Annual Report 2019
Contents
Financial performance
Financial highlights
Financial review
Financial highlights, quarterly
Business segments
Governance
Risk management and compliance
Corporate governance
Board of Directors
Group Executive Team
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25
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36
38
40
43
Contents
Management’s Review
Overview
CEO comment
Our sustainability ambitions
Performance highlights
About Danfoss
Outlook 2020
Our business
The green transition
Smart heating solutions
Air conditioning in buildings
High-precision speed control
Power modules
Electric transportation
Global mega-trends
Our business model
Our strategy
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4
5
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17
18
Financial Statements
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
Overview
Stay up-to-date
Sources
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132
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Danfoss Annual Report 2019
CEO letter
CEO letter
We invest to get ahead
The green transition is no longer
something we just talk about. A significant
transformation driven by global megatrends
has started, and we continue to see good
growth opportunities as our energy-saving
solutions play a significant role in the green
transition towards lower carbon emissions
and more electrification.
The center of our Going Great strategy is
an ambition of driving long-term value
creation for all our stakeholders. In 2019,
we maintained our focus on continued
value creation by strengthening our core
businesses and investing in electrification
and digitalization to ensure that we stay
at the technology forefront. We invested
EUR 272m in innovation, equal to 4.3%
of sales. We also seized four acquisition
opportunities to add new cutting-edge
technology to our already broad range of
solutions. These targeted acquisitions have
strengthened our electric offering within
on- and off-highway and marine and added
competence within artificial intelligence
to gain an even stronger foothold in the
market via smart solutions for buildings and
district heating networks.
2019 was a good year for Danfoss. Sales
grew 3% despite rapidly changing growth
dynamics. Our robust profitability of 12.3%
EBITA margin combined with a strong cash
flow and a low net debt to EBITDA ratio of
1.0 reflect a continuous, strong financial
performance. This offers us a high degree of
flexibility to address growth opportunities,
allowing us to continue to expand and
develop Danfoss as a leader within our core
businesses.
In 2019, this commitment to continued
technology leadership was reflected
in our active role in accelerating the
transformation of the transport sector
with the development of new electric and
hybrid solutions for cars, buses, construction
machines and ships - a concrete example
was the fully-electric Danish ferry with the
longest range in the world powered by a
Danfoss drivetrain. Danfoss also entered
into game-changing partnerships with
some of the strongest suppliers in the
automotive industry to deliver technology
to the millions of hybrid and fully electric
cars we will soon see on the roads. And
most recently, we agreed to acquire Eaton’s
hydraulics business to create a global leader
in the mobile and industrial hydraulics
markets.
Finding a sustainable way is a key
differen tiator for Danfoss, and we continue
to support the UN Global Compact and
Sustainable Development Goals. We follow
our founder’s ‘action speaks louder than
words’ mindset and set ourselves new,
ambitious sustainability targets: We commit
to CO2 Neutrality by latest 2030 – supporting
the Business Ambition for 1.5°C and signing
up to the Science-Based Targets initiative.
And we set a target for high-performing
diverse teams with 30% female leaders by
2025 – as we know that we need the best
people with diverse backgrounds to drive
innovation and take advantage of the global
megatrends.
Our market place is evolving, and we are
moving ahead rapidly to capitalize on the
opportunities that lie ahead of us. Thank
you, our customers and partners for your
support on this journey. And thank you all
27,871 colleagues for sharing your frontline
passion and team spirit every day and acting
as great ambassadors for Danfoss. This is
crucial for our continued success.
Kim Fausing
President & CEO
“We continue to see good
growth opportunities as
our energy-saving solutions
play a significant role in the
green transition.”
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Danfoss Annual Report 2019
Performance highlights
Performance highlights
Financial highlights
Sales
EURbn
+3%
Earnings (EBITA)
EURm
5.8
6.1
6.3
714
724
771
+6%
2017
2018
2019
2017
2018
2019
2019 was a good year. Sales grew to EUR 6.3bn – a result of our
ability to win market share through strategic growth initiatives and
investments in industry-leading technologies – despite increasing
market volatility.
Another year of continued growth in our earnings. EBITA
increased to reach EUR 771m, leading to an EBITA margin of 12.3%
against 11.9% last year. Net profit improved 8% to EUR 502m – A
continuous, strong financial performance allowing us to continue to
expand and develop Danfoss as a leader within our core businesses.
Sustainability highlights
Energy intensity
MWh consumed energy
per EURm net sales
106
104
101
-45%
2017
2018
2019
Since 2007, we have reduced the energy intensity of our operations
by 45%. This means that we have almost doubled our production
output on the same energy consumption as in 2007.
Innovation spend
EURm
Cash flow
EURm
272
255
234
Lost Time Injury Frequency
Lost time injuries
per million hours worked
441
463
359
+7%
2017
2018
2019
+29%
2017
2018
2019
-35%
3.4
2.8
2.2
2017
2018
2019
Increased investments in the future. Innovation spend increased
to EUR 272m equal to 4.3% of sales. Besides investing into our core
businesses, the innovation activities were concentrated around
digitalizing and electrifying our energy-efficient solutions and servic-
es to create even more value for our customers.
Strong cash flow to finance acquisitions. The free operating cash
flow after financial items and tax increased to EUR 463m. To further
strengthen the business, Danfoss completed four acquisitions in
2019, adding new digital technologies and electric solutions to the
product portfolio.
Safety First! Our Lost Time Injury Frequency was down 35% over the
past two years, reaching a record low level of 2.2 in 2019. We continue
our efforts to take good care of our people and improving their
health and safety.
See information about changes in reporting at page 131.
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Danfoss Annual Report 2019 Sustainability and diversity goals
Danfoss Sustainability Report 2019
Sustainability and diversity goals
CO2 neutral in 2030
30% female leaders
We want to be CO2 neutral by 2030. To decarbonize Danfoss, efforts are
continuously put into improving energy efficiency in our own operations.
Furthermore, we invest heavily in electrification powered by renewable
energy. We also want to transform our own company car fleet to be electric
when infrastructure becomes available.
Our target is 30% female leaders in 2025. We believe that a diverse and
inclusive workplace fosters creativity, innovation and a broader perspective in
decision-making, optimizing our performance and customer service. We want
to break down barriers and consumptions about leadership roles and inspire
everyone to achieve their potential.
30%
female leaders in 2025
25%
female leaders in 2022
20%
female leaders in 2019
0%
Read more in the Sustainability Report 2019 at www.danfoss.com
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Danfoss Sustainability Report 2019 About Danfoss
About Danfoss
27,871
Employees
30%
Female leaders by 2025
Today, global megatrends are changing the world, making
Danfoss more relevant than ever. We have proven and reliable
solutions to meet many of the climate, urbanization, and
food challenges. Driven by the power of an electrified society
and fueled by the opportunities of going digital, Danfoss
is dedicated to engineering solutions that can unleash the
potential of tomorrow.
With the promise of quality, reliability, and innovation deeply
rooted in our DNA, we deliver an extensive range of products
and solutions across our business segments of Heating,
Cooling, Drives, and Power Solutions.
Across the globe, our sustainable, smart technologies power
industries and cities, secure a reliable food supply, and create
healthier, more comfortable indoor climates. At the same
time, we are developing solutions that integrate renewables
into tomorrow’s smart energy systems, where on- and
off-highway machinery, cars and marine vessels are powered
by hybrid and electric motors.
This is where the transformation starts – in the way we heat,
cool, connect, and feed a growing population. Together with
our customers, we help make a greener and better future a
reality. Together, we are engineering tomorrow.
Our innovative engineering dates back to 1933. Today,
Danfoss holds market-leading positions, employing 27,871
people and serving customers in more than 100 countries. We
are privately held by the founding family.
Read more about us at
www.danfoss.com
72
Factory sites
23
R&D sites
0% CO2
Targeting CO2 neutrality by 2030
Sales in more than 100 countries
Top 3 markets: USA, China and Germany
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Danfoss Annual Report 2019 Markets we serve
Markets we serve
Every day, we engineer a real difference
to the world around us. Tomorrow can be
more energy efficient than today.
Future of the Fjords is the world’s
first fully electric carbon fiber
vessel. This tourist vessel guides
guests along the spectacular
UNESCO World Heritage listed
fjord route between Gudvangen
and Flåm in Norway. Danfoss
has designed the power system
and the shore supply, enabling
electrification of the vessel and
zero emissions.
Mobile
hydraulics
Automotive
Refrigeration
and air
conditioning
Food and
beverage
Energy and
natural
resources
Marine and
off-shore
Industry
Water and
wastewater
Commercial
buildings
Residential
buildings
District
energy
Visit danfoss.com
Learn more about the markets we serve
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Danfoss Annual Report 2019 Outlook 2020
Outlook 2020
Driving future growth and long-term sustainable value creation.
In 2020, our key focus continues to be
on ensuring profitable growth, while
maintaining a high level of investments
in our core businesses, new digital
technologies and electric solutions.
Based on the current market insights, our
growth projections for 2020 remain soft.
This can mainly be ascribed to the current
geopolitical environment - in particular, the
ongoing trade conflicts, other conflicts and
the impact from Brexit, which have created a
higher level of uncertainty globally and are
negatively impacting market growth.
The visibility for 2020 is low, and we see a
higher level of volatility in several markets.
Accordingly, sudden changes in Danfoss’
key regions and significant markets and
industries could have a negative impact
on the demand for Danfoss products and
solutions and the Group’s performance.
2020 expectations
Despite the current volatility, we expect
to continue to expand or maintain our
market share, while maintaining the
profitability measured as margin at the 2019
level, following continued investments in
sustainable value creation.
• The solid cash flow performance is
expected to continue, enabling a healthy
combination of debt reduction and
acquisitions to add new technologies
to the portfolio and companies, which
constitute a strategically good match to
our business segments.
The outlook excludes any impacts of the
acquisition of Eaton’s hydraulics business.
The transaction is expected to close by the
end of the year.
Specific key factors, which could affect the
Group’s financial performance in 2020:
• The Group’s continued strategic initiatives
to accelerate profitable growth, organic
as well as acquisitive, are expected to
generate a positive impact on market
share development.
• 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.
• As a result of the outbreak of the corona
virus (COVID-19), factories in China have
been closed for a longer period than usual
in connection with the Chinese New Year,
and supply chains across the globe are
disrupted. While the full impact of the
outbreak is not yet known, we expect that
it will result in a temporary slowdown
on the global markets and the Chinese
market in particular.
In 2020, Danfoss will change the frequency of financial updates to twice a year. In 2020, Danfoss will publish this Annual
Report and a financial announcement for the first six months. Previously, Danfoss also published financial announcements
for the first and third quarters of the year, which will be discontinued. See page 131.
Forward-looking statements
This Annual Report includes forward-looking
statements on various matters, e.g. expected
earnings, future expansion of market share
and future profitable growth. Such statements
are subject to risks and uncertainties, because
various factors, many of which are beyond
Danfoss’ control, may cause actual develop-
ments 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 pric-
es 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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Danfoss Annual Report 2019 40%
of global energy use
come from buildings
The green transition
The green transition
The global climate crisis caused by carbon emissions is a key
threat to society and our planet. Danfoss’ energy-efficient
and climate-friendly solutions enable a cost-effective green
transition.
Human activity has already caused an increase
in global heating of approximately 1.1°C since
the late 19th century, with most of the increase
occurring in the past 35 years. If emissions con-
tinue at the current rate, global heating is likely
to have increased by 1.5°C at the earliest in
2030, crossing the key threshold set by climate
science to avoid irreversible climate change.
The challenge requires a profound
transformation of the way we use energy. This
is no longer a question of technology, it is a
question of mindset, will, smart thinking and
good gover nance, as the solutions already exist
today and can be adopted immediately.
What we do
Danfoss’ energy-efficient technologies, such
as thermostats, high-pressure pumps, digital
and electric solutions and motors reduce
emissions on a global scale. At the same time,
our climate-friendly technologies enable the
sustainable transition at lowest possible cost
with relatively short pay-back times.
We offer ready-to-use energy-efficient solutions
that reduce the energy consumption in
buildings – which account for 40% of global
energy consumption.
One example is our smart Leanheat heating
solution that makes buildings more intelligent
by using artificial intelligence and IoT, pro-
viding up to 20% energy savings on top of
conventional solutions, leading to a lower
energy bill.
Another example is our sustainable
Turbocor® compressor, which can almost
halve the energy consumption in chillers that
provide air conditioning in commercial and
multi-residential buildings, resulting in a better
indoor climate.
Electrification of the transport sector is
another area, where Danfoss can contribute
to higher energy efficiency and lower energy
consumption in, for example, electric systems
for vehicles and ships.
You can read more about our impact on the
following pages.
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Danfoss Annual Report 2019 Our work with the UN Global Compact
Our work with the UN Global Compact
Danfoss contributes to all SDGs in one way or another, but we
focus our efforts towards the four SDGs, on which our core
businesses have the largest impact. The four prioritized SDGs
have a significant impact on climate change and SDG 13.
SDG 6: Clean water and
sanitation – Ensure availability
and sustainable management
of water and sanitation for all.
SDG 7: Affordable and clean
energy – Ensure access to
affordable, reliable, sustainable,
and modern energy for all.
SDG 11: Sustainable cities and
communities – Make cities and
human settlements inclusive,
safe, resilient, and sustainable.
SDG 12: Responsible
consumption and production –
Ensure sustainable consumption
and production patterns.
Example of Danfoss impact:
Danfoss provides solutions for water and
wastewater handling to optimize and reduce
energy consumption. This leads to increased
energy efficiency and lower energy
consumption, CO2 emissions and operating
costs in, for example, a wastewater
treatment plant, ensuring sustainable
management of water for all.
Example of Danfoss impact:
The demand for energy is growing and the
world is engaged in a sustainable energy
transition. Danfoss is a world leader in
energy-efficient and electric technologies.
Improved energy efficiency in combination
with the sustainable advantages which
electrification brings will help to ensure
access to reliable and modern energy, which
all can afford.
Example of Danfoss impact:
People are moving from rural to urban
areas. We help build roads, buildings and
energy systems for the world’s growing
cities. Danfoss provides automation and
energy- control solutions enabled by cloud
and connectivity. Our solutions help to
increase energy efficiency and reduce
energy consumption, CO2 emissions and
operational cost in residential, commercial
and industrial buildings and district energy
networks.
We report on our sustainability efforts and results in the Sustainability
Report 2019, which constitutes our annual Communication on Progress to
the UN Global Compact. The report highlights areas in which our products,
solutions and services can make a real difference for the world’s progress on
the SDGs. With the report, we live up to the requirements for Corporate Social
Responsibility reporting as set out in section 99a of the Danish Financial
Statements Act and section 99b on the gender balance at management levels.
Read more about our impact and achievements in the Sustainability Report
2019 at www.danfoss.com > About Danfoss > Sustainability in review.
(https://www.danfoss.com/en/about-danfoss/company/sustainability/sustainability-in-review/).
Visit danfoss.com
Danfoss food retail solutions are highly
efficient and provide a low total cost
of ownership – while at the same time
lowering the CO2 footprint.
Example of Danfoss impact:
The world’s growing population is driving
an increased demand for food and
Danfoss solutions help to ensure food
safety and minimal food loss from farm
to fork. Our solutions enable efficient
and productive farming capabilities
for agricultural machines, resulting in
greater food production. Furthermore,
our energy-efficient cold-room solutions
ensure temperature-controlled food storage
and help achieve near-zero downtime at
lowest operational cost on supermarket
applications. We offer solutions, which
reduce CO2 emissions by up to by 60%,
by replacing synthetic refrigerants with
environmentally friendly refrigerants.
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Danfoss Annual Report 2019 Smart heating solutions Saving energy and cost
Smart heating solutions
Saving energy and cost
50%
energy savings with
Danfoss heating
solutions
Energy-efficient homes
There are lots of ways to save energy in our
homes. In fact, simple improvements can
help reduce energy waste, cut costs, and
make our homes healthier, more comfortable
and more productive places to be.
Just by fixing the basics, on average, we can
achieve 30% energy savings in our buildings
– and on our energy bill – with a payback
time of only 2 years. Today, there are still
more than 500 million manual, uncontrolled
valves installed in European buildings.
By replacing these manual valves with
thermostatic radiator valves, households
could save an average of up to 18% on their
energy bills and have an energy-efficient
home. For European citizens, this represents
savings of EUR 12 billion annually and a CO2
emissions reduction of about 24 million tons.
In addition, there are nearly 250 million
radiators with thermostatic radiator valves
older than 20 years that could be upgraded
to digital valves, which would lead to even
higher energy and cost savings. Smart home
technology, which uses artificial intelli-
gence and sensors, can help us predict our
energy consumption – and lower the supply
needed to meet the demand.
The smart homes of the future are already
here. Danfoss’ Leanheat software solution
monitors the temperature and humidity of
every individual apartment in a residential
building, saving additional 10-20% energy
consumption on top of the basic solutions.
Play video
Watch the video and learn how Leanheat
makes buildings smarter
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Danfoss Annual Report 2019 Air conditioning in buildings – Sustainable and efficient
Air conditioning in buildings
– Sustainable and efficient
40%
energy savings with
Danfoss Turbocor®,
leading to reduced
emissions
Oil-free compressor technology
Energy efficiency is the largest contributor
to global greenhouse gas reductions
towards 2050.
The Danfoss oil-free Turbocor® series
of centrifugal compressors use
environmentally friendly refrigerants and
deliver the highest energy efficiency on the
market.
Danfoss Cooling is the leading manufacturer
of oil-free compressors and is the pioneer
of the Danfoss Turbocor® compressor,
the world’s first oil-free magnetic-bearing
compressor for the heating, ventilation and
air-conditioning (HVAC) industry.
Danfoss’ wide portfolio and unique
technical expertise in every core component
Danfoss Turbocor® compressors use
advanced technology to deliver high
supporting chiller optimization result in
energy savings of up to 40%.
efficiency and low sound levels in a
compact footprint.
EPA, AHRI/ASHRAE USA, Natural Resources
Canada and the Institute of Refrigeration –
England.
Industry-leading performance is achieved
by using oil-free, magnetic bearings that
provide world-class efficiency and very low
performance degradation over the life of the
compressor.
Danfoss Turbocor® technology has been
recognized with awards from many
prestigious organizations, including the USA
Visit danfoss.com
Learn more about the world’s first oil-free
magnetic-bearing compressor from Danfoss.
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Danfoss Annual Report 2019 High-precision speed control Energy-efficient electric motors
High-precision speed control
Energy-efficient electric motors
8%
of global energy
consumption could
be saved by 2040
if variable speed
drives were used
Saving energy in electric motors
For a better tomorrow we will electrify more.
Electric energy and variable speed drives are
important in this transformation.
20% of the world’s energy consumption is
electric energy. 50% of electric energy is
used by electric motors, many of which have
no speed control devices.
The global electric energy consumption
could be reduced by 8% by 2040, if var-
iable speed drives were used in every
suitable application, such as pumps, fans,
compressors and other applications.
The need for energy conservation in order
to save the environment is a key driver
in Danfoss Drives’ development of speed
control devices, and our variable speed
drives provide the optimum method for
controlling the speed of electrical motors to
match load demand.
Our low-voltage and medium-voltage
variable speed drives are used in many areas
of electrification in all major motor brands
and technologies in power sizes from small
to large.
Play video
Danfoss Drives delivers better process
precision and superior energy efficiency
for all electric-motor operations. Watch the
video to find out more.
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Danfoss Annual Report 2019 Power modules
Power modules
enabling electrification of transport
35m
cars already use
Danfoss technology
today
Emission-free transport
To help enable zero emission driving,
Danfoss provides cutting-edge power
modules integrated into the drivetrain.
For decades, Danfoss Silicon Power has
helped automotive manufacturers and
system suppliers meet stringent reliability,
design and cost targets, supporting them by
designing, developing and manufacturing
customized power modules. Power modules
are used in power electronics, which serve
as electronic controls for electrified drives.
These solutions are transforming the
adoption of electric transportation and
making hybrid and pure electric vehicles a
natural and sustainable choice for everyone.
In 2019, Danfoss entered into
game- changing partnerships with some of
the strongest suppliers in the automotive
industry to deliver technology to the
millions of hybrid and fully electric cars we
will soon see on the roads.
For example, Danfoss stepped up the
existing cooperation with ZF Friedrichshafen
AG by entering a new strategic partnership
for silicon- and silicon-carbide power
modules. Together, we plan to further
improve the efficiency of electric drivetrains.
This has the potential to be a game changer
for the development and innovation
of future drivetrains for electrification
of vehicles, enabling accelerated
transformation of the transport sector.
The transport sector is responsible
for 65% of oil demand and
generates nearly a quarter of global
C02 emissions. Economic growth
and prosperity will only increase
demand for mobility
Visit danfoss.com
Read more about how Danfoss helps
to power up future electric drive train
applications and achieve the challenging
emission goals.
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Danfoss Annual Report 2019
Electric transportation
Electric transportation
Cleaner air and less noise
100%
reduction of
emissions with
electric vehicles
Urban electric buses are the fastest
moving part of the market for
electric vehicles. According to a
study by Bloomberg New Energy
Finance, it will account for 81% of
global bus sales by 2040. Switch-
ing to hybrid and fully-electric
solutions will be crucial in the fight
against climate change.
Electrical bus revolution
With Asia leading the way on electrifying
buses, the city of Taipei in Taiwan turned to
Danfoss Editron. They wanted help to power
their first all-electric bus line of 12 buses.
Improving efficiency
Danfoss delivered 12 electric drivetrains
powering the buses. With zero emissions,
the buses are able to run over 260 km when
at full passenger capacity. When empty,
they can run over 300 km. Each bus can be
charged in just five hours. The roof of the
charging station is equipped with a 302
square meter single solar panel, generating
130 kilowatt of electricity per day.
In addition, Danfoss’ control and monitoring
software features a self-diagnosis
functionality, constantly monitoring and
reporting to the local control center on
motor temperature, power situation and
remaining mileage. This greatly reduces the
risk of sudden bus failure and improves the
overall efficiency of the buses.
The buses not only improve Taipei’s air
quality, but also have a comfortable
boarding environment and reduce noise.
The Taipei City aims at having 400 electric
buses on its roads before 2022.
Visit danfoss.com
Learn more about how Danfoss is taking fuel
savings and energy efficiency to the next
level.
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Danfoss Annual Report 2019 Global Mega-trends
Global Mega-trends
Global Mega-trends
Transforming our world
Transforming our world
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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.
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.
Today, there are 7.6 billion
people in the world. By
2050, there will be 9.8 billion
people. Each year, around 77
million people move from
rural to urban areas, meaning,
that by 2050, 70% of the
population will be living in
cities against 54% today.
Our population is growing. By
2050, we’ll need to produce
60% more food than we do
today. At the same time,
one-third of food currently
produced is lost or goes to
waste before it reaches the
table. This is mainly due to an
incomplete cold chain.
C
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e
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. Most
of the heating has occurred
in the past 35 years, with 17
of the 18 warmest years on
record occurring since 2001.
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Danfoss Annual Report 2019
Our business model
Our business model
Danfoss’ competitive advantage builds on three core capabilities: Application
knowledge, Innovation and Leading positions. These capabilities reflect how we
create value for our customers across the business segments.
Application knowledge
Understanding customer applications is key to
differentiating and creating customer value. We
invest in initiatives which enable our sales and
R&D teams to turn their know-how and applica-
tion understanding into performance- enhancing
advantages for our customers.
Application
knowledge
Close to customers
Innovation
Differentiate through
new technology
Competitive
advantage
Leading positions
Exploit scale
Innovation
Our mechanical, electrical and software
engineering enable bold innovation and constant
improvement of our technologies, solutions and
processes in the core businesses. We innovate to
differentiate and create customer value. We invest
to take full advantage of innovation and take the
lead within IoT, connectivity and electric solutions.
Leading positions
In the global manufacturing industry, global reach, size, and scale
matter. It is a key element in our business model that the business
segments hold leading positions as either 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.
17/134
Danfoss Annual Report 2019 Our strategy
Our strategy
– We invest to get ahead
Global mega-trends transform our world. Massive
urbanization and food supply for a growing population in
combination with the increasing global focus on climate
change and sustainability fit right into our business context.
Going Great – Our aspiration
The center of our Going Great strategy is
an ambition of driving long-term value
creation for all our stakeholders: customers,
employees, shareholders and partners.
By combining our application know-how
and innovative engineering to create smart
sustainable solutions, we play a significant
role in the green transition towards lower
carbon emissions and more electrification,
making the world’s energy consumption
more sustainable. This is how we work to
meet our aspiration: engineering tomorrow
and building a better future.
Our work to meet our aspiration is
structured in four strategic focus areas:
Leading Portfolio, Customers & Growth,
Innovative Solutions, and Lean & Agile.
These levers serve as drivers to take Danfoss
to a higher performance level through our
core businesses performing effectively
and profitably, investments to stay at the
technology forefront, and sustainable
growth. All of this is built on Our Foundation,
which is our high-performing, diverse teams
that make the strategy come alive.
Leading Portfolio
In 2019, Danfoss continued to strengthen
its leading positions as number one or
two globally in the respective industries of
our four business segments. We acquired
Artemis Intelligent Power, Hydraulik Nord
Fluidtechnik, UQM Technologies and
Leanheat. These targeted acquisitions
have added new electronic and digital
technologies to the product portfolio
focused on the core.
Core & Clear – Going Great
Our aspiration
We engineer tomorrow and build a better future
Our strategy
Leading Portfolio
Customers & Growth
Innovative Solutions
Lean & Agile
Our foundation
High-performing diverse teams
18/134
Danfoss Annual Report 2019 Acquisitions in 2019
Acquisitions in 2019
Artemis Intelligent Power Ltd.
Hydraulik Nord Fluidtechnik
On February 21, 2019, Danfoss closed
the transaction to acquire the majority
shares of Artemis Intelligent Power, 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 Dan-
foss with a competitive advantage
in developing innovative products
and systems for off-highway mobile
machines.
Leanheat
On May 2, 2019, Danfoss expanded
its ownership share to 100% of the
Finnish company Leanheat – a leading
company within artificial intelligence
making buildings and heating
networks smart and energy-efficient.
The acquisition reflects Danfoss’
strategic focus on adding more digital
products to the portfolio to create
even more value for our customers.
On April 1, 2019, Danfoss closed the
transaction to acquire Hydraulik Nord
Fluidtechnik, a supplier of hydrau-
lic steering based in Germany. The
acquisition will further strengthen
Danfoss’ innovative and efficient
product offerings to the agriculture
market and confirms our strategic
focus on building leading positions.
UQM Technologies Inc
On July 31, 2019, Danfoss closed the
transaction to acquire the publicly
traded company UQM Technologies
located in Colorado, USA. UQM is a
leading expert and the technology
leader in motors and inverters in the
power range of up to 250 kW. With the
acquisition, Danfoss adds an important
and complementary technology to its
current product range, with inverter
and motor solutions up to 6 MW of
power. The acquisition gives Danfoss
the total package of electric solutions
for serving the marine, off- and on-
highway, and oil and gas markets
globally.
For more information on acquisitions, see Note 19 page 86.
Danfoss delivered the electrification technology to
develop this fully battery-operated 25-ton electric
excavator. It was the first zero-emissions excavator in
Norway. The system includes motor, inverter, battery
charger and multi-converter from Danfoss.
Customers & Growth
Danfoss focuses on innovations that
help our customers increase their
competitive ness through improved
efficiency and productivity, reduced costs
and improved safety and sustainability. We
do that by leveraging the opportunities
that are arising with digitalization and
electrification.
Municipalities all over the world are
increasingly focused on reducing emissions,
and Danfoss acts on this trend. One
example is our electric-propulsion systems,
which are market-ready. In 2019, we have
electrified several machine types in on- and
off-highway vehicles and various marine
applications all over the world — such as
ferries and workboats, city buses, excavators,
forestry harvesters and more. We believe
that electrification will continue to grow, as
it is the answer to many of the challenges
facing the industries we serve. This is in
regard to sustainability, efficiency and
productivity. In fact, most of the applications
where we install electric drivetrain systems
have become more productive as a result.
In combination with our conventional core
technologies, we are well-positioned to
serve our customers’ increasing demands in
the area of hybrid and electric solutions.
19/134
Danfoss Annual Report 2019
Innovative Solutions
Danfoss is continuously expanding its
offering of connectivity solutions and digital
services within all four business segments.
The heart of the value we deliver to our
customers is enhanced productivity, higher
uptime, lower energy consumption and
costs and in many cases higher comfort
and operator safety. We expect significant
growth within this area, as IoT adds value to
the customer in almost any application.
For example, we use IoT to leverage
our long-term experience in mobile
control systems. It means we can share
our knowledge faster with customers,
helping them to design new connected
machines that can exchange information
with our cloud in real time for optimized
performance. We believe the full value of
IoT is captured, not only when machines are
connected, but when the data generated by
machines can be linked to the core business
systems of our customer. This enables better
business decisions in all areas – whether it is
the design stage, the supply chain, operator
training programs, or monitoring fleet
utilization and equipment health.
Another example is our cold-chain solutions,
which help to secure that products remain
at the correct temperature and humidity,
optimizing food safety and security –
while lowering the CO2 footprint. Take
our cost- effective and energy-efficient
cold-room solutions, saving up to 20% in
energy costs. Yet another example is our
food retail solutions, which offer highly
efficient refrigeration systems optimized for
CO2 refrigeration and natural refrigerants.
They provide a low total cost of ownership,
while at the same time reducing the carbon
20/134
Steering is not only about the
wheel any more. At Danfoss, we
are partnering with our customers
and distributors to reinvent how
operators interact with machines
– increasing productivity and
comfort.
Danfoss Annual Report 2019 Furthermore, we are improving the digital
customer experience with better end-to-end
processes between our supply chain and our
customers, enabled by our new IT platform,
One ERP, in combination with the global
product store at the corporate website,
www.danfoss.com.
Our Foundation
Our Foundation is our high-performing,
diverse and engaged teams who drive our
customer-oriented performance to achieve
better results.
management, which will continue.
Furthermore, we have increased the
workforce diversity and created an
international culture with 130 nationalities
working in Danfoss in 2019.
Along with growth and expansion of
Danfoss, we have focused on people
development and performance
With our Going Great strategy, we need
world-class talents, who live our Behaviors,
“Frontline passion”, “Run business like
Danfoss’ new IT platform, One ERP (Enterprise
Resource Planning), is a fundamental part of Danfoss’
digital transformation, enabling growth and a
best-in-industry customer experience. One ERP is
rolled in via several releases, each covering a specific
part of the Danfoss organization. In 2019, three
releases were finalized, covering 25% of Group sales
end of 2019.
footprint of the supermarket refrigeration
system.
In our innovation, we also use digital
technology to bring speed into R&D,
for example by using simulation and 3D
printing to reduce the time-to-market.
The number of 3D prints has increased
significantly – from only a few hundred
five years ago to more than 40,000 in 2019
alone. The fact that Danfoss has now trained
more than 500 employees in the usage of
3D printing has been a major contributor to
this growth.
Lean & Agile
To create increased competitive advantage
and operational excellence, we stay focused
on being lean and agile – Harvesting
the potential of digital technologies and
fighting unnecessary complexity to be the
best in the markets we serve within safety,
quality, delivery, pricing and cost. We are
building a flexible supply chain that reacts
fast to the needs of the customer, leading
to higher customer as well as employee
satisfaction. Key is a strong IT infrastructure
and smart factories across Danfoss.
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
outcome has been a significant increase in
productivity and halving of customer claims.
The factory has been recognized as one of
the world’s smartest factories by the World
Economic Forum.
21/134
Danfoss Annual Report 2019 Danfoss Postgraduate Program
your own” and “Think Danfoss”, to drive
our business forward. Our aim is to hire
the most talented people and offer
the best opportunities for professional
growth through attractive on-the-job
learning opportunities and dynamic career
development.
To support our ambition, in 2019, we have
strengthened our employer-branding
efforts, talent-development activities and
sharpened our focus on our Behaviors
and diversity and inclusion. As part of
institutionalizing our Behaviors, a series of
ambassador programs have been launched,
where employees are encouraged to
nominate colleagues, who truly live the
Behaviors in their everyday working life. In
2019, 260 employees were nominated in 24
countries across our organization.
To drive a more structured approach to
attraction, development and retention of
high potentials, we drive Postgraduate
Programs and Cross-business Mentoring
Programs led by senior business executives.
In 2019, Danfoss was recognized as “China
Top Employer 2020” by the world-renowned
Top Employers Institute. Danfoss received
the award for its outstanding performance
in talent strategy, career development, and
corporate culture.
In 2019, Danfoss was also recognized by
Financial Times as one of the Leaders in
Diversity 2020. We believe that a diverse
and inclusive workplace fosters creativity,
innovation and a broader perspective
in decision-making, optimizing our
performance and customer service.
By living out an inclusive culture
characterized by diversity, we make sure
to develop our own people as well as
attracting the very best candidates from
various backgrounds. Furthermore, feeling
welcome and safe to speak up strengthens
employee engagement. Read more about
our efforts within Diversity & Inclusion in the
Sustainability Report 2019.
Very high employee engagement
In 2019, the bi-annual engagement survey,
Voice, was carried out in the Danfoss Group.
The overall picture of Danfoss as a workplace
was very positive and improved compared to
Voice ‘17. Voice ’19 again showed a very high
engagement score of 80 on a 100-point scale,
up from 79 in 2017. 9 out of 10 – hourly paid
as well as salaried – employees (91%) gave
their feedback about what we do well and
what needs to be improved in areas such as
job motivation, performance enablement,
strategy, behaviors, leadership and diversity
& inclusion.
The survey results showed a high level of
loyalty and commitment – reaffirming that
our people are willing to go the extra mile
for Danfoss. Furthermore, the perception
of working environment, team work and
development opportunities was high, and an
increasing number of our employees would
actively recommend Danfoss as a workplace.
Danfoss
Postgraduate
Program
Play video
Danfoss Postgraduate Program opens
great opportunities to develop a career
by working across functions and borders,
exploring different cultures and developing
personally as well as professionally.
SHARED with Danfoss
The pictures on the next page were taken by Danfoss
employees, customers or partners around the world
and shared via social media. Authentic, dedicated and
fascinating – take a look at the Danfoss Group’s instagram
channel.
Instagram channel
www.instagram.com/danfosscareers/
22/134
Danfoss Annual Report 2019 23/134
Danfoss Annual Report 2019 Financial highlights
Financial highlights
Profit and loss account
Net sales
EBITDA before OOI/E
EBITDA
EBITA before OOI/E
EBITA
EBIT
Financial items, net
Profit before tax
Net profit
Balance sheet
Total non-current assets
Total assets
Total shareholders’ equity
Net interest-bearing debt
Cash flow statement
Cash flow from operating activities
Cash flow from investing activities
Acquisition of intangible assets
Acquisition of property, plant and
equipment.
Acquisition of/Proceeds from disposal
of subsidiaries and activities
Acquisition(-) and sale of other
investments, etc.
Free operating cash flow
Free operating cash flow after
financial items and tax
Free cash flow
Cash flow from financing activities
EURm EURm EURm EURm EURm
2019
2017
2015
2016
2018
5,099
824
798
636
610
549
-47
502
348
3,507
4,987
2,067
1,292
626
-217
-27
5,271
838
811
665
646
572
-44
529
394
3,788
5,457
2,325
1,284
693
-494
-32
5,827
923
882
758
714
645
-49
596
445
3,883
5,583
2,569
1,050
742
-405
-64
6,098
929
926
758
724
648
-45
603
463
3,886
5,760
2,654
962
673
-227
-64
6,285
1,028
1,026
778
771
695
-33
662
502
4,217
6,096
2,933
1,048
789
-407
-52
DKKm DKKm
2019
2018
45,452
6,926
6,899
5,649
5,395
4,827
-332
4,495
3,446
29,022
43,009
19,822
7,184
46,926
7,673
7,663
5,807
5,757
5,185
-243
4,942
3,746
31,509
45,549
21,917
7,832
Financial ratios
Local currency growth (%)
EBITDA before OOI/E margin (%)
EBITDA margin (%)
EBITA before OOI/E margin (%)
EBITA margin (%)
EBIT margin (%)
Return on invested capital ROIC (%)
Return on invested capital after tax
ROIC (%)
Return on equity (%)
Equity ratio (%)
Leverage ratio (%)
Net interest-bearing debt to EBITDA ratio
Dividend pay-out ratio (%)
Dividend per 100 DKK share
EURm
2015
EURm
2016
EURm
2017
EURm EURm
2019
2018
DKKm DKKm
2019
2018
2
16.2
15.7
12.5
12.0
10.8
16.3
11.4
17.6
41.4
62.5
1.6
20.4
6.9
4
15.9
15.4
12.6
12.3
10.9
16.3
12.0
17.2
42.6
55.2
1.6
17.0
6.7
12
15.8
15.1
13.0
12.2
11.1
17.8
13.0
17.3
46.0
40.9
1.2
18.1
8.1
7
15.2
15.2
12.4
11.9
10.6
17.9
13.4
17.0
46.1
36.2
1.0
17.4
8.1
1
16.4
16.3
12.4
12.3
11.1
18.3
13.4
17.0
48.1
35.7
1.0
16.0
8.1
7
15.2
15.2
12.4
11.9
10.6
17.9
13.4
17.0
46.1
36.2
1.0
17.4
60.2
1
16.4
16.3
12.4
12.3
11.1
18.3
13.4
17.0
48.1
35.7
1.0
16.0
60.2
5,014
-1,689
-478
5,891
-3,039
-391
As of January 1, 2019, Danfoss adopted IFRS 16 'Leases'. Rights-of-use assets and lease liabilities have been recognized
for leases previously classified as operating leases. In 2019, EBITDA increased by EUR 59m, due to change in reporting of
expenses of rights-of-use assets under depreciation. Further information is available in Note 23 on page 91 and Note 26
on page 94.
-130
-194
-217
-238
-252
-1,769
-1,879
-30
-251
-103
88
-140
653
-1,045
-30
629
452
405
-458
-17
631
455
196
-175
-21
627
441
334
-373
-13
564
359
443
-424
37
634
463
323
-322
-96
4,207
276
4,732
2,676
3,300
-3,165
3,455
2,410
-2,408
Key figures, financial ratios and below highlighted keyfigures are calculated as defined in Note 26 on page 100.
EBIT:
Operating profit.
EBITA:
Operating profit (EBIT) before profit from associates & joint ventures and amortization, gains and losses
related to acquisitions and divestments.
EBITDA:
Operating profit (EBIT) before depreciation, amortization, impairment and profit from associates & joint ventures.
OOI/E:
Other operating income and expenses.
Conversion factor between DKK/EUR:
Profit and loss account and cash flow statement: 0.1339 (2018: 0.1342).
Balance sheet: 0.1338 (2018: 0.1339).
24/134
Danfoss Annual Report 2019 Financial review
Financial review
In 2019, Danfoss delivered a strong financial performance in line with expectations.
Sales increased 3% to EUR 6,285m, corresponding to 1% growth in local currency. EBITA
increased 6% to EUR 771m, leading to an EBITA margin of 12.3%. Danfoss continued to
drive a strong cash flow, allowing a high level of investments in innovation and new
technologies.
2019 was a year of significant progress.
Despite changed growth dynamics in the
market, we saw growth opportunities,
as our energy-saving products and
solutions translate into the strengthened
global focus on sustainability and green
transition. This strong trend, combined
with continued momentum in mega-trends
like electrification, digitalization and
urbanization, contributed to making Danfoss
and our solutions even more relevant.
Along with our targeted investments in
acquisitions, growth initiatives, our digital
transformation as well as people and talent
to strengthen the core businesses, it creates
a strong foundation for future growth.
Sales
Sales grew EUR 187m to EUR 6,285m (2018:
6,098m). The reported growth was 3% after
a positive currency impact of 2%. Growth in
local currency was 1%.
The overall development in sales was in line
with expectations. During the year, some
of the more cyclical businesses have seen
slowing growth rates. Prior to 2019, Danfoss
saw very high growth rates for some years,
whereas 2019 was characterized by increased
volatility, mixed market conditions and
lower market growth in cyclical industries.
From a regional perspective, Danfoss grew
in Western and Eastern Europe, while North
America had a flat sales development.
The Asia-Pacific region also saw a flat sales
development, driven by the slowdown in
China, which is caused by the high level
of uncertainty created by the current
geopolitical environment and particularly
the effects of the trade conflict with the
US. Danfoss continued good growth
momentum in Latin America, whereas
the Africa-Middle East region remained
challenged by the geopolitical environment.
Earnings
After continued high levels of investments
in innovation, digital transformation and
growth initiatives to fuel future growth, the
operating profit before acquisition-related
amortization (EBITA) improved 6% or EUR
47m to EUR 771m (2018: 724m), leading
to an EBITA margin of 12.3% (2018: 11.9%).
The improved profitability was driven by
productivity improvements in the factories,
increased customer prices and cost-down
initiatives, which countered the higher level
of raw material prices and imposed tariffs.
Profit before tax increased 10% to EUR 662m
(2018: 603m), leading to a net profit of EUR
502m (2018: 463m), up 8% on last year. The
effective tax rate for 2019 was 24.2% (2018:
23.2%).
Assets and liabilities
Total assets increased 6% to EUR 6,096m
(2018: 5,760m), impacted by new companies,
a higher trade working capital and the IFRS
16 changes to accounting principles for
leases, which came into effect as of January
1, 2019, accounting for EUR 135m. The change
is described in Note 8 on page 70 and Note
23 on page 91.
Equity increased 11% to EUR 2,933m (2018:
2,654m), mainly influenced by the profits
of the year, dividend payments and share
buyback. Consequently, the equity ratio,
calculated as equity relative to total assets,
was 48.1% (2018: 46.1%), also impacted
by the above-mentioned changes to the
accounting principles for leases. The return
on equity was 17.0% (2018: 17.0%).
Net interest-bearing debt increased by EUR
86m to EUR 1,048m (2018: 962m), mainly
due to the above-mentioned changes to
accounting principles for leases, leading to
a net interest-bearing debt to EBITDA ratio
of 1.0 (2018: 1.0). The acquisitions completed
in 2019 were financed by the free operating
cash flow after financial items and tax.
Sales
EURbn
7.5
6.0
4.5
3.0
1.5
0.0
2015
2016
2017
2018
2019
Sales
Sales growth in local currency
Sales split by segments
%
15
12
9
6
3
0
Danfoss Power Solutions Segment, 35%
Danfoss Cooling Segment, 27%
Danfoss Drives Segment, 23%
Danfoss Heating Segment, 15%
Sales split by regions
Western Europe, 37%
Eastern Europe, 8%
North America, 25%
Asia-Pacific, 22%
Latin America, 5%
Africa-Middle East, 3%
25/134
Danfoss Annual Report 2019 As of January 23, 2020, the Group has a BBB
credit rating assigned by Standard & Poor’s
with a negative outlook, see Note 11, page 72,
for more information.
The non-current interest-bearing debt
maturing after more than 12 months
amounted to EUR 1,093m (2018: 1,007m),
corresponding to 93% (2018: 95%) of the
total interest-bearing debt. At year end,
the Group had unutilized and long-term
committed credit facilities of EUR 1.1bn
(2018: 1.1bn) in addition to cash and cash
equivalents and ordinary operating credits.
Cash flow
Ensuring a strong cash performance remains
a key priority for Danfoss to finance our
acquisitions, repay interest-bearing debt
and distribute dividend to owners. See more
information on dividends in the corporate
governance section on page 39 and Note 11,
page 72.
Free cash flow amounted to EUR 323m
(2018: 443m). Last year, the cash flow was
positively impacted by the divestment of
the heat pump business Thermia (Danfoss
Värmepumpar AB). In 2019, the cash flow
was impacted by investments in new
companies, production capacity and our
digital transformation, leading to a higher
cash flow from investing activities than last
year.
The free operating cash flow increased 12%
to EUR 634m (2018: 564m), mainly driven
by the improved EBIT. The cash flow from
investing activities amounted to EUR -407m
(2018: -227m), driven by the acquisitions,
see page 19. Last year, the cash flow from
investing activities was positively impacted
by the proceeds from the divestment of the
heat pump business. Consequently, the free
operating cash flow after financial items and
tax increased to EUR 463m (2018: 359m).
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 digitalizing and
electrifying our energy-efficient solutions to
create even more value for our customers.
The acquisitions support the innovation
activities of Danfoss, and we expect to see
continuously innovative solutions resulting
from our acquisitions in the short to
medium term.
The research and development expense
increased 7% to EUR 272m (2018: 255m),
corresponding to 4.3% of sales (2018: 4.2%).
See Income statement on page 50.
During 2019, Danfoss filed 121 (2018: 156)
new patent applications. During the year,
678 (2018: 534) patents were granted to the
Group. At year end, Danfoss had a total of
1,558 (2018: 1,543) patent families.
Employees
In 2019, the number of employees increased
by 76 people to 27,871 (2018: 27,795).
Events after the balance sheet date
On January 21, 2020, Danfoss announced the
agreement to acquire Eaton’s hydraulics busi-
ness for a cash purchase price of 3.3 billion
USD (approximately 3.0 billion EUR). The
transaction is subject to customary closing
conditions and regulatory approvals and it is
expected to close by the end of the year.
Danfoss is acquiring Eaton’s hydraulics
business to combine its complementary
portfolios and geographic footprints to
create a global leader in the mobile and
industrial hydraulics markets. This is fully
in line with Danfoss’ strategy to strengthen
its core businesses, enhancing its market
position in mobile hydraulics, entering the
industrial hydraulics segment and growing
its market presence in North America and
Asia Pacific.
Eaton Hydraulics provides products for
customers in markets such as agriculture,
construction, and in industrial market seg-
ments. The business will be merged into the
existing Danfoss business segment, Danfoss
Power Solutions, adding approximately
11,000 employees and 2019 sales of 2.2
billion USD (2.0 billion EUR) to the business
segment.
We are not aware of any other events after
the balance sheet date of December 31, 2019,
which could be expected to have a material
impact on the Group’s financial position.
EBITA
EURm
900
720
540
360
180
0
2015
2016
2017
2018
2019
Innovation
Net interest-bearing debt (NIBD)
Cash flow
%
15
12
9
6
3
0
EURm
300
240
180
120
60
0
2015
2016
2017
2018
2019
%
5
4
3
2
1
0
EURbn
1.5
1.2
0.9
0.6
0.3
0.0
2015
2016
2017
2018
2019
%
5
4
3
2
1
0
EURm
750
600
450
300
150
0
2015
2016
2017
2018
2019
EBITA
EBITA margin
R&D spend
R&D spend ratio
NIBD
NIBD ratio
Free operating cash flow
Free operating cashflow after financial items and tax
Free cash flow
26/134
Danfoss Annual Report 2019 Financial highlights, quarterly
Financial highlights, quarterly
EURm
Profit and loss account
Net sales
EBITDA before OOI/E
EBITDA
EBITA before OOI/E
EBITA
EBIT
Financial items, net
Profit before tax
Net profit
Balance sheet
Total non-current assets
Total assets
Total shareholders’ equity
Net interest-bearing debt
Cash flow statement (YTD)
Cash flow from operating activities
Cash flow from investing activities
Acquisition of intangible assets
Acquisition of property, plant and equipment
Acquisition of/Proceeds from disposal of subsidiaries and activities
Acquisition(-) and sale of other investments, etc.
Free operating cash flow
Free operating cash flow after financial items and tax
Free cash flow
Cash flow from financing activities
Financial ratios
Local currency growth (%)
EBITDA before OOI/E margin (%)
EBITDA margin (%)
EBITA before OOI/E margin (%)
EBITA margin (%)
EBIT margin (%)
Equity ratio (%)
Leverage ratio (%)
Net interest-bearing debt to EBITDA ratio
Number of employees
The same definitions and explanations apply as stated on page 24
Q1 2018 Q2 2018 Q3 2018 Q4 2018
2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019
2019
1,474
232
222
192
184
166
-10
156
113
3,890
5,804
2,679
1,037
48
-48
-13
-36
0
1
51
-1
-1
2
9
15.7
15.1
13.0
12.4
11.3
46.2
38.7
1.2
1,567
245
266
202
193
204
-12
192
140
3,847
5,821
2,471
1,269
99
11
-24
-87
131
-9
97
-19
108
-115
8
15.7
17.0
12.9
12.3
13.0
42.5
51.3
1.4
1,528
244
243
201
200
178
-12
167
122
3,862
5,853
2,571
1,138
334
-88
-41
-143
101
-5
298
147
244
-237
7
16.0
15.9
13.2
13.1
11.7
43.9
44.3
1.2
1,529
208
195
163
147
100
-11
88
88
3,886
5,760
2,654
962
673
-227
-64
-238
88
-13
564
359
443
-424
4
13.6
12.8
10.7
9.7
6.5
46.1
36.2
1.0
6,098
929
926
758
724
648
-45
603
463
3,886
5,760
2,654
962
673
-227
-64
-238
88
-13
564
359
443
-424
7
15.2
15.2
12.4
11.9
10.6
46.1
36.2
1.0
1,563
241
240
182
181
160
-8
152
110
4,056
6,181
2,794
1,181
-9
-53
-12
-36
-11
6
1
-65
-75
43
3
15.4
15.3
11.6
11.6
10.3
45.2
42.3
1.3
1,603
266
272
205
203
190
-9
181
132
4,088
6,138
2,764
1,318
115
-157
-24
-91
-45
3
74
-24
-69
24
0
16.6
16.9
12.8
12.6
11.9
45.0
47.7
1.4
1,589
282
282
217
219
198
-10
187
141
4,235
6,299
2,938
1,252
376
-324
-39
-143
-140
-2
284
148
8
-72
2
17.7
17.7
13.7
13.8
12.4
46.6
42.6
1.3
1,530
239
232
174
168
147
-6
142
119
4,217
6,096
2,933
1,048
789
-407
-52
-252
-140
37
634
463
323
-322
-1
15.6
15.2
11.4
11.0
9.6
48.1
35.7
1.0
6,285
1,028
1,026
778
771
695
-33
662
502
4,217
6,096
2,933
1,048
789
-407
-52
-252
-140
37
634
463
323
-322
1
16.4
16.3
12.4
12.3
11.1
48.1
35.7
1.0
26,926
27,141
27,753
27,795
27,795
27,704
27,918
28,130
27,871
27,871
27/134
Danfoss Annual Report 2019 Power Solutions
Danfoss
Power
Solutions
Sales up
4%
to EUR 2.2bn
EBITA up
EBITA margin
1%
to EUR 391m EBITA
17.8%
(2018: 18.3%)
Development in 2019
Danfoss Power Solutions had a strong
start to 2019 but saw slowing growth
rates during the second half of the year,
mainly within the agriculture markets. The
Asia-Pacific, Western and Eastern Europe
regions saw low growth in local currency,
while North America turned negative in
2019. The profitability was slightly below
2018, which was a strong year.
7,826
employees worldwide
28
factories in 12 countries
3
Application Development Centers
in USA, China and Denmark
North America, Western
Europe and Asia-Pacific
Top markets
Play video
Your strongest partner in mobile hydraulics.
28/134
Danfoss Annual Report 2019 Danfoss Power Solutions
Danfoss Power Solutions is a glob-
al manufacturer and supplier of high
quality hydraulic, electronic and electric
components and solutions for on- and
off-highway vehicles and equipment.
Around the world, mobile equipment
manufacturers rely on our expertise for
the most innovative, propel, control, work
function and steering solutions.
In partnership with our customers, we
provide high-performance components
and solutions with great value for a broad
range of mobile equipment applications
and applications within marine, oil and gas.
These applications include wheel loaders,
tractors, harvesters, cranes, electric and
hybrid ferries and buses and much more.
Example of product launch in 2019
10 and 12-inch displays
• Tablet, viewable in direct sunlight.
• Wireless connectivity.
Products and solutions
Engineered hydraulic, electric and electronic
components optimized for total machine
management:
• Hydrostatic pumps and motors
• Hydraulic and electro-hydraulic
proportional valves
• Electronic components and software
• Electric motors, converters and storage
• Orbital motors
• Steering solutions
• Autonomous solutions
• Position sensors and controls
• Digital service tools, such as PLUS+1®
• Electric drivetrains incl. gear box
Fuel cell compressor systems
•
Digital displacement
•
Understanding customer needs is key and
Danfoss Power Solutions partners with
distributors and OEMs in order to provide
the best service, expertise and product
knowledge. Our Application Development
Centers located in the US, Denmark and
China allow us to fully demonstrate our
application expertise. The development
and testing facilities minimize risks, reduce
costs and design cycle times, thus saving
our customers money and speeding up the
critical time-to-market.
Hydraulics is our core, and we have for years strengthened Power Solutions’ business through high customer focus as well
as significant investments in technology leadership.
#2
Leading position
in the market.
29/134
Danfoss Annual Report 2019 Cooling
Danfoss
Cooling
Sales up
4%
to EUR 1.7bn
EBITA up
EBITA margin
12%
to EUR 269m
16.0%
(2018: 14.8%)
Development in 2019
Danfoss Cooling saw growth in local
currency and a profitability which was
better than last year. Primary growth
drivers were the Latin America and Eastern
Europe regions. The Asia-Pacific region was
challenged by the geopolitical uncertainty.
6,108
employees worldwide
15
factories in 10 countries
4
Application Development Centers
in USA, China, India and Denmark
Western Europe, Asia-Pacific
and North America
Top markets
Play video
This is where the transformation of our food
supply starts.
30/134
Danfoss Annual Report 2019 Danfoss Cooling
Our mission is to keep people, products
and the planet cool. We are a recognized
industry front-runner and engineer and
develop cooling technologies, which are
energy efficient, environmentally friendly,
help to reduce overall emissions, as well
as minimizing the impact of cooling on
global warming. Sustainable cold chains
and energy-efficient supermarkets bring
more food to the table, and thereby help
to reduce the carbon footprint due to food
loss and waste.
Example of product launch in 2019
Turbocor® TTH/TGH compressor
• Operating in demanding high lift
applications.
• Use in air-cooled chiller, heat recovery,
and heat pump applications.
• Future-proof, environmentally friendly
solution complying with evolving
refrigerant regulations and standards
around the world.
Products and solutions
Danfoss Cooling is a leading supplier of
air-conditioning and refrigeration systems for
many different applications:
• Compressors, including the pioneering
oil-free Turbocor®
• Condensing units
• Valves, controllers, and complete
electronic systems
• Pressure transmitters and temperature
sensors
• High-pressure pumps
• Heat exchangers
• Digital cloud solutions, such as Alsense™
and Prosa IoT
The solutions are part of applications
such as chillers, rooftop air-conditioning
systems, and cold-storage solutions used
in food retail, industrial, and commercial
refrigeration.
Our solutions also play a role in the energy
transition. We work to integrate more
renewable energy and to decarbonize
our energy system, which requires more
flexibility and demand-response-ready
buildings.
By combining our expertise in both heating
and cooling applications, we develop
innovative energy-storage solutions, such as
the connected supermarket and the Danfoss
Smart Store.
#2
Leading position
in the market.
In 2019, Danfoss Cooling formed a
transformational partnership with
Microsoft. Together, we will address
the cooling market with next-gen-
eration digital services. The Danfoss
IoT platform called “Alsense™” is
based on the Microsoft™ Azure
Cloud, providing a secure and
scalable cloud platform for the
Danfoss IoT solutions. With the new
platform, Danfoss’ customers will
be able to achieve major energy
savings, optimize operational
efficiency and increase sales effec-
tiveness. As part of the partnership,
Danfoss has received the Microsoft
Partner Award 2020 in the category
“Enabling Sustainability”.
31/134
Danfoss Annual Report 2019 Drives
Danfoss
Drives
Sales up
3%
to EUR 1.5bn
EBITA up
8%
to EUR 188m
EBITA margin
12.8%
(2018: 12.2%)
Development in 2019
Danfoss Drives saw growth in local
currency and a profitability better than
last year. Primary growth drivers were the
Eastern and Western Europe regions, while
North America showed low growth. The
Asia-Pacific region had sales below last year.
4,504
employees worldwide
10
factories in 7 countries
3
Application Development
Centers in China, Singapore and
the Netherlands
Western Europe, Asia-Pacific
and North America
Top markets
Play video
We are driven by drives
32/134
Danfoss Annual Report 2019 Danfoss Drives
Danfoss Drives is a global leader in the
variable speed control of electric motors,
having the world’s largest installed base of
variable speed drives.
The portfolio of high-quality,
application-optimized VACON® and VLT®
products maximizes process performance,
saves energy and minimizes emissions.
Innovating technology, which tackles
climate change, helps to cope with rapid
urbanization, and provides successful
and sustained water and wastewater
management is high on our agenda.
With decades of industry-dedicated
experience in meeting the customers’
specialized challenges, we create and share
solutions, which deliver better process
precision and superior energy efficiency for
electric-motor operations.
Danfoss Silicon Power – a
technology-leader in customized power
modules for automotive, solar, wind and
industrial applications - is an independent
business and part of the Danfoss Drives
segment, enabling electrification to change
our world.
Products and solutions
AC drives enable optimal process and speed
control of electric motors:
• Low- and medium-voltage AC drives as
well as motion drives
• Stacks and power modules
• Digital tools and services, such as
DrivePro® and MyDrive®
The solutions are used to provide optimal
operation of pumps, fans, chillers, conveyors,
electric vehicles, hybrid systems and power
conversion.
Example of product launch in 2019
Condition-based monitoring
• DrivePro®
A more energy-efficient water system automatically helps to reduce water leakage. In Danfoss, we engineer technologies
for an energy-neutral water sector, by optimizing energy use and minimizing water losses in water treatment applications
and irrigation networks. Sensors and variable speed drives coupled with advanced process control can significantly reduce
water leakage and energy consumption by at least 25% through cost-effective efficiency actions.
#2
Leading position
in the market.
33/134
Danfoss Annual Report 2019 Heating
Danfoss
Heating
Sales up
0%
to EUR 0.9bn
EBITA up
EBITA margin
42%
to EUR 131m
14.1%
(2018: 9.9%)
Development in 2019
Danfoss Heating had a flat sales
development in local currency and a
profitability significantly better than last
year. Heating saw increased growth in
Eastern Europe, whereas the Western Europe
and Asia-Pacific regions had sales below last
year.
4,684
employees worldwide
24
factories in 11 countries
1
Application Development Center
planned in Denmark
Western Europe, Eastern
Europe and Asia-Pacific
Top markets
Play video
This is where a new generation of buildings
starts
34/134
Danfoss Annual Report 2019 Danfoss Heating
Danfoss Heating is a leading supplier
of advanced components and systems
providing comfort and energy efficiency
in residential and commercial buildings as
well as enhanced heating performance in
district energy networks.
We have served the needs of the heating
industry for almost 80 years, and our
innovative and reliable heating solutions
help save energy and meet environmental
targets: From open-source district energy
infrastructures, smart HVAC solutions to
smart heating and room temperature
control, there are numerous ways to
become as energy efficient as possible.
We take climate leadership for a fast
and cost-effective energy transition
and work with cities, city networks,
communities, and governments to facilitate
the implementation of the available
technology.
Products and solutions
Advanced components, solutions and service
for:
• Radiator thermostats
•
Smart heating solutions and apps,
including Danfoss Link™ and Danfoss
Eco™
Electric and hydronic underfloor heating
Hydronic balancing and controls
Decentralized heating systems (flat stations)
District energy components, substations,
and software
Heating optimization and Software as a
Service (SaaS)
Energy meters
Heat exchangers
•
•
•
•
•
•
•
Our solutions and advanced components
are used in residential buildings, offices and
commercial buildings and in district energy
networks.
Example of product launch in 2019
Next generation pressure independent
balancing and control valve
• For all types of terminal units and
small air handling units in commercial
buildings.
• Equipped with Danfoss NovoCon® S
digital actuators, enabling hydronic
HVAC 4.0 for smart buildings.
Driven by urban growth, the need
for construction and refurbishment
of residential and commercial
buildings is projected to be
massive. The radiator thermo-
stat Danfoss EcoTM improves
indoor climate and comfort, while
reducing the energy bill. Danfoss
EcoTM has been recognized with
prestigious design awards, such
as Red Dot, Danish Design Award,
German Design Award and more.
#1
Leading position in
the market.
35/134
Danfoss Annual Report 2019 Risk management
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
Danfoss has compliance programs in the
following areas: Anti-Corruption, Business
Ethics, Data Privacy, Export Control and Fair
Competition. Our systemized compliance
programs contain clear ownership, policy
setting, operational procedures as well as
recurring training and awareness activities.
To ensure progress, all activities are moni-
tored and regularly audited by the internal
audit function.
In 2019, Danfoss reviewed its
Anti-Corruption, Business Ethics and Fair
Competition guidelines to reflect recent
developments in legislation and best
practice approaches.
We maintain a high focus on data priva-
cy processes and compliance with data
privacy regulation. Based on our Binding
Corporate Rules, approved by the Danish
data protection authorities, we follow
a Data Privacy Handbook, conduct and
participate in trainings and live up to other
requirements of data-privacy legislations.
Furthermore, the organization keeps its
concentration on export control including
sanctions, countries, business partners and
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.
Step 1
Risk identifi-
cation
Risks are identified
using Danfoss’ risk
identification and analysis tools
on a regular basis.
Step 4
Risk
monitoring
Quarterly risk reviews
consider current information
about identified risks and
measure the performance
of the risk management
process.
Risk documentation
Standardized documentation in a risk
repository ensures an effective risk monitoring.
Risk communication
Takes place top-down and bottom-up in the
organization creating awareness and can
trigger a 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. Both these forums provide overall
supervision of the risk management process,
monitor selected group risks and potential
new risks.
Step 2
Risk
assessment
Risks are assessed
according to the company-
wide risk assessment
guidelines.
Step 3
Risk treatment
Based on the result of
the risk assessment process
and the corresponding risk
acceptance level at Danfoss,
risks are either accepted,
avoided, mitigated, or
transferred.
product reviews. Finally, we have defined
and implemented rules and guidance to
support anti-money-laundering legislation
and trained employees, respectively.
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 a channel for data-privacy
complaints. In 2019, a total number of 81
reports were managed by the Ethics Hotline.
Corrective actions, including disciplinary
action, were taken for all substantiated
36/134
Danfoss Annual Report 2019 allegations, and none of the reports have
had a material impact on Danfoss.
Specific risk areas
Risk overview
Danfoss is exposed to risks, but no single
risk can threaten the existence of Danfoss. In
general, Danfoss is exposed to the following
basic risks:
Risk
Disruption of IT Systems
One ERP project
Geopolitical conflicts
A disruption of IT systems, for example
caused by a cyber-attack, could restrict
the ability of Danfoss to produce, deliver
products on time or provide services to
customers. Several cases made public by the
affected peer companies, show a significant
potential impact on business operations.
If this occurred at Danfoss, this could harm
customer satisfaction, and consequently also
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.
A continuous monitoring and learning
about incidents occurring outside Danfoss,
leads to an analysis of related vulnerabilities
at Danfoss, potentially followed by
corresponding containment and mitigation.
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 is migrating 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.
As part of the One ERP project, Danfoss’’
strong project governance has proven
successful during several implementation
waves in manufacturing sites and sales
entities. A specific project risk-management
function identifies project risks, assesses them,
and prepares mitigation plans, which are
being implemented and monitored regularly,
including continuous learning from each
implementation phase.
Increasing geopolitical conflicts create a high
level of uncertainty, leading to low visibility
and a high level of volatility in some of our
significant markets.
Project teams closely monitor the effects of
these geopolitical developments on Danfoss’
business preparing mitigation plans to
reduce the impact on Danfoss and Danfoss’
stakeholders. Below are some examples:
• Brexit: A task force focusses on logistic
strategies to overcome challenges in the
delivery to Great Britain and Ireland
• Global trade and other conflicts: A close
follow-up on short-term developments is
being practiced. Overall, the focus is on
more localization and a flexible supply chain
to ensure continuous support of Danfoss’
customers.
• Trade sanctions: Danfoss continues to follow
trade sanctions and closely monitors political
situations to take appropriate action.
• Global market conditions, including
a sustained stronger focus on
energy-efficient and socially sustainable
solutions.
• Global mega-trends which affect Danfoss,
our technologies and the way we do
business.
• Fair and equal access to markets.
• Global economic growth.
• Developments in key markets and cyclical
industries.
• 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 and
innovation.
The Group Executive Team has defined
additional three risks, which are currently
very important due to their nature. These
three specific risks are described in the
overview, which does not include financial
risks. Financial risks are described in Note 15,
page 78.
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.
37/134
Danfoss Annual Report 2019
Corporate governance
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 seven members and four
employee-elected members. 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 has the overall responsibility for the
company’s activities and appoints a Chairman and one or two
Vice-Chairmen from among its members.
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 2019.
Governance model
Shareholders and General meeting
Board of Directors
Audit Committee
Internal audit
Group Executive Team
38/134
Danfoss Annual Report 2019 Internal audit
Danfoss has an internal audit function to carry out
independent internal checks. Conclusions are presented
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 2019. No matters of material importance to the Group’s
overall risk management and control environment were
detected.
Bond program
In 2014, Danfoss filed a Euro Medium Term Note 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.
Shareholders
At the end of 2019, Danfoss had 2,583 registered shareholders.
Approximately three in four shareholders were resident in
Denmark.
Share capital
Danfoss’ share capital amounts to EUR 134m or DKK 997m and
is divided into two share classes: Class A shares accounting
for EUR 57m or DKK 425m and Class B shares accounting for
EUR 78m or DKK 572m. A-shares entitle holders to ten votes
for every DKK 100 nominal value of shares held and B-shares
entitle holders to one vote for every DKK 100 nominal value
of shares held. See more information in Note 11, page 72, and
Note 24, page 92.
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.
Share price
The price of Danfoss shares is set once a year, based on
a valuation prepared by Danske Markets immediately
before the AGM is held. 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 2019,
the price was set at DKK 7,290 per share.
Dividends and Annual General Meeting
The AGM will be held in Sønderborg, Denmark, on April
17, 2020. The Board of Directors will recommend that a
dividend of 16.0% of the Group’s net profit be paid for 2019,
corresponding to EUR 8.1 or DKK 60.2 per DKK 100 share.
Shareholders with more than 5% of share capital
Shareholder
Bitten & Mads Clausen’s Foundation, Nordborg, Denmark, and its subsidiaries
Clausen Controls A/S, Sønderborg, Denmark
Henrik Mads Clausen, Lake Forest, USA
Shares
47.33%
26.26%
11.04%
Votes
86.11%
5.48%
2.31%
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 2019, which is available at
danfoss.com > About Danfoss > Corporate governance
(https://www.danfoss.com/en/about-danfoss/company/
financials/corporate-governance/)
Visit danfoss.com
39/134
Danfoss Annual Report 2019 Board of Directors
Board of Directors
Connie Hedegaard
Sandra Nørgaard
Bertelsen
Mika Vehviläinen
Jørgen M. Clausen
Lars Grau
Jürgen Reinert
Jens Peter
Rosendahl Nielsen
Per Falholt
Mads-Peter
Clausen
William Erwin
Hoover Jr.
Marianne
Godballe
40/134
Danfoss Annual Report 2019 Board of Directors
Jørgen M. Clausen
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
Born: 1976
Nationality: Danish
Appointed: 2014
Born: 1958
Nationality: Danish
Appointed: 2017
Considered independent
Born: 1960
Nationality: Danish
Appointed: 2016
Considered independent
William Ervin Hoover Jr.
Member of the Board of
Directors and Chairman of
the Audit Committee
Jürgen Reinert
Member of the Board of
Directors
Born: 1949
Nationality: American
Appointed: 2007
Considered independent
Born: 1968
Nationality: German
Appointed: 2015
Considered independent
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.
Special competencies:
International experi-
ence from executive
management positions
and strong strategic,
organizational and
communicative skills.
Extensive knowledge of
business administration,
engineering and board
work.
Special competencies:
Professional experience
from Research & Devel-
opment, product inno-
vation and development
of new biotechnologies
for products, applications
and processes. Extensive
experience with talent
development, global
partnerships and relations.
Special competencies:
Professional experience as
Minister and EU Commission-
er with extensive knowledge
of climate, environmental
and energy challenges on
an international level. Expert
on the global sustainable
development and the green
transition.
Special competencies:
International experi-
ence with manage-
ment, mergers and
acquisitions, performance
transformation,
organizational changes
and supply chain. Extensive
knowledge of business
administration and board
work.
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:
•
Member of the Board of
Fonden Universe Science
Park.
Member of the Board of
miniBOOSTER Hydraulics
A/S.
Owner of SaltPower ApS.
•
•
Other current positions:
•
Senior Director, Oil Free
Solutions, Danfoss A/S.
Member of the Board of
miniBOOSTER A/S.
•
Other current positions:
•
Chairman of the Board of
Governors, Technical Uni-
versity of Denmark (DTU).
Board member in Cytovac
A/S.
Chairman of the Board of
Fonden Universe Science
Park.
Strategy consultant at the
Novo Nordisk foundation.
Chairman of the Board of
DHI Foundation.
Board member Applied
Biomemetics.
Board member in Co-Ro
A/S.
•
•
•
•
•
•
Other current positions:
•
Chairman of the Board of
the sustainability founda-
tion, KR Foundation.
Chairman of the Board
of the green think tank,
CONCITO.
Chairman of OECD’s Round
Table on Sustainable
Development.
Chairman of Berlingske Me-
dia (part of de Persgroup).
Chairman of the Board of
Aarhus University.
Member of the Board of
NORDEX.
Member of Volkswagen’s
Sustainability Board.
•
•
•
•
•
•
Other current positions:
•
Chairman of the Board of
ReD Associates Holding
A/S.
Deputy Chairman of the
Board of GN Store Nord
A/S (Great Nordic).
Member of the Board of
Lego Foundation.
Member of the Board
of Specialist People
Foundation.
Member of the Board of
Neopost A/S.
•
•
•
•
Other current positions:
•
Chief Executive Officer (CEO)
in SMA Technology AG.
Member of the Board of
Kraftelektronik AB.
•
41/134
Danfoss Annual Report 2019 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
Born: 1982
Nationality: Danish
Appointed: 2014
Born: 1984
Nationality: Danish
Appointed: 2018
Born: 1963
Nationality: Danish
Appointed: 2014
Jens Peter Rosendahl
Nielsen
Member of the Board of
Directors
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.
Special competencies:
Employee-elected member
of the Board of Directors.
Special competencies:
Employee-elected member
of the Board of Directors.
Born: 1961
Nationality: Finnish
Appointed: 2018
Considered independent
Special competencies:
Professional expe-
rience with execu-
tive management of
multinational corpo-
rations and extensive
experience with perfor-
mance transformation,
organizational changes,
mergers and acquisitions,
and Internet of Things.
Other current positions:
President and CEO in
•
Cargotec.
Other current positions:
•
HR Director, HR
Operations North Europe,
Danfoss A/S.
Other current positions:
•
Senior Design Technician
and shop steward,
Danfoss A/S, Industrial
Automation.
Member of the Board
of Danfoss Employee
Foundation.
Chairman of ”TL-klub-
ben”, Danfoss A/S, South
Denmark.
Executive Vice Presi-
dent of Marketing and
Communication, Junior
Chamber International
Denmark.
•
•
•
Other current positions:
•
Shop Steward and skilled
worker at Danfoss A/S.
Member of the Board
of Danish El Federal in
South Jutland, Denmark.
•
Other current positions:
•
Senior Shop Steward and
skilled worker at Danfoss
Kolding.
Chairman of the Board
of Danfoss Employee
Foundation.
Member of the Board
of Metal Kolding and
LO-Kolding.
•
•
42/134
Danfoss Annual Report 2019 Group Executive Team
Group Executive Team
Kim Fausing
President & CEO
Born: 1964. Employed at
Danfoss since 2007
Registered officer with the
Danish Business Authority
since 2008
Vesa Laisi
Segment President,
Danfoss Drives
Born: 1957. Employed at
Danfoss since 2014
Board activities:
•
Board member in
Wirepas
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
Lars Tveen
Segment President,
Danfoss Heating
Born: 1969. Employed at
Danfoss since 1993
Registered officer with the
Danish Business Authority
since 2013
Board activities:
•
•
Deputy Chairman in the
Manufacturing Industry,
Denmark
Board member in Danish
Crown A/S, Denmark; and
the Confederation of Danish
Industries, Denmark
Born: 1966. Employed at
Danfoss since 2012
Born: 1963. Employed at
Danfoss since 2008
Born: 1963. Employed at Dan-
foss since 1989
Board activities:
•
Deputy Chairman in
Hempel A/S, Denmark
Stanford Graduate
School of Business, MSx
Advisory Board
•
Board activities:
•
Member of the Steering
Board of the European
Partnership for Energy
and the Environment,
EPEE; and member of
SEforALL’s Global Panel
on Access to Cooling
Board activities:
•
•
Board Chairman in the
ProjectZero Foundation,
Denmark
Board member in the Energy
Industry, Denmark; The
Danish Energy Agency, Syn-
ergi, Denmark; Green Energy
Denmark; and SKAKO A/S,
Denmark
43/134
Danfoss Annual Report 2019 Financial Statements
Financial
Statements
As the demand for sustainable energy increases, there is a growing need for highly effi-
cient, robust and reliable wind turbines. The proven reliability of Danfoss’ products helps
secure the optimal uptime of the turbines throughout their lifetime. Danfoss provides
sensors, transmitters and switches for almost all applications in the nacelles of wind
turbines components that are vital for maintenance and in avoiding down-time.
44/134
Danfoss Annual Report 2019 Management’s statement
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, 2019.
Board of Directors
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, 2019, of the Group and the Parent Company and of the results of the Group and
Parent Company operations and cash flows for 2019.
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.
Jørgen M. Clausen, Chairman
Mads-Peter Clausen
Per Falholt
Connie Hedegaard
William Erwin Hoover Jr.
We recommend that the Annual Report be adopted at the Annual General Meeting.
Jürgen Reinert
Nordborg, February 27, 2020
CEO and CFO
Kim Fausing
Jesper V. Christensen
Mika Vehviläinen
Sandra Nørgaard Bertelsen
Marianne Godballe
Lars Grau
Jens Peter Rosendahl Nielsen
45/134
Danfoss Annual Report 2019 Independent Auditor’s Report
Independent Auditor’s Report
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 6 years
including the financial year January 1 to
December 31, 2019.
To the shareholders of Danfoss A/S
Our opinion
In our opinion, the Consolidated Financial
Statements and the Parent Company Fi-
nancial Statements give a true and fair view
of the Group’s and the Parent Company’s
financial position at December 31, 2019 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, 2019
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, 2019, pp 50-103 and 106-130
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 account-
ing 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 accord-
ance 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.
46/134
Danfoss Annual Report 2019 Key audit matters
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most signifi-
cance in our audit of the Financial Statements for 2019. 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.
Key audit matter
How our audit addressed the key audit matter
Impairment of intangible assets, including those
within the investment in SMA
Intangible assets, including those within the investment
in SMA, might be impaired due to changes in the global
economic situation and changes in the Group’s strategy.
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.
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:
In addition, we obtained impairment tests prepared
by Management and evaluated the reasonableness
of estimates and judgments made by Management
in preparing these.
• 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 3, 7, 19 and 27 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 27 in the Consolidated
Financial Statements.
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.
Additionally, special focus was also given to the key
drivers of the future cash flows from the investment
in SMA.
We evaluated relevant controls regarding
completeness of records of uncertain tax positions
and Management’s procedure for estimating the
valuation of tax assets and liabilities relating to tax
disputes.
In understanding and evaluating Management’s
judgments, we considered the status of recent
and current tax authority audits and enquiries, the
outcome of previous claims, judgmental positions
taken in tax returns and current estimates and
developments in the tax environment.
We evaluated the Group’s model for valuation of
deferred tax assets including the forecast used to
estimate the expected future taxable income.
Statement on Management’s Review
Management is responsible for Manage-
ment’s Review, pp 3-43 and 105.
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 materi-
ally misstated.
Moreover, we considered whether Man-
agement’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 Finan-
cial Statements and the Parent Company
Financial Statements and has been prepared
in accordance with the requirements of the
Danish Financial Statements Act. We did
not identify any material misstatement in
Management’s Review.
Management’s responsibilities
for the Financial Statements
Management is responsible for the prepa-
ration 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 State-
ments Act, and for such internal control as
Management determines is necessary to en-
able the preparation of financial statements
that are free from material misstatement,
whether due to fraud or error.
In preparing the Financial Statements,
Management is responsible for assessing the
Group’s and the Parent Company’s ability
to continue as a going concern, disclosing,
as applicable, matters related to going
concern and using the going concern basis
of accounting unless Management either
intends to liquidate the Group or the Parent
Company or to cease operations, or has no
realistic alternative but to do so.
Auditor’s responsibilities for the
audit of the Financial Statements
Our objectives are to obtain reasonable
assurance about whether the Financial
Statements as a whole are free from material
misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee
47/134
Danfoss Annual Report 2019 Aarhus, February 27, 2020
PricewaterhouseCoopers
Statsautoriseret Revisionspartnerselskab
CVR no 3377 1231
Claus Lindholm Jacobsen
State Authorised Public Accountant
mne23328
Mads Melgaard
State Authorised Public Accountant
mne34354
that an audit conducted in accordance
with ISAs and the additional requirements
applicable in Denmark will always detect a
material misstatement when it exists. Mis-
statements can arise from fraud or error and
are considered material if, individually or in
the aggregate, they could reasonably be ex-
pected 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 judg-
ment 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 de-
tecting a material misstatement resulting
from fraud is higher than for one resulting
from error, as fraud may involve collusion,
forgery, intentional omissions, misrep-
resentations, or the override of internal
control.
• Obtain an understanding of internal
control relevant to the audit in order to
design audit procedures that are appro-
priate 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 account-
ing policies used and the reasonableness
of accounting estimates and related
disclosures made by Management.
responsible for the direction, supervision
and performance of the group audit. We
remain solely responsible for our audit
opinion.
• Conclude on the appropriateness of Man-
agement’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 dis-
closures in the Financial Statements or, if
such disclosures are inadequate, to modi-
fy 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 evi-
dence regarding the financial information
of the entities or business activities within
the Group to express an opinion on the
Consolidated Financial Statements. We are
We communicate with those charged with
governance regarding, among other mat-
ters, the planned scope and timing of the
audit and significant audit findings, includ-
ing any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with
governance with a statement that we have
complied with relevant ethical requirements
regarding independence, and to communi-
cate with them all relationships and other
matters that may reasonably be thought
to bear on our independence, and where
applicable, related safeguards.
From the matters communicated with those
charged with governance, we determine
those matters that were of most significance
in the audit of the Financial Statements of
the current period and are therefore the key
audit matters. We describe these matters in
our auditor’s report unless law or regulation
precludes public disclosure about the mat-
ter 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 communi-
cation.
48/134
Danfoss Annual Report 2019 Group Accounts and notes
Group
Accounts and notes
To help enable zero emission driving, Danfoss provides cutting-edge power modules
integrated into the drivetrain, enabling the world’s leading automotive manufacturers
to deliver electric vehicle solutions designed to meet stringent efficiency and reliability
targets. These solutions are transforming the adoption of electric transportation and
making hybrid and pure electric vehicles a natural and sustainable choice for everyone.
49/134
Danfoss Annual Report 2019 Incom statement
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
e
t
o
N
1
2
2
2
2
2
3
4
5
6
2018
6,098
-4,035
2,063
-255
-855
-268
685
-4
-33
648
3
-48
603
-140
463
424
39
463
2019
6,285
-4,173
2,112
-272
-864
-275
701
-2
-4
695
4
-37
662
-160
502
455
47
502
50/134
Danfoss Annual Report 2019 Statement of comprehensive incom
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
2018
463
2019
502
-9
1
-8
-5
6
-2
-9
-4
3
-11
-19
444
399
45
444
-39
8
-31
29
13
-10
-1
31
0
502
453
49
502
51/134
Danfoss Annual Report 2019
Statement of financial position
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
e
t
o
N
7
8
3
14
13
9
10
16
15
15
2018
2019
2,311
1,169
292
19
7
88
406
2,426
1,409
283
11
7
81
382
3,886
4,217
755
864
39
1
165
1,069
50
1,874
5,760
742
893
30
104
1,027
110
1,879
6,096
52/134
Danfoss Annual Report 2019 Statement of financial position 2
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
2018
2019
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
2,835
98
2,933
112
225
155
1,093
53
1,638
46
76
820
3
68
3
509
1,525
3,163
6,096
53/134
Danfoss Annual Report 2019
Statement of cash flows
Statement of cash flows
January 1 to December 31
EURm
Profit before tax
Adjustments for non-cash transactions
Change in working capital
Interest received
Interest paid
Dividends received
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
Cash repayment of interest-bearing debt
Cash proceeds from interest-bearing debt
Purchase of treasury shares
Proceeds from minority interests
Purchase of minority interests
Dividends to shareholders in Danfoss A/S
Dividends to minority interests
CASH FLOW FROM FINANCING ACTIVITIES
NET CHANGE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents as of January 1
Foreign exchange adjustment of cash and cash equivalents
CASH AND CASH EQUIVALENTS AS OF DECEMBER 31
e
t
o
N
17
18
16
19
19
20
21
21
2018
2019
603
270
-13
3
-37
4
-157
673
-64
-247
9
-41
129
-13
-227
-816
751
-249
3
-80
-33
-424
22
29
-1
50
662
334
-43
4
-29
1
-140
789
-52
-258
6
-140
37
-407
-1,086
984
-60
1
-78
-83
-322
60
50
110
The cash flow statement cannot be derived on the basis of the Annual Report alone.
as of 1 January 2019, Danfoss adopted IFRS 16 'Leases'. Rights-of-use assets and lease liabilities have been recognized for leases previously classified as operating leases. In 2019, EBITDA
increased by EUR 59m, due to change in reporting of expenses of rights-of-use assets under depreciation. Further information is available in Note 26 Basis for preparation and accounting
policies.
54/134
Danfoss Annual Report 2019 Statements of changes in equity
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-11
-11
-4
-4
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2
2
-5
-2
1
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-6
15
15
27
27
27
134
134
10
10
134
10
-2
42
-249
-249
-317
-317
-60
-60
-377
Statement of changes in equity
EURm
BALANCE AS OF JANUARY 1, 2018
Net profit
Foreign exchange adjustments of foreign companies
Fair value adjustment of hedging instruments
Actuarial gain/loss (-) on pension and healthcare plans
Tax on other comprehensive income
Total other comprehensive income
Total comprehensive income for the period
Dividends to shareholders
Purchase of treasury shares
Capital increase
Total transactions with owners
BALANCE AS OF DECEMBER 31, 2018
Adjustment from the adoption of IFRS 16
RESTATED BALANCE AS OF JANUARY 1, 2019
Net profit
Foreign exchange adjustments of foreign companies
Fair value adjustment of hedging instruments
Actuarial gain/loss (-) on pension and healthcare plans
Tax on other comprehensive income
Total other comprehensive income
Total comprehensive income for the period
Dividends to shareholders
Additions through acquisition of subsidiaries
Purchase of treasury shares
Capital increase
Total transactions with owners
BALANCE AS OF DECEMBER 31, 2019
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2,230
344
-5
-15
-9
4
-25
319
1
-249
1
2,607
-5
2,602
375
-248
2,301
-5
2,296
375
-39
8
-31
344
2
27
3
-39
7
-2
373
2
-60
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2,455
114
424
-5
-15
-9
4
-25
399
-80
-249
-329
2,525
-5
2,520
455
27
3
-39
7
-2
453
-78
-60
39
6
6
45
-33
3
-30
129
129
47
2
2
49
-83
2
1
-80
98
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2,569
463
1
-15
-9
4
-19
444
-113
-249
3
-359
2,654
-5
2,649
502
29
3
-39
7
0
502
-161
2
-60
1
-218
2,933
55/134
2
2,948
-58
2,611
-80
80
-138
2,835
Danfoss Annual Report 2019
Notes contents
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 Leases
Note 24 Related parties
Note 25 Events after the balance sheet date
Note 26 Basis for preparation and accounting policies
Note 27 Critical accounting estimates
Note 28 Group companies
56/134
Danfoss Annual Report 2019 Note 1 Segment reporting
EURm
BUSINESS SEGMENTS
INCOME STATEMENT
Net sales
Depreciation/amortization/impairment
Operating profit before acquisition-related amortization (EBITA)
Acquisition-related amortization
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
Net sales
Total non-current assets **)
Note 1
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45
385
44
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1,617
25
241
4
1
1,420
26
174
21
-34
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929
18
92
5
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23
57
-168
2018
P
U
O
R
G
6,098
171
724
73
-33
648
-45
603
r
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2,197
52
391
48
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D
1,679
28
269
4
1
1,456
25
188
21
-6
g
n
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t
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H
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932
18
131
6
1
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a
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O
21
126
-208
2019
P
U
O
R
G
6,285
249
771
79
-4
695
-33
662
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
1,481
101
964
47
1,699
38
700
20
1,252
98
6,096
304
274
209
212
109
2,359
3,163
7,625
6,179
4,645
4,898
4,448 27,795
7,826
6,108
4,504
4,684
4,749 27,871
e
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2018
P
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M
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-
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A
2019
P
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R
G
t
s
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d
d
M
l
i
-
a
c
i
r
f
A
2,289
2,568
493
133
1,392
313
1,488
743
271
22
165
18
6,098
3,798
2,326
2,767
523
144
1,406
320
1,573
855
302
29
155
21
6,285
4,136
Sales in Denmark amounts to EUR 232m (2018: 225m) and non-current assets amounts to EUR 943m (2018: 764m). Sales in North America mainly relate to the US and represent EUR 1,482m (2018: 1,395m)
and non-current assets amounts to EUR 855m (2018: 742m). China is part of the Asia Pacific region and sales amounts to EUR 806m (2018: 808m) and non-current assets amounts to EUR 243m (2018: 237m).
*) 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.
57/134
Danfoss Annual Report 2019
Note 1 Segment reporting (continued)
EURm
SPECIFICATION OF OTHER AREAS - OPERATING PROFIT BEFORE ACQUISITION-RELATED AMORTIZATION (EBITA)
Corporate and shared functions and projects, not allocated *)
Other
Operating profit before acquisition-related amortization (EBITA)
SPECIFICATION OF OTHER AREAS - ASSETS
Cash, current & non-current tax receivables
Other receivables
Corporate and shared functions, not allocated tangible, and intangible fixed assets
Corporate and shared functions and projects, not allocated *)
Other
Total assets
SPECIFICATION OF OTHER AREAS - LIABILITIES
Interest-bearing debt, current & non-current tax liabilities
Other debt
Pension and healthcare plans
Corporate and shared functions and projects, not allocated *)
Other
Total Liabilities
*) Corporate and shared functions and projects, not allocated, are primarily corporate projects, administrative expenses and assets and liabilities in central or shared functions.
2018
-168
-168
2018
177
120
697
80
13
1,087
2018
1,356
562
133
194
8
2,253
2019
-193
-15
-208
2019
221
93
896
30
12
1,252
2019
1,463
560
155
173
8
2,359
58/134
Danfoss Annual Report 2019 Note 2
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 *)
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
Group Executive Team
Board of Directors' fee
Total remuneration
Total remuneration for registered members of the Group Executive Team amounts to EUR 10m (2018: 9m).
A presentation of the Group Executive Team is available on page 43.
2018
1,404
36
112
84
3
1,639
27,313
27,795
2019
1,434
13
116
85
3
-1
1,650
27,905
27,871
2018
2019
5
1
10
16
1
17
5
1
10
16
1
17
59/134
Danfoss Annual Report 2019 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
Impairment on tangible assets
Depreciation/amortization and impairment losses
Classification of amortization/impairment of intangible assets by functions:
Cost of sales
Selling and distribution costs
Administrative expenses
Classification of depreciation/impairment of property, plant and equipment assets by functions:
Cost of sales
Selling and distribution costs
Administrative expenses
Property, plant and equipment
C. OTHER OPERATING INCOME AND EXPENSES
Gain on disposal of activities
Gain on value adjustment on step acquisition of company
Gain on disposal of property, plant and equipment
Government grants
Reversal of restructuring costs
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 and USA.
2018
2019
96
148
244
62
30
4
96
134
9
5
148
109
218
1
328
72
31
6
109
174
31
14
219
2018
2019
31
4
6
6
47
-2
-36
-13
-51
-4
9
2
10
1
9
31
-1
-14
-18
-33
-2
60/134
Danfoss Annual Report 2019 Note 2 Expenses and other operating income (continued)
EURm
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
2018
2019
3
0
1
1
5
3
0
0
2
5
Fees for services other than the statutory audit of the Financial Statements provided by PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab (PricewaterhouseCoopers Denmark) amounted to EUR 1.0m (2018: 1.2m).
Services other than the statutory audit of the Financial Statements comprise services relating to due diligence and agreed-upon procedures, transfer pricing, tax audits as well as accounting advice.
61/134
Danfoss Annual Report 2019 Note 3
Note 3 Investments
EURm
Cost as of January 1
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
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
Investments in
associates and
joint ventures
Other
investments
353
-4
349
-64
1
-4
-1
-1
-69
280
19
19
-16
-16
3
2019
TOTAL
372
-4
368
-80
1
-4
-1
-1
-85
283
Where indicators for impairment were present at the end of 2019, 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 2018.
Further information on associates and joint ventures is provided in Note 15 Financial risks and instruments and Note 24 Related parties.
62/134
Danfoss Annual Report 2019 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
full value, 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 2019 AND 2018 )
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, 2019, was EUR 1.2bn (2018: 0.6bn).
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 28 Group companies.
Associates
Joint Ventures
4
1
1
13
Associates
Joint Ventures
85
187
4
276
13
13
2018
TOTAL
1
1
17
2018
TOTAL
85
187
17
289
Associates
Joint Ventures
1
1
14
Associates
Joint Ventures
79
187
266
14
14
SMA Solar Technology AG
2018
Germany
20%
2019
Germany
20%
761
-150
-174
344
797
255
277
608
85
3
915
-11
-8
296
719
257
347
411
79
2019
TOTAL
1
1
14
2019
TOTAL
79
187
14
280
63/134
Danfoss Annual Report 2019 Note 4-5
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
Interest expense for leasing arrangements
Foreign exchange losses, net
Financial expenses
Interest on financial liabilities measured at amortized cost
In Foreign exchange losses, net are included fair value hedge impact of EUR 7m (2018: -18m).
2018
2019
3
3
3
4
4
4
2018
2019
-35
-1
-2
-1
-9
-48
-37
-22
-3
-8
-4
-37
-30
64/134
Danfoss Annual Report 2019 Note 6
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
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
2019
-163
7
-4
-160
22.0%
1.8%
-1.6%
0.1%
0.5%
0.9%
0.5%
24.2%
2019
-160
-1
8
-153
65/134
Danfoss Annual Report 2019 Note 7
Note 7 Intangible assets
EURm
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
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
Cost as of January 1, 2019
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Transfers
Additions
Disposals
Cost as of December 31, 2019
Amortization and impairment losses as of January 1, 2019
Foreign exchange adjustments in foreign companies
Transfers
Amortization
Disposals
Amortization and impairment losses as of December 31, 2019
Carrying amount as of December 31, 2019
Internally
developed
software
Goodwill
Brand
Technology
Customer
relations
Patents,
trademarks and
other rights
Development
costs
Total
Other
TOTAL
1,764
16
23
-85
1,718
149
3
152
1,566
1,718
9
103
1,830
152
2
154
1,676
240
3
62
-3
-2
300
134
2
14
-3
-2
145
155
300
1
1
36
51
389
145
1
23
26
195
194
146
4
150
7
1
3
11
139
150
1
151
11
2
13
138
647
12
9
-6
662
331
9
43
-6
377
285
662
4
39
705
377
3
46
426
279
376
7
6
-7
382
225
7
28
-7
253
129
382
3
18
403
253
1
31
285
118
96
-1
2
-2
95
56
-1
6
-2
59
36
95
1
-36
1
-2
59
59
1
-23
3
-2
38
21
68
1
-3
66
65
1
2
-3
65
1
66
1
-15
52
65
1
1
-15
52
1,573
26
15
64
-8
-15
1,655
818
19
96
-8
-15
910
745
1,655
11
58
52
-17
1,759
910
7
109
-17
1,009
750
3,337
42
38
64
-8
-100
3,373
967
22
96
-8
-15
1,062
2,311
3,373
20
161
52
-17
3,589
1,062
9
109
-17
1,163
2,426
Additions/Disposals through acquisitions/sales of subsidiaries are further described in Note 19 Acquisition and sales of subsidiaries and activities.
66/134
Danfoss Annual Report 2019 Note 7 Intangible assets (continued)
EURm
IMPAIRMENT TESTS
At the end of 2019, 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 2020-2029. The estimates are prepared and approved by the management in the respective CGUs and Group Management. The primary variables are sales, EBITA, working capital and investments.
The most significant goodwill allocations have been described below.
Goodwill as of December 31
Brand with indefinite useful life as of December 31
Danfoss
Power
Solutions
253
131
Danfoss
Drives
Danfoss
Cooling
Danfoss
Heating
770
274
267
2018
Other
2
Danfoss
Power
Solutions
339
132
Danfoss
Drives
Danfoss
Cooling
Danfoss
Heating
770
280
285
2019
Other
2
The Danfoss Power Solutions brand with a carrying amount EUR 132m (2018: 131m) 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 2029 is based on past performance/management expectation of market development etc. and is estimated to be 2-6% (2018: 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 EBITA margins used in the impairment tests are in general kept
at a stable level, taking past performance and initiatives in the business segments into consideration.
The EBITA 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 2018. The net cash flow during the terminal period from 2030 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. The discount rates are set under consideration of a market-based cost of equity and cost of debt, and are 10-11% (2018: 10-11%) before tax for all segments.
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 2018.
67/134
Danfoss Annual Report 2019 Note 7 Intangible assets (continued)
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, Visedo Oy (Finland) in 2017,
UQM Technologies Inc. (USA) in 2019. At the end of 2019, the carrying amount of Brand, Technology and Customer relations acquired in connection with business combinations amounts to EUR 315m (2018: 314m),
or approximately 59% (2018: 57%) of the corresponding Group carrying amount . The carrying amount of Technology and Customer relations is amortized until 2032.
Danfoss Drives
The goodwill allocated to Danfoss Drives Segment derives primarily from the acquisition of Vacon (Finland) in December 2014. At the end of 2019, the carrying amount of Technology and Customer relations acquired in connection
with business combinations amounts to EUR 148m (2018: 169m), or approximately 28% (2018: 31%) of the corresponding Group carrying amount. The carrying amount of Technology and Customer relations is amortized until
2026 and 2029, respectively.
Danfoss Cooling
The goodwill allocated to Danfoss Cooling Segment derives primarily from the acquisitions of Scroll Technologies (USA) in 2006 and Danfoss Turbocor Compressors (USA) in 2012. At the end of 2019, the carrying amount of
Technology and Customer relations acquired in connection with business combinations amounts to EUR 25m (2018: 29m), or approximately 5% (2018: 5%) of the corresponding Group carrying amount. The carrying amount of
Technology and Customer relations is amortized until 2032 and 2030, respectively.
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 2019, the carrying amount of Technology
and Customer relations acquired in connection with business combinations amounts to EUR 46m (2018: 41m), or approximately 8% (2018: 7%) of the corresponding Group carrying amount. The carrying amount of Technology
and Customer relations is amortized until 2028 and 2031, respectively.
Other intangible assets
At the end of 2019, Danfoss had Software in progress amounting to EUR 36m (2018: 66m) and EUR 0m (2018: 0m) capitalized development expenditure in progress. Capitalized software in progress is mainly developed internally.
In 2019, 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 (2018: 0m).
68/134
Danfoss Annual Report 2019 Note 8 Property, plant and equipment
EURm
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
Cost as of January 1, 2019
Accounting policy change
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Transfers
Additions
Disposals
Cost as of December 31, 2019
Depreciation and impairment losses as of January 1, 2019
Foreign exchange adjustments in foreign companies
Transfers
Depreciation
Impairment
Disposals
Depreciation and impairment losses as of December 31, 2019
Carrying amount as of December 31, 2019
Additions/disposals through acquisitions/sales of subsidiaries are further described in Note 19 Acquisition and sale of subsidiaries and activities.
Note 8
Land and
buildings
Plant and
machinery
Equipment
Assets under
construction
TOTAL
878
-5
50
21
-11
-8
925
400
-1
34
-7
-5
421
504
925
107
6
8
16
56
-12
1,106
421
2
1
71
1
-11
485
621
1,429
-1
1
100
50
-26
-5
1,548
1,097
-3
1
95
-25
-4
1,161
387
1,548
1
9
1
98
63
-17
1,703
1,161
6
1
106
-14
1,260
443
241
2
27
-12
258
153
-1
-1
19
-11
159
99
258
27
1
1
5
35
-18
309
159
1
-2
41
-17
182
127
166
-152
165
179
179
179
1
-119
157
218
218
2,714
-6
1
263
-49
-13
2,910
1,650
-5
148
-43
-9
1,741
1,169
2,910
135
17
10
311
-47
3,336
1,741
9
218
1
-42
1,927
1,409
69/134
Danfoss Annual Report 2019 Note 9
Note 8 Property, plant and equipment (continued)
EURm
The right-of use assets included in property, plant and equipment are presented below.
Carrying amount related to right-of-use assets as of January 1, 2019
Accounting policy change
Foreign exchange adjustments in foreign companies
Acquisitions of subsidiaries
Additions
Depreciation
Carrying amount related to right-of-use assets as of December 31, 2019
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
Land and
buildings
Plant and
machinery
Equipment
TOTAL
36
107
1
4
32
-38
142
1
1
2
-1
3
16
27
19
-23
39
2018
338
88
329
755
61
46
11
3,143
53
135
1
4
53
-62
184
2019
345
79
318
742
62
52
9
3,214
70/134
Danfoss Annual Report 2019 Note 10
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
Accrual of new provisions
Reversal of provisions accrued
Realized loss
Provision for bad debts as of December 31
2018
2019
883
-25
858
6
864
2
-26
1
-6
4
2
-25
910
-25
885
8
893
1
-25
-1
-6
3
4
-25
71/134
Danfoss Annual Report 2019 Note 11
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
DISTRIBUTION OF SHARES
Balance as of January 1, 2018
Balance as of December 31, 2018
Balance as of December 31, 2019
SHARES
47.33%
26.26%
11.04%
A shares
B shares
Total
Number
4,250,000
4,250,000
4,250,000
DKKm
425.0
425.0
425.0
Number
5,719,625
5,719,625
5,719,625
DKKm
572.0
572.0
572.0
Number
9,969,625
9,969,625
9,969,625
VOTES
86.11%
5.48%
2.31%
DKKm
997.0
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
Holding as of December 31
DKK
60.2
60.2
2018
EUR
8.1
8.1
DKK
60.2
60.2
2018
85,043
2,082
263,573
350,698
2019
EUR
8.1
8.1
2019
350,698
1,924
59,500
412,122
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 2019 for acquiring own shares amounts to EUR 60m (2018: 249m). The Group's holding of
of treasury shares represents 4.1% (2018: 3.5%) of the Group's share capital.
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 financial metric that is commensurate with such credit rating over the cycle. Danfoss is currently rated “BBB/A2 by Standard and Poor’s. End of 2019 the net-interest-bearing debt to EBITDA ratio was 1.0 (2018: 1.0) on a reported
basis. Danfoss aims to use the free operating cash flow after financial items and tax for debt servicing, business development and shareholder distribution.
Further information on Danfoss' credit rating is provided in Note 25 Events after the balance sheet date.
72/134
Danfoss Annual Report 2019 Note 12
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. Employee-related 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
Provisions used
Reversal of unused provisions
Additional provisions recognized
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
Employee-
related
2019
Other
TOTAL
46
1
-26
-5
24
40
53
-2
51
32
-4
8
36
30
-8
-4
13
31
161
1
-38
-11
45
158
2019
Warranty
Contingent
consideration
Employee-
related
Other
TOTAL
28
12
40
1
41
9
51
4
9
23
36
13
15
3
31
46
77
35
158
73/134
Danfoss Annual Report 2019 Note 13
Note 13 Deferred tax
EURm
CHANGES IN DEFERRED TAXES
Deferred taxes as of January 1 (net) *)
Adjustment from the adoption of IFRS 16
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
2018
-145
-2
-1
-2
9
1
-140
2019
-140
2
-5
-16
7
8
-144
2018
Deferred tax
asset
2019
Deferred tax
asset
5
32
24
92
41
-33
161
-73
88
Deferred tax
liability
4
49
18
127
40
-34
204
-123
81
Deferred tax
liability
119
92
14
71
5
301
-73
228
142
129
10
62
5
348
-123
225
The tax asset related to tax loss carry-forwards of EUR 6m net (2018: 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, 100% (2018: 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 34m (2018: 33m). The amount is not recognized as an asset, as the tax losses carried forward are not expected to be utilized. 19% of the
amount (2018: 3%) has a remaining period of 3 years or less, whereas the share with a remaining period of 10 years or more totals 70% (2018: 63%).
Of the deferred tax liability of EUR 225m (2018: 228m), EUR 5m (2018: 5m) 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 15m (2018: 19m). 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.
74/134
Danfoss Annual Report 2019 Note 14
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
2018
Gross liability Net Liability
2019
Gross liability Net Liability
24%
39%
33%
4%
100%
68%
35%
-17%
14%
100%
25%
38%
33%
4%
100%
67%
29%
-7%
11%
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 (2018: 200) 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
Plan participants' contribution liabilities
Disbursed benefits from the Group
Disbursed benefits from plan assets
Net transfer from provisions
Provision as of December 31
2018
2019
479
-365
114
19
133
114
550
-406
144
11
155
144
2018
2019
501
8
3
13
1
-20
-6
2
-5
-21
3
479
479
12
3
15
-3
66
-1
2
-5
-18
550
75/134
Danfoss Annual Report 2019 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
2018
2019
387
5
11
2
-28
-6
14
-21
1
365
365
11
12
2
25
9
-18
406
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 72m (2018: 67m).
EXPENSES RELATING TO PENSION AND HEALTHCARE OBLIGATIONS
Pension costs for the year
Calculated interest on liabilities
Calculated interest on assets
Gains from reductions and redemptions
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
2018
2019
3
13
-11
5
1
2
2
5
3
15
-12
-1
5
1
2
-1
3
5
2018
2019
21
86
372
479
24
93
433
550
76/134
Danfoss Annual Report 2019 Note 14 Pension and healthcare obligations (continued)
EURm
PENSION PLAN ASSETS ARE SPECIFIED AS FOLLOWS:
Shares and similar securities
Listed corporate bonds
Bonds
Other
2018
31%
37%
26%
6%
100%
114
135
96
20
365
2019
33%
34%
18%
15%
100%
132
136
71
67
406
Plans in which the pension funds are invested in financial instruments are exposed to risk. 33% (2018: 31%) 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
2018
Weighted
average
3.1%
3.5%
Range
1.9-4.2%
1.8-4.5%
2019
Weighted
average
2.2%
3.5%
Range
0.1-3,2%
1.5-4.2%
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 13m to defined benefit plans in 2020 (2019: 17m).
SENSITIVITY ANALYSIS
Reported defined benefit plan obligations
Increase in discount rate of a 0.5 percentage point affects the defined benefit plan obligations by
Decrease in discount rate of a 0.5 percentage point affects the defined benefit plan obligations by
Increase in future salary increase of a 0.5 percentage point affects the defined benefit plan obligations by
Decrease in future salary increase of a 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
2018
479
2019
550
-32
+37
+2
-2
+15
-15
-40
+44
+2
-2
+20
-19
77/134
Danfoss Annual Report 2019
Note 15
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 flows 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 future cash flow hedge ratios for 2019 and 2018 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 hedging ratio for balance sheet risk was 100% in both 2019 and 2018.
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 strategically 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
-93
-31
118
-407
USD
-18
41
-22
-153
GBP
-5
5
0
-35
2018
Total
-116
15
96
-595
1) Besides the loans included, loans of EUR 627m (2018: 634m) are used for hedging of net investments (equity hedge). The impact on the Group's equity is EUR -0.4m (2018: -2m).
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%
0
-15
10%
0
-4
0
-29
EUR
-101
37
66
-412
1%
0
-10
USD
-25
-75
101
-120
10%
0
-12
2019
Total
-121
-41
164
-570
0
-26
GBP
5
-3
-3
-38
10%
0
-4
A decrease in exchange rates as stated would have had the opposite effect on the profit and equity. The sensitivities are based on recognized financial assets and liabilities at December 31 and includes impact from derivatives.
78/134
Danfoss Annual Report 2019
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 2019 or 2018.
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 19m relates
to that which is more than 180 days overdue.
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
2018
2019
39
16
24
810
889
25
864
41
16
33
828
918
25
893
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 of one percentage-point compared to the interest rate level on the balance sheet date, would not have had any material impact on the profit for a year and equity
at the end of the year. These sensitivities are based on the recognized financial assets and liabilities at December 31.
79/134
Danfoss Annual Report 2019 Note 15 Financial risks and instruments (continued)
EURm
LIQUIDITY RISK
It is Danfoss' policy to maintain a robust capital structure and to aim for a capital and financing structure that is compatible with a BBB credit rating, a liquidity reserve of minimum EUR 0.4bn, in terms of accessible cash and
non-terminable creditfacilities with an average maturity profile of at least 3 years.
At the end of 2019, Danfoss' credit rating from Standard and Poor’s was "BBB/A2" and the liquidity reserve equaled EUR 1.1bn (2018: 1.1bn). 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 2019.
The Danfoss Group's loan agreements contain no financial covenants.
Further information on Danfoss' credit rating is provided in Note 25 Events after the balance sheet date.
The major part of the Group's cash and cash equivalents of EUR 110m (2018: 50m) is placed on short-term deposits.
THE GROUP'S DEBT CATEGORIES AND MATURITIES
Bank debt and corporate bond
Mortgage debt
Lease liabilities
Trade payables
Debt to associates and joint ventures
Derivative financial liabilities
*) Maturity is evenly spread over the period.
i
g
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a
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70
54
883
2
9
1,957
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986
73
58
883
2
9
2,011
2018
Maturity
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*
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388
70
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581
467
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2
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883
2
9
963
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a
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69
194
820
3
3
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219
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3
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1
124
2019
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73
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775
365
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55
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3
3
920
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.
The Group generally accepts that vendors sell-off their receivables arising from the sales to the Group to a third party. Danfoss has established a supply chain financing program where vendors can sell off their receivables from
Danfoss at attractive terms, but at the banks sole discretion. Danfoss is not directly or indirectly a party to these agreements. End of December, the Group is aware of around EUR 45m (2018: 45m) of trade payables that are part of
such agreements.
THE ABOVE DEBT IS RECORDED AS FOLLOWS:
Non-current liabilities
Current liabilities
2018
1,007
950
1,957
2019
1,093
902
1,995
80/134
Danfoss Annual Report 2019
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
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 statement
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
2018
Fair
value
Carrying
amount
2019
Fair
value
Carrying
amount
3
3
1
1
3
3
1
1
864
165
50
1,079
864
165
50
1,079
3
3
3
3
893
104
110
1,107
893
104
110
1,107
53
53
51
51
1,063
1,447
2,510
1,085
1,447
2,532
4
5
9
4
5
9
1,169
1,385
2,554
1,197
1,385
2,582
1
2
3
1
2
3
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 2018.
81/134
Danfoss Annual Report 2019 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
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
2018
2019
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Level 1
Level 2
Level 3
1
1
4
5
1,085
1,094
3
3
53
53
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1,147
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Level 2
Level 3
3
3
51
51
1
2
1,197
1,200
l
a
t
o
T
3
3
1
2
51
1,197
1,251
82/134
Danfoss Annual Report 2019
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
Carrying amount as of December 31, assets/liabilities (-)
Fair value of the majority of the financial instruments is determined using discounted cash flow analysis.
DERIVATIVES AS OF DECEMBER 31 FOR THE GROUP
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USD
EUR
Other currencies
Forward exchange contracts
Derivatives end of year
-205
-352
98
2018
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At the end of 2019, unrealized gain/loss(-) on derivatives hedging foreign currency risk recognized in equity amounted to EUR -2.2m (2018: -5.1m).
For the open foreign exchange contracts, used for USD cash flow hedges, at the end of 2019, weighted average hedge rate for USD/DKK is 6.5276 (2018: 6.2504).
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2018
2019
-50
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5
-50
-50
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-48
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83/134
Danfoss Annual Report 2019
Note 16-17
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
Note 17 Adjustment for non-cash transactions
EURm
Depreciation/amortization and impairment
Gain(-)/loss on disposal of tangible assets and business activities
Gain(-)/loss from step-acquisitions
Share of profit from associates and joint ventures after tax
Financial income
Financial expenses
Other
Adjustment for non-cash transactions
2018
37
3
-157
-9
-1
156
-3
26
39
65
26
2019
26
-140
-12
163
1
38
30
68
38
2018
2019
244
-33
33
-3
48
-19
270
328
-1
-9
4
-4
37
-21
334
Depreciation/amortization and impairment includes depreciation on leased right-of-use assets. Further information on depreciation charge and lease payment is provided in Note 8 Property, plant and equipment and Note 21
Change in liabilities arising from financing activities.
The Group's other adjustments for non-cash transactions mainly consist of provisions, derivatives and defined benefit plans.
84/134
Danfoss Annual Report 2019 Note 18
Note 18 Change in working capital
EURm
Change in inventories
Change in receivables
Change in trade payables and other debt
Change in working capital
2018
-103
-41
131
-13
2019
30
14
-87
-43
85/134
Danfoss Annual Report 2019 Note 19
Note 19 Acquisition and sale of subsidiaries and activities
EURm
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.
Company/activity:
Artemis Intelligent Power Ltd. (AIP)
Leanheat Oy
Hydraulik Nord Fluidtechnik GmbH & Co. KG
UQM Technologies Inc.
*) 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
Disposal
Acquisition
Acquisition
Acquisition
Acquisition
Country
Spain
Finland
Denmark
US
Sweden
Country
UK
Finland
Germany
US
Consolidated
from/until
Holding
acquired/sold
Net sales per
year *)
No. of
employees
Consideration
paid
2018
August
September
November
November
April
100%
100%
100%
100%
100%
13
2
0
7
70
73
10
4
26
223
**
**
**
**
**
2019
Consolidated
from/until
Holding
acquired/sold
Net sales per
year *)
No. of
employees
Consideration
paid
February
May
April
August
75%
100%
100%
100%
3
2
21
13
53
50
170
85
**
**
**
94
2018 acquisitions and disposals:
The Group only carried out minor acquisitions in 2018. Ikusi and AXCO related to the Power Solutions Segment, AAIM related to the Cooling Segment and OE3i related to the Heating Segment. The net sales included in the
consolidated income statement of the acquired companies in 2018 was less than EUR 10m and impact on profit before tax was around EUR -2m.
The largest disposal 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 was included in other operating
income, cf. Note 2.
2019 acquisitions and disposals:
The largest acquisition in 2019 was the purchase of UQM Technologies Inc., which was acquired on July 31. UQM is a developer and manufacturer of power-dense, high-efficiency electric motors, generators, power electronic
controllers and fuel-cell compressors for the commercial truck, bus, automotive, marine and industrial markets. Its sales activities are mainly in US and its production and R&D centers are located in Colorado, US. UQM will be
part of the Editron business in the Power Solutions Segment. Likewise in the Power Solutions Segment, Danfoss acquired Artemis Intelligent Power, a Scottish R&D and engineering company, as well as German-based Hydraulic
Nord Fluidtechnik, a supplier of hydraulic steering. In 2019, Danfoss also acquired the remaining shares of Leanheat Oy, a Finnish system-provider of turnkey IoT solutions upgrading building HVAC systems for the digital age.
Leanheat is a separate business within the Heating segment. For accounting purposes, the acquisition is treated as a step-acquisition, which means that a gain of around EUR 9m is recorded in other operating income.
The net sales included in the consolidated income statement of the acquired companies in 2019 is less than EUR 25m and impact on profit before tax is around EUR -10m, which includes Purchase Price Allocation amortizations.
In the preliminary Purchase Price Allocation a total goodwill of EUR 103m was calculated. 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.
86/134
Danfoss Annual Report 2019
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
Previously acquired shares (associated)
Adjustment related to step-acquisition
Minority interests
Net cash paid(-)/received
*) receivables in acquisitions includes provision for bad debt of EUR 0.2m (2018: 0.5m)
2018
Acquisitions
2019
Acquisitions
2018
Disposals
2019
Disposals
-15
-1
-3
-5
-1
2
1
-22
-23
-45
1
-44
3
-41
-58
-10
-2
-8
-11
-7
14
8
13
-61
-103
-164
7
-157
1
5
9
2
-140
4
10
7
6
-1
-13
13
6
116
135
-6
129
129
87/134
Danfoss Annual Report 2019 Note 20
Note 20 Acquisition / Sale of other investments
EURm
Purchase of shares and other securities
Increase/decrease in lending
2018
-4
-9
-13
2019
37
37
Purchase of shares and other securities in 2018 is primarily related to the purchase of shares in the associated company Leanheat Oy. In 2019 Danfoss acquired the remaining shares of Leanheat Oy, further information
is provided in Note 19 Acquisition and sale of subsidiaries and activities.
88/134
Danfoss Annual Report 2019 Note 21
Note 21 Change in liabilities arising from financing activities
EURm
Carrying amount as of January 1, 2018
Cash repayment
Cash proceeds
Acquisitions and disposal of lease liabilities
Other
Carrying amount as of December 31, 2018
Adoption of IFRS 16
Cash repayment
Lease payments
Cash proceeds
Acquisitions of subsidiaries
Acquisitions and disposal of lease liabilities
Reclassification
Other
Carrying amount as of December 31, 2019
Short-term
borrowings
Long-term
borrowings
92
-395
341
5
13
56
52
-423
-59
383
10
28
30
-1
76
1,023
-421
410
11
-16
1,007
90
-604
601
4
25
-30
1,093
TOTAL
1,115
-816
751
16
-3
1,063
142
-1,027
-59
984
14
53
-1
1,169
Lease payments are the principal portion of lease liabilities and presented under cash flows from financing activities in the Statement of Cash Flows.
The Group's other change in liabilities arising from financing activities in 2018 mainly consists of foreign exchange adjustments and short-term and long-term borrowings reclassification..
89/134
Danfoss Annual Report 2019 Note 22
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
2018
123
53
126
2019
140
184
265
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.
CONTRACTUAL OBLIGATIONS
Service contract commitment other than leases
Inventories
Property, plant and equipment
Purchase commitments
2018
47
140
44
231
2019
85
166
37
288
90/134
Danfoss Annual Report 2019 Note 23
Note 23 Leases
EURm
LESSEE
Lease liabilities are presented in borrowings of the Statement of Financial Position as follows:
Current
Non-current
2018
6
48
2019
48
146
The Group mainly leases buildings and cars. Lease payments are generally fixed. With the exception of short-term leases and leases of low-value underlying assets, each lease is reflected in the Statement of Financial Position as a
right-of-use asset and a lease liability. The Group classifies its right-of-use assets in a consistent manner to property, plant and equipment, see Note 8 Property, plant and equipment. Each lease contract generally restricts the use of
the right-of-use assets to the Group. Some lease contracts contain an option to extend the lease period or terminate the lease before the lease term. Management assesses weather or not it is reasonably certain that the option will
be exercised after considering all relevant facts and circumstances.
The Group has decided not to recognize a lease liability for short-term leases (leases with an expected term of 12 months or less) or for leases of low value assets. Payments made under such leases are expensed on a straight-line
basis. The expenses related to payments not included in the measurement of the lease liability are below EUR 8m.
At December 31, 2019, the Group had committed to leases not yet commenced. The total future cash outflows for leases that had not yet commenced are EUR 64m, which mainly is for buildings.
Total cash outflow for leases for the financial year ended December 31, 2019, was EUR 66m (2018: 66m).
Further information on lease payment, interest expense on lease liabilities, additions, depreciation charge, carrying amount of right-of-use assets and maturity analysis of lease liabilities is provided in Note 21 Change in liabilities
arising from financing activities, Note 5 Financial expenses, Note 8 Property, plant and equipment and Note 15 Financial risks and instruments.
91/134
Danfoss Annual Report 2019 Note 24
Note 24 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 47.33% of the shares in Danfoss A/S and controls 86.11% 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 (2018: 3.3m).
In the financial year, the Bitten & Mads Clausen's Foundation sold shares in Danfoss A/S at a value of EUR 58m back to the company (2018: 246m).
Around 95% 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 2019 (2018: 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 (2018: 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
2018
44
15
2019
40
16
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.
92/134
Danfoss Annual Report 2019 Note 25
Note 25 Events after the balance sheet date
Subsequent to December 31, 2019, on January 21, 2020, Danfoss announced the agreement to acquire Eaton's hydraulics business for a cash purchase price of USD 3,3bn. The transaction is subject to customary closing
conditions and regulatory approvals and it is expected to close toward the end of the year. The Eaton's hydraulics business has approximately 11.000 employees and had 2019 sales of approximately EUR 2bn.
The acquisition will be fully financed with debt. An acquisition credit facility has been established with a group of Danfoss’ core banks for that purpose and subsequent to closing, Danfoss intends to refinance a part of this credit
facility in the debt capital markets. Danfoss intends to maintain a robust capital structure and aims for a capital and financing structure that is compatible with a BBB credit rating. Following the announcement Danfoss' BBB credit
rating was reaffirmed but with a negative outlook from a stable outlook prior to the announcement.
93/134
Danfoss Annual Report 2019 Note 26
Note 26 Basis for preparation and accounting policies
Danfoss A/S is a company domiciled in Denmark.
The Annual Report for the period January 1 -
December 31, 2019, 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.
The Annual Report is presented in EUR, rounded
to nearest million unless otherwise indicated. The
functional currency of the Parent Company is DKK.
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 2019.
IFRS 16 Leases: The Group as a lessee recognizes
a right-of-use asset and a lease liability for lease
contracts entered into on or after 1 January 2019.
The Group depreciates the right-of-use assets on
a straight-line basis and assesses the right-of-use
asset for impairment when such indicators exist.
The Group measures the lease liability at the
present value of unpaid lease payments at that date,
discounted using the incremental borrowing rate.
Subsequent to initial measurement, the liability will
be reduced with payments made and increased
with interest. When the lease liability is remeasured,
the corresponding adjustment is reflected in the
right-of-use asset or profit and loss if the right-of-
use asset is already reduced to zero.
The Group has decided to recognize short-term
leases and leases of low-value assets as an expense
in profit or loss.
In the Statement of Financial Position, right-of-use
assets have been included in property, plant and
equipment and lease liabilities have been included
in borrowings.
The Group has adopted the new accounting
pronouncements which have become effective this
year, and are as follows:
IFRS 16 ‘Leases’ replaces IAS 17 ‘Leases’ along with
three Interpretations (IFRIC 4 ‘Determining whether
an Arrangement contains a Lease’, SIC 15 ‘Operating
Leases-Incentives’ and SIC 27 ‘Evaluating the
Substance of Transactions Involving the Legal Form
of a Lease’).
The adoption of this new Standard has resulted
in the Group recognizing a right-of-use asset
and related lease liability in relation to all former
operating leases except for those identified as low-
value or having a remaining lease term of less than
12 months from the date of initial application.
The new Standard has been applied using the
modified retrospective approach, with the
cumulative effect of adopting IFRS 16 being
recognized in equity as an adjustment to the
opening balance of retained earnings for the current
period. Prior periods have not been restated.
has not applied IFRS 16 to arrangements that were
previously not identified as lease under IAS 17 and
IFRIC 4.
The Group has benefited from the use of hindsight
for determining the lease term when considering
options to extend and terminate leases.
The Group has decided not to include initial direct
costs in the measurement of the right-of-use asset
for existing operating leases at the date of initial
application of IFRS 16, being 1 January 2019. At
this date, the Group has decided to measure the
right-of-use assets of buildings as if the standard
had been applied since the commencement date
of the lease, the present value for leased buildings
had been calculated as per commencement date
and the right-of-use asset had been depreciated
until implementation date 1 January 2019. For leased
assets other than buildings, the Group has decided
to measure the right-of-use assets at an amount
equal to the lease liability adjusted for any prepaid
or accrued lease payments that existed at the date
of transition.
Instead of performing an impairment review on the
right-of-use assets at the date of initial application,
the Group has relied on its historic assessment as to
whether leases were onerous immediately before
the date of initial application of IFRS 16.
On transition for leases previously accounted for as
operating leases with a remaining lease term of less
than 12 months and for leases of low-value assets,
the Group has applied the optional exemptions to
not recognize right-of-use assets but to account for
the lease expense on a straight-line basis over the
remaining lease term.
For leases previously classified as finance leases, the
right-of-use asset and lease liability are measured at
the date of initial application at the same amounts
as under IAS 17 immediately before the date of initial
application.
The following is a reconciliation of the financial
statement line items from IAS 17 to IFRS 16 at January
1, 2019:
Re-
December measure-
ment
31, 2018
January
1, 2019
Property, plant
and equipment
Borrowings
Other reserves
Deferred tax assets
1,169
1,063
2,301
88
135
142
5
2
1,304
1,205
2,296
90
The following is a reconciliation of total operating
lease commitments at December 31, 2018 (as
disclosed in the Financial Statements to December
31, 2018) to the lease liabilities recognized at January
1, 2019:
December 31, 2018
Operating lease commitments
disclosed as at December 31, 2018
Recognition exemptions:
Leases of low-value assets
Leases with remaining lease term
of less than 12 months
Uncommitted lease payments
153
-1
-1
13
Operating lease liabilities before discounting
164
Discounted using incremental borrowing rate
-22
Operating lease liabilities
Finance lease liabilities recognized
as at December 31, 2018
142
54
Total lease liabilities recognized under IFRS 16 at
January 1, 2019
196
94/134
For contracts in place at the date of initial
application, the Group has decided to apply the
definition of a lease from IAS 17 and IFRIC 4 and
On transition to IFRS 16, the weighted average
incremental borrowing rate applied to lease
liabilities recognized under IFRS 16 was 5.0%.
Danfoss Annual Report 2019
Note 26 Basis for preparation and accounting policies (continued)
New financial reporting regulations
IFRIC 23 Uncertainty over income tax treatments:
The interpretation clarifies that it must be
determined whether each tax position is to be
considered individually or collectively with other
uncertain tax positions. The assessment should
be based on the assumption that tax authorities
have full knowledge of all relevant circumstances
and, therefore, the assessment should assume full
detection risk. This determination may be based
on e.g. how tax statements are prepared, or how
the enterprise expects tax authorities to treat the
uncertain tax positions. The uncertain tax position
must be recognized if it is probable that the
uncertain tax position will affect the enterprise’s
future tax payments or refunds. The uncertain tax
position must be measured so as to better reflect
the receivable/liability and the related uncertainty.
The Management has assessed that IFRIC 23 will not
have any material impact for the Group.
A number of issued, but not yet effective, standards
and interpretations have been published, which
have not been adopted early by Danfoss A/S in the
preparation of the 2019 Annual Report.
The Group has assessed these standards and
interpretations and conclude they are not expected
to have a material impact on the Group.
- Amendments to IFRS 3 Definition of a Business
- Amendments to IAS 1 and IAS 8 Definition of
Material
- Conceptual Framework for Financial Reporting
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, intragroup income and expenses,
shareholdings, intra-group balances and dividends
and realized and unrealized profits and losses on
transactions between the consolidated companies
are eliminated. Unrealized losses are eliminated in
the same way as unrealized profits, provided that no
impairment has occurred.
In the Consolidated Financial Statements, the items
of subsidiaries are recognized in full. The minority
interests’ proportionate share of the profit/ loss for
the year is recognized as part of the Group’s profit/
loss for the year and as a separate share of the
Group’s equity.
The companies included in the Group are disclosed
in the section “Group Companies”.
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.
initial recognition is made at provisional fair values.
If it subsequently becomes apparent that the fair
value of identifiable assets and liabilities, including
contingent liabilities, differs from the assumed
fair value at the acquisition date, the calculation is
adjusted retroactively, including goodwill, until 12
months following the acquisition. The effect of the
adjustments is recognized in the opening equity
and comparative figures are restated, if material.
Subsequently, goodwill is not adjusted. Changes
in estimates of contingent consideration are
recognized directly in the income statement.
Any excess of the cost over the fair value of the
identifiable assets and liabilities, including contingent
liabilities, 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.
Business combinations
Newly acquired or established companies
are recognized in the Consolidated Financial
If uncertainty exists at the acquisition date
concerning the identification or measurement of
acquired assets, liabilities or contingent liabilities,
Minority interests
On initial recognition, minority interests
are measured either at fair value or at their
95/134
Danfoss Annual Report 2019 Note 26 Basis for preparation and accounting policies (continued)
proportionate share of the fair value of the
acquired company’s identifiable assets, liabilities
and contingent liabilities. In the case of the
former, goodwill is recognized in respect of the
minority interests’ ownership share in the acquired
company, whereas in the latter case, goodwill is not
recognized as a part of minority interests.
The measurement of minority interests is
determined for each transaction and stated in the
notes under the description of acquired companies.
Foreign currency translation
For each of the reporting enterprises in the Group,
a functional currency is determined. The functional
currency is the currency used in the primary
financial environment in which the reporting
enterprise operates.
Transactions denominated in currencies other than
the functional currency are considered transactions
denominated in foreign currencies. On initial
recognition, transactions denominated in foreign
currencies are translated to the functional currency
at the exchange rates at the transaction date.
Monetary assets and liabilities denominated in
foreign currencies are translated at the exchange
rates at the balance sheet date. Currency gains
and losses arising on translation are recognized
in the income statement under financial items.
Non-monetary assets and liabilities denominated
in foreign currencies are recognized at the foreign
exchange rates at the transaction date.
On recognition in the Consolidated Financial
Statements of companies with a functional currency
other than 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
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.
or services to the customer and payment by the
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.
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
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
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Danfoss Annual Report 2019 Note 26 Basis for preparation and accounting policies (continued)
government grants. Government grants related
to income are recognized at their fair value where
there is a reasonable assurance that the grant will
be received and the Group will comply with all
attached conditions. Government grants related
to purchase of property, plant and equipment are
deducted at the carrying amount of the asset.
Share of profit from investments in
associates and joint ventures
The proportionate share of the results of associates
and joint ventures after tax is recognized in the
consolidated income statement after elimination of
the proportionate share of intra-group profits/losses
and less goodwill impairment.
Financial income and expenses
Financial income and expenses comprise interest
income and expenses, realized and unrealized gains
and losses on securities 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 leases and gains
and losses on derivative financial instruments, which
are not designated as hedging arrangements.
Borrowing costs incurred in relation to general
borrowing activities or loans, which relate directly
to the purchase, construction or development of
qualifying assets, are allocated to the cost of such
assets.
Balance sheet
Intangible assets
Goodwill
Goodwill is initially recognized in the balance sheet
at cost and allocated to cash-generating units as
described under “Business combinations”.
Subsequently, goodwill is measured at cost less
accumulated impairment losses. Goodwill is not
amortized.
Development projects, software,
patents and licenses
Development projects that are clearly defined and
identifiable, where the technical feasibility, sufficient
resources and a potential future market or utilization
opportunity within the company is demonstrated,
and where the company intends to produce, market
or use the project, are recognized as intangible
assets provided that the cost can be measured
reliably and that there is sufficient assurance that
future earnings or the net selling price can cover
cost of sales, selling and distribution costs and
administrative expenses and development costs.
Other development costs are recognized in the
income statement when incurred.
Recognized development projects are measured at
cost less accumulated amortization and impairment.
Cost includes direct and indirect expenses, including
salaries and borrowing costs incurred from specific
and general borrowing directly pertaining to the
development of development projects.
Completed development projects, including
software, are generally amortized on a straight-line
basis over 4 to 8 years. Development projects in
progress are not amortized, but annually tested for
impairment.
Patents and licenses are measured at cost less
accumulated amortization and impairment. Patents
are amortized on a straight-line basis over the
patent period and licenses are amortized over the
shorter of the contract period and the useful life.
Patent and contract periods are normally 5-10 years.
Other intangible assets
Other intangible assets, including intangible assets
acquired in a business combination, which typically
comprise technology and customer relations, are
amortized on a straight-line basis over the expected
useful life, which is typically a period of 10 to 20 years.
Intangible assets, including trademarks, with
indefinite useful lives are not amortized, but are
tested annually for impairment.
Gains and losses on the disposal of intangible
assets are determined as the difference between
the selling price less costs to sell and the carrying
amount at the selling date. Gains or losses are
recognized in the income statement under ‘Other
operating income and expenses’.
Property, plant and equipment
Land and buildings, plant and machinery and
equipment are measured at cost less accumulated
depreciation and impairment losses.
Cost comprises the purchase price, expenses for
materials, components, sub-suppliers, direct salary
expenses, borrowing costs incurred from specific
and general borrowing, which directly pertain to
the construction of the individual asset and for
self-produced assets as well as indirect construction
costs. Where individual components of an item of
property, plant and equipment have different useful
lives, they are accounted for as separate items, and
depreciated separately.
Subsequent costs, e.g. in connection with
replacement of components of property, plant and
equipment, are recognized in the carrying amount
of the asset, if it is probable that the costs will result
in future economic benefits. All costs incurred for
ordinary repairs and maintenance are recognized in
the income statement as incurred.
Depreciation is provided on a straight-line basis over
the expected useful lives, which are as follows:
Buildings and building components
Plant and machinery
Equipment
10-30 years
4-8 years
2-6 years
The depreciable amount of an asset is determined
based on the residual value of the asset less
any impairment charges. The residual value is
determined at the acquisition date and reassessed
annually. If the residual value exceeds the carrying
amount of the asset, depreciation is discontinued.
When changing the depreciation period or the
residual value, the effect on the depreciation is
recognized prospectively as a change in accounting
estimates. Depreciation is recognized in the income
statement under ‘Costs of sale’, ‘Distribution costs’ or
‘Administrative expenses’.
Gains and losses on disposal of property, plant
and equipment are determined as the difference
between the selling price less costs to sell and the
carrying amount at the selling date. Gains or losses
are recognized in the income statement under
‘Other operating income and expenses’.
The cost of leased assets capitalized is recognized at
the lease commencement date at the present value
of the future lease payments. For the calculation of
the net present value, the incremental borrowing
rate is used as discount rate. They are depreciated
and amortized like other property, plant and
equipment. Leased assets with low value or lease
term less than 12 months are expensed over the
lease period on a straight-line basis.
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
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Danfoss Annual Report 2019 Note 26 Basis for preparation and accounting policies (continued)
calculating the recoverable amount. The recoverable
amount is the higher of an asset’s fair value less
expected costs to sell and its value in use. The
value in use is determined as the present value of
expected future cash flows from the asset or the
cash-generating unit (CGU). If the fair value or value
in use cannot be determined on individual assets, the
recoverable amount is determined as the fair value of
expected future cash flows from activities or the cash-
generating unit (CGU) to which the asset belongs.
Impairment losses are recognized in the income
statement if the carrying amount of an asset or a cash-
generating unit exceeds the recoverable amount.
Impairment of assets is reversed to the extent
of changes in the assumptions and estimates
underlying the impairment calculation. Impairment
is only reversed to the extent that the asset’s
new carrying amount does not exceed the
carrying amount of the asset after depreciation
or amortization, had the asset not been impaired.
However, impairment of goodwill is never reversed.
Financial assets
Investments in associates and joint ventures
are measured in the Consolidated Financial
Statements according to the equity method
at the proportionate share of the enterprises
including additional value from acquisitions,
including goodwill and deduction or addition of
proportionate shares of unrealized intra-group
profits and losses. Investments in associates
and joint ventures are tested for impairment,
when evidence of impairment exists. 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 the carrying
amount and present value of expected cash flows,
including the expected realizable value of any
collateral provided.
The discount rate is the effective interest rate used
at the time of initial recognition of the receivable.
Equity
Share capital
The share capital comprises the nominal portion
of the amounts paid in accordance with the
subscription for shares. Share capital can only be
released according to the rules relating to capital
reduction.
Share premium
Share premium comprises amounts not included
in the nominal share capital, which have been paid
by the shareholders in connection with capital
increases, and gains and losses from the sale of
treasury shares. The reserve is part of the company’s
free reserves.
Reserve for proposed dividends
Dividends are recognized as a liability at the date
when they are adopted at the Annual General
Meeting. Proposed dividends for the financial year
are included in equity under proposed dividends.
statement when the gain or loss on disposal is
recognized.
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
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.
98/134
Danfoss Annual Report 2019 Note 26 Basis for preparation and accounting policies (continued)
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.
at the beginning of the year. Any difference
between the expected development in assets
and liabilities and realized amounts determined
at year end constitutes actuarial gains or losses
and is recognized directly in other comprehensive
income. If changes in benefits relating to services
rendered by employees in previous years result in
changes in the actuarial present value, the changes
are recognized as past service costs. Past service
costs are recognized immediately, provided that the
benefits have already vested. If the benefits have
not vested, the past service costs are expensed in
the income statement over the period in which the
changed benefits vest.
If a pension or healthcare plan constitutes a net
asset, the asset is only recognized if it offsets future
refunds from the plan or will lead to reduced future
payments to the plan.
Other long-term employee benefits
Similarly, other long-term employee benefits are
recognized based on an actuarial calculation.
However, actuarial gains and losses are recognized
in the income statement immediately. Other long-
term employee benefits include jubilee benefits.
Financial liabilities, 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 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.
Pension and healthcare costs for the year are
recognized in the income statement based on
actuarial estimates and financial expectations
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 statement, except for tax
related to transactions recognized in the statement
of comprehensive income or directly in equity.
Surcharges, premiums and refunds relating to tax
payments are recognized in financial income and
expenses.
Balance sheet
Current tax payable and receivable are recognized
in the balance sheet as tax computed on the
taxable income for the year, adjusted for tax
paid under the tax prepayment scheme. In the
course of conducting business globally, transfer
pricing disputes with tax authorities may occur
and management judgment is applied to assess
the possible outcome of such disputes. The most
probable outcome is used as measurement method.
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.
Cash flows relating to acquired companies are
recognized in the statement of cash flows at the
99/134
Danfoss Annual Report 2019 Difinition of financial ratio
Note 26 Basis for preparation and accounting policies (continued)
acquisition date, and cash flows relating to divested
companies are included until the disposal date.
Cash flows from operating activities
Cash flows from operating activities are calculated
according to the indirect method on the basis of
profit before tax/profit before tax from continuing
operations and adjusted for non-cash operating
items, changes in working capital, paid financial
items, received dividend and paid corporation taxes.
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.
Current assets are those current assets which are
used directly for segment operations, including
inventories and trade receivables.
Segment liabilities comprise both non-current and
current liabilities derived from segment operations,
including trade payables and warranty obligations
as well as other provisions.
Lease payments are recognized under segment
expenses. Capitalized lease assets and lease
liabilities, and related depreciations and interest are
recognized in Other areas. Relevant adjustments are
made in Other areas to eliminate for lease payments
in segments.
Trade between segments takes place on market
terms or on a cost recovery basis.
Financial ratios and key figures
Earnings per share (EPS) and diluted earnings per
share (DEPS) are calculated in accordance with
IAS 33. EBITA is used as the primary performance
measure by the Group.
Cash flows from investing activities
Cash flows from investing activities comprise
payment in connection with the acquisition and
disposal of companies and activities, intangible
assets and property, plant and equipment as
well as securities classified as investing activities.
Acquisitions of assets under leases capitalized 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, lease payment, 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.
EBITA
Profit before interest, taxes, profit from associates
& joint ventures and amortization, gains and losses
related to acquisitions and divestments
EBITDA margin
Operating profit (EBIT) before depreciation,
amortization, impairment and profit from associates
& joint ventures /Net sales
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
EBITA margin excluding other
operating income, etc.
Operating profit (EBIT) before acquisition-related
amortization other operating income and expenses
and profit from associates & joint ventures /Net sales
EBITA margin
EBITA /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
The financial ratios in the Annual Report are
calculated in the following manner:
Return on Invested Capital (ROIC) after tax
EBIT after tax/average invested capital excluding tax
Local currency growth
Sales growth adjusted for exchange rate translation
effects
Invested capital excluding tax
Net interest bearing debt and tax balance sheet
items (net) added to shareholders’ equity
EBIT after tax
Operating profit (EBIT) reduced with tax on profit
Return on equity
Net profit after minority interests’ share/average
equity excluding minority interests
Equity ratio
Equity/total assets
Leverage ratio
Interest bearing debt/equity at year-end
Net interest-bearing debt to EBITDA ratio
Interest-bearing debt less interest-bearing assets/
EBITDA
Dividend pay-out ratio
Total dividends distributed to shareholders/net
profit
Dividend ratio per share
Total dividends distributed to shareholders/total
shares
Free operating cash flow
Cash flow from operating and investing activities
before acquisition of subsidiaries, proceeds from
disposal of subsidiaries and acquisitions/sales
of other investments, financial items, taxes, but
including lease payments (IFRS16).
Free operating cash flow after
financial items and tax
Cash flow from operating and investing activities
before acquisition of subsidiaries, proceeds from
disposal of subsidiaries and acquisitions/sales of
other investments but including lease payments
(IFRS16).
Free cash flow
Cash flow from operating and investing activities
including lease payments (IFRS16).
100/134
Danfoss Annual Report 2019 Note 27
Note 27 Critical accounting estimates
As a consequence of the accounting policies,
determining the carrying amount of certain assets
and liabilities requires estimates of how future
events will affect the value of these assets and
liabilities at the balance sheet date.
The volatility of the global economy and the
financial markets has made it more difficult to
forecast the development of some future key
assumptions – such as liquidity risk, credit risk,
interest level and capital management etc.
Therefore, Danfoss provides additional information
about items in the Consolidated Financial
Statements whose carrying amount is at risk of
being adjusted considerably over the next few years.
Estimates which are significant for the preparation
of the Financial Statements include goodwill,
investments in associates and joint ventures,
assessment of depreciation, amortization and
impairment of non-current assets, measurement of
deferred tax assets and measurement of 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
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.
101/134
Danfoss Annual Report 2019 Note 28
Note 28 Group companies
As per December 31, 2019
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 Compressors Holding A/S
• Danfoss Distribution Services A/S
• Danfoss Fire Safety 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
• Gemina Termix Production A/S
• Issab Holding ApS
• Sondex A/S
• Sondex Holding A/S
Estonia
• Danfoss AS
Finland
• Danfoss Power Solutions Oy Ab
• Oy Danfoss Ab
• Leanheat Oy
• 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) – in liquidation
• Danfoss Esslingen GmbH
• Danfoss GmbH
• Danfoss Power Solutions GmbH & Co. OHG
• Danfoss Power Solutions Holding GmbH
• Danfoss Power Solutions Informatic GmbH
• Danfoss Power Solutions Parchim GmbH
• Danfoss Power Solutions Parchim GmbH & Co. KG
• Danfoss Power Solutions Telekontrol GmbH
• Danfoss Sensors GmbH
• Danfoss Silicon Power GmbH
• Danfoss Werk Offenbach GmbH
• Hydraulik Nord Fluidtechnik Verwaltungs GmbH
• SMA Solar Technology AG – 20%
• Sondex Deutschland GmbH
• White Drive Products GmbH - in liquidation
Great Britain
• Artemis Intelligent Power Ltd. – 75%
• Danfoss Limited
• Danfoss Power Solutions Ltd.
• Danfoss Scotland Limited
• Senstronics Holding Ltd. – 50% (joint venture)
• Sondex (UK) Limited
Hungary
• Danfoss Kft.
• Sondex Höcserélök Magyarország Kft.
– under voluntary liquidation
Iceland
• Danfoss hf.
Italy
• Danfoss Distribution Services S.r.l.
• Danfoss Power Solutions S.r.l.
• Danfoss 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.
• Danfoss Saginomiya Sp. z.o.o. – 50% (joint venture)
• Elektronica S.A. – 50% (joint venture)
• Sondex Braze Sp. z.o.o.
• Sondex Poland Sp. z.o.o.
• Sondex Polska Sp. z.o.o.
• Sondex Sp. z.o.o.
Romania
• Danfoss District Heating S.R.L.
• Danfoss S.R.L.
• S.C. Sondex Production S.R.L.
Russia
• AO Ridan
• Danfoss Dzerzhinsk LLC
• Danfoss LLC
• Danfoss Power Solutions 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.
102/134
Danfoss Annual Report 2019 Note 28 Group companies (continued)
Sweden
• Danfoss AB
• Danfoss Power Solutions AB
• EP Technology AB
Switzerland
• Danfoss AG
Ukraine
• Danfoss T.o.v.
AFRICA-MIDDLE EAST
Turkey
• DAF Enerji Sanayi Ve Ticaret Anonim Sirketi
• Danfoss Otomasyon ve Urunleri Tic Ltd.
• Sondex-Tanpera Endustri Enerji
United Arab Emirates
• Danfoss FZCO – 95%
• Gulf Sondex FZCO
South Africa
• Danfoss (Pty) Ltd.
• Sondex South Africa Pty. Ltd. – 80%
NORTH AMERICA
Canada
• Danfoss Inc.
USA
• Daikin-Sauer-Danfoss America LLC – 45%
• Danfoss LLC
• Danfoss Power Solutions Inc.
• Danfoss Silicon Power LLC
• Danfoss Power Solutions (US) Company
• Danfoss Power Solutions Work Function, LLC
• 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.
• UQM Properties, Inc.
• UQM Technologies, Inc.
• White Hydraulics, Inc.
LATIN AMERICA
Argentina
• Danfoss S.A.
Brazil
• Danfoss do Brasil Indústria e Comércio Ltda.
• Danfoss Power Solutions Indústria e Comércio
Electrohidráulica 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 (Jiaxing) Plate Heat Exchanger Co., Ltd.
• Danfoss Power Solutions (Jiangsu) Co., Ltd.
• Danfoss Power Solutions Trading (Shanghai) Co., Ltd.
• Danfoss Power Solutions (Zhejiang) Co., Ltd.
• Danfoss (Tianjin) Fire Protection Equipment Co., Ltd.
• Danfoss Shanghai Hydrostatic Transmission Co. Ltd.
– 60%
• Sondex (Ningbo) Plate Heat Exchanger Co., Ltd.
• Sondex Heat Exchangers (Taicang) Co. Ltd.
• Tau Energy Holdings (HK) Limited – in voluntary
liquidation
• UQM Technologies Asia Ltd.
• UQM Technologies (Shanghai) Co., Ltd.
• Vacon (China) Drives Co. Ltd.
• Visedo (Asia) 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.
New Zealand
• Danfoss (New Zealand) Ltd.
Philippines
• Danfoss Inc.
Singapore
• Danfoss Industries Pte. Ltd.
• Danfoss Power Solutions Pte. Ltd.
South Korea
• Danfoss Korea Ltd.
• Danfoss Power Solutions Ltd.
Taiwan
• Danfoss Co. Ltd.
Thailand
• Danfoss (Thailand) Co. Ltd.
103/134
Danfoss Annual Report 2019 Parent Accounts and notes
Parent
Accounts and notes
In the future, intelligent buildings will play an active part in the energy system,
consuming less energy when energy is expensive to produce. The outcome
is high energy efficiency, a lower energy bill and reduced carbon emissions
from buildings. Danfoss is part of the EnergyLab Nordhavn in Denmark. The
mission is to demonstrate and analyze the technical and economic advantages
of intelligent control of the components and systems that provide heating and
cooling inside the buildings.
104/134
Danfoss Annual Report 2019 Management’s Review for Danfoss A/S
Management’s Review for Danfoss A/S
(Part of Management’s Review)
The profit after tax in 2019 was EUR 149m
against EUR 259m the previous year.
Equity was EUR 2,896m at the end of 2019
against EUR 2,886m at the end of 2018.
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 2020 to
be on a level with the 2019 figures, and the
company expects to report a profit in 2020.
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 many of the Danfoss’ Danish
activities and therefore includes a number
of Danfoss’ Danish factories and Group
functions. Danfoss A/S had 2,869 employees
at the end of 2019.
The profit before other operating income
and expenses was EUR 78m against EUR 72m
in 2018. The company’s operating profit was
EUR 68m against EUR 65m the previous year.
Financial income and expenses decreased
from a net income of EUR 93m against a net
income of EUR 212m in 2018, mainly because
2018 was positively impacted by a gain on
disposal of subsidiaries.
105/134
Danfoss Annual Report 2019 Incom statement M
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
2018
1,248
-1,004
244
2019
1,283
-1,016
267
-35
-87
-50
72
-7
65
258
-46
277
-18
259
80
179
259
-35
-94
-60
78
-10
68
148
-55
161
-12
149
80
69
149
106/134
Danfoss Annual Report 2019 Statement of comprehensive income M
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
Items that can be reclassified to profit or loss
OTHER COMPREHENSIVE INCOME AFTER TAX
TOTAL COMPREHENSIVE INCOME
2018
259
-10
-1
-11
-11
248
2019
149
-1
-1
-1
148
107/134
Danfoss Annual Report 2019
Statement of financial positiont M
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
Other receivables
RECEIVABLES
CASH AND CASH EQUIVALENTS
TOTAL CURRENT ASSETS
TOTAL ASSETS
e
t
o
N
5
6
7
9
2018
2019
218
251
3,831
3,831
4,300
90
38
91
313
30
472
25
587
4,887
240
277
3,281
3,281
3,798
104
36
90
878
19
1,023
83
1,210
5,008
108/134
Danfoss Annual Report 2019 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
e
t
o
N
9
8
9
9
10
9
2018
2,886
49
31
2
951
18
1,051
10
11
183
15
615
2
10
9
95
950
2,001
4,887
2019
2,896
46
38
2
959
21
1,066
9
16
163
41
709
3
2
2
101
1,046
2,112
5,008
109/134
Danfoss Annual Report 2019
Statement of cash flows M
Statement of cash flows
January 1 to December 31
EURm
Profit before tax
Adjustments for non-cash transactions
Change in working capital
Interest received
Interest paid
Dividends received
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
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
NET CHANGE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents as of January 1
CASH AND CASH EQUIVALENTS AS OF DECEMBER 31
The cash flow statement cannot be derived on the basis of the Annual Report alone.
e
t
o
N
11
10
12
12
2018
277
-150
20
55
-24
124
-20
282
-54
-28
1
-114
153
730
-1
687
-751
692
-556
-249
-80
-944
25
25
2019
161
-49
18
18
-13
124
-13
246
-42
-43
-35
-13
-133
-985
974
94
-60
-78
-55
58
25
83
110/134
Danfoss Annual Report 2019 Statement of changes in equity
t
n
e
m
p
o
l
e
v
e
d
r
o
f
e
v
r
e
s
e
R
d
e
z
i
l
a
t
i
p
a
c
n
w
o
e
v
r
e
s
e
R
s
e
r
a
h
s
-68
l
a
t
i
p
a
c
e
r
a
h
S
134
e
r
a
h
S
i
m
u
m
e
r
p
10
i
g
n
g
d
e
H
s
e
v
r
e
s
e
r
1
-1
-1
-1
134
10
134
10
-248
-248
-316
-60
-60
-376
s
t
c
e
j
o
r
p
61
32
32
93
37
37
s
e
v
r
e
s
e
r
r
e
h
t
O
s
e
v
r
e
s
e
R
2,747
2,741
179
-32
-10
-10
137
1
1
2,885
69
-37
-1
-1
31
2
2
179
-10
-1
-11
168
1
-248
-247
2,662
69
-1
-1
68
2
-60
-58
130
2,918
2,672
Statement of changes in equity
EURm
BALANCE AS OF JANUARY 1, 2018
Net profit
Software development costs
Currency translation adjustments
Fair value adjustment of hedging instruments
Total other comprehensive income
Total comprehensive income for the period
Dividends to shareholders
Purchase of treasury shares
Total transactions with owners
BALANCE AS OF DECEMBER 31, 2018
Net profit
Software development costs
Currency translation adjustments
Total other comprehensive income
Total comprehensive income for the period
Dividends to shareholders
Purchase of treasury shares
Total transactions with owners
BALANCE AS OF DECEMBER 31, 2019
For further information on Share capital, see Note 11 Share capital, in Group section.
d
e
s
o
p
o
r
P
s
d
n
e
d
i
v
i
d
81
80
80
-81
-81
80
80
80
-80
-80
80
y
t
i
u
q
e
l
a
t
o
T
2,966
259
-10
-1
-11
248
-80
-248
-328
2,886
149
-1
-1
148
-78
-60
-138
2,896
111/134
Danfoss Annual Report 2019
Notes content M
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 Leases
Note 15 Related parties
Note 16 Events after the balance sheet date
Note 17 General accounting policies for Danfoss A/S
Note 18 Significant accounting estimates for Danfoss A/S
112/134
Danfoss Annual Report 2019 Note 1 M
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
Group Executive Team
Board of Director's fee
Total
Total remuneration for registered members of Executive Management amounts to EUR 10m (2018: 9m).
2018
1,000
248
1,248
2018
251
8
2
20
281
2,841
2,905
2018
4
1
7
12
1
13
2019
1,046
237
1,283
2019
256
1
2
21
280
2,863
2,869
2019
4
1
8
13
1
14
113/134
Danfoss Annual Report 2019 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
2018
2019
15
27
42
12
2
1
15
23
37
60
21
2
23
2018
2019
2
2
-8
-1
-9
-7
1
1
-1
-10
-11
-10
2018
2019
1
0
0
1
2
1
0
0
1
2
Fees for services other than the statutory audit of the Financial Statements provided by PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab (PricewaterhouseCoopers Denmark) amounted to EUR 0.9m (2018: 1.2m).
Services other 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.
114/134
Danfoss Annual Report 2019 Note 2-3 M
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
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
Impairment/loss on loans
Interest expense for leasing arrangements
Interest on financial liabilities measured at amortized cost
In Foreign exchange losses, net are included fair value hedge impact of EUR 4m (2018: -21m).
2018
2019
124
62
71
1
258
63
124
22
1
1
148
23
2018
2019
-24
-8
-6
-8
-46
-32
-12
-7
-17
-6
-12
-1
-55
-18
115/134
Danfoss Annual Report 2019 Note 4 M
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)
Total taxes
2018
-31
8
5
-18
22.0%
-4.9%
-9.8%
0.9%
-1.7%
6.5%
2018
-18
-18
2019
-15
-2
5
-12
22.0%
4.1%
-16.8%
1.6%
-3.1%
7.8%
2019
-12
-12
116/134
Danfoss Annual Report 2019 Note 5 Intangible assets
EURm
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
Cost as of January 1, 2019
Addition through merger with subsidiaries
Transfers
Additions
Disposals
Cost as of December 31, 2019
Amortization and impairment losses as of January 1, 2019
Transfers
Amortization
Disposals
Amortization and impairment losses as of December 31, 2019
Carrying amount as of December 31, 2019
Note 5 M
Internally
developed
software
Patents,
trademarks and
other rights
Goodwill
Development
costs
Total
Other
TOTAL
64
64
64
64
3
67
67
168
-35
54
-1
186
63
-20
11
-1
53
133
186
35
42
-2
261
53
22
21
-2
94
167
32
35
67
22
20
4
46
21
67
-35
32
46
-22
2
26
6
14
-3
11
14
-3
11
11
11
11
11
214
54
-4
264
99
15
-4
110
154
264
42
-2
304
110
23
-2
131
173
278
54
-4
328
99
15
-4
110
218
328
3
42
-2
371
110
23
-2
131
240
Of the "internally developed software" approximately 60% relates to the One ERP Program described in the Management's review for Group, page 37.
IMPAIRMENT TESTS
Goodwill in Danfoss A/S of EUR 67m (2018: 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 2019, 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 2018.
117/134
Danfoss Annual Report 2019 Note 6 M
Note 6 Property, plant and equipment
EURm
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
Cost as of January 1, 2019
Accounting policy change
Transfers
Additions
Disposals
Cost as of December 31, 2019
Depreciation and impairment losses as of January 1, 2019
Depreciation
Disposals
Depreciation and impairment losses as of December 31, 2019
Carrying amount as of December 31, 2019
The right-of-use assets included in property, plant and equipment are presented below.
Carrying amount related to right-of-use assets as of January 1, 2019
Accounting policy change
Additions
Depreciation
Carrying amount related to right-of-use assets as of December 31, 2019
Land and
buildings
Plant and
machinery
Equipment
Assets under
construction
TOTAL
269
-1
10
3
281
171
8
179
102
281
7
4
8
-6
294
179
8
-6
181
113
300
-1
18
-5
312
265
-1
10
-5
269
43
312
7
8
-8
319
269
13
-8
274
45
97
2
18
-1
116
35
9
-1
43
73
116
6
13
-8
127
43
16
-7
52
75
40
-30
23
33
33
33
-11
22
44
44
706
-2
44
-6
742
471
-1
27
-6
491
251
742
13
51
-22
784
491
37
-21
507
277
Land and
buildings
Equipment
TOTAL
7
-1
6
16
6
7
-9
20
16
13
7
-10
26
118/134
Danfoss Annual Report 2019 Note 7 M
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
Reversed impairment
Impairment for the year
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
2,623
-8
114
-83
2,646
-56
1
-6
-61
l
s
e
b
a
v
e
c
e
R
i
i
s
e
i
r
a
d
i
s
b
u
s
m
o
r
f
665
269
934
n
i
s
t
n
e
m
t
s
e
v
n
I
d
n
a
s
e
t
a
c
o
s
s
a
i
s
e
r
u
t
n
e
v
t
n
o
i
j
316
-2
314
-5
-5
Carrying amount as of December 31
2,585
934
309
2018
L
A
T
O
T
3,622
-10
384
-83
3,913
-77
1
-6
-82
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
2,646
-2
35
-2
2,677
-61
-17
-78
l
s
e
b
a
v
e
c
e
R
i
i
s
e
i
r
a
d
i
s
b
u
s
m
o
r
f
934
-565
369
n
i
s
t
n
e
m
t
s
e
v
n
I
d
n
a
s
e
t
a
c
o
s
s
a
i
s
e
r
u
t
n
e
v
t
n
o
i
j
314
314
-5
1
-4
3,831
2,599
369
310
2019
L
A
T
O
T
3,913
-2
35
-567
3,379
-82
1
-17
-98
3,281
s
t
n
e
m
t
s
e
v
n
i
19
r
e
h
t
O
19
-16
-16
3
r
e
h
t
O
s
t
n
e
m
t
s
e
v
n
i
18
1
19
-16
-16
3
Where indicators for impairment were present at the end of 2019, 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 valuation of the subsidiaries, associates and joint ven-
tures is compared with their carrying amount. The principles are unchanged compared to the impairment tests performed in 2018.
Additions for the year to "Investments in subsidiaries" is mainly related to the acquisition of Danfoss Scotland Limited.
Impairment losses for the year on "Investments in subsidiaries" of EUR 17m mainly relates to Sondex Holding A/S. The impairment is caused by a lower valuation of the entity due to large dividend payments in recent years.
Impairment losses/reversed impairment are reported as financial expenses/financial income.
Additions for 2018 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 2018 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 during 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 15 Related parties.
119/134
Danfoss Annual Report 2019
Note 8 M
Note 8 Deferred tax
EURm
CHANGES IN DEFERRED TAXES
Deferred taxes as of January 1 (net) *)
Adjustments concerning previous years
Deferred tax recognized in the income statement
Deferred taxes as of December 31 (net) *)
*) Liability (-)
SPECIFICATION OF DEFERRED TAXES
Property, plant and equipment and financial assets
Liabilities
Set-off within the same legal entities and jurisdiction
Deferred tax assets
Intangible assets
Property, plant and equipment and financial assets
Current assets
Liabilities
Deferred tax regarding Danish joint taxation
Set-off within the same legal entities and jurisdiction
Deferred tax liabilities
2018
-39
8
-31
2019
-31
-5
-2
-38
2018
Deferred tax
asset
2019
Deferred tax
asset
12
-12
0
12
15
-27
0
Deferred tax
liability
Deferred tax
liability
3
16
3
16
5
43
-12
31
32
13
2
13
5
65
-27
38
Of the deferred tax liability of EUR 38m (2018: 31m), EUR 5m (2018: 5m) can be attributed to tax relating to joint taxation with foreign subsidiaries in previous years. Danfoss A/S has deferred tax liabilities concerning temporary differen-
ces in foreign subsidiaries and associates and joint ventures of EUR 5m (2018: 3m). 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 forsee-
able future.
120/134
Danfoss Annual Report 2019 Note 9 M
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.
DANFOSS A/S' DEBT CATEGORIES AND MATURITIES
Bank debt and corporate bond
Mortgage debt
Borrowings from subsidiaries
Finance lease liabilities
Trade payables
Trade payables to subsidiaries
Debt to associates and joint ventures
Derivative financial liabilities
*) Maturity is evenly spread over the period.
i
g
n
y
r
r
a
C
t
n
u
o
m
a
l
a
u
t
c
a
r
t
n
o
C
w
o
l
f
h
s
a
c
888
59
615
15
183
15
2
9
1,786
935
61
615
16
183
15
2
9
1,836
2018
5
r
e
v
O
s
r
a
e
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
i
g
n
y
r
r
a
C
t
n
u
o
m
a
l
a
u
t
c
a
r
t
n
o
C
w
o
l
f
h
s
a
c
882
69
709
24
163
41
3
2
1,893
917
74
709
25
163
41
3
1,932
2019
5
r
e
v
O
s
r
a
e
y
251
73
Maturity
)
*
s
r
a
e
y
5
-
1
648
1
14
663
324
r
a
e
y
1
-
0
18
709
11
163
41
3
945
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.
THE ABOVE DEBT IS RECORDED AS FOLLOWS:
Non-current liabilities
Current liabilities
2018
951
835
1,786
2019
959
934
1,893
121/134
Danfoss Annual Report 2019
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
FINANCIAL LIABILITIES:
Contingent consideration measured at fair value via the income statement
Interest-bearing debt
Debt to subsidiaries
Borrowing from subsidiaries
Trade payables and other debt
Financial liabilities measured at amortized cost
Derivative financial instruments for the hedging of the fair value of recognized assets and liabilities
Financial liabilities measured at fair value in the income statement
Carrying
amount
3
3
38
91
1,246
30
25
1,430
40
962
15
615
298
1,890
9
9
2018
Fair
value
3
3
38
91
1,246
30
25
1,430
40
986
15
615
298
1,914
9
9
Carrying
amount
3
3
36
90
878
19
83
1,106
2019
Fair
value
3
3
36
90
878
19
83
1,106
37
37
975
41
709
288
2,013
2
2
1,002
41
709
288
2,040
2
2
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 2018.
122/134
Danfoss Annual Report 2019 Note 9 Financial risks and instruments (continued)
EURm
FAIR VALUE HIERARCHY AS OF DECEMBER 31 FOR DANFOSS A/S
FINANCIAL ASSETS:
Other investments
Total financial assets
FINANCIAL LIABILITIES:
Derivative financial instruments for the hedging of the fair value of recognized assets and liabilities
Contingent consideration
Interest-bearing debt
Total financial liabilities
2018
2019
s
e
c
i
r
p
d
e
t
o
u
Q
t
u
p
n
i
l
e
b
a
v
r
e
s
b
O
t
u
p
n
i
l
e
b
a
v
r
e
s
b
o
-
n
o
N
Level 1
Level 2
Level 3
3
3
40
40
9
986
995
l
a
t
o
T
3
3
9
40
986
1,035
s
e
c
i
r
p
d
e
t
o
u
Q
t
u
p
n
i
l
e
b
a
v
r
e
s
b
O
t
u
p
n
i
l
e
b
a
v
r
e
s
b
o
-
n
o
N
Level 1
Level 2
Level 3
3
3
37
37
2
1,002
1,004
l
a
t
o
T
3
3
2
37
1,002
1,041
123/134
Danfoss Annual Report 2019
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
Carrying amount as of December 31
Gain/loss (-) in the income statement is recognized under other operating income and expenses, and financial income and expenses.
Fair value of the majority of the the financial instruments is determined using discounted cash flow analysis.
DERIVATIVES AS OF DECEMBER 31 FOR DANFOSS A/S
t
c
a
r
t
n
o
c
t
a
t
n
u
o
m
A
l
i
a
p
c
n
i
r
p
/
e
c
i
r
p
USD
EUR
Other currencies
Forward exchange contracts
Derivatives end of year
-156
-329
98
s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D
2018
s
r
a
e
y
5
r
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t
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a
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u
D
t
c
a
r
t
n
o
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a
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n
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m
A
r
a
e
y
1
n
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t
s
s
e
l
e
u
D
l
i
a
p
c
n
i
r
p
/
e
c
i
r
p
-56
-214
-117
n
o
)
-
(
s
s
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/
n
a
G
i
t
n
e
m
j
t
s
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d
a
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t
e
k
r
a
m
-11
-1
3
-9
-9
d
e
z
i
n
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r
)
-
(
s
s
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/
n
a
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t
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c
n
i
n
i
-11
-1
3
-9
-9
n
o
)
-
(
s
s
o
l
/
n
a
G
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t
n
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j
t
s
u
d
a
e
u
a
v
l
t
e
k
r
a
m
-2
-1
1
-2
-2
2018
2019
-38
-2
3
-37
s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D
-37
3
-34
2019
s
r
a
e
y
5
r
e
t
f
a
e
u
D
r
a
e
y
1
n
a
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t
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i
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g
o
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)
-
(
s
s
o
l
/
n
a
G
i
t
n
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t
a
t
s
e
m
o
c
n
i
n
i
-2
-1
1
-2
-2
124/134
Danfoss Annual Report 2019
Note 10-11 M
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
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
2018
2019
4
-20
-5
31
10
10
10
2018
42
-1
-258
46
21
-150
10
-13
-10
15
2
2
2
2019
60
-148
55
-16
-49
Depreciation/amortization and impairment includes depreciation on leased right-of-use assets. Further information on depreciation charge and lease payments is provided in Note 6 Property, plant and equipment and Note 12 Change
in liabilities arising from financing activities.
125/134
Danfoss Annual Report 2019 Note 12 M
Note 12 Change in liabilities arising from financing activities
EURm
Carrying amount as of January 1, 2018
Cash repayment
Cash proceeds
Acquisitions of lease liabilities
Reclassification
Other
Carrying amount as of December 31, 2018
Adoption of IFRS 16
Cash repayment
Lease payments
Cash proceeds
Acquisitions and disposal of lease liabilities
Reclassification
Other
Carrying amount as of December 31, 2019
Lease payments are the principal portion of lease liabilities and presented under cash flows from financing activities in the Statement of Cash Flow.
Short-term
borrowings
Long-term
borrowings
37
-335
287
4
18
11
6
-386
-7
373
-5
12
12
16
968
-416
405
11
-18
1
951
8
-592
601
-2
-12
5
959
TOTAL
1,005
-751
692
15
1
962
14
-978
-7
974
-7
17
975
126/134
Danfoss Annual Report 2019 Note 13 M
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
2018
101
16
75
2019
118
26
93
In connection with disposal of subsidiaries, ordinary guarantees and warranties have been issued. These guarantees and warranties are considered to have no impact on Danfoss A/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.
CONTRACTUAL OBLIGATIONS
Service contract commitment other than leases
Inventories
Property, plant and equipment
Hereof commitments relating to succeeding year
2018
2019
36
43
5
72
75
48
5
87
127/134
Danfoss Annual Report 2019 Note 14-15 M
Note 14 Leases
EURm
LESSEE
Lease liabilities are included as borrowings in the Statement of Financial Position as follows:
Current
Non-current
2018
5
11
2019
9
16
Danfoss A/S mainly leases buildings and cars. Lease payments are generally fixed. With the exception of short-term leases and leases of low-value underlying assets, each lease is reflected in the Statement of Financial Position as a
right-of-use asset and a lease liability. Danfoss A/S classifies its right-of-use assets in a consistent manner to property, plant and equipment, see Note 6. Each lease contract generally restricts the use of the right-of-use asset to
Danfoss A/S. Some lease contracts contain an option to extend the lease period or terminate the lease before the lease term. Management assesses whether or not it is reasonably certain that the option will be exercised after conside-
ring all relevant facts and circumstances.
Danfoss A/S has decided not to recognize a lease liability for short-term leases (leases with an expected term of 12 months or less) or for leases of low value assets. Payments made under such leases are expensed on a straight-line
basis. The expenses related to payments not included in the measurement of the lease liability are below EUR 5m.
Total cash outflow for leases for the financial year ending December 31, 2019, was EUR 14m (2018: 10m).
Further information on lease payments, interest expense on lease liabilities, additions, depreciation charge, carrying amount of right-of-use assets and maturity analysis of lease liabilities is provided in Note 3 Financial expenses,
Note 6 Property, plant and equipment, Note 9 Financial risks and instruments and Note 12 Change in liabilities arising from financing activities
Note 15 Related parties
For more information about related parties, see Note 24 Related parties, in Group section.
EURm
TRANSACTIONS WITH ASSOCIATES AND JOINT VENTURES
Purchases of goods and services
2018
16
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
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.
2019
19
2019
1,179
440
128/134
Danfoss Annual Report 2019 Note 16-17 M
Note 16 Events after the balance sheet date
Subsequent to December 31, 2019, on January 21, 2020, Danfoss announced the agreement to acquire Eaton's hydraulics business, for further information refer to Note 25 in the Group section.
Note 17 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, 2019, 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 2019 on February 26, 2020, and it will be presented for approval at the Annual General Meeting to be held on April 17, 2020. The Annual
General Meeting has the power to amend and reissue the Financial Statements.
CHANGES IN ACCOUNTING POLICIES
IFRS 16 Leases: Danfoss A/S as a lessee recognizes a right-of-use asset and a lease liability for lease contracts entered into on or after January 1, 2019.
The following is a reconciliation of the financial statement line items from IAS 17 to IFRS 16 at January 1, 2019:
Property, plant and equipment
Borrowings
December 31, 2018
251
962
Remeasurement
13
13
January 1, 2019
264
975
Besides the following section, the accounting policies for Danfoss A/S are the same as for the Danfoss Group. Please refer to Note 26 in the Consolidated Financial Statements for the Danfoss Group.
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, invest-
ments are written down to this lower value. Impairments are recognized in Danfoss A/S’ income statement under financial expenses. Reversal of impairments are recognized under financial income.
Dividends from investments in subsidiaries, associates and joint ventures are recognized in Danfoss A/S’ income statement under financial income in the year, when the dividends are declared.
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
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.
129/134
Danfoss Annual Report 2019 Note 18 M
Note 18 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, invest-
ments 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.
130/134
Danfoss Annual Report 2019 Stay up-to-date
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Visit danfoss.com
Further information available on Danfoss’ website
Year in review
Visit the Year in
review page to get
the overview of the
financial results for
2019.
Read more
Sustainability
Responsibility, integrity and openness are the key
values that reflect how we want to run our business.
Read more
Corporate governance
determines how the business is managed
within the legislative framework.
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About this report
This Annual Report 2019 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 27, 2020.
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 report-
ing towards the needs of our various
stakeholders with three annual publications:
1. Annual Report 2019, which focuses on
legally required information and includes
the financial results for the fiscal year.
2. Sustainability Report 2019, 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 2019,
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.
Change in reporting
As of 2020, Danfoss will reduce the
number of financial updates during the
year. Consequently, in 2020 and going
forward, Danfoss will publish a financial
announcement covering the first six months
and an annual report covering the fiscal year.
As a result of the increased activi-
ty of acquisitions and divestments of
companies, Danfoss has decided to use
the financial key figure Operating profit
before acquisition-related amortization
(EBITA) as the measurement of profitability
performance. EBITA is defined as the profit
before interest, taxes, and amortization,
gains and losses related to acquisitions and
divestments. EBITA measured against sales
leads to the EBITA margin. EBITA is also
used by many companies, which Danfoss
compares itself to.
Danfoss has also introduced the financial
key figure “Free operating cash flow”. The
Free operating cash flow is defined as the
cash flow from operating and investing
activities before mergers and acquisitions,
financial items, taxes, but including lease
payments (IFRS16).
Furthermore, Danfoss has replaced the
formerly used “Cash flow before M&A” with
the financial key figure “Free operating cash
flow after financial items and tax”, defined as
“Free operating cash flow” including financial
items, taxes and lease payments (IFRS16), but
before mergers and acquisitions.
“Free cash flow” excludes lease payments
(IFRS16), as lease payments are classified as
operational impact.
131/134
Danfoss Annual Report 2019 Sources
Sources
Page 8
• NOAA National Centers for Environmental Information,
State of the Climate: Global Climate Report for 2019
• IPCC Special report “Global Warming of 1.5°C”, 2019
• World Resources Institute “Accelerating Building Efficiency”,
2016
• IEA “Energy Technology Perspective”, 2016
Page 11
• Danfoss Cooling Segment: Better chillers – from the inside
out. Publication DKRCC.PB.000.A3.02, 2018
• ECOFYS “Optimising the energy use of technical building
systems”, 2019
Page 12
• IEA “World Energy Outlook”, 2019
Page 10
• ECOFYS “Optimising the energy use of technical building
(https://www.iea.org/reports/world-energy-outlook-2019)
• IEA “World Energy Outlook”, 2016
systems”, 2019
• European Building Automation Controls Association “White
Paper on Room Temperature Controls”, 2017
• Lean Heat case study (https://www.danfoss.com/en/
service-and-support/case-studies/cf/leanheat-makes-
buildings-smart/)
Page 13
• Danfoss Silicon Power
• IEA “Energy Technology Perspective”, 2017
132/134
Danfoss Annual Report 2019 Further information available
on Danfoss’ website: www.danfoss.com
Date of publication: February 27, 2020
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