Danfoss Group Global

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MAKING MODERN LIVING POSSIBLE The new markets Russia is now no. 3 The answer is blowing. Artificial muscle 4 8 14 18 Global Danfoss 1 /09 • A Stakeholder Publication English edition

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Global Danfoss January 2009 10 14 18 16 Global Danfoss Page 10 China at a crossroad Danfoss has enjoyed major progress in China – and now things are set to accelerate. The way to achieve this is to offer Danfoss products to the Chinese with lower specifications – and at lower prices. And this is just the right time, because Chinese competitors are growing bigger and stronger. Page 14 The answer is blowing in the wind The wind turbine industry has real momentum and Danfoss is catching the breeze Page 16 A spectacular use for magnetic valves! Page 18 Artificial muscle by the metre Danfoss has cracked the code and is now in a position to mass-produce artificial muscle. No-one has ever managed this before. According to the people behind the discovery, the application potential is almost infinite. Published by Danfoss A/S Total number printed: 25,950 Address: Danfoss A/S, L24-212 DK-6430 Nordborg globaldanfoss@danfoss.com Responsible: Ole Daugbjerg Editor: Niels Chr. Larsen Prepress: Christa Hartmann Photographer: Glenn Simonsen Print: Laursen Grafisk A/S Published in Danish, English, French, Spanish, Polish, Slovenian, German, Chinese, Slovakian and Russian. Printed with vegetable colours on environmentally approved paper. Reproduction only by permission of the Editor and always with acknowledgement to Global Danfoss

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Leader While the storm is raging By Executive Vice President and CFO Frederik Lotz The first phase of the global financial crisis has eventually reached its full extent. The entire financial sector has been thrown back ten years in just a few months – the bottom has been knocked out of the share market and it has become extremely difficult to obtain new credits. And now the economic phase begins. In this phase, companies and consumers will seriously begin to feel the weight of the crisis and substantial declining sales. All this is reality – and for Danfoss too. Danfoss’ first three quarters of 2008 were in fact satisfactory. The business continued to grow and the profit was at a record-high level from 2007. However, from the beginning of the fourth quarter, we have noted that demand for our products is decreasing and we have to tighten our belts more in preparation for the prospect of a few difficult years. Until we know the scope of the economic crisis, we have to be cautious and cancel projects which are not absolutely necessary. We must hold back. With the financial crisis we must also recognise that we will not have reached the target of an EBIT 10 in 2009 – earning 10 DKK for every 100 DKK that we sell. This would have been feasible under normal circumstances, but the truth is that the world is not normal. This does not mean that we have abandoned our target. It just takes longer to reach it. Over the past 18 months we have entered into agreements with banks, obtaining credit facilities that may be used should it become required. But it is obvious that we cannot live from borrowing money from the bank. We have to adapt. Therefore, regrettably, we have been forced to say goodbye to many fine employees. This is never a pleasant thing to do, but it was a necessary step, because Danfoss has an ambition to earn money – even in times of crisis. Otherwise, the road back to normal will be too long. From a historic perspective, this has not been a strength of the company. But we have become better at responding to ups and downs in the market and that is vital if we are to transform the crisis into something positive. We cannot predict the future, but we can think through different scenarios in advance and, so, respond quickly and resolutely when the time comes. While the storm is raging, it is our task to adapt our company to achieve a strong position once the situation gets back to normal. We have the right products: energy-efficient, technologically superior and high-quality. This is what the customers will demand when the world economy gets back on track. And it will some day. But it is obvious that we cannot live from borrowing money from the bank. We have to adapt. ” “ 3

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Focus 7.6% 2008 6.9% 2008 8.0% 7.6% 2009 9.3% 2008 2009 10.0% 2008 Facts Financial prospect, according to IMF: Brazil Russia India China EU USA 2008 5.2% 6.8% 7.8% 9.7% 1.2% 1.4% 2009 3.0% 3.5% 6.3% 8.5% -0.5% -0.7%

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BRIC COUNT R IES BRIC The world upside down Brazil, Russia, India and China will dominate this century. These countries are claiming an increasingly larger share of economic growth in the world – and at Danfoss as well. The Mediterranean Sea has been at the centre of the West’s vision of the world ever since the Classical Era – and most maps still focus on this area today. America is on the left, Europe in the middle and Asia and Australia are out there on the right. But that is not the way a map of the world looks if you buy one from a Chinese newsstand. On this map, China is the country in the middle – with its mighty neighbours India and Russia next door. America is all the way to the right on the other side of the extensive Pacific Ocean, while Western Europe looks a bit desolate in the left-hand corner, close to the ice expanses of Greenland. This will become a more realistic picture of the world in economic terms in the years to come. First and foremost, India and China will continue to make drastic gains. From representing 2% and 6% of world GNP respectively in 2007, these two countries will – according to the International Monetary Fund – represent one third of world GNP by 2050. In other words, 33.5% of the world’s value will be created in India and China alone if this prognosis is correct. India will move from 2% to 12.9% of world GNP by 2050. China will move from 6% to 20.6% and thereby become the world’s leading economy. Brazil and Russia will also grow significantly in the same period, and the four BRIC countries – as Brazil, Russia, India and China are known – are poised to become the world’s top economic engines. The EU and the United States, on the other hand, will represent a smaller part of world GNP. By Niels Chr. Larsen 4.8% 2008 4.0% 2009 Continues on next page 5

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These developments have been in the works for several years. In 1994, 20% of world GNP growth took place in these four countries. By 2008 that figure had doubled to 40%. Good news for Danfoss These trends have been studied very closely on the top floor of Danfoss headquarters. Management is also aware that these countries within Danfoss’ sphere of activities have represented high average growth rates in recent years, exceeding 45% in China and 40% in Russia. Russia, China and India alone will represent more than one quarter of total Danfoss sales in 2011. »The financial crisis originated in the United States and has so far hit Western economies hardest. Now it looks as if no-one will get off scot-free, but there can be no doubt that Danfoss’ globalisation strategy, combined with significant growth in Russia and China, will make it easier for us to weather the storm, even though growth in these countries will also be considerably reduced during the next months,« says President and CEO Niels B. Christiansen. He emphasises that Danfoss’ strong position in energyefficient products will be of particular benefit to the company. According to a forecast from the OECD, energy consumption in BRIC countries will have risen by 72% in 2030 compared to 2005 levels. In comparison, consumption in the 30 OECD countries is predicted to rise by 29%. This will not only be a drain on resources, but will also mean a dramatic growth in carbon emissions from the BRIC countries. Unless drastic steps are taken, these four countries will emit more greenhouse gases by 2030 than all the OECD countries combined. »There is a major environmental challenge ahead which offers Danfoss a great opportunity,« concludes Niels B. Christiansen. You can find more about Danfoss’ activities in the four BRIC countries (Russia, China, India and Brazil) below. Facts • The term ’BRIC countries’ was coined by Jim O’Neill, Economist at Goldman Sachs. These countries combine to cover 25% of the earth’s land area and represent 40% of the world’s population. • The gross national product (GNP) is the sum total of domestic consumption, investments and net export. The GNP reflects the size of the economy of a country and is often recorded as GNP per capita. 6

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BRIC Chinese approval for Indian production In just a few years, China has asserted itself as a notable production country for Danfoss. In comparison, Indian production is not as prolific. So all the more reason for the Indians to be delighted in November when Danfoss in India received a certificate from the Chinese authorities. This gave their approval for Danfoss’ pressure switches, which had been made in India, to be sold on the Chinese market. The production of pressure switches – used to protect process equipment against extremes of pressure – was established almost one year ago using machinery that had been relocated from Poland. Last year, the equipment yielded 60,000 switches, but that figure is expected to double this year, with one third of those being exported to China, according to Value Stream Manager Sampath Sridhar. The pressure switches are the first real Indian product and the production was primarily set up by Danfoss because of the encouragement received from local Indian customers to show a commitment to the area. Søren Eskildsen, Senior Vice President at Danfoss Air Conditioning Controls, says that relocating other productions to India is currently being considered, however, the maximum size of the site will be 1,000 square metres. In spite of a small domestic production currently, there are major opportunities in this country, which is predicted to exceed China as the world’s most populated country within the next couple of decades. The need to refrigerate food is huge with 30 per cent going to waste at the moment. In addition, there is a need for air conditioning, although the refrigeration division clearly has the largest presence in the COUNT R IES In spite of a quadrupling of net sales over the past five years, India – in a Danfoss context – remains the smallest of the four BRIC countries. However, the market potential is big in this populous country. BRIC By Niels Chr. Larsen country. Danfoss Drives has a strong position in the textile sector, among others. Also, there is a major potential to contract assignments out to suppliers. Commercial Compressors have already taken the first steps in this context. COUNTRY FACTS INDIA Area Population GNI per capita Growth of GNP per capita 3,287,590 km2 1.147 bn mil. (2005) 4,277 (2007) 9% (2007) Source: Danish Ministry of Foreign Affairs

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Russia is now no. 3 In a few years, the Russian market has developed into one of Danfoss’ most important. By Niels Chr. Larsen A forest of construction cranes has dominated the Moscow skyline for years. Today, some of the construction projects have been brought to a standstill by lack of funding. Banks ask for credit approvals and demand payment of loans. Mikhail Shapiro – the head of Danfoss in Russia – receives numerous disturbing reports in the wake of the financial crisis, just like any other company head. »We see signs of the crisis in every sector, except the private and public renovation projects,« he points out. But he is convinced that Russia will recover relatively fast – as was the case after the crisis in 1998. Because, as he says, all the prerequisites are present: great natural energy reserves, a trained and flexible population and a major need for renovation and development of the infrastructure. Mikhail therefore expects that Russia will continue to be the venue for impressive growth rates for Danfoss. Over the past three to four years, growth has been around 40 per cent per annum and around 100 new employees have been hired each year. So where it used to be a limited market, the world’s geographically largest country has thundered forward and became the Group’s third largest market in the third quarter of 2008 – bigger than China. The Russians want the heating Heating is indisputably the biggest division represented in Russia and it is responsible for 60 per cent of Danfoss’ net sales in the country. Danfoss enjoys a dominant position with Heating Controls – producing radiator thermostats and bal- Facts • Danfoss Russia has more than 500 employees, of which 350 are located in Moscow. The remaining employees are distributed in 22 offices in Russia and one in Minsk, Belarus. • There is local production of radiator thermostats (HEC) and ball valves (DH) in Moscow. The production covers around 10 per cent of the net sales. COUNTRY FACTS RUSSIA Area 17 mil. km2 Population 141.4 mil. (2008) (IMF) GNI per capita Approx. 12,000 USD (2008) (IMF estimate) Growth of GNP per capita 6.8 per cent (2008) (IMF estimate)

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BRIC COUNT R IES ancing valves – and also with district heating. There is a major need for heating solutions as it is cold in Russia for most of the year, especially Western Siberia. In some of the large regions in the East, inhabitants begin to wear warm clothes as early as September in preparation for a long Russian winter. »The Danfoss name is one of the most well-known on the market. The reason is that, in reality, Danfoss has created the market for many of our products and solutions,« says Mikhail Shapiro. This particularly applies to radiator thermostats, which were totally unknown in Russian flats. Instead of regulating the heat using a thermostat, the Russians had been used to opening a window when it got too hot. Now, in the Moscow region, it has become mandatory to install radiator thermostats in new buildings. A total of five million thermostats have been sold so far in Russia, and Danfoss’ district heating controls have been installed in the majority of the district heating companies’ distribution network. The refrigeration division, RA, provides 30 per cent of Danfoss’ net sales in Russia and has a leading position in the market. Local producers purchase many of Danfoss’ compressors and thermostats, which they then build into their own products. Motion Controls, meanwhile, is predicted to have major opportunities in the large industries that have a great need for frequency converters. This especially applies to the energy sector, within mining, in oil refineries and in connection with the distribution of heating and water. However, it requires many resources to get through to the key producers, as Mikhail points out. BRIC He also singles out the fact that Danfoss has created a name for itself by spreading energy-saving measures in all of the sectors that the company deals in. »We have conducted more than 3,000 seminars and in this way have trained the local technical elite. We have already reaped the fruits of these efforts by taking a considerable market share in many sectors,« he says.

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China at a crossroads Danfoss has enjoyed major progress in China - and now things are set to accelerate. The way to achieve this is to offer Danfoss products to the Chinese with lower specifications – and at lower prices. And this is just the right time, because Chinese competitors are growing bigger and stronger. By Niels Chr. Larsen In the 60s, Western producers used to smile at Japanese products - at the time they were considered rather primitive. Not for long, though. The Japanese soon got the hang of it and then led the way – and something similar could take place with the Chinese producers. Their products improve day by day and we will provide them with ideal conditions to flourish unless we take an interest in their very large home market. So points out Mogens Terp Paulsen, the head of Danfoss in China, and that is one of the reasons why Danfoss has embarked on its current course in the country. So far, Danfoss has sold and produced the same products in China as in the rest of the world. But, with the acquisition of Holip – a manufacturer of frequency converters – a few years ago, Danfoss entered the so-called ‘mid-end’ market. Danfoss itself is placed at the high-end, where the products are more advanced and the price higher. First product on the market A strategy was adopted at the end of 2007 regarding the development of more mid-end products and soon the first of these will be launched on the market in China – in addition to those that Holip has launched. To begin with it will be a refrigeration electronics product for supermarkets. As opposed to the »average« Danfoss product, the new one only controls four compressors and ventilators – as opposed to the usual ten. Furthermore, it only controls the refrigeration and not the light or other areas. Mogens Terp Paulsen sees the product as a milestone. Facts COUNTRY FACTS CHINA Area Population Growth in population per year GNI per capita 9,597,000 km2 1,314 bn (CSY: 2007) 0.528 per cent (CSY:2007) GNI (Atlas) 2,000 USD GNI (PPP) 4,660 USD (The World Bank: 2006) 10.7% (The World Bank: 2006) Growth in GNP per capita Source: the Danish Ministry of Foreign Affairs

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BRIC COUNT R IES »It is not wise to ignore the mid-end market. It’s the biggest in China and it is the market segment where our future competitors will evolve. The risk is that our Chinese competitors – over time – amputate us, first in China and later on in other markets, when they also begin to produce high-end products,« he points out. In this way, the new mid-end products are set to both give Danfoss a slice of the pie and also protect the Group’s existing product programme. One third of the growth in China is supposed to be generated via the new products and an organisation has been created that gradually – over the next years – will review the most relevant sections of Danfoss’ product catalogue in order to investigate the opportunities to launch them in China with other specifications. Mogens Terp Paulsen expects the number of staff in the development department to triple during the next 18 months. New customer groups But, isn’t there a risk that we will harm Danfoss’ good reputation with inferior products? »It is important to emphasise that this is not about low quality. Quite deliberately, we have chosen not to take an interest in the low-end market which, by the way, is declining,« says Mogens Terp Paulsen. The mid-end products will be typically characterised by having fewer features, being less accurate and having shorter life-spans. »We must learn to appreciate what the customers demand – and if the customer expects the product to last for ten years, and it does, then that is high quality. If it lasts for 30 years, it does not add any extra value.« Currently, around a dozen projects exist – most of them in the refrigeration division – and they have in common the fact that they are based on very thorough investigations of the market and customer needs. The effect has been that Danfoss has come into contact with entirely different customers than they would have otherwise. For example, the customer group relating to the new refrigeration product does not consist of the major well-known supermarkets such as Walmart and Tesco, with which Danfoss has transactions around the globe, but Chinese chain stores. And that has yielded added sales. »When visiting customers it is clear that it is also possible to sell other products to them,« says Mogens Terp Paulsen, who underlines that no plans exist to sell the mid-end products outside China and that it was about time that Danfoss entered this market as several competitors have already embarked on the same course. High-end products to the left. To the right: a photo from a Chinese supermarket chain BRIC

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BRIC COUNT R IES BRIC The sky’s the limit for Brazil The large Latin American country is on Danfoss’ top ten list. By Niels Chr. Larsen The equator runs through the northern part of Brazil and, not surprisingly, the refrigeration division has a very dominant position on the Brazilian market. Danfoss particularly makes its mark in the dairy sector and in the refrigeration counters in supermarkets. »The standard of living is rising in our region and when that happens in developing countries, many people will typically spend their extra money on improving their standard of living and the quality of the food they eat,« says Julio Molinari, RA sales manager in Brazil. This places Danfoss in a very strong position as a market leader in these areas. It is supported by an assembly line that produces 2,700 condensing units each month; units which are almost entirely sold on the Brazilian home market for use in milk tanks and cooling stores, among other things. RA expects an annual growth of 13.8 per cent and sales of 68.4 million euros by 2011. Motion Controls is Danfoss’ second major player in the country. Today, Brazil is one of the ten largest markets and an annual growth rate of 15 per cent is expected to be achieved over the next five years. The major growth areas are the business areas Sugar & Alcohol and Water & Wastewater. Both areas are anticipated to invest considerably in Brazil over the coming years and MC expects to get a slice of the cake. »Actually, Sugar & Alcohol is already a fine example. We entered the market around 18 months ago and we expect sales to amount to 1.5 million euros by 2008,« says MC’s Brazilian sales manager Sandro Sandanelli. Facts Danfoss’ new headquarters in Brazil opened in December. It is located outside Sao Paolo and has offices of 3,500 square metres and 7,300 square metres for stock facilities and the assembly of condensing units. COUNTRY faCTS BRaZil Area Population figure Income per inhabitant (BNI) Growth in GNP per inhabitant 8,510,000 km2 187 mil. (2008) 22,550 (2006) 6.1% (estimate in 2008) 12

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Times of crisis – how to deal with them? Niels B. Christiansen, you had barely taken up the position as new CEO before it was announced in Denmark that 350 jobs would be cut. What was it like to begin your new job with redundancies of that size being announced? »There can never be a good time for dismissals. But I fight for Danfoss in both good and bad times – and I make the decisions that will safeguard Danfoss in the long term. And this I will continue to do, whether or not I am the Vice CEO or the CEO.« You, the members of the new Executive Committee, have so far been used to a tailwind behind Danfoss. How have you prepared yourselves for dealing with a time of crisis? »We are well prepared. All of us, in our previous jobs, have dealt with crises, such as the IT crisis in 2001. But the Danfoss management does not only consist of the group executive committee (EC). We are surrounded by a strong team who have put in long service at Danfoss.« Some would argue that sometimes it is necessary to trim the organisation, because you tend to get a little too chubby in good times. Do you agree? »I do not like the word ”chubby”. But it is appropriate to sometimes assess whether the activities that we perform are adding value –especially in tricky times – and act appropriately if this is not the case. In this way, we must always be ready to prioritise our tasks.« What does that mean specifically? »That every function should prioritise their tasks with a view to reducing, deferring or ceasing activities. This has been supported by a full hiring freeze – internal redeployments and the redistribution of assignments.« How do you intend to tighten up in the Executive Committee? »In several ways. We will closely monitor the situation and we have obtained financing agreements, prepared a cautious budget and focused strongly on the cash position. We will also hold back on the expenses incurred in all corporate functions throughout the organisation. For example, we have decided to defer the arranged GMM meeting – where Danfoss executives from all over the globe meet to set the course going forward – from 2009 to 2010.« Are you able to spot the positive results of the present crisis? »Experience shows that strong global companies often gain market shares during recessions. This has applied to Danfoss before. And it will happen this time too. We must maintain a strong focus on sales and constantly keep an eye on the opportunities which do, after all, exist – even during recessions.« Q&A Questions and answers. On this page we will focus on a central issue in each edition of Global Danfoss. This time, we ask President and CEO Niels B. Christiansen questions. Please forward any suggestions to the editorial team. 13

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The answer is blowing in the wind The wind turbine industry has real momentum and Danfoss is catching the breeze. 14

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A wind turbine looks so uncomplicated out there in the landscape: it’s just a tower and three turbine blades. But few people realise that a turbine actually consists of 8,000 components – and that Danfoss supplies many of them. Vestas, the world’s largest producer, uses Danfoss’ heat exchangers for cooling purposes at the top of the turbine. And Spanish wind turbine maker Gamesa, which is third biggest, is in the process of developing the next generation, the G10X, and the company has selected Danfoss Industrial Automation, IA, as the sole supplier of temperature sensors. The sensors measure the temperature of the bearings in the main shaft. These orders are the outcome of IA’s targeted activities to increase sales to the sub-suppliers in the wind turbine industry. However, IA also sells directly to the major wind turbine producers. »We have focused on selling products which are used in hydraulic systems and gearboxes in wind turbines. Danfoss’ products endure the extreme conditions that the turbines are exposed to and we have the quality and global presence which the producers demand,« says Per Sønderris, Business Development Manager at IA. But, not only the sales staff from IA have approached the world’s largest producer of environmentally-friendly technology. Danfoss Wind Power, a business area at Danfoss Ventures, was set up in 2007 with the purpose of strengthening the company’s activities relating to wind turbine makers. Director Bruno Lund Pedersen headed this effort. He has presented Danfoss’ portfolio to the wind turbine industry and they have shown an interest in a range of Danfoss products. These include Silicon Power’s power modules used in the turbine converters, which transform power generated by the turbines to the power supply network; Danfoss High-Pressure Water Solution’s systems for fighting fires that may arise in the turbine, and Danfoss Silicon Power’s shower power modules for the water cooling of the electronics. Danfoss Drives frequency converters are used for the control of different motors in the turbine. Bruno Lund Pedersen points out that Danfoss – being a global company – has the competencies and the quality to develop close relationships with the wind turbine producers. »We can take the position as an equal partner with the big ones and we have created a close contact with the biggest,« he says. There is plenty of opportunity in a market that has an annual growth of more than 20 per cent. If you take a closer look at 2011, according to Bruno Lund Pedersen, net sales in the wind turbine industry on the global market will exceed 60 bn euros. The fastest growing countries are China, the USA and India. In China alone, there are more than 40 wind turbine producers. In India, the number is around 20. By Lene Ilsøe Nielsen Facts In 2007, the number of megawatt hours (MWh) from wind turbines covered one per cent of the world’s power consumption. By 2012, 2.7 per cent will be produced by windpower. The world’s five largest wind turbine producers – listed by size – are: Vestas in Denmark, GE Wind in the USA, Gamesa in Spain, Enercon in Germany and Suzlon in India. In 2007, they represented approx. 80 per cent of the market. 15

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A spectacular use for magnetic valves! By Niels Chr. Larsen Ariel Rodriquez, Technical Manager for the Argentinian performance group Ojalá Entertainment, encountered a problem when the group was invited to participate at EXPO Zaragoza 2008 in Spain. This is the world’s largest water festival, and Ojalá Entertainment had been chosen as one of the three main shows. As one might expect, the performance involved large amounts of water, which was to be sprayed at high pressure from the hands of the performers. In rehearsals a problem arose when the valves that had been chosen did not open up quickly enough, making it impossible for the show to reach the spectacular heights desired by the performance group. So they then began to search for a suitable valve, as well as a manufacturer with offices in Spain, so that they would have a back-up if something went wrong. With the help of José Montagano, Sales Consultant for IA in Argentina, the troupe was equipped with a magnetic Danfoss valve that opens twice as fast as our competitors’ valves. José also supplied a list of dealers in Zaragoza if the troupe should need it. The show was saved. The show is called Hombre Vertiente” – “The Pouring Man” – and was created by choreographer Pichón Baldinu, who was the aerial designer for such Broadway shows as The Little Mermaid and Tarzan. 16

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Notes Danfoss attracts students More than 500 students from prestigious Chinese universities visited a career fair on October 23, held at the Fudan University in Shanghai and arranged by the Danish embassy in China. In addition to Danfoss, other Danish companies also took part, such as Maersk, Vestas, Grundfos and In Wear, which were there to attract attention among the students who had recently qualified. Danfoss’ HR consultants were present at the fair and collected several CVs from the Two extreme Norsemen Eigil Holst and Kent Bahr, both from Danfoss’ sales department in Norway, were among the 200 participants in the 2008 version of “The Norseman Extreme Triathlon” that includes, among other things, 3,800 metres of swimming in a cold Norwegian fjord. As they prepared for the race, they received support from their place of work, which kept the training centre up to date with spinning bicycles and fitness training machines, so that they did not have to spend time travelling to training. The test of strength is very popular and in 2009 will be held in August. It was fully booked within just seven minutes and Eigil Holst managed to join again, this time together with Lasse Rypdal, who is the chairman of Danfoss’ sports club in Norway. students who showed an interest in the Danfoss Post-graduate Programme. DPP in the office On the basis of inspiration from a DPP project implemented at the warehouse, the logistics department at Danfoss Mexico has now also put up boards in the offices. Already, after 12 weeks, 72 problems had been solved and the team members are now making a record of the number of import orders that arrive in time at the customs and the number of export orders which are dispatched on time. In order to incentivise the continuation of the idea, the team members who solve the most problems are rewarded. The reward consists of small hand-decorated balls which the employees have painted. A certain number of balls entitles the employee to small prizes such as mugs, a memory-stick or other Danfoss promotional gifts. In the photo are Diana González (left) and Berenice Sánchez, 17

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Artificial muscle by the metre Danfoss has cracked the code and is now in a position to mass-produce artificial muscle. No one has ever managed this before. According to the people behind the discovery, the application potential is almost infinite. By Ole Kanstrup When referring to goods that are produced by the metre, it is usually fabrics that are the subject of discussion. But Danfoss is now able to produce artificial muscle – called polymer-film – by the metre, and it is even shaped in such a way that they could be mistaken for little fabric rolls. The muscle has been ten years in the making and is produced at the newly-established Danfoss PolyPower A/S in Nordborg. However, it does not feel like muscle or fabric rolls – rather it feels like touching the slightly wobbly and rubber-like material which is left on a needle after having stuck it through a balloon. However, if you electrify the material, it changes into artificial muscle which expands, contracts and works as a sort of sensor. »The muscles can lift up to 100 times their weight with an amazing accuracy. We are the only ones who are capable of mass-producing them and I can guarantee that professionals all over the world will take note of them,« says Michael Jørgen Hamann, who is the President of Danfoss PolyPower. Challenging the laws of physics As long ago as the 1980s, researchers managed to make polymer-fibres – artificial muscle – expand by using power. However, it is only Danfoss that has managed to produce artificial muscle at a price which is affordable for the customers. The explanation is that the Danfoss muscle consists of simple materials – broadly speaking, it is made of two layers 18

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of silicone surrounded by a metal membrane. And silicone and metal are easy to obtain and cheap. Danfoss PolyPower has had the job of challenging the general view concerning the laws of physics in order to make the muscle function – how do you make silicone and metal, which usually repel each other, stick together? And how do you make metal as elastic as muscle? »We have made the metal membrane elastic by giving it the unique shape of a wave. It is a kind of accordion principle. The good thing is that the metal is only elastic in the direction of the wave. In this way, we obtain a very controlled movement,« says development specialist Mohamed Benslimane. The wave-shaped silicone is created in a clean room laboratory, where the technicians produce several metres at a time. The metal membrane gets its wave-shape when it is subsequently glued to the silicone. This takes place in a hermetically-sealed machine, almost five metres long, which has little portholes. But if you take a look inside, you won’t see much. »What is going on in the machine is a patented trade secret. It has something to do with a vacuum. And that is all you get from me!« says Mohamed Benslimane. Jørgen often stopped by Mohamed Benslimane has been part of the project right from the start when it was launched ten years ago. And he believes that if it had not been for Jørgen M. Clausen, they would never have managed. »He was the one who gave birth to the idea of mass-production. And in the beginning, when the budget was small and the team primarily consisted of student workers, he often stopped by the office with encouraging remarks,« Mohamed Benslimane recalls. At the beginning of 2006, the team cracked the code to the mass-production of muscle. Since then, events have moved on until July 2008, when Danfoss PolyPower went from being a project at Danfoss Ventures to becoming an independent company. And the only things they need now are customers. »With the technology for mass-production, we have created artificial muscle with a promising future. Now it is our plan to approach companies, universities and the Danfoss divisions to introduce them to the products,« says Michael Jørgen Hamann. This is how it works Danfoss’ artificial muscle consists of two layers of ultrathin wave-shaped silicone with a metal membrane. The silicone layers are 0.04 millimetres thick, the metal membrane is 0.0001 millimetres. If you add negativelycharged power to the metal on one side and positivelycharged power to the other, the sides press towards each other and the silicone expands. At the moment the rubber-like material expands around five per cent. But Danfoss PolyPower A/S continues to work to increase this percentage. Danfoss’ artificial muscle can be used, in general, in almost any application where things need to be pushed, drawn, sensed or placed. How to use muscle In valves: Muscle can be used as valves in many different places, such as in taps or radiators. It responds accurately and in a split-second when the product is charged. In robots: The elastic surface makes it possible for the muscle to adjust to the shape of the things they lift. Therefore, they also work as a kind of sensor and are capable of lifting an unboiled egg without breaking its shell. In bandages: The muscle can be rolled around the leg of a patient with a bad blood circulation and function as a sort of active bandage. By alternately tightening and relaxing, they can support the vein pump. Sensor equipment in buildings: The muscle can be applied to cracks in bridges or buildings. If the appearance of cracks changes even the slightest, this will have an impact on the muscle which will immediately be recorded electronically. 19

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The pot must be kept boiling The productivity program, DPP, is now so familiar to the factories that local DPP offices take the initiative to launch projects. However, attention to improvements must be constantly maintained. By Lene Ilsøe Nielsen The 40 employees in the Devimat department under Danfoss Floor Heating in Vejle, Denmark, enjoyed a major success with the Danfoss Productivity Program (DPP) project they carried out entirely on their own in the spring of 2008. Without any assistance from the central DPP office, they managed to improve job satisfaction, get the results on the boards under control and become better at solving problems. And they obtained a bottom-line profit of 67,000 euros. However, soon afterwards, the manager got a new job, a team coordinator went on maternity leave and, gradually, things went off course. The boards were not kept up to date and the obtained results declined again. This continued until the end of the autumn, when a new manager arrived and got the activities back on the right track again. The case from Vejle is a good example that the pot must be kept boiling when it comes to the DPP, says Jens Andresen, who is the head of DPP at Danfoss. It is also an example that the DPP spirit has become an integral part of the mindset in production. DPP is one’s own responsibility To begin with it was a centrally-controlled program. Today, it is the responsibility of the divisions to promote the DPP spirit in their areas. And over the past year, 12 local DPP offices have been set up in factories around the world, set to support and carry out local DPP activities. Three more offices will soon be opened. The case from Vejle also reflects the fact that employees recover their enthusiasm once their memory is refreshed about the principles of Danfoss’ production working methods. »The project began so that we could dispose of all the rubbish that gathered dust. It took up too much space and we had to go far to get the things we needed. After DPP, we are once again in control,« says Nina Andersen about the DPP project. She works in Devimat production and says that tidying up is once again part of the everyday routine. Project leader Eva Jørgensen says that the employees retain the DPP tools in spite of the many changes in the department. The results written on the board show that the area has returned to the levels achieved last year. Devimat carried out its first DPP in 2004. 20

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Prize for Danfoss regarding its lean principles The lean principles are an integral part of Danfoss’ working method in production and this was recognised at a European conference for production companies held in October. The prize was handed over to Danfoss for its efforts to disseminate lean methods throughout the Group. Lean expert Mark Graban, who has worked for General Motors, Dell Computers and Honeywell, among others, said that he was impressed with Danfoss and how the company has managed to implement lean in the production as part of an entire business system – and not only as a system for the employees on the shop floor. Over the past five years, Danfoss has made a targeted effort – via the Danfoss Business System – to build a crossdivisional shared business system with the purpose of increasing the company profit and improving the competitiveness of the businesses. The conference was arranged by the international organisation, World Trade Group. Mona Toft is the area team coordinator and she is pleased that the employees were consulted. Several of the employees' improvement proposals have been implemented.

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Notes From wool to shopping centre Danfoss has supplied a great number of valves to the biggest shopping centre in the Polish provincial town of Zielona Góra. The centre is located in a building that, for a long period, housed the biggest wool clothes factory in the area. In its heyday it employed 3,000 people, who produced 8,000 kilometres of textile every year. Danfoss played an active part in the restoration via the contracting company Stangl. The colour-changing chair A special enamel, imported from California, and a unique Russian cloth, developed for military purposes with a metal layer, have been combined to create an unusual piece of furniture in an old man’s garage in Estonia. Ingwald Koser, 26, a recently-qualified designer from the Tartu Higher Art School, has designed a chaise-longue which changes colour from black to white when heated. And it is DEVI’s heating cables which control the change of colours. Ingwald Koser has covered the chair’s wooden framework with heat cables and a thin layer of aluminium cloth that has a special enamel that changes colour when the temperature rises. The outer colour layer – black – becomes invisible when the temperature exceeds 30 degrees, making the chair white, the colour of the layer beneath. It takes up to 15 minutes for the chair to change colour. The change of colours can even be remote-controlled by a DEVI wireless control which activates the cables mounted in the chair. Thirty metres of cable were used to make the chair and Ingwald Koser was assisted by technical manager Vahur Parve, from DEVI in Estonia. The chaise-longue is not yet in mass production. A prize for down under In December 2008, the annual Man on the Moon competition was won by a team from Australia and New Zealand with the project Packbuild. Their winning project featured an easy and efficient method to control compressors – thereby, saving energy. Five teams took part in the finals, two from USA, which, by the way, was the country where most of the participants in Man on the Moon 2008 came from. 22

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I’ll have that company During his 20 years at Danfoss, 43-year-old Troels H. Petersen has been in most places – except for Danfoss Motion Controls Division. When he finally made it there, he got the top job! In advancing to a top-level position, Troels H. Petersen has made all the right moves. He has been stationed around the business, worked in many divisions and business areas, developed new areas and visited challenging customers who hold the company responsible if the products do not work according to expectations. But it was in the years since 2002, in his capacity as head of Danfoss District Heating, that attention really focused on Troels H. Petersen. At the time, district heating was a minor area. Danfoss only produced the controls which regulate heat. But that strategy changed and today District Heating supplies small and large district heating stations on a global scale. Consequently, the net sales have quadrupled during a period of almost five years. And along the way, companies have been taken over. »How many did we buy? I can’t remember!« says Troels. He stopped counting a few years ago, he says smilingly, but his secretary knows: the correct number is 12. Respecting the culture Companies like Redan and Gemina Termix have been boosted significantly through their inclusion in Danfoss’ sales channels and with the customers also giving their acceptance, Danfoss’ district heating controls have been integrated into their products. »The most important learning point is that the acquisitions of station producers have had an enormous impact on our core business. No-one had ever imagined that the controls business would yield an annual profit of more than 134 million euros,« he points out. Troels H. Petersen describes the integration of the new companies as having been fairly smooth, not least because the District Heating business at the time was small and, therefore, was the same size as the newcomers. So it was a matter of integrating equal partners. »In this way, we have created a culture which is based on Danfoss’ values, while including the new companies’ special features and their huge business drive.« And this strategy reflects the experience that he has gained during his journey so far in Danfoss. »Everyone identifies him or herself with Danfoss’ basic values, which is closely linked to Danfoss’ history. But in my experience, the business cultures of the different divisions vary a lot and that is how it should be, because a business is a product of the customers you service.« Troels H. Petersen took charge of MC on January 1. Facts The new head of MC holds an MSc and is married to Jette, who is a medical laboratory assistant. They have three daughters, one is 14 years old and there are twins aged 12. 23

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EU sanctions heat pumps New directive will help EU reach climate targets and that is good news for two of Danfoss’ business areas. By Lene Ilsøe Nielsen Wind power and solar cells are wellknown sources of renewable energy and this will also apply to heat pumps, if EU’s politicians were to decide. This is good news for Danfoss who over the past three years has acquired six heat pump producers located in Europe. Over the past year, EU politicians have worked to define the climate targets of the future – the 20 X 20 X 20 targets. The figures represent the fact that the EU – by 2020 – must have reduced the Co2 emission by 20 per cent, improved the energy-efficiency by 20 per cent and increased the share of renewable energy to 20 per cent. The target of renewable energy will be reached via the Directive of renewable energy (RES), which is part of EU’s climate package. The package was voted in at the EU summit in December. In concrete terms, the adoption of the RES directive means that, in the future, heat pumps and district heating will be regarded as sources of energy which provide renewable energy and something that the EU member countries intend to focus on. Therefore, the starting signal has been given for the serious introduction of heat pumps on to the European market. Claus Bo Jacobsen, Senior Vice President at Danfoss Heat Pumps, sees a range of opportunities: »Heat pumps have an obvious reducing effect on the Co2 level, compared to the usual fossil sources of energy. Also, a heat pump uses the free-of-charge energy of solar heat as the substantial element of the generation of heat, and so supplies more energy than it consumes. These are the arguments which must be communicated to the customers.« Claus Bo Jacobsen welcomes the EU’s new directive in the wake of a period where the sale of heat pumps in the mature markets in Europe has been under slight pressure. This applies to Sweden, among others, where the subsidy scheme was revoked in 2007. The result was that sales slowed. Sweden is the country in Europe which has the most installed heat pumps per inhabitant. Country-specific energy targets Also within district heating, major CO2 savings can be obtained. Danfoss’ district heating business supplies heat distribution systems for large buildings and households and expects the adoption of the Directive to result in a major demand for systems and components. Sales Manager at District Heating, Per Boysen, says that if the EU member countries want to increase the share of district heating from the current 6 per cent to 12 per cent, the annual savings will amount to 400 million tonnes CO2. »The advantage of district heating is that the heat is utilised efficiently in areas where the houses are located close to each other, like they are in cities. All forms of fuel – bio-mass or solar power – heat the water contained in the district heating network, so, in principle, district heating can be supplied completely CO2 neutral,« he says. Lars Dyrhagen, Public Affairs Director at Danfoss, has had very many working days in Brussels over the past year, in order to keep a close eye on the political process and to convince the EU politicians that Danfoss’ solutions are efficient and part of future environmentally-friendly technologies Facts The RES directive is an enabling act and it is now up to the countries to define their energysaving measures – meaning, which solutions they will apply to reach their climate targets. 24

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Notes With mum at work Danfoss Trata, located in the Slovenian capital Ljubljana, has undergone complete renovation and in November, business associations and the employees’ families had the opportunity to see the results. Around 300 people visited the company where employees from 18 different places in the production talked about their jobs. Later, a play and musical performance were staged and the children got the chance to go for a drive in a forklift. In the photo are Zala and Pika, the daughters of Alja Ferkolj, who works in supply chain at District Heating. A major family expansion! Laszlo Gesztes – a salesman at Danfoss Drives in Hungary – already had two sons and he and his wife Agnes had an ardent wish to have a daughter. Their wishes came true when Agnes gave birth to a baby girl on November 11. But the new-born girl was one of quadruplets and she was soon followed into the world by her siblings – another three boys! The family now has eight members and the children and mother are fine, returning home after a few weeks in hospital. In the photo are Agnes and Laszlo with (from the left): Peter, Bernadett, Gabor and Bertalan. The latter two are identical twins. Danfoss A/S Annual General Meeting The Danfoss A/S Annual General Meeting takes place on April 24, 2009, at 16:00 hours in the Nordals Idrætscenter, Nordborg, Denmark. Agenda 1. The Board’s report on the company’s business during the past year 2. Presentation and approval of the company’s Annual Report 3. Decision on use of profit or compensation for losses 4. Election of the Board: all Board members are up for election 5. Election of auditor 6. Submitted proposals 7. Any proposals from the Board or shareholders. All shareholders can of course ask the Board questions at the Annual General Meeting, but only proposals submitted before March 1, 2009, will be included in the final agenda and will therefore be discussed and decided at the Annual General Meeting. Please send proposals to: The Danfoss A/S Board, c/o Anders Stahlschmidt, Danfoss A/S, A 640, 6430, Nordborg, Denmark. 25

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By Ole Kanstrup Georg knows the values by heart This quarter’s Value Ambassador, 58-year-old Georg Meister, knows more about the Danfoss Values than most. He is in charge of Danfoss’ Visiting Services in Nordborg so if customers, journalists or others need an introduction to Danfoss’ Values and history, Georg is the one who gives them a tour of the attractions at headquarters in Nordborg. And he was in for a surprise when his manager put her hand on his shoulder and told him about his new appointment. »I usually show the Value Ambassadors around when they are in Nordborg to see the headquarters and have dinner with the members of the Executive Committee. So I was taken by surprise, but I was happy and proud,« says Georg Meister. Georg’s manager, PR Director Gertraudt Jepsen, however, is not so surprised. In her view, Georg knows the Values by heart. And people sense that when Georg takes them for a walk around the vicinity to see Danfoss founder Mads Clausen’s old office from the 1960s or the farm where he was born. »He personifies the Values and his enthusiasm is infectious on people. It simply rubs off on others,« she explains. Childhood farm is central And it is not by chance that the farm where Mads Clausen was born is a set element of the tour. Because even though the Values come in brightly-coloured brochures and are accessible for download from the Intranet, they originate from the old farm. Georg is convinced about this. In the agricultural society of the old days, they had to take the job seriously and take care of each other, in order to make sure that the harvest was gathered in. »The Danfoss Values are based on those kinds of good and pure agricultural ethics. And I am proud to work at a company which has not had an advertising agency invent its values,« says Georg Meister. Georg Meister has been with Danfoss since 1973, when he began his career as a laboratory technician. He lives in Sønderborg, Denmark, with his wife Ruth. Each quarter, the Danfoss Executive Committee appoints a Danfoss Value Ambassador. This time, it is the head of the Danfoss Visiting Services in Nordborg, Georg Meister. 26

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Notes Employee no. 13 turns 100 Bitten Clausen visited William Cordes when he turned 100 on November 1. In 1939, William was employed at the then ”Dansk Køleautomatik - og Apparat-Fabrik”, the forerunner of Danfoss, where he had employee number 13. So, he is one of the few who can recall the first years of the business. William Cordes worked in the time study department for many years before retiring in 1973. 672 steps towards better chips At Samsung, major accuracy is required in all of the 672 steps in the manufacturing process of semi-conductor chips. That is why it is vital that the frequency converters are reliable and technologically advanced. Samsung has fulfilled these requirements in the form of Danfoss Drives’ VLT® AutomationDrive, which was installed during Samsung’s most recent factory expansion in Austin, Texas in the USA. Only a few minutes of down-time would lead to million of dollars and currently 150 Danfoss frequency converters are installed in the factory. Dressed for the job Michael Breumsø, head of Danfoss in Mexico, is one of the leading figures of a campaign promoting safety in the workplace in Monterrey. Under the motto that every leader must set a good example, the local managers appear in posters that call for a higher degree of safety. Over recent years Danfoss Mexico has improved the rate considerably. The number of accidents has fallen to under ten from 33 in 2006, which has coincided with the introduction of safety training and regular safety reviews in the company. Eight years later … Richard Grandy, who works in external sales at Danfoss Gearmotors in Esslingen, Germany, is a patient and persistent man. After establishing a relationship with Kleindienst in 2000 – a company which produces car washes – a contract for 2,000 gearmotors was finally signed in September last year for Kleindienst’s new series of car washes, which are called »Soft Care«. Danfoss’ gearmotors will operate the wheel washer, the roof dryer, the adjustment of the nozzles and the chain hoists. 27

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Danfoss around the world China One of the best at HR Following an extensive investigation, 51job Inc., China’s leading HR service provider, has selected the 100 companies that are best at HR in the country. Among the 100 is Danfoss in China. The prize is presented to companies whose HR activities have contributed considerably to their development. Denmark A singing good bye Sven Ruder had himself a festive end to his job as divisional President of Danfoss Motion Controls Division, a position that he had filled since 2001. A few days before Christmas, employees at Drives in Gråsten, Denmark, gathered to sing a farewell song to the President – a song that was written for the occasion. Danfoss.tv also presented a short film about Sven Ruder, who has now taken up his position as the CEO of Sauer-Danfoss. Read more about his successor at MC, Troels H. Petersen, on page 23. Slovenia Danfoss Slovenia scoops prize Representatives of Danfoss Trata were among the winners of the »Geo Award/ Factory of the Year benchmark« in 2008. Trata won the prize in the category of production companies from new EU member countries, and was presented with the prize for its system to improve productivity and to develop new and innovative products. Canada On the way to the outer thermostat Niels C. Petersen, who worked for Danfoss from 1956 to 1967, is now retired and living in an administrative outpost in one of the most deserted places on Earth: the Sioux Lookout in Canada. To the north there are about three quarters of a million square kilometres of practically uninhabited wilderness, where the only dwellings are on a number of solitary Indian reserves. One of them is Big Trout Lake, which in winter can be reached from Sioux Lookout by driving 15 hours on winter roads with the final 23 kilometres across the lake. The reserve is not open to the public, but there is a small hotel for specially invited guests. To Niels C. Petersen’s surprise, the heating in this hotel was regulated with something from his past: a Danfoss radiator thermostat! The photo shows an example of what people leave behind on the winter road in the tough landscape. 28