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Annual Report 2014

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The Voith Group in Figuresin € millions

2013/142012/13

Orders received

5,581

5,194

Sales

5,345

5,728

Profit from operations¹) ²)

270

350

Return on sales in %

5.1

6.1

Income before tax²

119

98

Net income ²)

41

65

Cash flow from operating activities

191

317

Total cash flow

-98

31

Investments

134

192

Research and development

216

242

in % of sales

4.0

4.2

1,031

1,140

18.9

19.8

5,453

5,765

39,302

43,134)Equity ²)
Equity ratio in %²)

Balance sheet total ²
Employees ³))¹) See “Notes on segment reporting” in the notes to the consolidated financial statements.
²) Previous year restated (refer to “Restatement of previous-year amounts” in the notes to the consolidated financial statements).
³) Without apprentices.

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Voith Annual Report 2014

Voith is a global technology group. With energy,
oil & gas, paper, raw materials and transport & auto­
motive, the broad portfolio with its plants, products
and services serves five essential markets in all regionsof the world. Voith’s operating business is bundled
in four Group Divisions: Voith Hydro, Voith Industrial
Services, Voith Paper and Voith Turbo.
A large proportion of the world’s paper production is
manufactured on Voith paper machines. A quarterof the energy generated worldwide from hydropower
is produced with turbines and generators from Voith.
Voith’s drive components are found in applications allover the world, both in industrial plants and in roadand rail vehicles, as well as on the waters. The largest
companies trust in the technical services of Voith.
Founded in 1867, Voith employs more than 39,000
people, generates € 5.3 billion in sales, operates inover 50 countries around the world and is today oneof the biggest family-owned companies in Europe.

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01 The Voith Group

3
6
8
12

02 Relations

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20
22
25
28
30

03 Group Management Report

36
44
53
65
71
75
78
82
83
95

04 Consolidated Financial
Statements

Voith Annual Report 2014

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

The three ladies from the Mur
Reliable in the extreme
The Excellence Factory
For us to be s­ uccess­ful, the c­ ustomer has to be successful first
World champions on the way – for 50 seasons
Always ready to respond

01 Background
02 Business development and earnings position of the Group
03 Business development and earnings position of the Group Divisions
04 Net assets and financial position
05 Research and development
06 Sustainability
07 Employees
08 Subsequent events
09 Risks and opportunities
10 Forecast report

Consolidated statement of income
103
Consolidated statement of comprehensive income
104
Consolidated balance sheet
106
Statement of changes in equity
108
Consolidated cash flow statement
109	Notes to the consolidated financial statements for the 2013/14 fiscal year
136
Notes to the consolidated statement of income
144
Notes to the consolidated balance sheet
170
Notes on segment reporting
172
Segment information by business segment
174
Segment information by region
175
Other notes
193
Responsibility statement
102

194

Imprint

Voith Annual Report 2014

Relations3

Ladies and gentlemen,
Dear business partners andfriends of the Company,
In this Annual Report 2014 we once again report on a fiscal year in which all
Group Divisions returned a profit from operations, the Group generated a positive
free cash flow and net income, and net liquidity proved satisfactory. The operational result before taxes was up considerably on the previous year, mainly due
to lower restructuring expenses.
However, we once again operated in an extremely difficult environment in 2014
and report on a very weak and unsatisfactory fiscal year overall in which some of
the key performance indicators were down on the previous year and therefore
short of our own expectations. Global economic development was by far not as
stable and positive as expected. Several geopolitical conflicts provided for a highdegree of uncertainty and a very restrained and gloomy climate for capital investments by our customers. In virtually all of our key markets, significant stimulus
failed to materialize for our business. Nevertheless, we were able to increase thelevel of orders received despite this difficult environment, thus continuing thetrend reversal we had already determined mid-year.
Group sales fell noticeably on account of the lower level of orders received overthe previous two years. The profit from operations also decreased significantly inline with the development of sales. This fall in sales and earnings was mainly
driven by the structural and economic challenges in the new machine business atVoith Paper. A major factor in this regard was the almost complete collapse of thebusiness with new machines to manufacture graphic papers. This situation will
also continue to challenge us in the coming fiscal year. The fall in the operational
result in addition to an impairment of a financial investment that became necessary as well as higher tax expenses compared to the previous year influenced by
special tax effects also produce a net income that is down significantly on theprevious year.
Overall, the Group continued to face great challenges once again in 2014, which
it dealt with quickly and proactively, but with a sense of proportion. As an example, we continued to push ahead with our success program Voith 150+, which is
expected to prepare the Group in the best possible way for the next growthstage. Voith 150+ was launched in the fall of 2013 and is set to run until 2017,
the 150th anniversary of the founding of the Company. This program will see us
revise our group portfolio. We successfully completed the first major steps
towards this in the fiscal year which included the sale of Deutsche Industriewartung (DIW) and the discontinuation of locomotive production as well as the closure of various locations. Another core component of the program is the
improvement of our internal structures and processes. In addition to other activities, this included improving the process quality in our factories and production

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Voith Annual Report 2014

“Voith will in the future remain a family
company, one that has had the freedom
and commercial independence to focus
squarely on its customers since 1867.”

Voith Annual Report 2014

Relations5facilities and initiating the reorganization of our indirect group functions. Our Voith
150+ program also aims to enhance and strengthen our established corporate
culture.
All initiatives and measures of Voith 150+ are on schedule and have already saved
costs in the double-digit million range.
However, among all the changes and challenges the Company currently faces,
one thing remains clear: Voith will in the future remain a family company, one thathas had the freedom and commercial independence to focus squarely on its
customers since 1867.
The pioneering spirit of our founder Friedrich Voith and our deep roots as a technology-driven company will continue to be our defining factors in the future. They
are an integral component of our identity and shape our self-image and our values. We see change as an opportunity to take us back to our roots, to strengthen
and refine those things that define Voith: in line with our owners, our customers
and our more than 39,000 employees worldwide. In this regard, I would like tothank our customers and business partners who have once again placed theirtrust in Voith as well as everyone that has accompanied our Company in 2014.
I would also like to thank our boards and, most of all, our more than
39,000 employees: I know how much flexibility and commitment we demand of
our employees in times like these. All Voithians have once again contributed in thepast year to making Voith a robust and financially healthy company despite themajor challenges.
Voith has clear expectations as to the future of the family company. We have theheadroom and independence necessary to develop Voith both powerfully andproactively.
I would be glad if you would continue to accompany Voith on this journey in the
future.

Best regards,

Dr. Hubert Lienhard
President and CEO

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Voith Annual Report 2014

The Corporate
Board of Management“The pioneering spirit of our founder Friedrich Voithand our deep roots as a technology-driven company
will continue to be our defining factors in the future.
They are an integral component of our identity andshape our self-image and our values.”

1

Hubert Lienhard, President and CEO

2

Hermann Jung, Finance and Controlling

3

Martin Hennerici, Voith Industrial Services

4

Bertram Staudenmaier, Voith Paper

5

Roland Münch, Voith Hydro

6

Carsten J. Reinhardt, Voith Turbo

Voith Annual Report 20147

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Voith Annual Report 2014

Ladies and gentlemen,
The framework conditions for the Voith Group in the 2013/14 fiscal year werecharacterized by the persistent uncertainties surrounding the development of the
global economy and the unstable situation of the international financial markets.
The only way to avoid slipping into a global recession was by the most importantcentral banks flooding the capital markets with cheap money. In the euro area,
however, this was not enough to stimulate investments in the real economy. In
many countries, larger investment projects could not be carried out due to thehigh level of private and public debt, while expansion investments rarely proved
necessary on account of the low capacity utilization. Development in the US wasabove average compared to the other Western advanced economies By comparison,
the emerging market and developing economies continued to report stronger growththan the Western advanced economies. However, growth momentum here also slowedin the second half of the year under review. There were also sharp decreases inexchange rates, especially in Brazil, India, Russia and in various ASEAN countries.
At its four ordinary meetings, the Supervisory Board discussed strategic issues
such as the analysis and further development of Voith’s portfolio as well as thechallenges and consequences for Voith’s operating business stemming from theeconomic and structural changes in the markets that are relevant for Voith. Thisaffects Voith Paper and Voith Turbo Group Divisions in particular. In the businesswith new machines, Voith Paper is currently having to contend with a structural
collapse in the market for large paper machines due to a shift towards mid-sizedmachines. In the Mining & Metals and Power, Oil & Gas divisions, Voith Turbo is
being hit particularly hard by changes in market conditions and the inherent fall indemand. The Committee discussed the measures taken by management, including significant personnel cuts at various locations, in a way that was transparent,
constructive and critical.
The ordinary meetings took place on October 14, 2013, December 6, 2013 as
well as on March 21, 2014 and June 11, 2014. As usual, all the meetings of theSupervisory Board were characterized by intensive and solution-oriented exchangesof views with the Board of Management.

Voith Annual Report 2014

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9Discussions were based on detailed written and oral reports by members of management on the current situation, corporate planning (including financial andinvestment planning), the development of the economic situation of the Groupand its Divisions, the measures to be implemented at Voith Paper and Voith
Turbo, the development of the results of operations and financial position as wellas the assessment of business risks. Also discussed in detail was the necessary
and increasing global orientation of the Company and its Group Divisions – especially in Asia – both in terms of the product portfolio and focus of the portfolio ofservices as well as with regard to changes in the organizational structure. The
financial and capital expenditure planning for the current and subsequent year
underlying this orientation was approved unanimously at the meeting in October.
The Supervisory Board highly appreciates the efforts of the Voith Group for its
sustainable and compliance-oriented business approach, which is clearly demonstrated in Voith’s sustainability report for 2013. Building on the sustainable strategy, management regularly informed the Supervisory Board of further progress
made with improving the occupational health and safety of Voith’s employees. The
Chairman of the Supervisory Board was also kept constantly informed of significant developments and key decisions by management. He consulted regularly
with the President and Chief Executive Officer on matters of material importance.
The Personnel Committee met twice in the past fiscal year, on December 6, 2013,
and on March 21, 2014. At the meeting of the Supervisory Board in March 2014,
a decision was taken to appoint Mr. Bertram Staudenmaier Chairman of theBoard of Management of Voith Paper effective July 1, 2014. Furthermore, thedecision taken by Dr. Hans-Peter Sollinger to step down as at June 30, 2014 andretire as at June 1, 2016 was approved. The Supervisory Board would like tothank Dr. Sollinger for his great dedication and achievements in his more than
32 years of working for Voith.
There was no need to convene the Mediation Committee formed pursuant toSec. 27 (3) German Codetermination Act (MitbestG).

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Voith Annual Report 2014

The Audit Committee met twice, on December 5, 2013 and June 10, 2014. The
first meeting, which was held in the presence of the auditors who examined theannual financial statements, conducted an in-depth examination of the financial
statements of both the consolidated Group and Voith GmbH for the 2012/13
fiscal year, and of the report submitted by the auditors, Ernst & Young GmbH
Wirtschaftsprüfungsgesellschaft, Stuttgart. In the meeting with the auditors, theCommittee also discussed individual issues of suggested improvements set out
in the management letter to the financial statements, but none of these wasdeemed relevant for the report. The head of the Internal Audit function discussed
the group audit report prepared for the fiscal year under review at length with theCommittee and explained any existing deficits as well as improvements which had
been made during the course of the fiscal year. The head of the Compliance
Committee informed the Audit Committee of the certification of the compliancemanagement system within the Group.
At its second meeting, the Audit Committee considered the half-yearly financial
statements of the Group as at March 31, 2014, building on earlier briefings as wellas the effectiveness of the implemented measures of the risk management system at Voith and how to handle major risks.
The shareholders’ meeting on February 21, 2014 granted discharge to the Management Board and the Supervisory Board for their activities in the 2012/13 fiscal
year and again appointed Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft,
Stuttgart, as auditors for the 2013/14 fiscal year. The Supervisory Board subsequently approved the corresponding request to appoint the auditors.
By resolution of the shareholders’ meeting dated June 10, 2014 Dr. Siegfried Dais
and Ton Büchner were appointed successors to Dr. Manfred Bischoff and
Dr. Heinrich Weiss, who stepped down from the Supervisory Board as at September
30, 2014 due to age. In the meeting of the Supervisory Board dated June 11, 2014,
Prof. Dr.-Ing. Dr.-Ing. E. h. Hans-Peter Keitel was appointed Chairman of theSupervisory Board as at October 1, 2014 as successor to Dr. Manfred Bischoff.
The Supervisory Board would like to thank both long-serving members of theSupervisory Board, Dr. Bischoff and Dr. Weiss, for their constructive working
relationship based on mutual trust. Both men have accompanied the development of the Company over many years with great dedication and contributed theirexperience to Voith. The Supervisory Board would like to wish Dr. Bischoff and
Dr. Weiss all the best for the future.

Voith Annual Report 2014

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The auditor examined and granted its unqualified audit opinion on the accounting
records, the annual financial statements and Group management report of Voith
GmbH and the consolidated financial statements and Group management reportfor the Voith Group as at September 30, 2014. The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS). Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft paid special
attention to “Compliance of the accounting process” and “Pension Provisions(IAS 19)” in accordance with the mandate laid down by the Supervisory Board.
At its meeting on December 8, 2014, the Audit Committee examined the annual
financial statements prepared for Voith GmbH and the Group and recommended
that the Supervisory Board approve said financial statements, which it did at its
meeting on December 9, 2014. Both meetings were attended by the relevant
member of the auditor’s Management Board and the person who led the audit.
They explained the significant audit findings and were available to provide additional information. The Supervisory Board also approved the management reportof Voith GmbH and the Group and concurred in the proposal submitted by management regarding the appropriation of net income.
Finally, the Supervisory Board would like to thank the members of managementof Voith GmbH, the management of the subsidiaries and the representatives of
the workforce, but most of all the employees for their dedicated service and successful work under difficult conditions in the fiscal year under review, which has
posed considerable challenges for the employees.
Heidenheim, December 9, 2014

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

12

The Supervisory
Board

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Voith Annual Report 2014

Dr. Manfred Bischoff
Chairman, Chairman of the­S upervisory Board Daimler AG,
Stuttgart / Germany(until 2014-09-30)

Ton Büchner
CEO and Chairman of the Boardof Management AkzoNobel NV
Amsterdam / the Netherlands(since 2014-10-01)

Prof. Dr.-Ing. Dr.-Ing. E. h.
Hans-Peter Keitel
Chairman (since 2014-10-01),
Vice President of the Federation ofGerman Industry e. V.,
Berlin / Germany

Dr. Siegfried Dais
Associate of Robert Bosch
Industrietreuhand KG,
Stuttgart / Germany(since 2014-10-01)

Gerd Schaible*
Deputy Chairman, Head of­secretariat of the corporate works
council of Voith GmbH,
Heidenheim / Germany
Walter Beraus*
Secretary of the Metalworkers’
Union, Regional Organization
Baden-Württemberg,
Stuttgart / Germany
Thomas Brezina*
Member of the works council ofthe common entity of companies ofVoith Paper Heidenheim,
Heidenheim / Germany

Ulrich Eckelmann*
General SecretaryindustriAll European Trade Union,
Brussels / Belgium
Sonja Gorsch
Teacher,Erftstadt / Germany
Prof. Dr. Bernd Gottschalk
Member of the Board of Management of Mercedes-Benz AG (retired)
Johannes Hammacher
Executive Vice President of
Familiengesellschaft J.M.
Voith GbR, Mannheim / Germany

Voith Annual Report 201413

RelationsDr. Alan Hippe
Member of the Corporate
Executive Committee F. Hoffmann‑
La Roche AG, Basel / Switzerland

Gerold Schaubmayr*
Chairman of the works councilof Voith Turbo GmbH & Co. KG,­Crailsheim / Germany

Michael Koob*
Construction Manager,
Voith Industrial Services,
Speyer / Germany

Ute Schurr*
Chairwoman of the works councilof the common entity of ­companiesof Voith Turbo Heidenheim,­Heidenheim / Germany

Dr. phil.
Nicola Leibinger-Kammüller
President of the Board of Management of Trumpf GmbH + Co. KG,
Ditzingen / Germany
Dr. Volker Linden*
Head of Industrial Property Rights,
Voith GmbH, Heidenheim / Germany

Klemens Schweppenhäuser
Member of the Board of­Management of Familiengesellschaft
J.M. Voith GbR,
Mannheim / Germany

Dr. Ophelia Nick
Veterinarian, Wülfrath / Germany

Dr.-Ing. E. h. Heinrich Weiss
Chairman of the Supervisory Boardof SMS GmbH,
Düsseldorf / Germany(until 2014-09-30)

Richard Obermeier*
Chairman of the works council ofVoith Paper GmbH & Co. KG,
Ravensburg / Germany

Ralf Willeck*
First Authorized Representative
IG Metall (Metalworkers’ Union),
Heidenheim / Germany* Elected by the employees.

Bene

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VerbindungenRelations
联系 lián xì
Relacionamentos

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Customers first. Customers are at the very center of all
Voith’s activities. Above all, we pursue one goal: with
our goods and services we want to provide customers
with benefits. Make customers more successful on
the market. Offer them more than others do. And thisapplies equally well to our customers in India, China andAustria as it does to our customers in Oman, Germany
and Brazil.

Ex

But what are the defining characteristics of a healthy
partnership? Offering the best products? Certainly.
Contributing experience? Most definitely. Being anexpert in the field? Yes, that too. But most of all, it
needs one thing in particular: relations and a connection
to customers. This is the sole foundation of a successful
partnership. Having relations means understanding
one another. Having a connection means trusting one
another. Having relations means being able to rely on
one another.

pe
rie
nc
e

The annual report for 2014 tells of such relations. They
are stories of longevity and genuine partnership. Of
optimum rather than maximum solutions, of expertiseand quality. Of new stimulus and tradition, of trust,
sympathy and fairness. They are stories of Voith and its
customers.
Imp

ulse

s

16

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Voith Annual Report 2014

The three ladies
from the Mur
Three Francis turbines from Voith were in service at Pernegg in Austria
for more than 80 years. They became monuments even while they
were still in operation. This is a story of three ladies with staying power,
who are only just now making way for a new generation.

35,000households

Andreas Huterer, a technician at the Pernegghydropower plant, always had time to listen
to Irmgard, Eva and Margot. Nowadays, he­always needs his laptop to maintain the Voith
turbines.

Voith Annual Report 2014

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17

Idyllic falls - the Mur river drops
17 meters on its way down thevalley. A beautiful place for a­hydropower plant.

In 1987 the apprentice Andreas Huterer was instructed on how to handle
Margot, who was already 60 years old at the time. Margot was one of three
Francis turbines manufactured by Voith that the workers at the Pernegghydropower plant had affectionately christened Eva, Margot and Irmgard.
“Mechanics worked by ear,” reminisces Huterer. He, too, learned how toinspect the machines using his hearing. “These turbines can tell how they
are feeling by the noises they make.”
Margot – red, round, roomy. A glorious example of a turbine, or, as Huterer puts
it, “She’s absolutely awesome.” Nowadays she is on display on the front groundsof the hydropower plant as a technical monument. Originally put into operation in1927 as one of the three ladies from the Mur, she ran for 600,000 operating
hours without faltering. “It was a really strange feeling when she was lifted out ofthe power plant in 2013,” says Huterer. “Each of them was unique. They all had
character.”Verbund AG operates the Pernegg location. 90 percent of the power generated
by Austria’s largest producer of electricity comes from hydropower sources. The
turbines at Pernegg provide power for up to 35,000 households. The power plantnestles in the bottom of a valley in Styria, tucked in by gentle hills. Only theimposing Rote Wand rock face dominates the scene. The air carries a hydrophonic symphony composed of roaring, foaming, splashing and dropping water.
At this point, the idyllic river Mur drops almost 17 meters down the valley – theperfect location for a hydropower plant.
Where water drops a long way, mechanics must climb high. Andreas Huterer
takes the steps two at a time. The agile mechanic in his mid-forties grew up in theregion. He wears his gray overalls from which his mobile phone dangles like apocket watch. The daily round takes him to the surge tank, access to which is18

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Voith Annual Report 2014

from the top floor. From here, he can look down on the three new units, i.e. thecombined turbines and generators supplied and installed by Voith in 2013. The
modern Kaplan turbines feature a high performance range, are particularly wellsuited to low heads and, moreover, are of an elegant design. The mechanics are
hardly visible. Electronic displays light up in their place. Currently they indicatethat one turbine is generating 8.1 MW. Margot was capable of generating slightly
more than 6 MW.
His telephone rings. “I’m on my way!” Huterer calls, and, on his way down thestairs, runs into Daniel Holzinger. The Voith manager for assembly operations isvisiting to prepare a regular maintenance check for a Voith turbine at anotherpower plant operated by Verbund. As is usual, Holzing and Huterer discuss thetools needed for the job. In their strong local dialect they talk shop about loadrings and and M36 high-tensile ring bolts.
The order for the three new units substantiates the excellent relationship that haslasted between the two companies for generations. So says Rupert Emsenhuber,
who was in charge of coordinating the installation of the new turbines. “Doing thisin the old building was a real technical challenge.” Despite the issues, the installation was completed on schedule because, as Emsenhuber puts it, we all pulled
together. “If the customer has a problem, we help. When we have a problem, we
address it and benefit from the assistance given by the customer.” Verbund put
the power plant back on line in 2013 after three years of refurbishment. Voith
completed the project on schedule.
The days in which Andreas Huterer monitored the turbines by ear are now gone.
“Without a laptop, we cannot find anything,” he smiles and points to the colorfularray of cables in a switching cabinet. “On top of that, turbines nowadays are far
too quiet.” Just underneath Huterer a massive steel turbine is rotating at 200 rpm.
The load on the foundation is more than 70 tons per square meter and the only
sign of all that energy is a slight hum. Nothing shakes, nothing vibrates. Everything is running as it should. The best beginnings, therefore, for the new generation of Voith turbines to gain as much fame as Eva, Margot and Irmgard.

The giant from Xiluodu
Generator Number 8 at the Xiluodu
power plant in China induces 855.6
megavolt amperes – one of the most­powerful generators in the entire world.
18 of these mega units have successively
gone on line at Xiluodu since 2013, making the plant with installed capacity ofaround 14 gigawatts the third-largest
hydropower plant in the world. Voith
constructed three such generators
directly on-site. Transportation would
have been impossible as the rotor of thegenerator alone weighs as much as threefully laden B­ oeing 747s.

Voith Annual Report 2014

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The new generation – the state-of-the-art
Voith turbines provide a compelling argument
based on performance and sheer elegance.
They have not yet been given names.

Team work – Martin Tatzl (left) and Andreas
Huterer from Verbund AG discuss the list oftools needed for maintenance work with thesupervisor from Voith, Daniel Holzinger.

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Voith Annual Report 2014

Reliable in
the extreme
33

Compact and robust – Vorecons
regulate compressors and pumps
at 95% efficiency.

Vorecons are destined for oil and gas fields in Oman. To date,
23 of these have been installed at a total of ten facilities. In thedesert areas, such as Yibal, the Vorecons have to withstandthe heat and sandstorms. The Vorecon is a hydrodynamic variable speed planetary gear which controls the speed of compressors used to compress natural gas extracted from the wells to obtain thepressure at the surface needed to pipe it to the processing plants. The extreme
environmental conditions place the most harsh and severe demands on the technology. In face of heat and dust, the robust Vorecon gears run efficiently andwithout interruption. Voith delivers this technology to Petroleum Development
Oman (PDO). The close cooperation between Voith and PDO stands its groundover a number of decades. For example, Voith incorporates the lessons learned
flowing back from the customer during plant operations to refine its technology.
“We jointly develop our drive systems into new PDO sites and implement ourcommonly reached understanding directly into Voith’s engineering efforts in order
to meet customer requirements,” says Alexander Schust, Area Manager Technical Sales at Voith Turbo. He describes this designing practice as “engineered incooperation.” At present, the engineers from Oman and Crailsheim are specifying
the technical parameters of the Vorecons that will be installed in the desert up
until the year 2024.

Voith Annual Report 201421

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Extreme
48
data

years

Mean time between
failure (MTBF) of a
Vorecon under these
conditions.

0.002 mm
Minimum particle size blown bya sandstorm through the air.

99.98%
Statistical availability ofa Vorecon under these
conditions.

10

m /s

60°C
Maximum temperaturein the shade.

Transportation speed of theseparticles during a sandstorm.

82°C
Maximum temperaturein the sun.

8 years
Maintenance interval ofa Vorecon under these
conditions.

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Luiz Rossi, in charge of operations
excellence in Brazil, is passionate
about transformations. His goal:
shorter processing times.

20

key components

The Excellence
Factory
A good customer relationship begins in the factory. Any manufacturer
who has installed efficient processes in their own operations helps
customers by giving them the most important commodity of all: time.

Voith Annual Report 2014

Voith Annual Report 2014

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11	Listening – the path toexcellent production starts
with a talk.
2	Regular communication withcolleagues – frequently asource of new ways of making
processes more efficient.

23

2Naturally, there is always something that can be improved. However, thefact that this can lead to such impressive results in a modern factory thathas already installed optimized production processes nevertheless stunned
Luiz Rossi. “By eliminating waiting times, operations excellence can usually
reduce production time by 50 percent or more.” Rossi can let this statement
stand for the time being.
The Brazilian is in charge of operations excellence at the Voith location in São
Paulo. The turbines manufactured by the facility there are as large as a family
house. Rossi and Leonardo Nuzzi, the head of production in Brazil, managed tohalve the production time for generator components in the first stage of a company-wide initiative to streamline operations. The component is just one ofroughly 20 key components and this illustrates the potential for even more timesavings. Voith plans to become even faster for its customers. Delivery dates are
an important sales argument. Luiz Rossi says: “The earlier customers put theirpower plants into operation, the sooner they earn money.”
When Jürgen Lochner talks of the Excellent Factory in Heidenheim, he knows heis speaking of an intangible good. “There’s no DIN standard for an excellent factory.” Yet Lochner, who is responsible for operations excellence in the Voith
Group worldwide, has a clear idea of what excellence in production means. “If wewant to keep raising the already high standards at our factories, we need achange in our mindset.” He is referring to the truism that less can be more.
This actually involves putting the cart before the horse, as the saying goes, for the
production process of a product needs to be viewed from the perspective of thecustomer and followed backwards through the factory. Swimming against thecurrent in this way led to the insight that there are steps which can be efficiently
combined or are even unnecessary. For example, there are materials which spend
more time in logistics and storage than actual processing. “Often these are trivial
amounts of idle time, but in such a complex process they can add up to a significant figure,” says Lochner.

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11	A look at the figures – Luiz
Rossi must substantiate allreengineering of production
processes with figures.
2	All colleagues are involved in
implementation to ensure thatthe customer profits fromshorter production times.

Voith Annual Report 2014

2

Talking, changing mindsets, implementing the plan
In the turbine production in São Paulo the production of individual components
can sometimes take several months. Yet the individual steps involved are measured in seconds sometimes. Luiz Rossi explains: “If there is a step that takes
30 seconds for example, then we do not necessarily want to reduce this time, butinstead speed things up by investing this time only on high-quality work on the
product and not on transporting material from A to B or looking for tools.”
Operations excellence is not a stand-alone savings program. Rather, it frees up
valuable time in the various processes. The workers in the factory often have avery clear idea of how that works, as Luiz Rossi found out when he started thestreamlining process in São Paulo. “Swapping notes with everyone involved in
production is a key principle and the first step of our analysis.”
This is how a shift in mindset begins. Implementation is then a matter of setting
quantitative goals for the ideas and plans. “We shouldn’t remain vague when we
seek change,” says Jürgen Lochner. After carefully talking over the issues, work
starts on the calculations.
With regard to the generator parts, for example, the time and motion studies ofprocessing, storage and logistics delivered specific goals for a change in themindset during production. Other details are also critically important: A change inthe workflows of maintenance and programming improved machine operating
hours by 50 percent. Stocks of materials at the machine were cut back, the workforce became more motivated and all of this will soon become noticeable tocustomers, for they will take delivery of their turbines even faster in future.

Voith Annual Report 2014

RelationsR. Krishna Kumar heads the businessof Voith Paper in India and is convincedthat a constant dialog with customers
is a crucial factor for a successful
relationship.

50%

higherproduction capacity

For us to be­success­ful, the­customer has to be
successful first
Krishna Kumar reflects on the benefits of optimum over maximum solutions,competence as the heart of a healthy customer relationship, and how one cansuccessfully establish such relationships in India over many years.

25

26

Relations

Voith Annual Report 2014

At Voith, competence is understood to mean offering the­c ustomer the optimum solution
to meet its needs.

Let’s talk about a good customer relationship, what do you think constitutes
a good one?
Krishna Kumar: When we are in constant dialog with our customers andnot just because we want to sellsomething. Customers want to hear
our opinion about what products theyneed, how they can optimize their processes and what trends are important
for them. We have to understand for us
to be successful, the customer has tobe successful first.

Tamilnadu Newsprint and Papers(TNPL) is one of India’s leading
fiber and paper manufacturers.
The company operates threepaper machines from Voith
Paper, the last of which was the
PM 3 plant for producing printing
paper and writing paper. The
contract for a fourth machine forthe production of coated board
is currently being processed byVoith Paper.

But how do you do this day-to-day?
It is important to invest in customer
relationships – and that applies toeveryone, from technologists to sales
staff. These contacts are important. I
also try to make contact with as manydifferent people at the customer as
possible in as many different fields as
possible, and not just with my directcontacts in management.
What is important at an informal level
in India?
The most important informal andformal factor is being accessible.
Whoever asks me or one of my staff
a question gets a response. On a

private level, birthdays, weddings
and other festive occasions are
extremely important in India. This isalso reflected in the fact that we often
congratulate the family members of
our customers.
What are the differences in attitude
between Indians and Germans?
The directness of Germans, which I
really appreciate, can be quite problematic in India. For us, age, social
status and hierarchies are extremely
important. Even the very best expert
cannot simply go up to the boss here
and tell him how to do things, regardless of whether he’s objectively rightor not. We respect the opinions of thepeople we talk to, agree with them
politely and then make suggestions.
The customer is always the one to
make the decision. The more we try
to convince them of our opinion, themore likely they are to insist on theirown.
So how do you manage to win over acustomer to your point of view?
The customer knows that we understand our business better than virtually anybody else. We need to live up

27

Voith Annual Report 2014

Relationsto this reputation every day. Likewise,
being a global player, it helps us tohave a local face in India. We employ
local employees at all levels who canpursue their careers with us, receive
training and become important contacts for our customers locally. For me
it is an important sign of respect, notonly to have foreign experts available
but to also make clear that we trust thecompetence of the locals.

for this project. We then proposed asolution that was optimally tailored totheir needs.

to the very limit of what is technicallyfeasible, but the question is, does thishelp our customer?

What does that mean exactly? Whatdo you understand to be a tailoredsolution?
India is a very special market that is
not as developed in many respects as
the countries in Europe. For this reason it is critical that we listen very carefully to all of our customers to find theright solution out of our wide range of
products for the respective needs ofeach individual paper manufacturer.
In a market like India, our customers
primarily demand mid-sized machinesthat are extremely reliable and comprise components that have stood thetest of time. Our customers know that
we can also produce machines that goAnd, does it?
We have been the sole market player
to offer a less sophisticated mid-sized
paper machine that is exactly the rightchoice for our customer to meet thedemand for board on their market. We
invited the customer to inspect similar
machines operated by other customersof ours in India and in Europe. More­over, the customer also performed
their own printing trials. After the customer weighed up all the offers madewithin the course of the rigorous global
tender process, they chose us. With
this new line, the annual production
capacity of our customer is scheduled
to grow by 50 percent.

This year, TNPL, one of India’s largest paper manufacturers, ordered its
fourth paper machine from Voith.
Could you explain the background to
this decision?
This latest order is a great illustrationof our philosophy. Tamilnadu told us
what they wanted to do. We helped
them find the right machine and size

Test run at the customer
Steinbeis Papier GmbH realized energy
savings of 37% in a test run of its recycling paper operation after refitting with
LEF technology. This long-standing
customer of Voith confirms the effectiveness of Voith’s hydrodynamic improvement in the flotation subsystem forcleaning recycled paper. The test run of
the Low­EnergyFlotation system in 2012
saved time and enhanced the reputationof the product. “Such instances of cooperation necessitate the trust of the customer. They must feel confident thatthey are going to receive an attractive
product from us,” says product manager­Reinhard Bluhm. LEF technology is
nowadays an integral component of plantrefurbishments and new machines as it
can lead to energy savings of up to 50%.

37%
energy savings due
to hydrodynamic
improvement

28

Relations

Voith Annual Report 2014

World champions
on the way – for 50
seasons
2014 was an exceptional year – for soccer fans and for Voith. In Brazil, the Germansoccer team was crowned world champion for the fourth time. Moreover, in thevery same year, Voith celebrated its 50th anniversary in Brazil. Voith’s products
and services have been keeping Brazil on the move ever since the the first subsidiary outside of Europe was founded in 1964. In 2014 millions of fans made thepilgrimage to the games. Most of the fans made at least some part of the trip on
buses and trains incorporating components from Voith. Voith’s key players at
the FIFA World Cup 2014 were RailPacks, Scharfenberg couplers, gear units and
DIWA automatic transmissions. Voith also had a hand in supplying the power,
too, via its turbines and generators. A look back at the 2014 soccer highlightsfrom a mobility perspective in figures:

To keep things turning
50 bogies designed by Voith
Engineering Services were pro­
duced so far by the Brazilian
customer, Bom Sinal, in 2014.
The long-term business relationshipwith Voith Turbo, which has supplied RailPacks to the ­Brazilian local
train manufacturer for decades,
thus gave rise to a new business
relationship for the c­olleagues atVoith Engineering S­ervices: Over
500 development experts based in
Chemnitz have unique experience
with rail vehicles. For example,
they have been the preferred supplier to Bombardier for 20 years.

This development expertise will be
exploited at an international level toa much greater extent in future –with engineers from China, Russia,
India and other countries. The newdrive solutions for Bom Sinal signal
a successful start. Negotiations are
currently being held on the joint
development of a tram.

ars

ye

Voith Annual Report 2014

29

Relations

100
Percentage of 23-meterarticulated buses in São
Paulo equipped with Voith
automatic transmissions.

N
al

at

za

s

le

au

rta

an

Fo

M

3,429,873

Re
fe

ci
or

ad

lv

a

á

íli

ab

as

ui

Br

C

lo

Be

500

Sa

Total number of spectators
for all World Cup games.

H
te

on

iz

or

Number of DIWA automatictransmissions in local buses
manufactured by MercedesBenz do Brazil in São Paulo.

o

Ri
o

de

Sã

iro

ne

Ja

o

ul

Pa
ba

iti

ur

C
rto

Po
re

eg

Al

70
Number of Voith RailPacks
used for local trains between
Fortaleza, Recife, Maceió,
Natal and João Pessoa.

4,000
Number of Voith DIWA automatictransmissions used for local transport
at the World Cup locations.

Itinerary of theGerman National
Soccer Team 2014
Voith gets soccer
fans moving
Anyone tracking the German soccer team to all of its World Cup
games would have covered a distance of 8,100 kilometers byroad. This most likely means thatfans would have followed theteam’s example and flown.
Once at the venue, it was thentime to switch to Voith: Our components are used in many commuter trains, regional buses andlong-distance coaches that makeup the modernized infrastructure.

16.06. Salvador de Bahia
Germany – Portugal 4 : 0
21.06. Fortaleza
Germany – Ghana 2 : 2
26.06. Recife
USA – Germany 0 :1
30.06. Porto Alegre
Germany – Algeria 2 :1
04.07. Rio de Janeiro
France – Germany 0 :1
08.07. Belo Horizonte
Brazil – Germany 1: 7
13.07. Rio de Janeiro
Germany – Argentina 1: 0

30

Relations

Voith Annual Report 2014

18,250days ofcustomer relationship

Always readyto respond
Short detour to Thuringia: At Arnstadt and Kölleda, Voith
Industrial Services works under one roof with two subsidiaries
of Daimler AG. Impressions of a customer relationship thatlives on trust and a will to perform.

Voith Annual Report 2014

Relations

1

31

2

1	No fear of sophisticated technology – Matthias Roth from
Voith Industrial Services maintains state-of-the-art production robots. Pace and expertise are of the essence.
2	Don’t skew it! – inventory­logistics is one of the tasks
performed by Voith at the
MDC facility.

Robert Passlack scurries across the gray concrete floor of the production hallof MDC Technology, whizzing past the whirring machinery and buzzing gesticulations of the robots. This subsidiary of Daimler AG manufactures crankcases for Mercedes-Benz car engines on a production space equivalent insize to roughly two soccer fields.
The factory was constructed in 2012. Voith was on board as a service provider
from the beginning. This follows the pattern established ten years ago at MDC
Power in Kölleda, another Daimler AG facility used to manufacture engines,
located 60 km away. Nowadays 80 Voith employees perform services at eachlocation. The Voith staff are assigned a variety of tasks, such as repairs and maintenance of machines, planning the processes involved in redesigning factory layouts, driving forklifts, helping in the incoming goods department, loading andunloading trucks, managing stores, cleaning and also in facility management. A
colorful variety of jobs, or as Passlack, the foreman of Voith Industrial Services incharge of Arnstadt, puts it: “We’ve got the customer’s back covered.” MDC
Technology can therefore concentrate on its core business.
The cooperation with Daimler has been in place for over fifty years already. The
evolution of the arrangement over time has resulted in new tasks and duties constantly being added to the service package, and at MDC now extends, for example, to the technically challenging task of cleaning highly sensitive technology inthe automated production process using ultrasound, highly compressed air anddry ice instead of cleaning rags.

32

Relations

Voith Annual Report 2014

1	Right at the heart of the customer – Ralf Böx (left), Voith
foreman at the MDC facility in
Kölleda and Arnstadt andRobert Passlack, in chargeof Voith Industrial Services in
Arnstadt, standing at the
MDC’s production line.
2	Trust implies responsibility –Olaf Heyer and Robert
Passlack focus on every detailof the customer’s work.

1

2

Finger on the pulse
Robert Passlack is in charge of the activities of Voith
Industrial Services at the components facility in Arnstadt.
The 28-year-old technician touches base each day withhis contact from MDC Technology. We leafed throughhis calendar.
8:30 a.m.

The early meeting: At the meeting to start the day, the managers in charge at
MDC Technology discuss the coming day’s production. We report on the current
status of our work. What maintenance needs to be performed? Do any machines
have to be prepared for production tests? When everything is running smoothly
the mood is correspondingly bright.

9:30 a.m.

Inspection round/repairs: The daily round of checking on repairs and maintenance. The production facility is chock-full of high-tech machinery. We maintainpumps that run at 3,000 bar and drills that have to work at an accuracy measured in microns. Time is of the essence to prevent any interruption to production.

11:30 a.m.

Midday meeting: We discuss the afternoon shift before the lunch break. At 2 p.m.
a new batch of casings is ready for processing. But first the plant needs to be
programmed accordingly. In addition, we get a message that the water needs tobe changed in one of the washing machines used to clean the crankcases.

2:00 p.m.

New shift: Morning shift workers briefly swap notes with their colleagues on theafternoon shift. Industrial safety is also on the agenda today. Noise levels in the
manufacturing hall frequently climb over 80 db – as loud as a pneumatic drill. Ear
protection is mandatory.

4:00 p.m.

Project planning: In parallel to the daily business, we assist in the planning forthe new projects together with MDC Technology: possible expansion of the production lines, planting out the roof with green cover, installing a ventilation duct,ensuring the fire extinguishers are where they should be. We are the point of firstcontact for a wide range of our customer’s needs.

Voith Annual Report 201433

Relations

Milestones in the cooperation between
Voith Industrial Services and Daimler AG
1963

1965

1971

First contract awarded by Daimler-Benz AG
at the Gaggenau facility Shifting ­machinecleaning from production time to the weekend

First contract for cleaning the painting
shop in Sindelfingen Introduction of fixedcleaning tasks to improve the quality of theprocess

First contract for infrastructural facility
management services at the facility in­Untertürkheim Focus of production workers
firmly placed on production

1988

1998

2002

First contract for construction-related­ ervices at the Group headquarters insMöhringen Entry into the market for infrastructure services at Daimler’s new location

First contract at a foreign facility at Juizdi Fora, Brazil Maintenance services performed during production timeFirst contract for a complete suite of facility management services at the Kölleda
facility Bundling of indirect services into one
package during the establishment of a power­
train production facility

2009

2010

2013

Accompanying the construction of the
facility at Kecskemét, Hungary Expertisein setting up a new facility transferred fromthe model used at Rastatt and Sindelfingen

First contract for maintaining the shellof the building for the facility in Bremen
Assuming the operator’s tasks and duties
upon end of the model’s serial production

First automation project for a car modelat the Bremen facility Exploiting processexpertise to support the transition to a new
model

19

63

years

20

50

13

Daimler Supplier Award 2013
Voith has been serving Daimler facilities
all around the globe for more than
50 years. In March, Voith Industrial
Services, one of the best Daimler suppliers, was awarded the Daimler Supplier Award 2013 in recognition of its
innovative solutions, high level of commitment and outstanding expertise intechnical and infrastructural facility
management. Markus Glaser-­Gallion,

Member of the Board of Management
Voith Industrial Services and in chargeof the Automotive Division, says: “Ourcustomers appreciate the decades ofexperience we have gathered in theautomotive sector, our high quality standards and the day-to-day reliability of
our staff to deliver on our promises –globally, at all foreign locations operated by our customers.”

gio
ns

Po
rtf
ol
io

Re
y
eg
rat
St

Responsibili

ty

Su

st

ain

ab

ilit

y

s

et

k
ar

M

ns

visio

Di
oup
r
G
4

Group
Management
Report

36
44
53
65
71
75
78
82
83
95

01 Background
02 Business development and earnings position of the Group
03 Business development and earnings position of the Group Divisions
04 Net assets and financial position
05 Research and development
06 Sustainability
07 Employees
08 Subsequent events
09 Risks and opportunities
10 Forecast report36Group Management Report

01

01.1. Group structure andVoith Annual Report 2014

Background
Voith is a global technology group. With its diversified
product and service portfolio, Voith sets standards inthe markets of energy, oil & gas, paper, raw materials
and transport & automotive. Founded in 1867, Voith
today has locations in more than 50 countries worldwide
and is working on further deepening its roots in theinternational markets. As a family-owned company,
Voith is focused on sustainable profitable growth.

Family-owned, global technology groupbusiness activities

Voith is a global technology group. With its broad portfolio of systems, productsand ­industrial s­ ervices, Voith serves five essential markets: energy, oil & gas, paper,raw materials and transport & automotive. Voith operates in over 50 countries
around the globe, maintaining an extensive network of production, service andsales units on every continent on the planet.
Voith GmbH, based in ­Heidenheim an der Brenz, Germany, is the operative management holding company of the Group. It is 100 % family owned. The management of Voith GmbH is responsible for strategy and operative management of theGroup. The advisory and supervisory bodies are the Shareholders’ Committee
and the Supervisory Board. The latter is also in charge of monitoring management.

Organizational structure
Voith Group Divisions

Voith GmbH

Voith
­HydroVoith­Industrial­Services

Voith
Paper

Voith
Turbo

Voith Annual Report 2014

Group Management Report

37

Four Group Divisions
The operating business is bundled in four Group Divisions: Voith Hydro, Voith­Industrial S­ ervices, Voith Paper and Voith Turbo. In each Group Division, legallyindependent head organizations oversee the activities of the Division’s subsidiaries.
As a full-line supplier for equipping hydropower plants, Voith Hydro is one of theworld’s leading ­industrial partners for hydropower plant operators. This applies
both to the field of electricity generation and the pumped storage of energy. Voith
Hydro’s portfolio of products and ­services covers the entire life cycle and supplies
all major components for large and small hydro plants: from generators, turbines,
pumps and automation systems right through to aftermarket business in spareparts and maintenance ­services.
Voith ­Industrial ­Services is a leading supplier of technical ­services to the automotive, energy, chemical and petrochemical industries, all of which are of key importance in today’s world. Its portfolio of services ranges from facility management,
maintenance, automation and installation through to planning and development.
As a partner and pioneer to the paper industry, Voith Paper provides technologies, products and ­services for the entire paper manufacturing process, all froma single source. Its continuous stream of innovations optimizes the paper manufacturing process. The focus is on developing products and technologies aimed
at ensuring maximum efficiency in the consumption of energy, water and fiber inorder to conserve resources.
Voith Turbo helps millions of people, goods and machines to move safely fromplace to place each and every day. Voith Turbo’s technologies transmit and control power under extreme conditions – safely and in a resource-efficient manner.
Smart drive solutions and highly engineered components and systems from Voith
are used in a wide range of industries, wherever power has to be converted into
controlled movement.

01.2. Management system

The key financial performance indicators for the Voith Group are the developmentof sales and orders received as well as the profit from operations and return on
capital employed (ROCE).
The profit from operations is calculated from operating activities and is the resultof sales and costs plus operating interest income but before the financial result
and income taxes.
The profit from operations is based on an operational indicator derived from theexternal reporting: operational result before non-recurring items. To derive the profit
from operations, the operating interest income and several other adjustment items
are added to the latter. Operating interest income comprises income received fromthe long-term financing of receivables from customers or as the imputed interest
effect attributable to that portion of customer advances that is not used to finance38Group Management Report

Voith Annual Report 2014

inventories and PoC receivables. Other adjustments contain effects which, basedon their operating character, are normally shown as other operating income andexpenses. In determining the profit from operations, these adjustments are eliminated as non-recurring effects so as to facilitate the assessment of the activities
by segment.

For more information on thecalculation of the ROCE, see also
section “Notes on segment
reporting” in the notes to thefinancial statements.

Capital employed describes the funds associated with generating sales within
the Company. These primarily comprise property, plant and equipment and net
working capital.
The ROCE is calculated by bringing the profit from operations and capital employed
into relation with each other.
This act of bringing a performance indicator from the statement of income (profit
from operations) into relation with a stock variable from the balance sheet (capital
employed) complies with generally accepted standards for overall company management and with value-based management.
The indicators and reports submitted to the Corporate Board of Management ofVoith GmbH as well as within the Group Divisions and the operating companies
are based on these group management ratios.

01.3. Values, guidelines,

Voith – Engineered Reliability

compliance

All of our actions are based on trust. This is also reflected in our values: professionalism, respect for the individual, helpfulness towards colleagues, openness,reliability and integrity. We summarize our canon of values in our slogan “Voith –Engineered Reliability”. Voith stands for providing reliable technology that creates
added value for its customers and acts fairly, openly and reliably in dealings with
its employees, partners and customers.
Our values likewise form the foundation on which the Voith brand is built and thecore of our corporate identity. Our values, and the guidelines derived from them,ensure that Voith acts according to the same business principles and adopts thesame philosophy worldwide. In this way, we marry the culture of a family-owned
business with that of a global player.
Voith’s values are the element that connects the owner family, the supervisory
bodies, management, employees, customers and partners. We want those
employees who meet our high demands to chose Voith for the long term. We
maintain partnerships with our business partners, customers and suppliers that
often span several generations. Remaining true to our values, we seek out open
dialog with important stakeholders and target groups: financial ­services providers and investors, universities and research institutes, political groups, NGOs andinterested members of the general public.

Voith Annual Report 2014

Group Management Report

39

Code of Conduct
Voith’s Code of Conduct defines rules that govern dealings with customers andbusiness partners as well as dealings between employees within the Group. We
require each and every employee to comply with the applicable laws and also
our own internal guidelines (compliance). This applies to all levels of the hierarchy
throughout the Group. Infringements are countered with sanctions. Rules and protocols are revised continuously to match the latest requirements.

The wording of the Voith Code of
Conduct is available on the Internet at:
http://voith.com/en/group/compliance-187.html

The main principles addressed by the Voith Code of Conduct are as follows:·· Compliance with the rules of fair competition·· No agreements that contravene competition law·· No corruption or bribery: no offering and granting or demanding and accepting
unfair benefits·· Transparency of donations and sponsorship·· Maintaining own and respecting third-party company and patent secrets·· No undue preferential treatment of suppliers and service providers
Each employee is bound to report any suspicion of an infringement of the Code of
Conduct without fear of reprisal. This can be done in person by reporting to their
immediate supervisor or the compliance officer responsible for the Group Division
as well as electronically via helpdesk or by e-mail. We also follow up anonymouscomplaints using a global system for input from whistleblowers.

Compliance organization
The Compliance program and related training measures are coordinated and developed by the Compliance Committee, whose chair reports directly to the CEO.
This committee comprises the Head of the Corporate Office (chair), the Head ofCorporate Legal Affairs, the Head of Corporate HR Management and the Headof Corporate Internal Audit. The compliance officers in the individual Group Divisions are responsible for implementing the Code of Conduct in their respective
area of responsibility and are important contact persons for all issues relating tocompliance.
However, it is the ultimate responsibility of each individual employee to act inaccordance with our corporate values. In order to raise awareness of this, we ask
our executives to act as role models and also provide executives and employeeswith training and information. The e-learning program on how to collaborate withcustomers, suppliers and other business partners that commenced in 2011 was
expanded in the period under review by adding a second program focusing on
management and employees. The two programs are mandatory and have so far
been completed at least once by all employees with PC access. Employees without PC access are briefed by compliance officers or their supervisors. In addition
to the e-learning programs, executives at the top four levels as well as employees
in sales and procurement also take part in intensive classroom training covering
topics such as corruption, competition issues and export controls.
Voith’s compliance management system was audited by a major audit firm.

40Group Management Report

01.4. Group strategy

Geared towards sustainable profitable growth

Voith Annual Report 2014

At Voith, business success is defined as a long-term goal. The 147-year successstory of the Voith Company demonstrates that the business strategy aligned
toward sustainable growth can be supported over generations.
The commercial success of Voith is based on four sound pillars that have been
carefully erected over decades: our balanced product portfolio, our global presence, our innovative strengths, and our financial independence as a family-owned
enterprise.
A balanced product portfolio
Out of its original core business, mechanical and plant engineering, in the past
decades Voith has systematically expanded its product and service portfolio togain a firm foothold in its core markets of energy, oil & gas, paper, raw materials
and transport & automotive with leading competitive positions. In this respect it
has proved possible to spread sales fairly evenly between our four Group Divisions. Although the share contributed by each line of business varies from year
to year depending on general industry performance, all four Group Divisions now
account for a substantial share of Group sales. Our broad strategic positioning acts as a buffer against the majority of economic risks. Because economic
cycles affect the individual markets at different times, a fall in sales on the markets such as oil & gas, raw materials and energy that traditionally respond more
slowly to economic trends is offset by growth on the fast-responding paper andtransport & automotive markets and vice versa.
In order to build up a portfolio that can successfully cater to market demand,
also in the long term, it is vital that we identify the relevant global megatrends
and respond to them in good time. The shift to Asia, demographic changes,
continuing urbanization, particularly in the emerging markets, as well as growing
demand for raw materials and energy and the need for sustainable, low-consumption technological solutions are the global megatrends confronting us in thepresent day. Voith has responded to these shifts from their very inception, with
innovations, providing solutions such as climate-friendly electricity generation,
sustainable mobility in the megacities or low-consumption production methods.
An international footprint and local roots
As one of the pioneers in globalism, as early as the beginning of the 20th century we were already exporting turbines for hydroelectric projects to the US andAsia and paper machines to what was then Austria-Hungary and to Russia andSweden. We began establishing production facilities in other countries at a very
early stage in an endeavor to establish greater proximity to the customer andto shorten transport routes. Voith’s first production location outside of Germany
was opened in St. Pölten near Vienna in 1903. This was followed by additional
international locations, such as the first location outside of Europe established in
Brazil in 1964. Today, Voith is represented by companies in more than 50 countries on all five continents.

Voith Annual Report 2014

Group Management Report

41

Looking at the regions in which we operate, we strive to ensure a balanced distribution of our business. Today, almost half of Voith’s consolidated sales is still
generated in Europe, while the Americas and Asia account for 29 % and 20 %,respectively. However, economists expect economic growth for the Americas
and in particular Asia to be considerably greater than for Europe in the coming
years. For this reason, we are aiming specifically to increase the share of regionsof strong growth in our income over the next few years and benefit from thisdevelopment. We are therefore working on deepening our roots in the international markets. We rely on locally developed and manufactured products and­s ervices that are tailored to local needs. We operate as a responsible employer
with local management and employees whom we continue to train, and use
local supply chains as well as local sources of finance. For the coming years wehave set ourselves the goal of fostering the influence of regional entities within
our organization and granting them greater responsibility to allow them to better
address local market conditions and local cultural aspects within our business.
The reorganization of the Group Divisions Voith Paper and Voith Turbo, which
took effect at the beginning of the 2012/13 and 2013/14 fiscal years, respectively,reflects these thoughts. The organization of the central functions is also in a stateof change aimed at taking the regions more into account. In 2011 we createdthe first regional corporate service center outside of Europe. The Shanghai Corporate Service Center constitutes a vital interface between China and Germany
by supporting Voith firms in this essential market with such shared ­s ervices ashuman resources, procurement, IT, legal affairs, taxes, mergers & acquisitions,finance and communications. We are training young professionals at our own
training center in Kunshan in China which was completed in the period underreview, deploying methods adapted from the German dual-track training system.

Detailed information on thecurrent focus areas of our R&D
activities is provided in section 5,“Research and development”.

Strong innovative power
Voith’s position on its markets and in its regional segments is based among
other things on its innovative power. Since the Company was founded, our engineers have been writing history with their inventions in the field of technology.
Voith currently has many thousands of active patents around the world, andhundreds more are registered each year. There is no contradiction between apioneering spirit on the one hand and permanence on the other. This is why weinvest in research and development for new products even and especially in
difficult economic times. Approximately € 1.25 billion was invested in total overthe past five years.

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Financial independence
As one of the major family-owned enterprises, Voith benefits from the stability
and long-term approach taken by its owners. Growth that is both sustainable andprofitable is the central goal of the shareholders, the Supervisory Board and the
Corporate Board of Management. This forms the foundation on which Voith canmaintain its financial independence and pass the Company on to the next generation in even stronger shape.
Aided by our modest distribution policy, Voith has sufficient financial resources
to fuel continuous, attractive growth, the trajectory of which can be planned overextended periods. A suitable equity ratio and a stable financial position constitutea sound platform on which the Group will continue to develop successfully in the
future.
Voith 150+ success program ensures competitivenessAt the beginning of the 2013/14 fiscal year we began the Group-wide success­program Voith 150+. The program is the answer to a number of external andinternal challenges. This is set to pave the way for long-term competitiveness andgrowth of the Voith Group for its 150th anniversary in 2017, and beyond.
Among other things, the measures strive to safeguard, streamline and expand
our existing business and make adjustments to the portfolio where necessary.
On the one hand, a contributory factor here has been the implementation of therestructuring measures and capacity adjustments initiated in the 2011/12 and2012/13 fiscal years. On the other, we work intensively on enhancing our portfolio
of products and ­services, with a focus on profitable fields and units, by means ofboth organic growth and strategic acquisitions and divestitures. Overall, we aim
to round off our portfolio, but not completely redesign it, for we are convinced that
our fundamental positioning, based on our four Group Divisions serving five large
markets, is the right foundation for ongoing successful development in the future.

Further sales and acquisitions canbe found in section 4.4., “Financial
investments and participatinginterests”.
Further information on the strategic
realignment of the locomotive
business in Kiel can be found insection 3.4., “Voith Turbo”.

In this respect, we have made important advances during the period under review.
In Voith ­Industrial S­ ervices in particular, we have made several inorganic portfolio adjustments: by means of an acquisition in the US, we have strengthened theservice business for the automotive industry. Also worthy of mention is the saleof the companies belonging to the DIW Group and therefore the sale of the entire
Industries division. The sale of the DIW Group is part of Voith I­ndustrial S­ ervices’realignment. Voith ­Industrial ­Services’ strategy aims to focus on technical ­services
for key industries. DIW, which for more than 50 years has enjoyed market success in providing ­industrial s­ ervices, offers its s­ ervices regardless of the industry
involved, meaning it no longer fits in the Group Division’s industry-focused concept. In the Voith Turbo Group Division, the locomotive business in Kiel was strate­
gically realigned. In the future, the Kiel location will offer a comprehensive range of­services for components and rail vehicles. The manufacture of its own locomotives
will be discontinued.

Voith Annual Report 2014

Group Management Report43

As part of the Voith 150+ program, we have also set a change process in motion
which is set to make structures and processes in the entire Group more effective and efficient. We are working on reducing the complexity of processes andthereby increasing the speed at which we react to events worldwide. Employees
and executives at all levels are involved in various Excellence@Voith initiatives.
While we have been working on optimizing the production processes for a while
now, we systematically examined the indirect divisions in the 2013/14 fiscal year,
such as procurement, IT, finance, accounting and human resources. In the year
under review, improvement and savings potential were identified which must now
be translated into action for implementation. The measures developed under thevarious Excellence@Voith programs are to be implemented by 2017.
The strategic and operating initiatives described above are supported by a strengthening and enhancement of our corporate culture. In addition to the current values
we live, we encourage our employees to act proactively, contribute their own ideas
regardless of hierarchy and to live up to them. Each employee is called upon toactively participate in improving Voith every day and to speak up by pointing out
sources of error or emerging problematic issues. This requires our executives toconsistently entrust responsibility, pick up suggestions from their team in a constructive manner and make each individual’s contribution to the Company’s success transparent. This understanding of people management is part of our leadership concept and is communicated as part of our management development
program which is uniform across the Group.
Our implementation of Voith 150+ is right on schedule. We expect the implementation of the projects under this program to make cost savings of around € 150 million per year.

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Group Management Report

02

Business development andearnings position of the Group

Voith Annual Report 2014

In light of the economic recovery failing to materialize
and the generally subdued investment climate, sales at
the Voith Group decreased in the period under review.
Despite significant restructuring expenses, all theGroup’s key earnings indicators were positive. There
was a notable increase in orders received, which will
help us stabilize sales in the next fiscal year.

02.1. Overall assessment

Weak business development in a stubbornly
adverse environment
Voith looks back on a weak fiscal year. In light of the economic recovery failing to materialize and the generally subdued investment climate, both the sales
volume and earnings of the Voith Group decreased in the period under review. At€ 5,345 million, consolidated sales were down on the previous year due to the levelof orders received having fallen over the previous two fiscal years. As a result, we
failed to reach the sales target published in our Annual Report 2013. Reasons forthis shortfall included project delays caused by customers as well as a decline
in the market for raw materials that was greater than expected. Sales were also
impacted by negative currency effects amounting to over € 170 million. One positive development is the notable increase in orders received, up 7 % on the previous
year, which will help us stabilize sales in the next fiscal year.
The development of business at the four Group Divisions was not uniform. While
Voith ­Industrial S­ ervices generated sales at the previous-year level as expected,
and Voith Hydro, although down 5 % on the previous year, performed in line with
our forecast, the fall in sales at Voith Paper was sharper than we expected at
13 %. Voith Turbo (down 6 %) also fell slightly short of its sales target. As for theorders received, by contrast, all the Group Divisions where the volumes of orders
on hand are recorded separately (Voith Hydro, Voith Paper, Voith Turbo) recorded
an increase. Moreover, within each Group Division, business developments varied
between the regions and the various market segments. In order to tailor our organization to permanent changes in the business environment and create a foundation
for the return to profitable growth, we initiated the Group-wide success program
Voith 150+ at the beginning of the 2013/14 fiscal year, which involved the introduction of restructuring measures and, in some cases as a result of such measures,
discontinuing operations. All of these measures are on target.

Voith Annual Report 2014

Group Management Report45

In spite of the weak business environment and a significant burden from restructuring expenses, we have once again returned a profit from operations in each of
our Group Divisions as well as for the Group as a whole, and have also generated
clearly positive operating cash flows. As a consequence, we continue to reportno net debt but instead have stable net liquidity of € 40 million. We view our ability
to return a profit even in a difficult business climate in all of our Group Divisions
as evidence of our strong earnings potential and the robustness of our Company.
Nevertheless, we failed to meet the earnings targets we announced in our 2013
annual report. At a Group level, the profit from operations fell by 23 % on the previous year to € 270 million. This decrease is primarily attributable to the lower sales
volume as well as special burdens resulting from higher provisions for warranty
risks compared to the previous year. The Group’s profit was burdened by non-recurring effects in connection with the ongoing restructuring measures of € 35 million, although these were much lower than in the previous year (€ 156 million). As
tax expenses were considerably higher than in the previous year, which had been
boosted by tax income relating to other periods, the Group’s net income for theyear was down by 37 %. The Group’s bottom-line result stood at a net income of€ 41 million.
In the consolidated financial statements 2013/14 some previous-year figures were
adjusted. Explanations of these changes can be found in the “Restatement of previous-year amounts” section in the notes to the consolidated financial statements.
These adjustments are taken into account in the following sections.

02.2. Economic environment

Economic recovery fails to eventuate
Economic development proved weaker in the 2013/14 fiscal year than expected.
The International Monetary Fund (IMF), for example, has revised its growth forecast
for almost all regions downwards several times since the Voith Annual Report 2013.
In the fall of 2014, the IMF forecast economic growth for the 2014 calendar year,
which, at only 3.3 %, was at the low level of the previous year (2013: growth of 3.3 %).
Geopolitical conflicts became more frequent from spring 2014 onwards. The resulting high degree of uncertainty dampened the global investment climate. Although
the European Central Bank (ECB) lowered its key interest rates to a historic low, thisdid not generate any stimulus for investments in the real economy. Larger investment projects could not be carried out due to the high level of private and public
debt, while expansion investments rarely proved necessary on account of the low
capacity utilization. By contrast, development in the US was above average compared to the other advanced economies, a trend driven by high levels of private
consumer spending and the ongoing boom in shale gas. For the 2014 calendar
year, the IMF (as at October 2014) expects the gross domestic product (GDP) of
the advanced economies to increase by 1.8 % in total (2013: 1.4 %).
By comparison, the emerging market and developing economies continued toreport stronger growth. However, growth momentum here also slowed in thesecond half of the year. There were also sharp decreases in exchange rates, especially in Brazil, Turkey, South Africa, India, Russia and in various ASEAN countries.

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Voith Annual Report 2014

Economic growth according to the International Monetary Fund
Real change in GDP on the previous year1)

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

2013

3.3 %

2014

3.3 %

2013

1.4 %

2014

1.8 %

2013

2.2 %

2014

2.2 %

2013

- 0.4 %

2014

0.8 %

2013

0.5 %

2014

1.4 %

2013

4.7 %

2014

4.4 %

2013

7.7 %

2014

7.4 %

2013

5.2 %

2014

4.7 %

2013

5.0 %

2014

5.6 %

2013

2.5 %

2014

0.3 %

2013

1.3 %

2014

0.2 %

Source: International Monetary Fund; World Economic Outlook, Oct. 2014.
1)
2013: estimates; 2014: forecasts.
2)
Including Germany.

This reduced the profits of foreign companies in these countries. According to
IMF forecasts, GDP growth in the emerging markets for the whole of 2014 (4.4 %)was down on the previous year (2013: 4.7 %) and lower than originally forecast.
China continued to generate above-average growth. The Indian economy isexpected to benefit from a shift in sentiment following the change in government.
By contrast, the Brazilian economy continued to lose momentum and, according
to the latest IMF forecasts for 2014, is experiencing next to no growth.

Voith markets: gloomy investment climate prevails
In three target markets served by Voith – energy, oil & gas and raw materials – theinvestment climate remained subdued. The willingness to commit to investments
saw relatively positive developments in the transport & automotive market. With
regard to investing activities in the paper market, the downturn in development
seems to have bottomed out with the market volume in the third year stabilizing
at a low level.

Energy: rising share of renewable sources
The energy market encompasses the conversion of various primary energy sources
such as coal, gas, wind or hydropower into electricity and alternative forms ofstorage. This market is served by the Group Divisions Voith Hydro, Voith ­Industrial­Services and Voith Turbo.

Voith Annual Report 2014

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47

On the whole, the increase in fossil fuel capacities decreased sharply. In an effort
to expand their electricity-generating capacity, all regions of the globe are also
putting greater emphasis on renewable energy sources or relying on gas-based
generation. Renewable energy sources now account for some 26 % of the total
existing electricity-generating capacity. However, the by far greatest share of theinstalled base of electricity-generating capacity from renewable sources (62 %) is
attributable to hydropower. Despite the increase in capacities, total investments
in renewable energy sources were down. This was primarily attributable to theuncertainty concerning energy policies in some countries as well as the poor economic situation in the southern European countries. Investments in pumped storage plants are very low in North America due to the boom in shale gas. In central
Europe, development in this area is also modest as the strong rise in the share ofsolar in the power mix as well as new quick-responding gas-fired power plants
have drastically inhibited the business model of pumped storage technology, which
is aimed first and foremost at meeting peak demand.
Oil & gas: rising levels of investment
The oil & gas market comprises three main segments: upstream involving theextraction of crude oil and natural gas, mid-stream involving transport primarily
via pipelines and tankers, and downstream consisting of refining of crude oil andnatural gas into the various fuels and raw materials used by the chemicals industry.
Voith Turbo and Voith I­ndustrial S­ ervices provide specialized products and s­ ervices
to all the segments of this market.
Demand for oil and gas, the most important primary energy sources, continued
to rise in the 2013/14 fiscal year and, according to projections made by the International Energy Agency (IEA), will continue to rise in the coming years. The shareof gas in total global energy consumption is also increasing, driven primarily by
a number of new conventional and unconventional gas sources, increasing the
supply and lowering gas prices. In contrast to crude oil, gas prices differ greatly
according to region on account of the limited transportation options. This explains
why gas prices in the US are only a third of import prices in Europe due to the large
scale of shale gas extraction. Oil prices fell sharply over the course of the fiscal year.
Investments in the oil & gas market rose again in the period under review, withthe most emphasis being placed on the upstream segment. On the one hand,
new wells were tapped to satisfy future demand, while on the other, extraction is
becoming increasingly complicated. In this regard, the distribution of expenses isshifting away from major infrastructure projects and toward drilling, evaluation andclosing activities, which is offering opportunities for those providing diversified oil
services. Expansion of the downstream segment was not as strong on the whole,with the main growth due to the installation of additional refinery capacity in Asia,
and China in particular, while in the industrialized countries, particularly in Europe,
there are excess capacities.
Paper: market for paper machines stabilizes at a low level
Against the background of the fundamental structural change within the paperindustry triggered by the digitization of daily life, production capacities for graphic
paper are being reduced. Demand for new machinery to manufacture graphic
paper has fallen both significantly and permanently. By contrast, there is growthpotential for board and packaging paper in the wake of rising online shopping.

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Group Management Report

Voith Annual Report 2014

Consumption of tissue papers is also set to rise in the emerging markets of Asiaand Latin America in line with the strongly growing middle class in these countries.
Although global paper production rose slightly in Voith’s 2013/14 fiscal year, according to estimates made by industry analysts at RISI future growth will be at a slower
rate than assumed at the time our Annual Report 2013 was published. Until 2018,global paper production is expected to record annual growth rates at a level below
global GDP growth. The more negative market outlook impacted all paper categories, with the exception of tissue. From a regional perspective, Asia (excluding India) has the strongest growth in both absolute and relative terms, although
expectations for this region were also revised downwards.
The market for paper machines as a whole seems to be stabilizing at a low level.
The slow growth in production is currently being covered for the most part byexisting production capacity. We do not expect to see any market recovery in the
coming years in Europe on account of the excess capacities. In Asia and Latin
America we assume that demand for machines to make tissue, board and packaging paper will rise again in the mid-term.
Raw materials: temporary excess capacities among manufacturers
slowing down investments
We define raw materials as ores and minerals that are extracted from the earth,such as coal, copper and iron ore, as well as other geological materials such as
sediments used in building. By contrast, the raw materials oil and gas are treatedseparately as part of the oil & gas market. The segments of the raw materials
market that are of relevance for Voith are surface and sub-surface mining and thesteel industry. Both are supplied by the Group Division Voith Turbo.
The level of investment in the mining sector continued to drop in the period underreview. This was mainly due to the significant fall in prices for raw materials, whichis leading to cost pressure among producers. As a result, prices for iron ore andcoal fell to their lowest level since 2009. We expect the mining sector to recoverin the mid-term. A decisive factor in this regard is the rising demand for the raw
materials needed to develop the infrastructure in emerging markets. The growing
investments in technology made by the mining sector to improve safety standards
and reduce the environmental impact of mining also represent opportunities for
Voith. There is also the need to tap increasingly difficult fields, which on the one
hand are more difficult to access and on the other require more overburden to be
shifted due to the lower concentration of raw materials in the volume extracted.
Steel production continues to grow, with growth expected to reach just under
3 % in 2014 and 2015. North America is the current growth driver. With a global
market share of almost 50 % China remains the largest producer, although after
years of recording high growth is currently performing below average. Steel prices
are stabilizing albeit with regional differences. However, only few new investments
are still being made due to the continuing excess capacities.

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Group Management Report

Transport & automotive: market booming in most segments
The transport & automotive market includes diverse transport routes and themeans of transport used on them for moving people and goods. Two of Voith’sGroup Divisions serve this very heterogeneous market: Voith Turbo supplies drive
components and solutions as well as braking systems for the commercial vehicleindustry, the railway industry and also the marine segment. Voith ­Industrial ­Services
provides contract engineering to automobile manufacturers and suppliers as wellas the railway industry and the aviation industry, and supplies manufacturers ofautomobiles with diverse infrastructure and production services.
Development in the passenger and commercial vehicle industry was varied in the
period under review: the passenger vehicle and light truck segment grew significantly, driven by higher demand primarily from China and the US. By contrast,
global truck sales were down slightly and the bus market stagnated. Growth fortrucks and buses came from the NAFTA countries, the ASEAN region and India.
The rail sector, which is dominated by public sector investment in infrastructure,also continued to develop positively in the period under review. The main driverbehind this is the urbanization in the emerging markets, primarily in China, which
is linked to high demand for metro systems and local public transport systems. In
southern Europe, investments remained low on account of the high level of sovereign debt.
In the marine market, slight growth was recorded for tugs and offshore special
ships. The market for engineering services in the aerospace industry suffered a
sharp decline in the period under review as the most recent development programsof the two major manufacturers came to a conclusion.

02.3. Sales

Sales down
In the 2013/14 fiscal year, the Voith Group generated sales of € 5,345 million compared to € 5,728 million in the previous year. This represents a decrease of 7 %. As
a result, we failed to reach our sales target (Annual Report 2013: “at the same level
as in the previous year”). Reasons for this shortfall included project delays at Voith
Paper caused by customers as well as a decline in the market for raw materials,
that was greater than expected and had an impact on Voith Turbo’s sales. Sales

Sales Group

Sales total € 5,345 millionin € millions

by Group Division

5,728

5,345

Voith ­Turbo
26 %by region
Voith ­­Hydro
25 %Americas29 %Germany
20 %EuropeexcludingGermany
28 %2012/132013/14Voith Paper
27 %Voith ­­Industrial­­Services
22 %

Asia
20 %

Other
3%

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Group Management Report

Voith Annual Report 2014

were also impacted by negative currency effects amounting to over € 170 million.
As a consequence of the unexpectedly rapid decline in exchange rates in certain
emerging markets, our sales in these countries turned out to be significantly lower,
when translated into euros, than expected as at the date our Annual Report 2013
was published. All four Group Divisions were impacted by this effect. Adjusted for
currency effects, sales fell by 4 %.

Detailed information on the development of sales at the separate Group
Divisions can be found in section 3,“Business development and earnings
position of the Group Divisions”.

The four Group Divisions suffered a decrease in sales ranging from 1% (Voith­Industrial ­Services) to 13 % (Voith Paper). Voith Paper was the largest contributor
to Group sales (27 %; previous year: 29 %) followed by Voith Turbo (26 %; previous
year: 26 %). The share of sales accounted for by Voith Hydro was 25 % (previous
year: 24 %), while Voith I­ndustrial S­ ervices’ share rose to 22 % (previous year: 21%).
The regional distribution of Group sales among the most significant economic
areas worldwide has only changed marginally in comparison to the previous year:
as in the previous year, Germany accounts for 20 % of Group sales and Europe
excluding Germany for 28 % (previous year: 27 %). More than half of total sales in
the 2013/14 fiscal year were generated outside Europe. The Americas were thestrongest region in terms of sales, contributing 29 % to Group sales (previous year:
27 %), while Asia contributed 20 % (previous year: 23 %). 3 % was attributable toother regions (in particular Africa and Australia).

02.4. Orders received

Orders on hand Groupin € millions

5,134

5,379

Notable increase in orders received
After the decrease seen in the previous year, we succeeded in noticeably boostingorders received in the 2013/14 fiscal year. All in all, the Voith Group secured neworders totaling € 5,581 million (previous year: € 5,194 million). This represents anincrease of 7%. Although the Group’s orders received were similarly impacted by
the negative currency effects of more than € 160 million, the figure exceeded ourforecast (Annual Report 2013: “stable development of new business”). Adjusted
for currency effects, growth in orders received came to 11%.
Orders on hand as at the end of the period under review came to € 5,379 million,
thereby exceeding the previous-year figure by € 245 million (September 31, 2013:€ 5,134 million).

2012/132013/14

Orders received Group

Orders received total € 5,581 millionin € millions

by Group Division

5,194

5,581

Voith ­Turbo
27 %by region

Voith ­­Hydro
27 %Americas26 %Germany
20 %EuropeexcludingGermany
27 %2012/132013/14Voith Paper
25 %Voith ­­Industrial­­Services
21%

Asia
24 %

Other
3%

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Detailed information on the developmentof orders received at the separate Group
Divisions can be found in section 3,“Business development and earnings
position of the Group Divisions”.

The most significant factor in the Group’s orders received exceeding expectations
was the new business in the Voith Hydro Group Division, which was up 24 % on
the previous year. Orders received at both Voith Paper and Voith Turbo were also
above the level of the previous year (up 3 % and 5 %, respectively).
Voith Turbo (previous year: 28 %) and Voith Hydro (previous year: 23 %) each contributed 27 % to the Group’s orders received, followed by Voith Paper at 25 % (previous year: 26 %). Voith I­ndustrial S­ ervices contributed 21 % in the period underreview (previous year: 23 %).
With respective shares of 27 % and 26 % in total orders received, Europe excluding
Germany (previous year: 29 %) and the Americas (previous year: 27 %) were theregions with the strongest new business. Asia’s share increased from 18 % in theprevious year to 24 % in the 2013/14 fiscal year. As in the previous year, Germany
contributed 20 % of the Group’s orders received.

02.5. Results

Profit from operations and net income down
significantly on the previous year
In the 2013/14 fiscal year, the Group generated net income of € 41 million. This was
down considerably on the figure for the previous year (€ 65 million, down 37 %).
While the operational earnings indicators fell noticeably, primarily as a result of thesituation at Voith Paper, earnings before taxes were up by 22 % mainly due to thepositive effects in the non-recurring result. Higher tax expenses compared to theprevious-year period led to a fall in the net income.

For information on the developmentof sales, we refer to section 2.3.

In line with sales, the Group’s total output was down by 6 %, falling by € 372 million to € 5,361 million (previous year: € 5,733 million). As was the case with sales,
total output did not develop uniformly between the Group Divisions (Voith Paper
down 14 %, Voith Turbo down 5 %, Voith Hydro down 5 % and Voith ­Industrial­­Services unchanged).
In line with the development of sales and total output, the operating expense items
were also down. Cost of material fell to € 2,112 million (previous year: € 2,339 million, down 10 %). The ratio of the cost of material to total output decreased to39.4 % (previous year: 40.8 %). The fall in sales at Voith Paper made a significant
contribution to this development, especially in the business with new machines andmajor rebuilds which consumes a greater amount of material. In addition, someplant engineering projects at Voith Hydro were at an advanced stage, where theshare of material is typically lower.
Personnel expenses fell only slightly to € 2,124 million (previous year: € 2,143 million, down 1 %). The change is due to the lower headcount, countered by moderate
wage and salary increases. As a result, the ratio of personnel expenses to total
output increased to 39.6 % (previous year: 37.4 %). The savings in personnel costs
achieved so far could not make up for the negative effect on earnings stemmingfrom the fall in sales, especially at Voith Paper. The cost savings from the capacity
adjustment programs implemented did not develop their full effect.

52Group Management Report

Voith Annual Report 2014

Depreciation and amortization decreased only slightly to € 170 million (previous
year: € 175 million), with the ratio to total output remaining virtually constant at
3.2 % (previous year: 3.1 %).
The balance of other operating expenses and income fell to € 735 million (previous
year: € 766 million). The ratio to total output increased slightly to 13.7 % (previous
year: 13.4 %).

For more detailed information on
the development of the profit fromoperations and the ROCE for eachGroup Division, see section 3.

The operational result before non-recurring items fell to € 220 million (previous year:€ 310 million, down 29 %). The profit from operations used for internal management
purposes came to € 270 million (previous year: € 350 million, down 23 %). Returnon sales as a ratio of the profit from operations to sales was 5.1 % (previous year:
6.1 %). The ROCE (return on capital employed) decreased to 10.8 % (previous year:
13.3 %) as a result of the fall in the profit from operations.

Further information on the
non-recurring result can be foundin note (7) in the notes to theconsolidated financial statements.

The non-recurring result in the period under review comes to € 4 million (previous
year: € -156 million). This contains expenses and income in connection with therestructuring measures introduced in the previous years, expenses in connection
with the structural and market-related capacity adjustment measures decided
upon in the 2013/14 fiscal year as well as income and expenses from the sale ofbusiness activities. In detail, Voith I­ndustrial ­Services accounts for € 34 million of
the non-recurring result (previous year: € - 9 million), Voith Hydro for € - 6 million(previous year: € - 4 million), Voith Paper for € - 8 million (previous year: € - 64 million)
and Voith Turbo for € -16 million (previous year: € -73 million). At the entities withcross-divisional functions, there was no non-recurring result in the period underreview (previous year: € - 6 million).
The balance of interest expenses and interest income came to a net interest
expense of € 68 million (previous year: € 69 million) and therefore remained virtually unchanged.
The other financial result came to € - 41 million. This contains impairment losses
on securities with a negative effect on income of € 41 million. The figure from theprevious year of € 9 million mainly arose from a one-time effect in the form of adividend received from a financial investment.
Income taxes totaled € - 78 million (previous year: € - 33 million). In the same periodof the previous year, this item contained income from other periods of € 20 million.

Operational result before non-recurring items
Group in € millions
310*

Net income Groupin € millions
65*

220

2012/13* Previous year restated.

2013/1441

2012/132013/14

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53

Business development
and earnings position of
the Group Divisions
The development of business at the four Group Divisions
was not uniform. While Voith I­ndustrial S­ ervices
generated sales at the previous-year level as expected
and Voith Hydro, although down 5 % on the previous
year, performed in line with our forecast, the fall in sales
at Voith Paper was sharper than planned at 13 %. Voith
Turbo also fell slightly short of its sales target (down 6 %).
Voith Hydro, Voith Paper and Voith Turbo recorded anincrease in orders received. All Group Divisions posted
positive operating figures.

03.1. Voith ­Hydro

Successful new business
Voith Hydro looks back on a satisfactory 2013/14 fiscal year. Sales and earnings
were good. In a year in which a number of large projects were awarded, Voith
Hydro generated a higher level of orders received than expected.
Sales down on the previous year as expected
Voith Hydro generated sales of € 1,313 million in the 2013/14 fiscal year. As
expected, this was down on the very high figure for the previous year (€ 1,388 million, down 5 %). At the time our Annual Report 2013 was published, we had forecast a “slight fall in sales” for Voith Hydro on account of the lower level of orders
received in previous years.
In addition to South America, Brazil in particular, the regions enjoying the strongest
sales were North America and Europe excluding Germany.
Orders received increase by 24 %In the 2013/14 fiscal year, several major high-volume projects were awarded in ahydropower market that was subdued on the whole. Voith Hydro operated successfully on the market, winning orders worth € 1,471 million. This constitutes
growth of 24 % on the previous year (€ 1,190 million), meaning orders received
developed a little better than expected at the time our Annual Report 2013 waspublished (“slight increase in orders received”). Orders on hand improved to€ 3,091 million as at the end of the fiscal year on September 30, 2014 (previous
year: € 2,880 million).

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We benefited from the fact that more major projects were awarded in the period
under review than in the previous year. The small hydro segment (power plants
with a generating capacity of up to 30 MW per unit) also developed positively. We
also managed to increase the volume of our new business with spare parts andmaintenance services on the previous year. Due to the cyclical nature of how major
projects are awarded, the high level of orders received in the period under review
is no indicator of how orders received will develop in the future.
The North American market developed very positively in the period under review.
In the US, it was mostly modernization projects that were awarded. For example,
Voith Hydro secured a contract for the modernization of Center Hill Dam Powerhouse in the US state of Tennessee. Voith Hydro also won a major contract runningover ten years for Priest Rapids hydropower plant in the US state of Washington.
Voith Hydro will upgrade a total of ten vertical Kaplan turbines at this hydropower
plant, located on the Columbia River and opened in 1959. In Canada, Voith Hydro
also received various contracts involving modernization, including the service contract to fully overhaul three hydropower generators at Kettle Generating Station in
the province of Manitoba. Although the Canadian market, too, is generally shapedby modernization and maintenance projects, Canada is also seeing new plants
being constructed such as Keeyask hydropower plant in Manitoba. In this example,
Voith Hydro won the contract to supply seven propeller turbine-generator units.
We also won important new orders in Asia. The largest order placed in the 2013/14
fiscal year came from Pakistan with a volume of around € 200 million. We will be
supplying the entire electromechanical equipment for the extension of Tarbelahydro­power plant, which was originally built in 1974. We also received two orders
for hydropower plants in the Himalayas: one to provide equipment to R
­ asuwaghadi
in Nepal, and one to modernize Salal in India. On top of this came a service contract for Bhira pumped storage plant in India. In addition to central Asia, Southeast
Asia is also gaining in importance as a hydropower market and presenting opportunities for Voith Hydro. Here, the contracts we received in the period under review
included the order to supply the complete electromechanical equipment for Lam
Ta Khong pumped storage plant in Thailand. The order, with a volume of around€ 50 million, was received from the Thai energy agency EGAT. Lam Ta Khong is
the first pumped storage plant in Southeast Asia to be equipped by Voith Hydro.
In Indonesia, too, we won small and large hydro projects.
The Latin American market showed weaker development in Voith’s 2013/14 fiscal
year than in the previous year, although it remains one of the largest and mostSales Voith ­­Hydro

Orders received Voith ­­Hydro

Profit from operations Voith ­­Hydroin € millionsin € millionsin € millions

1,388

2012/131,313

2013/14

1,471

106*

101

2012/132013/141,190

2012/132013/14* Previous year restated.

Voith Annual Report 2014

Group Management Report

55

important. Several major projects were postponed on account of political and economic conditions. Among others, Voith Hydro received an order from the energy
company Endesa to equip Los Cóndores hydropower plant in Chile.
The established hydropower markets of Russia and eastern Europe most of all provide potential for modernization. In the fiscal year under review Voith won, among
others, the contract for the extensive modernization of Zvornik hydropower plantin Serbia. We were awarded the contract for the third stage of the modernization
work relating to four further turbine units for Russia’s Saratovskaya hydropower
plant. This modernization project has been ongoing since 2011.
In northern Europe, we recorded a pleasing level of orders received from Sweden
and Norway. Voith Hydro also won orders in the pumped storage segment incentral Europe, which is currently proving a challenge. The Austrian energy supplier Vorarlberger Illwerke AG awarded us the contract to supply two pumps andone pump turbine for the two projects Obervermuntwerk II and Rellswerk. We
received an order from the energy provider E.ON to modernize a generator at
Germany’s Waldeck pumped storage plant. In central Europe, the economic viability of pumped storage plants continues to be severely impeded by the political environment in the wake of the new energy concept in Germany. Due to themassive expansion of photovoltaics, solar power is now available on a large scaleat the midday peak times. As a result, the prevailing business model of pumped
storage plants to date, of meeting peak demand and being compensated accordingly, came under pressure. In the period under review, in a widely recognized
study carried out by RWTH Aachen University, we pointed out to policymakers
and the general public the importance of pumped storage for the expansion ofrenewable energies.
In southern Europe, the market situation remained difficult against the backdropof the European financial crisis and the high levels of sovereign debt.
Profit from operations down slightly
In the 2013/14 fiscal year, Voith Hydro generated a profit from operations of€ 101 million (previous year: € 106 million). This represents a decrease of 5 %, which
was primarily attributable to the sales volume being slightly down on the previous
year as well as currency effects. As a result, we did not achieve the high level of theprevious year contrary to the forecast in the Annual Report 2013. Return on sales
remained unchanged at 7.7 %. The ROCE (return on capital employed) improved
to 21.8 % (previous year: 20.9 %).

56

Group Management Report

03.2. Voith ­­Industrial

A year of intensive changes

Voith Annual Report 2014­­Services

Voith ­Industrial ­Services looks back on a year in which the restructuring of theservice portfolio was driven forward. Adjusted for non-recurring effects from theoptimization of the portfolio, sales were up slightly. The profit from operations was
down on the previous year primarily as a result of insufficient capacity utilizationin the Engineering ­Services division.
In the period under review, Voith ­Industrial ­Services was organized into four divisions: the Automotive and Energy-Petro-Chemicals divisions offer industry-specific solutions for the automotive industry/process industries and power plants.
The Engineering ­Services division offers engineering ­services to automakers andmanufacturers of rail vehicles, as well as the aerospace industry. Under the DIW
brand, the Industries division provided comprehensive regional ­services related tooperating and managing ­industrial locations in Germany and Austria.
Sales before non-recurring effects up slightly
In the 2013/14 fiscal year, Voith I­ndustrial ­Services generated sales which, at€ 1,178 million (previous year: € 1,185 million, down 1 %), were almost at the previous-year level. We therefore met our own forecast (Annual Report 2013: “stabledevelopment”).
We worked on our ­services portfolio in the period under review, which included forexample an acquisition in the Automotive division as well as various divestituresin the Engineering S­ ervices and Energy-Petro-Chemicals divisions. Adjusted for
non-recurring effects from the optimization of the portfolio, the net effect of which
was a decrease in sales, sales were up slightly on the previous-year level.
Voith ­Industrial ­Services continued to generate just over half of its sales in Germany.
Europe excluding Germany was the second most important regional market forthis Group Division, followed by North America. In the mid-term Voith ­Industrial­Services aims to achieve a greater regional balance. In particular, it intends toexpand its activities in North America and South America as well as in China andIndia in order to continue to participate successfully in the growth of these markets.
Owing to the short throughput times of service contracts, Voith ­Industrial S­ ervicesdoes not record the volume of orders on hand, which means that orders received
are identical to sales.
Varying developments in the divisions
While the Automotive and Industries divisions grew and Energy-Petro-Chemicals
remained stable, the Engineering S­ ervices division saw a decrease in sales.
In the Automotive division, Voith I­ndustrial ­Services’ largest division, we succeeded
in increasing sales once again following three years with strong volume growth. In
Europe, we benefited from our focus on premium manufacturers whose exports to
the Americas and Asia remain at a high level. Daimler engaged us with the task of
infrastructure facility management for various locations in Germany, while Porsche

Voith Annual Report 2014

57

Group Management Report

Leipzig concluded a maintenance agreement with us. We also received a major
order from BMW relating to technical facility management at the Dingolfing location. The good development of business in China, where the market environment
remains positive, also contributed to the division’s sales growth, which includes
orders from Daimler, Airbus, BMW Brilliance Automotive, a German-Chinese joint
venture, and from various European automotive suppliers. In South America, bycontrast, the market environment remained difficult for industrial service providers
to the automotive industry, on the back of the weak Brazilian economy and thedecrease in production figures in the automotive and commercial vehicle industry.
Nevertheless, we succeeded in winning several new contracts, including one fromBMW for technical facility management at the new plant in Santa C­ atarina, one
from Hyundai CAOA, one from Mitsubishi and one from Volvo Trucks in C
­ aminhões.
In North America, business was somewhat modest measured against the dynamic
market development. However, we were able to expand our business with European and Asian manufacturers. BMW Spartanburg concluded a maintenanceagreement with us, while Honda engaged us with the task of technical facility
management. We were also able to extend our contracts with Ford, Toyota andHonda on technical cleaning services and maintenance work.

Further information on the purchaseof Helix Systems can be found insection 4.4., “Financial investments
and participating interests”.

As a way of expanding our services portfolio in the US and strengthening our position in the strategic growth market of North America, we acquired the industrial services provider Helix Systems Inc., based in the US state of Alabama, in the summerof 2014. Helix Systems offers integrated service solutions for automation, system
control and plant engineering as well as construction services for the automotive
industry. The acquisition supplements our portfolio in the North American market
by adding activities with a technical focus, which in Europe already form part ofVoith ­Industrial ­Services’ core competences. In the US, the Automotive division
had previously concentrated on technical cleaning and facility management as wellas production facility management for automotive manufacturers.
Sales in the Energy-Petro-Chemicals division were up slightly on the previous year.
Business with oil and gas refineries developed positively, particularly in northern
Europe. In addition to several turnaround projects for oil and gas refineries, we
performed automation orders within the context of plant automation projects. Thisstrong development in northern Europe was aided by the framework agreementwith the oil and gas conglomerate Statoil we won in the previous year, which
involved us performing extensive electronic and mechanical maintenance ­services
for the refinery at Norway’s Mongstad site in the period under review. In the Benelux

Sales Voith ­­Industrial ­­Services

Profit from operations Voith ­­Industrial ­­Servicesin € millionsin € millions

1,185

1,178

30
20

2012/132013/142012/132013/14

58

Group Management Report

Voith Annual Report 2014

countries, we carried out major inspections at refineries belonging to Total, BP
and Exxon Mobil. Business with electricity providers in Germany remained difficult.
Although the outcome of the national elections in Germany has provided planningcertainty with regard to the residual operating periods of nuclear power plants inGermany, which means that deferred inspection work has increased slowly, the
new energy concept in Germany continues to result in the closure of conventional
power plants. Demand for maintenance work and modernization projects for existing facilities therefore remained at a low level. We were able to gain a reasonable
share of the contracts from electricity providers in Germany that were up for tender.
In the period under review, the Energy-Petro-Chemicals division also founded a
power plant service branch in Switzerland as a way of expanding its range of action
to its neighboring country. The first success was an order to modernize Beznau
power plant. Business with the petrochemical and chemical industry is largely
supported by framework agreements concluded with each individual location andremained stable over the course of the year. Individual projects on a larger scale
were managed for customers Sanofi (Höchst) and BASF (Ludwigshafen).

Further information on the sale ofVoith Rail­services can be found insection 4.4., “Financial investments
and participating interests”.

In the Engineering S­ ervices division, which offers contract engineering for the aerospace, automobile, commercial and rail vehicle industries, sales declined in the
period under review. The disposal of the Dutch entity Voith Rail­services contributed
to this development. The organic decrease in sales is attributable to the Aerospacesegment, the development of which was highly unsatisfactory. The major aircraft
manufacturers awarded very few contracts for engineering ­services as they havecompleted the basic development work for their new aircraft programs and are
now concentrating their work on design variants. By contrast, there were positive
developments in our Engineering ­Services business with automotive manufacturers, where our new ­services are met with a positive reaction from customers. With
regard to its engineering s­ ervices for rail vehicle manufacturers, Voith I­ndustrial­Services was on a par with the previous year, although several major orders for
China were pushed back to the next year. Despite these delays in contract awarding as well as project execution caused by customers, development of the Asianmarket was highly positive. Fortunately, we succeeded in concluding a frameworkagreement with the Transport division at Alstom, making us one of four strategic
engineering partners. In the period under review, we expanded our competencesin the Engineering division for both the automotive industry and rail vehicle manufacturers. We also built up the necessary structures and human resources.
The Industries division, comprising the companies belonging to the DIW Group,
operated in a stable economic environment in the period under review and saw
its sales increase slightly. In addition to extending contractual relationships andstrengthening customer relationships, several larger-scale tenders were won in thearea of infrastructure facility management and technical facility management, e.g.
from electricity suppliers EnBW and E.ON. The young business unit LED was able
to sign contracts with new customers, namely the drugstore chain dm in Austria
and the investment goods manufacturer Komatsu in Germany.

Voith Annual Report 2014

Group Management Report59

As at September 30, 2014, we sold the Industries division to Strabag SE. The saleof the DIW Group is part of Voith ­Industrial ­Services’ strategic realignment, whichaims to focus on technical ­services for key industries. DIW’s focus is on offering
infrastructure s­ ervices regardless of the industry involved and therefore is no longer
in line with Voith ­Industrial S­ ervices’ strategic concept.
Profit from operations down
Voith ­Industrial ­Services generated a profit from operations of € 20 million in thefiscal year (previous year: € 30 million, down 31 %). The decrease in earnings is primarily attributable to project delays and resulting problems with capacity utilizationin the Engineering S­ ervices division. Furthermore, the profit from operations wasburdened by the costs for expanding engineering expertise for automotive and rail
vehicle manufacturers, which is expected to make a contribution to sales from the2014/15 fiscal year onwards. In the Energy-Petro-Chemicals division, additionalcosts incurred for individual projects have had a negative impact on earnings.
Overall, earnings fell short of our expectations (Annual Report 2013: “significant
improvement”). Return on sales was 1.7 % (previous year: 2.5 %). The ROCE cameto 8.5 % (previous year: 12.6 %).

60Group Management Report

03.3. Voith Paper

Another difficult year

Voith Annual Report 2014

Voith Paper looks back on a difficult 2013/14 fiscal year. The willingness of paper
manufacturers to commit to new investments remained cautious worldwide.
Despite intense competition and high pressure on prices, orders received wereup slightly. As for sales, however, the decrease was sharper than expected on
account of project delays. The restructuring measures currently being implemented
showed the first positive effects on costs. The profit from operations remained
positive but was down significantly on the previous year.
Sales down on the previous year
As expected, the massive slump in orders received in previous years had a profound impact on sales. In the 2013/14 fiscal year, Voith Paper’s sales fell by 13 %to € 1,430 million (previous year: € 1,639 million). Although the fall is in agreementwith the forecast we made in our Annual Report 2013 (“sales to fall”), it is much
more than we expected.
The decline in sales solely affects project business (new machines and large re­builds) and is primarily due to the sharp decrease in orders received in previous
years. On top of this there were project delays caused by customers either during
or after the tender process and individual projects being canceled. These delays
which caused sales to fall further and – together with exchange rate effects – arethe reason why the sales development failed to meet expectations. However, business with products, consumables, and s­ ervices remained stable overall and werein line with our expectations.
From a regional perspective, Asia and the Americas contributed the largest sharesof Voith Paper’s sales in the period under review. However, at the same time Asia
was the region that reported the largest fall in sales.
Slight increase in orders received
In the 2013/14 fiscal year, we achieved an increase in orders received for the firsttime again after a downward trend for the last three years. All in all, we won newcontracts totaling € 1,413 million (previous year: € 1,366 million). This represents
an increase of 3 % despite adverse exchange rate effects. Orders received in
the period under review lie within our expectations (forecast in Annual Report
2013: “slight growth”). As at the end of the fiscal year on September 30, 2014,
orders on hand came to € 1,078 million (September 30, 2013: € 1,134 million).

Sales Voith ­Paper

Orders received Voith ­Paper

Profit from operations Voith ­Paperin € millionsin € millionsin € millions

1,639

1,430

86
1,366

1,413

9
2012/132013/142012/132013/142012/132013/14

Voith Annual Report 2014

Group Management Report

61

While business with products, consumables and s­ ervices remained stable, orders
received in the project business recorded a notable increase. However, the slightrecovery in the project business was driven by few individual investments, while
the general reluctance on the part of paper manufacturers to commit to investments in new machines continued. Demand for machinery at the top end of thesize range remained extremely low. Most demand was for compact medium-sizedmachines with a much lower investment volume. This medium-sized segment ischaracterized by intense competition, especially in Asia.
The majority of our orders received in the fiscal year came from Asia, in particular
China, where the market showed signs of economic brightening in the wake of adifficult previous year. By contrast, demand from South America was significantly
below the previous-year level due to the economic slowdown in Brazil. In Europe,
too, we received fewer orders than in the previous year.
In the period under review, we succeeded in winning orders in the project businessprimarily for machines for the manufacture of board and packaging papers as well
as for specialty papers. This saw us receive a major rebuild order for a specialty
paper machine as well as an order for a new machine in China. In the promisingboard and packaging paper machines segment, we also received orders for new
machines on top of several orders for large rebuilds. This included an order madeby the Indian paper manufacturer Tamil Nadu Newsprint and Papers Ltd. for amachine for the manufacture of folding box board. This board machine for Tamil
Nadu is a compact machine from the growing, fiercely contested medium-sized
segment. In the declining segment for graphic paper machines, we also succeededin winning a large rebuild order. We likewise received an order for a new tissue
machine from Asia. Under our cooperation agreement with the textile machine
manufacturer Trützschler Nonwovens, we won two projects from Spain and China
for machines to produce nonwoven fabrics.
New hall construction in Kunshan, China, awarded for energy efficiency
For a particularly energy-efficient new hall construction at the production location Kunshan, China, Voith Paper received LEED gold certification in sustainability.
LEED stands for “Leadership in Energy and Environmental Design”. This makes
the new hall one of the very few ­industrial buildings in the country to have received this internationally recognized certification for ecological construction atgold level. The building also came second at the “Energy Masters Award” hosted
by the Berlin manager network econique in the “Overall Concept” category. We
see these awards as recognition of our sustainable approach. The construction of
the new building in Kunshan is a good example of how ecological and economic
benefits can be meaningfully combined.
Profit from operations down significantly due to the fall in sales
In the 2013/14 fiscal year, Voith Paper’s profit from operations was positive as
announced, although it fell to € 9 million (previous year: € 86 million, down 90 %).
Even though we had expected earnings to fall, we had not expected such a sharp
decline. This was primarily due to us not reaching our sales target, although theintense competition and high pressure on prices in the project business also played
their part. This was accompanied by negative effects stemming from cost overruns
in projects. Cost savings had a positive effect on earnings, although they wereunable to fully compensate for the negative effects. Return on sales fell to 0.6 %(previous year: 5.2 %), while the ROCE decreased to 1.0 % (previous year: 9.1 %).

62

03.4. Voith TurboGroup Management Report

Voith Annual Report 2014

Good level of orders received in a difficult
market environment
Voith Turbo introduced a new organizational structure as at October 1, 2013. The
new Mining & Metals division and the new Power, Oil & Gas division are the successors to the former Industry division. The former Marine division was also allocatedto the latter in the form of a business unit. The other two divisions, Commercial
Vehicles (formerly: Road) and Rail, were restructured internally. Voith Turbo’s global
sales organization was also restructured in order to give additional responsibility
for the business to the different regions.
Voith Turbo increased the level of its orders received in the 2013/14 fiscal year ina generally adverse market environment. Sales were down slightly due to the strategic realignment of the Rail location in Kiel and decreases in the Mining & Metals
and Power, Oil & Gas divisions. Nevertheless, Voith Turbo was able to exceed
its high profit from operations from the previous year. The efficiency programs
launched began to take effect, with the fall in sales as well as extraordinary burdens on earnings in the Rail division being more than compensated for.
Sales in the core business almost at the previous-year level
In the 2013/14 fiscal year, Voith Turbo generated sales of € 1,409 million compared to € 1,500 million in the previous year. This represents a decrease of 6 %.
Adjusted for the activities of the Locomotive business at the Kiel location which
we strategically realigned in the period under review, Voith Turbo’s total sales
were almost at the previous-year level.
We were slightly down on the forecast we published in the Annual Report 2013(“to remain stable”). This was primarily attributable to a decline in the market
for raw materials which was sharper than expected and burdened sales in the
Mining & Metals division accordingly.
Developments in the individual divisions were not uniform. We achieved a risein sales in the Commercial Vehicles division. The other three divisions, Mining &Metals, Power, Oil & Gas and Rail did not reach the sales seen in the previous
year. Adjusted for the locomotive business, sales increased in the Rail division.
More than half of sales in the past fiscal year were again generated in Europe(including Germany). Asia accounted for more than one quarter of sales. Voith
Turbo generated significant sales growth in the regions of the Americas andEurope excluding Germany, whereas in Asia sales decreased noticeably.
Orders received up by 5 %In the 2013/14 fiscal year, Voith Turbo won new orders worth € 1,505 million(previous year: € 1,436 million) thus increasing orders received by 5 %. This is
in line with our forecast (Annual Report 2013: “grow slightly”; Interim Report
2014: “significantly exceeding the previous year”). There was a pleasing development in orders received in the Rail division, which recorded strong growth.

Voith Annual Report 2014

Group Management Report

63

The other three divisions recorded new business that ranged from stable to up
slightly. Orders on hand increased to € 1,210 million as at September 30, 2014(previous year: € 1,120 million).
In the Commercial Vehicles division, Voith Turbo was able to generate a slightincrease in orders received in a generally tense market environment, with DIWA
automatic transmissions for buses accounting for a significant portion of thetotal volume. In the period under review, we received large important orders
in all regions. Unit sales of retarders were pleasing in both the truck and thebus segment. This reflects the positive effect of the introduction of the Euro 6
emissions standard on the European truck business. The compressor businessdeveloped positively compared to the previous year as a result of vehicle manufacturers continuing to ramp up the number of units produced.
In the Mining & Metals division, we succeeded in keeping our orders received
at a constant level in a difficult market environment. On account of the overheating market for raw materials, mine operators and mining companies are still
having to contend with falling prices. This led to cost pressure and a lower levelof investment activity among producers. As the steel industry remained characterized by excess capacities despite the rise in steel production, there were also
only few new investments made here. The machine tool market also stagnated.
Nevertheless, we were able to record growth thanks to innovations such as the
CLDP (closed loop differential pump) self-contained servo drive and the IPVP
servo pump. China, North America, South Africa, Australia and South America
remain the most important sales markets for the Mining & Metals division. In
North America we increased our orders received, scoring mainly with complete
drive packages. Business with safety and highly flexible couplings developed
very positively. For these product groups we managed to tap important new
fields of application.
Orders received by the Power, Oil & Gas division were also on a par with theprevious year, with falling demand in the power plant business being compensated for by an increase in orders received by the oil and gas business. In thecore markets of China and India, construction activities for new coal-fired power
plants were down on account of weakening macroeconomic data and decisions
relating to energy policy. By contrast, our oil and gas business benefited froma strong market in the US and the Middle East. As part of the expansion of the
supply of shale gas, in the US we received several orders to supply gas pipeline
compressor stations with Vorecon planetary gears. The Marine business unit won
two major contracts for Voith Schneider propellers, which increased its orders
received significantly.
The Rail division recorded strong growth in orders received. The upswing in the
global market for rail vehicles continued. At the same time, the arrival of new providers caused competition to become even fiercer, thus generating pressure on
prices accordingly. In the important Chinese market, the government approved anumber of new high-speed projects in the period under review. Throughout Asia,

64Group Management Report

Voith Annual Report 2014

massive investments were also made in inner-city transportation on account ofongoing urbanization. We recorded a high level of orders received for couplingsin connection with metro projects for Delhi and for several Chinese projects. In
the area of gear units, our local presence in India is beginning to bear fruit: inthe period under review, we won two major contracts from India and Australia.
We also won interesting contracts in the difficult Russian market.
In order to reinforce and expand our position in the promising Chinese rail market,
we made the decision to build a new factory and an engineering center for rail
vehicle components in Shanghai.
Strategic realignment of the Rail location in Kiel
Under the Group-wide success program Voith 150+, the Rail location in Kiel was
realigned in the 2013/14 fiscal year: Kiel is being turned into a major service
location for Voith Turbo’s Rail division, offering comprehensive ­s ervices for rail
vehicles and components. In the course of the strategic realignment, more thanhalf of the jobs will be kept, while around 70 positions will be cut in a way thatwill be socially compatible. The restructuring is expected to be implemented by
the end of the 2014/15 fiscal year.
Profit from operations at previous-year level
In the 2013/14 fiscal year, Voith Turbo generated a profit from operations of€ 111 million which was at the previous-year level (previous year: € 110 million,0 %). Caused by currency effects, we did not entirely meet our forecast (Annual
Report 2013: “climb markedly”). Although the efficiency programs launchedwere able to compensate for the sales-related fall in earnings as well as burdensfrom recognizing provisions for risks from warranties in the Rail division, they
prevented a significant increase in earnings. The return on sales improved to
7.8 % (previous year: 7.2 %). The ROCE came to 14.7 % (previous year: 13.9 %).

Sales Voith ­Turbo

Orders received Voith ­Turbo

Profit from operations Voith ­Turboin € millionsin € millionsin € millions

1,500

2012/13

1,409

1,436

1,505

110*

111

2013/142012/132013/142012/132013/14* Previous year restated.

Voith Annual Report 201404

04.1. Balance sheet

Group Management Report65

Net assets and financial position
The Voith Group continues to display a healthy structureof assets and equity and liabilities. In the period underreview, we once again generated clearly positive
operating cash flows, meaning we continue to reportno net debt but instead have stable net liquidity of€40 million. As announced, the investment volume
was down on the high figure of the previous year.

Equity ratio remains at a pleasing level
The balance sheet of the Voith Group as at September 30, 2014 continues todisplay a healthy structure of assets and equity and liabilities. Total assets fell by€ 312 million in comparison to September 30, 2013 to € 5,453 million (previous
year: € 5,765 million, down 5 %). The main drivers of this development were therepayment of financial liabilities and a reduction in working capital.
Non-current assets decreased to a total of € 2,403 million (previous year:€ 2,491 million, down 4 %). While the value of property, plant and equipment of€ 1,190 million changed only slightly (previous year: € 1,197 million), intangible
assets fell significantly by € 50 million primarily as a result of deconsolidation
effects as well as a reclassification of assets to assets held for sale. Non-current securities fell to € 134 million (previous year: € 216 million) on account of themarket value of individual securities falling significantly.

Further information on current assets
can be found in section 4.2., “Liquidity”.

Current assets fell by € 222 million in total to € 3,051 million overall (previous
year: € 3,273 million, down 7 %). In this context, inventories and trade receivables decreased on aggregate by € 60 million to € 1,871 million (previous year:€ 1,931 million). This is mainly attributable to Voith Paper (down € 60 million) andgoes hand in hand with the development of sales/total output. Cash and cash
equivalents fell by € 100 million to € 801 million (previous year: € 901 million). Other
assets decreased to € 113 million (previous year: € 177 million) mainly as a resultof lower receivables from VAT.
Non-current liabilities increased significantly by € 116 million to € 1,995 million(previous year: € 1,879 million, up 6 %). This was primarily due to an increase in
non-current pension provisions of € 105 million, which in turn was attributable tothe decrease in the interest level as at September 30, 2014. In addition, non-current bank liabilities increased by € 24 million, mainly due to an increase in longterm debt in China.

66Group Management Report

Voith Annual Report 2014

Current liabilities fell noticeably by € 319 million to € 2,427 million (previous year:€ 2,746 million, down 12 %). The item bonds, bank loans and other interest-bearing liabilities contained in this figure decreased by € 212 million, mainly on accountof the scheduled repayment of one tranche of the existing US private placement
as well as the repayment of additional current bank liabilities. Current other provisions decreased by € 40 million mainly on account of a reduction in provisions forseverance payments (down € 38 million). Trade payables dropped by € 38 million,
primarily caused by Voith Hydro (down € 30 million) as some of the projects in thisGroup Division have reached an advanced stage where less material is consumed.
As at September 30, 2014, the items “Assets held for sales” and “Liabilities directly
associated with assets classified as held for sale” contained the assets and liabilities of one of Voith Hydro’s subsidiaries which is due to be sold. The previous-year
figures for these items contained assets and liabilities of one of Voith I­ndustrial­Services’ subsidiaries which was sold in the 2013/14 fiscal year.
Net deferred tax assets increased by € 37 million primarily as a result of tax effects
on the adjustment made to pension provisions as described above.
Equity decreased by € 109 million to € 1,031 million (previous year: € 1,140 million).
Equity was reduced by measurement effects on securities and pension provisions
as well as dividend distributions. By contrast, the equity increased on accountof the net income and currency effects. The equity ratio fell to 18.9 % (previous
year: 19.8 %).

04.2. Liquidity

Cash flow from operating activities positive
Cash flow from operating activities came to € 191 million in the period under review,thus falling short of the previous-year figure of € 317 million. This was primarily
attributable to the fall in the operational result. In addition, higher tax payments
compared to the previous year burdened the cash flow from operating activities.
A fall in net current assets of € 45 million had a positive impact (previous year:€ 25 million). This decrease in net current assets in the period under review is mainly
due on the one hand to lower inventories and receivables, and on the other tolower trade receivables and other liabilities.

Development of cash flowin € millions

2013/142012/13

Cash flow from operating activities

191

317

Cash flow from investing activities

- 57

- 216

Cash flow from financing activities

- 232

-70

Total cash flow

- 98

31

Voith Annual Report 2014

67

Group Management Report

The cash flow from investing activities moved to € - 57 million (previous year:€ - 216 million). The lower cash outflow overall mainly results from the lower levelof investing activities, higher cash inflows on the previous year from the sale ofbusiness activities and from the change in cash investments.
The cash flow from financing activities stood at € - 232 million (previous year:€ - 70 million). Higher spending was chiefly due to the repayment of financial liabilities as described above.
For more details on the development of cash
flow, please refer to the cash flow statementin the notes to the financial statements.

In total, there was a cash outflow in the period under review of € 98 million (previous year: cash inflow of € 31 million).
Net debt, measured as the difference between interest-bearing financial liabilities
and liquid financial assets, amounted to € - 40 million (= net asset position) (September 30, 2013: € - 55 million).
The net debt ratio is not covered by the accounting policies based on the International Financial Reporting Standards (IFRS) and its definition and calculation may
diverge from the practice of other companies. In contrast to the carrying amount,which is based on the effective interest rate method, the ratio is calculated bymeasuring financial liabilities at their higher nominal repayment amount.

04.3. Investments

Investments reduced as announced
We used the high level of investment in recent years to modernize and greatly
expand the infrastructure of the Voith Group, thereby creating a sound basis toreach our mid-term targets. This enabled us to reduce the investment volume asplanned. In sum, we invested € 134 million in the 2013/14 fiscal year in strengthening our productivity and in the strategic alignment of the Voith Group. As
announced, this total was less than in the previous year (€ 192 million, down 30 %).
The investment ratio in terms of sales came to 2.5 % of Group sales in the period
under review (previous year: 3.4 %). Total investments are approximately € 36 million lower than the depreciation and amortization charge of € 170 million (previous
year: € 175 million, down 3 %).

Investments and depreciationin € millions

Investments total € 134 million
by Group Division■ nnnnInvestments■ Depreciation
192

175

170

Voith ­Turbo
23 %by region
Voith ­­Hydro
16 %Americas13 %Germany
53 %

Asia
21 %

EuropeexcludingGermany
13 %134Voith Paper
22 %2012/132013/14

Other
16 %

Voith ­­Industrial­­Services
23 %

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Voith Annual Report 2014

Strong commitment to Asia
We continued to commit ourselves strongly to Asia. However, after the intensive
investment activity seen in recent years, many important projects have now been
completed in this strongly growing region. In the period under review, we invested€ 28 million (previous year: € 48 million) in Asia, with special focus on China. This
figure accounts for 21 % of our total investment spend (previous year: 25 %). We
invested € 18 million (previous year: € 24 million), or 13 % (previous year: 12 %), of
the total volume in the Americas. As in previous years, more than half of our investments (53 %, previous year: 53 %) were made in Germany at a volume of € 71 million (previous year: € 101 million). In Europe excluding Germany, investments in the
period under review came to € 17 million (previous year: € 20 million) corresponding
to a share of 13 % (previous year: 10 %).

Voith ­Hydro: expanded production capacity forsmall hydro and the aftermarket
Voith Hydro invested € 22 million (previous year: € 33 million, down 35 %) in thecapacity of its value chain. This corresponds to an investment ratio of 1.7 % (previous year: 2.4 %). Following the pleasing establishment and expansion of Voith
Hydro’s capacities in previous years, a lower level of investment was necessary
in the period under review.
In St. Georgen am Steinfeld in Austria, we made great progress with the expansion of the location at Kössler, a subsidiary of the Voith Group. Kössler is ourEuropean competence center for small hydro technologies. Following the completion of the technical center in the period under review, the new production hall
is currently being constructed and is expected to be ready for operation in thefirst half of the 2014/15 fiscal year. Voith Hydro has invested in several locations
in order to be well positioned in the aftermarket business. The workshop in Milanfor repair and maintenance services was completed in the period under review
and is already up and running. The factory specializing in the reconditioning ofgenerators located in Norway’s Sarpsburg, where it was spread across several
locations, was moved to a large modern building in Fredrikstad.

Voith ­Industrial ­Services: increase in investments
In the period under review, Voith ­Industrial S­ ervices invested € 31 million (previous year: € 19 million, up 61 %) in property, plant and equipment, almost double
the amount invested in the previous year. The investment ratio in terms of sales
came to 2.6 % (previous year: 1.6 %). A large share of investments was made in
the ever-growing Automotive division, where most investment in the Wheel & Tire
Assembly division was made in relation to the contracts won by the division.

Voith Annual Report 2014

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69

Voith Paper: “Build up China” investment projectsuccessfully concluded
In the 2013/14 fiscal year, Voith Paper invested a total of € 29 million (previous year:€ 67 million, down 56 %) in property, plant and equipment. This corresponds toan investment ratio of 2.1 % (previous year: 4.1 %). The majority of Voith Paper’s
investments were made in Asia. An example of such investment was in additional
production capacities for paper machine clothing in the Chinese city of Kunshan,near Shanghai. We also completed construction of the Group-wide training centerat the same location in the period under review. The major multiyear “Build up
China” investment project has now been brought to a successful close. This has
specifically anchored the local presence of Voith Paper in China and laid the foundation for further expansion into Asia.

Voith Turbo: plans for rail vehicle components factoryin China
Following intensive efforts in previous years to modernize our locations and production capacities, we were also able to reduce Voith Turbo’s investments considerably.
In the 2013/14 fiscal year, Voith Turbo invested a total of € 31 million (previous year:€ 51 million, down 38 %) in property, plant and equipment. This corresponds to an
investment ratio of 2.2 % (previous year: 3.4 %).
In order to satisfy the localization requirements of the Chinese rail market and to
reinforce our position in this promising market, we made the decision to build a
new factory for rail vehicle components in Shanghai. With plans for the factory
to be put into operation in 2016, production capacities for Asia-Pacific are being
stepped up considerably.

04.4. Financial investments
and participatinginterests

Optimizing the portfolios at Voith ­Industrial ­Services
and Voith TurboIn the 2013/14 fiscal year, our success program Voith 150+ saw us carry out an
acquisition and adjust our portfolio. We also broke away from certain activities
that had no strategic perspective within the Voith Group. The transactions affect
the Voith I­ndustrial ­Services and Voith Turbo Group Divisions.

For information on the sale of the
DIW Group, see also section 3.2.,“Voith ­Industrial ­Services”.

In Voith I­ndustrial ­Services, we sold the wholly owned subsidiaries DIW Instandhaltungs Ltd. & Co. KG, Stuttgart, DIW Mechanical Engineering GmbH & Co. KG,
Stuttgart, and DIW Instandhaltung GmbH, Vienna, effective as at September 30,
2014. The DIW Group has been operating in Germany and Austria for more than
50 years and has around 6,000 employees. Its focus is on offering infrastructureservices regardless of the industry involved and therefore is no longer in line with
Voith I­ndustrial ­Services’ strategic concept, which focuses on technical ­services
for key industries.

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For information on the acquisition of
Helix Systems Inc., see also section 3.2.,“Voith ­Industrial ­Services”.

As at July 31, 2014, Voith acquired the industrial s­ ervices provider Helix Systems
Inc., based in Bessemer, Alabama, thus strengthening its Automotive businessin North America. The company, with annual sales of around USD 35 million andapproximately 230 employees, was fully integrated into Voith ­Industrial ­Services’
Automotive division and has been fully consolidated since August 1, 2014. The
acquisition supplements our s­ ervices portfolio in the US by adding activities witha technical focus, which already form part of Voith I­ndustrial S­ ervices’ core competences in Europe, but which we have yet to offer to the automotive industry
in the US.

Voith Annual Report 2014

In October 2013, Voith ­Industrial ­Services sold its wholly owned subsidiary Voith
Rail­services B.V., Twello (the Netherlands). This entity, which has four locations
and around 100 employees, performed maintenance work for a number of railway
operators and used to be fully consolidated in the Group’s financial statementsof Voith GmbH. The sale does not impact engineering ­services for rail vehicle manufacturers which are provided by Voith I­ndustrial ­Services.
In February 2014, Voith Turbo spun off the waste heat recovery business unit
by way of a management buyout. The newly created entity, which is completely
independent of Voith, is trading as SteamDrive GmbH and will in the future focus
on products for use in combined heat and power plants, i.e. the market for local
energy generation.

Voith Annual Report 2014

Group Management Report05

71

Research and development
Research and development has traditionally playeda central role at Voith. With several thousand active
patents to its name and hundreds more new patents
filed every year, Voith ranks as one of the world’s
most innovative companies in the industries it serves.
In the period under review, we invested €216 million,
or 4 % of consolidated sales, in R&D.

Aligned with global megatrends
Innovative products and ­services are the cornerstone of the Company’s futurebusiness success. As a technology group, Voith traditionally invests significantly
more than the industry average in research and development. In the 2013/14 fiscal
year, our R&D expenditures came to € 216 million (previous year: € 242 million,
down 11 %). The ratio of Voith Group’s R&D spend to Group sales came to 4.0 %(previous year: 4.2 %).
Voith’s ambition is to anticipate solutions to future challenges. For this reason, theR&D strategy is systematically aligned with global megatrends and in particularwith the infrastructure needs of the world’s growth regions. Resource and energy
efficiency, urbanization and mobility are not only the key challenges facing the
21st century but also the central themes of our research and development strategy at Voith.
Voith’s research and development activities are internationally organized. The focus
is on Germany; centers in the Americas, Asia and Rest of Europe contribute valuable specialized R&D input in the relevant Group Divisions.
Voith Hydro, Voith Paper and Voith Turbo all make significant contributions to
Voith’s research and development activities. As an industrial ­services provider,
Voith ­Industrial S­ ervices’ R&D expenses are by nature low.

Voith Hydro: on the road to the
one gigawatt unit

Research and developmentin € millions

242

2012/13216

2013/14

One focus of our R&D activities in the hydropower industry continued to be on
especially high-performance turbines and generators with the related generator
bars. For the Chinese project Xi Luo Du, we put two additional generator-turbine
units into operation in the period under review. In total, Voith Hydro delivered threesuch units to customer China Three Gorges Corporation for the project, which has
been fully connected to the grid since June 2014. With a generating capacity of
784 MW each, these are the most powerful generator-turbine units we have ever72

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Voith Annual Report 2014

built, and therefore represent an important technological milestone on the road todeveloping the first one gigawatt generating unit. Development of such powerfulunits in the 1,000 megavolt ampere class hinges on developing suitable generator
bars. Following successful development of the main insulation and a new tailoredterminal corona protection for high-voltage bars, the two technologies were introduced into production.
In the area of pump turbines, our work on the Obervermuntwerk II pumped storage project led us to develop a single-stage storage pump with an adjustableguide vane similar to a pump turbine. Pump turbines are generally a compromise
between a pump and a turbine. In this case, however, the machine only uses
pump mode, demonstrating how we looked at pump turbine technology from acompletely new perspective as well as our ability to develop ideas that can help
us offer our customers even more efficient pump turbine solutions in the future.
We participate in the EU-funded research project Hyperbole, which is working to
expand the operating range of Francis and pump turbines. The project, which has
a total of nine cooperation partners from the business and scientific communities,
seeks to integrate renewable energy sources into the grid better by increasing theoperational flexibility of hydropower plants.
In the period under review, we received the first commercial orders for our environmentally friendly compact turbine StreamDiver®. With this technology, we also
made it to the finals of the Deutsche Innovationspreis [“German Innovation Award”],
beating more than 300 competitors to make the Top 4 in the large companies
category.

Voith Paper: focus remains
on resource-saving technologies
During the period under review, Voith developed various new solutions for paper
manufacturers which offer considerable cost benefits as well as taking environmental issues into account. In the 2013/14 fiscal year, Voith Paper again launcheda number of new products.
This included the EdgeSaver edge-cutting system, which returns valuable fibers
to the production cycle and optimizes the quality of the web edges. Raw material
costs can thus be substantially reduced by saving fibers.
Constant high drainage of the paper web is fundamental to ensure that the paper
produced is of a consistent high quality. This is where two of Voith’s innovations
come into play, namely the polyurethane roll cover InForce as well as Infinity, acompletely new unique generation of endless and seam press fabrics.

Voith Annual Report 2014

Group Management Report73

The Pluralis Line product family for refining during stock preparation, which welaunched in 2006, is now available for virtually all types of raw materials and furnish mixtures. In the 2013/14 fiscal year, additional refiner fillings with various
diameters were added to the product family. The Pluralis fillings offer significantly
higher-strength values as well as energy savings of up to 30 % compared to traditional refiner fillings.
With Jade, Voith Paper has brought a new dryer fabric onto the market that translates reduced contamination to increased drying capacity due to its special design.
Our efforts to develop sustainable products were rewarded with an international
prize during the period under review. Our resource-saving flotation technology
LowEnergyFlotation (LEF) received the “European Paper Recycling Award” in October 2013. The award is presented annually by the European Recovered Paper
Council. LEF is an innovation that significantly reduces the energy requirements
needed to remove printing ink from paper fiber during recycling.

Voith Turbo: focused development approach
Following the realignment of the R&D portfolio and its refocusing in the previous
year, Voith Turbo redefined the processes and structures of its innovation management in the 2013/14 fiscal year. By taking a focused development approach,
Voith Turbo worked on developing innovation and new technologies in all four ofits divisions. Various new products were launched on the market in the period
under review.
In the Commercial Vehicles division, Voith Turbo presented VR 115 China Truck,
the first hydraulic retarder for trucks to be developed and produced in China. It ishighly robust and fulfills the demands of local customers for high braking quality
while offering outstanding economy.
In the Mining & Metals division, new control systems were developed for the mining
industry which simplify the error-free programming and operation of entire belt
conveyor drive systems considerably. In the machine tool industry, we enjoyed asuccessful market launch with the newly developed CLDP self-contained servo
drive. A variation of this product helps us offer solutions at competitive costs also
in the energy sector.
In the Power, Oil & Gas division, development work for further innovative variations of our Vorecon drives was intensively pursued. For our BHS gear units, ourdevelopment teams have worked on innovative solutions to further reduce power
dissipation and increase performance. In the Marine business unit, Voith Turbolaunched a revised version of the Voith Schneider Propeller (VSP) on the market
for tugs and offshore supply vessels. The VSP 34 is a new development with afocus on modularity, cost reduction and service friendliness.

74

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Voith Annual Report 2014

With an innovative solution based on SA3 coupler technology, Voith Turbo’s Raildivision was able to gain entry to the eastern European market. This semi-automatic central buffer coupling is particularly common in eastern and northern Europe
in the area of heavy goods and passenger transport. Voith’s new version launchedin the period under review offers several variations for energy absorption.
At the “Electric Drives and Mechatronic Systems” competence center founded in
the previous year, which can be used by all four of the divisions, Voith Turbo aims
to add electrical engineering to its core competences of mechanics and hydrodynamics. Here, we are working on new functions that arise when mechanics andelectronics are combined.

Cross-divisional development of ­industrial CFRP production methods
We continue to research and develop ­industrial production methods for components made of carbon fiber composites at our cross-divisional development
center for carbon fiber products. For many years now we have used CFRP forlightweight components, such as ship propellers, in paper machines and in drive
systems, among other applications. The goal is to further expand our competencein this field. This is a long-term research project for which we hold great hopes forthe future. The benefits of this material – such as low weight, high resilience andgood formability – lead us to expect that the use of carbon fiber components will
become increasingly significant in light of the demand for resource-efficient production in many industries.

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Group Management Report75

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

Sustainable business management
We continue the traditions and style of the family-owned company Voith with a view
to our understanding of sustainability: the obligation to leave a minimum ecological footprint, to act fair, and to return a profit over the long-term. Our motto is for
Voith to make a tangible contribution to sustainable development. Voith follows theapproach of giving equal consideration to economic, ecological and social factors.
We have defined six fields of action that are used to integrate sustainability management into the Group: sustainable business management, sustainable and profitable growth, responsibility for the environment, responsibility for products, responsibility for employees and social responsibility. Information on the field of action
regarding sustainable profitable growth can be found in sections 2, 3, 4, 9 and
10 of this management report. How Voith meets its responsibility to its employees
can be found in section 7 of this management report.
In 2008, Voith began implementing the strategic and organizational aspects of sustainability management throughout the Group, a process that we strive to improve
constantly. Since 2009, Voith records and analyzes all relevant environmental data,material indicators and selected personnel data in a separate sustainability database. Voith began publishing its own comprehensive annual sustainability reportin 2011. This report contains detailed information on sustainability management at
Voith, including specific goals, performance indicators and results. The project isgeared towards the requirements of the Global Reporting Initiative (GRI) for sustainability reporting.
Our expectations on sustainable business imply that our suppliers, too, mustcomply with recognized environmental and social standards. For this reason, socialand economic factors are incorporated in the terms and conditions of purchaseagreements, in the voluntary disclosures by the suppliers as well as in the assessments and audits of our suppliers.

76Group Management Report

Voith Annual Report 2014

Responsibility for the environment
We have set ourselves the goal of steadily minimizing our ecological footprint. We
expect to create a measurable economic added value for Voith by taking a responsible approach to the environment.
In developing Voith further to becoming a sustainable company, we are pursuing
three areas of focus regarding the environment. Our first area relates to the compliance with and implementation of environmental legislation and corporate environmental protection (eco standards). Secondly, we aim to improve energy andresource efficiency at our production and service locations taking into accounteconomic viability (ecological business management). Thirdly, we are driving energy
and resource-efficient product innovations forward through the systematic analysis
and assessment of Voith’s products and s­ ervices (ecotechnologies).
On the basis of the 2011/12 fiscal year, the Corporate Board of Management has
defined three central goals for the conservation of resources and environmental
protection. Within six years, by the 2017/18 fiscal year, we want to reduce ourenergy consumption by 20 %, our volumes of waste by 25 % and fresh water consumption by 10 %.

Responsibility for our products
We have set ourselves the standard of providing top-quality innovative products
displaying a level of safety, reliability and efficiency that our customers can rely
on. Our responsibility for products is based on three strategic pillars: quality andsafety, customer satisfaction and minimizing the impact on the environment, whichstarts in the development phase.

Sustainability: fields of activity
Long-term, successful growth

Sustainablea nd profitable
growthManage risks
Seize opportunities
Create value

Sustainablebusinessmanagement

Productresponsibility

Reliability
and innovation

Responsibility
for our
employees

Fair employer
with highdemands on
performance

Sustainability
at VoithCommitment
and inspiration

Socialresponsibility
Responsibility
for theenvironment

Resource efficiency and environmental protection

Voith Annual Report 2014

Group Management Report77

In order to guarantee a consistent level of quality and safety worldwide, Voith
has implemented risk and quality management across the Group. This includes
instructions on managing technical risks as well as the use of suitable methods andinstruments to ensure the quality of our products, such as the use of the international ISO 9001 quality management standard. We train our employees on quality
management requirements and procedural guidelines. We survey our customers
to assess their needs and degree of satisfaction in order to identify any potential
for improvement.
We pursue a strategy of ensuring our products make a contribution to the conservation of resources and environmental protection. At three of our four Group Divisions, the bulk of the environmental impact does not arise during the phase when
the products are being manufactured but rather not until they are in use, primarilyon account of the longevity of our products. This firstly involves greater awarenessof the use of raw materials in the production process and the steady reduction ofenergy consumption and the related CO2 emissions generated thereby. Secondly,
we also strive to make customer use of our products as energy-efficient as possible using fewer resources.

Social responsibility
As part of our commitment to society, we support activities and organizations in thefields of education, social welfare, sports and culture. We sponsor projects on thebasis of defined criteria that apply throughout the Group. For example, the activities and organizations we sponsor must be recognized charities and be effective
on an international and intercultural basis. In addition, it must be ensured that the
project has a broad impact and foster the community or increase the attractivenessof the cities in which Voith is located for the people living there. And, regardlessof the above, Voith takes action where it perceives an urgent humanitarian need.

78

07

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Voith Annual Report 2014

Employees
Qualified, motivated and dedicated employees are
the foundation and motor of our success. For our
employees who meet our high demands, we offer along-term employment relationship, an attractive
workplace and individual development opportunities.
To ensure this, we take into account each of theirsituations in life and enable them to take a wide rangeof career paths. At the end of the 2013/14 fiscal year,
we had over 39,000 employees.

Headcount down significantly

For information on the sale of the
DIW Group, see also section 4.4.,“Financial investments andparticipating interests”.

As at September 30, 2014, we employed 39,302 full-time equivalents (excluding
apprentices) in the Voith Group. This is 3,832 employees, or 9 %, less than theyear before (September 30, 2013: 43,134). This decrease contains 3,141 jobs nolonger included as a result of larger changes in the consolidated group – the saleof the DIW Group offset against the purchase of Helix Systems Inc. In addition to
the reduction in headcount at Voith I­ndustrial ­Services as a result of the deconsolidation, we reduced the number of employees at the Voith Group by 691.
Ongoing restructuring measures meant that a total of 804 jobs at Voith Paper were
cut in the period under review. The job cuts affected all regions, but hit the projectbusiness in Europe hardest of all. Gradual adjustments were made in North andSouth America.
At Voith Turbo and Voith Hydro, 210 and 104 jobs were cut, respectively. These
cuts were partly attributable to the capacity adjustments at the Heidenheim­­
location announced in the previous year, and partly to us systematically using natural
employee turnover as a way of improving our cost structure.
Adjusted for the jobs at the DIW Group no longer included and the jobs gained fromHelix Systems Inc., the number of employees at Voith I­ndustrial S­ ervices increasedby 469 overall. In line with the good business development, the new employees
were assigned to the Automotive division.
Voith ­Industrial ­Services remains the Group Division
with the most employees
Voith ­Industrial S­ ervices accounts for 47 % of the total headcount (previous year:49 %), once again making it the largest Group Division in terms of total staff numbers. 18,360 people were working there at the end of the period under review (previous year: 21,032). Voith Paper employed 8,419 staff (previous year: 9,223) as at
September 30, 2014, or 21 % of the Group’s headcount which was unchanged on
the previous year. With 6,275 staff members (previous year: 6,485), Voith Turbo

Voith Annual Report 2014

Group Management Report79

made up 16 % (previous year: 15 %) of the Group’s headcount. Voith Hydro employed 5,219 people, a 13 % share of the Group’s total workforce (previous year:
5,323; 12 % share).
37 % of the workforce based in Germany
The regional distribution of the workforce changed only marginally on the previous year: Voith continues to employ most of its staff in Germany, which accounts
for 37 % of the total number of employees (previous year: 40 %). The Americas
were still the second most important region with a share that had risen to 29 %compared to 27 % in the previous year. We employed 19 % of our staff in Europe
excluding Germany (previous year: 20 %). Asia accounted for 14 % of the total
workforce (previous year: 12 %).
In Germany, the number of employees fell to 14,434 as at September 30, 2014(previous year: 17,327).
Europe excluding Germany recorded a net decrease of 1,036 in the number ofjobs. As at the end of the fiscal year, the Group had 7,544 employees in this region(previous year: 8,580 employees).
In the Americas, the Voith Group employed 11,594 staff at the end of the year, 14
more than at the same time of the previous year (previous year: 11,580 employees).
In Asia, we created 117 new jobs and increased the number of employees to 5,543
as at the end of the period under review (previous year: 5,426).

First-class training
We train young people in more than 40 technical, commercial and trade professions. In the period under review, we once again provided a large number of young
people with career prospects and maintained a high number of trainee placements.
At the close of the 2013/14 fiscal year, 1,294 apprentices and students were employed at Voith locations around the globe (previous year: 1,201).
As a matter of tradition, we set great store by first-class professional training. We
place great value on interdisciplinary learning and a holistic approach of imparting a combination of both social and professional skills. In May 2014, we opened
our new training center in H
­ eidenheim, our largest location. Furthermore, at ourChinese location in Kunshan where we opened Voith’s largest training center
outside of Germany in April 2014, we train apprentices using a similar system
to the German dual-track work/study system but enriched with Chinese values
and culture.
The high quality of our training is repeatedly demonstrated by the excellent performance of Voith apprentices at state and federal level. In the 2013/14 fiscal year, 49 %of the apprentices at H
­ eidenheim received a final grade of 1.9 or higher (equivalent
to “good”), with one of our apprentices receiving the award for best technical draftsman in Germany by the German Chamber of Industry and Commerce.
As part of our “Global Graduate” trainee program, we offer the trainee graduatesof technical and business management disciplines that we recruit worldwide a

80Group Management Report

Voith Annual Report 2014

challenging entry into our Company. The participants combine practical experience with training sessions, are coached by a mentor and work in various Group
Divisions and regions.

Training and qualifications for all employees
Voith sees itself as a responsible employer that encourages and challenges its
employees. We require our employees to be willing to keep on learning over theentire span of their careers and help them to constantly develop. Targeted personnel development requires an employee to engage in intensive dialog with theirsupervisor. This is why our leadership concept requires supervisors to hold a formal
meeting once a year with each of their team members to discuss their workplace,tasks and employee-supervisor relationship, and also hold an additional meeting todiscuss targets, performance results and development perspectives. This meeting
also determines any further training needs and the measures needed to be taken.
On the Company’s part we offer our employees access to internal and external
training and personal development measures that foster professional, social andintercultural skill sets as well as coaching. The range of topics covers occupationalsafety and health, environmental protection, technology, IT, quality, languages,
economics as well as management and personality. Our managers take part in a
uniform development program, which is intended to enhance leadership skills at
all levels of management and encourage active interchange between managers.
Moreover, it will promote a common understanding and approach towards leadership throughout all Group Divisions and regions. The executives at top management level also take part in the training program offered by our Voith Academy.
We train executives from procurement, finance and human resources as well as
project managers in the Voith Management School. Furthermore, all employees
have access to the Voith training sessions offering a wide range of training options.
In the period under review, approximately 2,200 employees worldwide (previous
year: around 1,900) took part in our internal training programs which are designed
to accompany their professional or management career paths. There were also
various seminars with external training providers as well as internal training measures that were selected locally according to specific requirements at individual
business units.

Employees Group

43,134

Employees total 39,302
by Group Division

39,302

Voith ­Turbo
16 %by region
Voith ­­Hydro
13 %Voith Paper
21 %2012/132013/14Other
3%

Americas29 %Germany
37 %

Asia
14 %
Voith ­­Industrial­­Services
47 %

Other
1%

EuropeexcludingGermany
19 %Voith Annual Report 2014

Group Management Report

81

Health and safety management
Occupational safety and health are top priorities for us. By taking a responsible
approach in designing workplaces and processes, we aim to avoid accidents andwork-related illnesses in the best possible way we can.
The Group guidelines on occupational safety prescribe binding mandatory minimum requirements and standards for the Voith Group. All employees are involvedin the occupational safety program. Our executives are given goals that cascade
through the organization to the managers in their unit. Leading employees bearing responsibility for managing workers are kept informed and made aware of any
issues. They train their staff and address safety issues at regular meetings. We havea comprehensive management system in place with which we identify and manage
relevant information according to international standards. Since implementing thismanagement system at all of our production locations in the 2009 fiscal year, thefrequency rate, calculated pursuant to an international standard and documenting
the number of accidents per one million working hours, has been constantly falling.
We achieved our ambitious goal of reaching a frequency rate of 2.0 in the 2013/14
fiscal year, making Voith one of the world’s leading companies when it comes to
occupational safety. Our new goal is to constantly improve the frequency rate.
We also aim to systematically implement preventive measures to promote thehealth of our employees. It is our intention that our employees be able to maintaintheir ability to work and retire in good health at the end of their working life. In thisregard, we concentrate on four fields of action: a safe working environment in linewith demographic developments, health promotion and prevention of health-related issues, support in the event of illness and combating stress as well as corporate culture, leadership and health.

Diversity and inclusion
Voith employs men and women that are at different stages of their lives, comefrom over one hundred nations and bring their own individual experiences withthem. This diversity enriches our corporate culture, encourages teams’ creativity
and innovative drive and contributes to the economic success of our Company.
As an employer, Voith sees it as its duty to offer its employees equal opportunities
and ensure that the workplace is free from discrimination.
Under our Diversity & Inclusion program which we launched across the Group in
the 2012/13 fiscal year, we are working on fostering employee diversity and equal
opportunity throughout the entire Group. In order to familiarize employees withthis issue, the D&I managers and their teams initially received training in the period
under review following a train-the-trainer concept, who then subsequently trained
executives and top management. Our vital field of action of increasing the numberof women in management applies to all regions. By contrast, the challenges relating to the age structure of workforces vary depending on the demographic development in the regions.

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Family and career
We wish to offer our employees an attractive workplace that can be flexibly adapted
to meet their respective situation in life. For this reason, we support them in combining family life with work. This also increasingly includes such aspects as caring
for family members.
We offer a wide range of working models, such as part-time or a combination ofhome office and presence at the Company. At our headquarters in ­Heidenheim,
our largest German location, we offer over 155 places in child care centers for thechildren of our employees, partly in cooperation with the City of ­Heidenheim andanother local employer. Various locations in Germany have their own parent-childoffice allowing our employees to bring their child with them to work when otherchildcare options fail at the last minute.
We continued to expand on family-supporting measures in the period under review,in which we established a cooperation with an external family ­services provider
that Voith employees can contact online or by phone to find a suitable childcare
solution anywhere in Germany, for example by arranging au pairs or childminders.
It also offers advice and assistance for all questions relating to nursing care needs
for relatives. Our employees can find additional practical information on child andnursing care on our Germany-wide intranet platform.

08

Subsequent events
After the end of the period under review, the fair value of non-current securities
accounted for in the “available for sale” category decreased by €18 million as ofNovember 20, 2014.
No additional significant developments have occurred since the close of the
2013/14 fiscal year.

Voith Annual Report 201409

09.1. Risk and quality
management

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83

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

Aligned toward increasing the valueof the Company
Entrepreneurial activity includes making decisions under conditions of uncertainty.
Risk is therefore an integral part of entrepreneurial activity. To safeguard against
risks that could jeopardize the Group and/or its companies as a going concern,
Voith operates a consistent and binding Group-wide risk management system.
Existential threats are defined as aggregate risk potential that threatens more than
50 % of equity or more than 10 % of sales.
All the elements of risk management have been brought together in a risk management system. This is not only geared to meeting legal requirements. It should
also contribute to increasing the value of the Group and its companies by reducing
potential risks and the probability of their occurring. At the same time, the system
is intended to produce a state of equilibrium between correctly assessed risks andthe exploitation of opportunities. The Group Divisions have developed standardized risk controlling matrices on the basis of the Group-wide guideline governing
its internal control systems (ICS) that was implemented in November 2011. These
were then rolled out to the entities in a series of suitable programs such as training
measures and informational events. The adjustments to the processes and internal control systems that were needed at the companies to implement these risk
control matrices are close to completion. The ICS is part of the risk management
system aimed at ensuring the appropriateness and reliability of internal reportingand external financial reporting, the effectiveness, efficiency and propriety of operating activities, as well as compliance with the Voith Code of Conduct and theguidelines of the Voith Group. Risk and quality management are interlinked andintegrated in a comprehensive internal controlling system.

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

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

Voith has a distributed risk management system. Responsibilities are clearly
defined for the differentiated risk profiles at all levels of the Group.
The risk management process itself breaks down into four stages:·· Risk identification: Voith constantly monitors macroeconomic developments, anddevelopments in specific industries and internal business processes that could
affect the situation of the Group. A risk catalog helps identify individual risks.
·· Risk analysis and assessment: The risks identified in this way are assessed interms of the potential damage they could cause and the probability that they willarise. Wherever possible, the scope of potential damage is quantified as a cost
factor. Both the worst case scenario and a realistic scenario are analyzed foreach identified risk to performance to assess the greatest possible risk, and its
impact on the financial situation of the Group is examined. This involves reporting those individual risks with a maximum risk level of >€ 5 million or a realistic
risk level of >€ 2 million, including the measures taken to mitigate this risk suchas existing insurance policies, recognized provisions or recorded depreciation,
to the Group’s management on a monthly basis.
·· Risk management: Analysis and assessment of the identified risks gives Voith’s
management the data it needs to decide whether risks can be avoided, reducedby suitable actions or distributed by signing appropriate agreements, or whether
they have to be accepted and contained by means of optimized processes andcontrols.
·· Risk monitoring and reporting: A multi-tiered set of controlling and reporting tools
in place at Voith helps the Corporate Board of Management to analyze risks andtake well-founded decisions.

09.2. Risks

In the following, we describe risks which could have a considerably negative
effect on our net assets, financial position and results of operations and cause theresults to deviate negatively from those forecast/targeted. The order of the riskspresented below, within the six risk categories, reflects how we currently estimate

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the importance of these risks for the Voith Group. Unless otherwise stated, thefollowing risks relate to all four Group divisions. Additional risks of which we are
currently unaware or risks we currently estimate to be immaterial may also have anegative impact on our business activities.

09.2.1. Risks to the Group
External risks
Our economic environment is determined by global demand for capital goods
and ­industrial ­services, which in turn are influenced by the global macroeconomic
environment. The gradual recovery in the global economy forecast by economic
analysts is extremely fragile. If economic development were to fall short of expectations, it is highly probable that this would have negative effects on Voith’s net
assets, financial position and results of operations. Economists see significant
risks for the projected global economic development. The most serious risk forthe global economy is the high number of geopolitical conflicts: if the current geopolitical crises – for example the Ukraine/Russia conflict and the highly unstablesituation in the Middle East – were to escalate or carry on for an unexpectedly
long period of time, this could disrupt international trade, drastically raise energy
prices and unsettle the global investment climate. A second risk for the global
economy is the crisis in the euro area which remains unresolved. Despite showing
signs of recovery, the countries of the euro area remain vulnerable to setbacks as
they continue to face significant challenges. First and foremost are the high levelof sovereign debt and the structural reforms urgently needed in several countries
to increase international competitiveness, which, bar a few exceptions, have yet
to be undertaken. An additional risk for the global economy lies in the fact that thefinancial markets have become increasingly detached from the real economy due tothe loose monetary policy and that the risks described are at present insufficiently
priced into securities prices. Negative developments in the real economy could
therefore trigger overreactions and, in the worst case scenario, financial market
shocks which would have further feedback on the global economy.
Various market risks could have a negative impact on Voith’s earnings position
should they eventuate. The market risk with the highest possible damage potential from the Voith Group’s perspective relates to Voith Paper. Should the forecast
growth in paper production underlying our business plan not be realized in the
coming years, investments in paper machines would be significantly lower than
expected and increased competitive pressure would have a negative impact on
prices. Both would jeopardize the ability of Voith Paper and the Voith Group as awhole to reach their sales and earnings targets. On the market for several of Voith
Turbo’s application fields, mechanical drive solutions are frequently in competition
with electrical alternatives. Voith Turbo protects itself against this risk by constantly
developing its product portfolio with a view to improving efficiency as well as bychanging the cost structures by becoming even more localized. Should we fail tomaintain our competitive position in the future through technological advancement,
this would cause Voith Turbo’s market position in the affected segments to deteriorate and thus hamper the Voith Group’s earnings position. At Voith Hydro, thedevelopment of shale gas extraction could in the mid to long term lead to partial

86Group Management Report

Voith Annual Report 2014displacement of new investments as well as to renewal work being carried out on
existing hydropower plants in North America, which would diminish this Group
Division’s earnings position. Furthermore, individual market segments in which
we operate could also be impacted in the future by slowed market growth or falls
in demand. Other market segments are highly competitive, meaning we find ourselves faced with pressure on prices in some cases. However, the damage potential of these market risks is considered lower as it is limited to individual divisions
or business units.
One geopolitical risk that not only effects Voith indirectly as an economic risk but
would also directly hamper the Voith Group’s business development is a potential escalation of the tension between Russia and the EU and the inherent risk offurther economic sanctions being imposed on both sides, right through to a total
embargo. This would lead to Voith not being able to carry out its orders on handor participate in future project tenders, which would have corresponding effects on
our earnings position. This risk relates to all four Group Divisions, albeit to varying
degrees. Voith Hydro would be noticeably affected as its orders on hand currently
include several orders from Russia. If an economic embargo were to be more prolonged, Voith Hydro would also be cut off from the mid-term market potential for
modernization work, something Russia has to offer as an established hydropower
market. The damage potential is significantly less for Voith Turbo and Voith Paper,
while it is very low for Voith I­ndustrial ­Services.
We also deem there to be a location risk in Africa where Voith Hydro is currently
involved in several hydropower projects. Should the Ebola epidemic continue tospread, there is the risk of projects being delayed or not being implemented at all,which could hamper Voith Hydro’s earnings position in the short term. There would
be mid-term effects for Voith Hydro if new orders were delayed, depending on theseverity of the epidemic and how far it spreads. The other three Group Divisions
are not currently participating in any significant activities on the African continent
outside of South Africa.
The scenarios described below were analyzed by the Voith Group. The management of Voith GmbH is prepared to act decisively as soon as economic conditions
change for the worse. Voith has a diversified portfolio in terms of both markets andregions, strong market positions, healthy finances and a stable liquidity position,and monitors all key indicators on a monthly basis. Voith therefore believes it iswell placed to rapidly respond to any consequences of external risks.
Management risks
Under the multiyear success program Voith 150+, we are involved in a process ofstrategic adjustments. These include optimizing our product and ­services portfolio
as well as restructuring measures, capacity adjustments and process improvements. As is always the case with such processes, there is the general risk of thestrategic adjustments not being implemented within the planned time period or thatthey do not generate the planned savings. This would mean that the planned costsavings would be realized at a later date or not in full, which in turn would have anegative impact of the net assets, financial position and results of operations ofVoith Annual Report 2014

Group Management Report87

the Voith Group and restrict our scope for further growth. Our implementation ofVoith 150+ is currently on schedule.
Beyond the risk described above, there are currently no specific identifiable risks
arising from Group management; for example, from the reporting system, the corporate image or the lack of coordination of business activities within the Group.
Liquidity and financial risks
The key objective of liquidity and financial management is to make sure at all times
that the Company is able to continue as a going concern and to ensure the financial independence of the family-owned business. The liquidity reserves remain at
a secure level to ensure the Company is always in a position to meet its payment
obligations.
Cash management is the task of the Group’s treasury function as well as the related
regional treasury and finance centers. The Group maintains cash pooling systems
in Europe, China, India and North America, which it uses to concentrate its cash
and cash equivalents as far as possible (where legally permissible) and lower interest expenses caused by external debt financing. Borrowings are generally takenout by Voith GmbH and provided to the Group companies when needed.
The Voith Group’s diversified financing structure is designed to safeguard long-term
stability. The syndicated euro loan arranged in 2011 was increased in August of
this year under an amend-and-extend agreement and now runs until 2019 with theoption of extending for another two years. The loan has not been drawn on and isavailable as a strategic liquidity reserve if needed, as are additional bilateral linesof credit available to us from banks. The syndicated loan placed in China in 2012
secures the finance for future investments in the same currency as the operating
business on the local market. These instruments will allow for long-term growth ina changing global market. Voith has given high priority to the availability of liquidityfrom existing loan agreements. Risks of termination are minimized in that compliance with the terms and conditions of the respective contracts is monitored on
an ongoing basis. As in the previous years, all contractual terms and conditions
were complied with in the 2013/14 fiscal year.
A “negative outlook” was added in December 2013 to the investment grade “Baa2”
rating issued by Moody’s, which was confirmed again in September 2014. A downgrading could raise the financing costs and have a negative effect on the net assets,financial position and results of operations.
With regard to securities, the Group generally holds isolated direct investments.
Fluctuations in the value of these investments as a whole are recognized directlyin equity. Market losses are recognized in profit and loss only if there is objective
evidence that the fair value of an investment is sustainably or significantly impaired.
The sustainability criterion is met if the impairment lasts longer than 12 months. If
the fair value of the investment falls more than 30 % below its cost, this is regarded
as a significant impairment. It should be noted that all investment decisions are
based on thorough analysis of fundamental data. Any market risks to share prices
are analyzed continuously.

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As a globally operating company, Voith remains exposed to the risk of fluctuatingexchange rates which could have a negative impact on the net assets, financial
position and results of operations. To contain risks arising from cash flows in different currencies (mainly US dollars but also currencies from emerging markets
such as China, Brazil or India), defined foreign currency management procedures
are applied consistently throughout the Group. All Group companies are required
to hedge foreign currency items when these occur. Revaluation of the euro against
various other currencies could have negative effects on sales and earnings due tocurrency translation for the financial statements prepared in foreign currency. This
could further have an impact on our competitive position as cost benefits in weakercurrencies are possible for competitors. Moreover, interest risks are covered byappropriate hedges in order to obtain long-term interest and financing security.
To hedge existing transactions such as future cash flows in different currencies orvariable-rate financing, Voith uses a variety of derivative financial instruments, inparticular forward exchange contracts to manage currency risks and interest rate
swaps to manage interest risks. The instruments used and the hedge strategies
are defined and documented at the start of a hedge in line with the goals of corporate risk management. The risks are constantly monitored and, if necessary,the hedges are adjusted.
To guard against political and economic risks associated with deliveries and services provided by the Group Divisions, the Group buys commensurate insurance
from government export credit insurance agencies, from the private-sector insurance market and from banks. The Group also maintains adequate cash reservesto cover all other operating risks.
Counterparty risks with financial partners are monitored constantly.
Provisions have been recognized and contingent liabilities disclosed in the notes
to cover the potential financial burden of tax risks. Moreover, neither Voith GmbHnor any of its subsidiaries are involved in tax proceedings that could have a material impact on the economic position of the Group. Likewise no such proceedings
are foreseeable for the time being.
No particular liquidity or financial risks are perceivable at the present time. For
more information, please refer to the notes to the consolidated financial statements.
Infrastructure risks
In the area of infrastructure risks, Voith primarily identifies IT risks, human resources
risks, compliance risks and environmental protection risks, against which the Company takes specific countermeasures. No particular risks relating to the Group’s
infrastructure are perceivable at the present time.
Our successful business activities are underpinned by state-of-the-art and secure
information technology. This is why we have our own IT function, Voith IT Solutions,which ensures that reliable data processing ­services are provided from our own
data center. The experts at Voith IT Solutions manage the whole IT infrastructure

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for the entire Group and also maintain the specific application systems used byeach Group Division. Our information security management is based on the international standard ISO/IEC 27001, and thus meets the most stringent standards.
Our central computer center operated by Voith IT Solutions Germany has obtained
certification under this standard. Our primary objective when it comes to managing IT risks is ensuring the availability of our IT infrastructure and IT applications
used. Outages of basic systems owing to technical faults, virus attack or force
majeure would result in business processes being massively disrupted or coming
to a complete standstill. In order to prevent such business interruptions, we built
redundancy capacity into the core systems of our IT landscape at two data processing centers. At an application level, we address the risk of defective softwarein addition to the risk of outages. We ensure the reliability (“integrity”) of applications with a strict quality management system, which involves new software versions and programs being subject to a multistep test and approval process before
they are implemented. In order to maintain the confidentiality of our data, these arecategorized according to predefined confidentiality levels. Depending on the levelof confidentiality, we use IT tools of varying complexity such as encryption technology, which we use to securely save and transfer data. This also ensures that
our intellectual property is protected as best as possible. In addition to these technical measures, we train and inform our employees about how to securely handle
confidential data by means of e-learning programs and awareness campaigns.
Highly qualified professionals and executives are key to our products, our image
and ultimately to the success and growth of Voith. Should we be unable to cover
our qualitative and quantitative personnel needs over a longer period of time, thiswould call into question our ability to reach our corporate targets. For this reason,
we strive to bind experienced employees to Voith and constantly train them on
the one hand and to remain an employer of choice for newly trained candidates
on the labor market on the other. When it comes to ensuring we have a sufficientnumber of such employees, we compete with other international players and act
with foresight. With a family-friendly human resources policy and flexible working
hours, international career development prospects and performance-linked compensation systems as well as a broad spectrum of training and development programs, we offer an attractive work environment. With regard to the recruiting of
new staff, we have driven forward our personnel marketing. In order to fulfill therequirements of the global labor market and the internationalization of Voith, weare realigning our human resources department. The strategic aim of this multiyeartransformation process is to give the regions a stronger weighting and enhance
the quality of personnel work as well as to streamline processes and make themmore efficient. This is expected, among other things, to increase the standardization of administrative processes with the help of a uniform Group-wide IT platform.

Further information on compliancemanagement can be found in section 1.3.,“Values, guidelines, compliance”.

At Voith, we base all our actions on integrity and trust. The clear and unambiguous
guidelines and values defined by the Corporate Board of Management are summarized in the Voith Code of Conduct. This is equally binding for all Voith employees
worldwide and provides clear-cut rules of behavior toward third parties such as
business partners, competitors, political parties and government authorities. Compliance with these principles is monitored by the Group’s Compliance Committee

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and the compliance officers in the Group Divisions and in each entity of the Group.
We place great value on functioning compliance management, as issues ranging
from non-compliant behavior through to illegal acts committed by employees could
lead to a loss of image, sanctions, penalties and ultimately to a fall in earnings.
The business activities of an i­ndustrial company give rise to risks for people andthe environment. For this reason, i­ndustrial safety as well as compliance with environmental legislation and corporate environmental protection is a top priority for
us. Such risks occurring could also result in production outages, claims for damages being filed and a loss of image. To avoid environmental and health risks, allproduction processes in the Voith Group are subject to corporate guidelines on
quality, risk management, and occupational safety and environmental protection.
Integrated management systems monitor compliance with these guidelines andensure that both production and products consistently meet the same high quality
and environmental standards. Since the 2009/10 fiscal year, data relevant to theenvironment has been systematically recorded and analyzed. Environmental risks
can thus be identified at an early stage and appropriate countermeasures initiated.
Adequate accounting provisions have been made for residual risks.

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

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Detailed information on thecurrent focus areas of our R&D
activities is provided in section 5,“Research and development”.

Innovation-related risks are a key risk area for a technology group like Voith. The
future profitability of the Company hinges on its ability to develop marketable products and ­services and use state-of-the-art production technologies and service
processes. Our earnings situation could be negatively impacted by investments intechnology that does not work as planned or find the level of market acceptance
expected. Voith invests large sums of money to further improve and refine existing
technologies, and to research and develop new products, systems and s­ ervices.
With several thousand active patents to its name and hundreds more new patents
filed every year, Voith ranks as one of the world’s most innovative companies in
the industries it serves.
Collaboration with suppliers on the global procurement markets involves three
types of risk: supply outages, unforeseen cost increases and non-compliancewith environmental and social standards. We have embedded effective measures
to secure our supplies – supplier selection and order processing – in our processes. Moreover, a permanent Group-wide risk management process has been
implemented to identify supply risks and the risk of insolvency among suppliers
at an early stage. Our dual sourcing strategy excludes dependence on individual
suppliers to the greatest possible extent. Back-up strategies are thus in placein case suppliers who provide core components for the Group’s business processes should default. Moreover, in the 2013/14 fiscal year Voith once again used
all means at its disposal to contain the risks posed by cost increases. It did so by
concluding fixed-price contracts. Suppliers’ compliance with environmental andsocial standards is checked by means of audits.
Our customers’ satisfaction is key to achieving sales success and maintaining or
increasing our market share. In the mid to long term, a fall in customer satisfaction would have a negative impact on our earnings position. For this reason, wedevelop technologies for and in cooperation with our customers that help them getahead. Maintaining long-term partnerships is a high priority for us. We are proud
to have collaborated with many customers, suppliers and other business partners over generations – some of our relationships even go back over 100 years.
We survey customer satisfaction in order to objectively assess and enhance ourcustomer service.

09.2.3. Overall risk
To the best of our knowledge at the time this report went to press, there are no
risks which, either individually or aggregately, could jeopardize the ability of theVoith Group to continue as a going concern. The risk situation for Voith has notchanged significantly compared to the previous year. Of all the risks facing the Voith
Group, external risks could have the strongest negative impact on business development. We are convinced that, in light of our strong diversification, our financial
strength and the instruments used to control risks, our Group is able the bear therisks associated with our business activities.

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In addition to the systematic management of risks, it is also essential that we
support our corporate success by actively managing opportunities. The identification of opportunities and their strategic and financial assessment plays a rolein the strategic discussions the Corporate Board of Management holds regularly
with those responsible for the operating units. The results of these meetings areincorporated into the Voith Group’s strategic decisions as well as into the annual
planning process.
In the following, we describe significant opportunities which could have positiveeffects on our net assets, financial position and results of operations and cause
the results to deviate positively from those forecast/targeted. The order of theopportunities presented below reflects how we currently estimate the importanceof these opportunities to be for the Voith Group. Unless otherwise stated, the following opportunities relate to all four Group divisions.

For information on current productinnovations, see section 5.,“Research and development”.

Expanding the portfolio with product innovations
We are constantly working on developing new technologies, products and solutions as well as improving existing ones. In the best possible scenario, this allows
us not only to secure our market position but also to generate sales and market
shares that are yet to be integrated in our business plan. We gear our development
activities towards global megatrends as well as current technology trends and newindustry-specific requirements, for example those that are regulatory in nature. In
the period under review, we once again launched numerous new products on themarket in our Group Divisions Voith Hydro, Voith Paper and Voith Turbo.
Inorganic growth through acquisitions
Under the Voith 150+ program, we are working intensively to strengthen our portfolio of products and ­services, also by means of strategic acquisitions. In the shortterm, these offer opportunities for additional earnings not provided for in the business plan; in the mid-term they can help improve our positioning in certain markets
or tap promising new fields for Voith.
New sales markets for existing products and s­ ervices
In addition to expanding our portfolio of offerings, our Voith 150+ program will see
us scout for market opportunities for our existing products and ­services in all of
our Group Divisions in those regions where we have been underrepresented todate or have no presence at all. We will also try to transfer our already successful
products to new fields of application or sales areas. The resulting additional sales
potential has yet to be integrated in our business plan.
Opportunities from development of the global economy
Due to the gradual economic recovery and persisting uncertainties, we currently
expect the 2014/15 fiscal year to be shaped by an ongoing gloomy climate forcapital investments. Should global economic recovery be faster acting and longer
lasting than currently anticipated, this could have a positive impact on Voith’s net
assets, financial position and results of operations. We currently do not deem
such a development to be likely. If it were to occur, however, the impact would betangible in all four Group Divisions, albeit with a different time lag in each division.

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Opportunities in focus regions
The low level of global growth on the whole is attributable to the varying degrees
of development in the different regions. We expect the world to witness threedifferent speeds of development in the coming years, with the strongest growth
stimulus coming from the emerging markets in Asia, and North America also posting strong growth on account of low energy prices due to the large scale of shale
gas extraction, while most of the remaining industrialized nations, especially thosein Europe, will show barely any growth. Generally speaking, we have prioritized
Asia and North America as strategic growth regions for the Voith Group and will
intensify our investments in an attempt to put down even deeper roots at our locations and localize products so as to participate in this growth. We will also try to
use the opportunities offered to us by special developments in individual markets,segments and countries for particular Group Divisions or business units. Should
individual regions record better development than expected or should we manage
to be more successful in the defined focus regions than expected, this would havea positive impact on our earnings position.

09.4. Internal control andrisk management
system for the Groupfinancial reporting
process

Proper and reliable accounting
As a company that raises funds on the capital markets, Voith GmbH is requiredby Section 315 (2) No. 5 German Commercial Code (HGB) to describe the key
elements of its internal control and risk management system with regard to theGroup financial reporting process.
The aim of the accounting-related internal control and risk management system
is to guarantee that accounts are prepared correctly and reliably and to ensurethat consolidated and separate financial statements comply with the applicableregulations.
The following structures and processes have been implemented in the Group:
The Corporate Board of Management of Voith GmbH bears overall responsibility
for the internal monitoring and risk management system with regard to the Groupfinancial reporting process. All levels of the Company (companies, Group Division
head organizations, Voith GmbH as management holding company) are integrated
through a strictly defined management and reporting organization.
Uniform recognition and measurement based on the regulations for the Voith
GmbH consolidated financial statements is ensured by Group accounting guidelines. Changed accounting rules are constantly adapted and communicated byVoith GmbH. The quality of the guidelines is ensured by an ongoing exchange
between the departments responsible.
Accounting is decentrally organized. Accounting entries are recorded in the separate financial statements of the subsidiaries of Voith GmbH. Risk control matrices have been developed at corporate headquarters for the most significant line94Group Management Report

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items that, from a Group perspective, are exposed to an elevated risk of misstatement. These matrices must be applied by the subsidiaries when preparing
their end-of-year financial reporting. These matrices present the most significant
accounting-related risks for the specified line items of the financial reporting andcontain corresponding instructions on controlling activities, responsibilities anddocumentation duties. Among other elements, the control activities comprise analytical reviews as well as processing and controlling of key and complex business
transactions by different people. Complex accounting issues (e.g. financial instruments) are referred to corporate departments or external experts (e.g. measuring
the pension obligation). The activities and controls for these subjects are also considered in the risk control matrices.
The consolidated financial statements are prepared by adding information to theseparate financial statements of the subsidiaries to create standardized reporting
packages which are then included in the consolidation system. Once the data has
been fed into the consolidation system, it is then subject to an automated plausibility check. If this returns an error message, this is immediately corrected by
the individuals in charge of the subsidiaries concerned. The subsidiaries are supported by contact persons at headquarters for all accounting-related issues. Afterthe data is finally approved, the respective management, or in isolated cases therepresentatives they appoint, issues a letter of representation confirming the completeness and accuracy of the reporting package in accordance with the relevant
requirements and that the internal controls have been conducted and documented.
Group-wide reconciliation of balances takes place worldwide via an intranet-based
platform. The various deadlines for the different parts of the reporting package
are stipulated in the consolidation system and centrally monitored in the courseof the preparation process. All consolidation activities are undertaken centrally atVoith GmbH. The entire consolidation process is supported by both automatic
systems-based and manual controls.
The proper functioning of the controls defined in the internal accounting-related
control system is evaluated on a regular basis. If any weaknesses are identified,
the system is adjusted accordingly.
The quality of financial reporting is also ensured by reconciling planning calculations with the external reporting at all levels of the Company. Checks on systemaccess based on authorization concepts as well as programmed plausibility checks
in the IT systems used for the financial reporting ensure that processes are complete and precise.
The internal audit department performs regular, independent reviews of the proper
functioning, correctness, reliability and efficiency of all internal control and risk
management systems in the Voith Group. Suitable measures are promptly taken
to remedy any gaps or weaknesses that may be identified.
Compliance with the internal accounting-related control system is verified by theexternal auditors in the course of their audit of the financial statements. Any deficiencies or flaws that appear are recorded in a management letter along with suggested improvements.

Voith Annual Report 201410

10.1. Business environment

For more information on the risks andopportunities for the global economy,
see section 9.2. and 9.3. of thismanagement report.

Group Management Report95

Forecast report
Against the backdrop of the economy recoveringslightly but with the investment climate remaining
gloomy, we expect both the sales and orders
received to remain constant in the 2014/15 fiscal year.
All Group Divisions are expected to continue posting
positive operating figures. At Group level, we aim
to improve our profitability and increase the profit
from operations.

Global economic recovery remains fragile
Voith expects the economy to show slight signs of recovery in the 2014/15 fiscal
year, although the investment climate is set to remain gloomy. Economic analysts
are talking of moderate growth in the global economy. For example, in its latest
release the International Monetary Fund (IMF) is forecasting growth of 3.8 % in2015 and 4.0 % in 2016, after 3.3 % in 2014. However, the expected recovery is
extremely fragile and associated with a high number of risks, while we deem thechances of development exceeding our expectations to be poor. Due to the highlevel of uncertainty, the environment remains difficult for capital goods. By contrast, consumer goods and industrial s­ ervices could benefit from the generally
positive trend.
The US comes out on top of the advanced economies with above-average growthin both relative and absolute terms. Thanks to its shale gas and oil reserves, theworld’s largest economy is expected to generate robust growth in 2015 as well as
in the mid-term as part of its expected re-industrialization. This is currently providing opportunities for capital goods and i­ndustrial services providers, thus making
the US a global growth driver together with China. For the euro zone, we expect
the gradual recovery to continue while investing activities remain subdued despite
interest rates being at a record low. Moreover, the euro area remains vulnerable
to setbacks. The economic forecasts for Germany were lowered, with the IMF for
example expecting growth to be only marginally higher than the low growth rate
for the entire euro zone.
The fact that higher growth is forecast for the emerging market and developing
economies as a whole than for the ­advanced economies conceals significant differences between the individual countries. China for instance, despite a slight fallin momentum, is expected to continue with high growth and remains a strategic
growth market for Voith. India is forecast to experience an economic upswing. By
contrast, we expect to see a significantly lower level of growth in Brazil and Russia.

96Group Management Report

Voith Annual Report 2014

Economic growth according to the International Monetary Fund
Real change in GDP on the previous year1)

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

2015

3.8 %

2016

4.0 %

2015

2.3 %

2016

2.4 %

2015

3.1 %

2016

3.0 %

2015

1.3 %

2016

1.7 %

2015

1.5 %

2016

1.8 %

2015

5.0 %

2016

5.2 %

2015

7.1 %

2016

6.8 %

2015

5.4 %

2016

5.5 %

2015

6.4 %

2016

6.5 %

2015

1.4 %

2016

2.2 %

2015

0.5 %

2016

1.5 %

Source: International Monetary Fund; World Economic Outlook, Oct. 2014.
1)
Forecasts.
2)
Including Germany.

This is primarily attributable to various unsolved structural and political problems
in each country which hamper investors’ confidence. Russia’s economy is being
weakened further by the low prices of raw materials as a result of the economic
environment as well as by the economic sanctions imposed by the EU and the
US in connection with the Ukraine crisis. It is currently hard to foresee whether
these two economies will be able to overcome their respective barriers to economic growth and whether in the mid-term they will fulfill what was expected ofthem back when the term “BRIC states” was originally coined. For Southeast Asia,
we see solid growth which will also be supported by the expansion of the ASEAN
Economic Community. In the mid to long term Africa is also gaining in importance,with short-term development in certain African countries being hampered by the
Ebola epidemic.
The forecast for our business assumes that there will be no economic or politicalshocks which could tip the global economy into recession.

Investing activities in the Voith markets
predominantly subdued
In three of our five target markets – energy, paper, raw materials – we can see little
stimulus for growth and an ongoing gloomy climate for capital investments in the
2014/15 fiscal year. We are optimistic about the transport & automotive market
and, to a limited degree, the oil & gas market.

Voith Annual Report 2014

Group Management Report97

As global energy needs are continuing to rise, electricity-generating capacities
are being expanded further although most likely at a slower rate than in the past.
This involves all regions putting greater emphasis on renewable energy sources
or gas as an energy source. The generally positive outlook for hydropower will behampered in the short to mid term by the economic and regulatory framework
conditions in Europe and the expansion of shale gas and oil activities in the US.
Demand for oil and gas is expected to rise further especially in Asia. Whether the
positive trend will continue for investing activities depends not least on a stabilization of oil prices. In Europe there are excess capacities at refineries, while capacities in Asia are being expanded. In the US, intensive investments are expected tobe made in all three segments of the oil & gas market, which may shift their focus
more toward the gas sector in the event that oil prices remain low.
Consumption of paper will continue to rise gradually, however there will be huge
differences between the various grades of paper and regions. In the 2014/15 fiscal
year, we assume that demand for new paper machines will remain extremely low
on account of the deteriorating market prospects of paper manufacturers. We
expect the majority of investments to be made in Asia and also in machines tomake tissue, board and packaging paper as well as in modifications.
In the mid to long term, the market for raw materials will see a growth trend
driven by the industrialization of emerging markets in Asia and a strong demandfor coal to meet rising energy needs worldwide. In the short term, manufacturers’ investing activities will be curbed by low prices for raw materials as well as
the existing excess capacities. It remains to be seen whether a turnaround will
still happen for mine operators and mining companies in the 2014/15 fiscal year
or not until later.
We continue to be optimistic about Voith’s most important segments of the­transport & automotive market. The passenger vehicle and light truck segment is
expected to post notable growth on the back of the continued upswing in the US
economy, while in the truck segment we expect robust development with stimulus from the NAFTA and EMEA regions. We expect the Rail segment to generate
solid growth.

10.2. Future development

All Group Divisions returning a clear profitof the Company

In light of the mixed economic environment, we expect both the sales and orders
received of the Voith Group to remain constant in the 2014/15 fiscal year, whileworking on improving earnings and our profitability. All four Group Divisions willcontinue to return a profit from operations, although their sales and orders received
will not develop uniformly, depending on their respective markets.

98Group Management Report

Voith Annual Report 2014

At Voith Hydro, we expect sales to be stable in the 2014/15 fiscal year on thebasis of the high level of orders received in the period under review, while aiming
to generate a profit from operations that is at the high level of the previous year.
The ongoing positive development is to be supported by internal process improvements as well as by expanding the service business, which has a higher margin.
We expect the ROCE to show a slight improvement on the back of the fall in capital employed. Due to the high number of projects, some of them major projects,
awarded in the past 2013/14 fiscal year, we expect a lower volume of projects tobe awarded on the market in the following year. This is expected to cause Voith
Hydro’s orders received to fall noticeably in the 2014/15 fiscal year. However, thisis not a mid-term trend but is due solely to the cyclical nature of how major hydropower projects are awarded.
At Voith ­Industrial ­Services we expect to see moderate organic sales growth in
the 2014/15 fiscal year, adjusted for the Industries division (DIW Group) sold as
at September 30, 2014. This growth is to be primarily driven by the Automotive
division, which is benefiting from the continued positive development in the automotive industry. In the 2014/15 fiscal year, we expect the first positive effects tobe seen on Voith ­Industrial ­Services’ profitability as a result of the portfolio adjustment as well as efficiency improvements in connection with Voith 150+. For thisreason, we assume that growth in the profit from operations adjusted for the saleof DIW will outpace that of sales. The ROCE is expected to improve significantly
and to be in double digits.
At Voith Paper, the slight increase in orders received in the period under review
gives us reason to expect the decline in sales also to be reversed in the 2014/15
fiscal year, stabilizing sales at a level that is on a par with the previous year. With
regard to the orders on hand, we hope that the positive trend from the period
under review will continue and that we can once again generate a slight increase
in Voith Paper’s orders received. This is to be supported by the project businessstabilizing at a low level as well as growing business with products, consumablesand ­services. Our planning is based on the assumption that the paper machine
market will remain difficult but that the market volume will bottom out, now thatit has reached its lowest level. A further planning assumption is that market analysts’ already low growth expectations for paper production will not be revised
further downwards. Although the cost savings made due to restructuring efforts
will show further positive effects in the 2014/15 fiscal year according to our planning, we expect that additional capacities will have to be reallocated among theVoith Paper locations to improve earnings to a sustainable level, incurring corresponding restructuring costs. For the 2014/15 fiscal year, we expect a noticeable
increase in the profit from operations and a corresponding improvement in the
return on sales and ROCE.
For Voith Turbo, we expect sales to remain constant in the 2014/15 fiscal year. On
account of the efficiency programs and growth initiatives launched, we expect the
profit from operations to increase slightly such that the return on sales will also
improve. The ROCE is expected to reach the high level of the previous year. As fororders received, we also anticipate stable development overall. Despite the low
prices for raw materials and modest market development on the whole, we expect

Voith Annual Report 2014

Group Management Report99

stable business in the Power, Oil & Gas and Mining & Metals divisions. The Commercial Vehicles and Rail divisions will most likely not be able to match the highnumber of orders received in the previous year, although the level will remain high.

Profitability of the Voith Group on the rise
As announced in the Annual Report 2013, the focus of the Voith Group in the
2014/15 fiscal year will again be placed on improving our returns and our cash
flow. With the help of the Group-wide success program Voith 150+, we aim toincrease our efficiency and profitability, and, in the mid-term, to grow our sales. In
the 2014/15 fiscal year, we are forecasting Group sales to remain at the same level
as the period under review adjusted for the DIW sale. Our sales projections are
based on the high level of orders on hand as at September 30, 2014 and a stabledevelopment of new business in the 2014/15 fiscal year. The profit from operations
and consequently also the ROCE of the Voith Group are expected to grow slightly,
as the measures introduced under Voith 150+ will show further positive effects inthe 2014/15 fiscal year.
Forecasts are always subject to considerable uncertainty. A host of macro-economic 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 which could lead to a negative/positive
forecast deviation, we refer to sections 9.2 and 9.3 of this management report.
We will closely observe further developments as they occur and, where necessary,
respond rapidly and decisively to changing conditions. Voith is in excellent shape.
Our robust constitution, coupled with our solid equity ratio and the fact that our
Company is not burdened by any net debt, provide us with the headroom we needto implement those decisions we view as making the most sense. The aim of Voith
GmbH’s Board of Management is to keep the Company on a secure footing for thelong term and to actively steer it out of this challenging decade of the 21st century. Voith is ideally equipped for the challenges of the future: we have a portfoliothat is fit for the future, sufficient financial strength with reliable long-term accessto capital, an efficient organization and an outstanding workforce.

Per

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Consolidated
Financial­Statements

Consolidated statement of income
Consolidated statement of comprehensive income
104
Consolidated balance sheet
106
Statement of changes in equity
108
Consolidated cash flow statement
109	Notes to the consolidated financial statements for the 2013/14 fiscal year
136
Notes to the consolidated statement of income
144
Notes to the consolidated balance sheet
170
Notes on segment reporting
172
Segment information by business segment
174
Segment information by region
175
Other notes
193
Responsibility statement
102
103

194

Imprint

102

Financial Statements

Voith Annual Report 2014

Consolidated statement of income
for the period from October 1, 2013 to September 30, 2014in € thousandsNote2013  /  14

2012  /  13*

Sales

(1)

5,345,110

5,728,217

Changes in inventories and other own work capitalized(2)

Total output
Other operating income(3)

16,056

4,952

5,361,166

5,733,169

327,248

301,150

Cost of material(4)-2,112,041-2,339,049

Personnel expenses(5)-2,123,905-2,143,520-170,119-175,371-1,062,093-1,066,613

220,256

309,766

3,542-155,760

223,798

154,006

Depreciation and amortization
Other operating expenses(6)

Operational result before non-recurring items
Non-recurring result(7)

Operational result
Income from companies accounted for using the equity method

4,583

4,315

Interest income

16,456

12,812-84,507-82,311-41,038

9,044

119,292

97,866-78,496-32,629

Net income

40,796

65,237

Net income attributable to shareholders of the parent company

21,997

46,835

Net income attributable to holders of non-controlling interests

18,79918,402

Interest expenses
Other financial result(8)

Income before taxes
Income taxes* Previous year restated (refer to “Restatement of previous-year amounts”).

(9)Voith Annual Report 2014

103

Financial Statements

Consolidated statement of comprehensive income
for the period from October 1, 2013 to September 30, 2014in € thousands

2013  /  14

2012  /  13*

Net income

40,796

65,237-122,796

16,21731,435-8,484-33,395-20,226-34-409

Gains / losses on currency translation

15,665-62,575

Gains / losses from the currency translation of net investments in foreign operations-1,144-2,023

0

94

490

1,892

Other comprehensive income-109,779-75,514

Total comprehensive income-68,983-10,277· Total comprehensive income attributable to shareholders of the parent company-87,758-20,049

Components of other comprehensive income that will not be recycled through profit or loss in later accounting periods:
Remeasurement of defined benefit plans
Taxes on 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 on cash flow hedges

Share of associates in other comprehensive income
Taxes on components of other comprehensive income that will be recycled through profit or loss
in later accounting periods· Total comprehensive income attributable to holders of non-controlling interests* Previous year restated (refer to “Restatement of previous-year amounts”).

18,775

9,772-68,983-10,277

104

Financial Statements

Voith Annual Report 2014

Consolidated balance sheet
as at September 30, 2014in € thousandsNote2014-09-30

2013-09-30*

2012-10-01*

A.

Non-current assets

I.

Intangible assets(10)712,854762,659

770,630

II.

Property, plant and equipment(11)

1,189,950

1,197,087

1,251,711

III.

Investments accounted for using
the equity method(12)41,32037,66336,082

IV.

Securities(16)

134,176

215,856

223,840

V.

Other financial assets(12)

32,50127,01236,007VI.

Other financial receivables(15)

75,16071,46587,683VII.

Other assets(15)

32,86827,747

41,731

VIII. Deferred tax assets(9)

Total non-current assets

183,878

151,832

149,024

2,402,707

2,491,321

2,596,708

B.

Current assets

I.

Inventories(13)734,421

737,414858,944II.

Trade receivables(14)

1,136,574

1,193,383

1,206,048(16)

49,552

57,781

42,23374,52780,721

113,237

III.

Securities

IV.

Current income tax assets

V.

Other financial receivables(15)

111,978

114,233

103,840

VI.

Other assets(15)

112,616

177,327

145,947

VII.

Cash and cash equivalents(17)

800,823

900,967

916,8943,020,491

3,261,826

3,387,143

30,012

11,436

1,270

Total current assets

3,050,503

3,273,262

3,388,413

Total assets

5,453,210

5,764,583

5,985,121

VIII. Assets held for sale

* Previous year restated (refer to “Restatement of previous-year amounts”).

(18)

Voith Annual Report 2014in € thousands

105

Financial StatementsNote2014-09-30

2013-09-30*

2012-10-01*

A.

EquityI.

Issued capital

120,000

120,000

120,000

II.

Revenue reserves

737,573

829,750

803,526

III.

Other reserves

6,930

28,437

101,966

IV.

Profit participation rights

6,600

6,600

6,600

Equity attributable to shareholdersof the parent company

871,103

984,787

1,032,092

V.

Profit participation rights

96,80096,80091,800VI.

Other interests

63,40058,14769,882160,200

154,947

161,682(19)

1,031,303

1,139,734

1,193,774

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

Non-current liabilities

I.

Provisions for pensions andsimilar obligations(20)752,425

647,290655,906

II.

Other provisions(21)

194,931214,863

182,581

III.

Income tax liabilities

965

869

3,219

IV.

Bonds, bank loans and otherinterest-bearing liabilities(22)

899,282

857,981993,525

V.

Other financial liabilities(24)

18,34818,076

19,762VI.

Other liabilities(24)

52,69058,176

67,145

VII.

Deferred tax liabilities(9)76,73082,06993,197

1,995,371

1,879,324

2,015,335

26,54427,292

Total non-current liabilities
C.

Current liabilities

I.

Provisions for pensions and similar
obligations(20)

27,683II.

Other provisions(21)

294,656

334,785

313,881

III.

Income tax liabilities

90,847

103,820

122,614

IV.

Bonds, bank loans andother interest-bearing liabilities(22)

96,547

308,514233,359

V.

Trade payables(23)

525,025

562,983

557,513VI.

Other financial liabilities(24)

297,758

317,968

317,018

VII.

Other liabilities(24)

1,087,753

1,085,511

1,204,335

2,420,269

2,740,125

2,776,012

VIII. Liabilities directly associated withthe assets classified as held for sale

(18)

6,267

5,400

0

Total current liabilities

2,426,536

2,745,525

2,776,012

Total equity and liabilities

5,453,210

5,764,583

5,985,121

106

Financial Statements

Voith Annual Report 2014

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

2013-10-01

Issued capital

Revenue
reserves

Available-for-salefinancial assets

Cash flow
hedgesCurrencytranslation

120,000

1,007,826

38,122-1,040-715

38,122-1,040-1,787

Adjustments
2013-10-01 (after restatement)*-178,076
120,000

Net income

829,750-1,072

21,997

Other comprehensive income
Total comprehensive income

0

Allocation of reserves toprofit participation rights-88,248-33,631-23

12,595-66,251-33,631-23

12,595

4,491-1,063

10,808-5,501

Acquisition of non-controlling interests

771

Share of income attributable to profit
participation rights
Dividends-15,000

Contributions from holders of
non-controlling interests-1,564Non-controlling interests – put options-3,000

Other adjustments
2014-09-30-1,632120,000

737,573

Equity attributable to shareholdersof the parent companyin € thousands

2012-10-01

Issued capital

Revenue
reserves

Available-for-salefinancial assets

Cash flow
hedgesCurrencytranslation

120,000

990,030

57,116-864

54,80857,116-864

51,608Adjustments
2012-10-01 (after restatement)*-186,504
120,000

Net income

803,526-3,20046,835

Other comprehensive income
Total comprehensive income

0

6,645

-18,994-176-53,395

53,480-18,994-176-53,395

38,122-1,040-1,787

Allocation of reserves toprofit participation rights-5,412Acquisition of non-controlling interests-4,916

Share of income attributable to profit
participation rights
Issue of profit participation rights
Dividends-15,000

Contributions from holders of
non-controlling interests
Non-controlling interests – put options-3,665

Other adjustments
2013-09-30 (after restatement)*

1,737
120,000* Previous year restated (refer to “Restatement of previous-year amounts”).

829,750

Voith Annual Report 2014107

Financial Statements

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

Profitparticipationrights-6,8586,600-6,858

6,600

Total

ProfitparticipationrightsOtherinterests

Total

Total
equity1,163,935

96,80058,030154,830

1,318,765

117

117

-179,031

96,80058,147

154,947

1,139,734

18,79918,79940,796-24-24-109,779

18,775

18,775-68,983

5,138

0-3,024-2,253-179,148
984,787
21,997-448-448-109,7550-87,758

0363-5,138

5,138

771
-363

-363

-3,024-5,138-15,000-7,3276,600-5,501-7,327-22,327-1,564

1,809

1,809

245

-3,000-5,546-5,546-8,546-1,632-7,306-5,138871,103

96,800566

566-1,066

63,400160,200

1,031,303

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

Profitparticipationrights

Total

ProfitparticipationrightsOtherinterests

Total

Total
equity-5,8946,600

1,221,796

91,80069,942

161,742

1,383,538-5,894-60-60-189,764

6,600

1,032,092

91,80069,882

161,682

1,193,774

18,402

18,402

65,237-8,630-8,630-75,514

9,772

9,772

-10,2775,049

0-5,384-10,300-5,412-189,704

46,835-964-964-66,8840-20,0490363-5,0495,049-4,916-363-5,384-363-5,049-5,049

0

5,000

5,000

5,000

-16,530-31,530-15,000-16,530

0

2,000

2,000

2,000

-3,665-1,239-1,239-4,904

1,737-6,8586,600

984,787

96,800

-354

-354

1,383

58,147

154,947

1,139,734

108

Financial Statements

Voith Annual Report 2014

Consolidated cash flow statementin € thousands

2013  /  14

Income before taxes

119,292

97,866 *Depreciation and amortization

215,178

211,462Interest expenses / income

68,051

69,499 *3,107-9,447920

554

Other non-cash items
Gains / losses from the disposal of property, plant, equipment and intangible assets
Gains / losses from the disposal of consolidated companies
Gains / losses from investments
Changes in other provisions and accruals

2012  /  13-40,937

0

56-8,509-101,432

59,144*

Change in net working capital

44,821-24,641*

Interest paid

-53,836-57,831

Interest received

17,267

11,343

3,300

12,635

Tax paid

Dividends received-84,508-44,992

Cash flow from operating activities

191,279

317,083

Investments in property, plant, equipment and intangible assets-133,802-192,176

8,885

6,509

Investments in financial assets-8,991-10,510

Acquisition of subsidiaries-10,550-7,076

Sale of subsidiaries

68,9005,512

Proceeds from the disposal of financial assets

1,504

13,911

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

Changes in investments in securities

17,469-32,757

Cash flow from investing activities-56,585-216,587

Dividends paid

-27,828-35,269

Contributions from holders of non-controlling interests
Acquisition of non-controlling interests
Other changes in equity

245

2,000

-6,825-10,300

0

5,000

51,229143,081-239,498-152,832-9,600-21,480

Cash flow from financing activities-232,277-69,800

Total cash flow

-97,583

30,696

3,530-46,623

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

Exchange rate movements and valuation changes
Reclassification to assets held for sale

-6,0910Cash and cash equivalents at the beginning of the period

900,967

916,894

Cash and cash equivalents at the end of the period

800,823

900,967* Previous year restated (refer to “Restatement of previous-year amounts”).

Voith Annual Report 2014

Financial Statements

109

Notes to the consolidated
financial statements for the2013 /14 fiscal year
General information

Voith GmbH (Voith) is a capital-market-oriented company operating from its headquarters at St. Pöltener Str. 43, Heidenheim an der Brenz, and is required bySec. 290 in conjunction with Sec. 315a German Commercial Code (HGB) to
prepare consolidated financial statements. The Company is entered in the commercial register (under the number HRB 725621) at the Registration Court in Ulm,
Germany. The consolidated financial statements prepared by Voith are publishedin the Bundesanzeiger [German Federal Gazette]. JMV GmbH & Co. KG, Heidenheim, is the ultimate parent company of the Voith Group.
The Corporate Board of Management of Voith GmbH authorized the consolidated financial statements for presentation to the Supervisory Board on November 20, 2014.
Pursuant to EU Regulation (EC) No. 1606 / 2002 in conjunction with Sec. 315a
HGB, the consolidated financial statements of Voith GmbH for the 2013 /14 fiscal
year were prepared in accordance with International Financial Reporting Standards(IFRS) and the interpretations of the International Financial Reporting Standards
Interpretations Committee (IFRS IC). This regulation requires all companies thatparticipate in the capital markets (i.e. whose issued debt is traded on a regulated
market in an EU member state) and are domiciled in the EU to prepare their consolidated financial statements solely on the basis of IFRS as endorsed by the EU.
The term IFRS also includes the International Accounting Standards (IAS) that are
still valid. All binding pronouncements of the International Accounting Standards
Board (IASB) as well as the additional requirements of German commercial law
pursuant to Sec. 315a HGB have been taken into account.
The consolidated financial statements have been prepared in euros. Except
where explicitly stated otherwise, all amounts are stated in thousands of euros(€ thousands).

Basis of consolidation

The Voith Group is divided into four segments: Voith ­Hydro, Voith ­Industrial­Services, Voith ­Paper and Voith Turbo. Details of the business activities pursued by
the Group Divisions are provided in the explanatory notes to the segment reporting.
In addition to those entities acting as holding companies, the consolidated financial statements also include all the Group’s manufacturing, service and sales
companies both in Germany and other countries as at September 30 of eachfiscal year. The financial statements of the subsidiaries are prepared for the same
period as the parent’s financial statements, using consistent accounting policies.

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Subsidiaries are consolidated in full at the time when the Voith Group obtains control
over them and are deconsolidated as soon as the parent loses control over the subsidiary. In 12 cases (previous year: 14), Voith exercises control as defined in IAS 27(2008) owing to a majority of voting rights in the relevant decision-making bodies.
In two cases (previous year: two), while Voith has a majority shareholding it does
not control the entity, as the composition of the decision-making bodies is basedon equal representation.
The following companies are included in the consolidated financial statements:in € thousands

2014-09-30

2013-09-30

56

60

Voith GmbH and its fully consolidated subsidiaries:· Germany· Other countries

139

143

Total fully consolidated companies

195

203

Companies accounted for using the equity method:· Germany

6

6· Other countries

13

13

Total companies
accounted for using the equity method

19

19

The number of fully consolidated entities decreased mainly due to disposals andintragroup mergers.
The following significant companies are included in the consolidated
financial statements:
VZ
Voith GmbH, Heidenheim
VHH
VHY
VHP
VHPO
VHMA
VHM
VHS
VHV

Voith ­Hydro GmbH & Co. KG, Heidenheim, Germany
Voith ­Hydro Inc., York (PA), United States
Voith ­Hydro Ltda., São Paulo (SP), Brazil
Voith ­Hydro GmbH & Co KG, St. Pölten, Austria
Voith H­ ydro da Amazonia Ltda., Manaus, Brazil
Voith H­ ydro Inc., Brossard (QC), Canada
Voith H­ ydro Shanghai Ltd., Shanghai, China
Voith H­ ydro AB, Västerås, Sweden

VIKI
VIAS
VICU
VIER
VIPA
VIWA
VICE
VIHC
VISK
VIDK

Voith ­Industrial S­ ervices GmbH & Co. KG, Kirchseeon, Germany
Voith ­Industrial S­ ervices Ltd. & Co. KG, Stuttgart-Vaihingen, Germany
Voith ­Industrial S­ ervices Inc., Cincinnati (OH), United States
Voith ­Industrial S­ ervices GmbH, Mainhausen, Germany
Voith Serviços Industriais do Brasil Ltda., São Paulo (SP), Brazil
Voith ­Industrial S­ ervices Limited, Warwick, United Kingdom
P3 Voith Aerospace GmbH, Hamburg, Germany
Voith Engineering S­ ervices GmbH, Chemnitz, Germany
Voith ­Industrial S­ ervices GmbH & Co. KG, Speyer, Germany
Voith ­Industrial S­ ervices A / S, Ringsted, Denmark

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111

VPH
Voith ­Paper GmbH & Co. KG, Heidenheim, Germany
VPP
Voith ­Paper Máquinas e Equipamentos Ltda., São Paulo (SP), Brazil
VPEZ
Voith P­ aper Fabric & Roll Systems GmbH, Heidenheim, Germany
VPIT
Voith IHI P­ aper Technology Co., Ltd., Tokyo, Japan
VPC
Voith P­ aper (China) Co., Ltd., Kunshan, Jiangsu, China
VPFS
Voith P­ aper Fabric & Roll Systems Inc., Wilson (NC), United States
VPA
Voith P­ aper Inc., Appleton (WI), United States
VPS
Voith ­Paper GmbH, St. Pölten, Austria
VPFI	Voith ­Paper Fabrics Ipoh Sdn. Bhd., Chemor, Perak Darul Ridzuan,
Malaysia
VPTA
Voith P­ aper S.A., Ibarra (Guipúzcoa), Spain
VPRL Voith P­ aper Rolls GmbH & Co KG, Laakirchen-Oberweis, Austria
VTA
Voith Turbo GmbH & Co. KG, Heidenheim, Germany
VTSK Voith Turbo Scharfenberg GmbH & Co. KG, Salzgitter, Germany
VTI
Voith Turbo Inc., York (PA), United States
VTBS Voith Turbo BHS Getriebe GmbH, Sonthofen, Germany
VTKT	Shanghai Voith Schaku KTK Coupler Technology Co., Ltd., Shanghai,
China
VTCN Voith Turbo Power Transmission (Shanghai) Co., Ltd., Shanghai, China
VTHL
Voith Turbo H + L Hydraulic GmbH & Co. KG, Rutesheim, Germany
VTPA
Voith Turbo Ltda., São Paulo (SP), Brazil
VTGB Voith Turbo Limited, Croydon, United Kingdom
VTSH	Voith Turbo Schneider Propulsion GmbH & Co. KG, Heidenheim,
Germany
VTEA
Voith Turbo Limited, Hong Kong, China
VTAU
Voith Turbo Pty. Ltd., Wetherill Park, N.S.W., Australia
VTZA
Voith Turbo (Pty) Ltd, Witfield (Boksburg), South Africa
VTFVVoith Turbo SAS, Noisy-le-Grand Cedex, France
An exhaustive list of the companies and other investments included in the consolidated financial statements is included as a section of the consolidated financial
statements. Pursuant to Sec. 264b No. 3 HGB and Sec. 264 (3) No. 4 HGB, theconsolidated financial statements of Voith GmbH are filed with the Bundesanzeiger.

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Significant business combinations in the 2012 /13 fiscal year
Acquisition of ThyssenKrupp ­Services Ltd., United Kingdom
Voith ­
Industrial ­Services acquired all of the interests and voting rights in­ThyssenKrupp S­ ervices Ltd. effective January 18, 2013. With this acquisition, Voith­Industrial ­Services consolidated its position as one of the leading service providers for the automotive industry in the United Kingdom. The entity provides facility
management ­services, technical cleaning and process management.
The following amounts resulted from the assets and liabilities acquired from the
combination:
Balance sheet itemin € thousands

Intangible assets

Acquisition
date fair value

2,925

Other non-current assets

933

Inventories

145

Receivables

5,507

Other assets

560

Cash and cash equivalents

2,225

Provisions- 3,298

Liabilities- 3,391

Net fair value

5,606

Goodwill

2,978

Purchase price of the interests purchased

8,584

Cash and cash equivalents- 2,225

Cash outflows

6,359

Business combinations in the 2013 /14 fiscal year
Acquisition of Helix Systems Inc., USA
Voith ­Industrial S­ ervices acquired all of the interests and voting rights in Helix
Systems Inc., USA, effective July 31, 2014. The company is being integrated into
the Automotive division. With this acquisition, Voith ­Industrial ­Services aims tostrengthen its position in the growth market of North America, thus expanding
its portfolio by adding activities with a technical focus. New customer groups arealso to be tapped.
Part of the intangible assets purchased, e.g. the know-how of the employees,
could not be recognized, as the recognition criteria were not met, and was therefore subsumed under goodwill. Apart from that, the goodwill stemmed from theaforementioned expected positive effect for the Voith ­Industrial ­Services Group
Division. Goodwill was not tax deductible.

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The following amounts resulted from the assets and liabilities acquired from the
combination:
Balance sheet itemin € thousands

Acquisition
date fair value

Intangible assets

4,095

Other non-current assets

1,553

Inventories

103

Receivables

5,999

Other assets

215

Cash and cash equivalents

387

Liabilities- 3,929

Deferred tax liabilities-1,939Net fair value

6,484

Goodwill

4,453

Purchase price of the interests purchased

10,937

Cash and cash equivalents
Cash outflows-387
10,550The purchase price allocation has been completed. Consideration in the form of cash
has already been given in full. There are no other purchase price components. Nopurchase price adjustments are planned.
The fair value of the receivables acquired corresponds to their contractual grossamount. Apart from an amount of € 6 thousand all receivables had been settled by
the reporting date.
The acquisition-related costs amounted to € 238 thousand (recognized as other operating expenses).
In the 2013 /14 fiscal year, the entity contributed sales totaling € 5,907 thousand andnet income of € 272 thousand to the Voith Group’s consolidated statement of income.
If the business combination had already taken place on October 1, 2013, the Group’s
sales would have been € 26,535 thousand higher and the Group’s net income for theyear would have been €1,351 thousand higher.
Acquisition in the 2012 /13 fiscal year of further interests in entities overwhich the Group already has control
In the 2012 /13 fiscal year, Voith ­Hydro had acquired a further 49 % of the interests
in VG Power AB, Västerås, Sweden. The Group now wholly owns the company
and also holds 100 % of the voting rights. The purchase price was €10,300 thousand. Non-controlling interests decreased by € 5,384 thousand. The differencecompared to the purchase price was offset against the reserves.

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Acquisition in the 2013 /14 year of further interests in entities over which
the Group already has control
Voith ­Hydro acquired the remaining 20 % of the interests in Voith H­ ydro Ocean­Current Technologies GmbH & Co. KG, Germany, in the 2013 /14 fiscal year.
In addition, Voith P­ aper acquired the remaining 50 % of the interests in Voith­EcoSolutions GmbH & Co. KG, Germany. The purchase price for the two transactions totaled € 6,825 thousand.
Disposals in the 2013 /14 fiscal year
As at September 30, 2014, Voith I­ndustrial ­Services sold the companies belonging to the DIW Group. The sale is part of the strategic realignment of the Group
Division. Furthermore, in the course of streamlining the product portfolio, Voith­Industrial ­Services and Voith Turbo each sold one product segment. In total, goodwill of €19,531 thousand, property, plant and equipment of € 3,289 thousand,trade receivables of € 35,551 thousand, other current assets of € 33,680 thousand
as well as provisions of €11,787 thousand, trade payables of €11,004 thousand
and other liabilities of € 25,077 thousand were sold. A total profit of € 40,937 thousand was generated as a result of the disposals. This profit was posted to the
non-recurring result and which relates primarily to the sale of the DIW Group.
Please also refer to our comments in note 7.

Basis of consolidation

Acquisition accounting is performed using the acquisition method in accordancewith IFRS 3 (revised). Accordingly, the consideration transferred to the seller plus
any non-controlling interests and the fair value of the previously held equity interests in the acquiree are offset against the fair value of the acquired assets andliabilities as at the acquisition date. Any excess of cost over carrying amount isrecognized as goodwill. Any excess of carrying amount over cost is recognizedin profit or loss.
Any contingent consideration is recognized at acquisition date fair value. Subsequent changes to the fair value of the contingent consideration which is deemed
to be an asset or liability will be recognized in accordance with IAS 39 either in
profit or loss or as a change to other comprehensive income. If the contingent
consideration is classified as equity, it is not remeasured and its subsequent settlement is accounted for within equity.
In the case of business combinations achieved in stages that give rise to control
over an entity, or in the case of disposals of shares which result in loss of control, the previously held or remaining equity interests are remeasured at fair value
through profit or loss.

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115

A change in the parent’s ownership interest in a subsidiary that does not result ina loss of control is accounted for as an equity transaction. This is why businesscombinations achieved in stages where the Group already has control or disposalsof shares without a loss of control have been recognized directly in equity fromthe 2009 /10 fiscal year onwards.
Companies in which Voith GmbH has the power to directly or indirectly exercise
a significant influence on financial and operating policy decisions (associates) areaccounted for using the equity method, as are joint ventures over which common
control is exercised together with other companies. Changes in the share of theassociate’s / joint venture’s equity that are not recognized in profit or loss are likewise recognized directly in equity in the consolidated financial statements. The
same accounting policies are used to determine Voith’s share in equity of all companies accounted for using the equity method.
Receivables and liabilities between the consolidated entities are netted. Intercompany profits in inventories and non-current assets are eliminated in the consolidated statement of income. Intercompany sales and other intercompany income
are netted against the corresponding expense. Deferred tax is recognized forconsolidation transactions that are recognized in profit or loss.

 oreign currencyF
translation

The consolidated financial statements are presented in euros, which is Voith
GmbH’s functional currency. Financial statements prepared by subsidiaries thatuse a different functional currency are translated as follows:
The equity of foreign entities included in the consolidated financial statements istranslated at historical rates. All other items on the balance sheet are generallytranslated to the presentation currency at the rates applicable as at the reporting
date. Goodwill arising from business combinations before transition to IFRS is an
exception to this rule and is still translated at historical rates.
In the statement of income, income and expenses are translated at averageexchange rates. Retained earnings and losses are translated using the relevant
historical exchange rate.
Differences arising from currency translation are netted with other reserves.
Foreign currency transactions in local financial statements are translated at thehistorical exchange rate at the date of the transaction. At fiscal year-end, theresulting monetary items are measured at the closing rate, and any exchange rate
gains or losses are recorded as exchange gains or losses under other operating
income / expenses.

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Exchange differences arising from loans denominated in foreign currencies (wherethese are used to hedge a net investment in foreign operations) are recognizedunder other comprehensive income until the underlying net investment is disposedof. These exchange differences give rise to deferred tax items that are also recognized under other comprehensive income.

	Accounting policies

The consolidated financial statements are prepared using the historical cost
method. The only exceptions to this rule are derivative financial instruments, available-for-sale financial instruments and assets at fair value through profit or loss.
All these exceptions are recognized at fair value. Purchases or sales of financial
assets are always recognized as at the settlement date. Regular way purchases
or sales of available-for-sale securities are recognized on the trade date.
Consistent accounting policies are used to prepare the separate financial statements for the companies included in the consolidated financial statements. The
main accounting policies are listed and explained below.
Income and expenses
Sales (less various cash and other discounts granted to customers) are recognized when products or merchandise have been delivered and / or ­services rendered and when the risk of ownership has been transferred to the customer. In
the case of long-term construction contracts, revenue is recognized using thepercentage-of-completion method. A detailed explanation of this method is provided in the notes on “Long-term construction contracts”.
Interest expenses and interest income are recognized as they accrue. The effective interest method, i.e. the imputed interest rate, is used to discount estimatedfuture cash receipts over the expected term to maturity of the financial instrument
to the net carrying amount of the financial asset.
Dividend income is recognized when the Group’s right to receive the payment isestablished.
Operating expenses are recognized as expenditure at the time when a service
is used and other sales-related expenses are recognized as incurred. Taxes on
income are calculated in accordance with tax law in the countries in which theGroup operates.
For all categories of financial instruments recognized in accordance with IAS 39,
net gains or losses as defined in IFRS 7 result from the measurement or disposalof financial instruments. At Voith, such income and expense items mainly consistof foreign exchange gains and losses, impairments and gains / losses from thesale of financial instruments. Neither current interest income and expenses nor
dividend income are included.

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117

Intangible assets
Intangible assets acquired for a consideration are recognized at acquisition costand amortized on a straight-line basis over their estimated useful lives.
Internally generated intangible assets are capitalized as development costs basedon their production costs, provided that manufacture of these assets meets therecognition criteria stated in IAS 38 and, in particular, it is probable that future
economic benefits will flow to the Group. Production costs include all costs thatare directly attributable to the development process. These assets are amortizedusing the straight-line method from the start of production for a defined period,
usually between three and five years. If the requirements for capitalization are notsatisfied, expenses are recognized in profit or loss in the fiscal year in which they
were incurred.
Impairment losses are recorded in accordance with IAS 36 if the carrying amountof the asset exceeds its recoverable amount. The recoverable amount is the higherof an asset’s value in use, the present value of expected future cash flows fromthe use of the asset and the fair value less costs to sell. Should the reasons for
impairment losses recognized in previous periods no longer apply, these impairment losses are reversed.
The reversal posted through profit or loss is limited so that the carrying amountof the asset does not exceed its recoverable amount, nor exceed the carrying
amount that would have been determined, net of depreciation, had no impairment
loss been recognized for the asset in previous years.
Impairment losses are generally shown in the statement of income under depreciation and amortization. Reversals of impairment losses are reported under otheroperating income. However, significant impairment losses, particularly those associated with the discontinuation of operations, are presented under the non-recurring result.
Borrowing costs that are directly attributable to intangible assets are capitalized
as part of the cost of those assets.
Goodwill is subjected to an impairment test at least annually. For impairment testing, goodwill is assigned to essentially four cash-generating units. In line with the
management’s internal reporting practices, these cash-generating units are identified on the basis of the Group’s operating activities. Voith has therefore defined
the four segments Voith ­Hydro, Voith I­ndustrial ­Services, Voith P­ aper and Voith
Turbo as its cash-generating units.

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To determine whether goodwill is impaired, the Voith Group measures the assetsof the cash-generating unit against their fair value less the costs needed to makethe sale. If there is no active market on which fair value can be measured, it ismeasured using the discounted cash flow projections taken from the latest business planning prepared by management. The planning assumptions are adjusted
to reflect the current information available. Key assumptions on which calculationsof fair value are based include assumptions about the trend in orders received
and sales, growth rates, extrapolated cash flow forecasts beyond the planninghorizon, and discount rates. Due account is taken of reasonable assumptions
regarding macroeconomic trends and historical developments. Based on the fairvalue measurement of these assets there was no indication of a need to record
an impairment loss on goodwill.
The Board of Management of Voith GmbH assumes that it will continue to see
stable business development in the 2014 /15 fiscal year. The related assumptions
for the four segments are outlined below:
Voith ­Hydro:
Voith ­Hydro’s orders received were above average in the 2013 /14 fiscal year. Thiswas primarily due to major projects being awarded in Pakistan and Canada aswell as contracts involving modernization in Russia and the US. Going on theassumption of a stable market volume in ­hydropower for the coming years, Voith­Hydro also expects its orders received to be stable. Sales are stable in line withthe orders received. For the terminal value, the Group Division expects to see aslight increase in orders received and sales.
Voith ­Industrial ­Services:
In the first 2014 /15 budget year, Voith ­Industrial ­Services expects to see moderatesales growth. Starting in the 2015 /16 fiscal year, it is planning on significant sales
growth. In the calculation of its terminal value, it is planning on a rise in sales on
the basis of the last budget year.
Voith ­Paper:
In the 2014 /15 and 2015 /16 budget years, Voith P­ aper expects the market volume
for the project business to remain unchanged, thereby causing sales to stabilize
at the current level. This significantly lower business volume compared to previous years is also expected for the mid-term. For the Products & ­Services division, Voith ­Paper plans to see a continued increase in orders received and sales
against the background of existing growth potential in North America and Asia. For
Fabric & Roll Systems, moderate growth largely in line with market development
is expected. For the terminal value, the Group Division expects to see a slightincrease in orders received and sales.

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119

Voith Turbo:
The business development plan takes into account the modest development of
the markets on the whole, with the Mining & Metals and Power, Oil & Gas divisions expected to recover significantly in the second budget year. In its mid-termplanning, Voith Turbo plans to generate higher sales. The plan does not take
into account opportunities and risks associated with the geopolitical situation in
Ukraine and Russia, the Middle East or Iran.
An increase in margins due to efficiency gains is planned for all Group Divisions.
The cash flow forecast is based on the detailed finance budget for the coming two
years and a qualified top-down projection for the years three to five. Cash flows
for periods after the fifth fiscal year are extrapolated at a constant growth rateof approximately 1%. These growth rates do not exceed the average long-term
growth rates of the business areas in which the corresponding cash-generating
unit operates.
The discount rates are derived from a calculation of the weighted average cost ofcapital, which is itself based on the financing costs of comparable competitors
for each of the cash-generating units. The discount rates applied reflect the equity
risk specific to each cash-generating unit. After-tax interest rates of 6.8 % (previous year: 6.3 %) for Voith ­Hydro, 6.2 % (previous year: 5.7 %) for Voith ­Industrial­Services, 7.5 % (previous year: 6.9 %) for Voith P­ aper and 5.8 % (previous year:
6.2 %) for Voith Turbo were used to calculate the present value of future net cash
inflows.
Property, plant and equipment
Property, plant and equipment are stated at cost less depreciation and any
impairment losses. The cost of internally produced property, plant and equipment includes all directly attributable production costs and an appropriate shareof production overheads. Depreciation is recognized on a straight-line basis overthe following useful lives:
Useful life
Buildings

40 to 50 years

Plant and machinery

4 to 15 years

Other equipment, furniture and fixtures

4 to 12 years

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Property, plant and equipment are subjected to an impairment test if unusual
events or market developments indicate that they may be impaired. To this end,
the carrying amount of an asset or cash-generating unit is compared with its
recoverable amount, which is defined as the higher of fair value less costs to selland value in use. Impairment losses are reversed if the fair value of a previously
impaired asset subsequently increases again.
The reversal posted through profit or loss is limited so that the carrying amountof the asset does not exceed its recoverable amount, nor exceed the carrying
amount that would have been determined, net of depreciation, had no impairment
loss been recognized for the asset in previous years.
Impairment losses are generally shown in the statement of income under depreciation and amortization. Reversals of impairment losses are reported under otheroperating income. However, significant impairment losses, particularly those associated with the discontinuation of operations, are presented under the non-recurring result.
Repair and maintenance costs are recognized as expenses at the time when they
are incurred. Any major renewals or improvements are capitalized. Borrowing
costs that are directly attributable to property, plant and equipment are capitalized as part of the cost of those assets.
Leased assets
Whether an arrangement is or contains a lease depends on the substance of thearrangement and requires a decision to be made on whether fulfillment of theagreement depends on the use of a particular asset and whether the arrangement
conveys the right to use the asset.
Leases that transfer substantially all risks and rewards incidental to use of theleased asset to a Voith Group company (the lessee) are classified as financial
leases. In such cases, the lessee recognizes the leased asset at the start of thelease period and writes it down over the asset’s useful life. A corresponding liability is recognized and then settled by the lease payments. The interest component is recognized in the interest result. All other leases in which Voith Group
companies act as the lessee are stated as operating leases. The lease paymentsfor operating leases are recognized as expenses using the straight-line method
over the term of the lease.
Financial assets and securities
Shares carried under financial assets as other investments are generally recognized at fair value. Where no active market exists for individual companies and it
is impracticable to determine their fair value, shares are stated at cost. The carrying amount of such assets is written down if there is objective evidence thatthey are impaired.

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121

In accordance with IAS 39, loans classified as non-current loans are recognizedunder other financial assets at amortized cost, adjusted (where necessary) for
impairment.
In accordance with IAS 39 distinctions between “held-for-trading”, “available-forsale”, “held-to-maturity” and “financial assets at fair value through profit or loss”
must be made for securities that are classified as non-current or current assets.
The securities held by the Voith Group are normally available for sale. To a small
extent, however, the Group also makes use of financial instruments that are held
for trading and securities that, upon initial recognition, are designated as at fairvalue through profit or loss. Certain securities are assigned to this category toeliminate measurement inconsistencies in the accounting for long-term employee
benefits.
Where fair values can be obtained, securities are stated at their market value,otherwise they are measured using alternative methods. Where no market value
is available and it is impracticable to reliably determine fair value, securities arerecognized at cost.
Any gains or losses arising from changes in the fair value of available-for-salesecurities, are recognized under other comprehensive income until the asset isderecognized. The carrying amounts of non-current financial assets and available-for-sale securities are regularly tested for objective evidence that they may
be impaired. Such evidence can take the form of significant financial difficultyof the debtor or changes in the technological, economic and legal environment.
Objective evidence that equity instruments may be impaired is given if there is a
prolonged or significant decline in their fair value. The sustainability criterion is met
if the impairment lasts longer than 12 months. If the fair value of the investment
falls more than 30 % below its cost, this is regarded as a significant decline. If thishappens, the amounts hitherto recognized under other comprehensive income
are recognized in profit or loss.
Fair value
The fair value of investments for which an organized market exists is determinedby the quoted market price at the reporting date. Where no active market exists,
valuation techniques are used to determine the fair value. The techniques used
by Voith for this purpose aim to reflect objective criteria as accurately as possible and to simulate an active market. This is done, for example, by analyzing discounted cash flows, referring to arm’s length transactions between knowledgeable,
willing and independent partners, and drawing on comparisons with the current
fair value of other essentially identical financial instruments.

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Inventories
Materials and supplies, merchandise, work in progress and finished goods are
all stated under inventories at the lower of cost and net realizable value. In addition to direct costs, cost includes an appropriate portion of necessary materials
and production overheads as well as production-related depreciation that canbe directly allocated to the production process. The average cost, or cost basedon the first-in, first-out (FIFO) method, is capitalized in the balance sheet. Appropriate allowance is made for inventory risks associated with slow-moving stocks,
reduced salability, etc. When the circumstances that previously caused inventories to be written down below cost no longer exist, the write-down is reversed.
Long-term construction contracts
Long-term construction contracts are recognized in accordance with the percentage-of-completion (PoC) method. The percentage of completion per contract
to be recognized is calculated as the ratio of the actual costs incurred to theanticipated total costs of the project (“cost-to-cost method”). Revenue received
is stated as sales and, after deducting customer advances and installments, as
trade receivables. If the outcome of a construction contract cannot be estimatedreliably, it is not possible to calculate contract revenue and costs based on thepercentage of completion. In such cases, revenue is recognized at the amount ofcosts incurred for the construction contract to date, while the contract costs are
immediately recognized in full in the period in which they are incurred. Expected
losses on such contracts are based on recognizable risks.
Receivables and other assets
Receivables and other assets (with the exception of derivatives) are stated atnominal value or at cost and are regularly tested for impairment individually. Where
objective evidence of possible loss exists (if the debtor is experiencing significant financial difficulty, if it is highly probable that insolvency proceedings will be
opened against the debtor, if the debtor defaults on or is delinquent in interest or
principal payments, if significant adverse changes in the technological, economicor legal environment occur, if there is a significant or prolonged decline in the fairvalue of a financial instrument below its cost, or if legal proceedings are opened,for example), then individual allowances are recorded using an allowance accountto reflect these factors. To the extent that impairment is derived from historical bad
debt rates on a portfolio basis, a drop in the total volume of receivables reducessuch allowances and vice versa. Impaired receivables are derecognized when
they are assessed as uncollectible. Interest-free or low-­interest receivables due
in more than one year are discounted.

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Derivative financial instruments and hedging
Voith uses a variety of financial derivatives – such as forward exchange contracts
and interest rate swaps – to hedge underlying transactions. Essentially, the Groupapplies fair value hedge accounting of firm commitments to hedge operating business transactions.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship and the risk management objective and strategy forentering into the hedge. This documentation includes identification of the hedging
instrument, the hedged item or transaction, the nature of the risk being hedged,
and how the Group will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value that is attributable tothe hedged risk. Such hedges are considered to be highly effective in offsetting
the risks from changes in the fair value and are assessed on an ongoing basis todetermine that they actually have been highly effective throughout the financial
reporting period for which they were designated.
Hedges that meet the strict criteria for hedge accounting are accounted for as
described below:
Fair value hedges
Fair value hedges are hedges of the Group’s exposure to changes in the fair valueof a recognized asset or liability or an unrecognized firm commitment that is attributable to a particular risk and could affect profit or loss for the period. In the caseof fair value hedges, the carrying amount of a hedged item is adjusted by the profit
or loss that is attributable to the hedged exposure. The derivative financial instrument is remeasured at its fair value and any gains or losses arising as a result arerecognized in profit or loss.
For fair value hedges relating to hedged items carried at amortized cost, the adjustment to the carrying amount is amortized through profit or loss over the remaining
term to maturity.
When an unrecognized firm commitment is designated as a hedged item, the subsequent accumulated change in the fair value of the firm commitment that is attrib­­­u­table to the hedged risk is recognized as an asset or liability and the corresponding
gain or loss is recognized in the profit or loss of the period. Changes in fair value ofthe hedging instrument are also recognized in the profit or loss of the period.
The Group discontinues fair value hedge accounting if the hedging instrument
expires, is sold, terminated or exercised, of if the hedge no longer meets the criteria for hedge accounting. Every adjustment to the carrying amount of a hedged

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Voith Annual Report 2014

financial instrument is released to income using the effective interest method. As
soon as there is an adjustment, the reversal may begin, and shall begin no later thanwhen the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.
Embedded derivatives
When the Group becomes party to the contract, it assesses whether any embedded derivatives should be separated from the host contract. A reassessment is
not made unless there is a substantial change in the terms of the contract thatsignificantly modifies the cash flows that would otherwise have been generated
from the contract. Where embedded derivatives exist, they are recognized at fairvalue as financial assets held for trading. Embedded financial derivatives with positive fair values are stated under other financial receivables; those with negative
fair values are stated under bonds, bank loans and other interest-bearing liabilities
or other financial liabilities.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and checks, cash at banks andcash equivalents. Under this item, cash at banks includes both daily deposits andtime deposits with fixed maturities of up to three months.
Non-current assets and disposal groups held for saleNon-current assets and disposal groups held for sale are classified as assets held
for sale or correspondingly as liabilities directly associated with assets classified
as held for sale if their carrying amount is to be recovered through sale rather
than through continuing use. This condition is regarded as met when the sale ishighly probable and the asset or disposal group is available for immediate salein its present condition. In this case management has decided to sell the asset
and it is expected that the sale will take place within 12 months from the date ofclassification. Non-current assets held for sale are measured at the lower of theircarrying amount and their fair value less costs to sell. Assets held for sale are notsubject to depreciation and amortization.
Deferred and current taxes
In accordance with IAS 12, deferred tax assets and liabilities are recognized for
temporary differences between tax reporting and reporting for IFRS purposes.
Deferred tax assets are also recognized for unused tax losses insofar as it isreasonable to expect that they will be realized in the near future. Deferred taxes
that relate to items recognized under other comprehensive income are also themselves recognized in equity. Deferred taxes are calculated based on the tax rates
enacted or substantively enacted by the reporting date that apply or are expected

Voith Annual Report 2014

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125

to apply in the countries concerned at the time of realization. Deferred tax assets
on unused tax losses that are not likely to be realized within a foreseeable period(normally two years) or that are not covered by deferred tax liabilities are either
written down or not recognized at all. Deferred tax assets and deferred tax liabilities may be netted if the Group has a legal right to offset current tax assets
against current tax liabilities and they relate to income taxes levied by the same
taxation authority.
Current taxes are calculated and reported in accordance with the tax laws andregulations valid for each company.
Profit participation rights
According to IAS 32, the conditions pertaining to the issues of profit participationrights amounting to €103,400 thousand require these rights to be reported asa separate component of the Group’s equity. Interest is not reported as interest
expenses, but is treated in a similar manner to a dividend obligation.
Provisions for pensions and similar obligations
In accordance with IAS 19, provisions for pension obligations are measured basedon actuarial methods using the prescribed projected unit credit method for defined
benefit plans. This method considers not only the pensions and future claims
known at the end of the period under review but also future anticipated increases
in salaries and pensions. Defined benefit obligations are measured based on the
proportion of future benefits accrued at the reporting date. Measurement includes
assumptions about the future development of certain parameters that could affectthe actual future benefit amount. The expenses for these benefit plans are divided
into service cost and interest cost on the net debt from the obligations and plan
assets. The two expense items are recognized in profit or loss. Revaluations of
the net debt recognized are disclosed under other comprehensive income net ofdeferred taxes.
Other provisions
Provisions are formed for all discernible risks and uncertain obligations at theamount that is likely to be realized. These provisions are not netted against
recourse claims. Provisions are recognized when the Group has a present obligation to a third party as a result of a past event and it is probable that an outflow of resources will be required whose amount can be estimated reliably. Provisions for warranty claims are based on historical claim trends and estimatedfuture trends. Specific provisions are set up for known claims. Provisions foroutstanding expenses, onerous contracts and other business-related obligations
are measured based on s­ ervices still to be rendered, usually at the amount of
the costs to sell.
Provisions which do not lead to an outflow of resources in the following year
are carried at the discounted settlement amount at the end of the period under126

Financial Statements

Voith Annual Report 2014

review. The discount rate used is derived from market interest rates. The settlement amount also includes the estimated cost increases. If an amount set aside
as a provision is expected to be refunded (through an insurance claim, for example), the refund amount is stated separately as an asset only if it is virtually certain.
Income from refunds is not netted against expenses.
Liabilities
Current liabilities are stated at the amount needed to settle the obligation. Financial liabilities are measured at their amortized cost. Amortized cost corresponds
to the cost of the financial liabilities adjusted for repayments, issue costs andthe amortization of any debt discounts or debt premiums. Where liabilities areaccounted for as hedged transactions, they are measured taking into account themarket value of the hedged risk. Gains and losses are recognized in profit or loss.
Liabilities arising from leases that are classified as finance leases in accordancewith the criteria laid out in IAS 17 are recognized at the present value of the minimum lease payments at the start of the lease. Thereafter, they are stated underfinancial liabilities at their amortized cost. Lease payments are split into an interest
component and a principal component. The interest component of each payment
is recognized as an expense in profit or loss.
Classification of holders of non-controlling interests in limited
partnerships and based on repayment rights and put options
In accordance with IAS 32, financial instruments that entitle the holder to repayment of the capital made available to the company must be classified as liabilities. In companies that operate as limited partnerships, partners have the rightunder German law to demand repayment of the capital they have made available
to the partnership. This right cannot be excluded by the partnership agreement.
This provision also extends to other comparable repayment rights of holders of
non-controlling interests with a settlement agreement. Put options create a similar
obligation pursuant to IAS 32.
a) Put options
Where the right to terminate non-controlling interests exists in the form of a put
option, the corresponding non-controlling interests are not derecognized but aretreated as a component of equity during the period under review. Accordingly, aVoith Annual Report 2014

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127

share of net income for the year is allocated to holders of non-controlling interests. At every reporting date, it is assumed that the put option will be exercised;
the corresponding non-controlling interests are reclassified from equity to financial liabilities. This financial liability is recognized in the amount of the estimatedcompensation obligation and measured at fair value. The difference between thisliability and non-controlling interests as a share of equity is treated as a transaction between owners and recognized from the 2009 /10 fiscal year onwards as anincrease or decrease in equity. Until the 2008 / 09 fiscal year transactions wereregarded as a business combination achieved in stages and the difference statedas goodwill. By choosing to apply the transitional rule under IAS 27 (2008) theGroup retained these amounts.
b) Limited partnerships
The interests held in limited partnerships as well as non-controlling interests withcomparable termination rights are treated in the same way as put options. The
liability is measured at amortized cost taking account of the attributable share of
net income.
Amounts reclassified from equity to financial liabilities totaled € 80,262 thousandin the 2013 /14 fiscal year (previous year: € 69,968 thousand).
If non-controlling interests in limited partnerships are terminated or if corresponding put options are exercised, the financial liabilities recognized prior to termination / exercise of the put options are reclassified as other financial liabilities.
Financial guarantee contracts
Financial guarantee contracts issued by the Group are those contracts that requirea payment to be made to reimburse the holder for a loss it incurs because thespecified debtor fails to make a payment when due in accordance with the termsof a debt instrument. These financial guarantee contracts are treated as insurance
contracts as defined by IFRS 4, i.e. the financial guarantee contracts are recognized as contingent liabilities until utilization becomes probable. When this is thecase, the corresponding obligation is recognized.
Exercise of judgment and estimates by management
Some accounting policies require critical estimates that involve complex andsubjective assessments and the use of assumptions, some of which are inherently uncertain and subject to change. These critical accounting estimates canvary from period to period and significantly impact a company’s financial position and / or earnings. The management explicitly points out that future events will

128

Financial Statements

Voith Annual Report 2014often deviate from planning assumptions, and that it is normal for estimates tohave to be adjusted.
Significant estimates and assumptions have to be made in the following areas ofaccounting:
Revenue recognition from long-term construction contracts
The Group generally accounts for construction contracts using the PoC method,
according to which revenue is recognized based on the percentage of completion. This method involves making a precise estimate of the degree of completion. Accurate estimates of the percentage of completion are of vital importanceto this method. Depending on the method used to measure the percentage ofcompletion, the most significant estimates concern the total contract cost, thecosts to complete, the total contract revenue, and contract risks.
The management of Voith’s operating subsidiaries constantly reviews all estimates that are needed in the accounting for construction contracts and adjusts
them as and when necessary.
Such examinations are part of management’s normal accounting activities at
operating level. For details of carrying amounts, refer to note 14.
Trade and other receivables
Allowances for doubtful receivables require significant judgment on the part ofmanagement. They also necessitate an analysis of the individual debtors thatcovers their creditworthiness, current economic trends and an examination ofhistoric default scenarios. For details of carrying amounts, refer to note 14.
Impairment of goodwill
Determining the recoverable amount of a Group Division to which goodwill was
allocated involves estimates by management. To calculate the fair value less costs
to sell, planning for the next five years is based on management’s expectations
adjusted for economic trends and historic developments. Estimates of growth,
the weighted average cost of capital and tax rates are likewise based on reliable
information that reflects the risks associated with operating business in eachgiven industry or division. For details of carrying amounts, refer to note 10 andthe segment reporting.
Development costs
Development costs are capitalized if the requirements of IAS 38 are met. Initial
capitalization is based on management’s estimate that it can demonstrate technical and economic feasibility. Forecasts of the expected future economic benefit
to be gained from assets are essential to the decision whether or not costs are to
be capitalized. For details of carrying amounts, refer to note 10.

Voith Annual Report 2014

Financial Statements

129

Pension obligations
Estimates of pension obligations depend significantly on key assumptions about
discount factors, expected salary increases, mortality rates and the trend in healthcare costs. The assumptions used to calculate the discount factor reflect theinterest rates that can be realized on high-quality fixed-income instruments withappropriate maturities. For details of carrying amounts, refer to note 20.
Other provisions
Recognizing provisions for anticipated losses on contracts, warranty-related costs
and litigation involves making significant estimates. Voith recognizes provisions for
anticipated losses in all cases where current estimates of the total contract costs
exceed expected contract revenues. Onerous contracts are identified by estimating the total costs of the contract, which requires significant judgment. Estimates
are also necessary for assessing obligations from warranties and litigation. Provisions for restructuring are based on well-founded plans for expected activities.
These plans are reviewed and approved by the Board of Management. For detailsof carrying amounts, refer to note 21.
Taxes
The Voith Group has business operations in many countries and is subject tomany different tax laws. Both current and deferred taxes on income must be
calculated for each individual taxable entity. To calculate deferred tax assets on
unused tax losses and temporary differences, for example, assumptions must
be made about the possibility of realizing sufficient taxable income in the future
and the interpretation of complex tax laws and regulations. For details of carrying
amounts, refer to note 9.

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Financial Statements

Voith Annual Report 2014

Adoption of amended and new standards and interpretations
Changes in accounting policies due to first-time adoption of revised andnew IFRS and IFRICs
In the 2013 /14 year, the following new and revised IAS and IFRS were applied
for the first time:Standard / interpretation

Amendment / new standard or interpretation

ImpactIAS 19 Employee Benefits

See section “Restatement of previous-year
amounts” below.

See section “Restatement ofprevious-year amounts” below.

IFRS 7 Financial Instruments:
Disclosures

The amendments require extended disclosuresin the notes on rights to set off. In addition
to extended disclosures relating to offsetting
actually applied in accordance with IAS 32, theamendments introduce disclosures for existingrights to set off irrespective of whether offsetting
is actually performed.

No significant impact on the
net assets, financial position
and results of operations.

IFRS 13 Fair Value Measurement

IFRS 13 defines fair value, provides a framework formeasuring fair value in one single IFRS and prescribes
disclosures on the measurement of fair value.

No significant impact on the
net assets, financial position
and results of operations.

Annual Improvements Project(2009–2011)

Amendments to standards IFRS 1, IAS 1, 16, 32
and 34.

No significant impact on the
net assets, financial position
and results of operations.

Adoption of the following revised and newly issued IFRS and IFRICs was not yet
compulsory in the 2013 /14 fiscal year and / or they had not yet been endorsed by
the European Commission for adoption in the European Union.

Voith Annual Report 2014131

Financial Statements

Standard / interpretation

Amendment / new standard or interpretation

Effective date

IFRS 9 Financial Instruments

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

Periods beginning on or afterJanuary 1, 2018.

IFRS 10 Consolidated Financial
Statements

IFRS 10 creates a uniform definition for control andthus a uniform basis for the existence of a parentsubsidiary relationship and the related demarcationof the consolidated Group. The new standard
replaces IAS 27 (2008) “Consolidated and Separate
Financial Statements” and SIC 12 “Consolidation –Special Purpose Entities”.

Periods beginning on or afterJanuary 1, 2014.

IFRS 11 Joint Arrangements

IFRS 11 governs the accounting treatment of situations
where a company exercises joint control over a
joint venture or a joint operation. The new standard
replaces IAS 31 “Interests in Joint Ventures” andSIC 13 “Jointly Controlled Entities – Non-Monetary
Contributions by Venturers” as the relevant rules foraccounting for joint ventures to date.

Periods beginning on or afterJanuary 1, 2014.

IFRS 12 Disclosure of Interests in
Other Entities

The objective of IFRS 12 is to prescribe disclosures
on information that provides the users of financial
statements with a basis for assessing the nature ofinterests in other entities (e.g. subsidiaries, associates) and the related risks and effects of theseinterests on the Group’s net assets, financial position
and results of operations.

Periods beginning on or afterJanuary 1, 2014.

IFRS 15 Revenue from Contracts
with Customers

Combination of revenue recognition rules previously
contained in various standards and interpretations.

Periods beginning on or afterJanuary 1, 2017.

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

Clarification of acceptable methods of depreciation
and amortization.

Periods beginning on or afterJanuary 1, 2016.

Additions to IAS 32 Financial
Instruments: Presentation

Supplement to provisions on offsetting financial
assets and liabilities.

Periods beginning on or afterJanuary 1, 2014.

Amendment to IAS 36 Impairmentof Assets

Amendment of disclosures on the carrying amountfor non-financial assets as a consequence of the
new IFRS 13.

Periods beginning on or afterJanuary 1, 2014.

Amendment to IAS 39 Financial
Instruments: Recognition andMeasurement

Novation of derivatives and continuation of hedge
accounting.

Periods beginning on or afterJanuary 1, 2014.

IFRIC 21 Levies

Accounting treatment of levies raised by publicauthorities.

Periods beginning on or afterJanuary 1, 2014.

Annual Improvements Project(2010–2012)

Amendments to standards IFRS 2, 3, 8 and 13,
IAS 7, 16, 24 and 38.

Periods beginning on or after
July 1, 2014.

Annual Improvements Project(2011–2013)

Amendments to standards IFRS 1, 3 and 13 andIAS 40.

Periods beginning on or after
July 1, 2014.

Annual Improvements Project(2012–2014)

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

Periods beginning on or afterJanuary 1, 2016.

All revised and newly issued IFRS and IFRICs subject to mandatory adoption
from the 2014 /15 fiscal year onwards are not expected to have any significant
impact on the net assets, financial position and results of operations of the Voith
Group. The impact of revised or newly issued standards and interpretations thatwill be subject to mandatory adoption at a later date for the Voith Group is currently being investigated.
At present, the Voith Group does not plan to early adopt the new or amended
standards and interpretations.

132

Financial Statements

Voith Annual Report 2014

Restatement of previous-year amounts(1) Amendments to IAS 19
The most significant amendment to IAS 19 is that in future cumulative actuarial
gains and losses will be recognized under other comprehensive income. The corridor method to smooth unexpected fluctuations in pension obligations and thecorresponding plan assets has been eliminated, including the recognition in profit
or loss of actuarial gains and losses exceeding the 10 % corridor. As Voith used thecorridor method in the past, there will be larger fluctuations in other comprehensive
income and consequently in equity in the future. The net interest approach is also
being introduced. According to this, the net defined benefit liability is discountedwith the discount rate used in the measurement of the defined benefit obligation.
This calculation assumes a return on plan assets at the discounted interest rateinstead of the expected return. Due to the clarifications presented in the revised
IAS 19, enhancements of post-employment benefits in connection with measures
stemming from termination benefits are accounted for in the same way as defined benefit plans. These benefits will therefore be presented under provisions forpensions and similar obligations in future and no longer under other provisions.
Any resulting actuarial gains or losses are recorded under other comprehensive
income. As a result of the amended definition of termination benefits under IAS
19, the top-up amounts agreed in “Altersteilzeit” (German special phased retirement scheme) agreements from now on constitute other non-current employee
benefits. In future, this will mean a pro rata accumulation of top-up amounts over
the active service period of the employees taking part in the phased retirement
scheme. This results in a reduction in provisions for phased retirement schemes.
(2) Owing to non-compliance in the 2013 /14 fiscal year with the accounting policies relating to the accounting for inventories, trade receivables and provisionsin previous years at a subsidiary, a need for corrections to these balance sheet
items was determined.
(3) The restatement of previous-year figures relates to taxes issues stemmingfrom corporate income tax and trade tax. Findings of the tax field audit for theyears 2002 to 2006 were corrected in the subsequent years 2007 to 2013 in the2013 /14 fiscal year. Previous assessments were revised and corrections for theyears 2007 to 2013 made in the 2013 /14 fiscal year. This results in tax backpayments, causing tax liabilities to increase. Furthermore, the decrease in allocableunused tax losses means that an impairment loss has to be charged on the deferred tax assets recognized thereon.

Voith Annual Report 2014133

Financial Statements

Voith has restated the published previous-year figures pursuant to IAS 8 to reflect
the effects from the amendments to IAS 19 as well as from the findings describedabove. In detail, the following changes were made in the comparative periods:

Impact on the consolidated balance sheet
2012-10-01

2012-10-01

2012-10-01

2012-10-01

2012-10-01

Before restatement

Restatement (1)Restatement (2)Restatement (3)After restatement

Other financial assets

36,8570-850

Deferred tax assets

145,505

25,682

Total non-current assets

182,362

25,682

Non-current assets-850

36,007-22,163

149,024-22,163

185,031

Current assets
Inventories

860,220-1,276858,944

Trade receivables

1,213,821

Total current assets

2,074,041

0-9,049-7,7730

1,206,048
2,064,992

Total assets

2,256,403

25,682-9,899-22,163

2,250,023

Equity1,383,538-137,742-10,688-41,334

1,193,774

Provisions for pensions andsimilar obligations

430,022

225,884

655,906

Other provisions

206,348-23,767

182,581

Non-current liabilities

Bonds, bank loans andother interest-bearing liabilities

1,000,722-7,197

993,525

Deferred tax liabilities

125,098-31,901

93,197

Total non-current liabilities

1,762,190

163,019

26,887405

01,925,209

Current liabilities
Provisions for pensions andsimilar obligations
Other provisions

313,092

Income tax liabilities

103,443

Total current liabilities

443,422405

3,589,150

25,682

Total equity and liabilities

27,292789

313,881
19,171

122,614789

19,171

463,787-9,899-22,1633,582,770

134

Financial Statements

Voith Annual Report 20142013-09-30

2013-09-30

2013-09-30

2013-09-30

2013-09-30

Before restatement

Restatement (1)Restatement (2)Restatement (3)After restatement

Non-current assets
Other financial assets

27,862-850

Deferred tax assets

146,207

26,119Total non-current assets

174,069

26,119-850

27,012-20,494

151,832-20,494

178,844

Current assets
Inventories

738,642-1,228

737,414

Trade receivables

1,201,161-7,7781,193,383

Total current assets

1,939,803

0-9,0060

1,930,797

Total assets

2,113,872

26,119-9,856-20,494

2,109,641

Equity1,318,765-123,711-10,520-44,800

1,139,734

Provisions for pensions andsimilar obligations

432,857

214,433

0

Other provisions

254,137-39,274

214,863

Bonds, bank loans andother interest-bearing liabilities

863,851-5,870857,981Deferred tax liabilities

101,551-19,482

82,069Total non-current liabilities

1,652,396

149,807

Provisions for pensions andsimilar obligations

26,521

23

Other provisions

334,121

Income tax liabilities

79,514

Total current liabilities

440,15623

3,411,317

26,119Non-current liabilities

0647,29001,802,203

Current liabilities

Total equity and liabilities

026,544

664

334,785
24,306

103,820664

24,306465,149-9,856-20,494

3,407,086

Voith Annual Report 2014135

Financial Statements

Impact on the consolidated statement of income

Changes in inventories and other
own work capitalized2012  /13

2012  /13

2012  /13

2012  /13

2012  /13

Before restatement

Restatement (1)Restatement (2)Restatement (3)After restatement

48

4,952

Personnel expenses-2,154,455

4,904
10,810125-2,143,520

Other operating expenses-5-1,066,613-1,056,973-9,635Interest expenses-88,524

6,213

Income taxes-27,009-2,154

Net income

63,301

5,234

Net income attributable toshareholders of the parent company

45,055

5,078

Net income attributable to holders
of non-controlling interests

18,246

156-82,311-3,466-32,629168-3,466

65,237168-3,466

46,835
18,402

Impact on the consolidated statement of comprehensive income
2012  /13

2012  /13

2012  /13

2012  /13

2012  /13

Before restatement

Restatement (1)Restatement (2)Restatement (3)After restatement

63,301

5,234

168-3,466

65,237

Remeasurement of defined benefit
plans

0

16,217

16,217

Taxes on components that will not
be recycled through profit orloss in later accounting periods

0-8,484-8,484

Net income
Items that will not be recycled
through profit or loss in lateraccounting periods:

Items that will be recycled throughprofit or loss in later accounting
periods:
Gains / losses on currencytranslation-64,963

2,388

Other comprehensive income-85,635

10,12100-75,514-62,575

Total comprehensive income-22,334

15,355168-3,466-10,277

Total comprehensive income
attributable to shareholders of
the parent company-30,60213,851168-3,466-20,049

Total comprehensive income
attributable to holders of noncontrolling interests

8,268

1,504

9,772

Had items been accounted for pursuant to the unrevised version of IAS 19,
provisions for pensions and similar obligations would have been € 329 million
lower, other provisions € 39 million higher, the item bonds, bank loans and otherinterest-bearing liabilities € 9 million higher and equity after considering deferredtaxes € 210 million higher in the consolidated balance sheet as at September
30, 2014. In the consolidated statement of income, the operational result would
have been € 2 million higher, interest expenses € 8 million higher and net income€ 4 million lower.

136

Financial Statements

Voith Annual Report 2014

Notes to the consolidated
statement of income

01.

Sales
in € thousands

2013  /14

2012  /13

Sale of goods

3,051,531

3,470,565

Rendering of s­ ervices

2,293,579

2,257,652

5,345,110

5,728,217

2013  /14

2012  /13*

Changes in inventories of finished goods and work in progress

6,766-14,923

Other own work capitalized

9,290

19,875

16,056

4,952

in € thousands

2013  /14

2012  /13

Income from the utilization of contract-specific provisions

89,382

109,886

Income from the reversal of provisions and accruals

69,75049,985

Foreign exchange gains

70,55057,405

Recovered bad debts

5,524

6,777

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

1,760

3,131

Rental and lease income

5,172

4,382

19,34919,11702.	

Changes in inventories
and other own work
capitalizedin € thousands* Previous year restated (refer to “Restatement of previous-year amounts”).

03.	

Other operating income

Income from insurance indemnification payments
Other income

65,76150,467327,248

301,150

Voith Annual Report 2014

04.

137

Financial Statements

Cost of materialin € thousands

2013  /14

2012  /13

Cost of material and supplies and of purchased merchandise

1,541,141

1,752,951

Cost of purchased ­s ervices

05.

570,900

586,098

2,112,041

2,339,049

2013  /14

2012  /13*

Wages and salaries

1,744,109

1,752,596

Social security, pension and other benefit costs

379,796

390,924

2,123,905

2,143,520

Personnel expenses
in € thousands* Previous year restated (refer to “Restatement of previous-year amounts”).

Number of employees
Annual average

As at the reporting date2013  /14

2012  /13

2014-09-30

2013-09-30

Wage earners

24,83325,26722,01625,344

Salaried employees

17,854

17,813

17,286

17,79042,68743,08039,302

43,134

1,294

1,201

1,275

1,201

43,981

44,281

40,57744,335

Apprentices and interns

Number of employees by region
Annual average

Germany

As at the reporting date2013  /14

2012  /13

2014-09-30

2013-09-30

17,097

17,424

14,434

17,327

Rest of Europe

8,333

8,346

7,544

8,580

Americas11,538

11,491

11,594

11,580

Asia

5,520

5,594

5,543

5,426

Other

199

225

187

221

42,68743,08039,302

43,134

138

Financial Statements

Voith Annual Report 2014in € thousands

2013  /14

2012  /13*

Increase in provisions and accruals

187,576

172,41606.	

Other operating expenses

Other selling expenses

342,361

341,411

Other administrative expenses

250,851

262,671

Foreign exchange losses

56,91973,919Rent for buildings and machinery

78,703

76,233

Bad debt allowances

11,8808,894

Losses on the disposal of intangible assets and property, plantand equipment

3,457

3,686

Other expenses

130,346

127,383

1,062,093

1,066,613* Previous year restated (refer to “Restatement of previous-year amounts”).

07.	

Non-recurring result

Voith defines expenses and income arising from major restructuring activities,
measures addressing personnel capacity as well as the discontinuation of operations as extraordinary issues and records them under the non-recurring result.
The non-recurring result in the 2012 /13 previous-year period of €-156 million in­cluded the following measures:
At Voith ­Paper, various restructuring measures were concluded in previous years
on account of the recession in the p­ aper machine market. These measures affected the headquarters in Heidenheim and other locations. Expenses totaling€ 64 million from these measures are considered in the non-recurring result for the2012 /13 fiscal year, primarily personnel-related expenses.
In the 2012 /13 fiscal year, Voith Turbo accounted for non-recurring expenses of€ 73 million. Measures to reduce the headcount to improve the cost structures beyond Voith ­Paper were initiated at the headquarters in Heidenheim. Furthermore,
expenses in connection with the planned discontinuation of business activities aswell as the closure of locations were included in the non-recurring result.
At Voith ­Hydro expenses totaling € 4 million were incurred that were posted to the
non-recurring result. In addition to personnel-related expenses associated withthe planned job cuts in Heidenheim, non-recurring items included other expenses
related to the relocation of business activities and the related closure of a foreign
location.
Voith I­ndustrial S­ ervices accounted for non-recurring expenses of € 9 million.
The most significant component in this regard were expenses associated with

Voith Annual Report 2014139

Financial Statements

the planned discontinuation of operations and the related sale of a subsidiary.
How­ever, it also included expenses connected to the changes made to the organizational structure and adjustments of capacity.
Some of the entities entrusted with shared s­ ervices for the Group as a whole
were also affected by the job cuts in Heidenheim and accounted for non-recurring
expenses of € 6 million in the 2012 /13 fiscal year.
The non-recurring result in the 2013 /14 fiscal year comes to € 4 million.
Of this total, Voith P­ aper contributed € - 8 million in connection with the restructuring measures initiated at the headquarters in Heidenheim and various otherlocations in previous years. This amount primarily relates to personnel-related andother expenses that did not qualify for recognition as a provision in the previous
year as well as to income from reversals of provisions from measures that had
already ended.
Voith Turbo’s non-recurring result (€-16 million) mainly contains follow-on effects
based on the measures introduced in previous years. In detail, these include
personnel-related expenses, impairment of property, plant and equipment andinventories as well as additional expenses and income in connection with thechanges at the headquarters in Heidenheim, the closure of locations as well as
the discontinuation, relocation and sale of business activities.
Structural or market-related capacity adjustment measures at Voith ­H ydro atvarious locations abroad of € - 6 million contributed to the non-recurring result.
This amount largely contains personnel-related expenses.
Voith I­ndustrial S­ ervices contributed €  34 million to the non-recurring result. This
contains expenses and income in connection with the sale of companies aswell as personnel-related and other expenses from structural or market-related
restructuring measures.
in € thousands

2013  /14

2012  /13

Personnel expenses- 30,704- 96,477

Depreciation and amortization of non-current assets- 2,773- 34,740

Cost of material / Change in inventories- 8,815- 9,272

Other expenses in connection with the sale of business activities- 9,3560Sundry other expenses-12,547- 21,005

Income from the reversal of provisions

15,7504,357

Other income in connection with the sale of business activities

48,0430Sundry other income

3,944

1,377

3,542

- 155,760

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

140

08.

Financial Statements

Voith Annual Report 2014in € thousands

2013  /14

2012  /13

- 56

8,509

Other financial result

Gains / losses from investments
Impairment of other investments and loans
Impairment of securities
Income from securities and loans- 729- 1,328- 40,976

- 23

723

1,886

- 41,038

9,044

The impairment losses recognized on other investments and loans mainly concern
available-for-sale financial instruments that are measured at amortized cost.
The impairment of securities are impairment losses recognized on available-forsale securities listed on the market, the fair value of which decreased significantly.

09.	

Income taxesin € thousands

2013  /14

2012  /13*

Current taxes-84,855-59,943

Deferred taxes

6,359

27,314-78,496-32,629* Previous year restated (refer to “Restatement of previous-year amounts”).

Current taxes include domestic income taxes and comparable foreign income
taxes that are calculated in accordance with the local tax laws valid for eachsubsidiary.
For individual Group companies, deferred tax items are recognized for temporary
differences between carrying amounts for tax reporting and the carrying amounts
recognized under IFRS, as well as for consolidation measures recognized in profit
or loss. Deferred tax assets are also recognized for unused tax losses that canbe reasonably expected to be realized in the near future. The average income tax
rate for German companies is 29.84 % (previous year: 29.84 %).
Deferred taxes are calculated at the tax rates valid in the respective countries.
In the period under review, deferred tax expenses arising from temporary differences amounted to €12,875 thousand (previous year restated: tax income of€ 33,742 thousand).

Voith Annual Report 2014

Financial Statements

141

The deferred tax income from unused tax losses came to €19,235 thousand in
the 2013 /14 fiscal year. This amount essentially comprises impairment losses of€ 4,446 thousand recorded on deferred tax assets recognized in the 2012 /13
fiscal year, reductions of € 4,342 thousand in deferred tax assets on unused
tax losses due to adjustments to the tax losses brought forward from the previous year, income of € 20,405 thousand from the recognition of new deferred
tax assets on the unused tax losses of the period under review, expenses of€ 5,709 thousand from the utilization of unused tax losses recognized in theprevious year as well as income of €13,512 thousand from the recognition ofpreviously unrecognized unused tax losses.
The deferred tax expense from unused tax losses came to € 6,428 thousand(restated) in the 2012 /13 fiscal year. This amount essentially comprises impairment losses of €1,072 thousand recorded on deferred tax assets recognized in
the 2011 /12 fiscal year, reductions of €12,685 thousand (restated) in deferred
tax assets on unused tax losses due to adjustments to the tax losses brought
forward from the previous year, income of € 3,214 thousand from the recognitionof new deferred tax assets on the unused tax losses of the period under review,
expenses of €8,530 thousand (restated) from the utilization of unused tax losses
recognized in the previous year as well as income of €11,891 thousand from therecognition of previously unrecognized unused tax losses.
In addition, there was a reduction of € 3,107 thousand (previous year: € 7 thousand) in current income taxes from the use of previously unrecognized deferred
tax assets on unused tax losses.
As at September 30, 2014, unused tax losses of € 4,008 thousand (previous
year: € 477 thousand) for German trade and corporate income taxes, plus another € 603,145 thousand (previous year: € 458,077 thousand) for German tradetax, plus €145,026 thousand (previous year: €106,722 thousand) for previously
non-deductible interest expenses under German law, were not recognized asdeferred tax assets as there was no reasonable expectation that the related
deferred tax assets would be realized in the near future.
Due to the non-usability of tax losses, no deferred tax assets were recognized onunused tax losses of € 75,467 thousand relating to federal taxes levied by foreign
governments (previous year: € 47,885 thousand) as well as on unused tax lossesof €115,479 thousand relating to state taxes levied by foreign governments (previous year: € 84,506 thousand).
Owing to the ongoing tax field audit of the companies in Germany and abroad,further changes may be made to the unused tax losses.
In Germany, unused tax losses do not expire. Outside Germany, unused tax
losses can normally be realized within no more than five to ten years.

142

Financial Statements

Voith Annual Report 20142013-09-30*

2014-09-30
in € thousands

Deferred tax assets

Deferred tax liabilities

Deferred tax assets

Deferred tax liabilities

Intangible assets

6,801

68,918

7,893

68,749Property, plant and equipment

8,646

46,312

11,48750,911

Financial assets and securities

4,872

8,045

1,071

3,716

Inventories and receivables

54,02667,71437,41566,622Other assets

3,312

24,8809,506

19,839120,649

11,541

86,154

6,483

Pension provisions
Financial liabilities

15,615

3,437

8,617

8,099

100,256

21,463

116,762

11,911

Tax effect on distributable earningsof Group entities

0

0

0

1,000

Impairments of deferred tax assets
on temporary differences-7,327

Other provisions and liabilities

Unused tax losses-4,70352,60832,891

Netting-175,580-175,580-155,261-155,261

Disclosure in the balance sheet

183,878

76,730151,832

82,069* Previous year restated (refer to “Restatement of previous-year amounts”).

As far as the origin of the deferred taxes relating to other comprehensive income
is concerned, refer to note 19.
Reconciliation of expected and effective tax expense:
The income of Voith GmbH and its subsidiaries in Germany is subject to corporate income tax and trade tax. Profits earned outside Germany are taxed at
the current rates valid in the countries concerned. Expected tax expenses were
calculated based on a tax rate of 29.84 % (previous year: 29.84 %) that takes
into account the legal structure of the Voith Group relevant for tax purposes.

Voith Annual Report 2014

143

Financial Statementsin € thousands

2013  /14

2012  /13*

Profit before income tax

119,292

97,866

Expected tax expenses

35,597

29,203

Deviations from expected tax rates

2,658-3,817-39-210

Tax-free income

Effect of changes in tax rates-12,790-3,783Non-deductible expenses

36,73420,999Taxes relating to other periods-3,687-15,768

Change in impairments of deferred tax assets

23,046

4,681

Other tax effects-3,023

1,324

Income taxes

78,49632,62965.8

33.3

Effective tax rate (%)* Previous year restated (refer to “Restatement of previous-year amounts”).

No deferred taxes were recognized on temporary differences of € 771,471 thousand (previous year: € 734,422 thousand) arising on investments in subsidiaries,
since the criteria specified in IAS 12.39 were met.
5 % of distributions by foreign subsidiaries to Germany are subject to German taxation. In addition, withholding taxes and dividend-related taxes abroad may also
be incurred. Further income tax implications must also be observed in the caseof distributions from subsidiaries abroad to another foreign entity. The potential
tax effects were not calculated because it is impracticable to do so.

144

Financial Statements

Voith Annual Report 2014

Notes to the consolidatedbalance sheet

10.

Intangible assets

Development of intangible assets
from October 1, 2012 to September 30, 2013
Franchises,­industrial rights andsimilar rights andassets as well as
licenses in suchrights and assets

Goodwill

Development
costs

Prepayments

Total

233,744676,749

133,25520

1,043,768

Changes in the consolidated Group

2,996

3,691

0

0

6,687

Currency translation differences- 4,123- 3,413- 63

0- 7,599

Additions

8,724

0

19,498

1,177

29,399

0

0

72

0

72

- 5,437

- 664

- 13

- 42

- 6,156in € thousands

Cost 2012-10-01

Capitalized interest
Disposals
Other adjustments

343

0

0

26

369

1,032

0

- 793

130

369

0

- 1,02700- 1,027

Cost 2013-09-30

237,279

675,336

151,956

1,311

1,065,882

Accumulated amortizationand impairments 2012-10-01- 145,849- 54,179- 73,1100- 273,138

3,094

0

39

0

3,133

- 20,2450- 10,700

0- 30,945- 96- 1,027- 7,6850- 8,808

Disposals

5,353

0

0

0

5,353

Transfers

- 72

0

471

0

399

0

1,027

0

0

1,027

- 244

0

0

0

- 244

Accumulated amortizationand impairments 2013-09-30- 158,059- 54,179- 90,985

0- 303,223

Carrying amount 2013-09-30

79,220621,157

60,971

1,311

762,659

Transfers
Reclassification to assets held
for sale

Currency translation differences
Amortization
Impairment losses

Reclassification to assets held
for sale
Other adjustments

Voith Annual Report 2014

145

Financial Statements

Development of intangible assets
from October 1, 2013 to September 30, 2014
Franchises,­industrial rights andsimilar rights andassets as well as
licenses in suchrights and assets

Goodwill

Development
costs

Prepayments

Total

237,279

675,336

151,956

1,311

1,065,882

Changes in the consolidated Group

4,114

4,453

0

0

8,567

Currency translation differences

1,742

3,480

- 96

1

5,127

Additions

8,488

0

3,650

2,365

14,503

0

0

13

0

13

- 3,857- 19,485- 6,971- 16- 30,329

in € thousands

Cost 2013-10-01

Capitalized interest
Disposals
Other adjustments

43

0

0

0

43

Transfers

101

0

0

- 1,223- 1,122

Reclassification to assets held
for sale- 349

0- 26,350-6- 26,705

Cost 2014-09-30

247,561

663,784

122,202

2,432

1,035,979

Accumulated amortizationand impairments 2013-10-01- 158,059- 54,179- 90,985

0- 303,223

Changes in the consolidated Group

- 19

0

0

0

- 19

Currency translation differences

- 503

0

69

0

- 434

Amortization- 19,4410- 12,6720- 32,113

Impairment losses

- 144

0

- 1,4920- 1,636

Disposals

4,000

0

6,594

0

10,594

Transfers

802

0

0

0

802

Reclassification to assets held
for sale

314

0

2,635

0

2,949

Other adjustments

- 45

0

0

0

- 45

Accumulated amortizationand impairments 2014-09-30- 173,095- 54,179- 95,851

0- 323,125

Carrying amount 2014-09-30

74,466609,605

26,351

2,432

712,854

146

Financial Statements

Voith Annual Report 2014

Impairment losses of € 5,600 thousand were recognized in the previous year on
capitalized development costs and other intangible assets in association withthe planned discontinuation of a product group in the Rail division at Voith Turbo (presented in the statement of income under the non-recurring result). The
recoverable amount used in the impairment test equates with the value in use; adiscount rate of 6.2 % was applied. Impairment losses of €1,027 thousand wererecorded in the previous year on goodwill with regard to the planned sale of a subsidiary in the Voith I­ndustrial ­Services segment (reported under the non-recurring
result, see note 18 for more information). In addition, further impairment lossesof € 2,181 thousand were recognized on capitalized development costs at Voith
Turbo in the previous year on the basis of updated economic feasibility studies.
Impairment losses totaling €1,636 thousand were recognized on intangible assets
in the 2013 /14 fiscal year on the basis of updated economic feasibility studies.
These mainly related to development costs recognized at Voith P­ aper.
Capitalized interest is based on an interest rate of 4.4 % (previous year: 4.4 %).

Voith Annual Report 2014

11.	

147

Financial Statements

Property, plant andequipment

Development of property, plant and equipment from
October 1, 2012 to September 30, 2013in € thousands

Land and buildings
including buildingson third-party land

Plant andmachinery

Other equipment,
furniture andfixturesPrepayments
and assets underconstruction

Total

801,642

1,440,418

565,296

159,208

2,966,564

0

15

1,169

27

1,211

Currency translation differences- 19,204- 45,041- 9,558- 6,044- 79,847

Additions

14,77435,604

49,11963,466

162,963

757

1,320

0

2,231

4,308

Cost 2012-10-01
Changes in the consolidated Group

Capitalized interest
Disposals- 7,719- 38,951- 22,146- 1,632- 70,448

Transfers

43,55869,752- 2,015- 111,664- 369

Reclassification to assets held for sale

- 8,234- 1,332- 335- 1,212- 11,113

- 202

221

394

0

413

Cost 2013-09-30

825,372

1,462,006

581,924

104,380

2,973,682

Accumulated depreciationand impairments 2012-10-01- 334,551- 978,818- 401,4840- 1,714,853

5,829

29,1386,420

041,387

Depreciation- 18,604- 80,480- 46,861

0- 145,945

Impairment losses- 13,398- 4,547- 5,0180- 22,963

Disposals

5,331

33,86020,177059,368Transfers

37- 2,116

1,680

0

- 399

Reclassification to assets held for sale

5,176

1,011

198

0

6,385

Other adjustments

268

450

- 293

0

425

Accumulated depreciationand impairments 2013-09-30- 349,912- 1,001,502- 425,181

0- 1,776,595

Carrying amount 2013-09-30

475,460

460,504

156,743

104,380

1,197,087

Other adjustments

Currency translation differences

148

Financial Statements

Voith Annual Report 2014

Development of property, plant and equipmentfrom 1 October 2013 to 30 September 2014Land and buildings
including buildingson third-party land

Plant andmachinery

Other equipment,
furniture andfixturesPrepayments
and assets underconstruction

Total

825,372

1,462,006

581,924

104,380

2,973,682

492

469

1,272

31

2,264

Currency translation differences

12,72926,506

3,811

4,172

47,218Additions

23,981

39,543

34,46621,423

119,413

78

32

0

1,280

1,390

Disposals- 14,444- 51,880- 50,159- 1,630- 118,113

Transfers

27,12469,4491,405- 96,856

1,122

0

0

- 236

0

- 236

Other adjustments

957

576

64

-7

1,590

Cost 2014-09-30

876,289

1,546,701

572,547

32,793

3,028,330

Accumulated depreciation andimpairments 2013-10-01- 349,912- 1,001,502- 425,181

0- 1,776,595

- 15

- 134

- 562

0

- 711

Currency translation differences- 4,400- 19,045- 3,1310- 26,576

Depreciation- 18,722- 73,726- 46,1600- 138,608

in € thousands

Cost 2013-10-01
Changes in the consolidated Group

Capitalized interest

Reclassification to assets held for sale

Changes in the consolidated GroupImpairment losses

- 590

- 356

- 168

0

- 1,114

Disposals

12,91348,244

44,695

0

105,852

Transfers- 1,123- 1,901

2,222

0

- 802

0

0

205

0

205

Reversal of impairments

Reclassification to assets held for sale

138

1,083

495

0

1,716

Other adjustments

- 942

- 534

- 271

0

- 1,747

Accumulated depreciation andimpairments 2014-09-30- 362,653- 1,047,871- 427,856

0- 1,838,380

Carrying amount 2014-09-30

513,636

498,830

144,691

32,793

1,189,950

For individual product areas of the Voith Turbo segment that each constitute acash-generating unit, impairment losses had to be recognized in previous years
on account of the planned discontinuation of business activities / the closure of
the locations concerned. In detail, impairment losses of €1,075 thousand wereVoith Annual Report 2014

Financial Statements

149

recorded on machinery at one cash-generating unit as well as € 7,849 thousandon shared assets (land and buildings). The recoverable amount used for the
calculation corresponded to the fair value less costs to sell in each case. In
the 2013 /14 fiscal year, additional impairment losses of € 285 thousand wererecognized in these product areas. Due to the usability of individual assets atother locations, impairment losses of € 935 thousand on individual assets werereversed.
Impairment losses totaling €10,279 thousand were also recognized in the previous year on individual assets (land, plant and machinery and other equipment,
furniture and fixtures) of a product group of the Rail division at Voith Turbo dueto the plans to discontinue operations. The recoverable amount used for the
calculation corresponded to the fair value less costs to sell in each case. The
assets were valued on the basis of valuations by independent experts or offers
made by third parties based on the sales markets. In the 2013 /14 fiscal year,
the realignment of the locations concerned and the resulting reassessment of
the impairment of individual assets resulted in additional impairment losses of€ 244 thousand as well as reversals of impairment losses of € 781 thousand.
Impairment losses were also needed at Voith ­Paper in the previous year in association with the downsizing of capacity described earlier in this report, involving
an impairment loss of €1,148 thousand on plant. The recoverable amount used
for the calculation corresponded to the fair value less the costs to make thesale. This valuation was based on the price that could be obtained for the planton the sales market.
Impairment losses of € 2,772 thousand were recorded in the previous year onland and buildings with regard to the planned sale of a subsidiary in the Voith­Industrial ­Services segment (see note 18 for more information).
The impairment losses and reversals of impairment losses described above
were presented in the statement of income for the year under review and theprevious-year period under the non-recurring result.
Due to the reassessment of the useful lives of certain items of machinery, depreciation increased by € 4,616 thousand in the previous year. This depreciation
charge was reported in the statement of income under the non-recurring result.
Capitalized interest is mostly based on an interest rate of 6.0 % (previous
year: 6.0 %).
Of the prepayments and assets under construction, € 3,895 thousand relates
to buildings (previous year: € 40,365 thousand), € 26,126 thousand to plant andmachinery (previous year: € 59,144 thousand) and € 2,772 thousand to non-­production equipment (previous year: € 4,871 thousand).

150

12.

Financial Statements

Voith Annual Report 2014

Investments accounted
for using the equity
method / other financial
assetsDevelopment of financial assets
from October 1, 2012 to September 30, 2013in € thousands

Investments accounted forusing the equity method

Other investments

Long-term loans

Total

Opening balance 2012-10-01*

37,36056,853

8,211

102,424

Currency translation differences- 2,5510- 300- 2,851

Additions

9,044

7,794

839

17,677

Disposals- 6,624- 11,237- 1,363- 19,224

Transfers

667

- 667

0

0

Other adjustments

1,653- 1,2680385

Closing balance 2013-09-30*

39,54951,475

7,387

98,411

Accumulated amortization andimpairments 2012-10-01- 1,278- 28,507- 550- 30,335

0

- 35

20

- 15

Currency translation differences- 608- 2,036- 742- 3,386

Accumulated amortization andimpairments 2013-09-30

Impairment losses- 1,886- 30,578- 1,272- 33,736

Carrying amount 2013-09-30*

37,663

20,897

6,115

64,675* Previous year restated (refer to “Restatement of previous-year amounts”).

Development of financial assets
from October 1, 2013 to September 30, 2014
Investments accounted forusing the equity method

Other investments

Long-term loans

Total

Opening balance 2013-10-01*

39,54951,475

7,387

98,411

Currency translation differences

1,123

0

0

1,123

in € thousands

Additions

7,352

4,033

3,703

15,088

Disposals- 3,939- 1,332- 3,334- 8,605

Reclassification to assets held for sale

0

- 25

0

- 25

Other adjustments

0

- 375

0

- 375

Closing balance 2014-09-30

44,08553,776

7,756

105,617

Accumulated amortization andimpairments 2013-10-01- 1,886- 30,578- 1,272- 33,736

Currency translation differences

0

0

- 22

- 22

Impairment losses

- 879

- 744

0

- 1,623

Reversal of impairments

0

0

15

15

Disposals

0

3,570

0

3,570

Accumulated amortization andimpairments 2014-09-30- 2,765- 27,752- 1,279- 31,796

Carrying amount 2014-09-30

41,32026,024

6,477

73,821* Previous year restated (refer to “Restatement of previous-year amounts”).

Voith Annual Report 2014

151

Financial Statements

Investments accounted for using the equity method of € 41,320 thousand (previous year: € 37,663 thousand) include investments in associates and shares in joint
ventures (none of which are listed companies).
The carrying amount of shares in associates accounted for using the equity method comes to € 28,192 thousand (previous year: € 27,343 thousand). The profit fromassociates accounted for using the equity method comes to € 4,503 thousand(previous year: € 5,417 thousand). The following table summarizes the financial
information of the most significant investments in associates (before adjusting to
the relative shareholding held by Voith).
in € thousands

2014-09-30

2013-09-30

Equity90,06883,516

Liabilities

144,985

140,294

Total equity and liabilities

235,053

223,810

Sales

610,656

655,644

9,892

14,809Net income for the year

The following table summarizes the financial information for material joint ventures, after adjusting to the relative shareholding held by the Voith Group in therespective joint venture:in € thousands

13.

Inventories

2014-09-30

2013-09-30

Non-current assets

5,965

3,914

Current assets

9,792

9,206

Non-current liabilities

2,483

1,408

Current liabilities

6,273

5,834

Income16,207

19,417

Expenses

16,11019,827

2014-09-30

2013-09-30*

Inventories consist of the following items:in € thousands

Raw materials and supplies

219,218

241,689

Work in progress

252,403269,796

Finished goods and merchandise

156,504

141,098

Prepayments

106,296

84,831

734,421

737,414* Previous year restated (refer to “Restatement of previous-year amounts”).

152

Financial Statements

Voith Annual Report 2014

Write-downs of inventories amounted to € 28,049 thousand (previous year:€ 25,126 thousand) and were recognized as expenses. Prescribed reversals of
write-downs totaling € 6,625 thousand (previous year: € 7,114 thousand) wererecorded. These amounts are included in the cost of material.

14.	

Trade receivables

Trade receivables consist of the following items:in € thousands

2014-09-30

2013-09-30*

Trade receivables

848,054

967,125

Bad debt allowances- 35,534- 41,190

Receivables from customer-specific contracts

324,054

267,448

1,136,574

1,193,383* Previous year restated (refer to “Restatement of previous-year amounts”).

Trade receivables are classified as current assets. As at September 30, 2014, thevolume of receivables that was not expected to be realized within one year was€ 6,291 thousand (previous year: €14,482 thousand).
Movements in the allowance account for the impairment of trade receivables
were as follows:in € thousands

2014-09-30

2013-09-30*

Impairment at the beginning of the fiscal year

- 41,190- 43,918

Additions- 10,352- 8,434

Utilization

9,990

3,314

Reversal

5,209

6,166

809

1,682

- 35,534- 41,190

Changes in consolidated group / exchange differences
Impairment at the end of the fiscal year
* Previous year restated (refer to “Restatement of previous-year amounts”).

Reversals totaling € 5,209 thousand (previous year: € 6,166 thousand) consist of
the reversal of specific bad debt allowances of € 4,239 thousand (previous year:€ 5,511 thousand) and portfolio-based allowances of € 970 thousand (previous
year: € 655 thousand). As in the previous year, additions of €10,352 thousand(previous year: € 8,434 thousand) are solely attributable to additions of specificbad debt allowances.
Credit insurance is used to manage default risk in trade receivables. Hermes coveris used to secure receivables from foreign customers.

Voith Annual Report 2014

153

Financial Statements

Future receivables from customer-specific construction contracts recognizedusing the percentage-of-completion method are determined as follows:in € thousands

2014-09-30

2013-09-30

Aggregate amount of costs incurred and recognized profits lessrecognized losses to date

4,760,164

5,097,724

Progress billings to date

-2,955,688- 3,549,803

Gross amount due from customers

1,804,476

1,547,921

Advances received (“progress billings”)-1,515,172- 1,324,033

289,304

223,888

Thereof receivables from construction contracts

300,073240,174

Thereof liabilities from construction contracts- 10,769- 16,286

Receivables from customer-specific service contracts total € 23,981 thousand(previous year: € 27,274 thousand). Liabilities from service contracts total€1,940 thousand (previous year: €1,816 thousand).
Further advances received for customer-specific contracts amounting to€ 754,262 thousand (previous year: € 758,998 thousand) for which no contract
costs have been incurred to date are included in sundry other liabilities. This includes €13,284 thousand (previous year: €10,208 thousand) of advances received
for customer-specific service contracts.
Sales relating to customer-specific contracts totaled € 2,334,476 thousand (previous year: € 2,442,598 thousand). This includes € 245,273 thousand from service
contracts (previous year: €173,402 thousand).
Of the progress billings, an amount of €12,442 thousand (previous year:€ 9,227 thousand) is retained by customers.

154

15.	

Financial Statements

Voith Annual Report 2014

Other financial receivables
and other assets
Other financial receivablesin € thousands

Current

Non-current

2014-09-30

Current

Non-current

2013-09-30

Derivatives used tohedge operational transactions

5,832

1,153

6,985

13,2791,870

15,149Derivatives used tohedge financial transactions

53

12,191

12,244

6,058

16,42622,484

41,794108

41,90235,36850

35,418Financial receivables
Sundry financial assets

64,29961,708126,007

59,52853,119112,647

111,978

75,160187,138

114,233

71,465

185,698

Other assets
in € thousands

Current

Non-current

2014-09-30

Current

Non-current

2013-09-30

Prepaid expenses

29,492

17,76647,25827,892

12,225

40,117

Other taxes (without income tax)

83,124

15,102

98,226

149,435

15,522

164,957

112,616

32,868145,484

177,327

27,747205,074

At the reporting date, other assets totaling € 38,416 thousand (previous year:€ 33,618 thousand) served to secure liabilities and contingent liabilities. They may
be drawn on if the underlying obligations are not fulfilled or if the contingent
liabilities are realized.

16.

Securities

Non-current securities totaling €15,843 thousand (previous year: €14,282 thousand) are used to cover future pension obligations. Further information on securities can be found in the section “Additional information on financial instruments”.

17.

Cash and cash equivalents

This item mainly consists of time deposits held at banks.
in € thousands

ChecksCash on hand

2014-09-30

2013-09-30

36

112

688

620

Cash equivalents

13,507

15,885

Cash at banks

786,592

884,350

800,823

900,967

Cash at banks earns interest at floating rates based on daily bank deposit rates.

Voith Annual Report 2014

Financial Statements

155

Short-term deposits are made for varying periods of between one day and threemonths, depending on the immediate cash requirements of the Group. These
deposits earn interest at the respective short-term deposit rates.

18.	

Assets held for sale andliabilities directly associated with assets classified
as held for saleDue to the decision to concentrate on traditional areas within the h­ ydropowerindustry, the area of tidal power within the Ocean Energies division at Voith ­Hydro
is up for sale, hence the assets held for sale as well as the liabilities. The saleis planned for the 2014 /15 fiscal year. The assets held for sale of € 30,012 thousand relate to intangible assets of € 23,756 thousand, property, plant and equipment and financial assets totaling € 54 thousand, cash and cash equivalents of€ 6,091 thousand and other assets totaling €111 thousand. Liabilities directly associated with assets classified as held for sale of € 6,267 thousand comprise trade
payables of € 88 thousand, provisions of € 632 thousand and other liabilities of€ 5,547 thousand.
The assets held for sale in the previous year of €11,436 thousand as well as theliabilities in connection with assets held for sale of € 5,400 thousand are attributable to the planned sale of a company at Voith I­ndustrial ­Services, which wascompleted in the 2013 /14 fiscal year.

19.	

EquityIssued capital
Since September 30, 2006, issued capital in Voith GmbH of €120,000 thousand
has, without change, been held by company shareholders (until September 30,
2010: ordinary shareholders) in the form of 120,000,000 company shares (until
September 30, 2010: 30,149,100 ordinary shares).
Revenue reserves and other reserves
The revenue reserves and other reserves consist of retained earnings generated
by Voith GmbH and its consolidated subsidiaries as well as the effects of theremeasurement of defined benefit plans, the currency translation of foreign subsidiaries, gains / losses from available-for-sale securities and cash flow hedges
pursuant to IAS 39, and gains and losses on hedges of net investments as definedby IAS 21.

156

Financial Statements

Voith Annual Report 2014

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

2013  /14

2012  /13*

Remeasurement of defined benefit plans-122,796

16,217· Gains / losses in the current period-122,796

16,217

Gains / losses on available-for-sale financial assets-33,395-20,226· Gains / losses in the current period-33,395-20,226

0

0

Gains / losses on cash flow hedges

-34

-409

·G
 ains / losses in the current period

-34

-409

0

0

·T
 ransfers to profit and loss·T ransfers to profit and loss
Gains / losses on currency translation

15,665-62,575·G ains / losses in the current period

15,665-62,575

00Gains / losses from currency translation of
net investments in foreign operations-1,144-2,023·G ains / losses in the current period-1,144-2,133·T ransfers to profit and loss

0110

Share of associates in other comprehensive income(cash flow hedges)094

Tax on components of other comprehensive income

31,925-6,592-109,779-75,514·T ransfers to profit and loss

Other comprehensive income* Previous year restated (refer to “Restatement of previous-year amounts”).

Voith Annual Report 2014

157

Financial Statements

Deferred taxes on the components of other comprehensive income are as follows:
2013*

2014
in € thousands

Pre-tax

Deferred taxes

After tax

Pre-tax

Deferred taxes

After tax

Remeasurement of defined
benefit plans-122,796

31,435-91,361

16,217-8,484

7,733

Gains / losses on available-for-salefinancial assets-33,395-161-33,556-20,226

1,256-18,970

Gains / losses on cash flow hedges
including associates

-34

11

-23

-315

139

-176

15,665-62,575

Gains / losses on currency translation

15,665

Gains / losses from currencytranslation of net investments
in foreign operations-62,575-1,144640-504-2,023497-1,526

Other comprehensive income-141,704

31,925-109,779-68,922-6,592-75,514* Previous year restated (refer to “Restatement of previous-year amounts”).

Profit participation rights
Pursuant to the criteria defined in IAS 32, the Group’s profit participation rights,
with a nominal volume of €103,400 thousand (previous year: €103,400 thousand)constitute Group equity. The rights in question are lower-ranking bearer profit
participation rights with variable compensation, no bullet maturity and no right oftermination on the part of the creditors. Subject to the approval of the appropriate
governing body, profits totaling € 5,501 thousand are scheduled to be distributed
for the total amounts for the 2013 /14 fiscal year.
Holders of non-controlling interests
The major portion of non-controlling interests is held by the co-owners of thesubsidiaries P3 Voith Aerospace Holding GmbH, Rif Roll Cover Srl, Italy, Voith
Fuji H­ ydro K.K., Japan, Voith IHI P­ aper Technology Co., Ltd., Japan, Voith H­ ydroShanghai Ltd., China, Voith ­Paper Fabrics India Ltd., India, and PT. Voith ­Paper
Rolls Indonesia, Indonesia. Of the profit participation rights totaling €103,400 thousand, € 96,800 thousand relates to holders of non-controlling interests.
Appropriation of net income at Voith GmbH
The Board of Management proposes to pay a dividend of € 0.13 per share(€15,000 thousand in total) out of the unappropriated retained earnings of Voith
GmbH, and to carry forward the remaining €141,062 thousand. The dividend
distributed in the fiscal year amounted to €15,000 thousand (previous year:€15,000 thousand). The distribution per share in the fiscal year amounted to€ 0.13 per share (previous year: € 0.13 per share).
Additional disclosures on capital management
Voith is a family-owned company. As such, it is obliged to maintain a robust
and sustainable financial profile that enables the Group to meet its earnings andgrowth targets.

158

Financial Statements

Voith Annual Report 2014

Voith manages capital with the aim of maximizing the return on capital. Equity andinterest-bearing financial liabilities are those elements of Group capital that are of
relevance to capital management activities.

in € thousands

2014-09-30

Equity1,031,303

1,139,734

995,829

1,166,495

2,027,132

2,306,229

Interest-bearing financial liabilities

2013-09-30** Previous year restated (refer to “Restatement of previous-year amounts”).

Year on year, equity fell by 9.5 % in the period under review. The net income forthe year and currency effects made a positive contribution to the developmentof equity. Dividends, effects from marking securities to market as well as theremeasurement of pension obligations were the main factors that reduced equity.
The interest-bearing financial liabilities fell by 14.6 %, primarily as a result of therepayment of financial liabilities. For details on the composition of interest-bearing
financial liabilities, refer to note 22.
The articles of association of Voith GmbH do not set forth any specific capitalrequirements.

20.	

Provisions for pensions
and similar obligations

Provisions for pensions are recognized for benefit obligations in the form of retirement, invalidity and surviving dependents’ benefits payable under pension plans.
The benefits provided by the Group vary according to local legal, tax and economic conditions and are usually based on the length of employee service andlevel of remuneration.
The Group’s post-employment benefits include both defined benefit plans anddefined contribution plans. In the case of defined contribution plans, the Company
pays contributions to state or private pension schemes based either on legal orcontractual requirements or on a voluntary basis. Once the contributions havebeen paid, there are no further obligations for the Company. Current contributions are recognized as pension expenses in the period concerned. In 2014, theyamounted to €128,010 thousand for the Voith Group as a whole (previous year:€131,832 thousand).
The majority of the pension plans are defined benefit plans that take the form of
unfunded or funded schemes.
The pension provisions for defined benefit plans are determined in accordancewith IAS 19 using the internationally recognized projected unit credit method. For
this purpose, the future obligations are measured on the basis of the pro rata
employee benefit obligations earned at the end of the period under review. Pension
provisions are calculated taking into account development assumptions for thoseVoith Annual Report 2014

Financial Statements

159

factors which affect the benefit amount. All defined benefit plans require actuarial
valuations. These are prepared annually by qualified actuaries.
The amount of the individual pension benefit contribution is generally measured
on the wage or salary level and / or position in the corporate hierarchy as well as
the length of service. The features and related risks of the defined benefit plans
available to employees vary according to local legal, tax and economic conditions. The features of the defined benefit plans that are most significant for Voith
are described below:a) Pension plans in Germany and Austria
The pension plans in Germany include old age, disability and surviving dependants’pensions. Traditionally, the pension commitments are measured on the beneficiaries’ final salary. In recent years, these benefits have been increasingly replacedby capital savings models. Under the capital savings models, the amount of thebenefit is measured from the sum of the annual savings modules. The individual
modules are measured from the defined salary-based contribution using a variable
conversion factor for age and interest rates for a defined retirement age.
Numerous group companies convert the right to a pension benefit into capitalsavings models.
Current benefits are reviewed in accordance with the terms and conditions of theGerman Law on the Improvement of Company Pension Plans which considers
the rise in the consumer price index.
In comparison to the older final-salary-based pension commitments, which involvea relatively high risk of extra funding requirements arising from salary trends, fromexternal input parameters (e.g. the income threshold for the statutory pension
insurance scheme) and from the adjustment of current pensions, the current
capital savings models only bear a risk from a change in the interest rates usedin the calculation.
Pension provisions are recognized for all pension commitments. Funding is therefore only obtained in exceptional cases. Insurance cover forms the plan assets ofGerman companies. The plan assets of the Group companies do not include any
financial instruments issued by entities of the Voith Group.
For mortality and invalidity, the RT 2005G mortality tables by Heubeck are used.
Employee turnover probabilities were calculated specifically for the Group.
In Austria the focus of the obligations is on a scheme locally referred to as severance benefits (“Abfertigungen”). Benefits become due upon termination of theemployment relationship (provided the employee is not culpable for the termination), i.e. also upon retirement. Austrian severance benefits all qualify as capitalsavings. For a number of years, the nature of these benefits for new hires haschanged to that of a pension benefit on account of a change in the law. These
qualify as defined contribution plans and are organized via legally independent
employee welfare funds. The employer’s obligation is limited to payment of the160

Financial Statements

Voith Annual Report 2014

contribution. In addition, obligations exist for retirement, invalidity and surviving
dependants’ benefits on the basis of individual commitments and a pension plan
entered into a long time ago for new hires at the St. Pölten location.
b) Pension plans in the US and Canada
The entities of the Voith Holding Inc. Group in the US have a number of defined
benefit plans. The plans are closed to new entrants who are offered defined contribution plans instead. All of the pension plans are frozen. No new participants
are accepted and no further provisions will be recognized for future benefit payments or future service cost (apart from a small group of participants in a plan forwhom only salary rises are still considered in the calculation of the final averagepension). The pensions are primarily based on the final average salary payment or
the length of service (i.e. the product of a fixed dollar amount and the number ofyears of service) and will be paid monthly for life. Moreover, there are two unfunded
supplementary plans for benefits paid to a small group of former employees that
go beyond the normal upper limit for pension plans laid down in the law. These
plans have also been frozen and no active employees currently participate in theseplans. Finally, there is a plan for post-retirement medical benefits for a group ofplan participants who met the age and length of service criteria when the plan
was closed to new participants. This plan is unfunded. These defined benefit plansgive rise to actuarial risks for the Voith Holding Inc. Group, arising from such factors as the investment risk, interest rate risk, longevity risk, and the risk of a risein the costs of medical care.
The plan assets for defined benefit plans are invested in a master trust. The entities in the Voith Holding Inc. Group paying the contributions have assigned the
responsibility for overseeing the investment of plan assets to an investment committee. According to a trust agreement and US law, the members of the investment committee have a fiduciary duty to act solely in the best interests of thebeneficiaries. The committee has drawn up an investment guideline that lays down
the investment goals and procedures that must be followed. The trustees of themaster trust only act at the express instructions of the investment committee oran authorized representative of the investment committee. The trustee is responsible for the safe custody of the plan assets, but is not generally empowered withdecision-making authority.
The legal and regulatory framework for calculating the minimum pension obligation for the plans is based on the relevant US laws including the Employee Retirement Income Security Act (ERISA) as amended. An annual assessment of theminimum pension obligation is made by the plan’s actuary on the basis of theselaws. In the past, Voith paid into the plans to maintain a funding level of at least
80 %, as required by local law. The annual employer’s contributions correspondto the net present value of the benefit obligation accumulated in the year plus theVoith Annual Report 2014

161

Financial Statements

amortization of any lack of funding from the previous year. If the employer’s contribution exceeds the minimum pension obligation or if the plan assets exceed
the liabilities, the surplus may be offset against future obligations to cover theminimum pension obligation.
The Voith Group maintains two active defined benefit plans in Canada. Both plans
are closed to new entrants who participate in various defined contribution plansinstead. The benefits paid under both of these plans take the form of life-longmonthly pensions.
The plan assets of the defined benefit plans are invested in insurance policies
with an insurer which manages the plan assets on trust. The entities in the Grouppaying the contributions have assigned the responsibility for overseeing the investment of plan assets to the managers and directors of various companies acting as
representatives of the Company. According to Canadian law at both federal andprovincial level, the Company as the manager of the plan assets and its representatives have a fiduciary duty to act solely in the best interests of the beneficiaries.
The legal and regulatory framework used to calculate the minimum pension obligation for pension plans is based on the laws applying in the Province of Ontario andat federal level in Canada, including the applicable versions of the Ontario Pension
Benefits Act and the Ontario Income Tax Act as well as the associated laws andregulations. Based on these laws, either an annual or a three-yearly assessmentof the minimum pension obligation for the plans is made by the plan’s actuary.
The following contributions to post-employment defined benefit pension plans
were recorded in the consolidated financial statements:

Defined benefit obligationin € thousands

Fair value of plan assets

Net carrying amount fromdefined benefit plans

2014-09-30

2013-09-30

2014-09-30

2013-09-30

2014-09-30

2013-09-30

Germany + Austria

748,642

640,439-25,541-23,361

723,101

617,078

USA + Canada

201,815

179,284-154,618-132,690

47,197

46,594Other

33,16530,179-23,355-20,017

9,810

10,162

Total

983,622849,902- 203,514- 176,068

780,108

673,834

162

Financial Statements

Voith Annual Report 2014

Development of net debt from defined benefit plans for the period
from October 1, 2012 to September 30, 2013:in € thousands

2012-10-01

Present value of
defined benefit
obligations

Fair value ofplan assets

Total

861,023- 177,825

683,198

Current service cost

18,406-

18,406

Interest expenses (+) / interest income (-)

28,344- 6,213

22,131

Plan settlements- 4,084- 4,084

Remeasurements:
Losses (+) / gains (-) from changes indemographic assumptions

2,642

-

2,642

Losses (+) / gains (-) from changes infinancial assumptions- 20,503-- 20,503

Losses (+) / gains (-) from experience
adjustments

3,610

-

3,610

Remeasurement of plan assets(income less interest income)

-

- 303

- 303

Employer contributions to the fund-

- 13,085- 13,085

Benefits paid

- 36,942

11,933- 25,009

Other- 3,503187- 3,316Addition to termination benefits pursuant
to IAS 19.159 et seq.

15,3480

15,348Currency translation differences- 14,439

9,238- 5,2012013-09-30

849,902- 176,068

673,834

Voith Annual Report 2014

163

Financial Statements

Development of net debt from defined benefit plans for the period
from October 1, 2013 to September 30, 2014:
Present value of
defined benefit
obligations

Fair value ofplan assets

Total

2013-10-01

849,902- 176,068

673,834

Current service cost

18,307-18,307

Past service cost

- 4,474-- 4,474

Interest expenses (+) / interest income (-)

30,654- 7,149

23,505

286

0

286

Losses (+) / gains (-) from changes indemographic assumptions

13,108-

13,108Losses (+) / gains (-) from changes infinancial assumptions

112,853-

112,853

Losses (+) / gains (-) from experience
adjustmentsin € thousands

Plan settlements
Remeasurements:

11,697-

11,697

Remeasurement of plan assets(income less interest income)-- 15,355- 15,355

Employer contributions to the fund-

- 20,799- 20,799

Employee contributions to the fund

-

- 31

- 31

Benefits paid

- 56,113

25,738- 30,375

Changes in the consolidated Group- 4,4990- 4,499

- 515

113

- 402

12,416- 9,9632,453

983,622- 203,514

780,108

2014-09-30

2013-09-30*

Current service cost

18,307

18,406

Past service costs- 4,4740Interest expenses from pension obligations and plan assets

23,505

22,131286- 4,084

Other
Currency translation differences
2014-09-30

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

Gains (-) / losses (+) on plan settlements* Previous year restated (refer to “Restatement of previous-year amounts”).

Current service cost and past service cost as well as the effects of plan curtailments or settlements that relate to defined benefit obligations are stated under
personnel expenses. Interest expenses on pension obligations and plan assets
are stated in the interest result.

164

Financial Statements

Voith Annual Report 2014

The fund assets consist of the following components:
Market price listingin an active marketin € thousands

No market price listingin an active market

Total

2014-09-30

2013-09-30

2014-09-30

2013-09-30

2014-09-30

2013-09-30

Equity instruments

55,94458,544

182

515

56,12659,059Debt instruments

95,29976,265

1,620

341

96,91976,606

Real estate

5,705

5,761

2,167

1,975

7,872

7,736

Cash and cash equivalents

12,305

4,558

0

0

12,305

4,558

Other

3,680

3,870

26,612

24,23930,292

28,109172,933

148,998

30,581

27,070203,514176,068

The Voith Group’s calculation of pension provisions is based on the following
assumptions:
Germany and Austria
in %

USA

2014-09-30

2013-09-30

2014-09-30

2013-09-30

Discount rate

2.5 %

3.5 %

3.9 %

4.5 %

Pension increases

2.0 %

2.0 %

0%

0%

The inputs used in the calculation of the defined benefit obligation include assumed discount rates, wage and salary trends, as well as mortality rates, varying
from province to province, depending on the economy and other factors of therespective province.
Changes to the relevant actuarial assumptions would have had the following
impact on the defined benefit obligation:

2014-09-30

Discount ratePension increases

Life expectancy

up 0.50 % points

in € thousandsin %-65,861-6.7 %

down 0.50 % points

72,6517.4 %up 0.25 % points

15,720

1.6 %down 0.25 % points-16,188-1.6 %

up one year

29,215

3.0 %The sensitivity analyses presented here present the effect of changes to one
assumption with no change in the other assumptions, i.e. possible correlations
between the individual assumptions are not considered.

Voith Annual Report 2014

Financial Statements

165

Increases or decreases of the discount rate, the wage and salary trends and themortality rates do not have the same impact in absolute terms on the defined
benefit obligation (DBO) on account of discounting the obligation to net present
value. If a number of assumptions are simultaneously changed, the total impact
does not necessarily equate to the sum of the changes to the individual assumptions. In addition, the sensitivity of the DBO to a change in an assumption is onlya reflection of the specific size of the change. If the change to the assumption
differs to the amount assumed here, this does not necessarily translate to the
DBO in linear fashion.
Asset liability matching strategies
Due to the treasury guidelines of the Voith Group, which rule out any speculativetransactions, the funded pension plans in the US pursue an investment strategy
which is oriented towards the obligations from the pension plans and not primarily on maximizing the value of the securities portfolios. The goal of the investment
strategy is to close any gaps in funding between the defined benefit obligation andthe plan assets. If this is attained, the goal is to maintain this status.
The main factors influencing the funding status of pension plans include the development of interest rates and pricing risks inherent in the plan assets. In 2011 Voith
installed a dynamic pension management with the involvement of international
asset management experts and insurers. A new standard asset allocation is ratified each year by the Voith Pension Committee along the latest efficiency curves
between income and risk. This takes account of an individually limited risk strategy(low, medium, high). However, a fixed percentage of the funding gap is always set
as an upper risk limit.
The pension committee ratified an investment guideline that allows the external
asset manager to use all defined investment classes from 0–100 % for tactical
purposes. This allows the asset manager to react ad hoc to market turbulence.
In the mid-term, the portfolio will move towards the standard allocation depending on the residual risk budget. The success of such dynamic risk management
is reviewed regularly by the pension committee and must be measured against a
standard asset allocation without dynamic risk management.
The interfaces between the actuaries, asset managers, pension committee andgroup treasury are structured efficiently and functionally. In addition to a monthly
comparison of the data and the reporting, the persons involved exchange information on the evolution of the pension strategy on the basis of predefined schedule.
Future cash flows
The contributions that are expected to be paid into the plans in the following
reporting period amount to €11,659 thousand (previous year: €17,694 thousand).
The weighted average term of the DBO is 13 years.

166

Financial Statements

21.	

Other provisions

Voith Annual Report 2014

The development of provisions is shown below:

2013-09-30*

Changein theconsolidatedGroup

Utilization

88,323-4- 17,379

Other tax provisions

10,296- 21- 5,435

Warranty provisions

187,7260- 62,362

Other contract-related provisions

84,164- 553- 34,195in € thousands

Personnel-related provisions

Sundry other provisions

Currencytranslationdiffer­ences

2014-09-30

936

83,975Additions

Reversals

Transfers

Discount­ing
effect20,489- 8,954

0

564

3,069

- 480

- 241

0

228

7,416

103,987- 30,538

237

475

1,558

201,083

40,364- 22,750- 1,01518

420

66,453

179,139- 1,457- 59,607

30,726- 20,503

840

779

743

130,660

549,648- 2,035- 178,978198,635- 83,225

- 179

1,836

3,885

489,587* Previous year restated (refer to “Restatement of previous-year amounts”).

2013-09-30*

2014-09-30
in € thousands< 1 year> 1 year< 1 year> 1 year

Personnel-related provisions

22,76861,207

23,141

65,182Other tax provisions

7,126

290

9,608

688

Warranty provisions

144,02257,061

127,076

60,650

Other contract-related provisions

61,446

5,007

66,745

17,419Sundry other provisions

59,29471,366108,21570,924

294,656

194,931334,785

214,863* Previous year restated (refer to “Restatement of previous-year amounts”).

Refund claims totaling €18.5 million (previous year: €11.8 million) for other provisions were capitalized in the period under review.
Personnel-related provisions mainly comprise the phased retirement scheme
and long-service bonuses. In the case of provisions for phased retirement, theamount and maturity of the future payments to be made to the beneficiaries are
uncertain. Warranty provisions are accrued for statutory and contractual obligations as well as for non-contractual warranty. Other contract-related provisions
include obligations for ­services still to be rendered on customer orders, or partsof orders, that have been billed, obligations for service and maintenance contracts
and for commission provisions. In these cases, the amount and timing of future
expenses hinge on completion of the orders concerned. Among other items, otherprovisions cover the obligations related to changes in the size of the workforce
and restructuring (see note 7 for more details). Most of the underlying measures
will be completed within the next two fiscal years in keeping with the contracts.

Voith Annual Report 2014

167

Financial Statements

22. 

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

Current

Non-current

2014-09-30

Current

Non-current

2013-09-30*

0715,894

715,894

138,994

707,885

846,879

42,029101,333

143,362

112,540

77,732

190,272

424

1,417

1,841

681

1,675

2,356

3,745

0

3,745

335

0

335

Bonds
Bank loans
Financial liabilities from leases
Notes payable
Other financial liabilities

50,34980,638130,987

55,96470,689126,653

96,547899,282

995,829

308,514857,981

1,166,495* Previous year restated (refer to “Restatement of previous-year amounts”).

Other financial liabilities contain obligations from the classification of holders of
non-controlling interests in limited partnerships based on repayment rights andput options.
Financial liabilities totaling €1,748 thousand (previous year: € 382 thousand) aresecured by other assets.
The Voith Group’s current and non-current bonds and its bank loans are denomi­
nated in the following currencies:in € thousands

2014-09-30

2013-09-30

Euro590,254598,720

US dollar

128,778

269,102

Chinese renminbi

119,172

131,040

Swedish krona

8,745

25,361Other currencies

12,307

12,928859,256

1,037,151

168

Financial Statements

Voith Annual Report 2014

Notes on net debt
Net debt as the difference between financial liabilities and realizable financial
assets is an important indicator for banks, analysts and rating agencies. This
indicator is not covered by the accounting policies based on the International
Financial Reporting Standards (IFRS) and its definition and calculation may diverge
from the practice of other companies.
In contrast to the carrying amount in the balance sheet, which is based on theeffective interest method, the indicator is calculated by measuring financial liabilities at their higher nominal repayment amount.
Net debt as defined in the Company includes the items:in € thousands

2014-09-30

2013-09-30

Bank loans

143,362

190,272

Bonds1)

726,209860,541

Other interest-bearing financial liabilities

136,573

135,214

Securities- 183,728- 273,637

Cash and cash equivalents- 800,823- 900,967-61,927- 66,752- 40,334- 55,329

Other realizable financial receivables and loans1) ased on measurement at the repayment amount, bonds are included at an amount which is € 10 millionBhigher (previous year: € 14 million) than the carrying amount in the balance sheet.

23.

Trade payablesin € thousands

2014-09-30

2013-09-30

Trade payables

512,317544,881

Liabilities from construction contracts

12,708

18,102525,025

562,983€ 8,592 thousand (previous year: € 2,289 thousand) of trade payables is due inmore than one year.

Voith Annual Report 2014

169

Financial Statements

24.	

Other financial
liabilities / other liabilities
Other financial liabilitiesin € thousands

Current

Non-current

2014-09-30

Current

Non-current

2013-09-30

Derivatives used to hedge
operational transactions

15,963

4,137

20,10012,854

3,137

15,991

Personnel-related liabilities

129,024

2,640

131,664

130,209

6,566

136,775

Sundry financial liabilities

152,771

11,571

164,342

174,905

8,373

183,278

297,758

18,348316,106

317,968

18,076

336,044

At fiscal year-end, personnel and social security liabilities included outstanding annual bonus payments and unpaid wages, salaries and social security contributions.

Other liabilitiesin € thousands

Current

Non-current

2014-09-30

Current

Non-current

2013-09-30

Tax liabilities

67,631

22,79190,422

76,42822,357

98,785

Advances received

926,2990926,299

913,1770913,177

Deferred liabilities

6,210

5,125

11,335

6,505

12,507

19,012Sundry other liabilities

87,613

24,774112,387

89,401

23,312

112,713

1,087,753

52,6901,140,443

1,085,511

58,176

1,143,687

Tax liabilities principally relate to sales tax (VAT).

170

Financial Statements

Voith Annual Report 2014

Notes on segment reporting	Information on thesegment data

Business is managed according to the different products and industries and corresponds to the structure of internal reporting to the management of Voith GmbH.
The structure of the segments has remained unchanged compared to September 30, 2013.
Segment data is essentially compiled using the same presentation and measurement methods as the consolidated financial statements. Intercompany sales are
effected at market prices and intersegment transactions and business are allundertaken in accordance with the accounting policies used for the consolidated
financial statements.
In the Voith Group, the key indicator to assess and manage the individual segments is return on capital employed (ROCE). The calculation of ROCE is definedas profit from operations in relation to the average capital employed.
The operational result is the basis for calculating ROCE and thus a key management indicator. Basically, it is an operational indicator derived from externalreporting, the operational result before non-recurring items. In line with the calculation of profit from operations, the following profit / loss components are taken
into consideration:
Operating interest income
Operating interest income is defined as interest received by the Company on
the long-term financing of receivables from customers or as the imputed interest
effect attributable to that portion of customer advances that is not used to financeinventories and PoC receivables.
Other adjustments
Other adjustments contain effects which, based on their operating character, arenormally shown as other operating income and expenses in the consolidated
statement of income. In determining the profit from operations, these adjustments
are eliminated as non-recurring effects so as to facilitate a better assessment of
the operating activities by segment.
Capital employed is defined as operating net assets. It is the aggregate of property, plant and equipment and intangible assets (excluding goodwill), inventories,
trade receivables, other non-interest-bearing assets and income tax assets aswell as prepaid expenses less trade payables, non-interest-bearing liabilities andincome tax liabilities as well as deferred income and advances received, which
are deducted up to the amount of inventories and PoC receivables.
The capital employed on the reporting date is an average value derived from thevalues as at the end of the period under review, the reporting date for the previous
six-monthly financial statements and as at the end of the previous period underVoith Annual Report 2014

Financial Statements

171

review. In contrast to the provisions of IAS 21, the assets and liabilities of foreignsubsidiaries are translated at the average exchange rate for the period underreview. Owing to the use of averages, the capital employed cannot be reconciled
to the figures in the consolidated balance sheet on any given reporting date.
Consolidation entries were taken into account in full when the capital employed
was calculated.
Capital expenditures concern intangible assets (excluding goodwill) and property,
plant and equipment. Additions due to business combinations are not included.
Sales are broken down regionally, based on the customer’s domicile. Non-current
assets, consisting of property, plant and equipment, goodwill and other intangible
assets are allocated based on the location of the asset.

	Information on the activities
in the segments

Voith ­Hydro – is one of the world’s leading full-line suppliers of equipment, technologies and s­ ervices for ­hydropower plants. The product portfolio covers all components for large and small h­ ydropower plants: generators for all turbine types,
Francis, Pelton, Kaplan, bulb and pump turbines, pumps, electrical and mechanical power plant equipment, automation systems, as well as s­ ervices including
spare parts and maintenance. Voith H­ ydro is a joint venture with Siemens, in which
Voith holds the majority with 65 % of all shares and voting rights.
Voith ­­Industrial ­­Services – is one of the leading providers of technical s­ ervices
for key industries such as automotive, energy, chemical and petrochemical andprovides engineering s­ ervices, particularly for the road & rail sector.
Voith ­­Paper – as a partner and pioneer for the p­ aper industry Voith P­ aper provides technologies and products for the entire ­paper manufacturing process – fromfiber through to the finished roll of p
­ aper. All over the world, producers of p
­ aper,board and tissue have for many years put their trust in the expertise and competence of this system provider. Voith ­Paper’s innovative strength is evident in customer-oriented solutions which optimize the paper manufacturing process. Voith­Paper focuses on developing resource-saving products, thus ensuring maximum
efficiency in the consumption of energy, water and fibers. Furthermore, Voith ­Paper
offers a broad service portfolio for all sections of the p­ aper manufacturing process.
Voith Turbo – specializes in mechanical, ­hydrodynamic and electronic drive andbraking systems for road, rail, marine and ­industrial applications. Voith Turbo
crafts customized solutions ranging from individual machines to end-to-end process solutions.
Operating and reportable segments as defined in IFRS 8 are identical.

172

Financial Statements

Voith Annual Report 2014

Segment information bybusiness segment
Voith ­­H ydroin € millions

External sales

Voith ­­I ndustrial ­­S ervices

Voith ­­Paper

2013  /  14

2012  /  13

2013  /  14

2012  /  13

2013  /  14

2012  /  13

1,313

1,388

1,178

1,185

1,430

1,639

4

5

27

27

22

29

Total segment sales

1,317

1,393

1,205

1,212

1,452

1,668

Profit from operations

101

106 2)

20

30

9

86

Depreciation and amortization ofproperty, plant and equipment andintangible assets 3)

30

28

18

18

67

69

Investments 4)

22

33

31

19

29

67

Segment goodwill

15

15

225

236

222

222

Sales with other segments

463

505

242

238

891

943

ROCE

21.8 %

20.9 % 2)

8.5 %12.6 %

1.0 %

9.1 %

Employees 5)

5,219

5,323

18,36021,032

8,419

9,223

Average capital employed1)

Subtotal for Voith ­Hydro, Voith I­ndustrial ­Services, Voith ­Paper and Voith Turbo.

2)

Previous year restated (refer to “Restatement of previous-year amounts”).

3)Excluding depreciation and amortization included in the non-recurring result, as not included in profit from operations.

4)

Excluding additions due to new acquisitions and financial assets.

5)

Statistical number of persons employed at fiscal year-end.

The two defined earnings components “Operating interest income” and “Other
adjustments” are not shown directly in the consolidated statement of income andare therefore disclosed separately in the following reconciliation of the profit fromoperations to income before taxes.

Voith Annual Report 2014

173

Financial Statements

Voith ­Turbo

Total Core Business1)

Reconciliation

Total

2013  /  14

2012  /  13

2013  /  14

2012  /  13

2013  /  14

2012  /  13

2013  /  14

2012  /  13

1,409

1,500

5,330

5,712

15

16

5,345

5,728

5

5

58

66

- 58

- 66

0

0

1,414

1,505

5,388

5,778

- 43

- 50

5,345

5,728

111

110 2)

241

332 2)

29

18

270

350 2)

43

49

158

164

12

11

170

175

31

51

113

170

21

22

134

192

140

140

602

613

8

8

610

621

752

2)

797

2,348

2,483

154

157

2,502

2,640 2)14.7 %

13.9 % 2)

10.3 %

13.4 % 2)

10.8 %

13.3 % 2)

6,275

6,485

38,27342,06339,302

43,134

2)

1,029

1,071

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

2013  /14

2012  /13*

Profit from operations

270

350

Operating interest income

-40

-37

Other adjustments

-11

-3

Non-recurring result

4

-156

Share of profits from associates

5

4

-68

-69

Interest result
Other financial result-41

9Income before taxes

119

98

* Previous year restated (refer to “Restatement of previous-year amounts”).

174

Financial Statements

Voith Annual Report 2014

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

2013  /14

2012  /13

Germany

1,078

1,149

Other countries

4,267

4,579

of which Europe

1,505

1,566

of which
Americas

1,529

1,514

of which Asia

1,071

1,312

· t hereof China

605

738

of which others

162

187

5,345

5,728

2013  /14

2012  /13

891

968

Total

Non-current assets
in € millions

Germany
Other countries

Total

1,012

992

of which Europe

269

276

of which
Americas379

378· t hereof USA

232

218

of which Asia

361

335

· thereof China

317

291

of which others

3

3

1,903

1,960

Voith Annual Report 2014

175

Financial Statements

Other notes	Contingent liabilities,
contingent assets andother financial obligations

Appropriate provisions have been recognized in the relevant Group companies tocover potential obligations arising from taxation, legal and arbitration proceedings.
In the previous year, possible tax risks existed outside Germany concerning the
tax recognition of expenses amounting to a maximum of €13 million. Due todevelopments in the period under review, the probability of occurrence of therisk is, in the meantime, regarded as remote.
In connection with the recognition of transfer prices outside Germany, there
are additional risks of € 5 million (previous year: € 5 million) and of €19 million(previous year: € 23 million) for legal disputes. A successful outcome is currently
expected in both cases.
Owing to failure, caused by an end customer, to comply with specific rules
concerning the receipt of tax incentives outside Germany, the recognition of tax
privileges was disputed by the tax authorities in previous years. The risk amounted to a maximum of € 9 million as at September 30, 2013. The proceedings wereconcluded in the first half of the 2013 /14 fiscal year and resulted in € 5 million
being paid to the tax authorities.
Neither Voith GmbH nor any of its Group companies are involved in any current
or foreseeable taxation, legal or arbitration proceedings that could materiallyinfluence their economic situation.
Owing to the ongoing tax field audit of the German companies, further changes
may be made to tax items.
From the Voith Group’s perspective, the Group’s potential rights to offset tax
liabilities due to the tax authorities come to € 0 (previous year: € 9 million) outside
Germany. There are potential VAT credits of € 3 million in Germany (previous
year: € 8 million).

Contingent liabilities

The contingent liabilities listed below are stated at face value. No provisions weremade to cover these contingencies, as the risk of their realization is regarded
as low:in € thousands

2014-09-30

2013-09-30

Guarantee obligations

17,74036,649Warranties

3,625

362

21,36537,011

Most of the guarantee obligations expire in 2022.

176

Financial Statements

Other financial obligations

Voith Annual Report 2014

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

2014-09-30

2013-09-30

Purchase commitments for capital expenditures

16,00825,898

Obligations arising from non-cancelable operating leases

137,945

140,440

Other

1,305

910

155,258

167,248

Assets leased under operating leases led to cash outflows totaling € 78,703 thousand (previous year: € 76,233 thousand). These payments mostly related toleased passenger vehicles, machinery and buildings. The majority of leases run
for between one and 15 years. Some companies have the option of extending
their rental contracts.
The total of future minimum lease payments for non-cancelable operating leases
is shown below, broken down by maturity:in € thousands

2014-09-30

2013-09-30·D ue in less than one year

50,73450,814·D ue between one and five years

66,19469,895Nominal value of future minimum lease payments·D ue in more than five years

21,017

19,731

137,945

140,440

Future minimum lease payments include €1,620 thousand (previous year:€ 2,065 thousand) from sale and leaseback transactions.
Compared to the future minimum lease payments, an immaterial amount of cash
inflows is expected from non-cancelable subleases of assets.

Voith Annual Report 2014

	Additional information on
financial instruments

177

Financial Statements

Carrying amounts, amounts recognized in the balance sheet and fair values bymeasurement category.
Amount recognized in the balance sheet inaccordance with IAS 39

Fair value
through
profit orloss

Amount recognized in
the balance
sheet inaccordancewith IAS 17

IAS 39measure­ment
category

Carrying
amount2014-09-30

Amortized
cost

Cash and cash equivalents

LaR

800,823

800,823

800,823

Trade receivables

LaR

812,520

812,520

812,520

Receivables from construction
contracts

LaR

324,054

324,054

324,054in € thousands

Cost

Fair value
through
equityFair value
2014-09-30

Assets:Other financial assets and securities

216,229·F inancial assets, loans andreceivables

LaR

43,675· Available-for-sale financial assets

AfS

160,489· F inancial assets held for trading

FAHfT

5,878

5,878

5,878

· F inancial assets at fair value
through profit or loss

FAfvtpl

6,187

6,187

6,187

Derivative financial instruments

43,67543,67526,024

134,465

134,4651)

19,229· D erivatives not used for hedging· D erivatives used for hedging

FAHfT

2,961

2,961

2,961

n.a.

16,26816,26816,268Other receivables

129,603· Financial receivables

LaR

41,902

41,902

41,902· S undry financial assets

LaR

87,70187,70187,701

Trade payables

FLAC

512,317

512,317

512,317

Bonds / bank loans / notes

FLAC

863,001

863,001

948,435

Liabilities:

Financial liabilities from leases

n.a.

Derivative financial instruments

1,841

1,841

20,100· D erivatives not used for hedging

FLHfT

2,872

2,872

2,872

n.a.

17,22817,22817,228Other financial liabilities

FLAC

130,987

115,171

Sundry financial liabilities

FLAC

296,005

296,005

Loans and receivables (LaR)

LaR

2,110,675

2,110,675

Available for sale (AfS)· D erivatives used for hedging

15,816

283,764
296,005

IAS 39 measurement categories:

AfS

160,489

Financial assets held for trading(FAHfT)

FAHfT

8,839

8,839

Financial assets at fair value throughprofit or loss (FAfvtpl)

FAfvtpl

6,187

6,187

Financial liabilities measured atamortized cost (FLAC)

FLAC

1,802,310

Financial liabilities held for trading(FAHfT)

FLHfT

2,872

1)

26,024

1,786,494

134,465

15,8162,872

Available-for-sale financial assets (AfS) include investments whose fair value could not be determined reliably.

178

Financial Statements

Voith Annual Report 2014

Amount recognized in the balance sheet inaccordance with IAS 39*

Fair value
through
profit orloss

Amount recognized in
the balance
sheet inaccordancewith IAS 17

IAS 39measure­ment
category

Carrying
amount2013-09-30*

Amortized
cost

Cash and cash equivalents

LaR

900,967

900,967

900,967

Trade receivables

LaR

925,935

925,935

925,935

Receivables from construction
contracts

LaR

267,448

267,448

267,448

53,796

53,796in € thousands

Cost

Fair value
through
equityFair value
2013-09-30*

Assets:Other financial assets and securities

300,649·F
 inancial assets, loans andreceivables

LaR

53,796· Available-for-sale financial assets

AfS

241,831

FAfvtpl5,022· F inancial assets at fair value
through profit or loss
Derivative financial instruments

20,897

220,934

220,9341)
5,022

5,022

37,633· D erivatives not used for hedging· D erivatives used for hedging

FAHfT

8,063

n. a.

29,570

Other receivables

162

8,063

8,063

29,40829,570114,473· F inancial receivables

LaR

35,41835,41835,418· S undry financial assets

LaR

79,05579,05579,055Trade payables

FLAC

544,881544,881544,881Bonds / bank loans / notes

FLAC

1,037,486

1,037,486

1,132,419

Liabilities:

Financial liabilities from leases

n. a.

Derivative financial instruments

2,356

2,356

15,991· D erivatives not used for hedging

FLHfT

3,141

n. a.

12,850

Other financial liabilities

FLAC

126,653

113,508

13,145

337,761

Sundry financial liabilities

FLAC

320,053

314,053

6,000

320,053

Loans and receivables (LaR)

LaR

2,262,619

2,262,619

Available for sale (AfS)· D erivatives used for hedging

183

3,141

3,141

12,667

12,850

IAS 39 measurement categories:

AfS

241,831

Financial assets held for trading(FAHfT)

FAHfT

8,063

8,063

Financial assets at fair value throughprofit or loss (FAfvtpl)

FAfvtpl

5,022

5,022

Financial liabilities measured atamortized cost (FLAC)

FLAC

2,029,073

Financial liabilities held for trading(FAHfT)

FLHfT

3,141

1)

20,8972,009,928

220,934

19,145
3,141

Available-for-sale financial assets (AfS) include investments whose fair value could not be determined reliably.

* Previous year restated (refer to “Restatement of previous-year amounts”).

Voith Annual Report 2014

179

Financial Statements

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

2014-09-30

Level 1

Level 2

Level 3

Other financial assets and securities

146,530

Derivative financial instruments

19,229146,53000019,2290

Derivative financial instruments
Liabilities from the acquisition of shares

20,100020,100015,8160015,8162013-09-30

Level 1

Level 2

Level 3

Other financial assets and securities

225,956

225,95600Derivative financial instruments

37,633037,6330

Derivative financial instruments

15,9920

15,9920Liabilities from the acquisition of shares

19,1450019,145

AssetsLiabilitiesin € thousands

AssetsLiabilities

The three-level fair value hierarchy divides the input factors used in the measurement techniques to measure the fair value into three levels.
Level 1:
Input factors on the basis of quoted market prices in active markets for identicalassets or liabilities for the company on the measurement date.
Level 2:Other inputs than those of level 1 that are observable for the financial asset or
liability, either directly or indirectly.
Level 3:
Input factors for which there are no observable market data.
No reclassifications were made between the fair value hierarchies in the 2013 /14
fiscal year.
The fair values of derivative financial instruments allocated to level 2 of the fairvalue hierarchy are taken from the daily observable market prices and interest
curves. In addition, since October 1, 2013, fair value measurement includes therisk of both counterparty default and default on the part of the holder in accordance with IFRS 13 Fair Value Measurement. Input factors that take account of180

Financial Statements

Voith Annual Report 2014

counterparty credit risk can be obtained from observable credit default swaps(CDS) from the institutes participating in the respective transaction. At Voith themarket CDS rate was used to calculate the Group’s own credit risk.
The fair values of liabilities from business combinations allocated to level 3 of thefair value hierarchy are based on internal planning data. These are measured using the discounted cash flow projections taken from the latest business planning
prepared by management. The planning assumptions are adjusted to reflect thecurrent information available.
The fair values of financial assets and financial liabilities measured at cost or
amortized cost, which need to be measured to meet disclosure requirements,
are calculated 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, theircarrying amounts approximate their fair values on the reporting date.
Because trade payables and other financial liabilities generally have short residual
terms, the carrying amounts approximate the fair values.
The fair value of the bond is equal to the nominal value multiplied by the quoted
price at the end of the reporting period (fair value hierarchy level 1).
The market values of unlisted bonds, bank loans and other financial liabilities
are calculated as the present value of the payments associated with the liabilities, based on the applicable term structure of interest rates and Voith GmbH’s
credit spread curve determined for different currencies (level 2 of the fair value
hierarchy).
The market value of other financial liabilities is calculated on the basis of internal
planning data. These are measured using the discounted cash flow projections
taken from the latest business planning prepared by management. The planningassumptions are adjusted to reflect the current information available (fair value
hierarchy level 3).

Voith Annual Report 2014

181

Financial Statements

Net gains or losses for each measurement category of financial instrument:2013  / 14

Impairments

Other net
gains / losses

Total

Loans and receivables (LaR)- 5,877

15,994

10,117Available-for-sale financial assets- 42,358

730- 41,628

Held-for-trading financial assets

212- 4,680- 4,468

Financial liabilities measured atamortized cost0

- 3,132- 3,132

Impairments

Other net
gains / losses

Total

Loans and receivables (LaR)- 2,859- 20,115- 22,974

Available-for-sale financial assets- 2,956

1,233- 1,723

Financial assets at fair value throughprofit or loss

0

179

179

Held-for-trading financial assets

0

1,878

1,878

Financial liabilities measured atamortized cost

0

9,099

9,099

in € thousands

2012  /13in € thousands

For more information on the net gains and losses through equity from availablefor-sale financial assets, see note 19.
All interest income and interest expenses for financial assets or financial liabilities
relate to those that are not measured at fair value through profit or loss.

Risk management

Principles of financial risk management
The Voith Group is a global player. In the course of ordinary business, some of its
liabilities, assets and transactions are exposed to risks arising from changes ininterest rates and exchange rates. These risks could affect its net assets, financial
position and results of operations. The aim of financial risk management is to
manage and limit these risks.
The principles of the Group’s financial policy are laid down by the Voith GmbH
Board of Management and monitored by the Supervisory Board. Voith FinanceGmbH, a wholly owned subsidiary of Voith GmbH, implements the financial policy
and regularly reports to the Chief Financial Officer on the financial position of theGroup and current risk exposures. Certain financial transactions require special
approval by the Group’s management. Long-term refinancing is undertaken byVoith GmbH.
Simple derivative financial instruments are used to limit the risks arising bothfrom operating business and from the resultant financing requirements. These
instruments are used in accordance with clearly defined, consistent, Group-wide

182

Financial Statements

Voith Annual Report 2014

guidelines. Compliance with these guidelines is verified on an ongoing basis.
Hedge transactions and cash investments are placed only with financial institutions that have first-class credit ratings.
Credit risk
The Voith Group does business only with recognized, creditworthy third parties.
We verify the creditworthiness of customers who wish to do credit-based business with us.
Cash and cash equivalents:
For the purposes of internal risk management, cash and cash equivalents consist
essentially of cash and short-term securities. Default risks associated with term
deposits are limited by selecting solvent banking partners and by spreading cash
across multiple counterparties. A ratings-based limit (derived from credit default
swaps / rating) is monitored constantly. In addition, the Voith Group invests insecurities and monitors the associated risks centrally. Securities may only be
traded by Group companies with the approval of Voith Finance GmbH.
Trade receivables:
Credit risk arising from the delivery of goods and ­s ervices expresses itself interms of counterparty risk, manufacturing risks and political export-related risks.
Handling of these risks is governed by binding rules throughout the Voith Group.
The maximum risk of default is limited to the carrying amount of the trade receivables, which is € 812,520 thousand (previous year adjusted: € 925,935 thousand).
The maximum default risk for receivables arising from long-term construction
contracts is € 324,054 thousand (previous year: € 267,448 thousand). On accountof the collateral held, the maximum default risk for trade receivables is reduced by€116,548 thousand (previous year: €132,302 thousand) and by € 75,512 thousand(previous year: €117,529 thousand) for receivables from long-term construction
contracts.
All orders above a defined value are subject to general risk assessment requirements. Without special permission from the relevant governing bodies, Group
companies do not accept unsecured orders from customers whose credit rating
falls below a defined threshold and who cannot furnish an adequate guarantor.
Political export risks must always be hedged for risks classified as Euler Hermes
country category 3 or higher unless approval is issued by the decision-making
bodies. Further risk assessment is also activated for orders upward of definedvalues. Necessary credit insurance is obtained via export credit agencies (ECAs),on the private insurance market or by means of bank products.
With respect to credit risk arising from the other financial assets of the Group,
which comprise cash and cash equivalents, available-for-sale financial assets
and certain derivative instruments, the Group’s exposure to credit risk arises
from default of the counterparty, with a maximum exposure equal to the carryingVoith Annual Report 2014

183

Financial Statements

amount of these instruments. For details of financial guarantees, please refer tothe discussion of contingent liabilities. This kind of loss can occur if individual
business partners fail to meet their contractual obligations. As a rule, no collateralexists for such an eventuality.
The Voith Group is not exposed to any material concentration of risks. Corporate
policy is to avoid concentration of credit risk in a single financial institution. Instead,the Group invests with a variety of creditworthy financial institutions. The Group’s
customer structure is not materially concentrated in any particular geographic
region. The Group tests doubtful accounts for impairment considering certain
customers, historical trends, branches of industry and various other information.
The following credit risks are inherent in financial assets:
Thereof not impaired but past due
at the reporting date by:

2014-09-30
Gross value

Thereof not
impaired or
past due

Trade receivables

848,054

566,490

Other financial assets and securities

339,254

212,464

Other financial receivables

132,788

123,727

Gross value

Thereof not
impaired or
past due

Trade receivables

967,125

649,763

Other financial assets and securities

332,499

300,649

Other financial receivables

117,536

109,483in € thousands

less than
90 daysmore than
180 days

168,139

27,49052,617

2,034

1,136

1,980

Thereof not impaired but past due
at the reporting date by:

2013-09-30*

in € thousands

between 90
and 180 days

less than
90 days

between 90
and 180 days

more than
180 days

198,850

21,73655,349

1,929

788

2,527

* Previous year restated (refer to “Restatement of previous-year amounts”).

The carrying amounts of cash and cash equivalents, receivables from construction
contracts and derivatives are neither impaired nor past due.
Liquidity risk
To ensure that it can always meet its financial obligations, the Voith Group has
negotiated sufficient cash lines and syndicated credit facilities with its banking
partners.
The syndicated loan placed in China in 2012 secures the finance for future investments in the same currency as the operating business on the local market. Thisloan was drawn on during the period under review, as planned. The syndicatedeuro loan arranged in 2011 was increased in August of this year under an amendand-extend agreement, and now runs until 2019 with the option of extending for

184

Financial Statements

Voith Annual Report 2014

another two years – no financial covenants were agreed. It has not been drawn
on and is available as a strategic liquidity reserve if needed, as are available
bilateral lines of credit from banks. To safeguard internal and external growth, theVoith Group procures long-term funding on the capital markets by issuing bonds,
private placements and individual bank loans.
The credit facilities and the bond placed on the capital markets are subject to thecustomary market conditions based on Voith’s rating and its contractual terms
and conditions. As in the previous years, all contractual terms and conditions
were complied with in the 2013 /14 fiscal year. A “negative outlook” was added in
December 2013 to the investment grade “Baa2” rating issued by Moody’s, which
was confirmed again in September 2014.
Cash pools, intercompany loans and the allocation of external bank credit lines toindividual operating units protect Group companies’ liquidity. Voith Finance GmbHproduces monthly finance status reports for the entire Group. Balances of central
bank and cash pool accounts and bank guarantees are available on a daily basis.
The table below lists the undiscounted, contractually agreed cash outflows fromfinancial instruments:in € thousands

2014-09-30

Cash flows < 1 year

Cash flows 1–5 years

Cash flows > 5 years

Trade payables

512,317503,725

8,283

0

Bonds / bank loans / notes

863,001

86,502884,964

0

1,841

475

1,087

452

Financial liabilities from leases
Other financial liabilities

130,987

51,0406,444

74,195

Sundry financial liabilities

296,005

281,795

13,730482

Derivative financial instruments

20,100· Outflows

266,018

64,9170· Inflows- 252,275- 71,931-2

937,280

907,494

75,127

1,824,251

Voith Annual Report 2014

185

Financial Statementsin € thousands

2013-09-30*

Trade payables

544,881542,5912,432

01,037,486

288,301

845,235

44,930

2,356

748

1,210

638

Other financial liabilities

126,653

56,942

6,455

64,233Sundry financial liabilities

320,053

305,114

14,709271

Bonds / bank loans / notes
Financial liabilities from leases

Derivative financial instruments

Cash flows < 1 year

Cash flows 1–5 years

Cash flows > 5 years

15,991· Outflows

126,296

62,1100· Inflows- 114,114- 61,58701,205,878

870,564

110,072

2,047,420* Previous year restated (refer to “Restatement of previous-year amounts”).

Solvency is ensured and liquidity can be managed using current securities andcash equivalents which can be transformed into cash at any time.
Derivatives include cash outflows on derivative financial instruments with negative
market values for which gross cash settlement has been agreed. The cash outflows for these financial derivatives are matched by corresponding cash inflows
which are shown separately in the table above under inflows and outflows (gross).
On the other hand, where a net cash settlement is effected, cash outflows arenetted with cash inflows.
Financial market risks
Foreign exchange risks:
Global production and trading activities expose the Voith Group to risks arisingfrom fluctuations in exchange rates. Foreign exchange risks exist in particularwherever receivables, liabilities, cash and cash equivalents and orders received(firm commitments / forecast transactions) are or will be denominated in a currency
other than the functional currency of the Group company concerned.
For the Voith Group, the foreign exchange risk relates mainly to the US dollar.
Changes in the exchange rate affect both earnings and Group equity. If the US
dollar rises by 5 %, this increases our pre-tax profit by € 6,908 thousand (previous year: increase of € 6,174 thousand) and equity (including the effect frompre-tax profit) by € 6,929 thousand (previous year: increase of € 6,272 thousand).
If, by contrast, the US dollar falls by 5 %, this decreases our pre-tax profit by€ 6,193 thousand (previous year: decrease of € 5,549 thousand) and equity (including the effect from pre-tax profit) by € 6,212 thousand (previous year: decrease of€ 5,638 thousand).
Most currency hedging is undertaken by Voith Finance GmbH and the Regional
Treasury and Finance Center. Transaction risks arising from the international delivery of goods and ­services are mainly limited by forward exchange contracts.
Essentially, all foreign currency transactions at the Voith Group must be hedged.

186

Financial Statements

Voith Annual Report 2014

Major items on the balance sheet and orders (upward of a value of USD 1 million)
are hedged individually within the framework of hedge accounting.
Before external hedges are agreed, in the context of project business, both thehedge relationship and the objectives of and strategies for risk management must
be documented in respect of the underlying (hedged) transactions.
Hedges must be highly effective if they are to satisfy the Voith Group’s risk management strategy. Where hedge relationships are verifiably effective, the trans­
actions qualify for hedge accounting. As a result, fluctuations in the exchange rate
do not affect profit or loss, nor do they influence project costing.
In the Voith Group, derivative financial instruments are traded externally by Voith
Finance GmbH on behalf of Group companies. Group companies in countries
subject to foreign exchange restrictions hedge their currency risks locally. The
Group-wide treasury management tool is used for central scheduling, monitoringand documentation of all foreign currency hedges entered into by Voith Financeor Group companies.
Interest rate risks:
The Voith Group’s exposure to interest rate risks arising from external refinancing
is analyzed and managed centrally by Voith Finance GmbH. Medium- to long-term
assets and liabilities with fixed interest rates are the main source of interest raterisks at the Group, as changes in market rates of interest can cause the valueof a financial instrument to fluctuate. Risks to the market value of fixed-interest
receivables and liabilities are hedged on a case-by-case basis. Risks to market
value are hedged by interest rate swaps and combined interest rate and currency
swaps, which usually qualify for hedge accounting.
The relevant asset positions are essentially cash at banks that is invested in themoney market and / or are used to fund the existing cash pool. The Group companies that participate in the cash pool operate a daily zero-balancing policy andtherefore have no exposure to external interest rate risks.
On the cost side, interest rate risks arise from bonds placed on the capital market
and a US private placement as well as a variety of bank loans. The fixed interest
rate on the US private placement was swapped for a floating rate and the resulting cash flow risk hedged by interest rate caps accordingly. The other bonds are
subject to a fixed rate of interest.

Voith Annual Report 2014

187

Financial Statements

The carrying amounts of the Group’s key financial instruments that are exposed
to interest rate risks are grouped by contractually defined maturity in the following table:
2014-09-30
in € thousands

Less than
one year

1-2 years

2-3 years

3-4 years

4-5 years

More than
5 years

Total

Floating interest rate
Cash and cash equivalents

800,823

0

0

0

0

0

800,823

072,3540053,8550

126,20939,2510

101,130000140,38100589,685000589,685

2,778

203

0

0

0

0

2,981

Less than
one year

1-2 years

2-3 years

3-4 years

4-5 years

More than
5 years

Total

Cash and cash equivalents

900,967

0

0

0

0

0

900,967

Bonds

138,994070,1200051,427

260,541

Bank loans

73,4650077,41100150,876

Bonds
Bank loans
Fixed interest rates
Bonds
Bank loans

2013-09-30
in € thousands

Floating interest rate

Fixed interest rates
Bonds
Bank loans

0

0

0

586,33800586,338

39,075

198

123

0

0

0

39,396

If the market rate of interest had been 100 bps higher (lower) at September
30, 2014, earnings from the significant floating rate financial instruments would
have been € 5.3 million higher (lower) (previous year: € 4.9 million). Equity would
have changed accordingly. This effect chiefly originates from floating-rate financial instruments denominated in euro currency of € 5.3 million (previous year:€ 4.0 million).
If the market rate of interest had been 100 bps higher (lower) as at September 30,
2014, the fair value of the significant fixed rate financial instruments would havebeen €17.9 million lower (higher) (previous year: € 23.6 million).
Risks relating to securities and stock prices:
The Voith Group holds stocks and other available-for-sale securities of €134 million(previous year: € 221 million). Stock price risks are reflected in the balance sheet
and not in the consolidated statement of income, unless the criteria for impairment are met. A 10 % change in the underlying stock prices would cause equity
to change by 10 % of the carrying amount of the stocks concerned.

188

Financial Statements

Voith Annual Report 2014

There is no risk to stocks and other securities at fair value through profit or loss.
It should be noted that all existing stock price risks are analyzed continuously andsuitable counteraction taken accordingly.
Commodity price risk:
The Voith Group is exposed to risks arising from changes in commodity prices, asthese also affect most of the semi-finished goods that it needs. Voith’s Corporate
Purchasing regularly reviews the nature, volume and scheduling of the Group’smaterials requirements. On request by Corporate Purchasing, and in consultation
and agreement with Group companies, suitable forward commodity contracts
can be arranged by Voith Finance GmbH to limit any latent commodity price risks.
No forward commodity contracts were in place during the fiscal year. In addition,
increases in the price of materials can be passed on to customers to some extent.
Hedge relationships:
The following items are used to hedge foreign exchange and interest rate risks:
2014-09-30
in € thousands

Forward exchange contracts(fair value hedges)

Nominal values*< 1 year

Positive market values> 1 year< 1 year

Negative market values> 1 year< 1 year> 1 year

427,785

191,119

3,665

1,091

13,166

4,062

0114,787

0

11,5120

0

Other derivatives

139,906

120,544

2,220

741

2,797

75

Total

567,691

426,450

5,885

13,344

15,963

4,137

Interest rate swaps(fair value hedges)

2013-09-30
in € thousands

Nominal values*< 1 year

Positive market values> 1 year< 1 year

Negative market values> 1 year< 1 year> 1 year

Forward exchange contracts(fair value hedges)

299,078

125,013

7,734

1,084

9,820

2,847

Forward exchange contracts(cash flow hedges)

11,060

0

162

0

183

0

Interest rate swaps(fair value hedges)

132,978

107,1216,057

14,5330

0

Other derivatives

302,497

136,662

5,383

2,680

2,851

290

Total

745,613368,796

19,336

18,297

12,854

3,137*N
 ominal value refers to the volume of the hedged transactions in the local currency,translated at the closing rate.

Voith Annual Report 2014

Financial Statements

189

Fair value hedges:
The Group uses fair value hedges primarily to hedge interest rate and foreignexchange risks.
In the 2013 /14 fiscal year, a loss of €17,700 thousand (previous year: a loss of€12,800 thousand) was recorded for derivative financial instruments classified
as fair value hedges. Since the hedges were classified as highly effective, measurement of the hedged transactions at the reporting date produced a contrary
grain / loss in the same amount.
There were no effects on earnings from ineffective hedges in the 2013/14 and2012/13 fiscal years.
Changes in the value of financial derivatives that do not meet the requirements
defined for hedge accounting by IAS 39 are recognized in profit or loss at thereporting date.
Research and development costs
In the 2013 /14 fiscal year, research and development costs totaled € 215,992 thousand (previous year: € 242,129 thousand).
Of this amount, € 3,663 thousand (previous year: €19,570 thousand) was capitalized as development costs in the balance sheet. The remaining expenses
consist of €141,273 thousand (previous year: €152,182 thousand), which includes
both amortization on these capitalized development expenses and activities
for non-customer-specific new developments and improvements, as well as€ 71,056 thousand (previous year: € 70,377 thousand) for development activities
capitalized in the context of customer-specific orders.
Related parties
In the course of its ordinary business activities, Voith GmbH maintains relationships both with the subsidiaries listed in these consolidated financial statements
and with other related entities and individuals (family members who are shareholders, and members of the Supervisory Board and the Board of Management).
In the 2007 / 08 fiscal year, one subsidiary of Voith GmbH was sold to family
shareholders in the context of a transaction under common control. This company,
JMV GmbH & Co. KG, Heidenheim, is now the ultimate parent company of theVoith Group.
All business transactions with related parties are conducted at arm’s length
conditions.
Members of the Board of Management or members of the Supervisory Boardof Voith GmbH and family member shareholders also serve on the supervisoryboards of other companies with which Voith maintains relationships in the courseof its ordinary business activities. Any transactions involving these companies are
conducted at arm’s length conditions.
A total of € 973 thousand (previous year: € 923 thousand) was paid at customarymarket rates to members of the Supervisory Board and former members of theBoard of Management for consulting and other s­ ervices.

190

Financial Statements

Voith Annual Report 2014

The majority of intercompany deliveries and s­ ervices to related parties (entities
and individuals) are shown in the table below:
in € thousands

2013  /14

2012  /13

Liabilities to family shareholders

17,743

27,915­S ervices purchased from associates

6,417

14,977­S ervices rendered to associates

203

682

Receivables from associates

3,152

3,452

Liabilities to associates

1,755

3,410

­S ervices purchased from other investments

3,292

3,113

­S ervices rendered to other investments

18,425

17,601

Receivables from other investments, incl. advances paid

16,4488,651

Impairment of receivables from other investments

- 102

- 412

Liabilities to other investments, including advances received

27,98925,215­S ervices purchased from joint ventures

4,783

4,863

576

596

4,382

192

­S ervices rendered to joint ventures
Receivables from joint ventures
Liabilities to joint ventures­S ervices purchased from the ultimate parent company­S ervices rendered to the ultimate parent company
Receivables from the ultimate parent company
Liabilities to the ultimate parent company

768

827

10,287

10,022

656

709

165

144

4,852

4,345

Liabilities to family shareholders include current floating-rate clearing accounts
and pension obligations.
For more information on the profit participation rights of €103,400 thousand(previous year: €103,400 thousand) granted to family shareholders, please refer
to note 19.
Guarantees of €11,836 thousand (previous year: €11,836 thousand) were issued
in favor of one associate, €1,545 thousand (previous year: €1,693 thousand) infavor of one joint venture and €1,364 thousand (previous year: € 378 thousand)in favor of other investments.
Obligations from outstanding orders payable to the ultimate parent amount to€ 4,344 thousand (previous year: € 4,634 thousand) and those payable to associates amount to € 4,681 thousand (previous year: € 2,230 thousand).
Capital increases of €1,255 thousand (previous year: €1,781 thousand) werecarried out in favor of joint ventures.

Voith Annual Report 2014

	Remuneration of
governing bodies

191

Financial Statements

Total compensation for members of the Board of Management of Voith GmbH,
including pension expenses, came to € 8,564 thousand in the period under review(previous year: € 7,870 thousand). This amount includes long-term benefit components totaling € 3,583 thousand (previous year: €1,975 thousand). These longterm benefit components include service costs totaling €1,495 thousand (previous
year: € 2,193 thousand).
The members of the Supervisory Board received compensation of € 529 thousand(previous year: € 573 thousand).
The present value of all defined benefit obligations in respect of current membersof the Board of Management was € 46,754 thousand at the reporting date (previous year: € 32,440 thousand). The present value of all defined benefit obligations in
respect of former members of the Board of Management was € 27,912 thousand(previous year: € 22,412 thousand). Plan assets of €16,212 thousand (previous
year: €13,955 thousand) have been formed for current members of the Board ofManagement. Plan assets of € 8,997 thousand (previous year: € 9,034 thousand)have been formed for former members of the Board of Management. Theseamounts are included in note 20.
Pension and other payments to former members of the Board of Management
amounted to €1,595 thousand (previous year: €1,528 thousand).

	Auditor’s fees and ­services

The following fees (including reimbursement of expenses) were paid to the independent auditor for the s­ ervices rendered in the 2013 /14 fiscal year.
in € thousands

2013  /14

2012  /13

Annual audit

1,645

1,826

Other assurance or valuation ­s ervices

74

105

Tax advisory s­ ervices

172

122

Other services

83

377

1,974

2,430

192

	Subsequent events

Financial Statements

Voith Annual Report 2014

After the end of the period under review, the fair value of non-current securities
accounted for in the “available for sale” category decreased by €18 million as ofNovember 20, 2014.

Heidenheim an der Brenz, November 20, 2014
Voith GmbH
The Board of Management
Dr. Hubert Lienhard
Dr. Hermann Jung
Dr. Hans-Peter Sollinger (until June 30, 2014)
Martin Hennerici
Bertram Staudenmaier
Dr. Roland Münch
Carsten J. Reinhardt
The consolidated financial statements of Voith GmbH as at September 30,
2014 as authorized for issue and the unqualified audit opinion issued thereonby Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Stuttgart, werefiled in German at the Bundesanzeiger [Federal German Gazette] (available atwww.bundesanzeiger.de).

Voith Annual Report 2014

Financial Statements

193

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

Heidenheim an der Brenz, November 20, 2014
Voith GmbH
The Board of Management
Dr. Hubert Lienhard
Dr. Hermann Jung
Dr. Hans-Peter Sollinger (until June 30, 2014)
Martin Hennerici
Bertram Staudenmaier
Dr. Roland Münch
Carsten J. Reinhardt

194

Voith Annual Report 2014

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