Economic Review

Macroeconomic Environment and Sector View

The growth of the global economy accelerated in the reporting year and at + 3.7 % developed slightly better than forecast by the International Monetary Fund (IMF) (+ 3.4 %). We regularly consider the forecast figures of the IMF in our annual growth planning. The economic upswing was seen in nearly all countries important for the global economy in 2017 as opposed to previous years.

Among the advanced economies, the euro zone countries (+ 2.4 %) and the US (+ 2.3 %) made particularly good progress. Performance in our European home market continued to be supported by a weak euro, which buttressed the export industry, as well as by low interest rates. They facilitated the financing of investments in industry and the construction sector, which also had a partial impact on our industry. The German economy performed better than expected in this environment, with an increase in the gross domestic product of 2.5 %. In this context, local industry production increased above average.

The economy in emerging economies saw a more expansionary trend than in the previous year. In this process, countries exporting commodities and energy sources benefited from tangible price increases. China and India, as the two key markets in Asia for KSB, showed a different performance. Whereas China continued its upswing and slightly exceeded the previous year’s growth rate at 6.8 %, in India the cash reform and introduction of a national value-added tax prevented a similar rise as in 2016. However, India’s economic growth remained at a high level at 6.7 %. In Brazil, where KSB continues to be the leading pump supplier, demand for industrial goods rose again after a three-year recession. Production in Russia also saw an upward trend, but the sanctions of Western countries continued to weigh on economic performance.

RISING DEMAND IN KEY SALES INDUSTRIES

Thanks to the improved market conditions, companies caught up with measures to upgrade or expand their technical systems. In this context, plans to boost efficiency and improve plant reliability played a central role. There was a continued trend towards automation of fluid transport systems, which we fit with pumps and valves.

In industry, which is a particularly important market for us, demand rose above all in the manufacturing sector, as well as in the chemical and petrochemical industries. In petrochemical companies, in particular, catch-up effects were the cause of an increase in investments.

In addition to industry, water and waste water management was our second sales focus. In this area, our sales staff faced a market with a strong recovery in demand in the utilities sector. Furthermore, the start of major water supply and waste water treatment projects in China and India resulted in corresponding contracts being awarded.

As a result of the recovery of commodities prices, mining companies made investments to upgrade their plants that had been shelved for some time. In North America, oil sands mining picked up speed again. This is relevant for our business with slurry pumps from the US, which are used for the hydraulic transport of raw materials as well as residues.

Companies engaged in the liquefaction and transport of natural gas continued to largely refrain from investments due to their overcapacities, although gas prices were also on the rise. This made selling our high-performance cryogenic butterfly valves more difficult.

In the energy industry, the trend towards exiting coal continued. By contrast, operators of combined cycle power stations but also of nuclear power plants had a need for equipment goods and support services.

World Market of Centrifugal Pumps and Valves

Source: KSB estimate (February 2018), European Industrial Forecasting

In the construction industry, which benefited from the low interest rate level, demand for building services equipment continued to rise. However, this was more pronounced in residential construction than in the construction of commercial and public buildings, where our products are chiefly employed.

UPTURN IN MECHANICAL ENGINEERING

After flat global mechanical engineering sales in 2016, the Oxford Economics research institute registered real growth of 6 % again in 2017. Sales revenue in the European core countries of Germany, France and Italy rose moderately at around 2 to 3%, while growth in the Netherlands, the United Kingdom and several Eastern European countries was stronger by comparison.

In China sales revenue increased by 8 %, and in India by 9 % despite weaker economic growth. In Latin America performance remained at a weak level at merely about 1 % after overcoming the recession in Brazil and Argentina.

The global sales revenue of German plants for the production of liquid pumps performed contrary to the upswing in mechanical engineering overall. They dropped by 0.6 % according to VDMA figures. At a plus of 2.3 %, industrial valves sales revenue also fell short of the overall industry’s performance.

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