voith.com

Annual Report2018

Make thedifference

The Voith Group
Group Division Digital Ventures
Digital Ventures plays a central rolein digital innovations and applications for newmarkets as well as the development andresponsibility for digital venture activities.

Group Division Turbo
Turbo is a specialist for intelligent
drive solutions, systems as wellas ­comprehensive services for diverse
mobility and energy industries.

Voith GroupThe Voith Group is a global technology
company. With its broad portfolio ofsystems, products, services and digitalapplications, Voith sets standards inthe markets of energy, oil & gas, paper,raw materials & transport andautomotive.

Group Division Paper
Paper is a leading full-line supplier
as well as pioneer in the paper industry.
Through constant innovations Voith
is optimizing the paper manufacturing
process and facilitating
resource-conserving production.
Group Division Hydro
Hydro is a full-line supplier andtrusted partner for equippinghydropower plants. The division develops­solutions and services for large andsmall hydropower
plants all over the world.

Magazine

Make thedifference

Financial ReportGroup
Foreword48

The Corporate Board of Management

52

Report of the Supervisory Board

54

The Supervisory Board

60

Group Management Report
62
01. Background 
72
02. Business development and
earnings position of the Group84
03. Business development and 
earnings position of the Group Divisions
93
04. Net assets and financial position
99
05. Research and development
105
06. Sustainability
108
07. Employees
117
08. Subsequent events
118
09. Risks and opportunities
130
10. Forecast reportConsolidated Financial
Statements
Consolidated statement of income

136

Consolidated statement of comprehensive 137
incomeConsolidated balance sheet

138

Consolidated statement of changes
in equity

140

Consolidated cash flow statement

142

Notes to the consolidated financial statements for the 2017 /18 fiscal year

143

Notes to the consolidated statementof income173

Notes to the consolidated balance sheet

181

Notes to the consolidated cash flow state- 206
ment
Notes on segment reporting

207

Segment information by business segment 210
Segment information by region

212

Other notes

213

Responsibility statement233

Imprint235

in € millions

2016/172017/18

Orders received1)

4,367

4,285

4,224

4,209

254

211

304

267

6.0

5.0

Return on sales in % (core business)

7.3

6.4

EBIT 1)

226

187

276

243

694

152

596

53

Cash flow from operating activities

135

31

Total cash flow

-57

-216

96

94

217

225

5.1

5.4

Equity

1,366

1,340

Equity ratio in %

27.3

28.7

Balance sheet total

4,998

4,676

Employees

18,957

19,535

Sales1)
Profit from operations1), 2)

Profit from operations (core business)
Return on sales in %2)

1)

EBIT (core business)
Result before taxes from continuing operations
Net result1), 3)

3)

Investments
Research and development
in % of sales

1)1)1), 4)

1) Excluding the discontinued operations; previous year restated.
2) For more information, see section “Notes on segment reporting” in the notes to the financial statements.
3) Previous year including the result from the sale of the KUKA shares.
4) Full-time equivalents; without apprentices; as at September 30.

Table of Contents
Voith at a Glance

Voith at a GlanceShape thefutureBelieving in sportsmanshipTo constantly set new goals, respond to new conditions, show
professionalism, open-mindedness, reliability and ambition,and to surpass oneself in decisive moments – the key to successin sports is also the key to success at Voith.
We know that a top-notch performance requires unwaveringcommitment and ambitious goals. It takes skill and endurance.
Together with experienced coaches and partners, and withstrong tactics, we face these challenges and implement projects
that inspire and motivate.
In addition, unconditional determination, courage, a passion
for performance and sometimes even a little bit of luck are always
part of the game. At Voith, all of these factors come together.
They make success and extraordinary achievements possible.

Work
hard,
Maria Knauer,
Vice President, Strategic Design

A duel between Maria Knauer, who has been a Voith employee for more than 14 years, and Anna Jonas, ranked
11th in Germany and among the 12 German fencers competing in the World Cup, would be an unequal matchup
based on athletic abilities alone. But when they face eachother on the fencing piste, they soon discover that sports
and business have a lot in common.
Anna Jonas says that success in fencing depends on theright balance of many factors such as strength, endurance,
courage, mental toughness – but above all on the rightattitude, a healthy dose of self-confidence and what shecalls the joy of the challenge. As soon as Anna Jonas puts
her mask on her face shortly before the competition, she
focuses, and forgets everything else around her.

Maria Knauer also loves challenges. During her time atVoith, she has put paper machines into operation all over
the world, developed or marketed products and established new departments. She sees the connection between sports and career above all in the overarching importance of having the right attitude: “I can only work
successfully if I always set new goals for myself andpursue them with passion.”

Anna Jonas,
fencer, Heidenheimer
Sportbund,11th place in the German
rankings

play
fa r!

Magazine
contents
Create the change
How Voith entered a new
growth market
with Voith Robotics

11
Around the world with Voith
Which Voith products
move and supply
megacities

35
Embrace the new
How Voith develops smallhydropower plantsthat nonethelesshave great potential

41

Make it possible
What it takes tobuild the world’s largest
MG cylinder

29

Learning by grasping
The expert Dr. Jeannette Bohg
on the collaboration
between man and machine16</>
All new
How Voith createdthe IIoT platform
application OnCumulus

21

Cybersecurity
Why cybersecurity is
one of digital transformation’s
most important topics

26

6

Preparethe future“We live in
exciting times”
Dr. Toralf Haag,
President & CEO of Voith, talks about agility,
values and the founders’ formulas,which are still forward-looking today.

7

Facts &Figures340

8

new patents finalized
worldwide by Voith
in the fiscal year 2017/18

11
millioneuros is the savings
potential per year that
Voith has been able
to tap over the past five
years in the areasof energy, waste andwastewater alone

19,535Voith employees
as of September 30, 2018795
trainees and students
are employedby the Company

nations are
represented at Voith

4,487
active patents
held by Voith in the fiscal
year 2017/18

20%
The independent rating
agency ISS-oekom
awarded Prime status to Voith’ssustainability performance.
This ranks Voith
in the top 20% of the 172
companies rated

Before you became President & CEO, you were responsible for theCompany’s finances. Where does Voith stand from a financial perspective?
Voith is a “Swabian family business” in the best sense of the word.
­All-around conservatively financed with a very solid balance sheet. Ourfinancial position is good, we have a net liquidity of more than half a billion
euros and we’re investing in our locations and employees. Taken together,
these are important prerequisites for future growth. Our results are
currently impacted by our significant investments in digital businesses,
but I am confident that this will pay off. We want to grow with these areas.
One of Voith’s fundamental strengths is its structure of Group Divisions,which operate in very different industries and markets. If one market isn’t
performing well, the other Divisions can usually compensate. Our broad
positioning is our insurance. The goal is clear: we want to grow profitably.
How do you plan to achieve that?
We want to grow organically and through acquisitions. We have plentyof opportunities for organic growth. For example, there is still a great
deal of potential in the service business for our products and systems.
In addition, we have a number of innovative ideas for our core businesses,
some of which have already been launched and have generated positive
feedback – such as our electric drive system for city buses. Digital­transformation also offers many opportunities for organic growth. And we
still have some regions in the world where there is a lot of potential: the
keyword here is Africa. We have already established representative offices
and are optimistic that we can help shape the continent’s growth fromthe very beginning.
The economy, technologies and markets are rapidly c­ hanging. If Voith
wants to be successful in the future, important strategic decisions
have to be made, goals have to be defined and first steps must be initiatedin the present. What are the overarching issues on your agenda?
Agility is an important concept, and we want to make it Voith’s guiding
principle. By the way, our founder, Friedrich Voith, exemplified this concept
long before it even had a name. The rapid adaptation of change processes,
the adoption of technological developments and the ability to learn
have always been important aspects, not only today. This is the root ofVoith’s growth. In the present, we want to make it our guiding principle, withthe latest instruments and processes throughout the Company.

990

Dr. Haag, you joined Voith in 2016 as the new Chief Financial Officer.
After a good two years, you have now been appointed to the position of
the President & CEO. How has your work changed?
Dr. Toralf Haag: Of course, I’ve gotten to know Voith, our customers andemployees very well by now. This new role, however, brings a different
perspective on the Company with it. That’s why I’ve decided to talk to a lotof employees. If you want to understand a company, you have to listen
to the people who work there.

10

And how will that succeed?
Foremost by strengthening our culture of cooperation. Our employees
need feedback and recognition, but we also have to resolve conflicts andalways fight for the best solution. I like to talk about entrepreneurshipwithin the Company, personal responsibility and freedom for each individual
employee. We want to promote the joy of experimentation. There is a­beautiful phrase – “fail forward” – that describes it well. With the courage toinnovate and a culture that addresses mistakes and sees them asopportunities.

225
millionYour answer shows that change is also a question of values in acompany. Which ones are particularly important for Voith?
Our values date back to Hanns Voith. We live the values of respect andreliability, because that is the only way we can build and maintain strong,long-term partnerships. In addition, we remain open and curious,
and we set ambitious goals for ourselves to further develop ourselves andour business. We already had these high standards in the last century
and they will continue to play a central role in our work.

5.4%

You also talk about exciting technologies. Which ones are you
personally particularly enthusiastic about?
The time we live in is incredibly fascinating and full of possibilities. For
example, there are machines that learn to talk to each other. And lightweightrobots that will revolutionize both industrial production and our e­ veryday
lives. Artificial intelligence that helps us understand complex relationships
or evaluate vast amounts of data. We live in exciting times. This reminds
me of Voith’s founding years. Society and the economy are in a stateof upheaval. An entrepreneurial idea can change the world in the blink of aneye, just as Friedrich Voith did with the invention of industrial paper­production at the end of the 19th century.
So, after having looked far back into the past, where do you see Voith
in the future?
In five years, Voith will be bigger than today, even more agile and still deeply
rooted in advanced technologies. Our goal for the future is to contributeto the sustainable growth of the world’s economies, even during the fourthindustrial revolution. Areas of relevance to Voith include energy storage,electric drive systems, sensor technology and optical systems. Digital asset
management and performance improvement through digitalization also
play a major role for us.

Since October 2018, Dr. Toralf Haag has been President & CEO of the Voith Group.
After his degree in Business Administration from the University of Augsburg, continued by a doctorate
at the University of Kiel, Dr. Toralf Haag started his career as a personal assistant to the CEO of Thyssen
Handelsunion AG in Düsseldorf in 1994.
From 1997 to 1999 he was Director Finance, M&A and Corporate Development of The Budd Company, Detroit,
USA, a subsidiary of ThyssenKrupp, until he was appointed as CEO President Stamping & Frame Divisionof The Budd Company, Detroit in 2000. From 2002 to 2005 he was Chief Financial Officer and Memberof the Management Board at Norddeutsche Affinerie AG, now Aurubis AG, in Hamburg until he took up theappointment as CFO and Member of the Executive Committee of Lonza Group AG in August 2005.
Dr. Haag is Member of the Board of Directors of Fr. Sauter AG.

euros is the amount
we have invested in researchand development

is the Company’s
R&D ratio

Source: Markets & markets,
Collaborative robots market – global forecast to 2023

2020*

2018*

294,000
2016

221,000
2014

159,000
2012

2010

121,000

421,000

553,000

The world of­robotics

Number of industrial robots sold
* Forecastof 10,000
is the robot density per employee in the global
manufacturing industryof 10,000
is the robot density per employee in the global
manufacturing industry

New levelof automation
Robotics heralds the beginningof a smart automation phase: robots
no longer perform standardized
process steps on a piecework basis,but interact with each other­intelligently. Artificial intelligence,machine learning, speech andimage processing, and digital net­
working are new features that­complement the mechanical performance parameters of machines.
The Internet of Things (IoT) will be
expanded to include the Internet of
Robotic Things (IoRT). It enables
collaboration and communication
between machines that can perceive
and interact with their environment.
The work of the robots becomes
more intricate, their production morecost-effective and the installationeasier. This also makes the applicationinteresting for smaller productionlines.

11changeCreatetheShaping amarket of
the future

PLACE

INSERT

12

PUSH

As an incubator,
Voith Digital Ventures is pushingthe development of new
digital products and services.
For decisively shaping the­digitalization of mechanical andplant engineering, Voith isdriving forward the Industrial
Internet of things (IIoT).
The Group Division plays a central
role in digital innovations andapplications for new markets aswell as the development andresponsibility for digital venture
activities.

RELEASEGRASP

Dr. Roland Münch,President and CEO
Voith Digital Ventures

Voith founded the joint venture Voith Robotics GmbH together with the successful Munich-based start-up Franka
Emika. Their robot development, named Panda, is currently
inspiring people all around the world. Franka Emika’s ambitions are grand. For Simon Haddadin, Managing Director andcofounder of Franka Emika, the goal is to become the global
market leader in this segment, he said in an interview (seepage 15).

Dr. Roland Münch joined Voith 16 years ago. Among otherthings, he was President and CEO of Voith Hydro for eight
years. In 2016, he became President and CEO of the Boardof Management of the new Group Division Digital Ventures.
The joint venture Voith Robotics GmbH, founded in 2018, isalso a part of the Group Division. Voith is thus active in acompletely new business segment: robotics.
Voith Robotics is part of the new era ushered in with the establishment of Digital Ventures. “With robotics, Voith is entering a new growth market,” says Dr. Roland Münch. “The topic
electrifies people; we find many talented employees who want
to work with robots. Large corporations also have this topic
on their agenda. The possibilities inspire the entire industry.”It’s a mixture of pioneer spirit and risk taking, according to Dr.
Münch. “We learn new things every day, make many assumptions in the first few meters, and it is not always clear in which
direction the markets will move. We move at high speeds andare very agile. We have to critically review and adapt our developments again and again.”Start-up culture and industrial competence
Precision, innovation and new markets have always spurred
Roland Münch, both as an electrical engineer and as an automation expert. His enthusiasm for entering the robotics
industry is accordingly great. “We’re shaping a future market.
We’re all very excited about this challenge.”

Dr. Münch explains the international enthusiasm for the
Pandas with their technological capabilities on the one hand.
There are impressive demonstrations, for example, how a
Panda teaches itself to insert a key into a keyhole in just a few
attempts. Another reason for Dr. Münch, however, is the emotional charisma of the technical device: “Although the Panda
doesn’t have a face and no human body shapes, in its own
way it looks almost like a creature, moving even the mostdown-to-earth engineers. Wherever we introduce the Panda,
the robots generate positive emotions.”

Bringing strengths together
The joint venture brings together the strengths of a start-up
in the agile development of new products with Voith’s global
network and industrial expertise. “We have an establishedinternational infrastructure in sales and service, but above all
we have the necessary industrial know-how and the trust of
our customers in industry,” stresses Dr. Münch. He wants todevelop the robotics business segment on a global industrial
scale. The portfolio includes individual software solutions,apps and features for industrial customers, as well as concepts that no longer involve just one but the use of many intelligent technologies and collaborating robots. All of this isalready happening today and reflects the consulting competence of Voith Robotics and the entire Group Division Digital
Ventures: “We support our customers in automating theirprocesses with ready-to-use robotic solutions and their integration into the existing production environment.”
The new business segment promises great potential, but also
represents a great challenge. Roland Münch emphasizes thatthe most important thing first of all is to get going. “Often,
especially in these moments of initial uncertainty, many people
are too cautious, preferring to observe rather than to act.”
Whoever takes the first step takes risks – but also may takethe lead. The chosen path does not have to head into the blue.
“In the beginning, I usually focus on a specific objective: What
problems do our customers face and how can we help them?”says Dr. Münch. “Every new path always begins with the question, what is the product or the service?”

13

With the joint venture Voith Robotics, Voith enters
a new growth market together with the robot
manufacturer Franka Emika. The Company
is thus taking the next big step in the automationand digitalization of industrial production.

Heralding the start of the scaling phase

The entry into robotics is the next step in automation anddigitalization, with intelligent machines that can learn andwork together as a team. The employees of the Munich-based
manufacturer and joint venture partner Franka Emika areworking on precisely these skills on the Panda. The machines
are based on a platform concept; that is, the robots canalways carry out new activities via apps. The hardware isconstantly being further developed for this purpose. The
load-bearing capacity is to be doubled from three to six kilograms. Image recognition will also be available for the Panda
in the future. The goal is to market the Panda as well as its
software as out-of-the-box solutions that users can unpack
like a smartphone and use directly.
In the long term, it cannot be ruled out that the joint venture
will develop entirely new generations of robots or enter into
cooperation agreements with other manufacturers. In any
case, the interest of the industry has been aroused. According to Dr. Münch, there are already concrete applications in
the electronics industry in particular: “Pandas are used very
effectively in the production of printed circuit boards today.”
Although these processes have long since been highly automated, people still have to perform monotonous tasks suchas turning over parts, passing them on or manually performing a quality control, which consists, for example, of checking
the functionality of all knobs. All this is done much better by
the robot colleague.

Robotics are changing automation from the ground up. Voith
is a reliable partner for industrial customers in this transformation. “They know us and know that when Voith offers
something, it is well thought out, of the highest quality andwith the best service,” says Dr. Münch. The road to the future
has begun.

TAP

SWIPE

TYPE

14

In this case, the Panda is a landmark. New applications andareas of use are defined together with customers for the marketing of these products. New territory is not necessarily unknown territory. For Dr. Münch, it is rather “the logical further
development of the automation competence with which Voith
has been continuously optimizing the use of paper machines
or turbines for its customers for decades.”“The demand for these applications is enormous and growing
all the time,” says Dr. Münch. “Everywhere, new possibilities
are being evaluated. Customers first order two or three
Pandas to test the applications for the machines. If we convince them in these experimental phases, the order quantities
increase rapidly.” To meet this demand, Voith Robotics has
set up a strong international team since September 2018.
Broad demand is seen above all in China, North America andGermany. Dr. Münch predicts that it won’t be long before thefirst factories can fill complete production lines with robots.
“That is our goal. Until we achieve this, we optimize the product and work to obtain various certifications for the Panda.
This also gives us a unique position in the market.”Where was the Panda first used?
One of the first customers was the Swedish Assa Abloy Group,
one of the world’s largest manufacturers of locking systems.
The company was looking for a robotic system that could put
keys in locks. Up until then, this was considered impossible
for robots. However, the Panda has the basic skills for it. Assa
Abloy employees loaded it with additional specialized knowledge and they now use several Pandas to manufacture andtest keys and locking systems. The cooperation can literally
be seen as a door opener for this industry.

Analysts estimate that by 2025 more than
25 million robots like the Panda could bein use worldwide …

What role does the joint venture with Voith
play in these plans?
There were many interested parties, but at Voith we quickly
had the feeling that we had the same mindset. We think responsibly and long term. Our joint venture is to develop into
a technology group with great software expertise. Our goal is
to make robotics the next major technology in which German
industry is an international leader.

Will you be able to manufacture competitively
in Germany in the long run?
Our robots are significantly cheaper than competing products
in terms of quality and performance, because the productwas developed for a high degree of automation and we havedesigned the production for an unprecedented degree of automation right from the start. Pandas build Pandas for us, at
a production line of up to 12 pieces in a series. In combination
with well-trained skilled workers, we can continue to produce
competitively in the future.

Simon Haddadin,
Managing Director and cofounderof Franka Emika

15

questions forSimon Haddadin… and some of them should be made by us. We are the technology market leader and intend to continue to play this rolein the coming years. This is certainly possible because we aretechnologically very well positioned, and Germany is currently
a leading location in robotics – a multidisciplinary industry thatbrings together hardware and software.

16“The physical interaction withthe world seems so simple
to us humans that we no longer
consciously think about it.”

Learning bygrasping

But robots still find teamwork difficult?

Dr. Jeannette Bohg conducts research at the interfaceof robotics, machine learning and computer vision. We
meet her in her small office on the Stanford campus.
The walls are painted red; a couch and a bicycle sharethe space alongside technical literature, components
and three lap-dog-sized metal-gray robots.
What are you doing with them, Dr. Bohg?
Jeannette Bohg: I make them cooperate. They should
together move objects that are either too bulky or too
heavy for one of them alone. It’s really challenging forthem to decide how to do it.
Dr. Bohg brings robots to life: with motors and cameras,
grapplers with two or three mechanical fingers – as well
as lots of computing power and algorithms. The threerobots permanently collect data about their own position, that of their colleagues and that of the object. They
recognize how heavy the object is, what shape it has
and exchange this information with each other in realtime.

What do you think, Dr. Bohg –where will these skills be used first?
Robots will search for workpieces or other items in warehouses or factories and bring them to specific locations. Depending on the weight and shape of the object, they canspontaneously cooperate if they cannot move it on their own,
and also work together with humans.

Why is it so hard for machines? In chess,for example, computers are far
superior to humans. Isn’t that much more
complicated?
Physical interaction with the world seems so easy to us
humans that we no longer even think about it consciously.
Every child is capable of this. However, we never really know
how to do all this. That’s why it’s difficult for engineers to reproduce it. Games like chess, on the other hand, are only
decision-making processes where all the rules are very clearly
focused on a finite set of possible actions, and all the important information is there. The computer knows where eachfigure is and can therefore solve any problem mathematicallyby intelligently examining the set of possibilities.

In contrast to the sensory motor functions
you’re investigating?
The fact that the robot arms can be moved into a variety ofpositions results in an almost infinite number of possible solutions. The environment is usually only partially visible so that
we cannot access all the information. If a robot tries to pickup a pen on the table, it may be slightly displaced, and so themachine must react and deviate from its originally planned
movement. People have been gaining experience with suchsituations since their earliest childhood. We develop an intuitive model that helps us to predict various possibilities.
Robots can’t do that yet.

17

Dr. Jeannette Bohg, Assistant Professor
at Stanford University in the USA,about the collaboration between man
and machine and why even themost advanced robots still fail at tasks thatare easy for a child – and how she isworking to change that.

Think about how people move a table or a couch: I go to thiscorner; you go to the other. Maybe we’ll change position in
the process. Am I going backward or forward? There are a lotof agreements, sometimes verbally, but also simply by pullingor pushing. In contrast, robots usually bring objects to a specific location and don’t communicate at all. In my experiment
they don’t even know how heavy the object is or how to moveit best. That’s why they have to organize themselves as a
team.

The main limitation in robotics at
the moment is therefore the software,
the programming?

18

I think the better the hardware, the less we have to invest incomputer calculations and algorithms. But software and control really do have the greatest potential. There are experiments in which humans remotely control a robot to perform
various tasks such as cleaning an apartment. In this way,
many tasks could be solved that we didn’t know how the
robots could make autonomously. This shows that robots
theoretically have the capabilities for such a task, but not yet
the brain.
When Dr. Bohg has taught the three robots in her officewith the right software, she dares to take them to thejoint laboratory of the computer science department on
Stanford campus. It is a playground with dozens ofmonitors and robot arms from various manufacturers,
including five Pandas from the German manufacturer
Franka Emika. According to Bohg, the sensitive yeteasily programmable arms are currently the best.
And what are you researching with them, Dr. Bohg?
If robots in factories or department stores have to perform complex tasks, something can go wrong withevery step. Possibly the wrong object was detected.
Then you have to look again and perhaps remove objects from the way. The object can slip out of the robot’s
hand and fall to the ground. Robots like the Panda canprocess these errors and autonomously develop andexecute an alternative action plan in milliseconds.

You’re trying to preprogram everythingthat could go wrong?
Quite the opposite. There are approaches where the robot
recognizes that it’s stuck or does not know what’s going on
and then asks a person for help. But each of these interventions takes time. So it would be even better if the robot could
readjust itself on its own. For example, the attempts in whichrobots share experiences with their colleagues or learn fromtheir robot peers are exciting.

In the future, cooperating robots should
not just work with each other but also
hand in hand with people. How can this workwhen the machine itself already faces
so many challenges?
In teamwork, for example, humans could show the robot
what kind of movement it should perform. This is called kinesthetic teaching. Humans and robots would complement
each other very well. Robots can better perform precisely thesame tasks over and over again; humans have advantages
when assembling very small parts where the haptic feeling isimportant. But if both human and robot are really supposed
to work hand in hand, it becomes difficult to plan such movements for the robot.

Why?
The robot must be able to predict the intention of people orother robots. The human being needs to know what the robot
will do next. This means that the robot constantly monitors
what is happening around it. This leads to extremely complex
calculations that have to be done in real time. Robots thatwork together are like ants trying to carry something together.
They have to decide for themselves how they want to unite
and what they want to do.

19“Instead of recording a hugedata set as a whole and learningfrom it, one tries to enablea robot, like a child, to learn fromnew data on its own.”

Dr. Jeannette Bohg
After studying computer science at the TU Dresden,
Dr. Bohg visited the Chalmers University of Technology in
Gothenburg, Sweden, where she studied Automatic
Art and Technology. In 2012, she received her doctorate in
Robotics and Computer Vision from the Royal Instituteof Technology in Stockholm. From 2012 to 2017,
Bohg conducted research at the Max Planck Institutefor Intelligent Systems in Tübingen, and in September 2017,
moved to the renowned Stanford University as
Assistant Professor to teach the robots of tomorrow
how to grasp and understand.

Machine learning is incredibly powerful and promises thatrobots or computers can generalize from any training data
sample the means to derive actions from things they havenever seen before. Google operates a robot lab in which 13
robots do nothing but permanently grab different objects froma box. They practice and collect millions of data points for amonth. From this, they should learn to grab new, unknown
objects that they have never seen before.

Sounds fascinating.
It actually works convincingly well, but only for the environment in which these robots were trained. For example, you
could hardly have one of these robots empty a drawer in yourkitchen, simply because this environment seems so different
for the robot that it might have to start learning again, fromscratch. This also applies to objects that are actually very
similar to those from its training. Machine learning is great,but it’s still limited to the area or scenario where the training
data was collected.

But how do robots become as smart
as normal people?
A new and emerging field of research is developing algorithms
that are constantly evolving. Instead of recording a huge data
set as a whole and learning from it, one tries to enable a robot
to learn from new data, like a child. One challenge that remains is how to keep the information from the old data sets
and still learn something new.

“The robot must be able
to predict the intention of
the persons or robots
with whom it collaborates.”20

Why don’t you leave them alone
with machine learning to gain theseexperiences?

Storage evolution

kilobytes
was the storage capacity of the first
8-inch floppy disk in 1969

megabytes
was the storage capacity of the first
CD-ROM for storing large multimedia files

gigabytes
was the storage capacity of the first
digital versatile disc (DVD) in 1996

CloudFirst cloud services
launched in 2007

The cloudadds value
Digital platforms combine engineering
and user-friendliness. They connect
market participants and simplify theirinteractions. New data-based digital
services, marketplaces and inno­
vations that play a decisive role in the
future creation of value in mechanicalengineering will emerge.
In contrast to end-customer-oriented
products in the B2C sector, the­complex processes of networked
development or customer-specificconfiguration of machines cannot be
simplified at will. Companies like Voith
have the necessary industrial knowhow to act as drivers of the digitalplatform economy. The prerequisites
for this are powerful network infrastructures, platform compatibility inindustrial data space and the security
and integrity of data.

21

All
new

22

Start.
Fail.
Start
again.

Lisa-Maria Pallaoro>

Project Manager,
Platform Delivery“The most important lesson from therealization of the OnCumulus project is thatyou shouldn’t fall in love with your ideas.
A lot of things that inspired us in the beginning,of which we were all convinced, proved
impossible to implement in the end.”>

OnCumulus
The platform serves as a data hub
with visualization and analysis
applications. Industrial companies
can enter, store and analyze data from all
networked devices
Coordinator>

Dynamic tool for iterative tasks such as
routine maintenance tours

Cockpit>Range in which technological limits for any
process parameters can be defined and visualized

Analyzer
Structuring and visualization of different
data types for in-depth analysis

23>

After barely four months at Voith, Lisa-Maria
Pallaoro went on a trip around the world:
to explore the possibilities and demand for a new
business segment on-site with 50 customers
in 20 countries. Three years ago, the then23-year-old helped shape the start of a projectthat would eventually lead Voith to a cloudbased IIoT platform application. In the spring of2018 it was officially launched, under thename OnCumulus.
In a world in which collaboration within companies andeven between market participants is becoming increasingly
important, in which data is collected on networked systems
and machines and evaluated via the cloud in order to control processes even more efficiently, platforms are developing into the central business model of the digital economy. For a company like Voith, they represent a particularly
exciting link between industrial hardware and digital services. In 2015, such a platform was defined as a new business segment with high potential in which Voith could generate future growth.

A new way
With the OnCumulus platform, Voith is not only entering acompletely new business segment but also changing theway it works – instead of presenting a perfectly mature
product, OnCumulus was developed from the beginning inclose cooperation with customers. Lisa-Maria Pallaoro wasinvolved from hour zero.
The information systems specialist got to know Voith during
her dual course of study. After the successful conclusion of
the project, she signed her employment contract, and after
only a few months, jumped into cold water. “It was a great
feeling to be part of OnCumulus’s project start. It was something completely new for Voith, and, of course, also for me.
There were no guidelines or best practices yet; we were
simply free in everything we did. Of course, there was alsoa bit of nervousness. I was still very young, had only been
at Voith for a few months – and then a challenge like that!”
She was helped by the support and trust of her supervisors.
“I was able to attend further training courses to familiarize
myself with the subject, received a lot of support – as ayoung woman in her early twenties, I had to assert myself
internally and with customers, but sometimes also against
some reservations.”

OnEfficiency>
OnCareProducts that focus on
asset availability

24>

Ekrem Yigitdöl>

Vice President,
Platform Delivery“Starting is not a single moment for me;
it is an ongoing process. We get involved in a
new topic, come to a new insight orsolution, with which we start again to startsomething new.”

Applications support
the optimization of processes

After evaluating the impressions and experiences from themore than 120 customer interviews on her trip around theVoith universe, some of her customers’ so-called pain
points were obvious. For Ekrem Yigitdöl, Vice President,
Platform Delivery, it was, above all, the fact that countless
small parallel universes existed in customers’ plants.
“Each area, each responsibility and even different parts ofa machine are controlled by different systems. There arecountless displays and user interfaces that need to belogged in over and over again, between which there is nodata exchange, with which a person can only access very
limited areas.” With OnCumulus, Voith wants to develop a
hub for data from various sources, such as plants, production lines, machines and equipment. As a centralized andreliable access point, customers can start their digitalization activities from here. Their data, which is recorded andevaluated in real time, is individually prepared for them sothat they can optimize their processes and make the rightdecisions.
According to Ekrem Yigitdöl, what sets Voith apart from aclassic software company is its customers’ trust in its industrial competence. “We are not an IT service provider,
but a solutions provider with 150 years of experience inmechanical engineering.”
Lisa-Maria Pallaoro initially became part of a team responsible for the visual design of the platform and the user
experience during the further implementation of the pro­
ject. The first versions of user interfaces were created,which the customers immediately tested. “Our goal wasto create self-explanatory interfaces and dashboards. We
let customers work with the systems, gave them tasks
such as setting an appointment or selecting a machine. We
watched them, evaluated their impressions and started thenext optimization round with the feedback.”

Lisa-Maria Pallaoro says that OnCumulus was not onlyused to develop a new business but also to cultivate a newmindset at Voith. “Up to now, Voith’s reputation andself-image has consisted, above all, of going to customers
only with fully developed products. For OnCumulus, however, we brought the customers on board right from thestart. For experienced Voithians, it was not always easy tosuddenly present unfinished ideas, have to ask questions,
not know everything, discard assumptions.” A learning
process that customers also went through: “When weclicked through the digital demonstrations with them, wealways had to point out that this was far from being a finished product, but instead a test version.”
Customer feedback was important. This was the only way
to realize Voith’s claim to provide a platform with OnCumulusthat can be used across all systems and areas of an organization. “That’s the platform’s unique selling point,” says
Pallaoro. “With OnCumulus, you can use the various apps
to control virtually all of a factory’s systems with one andthe same tablet.”If you ask Lisa-Maria Pallaoro about the most importantlesson she learned from the OnCumulus project, she will
say, without hesitation, “You can’t fall in love with yourideas. A lot of things that inspired us in the beginning, of
which we were all convinced, proved to be impossible toimplement in the end. Many projects failed on the way –you have to endure that. But you’re all the more pleased
about the goals you’ve achieved.”
The feedback from the first customers who used the platform has been positive. Paper manufacturers and automotive suppliers, for example, were able to significantly increase their production through improved efficiency. By
linking the various applications, OnCumulus also brings
customers closer to the overall vision of a digital twin inwhich machine components and systems communicate
and interact, simulating virtual tests, for example.
Since the platform was officially launched on the market inspring 2018, Pallaoro has been responsible for project
management, is in direct contact with customers, and pre­sents OnCumulus at trade fairs. “This market entry is another big step. From now on there are no excuses; it is nolonger a test – we have to deliver,” she says, adding that
she is incredibly proud of the product.

25

Start.
Fail.
Start
again.

A new mindset

<Cyber
Security>
26

Voith’s IIoT platform services are based on an
important promise: that they’re safe.
Every day, Alam Mohammad and his team make surethat this promise is kept.

Alam Mohammad boasts an impressive biography: born in Bangladesh, followed bycomputer science studies in Russia, graduate studies in Germany and Poland, andpositions at large corporations and research institutes, he’s now responsible for cybersecurity at Voith, a topic that requires 100% of his attention every day. Or, as Alam
Mohammad says, “If you feel too safe, you’re vulnerable.” He recalls a conference atwhich a representative of a large corporation announced that his company was safe
from all cyberattacks: “And, of course, he aroused the sporting spirit of someparticipants.”

What do you mean by that, Mr. Mohammad?
Alam Mohammad: After only a few weeks, a hacker penetrated the company’s system.
He found a tiny vulnerability in an inconspicuous connector in IT that the manufacturer
claimed was secure.

And then?
There was no damage; he just wanted to send a message. Cybersecurity is a topic thathas to be seen as a daily challenge. Every day I ask myself, where are we vulnerable?
Weak points can be the most banal things: an electrical outlet, or any component, nomatter how inconspicuous. Our strategy is therefore: Zero Trust Security. We don’t trust
any device, any interface, or anybody who claims their systems are safe.

27“Data is our most important asset.
We make sure that it’s protected – every day.”Alam Mohammad,
Head of Cybersecurity & Privacy

But isn’t the IIoT platform OnCumulus
based on the exchange of data?
Data sharing is great. But these systems must meet the highest security standards andbe customer-centric. All OnCumulus digital products are based on this. We are talking
about security through design, not through control; for example, through effective
identification technologies and processes. These ensure that it is really the customer,
or a person named by them, who accesses and uses the data. I would argue that cybersecurity is one of the most important issues of digital transformation.

And how does Voith deal with this challenge?
We ensure that the topic of cybersecurity accompanies the horizontal and vertical integration of industry 4.0 – that is, technologies such as advanced robotics, augmented
reality, the Industrial Internet of Things, cloud, big data or analytics.

Voith also offers cybersecurity as a service to its
customers. How does that work?

28

We develop innovative security services for our customers. The starting point is an indepth examination of the existing IT infrastructure, the cybersecurity health check.
Benchmark analyses, which we offer together with our partner Kudelski Security, goeven further. Using these results, we develop high-priority recommendations. Further
services include training and consulting. We always act neutrally, as we do not sell
security technologies and have the necessary industrial expertise.

</ZeroTrust>“We always have to be one step ahead:
only those who recognize security gaps canprotect their systems.”

Alam Mohammad,
Head of Cybersecurity & Privacy

MG cylinders
Diameters
7,315 mm6,700 mm
6,000 mmbig, bigger, biggest
For the past ten years, a trend towards ever faster systems
with correspondingly larger cylinders has been seen in
paper machines for specialty and tissue paper. The MG cylinder,
with a diameter of 7,315 millimeters, currently underconstruction at Voith, is the third in world-record size at this time.
The corresponding plant will later produce 360,000 square
meters of specialty paper—per day.

large cylinders
for tissue or specialty papers deliveredby Voith over the past 60 years

Shiny future
The “MG” on the MG cylinder stands
for machine-glazed. The shine iscreated by the paper’s special hightemperature and high-pressure drying
process on an MG cylinder. For
certain applications, additional­substrates, polyester or aluminum
foils are applied.
For example, the glossy layer
absorbs disinfectants used in indus­
trial processes or protects against
microbio­logical contamination.
This makes MG paper a much soughtafter packaging material for foodor pharmaceuticals.
Other important applications include
printed decor papers for the furnitureindustry, transfer paper for textile
prints, and anti-corrosion paper, which
protects machine parts and razor
blades. The demand for high-quality
MG paper is increasing globally,
as can be seen from the developmentof ever-larger production plants
in which the giant MG cylinders areused.

Marco Brujas,
Quality Order Manager,
Voith Paper Brazil

Make
it

29

possible30

The
world’slargestMG
cylinder180 t5m
1,400 m/min
120,000 t
25 –100 g/m²
7,315 mm7 bar
WeightWorking width

Possible production
capacity of special paper
per annum

Basis weight range

Diameter

Design pressure

31

Maximum speed ofproduction
at 40 – 60 g/m²

When Marco Brujas and the team started developing theworld’s largest MG cylinder for a paper machine in 2017,with a diameter of 7.3 meters, this quickly led to all sortsof unanswered questions. For example, how a cylinderthat weighs 180 tons will behave in a machine at speedsof up to 60 revolutions per minute. Or how the finishedcylinder, with its oversized dimensions, can be transported
through traffic on narrow streets from São Paulo to theport city of Santos.
Today, the Brazilian tells this story with a smile. At thattime, in addition to motivation for the new, huge project,
there was also respect for the first steps. And then? “Thenwe just started,” says Brujas.

32

Voith can look back on many decades ofexperience in the development and­production of MG cylinders. The company
can now benefit from this knowledge.
The largest MG cylinder in the worldis currently being built in São Paulo for apaper manufacturer in Germany.
With a diameter of more than sevenmeters, the manufacturing and transportof the p­ roduct is a very special task
for the developer, Marco Brujas, and theentire team.

MG C
Material

Instead of the usual gray cast iron, this MG cylinder
is made of steel to increase strength. Corrosion
protection is achieved by a hard metal granulate of nickel,
chromium and carbide sprayed onto the surface
at the customer’s site. This is heated beforehand andthe cylinder is in motion during application

200 m

The MG cylinder requires perfect welding wires.
They are tested using modern methods,
such as magnetic powder, X-ray or ultrasound methods

Depending on the drying performance requirements
during operation, steam heats up the cylinder inside totemperatures of up to 180º Celsius

180 °C
120 °C
Maximum temperature

Due to the cooling effect of the paper web,the cylinder on the outer housing
reaches temperatures of up to 120º Celsius

“If you want to build the largest MG cylinder in the world,
you also need a great team. At Voith Paper, we are­responsible for order and project management,
design, quality, welding and assembly. Voith Hydro­supports us with special mechanical processes
and logistics.”

Marco Brujas confirms his statements. “It’s great to see
how all areas mesh together, especially when it comes to
new projects that we have not yet implemented in thisform. That inspires all of us.” Brujas says that the cultureof always supporting something new is part of everyday
life at Voith. “We pass this on to our trainees when we tellthem, ‘Make suggestions and be curious; bring in yourideas.’ This helps the entire team, especially with new
projects.”

Rotating and hot as an iron
An MG cylinder is a vital component in paper production.
It rotates, is as hot as an iron, and has a very smoothsurface. Then the freshly produced and still-moist paper
webs are pressed to dry them. The cylinder currently built
by Voith in Brazil will be used in 2019 in a paper mill inGermany for the production of specialty paper with two
different surfaces. “The packaging material produced
there has a very smooth and greaseproof side,” explains
Matthias Wannenwetsch, Product Manager for MG cylinders. “It’s an ideal product for a number of packaging
materials; for example, in the food industry.”

Rodrigo Votto,
Operations Manager,
Business Line Projects

33“Developing something new is exciting – knowing that
nobody has ever built something like this before,” says
Rodrigo Votto. He works alongside Marco Brujas and is
responsible for cylinder production, logistics and project
management. According to Votto, a project like this canonly succeed if a team works together. “If you want tobuild the largest cylinder in the world, you need a great
team.” Voith Paper’s work, responsible for order and project management, design, quality control, construction andassembly, was complemented by Voith Hydro’s expertisein logistics and special mechanical processes. “Thanks tothe size of the Voith Group, we have access to internal
experts who support us quickly and easily with theirknowledge. The project is an excellent example of strong
cooperation and a motivated team,” says Votto.

60 rpm
360,000 m²
Record speed

34

2017
–19
Route

Voith plant São Paulo – Port of Santos – Port of Rotterdam –river freighter across the Rhine to Kehl
12 weeks’ travel time
The cylinder is shipped disassembled in three parts

Large product, tiny details
The Heidenheim-based engineer is equally enthusiastic
about the project. “We’re really going to the extreme here.
A component of this magnitude is subject to great forces,
no unbalance, no vibration.” To achieve this, the production specifications are correspondingly demanding: theworld’s largest cylinder has a tolerance range of fractionsof a millimeter. The quality of the cylinder depends on tiny
details. The mechanical welding of the product thus requires an almost artistic perfection.
The goal is to ship the cylinder to Germany at the beginning of 2019. Then, project teams from Voith locations in
Heidenheim and Ravensburg will take over the transport
and installation at the customer’s site. The world’s largest
MG cylinder is scheduled to begin operation in the second
half of 2019.

The maximum rotation speed of the cylinder is
60 revolutions per minute. This means that the MG cylinder
can produce 360,000 square metersof paper per hour of the highest quality

About two years will go by between
the start of construction in São Paulo andcommissioning in Germany

The biggest challenge for Wannenwetsch and his colleagues in Brazil is currently the transport to the port inSão Paulo. Actually, it’s only a short distance, but according to Rodrigo Votto, determining the route through thecity is like playing a strategy game: “There can’t be any
bridges on the way that either aren’t high enough or aren’t
designed for the weight of the cylinder. Traffic lights must
be dismantled, the roads must have a minimum width, wewill have to close off important traffic arteries in the city,
and all of this under the very special traffic conditions in
one of the largest cities in the world.” In total, the transport
will take three months.
Wannenwetsch explains that the increased demand forspecial paper has led to growing cylinder sizes. Customers want to expand their capacities. “In MG paper production, the speed of the lines cannot be increased at will,
because otherwise the desired paper properties can’t be
produced. These large systems are a way of producing
more paper on a larger surface area at maximum speed.”
Wannenwetsch adds: “Not only are we building theworld’s largest MG cylinder, but it will also turn at record
speed.”

On the moveminutesis the time Hong Kong residents spend on an average
working day on public transportation

millionpeople use the Istanbul subway every daya.m.
is the average start of the working day
in New York City

Transporting
megacities
By 2030, there will be 43 megacities
worldwide, with more than 10 million
inhabitants. The current figure is33, compared with 23 in 1990.
The future quality of these cities, andthe ­opportunities they offer
their inhabitants, depends on theirinfrastructure.
The demand for urban mobility is set
to grow strongly. Today’s Voith­products and systems will soon not
only be part of a vehicle but, inthe future, also a smart componentof intelligent traffic systems.
Intelligent drive solutions for power
plants transmit and control power up
to the multi-megawatt range
in order to supply megacities withenergy. Reliable and energy-saving
components ensure long-term
plant efficiency and productivity.

35

Around theworld withVoith

Flip open
to learn more!

Population growth, air pollution, traffic collapse
and changing environmental conditions
affect mobility and energy supply in the megacities tovarying degrees. Voith ensures that bothpublic transportation and the energy supply of thecities can be guaranteed – around the clock.

5:24

AM

New York City
Staten Island Ferry

Since 1905, the Staten Island Ferry has connected theboroughs of Manhattan and Staten Island. Twenty-two million
passengers annually use the 24/7 ferry service to travel
the 8.4 kilometers between Whitehall Terminal in
Lower Manhattan and St. George Terminal on Staten Island.
Always on board: Voith Schneider Propellers drive
the ferries, rich in tradition, past the Statue of Liberty.

37

Pipeline
From the Gulf of Mexico along the east coastof the United States to New York City.
For decades, the population and industry on the
Atlantic coast have received gas throughpipelines outfitted with Voith components.
They guarantee a constant gas supply at any timeof the day or night.

1:24

PM

Istanbul
Subway lines

At midday, the Istanbul transport network
is particularly busy. The majority of the 15 million
inhabitants regularly travel by public transport,
for example with the rail vehicles in the Marmaray Tunnel,
which are equipped with Voith couplings.

6:24

PM

Hong Kong
City bus

On the way to work, shopping or home fromthe day shift: Voith products ensure that Hong Kong
residents reach their destinations quickly andcomfortably. For example, the automatictransmissions in the city bus, or the clutches in the metro,
ensure pleasant travel – even at peak times.

Drive new ways
with Voith
Megatrends such as urbanization and the careful
use of resources also require new mobility andsupply concepts. Voith develops products that improve
tomorrow’s urban life – and keep it moving.
Service in all areas
Modular and always on-site

40

Breaking new ground with Voith: our global service network and ourclose partnerships with other companies provide the best basis for long-termcooperation to keep tomorrow’s world in motion. Thanks to reliableavailability all over the world, customers benefit from short distances,
fast turnarounds, and advice exactly when they need it.

On rails
Efficient and reliable

On the water
Safe and environmentally friendly

Locomotives, trams, metros, monorails
or high-speed trains – Voith offers
products and systems for everything thatmoves on tracks that ensure more
speed and better comfort, as well as
maximum reliability and safety.

Currents, crosswinds or tidal changes indifferent water depths – ships have tocope with the most difficult conditions andcarry freight and passengers safely and­comfortably to their destinations. Ships­outfitted with Voith drive and control systems
meet these requirements reliably and­economically in terms of fuel consumption.

Products and services• Scharfenberg couplers• Final drives, turbo transmissions• Engines• Front systems• Electric drive systems• Cooling systems• Service

Products and services• Voith Schneider Propeller• Thruster• Roll stabilization• Control systems• Service

On the road
Economical and sustainable

In oil and gas supply
Energy saving and smart

Compact, light, reliable – these are the­essential requirements for components andsystems for commercial vehicles such astrucks or buses. Every drop of fuel is used as
effectively as possible – and, of course,
Voith has long moved electrically, smartly
and networked.

Highly efficient, completely monitored
and intelligent drive systems ensurethat oil and gas supply systems operate safely
and productively. Integrated digital
functions and hydrodynamic,
mechanical and electrical solutions improvethe ­sustainability of the energy sector.

Products and services• Automatic transmissions• Air compressors• Retarders• Electric propulsion systems• Service

Products and services• Variable-speed drives• Turbo transmissions• Highly flexible
and torque-limiting
couplings• Drive shafts• ServiceSmall hydropower
plantsmegawatts
is the maximum capacity per unit ofsmall hydropower plants that
Voith has built or equipped with components

percentof all small hydropower plants worldwide witha capacity of up to 30 megawatts per unit
were built by Voith or contain Voith components

countriesin which Voith has alreadydelivered hydropower plants

Small projects,
big potential
More than 75% of all hydropower
resources in the world have not yet
been used to generate electricity.
This results in an enormous potential,
even for small hydropower plants –with the compact turbine generator
unit StreamDiver, it can be developed
sustainably, both economically andecologically.
Possible applications include, forexample, residual water channels inexisting hydropower plants and­irrigation channels, but also drinking
water or wastewater treatment plants.
The StreamDiver can profitably­generate electricity in rivers with adrop height of two to eight meters andwith low flow velocities. Another
Voith product, PipeRunner, can evenbe installed directly in water pipes.
The efficient compact turbine­StreamDiver generates up to 800
kilowatts of electricity.

41

Timo Mayer,
Project Engineer, Civil Engineering,
Voith Hydro

Embracethe new42

43

Small hydropower plants
with huge potential
How Voith miniaturizes products rich in tradition,
revolutionizing hydropowerRethinking an established product on a smaller scale canbe a big challenge. “The idea of a compact turbine dates
back to 2010. It had to be oil-free and therefore particularly
environmentally friendly, small and simple in design in orderto achieve significant construction cost savings in new
power plant concepts, and able to be installed on-site at a
gradient of just two meters with little effort and impact onnature, according to the plug-and-play principle,” says Timo
Mayer about the start of a project that aimed to make a big
difference with a compact turbine.

44

At the beginning of a project, Timo Mayer always exchanges
ideas with customers. At some point there will come amoment when they say: “Enough talk! Roll up your sleeves
and start!” In 2010, this meant developing the first concepts
for a turbine that is still quite large, with an impeller diameterof 79–131 centimeters, but still appears very small compared to conventional Kaplan turbines with impeller diameters of up to 10.5 meters, for example. These conventional
turbines are like power plants within a power plant. The installation is complex; they require larger structural interventions and higher gradients.

Powerful compact system
The application possibilities for large turbines are correspondingly limited, and the necessary investments due tostructural interventions are enormous. As much as 75% of
the existing barrages and dams are unused today. This iswhere the compact turbine generator unit StreamDiver
comes in. After several years of conception and field tests
with customers, the StreamDiver has now reached market
maturity and is being used successfully. As a powerful compact system for hydropower, sold ex-works, low-maintenance, and composed of only a few components, the sys­
tem only needs to be connected and switched on, on-site.
In South America, for example, several projects are in progress or have already been implemented. Customers can tap
new resources with the StreamDiver. The compact turbines
will be installed in residual water ducts to increase the capacity of existing plants. They can also be used in rivercourses, where the StreamDiver can be integrated particularly well directly into the dams.

Deployment in Paraná/Brazil
One of these interesting projects is currently being implemented in southern Brazil on the Chopim River. Jairo Bandeiro, Managing Director of the Brazilian hydropower plant
operator Usina Hidrelétrica Paranhos, spoke to Voith in 2017about the construction of a conventional hydropower plant.
After several months of intensive discussions with Voith experts, Bandeiro decided to install seven StreamDivers instead of the planned conventional vertical Kaplan turbines.
The Nogueira project is scheduled to go into operation in
the summer of 2019.
“We had very convincing arguments,” says Luiz Fontes, whoworks at the Voith site in São Paulo, not without pride.
“Thanks to the early integration, we were able to develop a
power plant concept in which the customer saves 40% of
the construction costs. In addition, we increased the output
from the estimated three to five megawatts.”
Especially for a smaller company like Jairo Bandeiro’s, thesenumbers leave additional room for budgeting. But for him
another aspect was important: the low ecological impact.
“We want to keep the ecological impact of our power plants
to a minimum, so the StreamDiver is really the best solution,”says Bandeiro, adding, “The impact on nature is minimal forthe construction of the StreamDiver plant, the oil-free technology prevents water pollution, and the fish in the river are
also hardly endangered.”

New technology from proven technologies
The businessman Bandeiro was convinced of the quality of
the StreamDiver during a visit to Heidenheim. In addition to
the turbines, he also commissioned Voith with an automation solution and service. “Here, too, the StreamDiver offers
remarkable advantages,” says Timo Mayer. “The small
number of components and the oil-free turbine concept
make the product’s use extremely low maintenance.” The
inspection cycles are ten years, and the operational costs
for the customer decrease considerably. The StreamDiver
power plant is being implemented on-site in cooperation
with a Brazilian planner, with whom the concept has alreadybeen developed in Heidenheim.
The advantages of the new technology are also based on
the use of mature technologies. This was made possible byVoith’s overarching cooperation. “The development of thewater-lubricated bearings for the StreamDiver drew on theexperience of the Group Division Turbo, and that, in turn,
gained from the development of Hydro flow turbines.”

Mayer describes this cooperation as the “important lookoutside the box” that is needed to initiate new developments. In a project in Peru, for example, Voith not only supplied the customer with several StreamDivers but also built
the entire power plant together with a local construction
company. “That was really unusual. Normally we limit ourselves to the electromechanical equipment,” says Mayer.
The underlying power plant concept had already been
worked out with the customer prior to the tender and was
ultimately also ordered from Voith.
With the additional installation of two StreamDivers, previously unused gradient can now be used in an existing underwater channel for the production of even more electricity.

Oilfree
The bearingsof the StreamDiver
are waterlubricated –that means no oil
is required

45

The Nogueira projectAt the small hydropower plant on the Chopim River, in Brazil,
a natural waterfall provides the necessary gradient.

While a small difference in altitude, it is sufficient forseven StreamDivers to produce morethan 31,000 megawatt hours of electricity annually.

40

percent of theNogueira project’s
construction costs
were savedby using
StreamDivers

Financial
ReportVoith Annual Report 2018
Group

47

Group

Page

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

48
52
54
60

48

Voith Annual Report 2018Group
Foreword

Ladies and gentlemen,dear business partners of the Voith Group,
Last year, we wrote here that Voith is ready for the next 150 years!
Today, one year later, I am pleased to be able to note that the next
150 years have started in a promising way. Over the past twelve months
we have demonstrated in a very impressive manner the energy andresolve with which we are addressing the diverse challenges we face
as a technology company in the digital age. And once again, we havedemonstrated that the strategic course taken in recent years was theright one.
As shown by our performance in the past 2017/18 fiscal year, the Voith
Group is built on firm foundations in every respect. Our operating

Voith Annual Report 2018Group
Foreword

49“At the end of the fiscal
year, the equity ratio
reached a historicalhigh and net liquidity
continues at a very
reassuring level.”Dr. Toralf Haag

activities continue to show their robust
condition. We have held up well in a market
environment that was in part very demanding.
This said, we did not meet all our targets,however. Under the given business environment,
we nevertheless consider the fact that we wereable to increase the level of our orders
received and sales – adjusted for considerable
negative currency effects – to be a successin itself. We succeeded in achieving this although Hydro, one of ourcore Group Divisions, showed a much weaker performance on accountof the market than we had originally expected. Hydro’s temporary
weakness, that was only partially balanced out by the excellent figures
shown by Paper and the sound performance by Turbo, also had anegative impact on the operating result. It is encouraging that our net
income has nevertheless risen significantly on the previous-year figure
adjusted for the effect of the KUKA sale.
One other positive aspect to be emphasized is that Voith’s financial
position remains very strong. At the end of the fiscal year, the equity
ratio reached a historical high and net liquidity continues at a very
reassuring level. Our healthy financial strength is of decisive importancefor the further development of the Company – we are still pursuing
great plans. For Voith, it is now a matter of entering into a phase ofsustainably profitable growth on the basis of what we have achieved inrecent years. For this, we will need financial resources – which wealready have at our disposal. I emphasize this point also in my function
as CFO of the Voith Group, a position that I currently still hold in addition
to my appointment as President and CEO.

50

Voith Annual Report 2018Group
Foreword“For Voith, it is now amatter of entering intoa phase of sustainably
profitable growth on thebasis of what we haveachieved in recent years.”
Dr. Toralf Haag

The strategic focus areas for this newphase of growth are clearly defined:
firstly, we intend to grow organically,i. e. further developing the core business,both in terms of products offered andthe geographical markets served, throughinnovations in all Group Divisions and,last but not least, through a considerable
expansion of our digital activities.
Secondly, we are planning for Voith to grow through targeted acquisitions.
The guiding theme within our growth strategy is to widen our techno­
logical expertise for the digital industrial age – across all Group Divisions
and customer groups.
One core element of our growth strategy is, and will remain, our digital
agenda. For this reason, we have further sharpened the focus of ouryoung Group Division Digital Ventures. In the future, this Group Division
will oversee all of Voith’s digital venture activities – including the new unit
Voith Robotics, formed in the past fiscal year in connection with theinvestment in Franka Emika that took the form of a joint venture withthis Munich-based specialist for lightweight robot systems. In addition,
Digital Ventures acts as an incubator for the entire Group in pushing
forward with new, digital business models. In the meantime, this has
provided us with visible market success. For instance, we have alreadymade into reality the first customer applications for OnCumulus, ourinternally developed digital platform. The encouraging conclusionthat can be drawn in the meantime, after two and a half years of work
to build up the Group Division, is this: all in all, Digital Ventures isdeveloping according to plan. The unit is showing very strong growthVoith Annual Report 2018Group
Foreword51

and is generating an increasing momentum that will benefit the entire
Voith Group on a lasting basis.
Over the course of the current fiscal year, we intend to further refine
Voith’s growth strategy. The strategic agenda is linked to clear financial
targets. Over the medium term, Voith aims for sales growth distinctly
higher than the annual growth in the global economy and a significant
improvement in its profitability. The clear focus on profitable growth isintended to bear fruit already before the end of the 2018/19 fiscal year.
We anticipate an increase in orders received, a rise in Group sales andgrowth in all key earnings indicators.
All in all, we consider Voith to be well on its way towards achieving its
strategic and financial objectives – with leaner structures, more efficientand effective operating units, technological innovations and new
business models, with acquisitions and organic growth and, most of all,with a highly motivated, top-performing workforce. The trust placedin us by our customers and business partners is an incentive and an
obligation at the same time. We hope for your ongoing confidence in us!

Sincerely yours,

Dr. Toralf Haag
President and CEO

52Voith Annual Report 2018Group
The Corporate Board of Management

The Corporate Board of Management

Andreas Endters
Voith Paper
Dr. Roland Münch
Voith Digital Ventures

Dr. Uwe Knotzer
Voith Turbo
Dr. Toralf Haag
President and CEO, Finance and Controlling

Uwe Wehnhardt
Voith Hydro

Voith Annual Report 2018Group
The Corporate Board of Management“The guiding theme within our growthstrategy is to widen our technologicalexpertise for the digital industrial
age – across all Group Divisions andcustomer groups.”
The Corporate Board of Management

53

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Voith Annual Report 2018
Group
Report of the Supervisory Board

Report of the Supervisory Boardfor the 2017/18 Fiscal Year

Ladies and gentlemen,
In general, the global economy continued its upswing over the 2017/18 fiscal year. A large share of global
growth was still coming from Asia, especially China. The US economy gained further momentum, theeuro zone returned sound growth. Brazil was gradually recovering from the recession even though thepolitical crisis continues to hamper important infrastructure projects. However, the risks for economic
development have risen considerably overall over the course of the year under review. Alongsidegeopolitical flash points that have been already smoldering for some time, protectionist tendencies arebreaking out in many places. The introduction of punitive tariffs and the termination of international trade
agreements by the USA and the corresponding reactions by the trade partners concerned constituteobstacles to global trade. In addition, US economic sanctions were imposed against Iran in conjunction
with demands towards European companies to comply.
After Voith had overcome great structural and financial challenges and taken important strategic
decisions in recent years, the Voith Group’s operating business presented itself in a sound condition in
the 2017/18 fiscal year. In total, the figures for the year under review are showing a stable performance.
Negative currency effects are the main reason for Voith not yet being able to achieve the growth
anticipated a year ago.

Voith Annual Report 2018
Group
Report of the Supervisory Board

The Group’s digital agenda involving the expansion of the digital product portfolio remains one of thecore topics. In the past fiscal year, the digital activities once again placed a considerable temporary
burden on results, but the Supervisory Board is convinced that they have the potential to become afuture growth driver.
There were divergent developments between individual business activities. One very pleasing factor
in particular was the development of business in the Group Division Paper, which returned, following
successful completion of its restructuring, to its position as the strongest pillar of the Group.
Oversight activities of the Supervisory Board
One important mainstay of the Supervisory Board meetings in the past fiscal year were the reports by
the Board of Management of the personally liable general partner, Voith Management GmbH, on thecurrent business position and financial position of the Group and the individual Group Divisions and thereports on the Group’s planning, on the Group’s strategy and on material transactions.
The Supervisory Board held a total of five meetings: on October 5, 2017, on December 6, 2017, on
March 23, 2018 and on June 8, 2018; the last meeting held on December 6, 2017 of the (at that date)
20-member Supervisory Board whose term of office ended with that meeting was followed by theinaugural meeting of the Supervisory Board that had been reduced to 12 members. The meetings of
the Supervisory Board permitted an intense and goal-oriented exchange of opinions with the Board ofManagement of the personally liable general partner and the Supervisory Board.
In addition to the preliminary business figures for the 2016/17 fiscal year just ended, the first meetingof the Supervisory Board in the 2017/18 fiscal year on October 5, 2017 focused on the planning for the
2017/18 und 2018/19 fiscal years and the Group’s financial, investment and personnel planning.
At the subsequent meeting held on December 6, 2017, the Supervisory Board addressed the 2016/17
financial statements of Voith GmbH & Co. KGaA and of the Group. In accordance with the resolution
recommended by the Audit Committee and following in-depth discussion with the independent auditor,
KPMG AG Wirtschaftsprüfungsgesellschaft, Munich, the Supervisory Board approved the financial
statements and the management report of Voith GmbH & Co. KGaA as well as the consolidated financial
statements and the group management report, in each case for the 2016/17 fiscal year; the financial
statements were approved by the subsequent general meeting of the Company in accordance with theSupervisory Board proposal. The Supervisory Board further passed resolutions to make proposals to
the general meeting on the following topics, among others: the election of the independent auditor, thereelection of members of the Supervisory Board and on remuneration of members of the Supervisory
Board and the Audit Committee.

55

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Voith Annual Report 2018
Group
Report of the Supervisory Board

At its meeting held on March 23, 2018, the Supervisory Board elected Prof. Dr.-Ing. Hans-Peter Keitel
once again as its Chairman and on the basis of a corresponding report by the Board of Managementof the personally liable general partner addressed in detail the development of business over the firstquarter of the 2017/18 fiscal year and the outlook for the entire 2017/18 fiscal year.
At the last meeting of the Supervisory Board in the 2017/18 fiscal year held on June 8, 2018, the Boardof Management of the personally liable general partner made a report to the Supervisory Board on thefirst half of the year for the Group and on the expectations for the 2017/18 fiscal year as a whole. The
report was discussed in detail. The Supervisory Board further dealt with the new products of individualGroup Divisions and the ongoing development of the Group portfolio.
Beyond the Supervisory Board meetings, the Board of Management of the personally liable generalpartner kept the Chairman of the Supervisory Board informed on an ongoing basis of key developments
and decisions, and he discussed important issues with the Chairman of the Board of Management of
the personally liable general partner on a regular basis. All Supervisory Board members attended atleast half of the Supervisory Board meetings. There were no potential or actual conflicts of interest in
the Supervisory Board.
Report on the work of the committees
Due to the transfer of responsibility for personnel matters as a consequence of the change in the
Company’s legal form from a limited liability company (GmbH) to a partnership limited by shares(Kommanditgesellschaft auf Aktien or KGaA) effective as of August 1, 2017, the Supervisory Board
passed a resolution at its meeting on December 6, 2017 to dissolve the statutory Mediation Committee
pursuant to Sec. 27 (3) of the German Codetermination Act (MitBestG), which is not applicable tothe KGaA.
The Personnel Committee did not hold any meetings in the past fiscal year before its dissolution.
The same applies to the Mediation Committee.
The Audit Committee held a total of five meetings, on October 5, 2017, on December 5, 2017, on
December 6, 2017, on March 23, 2018 and on June 7, 2018.
At the Audit Committee’s meeting on October 5, 2017, held in the presence of the auditors fromKPMG AG Wirtschaftsprüfungsgesellschaft, Munich, the Audit Committee addressed material issues
pertaining to the financial statements for the 2016/17 fiscal year and various accounting issues.

Voith Annual Report 2018
Group
Report of the Supervisory Board

At its meeting on December 5, 2017, which was held in the presence of KPMG AG Wirtschaftsprüfungs­
gesellschaft, the Audit Committee conducted an in-depth examination of the 2016/17 financial statementsof the Group and Voith GmbH & Co. KGaA and the report by the auditor of the financial statements. At
this meeting with the auditors, the committee discussed individual issues relating to the suggestions
for improvement proposed in the management letter to the financial statements, none of which weredeemed relevant to this report. The head of the Internal Audit function presented to the Audit Committee
the annual internal audit report for the fiscal year and the head of the Compliance Committee thecompliance report. As the term of office of the Audit Committee ended at the same time as the end of
the term of office of the previous 20-member Supervisory Board of the Company on December 6, 2017,
the Audit Committee likewise came together for its inaugural meeting after the inaugural meeting of the
new Supervisory Board consisting of 12 members held on December 6, 2017.
A further meeting of the Audit Committee was held on March 23, 2018; the sole item on the agenda ofthis meeting was the reelection of the Chairman.
The meeting held on June 7, 2018, addressed issues including but not limited to the Group’s interim
financial statements as at March 31, 2018.
Change in the Board of Management of the personally liable general partnerand on the Supervisory Board
The period of office of Dr. Hubert Lienhard as President and CEO and Chairman of the Board ofManagement of the personally liable general partner ended on March 31, 2018. At the same time,
Mr. Stephan Schaller, who had already been appointed CEO of the personally liable general partner
effective as of March 1, 2018, and who had been up to that date a member of the Shareholders’Committee of the personally liable general partner and of the Company’s Supervisory Board, assumed
chairmanship of the Board of Management of the personally liable general partner.
On March 23, 2018, the Company’s general meeting appointed Dr. Lienhard to the Company’s Supervisory
Board, effective as of April 1, 2018; in addition, he has likewise been a member of the Shareholders’Committee of the personally liable general partner since April 1, 2018.
The Supervisory Board would like to thank Dr. Lienhard for his many years of successful dedication as
member of the Corporate Board of Management of the Voith Group, the last ten years of which he was
its Chairman. He has left a lasting mark on the character and structure of the Company and generated
sustained strategic impetus. The Supervisory Board is pleased to now welcome Dr. Lienhard as a newmember.

57

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Voith Annual Report 2018
Group
Report of the Supervisory Board

Pursuant to Sec. 98 (2) Sentence 3 of the German Stock Corporation Act (AktG), the office of the previous
members of the Supervisory Board ended on December 6, 2017. As a consequence of the reduction in
the size of the Supervisory Board pursuant to Sec. 7 (1) Number 1 of the German Codetermination Act(MitBestG) to 12 members and the new election of the Supervisory Board members for the employees'
representatives on November 15, 2017 and the election of the members representing the shareholders by
the annual meeting on December 6, 2017, the composition of the Supervisory Board changed effective
as of December 6, 2017. Alongside the representatives of the employee side reelected to the Supervisory
Board Ms. Ute Schurr, Mr. Walter Beraus, Mr. Thomas Martin, Mr. Gerd Schaible and Mr. Ralf Willeck,Dr. Harald Hubel was elected to the Supervisory Board as a new employee representative. On December
6, 2017, the annual meeting of the Company reelected Dr. Siegfried Dais, Mr. Johannes Hammacher,
Dr. Alan Hippe, Prof. Dr.-Ing. Hans-Peter Keitel, Mr. Stephan Schaller and Mr. Martin Schily to theSupervisory Board as representatives of the shareholders for the duration of the remaining terms of officein the case of termination pursuant to Sec. 98 (2) Sentence 3 AktG. Mr. Stephan Schaller resigned fromhis Supervisory Board seat effective as of February 28, 2018. Mr. Johannes Hammacher, Dr. Alan Hippeand Prof. Dr.-Ing. Hans-Peter Keitel were reelected to the Supervisory Board by the annual meeting
held on March 23, 2018, each for a full term of office. Since December 6, 2017, the following persons
have no longer been members of the Supervisory Board: Dr. Nicola Leibinger-Kammüller, Dr. Ophelia
Nick, Mr. Ton Büchner and Mr. Ulrich Freudel as representatives of the shareholders and Mr. Uwe
Badziong, Mr. Ulrich Eckelmann, Dr. Volker Linden, Mr. Gerold Schaubmayr and Mr. Detlef Schöling as
representatives of the employee’s side.
The Supervisory Board would like to thank the departing members of the Supervisory Board for theconsistently constructive working relationships built on trust. They have accompanied the developmentof the Company over many years with great commitment and contributed their experience to Voith as
a company and supported the work of the Supervisory Board with their advice.
At its inaugural meeting on December 6, 2017, the newly constituted Supervisory Board reelected Prof.
Dr.-Ing. Hans-Peter Keitel as its Chairman and Mr. Gerd Schaible as its Deputy Chairman.
On December 6, 2017, the newly constituted Supervisory Board elected Mr. Johannes Hammacher,
Dr. Alan Hippe, Mr. Gerd Schaible and Mr. Ralf Willeck to the Audit Committee. The Audit Committee
elected Dr. Alan Hippe as Chairman.
KPMG AG Wirtschaftsprüfungsgesellschaft, Munich, was appointed auditor of the financial statements forthe 2017/18 fiscal year at the annual meeting on December 6, 2017. The Supervisory Board accordingly
engaged the independent auditor.
The general meeting of Voith GmbH & Co. KGaA held on March 23, 2018 exonerated the personallyliable general partner and the Supervisory Board for their activities in the 2016/17 fiscal year.

Voith Annual Report 2018
Group
Report of the Supervisory Board

2017/18 financial statements
The auditor, KPMG AG Wirtschaftsprüfungsgesellschaft, Munich, examined and granted its unqualified
audit opinion on the accounting records, the annual financial statements and the management report ofVoith GmbH & Co. KGaA as well as on the consolidated financial statements and the group management
report for the Voith Group as at September 30, 2018. The consolidated financial statements wereprepared in accordance with International Financial Reporting Standards (IFRS).
At its meeting on December 4, 2018, the Audit Committee examined in depth the annual financial
statements of Voith GmbH & Co. KGaA and the Group as well as the respective management reports.
Following its own in-depth examination of the financial statements, the consolidated financial statements
and the management reports, that did not give rise to any objections, the Supervisory Board at its meetingon December 5, 2018 agreed with the results of the audit on the part of the auditor and approved thefinancial statements and the consolidated financial statements in accordance with the recommendationof the Audit Committee. The responsible audit partner from KPMG AG Wirtschaftsprüfungsgesellschaft,
Munich, took part in the meetings of the Audit Committee and the Supervisory Board held on December
4 and 5, 2018; at these meetings he reported on the material results of the audit and provided additional
information. The financial statements of Voith GmbH & Co. KGaA were then approved by a resolutionof the general meeting on December 5, 2018 with the approval of the personally liable general partner.
Furthermore, at its meeting on December 5, 2018, the Supervisory Board approved and followed the
proposal of the personally liable general partner made to the general meeting relating to the appropriationof the unappropriated retained earnings.
Finally, the Supervisory Board would like to thank the Board of Management of Voith Management GmbHas the personally liable general partner of Voith GmbH & Co. KGaA and the respective managements ofthe subsidiaries, the representatives of the workforce, but most of all the employees, for their dedicatedservice and their successful work over the past fiscal year.
Heidenheim, December 2018

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

59

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Voith Annual Report 2018Group
The Supervisory Board

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

Ulrich Freudel

Dr. Ophelia NickHans-Peter Keitel

Auditor, Tax Consultant

Executive Vice President of the

Chairman of the Voith GmbH & Co. KGaA

(until December 6, 2017)

family-owned company J.M. Voith GbRSupervisory Board and(until December 6, 2017)

Chairman of the Voith Management GmbH

Johannes Hammacher

Shareholders’ Committee

Executive Vice President ofStephan Schaller

the family-owned company J.M. Voith GbRPresident BMW Motorrad, BMW AG(until February 28, 2018)

Gerd Schaible*
Deputy Chairman,

Dr. Alan Hippe

Head of Secretariat of theMember of the Corporate Executive

Gerold Schaubmayr*

Corporate Works Council of

Committee of F. Hoffmann-La Roche AG

Chairman of the works council

Voith GmbH & Co. KGaAof Voith Turbo GmbH & Co. KG
Dr. Harald Hubel*(until December 6, 2017)

Uwe Badziong*Head of Production at

Automation Engineer

Voith Paper Heidenheim

Martin Schily

Voith Digital Solutions(from December 6, 2017)

Executive Vice President of the(until December 6, 2017)

family-owned company J.M. Voith GbR
Dr. phil. Nicola Leibinger-Kammüller

Walter Beraus*

President of the Board of Management

Detlef Schöling*

Secretary of the Metal Workers’of Trumpf GmbH + Co. KG

Chairman of the works council

Union, Regional Organization(until December 6, 2017)of Voith DienstleistungenBaden-Württemberg(until December 6, 2017)
Dr. Hubert Lienhard

Ton Büchner

Former President and CEO

Ute Schurr*

Former CEO and Chairman of theof Voith Management GmbH

Chairwoman of the works council

Board of Management of AkzoNobel NV(from April 1, 2018)of J.M. Voith SE & Co. KG(until December 6, 2017)
Thomas Martin*

Ralf Willeck*

Dr. Siegfried Daislnnovation manager/

First Authorized Representative of IG Metall

Partner in Robert Boschchairman of the general works council

Heidenheim

Industrietreuhand KG

at Voith Paper Heidenheim

Ulrich Eckelmann*

Dr. Volker Linden*

Trade Union Secretary on the Executive

Head of Industrial Property Rights,

Board of Industrial Union of Metal Workers

Voith GmbH & Co. KGaA lected by employees*e(IG Metall)(until December 6, 2017)(Detlef Schöling: appointed by the court)(until December 6, 2017)

Group Management
Report61

Page

01. Background62
02. Business development and72
earnings position of the Group
03. Business development and84
earnings position of the Group Divisions
93
04. Net assets and financial position
99
05. Research and development
105
06. Sustainability
108
07. Employees
117
08. Subsequent events
118
09. Risks and opportunities
130
10. Forecast report

Group Management Report

Voith Annual Report 2018
Group Management Report

62

Voith Annual Report 2018
Group Management Report
01. Background01.

Background
The Voith Group is a global technology company. With its broad
portfolio of systems, products, services and digital applications,
Voith sets standards in the markets for energy, oil & gas, paper,raw materials and transport & automotive. Founded in 1867, Voith
today has locations in more than 60 countries worldwide. As afamily-owned company, Voith focuses on sustainable profitable
growth. Over the course of the year under review, we began
simplifying the Group’s legal structures and refining our digital
agenda.

01.1. Group structure and business activities
Family-owned, global technology group
The Voith Group is a global technology group. With its broad portfolio of systems, products, services anddigital applications, Voith sets standards in the markets for energy, oil & gas, paper, raw materials andtransport & automotive. With locations in over 60 countries, Voith operates around the globe, maintaining
an extensive network of production, service and sales units on every continent on the planet.
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 Board of Management of Voith Management GmbH is 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 of and manages the business of Voith GmbH
Co. KGaA. The members of the Board of Management of Voith Management GmbH are appointed

Organizational structure
Voith Group Divisions

Voith GmbH & Co. KGaA

­Hydro

Paper

Turbo

­Digital ­Ventures

Voith Annual Report 2018
Group Management Report
01. Background63

by the Voith Management GmbH Shareholders’ Committee. Oversight of Voith GmbH & Co. KGaA is
exercised by the Supervisory Board.

Streamlining the legal structure
The operating business is concentrated in four Group Divisions: Hydro, Paper, Turbo and Digital Ventures(until September 30, 2018: “Digital Solutions”). Previously, there was one head organization for eachGroup Division, which, in turn, oversaw the activities of a number of operating subsidiaries. We are
currently working towards simplifying the legal structures within the Voith Group. In a first step, thematerial operating companies in Germany from the Paper, Turbo and Digital Ventures Group Divisions
were merged into the former J.M. Voith GmbH & Co. Beteiligungen KG by October 1, 2018; most ofthese entities had previously been wholly-owned subsidiaries of this company. The former J.M. Voith
GmbH & Co. Beteiligungen KG has now been renamed J.M. Voith SE & Co. KG. This means that todate nine former entities have been merged into one “company for Germany”. The Group Division Hydro
remains unaffected by these changes as it is a joint venture with Siemens, in which Voith holds a 65 %shareholding.
In the simplified legal structure in place as at October 1, 2018, there are, alongside several otherinvestments, three material entities immediately below the Group’s parent company, Voith GmbH &Co. KGaA: J.M. Voith SE & Co. KG, Voith Auslandsbeteiligungen GmbH and Voith Hydro BeteiligungenGmbH. J.M. Voith SE & Co. KG holds a number of subsidiaries, some of which perform central functions
for the Group (for example, Voith Dienstleistungen und Grundstücke GmbH & Co. KG), several foreignsubsidiaries and, in addition, investments in German companies that are not wholly owned by Voith,such as Voith Robotics and Ray Sono.

The adjustment to
the legal structures ispart of the strategicenhancement of theCompany. Information on this can befound in section 01.4.
Group strategy.

Simplifying the legal structures reduces the amount of bureaucracy. This relates, for example, to thenumber of financial statements to be prepared, agreements between individual Voith entities as well as
fees, contributions and registrations. This enables us to act more quickly and to focus even more on
our operating activities.
In a second step, we are planning to further reduce the number of operating entities in Germany andabroad and, wherever possible outside of Germany, to maintain no more than one operating entity per
country for the three Group Divisions Paper, Turbo and Digital Ventures.

Still four Group Divisions
The changes in the legal structure do not have any effect on the organizational structure within theGroup. Despite the formal mergers of individual entities, the existing Group Divisions remain in place asorganizational units. The Voith Group’s four Group Divisions are managed separately and their respective
business results are presented transparently as part of the segment reporting.

64

Voith Annual Report 2018
Group Management Report
01. Background

The Group Division Hydro is a leading full-line supplier and trusted partner for equipping hydropower
plants. Hydro develops customized, long-term solutions and services for large and small hydropower
plants all over the world. Its portfolio of products and services covers the entire life cycle and all major
components for large and small hydropower plants, from generators, turbines, pumps and automation
systems, right through to spare parts, maintenance and training services, and digital solutions forintelligent hydropower.
The Group Division Paper is a leading full-line supplier as well as a pioneer in the paper industry. Throughconstant innovations Voith is optimizing the paper manufacturing process and facilitating resourceconserving production. In its role as reliable partner, Voith offers its customers tailored service solutions
for all sections of the production process with its Servolution concept. The company’s Papermaking 4.0
concept ensures that equipment is optimally networked, while the effective and secure use of thegenerated data enables paper manufacturers to improve their competitiveness.
The Group Division Turbo is a specialist for intelligent drive solutions, systems and leading-edge services.
Customers from highly diverse industries such as oil & gas, energy, rail and commercial vehicles, shiptechnology, mining and mechanical engineering rely on the advanced technologies and solutions-driven
expertise of Voith.
The Group Division Digital Ventures (until September 30, 2018: “Digital Solutions”) brings together Voith’s
many years of automation and IT expertise with the know-how from the fields of hydropower, paper
machines and drive technology. Founded in 2016, this Group Division acts as an incubator for Voith toadvance the development of new digital products and services. In order to play a major role in shaping
the digitalization taking place in the mechanical and plant engineering industry, Voith is pushing forward
the Industrial Internet of Things (IIoT). The Group Division plays a central role in digital innovations andapplications for new markets as well as in the development and responsibility for existing and new
digital venture activities.

01.2. Management system
The key financial performance indicators for the Voith Group were previously the development of sales
and orders received as well as profit from operations and return on capital employed (ROCE).
In the future, EBIT will replace profit from operations as our central performance indicator for operating
results. In the 2018 annual report, we will use profit from operations retrospectively in addition to
EBIT in order to facilitate a comparison with the forecasts made in the previous annual report. For theforecasts for the 2018/19 fiscal year and as of the 2019 annual report, we will consistently use the new
performance indicator, EBIT.
Both performance indicators are based on an operating earnings indicator derived from external financial
reporting, i.e. the operational result before non-recurring items presented in the statement of income.
This figure is determined on the basis of operating activities and is calculated from sales less costs before
taking account of non-recurring items, financial result and income taxes.

Voith Annual Report 2018
Group Management Report
01. Background65

Some additional adjustment items are added to the operational result before non-recurring items toderive EBIT. These other adjustments contain individual effects which are shown within the consolidated
statement of income as other operating income and expenses that, in relation to ordinary businessactivities, however, should be treated as non-recurring effects. EBIT is adjusted for these amounts inorder to make it possible to come to a better assessment of the operating activities for internal control
purposes.
In order to calculate profit from operations, the indicator we treated as authoritative to date, operatinginterest income is added to EBIT. We define operating interest income as interest received by theCompany on the long-term financing of receivables from customers, or as the imputed interest effectattributable to that portion of customer advances that is not used to finance inventories and receivablesfrom customer-specific contracts.

For more informationon the calculation of
ROCE, see the Notes
on segment reporting section in thenotes to the financial
statements.

Capital employed describes the funds tied up within the business for the purpose of generating
sales. These funds essentially comprise property, plant and equipment and net working capital.
ROCE is calculated by bringing the profit from operations and capital employed into relation witheach other. Calculating the ratio of a performance indicator from the statement of income (profit fromoperations) to a figure 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

The elements of themission statement(vision, mission,
claim and positioning) were drafted in
English. The original
English wording isdefinitive, the German
text is a translation.

At Voith, we unite the culture of a family-owned business with that of a global player. We have summarized the way we see ourselves in a corporate mission statement.
Our vision: Voith is the technology partner for industrial generations.
This means for us: we create lasting value for our customers, help them make a positive impact onsocieties in various regions of the world. Our customers’ success over generations and technology
cycles enables us to secure Voith’s long-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.

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Voith Annual Report 2018
Group Management Report
01. Background

Four principles help us to achieve our vision. These are described in our mission statement:
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 claim: “Inspiring Technology for Generations”.

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 main principles addressed by the Voith Code of Conduct are as follows:
The text of the Voith
Code of Conduct
is available on theInternet: http://voith.com/corp-de/coc-english.pdf·· 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
Each employee is requested to report any suspicion of an infringement of the 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 use this global whistleblower system to follow
up anonymous complaints. The whistleblower system is also available to 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.

Voith Annual Report 2018
Group Management Report
01. Background67

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 a minimum.
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 and procurement
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 basic principles
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 history covering more than
150 years, this approach has 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 whichhave been carefully built up over the decades:
Information on
innovations at Voith
can be found in section 05. Researchand development.

1.
2.
3.
4.

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

Strategy for profitable growthOver recent years, Voith has overcome structural and financial challenges, set an important strategic
course and improved its operating earnings power. Now, it is a matter of entering into a phase ofsustainably profitable growth.
With eyes set on this highest objective and on the basis of the strategic basic principles already outlined,
the Corporate Board of Management has been working on refining the corporate strategy over the courseof the year under review. Based on an in-depth analysis, the Corporate Board of Management worked
together with senior executive management to define central principles with a view to achieving profitable
growth. Guided by these central principles, further action will be taken in the new 2018/19 fiscal year
to specify the details of the Group strategy with the involvement of other employee levels. There areplans to hold Deep Dive Days on a regular basis starting in the 2018/19 fiscal year; these are events todiscuss the status of implementation. In this context, not only market reviews are to be analyzed anddecided on but also specific innovation projects and M&A objectives.

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01. Background

Five core growth drivers
The core growth drivers we have identified are as follows:
1. simple and fast-acting structures as a basis
2. reinforcing the excellence initiatives
3. innovations and organic growth
4. strong market orientation of our digitalization activities
5. targeted M&A activities

Simple and fast-acting structures as a basis
In the past, Voith maintained a large number of individual entities below the Group’s parent company. This
gave rise to a wide range of bureaucratic tasks, such as annual financial statements for each individualcompany as well as contracts within the Group and intragroup settlements. Speed is a prerequisite
for market success. This is why we want to significantly simplify the legal structures. In Germany,
implementation of this process has already been started.
In a first step, all material operating units in Germany in the Group Divisions Paper, Turbo and Digital
Ventures (until September 30, 2018 “Digital Solutions”) were merged into one company, J.M. Voith SE& Co. KG (formerly: J.M. Voith GmbH & Co. Beteiligungen KG), by October 1, 2018. Hydro is not partof this legal structure as it is a joint venture with Siemens.

More detailed
information on how
the Voith Group isorganized can befound in section 01.1.
Group structure andbusiness activities.

In a second step, we are also reviewing how to simplify and harmonize the legal structures outside ofGermany.
We are confident that dismantling bureaucratic hurdles will enable us to act faster, focus even more on
our operating activities and ultimately to cut costs. On the other hand, the new legal structures will not
involve any changes in the functions or areas of responsibility of the executive managers and employees
or with regard to our collaboration with customers and service providers.
Along with bringing together companies that were previously separate legal entities, we have set
ourselves the goal of acting even more closely as one company, irrespective of Group Division andbusiness unit structures. Voith is more than the sum of its Group Divisions and we intend to makeeven greater use of these benefits. Senior management, beginning with the members of the Corporate
Board of Management, will set an example by every single executive manager taking on even more
responsibility for management of the Group and spreading this style of cooperation throughout theentire organization.

Voith Annual Report 2018
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01. Background69

Reinforcing the excellence initiatives
The initiatives launched in August 2017 as part of the Group-wide excellence program are being
continued, extended and reinforced: the five modules – Operations Excellence (OPEX), Administration
Excellence (ADEX), Product Improvement & Engineering Excellence (PEEX), Sales Excellence (SALEX)
and ­Quality@Voith – have been supplemented by a sixth module: Digitalization. Since the end of the
2017/18 fiscal year, the six modules have each been managed directly by a member of the Corporate
Board of Management, which signals the added importance attached to them. In addition, cooperation
within the Group is being intensified across Group Division boundaries, and synergies within interdisciplinary topics such as production, quality and distribution are put to greater use. The primary objective
is a sustainable rise in quality and productivity.

Innovation and organic growth

Information on
innovations at Voith
can be found insection 05. Researchand development.

Innovations are an important prerequisite for organic growth. This is why we make every effort to keep
our technology pipeline as full as possible. The innovation projects underway in each individual Group
Division will, in the future, be accompanied and tracked by the Corporate Board of Management on an
ongoing basis at regular Deep Dive Days. In addition, we intend to open up further potential for organic
growth in a targeted manner, for example in the service business as well as in regions where we currently
have fewer activities, such as Africa.

Strong market orientation of our digitalization activities
Since the 2015/16 fiscal year, we have made massive investments in Voith’s digital transformation. Our
objective is to play a major role in shaping the digitalization of industry. As an established technology
leader with extensive domain knowledge that has a large installed base of plant and products on themarket and in conjunction with our digital expertise, we consider ourselves to be in an excellent starting
position in this respect. Within the framework of our digital agenda, we are pursuing three strategic
directions: firstly, refining the existing product portfolio to include digital capabilities that offer customers
additional functions and added value; secondly, developing new digital solutions for our traditional coremarkets; and thirdly, developing new applications for markets not yet covered by Voith.
We have substantially reinforced Voith’s digital competence over the last two years. One important milestone, building up the organizational structures for the Group Division Digital Ventures (until September
30, 2018: “Digital Solutions”), has been reached. In addition, we have extended our portfolio of digitalofferings to include new automation solutions and cloud-based solutions relating to the Internet of Things(IoT) through to completely new business models.
In 2018, we refined and sharpened collaboration and the distribution of responsibilities between
the Group Division Digital Ventures and the three Group Divisions that make up the core business.
Digital Ventures continues to provide support to the Group Divisions Hydro, Paper and Turbo in thedevelopment of their respective digital product portfolio by contributing its process know-how and70Voith Annual Report 2018
Group Management Report
01. Backgroundits human resources. Furthermore, the Group Division is making an important contribution to drafting
standards for the Group such as those required in connection with the modularization of the automation
business. Starting in the 2018/19 fiscal year, the three Group Divisions Hydro, Paper and Turbo areresponsible for marketing of the digital product portfolio for our traditional markets. This means that they
are being given significantly more responsibility for building up and expanding the digital business in theirmarkets. The sales generated will continue to be attributed in full to the respective Group Divisions of
the core business. We are confident that this new form of cooperation will enable us to align our digitalofferings even more closely to customer requirements and market them in a more targeted manner.
The Group Division’s second central task: Digital Ventures will, in the future, additionally steer thedevelopment and management of new digital venture activities and act as an incubator to drive forward
new digital business models for the entire Group. These may also include activities in markets not yet
covered by Voith. This extends to responsibility for investments in businesses that originate from incubation projects (merQbiz, for example) or come into being through cooperation agreements with othercompanies (Voith Robotics, for example) or are purchased (Ray Sono, for example). For organizational
purposes, these investments were brought together under the umbrella of this Group Division as of
October 1, 2018. In line with the new focus, the Group Division has been known since then as “Digital
Ventures” (previously: “Digital Solutions”).

Targeted M&A activities
Joint ventures and corporate acquisitions are a further means of promoting growth. The successful
sale of our investment in KUKA has provided us with the necessary financial leeway. We use structured
M&A processes to continually screen potential target companies for their suitability. Possible acquisition
targets include profitable businesses with viable technology and above-average growth potential. They
can either have the potential to round off our core business in the Group Divisions Hydro, Paper andTurbo, or constitute completely new activities for Voith.

Voith Annual Report 2018
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01. Background71

01.5. Significant events
Change at the head of the GroupThe long-serving President and CEO, Dr. Hubert Lienhard, retired as planned at the age of 67, effective asof April 1, 2018. At the same time, Dr. Lienhard joined the Shareholders’ Committee and the Supervisory
Board, where he will continue to support the future development of the Group with his specialist expertise.
Stephan Schaller, who had already supported Voith since 2015 as a member of Voith’s Shareholders’Committee, took on the role of President and CEO on April 1, 2018. Effective as of October 23, 2018,
Mr. Schaller resigned from his office.
The Shareholders’ Committee appointed Dr. Toralf Haag as his successor at the head of the Corporate
Board of Management. Dr. Haag has been a member of the Corporate Board of Management since
October 2016 and was, to date, responsible for finance and controlling. He will retain the finance portfolio
and, from October 23, 2018 onwards, has exercised both functions at the same time.

Further changes on the Corporate Board of Management
Andreas Endters joined the Corporate Board of Management effective as of October 1, 2017, assuming
responsibility for the Group Division Paper. Mr. Endters has already been involved with Voith for morethan 20 years and immediately prior to his appointment to the Corporate Board of Management he hadheaded the Projects Division (new machines and major rebuilds) in the Group Division Paper. Mr. Endters
succeeded Bertram Staudenmaier who expressed his wish not to extend his contract that expired at
the end of the 2016/17 fiscal year.

Number of members on the Supervisory Board reduced in linewith the statutes
Following the successful sale of the Group Division Industrial Services in 2016, the workforce basedin Germany has fallen below 10,000. In accordance with the Company statutes and the requirementsof the law, the number of members on the Supervisory Board was reduced to twelve in December
2017. The Supervisory Board will continue to have equal numbers of shareholder and employee
representatives.

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02. Business development and earnings position of the Group

02.

Business development and earnings
position of the Group
Voith performed well in the 2017/18 fiscal year. Its operating
business developed solidly, but was impacted by significant
currency effects. The Hydro Group Division performing less wellthan planned was almost compensated for by very good figures in
the Paper Group Division. As expected, the Turbo Group Division
grew slightly. The Company’s digital transformation is progressing
on schedule and the young Digital Ventures Group Division
showed the expected volume growth. Adjusted for currency
effects, Group sales and orders received increased slightly. The
build-up costs for Digital Ventures were shouldered by the
profitable core business. However, it was not possible to reachthe previous year’s level of the Group’s operating results due tothe decrease at Hydro, currency effects and a non-recurring effectin Turbo. There has been a significant rise in net income, after
adjusting for the KUKA effect in the previous year.

02.1. Overall assessment
Solid operating business performance, considerable negative
currency effects, net income significantly increased, after adjustingfor the KUKA effect in the previous year
Voith looks back on an overall satisfactory 2017/18 fiscal year (October 1, 2017 to September 30,2018): in a sometimes challenging environment, although we did not meet all our targets, our operating
business developed solidly again and net income – adjusted for the KUKA effect in the previous
year – increased significantly. In addition, we further strengthened our equity ratio and advanced our
digital agenda.

Voith Annual Report 2018
Group Management Report
02. Business development and earnings position of the Group73

The Voith Group’s key operating performance indicators reveal a mixed picture and are impacted bycurrency effects as a result of the euro exchange rate rising against almost all the currencies important
for the Group compared to the previous year. On a currency adjusted basis, sales (€ 4,209 million)
and orders received (€ 4,285 million) increased slightly. Orders on hand remained at a high level(€ 5,172 million). The broad-based positioning of the Voith Group has once again paid off. While theHydro Group Division suffered unexpected deterioration in a challenging environment, the Paper Group
Division stood out positively with very good figures, particularly in orders received. Turbo performed
well. The young Digital Ventures Group Division showed the expected strong percentage growth in sales.
We were unable to reach the previous year’s level in the Group’s profit from operations (€ 211 million,- 17 %) – primarily due to the Hydro Group Division performing less well than planned. Profits were also
impacted by currency effects, as well as by a negative non-recurring effect in Turbo. As announced,
the profitable core business was able to shoulder the build-up costs for the young Digital Ventures
Group Division.
The information on the operating business in the annual report relates to the Voith Group’s continuing
operations. In line with the rules of International Financial Reporting Standards (IFRS 5), the activities
of Voith Composites are, however, treated as discontinued operations. The background to this is thatduring the year under review the Corporate Board of Management decided to sell this company, which
had previously been centrally located in the Corporate Functions & Services department. Treatment as a
discontinued operation means that the assets and liabilities of Voith Composites are shown separately
in the balance sheet. In the context of the consolidated statement of income, the company’s sales andexpenses are no longer shown in the Voith Group’s separate income and expense components. Instead,the total contribution made by the company held for sale is included in the consolidated net result in
the “Net result from discontinued operations” item. The figures for the previous year in the statementof income and the associated notes to the financial statements have been adjusted in the same way.
The net result from continuing operations amounted to € 85 million. The previous-year figure (€ 612 million) had been exceptionally high, largely due to the sale of the shares in KUKA Aktiengesellschaft. After
adjusting for the KUKA effect in the previous year, this year’s increase is 73 %.
Including the net result from discontinued operations, the consolidated net result is € 53 million (previous
year: € 596 million). After adjusting for the KUKA effect in the previous year, net income increased by 61 %.
The net assets and the financial position of the Group remain at a very good level. As at September 30,
2018, Voith had net liquidity of € 557 million. The equity ratio was further improved by reducing debt
and increased to 28.7 % at the end of the year under review (previous year: 27.3 %).

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02. Business development and earnings position of the Group02.2. Economic environment
Global economy in good shape
The global economy remained in good shape over the 2017/18 fiscal year. In its most recent release(October 2018), the International Monetary Fund (IMF) forecasts global economic growth for 2018 of
3.7 %, the same level as the previous year. These are the highest rates of growth since 2011.
A broad-based upswing was seen in all regions of the world. The advanced economies continued tosee sound growth that is, however, increasingly unevenly distributed. For example, the IMF anticipatesa growth rate of 2.4 % in 2018 for the advanced economies seen as a whole, after 2.3 % in the previous
year. The pace of economic growth in the USA has increased perceptibly since the passing of thecorporate tax reform at the end of 2017, with IMF estimates seeing the GDP growth rate rise from 2.2 %(2017) to 2.9 % (2018). After Germany and the euro zone as a whole had enjoyed growth roughly at the
average for the advanced economies in 2017, growth rates of only 2.0 % (euro zone) and 1.9 % (Germany)
are anticipated for 2018. Growth perceptibly below the average for the advanced economies was seen
in Italy (IMF forecast for 2018: +1.2 %) and in Japan (IMF forecast for 2018: +1.1 %).
The emerging markets as a whole continued to grow at a higher rate than advanced economies. In
this context, the IMF is anticipating growth rates in the emerging markets of 4.7 % in each of 2017 and2018, with the figure for Asia being higher than the average. China is likely to achieve the targets set
out in its own five-year plan (raising gross domestic product by an annual 6.5 % or more) once again in
2018, despite a slightly slacker pace of growth in comparison to the previous year. Rising international
demand, progress being made in the national reform programs and expansionary monetary policy
contribute to the good developments in the Chinese economy. Following successful implementationof the currency and tax reform, the Indian economy has accelerated perceptibly. India is growing at afaster rate, expressed as a percentage, than China, albeit at a lower absolute level (IMF forecast for
2018: +7.3 %). The ASEAN- 5 countries showed the dynamic development expected. In South America,
growth rates remained significantly behind global developments. This also applies to Brazil, an importantsales market (IMF forecast for 2018: +1.4 %), where the political and economic crisis apparently remains
unresolved. Russia benefited from rising crude oil prices but is nevertheless still suffering from theconsequences of the trade sanctions (IMF forecast for 2018: +1.7 %).
The improved economic data exerted a positive influence on the global investment climate. According
to data provided by the VDMA, the German Mechanical Engineering Industry Association, the German
mechanical and plant engineering sector reported a perceptible rise in orders received in the reporting
period in comparison to the previous-year period.

Voith Annual Report 2018
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02. Business development and earnings position of the Group

75

Economic growth
Real change in GDP on the previous year1)

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

2017

3.7 %

2018

3.7 %

2017

2.3 %

2018

2.4 %

2017

2.2 %

2018

2.9 %

2017

2.4 %

2018

2.0 %

2017

2.5 %

2018

1.9 %

2017

4.7 %

2018

4.7 %

2017

6.9 %

2018

6.6 %

2017

5.3 %

2018

5.3 %

2017

6.7 %

2018

7.3 %

2017

1.0 %

2018

1.4 %

2017

1.5 %

2018

1.7 %

Source: International Monetary Fund (IMF); World Economic Outlook, Oct. 2018.
1)
2017: estimates; 2018: forecasts.
2)
Including Germany.

Voith markets: investment climate somewhat brighter
The investment climate was also somewhat brighter in the five target markets served by Voith. The paper
market in particular remained at a very high level.
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 Group
Divisions Hydro and Turbo.
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, sustainable sources ofenergy, in particular renewable energies. These long-term trends are overlaid by cyclical developments
and short-term volatile swings over the course of individual years.

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02. Business development and earnings position of the Group

According to the most recent figures available, electricity consumption and electricity generation rose
perceptibly in 2017. China made a major contribution to the rise in energy demand but energy needs
also increased in the advanced economies with the upswing in the global economy.
The share of renewable energy in global electricity generation is continually on the rise. Renewableenergy made up more than 60 % of all new electricity generation capacities added worldwide in 2017.
Correspondingly, investments in renewable energies continued to rise. In terms of addition of generating
capacity, solar energy dominated by far. More net solar capacity was added in 2017 than generation
capacities from coal, gas and nuclear together. Conventional generation also saw net additions. However,
the rate of growth for coal, gas and nuclear flattened out and more oil-fired capacity was taken out ofservice than added in 2017.
There is capacity growth in the area of hydropower, which in the meantime provides more than half ofrenewable electricity generation capacity. On account of the large investment volume involved in manyhydropower projects, the market volume may, however, fluctuate greatly from year to year. The volume
of contracts awarded in the 2017/18 fiscal year that were relevant to our Group Division Hydro was
below the long-term average but up on the weak previous-year level. In this context, the global market
volume for pumped storage technology has grown significantly in the course of the expansion of windand solar energy, driven by strong demand from China. Investment in the market for conventional power
plant technology, which is relevant for our Group Division Turbo, stabilized at a low level during the year
under review.
Oil & gas: investment activity remains subdued
The oil & gas market comprises three segments: upstream involving the extraction of crude oil and naturalgas, midstream involving transport of raw materials 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 Group Division Turbo provides user-specific products and services to all
the segments of this market.
The recovery in the oil price continued over the 2017/18 fiscal year. The price for one barrel of Brent oilrose from below USD 60 to above the psychologically important level of USD 80 at the end of the year
under review. In a long-term comparison, at the level reached at the end of the year under review, theoil price remained roughly in the middle between the 10-year high and the 10-year low. In this context,
global production rose slightly over the course of the year under review. Demand for oil was similarly up
on the previous year but is expected to grow at a slower rate than supply over 2018 seen as a whole – asa reaction to price increases, among other factors.
After the price increase in the previous year, the gas price (Henry Hub) stabilized in the 2017/18 fiscal
year between USD 2.50 and USD 3.60 per 1 million British thermal units. At the end of the year underreview, it stood at around USD 3.00, roughly the previous year’s level, and therefore still 50 % below the2014 level, before prices began to fall. In this context, global demand for natural gas, driven by China,
has increased.

Voith Annual Report 2018
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02. Business development and earnings position of the Group77

Some segments of the oil & gas market saw a slight recovery in investment activity over the year underreview; investments remained at a low level overall, however. The positive climate surrounding US shale
oil production continued; in contrast, there was a decline in investment in major offshore projects inparticular. The trend towards projects with shorter amortization periods, such as expansion drilling andtechnologies that extend the lifespan of an oil or gas field, continued, while investment in new exploration
projects fell for the eighth consecutive year and were at a historical low.
Paper: paper machine market remains at a high level
The paper market comprises all aspects of the papermaking process, from preparation of recovered
paper through paper production including surface finishing through calendering and coating to reeling of
paper webs. The Group Division Paper serves this market for all grades of paper – board and packaging
paper, tissue, specialty papers and graphic paper, such as newspaper and printing paper. 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 of primary(pulp) and secondary fiber (wastepaper) and water treatment facilities.
Global paper production rose in Voith’s 2017/18 fiscal year, according to estimates by industry analysts
at RISI, and is set to grow more dynamically in the years ahead. There is potential for growth specificallywith regard to board and packaging paper grades. There is rising demand for these products in all
regions in the wake of expanding online shopping, supported by efforts to replace plastic as packaging
material. The highest growth rates in board and packaging papers in absolute terms are anticipated in
Asia, followed by the EMEA and North America regions. The consumption of tissue paper is also set
to rise with the strongly growing middle class in Asia. Graphic paper is the only grade of paper to see
a decline in production caused by ongoing digitalization of everyday life. Asia experienced by far thehighest levels of growth in paper production in the year under review and is regarded as the driver for
growth in the years ahead. The EMEA region also made a significant contribution to global production
growth over the year under review.
In the past fiscal year, new machines and rebuilds, a vital market for Voith, unexpectedly continued
the high level of the previous year. At the same time, the board, packaging paper and specialty papers
segments saw especially positive developments. The paper machine business picked up vigorously,
particularly in Asia and Europe. Further impetus came from North America. There was virtually no demand
from South America for new plants owing to the unresolved economic and political crisis in Brazil.
Demand for consumables and services has picked up as volumes of paper production have also risen
substantially.
Raw materials: slow recovery
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, theraw materials oil and gas are considered separately as part of the oil & gas market. The segments of the
raw materials market that are of relevance for Voith are mining and the steel industry. Both are suppliedby the Group Division Turbo.

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02. Business development and earnings position of the GroupThe raw materials market showed a slight recovery in the year under review. Starting from a very low
level, the prices of important raw materials, such as coal and copper, rose over the year under review,
driven by increasing demand from Asia. Concerns about a US trade dispute with China and the risingdollar exchange rate as of the second half of the fiscal year started exerting pressure on raw material
prices again, however. Investment in mining projects increased perceptibly in 2018 for the first timesince 2013, nevertheless. This development was preceded by several years of recession – triggered byexcess capacities and dramatically falling prices – over the course of which investment volume in themining sector more than halved between 2013 and 2016.
Global crude steel production expanded somewhat during the 2017/18 fiscal year. Steel prices recoveredin all regions. This said, there is movement in the market on account of the punitive tariffs imposed by
the USA. All in all, global capacity utilization remains low, so that investment activity in the steel industry
remained subdued.
Transport & automotive: growth overall moderate, but stable
The transport & automotive market includes diverse transport routes and the means of transport usedon them for moving people and goods. The Group Division Turbo serves this diverse market, supplying
drive components and solutions as well as braking systems for the commercial vehicle industry, the rail
sector and also the marine segment.
The market for heavy-duty trucks and buses remained at a high level over the year under review. Thissaid, global truck production grew only slightly, in 2018 after the strong growth seen in 2017. The main
reason for this development is that the Chinese market is returning to a normal level after the record
volume seen in the previous year. More than one-third of all new heavy commercial vehicles produced
worldwide are sold in China. The decline in China was more than compensated for by growth in Southern
Asia and North America. The bus segment grew in the 2017/18 fiscal year. The large Asian market was
the growth driver. After contractions in the previous year, China and India returned to rising sales figuresin 2018. Russia saw perceptible growth, favored by the temporary boom triggered by the Soccer World
Cup. Brazil recovered and showed strong growth at a low level. The Western European market saw
slight growth and North America remained just below the high previous-year level. Demand for services
relating to commercial vehicles saw positive developments.
The rail segment, which is dominated by public sector investment in infrastructure, developed slightly
positively on the whole over the year under review. This said, the large Chinese market continued
to lose momentum. Following decades of exceptional growth and major infrastructure investments,
market analysts predict that the Chinese market will stagnate over the coming years due to declining
government investment in the high-speed network and stricter conditions being imposed on investment
in metro systems. The original equipment manufacturer (OEM) segment is more severely affected thanmost others – it was already in decline in the year under review and is expected to contract by morethan 5 % per year until 2022. By contrast, established markets such as Europe and North America
are experiencing above-average growth; this development is being driven by the modernization anddigitalization of existing networks and expansion of local public transport systems in conurbations. The
service business is growing more strongly than the OEM business. The consolidation of the global rail
market is continuing, the competitive pressure remains high.

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02. Business development and earnings position of the Group79

The marine market appears to have passed through the trough after several years of recession. In theyear under review, however, investment remained at a low level.

02.3. Sales
Sales adjusted for currency effects increased by 4 %In the 2017/18 fiscal year, Voith achieved Group sales of € 4,209 million, almost unchanged comparedto the figure in the previous year (€ 4,224 million, - 0 %).
Adjusted for currency effects, the Group’s sales increased by 4 %. However, negative currency effects
of around € - 160 million masked the positive operating performance. All three Group Divisions of thecore business were affected by the currency effects, if not to the same degree.
We did not achieve our forecast for the 2017/18 fiscal year (2017 annual report: “perceptible rise”). The
primary cause of the only stable performance were the considerable currency effects in the core business.
In addition, the Group Division Hydro performed less well than planned (- 20 %). By contrast, the otherthree Group Divisions saw sales growth: Paper of 14 %, Turbo of 1 % and Digital Ventures of 214 %.

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

The Group Division Paper made the largest contribution to the Voith Group’s sales at 42 % (previous
year: 36 %). Turbo accounted for 31 % (previous year: 31 %) and Hydro for 26 % (previous year: 33 %) of
total sales. The contribution made by Digital Ventures was only 1 % owing to the fact this new Group
Division is still in the start-up stage.
The regional distribution of Group sales was as follows: the regions with the strongest sales were Asia,
Europe excluding Germany, and the Americas. Asia contributed 30 % (previous year: 27 %) to total sales.
28 % (previous year: 26 %) of Group sales were attributable to Europe excluding Germany. The Americas
accounted for 26 % (previous year: 28 %) of total sales. Germany again contributed 13 %. 3 % of Groupsales (previous year: 6 %) were attributable to other regions (particularly Africa and Australia).

Sales Group

Sales total € 4,209 millionin € millions

by Group Division

4,224

4,209

­Turbo31 %by region

Hydro
26 %

Americas26 %Germany
13 %EuropeexcludingGermany
28 %2016/172017/18

Paper
42 %

Digital­Ventures
1%

Asia
30 %

Other
3%

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Voith Annual Report 2018
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02. Business development and earnings position of the Group02.4. Orders received
Currency adjusted orders received higher than previous year
In the 2017/18 fiscal year, the Voith Group secured new orders worth € 4,285 million (previous year:€ 4,367 million, - 2 %). After adjustment for currency effects of € - 155 million, slightly positive performance(+2 %) can be seen. Adjusted for currency effects, we achieved the forecast for the Group’s orders
received (2017 annual report: “slight growth”).

Detailed informationon the developmentof orders received ineach Group Division
can be found insection 03. Businessdevelopment andearnings position of
the Group Divisions.

The Group Divisions’ performance in terms of orders received varied. Paper provided a positive surprise(+10 %), reaching a record level of orders received. The Group Division Turbo likewise saw a slightincrease in orders received (+3 %). By contrast, Hydro was significantly below the previous year (- 27 %),partly as a result of delays in the awarding of several major projects and partly due to more intensecompetition on the global hydropower market.
The Group Division Paper contributed 47 % (previous year: 42 %) to the Group’s orders received. Turbo
accounted for 32 % (previous year: 31 %). The Group Division Hydro accounted for 20 % (previous
year: 27 %).

Orders on hand Group

Orders received Groupin € millionsin € millions

5,193

2016/175,172

2017/18

4,367

4,285

2016/172017/18

Orders received total € 4,285 million
by Group Division­Turbo32 %by region

Hydro
20 %

Americas25 %Germany
20 %Europeexcluding Germany
25 %

Paper
47 %

Digital­Ventures
1%

Asia
26 %

Other
4%

Voith Annual Report 2018
Group Management Report
02. Business development and earnings position of the Group81

From a regional perspective, orders received in Germany were particularly strong, driven by the Paper
and Turbo Group Divisions. Our home market’s share of total orders received thus increased from 12 %in the previous year to 20 % in the 2017/18 fiscal year. Asia’s share fell to 26 % (previous year: 32 %).
Each representing 25 % of the Group’s orders received, the Americas (previous year: 23 %) and Europe
excluding Germany (previous year: 28 %) were roughly level in the year under review. All the other regions
contributed 4 % (previous year: 5 %) of new business.
As at the end of the fiscal year, orders on hand in the Voith Group were worth € 5,172 million (previous
year: € 5,193 million).

02.5. Net result
Total output stable, profit from operations characterized by
up-front costs of digitalization activities and a challenging
environment in the hydropower businessAs already pointed out elsewhere, the activities of Voith Composites are treated as discontinued
operations due to the intention to sell this company. The separate income and expense components
in the consolidated statement of income contain continuing operations and are consequently shown
after adjustment for the relevant share of Voith Composites. The total contribution to the Voith Group’s
net result made by Voith Composites is shown in the net result from discontinued operations item. The
previous year’s statement of income was adjusted in the same way.
The Group net result, which in the previous year had been significantly influenced by the sale of theshares in KUKA Aktiengesellschaft, amounted to € 53 million in the year under review (previous year:€ 596 million). Adjusted for the KUKA effect seen in the previous year, a clear increase in net income
was evident, which was achieved through improvement of interest income/expense and the otherfinancial result.

Operational result before non-recurring items
Group in € millions

Net result
Group in € millions
596*

225

170
53

2016/172017/18

2016/172017/18* Including the effect on results from the sale of the KUKA shares.

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02. Business development and earnings position of the Group

The total output in the Voith Group was stable at € 4,251 million (previous year: € 4,239 million), althoughadjusted for currency effects an increase of 4 % was achieved. The total output was thus almost on apar with the development of sales (€ 4,209 million, +/- 0 %). Similarly, the Group Divisions’ respective
total outputs essentially developed in line with sales (Hydro - 19 %, Paper +12 %, Turbo +2 % and Digital
Ventures +66 %).
The cost of materials increased to € 1,888 million (previous year: € 1,840 million, +3 %). The ratio of costof materials to total output rose slightly to 44.4 % (previous year: 43.4 %). The increase is essentially
due to a higher ratio of cost of materials to total output in the Group Division Paper.
Personnel expenses stood at € 1,447 million (previous year: € 1,408 million, +3 %). This reflects theslight increase in headcount and ongoing rises in personnel expenses due to collectively bargained
pay rises. The personnel expenses ratio (ratio of personnel expenses to total output) thus rose slightly
to 34.0 % (previous year: 33.4 %).
Depreciation and amortization amounted to € 121 million (previous year: € 126 million, - 4 %). The ratio
of depreciation and amortization to total output decreased to 2.8 % (previous year: 3.0 %).
The net balance of other operating expenses and income fell to € 626 million (previous year: € 639 million,- 2 %). One reason for the decrease is the reduction of expenses from the setting up of provisions forwarranty-related costs.

Detailed informationon the developmentof net result, returnon sales and
ROCE by Group
Division can befound in section
03. Businessdevelopment andearnings positionof the Group
Divisions.

The operational result before non-recurring items stood at € 170 million (previous year: € 225 million,- 24 %). Profit from operations, an indicator used for internal management purposes, came to € 211 million (previous year: € 254 million, - 17 %). EBIT was € 187 million (previous year: € 226 million, - 17 %)and developed in line with profit from operations. The return on sales calculated on the basis of profit
from operations fell to 5.0 % (previous year: 6.0 %), ROCE (return on capital employed) fell to 10.6 %(previous year: 12.4 %). The slight increase in profit from operations and ROCE anticipated in the 2017
annual report was thus not achieved. The main reasons were the Hydro Group Division performing lesswell than planned, negative currency effects and a non-recurring effect in the Turbo Group Division. In
the core business profit from operations fell by 12 % to € 267 million (previous year: € 304 million) andreturn on sales fell to 6.4 % (previous year: 7.3 %). ROCE in the core business fell to 15.1 % (previous
year: 15.9 %).
The non-recurring result stood at € - 22 million (previous year: € - 32 million). In the reporting period, thenon-recurring result mainly comprises personnel-related expenses arising from measures to consolidate
production capacities and boost competitiveness at Hydro in Brazil and Europe as well as at Paperin the UK and the USA. In the previous-year period, the non-recurring result essentially comprised
personnel-related and other expenses arising from measures to consolidate production capacities
and boost the competitiveness at Hydro in Brazil, at Paper in the USA and at Turbo in Germany asVoith Annual Report 2018
Group Management Report
02. Business development and earnings position of the Group83

well as expenses arising from donor pledges amounting to € 13 million. Specifically, Hydro contributed€ - 12 million to the non-recurring result in the year under review (previous year: € - 7 million), Paper€ - 7 million (previous year: € - 5 million), Turbo € 0 (previous year: € - 6 million) and the Corporate Functions& Services Division € - 3 million (previous year: € - 14 million).
The operational result was € 148 million (previous year: € 193 million, - 23 %).
The previous year’s result from the sale of associates of € 563 million (2017/18 fiscal year: € 0) contains
the effect on results from the sale of the shares in KUKA Aktiengesellschaft completed in January 2017.
Net interest income/expense improved to € - 17 million (previous year: € - 59 million, - 72 %). The improvement stems mainly from a € 24 million fall in interest expenses as a result of the redemption of the capital
market bond at the end of the 2016/17 fiscal year. In addition, there was interest income of € 9 million
from the measurement of financial liabilities on account of termination rights on the part of holders of
non-controlling interests. Interest expense of € - 14 million resulted from this in the previous year.
The other financial result was positive at € 19 million (previous year: € - 10 million). This item is impacted
to a significant extent by income from the sale of the remaining 20 % interest in the former Industrial
Services Group Division (€ 18 million). Currency gains and losses on long-term financing positions andthe measurement of the related hedge relationships also improved (balance of € - 4 million, previous
year: € - 28 million).
Income taxes totaled € - 67 million (previous year: € - 82 million).
The net result from continuing operations amounted to € 85 million. The previous-year figure had been
exceptionally high with the sale of the shares in KUKA Aktiengesellschaft making a significant contribution(previous year: € 612 million). After adjustment for the KUKA effect in the previous year, the net result
from continuing operations increased by 73 %.
The net result from discontinued operations amounted to € - 32 million in the year under review (previous
year: € - 16 million). This is the contribution to the Voith Group’s net result made by the operations ofVoith Composites, which are held for sale. In the previous year, this item contained the contribution to
the Voith Group’s net result made by Voith Composites and the since divested Group Division Industrial
Services due to adjustments from expected tax expenses in connection with the disposal.
Overall, the Group’s net result comes to € 53 million (previous year: € 596 million). The Group net resultof the previous year was significantly influenced by the sale of the shares in KUKA Aktiengesellschaft.
After adjusting for the KUKA effect in the previous year, a clear increase of 61 % emerges.

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03. Business development and earnings position of the Group Divisions

03.

Business development and earnings
position of the Group Divisions
The development of the three established Group Divisions was
mixed in the year under review. The Group Division Paper
stood out with a significant increase in sales and results while
exceeding its targets for orders received. As announced, Turbo
exhibited slight growth in sales and orders received. The profit
from operations recognized for Turbo in the segment reporting
was below the previous year’s level – impacted by a negative
non-recurring effect. Hydro remained below our expectations
on account of the competitive situation. The expansion of ourdigitalization activities is progressing on schedule. It was possible
to shoulder the up-front costs for the Digital Ventures Group
Division from current business.

03.1. Hydro
Good performance in challenging market environment
The Group Division Hydro looks back on a fiscal year with numerous challenges. Orders received, sales
and earnings decreased and were below the forecast levels. In addition to delays in the construction
work for the realization of some major orders and delays in projects being awarded, the main reason
for the negative development was more intense competition on the global hydropower market. All key
performance indicators were impacted by negative currency effects.

Sales ­­Hydro

Orders received ­­Hydro

Profit from operations ­­Hydroin € millionsin € millionsin € millions

1,381
1,103

1,180

106
856

2016/172017/18

2016/172017/1877

2016/172017/18

Voith Annual Report 2018
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03. Business development and earnings position of the Group Divisions

85

Sales down on the previous year
In the 2017/18 fiscal year, the Group Division Hydro achieved sales of € 1,103 million (previous year:€ 1,381 million, - 20 %). We thus missed our sales target (2017 annual report: “stable performance”). The
clear decrease is essentially a consequence of the low level of orders received on account of the market
situation prevailing in the previous year and the year under review. In addition, there were delays in theconstruction work for some major projects, which means that revenue recognition is postponed. A not
inconsiderable share of the fall in sales is attributable to negative currency effects. The regions with thestrongest sales were Asia and North America, where we had recorded a high level of orders received
in previous years.
Orders received fell significantly
In the 2017/18 fiscal year, the volume of the hydropower market was below the long-term average,
but above the very low level of the previous year. In contrast, the small hydro segment (plants withan output of up to 30 megawatts per unit) remained roughly at the level of the previous year because
the overall conditions for small hydropower plants remain difficult owing to insufficient funding andinadequate financing models in many countries. The high demand for pumped storage technology,
which primarily came from China, was noteworthy. Demand for services also rose during the year underreview. However, in the fundamentally brightened market environment, the intensity of competition has
significantly increased.
In the 2017/18 fiscal year, Voith generated orders received of € 856 million with the Group Division Hydro(previous year: € 1,180 million, - 27 %). The significant decrease means we missed our target (forecastin the 2017 annual report: “appreciable increase”). Firstly, there was another delay in concluding thecontract in a major project, meaning that we anticipate a certain catch-up effect in the following year.
Secondly, significantly more intense competition arose in the global hydropower market. Negative
currency effects are putting additional pressure on the Group Division Hydro’s orders received.
At € 2,687 million as at September 30, 2018, orders on hand remained below the high level seen at theend of the 2016/17 fiscal year (September 30, 2017: € 2,976 million).
Measured in terms of volume awarded, Asia was the dominant hydropower market in the reporting
period. In China, there is great demand for pumped storage power plants that contribute to the reliabilityof electricity supplies and grid stability in light of the volatility of wind and solar power. Voith won an
extensive order to equip Tian Chi pumped storage power plant in the eastern Chinese province of Henan
with a total output of 1,200 megawatts. In Japan, we were awarded the contract for the Gokasegawa
and Kuzuyama small hydro projects. In Indonesia we are delivering several StreamDiver units for thesmall hydropower plant located on the Serayu River. Like other reference orders in the year under review,for example in Austria and Brazil, this order shows that our innovative StreamDiver Technology for smallhydropower stations has now gained international acceptance.
The important hydropower market of Brazil, where the awarding of major infrastructure projects wasimpeded by the economic and political crises for several years, is showing signs of a slight recovery.
Modernization and service activities are picking up since the Brazilian government tendered licenses
in 2017 for the operation of hydropower plants that had previously been state run and awarded thecontracts to Chinese and European energy producers. In the reporting period, Voith posted a further
order tranche in connection with the Belo Monte hydropower plant in Brazil, currently the third largest
hydropower plant in the world. Construction began in 2012.

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03. Business development and earnings position of the Group Divisions

In the established North American market, the focus was on modernization and service projects. In theyear under review, Voith was awarded extensive service and modernization contracts in the US, suchas for the Spring Creek and Cherokee projects.
In Europe, the hydropower market remains at a low level due to the energy policy situation. In the2017/18 fiscal year, we succeeded in winning two noteworthy contracts. In Luxembourg, Voith has takenon the task of modernizing Vianden pumped storage power plant, which feeds power into the German
electricity grid and is used in network regulation within the scope of the energy transition. In Portugal
we were awarded the contract for the new Alto Tamega hydropower plant.
The service business (“HyService”) remained an important mainstay for the Group Division Hydro. In theyear under review, we were successful in tenders for major service projects in the US, France, Japan,
Sweden, India and Italy. We succeeded in winning further large service contracts in the UK, Egypt,
Thailand and Canada.
Subsidiaries opened in Australia and East Africa
In March 2018, Voith opened a Hydro subsidiary in Sydney, which will support hydropower projects inAustralia and New Zealand, and will at the same time serve as a HyService hub within easy reach of
manufacturers and customers in the region. A new center for hydropower projects in East Africa wasopened in the Ethiopian capital of Addis Ababa in May 2018. We plan and coordinate projects in ninecountries in the east of the African continent from the new facility.

In the 2018/19
fiscal year, we arereorganizing ourmanagement system
and using EBIT
instead of profit fromoperations as our key
operating earnings
indicator. Definitionsof both performanceindicators and further
information can befound in section 01.2.
Management
system.

Operating result down
Due to the downward sales trend, the Group Division Hydro was also unable to reach its results
target. Hydro generated profit from operations of € 77 million in the 2017/18 fiscal year (previous year:€ 106 million). This figure contains a positive non-recurring effect in the low double-digit millions arisingfrom the capitalization of claims for damages awarded by an arbitration tribunal. That is equivalent toa decrease of 28 %. We had still anticipated stable development of profit from operations in the 2017
annual report. EBIT developed in line with profit from operations (- 26 %) and was € 66 million in the year
under review. Return on sales and ROCE likewise decreased on account of the decline in earnings but
remained at a good level, nonetheless. The Group Division Hydro achieved a return on sales of 7.0 %(previous year: 7.7 %) and an ROCE of 16.9 % (previous year: 21.8 %). Improvements in capital employed
only partially compensated for the decrease in operating result. This meant that the forecast slight risein ROCE was not achieved.

Voith Annual Report 2018
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03. Business development and earnings position of the Group Divisions

87

03.2. Paper
A very good fiscal year
The Group Division Paper looks back on a very good fiscal year in which its own targets were in somecases exceeded despite considerable negative currency effects. Voith operated extremely successfully
in a very positive investment climate and was again able to exceed the high level of orders received in
the previous year. Sales and profits also rose. While return on sales decreased slightly due to a change
in sales mix, ROCE improved as a result of an increase in profit from operations while capital employed
declined.
Sales grow by 14 %In the 2017/18 fiscal year, the Group Division Paper increased its sales by 14 % to € 1,746 million despite
considerable negative currency effects (previous year: € 1,527 million). The “perceptible rise” forecast in
the 2017 annual report was thus achieved.
Growth was driven by the very good project business (new machines and major rebuilds). In businesswith products, consumables and services, we also achieved a slight rise in sales after adjustment for
currency effects.
The region with the strongest sales was Asia, where the highest sales growth was also achieved. The
Europe excluding Germany region also made a significant contribution to sales and exhibited clear
growth.
Orders received at record level
Starting from a very high level of orders received in the previous year, the Group Division Paper was again
able to noticeably increase its orders received. In the 2017/18 fiscal year, Paper received new orders
worth € 1,995 million (previous year: € 1,813 million), an increase of 10 % compared to the comparative
period. Adjusted for currency effects, the growth is even more obvious. This means that we have clearlyexceeded our own expectations. As forecast in our 2017 annual report we expected orders received
in the 2017/18 fiscal year to decline perceptibly – because of the high level in the previous year, which
was marked by several major projects.

Sales ­Paper

Orders received ­Paper

Profit from operations ­Paperin € millionsin € millionsin € millions

1,527

2016/17

1,746

1,813

2017/18

2016/17

1,995

2017/18107

2016/17114

2017/18

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Voith Annual Report 2018
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03. Business development and earnings position of the Group Divisions

The continuing positive trend is firstly a result of successfully focusing on the growth segments of board
and packaging as well as specialty paper. Secondly, the strong growth was facilitated by the very goodinvestment climate, in which a large number of major projects were awarded.
The Group Division Paper’s orders on hand increased appreciably and stood at € 1,434 million at theend of the fiscal year on September 30, 2018 (September 30, 2017: € 1,228 million).
On the paper market, there was an overall slight rise in production across all grades of paper in light of
the healthy global economy. In particular, there is very great demand for board and packaging paper inall regions apart from South America. This is caused by growing e-commerce and the efforts to replace
plastic as a packaging material. There is also strong demand for specialty papers. The production ofgraphic paper is the only grade of paper still in decline, as expected.
In the EMEA region, where many manufacturers are currently exploiting their good earnings position to
make strategic investments for the future, the demand for new machines and rebuilds remained strong.
In Germany, Voith’s gains included two comprehensive new machine projects. For example, we won
contracts for the manufacture of a plant for the production of testliner and corrugated medium with anannual production capacity of 750,000 metric tons and for the delivery of one of the highest performance
specialty paper machines in the world. We received another major contract from a Turkish paper manu­
facturer for whom we will create a plant for the production of high-quality board and packaging paper.
In Asia, paper manufacturers again made considerable investments in new machines and in modernizing
existing plants, although at a somewhat lower level than in the previous year. The focus of investment in
Asia was on machines for the manufacture of board and packaging paper. Voith has taken an appropriate
share in this development with a good level of orders received from this region and won, among others,
an order for two packaging paper machines for the Southeast Asian region and a gypsum board machine
project in China.

In the 2018/19
fiscal year, we arereorganizing ourmanagement system
and using EBIT
instead of profit fromoperations as ourcentral performanceindicator for operating
result. Definitions ofboth performanceindicators and further
information can befound in section 01.2.
Management
system.

In North America, the market for new machines also proved to be stronger than expected. In the US,we were given an order for a complete production line including automation for the manufacture ofcorrugated medium. In Mexico, we won an order for a new complete plant for the manufacture of testliner
and heavy-duty corrugated medium. In addition, we received orders for two medium-sized rebuilds. In
South America, in contrast, investment activities remained at a low level, with the large Brazilian market
in particular falling short of expectations.
Operating result further increased
In the 2017/18 fiscal year, the Group Division Paper increased its profit from operations by 6 % to€ 114 million (previous year: € 107 million). This development is in line with our forecast (2017 annual report:“slight growth”). Adjusted for currency effects, the growth would have been even higher. Slight growth inprofit was also achieved at the EBIT level (€ 102 million, +4 %). The encouraging development of profits
is a reflection of the successfully completed restructuring measures and the activities launched in recent
years to boost productivity. The return on sales reduced to 6.5 % due to a changed sales mix (previous
year: 7.0 %). ROCE leapt from 14.9 % in the previous year to 18.2 % in the year under review. In addition
to the rise in profit from operations, a reduction in the capital employed contributed to this development.

Voith Annual Report 2018
Group Management Report
03. Business development and earnings position of the Group Divisions

89

03.3. Turbo
Good business development
The Group Division Turbo developed well in the 2017/18 fiscal year within a market environment thatremained challenging. As announced, sales and orders received rose slightly despite negative currency
effects. Due to the build-up costs for a planned joint venture in China, contrary to the forecast, the profit
from operations was below the high level of the previous year. ROCE was stable.
Sales up on the previous year
In the 2017/18 fiscal year, the Group Division Turbo generated sales of € 1,302 million (previous year:€ 1,283 million, +1 %). The slight growth that was forecast in the 2017 annual report was achieved despite
negative currency effects.
The Industry Division was able to put an end to its five years of market-related declines in sales: in theyear under review, Industry exhibited stable development in a still challenging market environment. The
Mobility Division remained at a good level and exceeded the previous year’s level. The ongoing downward
trend in the major Chinese rail market was more than compensated for by sales growth in the commercial
vehicles segment and the service business.
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 3 %In the 2017/18 fiscal year, the Group Division Turbo received new orders worth a total of € 1,378 million(previous year: € 1,344 million). This corresponds to an increase of 3 %. The positive trend of the previous
year thus continued. Despite negative currency effects, the forecast was achieved (2017 annual report:“slight growth”). Orders on hand improved to € 1,041 million as at the end of the year under review(September 30, 2017: € 985 million).
Both Divisions, Industry and Mobility, contributed to the increase in orders received.
The markets relevant for the Industry Division have bottomed out. In view of the increased oil price, aslight recovery was evident in a few segments of the oil and gas market in the year under review; overall,however, investment activity remained low. The prices of important raw materials have stabilized at a

Sales ­Turbo

Orders received ­Turboin € millionsin € millions

1,283

1,302

1,344

2016/172017/18

2016/17

Profit from operations ­Turboin € millions

1,378

91
76

2017/18

2016/172017/18

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Voith Annual Report 2018
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03. Business development and earnings position of the Group Divisions

low level, which has improved the investment climate in mining. In the steel industry, investment activity
remained subdued due to persisting excess capacities. The fossil-fuel power station market remained
in decline due to the rise of renewable energies. The machine tool market developed positively. Voith
operated successfully in this still demanding environment and participated appropriately in the projects
awarded.
The transport & automotive market is growing in important segments, but is undergoing major change
due to the diesel discussion and the trend towards e-mobility. Political developments, such as the
economic sanctions against Russia and Iran and an unstable financing environment in some countries
in South America, slightly worsened the environment. The Mobility Division continued to move at a highlevel and was able to slightly increase its orders received in this environment. Growth was driven by thecommercial vehicles segment, where we experienced high demand for DIWA automatic transmissions
for buses and retarders for trucks. The rail market continued to be characterized by delays in theawarding of projects and very intense competition on account of excess capacities on the part of rail
vehicle manufacturers, meaning that new business for rail applications remained weak. The Marine
segment, too, the smallest product line by volume, lacked growth momentum. The service businessdeveloped markedly positively because overhauls of commercial and rail vehicles were due at a large
number of operators.
Joint venture with Chinese train company CRRC planned
In the year under review, we agreed to form a joint venture with the Chinese rail vehicle manufacturer
CRRC Corporation Limited. CRRC is now the largest rail vehicle manufacturer in the world. Voith
maintains long-term business relations with CRRC. We have supplied CRRC and both its predecessor
companies for around two decades, for example with drives, power car systems and couplings for
China’s high-speed trains. We hope this joint venture will decisively strengthen our business in theimportant Chinese rail market. The joint venture is currently still subject to approval by the supervisory
bodies of both partners.

In the 2018/19
fiscal year, we arereorganizing ourmanagement system
and using EBIT
instead of profit fromoperations as ourcentral performanceindicator for operating
result. Definitions ofboth performanceindicators and further
information can befound in section 01.2.
Management
system.

Service workshops for industry applications founded
In the 2017/18 fiscal year, we opened service workshops in Riyadh, Saudi Arabia, and in Houston, Texas,
USA, with which we support the oil and gas industry locally. The US and the Middle East are of great
strategic importance for our oil & gas business. Customers from these regions can now access our test
equipment and our technicians’ expertise for maintenance and emergency repairs close to their oil andgas fields. This reduces lost time and increases plants’ efficiency.
Operating result decreased, but still at a good level
The Group Division Turbo generated profit from operations of € 76 million in the 2017/18 fiscal year
(previous year: € 91 million, - 16 %). The operating result thus remained at a good level, but we did notachieve the stable development expected in the 2017 annual report. The forecast was missed mainly due
to a negative non-recurring effect in connection with the planned joint venture in China. EBIT (€ 75 million,- 16 %) developed in line with profit from operations. The return on sales stood at 5.8 % (previous year:
7.1 %). ROCE fell to 11.1 % because of the non-recurring effect described and thus, contrary to theforecast, did not reach the previous year’s level (previous year: 12.9 %).

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03. Business development and earnings position of the Group Divisions

91

03.4. ­Digital ­Ventures
Digital agenda going according to plan
The Group Division Digital Ventures, which was founded in 2016 (until September 30, 2018: “Digital
Solutions”), is a key element of the digital transformation of the Voith Group. It fulfills various tasks for
the Voith Group and its business results are reported partly in the Group Division Digital Ventures andpartly in the Group Divisions of the traditional core business in the segment reporting.
The Group Division’s role was refined and sharpened in 2018. Digital Ventures continues to provide
support to the Group Divisions Hydro, Paper and Turbo in the development of their respective digitalproduct portfolio by contributing its process know-how and its human resources. Furthermore, theGroup Division continues to make an important contribution to drafting standards for the Group, such as
those required in connection with modularization of the automation business. However, the three Group
Divisions of Hydro, Paper and Turbo will in future have overall control of the refinement of the digitalproduct portfolio, and thus have significantly more responsibility for the establishment and expansionof the digital business in their markets. The sales generated will continue to be attributed in full to therespective Group Divisions of the core business.
In addition, our Company’s digital start-up activities will be brought together under the umbrella ofDigital Ventures for organizational purposes. Digital Ventures will, in the future, steer the development
and management of possible new digital start-up activities and act as an incubator to drive forward new
digital business models for the entire Group. These may include activities in markets not yet covered byVoith as well as technology investments with a start-up character that have arisen through acquisitions
or joint ventures. In order to take account of this development, the Group Division is being operated as“Digital Ventures” from the 2018/19 fiscal year.
Important progress made in the implementation of the digital strategy
In October 2017, we founded Voith Innovation Lab in Berlin. It supports Voith in advancing innovations
for further development of its digital product portfolio very rapidly and with a focus on customers. To
this end, Voith Innovation Lab uses new development methods to solve complex problems, e. g. design
thinking. This methodological knowledge is also passed on as part of training to other Voith employees,
independently of specific projects. At the same time, Voith Innovation Lab supports the development ofcompletely new business models (“ventures”) of the Group.

More detailed
information on
OnCumulus andthe industry-specific applications
based on it can befound in section 05.
Research anddevelopment.

We presented our new, internally developed Industrial Internet of Things (IIoT) data platform OnCumulus
at the 2018 Hannover Messe trade fair, thus significantly expanding our portfolio of digital solutions.
Based on OnCumulus, the first solutions for the paper industry (OnEfficiency.Strength, OnCare.Asset,
OnEfficiency.MassBalance), for hydropower plants (OnCare.Acoustic, OnCare.Asset) and for commercial
vehicles (OnEfficiency.DriverAssist, OnEfficiency.SmartAccelerate) will be available from as early as the
2018/19 fiscal year. There are plans for further applications from the Group Divisions Hydro, Paper andTurbo to use the advantages of the platform in the future.
In April 2018, we entered into a strategic partnership with the robotics firm Franka Emika. We haveacquired a 10 % financial holding in Franka Emika and founded the joint venture Voith Robotics – A Voith
and Franka Emika Company. Franka Emika is a leader in the domain of the design and development of

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03. Business development and earnings position of the Group Divisions

Further information
can be foundin section 04.4.
­Financial assets
and investments.

powerful, adaptive and easy-to-operate state-of-the-art lightweight robot systems. The new joint venture
Voith Robotics is to become a global system provider for robot-assisted automation and experts in theprocess integration of robots.
In September 2018, Voith concluded a strategic cooperation agreement with the Kudelski Group, a Swisscompany specializing in digital security systems. The aim of the collaboration is to develop cyber security
products and services for industrial customers, which provide more security in networked technologies.
merQbiz, the digital marketplace for recovered paper, which was launched in the previous year, wasextended in January 2018 to include integrated logistics solutions. To this end, we entered into an
exclusive partnership with C.H. Robinson, one of the world’s largest logistics groups. merQbiz customers
are now provided with freight capacities, competitive real time price formation online and a powerfulsupply chain network.

Further informationon this acquisition
can be foundin section 04.4.
Financial assets
and investments.

Separate recognitionof orders on handdoes not take placein the sales generated in the Group
Division Digital Ventures – in contrast to
customary practicein mechanical andplant engineering –because of the shortlead times.

In the 2018/19
fiscal year, we arereorganizing ourmanagement system
and using EBIT
instead of profit fromoperations as our key
operating earnings
indicator. Definitionsof both performanceindicators and further
information can befound in section 01.2.
Management
system.

Sales and earnings reflect the venture activities’ situation as a start-up
The Group Division Digital Ventures tripled its sales to € 40 million in the fiscal year (previous year:€ 13 million, +214 %). As forecast, a strong increase was achieved in percentage terms, which naturally
was still at a low level because of the venture activities’ start-up situation. A large proportion of the Group
Division’s sales comes from the digital services provider Ray Sono, in which a majority shareholding
was acquired in 2017 and which for the first time was consolidated in the Voith Group for a full fiscal
year (full consolidation since July 1, 2017), but they also developed very positively irrespective of thisconsolidation effect. We have acquired a majority shareholding in the valve manufacturer FlowLink
Systems, and its sales have also been included since the second half of the fiscal year. The sales of
merQbiz, the recovered paper marketplace launched in 2017, are still low, consistent with the start-up
nature of this business. The joint venture Voith Robotics will not be reported in the Group Division Digital
Ventures until the 2018/19 fiscal year. Likewise, neither the digital sales generated by the Group Divisions
Hydro, Paper and Turbo with the support of Digital Ventures nor automation sales are included in the
aforementioned figure.
The increased headcount, particularly as a result of the first-time consolidation of FlowLink, anddevelopment and operating costs relating to the new OnCumulus data platform were reflected on thecosts side.
Bottom line, there was profit from operations of € - 46 million in the year under review (previous year:€ - 43 million), which was slightly lower than originally planned because development costs were incurred
early. As a result, we fell slightly short of the forecast made in our 2017 annual report (“profit in thenegative double digit million range, albeit somewhat lower than in the previous year”). On an EBIT
basis, the earnings figure was virtually identical (€ - 46 million, previous year: € - 43 million). We regard
these build-up costs as a deliberate investment in the digital transformation of Voith, laying the basis
for future growth.
The sales and profits achieved in the Group Divisions Hydro, Paper and Turbo with the support of Digital
Ventures – sales of € 233 million in the year under review (previous year: € 286 million, - 19 %) – arereported in the respective Group Division in our segment reporting. The decrease in automation sales
is largely due to the decreased level of orders received in the Group Division Hydro.

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04. Net assets and financial position

04.

93

Net assets and financial position
The net assets and financial position of the Voith Group remain at
a good level. We were able to significantly reduce our debt in
the year under review and increase the equity ratio to 28.7 %. Net
liquidity was at a very high level at € 557 million. Cash flow fromoperating activities was positive in the year under review. Voith
thus has a very good equity base and a thoroughly comfortableliquidity situation which provides scope for future growth.

04.1. Balance sheet
Noticeable increase in equity ratio as a result of reduction of
long-term debt
In comparison to September 30, 2017, total assets decreased slightly by € 322 million to € 4,676 million(previous year: € 4,998 million, - 6 %) primarily due to the repayment of long-term bank loans in Germany
and China. On the assets side, cash and cash equivalents reduced accordingly.
In total, non-current assets were reduced by € 152 million to € 1,796 million (previous year: € 1,948 million,- 8 %). The € 14 million reduction in financial assets to € 92 million (- 13 %) includes two opposing effects:
the decrease as a result of the sale of the remaining shares in the former Industrial Services Group
Division and associated repayment of a loan were almost compensated for by the acquisition of new
investments. The decrease of € 79 million in property, plant and equipment to € 899 million (- 8 %)results firstly from reclassifications to the assets held for sale due to the planned sale of the activities
of Voith Composites and secondly from the fact that depreciation and amortization were higher than
the investments. The decrease in investments in companies accounted for using the equity method by€ 10 million to € 22 million (- 32 %) is largely due to the acquisition of further shares in a company. Because
Voith now has control of the company, the company is no longer recognized using the equity method,
but instead fully consolidated. Furthermore, non-current other financial receivables fell by € 27 million to€ 62 million (- 31 %) for measurement-related reasons.
Current assets were reduced by € 170 million to € 2,880 million (previous year: € 3,050 million, - 6 %).
Within this item, cash and cash equivalents were reduced by € 240 million to € 342 million (previous year:€ 582 million, - 41 %), primarily as a result of the early repayment of long-term bank loans in Germany

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and China. Furthermore, short-term investments were made, which increased short-term securities by€ 16 million to € 618 million (previous year: € 602 million, +3 %). Inventories increased by € 55 million to€ 603 million (+10 %) (of which Turbo +€ 34 million). Receivables from customer-specific contracts also
increased (increase of € 23 million, +7 %). These contain long-term orders that are presented using thepercentage of completion method (this figure contains an increase of € 16 million pertaining to Hydro
and an increase of € 5 million pertaining to Paper). Trade receivables fell by € 26 million to € 688 million(this includes a decrease of € 45 million from Paper and working in the opposite direction, an increaseof € 22 million from Digital Ventures).
Non-current assets decreased significantly by € 327 million to € 1,310 million (previous year: € 1,637 million,- 20 %). The reduction of non-current liabilities was primarily achieved through early repayments of thefloating-rate portion of the note loan at Voith GmbH & Co. KGaA (€ - 139 million) and of part of thelong-term syndicated loan in China (€ - 58 million). The remaining part of the US private placementin the amount of € 17 million matures in 2019 and will consequently now be recognized in current
liabilities. In addition, non-current other provisions decreased by € 35 million to € 156 million (previous
year: € 191 million, - 18 %), primarily caused by a € 16 million decrease in provisions for restructuring
and severance payments and a € 19 million decrease in provisions for legal expenses. The decreasein pension provisions by € 34 million to € 713 million (previous year: € 747 million, - 5 %) is largely due tothe increase in the discount rates in Germany and the US and to the increase in plan assets in the US.
Current liabilities rose slightly by € 31 million to € 2,026 million (previous year: € 1,995 million, +2 %). The
increase in current liabilities to banks, caused by taking out short-term bank loans (+€ 36 million) andreclassifying the US private placement which matures next year (+€ 17 million), is partially compensatedfor by the decrease in other financial liabilities (€ - 10 million). In addition, liabilities from customer-specific contracts increased by € 48 million (of which Hydro +€ 81 million and Paper € - 33 million). The
item other liabilities (+€ 27 million) rose primarily on account of a higher level of customer advances(+€ 27 million). The opposite effect came from current other provisions (€ - 64 million, - 19 %) due to lower
warranty provisions (€ - 32 million) and contract-specific provisions (€ - 25 million). Trade payables have
only changed marginally (balance of: € 511 million, previous year: € 510 million).
The net balance of deferred tax assets and liabilities decreased by € 18 million.
Equity decreased slightly to € 1,340 million (previous year: € 1,366 million, - 2 %). Here, the negative
effects from currency translation of € - 62 million and distributions of profits exceeded the positive net
income and measurement-related adjustments to pension provisions. The equity ratio was noticeably
increased by reducing debt and was 28.7 % at the end of the year under review (previous year: 27.3 %).

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04. Net assets and financial position

95

04.2. Liquidity
Net liquidity remains at a very high level
The cash flow from operating activities amounted to € 31 million in the 2017/18 fiscal year (previous
year: € 135 million). The reduction on the previous-year period resulted mainly from the use of warranty
provisions and contract-specific provisions.
The cash flow from investing activities amounted to € - 69 million in the reporting period (previous year:€ 551 million). After the previous year had been primarily characterized by the proceeds of € 1,146 million inconnection with the sale of the shares in KUKA Aktiengesellschaft, the cash flow from investing activities
in the reporting period was marked by, among other factors, payments related to the acquisition offurther shares in FlowLink Systems Private Ltd., and for the purchase of the investment in Franka Emika
GmbH and payments for purchase price adjustments in connection with the sale of Industrial Services
in the previous year. The remaining 20 % interest in the former Industrial Services Group Division was
sold and a loan was repaid in the reporting period. The receipts from the disposal of financial assets of€ 113 million essentially stem from these transactions. The KUKA effect was reported in this item in theprevious year. Net receipts and payments for property, plant and equipment and intangible assets of€ - 88 million were slightly higher in comparison to the previous year (€ - 84 million).
We further reduced our level of borrowing over the reporting period (net repayment: € - 165 million,
previous year: € - 717 million) primarily through early repayments of the floating-rate portion of the noteloan at Voith GmbH & Co. KGaA (€ - 139 million) and of part of the long-term syndicated loan in China(€ - 58 million). By contrast, current liabilities to banks increased through new borrowings of € 36 million.
In the previous year, this item included the redemption of the capital market bond in the amount of€ 600 million. In addition, payments for dividends (€ - 35 million) were slightly higher than the previous
year’s figure (€ - 29 million). This results in a cash flow from financing activities of € - 178 million (previous
year: € - 743 million).
Total cash flow amounted to € - 216 million (previous year: € - 57 million).

Development of cash flowin € millions

Cash flow from operating activities

2017/18

2016/17

31

135

Cash flow from investing activities

- 69

551

Cash flow from financing activities

- 178

- 743

Total cash flow

- 216

- 57

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The Voith Group’s net liquidity – as the difference between liquid financial assets and interest-bearing
financial liabilities – remains at a very high level. At the end of the year under review, it was € 557 million(previous year: € 648 million).
The net liquidity indicator is not defined under International Financial Reporting Standards (IFRS), whichmeans that its definition and calculation may diverge from practice at other companies.

04.3. Capital spending€ 94 million invested in the Voith GroupIn the 2017/18 fiscal year, we invested a total of € 94 million in property, plant and equipment andintangible assets (previous year: € 96 million, -2 %). As a percentage of the Group’s sales, our investment
ratio amounts to 2.2 % in the year under review (previous year: 2.3 %). We not only invested in our young
Digital Ventures Group Division, but also in expanding our core business.

Capital spending in Europe intensified
Compared to the previous year, we increased our investments in Germany and the rest of Europe,
while they fell slightly in the Americas and Asia. More than half of our global capital spending (52 %,previous year: 50 %) was invested in Germany, where our largest facilities are situated, and amounted to€ 49 million in the year under review (previous year: € 48 million). For years, we have sustained a strong
commitment in Asia, above all in China. In the 2017/18 fiscal year, we invested € 17 million (previous year:€ 19 million) in this high growth region. That is equivalent to 18 % of the entire volume in the year underreview (previous year: 19 %). In North and Latin America, we invested a total of € 16 million (previous
year: € 23 million), i.e. 17 % (previous year: 24 %) of our total investment spending. In Europe excluding
Germany, capital spending increased to € 11 million (previous year: € 6 million). This corresponds to ashare of 12 % (previous year: 6 %).

Investments Group

Investments total € 94 millionin € millions

by Group Division96

by region

94­Turbo
24 %

Other
4%

2016/172017/18

Paper
36 %

Germany
52 %

Hydro
14 %

Digital­Ventures
22 %Americas
17 %

Asia
18 %

EuropeexcludingGermany
12 %
Other
1%

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Hydro: practically stable capital spending
As in the previous year, the Hydro Group Division kept its capital spending at a low level in view ofdeteriorating business development. For example, Hydro invested € 13 million in the capacities of its value
chain in the year under review (previous year: € 14 million). As a percentage of sales, this corresponds
to an investment ratio of 1.2 % (previous year: 1.0 %). One of the investment priorities was to expand
production capacity in North America and Asia.

Paper: production capacity for products andconsumables expanded
In the Group Division Paper, capital spending was € 34 million (previous year: € 24 million, +43 %). The
investment ratio was 2.0 % (previous year: 1.6 %). A large proportion of the Paper Group Division’s
investments were made in Europe (including Germany) and the Asia region. For example, we expanded
our capacity for manufacturing consumables in Austria and India.

Turbo: capital spending on digital production technologies
The Turbo Group Division invested a total of € 22 million in property, plant and equipment and intangible
assets in the 2017/18 fiscal year (previous year: € 36 million, - 38 %). This corresponds to an investment
ratio of 1.7 % (previous year: 2.8 %). After concluding an important investment project in China in theprevious year, it was possible to reduce capital spending in the year under review. The focus of thecapital spending in the year under review was on German locations. Here, our investments included
new production technologies such as 3D printers.

­Digital ­Ventures: capital spending on infrastructure and licenses
In the Digital Ventures Group Division, we invested € 21 million (previous year: € 15 million) in property,
plant and equipment and intangible assets in the 2017/18 fiscal year, primarily in IT infrastructure, softwaredevelopment and software licenses. In line with its business model, Digital Ventures invested very little
in property, plant and equipment.

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04.4. Financial assets and investments
Strategic partnership entered into with robotics start-up
Franka Emika
In April 2018, we entered into a strategic partnership with the robotics firm Franka Emika. The partnership
involves Voith taking a direct financial investment of 10 % in this Munich-based robotics specialist andthe creation of the Voith Robotics joint venture.
The plans are for Voith Robotics – A Voith and Franka Emika Company to become a global systemprovider for robot-assisted automation in the digital age. Voith Robotics is to provide both adaptive
lightweight robots from Franka Emika and appropriate software solutions, apps, services and process
consulting for customers worldwide in a wide range of industries and markets. Voith holds a 51 % interestin the new joint venture and is responsible for its operative management. Voith Robotics has been fully
consolidated in the Voith Group’s financial statements since May 2018. The 10 % interest in Franka Emika
will be recognized in other financial assets.
Franka Emika is a leader in the domain of designing and developing powerful, adaptive and easy-to-operate state-of-the-art lightweight robot systems. For the first time ever, these systems make it possible
to automate necessary but generally monotonous tasks such as sensitive insertion, screwing and joining
tasks as well as testing, inspection and assembly jobs.
With this strategic partnership, Voith is taking another step consistent with its digital agenda. We had
defined robotics as one of the key competencies that we want to add to our portfolio.

Majority shareholding in FlowLink Systems acquired
In April 2018, we increased our shareholding in FlowLink Systems Private Ltd. from 50 % to 80 %. The
company, headquartered in Coimbatore/India, manufactures industrial valves and valve componentsthat are used in the oil & gas market, in mining, in power plants and in the area of sewage treatment. The
company is increasingly focusing on digital solutions with its product portfolio. FlowLink Systems has
been fully consolidated since April 1, 2018 and is allocated to our Group Division Digital Ventures.
Previously, it was recognized using the equity method.

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05. Research and development

05.

99

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 most innovative companies in the business segments
it serves. In the year under review, we spent € 225 million on R&D
activities. Our R&D ratio stood at 5.4 %.

Increase in R&D to sales ratio
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 holds several thousand active patents aroundthe world and hundreds of new ones 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 business success. This is why we consistently invest
in research and development for new solutions – around € 1 billion in total over the past five years. In the2017/18 fiscal year, the Group’s R&D spending amounted to € 225 million (previous year: € 217 million). The
4 % rise is largely due to increased R&D spending in the young Digital Ventures Group Division. By
contrast, R&D spending fell in Hydro. In the Paper and Turbo Group Divisions, R&D spending remainedroughly constant. At 5.4 %, R&D spending as a percentage of the Group’s sales was higher than in the

Research and developmentin € millions

217

225

2016/172017/18

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05. Research and development

previous year (5.1 %). Of the total R&D spending of € 225 million, € 13 million was capitalized (previous
year: € 13 million). At the same time, amortization of € 5 million was made on capitalized development
costs (previous year: € 7 million).
Voith’s research and development activities are internationally organized. The focus is on Germany, withcenters in the Americas, Asia and Europe excluding Germany 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 sustainableeconomic development. For this reason, our 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 in addition to digitalization are not only the key challenges
for the 21st century, they are also the central themes of our research and development strategy at Voith.

Systematic foresight management introduced
Deciding on the right choice of development projects is of crucial importance for an innovative company.
However, these changes also offer opportunities for growth. In order to be prepared in the best possible
way for future challenges and new possibilities, we established a strategic foresight management systemin the Company during the year under review, which was deployed for the first time across Group
Division boundaries. In doing so, all Group Divisions took a systematic look at future developments
in various areas of the market and technology and brought them together to form consistent futurescenarios. These were used to derive technology roadmaps to complete and complement those alreadyin place. The processes employed enabled us to considerably sharpen our view of future developments
and interactions. The assessments derived from this form an excellent basis for the next stage involving
talks with customers and partners on their views of future opportunities and challenges.

Hydro: further advances in pumped storage technology
As part of the standardized foresight management system in place throughout the Group, we havedrawn up visions for the Group Division Hydro, which relate to the focus areas of energy and water. The
technology roadmap derived from this addresses technological developments in the areas of large hydro,
small hydro and services as well as technologies and trends for future growth areas. From the 2018/19
fiscal year onwards, we will discuss the findings with customers and partners and make adjustments
in line with their perspectives.
A large share of the research and development expenditure by the Group Division Hydro over the year
under review was invested in customer and project-related activities. As part of our participation in thetendering process for the Tian Chi pumped storage power plant in China, we made extensive investments
in significant research combining high-end numerical fluid simulations with modern and professional

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101

laboratory testing. We were able to further improve the performance of our designs while at the sametime increasing robustness during operation. These technological advantages were a decisive factor in
our successful bid for this challenging project. Over the next few years, a large number of projects inthe field of pumped storage posing similar technical challenges will be put to tender in China, and weare now well placed to participate in these.
For years, we have been working on the development of especially powerful turbines and generators.
Suitable stator bars are essential for the development of powerful generators of the 1,000 MVA class.
Over the course of the year under review, we completed the development of a new end corona
protection design for stator bars. The new design has significantly increased the robustness of the bars
in operation leading to a much higher reliability of the product. For our customers this is very importantbecause the reliability of the winding is an essential contributor to the availability of the plant for energy
production. The new bars were tested in our new laboratory in Shanghai exposing them to all relevantinternational standards as well as to the more stringent test definitions of some of our customers. The
bars exceeded all requirements and were qualified by our customers for project use.
Furthermore, we presented OnCare.Acoustic (formerly known as “HyGuard”), a digital early warning
system for hydropower plants, in the year under review. The project developed in cooperation by
the Group Divisions Hydro and Digital Ventures supports hydropower plant operators in discovering
potentially dangerous incidents by detecting sound anomalies and classifying them according to urgency.
OnCare.Acoustic is based on the Industrial Internet of Things (IIoT) platform OnCumulus. There are
currently various pilot projects with interested power plant operators. The product will be available fora wide range of customers as of the 2018/19 fiscal year.

Paper: virtual reality solutions increase transparency,
efficiency and safety
As part of the standardized foresight management system in place throughout the Group, we have drawn
up visions for the Group Division Paper that show three alternative scenarios for the paper industry in
the future, in which various milestones should be reached by 2025. Alongside future growth potential
for paper applications, the analysis also extended to other factors influencing future developments on
the paper market. Two extreme scenarios and a trend scenario were used to derive fields of action for
the Group Division Paper and to draft a roadmap. The roadmap addresses technological developmentsin the existing core markets, in the field of alternative manufacturing processes and future opportunities
to generate added value in the field of packaging.
In June 2018, the Group Division Paper introduced Virtual Reality Solutions by Voith Paper, a new smart
service package offering paper manufacturers the opportunity to obtain a digital representation of theirvery own new machine – even before it is completed. The virtual training programs allow personnel toacquire experience with operation of the paper machine even though it is not yet running. Virtual Reality
Solutions by Voith Paper also ensures more efficiency during operation itself as maintenance activities
can be practiced in advance in interactive training scenarios. This means that Voith’s customers canbenefit from more transparency, efficiency and safety in paper production over the entire life cycle.

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One of the numerous product innovations launched on the market by the Group Division Paper in the2017/18 fiscal year was the new coater, DynaLayer. This concept for high-end board coloring achieves
perfect color application and remains easy to use even without an additional enclosure. As a result, theDynaLayer from Voith improves the cost efficiency of paper production and offers an efficient alternative
to conventional coaters.
The new SmoothRun hydropneumatic damping bearing system for winders effectively reduces vibrations
occurring during the winding process. The hydropneumatic damping allows for higher operating speeds
and better winding results. This makes it possible for our customers to achieve significant capacity
increases.
With OceanCoat, the Group Division Paper is adding a highly durable option to its portfolio of coater rollcovers. The new roll cover stands out from standard roll covers through its color alone – blue instead of
black. The blue shade allows the operator to quickly identify any overheating, which commonly occurs
at the edges.

Turbo: focus on digitalization and electrification of powertrains
As part of the foresight management system in place throughout the Group, we have drawn up visions for
the Group Division Turbo that relate to the focus areas of mobility, water and environmental technologies.
We apply these visions on an ongoing basis to refine our technology roadmaps. The roadmaps now
have a clear focus in the area of electrical drives, for which we presented several product innovations
over the year under review. In addition to electrification of powertrains, Turbo’s R&D work in the year
under review concentrated on digitalization of our offering in cooperation with Digital Ventures. In thefield of electromobility, for example, we intend to evolve into a system provider for electrical drives anddigital vehicle and fleet management systems over the next few years. In addition, our work in the year
under review included increasing the competitiveness of our core products through modularization,
standardization and design-to-value measures.
In the 2017/18 fiscal year, the Industry Division placed two completely new fully digital products on themarket: BeltGenius ERIC and BeltGenius ALEX for the first time enable mine operators to optimize theenergy efficiency and plant productivity of their conveyor systems. We achieve this by comparing existing
sensor data with a digital twin of the plant and identifying potential for improvement.
In the year under review, we furthermore won the first customers for the VECO-Drive presented in theprevious year. The VECO-Drive is an innovative variable speed drive for compressors and pumps which
is used to control speed. The two VECO-Drives now on order are to replace outdated equipment ina Chinese thermal power plant and will bring about a significant improvement in the efficiency of theboiler water feed pumps.

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In the 2017/18 fiscal year, we also won a first reference order for the RWC variant of the Vorecon NX
series of variable speed planetary gears launched on the market in the previous year. The order wasplaced by a major US refinery operator.
In the Mobility Division, we developed new products and services for the rail, road and marine segments.
We presented a fully electrical drive system for city buses for the first time at the leading trade fair IAA
Commercial Vehicles held in September 2018. This is a drive system for electric buses that can beuniversally used in any bus from the established manufacturers. During development, the focus wason the special requirements of local public transport: this innovative product marks our entry into themarket for electromobility. We have already received the first orders. In September 2018, for instance,
we entered into a cooperation agreement with private local transport provider Transdev GmbH and will
equip electric buses initially for two German towns.
Another highlight at the IAA Commercial Vehicles was the DIWA NXT, the next generation of DIWA
automatic transmissions for city and intercity buses. The transmission features an optional mild-hybrid
system on a 48 V basis and an additional overdrive gear enables it to meet the requirements of intercity
bus and coach segment. The first DIWA NXT transmissions will undergo field testing at a renowned
vehicle manufacturer in 2019.
We introduced several new products in the field of digital vehicle and fleet management systems
over the year under review. These innovations are the outcome of cooperation between the Group
Divisions Turbo and Digital Ventures. At the IAA Commercial Vehicles, for example, we presented
OnEfficiency.DriverAssist, a system for reducing fuel consumption.
Our SmartMaintenance solutions already established in the commercial vehicle segment are graduallyalso being introduced in the rail segment, where they have been available for the Scharfenberg couplersince the year under review, for example. With SmartMaintenance, the data relating to the components
are recorded, and evaluated in the cloud in order to provide operators with proactive suggestions
regarding maintenance and service measures that bring about higher availability and reduce costs.
In the rail segment, we are working at full speed on the development of a new powerful, low-emission
engine for rail vehicles. At the InnoTrans international trade fair for transport technology in September
2018, we unveiled to the professional community a prototype of the new Voith Rail Engine. Developed
from scratch, this is currently the most efficient diesel engine in the industry and has the lowest emissionsof its performance class. This is a product of a cooperation agreement entered into by Voith and
Liebherr, both technology companies, in September 2017. The market launch of this product innovationis scheduled for 2020. The Voith Rail Engine will form a central element of new product variants of theVoith Rail Pack, which also includes the transmission in addition to the engine to form a complete drive
system. In 2018, Voith was awarded a contract by a leading rail vehicle manufacturer who intends tointegrate our new RailPack – consisting of the Voith Rail Engine, a Voith cooling system and Voith DIWA
NXT (a version of the bus transmission adapted for rail use) – into its new vehicle platform.

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Digital Ventures: OnCumulus IIoT platform launchedAs part of the foresight management system in place throughout the Group and the Deep Dive Days,
the Group Division Digital Ventures examined the possibilities arising from the use of digital technologies
taking account of the various visions for the markets served by Voith. One of the aims is to find solutions
with demonstrable added value for our customers in the form of cost cutting, improving quality andboosting production through process stabilization and refined maintenance management. The technology
radar created in this context will, in the future, also help with the assessment of new technologies andhow to integrate them into our technology roadmap. The findings made have already been incorporated
into the current product development planning.

Further informationon the Voith Innovation Lab can befound in section 03.4.
Digital Ventures.

Further details on
the aforementioned
industry-specificapplications canbe found abovein this section in
the description of
R&D projects of therespective Group
Divisions.

We formed the Voith Innovation Lab in October 2017 with the intention of driving forward innovations torefine Voith’s portfolio of digital products.
Following completion of an extensive development project conducted over a period of several years,
we unveiled our Industrial Internet of Things (IIoT) OnCumulus.Platform to the professional community
in the year under review, thus reaching a milestone in the field of enabling technologies. OnCumulus isintended to provide support to industrial companies with digital transformation. OnCumulus.Platform
acts as a structured data hub for data from various sources, for example from machines, ERP systems
and external data sources. In this way, OnCumulus makes it possible for manufacturing companies
to use data from all systems and across all plant and equipment, irrespective of location. Crosssectoral basic functions (“OnCumulus.Suite”) belong to the standard configuration of OnCumulus. At
the same time, OnCumulus is the basis for a wide range of industry-specific applications that Voith
customers can source from us. OnCumulus will be available from the 2018/19 fiscal year onwards
along with the associated applications for the paper industry (OnEfficiency.Strength, OnCare.Asset,
OnEfficiency.MassBalance), for hydropower plants (OnCare.Acoustic, OnCare.Asset) and for commercial
vehicles (OnEfficiency.DriverAssist, OnEfficiency.SmartAccelerate). There are plans for further cloudbased applications from the Group Divisions Hydro, Paper and Turbo to run on the OnCumulus.Platformin the future.
In the year under review, we made further enhancements to merQbiz, our digital marketplace forrecovered paper, launched in the previous year. An extension to the range of services – integrated
logistics solutions – has been online since January 2018. To this end, we entered into an exclusive
partnership with C.H. Robinson, one of the world’s largest logistics groups. We are currently working
towards further improvements.

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06. Sustainability

06.

105

Sustainability
For us, sustainable business and the pursuit of corporate successgo hand in hand. We aim to create measurable added value in theareas of economy, ecology and society and also make Voith thebenchmark 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 tangible contribution to sustainable development.
An independent body has now confirmed that Voith is one of the leading companies in its sector in thefield of sustainable business. In the current corporate rating by the recognized rating agency ISS-oekom,
our sustainability activities were given a C+ grade. This means that Voith has reached prime status
for the first time and belongs to the top 20 % of the 172 companies from the mechanical and plantengineering industry examined. Step by step we are approaching our aim of becoming the benchmark
in our markets for sustainability issues.
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 and our employees as well as social responsibility. Informationon the field of action regarding profitable growth can be found in sections 02, 03, 04, 09 and 10 of thismanagement 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.

The Voith
Sustainability Report2017 is available on
the Internet at http://voith.com/corp-en/
vz_sustainabilityreport- 2017_en.pdf.

Voith began implementing sustainability management throughout the Group in 2008. Since 2009,
Voith has systematically recorded and analyzed environmental data, materials indicators and relevant
personnel data. We have published an extensive sustainability report every year since 2011. Support for
the work by our sustainability experts and executive managers comes from powerful IT systems – hse+
for occupational health and safety and environmental protection issues as well as pep. for humanresources. In this respect, they can rely on data integrated across Group Divisions and regions andhighly standardized and automated processes for their day-to-day work.
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 most recent
survey, which had a reworked concept, started in October 2018. In order to reconcile external expectations
with internal perspectives, we are also holding personal interviews with Voith executive managers for the106Voith Annual Report 2018
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06. Sustainability

Our most important
stakeholders are
Voith’s owners andsupervisory bodies,customers, employees, applicants, suppliers and investors,
the local population
at the locations, business associations,public authorities
and academia, andpolicy-makers.

first time in 2018. The findings of both dialog tools and the materiality analysis based on them will be fed
into the refinement of our sustainability strategy. Our Advisory Board Sustainability, which is comprisedof leading external sustainability 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.
With the 2011/12 fiscal year as baseline, the Corporate Board of Management had expressed three
central objectives in the field of environmental management that were to be achieved within six years.
For example, we wanted to achieved the following by the 2017/18 fiscal year (sales-related in each case):
1. Cut our energy consumption by 20 %2. Reduce our volume of waste by 25 %3. Lower freshwater consumption by 10 %We have consistently followed the path to reducing all three variables over the past six years. The final
results for the year under review will not be available until after the editorial deadline for this annual
report. We are working on the assumption that we have reached our reduction target in terms of volume
of waste and have lowered fresh-water consumption even further than planned. With regard to energy
consumption, we are not yet able to state with certainty whether the objective was reached.
Working together with the Advisory Board experts, we have defined new targets over the year underreview. The focus will remain on the three familiar main drivers in the future. The 2011/12 fiscal year willcontinue to be the baseline. We intend to achieve the following by the end of the 2021/22 fiscal year:
1. Cut our energy consumption by 30 %2. Reduce our volume of waste by 35 %3. Lower freshwater consumption by 40 %For the first time, we have also committed to a specific CO2 objective in order to make an additional
contribution to climate protection and to meeting the targets of the Paris Agreement. On the basis of
the figures for the 2016/17 fiscal year we intend to do the following:·· in a first step, reduce the CO2 emissions stemming from our electricity consumption by 25 % by theend of the 2021/22 fiscal year by correspondingly optimizing the grid mix,·· reduce our entire CO2 emissions by 35 % in relation to value-added by the end of 2024/25 and·· achieve a 90 % cut in our CO2 emissions in relation to value-added by the end of 2049/50.

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For the CO2 objectives from 2024/25 we will set additional interim objectives and milestones.

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 means that a great effort is required 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, werequest self-assessments from our suppliers and service providers on a regular basis and have thesuppliers with the strongest sales evaluated by our staff in the departments responsible. The results are
stored in our central supplier management database. Long-term relationships of trust with our suppliers
help us to minimize risks in the procurement process. In this context, we work with a preferred supplierand a blocked supplier concept. Social, ecological and economic aspects are included in both concepts.

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 have been
documented in the Group directive on donations and sponsorship since 2008. As part of our 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 an urgent
humanitarian need.

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07. Employees

07.

Employees
Qualified, motivated and dedicated employees are the foundationand engine 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
and enable them to pursue a wide range of different career
options. At the close of the 2017/18 fiscal year, the Voith Group
had around 19,500 employees.

Headcount increased on account of acquisitions

Further informationon this acquisition
can be foundin section 04.4.
Financial assets
and investments.

As at September 30, 2018, the Voith Group had 19,535 employees (full-time equivalents without
apprentices). On balance this is 578 jobs more than one year before (September 30, 2017: 18,957).
This figure does not include the 92 employees (previous year: 88) of the discontinued operation Voith
Composites.
The rise is largely due to the first-time consolidation of FlowLink Systems, whose approximately
690 employees were organizationally allocated to the Group Division Digital Ventures and appear in our
personnel statistics for the first time.

New employees for Digital Ventures
The largest Group Division by headcount remains Paper, with 34 % (previous year: 34 %) of the total
headcount. Paper had 6,618 employees, 169 more than a year before. The slight increase in headcount
was largely made to process the high level of orders on hand.
Turbo had 5,543 employees (previous year: 5,408) or 28 % (previous year: 29 %) of the Group’s headcount. The 135 new jobs were mainly created in the Product Innovation and Engineering Excellence
departments.
The Group Division Hydro had 3,927 employees (previous year: 4,507 employees), i.e. 20 % (previous
year: 24 %) of the Group’s total headcount. The number of employees working for Hydro fell by 580,
above all due to capacity adjustments in Brazil and the EMEA region because of the decline in businessdevelopment.

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Digital Ventures had 2,256 employees at the end of the year under review (previous year: 1,397), whichis equivalent to 12 % (previous year: 7 %) of the Group’s headcount. The majority of the increase inheadcount is due to the first-time consolidation of FlowLink Systems. In addition, the young Group
Division succeeded in filling various vacancies through external recruitment in the competitive market
for IT specialists.
The headcount in the Corporate Functions & Services department remained almost unchanged at 1,191(previous year: 1,196).

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: 40 %). Asia was the second most important region
with a 24 % share (previous year: 21 %). We employed 21 % (previous year: 24 %) of our workforce in theAmericas. The Europe excluding Germany region accounted for 14 % of the total workforce, as in theprevious 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 maintained a high number of apprenticeships. At the close of the 2017/18 fiscal year, 795 apprentices
and students were employed at Voith locations around the globe (previous year: 953, - 17 %).
As a matter of tradition, we set great store by first-class vocational training. We place great value
on interdisciplinary learning and a holistic approach of imparting a combination of both social andprofessional skills. The high quality of our training is repeatedly demonstrated in Germany by theexcellent performance of Voith apprentices at state and federal level. In the 2017/18 fiscal year, 57 % of
our apprentices in Heidenheim received a final grade of 1.9 or higher (equivalent to good). Following
successful completion of their training, we offered all former trainees a permanent position.

Employees total 19,535

Employees Groupby Group Division

18,957

19,535­Turbo28 %by region

Hydro
20 %

Americas21 %EuropeexcludingGermany
14 %

Other
6%

2016/172017/18

Paper
34 %

Digital­Ventures
12 %Germany
40 %

Asia
24 %

Other
1%

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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 usually four-year apprenticeship program aimed
at young people of 15 years and older that regularly provides excellently qualified young technicians.
Graduates with a college or university degree in engineering, business administration or IT are offereda challenging entry-level position in our Company as part of the Global Graduate Program (GGP).
Recruited from around the world, the participants gain practical experience and attend training sessions,
are supported by a mentor and work in various Group Divisions and regions over the course of the
18-month program.

Training for Industry 4.0
As part of digital transformation, modern information and communications technologies merge withindustrial processes. In order to prepare young people appropriately for a changing production
landscape, we integrated new digital work contents into the training for technical professions at Voithover the 2017/18 fiscal year. These are interdisciplinary skills, such as additive production processes
with the aid of 3D printers, using manufacturing execution systems (MES) or using augmented reality(AR). To name one example, we invested in an AR welding simulator in the year under review andhave made this state-of-the-art technology part of our training program. Furthermore, we put four
lightweight robots into operation at the Heidenheim-based Voith Training Center in fall 2018. Several
trainees and one trainer have already received training on the “Panda” at the Munich headquartersof the manufacturer, Voith Robotics; they will be employed at a Customer Experience Center in
Heidenheim in the future to show interested customers how to operate the industrial robot. In addition
to modernizing Voith’s own training program, we were closely involved in the institutional overhaulof the metalworking and electrical engineering professions in Germany by providing expert opinions.
From the 2018/19 training year onwards, the companies will train the skilled workers for their own
future needs in eleven modernized industrial metalworking and electrical engineering professions. The
training regulations for these professions have been augmented with greater IT content and adapted to
the latest technological developments. This allows Voith to live up to its ambition of being the training
pacesetter and pioneer in Germany.

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Needs and goal-oriented personnel development
Lifelong learning is a core topic at Voith. We support the ongoing development of our employees.
Businesses are currently facing a range of challenges arising from the enormous speed of change – forexample, in association with digitalization, but also in other areas. Furthermore, the business environment is characterized by increasing complexity, non-linear cause-effect relationships and a lack ofpredictability. This gives rise to new challenges for executive managers and employee alike. New formsof collaboration and communication, stronger networking across teams, departments, national borders
and hierarchical levels will shape the world of work in the future.
Our personnel development concepts are intended to help us, as an organization, to prepare for achanging working world and empower our executive managers and employees to actively participate inshaping it. With this in mind, we implemented our new leadership concept over the year under review.
“Expected Behaviors” derived from our mission statement and the values it outlines came into effectin the year under review; these are intended to provide all Voith employees with guidance with regard
to their conduct and actions. Our leadership calendar forms the operative framework for personnel
development. The key elements are two institutionalized meetings which are held with every employee
once a year, the performance review and the employee appraisal. The outcome of these meetings
together with the findings of the management review process are entered in our people excellence
platform (“pep.”), an IT-based personnel information system, so that development measures can be
defined and implemented in line with the Company’s needs and the requirements of any function ora position to which an employee may aspire. Based on our employees’ individual training needs, weoffer them access to internal and external training and personal development measures that foster
professional, personal and methodological skill sets.
Our executive managers take part in standard development programs to create a common understandingof leadership across all Group Divisions and regions. We restructured and revised the content of these
programs over the year under review in order to meet the challenges outlined above. In this respect,executive managers are to be put into a position to act and guide others in an increasingly complex
world characterized by change.
In order to prepare our employees for the digital transformation, we have developed in collaboration
with the Fraunhofer Institute a comprehensive e-learning platform relating to all aspects of digitalization;
it went online at the end of the year under review. DRIVE is available to all Voith employees to use on a
voluntary basis and is intended to break down any mental barriers, awaken interest, impart knowledge,
stimulate debate, invite members of staff to play with digital applications and promote collaboration
across teams, national borders and hierarchical levels. The platform uses “gamification”: participants go
on a playful journey and elements familiar from e-gaming, such as progress bars, high scores, virtual
badges and anonymized rankings, are used to boost motivation to learn. The English version of DRIVE
was the first to go online. Advanced modules and localizations in the main languages used within theGroup are gradually being added.
In the year under review, there were around 69,400 participants (previous year: around 60,800) fromthroughout the Group in our internal and external training measures.

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Occupational health and safety management
Occupational health and safety are top priorities for us. By taking a responsible approach in designingworkplaces and processes, we aim to avoid accidents and work-related illnesses in the best possible way.
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 cascaded from the Boardof Management through the respective executive managers down to employee level. In this respect,personnel managers train their staff and address safety issues at regular meetings. This process is
supported by central training documents.
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 per year, in the 2008/09 fiscal year. In the year under review, the number of accidents was
1.5 (previous year: 1.4) per one million working hours or a total of 52 (previous year: 50) accidents.
In comparison: the average frequency rate for companies in the German Wood and Metal Trades
Association is 22. There has also been a significant improvement over the long term in what is known as
the severity rate – in the year under review it stood at 341 (previous year: 271) hours lost per one million
working hours. Our success has also been confirmed by external opinions – for example we achieved
a top score of A+ for our occupational safety rate in the ISS-oekom rating.
Despite our enormous efforts and the measurable successes achieved in the field of occupationalsafety, the 2017/18 fiscal year was overshadowed by two work-related fatalities. One incident occurredin February 2018 at one of the Group Division Hydro’s Chinese plants and the other in April 2018 at aGroup Division Paper plant in the USA. These were the first fatal accidents at any of our plants for ten
years. We are deeply saddened by these incidents that led to the death of two Voith employees. In
cooperation with the local authorities, we undertook a rigorous and extremely transparent investigationof both incidents. Our efforts in this respect focused on determining the causes and further refining ourprocesses. Alongside the specific measures already implemented, we launched additional activities
throughout the Group to improve occupational safety in June 2018. To this end, all production facilities
were subjected to an additional uniform safety audit by the end of the fiscal year with a view to identifying
any overarching weaknesses. In addition, new Group-wide information and educational initiatives
focusing on the topics of occupational safety and accident prevention were launched. Even if we haveachieved a great deal in the past, two accidents of such severity within only a few months of each othershow how vital it is for us to continue placing a strong and uncompromising focus on strict occupationalsafety measures.

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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.

Diversity and equal opportunity
Voith employs men and women who are at different stages of their lives, come from around 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 and individual differences such as beliefs or physical abilities. For us, “inclusion” means promoting a culture of interaction
based on respect that is open to differing perspectives and approaches. The overarching objective is toincorporate a wide range of insights and experiences into the solution of complex customer requirements.
The D&I program ranges from increasing employees’ awareness through initiating suitable measures
to establishing an inclusive working environment at all locations. While the program is coordinated byour central HR function, the respective focus is defined and the program implemented by the regionaland divisional management as the challenges faced in the various regions and Group Divisions differ.
In the year under review, we continued our work to entrench the topic in the minds of Voithians. In
October 2017, we held a D&I conference with more than 100 executive managers mainly from the senior
management circle in order to maintain awareness at the highest management levels. Participation on
the part of the entire Corporate Board of Management made it clear that they consider diversity andequal opportunity to be important issues. Furthermore, a one-day workshop on the topic of D&I was
integrated into the leadership development program as a fixed component for new executive managers.

Information on
the development
program for executive
managers can befound below in thissection under theheading Uniform
global job grading
system introduced.

A global information campaign directed at all employees ran at frequent intervals via a wide range of
online and offline channels over the entire year under review. The campaign relies, for example, on dialog
and the playful opportunities provided by social media to achieve a high level of emotional commitment
from employees.
Even if we at Voith have our eyes set firmly on all five dimensions, new legislation currently puts the genderdimension at the center of public debate in Germany. As women are traditionally still underrepresented
in technical professions and courses of studies, technology companies, especially in the B2B segment,
employ significantly fewer women than men, as a rule. This is one of the reasons why the proportionof women in the Voith Group’s overall workforce stood at only 18 % on September 30, 2018 (previous
year: 18 %; based on headcount).

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We, too, have made a priority of addressing this situation and are working to increase the percentage offemale employees in the overall workforce. A wide range of measures has been initiated relating primarily
to the selection procedure used in the recruitment of new employees and filling internal vacancies. The
decisive factors in the selection of suitable candidates will, however, remain the qualifications, performance and personality of the candidates concerned. We consider the share of women in management
positions the most effective starting point for increasing the proportion of women in the Group as a whole.
Furthermore, the new German Act on Equal Participation of Women and Men in Management Positions(FührposGleichberG) obliges us to define and publish specific targets for the management holding
company Voith GmbH & Co. KGaA. Based on the figures as at June 30, 2017, we have set the following
targets to be met by the end of the 2020/21 fiscal year.
Proportion of women* at the management holding company Voith GmbH & Co. KGaA
Baseline
2017- 06- 30

Target quota
2021- 09- 30

Supervisory Board

15

15

First level of management below the Corporate Board of Management

25

25

Second level of management below the Corporate Board of Management

16

20

in  %

* Based on headcount.

The Board of Management is employed by Voith Management GmbH. We are aiming to achieve a
consistent 25 % of women in the first level of management 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 level of 16 % (on June 30, 2017) to 20 % by the target date. Bearing in mind theterms of existing contracts, there is no plan to alter the proportion of women on the Supervisory Board.

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 theCompany, flexible work locations and vacation rules as well as sabbaticals. Digital solutions aimed atpromoting a work-life balance are gaining in importance. One example of our commitment to this principle
is our involvement in the familyNET 4.0 model project sponsored by Baden-Württemberg’s ministry of
economic affairs. This project develops digitally supported working models and forms a platform for theexchange of best practices.

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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.
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.

Uniform global job grading system introduced
In the 2017/18 fiscal year, we introduced a uniform global grading system at Voith. While the value of ajob was in the past derived primarily from its reporting line and manager to staff ratio, the new system
is based on responsibility, required expertise, experience and social skills. This means that the new
system will not only properly reflect management careers, but will also do justice to the importance ofspecialist careers. Ultimately every position in the Group can be evaluated according to its relative value
for the Company regardless of its position in the hierarchy. Over the course of the year under review,
all upper level specialist and management positions in all regions were classified in the new grading
system; in some regions, this task has already been completed for all positions. This process is to becontinued in the 2018/19 fiscal year. The grading system is now the basis for various HR processes,
from job advertisements through the planning of career paths and personnel development measures tothe design of compensation and retirement benefits systems.

Focus on service staff
Across all Group Divisions and across all regions, we are working in a targeted manner to exploit thegrowth potential we see in the service field. If it is taken into consideration that the service area is alabor-intensive business, it becomes all the clearer that we will see personnel requirements grow at afaster rate over the coming years. Over the course of the year under review, we spent a great deal oftime and effort addressing how we can succeed in recruiting a sufficient number of qualified employees,
providing for their ongoing development and ensuring they have the necessary qualifications and remain
loyal to Voith over the long term. In a first step, we used workshops to inquire about the needs andexpectations of service employees; a comparison of the data collected with the employees’ perceptionof the current situation was used to identify the action required. In the second project phase, we defined
subprojects and measures aiming to increase awareness of service professions and boost their image,to improve further training opportunities for service staff and to point out career paths as well as tocreate a positive working environment and attractive conditions. Introduction of the measures has alreadycommenced and is scheduled for completion in the 2018/19 fiscal year.

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Efficient processes and systems for human resources management
We have been consistently employing standardized processes and integrated IT systems for several
years now. Our modern cloud-based personnel information system pep. is the central source of
information for human resources. It maps all relevant HR processes and lays the groundwork for soundbusiness decisions. 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 is created with regard to reporting lines and expert knowledge. Thisfacilitates the creation of virtual teams which function across national borders and Group Divisionboundaries. The HRcockpit reporting tool associated with pep. provides our human resources experts
and executive managers with key figures at the press of a button. In this way, permanently up-to-date
figures are available for each area of responsibility, for example average manager to staff ratios, staff
turnover rates or the proportion of jobs which have been filled through internal succession plans. Smartanalysis tools can be used to make comparisons with other business units.
pep.’s functions are gradually being extended and its user-friendliness optimized. In the year under review,for example, we put in place a remuneration management module that has been used to coordinate
the processes governing pay raises and bonuses since the 2018/19 fiscal year. What’s more, we madeHRcockpit accessible to further levels of management and further expanded the self-service area for
employees and executive managers.

Harmonization of employee benefits in North America
In the year under review, we took a big step towards standardizing the personnel management processes
in place in the North America region. As employer obligations are less regulated and the social security
systems are organized to a lesser extent by the state in North America than in Europe, very different
remuneration and supplementary benefit systems have evolved in the individual Voith companies over the
past decades. We have now reorganized the most important benefits systems relating to salary, social
welfare, vacation and other employee benefits and harmonized them across all North American facilities
in a two-year project. In this context, processes and conditions were standardized and the number ofexternal insurance partners and service providers was reduced. Harmonization is advantageous for
employer and employees alike. Voith, for example, benefits from reducing the complexity and boosting
the efficiency of processes in personnel management; administrative costs are reduced considerably.
For the employees, for instance, the administrative fees associated with their retirement plans havebeen reduced – while maintaining the level of service and the number of investment options available.
Furthermore, it is now possible for employees to switch easily between different Voith companies inNorth America.

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Excellent employer
The Voith employer brand enjoys an outstanding reputation. This is repeatedly confirmed by institutes,
on job portals and in employer rankings. We won various awards in the 2017/18 fiscal year. For example,
Voith won third place in the mechanical and plant engineering industry in the “top career opportunities”
study published by Focus Money/Deutschland Test in October 2017. The study covers the 10,000 largest
companies by headcount based in Germany. The three dimensions of working environment, workplace
attractiveness and innovative strength were assessed. The data included in the evaluation was collected
firstly on the basis of a questionnaire at the companies concerned and secondly by means of social
listening. Voith is also a highly popular employer among talented young people and is frequently listed
among the top 100 companies in Germany cited by young professionals and students in the engineering
industry. As an example, Voith was ranked 85th by engineering students in the annual ranking performedby the Swedish market research institute Universum. The Company’s good performance among young
graduates is confirmed by the trendence Graduate Barometer in which Voith was recently ranked 90th
by engineering graduates. The students’ positive expectations are evidently confirmed by an internshipat Voith: in the Clevis Future Talents Report, which, with more than 5,000 participants, is the largest
survey of interns on the German labor market, Voith was awarded three stars, the second-highest rating,in 2018. Acknowledgment of the quality of training at Voith was provided in March 2018 in the form of
the “Germany’s Best Training Companies” seal of approval awarded by Focus Money/Deutschland Test.
In the survey, Voith took 24th place of 168 mechanical engineering companies examined. 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. In
China, too, our dedication to our role as employer is increasingly being recognized and acknowledged
with HR prizes. To name one example, Voith took a place among the top 100 employers in the Employer
Excellence of China award once again in 2017 or, in other words, for the fifth consecutive year. The
prize acknowledges outstanding achievements in the field of HR work and is awarded by the renowned
Chinese HR services provider 51job, Inc.

08.
Further information
on changes in the
Corporate Boardof Managementin the year underreview is available insection 01.5. of thismanagement report
Significant events.

Subsequent events
Dr. Toralf Haag becomes President and CEO
Dr. Toralf Haag was appointed President and CEO by the Shareholders’ Committee with effect from
October 23, 2018. Dr. Haag, a member of the Corporate Board of Management since October 2016
and responsible for finance and controlling, will initially retain the finance portfolio and exercise both
functions at the same time until further notice. Dr. Haag succeeds Stephan Schaller, who resigned fromhis office as of October 23, 2018.
No additional significant developments have occurred since the close of the 2017/18 fiscal year.

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09.

Risks and opportunities
Entrepreneurial activity includes making decisions under conditionsof uncertainty. Our risk management system allows us to identify
and manage risks to protect the Company. There are still no
identified 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 toward 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 or its
companies as a going concern, Voith operates a 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 the valueof the Group and its companies by reducing potential risks and their probability of occurrence. At thesame time, the system is intended to produce a state of equilibrium between correctly assessed risks andthe exploitation of opportunities. Standardized risk controlling matrices on the basis of the Group-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 and reliability ofinternal reporting and external financial reporting, the effectiveness, efficiency and propriety of ordinary
business operations, as well as compliance with the Voith Code of Conduct and the guidelines of theVoith Group. Risk and quality management are interlinked and integrated in a comprehensive internal
controlling system.

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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 asa cost factor. In order to assess the potential risk, the worst-case scenario and a realistic scenario
are analyzed for each identified performance risk, and their impact on the financial situation of theGroup is examined. This involves monthly reporting to the Corporate Board of Management of thoseindividual risks with a maximum risk impact of >€ 5 million or a realistic risk impact of >€ 2 million,
including the measures taken to mitigate this risk such as existing insurance policies, recognizedprovisions or recorded impairment.
·· 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 Voith’s
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 ourbusiness position, 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 estimate
the current importance 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 development were to fall substantiallyshort of expectations, it is highly probable that this would have negative effects on Voith’s businessposition, net assets, financial position and earnings position. Economists see significant risks for the
projected global economic development. The global economy is developing well overall despite politicaland economic instability in various countries and regions. For the short term, the sound growth in the
global economy seems to be continuing but it could slacken in the medium to long term. Potential
triggers for a downswing include protectionism and trade barriers, an end to loose monetary policy andrising crude oil prices.
Many experts see the trade dispute started by the USA, particularly with China and Europe, to be themost serious risk to the global economy. While the EU and the USA have found a solution for the time
being, the dispute with China could escalate further. The negative effects for global trade could have aserious impact on the global economy.
An escalation of the conflicts in the Middle East and in eastern Ukraine could similarly have a negative
effect on the further development of the global economy.
Unstable political situations in many regions of the world are another factor. In Europe, these include,for example, the relationship with Turkey and the latter’s economic situation, the uncertain outcome of
the Brexit negotiations and structural problems in Italy. The unpredictable nature of the US president’s
trade and foreign policy is causing uncertainty around the globe. The ongoing political crisis in Brazil isparalyzing development in this major South American economy.
A more medium-term risk for the global economy is the as yet unresolved crisis in the euro zone. Thisis currently being masked by the European Central Bank’s expansionary monetary policy. However, thehigh level of sovereign debt and the structural reforms urgently needed in several countries to increaseinternational competitiveness continue to pose challenges.
Various market risks could have a negative impact on Voith’s earnings position should they eventuate.
The power generation market is currently characterized by uncertainties regarding energy policy, to which
the Group Division Turbo, and the Group Division Hydro even more so, will have to adjust. In balancing
competing objectives – combating climate change, dispensing with potentially hazardous nuclear power
plants, achieving supply reliability, low energy prices, striving for energy autonomy – various countries
are following different paths. In this context, the energy policy framework is being adjusted at shortintervals, which entails a lack of planning security for all market participants. Hydropower is currently
only benefiting to a limited extent from the trend towards renewable energies because in Europe solar
and wind power are highly subsidized, which reduces incentives to invest in hydropower.
After a very strong 2017/18, the paper market is likely to significantly weaken. In addition to the market
contraction that has already been taken into consideration in our planning, competitive and price pressure
could have a negative impact on the earnings position of the Group Division Paper.

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The Voith Group has analyzed the scenarios described in the above. The Corporate Board of Management
is ready to take decisive action should economic conditions change.
Management risks
Voith has set itself the aim of playing a major role in digitizing industry and will continue to makeconsiderable investments in the key competencies for the Industrial Internet of Things megatrend
over the next few years, both within the Company and through acquisitions. The young Group Division
Digital Ventures is intended not only to develop new digital solutions for our traditional core markets incooperation with Hydro, Paper and Turbo, but also to open up customer industries not covered by us
to date for new applications and business models (incubation). As is always the case with such majortransformation 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 the investments and build-up
costs for the young Group Division not be covered by corresponding sales in the medium term, thiswould have a negative effect on the net assets, financial position and earnings position of the Voith
Group and limit leeway for further growth. We are highly aware of this risk as well as of the associatedopportunities. Strict project controlling is in place. The enhancement of the Voith product portfolio withdigital 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 are used 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.
The Voith Group’s diversified financing structure is designed to safeguard long-term stability. In viewof the very high level of liquidity prevailing after the sale of the KUKA shareholding in the 2016/17 fiscal
year, we further reduced our debt in the year under review. For instance, the variable tranches of thenote loan in an amount totaling € 139 million was repaid early at the end of May 2018. The syndicatedeuro loan of € 770 million arranged in 2011 was refinanced in April 2018 and adjusted to € 550 million.
It includes an option to increase the facility to € 750 million once the banks have given their approval. It
was possible to adjust the facility to the good financial position in a favorable market environment. The
loan has not been drawn on and will be available as a strategic liquidity reserve until 2023 and, if thetwo renewal options are exercised, until 2025. In addition, Voith has free bilateral bank credit lines inplace for low-interest financing of fluctuations in working capital. The syndicated loan placed in China
in 2012 for more than CNY 2 billion was reduced to CNY 1 billion by means of early repayments of the
capex tranche. This loan is available until May 2020 and was 35 % utilized at the reporting date. This

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facility secures the finance for future investments and for the operating business in the same currency
as the operating business on the local market. These instruments will allow for long-term growth in achanging global market environment. Voith gives high priority to the availability of liquidity from existing
loan agreements. Risks of termination are minimized by monitoring compliance with the terms andconditions of the respective contracts on an ongoing basis. As in previous years, all contractual terms
and conditions were complied with in full in the 2017/18 fiscal year.
The rating given by Moody’s was raised from Ba1 to an investment grade of Baa3 in December 2017.
In addition, the rating agency S&P issued its first rating of BBB-, which is of a comparable level. Scope
Ratings published its first rating assessment of Voith in May 2018. At BBB, the rating given is one level
higher than Moody’s and S&P.
As a globally operating company, Voith remains exposed to the risk of fluctuating foreign exchange
rates, which could have a negative impact on the business position, net assets, financial position andearnings position. To contain risks arising from cash flows in different currencies (mainly US dollars
but also currencies from emerging markets such as China, Brazil or India), defined foreign currency
management procedures are applied consistently throughout the Group. All Group companies are
required to hedge foreign currency items when these occur. Revaluation of the euro against various othercurrencies could have negative effects on sales and results 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 arehedged 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.
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.

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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 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, assigned to the Group Division Digital Ventures, to ensurethat reliable data processing services are provided from our own computer centers. These experts
manage the whole IT infrastructure for the Group and also 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 centeris certified under this standard. Our primary objective when it comes to managing IT risks is to ensure
the availability of our IT infrastructure and IT applications used. Outages of basic systems owing totechnical faults, virus attack or force majeure would result in business processes being massively
disrupted or coming to a complete standstill. In order to prevent such business interruptions, we havebuilt redundancy capacity into the core systems of our IT landscape at two computer centers. At theapplication 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 and approval process before they are
implemented. In order to maintain the confidentiality of our data, these are categorized according topredefined 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 in the best possible way. In addition to these technicalmeasures, we train and inform our employees about how to securely handle confidential data by meansof e-learning programs and awareness campaigns.

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

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.

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Further informationon compliancemanagement in theVoith Group can befound in section 01.3.
Values, guidelines,
compliance.

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 forinternal 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. Within the scopeof an ongoing audit being performed by an international organization with the active support of theCompany, the Company has identified indirect remuneration payments to a representative of one of its
subsidiaries made by that subsidiary without the approvals necessary according to the regulations inplace throughout the Group. The contract with the representative has been terminated, the necessary
personnel-related measures will be taken.
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. Since the 2009/10 fiscal year, environmentally relevant data have been systematicallyrecorded and analyzed. 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.

09.2.2. Risks to performanceContractual risksLong-term contracts, especially for major projects, form a key component of our plant engineeringbusiness at the Group Divisions Hydro and Paper. Such contracts are associated with a host 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 of changes in costs or
productivity during their term. Also possible are cost overruns or contractual penalties stemming from
unexpected technical problems or unforeseeable developments at the project locations. Several of ourmultiyear 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 the planning. Any
deviations are addressed early on. Regular checks ensure that adequate provisions have been madeto 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Voith Annual Report 2018
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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 the Voith
Group.

Detailed information on foresight
management and on
the current focusesof our R&D activities
can be found insection 05. Researchand development.

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

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, and toresearch 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 most innovative
companies in the business segments it serves. Within the scope of the strategic foresight management
system introduced throughout the Group in the year under review, we are systematically addressing
future trends in the market and technology environment and set the priorities for our development
projects. The foresight management system will help us to get involved in disruptive technologies fromthe very beginning, to maintain our competitiveness and actively participate in shaping the future of
our markets. Furthermore, the design-thinking methodology was comprehensively deployed for the
first time in the year under review. It allows a better understanding of customer and market needs andmakes it possible to closely tailor new products, especially those from the digitalization environment,
to those needs.
Collaboration with suppliers on the global procurement markets involves material risks with regard
to supply disruptions, unforeseen cost increases and non-compliance with environmental and social
standards. To secure our supplies, we have embedded effective measures in the relevant purchasing
processes – supplier selection, order processing and delivery date tracking. In addition, we have amultiple source policy in place in order to circumvent the risks of supply outages and supplier insolvency
at a global level. Once again in the 2017/18 fiscal year, we additionally used master agreements andlong-term fixed-price contracts to prevent unplanned cost increases where procurement volume issignificant. We have integrated compliance with current national environmental and social standards
in our General Terms and Conditions of Purchase.
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 more than 100 years. We survey customer satisfaction in order toobjectively assess and enhance our customer service.

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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 careful assessment.
Maximum risks are considered in the light of whether they constitute risks jeopardizing the Group’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 € 201 million (previous year: € 221 million) were recognized in
the balance sheet as at the reporting date for significant performance risks (maximum risk: € 285 million;
previous year: € 338 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.
In the following, we describe significant opportunities that could have a positive impact on our businessposition, 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 theimportance of these opportunities to be for the Voith Group. Unless stated otherwise, the following
opportunities relate to all the Group Divisions.
Growing service business from postponed spending on new equipment
In recent years, spending on new equipment and machines was postponed in several 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 andspare parts. A growing number of our long-lived plants, products and components installed around theworld 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.

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Detailed informationon the Company’s
strategic principles
can be found insection 01.4 Groupstrategy.

See section 05.
Research anddevelopment oncurrent productinnovations.

127

Growth through acquisitions
As part of our strategy, we have specified business acquisitions and joint ventures as a core growth
driver for Voith. Possible acquisition targets include profitable businesses with viable technology andabove-average growth potential. They can either have the potential to round off our core businessin the Group Divisions Hydro, Paper and Turbo, or constitute completely new activities for Voith. We
use structured M&A processes to continually screen potential target companies for their suitability.
Even in the short term, acquisitions offer opportunities for additional earnings not provided for in thebusiness plan; in the mid-term they can help improve our position in existing markets or tap promising
new customer industries for Voith.
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 ourmarket position but also to generate sales and win market shares that have not yet been integrated
in our business plan, especially if innovations are recognized as value adding by our customers much
faster than currently assumed. We gear our development activities toward global megatrends as wellas to current technology trends and new industry-specific requirements, for example those that are
regulatory in nature. We use our Group-wide foresight management to analyze these market andtechnology trends, develop technology roadmaps and prioritize our development projects. In theyears ahead we will particularly be focusing on new digital offerings and solutions in the field of theIndustrial Internet of Things.
Opportunities associated with the global economy
Given the ongoing good situation of the global economy overall, we currently expect a generally brighter
investment climate in the 2018/19 fiscal year and the following year. If the economic environment inimportant sales regions proves to be better than currently assumed, this is likely to have a positive
impact on Voith’s business position, net assets, financial position and earnings position. Developments
in Brazil will need to be monitored particularly closely in this respect. A solution to the political crisis
there could 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 holdcould also be awarded. Developments in the global economy which exceed current expectations would
benefit all Group Divisions, albeit with different degrees of delay, but in all cases from the second halfof the 2018/19 fiscal year at the earliest.
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 underrepresented 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.
Increasing investments in the oil & gas market due to a sustained higher oil price
Our planning for the 2018/19 fiscal year is currently based on a volatile oil price development and only
slightly increasing investments in the oil & gas market that will, however, remain at a low level comparedto the long term. If, in contrast, the oil price were to rise on a permanent basis and noticeably exceed

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the USD 80 mark per barrel of Brent oil in the long term, oil companies might increase their investments
and expenditure on service activities to a greater degree than we currently assume. This would improveGroup Division Turbo’s order situation.
Opportunities in Africa
Africa offers great potential especially for the Group Divisions Hydro and Turbo. As the markets onthat continent are proving to be volatile and difficult to predict, however, we have made conservative
assumptions in this respect for our business planning. The Voith Group’s earnings position would benefit
from a situation where African markets develop faster than assumed or Voith’s entry into the local
markets is able to speed up.

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 reporting andVoith Annual Report 2018
Group Management Report
09. Risks and opportunities

129

contain corresponding instructions on controlling activities, responsibilities and documentation duties.
Among other elements, the controlling activities comprise analytical procedures as well as the practiceof having significant and complex business transactions processed and controlled by different people.
Complex accounting issues are referred to corporate departments (e.g. financial instruments) 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 areundertaken 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 ensure thatprocesses 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 independent 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.

130

Voith Annual Report 2018
Group Management Report
10. Forecast report10.

Forecast report
After two years which were largely characterized by sideways
movement, the signs point to growth again. We expect perceptible
growth in orders received and slight growth in sales for the 2018/19
fiscal year. At the same time, we are putting increased effort into
improving Voith’s profitability and want to perceptibly increase
the operating result. Both the core business and the young Digital
Ventures Group Division are to contribute to this.

10.1. Business environment
Positive short-term economic conditions continue

For more informationon the risks andopportunities for the
global economy,
see sections 09.2.
Risks and 09.3.
Opportunities ofthis management
report.

At the beginning of the 2018/19 fiscal year, the global economy remains in good shape overall despite
political and economic instabilities in various countries. However, the risks for economic development
worldwide have increased noticeably. Alongside geopolitical flash points, increasingly protectionist
tendencies in particular are giving rise to uncertainty and may well constitute barriers to global trade. In
its most recent publication in October 2018, the International Monetary Fund (IMF) forecasts percentage
growth rates at the previous-year level for 2019 and 2020 (+3.7 % in each case). Even if these forecasts
are rather optimistic from our perspective, we again anticipate sound growth in the global economy
over the 2018/19 fiscal year.
A slight decline in the growth rates is to be expected for the advances economies in 2019 (IMF forecast:+2.1 %), intensifying in 2020 (IMF forecast: +1.7 %). Growth in the euro zone economies is being dampenedby the trade dispute with the USA, the political uncertainties within Europe as well as overdue structuralreforms and a burden of massive debt in several European countries. As an export-based economy,
Germany could be very sensitive to the consequences of global trade becoming more difficult, which
has led to the economic projections for this country to be lowered several times over the year. As aconsequence of the short-term stimulus stemming from the corporate tax reform and buoyed by thehistorically low unemployment figures, the USA is expected to grow at a faster rate than the advanced
economies seen as a whole. The IMF does, however, forecast that the growth rates will level off
considerably in 2019 and 2020 even in the USA.

Voith Annual Report 2018
Group Management Report
10. Forecast report131

For the emerging markets as a whole, the IMF sees a growth rate for 2019 that is steady in comparison
to the previous year (+4.7 %) and rises even further (+4.9 %) in 2020. Developments in different countries
vary. While Asia in particular continues to demonstrate dynamic growth as forecast, some emerging
economies are coming under pressure from factors such as higher crude oil prices, higher bond yields in
the USA, detrimental exchange rate developments or political crises. Ongoing strong growth is forecast
for China, with growth rates in excess of 6 %. At the same time, a slight leveling off of growth rates isanticipated, firstly, as a consequence of the trade dispute with the USA and, secondly, as a consequenceof fundamental financial market reforms to reduce the level of lending. In the next two years India willprobably grow faster than China, and – assuming that the short-term negative consequences of theeconomic reforms are overcome – will gain further momentum. We also continue to anticipate dynamic
growth in Southeast Asia at rates above the average for all emerging markets. Further economic recovery
is expected in Brazil but the unresolved political crisis and the failure to implement reforms continue tobe seen as challenges. Following the recession, Russia’s growth rates are likely to remain below 2 %.
While this economy rich in raw materials is benefiting over the short term from the higher oil and gas
prices, the prospects of medium-term growth are dampened by outstanding structural reforms and theongoing trade sanctions.

Economic conditions predominantly positive in Voith’s markets
For the 2018/19 fiscal year, we anticipate predominantly positive conditions in Voith’s five markets.
As global energy needs continue to rise, electricity-generating capacities will be expanded further,focusing in particular on renewable energies. As part of this trend, the need for pumped storage
power plants to safeguard grid stability and supply reliability is also rising. In the conventional sector,
the strongest growth is expected in nuclear power generation. Despite the generally positive outlook
for hydropower, the volume awarded may be subject to volatile fluctuations from year to year that are
difficult to predict. As decisions on the awarding of several major projects are imminent, we assume
the market volume in the 2018/19 fiscal year will be slightly up on that reported in the year under review.
After the recovery in the oil price in the year under review, market analysts expect volatile price developments over the coming months and do not anticipate prices to noticeably stay above the USD 80
threshold on a lasting basis. Our planning for the 2018/19 fiscal year is based on a slight increase ininvestments in the oil & gas market that will, however, remain at a low level compared to the long term.
We remain optimistic with regard to the paper market. For the 2018/19 fiscal year, we expect global paper
production – and with it also the demand for consumables and service offerings – to continue a courseof slight growth. In our estimation, there will be a perceptible decline in investments in new machines
and major rebuilds following two extraordinarily strong years but they will remain at a good level. The
development in China will contribute to this decline as paper manufacturers there are confronted withlimited supplies of waste paper as a raw material on account of stricter environmental regulations.

132

Voith Annual Report 2018
Group Management Report
10. Forecast report

Economic growth
Real change in GDP on the previous year1)

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

2019

3.7 %

2020

3.7 %

2019

2.1 %

2020

1.7 %

2019

2.5 %

2020

1.8 %

2019

1.9 %

2020

1.7 %

2019

1.9 %

2020

1.6 %

2019

4.7 %

2020

4.9 %

2019

6.2 %

2020

6.2 %

2019

5.2 %

2020

5.2 %

2019

7.4 %

2020

7.7 %

2019

2.4 %

2020

2.4 %

2019

1.8 %

2020

1.8 %

Source: International Monetary Fund (IMF); World Economic Outlook, Oct. 2018.
1)
Forecasts.
2)
Including Germany.

With regard to the raw materials market, we assume that the turnaround has now been achieved and thatinvestment activities will see another slight increase in the 2018/19 fiscal year supported by price levels
for many raw materials remaining robust. The coal segment is one exception: a downward trend in prices
and declining investments are expected on account of fossil energy sources being phased out worldwide.
We anticipate slight investment growth in the steel industry on account of higher capacity utilization but
we also see uncertainties in this sector on account of the punitive tariffs imposed by the USA.
We continue to be optimistic about the segments of the transport and automotive market that are mostimportant for Voith. We expect a slight increase in the commercial vehicle segment. The global rail
market is also likely to see minor growth with clear impetus coming from the service business althoughcompetition remains intense. In the marine segment, we expect the recovery to continue at a low level.
Politically unstable situations in some countries and generally protectionist tendencies constitute potential
obstacles to growth. The transport & automotive market will be increasingly characterized by the trend
towards e-mobility as well as automation and digitalization.
The forecast for our business assumes that there will be no unexpected economic or political shocks.

Voith Annual Report 2018
Group Management Report
10. Forecast report

133

10.2. Future development of the Company
In recent years, Voith has overcome immense structural and financial challenges and set an important
strategic course. We now want to enter into a new phase of sustainable, profitable growth. We are
not only aiming for significant growth with our young Digital Ventures Group Division, we also intend toincrease the level of orders received in our core business activities, in other words in the three traditional
Group Divisions on aggregate, in the 2018/19 fiscal year. The sales of the Hydro, Paper and Turbo Group
Divisions are expected to remain stable in the current fiscal year as a result of the subdued level oforders received in the year under review. We primarily expect stimulus for growth from Digital Ventures.
We expect a perceptible improvement in Group EBIT, driven by the Digital Ventures and Paper Group
Divisions.
The Group Division Hydro expects slight growth of the hydropower market in the 2018/19 fiscal year. In
addition to new hydropower plants, demand for modernization and other services is expected to further
increase because many power plants in North America and Asia are nearing the end of their operating
cycle after decades of operation. We want to increase our market share in the coming years and plan
appreciable growth in orders received for the 2018/19 fiscal year compared to the year under review(€ 856 million). We particularly see great potential for Voith in China, where several pumped storage power
plants are planned, and we consider ourselves well positioned due to our powerful technology, and inmodernization projects in North America. The African market has great potential, but remains volatileand hard to predict. Despite the decreased level of orders received in the year under review, the Group
Division Hydro’s sales are expexted to remain stable (2017/18: €1,103 million), given the still high levelof orders on hand. We also see stable development for EBIT (2017/18: € 66 million). We are planning fora slight increase in ROCE compared to the year under review (16.9 %), which will primarily be achievedby a reduction of the capital employed.
In the Group Division Paper, we expect sales for the 2018/19 fiscal year to remain roughly stable at thehigh level of the year under review (€ 1,746 million). At the same time, we are planning to further increase
our EBIT (2017/18: € 102 million). We anticipate a further slight improvement in the profitability indicator
ROCE compared to the high level already reached (18.2 %), as we are not only budgeting for better
results but also wish to reduce the capital employed. For the current year, we see the order situation
remaining good for the Group Division Paper. However, after two years marked by exceptionally highinvestment and major projects, we are now preparing for a normalization of the market. For this reason
our planning is based on satisfactory, but perceptibly lower figures for orders received than in the 2017/18
fiscal year (€ 1,995 million). We anticipate good business in Europe and Asia; in Brazil improvements are
not expected in the short term.
In the Group Division Turbo, the order situation in the year under review continued to improve. We
anticipate a slight increase in orders received in the 2018/19 fiscal year compared to the year underreview (€ 1,378 million), which will be supported by both Divisions, Industry and Mobility. We see growth
momentum in particular in commercial and rail vehicles and in mining. The Group Division Turbo’s sales(2017/18: € 1,302 million) are expected to remain stable. In terms of results, Turbo will benefit from good134

Voith Annual Report 2018
Group Management Report
10. Forecast report

operating development in both Divisions. In addition, there will be positive impacts from ongoing efficiency
programs. We are thus planning an increase in EBIT before non-recurring effects for the Group Division
Turbo. We expect a slight increase in ROCE (2017/18: 11.1 %).
For the young Group Division Digital Ventures, from the situation in the year under review (sales
2017/18: € 40 million) we expect a jump in sales in the 2018/19 fiscal year, which is partly caused by the
consolidation of Voith Robotics and FlowLink Systems in this Group Division for a full fiscal year for the
first time. The sales that the Group Divisions of the traditional core business generate with digital products
and solutions are not included in this figure. EBIT is expected to perceptibly improve compared to theyear under review (€ - 46 million) in view of the rising sales, but to remain negative due to the researchand development activities in the fundamental platform business and the start-up situation. The resulting
negative impact on earnings for the Group can be shouldered by the profitable core business. We regard
these build-up costs as an investment in a business that is intended to become an important growth
driver for the Voith Group over the coming years.

Voith Group with profitable growth
In the Voith Group, after two years that have largely been marked by stable performance, the signs point
to growth again. We anticipate a perceptible rise in the level of orders received in the 2018/19 fiscal year
compared to the previous year (2017/18: € 4,285 million). Appreciable growth in Hydro is expected tomore than compensate for the anticipated slowdown in the paper machines market. The Group Division
Turbo is also expected to contribute to the growth. Our sales predictions anticipate a slight increase atGroup level compared to the current year under review (€ 4,209 million). We continue to work on Voith’s
profitability and productivity. For example, we have set ourselves the target of perceptibly increasing
Group EBIT compared to the year under review (€ 187 million). Both the core business and the youngGroup Division Digital Ventures are expected to contribute to the improvement in the operating result.
We aim towards a perceptible increase in ROCE (2017/18: 10.6 %).
Forecasts are always subject to considerable uncertainty. A host of macroeconomic and industry-specificfactors can influence, positively or negatively, the development of individual Group Divisions or the entire
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 entrepreneurial scope we need to implement
the decisions we regard to be expedient. The aim of the Corporate Board of Management is to keep theCompany on a secure footing for the long term and to actively steer it into the next 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 2018
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 2017/18 fiscal year
Notes to the consolidated statementof incomeNotes to the consolidated balance sheet
Notes to the consolidated cash flow
statement
Notes on segment reporting
Segment information by businesssegment
Segment information by region
Other notes
Responsibility statement

Page

136
137
138
140
142
143
173
181
206
207
210
212
213
233

Consolidated Financial Statements

Consolidated Financial
Statements

135

136

Voith Annual Report 2018
Consolidated Financial Statements
Consolidated statement of income

Consolidated statement of income
for the period from October 1, 2017 to Sep­tember 30, 2018in € thousandsNote2017 /18

2016 /17*

Sales

(1)

4,209,057

4,224,056

Changes in inventories and other own work capitalized(2)

42,275

14,9224,251,332

4,238,978Total output
Other operating income(3)391,131

400,485

Cost of materials(4)- 1,887,634- 1,840,383

Personnel expenses(5)- 1,446,885- 1,408,260- 120,602- 126,108(6)- 1,017,569- 1,039,952

169,773

224,760

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 associates- 21,899- 32,179

147,874

192,581

1,610

7,592

0

562,575

8,660

17,819- 25,327- 76,394

19,019- 9,830

151,836

694,343- 66,690- 82,306

Net result from continuing operations

85,146

612,037

Net result from discontinued operations- 31,901- 16,294

Net result

53,245595,743

Net result attributable to shareholders of the parent company

45,015590,171

Net result attributable to holders of non-controlling interests

8,230

5,572

Interest income
Interest expenses
Other financial result(8)

Result before taxes from continuing operations
Income taxes* Previous-year figures restated.

(9)

Voith Annual Report 2018
Consolidated Financial Statements
Consolidated statement of comprehensive income

137

Consolidated statement ofcomprehensive income
for the period from October 1, 2017 to Sep­tember 30, 2018in € thousands

2017 /18

2016 /17

Net result

53,245595,743

Remeasurement of defined benefit plans

12,80467,780

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

1,526- 21,043

Components 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

2,596- 12,222

Gains/losses on cash flow hedges

1,873

2,375

Gains/losses on currency translation- 61,781- 32,619- 423

3

Taxes on components of other comprehensive income that will be recycled through profit orloss in later accounting periods- 1,270- 681

Other comprehensive income- 44,675

3,593

Total comprehensive income

8,570

599,336

777

597,833

7,793

1,503

8,570

599,336

Gains/losses on net investment in foreign operations· Total comprehensive income attributable to shareholders of the parent company· Total comprehensive income attributable to non-controlling interests

138

Voith Annual Report 2018
Consolidated Financial Statements
Consolidated balance sheet

Consolidated balance sheet
as at Sep­tember 30, 2018

Assetsin € thousands

2018- 09- 30

2017- 09- 30

A.

Non-current assets

I.

Intangible assets(10)

520,600

515,676

II.

Property, plant and equipment(11)898,764

978,459

III.

Investments accounted for using the equity method(12)

21,92032,006

IV.

Securities(16)

11,687

11,734V.

Other financial assets

VI.

Other financial receivables

(15)

VII.

Other assets

(15)

VIII.

Deferred tax assets(9)

Total non-current assets

92,008105,954

61,90789,411

15,93910,749172,783

204,538

1,795,608

1,948,527

B.

Current assets

I.

Inventories(13)

603,516

547,825

II.

Trade receivables(14)

687,984

713,899

III.

Receivables from customer-specific contracts(14)346,729

323,929

IV.

Securities(16)

617,974

601,812V.

Current income tax assets

49,94552,263VI.

Other financial receivables(15)

93,168101,289

VII.

Other assets(15)

116,227

110,544

VIII.

Cash and cash equivalents(17)341,691

581,947

2,857,234

3,033,508

IX.

Assets held for sale

(18)

23,411

15,845

Total current assets

2,880,645

3,049,353

Total assets

4,676,253

4,997,880

Voith Annual Report 2018
Consolidated Financial Statements
Consolidated balance sheet

139

Equity and liabilitiesin € thousands

A.

EquityI.

Issued capital

II.

Revenue reserves

III.

Other reserves

IV.

Profit participation rights

Equity attributable to shareholders of the parent company

2018- 09- 30

2017- 09- 30

120,000

120,000

1,169,964

1,138,763- 96,047- 37,664

6,600

6,600

1,200,517

1,227,699

V.

Profit participation rights

96,80096,800VI.

Other interests

43,002

41,425

139,802138,225(19)

1,340,319

1,365,924

Equity attributable to non-controlling interests
Total equity
B.

Non-current liabilities

I.

Provisions for pensions and similar obligations(20)

713,432

747,282

II.

Other provisions(21)

156,355

190,611

III.

Income tax liabilities

254

277

IV.

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

325,284

551,363

V.

Other financial liabilities(24)

26,67835,635VI.

Other liabilities(24)

48,26958,222

VII.

Deferred tax liabilities(9)

Total non-current liabilities

40,13953,744

1,310,411

1,637,134

C.

Current liabilities

I.

Provisions for pensions and similar obligations(20)

30,85729,319II.

Other provisions(21)

278,575

343,082

III.

Income tax liabilities

24,45046,968

IV.

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

125,779

82,516V.

Trade payables(23)

510,585509,741

VI.

Liabilities from customer-specific contracts(14)

93,72045,623VII.

Other financial liabilities(24)

230,509

234,080

VIII.

Other liabilities(24)

730,156

703,4932,024,631

1,994,822

IX.

Liabilities directly associated with the assets classified as held for sale

(18)

892

0

Total current liabilities

2,025,523

1,994,822

Total equity and liabilities

4,676,253

4,997,880

140

Voith Annual Report 2018
Consolidated Financial Statements
Consolidated statement of changes in equity

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

2017- 10- 01

Issued capital

Revenue
reserves

Gains/losses onavailable-for-salefinancial assets

Cash flow
hedgesCurrencytranslation

120,000

1,138,763

1,708- 2,319- 32,553

Net result

45,015

Other comprehensive income
Total comprehensive income

0

Allocation of profit participation rights

14,145

1,656

1,313

- 61,055

59,160

1,656

1,313

- 61,055

3,364- 1,006- 93,608- 5,590

Share of net result attributable toprofit participation rights
Dividends- 25,000

Non-controlling interests – capital contributions
Non-controlling interests – put options

4,622

Other adjustments- 1,991

2018- 09- 30

120,000

1,169,964

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

46,766- 12,260

1,691- 28,538

636,937- 12,260

1,691- 28,538

1,708- 2,319- 32,553

Total comprehensive income

0

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

Voith Annual Report 2018
Consolidated Financial Statements
Consolidated statement of changes in equity

141

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

Profitparticipationrights- 4,500

6,600

Total

ProfitparticipationrightsOtherinterests

Total

Total
equity1,227,699

96,80041,425

138,225

1,365,924

8,230

8,230

53,245

- 437

- 437

- 44,675

7,793

7,793

8,570

45,015- 297- 297- 44,238
0

777

0

363

- 5,227

5,227

5,227

0

- 363

- 363

- 5,227- 5,227- 5,590- 9,756- 9,756- 34,756

3,792

3,792

3,792

4,622

- 1,985- 1,985

2,637- 1,991

1,733

1,733

- 258

43,002

139,802

1,340,319- 25,000- 4,797

6,600

1,200,517

96,800Equity attributable
to non-controlling interests
Net investment
in foreign
operations

Profitparticipationrights- 4,503

6,600

3
3

Total

ProfitparticipationrightsOtherinterests

Total

Total
equity660,100

96,80042,034

138,834

798,934

590,171

5,572

5,572

595,743

7,662- 4,069- 4,069

3,593

1,503

1,503

599,336

5,227

0

- 470

- 216

- 5,227- 5,590- 4,928- 4,928- 22,928

1,381

1,381

1,381

1,881

1,881

- 5,5500597,8330363- 5,227

5,227

254
- 363

- 363

- 470
- 5,227- 18,000- 7,431533- 4,500

6,600

1,227,699

96,800

24

24

557

41,425

138,225

1,365,924

142

Voith Annual Report 2018
Consolidated Financial Statements
Consolidated cash flow statement

Consolidated cash flow statementin € thousands

2017 /18

2016 /17

Result before taxes from continuing and discontinued operations

119,935

680,384

Depreciation and amortization

126,446

129,996

Interest expenses/income

16,686

58,589Other non-cash items- 1,631- 568,376- 557- 4,291

Gains/losses from investments- 24,438- 20,368

Changes in provisions and accruals- 123,749- 5,662

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

Change in net working capital- 8,002- 21,766Interest paid

- 17,235- 53,455

Interest received

10,971

12,729Dividends received

2,393

20,491

Tax paid- 70,142- 93,036

Cash flow from operating activities

30,677135,235

Investments in property, plant and equipment and intangible assets- 93,633- 95,890

5,923

12,135

Proceeds from the disposal of property, plant and equipment and intangible assets
Investments in financial assets- 62,422- 6,870

Subsequent purchase price payments/receipts for earlier acquisitions- 16,307

39,481

Acquisition of consolidated subsidiaries minus cash and cash equivalents- 5,694- 40,854

Proceeds from the disposal of financial assets

113,238

1,151,743

Proceeds from the disposal of securities

145,540

139,774

Payments for the acquisition of securities- 155,277- 648,474

Cash flow from investing activities- 68,632

551,045

Dividends paid

- 35,325- 28,518

3,792

1,381

Acquisition of non-controlling interests

0

- 216

New bonds, bank loans and overdrafts

49,34021,293- 214,601- 738,697

18,2901,780

Cash flow from financing activities- 178,504- 742,977

Total cash flow

- 216,459- 56,697

Contributions from holders of non-controlling interests

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

Exchange rate movements and valuation changes- 23,797- 11,028

Cash and cash equivalents at the beginning of the period

581,947649,672

Cash and cash equivalents at the end of the period

341,691

581,947

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

143

Notes to the consolidated financial
statements for the 2017 /18 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 Board of Management of Voith Management GmbH (HRB 735126) is
responsible for the strategy and operative management of the Voith Group. Voith Management GmbHis the personally liable shareholder (general partner) of and responsible for the management of thebusiness of Voith GmbH & Co. KGaA.
Voith GmbH & Co. KGaA prepares consolidated financial statements as at September 30, 2018 on thebasis of IFRS as endorsed by the EU, and a Group management report for the smallest consolidated
group of companies. JMV GmbH & Co. KG, as parent of the largest group of companies requiringconsolidation, prepares consolidated financial statements as at September 30, 2018 on the basis of
IFRS as endorsed by the EU, and a Group management report for the largest consolidated group ofcompanies. Both sets of consolidated financial statements are published in the Bundesanzeiger (German
Federal Gazette). The Board of Management of Voith Management GmbH authorized the consolidated
financial statements for presentation to the Supervisory Board on November 28, 2018.
The preparation of the consolidated financial statements for the 2017/18 fiscal year in accordance withIFRS and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC)
was undertaken on a voluntary basis because Voith does not participate in capital markets as definedby EU Regulation (EC) No. 1606/2002. In preparing these consolidated financial statements, Voith has
applied 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. 315e 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: Hydro, Paper, Turbo and Digital Solutions (as at October 1,
2018; “Digital Ventures”). Details of the business activities pursued by the Group’s segments are provided
in the explanatory notes to the segment reporting.

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Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 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 areprepared 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:
2018- 09- 30

2017- 09- 30

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

32

32· Other countries

113

111

145

143

· Germany3

3· Other countries

5

11

8

14

Associates and joint ventures:

The following significant companies are included in the consolidated
financial statements:
VZ
Voith GmbH & Co. KGaA, Heidenheim, Germany
VHH
VHY
VHP
VHPO
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 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 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 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
VTKT
VTCN
VTIP
VTHL
VTPA
VTGB
VTAU

Voith Turbo GmbH & Co. KG, Heidenheim, Germany
Voith Turbo Inc., York (PA), USA
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

DSIF

FlowLink Systems Private Ltd., Coimbatore, India

145

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 %2018- 09- 30

2017- 09- 30

35

35

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

146

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

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

2018- 09- 30

2017- 09- 30

1,113,148

1,387,460

Net result

12,56943,377

Net result attributable to non-controlling interests

2,285

13,290- 21,731

1,505

Total comprehensive income- 9,162

44,882

Total comprehensive income attributable to non-controlling interests- 5,195

14,402

971,006

1,030,285

Non-current assets

257,176

301,140

Current liabilities

749,908

757,149

Non-current liabilities

239,429

307,563

Net assets

238,845

266,713

Net assets attributable to non-controlling interests

71,42280,574

Cash flow from operating activities- 24,693- 62,919

Cash flow from investing activities- 13,993- 12,090

Cash flow from financing activities

18,430107,142

Total cash flow

- 20,256

32,133- 8,771- 4,129- 29,027

28,004

Sales

Other comprehensive income

Current assets

Net foreign exchange difference
Net increase/decrease in cash and cash equivalents

Business combinations in the 2016/17 fiscal year
On July 1, 2017, J.M. Voith SE & Co. KG (formerly: J.M. Voith GmbH & Co. Beteiligungen KG) had
acquired 100 % of the share capital of RS Beteiligungs GmbH. At that time, RS Beteiligungs GmbHheld 60 % of the shares in Ray Sono AG. Ray Sono AG is one of Germany’s leading agencies for digitalcommunication and interaction. With this acquisition Voith has secured a strategic partnership withwhich we can play a significant role in the digital transformation being made by our customers as well
as gain growth potential from the new digital business models.
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 was accounted for under the anticipated acquisition method, the resulting put options wererecorded within financial liabilities at an amount of € 26 million.

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

147

Intangible assets totaling € 13.28 million were identified in the purchase price allocation. These areincluded in the schedule of development of intangible assets presented in note 10 in the category“Business combinations”.
The difference between the purchase 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
the acquisition.
In the 2016/17 fiscal year (since July 1, 2017), Ray Sono AG contributed € 5.76 million to the Group’s
sales. In the same period, its share of the net result for the year totaled € - 1.46 million (after including
amortization of € 0.73 million after tax recorded on the intangible assets determined within the purchaseprice allocation).
If Ray Sono had been included in the Group for the complete 2016/17 fiscal year it would have generated
additional sales of € 15.4 million in the previous year and an additional net result of € 1.7 million.
Balance sheet itemin € thousands

Intangible assets
Property, plant and equipment

Fair value atacquisition date

13,277784

Inventories

1,201

Receivables

4,301

Other assets
Cash and cash equivalents
Other liabilities and accruals

412
1,586
- 7,930

Financial liability (put)- 26,000

Net fair value- 12,369

Goodwill

54,741

Purchase price of the interests purchased

42,372

Cash and cash equivalents- 1,586

Cash in-/outflow

40,786

The purchase price was paid before the end of the 2016/17 fiscal year.
Business combinations in the 2017/18 fiscal year
The shareholding in FlowLink Systems Private Ltd. was increased from 50 % to 80 % in April 2018. This
company, headquartered in Coimbatore, India, manufactures industrial valves and valve componentsthat are used in the oil & gas market, in mining, in power plants and in the area of sewage treatment. The

148

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

company is increasingly focusing on digital solutions with its product portfolio. The company has been
fully consolidated since April 1, 2018 and is assigned to our Group Division Digital Solutions. In the past,
the 50 % shareholding was accounted for using the equity method.
Under the terms of the business combination, Voith agreed to acquire the remaining 20 % of the
FlowLink shares on March 31, 2021 or at a later date assuming mutual agreement by the parties tothe contract. This resulted in an obligation of € 5.2 million that is reported under financial liabilities. Thisobligation is measured on the basis of the contractually agreed terms.
The remeasurement of the 50 % shareholding in FlowLink previously accounted for using the equity
method gave rise to a loss of € 942 thousand that was recognized in the statement of income of theGroup. The remeasured 50 % shareholding and the purchase price for the 30 % shareholding acquiredin the 2017/18 fiscal year are included in the table below.
The business combination is presented using the anticipated acquisition method in combination withthe full goodwill method.
Intangible assets totaling € 2.1 million were identified within the scope of the purchase price allocation. These are included in the schedule of development of intangible assets presented in note 10 in the
category “Business combinations”. The purchase price allocation similarly identified hidden reserves of€ 5.1 million from the fair value revaluation of land, most of which has been developed.
The difference between the purchase price and the acquired net assets revalued to their respective fairvalues amounting to € 2.4 million has been reported as goodwill, and represents the potential synergy
effects to be gained by the Voith Group. None of the amounts contributing to these synergy effects areassets which are permitted to be identified as separate intangible assets; they are regarded as elementsof the acquired goodwill.
Since April 1, 2018, FlowLink has contributed an additional € 10.8 million to the Group’s sales. In thesame period, its share of the net result for the year totaled € 1.0 million (after including amortization of€ 0.4 million after tax recorded on the intangible assets determined within the purchase price allocation).
If FlowLink had been included in the Group for the whole fiscal year it would have generated additionalsales of € 9.3 million and an additional net result for the year of € 75 thousand.

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

149

Balance sheet itemin € thousands

Fair value atacquisition date

Intangible assets

2,118

Property, plant and equipment

14,787

Financial assets

806

Inventories

4,428

Receivables

5,847

Other assets

2,888

Cash and cash equivalents

57

Other liabilities and accruals- 12,778

Forward liability for 20 % shareholding- 5,200

Net fair value

12,953

Goodwill

2,383

Fair value of the 80 % shareholding held by Voith

15,336

Thereof: fair value of the 50 % shareholding already held

9,585

Purchase price of the 30 % shareholding newly acquired

5,751

Cash and cash equivalents
Cash outflow

- 57
5,694

The purchase price for the acquisition of the 30 % shareholding has already been paid.
Acquisition in the 2016/17 fiscal year of further interests in companies over which the Groupalready has control
The remaining 30 % interest in Voith Paper Integrated Mill Service Co., Ltd., Kunshan, Jiangsu (China),
was acquired in the 2016/17 fiscal year. The purchase price amounted to € 216 thousand.
Acquisition in the 2017/18 fiscal year of further interests in companies over which the Groupalready has control
In the 2017/18 fiscal year, there were no acquisitions of further interests in companies over which theGroup already has control.
Disposal of shares
Within the scope of the disposal of the Industrial Services segment in the 2015/16 fiscal year, a 20 %interest was retained in the Industrial Services entities sold. In addition, the majority owner was granted
the right to acquire all shares retained by Voith. This call option was accounted for separately from theinterest in the previous year and was exercised by the majority owner in the first half of the current fiscal
year. The purchase price of € 36 million was counterbalanced by the investment’s carrying amount of€ 22 million and a liability from the call option of € 4 million. Consequently, the disposal gave rise to again on sale of € 18 million.

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Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

Discontinued operations in the 2017/18 fiscal year
In the second half of the year under review, the decision was taken to sell the business operations ofVoith Composites SE & Co. KG. Accordingly, these business operations are classified as held for saleand treated as a discontinued operation.
The following items were disclosed in the net result from the discontinued operations relating to Voith
Composites SE & Co. KG included in the statement of income (the figures for the previous year werecorrespondingly adjusted in the statement of income and are therefore of limited comparability):
2017 /18

2016/17

Income

9,818

8,847

Expenses- 41,719- 20,790

Operational result before taxes- 31,901- 11,943

00- 31,901- 11,943

in € thousands

Income taxes
Net result

The expenses in the year under review contain an impairment loss of € 19,428 thousand as a consequence of applying the provisions of IFRS 5.15.
The previous-year figure contained in the statement of income additionally includes expenses of € 4,351
thousand from the sale of the Industrial Services segment already completed in the previous year.
Cash flow from discontinued operations:in € thousands

2017 /18

2016/17

Cash flow from operating activities- 10,103- 12,519

Cash flow from investing activities- 442- 2,130

The carrying amount of the assets and liabilities held for sale attributable to Voith Composites SE & Co.
KG are presented in note 18.

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

151

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, which represents an asset or liability, will be recognizedeither in profit or loss or in other comprehensive income in accordance with IAS 39. If the contingent
consideration is classified 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.

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Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

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 athistorical rates. All other items on the balance sheet are generally translated to the presentation currency
at the rates 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 historicalexchange 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 the 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.
Exchange rate gains or losses resulting from long-term loans and liability balances, both between Group
companies and on external balances, as well as valuation effects arising from their associated hedging
instruments are reported within financial results in the statement of income.
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.

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

153

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 at fairvalue 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.
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 ownershiphas been transferred to the customer. Revenue earned under long-term construction contracts, which isprimarily relevant for Paper and Hydro, is recognized in proportion to the completion of the performanceobligations under a contract (“percentage of completion”). Please refer to the explanations on accounting
for long-term construction contracts.
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.

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Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

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.
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
under 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 toessentially 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 three established segments Hydro, Paper and Turbo as relevant groups of cash-generating units.
Additional goodwill was recorded in the new Digital Solutions segment in the 2016/17 fiscal year as aresult 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 goodwill generated in the 2017/18 fiscal year
relating to the increase in Voith’s shareholding in FlowLink Systems Private Limited is likewise tested for
impairment separately at the FlowLink Systems Private Limited level.
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 prepared bymanagement. 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 in orders
received and sales, growth rates on which the extrapolated cash flow forecasts beyond the planninghorizon are based, and discount rates. Due account is taken of reasonable assumptions regarding
macroeconomic trends and historical developments. Based on the value in use measurement of theseassets there was no indication of a need to record an impairment loss on goodwill.

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

155

For the purposes of the impairment tests the following assumptions were made concerning the cashgenerating units:
Hydro:The Group Division Hydro anticipates slight growth in the hydropower market over the coming years.
We expect an appreciable increase in orders received in the 2018/19 fiscal year. Our planning is basedon the assumption that the market volume will be slightly up on the level of the current reporting period.
Despite the fall in orders received in the year under review, sales are expected to remain stable in the
2018/19 fiscal year due to the continued high level of orders on hand.
Paper:
Paper achieved a perceptible increase in orders received in the 2017/18 fiscal year and a significant risein the orders on hand at the end of the 2017/18 fiscal year. For the 2018/19 fiscal year, Paper expects
stable sales and a decline in orders received in comparison to the previous year.
Turbo:In its business planning, Turbo expects stable sales for the 2018/19 fiscal year and rising sales over thefollowing years. Orders received over the 2017/18 fiscal year were slightly up on the previous year. This
positive trend is still ongoing, and continuing moderate growth in orders received is forecast for the
2018/19 fiscal year.
Ray Sono AG:
Perceptible growth consistent with trends in the digital market is expected for orders received and sales
over the planning years.
FlowLink Systems Private Limited:
Increases in orders received and sales are anticipated for the planning years.
The cash flow forecast is based on the detailed finance budget for the coming two years and aqualified 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 business segment 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 the respective cash-generating unit. The
discount rates used reflect the specific equity risk associated with the respective cash-generating
unit. The present values of future net cash inflows are determined using after-tax interest rates of 6.5 %for Hydro (previous year: 7.5 %), 7.7 % for Paper (previous year: 9.3 %), 7.0 % for Turbo (previous year:
6.7 %), 6.5 % for Ray Sono AG (previous year: 6.5 %) and 7.1 % for FlowLink Systems Private Limited.
Extrapolated from these amounts the pre-tax rates for which IAS 36 disclosures are required are 11.5 %for Hydro (previous year: 12.5 %), 10.6 % for Paper (previous year: 13.0 %), 9.9 % for Turbo (previous year:
9.5 %), 8.6 % for Ray Sono AG (previous year: 8.4 %) and 10.5 % for FlowLink Systems Private Limited.

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Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

The potential change in the discount rate of +1 percentage point and in the anticipated future cash flowof - 5 % assumed by the management for the three segments and for FlowLink Systems Private Limited
does not give rise to any impairment requirements. For Ray Sono AG an increase in the discount factor
or a decrease in the anticipated cash flow would result in the recoverable amount being lower than the
carrying amount.
Property, plant and equipment
Property, plant and equipment are stated at cost less depreciation and after deduction of any impairment losses. The production cost of internally produced property, plant and equipment includes all
directly attributable production costs and an appropriate share of production overheads. Depreciationis 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

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
under 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.

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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 interest income/expense. All other leases in which Voith Group companies act as thelessee 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”.
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 theirfair value at reasonable cost. In cases in which there is objective evidence of impairment, the carrying
amount is reduced by the amount of any impairment.

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Notes to the consolidated financial statements for the 2017 /18 fiscal year

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. Subsequent to initial recognition they aremeasured 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 exists 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.
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 as profit or loss at the date they are incurred.
Financial liabilities measured at amortized costNon-derivative financial liabilities are measured on initial recognition at fair value less attributabletransaction costs. Subsequent to initial recognition these financial liabilities are measured at amortizedcost using 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

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159

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:
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 or loss. The derivative financial instrument is remeasured at its fair value and any gains or losses
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 for the period.
Changes in fair value of the hedging instrument are also recognized in the profit or loss for the period.

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Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

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 non-financial liability.
If the planned transaction is no longer expected to occur, the amounts recorded previously in equity
are transferred to the profit or loss for the period. When the hedging instrument expires, is sold,terminated, or is exercised without a hedging instrument being replaced or rolled over into anotherhedging instrument or when the Group ceases to designate a hedging instrument as such, the amounts
previously recorded remain as a separate item in equity until the planned transaction occurs. If theplanned transaction is no longer expected to occur, the amount is recognized in profit or loss.
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 thatsignificantly 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.

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Inventories
Raw materials and supplies, merchandise, work in progress and finished goods are all stated underinventories at the lower of cost and net realizable value. In addition to direct costs, cost includes anappropriate portion of necessary materials and production overheads as well as production-related
depreciation that 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 forinventory risks 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.
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.
Cash at banks includes both monies payable on demand and time deposits with fixed maturities of up
to three months.

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Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

Discontinued operations and non-current assets held for saleNon-current assets and disposal groups held for sale are classified as non-current assets held for saleor as liabilities directly associated with assets classified as held for sale, respectively, if their carrying
amount is 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 salein its present condition. In this case, management has decided to sell the asset and it is expected thatthe sale 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 forsale are not subject to depreciation and amortization.
Discontinued operations are recognized as soon as any component of an entity with business activities
and cash inflows and outflows that can be clearly distinguished from the rest of the entity for operational
and accounting purposes is classified as held for sale or has already been disposed of, and such Division
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 operations in
the consolidated statement of income. Figures shown for previous years are presented on a comparable
basis. Cash inflows 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 andexpenses generated within the Group have been eliminated in order to present the financial effect ofthe discontinued operations with the exception of sales 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 and deferred
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.

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163

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
based on 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
the Group has a present obligation to a third party as a result of a past event and it is probable that an
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.

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Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

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 based on terminationrights 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
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 € 40,401 thousand in the 2017/18 fiscal
year (previous year: € 42,495 thousand).

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Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

165b) Limited partnerships
Up to and including the 2014/15 fiscal year, the interests held in limited partnerships as well as noncontrolling 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 changed from the 2015/16 fiscal year onwards. The liability continues
to be measured 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 arerecognized in interest income/expense 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 or
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 position and earnings position in the consolidated financial
statements requires the exercise of judgment by management. Management has exercised judgmentin 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
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 criticalaccounting 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.

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Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

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 for details of the carrying amounts.
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 for details of the carrying
amounts.
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 for details of the carrying amounts.
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 for details of the carrying amounts.

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167

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 for details of the carrying amounts.
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 for details of the carrying amounts.
Adoption of amended and new standards and interpretations
Changes in accounting and measurement policies due to first-time adoption of revised andnew IFRS and IFRICs
The following new and revised IAS and IFRS standards were applied for the first time in the 2017/18
fiscal year:
Standard/interpretation

Amendment/new standard or interpretation

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.

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 at fair value.

Improvements to IFRS (2014– 2016)

Amendments to standard IFRS 12.

None of the IAS and IFRS standards applied for the first time had a significant effect on the net assets,financial position and earnings position of the Group.

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Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

The adoption of the following revised and newly issued IFRS and IFRICs was not yet mandatory in the2017/18 fiscal year, and/or they had not yet been endorsed by the European Commission for adoption
in the European Union.
Standard/interpretation

Amendment /new standard or interpretation

Mandatory effective date

Revised conceptual framework andamendments to the references to theconceptual framework in IFRS standards

This includes revised definitions of assets and liabilities andnew guidelines on measurement and derecognition, disclosureand notes.

Periods beginning on or afterJanuary 1, 2020

Amendments to IFRS 2:Classification and Measurement of Sharebased Payment Transactions

Clarification of the classification and measurement of transactions
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 classification and the measurement,
impairment and hedge accounting of financial instruments.

Periods beginning on or afterJanuary 1, 2018

Amendments to IFRS 9:
Financial Instruments

The amendments relate to premature repayment options withnegative 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, presentation anddisclosure of leases in financial statements.

Periods beginning on or afterJanuary 1, 2019

IFRS 17
Insurance Contracts

IFRS 17 establishes principles for the identification, recognition,measurement, presentation and disclosure in the notes of
insurance contracts.

Periods beginning on or afterJanuary 1, 2021

Amendments to IAS19:
Plan Amendment, Curtailment or
Settlement

According to this amendment, in the event of amendment,
curtailment or settlement of a defined benefit plan, it is now
mandatory to use updated actuarial assumptions to redetermine
current service cost and the net interest for the remainder of theperiod used for the required remeasurement of the net liability.
In addition, amendments were included to clarify the effect of aplan amendment, curtailment or settlement on the requirements
regarding the asset ceiling.

Periods beginning on or afterJanuary 1, 2019

Amendments to IAS 28:
Investments in Associates and Joint
VenturesAccording to this amendment, long-term interests that insubstance form part of the net investment in an entity accounted
for using the equity method are to be accounted for andmeasured pursuant to IFRS 9.

Periods beginning on or afterJanuary 1, 2019

Amendments to IAS 40:
Transfers of Investment Property

Clarification relating to transfers to or from the portfolio ofinvestment properties.

Periods beginning on or afterJanuary 1, 2018

IFRIC 22
Foreign Currency Transactions andAdvance Consideration

IFRIC 22 clarifies the accounting for transactions involving thereceipt or payment of consideration in a foreign currency.

Periods beginning on or afterJanuary 1, 2018

IFRIC 23
Uncertainty over Income Tax Treatments

IFRIC 23 supplements the provisions in IAS 12 regarding
accounting treatment of uncertainties in connection with theincome tax treatment of issues and transactions.

Periods beginning on or afterJanuary 1, 2019

Improvements to IFRS (2014–2016)

Amendments to standards IFRS 1 and IAS 28.

Periods beginning on or afterJanuary 1, 2018

Improvements to IFRS (2015–2017)

Amendments to standards IFRS 3, IFRS 11, IAS 12 and IAS 23.

Periods beginning on or afterJanuary 1, 2019

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

169

The significant effects of revised and newly issued IFRS and IFRICs subject to mandatory adoption fromthe 2018/19 fiscal year onwards are explained below. Furthermore, no significant impact on the net
assets, financial position and earnings position of the Voith Group is anticipated. The impact of revisedor newly issued standards and interpretations that will be subject to mandatory adoption by the Voith
Group at a later date is currently being investigated.
IFRS 9 Financial Instruments replaces the existing requirements of IAS 39 Financial Instruments:
Recognition and Measurement and restructures the classification and measurement, impairment
and general hedge accounting for financial assets and liabilities. For mandatory first-time adoption,
the amended accounting methods are generally to be applied retrospectively. With regard to theamendments to the classification and measurement (including impairment), Voith will make use of the
exemption contained in IFRS 9 and not make any adjustments to comparative information for previous
periods. Differences between the carrying amounts of the financial assets and financial liabilities arisingfrom the first-time adoption of IFRS 9 are reported in the revenue reserves and the other reserves at
the time of first-time adoption.
IFRS 9 introduces a new approach to the classification and measurement of financial assets. The criteria
for classification consist of the cash flow characteristics and the business model according to which theassets are managed. Voith has examined the financial assets for compliance with the cash flow condition
and assigned them to the corresponding business models. Trade receivables and other financial assets
will in all probability continue to be measured at amortized cost. Exceptions to this consist of equity
instruments that were measured at amortized cost pursuant to IAS 39 and are to be recognized at fairvalue pursuant to IFRS 9 in the future. In the case of equity instruments held as a strategic investment,
Voith will exercise the OCI option and assign them to the category “FVTOCI” (“fair value through othercomprehensive income”). Changes in the market value arising from first-time adoption, subsequent
measurement and accumulated gains/losses in the event of derecognition at a later date are posted
directly in equity and are never reclassified with an effect on profit or loss.
With regard to the equity instruments held for strategic purposes, Voith does not anticipate as at theeffective date any material increase in the carrying amounts at September 30, 2018 to the fair values at
October 1, 2018. Financial investments that are not held as strategic investments are assigned to themeasurement category “FVTPL” (“fair value through profit or loss”). Upon first-time adoption, changes
in value are reported in the revenue reserves but future changes in value are fully reflected through profit
or loss in the statement of income. As at the date of first adoption, Voith does not expect there to be amaterial difference between the carrying amounts as at September 30, 2018 and the fair values as at
October 1, 2018 with regard to investments assigned to the measurement category “FVTPL”.
IFRS 9 has to a great extent taken on the classification and measurement of financial liabilities used in IAS
39. Voith continues to measure financial liabilities at amortized cost; there are no financial liabilities thatwere modified in the past. In this respect, first-time adoption of IFRS 9 does not have any implications.

170

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

The requirements on reporting impairment losses that are now no longer exclusively based on losses thathave already occurred but on a model of losses that can be expected are fundamentally new. For tradereceivables and contract assets, Voith will use the simplified impairment model under which the credit
losses anticipated over the entire term are recorded. The general impairment model is employed forother financial assets, particularly cash and cash equivalents, that are not classified at fair value throughprofit or loss. Allowances for the credit losses anticipated over the next 12 months are determined withthis model unless the credit risk has significantly increased since initial recognition. In the event of asignificant increase in the credit risk, allowances are to be determined in the amount of the credit defaults
expected over the remaining term. The impairment models are based on specific probabilities of default
taking account of forward-looking data. A model suitable for determining the anticipated credit losses iscurrently being implemented. First-time adoption of IFRS 9 is not expected to have any material impact
on the Group’s assets or equity with regard to the measurement of trade receivables, contract assets
and other financial assets.
In its first-time adoption of IFRS 9, Voith is exercising the option not to apply the new requirements in its
accounting treatment of hedges. Hedges continue to be accounted for according to the provisions of
IAS 39. In addition, IFRS 9 introduces new, more extensive disclosure requirements in notes to financial
statements, including, but not limited to, the accounting treatment of hedges, credit risk and expectedcredit losses.
IFRS 15 Revenue from Contracts with Customers: in May 2014, the IASB published this new standard
on revenue recognition. The objective of the new standard is to bring the many different requirementson revenue recognition together in one standard. Consequently, IFRS 15 replaces the previous
revenue recognition standards IAS 18: Revenue and IAS 11 Construction Contracts and the associatedinterpretations. The clarifications to IFRS 15 (Clarifications) published in April 2016 will likewise be taken
into consideration at Voith. The new standard means that there are now consistent basic principles for
all industries and all kinds of sales transactions. The central issue in this respect is that the sales are to
be recorded following transfer of control. This replaces the principle of transfer of opportunities and risk
previously applied. A five-step model is used to identify the amount of revenue and the date on which,or the period in which, the sales are recognized.
For first-time adoption, Voith has chosen the modified retrospective approach where the previous-year
figures are not restated but the cumulative effects of first-time adoption of the standard as at October 1,
2018 is recorded in the revenue reserves. In addition, the option relating to simplified first-time adoption
is exercised and IFRS 15 is only applied to those contracts that had not been fulfilled by October 1, 2018.

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

171

Within the scope of a group-wide implementation project, the business models of all Group Divisions at
Voith were analyzed for potential changes arising from IFRS 15. All in all, we do not expect any material
impact on the net assets, financial position and earnings position of Voith. As at October 1, 2018, it isassumed that the revenue reserves will rise by a very low single-digit percentage.
The changes will originate from the following issues, in particular:
The Group Division Turbo and some Paper business lines previously did not apply the percentage-of-completion method, i.e. revenue recognition was performed as soon as goods had beendelivered or services rendered, i.e. when risk of ownership had been transferred to the customer. In the
future, revenue will be recognized over time in some product lines, which will lead to earlier revenue
recognition because the new IFRS 15 criteria for revenue recognition over time are met. The prerequisites
for revenue recognition over time under IFRS 15 will generally continue to be met at Hydro and in alarge part of the Group Division Paper that previously accounted for its construction contracts using
the percentage-of-completion method. Only in some individual cases will revenue be recognized at apoint in time (and consequently at a later date) in the future as Voith does not have an enforceable rightto payment for performance completed to date as specified in IFRS 15.35c in the event of termination.
In addition, we expect the new concept relating to transfer of control to lead to earlier revenue recognition than before in the case of some consignment warehouses. In connection with the costs of contract
initiation, commissions will not be included in the calculation of the percentage of completion in the
future but will be capitalized upon conclusion of the contract and amortized over the term of the contract.
Furthermore, the separation or merging of obligations and special issues, such as variable compensation,
may give rise to a different change in the accounting treatment unlikely to be material as things currently
stand.
In addition, reclassifications within the balance sheet, new balance sheet items and expanded qualitativeand quantitative disclosures in the notes are to be expected on account of the new standard.
IFRS 16 Leases replaces the previous requirements of IAS 17 Leases, and does away with the previous
classification, on the part of the lessee, of leases into operating and financial leases. The lessee willreport most leases and the associated rights to use and lease liabilities on the balance sheet in the
future. There are exceptions for low-value leased assets and for short-term leases. The right of use
is amortized over the term of the lease. In contrast, the lease liability is carried forward applying theeffective interest method and taking account of the lease payments. The accounting treatment by lessors
is not materially different from the provisions of IAS 17.

172

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated financial statements for the 2017 /18 fiscal year

In the past, as a lessee Voith had only operating leases and immaterial financing leases. The first-time
adoption of IFRS 16 is expected give rise to an increase in total assets of a low to mid-single-digit
percentage. In addition, an immaterial increase in EBIT is anticipated. The effects on cash flow consistof an increase in cash flow from operating activities in the mid-double-digit millions (€) and a decreasein cash flow from financing activities of the same amount. For the transition, Voith has chosen themodified retrospective approach and will make use of the simplifications for short-term leases andlow-value leased assets. With regard to existing leases, the assessment to date used to identify leases(grandfathering clause) will be carried forward. Intercompany leases are not likely to be presented in
the internal reporting according to IFRS 16 and consequently will not give rise to any changes in thesegment reporting pursuant to IFRS 8. Voith furthermore anticipates an increase in the qualitative andquantitative disclosures in the notes relating to leases.
At present, the Voith Group does not plan to adopt the new or amended standards and interpretations
early.

173

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated statement of income

Notes to the consolidated statement ofconsolidated
statement of income
income01.

Salesin € thousands

2017 /18

2016 /17

Sale of goods

2,864,851

2,941,309

Rendering of services

02.

1,282,747
4,224,056

Changes in inventories and other own work capitalizedin € thousands

2017 /18

2016 /17

Changes in inventories of finished goods and work in progress

37,555

7,311

Other own work capitalized

03.

1,344,206
4,209,057

4,720

7,611

42,275

14,922in € thousands

2017 /18

2016 /17

Income from the utilization of contract-specific provisions

126,068

118,033

Other operating income

Income from the reversal of provisions and accruals

70,614

66,719Foreign exchange gains

76,977

92,689Recovered bad debts

13,607

12,005

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

1,555

7,647

Rental and lease income

2,180

1,856

20,90815,532

Income from insurance indemnification payments
Other income

79,22286,004391,131

400,485

174

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated statement of income

04.
05.

Cost of materialsin € thousands

2017 /18

2016 /17

Cost of raw materials and supplies
and of purchased merchandise

1,521,286

1,497,905

Cost of purchased services

366,348

342,478

1,887,634

1,840,383

2017 /18

2016 /17

1,193,782

1,158,793

Personnel expenses
in € thousands

Wages and salaries
Social security, pension and other benefit costs

253,103249,467

1,446,885

1,408,260

Number of employees
Annual average
2017 /18

As at the reporting date2016 /17

2018- 09- 30

2017- 09- 30

Direct production employees

9,570

9,472

9,750

9,559

Administration staff/indirect production

9,652

9,479

9,877

9,486

19,222

18,951

19,627

19,045

Apprentices and interns

818

953

818

953

20,04019,904

20,44519,998

Number of employees by region
Annual average

As at the reporting date2017 /18

2016 /17

2018- 09- 30

2017- 09- 30

Germany

7,815

7,428

7,944

7,641

Europe excluding Germany

2,670

2,689

2,642

2,662

Americas

4,413

4,752

4,133

4,650

Asia

4,152

3,914

4,732

3,925

Other

172

168

176

167

19,222

18,951

19,627

19,045

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated statement of income

06.

Other operating expenses
in € thousands

2017 /18

2016 /17

Increase in provisions and accruals

184,529

228,990

Other selling expenses

281,437

306,825

Other administrative expenses

241,820

239,680

Foreign exchange losses

88,82490,945

Rent for buildings and machinery

49,41751,029Bad debt allowances

22,47918,070993

3,368

148,070

101,045

1,017,569

1,039,952

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

07.

175

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 € - 22 million (previous year: € - 32 million).
In the reporting period, the non-recurring result primarily comprises personnel-related expenses arisingfrom measures to consolidate production capacities and improve competitiveness at Hydro in Brazil
and Europe as well as at Paper in the UK and in the USA.
The non-recurring result for the previous-year period essentially comprised personnel-related andother expenses arising from measures designed to consolidate production capacities and improve
competitiveness at Hydro in Brazil, at Paper in the USA and Turbo in Germany. Besides this, expenses
arising from donor pledges amounting to € 13 million were included here in the previous year.
Specifically, Hydro contributed € - 12 million to the non-recurring result (previous year: € - 7 million), Paper€ - 7 million (previous year: € - 5 million, Turbo € 0 (previous year: € - 6 million) and the Corporate Functions& Services Division € - 3 million (previous year: € - 14 million).

176

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated statement of income

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

2017 /18

2016 /17

Personnel expenses- 16,393- 15,734

Depreciation and amortization of non-current assets

- 41

0

Gain on the disposal of property, plant and equipment

- 803

- 873

Sundry other expenses- 7,218- 20,169

19

389

1,983

2,728

Gain on the disposal of property, plant and equipment
Income from the reversal of provisions
Sundry other income

554

1,480

- 21,899- 32,179

The personnel expenses presented mostly comprise payments in connection with termination of
employment relationships relating to measures to adjust personnel capacity.

08.

Other financial resultin € thousands

2017 /18

2016 /17

Gains/losses from investments

24,43820,369Impairment of other investments and loans- 1,590

- 408

441

453

Income from securities and loans0- 2,097

Currency gains on long-term financing positions

Expenses from securities and loans

23,880

6,519

Currency losses on long-term financing positions- 36,692- 36,557

8,542

1,891

19,019- 9,830

Valuation of derivatives used to hedge financial transactions

The impairment losses recognized on other investments and loans mainly concern available-for-salefinancial instruments.
The currency gains and losses on long-term financing positions result from currency gains and losses
on long-term intragroup and external loans and liability balances. The valuation effects of derivatives
used to hedge financial transactions relate to the hedging instruments associated with these long-term
financing positions.

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated statement of income

09.

177

Income taxesin € thousands

2017 /18

2016 /17

Current taxes- 56,627- 67,164

Deferred taxes- 10,063- 15,142- 66,690- 82,306

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 € 16,194 thousand (previous year: tax expense of€ 3,934 thousand).
The deferred tax income from unused tax losses amounted to € 6,131 thousand in the 2017/18 fiscal
year. This primarily includes the impairment of deferred tax assets of € 7,190 thousand which wererecognized in the 2016/17 fiscal year, a reduction of deferred tax assets on tax losses carried forwardof € 86 thousand as a result of adjustments of tax losses carried forward from the previous year,
income of € 10,910 thousand from the initial recognition of deferred tax assets on tax losses, expensesof € 4,416 thousand from the utilization of tax losses recognized in the previous year and income of€ 7,262 thousand from the initial recognition of previously unrecognized tax losses.
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 forwardof € 5,622 thousand as a result of adjustments of tax losses carried forward from the previous year,
income of € 7,153 thousand from the initial recognition of deferred tax assets on tax losses, expensesof € 12,150 thousand from the utilization of tax losses recognized in the previous year and income of€ 7,541 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 € 337 thousand (previous year: € 5,961 thousand).
As at September 30, 2018, no deferred tax assets were recognized on German trade tax lossesof € 687,011 thousand (previous year: € 649,593 thousand), on German corporate income taxes of€ 406,418 thousand (previous year: € 158,702 thousand) or on interest expenses currently not deductible
under German tax law of € 112,752 thousand (previous year: € 178,459 thousand) as it is not likely thatthe tax losses carried forward can be utilized in the near future.

178

Voith Annual Report 2018
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€ 107,149 thousand (previous year: € 65,836 thousand) or foreign state taxes of € 99,579 thousand(previous year: € 104,704 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.

2018- 09- 30

2017- 09- 30

Deferred tax
assetsDeferred tax
liabilities

Deferred tax
assetsDeferred tax
liabilities

Intangible assets

11,95049,748

12,63546,680Property, plant and equipment

1,908

33,616

1,918

34,131

Financial assets and securities

706

6,101

900

12,82540,05919,08929,76841,853in € thousands

Inventories and receivables
Other assets

9,313

26,2406,518

11,978Pension provisions

111,068

1,119

124,661

10,960Financial liabilities

2,883

2,991

9,486

2,207

Other provisions and liabilities

71,406

2,792

119,788

10,042

Tax effect on distributable earningsof Group companies
Impairment of deferred tax assets
on temporary differences
Unused tax losses
Netting

4,837- 6,928

3,851- 12,688

36,81232,335- 106,394- 106,394- 120,783- 120,783

172,783

40,139204,538

53,744For details of the origin of deferred taxes on items recorded directly in equity, please refer to note 19.

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated statement of income

179

Reconciliation of deferred tax assets and liabilities:in € thousands

2018- 09- 30

2017- 09- 30

Balance, October 1

150,794

197,494

thereof: deferred tax assets

204,538

248,693

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

Deferred tax income/(expense) reported in the statementof income in the reporting period- 10,063- 15,142

Deferred tax income/(expense) reported inother comprehensive income in the reporting period256- 21,725

Business acquisitions and disposals- 2,927- 4,410

Currency- 5,416- 5,423

Balance, September 30

132,644

150,794

thereof: deferred tax assets

172,783

204,538

thereof: deferred tax liabilities- 40,139- 53,744

180

Voith Annual Report 2018
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 was calculated based on a tax rate of 29.84 % (previous year:
29.84 %) that takes into account the legal structure of the Voith Group relevant for tax purposes.
in € thousands

2017 /18

2016 /17

Result before income taxes

151,836

694,343

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

45,308207,192

Deviations from expected tax rates

2,957- 7,556

Effect of changes in tax rates- 3,084

625

Tax-free income- 18,581- 173,132

Non-deductible expenses

28,322

34,146

Taxes relating to other periods- 11,139- 4,192

Change in impairments of deferred tax assets

23,21026,546

Other tax effects- 303- 1,323

Income taxes

66,69082,30643.9

11.9

Effective tax rate (in %)No deferred tax was recorded on temporary differences on investments in subsidiaries of € 1,105,912 thousand (previous year: € 1,025,322 thousand because the criteria specified 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 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

181

Notes to the consolidated balance sheet

10.

Intangible assets
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

760,569in € thousands

Business combinations

13,492

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

- 251

-2

-9

- 2,941

Additions

2,550

0

13,49389

16,132

Disposals- 4,5160- 2,0880- 6,604

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 amortization andimpairments 2016- 10- 01- 150,507- 54,179- 105,1330- 309,819

- 215

0

0

0

- 215

Other adjustments
Transfers
Reclassification to assets held for sale

Business combinations
Currency translation differences
Amortization
Impairment losses

1,743

0

23

0

1,766

- 10,053

0- 6,4400- 16,493

0

0

- 970

0

- 970

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

- 157,569- 54,179- 110,854

0- 322,602

50,040440,488

25,054

94

515,676

Accumulated amortization andimpairments 2017- 09- 30
Carrying amount2017- 09- 30

182

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

Development of intangible assets from 2017- 10- 01 to 2018- 09- 30
Franchises, industrial
rights and similar
rights andassets as well as
licenses in suchrights and assets

Goodwill

Development
costs

Prepayments

Total

207,609494,667

135,90894

838,278

Business combinations

2,118

2,383

0

0

4,501

Currency translation differences- 1,529

- 19

37

0

- 1,511Additions

7,038

0

12,862

105

20,005

Disposals- 1,5780- 1,0210- 2,599

0

- 35

0

0

- 35

in € thousands

Cost
2017- 10- 01

Other adjustments
Transfers

84

0

0

0

84

- 598

0

- 3,7460- 4,344

Cost
2018- 09- 30

213,144496,996

144,040199

854,379

Accumulated amortization andimpairments 2017- 10- 01- 157,569- 54,179- 110,854

0- 322,602

Reclassification to assets held for sale

Business combinations
Currency translation differences
Amortization

0

0

0

0

0

1,209

0

26

0

1,235

- 10,8810- 4,4130- 15,294

0

0

- 247

0

- 247

Disposals

1,253

0

1,020

0

2,273

Transfers

0

0

0

0

0

336

0

520

0

856

0

0

0

0

0

- 165,652- 54,179- 113,9480- 333,779

47,492442,81730,092

199

520,600

Impairment losses

Reclassification to assets held for sale
Other adjustments
Accumulated amortization andimpairments 2018- 09- 30
Carrying amount2018- 09- 30

The impairment losses for the 2017/18 fiscal year (€ 247 thousand) and for the previous year (€ 970 thousand) on capitalized
development costs are based on updated commercial profitability assessments and relate to the Paper segment.

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

11.

183

Property, plant and equipment
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

- 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 depreciation andimpairments 2016- 10- 01- 362,231- 1,025,341- 392,604

0- 1,780,176

Business combinations

- 229

- 10

- 666

0

- 905

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

Transfersin € thousands

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

Reclassification to assets held for sale
Other adjustments

Depreciation
Impairment losses

- 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 depreciation andimpairments 2017- 09- 30- 364,903- 1,046,512- 397,747

0- 1,809,162

Carrying amount2017- 09- 30

449,079

385,549

113,51530,316

978,459

184

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

Development of property, plant and equipment from 2017- 10- 01 to 2018- 09- 30

Land and buildings,
including buildingson third-party land

Plant andmachinery

Other equipment,
furniture and fixtures

Prepayments
and assets underconstruction

Total

813,982

1,432,061

511,262

30,316

2,787,621

9,180

14,6071,005

024,792- 11,319- 22,793- 3,834- 437- 38,383

3,998

19,13926,821

23,67073,628

5

0

0

21

26

Disposals- 1,306- 30,355- 23,919- 768- 56,348

Transfers

2,153

10,6271,380- 14,245- 85- 17,639- 35,476- 8,584- 96- 61,795

338

- 17

- 888

- 156

- 723

Cost
2018- 09- 30

799,392

1,387,793

503,242

38,3052,728,732

Accumulated depreciationand impairments 2017- 10- 01- 364,903- 1,046,512- 397,747

0- 1,809,162- 1,305- 7,932- 768

0- 10,005

in € thousands

Cost
2017- 10- 01
Business combinations
Currency translation differences
Additions
Capitalized interest

Reclassification to assets held for sale
Other adjustments

Business combinations
Currency translation differences

3,356

14,4733,148

020,977- 17,899- 56,283- 30,8300- 105,012

Impairment losses- 118- 1,036- 73

0- 1,227

Disposals

904

27,031

23,194051,129Transfers

0

- 68

68

0

0

Depreciation

Reclassification to assets held for sale

7,312

10,4754,551

022,338

Reversal of impairment losses

0

0

22

0

22

Other adjustments

98

32

841

0

971

Accumulated depreciation andimpairments 2018- 09- 30- 372,555- 1,059,820- 397,593

0- 1,829,968

Carrying amount2018- 09- 30

426,837

327,973

105,649

38,305

898,764

Of the total impairment losses of € 1,227 thousand recognized on property, plant and equipment in the 2017/18 fiscal year,
an amount of € 1,136 thousand was attributable to the Paper segment. In the previous year, these figures were alreadyincluded as an addition to provisions in the non-recurring result and ultimately do not have any effect on the profit or loss forthe period in 2017/18.
An interest rate of 2.2 % was used to calculate capitalized interest (previous year: 6.0 %).

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

185

The prepayments and assets under construction include buildings of € 6,250 thousand (previous year:€ 1,041 thousand), plant and machinery of € 29,219 thousand (previous year: € 27,217 thousand) andnon-production-related equipment of € 2,836 thousand (previous year: € 2,058 thousand).

12.

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

2018- 09- 30

2017- 09- 30

1,457

1,495

Net result of continuing operations

92

158

Total comprehensive income

92

158

Carrying amount of the investments in associates
Share of:

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

2018- 09- 30

2017- 09- 30

20,46330,511

Net result of continuing operations

2,459

7,434

Other comprehensive income- 2,014- 386

Total comprehensive income

445

7,048

Carrying amount of the investments in joint ventures
Share of:

In some cases, the companies accounted for using the equity method have 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 position and net assets.

186

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

13.

Inventoriesin € thousands

2018- 09- 30

2017- 09- 30

Raw materials and supplies

216,416

194,785

Work in progress

173,550

146,166

Finished goods and merchandise

133,484

131,483

Prepayments

80,06675,391

603,516

547,825

Write-downs of inventories recognized as expenses amounted to € 7,038 thousand (previous year:€ 9,604 thousand). Obligatory reversals of write-downs totaling € 6,739 thousand (previous year:€ 8,090 thousand) were made. These amounts are recognized in the cost of materials.

14.

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

2018- 09- 30

2017- 09- 30

Trade receivables

739,647

761,727

Bad debt allowances- 51,663- 47,828

Receivables from customer-specific contracts

346,729

323,929

1,034,713

1,037,828

Trade receivables are classified as current assets. As at September 30, 2018, the volume of receivables
that is not expected to be realized within one year is € 13,212 thousand (previous year: € 13,269 thousand).

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

187

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

2018- 09- 30

2017- 09- 30

Impairment at the
beginning of the fiscal year

- 47,828- 48,492

Additions- 22,145- 16,703

Utilization

7,078

4,579

Reversal

10,547

11,925

678

863

7

0

- 51,663- 47,828

Changes in consolidated group/exchange differences
Reclassification to assets held for saleImpairment at theend of the fiscal year

The total reversal of € 10,547 thousand (previous year: € 11,925 thousand) is comprised exclusively of
specific bad debt allowances. Additions of € 22,145 thousand (previous year: € 16,703 thousand) consistof additions to specific bad debt allowances of € 21,962 thousand (previous year: € 16,318 thousand)and portfolio-based allowances of € 183 thousand (previous year: € 385 thousand).
Credit insurance is used to manage default risk in trade receivables. For this purpose, Hermes cover isused 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

2018- 09- 30

2017- 09- 30

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

5,369,492

6,537,092

Progress billings to date

- 3,965,621- 5,137,716

Future receivables from customer-specific construction contracts before
advances received

1,403,871

1,399,376

Advances received (progress billings)- 1,150,862- 1,121,070

253,009278,306

Thereof receivables from construction contracts

346,729

323,929

Thereof liabilities from construction contracts- 93,720- 45,623

Other liabilities include further advances received on customer-specific contracts of € 509,860 thousand(previous year: € 477,734 thousand), for which no production costs have been incurred to date.

188

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

Sales from customer-specific contracts totaled € 2,198,257 thousand (previous year: € 2,226,098 thousand).
An amount of € 21,816 thousand (previous year: € 17,233 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

2018- 09- 30

Current

Non-current

2017- 09- 30

Derivatives used to hedge
operational transactions

7,206

3,773

10,97923,775

21,26845,043

Derivatives used to hedge
financial transactions

356

1,445

1,801

483

1,062

1,545

Financial receivables

8,019

158

8,177

24,695

1,280

25,975

Sundry financial assets

77,58756,531

134,118

52,33665,801

118,1371)

93,16861,907

155,075

101,289

89,411

190,700

1) Includes assets of € 29,657 thousand (previous year: € 37,634 thousand) which are no financial instruments and which are accordingly
excluded from the disclosures made in the section “Additional information on financial instruments”.

Other assets
in € thousands

Current

Non-current

2018- 09- 30

Current

Non-current

2017- 09- 30

Deferred income

27,0196,733

33,752

20,228

6,930

27,158Other taxes(without income tax)

16.

89,2089,206

98,41490,316

3,819

94,135116,227

15,939132,166

110,544

10,749121,293

Securities
Current securities of € 617,974 thousand (previous year: € 601,812 thousand) contain term deposits
of Voith GmbH & Co. KGaA of € 575 million (previous year: € 560 million) at selected banking partners
with original maturity dates of more than 90 days that had residual terms of 20–185 days as at thereporting date.

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

189

Further information on securities can be found in the section “Additional information on financial
instruments”.

17.

Cash and cash equivalentsin € thousands

2018- 09- 30

2017- 09- 30

Checks2290Cash on hand

447

348

Cash equivalents
Cash at bank

3,484

31,415337,531550,184

341,691

581,947

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, depending on
the cash requirements of the Group. These deposits earn interest at the respective short-term deposit
rates.
Notes on net liquidity
Net debt as defined within the Company includes the following:in € thousands

2018- 09- 30

2017- 09- 30

Cash and cash equivalents

341,691

581,947

Securities

629,661

613,546

Other realizable financial receivables and loans
Bank loans
Bonds
Other interest-bearing financial liabilities

36,82886,159- 258,134- 418,347- 17,574- 17,935- 175,355- 197,597

557,117

647,773

Net liquidity as the difference between realizable financial assets and interest-bearing financial liabilities is
an important indicator for banks, analysts and rating agencies. This net liquidity indicator is not defined
under International Financial Reporting Standards (IFRS) accounting policies, which means that its
definition and calculation might diverge from practice at other companies.

190

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

18.

Assets held for sale and liabilities directly associated with assets
classified as held for sale
As at September 30, 2018, this item contains the assets and liabilities of Voith Composites SE & Co.
KG, which is intended for sale as part of the planned disposal of the business operations. The item
further includes property, plant and equipment of the Group Division Hydro in Brazil and the Group
Division Paper in Austria. The disposal of these assets and liabilities is planned for the 2018/19 fiscal
year. The assets held for sale of € 23,411 thousand are other intangible assets and property, plant andequipment of € 20,880 thousand, inventories of € 1,382 thousand, trade receivables of € 925 thousand
and other assets of € 224 thousand. The liabilities directly associated with assets classified as held forsale of € 892 thousand consist of trade payables.
In the previous year, this item contained an investment classified as held for sale that was sold in the2017/18 fiscal year.

19.

EquityIssued capital
The share capital of Voith GmbH & Co. KGaA of € 120,000 thousand comprises 108,000 thousand
ordinary shares with an arithmetical share of € 1.00 each and 12,000 thousand preference shares withan arithmetical share of € 1.00 each.
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
effect on profit or loss and cash flow hedges pursuant to IAS 39.

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

191

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

2017 /18

2016 /17

Remeasurement of defined benefit plans

12,80467,780· G ains/losses in the current period

12,80467,780Gains/losses on available-for-sale financial assets

2,596- 12,222· G ains/losses in the current period

2,796- 2,392· Transfers to profit and loss

- 200

- 9,830

Gains/losses on cash flow hedges

1,873

2,375

· G ains/losses in the current period

0

2,375

1,873

0

· Transfers to profit and loss
Gains/losses on currency translation- 61,781- 32,619· G ains/losses in the current period- 61,781- 24,3860- 8,233· Transfers to profit and loss
Gains/losses from the currency translation of net investments
in foreign operations

- 423

3

· G ains/losses in the current period

- 423

3

0

0

256

- 21,724- 44,675

3,593· Transfers to profit and loss
Tax on components of other comprehensive income
Other comprehensive income

192

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

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

2017/18

2016/17in € thousands

Beforetaxes

Deferred
taxes

After
taxes

Beforetaxes

Deferred
taxes

After
taxes

Remeasurement of defined
benefit plans

12,804

1,526

14,33067,780- 21,043

46,737

Gains/losses on available-forsale financial assets

2,596

- 836

1,760

- 12,222

10- 12,212

Gains/losses oncash flow hedges

1,873

- 560

1,313

2,375

- 691

1,684

- 61,781

0- 61,781- 32,6190- 32,619

Gains/losses on currencytranslation
Gains/losses from the currencytranslation of net investments
in foreign operations

- 423

126

- 297

3

0

3

Other comprehensive income- 44,931

256- 44,675

25,317- 21,724

3,593

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 thousand 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 the approval 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 2017/18
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 tonon-controlling interests.
Appropriation of retained earnings at Voith GmbH & Co. KGaA
The Board of Management proposes to pay a dividend of € 0.16 per share (€ 19,000 thousand in total)
out of revenue reserves and to carry forward the remaining balance. Of the total dividends proposed,€ 1,920 thousand is attributable to preference shares. Dividend payments in the fiscal year amounted
to € 25,000 thousand (previous year: € 18,000 thousand). The distribution per share in the fiscal year
amounted to € 0.21 per share (previous year: € 0.15 per share).

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

193

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

2018- 09- 30

2017- 09- 30

Equity1,340,319

1,365,924

Interest-bearing financial liabilities

451,063

633,879

1,791,382

1,999,803

Equity fell by 1.9 % compared to the previous year. This effect was primarily due to the negative currency
developments in Brazil. Interest-bearing financial liabilities decreased by 28.9 %. The composition ofinterest-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 € 92,829 thousand for the Voith
Group as a whole (previous year: € 87,536 thousand).
The majority of the pension plans are defined benefit plans that take the form of provisions-based or
externally funded schemes.

194

Voith Annual Report 2018
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 benefit payments 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 features and relatedrisks 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 aredescribed 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 capitalsavings 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 high riskof extra funding requirements arising from salary trends, from external input parameters (e.g. the income
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 usedin 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 2018G (as of July 2018) mortality tables by Heubeck are used.
Employee turnover probabilities were calculated specifically for the Group.

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

195

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. Allof the defined benefit pension 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 groupof participants in a plan for whom 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 lengthof 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 the normal 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 aplan for post-employment medical benefits for a group of plan participants who met the age and lengthof 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 theinvestment of plan assets to an investment committee. According to a trust agreement and US law,
the members of the investment committee have a fiduciary duty to act solely in the best interests ofthe beneficiaries. 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
on the basis of these laws. In the past, Voith paid into the plans to maintain a funded status of at least196

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

80 %, as required by local law. The annual employer’s contributions correspond to the net present
value of the benefit obligation accumulated in the year, plus the amortization of any plan deficit fromthe previous 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

Net carrying amountfrom defined benefit plans

2018- 09- 30

2017- 09- 30

2018- 09- 30

2017- 09- 30

2018- 09- 30

2017- 09- 30

Germany and Austria

744,464

748,167- 24,135- 23,340

720,329

724,827

USA and Canada

169,413

181,245- 155,258- 139,729

14,15541,516

Other

30,84931,656- 21,044- 21,398

9,805

10,258944,726

961,068- 200,437- 184,467

744,289776,601

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

197

Movements in the net liability from defined benefit plans:
2018- 09- 30

2017- 09- 30

Present valueof defined
benefitobligations

Fair value ofplan assets

Balance, October 1

961,068

Current service cost

15,866in € thousands

Total

Present valueof defined
benefitobligations

Fair value ofplan assets

Total- 184,467

776,601

1,094,223- 211,451

882,772-

15,866

21,303-

21,303

Past service cost from plan curtailments

- 206

0

- 206

- 6,5460- 6,546

Interest expenses (+ ) / interest income (-)

21,253- 5,468

15,785

17,689- 5,012

12,677

Losses (+ ) / gains (-) from changes
in demographic assumptions

8,550

-

8,550

1,715

-

1,715

Losses (+ ) / gains (-) from changes
in financial assumptions- 19,348-- 19,348- 63,321-- 63,321- 2,185-- 2,185- 1,894-- 1,894

-

1,282

1,282

-

- 4,280- 4,280

Employer contributions to the fund-

- 25,191- 25,191-- 7,877- 7,877

Employee contributions to the fund

-

229

229

-

62

62

Remeasurements:

Losses (+ ) / gains (-) fromexperience adjustments
Remeasurement of plan assets(without amounts included in interest result)

Benefits paid

- 41,788

14,374- 27,414- 72,352

26,075- 46,277

Change to the Group’s structure1)

- 865

- 401

- 1,266- 19,864

9,821- 10,043

Other

154

591

745

328

-6

322

1,309

- 1,386- 77- 10,213

8,201- 2,012

918

-

918

-

-

0

944,726- 200,437

744,289

961,068- 184,467

776,601

Currency translation differences on foreign plans
Addition to termination benefits inaccordance with IAS 19.159 et seq.
Balance, September 30
1)

In previous year transfer to Voith Management GmbH.

198

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

Movements in the net liability from defined benefit plans in Germany and Austria:
Germany and Austria
2018- 09- 30

2017- 09- 30

Present valueof defined
benefitobligations

Fair value ofplan assets

Balance, October 1

748,167

Current service costin € thousands

Total

Present valueof defined
benefitobligations

Fair value ofplan assets

Total- 23,340

724,827

842,953- 31,106

811,847

14,203-

14,203

19,398-19,398

Past service cost from plan curtailments

- 657

0

- 657

- 4,7860- 4,786

Interest expenses (+ ) / interest income (-)

14,549- 459

14,09011,038- 427

10,611

9,123

-

9,123

- 259

-

- 259

- 12,316-- 12,316- 53,551-- 53,551

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

- 448

-

- 448

- 1,673-- 1,673

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

-

- 235

- 235

-

- 675

- 675

Employer contributions to the fund-

- 1,289- 1,289-- 2,029- 2,029

Employee contributions to the fund
Benefits paid
Change to the Group’s structure1)
Other
Currency translation differences on foreign plans
Addition to termination benefits inaccordance. with IAS 19.159 et seq.
Balance, September 30
1)

in previous year transfer to Voith Management GmbH.

-

0

0

-

0

0

- 28,034

1,188- 26,846- 46,355

1,076- 45,279- 1,2150- 1,215- 19,864

9,821- 10,043

174

0

174

1,266

0

1,266

0

0

0

0

0

0

918

0

918

-

-

0

744,464- 24,135

720,329

748,167- 23,340

724,827

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

199

Movements in the net liability from defined benefit plans in USA and Canada:
USA and Canada
2018- 09- 30

2017- 09- 30

Present valueof defined
benefitobligations

Fair value ofplan assets

Balance, October 1

181,245

Current service costin € thousands

Total

Present valueof defined
benefitobligations

Fair value ofplan assets

Total- 139,729

41,516

218,695- 159,082

59,613

1,019

-

1,019

1,554

-

1,554

Past service cost from plan curtailments

0

0

0

- 1,8400- 1,840

Interest expenses (+ ) / interest income (-)

5,844- 4,453

1,391

5,994

- 4,138

1,856

Losses (+ ) / gains (-) fromchanges in demographic assumptions- 1,211-- 1,211

2,206

-

2,206

Losses (+ ) / gains (-) fromchanges in financial assumptions- 6,612-- 6,612- 10,010-- 10,010

Losses (+ ) / gains (-) fromexperience adjustments

Remeasurements:- 1,185-- 1,185

- 975

-

- 975

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

-

903

903

-

- 3,375- 3,375

Employer contributions to the fund-

- 22,777- 22,777-- 5,434- 5,434

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

-

229

229

-

62

62

- 11,669

11,6690- 24,310

23,828

- 482

- 169

675

506

- 903

772

- 131

2,151

- 1,775376- 9,166

7,638- 1,528

169,413- 155,258

14,155

181,245- 139,729

41,516

200

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

Costs for defined benefit plans break down as follows:in € thousands

2018- 09- 30

2017- 09- 30

15,86621,115Current service cost
Past service cost
Interest expenses from pension obligations and plan assets- 206- 6,546

15,785

12,665Current 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 actuarial interest rate for the capital savings plans.
The fund assets consist of the following components:
Quoted prices inan active marketin € thousands

No quoted prices inan active market

Total

2018- 09- 30

2017- 09- 30

2018- 09- 30

2017- 09- 30

2018- 09- 30

2017- 09- 30

Equity instruments

44,87070,0610044,87070,061

Debt instruments

103,172

75,817525

0103,697

75,817

Real estate

4,122

7,128

2,102

1,949

6,224

9,077

Cash and cash equivalents

1,793

2,886

449

103

2,242

2,989

Other

5,324

1,878

38,08024,64543,404

26,523

159,281

157,770

41,156

26,697200,437

184,467

1)

1)

Primarily employer’s pension liability insurance.

The calculation of pension provisions was based on the following assumptions:

Germany and Austria
in %

USA

2018- 09- 30

2017- 09- 30

2018- 09- 30

2017- 09- 30

Discount rate

2.08

2.00

3.97

3.46

Pension increases

1.70

1.70

0

0

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

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

201

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

2018- 09- 30

Discount ratePension increases

Life expectancy

2017- 09- 30

in € thousandsin %in € thousandsin %up 0.50 %points- 63,053- 6.7- 64,282- 6.7

down 0.50 %points70,958

7.5

72,1257.5

up 0.25 %points

16,2791.7

16,174

1.7

down 0.25 %points- 15,545- 1.6- 15,449- 1.6+ 1 year

28,8083.0

28,801

3.0

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 involvementof international asset management experts and insurers. A new standard asset allocation is ratified eachyear by the Voith pension committee along the latest efficiency curves between income and risk. This isbased on an individual limited risk strategy. However, a fixed percentage of the funding gap is always
set as an upper risk limit.

202

Voith Annual Report 2018
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 € 14,929 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.
in € thousands

Personnel-related
provisions

Other provisions
The provisions consist of the following:At
2017- 09- 30

Changein theconsoli­datedGroup

Utilization

Additions

Reversals

71,375140- 8,321

17,981- 1,576

Transfers

Discounting
effectCurrencytransla­t ion
differ­e ncesAt
2018- 09- 30

- 21

336

- 362

79,552Other tax provisions

3,980

0

- 934

1,853

- 346

-7

0

- 228

4,318

Warranty provisions

217,086- 52- 81,538

83,147- 32,113

1,044

0- 3,597

183,977

Other contract-related
provisions

146,7640- 23,916

44,466- 45,190- 3,72113- 747

117,669

94,488333- 41,035

6,361- 9,153

- 998

0

- 582

49,414

533,693421- 155,744

153,808- 88,378- 3,703349- 5,516

434,930

Other provisions

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

2018- 09- 30

203

2017- 09- 30

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

Personnel-related provisions

15,701

63,851

15,31856,057

Other tax provisions

3,613

705

3,042

938

Warranty provisions

128,814

55,163

161,233

55,853

Other contract-related provisions

107,259

10,410132,339

14,425

Other provisions

23,18826,22631,15063,338278,575

156,355

343,082

190,611

Other provisions include restructuring provisions and provisions for personnel adjustments totaling€ 39.6 million (previous year: € 62.2 million).
Refund claims totaling € 6.9 million (previous year: € 34.1 million) associated with other provisions were
capitalized.
Personnel-related provisions mainly comprise the phased retirement scheme (“Altersteilzeit”) andlong-service bonuses. In the case of provisions for phased retirement, the amount and maturity of the
future payments to be made to the beneficiaries are uncertain. Warranty provisions are recorded basedon past experience or 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 for services 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, theamount and timing of future expenses are dependent on completion of the orders concerned.

204

Voith Annual Report 2018
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

Current

Non-current

2018- 09- 30

Current

Non-current

2017- 09- 30

Bonds

17,5740

17,5740

17,935

17,935

Bank loans

59,771

198,363

258,134

23,947394,400

418,347

213

438

651

246

612

858

1,405

0

1,405

1,151

0

1,151

Financial liabilities from leases
Notes payable
Derivatives used to hedge
financial transactions
Other loans and borrowings

57

1,772

1,829

4,211

15,131

19,342

46,759124,711

171,470

52,961

123,285

176,246

125,779

325,284

451,063

82,516551,363

633,879

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

2018- 09- 30

2017- 09- 30

160,860

299,324

Chinese renminbi

45,136

107,962

Canadian dollar

21,1083,020

US dollar

17,64818,693

Norwegian krone

16,118

4,630

Other currencies

14,8382,653

275,708436,282

Euro

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated balance sheet

23.
24.

205

Trade payables
Trade payables of € 7,616 thousand (previous year: € 3,481 thousand) are due after more than one year.

Other financial liabilities/other liabilities
Other financial liabilitiesin € thousands

Current

Non-current

Derivatives used to hedge
operational transactions

20,6838,179

Personnel-related liabilities

93,21862

116,608

18,437135,045

230,509

26,678257,187

Sundry financial liabilities

2018- 09- 30

Current

Non-current

2017- 09- 30

28,862

7,877

1,063

8,940

93,28096,099193

96,292130,104

34,379164,483

234,080

35,635

269,715

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

2018- 09- 30

Current

Non-current

2017- 09- 30

Tax liabilities

52,537

12,29264,82959,45321,51780,970

Advances received

605,1380605,138

578,0210

578,021

Deferred income

7,609

5,989

13,598

2,487

8,503

10,990

Other liabilities

64,872

29,98894,86063,532

28,202

91,734730,156

48,269778,425

703,493

58,222

761,715

Tax liabilities principally relate to sales taxes (VAT).

206

Voith Annual Report 2018
Consolidated Financial Statements
Notes to the consolidated cash flow statement

Notes to the consolidated cash flow
cash
flow statement
statement
The Industrial Services segment was disposed of in the 2015/16 fiscal year and a 20 % investment was
retained in the Industrial Services entities sold. This 20 % investment was sold in the first half of 2017/18.
In addition, a loan of € 50 million was repaid to Voith. Within the scope of these transactions, we recorded
a cash inflow of € 86 million in the cash flow statement which is reported in the item “Proceeds fromthe disposal of financial assets”.
Non-cash changesin € thousands

2017- 10- 01

Cashchanges

Changesarisingfrom theacquisition/
disposal ofcompanies

Changesdue tocurrency
effects

Changes infair values

Other effects

2018- 09- 30

Bonds

17,935

0

0

337

- 702

4

17,574

Bank loans

418,347- 165,261

4,964

- 420

0

504

258,134

Financial liabilities fromleases

858

- 207

0

0

0

0

651

Notes payable

1,151

240

0

14

0

0

1,405

Derivatives used to hedge
financial transactions

19,34200- 1,512- 16,001

0

1,829

Other loans and borrowings

176,246

10,103121- 445- 11,294- 3,261

171,470

633,879- 155,125

5,085- 2,026- 27,997- 2,753

451,063

Other financial receivables- 29,172

8,154

- 219

1,863

1,368

- 10,194- 28,200

604,707- 146,971

4,866

- 163

- 26,629- 12,947

422,863

Voith Annual Report 2018
Consolidated Financial Statements
Notes on segment reporting

207

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 Management GmbH.
The Group Division Digital Solutions reported as a stand-alone segment for the first time in the previous
year brings together all the Group’s expertise in the areas of automation, IT, software, data analytics
and sensor technology. The sales with third parties reported in the Digital Solutions segment mainly
originates from transactions with the entities Ray Sono AG, FlowLink Systems Private Ltd. and with theGroup’s own IT service provider with external customers. Sales with other segments relates to digital
support for the established Group Divisions. Digital Solutions’ sales with third parties included in theestablished Group Divisions are stated in the segment information by business segment. The profit fromoperations reflects to a great extent the build-up costs for this new Division.
As the business operations of Voith Composites SE & Co. KG is treated as a discontinued operation,
the respective figures were eliminated in the segment reporting and the previous-year figures werecorrespondingly adjusted in the reconciliation and total column. In all other respects, the demarcation
between the segments and the method used to calculate the segment information remains unchanged
in comparison to September 30, 2017.
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.

208

Voith Annual Report 2018
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, 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 use of
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, the Group Division 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. Hydro’s portfolio of products and services covers
the entire life cycle and supplies all major components for large and small hydropower plants: fromgenerators, turbines, pumps, automation systems and digital solutions for smart hydropower rightthrough to aftermarket business in spare parts 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 andvoting rights.
As a leading partner and pioneer in the paper industry, the Group Division Paper provides technologies,
products and services for the entire paper manufacturing process, all from a single source. A constantstream of innovations allows the technology group to optimize the paper manufacturing process on
an ongoing basis. The focus is placed on developing resource-saving products which reduce theconsumption of energy, water and fibers. Furthermore, the Group Division Paper offers a broad service

Voith Annual Report 2018
Consolidated Financial Statements
Notes on segment reporting209

portfolio for all sections of the paper manufacturing process. Furthermore, the company’s Papermaking
4.0 concept allows papermakers to network their equipment in the best possible way and improve theircompetitiveness through effective and secure use of the generated data.
The Group Division 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 andcommercial vehicles, value Voith’s cutting-edge technology.
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 advance the Internet of Things and to play a major role in the digitalization of plant and mechanicalengineering. Digital Solutions was presented as a stand-alone segment for the first time in the 2016/17
fiscal year.

210

Voith Annual Report 2018
Consolidated Financial Statements
Segment information by business segment

Segment information by business segment­H ydroin € millions­Paper­­Turbo2017 /18

2016 /17

2017 /18

2016 /17

2017 /18

2016 /17

Sales with third parties

1,103

1,381

1,746

1,527

1,302

1,283

·T
 hereof attributable to
Digital Solutions

101

131

98

87

34

68

Sales with other segments

8

6

17

24

12

4

Segment sales, total

1,111

1,387

1,763

1,551

1,314

1,287

Profit from operations

77

106

114

107

76

91

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

21

23

45

50

38

41

Capital spending 3)

13

15

34

24

22

36

Segment goodwill

15

15

222

222

141

141

Average capital employed

456

489

627

721

681

703

ROCE

16.9 %

21.8 %

18.2 %

14.9 %

11.1 %

12.9 %

Employees 4)

3,927

4,507

6,618

6,449

5,543

5,408

Sub-total of Hydro, Paper and 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.
Without additions due to business combinations and financial assets.
4)
Statistical headcount on reporting date.

1)

2)

3)

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 of the segments to result before taxes fromcontinuing operations presented below.
The other adjustments mainly consist of effects from the handling of a warranty from previous periods.

Voith Annual Report 2018
Consolidated Financial Statements
Segment information by business segment

Digital Solutions

Total Core Business 1)

Reconciliation

211

Total

2017 /18

2016 /17

2017 /18

2016 /17

2017 /18

2016 /17

2017 /18

2016 /17

4,151

4,191

40

13

18

20

4,209

4,224

233

286

40

13

0

0

273

299

37

34

163

132

- 200

- 166

0

0

4,188

4,225

203

145

- 182

- 146

4,209

4,224

267

304

- 46

- 43

- 10

-7

211

254

104

114

12

8

5

4

121

126

69

75

21

15

4

2

94

92

378

378

58

55

7

7

443

440

137

100

1,764

1,913

95

44

15.1 %

15.9 %- 47.7 %- 97.3 %16,08816,364

2,256

1,397

1,191

1,196

1,996

2,057

10.6 %

12.4 %

19,535

18,957

Reconciliation of total profit from operations to the Group’s result before taxes fromcontinuing operations:in € millions

2017 /18

2016 /17

Total profit from operations

211

254

Operating interest income

- 24

- 30

Other adjustments

- 17

0

Non-recurring result

- 22

- 32

2

8

Share of profit/loss from companies accounted for using the equity method
Gains/losses from the sale of associates

0563Interest income/expense

- 17

- 59

Other financial result

19

- 10

Result before taxes from continuing operations

152

694

212

Voith Annual Report 2018
Consolidated Financial Statements
Segment information by region

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

2017 /18

2016 /17

563

558

Foreign countries

3,646

3,666

thereof Europe

1,185

1,096

thereof Americas

1,067

1,195

thereof Asia

1,253

1,111

· of which China

780

543

thereof others

141

264

4,209

4,224

2017 /18

2016 /17

Germany

667

706

Germany

Non-current assets
in € millions

Foreign countries

752

788

thereof Europe

146

151

thereof Americas

259

293

· of which USA

192

193

thereof Asia

344

341

· of which China

285

304

thereof others

3

3

1,419

1,494

Voith Annual Report 2018
Consolidated Financial Statements
Other notes

213

Other notes
Contingent liabilities, contingent assets andother 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 in connection with the recognition of transfer prices outside Germany
amounting to € 5 million (previous year: € 5 million) and risks from legal disputes of € 42 million (previous
year: € 27 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 their 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
Provision of collateral for third-party liabilities

Most of the guarantee obligations expire in 2019.

2018- 09- 30

2017- 09- 30

3,044

1,161

451

313

1,000

0

4,495

1,474

214

Voith Annual Report 2018
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

2018- 09- 30

2017- 09- 30

Purchase commitments for capital expenditures

19,243

10,935

Obligations arising from non-cancelable operating leases

120,472

120,506

Other

86,696

6,918

226,411

138,359

Assets leased under operating leases led to cash outflows totaling € 49,417 thousand (previous year:€ 51,314 thousand). These payments mostly relate to leased passenger vehicles, machinery and buildings. The majority of leases run for between 1 and 15 years. Some companies have the option of extending their rental contracts.
The total of future minimum lease payments for non-cancelable operating leases is shown below, broken
down by maturity:in € thousands

2018- 09- 30

2017- 09- 30

Nominal value of future minimum lease payments· due in less than one year

51,23142,091· d ue between one and five years

64,11868,262· d ue in more than five years

5,123

10,153

120,472

120,506

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 2018
Consolidated Financial Statements
Other notes

215

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
amount2018- 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
2018- 09- 30

Assets:Cash and cash equivalents

LaR

341,691

341,691

341,691

Trade receivables

LaR

687,984

687,984

687,984

Receivables from construction contracts

LaR

346,729

346,729

346,729
616,154

Other financial assets and securities

721,669· Financial investments

LaR

616,154

616,154· Loans

LaR

8,628

8,628

· Investments

AfS

83,380· Securities

AfS

13,507

Derivative financial instruments

8,628
61,955

21,425

21,4251)

13,507

13,507

12,780· Forward exchange contracts

FAHfT

4,058

4,058

4,058

· Forward exchange contracts(fair value hedges)

n.a.

8,391

8,391

8,391

· Interest rate swaps(fair value hedges)

n.a.

331

331

331

Other receivables

112,638· Financial receivables

LaR

8,177

8,177

8,177

· Sundry financial assets

LaR

104,461

104,461

104,461

Trade payables

FLAC

510,585

510,585

510,585

Bonds/bank loans/notes

FLAC

277,113277,113n.a.

651

Liabilities:

Financial liabilities from leases
Derivative financial instruments· Forward exchange contracts

291,736651

30,691
FLHfT

6,561

6,561

· Forward exchange contracts(fair value hedges)

n.a.

24,130

Other loans and borrowings

FLAC

171,470

133,858

Sundry financial liabilities

FLAC

228,325

228,325

Loans and receivables (LaR)

LaR

2,113,824

2,113,824

Available for sale (AfS)

AfS

96,887

Financial assets held for trading (FAHfT)

FAHfT

4,058

Financial liabilities measured atamortized cost (FLAC)

FLAC

1,187,493

Financial liabilities held for trading(FLHfT)

FLHfT

6,561

24,13037,612

1)

24,130
194,047
228,325

IAS 39 measurement categories:
61,95534,932
4,058

1,149,881

6,561

37,612
6,561

The financial assets available for sale (AfS) include investments whose fair value could not be determined reliably and that are currently not planned to be sold.

216

Voith Annual Report 2018
Consolidated Financial Statements
Other notes

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

21,600 2)

21,6001)

13,581

13,581

46,588· Forward exchange contracts

FAHfT

4,820

4,820

4,820

· Forward exchange contracts(fair value hedges)

n.a.

40,73540,73540,735· Interest 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

3,500 2)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

· Interest rate swaps(cash flow hedges)

1

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 value 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.

Voith Annual Report 2018
Consolidated Financial Statements
Other notes

217

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

2018- 09- 30

Level 1

Level 2

Level 3

Securities

13,507

13,50700Derivative financial instruments

12,7800

12,7800Investments

21,4250021,425Derivative financial instruments

30,691030,6910Liabilities arising from the acquisitionof investment shareholdings

37,6120037,612

2017- 09- 30

Level 1

Level 2

Level 3

Securities

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

AssetsLiabilitiesin € thousands

AssetsLiabilities

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 2017/18 fiscal year.

218

Voith Annual Report 2018
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 amount recognized in the balance sheet of the investments allocated to level 3 of the fair value
hierarchy was changed. Previously, the exception contained in IAS 39.46(c) was exercised for theseinvestments and they were measured at amortized cost. In order to determine the fair value of theinvestments as at September 30, 2018, in a first step the fair value of each investment was calculated
from the total number of shares held and the cash and cash equivalents available as at the measurement
date. The equity value of the respective investment is determined on the basis of a market-oriented
approach to measurement, the multiplier method, and is calculated in each case from the overallbusiness value minus the net financial position. In the present case, multipliers derived from representative external transactions are used, taking account of current developments up to the measurement
date. These multipliers are multiplied by the average of operating result (EBITDA) achieved in the past
in relation to the overall business value. In a second step, the fair values of the investments attributable
to Voith are calculated in accordance with the existing ownership structure.
As at September 30, 2017, 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 andcontained parameters that cannot be observed on the market. On account of contractual subordination,
the economic value of Voith’s investment did not correspond to the proportionate market value of theequity. For this reason, the fair value was based on an options pricing model (binomial model), theinput parameters used at the reporting date were the business model of the investment amounting to€ 138.7 million, capital market interest rates that reflect the term to maturity and the risk profile amounting
to 0.02 % per annum, and share price volatilities of a peer group amounting to 26.0 % per annum.
The value of the embedded call option accounted for separately was 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 could, depending on the timing of the exercise of
the call option, generate a gain on sale of up to a maximum of € 40.2 million. In economic terms, the call
option limited the maximum revenue Voith could generate from the investment to the option’s strike price.
The call option was exercised by the majority owner in the first half of the 2017/18 fiscal year and theinvestment was sold. For more information on this, we refer to the section entitled “Disposal of shares”.
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 as well as contractually agreed purchase priceinstalments from future share acquisitions. The fair values were calculated on the basis of the latest
business planning prepared by management applying the discounted cash flow method. The planningassumptions are adjusted to reflect the current information available. A risk-adjusted discount rate

Voith Annual Report 2018
Consolidated Financial Statements
Other notes

219(WACC) was applied. Shareholder agreements usually contain an agreed formula for the calculation of
the purchase price when the put options are exercised. In this respect, the purchase prices result fromthe gross business values of the investments determined using the multiplier method in accordance witha contractually agreed definition, minus the net debt, multiplied by the non-controllers’ shareholdings. If
the put options can be exercised only at a later date, the purchase prices are discounted to the reporting
date using an interest rate (WACC) appropriate for the term involved.
If the business value of the underlying companies were to increase (decrease), this would lead to anincrease (decrease) in the liabilities from the acquisition of investment shareholdings.
The changes in the fair values of assets and liabilities classified as level 3 in the fair value hierarchy wereas follows:in € thousands

2018- 09- 30

2017- 09- 30

Balance, October 1- 22,081

9,511

Change in valuation policy

20,3780Liabilities from acquisition of investments- 5,200

0

Disposal of investments- 21,600

0Exercise of call option

3,500

0

0

- 33,367

Fair value changes recorded in profit or loss

2,010

1,300

Fair value changes recorded in equity

6,806

475

- 16,187- 22,081

Put options from business combinations

Balance, September 30

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 market value of the remaining fixed-interest portions of the note loan of € 175 million (previous year:€ 316 million) is calculated in the same way as the market values of unlisted bonds, bank loans andother financial liabilities as the present value of the payments associated with the liabilities, based on
the effective yield curve and Voith GmbH & Co. KGaA’s credit spread curve determined for different
currencies (fair value hierarchy level 2).

220Voith Annual Report 2018
Consolidated Financial Statements
Other notes

The market value of other financial liabilities totaling € 94 million (previous year: € 115 million) was
determined based on internal planning data. These are measured using the discounted cash flow
projections taken from the latest business planning prepared by management. The planning assumptions
are adjusted to reflect the current information available (fair value hierarchy level 3).
Net gains and losses for each measurement category of financial instruments:
2017 /18

Impairments

Other net gains/lossesLoans and receivables (LaR)- 8,872

15,015

6,143

Available-for-sale financial assets- 1,801742- 1,059

Financial assets held for trading

0

6,145

6,145

Financial liabilities measured at amortized cost0

- 37,648- 37,648

Impairments

Other net gains/losses

Total

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

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

11,639in € thousands

Total2016 /17

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. Impairment
losses in the category “available-for-sale financial assets” primarily relate to investments that have seena 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 2018
Consolidated Financial Statements
Other notesin € thousands

221

Gross presentation
balance sheet
2018- 09- 30

Volume that canpotentially be offset
under masternetting agreements

Potential
net amount

12,780

7,983

4,797

30,691

7,983

22,708Gross presentation
balance sheet
2017- 09- 30

Volume that canpotentially be offset
under masternetting agreements

Potential
net amount46,588

16,10330,48528,282

16,103

12,179AssetsDerivative financial instruments
Liabilities

Derivative financial instrumentsin € thousands
AssetsDerivative financial instruments
Liabilities

Derivative financial instruments

Collateral
As of the reporting date, the financial assets include non-current securities totaling € 8,955 thousand(previous year: € 9,113 thousand) that are used to cover future pension obligations. Furthermore,€ 163 thousand of the sundry financial assets (previous year: € 1,632 thousand) has been provided ascollateral for liabilities and contingent liabilities. They may be drawn on if the underlying obligations are
not fulfilled or if the contingent liabilities are realized.
Assets of € 3,905 thousand (previous year: € 0) have been provided as collateral for financial liabilities.

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 position and earnings position. The aim offinancial 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

222

Voith Annual Report 2018
Consolidated Financial Statements
Other notes

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 byVoith 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.
Credit risk
The Voith Group does business only with recognized, creditworthy third parties. We verify the credit­
worthiness 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 default risk is limited to the carrying amount of tradereceivables, which is € 687,984 thousand (previous year: € 713,899 thousand). The maximum default
risk for receivables from construction contracts is € 346,729 thousand (previous year: € 323,929 thousand). On account of the collateral held, the maximum default risk for trade receivables is reducedby € 89,677 thousand (previous year: € 118,114 thousand) and that for receivables from construction
contracts by € 12,002 thousand (previous year: € 58,118 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,
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 means of bankproducts.
With respect to credit risk arising from the Group’s other financial assets, which comprise cash and cash
equivalents, available-for-sale financial assets and certain derivative financial instruments, the Group’s
exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the223

Voith Annual Report 2018
Consolidated Financial Statements
Other notes

carrying amount of these instruments. For details of financial guarantees, please refer to the discussionof contingent liabilities. This kind of loss can occur if individual business partners fail to meet theircontractual 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
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:

2018- 09- 30

Gross value

Thereof neither
impaired nor
past dueless than
90 days

between90 and180 daysmore than
180 days

Trade receivables

739,647

518,319

98,98362,33024,724

Other financial assets and securities

773,386

712,442

Other financial receivables

121,150

107,026

2,618

512

1,740

in € thousands

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 and securities

772,226

665,092

Other financial receivables

118,171

98,816

3,945

170

1,532

in € thousands

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 cashlines 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.

224

Voith Annual Report 2018
Consolidated Financial Statements
Other notes

The syndicated euro loan of € 770 million was refinanced in April 2018 and adjusted to € 550 million. It
remains available until 2023, with two renewal options until 2025. 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 from banks. To safeguard internal and external growth, the Voith Group procureslong-term funding on the capital markets by issuing bonds, through private placements and individualbank loans.
The floating-rate portion of the note loan of € 139 million was prematurely repaid from own funds in thesecond half of the 2017/18 fiscal year.
The credit facilities are subject to the 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 2017/18 fiscal year. The rating given by Moody’s was raised from Ba1 to an investment grade of
Baa3 in December 2017. In addition, the rating agency S&P issued its first rating of BBB-. Scope Ratings
published its first rating assessment of BBB flat in the second half of the 2017/18 fiscal year.
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:in € thousands

2018- 09- 30

Cash flows< 1 year

Cash flows
1–5 years

Cash flows> 5 years

Trade payables

510,585

502,969

7,775

0

Bonds/bank loans/notes

277,11384,317

188,438

22,887

Financial liabilities from leases

651

229

455

0

Other loans and borrowings

171,470

47,28018,120106,624

Other financial liabilities

228,325

209,826

17,926573

Derivative financial instruments

30,691
293,178

112,955305· Outflows· Inflows
1,218,835- 273,658- 98,077- 339

864,141

247,592

130,050

Voith Annual Report 2018
Consolidated Financial Statements
Other notes

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

225

Cash flows> 5 years

Other loans and borrowings

176,246

53,547207

123,069

Other 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

830,850

371,278

277,163

1,413,335

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 1.0 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.

226

Voith Annual Report 2018
Consolidated Financial Statements
Other notes

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 net result and consolidated equity are as follows: if the US
dollar rises by 5 %, the result before taxes increases by € 6,442 thousand (previous year: increase of€ 7,462 thousand) and equity (including the effect from the result before taxes) by the same amount, as
was the case in the previous year. If, on the other hand, the US dollar falls by 5 %, the result before taxes
decreases by € 6,442 thousand (previous year: decrease of € 7,462 thousand) and equity (including theeffect from the result before taxes) by the same amount, as was the case in the previous year.
Interest rate risk:
The Voith Group’s exposure to interest rate risks arising from external refinancing is analyzed andmanaged 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
can cause 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 byinterest 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.

Voith Annual Report 2018
Consolidated Financial Statements
Other notes

227

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:
2018- 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
341,691

0

0

0

0

0

341,691

Bonds

Cash and cash equivalents

17,574

0

0

0

0

0

17,574

Bank loans

59,771

37,690000097,46100101,823

0

37,91020,940160,673

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

2017- 09- 30
in € thousands

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

Fixed interest rate
Bank loans

If the market rate of interest had been 100 basis points higher (lower) at September 30, 2018, gains/losses from the significant floating-rate financial instruments would have been € 2.3 million higher (lower)(previous year: € 4.4 million higher (lower)). Equity would have changed accordingly. This effect chiefly
originates from euro-denominated floating-rate financial instruments of € 0.6 million (previous year:€ 2.5 million).
Risks relating to securities and stock prices:
The Voith Group holds other securities in the available-for-sale category of € 14 million (previous year:€ 14 million). Stock price risks are reflected in the balance sheet and not in the consolidated statement ofincome, 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.

228

Voith Annual Report 2018
Consolidated Financial Statements
Other notes

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 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

2018- 09- 30

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

Forward exchange contracts(fair value hedges)

394,499

210,029

4,662

3,729

16,347

7,783

17,270

0

331

0

0

0

195,676

59,420

2,569

1,489

4,393

2,168

607,445

269,449

7,562

5,218

20,7409,951Interest rate swaps(fair value hedges)
Other derivatives

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

208,749

118,907

4,605

215

5,417

11,975682,055

485,834

24,25822,33012,08816,194

Other derivatives

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

Fair value hedges:
The Group uses fair value hedges primarily to hedge interest rate and foreign exchange risks.
In the 2017/18 fiscal year, a loss of € 48,877 thousand was recorded on derivative financial instruments
classified as fair value hedges (previous year: a loss of € 3,505 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 2017/18 and 2016/17 fiscal years.

Voith Annual Report 2018
Consolidated Financial Statements
Other notes

229

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, 2018, there were no cash flow hedges in place.
In the previous year, hedge relationships designed to hedge cash flows from forecast payment transactions for the note loan and forecast sales transactions were classified as highly effective. Accordingly,
an unrealized gain of € 2,375 thousand was recognized within consolidated equity in other reserves as
at September 30, 2017.
In the 2017/18 fiscal year, hedged transactions of € 1,873 thousand (previous year: € 0) were realized
over the course of the year under review by transfer of the relevant accumulated losses from otherreserves to profit or loss.
Research and development costs
In the 2017/18 fiscal year, research and development costs totaled € 225,359 thousand (previous year:€ 217,162 thousand).
Of these, development costs of € 12,862 thousand (previous year: € 13,493 thousand) were capitalized in
the balance sheet. The remaining costs represent activities for non-customer-specific new developments
and improvements of € 161,527 thousand (previous year: € 146,724 thousand) and development activities
for customer-specific contracts of € 50,970 thousand (previous year: € 56,945 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).
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 € 772 thousand (previous year: € 1,311 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.

230

Voith Annual Report 2018
Consolidated Financial Statements
Other notes

The majority of goods and service transactions with related parties (entities and individuals) are shownin the table below:
in € thousands

2017 /18

2016 /17

Liabilities to family shareholders

16,32014,849Services purchased from associates

1,447

1,075

95

87

2,625

2,686

718

625

Services rendered to associates
Receivables from associates
Liabilities to associates
Services purchased from other investments

4,146

3,749

Services rendered to other investments

12,947

11,470Receivables from other investments, including advances paid

8,609

10,922

Impairment of receivables from other investments- 1,723- 1,412

Liabilities to other investments and to Voith Management GmbH

22,692

21,361Services purchased from joint ventures

9,952

4,242

Services rendered to joint ventures

2,313

3,838

Receivables from joint ventures

15,208

9,539

741

2,808

Services purchased from the ultimate parent company

13,672

12,515Services rendered to the ultimate parent company

1,246

1,107

Liabilities to joint ventures

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

333

208

9,049

7,604

Liabilities to family shareholders include current floating-rate clearing accounts and pension obligations.
For more information on the profit participation rights of € 103,400 thousand (previous year:€ 103,400 thousand) granted to family shareholders, please refer to note 19.
In the 2017/18 fiscal year, guarantees of € 2,999 thousand (previous year: € 1,146 thousand) were issued
in favor of other investments.
The Group has obligations under outstanding orders with the ultimate parent amounting to € 4,518 thousand (previous year: € 4,330 thousand) and with joint ventures of € 14,718 thousand (previous year:€ 31,777 thousand).
No capital increases were performed in favor of joint ventures (previous year: € 9,623 thousand).

Voith Annual Report 2018
Consolidated Financial Statements
Other notes

231

Remuneration of governing bodies
The compensation for members of the Board of Management of Voith Management GmbH, including
pension expenses, totaled € 12,359 thousand in the fiscal year (previous year: € 10,683 thousand).
Due to 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 amount includes short-term benefits totaling € 11,248 thousand (previous year:€ 9,143 thousand) and post-employment benefits of € 1,111 thousand (previous year: € 1,540 thousand).
The compensation for members of the Board of Management under commercial law totaled € 10,242 thousand (previous year: € 8,853 thousand).
Following the transfer of the Corporate Board of Management to Voith Management GmbH effective
as at September 30, 2017, the balance of pension obligations on that date was transferred from Voith
GmbH & Co. KGaA to Voith Management GmbH at their fulfillment amount of € 19,874 thousand(including deferred compensation amounts). Existing plan assets totaling € 9,821 thousand as at
September 30, 2017 was likewise transferred as part of this transaction. A remaining excess obligationof € 12,265 thousand remains with Voith GmbH & Co. KGaA. The present value as at September 30,
2018 of the defined benefit obligations to the Corporate Board of Management at Voith Management
GmbH amounted to € 10,669 thousand (including entitlements from deferred compensation). There
are plan assets totaling € 2,489 thousand.
The present value of defined benefit obligations toward past members of the Board of Management
totaled € 78,774 thousand (previous year: € 57,867 thousand). Of these amounts, € 3,387 thousand(previous year: € 3,504 thousand) relates to obligations on the part of the former parent of the Group,
J.M. Voith SE & Co. KG (formerly: J.M. Voith GmbH & Co. Beteiligungen KG) toward past members of
the Corporate Board of Management.
Plan assets for former members of the Board of Management total € 34,128 thousand (previous year:€ 21,917 thousand).
These amounts are included in note 20.
The compensation for past members of the Board of Management totaled € 4,850 thousand (previous
year: € 3,045 thousand). Of this amount, € 561 thousand (previous year: € 551 thousand) relate tocompensation for the members of the Corporate Board of Management of the former parent of theGroup, J.M. Voith SE & Co. KG (formerly: J.M. Voith GmbH & Co. Beteiligungen KG).
The members of the Supervisory Board of Voith GmbH & Co. KGaA received (short-term) compensationof € 470 thousand (previous year: € 555 thousand).

232

Voith Annual Report 2018
Consolidated Financial Statements
Other notes

Auditor’s fees and services
The following fees (including reimbursement of expenses) were paid to the independent auditor for theservices rendered in the 2017/18 fiscal year:in € thousands

2017 /18

2016 /17

Annual audit

2,767

2,625

Other assurance or valuation services
Tax advisory services
Other services

10

42

1,737

165

15

49

4,529

2,881

Subsequent events
Dr. Hubert Lienhard left the Corporate Board of Management effective as of March 31, 2018. Mr. Stephan
Schaller, who had been appointed to the Corporate Board of Management effective as of March 1,
2018 and President and CEO as of April 1, 2018, stepped down from his office on October 23, 2018.
Dr. Toralf Haag was appointed President and CEO by the Shareholders’ Committee with effect from
October 23, 2018. Dr. Toralf Haag, a member of the Corporate Board of Management since October
2016 and responsible for finance and controlling, will initially retain his role as CFO and exercise both
functions at the same time until further notice.
No additional significant developments have occurred since the close of the 2017/18 fiscal year.

Heidenheim an der Brenz, November 28, 2018
The Board of Management of Voith Management GmbH
Dr. Toralf Haag
Andreas Endters
Dr. Uwe Knotzer
Dr. Roland Münch
Uwe Wehnhardt
The German language consolidated financial statements of Voith GmbH & Co. KGaA as at September
30, 2018 as authorized for issue and the unqualified audit opinion issued thereon by KPMG
Wirtschaftsprüfungsgesellschaft, Munich will be filed in German at the Bundesanzeiger (Federal German
Gazette). They can be viewed at www.bundesanzeiger.de.

Voith Annual Report 2018
Consolidated Financial Statements
Responsibility statement233

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 28, 2018
The Board of Management of Voith Management GmbH
Dr. Toralf Haag
Andreas Endters
Dr. Uwe Knotzer
Dr. Roland Münch
Uwe Wehnhardt

Contact
Voith Group
Phone: +49 7321 37-0
Fax: +49 7321 37-7000
E-mail: info@voith.com
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Fax: +49 7321 37-7107
E-mail: info@voith.com
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Phone: +49 7321 37-2332
Fax: +49 7321 37-7010
E-mail: info@voith.com

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