1 st Quarter, 2014 Danfoss delivers strong first quarter

Transcription

1 1 st Quarter, 2014 Danfoss delivers strong first quarter

2 Danfoss at a glance Danfoss is a world-leading supplier of technologies that meet the growing need for food supply, modern infrastructure, efficient energy utilization, and climate-friendly solutions. The Group is divided into two business segments: Danfoss Climate & Energy and Danfoss Power Solutions. Danfoss Climate & Energy's key expertise lies in food refrigeration, air-conditioning systems, controls for electric motors, heating systems for buildings, and components for renewable energy, including solar and wind energy. Danfoss Power Solutions' key expertise is in hydraulic systems and components for powering mobile machinery used in agriculture, construction, materials handling, and specialty equipment. Danfoss is a privately-owned company that has grown and improved its skills and expertise in energy-efficient solutions over the past 80 years. Danfoss sells its products in more than 100 countries and employs some 22,500 people worldwide. Danfoss Approximate headcount: 22,500 Products sold in over 100 countries worldwide Top five markets: USA, Germany, China, Russia and Italy Has 59 factories in 17 countries and sales offices in 58 countries Headquartered in Nordborg, Denmark Find us here: Facebook: Twitter: Google+: YouTube: LinkedIn (Company Page): 2 Page 2

3 CONTENTS FINANCIAL HIGHLIGHTS FINANCIAL REVIEW SEGMENTS OUTLOOK FOR 2014 SUSTAINABILITY INCOME STATEMENT BALANCE SHEET CASH FLOW STATEMENT SPECIFICATION OF EQUITY NOTES QUARTERLY FINANCIAL HIGHLIGHTS Page 3

4 Financial Highlights Mill. DKK (unless otherwise stated) Profit and loss accounts: Q Q Change in % 2013 Net sales 8,063 8,303 3% 33,628 Operating profit before depreciation, amortization, impairment and other operating income and expenses 1,106 1,401 27% 5,549 Operating profit before depreciation, amortization and impairment (EBITDA) 1,057 1,339 27% 5,296 Operating profit excl. other income and expenses % 3,870 Operating profit (EBIT) % 3,616 Financial income/expenses % -369 Profit before tax % 3,255 Net profit % 2,285 Balance sheet: Total non-current assets 17,024 15,760-7% 16,052 Assets 28,546 26,436-7% 26,116 Total shareholders equity 14,637 11,946-18% 11,443 Net interest-bearing debt 2,767 3,913 41% 4,116 Net assets 17,332 15,785-9% 15,476 Capital expenditure % 1,210 Cash flow statement: Cash flow from operating activities % 4,444 Cash flow from investing activities *** -917 Acqquisition of intangible assets and property, plant and equipment % -1,003 Acquisition of subsidiaries and activities 0 0 0% -1 Free Cash flow % 3,527 Free cash flow before M&A *** 3,513 Cash flow from financing activities % -3,623 Key figures: Organic net sales growth ( %) EBITDA margin excl. other operating income etc. (%) EBITDA margin (%) EBIT margin excl. other operating income etc. (%) EBIT margin (%) Equity ratio (%) Leverage ratio (%) Net interest bearing debt to EBITDA ratio Number of employees (end of period) 23,043 22, ,463 Page 4

5 Danfoss delivers strong first quarter The Group maintains momentum, and the positive trend from the second half of 2013 continues into Both sales and earnings have improved in the first quarter, as the mature markets are slowly returning to growth. Financial review The Danfoss Group had a strong start to the year and maintained the strong momentum built in the second half of In the first quarter of 2014, total net sales were DKK 8,303m against DKK 8,063m in the same period of The improvement of DKK 240m compared to the rather weak first quarter in 2013 corresponds to 3% growth. As expected, sales were negatively impacted by declining currency rates. Adjusted for this effect, sales grew by 7%. The growth in sales was driven by strong demand for Danfoss' energy-efficient solutions. Particularly the power electronics business, which among other things produces variable speed drives for control of electric motors, and Danfoss refrigeration and airconditioning business, which supplies energy-saving components for a wide range of refrigeration and air-conditioning systems, saw increasing demand. The same applied to Danfoss hydraulic business. On the contrary, growth in the Group's heating business slowed down. From a regional point of view, all the major regions showed growth in Q in local currencies. However, as expected some markets were impacted by declining exchange rates compared to the same period in In Europe (EU), the Group have regained some traction with growth in the period of 7%, and also North America had growth of 7% both in local currencies. The tendency of growth slowly picking up in these two markets started already in the second half of During the recent quarters, growth in China and India has also been increasing, and both markets had double digit growth in local currencies in Q1. Russia was heavily impacted by the Ruble declining as much as 16% compared to the same period last year. In local currency, the Russian market showed 11% growth. In Brazil, growth in Sales distribution by regions Net sales & EBIT excl. other operating income and expenses - YTD Asia - Pacific 17% Other Europe 9% 12,000 10,000 1,200 1,000 Africa - Middle East 2% Latin America 4% 8,000 6,000 4, North America 26% EU 42% 2,000 0 Q Q Q Q Net sales EBIT excl. other operating income and expenses local currency was 4%. The overall development in the markets confirms the expected scenario, with growth in the BRIC countries gradually slowing down and the mature markets gaining a stronger momentum. At segment level, Danfoss Climate & Energy showed strong performance in Q1. The segment had sales growth of 7% in local currencies and had significant improvements in the EBIT margin. Page 5

6 In Danfoss Power Solutions, the performance of the quarter was also strong. The segment continued the strong momentum built in the second half of 2013 and had sales growth of 8% in local currencies. The Group s operating profit before other income and expenses was DKK 996m against DKK 679m in the rather weak Q1 in Full impact from slightly lower fixed expenses, continuous improvements in the productivity combined with a positive trend in businesses and markets with a high profit margin are the main drivers behind improved earnings in the quarter. Balance sheet The Group s equity amounted to DKK 11,946m against DKK 14,637m at March 31, Danfoss completed the purchase of the remaining outstanding shares in Sauer-Danfoss Inc. in the second quarter of As a result of IFRS rules, equity was reduced for accounting purposes as the former minority interests were previously recognized in the Group's equity, and their market value had increased since the valuation in The equity ratio at March 31, 2014 was 45.2% against 51.3% at the year-earlier date. Total assets amounted to DKK 26,436m against DKK 28,546m. Net interest-bearing debt stood at DKK 3,913m at March 31, 2014, compared with DKK 2,767m at the year-earlier date. This change is also primarily due to Danfoss taking full ownership of Sauer-Danfoss Inc. in The level of debt is equal to 0.7 EBITDA of the last four quarters, which is within the target range of from 0 to 2 times EBITDA for the last four quarters. In conclusion, the Group maintained a strong balance sheet. Cash Flows The free cash flow amounted to DKK 227m at March 31, 2014 against DKK 378m the yearearlier date. The amount consisted of a cash inflow from operating activities of DKK 405m and a cash outflow from investing activities of DKK 178m. The reason for the slightly lower level of the free cash flow is increased sales and equivalently an increase in the net working capital. Innovation Danfoss continues to invest in research and development of new products and technologies. The development of energy-efficient and performance-enhancing solutions in the Group's core business areas is a cornerstone in the quest for profitable growth. In the first quarter of 2014, Danfoss invested DKK 337m in innovation, compared to DKK 330m in the same period last year. Measured as a percentage of sales, the investment was 4.1%. Research & Development investments - YTD Q Q Q Q Q % 5% 4% 3% 2% 1% 0% Danfoss Group - mdkk Danfoss Group - % of net sales Page 6

7 Employees Danfoss had a total of 22,286 employees at March 31, 2014 against 22,463 at the beginning of the year.. Danfoss Group 22,286 22,463 Europe excl. Denm ark 7,727 7,772 Denm ark As ia-pacific North America inc l. Mexico 5,329 5,415 4,887 4,889 3,861 3,920 Latin Am erica Africa-Middle East 0 5,000 10,000 15,000 20,000 25,000 Q Q Page 7

8 Danfoss Climate & Energy Danfoss Climate & Energy consists of five divisions: Danfoss Refrigeration & Air Conditioning Controls, Danfoss Power Electronics, Danfoss Heating Solutions, Danfoss Commercial Compressors and Danfoss District Energy. All five divisions are leading players in the climate and energy sector. The entire segment is focused on providing energy-efficient and climatefriendly solutions for a number of selected business sectors. The divisions play a leading role in R&D, production, sales and service of mechanical and electronic products sold on the global market for cooling and air conditioning, comfort and heating, and control of electric motors, and for a number of industries in which energy efficiency is important. In the first quarter of 2014, Danfoss Climate & Energy had net sales at DKK 5,079m against DKK 4,968m in Q1 last year, corresponding to a 2% growth and 7% in local currencies. The business segment recorded growth in local currencies in all its primary markets. The US, Europe (EU) and China gained a stronger momentum in sales growth, while Russia and Brazil showed signs of sales growth slowing down. From a product perspective, particularly the power electronics business and the refrigeration and airconditioning business recorded increasing demand, while the heating businesses showed slightly declining growth rates. Operating profit (EBIT) before other income and expenses was improved from DKK 315m in Q to DKK 572m, an improvement equal to 82%. The EBIT margin was 11.1% against 6.3% in Full impact from adjustments of fixed expenses carried out in the second half of 2013, continuous improvements of the productivity and a positive trend in businesses and markets with a high profit margin are the main drivers of the significant improvement of earnings in the segment. Sales distribution by regions Net sales & EBIT - YTD Asia - Pacific 19% Other Europe 13% 8,000 6, Africa - Middle East 3% Latin America 5% 4,000 2, North America 13% EU 47% 0 Q Q Q Q Net sales EBIT 0 DKK Mill. (unless otherwise stated) Q Q Change in % 2013 Net sales 4,968 5,079 2% 22,330 Operating profit (EBIT) % 2,554 EBIT Margin 6.3% 11.1% 11.4% Capital expenditure % 814 Number of employees 14,260 13,252-7% 13,657 Page 8

9 Danfoss Power Solutions Danfoss Power Solutions consists of three divisions Danfoss Hydrostatics, Danfoss Work Function and Danfoss Controls and four stand-alone business operations. Danfoss Power Solutions is a global leader in hydraulic products for mobile machinery. The divisions of the segment all hold a leading position in R&D, design, manufacture and sale of innovative and performance-enhancing hydraulic and electronic systems and components used in mobile machinery operating in agriculture, construction, materials handling, and specialty equipment. Danfoss Power Solutions continued the strong momentum built in the second half of 2013, leading to a significantly stronger start to 2014 than was the case in Driven by the growing need for better infrastructure and urbanization, the segment continued to see strong demand for its energy-efficient, advanced hydraulic solutions. In Q1 2014, net sales were DKK 3,155m against DKK 3,019m in Q1 last year, corresponding to 5% growth and 8% in local currencies. With the exception of 5% decline in Brazil, the segment recorded growth in all its primary markets. The Chinese market had double-digit growth of 31%, while also the US and Europe (EU) showed increasing growth rates with 6 and 7% growth respectively all in local currencies. Operating profit (EBIT) before other income and expenses was improved from DKK 600m in Q to DKK 675m, an improvement equal to 13%. The EBIT margin was 18.6% against 17.0% in Continuous improvements of the productivity and a positive trend in business are the main drivers of the improvement of earnings in the segment. Sales distribution by regions Net sales & EBIT - YTD Asia - Pacific 15% Other Europe 3% 4, Latin America 3% EU 32% 3,000 2, , North America 47% 0 Q Q Q Q Net sales EBIT 0 DKK Mill. Tabel Sauer-Danfoss (unless otherwise stated) Q Q Change in % 2013 Net sales 3,019 3,155 5% 10,989 Operating profit (EBIT) % 1,593 EBIT Margin 17.0% 18.6% 14.5% Capital expenditure % 377 Number of employees 6,339 6,072-4% 6,320 Page 9

10 Outlook for 2014 Danfoss expects the moderate global economic growth and low visibility of 2013 to continue in Accordingly, moderate growth is also expected on the Group's markets. The sales are expected to be negatively affected by exchange rate fluctuations, especially in the first half of Danfoss expects to retain profitability through continual operational improvements and the targeted strategic initiatives already launched. Net sales for 2014 are thus expected to show moderate growth in local currency terms. Operating profit for 2014 is expected to increase in line with net sales. Page 10

11 Sustainability Due to fact that Danfoss in 2013 gained full ownership of Sauer-Danfoss, now renamed Danfoss Power Solutions, information and data from the business segment is now included in this section. This means that the Q figures cannot immediately be compared with previous quarters. For comparison, figures for Danfoss Climate & Energy are shown in brackets. Previous periods are included in the explanations below, where relevant. Resource consumption and CO2 emissions Danfoss continued the work to reduce CO2 emissions at the 15 largest factories in accordance with the objective to cut emissions by 25% (relative to the 2007 level) by Over the course of the first three months of the year, Danfoss emitted 50,100 tons (32,800 tons) of CO2 from its factories. Emissions amounted to 33,000 tons in the same period of The increase was caused by the fact that Danfoss Power Solutions factories are included in the 2014 figures. Therefore, the figures are not immediately comparable with previous years. In the period, Danfoss consumed electricity amounting to 85.2 million kwh (49.5 million kwh) compared to 48.7 million kwh in the year-earlier period of 2013, here the increase was also due to incorporation of Danfoss Power Solutions. The energy consumption for heating was 66.7 million kwh (54.5 million kwh) in the year s first quarter. In the first three months of 2014, Danfoss water consumption for processing and sanitary purposes was 167,000 m3 (115,400 m3) against 138,000 m3 in the first quarter of Responsible supplier management In the first quarter of 2014, additional 76 suppliers signed Danfoss Code of Conduct. Totally, 2,080 suppliers of direct materials and 2,380 suppliers of indirect materials have signed the Code of Conduct. Each of the purchasing categories ensures continuous follow-up at the suppliers in order to reach compliance with Danfoss requirements. Danfoss Procurement has strengthened its team in China with the appointment of an employee who will be responsible for dedicated cooperation with category team members and suppliers to achieve compliance. A recently introduced course for employees in Purchasing, Quality and R&D functions, who have supplier contact though not direct responsibility for suppliers, is set to increase the focus on compliance at the suppliers. A total of 66 people have been trained in Danfoss Code of Conduct during the first quarter of Work-related lost time accidents The number of accidents, which led to more than one day s absence in Q1, is 45 (31) compared to 21 in the same period in The increase is due to the inclusion of Danfoss Power Solutions figures. The accident frequency, which is defined as the number of work accidents with absence per 1 million working hours, was 4.6 in the period. The corresponding figure in the first quarter of 2013 was 4.3; and 4.7 for the whole of Absence as a result of work accidents is defined as the number of lost days per 1,000 working days, and this amounted to 0.5 in the first quarter of 2014 compared to 0.4 in the same quarter of The average absence among employees who had been involved in a work accident was approx. 11 days in the period. This remains unchanged compared to the first three months of Page 11

12 Income statement Mill. DKK Q Q Net sales 8,063 8,303 33,628 Cost of sales -5,425-5,372-21,766 Research and development costs ,359 Gross profit 2,304 2,611 10,503 Distribution expenses -1,225-1,217-5,063 Administration expenses ,570 Operating profit excl. other income and expenses ,870 Other operating income and expenses Operating profit (EBIT) ,616 Income from associates and joint ventures after tax Financial income/expenses Profit before tax ,255 Corporate tax expenses Net profit ,285 Page 12

13 Balance sheet Mill. DKK Q Q Assets Non-current assets Intangible fixed assets Tangible fixed assets Non-current financial assets Total non-current assets Current assets Inventories Accounts receivable Cash and cash equivalents Total current assets Total assets 8,675 7,982 8,054 6,880 6,353 6,506 1,469 1,425 1,492 17,024 15,760 16,052 4,315 4,071 3,849 6,462 6,135 5, ,522 10,676 10,064 28,546 26,436 26,116 Liabilities and shareholders' equity Total shareholders equity Liabilities Non-current liabilities Current liabilities Total liabilities Total liabilities and shareholders equity 14,637 11,946 11,443 6,790 5,557 6,472 7,119 8,933 8,201 13,909 14,490 14,673 28,546 26,436 26,116 Page 13

14 Cash flow statement Mill. DKK Q Q Profit before tax ,255 Adjustments for non-cash transactions ,287 Changes in working capital Cash flow generated from operations ,838 Financial income Financial expenses Dividends received Cash flow from operations before tax ,615 Paid tax ,171 Cash flow from operating activities ,444 Acquisition of intangible fixed assets Acquisition of tangible fixed assets ,118 Proceeds from sale of tangible fixed assets Acquisition of subsidiaries etc. 0 0 Proceeds from disposal of subsidiaries etc. 0 0 Acquisition (-) and sale of other investments etc Cash flow from investing activities Free Cash flow ,527 Financing by non-shareholders: Repayment of (-)/proceeds from interest-bearing debt ,179 Financing by shareholders: Repurchase (-)/sale of own shares Addition/disposal of minority interest ,092 Dividends paid to shareholder in the Parent Company Dividends paid to minority shareholders Cash flow from financing activities ,623 Net change in cash and cash equivalents Cash and cash equivalents (beginning of period) Foreign exchange adjustment of cash and cash equivalents Cash and cash equivalents (end of period) Page 14

15 Specification of equity Mill. DKK Share capital Share premium Hedging reserves Currency translation Reserve own shares Other reserves Reserves Proposed dividends Danfoss A/S' share of equity Minority interest Total equity Balance at 1 January , ,638 10, ,855 2,338 14,193 Comprehensive income in 2013 Net profit 1,237 1, , ,285 Other comprehensive income Foreign exchange adjustments when converting foreign currencies Fair value adjustment of hedging instruments Actuarial gain/loss (-) on pension and healthcare plans Tax on Other comprehensive income Other comprehensive income Comprehensive income in the period ,366 1, , ,032 Transactions with owners Dividends to shareholders Purchase of minority interest -2,623-2,623-2,623-1,469-4,092 Capital increase/purchase of treasury shares Total transactions with owners ,619-2, ,134-1,648-4,782 Balance at 31 December , ,385 8, , ,443 Net profit Other comprehensive income Foreign exchange adjustments when converting foreign currencies Fair value adjustment of hedging instruments Actuarial gain/loss (-) on pension and healthcare plans Tax on Other comprehensive income Other comprehensive income Comprehensive income in the period Transactions with owners Dividends to shareholders Capital increase/purchase of treasury shares Total transactions with owners Balance at 31 march , ,871 8, , ,946 Page 15

16 Notes Accounting policies Danfoss prepares its annual reports and interim reports in accordance with IFRS (International Financial Reporting Standards). For a detailed description of the accounting policies applied, see Danfoss' annual report Please note that this interim report is not presented in accordance with IAS 34 Interim financial reporting and that the financial data are unaudited. Exchange rates applied The interim report is presented in Danish kroner. The figures in the income statement have been translated into DKK using the average exchange rates of the reporting period. The balance sheet has been translated using the end-of-period exchange rates. Currency Q Ending rates Q Ending rates 2013 Ending rates Q Average rates Q Average rates 2013 Average rates EUR GBP USD Page 16

17 Quarterly financial highlights Mill. DKK (unless otherwise stated) Q Q Q Q Q Profit and loss accounts Net sales 8,063 8,752 8,712 8,100 33,628 8,303 Operating profit before depreciation, amortization, impairment and other operating income and expenses 1,106 1,408 1,688 1,347 5,549 1,401 Operating profit before depreciation, amortization and impairment (EBITDA) 1,057 1,336 1,587 1,316 5,296 1,339 Operating profit excl. other income and expenses , , Operating profit (EBIT) , , Financial income/expenses Profit before tax , , Net profit , Balance sheet Total non-current assets 17,024 16,691 16,127 16,052 16,052 15,760 Assets 28,546 28,450 27,472 26,116 26,116 26,436 Total shareholders equity 14,637 10,445 10,942 11,443 11,443 11,946 Net interest-bearing debt 2,767 6,721 5,421 4,116 4,116 3,913 Net assets 17,332 17,089 16,284 15,476 15,476 15,785 Capital expenditure , Cash flow statement Cash flow from operating activities 435 1,265 2,623 4,444 4, Cash flow from investing activities acquisition of intangible assets and property, plant and equipment ,003-1, acquisition of subsidiaries and activities Free Cash flow ,118 3,527 3, Free cash flow before M&A ,121 3,513 3, Cash flow from financing activities ,202-3,623-3, Key figures Organic net sales growth ( %) EBITDA margin excl. other operating income etc. (%) EBITDA margin (%) EBIT margin excl. other operating income etc. (%) EBIT margin (%) Equity ratio (%) Leverage ratio (%) Net interest bearing debt to EBITDA ratio Geographical segments Total net sales EU 3,268 3,377 3,405 3,265 13,316 3,473 Rest of Europe ,153 1,011 3, Asia 1,242 1,551 1,604 1,493 5,890 1,324 North America 2,081 2,113 1,811 1,660 7,666 2,151 Africa Pacific Latin America , Middle East Total 8,063 8,752 8,712 8,100 33,628 8,303 Number of employees Europe excl. Denmark 7,973 8,041 7,972 7,772 7,772 7,727 North America incl. Mexico 3,994 4,039 3,946 3,920 3,920 3,861 Latin America Asia-Pacific incl. China 4,894 4,950 4,936 4,889 4,889 4,887 Africa - Middle East Denmark 5,684 5,640 5,512 5,415 5,415 5,329 Total 23,043 23,155 22,842 22,463 22,463 22,286 Total exclusive sold companies/activities 23,043 23,155 22,842 22,463 22,463 22,286 Page 17

18 Further information is available on Danfoss' website: Date of publication: May 14, 2014 Contact address: Danfoss A/S 6430 Nordborg Tel.: Fax: