Annual Report 2016
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II. BASIS OF CONSOLIDATION

Consolidated Group

In addition to KSB AG, 9 German and 79 foreign companies (previous year: 9 German and 80 foreign companies) were fully consolidated. We hold a majority interest, either directly or indirectly, in the voting power of these subsidiaries which the KSB Group has the option to control under IFRS 10.

The Thai company KSB Pumps Co. Ltd., Bangkok, and the Indian company KSB Pumps Limited, Pimpri (Pune) are included in the group of fully consolidated affiliates despite the fact that we hold less than 50 % of the voting rights. We do, however, have the power to determine their business and financial policies and thus the level of variable returns.

Companies that were not consolidated due to there being no material impact are reported under financial assets – other investments.

The following table shows the subsidiaries with non-controlling interests that are material subsidiaries of the KSB Group. “Seat” refers to the country in which the main activity is performed.

MATERIAL SUBSIDIARIES WITH NON-CONTROLLING INTERESTS
Name and seat Non-controlling interest in capital Earnings after income taxes attributable to
non-controlling interests
Accumulated
non-controlling interests
(€ thousands) 2016 / 2015 31 Dec. 2016 31 Dec. 2015 31 Dec. 2016 31 Dec. 2015
GIW Industries, Inc., USA 49.0 % 4,860 2,780 29,927 23,738
KSB Pumps Limited, India 59.5 % 4,889 4,939 53,604 49,856
KSB America Corporation, USA 49.0 % 245 175 25,062 22,348
KSB Shanghai Pump Co., Ltd., China 20.0 % 491 – 347 12,150 12,085
Individually immaterial fully consolidated subsidiaries
with non-controlling interests
4,349 5,338 43,918 41,596
Total amount of non-controlling interests 14,834 12,885 164,661 149,623

The summarised financial information regarding the KSB Group’s material subsidiaries with non-controlling interests is provided below. This information corresponds to the amounts given in the subsidiaries’ financial statements prepared in accordance with IFRS prior to intercompany eliminations.

SUMMARISED BALANCE SHEET
GIW Industries, Inc. KSB Pumps Limited KSB America Corporation KSB Shanghai Pump Co., Ltd.
(€ thousands) / 31 Dec. 2016 2015 2016 2015 2016 2015 2016 2015
Non-current assets 58,303 55,351 41,469 33,981 35,399 35,652 31,474 33,719
Current assets 62,755 79,303 95,337 93,248 57,686 55,279 149,400 133,166
Non-current liabilities – 6,899 – 6,812 – 3,327 – 2,473
Current liabilities – 33,687 – 60,001 – 44,527 – 42,092 – 27,931 – 32,378 – 127,922 – 108,966
Net assets 80,472 67,841 88,952 82,664 65,154 58,553 52,952 57,919
SUMMARISED STATEMENT OF COMPREHENSIVE INCOME
GIW Industries, Inc. KSB Pumps Limited KSB America Corporation KSB Shanghai Pump Co., Ltd.
(€ thousands) 2016 2015 2016 2015 2016 2015 2016 2015
Sales revenue 134,612 139,127 109,147 113,399 129,850 134,734
Earnings after income taxes 9,919 5,673 9,026 9,391 4,457 2,975 2,540 – 1,399
Other comprehensive income 2,712 6,079 – 163 4,377 2,144 5,792 – 7,507 3,680
Comprehensive income 12,631 11,752 8,863 13,768 6,601 8,767 – 4,967 2,281
Other comprehensive income attribut­able to non-controlling interests 1,329 2,979 – 97 2,603 1,051 2,838 – 1,501 736
Comprehensive income attributable to non-controlling interests 6,189 5,758 5,270 8,186 3,234 4,296 – 993 456
Dividends paid to non-controlling ­interests – 1,531 – 1,599
CONDENSED STATEMENT OF CASH FLOWS
GIW Industries, Inc. KSB Pumps Limited KSB America Corporation KSB Shanghai Pump Co., Ltd.
(€ thousands) 2016 2015 2016 2015 2016 2015 2016 2015
Cash flows from operating activities 23,570 – 3,562 7,562 15,749 3,819 3,534 9,660 5,005
Cash flows from investing activities – 6,477 – 14,594 – 8,235 – 2,082 – 1,112 – 3,375
Cash flows from financing activities – 18,072 18,020 – 2,848 – 6,698 – 12,257 – 12,556 – 11,203 – 8,619
Changes in cash and cash equivalents – 979 – 136 – 3,521 6,969 – 8,438 – 9,022 – 2,655 – 6,989
Cash and cash equivalents at beginning of period 1,169 1,173 31,707 23,299 22,956 28,832 5,301 11,430
Effects of exchange rate changes – 10 132 54 1,439 332 3,146 – 355 860
Cash and cash equivalents at end of period 180 1,169 28,240 31,707 14,850 22,956 2,291 5,301

NINOMIT VPH-Tekniikka Oy, a Finnish company previously not consolidated due to there being no material impact, was merged with the fully consolidated company KSB Finland Oy on 1 January 2016. We had acquired the shares in 2015. In addition, the Slovenian company KSB Pumps and valves L.t.d., Domžale, which was previously not consolidated due to there being no material impact, was also included in the group of consolidated companies. This affiliate, which was consolidated for the first time, was established some years earlier.

Consolidation of the two companies had the following impact on the consolidated balance sheet:

(€ thousands) 2016
Non-current assets – 498
Current assets 1,013
Assets 515
Equity – 327
Non-current liabilities 17
Current liabilities 825
Equity and liabilities 515

The new company PT. KSB Sales Indonesia, established in 2016, was included in the group of consolidated companies on a fully consolidated basis. The already fully consolidated PT. KSB Sales Indonesia holds 99 % of the shares in this company, with KSB Aktiengesellschaft holding the remaining 1 %. There was no impact on the consolidated financial statements, as the company’s business operations formed part of the already fully consolidated PT. KSB Indonesia prior to the new company being established.

On 28 November 2016, KSB AG increased its share in KSB Mörck AB, Gothenburg (Sweden), from 55 % to 100 % at a purchase price of € 3.6 million. On the basis of a written put option, the anticipated acquisition method was applied back in 2015 to report a notional acquisition of the remaining shares by way of a purchase price liability of € 3.5 million. The difference of € 0.1 million was recognised in financial income / expense under expenses from the remeasurement of financial instruments. The impact on the consolidated financial statements is therefore not material.

In China, we transferred the foundry operations of KSB Shanghai Pump Co., Ltd., Shanghai, to a new, independent company by the name of KSB Shanghai Precision Casting Co., Ltd. This did not have any impact on the consolidated financial statements.

The Italian company KSB Service Italia S.r.l., Scorzè, which previously was fully consolidated, was merged with another fully consolidated company, Milan-based KSB Italia S.p.A., with effect from 1 November 2016. Again, this did not have any impact on the consolidated financial statements.

The company Rotary Equipment Services Limited based in Loughborough in the UK was liquidated in August 2016. The impact on the consolidated financial statements was not material.

The Dutch company VRS Valve Reconditioning Services B.V., the business operations of which we sold in February 2016, was liquidated with effect from the financial year end. The impact on the consolidated financial statements was not material.

In December 2016 we sold the French service company Metis Levage S.A.S., based in Villefranche sur Saône. The resulting impact on these consolidated financial statements was not material.

A full list of the shareholdings held by the KSB Group is provided at the end of these Notes to the Consolidated Financial Statements.

Consolidation methods

For the purposes of consolidation, the effects of any intercompany transactions are eliminated in full. Any receivables and liabilities between the consolidated companies are offset against each other, and any unrealised gains and losses recognised in fixed assets and inventories are eliminated. Any revenues from intercompany sales are offset against the corresponding expenses.

Capital consolidation uses the purchase method of accounting pursuant to IFRS 3. This means that the acquisition cost of the parent’s shares in the subsidiaries is eliminated against the remeasured equity attributable to the parent at the date of acquisition.

Any goodwill created from the application of the purchase method denominated in a currency other than the functional currency of the KSB Group is measured at the relevant current closing rate. Goodwill is reported under intangible assets and tested for impairment at least once a year. If an impairment is identified, an impairment loss is recognised. Any excess of our interest in the fair values of net assets acquired over cost remaining after reassessment is recognised in profit or loss in the year it occurred.

Those shares of subsidiaries’ equity not attributable to KSB AG are reported as non-controlling interests.

Currency translation

The consolidated financial statements have been prepared in euros (€). Amounts in this report are presented in thousands of euros (€ thousands) using standard commercial rounding rules.

Currency translation is effected on the basis of the functional currency of the consolidated companies. As in the previous year, the functional currency is exclusively the local currency of the company consolidated, as it operates as a financially, economically and organisationally independent entity.

Transactions denominated in foreign currencies are translated at the individual companies at the rate prevailing when the transaction is initially recognised. Monetary assets and liabilities are subsequently measured at the closing rate. Measurement effects are recognised in the income statement.

When translating financial statements of consolidated companies that are not prepared in euro, assets and liabilities are translated at the closing rate; the income statement accounts and cash flow statement items are translated at average annual exchange rates (modified closing rate method). Gains and losses from the translation of items of assets and liabilities compared with their translation in the previous year are taken directly to equity in other comprehensive income and reported under currency translation differences. They amount to € – 49,771 thousand (previous year: € – 69,994 thousand). The effect of currency translation adjustments taken directly to equity on intangible assets, property, plant and equipment, and financial assets was a gain of € 8,827 thousand (previous year: gain of € 4,935 thousand).

The exchange rates of our most important currencies to one euro are:

Closing rate Average rate
31 Dec. 2016 31 Dec. 2015 2016 2015
US dollar 1.0541 1.0887 1.1067 1.1099
Brazilian real 3.4305 4.3117 3.8606 3.6934
Indian rupee 71.5935 72.0215 74.3500 71.1886
Chinese yuan 7.3202 7.0608 7.3494 6.9748
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