MAKING MODERN LIVING POSSIBLE Q1 2013 Danfoss delivers solid Q1 performance www.danfoss.com
Contents Highlights from the first quarter 2012...3 Financial highlights...4 Danfoss delivers solid Q1 performance...5 Financial review...5 Balance sheet...6 Cash flows...6 Innovation...6 Employees...7 Events occurring after March 31, 2013...7 Corporate citizenship...9 Outlook for 2013... 10 Danfoss Climate & Energy... 12 Sauer-Danfoss... 13 Income statement... 14 Balance sheet... 15 Cash flow statement... 16 Specification of equity... 17 Notes... 18 Accounting policies... 18 Exchange rates applied... 18 Quarterly financial highlights... 19 Page 2
Danfoss delivered a solid performance in the first quarter. In a subdued market, we successfully seized growth opportunities, in Russia and Brazil, for instance, while also maintaining profitability at a high level and improving our cash flows. Our Q1 results were generally in line with last year, with the exception of the solar inverter business. Like the rest of the European solar energy industry, our solar inverter business is facing a challenge in terms of renewed uncertainty about the framework conditions for solar energy in Europe and changes to German and Danish subsidy schemes. Overall, we continue to pursue our long-term investment plans and growth ambitions. We are very pleased to have gained full ownership of Sauer-Danfoss with the ensuing opportunities for taking a long-term approach and for developing our overall business. Niels B. Christiansen President & CEO Q1 2013 highlights Q1 net sales were DKK 8,063m against DKK 8,357m in Q1 2012, corresponding to a decline of 4%. Operating profit (EBIT) was DKK 638m compared to DKK 796m in the year-earlier period. The free cash flow amounted to DKK 378m at March 31, 2013 against DKK 122m at March 31, 2012. Outlook for 2013 Based on the solid Q1 performance under the expected difficult conditions, Danfoss maintains its overall full-year expectations for 2013. Net sales for 2013 are thus expected to grow at a modest rate. Operating profit for 2013 is expected to grow in line with net sales. Please direct any queries about this announcement to: Danfoss Media Relations, tel.: +45 7020 4488 Side 3
Financial highlights Profit and loss accounts: Q1 2012 Q1 2013 Change in % 2012 Net sales 8,357 8,063-4% 34,007 Operating profit added depreciations, amortisations and impairments (EBITDA) 1,217 1,057-13% 5,729 Operating profit excl. other income and expenses 823 679-17% 3,705 Operating profit (EBIT) 796 638-20% 3,745 Financial income/expenses -103-36 65% -371 Profit before tax 693 603-13% 3,372 Net profit 486 422-13% 2,357 Balance sheet: Total non-current assets 17,297 17,024-2% 17,038 Assets 29,057 28,546-2% 27,768 Total shareholders equity 12,997 14,637 13% 14,193 Net interest-bearing debt 4,493 2,767-38% 2,691 Net assets 17,304 17,332 0% 16,775 Capital expenditure 187 191 2% 2,053 Cash flow statement: Cash flow from operating activities 317 435 37% 4,245 Cash flow from investing activities -195-57 *** -1,321 Acquisition of intangible assets and property, plant and equipment. -182-167 -8% -1,169 Acquisition of subsidiaries and activities 0 0 0% -191 Free Cash flow 122 378 210% 2,924 Free cash flow before M&A 121 365 *** 3,019 Cash flow from financing activities -5-530 *** -2,779 Key figures: Organic net sales growth ( %) 0-4 -2 EBIT margin excl. other operating income etc. (%) 9.9 8.5-1.4 10.9 EBIT margin (%) 9.5 7.9-1.6 11.0 EBITDA margin (%) 14.6 13.1-1.5 16.8 Equity ratio (%) 44.7 51.3 6.6 51.1 Leverage ratio (%) 34.6 18.9-15.7 19.0 Net interest bearing debt to EBITDA ratio 0.8 0.5-0.3 0.5 Number of employees (end of period) 23,226 23,043-1% 23,092 Page 4
Danfoss delivers solid Q1 performance Despite the continuing difficult global conditions, Danfoss generated a solid sales performance in the first quarter while maintaining profitability at a high level and further strengthening its financial versatility through a higher free cash flow. Financial review Danfoss continued its solid net sales performance in the first quarter of 2013, generating sales of DKK 8,063m, a 4% decline from DKK 8,357m. Net sales, EBIT & EBIT excl. divestitures - YTD 10,000 1,000 8,000 800 6,000 600 4,000 400 2,000 200 0 Q1 2010 Q1 2011 Q1 2012 Q1 2013 0 Sales distribution by regions - Group Asia/ Pacific 17% Other Europe 10% Africa / Middle East 2% Latin America 5% EU 40% North America 26% Impressive growth in Russia and Brazil Sustaining sales in China Change in subsidy rules caused a slump in German solar [energy] market Demand for climate and energy solutions continued to drive developments in the first quarter. In particular, Danfoss generated growth in the important BRIC markets. The Russian market continued the positive developments with sales up by 29%. The increase was mainly driven by demand for district heating solutions. Brazil was also a positive surprise, as sales there grew by 30%. When adding the stable developments in India and China, the combined BRIC performance offset the slowdown in the large traditional markets in the USA and Europe. In Europe, sales plunged in the solar inverter business due to renewed uncertainty about the framework conditions for solar energy in the EU and changes to German and Danish subsidy schemes. Last year, the subsidy schemes provided a boost for the solar inverter business, resulting in a temporary increase in sales. Side 5
Sauer-Danfoss still impacted by deceleration of Chinese construction sector Sauer-Danfoss felt the impact of the general global economic downturn, particularly in China due to the controlled deceleration of the construction sector implemented by the Chinese authorities. Overall, sales in the segment were down by 7% relative to the extraordinarily strong performance of Q1 2012, while Danfoss Climate & Energy retained its high level of sales from Q1 2012. The Group's operating profit (EBIT) was DKK 638m against DKK 796m in the year-earlier period. Danfoss maintains its targeted investments in growth opportunities and has continuously aligned cost levels to demand. Danfoss expects to lift earnings throughout the rest of 2013 as the full effects of these initiatives gradually materialize. Increase in equity Maintaining a low level of debt Danfoss continues to improve its free cash flow The level of investment in research and development remains high Balance sheet The Group's equity amounted to DKK 14,637m, a 13% increase from DKK 12,997m at March 31, 2012. Total assets amounted to DKK 28,546m against DKK 29,057m. This brought the equity ratio to 51% against 45% at March 31, 2012. Net interest-bearing debt was DKK 2,767m against DKK 2,691m at the beginning of the year. The current debt level corresponds to 0.5 EBITDA of the last four quarters Cash flows The free cash flow amounted to DKK 378m at March 31, 2013 against DKK 122m a year earlier. The amount consisted of cash flows from operating activities of DKK 435m and a cash outflow from investing activities of DKK 57m. The improvement was driven mainly by the Group's continued and dedicated focus on enhancing the free cash flow. Innovation Danfoss continues to invest in research and development. In Q1 2013, total amount invested was DKK 330m against DKK 336m in Q1 2012, indicating an increase in the level of investment from 4.0% to 4.1% of net sales.. Research & Development investments - YTD 600 500 400 300 200 100 0 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 6% 5% 4% 3% 2% 1% 0% Da nfoss Group - mdkk Da nfoss Group - % o f net sales Page 6
Employees Danfoss had a total of 23,043 employees at March 31, 2013 against 23,092 at December 31, 2012. Danfoss Group 23,043 23,226 Europe excl. Denmark 7,973 8,146 Denmark Asia-Pacific North America incl. Mexico Latin America Africa-Middle East 441 448 57 56 4,894 4,807 3,994 3,718 5,684 6,051 0 5,000 10,000 15,000 20,000 25,000 Q1 2013 Q1 2012 Events occurring after March 31, 2013 On April 12, 2013, Danfoss completed the acquisition of the outstanding shares in Sauer- Danfoss Inc. that it did not already own at a price of USD 58.50 per share in cash for a total price of DKK 3.9bn. Danfoss announced the plans and the tender offer for the outstanding shares on November 28 of last year. Accordingly, Danfoss now has full ownership of Sauer-Danfoss. Side 7
Danfoss A/S 1st quarter, May 28, 2013 Side 8
Corporate Citizenship Resource consumption and CO2 emissions Danfoss emitted approximately 33,000 tons of CO2 in Q1 2013 against 30,000 tons in the same period of 2012. The main reason for the increase was the higher number of Group factories compared with a year earlier. Adjusted for the new factories, emissions increased by 3%. Danfoss continued the efforts to reduce CO2 emissions in accordance with the target of reducing emissions by 25% relative to the 2007-level by 2025. Electricity consumption amounted to about 48 million kwh, which was in line with the same period of 2012. Energy consumed for heating purposes increased by 10% relative to the first quarter of 2012. In Q1 2013, Danfoss consumed approximately 138,000 m3 of water for processes and sanitary purposes, a 14% reduction relative to the year-earlier period. Responsible supplier management The work on responsible supplier management continued in the first quarter. As part of its dedicated efforts, Danfoss will remain focused on ensuring that suppliers that have previously been audited resolve any issues identified in a satisfactory manner. In addition, the process of having all existing suppliers sign the Danfoss Code of Conduct continues. Danfoss continually adapts its purchasing organization and its supplier management tools. Prior to being approved as a new supplier of goods used in Danfoss products, suppliers are required to sign the Code of Conduct and have an initial audit performed to verify that they meet Danfoss' requirements and expectations. Work-related lost time accidents The number of accidents entailing more than one day's absence was 21 in Q1 2013 against 28 in the same period last year. At the same time, the accident frequency, which is calculated as the number of accidents per 1 million working hours, fell to 7.0 from 8.9 in Q1 2012. Absence caused by work-related accidents, expressed as the number of lost days per 1000 work days, fell to 0.6 from 1.1 in Q1 2012. The average absence period for employees involved in a work-related accident was maintained at about two weeks in the first quarter of 2013. Around half of the injured employees returned to work after less than 5 days' absence. Danfoss A/S 1st quarter, May 28, 2013 Side 9
Outlook Danfoss expects the global financial uncertainty prevailing in 2012 to continue throughout 2013, causing sustained low visibility. Danfoss markets are expected to see modest growth with climate and energy solutions and globalization as the primary growth trends. At the same time, Danfoss expects to retain profitability through a continuous improvement of operations and the targeted strategic initiatives already launched. Net sales for 2013 are thus expected to grow at a modest rate. Operating profit for 2013 is expected to grow in line with net sales. Side 10
Danfoss A/S 1st quarter, May 28, 2013 Side 11
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. They are all leading players within climate and energy. The segment is focused on providing energy-efficient and climate-friendly solutions for a range of selected business sectors. The divisions play leading roles within research, development, production, sales and service of mechanical and electronic products sold on the global market for cooling and air-conditioning, comfort and heating, control of electric motors and for a number of industries where energy efficiency is important. Net sales were maintained at DKK 4,968m against DKK 4,975m in Q1 2012. The business segment continued to record significant improvements in the Russian market. Net sales also improved in Brazil, whereas sales in China stabilized at last year's level. Sales declined in the USA and Europe relative to the strong performance of Q1 2012. The set-back in Europe was predominantly due to the severe slowdown in the solar inverter business due to renewed uncertainty about the framework conditions for solar energy in Europe, including plans by the EU to introduce punitive duties on solar panels from China and changes to solar energy subsidy schemes in Germany and Denmark. Operating profit (EBIT) was DKK 314m against DKK 360m in Q1 2012. The EBIT margin was 6.3% against 7.2%. Sales distribution by regions Net sales and EBIT 8,000 800 Other Europe 14% Asia/ Pacific 19% 6,000 600 Africa/ Middle East 3% 4,000 400 Latin America 6% 2,000 200 North America 13% EU 45% 0 Q1 2010 Q1 2011 Q1 2012 Q1 2013 0 DKK Mill. (unless otherwise stated) Q1 2012 Q1 2013 Change in % 2012 Net sales 4,975 4,968 0% 22,411 Operating profit (EBIT) 360 314-13% 2,541 EBIT Margin 7.2% 6.3% 11.3% Capital expenditure 935 141-85% 1,623 Number of employees 14,259 14,260 0% 14,319 Page 12
Sauer-Danfoss Sauer-Danfoss is a global leader in the design, manufacture and sale of energy-efficient and performance-enhancing hydraulic and electronic systems and components, primarily for mobile applications. The company operates within the following segments: Agriculture, Construction, Material Handling, Turf Care and Specialty Equipment. Danfoss completed the purchase of the outstanding shares in Sauer-Danfoss Inc. on April 12, 2013. Accordingly, Danfoss now has full ownership of Sauer-Danfoss. Sauer-Danfoss began 2013 with prospects of a rather volatile market, due to a general decline in the construction industry. This general slowdown in the market and in China in particular was the reason why net sales were down by 7% to DKK 3,019m against DKK 3,257m in Q1 2012. Sales were also down in Europe, but were maintained in the important US market, while Latin America reported moderate sales growth. Operating profit (EBIT ) was DKK 512m against DKK 576m in Q1 2012. The EBIT margin was 17.0% against 17.7%. Sales distribution by regions Net sales and EBIT Asia/ Pacific 13% Other Europe 4% 4,000 800 Latin America 4% 3,000 600 EU 31% 2,000 400 1,000 200 North America 48% 0 Q1 2010 Q1 2011 Q1 2012 Q1 2013 0 DKK Mill. (unless otherwise stated) Q1 2012 Q1 2013 Change in % 2012 Net sales 3,257 3,019-7% 11,097 Operating profit (EBIT) 576 512-11% 1,562 EBIT Margin 17.7% 17.0% 14.1% Capital expenditure 31 45 45% 284 Number of employees 6,495 6,339-2% 6,363 Side 13
Income statement Mill. DKK Q1 2012 Q1 2013 2012 Net sales 8,357 8,063 34,007 Cost of sales -5,946-5,759-23,803 Gross profit 2,411 2,304 10,204 Distribution expenses -1,228-1,225-5,021 Administration expenses -360-400 -1,478 Operating profit excl. other income and expenses 823 679 3,705 Other operating income and expenses -27-41 40 Operating profit (EBIT) 796 638 3,745 Income from associates and joint ventures after tax 0 1-2 Financial income/expenses -103-36 -371 Profit before tax 693 603 3,372 Corporate tax expenses -207-181 -1,015 Net profit 486 422 2,357 Page 14
Balance sheet Mill. DKK Q1 2012 Q1 2013 2012 Assets Non-current assets Intangible fixed assets 8,450 8,675 8,649 Tangible fixed assets 6,853 6,880 6,940 Non-current financial assets 1,994 1,469 1,449 Total non-current assets 17,297 17,024 17,038 Current assets Inventories 4,583 4,315 4,050 Accounts receivable 6,248 6,462 5,792 Marketable securities 69 0 0 Cash and cash equivalents 860 745 888 Total current assets 11,760 11,522 10,730 Total assets 29,057 28,546 27,768 Liabilities and shareholders' equity Total shareholders equity 12,997 14,637 14,193 Liabilities Non-current liabilities 8,291 6,790 6,879 Current liabilities 7,769 7,119 6,696 Total liabilities 16,060 13,909 13,575 Total liabilities and shareholders equity 29,057 28,546 27,768 Side 15
Cash flow statement Mill. DKK Q1 2012 Q1 2013 2012 Profit before tax from continuing operations 693 603 3,372 Adjustments for non-cash transactions 212 409 1,738 Changes in working capital -430-398 538 Cash flow generated from operations 475 614 5,648 Financial income 6 6 39 Financial expenses -72-43 -532 Dividends received 8 7 15 Cash flow from operations before tax 417 584 5,170 Paid tax -100-149 -925 Cash flow from operating activities 317 435 4,245 Acquisition of intangible fixed assets -15-21 -101 Acquisition of tangible fixed assets -173-153 -1,122 Proceeds from sale of tangible fixed assets 6 7 54 Acquisition of subsidiaries etc. 0 0-415 Proceeds from disposal of subsidiaries etc. 0 0 224 Acquisition (-) and sale of other investments etc. -13 110 39 Cash flow from investing activities -195-57 -1,321 Free Cash flow 122 378 2,924 Financing by non-shareholders: Repayment of (-)/proceeds from interest-bearing debt 61-313 -2,045 Financing by shareholders: Repurchase (-)/sale of own shares -49-7 -199 Addition/disposal of minority interest 0-141 0 Dividends paid to shareholder in the Parent Company -17 0-320 Dividends paid to minority shareholders 0-69 -215 Cash flow from financing activities -5-530 -2,779 Net change in cash and cash equivalents 117-151 145 Cash and cash equivalents (beginning of period) 744 888 744 Foreign exchange adjustment of cash and cash equivalents -1 8-1 Cash and cash equivalents (end of period) 860 745 888 Page 16
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 2012 1,043 685-137 -277-814 9,511 8,283 329 10,340 2,257 12,597 Comprehensive income in 2012 Net profit 1,598 1,598 400 1,998 359 2,357 Other comprehensive income Foreign exchange adjustments when converting foreign currencies -6-6 -6-30 -36 Fair value adjustment of hedging reserve: 0 0 0 Fair value adjustment of the year regarding 0 0 0 hedging of net investments in subsidiaries 35 35 35 35 Fair value adjustment of the year 0 0 0 regarding hedging of future cash flows 39 39 39 2 41 Fair value adjustment transferred to Net sales 87 87 87 5 92 Actuarial gain/loss (-) on 0 0 0 defined benefit plans -176-176 -176-26 -202 Tax on Other comprehensive income -30-9 49 10 10 8 18 Other comprehensive income 96 20-127 -11-11 -41-52 Comprehensive income in the period 96 20 1,471 1,587 400 1,987 318 2,305 Transactions with owners Dividends to shareholders 9 9-329 -320-237 -557 Purchase of minority interest 7 228-387 -387-152 -152 Shares issued/capital reduction -30-543 926-353 573 0 Total transactions with owners -23-315 539-344 195-329 -472-237 -709 Balance at 31 December 2012 1,020 370-41 -257-275 10,638 10,065 400 11,855 2,338 14,193 Comprehensive income in 2013 Net profit 0 0 0 0 0 287 287 287 135 422 Other comprehensive income Foreign exchange adjustments when converting foreign currencies 0 0 0 209 0 0 209 0 209 20 229 Fair value adjustment of hedging reserve: 0 0 0 0 0 0 0 0 0 Fair value adjustment of the year regarding 0 0 0 0 0 0 0 0 0 hedging of net investments in subsidiaries 0 0 0-56 0 0-56 0-56 0-56 Fair value adjustment of the year 0 0 0 0 0 0 0 0 0 regarding hedging of future cash flows 0 0 57 0 0 0 57 0 57-2 55 Fair value adjustment transferred to Net sales 0 0-10 0 0 0-10 0-10 -10 Actuarial gain/loss (-) on 0 0 0 0 0 0 defined benefit plans 0 0 0 0 0-6 -6 0-6 -2-8 Tax on Other comprehensive income 0 0-12 14 0 2 4 0 4 4 Other comprehensive income 35 167-4 198 198 16 214 Comprehensive income in the period 35 167 0 283 485 0 485 151 636 Transactions with owners Dividends to shareholders 0 0 0 0 0 0 0-46 -46 Capital increase/purchase of treasury shares 0 0-7 -7 0-7 -7 Capital reduction 0 0-4 -4 0-4 -135-139 Total transactions with owners 0 0-7 -4-11 0-11 -181-192 Balance at 31 March 2013 1,020 370-6 -90-282 10,917 10,539 400 12,329 2,308 14,637 Side 17
Notes Accounting policies Danfoss prepares annual reports and interim reports in accordance with IFRS (International Financial Reporting Standards). For a detailed review of the accounting policies applied, see Danfoss' annual report 2012. 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 rates for the reporting period. Currency Q1 2012 Ending rates Q1 2013 Ending rates 2012 Ending rates Q1 2012 Average rates Q1 2013 Average rates 2012 Average rates EUR 7.44 7.45 7.46 7.43 7.46 7.44 GBP 8.90 8.82 9.13 8.91 8.78 9.18 USD 5.60 5.83 5.66 5.67 5.64 5.79 Page 18
Quarterly financial highlights Mill. DKK (unless otherwise stated) Q1 2012 Q2 2012 Q3 2012 Q4 2012 2012 Q1 2013 Profit and loss accounts Net sales 8,357 8,865 8,763 8,022 34,007 8,063 Operating profit added depreciations, amortisations and impairments (EBITDA) 1,217 1,451 1,565 1,496 5,729 1,057 Operating profit excl. other income and expenses 823 1,009 1,119 753 3,705 679 Operating profit (EBIT) 796 1,016 1,130 803 3,745 638 Financial income/expenses -103-85 -55-128 -371-36 Profit before tax 693 935 1,076 667 3,372 603 Net profit 486 696 804 371 2,357 422 Balance sheet Total non-current assets 17,297 17,581 17,101 17,038 17,038 17,024 Assets 29,057 29,723 28,857 27,768 27,768 28,546 Total shareholders equity 12,997 13,398 14,153 14,193 14,193 14,637 Net interest-bearing debt 4,493 4,778 3,396 2,691 2,691 2,767 Net assets 17,304 17,979 17,353 16,775 16,775 17,332 Capital expenditure 187 402 234 1,230 2,053 191 Cash flow statement Cash flow from operating activities 317 1,225 2,770 4,245 4,245 435 Cash flow from investing activities -195-561 -694-1,321-1,321-56 acquisition of intangible assets and property, plant and equipment -183-560 -772-1,169-1,169-167 acquisition of subsidiaries and activities 0 6 6-191 -191 0 Free Cash flow 122 664 2,076 2,924 2,924 378 Free cash flow before M&A 121 659 2,078 3,019 3,019 365 Cash flow from financing activities -5-604 -1,898-2,779-2,779-530 Key figures Organic net sales growth ( %) 0-2 0-3 -2-4 EBIT margin excl. other operating income etc. (%) 9.9 11.4 12.8 8.4 10.9 8.5 EBIT margin (%) 9.5 11.5 12.9 8.5 11.0 7.9 EBITDA margin (%) 14.6 16.4 17.9 15.0 16.8 13.1 Equity ratio (%) 44.7 45.1 49.0 51.1 51.1 51.3 Leverage ratio (%) 34.6 35.7 24.0 19.0 19.0 18.9 Net interest bearing debt to EBITDA ratio 0.8 0.9 0.6 0.5 0.5 0.5 Geographical segments Total net sales EU 3,511 3,621 3,518 3,086 13,735 3,268 Rest of Europe 674 867 1,082 1,040 3,663 803 Asia 1,332 1,434 1,605 1,529 5,899 1,242 North America 2,159 2,260 1,855 1,671 7,945 2,081 Africa 53 84 75 61 274 51 Pacific 143 138 129 141 551 128 Latin America 400 352 407 397 1,556 400 Middle East 85 109 92 97 384 90 Total 8,357 8,865 8,763 8,022 34,007 8,063 Number of employees Europe excl. Denmark 8,146 8,243 8,139 7,977 7,977 7,973 North America incl. Mexico 3,718 3,813 3,877 3,988 3,988 3,994 Latin America 448 455 454 451 451 441 Asia-Pacific incl. China 4,807 4,866 4,904 4,895 4,895 4,894 Africa - Middle East 56 60 60 54 54 57 Denmark 6,051 5,939 5,767 5,727 5,727 5,684 Total 23,226 23,376 23,201 23,092 23,092 23,043 Total exclusive sold companies/activities 23,120 23,310 23,135 23,092 23,092 23,043 Side 19
Further information is available on Danfoss' website: www.danfoss.com Date of publication: May 28, 2013 This interim report is available in Danish and English. In the event of any discrepancy between the two versions, the Danish language version shall prevail. Contact address: Danfoss A/S 6430 Nordborg Tel.: 7488 2222 Fax: 7449 0949 E-mail:danfoss@danfoss.com