FINANCIAL POSITION AND NET ASSETS

FINANCIAL POSITION

The financial position of KSB Group improved, as expressed in an increase in the equity ratio of 2 percentage points.

Equity

The KSB Group’s equity amounts to € 870.2 million (previous year: € 819.7 million). This includes KSB AG’s subscribed capital of € 44.8 million as in the previous year. The capital reserve remains unchanged at € 66.7 million. Revenue reserves total € 609.1 million (previous year: € 578.5 million), including the proportion of earnings after taxes attributable to shareholders of KSB AG of € 39.3 million (previous year: € 38.7 million). € 149.6 million (previous year: € 129.7 million) is attributable to non-controlling interests. Due to the significant increase in equity, which coincided with only a slight rise in total equity and liabilities (+ € 13.1 million or 0.6 %), the equity ratio has also increased (38.0 %; previous year: 36.0 %).

The non-controlling interests mainly relate to the following companies: KSB Pumps Limited, India; GIW Industries, Inc., USA; KSB America Corporation, USA and KSB Shanghai Pump Co. Ltd., China.

Liabilities

The largest item under liabilities continues to be provisions for employee benefits, including, also as the largest item, pension provisions, which were up by € 1.4 million to € 526.0 million as at the reporting date. A large number of the pension plans currently in place in the KSB Group are defined benefit models. We will be reducing the associated risks, such as demographic changes, inflation and salary increases, for example by increasingly introducing defined contribution plans for new staff.

Our obligations for current pensioners and vested benefits of employees who have left the company account for nearly half of the amount recognised in the balance sheet. The rest relates to defined benefit obligations for our current employees.

Other provisions for employee benefits, which are predominantly current, also only changed slightly and total € 88.8 million (previous year: € 90.3 million).

38.0%
Equity ratio in 2015

The picture with regard to other provisions, which we created almost exclusively for current uncertain liabilities, is more or less stable (€ 99.5 million compared with € 96.7 million in 2014). An increase in warranty obligations and contractual penalties following the growth in sales revenue volume partly offset the decline in miscellaneous other provisions.

Non-current financial liabilities fell significantly, totalling € 133.5 million compared with € 159.4 million at the end of 2014. They include liabilities of € 122 million (previous year: € 140 million) from a loan against borrower’s note placed in 2012. It is divided into repayment tranches of 3 to 10 years. The change can be explained by the early repayment of one of these tranches. Furthermore, bank loans and overdrafts decreased by more than € 8 million.

We reduced current liabilities overall by € 15.5 million (€ 558.6 million compared with € 574.1 million at year end 2014). Current financial liabilities fell by as much as € 49.2 million. In addition to the scheduled repayment of a tranche of the loan against borrower’s note in the amount of € 35 million, we also reduced bank loans and overdrafts by around € 14 million year on year. In contrast, trade payables rose by € 27.1 million and current income tax liabilities by € 6.8 million. The increase in other non-financial liabilities of € 14.2 million, following a rise in advances received from customers, was offset by the decrease in other financial liabilities (– € 14.5 million primarily due to lower miscellaneous other financial obligations). Taking into account the increase in total equity and liabilities, the share of current liabilities in total equity is 24.2 % (previous year: 25.1 %).

Investments

The additions to intangible assets amounting to € 8.3 million (previous year: € 7.4 million) primarily concerned advance payments and own work capitalised for a new software to be deployed in Sales, as in the previous year.

Investments in property, plant and equipment in the reporting year amounted to € 74.5 million, slightly down on the figure of € 77.7 million for the previous year. The highest additions at € 27.7 million (previous year: € 32.2 million) relate to advance payments and assets under construction, as in the previous year. They are associated with the construction of a foundry at our US mining company GIW Industries, Inc. A further € 19.9 million are attributable to technical equipment and machinery (previous year: € 19.2 million). As in 2014, the focus of our investment activities was Europe, predominantly Germany and France. Outside Europe, the highest additions were again recorded at our plants in the USA as well as Brazil, China and India. We maintained our policies for measuring depreciation and amortisation in the year under review.

Net financial position

The net financial position, at € 211.3 million compared with € 185.5 million in the previous year, developed more favour-ably than forecast twelve months earlier (€ 180 to 190 million) due to the slightly better earnings and increase in advances received.

 211.3million
Net financial position in 2015

Liquidity

Cash flows from operating activities amounted to € 116.6 million, a year-on-year increase of € 28.1 million. The key contributory factors, in addition to the improvement in earnings and more write-downs, were an increase in advances received from customers and a higher amount of funds tied down in liabilities. This contrasted with a rise in receivables.

Our investing activities generated virtually unchanged cash flows compared with 2014. The change in term deposits did, however, increase cash flows whereas in the previous year it had resulted in a reduction. Accordingly, cash flows from investing activities declined significantly to € – 34.5 million (previous year, adjusted: € – 97.9 million).

Cash flows from financing activities changed significantly, primarily due to the repayment of tranches of our loan against borrower’s note, but also as a result of our bank loans and overdrafts being reduced, from € – 36.9 million (adjusted) to € – 87.4 million.

Cash and cash equivalents from all cash flows declined from € 278.6 million to € 273.1 million. Exchange rate effects amounting to € – 0.1 million (previous year: € + 10.8 million) played a role in this.

We assume that, in future, we will continue to be able to meet our outgoing payments largely from operating cash flow. From the current perspective our financial management is meeting the goal of ensuring our liquidity at all times essentially without any additional external financing measures. For more information on liquidity management (such as credit lines) see the section on Risk Reporting on the Utilisation of Financial Instruments elsewhere in this group management report.

Contingencies and commitments

The KSB Group’s off-balance sheet contingent liabilities totalled € 13.4 million as at the reporting date (previous year: € 8.0 million). These arise mainly from collateral and performance guarantees.

There are no other extraordinary obligations and commitments beyond the reporting date. Other financial obligations arise only within the normal scope from long-term rental, lease and service agreements (in particular IT and telecommunications) necessary for business operations and from purchase commitments amounting to € 20.0 million (previous year: € 17.8 million).

NET ASSETS

Our total assets increased slightly, rising by 0.6 % to € 2,291.1 million. Considerable increases were recorded for both non-current assets (particularly property, plant and equipment) and trade receivables and PoC. This contrasted with lower other financial assets.

Expenses in Statement of comprehensive income
Balance sheet structure

* Adjustment under IAS 8

Just under 28 % is attributable to fixed assets (compared with a good 27 % in 2014). Intangible assets and property, plant and equipment with a historical cost of € 1,336.4 million (previous year: € 1,270.4 million) have carrying amounts of € 595.9 million (previous year: € 587.2 million). The goodwill impairments recognised in the reporting year resulted in a change of – € 9.4 million with regard to intangible assets. With investments in property, plant and equipment (€ 74.5 million) once again exceeding write-downs (€ 58.2 million), this balance sheet item increased by € 18.0 million. The carrying amount of financial assets and investments accounted for using the equity method increased by a total of € 1.9 million to € 37.2 million. The investments accounted for using the equity method accounted for € 1.2 million.

Inventories totalled € 454.4 million, up € 4.6 million on the 2014 year end. We recorded a rise in work in progress in particular, while advance payments were down on the previous year. Inventories continued to tie up around 20 % of our resources.

As a result of an increased delivery volume, trade receivables and PoC were € 49.5 million up on the 2014 year-end figure. Overall, taking into account the change in total assets, this balance sheet item accounts for approximately 29 % (previous year: 27 %) of total assets.

Other financial assets were down from € 190.2 million to € 156.2 million as term deposits with a maturity of more than 3 months and up to 12 months decreased by around € 44 million.

As in the previous year, cash and cash equivalents account for around 12 % of assets, totalling € 273.1 million (previous year: € 278.6 million).

Inflation and exchange rate effects

There were no consolidated companies within the Group whose financial statements were required to be adjusted for the effects of inflation.

The translation of financial statements of consolidated companies that are not prepared in euro gave rise to a difference of € + 1.2 million (previous year: € + 38.8 million). This was taken directly to equity.

SUMMARY OF THE BOARD OF MANAGEMENT

The forecasts made in the previous year’s report have not been fully realised due to the circumstances outlined. The unexpectedly weak state of the economy had a major impact on our core markets in some areas, and thus also on the achievement of our order intake targets.

Weak demand across the world in several important sectors held back the growth in our business. At the same time, for various products our price flexibility was insufficient for achieving satisfactory margins in a tougher competitive situation. The resulting impact differed across the various segments.

Overall, we achieved the expected significant sales revenue growth in the Group and, consequently, also the considerable improvement in our relevant performance indicators for the Group. Earnings before taxes, at just under € 94 million, approached the three-digit million mark again, and our return on sales, at 4.0 %, was within the lower range of our expectations. Order intake, however, dipped by 2.6 %. We had forecast a significant increase.

Although the Pumps segment lived up to the sales revenue forecast (significant increase), the operating result recorded was slightly down on the 2014 figure due to the basic economic environment parameters, particularly in the power plant sector, and not considerably higher, as had been anticipated. Order intake was expected to rise significantly, but actually fell by 4.7 %.

In the Valves segment too, the difficult market situation clearly affected our energy customers. While we were still able to moderately grow sales revenue by 1.5 %, the planned significant increase was not achieved. One reason for this is the considerable decline in order intake by almost 10 %. A year ago we were still expecting marked improvements. Our operating result was also down on the prior-year figure, as we did not achieve the marked improvement that we had been targeting.

In our Service segment, we posted substantial increases in both order intake and sales revenue, exceeding our target of moderate growth. In terms of the operating result, we recorded considerable increases, as planned.

The net financial position, at € 211.3 million compared with € 185.5 million in the previous year, developed more favourably than forecast twelve months earlier (€ 180 to 190 million).

Overall, therefore, business developed somewhat less favourably than expected in the reporting year due to order intake levels.

On this basis, in 2015 we continued to work on improving the conditions for a return to prosperous business operations. This involves driving forward with the programme underway to redistribute tasks within our global manufacturing network and introducing measures to cut our costs even further. These measures include a gradual reduction in the headcount. We are also reducing the number of KSB companies worldwide and streamlining our product range.

KSB continues to have a healthy financial basis for the future. The measures introduced back in 2014 to make lasting improvements to our cost structures, which we are working to intensify further, will strengthen this basis over the long term.

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