voith.com

digitaltransformation
Voith

digital transformation
Annual Report 2017

10,000

MW

90 3.5TB

COUNTRIESVoith has installed 10,000 megawatts in hydropower plant capacity in Africa since 1940
(as of June 2017), thus making a significant contribution to the continent’s development.
Voith collaborates with its partner, China Three Gorges (CTG), in Africa.

The sensors of a hydropower plant
produce 3.5 terabytes of data in one year.

4,000

PATENTS

People from 90 different countries
work at Voith.

5x 1.4
There are five times as many circuits
in a paper machine as there are ina modern airplane.

per
MILLION

Voith holds more than 4,000 active patents and more than 300 patents are filed annuallyworldwide. This makes Voith one of the top 40 German patent applicants.

1.4 accidents per million working hours
is a figure making us a worldwide sector
leader when it comes to work safety.

Magazine

digitaltransformation

Financial ReportGroup
Foreword

34

The Corporate Board of Management

38

Report of the Supervisory Board

40

The Supervisory Board

46

Group Management Report
01. Background48

02.	Business development and earnings
position of the Group58

03.	Business development and69
earnings position of the Group Divisions
04. Net assets and financial position

78

05. Research and development

84

06. Sustainability

89

07. Employees

93

08. Subsequent events

103

09. Risks and opportunities

104

10. Forecast report

116

Consolidated Financial
Statements
Consolidated statement of income

122

Consolidated statement of comprehensive 123
incomeConsolidated balance sheet

124

Consolidated statement of changes
in equity

126

Consolidated cash flow statement

128

Notes to the consolidated financial
statements for the 2016 /17 fiscal year

129

Notes to the consolidated statementof income155

Notes to the consolidated balance sheet

163

Notes on segment reporting

189

Segment information by business segment 192
Segment information by region

194

Other notes

195

Responsibility statement

216

Imprint218

in € millions

2015/162016/17

4,108

4,368

4,252

4,223

275

241

295

304

6.5

5.7

7.0

7.3

Result before taxes1)

140

682

Net result

29

596

Cash flow from operating activities

58

135

Total cash flow

203

-57

Investments

121

96

Research and development1)

208

224

in % of sales

4.9

5.3

Equity799

1,366

Equity ratio in %

14.9

27.3

Balance sheet total

5,359

4,998

Employees

19,09819,045

Orders received

1)

Sales1)
Profit from operations

1) 2)

Profit from operations (core business)
Return on sales in %

1) 2)

1)

Return on sales in % (core business)

1)

1)

1)

1) 3)

1) Excluding the Group Division Voith Industrial Services which has been sold.
2) For more information, see section “Notes on segment reporting” in the notes to the financial statements.
3) Full-time equivalents; without apprentices; as at September 30.

Voith is a global technology group. With energy, oil & gas, paper, raw materials
and transport & automotive, the broad portfolio with its plants, products, services
and digital applications serves five essential markets in all regions of the world.
Voith’s operating business is bundled in four Group Divisions: Voith Hydro, Voith
Paper, Voith Turbo and Voith Digital Solutions.
A large proportion of the world’s paper production is manufactured on Voith paper
machines. A quarter of the energy generated worldwide from hydropower is produced with turbines and generators from Voith Hydro. Voith’s drive components
are found in applications all over the world, both in industrial plants and in roadand rail vehicles, as well as on the waters. And the applications provided by theVoith Digital Solutions Group Division make Voith one of the pacemakers for digitalchange in the key global industries.
Founded in 1867, Voith employs more than 19,000 people, generates €4.2 billion insales, and operates in over 60 countries around the world.

Table of Contents
Voith at a Glance

Voith at a GlanceEveryone is talking about digitalization, so much so that it
has become a blanket term with an increasingly unspecificmeaning. So what exactly do we mean when we say that
Voith is becoming digital?
It means, for example, that we are uploading the worldof Voith – right down to the tiniest component – to thecloud in the form of digital twins. It is on this basis thatcomponents and machines communicate not only witheach other, but also with us human beings. We are working
on artificial intelligence – technologies that learn independently, that collect, analyze and interpret data. We areconnecting products in a network, soon to include entire
systems, and one day they might even link up with thenatural environment.
It’s hard to say where the digitalization of the world willlead us overall. That makes it all the more important that
we know where we want to go. As traditional mechanicalengineers, we will help shape the digital transformation.
Our know-how in the material world gives us an importantcompetitive advantage because we have the necessary
knowledge of processes and markets and we understandcustomers. Every day and together with our employees,
customers and partners, we explore what digitalization
could mean for us all. It’s not just about technologies – weare experiencing a cultural transformation, are learning
new skills and are shedding old certainties. The world is
merging digitally – and Voith is right there in the thick of it.

digitaltransformation/ working 4.0 / revolution/ scrum / trading platform / selfconception / compartmentalized
thinking / recovered paper /artificial intelligence / smart
systems / cultural transformation/ merQbiz / sprints / transparency / e-sustainability / Voith
code clubs / papermaking 4.0 /Ray Sono / Naoto Kadowaki /leadership / winder / digital river/ China / …

merQbiz – How an
online trading platform
is revolutionizing
the market forrecovered paper

10

Systematic thinking –Why Voith is helping
digitalize China’s largest
river and the roleof artificial intelligence30

Cooperative sprints –How Working 4.0
overcomes hierarchies
and the boundaries
between divisions

20

Transformation
drivers – Ilonka
Nussbaumer
on HumanResources’ newself-conception

14

Digital liaison –Thomas Helbing of
Ray Sono talks about
the new partnershipwith Voith

4

Sustainable success –How digitalization
creates efficiency
while helping humankind
and nature, too

26

Digital liaison

The mechanical engineering company Voith
has acquired a 60% stake in the digital
service provider Ray Sono. Thomas Helbing
and Dr. Roland Münch talk about the background and perspectives of this alliance.

Thomas Helbing,
Chief Executive
Officer at Ray Sono

Thomas Helbing“We are united by our enthusiasm
for digitalization. Ray Sono and Voith
also share the same values, which is
yet another decisive reason why wework well together.”4

DigitalliaisonDr. Roland Münch,Member of the Corporate
Board of Management
and Chairman of theBoard of Management ofVoith Digital Solutions

5

Dr. Roland Münch“We share many characteristics:
speed, curiosity, strong commitmentof the owners, a high degree oftechnical expertise and passion.
We speak the same language.”6
One company has 150 years of tradition
in mechanical engineering, while theother has 25 years of experience in thefield of digital services. What can be
expected of this alliance?

hThomas Helbing: Together with Voith,
we can significantly advance the digitalization of the industry. As partners, weare on an equal footing and we retain our
individual strengths. Ray Sono remains aself-reliant service provider for digitalization,with its own customers and sites in Munich
and Berlin.

Service provider

Ray Sono integrates strategy,
concept, design and technology
into its digital projects for customers
such as Deutsche Bahn, Linde,
Lufthansa Miles & More, McDonald’s
and MAN, translating ideas into
concrete products and services forthe digital ecosystem.

MunichThe company’s head office isin a backyard area of the lively“abattoir district.” The office
extends over four floors of aformer cardboard box factory.

Ray Sonom

Roland Münch: The goal is, ofcourse, to make both companies
even more successful through long-termand close collaboration. At Voith, we think
and work in two directions: firstly, digital support of existingproducts and services, and secondly, development of entirely
new business models.

The digital service provider
was founded in 1992.
218 employees work at its
locations in Munich and Berlin.
Sales in 2016: €18.8 million.

“Approximately a dozen
projects are currently
underway involving Voith
and Ray Sono engineers,
IT specialists, Web experts,
digital strategists and
VR designers.”

7

Thomas Helbig

What exactly can a digital service
provider like Ray Sono contributeto the traditional hardware businesswith turbines, paper machines anddrives, for instance?

What does this mean from thecustomer’s perspective?

m

As a forerunner and companion of the digital transformation, we have extensive experience in the B2B andB2C environment. In customer experience, we consistently
think in a customer-focused manner, asking ourselves: “Arethe user interfaces of our programs, business processes andapps really intuitive, user-friendly and efficient? Is the customer journey coherent? At which point do users abandon
a process, and why?”In the case of large technical systems such as paper
machines, several guidance, control and drive systems run in parallel. They produce masses of data by meansof which operations can be controlled and optimized – thekey word is big data. The data must not only be collected byservice and IT staff, data specialists and system engineers, it
must also be understood, visualized and analyzed. In otherwords, digitalization creates a new form of complexity that
we need to reduce intelligently together with our customers
in order to become more productive. In the paper business,
we call this “Papermaking 4.0.”m

And how can this reduction ofcomplexity be achieved?

h

The same thing is increasingly applicable to industrial
applications. Voith is and will continue to be the leader
in engineering products and services, but technology leadership in the digital age also requires the German mechanicalengineering industry to lead the way in user-friendliness.

m

The systems need to be easy to use if they are to
be accepted by users. This means we need userinterfaces that are designed for users’ tasks and that support these tasks specifically. In this way, we can minimize

“Digitalization is creatinga new form of complexity,
which we, together withour customers, needto intelligently reduce inorder to become moreproductive.”

8

Dr. Roland Münch

sources of error and increase efficiency for the customer.
In the development of these role-based interfaces, it has
become abundantly clear just how valuable our partnershipwith Ray Sono truly is.

Nevertheless, the clichés are telling
us that a cool digital agency has
formed a business liaison with avery formal industrial group. Is theinteractive chemistry OK?

hThese write-ups we’re seeing are indeed clichés – weare united by our enthusiasm for digitalization. Ray
Sono and Voith also share the same values, which is anotherdecisive reason why we’re able to work well with each otherand why this business liaison has come about. The employees of both companies love what they do, all the way fromthe Executive Board to our interns – and you can feel that in
all their conversations, agreements and projects.

m

Ray Sono and Voith – it feels like two close relatives
who haven’t seen each other for a long time are now
in regular contact again. We share many characteristics:
speed, curiosity, strong commitment of the owners, a highdegree of technical expertise and passion. We speak thesame language.

How does this collaboration workin practice?

hMore or less the same as it does with our many othercustomers. We work in mixed teams. We currently havearound a dozen projects running, involving Voith and Ray
Sono engineers, IT specialists, Web experts, digital strategists and VR designers. We meet in Munich and Heidenheim,
for example, or on the premises of Voith customers. At thesame time, we use various online and offline channels ofmodern project management to communicate intensively
with one another.

m

Our lines of communication are always direct andshort. In Berlin, we’re currently setting up a Design
Thinking laboratory, which is also available for other custom­-

9
Voith

By 2018, Voith will invest around €100 million
in the further development of digital products
and services. The alpha or beta stagesof numerous specific projects have beensuccessfully achieved so far.

ers in the industry. There we’ll be focusing on
the development of digital prototypes, which will
have to prove themselves faster than ever in real
operation.

You said that Voith and Ray Sono
not only want to optimize existingproducts and services, but also
develop new business models. How
is that progressing?

m

One example is the online marketplace “merQbiz,”which we recently launched in the USA. For the firsttime, we’re bringing together buyers and sellers of recovered paper on a digital platform – transparently, rapidly andcost-effectively. Then there’s our “HyGuard Acoustic” project,
where we’re working on a digital acoustic monitoring systemin the field of hydroelectric power. Using microphones, we record thesound of the equipment,
analyze unusual noises
in the cloud and use
software to identify signs of wear or failure of components
at an early stage.

hBoth of these examples aptly illustrate the direction inwhich the cooperation between Voith and Ray Sono willdevelop. We want to make the relatively unbroken groundof digitalization productive and exploit the technological andbusiness opportunities it gives us, allowing new businessideas to grow in the fields of hydropower, paper manufacture,mobility and drives. We call this “up for digital” – the passion
for digitalization.

THE SELLER

merQbiz®

The digitalmarketplace
for recoveredpaper

THE BROKER

Producers of recovered
paper, such as a retailer,
can offer any volume of raw
materials on the platform
anywhere in the country,
accept offers and sell tobuyers directly.

10

merQbiz

Voith’s online trading platform
revolutionizes the market for recovered
paper.

Intermediaries also
buy or sell on the
merQbiz platform.

US paper market

7.7
52
76 %

billionUS $volume of sales inrecovered paperin the USA in 2015

milliontonnesvolume of recycled
paper in the USA
in 2016

share of paper millsin the USA which
use recovered paper
as raw material inproduction

Direct contact with sellers
creates transparency andsimplifies trading. Buyers
such as paper mills havevisibility into the source ofthe materials as well as thesellers' shipping history.

Paper mill operators benefit
from quality measurement
mechanisms offered bymerQbiz. Visibility into thequality of the materials canlead to significant savingsin operational costs for themills.

merQbiz chronology
01/2017

merQbiz launches
pilot project in North
America. Staff: 1

02/2017

The first transactionis handled via theplatform

03/2017
Official launch
and market entryof merQbiz®

08/2017

Volume of trade exceeds
US $1 million. Staff: 40

11

The e-commerce platform creates a virtual marketplace wheresellers and buyers of recovered paper can connect and transact
directly. Currently, transactions are often conducted throughnumerous intermediaries. Business is consequently characterizedby significant complexity, lack of transparency and inefficient processes. merQbiz offers an end-to-end trading solution that creates
efficiencies through transparency. Additional services such asaccess to product quality data and an integrated logistics solution
offer tangible value for buyers and sellers.

THE BUYER

merQbiz: how it works

“Current processes in the
hardware world present
opportunities for digital innovation and transformation.”John Fox

John Fox

12

John Fox, CEO of merQbiz, talks about
how digital business models arise from
hardware competence and what it feels
like to suddenly find you are a pioneer.

John Fox has worked for Voith for
16 years, most recently as CEO
of Voith Paper in North America.
In this function he was a memberof a steering board charged with
developing new ideas for future
digital business models. This isalso where the cornerstone waslaid for merQbiz, a joint venture
between Voith and BCG Digital
Ventures.

So what is merQbiz all about?
John Fox: The easiest way to describe it isan e-commerce marketplace. We connect
buyers and sellers of recovered paper. In
this way the digital platform enables market
participants who generate recovered paper
to offer their materials on the marketplace directly and sell
it to buyers all over the country.

Couldn’t they always do that?
No, not at all. The recovered
paper business is very
The joint venture was officiallycomplicated.
Sometimes
founded in January 2017
two
or
more
middlemen
by Voith and BCG Digital
Ventures. The name comes
operate between the genfrom Mercury, the Roman
erator of recovered paper
god of commerce.
and the buyer. Buyers do
not know where the raw
materials are from andsellers have no insight into
where their materials will
end up or at what price. Supply and logistics chains areinconsistent. This is where we can provide transparency
that enables market participants to agree on prices witheach other directly.
merQbiz

So how does it actually work?
Sellers list their available quantity of recovered paper on
the merQbiz platform. Buyers, who may be paper factories, are then able to purchase directly from the seller. They
can also compare their transportation costs with ours andchoose the best option through the logistics offering on
the platform. Both sellers and buyers have access topaper quality data that can help drive their transacting
decisions.

Originally, you were the only
member of staff – how did that feel?
It was an adventure. Feeling like a pioneer after so many
years in the company was something really quite special.
I was able to help shape the development of the entire
project.

Glossary

Customerjourney
What route does a customer take before finallydeciding to make a purchase? Nowadays
companies try to offer their customers a
special experience at each interaction point or
touchpoint. A touchpoint is where a customer
contacts a company in order to find out about
products, sales representatives or a brand.
Companies cannot always exert a direct
influence on these events because thirdparty opinions also play a role. A customer’s
experience at a touchpoint not only influences
purchasing decisions; it also determines whether
the customer will recommend a company toothers or prefer a certain brand.

Applicationsof thecustomerjourney

Customerjourney
management
Voith analyzes customer
expectations in all of its departments.
The questions include how customers receive
their services or products and how they respond.
Individual touchpoints are categorized according
to whether the customer is disappointed,
satisfied or enthusiastic. In this way, newtouchpoints can be identified and outdated
ones eliminated. In a final step, touchpoints
can be ranked according to their influence
from the customer’s point of view
and optimized in order to improvecustomer service.

Recovered paper

An example would be a containerboard
mill, which requires around 350,000
tons of recovered paper per year. Thisis equivalent to roughly 100 truckloads
per day and approximately US $40
million annually.

The market for recovered paper is quite large. In fact, morethan US $30 billion worth of materials are sold worldwide.
The market is characterized by significant complexity, lackof transparency and existing inefficiencies. The ability to
improve the buying process through digital transformationand innovative solutions for our customers will allow Voith
to remain an industry leader.

What expertise can a traditional
mechanical engineering firm
like Voith bring to this business?
Voith began by building a number of machines for processing our customers’ recovered paper. These relationships
are a source of expertise about customer needs and pain
points. We know the market, customers, processes andtechnologies – and that gives us enormous advantages
over our competitors from a purely digital standpoint.
Paper quality

The lack of transparency in the market has madeit difficult for paper mills to buy recovered paper ofpredictable quality. The raw material comes frommany sources which makes purchasing a consistently
high-quality product difficult. Through the merQbiz
quality program, buyers have access to data thatallows them to make more informed purchasing
decisions that can lead to operational efficiencies.

Our goal is clear: we strive to revolutionize therecovered paper industry and create value forour customers through transparency, efficiency
and ease of use.

merQbiz operates like a start-up,
although it is firmly anchoredin the Group’s structures. Is thata difficult balancing act?
We have a lot of freedom in our work, which is importantin ensuring that processes are lean and swift. We are alsoable to tap into Voith’s industry expertise and history of
excellence for over 150 years.

What have you learned personallyfrom setting up merQbiz?
The digital innovation process which led to merQbiz differs
fundamentally from our usual hardware development work.
Perhaps the most far-reaching insight I gained was that
we can transfer problems Create value
from the hardware world
to digital business models Voith plans to invest aroundwhere digital innovation €50 millon in merQbiz
by the end of the fiscal
can be used as a form ofyear 2020. merQbiz plansproblem-solving. This can to expand into additional
only be successful with geographic regions in thefreedom in the implementa- future.
tion phase.

13

What was thedecisive factor
which made Voith decide
to implement this project?

What lies ahead?

14

Transformation
drivers
Transformation drivers

Digitalization changes the way people work andcommunicate with one another. It requires a new
culture within organizations, a new understandingof leadership and new qualifications. This has
meant that human resources (HR) faces completely
new challenges – and in the process, the HR divisionat Voith has even reimagined itself.

Employees

19,045Sites

155

Ilonka Nussbaumer,
Senior Vice President
Corporate HR

15

Voith worldwide

Ilonka Nussbaumer“We have a tremendous amountof cohesion and team spirit in the
Company. This is an important asset
that we will not give up lightly.”T16

he Human Resources (HR) division is currently feelingthe challenges of digitalization across all industries, but
in a uniquely concentrated form. Not only that they
have to digitalize their own processes and data andtransform them into cloud-based applications, but theorganization also has an urgent demand for the qualified
personnel necessary for the new business models of thedigital world – and this despite the fact that it is not evenclear what those qualifications are exactly, let alone what
the new business models of the future will be.

Ilonka Nussbaumer

Ilonka Nussbaumer joined Voith
in 2011 from automotive supplier
Schaeffler. The topic of transformation was at the top of her
agenda. “At first, we considered
implementing the transformationin our area slowly and in several
stages, but in the end we did
it all at once; there's simply notime for baby steps nowadays.”

At least one thing is certain: digital transformation calls muchinto question. And in the case of HR, that includes its own
self-conception. Ilonka Nussbaumer, head of HR at Voith,
has to go through this experience together with her teamtime and time again: “When it comes to whether algorithms
and big data might make better recruitment decisions thanyou do yourself with all your experience and human intuition – that really does make you question your professional
convictions.”

Automated candidate selection
for job postings is just one
example of how digital transformation is changing the HR
landscape. The opportunities
and risks this change brings
with it, but above all the question of how to meet the newneeds of the entire organizationin the future, are points on theagenda of the Group’s international HR colleagues this year.
The key topics are, first of all: digital technologies change
the way employees communicate and collaborate with eachother. This requires new forms of cooperation. Secondly,
digitalization leads to a new transparency of knowledge andinformation within the organization. It even presupposes it,
so the reduction of hierarchies becomes an important topic.

Ralf Clausen is responsible for
information and service managementin HR – when we are dealing withdigital HR infrastructure, what doesit all come down to?
Ralf Clausen: We sum it up with the acronym SMAC: social
collaboration, mobile, analytics, cloud. We have uploaded
all global master data to the cloud; the HR platform allows
this data to be analyzed in a variety of ways for reporting or
strategic decisions. More than 1,200 users access these services remotely using our mobile app as well. We will expand
analytics and social collaboration even more.

What will be the focus?
We want to be more precise and user friendly. Who has theparticular skills most suited for certain tasks? We need to beable to answer questions like these based on the global data
and with just one or two mouse clicks. Social collaboration
could enable employees to evaluate each other. The formula
might be: “Our colleague X really helped me with problem
Y.” That would also make it easier to find the right partner towork together on something.

A lot of this is all about the data –what about people?

Ralf Clausen,
HR Information & Service
Management

It’s all about people – more so than ever. We want to bring
the right people together to work on the projects that are agood match for them. And we want to look ahead so that we
don’t miss the coming trends. The human factor will always
be our expertise – but now we are experts in hard data, too.

Glossary

Data security
Digital applications are based on theanalysis and linking of data. The digital economy
depends on security of data, personal orotherwise. Sensitive information from the company must be protected against manipulation,
loss and unauthorized disclosure.
IT security is part of this. It includes protectionof electronically stored information and IT
systems as well as operational security.

Applicationsofdata security

Detectionof anomalies
Voith uses artificial intelligenceto detect viruses and Trojans that cannot
be recognized by conventional means. Viruses
are identified from their behavior before they canspread. The tests rely on the OWASP Testing
Guide, a penetration testing framework provided
by the German Federal Office for Information
Security and based on ISO standards 27001 and
62443. Voith also offers external IT organizations
help in preparing for certification according
to ISO 27001. It goes without saying thatthe data center in Heidenheim is ISO-certified.
The center ensures encrypted transmissionof data from the sensor on the customer’s
premises to Voith’s server.

Robert Wu“I’m sometimes surprised inGermany when I can only pay
a taxi driver in cash. Most
Chinese people don’t have awallet anymore – we even use
our smartphones to pay for a cupof coffee. Platforms like WeChat
shape our everyday lives; weuse it to communicate, cooperate
and pay for things. In HR, we
use it for job advertisements andapplicant interviews. Executives
use their smartphones to manage
their projects, distribute information and provide direct feedback,while employees form groups
for the implementation.”

Voith Asia-Pacific
Employees

3,925
Sites

22

Thirdly, the organization must respondto the changing needs and habits of thegeneration of digital natives. And fourthly,
all this can be summed up into one major
theme: leadership.

StudiesIn the “Recruiting Trends” study carried out by
Monster.de, more than half of the top 1,000 German
companies interviewed stated that IT-supported
recruitment accelerated the process of candidate
preselection. According to 43% of the study participants, the robot also facilitated the non-discriminatory
preselection of applicants.

algorithms. “The scientificstudies make clear, however, that big data is superior to gut feeling,” says
An analysis by the Harvard Business Review ofNussbaumer. Automated17 studies on the topic concluded that big data-based
procedures are muchdecisions are at least 25% better than those made bymore efficient and more
Homework done
human beings. The effect was evident in all candidate
groups, from the factory floor to top management.
accurate, especially forthe preselection of a large
Nussbaumer is convinced that digitaltransformation “will have a greaternumber of applications.
impact than we can ever imagine“So far, we’ve reserved
the right to make the final
today.” However, HR made sure to do
its own homework early on. The division
decision ourselves, but I
wouldn’t rule out the use of IT-supported systems in the
introduced a globally uniform IT system many years ago
future.”and transferred all processes to the cloud. Today, the algorithms are mainly responsible for maintaining and managing
employee accounts. Data and services are available for the
The digital transformation of its own processes was strenudivisions on the HR platform around the clock. Many techous for the HR team, sometimes even painful, “but in the end,
nological changes have been made for which some things
it has also brought us together. Now we know what we’re
had to give way, including personal convictions.
capable of.” It was also about reducing anxiety. If computershire and manage employees, are HR employees even necesFor a long time, it was considered unthinkable that personsary? Nussbaumer’s answer is clear: “Our employees shouldnel decisions, for example, could be made by intelligent
have time for the tasks that are really important to Voith.”

17

Voith Asia Pacific, China

Flavio Martins
Voith Brazil“Our culture has always been very
flexible; we’ll adapt to the digitalchanges very rapidly. Nowadays
people are managing their everyday
lives with their smartphones. However, in the case of professionalarrangements, people are very formal– if we need to clarify anything, wecall, and afterwards we write an
e-mail. This is how our HR work
functions – you have to talk to yourpeople every day, not just once a
year, because being close is the key
to reaching the agreed targets.”
Voith South America

18

Employees

2,138“DRIVE”

From administrator todesigner

A further education programfor basic digital skills and soft
skills in the era of Industry 4.0.
Employees can also choose
topics according to their interests and professional groups.
You can share your own ideas
with others in a Co-Ideation
Lab. All participants will receivea certificate at the end of thecourse.

Sites

18

being discussed throughout the organization. The
HR division will have to find some of the answers
to these challenges in the future.

Nussbaumer also sees the new roleof HR in giving strategic advice todivisions in the process of transformation. “We’re now more than just theadministrative level of the organization;
we’ve also taken on the role of active
designers. Today, Nussbaumer’s colleagues are involvedin a discussion with representatives of the Group Divisions
and business units, tackling questions such as how theirbusiness will develop in the future, in which markets and withwhich products and services they will operate, what skills
they will need in these markets and within which structures
their employees can work most efficiently.

The digital driver’s license

There are no longer any topics that do not involve HR in someway. This applies above all to management, because managers are facing a number of challenges created by the digitaltransformation. They don’t know which skills their employees
will need tomorrow, and, at the same time, they themselves
are facing new demands. Nowadays it’s all about communication and facilitation – not control. These topics are currently

One task that concerns the entire organization, and HR inparticular, is the development of digital competence within
the entire workforce, allied with the simultaneous establishment of a new culture in dealing with new technologies. Thisis the aim of the Group-wide program “DRIVE”, for instance.
Nussbaumer speaks of a “digital driver’s license” for every
Voithian. “We don’t want to exchange the old world for a new

Managerial workshops have already been set
up to prepare managers for their new roles in
the Company. The division also advises on thedevelopment of new forms of collaboration. Voith provides
digital natives with applications that enable them to carry out
their professional tasks – including via the social media they
already use privately. Voith is already very well-establishedin this respect, especially in China.

“We use social media tomaintain contact with po­­tential applicants who have
not yet found a suitable
position with Voith. We
also utilize these platforms
for e-recruiting – through
WeChat in China, forexample, we were able toincrease the number of job
applications in that country.”

Steffen Besserer is responsible
for People Development
at Voith – what are your goals?
Steffen Besserer: We don’t only consider the technical sideof digitalization – the new products, processes and IT tools.
The transformation also affects our way of working together
and the way we organize our work. This has a lot to do with
culture and consequently with ourselves as people. We areexperiencing an increasingly complex working environment
in which the existing organizational models are becoming
less and less suitable. Agility, self-organization and networks
are just three of the topics that will be front and center inthe future.

What does this mean for
the work of HR?
In addition to our operational and administrative tasks, we’ll
also become change managers and organizational andcultural developers. We need to tackle the demands of the
future more intensively. To achieve this, we are designing
future scenarios here at HR and together with various divisions, and then we use these scenarios to derive the actions
that are necessary. Our external approach to applicants oruniversities, for example, is also changing. We’re creatingmuch closer contacts there, otherwise we won’t get theemployees that we’ll need in the future.

Lena Ziegler

Lena Ziegler,
Voith Talent Acquisition

Steffen Besserer,
Voith People Development

19

one; we aim to make all our employees fit for the change andto travel the route to the digital future together with them.” A
number of further training measures have been developed
for this purpose, ranging from workshops to e-learning programs. Digital transformation begins with people. This has
also become clear. They are the key – even if they may be
selected by a machine one day.

20

designg

thinkinCooperative
sprints
Cooperative sprints

Fast on the heels of digitalization comes “Working 4.0”
– more networked, more digitalized, more flexible, it
breaks down the old dividing walls between divisions,disciplines and hierarchies. This example demonstrates
how multidisciplinary teams are now using agile
methods to work on new products and businessmodels at Voith. This approach creates momentum– and it’s fun, too.

This component is an importantconnecting piece between the paper
machine and the customer. The VariFlex
model processes parent rolls with awidth of up to 10 meters and a diameterof no more than 4.8 meters, producing
finished rolls with a diameter of no
more than 2.1 meters. The challenge
is to achieve this as quickly as possible
but without winding errors and while
retaining straight-edged ends.

Scrum

The scrum method originated in the software
sector, where projects are implemented using across-disciplinary approach. To achieve implementation, the “product owner” formulates tasks, which
the team breaks down into many smaller tasks.
These “sprints” must be completed within 14 days.
The team then discusses whether or not the task
can be regarded as being completed. Executives
also provide feedback.

Team

11:00 a.m. – A dozen people crowd around a standing
desk in room 3.4.6 of the Voith Paper building in Heidenheim. Some wear sports jackets and ties, others
casual T-shirts – there’s even someone in workman’s
overalls. They’re here to perform their daily“sprint.”

The team consists ofrepresentatives from theareas of standardization,
automation, assembly,
order processing, purchasing, cost optimization,
design and sales.

The scrum team for the “winder” project meets
three times a week. Scrum means a scrimmage– an apt description of the activity around thetable. Product Manager Daniel Jürgens, a young
man with dark hair and a white shirt, fires off
staccato queries about the status of several
to-dos. If he hears an OK, he moves one of
the many colorful stickers a little bit further along thewall behind him. The mood is relaxed but focused, theanswers short and to the point – it seems as if everyone
knows exactly what Jürgens is talking about as soon as
he fires off the first keyword.

Desk-to-desk – in the scrum
room, the boundaries between
specialist areas anddepartments are dissolved.

This motley team came together for the first time in 2016.
Up until this point, each team member had completed the
project work intended for his or her own department and21“Winder”

then passed it on to the next department. This principle isscrapped in the scrum, however, because all of the departments involved in a project – from its development to its
future management – work together from the outset.

Losing the habit of thinking
in stereotypes
Daniel Jürgens says: “We all leave our compartmentalized
ways of thinking in stereotypes behind; there are so many
important perspectives and points of view.” The challenge
of developing a winder for a width of ten meters while stillachieving efficiency gains has now been mastered. The teamattained its goal after 14 “sprints” – and the new “extended”
version of the winder has already been sold eight times.
Ten meters

22

The difficulty with componentsof this size is that when theyrotate at high speed, they are
subject to natural oscillations.
The parts are also assembled
in the narrowest of spaces andare not allowed to generate
collisions despite their many
moving parts.

Some of the scrum team even left theirown departments to tackle this project.
Designers, automation engineers, product managers and buyers work together
desk-to-desk in the scrum room. Some ofthem come from other international sites,
where experts also connect regularly with
one another via videoconferencing. In the
scrum team, person-to-person communication is the rule; no one writes e-mails.

“Extended” version
Complete – Daniel
Jürgens queries
the progress of thecurrent sprints.

Previous models were first assembled
and tested at Voith, then completely
disassembled, shipped and reassembled
at the customer’s site. The new version
can be dismantled into a few shippablecomponents, which can then be assembled easily by the customer. In the future,
the time needed for assembly andstart-up will be reduced to a minimum.

Glossary

Big data
The term big data involves three important
aspects: creation of value from increasingly
large amounts of data, collation of different data
sources, and the use of advanced, low-coststorage and processing technologies. Parallel
computing power, which is automatically distributed and therefore scalable, can handle hugequantities of data, perform complex analyses
and provide simultaneous access to many users.
One important tool of big data is machinelearning (ML), a subfield of artificial intelligence.
This refers to the many ways in which intelligent
systems “learn” from available data. Insteadof following rules set by programmers, theyrecognize patterns in data and use this information to solve a wide range of problems.

Applicationsofbig data

HyGuard
In the course of their many jobs,
experienced technicians at Voith learn
how to perceive the state of a system such asa turbine just by listening to it. The HyGuard
analysis system goes through the samekind of learning process. The noise in hydropower plants is recorded by microphones andrelayed to the cloud for analysis. By studying
increasing quantities of such data and evaluatingother sources, the system becomes able
to recognize which sounds are “normal”
and which are signs of damage. In this way,
preventive maintenance can be carried out
on systems without a technician being present.
HyGuard is always listening.

“We all leave ourcompartmentalized
ways of thinking instereotypes behind;
there are so many
important perspectives
and points of view.”
Daniel Jürgens

On this morning, for example, Denis Imberi is sitting in frontof one of the screens – he’s a design engineer and it’s his
first time in a scrum team. He says: “This approach creates
tremendous momentum. You go with the flow, you meet
regularly with your colleagues, and you know what everyone
is working on and how far they have progressed. This guarantees a great team spirit, but the main thing is that every
person is deeply immersed in the project. You don’t have to
explain anything to someone else when you need an answer.
This really speeds up the work.”

Understanding others
Florian Burger hurries through a production hall, wearing protective goggles and blue Voith workwear. This is where thewinders are assembled. He says: “Thanks to working withthe scrum team, I was able to coordinate early on with thedesign engineers what can be done and what can’t – so we
already considered many smaller issues at the outset, things
that otherwise would have caused problems for us later.”Daniel Jürgens, who is discussing with him the details for thedelivery of a model, adds: “This agile and interdisciplinary
approach is error-prone, but in a positive sense, because
there are lots of small but transparent errors that come up
early on, and they are quickly discovered and correctedthanks to the multidisciplinary work.” One department
alone can quickly overlook an error like this, and it would
be dragged right through the project, multiplying its effects.
This would ultimately make a project expensive and slow. In
the case of the winder, though, things like ergonomics orappropriate assembly workflows were addressed right fromthe start – and assembly time was significantly reduced bythese early corrections.

23

Scrum stands fora jostling scrimmage– the multidisciplinary
team meets threetimes a week.

24

Ready for use – a finishedwinder with already assembled cutting blades. Afterextensive testing, delivery to
the customer takes place.

Having to decide
Jürgens believes that solving problems together is what
creates such a great sense of team spirit within the scrum
team. “When everyone in the group agrees, it makes thewhole team extremely effective.”
One new feature is that every employee is forced to makedecisions. A task must be completed in two weeks’ time andbe focused in a particular direction. “This is a learning process,” says Jürgens. “You can’t constantly seek reassurance
and postpone or delegate decisions and then look for a third
possibility instead of just making the decision.”
Agile working with new digital technologies requires a change
in culture and mentality. Soft skills are at least on the samelevel as professional competencies. This especially applies
to executives, who must demand that more responsibility
be shouldered by employees, but who above all must also
allow those employees to exercise it. The transparency of
information that can be achieved by the use of digital communication technologies in an organization inevitably leads
to flat hierarchies. Managers who want to keep control ofeverything simply slow their companies down.
In the future, leadership will be more like a kind of facilitation.
Supervisors, for example, give feedback on a scrum at regular intervals; their role is to provide advice and motivation.
In the sprints and during those jostling scrimmage sessions,however, the team is on its own.

Methods for cultural change
Helmut Maier worked as an engineer at Airbus formore than 20 years. He developed new Airbus models,such as the Beluga, at the Toulouse site. “It was awonderful time – we worked on new components
from early in the morning until late in the evening,
and if something worked, we continued with it, but if
it didn’t, we just tried something else.” He has been
injecting this spirit of enthusiasm into the engineeringand development teams at Voith since 2008, and is
responsible for the development and introduction of
new working methods.

The new ways of working also target customers: “We wantto conceive and develop our products even more purposefully – from the customer’s point of view. One tried-and-true
method of working on projects with maximum flexibility andspeed is Design Thinking in combination with the scrum, andwe now use this in several divisions.”
In various workshops, for example, innovative concepts andprototypes for rail vehicle drives and a high level of digitalization of this overall system were developed in teamwork andwith the participation of customers. In Canada, Voith worked
with Canadian customers to create new solutions for themodernization of older hydropower plants. This has led tothe creation of a market for future sales in the double-digit
millions.

“A scrum team must
be driven by a positive
spirit, openness andthe will to approachtasks in novel ways
instead of following
established patterns.”
Katharina Kehren,
R&D Manager ProductInnovation, Scrum-Master

Katharina Kehren

25

Helmut Maier,Vice President Corporate
Product Improvement& Engineering Excellence

To achieve his goals, he opts for new agile methods andprocedures. “The feedback is very positive and is a signof the changing demands of employees. Young people inparticular want to feel their personal contribution at work, todecide freely, to communicate directly with customers andto take on responsibility without having to go through various
career stages first.”

Sustainablesuccess
Sustainable success

1.1

26

billioneuros

The digital transformation will lead to morethan just better efficiency and new businessmodels. New technologies will make lifeeasier for many people and open up opportunities for a secure livelihood, economic
mobility and social integration. Smart tech­nologies will benefit society and the environment by reducing our consumption of
resources. Intelligent networking of energy
sources and industrial processes will help
to limit greenhouse gas emissions andachieve our climate targets. Voith is taking
an active part in these efforts, thus contri­b­uting to a better world.

Sustainable successIn the past five
years, Voith has
invested €1.1 billion
in research anddevelopment.

Sustainable success

Digitalpapermaking
Nowadays important process steps inpapermaking are monitored and controlled
in real time by sensors and software. Voith
calls this Papermaking 4.0. By automating
and digitalizing sheet formation it minimizes
the use of raw materials and energy.

Intelligent
miningVoith is able to apply complex sensor technology and automation even in mining, where conditions are especially demanding. Smart conveyor belts and drives are an example. The Voith
TurboBelt drive system adjusts its starting speed and force inreal time depending on the quantity and location of the material
to be conveyed. It sends its data to a control center that
may even be at a different site. The optimized control systemsignificantly reduces energy consumption.

3

Sustainable successThree months is what it took to automate a pumpedstorage power plant in Foyers, Scotland. The facility’s
two 150 MW Francis turbines stabilize the power grid,a complex task that involves managing the varying input
over long-distance transmission lines from a number ofwind turbines. This task is too tricky even for skilledhumans, but the HyCon 400 control system can handle it.

Sustainable successOn the occasion of its 150th anniversary, Voith
donated €150,000 to Theirworld, an organizationof Global Business Coalition for Education (GBCE),
which Voth has joined. The charitable organization
provides educational support to children and young
people in Africa with a focus on computer technology.
Theirworld operates “Code Clubs” in a numberof countries, and Voith’s donation will be used toestablish six new Voith Code Clubs in Tanzania.
The clubs teach basic skills in communication,
leadership and programming to more than 700 girls
and women, in this way giving them qualifications
for Africa’s growing technology sector.

Sustainable successPaperfrom sunand wind
In 2016, the Federal Ministry of Education and Researchlaunched the Kopernikus program, one goal of which isto promote technologies that adapt industrial processes
to new energy sources, in particular renewables. Voith
Paper, a partner in this project, is developing an application that will digitally connect the paper industry withenergy markets. The objective is to adapt the power
consumption of paper machines to the fluctuating supplyof energy from the wind and sun.

Smartshifting
Modern DIWA.6 transmissions withstop-start technology deliver fuel savingsof up to 12%. An electronic control unit
also identifies the topography of the routeand adjusts the transmission accordingly.
A system for recording operating data
facilitates preventive maintenance andearly damage detection. Diagnostics
software provides data to promote afuel-efficient driving style.

Sustainable successSustainable success

80%

The Confederation of European Paper Industries (CEPI) has set a
goal of reducing CO2 emissions in the paper industry by 80% by
2050. Voith Paper is supporting this initiative through research on
appropriate technologies. The first of these will be ready for themarket in the next ten years.

27

150

28

“Don’t justfocus onefficiency
and ignore
the humanbeing.”

Artificial intelligence

Dr. Naoto Kadowaki, Vice President of theprestigious National Institute for Communication
Technology (NICT) in Tokyo, is recognized as
being one of the leading experts in wirelesscommunication between machines. He heads the
NICT, and in the future the Institute will cooperatewith the German Research Center for Artificial
Intelligence (DFKI) to advance the development ofapplications such as the Wireless Smart Factory.

“Machines should
recognize our needs
and desires, perhaps
even our personalities.”
Dr. Naoto Kadowaki, do you
already have a robot at home?

Dr. Naoto Kadowaki

No, not yet.

You probably make use of an intelligent wizard every day
when you use your smartphone. These systems use AI-basedknowledge, as do smart speakers like Siri, Echo and all theothers offered by different manufacturers. We developed
the “VoiceTra” automatic voice translation system using AI
technology at NICT. The app is free, and it can process 31
languages.

How much longer will it be before
we can talk to our cars?
We’ve been doing that for a while! Special language interfaces such as Apple’s Car Play allow you to navigate a carwith your voice, send messages and much more. I believethat functions like this for cars will be very popular in a few
years’ time.

And for machines?
Of course, machines can also be voice-controlled. Theinterfaces needed to do this are currently being researched.
Machines should recognize our needs and wishes, perhaps
even our personalities.

AI is a comparatively old topic.
Computer science has been involved
with it for decades. So why are
we only now experiencing this degreeof interest?
AI usually means “deep learning” from a technical point ofview. The accuracy of the responses correlates with theamount of data that can be processed. Today, with oursmartphones and the Internet, we can send and receive
so much different information that we get a lot of different
data types much more easily than before. This phenomenon
increases the usability of deep learning and thus heightens
the interest for many applications.

What are you currently researchingat the NICT?
Wireless communication, including satellite communications,network technology and cybersecurity. As Vice President for
Research and Development, I am also responsible for theseareas. My research background is satellite communication.

NICT also has a partnership with
the German Research Center
for Artificial Intelligence (DFKI).
That’s a really exciting project. A researcher at NICT was
working on an idea for intelligent manufacturing using
wireless communication technology in factories, when she
realized that scientists in Germany were pursuing a similar
research approach, which is known there as Industry 4.0.
That’s how the contact came about. In March of this year,
the NICT and the DFKI signed the Declaration of Intent for
Cooperation in Research.

What will the NICT contributeto the research?
We are researching the use of wireless communication in
intelligent manufacturing. This is a real technological challenge in a factory – an enclosed space, and a lot of moving
machines and materials made of metal. Radio wave reflection
in an environment like this is very complicated, situations andpositions change dynamically – and all this makes qualitativeand stable communication very difficult to achieve. That’s
why we’re investigating the behavior of radio waves within
the factory and developing transmission propagation models
for different types of factories. We can now make our technology available to the DFKI. In return, DFKI’s AI technology
could be used in our modeling to eliminate interference inwireless communication. More synergies that could result
from this cooperation immediately occurred to me – and they
all have great potential, because the Wireless Smart Factoryis becoming more and more popular in the manufacturingindustry.

29

When it comes to artificial intelligence,
many people first think of robots. But
where do we actually find them today?

Systematic thinking

How Voith projects the issue of artificial
intelligence into the future

30

Teemu Tunkelo

System­atic
thinking
Voith’s products can also “think.” Artificial intelligence
is not unknown territory in mechanical engineering,
having long since been tried, tested and used. In paper
machines, for example, smart cameras detect marginal
deviations in the paper structure and use these to
independently derive settings adjustments.
Teemu Tunkelo, CTO at Digital Solutions, is thinking evenfurther ahead. “The issue of AI is no longer just about factories, it’s about the entire environment in which they operate.”
Systems – that’s the future. Thinking in terms of space,they’re networked with sensors that can be harmonized withmachines, services and even people in this way. Does thatsound ambitious? It’s just the beginning.

The river as a data flow
Initial projects have been tackled at many locations across theworld with the objective of fully digitalizing natural systems.

Dr. Teemu Tunkelo has beenin charge of the Program
Management Office (PMO)
Industry 4.0 at Voith since2015. He previously held
senior management positions
at Nokia, Siemens, ABB
and Invensys. He alsoestablished two development
centers in India for research,development and engineering
initiatives in the energy andautomation markets.

One example of Nature 4.0 is that bodies of water are virtually cut into slices. Someday rivers will also have a second,
digital riverbed in the form of a stream of data in computers,
allowing information such as flow velocity, sediment content,water depth and much more to be collected, all in real time.
The question of what you could do with the data from these“transparent” rivers leads us back to the machines.
The blades of the turbines, for example, which Voith installed
and now maintains in the hydroelectric power plants along
the river, are exposed to a river’s strong current day and night.
The power of the turbines could be optimally adjusted using
the mass of data on water levels. Using the sediments andflow velocity data, AI could perhaps deduce the stresses
to which the material will be exposed at any one point intime. If the AI correlates this with other data sets, such as
the general resilience of the material – then it could make asmart statement as to when a component is most likely to
break under these particular conditions. In an ideal scenario,

GlossaryAug­mented
reality (AR)Augmented reality is a virtual extension of thereal world. Digital information is superimposedon a real image of the environment by meansof devices such as head-mounted displays thatstream visual information into the user’s field ofview. Locations can be marked by what is calledtagging.
When the user no longer sees anything in thereal world at all, the term used is virtual reality(VR). The real environment is blocked out andtherefore not perceived.
The merging of these two technologies is called
mixed reality (MR). Mixed reality is playing
an increasingly important role in the consumer
goods industry. Virtual sequences like videos areprojected into real environments.

Applicationsofaugmented
reality (AR)OnCare AR
moduleThis system combines physicaland digital information to assist techniciansin the field with preventive maintenance.
OnCare AR scans an object and simultaneously
projects digitally stored data such as detailed
drawings, instructions and data on spare partsand materials into the virtual space.

Where do you see Germany’s
position in the research andimplementation of AI?
In my opinion, Germany’s strengths mainly lie in multimedia
analysis, data mining, pattern recognition, traffic control andcyber-physical systems.

What kind of homework mustthe industry tackle to optimally
exploit AI in the future?

To what extent will artificial
intelligence change the businessworld and society?
it would send a maintenance date to the service staff inadvance, avoiding damage that no one else could possibly
have forecast at that point in time.

Cogwheels in the system
Teemu Tunkelo is thinking even further ahead. “It will get
really exciting when we network the systems with one other,when the algorithms also evaluate data from dams, weather
forecasts, irrigation in agriculture, shipping, and from themany other hydroelectric power plants – and all to enable
our plants to run optimally as cogwheels in the system andto develop new business models in this virtual system world
at the same time.”
If we take this approach right through to its conclusion,
the result is that one day there will be a digital twin of
our world; and the pace in the development of storage
capacities makes it highly likely that we’ll be carrying thistwin around with us in our smartphones.
The focus of the smart machine builder of the future will
range from the perspective of products to a view of systems
and technical evolution, or as Teemu Tunkelo puts it: “Likea car that we start with a key and then use services suchas mobility, security, entertainment, without asking who
built the engine, let alone how expensive it was, we haveto assume that in the future our products will be part of asolution for which the customer will pay.”

I can’t predict the future, but I think we’re moving in a completely networked world, one that intelligently evaluates dataand creates individual services from it, without humans having
to consciously request such services. In business, smart andpersonalized services and products will gain in importancethrough the Internet of Things and artificial intelligence. Thatis the future. But I hope that we don’t ignore people while
we’re using artificial intelligence to increase efficiency.

Are we even ready to interact
and communicate with intelligent
machines?
It might sound a little trite, but we need to think and communicate much more logically. We need foresight to understandand to make decisions. In a completely networked world, theright answer in one limited environment can soon become awrong one for a different environment.

Which of the new technologies
would you like to try out?
Innovative satellite communications technology, which is very
cost-effective, fully digital, much more powerful and flexible. It could network everyone and everything in the world
cost-effectively.

31

In view of the aging population, I first of all see a challenge forcompanies not to lose the special knowledge of their skilledworkers. When these people retire, companies will have tosecure their know-how in advance in order to maintain thequality of the products. The Internet of Things and artificial
intelligence will support such tasks. Further preconditions
are that all manufacturing and production processes are consistently digitalized and that a reliable and uniform databaseis available.

Financial
ReportVoith Annual Report 2017
Group

33

Group

Page

Foreword
The Corporate Board of ManagementReport of the Supervisory Board
The Supervisory Board

34
38
40
46

34

Voith Annual Report 2017Group
Foreword

Dear reader,This year was a special one for Voith. In 2017 we celebrated
150 years of Voith – and in this anniversary year, we also reachedadditional milestones on our path toward a future of sustainablesuccess.
The message is clear as this anniversary year comes to a close: firstly,
as a family-owned business Voith has a solid foundation, and fromthe beginning this Group has been defined by entrepreneurship, thecourage to forge ahead and a consistently international orientation.
We are very proud of this tradition, and for good reason. Secondly,
but equally importantly, this special year in particular has been an
impressive example of this Company’s vitality; we have demonstrated
the degree of creativity and innovation with which Voith is tackling thegreater issues facing industry, and shown how hard we are prepared
to work on ourselves so that we may win the future.

Voith Annual Report 2017Group
Foreword

35“We have every reason
to look ahead with confidence, not least due
to the financial indicatorsfrom the year that has
just ended. We met our
projections and, in somecases, exceeded them.”

Voith is ready for the next 150 years!
This is more than just a hollow phrase,
but rather our firm conviction. After
having successfully set the course overthe past several years, the Group today
is in better shape than ever before. We
enjoy full agility in every respect andare meeting the next promising phaseof growth – meeting it as a technology
Dr. Hubert Lienhard
leader, a pacesetter and driver of innovation in our traditional core business.
And as we do so, we are also positioning
Voith as a significant shaper of the digital industry in the years
to come.
We have every reason to look ahead with confidence, not least in viewof the financial indicators from the year that has just ended. We met
our projections and, in some cases, exceeded them. As announced,
the Group’s incoming orders increased. Following the intensive reorganization of the Group over the past few years – which cost a great
deal of energy but also unlocked new forces – we were able to maintain our sales at a good, stable level in a challenging environment.
We continued to increase the profitability of our core business, andsuccessfully absorbed the significant investment in our new Group
Division, Voith Digital Solutions.
Bottom line, we see record earnings for the 2016/17 fiscal year, in part
thanks to the successful sale of our stake in KUKA. This has led to asignificant improvement in our financial situation: the equity ratio in theGroup reached a historic high, and net liquidity is also at a very highlevel. Having gained this degree of financial freedom, we will use it toshape Voith’s new phase of growth under our own steam.

36

Voith Annual Report 2017Group
Foreword“The fusion of tradition
and innovation – this is
our recipe for continuing
the 150-year story of
our business’ successin this digital age.”In the year that has just ended, thefirst year after completing the Group’s
restructuring, we focused our efforts on
the issues of the future, especially the
topic of digital transformation. The internal setting-up of Voith Digital Solutions isgoing exactly according to plan, and we
Dr. Hubert Lienhard
have also worked on expanding our portfolio of digital offerings successfully. In
March, Voith launched world’s first digitalmarketplace for recovered paper in the
US – merQbiz, Voith’s first digital lighthouse project. In addition, wepurchased a majority share of the digital agency, Ray Sono, our firstlarge acquisition in the digital realm.
We have seen marked progress in the implementation of our strategy,
a clear confirmation that our operational earnings power has grownsustainably and a significant improvement in our balance sheet: the2016/17 fiscal year was undeniably a good year for Voith. And the year
we have just begun is on course to be even better.
In 2017/18, we expect growth in sales and orders received as wellas in profits from operations in our core business. Even taking into
account the additional investments for Voith Digital Solutions – which,as in the year that just ended, will be once again around 50 million
euros – the Voith Group’s profits from operations are expected toincrease.
We will continue to implement our digital agenda systematically in thecurrent year – and these efforts will come to fruition. Voith Digital Solutions is working with the other Group Divisions on numerous incubator
projects. The first of these applications will have their market debutsin the coming months. The Group is not only advancing its digitaltransformation, however; we are also investing in the future-oriented

Voith Annual Report 2017Group
Foreword37

expansion of our core business activities. For example, Voith Turbodeveloped a strategic road map for tapping the dynamic e-mobility
market. An important first milestone on this path was attained witha fully electric drive system for buses, which was made ready for the
production stage in just a few months and which will come onto themarket in the coming year.
This project represents a new Voith spirit: today, we work faster andmore flexibly than ever before. We encourage taking responsibility andcreate the space and freedom to be courageous and creative. We areaccelerating decision-making and establishing greater proximity to ourcustomers and their needs.
Voith is changing – and yet it remains true to itself and its values.
The fusion of tradition and innovation – this is our recipe for continuing
the 150-year story of our business’ success in this digital age.
My heartfelt thanks go to all our employees across the world who
have walked and are walking this path together with us with great
dedication and ceaseless loyalty.
And finally, I thank our customers and business partners for the faith
they have placed in Voith, even in turbulent times, and for the faith
they have placed in me in these ten years in which it has been myhonor to lead this Company.
We hope for your ongoing confidence in us!
Sincerely yours,

Dr. Hubert Lienhard
President and CEO

38Voith Annual Report 2017Group
The Corporate Board of Management

The Corporate Board of Management

Dr. Hubert Lienhard
President and CEO

Dr. Toralf Haag
Finance and Controlling

Andreas Endters
Voith Paper

Dr. Uwe Knotzer
Voith Turbo

Dr. Roland Münch
Voith Digital Solutions

Uwe Wehnhardt
Voith Hydro

Voith Annual Report 2017Group
The Corporate Board of Management“After having successfully set the course
over the past several years, the Group today
enjoys full strategic and financial agility andan operating business in excellent shape.
Furthermore, thanks to its significantly higher
degree of efficiency and the necessary
structural flexibility, it finds itself in a prime
position for a sustainably positive evolution
in the digital age.”
The Corporate Board of Management

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Voith Annual Report 2017
Group
Report of the Supervisory Board

Report of the Supervisory Boardfor the 2016/17 Fiscal Year

Ladies and gentlemen,
Voith celebrated the Company’s 150th anniversary in 2017. The celebrations, which were held at thevarious Voith locations around the world, were an opportunity not only to look back on the Company’slong and successful history, but also to look together to the future. One impressive sign of Voith’scommitment to the future in its anniversary year 2016/17 was the establishment of the new Voith Digital
Solutions Group Division and acquisition of a 60 percent stake in Ray Sono AG, Munich. Both issues
were discussed in depth by the Supervisory Board.
The change in legal form of Voith GmbH to a GmbH & Co. KGaA was also an important event for theCompany in the 2016/17 fiscal year. The Supervisory Board is confident that this change will provide
Voith greater room for maneuver and will support the Company’s growth strategy throughout its digitaltransformation.
The sale during the period under review of Voith’s stake in KUKA AG had a noticeably beneficial impact
on various financial ratios for the 2016/17 fiscal year. The proceeds from this transaction will make iteasier for Voith to finance important tasks in the future. These positive effects should not, however,
obscure the fact that, all things considered, the global economy grew only moderately in the 2016/17
fiscal year and that overall conditions in the markets which are relevant for Voith have not developed withgreat dynamism. Industrial production in the USA, for example, continued to stagnate during the period
under review. China’s GDP growth again slowed. Public finances in many of the countries in the eurozone continued to be a matter of concern. This is also true of the Brazilian market, which is importantVoith Annual Report 2017
Group
Report of the Supervisory Board

for Voith and which remains mired in recession, although there are signs that this has now bottomed
out. The recent sanctions imposed on Russia are also disadvantageous for Voith. On the other hand,
the impending Brexit has not yet had the negative impacts which were generally feared.
Oversight activities of the Supervisory Board
This was the economic setting which formed the background to discussions at Supervisory Board
meetings. The Supervisory Board discussed reports submitted by the Board of Management (sinceAugust 1, 2017 of the general partner) on the Group’s current business and financial position and on eachof the Group Divisions as well as reports on Group planning, Group strategy and significant business
transactions. In addition, the Supervisory Board has been kept permanently informed by the Board ofManagement about the planned change of legal form which came into effect on August 1, 2017.
The Supervisory Board came together for four meetings held on October 10, 2016, on December 8,
2016, on March 23, 2017 and on June 2, 2017. As in previous years, the meetings of the Supervisory
Board were characterized by an intense and goal-oriented exchange of opinions with the Company’s
Board of Management.
The agenda for the first meeting of the Supervisory Board, held on October 10, 2016, focused on the
preliminary business figures for the 2015/16 fiscal year, planning for the 2016/17 and 2017/18 fiscal
years as well as the Group’s financial, investment and personnel planning. The Supervisory Board also
gave special attention to the Group’s portfolio strategy. Voith has identified four megatrends driving
growth. These are demographic change, globalization, urbanization and technological change. Voith will
participate in the opportunities arising from these trends by continuing to develop its portfolio.
The next meeting of the Supervisory Board on December 8, 2016 concentrated on the 2015/16 financial
statements of Voith GmbH and the Group. In accordance with the recommendation made by the
Audit Committee and following in-depth discussions with the auditor, KPMG AG Wirtschaftsprüfungsgesellschaft, Munich, the Supervisory Board approved the financial statements and the management
report of Voith GmbH as well as the consolidated financial statements for the 2015/16 fiscal year and theBoard of Management’s proposal to the shareholders’ meeting for the appropriation of retained earnings.
Finally, the Supervisory Board informed itself during the meeting about HR management at Voith.
In its meeting on March 23, 2017 the Supervisory Board drew on reports submitted by the Board ofManagement to address the Company’s business development in detail during the first quarter of
2016/17 and the expectations for the 2016/17 fiscal year as a whole. In addition, the strategy of theVoith Hydro Group Division was explained and discussed.
During the last meeting of the Supervisory Board in the 2016/17 fiscal year, on June 2, 2017, the Boardof Management reported to the Supervisory Board on the half year for the Group and on expectations forthe 2016/17 fiscal year as a whole. The report was discussed extensively. The Supervisory Board also
addressed the proportion of women in the Supervisory Board and the Board of Management, specificallyachievement of previous targets. New targets and deadlines were set. The Board of Management

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Voith Annual Report 2017
Group
Report of the Supervisory Board

simultaneously submitted a report to the Supervisory Board on the proportion of women in the first two
management levels below the Board of Management level. Another important agenda item was thetransformation of Voith GmbH into a GmbH & Co. KGaA.
Outside meetings of the Supervisory Board the Chairman of the Supervisory Board was kept permanently informed by the Board of Management (since August 1, 2017 of the general partner) about key
developments and decisions. The Supervisory Board consulted regularly on important matters with the
Chairman of the Board of Management. All the members of the Supervisory Board attended at least
half of all the meetings of the Supervisory Board. No potential or actual conflicts of interest arose within
the Supervisory Board.
Report on the work of the committees
The Personnel Committee met three times in the past fiscal year, on October 9, 2016, on December 8,2016 and June 2, 2017.
There was no need to convene the Mediation Committee (Sec. 27 (3) of the German Codetermination
Act (MitbestG)).
The Audit Committee met three times, on October 9, 2016, on December 7, 2016 and June 1, 2017.
At its meeting on October 9, 2016, held in the presence of the auditors from KPMG AG Wirtschafts­
prüfungsgesellschaft, Munich, the Audit Committee addressed materials pertaining to the financial
statements for the 2015/16 fiscal year and various accounting issues. Furthermore, the Audit Committee
discussed compliance issues.
At its meeting on December 7, 2016, which was held in the presence of the auditor KPMG AG Wirtschafts­
prüfungsgesellschaft, the Audit Committee conducted an in-depth examination of the 2015/16 financial
statements of the Group and Voith GmbH, as well as the auditor’s report. At this meeting with theauditors, the committee discussed individual issues relating to suggestions for improvement proposedin the management letter to the financial statements, none of which were deemed relevant to this report.
The Audit Committee was also presented the Group audit report prepared for the fiscal year under review
by the head of the Internal Audit Function and the compliance report by the head of the Compliance
Committee; both reports were discussed in detail. Finally, during this meeting the Audit Committee
reached decisions in connection with the implementation of the Audit Reform Act (AReG) and discussed
the tax and accounting issues arising from the impending sale of the KUKA shares.
At the meeting on June 1, 2017, the Audit Committee reviewed the half-yearly consolidated financial statements as at March 31, 2017 and considered material issues affecting results, including thedevelopment of amounts outstanding and the recoverability of receivables. In addition, the Committee
addressed the topic of risk management.

Voith Annual Report 2017
Group
Report of the Supervisory Board

Changes on the Board of Management and Supervisory Board
Voith GmbH’s shareholders passed a resolution at an extraordinary shareholders’ meeting held on July 4,2017 to change the legal form of the Company from that of a Gesellschaft mit beschränkter Haftung toa GmbH & Co. KGaA. The Company changed its legal form with legal effect upon its entry in the Company’s commercial register on August 1, 2017 and has since operated under the name of Voith GmbH& Co. KGaA. The Company is managed by the general partner Voith Management GmbH, Heidenheim.
The executive status of the members of the Board of Management of Voith GmbH changed automaticallyby law on the effective date of the change in the Company’s legal form. All the members of the Voith
GmbH Board of Management had, however, already been appointed as members of the Board ofManagement of Voith Management GmbH in a previous resolution adopted by the Shareholders’ Committee of Voith Management GmbH in accordance with the responsibilities assigned in the partnershipagreement of Voith Management GmbH. This meant that the change in legal form did not bring about
any changes in the composition of the previous Board of Management, whose members will now be
responsible for running the business of the Company as the Board of Management of the general partner
Voith Management GmbH.
The period of office of Mr. Bertram Staudenmaier as Chairman of the Board of Management of Voith
Management GmbH ended on September 30, 2017. The parties agreed not to reappoint Mr. Staudenmaier to this position. The responsible body, the Shareholders’ Committee of Voith Management GmbH,appointed Mr. Andreas Endters with effect from October 1, 2017 to succeed Mr. Staudenmaier as
member of the Board of Management of Voith Management GmbH.
In September 2017, the Company announced that Dr. Hubert Lienhard will be retiring from his position as
President and CEO of the Board of Management of Voith Management GmbH at the end of his period of
office when he reaches the age of 67. The Shareholders’ Committee has appointed Mr. Stephan Schaller,
previously a member of the Shareholders’ Committee and Supervisory Board, to succeed Dr. Lienhard.
At the same time, the Company announced that Dr. Lienhard will be joining the Company’s Supervisory
Board and the Shareholders’ Committee of Voith Management GmbH with effect from April 1, 2018.
There were no changes in the composition of the Supervisory Board during the year under review.
The composition of the Supervisory Board, including its Audit Committee, remained unchanged as
its members continued in office throughout the process of change in legal form. Separately from thechange of form, Voith GmbH initiated status proceedings with its announcement on May 8, 2017 in the
Bundesanzeiger (German Federal Gazette). The announcement by the Board of Management of Voith
GmbH was to the effect that, in its view, Sec. 7 (1) No. 1 of the German Codetermination Act (MitbestG)
requires that the Supervisory Board consists of six members each of shareholders and employees. The
reconstituted Supervisory Board has been in office since the election of its employees’ representatives
and shareholders’ representatives by the shareholders’ meeting of the Company on December 6, 2017.

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Voith Annual Report 2017
Group
Report of the Supervisory Board

The Supervisory Board of Voith GmbH & Co. KGaA, like the Supervisory Board of Voith GmbH, ischarged with monitoring the Board of Management. Nonetheless, authority in matters concerning humanresources, i.e. in particular responsibility for appointing the Board of Management of the general partner,
now lies with the Shareholders’ Committee of the general partner Voith Management GmbH following
the transformation of the Company into a GmbH & Co. KGaA.
The Supervisory Board would like to thank Mr. Bertram Staudenmaier who, as reported, left the Board ofManagement of Voith Management GmbH on September 30, 2017, after 12 years as a member (and fora while sole member) of the Board of Management of the Voith Paper Group Division. Mr. Staudenmaier
decisively shaped the Voith Paper Group Division, which he successfully managed during some difficult
years. The Supervisory Board wishes Mr. Staudenmaier all the best for the future.
The shareholders’ meeting of Voith GmbH held on December 8, 2016 exonerated the Board of Management and the Supervisory Board for their activities in the 2015/16 fiscal year. The shareholders’ meetingof Voith GmbH held on December 8, 2016 elected KPMG Wirtschaftsprüfungsgesellschaft, Munich, as
auditors for the 2016/17 fiscal year. This appointment was renewed with the resolution on the change
in legal form adopted by the shareholders’ meeting of Voith GmbH on July 4, 2017. The Supervisory
Board appointed the auditor accordingly.
2016/17 financial statements
The auditor, KPMG AG Wirtschaftsprüfungsgesellschaft, Munich, audited the books and records, thefinancial statements and the management report of Voith GmbH & Co. KGaA and the consolidated financial statements and the Group management report as at September 30, 2017 and issued an unqualified
audit opinion in each case. The consolidated financial statements were prepared in accordance with
International Financial Reporting Standards (IFRS).
At its meeting on December 5, 2017, the Audit Committee examined in depth the annual financial
statements and management reports prepared for Voith GmbH & Co. KGaA and the Group. Following
an in-depth review of the financial statements, the consolidated financial statements and management
reports, to which no objections were made, the Supervisory Board followed the recommendation madeby the Audit Committee and accepted the outcome of the audit undertaken by the auditor at its meetingon December 6, 2017 and approved the financial statements and the consolidated financial statements.
The member of management of KPMG AG Wirtschaftsprüfungsgesellschaft, Munich, responsible andthe lead auditor were both present at the meetings of the Audit Committee held on December 5 and6, 2017 to explain the significant audit findings and to provide additional information. The financial
statements of Voith GmbH & Co. KGaA were then adopted on December 6, 2017 by resolution of theshareholders’ meeting with the approval of the general partner. Furthermore, at its meeting held on
December 6, 2017, the Supervisory Board approved the proposal made by the general partner to theshareholders’ meeting on the appropriation of the unappropriated retained earnings.

Voith Annual Report 2017
Group
Report of the Supervisory Board

Finally, the Supervisory Board would like to thank the Board of Management of Voith Management GmbH,
which is the general partner of Voith GmbH & Co. KGaA, and the management of the subsidiaries, therepresentatives of the workforce, but most of all the employees, for their dedicated service and theirsuccessful work in the past fiscal year which brought challenges for all members of Voith’s staff.
Heidenheim, December 2017

Prof. Dr.-Ing. Dr.-Ing. E.h. Hans-Peter Keitel
Chairman of the Supervisory Board

45

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Voith Annual Report 2017Group
The Supervisory Board

The Supervisory Board
Prof. Dr.-Ing. Dr.-Ing. E.h.

Ulrich Freudel

Stephan Schaller

Hans-Peter Keitel

Auditor, Tax Consultant,President BMW Motorrad,

Chairman of the Voith GmbH & Co. KGaA

Mannheim/Germany

Munich/Germany

Chairman of the Voith Management GmbH

Johannes Hammacher

Gerold Schaubmayr*

Shareholders’ Committee, Heidenheim/

Executive Vice President ofChairman of the works council

Germany

the family-owned company J. M. Voith GbR,of Voith Turbo GmbH & Co. KG,

Mannheim/Germany

Crailsheim/Germany

Deputy Chairman, Head of

Dr. Alan Hippe

Martin Schily

Secretariat of the corporate works

Member of the Corporate Executive

Economist

council of Voith GmbH,

Committee F. Hoffmann-La Roche AG,

Tokyo/Japan

Heidenheim/Germany

Basel/Switzerland

Uwe Badziong*Dr. phil. Nicola Leibinger-Kammüller

Chairman of the works council

Automation Engineer,

President of the Board of Managementof Voith Dienstleistungen,

Voith Digital Solutions,of Trumpf GmbH + Co. KG,

Heidenheim/Germany

Mönchengladbach/Germany

Ditzingen/Germany

Walter Beraus*

Dr. Volker Linden*

Chairwoman of the works council

Secretary of the Metalworkers’

Head of Industrial Property Rights,of the common entity of companies

Union, Regional Organization

Voith GmbH,of Voith Turbo Heidenheim,

Baden-Württemberg,

Heidenheim/Germany

Heidenheim/Germany

Supervisory Board, Heidenheim/Germany

Gerd Schaible*

Detlef Schöling*

Ute Schurr*

Stuttgart/Germany
Thomas Martin*

Ralf Willeck*Ton Büchner

Innovation manager/

First Authorized Representative

Former CEO and Chairman of thechairman of the overall works council

IG Metall (Metalworkers’ Union),

Board of Management AkzoNobel NV,

Voith Paper,

Heidenheim/Germany

Amsterdam/the Netherlands

Heidenheim/Germany

Dr. Siegfried Dais

Dr. Ophelia Nick

Partner in Robert Bosch

Veterinarian,

Industrietreuhand KG,

Wülfrath/Germany

Stuttgart/Germany
 lected by the employees.
*E
Ulrich Eckelmann*
Trade Union Secretary on the Executive
Board of Industrial Union of Metal
Workers (IG Metall),Frankfurt/Germany(Detlef Schöling: appointed by the court)

Group Management
Report47

Page

01. Background48
02. Business development and58
earnings position of the Group
03. Business development and69
earnings position of the Group Divisions
78
04. Net assets and financial position
84
05. Research and development
89
06. Sustainability
93
07. Employees
103
08. Subsequent events
104
09. Risks and opportunities
116
10. Forecast report

Group Management Report

Voith Annual Report 2017
Group Management Report

48

Voith Annual Report 2017
Group Management Report
01. Background01.

Background
Voith is a global technology group. With its diversified productand service portfolio, Voith sets standards in the markets ofenergy, oil & gas, paper, raw materials and transport & automotive.
Founded in 1867, Voith today has locations in more than 60 countries worldwide. As a family-owned company, Voith focuses onsustainable profitable growth. The Group’s reorganization implemented in recent years has been successfully completed. Workon setting up the new Voith Digital Solutions Group Division, which
was established last year, is proceeding apace and is beginningto bear fruit.

01.1. Group structure and business activities
Family-owned, global technology group
Voith is a global technology group. With its broad portfolio of systems, products, services and digitalsolutions, Voith serves five essential markets: energy, oil & gas, paper, raw materials and transport &automotive. Voith operates in over 60 countries around the globe, maintaining an extensive network of
production, service and sales units on every continent on the planet.
Information about
the change in legal
form can be foundin section 01.5.
Significant events.

Voith GmbH & Co. KGaA, based in Heidenheim an der Brenz, Germany, is the operative head organization and parent company of the Group. It is also where central functions are performed. The Company
traded under the name of Voith GmbH until July 31, 2017 and has operated since August 1, 2017 in
the legal form of a GmbH & Co. KGaA. The Board of Management of Voith Management GmbH is

Organizational structure
Voith Group Divisions

Voith GmbH & Co. KGaA

Voith
­Hydro

Voith
Paper

Voith
Turbo

Voith
Digital ­Solutions

Voith Annual Report 2017
Group Management Report
01. Background49

responsible for the strategy and operative management of the Voith Group. Voith Management GmbH,
which like Voith GmbH & Co. KGaA, is 100 % family-owned, is the personally liable general partner ofand manages the business of Voith GmbH & Co. KGaA. The members of the Board of Management ofVoith Management GmbH are appointed by the Voith Management GmbH Shareholders’ Committee.
Oversight of Voith GmbH & Co. KGaA is exercised by the Supervisory Board.
Operating business is concentrated in four segments: Voith Hydro, Voith Paper, Voith Turbo and Voith
Digital Solutions. Legally independent head organizations oversee the activities of each Group Division’s
subsidiaries.
As a full-line supplier for equipping hydropower plants, Voith Hydro is one of the world’s leading industrial
partners for hydropower plant operators. This applies both to the field of electricity generation and to
the pumped storage of energy. Voith Hydro’s portfolio of products and services covers the entire life
cycle and supplies all major components for large and small hydro plants: from generators, turbines,
pumps, automation systems and digital solutions right through to aftermarket business in spare partsand maintenance services, as well as training services.
As a leading partner and pioneer to the paper industry, Voith Paper provides technologies, products
and services for the entire paper manufacturing process, all from a single source. Its continuous
stream of innovations optimizes the paper manufacturing process. Voith Paper focuses on developing
resource-saving products which reduce the consumption of energy, water and fibers. Furthermore, Voith
Paper offers a broad service portfolio for all sections of the paper manufacturing process.
Voith Turbo is the specialist for smart drive solutions and systems. Customers in numerous industries,
such as oil and gas, energy, mining and mechanical engineering, marine technology, rail and commercial
vehicles, value Voith Turbo’s cutting-edge technology.
Voith Digital Solutions brings together Voith’s many years of automation and IT expertise with know-how
in the fields of hydropower, paper machines and drive technology. The Group Division, which was newly
created last year, develops innovative products and services with existing and new customers to advancethe Internet of Things and to play a major role in the digitalization of plant and mechanical engineering.
Voith Digital Solutions is presented as a separate segment for the first time in the 2016/17 fiscal year.

01.2. Management system
The key financial performance indicators for the Voith Group are the development of sales and orders
received as well as the profit from operations and return on capital employed (ROCE).
The profit from operations is calculated from ordinary business operations and is the balance of sales
and costs plus operating interest income but before the financial result and income taxes.

50Voith Annual Report 2017
Group Management Report
01. Background

The profit from operations is based on an operating earnings indicator derived from external financial
reporting, i.e. the operational result before non-recurring items. The operating interest income and, whereapplicable, several other adjustment items are added to the latter to derive the profit from operations.
Operating interest income comprises income received from the long-term financing of receivables from
customers or attributable, as imputed interest effect, to that portion of customer advances that is not
used to finance inventories and PoC receivables. Other adjustments include one-off effects which are
shown as other operating income and expenses in the consolidated statement of income. In relation
to ordinary business operations, however, these must be treated as non-recurring effects and the profit
from operations is therefore adjusted for these amounts to provide a better basis for the internal control
and assessment of business operations.

For more informationon the calculationof ROCE, see thesection Notes on
segment reportingin the notes to thefinancial statements.

Capital employed designates the funds tied within the business with a view to generating sales. Thisessentially comprises property, plant and equipment and net working capital.
ROCE is calculated by bringing the profit from operations and capital employed into relation with eachother.
Setting a performance indicator from the statement of income (profit from operations) in relation with anitem based on the balance sheet (capital employed) is in compliance with generally accepted standards
for holistic company management and with value-based management.
The indicators and reports submitted to the Corporate Board of Management of Voith GmbH & Co.
KGaA as well as within the Group Divisions and the operating companies are based on these Group
performance indicators.

01.3. Values, guidelines, compliance
Voith – Inspiring Technology for Generations
At Voith, we marry the culture of a family-owned business with that of a global player. For several years
Voith was engaged in a comprehensive process of transformation which has impacted our portfolio of
offerings, our organization and our culture. We consolidated the way we have come to see ourselvesin a new corporate mission statement.
Our vision: Voith is the technology partner for industrial generations.
For us this implies: we create value for our customers, help them make a positive impact on societies
in various regions of the world. Our customers’ success over generations enables us to secure Voith’slong-term independence and value-oriented development success. We want to be our customers’ first
choice based on our technical, cultural and personal familiarity with their markets.

Voith Annual Report 2017
Group Management Report
01. Background51

Four principles help us to achieve our vision. These are described in our mission:
1. We earn customers’ loyalty.
2. We combine global strength with local entrepreneurship.
3. We inspire the best in our people.
4. We strive for excellence in everything we do.
Our values define how we should behave: we are respectful and reliable, open and ambitious. Our
values, and the guidelines derived from them, ensure that Voith acts according to the same philosophy
worldwide.
We have summarized this mission statement in our new claim: “Inspiring Technology for Generations.” This
was launched worldwide on January 1, 2017 – at the beginning of the Company’s 150th anniversary year.
The existing corporate design was also revised during the course of the year under review. Some of
the colors used in the anniversary year will be adopted as part of the new corporate identity which will
be presented to the public with this annual report in 2017/18. The new colors yellow, green, blue andmagenta emphasize Voith’s global orientation and symbolize the dynamic technological change which
has determined the history of Voith and which will continue to be a determining element in the Company’s
future development. With the digitalization of our industries, we are currently in the midst of a processof transformation which will have a decisive impact on industry worldwide and on our Company.

Code of Conduct
Voith’s Code of Conduct defines rules that govern dealings with customers and business partners aswell as dealings between employees within the Company. We require each and every employee tocomply with the applicable laws and our own internal guidelines (compliance). This applies to all levelsof hierarchy throughout the Group. Infringements are met with sanctions. Rules and protocols arecontinuously updated according to the latest requirements.

The text of the Voith
Code of Conduct
is available on theInternet:
http://www.voith.
com/corp-de/coc-english.pdf

The main principles addressed by the Voith Code of Conduct are as follows:·· Compliance with the rules of fair competition·· No agreements that contravene competition law·· No corruption or bribery: no offering and granting or demanding and accepting of unfair benefits·· Transparency of donations and sponsorship·· Maintaining own and respecting third-party patents, intellectual property rights and Company secrets·· No undue preferential treatment of suppliers and service providers·· Respect for human rights, fair working conditions, and rejection of child and forced labor

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Voith Annual Report 2017
Group Management Report
01. Background

Each employee is requested to report any suspicion of an infringement of Voith’s Code of Conduct. Thiscan be done in person by reporting to the immediate supervisor or the compliance officer or by e-mail,letter, telephone or fax to one of the help desks. We also follow up anonymous complaints using a
global system for input from whistleblowers. The whistleblower system can also be used by people
outside the Company to report infringements of any kind.

Compliance organization
The compliance program and related training measures are coordinated and refined by the Compliance
Committee, whose chair reports directly to the CEO. This committee comprises the Head of Corporate
Legal Affairs (chair), the Head of Corporate HR Management and the Head of Corporate Internal
Audit. There are compliance officers in all units who are responsible for implementing the Code of
Conduct in their field of competence.
However, it is the ultimate responsibility of each individual employee to act in accordance with our
corporate values. In order to raise awareness of this, we ask our executives to act as role models andwe also provide our employees with training. All Voith employees are required to take part in e-learning
programs to ensure that their compliance knowledge is brought up to date every three years as aminimum. Employees without PC access are briefed by compliance officers or by their supervisors. In
addition to the e-learning programs, executives at the top four levels as well as employees in sales andprocurement also take part in classroom training covering important topics such as corruption, competition issues and export control. Compliance officers are required to undertake separate, in-depth training.

01.4. Group strategy
Four strategic pillars
At Voith, business success is defined as a long-term goal. As a family-owned company, Voith understoodthe importance of the sustainability mindset and of value-driven business long before these concepts
became part of the economic debate. In the course of the Company’s 150-year history, this approachhas enabled Voith to overcome numerous obstacles, manage in turbulent times and to write industrial
history. Voith’s commercial strength is based on strategic basic principles which have been carefully
built up over the decades:
Information about
Voith’s innovation
activities is provided
in section 05.
Research anddevelopment.

1. Our diversified product portfolio which is based on megatrends
2. Our international footprint and local roots
3. Our innovative strength
4. Our financial independence as a family-owned company

Voith Annual Report 2017
Group Management Report
01. Background53

Forging ahead with the digital agenda
On the bedrock of these strategic basic principles we took the decision in the 2014/15 fiscal year to
make massive investments in the digital transformation of Voith over the next few years. Our objective
is to play a major role in shaping the digitalization of industry. We are an established technology leader
with extensive domain knowledge and a large portfolio of installed plant and products in the market. In
combination with our digital expertise we believe this puts us in an excellent starting position.
As part of our digital agenda, we are pursuing three strategic directions: firstly, enhancing our existingproduct portfolio to include digital capabilities that offer customers extended functions and added value;
secondly, developing new digital solutions for our established core markets; and thirdly, developing
new applications and business models for markets not previously served by Voith.
The Voith Digital Solutions Group Division, which was founded in 2015/16, is at the heart of the Group’s
digital agenda. This is where Voith brings together its entire know-how in the fields of automation, IT,
software, data analytics and sensor technology. Voith Digital Solutions thus acts as a digital enablerof established core activities while simultaneously developing fully new digital products and solutions.
We adopted a shift-and-lift approach when setting up Voith Digital Solutions to ensure the smoothtransfer of business and customer relationships. Phase 1 (the shift phase) involved transferring theexisting product portfolio and all automation and Industrie 4.0/Internet of Things R&D projects andemployees to the new Group Division. The Group’s in-house IT function was also completely integrated
in Voith Digital Solutions. Phase 1 was finished on schedule during the year under review. The current
phase 2 (the lift phase) is about leveraging in-house synergies in the product portfolio and the R&D
projects and optimizing processes in the new Group Division. The objective is to lift our product andservice portfolio to a new level which creates substantially added value for our customers.

Further informationon the activities ofVoith Digital Solutions
during the year underreview and on the
Ray Sono acquisition
can be found insection 03.4. of thismanagement report.

We achieved important milestones for the implementation of a digital strategy during the year underreview. The in-house transfer process (shift phase) was completed, structures were created and a fundamental enterprise resource planning (ERP) system was implemented. At the end of the year under review,
Voith Digital Solutions had around 1,400 employees. At the same time, work proceeded on developing
new digital products and solutions, the first of which, including the merQbiz digital marketplace forrecovered paper, were launched during the year under review. The first larger acquisition has also been
made with a majority holding in Ray Sono, a leading digital service provider in Germany. The new Group
Division Voith Digital Solutions has thus fulfilled all the expectations of it in its first year of existence.
We regard Voith Digital Solutions as an important driver for the growth of the Voith Group. For thisreason we will be consistently focusing investment of around € 100 million in the new Group Division overthe next two years. We can finance these investments from the cash flow generated by our traditional
Group Divisions. We are also planning to purchase specific technologies and skills as well as to makeinvestments in start-ups. For this purpose we now have sufficient financial resources and a substantiallyhigher equity ratio, thanks in part to the successful sale of shares in KUKA Aktiengesellschaft.

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Voith Annual Report 2017
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01. BackgroundThe digital transformation affects the Voith Group – and not just Voith Digital Solutions – in numerous
all-encompassing ways. It influences the processes in our own production and administration. Methods,
such as design thinking and scrum, originating from digital and software projects, are also used inprojects and development activities for hardware products. Digitalization modifies the demands madeof our employees and calls for new training and human resource development approaches. It influences
the way in which we work with each other and consequently also impacts the entire environment inwhich we work. Digitalization also changes the way we address and interact with customers andbusiness partners, actual and potential employees, and many other stakeholders as well. The route
we are taking is one of dynamic change. Voith Digital Solutions is helping the entire Group to accept
and shape this dynamism.

Successful completion of the Group’s reorganization
In the year under review we successfully completed the reorganization of the Group which beganin autumn 2013 (Voith 150+ program). During the transformation process we put a lot of work into
restructuring our product and service portfolio, increasing our efficiency by means of improved structuresand processes, and reducing costs.
What are the main measures we have taken?
·· We have fundamentally restructured the Group Division Voith Paper over several years to reflectchanged market circumstances. The market for paper machines is experiencing a deep structuralchange and the importance of its product segments has shifted significantly. Voith Paper has managed the turnaround successfully. Thanks to a lower cost structure and adapted product portfolio
Voith Paper is again doing well on the market.
·· We have sold the Voith Industrial Services Group Division. The background to this was the fundamental strategic decision to focus the Voith Group on its technology and engineering competence
for the digital age.
·· In the other divisions, portfolios were subject to targeted streamlining. The measures taken included
the merger, downsizing or closure of locations that failed to return the anticipated level of profitability.
·· We have implemented a leaner, more centralized administration and implemented global businessservice units for accounting, human resources and procurement. This comprehensive restructuringof our indirect activities was completed back in the 2015/16 fiscal year, one year earlier than planned.
The implementation of Voith 150+ entailed a great deal of work and in some cases profound changes
for our Company. We structured the job cuts arising from the transformation of the Group in a fair andresponsible manner in dialog with employee representatives as required by the culture and values of
our Company.
Our efforts paid off and Voith 150+ has produced significant improvements in our balance sheet andearnings power and has laid outstanding foundations for our future development.

Voith Annual Report 2017
Group Management Report
01. Background55

What specific financial successes have we achieved?
We had announced that the program would, by the 2016/17 fiscal year, reduce our cost basis by€ 250 million in comparison to the 2012/13 fiscal year. In addition, we planned to release around€ 100 million of liquidity by reducing receivables and inventories in a targeted manner and thereby
lowering working capital.
The program has enabled us to meet all our financial objectives, some of them earlier than announced.
We have reduced our cost basis for the fiscal year by around € 270 million in comparison to the 2012/13
fiscal year. Admittedly, the reduction in costs achieved did not bring about a one-to-one increase in
results owing to counteracting effects such as higher personnel costs around the world, falling prices
and excess capacities on our markets and capital expenditures for the setting up of Voith Digital
Solutions that placed a burden on the earnings position. But without the restructuring measures andsteps to enhance efficiency described, it would not have been possible for our operating businessto generate a profit from operations well into the range of hundreds of millions of euros in the year
under review. The situation with regard to our level of cash and cash equivalents is similar – without
our proactive working capital management, it would have been some € 100 million lower.
Voith ended the 2016/17 fiscal year strengthened with a much improved cost structure, a substantiallyhigher equity ratio and robust net liquidity. This gives us the financial and commercial headroom forour future development.

Growth through excellence: Voith 150+ Next Level launched
Now that the Group transformation process is completed we will be concentrating on growth in theyears ahead. A company that grows will be successful with its customers, will develop attractive productinnovations, and offer its employees inspiring work. Shaping growth is a motivating and creative task.
We aim to achieve this by leveraging our potential, and are also planning to add to our technology
portfolio by means of targeted acquisitions.
We regard excellence in all areas as imperative for growth. We developed the Group-wide excellence
program Voith 150+ Next Level to support our objectives. The official launch was August 1, 2017. In
contrast to the previous program it focuses not only on optimizing structures and costs, but primarilyon growth through excellence.
Voith 150+ Next Level consists of five modules: Operations Excellence (OPEX), Administration Excellence,
Product Improvement & Engineering Excellence, Sales Excellence and Quality@Voith. The module
contents are the outcome of a detailed analysis of current Voith products and processes which is
specified in greater detail based on employee feedback from all regions. For this purpose we have also
compared ourselves with other companies and wish to follow the best in our industry.

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01. Background

Each of the five modules is led by a manager with responsibility for this module and is sponsored by amember of the Corporate Board of Management. The modules support ongoing and new excellence
initiatives and projects at the Group, Group Division and regional level. They do this by providing methods,
tools, best practice examples and extensive training on product and process improvements.

Further informationon our leadershipconcept can befound in section 07.
Employee.

The five excellence modules are flanked by the ongoing development of our corporate culture. The ability
to think and act independently at all levels of the Company is a critical determinant of best practice.
We therefore intend to create an atmosphere where employees show self-initiative and articulate theirown ideas, regardless of hierarchies; an atmosphere where they have the confidence to speak up
as early as possible when they identify sources of error or see problems arising. We foster an error
management culture where mistakes are regarded as opportunities for improvement. This demands
dialog-oriented forms of leadership which establish a framework within which employees can actively
shape improvement processes, innovation and change. All these aspects are emphasized in our newleadership concept, which defines the behavior expected by management, and are an important elementof our management trainings.

01.5. Significant events
Change in legal form completed
On the recommendation of the Shareholders’ Committee and Corporate Board of Management, theVoith Shareholders’ Meeting resolved in July 2017 to convert the existing GmbH into a partnership
limited by shares (Kommanditgesellschaft auf Aktien, KGaA). The change of legal form came into
effect with its entry in the commercial register on August 1, 2017. The new corporate name is “Voith
GmbH & Co. KGaA.” The personally liable shareholder (general partner) of the partnership limited byshares is the newly formed Voith Management GmbH. The aim of this step is to expand Voith’s ability
to maneuver in the years ahead and support the Company’s growth strategy in the wake of its digitaltransformation. The change has had no impact on cooperation with customers and business partners
or on the Company’s employees. The composition of the Supervisory Board and the Corporate Boardof Management were also not affected by this change.

Changes on the Corporate Board of Management
After 13 successful years at Voith, Bertram Staudenmaier, Chairman of the Management Board of Voith
Paper and member of the Corporate Board of Management Voith GmbH & Co. KGaA, decided not toextend his contract, which terminated at the end of the 2016/17 fiscal year. He was succeeded in June2017 by Andreas Endters, whose appointment to replace Bertram Staudenmaier came into effect on
October 1, 2017. Andreas Endters has more than 20 years’ experience with Voith, 19 of which with
Voith Paper. Most recently, he has been responsible since 2012 for the Projects business line (newmachines and major rebuilds).

Voith Annual Report 2017
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01. Background57

In September 2017, the Voith Management GmbH Shareholders’ Committee appointed Stephan Schaller,
currently a member of the Voith Shareholders’ Committee and the Voith GmbH & Co. KGaA Supervisory
Board and head of the global motorcycle division at BMW Group, to succeed long-standing President
and CEO Dr. Hubert Lienhard. As planned, Dr. Lienhard, who has been in charge of the Group since2008, will retire on March 31, 2018 upon completion of his second term in office. The change at the topof the Group will take place on April 1, 2018. Stephan Schaller brings with him many years of international
experience in various sectors and industries outside Voith. A graduate in mechanical engineering, he
has held many leading positions, including in two of the world’s largest automotive companies. He
has already been involved in all strategic developments of the Company in recent years in his role asmember of the Shareholders’ Committee and Supervisory Board.
Dr. Hubert Lienhard was also appointed to the Shareholders’ Committee with effect from April 1, 2018.
He will take the seat currently held by Stephan Schaller in this committee.

Number of members in the Supervisory Board to be
reduced in line with the statutes
Following the successful sale of the Voith Industrial Services Group Division, the workforce based inGermany has fallen below 10,000. In accordance with the Company statutes and the requirements of
the law, the number of members in the Supervisory Board will be reduced from 20 at present to 12
in the future. Nonetheless, the Supervisory Board will continue to have equal numbers of shareholder
and employee representatives. This was announced on May 8, 2017 in the Bundesanzeiger (German
Federal Gazette), and a new Supervisory Board must now be elected by no later than December 8,
2017. The new Supervisory Board will consist of six members elected by the shareholders’ meeting andsix members elected by the Company’s employees.

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Voith Annual Report 2017
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02. Business development and earnings position of the Group

02.

Business development and earnings
earnings
positionof the Groupposition of
the Group
Voith looks back on a good fiscal year during which the Company
grew perceptibly, as measured by orders received, and improved
its operational earnings power. The three traditional Group Divisions
achieved good profitability levels and increased their total profit
from operations by 3% at practically stable levels of sales. Returnon sales and ROCE also improved. The first visible progress wasmade on the digital transformation of the Group. The investments
made in the setting up of the new Voith Digital Solutions Group
Division were shouldered from current business. The Group
reported record consolidated net income, largely influenced by
the sale of its stake in KUKA.

02.1. Overall assessment
Operating activities improved, record net income achieved,
investments made in the future
The 2016/17 fiscal year (October 1, 2016 to September 30, 2017) was a good year for Voith. The
Company’s operational earnings power has improved further, the balance sheet has been significantly
strengthened and important alignments and visible progress have been made on the way towards theGroup’s digital transformation.
Voith’s operating business developed successfully in a partially brighter market environment. The orders
received by the Voith Group grew more than expected and perceptibly exceeded the figures for theprevious year (+6 %) with the Voith Paper Group Division standing out in particular (+24 %). Group sales
developed stably, as forecast, and were almost at the high level witnessed in the previous year. In termsof results, the three traditional Group Divisions benefited from efficiency gains made from the successful
completion of the Voith 150+ program. As a result, the total profit from operations of Voith Hydro, Voith
Paper and Voith Turbo rose by 3 %. ROCE (return on capital employed) generated by core business
improved from 15 % in the previous year to 16 %. There were only very minor currency effects in the year
under review and these had no substantial influence on the development of Voith’s key figures.

Voith Annual Report 2017
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02. Business development and earnings position of the Group59

Total profit from operations in the Voith Group was, as expected, lower than in the previous year
owing to forward-looking investments in the digital transformation of the Group. In this context, workon developing the new Voith Digital Solutions Group Division, which was established in April 2016, isproceeding apace and is beginning to bear fruit. With the market launch of the merQbiz trading platform
for recovered paper Voith has started its first big lighthouse project and has also made an importantacquisition in this field with its purchase of a majority share in the digital agency Ray Sono.
The Group net result was better than ever before in the Company’s 150-year history: largely influenced
by the sale of its stake in KUKA Aktiengesellschaft the net income amounted to € 596 million (previous
year: € 29 million).
The Group’s net assets and financial position is also significantly better. At the end of the year underreview, Voith had an equity ratio of 27 % and net liquidity of around € 650 million.

02.2. Economic environment
Global economy gathering strength
The global economy improved perceptibly in the 2016/17 fiscal year compared to the previous year. For
example, in its latest October 2017 release the International Monetary Fund (IMF) has forecast robust
global growth of 3.6 % for the year 2017 compared with a rate of 3.2 % in 2016.
The IMF forecasts a probable 2.2 % rate of growth for the advanced economies in 2017 comparedwith 1.7 % in the previous year. In this context, the euro zone has performed significantly better than
anticipated thanks to surprisingly strong domestic demand, with the IMF forecasting growth of 2.1 % for
the euro zone in 2017. Only a year ago the forecast for the same period was just +1.5 %. The economic
projections for many euro zone countries, including the big four – Germany, France, Italy and Spain –were adjusted upwards in response to the positive development in the first half of the year. Robust
growth is also anticipated in the USA.
Growth in emerging markets (IMF forecast: +4.6 % in 2017, +4.3 % in 2016) was, as has been consistently
the case in recent years, again higher than in the advanced economies. At a projected rate of 6.8 %,growth in China will again be above average in 2017, and in absolute figures China remains the growth
driver for the global economy. The anticipated weakening of China’s dynamism has failed to materialize
for the time being and was countered in the short term by strongly expansive monetary and fiscal policies.
Private and public debt have increased substantially as a result. India is growing at a similar fast pace
to China, albeit at a lower absolute level. Although reforms are currently weakening the economy, theyshould inject positive momentum in the medium term. The ASEAN- 5 countries are showing the dynamic
development expected. Brazil is recovering only slowly from the recession of the past two years owing
to the ongoing political crisis, unsolved structural problems and persistently lower commodity prices.
Russia recovered appreciably in 2017 from the two-year recession provoked by the slide in the oil priceand Western sanctions, and its economic output has risen significantly.

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Voith Annual Report 2017
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02. Business development and earnings position of the Group

Economic growth
Real change in GDP on the previous year1)

World output
Advanced economies
United States
Euro area2)
Germany
Emerging market anddeveloping economies
China
ASEAN- 5
India
BrazilRussia

2016

3.2 %

2017

3.6 %

2016

1.7 %

2017

2.2 %

2016

1.5 %

2017

2.2 %

2016

1.8 %

2017

2.1 %

2016

1.9 %

2017

2.1 %

2016

4.3 %

2017

4.6 %

2016

6.7 %

2017

6.8 %

2016

4.9 %

2017

5.2 %

2016

7.1 %

2017

6.7 %

2016

- 3.6 %

2017

0.7 %

2016

- 0.2 %

2017

1.8 %

Source: International Monetary Fund; World Economic Outlook, Oct. 2017.
1)
2016: estimates; 2017: forecasts.
2)
Including Germany.

Improved economic data have also influenced the investment climate positively in many industries andregions. For the first time in around five years, the German mechanical and plant engineering sector
anticipates perceptible growth in 2017. Following the 2 % fall in orders received in 2016, the relevant
association for the mechanical engineering industry, VDMA, anticipates an increase of around 3 % in2017. Capacity utilization is also better than the long-term average for the industry.

Voith markets: investment climate somewhat brighter
The investment climate was somewhat brighter in the five target markets served by Voith. The paper
market in particular was much more vigorous.
Energy: expansion of renewable energies continues apace
The energy market encompasses the conversion of various primary energy sources such as coal, gas,
wind or hydropower into electricity and various forms of storage. This market is served by the Voith
Hydro and Voith Turbo Group Divisions.

Voith Annual Report 2017
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02. Business development and earnings position of the Group61

The global energy market is marked by two long-term trends: demand is shifting to the emerging
markets, above all China and India, and supply is increasingly covered by low-emission, sustainablesources of energy, including in particular renewable energies. These long-term trends are overlaid bycyclical developments and short-term volatile swings.
According to the most recent figures available, electricity consumption and generation increased
marginally in 2016, especially in the emerging markets, including in particular India and China. Morethan half of the new capacity installed worldwide is based on renewable energies. These renewableenergy sources now account for some 30 % of total existing electricity-generating capacity worldwide.
More than half (54 %) are hydropower facilities, followed by wind power (24 %) and photovoltaics (15 %).
For the first time in years investment in renewable energy failed to rise in the 2016/17 fiscal year. Thiswas due to a reduction in the number of projects, above all in China.
Contrary to expectations, delays led to significantly fewer contracts for hydropower plants being
awarded in the 2016/17 fiscal year. This fall does not, however, represent a medium-term trend. We
anticipate higher market volume once again next year. With pumped storage technology contributing
to grid stability and supply reliability as renewable energies are being expanded, it is set to gain in
further importance. This is particularly so in China where several pumped-storage power plants arebeing built and where several more projects are due to be awarded in the next five years. Investmentin the market for conventional power plant technology, which is relevant for Voith Turbo, stabilized ata low level during the year under review.
Oil & gas: market environment dominated by low oil prices
The oil & gas market comprises three segments: upstream involving the extraction of crude oil andnatural gas, midstream involving transport primarily via pipelines and tankers, and downstream
consisting of the refining of crude oil and natural gas into the various fuels and raw materials used by
the chemicals industry. The Voith Turbo Group Division provides user-specific products and services
to all the segments of this market.
The oil price was higher in the 2016/17 fiscal year than in the previous year, but was still low comparedto historical data. The price for a barrel of Brent oil was relatively stable, fluctuating between USD 43(June 2017) and USD 59 (September 2017).
The gas price (Henry Hub) initially rose appreciably in late 2016 only to fall again in the course of the year
under review. At around USD 3 at the end of the fiscal year in September 2017, it was only marginallyhigher than the previous-year level, but still 50 % below the 2014 level, before the price started to fall.
Investment in the oil and gas market consequently remained at a low level. Market analysts project
investment by globally integrated oil and gas companies again falling by around 8 % in 2017. This would
be equivalent to around a halving in corporate global investment since 2013.

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02. Business development and earnings position of the Group

Paper: significant upturn in the market for paper machines
The paper market comprises all aspects of the papermaking process, from preparation of recovered
paper through to paper production, surface finishing through calendering and coating, and rewindingof paper reels. The Voith Paper Group Division serves this market for all paper grades – graphic papers
such as newspaper and printing paper, board and packaging paper, tissue paper and specialty papers.
Its range of offers includes new machines, rebuilds of entire production facilities, automation technology,
partial rebuilds, services and spare parts, optimization products, roll covers and fabrics, preparation ofprimary (pulp) and secondary fiber (wastepaper) and water treatment facilities.
Global paper production rose in Voith’s 2016/17 fiscal year, according to estimates by industry analysts
at RISI, and is set to grow more dynamically in the years ahead. There is, in particular, growth potential
for board and packaging paper for which demand is rising in all regions as global trade in goods andonline shopping in particular expands in all regions. In this case, the highest growth rates are expectedin Asia, followed by the regions of EMEA and North America. Consumption of tissue paper is also set
to rise with the strongly growing middle class in Asia. Production of graphic paper will decline further inthe years ahead, as demand has fallen with the digitalization of everyday life. Asia experienced by far
the highest levels of growth in paper production in the year under review and is regarded as the driverfor growth in the years ahead.
There has been significant upturn in the market for paper machines for both new machines and rebuilds,
particularly for board and packaging paper as well as tissue paper. Business with new machines
has picked up vigorously, particularly in China. Further impetus came from Europe. Demand for new
machines remained subdued in South America owing to the ongoing economic and political crisis in
Brazil. Demand for consumables and services has picked up as volumes of paper production havealso risen substantially.
Raw materials: long-term decline in prices halted; investment remains low
We define raw materials as ores and minerals that are extracted from the earth, such as coal, copperand iron ore, as well as other geological materials such as sediments used in building. By contrast,
the raw materials oil and gas are considered separately as part of the oil & gas market. The segmentsof the raw materials market that are of relevance for Voith are mining and the steel industry. Both aresupplied by the Voith Turbo Group Division.
The market for raw materials had been in recession for several years as a result of excess capacities
and dramatically falling prices. As a result, the volume of investment in the mining industry fell by morethan half between 2013 and 2016. The fall in prices for important raw materials, such as iron ore, coaland copper, now appears to have stopped in the 2016/17 fiscal year. Nonetheless, although prices haverisen slightly during the year under review, this was from a historically low level. According to market
analysts, 2017 will be the first year in which investments have stabilized at their current low level. In
the view of industry analysts, higher investments can be expected to be made in the mining sector in
the medium term.
Global crude steel production expanded somewhat during the 2016/17 fiscal year. Growth was driven
by China. All in all, global capacity utilization remains low. Steel prices are recovering in all regions.

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02. Business development and earnings position of the Group

63

Transport & automotive: growth overall moderate, but stable
The transport & automotive market includes diverse transport routes and the means of transport used onthem for moving people and goods. The Voith Turbo Group Division serves this diverse market, supplying
drive components and solutions as well as braking systems for the commercial vehicle industry, therailway industry and also the marine segment.
The market for heavy-duty trucks and buses continued to develop positively and exhibited modest
growth overall in the year under review. There was a sharp rise in the number of registrations in Western
Europe in 2016 and some growth is again expected in 2017. The Eastern European market as a wholegrew at an above-average rate while the bus segment expanded appreciably. Following six years ofgrowth in succession, the US truck market experienced a tangible cyclical decline in 2016. Demandis expected to remain stable at a high level until the end of 2017. In China, where around one third of
all new heavy-duty commercial vehicles are sold, the market is expected to grow modestly in 2017
after a strong year in 2016. In Brazil, investments in infrastructure and new fleets remained at a low
level following the end of the recession; a rapid recovery is not expected. We also see further market
potential for commercial vehicles in the service field.
The rail sector, which is dominated by public sector investment in infrastructure, developed stably on
the whole during the year under review. The global rail market is suffering from the persistent reluctanceto engage in investments in China, particularly with regard to high-speed trains. Demand for metro
systems and local public transport systems remains high in the context of urbanization in emerging
markets, above all in China, India and the ASEAN countries. The EMEA region remains a stable coremarket with robust growth, despite the decline in investment in large-scale rail projects in the Middle
East and Russia due to political instability and the fall in the price of oil. A process of international
industry consolidation is underway among rail vehicle manufacturers.
In the marine market the tugs and ferry segment remains stable at a good level while demand in themarket for new orders of tankers, cargo ships and offshore special ships has cooled off.

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Voith Annual Report 2017
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02. Business development and earnings position of the Group02.3. Sales
Sales almost unchanged compared to the previous-year level
In the 2016/17 fiscal year, Voith achieved Group sales of € 4,223 million, almost unchanged compared tothe high figure in the previous year (€ 4,252 million, - 1 %). The overall sales trend was stable and thus inline with our forecast (forecast in the 2016 annual report: “will match the level in the year under review”).
Sales developed differently in each Group Division, as expected. Voith Paper was able to increase its
sales by 5 %. Voith Hydro’s sales (- 1 %) remained stable. However, Voith Turbo (- 8 %) saw a decline insales, as announced.

Detailed informationon the developmentof sales in eachGroup Division
can be found insection 03. Businessdevelopment andearnings position of
the Group Divisions.

Voith Paper made the largest contribution to the Voith Group’s sales at 36 % (previous year: 34 %). Voith
Hydro again contributed 33 % and Voith Turbo 31 % (previous year: 33 %) of total sales. The contribution
made by Voith Digital Solutions was less than 1 % owing to the start-up situation of this new Group
Division.
The regional distribution of Group sales was as follows: the regions with the strongest sales were theAmericas, Asia and Europe excluding Germany. The Americas contributed 28 % (previous year: 27 %) to
the Group’s sales, Asia 27 % as in the previous year, the Europe excluding Germany region 26 % (previous
year: 28 %) of total sales. A share of 13 % (previous year: 12 %) of the Group’s sales was attributable toGermany. 6 % of sales were again from other regions (in particular Africa and Australia).

Sales Group

Sales total € 4,223 millionin € millions

by Group Division

4,252

4,223

Voith ­Turbo
31 %by region

Voith ­­Hydro
33 %Americas28 %Germany
13 %EuropeexcludingGermany
26 %2015/162016/17

Voith Paper
36 %

Asia
27 %

Other
6%

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02. Business development and earnings position of the Group

65

02.4. Orders received
Orders received up by 6 %Orders received traced a pleasing upwards trend. In the 2016/17 fiscal year as a whole, the Voith Groupsecured new orders worth € 4,368 million (previous year: € 4,108 million). Voith has thus grown by 6 %and exceeded its forecasts (forecast in the 2016 annual report: “slightly rising”).
Detailed informationon the orders
received in eachGroup Division canbe found in section 03. Businessdevelopment andearnings positionof the Group
Divisions.

Our Group Division Voith Paper made an outstanding contribution to this good development, with orders
up by 24 % exceeding expectations. Voith Turbo also exceeded its forecast with an increase of 8 %.
Delays in the award of orders for large-scale hydropower projects meant that, contrary to expectations,orders received by Voith Hydro were below the previous year (- 15 %).
Voith Paper accounted for 42 % (previous year: 36 %) of orders received in the Group. Voith Turbo
contributed a share of 31 % (previous year: 30 %) and Voith Hydro 27 % (previous year: 34 %).

Orders on hand Groupin € millions

5,307

Orders received Groupin € millions

5,193
4,108

2015/162015/162016/174,368

2016/17

Orders received total € 4,368 million
by Group Division

Voith ­Turbo
31 %by region

Voith ­­Hydro
27 %Americas23 %Germany
12 %EuropeexcludingGermany
28 %Voith Paper
42 %

Asia
32 %

Other
5%

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02. Business development and earnings position of the Group

With a share of 32 % (previous year: 23 %), Asia developed particularly strongly and was the mostimportant region in the year under review in terms of orders received in the Group. The Europe excluding
Germany region also achieved a perceptible boost to 28 % of total orders (previous year: 26 %). At
23 %, the America’s share was down on the previous year (32 %). Germany’s contribution amounted to
12 % (previous year: 13 %). All the other regions contributed 5 % (previous year: 6 %) of new business.
As at the end of the fiscal year, orders on hand in the Voith Group were worth € 5,193 million (previous
year: € 5,307 million).

02.5. Results
Net result of € 596 million decisively influenced by saleof shares in KUKA AG
The Voith Group reported net income in the 2016/17 fiscal year of € 596 million. The sale of shares in
KUKA Aktiengesellschaft played a decisive role in this record result. However, even without this effectit was possible to increase the net income above that of the previous year. Furthermore, the operating
profitability of our core business was also improved. The profit from operations of the three traditional
Group Divisions Voith Hydro, Voith Paper and Voith Turbo on aggregate increased by 3 % compared tothe previous year despite sales development remaining almost unchanged (- 1 %). Profit from operationsin the Voith Group as a whole fell as anticipated owing to the planned start-up costs for the new Voith
Digital Solutions Group Division (- 12 %).
Total output in the Voith Group was almost unchanged at € 4,242 million (previous year: € 4,252 million),and as such was almost on a par with the development of sales (- 1 %). Changes in inventories and other
own work capitalized came to € 18 million (previous year: € 0). The total output of the traditional Group
Divisions developed analogously to sales (Voith Hydro - 1 %, Voith Paper +5 % and Voith Turbo - 8 %).
The cost of materials in the Voith Group rose to € 1,843 million (previous year: € 1,819 million, +1 %). The
ratio of costs of materials to total output rose slightly to 43.4 % (previous year: 42.8 %). This increase wasdue in particular to the greater share of the Group’s total output accounted for by the material-intensive
Group Division Voith Paper.
Personnel expenses amounted to € 1,415 million (previous year: € 1,401 million, +1 %). The reduction in
the employee headcount in the core business and the associated fall in personnel expenses was itself
reduced by ongoing rises in personnel expenses, in part due also to the recruitment of better qualified
employees for the Voith Digital Solutions Group Division. The ratio of personnel expenses to total output
rose slightly to 33.4 % (previous year: 33.0 %).
Depreciation and amortization were approximately unchanged compared to the previous year at€ 130 million (previous year: € 131 million, - 1 %). As a percentage of total output, depreciation andamortization remained unchanged at 3.1 %.

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02. Business development and earnings position of the Group67

The balance of other operating expenses and income was reduced to € 641 million (previous year:€ 657 million, - 3 %). This is in part the result of lower warranty expenses for Voith Turbo than in theprevious year. The ratio to total output improved to 15.1 % (previous year: 15.4 %).

Detailed informationon the developmentof profit fromoperations and
ROCE by Group
Division can befound in section 03.
of the management
report.

Further information
on donations can befound in section 06.
Sustainability.

Further informationon the non-recurring
effects can be foundin note 07. of thenotes to the consolidated financial
statements.

The operational result before non-recurring items was € 213 million (previous year: € 244 million,- 13 %). The profit from operations, an indicator used for internal management purposes, came to€ 241 million (previous year: € 275 million, - 12 %). The return on sales fell slightly to 5.7 % (previous year:
6.5 %) and ROCE (return on capital employed) to 11.5 % (previous year: 12.9 %). Profit from operationsin the core business rose 3 % to € 304 million (previous year: € 295 million) and the return on sales rose
to 7.3 % as a result (previous year: 7.0 %). ROCE in the core business improved to 15.9 % (previous
year: 15.1 %).
The non-recurring result stood at €  -  32 million (previous year: € - 7 million). The non-recurring result forthe period under review essentially comprises personnel-related and other expenses arising from measures designed to concentrate production capacities and enhance the competitiveness of Voith Hydro
in Brazil, of Voith Paper in USA and Voith Turbo in Germany. Besides this, expenses arising from donor
pledges amounting to € 13 million are included here. In detail, the contributions to the non-recurring
result in the period under review were as follows: Voith Hydro € - 7 million (previous year: € +4 million),
Voith Paper € - 5 million (previous year: € - 8 million), Voith Turbo € - 6 million (previous year: € - 5 million)
and divisions with a holding function € - 14 million (previous year: € +2 million).
The gain from the disposal of associated companies of € 563 million (previous year: € 0) includes theeffect on results of the sale in January 2017 of the Group’s investment in KUKA Aktiengesellschaft.
The balance of interest expenses and interest income amounted to € - 59 million (previous year:€ - 78 million, - 24 %). The improvement in the interest result was due to a fall in expenses of approximately € 13 million arising from redemption of the bond and the partial repayment of the US private
placement and of a further € 7 million for lower interest expenses arising from pension obligations.
Interest income from cash and cash equivalents and loan receivables also rose by € 4 million. In contrast,
expenditure arising from the measurement of financial liabilities from the repayment rights of holders
of non-controlling interests went up by € 6 million.

Operational result before non-recurring items
Group in € millions

244

Net result
Group in € millions

596

213
29

2015/162016/172015/162016/17

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Voith Annual Report 2017
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02. Business development and earnings position of the GroupThe other financial result amounted to € - 10 million (previous year: € - 29 million). This includes income
from equity investments of € 20 million (previous year: € 7 million) and impairment losses on securities
amounting to € - 2 million (previous year: € - 36 million). Furthermore, currency gains and losses onlong-term financing positions and the measurement of the related hedge relationships are shown in
the financial result in the year under review for the first time (balance of € - 28 million, previous year:€ 0), in order to ensure a more accurate presentation of the profit from operations. In the previous year
this resulted in an effect of € - 3 million, which was reported in the profit from operations. The previousyear presentation has not been corrected due to immateriality.
Income taxes totaled € - 82 million (previous year: € - 51 million).
The net result from continued operations consequently amounted to € 600 million (previous year:€ 89 million).
The net result from discontinued operations amounts to € - 4 million (previous year: € - 60 million). Thisshows the contribution to the Voith Group’s profit made by Voith Industrial Services Group Division,
which has been sold in the meantime. The amount arising in the year under review results fromadjustments to the sale price and anticipated tax expenses arising from the sale.
Bottom line, the Group’s net result comes to € 596 million (previous year: € 29 million).

Voith Annual Report 2017
Group Management Report
03. Business development and earnings position of the Group Divisions

03.

69

Business development and earnings
position of the Group Divisions
The operative Group Divisions have developed successfully. On
aggregate, orders received were higher than in the previous year;
Voith Paper performed exceptionally well with an increase of 24 %.
The profitability of the core business has again improved: in total,
the three traditional Group Divisions have increased their profit
from operations while sales remained virtually unchanged. Workon setting up Voith Digital Solutions is proceeding apace and onschedule. Investments in the new Group Division were covered
entirely by current business.

03.1. Voith Hydro
Lower volume of projects awarded, increased profitability
The Voith Hydro Group Division looks back on a satisfactory 2016/17 fiscal year in which sales andprofit from operations remained stable at a high level and profitability rose. Orders received were down
compared to the previous year owing to delays in the award of hydropower projects.
Sales stable at high level
In the 2016/17 fiscal year, Voith Hydro reported sales of € 1,381 million which, as anticipated, remained
fairly stable at about the same level as in the previous year ( € 1,388 million, - 1 %). The regions with thestrongest sales were North America and Asia, where we received a large volume of orders in previous
years.
Fall in orders received owing to the market situation; market share nonetheless expanded
The volume of the hydropower market in the 2016/17 fiscal year contracted significantly comparedto the previous year, and was below our expectations. In several major projects, the project award
decision expected in the year under review was delayed because it took the customer longer to secure
the necessary funds than originally anticipated. In contrast, the small hydro segment (plants with an
output of up to 30 megawatts per unit) proved relatively stable, despite the fact that overall conditions
for small hydropower plants remain difficult owing to insufficient funding and financing models in many
countries. Demand for services rose during the year under review.

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The drop in market volume was reflected by a fall in the orders received by Voith Hydro. This fall was
due to large-scale projects, in particular. In contrast, Voith Hydro succeeded in increasing the orders
received for its service business. Overall, Voith Hydro received new orders in the year under review
worth € 1,180 million (previous year: € 1,387 million, - 15 %). We have participated appropriately in themarket and have managed to expand our market share. Based on assumed stable market development
we had, however, predicted around about the same high figure of orders received as last year. There
were € 2,976 million worth of orders on hand on September 30, 2017 (previous year: € 3,315 million).
Two of the orders we received in the large hydro segment were for the large-scale delivery of pumped
storage power plants in China. We will be supplying two 350-megawatt units for the Chang Long Shan
power plant and six 300-megawatt units for the Liao Qing Yuan power plant. Asia continues to be oneof the most important sales markets, with Southeast Asia in particular growing in importance alongside
China and Japan. We won a major project in Laos for the extension and modernization of a hydropower
plant built in the 1960s. The project is funded by a Japanese development aid fund.
After two years of recession, the first signs of recovery are becoming evident in the important Brazilianhydropower market. Voith Hydro was awarded contracts for two modernization projects in the year underreview: China Three Gorges Brazil, the new operator of the Ilha Solteira and Jupiá hydropower plants in
the State of São Paulo, has commissioned Voith with the work on the first phase of a comprehensive
modernization project. We also acquired several orders for synchronous condensers to provide gridstability. However, the ongoing economic and political crisis in Brazil continues to depress demand for
new large machines.
Voith Hydro won several modernization projects in the large hydro segment in North America, suchas Bridge River in Canada and Raccoon Mountain in the USA. We also won the contract for themodernization of a pumped storage power plant in Bad Creek, USA. Overall, the established hydropower
market in North America did not develop quite as strongly in the year under review as it did in theprevious year, because the award of several large projects was postponed until the coming fiscal year.

Sales Voith ­­Hydro

Orders received Voith ­­Hydro

Profit from operations Voith ­­Hydroin € millionsin € millionsin € millions

1,388

1,381

1,387
1,180

2015/162016/172015/162016/17105106

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71

In Europe, where the market continues to stagnate owing to current energy policies, existing excess
capacities and low energy prices, Voith also received several modernization contracts. These include
two comprehensive modernization contracts for upgrading control systems at Norway’s Tonstad andSolhom hydropower plants. We were awarded a contract for the modernization of the Ffestiniog pumped
storage power plant in Wales, United Kingdom.
We also secured several small hydro contracts in Japan’s important small hydropower market as wellas contracts in Colombia, Austria, Kenya, Nepal, the USA and Canada. We were especially successful
with our innovative StreamDiver technology for small hydropower plants, which we are now selling all
around the world.
Voith Hydro’s service business (“HyService”) grew significantly to become an important mainstay for
Voith Hydro.
Strategic cooperation agreed with CTG
In the year under review, we signed two strategic cooperation agreements – in addition to the Chang
Long Shan contract – with China Three Gorges Corporation (CTG). One of the agreements strengthens
strategic cooperation in promoting hydropower in Africa. Over the last 50 years, CTG has completed
more than 300 projects in over 30 countries and regions, and is currently the dominant general contractor
for the construction of hydropower plants on the African market. CTG is also active in South America,
as well as China and Africa, and holds a major portfolio of hydropower plants in Brazil. The second
agreement deals with cooperation on the modernization of these plants.
Increased profitability
Voith Hydro reported profit from operations in the year under review of € 106 million (previous year:€ 105 million, +1 %) and, as forecast, at the high level of the previous year. The return on sales rose to
7.7 % (previous year: 7.6 %). ROCE developed better than expected and increased to 21.8 % (previous
year: 21.3 %), on the basis of a lower level of capital employed.

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03.2. Voith Paper
Strong growth, profitability appreciably higher,
turnaround completed
Voith Paper looks back on a good fiscal year. Voith Paper operated successfully and appreciably
increased the level of orders received, exceeding its own expectations, in a much improved market
environment. Profit from operations increased at a higher rate than sales as a result of the productivity
increases and the effective restructuring measures taken in previous years, thereby significantly improving
the return on sales and ROCE.
Sales increased
In the 2016/17 fiscal year, our Voith Paper Group Division generated sales worth € 1,527 million (previous
year: € 1,456 million). Growth of 5 % was in line with our forecast (forecast in the 2016 annual report:“slight growth”).
Growth was driven by the significantly improved project business (new machines and major rebuilds).
Sales also rose slightly in business with products, consumables and services. The region with thestrongest sales was Europe (including Germany), followed by North and Latin America.
Orders received up by 24 %In the 2016/17 fiscal year, Voith Paper increased the level of orders received by 24 % to € 1,813 million(previous year: € 1,463 million). This means that – for the first time since the structural and cyclical dip
in the market in the 2012/13 fiscal year – Voith Paper has grown significantly. This pleasing development
exceeded our own expectations (forecast in the 2016 annual report: “slight growth”). It is partly due
to the successful focus of our development and sales activities on the growth segments of board andpackaging paper as well as tissue paper, and partly to strong growth from the award of several large
projects in the year under review. Alongside outstanding project business, we also recorded a slight
growth in the business with products, consumables and services as a result of the modest increasein paper production.

Sales Voith ­Paper

Orders received Voith ­Paper

Profit from operations Voith ­Paperin € millionsin € millionsin € millions

1,813
1,456

1,527

107

1,463
76

2015/162016/172015/162016/172015/162016/17

Voith Annual Report 2017
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03. Business development and earnings position of the Group Divisions73

As at the end of the fiscal year on September 30, 2017, Voith Paper’s orders on hand improved to€ 1,228 million (September 30, 2016: € 988 million).

Information about
XcelLine can befound in section 05.
Research anddevelopment.

Total production of all paper grades increased slightly in the paper market; this growth is set to cover
all regions in 2017. The production of graphic paper continues to decline as projected, while the board
and packaging paper and tissue segments continue to report growth in all regions. Papermakers
again made substantial investments in new machines in the year under review. We achieved goodsales successes in a perceptibly improved market environment with our new XcelLine paper machine
generation. Four major contracts, each for a volume well into the hundreds of millions of euros, madea decisive contribution to the high level of orders received.
In Asia, papermakers invested heavily in the modernization of existing machines. This was partly due
to the increase in paper prices and tougher environmental regulations in China. Investment focused onmachines for the manufacture of board, packaging paper and tissue. With regard to orders received
Voith participated appropriately in the development of this region where it also secured three major
orders from leading Chinese papermakers for production lines for folding box board and testliner forthe production of corrugated board.
Demand has also developed positively in Europe, where the earnings position of many manufacturers
is good, particularly for machines for tissue, board and packaging paper. Voith won a major contractfrom Sweden for the production of one of the largest board machines for liquid packaging board. The
Company also won a rebuild order from Germany and two orders for the delivery of new tissue machines
to manufacturers in Spain and Portugal.
Demand was extremely low in South America. There was strong demand for tissue machines in North
America.
Voith wins award as best machine clothing supplierIn December 2016, Voith won the Machine Clothing Supplier Award conferred by the international
packaging and paper group Mondi. This award was established in 2013 to showcase the best performing
business partner in the machine clothing sector, which plays a critical role in the paper production
process.
Profit from operations up by 40 %In the 2016/17 fiscal year, Voith Paper increased its profit from operations by 40 % to € 107 million(previous year: € 76 million) thereby exceeding its own expectations (forecast in the 2016 annual report:“noticeable rise”). This pleasing development reflects the cost savings and productivity increases
achieved as a result of the restructuring. Bottom line, the return on sales improved to 7.0 % (previous
year: 5.3 %). ROCE increased appreciably, as forecast in the 2016 annual report. It improved from
10.2 % in the previous year to 14.9 % in the year under review, largely owing to the higher profit fromoperations, but also on the basis of a lower level of capital employed.

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03.3. Voith Turbo
Satisfactory business development,
increase in orders received
Voith Turbo developed satisfactorily in the 2016/17 fiscal year in what remained a challenging market
environment. As announced, sales and profit from operations have both fallen as a result of the fallin orders received in previous years. Nonetheless, the return on sales remained at a high level. With
regard to orders received, Voith Turbo reported an increase again for the first time following a periodof two years with declining orders received.
Sales below previous-year level due to market conditions
In the 2016/17 fiscal year, Voith Turbo generated sales of € 1,283 million (previous year: € 1,397 million). The decline in sales reflects the fall in orders received as a result of market conditions in the second
half of the 2015/16 fiscal year, and at - 8 % was stronger than originally anticipated (forecast in the 2016
annual report: “a slight to considerable decrease”).
The Industry division saw a decline in sales after the trimming of investment budgets over several years
by raw materials producers and oil companies in response to the difficult market environment. The
Mobility division was also unable to match the exceptionally high level of sales achieved in the previous
year. This was due to a decline in demand from the major Chinese rail vehicle market for high-speed
trains and special vehicles.
More than half of sales in the past fiscal year were attributable to Europe (including Germany). The
Asia-Pacific region accounted for almost one-quarter of sales.
Orders received up by 8 %Voith Turbo received a perceptibly higher level of orders again for the first time since the 2013/14 fiscal
year. In the year under review Voith Turbo received new orders worth € 1,344 million (previous year:€ 1,247 million). With a plus of 8 % we have more than met the forecast (“slight growth”) we made whenthe 2016 annual report was published. On, September 30, 2017, Voith Turbo had orders on hand worth€ 985 million (previous year: € 1,004 million).

Sales Voith ­Turbo

Orders received Voith ­Turbo

Profit from operations Voith ­Turboin € millionsin € millionsin € millions

1,397

2015/16

1,283

1,247

2016/172015/16

1,344

114
91

2016/172015/162016/17

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03. Business development and earnings position of the Group Divisions

75

Both divisions contributed equally to the increase in orders received.
The markets which are relevant for the Industry division appear to have bottomed out. Oil and gas prices
have stabilized at a low level; most raw materials prices have recovered somewhat after falling over a
period of several years; nonetheless, confidence in sustained price rises is clearly weak. For this reason
the investing activities of oil and gas corporations, and especially of mine operators, remained at a low
level. The rising level of orders received by the Industry division is primarily the result of investments
in maintenance; very few investments were made in additional production capacity in the year underreview. The good level of orders received by Voith Turbo was supported by two major contracts froma power plant industry which is developing steadily, but no more than that.
The Mobility division continued to perform at a high level, and increased its orders received comparedto the previous year. Positive developments were supported by good business in the commercial
vehicle segment in particular. The rail market was marked by delays in the award of contracts and ahigh level of competitive intensity owing to the excess capacities of vehicle manufacturers and, all in all,developed steadily at best. Demand in the major Chinese rail vehicle market declined further. Marine
operations, the smallest business unit in the Mobility division in terms of volume, increased its orders
received, despite the collapse of the shipbuilding market, by operating successfully in niches such as
the tugs and ferry segment.
Service business developed positively in both divisions. There is an increasing demand in the Industry
division for maintenance services on account of the rise in the number of Vorecon variable-speed
planetary gears installed. And in the Mobility division, overhauls of commercial and rail vehicles are due
at a large number of operators.
Profit from operations lower, but still at high level
In the 2016/17 fiscal year, Voith Turbo achieved profit from operations of € 91 million (previous year:€ 114 million, - 20 %). Profit from operations thus fulfilled our expectations (forecast in the 2016 annual
report: “perceptible fall, at a higher rate than sales”) and remained high. As announced, the fall in profits
was due to lower sales volume and a shift in the sales mix. On the other hand, the personnel andcost-savings measures initiated at an early stage have had a lasting impact which enabled results toreach the planned level, despite the decline in sales. The return on sales fell slightly to 7.1 % (previous
year: 8.1 %). At 12.9 % ROCE was, as forecast, perceptibly lower than last year (previous year: 15.8 %)whilst remaining in double digits.

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03.4. Voith Digital Solutions
Successful start, set-up on schedule
Voith Digital Solutions, the Group Division which was founded last year, is presented as a separate
segment for the first time in this annual report.
Voith Digital Solutions pursues three strategic directions: firstly, enhancing Voith’s existing productportfolio to include digital capabilities that offer customers extended functions and added value; secondly, developing new digital solutions for our established core markets; and thirdly, developing new
applications and business models for markets not previously served by Voith.

Detailed explanations
on the Voith Group’s
digital agenda can befound in section 01.4.
Group strategy.

Important milestones reached
We achieved defined milestones for the implementation of our digital strategy during the year underreview. The internal process of transferring existing products and services, projects and teams fromthe three traditional Group Divisions to Voith Digital Solutions has now been completed. The Group’s
in-house IT service provider has also been fully integrated in Voith Digital Solutions.
Expansion of digital product portfolio
Voith Digital Solutions has been working on expanding its portfolio of digital offerings. In March 2017, forexample, Voith Digital Solutions launched merQbiz, the first digital marketplace for recovered paper, in
the USA. merQbiz brings transparency to the strongly fragmented and heterogeneous North American
market for recovered paper and enables buyers from pulp and paper mills as well as recycling businesses
to conduct their transactions, including transport, securely. merQbiz has been very positively received
by the market from the start. Around 6,000 tons of recovered paper had been traded via merQbiz by
the end of the year under review.
In addition, Voith Digital Solutions is working together with the other traditional Group Divisions on
numerous incubator projects. The first of these applications will have their market debuts in the 2017/18
fiscal year.

Further informationon the acquisition of
Ray Sono AG can befound in section 04.4.
Financial assets andinvestments.

Majority holding acquired in leading digital service provider Ray Sono
Voith acquired a majority stake in Ray Sono AG in May 2017. Ray Sono is one of the leading digital
service providers in Germany and serves well-known industrial companies and firms with end customer
business. Ray Sono’s expertise in the fields of design thinking, data processing and user experience
are especially attractive for us. From the customer’s perspective, good and intuitive user interfaces
and the simple operation familiar from devices in private use are becoming increasingly important forindustrial plant and machinery as well. The strategic partnership with Ray Sono has two aims: the joint
development of industry-oriented digitalization solutions, above all in the Industrie 4.0/Internet of Things
field, and the implementation of digital solutions within Voith’s portfolio, such as the virtualization ofmachines and systems and the improvement of existing digital solutions with Ray Sono’s support.

Voith Annual Report 2017
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03. Business development and earnings position of the Group Divisions

77

Sales and results reflect the start-up situation of Voith Digital Solutions
In the 2016/17 fiscal year, Voith Digital Solutions, as announced in advance, did not recognize any
significant sales from start-up activities: merQbiz was only launched midway through the fiscal year.
Other projects were still in the development phase. The sales made by Voith Digital Solutions presented
in the segment reporting amounted to € 13 million. Research and development accounted for the largest
share of costs and were expended on merQbiz and other incubation projects. The bottom line profit
from operations for the 2016/17 fiscal year amounted to € - 43 million.
Beyond the business results posted in the Voith Digital Solutions segment, the new Group Division
stands for further sales and profits for the Voith Group. This is because Voith Digital Solutions – aswell as developing new digital products such as merQbiz – also provides the three established Group
Divisions with support in enhancing their product portfolio in the field of automation solutions and digitalofferings. The resulting sales – amounting in the year under review to €286 million – and profits arepresented in the sales of the respective Group Divisions for the purposes of our segment reporting. In
total, Voith Digital Solutions generated sales of € 299 million for the Voith Group.
Digitalization will be future driver of growth
The business results reported by the Voith Digital Solutions Group Division are in line with our businessplanning and the forecast published in the 2017 six-monthly financial statements.
We regard the negative profit from operations planned for the first years of the Voith Digital Solutions
Group Division as a conscious investment in the digital transformation of Voith, laying the basis for
future growth.

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04. Net assets and financial position

04.

Net assets and financial position
The financial position, in particular, improved during the year underreview. Following the sale of the KUKA shares, Voith has a very
good equity base and a thoroughly comfortable liquidity situation
which provides scope for future growth.

04.1. Balance sheet
Significant rise in the equity ratio to 27.3 %We have strengthened the balance sheet significantly in the 2016/17 fiscal year. In comparison
to September 30, 2016, total assets decreased by € 361 million to € 4,998 million (previous year:€ 5,359 million, - 7 %). Two events had a significant impact on the balance sheet. First, the stake in KUKA
Aktiengesellschaft was sold. This increased the cash and cash equivalents and short-term securities
carried on the assets side of the balance sheet thanks to the inflow of cash whilst simultaneously
reducing assets held for sale. On the liabilities side, equity was increased by the amount obtained
for the sale. Second, we repaid the bond which matured in June 2017. This reduced current liabilities
and cash and cash equivalents accordingly.
Non-current liabilities were reduced by € 108 million to € 1,948 million (previous year: € 2,056 million,- 5 %). This reduction was primarily the result of the sale of securities. This position fell by € 73 million
to € 12 million (- 86 %).
In total, current assets were reduced by € 253 million to € 3,050 million (previous year: € 3,303 million,- 8 %). The changes in the balance sheet items result primarily from the sale of the stake in KUKA
Aktiengesellschaft. The cash inflow of € 1,146 million was partly used for short-term deposits amounting
to € 560 million; this also largely explains the overall increase in short-term securities of € 569 million.
Cash and cash equivalents also rose as a result by € 586 million. The redemption of the bond reduced
cash and cash equivalents by € 600 million. In total, cash and cash equivalents were reduced by€ 68 million to € 582 million. Furthermore, within current assets the receivables from customer-specificcontracts have declined; these include long-term contracts which are presented in accordance withthe percentage-of-completion method (fall of € 103 million, including Voith Hydro with a reduction of€ 122 million and Voith Paper with an increase of € 19 million).
Non-current liabilities were reduced by € 140 million to € 1,637 million (previous year: € 1,777 million,- 8 %). This effect chiefly originates from the reduction in pension provisions which fell by € 106 million€ 747 million (previous year: € 853 million), mainly due to the increase in discount rates in Germany,Voith Annual Report 2017
Group Management Report
04. Net assets and financial position79

the USA and Canada. In addition, part of the US private placement and part of the syndicated loan
placed in China were repaid ahead of schedule (€ - 59 million). In contrast, long-term financial liabilities
increased by € 46 million, mainly due to the recognition of liabilities arising from buy options.
Current liabilities were reduced by € 788 million to € 1,995 million (previous year: € 2,783 million,- 28 %). The reduction was mainly due to the redemption of the bond for € 600 million in June 2017.
Other current bank loans amounting to € 60 million were also repaid. In addition, liabilities from
customer-specific contracts fell by € 73 million (of which Voith Hydro € - 61 million and Voith Paper€ - 11 million). Other liabilities (€ - 121 million) were reduced primarily as a result of lower customer
advances (€ - 126 million). In contrast there was an increase in other provisions (€ +75 million), largely
due to higher contract-related provisions (€ +99 million), less lower provisions for restructuring andseverance payments (€ - 14 million). Trade payables increased by € 79 million.
The net balance of deferred tax assets and liabilities fell by € 47 million, caused among other things
by the tax effect on the measurement-related fall in pension provisions.
Equity rose to € 1,366 million (previous year: € 799 million, +71 %). The decisive factor in this respect
was the high level of consolidated net income. Measurement-related adjustments to pension provisions
also had a positive effect. The equity ratio rose appreciably to 27.3 % (previous year: 14.9 %).

04.2. Liquidity
Net liquidity rises sharply
The financial position of the Voith Group improved significantly in the year under review. The cash flowfrom operating activities amounted to € 135 million in the year under review (previous year: € 58 million). The improvement since the previous year results in part from the appreciably lower increase in net
working capital in the year under review (€ +22 million, previous year: € +134 million).
The cash flow from investing activities of € 551 million (previous year: € 120 million) is in part the resultof receipts and payments relating to the sale of shares in KUKA Aktiengesellschaft. As described in
section 04.1. Balance sheet, part (€ - 560 million) of the total receipts (€ 1,146 million) were invested insecurities (short-term deposits). Furthermore, receipts during the year under review relating to the saleof Voith Industrial Services amounting to € 39 million were obtained following settlement of outstanding
receivables and liabilities by the purchaser. In the previous year, € 193 million were received for thesale of Voith Industrial Services. The purchase of Ray Sono AG resulted in the year under review in apayment of € 41 million, and the sale of shares in SGL Carbon resulted in an inflow of € 61 million. Net
receipts and payments of € - 84 million were received and made for property, plant and equipment andintangible assets (previous year: € - 106 million).
The cash flow from financing activities of € - 743 million (previous year: € +25 million). As describedin section 04.1. Balance sheet, we made substantial reductions in borrowed capital in the year underreview, mainly by repaying the bond for € 600 million, redeeming part of the US Private Placements and80Voith Annual Report 2017
Group Management Report
04. Net assets and financial position

by reducing liabilities due to banks. The cash flow from financing activities in the previous year mainly
stemmed from the balance of new borrowed capital, in part from the successful placement of a noteloan for € 300 million and partly from the repayment of short-term bank loans.
Total cash flow in the year under review thus amounted to € - 57 million (previous year: € 203 million).
The net liquidity of the Voith Group has risen significantly. Net debt, measured as the difference
between interest-bearing financial liabilities and liquid financial assets, amounted to € - 648 million on
September 30, 2017 (= net asset position). One year previously this figure was € - 168 million (= net
asset position). Net debt in the year under review reflects the total cash inflow resulting from the saleof KUKA shares. Last year’s figures contained the carrying amount of these shares accounted forusing the equity method amounting to € 592 million. Voith is thus in an extremely comfortable positionin terms of its liquidity.
The net debt indicator is not defined under International Financial Reporting Standards (IFRS) accounting
policies, which means that its definition and calculation might diverge from practice in other companies.
In contrast to the carrying amounts in the balance sheet, which are based on the effective interest method,
the indicator is calculated by measuring financial liabilities at their higher nominal repayment amount.

Development of cash flowin € millions

Cash flow from operating activities

2016/172015/16

135

58

Cash flow from investing activities

551

120

Cash flow from financing activities

- 743

25

Total cash flow

- 57

203

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04. Net assets and financial position

81

04.3. Capital spending
Approximately € 100 million invested
In the 2016/17 fiscal year, we invested a total of € 96 million in property, plant and equipment and intangible assets. As a result, the volume of investment was lower than last year (previous year: € 121 million,- 20 %) which was defined by two isolated high-volume investments. As a percentage of the Group’s
sales, our investment ratio came to 2.3 % in the year under review (previous year: 2.8 %).
Notable volumes of investments were made for the first time in property, plant and equipment and inintangible assets in the Voith Digital Solutions Group Division. We have not only invested in the development of digital products and services, but also in expanding our core business.

Investment focus on Germany
Half of our global capital spending (50 %, previous year: 54 %) was invested in Germany, where ourlargest locations are situated, and amounted to € 48 million in the year under review (previous year:€ 65 million). We invested a total of € 23 million in the Americas (previous year: € 17 million) or 24 %(previous year: 14 %) of the total volume. For years, we have sustained a strong commitment in Asia,
above all in China. In the 2016/17 fiscal year, we invested € 19 million (previous year: € 32 million) in thishigh growth region. That is 19 % of our total investment spending in the year under review (previous
year: 27 %). Capital spending in Europe excluding Germany came to € 6 million, as in the previous year.
This corresponds to a share of 6 % (previous year: 5 %).

Investments Group

Investments total € 96 millionin € millions

by Group Division

by region

121
96

Voith ­Turbo
38 %Voith ­­Hydro
15 %Americas24 %EuropeexcludingGermany
6%

Other
6%

2015/162016/17

Voith Paper
25 %

Voith
DigitalSolutions
16 %Germany
50 %

Asia
19 %

Other
1%

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04. Net assets and financial position

Voith Hydro: practically stable investment volume
In the year under review, Voith Hydro invested € 15 million in the capacities of its value chain, i.e.
around the same amount as last year (previous year: € 15 million, - 4 %). As a percentage of sales, thiscorresponds to an investment ratio of 1.0 % (previous year: 1.1 %). One of the investment priorities was
to expand production capacity in North America and Asia.

Voith Paper: new production facility in Chile
At Voith Paper, capital expenditures amounted to € 24 million (previous year: € 30 million, - 19 %). The
investment ratio was 1.6 % (previous year: 2.0 %). A large proportion of Voith Paper’s investments weremade in Europe (including Germany) and the Americas region. As well as improving our service footprint,
we also invested in new facilities for the production of roll covers in Chile which opened in March 2017.
By setting up production locally Voith has emphasized the importance it attaches to the region.

Voith Turbo: new production facility in Shanghai
In the 2016/17 fiscal year, the Voith Turbo Group Division invested a total of € 36 million in property,
plant and equipment and intangible assets (previous year: € 46 million, - 22 %). This corresponds to an
investment ratio of 2.8 % (previous year: 3.3 %). As well as Germany, Voith Turbo’s investments wereagain focused primarily on the growing market of China. The commissioning in November 2016 of a
production facility in Shanghai for the products of both the Mobility and Industry divisions completed
an important investment project.

Voith Digital Solutions: investments in infrastructure and licenses
The Voith Digital Solutions Group Division invested € 15 million in property, plant and equipment aswell as intangible assets in the 2016/17 fiscal year, above all in IT infrastructure, software development
and licenses. In line with its business model, Voith Digital Solutions invested very little in property, plantand equipment.

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04. Net assets and financial position

83

04.4. Financial assets and investments
Around € 1.15 billion from sale of KUKA shares
As announced last year, we sold our 25.1% stake in the listed robot maker KUKA Aktiengesellschaft,Augsburg in January 2017 in response to a public takeover bid made by Chinese investors Midea Group
Ltd. The transaction raised around € 1,146 million in cash flow and positively impacted the Group’s net
results by € 563 million. The investment proved extremely successful for the Voith Group which received
roughly twice what it had paid for the shares in December 2014.

Majority holding acquired in leading digital service provider Ray Sono
On June 30, 2017, Voith acquired a 60 % stake in Ray Sono AG, a leading digital provider in Germany. The
strategic partnership has two aims: to develop industry-oriented digitalization solutions, above all in thefields of Internet of Things and Industrie 4.0, and to implement digital solutions within Voith’s portfolio,
such as the virtualization of machines and systems and the improvement of existing digital solutions withRay Sono’s support. At the time of its acquisition, Ray Sono had about 200 permanent employees andgenerated sales in 2016 of around € 19 million with customers such as Austrian Airlines, BMW, BRITA,DATEV, Deutsche Bahn, Linde, MAN, McDonalds and Miles & More. Ray Sono has been integrated in
the new Voith Digital Solutions Group Division.

All shares in SGL Carbon sold off
In the reporting period, Voith GmbH sold off all its shares in SGL Carbon SE. The sale generated cash
inflow of € 61 million.

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05. Research and development

05.

Research and development
Research and development has traditionally played a central roleat Voith. With several thousand active patents to its name andhundreds more new patents filed every year, Voith ranks as one of
the world’s innovative companies in the industries it serves. We
spent € 224 million on R&D activities in the year under review and
our R&D ratio increased to 5.3%.

Increase in R&D spending
Voith’s strong position on its markets and in its regions is largely based on the technological engineering
competence it has built up as a result of decades of research and development work. Since the Company
was founded, our engineers have been writing history with their inventions in the field of technology. The
Voith Group has a strong intellectual property base: Voith currently has many thousands of active patents
around the world, and hundreds more are registered each year.
Technological expertise and the ability to translate our know-how time and again into innovations withadded value for our customers are the basis of our future business success. This is why we have always
invested in research and development for new solutions, even in difficult economic times – around€ 1.1 billion in total over the past five years. In the 2016/17 fiscal year, the Group’s R&D spending
amounted to € 224 million (previous year: € 208 million, +8 %). The increase in R&D spending in theVoith Group is ascribable to the new Voith Digital Solutions Group Division in which merQbiz and otherResearch and developmentin € millions

208

2015/16

224

2016/17

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05. Research and development

85

incubation projects have been developed. At 5.3 %, R&D spending as a percentage of the Group’s sales
was higher than in the previous year (previous year: 4.9 %). Of the total R&D spending of € 224 million,€ 13 million was capitalized (previous year: € 7 million). At the same time, amortization was recognizedon capitalized development costs of € 7 million was recognized (previous year: € 7 million).
The majority of the Voith Group’s research and development activities is performed by the Group
Divisions. Cross-divisional development activities account for a small portion of our R&D expenditure.
Voith’s research and development activities are internationally organized. The focus is on Germany,with centers in the rest of Europe, the Americas and Asia contributing valuable specialized R&D input
in the relevant Group Divisions.

Aligned with global megatrends
One of Voith’s objectives as a supplier to industry is to enable our customers to contribute to sustainable economic development. For this reason, the R&D strategy is systematically aligned with global
megatrends and in particular with the infrastructure needs of the world’s growth regions. Resource andenergy efficiency, urbanization and mobility are not only the key challenges for the 21st century, they
are also the central themes of our research and development strategy at Voith.

Further informationon our digitalstrategy can befound in section 01.4.
Group strategy.

In the years ahead we will also concentrate increasingly on consistently exploiting the opportunities
offered by digitalization and connectivity to develop customer-oriented industrial solutions. Our aim is
to create significant added value for our customers with our Industrie 4.0 offerings and to play a leadingrole in the digital transformation of mechanical and plant engineering. Voith Hydro, Voith Paper andVoith Turbo have in the past driven various projects in these areas, brought some of them to market
maturity and already generated sales with some of them. In connection with the implementation of ourdigital strategy, all digital R&D projects have now been transferred to the new Voith Digital Solutions
Group Division.
All Group Divisions again made substantial progress with their research and development work in
the year under review.

Voith Hydro: major advances in pumped storage technology
Voith Hydro has completed a comprehensive development project for pumped storage technology
which has been running for several years and which has made a decisive contribution to a milestone
in hydropower. Europe’s biggest variable-speed pumped storage plant, Frades II in Portugal, wascommissioned in April 2017. The machine sets developed by Voith and installed in this plant are the mostpowerful and largest of their type in Europe. The central element of the system is a special asynchronous
motor generator. Unlike a conventional synchronous machine, with a rotational speed firmly locked to86Voith Annual Report 2017
Group Management Report
05. Research and development

the line frequency of 50 Hz, in the new doubly fed asynchronous generators the mechanical speed is
not tied to line frequency and so can vary. The new system offers two advantages: on the one hand,the plant can respond faster and more flexibly to the active and reactive demand from the power grid.
On the other, it offers additional stability in the event of a drop in voltage, reduces the likelihood of apower failure and enables a fast restart if a power outage does occur.
We have also set standards in other areas within the field of pumped storage technology. As part ofour participation in the tendering process for the Chinese pumped storage power plant Chang Long
Shan, we performed an R&D project in the previous fiscal years that played a key role in securing thismajor contract for us. In the process we have successfully developed machine sets which combine highpower (357 megawatts) with high speed (600 revolutions per minute) within the smallest space. The
machine developed by Voith not only offered higher hydraulic efficiency but also a smaller diameter andconsequently better value for money compared to the machines offered by those of its competitors which
also took part in the tendering process. In the next few years a large number of pumped storage projects
which pose similar technical demands will be awarded in China. We are now well placed to participate.

Voith Paper: XcelLine, the new generation of paper machines, launched
Under the name “XcelLine,” Voith has improved and refined its paper machines for all paper grades.
XcelLine stands for “Xcellent Performance”: The new generation of paper machines uses optimized
individual components, combined with improved interfaces and process flows. This results in a significant
reduction in project and start-up times. Voith XcelLine offers papermakers decisive advantages: fast andeasy start-up, excellent value for money, pioneering technologies, ease of use and integrated solutions.
Voith Paper has also developed its range of services further and offers its individually tailored service
packages under the “Servolution” name. A major feature of the concept is the close contact withcustomers, from the initial planning phase through the entire service life of the machine and beyond.
The Voith Paper Webshop enables our worldwide customers to purchase Voith products and services
quickly and easily around the clock. Voith customers can also view at a glance all the information about
their machine, from the original delivery to the order history and operating instructions, on the online
platform.
One of the numerous product innovations launched on the market by Voith Paper in the 2016/17 fiscal
year was the VForm. With the new VForm hydrofoils from Voith, papermakers can make decisive
improvements to the quality of all paper grades already in the wire section. Unlike conventional de­watering systems the VForm allows the height and angle to be set for each individual hydrofoil.

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05. Research and development

87

We have enhanced the Voith BlueLine range with InfiltraDiscfilter and HiCon 2.0 technology. The patented
innovative technology prevents the occurrence of critical areas in which the pulp thickens. This increases
fiber yield and reduces water consumption. Voith BlueLine is a product line for stock preparation whichkeeps energy, water and fiber consumption as low as possible.
SkySoft is a new creping blade from Voith that ensures constant tissue quality. The specially developed
ceramic tip of the SkySoft creping blade is highly wear-resistant, with the advantage of a longer lifetimeand less machine downtime.

Voith Turbo: numerous new products in both divisions
At Voith Turbo, the strategic focus of R&D work included the development of digital innovations for
Industrie 4.0 in collaboration with Voith Digital Solutions as well as adding electrical engineering andmechatronics to Voith Turbo’s established core mechanics and hydrodynamics competences. We
completed market launches for various new products in both divisions in the 2016/17 fiscal year.
In the Industry division, for example, we presented the VECO-Drive for the first time. The VECODrive is an innovative variable speed drive for compressors and pumps used to control speed. The
VECO-Drive is an electric superimposing gear and is inspired by the established principle of the Voith
Vorecon. The VECO-Drive combines a mechanical planetary gear with frequency-controlled low-voltage
servo motors. The components are thus extraordinarily efficient, save energy and reduce operating
expenditures. The VECO-Drive will be launched worldwide in the course of the forthcoming fiscal year.
The new Vorecon NX series, which we launched on the market last year, has been very well received
in the market. Vorecon is a variable speed planetary gear used in all areas of the oil and gas industry’svalue chain. The Vorecon NX is the latest development of hydrodynamic power transmission in combination with a variable speed planetary gear. It is specifically designed for use in the lowest power range,such as in pipeline compressors, where it increases efficiency considerably. The new RWC variant was
launched in the year under review. By decoupling the drive from the drive machine the Vorecon NX RWC
enables the chain to be started in even difficult conditions. The RWC variant combines technologies
which have been used by Voith in many areas for decades – Vorecon and rotor-turning gear units – ina new start solution.
We have developed new products and services for rail, road and marine uses in the Mobility division. For
example, in the field of rail vehicle components we are working on the development of a new productvariant of the Voith RailPack. Voith RailPacks are complete drive systems comprising the engine andtransmission. RailPacks are available as diesel-mechanical, diesel-hydraulic and diesel-electric variants.
We are also working intensively on the development of the next generation of DIWA automatic transmissions for buses. In this context we presented an initial study at an international trade fair in Canada
in May 2017. We will continue to work on the project in the coming year and the market launch isenvisaged for the 2018/19 fiscal year.

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We have added various SmartServices to our DIWA telemetry system. The DIWA SmartNet telemetry
system offers bus operators a fast and easy overview of operationally relevant vehicle data as well as
the possibility of optimizing their vehicle use. The version presented in October 2016 includes two newservices: SmartAssist informs drivers about their driving behavior in real time, providing information on
fuel consumption, tips for possible improvements, and it provides useful reports that can be retrieved at
any time. SmartMaintenance provides constant and predictive fleet management transmission monitoring,
thus enabling maintenance cost savings. These innovations are the outcome of cooperation between
the Voith Turbo and Voith Digital Solutions Group Divisions.

Voith Digital Solutions: new digital offerings

Further information
on merQbiz can befound in section 03.4.
Voith Digital
Solutions.

Voith Digital Solutions worked intensively on the development of new digital solutions during 2016/17. The
first results of this work became apparent in March 2017 with the launch of merQbiz, the first digitalmarketplace for recovered paper in the world. We continued working on expanding merQbiz during
the course of the year under review. For example, we are exploring methods of measuring the qualityof recovered paper in order to provide the trading partners on merQbiz with reliable and comparable
quality information about the traded goods. Other incubation projects are in development. The first ofthese are envisaged for launch in the 2017/18 fiscal year.
One focus of the R&D work undertaken by Voith Digital Solutions during the year under review was thedevelopment of an industry-independent platform which collects, links and analyzes data in a secure
cloud. The platform provides customers from various industries with valuable knowledge about thestatus or performance of their machines or systems, and also shows where improvements can be
made. The goal is to minimize the lost time for production facilities, reduce operating costs and ultimately
extend equipment lifetime. The first tests with a pilot customer are planned for the 2017/18 fiscal year.
Voith Digital Solutions opened the Group’s second high-tech digital campus in Raleigh, North Carolina,
United States in August 2017. As well as this North American digital hub, Voith has also been runninga high-tech digital campus for the EMEA region at its location in Heidenheim since 2016.

Voith Annual Report 2017
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06. Sustainability

06.

89

Sustainability
For us, sustainable business and the pursuit of corporate successgo hand in hand. We aim to create measurable added value inthe areas of economy, ecology and society and also make Voith
the benchmark for our industries with regard to sustainability.

Sustainable business management
We continue the traditions and style of the family-owned company Voith based on our understanding ofsustainability: the obligation to leave a minimum ecological footprint, to act fairly, and to return a profit
over the long term. Our motto is for Voith to make a measurable contribution to sustainable development.
We aim to make Voith the benchmark for sustainability in its industries.

Further informationon pep. can befound in section 07.
Employees.

The Voith Sustain­
ability Report 2016
is available on theInternet at
http://www.voith.
com/corp-de/
Voith-sustainabilityreport- 2016.pdf,
the fact base at
http://voith.com/
corp-en/about-us/
sustainability.html
and the brochure at
http://voith.com/
corp-en/Voithsustainabilitybrochure-2016.pdf.

The organization, responsibilities and the principles of our actions are embedded in the Group Directive
on Sustainability. Six defined fields of action integrate sustainability management into the Group. These
include sustainable business management, the pursuit of profitable growth, responsibility for products
and supply chains, for the environment, for our employees and social responsibility. Information on thefield of action regarding profitable growth can be found in sections 02, 03, 04, 09 and 10 of this management report. How Voith meets its responsibility to its employees is described in detail in section 07
of this management report. The other fields of action are described in this section.
Voith began implementing sustainability management throughout the Group in 2008. Since 2009, Voith
has recorded and analyzed all environmental data, materials indicators and relevant personnel data.
Over several years, we have built up powerful IT systems to integrate this data across Group Divisions
and regions and to use it as a basis to provide our sustainability experts and executives worldwide
with highly standardized and automated processes for their day-to-day work. Since the 2014/15 fiscal
year, we have been working with the integrated IT systems hse+ for occupational health and safety andenvironmental protection issues and pep. for human resources. Both systems are being successively
expanded to include additional functions.
We have published an extensive sustainability report every year since 2011. The report for the 2015/16
fiscal year takes a new three-pronged approach to the diverse requirements of different target
groups. The core of our sustainability communication remains the classic report. This is based on theauthoritative international standards for sustainability reporting. The report itself is supplemented bymore figures, data and facts which are collated on our website. These meet the requirements of the
Global Reporting Initiative (GRI) and are primarily intended to be read by sustainability experts and90Voith Annual Report 2017
Group Management Report
06. Sustainability

Our most important
stakeholders are
Voith’s owners andsupervisory bodies,customers, employees, job candidates,
suppliers andinvestors, the local
population at thelocations, businessassociations, publicauthorities andacademia, andpolicy-makers.

specialists. Thirdly, we now also offer the “Sharing Values, Creating Value” brochure which is intended
to provide potential employees and other interested persons an introduction to our commitment tosustainability.
In order to focus our sustainability management and reporting on the issues that matter most, we conduct
stakeholder surveys at regular intervals that are fed into detailed materiality analyses. The results of thelatest survey in the spring of 2016 and the materiality analysis based on it will be used to develop oursustainability strategy further. Our Advisory Board Sustainability, which is comprised of leading externalsustainability experts, provides ongoing advice and further important input.

Responsibility for the environment
We have set ourselves the goal of steadily minimizing Voith’s ecological footprint. We intend to create
measurable economic added value for Voith by taking a responsible approach to the environment.
Our activities in the environment field are focused on two areas: firstly, operational environmental
protection helps to avoid risk by complying with environmental regulations and minimizing the damage
to the environment caused by our business operations; secondly, the efficient use of resources andenergy provides opportunities for resource and energy-efficient production innovations at all our locations
around the world.
Taking the 2011/12 fiscal year as the base, the Corporate Board of Management defined three key
sales-related environmental targets for the six-year period between the 2011/12 and 2017/18 fiscal years:
1. Cut our energy consumption by 20 %2. Reduce our volume of waste by 25 %3. Lower freshwater consumption by 10 %We are currently on track to reach our targets but we must make further efforts to consistently pursue
the course to achieve the reductions. We are currently formulating new targets with the experts on
the Advisory Board. These will include a commitment to reaching a specific CO2 target. To date, CO2
emissions have only been addressed indirectly in relation to our energy target.
Our commitment to the environment has been recognized externally in a number of awards that we
received over the past years. During the year under review, for example, we won the “100 Enterprises
for Resource Efficiency” prize. This initiative was launched by the Technology and Innovation Centre forEnvironmental Technology and Resource Efficiency Baden-Württemberg. The official award ceremony
took place in October 2017.

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06. Sustainability

91

Responsibility for products and supply chains
We have set ourselves the standard of providing top-quality innovative products displaying a level ofsafety, reliability and efficiency that our customers can rely on. Our products and services should makea contribution to the conservation of resources and environmental protection throughout the entire value
chain, from the manufacturing process through to their use.
A Group-wide management system for technical risks and quality (TRQM) is used to manage targets,processes and methods for the development and production phase. This is supplemented by policies
specific to each Group Division. As part of a Group-wide operational excellence initiative, we areconstantly optimizing the quality of our products and processes. Virtually all Voith locations have beencertified under the international quality management standard ISO 9001.
Product ownership as we understand it involves close customer dialog based on mutual trust and specificsurveys. Our customers’ expectations are integrated in our product development, and we support ourcustomers with special training offers and advice on the most economical operation of our products.
Our understanding of corporate responsibility also extends to our suppliers. The quantity and broad
spectrum of procured goods and services make it a challenging task to ensure our supply chains are
sustainable.
We have integrated social, ecological and economic aspects in our General Terms and Conditions ofPurchase. Not only do our direct suppliers agree to comply with these General Terms and Conditionsof Purchase, they also undertake to pass on these requirements to any subsuppliers. Furthermore,
we request self-assessments from our suppliers and service providers on a regular basis and havethe suppliers with the strongest sales evaluated by our staff in the departments responsible once ayear. The results are stored in our central supplier management database. Long-term relationships oftrust with our suppliers help us to minimize risks in the procurement process. In this context, we workwith a preferred supplier and a blocked supplier concept. Social, ecological and economic aspects areincluded in both concepts.
In the future we will use a risk map, created in collaboration with ETH Zurich, which identifies the mostsignificant economic, social and ecological risks in our supply chain, to derive needs-based strategies
and concepts for our supplier management, self-assessment and supplier evaluation prioritizing Voith’s
key product groups and regions.

Social responsibility
We support local institutions and make a contribution to the development of society at all Voith
locations around the world. The type and scope of our commitment as well as eligibility criteria havebeen documented in the Group Directive on Donations and Sponsorship since 2008. As part of our92

Voith Annual Report 2017
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06. Sustainability

commitment to society, we support activities and organizations in the fields of education, social welfare,sports and culture. And, quite apart from all of the above, Voith takes action where it perceives anurgent humanitarian need.
On the occasion of its 150th anniversary, the Voith headquarters donated € 12 million to the BadenWürttemberg Cooperative State University (DHBW) Heidenheim in spring 2017. This underlined Voith’scommitment to education and the conviction that well-trained young people and a passion for innovation
and research at the very highest level are necessary conditions for a successful future. In its anniversary
year, Voith donated € 1 million to the Hanns Voith Foundation. Alongside these large donations, Voith
also supported 150 non-profit local initiatives during the year under review under the motto of “150Good Causes.” This project was special because Voith employees were able to get involved with anddonate € 1,000 to specific projects at their location. Voith also supported the Global Business Coalition
for Education (GBC Education) and made a six-figure donation to help students in Tanzania develop
their digital skills.
Voith is one of the initiators of the “Wir zusammen” (We Together) integration initiative of German
industry launched in February 2016; this initiative is implementing a wide range of projects with the aimof pressing forward with the long-term integration of refugees in Germany. Voith’s own involvementtakes the form of mentoring in vocational training to make it easier for refugees to integrate into thelabor market. As part of this mentoring program we offer additional support in the form of in-house
German language courses and multicultural training to young people who complete a placement, initialqualification program or vocational training with Voith. A prerequisite is that the applicant has sufficient
basic mathematical and natural science knowledge and adequate German language skills.

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07. Employees

07.

93

Employees
Qualified, motivated and dedicated employees are the foundationand motor of our success. We endeavor to offer our employees
who meet our high demands challenging tasks, individual
development opportunities and an attractive workplace. We take
into account each of our employee’s personal situations andenable them to pursue a wide range of different career options.
At the close of the 2016/17 fiscal year, the Voith Group had around19,000 employees.

Headcount all but unchanged
After the number of employees in the Voith Group had been substantially reduced in previous years
during the Group’s transformation process, the number has remained almost unchanged in the year underreview. As at September 30, 2017, the Voith Group had 19,045 employees (full-time equivalents excluding
apprentices). Overall, this is 53 fewer jobs than one year previously (September 30, 2016: 19,098).

Job transfers to Voith Digital Solutions
Several hundred more jobs were again transferred from the three traditional Group Divisions to the
new Group Division in the 2016/17 fiscal year in the process of establishing Voith Digital Solutions.
Furthermore, the employees working at Ray Sono AG, in which a majority shareholding was acquired

Employees total 19,045

Employees Groupby Group Division

19,09819,045Voith ­Turbo
28 %by region

Voith ­­Hydro
24 %Americas24 %EuropeexcludingGermany
14 %

Other
7%

2015/162016/17

Voith Paper
34 %

Voith
DigitalSolutions
7%

Germany
40 %

Asia
21 %

Other
1%

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07. Employees

in the year under review, were consolidated in the Group for the first time and attributed to Voith
Digital Solutions. At the end of the 2016/17 fiscal year, the Voith Digital Solutions Group Divisions had
1,397 employees (previous year: 654; +743 jobs). This corresponds to a share of 7 % of the Group.
The number of employees in the three traditional Group Divisions fell as a result of the transfer of jobs.
The largest Group Division in terms of workforce continued to be Voith Paper, with 34 % of the total numberof employees (previous year: 34 %). At the end of the year under review, Voith Paper had 6,449 employees,
101 fewer than last year (previous year: 6,550 employees).
Voith Turbo had 5,408 employees (previous year: 5,702) or 28 % (previous year: 30 %) of the Group’s
total workforce. The reduction by 294 jobs during the year under review resulted in part from planned
capacity adjustments at particular locations and in part from the transfer of jobs to Voith Digital Solutions.
Voith Hydro had 4,507 employees (previous year: 4,934) or 24 % (previous year: 26 %) of the Group’s
total workforce. The number of employees working for Voith Hydro fell by 427, above all due to capacity
adjustments in Brazil and to the transfer of jobs to Voith Digital Solutions.
The remaining jobs (1,284, previous year: 1,258) were for activities in the Composite division, the internal
Administration and Service Center and divisions with the holding function. The slight rise in the numberof these jobs was due to the continuing combination of internal service functions and basically involves
the relocation of employees from the Group Divisions to the central functions.

40 % of the workforce based in Germany
From a regional perspective, most of Voith’s workforce continues to be based in Germany, with a shareof 40 % of the Group’s total workforce (previous year: 39 %). The Americas were still the second mostimportant region with a 24 % share (previous year: 26 %). 21 % of our workforce were employed in Asia
(previous year: 20 %). The Europe excluding Germany region accounted for 14 % of the total workforce,as in the previous year. Employees working in other regions made up 1 % of the workforce.

First-class professional training
In the year under review, we once again provided a large number of young people with career prospects
and increased the number of apprenticeships by 10 % compared to the previous year. At the close of
the 2016/17 fiscal year, 953 apprentices and students were employed at Voith locations around theglobe (previous year: 1,0091) ) .

1)

Previous year amount restated due to new method of calculation.

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95

As a matter of tradition, we set great store by first-class vocational training. We place great value oninterdisciplinary learning and a holistic approach to imparting a combination of both social and professional skills. The high quality of our training is repeatedly demonstrated in Germany by the excellent
performance of Voith apprentices at state and federal level. In the 2016/17 fiscal year, 50 % of ourapprentices in Heidenheim received a final grade of 1.9 or higher (equivalent to good).
We are also committed to the topic of education at our international locations. The largest Voith training
facility outside Germany is the Kunshan Training Center in China, opened in 2014. At that facility, we
employ training methods based on the German dual system, enhanced with elements specific to Chinese
culture. The fact that the dual system can be successfully put into long-term practice outside Germany
is demonstrated by our experiences from Brazil. We have been training young people for many years
now in São Paulo, Brazil, where Voith opened its first plant back in 1964 and where it has since been
involved in a large number of the country’s infrastructure projects. In cooperation with local training
institutions, we have developed a training concept for a four-year apprenticeship program aimed atyoung people aged 15 years and older that regularly provides excellently qualified young technicians.
As part of the global graduate program we offer graduates from technical and business management
disciplines demanding entry-level positions within the Company. We recruit participants from aroundthe world who gain practical experience, attend training sessions, are supported by a mentor and workin different Group Divisions and regions.

Training for Industrie 4.0
The digital transformation is merging industrial processes with modern information and communication
technology. This means that today’s apprentices will be working in a completely changed production
landscape in ten years time. We are looking very closely at training concepts for Industrie 4.0 which will
enable us to provide young people with adequate preparation for the challenges of the future.
Voith launched two initiatives in the 2016/17 fiscal year, both of which focus on including digitalcontents within the curriculum of the dual system of training in the metal and electronics industry inGermany. The first step will entail Voith supporting the efforts already being made by the Federation ofGerman Employers’ Associations in the Metal and Electrical Engineering Industries (Gesamtmetall) andthe VDMA to amend the training regulations which apply to the metal and electronics professions. Thisentails a form of facelift to bring training for the most important technical professions rapidly into linewith state-of-the-art practices. Voith provides intensive expertise support for the process of producing
new training regulations. Assuming that the procedure has been completed on schedule by the summerof 2018, every single apprentice in Germany who begins training from 2018/19 for a typical mechanical engineering profession, such as industrial mechanic, mechatronics engineer or cutting machine
operator, will benefit from increased IT training content. The second long-term step will be the designand official recognition of an entirely new industrial trade. This is intended to be a hybrid occupation
which will combine skills in mechanical engineering, electronics, automation, network technology andthe Internet of Things. We have been in discussions with the Chamber of Industry and Commerce andother companies in our industry since the year under review; an official recognition procedure of thiskind takes several years to complete. These two initiatives are examples of Voith living up to its ambitionof being the training pacemaker and pioneer in Germany.

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Quite apart from the institutionalization of training, Voith also uses the scope available within established trades to devise training plans which teach apprentices additional IT skills and advances theCompany’s digital transformation. These skills, such as additive production processes with the aid of
3D printers, using manufacturing execution systems (MES) or augmented reality, can be used in manydifferent contexts. We have developed the necessary concepts and acquired the required equipment
for this purpose during the year under review. From the 2017/18 fiscal year onwards the new digital
work contents will be integrated in training for technical professions in Voith. Based on the model of ourproven OpEx learning factories, we are now setting up learning in which Industrie 4.0 can be tried out.

Needs- and goal-oriented personnel development
Lifelong learning is a core topic at Voith. We support the ongoing development of our employees. Our
objective: we always seek to have the right employee with the right qualifications and appropriatecompetencies at the right place in the Company. Our leadership concept, which includes numerous
leadership tools, provides the operative framework for this purpose. The key elements are two formal
meetings which are held with every employee once a year, the performance review and the employee
appraisal. The outcome of these meetings is entered in our People Excellence Platform (“pep.”), an
IT-based personnel information system, together with the findings of the management review process
so that development measures can be defined and implemented in line with the Company’s needs
and the requirements of any function or position to which an employee may aspire.
Based on our employees’ individual training needs, we offer them access to internal and external
training and personal development measures that foster professional, personal and methodology
skill sets. Our executives also take part in standard development programs to create a common
understanding of leadership in all Group Divisions and regions.
In the year under review, around 60,800 employees (previous year: around 42,500) from throughout
the Group participated in our internal and external training measures.

Information about
the Voith Group’s
strategic goals
can be foundin section 01.4.
Group strategy.

We reorganized our personnel development during the year under review with the aim of supporting thestrategic goals of the Voith Group. Digitalization will dramatically change the world of work. Innovations
do not just arise from new technologies, they can also involve other ways of organizing work. New formsof collaboration and communication, stronger networking via teams, departments, national borders
and hierarchical levels will shape the world of work in the future. In order to prepare our employees forthe digital transformation, we are providing them with the fundamental digital knowledge they will needas well as additional specialized training tailored to meet requirements in each of the departments. We
have therefore enriched our training and development programs with methodological knowledge, suchas agile project management, scrum or design thinking. What is more, Voith’s new leadership conceptemphasizes aspects promoting the transformation of our corporate culture which forms part of theobjectives of our Voith 150+ Next Level program. Our management training, for example, is designed tostrengthen a dialog-oriented style of leadership and to promote independent thinking and acting at all

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levels of the Company as well as the courage to change and striving for excellence. The new programsfor employees and executives were designed during the year under review and will be implemented in
the 2017/18 fiscal year.

Occupational health and safety management
Occupational health and safety are top priorities for us. By taking a responsible approach to the designof workplaces and processes, we aim to avoid accidents and work-related illnesses as far as is possible.
Our occupational safety is based on an effective HSE organization (Health, Safety, Environment), whichis structured as a shared service organization. A corresponding Group directive prescribes mandatory
minimum requirements and standards for the Voith Group and contains in excess of 20 written standard
operating procedures. All rules and regulations are available in the Group’s hse+ IT system. All employees
are covered by Voith’s occupational safety program. Information and goals are rolled out through theorganization, from the Board of Management through the respective executives down to employee level.
Supervisors train their staff and address safety issues at regular meetings. This process is supportedby the use of training documents provided by management.
Since the implementation of our global occupational safety program, we have seen great improvements
at all our locations. Voith is now a global leader in occupational safety in its industry. The frequency
rate, calculated pursuant to an international standard and documenting the number of accidents per
one million working hours, has been reduced dramatically from the baseline of 13.9, or 921 reportable
accidents in the 2008/09 fiscal year. In the year under review, the number of accidents was 1.4 per one
million working hours or a total of 50 accidents per year. In comparison: the average frequency rate forcompanies in the German Wood and Metal Trades Association is 24. Voith also achieved a significant
improvement in what is known as the severity rate, which stood at 271 hours lost per one million
working hours in the year under review. The fact that both the number and the severity of accidents
have been reduced significantly is an important indicator of the effectiveness of our programs. We
intend to maintain on a permanent basis what we have already achieved and constantly improve on it
in the future. Our success has also been confirmed by external opinions – for example we achieved a
top score of A+ for our accident rate in the oekom research rating. We aim to involve employees moreclosely in our activities in the future. The eVAP occupational safety app (electronic Voith Awareness
Program) launched in the year under review is an important step in this direction. The app can be usedby employees locally to record matters quickly and simply and to send them to a central database.
In the field of occupational health and safety we place particular emphasis on prevention. This involves
pursuing a regional approach appropriate to heterogeneous conditions. No matter where our employees
work, they should be able to maintain their ability to work and retire in good health at the end of theirworking lives. In this regard, we concentrate on four fields of action: a safe working environment in linewith demographic developments, health promotion and preventive health care, support in the event ofsickness and combating stress as well as corporate culture and leadership.

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Diversity and equal opportunity
Voith employs men and women who are at different stages of their lives, come from almost 90 nations,and bring their own individual experiences with them. As an employer, Voith sees it as its duty to offer
all its employees equal opportunities and to ensure that the workplace is free from discrimination.
Furthermore, studies have shown that diversity enriches the corporate culture, encourages team creativity
and innovative drive, and contributes to the economic success of companies.
Since the 2012/13 fiscal year, Voith has been running a Diversity & Inclusion Program (D&I) to support
diversity and equal opportunities. At Voith we understand “diversity” to be differences within our
workforce or within individual organizational units with regard to five factors, namely: gender, age/generation, nationality/ethnic background, educational background/professional experience andindividual differences such as beliefs or physical abilities. For us, “inclusion” means promoting a work
culture of mutual respect that is open to differing ideas and perspectives. The overarching objective
is to incorporate a wide range of insights, backgrounds and approaches into the solution of complex
customer requirements.
The D&I program begins by gradually increasing employees’ awareness and moves on to initiating
suitable measures and establishing an inclusive working environment at all locations. While the program
is coordinated by our central HR function, the respective focus is defined by the regional and divisional
management as the challenges faced differ from one region and Group Division to another.
In the 2016/17 fiscal year, our D&I program has noticeably picked up steam and executives and employees all around the world are now much more aware of this issue. A number of different workshops
have been held in Group Divisions and regions, in various constellations: with executives from different
hierarchical levels, D&I advocates and HR staff. Every workshop was attended by at least one memberof the local top management. This illustrates that diversity and equal opportunities are important mattersof concern to the Corporate Board of Management. A global internal communication campaign was also
launched in the year under review, which is designed to reach our employees through various online andoffline channels. The campaign relies heavily on dialog and the playful opportunities provided by social
media to achieve a high level of emotional commitment from employees. We have also made progresswith the operationalization of our D&I program. Regional D&I road maps have been implemented withmeasures and schedules, and a new manager toolkit describes specific instruments which can be used
to strengthen diversity and equality of opportunity.
Although we at Voith have our eyes set firmly on all five dimensions, new legislation has recently put
the gender dimension at the center of public debate in Germany. Women have been and continue tobe under-represented in technical apprenticeships and in technical subjects at college and university
level. As a result, technology companies, especially in the B2B field, generally employ significantly more
men than women. This is one of the reasons why the proportion of women in Voith’s overall workforce
stood at only 18 % on September 30, 2017 (previous year: 17 %; based on headcount).

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Since we started addressing the topic of diversity and inclusion in a systematic manner, we haveidentified the need for action in this respect. Furthermore, the new German Act on Equal Participationof Women and Men in Management Positions (FührposGleichberG) obliges us to define and publish
specific targets for the management holding company Voith GmbH & Co. KGaA (previously known as
Voith GmbH until July 31, 2017).
We had set the following targets for the target date of June 30, 2017 which were published in the 2016
annual report.
Flashback
Proportion of women1) in the management holding company Voith GmbH 2)

in  %

Supervisory Board

Target rate
for June 30, 2017

Actual figureon June 30, 2017

15

15

15

Board of Management (BM)

0

0

0

First management level below BM

21

25

18

Second management level below BM

18

20

13

1)
2)

Further informationon the global
evaluation procedurecan be foundbelow in section 07.
Employees
under the heading
Introduction of a
global job grading
system planned.

Initial value
on Sept. 30, 2015

Based on headcount.
Company name since August 1, 2017: Voith GmbH & Co. KGaA.

As previously announced, owing to ongoing contracts, the proportion of women in the Supervisory Boardand the Corporate Board of Management has not changed. The aim of modestly increasing the proportionof women at the first two management levels has unfortunately not been achieved as vacancies could
not be filled with appropriately qualified women.
We have set ourselves new goals for the years ahead. These are based on a new calculation. We havemodified the definition of the first two management levels below the Board of Management, which arenotifiable under the FührposGleichberG, to our new evaluation procedure which will come into effect fromthe 2017/18 fiscal year. The positions included in the calculation of the proportion of women at levels 1
and 2 have consequently changed. As a result, the figures for the starting date of June 30, 2017 and forthe target date September 30, 2021 are not compatible with the targets and results published in the past.

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Based on the figures for June 30, 2017 the following targets should be met by the end of the 2020/21
fiscal year:
Outlook
Proportion of women1) in the management holding company Voith GmbH & Co. KGaA

in  %

Supervisory Board
First management level below BM

2)

Second management level below BM2)
1)
2)

Initial value
on June 30, 2017

Target rate
for Sept. 30, 2021

15

15

25

25

16

20

Based on headcount.
New definition.

Based on the new calculation method, we aim to achieve a consistent 25 % of women at the firstmanagement level below the Corporate Board of Management by the target date of September 30,
2021. At the second level, the proportion of women should if possible increase from its present rate of
16 % (on June 30, 2017) to 20 % by the target date.
In order to achieve these targets, we have agreed on specific measures in addition to the D&I programthat has been running for some time now. These measures relate primarily to the selection procedureused in the recruitment of new employees and the filling of internal vacancies. The decisive factors inthe selection of suitable candidates will, however, remain the qualifications, performance and personalityof the candidates concerned.
Bearing in mind the terms of existing contracts, there is no plan to alter the composition of theSupervisory Board. The transformation of Voith GmbH into a GmbH & Co. KGaA means that there is
no longer any legal duty on the management body to set a specific target proportion.

Family and career
The work-life balance is one of the key factors in achieving an increase in the proportion of women incompanies. Regardless of gender, most people consider a working environment to be attractive if it
can be adapted flexibly to their respective situation in life. For this reason, we support our employees
in combining family life with work. With this aim in mind we offer the greatest possible flexibility, i.e. in
the form of a wide range of working time models, a combination of mobile working and presence at
the Company, flexible work locations and vacation rules as well as sabbaticals.
We offer places at various childcare facilities for employees’ children up to the age of ten at several of
our locations in Germany. Various locations in Germany have their own parent-child office allowing our
employees to bring their child with them to work when other childcare options fail at the last minute.

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Employees in Germany can also obtain information by telephone or e-mail about issues such as caring
for family members – an issue which, owing to demographic trends, is growing in importance for many
employees. This service, and the arrangement of childminding, au-pair and other childcare services, isoffered in cooperation with an external consultancy firm. Our employees can find additional practicalinformation on childcare, nursing care and careers on our Germany-wide intranet platform.

First Group-wide employee survey performed

Further information
about our newleadership concept
can be found in
this section of
the management
report under theheading Needs- andgoal-oriented personnel development
and in section 01.4.
Group strategy.

We performed a global employee survey in 2017 for the first time with the aim of measuring the satisfaction of our employees and of identifying possible improvements. 14,500 employees from all fourGroup Divisions and the central functions took part in the anonymous survey; participation was highat 72 %. The findings were evaluated during the year under review and presented to our executives
and employees at the start of the new 2017/18 fiscal year. The valuable feedback we received fromour employees will be used to develop specific ideas and measures. The findings will, for example, be
integrated in our management development program which we have revised for the new fiscal year.
Regular employee surveys are planned for the future.

Efficient processes and systems forhuman resources management
We have fundamentally revised our human resources structures and processes over a period of several
years in the framework of Voith 150+. These are now supported by efficient IT systems.
The centralized organizational structure for human resources introduced in the 2015/16 fiscal year has
proven to be successful. Based on the shared service system, four internationally distributed global
business service centers with six service lines perform tasks for the regions, such as settlement, time
management or HR administration with a uniform Company-wide service approach. The restructuring
was an important precondition for the Group-wide standardization and automation of HR processes.
During the year under review we have optimized and harmonized certain processes in the new structureand have set up simple ways of accessing HR services, such as by self-service, by phone, e-mail orour global ticketing system.
We have sought to establish integrated HR IT systems for several years. We have gradually built up ourcloud-based modern personnel information system pep. (People Excellence Platform). The pep. system
contains basic information, such as qualification and development information about all our employees
worldwide. The organizational structure of all Voith business units is also mapped and transparency iscreated with regard to reporting lines and expert knowledge. This facilitates the creation of virtual teams
which function across national borders and Group Division boundaries. The HRcockpit reporting toolassociated with pep. provides our human resources experts and senior management with key figures
at the press of a button. In this way, permanently up-to-date figures are available for each area of
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been filled through internal succession plans. Smart analysis tools can be used to make comparisonswith other business units. We aim to make these options available to more management levels in the
new fiscal year. This will make pep. the central source of information for human resources: it will map
all relevant HR processes and lay the groundwork for sound business decisions.
It has become apparent during the fiscal year that the savings which the centralization and pooling ofactivities were intended to achieve have, in fact, been made. What is more, IT-supported modernizationand improvement of processes have also raised the quality of information available to employees andexecutives. In the future, we intend to exploit to an even greater extent the information base that has
been greatly improved in terms of quantity and quality to be able to analyze complex factors and tocreate a basis for decision-making for future planning. Our medium-term objective is to identify humanresources requirements in advance on the basis of job profiles as part of strategic personnel planningand to use the findings to derive measures such as training and development programs, recruitment
initiatives or redeployments.

Introduction of a global job grading system planned
We have laid the foundations for a globally consistent job grading system for Voith during the year
under review. While the value assigned to positions at Voith like in many medium-sized enterprises
has, in the past, been derived primarily from reporting lines and spans of control, the new system
will be based on criteria relating to factors such as responsibility, required expertise, experience andsocial skills. This means that the new system will not only reflect management careers, but will also
do justice to the importance of specialist careers. The aim is to evaluate every position in the Groupaccording to its relative value for the Company regardless of its hierarchical assignment. This system
will be used in diverse HR processes, from job advertisements through to the planning of career paths
and personnel development measures or the design of compensation and benefits systems. The new
evaluation procedure system will be introduced throughout the Group in the 2017/18 fiscal year andwill be successively integrated in the operative standard processes.

Excellent employer
The Voith employer brand enjoys an outstanding reputation. This is repeatedly confirmed by institutes
on job portals and in employer rankings. We also won various other awards in the 2016/17 fiscal year.
For example, Voith won first place in the “top career opportunities” study of the mechanical and plantengineering industry published by Focus Money / Deutschland Test in November 2016. The study covers
over 2,000 companies in 59 industries based in Germany. The evaluation covered aspects such as
development opportunities, sustainability, innovative drive and employee commitment (as determinedin company surveys) as well as the categories of leadership culture, sustainability and image (evaluatedwith the help of social listening tools). Voith is also a highly popular employer among talented young
people and is frequently among the top 100 companies in Germany cited by young professionals

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103and students in the engineering industry. As an example, Voith was ranked 55 by young engineering­professionals and 74 by students in the annual ranking performed by the Swedish market research
institute Universum. The Company’s good performance among young graduates is confirmed by thetrendence Graduate Barometer in which Voith is ranked 68 by engineering graduates. Voith has also
repeatedly received seals of approval distinguishing the Company as a fair employer that offers its
employees excellent training and development opportunities and promotes a work-life balance.

08.

Subsequent events
There were no significant events after the end of the 2016/17 fiscal year.

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09.

Risks and opportunities
Entrepreneurial activity includes making decisions under conditions of uncertainty. Our risk management system allows us to
identify and manage risks to protect the Company. There continue
to be no risks to the Voith Group’s ability to continue as a going
concern. The most significant risks which could cause the results
to deviate negatively from those forecast/targeted continue to be
external. The risks are matched by opportunities that could havea positive influence on business development.

09.1. Risk and quality management
Aligned towards increasing the value of the Company
Entrepreneurial activity involves making decisions under conditions of uncertainty. Risk is therefore an
integral part of entrepreneurial activity. To safeguard against risks that could jeopardize the Group and/or its companies as a going concern, Voith operates a consistent and binding Group-wide risk management system. Risks to the Group’s ability to continue as a going concern are defined as aggregate
risk potential that threatens more than 50 % of equity or more than 10 % of sales.
All the elements of risk management have been brought together in a risk management system. This
is not only geared to compliance with legal requirements, it should also contribute to increasing thevalue of the Group and its companies by reducing potential risks and their probability of occurrence.
At the same time, the system is intended to produce a state of equilibrium between correctly assessedrisks and the exploitation of opportunities. Standardized risk controlling matrices on the basis of theGroup-wide guideline governing internal control systems (ICS) have been implemented in the Group
Divisions. The ICS is part of the risk management system aimed at ensuring the appropriateness andreliability of internal reporting and external financial reporting, the effectiveness, efficiency and propriety ofordinary business operations, as well as compliance with the Voith Code of Conduct and the guidelinesof the Voith Group. Risk and quality management are interlinked and integrated in a comprehensive
internal controlling system.

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105

Decentralized nature of the risk management system
Voith distinguishes between two overarching risk groups with a total of six risk categories:
1. Risks to the Group·· External risks·· Management risks·· Liquidity and financial risks·· Infrastructure risks

2. Risks to performance·· Contractual risks·· Technical risks

Risk management at Voith is organized on a decentralized basis but is monitored and coordinatedcentrally. Responsibilities are clearly defined for the differentiated risk profiles at all levels of the Group.
The risk management process itself breaks down into four stages:·· Risk identification: Voith constantly monitors macroeconomic developments, developments in specificindustries and internal business processes that could affect the situation of the Group. A risk catalog
helps identify individual risks.
·· Risk analysis and assessment: The risks identified in this way are assessed in terms of potential
impact and their probability of occurrence. Wherever possible, the potential impact is quantified as acost factor. In order to assess the potential risk the worst-case scenario and a realistic scenario are­a nalyzed for each identified performance risk, and their impact on the financial situation of the Groupis examined. This involves monthly reporting to the Group’s management of those individual risks witha maximum impact of >€ 5 million or a realistic impact of >€ 2 million, including the measures taken to
mitigate this risk such as existing insurance policies, recognized provisions or recorded depreciation.
·· Risk management: Analysis and assessment of the identified risks gives Voith’s management the data
it needs to decide whether the risks should be avoided, reduced by suitable actions, transferred bysigning appropriate agreements, or whether they have to be accepted and contained by means of
optimized processes and controls.
·· Risk monitoring and reporting: A multitiered set of controlling and reporting tools helps the Corporate
Board of Management to analyze risks and make well-founded decisions.

09.2. Risks
In the sections that follow, we describe risks that could have a substantially negative effect on our net
assets, financial position and earnings position and lead to failure to meet forecasts or targets. The
order of the risks within the six risk categories presented below reflects how we currently estimate theimportance of these risks for the Voith Group. Unless stated otherwise, the following risks relate to all
the Group Divisions. Additional risks of which we are currently not aware or risks we currently estimate
to be immaterial may also have a negative impact on our business activities.

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09.2.1. Risks to the Group
External risks
Our economic environment is determined by global demand for capital goods. This demand is in turninfluenced by the global macroeconomic environment. If economic developments were to fall substantiallyshort of expectations, it is highly probable that this would have negative effects on Voith’s net assets,financial position and earnings position. Economists see significant risks for projected global economic
development.
A number of geopolitical trouble spots pose risks to the global economy. The conflict in northern Asiaaround North Korea is currently far more explosive than the one in the Middle East.
Uncertainty about the future direction of US economic and trade policy continues to affect export-oriented countries as well as the American and global economies as a whole. Restrictions in traderelationships between China, USA and Europe would have a substantially negative impact on global
economic development. Protectionist tendencies are discernible all around the world.
Attention continues to be drawn to tensions between Europe and Turkey. There is a risk of trade being
restricted in this part of the world, for example in the form of economic sanctions or the elimination offinancing vehicles such as Hermes guarantees.
Due to the uncertainty about the terms and conditions of the United Kingdom’s planned exit from theEuropean Union, investments are currently being put on hold throughout Europe. The extent to which
economic growth in Europe will weaken as a result of Brexit and what damage this will do to the global
economy as a whole will depend on the duration and outcome of the Brexit negotiations.
A more medium-term risk for the world’s economy is the as yet unresolved crisis in the euro zone. This iscurrently covered by the European Central Bank’s expansive monetary policy. However, the high level ofsovereign debt and the structural reforms urgently needed in several countries to increase international
competitiveness continue to pose challenges.
Increased exchange rate volatility poses a further macroeconomic risk, albeit one which is less serious
than the above-mentioned risks. On the one hand, more pronounced fluctuations in exchange rates
lead to translation risks that make it more difficult to forecast our business performance. On the other
hand, a rising exchange rate of the euro against key currencies, as we saw to some extent during theyear under review, impairs the competitive position of our products on the global market and hampers
exports to regions outside the euro zone.
Various market risks could have a negative impact on Voith’s earnings position should they eventuate.
Two fundamental market risks are associated with the development of raw material prices, on the one
hand, and the price of crude oil on the other. The dramatic fall in prices over a period of several years
has had a strong negative effect on the earnings position of raw materials producers and oil groups inthe past three fiscal years, noticeably decimating their investment spending. Both markets now appear
to have bottomed out with regard to investments. Our planning for the 2017/18 fiscal year is based

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107

on the assumption that both markets will stabilize. If, however, prices were to remain as low as they
are now for a long period of time, our customers would postpone their investments further. This could
jeopardize the achievement of our targets for the 2017/18 fiscal year and have a negative impact on
the earnings position of our Voith Turbo Group Division with its Industry division in the following year.
Uncertainties regarding energy policies, to which Voith Turbo and Voith Hydro in particular will haveto adjust, are affecting the power generation market worldwide. For Voith Hydro, stepped-up shale
gas extraction could in the medium to long term lead to partial displacement of new investments
and modernization of existing hydropower plants in North America, which would diminish this Group
Division’s earnings position.
The Voith Group has analyzed the scenarios described above. The Corporate Board of Management isready to take decisive action should economic conditions change.

Further informationon our digital agenda
can be found insection 01.4.
Group strategy.

Management risks
Voith has set itself the aim of playing a major role in digitizing the industry and will make substantial
investments in the key competencies for the megatrend of Industrie 4.0 over the next few years, bothwithin the Company and through acquisitions. The new Group Division Voith Digital Solutions is intended
not only to develop new digital solutions for our traditional core markets, but also to open up customer
industries not covered by us to date for new applications and business models. As is always thecase with such major transformation processes, there is the general risk of the strategic changes not
being implemented within the planned time period or not leading to the desired outcome. Should theinvestments and start-up costs for the new Group Division not be covered by corresponding sales in
the medium term, this would have a negative effect on the earnings position, net assets and financial
position of the Voith Group and limit headroom for further growth. We are very much aware of thisrisk as well as of the associated opportunities. Strict project controlling is in place. The enhancementof the Voith product portfolio with digital applications enjoys the utmost attention from the Corporate
Board of Management.
Beyond the risk described above, there are currently no indications of specific risks arising from theGroup’s management, e.g. from the reporting system, the corporate image or a lack of coordination ofbusiness activities within the Group.
Liquidity and financial risks
The key objective of liquidity and financial management is to make sure at all times that the Company
is able to continue as a going concern and to ensure the financial independence of the family-owned
business. The liquidity reserves remain at a secure level to ensure that the Company is always in aposition to meet its payment obligations.
Cash management is the task of the Group’s treasury function as well as the related regional treasury
and finance centers. The Group maintains cash pooling systems in Europe, China, India and North
America, which it uses to concentrate its cash and cash equivalents as far as possible (where legallypermissible) and lower interest expenses caused by external debt financing. Borrowings are generally
taken out by Voith GmbH & Co. KGaA and provided to the Group companies when needed.

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The Voith Group’s diversified financing structure is designed to safeguard long-term stability. The
syndicated euro loan arranged in 2011 and increased to € 770 million in 2014 under an amend-andextend agreement, was extended a second time for one year in August 2016 and now runs until 2021
with € 715 million available in the final year of the agreement. The loan has not been drawn on and isavailable as a strategic liquidity reserve if needed, as are additional bilateral lines of credit available tous from banks. The syndicated loan placed in China in 2012 for CNY 2 billion will be available until May
2020; 42 % of the loan had been used up by the balance sheet date. This facility secures the financefor future investments and for the operating business in the same currency as the operating businesson the local market. These instruments will allow for long-term growth in a changing global market
environment. Voith has given high priority to the availability of liquidity from existing loan agreements.
Risks of termination are minimized by monitoring compliance with the terms and conditions of therespective contracts on an ongoing basis. As in previous years, all contractual terms and conditions
were complied with in the 2016/17 fiscal year.
The Ba1 rating given by Moody’s was confirmed in February 2017 with “outlook stable.”With regard to securities, the Group generally holds a few individual direct investments. Fluctuations in
the value of these investments as a whole are recognized directly in equity. Price losses are recognizedin profit or loss only if there is objective evidence of a prolonged or significant decline in the investment’s
fair value. The criterion of a prolonged decline is met if the decline lasts longer than 12 months. The
decline is regarded as significant if the fair value of the investment falls more than 30 % below its cost.
It should be noted that all investment decisions are based on thorough analysis of fundamental data.
Any open share price risks are analyzed continuously.
As a globally operating company, Voith remains exposed to the risk of fluctuating exchange rates,
which could have a negative impact on the net assets, financial position and earnings position. To
contain risks arising from cash flows in different currencies (mainly US dollars but also currencies fromemerging markets such as China, Brazil or India), defined foreign currency management procedures areapplied consistently throughout the Group. All Group companies are required to hedge foreign currency
items when these occur. Revaluation of the euro against various other currencies could have negative
effects on sales and net result due to currency translation of the financial statements prepared in foreign
currency. This could further have an impact on our competitive position as competitors could benefit
from cost advantages in weaker currencies. Moreover, interest rate risks are hedged using suitable
instruments in order to maintain interest and financing security in the long term.
To hedge existing transactions such as future cash flows in different currencies or floating-rate financing,
Voith uses a variety of derivative financial instruments, in particular forward exchange contracts tomanage currency risks and interest rate swaps to manage interest rate risks. The instruments used andthe hedging strategies are formally designated and documented at the inception of the hedge in linewith the Company’s risk management objective. The risks are constantly monitored and, if necessary,the hedging instruments are adjusted.

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109

To guard against political and economic risks associated with goods and services provided by the Group
Divisions, the Group buys commensurate insurance from government export credit insurance agencies,
from the private-sector insurance market and from banks. The Group also maintains adequate cash
reserves to cover all other operating risks.
Counterparty risks with financial partners are monitored constantly.
Adequate provisions have been recognized and contingent liabilities have been disclosed in the notes
to cover the potential financial burden of tax risks. Neither Voith GmbH & Co. KGaA nor any of its Group
companies are involved in any further current or foreseeable taxation proceedings that could have amaterial effect on their economic situation.
There are no indications of particular liquidity or financial risks. For more information, please refer to thenotes to the consolidated financial statements. The related reporting as well as reporting on financial
instruments (Sec. 315 (2) No. 1 German Commercial Code (HGB)) is provided there in the section“Other notes.”
Infrastructure risks
In the area of infrastructure risks, Voith primarily identifies IT risks, human resources risks, compliancerisks and environmental protection risks, against which the Company takes specific countermeasures. There are currently no indications of particular risks relating to the Group’s infrastructure.
Our successful business activities are underpinned by state-of-the-art and secure information technology. This is why we have our own IT function, which was transferred to the Voith Digital Solutions
Group Division in the year under review and ensures that reliable data processing services are provided
from our own computer center. These experts manage the whole IT infrastructure for the Group andalso maintain the specific application systems used by each Group Division. Our information security
management is based on the international standard ISO/IEC 27001, and thus meets the most stringent
standards. Our central computer center is certified under this standard. Our primary objective regarding
the management of IT risks is to ensure the availability of our IT infrastructure and IT applications used.
Outages of basic systems owing to technical faults, virus attack or force majeure would result in business processes being massively disrupted or coming to a complete standstill. In order to prevent suchbusiness interruptions, we have built redundancy capacity into the core systems of our IT landscape at
two computer centers. At the application level, we address the risk of defective software in addition to
the risk of outages. We ensure the reliability (“integrity”) of applications with a strict quality management
system, which involves new software versions and programs being subject to a multistep test andapproval process before they are implemented. In order to maintain the confidentiality of our data, these
are categorized according to predefined confidentiality levels. Depending on the level of confidentiality,
we have IT tools of varying complexity such as encryption technology, which we use to securely store
and transfer data. This also ensures that our intellectual property is protected as well as possible. In
addition to these technical measures, we train and inform our employees about how to securely handle
confidential data by means of e-learning programs and awareness campaigns.

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09. Risks and opportunities

Further informationon our personnel
information
system can befound in section 07.
Employees.

Further informationon compliance management in the Voith
Group can be foundin section 01.3.
Values, guidelines,
compliance.

Highly qualified professionals and executives are key to our products, our image and ultimately to thesuccess and growth of Voith. If we were unable to cover our qualitative and quantitative personnel needs
over a longer period of time, this would call into question our ability to reach our corporate targets.
For this reason, we strive to provide ongoing further training and to retain experienced employees atVoith as well as to remain an employer of choice for new, qualified candidates on the labor market. We
compete with other international players and act with foresight in order to ensure we have a sufficientnumber of such employees. With a family-friendly human resources policy and flexible working hours,
international career development prospects and performance-linked compensation systems as well asa broad spectrum of training and development programs, we offer an attractive work environment. We
are also extending our Group-wide personnel information system in the direction of strategic personnel
planning in order to identify requirements in advance and to take suitable measures to cover them.
At Voith, we base all our actions on trust and integrity. The guidelines and values defined by the
Corporate Board of Management are summarized in the Voith Code of Conduct. This is equally binding
for all Voith employees worldwide and provides clear-cut rules of behavior toward third parties such as
business partners, competitors, political parties and government authorities. Compliance with theseprinciples is monitored by the Group’s Compliance Committee and the compliance officers in the Group
Divisions and in each Group company. As part of a structured process covering all locations worldwide,
compliance officers draw up a risk control matrix for their specific area of responsibility, which also
includes potential corruption risks. The findings for all units are aggregated and form the basis for internal
compliance reviews. We place great value on functioning compliance management, as issues ranging
from non-compliant behavior through to illegal acts committed by employees can be damaging to our
reputation and lead to sanctions, penalties and ultimately to a fall in earnings.
The business activities of an industrial company give rise to risks for people and the environment. For
this reason, industrial safety as well as compliance with environmental legislation and corporate policies
is a top priority for us. Such risks occurring could also result in production outages, claims for damages
being filed and a loss of reputation. To avoid environmental and health risks, all production processes
are subject to the Group directives on health, safety and environmental protection and on quality andrisk management. Environmentally relevant data have been systematically recorded and analyzed sincethe 2009/10 fiscal year. Integrated management systems monitor compliance with these directives andensure that both production and products consistently meet the same high quality and environmental
standards. Environmental risks can thus be identified at an early stage and appropriate countermeasuresinitiated. Adequate provisions have been recognized for any residual risks.

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09.2.2. Risks to performanceContractual risksLong-term contracts, especially for major projects, form a key component of our plant engineeringbusiness at the Voith Hydro and Voith Paper Group Divisions. Such contracts are associated with ahost of risks and we attach great importance to managing these risks. For example, the profit margins
generated by fixed-price contracts may deviate from the values originally calculated as a result ofchanges in costs or productivity during their term. Also possible are cost overruns or contractual penalties
stemming from unexpected technical problems or unforeseeable developments at project locations.
Several of our multiyear contracts also contain demanding timelines or provisions to ensure that legal
requirements are observed. If not met, these requirements could lead to contractual penalties, claims
for damages, payment refusals or contract terminations. Project management and controlling, as it has
been implemented, continuously reviews whether the projects are indeed developing in line with theplanning. Any deviations are addressed early on. Regular checks ensure that adequate provisions havebeen made to cover any legal risks throughout the Group such as risks relating to warranties, liability,
contractual penalties, guarantees and the possibility of inadequate or incorrect price calculations. Liability
and property insurance in line with standard industry practice is taken out to cover potential losses and/or liability risks. Appropriate provisions are recognized for special risks arising from existing contracts
if these risks can be reliably quantified.
Technical risks
Technical risks relate to innovation-related risks, sourcing risks and sales risks due to decreasing
customer satisfaction. There are currently no indications of any particular technical risks within theVoith Group.

Detailed informationon the current focus
areas of our R&D
activities is provided
in section 05.
Research anddevelopment.

Innovation-related risks are a key risk area for a technology group like Voith. The future profitability of theCompany hinges on its ability to develop marketable products and services and to use state-of-the-art
production technologies and service processes. Our earnings position could be negatively impacted
by investments in technology that does not work as planned or find the level of market acceptance
expected. Voith invests large sums of money to further improve and refine existing technologies, andto research and develop new products, systems and services. With several thousand active patents
to its name and hundreds more new patents filed every year, Voith ranks as one of the world’s mostinnovative companies in the industries it serves.
Collaboration with suppliers on the global procurement markets involves three types of risk: supply
outages, unforeseen cost increases and non-compliance with environmental and social standards. We
have embedded effective measures to secure our supplies – supplier selection and order processing – inour processes. Moreover, a permanent Group-wide risk management process has been implemented
to identify supply risks and the risk of insolvency among suppliers at an early stage. Our dual sourcing
strategy prevents dependence on individual suppliers to the greatest possible extent. Back-up strategies are thus in place in case suppliers who provide core components for the Group’s products andservices should default. Moreover, in the 2016/17 fiscal year Voith once again used all the means at its
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09. Risks and opportunities

Detailed information
on sustainability in
our supply chains
can be foundin section 06.
Sustainability.

integrated environmental and social standards in our General Terms and Conditions of Purchase. We
review compliance with these standards on the basis of voluntary disclosures made by our suppliers
and by means of audits conducted on our suppliers’ production materials.
Our customers’ satisfaction is key to achieving sales success and maintaining or increasing our market
share. In the medium to long term, a fall in customer satisfaction would have a negative impact on ourearnings position. For this reason, we develop technologies for and in cooperation with our customers
that help them get ahead. Maintaining long-term partnerships is a high priority for us. We are proud tohave collaborated with many customers, suppliers and other business partners over generations – someof our relationships even go back over 100 years. We survey customer satisfaction in order to objectively
assess and enhance our customer service.
As part of our regular internal reporting on performance risks we monitor the theoretical maximum
risks associated with specific risk positions as well as the risks deemed to be realistic after carefulassessment. Maximum risks are considered in the light of whether they constitute risks jeopardizing theGroup’s ability to continue as a going concern. There were no risks to the Group’s ability to continue
as a going concern at the reporting date. The risks which may be realistically expected are considered
for profit planning purposes and in order to assess the need to recognize provisions in the balance
sheet. In total, provisions and allowances amounting to € 221 million (previous year: € 273 million) wererecognized in the balance sheet for significant performance risks (maximum risk: € 338 million; previous
year: € 403 million).

09.2.3. Overall risk
To the best of our knowledge, there are no risks which, either individually or collectively, could jeopardize
the ability of the Voith Group to continue as a going concern. The risk situation for Voith has not changed
significantly compared to the previous year. Of all the risks facing the Voith Group, external risks could
have the strongest negative impact on business development. We are convinced that, in light of ourstrong diversification, our financial strength and the instruments used to control risks, our Group is able
to bear the risks associated with our business activities.

09.3. Opportunities
In addition to the systematic management of risks, it is also essential that we support our businessperformance by actively managing opportunities. The identification of opportunities and their strategic
and financial assessment plays an important role in the strategy discussions the Corporate Board ofManagement holds regularly with those responsible for the operating units. The results of these meetings
are incorporated into the Voith Group’s strategic decisions as well as into the medium-term planningand the annual operative planning process.

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113

In the following, we describe significant opportunities that could have a positive impact on our net
assets, financial position and earnings position and lead to overachievement of forecasts or targets. The
order of the opportunities presented below reflects how we currently estimate the importance of theseopportunities for the Voith Group. Unless stated otherwise, the following opportunities relate to all theGroup Divisions.
Growing service business from postponed spending on new equipment
In the recently rather subdued investment climate, spending on new equipment and machines was
postponed in many industries. Owing to the extended service life of existing equipment, customers
are increasingly tending to make more intensive use of our range of services, such as maintenance,
performance-enhancing components and spare parts. A growing number of our long-lived plants,
products and components installed around the world must also be regularly maintained to sustain
their efficiency and reliability. This offers opportunities in all Group Divisions for our service activities,
which might grow more strongly than currently anticipated.

For information on
current productinnovations, see section 05. Researchand development.

Expansion of our portfolio with product innovations
We are constantly working on developing new technologies, products and solutions as well as improving existing ones. We again launched numerous new products on the market in all Group Divisions
in the year under review. In the best-case scenario, this will not only allow us to secure our market
position but also to generate sales and to win market shares that have not yet been integrated in ourbusiness plan, especially if innovations are recognized as value adding by our customers much fasterthan currently assumed. We gear our development activities toward global megatrends as well as tocurrent technology trends and new industry-specific requirements, for example those that are regulatory
in nature. In the years ahead we will be focusing on offerings and solutions for Industrie 4.0 in particular.
Opportunities associated with the global economy
Given the improved global economy, we currently expect a brighter investment climate in the 2017/18
fiscal year. If the economic environment in important sales regions proves to be better than currently
assumed, this would probably have a positive impact on Voith’s net assets, financial position andearnings position. Developments in Brazil will need to be monitored particularly closely in this respect.
A solution to the political crisis there would be highly beneficial to this large Brazilian economy and to
the economy of Latin America as a whole; infrastructure project contracts which have been planned
but which are currently on hold would also finally be awarded. Economic developments which exceed
current expectations would benefit all Group Divisions, albeit with different degrees of delay and in allcases from the second half of the 2017/18 fiscal year at the earliest.
Growth through acquisitions
As part of our digital agenda, we are working intensively on strengthening our portfolio of products andservices in areas such as automation, IT, software, data analytics and sensor technology, and also bymeans of strategic acquisitions. Even in the short term, potential digital acquisitions offer opportunities
for additional earnings not provided for in the business plan; in the mid-term they can help improve ourposition in certain markets or tap promising new customer industries for Voith. If we succeed in playing

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09. Risks and opportunities

a major role in the digitalization of industry worldwide and positioning ourselves as a leading supplier,this would offer the opportunity of establishing a strong fourth mainstay with Voith Digital Solutions anda new, profitable source of earnings for the Voith Group.
New sales markets for existing products and services
As well as expanding our portfolio of offerings, we also evaluate market opportunities for our existingproducts and services in all of our Group Divisions in those regions where they have been under­
represented to date or have no presence at all. We also seek to transfer our already successful products
to new fields of application or sales areas. The resulting additional sales potential has not yet been
integrated in our business plan.

09.4. Internal control and risk management system for theGroup’s financial reporting process
Proper and reliable financial reporting
The key elements of the internal control and risk management system for the Group’s financial reporting
process are described in the following. The aim of the accounting-related internal control and risk
management system is to guarantee that accounts are prepared correctly and reliably and to ensurethat consolidated and separate financial statements comply with the applicable regulations.
The following structures and processes have been implemented in the Group:
The Corporate Board of Management bears overall responsibility for the internal control and risk
management system with regard to the Group’s financial reporting process. All levels of the Group(companies, Group Division head organizations, Voith GmbH & Co. KGaA as management holding
company) are integrated through a strictly defined management and reporting organization.
Uniform recognition and measurement based on the regulations applicable for the Voith GmbH & Co.
KGaA consolidated financial statements is ensured by Group accounting guidelines. Amendments toaccounting rules are constantly adapted and communicated by Voith GmbH & Co. KGaA. The qualityof the guidelines is ensured by an ongoing exchange between the departments responsible.
Accounting is organized on a decentralized basis but is monitored and coordinated centrally. Accounting
entries are recorded in the separate financial statements of the subsidiaries of Voith GmbH & Co. KGaA.
Risk control matrices have been developed at corporate headquarters for those line items that, froma Group perspective, are significant and exposed to an elevated risk of misstatement. These matrices
must be applied by the subsidiaries when preparing their end-of-year financial reporting. These matrices
present the significant accounting-related risks for the specified line items of the financial reportingand contain corresponding instructions on controlling activities, responsibilities and documentation
duties. Among other elements, the controlling activities comprise analytical procedures as well as theVoith Annual Report 2017
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115

practice of having significant and complex business transactions processed and controlled by different
people. Complex accounting issues (e.g. financial instruments) are referred to corporate departments
or external experts (e.g. relating to pensions). The activities and controls for these issues are also
considered in the risk control matrices.
The consolidated financial statements are prepared by adding information to the separate financial
statements of the subsidiaries to create standardized reporting packages which are then included in
the consolidation system. Once the data has been fed into the consolidation system, it is subject toan automated plausibility check. If this returns an error message, this is immediately corrected by theindividuals in charge of the subsidiaries concerned. The subsidiaries are supported by contact persons
at headquarters for all accounting-related issues. After the data is finally approved, the respective
management, or in isolated cases the representatives they appoint, issues a letter of representation
confirming the completeness and accuracy of the reporting package in accordance with the relevant
requirements and that the internal controls have been conducted and documented.
Group-wide reconciliation of balances takes place worldwide via an intranet-based platform. The
various deadlines for the different parts of the reporting package are stipulated in the consolidation
system and centrally monitored in the course of the preparation process. All consolidation activities
are undertaken centrally at Voith GmbH & Co. KGaA. The entire consolidation process is supported
by both systems-based and manual controls.
The proper functioning of the controls defined in the accounting-related internal control system is
evaluated on a regular basis. If any weaknesses are identified, the system is adjusted accordingly bycentral accounting.
The quality of financial reporting is also ensured by reconciling planning calculations with the externalreporting at all levels of the Company. System access controls based on authorization concepts aswell as programmed plausibility checks in those IT systems used for the financial reporting ensurethat processes are complete and accurate.
The internal audit department performs regular reviews of the proper functioning, correctness, reliability
and efficiency of all internal control and risk management systems in the Voith Group independently of
the individual processes. Suitable measures are promptly taken to remedy any gaps or weaknesses
that may be identified.
Compliance with the rules of the accounting-related internal control system is tested by the external
auditors on a sample basis in the course of their audit of the consolidated and separate financial
statements. Any deficiencies or flaws that appear are recorded in a management letter along withsuggested improvements.

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10. Forecast report10.

Forecast report
In the 2017/18 fiscal year, our aim is to increase all the fundamental
operative key figures in the Voith Group – orders received, sales,
profit from operations, ROCE. We will be able to shoulder thestart-up costs for the new Voith Digital Solutions Group Divisionfrom the current business of the three traditional Group Divisions.
In the future we are going to strengthen our focus on growth. We
will continue to invest in the digital transformation of the Groupand in developing its core business. In view of its very goodequity base and comfortable liquidity situation, Voith is optimallyequipped to create a new phase of growth from its own resources.

10.1. Business environment
Positive short-term economic conditions
Economic analysts anticipate somewhat stronger worldwide economic growth over the next two years
than during the year under review. For example, in its latest release the International Monetary Fund(IMF) has forecast global growth rates of 3.7 % for the calendar years 2018 and 2019 compared with
3.6 % in 2017. Even if these forecasts appear rather optimistic from our perspective, the short-term
economic environment is certainly more favorable than it has been for many years. This is also apparent
from the leading indicators of various purchasing manager indices (PMI). Since the summer of 2017,
the PMIs for the sales regions which are relevant for Voith are all over 50 – which means that the signs
point to growth everywhere.

For more informationon the risks andopportunities for the
global economy,
see sections 09.2.
and 09.3. of thismanagement report.

Nonetheless, the economic outlook is also subject to considerable geopolitical risks which, if they wereto materialize, could produce a shock. It is also the case that short-term growth has been bought at
a medium- to long-term price: years of extremely relaxed monetary policy have pushed conventionalmonetary policy to its limits in the industrialized countries. The necessary structural reforms have notbeen made and the burden of public debt in many countries, such as the euro zone, continues to behigh. In China state-subsidized excess capacities and growing private and public debt also pose risks
for the stability of financial markets and the real economy.

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117

Economic growth
Real change in GDP on the previous year1)

World output
Advanced economies
United States
Euro area2)
Germany
Emerging market anddeveloping economies
China
ASEAN- 5
India
BrazilRussia

2018

3.7 %

2019

3.7 %

2018

2.0 %

2019

1.8 %

2018

2.3 %

2019

1.9 %

2018

1.9 %

2019

1.7 %

2018

1.8 %

2019

1.5 %

2018

4.9 %

2019

5.0 %

2018

6.5 %

2019

6.3 %

2018

5.2 %

2019

5.3 %

2018

7.4 %

2019

7.8 %

2018

1.5 %

2019

2.0 %

2018

1.6 %

2019

1.5 %

Source: International Monetary Fund; World Economic Outlook, Oct. 2017.
1)
Forecasts.
2)
Including Germany.

Emerging markets may develop somewhat better in the next two years than in the year under review. The
IMF, for example, has forecast growth rates of between 4.9 % and 5.0 % for the emerging markets as awhole for the calendar years 2018 and 2019 compared with a rate of 4.6 % in 2017. Despite its slightly
slower pace of economic growth, China remains the growth driver for the global economy. This is basedon the assumption that China will continue to pump cash into the economy and accept further debt
growth in order to reach the targets in its five-year plan (raising gross domestic product by an annual
6.5 % or more). In the next two years India will probably grow faster than China, and – assuming thatthe economic reforms which are currently being implemented are effective – will gain further momentum.
Russia and Brazil are expected to continue recovering, although political uncertainties, weak domestic
demand and the need for structural reforms all pose challenges in Brazil. We anticipate ongoing dynamic
growth in Southeast Asia at rates above the average for all emerging markets.
Rates of growth in the advanced economies in the next two years are expected to fall slightly behind
the growth achieved in 2017. The IMF anticipates ongoing robust growth in the USA over the next
two years – despite prolonged uncertainty about the President’s political agenda. The euro zone willprobably grow moderately in the next two years, although a consistently strong euro could dampen
growth prospects in export-oriented countries such as Germany.

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Improved climate for investment in Voith’s markets
The situation in most of Voith’s five markets has improved.
As global energy needs continue to rise, electricity-generating capacities will be expanded further,focusing in particular on renewable energies. In the conventional sector, the strongest growth is expectedin nuclear power generation. The generally positive outlook for hydropower will be hampered in the shortand medium term by economic and political uncertainties that make it difficult to obtain financing forlarge projects. Demand for pumped storage technology is growing. The volume of projects awarded
in hydropower markets will probably be higher in the 2017/18 fiscal year than the very low volume inthe year under review.
The oil and gas market bottomed out in the year under review. Even though the oil price could manage
to stabilize at just above USD 50 in 2018, as forecast by market analysts, we expect investment toremain subdued in the 2017/18 fiscal year.
Consumption of paper in the paper market – and thus also demand for consumables and services – isprojected to rise slightly, although there will be huge differences between the various paper grades andregions. We expect a continuing upturn in demand for new machines and major rebuilds, although themarket volume in the 2017/18 fiscal year will be lower than in the exceptionally strong year under review.
Although the decline in prices in the raw materials market has been stopped, investment will probably
remain at rock bottom levels in the 2017/18 fiscal year. Low prices will continue to subject mine operators
to cost pressures. We do not expect to see a significant rise in investment before the 2018/19 fiscal year.
We continue to be optimistic about the segments of the transport and automotive market which are mostimportant for Voith. The commercial vehicles segment is expected to continue to grow significantly withimpetus coming from the Asia region, in particular China and, in the EMEA region, Africa. We anticipate
slight growth in the rail market with noticeable impetus coming from service business.
The forecast for our business development assumes that there will be no economic or political shocks
that could tip the global economy into recession.

10.2. Future development of the Company
Focus on growth
Voith has successfully completed its Group transformation process and is entering the Industrie 4.0 age
with strengthened operative earnings power and a substantially improved balance sheet structure. We
continue to drive the digital transformation of our product and service portfolio forward and intend toplay a major role in shaping the digital transformation of the mechanical and plant engineering industry.
In the future, we will be focusing more strongly on growth. We are not only aiming for growth with ourVoith Annual Report 2017
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119

new Voith Digital Solutions Group Division, we also intend to increase the level of orders received, sales
and profit from operations in our core business activities, in other words from the three traditional Group
Divisions on aggregate, as early as the 2017/18 fiscal year.
Voith Hydro Group Division anticipates that, in the next few years, the hydropower market will again
rise above the low level of the year under review. Voith Hydro intends to defend its market share in theyears ahead and to boost its growth in specific areas. We anticipate an appreciable increase in the levelof orders received in the 2017/18 fiscal year. Our planning is based on the assumption that the market
volume will rise perceptibly above the low level in the year under review and that contracts for projects
which were postponed in 2016/17 will be awarded. Sales are expected to remain stable in the 2017/18
fiscal year, despite the drop in orders received in the year under review. Profit from operations will also
remain at much the same level as in the year under review. We are planning for a slight increase in our
profitability indicator ROCE based on the high level already achieved.
In the Voith Paper Group Division, we expect to see a perceptible increase in sales in the 2017/18 fiscal
year following the outstanding level of orders received in the year under review. Growth in sales will
result from good service business alongside the fulfillment of existing contracts in the project business.
Profit from operations will remain at a high level and will rise slightly above the level for the year underreview. We anticipate a perceptible improvement in the profitability indicator ROCE as we are not only
budgeting for better results but also wish to reduce the capital employed. With regard to the ordersituation, we expect the market to remain positive. Voith Paper will continue to receive far more orders in
the 2017/18 fiscal year than it has in recent years, although it will not be able to replicate the high figures
reported in the year under review which were the outcome of several major projects. For this reason ourplanning is based on perceptibly lower figures for orders received than in the 2016/17 fiscal year. We
anticipate good business in Europe and Asia; in Brazil improvements are not expected in the short term.
The higher level of orders received by Voith Turbo in the year under review will have a positive impact
on the sales figures in the 2017/18 fiscal year, which are expected to rise slightly. Nonetheless, we stillassume that a changed sales mix will keep results stable. ROCE should be around the same as lastyear. The order situation has brightened up during the year under review. We expect orders received
by Voith Turbo to grow slightly, and this to be generated by both divisions. We believe that service
business in particular will produce stimulus for growth.
We expect a sharp percentage growth in sales for the new Voith Digital Solutions Group division, which
is presented as a separate segment for the first time in this year under review. In view of the start-up
situation, the sales figures shown for the Voith Digital Solutions segment will remain in the double-digit
millions of euros. In addition, around € 300 million of sales of digital products and solutions are expected
to be generated by the traditional Group Divisions in collaboration with Voith Digital Solutions. Owing to
the planned start-up costs, the profit from operations at Voith Digital Solutions will be in the negative
double-digit million range, albeit somewhat lower than in the year under review, and will burden theGroup’s profit from operations accordingly. We regard the start-up costs, which we will fund from our
profitable core business, as an investment in establishing a business which we intend to become an
important engine of growth for the Voith Group in the years ahead.

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Voith Group with profitable growth despite start-up costs for
digital transformation
In the Voith Group, we expect to see a perceptible increase in sales in the 2017/18 fiscal year. Our
sales projections are based on the high level of orders on hand as at September 30, 2017 and theslightly rising level of orders received in the new fiscal year. We also aim to grow our results. We planfor the profit from operations in our core business – i.e. the traditional Voith Hydro, Voith Paper andVoith Turbo Group Divisions on aggregate – to rise slightly. Our positive core business will enable us toshoulder the start-up costs for the new Voith Digital Solutions Group Division from current operations.
Even taking into account these investments, we expect our operating result to develop positively:
profit from operations of the Voith Group will rise slightly in the 2017/18 fiscal year. In this connection,
it should also be possible to increase the profitability indicator ROCE slightly.
Forecasts are always subject to considerable uncertainty. A host of macroeconomic and industry-specific factors can influence, positively or negatively, the development of individual Group Divisions or theentire Group. For information on the significant risks and opportunities that could lead to a negative/
positive forecast deviation, we refer to sections 09.2 and 09.3 of this management report. We will closely
observe further developments as they occur and, where necessary, respond rapidly and decisively tochanging conditions. Voith is a fundamentally healthy Company. Our robust financial constitution andreliable long-term access to capital provides us with the headroom we need to implement the decisions
we regard to be expedient. The aim of the Corporate Board of Management is to keep the Company
on a secure footing for the long term and to actively steer it through this challenging decade of the 21st
century. Voith is excellently equipped to meet the challenges ahead: we have a portfolio that is fit for
the future, sustainable customer relationships, an efficient organization and an outstanding workforce.

Voith Annual Report 2017
Consolidated Financial Statements

Consolidated statement of income
Consolidated statement ofcomprehensive income
Consolidated balance sheet
Consolidated statement of changes
in equity
Consolidated cash flow statement
Notes to the consolidated financial
statements for the 2016 /17 fiscal year
Notes to the consolidated statementof incomeNotes to the consolidatedbalance sheet
Notes on segment reporting
Segment information bybusiness segment
Segment information by region
Other notes
Responsibility statement

Page

122
123
124
126
128
129
155
163
189
192
194
195
216

Consolidated Financial Statements

Consolidated Financial
Statements

121

122

Voith Annual Report 2017
Consolidated Financial Statements
Consolidated statement of income

Consolidated statement of income
for the period from October 1, 2016 to Sep­tember 30, 2017in € thousandsNote2016 /17

2015 /16

Sales

(1)

4,223,248

4,252,407

Changes in inventories and other own work capitalized(2)

18,469- 443

4,241,717

4,251,964

Total output
Other operating income(3)400,918

387,782

Cost of materials(4)-1,842,819-1,818,642

Personnel expenses(5)-1,415,408-1,401,682-129,588-130,715(6)-1,042,001-1,045,013

212,819

243,694

Depreciation and amortization
Other operating expenses
Operational result before non-recurring items
Non-recurring result(7)

Operational result
Share of profit/loss from companies accounted for using the equity method
Gains/losses from the disposal of associated companies(18)- 32,167- 7,285

180,652

236,409

7,592

10,642562,575

017,81911,056- 76,408- 88,740- 9,830- 29,271

682,400

140,096- 82,306- 50,653

Net result from continuing operations

600,094

89,443

Net result from discontinued operations- 4,351- 60,045

Net result

595,743

29,398

Net result attributable to shareholders of the parent company

590,171

26,377

Net result attributable to holders of non-controlling interests

5,572

3,021

Interest income
Interest expenses
Other financial result(8)

Result before taxes from continuing operations
Income taxes(9)Voith Annual Report 2017
Consolidated Financial Statements
Consolidated statement of comprehensive income

123

Consolidated statement ofcomprehensive income
for the period from October 1, 2016 to Sep­tember 30, 2017in € thousands

2016 /17

2015 /16

Net result

595,743

29,398Remeasurement of defined benefit plans

67,780-135,984

Taxes on components of other comprehensive income that will not be recycled through profit orloss in later accounting periods- 21,043

38,168Components of other comprehensive income that will not be recycled through profit orloss in later accounting periods:

Components of other comprehensive income that will be recycled through profit orloss in later accounting periods:
Gains/losses on available-for-sale financial assets-12,222

10,166

Gains/losses on cash flow hedges

2,375- 4,247

Gains/losses on currency translation- 32,619

6,805

Gains/losses on net investment in foreign operations

3

4,577

Taxes on components of other comprehensive income that will be recycled through profit orloss in later accounting periods

- 681

1,198

Other comprehensive income

3,593- 79,317

Total comprehensive income

599,336- 49,919

Total comprehensive income attributable to shareholders of the parent company

597,833- 54,409

1,503

4,490

599,336- 49,919

Total comprehensive income attributable to non-controlling interests

124

Voith Annual Report 2017
Consolidated Financial Statements
Consolidated balance sheet

Consolidated balance sheet
as at Sep­tember 30, 2017

Assetsin € thousands

2017-09-30

2016-09-30(10)515,676

450,750

A.

Non-current assets

I.

Intangible assets

II.

Property, plant and equipment(11)

978,459

1,040,677

III.

Investments accounted for using the equity method(12)

32,00615,307

IV.

Securities

(16)

V.

Other financial assets

VI.

Other financial receivables

(15)

VII.

Other assets(15)

10,74917,060

VIII.

Deferred tax assets(9)204,538

248,693

1,948,527

2,055,561

Total non-current assets
B.

11,73484,859105,954

109,584

89,411

88,631

Current assets

I.

Inventories(13)

547,825567,233

II.

Trade receivables(14)

713,899

690,632

III.

Receivables from customer-specific contracts(14)

323,929426,720

IV.

Securities(16)

601,81233,126V.

Current income tax assets

VI.

Other financial receivables

(15)

VII.

Other assets

(15)

VIII.

Cash and cash equivalents

(17)

IX.

Assets held for sale(18)

52,26354,688101,289

172,480

110,544

99,816

581,947649,672

3,033,508

2,694,367

15,845609,365

Total current assets

3,049,353

3,303,732

Total assets

4,997,880

5,359,293

Voith Annual Report 2017
Consolidated Financial Statements
Consolidated balance sheet

125

Equity and liabilitiesin € thousands

2017-09-30

2016-09-30

A.

EquityI.

Issued capital

120,000

120,000

II.

Revenue reserves

1,138,763

532,060

III.

Other reserves- 37,664

1,440

IV.

Profit participation rights

Equity attributable to shareholders of the parent company
V.

Profit participation rights

VI.

Other interests

6,600
660,100

96,80096,80041,42542,034

138,225

138,834(19)

1,365,924

798,934

Equity attributable to non-controlling interests
Total equity

6,600
1,227,699

B.

Non-current liabilities

I.

Provisions for pensions and similar obligations(20)

747,282

852,803II.

Other provisions(21)

190,611

221,304

III.

Income tax liabilities

277

326

IV.

Bonds, bank loans and other interest-bearing liabilities(22)551,363

563,929

V.

Other financial liabilities(24)

35,63528,831VI.

Other liabilities(24)

58,222

59,079VII.

Deferred tax liabilities(9)53,744

51,1991,637,134

1,777,471

Total non-current liabilities
C.

Current liabilities

I.

Provisions for pensions and similar obligations(20)

29,31929,969II.

Other provisions(21)

343,082

268,306

III.

Income tax liabilities

46,96872,511

IV.

Bonds, bank loans and other interest-bearing liabilities(22)

82,516

768,544

V.

Trade payables(23)

509,741

430,779

VI.

Liabilities from customer-specific contracts(14)

45,623

118,188

VII.

Other financial liabilities(24)

234,080

270,425

VIII.

Other liabilities(24)703,493824,166

1,994,822

2,782,88800Total current liabilities

1,994,822

2,782,888

Total equity and liabilities

4,997,880

5,359,293

IX.

Liabilities directly associated with the assets classified as held for sale

(18)

126

Voith Annual Report 2017
Consolidated Financial Statements
Consolidated statement of changes in equity

Consolidated statement of changes in equity
Equity attributable to shareholdersof the parent companyin € thousands

2016-10-01

Issued capital

Revenue
reserves

Gains/losses onavailable-for-salefinancial assets

Cash flow
hedgesCurrencytranslation

120,000

532,060

13,968- 4,010- 4,015

Net result

590,171

Other comprehensive income
Total comprehensive income

046,766-12,260

1,691- 28,538

636,937-12,260

1,691- 28,538

1,708- 2,319- 32,553

Allocation of profit participation rights- 5,590

Changes in non-controlling interests asa result of changes in group structure

254

Share of net result attributable toprofit participation rights
Dividends-18,000

Non-controlling interests – capital contributions
Non-controlling interests – put options- 7,431

Other adjustments
2017- 09- 30

533
120,000

1,138,763

Equity attributable to shareholdersof the parent companyin € thousands

2015-10- 01

Issued capital

Revenue
reserves

Gains/losses onavailable-for-salefinancial assets

Cash flow
hedgesCurrencytranslation

120,000

624,938

3,992-1,067- 9,410

Net result

26,377

Other comprehensive income
Total comprehensive income0- 97,791

9,976- 2,943

5,395- 71,414

9,976- 2,943

5,395

13,968- 4,010- 4,015

Allocation of profit participation rights- 5,590

Changes in non-controlling interests asa result of changes in group structure-1,967

Share of net result attributable toprofit participation rights
Dividends-15,000

Non-controlling interests – put options-1,029Other adjustments

2,122

2016- 09- 30

120,000

532,060

Voith Annual Report 2017
Consolidated Financial Statements
Consolidated statement of changes in equity

127

Equity attributable
to non-controlling interests
Net investment
in foreign
operations

Profitparticipationrights- 4,503

6,600

Total

ProfitparticipationrightsOtherinterests

Total

Total
equity660,100

96,80042,034

138,834

798,934

5,572

5,572

595,743- 4,069- 4,069

3,593

1,503

1,503

599,336

5,227

0

- 470

- 216

590,171
3
3

7,662
0

597,8330363- 5,227

5,227

254
- 363

- 363

- 470
- 5,2276,600- 5,590- 4,928- 22,928- 4,928
1,381

1,381

1,381

- 7,431

1,881

1,881

- 5,550533- 4,500- 5,227-18,000

1,227,699

96,800

24

24

557

41,425

138,225

1,365,924

Equity attributable
to non-controlling interests
Net investment
in foreign
operations

Profitparticipationrights- 9,080

6,600

Total

ProfitparticipationrightsOtherinterests

Total

Total
equity735,973

96,80041,470138,270874,243

3,021

3,021

29,39826,377
4,577
4,577- 80,7860- 54,409

0363- 5,227

5,227-1,967- 363- 4,503

6,600

- 363

1,469

1,469

- 79,317

4,490

4,490

- 49,919

5,227

0-1,099- 3,066-1,099- 5,227- 5,590-15,000- 4,120- 4,120-19,120-1,029

1,077

1,077

48

2,122

216

216

2,338

42,034

138,834

798,934

660,100- 5,227

96,800128

Voith Annual Report 2017
Consolidated Financial Statements
Consolidated cash flow statement

Consolidated cash flow statementin € thousands

2016 /17

Result before taxes from continuing and discontinued operations

680,384

92,044

Depreciation and amortization

129,996

167,850

Interest expenses/income
Other non-cash items(18)

Gains/losses from the disposal of property, plant and equipment and intangible assets
Gains/losses from the disposal of consolidated companies

2015 /16

58,58976,989- 568,376

7,597- 4,291-14,493052,522

Gains/losses from investments- 20,368- 7,100

Changes in provisions and accruals- 5,662- 74,109

Change in net working capital- 21,766-134,198Interest paid

- 53,455- 53,002

Interest received

12,72910,189Dividends received

20,491

14,108

Tax paid- 93,036- 80,725

Cash flow from operating activities

135,235

57,672

Investments in property, plant and equipment and intangible assets- 95,890-138,470

12,13532,861

Investments in financial assets- 6,870- 6,294

Subsequent purchase price payments for earlier acquisitions

39,4810

Acquisition of consolidated subsidiaries minus cash and cash equivalents- 40,85400

193,043(18)

1,151,743

11,594

139,774

27,498(18)- 648,474

0Cash flow from investing activities

551,045

120,232

Dividends paid

- 28,518- 24,710

Proceeds from the disposal of property, plant and equipment and intangible assets

Receipts and payments in connection with the disposal of consolidated subsidiaries
Proceeds from the disposal of financial assets
Proceeds from the disposal of securities
Payments for the acquisition of securities

Contributions from holders of non-controlling interests

1,381

0

Acquisition of non-controlling interests- 216- 3,066

New bonds, bank loans and overdrafts

21,293411,925- 738,697- 347,158

1,780-12,190

Cash flow from financing activities- 742,977

24,801

Total cash flow

- 56,697

202,705

Repayment of bonds, bank loans and overdrafts
Changes in other interest-bearing financial receivables and liabilities

Exchange rate movements and valuation changes-11,028

12,014

Cash and cash equivalents at the beginning of the period

649,672

434,953

Cash and cash equivalents at the end of the period

581,947649,672

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2016 /17 fiscal year

129

Notes to the consolidated financial
statements for the 2016 /17 fiscal year
General information
Voith GmbH & Co. KGaA (Voith), which has its headquarters at St. Pöltener Str. 43, Heidenheim an
der Brenz, is registered at the commercial register in Ulm, Germany (HRB 735450) and is the parent
company of the Voith Group. The Company was incorporated as Voith GmbH until July 31, 2017. Since
August 1, 2017 the Company has been incorporated in the legal form of a GmbH & Co. KGaA. The Boardof Management of Voith Management GmbH (HRB 735126) is responsible for the strategy and operative
management of the Voith Group. Voith Management GmbH is the personally liable shareholder (generalpartner) of and responsible for the management of the business of Voith GmbH & Co. KGaA.
Voith GmbH & Co. KGaA prepares consolidated financial statements as at Sep­tember 30, 2017 on thebasis of IFRS as endorsed by the EU, and a Group management report for the smallest consolidated
group of companies requiring consolidation. JMV GmbH & Co. KG, as parent of the largest group ofcompanies requiring consolidation, prepares consolidated financial statements as at Sep­tember 30, 2017
on the basis of IFRS as endorsed by the EU, and a Group management report for the largest consolidated
group of companies. Both sets of consolidated financial statements are published in the Bundesanzeiger(German Federal Gazette). The Board of Management of Voith Management GmbH authorized theconsolidated financial statements for presentation to the Supervisory Board on November 29, 2017.
Voith issued debt instruments in 2007 for trading on the regulated market of the Luxembourg stock
exchange. These bonds were redeemed in full in the fiscal year. Accordingly, Voith is no longer acapital market participant pursuant to the EU Regulation (EC) No. 1606/2002. This regulation requires
all companies that participate in the capital markets (i.e. whose issued debt is traded on a regulated
market in an EU member state) and that are domiciled in the EU to prepare their consolidated financial
statements solely on the basis of International Financial Reporting Standards (IFRS) as endorsed by
the EU. The term “IFRS” also includes the International Accounting Standards (IAS) to the extent thatthese remain in issue.
Accordingly, Voith has prepared its consolidated financial statements for the 2016/17 fiscal year in accordance with IFRS and the interpretations of the International Financial Reporting Interpretations Committee(IFRIC) on a voluntary basis. In preparing these consolidated financial statements, Voith has continued
to apply all pronouncements which are binding on capital market participants issued by the International
Accounting Standards Board (IASB) as well as the additional requirements of German commercial law
pursuant to Sec. 315a HGB. The consolidated financial statements have been prepared in euros. Except
where explicitly stated otherwise, all amounts are stated in thousands of euros (€ thousands). Minor
rounding differences may occur.
The Voith Group is divided into four segments: Voith Hydro, Voith Paper, Voith Turbo and Voith Digital
Solutions. The Voith Industrial Services Group Division was sold effective August 31, 2016. Accordingly,
Voith Industrial Services is reported as a discontinued operation in this report. Details of the businessactivities pursued by the Group’s segments are provided in the explanatory notes to the segment reporting.

130

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2016 /17 fiscal year

Consolidated group
In addition to those entities acting as holding companies, the consolidated financial statements also
include all the Group’s manufacturing, service and sales companies both in Germany and in othercountries as at Sep­tember 30 of each fiscal year. The financial statements of the subsidiaries are prepared for the same period as their parents’ financial statements, using consistent accounting policies.
Subsidiary companies are consolidated in full from the date on which the Group obtains control. They
are no longer included in the consolidation as soon as the parent company ceases to have control. For
four companies (previous year: four) control over companies included in the consolidation is obtained
due to the fact that the Group has a majority of voting rights in the relevant decision-making bodies.
The following companies are included in the consolidated financial statements:
2017-09-30

2016-09-30· Germany

32

29· Other countries

111

112

143

141

3

4

Voith GmbH & Co. KGaA and its fully consolidated subsidiaries:

Associated companies and joint ventures:· Germany· Other countries

11

11

14

15

The following material companies are included in the consolidated financial statements:
VZ
Voith GmbH & Co. KGaA, Heidenheim, Germany
VHH
VHY
VHP
VHPO
VHMA
VHM
VHS
VHFK
VHN

Voith Hydro GmbH & Co. KG, Heidenheim, Germany
Voith Hydro Inc., York (PA), USA
Voith Hydro Ltda., São Paulo (SP), Brazil
Voith Hydro GmbH & Co. KG, St. Pölten, Austria
Voith Hydro da Amazonia Ltda., Manaus, Brazil
Voith Hydro Inc., Brossard (QC), Canada
Voith Hydro Shanghai Ltd., Shanghai, China
Voith Fuji Hydro K.K., Kawasaki-shi, Kanagawa, Japan
Voith Hydro Private Limited, New Delhi/India

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2016 /17 fiscal year

VPH
VPP
VPEZ
VPIT
VPC
VPFS
VPA
VPFI
VPTA

Voith Paper GmbH & Co. KG, Heidenheim, Germany
Voith Paper Máquinas e Equipamentos Ltda., São Paulo (SP), Brazil
Voith Paper Fabric & Roll Systems GmbH & Co. KG, Heidenheim, Germany
Voith IHI Paper Technology Co., Ltd., Tokyo, Japan
Voith Paper (China) Co., Ltd., Kunshan, Jiangsu, China
Voith Paper Fabric & Roll Systems Inc., Wilson (NC), USA
Voith Paper Inc., Appleton (WI), USA
Voith Paper Fabrics Ipoh Sdn. Bhd., Chemor, Perak Darul Ridzuan, Malaysia
Voith Paper S.A., Ibarra (Guipúzcoa), Spain

VTA
VTI
VTBS
VTKT
VTCN
VTIP
VTHL
VTPA
VTGB
VTAU

Voith Turbo GmbH & Co. KG, Heidenheim, Germany
Voith Turbo Inc., York (PA), USA
Voith Turbo BHS Getriebe GmbH, Sonthofen, Germany
Shanghai Voith Schaku KTK Coupler Technology Co., Ltd., Shanghai, China
Voith Turbo Power Transmission (Shanghai) Co., Ltd., Shanghai, China
Voith Turbo Private Limited, Hyderabad (A.P.), India
Voith Turbo H + L Hydraulic GmbH & Co. KG, Rutesheim, Germany
Voith Turbo Ltda., São Paulo (SP), Brazil
Voith Turbo Limited, Croydon, United Kingdom
Voith Turbo Pty. Ltd., Wetherill Park, N.S.W., Australia

DSG

Voith Digital Solutions GmbH, Heidenheim, Germany

131

An exhaustive list of the companies and other investments included in the consolidated financial statements can be found in the consolidated financial statements. The consolidated financial statementsof Voith GmbH & Co. KGaA are filed with the Bundesanzeiger pursuant to Sec. 264b No. 3 HGB and
Sec. 264 (3) No. 4 HGB.
Significant non-controlling interests are held in the following company with its subsidiaries:
Voith Hydro Holding GmbH & Co. KG, Heidenheim, Germany

Non-controlling shareholding, in %2017-09-30

2016-09-30

35

35

The voting share capital held by Voith Hydro Holding GmbH & Co. KG is equal to the percentage ofshare capital held.

132

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2016 /17 fiscal year

The following table shows the financial data of subsidiary companies in which significant non-controllinginterests are held (the figures are those of the Voith Hydro Holding GmbH & Co. KG segment):
Voith Hydro Holding GmbH & Co. KG, Heidenheim, Germanyin € thousands

2017-09-30

2016-09-30

Sales

1,387,460

1,391,547

Net result

43,37750,419Net result attributable to non-controlling interests

13,29015,686

Other comprehensive income

1,505- 2,605

Total comprehensive income

44,88247,814

Total comprehensive income attributable to non-controlling interests

14,402

14,7701,030,285

1,194,842

Current assets
Non-current assets

301,140

294,011

Current liabilities

757,149

1,086,551

Non-current liabilities

307,563

171,647

Net assets

266,713230,655

Net assets attributable to non-controlling interests

80,574

67,661

Cash flow from operating activities- 62,919- 4,154

Cash flow from investing activities-12,090- 9,641

Cash flow from financing activities

107,142

9,925

Total cash flow

32,133- 3,870

Net foreign exchange difference- 4,129

4,223

Net increase/decrease in cash and cash equivalents

28,004353

Business combinations in the 2015/16 fiscal year
There were no business combinations in the 2015/16 fiscal year.
Business combinations in the 2016/17 fiscal year
On July 1, 2017 J.M. Voith GmbH & Co. Beteiligungen KG acquired 100 % of the share capital of RS
Beteiligungs GmbH. RS Beteiligungs GmbH in turn holds 60 % of the share capital of Ray Sono AG.
Ray Sono AG is one of Germany’s leading agencies for digital communication and interaction. With
this acquisition Voith has secured a strategic partnership with which it can play a significant role in thedigital transformation being made by our customers as well as gaining growth potential from the new
digital business models.

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2016 /17 fiscal year

133

Under the terms of the business combination the minority shareholders were given the right to sell theirshareholdings to Voith after a lock-up period of approximately four years (put option). As the businesscombination is accounted for under the anticipated acquisition method, the resulting put options arerecorded within financial liabilities at an amount of € 26 million.
Intangible assets totaling € 13.28 million were identified in the purchase price allocation. These are includedin the schedule of development of intangible assets presented in note 10 in the column “Businesscombinations.”
The difference between the acquisition price and the acquired net assets revalued to their respective
fair values amounting to € 54.74 million has been reported as goodwill, and represents the potential
synergy effects to be gained from the diversification of the core business of the Voith Group prior to theacquisition. None of the amounts contributing to these synergy effects are assets which are permitted
to be identified as separate intangible assets; they are regarded as elements of the acquired goodwill.
Ray Sono AG contributed additional sales of € 5.76 million to the Group’s sales in the period from
July 1, 2017. In the same period, its share of the annual net result totaled €-1.46 million (after including
amortization of € 0.73 million recorded on the intangible assets determined within the purchase priceallocation). These amounts are stated after tax.
Should Ray Sono have been included in the Group for the whole financial year it would have generated
additional sales of € 15.4 million and an additional annual net result of € 1.7 million after tax.
Balance sheet itemin € thousands

Intangible assets
Property, plant and equipment

Acquisition
date fair value

13,277784

Inventories

1,201

Receivables

4,301

Other assets

412

Cash and cash equivalents

1,586

Other liabilities and accruals- 7,930

Financial liability (PUT)- 26,000

Net fair value-12,369

Goodwill

54,741

Purchase price of the interests acquired

42,372

Cash and cash equivalents-1,586

Cash in-/outflow

40,786

134

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2016 /17 fiscal year

The acquisition price was paid in cash.
Acquisition in the 2016/17 fiscal year of further interests in companies over which the Groupalready has control
The remaining 30 % shareholding interests in Voith Paper Integrated Mill Service Co., Ltd., Kunshan/
Jiangsu (Republic of China) were acquired in the 2016/17 fiscal year. The purchase price amounted to€ 216 thousand.
Acquisition in the 2015/16 fiscal year of further interests in companies over which the Groupalready has control
The remaining 20 % of the shares in Voith Turbo Co., Ltd., Seoul, Republic of Korea were acquired in
the 2015/16 fiscal year. The purchase price amounted to € 3,066 thousand.
Sale of Voith Industrial Services in the 2015/16 fiscal year
Voith Industrial Services was sold, effective August 31, 2016. The final sale price (for 100 %) has been
determined since then, and amounted to € 308 million. The sale price adjustment of € 2 million comparedto the preliminary price determined in the previous year of € 310 million is presented within results fromdiscontinued operations. Voith has retained a 20 % shareholding in the Voith Industrial Services companies sold. The carrying values of the most significant assets and liabilities derecognized in the previous
year were as follows: goodwill of € 196 million, other intangible assets of € 7 million, property, plantand equipment of € 80 million, deferred tax assets of € 9 million, other non-current assets of € 10 million, inventories of € 54 million, trade receivables and receivables from customer-specific contracts of€ 200 million, cash and cash equivalents of € 42 million, other current assets of € 24 million, non-current
pension obligations of € 23 million, deferred tax liabilities of € 8 million, other non-current provisions andliabilities of € 10 million, current pension obligations of € 2 million, other current provisions of € 36 million,
trade payables and payables and liabilities from customer-specific contracts of € 58 million, and othercurrent liabilities of € 116 million.

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2016 /17 fiscal year

135

The net result from discontinued operations included in the statement of income includes the following:2016 /17

2015 /16

Sales

0908,456

Changes in inventories and other own work capitalized

0

1,095

Other operating income

026,057

Operating expenses

0- 908,284

Operational result before non-recurring items

027,324

Non-recurring result

0-17,298

Operational result

0

10,026

Financial result0-1,160Operational and financial result before taxes

0

8,866

Tax on operational and financial result

0-17,117

Gain/loss on sale

- 2,016- 51,794

Tax on gain/loss on sale

- 2,3350

Net result- 4,351- 60,045

2016 /17

2015 /16

Cash flow from operating activities0- 44,905

Cash flow from investing activities

0-17,561in € thousands

Cash flow from discontinued operations:in € thousands

136

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2016 /17 fiscal year

Basis of consolidation
Acquisition accounting is performed using the acquisition method in accordance with IFRS 3 (revised).
Accordingly, the consideration transferred to the seller plus any non-controlling interests and the fairvalue of the previously held equity interests in the acquiree are offset against the fair value of the acquired
assets and liabilities as at the acquisition date. Any excess of cost over carrying amount is recognized
as goodwill. Any excess of carrying amount over cost is recognized in profit or loss.
Any contingent consideration is recognized at acquisition date fair value. Subsequent changes to thefair value of the contingent consideration deemed to be an asset or liability are recognized either in profit
or loss in accordance with IAS 39 or in other comprehensive income. If the contingent consideration isclassified as equity, it is not remeasured and its subsequent settlement is accounted for within equity.
In the case of business combinations achieved in stages that give rise to control over an entity, or in
the case of disposals of shares which result in a loss of control, the previously held or remaining equity
interests are remeasured at fair value through profit or loss.
A change in the parent’s ownership interest in a subsidiary that does not result in a loss of control is
accounted for as an equity transaction. Accordingly, business combinations achieved in stages where
the Group already has control or disposals of shares without a loss of control have been recognizeddirectly in equity without affecting the result for the period from the 2009/10 fiscal year onwards.
Companies in which Voith GmbH & Co. KGaA has the power to directly or indirectly exercise a significant
influence on financial and operating policy decisions (associates) are accounted for using the equity
method, as are joint ventures over which common control is exercised together with other companies.
Changes in the share of the associate’s/joint venture’s equity that are not recognized in profit or loss
are likewise recognized directly in equity in the consolidated financial statements. The same accounting
policies are used to determine Voith’s share in equity of all companies accounted for using the equity
method.
Receivables and liabilities between the consolidated companies are eliminated on consolidation.
Intercompany profits in inventories and non-current assets are eliminated in the consolidated statementof income. Intercompany sales and other intercompany income are netted against the corresponding
expense. Deferred tax is recognized for consolidation transactions that are recognized in profit or loss.

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2016 /17 fiscal year

137

Foreign currency translation
The consolidated financial statements are presented in euros, which is Voith GmbH & Co. KGaA’s functional currency. Financial statements prepared by subsidiaries that use a different functional currency
are translated as follows:
The equity of foreign companies included in the consolidated financial statements is translated at historical rates. All other items on the balance sheet are generally translated to the presentation currency at therates applicable as at the reporting date. Goodwill arising from business combinations before transition
to IFRS is an exception to this rule. This goodwill continues to be translated at historical exchange rates.
In the statement of income, income and expenses are translated at average exchange rates. Retained
earnings and losses are translated using the relevant historical exchange rate.
Differences arising from currency translation are netted with other reserves.
Foreign currency transactions in local financial statements are translated at historical exchange rates.
At fiscal year-end the resulting monetary items are measured at the closing rate, and any exchange
rate gains or losses are recorded as foreign exchange gains or losses under other operating income/expenses.
From the 2016/17 fiscal year exchange rate gains or losses resulting from long-term loans and liability
balances, both between companies in the Group and on external balances, as well as valuation changes
arising on their associated hedging instruments are reported in the statement of income within financial results. In previous years these were reported within other operating income and other operating
expenses.
Currency translation differences arising from loans denominated in foreign currencies (where these areused to hedge a net investment in foreign operations) are recognized in other comprehensive income
until the underlying net investment is disposed of. These currency translation differences give rise todeferred tax items that are also recognized under other comprehensive income.

Accounting policies
The consolidated financial statements are prepared using the historical cost method. The only exceptions
to this rule are derivative financial instruments, available-for-sale financial instruments, and assets atfair value through profit or loss, which are recognized at fair value.
Consistent accounting policies are used to prepare the separate financial statements for the companies
included in the consolidated financial statements. Significant accounting policies are described below.

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Income and expenses
Sales (adjusted for customer bonuses, cash discounts and other rebates) are recognized when products
or merchandise have been delivered and/or services rendered and when the risk of ownership has beentransferred to the customer. Revenue earned under long-term contracts, which is primarily relevant for
Voith Paper and Voith Hydro, is recognized in proportion to the completion of the contract performanceobligations (“percentage of completion”). Please refer to the explanatory notes on long-term construction
contracts for further details.
Interest expenses and interest income are recognized as they accrue. The effective interest method,i.e. the imputed interest rate, is used to discount estimated future cash receipts over the expected term
to maturity of the financial instrument to the net carrying amount of the financial asset.
Dividend income is recognized when the Group’s right to receive the payment is established.
Operating expenses are recognized as expenditure at the time when a service is used and othersales-related expenses are recognized as incurred. Taxes on income are calculated in accordance withtax law in the countries in which the Group operates.
For all categories of financial instruments recognized in accordance with IAS 39, net gains or losses
as defined in IFRS 7 result from the measurement or disposal of financial instruments. At Voith, suchincome and expense items mainly consist of foreign exchange gains and losses, impairments, andgains/losses from the sale of financial instruments. Neither current interest income and expenses nor
dividend income are included.
Intangible assets
Intangible assets acquired for monetary consideration are recognized at acquisition cost and amortizedon a straight-line basis over their estimated useful lives.
Internally generated intangible assets are capitalized as development costs based on their production
costs, provided that manufacture of these assets meets the recognition criteria stated in IAS 38 and,in particular, that the generation of future economic benefits is probable. The production costs include
all costs which are directly attributable to the development process and a proportionate share ofoverheads. These assets are amortized using the straight-line method from the date of completion,i.e. the start of production, over a defined period, which is usually between three and five years. If therequirements for capitalization are not satisfied, expenses are recognized in profit or loss in the fiscal
year in which they were incurred.
Impairment losses are recorded in accordance with IAS 36 if the carrying amount of the asset exceeds
its recoverable amount. The recoverable amount is the higher of an asset’s value in use, the present
value of expected future cash flows from the use of the asset, and the fair value less costs to sell. Should
the reasons for impairment losses recognized in previous periods no longer apply, these impairment
losses are reversed.
The reversal posted through profit or loss is limited so that the carrying amount of the asset does notexceed its recoverable amount, nor exceed the carrying amount that would have been determined, netof depreciation, had no impairment loss been recognized for the asset in previous years.

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Impairment losses are generally shown in the statement of income under depreciation and amortization. Reversals of impairment losses are reported under other operating income. However, significant
impairment losses, particularly those associated with the discontinuation of operations, are presented
as part of the non-recurring result.
Borrowing costs that are directly attributable to intangible assets are capitalized as part of the cost of
those assets.
Goodwill is tested for impairment at least annually. For impairment testing, goodwill is assigned essentially to four groups of cash-generating units. In line with the management’s internal reporting practices,
these are identified on the basis of the Group’s operating activities. Voith has therefore defined the threeestablished segments Voith Hydro, Voith Paper and Voith Turbo as the relevant groups of cash-generating units. Additional goodwill was recorded in the new Voith Digital Solutions segment in the 2016/17
fiscal year as a result of the acquisition of Ray Sono AG. This was tested for impairment separately at
the Ray Sono AG level due to the start-up situation in the new segment.
The Voith Group generally determines whether goodwill is impaired by reference to the value in use. Thisis based on the discounted cash flow projections taken from the latest business planning preparedby management. The planning assumptions are adjusted to reflect the current information available.
Key assumptions on which calculations of fair value are based include assumptions about the trend inorders received and sales, growth rates, extrapolated cash flow forecasts beyond the planning horizon
and discount rates. Due account is taken of reasonable assumptions regarding macroeconomic trends
and historical developments. Based on the value in use measurement of these assets there was no
indication of a need to record an impairment loss on goodwill.
For the purposes of the impairment tests the following assumptions were made concerning the cash-­generating units:
Voith Hydro:
The Voith Hydro Group Division expects that the hydropower market will, in the coming years, be gener­
ally above the low level of the reporting period. We expect an appreciable growth in orders received
in the 2017/18 fiscal year. Our planning is based on the assumption that the market volume will beperceptibly above the low level of the reporting period and that projects deferred in 2016/17 to future
periods will be converted to orders. Despite the fall in orders received, sales are expected to remain
stable in the 2017/18 fiscal year due to the continued high level of orders on hand.
Voith Paper:
Voith Paper saw a high level of orders received in the project business in the 2016/17 fiscal year. As aresult Voith Paper expects an appreciable increase in sales in the years planned. For the Products &Services division, Voith Paper plans to achieve a continued increase in orders received and sales against
the background of existing growth potential in North America and Asia. For Fabric & Roll Systems, Voith
expects a virtually unchanged market volume in which slight growth is anticipated through the winningof market shares.

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Voith ­Turbo:
Voith Turbo expects a turnaround in the recent sales trends. A moderate increase in sales is expectedin the years planned (2017/18 and 2018/19). There was an appreciable increase in orders received in
the 2016/17 fiscal year compared to the previous year. This positive trend continues and the moderate
growth in orders received is forecast to continue in both planning years.
Ray Sono AG:
Constant and appreciable growth in both orders received and in sales is expected in the planning years,
consistent with trends in the digital market.
The cash flow forecast is based on the detailed finance budget for the coming two years and a qualified top-down projection for years three to five. Cash flows for periods after the fifth fiscal year are
extrapolated at a constant growth rate of approximately 1 % (Ray Sono AG 2 %). These growth rates
do not exceed the average long-term growth rates of the industrial sectors in which the corresponding
cash-generating unit operates.
The discount rates are derived from a calculation of the weighted average cost of capital, which is itself
based on the financing costs of comparable competitors for each of the cash-generating units. The
discount rates used reflect the specific equity risk associated with the respective cash-generating
units. The present values of future net cash inflows are determined using after-tax interest rates of 7.5 %for Voith Hydro (previous year: 6.6 %), 9.3 % for Voith Paper (previous year: 7.5 %), 6.7 % for Voith Turbo(previous year: 6.5 %) and 6.5 % for Ray Sono AG. Extrapolated from these amounts the pre-tax rates forwhich IAS 36 disclosures are required are 12.5 % for Voith Hydro (previous year: 8.7 %), 13.0 % for Voith
Paper (previous year: 10.4 %), 9.5 % for Voith Turbo (previous year: 9.2 %) and 8.4 % for Ray Sono AG.
For the three segments, no impairment charges arise if, for sensitivity purposes, a 1 percentage point
increase in the discount rate or a 5 % reduction in the expected future cash flows is assumed. For Ray
Sono AG an increase in the discount rate of more than 0.25 % would result in the recoverable amountbeing lower than the carrying value. No impairment charges arise if a 5 % reduction in the future
expected cash flows is assumed.
Property, plant and equipment
Property, plant and equipment are stated at acquisition or production cost less depreciation and after
deduction of any impairment losses. The cost of internally produced property, plant and equipment
includes all directly attributable production costs and an appropriate share of production overheads.
Depreciation is recognized on a straight-line basis over the following useful lives:
Useful life
Buildings

40 to 50 years

Plant and machinery

4 to 15 years

Other equipment, furniture and fixtures

4 to 12 years

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The carrying amount of property, plant and equipment is tested for impairment if unusual events ormarket developments give rise to indications of impairment. To this end, the carrying amount of an asset
or cash-generating unit is compared with its recoverable amount, which is defined as the higher of fairvalue less costs to sell and value in use. Impairment losses are reversed if the fair value of a previously
impaired asset subsequently increases again.
The reversal posted through profit or loss is limited so that the carrying amount of the asset does notexceed its recoverable amount, nor exceed the carrying amount that would have been determined, netof depreciation, had no impairment loss been recognized for the asset in previous years.
Impairment losses are generally shown in the statement of income under depreciation and amortization. Reversals of impairment losses are reported under other operating income. However, significant
impairment losses, particularly those associated with the discontinuation of operations, are presented
as part of the non-recurring result.
Repair and maintenance costs are recognized as expenses at the time when they are incurred. Any major
renewals or improvements are capitalized. Borrowing costs that are directly attributable to property,
plant and equipment are capitalized as part of the cost of those assets.
LeasesWhether an arrangement is or contains a lease depends on the substance of the arrangement andrequires a decision to be made on whether fulfillment of the agreement depends on the use of a particularasset and whether the arrangement conveys the right to use the asset.
Leases that transfer substantially all risks and rewards incidental to the use of the leased asset to a
Voith Group company (the lessee) are classified as financial leases. In such cases, the lessee recognizes the leased asset at the start of the lease period and writes it down over the asset’s useful life. A
corresponding liability is recognized and then settled by the lease payments. The interest component
is recognized in the interest result. All other leases in which Voith Group companies act as the lessee
are accounted for as operating leases. The lease payments for operating leases are recognized as
expenses using the straight-line method over the term of the lease.
Financial instruments
A financial instrument is any contract that simultaneously gives rise to a financial asset of one party
to the contract and a financial liability or equity instrument of the other party to the contract. Financial
assets and liabilities are only recognized in the consolidated balance sheet when Voith is a contract
party to a financial instrument.
The Group classifies non-derivative financial assets into the following categories: “loans and receivables,”“available-for-sale financial assets” and “financial assets at fair value through profit or loss.”142

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The Group classifies non-derivative financial liabilities as other financial liabilities (“financial liabilities
measured at amortized cost”).
The derivative financial assets and liabilities are classified as “held for trading” unless they are designatedas hedging instruments and are effective for that purpose.
Loans and receivables
The Group recognizes loans and receivables at the date they are originated. Such assets are initiallyrecognized at fair value plus directly attributable transaction costs. Subsequent to initial recognition
they are measured at amortized cost using the effective interest rate method.
Available-for-sale financial assets
Shareholdings in businesses accounted for as financial assets and reported within other investments
are measured at fair value on initial recognition. Subsequent to initial recognition, such investments arestated at cost if no active market exists for individual companies and it is impracticable to determine
their fair value at reasonable cost. In cases in which there is objective evidence of impairment, thecarrying amount is reduced by the amount of any impairment.
In accordance with IAS 39, loans classified as non-current loans are recognized under other financial
assets measured at amortized cost, adjusted (where necessary) for any impairment.
The securities held by the Voith Group are normally available for sale. In the case of customary purchases
and sales these are accounted for on the trading date and are subsequently measured at fair value,
whereby the change in fair value is not recognized in the statement of income.
Any gains or losses arising from changes in the fair value of available-for-sale financial assets arerecognized in other comprehensive income until the asset is derecognized. The carrying amounts of
non-current financial assets and available-for-sale securities are regularly tested for objective evidence
that they may be impaired. Such evidence can take the form of significant financial difficulty of the
debtor or changes in the technological, economic and legal environment. Objective evidence that equity
instruments may be impaired is given if there is a sustained or significant decline in their fair value. The
criterion of a prolonged decline is met if the decline lasts longer than 12 months. The decline is regarded
as significant if the fair value of the investment falls more than 30 % below its cost. If this happens, theamounts hitherto recognized under other comprehensive income are recognized in profit or loss.

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Financial assets at fair value through profit or loss
A financial asset is measured at fair value through profit or loss if it is held for trading purposes or if
it is designated to be measured at fair value through profit or loss on initial recognition. Attributabletransaction costs are recognized in the statement of income at the date they are incurred.
Financial liabilities measured at amortized costNon-derivative financial liabilities are measured on initial recognition at fair value less attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized costusing the effective interest rate method.
Financial assets and liabilities held for trading
All derivative financial instruments are recognized at fair value on the trading date. Gains and losses
on financial assets and liabilities that are held for trading are recognized in the statement of income.
Fair value
The fair value of investments for which an organized market exists is determined by the quoted market
price at the reporting date. Where no active market exists, valuation techniques are used to determine
the fair value. The techniques used by Voith for this purpose aim to reflect objective criteria as accurately
as possible and to simulate an active market. This is done, for example, by analyzing discounted cash
flows, referring to arm’s length transactions between knowledgeable, willing and independent partners,
and drawing on comparisons with the current fair value of other financial instruments which are identicalin all significant aspects.
Derivative financial instruments and hedging
Voith uses a variety of financial derivatives – such as forward exchange contracts and interest rate
swaps – to hedge underlying transactions. Essentially, the Group applies fair value hedge accountingof firm commitments to hedge operating business transactions.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship and the risk management objective and strategy for entering into the hedge. This documentation
includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk
being hedged, and how the Group will assess the hedging instrument’s effectiveness in offsetting theexposure to changes in the hedged item’s fair value that is attributable to the hedged risk. Such hedging relationships are considered to be highly effective in offsetting the risks of fair value changes. Their
effectiveness is assessed on an ongoing basis to determine whether they have been highly effective
throughout the financial reporting periods for which the hedge was designated.
Hedges that meet the strict criteria for hedge accounting are accounted for as described below:

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Fair value hedges
Fair value hedges are hedges of the Group’s exposure to changes in the fair value of a recognized asset
or liability or an unrecognized firm commitment that is attributable to a particular risk and could affectprofit or loss for the period. In the case of fair value hedges, the carrying amount of a hedged item isadjusted by the profit or loss that is attributable to the hedged exposure, and the difference is reported
in profit and loss. The derivative financial instrument is remeasured at its fair value and any gains orlosses arising as a result are recognized in profit or loss.
For fair value hedges relating to hedged items carried at amortized cost, the adjustment to the carrying
amount is amortized through profit or loss over the remaining term to maturity.
When an unrecognized firm commitment is designated as a hedged item, the subsequent accumulatedchange in the fair value of the firm commitment that is attributable to the hedged risk is recognized as
an asset or liability and the corresponding gain or loss is recognized in the profit or loss of the period.
Changes in fair value of the hedging instrument are also recognized in the profit or loss of the period.
The Group discontinues fair value hedge accounting if the hedging instrument expires, is sold, terminatedor exercised, or if the hedge no longer meets the criteria for hedge accounting. Every adjustment tothe carrying amount of a hedged financial instrument is released to income using the effective interest
method. The reversal may begin as soon as an adjustment exists and shall begin no later than when
the hedged item ceases to be adjusted for hedging gains and losses.
Cash flow hedges
Hedging transactions are classified as cash flow hedges when the transactions hedge the risk ofchanges in cash flows which can be attributed to a risk affecting a recognized asset, a recognizedliability or a planned transaction, and could affect profit or loss for the period. The effective portion of
the gain or loss on a hedging instrument is recognized directly in equity, while the ineffective portion isrecorded in the statement of income.
The amounts recorded in equity are reclassified to the statement of income in the period in which thehedged transaction affects the statement of income, e.g. in which the hedged financial income or
expense is recorded or in which a planned sale or purchase is made. If the underlying hedged transactionis the acquisition of a non-financial asset or a non-financial liability, the amounts recorded in equity areincluded in the initial carrying amount of the non-financial asset or a non-financial liability.
If the planned transaction is no longer expected to occur, the amounts recorded previously in equity
are transferred to the result for the period. When the hedging instrument expires, is sold, terminated,or without being replaced or rolled up into another hedging instrument is exercised in another hedging

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instrument or when the Group ceases to designate a hedging instrument as such, the amounts previously recorded remain in equity until the planned transaction occurs. If the planned transaction is nolonger expected to occur, the amounts recorded are included in the result for the period.
Embedded derivatives
When the Group becomes party to a contract, it assesses whether any embedded derivatives should
be separated from the host contract. Embedded derivatives can arise, for example, in cases wherecommercial agreements include requirements that payments are made in non-trading currencies. A
reassessment is not made unless there is a substantial change in the terms of the contract that significantly modifies the cash flows that would otherwise have been generated from the contract.
Where there are embedded derivatives for which separate recognition is required, such derivatives arerecognized at fair value as financial assets held for trading. Embedded financial derivatives with positive
fair values are stated under other financial receivables; those with negative fair values are stated underbonds, bank loans and other interest-bearing liabilities or other financial liabilities.
Inventories
Materials and supplies, merchandise, work in progress and finished goods are all stated under inventories at the lower of cost and net realizable value. In addition to direct costs, cost includes an appropriate
portion of necessary materials and production overheads as well as production-related depreciationthat can be directly allocated to the production process. The average cost, or cost based on the first-in,
first-out (FIFO) method, is capitalized in the balance sheet. Appropriate allowance is made for inventoryrisks associated with slow-moving stocks, reduced salability, etc. When the circumstances that previously caused inventories to be written down below cost no longer exist, the write-down is reversed.
Long-term construction contracts
Long-term construction contracts are recognized in accordance with the percentage-of-completion(PoC) method. The percentage of completion per contract to be recognized is calculated as theratio of the actual costs incurred to the anticipated total costs of the project (“cost-to-cost method”).
Revenue received is stated as sales and, after deducting customer advances and installments, as tradereceivables. If the outcome of a construction contract cannot be estimated reliably, it is not possible tocalculate contract revenue and costs based on the percentage of completion. In such cases, revenue
is recognized at the amount of costs incurred for the construction contract to date, while the contract
costs are immediately recognized in full in the period in which they are incurred. Expected losses onsuch contracts are based on recognizable risks.

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Receivables and other assets
Receivables and other assets (with the exception of derivatives) are assigned to the category “loans
and receivables” and are measured at their nominal or acquisition cost. They are regularly tested for
impairment on an individual basis. Where objective evidence of possible loss exists (for example, if the
debtor is experiencing significant financial difficulty, if it is highly probable that insolvency proceedings
will be opened against the debtor, if the debtor defaults on or is in arrears with interest or principal
payments, if significant adverse changes in the technological, economic or legal environment occur, if
there is a significant or prolonged decline in the fair value of a financial instrument below its cost, or if
legal proceedings are opened), individual allowances are recorded using an allowance account to reflect
these factors. To the extent that impairment is derived from historical bad debt rates on a portfolio basis,
a fall in the total volume of receivables reduces such allowances and vice versa. Impaired receivables
are derecognized when they are assessed as uncollectible. Interest-free or low-interest receivables due
in more than one year are discounted.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and checks, cash at banks and cash equivalents. Cashat banks includes both daily deposits and time deposits with fixed maturities of up to three months.
Discontinued operations and non-current assets held for saleNon-current assets and disposal groups held for sale are classified as non-current assets held forsale or as liabilities directly associated with assets held for sale, respectively, if their carrying amountis to be recovered through sale rather than through continuing use. This condition is regarded as met
when the sale is highly probable and the asset or disposal group is available for immediate sale in its
present condition. In this case, management has decided to sell the asset and it is expected that thesale will take place within 12 months from the date of classification. Non-current assets held for sale
are measured at the lower of their carrying amount and their fair value less costs to sell. Assets held
for sale are not subject to depreciation and amortization.
Discontinued operations are recognized as soon as any component of an entity with business activities
and cash in- and outflows that can be clearly distinguished from the rest of the entity for operational andaccounting purposes is classified as held for sale or has already been disposed of, and such businessdivision either (1) represents a separate major line of business or a geographical area of operations, and(2) is part of a single coordinated plan to dispose of a separate major line of business or geographicalarea of operations, or (3) is a subsidiary exclusively acquired with a view to resale. The net result of
discontinued operations is reported separately from income and expenses from continuing operationsin the consolidated statement of income. Figures shown for previous years are presented on a comparable basis. Cash in- and outflows from discontinued and continuing operations are not presented
separately in the consolidated cash flow statement, and figures shown for previous years in the cash
flow statement are not restated. Figures disclosed in the notes to the consolidated financial statements
for items in the consolidated statement of income relate to continuing operations. Information on discontinued activities is provided in the section “Disposals and discontinued operations.” Sales revenues

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and expenses generated within the Group have been eliminated in order to present the financial effectof the discontinued operations with the exception of sales revenues and expenses which are expected
to continue after the sale of the discontinued operations.
Deferred and current taxes
Deferred tax assets and liabilities are recognized for temporary differences between the amounts carriedin the tax accounts and the amounts reported for IFRS purposes (temporary concept) in accordancewith IAS 12. Deferred tax assets are also recognized for unused tax losses insofar as it is reasonable toexpect that they will be realized in the near future. Deferred taxes that relate to items recognized underother comprehensive income are also themselves recognized in equity. Deferred taxes are calculated
based on the tax rates enacted or substantively enacted by the reporting date that apply or are expected
to apply in the countries concerned at the time of realization. Deferred tax assets on unused tax losses
that are not likely to be realized within a foreseeable period (normally two years) or that are not covered
by deferred tax liabilities are either written down or not recognized at all. Deferred tax assets anddeferred tax liabilities are presented on a net basis if the Group has a legal right to offset current tax
assets against current tax liabilities and they relate to income taxes levied by the same taxation authority.
Current taxes are calculated and reported in accordance with the tax laws and regulations valid foreach company.
Profit participation rights
The profit participation rights amounting to € 103,400 thousand are reported as a separate componentof the Group’s equity, based on their contractual terms and in accordance with IAS 32. Interest is notreported as interest expenses, but is treated in a similar manner to a dividend obligation.
Provisions for pensions and similar obligations
Provisions for pension obligations are measured based on actuarial valuation methods using theprescribed projected unit credit method for defined benefit plans as required by IAS 19. This method
considers not only the pensions and future claims known at the end of the year under review but also
future anticipated increases in salaries and pensions. Defined benefit obligations are measured basedon the proportion of future benefits accrued at the reporting date. Measurement includes assumptions about the future development of certain parameters that could affect the actual future benefit
amount. The expenses for these benefit plans are divided into service cost and interest cost on the
net debt from the obligations and plan assets. Both expense items are recognized in the statementof income. Revaluations of the net debt recognized are disclosed under other comprehensive income
net of deferred taxes.
Other provisions
Provisions are recognized for all discernible risks and uncertain obligations at the amount that is likely
to be realized. These provisions are not netted against recourse claims. Provisions are recognized when
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outflow of resources will be required whose amount can be estimated reliably. Provisions for warranty
claims are based on historical claim trends and estimated future trends. Specific provisions are set up
for known claims. Provisions for outstanding expenses, onerous contracts and other business-related
obligations are measured based on services still to be rendered, usually at the amount of the costs to sell.
Provisions which do not lead to an outflow of resources in the following year are carried at the discounted
settlement amount at the end of the year under review. The discount rate used is derived from market
interest rates. The settlement amount also includes the estimated cost increases. If an amount set
aside as a provision is expected to be refunded (through an insurance claim, for example), the refund
amount is stated separately as an asset only if it is virtually certain. Income from refunds is not netted
against expenses.
Liabilities
Current liabilities are stated at the amount needed to settle the obligation. Financial liabilities aremeasured at their amortized cost. Amortized cost corresponds to the cost of the financial liabilities
adjusted for repayments, issue costs and the amortization of any debt discounts or debt premiums.
Where liabilities are accounted for as hedged transactions, they are measured taking into account themarket value of the hedged risk. Gains and losses are recognized in profit or loss.
Liabilities arising from leases that are classified as finance leases in accordance with the criteria laidout in IAS 17 are recognized at the present value of the minimum lease payments at the start of thelease and subsequently stated under financial liabilities at their amortized cost. Lease payments are
split into an interest component and a principal component. The interest component of each payment
is recognized as an expense in the statement of income.
Classification of non-controlling interests in limited partnerships basedon termination rights of holders of non-controlling interests and put options
In accordance with IAS 32, financial instruments that entitle the holder to repayment of the capitalmade available to the partnership must be classified as liabilities. In companies that operate as limited
partnerships, partners have the right under German law to demand repayment of the capital they havemade available to the partnership. This right cannot be excluded by the partnership agreement. This
provision also extends to other comparable repayment rights of holders of non-controlling interests
with a settlement agreement. Put options create sale rights for the holder of the put pursuant to IAS 32.
a) Put options
Where the right to terminate on the part of non-controlling interests exists in the form of a put option, thecorresponding non-controlling interests are not derecognized but are treated as a component of equity
during the year under review. Based on this, a share of net income for the year is allocated to holders
of non-controlling interests. At each reporting date, it is assumed that the put option will be exercised
and the corresponding non-controlling interests are reclassified from equity to financial liabilities. Thisfinancial liability is recognized in the amount of the estimated compensation obligation and measured
at fair value. The difference between this liability and the share of equity attributable to non-controllinginterests is treated as a transaction between owners and has been recognized from the 2009/10 fiscal

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year onwards as a change in equity without any effect on the statement of income. Until and including
the 2008/09 fiscal year such transactions were regarded as a business combination achieved in stages
and the difference stated as goodwill. The Group elected to retain these amounts under the transitionalarrangements provided for under IAS 27 (2008).
The amounts reclassified from equity to financial liabilities totaled € 42,495 thousand in the 2016/17
fiscal year (previous year: € 9,891 thousand).
b) Limited partnerships
Up to and including the 2014/15 fiscal year the interests held in limited partnerships as well as non-controlling interests with comparable termination rights were treated in the same way as put options. The
liability was measured at amortized cost taking account of the attributable share of total comprehensive
income. The accounting treatment was changed in the 2015/16 fiscal year; the liability continues to bemeasured in a similar manner to amortized cost. It is no longer treated as a component of equity during
the year under review. From now on the measurement-related changes in the liability are recognized in
the interest result in the consolidated statement of income.
If the non-controlling interests in limited partnerships are terminated or if the respective comparable
termination rights or put options are exercised, the financial liabilities recognized prior to termination/
exercise of the put options are reclassified as other financial liabilities.
Financial guarantee contracts
Financial guarantee contracts issued by the Group are those contracts that require a payment to bemade to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment
when due in accordance with the terms of a debt instrument. These financial guarantee contracts aretreated as insurance contracts as defined by IFRS 4, i.e. the financial guarantee contracts are disclosed
as contingent liabilities until utilization becomes probable. When this is the case, the corresponding
obligation is recognized.
Exercise of judgment and estimates by management
The presentation of net assets, financial and earnings position in the consolidated financial statements
requires the exercise of judgment by management. Management has exercised judgment in the following
instances:·· Income taxes: management must exercise judgment in determining current and deferred taxes, asdeferred taxes are recognized to the extent that their realization is probable·· Determining the requirement for, and measuring the amount of, impairment of intangible assets andproperty, plant and equipment·· Determining the requirement for allowances against doubtful receivables·· Sales revenues from construction contracts: determining the percentage of completion and estimationof whether a contract is associated with the inflow of future economic benefits·· Measurement of provisions and assessment of the likelihood of their utilization

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Some accounting policies require critical estimates that involve complex and subjective assessments
and the use of assumptions, some of which are inherently uncertain and subject to change. These critical accounting estimates can vary from period to period and significantly impact a company’s financial
position and/or earnings. The management explicitly points out that future events will often deviate fromplanning assumptions, and that it is normal for estimates to have to be adjusted.
Significant estimates and assumptions have to be made in the following areas of accounting:
Revenue recognition from long-term construction contracts
The Group generally accounts for construction contracts using the PoC method, according to whichrevenue is recognized based on the percentage of completion. Accurate estimates of the percentage ofcompletion are of vital importance under this method. Depending on the method used to measure thepercentage of completion, the most significant estimates concern the total contract cost, the remaining
costs to complete the contract, the total contract revenue and contract risks.
The management of Voith’s operating subsidiaries constantly reviews all estimates that are needed in
the accounting for construction contracts and adjusts them as and when necessary.
Such examinations are part of management’s normal accounting activities at operating level. We refer
to note 14.
Trade and other receivables
Determining allowances for doubtful receivables requires significant judgment on the part of management as well as an analysis of the individual debtors that covers their creditworthiness, current economic
trends and an examination of historic default scenarios. We refer to note 14.
Impairment of goodwill
Determining the recoverable amount of a Group Division to which goodwill was allocated involves estimates by management. The value in use is measured based on planning for the first five years, which
is based on taking management’s expectations and adjusting them for economic trends and historicdevelopments. Estimates of growth, the weighted average cost of capital and tax rates are likewise
based on reliable information that reflects the risks associated with operating business in each given
industry or division. We refer to note 10 and to the segment reporting for details of the carrying amounts.
Development costs
Development costs are capitalized if the recognition criteria described in IAS 38 are met. Initial capitalization is based on management’s estimate that the technical and economic feasibility is demonstrated;the forecast of the expected future economic benefit to be gained from assets is essential to the decision
whether or not costs are to be capitalized. We refer to note 10.

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2016 /17 fiscal year

151

Pension obligations
Estimates of pension obligations depend significantly on key assumptions including discount factors,
expected salary increases, mortality rates and healthcare trends. The assumptions used to calculate thediscount factor reflect the interest rates that can be realized on high-quality fixed-income instrumentswith appropriate maturities. We refer to note 20.
Other provisions
Recognizing provisions for anticipated losses on contracts, warranty-related costs and litigation involves
the use of significant estimates. Voith recognizes provisions for anticipated losses in all cases where
current estimates of the total contract costs exceed expected contract revenues. Onerous contracts are
identified by estimating the total costs of the contract, which requires significant judgment. Estimates
are also necessary for assessing obligations from warranties and litigation. Provisions for restructuring
are based on detailed plans for expected activities which are reviewed and approved by the Board ofManagement. We refer to note 21.
Taxes
The Voith Group has business operations in many countries and is subject to many different tax laws.
Both current and deferred taxes on income must be calculated for each individual taxable entity. To
calculate deferred tax assets on unused tax losses and temporary differences, for example, assumptions must be made about the possibility of realizing sufficient taxable income in the future and theinterpretation of complex tax laws and regulations. We refer to note 9.
Adoption of amended and new standards and interpretations
Changes in accounting and measurement policies due to first-time adoption of revised
and new IFRS and IFRICs
The following new and revised IAS and IFRS standards were applied for the first time in the 2016/17
fiscal year:
Standard/interpretation

Amendment/new standards for interpretation

Amendments to IAS 1:
Disclosure Initiative

Initiative to research various possibilities in order to examine
ways in which existing disclosure requirements made by
IFRS users can be improved and simplified.

Amendments to IAS 16 and IAS 38:
Clarification of Acceptable Methodsof Depreciation and Amortization

Clarification of acceptable methods of depreciation andamortization.

Amendments to IFRS 11:
Joint Arrangements

Clarification of the accounting for the acquisition of interests ina joint activity.

Improvements to IFRS (2012–2014)

Amendments to standards IFRS 5 and 7, IAS 19 and 34.

None of the IAS and IFRS standards adopted had a significant effect on the net assets, financial andearnings position of the Group.

152

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2016 /17 fiscal year

The adoption of the following revised and newly issued IFRS and IFRICs was not yet mandatory in the
2016/17 fiscal year, and/or they had not yet been endorsed by the European Commission for adoption
in the European Union.
Standard/interpretation

Amendment/new standards for interpretation

Mandatory effective date

Amendments to IFRS 2:Classification and Measurementof Share-based Payment Transactions

Clarification of the classification and measurement oftransactions involving share-based payments.

Periods beginning on or afterJanuary 1, 2018

Amendments to IFRS 4:
Applying IFRS 9 Financial Instrumentswith IFRS 4 Insurance Contracts

The objective of the amendment is to reduce the effects of thedifferent effective dates of IFRS 9 Financial Instruments and thesuccessor standard to IFRS 4.

Periods beginning on or afterJanuary 1, 2018

IFRS 9Financial Instruments

Regulations for the recognition and the measurement,
derecognition and hedge accounting of financial instruments.

Periods beginning on or afterJanuary 1, 2018

Amendments to IFRS 9:
Financial Instruments

Amendments concerning early repayment options with negative
early repayment compensation.

Periods beginning on or afterJanuary 1, 2019

IFRS 15
Revenue from Contracts with Customers
incl. amendment of the effective date

Combination of revenue recognition rules previously containedin various standards and interpretations.

Periods beginning on or afterJanuary 1, 2018

Clarifications to IFRS 15:
Revenue from Contracts with Customers

The amendments are aimed at providing transition relief in thecase of modified agreements and completed contracts.

Periods beginning on or afterJanuary 1, 2018

IFRS 16
LeasesIFRS 16 governs the recognition, measurement, presentationand disclosure of leases in financial statements.

Periods beginning on or afterJanuary 1, 2019

IFRS 17
Insurance Contracts

IFRS 17 provides rules for identifying, recognizing, valuing andpresenting insurance contracts, including related disclosure
requirements.

Periods beginning on or afterJanuary 1, 2021

Amendments to IAS 7:
Disclosure Initiative

Project as part of the disclosure initiative for IAS 7 Statement of
Cash Flows to improve information provided to users of financial
statements about an entity’s financing activities and liquidity.

Periods beginning on or afterJanuary 1, 2017

Amendments to IAS 12:
Recognition of Deferred Tax Assets
for Unrealized Losses

Clarification of the accounting for deferred tax assets for
unrealized losses in the case of assets accounted for atfair value.

Periods beginning on or afterJanuary 1, 2017

Amendments to IAS 28:
Interests in Associates andJoint Ventures

Under this amendment long-term interests which, in economic
terms, represent part of a net investment in a company
accounted for under the equity method, are to be accounted forand valued in accordance with IFRS 9.

Periods beginning on or afterJanuary 1, 2019

Amendments to IAS 40:
Transfers of Investment Property

Clarifications concerning the transfer to and from the category“Investment properties.”

Periods beginning on or afterJanuary 1, 2018

IFRIC 22
Foreign Currency Transactions andAdvance Consideration

IFRIC 22 clarifies the accounting for transactions which include
the receipt or payment of consideration in a foreign currency.

Periods beginning on or afterJanuary 1, 2018

IFRIC 23
Uncertainty over Income Tax Treatments

IFRIC 23 expands the rules in IAS 12 concerning accounting
for uncertainty over the tax treatment of affected issues andtransactions.

Periods beginning on or afterJanuary 1, 2019

Improvements to IFRS (2014–2016)

Amendments to standards IFRS 1 and 12 and IAS 28.

Periods beginning on or afterJanuary 1, 2017 (for IFRS 12)
and after January 1, 2018
(for IFRS 1 and IAS 28).

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2016 /17 fiscal year

153

None of the revised and newly issued IFRS and IFRICs subject to mandatory adoption from the 2017/18
fiscal year onwards are expected to have any significant impact on the net assets, financial and earnings
position of the Voith Group. The impact on the Voith Group of revised or newly issued standards andinterpretations that will be subject to mandatory adoption at a later date is currently being investigated.
IFRS 9 Financial Instruments: IFRS 9 introduces a uniform approach to classifying and valuing financial
assets and in doing so it replaces IAS 39 Financial Instruments: Valuation and Measurements. The
standard takes account of the cash flow properties and of the business model in which the instruments
are used. The Corporate Board of Management expects that there will be changes to the valuationof certain equity instruments which are currently valued at amortized cost under IAS 39 and which
will need to be valued at fair value under IFRS 9. There are significant changes to the recognition of
impairments, which will be based on an expected loss model in future. Based on current information
this amendment is not expected to have a significant effect. The new regulations on hedge accounting
are intended to better represent the risk management activities of an entity. In addition, IFRS 9 includes
substantial new disclosure requirements, in particular in connection with hedge accounting, on credit
risks and expected losses.
As a general principle the new accounting rules are applicable retrospectively on initial application at
the mandatory effective date. In implementing the changes to classification and valuation (including
impairment) Voith will apply the alternative treatment permitted by IFRS 9 and not adjust comparative
figures presented for earlier periods. Differences between the carrying amounts of the financial assets
and financial liabilities which result from the initial application of IFRS 9 will be recorded in revenue
reserves and other reserves at the date of initial application. Currently, Voith does not plan to apply the
new hedging rules. The hedging arrangements will continue to be accounted for in accordance withthe requirements of IAS 39.
IFRS 15 Revenue from Contracts with Customers: The IASB issued the new standard for revenue
recognition under IFRS in May 2014, IFRS 15 Revenue from Contracts with Customers. The objectiveof the new standard is to unify the numerous rules on revenue recognition into one single standard.
Accordingly IFRS 15 replaces the existing revenue recognition standards IAS 18 Revenue and IAS 11
Construction contracts and their associated interpretation statements. The clarification to IFRS 15(Clarifications) issued in April 2016 will also be implemented by Voith. The new standard now provides
uniform basic principles which are applicable to all sectors and all types of revenue transactions. The
key point is that sales revenue will be recognized once control (known as transfer of control) has
occurred, replacing the transfer of risk and rewards principle used until now. The determination of theamount and timing or period over which revenue will be recognized will be ascertained using a five-stepmodel. In addition, the new standard can be expected to result in additional qualitative and quantitative
disclosures being made.
The business models of all of Voith’s Group Divisions have been analyzed as part of a Group-wide implementation project in order to determine possible changes resulting from IFRS 15. The Group Divisions
Voith Paper and Voith Hydro, which have reported their construction contracts under the percentage
of completion method until now, will meet the criteria under IFRS 15 requiring them to continue to recognize sales revenues over time. There will be only a few exceptions in which the sales revenues will be154Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2016 /17 fiscal year

recognized at a later date in future. The Group Division Voith Turbo has made no use of the percentage
of completion method until now, i.e. revenue from sales was recognized once delivery of the goods orservices was complete or on transfer of rewards and risks of ownership to the customer, respectively.
Here it is expected that there will be in future individual product lines which will recognize revenues
earlier than in the past, as the new criteria under IFRS 15 for recognizing revenues over time will be met.
In addition, it may be necessary to separate a contract into multiple performance obligations or toamend the accounting to deal with special issues such as variable compensation or the presenceof a significant finance component which both may result in a different, but not materially different,
accounting than has been applied to date.
The standard differentiates between a full retrospective and a modified retrospective approach to initial
application. Voith will make a final decision which method will be applied during the 2017/18 fiscal year.
IFRS 16 Leases: IFRS 16 replaces the current classification of leasing arrangements into operating andfinance leases for lessees. In future lessees will record most lease arrangements and the associatedright-of-use assets and leasing liabilities in the balance sheet. The Corporate Board of Management
assumes that applying IFRS 16 will result in a slight increase in EBIT, total assets and cash flow fromoperating activities.
At present, the Voith Group does not plan to early adopt the new or amended standards andinterpretations.
Changes to presentation in the consolidated statement of income
In order to improve the transparency of the presentation of the Group’s operational results a change inpresentation has been made from the 2016/17 fiscal year to present currency gains and losses resulting from long-term loan and liability balances both between companies in the Group and on externalbalances as well as valuation changes arising on their associated hedging instruments within financial
results. The resulting effect in the previous year amounted to € 3,493 thousand which increases theoperational result by this amount, with a corresponding increase in the expense recorded as otherfinancial result. A correction has not been made to the statement of income on materiality grounds.

155

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated statement of income

Notes to the consolidated statement ofstatementof incomeincome01.

Salesin € thousands

2016 /17

2015 /16

Sale of goods

2,940,501

3,042,443

Rendering of services

02.
03.

1,282,747

1,209,964

4,223,248

4,252,407

Changes in inventories and other own work capitalizedin € thousands

2016 /17

2015 /16

Changes in inventories of finished goods
and work in progress

10,022- 8,531

Other own work capitalized

8,447

8,088

18,469- 443

in € thousands

2016 /17

2015 /16

Income from the utilization of contract-specific provisions

118,359

119,060

Income from the reversal of provisions and accruals

66,71952,476

Other operating income

Foreign exchange gains

92,691

123,599

Recovered bad debts

12,005

11,203

Gains on the disposal of intangible assets and property,
plant and equipment

7,659

5,558

Rental and lease income

1,856

3,063

Income from insurance indemnification payments

15,53828,049Other income

86,091

44,774400,918

387,782

156

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated statement of income

04.

Cost of materialsin € thousands

2016 /17

2015 /16

1,499,399

1,455,089

343,420

363,553

1,842,819

1,818,642

2016 /17

2015 /16

Wages and salaries

1,164,783

1,154,826

Social security, pension and other benefit costs

250,625

246,856

1,415,408

1,401,682

Cost of materials and supplies and of purchased merchandise
Cost of purchased services

05.

Personnel expenses
in € thousands

Number of employees
Annual average
2016 /17

As at the reporting date2015 /16

2017-09-30

2016-09-30

Direct production employees

9,472

24,752

9,559

9,420

Administration staff/indirect production

9,479

10,964

9,486

9,678

18,95135,716

19,04519,098

953

1,009

953

1,009

19,90436,72519,998

20,107

Apprentices and interns1)

1)

Previous year amount restated due to new method of calculation.

Number of employees by region
Annual average

As at the reporting date2016 /17

2015 /16

2017-09-30

2016-09-30

Germany

7,428

12,557

7,641

7,363

Europe excluding Germany

2,689

6,917

2,662

2,760

Americas

4,752

9,970

4,650

4,925

Asia

3,914

6,101

3,925

3,884

Other

168

171

167

166

18,95135,716

19,04519,098

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated statement of income

06.

Other operating expenses
in € thousands

2016 /17

2015 /16

Increase in provisions and accruals

229,079

231,060

Other selling expenses

307,075

289,141

Other administrative expenses

240,660

227,557

Foreign exchange losses

90,971

121,820

Rent for buildings and machinery

51,31447,852

Bad debt allowances

18,10623,325Losses on the disposal of intangible assets
and property, plant and equipment
Other expenses

07.

157

3,369

1,347

101,427

102,911

1,042,001

1,045,013

Non-recurring result
Voith generally defines expenses and income arising from major restructuring activities, measures
addressing personnel capacity and the discontinuation of operations as exceptional items and presents
them under the non-recurring result.
The non-recurring result totaled €-32 million (previous year: €-7 million).
In the 2016/17 fiscal year the non-recurring result primarily includes personnel-related and other expenses
arising from measures taken to consolidate production capacities and to improve competitiveness atVoith Hydro in Brazil, Voith Paper in the USA and at Voith Turbo in Germany. In addition the donationscommitments of € 13 million are included here in this reporting period.
In the previous year the non-recurring result totaled €-7 million and included individual matters whichwere consequential effects resulting from a package of initiatives implemented at Voith Paper as wellas matter related to excellence initiatives as part of the Group-wide Voith 150+ success program.
Specifically, personnel costs were included for which it was not permitted to record provisions in earlier
years, as well as other expenses and income arising on the disposal of property, plant and equipment
and the release of provisions made for the measures. In addition, the non-recurring result included
personnel-related expenses arising from a measure at Voith Turbo introduced in response to the weakness in the oil and gas industry, in the mining industry, and at steel producers. In addition, expenses of€ 18 million were attributable to the restatement of a cut-off error at two Asian Voith Paper subsidiaries
which was corrected in the current year.
The contributions to the non-recurring result affected Voith Hydro €-7 million (previous year: €+4 million),
Voith Paper €-5 million (previous year: €-8 million), Voith Turbo €-6 million (previous year: €-5 million)
and areas with holding functions €-14 million (previous year: €+2 million).

158

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated statement of income

In detail, the non-recurring result includes the following:in € thousands

2016 /17

2015 /16

Personnel expenses-15,734- 22,296

Depreciation and amortization of non-current assets
Loss on the disposal of property, plant and equipment
Sundry other expenses
Gain on the disposal of property, plant and equipment
Income from the reversal of provisions
Sundry other income

0

- 515

- 873

0

- 20,169- 24,187

389

10,244

2,740

27,704

1,480

1,765

- 32,167- 7,285

The personnel expenses presented mostly comprise measures to adjust personnel capacity, such as
early retirement and other termination benefits.

08.

Other financial resultin € thousands

2016 /17

2015 /16

Gains/losses from investments

20,369

6,781

- 408

- 231

0

- 36,219

Income from securities and loans

453

398

Expenses from securities and loans- 2,0970

Currency gains on long-term financing positions

6,519

0

Currency losses on long-term financing positions- 36,557

0

1,891

0

- 9,830- 29,271

Impairment of other investments and loans
Impairment of securities

Valuation of derivatives used to hedge financial transactions

The impairment losses recognized on other investments and loans mainly concern available-for-salefinancial instruments that are measured at amortized cost.
The impairments of securities are impairment losses recognized on available-for-sale financial assets
with market quotations, the fair value of which has decreased significantly.
The currency gains and losses on long-term financing positions result from currency gains and losses
on long-term loans and liability balances both between companies in the Group and on externalbalances. The valuation effect of derivatives used to hedge financial transactions are the hedging
instruments related to these long-term financing positions.

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated statement of income

09.

159

Income taxesin € thousands

2016 /17

2015 /16

Current taxes- 67,164- 80,534

Deferred taxes-15,142

29,881- 82,306- 50,653

Current taxes include domestic income taxes and comparable foreign income taxes that are calculated
in accordance with the local tax laws valid for each subsidiary.
Deferred taxes are recognized for temporary differences between carrying amounts for tax reporting andcarrying amounts recognized under IFRS at the individual Group companies as well as for consolidation
measures recognized in profit or loss. Deferred tax assets are also recognized for unused tax losses thatcan be reasonably expected to be realized in the near future. The average income tax rate for German
companies is 29.84 % (previous year: 29.84 %).
Deferred taxes are calculated at the tax rates valid in the respective countries.
The deferred tax expense from temporary differences amounted to € 3,934 thousand (previous year:
tax income of € 29,111 thousand).
The deferred tax expense from unused tax losses amounted to € 11,208 thousand in the 2016/17 fiscal
year. This primarily includes the impairment of deferred tax assets of € 6,882 thousand which wererecognized in the 2015/16 fiscal year, a reduction of deferred tax assets on tax losses carried forward of€ 5,622 thousand as a result of amendments to tax losses carried forward from previous years, incomeof € 7,153 thousand from the initial recognition of deferred tax assets on tax losses for the current fiscal
year, expenses of € 12,150 thousand from the utilization of tax losses brought forward from previous
years, and income of € 7,541 thousand from the initial recognition of previously unrecognized tax losses.
The deferred tax income from unused tax losses amounted to € 770 thousand in the 2015/16 fiscal
year. This primarily includes the impairment of deferred tax assets of € 901 thousand which were recognized in the 2014/15 fiscal year, a reduction of deferred tax assets on tax losses carried forward of€ 3,237 thousand as a result of amendments to tax losses carried forward from previous years, incomeof € 7,151 thousand from the initial recognition of deferred tax assets on tax losses for the current fiscal
year, expenses of € 11,964 thousand from the utilization of tax losses brought forward from previous
years, and income of € 6,703 thousand from the initial recognition of previously unrecognized tax losses.
In addition, the current income tax charge was reduced by the use of previously unrecognized deferred
tax assets on unused tax losses of € 5,961 thousand (previous year: € 3,968 thousand).
As at Sep­tember 30, 2017 no deferred tax assets were recognized on German trade tax lossesof € 649,593 thousand (previous year: € 615,723 thousand), on German corporate income taxes of€ 158,702 thousand (previous year: € 85,870 thousand) or on interest expenses currently not deductible
under German tax law of € 178,459 thousand (previous year: € 151,554 thousand) as it is probable thatthe losses carried forward cannot be used in the near future.

160

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated statement of income

In addition, no deferred tax assets were recorded on foreign federal tax losses carried forward of€ 65,836 thousand (previous year: € 48,791 thousand) or foreign state taxes of € 104,704 thousand(previous year: € 106,773 thousand), also due to the fact that the utilization of the losses is not probablein the near future.
Further changes in unused tax losses may arise as a result of the current external tax audit of thecompanies in Germany and abroad.
In Germany, unused tax losses can be carried forward indefinitely. Outside Germany, tax losses canusually be carried forward for a limited period of no more than five to ten years.
2017-09-30
in € thousands

2016-09-30

Deferred tax
assetsDeferred tax
liabilities

Deferred tax
assetsDeferred tax
liabilities

Intangible assets

12,63546,6804,274

42,657

Property, plant and equipment

1,918

34,131

1,892

37,988Financial assets and securities

900

12,825637

17,560Inventories and receivables

29,76841,853

29,10232,329Other assets

6,518

11,978

9,959

15,099124,661

10,960154,820

11,378Pension provisions
Financial liabilities
Other provisions and liabilities

9,486

2,207

8,098

2,707

119,788

10,042

118,6674,674

Tax effect on distributable earningsof Group companies

3,851

5,182

Impairment of deferred tax assets
on temporary differences-12,688- 4,730

Unused tax losses

32,33544,349

Netting-120,783-120,783-118,375-118,375

204,538

53,744

248,693

51,199For details of the origin of deferred taxes on items recorded directly in equity, please refer to note 19.

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated statement of income

161

Reconciliation of deferred tax assets and liabilities:in € thousands

2017-09-30

2016-09-30

Balance, October 1

197,494

129,952

thereof: deferred tax assets

248,693

180,803

thereof: deferred tax liabilities- 51,199- 50,851

Deferred tax income/(expense) reported in the income statementin the reporting period-15,142

29,881

Deferred tax income/(expense) reported in other comprehensive incomein the reporting period- 21,725

38,926

Discontinued operations0- 2,699

Reclassifications held for sale0

- 3,216

Business acquisitions and disposals- 4,4100Currency- 5,423

4,650

Balance, Sep­tember 30

150,794

197,494

thereof: deferred tax assets

204,538

248,693

thereof: deferred tax liabilities- 53,744- 51,199

162

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated statement of income

Reconciliation of expected and effective tax expense:
The income of Voith GmbH & Co. KGaA and its subsidiaries in Germany is subject to corporate income
tax and trade tax. Profits earned outside Germany are taxed at the current rates valid in the countries
concerned. The expected tax expense rate of 29.84 % (previous year: 29.84 %) takes into account thelegal structure of the Voith Group.
in € thousands

2016 /17

2015 /16

Result before income taxes

682,400

140,096

Expected tax expenses (+ ) / tax income (-)

203,628

41,805

Deviations from expected tax rates- 3,993- 8,314625

271- 173,132-11,712

Effect of changes in tax rates
Tax-free income
Non-deductible expenses

34,14729,267

Taxes relating to other periods- 4,192- 6,049

Change in impairments of deferred tax assets

26,546

7,144

Other tax effects- 1,323-1,759

Income taxes

82,30650,65312.1

36.2

Effective tax rate (in %)No deferred tax was recorded on temporary differences on investments in subsidiaries of € 1,025,322 thousand (previous year: € 916,400 thousand) as the specified criteria in IAS 12.39 were met.
When distributions by foreign subsidiaries to Germany are made, 5 % of the distribution is subject toGerman taxation. In addition, withholding taxes and dividend-related taxes abroad may also be incurred.
Further income tax implications must also be observed in the case of distributions from subsidiaries
abroad to another foreign company.

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

163

Notes to the consolidated balance sheet

10.

Intangible assets
Development of intangible assets from 2015-10-01 to 2016-09-30

in € thousands

Cost 2015-10-01
Business combinations
Currency translation differences
Additions
Capitalized interest

Franchises, industrial
rights and similar
rights andassets as well as
licenses in suchrights and assets

Goodwill

Development
costs

Prepayments

Total

190,659

439,993

120,9092,834

754,395

0

0

0

0

0

712

184

- 26

0

870

3,378

0

7,053

189

10,620

0

0

28

0

28

- 2,4700- 2,639-3- 5,112

0

0

0

0

0

3,419

0

- 820

- 2,831

- 232

0

0

0

0

0

Cost 2016- 09- 30

195,698

440,177

124,505

189

760,569

Accumulated amortizationand impairments 2015-10-01-140,106- 54,179-101,136

0- 295,421

Disposals
Other adjustments
Transfers
Reclassification to assets held for sale

Business combinations

0

0

0

0

0

Currency translation differences-1,572025

0-1,547

Amortization-11,1120- 6,5390-17,651

- 21

0

-122

0

-143

Disposals

2,356

0

2,639

0

4,995

Transfers

Impairment losses

- 52

0

0

0

- 52

Reclassification to assets held for sale

0

0

0

0

0

Other adjustments

0

0

0

0

0

Accumulated amortizationand impairments 2016-09-30-150,507- 54,179-105,1330- 309,819

Carrying amount 2016-09-30

45,191

385,998

19,372

189

450,750

164

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

Development of intangible assets from 2016-10-01 to 2017-09-30
Franchises, industrial
rights and similar
rights andassets as well as
licenses in suchrights and assets

Goodwill

Development
costs

Prepayments

Total

Cost 2016-10-01

195,698

440,177

124,505

189

760,569

Business combinations

13,492

54,7410068,233Currency translation differences- 2,679

- 251

-2

-9

- 2,941

Additions

2,550

0

13,49389

16,132

0

0

0

0

0

- 4,5160- 2,0880- 6,604in € thousands

Capitalized interest
Disposals
Other adjustments

9

0

0

0

9

3,055

0

0

-175

2,880

0

0

0

0

0

Cost 2017-09-30

207,609494,667

135,90894

838,278

Accumulated amortizationand impairments 2016-10-01-150,507- 54,179-105,1330- 309,819

Business combinations

- 215

0

0

0

- 215

Currency translation differences

1,743

0

23

0

1,766

-10,0530- 6,440

0-16,493

0

0

- 970

0

- 970

Transfers
Reclassification to assets held for sale

Amortization
Impairment losses
Disposals

4,073

0

1,666

0

5,739

Transfers- 2,601000- 2,601

Reclassification to assets held for sale

0

0

0

0

0

Other adjustments

-9

0

0

0

-9

Accumulated amortizationand impairments 2017-09-30-157,569- 54,179-110,854

0- 322,602

Carrying amount 2017-09-30

50,040440,488

25,054

94

515,676

The impairment losses for the 2016/17 fiscal year of € 970 thousand on capitalized development costs are based on updated
commercial profitability assessments and relate to the Voith Paper segment.
An interest rate of 4.4 % was used to calculate capitalized interest (previous year: 4.4 %).

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

11.

165

Property, plant and equipment
Development of property, plant and equipment from 2015-10-01 to 2016-09-30
Land and buildings,
including buildingson third-party land

Plant andmachinery

Other equipment,
furniture and fixtures

Prepayments
and assets underconstruction

Total

843,320

1,499,405

507,11039,8612,889,696

0

0

0

0

0

108

3,531

1,598

- 830

4,407

2,851

27,42927,564

52,115

109,959

0

0

0

223

223

Disposals- 39,401-109,371- 33,491-1,403-183,666

Transfers

7,043

11,8603,243- 21,912

234

Reclassification to assets held for sale

0

0

0

0

0

Other adjustments

0

0

0

0

0

Cost 2016-09-30

813,921

1,432,854

506,024

68,0542,820,853

Accumulated depreciationand impairments 2015-10-01- 371,024-1,069,646- 390,124

0-1,830,794

0

0

0

0

0

in € thousands

Cost 2015-10-01
Business combinations
Currency translation differences
Additions
Capitalized interest

Business combinations

134- 2,914-1,2790- 4,059-18,018- 62,307- 32,584

0-112,909

- 486

- 45

-12

0

- 543

Disposals

28,494

107,734

31,6000167,828

Transfers-1,331

1,588

- 205

0

52

0

0

0

0

0

Reversal of impairment losses

0

249

0

0

249

Other adjustments

0

0

0

0

0

Accumulated depreciationand impairments 2016-09-30- 362,231-1,025,341- 392,604

0-1,780,176

Carrying amount 2016-09-30

451,690

407,513

113,420

68,054

1,040,677

Currency translation differences
Depreciation
Impairment losses

Reclassification to assets held for sale

166

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

Development of property, plant and equipment from 2016-10-01 to 2017-09-30
Land and buildings,
including buildingson third-party land

Plant andmachinery

Other equipment,
furniture and fixtures

Prepayments
and assets underconstruction

Total

813,921

1,432,854

506,024

68,0542,820,853

497

26

1,166

0

1,689

-15,694- 37,004- 4,811-1,927- 59,436

5,834

23,47328,371

22,08079,758

1

0

0

220

221

Disposals-14,818-15,933- 23,431-1,850- 56,032

Transfers

24,281

27,0762,025- 56,262- 2,880

0

0

0

0

0

Other adjustments

- 40

1,569

1,918

1

3,448

Cost 2017-09-30

813,982

1,432,061

511,262

30,316

2,787,621

Accumulated depreciationand impairments 2016-10-01- 362,231-1,025,341- 392,604

0-1,780,176

- 229

-10

- 666

0

- 905

in € thousands

Cost 2016-10-01
Business combinations
Currency translation differences
Additions
Capitalized interest

Reclassification to assets held for sale

Business combinations
Currency translation differences

5,887

25,7233,932

035,542-18,054- 61,453- 32,400

0-111,907

0

-150

- 68

0

- 218

Disposals

9,879

14,87522,503047,257

Transfers

-155

- 423

3,179

0

2,601

Reclassification to assets held for sale

0

0

0

0

0

Reversal of impairment losses

0

0

0

0

0

Other adjustments

0267-1,6230-1,356

Accumulated depreciationand impairments 2017-09-30- 364,903-1,046,512- 397,747

0-1,809,162

Carrying amount 2017-09-30

449,079

385,549

113,51530,316

978,459

Depreciation
Impairment losses

An interest rate of 6.0 % was used to calculate capitalized interest (previous year: 6.0 %).
The prepayments and assets under construction include buildings of € 1,041 thousand (previous year: € 23,076 thousand), plant and machinery of € 27,217 thousand (previous year: € 41,832 thousand), non-production related equipment of€ 2,058 thousand (previous year: € 3,120 thousand) and other assets of € 0 (previous year: € 26 thousand).

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

12.

167

Investments accounted for using the equity method
Associates
The following table summarizes the financial information for associates (all amounts relate to the Group’s
proportionate share of the respective associates):in € thousands

Carrying value of the investments in associates

2017-09-30

2016-09-30

1,495

1,467

Share of:Net result of continuing operations

158

-128

Total comprehensive income

158

-128

Joint ventures
The Group has interests in joint ventures which are not individually material. The following table summarizes the financial information for these joint ventures (all amounts relate to the Group’s proportionate
share of the respective joint ventures):in € thousands

2017-09-30

2016-09-30

30,511

13,840

Net result of continuing operations

7,434-1,159Other comprehensive income

- 386

-154

Total comprehensive income

7,048-1,313Carrying value of the joint ventures
Share of:

In some cases, the companies accounted for under the equity method have fiscal reporting periods
which do not end on Sep­tember 30. Accordingly, some companies prepare interim financial statements
as at Sep­tember 30. For other companies the effects of the different reporting periods are not significant
for the Voith Group’s earnings and net assets position.

168

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

13.

Inventories
Inventories consist of the following items:in € thousands

Raw materials and supplies

2017-09-30

2016-09-30

194,785

197,530Work in progress

146,166

169,257

Finished goods and merchandise

131,483

126,988

Prepayments

75,39173,458547,825567,233

Write-downs of inventories recognized as expenses amounted to € 9,604 thousand (previous year:€ 16,652 thousand). Obligatory reversals of write-downs totaling € 8,090 thousand (previous year:€ 6,172 thousand) were made. These amounts are recognized in the cost of materials in the current fiscal
year. In the previous year € 8,182 thousand was recognized in cost of materials and € 2,298 thousand
was recognized in discontinued operations.

14.

Trade receivables and receivables from customer-specific contracts
Trade receivables consist of the following items:in € thousands

2017-09-30

2016-09-30

Trade receivables

761,727

739,124

Bad debt allowances- 47,828- 48,492

Receivables from customer-specific contracts

323,929426,720

1,037,828

1,117,352

Trade receivables are classified as current assets. As at Sep­tember 30, 2017 the volume of receivables
that is not expected to be realized within one year is € 13,269 thousand (previous year: € 4,189 thousand).

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

169

Movements in the allowance account for the impairment of trade receivables were as follows:in € thousands

2017-09-30

2016-09-30

Impairment at the beginningof the fiscal year

- 48,492- 38,195

Additions- 16,703- 23,313

Utilization

4,579

4,925

Reversal

11,925

8,393

863

- 302

- 47,828- 48,492

Changes in consolidated group/exchange differences
Impairment at the endof the fiscal year

The total reversal of € 11,925 thousand (previous year: € 8,393 thousand) exclusively includes specific bad
debt allowances of € 11,925 thousand (previous year: € 8,393 thousand). Additions of € 16,703 thousand(previous year: € 23,313 thousand) consist of additions to specific bad debt allowances of € 16,318 thousand (previous year: € 22,962 thousand) and to portfolio-based allowances of € 385 thousand (previous
year: € 351 thousand).
Credit insurance is used to manage default risk in trade receivables. For this purpose, Hermes coveris used to secure receivables from foreign customers in particular.
Future receivables from customer-specific construction contracts recognized using the percentage-of-completion method are determined as follows:in € thousands

2017-09-30

2016-09-30

Costs incurred and recognized profits less recognized
losses to date on current customer-specific projects

6,537,092

4,700,803

Progress billings to date

- 5,137,716- 3,372,238

Future receivables from customer-specificconstruction contracts before advances received

1,399,376

1,328,565

Advances received (progress billings)-1,121,070-1,020,032

278,306

308,533

Thereof receivables from construction contracts

323,929426,721

Thereof liabilities from construction contracts- 45,623-118,188

Other liabilities include further advances received on customer-specific contracts of € 477,734 thousand(previous year: € 603,005 thousand) for which no production costs have been incurred to date.

170

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

Sales from customer-specific contracts totaled € 2,226,098 thousand (previous year: € 2,204,026 thousand).
An amount of € 17,233 thousand (previous year: € 21,754 thousand) from progress billings has beenretained by customers as the amounts are payable only on fulfillment of agreed contractual conditions.

15.

Other financial receivables and other assets
Other financial receivablesin € thousands

Current

Non-current

2017-09-30

Current

Non-current

2016-09-30

Derivatives used to hedge
operational transactions

23,775

21,26845,04335,90814,18550,093

Derivatives used to hedge
financial transactions

483

1,062

1,545

557

5,847

6,404

Financial receivables

24,695

1,280

25,97579,806160

79,966

Sundry financial assets

52,33665,801

118,137

56,20968,439124,6481)

101,289

89,411

190,700

172,480

88,631

261,1111)

Includes assets of € 37,634 thousand (previous year: € 42,267 thousand) which are no financial instruments andwhich are accordingly excluded from the disclosures made in the section “Additional information on financial instruments.”

Other assets
in € thousands

Current

Non-current

2017-09-30

Current

Non-current

2016-09-30

Deferred income

20,228

6,930

27,15822,39811,02233,420

Other taxes(without income tax)

90,316

3,819

94,13577,4186,038

83,456

110,544

10,749121,293

99,816

17,060116,876

Sundry financial assets totaling € 1,632 thousand (previous year: € 42,291 thousand) are used as collateral for liabilities and contingent liabilities. They may be drawn on if the underlying obligations are notfulfilled or if the contingent liabilities are realized.

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

16.

171

Securities
Non-current securities totaling € 11,734 thousand (previous year: € 84,859 thousand) includes assetsof € 9,113 thousand (previous year: € 9,039 thousand) that are used to cover future pension obligations.
Current securities of € 601,812 thousand include time deposits totaling € 560 million held by Voith
GmbH & Co. KGaA with selected bank partners with original maturities of over 90 days, with remaining
days to maturity of between 20 and 185 days at the balance sheet date (previous year: none).
Further information on securities can be found in the section “Additional information on financial
instruments.”

17.

Cash and cash equivalents
This item mainly consists of time deposits held at banks.
in € thousands

2017-09-30

Checks

0

21

348

297

31,415

10,708550,184

638,646

581,947649,672

Cash on hand
Cash equivalents
Cash at bank2016-09-30

Cash at banks earns interest at floating rates based on daily bank deposit rates.
Short-term deposits are made for varying periods of between one day and three months, dependingon the cash requirements of the Group. These deposits earn interest at the respective short-term
deposit rates.

172

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

18.

Assets held for sale and liabilities directly associated withassets held for saleThis item includes one investment which is held for sale at Sep­tember 30, 2017.
In the previous year this item was stated at € 609 million which primarily included Voith’s investment
in KUKA Aktiengesellschaft. The sale of our 25.1% investment in KUKA Aktiengesellschaft, Augsburg,
a stock-exchange listed robot manufacturer, as a result of a public takeover bid by Midea Group Ltd.,a Chinese investor, was completed in January 2017. As a result of this transaction we recorded acash inflow of € 1,146 million which is presented in the cash flow statement, and a positive effect of€ 563 million on the Group’s net result. Voith GmbH & Co. KGaA invested € 560 million with selectedbank partners with original maturity dates of over 90 days as short-term investments; these are reported
in the balance sheet within current securities.

19.

EquityIssued capital
A consequence of the change in the legal form of the Group’s parent is that the Group’s capital structure
has changed. Following the change, the issued capital of Voith GmbH of € 120,000 thousand, represented by 120,000,000 shares, is the issued share capital of Voith GmbH & Co. KGaA. This consistsof 108,000 thousand ordinary shares with an arithmetical share of € 1 each and 12,000 thousand preference shares with an arithmetical share of € 1 each. The shareholders of Voith GmbH at the date thechange in legal form was registered received the same number of shares in the issued capital as they
had previously held in Voith GmbH prior to the change in legal form. Accordingly, they hold preference
shares in the same proportion to their holdings in ordinary shares.
Revenue reserves and other reserves
The revenue reserves and other reserves consist of retained earnings generated by Voith GmbH & Co.
KGaA and its consolidated subsidiaries as well as the effects of the remeasurement of defined benefit
plans, the currency translation of foreign subsidiaries, the valuation of net investments in foreign operations, gains/losses from available-for-sale financial assets recognized directly in equity without effecton profit or loss, and cash flow hedges pursuant to IAS 39.

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

173

The statement of comprehensive income shows the individual components of other comprehensive
income. Other comprehensive income consists of:in € thousands

2016 /17

2015 /16

Remeasurement of defined benefit plans

67,780-135,984· Gains/losses in the current period

67,780-135,984

Gains/losses on available-for-sale securities- 12,222

10,166· Gains/losses in the current period-2,392

10,166· Transfers to profit and loss

-9,8300

Gains/losses on cash flow hedges

2,375- 4,247· Gains/losses in the current period

2,375- 4,24700· Transfers to profit and loss
Gains/losses on currency translation- 32,619

6,805· Gains/losses in the current period-24,386- 2,563· Transfers to profit and loss

-8,233

9,368

Gains/losses from currency translation of net investments
in foreign operations

3

4,577

· Gains/losses in the current period

3

4,577

· Transfers to profit and loss

00

- 21,724

39,366

3,593- 79,317

Tax on components of other comprehensive income
Other comprehensive income

174

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

Deferred taxes on the components of other comprehensive income are as follows:

2017

2016

in € thousands

Beforetaxes

Deferred
taxes

After
taxes

Beforetaxes

Deferred
taxes

After
taxes

Remeasurement ofdefined benefit plans

67,780- 21,043

46,737-135,984

38,168- 97,816

Gains/losses onavailable-for-sale securities-12,22210-12,212

10,166-105

10,061

Gains/losses on cash flow
hedges including shareof associates

2,375

- 691

1,684

- 4,247

1,303- 2,944- 32,6190- 32,619

6,805

0

6,805

Gains/losses oncurrency translation
Gains/losses from currencytranslation of net investments
in foreign operations
Other comprehensive income

3

0

3

4,577

0

4,577

25,317- 21,724

3,593-118,683

39,366- 79,317

Profit participation rights
Profit participation rights with a nominal volume of € 103,400 thousand (previous year: € 103,400 thousand) qualify as equity under the IAS 32 criteria. The rights are lower-ranking bearer profit participationrights with variable compensation, no fixed maturity date and no right of termination on the part of thecreditors. Profit participation rights of € 96,800 were issued by a subsidiary of Voith GmbH & Co. KGaA.
Profit participation rights of € 6,600 thousand were issued by Voith GmbH & Co. KGaA. Subject to theapproval of the appropriate governing body, profits totaling € 5,590 thousand (previous year: € 5,590 thousand) are scheduled to be distributed on the sum total of these rights for the 2016/17 fiscal year.
Non-controlling interests
The majority of non-controlling interests are held by the co-owners of the subsidiaries Rif Roll Cover Srl,
Italy, Voith Fuji Hydro K.K., Japan, Voith IHI Paper Technology Co., Ltd., Japan, Voith Hydro ShanghaiLtd., China, Voith Paper Fabrics India Ltd., India, and PT. Voith Paper Rolls Indonesia, Indonesia. Of
the profit participation rights totaling € 103,400 thousand, € 96,800 thousand is attributable to non-controlling interests.
Appropriation of retained earnings of Voith GmbH & Co. KGaA
The Board of Management proposes to pay a dividend of € 0.21 per share (€ 25,000 thousand in total)
out of the net result of Voith GmbH & Co. KGaA, and that the remaining amount (€ 7,453 thousand) will
be carried forward. Of the total dividends proposed € 2,500 thousand is attributable to preference shares.
Dividend payments in the fiscal year amounted to € 18,000 thousand (previous year: € 15,000 thousand). The distribution per share in the fiscal year amounted to € 0.15 per share (previous year: € 0.13
per share).

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

175

Additional disclosures on capital management
Voith is a family-owned company. As such, it is obliged to maintain a robust and sustainable financial
profile that enables the Group to meet its earnings and growth targets.
Voith manages its capital with the aim of maximizing the return on capital. The Group’s managed capitalconsists of equity and interest-bearing financial liabilities.

in € thousands

2017-09-30

2016-09-30

Equity1,365,924

798,934

633,879

1,332,473

1,999,803

2,131,407

Interest-bearing financial liabilities

Year-on-year equity increased by 71.0 % compared to the previous year. This was primarily a result of thecontribution made by the € 562.6 million gain on the sale of the KUKA shares. Interest-bearing financial
liabilities fell by 52.4 %. The composition of interest-bearing financial liabilities is described in note 22.
The articles of incorporation and bylaws of Voith GmbH & Co. KGaA do not prescribe any specificcapital requirements.

20.

Provisions for pensions and similar obligations
Provisions for pensions are recognized for benefit obligations in the form of retirement, invalidity andsurviving dependents benefits payable under pension plans. The benefits provided by the Group vary
according to local legal, tax and economic conditions in the respective countries and are usually basedon the length of employee service and the level of remuneration.
The Group’s post-employment benefits include both defined benefit plans and defined contributionplans. In the case of defined contribution plans, the Company pays contributions to state or private
pension schemes based on either legal or contractual requirements or on a voluntary basis. Once thecontributions have been paid, there are no further obligations for the Company. Current contributions
are recognized as pension expenses in the period concerned and total € 87,536 thousand for the Group
as a whole (previous year: € 87,126 thousand).
The majority of the pension plans are defined benefit plans that take the form of provisions-based or
externally funded schemes.

176

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

The pension provisions for defined benefit plans are determined in accordance with IAS 19 using theinternationally recognized projected unit credit method. For this purpose, the future obligations aremeasured on the basis of the pro rata employee benefit obligations earned at the end of the fiscal year.
Pension provisions are measured taking into account development assumptions for those factors which
affect the benefit amount. All defined benefit plans require actuarial valuations. These are preparedannually by qualified actuaries.
The amount of the individual pension benefit contribution is generally measured based on the wage
or salary level and/or position in the corporate hierarchy, as well as the length of service. The featuresand related risks of the defined benefit plans available to employees vary according to local legal, tax
and economic conditions in the respective countries. The features of the material defined benefit plans
at Voith are described below.
a) Pension plans in Germany and Austria
The pension plans in Germany generally include retirement, invalidity and surviving dependents’ benefits. Traditionally, the pension commitments are measured on the beneficiary’s final salary. In recent
years, these benefits have been increasingly replaced by capital savings models. Under capital savings
models the amount of the benefit is measured as the sum of the (annual) savings modules. The individual
modules are measured from the defined salary-based contribution using a variable conversion factor
for age and interest rates for a defined retirement age.
Numerous Group companies have introduced capital savings models to satisfy their obligation to pay
an employer contribution.
In accordance with the German Company Pensions Act, current benefit payments are regularly reviewed
with regard to the increase in the consumer price index.
In comparison to the older final-salary-based pension commitments, which involve a relatively highrisk of extra funding requirements arising from salary trends, from external input parameters (e.g. theincome threshold for the statutory pension insurance scheme) and from the adjustment of current
pensions, the current capital savings models ultimately only involve the risk of a change in the interest
rates used in the calculation.
Pension provisions are recognized for all pension commitments. Funding is therefore only obtained in
exceptional cases. The plan assets of German companies take the form of insurance policies. They do
not include any financial instruments issued by companies of the Voith Group.
For mortality and invalidity, the RT 2005G mortality tables by Heubeck are used. Employee turnoverprobabilities were calculated specifically for the Group.

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

177

In Austria, the obligations result primarily from a severance benefit scheme (“Abfertigungen”). Benefits
become due upon termination of the employment relationship (provided the employee is not culpablefor the termination), i.e. also upon retirement. Austrian severance benefits all qualify as capital savings.
A few years ago, the nature of these benefits changed for new hires to post-employment benefits on
account of new statutory requirements. These qualify as defined contribution plans and are organized
via legally independent employee welfare funds. The employer’s obligation is limited to payment of thecontribution. In addition, obligations exist for retirement, invalidity and surviving dependents’ benefits
on the basis of individual commitments and a pension plan closed to new hires a long time ago at the
St. Pölten location.
b) Pension plans in the United States and Canada
The companies of the Voith Holding Inc. Group in the United States have a number of defined benefit
plans. The plans are closed to new entrants, who are offered defined contribution plans instead. All of thepension plans are frozen. No new participants are accepted and no further provisions will be recognized
for future benefit payments or future service cost (apart from a small group of participants in a plan forwhom only salary rises are still considered in the calculation of the final average benefit payment). The
pensions are primarily based on the final average salary or the length of service (i.e. the product of a
fixed dollar amount and the number of years of service) and are paid monthly for life. Moreover, there are
two unfunded supplementary plans for benefits paid to a small group of former employees beyond thenormal upper limit for pension plans required by law. These plans have also been frozen and no active
employees currently participate in these plans. Finally, there is a plan for post-employment medical
benefits for a group of plan participants who met the age and length of service criteria when the plan
was closed to new participants. This plan is unfunded. These defined benefit plans give rise to actuarial
risks for the Voith Holding Inc. Group, arising from such factors as the investment risk, interest rate risk,
longevity risk and the risk of a rise in the costs of medical care.
The plan assets for defined benefit plans are invested in a master trust. The companies in the Voith
Holding Inc. Group paying the contributions have assigned the responsibility for overseeing the investment of plan assets to an investment committee. According to a trust agreement and US law, themembers of the investment committee have a fiduciary duty to act solely in the best interests of thebeneficiaries. The committee has drawn up an investment guideline that lays down the investment
goals and procedures that must be followed. The trustee of the master trust only acts on the express
instructions of the investment committee or an authorized representative of the investment committee. The trustee is responsible for the safe custody of the plan assets, but is not generally empoweredwith decision-making authority.
The legal and regulatory framework for calculating the minimum funding requirement for the pension
plans is based on the relevant US laws, including the Employee Retirement Income Security Act (ERISA)
as amended. An annual assessment of the minimum funding requirement is made by the plan’s actuary

178

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheeton the basis of these laws. In the past, Voith paid into the plans to maintain a funded status of at least
80 %, as required by local law. The annual employer’s contributions correspond to the net present valueof the benefit obligation accumulated in the year, plus the amortization of any plan deficit from theprevious year. If the employer’s contribution exceeds the minimum funding requirement or if the plan
assets exceed the liabilities, the surplus may be offset against future minimum funding requirements.
The Voith Group maintains two active defined benefit plans in Canada. Both plans are closed to newentrants, who participate in various defined contribution plans instead. The benefits paid under both ofthese plans take the form of lifelong monthly pensions.
The plan assets of the defined benefit plans are invested in insurance policies with an insurer who manages the plan assets as trustee. The companies in the Group paying the contributions have assigned
the responsibility for overseeing the investment of plan assets to the managers and directors of various
companies acting as representatives of the Company. According to Canadian law at both federal andprovincial level, the Company and its representatives have a fiduciary duty as the managers of the plan
assets to act solely in the best interests of the beneficiaries.
The legal and regulatory framework used to calculate the minimum funding requirement for pension
plans is based on the relevant laws applying in the Province of Ontario and at federal level in Canada,
including the Ontario Pension Benefits Act and the Ontario Income Tax Act as well as the associatedlaws and regulations as amended. Based on these laws, either an annual or a three-yearly assessmentof the minimum funding requirement is made by the plan’s actuary.
The following amounts were recorded in the consolidated financial statements for post-employment
defined benefit pension plans:
Defined benefit
obligationin € thousands

Fair valueof plan assets

2017-09-30

2016-09-30

Germany + Austria

748,167

842,953

USA + Canada

181,245

218,695

Other

31,65632,575

961,068

1,094,223

2017-09-30

Net carrying amountfrom defined benefit plans

2016-09-30

2017-09-30

2016-09-30- 23,340- 31,106

724,827

811,847-139,729-159,082

41,516

59,613- 21,398- 21,263

10,258

11,312-184,467- 211,451

776,601

882,772

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

179

Movements on the net liability under defined benefit plans:
2017-09-30

2016-09-30

Present valueof defined
benefitobligations

Fair value ofplan assets

Balance, October 1

1,094,223

Current service cost

21,303

Past service cost from plan curtailments
Interest expenses (+ ) / interest income (-)

in € thousands

Total

Present valueof defined
benefitobligations

Fair value ofplan assets

Total- 211,451

882,772

950,857-199,580

751,277-

21,303

17,826-

17,826- 6,5460- 6,546- 7,157

0- 7,157

17,689- 5,012

12,67726,099- 7,273

18,826

Remeasurements:
Losses (+ ) / gains (-) fromchanges in demographic assumptions

1,715

-

1,715

855

-

855

Losses (+ ) / gains (-) fromchanges in financial assumptions- 63,321-- 63,321

141,198-

141,198

Losses (+ ) / gains (-) fromexperience adjustments- 1,894-- 1,894

958

-

958

-

- 4,280- 4,280-- 7,027- 7,027

Employer contributions to the fund-

- 7,877- 7,877--12,508-12,508

Employee contributions to the fund

-

62

62

-

- 433

- 433

Benefits paid

- 72,352

26,075- 46,277- 40,180

13,393- 26,787

Transfer to Voith Management GmbH- 19,864

9,821- 10,043

0

0

0

328

-6

322

- 4,858505- 4,353- 10,213

8,201- 2,012

- 588

1,472

884

-

-

0

9,213

-

9,213

961,068- 184,467

776,601

1,094,223- 211,451

882,772

Remeasurement of plan assets(without amounts included in interest result)

Other
Currency translation differences on foreign plans
Addition to termination benefits in accordancewith IAS 19.159 et seq.
Balance, Sep­tember 30

180Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

Movements on the net liability under defined benefit plans in Germany + Austria:
Germany + Austria
2017-09-30

2016-09-30

Present valueof defined
benefitobligations

Fair value ofplan assets

Balance, October 1

842,953

Current service cost
Past service cost from plan curtailments
Interest expenses (+ ) / interest income (-)

in € thousands

Total

Present valueof defined
benefitobligations

Fair value ofplan assets

Total- 31,106

811,847

713,393- 27,932

685,461

19,398-19,39815,871-

15,871- 4,7860- 4,786- 6,2910- 6,291

11,038- 427

10,611

17,135- 699

16,436

- 259

-

- 259

0

-

0

- 53,551-- 53,551

123,334-

123,334

Remeasurements:
Losses (+ ) / gains (-) fromchanges in demographic assumptions
Losses (+ ) / gains (-) fromchanges in financial assumptions
Losses (+ ) / gains (-) fromexperience adjustments-1,673--1,673

1,851

-

1,851

Remeasurement of plan assets(without amounts included in interest result)

-

- 675

- 675

-

- 594

- 594

Employer contributions to the fund-

- 2,029- 2,029-- 2,589- 2,589

Employee contributions to the fund

-

0

0

-

0

0

Benefits paid

- 46,355

1,076- 45,279- 26,611

712- 25,899

Transfer to Voith Management GmbH

-19,864

9,821-10,043

0

0

0

Other

1,266

0

1,266

- 4,942-4- 4,946

Currency translation differences on foreign plans

0

0

0

0

0

0

Addition to termination benefits in accordancewith IAS 19.159 et seq.

-

-

0

9,213

0

9,213

748,167- 23,340

724,827

842,953- 31,106

811,847

Balance, Sep­tember 30

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

181

Movements on the net liability under defined benefit plans in USA + Canada:
USA + Canada
2017-09-30

in € thousands

Balance, October 1

2016-09-30

Present valueof defined
benefitobligations

Fair value ofplan assets

218,695-159,082

Total

Present valueof defined
benefitobligations

Fair value ofplan assets

Total

59,613207,938-149,999

57,939Current service cost

1,554

-

1,554

1,083

-

1,083

Past service cost from plan curtailments-1,8400-1,840

- 770

0

- 770

Interest expenses (+ ) / interest income (-)

5,994- 4,138

1,856

8,097

- 5,870

2,227

2,206

-

2,206

583

-

583

-10,010--10,010

13,204-

13,204Remeasurements:
Losses (+ ) / gains (-) fromchanges in demographic assumptions
Losses (+ ) / gains (-) fromchanges in financial assumptions
Losses (+ ) / gains (-) fromexperience adjustments

- 975

-

- 975

- 354

-

- 354

Remeasurement of plan assets(without amounts included in interest result)-- 3,375- 3,375-- 5,014- 5,014

Employer contributions to the fund-

- 5,434- 5,434-- 8,929- 8,929

Employee contributions to the fund
Benefits paid
Other
Currency translation differences on foreign plans
Balance, Sep­tember 30

-

62

62

-

- 433

- 433

- 24,310

23,828- 482-11,185

11,104

- 81

- 903

772

-131

- 581

420

-161

- 9,166

7,638-1,528

680

- 361

319

181,245-139,729

41,516

218,695-159,082

59,613

182

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

Costs for defined benefit plans break down as follows:
2017-09-30

2016-09-30

Current service cost

21,303

17,826

Past service cost

- 6,546- 7,157

Interest expenses from pension obligations and plan assets

12,677

18,826in € thousands

Current service cost and past service cost are stated under personnel expenses. Interest expenses
on the obligation and interest income on plan assets are stated in the interest result. Past service cost
includes the effects of the increase in the discount rates for the capital savings plans.
The fund assets consist of the following components:
Quoted prices inan active marketin € thousands

2017-09-30

No quoted prices inan active market

Total

2016-09-30

2017-09-30

2016-09-30

2017-09-30

2016-09-30

Equity instruments

70,06140,0250070,06140,025

Debt instruments

75,817

118,3710075,817

118,371

Real estate

7,128

8,663

1,949

2,566

9,077

11,229Cash and cash equivalents

2,886

9,280

103

13

2,989

9,293

Other1)

1,878

128

24,64532,405

26,52332,533

157,770

176,467

26,69734,984

184,467

211,451

1)

Primarily employer’s pension liability insurance.

The calculation of pension provisions is based on the following assumptions:
Germany + Austria
in %

USA

2017-09-30

2016-09-30

2017-09-30

2016-09-30

Discount rate

2.00

1.33

3.46

3.20

Pension increases

1.70

1.33

0

0

The inputs used in the calculation of the defined benefit obligation include assumed discount rates,
wage and salary trends, as well as mortality rates. These vary depending on the economy and otherfactors in the respective country.

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

183

Changes to the relevant actuarial assumptions would have had the following impact on the defined
benefit obligation:

2017-09-30

Discount ratePension increases

Life expectancy

2016-09-30

in € thousandsin %in € thousandsin %up 0.50 %points- 64,282- 6.7- 77,377- 7.1

down 0.50 %points72,125

7.5

87,4518.0

up 0.25 %points16,174

1.7

10,5481.0

down 0.25 %points-15,449-1.6-10,014- 0.9+ 1 year

28,801

3.0

34,610

3.2

The sensitivity analyses presented here show the effect of changes to one assumption with no change inthe other assumptions, i.e. possible correlations between the individual assumptions are not considered.
Increases or decreases in the discount rate, the wage and salary trends and the mortality rates do nothave the same impact in absolute terms on the defined benefit obligation (DBO), primarily on account of
discounting the obligation to net present value. If a number of assumptions are changed simultaneously,
the total impact does not necessarily equate to the sum of the effects attributable to the individualassumptions changed. In addition, the sensitivity of the DBO to a change in an assumption is only areflection of the specific magnitude of the change. If an assumption changes by a different magnitude
than that assumed here, the impact on the DBO will not necessarily be linear.
Asset-liability matching strategies
Due to the treasury guidelines of the Voith Group, which rule out any speculative transactions, the fundedpension plans in the United States pursue an investment strategy that is oriented towards the obligations
from the pension plans and not primarily towards maximizing the value of the securities portfolios. The
goal of the investment strategy is to close any gaps in funding between the defined benefit obligationand the plan assets. If this is achieved, the goal is to maintain this funded status.
The main factors influencing the funded status include the development of interest rates and pricing
risks inherent in the plan assets. In 2011, Voith installed a dynamic pension management with the
involvement of international asset management experts and insurers. A new standard asset allocation
is ratified each year by the Voith pension committee along the latest efficiency curves between income
and risk. This is based on an individual limited risk strategy. However, a fixed percentage of the funding
gap is always set as an upper risk limit.

184

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

The pension committee ratified an investment guideline that allows the external asset manager to use
all defined asset classes from 0–100 % for tactical purposes. This allows the asset manager to react
ad hoc to market turbulence. In the mid-term, the portfolio will move towards the standard allocation
depending on the residual risk budget. The success of such dynamic risk management is reviewed
regularly by the pension committee and must be measured against a standard asset allocation without
dynamic risk management.
The interfaces between the actuaries, the asset managers, the pension committee and the Group
treasury are structured efficiently and functionally at Voith. In addition to a monthly comparison of thedata and the reporting, the persons involved exchange information on the evolution of the pension
strategy on the basis of a predefined schedule.
Future cash flows
Contributions of € 8,505 thousand are expected to be paid into the plans in the next reporting period.
The weighted average term of the DBO is 14 years.

21.

Other provisions
Provisions consist of the following:in € thousands

Personnel-related provisions

Changein theAt consoli­dated
2016-09-30
Group

77,770412

Utilization

Additions

Reversals

Transfers

Discounting
effect-12,234

9,323- 3,671

0212

Currencytransla­t ion
differ­e ncesAt
2017-09-30- 437

71,375

Other tax provisions

5,481

0

- 2,533

1,911

- 708

0

0

-171

3,980

Warranty provisions

198,15953- 93,890

138,887- 33,132

9,373

0- 2,364

217,086

Other contract-related provisions

80,74835- 21,140

103,211-18,964

3,391

0

- 517

146,764

Other provisions

127,452936- 43,362

15,592- 4,64900-1,481

94,488489,610

1,436-173,159

268,924- 61,124

12,764212- 4,970

533,693

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

2017-09-30

185

2016-09-30

in € thousands< 1 year> 1 year< 1 year> 1 year

Personnel-related provisions

15,31856,057

18,17259,598Other tax provisions

3,042

938

4,760

721

Warranty provisions

161,233

55,853116,038

82,121Other contract-related provisions

132,339

14,42578,351

2,397

Sundry other provisions

31,15063,33850,98576,467343,082

190,611

268,306

221,304

Other provisions include restructuring provisions and provisions for personnel adjustments totaling€ 62 million (previous year: € 89 million).
Refund claims totaling € 34.1 million associated with other provisions were capitalized (previous year:€ 19.4 million).
Personnel-related provisions mainly comprise the phased retirement scheme and long-service bonuses.
In the case of provisions for phased retirement, the amount and maturity of the future payments to bemade to the beneficiaries are uncertain. Warranty provisions are recorded based on past experienceor on the basis of individual assessments and represent the legal and contractual warranty obligations
as well as goodwill commitments to customers. The provisions generally represent amounts that will
be payable within the next two fiscal years. Other contract-related provisions include obligations forservices still to be rendered on customer orders or parts of orders that have been billed, obligations
for service and maintenance contracts, and commission provisions. In these cases, the amount andtiming of future expenses are dependent on completion of the orders concerned.

186

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

22.

Bonds, bank loans and other interest-bearing financial liabilities
Financial liabilities include the following:in € thousands

Bonds
Bank loans

Current

Non-current

2017-09-30

Current

Non-current

2016-09-30

0

17,935

17,935597,059

59,558656,617

23,947394,400

418,347

86,659419,780

506,439

Financial liabilities from leases

246

612

858

288

797

1,085

Notes payable

1,151

0

1,151

332

0

332

Derivatives used to hedge
financial transactions

4,211

15,131

19,342

15,475

6,074

21,549Other loans and borrowings

52,961

123,285

176,246

68,731

77,720146,451

82,516551,363

633,879

768,544563,929

1,332,473

Other loans and borrowings contain obligations from the classification of non-controlling interests inlimited partnerships based on termination rights of holders of non-controlling interests and put options.
The Voith Group’s current and non-current bonds and its bank loans are denominated in the following
currencies:in € thousands

2017-09-30

2016-09-30

Euro299,324

910,357

Chinese renminbi

107,962

186,616

US dollar

18,69359,629Other currencies

10,3036,454

436,282

1,163,056

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

187

Notes on net debt
Net debt as defined in the Company includes the following:in € thousands

2017-09-30

2016-09-30

418,347

506,439

Bonds

17,935659,558

Other interest-bearing financial liabilities

197,597

169,417

Securities- 613,546- 709,494

Cash and cash equivalents- 581,947- 649,672

Other realizable financial receivables and loans- 86,159-143,961- 647,773-167,713

Bank loans

Net debt, as the difference between financial liabilities and realizable financial assets, is an important indicator for banks, analysts and rating agencies. This net debt indicator is not defined underInternational Financial Reporting Standards (IFRS) accounting policies, which means that its definitionand calculation might diverge from practice at other companies. In contrast to the carrying amounts
in the balance sheet, which are based on the effective interest method, the indicator is calculated bymeasuring financial liabilities at their higher nominal repayment amount. The bonds are included here at
an amount of € 0 (previous year: € 3 million) higher than the carrying amount in the balance sheet. The
securities presented in this table for the previous year include the carrying amount of the investment
in KUKA Aktiengesellschaft accounted for using the equity method, which was reported within assets
held for sale in the consolidated balance sheet.

23.

Trade payables
Trade payables of € 3,481 thousand (previous year: € 17,396 thousand) are due after more than one year.

188

Voith Annual Report 2017
Consolidated Financial Statements
Notes to the consolidated balance sheet

24.

Other financial liabilities/other liabilities
Other financial liabilitiesin € thousands

Derivatives used to hedge
operational transactions

Current

Non-current

2017-09-30

Current

Non-current

2016-09-30

7,877

1,063

8,940

18,632

3,217

21,849Personnel-related liabilities

96,099193

96,292

101,979137

102,116

Sundry financial liabilities

130,104

34,379164,483

149,81425,477

175,291

234,080

35,635

269,715

270,425

28,831

299,256

Personnel-related liabilities at fiscal year-end included outstanding annual bonus payments and outstanding payments for wages, salaries and social security contributions.
Other liabilitiesin € thousands

Current

Non-current

Tax liabilities

59,45321,517

Advances received

578,0210

2017-09-30

Current

Non-current

2016-09-30

80,97052,222

26,66778,889578,021704,4300704,430

Deferred income

2,487

8,503

10,990

2,061

5,569

7,630

Other liabilities

63,532

28,202

91,73465,453

26,84392,296

703,493

58,222

761,715824,166

59,079883,245

Tax liabilities principally relate to sales taxes (VAT).

Voith Annual Report 2017
Consolidated Financial Statements
Notes on segment reporting

189

Notes on segment reporting
Information on the segment data
The business is managed according to the different products and business segments and corresponds
to the structure of internal reporting to the Board of Management of Voith GmbH & Co. KGaA.
The Voith Digital Solutions Group Division, which was founded in the previous year, is being reported
as a stand-alone segment for the first time. The new Group Division brings together all the Group’s
expertise in the areas of automation, IT, software, data analytics and sensor technology. The sales withthird parties reported in the Voith Digital Solutions segment were primarily generated from businessactivities of the newly acquired Ray Sono AG business and the Group’s own IT service provider withexternal customers. Sales with other segments relate to digital support for the existing Group Divisions.
Digital solutions’ sales with third parties included in the established Group Divisions are stated for the
first time in the segment information by business segment. The profit from operations reflects to a great
extent the start-up costs for this new Group Division. The sales reported in the Voith Digital Solutions
segment in the previous-year period and the profit from operations include the IT services renderedwithin the Group. The reconciliation column for the previous-year period was adjusted by these amounts.
In all other respects, the demarcation between the segments and the method used to calculate thesegment information remains unchanged in comparison to Sep­tember 30, 2016.
The Voith Industrial Services Group Division was sold, effective August 31, 2016, and is consequently
not included in segment reporting in the current or in the previous year.
Segment information is generally based on the same presentation and measurement methods as theconsolidated financial statements. Intercompany sales are effected at market prices and intersegment
transactions and business are all reported in accordance with the accounting policies used for the
consolidated financial statements.
In the Voith Group, the key indicator to assess and manage the individual segments is return on capital
employed (ROCE). The calculation of ROCE is defined as profit from operations in relation to the average
capital employed.
The operational result is the basis for calculating ROCE and is thus a key management indicator. It isessentially an operating earnings indicator derived from external reporting, comprising the operational
result before non-recurring items. In line with the calculation of profit from operations, the following
profit/loss components are taken into consideration.

190

Voith Annual Report 2017
Consolidated Financial Statements
Notes on segment reporting

Operating interest income is defined as interest received by the Company on the long-term financing
of receivables from customers, or as the imputed interest effect attributable to that portion of customer
advances that is not used to finance inventories and PoC receivables.
Capital employed is defined as operating net assets. It is the aggregate of property, plant and equipment
and intangible assets (excluding goodwill), inventories, trade receivables, other non-interest-bearing
assets and income tax assets as well as prepaid expenses, less trade payables, non-interest-bearing
liabilities and income tax liabilities and deferred income and advances received, which are deducted
up to the amount of inventories and PoC receivables.
The capital employed on the reporting date is an average value derived from the values as at the end of
the fiscal year, as at the reporting date for the previous six-monthly financial statements and as at theend of the previous year. In contrast to the requirements of IAS 21, the assets and liabilities of foreignsubsidiaries are translated at the average exchange rate for the year under review. Owing to the useof averages, capital employed cannot be reconciled to the figures in the consolidated balance sheet
on any given reporting date.
Consolidation entries were taken into account in full in calculating capital employed.
Capital expenditures relate to intangible assets (excluding goodwill) and property, plant and equipment.
Additions due to business combinations are not included.
Sales are broken down regionally, based on the customer’s registered office. Non-current assets,consisting of property, plant and equipment, goodwill and other intangible assets, are allocated basedon the location of the asset.
Information on the activities of the segments presented
As a full-line supplier for equipping hydropower plants, Voith Hydro is one of the world’s leading industrial partners for hydropower plant operators. This applies both to the field of electricity generation andto the pumped storage of energy. Voith Hydro’s portfolio of products and services covers the entire life
cycle and supplies all major components for large and small hydro plants: from generators, turbines,
pumps and automation systems and digital solutions right through to aftermarket business in spareparts and maintenance services, as well as training services. Voith Hydro is a joint venture with Siemens,
in which Voith holds a majority 65 % of all shares and voting rights.
As a leading partner and pioneer to the paper industry, Voith Paper provides technologies, products
and services for the entire paper manufacturing process, all from a single source. Its continuous
stream of innovations optimizes the paper manufacturing process. Voith Paper focuses on developing
resource-saving products which reduce the consumption of energy, water and fibers. Furthermore, Voith
Paper offers a broad service portfolio for all sections of the paper manufacturing process.

Voith Annual Report 2017
Consolidated Financial Statements
Notes on segment reporting

191

Voith Turbo is the specialist for smart drive solutions and systems. Customers in numerous industries,
such as oil and gas, energy, mining and mechanical engineering, marine technology, rail and commercial
vehicles, value Voith Turbo’s cutting-edge technology.
Voith Digital Solutions brings together Voith’s many years of automation and IT expertise with knowhow in the fields of hydropower, paper machines and drive technology. The Group Division, which was
newly created last year, develops innovative products and services with existing and new customers
to advance the Internet of Things and to play a major role in the digitalization of plant and mechanicalengineering. Voith Digital Solutions is presented as a separate segment for the first time in the 2016/17
fiscal year.

192

Voith Annual Report 2017
Consolidated Financial Statements
Segment information by business segment

Segment information by business segment

Voith ­H ydroin € millions

Voith ­Paper

Voith ­­Turbo

2016 /17

2015 /16

2016 /17

2015 /16

2016 /17

2015 /16

Sales with third parties

1,381

1,388

1,527

1,456

1,283

1,397

·T
 hereof attributable to
Digital Solutions

131

131

87

71

68

85

Sales with other segments

6

4

24

23

4

5

Segment sales, total

1,387

1,392

1,551

1,479

1,287

1,402

Profit from operations

106

105

107

76

91

114

Depreciation and amortization ofproperty, plant and equipment andintangible assets 2)

23

23

50

54

41

42

Capital spending

3)

15

15

24

30

36

47

Segment goodwill

15

15

222

222

141

141

Average capital employed

489

493

721

748

703

719

ROCE

21.8 %

21.3 %

14.9 %

10.2 %

12.9 %

15.8 %

Employees 4)

4,507

4,934

6,449

6,550

5,408

5,702

Sub-total of Voith Hydro, Voith Paper and Voith Turbo.
Depreciation and amortization does not include depreciation and amortization recorded in the non-recurring result as it is not included in profit from operations.
3)
Without additions due to business combinations and financial assets.
4)
Statistical headcount on reporting date.
1)

2)

As the earnings component “Operating interest income” is not shown directly in the consolidated statement of income, thisitem is presented separately in the reconciliation of total profit from operations to result before taxes presented below.

Voith Annual Report 2017
Consolidated Financial Statements
Segment information by business segment

Voith ­D igital ­S olutions

Total Core Business 1)

Reconciliation

193

Total

2016 /17

2015 /16

2016 /17

2015 /16

2016 /17

2015 /16

2016 /17

2015 /16

4,191

4,241

13

2

19

9

4,223

4,252

286

287

13

2

0

0

299

289

34

32

132

92

-166

-124

0

0

4,225

4,273

145

94

-147

-115

4,223

4,252

304

295

- 43

-8

- 20

-12

241

275

114

119

8

5

8

7

130

131

75

92

15

6

6

23

96

121

378

378

55

0

7

8

440

386

132

150

1,913

1,960

44

27

15.9 %

15.1%- 97.3 %- 29.8 %16,364

17,186

1,397

654

1,284

1,258

2,089

2,137

11.5 %

12.9 %

19,04519,098Reconciliation of total profit from operations to the Group’s result before taxes:in € millions

2016 /17

2015 /16

Profit from operations

241

275

Operating interest income

- 29

- 32

Non-recurring result

- 32

-7

8

11

Gains/losses from the disposal of associated companies

5630Interest result

- 59

- 78

Other financial result

-10

- 29

Result before taxes from continuing operations

682

140

Share of profit/loss from companies accounted for using the equity method

194

Voith Annual Report 2017
Consolidated Financial Statements
Segment information by region

Segment information by region
External sales (registered office of customer)in € millions

Germany

2016 /17

2015 /16

557

519

Foreign countries

3,666

3,733

thereof Europe

1,096

1,166

thereof Americas

1,195

1,163

thereof Asia

1,111

1,145

·o
 f which China

543

570

thereof others

264

259

4,223

4,252

2016 /17

2015 /16

Germany706

658

Non-current assets
in € millions

Foreign countries

788

833

thereof Europe

151

158

thereof Americas

293

303

· of which USA

193

194

thereof Asia

341

369

· of which China

304

329

thereof others

3

3

1,494

1,491

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

195

Other notes
Contingent liabilities, contingent assets and other financial obligations
Appropriate provisions have been recognized in the relevant Group companies to cover potential
obligations arising from taxation, legal and arbitration proceedings.
In addition, there are risks associated with the recognition of transfer prices outside Germany amounting to € 5 million (previous year: € 5 million) and risks from legal disputes of € 27 million (previous year:€ 36 million). A successful outcome is currently expected in both cases.
Neither Voith GmbH & Co. KGaA nor any of its Group companies are involved in any further current
or foreseeable taxation, legal or arbitration proceedings that could materially influence the economic
situation.
Owing to the ongoing tax field audit of German companies, further changes may be made to tax items.

Contingent liabilities
The contingent liabilities listed below are stated at face value. No provisions were recognized for thesecontingencies, as the probability of occurrence is regarded as low:in € thousands

Guarantee obligations
Warranties

Most of the guarantee obligations expire in 2018.

2017-09-30

2016-09-30

1,161

693

313

328

1,474

1,021

196

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

Other financial obligations
In addition to liabilities, provisions and contingent liabilities, the Voith Group also has other financial
obligations, in particular arising from rental and lease agreements for buildings, land, plant, machineryand other non-production-related tools and equipment.
in € thousands

2017-09-30

2016-09-30

Purchase commitments for capital expenditures

10,935

13,087

Obligations arising from non-cancelable
operating leases

120,506

129,227

Other

6,918

3,551

138,359

145,865

Assets leased under operating leases led to cash outflows totaling € 51,314 thousand (previous year:€ 70,025 thousand). These payments mostly related to leased passenger vehicles, machinery andbuildings. The majority of leases run for between 1 and 15 years. Some companies have the option ofextending their rental contracts.
The total of future minimum lease payments for non-cancelable operating leases is shown below, broken
down by maturity:in € thousands

2017-09-30

2016-09-30· due in less than one year

42,091

39,845·d ue between one and five years

68,262

74,911·d ue in more than five years

10,153

14,471

120,506

129,227

Nominal value of future minimum lease payments

The future minimum lease payments from non-cancelable operating leases are partially offset by animmaterial amount of cash inflows expected from non-cancelable subleases.

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

197

Additional information on financial instruments
Carrying amounts, amounts recognized in the balance sheet and fair values by measurement category.
Amount recognized in the balance sheet
in accordance with IAS 39

in € thousands

IAS 39measure­m ent
category

Carrying
amount2017-09-30

Amortized
cost

Cost

Fair value
through
equityAmount­r ec­o gnized inthe ­b alance
Fair value
sheet inthroughaccordance
profit or loss
with IAS 17

Fair value
2017-09-30

Assets:Cash and cash equivalents

LaR

581,947

581,947

581,947

Trade receivables

LaR

713,899

713,899

713,899

Receivables from construction contracts

LaR

323,929

323,929

323,929599,965

Other financial assets and securities

719,500· Financial investments

LaR

599,965599,965· Loans

LaR

56,98756,987· Investments

AfS

48,967· Securities

AfS

Derivative financial instruments

56,98727,367

13,581

21,6002)21,6001)

13,581

13,581

46,588· Forward exchange contracts

FAHfT

4,820

4,820

4,820

·F
 orward exchange contracts(fair value hedges)

n. a.

40,73540,73540,735· Interest rate swaps(fair value hedges)

n. a.

1,033

1,033

1,033

Other receivables

106,478· Financial receivables

LaR

25,97525,97525,975· Sundry financial assets

LaR

80,50380,50380,503Liabilities:
Trade payables

FLAC

509,741

509,741

509,741

Bonds/bank loans/notes

FLAC

437,433

437,433

454,275

Financial liabilities from leases

n. a.

Derivative financial instruments

858

858

28,282· Forward exchange contracts

FLHfT

13,892

13,892

13,892·C all option

FLHfT

3,500

3,5002)3,500· Forward exchange contracts(fair value hedges)

n. a.

8,299

8,299

8,299

· Forward exchange contracts(cash flow hedges)

n. a.

1

1

· Interest rate swaps(cash flow hedges)

n. a.

2,590

Other loans and borrowings

FLAC

176,246

136,065

Sundry financial liabilities

FLAC

260,775

260,775

Loans and receivables (LaR)

LaR

2,383,205

2,383,205

Available for sale (AfS)

AfS

62,548Financial assets held for trading (FAHfT)

FAHfT

4,820

Financial liabilities measured atamortized cost (FLAC)

FLAC

1,384,195

Financial liabilities held for trading(FLHfT)

FLHfT

17,392

1

2,590

2,590

40,181

210,673
260,775

IAS 39 measurement categories:

1)
2)

27,36735,1814,820

1,344,014

40,181
17,392

 he financial assets available for sale (AfS) include investments whose fair values could not be determined reliably and that are currently not planned to be sold.
TA call option embedded in the investment (equity instrument) held by Voith was accounted for separately. The call option in which Voith is the writer grants the majority
owner the right to acquire all shares held by Voith in the period up to 2019.

198

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

Amount recognized in the balance sheet
in accordance with IAS 39

in € thousands

IAS 39measure­m ent
category

Carrying
amount2016-09-30

Amortized
cost

Cost

Fair value
through
equityAmount­r ec­o gnized inthe ­b alance
Fair value
sheet inthroughaccordance
profit or loss
with IAS 17

Fair value
2016-09-30

Assets:Cash and cash equivalents

LaR

649,672

649,672

649,672

Trade receivables

LaR

690,632

690,632

690,632

Receivables from construction contracts

LaR

426,720426,720426,720
30,943

Other financial assets and securities

227,569· Financial investments

LaR

30,94330,943· Loans

LaR

56,25956,259· Investments

AfS

53,325· Securities

AfS

87,042Derivative financial instruments

56,25931,925

21,4002)21,4001)

87,04287,04256,497· Forward exchange contracts

FAHfT

3,393

3,393

3,393

· Interest rate/currency swaps

FAHfT

563

563

563

· Forward exchange contracts(fair value hedges)

n. a.

46,695

46,695

46,695· Forward exchange contracts(cash flow hedges)

n. a.

5

· Interest rate swaps(fair value hedges)n. a.

Other receivables

5

5,841

5
5,841

5,841

162,347· Financial receivables

LaR

79,966

79,966

79,966· Sundry financial assets

LaR

82,381

82,381

82,381

Liabilities:
Trade payables

FLAC

430,779

430,779

430,779

Bonds/bank loans/notes

FLAC

1,163,388

1,163,388

1,198,782

Financial liabilities from leases

n. a.

Derivative financial instruments

1,085

1,085

43,398· Forward exchange contracts

FLHfT

5,402

5,402

5,402

· Interest rate/currency swaps

FLHfT

13,382

13,382

13,382· C all option

FLHfT

4,800

4,8002)4,800· Forward exchange contracts(fair value hedges)

n. a.

15,562

15,562

15,562· Forward exchange contracts(cash flow hedges)

n. a.

885

885

· Interest rate swaps(cash flow hedges)

n. a.

3,367

Other loans and borrowings

FLAC

146,451

139,362

Sundry financial liabilities

FLAC

277,408

277,408

Loans and receivables (LaR)

LaR

2,016,573

2,016,573

Available for sale (AfS)

AfS

140,367

Financial assets held for trading (FAHfT)

FAHfT

3,956

Financial liabilities measured atamortized cost (FLAC)

FLAC

2,018,026

Financial liabilities held for trading(FLHfT)

FLHfT

23,584

885

3,367

3,367

7,089

334,791
277,408

IAS 39 measurement categories:

1)
2)

31,925

108,4423,956

2,010,937

7,089

 he financial assets available for sale (AfS) include investments whose fair values could not be determined reliably.
TA call option embedded in the investment (equity instrument) held by Voith was accounted for separately. The call option in which
Voith is the writer grants the majority owner the right to acquire all shares held by Voith in the period up to 2019.

23,584

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

199

Fair value hierarchy for the financial assets and liabilities recognized at fair value listed in the table above:in € thousands

2017-09-30

Level 1

Level 2

Level 3

AssetsSecurities

13,581

13,58100Derivative financial instruments

46,588046,5880Investments

21,6000021,600Derivative financial instruments

28,282

0

24,782

3,500

Liabilities arising from the acquisitionof investment shareholdings

40,1810040,181

2016-09-30

Level 1

Level 2

Level 3

Securities

87,04287,04200Derivative financial instruments

56,497

056,4970Investments

21,4000021,40043,398038,598

4,800

7,089

0

0

7,089

Liabilitiesin € thousands

AssetsLiabilities
Derivative financial instruments
Liabilities arising from the acquisitionof investment shareholdings

The three-level fair value hierarchy divides the input factors used in the measurement techniques tomeasure the fair value into three levels, as follows.
Level 1:
Input factors quoted in active markets accessible to the Company for identical assets or liabilities on
the measurement date.
Level 2:Other inputs than those at level 1 for which observable market data which relates directly or indirectly
to the financial assets or liabilities is available.
Level 3:
Input factors for which there are no observable market data.
No reclassifications were made between the levels of the fair value hierarchy in the 2016/17 fiscal year.

200

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

The fair values of derivative financial instruments allocated to level 2 of the fair value hierarchy are takenfrom the daily observable exchange rates, associated forward rates and yield curves. In addition, fairvalue measurement includes both the counterparty credit risk and the Group’s own credit risk. Input
factors that take account of counterparty credit risk can be obtained from observable credit default
swaps (CDS) from the banks participating in the respective transaction. At Voith the market CDS rate
was used to calculate the Group’s own credit risk.
The fair value of the investment allocated to level 3 of the fair value hierarchy was determined by an
impartial appraiser on the basis of an income-based measurement technique and contains parametersthat cannot be observed on the market. On account of contractual subordination, the economic valueof Voith’s investment does not correspond to the proportionate market value of the equity. For thisreason, the fair value is based on an options pricing model (binomial model), the input parameters
used at the reporting date being the business model of the investment of € 138.7 million (previous year:€ 141.7 million), capital market interest rates that reflect the term to maturity and risk profile of 0.02 %per annum (previous year: - 0.27 % per annum) and share price volatilities of a peer group of 26.0 % perannum (previous year: 27.5 % per annum).
The value of the embedded call option accounted for separately is determined indirectly from thedifference in carrying amount of the investment with and without the option. In the event of the call
option being exercised by the majority owner, Voith can, depending on the timing of the exercise of
the call option, generate a gain on sale of currently € 34.9 million up to a maximum of € 40.2 million. In
economic terms, the call option limits the maximum revenue Voith can generate from the investment to
the option’s strike price. As of the reporting date, Voith is not aware of any issues that indicate a materialchange in the fair value of the investment and the option liability since the date of initial measurement.
If the business value of this investment were to increase (decrease), this would lead to an increase(decrease) in the value of the investment and the option liability recorded by Voith. An increase in volatility of the business value of this investment would lead to an increase in the value of the investment
and a decrease in the option liability. Increasing (decreasing) interest rates would lead to an increase(decrease) in the value of the investment and the option liability.
The fair values of liabilities from the business combination allocated to level 3 of the fair value hierarchy concern put options held by non-controlling shareholders, and are based on internal planning
data. These are measured using the discounted cash flow projections taken from the latest businessplanning prepared by management. The planning assumptions are adjusted to reflect the current information available. The significant amount recorded as a put option totaling € 26 million was calculated
based on a formula for the purchase price calculation to be used on exercise of the option which is
set out in the respective shareholder’s agreement. The amount is calculated as the gross value of theinvestment (represented by the three-year average EBITDA for the years 2020 through 2022 and afour-year holding period, multiplied by a contractually agreed factor), less the net debt, multiplied by
the non-controller’s shareholding (40 %). This is discounted to the balance sheet date using a WACC
appropriate for the term to maturity of 6 %.

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

201

If the business value of this investment were to increase (decrease), this would lead to an increase(decrease) in the value of the associated liability from the business combination.
The changes in the fair values of the assets and liabilities classified as level 3 in the fair value hierarchy
were as follows:in € thousands

Balance, October 1

2017-09-30

2016-09-30

9,511- 9,398- 33,3670Investments

0

21,400Call option – investments0- 4,800

Exercise of put option

0

3,332

Put option – business combinations

Fair value changes recorded in profit and loss
Fair value changes recorded in equity
Balance, Sep­tember 30

1,300

0

475

- 1,023- 22,081

9,511

The fair values of financial assets and financial liabilities measured at cost or amortized cost, which
need to be determined to meet disclosure requirements, are calculated as follows:
Cash and cash equivalents, trade receivables and other financial receivables are subject to floatinginterest and fall due within one year. For this reason, their carrying amounts approximate their market
values on the reporting date.
Because trade payables and other financial liabilities generally have short residual terms, their carrying
amounts approximate the market values.
The bond redeemed in the current fiscal year had a market value of € 622 million in the previous year,
reflecting the nominal value multiplied by the market value on the reporting date (fair value hierarchy
level 1).
The market value of the note loan stated at € 316 million (previous year: € 310 million) and the market
values of unlisted bonds, bank loans and other financial liabilities are calculated as the present valueof the payments associated with the liabilities, based on the effective yield curve and peer companies’
credit spread curve determined for different currencies (fair value hierarchy level 2).
The market value of other financial liabilities totaling € 115 million (previous year: € 263 million) was basedon internal planning data. These are measured using the discounted cash flow projections taken fromthe latest business planning prepared by management. The planning assumptions are adjusted to reflect
the current information available (fair value hierarchy level 3).

202

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

Net gains and losses for each measurement category of financial instruments:
2016 /17
Impairments

Other net gains/losses

Total

Loans and receivables (LaR)- 6,101- 62,757- 68,858in € thousands

Available-for-sale financial assets- 486-1,636- 2,122

Financial assets held for trading

0

7,108

7,108

Financial liabilities measured at amortized cost

0

11,639

11,639Impairments

Other net gains/losses

Total

Loans and receivables (LaR)-12,121

19,427

7,306

Available-for-sale financial assets- 36,644

293- 36,351

Financial assets held for trading

0- 26,609- 26,609

Financial liabilities measured at amortized cost

0

5,784

5,784

2015 /16
in € thousands

Further information on net gains and losses through equity from financial assets included in the availablefor-sale category is provided in note 19.
Impairment losses recognized on loans and receivables primarily relate to trade receivables. In theprevious year, impairment losses in the category “available-for-sale financial assets” primarily related
to securities with a significant decline in fair value.
All interest income and interest expenses for financial assets or financial liabilities relate to those assets
or liabilities that are not measured at fair value through profit or loss.
Offsetting of financial instruments
The following table shows the volume that can potentially be offset under master netting agreements. The
agreements do not meet the criteria required for net presentation in the balance sheet due to the factthat the Group does not have a present legal right to offset the amounts recognized, as the right tooffset is conditional on the occurrence of future events.

Voith Annual Report 2017
Consolidated Financial Statements
Other notesin € thousands

203

Gross presentation
balance sheet
2017-09-30

Volume that canpotentially be offset
under masternetting agreements

Potential
net amount46,588

16,10330,48528,282

16,103

12,179Gross presentation
balance sheet
2016-09-30

Volume that canpotentially be offset
under masternetting agreements

Potential
net amount

56,49725,62430,87343,39825,624

17,774

AssetsDerivative financial instruments
Liabilities

Derivative financial instrumentsin € thousands
AssetsDerivative financial instruments
Liabilities

Derivative financial instruments

Risk management
Principles of financial risk management
The Voith Group is a global business and is exposed to risks arising from changes in interest rates andexchange rates in the course of its ordinary business activities which affect its liabilities, assets andtransactions. These risks could affect its net assets, financial and earnings position. The aim of financial
risk management is to manage and limit these risks.
The principles of the Group’s financial policy are laid down by the Voith GmbH & Co. KGaA Board ofManagement and monitored by the Supervisory Board. Voith Finance GmbH, a wholly owned subsidiaryof Voith GmbH & Co. KGaA, implements the financial policy and regularly reports to the Chief Financial
Officer on the financial position of the Group and current risk exposures. Certain financial transactions
require special approval by the Corporate Board of Management. Long-term refinancing is obtained
by Voith GmbH & Co. KGaA.
Simple derivative financial instruments are used to limit the risks arising both from operating businessand from the resultant financing requirements. These instruments are used in accordance with clearly
defined, consistent, Group-wide guidelines. Compliance with these guidelines is verified on an ongoingbasis. Hedge transactions and cash investments are placed only with financial institutions that havefirst-class credit ratings.

204

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

Credit risk
The Voith Group does business only with recognized, creditworthy third parties. We verify the creditworthiness of customers who wish to do credit-based business with us.
Cash and cash equivalents:
For the purposes of internal risk management, cash and cash equivalents consist essentially of cash
and short-term securities. Counterparty default risks associated with term deposits are limited by
selecting solvent banking partners and by spreading cash across multiple counterparties. For banks, aratings-based limit (derived from credit default swaps/rating) is monitored constantly. In addition, theVoith Group invests in securities and monitors the associated risks of these centrally. Securities may
only be traded by Group companies with the approval of Voith Finance GmbH.
Trade receivables:
Credit risk arising from the delivery of goods and services stems from counterparty risks, manufacturingrisks and political export-related risks. Handling of these risks is governed by rules that are binding
throughout the Voith Group. The maximum risk of default is limited to the carrying amount of tradereceivables, which is € 713,899 thousand (previous year: € 690,632 thousand). The maximum default
risk for receivables from construction contracts is € 323,929 thousand (previous year: € 426,720 thousand). On account of collateral held, the maximum default risk for trade receivables is reduced by€ 118,114 thousand (previous year: € 102,085 thousand) and that for receivables from construction
contracts by € 58,118 thousand (previous year: € 72,400 thousand).
All orders above a defined contract value are subject to general risk assessment requirements. Without
special permission from the relevant decision-making bodies, Group companies do not accept unsecured orders from customers whose credit rating is below a defined threshold and who cannot furnish
an adequate guarantor.
Political export-related risks classified as Euler Hermes country category 3 or higher must, as a rule,always be hedged, unless approval is issued by the decision-making bodies in individual cases. Further
risk assessment is also activated for orders upward of defined contract values. Necessary credit
insurance is obtained via export credit agencies (ECAs), on the private insurance market or by meansof bank products.
With respect to credit risk arising from the Group’s other financial assets, which comprise cash andcash equivalents, available-for-sale financial assets and certain derivative financial instruments, theGroup’s exposure to credit risk arises from default of the counterparty, with a maximum exposure
equal to the carrying amount of these instruments. For details of financial guarantees, please refer tothe discussion of contingent liabilities. This kind of loss can occur if individual business partners fail tomeet their contractual obligations. As a rule, no collateral exists for such an eventuality.
The Voith Group is not exposed to any material concentration of risks. Corporate policy is to avoid
concentration of credit risk in a single financial institution. Instead, the Group invests with a variety ofcreditworthy financial institutions. The Group’s customer structure is not materially concentrated in any

205Voith Annual Report 2017
Consolidated Financial Statements
Other notes

particular geographic region. The Group tests doubtful accounts for impairment considering certain
customers, historical trends, branches of industry and various other information.
The following credit risks are inherent in financial assets:
Thereof not impaired but past due at thereporting date by:

2017-09-30

Gross value

Thereof neither
impaired nor
past dueless than
90 days

between90 and180 daysmore than
180 days

Trade receivables

761,727505,323

107,767

59,972

46,928Other financial assets andsecurities

772,226

665,092

Other financial receivables

118,171

98,816

3,945

170

1,532

in € thousands

Thereof not impaired but past due at thereporting date by:

2016-09-30

in € thousands

Gross value

Thereof neither
impaired nor
past dueless than
90 days

between90 and180 daysmore than
180 days

97,032

53,77250,575

2,501

516

2,219

Trade receivables

739,124

486,522

Other financial assets andsecurities

419,346

153,849

Other financial receivables

164,574

157,141

The carrying amounts of cash and cash equivalents, receivables from construction contracts andderivatives are neither impaired nor past due.
Liquidity risk
To ensure that it can always meet its financial obligations, the Voith Group has negotiated sufficient
cash lines and syndicated credit facilities with its banking partners.
The syndicated loan placed in China in 2012 and extended until 2020 by amendment agreement in 2015
secures the finance for future investments and for the operating business in the same currency on thelocal market. This loan was drawn on during the year under review as planned. The syndicated euro
loan arranged in 2011 and increased to € 770 million in 2014 under an amend-and-extend agreement
was extended a second time for one year in August 2016 and now runs until 2021 with € 715 million
available in the final year of the agreement. No financial covenants were arranged. It has not been drawn
on and is available as a strategic liquidity reserve if needed, as are available bilateral lines of credit frombanks. To safeguard internal and external growth, the Voith Group procures long-term funding on thecapital markets by issuing bonds, through private placements and individual bank loans.

206

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

The capital market bond with a volume of € 600 million was redeemed in full in June of this year fromthe Group’s own resources.
The credit facilities are subject to customary market conditions and contractual terms and conditions
based on Voith’s rating. As in previous years, all contractual terms and conditions were complied within the 2016/17 fiscal year. The Ba1 rating given by Moody’s was confirmed in February of this year with“outlook stable.”
The liquidity of Group companies is ensured by means of cash pools, intercompany loans and theallocation of external bank credit lines to individual operating units. Voith Finance GmbH producesmonthly finance status reports for the entire Group. Balances of central bank and cash pool accounts
and bank guarantees are available on a daily basis.
The table below lists the undiscounted, contractually agreed cash outflows for financial instruments:

2017-09-30

Cash flows< 1 year

Trade payables

509,741506,260

3,170

16

Bonds /bank loans/notes

437,433

36,793

296,144

153,507

858

275

638

0

in € thousands

Financial liabilities from leases

Cash flows
1–5 years

Cash flows> 5 years

Other loans and borrowings

176,246

53,547207

123,069

Sundry financial liabilities

260,775

226,203

34,005567

Derivative financial instruments

28,282· Outflows

193,493

87,581

112· Inflows-185,721- 50,467-108

1,413,335

830,850

371,278

277,163in € thousands

2016-09-30

Cash flows< 1 year

Cash flows
1–5 years

Cash flows> 5 years

Trade payables

430,779

413,383

17,6470

1,163,388

735,076

372,981

157,285

Bonds /bank loans/notes
Financial liabilities from leases

1,085

316

775

78

Other loans and borrowings

146,451

69,321

134

77,586

Sundry financial liabilities

277,408

251,794

25,342272

Derivative financial instruments

43,398252,256

99,382

4,734· Outflows· Inflows
2,062,509- 211,754- 70,961- 5,429

1,510,392

445,300

234,526

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

207

Solvency is ensured and liquidity managed using cash equivalents and short-term securities which canbe transformed into cash at any time.
Derivatives include cash outflows for derivative financial instruments with negative market values forwhich gross cash settlement has been agreed. The cash outflows for these financial derivatives arematched by corresponding cash inflows which are shown separately in the table above under inflows
and outflows (gross). On the other hand, where a net cash settlement is effected, cash outflows arepresented on a net basis.
There are no expectations that cash flows presented in the maturity analysis could be incurred significantly earlier, or that there will be significant changes to the cash flow amounts.
Financial market risk
Foreign exchange risk:
Global production and trading activities expose the Voith Group to risks arising from fluctuations in
exchange rates. Foreign exchange risks exist in particular wherever receivables, liabilities, cash and cash
equivalents, and orders received (fixed obligations/forecast transactions) are or will be denominated ina currency other than the functional currency of the Group company concerned.
Most currency hedging is undertaken by Voith Finance GmbH and its Regional Treasury and FinanceCenter. Transaction risks arising from the international delivery of goods and services are mainly limited
by forward exchange contracts. In general, all foreign currency transactions at the Voith Group mustbe hedged. Major balance sheet items and orders upward of a value of USD 1 million are hedged
individually within the framework of hedge accounting.
In the project business, both the hedge relationship and the risk management objectives and strategies
must be documented in respect of the underlying hedged item or transactions before external hedges
are entered into.
Hedges must be highly effective to be in compliance with the Voith Group’s risk management strategy.
Where hedges are demonstrated to be effective, the transactions qualify for hedge accounting. As aresult, fluctuations in the exchange rate do not affect profit or loss, nor do they influence project costing.
In the Voith Group, derivative financial instruments are traded externally by Voith Finance GmbH on
behalf of Group companies. Group companies in countries subject to foreign exchange restrictions
hedge their currency risks locally. The Group-wide treasury management software tool is used forcentral scheduling, monitoring and documentation of all foreign currency hedges entered into by Voith
Finance or Group companies.
Changes in the US dollar exchange rate are significant for the Voith Group. Based on the balance sheet
items described above, the effects on the Group’s results and consolidated equity are as follows: if the
US dollar rises by 5 %, the result before taxes increases by € 7,462 thousand (previous year: increase of€ 6,666 thousand) and equity (including the effect from the result before taxes) by the same amount, as208Voith Annual Report 2017
Consolidated Financial Statements
Other notesin the previous year. If, on the other hand, the US dollar falls by 5 %, the result before taxes decreasesby € 7,462 thousand (previous year: decrease of € 6,666 thousand) and equity (including the effect fromthe result before taxes) by the same amount, as in the previous year.
Interest rate risk:
The Voith Group’s exposure to interest rate risks arising from external refinancing is analyzed and managed centrally by Voith Finance GmbH. Medium- to long-term assets and liabilities with fixed interest
rates are the main source of interest rate risks at the Group, as changes in market rates of interest cancause the value of a financial instrument to fluctuate. Risks to the market value of fixed-interest receivables and liabilities are hedged on a case-by-case basis. Risks to market value are hedged by interest
rate swaps and combined interest rate and currency swaps, which usually qualify for hedge accounting.
The relevant asset items are essentially cash at banks that is invested in the money market and/or isused to fund the existing cash pools. The Group companies that participate in the cash pool operate adaily zero-balancing policy and therefore have no exposure to external interest rate risks.
On the cost side, interest rate risks arise from a private placement in the United States, a note loan anda variety of bank loans. The fixed interest rate on the US private placement was swapped for a floating
rate and the resulting cash flow risk hedged by interest rate caps accordingly. The floating-rate portionof the note loan was swapped for a fixed rate.

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

209

The carrying amounts of the Group’s significant financial instruments that are exposed to interest raterisks are grouped by their contractually agreed maturities in the following table:
2017-09-30
in € thousands

Less than
1 year

1–2 years

2–3 years

3–4 years

4–5 years

More than
5 years

Total

Floating interest rate
Cash and cash equivalents
Bonds
Bank loans

581,947

0

0

0

0

0

581,947

0

17,93500

00

17,93523,948

095,229000119,177000152,1130

147,057

299,170

Less than
1 year

1–2 years

2–3 years

3–4 years

4–5 years

More than
5 years

Total

Fixed interest rate
Bank loans

2016-09-30
in € thousands

Floating interest rate
Cash and cash equivalents
Bonds
Bank loans

649,672

0

0

0

0

0

649,6720059,55800059,55886,65900120,81200207,471597,059

0

0

0

0

0

597,059

0

0

0

0

151,992

146,976

298,968

Fixed interest rate
Bonds
Bank loans

If the market rate of interest had been 100 bps higher (lower) at Sep­tember 30, 2017, the result fromthe significant floating-rate financial instruments would have been € 4.4 million higher (lower) (previous
year: € 3.8 million higher (lower)). Equity would have changed accordingly. This effect chiefly originatesfrom euro-denominated floating-rate financial instruments of € 2.5 million (previous year: € 3.3 million).
Interest rate swaps have been concluded to hedge the floating-rate portion of the note loan. Taking
into account the hedge and a change in interest rates of + 100 / -100 bps, equity would change by€ +5.0 million/€ -1.4 million (previous year: € +5.1 million/€ -0.9 million).

210

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

Risks relating to securities and stock prices:
The Voith Group holds stocks and other securities in the available-for-sale category of € 14 million (previous year: € 87 million). Stock price risks are reflected in the balance sheet and not in the consolidated
statement of income, unless the criteria for impairment are met. A 10 % change in the underlying stock
prices would cause equity to change by 10 % of the carrying amount of the stocks concerned.
It should be noted that all existing stock price risks are analyzed continuously and suitable counteraction
is taken accordingly.
Commodity price risk:
The Voith Group is exposed to risks arising from changes in commodity prices, as these also affectmost of the semi-finished goods that it needs. Voith’s Corporate Purchasing regularly reviews the nature,
volume and scheduling of the Group’s materials requirements. On request by Corporate Purchasing andin consultation and agreement with Group companies, suitable forward commodity contracts can bearranged by Voith Finance GmbH to limit any latent commodity price risks. The Group had no significant
amounts of commodity contracts during the fiscal year.
Hedge relationships:
The following items are used to hedge foreign exchange and interest rate risks:
Positive market values

Negative market values

2017-09-30

Nominal values1)in € thousands< 1 year> 1 year< 1 year> 1 year< 1 year> 1 year

Forward exchange contracts(fair value hedges)

472,785

210,987

19,65321,082

6,670

1,629

Forward exchange contracts(cash flow hedges)

521

0

0

0

1

0

Interest rate swaps(fair value hedges)

0

16,940

0

1,033

0

0

Interest rate swaps(cash flow hedges)

0

139,000

0

0

0

2,590

Other derivatives

208,749

118,907

4,605

215

5,417

11,975682,055

485,834

24,25822,33012,08816,194

Positive market values

Negative market values

2016-09-30

Nominal values1)in € thousands< 1 year> 1 year< 1 year> 1 year< 1 year> 1 year

Forward exchange contracts(fair value hedges)

599,233

284,771

32,826

13,86912,8762,686

Forward exchange contracts(cash flow hedges)

4,212

0

5

0

885

0

Interest rate swaps(fair value hedges)

052,758

0

5,841

0

0

Interest rate swaps(cash flow hedges)

0

139,000

0

0

0

3,367

237,233

110,136

3,634

322

20,3463,238

840,678586,665

36,46520,032

34,107

9,291

Other derivatives

1)Nominal value refers to the volume of the hedged transactions in the local currency, translated at the closing rate.

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

211

Fair value hedges:
The Group uses fair value hedges primarily to hedge interest rate and foreign exchange risks.
In the 2016/17 fiscal year, a loss of € 3,505 thousand was recorded on derivative financial instruments
classified as fair value hedges (previous year: a gain of € 120,542 thousand). Since the hedges have beenclassified as highly effective, measurement of the hedged transactions at the reporting date produced
an offsetting gain/loss in the same amount.
There were no effects on profit or loss from ineffective hedges in the 2016/17 and 2015/16 fiscal years.
Changes in the value of derivative financial instruments that do not meet the requirements for hedge
accounting under IAS 39 are recognized as income or expenses in profit or loss at the reporting date.
Cash flow hedges:
As at Sep­tember 30, 2017 the Group had interest rate hedges to hedge future cash flows for servicing
interest payments on the note loan. The Group also held forward exchange contracts to hedge forecast
sales and purchase transactions.
The main terms and conditions of the hedging instruments were negotiated in line with the terms andconditions agreed for the hedged transactions. The transactions underlying the forward exchange
contracts are expected to be carried out within one year.
Hedge relationships designed to hedge cash flows from forecast payment transactions for the noteloan and forecast sales transactions were classified as highly effective. Accordingly, an unrealized gainof € 2,375 thousand (previous year: a loss of € 4,247 thousand) was recognized within consolidated
equity at Sep­tember 30, 2017.
No hedged transactions were realized in the course of the year under review by transfer of the relevant
accumulated losses from other reserves to profit or loss.
Research and development costs
In the 2016/17 fiscal year, research and development costs totaled € 223,692 thousand (previous year:€ 207,758 thousand).
Of these, development costs of € 13,493 thousand (previous year: € 7,081 thousand) were capitalized in
the balance sheet. The remaining costs represent activities for non-customer-specific new developments
and improvements of € 149,395 thousand (previous year: € 135,185 thousand) and development activities
for customer-specific contracts of € 60,804 thousand (previous year: € 65,492 thousand).
Transactions with related parties and individuals
In the course of its ordinary business activities, Voith GmbH & Co. KGaA maintains relationships bothwith the subsidiaries listed in these consolidated financial statements and with other related companies
and individuals (family members who are shareholders and members of the Supervisory Board and of
the Board of Management).

212

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

In the 2007/08 fiscal year, one subsidiary of Voith GmbH (as it was known at the time) was sold to family
shareholders in a transaction under common control. That company, JMV GmbH & Co. KG, Heidenheim,
is now the ultimate parent company of the Voith Group.
All business transactions with related parties are conducted at arm’s length conditions.
Members of the Board of Management of Voith Management GmbH, members of the Supervisory Boardof Voith GmbH & Co. KGaA and family member shareholders also serve on the supervisory boards ofother companies with which Voith maintains relationships in the course of its ordinary business activities.
Any transactions involving these companies are conducted at arm’s length conditions.
A total of € 1,311 thousand (previous year: € 967 thousand) was paid at customary market rates tomembers of the Supervisory Board and former members of the Board of Management for consulting
and other services.
The majority of goods and service transactions with related parties (entities and individuals) are shownin the table below:
in € thousands

2016 /17

2015 /16

Liabilities to family shareholders

14,84913,470Services purchased from associates

1,075

1,208

Services rendered to associates
Receivables from associates
Liabilities to associates

87

50

2,686

3,420

625

852

Services purchased from other investments

3,749

5,216

Services rendered to other investments

11,47013,304

Receivables from other investments, including advances paid

10,922

11,834

Impairment of receivables from other investments-1,412- 64

Liabilities to other investments and to Voith Management GmbH

21,361

11,614Services purchased from joint ventures

4,242

3,456

Services rendered to joint ventures

3,838

474

Receivables from joint ventures

9,539

153

Liabilities to joint ventures

2,808

746

Services purchased from the ultimate parent company

12,515

11,852Services rendered to the ultimate parent company

1,107

854

Receivables from the ultimate parent company
Liabilities to the ultimate parent company

208

190

7,604

6,337

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

213

Liabilities to family shareholders include current floating-rate clearing accounts and pension obligations.
For more information on the profit participation rights granted to family shareholders of € 103,400 thousand (previous year: € 103,400 thousand) please refer to note 19.
Guarantees in favor of other investees amounted to € 1,146 thousand in the 2016/17 fiscal year (previous
year: € 554 thousand).
The Group has obligations under outstanding orders with the ultimate parent amounting to € 4,330 thousand (previous year: € 5,399 thousand) and to joint venture companies amounting to € 31,777 thousand(previous year: € 0).
Capital increases totaling € 9,623 thousand were made in favor of joint venture companies (previous
year: € 0).

Remuneration of governing bodies
The compensation for members of the Board of Management of Voith Management GmbH, including
pension expenses, totaled € 10,683 thousand in the fiscal year (previous year: € 13,469 thousand). Dueto the fact that these expenses are recharged by Voith Management GmbH to Voith GmbH & Co. KGaA
they are presented in the Voith Group’s consolidated statement of income wholly within personnel
expenses. This includes short-term benefits totaling € 9,143 thousand (previous year: € 7,003 thousand),post-employment benefits totaling € 1,540 thousand (previous year: € 1,175 thousand), and termination
benefits pursuant to IAS 24 totaling € 0 (previous year: € 5,291 thousand).
The compensation for members of the Board of Management under commercial law totaled € 8,853 thousand (previous year: € 7,003 thousand).
Following the transfer of the Group’s Board of Management to Voith Management GmbH, the balanceof pension obligations at Sep­tember 30, 2017 was transferred from Voith GmbH & Co. KGaA to
Voith Management GmbH (including deferred compensation amounts) at their fulfillment amount of€ 19,874 thousand. Plan assets of € 9,821 thousand were also transferred. A remaining excess obligationof € 12,265 thousand remains with Voith GmbH & Co. KGaA.
The present value of defined benefit obligations of past members of the Board of Management totaled€ 57,867 thousand (previous year: € 52,181 thousand). Of these amounts € 3,504 thousand (previous
year: € 3,779 thousand) are obligations of the former parent of the Group, J.M. Voith GmbH & Co.
Beteiligungen KG to past members of the Board of Management.

214

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

Plan assets for former members of the Board of Management total € 21,917 thousand (previous year:€ 15,233 thousand).
These amounts are included in note 20.
Pension and other payments to former members of the Board of Management amounted to € 3,045 thousand (previous year: € 3,109 thousand); of these amounts € 551 thousand (previous year: € 683 thousand)were paid by the former parent of the Group, J.M. Voith GmbH & Co. Beteiligungen KG.
The members of the Supervisory Board of Voith GmbH & Co. KGaA received (short-term) compensationof € 555 thousand (previous year: € 527 thousand).

Auditor’s fees and services
The following fees (including reimbursement of expenses) were paid to the independent auditor for theservices rendered in the 2016/17 fiscal year:in € thousands

2016 /17

2015 /16

Annual audit

2,625

3,035

Other assurance or valuation services

42

83

Tax advisory services

165

107

Other services

49

394

2,881

3,619

Voith Annual Report 2017
Consolidated Financial Statements
Other notes

215

Subsequent events
There were no significant events after the end of the 2016/17 fiscal year.

Heidenheim an der Brenz, November 29, 2017
The Board of Management of Voith Management GmbHDr. Hubert Lienhard
Dr. Toralf Haag
Andreas Endters (since October 1, 2017)
Dr. Uwe Knotzer
Dr. Roland Münch
Bertram Staudenmaier (until Sep­tember 30, 2017)
Uwe Wehnhardt
The German language consolidated financial statements of Voith GmbH & Co. KGaA as at September 30,
2017 as authorized for issue and the unqualified audit opinion issued thereon by KPMG Wirt­schafts­
prüfungsgesellschaft, Munich will be published in German at the Bundesanzeiger (Federal German
Gazette). They can be viewed at www.bundesanzeiger.de.

216

Voith Annual Report 2017
Consolidated Financial Statements
Responsibility statement

Responsibility statement
To the best of our knowledge and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit
or loss of the Group, and the Group management report includes a fair review of the development andperformance of the business and the position of the Group, together with a description of the principal
opportunities and risks associated with the expected development of the Group.

Heidenheim an der Brenz, November 29, 2017
The Board of Management of Voith Management GmbHDr. Hubert Lienhard
Dr. Toralf Haag
Andreas Endters (since October 1, 2017)
Dr. Uwe Knotzer
Dr. Roland Münch
Bertram Staudenmaier (until Sep­tember 30, 2017)
Uwe Wehnhardt

Contact
Voith GmbH & Co. KGaA
Phone: +49 7321 37-0
Fax: +49 7321 37-7000
E-mail: info@voith.com
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E-mail: info@voith.com
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Magazine Section
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Frankfurt am Main, Germany

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