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 € 885.4 million (previous year: € 890.3 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 € 611.9 million (previous year: € 614.2 million), including the proportion of earnings after taxes attributable to shareholders of KSB AG of € 37.2 million (previous year: € 32.9 million). € 162.1 million (previous year: € 164.6 million) is attributable to non-controlling interests. Due to the lower total equity and liabilities compared with the previous year, down 4.1 %, the equity ratio rose slightly to 39.3 % (previous year: 37.9 %).

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 changed only slightly by € 2.6 million from € 589.5 million to € 586.9 million. 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 about 40 % of the amount recognised in the balance sheet. The rest relates to defined benefit obligations for our current employees.

39.3%
 Equity ratio in 2017

Other provisions for employee benefits, which are predominantly current, rose to € 101.5 million (previous year: € 86.9 million).

The development of other provisions, which we created almost exclusively for current uncertain liabilities, was stable (€ 99.8 million compared with € 99.6 million in 2016). An increase in the provisions for warranty obligations and contractual penalties as well as provisions for expected losses from uncompleted transactions offset declining provisions for restruc­turing measures and provisions for other obligations.

Non-current financial liabilities fell by € 3.7 million to € 54.3 million, which was caused by the reduction in bank loans and overdrafts. The loan against borrower’s note, which still amounts to € 48.0 million, is expected to be repaid in 2019 and 2021.

Current liabilities decreased overall by € 102.7 million (€ 510.8 million compared with € 613.5 million at the 2016 year end). Trade payables rose only slightly to € 212.0 million (€ 210.8 million in the previous year) despite the higher business volume. Other non-financial liabilities increased (+ € 7.2 million), but other financial liabilities fell to the same extent (– € 7.9 million). The decrease in current financial liabilities by € 98.0 million is attributable to the planned repayment, referred to above, of the loan against borrower’s note. Taking into ­account the fall in total equity and liabilities, the share of ­current liabilities in total equity is 22.7 % (previous year: 26.1 %).

Investments

The additions to intangible assets amounting to € 12.5 million (previous year: € 10.0 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 € 89.4 million, considerably up on the figure of € 72.2 million for the previous year. The highest additions at € 29.0 million (previous year: € 21.1 million) relate to plant and machinery. A further € 20.4 million (previous year: € 23.6 million) relates to advance payments and assets under construction. As in 2016, the focus of our investment activities was Europe, and predominantly Germany and France. Outside of Europe, the highest additions were again made at our plants in India (in particular in Shirwal), in ­Pakistan, the USA and in China. We maintained our policies for measuring depreciation and amortisation in the year under review.

Net financial position

The net financial position, at € 288.0 million compared with € 259.5 million in the previous year, developed much more favourably than forecast twelve months earlier (€ 240 to 260 million) due to a decrease in trade receivables.

Liquidity

Cash flows from operating activities amounted to € 120.7 million, a year-on-year decrease of € 13.8 million. This was principally attributable to the high commitment of funds in trade receivables and other assets and in inventories (release of funds in previous year). This contrasted with higher ­advances received and provisions, which failed to offset the commitment of funds.

288 million
 Net financial position in 2017

The outflows from our investing activities decreased by € 105.8 million compared with 2016. The return of term deposits and commercial papers increased cash flows considerably. Accordingly, cash flows from investing activities rose significantly to € – 8.2 million (previous year: € – 114.0 million).

Negative cash flows from financing activities increased strongly, totalling € – 106.0 million compared with € – 9.6 million in the previous year. The reason are the planned repayments of the loan against borrower’s note.

Cash and cash equivalents from all cash flows barely changed from € 288.9 million to € 289.5 million. Exchange rate effects amounting to € – 6.8 million (previous year: € + 4.3 million) contributed to 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 € 16.1 million as at the reporting date (previous year: € 15.9 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 € 12.2 million (previous year: € 17.9 million).

NET ASSETS

Our total assets fell by 4.1 % to € 2,253.4 million. Considerable decreases were recorded for both non-current assets (particularly deferred tax assets) and for other financial assets. Increases were only recorded in property, plant and equipment and intangible assets, as well as in other non-financial assets.

Around 28.5 % is attributable to fixed assets (previous year: 27.3 %). Intangible assets and property, plant and equipment with a historical cost of € 1,424.3 million (previous year: € 1,393.1 million) have carrying amounts of € 614.3 million (previous year: € 608.2 million). Intangible assets were reduced by € 5.6 million due to the above-mentioned write-down of goodwill of our company KSB Seil Co., Ltd., South Korea. This was more than offset by the advance payments made on intangible assets, meaning that the intangible assets rose from € 106.7 million to € 108.1 million. With investments in property, plant and equipment (€ 89.4 million) once again exceeding write-downs (€ 60.9 million), this balance sheet item increased by € 4.6 million. The carrying amount of financial assets and investments ­accounted for using the equity method fell by a total of € 4.7 million to € 28.3 million. The investments accounted for ­using the equity method accounted for € – 2.3 million. Deferred tax assets decreased to € 91.7 million (previous year: € 112.2 million).

Expenses in Statement of comprehensive income

Balance sheet structure

Inventories totalled € 461.9 million, down € 5.5 million from the 2016 year end. Materials, consumables and supplies as well as work in progress fell, whereas finished goods and goods purchased and held for resale increased. Inventories continued to tie up around 20 % of our resources.

Despite the higher business volume, trade receivables and PoC could be reduced by € 1.0 million compared with the 2016 year-end figure. Overall – taking into account the change in total assets – this balance sheet item accounts for approximately 27 % (previous year: 26 %) of total assets.

Other financial assets fell from € 187.0 million to € 117.0 million, as we wound up term deposits and commercial ­papers with a maturity of 3 to 12 months. This is contrasted by an increase in recoverable taxes from € 18.1 million to € 30.8 million. This increase is attributable to higher receivables from indirect taxes in Asia.

Cash and cash equivalents account for around 13 % of assets, totalling € 289.5 million (previous year: € 288.9 million).

There were no assets held for sale in the financial year, as we sold the valves business of our US subsidiary KSB AMRI Inc., and a Chinese company.

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 € – 54.1 million (previous year € + 20.2 million). This was taken directly to equity.

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