Group Annual Report 2005 · 1 January: Grundfos takes over Italian manufacturer of submersible-pump motors Tesla. 4 January: The Grundfos Group donates DKK 4 million to the parts

Being responsible is our foundationThinking ahead makes it possible

Innovation is the essence

Group Annual Report 2005

The Grundfos Group and the Poul Due Jensen FoundationThe Grundfos Group

Northern EuropeTel.: +44 15 2585 0000

GermanyTel.: +49 211 92969-0

Eastern EuropeTel.: +43 6246 883-0

Southern EuropeTel.: +39 0295 8381 12

North AmericaTel.: +1 913 227 3400

South AmericaTel.: +55 11 4393 5533

Asia and the Pacifi c RimTel.: +65 6865 1222

Australiaand New ZealandTel.: +61 8 8461 4611

JapanTel.: +81 53 428 4760

HeadquartersDK-8850 BjerringbroDenmark

Tel.: +45 87 50 14 00E-mail: [email protected]

CVR no. 83 64 88 13

Further information:www.grundfos.com

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Historical milestones for the Grundfos Group

Poul Due Jensen establishes Grundfos.

The launch of the fi rst circulator pump marks the begin-

ning of a completely new era.

With the establishment of a pump factory in Germany,

Grundfos opens a company outside Denmark for the

fi rst time.

With an annual production of 34,000 pumps, Poul Due

Jensen sees his vision of mass production come true.

Poul Due Jensen transfers his ownership of the Grund-

fos Group to the Poul Due Jensen Foundation.

Poul Due Jensen dies, and Niels Due Jensen takes over as

Chairman of the Board of Directors.

The fi rst Group Management with Niels Due Jensen as

Group President.

The Grundfos Group comprises 15 companies employ-

ing 5,000 staff. The annual turnover exceeds 2 billion

Danish kroner.

Grundfos inaugurates the Technology Centre, which

engages in research in new materials and processes,

and designs and manufactures new machines and tools.

Grundfos inaugurates the Development Centre.

Inauguration of the Poul Due Jensen Academy. With the

Academy, the Group’s massive investments in product

development and branding receive whole-hearted

support in the form of investments in training within

sales/marketing and service, among others.

Niels Due Jensen leaves the position as Group President

to Jens Jørgen Madsen.

1945

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2005

Milestones in 2005

1 January: Grundfos takes over the German dosing pump group Alldos.

1 January: Grundfos takes over Italian manufacturer of submersible-pump motors Tesla.

4 January: The Grundfos Group donates DKK 4 million to the parts of Asia that were struck by the Tsunami, and DKK 1 million to the Danish Red Cross.

6 February: Grundfos signs a two-year sponsorship agreement with the Danish Badminton Federation.

14 March: Grundfos and Europump launch new energy-labelling scheme for circulator pumps.

15 March: Grundfos introduces the world’s fi rst A-labelled circulator pump, Alpha Pro, and the world’s fi rst B-labelled standard circulator pump.

25 March: Opening of new factory in Chennai, India.

2 May: Grundfos marks its 60th Jubilee for all employees of the Group and business associates in Denmark.

13-16 May: Almost 700 employees from 50 countries compete in the Grundfos Olympics in Denmark.

26 May: Opening of a new factory in Russia.

6 June: French company Nexans Winding Wires is honoured with the Grundfos Supplier Award.

1 July: Opening of a sales company in Johannesburg, South Africa.

1 September: Expansion of the Hungarian factory is opened.

23 September: Opening of a new sales company with assembly facilities, outside Istanbul, Turkey.

25 October: Opening of a new distribution centre in France.

1 November: Grundfos takes over South African pump manufacturer Brisan Turbo (Pty) Ltd.

21 November: Opening of a new factory in Suzhou, China.

5-18 December: Grundfos is the main sponsor of the Women’s World Handball Championship in St. Petersburg, Russia.

Grundfos introduces the world’s fi rst A-labelled circulator pump, Alpha Pro, and the world’s fi rst B-labelled standard circulator pump.

14307 Omslag_AR_05.indd 1 30/03/06 8:47:26






GermanyTel.: +49 211 92969-0







JapanTel.: +81 53 428 4760



CVR no. 83 64 88 13


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fi rst time.








Group President.



Danish kroner.












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2005

Milestones in 2005




















14307 Omslag_AR_05.indd 1 30/03/06 8:47:26

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Key Figures for the Grundfos Group

Amounts in DKKm

10,000

6,000

4,000

2,000

DKKm

12,000

8,000

10,214

10,70

3

Net Turnover

% of Annual Growth Rate

11,152

12,153

5,000

3,000

2,000

1,000

DKKm

6,000

4,000

4,532

4,817

Equity Capital and Miniority Interests

Return on Equity in %

5,316

5,885

200

51,0

09

870

798

854

1,000

600

400

200

DKKm

1,200

800

1,00

0

Capital Investments, Tangible

DKKm

Profit before Tax

% of Net Turnover

618

726

1,078

1,232

500

300

200

100

DKKm

600

400

458

454

Research and Development Costs

% of Net Turnover

464

543

12,000

10,000

9,000

8,000

13,000

11,000

10,9

85

11,383

Number of Employees

11,707

12,586

The Poul Due Jensen Foundation, based in Bjerringbro, Denmark, is the parent company of the Grundfos Group. The Poul Due Jensen Foundation owns 85.1 per cent of the share capital in Grundfos Holding AG, Switzer-land, while the founder’s family owns 12.0 per cent, and employees own 2.9 per cent.

Grundfos Holding AG, Switzerland, directly or indirectly owns the entire share capital in all subsidiaries, except for the following:Grundfos A/S, Denmark – 99.7%Grundfos Pumps Pty. Ltd., Australia – 70%PT Grundfos Pompa, Indonesia – 98%Grundfos (Thailand) Ltd., Thailand – 74%Philipp Hilge International GmbH & Co. KG,Germany - 94%

Associated companies:Bjerringbro Savværk Holding A/S, Danmark - 30 %Staring Miljø A/S, Denmark - 40%

Ownership

800

400

200

1,000

600

1,200

14,000 1,400

7,000 700

1,400 14,000

Group Structure

2005 2004 2003 2002 2001

Consolidated Profit and Loss

Statement

Net Turnover 13,422 12,153 11,152 10,703 10,214

Operating Profit 1,353 1,328 1,154 913 814

Earnings Before Interest and Tax (EBIT) 1,297 1,281 1,087 903 795

Cost of Financing (43) (49) (9) (177) (177)

Profit before Tax 1,254 1,232 1,078 726 618

Consolidated Profit after Tax 807 794 673 441 388

Profit for the Year (Excluding Minorities) 701 690 579 373 336

Consolidated Balance Sheet

Assets

Intangible Fixed Assets 993 676 586 554 496

Tangible Fixed Assets 4,700 4,347 3,887 3,792 3,711

Fixed Asset Investments 567 590 567 534 518

Current Assets 6,906 6,185 5,753 5,292 5,374

Total Assets 13,166 11,798 10,793 10,172 10,099

Liabilities

Equity Capital 5,994 5,150 4,637 4,205 3,935

Minority Interests 856 735 679 612 597

Provisions 1,036 911 701 595 542

Long-term Liabilities 1,526 1,665 1,799 1,640 1,772

Short-term Liabilities 3,754 3,337 2,977 3,120 3,253

Total Liabilities 13,166 11,798 10,793 10,172 10,099

Number of Employees at Year-End 13,369 12,586 11,707 11,383 10,985

Capital Investments, Tangible 1,009 1,000 854 798 870

R&D Costs, incl. Capitalised 590 543 464 454 458

Interest-Bearing Debt, Net 843 1,015 881 1,732 1,995

Result before Tax in Per Cent

on Net Turnover 9.3 % 10.1 % 9.7 % 6.8 % 6.1 %

Return on Equity 12.7 % 14.2 % 13.3 % 9.4 % 8.9 %

Equity Ratio 52.0 % 49.9 % 49.3 % 47.4 % 44.9 %

As of 2002, development projects are included in the Consolidated Balance Sheet, and as of 2004,

accounting policies for the inclusion of defined benefit schemes have been changed. No restate-

ment of comparatives has been made for previous years in this respect.

Definition of Ratios:

Return on Equity: Consolidated profit in per cent of the average equity capital inclu-

sive of minority interests.

Equity Ratio: Equity capital inclusive of minority interests at year-end in per-

cent of total assets.

Sales Companies

DenmarkGrundfos DK A/S

United KingdomGrundfos Pumps Ltd.

United KingdomGrundfos Euro Pump UK

IrelandGrundfos (Ireland) Ltd.

SwedenGrundfos AB

SwedenJL Pump AB

NorwayGrundfos Pumper A/S

FinlandOY Grundfos Pumput AB

South AfricaGrundfos (Pty.) ltd.

South AfricaBrisan Turbo (Pty.) Ltd.

GermanyGrundfos GmbH

PolandGrundfos Pompy Sp.z.o.o.

The Baltic StatesGrundfos Pumps UAB

AustriaGrundfos Pumpen Vertrieb Ges.m.b.H.

The Czech RepublicGrundfos spol. s.r.o.

HungaryGrundfos Hungária Kft.

The UkraineGrundfos Ukraine

TurkeyGrundfos Pompa San. ve Tic. Ltd. Sti.

BelgiumN.V. Grundfos Bellux S.A.

The NetherlandsGrundfos Nederland B.V.

SwitzerlandGrundfos Pumpen AG

RussiaGrundfos Russia OOO

ItalyGrundfos Pompe Italia S.r.l.

FrancePompes Grundfos Distribution S.A.

GreeceGrundfos Hellas A.E.B.E.

PortugalBombas Grundfos (Portugal) Lda.

SpainBombas Grundfos España S.A.

United Arab EmiratesGrundfos Gulf Distribution

IndiaGrundfos Pumps India Private Limited

USAGrundfos Pumps Corporation

CanadaGrundfos Canada Inc.

MexicoBombas Grundfos de Mexico S.A. de C.V.

BrazilMark Grundfos Ltda.

ArgentinaBombas Grundfos de Argentina S.A.

AustraliaGrundfos Pumps Pty. Ltd.

New ZealandGrundfos Pumps NZ Ltd.

ChinaGrundfos Pumps (Shanghai) Co. Ltd.

ChinaGrundfos Pumps (Hong Kong) Ltd.

KoreaGrundfos Pumps Korea Ltd.

TaiwanGrundfos Pumps (Taiwan) Ltd.

JapanGrundfos Pumps K.K.

IndonesiaPT Grundfos Pompa

MalaysiaGrundfos Pumps Sdn Bhd

SingaporeGrundfos (Singapore) Pte. Ltd.

ThailandGrundfos (Thailand) Ltd.

Manufacturing Companies

DenmarkGrundfos A/S

DenmarkSintex A/S

United KingdomGrundfos Manufacturing Ltd.

FinlandOY Grundfos Environment Finland AB

GermanyGrundfos Pumpenfabrik GmbH

HungaryGrundfos Hungary Manufacturing Ltd.

USAGrundfos Pumps Manufacturing Corporation

ChinaGrundfos Pumps (Suzhou) Co. Ltd.

TaiwanGrundfos Taiwan Manufacturing Co. Ltd.

ItalyGrundfos Submersible Motors Srl.

RussiaGrundfos Istra OOO

FrancePompes Grundfos S.A.

Non-Grundfos Brand Companies

GermanyPhilipp Hilge GmbH & Co. KG

GermanyDeutsche Vortex GmbH & Co. KG

Germany Alldos

SwitzerlandBiral AG

SwitzerlandArnold AG

ItalyDAB Pumps S.p.A.

ItalyLeader Pumps Group S.p.A.

Italy Tesla

KoreaChung Suk Co. Ltd.

DenmarkThe Poul Due Jensen Foundation

SwitzerlandGrundfos Holding AG

DenmarkGrundfos Management A/S

SwitzerlandGrundfos Insurance Management AG

DenmarkGrundfos Finance A/S

13,369

13,4226

,850

1,25459

0

10.4 %

7.3 %

4.8 %

4.2 %13.3 %

12.7 %

8.9 %

9.4 %

14.2 %

9.3 %

6.1 %

6.8 %

9.7 %

10.1 %

4.4 %

4.5 %

4.2 %

4.2 %

4.5 %

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2

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5

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4

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520

05

200

520

05


Amounts in DKKm

10,000

6,000

4,000

2,000

DKKm

12,000

8,000

10,214

10,70

3

Net Turnover


11,152

12,153

5,000

3,000

2,000

1,000

DKKm

6,000

4,000

4,532

4,817



5,316

5,885

200

51,0

09

870

798

854

1,000

600

400

200

DKKm

1,200

800

1,00

0


DKKm

Profit before Tax

% of Net Turnover

618

726

1,078

1,232

500

300

200

100

DKKm

600

400

458

454


% of Net Turnover

464

543

12,000

10,000

9,000

8,000

13,000

11,000

10,9

85

11,383

Number of Employees

11,707

12,586




Ownership

800

400

200

1,000

600

1,200

14,000 1,400

7,000 700

1,400 14,000

Group Structure

2005 2004 2003 2002 2001


Statement

Net Turnover 13,422 12,153 11,152 10,703 10,214








Assets




Current Assets 6,906 6,185 5,753 5,292 5,374

Total Assets 13,166 11,798 10,793 10,172 10,099

Liabilities

Equity Capital 5,994 5,150 4,637 4,205 3,935


Provisions 1,036 911 701 595 542









on Net Turnover 9.3 % 10.1 % 9.7 % 6.8 % 6.1 %

Return on Equity 12.7 % 14.2 % 13.3 % 9.4 % 8.9 %

Equity Ratio 52.0 % 49.9 % 49.3 % 47.4 % 44.9 %









Sales Companies





SwedenGrundfos AB

SwedenJL Pump AB









































DenmarkGrundfos A/S

DenmarkSintex A/S














Germany Alldos

SwitzerlandBiral AG




Italy Tesla







13,369

13,4226

,850

1,25459

0

10.4 %

7.3 %

4.8 %

4.2 %13.3 %

12.7 %

8.9 %

9.4 %

14.2 %

9.3 %

6.1 %

6.8 %

9.7 %

10.1 %

4.4 %

4.5 %

4.2 %

4.2 %

4.5 %

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14307 Omslag_AR_05.indd 2 30/03/06 8:47:27

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200

520

05


Amounts in DKKm

10,000

6,000

4,000

2,000

DKKm

12,000

8,000

10,214

10,70

3

Net Turnover


11,152

12,153

5,000

3,000

2,000

1,000

DKKm

6,000

4,000

4,532

4,817



5,316

5,885

200

51,0

09

870

798

854

1,000

600

400

200

DKKm

1,200

800

1,00

0


DKKm

Profit before Tax

% of Net Turnover

618

726

1,078

1,232

500

300

200

100

DKKm

600

400

458

454


% of Net Turnover

464

543

12,000

10,000

9,000

8,000

13,000

11,000

10,9

85

11,383

Number of Employees

11,707

12,586




Ownership

800

400

200

1,000

600

1,200

14,000 1,400

7,000 700

1,400 14,000

Group Structure

2005 2004 2003 2002 2001


Statement

Net Turnover 13,422 12,153 11,152 10,703 10,214








Assets




Current Assets 6,906 6,185 5,753 5,292 5,374

Total Assets 13,166 11,798 10,793 10,172 10,099

Liabilities

Equity Capital 5,994 5,150 4,637 4,205 3,935


Provisions 1,036 911 701 595 542









on Net Turnover 9.3 % 10.1 % 9.7 % 6.8 % 6.1 %

Return on Equity 12.7 % 14.2 % 13.3 % 9.4 % 8.9 %

Equity Ratio 52.0 % 49.9 % 49.3 % 47.4 % 44.9 %









Sales Companies





SwedenGrundfos AB

SwedenJL Pump AB









































DenmarkGrundfos A/S

DenmarkSintex A/S














Germany Alldos

SwitzerlandBiral AG




Italy Tesla







13,369

13,4226

,850

1,25459

0

10.4 %

7.3 %

4.8 %

4.2 %13.3 %

12.7 %

8.9 %

9.4 %

14.2 %

9.3 %

6.1 %

6.8 %

9.7 %

10.1 %

4.4 %

4.5 %

4.2 %

4.2 %

4.5 %

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14307 Omslag_AR_05.indd 2 30/03/06 8:47:27

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Amounts in DKKm

10,000

6,000

4,000

2,000

DKKm

12,000

8,000

10,214

10,70

3

Net Turnover


11,152

12,153

5,000

3,000

2,000

1,000

DKKm

6,000

4,000

4,532

4,817



5,316

5,885

200

51,0

09

870

798

854

1,000

600

400

200

DKKm

1,200

800

1,00

0


DKKm

Profit before Tax

% of Net Turnover

618

726

1,078

1,232

500

300

200

100

DKKm

600

400

458

454


% of Net Turnover

464

543

12,000

10,000

9,000

8,000

13,000

11,000

10,9

85

11,383

Number of Employees

11,707

12,586




Ownership

800

400

200

1,000

600

1,200

14,000 1,400

7,000 700

1,400 14,000

Group Structure

2005 2004 2003 2002 2001


Statement

Net Turnover 13,422 12,153 11,152 10,703 10,214








Assets




Current Assets 6,906 6,185 5,753 5,292 5,374

Total Assets 13,166 11,798 10,793 10,172 10,099

Liabilities

Equity Capital 5,994 5,150 4,637 4,205 3,935


Provisions 1,036 911 701 595 542









on Net Turnover 9.3 % 10.1 % 9.7 % 6.8 % 6.1 %

Return on Equity 12.7 % 14.2 % 13.3 % 9.4 % 8.9 %

Equity Ratio 52.0 % 49.9 % 49.3 % 47.4 % 44.9 %









Sales Companies





SwedenGrundfos AB

SwedenJL Pump AB









































DenmarkGrundfos A/S

DenmarkSintex A/S














Germany Alldos

SwitzerlandBiral AG




Italy Tesla







13,369

13,4226

,850

1,25459

0

10.4 %

7.3 %

4.8 %

4.2 %13.3 %

12.7 %

8.9 %

9.4 %

14.2 %

9.3 %

6.1 %

6.8 %

9.7 %

10.1 %

4.4 %

4.5 %

4.2 %

4.2 %

4.5 %

KE

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%

14307 Omslag_AR_05.indd 2 30/03/06 8:47:27






GermanyTel.: +49 211 92969-0







JapanTel.: +81 53 428 4760



CVR no. 83 64 88 13


Grou

p A

nn

ual Rep

ort 200

5G

run

dfos







fi rst time.








Group President.



Danish kroner.












1945

1959

1960

1961

1975

1977

1980

1985

1990

1994

2001

2003

2005

Milestones in 2005




















14307 Omslag_AR_05.indd 1 30/03/06 8:47:26

�

4 Toeverybodywhotakesaninterestinthecompany

8 Finance

10BusinessAreas

16ManagementandLeadership

20Environment

24Targetsandfocusareas

26ManagementStructure

32Grundfos–theglobalpumpmanufacturer

36FinancialReview

37FinancialMatters

38AccountingPolicies

43ManagementStatement

45Auditors’Report

47ConsolidatedProfitandLossStatement

48ConsolidatedBalanceSheet

50EquityCapital

51 CashFlowAnalysis

52NotestotheConsolidatedAccounts

60ProfitandLossAccountforthePoulDueJensenFoundation

61BalanceSheetforthePoulDueJensenFoundation

62EquityCapitalforthePoulDueJensenFoundation

63NotestotheAccountsofthePoulDueJensenFoundation

65ConsolidatedProfitandLossStatementinEuros

66Grundfosinbrief

Statement

Globalisation

Financial Matters

Introduction

14307 AR_05-v4.indd 3 03/04/06 13:25:54

�

NielsDueJensen,GroupChairman

Intheyear2005,whichwasalsotheyearofGrundfos’60thjubilee,theGroupachieveditslargesteverpre-taxprofitofDKK 1,254m.Thus – despite relatively high material costsandaweakUSdollar–itwasthethirdconsecutiveyearofrecordearnings.

Thepositiveresultcanprimarilybeattributedtoasubstan-tialgrowthinsalescombinedwithan increasedfocusoncontrollingcostsandinvestments.Turnoverincreasedbyagood10.4percenttoDKK13.42b.

This has taken the Group’s sales growth to another levelandatthesametimehelpedmaintainahighlevelofearn-ingscorrespondingto9.3percentonturnover.

We are pleased that Grundfos was strengthened during2005 and again able to win market shares on the globalpumpmarket.

The key factors behind Grundfos’ growth strategy are aconsiderable and focused investment in research and de-velopment,anacceleratedglobalisationoftheproductionand a continued expansion of the global Grundfos salesnetwork–inparticularinnewmarketslikeEasternEuropeandtheFarEast,butalsoinmoreestablishedmarketsliketheUSandWesternEurope.

The long-term investments were also of high priority in2005. The resulting costs for research and developmentamountedtoDKK590m,andthetotalcapitalinvestmentsagainexceededDKK1bin2005.Aconsiderablepartoftheseinvestments were spent on establishing new factoriesinChina, IndiaandRussiawithatotalproductionareaof55,000m2.

AsatisfactorycashflowofDKK1,617mmadewayfortheself-financingofboththecapitalinvestmentsandthestra-tegicacquisitionsAlldos(Germany),Tesla(Italy)andBrisanTurbo(SouthAfrica).

Thepositiveresultsconfirmthatourstrategiesforcontin-ued profitable organic growth supplemented by strategicacquisitionsareworkingwell.

According to predictions, a growing part of the earth’spopulationwillexperienceshortagesofcleanwaterinthedecades ahead, partly because growing populations leadto increased water consumption, and partly because theeconomicgrowthalonewillentailalargerwaterconsump-tion and, consequently, larger quantities of wastewater.Thisdevelopmentwillincreasethedemandfornewtech-nologicalsolutionsandpumpsystems,forinstanceforthedesalination of sea water and treatment and recycling ofwastewater.

To everybody who takes an interest in the company

INT

RO

DU

CT

ION

14307 AR_05-v4.indd 4 03/04/06 13:25:56

�

JensJørgenMadsen,GroupPresident.

ItisGrundfos’objectiveintheyearstocometostrengthenthe development of groundbreaking technologies andtrendsetting pump solutions which can contribute toreduce the earth’s energy consumption and alleviate theincreasingglobalproblemofensuringthesupplyofcleanwater.

But innovation isnotsolelyconfinedtotheproducts.Weintendtostrengthenacorporatecultureinwhichallpartsoftheorganisationisputtinganeverincreasingemphasison innovation. Employees on all levels, and in any func-tion, should become even better at questioning familiarroutinesandhavethecouragetofindnewandbetterwaysofcompletingtheirtasks.

ResponsibilityandethicsarekeyelementsinGrundfos’setof values. Thus, it was only natural that Grundfos joinedtheUNGlobalCompactInitiativein2002.Wecontinuouslystrivetoliveuptoourobligationsbyfocusingonsustain-abilityinallGroupactivitiesallovertheworld.Ourconcreteeffort in 2005 has been reported to the UN and can bestudiedatGroupandUNwebsites.

During 2005, the concept of corruption was discussedin media all over the world in connection with the UN’shumanitarian Oil for Food programme for Iraq. For manyyears,Grundfoshasbeenactive inthebattleagainstcor-

ruption,whereverwemightencounterit,and2005sawanincreasedeffortinthisfield.TheGroup’sCodeofConduct,whichallcompanymanagershavetosignonceayear,hasbeenstrengthenedandsharpenedfurther,andtheGroup’scontrollerfunctionisfocusingevenmoreonthistopicinallGrundfoscompanies.

Sowithregardtobusinessaswellasethics,theGrundfosGroupisdoingitsutmosttoprepareforthechallengesofthefuture.

Finally, we would like to thank all who have contributedpositivelytothefineresultsoftheyear:Firstandforemostourcustomersandsuppliers,butnotleastourcompetentanddedicatedemployeesthroughouttheGroup.AspecialthankyougoesouttoourbusinessassociateswhousedthecelebrationofGrundfos’60thjubileetomakeahandsomefinancial contribution to the realisation of a sustainablewatersupplyprojectinKenyaincooperationwithUNICEFandUNDP.

NielsDueJensen JensJørgenMadsenGroupChairman GroupPresident

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STATEMENT

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STATEMENT

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During the financial year 2005, the Grundfos Group wasable to take full advantage of the global economic trendandachieveitsgreatestpre-taxprofitsofar.Whileturno-veronthetraditionalWesternEuropeanmarketsshowtherelatively modest development that was expected (withtheexceptionofEngland),theGroupfocuseditsresourceson benefiting the most from the considerable growthpotentialelsewhereintheworld.

TheGroup’snetturnoverincreasedbyDKK1,269mtoDKK13,422m,whichisagrowthof10.4percentagainstlastyear.Theorganicgrowthwas7percent,whereasacquisitionsofcompanies contributed 3.2 per cent. Fluctuating currencyrateswerelesssignificanttothedevelopmentofturnoverin2005.

After a relatively slow start during the first six months,whichresultedinonlya4percentincrease,organicgrowth

pickedupthepaceduringthesecondhalfoftheyearandamountedto10percent.TheGroup’stotalgrowthwasalittleunder7percentforthefirsthalfof2005,butincreasedtoapprox.14percentduringthelastsixmonths.

Pre-tax profits were better than budgeted and reached arecord-breakingDKK1,254magainstlastyear’sDKK1,232m.Whenevaluatingtheresult,whichweregardassatisfactory,oneshouldbearinmindthehighandcontinuouslyincreas-ing material costs and the considerable planned productdevelopmentcosts.WhiletheGroup,inthewell-developedmarkets, has experienced a moderate development inproductionandsalescosts, the increasedglobalisationofproductionandthestrongerefforttodevelopnewmarketsentailedarelativelysignificantgrowthinthesecosts.

Overthelasttwoyears,Grundfoshasboughtfourwell-runcompanieswithatotalturnoverofDKK650m.Theseacqui-

Finance

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sitionshavedevelopedsatisfactorilyandthuscontributedpositivelytotheprofitoftheGroup.Towardstheendoftheyear,negotiationstobuytwocompaniesintheCommercialBuildingServicesBusinessarea–US-basedPACOandtheassociatedcompanyWuxiLtd.inChina–wereconcluded.Thetakeoverwillbefinalisedearlyinthenewyear,andwillthusbepartoftheGroup’s2006AnnualReport.

Despite the higher level of activity, stocks only increasedmodestlythankstoacontinuously improvedefficiencyofdistribution and logistics, whereas the high sales growthduringthelastmonthsoftheyear,madedebtorsriserela-tivelymorethanturnover.

Highearnings,combinedwithanefficientcontrolofworkcapital,leadtoaverypositivedevelopmentinGroupcashflow and a subsequent decrease in net interest-bearing

debt of DKK 172m to DKK 843m. Consequently, Grundfoswas able to self-finance the record-high capital invest-mentsofDKK1,009maswellasacquisitionsofcompaniesamountingtoDKK293m.

Thesolvencyratioshowedapositivetrendandrosefrom49.9percentto52.0percent.

The result before tax was better than

budgeted and reached the record level

of DKK 1,2��m.

14307 AR_05-v4.indd 9 03/04/06 13:26:14

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Growing market shareThe global need to provide clean water and dispose of wastewater is growing year by year. The same applies to energy-saving circulation of water for heating or cooling of buildings or the need to move liquids in industrial plants. Pumps and pump systems for these purposes constitute Grundfos’ core business, and in 2005 this pump market grew by 4 to 5 per cent. At the same time, the Group’s total turnover went up by 10.4 per cent, which is signifi cantly above the overall growth of the market, and Grundfos was thus able to win market shares in 2005. This means that the Group has strengthened its position as one of the clear market leaders in the industry, which we regard as a satis-factory development.

Growth varies from one region to another with high growth rates in new markets like Eastern Europe, Russia and Asia, whereas the development in Western Europe is more mod-erate. Growth in sales was 20 per cent in Eastern Europe, over 40 per cent in Russia, and Asia showed an overall growth of 16 per cent.

The Grundfos Group focused intensely on the North American market and realised a growth of approx. 13 per cent. By the end of 2005, we completed negotiations to buy the American pump manufacturer PACO. Thereby, the

last element in the four-string acceleration strategy for the North American market fell into place. The strategy was decided at the end of 2004, and throughout 2005, a great deal of energy and resources were put into realising it. The three other elements are an expansion of our US-based sales force, the establishment of a factory in Mexico and the setting up of a product development function in the US, which, in close cooperation with the central R&D function in Denmark, is to be instrumental in accelerating product development for the American market. The coming factory in Mexico is to manufacture competitive products for the American market and thereby reduce the Group’s vulnerability to the considerable fl uctuations of the dollar exchange rate of recent years.

The Building Services Business area: growth of 7 per centThe Grundfos Group’s largest and most important business area, Building Services, grew by 7 per cent. This positive development was spurred on by the intensifi ed marketing effort towards wholesalers and plumbers.

Focus on electricity savingsIn 2005, Grundfos launched a comprehensive campaign – The Energy Project. The campaign will market Grundfos’ new, energy-effi cient circulator pumps and at the same

Business areas

ALPHA Pro underlines Grundfos’

position as the leading innovative

company in the pump industry.

14307 AR_05-v4.indd 10 05/04/06 12:13:18

11

timedrawattentiontothenewEuropeanenergylabellingofcirculatorpumps.ThelabellingschemewasinitiatedbyGrundfos and finally agreed within the European pumpmanufacturers’ trade association after several years ofintensivework.

Thelabellingisdesignedalongthelinesofthelabellingoflightbulbsanddomesticappliances,wheretheclassifica-tionrunsfromAforthemostenergy-savingpumpsdowntoGforthemoreenergy-consuming.Itisoftenoverlookedthatastandardcirculatorpumpusesmoreelectricityperyearthanarefrigeratororawashingmachine.

Groundbreaking product developmentThetrendsetting,newlydevelopedelectronicallycontrolledcirculatorpumpGrundfosAlphaProwas launchedattheyear’smostimportanttradefair,theISHinFrankfurt.Here,anotherimportantnewproduct,theGrundfosMagnacir-culatorpumpforsmallandmedium-sizedheatingplants,was introduced. These notable product introductionscontributedtocreatingincreasedsalesofcirculatorpumpsinwell-establishedmarkets.

AsthefirstcirculatorpumponthemarkettoachievetheAlabel,GrundfosAlphaProwasthegreatproductnoveltyof the year, and strengthened Grundfos’ position as the

leadinginnovativecompanyinthepumpindustry.ThelowelectricityconsumptionofAlphaProofdownto5W-previ-ouslyunheardofintheindustry–correspondstoan80percentreductioninthemarketaverageforcirculatorpumps.

Furthermore, the well-known and manually controlledGrundfos UP circulator pump, of which more than 150millionunitshavebeensold,wasupgraded.Thenewver-sionconsumes30percentlessenergyandthusmeetstherequirementsoftheBlabel,whereasthepreviousversioncouldonlyachieveaDlabel.

Grundfos’ comprehensive marketing campaign for thesetrendsetting products consists of well-known means ofcommunication like brochures, adds, press releases anda special Grundfos website on the Internet. But it alsoincorporatesmoreunconventionalmeans,suchas letting18,000EuropeanplumbersparticipateinspecialGrundfoseventsincinemasintheirrespectivecountries.

Commonforalltheseactivitiesisthattheyaimtoinspireand inform, and at the same time make the customersfavour the most energy-efficient Grundfos pumps. Thecampaignstressesthesignificancethattherightchoiceofcirculatorpumphastotheindividualconsumerandsocietyasawhole.AtypicalEuropeanhouseholdmaysaveupto15

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percentonitsannualenergyconsumptionbyswitchingtothenewenergy-efficientcirculatorpump.

The Grundfos circulator pumps sold in 2005 have led toelectricitysavingsthatcorrespondtotheannualconsump-tionof120,000households.However,thesavingspotentialismuchlarger,asthereal-isedsavingsonlyamountto1percentofwhatwouldbepossibleifallcirculatorpumpsintheEUwerereplacedbyenergy-efficientversionsmarkedwiththeAenergylabel.

By replacing energy-consuming circulator pumps withnewones,EuropecouldmoveagreatstepclosertowardsreachingtheobjectivesforCO

2emissionsetbytheKyoto

agreement.

Anotheroftheyear’sinitiativesinBuildingServiceswastoincreasethechoiceofcompletesolutionsbyanexpandedproduct programme. Thereby Grundfos strengthened itspositionwithwholesalersandplumbers.Thankstoastrongwastewaterprogrammeforlargebuildings,Grundfoshas,atthesametime,beenabletopositionitselfasaserioussupplierinthisgrowingmarket.

Ontheboiler/OEMmarket,Grundfosmaintaineditsposi-tion of high market share, but growth was moderate incomparisonwiththeconsiderablegrowthoftheprevious

two years. This market also shows an increasing focuson products with low energy consumption and completehydraulicsystemsolutions–theso-calledIWCs(IntegratedWaterCircuit).

The Industry Business area: growth of 1� per centThe economic trend of the industrial market showed apositive development in 2005 with continued increase ofinvestmentsinindustrialproductionequipmentandfacili-ties.Thegrowthoftheyearforthebusinessareawas14percent.Particularattentionshouldbedrawnto Japan,Asia,NorthAmericaandEasternEuropewherewewereabletorealisehightwo-digitgrowthrates.

Grundfos’ position with the industrial end-users wassignificantly improvedbythecontinuedexpansionofourproductsolutions.ThiswastruenotleastfortheindustrialCRlineandthestrategicefforttowardsthefoodandphar-maceuticalindustrieswiththenewlineofhygienicpumpsfromoneofouracquisitions,theGermanHilgeGroup.

Furthermore,GrundfosmanagedtoexpandonitsindustrialOEMbusinessthroughtargeted,customisedsolutionsandamarketcommunicationthatwasdirectedbroadlyatallindustrial markets.Thus, 6,000 industrial customers tookpartinGrundfos’IndustrialSolutionexhibitionandevent.

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SalestoOEMcustomerswentupby13percent.Thisalsoin-cludessalesofpumpsforuseinmachinetools.InparticularJapan,whereGrundfosisthemainsupplierofcoolingandlubrication pumps for all major machine manufacturers,showedasignificantincrease.

The Dosing Business area: growth of �� per centWithanorganicgrowthofover30percent,thisbusinessareawasagainabletorealiseanotableincreaseinturnover.Theincreasecouldberecordedinallmarketsandregions.However,EasternEuropeandAsiastandoutasparticularlyinterestingmarketswherethedemandforcleanwaterandtreatmentofwastewaterisgrowingcontinuously.

TheGrundfosstrategiesandactivitiesinthefieldofdosingofchemicalsareprimarilybasedontheGrundfosconceptofDigitalDosing.WiththeDigitalDosingconcept,Grund-foshasestablisheditselfasthetrendsetterinthemarketfor membrane pumps, and Digital Dosing is now fullyrecognised by key customers as the new standard in thisindustry.

To further improve its position in the market for dosingpumps, Grundfos took over the well-established andwell-reputed German dosing pump group Alldos as of 1January2005.TheacquisitionofAlldossecuredGrundfosasolidbasisforfurthergrowthinthisfield,thankstoawider

product range. Moreover, the Group acquired knowledgeofapplicationandaccesstoAlldos’well-establishedsalesnetwork.

As Alldos, just like Grundfos, focuses heavily on productdevelopmentandhasitsownR&Ddepartmentwithyearsof experience in dosing, it has been decided to set up acompetence centre that will concentrate all main Groupactivities concerning dosing pumps at Alldos.This will bethefirsttimeamajorcentreforresearchanddevelopmentisplacedoutsideDenmark.

The Water Supply Business area: growth of � per centTheoverallgrowthinthisbusinessareaofjust4percentdoes not meet the Group’s normal demands for growth.ParticularlyWesternEuropeshowedatoomodestdevelop-ment,whereasitwasbetteroutsideEurope,andintheUSwewereabletorecordareasonablegrowthrate.

ThegrowthoftheUSmarketcanbegreatlyattributedtothefactthatwearenowexclusivelysellingourownsub-mersiblemotorsintheUSaswell.Earlier,GrundfosusedtooutsourcesubmersiblemotorstotheimportantAmericanmarket,butduring2005wehavechangedthissothatwearenowsellingacompleteGrundfosproduct.

The line of CR industrial pumps was

strengthened considerably by the

continuous expansion of product

solutions.

14307 AR_05-v4.indd 13 03/04/06 13:26:21

1�

This is one of several strategic initiatives to strengthenGrundfos’ position on the global market for submersiblemotors. Another has been the acquisition of Italian sub-mersiblemotorsupplierTesla.

Despite a relatively modest growth for water supply as awhole,therehasbeenanotableincreaseof35percentinthesaleofSQFlex–theenvironmentallysoundandmain-tenance-freewatersupplysystemthathaswonGrundfosseveraldesignawards,andwhichin2005wasexhibitedontheMuseumofModernArtinNewYork.

TheacquisitionofSouthAfricanBrisanTurbo(Pty)Ltd. inNovemberprovidedGrundfoswithastrongbaseforfurtherimproving the company’s chances on the African marketforwatersupplypumps.

Focus on the wastewater area: growth of 20 per centEnhancedfocusonthewastewaterarearesultedinastrongincreaseof20percentinthesaleofwastewaterproductsin2005.TheprogresswasdrivenbyincreasedprojectsalesforwastewaterplantsandtheintroductionofthenewSEproducts,whichgotofftoagreatstartwithaturnoverthatexceedsexpectations.

After they were launched early in 2004, the SEV and SE1lines in stainless steel received much recognition, among

otherthings,foradesignthatissosturdythatthepumpscanrunwithoutservice for longperiodsof time. In2005,thelinewasexpandedsothatthealreadyadvancedpumpswere now available in versions with built-in sensors.Theadvantage to the user is that maintenance can now beplanned,ashewillcontinuouslyreceiveinformationontheconditionofthepumps.

AftertheacquisitionoftheSwisscompanyArnoldAG,theirconsiderableexpertiseinthedevelopmentandproductionofmixersandflowmakersforwastewaterplantshasnowbeenintegratedintheproductprogrammeoftheGrundfosGroup.In2005,theprogrammewasexpandedwithGrund-fos’firstrecirculatorpumpandarangeofsupplementaryproductsforthewell-establishedrangeofmixers.

The line of small cast-iron wastewater pumps was up-gradedin2005withnewversionsthatdrewalotofatten-tion because of the motors.These have the same uniquequalitiesthatareknownfromGrundfos’highlypraisedSEGgrinderpumps.

Trendsetting innovationMany Grundfos products consist of pump, motor andelectronics,builttogetherinintegratedunits.Tocreatethebestpossibleunit,itisimportantthateachindividualpartis optimised with regard to operational safety, economy

The sale of wastewater products

showed a considerable increase of

20 per cent in 200�.

14307 AR_05-v4.indd 14 03/04/06 13:26:24

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andperformance.ThatiswhytheResearchandTechnologycentre at the headquarters in Bjerringbro employ peoplewith R&D competences in all relevant fields of technol-ogy. And in their effort to get as close to the ideal pumpas possible, our development engineers are always tryingoutnewtools.Thus,computersimulationsofliquidflowsinthepumpareoftenused,amongotherthings,tomakeaccuratecalculationsofperformanceandenergyconsump-tionbeforeanewpumpisconstructed.

Duetothecomplexgeometryofapump’sinterior,itmayoftenprovedifficultforadevelopmentengineertogetthefull picture of the result by simply looking at a computerscreen.Therefore,Grundfoshascooperatedwithauniver-sityonthedevelopmentofavirtualrealitysystemthatwillgivetheengineerthefeelingofwalkingaroundinsidethepump, where he can explore areas that would otherwisebenearlyinaccessible.Anditisintheseveryareasthatyoufindtheturbulencethatissoimportanttoreduceinordertomakethepumpmoreefficient.

TheResearchandTechnologycentreismovingincreasinglytowards concept studies that involve in-depth studies ofentirelynewpumpprinciplesandradicallydifferentmate-rials,primarilyinordertofindnew,innovativesolutions.

New BusinessThedevelopmenteffortoftheGroupisnot,however,solelyfocusedonpumps.Initiativesarestartedcontinuouslyandleadtothedevelopmentofotherproductsorentireplantswhichincludepumps.WecallthisNewBusiness.

One of these New Business projects reached the productstage in 2005. It is a mobile biological purification plantwhichwasnamedGrundfosBioBooster.Inthefuture,itcanbe delivered to the customer in 20-foot containers, readyforusewithacapacitythathasbeenadaptedpreciselytothe customer’s need. One of the great advantages of thepurificationplantisthatthecustomercanexpanditgradu-allyandbringitwithhim,shouldhiscompanyrelocate.Sofar,BioBoosterhasbeentestedatdairies,anditspossibleapplicationsreachfarintootherindustries.

Another example of a New Business project is a microsensorwhich,thankstoaspecialcoating,canbeplaceddi-rectlyinaliquidflowtoregistervariationsinpressureandtemperature.Andathirdexample is theso-calledNoNoxproject–adosingsystemwhichremovesenvironmentallyharmfulgassesfromdieselengineexhaustemissions.

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Socialandethicalresponsibilityarekeywordsintheman-nerinwhichGrundfosconductitsbusiness.Wewishtoberecognisedasaresponsiblecompanyamongourcustomersandemployees,andthecommunityinwhichweoperate.

Ethical and social responsibilityAs a natural consequence of Grundfos’ set of values andGrouppolicy,wesignedtheUNGlobalCompactInitiativeas early as 2002. Global Compact comprises four mainareas:• humanrights• employeesrights• environmentalrights• anti-corruption

Grundfos is working actively to implement the GlobalCompactprinciplesinitsbusinessprocesses.

Theeffortinrelationtotheenvironmenthaslongbeenafixedandintegralpartofthebusinessprocess,andin2005

weincreasedourfocusonsomeoftheotherprinciples,ofwhichthemostimportanthavebeen:• sustainabilityinthesupplychain• humanrightsintheshapeofapilotprojectconcerning

HumanRightsComplianceAssessment• anincreasedefforttofightcorruption

Human Rights Compliance Assessment (HRCA) QuickCheck isanonlinetooldevelopedbytheDanish Institutefor Human Rights. In a pilot project, Grundfos has usedthetool touncoverpossibledilemmasrelatingtohumanrights in our production companies. We are consideringwhethertospreadthisorasimilarassessmenttooltoallcompaniesintheGroup.GrundfosinDenmarkisamemberofAmnestyBusinessForumwhichconstitutesaframeworkfordialoguewithAmnestyInternationalonhumanrightsandalsoservesasanetworkforcompaniesthatfocusontheissue.

During2005,theconceptofcorruptionwasatopicofglobalmediadiscussioninconnectionwiththeUN’shumanitarian

Organisation and leadership

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OilforFoodprogrammeforIraq.Formanyyears,Grundfoshasbeenactiveinthebattleagainstcorruption,whereverwemightencounterit,and2005sawanincreasedeffortinthisfield.TheGroup’sCodeofConduct,whichallcompanymanagershavetosignonceayear,wasstrengthenedandsharpened further, and the Group’s controller function isfocusingevenmoreonthesubjectinallGrundfoscompa-nies.

Inconnectionwiththistopic,weexperiencethatdifferentcultures have perceptions of the concept corruption thatdiffer greatly from the general Danish view. That is whywestrive tocreateacommonperceptionandattitudetocorruption.ThisisensuredbytrainingselectedemployeesthroughouttheGroup.

Grundfos reported the company’s 2005 effort in relationto the 10 principles of Global Compact, to the UN. Thereportfocusedonselectedactions inthefourmainareasand includedastatus inrelationtothe10principles.Thereportcanbereadatwww.grundfos.com/COPontheUN

website (see under COP > Communication on Progress)www.unglobalcompact.org.

A tolerant labour marketAswewishtoactasresponsiblecitizensandofferourcon-tribution to a tolerant labour market, it is Grundfos’ goalthat3percentofjobsintheGrouparereservedforpeoplewhose work capacity is reduced, or who are membersminoritygroups,suchasethnicgroups,whichexperiencedifficultiesingainingafootholdinthelabourmarket.Wearepleasedtonotethatthisobjectivewasreachedin2005,asthissegmentnowmakeup3.3percentoftheGroup’stotalworkforce.GrundfosinDenmarkisamemberoftheForeningen Nydansker (an association that supports theintegrationofimmigrantsinthelabourmarket).

The global effort in favour of Corporate Social Respon-sibility (CSR) comprises more than employing people onspecialterms.CSRintheGroup’scompaniesreflectshugedifferences in culture, traditions and legislation betweencountriesandcontinents.Wehaveaskedallcompaniesto

A total of 9�0 people from all over the world, and

not only the Group’s own managers, received

training at The Poul Due Jensen Academy during

200�.

14307 AR_05-v4.indd 17 03/04/06 13:26:31

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give examples of how they practice CSR. These accountstellastorythatisbotheducationalandthought-provoking–andaboveallpositiveandoptimistic.

Organisational development through focusing and prioritisationThewords–organisationaldevelopmentthroughfocusingandprioritisation–haveactedasguidelinesforourtargetareasinrecentyears,andthusalsoforthedevelopmentofleadershipcompetences.Byusingefficient tools for feed-back,theindividualleaderintheGroupwillgetagoodideaofwhichaspectsheorshewillhavetoworkontoimproveasaleader.

The focus is on the leadership competences which theGrouphasgiventhehighestpriority:• PeopleManagement• ChangeManagement• BusinessDevelopment• CustomerFocus

In2005–afteratest run in2004–we implementedournew internal management development programme,which isdivided intothreeseparatetrainingcourses.Thecoursesaimprimarilyatimprovingthelevelofcompetenceof our top managers in the mentioned fields, but at thesametimethecoursesprovidethemwithawiderangeofknowledgewhichcontributestoimprovetheirday-to-daymanagement.Sofar,123peoplehavetakenthecourses.

The headquarters will pick an additional number of topmanagers, who will receive further training at the inter-nationally recognised management school, the IMD inLausanne,Switzerland.

Now,fouryearsaftertheopeningoftheGroup’s internaltrainingacademy,ThePoulDueJensenAcademy,activitieshaveenteredaphase,inwhichthefocusisonmaintainingandspreadingcompetences.Atotalof980peoplefromallover the world, and not only the Group’s own managers,received training at the academy during 2005.This is the

Many Grundfos managers are recruited within the Group. That is why the hunt, as well as the care, for talent is essential to the company.

14307 AR_05-v4.indd 18 03/04/06 13:26:34

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largest number ever, for a single year. The training hasfocusedprimarilyonthesalesorganisationswithcoursesinsalesandservice,keyaccountmanagement,andproductandapplicationtraining.

UndertheheadlineGlobalisingtheAcademy,wearenowready to open the first satellite of the academy in China,and at the end of 2005, we introduced a programme forcustomertraininginoursalescompanies.

Alongside the central training, a number of local trainingactivities are held, as regions as well as local companieshandleactivitiestotraintheiremployees.Theseactivitiesincludelanguagetraining,technicaltrainingandcommer-cialtraining.

Talent ManagementManyGrundfosmanagersarerecruitedwithintheGroup.That iswhythehunt,aswellasthecare, fortalent ises-sential to the company. After a pilot project in 2004, we

implemented our Management Trainee Programme. Theprogrammeaddressestalentsthatarethoughttohavethepotentialtostartacareerinmanagementnolaterthantwoyearsafterhavingfinishedtheprogramme,whichlaststwoyears,includingtrainingandprojectwork.

In2005,agroupof15participantsfrom10differentnationsweresignedupfortheprogramme,andweplantostartanewgroupforeachofthecomingyears.

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Environment

Certified environmental management according to theinternational ISO 14001 standard is our preferred tool toensurethatallGrundfosproductioncompaniesmeethighanduniformenvironmentalstandards.

ObjectivesEvery year, the Group management evaluates the objec-tivesintheenvironmentalfield.Theobjectivesapplytotheenvironmentalimpactofthecompanyonthesurroundingcommunity,theworkingenvironmentandtheenvironmen-talstrainofourproducts,andeveryyearnewobjectivesareset.Amongotherthings,forfieldslike:• workaccidents• accident-relatedabsence• chemicalconsumption• electricityconsumption• waterconsumption• refuse• transportation• energyandmaterialconsumptionofproducts

Product-oriented environmental effortThisisoneofthefieldstheGrundfosGroupisfocusingon.ItinvolvesestablishingthemostimportantenvironmentalaspectsconnectedwiththelifecycleofaGrundfospump,of which the use phase represents relatively the greatestthe greatest environmental strain. The calculation alsoillustrates how significantly smaller the environmentalstrainofanewlydevelopedpumpis,comparedtoaprevi-ousmodel.

Alifecyclecomprisesfivephases.Thisexampleillustratestheindividualphases.

Theelectricityefficiencyisestablishedduringthedevelop-mentphase.Itisameasureofthepump’sperformanceinrelationtoitselectricityconsumption.

However,developingenergyefficientpumpsandactuallyrealisingtheenergysavingwhichtheimprovedelectricityefficiencyenables,arenotoneandthesame.Wehaveas-sessedtherealisedannualglobalenergysavingsforthese

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pumps,basedontheactualnumberofsoldenergy-savingpumps.

Thefigureonpage23illustratestheglobalenergysavingsoverthelastyears,whichhavebeenrealisedasaresultofthesaleofGrundfosenergy-savingpumps.Theassessmentis based on the actual sales figures of each year and as-sumptionsastowhicholdmodelsofpumpsarereplaced.

Thesavingsaremeasuredonannualenergyconsumptionofthenumberofthousandshouseholds.Weestimatetheannualaverageenergyconsumptionperhouseholdtobe4,500kWh.

By replacing energy-consuming circulator pumps withnewones,EuropecouldmoveagreatstepclosertowardsreachingtheobjectivesforCO

2emissionsetbytheKyoto

agreement.

SQFlex expresses the core elements in Grundfos’

values: responsibility, foresight and innovation.

Product development

Environmentalimpact(%)

The life cycle circle

Production6.4 %

Transportation1.6 %

Use87.9 %

Disposal4.1 %

14307 AR_05-v4.indd 21 03/04/06 13:26:38

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Focus on working environment and on reducing work accidentsMostproductioncompaniesintheGrouphave,apartfromISO 14001, implemented working environment manage-mentaccordingtotheOHSAS18001standard.Thisimpliesaproactiveefforttoimprovetheworkingenvironmentandminimisethenumberofworkingaccidents.

We have succeeded in reducing the number of workingaccidents through a targeted proactive prevention thatconsistsinregisteringandfollowinguponnear-accidents.Wearepleasedtonotethatwearegettingbetteratrec-ognising the dangerous situations that might turn intoaccidents.

Environmental considerations in productionTo the surrounding community, it is paramount that ourproduction processes are environmentally sound. This

effort focuses primarily on reducing the consumptionof electricity, water and chemicals, and on reducing theamountof refusefromproduction.AteamfromallpartsoftheGroupwillaudittheenvironmentalmanagementoftheproductionsites.Anotherimportantrolefortheteamwill be to spread the concept of Best Practice among theproductionsitesoftheGroup.

When producing, we operate in an environmentally sound fashion. A team from all parts of the Group will audit the environmental manage-ment of the production sites.

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Realisedsavings

TargetNumberofthousands

households’annual

energysavings

Global energy savings Working accidents

Accidentfrequency

Target

Index

�0

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100

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2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005

120

14307 AR_05-v4.indd 23 03/04/06 13:26:45

2�

Thepositivelastsixmonthsof2005makeforanoptimisticoutlook on 2006. Hence, our budget estimate for organicsalesgrowthof8percent.Toachievethisgrowth,wemustincreaseourmonthlysaleofpumpsbyDKK100min2006,comparedtolastyear.

The Group management puts great emphasis on con-tinuous growth in all Grundfos companies, therefore it isanticipated in our 2006 budget that all sales companiescontributetowardskeepingtheorganicsalesgrowthatahighlevel.

In2006,weagainexpectthelargestgrowthratestobeinEasternEuropeandtheFarEast,whereRussiaandChinarespectivelywillbethestrongestenginesofgrowth.Ifwelookatgrowthfromavalueperspective,theoldmarketsinWesternEurope,whereGrundfoshasasubstantialmarketshare,arestillexpectedtocontributethemost.Almosthalf

the growth of DKK 1.2b is expected to come from thesemarkets.

The considerable growth in turnover which we haveachieved in the American region over the past two yearswill be further accelerated in 2006, partly because of theacquisition of PACO which represents a turnover of ap-prox.USD45m,andpartlybecauseofatwo-digitorganicgrowth.

The Group’s strong focus on research and developmentis further enhanced in 2006 where we plan to increasethebudgetinthisfieldby11percent–aclearsignalthatGrundfosintendstomaintainitspositionasthetrendsetteronthepumpmarket.Therefore,wehavedecidedto label2006ayearofinnovation,duringwhichwemustimproveinnovation and new thinking throughout the group evenfurther. This applies to our business processes, the wayweorganiseourmarketingandeverythingelsewedo.In-

Targets and focus areas in 2006

The Group’s focus on research and development

will be strengthened further in 2006 – a clear signal

that Grundfos intends to maintain its position as a

trendsetting company.

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novationmustflowthroughtheentireorganisation,inallGrundfoscompaniesandfunctionsandallouremployees,withthepurposeofcreatingvalueforthecustomersandimprovingourbusinessresults.

The globalisation of Grundfos’ production facilities con-tinues in 2006 with the establishment of new factoriesin Hungary and Mexico. When these, as is expected, willopenforproductionattheendof2006,theGroupwillhaveestablished approx. 80,000 m2 of new production areaoutsideDenmark.Thepurpose istosupporttheconsider-ablesalesgrowthinthenewmarketsandtoimproveourcompetitivenessbyproducingincountrieswherethelevelofcostsislower.

SalesgrowthintheGrundfosGrouphasalwaysbeenandwill always be primarily organic, but in recent years wehavesuccessfullysupplementedorganicgrowthwithstra-tegically important acquisitions that will create synergies

production,salesandmarketwisethatwillfitwellintoouroverall growth strategy. We will continue to pursue thisstrategyintheyearstocomeandsystematicallyscanthepumpmarketforwell-runcompaniesthatsuitourstrate-gies.

In2006,wewillagainstrivetomaintaintheGroup’shighlevel of earning, and our budget for pre-tax profit is DKK1.2b.

Our 2006 investment budget of over DKK 1.1b clearly re-flectsthemanyinitiativeswehaveplannedfornextyear,andwhichwillhaveanegativeeffectonresultsintheshortterm, but help to ensure long-term profitable growth fortheGroup.Inthisbalancebetweenoptimisingshort-termearningsandlong-termbusinessdevelopment,itisourtar-getthatpre-taxprofitbeintherangeof8to10percent.

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14307 AR_05-v4.indd 25 03/04/06 13:26:49

26

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Group President Jens Jørgen Madsen, Grundfos

Vice Group President Carsten Bjerg, Grundfos

Group CEO Christine Bosse, Tryg Vesta

Group Board of Directors and Management

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27

Group Chairman Niels Due Jensen, GrundfosProfessor Niels Christian Nielsen, CBS

Director Thomas Lund, Dansk Teknologi

Executive Vice President Carlo Prola, Grundfos Executive Vice President Søren Ø. Sørensen, Grundfos

Chairman Lars Kolind, The Poul Due Jensen Foundation

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14307 AR_05-v4.indd 27 03/04/06 13:27:02

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Group Board of Directors - Grundfos Management A/S

Group ChairmanNielsDueJensen

Vice ChairmanDirectorLarsKolind

Board MemberProfessorNielsChristianNielsen

Board MemberDirectorThomasLund

Board MemberGroupCEOChristineBosse

Board of Directors for the Poul Due Jensen Foundation

ChairmanLarsKolind

Vice ChairmanNielsDueJensen

Board Member

PoulDueJensen

Board MemberEstridDueHesselholt

Board MemberIngermarieDueNielsen

Board Member

NielsChristianNielsen

Board Member

ThomasLund

Board Member

ChristineBosse






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Management Structure

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29

Group Management - Grundfos Management A/S

Group PresidentJensJørgenMadsen

Vice Group PresidentCarstenBjerg

Executive Vice PresidentCarloProla

Executive Vice PresidentSørenØ.Sørensen

Business Development Centre

Business UnitBuildingServices

Business UnitIndustry,WastewaterandWaterSupply

Business Unit DigitalDosing

Development and

Technology R&T

Sales Regions

NorthernEurope

Germany

EasternEurope

SouthernEurope

NorthAmerica

SouthAmerica

AustraliaandNewZealand

AsiaandthePacificRim

Japan

Group Production

Brazil

China

Denmark

Finland

France

Germany

Hungary

India

Italy

Russia

Switzerland

Taiwan

UnitedKingdom

USA

Group FunctionsArchitectsBrandingControlling/FinanceTreasuryPurchasingIT/eBusinessLegalDepartmentCommunications

QualityNewBusinessHumanResourcesThePoulDueJensenAcademyProductionSCM/LogisticsService

Group Board of Directors - Grundfos Management A/S

Group Structure

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GLOBALISATION

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GLOBALISATION

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Grundfos–theglobalpumpmanufacturer

Never before, has Grundfos been so active in globalisingproductionasin2005.Duringtheyear,theGroupopenednewfactories in India,RussiaandChinaandasalescom-panywithfacilitiesforassemblyinTurkey.

InChina,Grundfosbuiltitslargestsinglefactoryeverandmovedall theproductionfromtheoldChinesefactorytothenewone.Atthesametime,theGroupinvestedheavilyinlocalproductionofthecompletelineofend-suctionandin-linepumps–NB,NKandTP–atthenewfactory.

In Hungary, the motor factory was expanded by 50 percenttoallowtheproductionofMSsubmersiblemotorstobemovedfromDenmark.Thefirstphaseofthisrelocation–totalling60jobs–wascarriedoutin2005,andthetworemainingphaseswillfollowduringthelastsixmonthsof2006and2007.

Furthermore, the locationofnewfactories inMexicoandHungarywasdecidedin2005,andlandwasboughtinbothcountries.

Apart from production, distribution facilities may alsocontributetowardsimprovingtheabilitytosupply,andtomakeGrundfosproductsmoreaccessibletocustomers inwell-developed European markets, 2005 also saw the es-tablishmentoftheGroup’slargesteverdistributioncentreatLyoninFrance.

Globalisationisnotanendinitself,butprimarilyaquestionofsustaininggrowthinnewmarkets.Themostimportantthingistobringproductionclosetothemarketswewishtoservesothatwemaybetterunderstandthesemarketsand,consequently,meetthecustomers’requirementswithregardto,amongotherthings,deliverytimes.

Afteracoupleofyears,anewGrundfosfactorywillfunc-tion like any other factory in the Group. Productivity andqualitywillbethesame,andnolaterthanthreeyearsafterits establishment, the new factory must meet the sameenvironmental standards as other factories in the Group.Mostimportantly,thecustomershouldneverhavetoworryaboutwhereaGrundfospumphasbeenproduced.

TheopeningofthefirstGrundfosfactoryinRussiaon26Mayreceivedagreatdealof

attentionfromthelocalpublic.

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Thespeedyandefficientcreationofnewjobsistheresultof Grundfos having achieved a great deal of expertise inovercoming the obstacles that are normally associatedwithsettingupproductioninanewcountry.Grundfosbe-gangainingexperienceinthisareaveryearlyon,whenthefirstphaseoftheglobalisationprocessbegannthe1960swiththebuildingofproductionfacilitiesinGermany.AnditcontinuedwhenproductioncompanieswereestablishedinEngland,FranceandtheUnitedStates.

Duringthe1990s,globalisationgainedmomentumwithanewandmorecomprehensivephase,andasGrundfoshasgainedexperience,themanynecessarycompetenceshavebeendevelopedandhonedsothatnewproductionfacili-tiesarenowestablishedefficientlyandwithouthiccups.

Thereby, the expertise in globalisation is, in itself, a com-petitiveadvantageforGrundfos.

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Grundfos’largestsinglefactorysofarwasbuiltinChina. InIndia,Grundfosopenedanewlybuiltfacilityforlocalproduction

aftereightyears’ofpositivedevelopmentinthemarket.

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FI NANCE

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FI NANCE

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�6

Consolidated Profit and Loss StatementThe Group’s profit before tax is DKK 1,254m compared toDKK1,232min2004,anincreaseof2percent.

This increasehasbeenrealisedthroughanincreaseinthenetturnoverof10percent,whilecostswithinthefieldsofproduction, research and development, sale and distribu-tion,andadministrationhaverisenby11percent.

Net turnover as well as costs have remained largely unaf-fectedbythecurrencyratefluctuations,comparedto2004.The result before tax as a percentage on turnover hasdropped9.3percent(2004:10.1percent).

In addition to the R&D costs amounting to DKK 489m(2004:DKK484m),chargedtotheprofitandlossaccount,DKK101m(2004:DKK59m)havebeencapitalisedtodevel-opmentprojectsinprogress.

TotalfinancingitemsamounttoanetcostofDKK43masagainstDKK49min2004.FinancingitemsoftheyearincludeapositivereturnontheGroup’sshareholdingamountingtoDKK62m(2004:DKK52m).

TheGroup’sprofitaftertaxisDKK807mcomparedtoDKK794m in 2004, an increase of 2 per cent.The effective taxrate,which,as in2004,amounts to36percent,hasbeenreducedbyapprox.1percentagepoint,followingthereduc-tionoftheDanishtaxratefrom30to28percent.

Consolidated Balance SheetThebalancesheettotalincreasedby12percent,amountingtoDKK13,166matyearend(2004:DKK11,798m).Thus, therise ismarginallyabovetherise innet turnover.FixedassetsincreasedbyDKK647m(12percent)asaresultofthehighestlevelofinvestmentintheGroup’shistory.

Inventories and accounts receivable increased by DKK168m(8percent)andDKK456m(16percent)respectively.Viewed separately, the increase in accounts receivable issubstantial,butitshouldbeviewedincontextwiththefactthattherealisedriseinturnoverwasmainlybroughtaboutthroughaconsiderablegrowthoverthelastmonths.Hence,thesubsequentriseinaccountsreceivableatyearend.CashatbankandinhandandsecuritiesincreasedbyDKK97m(9percent).

The solvency ratio, incl. minority interests, has increasedfrom49.9to52.0percent.Likepreviousyears,thesolvencyratiohasbeenaffectedbythedecisionmadeinaccordancewithGrouppoliciestomaintainavailablefundsandsecuri-ties, which, at the balance sheet date, amount to approx.DKK 1.8b against DKK 1.7b in 2004. Had these funds beenused to reduce debts, the solvency ratio would have been60.1percentagainst58.2percentlastyear.

Cash Flow AnalysisThe cash flow analysis shows an increase in liquid fundsfromoperationsofDKK1,617magainstDKK1,208min2004.TheincreaseofDKK409mcanprimarilybeattributedtoanincreaseinfundstiedupinworkingcapitalofonlyDKK46magainstDKK359min2004.

In2005,DKK1,318m(2004:DKK1,297m)hasbeeninvested,ofwhichDKK1,009mwasusedonacquiringtangiblefixedassets(2004:DKK1,000m)andDKK293m(2004:DKK237m)onacquiringcompanies.

Cash flow from activities exceeds cash flow from invest-ments by DKK 298m (2004: DKK -89m), so the Group hasfullyliveduptoitspracticeofself-financingtheyear’scapitalinvestments in 2005. Normally, acquisitions of companiesarenotexpectedtobefullyself-financed.

The Annual Accounts for the Poul Due Jensen FoundationThe 2005 accounts, which like the Foundation’s 2004 ac-counts,recogniseshareofprofitandvalueofthesharehold-inginGrundfosHoldingAGundertheequitymethod,showaprofitofDKK701masagainstDKK691min2004.

At year-end, the Foundation’s equity capital amounts toDKK5,994masagainstDKK5,150mattheendof2004.

Financial Review

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Financial Matters

As a result of the Grundfos Group’s international activi-ties,theGroupresultandequitycapitalareinfluencedbyanumberoffinancialrisks.TheGroup’sfinancialrisksarecontrolled centrally at the Group’s finance company. For-eignexchangerisksintheoperativecompaniesareusuallycoveredbythefinancecompany,whichalsocontrolsinter-est and liquidity risks, as well as a significant part of theexternalcoveringoftheGroup’sfinancialpositions.

Theuseoffinancialinstrumentsisestablishedbyinstruc-tionslaiddownbytheBoardofDirectorsandtheManage-ment.

Liquidity RiskAttheendof2005,theGroup’sliquidassetsincludedcashreservesofDKK822m(2004:DKK637m),securitiesofDKK943m(2004:DKK1,049m),andunexploitedborrowingfa-cilities in banks. The securities portfolio was made up ofDKK761mworthofbonds(2004:DKK761m)andDKK182mworthofsecurities(2004:DKK288m).

TheGroup’snetinterest-bearingdebtoftheyeardroppedbyDKK172mtoDKK843m,whichcanmainlybeattributedtoanincreasedcashflowfromoperations.

Total interest-bearing debt amounts to DKK 2,608m atyear-end(2004:DKK2,702m),59percentofwhichislong-termdebt(2004:62percent).

Interest Rate RiskThe Group’s exposure to fluctuating interest rates is pri-marily related to bonds and loans. The exposure of thebondportfolio,amountingtoatotalofDKK761m–whenexpressedbyanincreaseoftheinterestrateby1percent-agepoint–isapprox.DKK9m.TheGroup’stotalborrowingconsistsof64percentfixed-rateloans.

ToreducetheGroup’sinterestrateexposure,asetofgen-eralguidelineshasbeenadoptedfortheGroup’sborrowinganduseofinterestrateinstruments.Inpursuanceoftheseguidelines,majorfixedassetsshouldprimarilybefinancedby fixed-rate loans. Furthermore, a 2 per cent increase ininterestratesofthefloating-rateloansoftheGroupcom-paniesmustonlyhaveapotentialmaximumnegativeef-fect of 10 per cent on the company’s budgeted result forthecomingyear.

Derivativefinancial instrumentsappliedtoreducethe in-terestraterisktotalledDKK1,868monthebalancesheetdate(2004:2,069m).

Foreign Exchange RiskIt is Group policy that Group manufacturing companiesmainly raise loans in their local currencies. This ensuresthat the currency exposure in the consolidated balancesheetisreducedtothenetassets.Whenappropriate,loansareraisedinaforeigncurrencyandsubsequentlyconvertedtothelocalcurrencyusingfinancialinstruments.Forwardexchangecontractsused inconnectionwithfor-eignexchangeswapsamounttoDKK262matthebalancesheetdate(2004:DKK365m).

Asof31December,theGroup’sloansarecomposedofthefollowingcurrencies: 200� 2004EUR 52% 47%DKK 38% 35%USD 1% 1%GBP 0% 3%Others 9% 14%

Currency hedging of the Group’s budgeted flow of goodsischieflyconcernedwiththeGroup’smanufacturingcom-panies. The most important currencies are the Euro, theAmerican Dollar, the British Pound sterling and the Japa-nese Yen. Forward exchange contracts and currency op-tions used to reduce the currency in connection with theflowofgoods,amounttoDKK2,341mbytheendof2005(2004:2,244DKK).Ofthis,acontractvolumeofDKK334m(2004:DKK172m)hasbeenrecognisedforhedgingofbal-ancesheetitemsasatthebalancesheetdate.Grouppolicyonly allows for maximum annual speculation losses thatareinsignificantinrelationtotheGroupresultandbalancesheet.

Credit RiskTheprimarycreditriskincludesthebalancesheetitemsre-gardingtheGroup’stradedebtors,securitiesandbankde-posits.TheGroup’stradedebtorscomprisealargenumberofcustomers,andtheGroup’sriskinthatconnectionisnotconsideredunusuallyhigh.

Thecreditriskisreducedoncashreservesinfinancialinsti-tutionsandforwardexchangecontractsandotherderiva-tive financial instruments by selecting financial businesspartnerswithahighcreditrating.

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Accounting Policies

The Annual Report and the Group Annual Report arepresented according to the provisions for large C classcompaniesandDanishaccountingstandards.

Changes in Accounting PoliciesSofardefinedbenefitschemesinforeigncompanieshavebeen calculated at fixed intervals by discounting futurepaymentstotheindividualschemes,whichwerechargedto revenue and set aside/paid annually. Any adjustmentsinthediscountedliabilitieswererecognisedinthefuturepayments/provisions.

Effective from 2005, defined benefit schemes in foreigncompanies are calculated by discounting the actuariallycalculatedpensionliabilitiestothenetpresentvalue.Thecalculated pension liabilities, less the market value of as-setsattachedtothescheme,arerecognisedinthebalancesheet, cf. below. With the change in accounting policies,the annual reports will give a more fair and true view ofthe Group’s financial standing. As of 31 December 2005,thechangewillentailareductioninequityofDKK100.8m(2004: DKK 97m). The effect of the change on the year’sresultwillbeDKK-0.6m(2004:-DKK1.3m).

Comparatives and key financial data for 2004 have beenadjustedtothechange.

The accounting policies are otherwise unchanged withregardtotheAnnualReportaswellastheGroupAnnualReport.

General about Recognition and MeasurementAssetsarerecognisedonthebalancesheetwhentheGroupis likelytocapitaliseontheminthefutureandwhentheassetvaluecanbemeasuredreliably.

Liabilities are recognised in the balance sheet when theyareprobableandcanbemeasuredreliably.

Assetsandliabilitiesaremeasuredatcostattheinitialrec-ognition.Subsequently,assetsandliabilitiesaremeasuredfortheindividualitemsasdescribedbelow.

Certain financial assets and liabilities are measured atamortised cost, whereby a constant redemption yield isrecognised for the term. Amortised cost is calculated asinitialcostlessanyinstalmentsandaddition/deductionofthe accumulated amortisation of the difference betweencostandnominalamount.

At recognition and measurement, allowance is made forprofits, lossesandrisksthatappearbeforetheannualre-portispresented,andthatconfirmordenyconditionsthatwerepresentonthebalancesheetdate.

Incomeisrecognisedintheprofitandlossaccountastheyare realised, including revaluation of fixed asset invest-mentsandliabilities,whicharemeasuredatmarketvalueor amortised cost. In addition, costs incurred in order toachieve the earnings for the year, including depreciation,write-downs, provisions and reversals following account-ing estimates of amounts, which have previously beenrecognisedintheprofitandlossaccount.

ConsolidationTheGroup Annual Reportcomprises thePoul Due JensenFoundation(ParentCompany)andthecompanies(subsidi-aries),wheretheParentCompanydirectlyorindirectlyownsmore than 50 percentof thevotingshares or in anotherway has a dominant participation. Companies in whichtheGroupownsbetween20and50percentofthevotingshareswithouthavingadominantpositionareconsideredassociatedcompanies.

TheGroupAnnualReportispreparedasaconsolidationoftheauditedannualreportsoftheParentCompanyandthesubsidiaries,whichhaveallbeenpresentedinaccordancewith the accounting policies set out below. Adjustmentsare made for inter-company revenue and expenditure,shareholdings,currentaccountsanddividends,aswellasunrealisedinternalincomeandloss.

Newlyacquiredcompaniesarerecognisedintheprofitandlossaccountasatthetimeofacquisition.

The GRUNDFOS Group

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Whenacquiringnewcompanies,theacquisitionmethodisused,uponwhichtheidentifiedassetsandliabilitiesinthenewlyacquiredcompaniesaremeasuredatmarketvalueatthetimeofacquisition.Provisionsaremadeforplannedandpublishedreorganisationintheacquiredcompanyaspartoftheacquisition.PositivebalancesarerecognisedasGroupgoodwillintheyearofacquisition.Anynegativebal-ances(negativegoodwill)areenteredunderprovisionsandaresystematicallybookedasincomeforanumberofyears,however,amaximumof20years.

Minority InterestsTheitemsofsubsidiariesarefullyrecognisedintheGroupAnnual Report. The minority interests’ prorated share oftheprofitandequityofthesubsidiariesareadjustedannu-ally,andrecordedasseparateitemsintheprofitandlossaccount,andbalancesheet.

Foreign Currency TranslationTransactions in foreign currency are translated at firstrecognition at the exchange rate of the transaction date.Exchangeratedifferencesarisingbetweenthetransactiondate and the exchange rate at the date of payment arerecognisedintheprofitandlossaccount.

Receivablesandpayablesinforeigncurrencyaretranslatedinto Danish kroner at the exchange rate on the balancesheetdate.Realisedandunrealisedexchangerateadjust-mentsareincludedintheprofitandlossaccount.

The profit and loss accounts for foreign subsidiaries aretranslatedintoDanishkronerattheaverageexchangerateof the individual months. The balance sheets of foreignsubsidiariesaretranslatedattheexchangerateofthebal-ancesheetdate.

Exchange rate adjustments of the net assets of the sub-sidiaries have been entered directly in the equity capital.Thisalsoappliestoexchangeratedifferencesfollowingthetranslation of the profit and loss account of each monthattheaverageexchangeratetotheexchangerateofthebalancesheetdate.

Subsidiaries in countries affected by high inflation rateshavebeenregulatedtoeliminatetheeffectsofinflation.

Derivative Financial InstrumentsDerivative financial instruments are initially recognisedin the balance sheet at cost, and subsequently measuredat market value. Positive and negative market values ofderivative financial instruments are included in other ac-countsreceivableandotherliabilities,respectively.

Changesinthemarketvalueofderivativefinancialinstru-ments,whichsecurethemarketvalueofbookedassetsorliabilities,arerecognised intheprofitand lossaccount inthesameentryaschangesinthevalueofthehedgedassetorthehedgedliability.

Changesinthemarketvalueofderivativefinancialinstru-mentsthatsecurefutureassetsorliabilitiesarerecogniseddirectly in the equity capital. Income and costs regardingsuchhedgingtransactionsaretransferredfromtheequitycapitalattherealisationofthehedgeditemsandarerecog-nisedinthesameentryasthehedgeditem.

As regards other derivative financial instruments, whichdonotcomplywiththetermsthatapplytohedginginstru-ments, changes are continuously recognised in the profitandlossaccountatmarketvalue.

State GrantsResearch and development grants are recognised as rev-enueintheprofitandlossaccountunderR&Dcosts,thusoffsettingthecoststheycompensate.

Grantsforthepurchaseofassetsandcapitaliseddevelop-mentprojectsareoffsetinthecostoftheassetstowhichthegrantsaregiven.

Profit and Loss Account

Net TurnoverNet turnover is recognised in the profit and loss account,providedthatdeliveryandthepassingofrisktothebuyer

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havetakenplacebeforetheendoftheyear,andprovidedthattheincomecanbereliablycalculatedandisexpected.NetturnoverismeasuredexclusiveofVAT,duties,returnsanddiscountsthataredirectlyconnectedwiththesale.

Currentprojectsonexternalaccountsareenteredundernetturnoversubjecttothepercentage-of-completionmethod.

Production CostsProduction costs comprise costs, including depreciation,wagesandsalariespaidtorealisethenetturnoveroftheyear.

Research and R&D CostsResearch and R&D costs are costs, including salaries anddepreciation, which relate to the Group’s research anddevelopmentactivities.

Researchcostsarerecognisedintheprofitandlossaccountintheyeartheyareincurred.

R&Dcostsincurredforthemaintenanceandoptimisationof existing products or production processes are chargedtorevenue.Costsforthedevelopmentofnewproductsarerecognisedintheprofitandlossaccount,unlessthecriteriafor entry in the balance sheet are met for the individualdevelopmentproject.

Sales and Distribution CostsSales and distribution costs include costs relating to thesale and distribution of the Group’s products, includingsalariesforsalesstaff,advertisingandexhibitionexpenses,depreciation,etc.

Administrative CostsAdministrativecostscomprisecostsfortheadministrativestaff, management, Group costs, etc., including salariesanddepreciation.

Other Operating ExpensesOtheroperatingexpensescompriserevenueandcostsofasecondarynatureinrelationtoGroupactivities,e.g.resultsof derivative financial instruments, which have not been

concludedforthepurposeofhedging,aswellasbuy-backobligationsrelatingtoemployeeshares.

Share of Profit, Associated CompaniesTheGroup’sshareofpost-taxprofitsinassociatedcompa-niesisrecognisedintheprofitandlossaccountundertheequitymethod.

Income from Financial Fixed AssetsInadditiontodividendsandinterestyields,thisitemcom-prisesestimatedgainsorlossesoninvestments.

Cost of FinancingThis item comprises interest received and interest paid,realisedandunrealisedexchangeratelossesandexchangerategainsonsecurities,andexchangerateadjustmentsoffinancialitemsinforeigncurrency.

Tax on Profit for the YearTheanticipatedtaxonthetaxableincomefortheyear intheindividualcompaniesischargedtotheprofitandlossaccount,adjustmentbeingmadefortimingdifferencesinrelation to the provided deferred tax.The part of the taxexpensethatcanbechargedtoitemsdirectlyintheequitycapital,however,isrecognisedintheequitycapital.

Dividendtaxreceivedfromforeignsubsidiariesischargedasexpenditureintheyearinwhichthedividendisgener-ated.

Changesindeferredtaxasaconsequenceofchangedtaxratesareincludedintheprofitandlossaccount.

Balance Sheet

Intangible Fixed Assets

Development Projects, Patents and LicencesR&Dcosts includecosts,wages,salariesanddepreciationthataredirectlyandindirectlyattributabletothecompa-ny’sdevelopmentactivitiesandmeetthecriteriaforrecog-nitiononthebalancesheet.Upuntilandincluding2001allR&Dcostsincurredhavebeenchargedtorevenue.

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CapitalisedR&Dcostsaremeasuredatcost lessaccumu-lateddepreciationorattherecoverableamount,whicheverislower.

Capitaliseddevelopmentcostsaredepreciatedaccordingtothestraight-linemethoduponcompletionofthedevelop-mentworkovertheanticipatedusefullifeoftheasset.Thedepreciationperiodisnormally5-10years.

Other Intangible Fixed AssetsOther intangible fixed assets are measured at initial costlessaccumulateddepreciationandwrite-downsorat therecoverableamount,whicheverislower.

Depreciationonintangiblefixedassetsaremadeaccordingtothestraight-linemethodovertheanticipatedusefullifeoftheasset,which–basedonindividualassessments–areasfollows:

Groupgoodwill............................................................upto20yearsOtherintangiblefixedassets.................................. upto5years Tangible Fixed AssetsLand and buildings are measured at initial cost with theadditionofwrite-upsandafterdeductionofaccumulateddepreciationandwrite-downs.ThemostrecentrevaluationofbuildingsinDenmarkwason1April1982.

Technicalinstallationsandmachinery,andotherfacilities,aremeasuredatinitialcostlessaccumulateddepreciationandwrite-downs.Tangiblefixedassetsproducedin-houseare recorded at initial cost, including a proportion of theindirectproductioncosts.

Tangible fixed assets are depreciated according to thestraight-line method through the anticipated useful lifetotheestimatedresidualvalue.Theusefullifeoflargeas-sets isdetermined individually,whereastheuseful lifeofotherassetsisdeterminedforgroupsofsimilarassets.Theexpectedusefullivesare:

Buildings.............................................................................20-40yearsTechnicalinstallationsandmachinery.....................3-10yearsOtherfacilities.....................................................................3-10years

Wherethevalueoftheexpectedfutureearningscapacityoftheassetislowerinusethanthebookvalue,theassetiswrittendowntotherecoverableamount.

Minor acquisitions and assets with a short useful life arechargedtotheprofitandlossaccountintheyearofacquisi-tion.

Financially leased assets are capitalised and depreciatedaccording to the straight-line method over the useful lifeoftheleasedasset.

Fixed Asset InvestmentsInvestmentsinassociatedcompaniesarevaluedinthebal-ancesheetundertheequitymethodattheproratedshareofthecompanies’equitywiththeadditionofgoodwill.

Listedbondsaremeasuredatamortisedcost.

Listed shares are measured at market value. Non-listedshares are measured at the estimated market value, andwheresuchvaluedoesnotexist,atcost.

InventoriesInventories are measured at initial cost or cost price inaccordancewiththeFIFOprincipleornetrealisablevalue,whichever is lower. The cost price includes direct wages,costofgoodssoldandindirectproductioncosts.

Obsoletegoods,includingslow-movinggoods,arewrittendown.

Accounts ReceivableAccountsreceivablearemeasuredatamortisedcost;writ-ing down is performed to meet the risk of losses basedon individual assessments. The loss potential for minorreceivablesisestimatedonthebasisoftheirage.

Current projects on external accounts are entered in thebalance sheet at the proportional sales value as per thebalancesheetdate.

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Securities Stated as Current AssetsSecurities include bonds and shares measured at marketvalue.

Realised and unrealised capital losses and realised andunrealisedgainsareincludedintheprofitandlossaccountasnetinterestandsimilarincomeandexpenditure.

Concluded REPO transactions are entered as loans withsecurityinthebondportfolio.

DividendsTheproposeddividendtominorityshareholders,which isexpected to be paid out for the year, is recognised underminorityinterestsontheliabilitysideofthebalancesheet.

Deferred TaxDeferred tax is measured in accordance with the liabilitymethod of all timing differences between the fiscal andfinancial value of assets and liabilities. For consolidationpurposes, deferred tax is calculated on the eliminatedunrealisedinternalprofitmargins.

Deferred tax assets are recognised in the balance sheetprovidedthattheyarelikelytoreducetaxpaymentswithinashortperiodoftime.

Deferredtaxismeasuredonthebasisoftaxrulesandtaxrates that – based on current legislation on the balancesheetdate–willbeinforcewhenthedeferredtaxiscon-vertedintocurrenttax.Provisions

Pension LiabilitiesTheGrouphasmadepensionschemeswithaconsiderablenumber of the Group’s employees. The majority of theagreementsarefordefinedcontributionschemes,whereasdefinedbenefitschemeshavebeenagreedforemployeesinindividualcompanies.

Inconnectionwithcontributionschemes,theGroupmakesregularpaymentstoindependentpensioncompanies.TheGrouphasnoobligationsapartfromthesepayments.

The benefit schemes, which are organised in independ-entpensionfunds,aremainlyusedbytheUKcompaniesof the Group. According to these schemes, the employeeis entitled to a certain annual benefit in connection withretirement(e.g.ashareoftheemployee’sexitsalary).SuchpensionliabilitiesarecalculatedfortheGroupbyactuari-allydiscountingpensionliabilitiestothenetpresentvalue,which is calculated on the basis of assessments of thefuturedevelopmentin,amongotherthings,interest,infla-tion,mortalityanddisablement.Theactuariallycalculatednetpresentvalue,lessassetsattachedtothescheme,arerecognised in the balance sheet under Pension LiabilitiesandOtherProvisions.

Actuarial gains and losses incurred as a consequence ofchanges in the basis for the calculation of the pensionliabilities or in calculation of the assets attached to thescheme,arerecognisedintheprofitandlossaccount.

Actuarial gains and losses in excess of 10 per cent of thecalculated pension liability or of the market value of thepensionfundassets,areamortisedovertheremainderoftheemployee’sworklifeintheGroup.Actuarialgainsandlossesthatareunderthe10-percent limit,arenotrecog-nisedintheannualreport,butareincludedintheactuarialprojections(thecorridormethod).

Provisions are made during the employment period tocoverotherminorretirementbenefitobligations–relatingtobenefitschemes–restingwiththeGroup.

Other ProvisionsProvisions made to cover liabilities under guarantee arerecognisedonthebasisofpreviousyears’experiencecon-cerningclaimsraisedwithintheguaranteeperiod.

ProvisionsaremadetocovertheobligationthatrestswiththeGroupregardingthebuy-backofemployeeshares.The

14307 AR_05-v4.indd 42 03/04/06 13:27:21

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provisionmadeismeasuredonthebasisoffutureexpecta-tions to share prices, considering the long-term develop-mentofGroupprofits,thetopicalityoftheobligationandthemarketvalueoftheshares.

Financial LiabilitiesMortgagedebtanddebtowedtobanks,etc.arevaluedatthetimeofborrowingatthereceivednetyieldlessborrow-ingcosts.Insubsequentperiods,thefinancialliabilitiesarerecognisedatamortisedcost.

Financialliabilitiesalsoincludethecapitalisedoutstandingliabilityonfinancialleasecontracts.

Other liabilities, including trade creditors, other debt, etc.arevaluedatamortisedcost.

Cash Flow AnalysisThecashflowanalysisispreparedaccordingtotheindirectmethodbasedonprofitfortheyear,andshowscashflowfromoperations,investmentsandfinancing,aswellastheGroup’sopeningandclosingliquidityreserves.

Cashflowfromoperationsisspecifiedastheprofitfortheyear,adjustedfornon-cashoperational items,changes intheworkingcapitalandcorporationtaxpaid.

Cashflowfrominvestmentsincludesthepurchaseandsaleofintangibleandtangiblefixedassets,andfixedassetin-vestments,includingthepurchaseandsaleofsubsidiaries.

Cashflowfromfinancingincludestheraisingandrepayingoflong-termdebt,short-termdebtowedtobanksandthepaymentofdividends.

Available funds include liquidity reserves and securitieswithonlynegligiblecurrencyrisks.

Parent Company

Income from Investments in SubsidiariesThe prorated share of the associated companies’ profitbefore tax and following elimination of internal marginsis recognised in the parent company’s profit and loss ac-count.

Other Operating ExpensesOtheroperatingexpensescompriserevenueandexpendi-ture of a secondary nature, including trade profits fromthe sale of shares and provisions regarding the buy-backobligationofemployeeshares.

Investment in Associated CompaniesInvestmentsinassociatedcompaniesarevaluedundertheequitymethodattheproratedownedshareofthecompa-nies’equity.

Revaluation of investments in associated companies isbrought forward to the revaluation reserve under theequity method to the extent that the accounting valueexceedstheoriginalcost.

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The Board of Directors has reviewed and approved the 200� Annual Report for the Poul Due Jensen Foundation.

TheAnnualReporthasbeenpresentedinaccordancewiththeDanishFinancialStatementsActandDanishaccount-ingstandards. Inouropinion, theappropriateaccounting

policieshavebeenapplied,andtheAnnualReportgivesatrue and fair view of the Group’s and Parent Company’sassets,liabilities,financialposition,resultandcashflow.

Bjerringbro,20April2006

Management Statement

Niels Due JensenViceChairman

Poul Due JensenBoardMember

Estrid Due HesselholtBoardMember

Ingermarie Due Nielsen BoardMember

Lars Kolind Chairman

Niels Christian Nielsen BoardMember

Thomas LundBoardMember

Christine Bosse BoardMember

Board of Directors

The Poul Due Jensen Foundation

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Auditor’s Report

To the Poul Due Jensen FoundationWehaveauditedtheAnnualReportofthePoulDueJensenFoundationforthefinancialyear2005.Theannualreportwas presented in accordance with the provisions of theDanish Financial Statements Act and Danish accountingstandards.

TheAnnualReportistheresponsibilityoftheFoundation’sManagement.OurresponsibilityistoexpressanopinionontheAnnualReportbasedonouraudit.

Basis of OpinionWe have conducted our audit in accordance with Danishauditingstandards.Thesestandardsrequirethatweplanand perform the audit to obtain reasonable assurancethat the Annual Report is free of material misstatement.Theaudit includesexamininginformationsupportingthe

amounts and disclosures in the Annual Report.The auditalsoincludesassessingtheaccountingpoliciesappliedandsignificantestimatesmadebytheManagement,aswellasevaluating the overall presentation of the Annual Report.Webelievethatourauditprovidesa reasonablebasis forouropinion.

Ouraudithasnotresultedinanyqualifications.

OpinionInouropinion,theAnnualReportgivesatrueandfairviewoftheGroup’sandtheParentFoundation’sassets, liabili-tiesandfinancialpositionasat31December2005,aswellasoftheresultoftheGroup’sandtheParentFoundation’soperationsandtheGroup’scashflowforthefinancialyear2005inaccordancewiththeDanishFinancialStatementsActandDanishaccountingstandards.

Århus,20April2006

DELOITTEStatsautoriseretRevisionsaktieselskab

H.P.MøllerChristiansenStateAuthorisedPublicAccountant

JesperMetoStateAuthorisedPublicAccountant

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14307 AR_05-v4.indd 46 03/04/06 13:27:29

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Consolidated Profit and Loss Statement 1 January – �1 December 200�AmountsinDKK1,000

Note 2005 2004

NetTurnover 1 13,421,580 12,152,906

ProductionCosts 2,3 (8,250,638) (7,367,326)

ResearchandDevelopmentCosts 2,3 (488,708) (484,427)

Gross Profit 4,682,234 4,301,153

SalesandDistributionCosts 2,3 (2,241,020) (2,030,905)

AdministrativeCosts 2,3 (1,039,016) (904,663)

AmortisationofGroupGoodwill (49,385) (37,619)

Operating Profit 1,352,813 1,327,966

OtherOperatingExpenses (51,211) (45,287)

ShareofProfit,AssociatedCompanies (4,262) (2,140)

IncomefromFinancialFixedAssets 15,615 27,910

CostofFinancing,Net 4 (58,794) (76,831)

Profit before Tax 1,254,161 1,231,618

TaxonProfitfortheYear 5 (447,143) (437,451)

Consolidated Profit after Tax 807,018 794,167

MinorityShareholders’Share

ofProfitsinSubsidiaries (106,420) (104,419)

Profit for the Year 700,598 689,748

14307 AR_05-v4.indd 47 03/04/06 13:27:29

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Consolidated Balance Sheet as per �1 December 200�AmountsinDKK1,000

Assets

Fixed Assets Note 2005 2004


CompletedDevelopmentProjects 91,939 25,015

GroupGoodwill 756,686 526,030

OtherIntangibleFixedAssets 36,787 41,813

DevelopmentProjectsinProgress 108,009 83,216

6 993,421 676,074

Tangible Fixed Assets

LandandBuildings 2,242,248 1,994,210

TechnicalEquipmentandMachinery 1.619,759 1,502,673

OtherTechnicalInstallations 456,300 480,319

TangibleFixedAssetsinProgress 381,412 369,669

7 4,699,719 4,346,871

Fixed Asset Investments

InvestmentsinAssociatedCompanies 730 4,169

Securities 548,683 566,833

OtherAccountsReceivable 17,677 18,807

7 567,090 589,809

Total Fixed Assets 6,260,230 5,612,754

Current Assets

Inventories 8 2,400,946 2,233,268

Accounts Receivable

TradeDebtorsandB/EDebtors 2,741,998 2,324,748

DeferredTaxAssets 9 57,016 42,725


AccruedExpensesandDeferredIncome 163,882 111,698

3,288,396 2,832,455

Securities 394,715 482,471

Cash at Bank and in Hand 822,011 637,448

Total Current Assets 6,906,068 6,185,642

Total Assets 13,166,298 11,798,396

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Assets

Fixed Assets Note 2005 2004


CompletedDevelopmentProjects 91,939 25,015

GroupGoodwill 756,686 526,030

OtherIntangibleFixedAssets 36,787 41,813

DevelopmentProjectsinProgress 108,009 83,216

6 993,421 676,074

Tangible Fixed Assets

LandandBuildings 2,242,248 1,994,210

TechnicalEquipmentandMachinery 1.619,759 1,502,673

OtherTechnicalInstallations 456,300 480,319

TangibleFixedAssetsinProgress 381,412 369,669

7 4,699,719 4,346,871


InvestmentsinAssociatedCompanies 730 4,169

Securities 548,683 566,833


7 567,090 589,809

Total Fixed Assets 6,260,230 5,612,754

Current Assets

Inventories 8 2,400,946 2,233,268

Accounts Receivable

TradeDebtorsandB/EDebtors 2,741,998 2,324,748

DeferredTaxAssets 9 57,016 42,725



3,288,396 2,832,455

Securities 394,715 482,471

Cash at Bank and in Hand 822,011 637,448

Total Current Assets 6,906,068 6,185,642

Total Assets 13,166,298 11,798,396

AmountsinDKK1,000

Liabilities

Note 2005 2004

Equity Capital

RegisteredCapital 505,000 505,000

RevaluationReserves 0 1,828

RetainedEarnings 5,489,383 4,643,508

5,994,383 5,150,336

Minority Interests 856,348 734,788

(mainlytheFounder’sFamily)

Provions

LiabilitiesunderGuarantee 10 104,172 90,506

Buy-BackObligationofEmployeeShares 10 358,536 277,659

PensionLiabilities 10 312,556 288,967

OtherProvisions 10 133,027 122,739

DeferredTax 9 127,531 131,038

1,035,822 910,909

Long-term Liabilities

MortgageDebt 652,619 674,843

BankLoans 843,560 901,218

OtherMonetaryCreditors 29,880 88,323

CorporationTax 0 602

11 1,526,059 1,664,986

Short-term Liabilities

BankOverdraftsandLoans 1,082,161 1,037,488

TradeCreditors 1,290,225 1,007,438

DebtstoAssociatedCompanies 1,379 1,903

CorporationTax 145,822 155,976

OtherLiabilities 1,221,170 1,128,279


3,753,686 3,337,377

Total Liabilities 13,166,298 11,798,396

Financial Instruments 12

Auditors’ Remuneration 13

Related Parties 14

Securities, Contingent Liabilities, etc. 15

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Equity Capital1 January – �1 December 200�AmountsinDKK1,000

Revaluation Retained TotalEquity

RegisteredCapital ofProvisions Earnings Capital

Equity Capital, Opening 2004 505,000 5,403 4,126,309 4,636,712

ChangesinAccountingPolicies (96,396) (96,396)

Corrected Opening 505,000 5,403 4,029,913 4,540,316

ProfitfortheYear 689,748 689,748

ExchangeRateAdjustments,SubsidiaryCompaniesetc. (444) (46,662) (47,106)

ChangesinMinorityInterests 2,313 2,313

ReversalofRevaluations (3,131) 3,131 0

RevaluationofHedgingInstruments,Opening (99,195) (99,195)

RevaluationofHedgingInstruments,Closing 54,662 54,662

TaxonEquityItems 9,598 9,598

Equity Capital, Closing 2004 505,000 1,828 4,643,508 5,150,336

ProfitfortheYear 700,598 700,598

ExchangeRateAdjustments,SubsidiaryCompaniesetc. 151,815 151,815

ChangesinMinorityInterests (797) (797)

ReversalofRevaluations (1,828) 1,828 0




Equity Capital, Closing 2005 505,000 0 5,489,383 5,994,383

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Cash-Flow Analysis1 January – �1 December 200�AmountsinDKK1,000

Note 2005 2004

ConsolidatedProfitafterTax 807,018 794,167

ReversalofEntrieswithnoLiquidityEffect 16 1,389,976 1,273,931

ChangesinWorkingCapital 17 (45,631) (358,732)

OperationalCashFlowbeforeInterests 2,151,363 1,709,366


CostofFinancing,Net (58,794) (76,831)

CashFlowfromOrdinaryActivities 2,108,184 1,660,445

CorporationTaxPaid (491,538) (452,407)

Cash Flow from Operations 1,616,646 1,208,038

AcquisitionofCompanies 18 (292,912) (237,335)

InvestmentinTangibleFixedAssets (1,008,752) (1,000,479)

DisposalofTangibleFixedAssets 68,899 33,317

InvestmentinIntangibleFixedAssets (110,136) (68,857)

PurchaseandSaleofSecurities 24,443 (23,618)

Cash Flow from Investment Activities (1,318,458) (1,296,972)

ChangeinLong-TermCreditors (148,662) (132,606)

ChangeinShort-TermCreditors (3,145) 153,304

DistributionofDividend (7,292) (6,021)

AcquisitionofMinorityInterests (0) (31,694)

UnrealisedExchangeRateAdjustments (68,622) 12,833

Cash Flow from Financial Activities (227,721) (4,184)

Change in Liquid Funds 70,467 (93,118)

AvailableFundsIncludingSecurities,Opening 19 1,146,259 1,213,037

Available Funds Including Securities Stated as Current Assets, Closing 20 1,216,726 1,119,919

14307 AR_05-v4.indd 51 03/04/06 13:27:30

�2

Notes to the Consolidated Accounts

Note 1

Net Turnover 2005 2004

Europe 9,302,687 8,629,445

NorthandSouthAmerica 1,331,466 1,148,240

EastAsia 2,287,572 1,938,169

MiddleEast/Africa 499,855 437,052

Net Turnover 13,421,580 12,152,906

TheGrundfosGroup’sactivitiesliesolelywithinthesegmentofmanufactureandsaleofpumps.

Therefore,netturnoverhasonlybeendividedaccordingtogeographicalmarkets.

Note 2

Staff Costs

TotalGroupPaymentsto

EmployeesandBoard 3,356,848 3.006,087

RetirementBenefitObligation 206,820 177,683

SocialContributions 388,188 358,068

3,951,856 3,541,838

StaffCostsarerecognisedasfollows:

ProductionCosts 2,046,382 1,877,582

ResearchandDevelopmentCosts 370,662 334,749

SalesandDistributionCosts 1,029,366 899,780

AdministrativeCosts 505,446 429,727

3,951,856 3,541,838

Thestaffcostsfortheyearunderreviewinclude

Directors’feestotheBoardoftheFoundationtotalling 2,404 1,536

Average Number of Full-Time Employees 13,112 12,618

Number of Employees, Closing 13,369 12,586

AmountsinDKK1,000

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Note 3

Depreciation and Write-Downs 2005 2004

Depreciation,IntangibleFixedAssets 75,672 64,774

Depreciation,TangibleFixedAssets 731,138 655,350

806,810 720,124

Depreciationandwrite-downsarerecognisedasfollows:

ProductionCosts 577,006 519,937

ResearchandDevelopmentCosts 60,973 54,941

SalesandDistributionCosts 57,716 55,623

AdministrativeCosts 61,730 52,006

AmortisationofGroupGoodwill 49,385 37,617

806,810 720,124

Note 4

Cost of Financing, Net

FinancingCosts (154,903) (164,706)

Total Financing Costs (154,903) (164,706)

InterestIncomefromBonds 4,288 2,424

ValueAdjustmentetc.,fromSecurities 61,992 51,849

OtherInterestIncome 29,829 33,602

Total Financing Income 96,109 87,875

Cost of Financing, Net (58,794) (76,831)

Note 5

Tax on Profit for the Year

CurrentTax 457,970 426,232

DeferredTax 8,050 8,429

DeferredTaxAdjustmentduetochangedRateofTaxation (16,548) 0

AdjustmentrePreviousYears (2,329) 2,790

Tax on Profit for the Year 447,143 437,451

RestatementofRateofTaxationfortheYear:

DanishRateofTaxation 28% 30%

DeviationsinTaxinForeignCompaniesinrelation

toDanishRateofTaxation 4% 2%

Non-TaxableIncomeandNon-DeductibleExpenses 2% 1%

Non-DeductibleWrite-DownsonGoodwill 1% 1%

ReductionofTaxRates (1%) 0%

Other,IncludingAdjustmentsrePreviousYears 2% 2%

Rate of Taxation for the Year 36% 36%

AmountsinDKK1,000

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AmountsinDKK1,000

Note 6


Completed OtherIntang. Dev.

Development Group Fixed Projects

Projects Goodwill Assets inProgress

Acquisition Price

Opening 27,795 718,281 132,728 83,216

Aqc./SaleofActivities 6,458

ExchangeRateAdjustments 6,790 1,990

AdditionsfortheYear 76,211 274,011 9,530 101,004

DisposalsatInitialCost (14,563) (3,497) (76,211)

Closing 104,006 984,519 147,209 108,009

Acc. Depreciation

Opening 2,780 192,251 90,915 0

Aqc./SaleofActivities 4,477

ExchangeRateAdjustments 760 1,129

Deprec./Wr-DownsfortheYear 9,287 49,385 17,000

DepreciationonDisposalsfortheYear (14,563) (3,099)

Closing 12,067 227,833 110,422 0

Book Value 31 Dec. 2005 91,939 756,686 36,787 108,009

Book Value 31 Dec, 2004 25,015 526,030 41,813 83,216

Note 7

Tangible Fixed Assets and Fixed Asset Investments

Land Tech. Other Tang.

and Equipand Technical FixedAssets Assoc. Other

Buildings Mach. Installations inProgress Cos. Securities Receiv.

Acquisition Price

Opening 3,013,967 5,372,609 1,214,309 369,669 19,780 568,135 22,130

Aqc./SaleofActivities 21,704 42,131 9,361 620 6,171

ExchangeRateAdjustments 79,193 74,727 19,780 15,956 1,827 442

AdditionsfortheYear 323,823 543,404 146,358 226,759 283,595 1,489

DisposalsatInitialCost (71,413) (157,014) (105,454) (231,592) (302,378) (11,753)

Closing 3,367,274 5,875,857 1,284,354 381,412 19,780 551,179 18,479

Revaluations

Opening 23,924 0

Exch.RateAdjustments,etc. 326

RevaluationsoftheYear 492

Revaluation(Install.Sold) (2,405)

Closing 21,845 492

14307 AR_05-v4.indd 54 03/04/06 13:27:30

55

Note 7 (cont.)

Land Tech. Other Tang.

and Equipand Technical FixedAssets Assoc. Other

Buildings Mach. Installations inProgress Cos. Securities Receiv.

Acc. Depreciation

Opening 1,043,681 3,869,936 733,990 0 15,611 1,302 3,323

Aqc./SaleofActivities 4,265 24,062 6,156

ExchangeRateAdjustments 19,269 58,022 7,891 26 66

Deprec./Wr-DownsfortheYear 109,346 456,805 164,987 4,262 1,755 408

DepreciationonDisposals (29,690) (152,727) (84,970) (587) (2,503)

BroughtforwardfromProvisions

reAss.Company (823)

Closing 1,146,871 4,256,098 828,054 0 19,050 2,496 1,294

Book Value 31 Dec. 2005 2,242,248 1,619,759 456,300 381,412 730 548,683 17,677

Book Value 31 Dec, 2004 1,994,210 1,502,673 480,319 369,669 4,169 566,833 18,807

ThecashvalueforlandandbuildingsinDenmarkatthelatesttaxassessmentofrealpropertyamountstoDKK855m(Bookvalue:

DKK619m).

Thebookvalueofcapitalisedleasedfacilitiesasat31December2005amountstoDKK37m(2004:DKK25m).

Themarketvalueofsecuritiesasat31December2005amountstoDKK534m(2004:565m).

Note 8

Inventories 2005 2004

RawMaterialsandConsumables 1,057,840 997,526

WorkinProgress 469,231 406,937

ManufacturesGoodsandGoodsforResale 873,875 828,805

Inventories 2,400,946 2,233,268

Note 9

Deferred Tax/Deferred Tax Assets

Deferredtaxbrokendown:

FixedAssets 218,016 234,204

CurrentAssets (102,927) (51,587)

Provisions (73,465) (68,383)

Creditors 7,124 273

Deficit (6,174) (2,712)

Other 27,941 (23,482)

70,515 88,313

whichhavebeenrecognisedinthebalancesheetas:

DeferredTaxAssets 57,016 42,725

DeferredTax(Liability) 127,531 131,038

AmountsinDKK1,000

14307 AR_05-v4.indd 55 05/04/06 12:13:28

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AmountsinDKK1,000

Note 10

Other Provisions

Buy-BackObl.

Liab.under Employee Pension Others

Guarantee Shares Obligations Obligations

Opening 2005 90,506 277,659 288,967 122,739

ExchangeRateAdjustments 5,137 0 5,288 6,936

Acquisitions 6,767 0 10,720 9,299

ProvisionsSpentduringtheYear (3,257) (1,052) (4,501) (14,039)

ProvisionsCarriedBack (4,740) 0 0 (39,440)

ProvisionsfortheYear 9,759 81,929 12,082 47,532

Closing 2005 104,172 358,536 312,556 133,027

Theusualguaranteeonproductssoldcoversaperiodof24months.

Thebuy-backobligationregardingemployeeshareswillinallessentialsonlyariseoncethesettlement

periodsforthesecuritiesinquestionexpire.Thesettlementperiodsexpireasfollows:

2006 29,420

2007 79,815

2008 30,653

2009 98,071

2010 60,014

2011 60,563

Thebuy-backobligationcalculatedatmarketvalueamountstoDKK430m(2004:DKK288m).

NotcalculatedactuariallossesinconnectionwithpensionliabilitiesamounttoDKK51m(2004:DKK26m).

Note 11

Long-term Liabilities 2005 2004

Debtfallingdueaftermorethan1yearbutlessthan5years:


BankLoans 818,194 862,831

OtherMonetaryCreditors 29,880 88,323

CorporationTax 0 602

Debtfallingdueaftermorethan5years:


BankLoans 25,366 38,387

DistributionofForeignExchangeandInterestasat31.December2005:

Amounts

Foreign Exchange Interest in DKKm

EUR 3.2% 610

DKK 4.2% 804

GBP 5.7% 71

USD 6.5% 11

Other 5.0% 30

Total 1,526

14307 AR_05-v4.indd 56 03/04/06 13:27:31

57

Amounts in DKK 1,000

Note 12

Financial Instruments

The Group has entered into foreign exchange and option contracts for hedging purposes, which

on the balance sheet date can be broken down into the following principal items (DKKm):

Deferred

Volume entering

EUR 693 (6)

USD 767 (5)

GBP 407 1

JPY 65 2

Other 75 1

Total 2,007 (7)

As at 31 December 2005, the hedging horizon for the individual currencies is up to a year. Interest

Rate Swaps entered into for hedging purposes at a volume of DKK 1,868m (2004: DKK 2,069m)

shows a loss of DKK 25m (2004: DKK 23m).

Raw material contracts (nickel and copper) entered into for hedging purposes amount to gains of

DKK 62m (2004: DKK 21m).

Note 13

Auditors’ Remuneration 2005 2004

Fees to Deloitte for auditing 12,607 10,960

Fees to Deloitte for other services 9,217 10,217

Note 14

Related Parties

Related parties include the Board of Directors in the Poul Due Jensen Foundation and companies

in which these persons have a controlling interest.

The Group has conducted business with DUBA B8 A/S in which Vice Chairman Niels Due Jensen

has a controlling interest. The Group’s purchases from DUBA B8 A/S amounted to DKK 11m in

2005.

Apart from this, there have been no transactions between the minority shareholders and the

Grundfos Group, except distribution of dividend and payment of salary and Board fee.

14307 AR_05-v4.indd 57 05/04/06 12:13:39

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AmountsinDKK1,000

Note 15

Securities, Contingent Liabilities, etc.

TheGrouphasmortgagedpropertyatabookvalueofDKK419mandmachineryandequipmentat

abookvalueofDKK600m,atotalofDKK1,019massecurityforloans,whichonthebalancesheet

date,showoutstandingdebtsofDKK547m.

2005 2004

OperationalLeasingContractsandLeaseObligations

forthecomingyearsamountto 275,746 256,553

Nolegalproceedingsareinprogress,norhaveanyotherclaimsbeenfiledagainsttheGroup,

which,intheGroupManagement’sopinion,mayhaveanyparticularinfluenceontheGroup’s

financialposition.

TheGroupisundernomaterialcontractualobligationstoacquireassets.

Note 16

Reversal of Entries with no Liquidity Effect

Depreciation 806,810 720,124

LiabilitiesunderGuaranteeandOtherProvisions 88,582 65,295

ShareofProfit,AssociatedCompanies 4,262 2,140

IncomefromotherSecuritiesand

Investments,whichareFixedAssets (15,615) (27,910)

CostofFinancing,Net 58,794 76,831

TaxonProfitfortheYear 447,143 437,451

Reversal of Entries with no Liquidity Effect 1,389,976 1,273,931

Note 17

Changes in Working Capital

ChangesinInventories (106,439) (381,857)

ChangesinAccountsReceivable (304,070) (86,986)

ChangesinSuppliers,etc. 303,495 155,517

UnrealisedExchangeRateAdjustments 61,383 (45,406)

Changes in Working Capital (45,631) (358,732)

14307 AR_05-v4.indd 58 03/04/06 13:27:31

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AmountsinDKK1,000

Note 18

Acquisition of Companies

AcquisitionsfortheyearincludeAlldos(Germany),Tesla(Italy)andBrisan(SouthAfrica)together

withadjustmentsofpreviousyears’acquisitions.

2005 2004

FixedAssets (41,314) (164,610)

Inventories (61,239) (56,134)

AccountsReceivable (80,815) (51,150)

CashatBankandinHand (16,978) (16,525)

Provisions 26,805 64,559

Long-termLiabilities 9,735 0

Short-termLiabilities 127,927 46,270

Net Assets (35,879) (177,590)

GroupGoodwill (274,011) (76,270)

Acquisition Price (309,890) (253,860)

Ofthis,CashatBankandinHand 16,978 16,525

Cash Acquisition Price (292,912) (237,335)

Note 19

Cash at Bank and in Hand, Opening

CashatBankandinHand 1,119,919 1,215,817

UnrealisedExchangeRateAdjustments 26,340 (2,780)

Cash at Bank and in Hand, Opening 1,146,259 1,213,037

Note 20

Cash at Bank and in Hand, Closing

Securities 394,715 482,471

CashatBankandinHand 822,011 637,448

Cash at Bank and in Hand, Closing 1,216,726 1,119,919

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60

Profit and Loss Account for the Poul Due Jensen Foundation1 January - �1 December 200�AmountsinDKK1,000

Note 2005 2004

AdministrativeCosts 1 (1,961) (351)

IncomefromInvestmentsin

AssociatedCompanybeforeTax 1,112,374 1,045,858

PremiumfromSaleofShares 55,708 95,820

ProvisionforBuy-BackofEmployeeShares (80,279) (72,327)

InterestIncome 2 7,207 5,243

FinancingCosts 3 (3,482) (3,562)

Profit before Tax 1,089,567 1,070,681

TaxonProfitfortheYear 4 (388,179) (379,933)


Proposed Profit Appropriation

Distribution 790 1,000

BroughtForwardtoRevaluation

ReserveundertheEquityMethod 708,579 641,049

RetainedEarnings (7,981) 48,699

701,388 690,748

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61

Balance Sheet for the Poul Due Jensen FoundationAmountsinDKK1,000

Assets

Note 2005 2004

Fixed Assets


InvestmentinAssociatedCompany 6,092,880 5,242,930

AccountsReceivablefromAssociatedCompany 63,138 67,114

Securities 70 70

Total Fixed Assets 5 6,156,088 5,310,114

Current Assets

Accounts Receivable

AccountsReceivablefromAssociatedCompanies 255,007 178,074

DeferredTaxReceivable 1,057 0

AccountsReceivable,CorporationTax 2,236 4,204

258,300 182,278

Cash at Bank and in Hand 233 4

Total Current Assets 258,533 182,282

Total Assets 6,414,621 5,492,396

Liabilities

Equity Capital

RegisteredCapital 505,000 505,000

RevaluationReserveundertheEquityMethod 5,448,665 4,596,637

CapitalAvailable 40,718 48,699

5,994,383 5,150,336

Provisions

DeferredTax 4 0 633

Buy-BackObligationofEmployeeShares 350,465 270,186

350,465 270,819

Long-term Liabilities

MortgageDebt 6 63,138 67,114

63,138 67,114

Short-term Liabilities

BankOverdraftsandLoans 3,976 3,799

DebtstoAssociatedCompanies 1,268 0

OtherLiabilities 1,391 328

6,635 4,127

Total Liabilities 6,414,621 5,492,396

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62

Equity Capital for the Poul Due Jensen Foundation1 January - �1 December 200�AmountsinDKK1,000

Reserve Capital- Total

Equity Avail- Equity

RegisteredCapital Method able Capital

Equity Capital, Opening 2004 505,000 4,131,712 0 4,636,712

ChangesinAccountingPolicies (96,396) (96,396)

Corrected Opening 505,000 4,035,316 0 4,540,316

ProfitfortheYear 641,049 48,699 689,748

ExchangeRateAdjustmentsSubsidiaryCompanies,etc. (47,106) (47,106)




ChangesinMinorityInterests 2,313 2,313

Equity Capital, Closing 2004 505,000 4,596,637 48,699 5,150,336

ProfitfortheYear 708,579 (7,981) 700,598

ExchangeRateAdjustments,SubsidiaryCompanies,etc. 151,815 151,815




ChangesinMinorityInterests (797) (797)

Equity Capital, Closing 2005 505,000 5,448,665 40,718 5,994,383

Registeredcapitalforthe4previousyearshasbeenincreasedwhenbroughtforwardfromcapitalavailable:

Opening,year Increase Newbalance

2001 390,000 115,000 505,000

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6�

Equity Capital for the Poul Due Jensen Foundation

Notes to the Accounts of the Poul Due Jensen Foundation

AmountsinDKK1,000

Note 1

Administrative Costs 2005 2004

Including:

BoardFees 500 189

FeestoDeloitteforauditing 35 34

FeestoDeloitteforotherservices 126 86

Note 2

Interest Income

InterestincomefromassociatedcompaniesamountstoDKK7,207thousandagainst

DKK4,975thousandin2004.

Note 3

Financing Costs

FinancingcoststoassociatedcompaniesamounttoDKK0thousandagainstDKK0in2004.

Note 4

Tax on Profit for the Year

TaxinAssociatedCompanies 380,299 381,106

CurrentTax 9,570 692

DeferredTax (1,690) (1,865)

Tax on Profit for the Year 388,179 379,933

Deferredtaxrelatestoprovisions.

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6�

AmountsinDKK1,000

Note 5


Investmentin AccountsReceivable

Associated fromAssociated

Company Company Securities

Acquisition Price

Opening 550,279 67,114 70

AdditionsfortheYear 1,207

DisposalsatInitialCost (3,285) (3,976)

Closing 548,201 63,138 70

Revaluations

Opening 4,789,627 0 0

ChangesinAccountingPolicies (96,976)

ProfitfortheYear 732,075

DividendReceived (23,496)

ExchangeRateAdjustments 151,815

OtherAdjustments (8,366)

Closing 5,544,679 0 0

Book Value 31 Dec. 2005 6,092,880 63,138 70

Book Value 31 Dec. 2004 5,242,930 67,114 70

ThebookvalueofinvestmentinassociatedcompanyincludesgoodwillamountingtoDKK75,791

thousandagainstDKK80,532thousandin2004.

Note 6

Long-term Liabilities 2005 2004

Amountsfallingdueafter5years:


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6�

Consolidated Profit and Loss Statement in Euros1 January - �1 December 200�AmountsinEUR1,000

2005 2004

NetTurnover 1,801,435 1,633,741

ProductionCosts (1,107,395) (990,405)

ResearchandDevelopmentCosts (65,594) (65,123)

Gross Profit 628,446 578,213

SalesandDistributionCosts (300,788) (273,019)

AdministrativeCosts (139,456) (121,616)

AmortisationofGroupGoodwill (6,628) (5,057)

Operating Profit 181,574 178,521

OtherOperatingExpenses (6,874) (6,088)

ShareofProfit,AssociatedCompanies (572) (288)


CostofFinancing,Net (7,891) (10,329)

Profit before Tax 168,333 165,568

TaxonProfitfortheYear (60,015) (58,807)

Consolidated Profit after Tax 108,318 106,761

MinorityShareholders’Shareof

ProfitsinSubsidiaries (14,284) (14,037)


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66

Grundfos in brief

Water provides life to people, animals and plants, and isanecessity inorderfor industrytoproduce.Water isveryusefulwhenheatingandcoolingbuildings,andisalsousedto drain off waste products. Anywhere, where water is acoveted resource or needs to be drained away, Grundfosplaysacentralrole.

Ourrangeofefficientandreliablepumpsolutionsiscon-tinuouslybeingexpanded.Extensiveknow-howandinten-siveresearchandproductdevelopmentallowustodevelopnew, trend-setting products which meet ever-increasingrequirementsmadebycustomersandsocietyat largeforimproved energy efficiency and a reduced impact on theenvironment.

Inadditiontopumpsandpumpsystems,Grundfosdevel-ops,manufacturesandsellsenergy-efficientelectromotorsandsophisticatedelectronics.Oncetheelectronicsarebuiltinto the pumps they become ”intelligent”, i.e. capable ofassessingthecurrentneedforwaterandadapttheirper-formanceaccordingly-allofwhichresultsinasignificantreductioninenergyconsumption.

Atallstagesofproduction,qualityneedstobecontrolledeffectivelyaswehaveahighdegreeofourownproduction.Also,productioncontrolensuresahighproductivitywhileatthesametimeenablesustotakeboththeexternalenvi-ronmentandtheworkingenvironmentintoconsideration.

With their knowledge and commitment, the employeesare the most important resource in the Grundfos Group.

Therefore,theGroupaimstooffertheemployeesfurthertrainingandtocreatean inspiringenvironmentthatpro-motesthedevelopmentofnewproductswithanincreasedutilityvalueandhighqualityforthecustomers.Inaworldcharacterisedbyfrequentchangesintheglobaleconomy,theGroup’sglobalnatureisourcustomer’sguar-anteeforcontinuousandeasyaccesstopumps,sparepartsand service. Therefore, the Grundfos Group constantlyexpands its network of sales and service companies inEurope,America,theMiddleEast,AustraliaandAsia.Highreliability of supply and the possibility of adapting thepumpsolutionstolocalrequirementsareensuredthroughdecentralisedproduction.

As a globally responsible company, Grundfos stronglyemphasise the importance of being in harmony with theenvironment.Allovertheworld,wearestrivingtocreateandstrengthenlastingtieswithemployeesandpartnersaswellasthecommunitiesinwhichweoperate.

The Grundfos Group is owned by the Poul Due JensenFoundation,whoseprimarypurpose istoexpandandde-veloptheGroup.ReinvestmentofownfundsmaintainstheGrundfosGroupasanindependentcompany.

For further information about Grundfos, please visit ourwebsiteat:http://www.grundfos.com.

14307 AR_05-v4.indd 66 03/04/06 13:27:32






GermanyTel.: +49 211 92969-0







JapanTel.: +81 53 428 4760



CVR no. 83 64 88 13


Grou

p A

nn

ual Rep

ort 200

5G

run

dfos







fi rst time.








Group President.



Danish kroner.












1945

1959

1960

1961

1975

1977

1980

1985

1990

1994

2001

2003

2005

Milestones in 2005




















14307 Omslag_AR_05.indd 1 30/03/06 8:47:26

Documents

Group Annual Report 2005 · 1 January: Grundfos takes over Italian manufacturer of submersible-pump motors Tesla. 4 January: The Grundfos Group donates DKK 4 million to the parts