Annual Report 2020
Contents
Financial Statements
Statements
Management’s Statement
Independent Auditor’s Report
Group accounts and notes
Group accounts
Group notes
Group companies
Parent accounts and notes
Management’s Review
Parent accounts and notes
51
52
56
62
107
110
111
This Annual Report 2020 is published as an electronic
publication only and made available at www.danfoss.com.
Danfoss has tailored the annual reporting towards the
needs of our various stakeholders with three annual
publications: Annual Report 2020, Sustainability Report
2020 and Corporate Governance Report 2020.
These publications constitute the total annual reporting
of the Danfoss Group and can be read individually or
combined, depending on interests.
Accelerating energy transition
Danfoss technologies that can accelerate the energy transition are already
present, proven, and ready to be scaled up.
Read more
Our strategy
Danfoss continues to invest in strengthening the core businesses and building
our digital offerings and a leading position within electrification.
Read more
Follow us here:
www.facebook.com/danfoss
www.twitter.com/danfoss
www.youtube.com/danfossgroup
www.linkedin.com/company/danfoss
www.instagram.com/danfoss_group
Contents
Management’s Review
Danfoss at a glance
CEO letter
Danfoss at a glance
Financial highlights
Sustainability highlights
Outlook 2021
Our business
Accelerating energy transition
Supermarkets turned into heat suppliers
Rethinking energy use
Machinery turned more sustainable
Helping ports to reduce emissions
Helping the world move to sustainable
transport
Our business model
Our strategy
Financial performance
2020 impacted by COVID-19
Financial highlights
Financial review
Financial highlights, quarterly
Business segments
Governance
Risk management and compliance
Corporate Governance
Board of Directors
Group Executive Team
3
4
6
7
8
10
12
13
14
15
16
17
18
29
30
31
34
35
42
44
46
49
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Danfoss Annual Report 2020
CEO letter
CEO letter
Globally leading technology partner
Danfoss is more relevant than ever. We see that companies,
cities and countries around the world are again starting to
plan for the future and are looking for reliable, tried-and-tested
technology partners.
In 2020, the COVID-19 pandemic had a significant impact,
especially during the second quarter. Since day one of the
pandemic, our priority has been to keep our people safe,
support and service our customers, and then flex our cost to
the new reality. Our people have been extraordinarily resilient,
adapting to new ways of working, whether at home or at our
production sites. With their extraordinary efforts, we have been
able to safeguard our strategic initiatives and investments in the
future. Despite the volatility and topline impact, we can again
deliver a strong financial result. This demonstrates the resilience
of our strategy and business model as well as the commitment
and determination of the Danfoss team. Together with a record
cash generation, a low debt and significant investments in the
future, we are standing strong and ready for the future.
2020 was also a very transformational year. We have continued
to step up investments to further strengthen our core business,
building our digital and software offering, and a leading position
in electrification. There were several highlights that I would like
to mention. With the agreement to acquire Eaton Hydraulics, we
will take a significant step forward and become one of the global
leaders in mobile and industrial hydraulics. We look forward
to welcoming 10,000 new colleagues to Danfoss. Furthermore,
we combined the Heating and Cooling segments into the new
and globally leading Climate Solutions segment, providing
the broadest and most innovative portfolio of solutions for our
customers to enable the green transition. Also, our electrification
pipeline continued to grow significantly in 2020.
Another important highlight is our momentum in the
implementation of our One ERP platform: enabling the best-in-
industry Digital Customer Experience going forward. Finally, our
investments in R&D increased to 4.6% and we have a historically
strong innovation pipeline ready for the future.
3/138
Our customers want their partners to be innovative and need
technology that works in the real world. With our new setup
and significant investments in the future, Danfoss can be
an even better partner to our customers going forward. The
new setup also entails an increased focus on developing our
regions and localizing further.
Across our business, we have a huge potential to contribute to
the global and regional climate goals. This is essential to our
future success and therefore we also revised our ambitious
sustainability targets for Danfoss in 2020. We are committed
to decarbonizing our global footprint by 2030 and have set
ambitious targets, and actions, to achieve them. We will
continue to report on how we continuously improve our
climate footprint and will extend our robust approach to
include our entire value chain by setting science-based targets
during 2021.
High-performing diverse teams are our foundation and we
are committed to creating an inclusive environment in the
company and to continuously improving diversity, defined as
various generations, genders, nationalities, backgrounds, and
individual characteristics. We have set ambitious targets to
improve gender diversity to 30% female leaders in 2025.
To conclude 2020, despite the many COVID-19 pandemic
challenges, it was a transformational year with significant
investments in the future. This will continue in 2021. I would
like to sincerely thank our customers and partners for the
great cooperation, and the Danfoss team for the engagement,
dedication and outstanding teamwork that made everything
possible.
Kim Fausing
President & CEO
“We have continued to
step up investments to
further strengthen our core
business.”
Danfoss Annual Report 2020 Danfoss at a glance
Danfoss
at a glance
Danfoss - a globally leading
technology partner
in energy efficiency
and sustainable solutions
Financial highlights
Sustainability highlights
Outlook 2021
5
6
7
8
4/138
The journey
has begun
We need to significantly reduce
energy consumption and
greenhouse-gas emissions.
Danfoss is a leading supplier
of sustainable energy-saving
solutions that play a key role
in the green transition towards
lower CO2 emissions and more
electrification. Danfoss has
embarked on an ambitious plan
to become carbon neutral in
our global operations and to
transform our company cars to
become all-electric latest by 2030.
Danfoss Annual Report 2020 World-leading technology partner
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Danfoss - a globally leading technology partner
in energy efficiency and sustainable solutions
We engineer
tomorrow and build
a better future
1933
Long track
record within
innovative
engineering
5/138
27,491
employees
3
business
segments
Danfoss Power Solutions,
Danfoss Climate Solutions,
Danfoss Drives
71
production
sites in 21
countries and
R&D sites in
23 countries
Worldwide
sales
in more than 100 countries
Danfoss Annual Report 2020 Financial highlights
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Financial highlights
Sales
EURbn
5.8
Earnings (EBITA)
EURm
6.1
6.3
5.8
724
771
723
723
2018
2019
2020
2018
2019
2020
Strong recovery back to pre-COVID-19 activity levels in
Q4 year-over-year. The pandemic caused a sudden drop in
demand in Q2, leading to net sales in 2020 of EUR 5.8bn, 7%
below previous year. Growth in power modules for electric
vehicles, energy-efficient compressors for cooling, industrial
refrigeration, and power conversion for wind energy.
Strong profitability within range of guidance. EBITA of EUR
723m, 6% below previous year. We managed to scale our fixed
expenses to the lower sales, leading to an EBITA margin of
12.4% against 12.3%. Net profit reached EUR 435m, 13% below
the previous year.
Strong financial
position despite the
pandemic
Innovation expense
EURm
Cash flow
EURm
255
272
267
267
493
2018
2019
2020
Net interest-bearing debt
EURm
463
493
359
2018
2019
2020
537
1,048
962
537
2018
2019
2020
Continued high investments in the future. A high level of
investments in R&D was maintained, focusing on digitalizing
and electrifying our solutions. Innovation expense amounted
to EUR 267m, 2% below previous year, but corresponding to
4.6% of sales against 4.3% last year.
Record cash performance. Free operating cash flow after
financial items and tax (before M&A) increased 7% to EUR
493m. Our strong cash performance provides room for future
growth, strategic growth initiatives and investments in
industry-leading technologies to further strengthen our core
businesses and ability to win market share.
Low debt. Net interest-bearing debt was reduced 49% to EUR
537m, leading to a net interest-bearing debt to EBITDA ratio of
0.6. Our continuous, strong financial performance including
a low leverage ratio allows us to continue to expand and
develop Danfoss as a global leader within our business areas.
6/138
Danfoss Annual Report 2020 Sustainability highlights
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Sustainability highlights
CO₂ -
neutral global
operations
Electric
company
vehicles
Double
energy
productivity
-36%
CO2 reduction
since base year 2007
20%
Female leaders
- ambitious target of 30%
by 2025
7/138
Science Based
Targets to be
approved in
2021
25%
of Danfoss' global
electricity consumption to
be covered by wind in 2021.
+80%
Net sales almost doubled per GWh
consumed energy since base year 2007
2.0
Lost Time Injury Frequency (LTIF)
- targeting 1.6
Danfoss Annual Report 2020 Outlook 2021
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Outlook 2021
Driving future growth and long-term sustainable value creation
In 2021, 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.
our market share, while maintaining or
improving the profitability measured as
margin versus the 2020 level, following
continued investments in the development
of new products and solutions.
Based on the current market insights,
our growth projections for 2021 remain
soft. Several markets remain volatile and
the visibility for 2021 is low. In particular,
the ongoing pandemic with partial lock-
downs in many countries and political/
trade conflicts are creating a high level
of uncertainty globally, and could have a
negative impact on market growth.
The impact of the COVID-19 pandemic is
difficult to predict. Short-term business
growth will be influenced by the time
it takes to contain the spread, reboot
economies globally and implement the
recovery plans with fiscal stimuli from
governments to support a green restart. The
long-term effects will also be influenced by
the successful execution of the green stimuli
packages, creating positive momentum.
Here, Danfoss is well-positioned with
leading positions, application knowhow and
innovative solutions.
2021 expectations
Despite the current volatility, Danfoss
expects to continue to expand or maintain
8/138
The outlook excludes impacts from the
acquisition of Eaton’s hydraulics business.
Acquisition of Eaton Hydraulics
Taking into account the expected additional
Eaton Hydraulics sales following the closing
of the planned acquisition, Danfoss expects
a significant increase in Group sales for the
year 2021.
We expect that profitability will be impacted
by the purchase-price allocation and the
depreciation and amortization as well as
related integration costs related to the
acquisition of Eaton Hydraulics.
The acquisition will be fully financed
with debt, as described in the Danfoss
announcement as of January 21, 2020,
and will result in an increase in financial
expenses.
The transaction is subject to customary
closing conditions and regulatory approvals.
We are expecting to close end of Q1 or
during Q2.
Specific key factors
Specific key factors, which could affect the
Group’s financial performance in 2021:
• The Group’s continued strategic initiatives
to accelerate profitable growth, organic
as well as acquisitive, are expected to
generate a positive impact on the market-
share development.
• Increasing prices on raw materials and
freight as well as shortage of components,
caused by the pandemic, could have a
negative impact on our financial results.
• 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.
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 developments
and results to differ materially from the
expectations set out in the Annual Report.
Such factors include, but are not limited
to, the geopolitical environment, general
economic and business conditions, changes in
commodity prices impacting the demand for
Danfoss’ solutions and services, competition
in the industrial sectors, in which the business
segments are operating, fluctuations in
foreign exchange rates, interest rates or our
own raw material prices, changes in climate
policy, legislation, regulation or standards, and
uncertainty in connection with acquisitions or
potential acquisitions and divestments. Unless
required by law, Danfoss is under no duty and
undertakes no obligation to update or revise any
forward-looking statements after the publication
of this Annual Report.
Danfoss Annual Report 2020 Our Business
Danfoss has
never been
more relevant
In the light of the global mega-
trends, Danfoss products and
solutions have never been more
relevant. As an example, Danfoss
offers technologies to connect
buildings and industry to the local
district-heating grid to re-use
heating and cooling energy.
Our
Business
Accelerating energy transition
Supermarkets turned into heat
suppliers
Rethinking energy use
Machinery turned more
sustainable
Helping ports to reduce
emissions
Helping the world move to
sustainable transport
Our business model
Our strategy
10
12
13
14
15
16
17
18
9/138
Danfoss Annual Report 2020 Accelerating energy transition
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Accelerating
energy transition
Together with our customers, Danfoss
is engineering solutions that allow the
world to use energy in smarter ways.
40%
of global
energy is used
in buildings
Buildings and machinery must be digitalized and connected;
the transport sector needs to be electrified; and the entire
industrial sector is going through a significant energy
transformation.
Here, energy efficiency is key. Energy efficiency means that
we use the energy more efficiently, thereby saving energy
and reducing emissions. It is a profound transformation of
the way we use energy and not a question of developing
new technology – as solutions already exist today and can be
deployed immediately.
Danfoss offers ready-to-use energy-efficient technologies for
many sectors, such as buildings, infrastructure, agriculture,
and manufacturing industry. Furthermore, we offer ready-
to-use cutting-edge technologies for electrification of off-
highway and passenger transportation, such as wheel loaders,
excavators, ferries, and cars.
All of this means that Danfoss is part of making the cities of
tomorrow sustainable and building a better future.
This is not a matter of creating a new economy from scratch.
Most of the technologies that can accelerate the energy
transition over the coming decades are already present,
proven, and ready to be scaled up.
10/138
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
What we do
Danfoss solutions enable the green transition and contribute
to reaching European and global, climate and energy goals.
Danfoss has truly never been more relevant than now.
Danfoss’ investments and acquisitions over the past years
have made Danfoss a frontrunner on strategic areas, such
as complete sustainable solutions for cooling and heating
in buildings, food cold chains, district heating and within
electrification and digital solutions.
Fast track to highly efficient buildings
Buildings account for nearly 40% of global energy
consumption and about one third of global CO2 emissions.
Consequently, buildings represent a huge opportunity for
any country or community striving to lower energy expenses
and reduce emissions. Intelligent, energy-efficient buildings
are expected to be an important part of future energy
systems. Buildings must be made smart, more intelligent and
more connected to other buildings to use energy in a more
efficient and sustainable way.
Danfoss offers smart, connected solutions that can
significantly reduce energy consumption in buildings. One
example is our technology to connect and re-use heating and
cooling energy; turning supermarkets into heat suppliers to
private homes. In fact, 95% of excess heat in supermarkets
can be recycled by the Danfoss green heat-recovery solution.
Adding the digital dimension from Danfoss Leanheat®
solutions, means that Danfoss is helping to make buildings
more sustainable via energy and CO2 savings – which is also
leading to lower cost on district energy and electricity.
Technology partner in energy transformation
The industrial sector is going through a significant energy
transformation and accounts for about 20% of total CO2
emissions.
One example comes from construction machinery, where
Danfoss developed a new climate-friendly technology with a
huge potential for fuel savings, reduced CO2 and lower
costs – just by reducing the waste heat in, for example, an
excavator.
Another example is the possibility to save 8% of the total
global electricity consumption while cutting industry
emissions by up to 40%. This can be achieved by applying
intelligent speed controls, such as Danfoss AC drives, to all
electric motors. This way they will run at the required speed
and will not use excessive energy.
Helping the world to become electrified
The transport sector needs to be electrified and accounts
for more than 24% of global CO2 emissions today. Currently
available electrification technologies have the potential
to significantly lower CO2 emissions – if all urban areas in
Europe, China and the US electrified their private and public
transport, they could cover 28% of the emissions reductions
needed between today’s total emissions and a 1.50 Celsius
scenario. Furthermore, new electric and high-efficiency
cars have been identified as a cost-efficient way to reduce
emissions.
Danfoss contributes to electrification, hybridization and
higher efficiency of both land and sea transport. Danfoss
entered 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. Over the past 20 years, Danfoss
has delivered technologies for hybrid and electric ferries and
work boats, and this has become even more relevant today.
You can read more about our impact on the following pages.
11/138
Danfoss Annual Report 2020 95%
of excess heat in
supermarkets can
be recycled by
Danfoss green heat
recovery solutions
Supermarkets turned into heat suppliers
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Supermarkets
turned into heat
suppliers
Best possible heat-recovery enabling
lower emissions
Keeping food fresh makes the electricity
meters run fast in a supermarket. However, a
supermarket close to the Danfoss headquarters
in Denmark has cracked the code to
considerable energy savings by reusing excess
heat that would otherwise be wasted.
With Danfoss Climate Solutions’ heat recovery
units, 95% of the excess heat from the cooling
display cases and freezers is harvested and
recycled to heat up the store and the domestic
hot water. The refrigeration system utilizes
natural refrigerants, providing high efficiency
with the lowest environmental impact.
Furthermore, the supermarket’s surplus heat is
sent out to the local district-heating network to
heat up the customers' homes nearby.
Since the installation of the green heat-
recovery solution from Danfoss, the
supermarket has saved around 70% on district-
heating costs and 37% on electricity. Moreover,
this supermarket has reduced its carbon
footprint by 43% covering electricity, water and
heating.
Imagine if this was done in all supermarkets
around the world.
12/138
Play video
Watch the video and learn how a
supermarket chain in Denmark installed
Danfoss heat-recovery units and managed
to halve its CO2 footprint in five years:
Danfoss Annual Report 2020 50%
energy savings
with Danfoss
heating solutions
Play video
This is where a new generation of buildings
starts – watch the video and learn how.
Rethinking energy use
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Rethinking energy use
Smart climate solutions creating remarkable energy savings
We spend most of our time in buildings
– working, shopping, learning, sleeping.
Buildings consume a lot of energy. Today,
three out of four buildings are energy
inefficient. By applying viable, simple, and
reliable solutions, EUR 67bn could be saved
in 2030, in the EU alone. It is time to start
a fast track to highly efficient, connected
buildings.
With existing buildings, most of the energy
is used to maintain the right temperature
and air quality inside the building. Known
collectively as “technical building systems”,
heating, cooling and ventilation systems
are the main factors affecting the building's
energy consumption. When these systems
are not set up properly or are running
efficiently, even more energy is required –
leading to higher bills and increased CO2
emissions.
The numbers are staggering:
• 30% of total EU energy consumption is
used to heat and cool our buildings.
• 70% of an average household’s energy bill
is spent on heating and cooling.
• EUR 240bn is spent by EU citizens on
space and water heating per year.
And still, 1 in 10 people in the EU struggle to
heat their homes.
13/138
The best time to start is now
There are no significant obstacles preventing
us from acting fast. The cost for these
technologies is low and they can be easily
retrofitted in buildings, while the energy and
cost-saving benefits can be remarkable.
The huge improvement in energy efficiency
can be realized using simple and innovative
measures that have a very short payback
period.
Danfoss offers space heating controls, hot-
water balancing solutions, air conditioning
and ventilation-control solutions just to
mention a few. They are all part of a suite of
solutions suitable for residential, commercial,
and public buildings.
Adding the digital dimension with smart
home technology that uses artificial
intelligence and sensors, Danfoss can help
predict the energy consumption – and
lower the supply needed to meet demand.
Danfoss Leanheat® software solutions
monitor the temperature and humidity of
every individual apartment in a residential
building, saving an additional 10-20% energy
consumption on top of basic solutions.
The driving force behind energy-efficiency
solutions are all the benefits of rethinking
our approach to building efficiency, such as
energy and cost savings and lowering CO2
emissions – and these benefits are here to
be reaped by everyone: consumers, property
owners, engineers and consultants, cities,
municipalities, and states.
Danfoss Annual Report 2020 Machinery turned more sustainable
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Machinery turned
more sustainable
50%
fuel savings in
excavators with
Danfoss Digital
Displacement
technology
Leading technology partner in
mobile hydraulics
An average excavator is burning 30,000 liters
of fuel annually equal to the consumption
of 20 family cars. With roughly 1 million
excavators in operation worldwide, the
global impact of reducing fuel consumption
in these machines can be enormous.
With the recently launched Danfoss Digital
Displacement technology, a new solution is
born that can dramatically reduce fuel usage
- up to 50% on an average excavator.
This step change in fuel efficiency has a
direct and significant impact reducing
harmful emissions. In excavators alone,
Digital Displacement solutions can save 40
million tons of CO2 – equal to the energy
used by 4.6 million homes in one year.
Additionally, unlike most hybrid solutions,
Digital Displacement technology can
actually improve machine productivity
at the same time, eliminating this painful
trade-off in conventional technology.
A true game changer in the off-highway
industry.
14/138
Play video
Watch the video and learn more about the
Digital Displacement technology:
Danfoss Annual Report 2020
Helping ports to reduce emissions
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Helping ports to
reduce emissions
Leading technology partner in
electric shore supply
At the port of Scheveningen, Netherlands,
the air is cleaner than ever thanks to a shore
supply facility built with Danfoss drives.
The shore power installation enables ships
to shut down their diesel generators while
in harbor and instead buy sustainable power
using an app. This eliminates air pollution
and reduces the noise and vibrations when
ship engines are idle; all while helping the
port meet the lower emission targets.
On average, the more than 7,500 vessels
each year in Scheveningen Harbor consume
more than 100 MWh per month via the new
shore power supply. At an average of one
liter per three kWh, this translates to saving
more than 33,000 liters of marine diesel per
month. This results in substantial reductions
in air pollution and CO2.
The new shore supply system was the
first in the Netherlands on this large scale,
and which has this digital technology and
convenience for users. The system was
built using Danfoss low-harmonic drives to
convert the power to the ships’ grids. The
system has eight power outlets, each with a
communication system allowing the ship's
engineer to connect and pay for power
using an app.
15/138
33,000
liters of marine
diesel saved per
month with Danfoss
technology, resulting
in significantly lower
emissions
Visit danfoss.com
Read more on danfoss.com
Danfoss Annual Report 2020 7%
higher efficiency in
electric drivetrains
with Danfoss
technology
Helping the world move to sustainable transport
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Helping the world move to
sustainable transport
Chosen as technology partner by some of the strongest suppliers
in global car industry
The transport sector is responsible for
roughly one quarter of global emissions, and
the majority is linked to passenger vehicles
in metropolitan areas with heavy traffic. To
meet the climate goals set out by the Paris
Agreement and curb CO2 emissions by 28%,
we need to accelerate the electrification of
the global car industry.
A core component of an electrified
drivetrain is the semiconductor power
module. It is considered the heart of the
inverter. Its purpose is to convert the AC
energy from the electrical grid to DC energy,
which is stored in the battery and then again
to AC energy in the motor of the car in the
most efficient way.
With new materials like Silicon Carbide (SiC)
from Danfoss Silicon Power, the size of the
inverter will shrink, while the efficiency of
the power conversion will further improve,
and with that extend the range of electric
vehicles.
Going forward, SiC-based converters will
be able to improve the efficiency of electric
drivetrains by up to 7%, which results in
range extension at equal battery size and
thereby increased mileage of the EV at a
competitive cost point.
Danfoss and ZF Friedrichshafen AG have
joined forces to transform the transport
sector for a sustainable future. To further
enable the large-scale adoption of electric
vehicles, consumers need the confidence
that the car will provide the necessary
range, that it is affordable, and that the
right charging infrastructure is in place –
preferably from a renewable energy source.
For both hybrid electric vehicles and electric
vehicles, developments within automotive
technology are focusing increasingly on
the electrification of the drivetrain. The
drivetrain is the part of the vehicle that
connects the transmission to the drive
axles, making sure the wheels of the car are
turning.
16/138
Play video
Watch the video and learn how Danfoss
and ZF are driving innovation to accelerate
electrification and transform the transport
sector into a greener, more sustainable
future.
Danfoss Annual Report 2020 Our business model
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Our business model
Danfoss’ competitive advantage builds on three core
capabilities: Leading positions, Application knowledge and
Innovation. These capabilities reflect how we create value for
our customers across the business segments.
Application
knowledge
Close to
customers
Innovation
Differentiate
through new
technology
Competitive
advantage
Leading
positions
Exploit scale
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 improving safety,
quality, delivery, and cost.
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 knowhow and
application understanding into performance-enhancing
advantages for our customers.
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.
17/138
Danfoss Annual Report 2020 Our strategy – A leading technology partner globally
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Our strategy –
A globally leading technology partner
Megatrends
Danfoss technologies and solutions
are more relevant than ever.
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.
Climate change
Urbanization
Core & Clear – Going Great
Our aspiration
We engineer tomorrow and build a better future
Our strategy
Leading Portfolio
Customers & Growth
Food supply
Innovative Solutions
Lean & Agile
Our foundation
High-performing diverse teams
Digitalization
Electrification
Going Great – Our aspiration
The center of our Going Great strategy is an ambition to drive
long-term value creation for all our stakeholders: customers,
employees, shareholders and partners.
Global mega-trends are transforming our 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. This is how we work to meet our
aspiration: engineering tomorrow and building a better future.
Our strategy has four focus areas:
• Leading Portfolio
• Customers & Growth
• Innovative Solutions
• Lean & Agile
These focus areas serve as drivers to take Danfoss to a higher
performance level and remain a leading technology partner
globally, within each of our core businesses.
All of this is built on Our Foundation, which is our high-
performing, diverse teams that make the strategy come alive.
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Danfoss Annual Report 2020 Leading portfolio
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Leading Portfolio
To strengthen our leading positions, we continue to invest
in the future.
acquisition, Danfoss takes a considerable
and transformative step towards the
creation of a global leader in mobile and
industrial hydraulics.
We are convinced that our customers will
benefit from combining the two businesses
into a full-line hydraulics player dedicated
to innovation and with a broad offering of
products, robust distribution channels, and
tremendous geographic reach.
Leading Portfolio is about strengthening
our leading positions as number one or
two globally in the respective industries
of our three business segments. This is
achieved through organic growth as well as
acquisitions of well-performing companies
or adding new cutting-edge technologies to
the product portfolio.
2020 has been a transformational year for
Danfoss, where we further strengthened
our core with the agreement to acquire
Eaton Hydraulics and by combining the
Cooling and Heating segments into the new
Climate Solutions segment. Furthermore, we
managed to maintain strong momentum in
taking the lead in digitalization and building
a leading position in electrification.
Acquisition of Eaton’s hydraulics
business
On January 21, 2020, Danfoss announced
the agreement to acquire Eaton’s hydraulics
business for a cash purchase price of USD
3.3bn (approximately EUR 3.0bn) – the
biggest acquisition in the history of Danfoss.
With the acquisition of Eaton Hydraulics,
Danfoss will grow by a third and add 10,000
new team members to the current 27,491. We
will also add approximately EUR 2bn to the
existing EUR 5.8bn annual sales. With this
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Urbanization made
more sustainable with
Danfoss hydraulic
solutions
Increased urbanization is leading to higher
investments in infrastructure to build
highways, airports and hotels in cities. Danfoss'
energy-efficient hydraulics solutions for off-
highway mobile vehicles, such as construction
machines, ensure significant fuel savings,
while increasing productivity and operator
efficiency – and by adding the digital and
electric dimensions to our hydraulics solutions,
we are part of making the urbanization more
sustainable.
Visit danfoss.com
Have a look at cranes with brains and how
Danfoss made it happen
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Based on this, we will continue to focus on
building even stronger capabilities within
electrification and to unleash the growth
potential in all three business segments.
In combination with our conventional core
technologies, we are well-positioned to
serve our customers’ increasing demands
within hybrid and electric solutions.
Fully electric wheel loader
Danfoss delivered the electrification
technology to develop this fully
battery-operated electric wheel
loader. The system includes motor,
inverter, battery charger and multi-
converter from Danfoss Editron.
Danfoss’ legacy in hydraulics
goes back to the 1960s. We take
this insight into our product
development and design products
that fit exactly to the requirements
of OEMs (Original Equipment
Manufacturers).
Our Application Development
Centers demonstrate our products
in real-life applications and
benchmark their performance
against that of our competitors.
Play video
Watch the video to get a look at our
brand new fully-electric wheel loader
system in action
New Climate Solutions segment
In 2020, Danfoss took another important
step in strengthening our leading positions
with combining the Danfoss Cooling and
Danfoss Heating segments into the new
Danfoss Climate Solutions segment. The
segment will cover all key applications
within heating and cooling. There are
significant opportunities on the technology
side as well as common key applications,
such as heat pumps, datacenters,
supermarkets and food-retail solutions.
Today, 40% of all energy consumption in
cities is used for cooling and heating. With
the increasing urbanization and global
focus on the green transition, Danfoss
Climate Solutions offers a huge potential
for enabling a carbon-neutral future and
providing the integrated energy-efficient
solutions needed to deliver on the targets
in the Paris Agreement and in the EU Green
Deal.
Building a leading position in drives
and electrification
Building a leading position in drives and
electrification is a key strategic priority for
Danfoss and is our biggest growth potential.
The development of transportation, such
as hybrid and electric cars, construction
machinery, and marine vessels, is rapidly
accelerating to ensure efficiency gains and
lower emissions as an essential part of the
green transition.
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Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Customers & Growth
A leading partner our customers can rely on
Danfoss smart refrigeration
solutions keep food fresh and
energy use at a minimum
What do leading food retailers such
as Walmart, Tesco, Food City, and
Sainsbury's, have in common? Their
stores all need to keep food fresh and
keep energy use at a minimum. Our
Alsense™ cloud-based services with
new software solutions optimize food
safety and security, while lowering
the CO2 footprint.
Danfoss’ Alsense™ IoT platform
was launched in October 2020 and
will accelerate Danfoss’ efforts in
providing food-retail professionals
with intuitive software tools and
data-driven, expert-enabled insights
to optimize operational efficiency,
refrigeration performance and
energy efficiency.
The newest addition to the digital
service portfolio is predictive
maintenance, creating a “to-do” list
for where our customers should
focus their maintenance efforts. The
Alsense™ cloud-based solution also
offers great monitoring services,
allowing our customers to monitor
their cooling systems and get
notifications if components fail.
Our three business segments have strong
representation in all regions – close to our
customers. Being close to customers and
having a systematic approach to drive
customer satisfaction is at the center of our
growth agenda.
Accelerating growth in Developing
Regions
We target to accelerate growth in
Developing Regions (China, Russia, India,
Asia-Pacific, Turkey, Middle East and Africa,
and East Europe) within our current regional
set-up. A new role in the Group Executive
Team was created to facilitate this important
growth journey.
Our developing regions are driving
profitable growth based on deep market
understanding, customer proximity, and
insights into local delivery models.
Being close to customers enable us to
react fast and to be flexible in creating
and capturing the regional growth
opportunities, and at the same time
strengthening our efforts in key areas of our
customer interaction.
Accelerating digital customer
experience
For the past five years, Danfoss has been on
a digital transformation journey, which has
proven its importance and relevance during
the COVID-19 pandemic. We have been able
to stay close to customers, do business and
trainings, etc. due to all the digital tools we
already use in our daily operations.
We know that our digital journey drives
decision speed and brings us even closer
to our customers. In 2020, we kept a strong
momentum in implementing the global
product store at our corporate website,
www.danfoss.com.
Basics in driving customer satisfaction
is a strong and consistent performance
in quality and delivery. We strive to be
recognized as a leader in the industries
and by the customers we serve. In 2020, we
have launched a focused initiative to ensure
significant improvements in our “on-time
delivery” performance.
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Danfoss Annual Report 2020 Environmentally
friendly data center
A need to consolidate our own data
centers, ensure future capacity and
establish a showcase for Danfoss
solutions was the trigger for
building our own data center.
The data center has the capacity
and power we need now but is
also prepared for the future. It has
a modern hybrid infrastructure, is
super scalable and its architecture
makes it easy to expand when the
need arises.
combined design targets – and not
conflicting like they sometimes are
in the traditional IT world.
With efficient cooling and heat
recovery, we have built something
truly different in the industry.
It illustrates that a green data
center can be built with Danfoss
components and that Danfoss
is committed to becoming CO2 -
neutral by 2030.
From the beginning, environment,
digitalization and commercial
attractiveness were considered
Imagine if sustainability was
integrated into all data centers in
the world.
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Innovative Solutions
Danfoss continues high investments in innovation to
ensure that we stay at the technology forefront and
create even more value for our customers
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. As new technology, for instance IoT,
becomes pervasive, we create significant opportunities by
leveraging the latest technology to create even more value to
our customers.
In all our business segments, we have been able to protect
our key R&D initiatives during 2020, and we are strengthening
our innovation pipeline.
In Danfoss Power Solutions, one example of a truly innovative
solution is the Digital Displacement pump which delivers
an unprecedented level of operating efficiency that directly
reduces carbon emissions. It is common to see immediate
fuel efficiency improvements of 30% or greater in many
mobile applications when the full benefits of Digital
Displacement are exploited. These benefits are even more
impressive in electrified mobile applications. In this case, the
game changer efficiency of Digital Displacement combined
with the best-in-industry performance of Danfoss Editron
electric motors revolutionize the design and cost of battery-
powered mobile machines, a key step in accelerating the
global adoption of zero-emission vehicles.
In Danfoss Climate Solutions, we are constantly developing
and maintaining our products in a fast-changing world
of refrigerants. One example is our line of Turbocor®
compressors. While working on our new, smaller Turbocor®
line extension, we have extended our existing products,
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Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
adapting them to new demands. Data centers present the
biggest and fastest growing market, calling for smaller
cooling adjustments. Danfoss has the right components and
intelligent systems, and the market is growing worldwide.
In 2020 Danfoss Drives introduced a new series of AC drives
to selected customers with demanding applications. The new
product series was presented under a new product brand
called iC7. These products represent a new generation of
AC drives which put intelligence, cyber security, and data
analytics in focus. This means that the AC drives now are
paving the way for some of the technologies of the future,
which we have been waiting for. Such as for example uptake
in Industrial Internet of Things, Industry 4.0 and eventually
smart cities. In addition, the AC drives are developed for
robotic assembly ensuring the highest possible production
quality.
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 of new products. The
number of 3D printed parts has increased significantly – from
only a few hundred 4 years ago to 125,000 by the end of 2020.
In Danfoss, we have now trained more than 500 employees in
the use of 3D printing – and an identical number in modelling
and simulation.
23/138
Zero emissions and low noise
Powered by Danfoss, a new electric
ferry will be breaking the waves from
September 2021. The new ferry will
sail in the UNESCO World Heritage
waters between the town of Esbjerg
and the Fanoe island in the southern
part of the North Sea, Denmark.
The ferry will be propelled by two
375kW electric motors from Danfoss
Editron; one in the bow and one
at the stern. The two propulsion
systems run independently and are
controlled by AC-drives from Danfoss
Drives.
The future holds big potential to
operate shorter routes by electric
ferries.
Visit danfoss.com
Check out danfoss.com and see how
Danfoss will help make it happen
Danfoss Annual Report 2020 Smart factories across
Danfoss
Danfoss smart factories use a lot of robots.
Human 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 is significantly higher productivity and customer
satisfaction, and in many cases also improved employee safety.
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Lean & Agile
Continuous improvement in supply
chain performance – safety, quality,
delivery and cost
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, 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.
Furthermore, we are improving the digital customer
experience with better end-to-end processes between our
supply chain and our customers. This is enabled by our
new IT platform, One ERP (Enterprise Resource Planning), in
combination with the global product store at our corporate
website, www.danfoss.com.
One ERP is a fundamental part of Danfoss’ digital
transformation and is implemented via several releases, each
covering a specific part of the Danfoss organization. In 2020,
two One ERP releases were finalized, now covering 35% of
Group sales.
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Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Our foundation
Meet Ina, Gina and Rikke
Success is driven by our people. We sharpen our focus to
keep momentum, safeguard our employees’ wellbeing, and
continuously push the boundaries of people development
Our Foundation is our high-performing diverse teams.
Furthermore, we strongly believe that taking care of our
people and our working environment, where everyone feels
engaged, respected, and excited about their work, is essential
for Danfoss' growth journey.
While growing our business, we want to maintain agility and
speed – that is why we have “Our Behaviors”. Our behaviors
build on our DNA, our legacy and values, providing clear
direction and empowering our team members to make
decisions to serve our customers and other stakeholders with
speed and quality.
In 2020, we announced the acquisition of the Eaton
Hydraulics business, which will add approximately 10,000 new
team members. We are focused on engaging and motivating
people to become part of the Danfoss family and ensure a
smooth and successful integration, so we can drive our Going
Great strategy together.
In 2020, under the special circumstances of COVID-19, we
maintained an unwavering commitment for the health and
safety of our colleagues and sharpened our focus to keep the
growth momentum. The adaptable mindset of our teams as
well as their resilience, innovation, and huge engagement
show the strong commitment that our employees have to
Danfoss. This helped us navigate the COVID-19 situation in
a successful way. We thank all our employees for the strong
passion they have shown.
25/138
“My interest in working for Danfoss
has only increased over the years
since I started. It is very clear for
me that you have the opportunity
to develop yourself and to expand
your knowledge,” says Process
Deployment Lead Ina Kjær Huntley.
Meet her, Senior Director Gina Dyrvig
Mentz, and Vice President Rikke
Vesterbæk in the video.
They all started their careers in
Danfoss' Postgraduate Program and
have accelerated from there.
Play video
Watch them explain why in this video
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Ensuring step-change in diversity
Danfoss has set a clear target of increasing the share of
female leaders from 20% to 30% by 2025. To support our
journey, we have introduced a female mentoring program,
headed by CEO Kim Fausing, who is also the mentor of
several female talents.
We also continued to run the “GET to mentor” program,
launched in 2019. The top talents partner with our Group
Executive Team (GET) to be challenged and empowered in
making meaningful cross-business career choices. In addition,
Danfoss teamed up with INSEAD Business School to support
our top talents. The program focused, among other things,
on leadership in times of digitalization and innovation. In
2021, we expect to invite leaders from the top 250 positions at
Danfoss to participate in the program.
We are committed to fostering an inclusive environment
which our high-performing diverse teams can thrive in. In
2020, we introduced the formal role of Head of Diversity
and Inclusion with the main task of driving initiatives more
cohesively and supporting the organization in identifying
barriers to inclusion and recommending actions and
processes to help remove them.
Read more details about our targets, efforts, and progress
in the Sustainability Report 2020 at danfoss.com (https://
files.danfoss.com/download/CorporateCommunication/
Sustainability/Danfoss-Sustainability-Report-2020.pdf ).
26/138
More female leaders
Danfoss wants more diversity. A part
of this is getting more females into
leadership positions.
Our target is that 25% of our leaders
should be female in 2022 and 30%
in 2025. A recent status showed that
several of our regions are leading the
way, being very close to the target.
The gender agenda is not the
only area of focus in Danfoss. We
are working towards a diverse
representation in every team.
We define Diversity & Inclusion
in terms of five dimensions:
generations, gender, nationalities,
various backgrounds, and individual
characteristics.
Payal Shah, Head of Strategic
Customer Excellence in Danfoss
Drives, says: “It is not about men
being better than women or women
being better than men. It is about
everybody being given a fair chance
to reach their full potential.”
Play video
Meet Payal Shah, one of our female leaders
at Danfoss, in this video
Danfoss Annual Report 2020
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
27/138
Danfoss Annual Report 2020 Financial performance
Financial
performance
2020 impacted by COVID-19
Financial highlights
Financial review
Financial highlights, quarterly
Business segments
29
30
31
34
35
28/138
New
– ergonomic
solution
Technology advancements shape
the way users expect to interact
with machines, including those at
a work site. As machines get more
complex, their controls must
become more intuitive and easier
to use. Improving the operator
experience is a small step with a
big impact. Plus, it is made simple
by Danfoss technologies.
Danfoss Annual Report 2020 2020 Impacted by COVID-19
Danfoss at a glance
Our business
Financial performance Governance
Financial Statements
2020 impacted by COVID-19
Steering through the COVID-19 pandemic,
Danfoss’ key priorities are to keep our people
safe, continue to serve our customers and
collaborate closely with our suppliers.
Furthermore, we keep our people on board to
the extent possible, while flexing our costs to
development in the market.
Handling COVID-19
During Q1 and especially Q2 in 2020, the
COVID-19 pandemic escalated rapidly with
the situation varying from country to country,
leading to a significant decline in sales. In the
second half of 2020, we have seen recovery
month by month. Q3 was better than Q2, and
Q4 improved even more and was on level
with the previous year.
We have actively monitored the COVID-19
development and the related risks during the
year. Cost flexibility measures to safeguard
profitability were implemented. Customers'
credit risk as well as trade receivables
and inventory development have been
monitored. Overall, COVID-19 has not
impacted the estimates applied in the annual
accounts.
Our global operations have been functioning
throughout 2020, and we have done our
utmost to protect our employees across the
world and to maintain world-class service to
our customers.
Danfoss has set up crisis teams on Group,
regional, country and site levels of the
organization, tasked with limiting the risk of
infection, safeguarding business continuity
and ensuring that our business can continue
29/138
to operate. Numerous steps have been
taken to address the situation, and multiple
precautionary procedures and processes are
in place to handle COVID-19, while adhering
to guidelines and regulations from local
authorities.
Staying connected globally
The COVID-19 situation with social distancing
has shown us that operating digitally is more
relevant than ever. We have seen a rapid
adoption of digital tools to communicate,
coordinate, and serve our customers.
As a global company, we operate in many
different digitally connected geographical
locations, and Danfoss employees are used to
working across borders on a daily basis.
In 2020, we launched Danfoss’s first-ever
fully digital and live event experience,
“Cooling United Live”, with the purpose of
fostering professional development and
relationships. Cooling United Live served
both as a learning forum and a technology
exhibition, designed specifically for heating,
ventilation, air conditioning and refrigeration
(HVAC-R) audiences. More than 5,500 cooling
professionals signed up, and there was an
opportunity to engage in local languages in
post-event conversations.
Green restart
Across the world, governments are working
on recovery plans to reboot the economies
with green stimulus packages, and Danfoss’
solutions can help in advancing energy-
efficiency, electrification and infrastructure
investments.
Danfoss controls
COVID-fighting robot
A robot developed by the French company Shark
Robotics is now fighting COVID-19.
It disinfects areas such as shipping warehouses,
food plants, restaurants, and public buildings in
France and other European countries.
The robot's name is Sanitizing Rhyno Protect. It
disinfects up to 20,000 square meters in three
hours – faster than a team of human cleaners.
The robot is controlled with a wireless Danfoss
remote-control solution. We are proud to help
Shark Robotics combat COVID-19.
Play video
Read full story and see the video
Danfoss Annual Report 2020 Financial highlights s. 30
Danfoss at a glance
Our business
Financial performance Governance
Financial Statements
Financial highlights
EURm EURm EURm EURm EURm
2020
2018
2016
2019
2017
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
Financial ratios
Local currency growth (%)
EBITDA before OOI/E margin (%)
EBITDA margin (%)
EBITA before OOI/E margin (%)
EBITA margin (%)
EBIT margin (%)
5,271
838
811
665
646
572
-44
529
394
4
15.9
15.4
12.6
12.3
10.9
5,827
923
882
758
714
645
-49
596
445
12
15.8
15.1
13.0
12.2
11.1
6,098
929
926
758
724
648
-45
603
463
7
15.2
15.2
12.4
11.9
10.6
6,285
1,028
1,026
778
771
695
-33
662
502
1
16.4
16.3
12.4
12.3
11.1
5,828
1,008
954
742
723
625
-48
577
435
-6
17.3
16.4
12.7
12.4
10.7
DKKm DKKm
2020
2019
46,926
7,673
7,663
5,807
5,757
5,185
-243
4,942
3,746
1
16.4
16.3
12.4
12.3
11.1
43,445
7,516
7,111
5,532
5,394
4,659
-359
4,300
3,243
-6
17.3
16.4
12.7
12.4
10.7
Key figures, financial ratios and below highlighted keyfigures are calculated as defined in Note 27 on page 104.
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: 0.1342 (2019: 0.1339).
Balance sheet: 0.1344 (2019: 0.1338).
30/138
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/Proceeds from disposal
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
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
2016
EURm
2017
EURm
2018
EURm EURm
2020
2019
DKKm DKKm
2020
2019
3,788
5,457
2,325
1,284
693
-494
-32
3,883
5,583
2,569
1,050
742
-405
-64
3,886
5,760
2,654
962
673
-227
-64
4,217
6,096
2,933
1,048
789
-407
-52
4,106
6,412
3,184
537
800
-242
-44
31,509
45,549
21,917
7,832
30,555
47,714
23,691
3,996
5,891
-3,039
-391
5,967
-1,806
-322
-194
-217
-238
-252
-187
-1,879
-1,395
-251
-103
88
-140
0
-1,045
-3
-17
631
455
196
-175
-21
627
441
334
-373
-13
564
359
443
-424
37
634
463
323
-322
-11
709
493
497
-54
276
4,732
3,455
2,410
-2,408
-86
5,283
3,677
3,705
-406
16.3
17.8
17.9
18.3
16.1
18.3
16.1
12.0
17.2
42.6
55.2
1.6
17.0
6.7
13.0
17.3
46.0
40.9
1.2
18.1
8.1
13.4
17.0
46.1
36.2
1.0
17.4
8.1
13.4
17.0
48.1
35.7
1.0
16.0
8.1
11.9
13.1
49.7
16.9
0.6
-
-
13.4
17.0
48.1
35.7
1.0
16.0
60.2
11.9
13.1
49.7
16.9
0.6
-
-
#Classified as Business
#Classified as Business
Danfoss Annual Report 2020 Financial review
Danfoss at a glance
Our business
Financial performance Governance
Financial Statements
Financial review
Danfoss delivered a significantly better financial performance in 2020
than we expected at the turn of the first half. Sales reached EUR 5,828m,
which was 6% below the previous year in local currency. As a result of
the lower topline, EBITA was 6% below the prior-year level, but with an
EBITA margin of 12.4% versus 12.3%. Danfoss delivered a record cash flow
and reached a low level of debt.
Green, sustainable technology and solutions that save energy
and reduce emissions as well as continued investments in
infrastructure have gained momentum, as they translate into
the strengthened global focus on climate change and green
transition. This, combined with continued momentum in the
global megatrends, such as electrification, digitalization and
urbanization, contribute to making Danfoss technologies and
solutions more relevant than ever – confirming that Danfoss’
flexible business model with a diverse business portfolio
shows resilience and remains our strength even in times of
uncertainty.
In 2020, we have managed to protect our key strategic
initiatives. To strengthen our leading positions, we continued
to invest in the future, e.g. by preparing the acquisition and
integration of Eaton Hydraulics; by merging the Danfoss
Cooling and Danfoss Heating segments into the new
Climate Solutions segment; and though our targeted efforts
to accelerate future growth in our developing markets.
Furthermore, we have strong momentum in building our
digital offerings and a leading position in electrification. We
also continue to develop our people and talent to strengthen
our core businesses.
Sales
Sales were EUR 5,828m (2019: 6,285m), which was 457m
below the previous year. The reported growth was -7% after
a negative currency impact of -1%. Growth in local currency
was -6%.
The COVID-19 pandemic created increased uncertainty and
continued volatility in our global markets, especially in the
first half of 2020. During the second half of the year, Danfoss
saw a gradual recovery in sales, resulting in Q4 sales being at
level with the previous year.
Despite the pandemic, we continued to see good growth
opportunities for our technologies and solutions that play a
key role in the green transition towards lower CO2 emissions
and more electrification. We continue to see growth within
electrification of off-highway vehicles, electric-vehicle
drivetrains, energy-effcient compressor technologies for
cooling, industrial refrigeration, and solutions for renewables,
such as wind and solar, for district energy and for buildings,
such as floor heating.
Danfoss Power Solutions and Danfoss Climate Solutions saw
a gradual recovery in the second half of 2020, ending the year
with Q4 in positive. Danfoss Drives also saw a growing order
intake towards the end of the year. The pandemic was very
present across most regions. On the positive side, China grew
strongly with record sales. In Q1, China was the first country
to be hit by COVID-19 but saw recovery throughout the rest
of the year.
31/138
Sales
EURbn
7.5
6.0
4.5
3.0
1.5
0.0
2016
2017
2018
2019
2020
Sales split by segments
23%
34%
43%
Danfoss Power Solutions
Danfoss Climate Solutions
Danfoss Drives
Sales split by regions
2%
5%
24%
37%
23%
9%
Western Europe
Eastern Europe
North America
Asia-Pacific
Latin America
Africa-Middle East
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance Governance
Financial Statements
The non-current interest-bearing debt maturing after more
than 12 months amounted to EUR 1,103m (2019: 1,093m),
corresponding to 94% (2019: 93%) of the total interest-
bearing debt. At year-end, the Group had unutilized and
long-term committed credit facilities of EUR 1.5bn (2019:
1.1bn) in addition to cash and cash equivalents and ordinary
operating credits.
At the end of 2020, Danfoss’ credit rating assigned by
Standard & Poor’s was “BBB/A2 with a negative outlook”. See
Note 11, page 78, for more information.
Cash flow
Ensuring a strong cash performance remains a key priority for
Danfoss to finance our M&A activities, digital transformation
and service interest-bearing debt.
The free operating cash flow increased 12% to EUR 709m
(2019: 634m), driven by a positive operational performance
and lower net working capital.
Cash flow from investing activities amounted to EUR -242m
(2019: -407m), due to reduced M&A activity and lower
investments in machinery and equipment. We continued a
high level of investments in our digital transformation.
The free operating cash flow after financial items and tax
(before M&A) increased to EUR 493m (2019: 463m). This is
a record cash flow for the Group and it confirms the cash
generating capability of our business model.
Earnings
To counter the lower sales in the first part of the year, Danfoss
took fast action to lower the cost base and CAPEX spend.
This included reduced discretionary spend, organizational-
wide travel restrictions and salary-reduction programs. This
demonstrated our flexible operating model.
Throughout the year, Danfoss has continued with strategic
investments in innovation, digital transformation, and growth
initiatives to fuel future growth.
EBITA amounted to EUR 723m (2019: 771m), which was 6%
below the previous year, mainly due to the lower sales and
one-off transaction costs related to the acquisition of Eaton
Hydraulics. The EBITA margin increased to 12.4% (2019: 12.3%),
mainly driven by procurement savings, continued traction in
managing pricing and mix, and productivity improvements
in factories. In combination, fixed expenses were adjusted to
the lower sales.
Profit before tax amounted to EUR 577m (2019: 662m), leading
to net profit of EUR 435m (2019: 502m), which is -13% below
the previous year. The effective tax rate for 2020 was 24.6%
(2019: 24.2%).
Assets and liabilities
Total assets increased 5% to EUR 6,412m (2019: 6,096m),
mainly due to a strong cash position, see page 58 for more
information.
Equity increased 9% to EUR 3,184m (2019: 2,933m), mainly
influenced by the profits of the year. Consequently, the equity
ratio, calculated as equity relative to total assets, was 49.7%
(2019: 48.1%). The return on equity was 13.1% (2019: 17.0%).
Net interest-bearing debt amounted to EUR 537m (2019:
1,048m), leading to a net interest-bearing debt to EBITDA
ratio of 0.6 (2019: 1.0).
32/138
EBITA
EURm
900
720
540
360
180
0
2016
2017
2018
2019
2020
%
15
12
9
6
3
0
EBITA
EBITA margin
Net interest-bearing debt (NIBD)
EURbn
1.2
0.9
0.6
0.3
0.0
5
4
3
2
1
0
2016
2017
2018
2019
2020
NIBD
NIBD ratio
Cash flow
EURm
750
600
450
300
150
0
2016
2017
2018
2019
2020
Free operating cash flow
Free operating cashflow after financial items and tax
Free cash flow
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance Governance
Financial Statements
Employees
In 2020, the number of employees was 27,491 (2019: 27,871).
Events after the balance sheet date
On January 14, 2021, Danfoss announced the acquisition of
the remaining 25% ownership share in Artemis Intelligent
Power Ltd (AIP). AIP is the R&D and engineering company
based in Edinburgh, Scotland, specializing in hydraulic
system development.
On January 27, 2021, Danfoss announced the preparation of a
divestment to meet regulatory requirements concerning fair
competitive levels in the market. Danfoss is required to create
and divest the stand-alone business unit, White Drive Motors
& Steering. The new business unit will include operations and
products at three Danfoss locations in Hopkinsville, Kentucky,
US.; Wroclaw, Poland; and Parchim, Germany; in addition to
three product lines from Eaton Hydraulics. All together this
includes approximately 800 employees. The divestment is a
prerequisite to close the acquisition of Eaton Hydraulics.
Acquisition
On January 21, 2020, Danfoss announced the agreement
to acquire Eaton’s hydraulics business 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. We are expecting to close end of Q1 or
during Q2.
The acquisition will be fully financed with debt. An
acquisition credit facility was established with a group of
Danfoss’ core banks and Danfoss intends to refinance a part
of this credit facility in the debt-capital markets.
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 solutions to create even more
value for our customers.
The research and development expense amounted to EUR
267m (2019: 272m), corresponding to 4.6% of sales (2019: 4.3%).
See Income statement on page 56.
During 2020, Danfoss filed 136 (2019: 121) new patent
applications. During 2020, 708 (2019: 678) patents were
granted to the Group. At year end, Danfoss had a total of 1,567
(2019: 1,558) patent families.
Innovation
EURm
300
240
180
120
60
0
2016
2017
2018
2019
2020
%
5
4
3
2
1
0
R&D spend
R&D spend ratio
33/138
Danfoss Annual Report 2020 Financial highlights, quarterly
Danfoss at a glance
Our business
Financial performance Governance
Financial Statements
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/Proceeds from disposal 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 30.
34/138
Q1 2019 Q2 2019 Q3 2019 Q4 2019
2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020
2020
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
1,479
215
201
156
143
117
-20
97
71
4,230
6,227
3,011
1,125
4
-49
-11
-38
0
0
11
-58
-57
-25
-6
14.6
13.6
10.5
9.7
7.9
48.4
37.4
1.1
1,385
242
223
168
166
135
-8
127
93
4,184
6,281
3,124
971
165
-98
-23
-76
0
1
133
33
37
28
-14
17.5
16.1
12.1
12.0
9.8
49.7
31.1
1.0
1,447
279
263
212
209
183
-14
168
123
4,107
6,228
3,136
850
349
-139
-32
-107
0
0
309
161
165
-9
-7
19.3
18.2
14.7
14.4
12.6
50.3
27.1
0.9
1,517
272
267
206
205
190
-6
185
148
4,106
6,412
3,184
537
800
-242
-44
-187
0
-11
709
493
497
-54
2
17.9
17.6
13.6
13.6
12.5
49.7
16.9
0.6
5,828
1,008
954
742
723
625
-48
577
435
4,106
6,412
3,184
537
800
-242
-44
-187
0
-11
709
493
497
-54
-6
17.3
16.4
12.7
12.4
10.7
49.7
16.9
0.6
27,704
27,918
28,130
27,871
27,871
27,792
27,539
27,376
27,491
27,491
#Classified as Business
Danfoss Annual Report 2020 Power Solutions
Danfoss at a glance
Our business
Financial performance Governance
Financial Statements
Danfoss
Power
Solutions
Sales
EBITA
EBITA margin
2.0bn
(2019: EUR 2.2bn)
329m
(2019: EUR 391)
16.8%
(2019: 17.8%))
35/138
Development in 2020
Danfoss Power Solutions had sales below
the previous year due to the pandemic
that triggered customer restraint. Despite
the pandemic, parts of the business
grew strongly, e.g., Editron solutions for
electrifying off-highway vehicles and
eSteering. Furthermore, China saw strong
growth. Overall, sales recovered strongly
during the second half of 2020, ending
the year in growth in Q4. To counter the
lower sales, the segment reacted fast with
measures to safeguard the profitability.
7,609
employees worldwide
28
factories in 13 countries
3
Application Development Centers
in the USA, China and Denmark
3
top markets: North America,
Europe and China
Play video
Danfoss Power Solutions Segment
Danfoss Annual Report 2020 Disruptive new technology
launched
Digital Displacement
Danfoss has released the world’s first Digital Displacement
product to the market, a key milestone in disrupting how
mobile and stationary machines are designed and controlled.
The advanced digital control system and novel core pump
design deliver a step change in energy savings and controllability
relative to conventional products. In mobile construction
equipment, for example, these benefits translate directly
into new-to-world levels of productivity and fuel savings, up
to 50% in some applications. These game changing benefits
have quickly been recognized by several of our global OEM
customers as truly revolutionary in the field of hydraulics.
Danfoss at a glance
Our business
Financial performance Governance
Financial Statements
Danfoss Power Solutions
Danfoss Power Solutions is a global
technology leader in manufacturing and
supplying of 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 propulsion, control,
work-function, steering and electrification
solutions. In partnership with our customers,
we provide high-performance components
and solutions with great value for a broad
range of mobile equipment applications in
the agriculture, construction and road-
building, material handling and specialty
markets. These applications include wheel
loaders, tractors, harvesters, cranes, electric
and hybrid ferries, trucks and buses, and
much more.
Transformational acquisition
The Eaton Hydraulics acquisition is
the biggest acquisition in the history
of Danfoss. We will merge two of the
strongest companies in hydraulics,
creating a global leader in the mobile-
and industrial hydraulics markets. Together,
we will have the broadest offering of
products, industry-leading innovation
power, robust distribution channels and
tremendous geographic reach.
36/138
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 energy
storage
• Orbital motors
• Gear pumps and motors
• Steering solutions
• Autonomous solutions
• Position sensors and controls
• Remote control solutions
•
•
•
•
•
•
Integrated circuit solutions
PLUS+1® software platform
Digital service tools
Electric drivetrains including gear box
Fuel-cell compressor systems
Digital Displacement pumps
Providing power to transform the world in
an energy-efficient and sustainable way
Our application knowhow together with
innovation strength and global footprint
create a strong and reliable technology
partner for our customers. Through our
applications expertise, we enable our
customers to improve efficiency and
productivity of their machines, increase
critical up-time of their equipment, shorten
the time-to-market development cycles and
therefore enable our customers to better
serve their end customers.
Danfoss Annual Report 2020 Danfoss Climate Solutions
Danfoss at a glance
Our business
Financial performance Governance
Financial Statements
Danfoss
Climate
Solutions
Sales
EBITA
EBITA margin
2.5bn
(2019: EUR 2.6bn)
410m
(2019: EUR 400m)
16.4%
(2019: 15.3%)
37/138
Development in 2020
Danfoss Climate Solutions had sales below
the previous year, due to different growth
dynamics across the business and regions,
and customers postponing their purchasing
of heating, air conditioning and refrigeration
equipment and solutions due to the
pandemic. Climate Solutions had a strong
Q1 followed by a challenging Q2 and then
saw a strong rebound in the second half of
2020 with parts of the business developing
against the negative trend. In 2020, sales
grew in China, and parts of Europe were
back in growth in Q4. Profitability was
better than the previous year.
10,530
employees worldwide
34
factories in 15 countries
4
Application Development Centers
in USA, China, India and Denmark
3
top markets: Europe, China
and North America
Play video
This is where the transformation of our food
supply starts.
Danfoss Annual Report 2020 A new front runner
in smart heating
solutions in 2020
Danfoss Ally™ smart home heating
Our new Danfoss Ally™ App allows users
to control, schedule, and monitor home
heating – from anywhere and at any time.
The Danfoss Ally™ is cloud based and offers
full control of radiator and hydronic floor
heating from anywhere. With everything
in control, users enjoy secure convenience
and a perfect indoor climate.
Danfoss at a glance
Our business
Financial performance Governance
Financial Statements
Danfoss Climate Solutions
Products and solutions
• Compressors, including the pioneering
oil-free Turbocor®
• Condensing units
• Valves, controllers, and complete
electronic systems
• Digital cloud solutions, such as Alsense™,
Prosa IoT, Turbocor Cloud Service
• Sensor technologies
• High-pressure pumps
• Heat exchangers
• Radiator thermostats & smart heating
solutions
• Electric heating and hydronic underfloor
heating
• Hydronic balancing and controls including
digital actuators
• District-energy controls, heat meters,
substations, and sofware services
• Burner components
We combine heating and cooling
applications to ensure excess heat from
industry, data centers and supermarkets is
recovered to heat buildings to save energy
and less investments in new heat generation
is needed. We also develop innovative
energy storage solutions, such as the
connected supermarket and the Danfoss
Smart Store.
As a market leader within cooling and
heating, Danfoss Climate Solutions delivers
sustainable and energy-efficient solutions
for industry, the built environment, and the
entire food chain.
Our technologies and solutions support
the transition to a decarbonized economy
by providing the energy-efficient solutions
needed to reduce food loss and make our
cities cleaner.
We have an unmatched value proposition
for our customers and partners:
• Strong portfolio with leading positions
as number 1 or 2 in the markets for our
advanced components, solutions and
services
Integrated energy-efficient heating
and cooling solutions with proven
and unmatched experience in climate
technologies and a broad product
portfolio available today
•
• Global reach and presence in all relevant
distribution channels. Danfoss Cooling
and Danfoss Heating have joined forces
into one strong segment focusing on
the green agenda: Danfoss Climate
Solutions. We will continue to develop
our technologies to deliver the innovative
energy-efficient solutions which are
needed to reduce global emissions from
buildings and mitigate climate change.
38/138
Danfoss Annual Report 2020
Drives
Danfoss at a glance
Our business
Financial performance Governance
Financial Statements
Danfoss
Drives
Sales
EBITA
EBITA margin
1.4bn
(2019: EUR 1.5bn)
186m
(2019: EUR 188m)
13.8%
(2019: 12.8%)
39/138
Development in 2020
Danfoss Drives had sales below the previous
year. Danfoss Drives was driving growth in
China and most regions were recovering
during the second half of the year. Despite
the pandemic, Danfoss Silicon Power
grew strongly, driven by strong sales to
renewables, such as wind and solar, and the
start of module deliveries for electric-vehicle
drivetrains. Towards the end of the year,
Danfoss Silicon Power even recorded a new
all-time sales record. In 2020, profitability
was better than the previous year.
4,438
employees worldwide
10
factories in 7 countries
3
Application Development
Centers in China, Singapore and
the Netherlands
3
top markets: Europe, China and
North America
Play video
We are driven by drives
Danfoss Annual Report 2020 Chosen technology partner for
the world's most climate-
friendly ferry in 2020
Best energy efficiency and lowest emissions possible
The super-low emissions and noise-free car and passenger ferry,
Aurora Botnia, will be completed in spring 2021 to cruise between
Vaasa, Finland, and Umeå, Sweden. It will be the world's most
climate-friendly ferry in its class. The ferry’s propulsion-control
systems as well as the air-conditioning, cooling and pumping
systems use iC7 as well as VACON® 100 drives and converters. The
drives onboard the vessel will control all electric motors and grid-
related functionality. This will provide the best energy efficiency
and lowest emissions possible.
Danfoss at a glance
Our business
Financial performance Governance
Financial Statements
Danfoss Drives
Danfoss Drives is a global leader in variable
speed control, having the world’s largest
installed base of AC drives.
Products and solutions
AC drives enable optimal speed control and
power management:
• 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.
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 and helps the world of
tomorrow go green and become more
sustainable 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 and power-
management solutions.
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.
40/138
Danfoss Annual Report 2020 Governance
Governance
Risk management and compliance 42
Corporate Governance
Board of Directors
Group Executive Team
44
46
49
41/138
Brand-new
moves
Narrow spaces are no longer
an issue with MultiAxis-Steer™.
Unleash the full maneuverability
with electrohydraulic all-wheel
steering from Danfoss, for
increased productivity and
improved operator comfort.
Danfoss Annual Report 2020 Risk management
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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 business units and Group 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.
42/138
Risk management process
Risk management takes place at all
managerial levels, which includes risk
identification, assessment, treatment and
monitoring supported by documentation,
communication and reporting of risks.
Risk identification
Risks are identified using
Danfoss’ risk-identification
and analysis tools on a
regular basis.
Risk monitoring
Risk reviews consider
current information about
identified risks and measure
the performance of the risk-
management process.
Risk assessment
Risks are assessed
according to the company-
wide risk-assessment
guidelines.
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, and monitor selected group
risks and potential new risks..
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.
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
In 2020, Danfoss updated its compliance trainings in the areas
of Anti-Corruption, Business Ethics and Fair Competition to
reflect recent developments in legislation and best-practice
approaches.
We maintain a high focus on data-privacy processes and
compliance with data privacy regulation. Based on the
Danfoss Binding Corporate Rules, approved by the Danish
data-protection authorities, we follow a Data Privacy
Handbook, conduct and participate in trainings, and follow
other requirements of data-privacy legislations.
Furthermore, the organization keeps its focus on Export
Control including sanctions, countries, business partners and
product reviews. Finally, we have defined and implemented
rules and guidance to support anti-moneylaundering
legislation and trained employees, respectively.
legislation. The Ethics Hotline is also serves as channel for
data-privacy complaints. In 2020, a total number of 43 reports
were managed by the Ethics Hotline. Corrective actions,
including disciplinary action, were taken for the allegations,
and none of the reports have had a material impact on
Danfoss.
Risk overview
Like its industry peers, Danfoss is exposed to risks. No single
risk can threaten the existence of Danfoss – now or in the
future – rather, the following external conditions generally
apply:
• Global market conditions, including a sustained stronger
focus on energy efficiency, sustainability and infrastructure
• The five global megatrends that affect Danfoss, our
technologies and the way we do business
Compliance hotlines
Our Ethics Hotline is our whistleblower hotline that enables
employees and business partners to anonymously report any
concern they might have concerning internal standards and
• Fair and equal access to markets
• Global economic growth
Specific risk areas
Pandemics
Preparation and integration of new acquisitions
Risk
The risk that a pandemic, such as COVID-19, creates global volatility
and uncertainty that could affect Danfoss employees’ health and
safety as well as Danfoss’ supply chain and markets.
Risks associated with the acquisition of Eaton Hydraulics,
including receiving the regulatory approvals as well as the
successful integration of the newly acquired business.
Danfoss has set up crisis teams on Group, regional, country and site
levels of the organization, tasked with limiting the risk of infection,
safeguarding business continuity and ensuring that our business can
continue to operate.
The link to Danfoss regions through our regional presidents ensures
that measures taken are in agreement with local health authorities
and supporting the safety of Danfoss employees. Continuous
meetings ensure learning from each other and adapting to the
changing reality, supporting the new normal with homeworking if
possible and virtual meetings etc. Segments are in close contact with
customers and suppliers.
Mitigation
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Danfoss has set up a legal team to prepare the work needed
to obtain the regulatory approvals.
The subsequent integration of the business is being
prepared. We are applying a structured approach to
minimize any disruption to the business and our customers.
• 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 a special focus on two
additional risks, which are currently very important due to
their nature. These two specific risks are described in the
overview below, which does not include financial risks.
Financial risks are described in Note 15, page 84-89.
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.
Danfoss Annual Report 2020
Corporate governance
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Corporate
governance
This is a summary of Danfoss’ annual statutory report on corporate
governance, which serves as our legally required reporting on
governance and internal controls, cf. section 107b of the Danish
Financial Statements Act.
Legislation provides the overall framework for the Group’s
governance, but corporate governance determines how
the business is managed within this framework. The Group
structure supports management values and determines a
clear distribution of management responsibilities. These
well-defined principles drive the interaction between the
Group’s management, the owners, and other stakeholders.
The Group’s Articles of Association and a comprehensive set
of internal management and control procedures also form
part of corporate governance within Danfoss.
Management structure
Danfoss has a two-tier management system consisting of the
Board of Directors and the Group Executive Team, including
the CEO and CFO. The Board of Directors sets out the general
direction for the company by approving strategies and
targets, and the Group Executive Team develops and executes
the strategy and handles the day-to-day management.
The Board of Directors
The Board of Directors consists of eight members and four
employee-elected members. Shareholder-elected members
of the Board of Directors are elected for the term until
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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 2020.
Governance model
Shareholders and General meeting
Board of Directors
Audit Committee
Internal Audit
Group Executive Team
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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 performed a series of audits to
selected Group companies in 2020. No matters of material
importance to the Group’s overall risk management and
control 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 2020, Danfoss had 2505 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 78, and
Note 25, page 97.
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 99.87% 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 2020,
the price was set at DKK 7,072 per share.
Annual General Meeting
Danfoss’ Annual General Meeting will be held at the
Company’s registered office, on March 26, 2021. The Board of
Directors will recommend that no dividend be paid for 2020.
Gender composition of the Board of Directors
The Danish Financial Statements Act (FSA) requires that
corporate entities of a certain size and type report on the
gender composition in management.
Danfoss aims at a gender composition in the Group's Board of
Directors, that reflects that of the rest of the Group, and has
a target of having at least one female member of the Board
of Directors, who is elected at the Annual General Meeting
(AGM). Danfoss met this target in 2020 and is considering the
target for 2021 and onwards.
In 2020, the Board of Directors had twelve members of which
nine were male and three were female, one AGM-elected and
two employee-elected. Furthermore, the Board of Directors
consists of people with diverse backgrounds, professional
skills, nationality, and age.
Gender composition targets like that of the Board of Directors
have been implemented in the relevant subsidiaries of a
certain size and type. Danfoss meets the gender composition
target for the Board of Directors of Danfoss Power Solutions
ApS, but not of Danfoss Power Electronics A/S (Danfoss
Drives), Danfoss International A/S and Sondex A/S, as the
composition of the boards did not change during the
year. However, Danfoss Power Electronics A/S has a female
board member elected by the employees. In these relevant
subsidiaries, the gender composition target for the Board of
Directors is expected to be met in 2021.
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
48.08%
26.26%
11.04%
Votes
86.14%
5.47%
2.31%
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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 2020, which is available at
danfoss.com > About Danfoss > Corporate governance
(https://www.danfoss.com/en/about-danfoss/company/
financials/corporate-governance/)
Visit danfoss.com
Danfoss Annual Report 2020 Board of Directors
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Board of Directors
Jørgen M. Clausen
Chairman of the Board of Directors
Jens Bjerg Sørensen
Vice Chairman of the Board of Directors
Mads-Peter Clausen
Member of the Board of Directors
Per Falholt
Member of the Board of Directors
Born: 1948
Nationality: Danish
Appointed: 2009
Born: 1957
Nationality: Danish
Appointed: 2020
Considered independent
Born: 1976
Nationality: Danish
Appointed: 2014
Born: 1958
Nationality: Danish
Appointed: 2017
Considered independent
Special competencies:
Professional experience managing a Danish-
based international company and from
other board memberships.
Other current positions:
•
Member of the Board of Directors in
Fonden Universe Science Park; and
miniBOOSTER Hydraulics A/S.
• Owner of SaltPower ApS.
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Special competencies:
Strong experience within strategy, M&A,
portfolio management and business
administration. Strong knowledge of
management in a global group and the
work in a listed company.
Special competencies:
International experience 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 &
Development, product innovation and
development of new biotechnologies for
products, applications and processes as well
as start-up companies.
Other current positions:
•
Senior Director, Oil Free Solutions, Danfoss
A/S.
Chairman of the Board of
miniBOOSTER Hydraulics A/S.
•
Other current positions:
•
Chairman of the Board of Directors,
Universe Science Park; and DHI
Foundation.
Board member in Cytovac A/S; Applied
Biomemetics; Co-Ro A/S; Lactobio; and
LIFE foundation.
•
• CSO and co-founder of
21stBIO.
Other current positions:
•
•
•
•
Chief Executive Officer (CEO) in the listed
company Aktieselskabet Schouw & Co.; Jens
Bjerg Sørensen, Datterholding 1 ApS; and
Jens Bjerg Sørensen Holding ApS.
Chairman of the Board of Directors in Alba
Ejendomme A/S; BioMar Group A/S; Borg
Automotive A/S F. Salling Holding A/S and
F. Salling Invest A/S; GPV International
A/S; HydraSpecma A/S; Købmand Herman
Sallings Fond; and A. Kirk A/S.
Vice Chairman of the Board of Directors in
Salling Group A/S; Fibertex Nonwovens A/S
and Fibertex Personal Care A/S.
Member of the Board of Directors in
Per Aarsleff Holding A/S; Købmand
Herman Sallings Mindefond; Aida A/S;
Ejendomsselskabet FMJ A/S; F.M.J. A/S; and
Bitten & Mads Clausens Fond
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Board of Directors
Connie Hedegaard
Member of the Board of Directors
Born: 1960
Nationality: Danish
Appointed: 2016
Considered independent
Special competencies:
Extensive knowledge of climate,
environmental and energy challenges on
an international level. Expert on global
sustainable development and green
transition.
William Ervin Hoover Jr.
Member of the Board of Directors and
Chairman of the Audit Committee
Born: 1949
Nationality: American
Appointed: 2007
Considered independent
Special competencies:
Professional experience with supply-chain,
performance transformation, organizational
changes and mergers and acquisitions.
Jürgen Reinert
Member of the Board of Directors
Mika Vehviläinen
Member of the Board of Directors
Born: 1968
Nationality: German
Appointed: 2015
Considered independent
Born: 1961
Nationality: Finnish
Appointed: 2018
Considered independent
Special competencies:
International experience with executive
management and business administration
as well as strong strategic, organizational
and communicative skills. Expert within
electrical engineering (drives, electric vehicles,
renewable energy) and science, and extensive
knowledge from other board positions.
Special competencies:
Professional experience with performance
transformation, organizational changes,
mergers and acquisitions, and Internet of
Things (IoT).
Other current positions:
•
•
Chairman of the Board of Directors in ReD
Associates Holding A/S.
Member of the Board of Directors in
Specialist People Foundation and Neopost
A/S.
Other current positions:
•
Chief Executive Officer (CEO) in SMA
Technology AG.
Member of the Board of Kraftelektronik
AB.
•
Other current positions:
•
President and Chief Executive Officer
(CEO) in Cargotec.
Other current positions:
•
Chairman of the Board of Directors in
KR Foundation; the green think-tank
CONCITO; OECD’s Round Table on
Sustainable Development; Berlingske
Media (part of de Persgroup); and Aarhus
University.
Member of the Board of Directors in
NORDEX; Cadeler; and Volkswagen’s
Sustainability Board.
•
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Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Board of Directors
Sandra Nørgaard Bertelsen
Member of the Board of Directors
Marianne Godballe
Member of the Board of Directors
Lars Grau
Member of the Board of Directors
Jens Peter Rosendahl Nielsen
Member of the Board of Directors
Born: 1982
Nationality: Danish
Appointed: 2014
Born: 1984
Nationality: Danish
Appointed: 2018
Born: 1963
Nationality: Danish
Appointed: 2014
Born: 1957
Nationality: Danish
Appointed: 2006
Special competencies:
Employee-elected member of the Board of
Directors.
Special competencies:
Employee-elected member of the Board of
Directors.
Special competencies:
Employee-elected member of the Board of
Directors.
Special competencies:
Employee-elected member of the Board of
Directors.
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-klubben”, Danfoss A/S,
South Denmark.
Secretary General, 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.
•
•
Other current positions:
•
HR Director, HR Operations North Europe,
Danfoss A/S.
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Danfoss Annual Report 2020 Group Executive Team
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Group Executive Team
Kim Fausing
President & CEO
Jesper V. Christensen
Executive Vice President
& CFO
Eric Alström
Segment President,
Danfoss Power Solutions
Jürgen Fischer
Segment President,
Danfoss Climate Solutions
Vesa Laisi
Segment President,
Danfoss Drives
Lars Tveen
President, Danfoss
Developing Regions
Born: 1964. Employed at
Danfoss since 2007.
Born: 1969. Employed at
Danfoss since 1993.
Born: 1966. Employed at
Danfoss since 2012.
Born: 1963. Employed at
Danfoss since 2008.
Born: 1957. Employed at
Danfoss since 2014.
Born: 1963. Employed at
Danfoss since 1989.
Registered officer with the
Danish Business Authority
since 2008.
Registered officer with the
Danish Business Authority
since 2013.
Board activities:
•
Deputy Chairman in the
Manufacturing Industry,
Denmark.
Board member in the
Confederation of Danish
Industries, Denmark.
Board member in Danish
Crown A/S, Denmark.
•
•
Board activities:
•
Deputy Chairman in
Hempel A/S, Denmark.
Stanford Graduate
School of Business, MSx
Advisory Board.
•
Board activities:
•
Chairman of the Steering
Board of EPEE - the
European Partnership
for Energy and the
Environment.
TÜV SÜD Germany,
Advisory Board.
•
Board activities:
•
Board member in
Wirepas.
Board activities:
•
Chairman of the
Climate Partnership
between Government
and Industry for the
manufacturing industry
in Denmark.
Deputy Chairman in SMA
Solar Technology AG,
Germany.
Board member in Hilti
AG, Liechtenstein;
and LafargeHolcim Ltd.,
Switzerland.
•
•
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Board activities:
•
Chairman Project Zero-
Foundation, Denmark
(local initiative to achieve
carbon neutrality by 2029),
Denmark.
Board member P4G,
Partnering for Green Growth
and the Global Goals 2030.
Board member in SKAKO
A/S, Denmark.
Board member in The Energy
Industry (an association
under the Confederation of
Danish Industries), Denmark.
Board member in Synergi,
Denmark.
Board member in Green
Energy (Grøn Energi),
Denmark.
•
•
•
•
•
Danfoss Annual Report 2020 Financial Statements
Financial
Statements
Management’s statement
Independent Auditor’s Report
51
52
50/138
The world’s
largest solar
hot water
system
The solar heating plant in
the Danish town Silkeborg is
designed to produce 80,000
MWh of heat annually, and at
the same time reduce annual
CO₂ emissions by 15,700 tonnes.
16 Danfoss VLT®AQUA drives
and four Danfoss SONDEX® heat
exchangers help ensure that the
sun-heat reaches radiators and
hot water showers across town –
with minimal heat loss.
Danfoss Annual Report 2020 Management’s statement
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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, 2020.
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, 2020, of the Group and the Parent Company and of the results of the Group and
Parent Company operations and cash flows for 2020.
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.
We recommend that the Annual Report be adopted at the Annual General Meeting.
Nordborg, March 4, 2021
CEO and CFO
Kim Fausing
Jesper V. Christensen
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Jørgen M. Clausen, Chairman
Jens Bjerg Sørensen, Vice Chairman
Mads-Peter Clausen
Per Falholt
Connie Hedegaard
William Erwin Hoover Jr.
Jürgen Reinert
Mika Vehviläinen
Sandra Nørgaard Bertelsen
Marianne Godballe
Lars Grau
Jens Peter Rosendahl Nielsen
Danfoss Annual Report 2020 Independent Auditor’s Report
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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 7 years
including the financial year January 1 to
December 31, 2020.
To the shareholders of Danfoss A/S
Our opinion
In our opinion, the Consolidated Financial
Statements and the Parent Company
Financial Statements give a true and
fair view of the Group’s and the Parent
Company’s financial position at December
31, 2020, 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, 2020, 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, 2020, pp 56-108 and 111-136
comprise income statement, statement
of comprehensive income, statement
of financial position, statement of cash
flows, statement of changes in equity and
notes, including basis for preparation and
accounting policies for the Group as well as
general accounting policies for the Parent
Company. Collectively referred to as the
“Financial Statements”.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (ISAs)
and the additional requirements applicable
in Denmark. Our responsibilities under those
standards and requirements are further
described in the Auditor’s responsibilities for
the audit of the Financial Statements section
of our report.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We are independent of the Group in
accordance with the International Ethics
Standards Board for Accountants’ Code of
Ethics for Professional Accountants (IESBA
Code) and the additional requirements
applicable in Denmark. We have also
fulfilled our other ethical responsibilities in
accordance with the IESBA Code.
To the best of our knowledge and belief,
prohibited non-audit services referred to in
Article 5(1) of Regulation (EU) No 537/2014
were not provided.
52/138
Danfoss Annual Report 2020 Key audit matters
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the Financial Statements for 2020. 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
Intangible assets might be impaired due to changes in
the global economic situation, including impact from
COVID-19, and changes in the Group’s strategy.
We focused on this area, as the determination of
whether or not an impairment charge for intangible
assets is necessary, involves significant estimates and
judgments made by Management, including especially:
• estimation of future cash flows and the key
assumptions underlying Management’s expectations;
• long-term growth rates; and
• discount rates applied in discounting future cash
flows.
Refer to Notes 7, 20 and 28 in the Consolidated
Financial Statements
We inspected the process of identifying impairment
indicators and the process for impairment testing
at the cash-generating unit level. We assessed the
methodology, data and assumptions used in the
Group’s impairment model.
In addition, we obtained impairment tests prepared
by Management and evaluated the reasonableness
of estimates and judgments made by Management
in preparing these.
Special focus was given to the key assumption
driving 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 also taking into account
COVID-19.
Uncertain tax positions
The Group operates in a complex multinational tax
environment where transfer pricing methods can
be challenged by the tax authorities in the different
countries. As a result, the Group is engaged in tax
disputes with domestic and foreign tax authorities on
an ongoing basis.
We focused on this area as the valuation of tax
assets and liabilities is associated with judgment and
significant estimation uncertainty.
Refer to Notes 6, 13, 16 and 28 in the Consolidated
Financial Statements.
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, data and
assumptions used for valuation of tax assets and
liabilities.
Statement on Management’s Review
Management is responsible for
Management’s Review, pp 3-49 and 110.
Our opinion on the Financial Statements
does not cover Management’s Review, and
we do not express any form of assurance
conclusion thereon.
In connection with our audit of the Financial
Statements, our responsibility is to read
Management’s Review and, in doing so,
consider whether Management’s Review is
materially inconsistent with the Financial
Statements or our knowledge obtained
in the audit, or otherwise appears to be
materially misstated.
Moreover, we considered whether
Management’s Review includes the
disclosures required by the Danish Financial
Statements Act.
Based on the work we have performed,
in our view, Management’s Review is in
accordance with the Consolidated Financial
Statements and the Parent Company
Financial Statements and has been prepared
in accordance with the requirements of the
Danish Financial Statements Act. We did
not identify any material misstatement in
Management’s Review.
Management’s responsibilities for the
Financial Statements
Management is responsible for the
preparation of consolidated Financial
Statements and Parent Company Financial
Statements that give a true and fair view
in accordance with International Financial
Reporting Standards as adopted by the
EU and further requirements in the Danish
Financial Statements Act, and for such
internal control as Management determines
is necessary to enable the preparation of
Financial Statements that are free from
material misstatement, whether due to
fraud or error.
In preparing the Financial Statements,
Management is responsible for assessing the
Group’s and the Parent Company’s ability
to continue as a going-concern, disclosing,
as applicable, matters related to going
concern and using the going concern basis
of accounting unless Management either
intends to liquidate the Group or the Parent
Company or to cease operations, or has no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of
the Financial Statements
Our objectives are to obtain reasonable
assurance about whether the Financial
Statements as a whole are free from material
misstatement, whether due to fraud or
error, and to issue an Auditor’s Report
that includes our opinion. Reasonable
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Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
assurance is a high level of assurance, but
is not a guarantee that an audit conducted
in accordance with ISAs and the additional
requirements applicable in Denmark will
always detect a material misstatement
when it exists. Misstatements can arise from
fraud or error and are considered material if,
individually or in the aggregate, they could
reasonably be expected to influence the
economic decisions of users taken on the
basis of these Financial Statements.
As part of an audit in accordance with ISAs
and the additional requirements applicable
in Denmark, we exercise professional
judgment and maintain professional
skepticism throughout the audit. We also:
• Identify and assess the risks of material
misstatement of the Financial Statements,
whether due to fraud or error, design and
perform audit procedures responsive to
those risks, and obtain audit evidence
that is sufficient and appropriate to
provide a basis for our opinion. The risk
of not detecting a material misstatement
resulting from fraud is higher than for one
resulting from error, as fraud may involve
collusion, forgery, intentional omissions,
misrepresentations, or the override of
internal control.
• Obtain an understanding of internal
control relevant to the audit in order
to design audit procedures that are
appropriate in the circumstances, but not
54/138
for the purpose of expressing an opinion
on the effectiveness of the Group’s and
the Parent Company’s internal control.
• Evaluate the appropriateness of
accounting policies used and the
reasonableness of accounting estimates
and related disclosures made by
Management.
• Conclude on the appropriateness of
Management’s use of the going-concern
basis of accounting and based on the
audit evidence obtained, whether a
material uncertainty exists related to
events or conditions that may cast
significant doubt on the Group’s and the
Parent Company’s ability to continue
as a going concern. If we conclude that
a material uncertainty exists, we are
required to draw attention in our auditor’s
report to the related disclosures in the
Financial Statements or, if such disclosures
are inadequate, to modify our opinion.
Our conclusions are based on the audit
evidence obtained up to the date of our
Auditor’s Report. However, future events
or conditions may cause the Group or the
Parent Company to cease to continue as a
going concern.
and events in a manner that achieves fair
presentation.
•
Obtain sufficient appropriate audit
evidence regarding the financial
information of the entities or business
activities within the Group to express an
opinion on the Consolidated Financial
Statements. We are responsible for the
direction, supervision and performance
of the Group audit. We remain solely
responsible for our audit opinion.
We communicate with those charged
with governance, regarding, among other
matters, the planned scope and timing of
the audit and significant audit findings,
including any significant deficiencies in
internal control that we identify during our
audit.
We also provide those charged with
governance with a statement that we
have complied with relevant ethical
requirements regarding independence, and
to communicate with them all relationships
and other matters that may reasonably
be thought to have a bearing on our
independence, and where applicable,
related safeguards.
• Evaluate the overall presentation,
structure and content of the Financial
Statements, including the disclosures,
and whether the Financial Statements
represent the underlying transactions
From the matters communicated with those
charged with governance, we determine
those matters that were of most significance
in the audit of the Financial Statements
of the current period and are therefore
the key audit matters. We describe these
matters in our Auditor’s Report unless law
or regulation precludes public disclosure
about the matter or when, in extremely
rare circumstances, we determine that a
matter should not be communicated in our
report because the adverse consequences
of doing so would reasonably be expected
to outweigh the public-interest benefits of
such communication.
Aarhus, March 4, 2021
PricewaterhouseCoopers
Statsautoriseret Revisionspartnerselskab
CVR no 3377 1231
Claus Lindholm Jacobsen
State Authorised Public Accountant
mne23328
Mads Melgaard
State Authorised Public Accountant
mne34354
Danfoss Annual Report 2020 Group accounts and notes
Group accounts
and notes
Group accounts
Group notes
Group companies
56
62
107
The future is
electric
Danfoss solutions accelerate
electrification of transportation,
making hybrid and purely electric
vehicles a natural and sustainable
choice for everyone.
55/138
Danfoss Annual Report 2020 Income statement
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
56/138
e
t
o
N
1
2
2
2
2
2
3
4
5
6
2019
6,285
-4,173
2,112
2020
5,828
-3,845
1,983
-272
-864
-275
701
-2
-4
695
4
-37
662
-160
502
455
47
502
-267
-773
-270
673
-54
6
625
2
-50
577
-142
435
389
46
435
Danfoss Annual Report 2020 Statement of comprehensive incom
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
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
57/138
e
t
o
N
14
13
2019
502
-39
8
-31
29
13
-10
-1
31
0
502
453
49
502
2020
435
-14
4
-10
-156
3
-56
1
4
-204
-214
221
181
40
221
Danfoss Annual Report 2020 Statement of financial position
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Statement of financial position
As of December 31
EURm
ASSETS
NON-CURRENT ASSETS
INTANGIBLE ASSETS
PROPERTY, PLANT AND EQUIPMENT
Investments in associates and joint ventures
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
Other receivables
RECEIVABLES
CASH AND CASH EQUIVALENTS
TOTAL CURRENT ASSETS
TOTAL ASSETS
58/138
e
t
o
N
7
8
3
14
13
9
10
16
15
2019
2020
2,426
1,409
283
11
7
81
382
2,313
1,404
283
4
10
92
389
4,217
4,106
742
893
30
104
1,027
110
1,879
6,096
703
863
23
106
992
611
2,306
6,412
Danfoss Annual Report 2020 Statement of financial position 2
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
Derivative financial instruments (negative fair value)
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
59/138
e
t
o
N
11
12
13
14
15
16
12
15
16
15
17
2019
2020
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
3,084
100
3,184
113
199
153
1,103
1
98
1,667
52
68
774
4
61
61
541
1,561
3,228
6,412
Danfoss Annual Report 2020 Statement of cash flows
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
Change in financial receivables
Proceeds from sale of other investments
CASH FLOW FROM INVESTING ACTIVITIES
Cash repayment of interest-bearing debt
Cash proceeds from interest-bearing debt
Purchase of treasury shares
Sale of treasury shares
Proceeds from 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
60/138
e
t
o
N
18
19
16
20
21
21
22
22
2019
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
2020
577
372
52
2
-34
-169
800
-44
-201
14
-15
4
-242
-92
8
-2
70
-38
-54
504
110
-3
611
Danfoss Annual Report 2020 Statements of changes in equity
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Statement of changes in equity
EURm
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
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
Sale of treasury shares
Total transactions with owners
BALANCE AS OF DECEMBER 31, 2020
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
y
c
n
e
r
r
u
C
i
g
n
g
d
e
H
s
e
v
r
e
s
e
r
-4
3
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2
2
n
o
i
t
a
l
s
n
a
r
t
15
27
27
27
134
10
-2
42
-150
-150
-150
-52
4
-48
-48
134
10
-50
-108
s
e
r
a
h
s
n
w
o
-317
e
v
r
e
s
e
R
-60
-60
-377
-2
70
68
-309
s
e
v
r
e
s
e
r
r
e
h
t
O
2,602
375
-39
8
-31
344
2
s
e
v
r
e
s
e
R
2,296
375
27
3
-39
7
-2
373
2
-60
2
2,948
-58
2,611
389
389
-150
-52
-14
8
-208
181
80
-2
70
148
2,940
-14
4
-10
379
80
80
3,407
d
e
s
o
p
o
r
P
s
d
n
e
d
i
v
i
d
80
80
80
-80
-80
80
-80
-80
S
/
A
s
s
o
f
n
a
D
n
i
l
s
r
e
d
o
h
e
r
a
h
s
2,520
,
y
t
i
u
q
E
455
27
3
-39
7
-2
453
-78
-60
-138
2,835
389
-150
-52
-14
8
-208
181
-2
70
68
3,084
y
t
i
r
o
n
M
i
t
s
e
r
e
t
n
i
129
47
2
2
49
-83
2
1
-80
98
46
-6
-6
40
-38
-38
100
y
t
l
a
i
u
t
q
o
T
e
2,649
502
29
3
-39
7
0
502
-161
2
-60
1
-218
2,933
435
-156
-52
-14
8
-214
221
-38
-2
70
30
3,184
The Bitten & Mads Clausen's Foundation has agreed to use its first right to buy back Danfoss A/S shares from certain minority shareholders in Danfoss A/S. The agreement has no impact on the Group’s equity as the contribution
from the Foundation offset a similar liability. Further information can be found in note 25 Related Parties.
61/138
Danfoss Annual Report 2020
Notes contents
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Notes
Note 1 Segment reporting
Note 2 Expenses and other operating income
Note 3 Investments in associates and joint ventures
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 Other debt
Note 18 Adjustment for non-cash transactions
Note 19 Change in working capital
Note 20 Acquisition and sale of subsidiaries and activities
Note 21 Acquisition/sale of other investments
Note 22 Change in liabilities arising from financing activities
Note 23 Contingent liabilities, assets and security
Note 24 Leases
Note 25 Related parties
Note 26 Events after the balance sheet date
Note 27 Basis for preparation and accounting policies
Note 28 Critical accounting estimates
Note 29 Group companies
62/138
Danfoss Annual Report 2020 Note 1
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 1 Segment reporting
EURm
BUSINESS SEGMENTS
INCOME STATEMENT
Net sales
Depreciation/amortization/impairment
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
Total liabilities *)
OTHER INFORMATION
Number of employees
r
e
w
o
P
s
s
o
f
n
a
D
s
n
o
i
t
u
o
S
l
2,197
52
391
48
e
t
a
m
i
l
C
s
s
o
f
n
a
D
s
n
o
i
t
u
o
S
l
s
e
v
i
r
D
s
s
o
f
n
a
D
2,611
46
400
10
1,456
25
188
21
s
a
e
r
a
r
e
h
t
O
21
126
-208
1,481
101
274
1,664
67
318
1,699
38
212
1,252
98
2,359
2019
P
U
O
R
G
6,285
249
771
79
-4
695
-33
662
6,096
304
3,163
r
e
w
o
P
s
s
o
f
n
a
D
s
n
o
i
t
u
o
S
l
1,956
60
329
41
e
t
a
m
i
l
C
s
s
o
f
n
a
D
s
n
o
i
t
u
o
S
l
s
e
v
i
r
D
s
s
o
f
n
a
D
2,491
53
410
8
1,352
25
186
21
s
a
e
r
a
r
e
h
t
O
29
132
-202
1,362
59
262
1,616
65
332
1,666
34
186
1,768
73
2,448
2020
P
U
O
R
G
5,828
270
723
70
6
625
-48
577
6,412
231
3,228
7,826
10,792
4,504
4,749
27,871
7,609
10,530
4,438
4,914
27,491
In 2020, Danfoss combined the Danfoss Cooling and Danfoss Heating segments into the new Danfoss Climate Solutions segment. The segment information for 2019 has been restated to reflect this change.
For further information on the business segments see page 20 and 35-40.
GEOGRAPHICAL SEGMENTS
Net sales
Total non-current assets **)
e
p
o
r
u
E
n
r
e
t
s
e
W
e
p
o
r
u
E
n
r
e
t
s
a
E
c
i
f
i
c
a
P
a
i
s
A
a
c
i
r
e
m
A
h
t
r
o
N
a
c
i
r
e
m
A
n
i
t
a
L
2,326
2,767
523
144
1,406
320
1,573
855
302
29
2019
P
U
O
R
G
e
p
o
r
u
E
n
r
e
t
s
e
W
e
p
o
r
u
E
n
r
e
t
s
a
E
c
i
f
i
c
a
P
a
i
s
A
a
c
i
r
e
m
A
h
t
r
o
N
a
c
i
r
e
m
A
n
i
t
a
L
6,285
4,136
2,166
2,783
516
140
1,403
298
1,332
747
267
26
t
s
a
E
e
d
d
M
l
i
-
a
c
i
r
f
A
155
21
Sales in Denmark amounts to EUR 248m (2019: 232m) and non-current assets amount to EUR 1,004m (2019: 943m). Sales in North America mainly relate to the US and represent EUR 1,256m (2019: 1,481m)
and non-current assets amount to EUR 747m (2019: 855m). China is part of the Asia Pacific region and sales amount to EUR 871m (2019: 803m) and non-current assets amount to EUR 231m (2019: 243m).
*) 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.
63/138
2020
P
U
O
R
G
5,828
4,014
t
s
a
E
e
d
d
M
l
i
-
a
c
i
r
f
A
144
20
Danfoss Annual Report 2020
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 1 Segment reporting (continued)
EURm
SPECIFICATION OF OTHER AREAS - EBITA
Corporate and shared functions and projects, not allocated *)
Other
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.
2019
-193
-15
-208
2019
221
93
896
30
12
1,252
2019
1,463
560
155
173
8
2,359
2020
-184
-18
-202
2020
726
82
909
44
7
1,768
2020
1,432
665
153
195
3
2,448
64/138
Danfoss Annual Report 2020 Note 2
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
Bonuses are influenced by results of 2020 as well as results of prior years.
Total remuneration for registered members of the Group Executive Team amounts to EUR 12m (2019: 10m). A presentation of the Group Executive Team is available on page 49.
2019
1,424
13
126
85
3
-1
1,650
27,905
27,871
2020
1,379
28
132
76
4
1,619
27,539
27,491
2019
2020
5
1
10
16
1
17
5
2
13
20
1
21
65/138
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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 from value adjustment on step-acquisition of company
Gain from 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
2019
2020
109
218
1
328
72
31
6
109
174
31
14
219
106
227
2
335
79
22
5
106
186
28
15
229
2019
2020
9
2
10
1
9
31
-1
-14
-18
-33
-2
2
9
13
24
-6
-28
-44
-78
-54
Restructuring costs in both years mainly relate to terminations in Denmark, Germany and USA. Other include EUR 37m one-off transaction costs related to the acquisition of Eaton Hydraulics.
The Group has received government grants of EUR 35m (2019: 10m) in total. This is among other items, related to investment incentives, support to research and development programs and COVID-19 compensation.
The government grants are mainly deducted from the related expenses in the functions; Cost of sales, Selling and distribution costs, and Administrative expenses.
66/138
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
2019
2020
3
0
1
1
5
3
0
0
1
4
Fees for services other than the statutory audit of the Financial Statements provided by PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab (PricewaterhouseCoopers Denmark) amounted to EUR 1.0 m (2019: 1.0m).
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.
67/138
Danfoss Annual Report 2020 Note 3
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 3 Investments in associates and joint ventures
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
-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
Investments in
associates and
joint ventures
Other
investments
349
-24
325
-69
-2
6
19
-46
279
19
2
-1
20
-16
-16
4
2020
TOTAL
368
2
-25
345
-85
-2
6
19
-62
283
Where indicators for impairment were present at the end of 2020, 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 2019.
Further information on associates and joint ventures is provided in Note 15 Financial risks and instruments and Note 25 Related parties.
68/138
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 3 Investments in associates and joint ventures (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 2020 AND 2019)
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
On the basis of the stock exchange quotation, the fair value of SMA Solar Technology AG as of December 31, 2020, was EUR 1,900m (2019: 1,200m).
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 29 Group companies.
69/138
Associates
Joint Ventures
1
1
14
Associates
Joint Ventures
79
187
266
14
14
2019
TOTAL
1
1
14
2019
TOTAL
79
187
14
280
Associates
Joint Ventures
2
2
10
Associates
Joint Ventures
83
187
270
10
10
SMA Solar Technology AG
2019
Germany
20%
2020
Germany
20%
915
-11
-8
296
719
257
347
411
79
1,027
28
28
307
679
259
305
422
83
2020
TOTAL
2
2
10
2020
TOTAL
83
187
10
280
Danfoss Annual Report 2020 Note 4-5
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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.
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.
A fair-value hedge impact of EUR 14m (2019: 7m) is included in Foreign exchange losses, net.
Further information on leases is provided in Note 24 Leases.
70/138
2019
2020
4
4
4
2
2
2
2019
2020
-22
-3
-8
-4
-37
-30
-27
-2
-8
-13
-50
-35
Danfoss Annual Report 2020 Note 6
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
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
71/138
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
2020
-175
30
3
-142
22.0%
1.7%
-1.0%
-0.2%
0.7%
1.9%
-0.5%
24.6%
2020
-142
4
4
-134
Danfoss Annual Report 2020 Note 7
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 7 Intangible assets
EURm
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
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
Cost as of January 1, 2020
Foreign exchange adjustments in foreign companies
Additions through acquisition of subsidiaries
Transfers
Additions
Disposals
Cost as of December 31, 2020
Amortization and impairment losses as of January 1, 2020
Foreign exchange adjustments in foreign companies
Amortization
Disposals
Amortization and impairment losses as of December 31, 2020
Carrying amount as of December 31, 2020
Internally
developed
software
Goodwill
Brand
Technology
Customer
relations
Patents,
trademarks and
other rights
Development
costs
Total
Other
TOTAL
1,718
9
103
1,830
152
2
154
1,676
1,830
-42
-2
1,786
154
-7
147
1,639
300
1
1
36
51
389
145
1
23
26
195
194
389
-4
2
44
-39
392
195
-2
34
-39
188
204
150
1
151
11
2
13
138
151
-7
144
13
-1
3
15
129
662
4
39
705
377
3
46
426
279
705
-24
6
687
426
-19
47
454
233
382
3
18
403
253
1
31
285
118
403
-14
-6
383
285
-12
19
292
91
95
1
-36
1
-2
59
59
1
-23
3
-2
38
21
59
-1
-1
-9
48
38
-1
3
-9
31
17
66
1
-15
52
65
1
1
-15
52
52
-2
50
52
-2
50
1,655
11
58
52
-17
1,759
910
7
109
-17
1,009
750
1,759
-50
1
44
-50
1,704
1,009
-35
106
-50
1,030
674
3,373
20
161
52
-17
3,589
1,062
9
109
-17
1,163
2,426
3,589
-92
-2
1
44
-50
3,490
1,163
-42
106
-50
1,177
2,313
Of the "Internally developed software" approximately 50% relates to the One ERP program described in the Management's Review, page 24.
Additions/disposals through acquisitions/sales of subsidiaries are further described in Note 20 Acquisition and sales of subsidiaries and activities.
72/138
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 7 Intangible assets (continued)
EURm
IMPAIRMENT TESTS
At the end of 2020, 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 2021-2030. 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
Danfoss
Climate
Solutions
Danfoss
Drives
339
132
565
770
2019
Other
2
Danfoss Power
Solutions
323
126
Danfoss
Climate
Solutions
Danfoss
Drives
544
770
2020
Other
2
The Danfoss Power Solutions brand with a carrying amount EUR 126m (2019: 132m) 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.
In 2020, the Danfoss Cooling and Danfoss Heating segments were combined into the Danfoss Climate Solutions segment. The goodwill for the new Danfoss Climate Solutions segment is an aggregation of the goodwill in the Danfoss
Cooling and Danfoss Heating segments.
The weighted average growth rate until 2030 is based on past performance/Management expectation of market development etc. and is estimated to be 3-6% (2019: 2-6%) 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 2019. 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% (2019: 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 2019.
73/138
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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 2020, the carrying amount of Brand, Technology and Customer relations acquired in connection with business combinations amounts to EUR 262m (2019: 315m),
or approximately 58% (2019: 59%) of the corresponding Group carrying amount . The carrying amount of Technology and Customer relations is amortized until 2032.
Danfoss Climate Solutions
The goodwill allocated to Danfoss Climate Solutions derives primarily from the acquisitions of DEVI Group (Denmark) in 2003, Scroll Technologies (USA) in 2006, Danfoss Turbocor Compressors (USA) in 2012, and
Sondex Holding A/S (Denmark) in 2016. At the end of 2020, the carrying amount of Technology and Customer relations acquired in connection with business combinations amounts to EUR 63m (2019: 71m),
or approximately 14% (2019: 13%) of the corresponding Group carrying amount. The carrying amount of Technology and Customer relations is amortized until 2032 and 2030, respectively.
Danfoss Drives
The goodwill allocated to Danfoss Drives segment derives primarily from the acquisition of Vacon (Finland) in December 2014. At the end of 2020, the carrying amount of Technology and Customer relations acquired in connection
with business combinations amounts to EUR 128m (2019: 148m), or approximately 28% (2019: 28%) of the corresponding Group carrying amount. The carrying amount of Technology and Customer relations is amortized until
2026 and 2029, respectively.
Other intangible assets
At the end of 2020, Danfoss had software in progress amounting to EUR 49m (2019: 36m) and EUR 0m (2019: 0m) capitalized development expenditure in progress. Capitalized software in progress is mainly developed internally.
In 2020, the Group performed impairment tests on the carrying amount of software in progress. The actual expenses and achieved milestones have been evaluated according to the approved project and business plans. This led
to no impairment of current software assets (2019: 0m).
74/138
Danfoss Annual Report 2020 Note 8
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 8 Property, plant and equipment
EURm
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
Cost as of January 1, 2020
Foreign exchange adjustments in foreign companies
Transfers
Additions
Disposals
Cost as of December 31, 2020
Depreciation and impairment losses as of January 1, 2020
Foreign exchange adjustments in foreign companies
Transfers
Depreciation
Impairment
Disposals
Depreciation and impairment losses as of December 31, 2020
Carrying amount as of December 31, 2020
Land and
buildings
Plant and
machinery
Equipment
Assets under
construction
TOTAL
925
107
6
8
16
56
-12
1,106
421
2
1
71
1
-11
485
621
1,106
-34
29
79
-22
1,158
485
-12
1
69
2
-7
538
620
1,548
1
9
1
98
63
-17
1,703
1,161
6
1
106
-14
1,260
443
1,703
-43
101
48
-54
1,755
1,260
-26
-5
116
-50
1,295
460
258
27
1
1
5
35
-18
309
159
1
-2
41
-17
182
127
309
-6
11
36
-43
307
182
-5
4
42
-40
183
124
179
1
-119
157
218
218
218
-5
-142
129
200
200
2,910
135
17
10
311
-47
3,336
1,741
9
218
1
-42
1,927
1,409
3,336
-88
-1
292
-119
3,420
1,927
-43
227
2
-97
2,016
1,404
Additions/disposals through acquisitions/sales of subsidiaries are further described in Note 20 Acquisition and sale of subsidiaries and activities.
75/138
Danfoss Annual Report 2020 Note 9
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
Carrying amount related to right-of-use assets as of January 1, 2020
Foreign exchange adjustments in foreign companies
Additions
Depreciation
Disposals
Carrying amount related to right-of-use assets as of December 31, 2020
Further information on leases is provided in Note 24 Leases.
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
76/138
Land and
buildings
Plant and
machinery
Equipment
TOTAL
36
107
1
4
32
-38
142
142
-3
61
-33
-3
164
1
1
2
-1
3
3
2
-2
3
16
27
19
-23
39
39
28
-25
-1
41
2019
345
79
318
742
62
52
9
3,214
53
135
1
4
53
-62
184
184
-3
91
-60
-4
208
2020
337
75
291
703
66
35
13
2,894
Danfoss Annual Report 2020 Note 10
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
77/138
2019
910
-25
885
8
893
1
-25
-1
-6
3
4
-25
2020
875
-21
854
9
863
-25
2
-3
3
2
-21
Danfoss Annual Report 2020 Note 11
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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, 2019
Balance as of December 31, 2019
Balance as of December 31, 2020
SHARES
48.08%
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
86.14%
5.47%
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 DKK 100.
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.
No dividend was paid for 2019 and the Board of Directors recommends that no dividend is to be paid for 2020.
DEVELOPMENT IN THE GROUP'S HOLDING OF TREASURY SHARES (NO. OF B-SHARES OF 100 DKK)
Holding as of January 1
Acquired in the year
Acquired from The Bitten & Mads Clausen's Foundation
Sold to The Bitten & Mads Clausen's Foundation
Holding as of December 31
DKK
60.2
60.2
2019
EUR
8.1
8.1
DKK
2020
EUR
2019
350,698
1,924
59,500
412,122
2020
412,122
2,512
-74,236
340,398
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 2020 for acquiring own shares amounts to EUR 2m (2019: 60m). The total selling price in
2020 for selling own shares amounts to EUR 70m (2019: 0m). The Group's holding of of treasury shares represents 3.4% (2019: 4.1%) 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 financial metrics that are commensurate with such credit rating over the cycle. Danfoss is currently rated “BBB with a negative outlook" by Standard and Poor’s. End of 2020 the net-interest-bearing debt to EBITDA ratio was
0.6 (2019: 1.0) on a reported basis. Danfoss aims to use the free operating cash flow after financial items and tax for debt servicing and business development.
78/138
Danfoss Annual Report 2020 Note 12
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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. Other mainly comprises expenses for restucturing and severance payments. Provisions have been discounted to net present value, if the values are significant.
Warranty
Contingent
consideration
Employee-
related
2020
Other
TOTAL
40
-2
-20
-2
29
45
51
-3
48
36
-1
-2
10
43
31
-1
-7
-4
10
29
158
-4
-29
-9
49
165
2020
Warranty
Contingent
consideration
Employee-
related
Other
TOTAL
31
14
45
6
37
5
48
5
14
24
43
10
16
3
29
52
81
32
165
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
79/138
Danfoss Annual Report 2020 Note 13
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
Debt and provisions
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
Debt and provisions
Deferred tax regarding Danish joint taxation
Set-off within the same legal entities and jurisdiction
Deferred tax liabilities
2019
-140
2
-5
-16
7
8
-144
2020
-144
1
2
30
4
-107
2019
Deferred tax
asset
2020
Deferred tax
asset
4
49
18
127
40
-34
204
-123
81
4
48
22
156
41
-36
235
-143
92
Deferred tax
liability
Deferred tax
liability
142
129
10
62
5
348
-123
225
131
123
10
73
5
342
-143
199
The tax asset related to tax-loss carry-forwards of EUR 5m net (2019: 6m) 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% (2019: 100%) 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 36m (2019: 34m). The amount is not recognized as an asset, as the tax losses carried forward are not expected to be utilized. 2% of the
amount (2019: 19%) has a remaining period of 3 years or less, whereas the share with a remaining period of 10 years or more totals 83% (2019: 70%).
Of the deferred tax liability of EUR 199m (2019: 225m), EUR 5m (2019: 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 8m (2019: 15m). 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.
80/138
Danfoss Annual Report 2020 Note 14
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
2019
Gross liability Net Liability
2020
Gross liability Net Liability
25%
38%
33%
4%
100%
67%
29%
-7%
11%
100%
26%
38%
33%
3%
100%
65%
26%
-3%
12%
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 (2019: 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
Provision as of December 31
81/138
2019
2020
550
-406
144
11
155
144
559
-410
149
4
153
149
2019
2020
479
12
3
15
-3
66
-1
2
-5
-18
550
550
-29
4
11
-2
48
1
-5
-19
559
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
Payments by the Group
Disbursed benefits
Plan assets as of December 31
2019
2020
365
11
12
2
25
9
-18
406
406
-26
9
1
32
7
-19
410
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 (2019: 72m).
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
82/138
2019
2020
3
15
-12
-1
5
1
2
-1
3
5
4
11
-9
6
1
3
2
6
2019
2020
24
93
433
550
25
100
434
559
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 14 Pension and healthcare obligations (continued)
EURm
PENSION PLAN ASSETS ARE SPECIFIED AS FOLLOWS:
Shares and similar securities
Listed corporate bonds
Bonds
Other
2019
33%
34%
18%
15%
100%
132
136
71
67
406
2020
34%
34%
16%
16%
100%
140
138
65
67
410
Plans in which the pension funds are invested in financial instruments are exposed to risk. 34% (2019: 33%) 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
Life expectancy for a pensioner retiring at the end of the reporting period
Life expectancy for a pensioner retiring 20 years after the end of the reporting period
2019
Weighted
average
2.2%
3.5%
2019
Female
Range
87-88
88-90
Range
0.1-3.2%
1.5-4.2%
Male
Range
85-87
86-90
2020
Weighted
average
1.7%
3.5%
2020
Female
Range
86-89
88-90
Range
-0.3-2.3%
1.2-4.3%
Male
Range
84-87
86-90
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 10m to defined-benefit plans in 2021 (2020: 13m).
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
83/138
2019
550
2020
559
-40
+44
+2
-2
+20
-19
-42
+47
+3
-3
+21
-21
Danfoss Annual Report 2020 Note 15
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 15 Financial risks and instruments
EURm
FINANCIAL RISKS
Danfoss's profitability, cash flow and balance sheet are exposed to financial market risk as a consequence of the Group's multinational business profile. The risk 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
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 27 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 for 2020 follow a Cash Flow at Risk approach in combination with the hedge ratios below
Cash-flow risk, five largest exposures: Minimum hedge 60%
Other significant cash-flow exposures: Minimum hedge 30%
The policy for balance sheet risk has been unchanged and the hedge ratio was 100% in both 2020 and 2019.
2. Translation risk: This is the risk that the P&L and Equity of Danfoss are impacted adversely by currency movements when consolidating the financial statements of subsidiaries. Translation risk (Reporting 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 3)
EUR
-101
37
66
-412
USD
-25
-75
101
-120
GBP
5
-3
-3
-38
2019
Total
-121
-41
164
-570
EUR
-117
89
31
-1,136
USD
15
-142
124
747
GBP
-6
6
-27
2020
Total
-108
-53
161
-416
1) Besides the loans included, loans of EUR 614m (2019: 627m) are used for hedging of net investments (equity hedge). The impact on the Group's equity is EUR 2.6m (2019: -0.4m).
2) Financial instrument for hedging of fair value also includes the exposure related to inventories in countries applying foreign currency price lists.
3) Includes the cash-flow hedge related to the expected acquisition of Eaton Hydraulics, USD/EUR 1.000m.
SENSITIVITY
Probable increase in exchange rate
Hypothetical impact on profit and loss for the year
Hypothetical impact on equity
1%
0
-10
10%
0
-12
10%
0
-4
0
-26
1%
0
-17
10%
0
75
10%
0
-3
0
55
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 include impact from derivatives.
84/138
#
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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 risk 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 3 months and 12 months.
Danfoss has not undertaken financial hedging of commodities in 2020 or 2019.
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 21m write-down, EUR 18m relates
to receivables, which are 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 split 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
2019
2020
41
16
33
828
918
25
893
13
15
20
836
884
21
863
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 any material impact on the profit for the year, while equity would be
impacted by a gain of EUR 45m, mainly related to USD interest rate hedge.
A significant part of the financing of the Eaton Hydraulic acquisition is expected to be structured as synthetic USD financing and end of 2020 a part of the interest rate exposure have been fixed for the expected duration via
interest-rate swaps.
85/138
#
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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 credit facilities with an average maturity profile of at least 3 years.
At the end of 2020, Danfoss' credit rating from Standard and Poor’s was "BBB with a negative outlook" and the liquidity reserve equaled EUR 2.1bn (2019: 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 2 years at the end of 2020. The Danfoss Group's loan agreements contain no financial covenants.
The major part of the Group's cash, and cash equivalents, of EUR 611m (2019: 110m) is placed on short-term deposits and short-term flex bonds (Danish) with a maturity on April 1, 2021.
A significant part of the Group's cash equivalents is expected to be used in the Eaton Hydraulic acquisition.
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.
Further information on lease is provided in Note 24 Leases.
i
g
n
y
r
r
a
C
t
n
u
o
m
a
906
69
194
820
3
3
1,995
l
a
u
t
c
a
r
t
n
o
C
w
o
l
f
h
s
a
c
941
74
219
820
3
3
2,060
2019
Maturity
)
*
s
r
a
e
y
5
-
1
5
r
e
v
O
s
r
a
e
y
650
1
124
252
73
40
775
365
r
a
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y
1
-
0
39
55
820
3
3
920
i
g
n
y
r
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t
n
u
o
m
a
883
69
219
774
4
62
2,011
l
a
u
t
c
a
r
t
n
o
C
w
o
l
f
h
s
a
c
906
74
247
774
4
62
2,067
2020
Maturity
)
*
s
r
a
e
y
5
-
1
5
r
e
v
O
s
r
a
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y
626
1
139
766
250
73
52
1
376
r
a
e
y
1
-
0
30
56
774
4
61
925
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 bank's sole discretion. Danfoss is not directly or indirectly a party to these agreements. End of December, the Group is aware of EUR 37m (2019: 45m) of trade payables that are part of
such agreements.
THE ABOVE DEBT IS RECORDED AS FOLLOWS:
Non-current liabilities
Current liabilities
86/138
#
2019
2020
1,093
902
1,995
1,104
907
2,011
Danfoss Annual Report 2020
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
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
2019
Fair
value
3
3
893
104
110
1,107
Carrying
amount
3
3
893
104
110
1,107
2020
Fair
value
4
4
863
106
611
1,580
Carrying
amount
4
4
863
106
611
1,580
51
51
48
48
1,169
1,385
2,554
1,197
1,385
2,582
1
2
3
1
2
3
1,171
1,417
2,588
1,193
1,417
2,610
4
58
62
4
58
62
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 2019.
87/138
#
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 15 Financial risks and instruments (continued)
EURm
FAIR VALUE HIERARCHY AS OF DECEMBER 31 FOR THE GROUP
FINANCIAL ASSETS:
Other investments
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
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE BASED ON LEVEL 3
Carrying amount as of January 1, assets/liabilities (-)
Disposals/Reversals
Purchase
Carrying amount as of December 31, assets/liabilities (-)
Fair value of the majority of the financial instruments is determined using discounted cash-flow analysis.
88/138
#
2019
2020
s
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c
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e
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b
a
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e
s
b
o
-
n
o
N
Level 1
Level 2
Level 3
3
3
51
51
1
2
1,197
1,200
l
a
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o
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3
3
1
2
51
1,197
1,251
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a
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b
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-
n
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N
Level 1
Level 2
Level 3
4
4
48
48
4
58
1,193
1,255
l
a
t
o
T
4
4
4
58
48
1,193
1,303
2019
2020
-50
2
-48
-48
2
2
-44
Danfoss Annual Report 2020
Note 16-17
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 15 Financial risks and instruments (continued)
EURm
DERIVATIVES AS OF DECEMBER 31 FOR THE GROUP
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/
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USD
EUR
Other currencies
Forward exchange contracts
Interest swaps
Other derivatives
Derivatives end of year
-99
-232
-117
n
o
)
-
(
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2019
2020
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857
-27
144
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At the end of 2020, unrealized gain/loss(-) on derivatives on hedging of foreign currency risk recognized in equity amounted to EUR -57m (2019: -2m). The main reason for the 2020 impact is the hedging of part of the expected
acquisition price of Eaton Hydraulics.
The interest-rate swap is related to the expected financing of the Eaton Hydraulic acquisition. The maturity of the swaps is from 5 to 7 years. The swap sets a fixed USD market interest rate at levels seen during the last half of
December 2020.
For the open foreign exchange contracts, used for USD cash-flow hedges, at the end of 2020, the weighted average hedge rate for USD/DKK is 6.4793 (2019: 6.5276).
89/138
#
Danfoss Annual Report 2020
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
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 Other debt
EURm
Accrued salaries and wages
Accrued expenses
Other debt
90/138
2019
26
-140
-12
163
1
38
30
68
38
2019
312
197
509
2020
38
-1
-169
-1
175
-4
38
23
61
38
2020
319
222
541
Danfoss Annual Report 2020 Note 19
Note 20
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 18 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
2019
2020
328
-1
-9
4
-4
37
-21
334
335
4
-6
-2
50
-9
372
2020
-7
-13
72
52
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 22.
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.
Note 19 Change in working capital
EURm
Change in inventories
Change in receivables
Change in trade payables and other debt
Change in working capital
2019
30
14
-87
-43
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Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 20 Acquisition and sale of subsidiaries and activities
EURm
Company/activity:
Artemis Intelligent Power Ltd. (AIP)
Leanheat Oy
Hydraulik Nord Fluidtechnik GmbH & Co. KG
UQM Technologies Inc.
Acquisition
Acquisition
Acquisition
Acquisition
*) Net sales in the financial year prior to the acquisition or sale.
** According to non-disclosure obligations, purchase
Country
UK
Finland
Germany
US
Consolidated
from/until
Holding
acquired/sold
Net sales per
year *)
February
May
April
August
75%
100%
100%
100%
3
2
21
13
2019
No. of
employees
Consideration
paid
53
50
170
85
**
**
**
94
2020 acquisitions and disposals:
The Group neither acquired nor sold any subsidiaries or activities in 2020. Revaluation of Purchase Price Allocation for previous year has been done and is included in the statement below.
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 has been
aquired into the Power Solutions segment. Likewise in the Power Solutions segment, Danfoss acquired 75% of 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 and building HVAC systems for the digital age.
Leanheat is a separate business within the Climate Solutions segment. For accounting purposes, the acquisition is treated as a step-acquisition, which means that a gain of 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.
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Danfoss Annual Report 2020 Note 21
Note 22
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 20 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
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 0m (2019: 0.2m)
Note 21 Acquisition / Sale of other investments
EURm
Sale of shares and other securities
Purchase of shares and other securities
Increase/decrease in lending
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2019
Acquisitions
2020
Acquisitions
2019
Disposals
2020
Disposals
-2
-2
2
-58
-10
-2
-8
-11
-7
14
8
13
-61
-103
-164
7
-157
1
5
9
2
-140
2019
37
37
2020
5
-1
-15
-11
Danfoss Annual Report 2020 Note 23
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 22 Change in liabilities arising from financing activities
EURm
Carrying amount as of January 1, 2019
Adoption of IFRS 16
Restated balance as of Janaury 1, 2019
Cash flows:
Cash repayment
Lease payments
Cash proceeds
Non-cash transactions:
Acquisitions of subsidiaries
Acquisitions and disposal of lease liabilities
Reclassification
Other
Carrying amount as of December 31, 2019
Cash flows:
Cash repayment
Lease payments
Cash proceeds
Non-cash transactions:
Acquisitions and disposal of lease liabilities
Reclassification
Other
Carrying amount as of December 31, 2020
Short-term
borrowings
56
52
108
Long-term
borrowings
1,007
90
1,097
-423
-59
383
10
28
30
-1
76
-26
-61
8
23
50
-2
68
-604
601
4
25
-30
1,093
-5
64
-50
1
1,103
TOTAL
1,063
142
1,205
-1,027
-59
984
14
53
-1
1,169
-31
-61
8
87
-1
1,171
Lease payments are the principal portion of lease liabilities and are 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 2020 mainly consists of foreign exchange adjustments and short-term and long-term borrowings, reclassification.
Further information on lease is provided in Note 24 Leases.
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Danfoss Annual Report 2020 Note 24
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 23 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
2019
140
184
265
2020
126
208
289
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
The Danfoss Group 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 the
Danfoss Group 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
2019
85
166
37
288
2020
72
144
48
264
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Danfoss Annual Report 2020 Note 25
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 24 Leases
EURm
LESSEE
Lease liabilities are presented in borrowings of the Statement of Financial Position as follows:
Current
Non-current
2019
48
146
2020
49
170
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 (2019: 8m).
At December 31, 2020, the Group had committed to leases not yet commenced. The total future cash outflows for leases that had not yet commenced are EUR 57m (2019: 64m), which are mainly for buildings.
Total cash outflow for leases for the financial year ended December 31, 2020, was EUR 65m (2019: 66m).
The amount recognised as profit or loss for the reporting period to reflect changes in lease payments arising from rent concessions to which the Group has applied the practical expedient for COVID-19-related rent concessions, is
below EUR 1m.
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 22 Change in liabilities
arising from financing activities, Note 5 Financial expenses, Note 8 Property, plant and equipment and Note 15 Financial risks and instruments.
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Danfoss Annual Report 2020 Note 26
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 25 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 48.08% of the shares in Danfoss A/S and controls 86.14% 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 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 (2019: 3.3m).
In the financial year, the Bitten & Mads Clausen's Foundation purchased shares in Danfoss A/S at a value of EUR 70m from to the company (2019: -58m).
The Bitten & Mads Clausen's Foundation has agreed to utilize its first right to buy back the Danfoss A/S shares that relates to employee share programs, when these shares will be offered for sale. The agreement effectively transfers
the liability from Danfoss A/S to the Bitten & Mads Clausen's Foundation. End of December 2020, these shares constitute less than 1% of the share capital in Danfoss A/S.
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 expired at the end of 2020. The rent payment amounted to EUR 0.3m in 2020 (2019: 0.3m).
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 (2019: 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
2019
40
16
2020
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.
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Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 26 Events after the balance sheet date
Subsequent to December 31, 2020, on January 14, 2021, Danfoss announced the acquisition of the remaining 25% ownership share in Artemis Intelligent Power Ltd (AIP). AIP is the R&D and engineering company based in
Edinburgh, Scotland specializing in hydraulic system development.
On January 27, 2021, Danfoss announced the preparation of a divestment to meet regulatory requirements concerning fair competitive levels in the market. Danfoss is required to create and and divest the stand-alone business
unit, White Drive Motors & Steering. The new business unit will include operations and products at three Danfoss locations in Hopkinsville, Kentucky, US; Wroclaw, Poland; and Parchim, Germany; in addition to three product lines
from Eaton Hydraulics. Altogether, this includes approximately 800 employees. The divestment is a pre-requisite to close the acquisition of Eaton Hydraulics.
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Danfoss Annual Report 2020 Note 27
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 27 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, 2020, 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 for Class D
companies.
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: financial instruments measured at
fair value, derivatives, 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 2020. None
of those standards and interpretations have material
effect on recognition and measurement in 2020,
nor are they expected to have a material effect on
Danfoss A/S in the future.
New financial reporting regulations
- Amendment to IFRS 16 COVID-19-Related Rent
Concessions
The Group has early adopted COVID-19-Related Rent
Concessions – Amendment to IFRS 16 issued on May
28, 2020. The amendment introduces an optional
practical expedient for leases in which the Group is
99/138
a lessee – i.e. for leases to which the Group applies
the practical expedient, the Group is not required
to assess whether eligible rent concessions that are
a direct consequence of the COVID-19 coronavirus
pandemic are lease modifications. The amendment
has no impact on retained earnings at January 1,
2020.
Other standards and amendments that are effective
for 2020 are not relevant to 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 2020 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 IAS 1 Classification of Liabilities as
Current or Non-current
- Amendments to IAS 16 Property, Plant and
Equipment: Proceeds before Intended Use
- Amendments to IAS 37 Onerous contracts - Cost of
Fulfilling a Contract
- Amendments to IFRS 3 Reference to Conceptual
Framework
- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and
IFRS 16 Interest Rate Benchmark Reform - Phase 2
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”.
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.
Business combinations
Newly acquired or established companies
are recognized in the Consolidated Financial
Statements from the acquisition date, and divested
companies are recognized in the consolidated
income statement until the time of divestment.
Comparative figures are not restated for newly
If uncertainty exists at the acquisition date
concerning the identification or measurement of
acquired assets, liabilities or contingent liabilities,
initial recognition is made at provisional fair values.
If it subsequently becomes apparent that the fair
value of identifiable assets and liabilities, including
contingent liabilities, differs from the assumed
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 27 Basis for preparation and accounting policies (continued)
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.
Minority interests
On initial recognition, minority interests
are measured either at fair value or at their
proportionate share of the fair value of the
acquired company’s identifiable assets, liabilities
and contingent liabilities. In the case of the
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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.
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
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 27 Basis for preparation and accounting policies (continued)
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.
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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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 that
compensate the Group for expenses incurred,
are deducted at related expenses. 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
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 27 Basis for preparation and accounting policies (continued)
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”, “Selling and
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.
102/138
Impairment of non-current assets
Goodwill and intangible assets with indefinite useful
lives are tested annually for impairment, initially
before the end of the acquisition year. Similarly,
development projects in progress are subject to
an annual impairment test. Deferred tax assets
are subject to annual impairment tests and are
recognized only to the extent that it is probable that
the assets will be utilized.
The carrying amount of other non-current assets is
tested annually for evidence of impairment. When
there is evidence that assets may be impaired, an
impairment test is made. Impairment is tested by
calculating the recoverable amount. The recoverable
amount is the higher of an asset’s fair value less
expected costs to sell and its value in use. The
value in use is determined as the present value of
expected future cash flows from the asset or the
cash-generating unit (CGU). If the fair value or value
in use cannot be determined on individual assets,
the recoverable amount is determined as the fair
value of expected future cash flows from activities
or the cash-generating unit (CGU) to which the
asset belongs.
Impairment losses are recognized in the income
statement if the carrying amount of an asset or
a cash-generating unit exceeds the recoverable
amount.
Impairment of assets is reversed to the extent
of changes in the assumptions and estimates
underlying the impairment calculation. Impairment
is only reversed to the extent that the asset’s
new carrying amount does not exceed the
carrying amount of the asset after depreciation
or amortization, had the asset not been impaired.
However, impairment of goodwill is never reversed.
Financial assets
Investments in associates and joint ventures
are measured in the Consolidated Financial
Statements according to the equity method at the
proportionate share of the enterprises including
additional value from acquisitions, 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
subscription for shares. Share capital can only be
released according to the rules relating to capital
reduction.
Share premium
Share premium comprises amounts not included
in the nominal share capital, which have been paid
by the shareholders in connection with capital
increases, and gains and losses from the sale of
treasury shares. The reserve is part of the company’s
free reserves.
Reserve for proposed dividends
Dividends are recognized as a liability at the date
when they are adopted at the Annual General
Meeting. Proposed dividends for the financial year
are included in equity under proposed dividends.
Hedging reserve
In connection with hedging of future sales and
purchase transactions (cash flows), changes in
the fair value of instruments qualifying for hedge
accounting (documentation etc.) are recognized
in the statement of comprehensive income under
hedging reserve, until the hedged transaction is
transferred to inventories. The recognized changes
in the fair value are recognized in the hedging
reserve under equity.
Currency translation reserve
Foreign exchange differences arising on the
translation of the opening balance of equity
of foreign companies at the exchange rates at
the balance sheet date, and on translation of
income statements from the exchange rates at
the transaction date to the exchange rates at the
balance sheet date are recognized directly in a
separate translation reserve in the statement of
comprehensive income under the item “Foreign
exchange adjustments of foreign companies”.
Share capital
The share capital comprises the nominal portion
of the amounts paid in accordance with the
Foreign exchange adjustments of non-current
balances with foreign subsidiaries and associates,
which are considered additions to or deductions
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 27 Basis for preparation and accounting policies (continued)
from the subsidiaries’ equity as well as foreign
exchange adjustments of hedging transactions for
the purpose of hedging the Group’s net investments
in subsidiaries, are also recognized directly in the
consolidated statement of comprehensive income.
The translation reserve in the equity comprises
the Parent Company shareholders’ share of the
foreign exchange adjustments. On complete or
partial disposal of a foreign entity or on repayment
of balances, which constitute part of the net
investment in the foreign entity, the share of the
cumulative amount of the exchange differences
recognized in other comprehensive income relating
to that foreign entity is recognized in the income
statement when the gain or loss on disposal is
recognized.
Reserve for own shares
The reserve for own shares comprises the
acquisition cost for the company’s portfolio of
treasury shares. The dividend from treasury shares
is recognized directly in the retained earnings in
equity. Gains and losses from the sale of treasury
shares are recognized in share premium.
Provisions
A provision is recognized in the balance sheet when
the Group has a legal or constructive obligation as a
result of a past event in the financial year or previous
years, and it is probable that the settlement of the
obligation may lead to an outflow of the Group’s
financial resources, which can be reliably measured
at the balance sheet date. The amount recognized
as a provision is Management’s best estimate of
the expenses required to settle the obligation. In
measuring provisions, the costs required to settle
the liability are discounted if the effect is material to
the measurement of the liability.
For the measurement, a pre-tax discount factor is
used, which reflects the current market interest rate
level and the specific risks related to the liability.
Changes in present values for the financial year are
recognized under financial expenses.
103/138
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.
Pension obligations and defined
benefit healthcare plans
The Group has entered into pension schemes
and similar arrangements with the majority of the
Group’s employees. In addition, the Group has
healthcare plans contributing with payment for
medical expenses for certain employee groups in
the USA after their retirement.
Contributions to defined-contribution plans, where
the Group currently pays fixed pension payments
to independent pension funds, are recognized
in the income statement in the period to which
they relate, and any contributions outstanding are
recognized in the balance sheet as other debt.
For defined-benefit pension and healthcare plans,
the Group is under an obligation to pay a specific
benefit upon retirement (e.g. a fixed amount or a
percentage of the exit salary). For these plans, an
annual actuarial calculation (Projected Unit Credit
method) is made of the present value of future
benefits under the defined-benefit plan. The present
value is determined on the basis of assumptions
about the future development in variables, such as
salary levels, interest rates, inflation and mortality.
The present value is determined only for benefits
earned by employees from their employment with
the Group. The actuarial present value less the fair
value of any plan assets is recognized in the balance
sheet under pension and healthcare obligations.
Pension and healthcare costs for the year are
recognized in the income statement based on
actuarial estimates and financial expectations
at the beginning of the year. Any difference
between the expected development in assets
and liabilities, and realized amounts determined
at year-end constitutes actuarial gains or losses
and is recognized directly in other comprehensive
income. If changes in benefits relating to services
rendered by employees in previous years result in
changes in the actuarial present value, the changes
are recognized as past service costs. Past service
costs are recognized immediately, provided that the
benefits have already vested. If the benefits have
not vested, the past service costs are expensed in
the income statement over the period in which the
changed benefits vest.
If a pension or healthcare plan constitutes a net
asset, the asset is only recognized if it offsets future
refunds from the plan or will lead to reduced future
payments to the plan.
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.
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.
Danfoss Annual Report 2020 Definition of the financial ratios
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 27 Basis for preparation and accounting policies (continued)
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 be
crystallized as current tax.
Cash flows relating to acquired companies are
recognized in the statement of cash flows at the
acquisition date, and cash flows relating to divested
companies are included until the disposal date.
Cash flows from operating activities
Cash flows from operating activities are calculated
according to the indirect method on the basis of
profit before tax/profit before tax from continuing
operations and adjusted for non-cash operating
items, changes in working capital, paid financial
items, received dividend and paid corporation taxes.
Cash flows from investing activities
Cash flows from investing activities comprise
payment in connection with the acquisition and
disposal of companies and activities, intangible
assets and property, plant and equipment as
well as securities classified as investing activities.
Acquisitions of assets under 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, cash balances and highly liquid
investments with short-term maturity and which are
exposed to insignificant risk of change in value.
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.
Segment information
The segment information applies to the internal
management reporting and is prepared according
to the Group’s accounting policies. Segment
performance is primarily measured by EBITA.
Segment income, expenses, assets and liabilities
comprise those items, which can be allocated on
104/138
a reliable basis. Items, which are not allocated,
primarily include income and expenses incurred
by corporate functions, deferred tax (assets and
liabilities), receivable and payable tax, other
receivables and payables, cash and interest-bearing
liabilities.
Non-current segment assets are those non-
current assets, which are used directly for segment
operations, including intangible assets and property,
plant and equipment as well as investments in
associates and joint ventures. The majority of the
Group’s buildings are recognized under Other areas
in the segment reporting, as buildings are managed
and operated by a real-estate unit. The segments
are instead charged with rent/lease expenses for the
use of these assets.
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 measures
In the Annual Report, Danfoss presents certain
financial measures of the Group’s financial
performance, financial position and cash flows that
are not defined according to IFRS. These non-
IFRS financial measures may not be defined and
calculated by other companies using the same
method and may not be comparable.
The non-IFRS financial measures are calculated in
the following manner:
Local currency growth
Sales growth adjusted for exchange rate translation
effects
EBITA
Profit before interest, taxes, profit from associates
& joint ventures and amortization, gains and losses
related to acquisitions and divestments
The following tables shows the reconciliation of
EBITA with operating profit (EBIT), the most direct
comparable IFRS financial measure:
EBITA
EURm
2018
EURm
2019
EURm
2020
Operating profit (EBIT)
648
695
625
Share of profit
from associates
and joint ventures
Amortizations:
Brand
Technology
Customer relations
Gains/losses related
to acquisitions
and divestments
EBITA
33
3
43
28
4
3
46
30
-6
3
47
19
-31
724
-7
771
35
723
Danfoss Annual Report 2020
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 27 Basis for preparation and accounting policies (continued)
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
Return on Invested Capital (ROIC) after tax
EBIT after tax/average invested capital excluding tax
Invested capital excluding tax
Net interest-bearing debt and tax balance sheet
items (net) added to shareholders’ equity
EBIT after tax
Operating profit (EBIT) reduced with tax on profit
105/138
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).
The following tables shows the reconciliation of free
operating cash flow after financial items and tax
with cash generated from operating activities, the
most direct comparable IFRS financial measure:
Free operating cash flow after financial items and
tax
EURm EURm
2019
2018
EURm
2020
673
789
800
-227
-407
-242
41
140
-129
4
Cash flow from
operating activities
Cash flow from
investing activities
Acquisition of
subsidiaries
Proceeds from
sales of subsidiaries
Acquisition of
other investments
Proceeds from sale
of other investments
-4
-61
Lease payments
-3
-59
Free operating cash
flow after financial
items and tax
359
463
493
Free cash flow
Cash flow from operating and investing activities
including lease payments (IFRS16).
Danfoss Annual Report 2020
Note 28
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 28 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 the carrying amount of which 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.
Impact of COVID-19
Danfoss has actively monitored the COVID-19
development and the related risks during the year.
Cost flexibility measures to safeguard profitability
were implemented. Credit risk of customers, trade
receivables and inventory development have been
monitored.
106/138
Overall, COVID-19 has not impacted the critical
accounting estimates and risks applied in the annual
accounts.
Management will continue to monitor and assess
the ongoing development and respond accordingly.
Impairment of goodwill
In performing the annual impairment test of
goodwill, an assessment is made as to 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 in
associates and joint ventures.
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 27, 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 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 the
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.
Uncertain tax positions are recognized if it is
probable that the uncertain tax position will affect
the enterprise’s future tax payments or refunds.
Uncertain tax positions are measured so as to
better reflect the receivable/liability and the related
uncertainty.
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.
Danfoss Annual Report 2020 Note 29
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 29 Group companies
As of December 31, 2020
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.
• Danfoss Power Solutions II s.r.o.
Denmark
• BetterHome ApS– 33%
• Danfoss Compressors Holding A/S
• Danfoss Distribution Services A/S
• Danfoss Distribution II 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
107/138
• Danfoss Power Solutions Holding II ApS
• Danfoss Power Solutions II Technology A/S
• Danfoss Redan A/S
• Gemina Termix Production A/S
• Issab Holding ApS
• Sondex A/S
• Sondex Holding A/S
Estonia
• Danfoss AS
Finland
• Danfoss Editron Oy
• Danfoss Power Solutions Oy Ab
• Leanheat Oy
• Oy Danfoss Ab
• Sondex Tapiro Oy Ab
• Vacon Oy
France
• Danfoss Commercial Compressors S.A.
• Danfoss Power Solutions S.AS.
• Danfoss Power Solutions II S.A.S.
• Danfoss S.a.r.l.
Germany
• 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 II GmbH
• Danfoss Sensors GmbH
• Danfoss Silicon Power GmbH
• Danfoss Werk Offenbach GmbH
• SMA Solar Technology AG -20%
• Sondex Deutschland GmbH
Great Britain
• Artemis Intelligent Power Ltd. – 75%
• Danfoss Limited
• Danfoss Power Solutions Ltd.
• Danfoss Power Solutions II Ltd.
• Danfoss Scotland Limited
• Senstronics Holding Ltd.– 50% (joint venture)
• Senstronics Limited
• Sondex (UK) Limited – in liquidation
Hungary
• Danfoss Kft.
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 Editron B.V.
• Danfoss Power Solutions B.V.
• Danfoss Power Solutions II B.V.
• Sondex B.V.
• Sondex Holding Netherlands B.V.
Norway
• Danfoss AS
• Danfoss Power Solutions AS
Poland
• Danfoss Poland Sp. z.o.o.
• Danfoss Power Solutions Sp .z.o.o.
• Danfoss Saginomiya Sp. z.o.o. – 50% (joint venture)
• 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 LLC
• Danfoss Power Solutions LLC
Serbia
• Danfoss d.o.o.
Slovakia
• Danfoss Power Solutions a.s.
• Danfoss spol. s.r.o.
Slovenia
• Danfoss Trata d.o.o.
Danfoss Annual Report 2020
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 29 Group companies (continued)
Spain
• Danfoss Power Solutions S.A.
• Danfoss Power Solutions Telecontrol, S.L.U.
• Danfoss S.A.
Sweden
• Danfoss AB
• Danfoss Power Solutions AB
• EP Technology AB
Switzerland
• Danfoss AG
Ukraine
• Danfoss T.o.v.
AFRICA – MIDDLE EAST
South Africa
• Sondex South Africa Pty. Ltd. – 80%
• Danfoss (Pty) Ltd.
Turkey
• DAF Enerji Sanayi Ve Ticaret Anonim Sirketi
• Danfoss Otomasyon ve Urunleri Tic Ltd.
United Arab Emirates
• Danfoss FZCO – 95%
• Gulf Sondex FZCO
NORTH AMERICA
Canada
• Danfoss Inc.
USA
• Daikin-Sauer-Danfoss America LLC – 45%
• Danfoss LLC
• Danfoss Power Solutions II, LLC
• Danfoss Power Solutions Inc.
• Danfoss Power Solutions (US) Company
108/138
• Danfoss Power Solutions Work Function, LLC
• Danfoss Silicon Power LLC
• Hydro-Gear Inc. – 60%
• Hydro-Gear of Indiana, LLC
• Hydro-Gear Limited Partnership– 60%
• Sondex Equipment Holding Co., LLC
• Sondex Properties, 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.
Chile
• Danfoss Industrias Ltda.
• Danfoss Power Solutions II SpA
Colombia
• Danfoss S.A.
Mexico
• Danfoss Industries S.A. de C.V.
• Danfoss Power Solutions II S.A. de C.V.
• Danfoss Power Solutions III S.A. de C.V.
• Danfoss Power Solutions IV S.A. de C.V.
ASIA-PACIFIC
Australia
• Danfoss (Australia) Pty. Ltd.
• Danfoss Power Solutions Pty. Ltd.
• Danfoss Power Solutions II Pty. Ltd.
• Sondex Australia Pty. Ltd.
• Sondex Engineering Pty. Ltd.
Japan
• Daikin-Sauer-Danfoss Ltd. - 45%
• Danfoss Power Solutions Ltd.
Malaysia
• Danfoss Malaysia Sdn. Bhd.
• Danfoss Power Solutions II SDN. Bhd.
• Sondex Heat Exchangers Malaysia Sdn. Bhd.
Philippines
• Danfoss Philippines, Inc.
Singapore
• Danfoss Power Solutions Pte. Ltd.
• Danfoss Power Solutions II Pte. Ltd.
• Danfoss Singapore Pte. Ltd.
South Korea
• Danfoss Korea Ltd.
• Danfoss Power Solutions Ltd.
• Danfoss Power Solutions 2 Ltd.
Taiwan
• Danfoss Co. Ltd.
Thailand
• Danfoss (Thailand) Co. Ltd.
New Zealand
• Danfoss (New Zealand) Ltd.
• Danfoss Power Solutions II Ltd.
P. R. of China
• Danfoss (Anshan) Controls Co. Ltd.
• Danfoss (Tianjin) Fire Safety 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 (Jining) Co., Ltd.
• Danfoss Power Solutions (Nanjing) Co., Ltd.
• Danfoss Power Solutions (Zhejiang) Co., Ltd.
• Danfoss Power Solutions Trading (Shanghai) Co., Ltd.
• Danfoss Shanghai Hydrostatic Transmission Co.
Ltd.–60%
• Danfoss (Shanghai) Investment Co., Ltd.
• Sondex Plate Heat Exchanger (Ningbo) Co., Ltd.
• Sondex Plate Heat Exchanger (Taicang) Co. Ltd.
• 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 Fluid Power Pvt. Ltd.
• Danfoss Industries Pvt. Ltd.
• Danfoss Power Solutions India Pvt. Ltd.
• Danfoss Technologies Pvt. Ltd.
• Sondex Heat Exchangers India Pvt. Ltd.
Indonesia
• PT Danfoss Indonesia
• PT Sondex Indonesia
Iran
• Danfoss Pars Private Joint Stock Company - in
liquidation
Danfoss Annual Report 2020 Parent accounts and notes
Parent accounts
and notes
Management’s Review
Parent accounts and notes
110
111
Check into
sustainability
The climate-friendly Alsik hotel,
situated close to the Danfoss
headquarter, is today 76% CO2-
neutral. A main contributor is the
Danfoss Turbocor® oil-free chillers.
109/138
Danfoss Annual Report 2020 Management’s Review for Danfoss A/S
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Management’s Review for Danfoss A/S
(Part of Management’s Review)
Danfoss A/S is the Parent Company of the
Danfoss Group. In addition to holding the
shares of most of the other Danfoss Group
companies, an important function of the
company is to fund the Group’s activities.
The Company also constitutes the corporate
framework for many of the Danfoss’ Danish
activities and therefore includes a number
of Danfoss’ Danish factories and Group
functions. Danfoss A/S had 2,752 employees
at the end of 2020.
The profit before other operating income
and expenses was EUR 101m against EUR
78m in 2019. The Company’s operating profit
was EUR 86m against EUR 68m the previous
year.
Financial income and expenses decreased
from a net expense of EUR 15m against a net
income of EUR 93m in 2019, mainly due to
a decrease in received dividends, impact of
foreign-exchange contracts and increased
impairment of subsidiaries.
The profit after tax in 2020 was EUR 53m
against EUR 149m the previous year.
Equity was EUR 3,030m at the end of 2020
against EUR 2,896m at the end of 2019.
The increase was mainly attributable to
recognition of the profit for the year.
Danfoss A/S expects net sales for 2021 to
be on a level with the 2020 figures, and the
company expects to report a profit in 2021.
110/138
Danfoss Annual Report 2020 Incom statement parent
Parent account and notes
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
111/138
e
t
o
N
1
1
1
1
1
1
2
3
4
2019
1,283
-1,016
267
-35
-94
-60
78
-10
68
148
-55
161
-12
149
80
69
149
2020
1,224
-952
272
-37
-83
-51
101
-15
86
127
-142
71
-18
53
53
53
Danfoss Annual Report 2020 Statement of comprehensive income M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Statement of comprehensive income
January 1 to December 31
EURm
NET PROFIT
OTHER COMPREHENSIVE INCOME
Foreign exchange adjustments on translation of DKK into EUR
Items that can be reclassified to profit or loss
OTHER COMPREHENSIVE INCOME AFTER TAX
TOTAL COMPREHENSIVE INCOME
2019
149
-1
-1
-1
148
2020
53
13
13
13
66
112/138
Danfoss Annual Report 2020 Statement of financial positiont M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
Receivable corporation tax
Other receivables
RECEIVABLES
CASH AND CASH EQUIVALENTS
TOTAL CURRENT ASSETS
TOTAL ASSETS
113/138
e
t
o
N
5
6
7
10
9
2019
2020
240
277
3,281
3,281
3,798
104
36
90
878
19
1,023
83
1,210
5,008
249
286
3,840
3,840
4,375
100
38
90
275
5
17
425
554
1,079
5,454
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
Borrowings from subsidiaries
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
114/138
e
t
o
N
9
8
9
9
10
9
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
2020
3,030
41
37
2
946
102
39
1,167
23
16
153
13
880
4
60
108
1,257
2,424
5,454
Danfoss Annual Report 2020 Statement of cash flows M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
Acquisition of subsidiaries
Proceeds from disposal of subsidiaries
Cash repayment of (-)/cash proceeds from loans to subsidiaries
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
Purchase of treasury shares
Sale 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
Foreign exchange adjustment of cash and cash equivalents
CASH AND CASH EQUIVALENTS AS OF DECEMBER 31
115/138
e
t
o
N
11
10
12
12
2019
2020
161
-49
18
18
-13
124
-13
246
-42
-43
-35
-13
-133
-985
974
94
-60
-78
-55
58
25
83
-
71
101
-7
26
-21
92
-26
236
-37
-37
-34
2
26
-80
-24
270
-2
70
314
470
83
1
554
Danfoss Annual Report 2020 Statement of changes in equity M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Statement of changes in equity
EURm
BALANCE AS OF JANUARY 1, 2019
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
134
10
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
Sale of treasury shares
Total transactions with owners
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
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
-316
s
t
c
e
j
o
r
p
93
37
37
s
e
v
r
e
s
e
r
r
e
h
t
O
s
e
v
r
e
s
e
R
2,885
2,662
69
-37
-1
-1
31
2
2
130
2,918
7
1
1
8
53
-7
13
13
59
80
80
69
-1
-1
68
2
-60
-58
2,672
53
13
13
66
80
-2
70
148
d
e
s
o
p
o
r
P
s
d
n
e
d
i
v
i
d
80
80
80
-80
-80
80
-80
-80
y
t
i
u
q
e
l
a
t
o
T
2,886
149
-1
-1
148
-78
-60
-138
2,896
53
13
13
66
-2
70
68
-60
-60
-376
-1
-1
-1
-2
70
68
BALANCE AS OF DECEMBER 31, 2020
134
10
-309
138
3,057
2,886
3,030
For further information on Equity and Share capital, see Statement of changes in equity and Note 11 Share capital, in Group section.
116/138
Danfoss Annual Report 2020
Notes content M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
117/138
Danfoss Annual Report 2020 Note 1 M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
Bonuses are influenced by results of 2020 as well as results of prior years.
Total remuneration for registered members of Executive Management amounts to EUR 12m (2019: 10m).
118/138
2019
1,046
237
1,283
2019
256
1
2
21
280
2,863
2,869
2020
1,047
177
1,224
2020
238
9
8
20
275
2,810
2,752
2019
2020
4
1
8
13
1
14
4
1
11
16
1
17
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
Other operating expenses
D. OTHER OPERATING INCOME AND EXPENSES
Other gains related to acquisitions/disposals
Other
Other operating income
Loss on disp. of property, plant and equipment
Restructuring costs
Other
Other operating expenses
Other operating income and expenses
2019
2020
23
37
60
21
2
23
29
39
68
27
2
29
2019
2020
1
1
-1
-10
-11
-10
5
4
9
-1
-9
-14
-24
-15
Danfoss A/S has received government grants of EUR 13m (2019: 0m) in total, which is related to COVID-19 compensation. The governments grants are deducted from the related expenses in the functions; Cost of sales, Selling and
distribution costs and Administrative 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
2019
2020
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 (2019: 0.9m).
Services other than the 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.
119/138
Danfoss Annual Report 2020 Note 2-3 M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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.
Financial income
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
Financial expenses
Interest on financial liabilities measured at amortized cost
The impact of derivatives/foreign exchange contracts of EUR -65m (2019: 4m) is included in Foreign exchange losses, net.
Further information on leases is provided in Note 14 Leases.
120/138
2019
2020
124
22
1
1
148
23
92
32
1
2
127
34
2019
2020
-12
-7
-17
-6
-12
-1
-55
-18
-22
-45
-65
-6
-3
-1
-142
-28
Danfoss Annual Report 2020 Note 4 M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
121/138
2019
-15
-2
5
-12
22.0%
4.1%
-16.8%
1.6%
-3.1%
7.8%
2019
-12
-12
2020
-17
-1
-18
22.0%
29.0%
-28.7%
2.0%
0.4%
24.7%
2020
-18
-18
Danfoss Annual Report 2020 Note 5 M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 5 Intangible assets
EURm
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
Cost as of January 1, 2020
Foreign exchange adjustments
Additions
Disposals
Cost as of December 31, 2020
Amortization and impairment losses as of January 1, 2020
Amortization
Disposals
Amortization and impairment losses as of December 31, 2020
Carrying amount as of December 31, 2020
Internally
developed
software
Patents,
trademarks and
other rights
Development
costs
Goodwill
64
3
67
67
67
67
67
186
35
42
-2
261
53
22
21
-2
94
167
261
1
37
-15
284
94
28
-15
107
177
67
-35
32
46
-22
2
26
6
32
-6
26
26
1
-6
21
5
11
11
11
11
11
-1
10
11
-1
10
Total
Other
264
42
-2
304
110
23
-2
131
173
304
1
37
-22
320
131
29
-22
138
182
TOTAL
328
3
42
-2
371
110
23
-2
131
240
371
1
37
-22
387
131
29
-22
138
249
Of the "internally developed software" approximately 60% relates to the One ERP Program described in the Management's Review for Group, page 24.
IMPAIRMENT TESTS
Goodwill in Danfoss A/S of EUR 67m (2019: 67m) 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 2020, 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 2019.
122/138
Danfoss Annual Report 2020 Note 6 M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 6 Property, plant and equipment
EURm
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
Cost as of January 1, 2020
Foreign exchange adjustments
Transfers
Additions
Disposals
Cost as of December 31, 2020
Depreciation and impairment losses as of January 1, 2020
Foreign exchange adjustments
Depreciation
Disposals
Depreciation and impairment losses as of December 31, 2020
Carrying amount as of December 31, 2020
123/138
Land and
buildings
Plant and
machinery
Equipment
Assets under
construction
TOTAL
281
7
4
8
-6
294
179
8
-6
181
113
294
1
12
4
-3
308
181
12
-2
191
117
312
7
8
-8
319
269
13
-8
274
45
319
1
8
3
-5
326
274
1
11
-5
281
45
116
6
13
-8
127
43
16
-7
52
75
127
1
3
12
-25
118
52
16
-25
43
75
33
-11
22
44
44
44
-23
28
49
49
742
13
51
-22
784
491
37
-21
507
277
784
3
47
-33
801
507
1
39
-32
515
286
Danfoss Annual Report 2020 Note 7 M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 6 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
Additions
Depreciation
Carrying amount related to right-of-use assets as of December 31, 2019
Carrying amount related to right-of-use assets as of January 1, 2020
Additions
Depreciation
Carrying amount related to right-of-use assets as of December 31, 2020
Further information on leases is provided in Note 14 Leases.
Land and
buildings
Equipment
TOTAL
7
-1
6
6
-1
5
16
6
7
-9
20
20
9
-10
19
16
13
7
-10
26
26
9
-11
24
124/138
Danfoss Annual Report 2020 Note 8 M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
Disposal
Adjustments as of December 31
n
i
s
t
n
e
m
t
s
e
v
n
I
i
s
e
i
r
a
d
i
s
b
u
s
2,646
-2
35
-2
2,677
-61
-17
-78
m
o
r
f
l
s
e
b
a
v
e
c
e
R
i
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
i
s
e
i
r
a
d
i
s
b
u
s
s
e
r
u
t
n
e
v
t
n
o
i
j
934
314
-565
369
314
-5
1
-4
Carrying amount as of December 31
2,599
369
310
s
t
n
e
m
t
s
e
v
n
i
19
r
e
h
t
O
19
-16
-16
3
2019
L
A
T
O
T
3,913
-2
35
-567
3,379
-82
1
-17
-98
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
2,677
10
34
-11
2,710
-78
-65
10
-133
m
o
r
f
l
s
e
b
a
v
e
c
e
R
i
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
i
s
e
i
r
a
d
i
s
b
u
s
s
e
r
u
t
n
e
v
t
n
o
i
j
369
578
947
314
1
315
-4
1
-3
3,281
2,577
947
312
2020
L
A
T
O
T
3,379
11
614
-12
3,992
-98
1
-65
10
-152
3,840
r
e
h
t
O
s
t
n
e
m
t
s
e
v
n
i
19
2
-1
20
-16
-16
4
Where indicators for impairment were present at the end of 2020, 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 2019.
Additions for the year to "Investments in subsidiaries" is mainly related to capital injection in Danfoss (Shanghai) Investment Co., Ltd.
Impairment losses for the year on "Investments in subsidiaries" of EUR 65m mainly relates to Sondex Holding A/S and Danfoss District Heating SRL. For Sondex Holding A/S the impairment is caused by a lower valuation of the entity
due to large dividend payments in recent years. Danfoss District Heating SRL is under liquidation.
Impairment losses/reversed impairment are reported as financial expenses/financial income.
Additions for 2019 to "Investments in subsidiaries" is mainly related to the acquisition of Danfoss Scotland Limited.
Impairment losses for 2019 on "Investments in subsidiaries" of EUR 17m mainly relates to Sondex Holding A/S. The impairment was 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.
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.
125/138
Danfoss Annual Report 2020
Note 9 M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
Current assets
Liabilities
Set-off within the same legal entities and jurisdiction
Deferred tax assets
Intangible assets
Property, plant and equipment and financial assets
Current assets
Liabilities
Deferred tax regarding Danish joint taxation
Set-off within the same legal entities and jurisdiction
Deferred tax liabilities
2019
-31
-5
-2
-38
2020
-38
2
-1
-37
2019
Deferred tax
asset
2020
Deferred tax
asset
12
15
-27
0
10
1
16
-27
0
Deferred tax
liability
Deferred tax
liability
32
13
2
13
5
65
-27
38
31
13
15
5
64
-27
37
Of the deferred tax liability of EUR 37m (2019: 38m), EUR 5m (2019: 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
differences in foreign subsidiaries and associates and joint ventures of EUR 6m (2019: 5m). 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
forseeable future.
126/138
Danfoss Annual Report 2020 Note 9 Finansiel risks and statement M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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.
Further information on leases is provided in Note 14 Leases.
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
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
893
74
982
25
153
13
4
869
69
982
24
153
13
4
60
2,174
2020
5
r
e
v
O
s
r
a
e
y
250
73
Maturity
)
*
s
r
a
e
y
5
-
1
626
1
102
15
r
a
e
y
1
-
0
17
880
10
153
13
4
2,144
1,077
744
323
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
127/138
2019
959
934
1,893
2020
1,048
1,126
2,174
Danfoss Annual Report 2020
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
36
90
878
19
83
1,106
37
975
41
709
288
2,013
2
2
2019
Fair
value
3
3
36
90
878
19
83
1,106
37
1,002
41
709
288
2,040
2
2
Carrying
amount
4
4
38
90
275
17
554
974
2020
Fair
value
4
4
38
90
275
17
554
974
34
34
962
13
982
304
2,261
60
60
984
13
982
304
2,283
60
60
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 2019.
128/138
Danfoss Annual Report 2020 Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE BASED ON LEVEL 3
Carrying amount as of January 1, assets/liabilities (-)
Disposals/Reversals
Carrying amount as of December 31
2019
2020
s
e
c
i
r
p
d
e
t
o
u
Q
t
u
p
n
i
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b
a
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s
b
O
t
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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
1002
1,004
l
a
t
o
T
3
3
2
37
1,002
1,041
s
e
c
i
r
p
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e
t
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u
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t
u
p
n
i
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e
b
a
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s
b
O
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p
n
i
l
e
b
a
v
r
e
s
b
o
-
n
o
N
Level 1
Level 2
Level 3
4
4
34
34
60
984
1,044
l
a
t
o
T
4
4
60
34
984
1,078
2019
2020
-37
3
-34
-34
4
-30
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.
129/138
Danfoss Annual Report 2020
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 9 Financial risks and instruments (continued)
EURm
DERIVATIVES AS OF DECEMBER 31 FOR DANFOSS A/S
n
o
)
-
(
s
s
o
l
/
n
a
G
i
t
n
e
m
j
t
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a
e
u
a
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e
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r
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m
-2
-1
1
-2
-2
d
e
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i
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)
-
(
s
s
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m
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t
s
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m
o
c
n
i
n
i
-2
-1
1
-2
-2
2019
s
r
a
e
y
5
r
e
t
f
a
e
u
D
s
r
a
e
y
5
d
n
a
1
n
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e
w
t
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b
e
u
D
t
c
a
r
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o
c
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a
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n
u
o
m
A
r
a
e
y
1
n
a
h
t
s
s
e
l
e
u
D
l
i
a
p
c
n
i
r
p
/
e
c
i
r
p
898
-27
144
2020
s
r
a
e
y
5
r
e
t
f
a
e
u
D
s
r
a
e
y
5
d
n
a
1
n
e
e
w
t
e
b
e
u
D
r
a
e
y
1
n
a
h
t
s
s
e
l
e
u
D
d
e
z
i
n
g
o
c
e
r
)
-
(
s
s
o
l
/
n
a
G
i
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
n
i
-59
-1
-60
-60
n
o
)
-
(
s
s
o
l
/
n
a
G
i
t
n
e
m
j
t
s
u
d
a
e
u
a
v
l
t
e
k
r
a
m
-59
-1
-60
-60
t
c
a
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t
n
o
c
t
a
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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
-56
-214
-117
130/138
Danfoss Annual Report 2020
Note 10-11 M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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:
Assets
Liabilities
Note 11 Adjustment for non-cash transactions
EURm
Depreciation/amortization and impairment
Financial income
Financial expenses
Other, including provisions
Adjustment for non-cash transactions
2019
2020
10
-13
-10
15
2
2
2
2019
60
-148
55
-16
-49
2
-26
2
17
-5
5
-5
2020
68
-127
142
18
101
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.
131/138
Danfoss Annual Report 2020 Note 12 M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 12 Change in liabilities arising from financing activities
EURm
Carrying amount as of January 1, 2019
Adoption of IFRS 16
Restated balance as of Janaury 1, 2019
Cash flows:
Cash repayment
Lease payments
Cash proceeds
Non-cash transactions:
Acquisitions and disposal of lease liabilities
Reclassification
Other
Carrying amount as of December 31, 2019
Cash flows:
Cash repayment
Lease payments
Non-cash transactions:
Acquisitions and disposal of lease liabilities
Reclassification
Other
Carrying amount as of December 31, 2020
Lease payments are the principal portion of lease liabilities and are presented under cash flows from financing activities in the Statement of Cash Flow.
Further information on leases is provided in Note 14 Leases.
132/138
Short-term
borrowings
Long-term
borrowings
TOTAL
11
6
17
-386
-7
373
-5
12
12
16
-17
-7
4
20
16
951
8
959
-592
601
-2
-12
5
959
6
-20
1
946
962
14
976
-978
-7
974
-7
17
975
-17
-7
10
1
962
Danfoss Annual Report 2020 Note 13 M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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
2019
118
26
93
2020
111
24
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
2019
2020
75
48
5
87
61
32
27
88
133/138
Danfoss Annual Report 2020 Note 14-15 M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 14 Leases
EURm
LESSEE
Lease liabilities are included as borrowings in the Statement of Financial Position as follows:
Current
Non-current
2019
9
16
2020
9
15
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
considering 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, 2020, was EUR 11m (2019: 14m).
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 25 Related parties, in Group section.
EURm
TRANSACTIONS WITH ASSOCIATES AND JOINT VENTURES
Purchases of goods and services
2019
19
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
2019
1,179
440
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.
134/138
2020
19
2020
1,196
452
Danfoss Annual Report 2020 Note 16-17 M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
Note 16 Events after the balance sheet date
Subsequent to December 31, 2020, on January 27, 2021, Danfoss announced the preparation of a divestment to meet regulatory requirements concerning fair competitive levels in the market. For further information refer to Note 26
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, 2020, 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 2020 on March 4, 2021, and it will be presented for approval at the Annual General Meeting to be held on March 26, 2021. The
Annual General Meeting has the power to amend and reissue the Financial Statements.
Besides the following section, the accounting policies for Danfoss A/S are the same as for the Danfoss Group. Please refer to Note 27 in the Consolidated Financial Statements for the Danfoss Group.
The impact of new accounting standards, as described in Note 27 in the Consolidated Financial Statements for the Danfoss Group is also assessed as immaterial to Danfoss A/S.
INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
In Danfoss A/S’ Financial Statements, investments in subsidiaries, associates and joint ventures are measured at cost. In case of indication of impairment, an impairment test is made. If the recoverable amount is lower than cost,
investments are 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 companies. Current tax and deferred tax is allocated between the jointly taxed companies. The jointly taxed companies are taxed under the tax prepayment scheme.
DEVELOPMENT PROJECTS
Danfoss A/S has established a non-distributable reserve in equity regarding capitalized development projects. This reserve will be reversed as the development projects have effect on the income statements. The amount is presented
net of deferred tax.
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Danfoss Annual Report 2020 Note 18 M
Danfoss at a glance
Our business
Financial performance
Governance
Financial Statements
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,
investments are written down to this lower value.
Due to the nature of the operations of the investments, estimates of expected cash flows have to be made many years into the future, which will be subject to some degree of uncertainty. The investments in subsidiaries, associates
and joint ventures are described in more detail in Note 7 Investments.
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Danfoss Annual Report 2020 Further information available
on Danfoss’ website: www.danfoss.com
Date of publication: March 4, 2021
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