"The quarter was as expected," states Chief Executive of Danfoss Kim Fausing following the group's first quarter seeing progress in revenue by 6 percent to EUR 1.56 billion.
This statement from the CEO is quite fitting, as Danfoss may certainly be considered a guarantor of stable growth, while at the same time considerable sums are invested in innovation in order to stay relevant.
In the quarter, Danfoss sees earnings before interest, taxes, depreciations and amortizations (EBITDA) increase by 8 percent to EUR 240 million, while the bottom line decreases by 3 percent to EUR 110 million.
This, however, must be viewed with respect to two factors. As Fausing states, Q1 of 2018 set a record, but it is just as important that Danfoss has once again increased its investing.
Last year, Danfoss lifted its investments by 9 percent, and they are now further increased by 11 percent. Thus, the industry giant spent EUR 68 million getting ahead of competitors.
"We're continuing our strong investments in growth and purchases of new technologies to lay the foundation for our future growth," Fausing explains, continuing:
"We do this because there's pull, and our customers demand solutions helping to solutions lessening the CO2 burden. This is happening in both energy efficiency and electrification, where cars, buses, trucks, ships and highway vehicles are all going electric. As such, we were very pleased to sign an agreement with UQM Technologies in the US, which is very strong in the electrification area – and will be our new base in North America."
The CEO refers to Danfoss in April reporting that they had signed an agreement on taking over US-based UQM Technologies. A deal which is expected to be closed in Q2 of 2019, when all the necessary approvals have been attained.
"We're working with pretty ambitious investment strategies at Danfoss. And we're not doing it for its own sake. The megatrends seen across the world have to do with some big changes in tech going on. Both electrification and digitization, but also urbanization and the demand for energy-efficient solutions. The difference lies in whether you have those solutions or not," Fausing says.
That is why the quarter's 3 percent setback is not significant to the CEO. He states that he recently, at the Bauma conference, had the opportunity to assess some of the competitors' technologies and machines.
"Many of our competitors say that they'll have something ready by 2021 and 2022. We have that now, because we've invested as heavily as we have. That's why it's a bit more important to us to do this. We're confident that we can raise our bottom line during the year despite doing all that. But I have to say that our clear priority has been to raise the level of investment to get ahead and to have the solutions needed," Fausing says.
The narrative of Danfoss in recent years has been that the group has never been more relevant than right now. And if investing is decreased in order to raise the bottom line, the company will just slowly become irrelevant, Fausing explains.
He also says that he is far calmer knowing that Danfoss has solutions on their way whose relevance to the world is high, than that profit was some number of millions higher.
China will be number one
For Q1, Danfoss also reports that the Chinese market has been marked by volatility, which has "dampened" demand. But this should be counterbalanced by "good momentum in Europe and India". Furthermore, Danfoss enjoyed continually high demand in North America.
Regarding the dampened demand in China, this is due to uncertainties, trade conflicts and the like making customers bide their time and wait for while before pushing the button.
At the same time, Danfoss emphasizes that even though growth is dampened, sales are still at the same level. China is the second-largest market for Danfoss, and the dampening does not change the fact that it "at some point will be our number one market", Fausing says.
"We've come out of several years with very high growth momentum [in China, -ed.], and whether it stabilizes for a quarter or two is not critical. We're very confident in China – in the long term as well."
English Edit: Jonas Sahl Jørgensen