Annual Report 2016
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FINANCIAL POSITION AND NET ASSETS

FINANCIAL POSITION

The financial position of the KSB Group remains as solid as ever, as evidenced by a consistently high equity ratio.

Equity

The KSB Group’s equity amounts to € 890.3 million (previous year: € 870.2 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 € 614.2 million (previous year: € 609.1 million), including the proportion of earnings after taxes attributable to shareholders of KSB AG of € 32.9 million (previous year: € 39.3 million). € 164.6 million (previous year: € 149.6 million) is attributable to non-controlling interests. Given that the increase in equity (+2.3 %) more or less corresponds to the rise in total assets (+2.6 %), the equity ratio remained constant (37.9 %; previous year: 38.0 %).

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 € 63.5 million to € 589.5 million as at the reporting date primarily as a result of the lower discount rate for the German pension plans. 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, only changed slightly and total € 86.9 million (previous year: € 88.8 million).

The picture with regard to other provisions, which we created almost exclusively for current uncertain liabilities, is more or less stable (€ 99.6 million compared with € 100.8 million in 2015). Increased provisions for restructuring in conjunction with our efficiency improvement programme offset a decline in miscellaneous other provisions.

37.9 %
 Equity ratio in 2016

Non-current financial liabilities decreased by € 75.5 million to € 58.0 million. This can be attributed to the reclassification of the € 74.5 million tranche of the loan against borrower’s note due in 2017. Based on our current information, no external financing measures will be required for repayment. We placed this loan with a total volume of € 122 million at the 2016 year end back in 2012. It is divided into repayment tranches of 3 to 10 years.

Current liabilities increased overall by € 54.9 million (€ 613.5 million compared with € 558.6 million at the 2015 year end). Trade payables in particular were down, falling by € 28.0 million, as a result of the decline in the volume of business. In contrast, other non-financial liabilities (+ € 3.8 million) and other financial liabilities (+ € 3.5 million) rose slightly. The increase in current financial liabilities (+ € 75.6 million) can be attributed to the reclassification, referred to above, of the tranche of the loan against a borrower’s note due in 2017. Taking into account the increase in total equity and liabilities, the share of current liabilities in total equity is 26.1 % (previous year: 24.2 %).

Investments

The additions to intangible assets amounting to € 10.0 million (previous year: € 8.3 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 € 72.2 million, slightly down on the figure of € 74.5 million for the previous year. The highest additions at € 23.6 million (previous year: € 27.7 million) relate to advance payments and assets under construction, as in the previous year. A further € 21.1 million are attributable to technical equipment and machinery (previous year: € 19.9 million). As in 2015, the focus of our investment activities was Europe, and predominantly Germany and France. Outside Europe, the highest additions were again recorded at our plants in Brazil, China, India and the USA. We maintained our policies for measuring depreciation and amortisation in the year under review.

Net financial position

The net financial position, at € 259.5 million compared with € 211.3 million in the previous year, developed more favourably than forecast twelve months earlier (slightly below € 211 million) due to a decrease in trade receivables and PoC..

259.5million
 Net financial position in 2016

Liquidity

Cash flows from operating activities amounted to € 134.5 million, a year-on-year increase of € 17.9 million. This was principally attributable to the release of funds in trade receivables and PoC (commitment of funds in previous year). This contrasted above all with declines in advances received and liabilities, as well as an increase in inventories. The drop in earnings also had a negative impact on the development of cash flow compared with the same period of the previous year.

The outflows from our investing activities increased by € 79.5 million compared with 2015. The change in term deposits and commercial papers significantly reduced cash flow whereas an increase had been reported in the previous year. Accordingly, cash flows from investing activities were significantly lower at € – 114.0 million (previous year: € – 34.5 million).

Cash flows from financing activities improved strongly, totalling € – 9.6 million compared with € – 87.4 million in the previous year. While the overall amount of the loan against borrower’s note remained unchanged compared with 2015, the previous year’s cash flow included significant repayments.

Cash and cash equivalents from all cash flows increased from € 273.1 million to € 288.9 million. Exchange rate effects amounting to € + 4.3 million (previous year: € – 0.1 million) contributed to this rise.

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 € 15.9 million as at the reporting date (previous year: € 13.4 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 € 17.9 million (previous year: € 20.0 million).

EXPENSES IN STATEMENT OF COMPREHENSIVE INCOME
BALANCE SHEET STRUCTURE

NET ASSETS

Our total assets increased by 2.6 % to € 2,350.2 million. Increases, in some cases considerable, were recorded for both non-current assets (particularly deferred tax assets) and for cash and cash equivalents. This contrasted with lower receivables and other assets.

Approximately 27 % is attributable to fixed assets (previous year: just under 28 %). Intangible assets and property, plant and equipment with a historical cost of € 1,393.1 million (previous year: € 1,336.4 million) have carrying amounts of € 608.2 million (previous year: € 595.9 million). With investments in property, plant and equipment (€ 72.2 million) once again exceeding write-downs (€ 61.7 million), this balance sheet item increased by € 7.8 million. Reclassifications to “Assets held for sale”, mainly relating to the sale of valves operations in the USA in January 2017, had the opposite effect. The carrying amount of financial assets and investments accounted for using the equity method fell by a total of € 4.2 million to € 33.0 million. The investments accounted for using the equity method accounted for € – 4.8 million.

Inventories totalled € 467.4 million, up € 13.0 million on the 2015 year end. Raw materials, consumables and supplies, work in progress and advance payments all increased, while finished goods and goods purchased and held for resale were down on the previous year. Inventories continued to tie up around 20 % of our resources.

As a result of the lower business volume, trade receivables and PoC were € 49.4 million down on the 2015 year-end figure. Overall, taking into account the change in total assets, this balance sheet item accounts for approximately 26 % (previous year: 29 %) of total assets.

Other financial assets increased from € 156.2 million to € 187.0 million, on account of a rise in the proportion contained therein of fixed-term deposits with terms of more than 3 and up to 12 months, including commercial papers, and an increase in receivables from loans to other equity investments, associated companies and joint ventures.

Cash and cash equivalents continue to account for around 12 % of assets, totalling € 288.9 million (previous year: € 273.1 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 currency translation of financial statements of consolidated companies that are not prepared in euro gave rise to a difference of + € 20.2 million (previous year: + € 1.2 million). This was taken directly to equity.

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