Danfoss H1 2024: Staying the Course Despite Market Headwinds

NORDBORG, Denmark -- (BUSINESS WIRE) --

After three years of significant growth, organically and through M&A, the first half of 2024 has proven to be challenging due to lower demand in selected key markets. Group sales amounted to EUR 5 billion, and Danfoss delivered a half-year EBITA of EUR 533 million corresponding to an EBITA margin of 10.6% against 12.4% last year.

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The lower demand is expected to continue for the rest of the year, and actions to adapt to the current market situation are in progress. Staying the course, investments in innovation continue at a high level.

Setting Danfoss up for the future, we are updating our operating model to further support our long-term growth strategy.

We continued to see robust performance and resilience, especially in our Climate Solutions, Drives, and most of the Electrification businesses. The most important growth drivers continue to be decarbonization in industrial sectors, digitalization/datacenters, and electrification.

The lower demand is seen in selected end-markets like agriculture and construction/roadbuilding, which are in a downcycle impacting our Power Solutions segment. The European construction market continues to be soft, particularly in Central Europe, impacting especially the heating business, such as residential heat pumps and the district heating market. Finally, the automotive/EV-market, in both Europe and the US, has seen significant reductions in OEM production schedules for 2024 and 2025.

The activity level in Europe and China continues to be soft and is expected to continue for the rest of the year, while the US show signs of a slowdown. We continue to see good growth momentum in India.

“I would like to thank the Danfoss team for showing resilience and strong engagement, maintaining full focus on serving our customers. It is exciting to see how the entire team is fully engaged to stay the course and does what it takes to manage through this cycle. We have successfully navigated various economic cycles before, and we are doing so again. While the current situation may be challenging, it is important to emphasize that we will continue pursuing our long-term growth strategy,” says Kim Fausing, President & CEO of Danfoss.

Our three segments continued to invest in innovation and developing our global footprint, bringing innovative solutions and technology to the market and our customers. Research and development investments amounted to EUR 247 million (H1 2023: 249 million), on par with last year and corresponding to 4.9% of sales (H1 2023: 4.5%).

Setting Danfoss up for the future

We have initiated the implementation of an updated operating model, aiming to further support our long-term growth strategy, strengthen innovation and our entrepreneurial mindset, and improve performance. Guided by focus on market and customer proximity, scalability, and simplification, we want to establish stronger end-to-end accountability in the business, increase cost competitiveness, and speed up decision-making across the company.

Kim Fausing says: “By updating our operating model, we are setting Danfoss up for the future. This is essentially about further decentralization and empowering our teams to make decisions closer to our customers. We will simplify the organization by eliminating duplications and reducing the fragmentation of accountabilities, enabling faster decision-making and a more responsive organization.”

As we are targeting to simplify and eliminate duplication and fragmentation of accountabilities, this also means parting from some of our talented and dedicated colleagues. While this is not an easy decision to make, it is an important step to enable the long-term success of Danfoss. Additionally, as several businesses are impacted by the volatility and lower demand in the market, they are seeing the need to adapt to the current market situation.

Danfoss’ commitment to sustainability

We remain committed to decarbonizing our global operations (scope 1 and 2) by 2030, as part of our three step-change initiatives on Decarbonization, Circularity, and DE&I (Diversity, Equity, and Inclusion).

In the first half of the year, we continued to reduce our own emissions. In China, we signed a local Power Purchase Agreement (PPA) that, from 2025 onward, will reduce our annual scope 1 and 2 emissions in China by 33% and 9% globally. In total, we have now secured agreements to decarbonize 60% of our operations in China.

Outlook for the year

Danfoss has a continued ambition to expand or maintain our market share. Due to the current downcycle, sales are now expected to be in the lower end of the range of EUR 10.0-11.5 billion for the full year. The EBITA margin is now expected to be in the range of 11.0-12.0%, following the continued integration of already acquired businesses as well as investments in the development of new products and solutions. We are in the process of assessing our strategic options to reduce our cost base, which might cause further one-off costs. The expected growth and profitability performance is dependent on the development of global supply chain stability, the geopolitical environment, and inflation as well as general global growth rates.

Key figures for the first six months of 2024

Sales decreased 9% to EUR 5,012 million (H1 2023: 5,528m).
Investments in innovation (R&D) continued on high-level EUR 247m (H1 2023: 249m), corresponding to 4.9% of sales (H1 2023: 4.5%).
Investments (CapEx) excluding M&A was EUR 220 million (H1 2023: 274m).
Operating profit (EBITA) decreased 22% to EUR 533 million (H1 2023: 686m), leading to EBITA margin of 10.6% (H1 2023: 12.4%).
Free operating cash flow after financial items and tax (before M&A) amounted to EUR -118 million (H1 2023: -125m).
Net profit decreased 28% to EUR 291 million (H1 2023: 402m).