Annual 2014 Report. Insert URL here.

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1 Annual 2014 Report Danfoss Financial lorem highlights ipsum in dolorem EURO 2014 Insert URL here

2 FIND US HERE: DANFOSS.COM

3 CONTENTS at a glance Financial highlights Income Statement Statement of Comprehensive Income Statement of financial Position Statement of Cash Flows

4 2014 at a glance In 2014, Danfoss maintained a strong momentum in its core business and delivered strong financial results. The year was characterized by continuing low, global growth conditions. However, the need for infrastructure, food supply, energy efficiency and climate-friendly solutions continued to be the strong drivers of the demand for Danfoss technologies. TOTAL NET SALES / m EUR 4, Expectations compared to results Net sales Net sales expected to show moderate growth in local currency terms Operating profit Operating profit (EBIT) expected to increase at least in line with net sales 4% Danfoss generated total net sales of EUR 4,611m equal to 4% growth in local currency 13% Operating profit (EBIT) excluding other operating income and expenses grew by 13% to reach EUR 584m. SALES GROWTH IN LOCAL CURRENCY 4% R&D SPENT / m EUR 178 FREE CASH FLOW (BEFORE M&A) / m EUR 455 OPERATING PROFIT / m EUR 584 excluding other income and expenses EQUITY / m EUR 1,779 EQUITY RATIO 36% Financials in brief The Group s total net sales reached a record level of EUR 4,611m against EUR 4,509m in 2013, while operating profit (EBIT) excluding other operating income and expenses grew by 13% to reach EUR 584m, making 2014 the strongest year in the history of Danfoss in terms of profitability. The free cash flow was maintained at a high level, however slightly below the record level of The Climate & Energy business segment had sales growth of 4% in local currency, and operating profit (EBIT) was improved to EUR 386m from EUR 343m. The Power Solutions business segment had sales growth of 5% in local currency, and operating profit (EBIT) improved to EUR 288m from EUR 214m outlook in brief Net sales including full-year impact of the acquisition of Vacon is expected to grow by 5-10%. Underlying Profitability is expected to slightly improve through the continuous operational improvements and the targeted strategic initiatives already launched. However, integration cost in the first year of Vacon ownership is expected to keep operating profit (EBIT) excluding other income and expenses on par with Financial Highlights in EURO The Danfoss Group Danfoss

5 Sales distribution by region EU OTHER EUROPE NORTH AMERICA 24% 40% 11% 4% 2% 19% LATIN AMERICA AFRICA/ MIDDLE EAST ASIA/ PACIFIC 2014 highlights Danfoss entered the next phase of the Group strategy Core & Clear focusing on growing by taking market share organically and through acquisitions. Danfoss acquired the Finnish drives manufacturer Vacon. Combining the two companies has created a Nordic-based global leading player in the low voltage drives market. Danfoss and the world s largest producer of solar inverters, German SMA Solar Technology AG (SMA), entered a strategic partnership. Danfoss and Bosch Thermotechnik GmbH signed a contract to form a joint venture to develop and manufacture a new innovative and energy-efficient oil-free compressor technology. A new campus in India was officially inaugurated. The new facilities will secure a strong foundation and support in the development and quest for accelerated growth in the region. The Group issued a 7-year corporate Euro bond. This disposition further strengthened Danfoss s financial position by diversifying the Group s funding on several sources. Danfoss introduced a bold new brand platform and visual identity to support the growth agenda: Engineering Tomorrow. Regional highlights 2014 was the year of a strong comeback for North America with a growth rate of 9% in local currency and a very positive impact on the Group s sales performance. The Group continued its vigilant focus on the growth potential in India and saw growth in local currency of 10%. Considering the difficult market conditions, Danfoss had a satisfactory year in Russia with sales close to the level of In China, the year began with sales above 2013 level, but over the quarters the growth decreased, and China ended up just above 2013 level for the full year. In total, 2014 was a year of mixed market conditions in the BRIC countries and the share of sales was at year end at 22% and at level with last year was characterized by continued low growth in Europe. In contrast, Japan and Turkey had growth rates in local currency of 24 and 22% respectively. NORTH AMERICA 9% GROWTH RATE INDIA 10% GROWTH RATE JAPAN 24% GROWTH RATE TURKEY 22% GROWTH RATE 2014 Financial Highlights in EURO The Danfoss Group Danfoss 5

6 Danfoss solutions make more out of less 7% lower energy consumption Record low energy consumption in Zurich s tallest building The Prime Tower in Zurich, Switzerland, sets new standards for low energy consumption. Thousands of state-of-the-art valves and efficient control of electrical motors installed in the refrigeration and heating system deliver cuts energy consumption by 7%, and make Prime Tower one of the most energy-efficient buildings in Europe Financial Highlights in EURO The Danfoss Group Danfoss

7 FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS EURm INCOME STATEMENT Net sales 4,236 4,550 4,569 4,509 4,611 Operating profit before depreciation, amortization, impairment and other operating income and expenses Operating profit before depreciation, amortization and impairment (EBITDA) Operating profit excl. other operating income and expenses Share of profit from associates and joint ventures after tax Operating profit (EBIT) Financial items, net Profit before tax from continuing operations Profit from discontinued operations Net profit BALANCE SHEET Total non-current assets 2,509 2,344 2,284 2,152 3,469 Total assets 4,007 3,783 3,722 3,501 4,955 Total shareholders' equity 1,570 1,695 1,902 1,534 1,779 Net interest-bearing debt ,537 Net assets 2,437 2,292 2,249 2,074 3,014 CASH FLOW STATEMENT Cash flow from operating activities Cash flow from investing activities ,419 Acquisition of intangible assets and property, plant and equipment Acquisition of subsidiaries and activities Acquisition (-)/sale of other investments etc Free cash flow Free cash flow before M&A Cash flow from financing activities NUMBER OF EMPLOYEES Number of employees 23,392 23,430 23,092 22,463 24,117 CONVERSION FACTOR BETWEEN DKK AND EUR P&L account and cash flow statement (average exchange rate 100 EUR) Balance sheet (exchange rate as of December 31, 100 EUR) KEY FIGURES Organic net sales growth (%) EBITDA margin excl. other operating income and expenses (%) EBITDA margin (%) EBIT margin excl. other operating income etc. (%) EBIT margin (%) Return on invested capital (ROIC) after tax (%) Return on invested capital (ROIC) (%) Return on equity (%) Equity ratio (%) Leverage ratio (%) Net interest bearing debt to EBITDA ratio Dividend pay-out ratio (%) Dividend ratio per share (%) In situations where the key figures have been defined according to "Recommendations & Key Figures 2010", as prepared by the Danish Association of Financial Analysts, the ratios are computed according to these definitions Financial Highlights in EURO The Danfoss Group Danfoss 7

8 INCOME STATEMENT January 1 to December 31 EURm Net sales 1 4,509 4,611 Cost of sales 2-2,919-2,979 GROSS PROFIT 1,590 1,632 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 Note Attributable to: Shareholders in Danfoss A/S Minority interests Financial Highlights in EURO The Danfoss Group Danfoss

9 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 profit or loss Foreign exchange adjustments on translation of foreign currency into DKK etc Fair value adjustment of hedging instruments: Hedging of net investments in subsidiaries 20-3 Hedging of future cash flows 4-18 Hedging transferred to net sales in the income statement 7-3 Tax on hedging instruments -8 6 Items that can be reclassified to profit or loss OTHER COMPREHENSIVE INCOME AFTER TAX TOTAL COMPREHENSIVE INCOME Attributable to: Shareholders of Danfoss A/S Minority interests Note 2014 Financial Highlights in EURO The Danfoss Group Danfoss 9

10 STATEMENT OF FINANCIAL POSITION As of December 31 EURm ASSETS NON-CURRENT ASSETS INTANGIBLE ASSETS 7 1,080 2,114 PROPERTY, PLANT AND EQUIPMENT Investments Pension benefit plan assets Non-current receivables 3 5 Deferred tax assets OTHER NON-CURRENT ASSETS TOTAL NON-CURRENT ASSETS 2,152 3,469 CURRENT ASSETS INVENTORIES Trade receivables Receivable corporation tax Derivative financial instruments (positive fair value) Other receivables RECEIVABLES CASH AND CASH EQUIVALENTS TOTAL CURRENT ASSETS 1,349 1,486 TOTAL ASSETS 3,501 4,955 Note Financial Highlights in EURO The Danfoss Group Danfoss

11 STATEMENT OF FINANCIAL POSITION As of December 31 EURm LIABILITIES AND SHAREHOLDERS EQUITY SHAREHOLDERS EQUITY Equity, shareholders in Danfoss A/S 11 1,419 1,650 Minority interests TOTAL SHAREHOLDERS EQUITY 1,534 1,779 LIABILITIES Provisions Deferred tax liabilities Pension and healthcare benefit plan obligations Borrowings ,487 Derivative financial instruments (negative fair value) Other non-current debt NON-CURRENT LIABILITIES 868 2,015 Provisions Liabilities under share incentive programs Borrowings Trade payables Debt to associates and joint ventures 1 2 Corporation tax Derivative financial instruments (negative fair value) Other debt CURRENT LIABILITIES 1,099 1,161 TOTAL LIABILITIES 1,967 3,176 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 3,501 4,955 Note 2014 Financial Highlights in EURO The Danfoss Group Danfoss 11

12 STATEMENT OF CASH FLOWS January 1 to December 31 EURm Profit before tax Adjustments for non-cash transactions Change in working capital CASH FLOW GENERATED FROM OPERATIONS Interest received 4 2 Interest paid Dividends received 1 1 CASH FLOW FROM OPERATIONS BEFORE TAX Paid tax CASH FLOW FROM OPERATING ACTIVITIES Acquisition of intangible assets Acquisition of property, plant and equipment Proceeds from sale of property, plant and equipment Acquisition of subsidiaries etc Acquisition (-)/sale of other investments etc CASH FLOW FROM INVESTING ACTIVITIES ,419 FREE CASH FLOW Cash repayment of (-)/cash proceeds from interest-bearing debt Repurchase of treasury shares Addition/disposal of minority interests Dividends paid to shareholders in the Parent Company Dividends paid to minority shareholders CASH FLOW FROM FINANCING ACTIVITIES NET CHANGE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents as of January Foreign exchange adjustment of cash and cash equivalents -7 2 CASH AND CASH EQUIVALENTS AS OF DECEMBER Note STATEMENT OF FREE CASH FLOW ADJ. FOR ACQUISITION AND DISPOSAL OF SUBSIDIARIES ETC. (M&A) Free cash flow Acquisition of subsidiaries etc Acquisition (-)/sale of other investments FREE CASH FLOW BEFORE M&A Financial Highlights in EURO The Danfoss Group Danfoss

13 Danfoss solutions make more out of less 90% of the surplus heat i reused Industry heats the houses in Hamburg Up to 60% of the energy used at power plants in Europe is emitted as surplus heat. This is inefficient and leads to CO 2 emissions which could have been avoided. At HafenCity in Hamburg, Germany, the reasoning is different: Europe s largest and highly ambitious city development project uses surplus heat from industrial companies and power plants to heat the majority of the houses in the area. District heating technology makes it possible to utilize 90% of the energy from the power plants Financial Highlights in EURO The Danfoss Group Danfoss 13

14 Copyright Danfoss Produced by the Danfoss Group Published March 25, 2015 Layout by ESSENSEN