• Consolidated earnings (EBT) of € 120 million 
  • Dividend at prior-year levels 
  • Stable high equity ratio

The trend in order intake and sales revenue basically confirmed the forecasts we made in last year’s report. We were not quite able to achieve our earnings targets due to an above-average rise in material costs and continuing price pressure.


The structure of our income statement changed on a value ­basis in the financial year under review. In this context, the effects of the above-mentioned first-time consolidations ­described in more detail in the Notes need to be taken into account.

Earnings before taxes

The KSB Group generated earnings before taxes of € 120.5 million, compared with € 135.8 million in 2010, achieving a return on sales of 5.8 % (previous year: 7.0 %).

Increase in output of operations

Total sales revenue increased by 7.8 % thanks to improved business development. Work in progress and inventories of finished goods totalled € 58.9 million, € 46.7 million higher than in the previous year. Thus, total output of operations grew faster than sales revenue, totalling € 2,151.4 million, or 10.1 % above the 2010 figure (€ 1,953.8 million).

Change in cost structure

The cost of materials increased by 15.4 % due to factors such as rising purchase prices in the supply markets. The increase was therefore greater than the change in total output of operations (+10.1 %). The figure of € 913.0 million is equivalent  to 42.4 % of the total output of operations (previous year: 40.5 %).

Staff costs rose by 7.4 % to € 698.0 million in absolute terms. In relation to total output of operations, this meant a decrease of 0.9 percentage points to 32.4 %. Reasons for the absolute increase included collectively agreed salary increases and the higher number of employees, especially following the first-time consolidations. However, the workforce of KSB AG also ­increased in size as part of strategy projects, as did the workforces of our companies in Brazil, Chile and China. The KSB Group employed on average 887 more people during the year under review. Compared with the previous financial year, average output per employee improved from € 134 thousand to € 139 thousand.

Measured against total output of operations, other operating expenses changed only slightly (17.8 % compared with 17.4 %). In absolute terms, they increased by € 44.4 million to € 383.9 million. Higher administration costs in the ­context of our strategy projects were one of the factors that led to this development.

Financial income / expense changed by € +7.4 million overall, mainly due to higher interest income and lower depreciation / amortisation of financial assets.

Earnings after taxes

The income tax rate fell by 2.9 percentage points, down from 33.8 % in 2010 to 30.9 %. Earnings after taxes of € 83.3 million (previous year: € 90.0 million) therefore decreased less markedly (-7.4 %) than earnings before taxes (-11.3 %).

Earnings attributable to non-controlling interest fell from € 12.5 million to € 11.3 million, but remained virtually ­unchanged relative to earnings after income taxes (13.6 % compared with 13.9 % in the previous year).

At € 72.0 million, earnings attributable to shareholders of KSG AG were thus 7.1 % lower than in the previous year (€ 77.4 million).

Earnings per share

Earnings per ordinary share were € 40.95, compared with € 44.09 in the previous year, and € 41.21 per preference share, compared with € 44.35 in 2010.

Profit situation at parent company KSB AG

KSB AG generated pre-tax earnings (under HGB) of  € 36.5 million, around 8 % less than the prior-year figure (€ 39.8 million). Taking into account the taxes to be paid, the net profit for the year amounted to € 29.4 million after € 27.9 million in 2010. Sales revenue was up by 4.2 %, and total output of operations by 6.3 %. Higher costs, especially material costs, and the high pressure on prices impacted on earnings in the annual financial statements of the parent company, as in the consolidated financial statements.

Stable dividend

With earnings after taxes at prior-year levels, we will be ­proposing to the Annual General Meeting on 16 May 2012 the distribution of a dividend of € 12.00 per ordinary share and € 12.26 per preference share (including a preference ­dividend right of € 0.26), as in the previous year.

Segment results

In line with our management and reporting structures, our segment reporting format is by business unit.

In the Business Unit Pumps, orders were down 0.4 % year on year. Sales revenue rose by 5.6 %. We generated EBIT of € 81.9 million (compared with € 121.6 million in 2010) due to the significant price pressure on project orders.

The Business Unit Valves reported 5.1 % more orders and  a 1.3 % increase in sales revenue. EBIT, at € 2.5 million, was well below the figure for the previous financial year of  € 10.1 million. Price pressure in the project business has ­increased in this segment too.

The Business Unit Service posted strong growth, with order intake up 15.9 % and sales revenue up 16.8 %. EBIT grew from € 30.5 million to € 42.8 million. It should be noted that special charges had a negative impact on prior-year earnings.


Balance sheet structure


Principles and objectives of financial management

Central financial management in the KSB Group performs its duties within the framework of the guidelines laid down by the Board of Management. We base the nature and scope of all financial transactions exclusively on the requirements of our business. The aim of our financial management is to ensure liquidity at all times and to finance our activities at optimum conditions. In financing our export business, we hedge foreign exchange and credit risks to the greatest extent possible. 
We continuously improve our receivables management
methods with the goal of settling our outstanding amounts  by their due dates.

Hedging financial risks

Our primary tool for minimising the foreign exchange risks inherent in our export business are currency forwards. This applies both to transactions already recognised and to future cash flows from orders on hand that are still being processed. We transact most of our foreign currency business in US dollars. There is only a relatively low level of foreign currency ­liabilities.

We reduce the risks resulting from changes in prices on the procurement side for orders with extended delivery dates by agreeing cost escalation clauses or, in the case of fixed-price contracts, by including the expected rate of cost increases in our sales price.

We limit the risk of default by taking out credit insurance, ­arranging advance and partial payments, and agreeing bank guarantees. To ensure long-term liquidity, we agree on payment terms and conditions with our customers in the project business that reflect the cost trend curves of order completion as far as possible.

We take account of the risks from short-term fluctuations in cash flows by agreeing sufficient lines of credit with our banks. In order to be able to provide the necessary collateral in the project business, corresponding guarantee volumes are also made available. Adequate proportions are confirmed for a period of more than one year. Our credit and guarantee lines are around € 959 million (previous year: around € 888 million).

Unless explicitly stated otherwise, the following comments on the financial situation relate to the published prior-year figures.


The KSB Group’s equity amounts to € 869.1 million (€ 825.6 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 € 642.0 million (previous year: € 602.5 million), including  the proportion of earnings after taxes attributable to shareholders of KSB AG of € 72.0 million (previous year: € 77.4 million). € 115.6 million (previous year: € 111.6 million) are attributable to non-controlling interest. Due to the significant € 112.8 million (6.1 %) rise in total equity and liabilities, the equity ratio declined slightly (44.0 %; previous year: 44.4 %).

Non-controlling interest mainly relates to KSB Pumps Limited, India (€ 37.0 million), PAB GmbH, Germany (€ 18.1 million), GIW Industries, Inc., USA (€ 12.2 million), KSB Shanghai Pump Co. Ltd., China (€ 11.8 million), KSB America Corporation, USA (€ 11.6 million) and SISTO Armaturen S.A., Luxembourg (€ 5.6 million).


The largest item under liabilities are provisions for employee benefits, including, also as the largest item, pension provisions. These were increased by 5.0 % to € 257.7 million as at the reporting date. A large number of the pension plans currently in use 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 introducing defined contribution plans for new employees.

Our obligations for current pensioners and vested benefits of employees who have left the company account for just over half of the amount recognised in the balance sheet. The rest relates to defined benefit obligations for our current employees, who have an average remaining working life of about 13 years.

The remaining provisions for employee benefits, which, in contrast to pension provisions, are predominantly current, fell slightly from € 134.9 million to € 133.6 million.

Other provisions include non-current components of € 16.9 mil­lion (previous year: € 15.6 million) for warranty obligations. The excess relates to provisions for mainly current uncertain liabilities.

Non-current liabilities fell significantly from € 109.6 million to € 61.7 million. The reason for this was in particular the early redemption of part of a loan against borrower’s note that we had taken out in 2009 in order to secure the liquidity of the Group in the event of a prolonged financial crisis.

Current liabilities increased significantly. The growing business volume resulted in an increase in trade payables (€ + 24.9 million) and advance payments received (€ + 29.3 million). Financial liabilities were € 46.1 million higher than in the previous year. This is attributable to the current tranche (€ 12.5 million) of the remaining loan against borrower’s note and the ­financing of the acquisition of the South Korean valve company. As the increase is greater than the increase in total equity  and ­liabilities, the share of current liabilities in total equity increased to 25.8 % (previous year: 21.8 %).

Contingencies and commitments

The KSB Group’s off-balance sheet contingent liabilities ­totalled € 10.9 million as at the reporting date (previous year: € 13.3 million). These arise mainly from collateral and ­performance guarantees.

There are no other extraordinary obligations and commitments beyond the reporting date. Other obligations and commitments fall within the scope of what is needed to continue business operations, such as obligations from long-term ­rental, lease and services agreements (in particular information technology and telecommunications) and from purchase commitments.


The KSB Group’s net financial position, i. e. the difference ­between interest-bearing financial assets on the one hand and financial liabilities on the other, declined from € 293.0 million  to € 187.0 million. Contributing factors were increased spending on financial assets and the funds provided to finance working capital following the increase in business volume.

Sources and application of funds

Cash flows from operating activities amounted to € 36.3 million, a year-on-year decrease of € 125.8 million. Cash  flows were impacted by the reduction in earnings and a larger amount of funds tied up in inventories. Resources were freed up primarily through an increase both in liabilities and advances received from customers.

The volume of our investment activity increased compared with the previous year, primarily due to the acquisition in South Korea, leading to total cash flows of € – 102.7 million (previous year: € – 91.6 million).

Cash flows from financing activities changed from € – 88.3 million to € – 35.9 million due to the repayment of bank loans. In 2010 the repayment of bank loans had a significantly greater effect than in 2011.

The KSB Group’s cash and cash equivalents from all cash flows together fell from € 407.6 million to € 305.7 million (including € 16.6 million of cash used to secure credit balances for partial retirement obligations, which is available for ­immediate use at any time, after € 18.9 million the previous year), although this includes changes in exchange rates.

We assume that, in future, we will continue to be able to meet our outgoing payments largely from operating cash flow. From today’s perspective, we are therefore not planning any additional external financing measures.


Unless explicitly stated otherwise, the following comments on net assets relate to the published prior-year figures.

Our total assets rose by 6.1 % to € 1,974.1 million. This is mainly due to an increase in non-current assets, higher inventories as well as an increase in receivables and other assets.  In contrast, cash and cash equivalents decreased. The above-mentioned first-time consolidations also have to be taken into account (these resulted in an effect of € 53.5 million).

Around 28 % is attributable to fixed assets, as in the previous year. However, the first-time consolidations caused shifts ­between the goodwill reported under intangible assets and the ­financial assets.

Intangible assets and property, plant and equipment with a historical cost of € 1,076.7 million (previous year: € 968.5 million) have carrying amounts of € 520.5 million (previous year: € 449.4 million). The acquisition of our new South Korean valve company and the first-time consolidations of older KSB companies in the year under review resulted in goodwill increasing by € 38.3 million.

Investments in property, plant and equipment in 2011 amounted to € 62.3 million, slightly below the prior-year figure of € 67.8 million, but still in excess of depreciation (€ 45.7 million after € 44.7 million in 2010). The highest additions at € 19.5 million (previous year: € 21.0 million) again relate to other equipment, operating and office equipment. The focus of our investment activities remained the Region Europe, predominantly Germany and France. Outside Europe, the highest ­additions were made at our plants in Brazil, China, India and the USA. We maintained our policies for measuring depreciation and amortisation in the year under review.

The investments in financial assets amounting to € 11.9 million related primarily to small start-ups in Croatia, Serbia, Slovenia, Peru and Saudi Arabia. In addition, we carried out a cash ­capital increase with our local partner in a company in China where we hold a minority share. Taking into account the ­opposing effects of the first-time consolidation, the carrying amount of financial assets fell by € 25.8 million to € 40.1 million.

Due to the increased business volume, also reflected in the higher total output of operations, and the first-time consolidations, inventories increased by 31.0 % to € 425.1 million. They tied up around 22 % of our resources. This is a significant increase year on year (17 %), due to the fact there was relatively little change in total assets.

As a result of the increased sales revenue, in particular in the last quarter, trade receivables were € 34.4 million above the figure at the end of the previous year. Along with an increase in orders on hand of around € 40 million (€ 1.2 billion at  the end of 2011), the value of customer orders in progress, measured according to the percentage-of-completion method but not including PoC advance payments, increased by € 13.5 million. As a result, receivables and other current assets made up around 33 % of total assets (previous year: around 32 %), taking into account the change in the total assets.

Cash and cash equivalents account for around 16 % of assets (previous year: approx 22 %). This was attributable to the ­early redemption of a part of the loan against borrower’s note, expenditure for acquisitions and the provision of funds to ­finance working capital following the increase in business volume.

Inflation and exchange rate effects

There are 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 € – 15.2 million (previous year: € + 39.1 million). This was taken directly to equity.


At the end of 2011, the economic situation of the KSB Group was stable at a high level. We consider this a good basis for achieving continued business success in the coming years.

Principles of Remuneration System for the ­Members of the Board of Management

The remuneration of the Board of Management consists  of fixed and variable components. The amount of the fixed ­remuneration is governed primarily by the function and ­responsibility assigned to the member of the Board of Management. The fixed remuneration component consists of a fixed sum plus benefits as well as pension commitments ­(retirement, occupational disability and widow’s and orphan’s pension). The fixed basic salary is paid monthly; the benefits include the private use of a company car, coverage of insurance premiums and any payments for a post-contractual ­restraint on competition. The variable remuneration component is linked to the return on sales for the financial year in question. The Board members also receive variable remuneration components which serve as a long-term incentive. These depend on a consideration of the growth in earnings over  a period of three years based on the economic added value method.

The total amount of the variable components is limited, to take account of extraordinary, unforeseeable developments. No stock options or other share-based payment arrangements are granted to members of the Board of Management.

A bonus of no more than three months’ salary per financial year may also be paid at the discretion of the Supervisory Board in recognition of special performance by individual members of the Board of Management. Such decisions will  be made on an irregular, i. e. not necessarily annual, basis.


Transactions made and measures taken in 2011 were mainly attributable to goods and services supplied to affiliated companies. KSB AG billed a total of € 289.7 million (previous year: € 247.1 million) for these goods and services, and purchased goods and services from affiliated companies for a total value of € 99.8 million (previous year: € 92.3 million).

The Board of Management has submitted the dependent company report to the Supervisory Board. This concludes with the following declaration: “In accordance with section 312(3) of the AktG [Aktiengesetz – German Public Companies Act], we declare that our company – on the basis of the circumstances known to us at the time when the transactions were made or the measures were either taken or not taken – ­received adequate compensation and was not disadvantaged by the fact that the measures were either taken or not taken. No measures were taken or omitted at the instigation or in the interest of the controlling enterprise or a company affiliated with the controlling enterprise.”


Our internal control system (ICS) serves to ensure that regular financial reports and consolidated financial statements are properly prepared. Key elements of the ICS are – in addition  to the risk management system that is described in detail ­elsewhere in this management report – guidelines and regulations which include, among other things, standard accounting and valuation policies. They must be applied to the full extent by all Group companies. There is a clear separation of functions and the four-eye principle is applied. Reviews of our Internal Audits departments ensure that this happens. Our ­accounting practices also include regular analytical plausibility checks using time series analyses and actual / budget variance analyses. These reviews enable us to identify significant changes early on, which we then examine for accounting and valuation discrepancies. The results are discussed at management level.

Our ICS is subject to a continuous development and improvement process, and we are in regular contact with our auditors. We analyse current financial reporting issues together, such as, for example, announced changes to the accounting regulations. If it becomes necessary to adapt existing codes, guidelines  or regulations or issue new ones, this is done promptly and communicated to the entire Group.

Corporate governance declaration

We will make our updated Corporate Governance Declaration pursuant to Section 289a of the HGB accessible to the public from 30 March 2012 at > Investor Relations > Corporate Governance Declaration. In addition to the ­Corporate Governance Report (including the Statement of Compliance in accordance with section 161 of the German Public Companies Act), the Corporate Governance Declaration includes relevant information on corporate governance practices applied at KSB AG that go beyond statutory requirements. Also described are the working methods of the Board of Management and Supervisory Board, and the composition and working methods of the committees of the Supervisory Board.

Report on Post-balance Sheet Date Events

No significant events occurred after the balance sheet date that would have a material effect on the company’s net assets, ­financial position and results of operations.