Letter from CEO
As megatrends such as urbanization, digitalization, electrification, and climate change continue to strengthen, sustainability and decarbonization are taking center stage globally. This speaks directly to our ambitions at Danfoss to be the leading technology partner for our customers in the green transition.
We have never seen better opportunities for Danfoss. Our momentum is clearly reflected in our 2021 annual results: Danfoss has delivered the best results in our history, and we are in a strong financial position.
What makes me most proud is how our team continues to navigate the pandemic and the significant supply chain challenges and at the same time delivered a transformational and record year.
Record year above expectations. Danfoss acquired Eaton's hydraulics business on August 2, adding 5 months of sales of EUR 786m to the topline. The customer demand for our energy-efficient products and solutions was very strong, and all Danfoss segments and regions had growth. Despite the pandemic, organic growth was 18% against 2020.
Profitability stronger than outlook. The EBITA margin reached 12.8% against 12.4% in 2020. The high demand for our products and solutions combined with managing the disruptions in the global supply chains in an inflationary environment are the main drivers of the high EBITA margin. Net profit was up 45% to EUR 631m.
Continued high investments to fuel future growth. To be the preferred partner in delivering energy-efficient solutions and helping our customers decarbonize, the high level of investments in innovation and R&D continued. In particular, we increased digitalization and electrification of our solutions.
Solid cash generation from operations. Strong profitability, combined with investments in expanding production capacity to meet the growing customer demand, generated a free operating cash flow after financial items and tax (before M&A) of EUR 401m, confirming the cash generating capability of Danfoss.
Delivering value to our customers as globally leading technology partner with leading positions, deep application knowledge and sustainable innovation.
If we are to succeed in meeting global climate and energy goals, we must break the global emissions curve. Danfoss engineers solutions that increase machine productivity, reduce emissions, lower energy consumption, and enable electrification.
Danfoss solutions provide real value to our customers through our application knowledge, innovation, and leading positions.
Being the preferred partner in helping our customers decarbonize requires continuously strengthening our competitive advantage.
Our capabilities within application knowledge, innovation, and leading positions reflect how we create value for our customers across our business segments.
Danfoss Power Solutions delivered both record sales and record profit in 2021, excluding impacts from the acquisition of Eaton's hydraulics business.
With the integration of Eaton's hydraulics business into Danfoss Power Solutions, the segment is well positioned to become a global leader in hydraulics and electrification.
Danfoss Power Solution engineers innovative products and solutions that optimize the performance of mobile and industrial equipment for our distribution partners and customers all around the globe.
Danfoss Climate Solutions delivered significantly better sales than in 2020 and well ahead of 2019.
Climate Solutions' technologies and solutions support the transition to a decarbonized, digital, and more sustainable tomorrow by providing a broad portfolio of energy-efficient solutions needed to reduce food loss, improve energy performance in buildings, and make our cities cleaner.
We combine heating and cooling applications so waste heat from industry, data centers, and supermarkets can be recovered to heat buildings – saving energy and reducing investments in new heat generation. We also develop innovative energy-storage solutions, such as the connected supermarket and the Danfoss Smart Store.
Danfoss Drives delivered 6% sales growth in 2021 compared with 2020 and at level with 2019. Especially in China, Drives saw significant growth.
Danfoss Drives is a global leader in electrification and variable speed control of electric motors. For more than 50 years, we have contributed globally to meeting the need for energy-efficient infrastructure, connected systems, and integrated renewable energy, with our quality, application-optimized drives, and lifecycle services.
We have decades of industry-dedicated experience in meeting our customers’ specialized challenges. We create and share solutions that deliver better process precision and superior energy efficiency for electric-motor operations, marine, and land-based electrification solutions as well as new sustainable technologies such as green hydrogen.
Danfoss is uniquely positioned to drive growth and be the preferred partner in helping our customers decarbonize.
Global megatrends 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 engineer tomorrow and build a better future.
We target a global leading #1 or #2 position in all three business segments. We invest to strengthen our core businesses and build a leading position within digitalization and electrification to enable a green, carbon-neutral future.
We focus on being close to our customers and drive customer satisfaction with strong and consistent performance on quality and delivery. We focus on growth verticals to outgrow the market and provide a seamless end-to-end digital customer experience.
We differentiate through deep application knowledge and new technology, enabling low-carbon and net-zero products. We create significant opportunities by leveraging the latest technologies to create even more value to our customers.
We aim to be recognized as a leader in operational excellence in the industries we serve. We want to be the benchmark in safety, quality, delivery, and cost. A flexible and agile supply chain and our “One ERP” IT architecture ensure we serve our customers with speed.
2021 was a transformational year for Danfoss, and we are well on track with our key strategic initiatives. We further strengthened our core with the acquisition and integration of Eaton’s hydraulics business as well as integration activities in the new Climate Solutions segment. Furthermore, we maintained strong momentum in taking the lead in digitalization and building a leading position in electrification.
We strive to put ourselves and our customers in the perfect position to drive a sustainable transformation.
With our new ESG ambitions, Danfoss is ready to take greater responsibility for the planet and for our people. ESG is short for Environment, Social, and Governance, which are central factors in measuring a company’s sustainability impact and performance. By integrating sustainability in our strategy and daily practices, we want to reinforce our position as one of the leaders of the green transition.
Danfoss is building a better future with solutions available today – solutions that increase machine productivity, reduce emissions, lower energy consumption, and enable electrification. Sustainability is not an add-on to our business. Sustainability is our business.
We’ve established measurable targets that are based on the SBTi to create a strong foundation for our long-term climate strategy and initiatives. We will monitor our sustainability progress like we track our financials – with solid data and a systematic approach.
We create solutions that help lower our customers’ CO₂ emissions across sectors – and set the highest ambitions for our own journey towards carbon neutrality by 2030.
One of the three main areas of Danfoss' new ESG ambitions is decarbonizing Danfoss’ value chain and helping our customers to achieve carbon neutrality. Energy efficiency is core to what we do, and we want to be the preferred partner in helping our customers decarbonize.
In 2021, we strengthened the focus on reducing energy consumption in our buildings and processes by setting ambitious science-based targets and launching several projects under the new ESG ambitions “Decarbonization.”
Focus in 2022 will be on ensuring that new or refurbished buildings are brought as close to carbon neutrality as possible, for example, by eliminating the use of fossil energy sources for heating.
Danfoss submitted ambitious targets for validation by the Science Based Targets initiative (SBTi) in 2021 and expects to receive approval in the first half of 2022.
Achieving decarbonization goals through circular solutions for our customers, Danfoss, and the world.
Committing to circularity
We strive to deliver the best circular solutions on the market, preferring to keep our products in use, if environmentally suitable, and perceiving waste as a design flaw. We are working to develop innovative circular business models with our customers and suppliers.
Sustainable collaboration with customers
Our circularity practices go across the entire value chain. We collaborate with our customers and suppliers to develop innovative approaches and explore new opportunities. With the experience we gain, we can continuously adapt our processes and improve our circularity toolbox.
We strengthen the power of engaged, diverse, and high-performing global teams to accelerate our Core & Clear strategy.
Diversity & Inclusion (D&I) is a strategic imperative that attracts and retains diverse talent, drives high-performing teams, accelerates innovation, enables creative solutions, and optimizes agility in an evolving world. This is especially relevant with our expanding global footprint and our strategic intention to lead the green transition.
Diversity is so much more than age, ethnicity, or gender. I value the diverse backgrounds and characteristics our colleagues bring to Danfoss because I know diversity drives innovation." Eric Alström, President, Danfoss Power Solutions
At Danfoss, we aspire to foster an inspiring and inclusive workplace that unleashes the full potential of our people and empowers them to thrive in a purpose-driven career. We are committed to delivering an engaging employee experience that values and respects all aspects of diversity and creates an environment of belonging.
Danfoss respects international human rights declarations and implements policies and procedures to ensure that proper working conditions and social and environmental considerations are core elements of the company’s behaviors.
Our policies on business conduct ensure that our efforts are systematic, supported by documented procedures, and governed by strong accountability and responsibility for action.
We manage risks and opportunities effectively to drive profitable growth in increasingly complex business environments.
The Board of Directors remains committed to good corporate governance practices and to following the Danish Recommendations on Corporate Governance.
From left: Sandra Nørgaard Bertelsen, Jürgen Reinert, Jørgen M. Clausen, Per Falholt, Mads-Peter Clausen, Connie Hedegaard, Jens Bjerg Sørensen, Lars Grau, Mika Vehviläinen. Sitting from left: Marianne Godballe, William Ervin Hoover Jr., Jens Peter Rosendahl Nielsen
As announced on March 26, 2021, Danfoss A/S and Bitten & Mads Clausen’s Foundation will implement a well-planned generational succession of the representatives of its family ownership in 2022.
Following decades of passionate contribution to Danfoss and the Foundation, Jørgen Mads Clausen at Danfoss A/S and Peter Mads Clausen at Bitten & Mads Clausen's Foundation will pass the baton to the next generation of the family.
The ownership structure, as well as the strategic direction of Danfoss A/S and Bitten & Mads Clausen's Foundation, continues unchanged.
From left: Eric Alström, Vesa Laisi, Kim Fausing, Jesper V. Christensen, Jürgen Fischer and Lars Tveen
2021 was a historically strong year for Danfoss with significant organic and inorganic growth. This puts us on a sound growth trajectory, also in comparison to 2019, pre-COVID-19.
We continued to see strong demand for our technologies and solutions that are driving the green transition towards lower CO₂ emissions and more electrification, e.g., within infrastructure, food, commercial and residential buildings, and renewables. Examples are controls, electric-vehicle drivetrains, energy-efficient compressor technologies for cooling, industrial refrigeration, heat pumps, floor heating, and variable speed drives for wind and solar.
The strong earnings were driven by the higher topline and continued traction in managing procurement savings, productivity improvements in the factories, as well as customer pricing and mix. To a large extent, this countered the inflationary pressure from increasing raw material prices, freight cost, and spot buys related to the challenging supply situation.
Sales increased to EUR 7,539m (2020: 5,828m), which was EUR 1,711m above 2020. The reported growth was 29% after a negative currency impact of 2%. Organic growth was 18%. As of August 2, Eaton’s hydraulics business was included in the consolidated numbers adding sales of EUR 786m in 2021. Organic growth to 2019 was 11%, demonstrating that we are well ahead of pre-COVID-19 sales levels.
After continued high levels of strategic investments in innovation, production capacity, digital transformation, and regional initiatives to fuel future growth, the operating profit before acquisition-related amortization (EBITA) increased 34% to EUR 969m (2020: 723m). The EBITA margin reached 12.8% (2020: 12.4%).
Securing a solid cash performance remains a priority for Danfoss to finance our M&A activities, strategic growth initiatives and repay interest-bearing debt.
The free operating cash flow after financial items and tax (before M&A) amounted to EUR 401m (2020: 493m), confirming the cash generating capability of Danfoss.