Interim Report 2017

The Voith Group in Figures

2016-10-01 to
2017-03-31

2015-10-01 to
2016-03-31

2,320

2,155

1,965

2,038

Return on sales in %1)

91
4.6

97
4.8

Result before taxes 3)

593

18

Net result

566

-48

Cash flow from operating activities

-40

-48

1,054

11

47

59

in € millions

Orders received1)
Sales1)
Profit from operations1), 2)

Total cash flow
Investments

1)

Equity1,372

799

Equity ratio in %

23.8

14.9

Balance sheet total4)

5,760

5,359

Employees 4), 5)

18,806

19,0984)

 revious year: excluding the discontinued Group Division VP­ oith I­ndustrial ­Services.
See “Notes on segment reporting” in the notes to the Group interim financial statements.
3)
Excluding the discontinued Group Division V­ oith I­ndustrial ­Services.
4)
Reference date March 31, 2017, compared to September 30, 2016.
5)
Without apprentices.
1)

2)

Contents

ForewordGroup Interim Management Report
01
02
03
04
05
06
07

Business development and earnings position of the Group
Business development and earnings position of the Group Divisions
Net assets and financial position
Employees
Subsequent events
Risks and opportunities
Forecast report

8
15
24
28
30
31
33

Group Interim Financial Statements
Consolidated statement of income
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Basis of the interim consolidated financial statements and accounting policies
Notes on segment reporting
Segment information by business segment
Notes to the statement of income and the balance sheet
Other notes
Responsibility statement

38
39
40
42
44
45
48
50
52
56
63

4

Foreword | Dr. Hubert Lienhard

Foreword
Ladies and gentlemen,
The first six months of the current 2016/17 fiscal year were not only eventful anddemanding but also very rewarding for the Voith Group – we provide all material
figures, facts and background information in this report.
So far over the course of our anniversary year, the operating business has presented
itself in even better shape. The volume of orders received has risen in comparison
to the first half of the previous year. And despite the market environment thatremains difficult, we have succeeded in keeping Group sales at a roughly stablelevel. There is one especially pleasing factor in all this: the profit from operationsof our three core Group Divisions – Voith Hydro, Voith Paper and Voith Turbo –has, in turn, improved in total. This means that the profitability of our establishedactivities has also continued to rise. They have developed as planned over the pastmonths – with Voith Paper excelling with an increase in profit from operations ofmore than 50 percent and a volume of orders received up by three quarters on theprevious year. This shows that the turnaround at Voith Paper, already apparent in
the previous year, has been confirmed in an impressive manner over the courseof the current year.
The slight decline in the profit from operations reported at Group level is attributable
solely to the budgeted build-up costs for our new Voith Digital Solutions Group
Division – this is where we have bundled our entire expertise in the fields of automation, IT, software, data analytics and sensor technology. Voith Digital Solutions
is nothing less than the centerpiece of our digital agenda. The new Group Division
not only acts as an “enabler” for the digital transformation of established activities
but also initiates new digital products and solutions. One of its first flagship projects is merQbiz, our digital trading platform for the recovered paper market thatwas launched in March. The recently agreed majority shareholding in Ray Sono, a
provider of digital services, is representative of the dynamics of how we are driving
forward our digital agenda.
Despite the temporary burdens on results caused by the digital transformation,
the Voith Group reports a record bottom-line result in the first half of the year. The
extraordinarily high figure of € 566 million can be primarily explained by the sale of
our KUKA shares completed in January. But even without this effect, we would
have been able to report a positive net result, in contrast to one year ago. The
KUKA transaction, the most successful financial investment in Voith’s history todate, was also a decisive factor in the considerable improvement in the Group’s
financial position in the first half of the year. Today, we not only have a very soundequity base but also a substantial amount of free liquidity. This gives us considerable
financial headroom for organic growth or acquisitions.

Voith Interim Report 2017

Foreword | Dr. Hubert Lienhard

5

To summarize, we can quite rightly say that our Company is making great progressalong its path towards a sustainably successful future. Thanks to pivotal strategic
decisions made in past years, the Voith Group has a profitable core business, a
coherent strategy for the future and a strong balance sheet. This means that theCompany is now in the best possible position to achieve profitable growth on asustainable basis over the coming years.
In this light, the full fiscal year 2016/17 promises to be another good year for Voith.
We remain well on track for the future. Our investments in Voith’s digital transformation continue undiminished. We are vigorously driving forward the growth of ourcore activities, as demonstrated by the recent opening of a new Voith Turbo production location in China, which will be one of the most modern sites worldwide
in the Voith network.
After the first six months that have gone according to plan, we stand by our forecasts
for the operating business: we continue to expect sales roughly matching theprevious-year level and a slightly increasing volume of orders received in an ongoingchallenging environment. The profit from operations will be clearly positive but islikely to fall below the level seen in the previous year on account of the build-up
costs for Voith Digital Solutions in line with planning. The group net result will reacha record level due to the KUKA effect.
It is rather fitting that this is happening in 2017, the 150th year of Voith’s existence.
We are celebrating this anniversary with a number of in-house and public events thatare putting a very special mark on the current year. 150 years of Voith – that is anoccasion to look back with pride. But it is most of all an incentive for the future: inthe same way as we have always helped shape the industrial revolution ever since
1867, the year in which our Company was founded, we also intend to play a role inthe digital revolution. As the past few months have demonstrated in an impressive
manner, Voith is ready to live up to this claim.

Sincerely,

Dr. Hubert Lienhard
President and CEO

Voith Interim Report 2017

Group Interim Management Reportfor the period from October 2016 to March 2017

01
02
03
04
05
06
07

Business development and earnings position of the Group
Business development and earnings position of the Group Divisions
Net assets and financial position
Employees
Subsequent events
Risks and opportunities
Forecast report

8
15
24
28
30
31
33

8

Group Interim Management Report | 01 Business development & earnings position

01

Business development andearnings position of the GroupIn the first half of 2016/17, the operating business of
the Voith Group presented itself in even better shape.
Voith Hydro and Voith Paper were each able to increase
their profit from operations, whereas Voith Turbo was
impacted by declining sales in the rail business. All in all,the profit from operations in the core business increasedby 6 %. We reached important milestones in theimplementation of our digital strategy. Including thefavorable impact of the gain on sale in connection
with the successful disposal of the KUKA shares, we
generated a group net result of € 566 million.

01.1. Overall assessment

Significant improvement in the operating
business, net income for the period at a high level
In the first half of 2016/17, the Voith Group saw successful developments in anenvironment that remains difficult. The Voith Group’s orders received exceeded theprevious-year level by a significant amount (up 8 %), with the Voith Paper Group
Division excelling in this respect. Orders on hand rose to € 5,745 million. There wasa slight decrease in group sales (down 4 %), primarily on account of weak demand
from some of Voith Turbo’s customer industries and project delays at Voith Hydro.
All in all, this figure nevertheless remained within the anticipated parameters, sothat we still consider ourselves to be on course to meet our sales forecast for theyear (“previous-year level”). At the same time, we have improved the profitabilityof our core business. The profit from operations of Voith Hydro, Voith Paper andVoith Turbo increased by a total of 6 %.
In the Voith Group seen as a whole, the profit from operations was lower than theprevious-year figure (down 6 %), as anticipated, on account of the build-up costs
for the Voith Digital Solutions Group Division, which was created in 2016. At thesame time, the digital transformation of the Voith Group and the building up of the
new Group Division is making rapid progress. After launching merQbiz, the first
digital marketplace for recovered paper worldwide, in March 2017, we continue towork on the development of new business models and applications as well as onenhancing our existing product portfolio with digital capabilities. The greater portion of the sales and profit from operations generated by Voith Digital Solutions –specifically in relation to the field of automation where Voith Digital Solutions acts
as an “enabler” for the three established Group Divisions – is presented in therespective Group Divisions for the purposes of segment reporting. The sales andVoith Interim Report 2017

Group Interim Management Report | 01 Business development & earnings position

9

profit from operations as reported in the Voith Digital Solutions segment reflect its
situation as a start-up, and are in keeping with our business planning.
With the successful sale of the shares in KUKA Aktiengesellschaft exerting a decisive influence, we generated a group net result of € 566 million. This figure had still
been negative in the previous year on account of a high level of impairment losses.

01.2. Economic

environment

Subdued investment climate continues despite
upswing in the global economy
The global economy continued to recover in the first half of Voith’s 2016/17 fiscal
year. For example, in its most recent publication (April 2017), the International Monetary Fund (IMF) forecast sound rates of growth in the global economy of 3.5 % for
the calendar year 2017 compared with a rate of 3.1 % in 2016. At the same time,
the growth in industrialized countries (IMF forecast: +2.0 % in 2017) is, as always,
slower than in the emerging markets (+4.5 % in 2017).
So far in 2017, economic growth has accelerated slightly in most of the regionsthat are of relevance for Voith. China constitutes one important exception, where –under the negative influence of ongoing excess capacities, a high level of private
debt and a change in the economic model toward more domestic consumption –the rate of growth in gross domestic product is falling continually, which is being
clearly felt by export-based economies such as Germany and by manufacturers ofcapital goods in particular. With an anticipated growth rate of 6.6 % in 2017 (IMF
forecast), China nevertheless continues to see above-average growth and remains,in absolute figures, the growth driver for the global economy. India is growing at
a faster pace than China, albeit at a lower absolute level. Brazil and Russia are
expected to return to growth in 2017 after two years of recession.
In the industrialized countries, growth is being driven by above-average economic
expansion in the US. With benefits stemming from low energy prices and the low
euro exchange rate, the euro zone is continuing to demonstrate moderate growthat the same level of dynamism as in the previous year, according to the IMF’s
2017 forecast. Despite the historically low level of interest rates, investing activities
remain modest. According to the IMF’s forecast, Germany will see weaker growthin 2017 than in the previous year, slightly below the average in comparison to theeuro zone seen as a whole.
All in all, growth is primarily being fed by the consumer goods and services sector;
in contrast, the infrastructure and capital goods sector is continuing to see modest
developments. Over the period between October and December 2016, i.e. thefirst half of our reporting period, the German mechanical engineering industry
saw the strongest decline in orders received since 2012 in comparison to thecorresponding period of the previous year, according to data provided by the
VDMA, the German Mechanical Engineering Industry Association. In this respect,
the power transmission and mining machinery segments, that are also served
by Voith, experienced an outright slump in orders received. After a good start toVoith Interim Report 2017

10Group Interim Management Report | 01 Business development & earnings position

the year, the VDMA does, however, anticipate a slight rise in orders received on
the part of the German mechanical engineering sector for 2017 seen as a whole.
In most of our five target markets – primarily energy, oil & gas and raw materials –the investment climate remained stable at a cautious level in the first half of the
2016/17 fiscal year.
The energy market is seeing stable developments overall, but with significant differences between the individual segments. For example, capital expenditure in the
sector of conventional power plants, which is relevant for Voith, is rather subdued.
On account of economic and political uncertainties, the market for hydropower
plants can experience considerable delays in the awarding of contracts; in lightof the high volume of individual projects, this is a factor that may cause volatileswings in both directions. For example, a significantly smaller volume was awardedin the reporting period than in the comparative period of the previous year. Thisdecline might, however, still be balanced out, assuming stronger market activity
in the second half of the fiscal year.
Even if the prices of oil and gas have increased slightly on the comparative period,
they still continue to move at a low level overall. For this reason, the investment
activities on the part of oil and gas companies remain subdued. We do not anti­
cipate an increase in the volume of capital expenditure in the oil and gas market
within the current fiscal year.

Economic growth
Real year-on-year change in GDP1)

World output
Advanced
economies
United States
Euro zone 2)
Germany
Emerging market anddeveloping economies
China
ASEAN-5
India
BrazilRussia

2016

3.1 %

2017

3.5 %

2016

1.7 %

2017

2.0 %

2016

1.6 %

2017

2.3 %

2016

1.7 %

2017

1.7 %

2016

1.8 %

2017

1.6 %

2016

4.1 %

2017

4.5 %

2016

6.7 %

2017

6.6 %

2016

4.9 %

2017

5.0 %

2016

6.8 %

2017

7.2 %

2016

-3.6 %

2017

0.2 %

2016

-0.2 %

2017

1.4 %

Source: International Monetary Fund (IMF), World Economic Outlook (WEO), April 2017.
1)
2016: Estimates; 2017: Forecasts.
2)
Including Germany.

Voith Interim Report 2017

Group Interim Management Report | 01 Business development & earnings position

11

The rise in the prices for important raw materials, such as coal and iron ore, started
at a very low level following a decline over several years. Industry analysts are of
the opinion that capital expenditure in the mining sector has bottomed out. No
tangible increase in capital expenditure in the market for raw materials is anticipated before the next fiscal year, however.
The paper market is demonstrating a gradual recovery in demand for new
machines, with stimuli coming from Asia and Europe. Paper production is showing slight growth, even if there are great differences between the various paper
grades and regions, which is resulting in increasing demand for consumables
and services overall.
The transport & automotive market is enjoying positive developments in the commercial vehicles segment. The rail segment was characterized by very intensecompetition and proved to be stable in Europe, for example, but subdued on theprevious year in China.

01.3. Sales

Group sales slightly down
In the first half of 2016/17, the Voith Group generated sales of € 1,965 million (previous year: € 2,038 million, down 4 %). All in all, this sales development remained
within the anticipated parameters so that we still consider ourselves to be oncourse to meet our forecast for the year (“previous-year level”).
Whereas Voith Hydro (up 0 %) and Voith Paper (down 2 %) revealed a more orless stable sales development, sales declined at Voith Turbo, as anticipated, asa consequence of the fall in orders received in the prior year in the oil and gas
business and in the rail sector (down 10 %).

Detailed information on thedevelopment of sales in each Group
Division can be found in section 02“Business development and earnings
position of the Group Divisions.”

Sales were distributed just about equally over the three established Group­D ivisions: Voith Hydro contributed 33 % (previous year: 32 %), Voith Paper 35 %(previous year: 34 %) and Voith Turbo likewise 32 % (previous year: 34 %).

Sales Groupin € millions

Sales total € 1,965 million
by Group Division

4.252

Voith ­­Turbo
32 %2,0381)

1,965

2015/16

Full fiscal year
1)

Voith ­­­Hydro
33 %2016/17First half year

Voith Paper
35 %First half year 2016/17

 xcluding the discontinued Group Division
E
Voith Industrial Services.

Voith Interim Report 2017

12Group Interim Management Report | 01 Business development & earnings position

01.4. Orders received

Noticeable rise in orders received
In the first half of 2016/17, the Voith Group secured new orders worth € 2,320 million (previous year: € 2,155 million). This corresponds to an increase of 8 %. Overthe reporting period, our orders on hand increased from € 5,307 million at the endof the past fiscal year to € 5,745 million as at March 31, 2017. We are confident ofbeing able to achieve the forecast for the year (“orders received increasing slightly”).
Growth was driven by the Voith Paper Group Division, which won several major
orders in the reporting period and increased its volume of orders received by 74 %in comparison to the first half of the past year. Voith Turbo also saw a slight rise (up3 %). Orders received at Voith Hydro fell in line with a significantly smaller numberof major projects awarded in comparison to the previous-year period (down 42 %).

Detailed information on the developmentof orders received in each Group
Division can be found in section 02“Business development and earnings
position of the Group Divisions.”

Voith Paper contributed 50 % (previous year: 31 %) to the Group’s orders received.
Voith Turbo accounted for 29 % (previous year: 30 %) and Voith Hydro for 21 %(previous year: 39 %). 3x M

Orders received Group

Orders received total € 2,320 million

Orders on hand Groupin € millions

by Group Divisionin € millions

2,320

2,1551)

2015/16

Full fiscal year1)

2016/17First half year

 xcluding the discontinued Group Division
E
Voith Industrial Services.

Voith Interim Report 2017

Voith ­­Turbo
29 %Voith Paper
50 %First half year 2016/17

5,307

5,745

Voith ­­­Hydro
21 %2015/16

Full fiscal year

2016/17First half year

Group Interim Management Report | 01 Business development & earnings position

01.5. Net result13

Net result at € 566 million, significant effectcoming from KUKA sale
The operating profitability of our core business has improved. Driven by Voith Hydro
and Voith Paper, the profit from operations from the core business increased by 6 %in comparison to the previous year – despite a fall in sales (down 4 %). In the Voith
Group seen as a whole, the profit from operations decreased (down 6 %), as anticipated, on account of the budgeted build-up costs for the new Voith Digital Solutions
Group Division. The group net result, which had been negative in the previous yearon account of a high level of impairment losses, came to € 566 million, with a significant effect coming from the sale of the shares in KUKA Aktiengesellschaft.
Total output in the Voith Group stood at € 1,994 million (previous year: € 2,072 million, down 4 %). In percent, the decline matched the development of sales. Similarly,
the Group Division’s respective total outputs essentially developed in line with sales(Voith Hydro up 0 %, Voith Paper down 2 % and Voith Turbo down 11 %).
The cost of materials fell to € 854 million (previous year: € 881 million, down 3 %).
The ratio of cost of materials to total output rose slightly to 42.8 % (previous year:
42.5 %). This slight increase was due in particular to the less material-intensive Voith
Turbo Group Division constituting a smaller proportion of the Group’s total output.
Personnel expenses stood at € 724 million (previous year: € 715 million; up 1 %). The
reduction in headcount on account of the restructuring projects completed and theassociated fall in personnel expenses was canceled out by rises in ongoing personnel costs. The ratio of personnel expenses to total output thus rose to 36.3 %(previous year: 34.5 %).
At € 64 million, depreciation and amortization stood at virtually the same level (previous year: € 65 million; down 2 %). The ratio of depreciation and amortization to total
output therefore remained unchanged at 3.2 %.
The balance of other operating expenses and income was reduced to € 276 million (previous year: € 329 million, down 16 %). A significantly lower level of warranty
expenses in comparison to the previous-year period made a decisive contribution
to this development.

Detailed information on the developmentof the profit from operations and the
ROCE broken down by Group Division
can be found in section 02 of the
management report.

The operational result before non-recurring items came to € 76 million (previous year:€ 82 million, down 7 %), while the profit from operations, which is an indicator used
for internal management purposes, stood at € 91 million (previous year: € 97 million;
down 6 %). The return on sales fell slightly to 4.6 % (previous year: 4.8 %), the ROCE
(return on capital employed) to 8.5 % (previous year: 9.1 %).
The non-recurring result stood at €-11 million (previous year: €-5 million). In the reporting period, the non-recurring result mainly comprises personnel-related and otherexpenses arising from measures to consolidate production capacities at Voith Hydro
in Brazil and at Voith Paper in the US. In the previous-year period, the non-recurring
result had included individual consequential effects of the packages of measures
implemented at Voith Paper in previous years and in connection with excellence initiatives in the context of the Group-wide Voith 150+ success program, specificallyexpenses that were not eligible for provisioning in previous years and income from

Voith Interim Report 2017

14

Group Interim Management Report | 01 Business development & earnings position

these measures. Furthermore, the non-recurring result from the previous-year period
included personnel-related expenses arising from a measure at Voith Turbo as well as
expenses in connection with a restatement of a cut-off error at a subsidiary of Voith
Paper. In detail, the contributions to the non-recurring result were as follows: Voith
Hydro €-4 million (previous year: € 5 million), Voith Paper €-6 million (previous year:€-8 million), Voith Turbo € 0 (previous year: €-5 million) and divisions with a holding
function €-1 million (previous year: € 3 million).
The result from the sale of associates of € 565 million (previous year: € 0) contains theeffect on results from the sale of the shares in KUKA Aktiengesellschaft completed
in January 2017.
The balance of interest expenses and interest income amounted to €-38 million (previous year: €-36 million; down 6 %). A lower level of expenses from pension obligations and from a reduced level of liabilities to banks was more than canceled out byinterest expenses from the measurement of financial liabilities on account of termination rights of holders of non-controlling interests. The other financial result stoodat €-5 million (previous year: €-28 million). This item contains impairment losses on
financial assets of €-2 million (previous year: €-36 million).
Income taxes totaled €-26 million (previous year: €-27 million). This figure includes
expenses from taxes relating to other periods of €-9 million (previous year: incomeof € 1 million).
The net result from continuing operations amounts to € 567 million (previous year:€-9 million).
The net result from discontinued operations amounted to €-1 million (previous year:€-38 million). This shows the contribution to the net result of the Voith Group madeby the Voith Industrial Services Group Division, which has been sold in the meantime, and in the year under review mainly consists of adjustments from expected tax
expenses in connection with the sale.
Bottom line, the group net result comes to € 566 million (previous year: €-48 million).

Operational result before non-recurring items

Net result Group

Group in € millionsin € millions

566

821)

2015/16

1)

Voith Interim Report 201776

2016/17

 xcluding the discontinued Group Division
E
Voith Industrial Services.

-48
2015/162016/17

15

Group Interim Management Report | 02 Group Divisions

02

Business development andearnings position of the Group
Divisions
Our three established Group Divisions enjoyedsuccessful developments in the first six months of the
2016/17 fiscal year. While sales remained stable, Voith
Hydro achieved a significant increase in its profit fromoperations and, despite the lower market volume over
the reporting period, considers itself to be on course tomeet the stable level forecast for orders received overthe full year. Voith Paper has achieved a turnaround: theGroup Division has significantly increased its orders
received and generated considerably higher profit fromoperations with sales virtually stable. At Voith Turbo,
sales and profit from operations declined, reflecting themarket-related fall in orders received in the previous
year; orders received were up slightly in the reporting
period. The negative profit from operations at Voith
Digital Solutions reflects the new Group Division’ssituation as a start-up in accordance with planning.

02.1. Voith ­Hydro

Low level of market activity, increase in profitability
Voith Hydro looks back on a good first half of the fiscal year. With sales remaining
stable, Voith Hydro succeeded in increasing its profit from operations and profitability. As fewer major projects were awarded in the reporting period than in thecomparative period of the previous year, as expected, there was a corresponding
fall in Voith Hydro’s orders received. Assuming increasing market activity in thesecond half of the year, we see Voith Hydro nevertheless on course for the full
2016/17 fiscal year.

Stable sales
In the first half of 2016/17, Voith Hydro generated sales of € 653 million thatremained, as anticipated, at the high level seen in the comparative period of theprevious year (previous year: € 652 million). The regions with the strongest sales
were Asia and North America, where we had recorded a high level of orders
received in previous years.

Voith Interim Report 2017

16

Group Interim Management Report | 02 Group Divisions

Orders received down on the previous year on
account of market situation
In the reporting period, the hydropower market remained below the previous-yearlevel. In all regions of the world there was a smaller volume of contracts awarded inlight of the volatile economic and, in some cases, political environment. In addition,
an exceptionally large project was recorded in orders received in the comparative
period. Voith Hydro took an appropriate share of this smaller volume of contracts
awarded in the first half of 2016/17 and won new orders worth € 486 million (previous year: € 839 million; down 42 %).
We are expecting a stronger second half of the year for Voith Hydro and continue
to see ourselves on course to meet our forecast for the year.
At € 3,222 million as at March 31, 2017, orders on hand remained at a high level(September 30, 2016: € 3,315 million).
Brazil, an important hydropower market, showed the first signs of recoveryf­ollowing two years of recession. For example, two modernization projects were

Sales Voith ­­­Hydro

Profit from operations Voith ­­­Hydroin € millionsin € millions

1.388

105

653

652

2015/16

Full fiscal year

2015/162016/17First half year

53

48

Full fiscal year

2016/17First half year

Orders received Voith ­­­Hydro

Orders on hand Voith ­­­Hydroin € millionsin € millions

1387

3,315

3,222

2015/162016/17839
486

2015/16

Full fiscal year

Voith Interim Report 20172016/17First half year

Full fiscal year

First half year

Group Interim Management Report | 02 Group Divisions

17

awarded to Voith Hydro in the reporting period. Furthermore, we won a contract
for a generator that is to be used as a synchronous compensator to ensure gridstability. Demand for large new-build hydropower plants was on hold in Brazil,
however, as the unsolved economic and political crisis continued to prevent theawarding of major infrastructure projects.
Asia remains one of the most important sales markets for Voith Hydro. In China,
Voith was awarded the contract for the supply of turbines and generators for the
Tian Huang Ping II /Chang Long Shan pumped-storage power plant. We were further awarded a contract in Nepal.
North America, an established hydropower market, continued to see positive
developments over the reporting period. Voith Hydro took an appropriate share of
the volume of contracts awarded, winning the Bridge River modernization projectin Canada, for example.
The market continued to be difficult in Europe on account of the current energy
policy situation, existing excess capacities and low energy prices. In the reporting
period, we received orders from the UK, Norway and Germany.
Although the structural conditions remain difficult with regard to small hydro projects (power plants with a generating capacity of up to 30 megawatts per unit)
due to subsidies and financing models not being available in many countries, we
succeeded in winning orders in this segment from North and South America inaddition to several orders from Japan. In this respect, we were particularly successful with our innovative StreamDiver technology for small hydropower plants,
which is now on sale worldwide.
Voith Hydro’s service business (“HyService”) saw clearly positive developments;
growth was driven by the North America, Latin America and Asia regions.

Profit from operations increased by 12 %Voith Hydro increased its profit from operations by 12 % to € 53 million in the firsthalf of 2016/17 (previous year: € 48 million). The return on sales improved to 8.1 %(previous year: 7.3 %) and the ROCE to 21.1 % (previous year: 19.5 %).

Voith Interim Report 2017

18

Group Interim Management Report | 02 Group Divisions

02.2. Voith Paper

Turnaround achieved
Voith Paper looks back on a good first half of the fiscal year. In an improved market
environment, Voith Paper enjoyed successful operations and achieved a significant
increase in orders received. Sales remain just about stable at the previous-yearlevel. Profit from operations, return on sales and the ROCE rose on account of
increases in productivity and as a consequence of the restructuring measures,
which have proven to be effective. With regard to the forecast for the year, weconsider Voith Paper to be on track to meet all key performance indicators.

Sales stable and roughly at previous-year level
In the first half of 2016/17, sales stood roughly at the previous-year level at€ 678 million (previous year: € 689 million, down 2 %). In the business with ­products,
consumables and services, we benefited from the rise in global paper production and achieved a rise in sales. In the project business (new builds and major
rebuilds), the declining volumes of orders received seen in previous years continued to exert the expected effect.
All in all, the sales generated at Voith Paper within the reporting period are on
budget. In anticipation of a slightly stronger second half of the fiscal year, we standby our sales forecast (“slight growth”) for the full 2016/17 year.

Orders received up by 74 %In the reporting period, Voith Paper achieved a significant rise in its volume oforders received for the first time following several consecutive years of decline. In
the reporting period, we recorded new orders worth € 1,147 million (previous year:€ 658 million), a rise of 74 % on the comparative period. This means that we haveclearly exceeded our own expectations. The project business was the growth driver,
but the business with products, consumables and services also saw a slight rise.
As the high growth rate seen in the reporting period is very much attributable toseveral major contracts, it is probably not possible to extrapolate this figure to thesecond half of the year. We are nevertheless confident that we will achieve significant growth in orders received also in relation to the full year and exceed ourforecast (“slight growth”).
Orders on hand as at March 31, 2017 increased to € 1,472 million (September 30,
2016: € 988 million).
In the paper market, an overall slight rise in production is becoming apparent
across all paper grades that is expected to extend to all regions in 2017. The production of graphic paper remains in decline worldwide, while the board and packaging paper and tissue segments report growth in all regions.
In Asia, paper manufacturers have made massive investments in new machines
and the modernization of existing ones. A rise in paper prices in conjunction

Voith Interim Report 2017

19

Group Interim Management Report | 02 Group Divisions

with stricter environmental regulations in China contributed to this development.
The focus of investment was on board and packaging paper as well as tissue
machines. Voith has taken an appropriate share in this development with a goodlevel of orders received from this region and won, among others, two major orders
from China.
Demand has likewise seen positive developments in Europe, where there is great
demand for packaging paper and a large number of manufacturers are currently
enjoying a good earnings position. For example, Voith received a large-scale orderfrom Sweden for the manufacture of one of the largest board machines of its kind.
In addition, an order came from Germany for the rebuilding of a facility for the
manufacture of newsprint into a testliner for the production of corrugated board
as well as an order for the delivery of a new tissue machine to Spain.
The reluctance to engage in investments on account of the recession continued in
Brazil. In North America, the paper machine market stagnated despite increasing
demand for packaging paper – the costs for buildings and assembly, which arehigher than average in an international comparison, are diminishing the profitabilityof the overall investment from the perspective of paper manufacturers.

Sales Voith ­Paper

Profit from operations Voith ­Paperin € millionsin € millions

1456

76

678

689

30

19

2015/16
Full fiscal year

2015/162016/17First half year

Full fiscal year

2016/17First half year

Orders received Voith ­Paper

Orders on hand Voith ­Paperin € millionsin € millions

1,472

1.505
1,147

988

658

2015/16

Full fiscal year

2016/17First half year

2015/16

Full fiscal year

2016/17First half year

Voith Interim Report 2017

20

Group Interim Management Report | 02 Group Divisions

Improved profitability
In the first half of 2016/17, Voith Paper increased its profit from operations by 54 %to € 30 million (previous year: € 19 million) despite sales remaining virtually constant. This pleasing development reflects the cost savings achieved through therestructuring and productivity increases. Bottom line, return on sales improved to
4.3 % (previous year: 2.8 %). The ROCE increased significantly, mainly on accountof the rise in the profit from operations, standing at 7.9 % in the reporting period(previous year: 5.1 %).

02.3. Voith ­Turbo

Satisfactory business development
Voith Turbo saw satisfactory developments in the first half of 2016/17 in a market
that continued to be challenging in many sectors. Sales and profit from operations declined, as anticipated, as a consequence of the fall in orders received inprevious years. Voith Turbo achieved a slight increase in orders received for the
first time after two years of declining volumes of orders received. Based on thedevelopments in the reporting period, Voith Turbo sees itself on course to meetthe forecast for the year.

Sales down on the previous year as expected
In the reporting period, Voith Turbo’s total sales stood at € 621 million (previous
year: € 691 million). The 10 % decrease reflects the previous year’s market-related
fall in orders received in the oil & gas and rail segments and lies within the parameters we anticipated.
Sales in the Industry division stood roughly at the same low level already seenin the comparative period of the previous year. Raw materials producers and oilcompanies had cut back their investment budgets over several years on accountof the difficult market environment in which they operate. In the Mobility division,
we were not able to match the exceedingly high level of sales seen in the previous
year. The main reason for this development was the decline in the large Chinese
rail market in the reporting period.

Slight rise in orders received
In the first half of 2016/17, Voith Turbo received new orders worth a total of€ 675 million (previous year: € 653 million; up 3 %). This means that slight growth
was achieved for the first time again after two years of a declining volume of orders
received. Orders on hand stood at € 1,051 million as at March 31, 2017 (September 30, 2016: € 1,004 million).
In the Industry division, we succeeded in increasing our volume of orders received
in comparison to the previous year, particularly on account of two major orders
stemming from the power plant industry, a sector that is generally showing stable

Voith Interim Report 2017

21

Group Interim Management Report | 02 Group Divisions

developments at most. Although the prices of oil and gas have stabilized at a low
level and the prices of raw materials have recovered slightly after years of decline,
the investing activities of oil and gas companies and mine operators alike remained
at a low level.
In the Mobility division, orders received just about reached the high level seen in
the previous period. At the same time, those segments of the transport & automotive market relevant for us saw heterogeneous developments. The rail market wascharacterized by delays in the awarding of projects and very intense competitionon account of excess capacities on the part of the vehicle manufacturers. In contrast, the commercial vehicle market enjoyed positive developments.

Decline in profit from operations
In the first half of 2016/17, Voith Turbo generated a profit from operations of€ 34 million (previous year: € 43 million, down 23 %). This figure lies within theparameters we anticipated. As announced, the fall in the volume of sales, a shift
in the sales mix and pressure on prices in some market segments caused profit
from operations to fall at a faster rate than sales. The return on sales consequently
fell to 5.4 % (previous year: 6.3 %). The ROCE stood at 9.4 % (previous year: 11.7 %).

Sales Voith ­­Turbo

Profit from operations Voith ­­Turboin € millionsin € millions

1.397
114
691

621
43

2015/16

Full fiscal year

2015/162016/17First half year

34

Full fiscal year

2016/17First half year

Orders received Voith ­­Turbo

Orders on hand Voith ­­Turboin € millionsin € millions

1247
1,004

1,051

2015/162016/17675

653

2015/16

Full fiscal year

2016/17First half year

Full fiscal year

First half year

Voith Interim Report 2017

22

Group Interim Management Report | 02 Group Divisions

02.4. Voith ­Digital ­Solutions

Successful start
In the present interim report, we are reporting our Group Division Voith Digital
Solutions, which was founded in the previous year, for the first time as a standalone segment.
The new Group Division comprises the Group’s entire expertise in the fields ofautomation, IT, software, data analytics and sensor technology. The objectiveof the new unit: we intend to play a major role in shaping the digital transformation of the industry. As an established technology leader with extensive domain­knowledge that has a large installed base of plant and products on the market
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, enhancing the existing product portfolio to include digital capabilities
that offer customers additional functions and added value; secondly, developing
new digital solutions for our established core markets; and thirdly, developing new
applications and business models for markets not yet covered by Voith.

Important milestones reachedIn the reporting period, we reached the milestones set in the implementation of
our digital strategy.
The internal transfer process that was deployed to migrate existing products andservices, projects and teams to Voith Digital Solutions from the three establishedGroup Divisions has been completed to a great extent. The Group’s in-house IT
service provider has also been fully integrated into Voith Digital Solutions.
As of the March 31, 2017 reporting date, around 1,000 employees (full-time equivalents) had taken up work at Voith Digital Solutions. Following completion of thetransfer process and further external staff recruitment measures, we expect toemploy a headcount of around 1,500 at the Voith Digital Solutions Group Divisionby the end of the fiscal year.

Expansion of the product portfolio
In addition, we are working on the expansion of our portfolio of digital offerings.
For example, Voith Digital Solutions launched merQbiz in the US in March 2017
after only 14 months; this is the first digital marketplace for recovered paper worldwide. First of all, merQbiz will ensure transparency in the extremely fragmented
North American recovered paper market and will offer dealers and purchasers
from paper and cellulose factories, paper brokers and recycling businesses thepossibility of handling their transactions, including transportation, using a secure
medium. There are plans to expand the trading platform to further regions. Furthermore, Voith Digital Solutions is working together with the three establishedGroup Divisions on a number of incubation projects.

Voith Interim Report 2017

23

Group Interim Management Report | 02 Group Divisions

Sales and profit from operations reflect
Voith Digital Solutions’ situation as a start-up
Voith Digital Solutions did not record any noteworthy levels of sales with its start-up
activities in the first half of 2016/17. merQbiz was not launched until just before theend of the reporting period and the other projects have not yet been introduced
onto the market. The sales shown in the segment reporting of € 4 million stems
from the business of the Group’s own IT service provider with external customers.
Furthermore, Voith Digital Solutions acts as an “enabler” for the established Group
Divisions, providing them with support in enhancing their product portfolio in thefield of automation to include digital offerings. This gave rise to group sales in thefirst half of 2016/17 of € 132 million, which is presented in the sales of the respective Group Divisions for the purposes of our segment reporting. All in all, sales
generated by Voith Digital Solutions totaled € 136 million in the reporting period.
For the full fiscal year 2016/17, we expect Digital Solutions sales within the Groupof around € 300 million.
The cost side is dominated by the build-up costs for the new Group Division, essentially research and development expenses.
Bottom line, there was a profit from operations of €-20 million in the first half ofthe 2016/17 fiscal year. This level of profit from operations is in line with our business planning. The profit from operations of the sales from automation activities
is reported in the other Group Divisions.

Digitization as a future growth driverIn our estimation, Voith Digital Solutions will constitute an important growth driver
for the Voith Group in the coming years. We are consequently making targeted
investments in building up the new Group Division.

Voith Interim Report 2017

24

03

03.1. Balance sheet

Group Interim Management Report | 03 Net assets and financial position

Net assets and financial position
The net assets and financial position of the Voith Grouphas improved significantly over the reporting period –supported most of all by the successful sale of theshares in KUKA Aktiengesellschaft, which brought about
a liquidity inflow of around € 1.15 billion. With asubstantially increased equity ratio (23.8 %) and muchgreater financial headroom, Voith is in a strong position
for new growth.

Significant rise in equity ratio to 23.8 % due to saleof KUKA shares
In comparison to September 30, 2016, total assets increased by € 401 million to€ 5,760 million (previous year: € 5,359 million, up 7 %), mainly due to the sale ofthe shareholding in KUKA Aktiengesellschaft. On the assets side, this meant, on
the one hand, that cash and cash equivalents increased on account of the cash
inflow and, on the other, that there was a decrease in the assets held for sale. On
the equity and liabilities side, equity increased by the amount of the income fromthe sale.
In total, non-current assets were reduced by € 62 million to € 1,994 million (previous year: € 2,056 million, down 3 %). The drop is primarily attributable to the saleof securities. As a consequence, this item decreased by € 74 million to € 11 million(down 87 %).
Current assets increased by € 463 million to € 3,766 million (previous year:€ 3,303 million, up 14 %). The increase in cash and cash equivalents of € 1,065 million to € 1,715 million (previous year: € 650 million) made a contribution to thisdevelopment primarily due to the proceeds in connection with the sale of theshareholding in KUKA Aktiengesellschaft. In contrast, the assets held for sale fellby € 591 million to € 18 million in this context. In addition, receivables from customer-specific contracts decreased; these contain long-term orders that are presented using the percentage of completion method (fall of € 118 million; this figurecontains a decrease of € 130 million pertaining to Voith Hydro and an increase of€ 12 million to Voith Paper). In contrast, inventories and trade receivables rose by€ 103 million in total (thereof Voith Hydro up € 93 million).
Non-current liabilities declined by € 56 million to € 1,721 million (previous year:€ 1,777 million, down 3 %). This is mainly the result of the fall in pension provisionsof € 49 million to € 804 million (previous year: € 853 million) caused by the increasein the discount rates in Germany, the US and Canada. Furthermore, a portion

Voith Interim Report 2017

Group Interim Management Report | 03 Net assets and financial position

25of the US private placement was repaid prematurely (€-38 million). In contrast,non-­current financial liabilities rose by € 26 million due to measurement-relatedchanges.
Current liabilities decreased by € 116 million to € 2,667 million (previous year:€ 2,783 million, down 4 %). The decrease is reflected in virtually all items. Current
liabilities to banks of € 27 million were repaid. In addition, liabilities from customer-specific contracts fell by € 26 million (of which Voith Hydro €-20 million andVoith Paper €-6 million) and trade payables by € 18 million. The decrease in current other provisions (down € 13 million) is essentially attributable to a lower levelof provisions for restructuring (down € 19 million). Current other financial liabilities
decreased by € 36 million, mainly on account of a lower level of personnel-related
liabilities (down € 45 million). The only item to run counter to this development wasother liabilities (up € 37 million), primarily on account of a higher level of customer
advances (up € 21 million).
The net balance of deferred tax assets and liabilities saw only an immaterial
decrease of € 1 million. In this respect, the effects recorded directly in equity, mainly
caused by the tax effect of the measurement-related fall in pension provisions, justabout completely balanced out the effects through profit or loss.
Equity increased to € 1,372 million (previous year: € 799 million, up 72 %). The decisive factor in this was the positive group net result, which was mainly impacted by
the income from the sale of the KUKA shares. Additionally, measurement-related
adjustments to pension provisions exerted a positive influence. The equity ratiorose to 23.8 % (previous year: 14.9 %).

03.2. Liquidity

Total cash flow achieved in excess of € 1 billion
The cash flow from operating activities amounted to €-40 million in the first halfof the 2016/17 fiscal year (previous year: €-48 million). The improvement on theprevious year is the result, among other factors, of the smaller rise in net working capital in the reporting period (up € 42 million; previous year: up € 70 million).
Higher income tax payments and lower dividend proceeds had the opposite effect.
The cash flow from investing activities in the reporting period of € 1,189 million (previous year: €-30 million) primarily relates to the proceeds in connection with theDevelopment of cash flowin € millions

First half year
2016/17First half year
2015/16

Cash flow from operating activities

-40

-48

Cash flow from investing activities

1,189

- 30

-95

89

1,054

11

Cash flow from financing activities
Total cash flow

Voith Interim Report 2017

26

Group Interim Management Report | 03 Net assets and financial position

sale of the shares in KUKA Aktiengesellschaft, Augsburg (up € 1,148 million). Net
receipts and payments for property, plant and equipment and intangible assets
amounted to €-43 million (previous year: €-38 million). Proceeds from the sale offinancial assets are € 37 million higher in comparison to the previous-year period.
Furthermore, proceeds of € 39 million were received in the reporting year from thesale of Voith Industrial Services in connection with the settlement of outstanding
receivables from and liabilities to the purchaser (included in the item Purchaseprice receipts in connection with disposal of companies in previous years in the
consolidated cash flow statement).
We significantly reduced our level of borrowing in the reporting period (net repayment: €-63 million; previous year €+119 million) through the premature repaymentof a portion of the US private placement amounting to € 38 million, among otherthings. As a consequence, cash flow from financing activities stood at €-95 million (previous year: € 89 million). In the previous year, the cash flow from financing activities was dominated by the successful placement of a note loan totaling€ 300 million.
This made it possible to generate a total cash flow of € 1,054 million (previous
year: € 11 million).
Net debt, measured as the difference between interest-bearing financial liabilities
and liquid financial assets, amounted to €-597 million (net asset position) (September 30, 2016: €-168 million).

03.3. Investments andFurther investments in productivity

R&D expenses

We invested € 47 million in the Voith Group in the first half of 2016/17 (previous
year: € 59 million, down 19 %). The investment ratio as a percentage of groupsales stood at 2.4 % (previous year: 2.9 %). The largest investments in property,
plant and equipment were made by the Voith Turbo Group Division into, among
other things, building up a state-of-the-art transmission plant in China. Regionally, investments focused on Germany and Asia. At € 64 million, depreciation andamortization stood at virtually the same level as in the previous year (previous
year: € 66 million, down 3 %).
Research and development expenses stood at € 109 million in the reporting period(previous year: € 92 million, up 18 %). The significant increase stems from the
newly founded Voith Digital Solutions Group Division. No R&D expenses had
been incurred in this Group Division in the comparative period of the previous
year. The ratio of the Voith Group’s R&D expenses to sales stood at 5.5 % at theend of the half year (previous year: 4.5 %). In the core business, the R&D ratio
remained unchanged at 4.5 %.x

Voith Interim Report 2017

Group Interim Management Report | 03 Net assets and financial position

03.4. Financial assets and27

Some € 1.15 billion from sale of KUKA sharesinvestments

We completed the disposal of our 25.1 % shareholding in the listed robotic systems
manufacturer KUKA Aktiengesellschaft, Augsburg, in January 2017 as part of the
public takeover bid by Chinese investor Midea Group Ltd. This move had alreadybeen announced in the previous year. Within the scope of the transaction, werecorded a cash inflow of € 1,148 million in the cash flow statement and a positiveeffect on the group net result of € 565 million. The investment has been exceedingly successful for the Voith Group: the value of the shareholding has more thandoubled since the acquisition in December 2014.

All shares in SGL Carbon sold off
In the reporting period, Voith GmbH sold off all of its shares in SGL Carbon SE, alisted company. Within the scope of the disposal, we recorded a cash inflow of€ 61 million.

Voith Interim Report 2017

28

04

Group Interim Management Report | 04 Employees

Employees
At the end of the first half of the 2016/17 fiscal year, we
had a headcount of around 18,800 employees. In thereporting period several hundred jobs were relocatedfrom the three established Group Divisions to Voith
Digital Solutions. Voith Paper remained the largest
Group Division by headcount.

Headcount slightly lower
As at March 31, 2017, the Voith Group had 18,806 employees (full-time equivalents
without apprentices). This is on balance 292 fewer jobs than at the end of the pastfiscal year (September 30, 2016: 19,098).

Relocation of jobs to Voith Digital Solutions
As part of building up Voith Digital Solutions, jobs continued to be transferredfrom the three established Group Divisions to the new Group Division. In addition,
new employees were recruited externally. At the end of the reporting period, Voith­Digital Solutions had a headcount of 966 employees (previous year: 654; increaseof 312 jobs). This corresponds to 5 % of the Group’s employees.
Voith Paper remained the largest Group in terms of headcount with a share of 34 %of the total headcount. A total of 6,469 employees were working there at the endof the reporting period (previous year: 6,550 employees). The decrease of 81 jobs
is essentially attributable to the migration to the new Group Division.

Employees Group

Employees total 18,806
by Group Division

19,09818,806Voith ­Digital
Solutions5%

Voith ­­­Hydro
24 %
Other
7%

2015/16

Full fiscal year

Voith Interim Report 20172016/17First half year

Voith ­­Turbo
30 %First half year 2016/17

Voith Paper
34 %Group Interim Management Report | 04 Employees

29

Voith Turbo had 5,553 employees (previous year: 5,702) or 30 % of the Group’s
headcount. The drop of 149 in the reporting period is partly due to targeted capacity adjustments at individual locations and partly to the relocation of jobs to Voith
Digital Solutions.
With 4,584 people, Voith Hydro employed 24 % of the Group’s total workforce (previous year: 4,934 employees). The headcount at Voith Hydro fell by 350, primarily
as a consequence of capacity adjustments in South America, but also due to therelocation of jobs to Voith Digital Solutions.
The remaining jobs (1,234, previous year: 1,258) were attributable to the activities
in the Composites division, the internal administrative and service centers as wellas the units with holding functions. We were able to implement further job cuts
as a consequence of the reorganization of the indirect functions under Voith 150+
and by achieving efficiency gains.

Voith Interim Report 2017

30

05

Group Interim Management Report | 05 Subsequent events

Subsequent events
Majority shareholding acquired in Ray Sono,a leading provider of digital services
In May 2017, Voith signed a purchase agreement for the acquisition of the majority shareholding of 60 % in Ray Sono AG, one of Germany’s leading digital services providers. The strategic partnership firstly covers the development of digitization solutions relevant to industry, primarily in the fields of Internet of Things and­Industry 4.0 and, secondly, the implementation of digital solutions within Voith’s
portfolio. Examples of this include the virtualization of machines and systems andthe improvement of existing digital solutions with the support of Ray Sono. Ray
Sono currently employs around 200 permanent members of staff and generated
around € 19 million in sales in the past year – with customers that include Austrian
Airlines, BMW, BRITA, DATEV, Deutsche Bahn, Linde, MAN, McDonald’s and Miles& More. Following closing of the transaction, which is currently subject to approvalby the antitrust authorities, the plans are for the investment to be allocated to theVoith Digital Solutions Group Division.

Change in legal form planned
Voith GmbH’s Corporate Board of Management, in close consultation with the
Shareholder’s Committee, proposed to the shareholders in April 2017 to change
the legal form of the Company from a limited liability company (GmbH) to a partnership limited by shares (Kommanditgesellschaft auf Aktien or KGaA). The shareholders will decide on this change after consultation with the required boards andcommittees. The plans are for the Company’s new name to be “Voith GmbH &Co. KGaA”. Voith Management GmbH, an entity yet to be founded, is planned tobe the personally liable shareholder (general partner) of the partnership limited byshares. As a final step, a decision on the change in legal form is scheduled for an
extraordinary shareholders’ meeting in July 2017. This step is anticipated to expand
Voith’s ability to maneuver during the coming years and support the Company’s
growth strategy in the wake of its digital transformation.

Changes on the Corporate Board of Management
announced
After a total of 13 successful years at Voith, Bertram Staudenmaier, Chairmanof the Management Board of the Voith Paper Group Division and Member of the
Corporate Board of Management of Voith GmbH, has decided to look for new
challenges outside the Company and for this reason does not wish to extend his
contract that expires at the end of the year. We announced this in May 2017. The
Supervisory Board of Voith GmbH will decide on his successor at the next regularmeeting on June 2, 2017.
No further significant developments have occurred since the end of the first halfof the 2016/17 fiscal year (March 31, 2017).

Voith Interim Report 2017

Group Interim Management Report | 06 Risks and opportunities

06

31

Risks and opportunities
Our assessment of the situation regarding risks andopportunities has not changed in any significant way
since publication of the Annual Report. There continue tobe no risks to the Voith Group’s ability to continue as agoing concern. The most significant risks which could
cause the results to deviate negatively from those
forecast/targeted continue to be external. The risks arematched by opportunities that could have a positive
influence on business development.

Risk management aligned to increasing the valueof the Company
Entrepreneurial activity involves making decisions under conditions of uncertainty.
To safeguard against risks that could jeopardize the Group or its companies asa going concern, Voith operates a consistent and binding Group-wide risk management system. It should contribute to increasing the value of 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 and the exploitation of opportunities.
Risks
To the best of our knowledge at present, there are no risks of any kind which could
jeopardize the ability of the Voith Group to continue as a going concern. For ourassessment of the risk situation, we generally refer to our 2016 Annual Report inwhich we described risks that could have a substantially negative effect on our net
assets, financial position and earnings position and lead to failure to meet forecasts
or targets. Any deviations from this are presented below.
There are essentially no changes in the risk situation in comparison to the end of the
2015/16 fiscal year. We continue to consider the most significant risk for Voith to be
developments in the global economy that fall noticeably short of expectations. Thissaid, the nature of the threats to the global economy has shifted somewhat in comparison to the time when our Annual Report was published. From our perspective,
the upcoming elections in several important European economies constitute oneof the potential threats to the economic recovery in Europe. Other issues include
the euro zone crisis, which has yet to be overcome, and the tensions that markrelations with Turkey. The unclear direction of the future US economic and trade
policy under the new administration constitutes an ongoing element of uncertainty
for export-oriented countries, the American economy and the global economy asa whole. Geopolitical conflicts such as those in North Africa and the Middle East as
well as North Korea could likewise have a negative impact in the event of escalation.

Voith Interim Report 201732

Group Interim Management Report | 06 Risks and opportunities

In the area of liquidity and financial risks, there are no longer any noteworthy risks
relating to securities and stock prices in the reporting period following the sale ofthe shares in SGL Carbon SE. In the past, there was, in the event of there being
objective evidence of a significant decline in the fair value of the investment, thepossibility of impairment losses becoming necessary that could have a negative
impact on the financial result.
Opportunities
Alongside risks, we see a range of opportunities that could have a positive impact
on our business situation and net assets, financial position and earnings positionand lead to overachievement of forecasts or targets. For an assessment of our­situation regarding opportunities, we generally refer to the 2016 Annual Report. We
continue to identify the principal opportunities described there.
Deviating from that document, we deem it unlikely, from today’s perspective, thatthe Brazilian economy will develop significantly better following the change of­government than forecast by economic analysts and assumed in our planning.

Voith Interim Report 2017

Group Interim Management Report | 07 Forecast report

07

07.1. Business environment

33

Forecast report
Based on the developments in the reporting period, we
confirm the Group’s forecast for the year in almost all key
performance indicators. This means that we continue to
expect stable sales and a slightly rising volume of orders
received for the full 2016/17 fiscal year. In this respect,
the three established Group Divisions are expected toachieve profitability levels typical for their industries, sothat we will be able to shoulder the build-up costs for the
new Voith Digital Solutions Group Division from current
business. The group net result will reach a new record
with a significant effect coming from the sale of the
KUKA shares.

Sound global economic growth forecast
Economic analysts expect the development of the global economy to remainsound. In its most recent publication, for example, the International Monetary Fund(IMF) has forecast global growth rates of between 3.5 % and 3.6 % for the calendar
years 2017 and 2018, respectively.
For the emerging markets, the IMF identifies growth rates of 4.5 % in 2017 and of
4.8 % in 2018. China is expected to continue to show slowing growth rates but
still provide the largest contribution to the growth of the global economy. Basedon the assumption of an improved legal and structural framework for businesses,
increasing growth rates are forecast for India, albeit at a lower level in absoluteterms. Following two years of recession, Brazil and Russia should demonstratemodest growth again from 2017 onwards, supported by the gradual recovery of oil
and raw materials prices, but the economic outlook remains subdued. For Southeast Asia, we expect very strong growth to continue.
For the industrialized countries, the IMF has forecast economic growth at a rateof 2.0 % for 2017 and for 2018. In the US, the economy could pick up considerable speed as a consequence of the infrastructure investments and tax reforms
promised by the new administration. Under this assumption, the IMF forecasts
annual growth rates for the US economy of 2.3 % and 2.5 % for 2017 and 2018,
respectively. On the other hand, the unclear political direction being taken by the
new US administration constitutes an ongoing element of uncertainty. The paceof growth in Germany and the euro zone seen as a whole is expected to remain
below average due to a continued lack of appropriate reforms. From our perspective, the upcoming elections in several important European economies constitute a

Voith Interim Report 2017

34

Group Interim Management Report | 07 Forecast report

Economic growth
Real change in GDP on the previous year1)

World output
Advanced
economies
United States
Euro zone2)

Germany
Emerging market anddeveloping economies
China
ASEAN-5
India
BrazilRussia

2017

3.5 %

2018

3.6 %

2017

2.0 %

2018

2.0 %

2017

2.3 %

2018

2.5 %

2017

1.7 %

2018

1.6 %

2017

1.6 %

2018

1.5 %

2017

4.5 %

2018

4.8 %

2017

6.6 %

2018

6.2 %

2017

5.0 %

2018

5.2 %

2017

7.2 %

2018

7.7 %

2017

0.2 %

2018

1.7 %

2017

1.4 %

2018

1.4 %

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

risk to Europe’s economic development. Other issues include the euro zone crisis,
which has yet to be overcome, and the tensions that mark relations with Turkey.
In the light of this world economic situation and due to ever-increasing competition from the Far East, the environment for capital goods remains challenging.
The trends in our five target markets should continue to develop as described in
section 01.2. “Economic environment”.
The forecast for our business assumes that there will be no unforeseen major economic or political events.

07.2. Future development of
the Company

Clearly positive net result in the Voith Group
despite build-up costs for digital transformation
At the close of the first half of the fiscal year, we consider ourselves to be wellon our way to meeting our Group forecast for the year that we published alongwith the Annual Report in December 2016. We continue to anticipate stabledevelopments in terms of group sales in the 2016/17 fiscal year (previous year:€ 4,252 ­m illion). The volume of orders received (previous year: € 4,113 million)
should see a modest increase, as announced. The three established Group

Voith Interim Report 2017

Group Interim Management Report | 07 Forecast report

35

Divisions will enjoy profitable operations and, in total, generate a stable profit
from operations. As forecast, the Voith Group’s profit from operations (previous
year: € 275 million) will be clearly positive but will not, however, reach the level
seen in the previous year on account of the budgeted build-up costs for the Voith
Digital Solutions Group Division. We therefore anticipate a noticeable fall in theGroup’s profit from operations on the basis of the full year. We continue to expect
a slight decrease in the ROCE (previous year: 12.9 %), in line with the development of the profit from operations. The group net result will reach a record levelin the full 2016/17 fiscal year. The effect on results from the sale of the shares in
KUKA Aktiengesellschaft will make a particular contribution to this development.
With a substantially increased equity ratio and much greater financial headroom
for acquisitions, Voith is in a very strong position for new growth – through reinforcement of the core business and important progress in the digital transformation of the Group.

Profitable core business
At Voith Hydro, we anticipate much stronger market activity in the second half ofthe fiscal year than in the reporting period. Whether the expected stable market
development actually comes about over the full year depends, however, on thetimely awarding of individual major projects. Assuming this happens, we continue
to expect that the volume of orders received by Voith Hydro in the 2016/17 fiscal
year will roughly come to the previous year’s level (previous year: € 1,387 million). On account of minor project delays, we now anticipate a slight decreasein the volume of sales at Voith Hydro in comparison to the high level achievedin the previous year (previous year: € 1,388 million). At the time of publication of
the 2016 Annual Report we had still anticipated a stable development. In terms
of profit from operations (previous year: € 105 million) and ROCE (previous year:
21.3 %), we continue to forecast a stable development at the high levels alreadyachieved in the previous year.
In the Voith Paper Group Division, we are confident of being able to meet ourforecast for the current fiscal year after the good development in the reporting
period. While sales are expected to increase slightly in comparison to the previous year (€ 1,456 million), we still anticipate profit from operations to rise at a fasterrate (previous year: € 76 million). The ROCE (previous year: 10.2 %) should likewise
see a marked improvement, as expected. In the 2016 Annual Report, we held
out the prospect of a slight increase in the volume of orders received (previous
year: € 1,463 million). In view of the high volume of orders received in the first halfof the fiscal year, the increase could well turn out to be even bigger over the full
2016/17 fiscal year than forecast at that time.
For the Voith Turbo Group Division, we confirm our forecast for the current fiscal
year. On account of the fall in orders received in the two previous years, sales
in the 2016/17 fiscal year are expected to suffer a slight to significant decrease(previous year: € 1,397 million). The reduced sales volume, changed sales mix
and high pressure on prices will affect profit from operations, which is therefore
likely to fall significantly and at a higher rate than sales (previous year: € 114 million). There will also be a noticeable fall in the ROCE compared to the previous

Voith Interim Report 2017

36

Group Interim Management Report | 07 Forecast report

year (15.8 %), yet it will still be well into the double digits. In contrast, we anticipate slight growth in the volume of orders received (previous year: € 1,247 million).
In the new Voith Digital Solutions Group Division, which we report as a standalone segment for the first time in the reporting year, we expect sales in the
single-­digit millions of euros. In addition, sales of some € 300 million are expected
to arise from digital products and solutions generated by the established Group
Divisions in cooperation with Voith Digital Solutions acting as an “enabler”. The
profit from operations will be negative on account of the budgeted build-up costs
and cause a burden in the double-digit millions for the Group. We consider thebuild-up costs, which we are able to shoulder from our profitable core business,
as an investment in building up a business that is intended to become an important growth driver for the Voith Group over the coming years. In addition to building up the business with our own resources, we are also looking for acquisition
targets that will supplement our digital portfolio.
Forecasts are always subject to considerable uncertainty. A host of macroeconomic and industry-specific factors can influence, positively or negatively, thedevelopment of individual Group Divisions or the entire Group. For informationon the significant risks and opportunities that could lead to a negative/positive forecast deviation, we refer to section 06 “Risks and opportunities” of this­m anagement report.

Voith Interim Report 2017

Group Interim Financial Statements
for the period from October 2016 to March 2017

Consolidated statement of income
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Basis of the interim consolidated financial statements and accounting policies
Notes on segment reporting
Segment information by business segment
Notes to the statement of income and the balance sheet
Other notes
Responsibility statement

38
39
40
42
44
45
48
50
52
56
63

38

Group Interim Financial Statements | Consolidated statement of income

Consolidated statementof incomefor the period from October 1, 2016 to March 31, 2017in € thousands

Sales
Changes in inventories and other own work capitalized
Total output

2016-10-01 to
2017-03-31

2015-10-01 to
2016-03-31

1,964,940

2,038,317

28,79833,6081,993,738

2,071,925

Other operating income

194,210

171,171

Cost of materials-853,511-880,682

Personnel expenses-723,647-715,338

Depreciation and amortization-64,106-65,515

Other operating expenses-470,330-499,962

Operational result before non-recurring items

76,354

81,599Non-recurring result-11,366-4,853Operational result

64,98876,746

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

6,185

5,422

565,0780Interest income

8,722

4,226

Interest expenses-46,667-40,758

Other financial result-4,996-27,925

Result before taxes from continuing operations

593,310

17,711

Income taxes-26,275-26,796

Net result from continuing operations

567,035-9,085

Net result from discontinued operations-1,140-38,471

Net result

565,895-47,556

Net result attributable to shareholders of the parent company

562,313-52,972

Net result attributable to holders of non-controlling interests

3,582

5,416

Result from the sale of associates

Voith Interim Report 2017

Group Interim Financial Statements | Consolidated statement of compr. income

39

Consolidated statementof comprehensive income
for the period from October 1, 2016 to March 31, 20172016-10-01 to
2017-03-31

2015-10-01 to
2016-03-31

565,895-47,556

Remeasurement of defined benefit plans

44,669-58,958

Taxes on components of other comprehensive income that will not be recycled
through profit or loss in later periods-15,807

18,396-9,739-10

Gains/losses on cash flow hedges

2,588-1,761

Gains/losses on currency translation

12,881-7,177503

2,777

in € thousands

Net result
Components of other comprehensive income that will not be recycled
through profit or loss in later accounting periods:

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

Gains/losses from the currency translation of net investments in foreign operations
Taxes on components of other comprehensive income that will be recycled
through profit or loss in later accounting periods

-490

582

Other comprehensive income

34,605-46,151

Total comprehensive income

600,500-93,707· Total comprehensive income attributable to shareholders of the parent company

597,113-99,695· Total comprehensive income attributable to holders of non-controlling interests

3,387

5,988

600,500-93,707

Voith Interim Report 201740

Group Interim Financial Statements | Consolidated balance sheet

Consolidated balance sheet
as at March 31, 2017in € thousandsA.

Non-current assets

I.

Intangible assets

2017-03-31

2016-09-30

451,553

450,750

II.

Property, plant and equipment

1,035,031

1,040,677

III.

Investments accounted for using the equity method

22,23915,307

IV.

Securities

11,421

84,859V.

Other financial assets

109,412

109,584

VI.

Other financial receivables

104,307

88,631VII.

Other assets

14,261

17,060

VIII. Deferred tax assets

246,174

248,693

Total non-current assets

1,994,398

2,055,561

B.

Current assets

I.

Inventories

612,075

567,233

II.

Trade receivables

749,115

690,632

III.

Receivables from customer-specific contracts

308,543426,720
33,126

IV.

Securities

48,478V.

Current income tax assets

52,03054,688VI.

Other financial receivables

155,737

172,480

VII.

Other assets

107,688

99,816

1,714,616

649,6723,748,282

2,694,367

17,671

609,365

Total current assets

3,765,953

3,303,732

Total assets

5,760,351

5,359,293

VIII. Cash and cash equivalents

IX.

Assets held for sale

Voith Interim Report 2017

Group Interim Financial Statements | Consolidated balance sheet41

2017-03-31

2016-09-30

in € thousands

A.

EquityI.

Issued capital

120,000

120,000

II.

Revenue reserves

1,097,431

532,060

III.

Other reserves

7,368

1,440

IV.

Profit participation rights

6,600

6,600

1,231,399

660,100

Equity attributable to shareholders of the parent company
V.

Profit participation rights

96,80096,800VI.

Other interests

43,90342,034

140,703138,834

1,372,102

798,934

Equity attributable to holders of non-controlling interests
Total equity
B.

Non-current liabilities

I.

Provisions for pensions and similar obligations

804,183

852,803II.

Other provisions

211,293

221,304

III.

Income tax liabilities

796

326

IV.

Bonds, bank loans and other interest-bearing liabilities

551,997

563,929

V.

Other financial liabilities

32,622

28,831VI.

Other liabilities

71,63459,079VII.

Deferred tax liabilities

48,837

51,199Total non-current liabilities

1,721,362

1,777,471

C.

Current liabilities

I.

Provisions for pensions and similar obligations

29,38029,969II.

Other provisions

255,245

268,306

III.

Income tax liabilities

56,20772,511
768,544430,779

IV.

Bonds, bank loans and other interest-bearing liabilities

726,243

V.

Trade payables

413,284

VI.

Liabilities from customer-specific contracts

91,541

118,188

VII.

Other financial liabilities

234,411

270,425

VIII. Other liabilities

860,576

824,166

Total current liabilities

2,666,887

2,782,888

Total equity and liabilities

5,760,351

5,359,293

Voith Interim Report 2017

42

Group Interim Financial Statements | Consolidated statement of changes in equity

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

2016-10-01

Issued capital

Revenue
reserves

Available-for-salefinancial assets

Cash flow
hedgesCurrencytranslation

120,000

532,060

13,968-4,010-4,015

Net result

562,313

Other comprehensive income

28,872-9,8282,100

13,153591,185-9,8282,100

13,1534,140-1,9109,138

Total comprehensive income

0

Allocation of profit participation rights-5,590Share of net result attributable to profit
participation rights
Dividends-18,000

Changes in non-controlling interests as a resultof changes in group structure

209

Contributions by non-controlling interests
Non-controlling interests – put options-2,120

Other adjustments
2017-03-31-313
120,000

1,097,431

Equity attributable to shareholdersof the parent companyin € thousands

2015-10-01

Issued capital

Revenue
reserves

Available-for-salefinancial assets

Cash flow
hedgesCurrencytranslation

120,000

624,938

3,992-1,067-9,410

Net result-52,972

Other comprehensive income-41,7542-1,243-6,414-94,726

2-1,243-6,414

3,994-2,310-15,824

Total comprehensive income

0

Allocation of profit participation rights-5,590Share of net result attributable to profit
participation rights
Dividends-15,000

Changes in non-controlling interests as a resultof changes in group structure-1,968Non-controlling interests – put options

1,822

Other adjustments
2016-03-31

Voith Interim Report 2017

1,619
120,000

511,095

Group Interim Financial Statements | Consolidated statement of changes in equity

43

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

Profitparticipationrights-4,503

6,600

503
503

Total

ProfitparticipationrightsOtherinterests

Total

Total
equity660,100

96,80042,034

138,834

798,934

562,313

3,582

3,582

565,895

34,800-195-195

34,605

3,387

3,387

600,500

0597,1130363-5,227

5,227

5,227

0

-363

-363

-5,227-5,227-5,590-2,128-20,128-18,000-2,128209-2,120-313-4,0006,600

1,231,399

96,800

-440

-440

-231

1,525

1,525

1,525

-447

-447

-2,567

-28

-28

-341

43,903

140,703

1,372,102

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

Profitparticipationrights-9,080

6,600

2,686
2,686

Total

ProfitparticipationrightsOtherinterests

Total

Total
equity735,973

96,80041,470138,270874,243-52,972

5,416

5,416

-47,556-46,723572

572-46,151

5,988

5,988

-93,7070-99,695

0363-5,227

5,227

5,227

0

-363

-363

-5,227-5,227-5,590-15,000-2,297-2,297-17,297-1,968-1,099-1,099-3,067

1,822-4,440-4,440-2,618

1,619-6,3946,600

617,161

96,800

1,252

1,252

2,871

40,874

137,674

754,835

Voith Interim Report 2017

44

Group Interim Financial Statements |Xxxxxxxxxxxxxxxxxxxxx
Consolidated cash flow statement

Consolidated cash flow statement
for the period from October 1, 2016 to March 31, 2017in € thousands

2016-10-01 to
2017-03-31

2015-10-01 to
2016-03-31

Result before taxes from continuing and discontinued operations

594,163-21,514

Depreciation and amortization

66,410144,952

Interest expenses/income
Other non-cash items
Gains/losses from the disposal of property, plant and equipment and intangible assets
Gains/losses from the disposal of consolidated companies

37,94536,909-569,076-6,212-63-14,446

0

0

Gains/losses from investments-4,509-8,169Changes in provisions and accruals-73,307-76,664

Change in net working capital-41,697-70,114

Interest paid

-10,713-7,340Interest received

8,109

3,549

Dividends received

3,106

9,071

Tax paid-49,826-38,252

Cash flow from operating activities-39,458-48,230

Investments in property, plant and equipment and intangible assets-48,292-66,851

4,663

29,389Investments in financial assets-1,914-2,246

Purchase price receipts in connection with disposal of companies in previous years

38,5060Receipts and payments in connection with the disposal of consolidated companies

00Proceeds from the disposal of property, plant and equipment and intangible assets

Proceeds from the disposal of financial assets

1,148,422

273

Changes in investments in securities

47,4599,749

Cash flow from investing activities

1,188,844-29,686

Dividends paid

-25,718-22,887

Contributions from holders of non-controlling interests

1,525

0

Acquisition of non-controlling interests-231-3,067

New bonds, bank loans and overdrafts

22,545351,214

Repayment of bonds, bank loans and overdrafts-85,838-232,507

Changes in other interest-bearing financial receivables and liabilities
Cash flow from financing activities
Total cash flow
Exchange rate movements and valuation changes
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period

Voith Interim Report 2017

-7,501-3,687-95,218

89,066

1,054,168

11,15010,776-215

649,672

434,953

1,714,616

445,888

Group interim financial statements | Basis and accounting policies

45

Basis of the interim consolidated
financial statements
and accounting policies
Voith GmbH (Voith) is a company founded in Germany with international activities. The Company’s registered offices are located in Heidenheim an der Brenz,at St. Pöltener Strasse 43. Voith is entered in the commercial register (under thenumber HRB 725621) at the Registration Court in Ulm, Germany. The interim consolidated financial statements prepared by Voith are published in the Bundesanzeiger [German Federal Gazette] in German. As a domestic issuer of debt securities
pursuant to Sec. 2 (1) Sentence 1 German Securities Trading Act (WpHG), Voith
prepares this half-year financial report in accordance with the provisions of Sec.
37w WpHG and the requirements of IAS 34 “Interim Financial Reporting.”
The interim consolidated financial statements for the first half of the 2016/17 fiscal
year were prepared in accordance with the International Financial Reporting Standards (IFRS) for interim financial reporting as endorsed by the European Union. In
comparison to the consolidated financial statements as at September 30, 2016,
the interim consolidated financial statements are condensed in scope.
The unaudited interim consolidated financial statements do not include all of theinformation and disclosures required for consolidated financial statements andmust therefore be read in conjunction with the consolidated financial statements
as at September 30, 2016. The interim financial statements are presented in euros
and the figures have been rounded using standard commercial principles.
Within the framework of preparing the interim consolidated financial statements
pursuant to IFRS, it is necessary to make certain estimates, judgments andassumptions that could have an impact on the amount and presentation of assets
and liabilities recognized in the reporting, as well as on the disclosures on contingent assets and contingent liabilities on the reporting date and on the income andexpenses reported for the period. Actual amounts may differ from the estimates.
Changes in estimates, judgments and assumptions could have a material impact
on the interim financial reporting.
The accounting policies applied by the Group in these interim consolidated financial statements generally correspond to the accounting policies applied in the
IFRS consolidated financial statements for the previous fiscal year. Income taxes
are recorded on the basis of an estimate of the weighted average annual income
tax rate expected for the full year, taking account of the tax impact of any circumstances that can only be allocated to the respective period under review.

Voith Interim Report 201746

Group interim financial statements | Basis and accounting policies

In the first half of the 2016/17 fiscal year, the following new and revised IAS andIFRS standards were applied for the first time:Standard  /  interpretation

Amendment/new standard or interpretation

Amendments to IAS 1:
Disclosure Initiative

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

Amendments to IAS 16 and IAS 38:
Clarification of acceptable
methods of depreciation andamortization

Clarification of acceptable methods of depreciation andamortization.

Amendments to IFRS 11:
Joint Arrangements

Clarification of the accounting for the acquisition ofinterests in a joint activity.

Improvements to IFRS
(2012–2014)

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

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

Consolidated group

The following companies are included in the consolidated financial statements:

2017-03-31

2016-09-30

Voith GmbH and its fully consolidated subsidiaries:· Germany

30

29· Other countries

110

112

Total number of fully consolidated companies

140

141

· Germany

3

4· Other countries

11

11

Total number of companies accounted for using the equity
method14

15Companies accounted for using the equity method:	Business combinations

Voith Interim Report 2017

There were no business combinations in the first half of the current fiscal year andthe corresponding previous-year period.

Group interim financial statements | Basis and accounting policies47

	Acquisition of further
interests in entities overwhich the Group alreadyhas control

The remaining 30 % interest in Voith Paper Integrated Mill Service Co., Ltd.,­Kunshan, Jiangsu, China, was acquired in the first half of the current 2016/17
fiscal year. The purchase price was € 231 thousand. The remaining 20 % interestin Voith Turbo Co., Ltd., Seoul, Republic of Korea, was acquired in the first half ofthe 2015/16 fiscal year. The purchase price was € 3,067 thousand.

	Disposals and discontinued
operations

There were no disposals of subsidiaries in the first half of the current 2016/17
fiscal year.
The Voith Industrial Services Group Division was sold effective as at August 31,
2016. In the first half of the 2015/16 fiscal year, Voith Industrial Services was presented as held for sale and as a discontinued operation.
In the previous-year period, the net result from discontinued operations includedin the statement of income included the following:in € thousands

2015/16

Sales

482,248

Changes in inventories and other own work capitalized

7,138

Other operating income

14,107

Operating expenses-498,045
5,448

Operational result before non-recurring items
Non-recurring result-44,791

Operational result-39,343

Financial result

119-39,224

Result before taxes
Income taxes

753-38,471

Net result

Cash flow from discontinued operations in the previous-year period:in € thousands

2015/16

Cash flow from operating activities-22,412

Cash flow from investing activities-7,137In the first half of the current 2016/17 fiscal year, proceeds of € 38,506 thousand
were received from the sale of Voith Industrial Services in connection with the settlement of outstanding receivables from and liabilities to the purchaser (includedin the item Purchase price receipts in connection with disposal of companies inprevious years in the consolidated cash flow statement).

Voith Interim Report 2017

48

Group interim financial statements | Notes
Xxxxxxxxxxxxxxxxxxxxx
on segment reporting

Notes on segment reporting
Voith Digital Solutions reported for the first time as a segment
The Voith Digital Solutions Group Division, which was founded in the previous year,
is being reported as a stand-alone segment for the first time. The new Group Division brings together all the Group’s expertise in the areas of automation, IT, software, data analytics and sensor technology. The sales with third parties reported
in the Voith Digital Solutions segment originates from transactions on the partof the Group’s own IT service provider with external customers. Sales with othersegments relates to digital support for the existing Group Divisions. The profit
from operations reflects to a great extent the start-up costs for this new division.
The sales reported in the Voith Digital Solutions segment in the previous-year
period and the profit from operations include the IT services rendered within theGroup. The reconciliation column for the previous-year period was adjusted bythese amounts. 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, 2016.
Voith Digital Solutions acts as an “enabler” for the established Group Divisions,providing them with support in enhancing their product portfolio in the field ofautomation to include digital offerings. Digital Solutions’ sales with third parties
included in the established Group Divisions is stated for the first time in the segment information by business segment.

Operating interest income
The operating interest is taken into account in the course of calculating the profit
from operations, unchanged on the most recent consolidated financial statements.
Operating interest income is defined as interest received by the Company on thelong-term financing of receivables from customers, or as the imputed interest
effect attributable to that portion of customer advances that is not used to financeinventories and PoC receivables.

Voith Interim Report 2017

Group Interim Financial Statements | Notes on segment reporting

49

Average capital employed
The capital employed presented as of the March 31, 2017 reporting date constitutes an average value derived from the values as at the current reporting date
and as at the end of the previous year. The capital employed as at September 30,
2016 presented as a comparative figure is derived from the respective figures asat the September 30, 2016 reporting date, as at the reporting date of the previous
half-year financial statements and as at the reporting date of the previous financial
statements as at September 30, 2015.

Voith Interim Report 2017

50

Group Interim Financial Statements | Segment information by business segment

Segment information bybusiness segment
Voith ­­H ydroin € millions

Sales with third parties

Voith ­Paper

Voith ­­Turbo

2016 /17

2015 /16

2016 /17

2015 /16

2016 /17

2015 /16

653

652

678

689

621

691

68

65

33

30

31

62

thereof Digital Solutions

4

2

10

10

1

3

Segment sales, total

657

654

688

699

622

694

Profit from operations

53

48

30

19

34

43

Sales with other segments

Average capital employed
Employees 2)
1)
2)

504

493

753

748

711

719

4,584

4,934

6,469

6,550

5,553

5,702

Subtotal for Voith Hydro, Voith Paper and Voith Turbo.
Statistical headcount on reporting date in comparison to September 30, 2016.

As the earnings component “Operating interest income” is not shown directly inthe consolidated statement of income, this item is presented separately in thereconciliation of the total profit from operations by segment to result before taxes
presented below.
Reconciliation of total profit from operations to theGroup’s result before taxes:in € millions

2016/172015/16

Total profit from operations

91

97

Operating interest income

-15

-14

Non-recurring result

-11

-5

6

5

Share of profit/loss from companies accounted forusing the equity method
Result from the sale of associates

5650Interest result

-38

-37

Other financial result

-5

-28

593

18

Result before taxes from continuing operations

Voith Interim Report 2017

Group Interim Financial Statements | Segment information by business segment

Voith ­D igital ­S olutions

Total core business 1)

Reconciliation

51

Total

2016 /17

2015 /16

2016 /17

2015 /16

2016 /17

2015 /16

2016 /17

2015 /16

1,952

2,032

4

1

9

5

1,965

2,038

132

157

4

1

0

0

136

158

15

15

62

43

-77

-58

0

0

1,967

2,047

66

44

-68

-53

1,965

2,038

117

110

-20

3

-6

-16

91

97

1,968

1,960

35

36

135

141

2,138

2,137

16,606

17,186

966

654

1,234

1,258

18,806

19,098Voith Interim Report 2017

52

Group Interim Financial Statements | Notes to statement of income & balance sheet

Notes to the statement of income
and the balance sheet
The following information is limited to those issues that provide useful additional
information for the understanding of the amounts reported in the statement ofincome and in the balance sheet.

	Selected notes to thestatement of income

Other operating incomein € thousands

2016/172015/16

Income from the utilization of contract-specific provisions

56,72054,999

Income from the reversal of provisions and accruals

42,67624,935

Foreign exchange gains

36,408

38,112Other income

58,40653,125

194,210

171,171in € thousands

2016/172015/16

Increase in provisions and accruals

101,128

111,907

Other selling expenses

144,456

141,031

Other administrative expenses

124,461

121,680

Other operating expenses

Foreign exchange losses

32,10952,798Rent for buildings and machinery

25,56723,228Other expenses

42,60949,318470,330

499,962

Non-recurring result
Voith generally defines expenses and income arising from major restructuring
activities, measures addressing personnel capacity and the discontinuation ofoperations as exceptional items and presents them under the non-recurring result.
The non-recurring result stood at €-11 million (previous year: €-5 million).

Voith Interim Report 2017

Group Interim Financial Statements | Notes to statement of income & balance sheet

53

In the first half of the 2015/16 fiscal year, the non-recurring result had included
individual consequential effects of the packages of measures implemented at Voith
Paper in previous years and in connection with excellence initiatives in the context
of the Group-wide Voith 150+ success program. In detail, expenses that were noteligible for provisioning in previous years and income from such measures were
included. The non-recurring result further included personnel-related costs arising from a measure introduced at Voith Turbo in order to counter the weakness
in the oil and gas industry, in the mining sector and at steel producers. Further
expenses of € 16 million were attributable to the restatement of a cut-off error in
the previous year at an Asian subsidiary of Voith Paper. In detail, the contributions
to the non-recurring result in the previous-year period were as follows: Voith Hydro€ 5 million, Voith Paper €-8 million, Voith Turbo €-5 million and divisions with aholding function € 3 million.
In the reporting period, the non-recurring result mainly comprises personnel-related
and other expenses arising from measures to consolidate production capacities
at Voith Hydro in Brazil and at Voith Paper in the US. In detail, the contributions
to the non-recurring result were as follows: Voith Hydro €-4 million, Voith Paper€-6 million and divisions with a holding function €-1 million.
In detail, the non-recurring result includes the following:in € thousands

2016/172015/16

Personnel expenses-8,001-16,222

Sundry other expenses-4,719-17,357

Gains on the disposal of property, plant and equipment
Income from the reversal of provisions
Other income

0

10,245

156

18,085

1,198

396-11,366-4,853Result from the sale of associates
The result from the sale of associates of € 565 million (previous year: € 0) c
­ ontainsthe effect on results from the sale of the shares in KUKA Aktien­gesellschaft completed in January 2017.

Other financial resultin € thousands

2016/172015/16

Gains/losses from investments

3,656

8,184

Impairment of securities and other investments-2,304-36,205

Sundry other financial result-6,34896-4,996-27,925

Voith Interim Report 2017

54

Group Interim Financial Statements | Notes to statement of income & balance sheet

Income taxes
Income tax expenses totaled €-26 million (previous year: €-27 million). This figure
includes expenses from taxes relating to other periods of €-9 million (previous
year: income of € 1 million).

	Selected notes tothe balance sheet

Intangible assets and property, plant and equipment
In the first half of the 2016/17 fiscal year, € 8 million (previous year: € 3 million) wasinvested in intangible assets and € 40 million (previous year: € 56 million) in property, plant and equipment. Amortization of € 8 million (previous year: € 9 million)
was recognized on intangible assets and depreciation of € 56 million (previous year:€ 57 million) on property, plant and equipment.

Inventories
Inventories consist of the following items:in € thousands

2016/172015/16

Raw materials and supplies

207,489

197,530Work in progress

171,711

169,257

Finished goods and merchandise

145,623

126,988

Prepayments

87,25273,458612,075

567,233

Assets held for sale and liabilities directly associated withassets held for sale
As at September 30, 2016, this item essentially comprised the carrying amount of
the shares in KUKA Aktiengesellschaft. As as March 31, 2017, this item contains
an investment classified as held for sale.

EquityA dividend of € 0.15 per share was distributed from the unappropriated retained
earnings of Voith GmbH, i.e. € 18,000 thousand (previous year as at March 31,
2016: € 15,000 thousand). Distributions of € 5,590 thousand (previous year as at
March 31, 2016: € 5,590 thousand) were made in relation to the profit participation rights. Dividends of € 2,128 thousand (previous year as at March 31, 2016:€ 2,297 thousand) were distributed to the holders of non-controlling interests.

Voith Interim Report 2017

Group Interim Financial Statements | Notes to statement of income & balance sheet

55

Provisions for pensions and similar obligations
The decrease in pensions and similar obligations is mainly attributable to changes
in the actuarial parameters. The calculation of pension provisions is based on thefollowing assumptions:
Germany and Austria
in %

USA

2017-03-31

2016-09-30

2017-03-31

2016-09-30

Discount rate

1.83

1.33

3.75

3.20

Pension increases

1.70

1.33

0

0

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

Current

Bonds

599,055

Bank loans

59,352Financial liabilities from leases

217

Notes payable

543
9,081

Derivatives used to hedge financialtransactions
Other financial liabilities

2017-03-31

Current

20,062

619,117597,059

59,558656,617422,886

482,238

86,659419,780

506,439

754

971

288

797

1,085

0

543

332

0

332

17,112

26,193

15,475

6,074

21,549Non-current

Non-current

2016-09-30

57,99591,183

149,178

68,731

77,720146,451

726,243551,997

1,278,240

768,544563,929

1,332,473

Voith Interim Report 2017

56

Group Interim Financial Statements | Other notes

Other notes	Contingent liabilities,
contingent assets andother financial obligations

There are risks in connection with the recognition of transfer prices outside ­Germany
amounting to € 5 million (previous year: € 4 million) and risks from legal ­disputes of€ 34 million (previous year: € 40 million). A successful outcome is ­currently expectedin both cases.
Neither Voith GmbH 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 the German companies, further changes
may be made to tax items.
There are guarantee€ 28,918 thousand).

obligationsof€ 1,361thousand(previous

year:

There are in addition the following other financial obligations:in € thousands

2016-09-30

Purchase commitments for capital expenditures

17,56013,087

Obligations arising from non-cancelable operating leases

116,373

129,227

Other

Voith Interim Report 20172017-03-31

5,201

3,551

139,134

145,865

57

Group Interim Financial Statements | Other notes	Additional information on
financial instruments
Amount recognized in the balance sheet inaccordance with IAS 39
IAS 39Carrying
measure­amountment
category 2017-03-31

in € thousands

Amortized
cost

Cost

Fair value
through
equityFair value
through
profit orloss

Amount­recognizedin thebalancesheet inFair value
accordancewith IAS 17 2017-03-31

Assets:Cash and cash equivalents

LaR

1,714,616

1,714,616

Trade receivables

LaR

749,115

749,115

749,115

Receivables from construction contracts

LaR

308,543

308,543

308,543

46,365

Other financial assets and securities

1,714,616

169,311· F inancial investments

LaR

46,36546,365· Loans

LaR

56,612

56,612· I nvestments

AfS

52,800· S ecurities

AfS

13,534

Derivative financial instruments

56,612
31,4002)

21,4001)

13,534

13,534

21,40074,399· Forward exchange contracts· Forward exchange contracts (fair value hedges)

FAHfT

3,024

3,024

3,024

n. a.

69,974

69,974

69,974

1,395

1,395

· Forward exchange contracts (cash flow hedges)

n. a.

6

· Interest rate swaps (fair value hedges)

n. a.

1,395

Other receivables

66136,753· F inancial receivables

LaR

41,51041,51041,510· S undry financial assets

LaR

95,243

95,243

95,243Liabilities:
Trade payables

FLAC

413,284

413,284

413,284

Bonds/bank loans/notes

FLAC

1,101,898

1,101,898

1,122,400

Financial liabilities from leases

n. a.

Derivative financial instruments

971

971

49,351· Forward exchange contracts

FLHfT

23,12523,125· Call option

4,800
19,697

FLHfT

4,800

4,800

· Forward exchange contracts (fair value hedges)

n. a.

19,697

19,697· Forward exchange contracts (cash flow hedges)

n. a.

2

· Interest rate swaps (cash flow hedges)

2

n. a.

1,727

Other financial liabilities

FLAC

149,178

139,369

Sundry financial liabilities

FLAC

243,874

243,874

LaR

3,012,004

3,012,004

23,125

2)

2

1,727

1,727

9,809

326,587
243,874

IAS 39 measurement categories:
Loans and receivables (LaR)
Available for sale (AfS)

AfS

66,334

FAHfT

3,024

Financial liabilities measured at amortized cost
(FLAC)

FLAC

1,908,234

Financial liabilities held for trading (FLHfT)

FLHfT

27,925

Financial assets held for trading (FAHfT)

31,40034,934
3,024

1,898,425

9,809
27,9251)

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

2)

 call option embedded in the investment (equity instrument) held by Voith was accounted for separately. The
A
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 Interim Report 2017

58

Group Interim Financial Statements | Other notes

Amount recognized in the balance sheet inaccordance with IAS 39
IAS 39Carrying
measure­amountment
category 2016-09-30

in € thousands

Amortized
cost

Cost

Fair value
through
equityFair value
through
profit orloss

Amount­recognizedin thebalancesheet inFair value
accordancewith IAS 17 2016-09-30

Assets:Cash and cash equivalents

LaR

649,672

649,672

649,672

Trade receivables

LaR

690,632

690,632

690,632

Receivables from construction contracts

LaR

426,720426,720426,720

30,943

Other financial assets and securities

227,569· F inancial investments

LaR

30,94330,943· Loans

LaR

56,25956,259· I nvestments

AfS

53,325· S ecurities

AfS

Derivative financial instruments

56,25931,92587,042

2)

21,4001)

87,04287,042

21,40056,497· Forward exchange contracts

FAHfT

3,393

3,393

3,393

· Interest rate/currency swaps

FAHfT

563

563

563

· Forward exchange contracts (fair value hedges)

n. a.

46,695

46,695

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

n. a.

5

· Interest rate swaps (fair value hedges)

n. a.

5,841

5,841

5,841

Other receivables

5

5

162,347· F inancial receivables

LaR

79,966

79,966

79,966· S undry financial assets

LaR

82,381

82,381

82,381

Trade payables

FLAC

430,779

430,779

430,779

Bonds/bank loans/notes

FLAC

1,163,388

1,163,388

n. a.

1,085

Liabilities:

Financial liabilities from leases
Derivative financial instruments

1,198,782
1,085

43,398· Forward exchange contracts

FLHfT

5,402

5,402

5,402

· Interest rate/currency swaps

FLHfT

13,382

13,382

13,382· C all option

FLHfT

4,800

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

n. a.

15,562

15,562

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

n. a.

885

885

885

· Interest rate swaps (cash flow hedges)

n. a.

3,367

3,367

3,367

Other financial liabilities

FLAC

146,451

139,362

Sundry financial liabilities

FLAC

277,408

277,408

Loans and receivables (LaR)

LaR

2,016,573

2,016,573

Available for sale (AfS)

AfS

140,367

Financial assets held for trading (FAHfT)

FAHfT

3,956

Financial liabilities measured at amortized cost
(FLAC)

FLAC

2,018,026

Financial liabilities held for trading (FLHfT)

FLHfT

23,584

7,089

334,791
277,408

IAS 39 measurement categories:

Voith Interim Report 2017

31,925

108,4423,956

2,010,937

7,089
23,584

1)

The available for sale financial instruments include investments whose fair values could not be determined reliably.

2)

 call option embedded in the investment (equity instrument) held by Voith was accounted for separately. The
A
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.

59

Group Interim Financial Statements | Other notes

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

2017-03-31

Level 1

Level 2

Level 3

Securities

13,534

Derivative financial instruments

74,39913,53400074,3990Investments

21,4000021,400Derivative financial instruments

49,351044,551

4,800

Liabilities arising from the acquisitionof investment shareholdings

9,809

0

0

9,809

2016-09-30

Level 1

Level 2

Level 3

Securities

87,04287,04200Derivative financial instruments

56,497

056,4970Investments

21,4000021,40043,398038,598

4,800

7,089

0

0

7,089

AssetsLiabilitiesin € thousands

AssetsLiabilities
Derivative financial instruments
Liabilities arising from the acquisitionof investment shareholdings

The three-level fair value hierarchy divides the input factors used in the measurement techniques to measure the fair value into three levels, as follows:
Level 1:
input factors quoted in active markets accessible to the Company for identicalassets 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 thefirst half of the 2016/17 fiscal year.

Voith Interim Report 2017

60

Group Interim Financial Statements | Other notes

The fair values of derivative financial instruments allocated to level 2 of the fair value
hierarchy are taken from the daily observable exchange rates and yield curves. In
addition, fair value measurement includes both the counterparty credit risk and
the Group’s own credit risk. Input factors that take account of counterparty credit
risk can be obtained from observable credit default swaps (CDS) from the banks
participating in the respective transaction. At Voith the market CDS rate was used
to calculate the Group’s own credit risk.
The fair values of liabilities from the acquisition of investment shareholdings allocated to level 3 of the fair value hierarchy are based on internal planning data.
These are measured using the discounted cash flow projections taken from thelatest business planning prepared by management. The planning assumptions areadjusted to reflect the current information available.
The fair values of financial assets and financial liabilities measured at cost or amortized cost, which need to be determined to meet disclosure requirements, arecalculated as follows:
Cash and cash equivalents, trade receivables and other financial receivables are
subject to floating interest 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 values of unlisted bonds, bank loans and other financial liabilities arecalculated as the present value of the payments associated with the liabilities,
based on the applicable effective yield curve and Voith GmbH’s credit spread curve
determined for different currencies.

Voith Interim Report 2017

61

Group Interim Financial Statements | Other notes	Transactions withrelated parties andindividuals

All business transactions with related parties are conducted at arm’s length conditions as was the case in previous reporting periods. The vast majority of goods
and service transactions with related parties (entities and individuals) are shownin the two tables below:

in € thousands

2017-03-31

2016-09-30

Liabilities to family shareholders

21,333

13,470Receivables from associates

2,736

3,420

497

852

Receivables from other investments, including advances paid

10,58011,834

Impairment of receivables from other investments-1,348-64

Liabilities to other investments

9,444

11,614

Liabilities to associates

Receivables from joint ventures

175

153

Liabilities to joint ventures

964

746

Receivables from the ultimate parent company

265

190

Liabilities to the ultimate parent company

7,075

6,337

2016/172015/16629

612

in € thousands

Services purchased from associates
Services rendered to associates

061

Services purchased from other investments

1,642

3,293

Services rendered to other investments

5,038

4,967

Services purchased from joint ventures

1,974

1,542

Services rendered to joint ventures

288

206

6,273

5,855

523

391

Services purchased from the ultimate parent company
Services rendered to the ultimate parent company

In the first half of the 2016/17 fiscal year, guarantees of € 1,361 thousand (previous
year: € 554 thousand) were issued in favor of other investments.
The Group has obligations from outstanding orders with the ultimate parent
amounting to € 2,627 thousand (previous year: € 5,399 thousand) and with joint
ventures of € 173 thousand (previous year: € 0).

Voith Interim Report 2017

62

Group Interim Financial Statements | Other notes	Material subsequent events

In May 2017, Voith signed a purchase agreement for the acquisition of the majority shareholding of 60 % in Ray Sono AG, one of Germany’s leading digital services providers. The strategic partnership firstly covers the development of digitization solutions relevant to industry, primarily in the fields of Internet of Things and­Industry 4.0 and, secondly, the implementation of digital solutions within Voith’s
portfolio. Examples of this include the virtualization of machines and systems andthe improvement of existing digital solutions with the support of Ray Sono. Ray
Sono currently employs around 200 permanent members of staff and generated
around € 19 million in sales in the past year – with customers that include Austrian
Airlines, BMW, BRITA, DATEV, Deutsche Bahn, Linde, MAN, McDonald’s and Miles& More. Following closing of the transaction, which is currently subject to approvalby the antitrust authorities, the plans are for the investment to be allocated to theVoith Digital Solutions Group Division.
Voith GmbH’s Corporate Board of Management, in close consultation with the
Shareholder’s Committee, proposed to the shareholders in April 2017 to change
the legal form of the Company from a limited liability company (GmbH) to a partnership limited by shares (Kommanditgesellschaft auf Aktien or KGaA). The shareholders will decide on this change after consultation with the required boards andcommittees. The plans are for the Company’s new name to be “Voith GmbH &Co. KGaA”. Voith Management GmbH, an entity yet to be founded, is planned tobe the personally liable shareholder (general partner) of the partnership limited byshares. As a final step, a decision on the change in legal form is scheduled for an
extraordinary shareholders’ meeting in July 2017. This step is anticipated to expand
Voith’s ability to maneuver during the coming years and support the Company’s
growth strategy in the wake of its digital transformation.
After a total of 13 successful years at Voith, Bertram Staudenmaier, Chairmanof the Management Board of the Voith Paper Group Division and Member of the
Corporate Board of Management of Voith GmbH, has decided to look for new
challenges outside the Company and for this reason does not wish to extend his
contract that expires at the end of the year. We announced this in May 2017. The
Supervisory Board of Voith GmbH will decide on his successor at the next regularmeeting on June 2, 2017.
No additional significant developments have occurred since the close of the firsthalf of the 2016/17 fiscal year.

Heidenheim an der Brenz, May 15, 2017
Voith GmbH
The Board of Management
Dr. Hubert Lienhard
Dr. Toralf Haag
Dr. Uwe Knotzer
Dr. Roland Münch
Bertram Staudenmaier
Uwe Wehnhardt

Voith Interim Report 2017

Group Interim Financial Statements | Responsibility statement

63

Responsibility statement
To the best of our knowledge, and in accordance with the applicable reporting
principles for the interim financial reporting, the interim consolidated financial statements prepared in accordance with generally accepted accounting principles givea true and fair view of the net assets, financial position and results of operationsof the Group, and the Group interim management report includes a fair review ofthe development and performance of the business and the position of the Group,
together with a description of the principal opportunities and risks associated withthe expected development of the Group in the remaining fiscal year.

Heidenheim an der Brenz, May 15, 2017
Voith GmbH
The Board of Management
Dr. Hubert Lienhard
Dr. Toralf Haag
Dr. Uwe Knotzer
Dr. Roland Münch
Bertram Staudenmaier
Uwe Wehnhardt

Voith Interim Report 2017

Imprint
Publisher
Voith GmbH
St. Pöltener Strasse 43
89522 Heidenheim, Germany
Phone: +49 7321 37-0
Fax: +49 7321 37-7000
E-mail: info@voith.com
www.voith.com

This interim report is also available in German.
Both versions and other information are available on the Internet for download.
www.voith.com

Voith GmbH
St. Pöltener Strasse 43
89522 Heidenheim, Germany
Phone: +49 7321 37-0
Fax: +49 7321 37-7000
www.voith.com