Annual Report 2014: Danfoss accelerates growth

In 2014, Danfoss maintained strong momentum in its core businesses and delivered record total net sales and earnings.

The global need for infrastructure, food supply, energy efficiency and climate-friendly solutions continued to be strong drivers of demand for Danfoss technologies. The Group’s total net sales grew by 4% in local currency and reached a record level of DKK 34.4bn (EUR 4.6bn). Operating profit (EBIT) excluding other operating income and expenses improved by 13% to reach DKK 4.4bn (EUR 584m) equal to 12.7% of sales, thereby, in terms of profitability, making 2014 the strongest year in the history of Danfoss. The free cash flow before M&A was on par with the record level of 2013.

“We are very pleased with our strong results obtained in spite of low growth in the global economy. The performance can be ascribed to our systematic efforts to become more competitive and agile. We have succeeded in building a world-class supply chain with a strong focus on quality, reliability and innovation. This well-oiled engine room allows us to increase our focus on developing and investing in improving our market position,” says President & CEO Niels B. Christiansen.

From a regional point of view, North America continued to gain momentum with sales growing 9%, in local currency, and due to the considerable size of the market it had a very positive impact on the Group’s sales performance. Also, Danfoss’ vigilant focus on the business potential in India and Turkey resulted in double-digit growth rates. Considering the difficult market conditions, Danfoss had a satisfactory year in Russia with sales close to the level of 2013. Europe was characterized by continued low growth. In the Asia-Pacific region, China ended up just above the 2013 level, while Japan had growth in local currency of 24%.

Entering a phase of accelerated profitable growth
In 2014, Danfoss entered the next phase of the Group strategy Core & Clear, where focus is on accelerating growth.

“Our strategic target is to achieve a strong, leading position in the markets where we operate. Throughout 2014, we worked to meet this ambition, and we are well underway with initiatives to accelerate growth. We will continue to improve the basics in the supply chain, increase our focus on how to serve our customers in the best possible way and carefully selected investments in growth opportunities,” says Niels B. Christiansen.

Among the growth initiatives launched in 2014, the single most significant event was the acquisition of the Finnish drives manufacturer Vacon. Danfoss also entered a strategic alliance with the world’s largest manufacturer of solar inverters, invested in high potential geographical growth pockets in India and Turkey, and introduced a new brand concept ‘Engineering Tomorrow’ to further strengthen the market position.

“We have momentum and take an optimistic approach to 2015. However, we expect the low growth in the global economy to continue and that visibility will remain low. Among other factors due to the increasingly difficult conditions and lowered macroeconomic growth expectations in Russia,” says Niels B. Christiansen.

2014 financial highlights
• Net sales grew to the record level of DKK 34.4bn (EUR 4.6bn) against DKK 33.6bn (EUR 4.5bn) in 2013, corresponding to 4% growth in local currency.
• The operating profit (EBIT) before other operating income/expenses was a record high of 12.7% of sales, amounting to DKK 4.4bn (EUR 584m) against DKK 3.9bn (EUR 519m) in 2013, equal to an improvement of 13%.
• Free cash flow before M&A stood at DKK 3.4bn (EUR 455m) against DKK 3.5bn (EUR 471m) at December 31, 2013.

2015 Outlook
Net sales, including the full-year impact of the acquisition of Vacon, are expected to grow by 5-10%.

Underlying profitability is expected to improve slightly 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) before other income and expenses on a par with 2014.