d
M
l
i
-
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r
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A
Net sales
Total non-current assets **)
2,183
2,650
496
124
1,307
1,387
285
699
273
16
181
5,827
19
3,793
2,289
2,569
493
133
1,392
1,488
313
743
271
22
165
6,098
18
3,798
Sales in Denmark amounts to EUR 225m (2017: 215m) and non-current assets amounts to EUR 764m (2017: 697m).
Sales in North America mainly relate to the US and represent EUR 1,395m (2017: 1,299m) and non-current assets amounts to EUR 743m (2017: 698m).
China is part of the Asia Pacific region and sales amounts to EUR 808m (2017: 727m) and non-current assets amounts to EUR 237m (2017: 209m).
*) 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.
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Note 1 Segment reporting (continued)
EURm
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.
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Annual Report 2018 The Danfoss Group
2017
3
-52
-146
-14
-209
2017
136
97
621
76
10
940
2017
1,405
534
136
159
9
2,243
2018
3
-48
-168
-213
2018
177
120
697
80
13
1,087
2018
1,356
562
133
194
8
2,253
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Note 2 Expenses and other operating income
EURm
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 14 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 remuneration
Total remuneration for registered and former registered members of the Group Executive Team amounts to EUR 9m (2017: 26m)
In 2017 total remuneration for 4 former members of Group Executive Team is included in salaries, pensions, bonuses and severance payments.
A presentation of the Group Executive Team is available on page 33.
2017
1,320
32
110
81
4
1,547
25,934
26,645
2018
1,404
36
112
84
3
1,639
27,313
27,795
2017
2018
8
3
13
9
33
1
34
5
1
10
16
1
17
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Note 2 Expenses and other operating income (continued)
EURm
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 property, plant and equipment
Government grants
Other
Other operating income
Loss on disposal 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, USA and France.
D. FEES TO AUDITORS APPOINTED AT THE ANNUAL GENERAL MEETING
Audit fee
Other assurance engagements fee
Tax and VAT advice
Other fees
Total fee to Group Auditor
2017
90
150
240
57
30
3
90
2018
96
148
244
62
30
4
96
2017
2018
1
5
7
13
-2
-32
-21
-55
-42
31
4
6
6
47
-2
-36
-13
-51
-4
2017
2018
3
1
4
3
1
1
5
Fees for other services than statutory audit of the financial statements provided by PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab (PricewaterhouseCoopers Denmark) amounted to EUR 1.2m (2017: 0.7m).
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 advice.
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Note 3 Investments
EURm
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
Other
investments
350
-1
4
353
-16
2
2
-3
-12
-27
326
18
18
-15
-1
-16
2
2017
TOTAL
368
-1
4
371
-31
2
1
-3
-12
-43
328
Investments in
associates and
joint ventures
Other
investments
353
3
-3
353
-27
-1
-35
-4
3
-64
289
18
1
19
-16
-16
3
2018
TOTAL
371
4
-3
372
-43
-1
-35
-4
3
-80
292
Where indicators for impairment were present at the end of 2018, 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 2017.
Further information on associates and joint ventures is provided in Note 5 Financial expenses, Note 15 Financial risks and instruments and Note 23 Related parties.
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Note 3 Investments (continued)
EURm
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 NUMBERS FOR 2018 AND 2017 )
Revenue
EBIT
Net income
SUMMARIZED BALANCE SHEET (Q3 NUMBERS)
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Equity
OTHER INFORMATION
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, 2018, was EUR 0.6bn (2017: 1.2bn).
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
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 Note 27 Group companies.
Associates
Joint Ventures
-1
-1
1
13
Associates
Joint Ventures
125
187
1
313
13
13
2017
TOTAL
-1
-1
14
2017
TOTAL
125
187
14
326
Associates
Joint Ventures
4
1
1
13
Associates
Joint Ventures
85
187
4
276
13
13
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SMA Solar Technology AG
2017
Germany
20%
2018
Germany
20%
890
45
30
386
845
275
349
608
125
13
761
-150
-174
344
797
255
277
608
85
3
2018
TOTAL
1
1
17
2018
TOTAL
85
187
17
289
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Note 4 Financial income
EURm
Interest from banks, etc.
Financial Income
Interest on financial assets measured at amortized cost
Note 5 Financial expenses
EURm
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
Financial expenses
Interest on financial liabilities measured at amortized cost
2017
2018
3
3
3
3
3
3
2017
2018
-43
-3
-4
-2
-1
1
-52
-43
-36
-1
-2
-9
-48
-37
In Foreign exchange losses, net are included fair value hedge impact of EUR -18m (2017: +20 m).
For 2018, no borrowing costs have been recognized in costs of assets. For 2017, the capitalization rate used to determine the amount of borrowing costs to be capitalized is the weighted average interest rate applicable to the entity’s
general borrowings during the year, in this case 2.8%.
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Note 6 Tax on profit
EURm
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
2017
-180
32
-3
-151
22.0%
3.8%
-2.4%
-3.7%
-0.1%
-0.3%
5.6%
0.5%
25.4%
2017
-151
-4
-13
-168
2018
-156
9
7
-140
22.0%
1.5%
-1.7%
-0.1%
1.2%
-0.3%
1.8%
-1.2%
23.2%
2018
-140
3
1
-136
The enactment of US tax reform as of December 22, 2017, impacted the total taxes in 2017. Effect of change in corporate tax rate was impacted by an income from adjusting deferred tax assets and liabilities and other taxes were
impacted by an expense from transition tax.
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Note 7 Intangible assets
EURm
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
Carrying amount as of December 31, 2017
Cost as of January 1, 2018
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Additions
Disposals
Disposals through sale of subsidiaries
Cost as of December 31, 2018
Amortization and impairment losses as of January 1, 2018
Foreign exchange adjustments in foreign companies
Amortization
Disposals
Disposals through sale of subsidiaries
Amortization and impairment losses as of December 31, 2018
Carrying amount as of December 31, 2018
Internally
developed
software
Goodwill
Brand
Technology
Customer
relations
Patents,
trademarks and
other rights
Development
costs
Total
Other
TOTAL
1,722
-57
99
1,764
159
-10
149
1,615
1,764
16
23
-85
1,718
149
3
152
1,566
226
-8
-36
63
-5
240
155
-7
-20
11
-5
134
106
240
3
62
-3
-2
300
134
2
14
-3
-2
145
155
156
-10
146
5
-1
3
7
139
146
4
150
7
1
3
11
139
645
-33
35
647
311
-22
42
331
316
647
12
9
-6
662
331
9
43
-6
377
285
388
-20
9
376
212
-16
29
225
151
376
7
6
-7
382
225
7
28
-7
253
129
44
37
17
-2
96
35
21
2
-2
56
40
96
-1
2
-2
95
56
-1
6
-2
59
36
71
-3
68
65
-2
-1
3
65
3
68
1
-3
66
65
1
2
-3
65
1
1,530
-74
44
1
80
-7
1,574
783
-48
-1
90
-7
818
756
1,573
26
15
64
-8
-15
1,655
818
19
96
-8
-15
910
745
3,252
-131
143
1
80
-7
3,338
942
-58
90
-7
967
2,371
3,337
42
38
64
-8
-100
3,373
967
22
96
-8
-15
1,062
2,311
Additions/Disposals through acquisitions/sales of subsidiaries are further described in Note 19 Acquisition and sales of subsidiaries and activities.
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Note 7 Intangible assets (continued)
EURm
IMPAIRMENT TESTS
At the end of 2018, 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 CGUs is compared to the carrying amount of the net assets. As acquisitions in Danfoss are made on the basis of 10-year projections, the expected cash flow is calculated on the basis of
estimates for the years 2019-2028. The estimates are prepared and approved by the management in the respective CGUs 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
236
127
2%
11%
Danfoss
Drives
Danfoss
Cooling
Danfoss
Heating
770
2%
11%
254
2%
11%
353
2%
10%
2017
Other
2
2%
11%
Danfoss
Power
Solutions
253
131
2%
11%
Danfoss
Drives
Danfoss
Cooling
Danfoss
Heating
770
2%
10%
274
2%
11%
267
2%
10%
2018
Other
2
2%
10%
The Danfoss Power Solutions brand with a carrying amount EUR 131m (2017: 127m) is not amoritized, but is tested annually for impairment. Global megatrends and industry recognition as one of the market leaders support that
the brand will generate cash inflow for the Group for an indefinite period.
The weighted average growth rate until 2028 is based on past performance/management expectation of market development etc. and is estimated to be 2-7% 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 2017. The net cash flow during the terminal period from 2029 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 2017.
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Note 7 Intangible assets (continued)
Note 7 Intangible assets (continued)
Danfoss Power Solutions
Danfoss Power Solutions
The goodwill allocated to Danfoss Power Solutions derives primarly 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)
The goodwill allocated to Danfoss Power Solutions derives primarly 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 2018, the carrying amount of Brand, Technology and Customer relations acquired in connection with business combinations amounts to EUR 314m (2017: 344m),
(USA) in 2016 and Visedo Oy (Finland) in 2017. At the end of 2018, the carrying amount of Brand, Technology and Customer relations acquired in connection with business combinations amounts to EUR 314m (2017: 344m),
or approximately 57% (2017: 57%) of the corresponding Group carrying amount . The carrying amount of Technology and Customer relations is amortized until 2030 and 2032, respectively.
or approximately 57% (2017: 57%) of the corresponding Group carrying amount . The carrying amount of Technology and Customer relations is amortized until 2030 and 2032, respectively.
Danfoss Drives
Danfoss Drives
The goodwill allocated to Danfoss Drives Segment derives primarily from the acquisition of Vacon (Finland) in December 2014. At the end of 2018, the carrying amount of Technology and Customer relations acquired in connection
The goodwill allocated to Danfoss Drives Segment derives primarily from the acquisition of Vacon (Finland) in December 2014. At the end of 2018, the carrying amount of Technology and Customer relations acquired in connection
with business combinations amounts to EUR 169m (2017: 190m), or approximately 31% (2017: 31%) of the corresponding Group carrying amount. The carrying amount of Technology and Customer relations is amortized until
with business combinations amounts to EUR 169m (2017: 190m), or approximately 31% (2017: 31%) of the corresponding Group carrying amount. The carrying amount of Technology and Customer relations is amortized until
2026 and 2029, respectively.
2026 and 2029, respectively.
Danfoss Cooling
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 2018, the carrying amount of
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 2018, the carrying amount of
Technology and Customer relations acquired in connection with business combinations amounts to EUR 29m (2017: 27m), or approximately 5% (2017: 4%) of the corresponding Group carrying amount. The carrying amount of
Technology and Customer relations acquired in connection with business combinations amounts to EUR 29m (2017: 27m), or approximately 5% (2017: 4%) of the corresponding Group carrying amount. The carrying amount of
Technology and Customer relations is amortized until 2032 and 2028, respectively.
Technology and Customer relations is amortized until 2032 and 2028, respectively.
Danfoss Heating
Danfoss Heating
The goodwill allocated to Danfoss Heating Segment derives primarily from the acquisition of the DEVI Group (Denmark) in 2003 and Sondex Holding A/S (Denmark) in 2016. At the end of 2018, the carrying amount of Technology
The goodwill allocated to Danfoss Heating Segment derives primarily from the acquisition of the DEVI Group (Denmark) in 2003 and Sondex Holding A/S (Denmark) in 2016. At the end of 2018, the carrying amount of Technology
and Customer relations acquired in connection with business combinations amounts to EUR 41m (2017: 45m), or approximately 7% (2017: 8%) of the corresponding Group carrying amount. The carrying amount of Technology
and Customer relations acquired in connection with business combinations amounts to EUR 41m (2017: 45m), or approximately 7% (2017: 8%) of the corresponding Group carrying amount. The carrying amount of Technology
and Customer relations is amortized until 2028.
and Customer relations is amortized until 2028.
Other intangible assets
Other intangible assets
At the end of 2018, Danfoss had Software in progress amounting to EUR 66m (2017: 97m) and EUR 0m (2017: 0m) capitalized development expenditure in progress. Capitalized software in progress is mainly developed internally.
At the end of 2018, Danfoss had Software in progress amounting to EUR 66m (2017: 97m) and EUR 0m (2017: 0m) capitalized development expenditure in progress. Capitalized software in progress is mainly developed internally.
In 2018, the Group performed impairment tests on the carrying amount of software in progress. The actual expenses and achieved milestones has been evaluated according to the approved project and business plans. This led
In 2018, the Group performed impairment tests on the carrying amount of software in progress. The actual expenses and achieved milestones has been evaluated according to the approved project and business plans. This led
to no impairment of current software assets (2017: 0m).
to no impairment of current software assets (2017: 0m).
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Note 8 Property, plant and equipment
EURm
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
Cost as of January 1, 2018
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Transfers
Additions
Disposals
Disposals through sale of subsidiaries
Cost as of December 31, 2018
Depreciation and impairment losses as of January 1, 2018
Foreign exchange adjustments in foreign companies
Transfers
Depreciation
Disposals
Disposals through sale of subsidiaries
Depreciation and impairment losses as of December 31, 2018
Carrying amount as of December 31, 2018
Land and
buildings
Plant and
machinery
Equipment
Assets under
construction
TOTAL
840
-26
1
30
36
-3
878
377
-6
32
-3
400
478
878
-5
50
21
-11
-8
925
400
-1
34
-7
-5
421
504
1,373
-27
2
63
37
-19
1,429
1,037
-11
-7
96
-18
1,097
332
1,429
-1
1
100
50
-26
-5
1,548
1,097
-3
1
95
-25
-4
1,161
387
219
-5
32
45
-50
241
157
-4
6
22
-28
153
88
241
2
27
-12
258
153
-1
-1
19
-11
159
99
149
-7
-126
150
166
166
166
-152
165
179
179
2,581
-65
3
-1
268
-72
2,714
1,571
-21
-1
150
-49
1,650
1,064
2,714
-6
1
263
-49
-13
2,910
1,650
-5
148
-43
-9
1,741
1,169
Assets held under finance leases amounts to a total carrying amount of EUR 53m (2017: 41m).
Additions/disposals through acquisitions/sales of subsidiaries are further described in Note 19 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.
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Note 9 Inventories
EURm
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
EURm
Trade receivables before provision for bad debts
Provision for bad debts
Trade receivables
Receivables from associates and joint ventures
Total trade receivables
Hereof trade receivables due after 1 year
Provision for bad debts as of January 1
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Change in provisions
Realized loss
Provision for bad debts as of December 31
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2017
281
77
302
660
60
31
9
2,920
2018
338
88
329
755
61
46
11
3,143
2017
2018
882
-26
856
6
862
2
-26
1
-3
-2
4
-26
883
-25
858
6
864
2
-26
1
-2
2
-25
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Note 11 Share capital
SHAREHOLDERS HOLDING MORE THAN 5% OF THE SHARES OR 5% OF THE VOTES
The Bitten & Mads Clausen's Foundation, Nordborg, Denmark
Clausen Controls A/S, Sønderborg, Denmark
Henrik Mads Clausen, Lake Forest, USA
Karin Clausen, Holte, Denmark
DISTRIBUTION OF SHARES
Balance as of January 1, 2017
Share incentive programs subscriptions
Balance as of December 31, 2017
Balance as of December 31, 2018
SHARES
47.93%
26.26%
11.04%
6.24%
A shares
B shares
Total
Number
4,250,000
4,250,000
4,250,000
DKKm
425.0
425.0
425.0
Number
5,707,111
12,514
5,719,625
DKKm
570.7
1.3
572.0
Number
9,957,111
12,514
9,969,625
5,719,625
572.0
9,969,625
VOTES
86.13%
5.47%
2.29%
1.30%
DKKm
995.7
1.3
997.0
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. All shares have a nominal value of 100 DKK.
DIVIDEND PER SHARE
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 & Mads Clausen's Foundation
Sold in the year
Holding as of December 31
DKK
60.2
50.2
2017
EUR
8.1
6.7
DKK
60.2
60.2
2017
6,589
16,351
62,403
-300
85,043
2018
EUR
8.1
8.1
2018
85,043
2,082
263,573
350,698
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 2018 for acquiring own shares amounts to EUR 249m (2017: 64m). The Group's holding of treasury shares represents 3.5% (2017: 0.9%) of the Group's share capital. The value of treasury shares held amounts to
EUR 328m (2017: 70m).
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 2018 the net-interest-bearing debt to EBITDA ratio was 1.0 (2017: 1.2) 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.
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Note 12 Provisions
EURm
Provisions for warranty comprise expected costs arising during the warranty period of the Group's products. Contingent consideration consists of earn-out relating to acquisitions and 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
Disposals through sale of subsidiaries
Transferred 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
Contingent
consideration
46
-1
-24
-3
28
46
52
-1
-4
5
1
53
Warranty
Contingent
consideration
30
16
46
1
43
9
53
Other
53
1
-2
-8
-3
21
62
Other
18
22
22
62
2018
TOTAL
151
1
-1
-2
-33
-10
54
1
161
2018
TOTAL
49
81
31
161
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Note 13 Deferred tax
EURm
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
2017
-160
5
-9
32
-13
-145
2018
-145
-2
-1
-2
9
1
-140
2017
Deferred tax
asset
2018
Deferred tax
asset
5
39
27
79
35
-27
158
-68
90
5
32
24
92
41
-33
161
-73
88
Deferred tax
liability
Deferred tax
liability
126
86
14
68
9
303
-68
235
119
92
14
71
5
301
-73
228
The tax asset related to tax loss carry-forwards of EUR 8m net (2017: 8m) is largely related to companies that have suffered tax losses within the last three financial years. Based on business plans and expected future taxable income
in the respective companies, it is the Management’s opinion that the net tax loss carry-forwards will be utilized in the future. Of the tax loss carry-forwards recognized, 91% (2017: 91%) can still be utilized after 3 years or later.
The tax value of unrecognized tax assets related to tax loss carry-forwards amounts to EUR 33m (2017: 27m). The amount is not recognized as an asset, as the tax losses carried forward are not expected to be utlized. 3% of the amount
(2017: 12%) has a remaining period of 3 years or less, whereas the share with a remaining period of 10 years or more totals 63% (2017: 75%).
Of the deferred tax liability of EUR 228m (2017: 235m), EUR 5m (2017: 9m) 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 EUR 19m (2017: 16m). The liabilities are not recognized, because the Group decides on their utilization and it is likely that the liabilities will not be recognized in the
foreseeable future.
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Note 14 Pension and healthcare obligations
EURm
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
2017
Gross liability Net Liability
2018
Gross liability Net Liability
23%
39%
35%
3%
100%
70%
38%
-19%
11%
100%
24%
39%
33%
4%
100%
68%
35%
-17%
14%
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
200 (2017: 300) active employees. Danfoss is working on minimizing the defined benefit risk by integrated risk management and by changing the nature of existing plans.
All material defined benefit plans have been computed by independent actuaries.
THE GROUP'S DEFINED BENEFIT PLAN OBLIGATIONS
Present value of defined benefit plan obligations
Fair value of plan assets
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
Gains from reductions and redemptions
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
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2017
2018
501
-387
114
22
136
114
479
-365
114
19
133
114
2017
2018
532
-34
4
15
-10
16
-1
1
-5
-20
3
501
501
8
3
13
1
-20
-6
2
-5
-21
3
479
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Note 14 Pension and healthcare obligations (continued)
EURm
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
Gains from reductions and redemptions
Payments by the Group
Disbursed benefits
Net transfer from provisions
Plan assets as of December 31
2017
2018
387
-29
12
1
23
13
-20
387
387
5
11
2
-28
-6
14
-21
1
365
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 EUR 67m (2017: 65m).
EXPENSES RELATING TO PENSION AND HEALTHCARE OBLIGATIONS
Pension costs for the year
Calculated interest on liabilities
Calculated interest 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 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
2017
2018
4
15
-12
-1
6
2
2
-1
3
6
3
13
-11
5
1
2
2
5
2017
2018
20
82
399
501
21
86
372
479
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Note 14 Pension and healthcare obligations (continued)
EURm
PENSION PLAN ASSETS ARE SPECIFIED AS FOLLOWS:
Shares and similar securities
Listed corporate bonds
Bonds
Other
2017
38%
33%
22%
7%
100%
146
128
86
27
387
2018
31%
37%
26%
6%
100%
114
135
96
20
365
Plans in which the pension funds are invested in financial instruments are exposed to risk. 31% (2017: 38%) 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
2017
Weighted
average
2.7%
3.6%
Range
1.9-3.6%
1.8-4.4%
2018
Weighted
average
3.1%
3.5%
Range
1.9-4.2%
1.8-4.5%
Life expectancy is based on relevant statistics available on the individual countries included in the calculation. The estimated return on defined benefit plan assets is based on external actuarial calculations and determined
according to the composition of the assets and considering the general expectations with regard to economic developments. The Group expects to pay in EUR 17m to defined benefit plans in 2019 (2018: 20m).
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
2017
501
2018
479
-35
+39
+3
-2
+17
-16
-32
+37
+2
-2
+15
-15
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Note 15 Financial risks and instruments
EURm
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: This 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. The policy for cash flow hedge ratios for 2018 and 2017 has been as follows:
0-3 months' exposure 90%
3-6 months' exposure 85%
6-9 months' exposure 80%
9-12 months' exposure 75%
The policy ratio for fair value hedging has been 100% for 2018 and 2017.
This is the risk that the P&L and Equity of Danfoss, when measured in EUR, 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 in terms 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 OF SIGNIFICANT CURRENCIES
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
-37
41
10
-402
USD
-28
272
-279
-113
GBP
-4
-7
12
-37
2017
Total
-69
306
-257
-552
1) Besides the loans included, loans of EUR 634m (2017: 634m) are used for hedging of net investments (equity hedge). The impact on the Group's equity is EUR -2m (2017: -1m).
2) Financial instrument for hedging of fair value also includes the exposure related to inventories in countries applying foreign currency price lists.
SENSITIVITY
Probable increase in exchange rate
Hypothetical impact on profit and loss for the year
Hypothetical impact on equity
1%
0
-10
10%
-3
-15
10%
0
-3
-3
-28
EUR
-93
-31
118
-407
1%
0
-10
USD
-18
41
-22
-153
10%
0
-15
2018
Total
-116
15
96
-595
0
-29
GBP
-5
5
0
-35
10%
0
-4
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.
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Note 15 Financial risks and instruments (continued)
EURm
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 2018 or 2017.
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 Group applies the simplified approach to provide for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. To measure the expected credit losses,
trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected credit losses also incorporate forward-looking information. Out of the EUR 25m write down EUR 18m relates to
overdue more than 180 days.
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.
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
Total Gross carrying amount
Provision for bad debts as of December 31
Net carrying amount
2017
2018
36
15
22
815
888
26
862
39
16
24
810
889
25
864
The carrying amount of trade receivables is estimated to represent their fair value as well as the maximum credit risk.
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 a year and equity at the
end of the year:
Cash and debt with floating interest rates
Hedge instruments (interest swaps)
Income
statement
-1
-1
2017
Equity
-1
4
3
Income
statement
0
0
0
2018
Equity
0
0
0
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.
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Note 15 Financial risks and instruments (continued)
EURm
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 EUR 0.4bn, in terms of accessible cash and non-terminable credit facilities
with an average maturity profile of at least 3 years.
At the end of 2018, Danfoss' credit rating from Standard and Poor’s was "BBB/A2 with a stable outlook" and the liquidity reserve equaled EUR 1.1bn (2017: 1.0bn). In addition to this, Danfoss had cash 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 2018. The Danfoss Group's loan agreements contain no financial covenants.
The major part of the Group's cash and cash equivalents of EUR 50m (2017: 29m) 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
1,002
71
42
776
4
1
1,896
l
a
u
t
c
a
r
t
n
o
C
w
o
l
f
h
s
a
c
1,081
74
45
776
4
1
1,981
2017
Maturity
)
*
s
r
a
e
y
5
-
1
5
r
e
v
O
s
r
a
e
y
827
1
22
141
72
17
850
230
r
a
e
y
1
-
0
112
6
776
4
1
899
i
g
n
y
r
r
a
C
t
n
u
o
m
a
939
70
54
883
2
9
1,957
l
a
u
t
c
a
r
t
n
o
C
w
o
l
f
h
s
a
c
986
73
58
883
2
9
2,011
Maturity
)
*
s
r
a
e
y
5
-
1
538
1
42
2018
5
r
e
v
O
s
r
a
e
y
388
70
9
581
467
r
a
e
y
1
-
0
60
2
7
883
2
9
963
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
2017
1,023
873
1,896
2018
1,007
950
1,957
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Note 15 Financial risks and instruments (continued)
EURm
FINANCIAL INSTRUMENTS BY CATEGORY
FINANCIAL ASSETS:
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, receivables, cash and cash equivalents measured at amortized cost
FINANCIAL LIABILITIES:
Contingent consideration measured at fair value via the income statatement
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
2017
Fair
value
Carrying
amount
2018
Fair
value
Carrying
amount
2
2
2
8
10
2
2
2
8
10
862
122
29
1,013
862
122
29
1,013
3
3
1
1
3
3
1
1
864
165
50
1,079
864
165
50
1,079
52
52
53
53
1,115
1,324
2,439
1,143
1,324
2,467
1
1
1
1
1,063
1,447
2,510
1,085
1,447
2,532
4
5
9
4
5
9
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 2017.
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Note 15 Financial risks and instruments (continued)
EURm
FAIR VALUE HIERARCHY AS OF DECEMBER 31 FOR THE GROUP
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
2017
2018
s
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Level 1
Level 2
Level 3
2
8
10
1
1,143
1,144
2
2
52
52
l
a
t
o
T
2
2
8
12
1
52
1,143
1,196
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b
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Level 1
Level 2
Level 3
1
1
4
5
1,085
1,094
3
3
53
53
l
a
t
o
T
3
1
4
4
5
53
1,085
1,147
72/117
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 15 Financial risks and instruments (continued)
EURm
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, assets/liabilities (-)
2017
2018
-40
-38
26
2
-50
-50
-5
5
-50
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
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USD
EUR
Other currencies
Forward exchange contracts
Interest swaps
Derivatives end of year
-420
-447
133
318
n
o
)
-
(
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5
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2017
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-205
-352
98
2018
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1
3
-3
-3
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k
r
a
m
-11
3
-8
-8
At the end of 2018, unrealized gain/loss(-) on derivatives hedging foreign currency risk recognized in equity amounted to EUR -5.1m (2017: 6.7m). At the end of 2018, unrealized gain/loss(-) on derivatives hedging floating interest
payments recognized in equity amounted to EUR 0m (2017: 1.3m). Forward exchange contracts are primarily used for hedging future sales in foreign currencies. Interest rate swaps are used to convert floating-rate liabilities
to fixed rates. EUR 0m was recognized in the income statement in 2018 (2017: -0.2m) as a consequence of testing for effectiveness.
For the open foreign exchange contracts, used for USD cash flow hedges, at the end of 2018, weighted average hedge rate for USD/DKK is 6.2504 (2017: 6.4338).
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Note 16 Corporation tax
EURm
Corporation tax payable/receivable (-) as of January 1
Foreign exchange adjustment in foreign companies
Paid during the year
Adjustments concerning previous years
Disposals through sale of subsidiaries
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
2017
-1
1
-150
3
180
4
37
17
54
37
2018
37
3
-157
-9
-1
156
-3
26
39
65
26
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Note 17 Adjustment for non-cash transactions
EURm
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 consist of provisions, derivatives and defined benefit plans.
Note 18 Change in working capital
EURm
Change in inventories
Change in receivables
Change in trade payables and other debt
2017
2018
240
-2
-3
52
-13
274
244
-33
33
-3
48
-19
270
2017
-71
-110
245
64
2018
-103
-41
131
-13
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Note 19 Acquisition and sale of subsidiaries and activities
EURm
Company/activity:
Kavlico thin-film sensor technology from Sensata Technologies
Prosa S.r.l.
Visedo Oy
Company/activity:
IKUSI Telecontrol (business unit of IKUSI Electrónica, S.L.)
AXCO-Motors
OE3i Holding ApS
AAIM Controls Inc.
Thermia (Heat Pump business)
*) 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
Acquisition
Acquisition
Disposal
Country
Germany
Italy
Finland
Country
Spain
Finland
Denmark
US
Sweden
Consolidated
from/until
Holding
acquired/sold
Net sales per
year *)
No. of
employees
Consideration
paid
2017
June
June
November
100%
100%
100%
2
3
7
40
16
85
**
**
**
2018
Consolidated
from/until
Holding
acquired/sold
Net sales per
year *)
No. of
employees
Consideration
paid
August
September
November
November
April
100%
100%
100%
100%
100%
13
2
0
7
70
73
10
4
26
223
**
**
**
**
**
2017 acquistions and disposals:
The largest acquisition in 2017 was the purchase of Visedo Oy, which was acquired on November 1. 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 Solutions Segment. Danfoss also
acquired two smaller entities, which are both part of the Cooling Segment. Disposals in 2017 were related to the Sondex Pump business. Acquisition-related costs, e.g. due diligence costs, of EUR 1.3m have been charged to
expenses in the consolidated income statement for the year ending December 31, 2017.
The net sales included in the consolidated income statement of the acquired companies in 2017 are less than EUR 7m and impact on Profit before tax is around EUR -3m, with a significant part coming from PPA expenses.
2018 acquistions and disposals:
The Group only carried out minor acquistions in 2018. Ikusi and AXCO relates to the Power Solutions Segment, AAIM is relating to the Cooling Segment and OE3i is relating to the Heating Segment. Acquisition-related costs, e.g.
due diligence costs, of EUR 0.4m (2017: 1.3m) have been charged to expenses in the consolidated income statement for the year ending December 31, 2018.
The net sales included in the consolidated income statement of the acquired companies in 2018 are less than EUR 10m and impact on profit before tax is around EUR -2m.
The largest diposal was the sale of the Heat Pump business, which was previously part of the Heating Segment. The Heat Pump business is mainly active in Scandinavia. The gain on the disposal is included in other operating
income, cf. Note 2. The impact of the disposal on the Group's Net Sales development from 2017 to 2018 is around -1%.
The preliminary Purchase Price Allocation accounting has calculated total goodwill of EUR 23m. 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. A part 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 for previous year, related to Purchase Price Allocation, is included in the statement below.
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Note 19 Acquisition and sale of subsidiaries and activities (continued)
EURm
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
Recycling of foreign exchange adjustments on disposal of foreign companies
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
Net cash paid(-)/received
*) receivables in acquisitions includes provision for bad debt of EUR 0.5m (2017: 3.2m)
2017
Acquisitions
2018
Acquisitions
2017
Disposals
2018
Disposals
-44
-4
-4
4
3
-3
3
21
5
-19
-99
-118
4
-114
10
-104
-15
-1
-3
-5
-1
2
1
-22
-23
-45
1
-44
3
-41
1
-1
1
1
1
4
10
7
6
-1
-13
13
6
116
135
-6
129
129
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Note 20 Acquisition/ Sale of other investments
EURm
Purchase of shares and other securities
Increase/decrease of lending
2017
-5
-16
-21
2018
-4
-9
-13
Purchase of shares and other securities in 2018 is primarily related to the purchase of shares in the associated company Leanheat Oy. In 2017, the purchase was 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.
Note 21 Change in liabilities arising from financing activities
EURm
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
Cash repayment
Cash proceeds
Acquisitions of lease liabilities
Other
Carrying amount as of December 31, 2018
Short-term
borrowings
439
-364
13
3
4
-3
92
-395
341
5
13
56
Long-term
borrowings
937
-453
582
23
-66
1,023
-421
410
11
-16
1,007
TOTAL
1,376
-817
595
3
27
-69
1,115
-816
751
16
-3
1,063
The Group's other change in liabilities arising from financing activities mainly consists of foreign exchange adjustments and short-term and long-term borrowings reclassification.
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Note 22 Contingent liabilities, assets and security
EURm
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
2017
111
3
117
2018
123
17
126
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
The Group expensed EUR 63m in operating lease payments in 2018 (2017: 60m) and they relate mainly to buildings and equipment. There were no significant contingent lease payments in 2018 or 2017.
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 EUR 3m in 2018 (2017: 2m). The above rentals relate mainly to buildings.
CONTRACTUAL OBLIGATIONS
Service contract commitment other than leases
Inventories
Property, plant and equipment
Purchase commitments
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Annual Report 2018 The Danfoss Group
2017
2018
26
49
28
18
15
2017
1
2
2017
54
133
48
235
30
54
41
14
14
2018
1
2018
47
140
44
231
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Note 23 Related parties
EURm
Danfoss A/S’ related parties comprise the Bitten & Mads Clausen's 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 controlling interest, joint controlling interests, or significant influence.
BITTEN & MADS CLAUSEN's FOUNDATION, OTHER SHAREHOLDERS AND OTHER RELATED COMPANIES
The Bitten & Mads Clausen's Foundation, which holds 47.93% of the shares in Danfoss A/S and controls 86.13% of the voting power, has the controlling influence.
In the financial year, a limited number of transactions have taken place between the Bitten & Mads Clausen's 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 EUR 3.3m (2017: 3.3m).
In the financial year, the Bitten & Mads Clausen's Foundation sold shares in Danfoss A/S at a value of EUR 246.4m back to the company (2017: 51.2m).
Around 96% of Danfoss A/S' dividend payments are related to the Bitten & Mads Clausen's 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 EUR 0.2m in 2018 (2017: 0.2m).
Besides that, companies in which Mads-Peter Clausen and Jørgen M. Clausen have significant ownership interests, have sold goods and services of less than EUR 0.7m (2017: 0.7m) 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.
TRANSACTIONS WITH ASSOCIATES AND JOINT VENTURES
Sales of goods and services
Purchases of goods and services
2017
40
16
2018
44
15
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 15 Financial risks and instruments.
Note 24 Events after the balance sheet date
Subsequent to December 31, 2018, on January 21, 2019, Danfoss entered into a definitive merger agreement with the publicly traded company UQM Technologies Inc. located in Colorado, United States, pursuant to which
Danfoss will acquire all outstanding common shares of UQM. The transaction is subject to necessary approvals and is expected to close in the second quarter of 2019.
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Note 25 Basis for preparation and accounting policies
Danfoss A/S is a company domiciled in Denmark. The Annual Report for
the period January 1 - December 31, 2018, 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.
As of 2018, Danfoss has changed its presentation currency from DKK to
EUR. The transition reflects that the main part of the Group’s revenue is
generated outside Denmark and that EUR is the prevailing functional
currency within the Group. Consequently, the Annual Report is presented
in EUR, rounded to the nearest million unless otherwise indicated.
Comparative figures have been restated accordingly. The functional
currency of the Parent Company is DKK.
•
•
•
standard may potentially affect revenue recognition in a number of areas,
including identification of performance obligations, timing of revenue
recognition, recognition of variable considerations, and principal versus
agent considerations. The standard also includes a large number of new
disclosure requirements.
The implementation of the new standard does not have a material impact
on the financial statements due to 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 services, such as
installation services, after-sales services and project sales. In
materiality, revenue is recognized over time for these services.
Recognition of a few variable considerations have changed, but these
do not have a material impact on the financial statements.
Identified contract assets and liabilities are not material.
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 2018.
IFRS 9, Financial instruments: The standard introduces an expected loss
model for impairment losses on loans and receivables. This new model
has not significantly changed impairment losses compared to those
incurred under IAS 39.
The number of classification categories for financial assets is reduced to
three: amortized cost, fair value through the income statement and fair
value through other comprehensive income. Danfoss is presently only
using the methods amortized cost, and fair value through profit and loss.
Furthermore, simplified rules on hedge accounting are introduced, but
these changes have not impacted the financial statements.
IFRS 15, Revenue from contracts with customers: A new standard on
revenue recognition that replaces IAS 11 and IAS 18 among others. The
Remaining new standards and interpretations effective for 2018 are not
relevant to the Group.
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 2018 Annual Report.
IFRS 16, Leases: The new standard is 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. It must furthermore be considered
whether the agreement is a lease or a service arrangement. The Group will
apply a simplified transition approach without restating any comparative
information. As of 1st January 2019, property, plant and equipment are
expected to increase between EUR 135-145m, deferred tax assets are
expected to increase between EUR 1-2m and borrowings are expected to
increase between EUR 140-150m. The net impact on retained earnings is
expected to between EUR 5-6m.
IFRIC 23, Uncertainty over income tax treatments: The amendment will
be effective for financial years beginning on or after 1 January 2019.
The interpretation clarifies that it must be determined whether each tax
position is to be treated individually or collectively with other uncertain
tax positions. The assessment should be based on the assumption that the
tax authorities have the same knowledge of the enterprise’s circumstances
and, therefore, the assessment should disregard any detection risk. This
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determination may be based on e.g. how tax statements are prepared, or
how the enterprise expects the tax authorities to treat the uncertain tax
positions. The uncertain tax position must be recognized if it is probable
that the enterprise will have to pay or receive refunds. The uncertain tax
position must be measured so as to better reflect the receivable/liability
and the related uncertainty. The Management has assessed the standard
will not have any material impact for the Group.
The Group has assessed the remaining issued but not yet effective
standards and interpretations to not have any relevance to the Group
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/
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Note 25 Basis for preparation and accounting policies
loss for the year is recognized as part of the Group’s profit/loss for the year
and as a separate share of the Group’s equity.
The companies included in the Group are disclosed in the section “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.
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.
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.
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 EUR, 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 EUR, are recognized directly in the equity under a
separate reserve for foreign exchange adjustments. Likewise, foreign
exchange gains or losses are recognized in the consolidated financial
statements (directly in the equity under a separate reserve for foreign
exchange adjustments) concerning the part of loans and derivative
financial instruments, which has been allocated for currency hedging
of net investments made in these companies, and which effectively
protects against similar currency rate gains or losses on net investments
in the company.
On disposal of wholly-owned foreign units, the foreign exchange
adjustments, which have been accumulated in equity via other
comprehensive income, and which can be ascribed to the unit, are
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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 from contracts with customers
The Group is selling products and services in areas such as refrigeration,
air conditioning, heating, motor control, and off-highway machinery.
Net sales of products for resale and finished goods are recognized in the
income statement when control of the products has been transferred
to the customer. Control is transferred when the products are delivered,
which occurs when the Group has objective evidence that all criteria
for transfer of risk has been satisfied. Sales are only recognized to the
extent that it is highly probable that a significant reversal will not
occur. Products are often sold with retrospective volume discounts.
Net sales are measured at the fair value of the consideration agreed,
excluding VAT, duties and discounts in relation to the sale. Accumulated
experience is used to estimate variable considerations (expected value
method). The validity of assumptions and estimates are reassessed
at each reporting date. Because of historical accurate estimates, it is
highly probable that a significant reversal in the cumulative revenue
recognized will not occur.
Related service income is recognized in the income statement as the
services are rendered. Accordingly, the recognized sale corresponds to
the sales value of the work performed during the year. This is determined
based on the actual costs incurred relative to the total expected costs.
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.
customer exceeds one year. As a consequence, the Group does not adjust
any of the transaction prices for the time value of money. A receivable is
recognized when the products are delivered as this is the point in time
that the consideration is unconditional because only the passage of time
is required before the payment is due.
The Group’s obligation to repair or replace faulty products under the
standard warranty terms is recognized as a provision.
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.
The Group’s standard payment terms is 30 days net from the date of
invoice or current month +15 days, however there may be country
specific deviations from the standard payment terms. The Group does not
expect to have any contracts where the period between the transfer of
the promised products or services to the customer and payment by the
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
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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 that are valued
through the income statement, 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.
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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 annually tested for impairment.
Buildings and building components 10-30 years
Plant and machinery
Equipment
4-8 years
2-6 years
Patents and licenses are measured at cost less accumulated amortization
and impairment. Patents are amortized on a straight-line basis over the
patent period and licenses are amortized over the shorter of the contract
period and the useful life. Patent and contract periods are normally 5-10
years.
Other intangible assets
Other intangible assets, including intangible assets acquired in a business
combination, which typically comprise technology and customer
relations, are amortized on a straight-line basis over the expected useful
life, which is typically a period of 10 to 20 years.
Intangible assets, including trademarks, with indefinite useful lives are not
amortized, but are tested annually for impairment.
Gains and losses on the disposal of intangible assets are determined as
the difference between the selling price less costs to sell and the carrying
amount at the selling date. Gains or losses are recognized in the income
statement under ‘Other operating income 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:
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
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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. Securities are measured at fair value
through the income statement.
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 based on the simplified approach to providing
for expected credit losses, which requires expected lifetime losses to be
recognized from initial recognition of receivables. Impairment losses are
calculated as the difference between carrying amount and present value
of expected cash flows, including the expected realizable value of any
collateral provided.
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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 transferred to inventories. 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.
Employee shares
On the granting of employee shares, any bonus element is recognized
as an expense under personnel costs. The counter entry is recognized
directly in equity. The bonus element is determined at the subscription
date as the difference between the fair value and the subscription price
of the shares.
Pension obligations and defined
benefit healthcare plans
The Group has entered into pension schemes and similar arrangements
with the majority of the Group’s employees. In addition, the Group has
healthcare plans contributing with payment for medical expenses for
certain employee groups in the USA after their retirement.
Contributions to defined contribution plans, where the Group currently
pays fixed pension payments to independent pension funds, are
recognized in the income statement in the period to which they relate,
and any contributions outstanding are recognized in the balance sheet as
other debt.
For defined benefit pension and healthcare plans, the Group is under an
obligation to pay a specific benefit upon retirement (e.g. a fixed amount
or a percentage of the exit salary). For these plans, an annual actuarial
calculation (Projected Unit Credit method) is made of the present value
of future benefits under the defined benefit plan. The present value is
determined on the basis of assumptions about the future development
in variables such as salary levels, interest rates, inflation and mortality. The
present value is determined only for benefits earned by employees from
their employment with the Group. The actuarial present value less the fair
value of any plan assets is recognized in the balance sheet under pension
and healthcare obligations.
Pension and healthcare costs for the year are recognized in the income
statement based on actuarial estimates and financial expectations
at the beginning of the year. Any difference between the expected
development in assets and liabilities and realized amounts determined
at year end constitutes actuarial gains or losses and is recognized
directly in other comprehensive income. If changes in benefits relating
to services rendered by employees in previous years result in changes in
the actuarial present value, the changes are recognized as past service
costs. Past service costs are recognized immediately, provided that the
benefits have already vested. If the benefits have not vested, the past
service costs are expensed in the income statement over the period in
which the changed benefits vest.
If a pension or healthcare plan constitutes a net asset, the asset is only
recognized if it offsets future refunds from the plan or will lead to reduced
future payments to the plan.
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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.
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.
Financial liabilities, other than derivatives
Financial liabilities are initially recognized at fair value less transaction costs.
Subsequently, they are measured at 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
minus 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.
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 occurs in the balance sheet.
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.
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
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.
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.
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.
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. The majority of the Group’s buildings are recognized under
Other areas in the segment reporting, as buildings are managed and
operated by a real-estate unit. The segments are instead charged with
rent/lease expenses for the use of these assets.
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.
Current assets are those current assets which are used directly for
segment operations, including inventories and trade receivables.
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
Segment liabilities comprise both non-current and current liabilities
derived from segment operations, including trade payables and warranty
obligations as well as other provisions.
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Trade between segments takes place on market terms or on a cost
recovery basis.
EBIT after tax
Operating profit (EBIT) reduced with tax on profit
Financial ratios
Earnings per share (EPS) and diluted earnings per share (DEPS) are
calculated in accordance with IAS 33.
Return on equity
Net profit after minority interests’ share/average equity excluding minority
interests
The financial ratios in the Annual Report are calculated in the following
manner:
Equity ratio
Equity/total assets
Local currency growth
Sales growth adjusted for exchange rate translation effects
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
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 and
profit from associates & joint ventures /Net sales
EBIT margin excluding other operating income, etc.
Operating profit (EBIT) excluding other operating income and expenses
and profit from associates & joint ventures /Net sales
EBIT margin
Operating profit (EBIT)/Net sales
Return on Invested Capital (ROIC)
Operating profit (EBIT)/average invested capital
Invested Capital
Net interest bearing debt added to Shareholders’ Equity
Return on Invested Capital (ROIC) after tax
EBIT after tax/average invested capital excluding tax
Invested capital excluding tax
Net interest bearing debt and tax balance sheet items (net) added to
shareholders’ equity
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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 14 Pension plans and healthcare obligations.
Note 26 Critical accounting estimates
As a consequence of the accounting policies, determining the carrying
amount of certain assets and liabilities requires estimates of how future
events will affect the value of these assets and liabilities at the balance
sheet date.
The volatility of the global economy and the financial markets has
made it more difficult to forecast the development of some future key
assumptions – such as liquidity risk, credit risk, interest level and capital
management etc. Therefore, Danfoss provides additional information
about items in the consolidated financial statements whose carrying
amount is at risk of being adjusted considerably over the next few
years. Estimates which are significant for the preparation of the financial
statements include 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
pension and healthcare obligations. The estimates used are based on
Management assumptions, which are assessed to be reliable, but which
are inherently subject to uncertainty.
Accordingly, Danfoss is subject to risks and uncertainties, which may
cause actual results to differ from these estimates. For the Group,
the measurement of intangible assets could be materially affected
by significant changes in estimates and assumptions on which the
measurement is based.
Impairment of goodwill
In performing the annual impairment test of goodwill, an assessment is
made of whether the individual units of the enterprise (cash generating
units) to which goodwill relates will be able to generate sufficient positive
net cash flows to support the value of goodwill and other net assets of
the unit.
Due to the nature of the Group’s operations, estimates have to be made
of expected cash flows many years into the future, which will be subject
to some degree of uncertainty 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 gain or losses on the disposal of the non-current assets.
The amortization and depreciation periods used are described in the
accounting policies in Note 25, and the value of non-current assets is
disclosed in 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 13 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 judgment is applied
to assess the possible outcome of such disputes. The most probable
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 litigation and settlement
with the relevant tax authorities. Corporation tax is disclosed in Note 16
Corporation tax.
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
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Note 27 Group companies
Per December 31, 2018
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.
Denmark
• BetterHome ApS – 33%
• Danfoss A/S
• Danfoss Compressors Holding A/S
• Danfoss Distribution Services A/S
• Danfoss International A/S
• Danfoss IXA A/S – 73%
• 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
• OE3i ApS
• OE3i IP ApS
• OE3i Holding ApS
Estonia
• Danfoss AS
Finland
• Danfoss Power Solutions Oy Ab
• Oy Danfoss Ab
• Leanheat Oy – 46%
• Sondex Tapiro Oy Ab
• Vacon Oy
• Danfoss Editron Oy
France
• Danfoss Commercial Compressors S.A.
• Danfoss Power Solutions SAS
• Danfoss 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 Power Solutions Telekontrol GmbH
• Danfoss Sensors GmbH
• Danfoss Silicon Power GmbH
• Danfoss Werk Offenbach GmbH
• SMA Solar Technology AG – 20%
• Sondex Deutschland GmbH
• White Drive Products GmbH – in liquidation
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Great Britain
• Danfoss Limited
• Danfoss Power Solutions Ltd.
• Danfoss Scotland Limited
• Senstronics Holding Ltd. – 50% (joint venture)
• Sondex (UK) Limited
• Vacon Drives (UK) Ltd. – in liquidation
• 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.
Hungary
• Danfoss Ktf.
• Sondex Kft.
Iceland
• Danfoss hf.
Italy
• Danfoss Power Solutions S.r.l.
• Danfoss 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.
• Danfoss Editron B.V.
Norway
• Danfoss AS
• Danfoss Power Solutions AS
Poland
• Danfoss Poland Sp. z.o.o.
• Danfoss Power Solutions Sp .z.o.o.
Romania
• Danfoss District Heating S.R.L.
• Danfoss S.R.L.
• S.C. Sondex Production S.R.L.
Russia
• AO Ridan
• 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 S.A.
• Danfoss Power Solutions Telecontrol, S.L.U.
• Danfoss Power Solutions S.A.
Sweden
• Danfoss AB
• Danfoss Power Solutions AB
• EP Technology AB
Switzerland
• Danfoss AG
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South Korea
• Danfoss Ltd.
• Danfoss Power Solutions Ltd.
• Sondex Korea LLC
Taiwan
• Danfoss Co. Ltd.
Thailand
• Danfoss ( Thailand) Co. Ltd.
New Zealand
• Danfoss (New Zealand) Ltd.
• Sondex NZ Ltd.
Note 27 Group companies
Ukraine
• Danfoss T.o.v.
Africa – Middle east
Turkey
• DAF Enerji Sanayi Ve Ticaret Anonim Sirketi
• Danfoss Otomasyon ve Kontrol Urunleri Tic Ltd.
• Sondex-Tanpera
United Arab Emirates
• Danfoss FZCO – 95%
• Gulf Sondex FZCO
South Africa
• Danfoss (Pty) Ltd.
• Sondex South Africa Pty. Ltd.
North America
Canada
• Danfoss Inc.
USA
• AAIM Controls, Inc.
• Daikin-Sauer-Danfoss America LLC – 45%
• Danfoss LLC
• Danfoss Power Solutions Inc.
• Danfoss Silicon Power LLC
• Danfoss Power Solutions (US) Company
• Danfoss Power Solutions Telecontrol US Inc.
• Danfoss Power Solutions Work Function, LLC
• Danfoss Turbocor Compressors Inc.
• Hydro-Gear Inc. – 60%
• Hydro-Gear Limited Partnership – 60%
• Hydro-Gear of Indiana, LLC
• Polaris Plate Heat Exchangers, LLC
• Sondex Equipment Holding Co., LLC
• Sondex, Inc.
• Sondex Properties, Inc.
• 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
Chile
• Danfoss Industrias Ltda.
Colombia
• Danfoss S.A.
Mexico
• Danfoss Industries S.A. de C.V.
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 Limited
• Danfoss ( Tianjin) Limited
• Danfoss Micro Channel Heat Exchanger (Jiaxing)
Co., Ltd.
• Danfoss Plate Heat Exchanger (Hangzhou) Co.,
Ltd.
• Danfoss Power Solutions (Jiangsu) 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) Limited
• Vacon China Drives Co. Ltd.
• Visedo (Asia) Ltd.
• White (China) Drive Products. Ltd.
• Zheijang Holip Electronic Technology Co. Ltd.
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 – in
liquidation
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.
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Annual Report 2018 The Danfoss Group
Parent accounts and notes
Nordhavn
It is Scandinavia's largest urban development
project. Over the next 50 years, Copenhagen's
Nordhavn in Denmark will become a district of
40,000 residents and 40,000 workplaces. The old
free port has always set its sights on new horizons.
And today, Nordhavn is where the future of energy
solutions will happen, and our heating and cooling
technologies will set the direction, leading to high
energy efficiency and reduced carbon footprint.
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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. Danfoss A/S had 2,905 employees at the end of 2018.
The profit before other operating income and expenses was EUR
72m against EUR 104m in 2017. The company’s operating profit
was EUR 65m against EUR 88m the previous year.
Financial income and expenses amounted to a net income of EUR
212m against a net income of EUR 256m the previous year. This
was mainly attributable to a decrease in distributed dividends
from subsidiaries.
The profit after tax in 2018 was EUR 259m against EUR 311m the
previous year.
Equity stood at EUR 2,886m at the end of 2018 against EUR
2,966m at the end of 2017. The increase was mainly attributable
to recognition of the profit for the year less dividends paid to the
owners.
Danfoss A/S expects net sales for 2019 to be on a level with the
2018 figures, and the company expects to report a profit in 2019.
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Income statement
January 1 to December 31
EURm
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
1
2
3
4
2017
1,243
-951
292
2018
1,248
-1,004
244
-40
-87
-61
104
-16
88
299
-43
344
-33
311
81
230
311
-35
-87
-50
72
-7
65
258
-46
277
-18
259
80
179
259
93/117
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Annual Report 2018 The Danfoss Group
Annual Report 2018 The Danfoss Group Click to navigate
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Statement of comprehensive income
January 1 to December 31
EURm
NET PROFIT
OTHER COMPREHENSIVE INCOME
Foreign exchange adjustments on translation of DKK into EUR
Fair value adjustment of hedging instruments:
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
2017
311
2018
259
-10
-1
-11
-11
2
-1
1
1
312
248
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Annual Report 2018 The Danfoss Group
Annual Report 2018 The Danfoss Group
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Statement of financial position
As of December 31
EURm
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
Derivative financial instruments (positive fair value)
Other receivables
RECEIVABLES
CASH AND CASH EQUIVALENTS
TOTAL CURRENT ASSETS
TOTAL ASSETS
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Annual Report 2018 The Danfoss Group
e
t
o
N
5
6
7
9
9
2017
2018
179
235
218
251
3,545
3,545
2,898
2,898
3,959
3,367
85
90
41
92
1,316
10
17
1,476
38
91
1,246
30
1,405
25
1,561
1,520
5,520
4,887
Annual Report 2018 The Danfoss Group Click to navigate
CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Statement of financial position
As of December 31
EURm
LIABILITIES AND SHAREHOLDERS’ EQUITY
SHAREHOLDERS’ EQUITY
LIABILITIES
Provisions
Deferred tax liabilities
Pension and healthcare benefit plan obligations
Borrowings
Other non-current debt
NON-CURRENT LIABILITIES
Provisions
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
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Annual Report 2018 The Danfoss Group
e
t
o
N
9
8
9
9
10
9
2017
2018
2,966
2,886
45
39
2
968
16
1,070
6
37
142
16
1,174
3
4
102
1,484
49
31
2
951
18
1,051
10
11
183
15
615
2
10
9
95
950
2,554
2,001
5,520
4,887
Annual Report 2018 The Danfoss Group
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Statement of cash flow
January 1 to December 31
EURm
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
e
t
o
N
11
10
12
12
2017
2018
344
-283
27
88
54
-33
192
301
-26
275
-53
-71
21
-128
15
-216
59
-817
583
296
-54
-67
-59
277
-150
20
147
55
-24
124
302
-20
282
-54
-28
1
-114
153
730
-1
687
969
-751
692
-556
-249
-80
-944
CASH AND CASH EQUIVALENTS AS OF DECEMBER 31
0
25
The cash flow statement cannot be derived on the basis of the Annual Report alone.
97/117
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Statement of changes in equity
Statement of cash flow
January 1 to December 31
EURm
EURm
Profit before tax
Adjustments for non-cash transactions
Change in working capital
CASH FLOW GENERATED FROM OPERATIONS
BALANCE AS OF JANUARY 1, 2017
Interest received
Interest paid
Net profit
Dividends received
Software development costs
CASH FLOW FROM OPERATIONS BEFORE TAX
Fair value adjustment of hedging instruments
Paid tax
Tax on other comprehensive income
CASH FLOW FROM OPERATING ACTIVITIES
Total other comprehensive income
Acquisition of intangible assets
Total comprehensive income for the period
Acquisition of property, plant and equipment
Dividends to shareholders
Proceeds from sale of property, plant and equipment
Purchase of treasury shares
Acquisition of subsidiaries
Capital increase
Proceeds from disposal of subsidiaries
Total transactions with owners
Cash repayment of (-)/cash proceeds from loans to subsidiaries
BALANCE AS OF DECEMBER 31, 2017
Acquisition (-)/sale of other investments, etc.
CASH FLOW FROM INVESTING ACTIVITIES
Net profit
Software development costs
FREE CASH FLOW
Currency translation adjustments
Fair value adjustment of hedging instruments
Cash repayment of interest-bearing debt
Total other comprehensive income
Cash proceeds from interest-bearing debt
Cash repayment of (-)/cash proceeds from borrowings from subsidiaries
Total comprehensive income for the period
Repurchase of treasury shares
Dividends to shareholders
Dividends paid to shareholders in the Parent Company
Purchase of treasury shares
CASH FLOW FROM FINANCING ACTIVITIES
Total transactions with owners
i
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s
e
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2,555
2,574
230
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s
d
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e
d
i
v
i
d
67
81
2017
d
e
344
s
o
p
-283
o
r
27
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88
54
-33
192
301
-26
275
81
-53
-71
-67
21
-128
-67
15
81
-216
80
59
-817
583
296
-54
-67
-59
80
-81
-81
2018
y
t
i
u
q
e
277
l
-150
a
t
o
20
T
147
2,775
55
-24
124
302
-20
282
311
2
-1
1
312
-54
-28
-67
1
-54
-114
153
-121
730
2,966
-1
687
259
969
-10
-1
-11
248
-751
692
-556
-249
-80
-80
-248
-944
-328
230
2
10
-1
1
231
-54
-10
-64
2,741
179
-10
-1
12
-11
12
168
1
-248
-247
38
192
61
2,747
32
32
179
-32
-10
-10
137
1
1
10
10
10
134
2
-1
1
1
1
-1
-1
-1
-54
-10
-64
-68
-248
-248
-316
98/117
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Annual Report 2018 The Danfoss Group
CASH AND CASH EQUIVALENTS AS OF DECEMBER 31
BALANCE AS OF DECEMBER 31, 2018
134
10
The cash flow statement cannot be derived on the basis of the Annual Report alone.
For further information on Share capital, see Note 11 Share capital, in Group section.
93
2,885
2,662
0
80
25
2,886
Annual Report 2018 The Danfoss Group
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Notes
Note 1 Net sales, 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
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Annual Report 2018 The Danfoss Group
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 1 Net Sales, expenses and other operating income
EURm
A. NET SALES
Sale of goods
Sale of services to Group members
Sales of services to Group members mainly includes services sold in relation to Group functions.
B. 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 EUR 9m (2017: 26m).
Due to change of management structure the remuneration reflects the Group Executive Team from 2017.
In 2017 total remuneration for 4 former members of Group Executive Team is included in salaries, pensions, bonuses and severance payments.
100/117
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Annual Report 2018 The Danfoss Group
2017
1,005
238
1,243
2018
1,000
248
1,248
2017
2018
236
12
1
19
268
2,734
2,779
251
8
2
20
281
2,841
2,905
2017
2018
7
2
12
9
30
1
31
4
1
7
12
1
13
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 1 Net Sales, expenses and other operating income
EURm
C. 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
D. OTHER OPERATING INCOME AND EXPENSES
Other
Other operating income
Restructuring costs
Other
Other operating expenses
Other operating income and expenses
E. FEES TO AUDITORS APPOINTED AT THE ANNUAL GENERAL MEETING
Audit fee
Other assurance engagements fee
Tax and VAT advice
Other fees
Total fee to Group Auditor
2017
2018
6
6
25
31
3
2
1
6
15
15
27
42
12
2
1
15
2017
2018
2
2
-8
-1
-9
-7
-12
-4
-16
-16
2017
2018
1
1
2
1
1
2
Fees for other services than statutory audit of the financial statements provided by PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab (PricewaterhouseCoopers Denmark) amounted to EUR 1.2m (2017: 0.7m).
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 advice.
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Note 2 Financial income
EURm
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.
Interest on financial assets measured at amortized cost
Note 3 Financial expenses
EURm
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 on financial liabilities measured at amortized cost
In Foreign exchange losses, net are included fair value hedge impact of EUR -21m (2017: +17m).
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Annual Report 2018 The Danfoss Group
2017
2018
192
58
26
23
299
58
124
62
71
1
258
63
2017
2018
-27
-8
-5
-2
-1
-43
-32
-24
-8
-6
-8
-46
-32
Annual Report 2018 The Danfoss Group Click to navigate
CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 4 Tax on profit
EURm
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)
Total taxes
2017
2018
-32
-1
-33
22.0%
-0.8%
-12.3%
1.0%
-0.1%
9.8%
-31
8
5
-18
22.0%
-4.9%
-9.8%
0.9%
-1.7%
6.5%
2017
2018
-33
-1
-34
-18
-18
103/117
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Note 5 Intangible assets
EURm
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
Cost as of January 1, 2018
Transfers
Additions
Disposals
Cost as of December 31, 2018
Amortization and impairment losses as of January 1, 2018
Transfers
Amortization
Disposals
Amortization and impairment losses as of December 31, 2018
Carrying amount as of December 31, 2018
Internally
developed
software
Patents,
trademarks and
other rights
Goodwill
Development
costs
Total
Other
TOTAL
62
2
64
64
64
64
64
118
53
-3
168
62
4
-3
63
105
168
-35
54
-1
186
63
-20
11
-1
53
133
32
32
20
2
22
10
32
35
67
22
20
4
46
21
14
14
14
14
14
-3
11
14
-3
11
164
53
-3
214
96
6
-3
99
115
214
54
-4
264
99
15
-4
110
154
226
2
53
-3
278
96
6
-3
99
179
278
54
-4
328
99
15
-4
110
218
"Internally developed software" mainly relates to the One ERP Program described in Management's review for Group, page 30.
IMPAIRMENT TESTS
Goodwill in Danfoss A/S of EUR 64m (2017: 64m) 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 2018, 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 recoverable amount lower than the carrying amount. The same conclusion was made for 2017.
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Note 6 Property, plant and equipment
EURm
Cost as of January 1, 2017
Transfers
Additions
Disposals
Cost as of December 31, 2017
Depreciation and impairment losses as of January 1, 2017
Depreciation
Disposals
Depreciation and impairment losses as of December 31, 2017
Carrying amount as of December 31, 2017
Cost as of January 1, 2018
Foreign exchange adjustments
Transfers
Additions
Disposals
Cost as of December 31, 2018
Depreciation and impairment losses as of January 1, 2018
Foreign exchange adjustments
Depreciation
Disposals
Depreciation and impairment losses as of December 31, 2018
Carrying amount as of December 31, 2018
Assets held under finance leases amount to a total carrying amount of EUR 16m (2017: 2m).
Land and
buildings
Plant and
machinery
Equipment
Assets under
construction
TOTAL
253
14
2
269
164
7
171
98
269
-1
10
3
281
171
8
179
102
291
11
2
-4
300
261
7
-3
265
35
300
-1
18
-5
312
265
-1
10
-5
269
43
80
20
40
-43
97
46
11
-22
35
62
97
2
18
-1
116
35
9
-1
43
73
58
-45
27
40
40
40
-30
23
33
33
682
71
-47
706
471
25
-25
471
235
706
-2
44
-6
742
471
-1
27
-6
491
251
105/117
105/117
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Note 7 Investments
EURm
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
2,518
-4
163
-54
2,623
-124
25
-3
46
-56
m
o
r
f
l
s
e
b
a
v
e
c
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i
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i
s
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u
t
n
e
v
t
n
o
i
j
761
-92
-4
665
316
316
-6
1
-5
Carrying amount as of December 31
2,567
665
311
s
t
n
e
m
t
s
e
v
n
i
18
r
e
h
t
O
18
-15
-1
-16
2
2017
L
A
T
O
T
3,613
-96
163
-58
3,622
-145
-1
26
-3
46
-77
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
2,623
-8
114
-83
2,646
-56
1
-6
-61
m
o
r
f
l
s
e
b
a
v
e
c
e
R
i
n
i
s
t
n
e
m
t
s
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v
n
I
d
n
a
s
e
t
a
c
o
s
s
a
i
i
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a
d
i
s
b
u
s
s
e
r
u
t
n
e
v
t
n
o
i
j
665
-664
1
316
-2
314
-5
-5
309
2018
L
A
T
O
T
3,622
-10
115
-747
2,980
-77
1
-6
-82
2,898
r
e
h
t
O
s
t
n
e
m
t
s
e
v
n
i
18
1
19
-16
-16
3
3,545
2,585
1
Where indicators for impairment were present at the end of 2018, impairment tests were performed on the carrying amount of "Investments in subsidiaries, associates and joint ventures". Main indicators are loss-giving activities, or if
the carrying amount is higher than the equity in the local accounts or, where relevant, higher than valuation using a listed share price. When performing the impairment test, the present value of cash flow from subsidiaries,
associates and joint ventures is compared with their carrying amount. The principles are unchanged compared to the impairment tests performed in 2017.
Additions for the year to "Investments in subsidiaries" is mainly the acquisition of Danfoss Power Solutions companies relating to the simplification of Danfoss Group legal structure. Disposal for the year of "Investments in subsidiaries"
mainly relates to the sales of Danfoss Värmepumpar AB.
Impairment losses for the year on "Investments in subsidiaries" of EUR 6m mainly relates to Danfoss IXA A/S and Advitronics Engineering B.V. The impairment losses are mainly due to low earnings in the entities in question during
recent years.
Impairment losses/reversed impairment are reported as financial expenses/financial income.
Additions for 2017 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 2017 on "Investments in subsidiaries" of EUR 3m 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 2017 on "Investments in subsidiaries" of EUR 25m is primarily related to Danfoss Distribution Services A/S and Danfoss District Heating SRL which have improved earnings in recent years.
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.
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Note 8 Deferred tax
EURm
CHANGES IN DEFERRED TAXES
Deferred taxes as of January 1 (net) *)
Deferred tax recognized in the income statement
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
2017
2018
-38
-1
-39
-39
8
-31
2017
Deferred tax
asset
2018
Deferred tax
asset
7
-7
0
12
-12
0
Deferred tax
liability
Deferred tax
liability
6
11
5
15
9
46
-7
39
3
16
3
16
5
43
-12
31
Of the deferred tax liability of EUR 31m (2017: 39m), EUR 5m (2017: 9m) 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 EUR 3m (2017: 4m). The liabilities are not recognized, because Danfoss A/S decides on their utilization and it is likely that the liabilities will not be recognized
in the foreseeable future.
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Note 9 Financial risks and instruments
EURm
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 15 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.
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g
n
y
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a
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c
a
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w
o
l
f
h
s
a
c
944
60
1,174
1
142
16
3
2,340
1,010
63
1,174
1
142
16
3
2,409
2017
5
r
e
v
O
s
r
a
e
y
138
62
Maturity
)
*
s
r
a
e
y
5
-
1
820
1
1
r
a
e
y
1
-
0
52
1,174
142
16
3
1,387
822
200
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w
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l
f
h
s
a
c
888
59
615
15
183
15
2
9
1,786
935
61
615
16
183
15
2
9
1,836
2018
5
r
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v
O
s
r
a
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y
388
60
Maturity
)
*
s
r
a
e
y
5
-
1
530
1
11
542
448
r
a
e
y
1
-
0
17
615
5
183
15
2
9
846
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 derivative 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
2017
968
1,372
2,340
2018
951
835
1,786
108/117
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Note 9 Financial risks and instruments (continued)
EURm
FINANCIAL INSTRUMENTS BY CATEGORY
FINANCIAL ASSETS:
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
Cash and cash equivalents
Loans, receivables, cash and cash equivalents measured at amortized cost
Derivative financial instruments for the hedging of future cash flows
Financial assets used as hedging instruments
Derivative financial instruments for the hedging of the fair value of recognized assets and liabilities
Financial assets, measured at fair value in the income statement
FINANCIAL LIABILITIES:
Contingent consideration measured at fair value via the income statatement
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 the fair value of recognized assets and liabilities
Financial liabilities measured at fair value in the income statement
Carrying
amount
2
2
41
92
1,316
17
1,466
1
1
9
9
40
1,005
16
1,174
263
2,458
2017
Fair
value
2
2
41
92
1,316
17
1,466
1
1
9
9
40
1,032
16
1,174
263
2,485
Carrying
amount
3
3
38
91
1,246
30
25
1,430
2018
Fair
value
3
3
38
91
1,246
30
25
1,430
40
40
962
15
615
298
1,890
9
9
986
15
615
298
1,914
9
9
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 2017.
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Note 9 Financial risks and instruments (continued)
EURm
FAIR VALUE HIERARCHY AS OF DECEMBER 31 FOR DANFOSS A/S
2017
2018
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Level 1
Level 2
Level 3
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Level 2
Level 3
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FINANCIAL ASSETS:
Other investments
Derivative financial instruments for the hedging of future cash flow
Derivative financial instruments for the hedging of the fair value of recognized assets and liabilities
Total financial assets
FINANCIAL LIABILITIES:
Derivative financial instruments for the hedging of the fair value of recognized assets and liabilities
Contingent consideration
Interest-bearing debt
Total financial liabilities
1
9
10
1032
1,032
2
2
40
40
2
1
9
12
40
1,032
1,072
3
3
40
40
3
3
9
40
986
1,035
9
986
995
110/117
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Note 9 Financial risks and instruments (continued)
EURm
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
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USD
EUR
Other currencies
Forward exchange contracts
Interest swaps
Derivatives end of year
-415
-423
133
318
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-156
-329
98
At the end of 2018, unrealized gain/loss(-) on derivatives hedging floating interest payments recognized in equity amounted to EUR 0m (2017: 1m).
111/117
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Annual Report 2018 The Danfoss Group
2017
2018
-38
1
-1
-38
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5
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2018
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Annual Report 2018 The Danfoss Group
Click to navigate
CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 10 Corporation tax
EURm
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:
Liabilities
Note 11 Adjustment for non-cash transactions
EURm
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
EURm
Carrying amount as of January 1, 2017
Cash repayment
Cash proceeds
Acquisitions of lease liabilities
Other
Carrying amount as of December 31, 2017
Cash repayment
Cash proceeds
Acquisitions of lease liabilities
Reclassification
Other
Carrying amount as of December 31, 2018
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Annual Report 2018 The Danfoss Group
2017
2018
-3
-26
32
1
4
4
4
4
-20
-5
31
10
10
10
2017
31
-299
43
-58
-283
2018
42
-1
-258
46
21
-150
Short-term
borrowings
Long-term
borrowings
TOTAL
397
-364
1
1
2
37
-335
287
4
18
11
905
-453
582
1
-67
968
-416
405
11
-18
1
951
1,302
-817
583
2
-65
1,005
-751
692
15
1
962
Annual Report 2018 The Danfoss Group Note 11 Adjustment for non-cash transactions
EURm
2017
31
2018
Click to navigate
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
42
-1
-258
46
21
-150
-299
43
-58
-283
CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 12 Change in liabilities arising from financing activities
EURm
Carrying amount as of January 1, 2017
Cash repayment
Cash proceeds
Acquisitions of lease liabilities
Other
Carrying amount as of December 31, 2017
Cash repayment
Cash proceeds
Acquisitions of lease liabilities
Reclassification
Other
Carrying amount as of December 31, 2018
Short-term
borrowings
Long-term
borrowings
TOTAL
397
-364
1
1
2
37
-335
287
4
18
11
905
-453
582
1
-67
968
-416
405
11
-18
1
951
1,302
-817
583
2
-65
1,005
-751
692
15
1
962
113/117
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Annual Report 2018 The Danfoss Group
Annual Report 2018 The Danfoss Group Click to navigate
CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses Financial highlights and review Sustainability Risk management Corporate governance Management Financial statements and notes
Note 13 Contingent liabilities, assets and security
EURm
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
2017
2018
96
2
61
101
16
75
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
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
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Annual Report 2018 The Danfoss Group
2017
2018
2
5
4
5
3
1
3
3
2
1
2017
2018
2
2
2017
2018
41
43
4
70
36
43
5
72
Annual Report 2018 The Danfoss Group Click to navigate
CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses 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 23 Related parties, in Group section.
EURm
TRANSACTIONS WITH ASSOCIATES AND JOINT VENTURES
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
2017
16
2018
16
2017
1,117
426
1
2018
1,148
407
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, 2018, there have been no further events with any significant effect on the financial statements beyond what has been recognized and disclosed in the Annual Report.
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Annual Report 2018 The Danfoss Group
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CEO comment 2018 at a glance Outlook 2019 Business model and global mega-trends Strategy and businesses 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, 2018, comprises the financial statements of Danfoss A/S.
The financial statements of Danfoss A/S have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and Danish disclosure requirements for listed companies.
Unless otherwise indicated, the Annual Report is presented in EUR rounded to the nearest million.
The Board of Directors and the Group Executive Team reviewed and approved the Annual Report 2018 on February 28, 2019, and it will be presented for approval at the Annual General Meeting to be held on April 26, 2019. 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 25 in the consolidated financial statements for the Danfoss Group. The impact of new accounting
standards, as described in Note 25 in the consolidated financial statements for the Danfoss Group is also assessed as immaterial to Danfoss A/S.
IFRS 16, leases: As of 1st January 2019, property, plant and equipment are expected to increase between EUR 12-15m and borrowings are also expected to increase within the same range.
The net impact on retained earnings is expected to be EUR 0m.
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.
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.
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Annual Report 2018 The Danfoss Group
Annual Report 2018 The Danfoss Group The Danfoss DNA
Our DNA is about keeping the essence
of Danfoss, and at any time, the Danfoss
DNA should be reflected in our direction
and activities.
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/
Further information available
on Danfoss’ website: www.danfoss.com
Date of publication: February 28, 2019
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