Danfoss Debt Investor Presentation - April 2021
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Danfoss Debt Investor Presentation April 2021
Disclaimer & Confidentiality This document contains confidential information and should be kept strictly confidential by the recipient to whom it is exclusively provided. It is expressly forbidden to disclose the information of this document or the fact that this document has been delivered to the recipient to any third party or to publish or disclose all or any part of this document or the information contained herein. This document may not be removed from the location of the related presentation. The information contained in this document has been provided by Danfoss A/S (Danfoss). The information and any opinions or statements made in this document have not been verified by independent third parties and no representation or warranty, express or implied, is made by Danfoss, BNP Paribas, Citigroup Global Markets Europe AG, Danske Bank A/S, Nordea Bank Abp or Skandinaviska Enskilda Banken AB (publ) (together, the Managers) or any of their respective affiliates, directors, partners, employees or advisers or any other person as to the accuracy or completeness of any such information, opinions or statements and nothing contained in this document or any other information discussed orally is, or shall be, relied upon as, a promise or representation by Danfoss or the Managers. Accordingly neither Danfoss, the Managers nor any of their respective affiliates, directors, partners, employees or advisers nor any other person, shall be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in, or omission from, this document and any such liability is expressly disclaimed. In particular, this document may contain statements, estimates, targets and projections that constitute forward-looking statements. Such statements, estimates, targets and projections reflect significant assumptions and subjective judgments concerning anticipated results. These assumptions and judgments may or may not prove to be correct and there can be no assurance that any estimates, targets or projections are attainable or will be realised and, in any event, are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results, performance or achievements of Danfoss to be materially different from any future results, performance or achievements of Danfoss that may be expressed or implied by such forward-looking statements. Danfoss and its affiliates do not assume responsibility for the accuracy of any of such forward-looking statements, targets, estimates and projections. This document is provided for information purposes only and does not constitute, nor must it be interpreted as, an offer to sell or exchange or acquire, or an invitation for offers to buy securities issued by any of the companies mentioned herein anywhere in the world. This document is an advertisement and is not a prospectus for the purposes of Regulation (EU) 2017/1129 (the Prospectus Regulation) or Regulation (EU) 2017/1129 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 (the UK Prospectus Regulation), and does not disclose all the risks and other significant issues related to an investment in securities issued by Danfoss, Danfoss Finance I B.V. (DF I) or Danfoss Finance II B.V. (DF II and, together with Danfoss and DF I, the Issuers), nor does it propose to do so. Potential investors should ensure that they fully understand the terms of any securities and any applicable risks. Any decision to purchase securities in any offering should be made solely on the basis of the information to be contained in the base listing particulars dated 26th March 2021 and published on the website of the Luxembourg Stock Exchange at www.bourse.lu. No securities of the Issuers have been or will be registered under the U.S. Securities Act of 1933, as amended (the Securities Act). Subject to certain exceptions, neither this document nor any part or copy of it may be taken or transmitted into the United States or distributed, directly or indirectly, in the United States, or outside the United States to any “U.S. Person” as that term is defined in Regulation S under the Securities Act. Neither this document nor any part or copy of it may be taken or transmitted into Australia, Canada, South Africa, Hong Kong or Japan, or distributed directly or indirectly in Canada, Australia, South Africa, Hong Kong or Japan, or to any resident thereof. Any failure to comply with this restriction may constitute a violation of U.S., Australian, Canadian, South African, Hong Kong or Japanese securities laws, as applicable. The distribution of this document in other jurisdictions may also be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. The Issuers do not accept any liability to any person in relation to the distribution or possession of this presentation in or from any jurisdiction. This presentation and the information contained herein are delivered and speak as of the date hereof and there shall be no implication that there has not been a change in the affairs of Danfoss or its affiliates or other matters that have occurred since such date rendering any of the information set out in this presentation inaccurate. Neither Danfoss nor its affiliates nor its advisers assumes any responsibility for updating this presentation or any of the information contained herein. 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This document is only directed at relevant persons and any investment or investment activity in connection with this document and the related presentation is only available to relevant persons or will be engaged in only with relevant persons. Solicitations resulting from this document will only be responded to if the person concerned is a relevant person. Other persons should not rely or act upon this document or its contents. The information contained in this presentation is given in confidence and you should not engage in any behaviour which would or might amount to market abuse for the purposes of the Market Abuse Regulation ((EU) 596/2014), including as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018. MiFID II and UK MiFIR eligible counterparties and professional clients only; no PRIIPs or UK PRIIPs key information document will be prepared. By receiving this presentation you agree to be bound by and subject to the foregoing limitations. 2 | Danfoss Debt Investor Presentation April 2021 Confidential
Danfoss Debt Investor Presentation
Agenda: Speakers:
Jesper V. Christensen
EVP and Group CFO
1. Company introduction 4
2. Strategy and business model 9
3. Financial performance and capital structure 17
Flemming A. Jørgensen
Group Treasurer
3 | Danfoss Debt Investor Presentation April 2021 Confidential
Company introduction (excluding Eaton Hydraulics) 4 | Danfoss Debt Investor Presentation April 2021 Confidential
Key investment highlights
• Well-positioned to capitalize on
global mega trends
• Robust and well-performing
business segments with attractive
market positions
• Strong and stable profit margin
Sustainability has always been at and cash generation over the cycle
• Proven M&A and integration track
the center of what we are doing – record
making more out of less • Conservative financial policy
targeting BBB rating
• BBB credit rating with stable outlook
5 | Danfoss Debt Investor Presentation April 2021 Confidential
Our aspiration
We engineer tomorrow and build a better future • Founded 1933
in Nordborg, Denmark by Mads Clausen
• 27,500
employees
• EUR 5.8bn
net sales
Our legacy and values • Geographically well balanced sales
Western Europe, APAC and North America
• We build our business on trust and integrity • Regionalized supply chains
• We are innovative in our ambition to exceed expectations 71 production sites in 21 countries
• We are global and embrace diversity • Privately owned
by Bitten & Mads Clausen’s Foundation
• We treasure sustainable results (86% of votes) and the Clausen family
All numbers in this presentation represent 2020 numbers unless otherwise stated
6 | Danfoss Debt Investor Presentation April 2021 Confidential
Danfoss business overview
Sales well-diversified across segments, geographies and channels
Business segments Geographies Channels
Power Solutions Climate Solutions Drives Driving growth based on customer Largest customer: 3% of net sales
Hydraulic, electronic and Sustainable and energy- AC drives for variable speed proximity, local application knowledge 5 largest customers: 11% of net sales
electric components and efficient advanced control, energy efficiency in and localized supply chains
solutions for on- and off- components, solutions and electric motors and
highway mobile applications climate technologies for customized power modules
Latin Installers, contractors,
within agriculture and infra- industry, commercial & for EV’s, solar, wind and Africa-Middle East
America end customers & service
2%
structure residential buildings and industrial use Eastern 5% 11%
entire food chain Europe
9%
Western
34% of net sales 43% of net sales 23% of net sales
Europe
37%
OEM's
52%
Employees: Employees: Employees: North
7,600 10,500 4,400 America
23%
Factories: Factories: Factories:
Distributors &
28 in 13 countries 34 in 15 countries 10 in 7 countries wholesalers
Asia-Pacific
24% 37%
7 | Danfoss Debt Investor Presentation April 2021 Confidential
Danfoss COVID-19 navigation
Mitigation measures enabled continued strategy execution
We steer Danfoss and our stakeholders through COVID… …and continue to invest to get ahead
Priorities R&D spend at an all time high of 4.6% of net sales
• Keep people safe Digital displacement
& electric motors
New power module
platform for EV’s
New low voltage
drive platform
Turbocor compressors
for data centers
• Service customers and stay close to suppliers
• Flex costs and keep people onboard
• Protect strategic initiatives
Footprint initiatives Our digital transformation
Consolidated 20 sites Established Danfoss One ERP Digital customer
and 15 legal entities data center experience
17.3% recurring EBITDA margin 2020 (+0.9%-points above 2019)
Recurring EBITDA: EBITDA before other operating income and expenses
8 | Danfoss Debt Investor Presentation April 2021 Confidential
Strategy and business model 9 | Danfoss Debt Investor Presentation April 2021 Confidential
Global mega-trends
The world accelerates the drive towards a more sustainable future
coming out of the COVID-19 pandemic
Digitalization Electrification Urbanization Food supply Climate change
10 | Danfoss Debt Investor Presentation April 2021 ConfidentialOur strategy: Core & Clear - Going Great
A globally leading technology partner
Our aspiration is structured around four strategic focus areas
We target a global leading #1 or #2 position in all three business segments. We invest to
strengthen the Core and to build a leading position in Digital and Electrification
We focus on being close to our customers and drive customer satisfaction with a strong
and consistent performance on quality and delivery. We focus on hotspots to outgrow the
market and provide a seamless end-to-end digital customer experience
We differentiate through deep application knowledge and new technology. We create
significant opportunities by leveraging the latest technology 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 costs. A flexible and agile
supply chain and One ERP ensure we serve our customers with speed
With the Going Great strategy our ambition is to be a top performer among
key peers and drive long-term value creation for all our stakeholders
11 | Danfoss Debt Investor Presentation April 2021 ConfidentialOur business model Danfoss’ competencies create value for our customers 12 | Danfoss Debt Investor Presentation April 2021 Confidential
Selected Danfoss applications – hot spots
Leveraging the global mega trends across our Segments
Digitalization Electrification Urbanization Food supply Climate change
Autonomous machines Full-electric excavators Construction machinery Agriculture machinery Energy-efficient hybrids
Power Solutions
District energy with AI Heat pumps Single & multi-family Houses Connected supermarkets Data centers
Climate
Solutions
Condition-based maintenance Electrical vehicle traction Elevators & escalators Food & beverage Water & waste water
Drives
13 | Danfoss Debt Investor Presentation April 2021 ConfidentialHow we accelerate the green transition
Danfoss technologies make it possible
Energy efficiency Sector coupling Electrification of transport
• 40% of global energy consumption is • Coupling of sectors (electricity and • 20% of global energy consumption is
used to heat and cool buildings heating) is key for storage and efficiency used for transportation
• Buildings account for 30% of global • More heat produced by renewable • Transportation accounts for 25% of
greenhouse gas emissions sources through e.g. heat pumps energy related global green house gas
emissions
• Recover excess heat from data centers,
super markets and industrial processes
Data sources: WRI (World Resource Institute) and IEA (International Energy Agency)
14 | Danfoss Debt Investor Presentation April 2021 ConfidentialDanfoss to be CO2 neutral by 2030 (scope 1 and 2)
Through energy efficiency first – sourcing of remaining consumption as green energy
Danfoss journey towards 2030 Danfoss Nordborg headquarter
(scope 1 and 2) CO2 neutral in 2022 (250,000 m2)
Index (2007 = Base year) Energy productivity
200 80% increase
EURm net sales per GWh
180 consumed energy
160
140 CO2 intensity
120 36% reduction
Tons CO2 (scope 1 & 2)
100 per EURm net sales
We take our
80
60
40 own medicine
20
0
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 1 Energy efficiency 2 Green heating (100%)
Recovery of excess heat from
first – because it production processes & data
is good return on center and green district
heating
investment
…One year’s production of Drives’ products 60% reduction in demand 3 Green electricity (100%)
Science Based Targets and baseline to for fossil fuels from building Sourcing from wind turbines
displace 100 million tons of CO2 emissions (Hornsrev 2) and own solar
be approved in 2021 for scope 1, 2 and 3 renovation, ventilation heat
during their lifetime… recovery and AC drives
plant
15 | Danfoss Debt Investor Presentation April 2021 ConfidentialContinue to invest in strategic initiatives
Focus on core business and proven track record in M&A execution
Organic Research and development costs Net investments excluding M&A
Research and development costs (EURm) Net investments excluding M&A (EURm)
400 6,0% 400 6,0%
Research and development costs (% of net sales) Net investments excluding M&A (% of net sales)
Danfoss continues to make significant 300 4,5% 300 4,5%
investments in new technology 200 3,0% 200 3,0%
100 1,5% 100 1,5%
0 0,0% 0 0,0%
2014 2015 2016 2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020
In-organic Further strengthen core Lead digital
Build #1/#2
electrification position
We have a proven M&A track record to
further strengthen core business and
capture growth opportunities
16 | Danfoss Debt Investor Presentation April 2021 ConfidentialFinancial performance and capital structure 17 | Danfoss Debt Investor Presentation April 2021 Confidential
Profitability and cash flow
Low earnings volatility, stable cash flow,
increasing profitability and predictable debt reduction
Low earnings volatility… …with increasing margins and cash flows…
EBITDA before OOI/E (EURm)
Free operating cash flow after financial items and tax (EURm)
1.100 600 18,0%
EBITDA margin before OOI/E (% of net sales)
1.000 450 17,0%
900 300 16,0%
800 150 15,0%
700 0 14,0%
2014 2015 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
…from strong segment performance… …has led to continued debt reduction
EBITA (EURm) EBITA margin (%) Net interest-bearing debt / EBITDA before OOI/E (x)
Eaton Hydraulics acquisition
500 Power Solutions Climate Solutions Drives 3,0x
Pro-forma 2020 leverage
16.4% 2,5x
400 15.1% Vacon acquisition
16.8%
2,0x
300 16.8%
1,5x
13.6%
200
9.6% 1,0x
100 0,5x
0 0,0x
2016 2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020 2020PF
EBITDA before OOI/E: EBITDA before other operating income and expenses
Impact from IFRS 16 Lease: 2019 and 2020 EBITDA impact of EUR 59m and EUR 61m, 2019 and 2020 lease liabilities impact of EUR 142m and EUR 174m
18 | Danfoss Debt Investor Presentation April 2021 Confidential2020 financial performance
Generating record cash flow despite COVID-19
Pro
Danfoss Danfoss
Quarterly net sales growth (in local currency) EURm % % Forma %
2019 2020 2020
2%
3% 1%
Net sales 6,285 5,828 7,276
0%
EBITDA before other operating income and expenses 1,028 16.4 1,008 17.3 1,131 15.5
-3%
EBITDA 1,026 16.3 954 16.4 1,057 14.5
-6%
-6% -7% EBITA 771 12.3 723 12.4 760 10.4
-9%
Free operating cash flow after financial items and tax 463 7.4 493 8.5
-12%
Net interest bearing debt 1,048 537 3,147
-15% -14%
Full Year 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Net interest bearing debt / EBITDA before OOI/E 1.0x 0.5x 2.8x
• Danfoss has seen a gradual return to pre-COVID sales levels after the low point during Q2 2020
• In Q4 2020 Danfoss was back above 2019 sales volume with 2% local currency growth
• To counter lower sales during first half of 2020, fast actions were taken to reduce cost and CAPEX
Free operating cash flow increased to
spend demonstrating the resilience of our strategy and the flexible operating model EUR 493m in 2020 – a record cash flow
• Fixed costs were adjusted to a lower level of activity without making permanent reductions in the for Danfoss – confirming the cash generating
workforce or discontinuing strategic projects
capability of the Danfoss business model
• EBITDA margin before other operating income and expenses ended at 17.3%
See slide 30-31 for Pro Forma breakdown
19 | Danfoss Debt Investor Presentation April 2021 ConfidentialFinancing and capital structure
Maintaining a BBB rating and adequate liquidity are cornerstones of our policy
Key area Policy Status
Maintain a capital and financing structure over the cycle that is BBB with stable outlook by S&P (29 March 2021)
CREDIT RATING
compatible with a BBB credit rating New EUR 2.5bn EMTN programme - BBB rated (26th March 2021)
Liquidity reserve equal to minimum 7.5% of net sales in terms of Liquidity reserve of EUR 2.1bn incl EUR +500m of cash and cash
LIQUIDITY
accessible cash and undrawn committed credit facilities equivalents at Danfoss A/S (+25% of 2020 Pro Forma net sales)
Average maturity on committed credit facilities above 2 years.
MATURITY Average maturity on committed credit facilities above 3 years
Above 3 years after the contemplated bond financing
SHAREHOLDER Danfoss A/S dividend distribution up to 30% of previous year’s net No dividend paid in 2020 and 2021 from Danfoss A/S and EUR 70m
REMUNERATION profit in addition to minority shareholder distribution was injected by The Bitten & Mads Clausen’s Foundation in 2020.
Eaton Hydraulics financing and anticipated post take-out maturity profile
EURm Debt maturity profile (excl lease liabilities)
800
Acquisition payment for Eaton Hydraulics
• Cash purchase price of USD 3.3bn (EUR ~2.8bn)
600
Indicative financing composition
• Proposed bond take-out represents indicatively EUR 1.9bn 400
• Cash at hand of EUR 500m
• Bank term loan of EUR 400m 200
0
Outstanding EUR Bond maturing 2022
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Later
• Prepaid via 2021 cash generation, White Drive divestment proceeds or RCF facilities
EIB/NIB/Mortgage EUR Bond 2022 Proposed new notes Bank term loan
20 | Danfoss Debt Investor Presentation April 2021 ConfidentialKey investment highlights
Well-positioned to capitalize on global Robust and well-performing business Strong and stable profit margin and cash
mega trends segments with attractive market positions generation over the cycle
EBITA (EURm) EBITA margin (%) Free operating cash flow after EBITDA before OOI/E
financial items and tax (EURm) margin (%)
Digitalization Electrification Power Solutions Climate Solutions Drives
500
16.4%
15.1% 455 441 463 493
375 16.8% 359
Urbanization Climate change 16.8%
17.3%
250 13.6%
9.6%
16.4%
15.9% 15.8%
125 15.2%
Food supply
0
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Proven M&A and integration track record Conservative financial policy targeting BBB credit rating in line with policy
BBB rating
Net interest-bearing debt / EBITDA before OOI/E (x)
1,9x
1,6x
1,5x BBB/A-2 with
1,1x 1,0x 1,0x stable outlook
0,5x
2014 2015 2016 2017 2018 2019 2020
We aim to be carbon neutral by 2030 while our solutions continue to support our customers
in increasing energy efficiency and lower CO2 emissions
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