Face to Face
Annual Report 2015

01

02

Face to FaceGroup

Editorial 
Restart in Renkum
“We need to be able to solve a
problem quickly and competently!”
“Businesses also haveto become providers.”
DIWA SmartNet
Power for Liberia

248

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

24
28
30
35

12
16
18

What’s important to Voith.
Told face to face by real people.
People who know what they stand for.

Editorial 2
Face to FaceDr. Hubert Lienhard

03

04

Group Management Report

Financial Statements

01 Background02	Business development andearnings position of the Group
03	Business development and earnings
position ofthe 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

38
46
57
64
69
74
77
83
84
98

Consolidated statement of incomeConsolidated statementof comprehensive incomeConsolidated balance sheetConsolidated statementof changes in equity
Consolidated cash flow statement 
Notes to the consolidated financial
statements for the 2014/15 fiscal year
Notes to the consolidated
statement of incomeNotes to the consolidated balance sheet
Notes on segment reportingSegment information by business segment
Segment information by region
Other notes
Responsibility statementImprint

Restart in Renkum
Edward de Vries

4“We need to be able  8
to solve a problem
quickly and competently!” 
8Lars Bot“Businesses also
have to become
providers.”
Prof. Reimund
Neugebauer

106
107
108
110
112
113
139
148
180
182
184
185
204
Cover

12

Power for Liberia
Ellen Johnson Sirleaf

18

The Voith Groupin Figuresin €   millions

2013/142014/15

4,404

4,389

4,168

4,302

235

270

Return on sales in %1)

5.6

6.3

Result before taxes1)

54

-23

Net result 3)

41

-93

Cash flow from operating activities

191

151

Total cash flow

-98

-357

Investments1)

103

80

Research and development

216

210

Orders received1)
Sales1)
Profit from operations

in % of sales

1)2)

5.2

4.9

Equity1,031

874

Equity ratio in %1)

18.9

16.0

Balance sheet total

5,453

5,451

Employees

20,943

20,2231) 4)

Excluding the discontinued Group Division Voith Industrial Services; previous year restated.
See “Notes on segment reporting” in the notes to the consolidated financial statements.
3)	This includes a result before taxes from non-recurring items amounting to € - 231 million (previous year:€ + 4 million) arising from restructuring measures. These figures also include non-recurring items in the
discontinued Group Division.
4)
Without apprentices.
1)
2)

Voith is a global technology group. With energy, oil & gas, paper, raw materials andtransport & automotive, the broad portfolio with its plants, products and services
serves five essential markets in all regions of the world. Voith’s operating businessis bundled in three Group Divisions: Voith Hydro, Voith Paper and Voith Turbo.
A large proportion of the world’s paper production is manufactured on Voith ­paper
machines. A quarter of the energy generated worldwide from hydropower is produced with turbines or generators from Voith Hydro. Voith’s drive components arefound in applications all over the world, both in industrial plants and in road andrail vehicles, as well as on the waters.
Founded in 1867, Voith employs more than 20,000 people, generates € 4.3 billion
in sales, and operates in over 60 countries around the world.1)

Face to Face
Annual Report 2015

What it means:
Voithians from 120 countries.
And, of course:
Customers all over the world. Business
partners. Friends.
You will meet some of these people on thefollowing pages. They talk about their roles,
their ideas, their passion. You will meetthem face to face. And they invite you tojoin them.

Welcome to theworld of Voith.

2

Face to FaceDr. Hubert Lienhard“A person who meets things andpeople face to face says what
he thinks and does what he says.
And he does it respectfully, but
always with an eye to success.”

Voith A nnual Repor t 2015

3

Face to Face

Editorial

Face to Face

“Face to face” – what does thatmean to you?
Dr. Hubert Lienhard: To make myposition clear in what I do and what
I say. To not keep a lid on important
subjects, regardless of whether they
are easy or difficult, but to bring themup and take a stance. A person whomeets things and people face to facesays what he thinks and does what hesays. And he does it respectfully, but
always with an eye to success.

What is the face of a company?
The face of a company is the sum of
its values, its culture, its bearing andits mission. It represents its approachand is shaped by its identity. Difficult
times in particular are an opportunity
for companies to present themselvesin a face-to-face manner. At Voith wesay, “We never let a customer down.”
We meet our customers face to facewhen there are challenges, and it issomething our customers value highly.

Can companies present a “face”?
They can, and they must. A facelesscompany is replaceable and becomes
irrelevant – for its customers andemployees. The face of a company isthe deciding factor in how we interact with it: whether we want to work
together, whether we understand eachother, whether we end up doing business with each other, or not.

Faces change over time. What dotransformation and change mean
to you?
Change and transformation are nothing
special in the course of a person’s life
or a company’s history. The idea that
there is a “normal” state where everything is calm and that transformation isthen an “exceptional” state is foreign to
me. Change and transformation are apart of us. They aren’t the exception,

Voith A nnual Repor t 2015

but rather our everyday reality. And thisgoes for companies as well – transformation and change are at the core of
all enterprises.
What is the face that Voith will
present in the future?
The face of a company that knows
where it comes from and where it isheaded. We want to play a decisiverole in shaping the digital revolution
for our markets, and our company will
evolve over the coming years in thisregard. At the same time, we know
where we come from. We alreadyplayed a decisive role in shaping thefirst industrial revolution. And throughout all the changes of the past 150
years, we have remained true to ourselves – a reliable, value-oriented family business that sets standards for theenergy, oil & gas, paper, raw materials, as well as transport & automotive
markets.

Edward de Vries“Meeting people face-to-face meansthat I will keep a given promise: a man,a word.”Edward de Vries is a chess and golf enthusiast. He also
has a passion for etymology, the study of the origins ofwords and phrases. Over the course of this biochemist’s
professional career, he was often called upon to use his
expertise in strategy and his ability to find the rightwords. Prior to working for Pareco, he supported various
paper factories in realigning their organizational structure as a consultant to management. Throughout thesetransformations, his main focus was on successful collaboration with all stakeholders.

5Face to Face

ReportRestartin Renkum
Dutch paper manufacturer Parenco’s Edward de Vries
is delaying his retirement. He wants to be there when
Voith rebuilds a 37-year-old paper machine using
the latest technology. He wants to see when the plant
becomes fit for the future.

It almost looks as though the Dutch paper manufacturer’s
factory floor is being dismantled. A handful of workers carefully move dusty metal braces on a heavy-duty crane fromone end to the other. Two other men detach steel brackets
from their mountings using angle grinders, producing an
impressive shower of sparks. Other than that, all activity hascome to a halt.
The 37-year-old paper machine, which up until now produced tons of paper, working day and night with its highnoise level, has been reduced to a 100-meter-long torso of
old iron. The workers have removed an antiquated press thatcame before the heated dryer cans which evaporate any
water remaining in the paper. The press was used to press
water out of the paper mechanically. “This is one of themachine parts that we are replacing with state-of-the-art
technology,” says Edward de Vries, who is surveying theconversion progress as he does every day. He wears a dayglo vest over his suit. His hair is gray, his friendly eyes twinkle.
The project manager lives for his work. He enthusiasticallytalks about a Voith NipcoFlex shoe press which will press
water out of the paper more efficiently and effectively in the
future. De Vries estimates that this will allow them to remove
up to four percent more water from the paper. Is that a lot?
De Vries nods. “With an annual output of about 380,000 tonsof packaging paper, that’s a significant amount. This allows
us to save a lot of energy in the drying process.”
Voith A nnual Repor t 2015

A project across borders
Less energy means lowered costs. These are the kinds ofinnovations that excite the 67-year-old engineer. He is delaying his retirement in order to lead this international project.
His employer, Parenco, is located in Renkum near the
Dutch-German border. According to Parenco, the company
is investing about one hundred million euros in the rebuild of
the old newsprint paper machine into a modern production
line for packaging paper. Voith will supply the lion’s share of
the technology for the new machine. Voith won the contract
in part because the engineers in Heidenheim can reuse up
to 60 percent of the old machine parts in the conversion.
The outer structure will remain while the interior is outfitted
to be cutting edge. In addition to the NipcoFlex shoe press,
Voith is also installing a SpeedFlow sizing unit in which starchis added to the paper as well as a new dryer section. And
then there is the installation of the electronics, the processcontrol system, the pumps and the piping. While everything
is being installed, the Voith technicians are already training
the employees who will be operating the fully modernizedproduction line.
Growth after the market collapse
Following the massive changes the sector has undergone in
the past decade, it became necessary to rebuild the machine.
At the start of this millennium, Parenco was still earning goodmoney with paper for newspapers using two productionlines. As digitalization continued to progress, the print

6

Face to Face

01

02

03

01 That’s what friends are for:Edward de Vries and his boss Geert Wassens
get the paper production line in Renkum fit for
the future.

03 Heading towards brand-new paper
production: As from summer 2016, about
1,300 tons of packaging paper will thenbe made every day – on a new Voith paper
machine.

02 On-site inspection:
Voith engineer Patric Romes makes sure thatthe rebuild at Parenco runs smoothly.

Voith A nnual Repor t 2015

7

Face to Facemedia’s demand for paper decreased, and manufacturers
like Parenco have been experiencing falling sales every year
ever since. In 2009, the company finally had to close down
one production line. 250 people lost their jobs.
After the new owner – the private equity investor H2 Equity
Partners – took over, many improvements and modernizations have been initiated. Today, 200 employees work on
Floor I producing mainly paper for advertising leaflets, morethan half of which are for German supermarket chains. Dueto its financial success, H2 could think about prospects forfloor II and make precise plans. And H2 laid out a groundbreaking plan: Floor II, which was dormant for five years, will
be made fit for the future. Very soon, Parenco will produce
high-quality packaging paper on a modern production linehere.
One of the reasons Edward de Vries is so committed to thisproject is because it will create 60 new jobs. He is native tothe region and feels an obligation toward its people. In thesmart-looking Geert Wassens, who has managed the company since 2013, he has another experienced expert at his
side. In his office, the nearly white-haired 57-year-old pulls
out a stack of documents to demonstrate just how the conversion will make the plant sustainable. “Newsprint paper
sales are contracting by five to eight percent every year; weare experiencing two percent growth for packaging paper.”basis weights ranging from 70 to 160 grams per square
meter will then be made every day. The so-called stock
preparation process – where the paper pulp from recovered
paper is refined and the fibers are blended with water – will
also take place in a brand-new line.
150 Voith employees are involved in this enormous project.
Patric Romes is one of them. He is managing the project on
the Voith side and works closely with his Dutch colleagues.
Every three weeks, he spends five days in Renkum. Other
employees under his supervision are at the plant on an ongoing basis. “We bring our know-how to the table and makesure the project goes according to plan,” the mechanicalengineer says. This includes taking out yardstick and caliper
to measure the old equipment with millimeter precision sothat the new parts will all fit later. They are supplied by Voith
locations all over the world, including from Brazil, China andGermany.

Geert Wassens:“Newsprint paper sales arecontracting by five to eightpercent every year; we areexperiencing two percent
The overall market for packaging paper in Europe is now 25
growth for packaging paper.”million tons. Economic growth and the growing mail order
trade worldwide are driving the demand for brown paper.
We call it testliner in the technical jargon. Pareco mainly
supplies the corrugated board industry, which then sells it
to online retailers as protective packaging material for­sending ­m erchandise.
“If we had had to purchase completely new equipment for thisnew business segment, the costs would have been three
and a half times the amount of this investment,” says Geert
Wassens. In that case, the reorientation would not havemade sense financially. Market prices are tightly calculated.
“The price affects our customers’ purchasing decisions, so
we must produce efficiently.”
150 Voith employees involved
Rebuilding was the right decision, says Geert Wassens, as
he leads us across the courtyard through the drizzling rain.
A 10,000-square-meter large external warehouse is being
built right next to the factory building. With construction set
to begin in the summer of 2016, it will be filled with about
6,200 tons of recovered paper, pressed together into bales
as tall as a person. About 1,300 tons of packaging paper inVoith A nnual Repor t 2015

The international effort will pay off. The modernized equipment will produce much more efficiently, both from an economic and environmental perspective. Not only is Voith
reducing energy costs with optimized dryer and with bettermachines for stock preparation; water use will be reduced
as well. “Thanks to the closed circuit in the new machine, we
can use the process water ten to fifteen times,” says
­Wassens. “This allows us to use only four cubic meters offresh water per ton of paper.” The resulting reduced costs
and the contribution to a more sustainable production are
the deciding factor for the plant’s sustainability.
As we are saying our goodbyes, project manager Edward deVries says, “I’m looking forward to the day both productionlines are in operation. We will create outstanding products
and new jobs for the region.” He will then retire. He is alreadyplanning a big trip with his wife. They’re traveling to SouthAmerica.

Lars Bot“Companies are made up of people. People
who have a face and can shake hands, all
the building blocks of trust, reliability andpartnership only exist in person.”
For more than 15 years, Lars Bot worked for an Americancompany in Canada, one of the largest conglomerates in
the world. He was one of the experts who was in the field
for most of the year in order to get things back up andworking in remote areas. He started his job at Voith in
May 2015. He leads a team of ten specialists working

around the clock to make sure that the Voith service
helps as quickly as possible, no matter where. He has
visited many corners of the world, but not yet Heidenheim. He will soon be rectifying this and in doing so, willalmost return to his roots: His family is from Holland.

9Face to Face

Interview“We need to beable to solvea problem quickly
and competently!”
When there is an outage at one of Canada’s remote hydropower plants,
it’s a real challenge. Along with his team, Lars Bot is ready day andnight to be one of the first to prevent unexpected outages or to respondto them quickly.

Canada is big. More than 500 hydropower plants lie in the vastness
between the east and west coasts.
Many of them are remote, having
been built far away from the usual
travel routes. For this reason, it is
all the more important that Voith
can offer solutions, which prevent
unexpected outages. However, if
service support is needed, Lars Bot
and his team can help. He heads
Voith Hydro’s service department
in Canada – a unique unit providing
Voith HyService™ services no matter
where they’re needed and no matter
what the problem.
When was the last time you
traveled, Mr. Bot?
Lars Bot: On a service call? That wasa long time ago. (laughs) My homethese days is in the office. Traveling
Voith A nnual Repor t 2015

today means that I am at our customers presenting our concepts forexample, which help them to savemaintenance cost or to reduce unexpected outages. Moreover, I also makesure that our field personnel are in theright place at the right time in order totake care of our customers’ needs.
Ever miss it?
A little. When you work in the field,
you thrive on the sense of adventure.
You get a phone call, pack your bag,and you’re off to remote areas like the
Yukon or the Northern Territories.
Field work is part of everyday workin industry. What’s so special abouthydropower plants?
Where else today can you find technology that is more than 100 years
old and still being used? A utility justcalled us with a problem at a plant thatstarted operations around the turn ofthe 20 th centur y. Repairs can getvery complicated in these scenarios.
Where do you get replacement parts?
Oftentimes the companies that built
the technology don’t exist anymore,
and you can count the number of people who are still familiar with the technology on the fingers of just one hand.
And that includes your people?
Our employees work for a lot of customers; in one year, they work withmore plants, more people, and face
more challenges than others do in ten
years. And Voith can implement technology developed by renowned original
equipment manufacturers, like Westinghouse generators or Allis Chalmers
turbines and generators. Thanks tothis expertise, we are in a position to10

Face to Face

provide services and refurbishment fornearly every project. When it comes tofinding a solution as quickly as possible, even the staff at a power plant
don’t have the same kind of know-how
and experience.
Are those kinds of problems
common?
Today’s power plants often rely ontechnology that has been in use forseveral decades; the wear and tearis noticeable. That’s why service isbecoming increasingly important for
the hydropower sector.
How is Voith responding to this?
We can offer comprehensive monitoring methods and service tools, but also
flexible service teams if immediate service is mandatory. Thus, our customers
get a comprehensive service package.
Moreover, we are setting up our operations regionally in order to be closer tothe customer. We just recently opened
a location in Calgary. And we train our
staff on an ongoing basis so that ourservice staff is always up to date on
the newest and latest in technology.
So how urgent is this fast
response?
First and foremost it is our job to prevent any outage, because if a malfunction causes an outage at the plant, thecustomer loses a lot of money everyday. And many remote power plants
are the only source of electricity for
entire regions. If unexpected problems

10Team members:

Voith A nnual Repor t 2015

occur nevertheless, it really comes
down to one thing: How do we getthere the fastest and get the power
plant working again.
How can you plan this service?
You never know where or when thenext job will be.
Without appropriate monitoring andcontrol system or regular maintenancechecks, you cannot plan power outages, indeed. In that case we don’tknow who will call today, tomorrow or
the day after, what problem they will
have, which replacement parts andtools we will need in the field. To prevent outages right from the beginning,
we recommend our HyCon™ control
system to customers, for instance.
Monitoring with HyCon™ can spot
irregularities at an early stage and help
respond to them at the right time.
Does that mean you have a kindof infrastructure available that
includes specialists and replacement parts for all imaginablesituations?
Of course, we have to adapt the structure of our operations to market needson an ongoing basis. We just recently
hired an employee, for example, who
is exclusively responsible for replacement parts. But above all, we have tooperate independently and flexibly, todecide and act quickly. If a customer
calls us and reports a malfunction, ourexperts ask them, “Have you tried A, B
or C?” If that doesn’t fix the problem,

one of our staff needs to be on the way
to the airport.
What do they take with them?
A wrench as well as a laptop. Even
though the technology is usuallydecades old, individual components
are always being modernized. Automation has long since been a part ofeveryday operations in a hydropower
plant.
Customers associate certain
qualities with Voith products.
What are the qualities you’d
like to see in the service area?
Customers associate our services with
Voith’s technology, which has a very
good reputation across the world. It’s
seen as durable and reliable. People
assign these attributes to our employees and services as well. When it
comes to service, the game is decided
by who is fast, competent and reliable.
Our goal needs to be that we are theones that get the first call from customers no matter where the hydropower
plant is located and which technology
is in use.

Lars Bot“We use a wrench as well asa laptop. Automation has longsince been a part of everyday
operations in a hydropower plant.”

11

Face to Face

Canada’s HyService™ team on the road.
Year in numbers.
Canada’s
total area:

Installed hydropower capacity
in Canada:

9,984,670
km²

77.6
GW

Total distance traveledby the team (in km):

%

1915

km

Number ofservice calls:

Shortest service time(in hours):

80

7

Lowest temperature
while in the field:

Voith A nnual Repor t 2015

63

Year of construction of theoldest modernized component:

335,000– 35

Hydropower
production:

Longest service time(in days):365

Lars Bot°C“Voith’s technology has a very good
reputation. It’s seen as durable
and reliable. People assign these
attributes to our employees as well.”Prof. Reimund Neugebauer“A company that presents itself in a random andinconsistent fashion will have problems building
lasting relationships. But when a company
presents a single face, this builds confidence
and leads to success.”
Prof. Reimund Neugebauer (b. 1953) has been Presidentof the Fraunhofer Gesellschaft since 2012. He is also a
Fellow of the International Academy for Production Engineering (CIRP), Member of the National Academy of Science and Engineering (acatech) and from 2010 – 2011 he
was President of the German Academic Society for Production Engineering (WGP). Since 2015 Prof. Neugebauer

has been Joint Chair of the High-Tech Forum, the German
government’s central advisory committee which adviseson the development and implementation of high-techstrategies. He is also a member of the expanded Platt­form Industrie 4.0 steering committee, which includes
members from politics, business, professional associations, science and the unions.

13

Face to Face

Interview“Businesses also
have to become
providers.”
Industrie 4.0 is set to change the world. What does this new industrial
revolution really mean? An interview with Prof. Reimund Neugebauer,
President of the German application-oriented research organization
Fraunhofer Gesellschaft, about possibilities, productivity and the newrole and significance of people in the digital workplace.

Everyone is talking about Industrie4.0. But do you think we all really
understand what it means? How
is it different from the Internet that
we use every day?
Prof. Reimund Neugebauer: People
have very different perceptions about
the “Internet of Things.” And the distinction between Industrie 4.0 and theInternet of Things is rather hazy – often
the two terms are used synonymously.
But this is wrong, as the Internet ofThings is a prerequisite for Industrie4.0. Linking together objects in theInternet of Things requires a wide rangeof technologies and solutions, including
cyber-physical systems, smart devices,
artificial intelligence and robotics.
The Internet of Things is the same as
the Internet of People in terms of thetechnology used to connect them, but
it is different in terms of how it comVoith A nnual Repor t 2015

municates. While things and machinescommunicate on a simple level, people
have the ability to interpret and bringmany complex skills to the table. We
could say that everyone is using thesame Internet, but they are speaking
different languages.
Business and technology regularly
have to deal with revolutionarychanges on a regular basis. Industrie 4.0 is one of these. But how is
its potential different from other,similarly dramatic, developments?
Industrie 4.0 refers to the complete
digital networking of all levels of communication within production technology. This is often considered to be an
evolutionary process. But I believe its
revolutionary aspect is the horizontal
exchange of data that goes above andbeyond different sectors and the new
business models that arise from this.

Industrie 4.0 technologies are graduallyfinding their way into the value chain
via cycles of investment and innovation. So it is certainly an evolutionary
process in which old technologies are
slowly being replaced, but the outcome
is revolutionary in terms of the market
and new business models.
Its potential and promise is enormous, but how should manufacturing companies approach andimplement it realistically?
The introduction of Industrie 4.0 allows
manufacturing companies to be more
efficient in the long term. A key consideration for companies is how to use
core Industrie 4.0 technologies andconcepts in order to optimize their processes and make them more efficient.
Companies can employ “use cases”
to evaluate how Industrie 4.0 could
benefit them. These provide examples

14

Face to Face

Industrie 4.0
Rise in productivity due to

The year the newly coined German
term “Industrie 4.0” was introduced
at the Hannover Messe trade fair:Industrie 4.0 until 2025:

25%
Growth potential due toIndustrie 4.0 in Germany by 2025
(in billion euros):

200 – 425

2011
Allocation of the current
IP address range:

99% 128of how Industrie 4.0 technologies arebeing used and highlight their benefits.
Use cases should be developed andimplemented throughout the whole
workforce, as staff involvement is the
key to the success of Industrie 4.0
projects.

We also have to change our ways ofworking: “Employee 4.0” has to beboth the developer of smart machines
and the colleague on the ground. They
have to interact with the machinery,make use of its support, and ideallyalso carry out maintenance work.

To what extent will Industrie 4.0
change existing ways of thinking
and working in manufacturing
companies? Where do you think
the greatest potential lies?
Industrie 4.0 makes it much easier tocustomize product ranges and respondflexibly to market fluctuations. But I
think its greatest potential lies in thecreation of totally new business models. A major additional business arises
from the data that is collected via integrated sensors or embedded systems
around the physical product. Thishas consequences for the company’s
future success: businesses also haveto become service providers.

Which technical possibilities doyou find most fascinating?
First of all, intelligent self-steering
makes it possible to customize justabout any product to meet the customer’s needs, while still being in a position to produce it economically. Thisis a major competitive advantage forGerman industry in the global marketplace. We call it mass customization.

Voith A nnual Repor t 2015

Number of digits in an
IP address in IPv6 format:

I also find it fascinating that real-time
networks make it possible not only for
us to have smart factories, but also
smart health, smart homes and muchmore. When we reach the point where
everything is connected via the Inter-

net there will be fewer accidents andless waste. This should mean that people can live longer on their own terms
and in better health. The possibilities
are endless. But we have to be veryre­s pon­s ible in the way we approachthese new oppor tunities. And, ofcourse, communicating via Internettech­n ologies in factories requires us
to focus on the issue of data security.
Industrie 4.0 networks need special
safeguards. This involves stakeholders
in every area: politics, society, businessand science.
This issue is already triggering
concerns, such as the possibility
that fewer people will be needed
if machines are able to handle
everything themselves.
The idea of a factory that is emptyof people was the vision of production experts in the 1980s, when CIM(computer-integrated manufacturing)
was being advanced. Understand-15

Face to Face

Researching for people
Fraunhofer is Europe’s largest application-oriented researchorganization, and one of the world’s most famous institutions.
Since 1949 its research efforts have been geared towards
health, security, communication, mobility, energy and theenvironment.
Its mission is to promote and conduct
applied research for the benefit of private and public enterprise and society
as a whole. Some 23,000 employees,
the majority with a background in thenatural sciences and engineering, areresearching and inventing at over 80
institutes in 40 locations in Germany.
They work with an annual researchbudget totaling 2 billion euros. The
research organization is named after
the illustrious scientist Joseph vonFraunhofer (1787 – 1826), who successfully combined sound scientific workwith practical applications in order tocreate innovative products.

ably, this kind of vision engendered adegree of skepticism among employee
representatives. But it failed to materialize, and equally this will not be theoutcome of the fourth industrial revolution. There is no doubt that people’s jobs will change. Those who are
directly involved in creating value will
move towards steering production
and will have more time to focus on
creative activities and decisions. However, one challenge will be to provide all
employees with the training they needto ensure they are not left behind by
the fourth industrial revolution.

How do Germany’s manufacturing
companies compare with their competitors abroad?
Germany is dominated by mid-tiercompanies, and it is a world leader
in engineering and other high-techindustries. In terms of automation, in
Germany we are streets ahead of othercountries and regions. All the technologies for Industrie 4.0 are at our fingertips – now we have to link them
together. Communication and dataexchange are key in this respect. With
its Industrial Data Space, the Fraunhofer Gesellschaft is working with anumber of major German companies,
SMEs and the Federal Ministr y of
Research to improve the prerequisites
in this regard. In Germany we have very
strict laws and high standards on data
privacy. This means we enjoy a great
deal of credibility when it comes todata security. With the Industrial Data
Space, we are currently creating a virtual space where users can exchange

I am convinced that we need and will
always need the social skills that only
humans can provide, thanks to theiremotionality, creativity, linguistic skills
and capacity for empathy. Someone
has to design and develop the business models and products. To do this,we will always need people and their
particular skills.
Voith A nnual Repor t 2015

Visual Computering Solution
by Fraunhofer IGD

data in a secure environment, without
ceding control over their data. This
provides the perfect conditions for Germany to become and remain a world
leader in Industrie 4.0.

Thank you very much!

16

Face to Face

DIWA SmartNet – efficiency
along the whole line
Industrie 4.0 is a key trend for the future of mechanicalengineering. In this field, Voith is evolving into a neutral
broker of information, using its products to connect various players and to collect, process and distribute data.
One example of this is the DIWA SmartNet, with which
Voith enables automatic and predictive maintenanceplanning. This allows potential repairs, for example, tobe indicated in advance. Wiener Linien, the public transportation operator of Austria’s capital city, Vienna,
already relies on Voith’s telemetric system. The fleet of
475 vehicles will be updated with modern, fuel-efficientbuses by the summer of 2016. These buses are equippedwith Voith’s DIWA.6 transmission and DIWA SmartNet.
Three statements by Peter Wiesinger, head of Wiener
Linien’s bus technology department, on the most important advantages of the system.
DIWA SmartNet –3. The satellite
sends data to
the server

2. GPRS

4. T
 he server

The data are transmitted
via WLAN or available
on-board computer, alternatively

collects and storesthe data

it’s that simple!

1. Communication
Bus transmission exchanges
data with the DIWA ECU andDIWA SmartNet“469 of Wiener Linien’s 475 buses are equippedwith Voith’s DIWA.6 transmission. According
to our drivers, the quality of the transmission’s
gear changing is the best. What’s more, it
meets the European Euro 6 emissions standard,
which means our bus fleet emits less CO².”“Energy efficiency is the crucial issue. A bus’s
fuel consumption per route, for example, is
one of DIWA SmartNet’s many important data
points for us. Our drivers should steer theirbuses through traffic as thoughtfully andefficiently as possible. We are thinking aboutawarding a bonus to especially efficiently
operating drivers.”#1 Peter Wiesinger on DIWA.6 transmission#2 Peter Wiesinger on energy efficiency

Voith A nnual Repor t 2015

17

Face to Face

Wiener Linien –facts and figures
Total length of bus lines
in km:

700
Number of employees:

5. Voith’s remotediagnostics service
analyzes the data andsends it to the operator

6. The operator
can plan or react
appropriately according
to the data

8,700
Total number ofpeople who would
fit into all vehicles:

7. The depot / workshop
knows what to do before
the bus is even back at
the depot

260,000
Distance traveled(per day):

208,000… for all vehicles within
the local transport network.
“The DIWA SmartNet IT system provides us witha great deal of performance data with which
we can design predictive maintenance plansfor our buses. Then there are practically nobreakdowns. We gain more control, make optimal use of our workshops and reduce costs inthe long term.”#3 Peter Wiesinger on cost reduction
Voith A nnual Repor t 2015

Number of routes driven
within the Wiener Linientransport network:

2

millionper day

Ellen Johnson Sirleaf“A family determined to advance basedon varied skills and entrepreneurshipfinds the sky as the limit.”
Ellen Johnson Sirleaf is president of Liberia and the first
democratically elected female head of state of an Africancountry. After studying economics, she became Liberia’s
minister of finance in 1972. Due to her criticism of former
dictator Samuel Doe, Ellen Johnson Sirleaf went into
exile, where her remarkable career took off. Among otherpositions, she was director of the UN Development Pro-

gram for Africa. In addition, she worked for the WorldBank and other international institutions. Johnson Sirleaf
returned to Liberia in 2003 and ran for the presidency in2005. The renowned Africa expert and women’s rights
activist has four children and several grandchildren. In
2011, she was awarded the Nobel Peace Prize for her
non-violent fight for women’s rights.

19Face to Face

Interview

Power for
Liberia
Civil war, destroyed infrastructure, depressed economy,
Ebola disease – Liberia had to face some severe setbacks
in the recent past. But there is hope. One face that stands
out for Liberia’s brighter future is that of Ellen Johnson Sirleaf.
Liberia’s and Africa’s first female Head of Government andthe Nobel Peace Prize Laureate visited Voith earlier this year.

Madame President, how do you
see the development of the African
continent in general and Liberia’s
development in particular?
Ellen Johnson Sirleaf: After decadesof reform, economic and political,
Africa’s development is well on track.
Today, the African continent has thefastest growth rate, which will propel
the processes to achieve the transformation set forth in the African Union
Agenda 2063. The majority of Africancountries are democracies with regularpeaceful transition.

prices for two main exports declined
and was followed by Ebola. The nation
is back on track to achieve its development goal, which focuses on economic
diversification through infrastructuredevelopment.

Which things are essential fora positive development of yourcountry?
Liberia is well endowed and has experienced exceptional progress andgrowth until 2013/14, when global

Where do you see great potential
in your country? And where are thechallenges?
The greatest potential for Liberia is in
agriculture aimed at industrialization
through agro-processing on which

Voith A nnual Repor t 2015

Liberia values as a matter of necessity
the prioritization of a resilient healthcare for all, education and massive
investment in agriculture for self-sufficiency and export. This can only beachieved if infrastructure – power,roads – is given the largest priority.

small and medium-sized businesses
depend. Support of growth and value
addition in tradition products such as
rubber, oil palm, coffee and cocoa arealso needed. The challenges to achieve
this goal are in infrastructure, particularly power.
What are your future plans to takethose chances?
Liberia’s Post Ebola Economic Stabilization and Recovery Plan is clear
on the prioritizing of power, which isessential to achieve the goals of health,education and agriculture. Effort isunderway to restore hydropower andexpand the national grid through low
cost-effective generation.

20

Face to Face

Percentage of Liberia’s

Ellen Johnson Sirleaf

rural population withaccess to electricity:<2%“Liberia values as a matter of necessity
the prioritization of a resilient health care
for all, education and massive investment
in agriculture for self-suf­ficiency andexport.”Earlier this year, you visited Voith
in Heidenheim. What was yourimpression? What has stuck inyour memory?
I saw great innovation and technological advancement, from which Liberia
could benefit. The partnership between
Voith in building the turbine for thehydro restoration is a milestone. Liberian engineers would benefit from thequality of capacity building towards
the sustainability of the hydro. I was
impressed by the opportunity given to
young graduates to grow professionally and become active members of thework force.
What do you find most interesting
about family enterprises such as
Voith?
A family determined to advance basedon varied skills and entrepreneurshipfinds the sky as the limit. Voith’s superb
technology system has been passed toseveral generations ensuring continuity
in quality and service.
In your opinion, which role doenterprises such as Voith play for
Liberia’s future development?
Voith is playing a key role in the reconstruction of Liberia’s hydroelectric sys-

Voith A nnual Repor t 2015

tem. The current capacity is far below
demand, requiring continuing Voith
partnership with the country.
How can Voith help Liberia to tap
the full potential of your country’s
chances?
With the installation of Voith turbinesthat will restore and expand cost-effec­
tive power in the country, small andmedium-sized businesses will prosper
and become the buoyant force in the
country.
The promotion of a broader partnership involving power sector studies
and training will indeed lay the basis forcontinued collaboration in the energy
sector of Liberia.
If you had one wish, what would
you wish from Voith?
That Voith will explore new frontiers forcooperation, mutual collaboration andinvest in the cross-pollination of ideas,
insights and training of Liberia in theenergy sector.

Thank you very much!

21

Face to Face

Voith has been involved in the modernization and constructionof hydropower plants in Africa for 75 years. In this way, Voith
is making a contribution toward supplying the most importantresource for the continent’s development: energy. The African
market’s potential is enormous. In some regions, only one in ten
residents has an electrical connection. Voith is currently working
on projects in Liberia, Angola, Nigeria, Tanzania, Mali, the Democratic Republic of the Congo, South Africa and Ethiopia.

Population growth in Africa
by 2050:Voith’s commitment to hydropowerin Africa in years:

100% 75
Liberia

Current amount of energy actually harnessedby hydropower in Africa:

26 GW

Estimated potential ofhydropower in Africa:

435 GW

Amount of money which African countries intend
to invest in development of power grids (in euros):100
billioVoith A nnual Repor t 2015

n

100,000,000,000,000

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

24
28
30
35

24

Group

Voith A nnual Repor t 2015

GroupDr. Hubert Lienhard

Ladies and gentlemen,
Dear business partners and friendsof the Company,
In this Annual Report 2015, we report on a year in which Voith was on its way tosuccessfully achieving new strength.
Consolidated sales increased, after having declined in recent years, and theGroup’s operative earnings improved significantly. Our profits from operations
grew, all Group Divisions made a positive contribution, and we were all able tomeet or exceed our predictions. Voith Paper’s development was especially posi­tive – follow­ing the far-reaching restructuring of the past years, the Group Division
was able to improve all relevant key figures, in part substantially.
The basis for our improved profitability is our group-wide success program,
Voith 150+, which has been in place since 2013, and whose portfolio optimizationand efficiency improvement measures are becoming increasingly effective. On
the other hand, due to restructuring costs incurred as part of Voith 150+, whichamounted to 231 million euros for the whole year, our net result was negative, as
had been planned and communicated in February 2015.
As expected, orders received remained roughly stable in comparison to the pre­vious year’s figures – despite order delays in large-scale projects in Voith Hydro’shydropower business due to the recessions in Brazil and Russia and slowing
growth in China.
2015 was a year in which significant strategic decisions were made as part of Voith
150+: acquiring a share in KUKA and initiating the sale of the Voith Industrial Ser­
vices Group Division, by which means we are bringing our focus back to our roots
as a technology and engineering group. To this end, we have outlined an ambitious
digital agenda for the coming years which we are pursuing systematically. The
importance we have assigned this topic is reflected in the establishment of a newGroup Division, Voith Digital Solutions, in which we are concentrating all Indus­
trie 4.0 activities.

Voith A nnual Repor t 2015

25

26

Group

We already have numerous lighthouse projects for Industrie 4.0 applications withwhich we support our clients as a partner on their way into the digital future. One
example is our initiative, “Papermaking 4.0”, with which we are going to raise thedigitalization and automation of the paper industry to a whole new level. Market
feedback is very positive. To name one example, we entered into a strategic
partner­s hip with Huatai a few weeks ago, one of China’s largest paper manufacturers, a partnership that includes collaborative development work on the topic of
Industrie 4.0, among other things.
Voith is a company that has played a decisive role in shaping the technologicaland societal challenges of the times since its establishment in 1867. Our founding
father Friedrich Voith played a decisive role in shaping the first industrial revolution;
we will be shaping the fourth revolution as well. In the current fiscal year, we will
work hard to build upon the visible success of the last twelve months. The system­
atic work on our digital agenda will be the focus of our efforts.
At this point, I would like to thank first and foremost our customers and business
partners who put their faith in Voith in this fiscal year.
I would also like to thank our employees all across the world – with their hard workand dedication, they helped us meet the many challenges of 2015, both large andsmall, and helped make this fiscal year a successful year for Voith on its way toachieving new strength.
Thanks to being in robust financial shape and enjoying greater earnings power, we
are in a position to pursue and implement our strategic objectives in our own right.
I would be glad if you would continue to accompany Voith on this journey into the
future.
Best regards,

Dr. Hubert Lienhard
President and CEO

Voith A nnual Repor t 2015

Group“We are bringing our focus backto our roots as a technology andengineering group and have outlined an ambitious digital agenda
for the coming years which weare pursuing systematically.”

Voith A nnual Repor t 2015

27

28

Group

Dr. Uwe Knotzer
Voith Turbo(since 2015-10-19)
Bertram Staudenmaier
Voith Paper
Dr. Roland Münch
Voith Hydro

Voith A nnual Repor t 2015

Dr. Hubert Lienhard
President and CEO
Dr. Hermann Jung
Finance and ControllingGroup

The Corporate Board of Management“Voith is a company thathas played a decisive rolein shaping the technologicaland societal challenges of
the times since its establishment in 1867. Our founding
father Friedrich Voith playeda decisive role in shaping
the first industrial revolution;
we will be shaping the fourth
revolution as well.”Voith A nnual Repor t 2015

29

30

Group

Voith A nnual Repor t 2015

GroupReport of the Supervisory Boardfor the 2014/15 Fiscal Year

Ladies and gentlemen,

Our company has again faced extraordinary challenges during the last fiscal year.
The general framework for the Voith Group in 2014/15 was characterized by persistent uncertainties surrounding the development of the global economy and theunstable situation of the international financial markets. In many of our target markets private and public investment projects did not materialize as anticipated. The
sluggish pace of growth in the Western industrialized countries only picked up
significantly in the USA. The emerging markets, such as China and Brazil, which
are of such importance for the Voith Group, continued to grow, albeit at a substantially slower rate than in previous years or than was projected.
Oversight activities of the Supervisory Board
In this demanding environment the Supervisory Board considered strategic issues
such as the analysis and ongoing development of the Voith portfolio, as well as
the challenges and consequences for the Voith Group’s operating business stemming from the economic and structural changes in the markets relevant to Voith.
This affects the Voith Paper and Voith Turbo Group Divisions in particular. In business with new machines, Voith Paper is currently contending 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 provided constructive criticism of the measures taken bymanagement, including significant personnel cuts at various locations.
The four ordinary meetings of the Supervisory Board were held on October 13 andDecember 9, 2014, and on March 27 and June 11, 2015. An additional meeting
took place on February 2, 2015. As usual, all the meetings of the Supervisory
Board were characterized by intensive and solution-oriented exchanges of views
with the Corporate Board of Management.

Voith A nnual Repor t 2015

31

32

Group

Discussions were based on detailed written and oral reports by members of management on the current situation, corporate planning (including financial and investment planning), the development of the economic situation of the Group and its
Divisions, the measures to be implemented at Voith Paper and Voith Turbo, andthe development of the results of operations and financial position, as well as theassessment of business risks. There was also detailed discussion of the necessary
and increasing global orientation of the Company and its Group Divisions – especially in Asia – in terms of both the product portfolio and the focus of the portfolioof services, as well as with regard to changes in the organizational structure. The
financial and capital expenditure planning underlying this orientation for the current
and subsequent year was approved unanimously at the meeting in October.
The Supervisory Board highly appreciates the efforts of the Voith Group for its
sustainable and rule-compliant business approach, which is clearly demonstrated
in Voith’s sustainability report for 2014. Building on the sustainability strategy,
management regularly informed the Supervisory Board of further progress in
improving the occupational safety of Voith’s employees. The Chairman of theSupervisory Board was also kept constantly informed of significant developments
and key decisions by management. He consulted regularly with the President andthe CEO on matters of material importance.
Report on the work of the committees
The Personnel Committee met three times in the past fiscal year, on December 4,2014 and on February 2 and June 11, 2015.
There was no need to convene the Mediation Committee formed pursuant toSec. 27 (3) of the German Codetermination Act (MitbestG).
The Audit Committee met twice, on December 8, 2014 and June 11, 2015. 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 2013/14 fiscal
year, and of the report submitted by the auditors, Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Stuttgart. In the meeting with the auditors the Committee
also discussed individual issues of improvements set out and proposed in the
management letter to the financial statements, none of which are deemed relevantto this report. The head of the Internal Audit function discussed the group audit
report prepared for the fiscal year under review at length with the Committee, andexplained any existing deficits as well as improvements which had been madeVoith A nnual Repor t 2015

Groupduring the course of the fiscal year. A presentation was also made by KPMG AG
Wirtschaftsprüfungsgesellschaft.
At its second meeting the Audit Committee reviewed the half-yearly financial statements of the Group as at March 31, 2015 and considered material issues affecting
the Group’s results, such as accounting for investments and pension obligationsor the impact of the planned restructuring of the Group on its results and balance
sheet. Internal audit issues, including in particular the completed quality self
assessment, were also discussed.
Changes in the Board of Management and Supervisory Board
The Supervisory Board decided at its December 2014 meeting to reappoint Dr.
Hermann Jung and Mr. Carsten J. Reinhardt to the Corporate Board of Management.
Mr. Martin Hennerici informed the Supervisory Board at its meeting in February 2015of his intention to resign from his position as Member of the Corporate Board ofManagement of Voith GmbH and his other posts on March 31, 2015. Voith GmbH
therefore now has five Members of the Corporate Board of Management instead ofits previous six. Dr. Lienhard is now responsible for Group Division VI on the Voith
GmbH Management Board. The Supervisory Board would like to thank Mr. Hennerici
for his many years of successful work for Voith, his dedication and achievements,
in particular for the development of the Voith Industrial Services Group Division.
The periods of office of Ms. Sonja Gorsch and Dr. Ophelia Nick as members of theSupervisory Board came to an end with the close of the shareholders’ meeting on
February 1, 2015. Dr. Nick was elected by the shareholders’ meeting for a further
period of office in the Supervisory Board. Ms. Sonja Gorsch did not stand for
re-election. Accordingly, the shareholders’ meeting subsequently elected Mr.
­Martin Schily for a new period of office in the Supervisory Board at the suggestionof JMV GmbH & Co. KG.
On June 12, 2015 the shareholders’ meeting adopted a resolution to appoint Mr.
Stephan Schaller as the successor to Prof. Dr. Bernd Gottschalk, who stepped
down from the Supervisory Board as at September 30, 2015 due to age.
Mr. Thomas Martin has been a member of the Supervisory Board since January 1,
2015. He took the place of Mr. Thomas Brezina who stepped down due to age on
December 31, 2014. Mr. Uwe Badziong has been a member of the Supervisory
Board since February 1, 2015. He took the place of Mr. Richard Obermeier who
stepped down due to age on January 31, 2015.

Voith A nnual Repor t 2015

33

34

Group

The Supervisory Board would like to thank the long-standing members of theSupervisory Board – Ms. Sonja Gorsch, Mr. Thomas Brezina, Prof. Dr. Bernd
Gottschalk and Mr. Richard Obermeier – for consistently trusting and constructive
working relationships. They have accompanied the development of the Company
over many years with great dedication, and contributed their experience to Voith.
The Supervisory Board wishes them all the best for the future.
The shareholders’ meeting on February 1, 2015 granted discharge to the Manage­
ment Board and the Supervisory Board for their activities in the 2013/14 fiscal year
and appointed KPMG AG Wirtschaftsprüfungsgesellschaft, Munich as auditors forthe 2014/15 fiscal year. The Supervisory Board subsequently approved the corresponding request to appoint the auditors.
2014/15 Financial Statements
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, 2015. The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS).
At its meeting on December 7, 2015 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 7, 2015. At both meetings the responsible member of the
KPMG management and the lead auditor explained the significant audit findings
and were available to provide additional information. The Supervisory Board also
approved the management report of Voith GmbH and the Group and concurredin the proposal submitted by management regarding the appropriation of net
income.
Finally, the Supervisory Board would like to thank the management of 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 underdifficult conditions in the fiscal year under review, which has posed considerable
challenges for the employees.
Heidenheim, December 2015

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

Voith A nnual Repor t 2015

35

Group

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

Sonja Gorsch

Dr. Ophelia NickHans-Peter Keitel

Teacher,

Veterinarian,

Chairman, Vice President of the Federation

Erftstadt / Germany (until 2015-02-01)

Wülfrath / Germany

Prof. Dr. Bernd GottschalkRichard Obermeier*

Member of the Board of Management

Chairman of the works council ofGerd Schaible*of Mercedes-Benz AG (retired)

Voith Paper GmbH & Co. KG,

Deputy Chairman, Head of(until 2015-09-30)

Ravensburg / Germany (until 2015-01-31)

council of Voith GmbH,

Johannes Hammacher

Stephan Schaller

Heidenheim / Germany

Executive Vice President of

Head of BMW Motorrad,

Familiengesellschaft J. M. Voith GbR,

München / Germany (since 2015-10-01)

of German Industry e. V.,
Berlin / Germany

secretariat of the corporate works

Uwe Badziong*

Mannheim / Germany

Chairman of the works council of Voith Paper,
Krefeld / Germany (since 2015-02-01)

Gerold Schaubmayr*
Dr. Alan Hippe

Chairman of the works council

Member of the Corporate Executiveof Voith Turbo GmbH & Co. KG,

Walter Beraus*

Committee F. Hoffmann‑La Roche AG,

Crailsheim / Germany

Secretary of the Metalworkers’

Basel / Switzerland

Union, Regional Organization

Martin Schily

Baden-Württemberg,

Michael Koob*

Economics Graduate (Diplom-Ökonom),

Stuttgart / Germany

Construction Manager,

Düsseldorf / Germany (since 2015-02-01)

Voith Industrial Services,
Thomas Brezina*

Speyer / Germany

Member of the works council

Ute Schurr*
Chairwoman of the works councilof the common entity of companies

Dr. phil.

of the common entity of companiesof Voith Paper Heidenheim,

Nicola Leibinger-Kammüller

of Voith Turbo Heidenheim,

Heidenheim / Germany (until 2014-12-31)

President of the Board of Management

Heidenheim / Germanyof Trumpf GmbH + Co. KG,
Ton Büchner

Ditzingen / Germany

CEO and Chairman of the Board

Klemens Schweppenhäuser
Member of the Board of Managementof Management AkzoNobel NV,

Dr. Volker Linden*of Familiengesellschaft J. M. Voith GbR,

Amsterdam / the Netherlands

Head of Industrial Property Rights,

Mannheim / Germany

Voith GmbH,Dr. Siegfried Dais

Heidenheim / Germany

Associate of Robert Bosch

Ralf Willeck*
First Authorized Representative

Industrietreuhand KG,

Thomas Martin*

IG Metall (Metalworkers’ Union),

Stuttgart / Germany

Chairman of the works council

Heidenheim / Germanyof Voith Paper Heidenheim,
Ulrich Eckelmann*

Heidenheim / Germany

General Secretary(since 2015-01-01)

IndustriAll European Trade Union,
Brussels / Belgium

Voith A nnual Repor t 2015

* Elected by the employees.

01 Background02	Business development andearnings position of the Group
03	Business development and earnings
position ofthe 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

38
46
57
64
69
74
77
83
84
98

38

Group Management Repor t

01

01.1. Group structure andBackground
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. As a family-owned company, Voith focuseson sustainable profitable growth. Visible progress wasmade during the year under review on the implemen­tation of the Group-wide Voith 150+ success program.

Family-owned, global technology groupbusiness activities

Voith is a global technology group. With its broad portfolio of systems, products
and industrial services, 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 Board ofManagement of Voith GmbH is responsible for the strategy and operative man­agement of the Group. The advisory and supervisory bodies are the Shareholders’Committee and the Supervisory Board. The latter is also in charge of monitoring
the Board of Management.

Organizational structure
Voith Group Divisions

Voith GmbH

Voith
­Hydro

Voith
Paper

* Discontinued operation (in accordance with IFRS 5).

Voith A nnual Repor t 2015

Voith
Turbo

Voith
Industrial
Services*39Group Management Repor t

Concentration on three Group Divisions
Voith GmbH’s operating business is currently bundled in four Group Divisions:
Voith Hydro, Voith Industrial Services, Voith Paper and Voith Turbo. In each Group
Division, legally independent head organizations oversee the activities of the Divi­
sion’s subsidiaries.
Further information canbe found in section 1.4.
“Group strategy.”

In the 2014/15 fiscal year the Corporate Board of Management of Voith GmbHdecided to concentrate the Group on its technology and engineering strengths,with the three fields of core business Voith Hydro, Voith Paper and Voith Turbo,
and to sell Voith Industrial Services. Voith Industrial Services is therefore treatedas a discontinued operation in this annual report, in accordance with International
Financial Reporting Standards (IFRS 5). For this reason, the segments discussed in
the following chapters refer to the three existing Group Divisions, Voith Hydro, Voith
Paper and Voith Turbo, as in the notes to the consolidated financial statements.
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 to the pumped storage of energy.
Voith Hydro’s portfolio of products and services covers the entire life cycle andsupplies all major components for large and small hydro plants: from generators,
turbines, pumps and automation systems right through to aftermarket businessin spare parts and maintenance services.
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 manu­
facturing 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 to move millions of people, goods and machines 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.
The discontinued operation Voith Industrial Services is a leading supplier of techni­
cal services to the key automotive, energy, chemical and petrochemical industries.
Its portfolio of services ranges from facility management, maintenance, automationand installation through to planning and development.

Voith A nnual Repor t 2015

40

Group Management Repor t

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 balanceof sales and costs plus operating interest income but before the financial result
and income taxes.
The profit from operations is based on an earnings indicator generated for exter­
nal reporting purposes, i.e. the operational result before non-recurring items. The
operating interest income and several other adjustment items are added to thelatter to derive the profit from operations. Operating interest income comprises
income received from the long-term financing of receivables from customers oras the imputed interest effect attributable to that portion of customer advancesthat is not used to finance inventories and PoC receivables. Other adjustments
include one-off effects which are shown as other operating income and expenses
in the consolidated statement of income. In relation to ordinary business opera­
tions, however, these must be treated as non-recurring effects and the profit fromoperations is therefore adjusted for these amounts to provide a better basis forthe internal control and assessment of business operations.

For more information on the calcula­tionof the ROCE, see also section “Notes
on segment reporting” in the notes tothe financial 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: profes­
sionalism, 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 reliable technology that creates added
value for its customers and acts fairly, openly and reliably in dealings with its
employees, partners and customers.

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Group Management Repor t

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 employ­
ees who meet our high demands to choose Voith for the long term. We maintainpartnerships with our business partners, customers and suppliers that often spanseveral 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 and interested
members of the general public.

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 Company.
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 met with sanctions. Rules and protocols
are revised continuously to match the latest requirements.

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

The main principles addressed by the Voith Code of Conduct are as follows:·· Compliance with the rules of fair competition·· No agreements that contravene competition law·· No corruption or bribery: no offering and granting or demanding and acceptingof 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·· Respect for human rights, fair working conditions, and rejection of child andforced labor
Each employee is bound to report any suspicion of an infringement of the Code of
Conduct. This can be done in person by reporting to the immediate supervisor or
the compliance officer responsible for the Group Division as well as electronically
via the helpdesk or by e-mail. We also follow up anonymous complaints using a
global system for input from whistleblowers. The whistleblower system can also be
used by people outside the Company to report infringements of any kind.

Compliance organization
The Compliance program and related training measures are coordinated and devel­
oped 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 Head ofVoith A nnual Repor t 2015

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Group Management Repor t

Corporate Internal Audit. There are compliance officers in all units who are respon­sible for implementing the Code of Conduct.
However, it is the ultimate responsibility of each individual employee to act in accor­
dance with our corporate values. In order to raise awareness of this, we ask our
executives to act as role models and we also provide our employees with training.
All Voith employees are required to engage with the obligatory e-learning program
to ensure that their compliance knowledge is brought up to date every three years
as a minimum. Employees without PC access are briefed by compliance officers orby their supervisors. In addition to the e-learning programs, executives at the top
four levels as well as employees in sales and procurement also take part in class­room training covering important topics such as corruption, competition issues
and export controls. Compliance officers are offered separate, in-depth training.
Voith’s compliance management system has been audited by a major audit firm.

01.4. Group strategy

Geared towards sustainable profitable growth
At Voith, business success is defined as a long-term goal. Our focus on sustain­
able growth has shaped the 148-year success story of the Voith Company. Voith’scommercial strength is based on four pillars which have been carefully built up
over the decades:

Information about Voith’s
innovation activities is provided
in section 5, “Research anddevelopment.”·· Our diversified product portfolio which is based on megatrends·· Our international footprint and local roots·· Our innovative strength·· Our financial independence as a family-owned company

Voith 150+ success program ensurescompetitivenessWe launched the Group-wide success program Voith 150+ in the fall of 2013 on thebasis of these strategic pillars. In the framework of this program we are working to
optimize our product and service portfolio, to increase our efficiency by means ofimproved processes and to continue developing our corporate culture. With theGroup transformation process we aim to secure the long-term competitivenessand capacity for growth of the Voith Group – well beyond the Company’s 150th
anniversary in 2017.
Voith 150+ is made up of three elements:
Portfolio optimization: Among other things, Voith 150+ strives to safeguard,
streamline and expand our existing business. This involves diverse restructuring
and capacity adjustment measures which are necessary in order to respond to

Voith A nnual Repor t 2015

43

Group Management Repor tchanging market conditions. We also work intensively on the further developmentof our product and service portfolio. This includes acquisitions as well as disposalof business fields which are not as profitable as anticipated or, as in the case ofVoith Industrial Services, for strategic reasons no longer fit into our portfolio.
Process optimization: Secondly, under the heading “Excellence@Voith” we are
optimizing internal structures and processes. By making processes more effec­
tive and more efficient, reducing the complexity of procedures and increasing thelevel of standardization, we aim to increase the speed at which we react to eventsworldwide and to reduce costs.
Corporate culture: Thirdly, the strategic and operating initiatives described above
are supported by the strengthening and enhancement of our corporate culture. As
well as the current values we live, we encourage our employees to act more pro­actively, to contribute their own ideas regardless of hierarchy and to draw direct
attention to sources of errors or emerging problem areas. This requires our exec­
utives to consistently delegate responsibility, to pick up suggestions from theirteam in a constructive manner and to make each individual’s contribution to theCompany’s success transparent.

Consistent progress on the Grouptransformation process
Our implementation of Voith 150+ is right on schedule and we made important
progress in the fiscal year under review. What have we achieved to date?
We have reached important milestones with the extensive restructuring of the Voith
Paper Group Division, whose market is experiencing a deep structural transfor­
mation and has permanently contracted. The restructuring measures initiated in
the 2011/12 and 2012/13 fiscal years have now been implemented. In February
2015, Voith Paper approved a further package of measures designed to concen­
trate its European activities at just a few locations and to reduce the size of theworkforce by a further 900 jobs. These measures will be completed by the end of
2016. The restructuring work undertaken to date has resulted in a tangible reduc­tion in Voith Paper’s personnel costs and other operating expenses in the fiscal
year under review and Voith Paper has significantly improved its profit from oper­
ations as a result.

Further details about company
sales and acquisitions during
the fiscal year can be foundin section 4.4. “Financial
investments and participatinginterests.”

Portfolios were adjusted in the other three Group Divisions. These measures
included the sale of business units, the relocation, and the reduction in size or clo­
sure of locations. In selective areas we have strengthened our portfolio by making
acquisitions. The most extensive changes affected Voith Industrial Services: wesold the entire DIW Group on September 30, 2014 and focused the Group Divisionon technical services for key industries.
In the year under review, we began the extensive restructuring of our indirect activ­
ities, for example procurement, IT, finance, controlling, accounting and human

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Group Management Repor t

resources. The new uniform Group-wide structures and processes are aimed atstreamlining administration as well as at simplifying processes and providing thebest possible support for the operative units and freeing them to concentrate on
their core business.
Key elements of the new organizational model are global business service centers,competence centers and business partner structures. In the future, administrative
tasks which can be standardized will be bundled in the four regional global busi­
ness service centers; these include, for example, the purchase of non-production
material, payroll accounting or accounts receivable, accounts payable and generalledger. All indirect activities also maintain a competence center which is responsi­
ble throughout the Group for defining global standards and dealing with individual
topics which require specialist knowledge. Decentrally based business partners
offer the business units customer-oriented support with specific projects on a one
face to the customer basis.
The new organization has been implemented successively since the summer of
2015. The four global business service centers in Kunshan (Asia-Pacific region),
York (North America), São Paulo (South America) and Heidenheim (EMEA) will becompleted in September 2016 and the new structure will be up and running bythen at the latest. The reorganization will result in staff reductions of around 720
in the Voith Group. 150 of these jobs are in Voith Paper and are already includedin the figures referred to above (900 jobs at Voith Paper). The job cuts involved in
the reorganization of the indirect activities will have been implemented by the endof the 2015/16 fiscal year.
We recognized adequate provisions in the 2014/15 consolidated financial state­ments and the anticipated charges are consequently already covered in the con­solidated financial statements for the year under review.
Further information canbe found in section 2.1.
“Overall assessment”
and 2.5. “Results.”

The restructuring and efficiency improvement measures implemented in recent
years showed the first signs of success in the year under review. At the Group level
this was reflected in a tangible increase in profit from operations.
From the 2016/17 fiscal year we wish to reduce our cost basis with the programby € 250 million and to release around € 100 million in further liquidity by reducing
working capital.

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Group Management Repor t

Future focus on technological competencein the digital age
We also made two important strategic decisions in the year under review which
will change and determine our portfolio in the years ahead. The first was for Voith
to focus on its technology and engineering strengths, and the second was to sell
the Voith Industrial Services Group Division.
Voith Industrial Services is a profitable and successful undertaking with excellent
prospects for further growth. However, the Voith Industrial Services business modelis based on the provision of labor intensive services, generally performed at thecustomer’s premises. These services require specific knowledge of the customer’s
processes. In this respect, the business model of Voith Industrial Services differs
fundamentally from that of the other three Group Divisions, each of which has its
own intellectual property basis. Voith does not consider it to be appropriate topursue both types of business model in parallel. We announced our intention tosell in February 2015 and initiated a value maintenance sale process for the Group
Division during the fiscal year. We anticipate this being completed in the 2015/16
fiscal year.
Further information on
this acquisition can befound in section 4.4.
“Financial investments andparticipating interests.”

Voith A nnual Repor t 2015

At the same time, Voith’s acquisition of a stakeholding in KUKA Aktiengesellschaft
has strengthened its involvement in the automation/Industry 4.0 field. The KUKA
Group is a pioneer and leading manufacturer in the field of robots and automatedproduction lines and solutions. As part of a broad-based digital agenda, and bymeans of organic growth and acquisitions, we will invest in key competencies for
the Industry 4.0 megatrend in the years ahead and will develop further capacities
in electronics, sensor systems/technology and automation. The shareholding in
KUKA Aktiengesellschaft is an important first step in this direction. Digitalization,
networking and the fast and economic processing of large quantities of data willradically transform the entire industrial value chain, including the engineering sector.
Our goal: over the next few years we aim to make Voith a technology leader in thedigital age and to actively shape this fourth industrial revolution. The foundations
have already been laid: technological engineering competence is at the heart ofVoith’s DNA. Our three manufacturing Group Divisions, Voith Hydro, Voith Paper
and Voith Turbo, are technology leaders in our markets and hold a market lead­ing position in many segments. Our products play a central role in our customers’core business. In the year under review we initiated a coordinated project withengineering, automation and production employees as well as software engineers
to give concrete form to the Group’s Industry 4.0 strategy.

46

Group Management Repor t

02

Business development andearnings position of the Group
Voith has stabilized its orders received and achieveda modest increase in sales in a persistently weakeconomic setting. The improvements in efficiency
obtained from the Voith 150+ success program arereflected in significantly higher profit from operations
and improved profitability. As announced, restructuringcosts produced a negative net result.

02.1. Overall assessment

Profitability improved, Group objectives achieved
The Voith Group established important strategic goals in the 2014/15 fiscal year
and achieved visible successes on its way towards new strength in a persistently
difficult market environment.
After the declines in recent years we were able to increase our Group sales in
the fiscal year by 3 % to €4,302 million and to stabilize orders received at about
the same level as the previous year at €4,389 million. Our Group-wide Voith 150+
success program is noticeably successful. Efficiency improvements resulted inabove-average growth of 15 % in profit from operations up to € 270 million. The
ROCE improved to 12.2 % (previous year: 10.4 %). This means that we have mod­estly exceeded the targets for sales, profit from operations and ROCE which we
published in the 2014 annual report and have also met our targets for orders
received.
These Group figures include the continued operations Voith Hydro, Voith Paper
and Voith Turbo. Voith Industrial Services, on the other hand, is presented in thisannual report under discontinued operations owing to the intention to sell, which
was published in February 2015, in compliance with the International Financial
Reporting Standards (IFRS 5). The contribution to profits made by Voith Industrial
Services is included in the consolidated statement of income under net result fromdiscontinued operations. The figures for the previous year have been adjusted
accordingly in the consolidated financial statements for the 2014/15 fiscal year.
These adjustments are taken into account in the following sections.
The Group’s three continued Group Divisions were either able to stabilize (Voith
Hydro) or increase (Voith Paper and Voith Turbo) their sales in the 2014/15 fiscal
year. All three reported positive operating figures, although trends differed in each.
Voith Hydro reported profit from operations which, as projected, remained at theVoith A nnual Repor t 2015

47

Group Management Repor tsame high level as in the previous year. The restructuring measures undertaken
in Voith Paper and Voith Turbo in recent years are having a tangible impact. As aresult, Voith Paper’s profit from operations rose strongly and exceeded our forecast.
In contrast, the efficiency gains, which would have lifted Voith Turbo’s operating
results higher than had been projected, were overlaid by a negative one-time effectin particular, to such an extent that, contrary to expectations, this Group Division’s
profit from operations deteriorated.
As announced in the Interim Report 2015, despite the operative improvement,
the Voith Group’s net result for the year under review is negative. Subject to neg­
ative non-recurring effects in connection with ongoing restructuring measures,
the net result was € -93 million, but will be clearly positive next year. Cash flowfrom operating activities was again positive. As a result of investments in KUKA
Aktiengesellschaft (see below) the overall cash flow was negative and net debt
was € 574 million.

Future focus on technological competence

Information about the strategic
background to these two decisions
and the status of the Group
restructuring process can be foundin section 1.4. “Group strategy.”
Details about the acquisition of
the shareholding are provided in
section 4.4. “Financial investments
and participating interests.”

We made good progress on the restructuring of our Group during the year underreview. We also made two important strategic decisions. The first was for Voith tofocus on its technology and engineering strengths in the future and consequently
to sell the Voith Industrial Services Group Division. The process of selling Voith
Industrial Services is on schedule and will probably be completed in the 2015/16
fiscal year. The second strategic decision was to invest in the years ahead, bymeans of organic growth and acquisitions, in key competencies for the Industry
4.0 megatrend as part of a broad-based digital agenda. As the first step in thisdirection, we have acquired a significant shareholding in KUKA Aktiengesellschaft,a leading supplier of robots and automatic production lines worldwide.

02.2. Economic environment

Weakened trends for emerging markets
In the 2014/15 fiscal year global economic trends did not live up to the expectationsof economic analysts issued at the end of 2014, the date that our last annual report
was published. The main reasons for this were the economic slowdown in China
combined with a high degree of global uncertainty. These uncertainties, including
numerous regional trouble spots, the rise in US interest rates announced by theFederal Reserve for the end of 2015 or 2016 and persistently high levels of ­private
and public debt, are all weighing negatively on the propensity to invest in theadvanced economies and emerging markets, despite historically low interest rates.
On average, the rate of growth of the world’s economy in 2015 was a little lower
than in the previous year. The International Monetary Fund (IMF), for example, hasreduced its global economic growth forecast for 2015 to +3.1 % (compared to an
estimate at October 2014 of +3.8 %), and for 2016 to +3.6 % (estimate at October
2014: +4.0 %).

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Group Management Repor t

Economic growth
Real change in GDP on the previous year1)

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

2014

3.4 %

2015

3.1 %

2014

1.8 %

2015

2.0 %

2014

2.4 %

2015

2.6 %

2014

0.9 %

2015

1.5 %

2014

1.6 %

2015

1.5 %

2014

4.6 %

2015

4.0 %

2014

7.3 %

2015

6.8 %

2014

4.6 %

2015

4.6 %

2014

7.3 %

2015

7.3 %

2014

0.1 %

2015

-3.0 %

2014

0.6 %

2015

-3.8 %

Source: International Monetary Fund; World Economic Outlook, Oct. 2015.
1)
2014: estimates; 2015: forecasts.
2)
Including Germany.

Emerging markets growth has slowed significantly. According to IMF forecasts,
overall emerging markets growth in 2015 will be just 4.0 % compared to 4.6 % lastyear. The momentum of the Chinese economy slowed down much more than had
been anticipated. As China is at the same time endeavoring to shift the struc­ture of its economy towards a greater focus on domestic consumption, this slow
rebalancing disproportionately affects Chinese industrial production and demandfor capital goods. India is less closely integrated in the global economy and, as aresult, remains comparatively robust and is predicted to develop more positively
than anticipated in our 2014 annual report. The significant fall in oil prices and thecontinuing Ukraine conflict – with the associated economic sanctions applied by
the West – have created a recession in Russia as well as a drastic reduction in
expected economic progress. The sanctions and the poor economic conditions in
Russia are having an above-average effect on the German mechanical engineering
sector. Owing to its unresolved political problems Brazil failed even to achieve its
projected low rate of growth and – reinforced by low oil prices, weaker businessin the Far East and severe droughts – will, according to the IMF, even report fallinggross domestic product in 2015.
Gross domestic product in the advanced economies is projected by the IMF togrow by 2.0 % in 2015, again below the expectations expressed in the fall of
2014. Even the moderate growth which did take place was itself the result ofspecial effects. The advanced economies benefited from falling raw material andenergy prices. The weak euro also benefited economies in the euro zone, thanks

Voith A nnual Repor t 2015

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Group Management Repor t

to improvements in export competitiveness on worldwide markets. Growth in the
US continues to outpace the average for the advanced economies. Nonetheless,owing to the strong dollar, the very positive prospects for growth identified towards
the end of last year have not materialized as expected.

Voith markets: gloomy investment
climate prevails
In two of the five target markets served by Voith – oil & gas and raw materials –,investing activities contracted significantly in the year under review and were even
weaker than we had anticipated at the time our Annual Report 2014 was pub­lished. The energy market was subdued, as was expected. With regard to invest­
ing activities in new paper machines, the downturn in the market seems to havebottomed out. Major segments of the transport & automotive market have devel­
oped positively on the whole.

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 various forms of stor­
age. This market is served by the Group Divisions Voith Hydro, Voith Industrial
Services and Voith Turbo.
The energy market is currently suffering from the uncertain future of the global
economy and regulatory regimes. This has a particularly negative impact on thehydropower market, as hydropower plants take significantly longer to plan andconstruct than gas or coal-fired power stations, for example.
Worldwide electricity production increased marginally during the period underreview, in particular owing to higher levels of consumption in Asia, the Near andMiddle East and in the US. In an effort to expand their electricity-generating capac­
ity, all regions of the globe are putting great emphasis on renewable energy sources.
Investments in renewable energy have risen considerably, driven by major growthin the emerging markets. The largest share of overall investment found its way into
solar energy, followed by wind power. Renewable energy sources now account forsome 28 % of total existing electricity-generating capacity. By far the greatest shareof such electricity-generating capacity (62 %) still comes from hydropower. The
situation for pumped storage technology remains difficult with investments being
particularly low in North America due to the boom in shale gas. Developments arealso subdued in Central Europe where the large-scale expansion of and subsidies
for wind power, and especially for midday peaking solar energy, has drastically
impaired the business model for pumped storage technology.
The market for nuclear power technology remains weak. New projects have beenon the horizon in India since the change of government, although these are still at
a very early stage. New nuclear power plant construction in China is taking place
at a modest level. Nonetheless, the market for nuclear power is becoming more

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Group Management Repor t

vibrant. In North America the large supply of cheap shale gas has led to a tangible
strengthening of activities on the market for gas and combined-cycle power plants.
Oil & gas: significant decline in investment activity
The oil & gas market comprises three main segments: upstream involving theextraction of crude oil and natural gas, midstream involving transport primarily via
pipelines and tankers, and downstream consisting of the refining of crude oil andnatural gas into the various fuels and raw materials used by the chemicals industry.
Voith Turbo and Voith Industrial Services provide specialized products and services
to all the segments of this market.
Demand for oil and gas, which are still the most important primary energy sources
worldwide, continued to rise in the 2014/15 fiscal year and, according to industry
experts, will continue to rise in the years ahead. However, a glut of oil on the oil &gas market has depressed the price of oil. The OPEC countries have responded
to the massive extraction of shale oil and gas from wells in the US by steppingup their own production to compete for market share. The very low price of oil isputting pressure on the profits of the large oil companies, and these in turn are
putting their own investments on hold or canceling them altogether.
Capital spending on the extraction and transportation of oil and gas dropped sig­
nificantly as a result in the year under review. While the downstream sector bene­
fited on the whole from lower oil and gas prices (which pushed down the variable
costs of oil and gas refineries), investing activities contracted in this area, too. Thisis because refineries are often operated by large oil producers which, owing to thestrains they are experiencing in the upstream sector, are being forced to clamp
down on capital spending in the downstream sector. This situation is exacerbatedby existing overcapacities.
Paper: market for paper machines stabilizes at a low level
The paper market encompasses all aspects of the paper making process, fromstock preparation through to paper production, surface finishing, rewinding andpackaging of paper reels, sludge and wastewater treatment as well as automa­tion. The Voith Paper Group Division serves the paper market with new machines,
rebuilds, optimization products, services and spare parts as well as fabric androll-cover products.
Global paper production rose slightly in Voith’s 2014/15 fiscal year, according
to estimates produced by industry analysts at RISI, albeit at slower rates thanassumed at the time our 2014 annual report was published. Future growth pro­jections have been adjusted downwards. Global paper production is expected
to grow at lower annual rates than global GDP up to 2019. The more negative
market outlook impacted all paper categories, with the exception of board andpackaging paper. Production of graphic paper has dropped continually since 2010,
and is expected to decline further in the years ahead, as demand has fallen withthe digitalization of everyday life. By contrast, there is growth potential for board
and packaging paper for which demand is rising in the wake of expanding online
shopping. Consumption of tissue paper is also set to rise in the emerging markets

Voith A nnual Repor t 2015

Group Management Repor t

51
of Asia and Latin America in line with the strongly growing middle class in thesecountries. From a regional perspective, Asia (excluding India) grew most strongly
in the year under review in both absolute and relative terms, although expectations
for this region were also revised downwards substantially.
The market for new paper machines appears to have bottomed out. Demand fornew machines for the production of graphic paper has contracted significantly andpermanently in line with the structural changes taking place in the paper indus­
try. Our customers are also continuing to reduce their own production capacities
for graphic paper. Where capacities are being expanded at all, this is primarily forthe production of board and packaging paper, for which demand is rising in thewake of expanding online shopping. The market situation in Europe and North
America has improved marginally. On the other hand, there was a continuing andnoticeable reluctance by paper producers in Asia and South America to engage
in investments. Demand for consumables and spare parts picked up somewhat
as volumes of paper production also rose slightly.
Raw materials: dramatic fall in prices puts brake on 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 andfurther processing in the steel 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. The crucial factor here was the dramatic fall in prices for most raw materials,
which is putting considerable cost pressure on producers. According to industry
analysts, the fall in the price of iron ore and copper continued to accelerate in 2015,
for example, and the price of coal also dropped considerably in 2015 following
a significant fall in the previous year. In the light of the economic situation in andweaker demand from China, there are now significant excess capacities for ironore and coal on the market.
Global crude steel production is currently stagnating. Continuing excess capaci­ties have pushed down the price of steel significantly, particularly in China. Capitalspending on new capacities is concentrated in the emerging markets.
Transport & automotive: predominantly positive development
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 Ser­
vices offers infrastructure and production services as well as contract engineering
for various segments of the transport market focusing in particular on the auto­
motive industry.

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Group Management Repor t

The passenger and commercial vehicle industry developed overwhelmingly posi­
tively in the period under review. Growth in the passenger vehicle and light com­
mercial vehicles segment tailed off in 2015 and came primarily from China and theUS. By contrast, the South American market continued to shrink while the Russian
market is in free fall. The heavy- and medium-duty vehicles segment proved robust.
Following a decline in the previous year worldwide sales picked up slightly in 2015.
In this context the euro zone benefited from the weak euro and low diesel prices,while truck production fell in China with the announcement of new emissions stan­dards and in South America in line with the weaker economic situation. Following
the stagnation of the previous year the bus market grew modestly.
The rail sector, which is dominated by public sector investment in infrastructure,developed solidly in the period under review. The main driver behind this is urban­
ization in the emerging markets, primarily in China, which is linked to high demand
for metro systems and local public transport systems. International consolidationand more intensive competition between rail vehicle manufacturers are, however,having a negative effect on margins.
Despite considerable cooling-off of demand for offshore special ships in the wakeof the low oil price, the marine market has developed positively thanks to projects
in the tugs and ferry segment.

02.3. Sales

Sales grown by 3 %In the 2014/15 fiscal year, we were able to increase our sales modestly after thefalls in previous years. Sales in the 2014/15 fiscal year from continuing operations
amounted to € 4,302 million (previous year: € 4,168 million). At a plus of 3 % overthe comparable figure for the previous year we exceeded our targets (projectionin the 2014 annual report: “constant”). Group sales do not include the sales of the
discontinued Group Division Voith Industrial Services.
Voith Paper (+5 %) and Voith Turbo (+4 %) both succeeded in increasing their sales.
Voith Hydro (+0 %) matched its sales figures from the previous year. Voith Paper
was the largest contributor to Group sales at 35 % (previous year: 34 %) followed

Sales Group1)

Sales total € 4,302 million1)in € millions

by Group Division

4,1682)

4,302

Voith ­Turbo
34 %by region
Voith ­­Hydro
31 %Americas29 %Germany
11 %EuropeexcludingGermany
27 %2013/141)

2)

2014/15

Excluding the discontinued Group Division
Voith Industrial Services.
Previous year restated.

Voith Paper
35 %

1)

Asia
28 %

Excluding the discontinued Group Division Voith Industrial Services.

Voith A nnual Repor t 2015

Other
5%

53

Group Management Repor t

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

by Voith Turbo at 34 % (previous year: 34 %). Voith Hydro accounted for 31 % ofsales (previous year: 32 %).
This development was supported by positive currency effects of € 129 million asa result of the weak euro. This affected all the Group Divisions, if not to the same
degree.
The regional distribution of Group sales was as follows: as in the previous year, 11 %of sales of continuing activities were in Germany. The region of Europe excluding
Germany accounted for 27 % (previous year: 29 %) of Group sales. The Americas
were the strongest region in terms of sales, contributing 29 % (previous year: 31 %).
Asia’s share of sales rose to 28 % (previous year: 25 %). 5 % (previous year: 4 %)was attributable to other regions (in particular Africa and Australia).

02.4. Orders received
Detailed information on the development of orders
received in the separate Group Divisions can befound in section 3, “Business development andearnings position of the Group Divisions.”

Orders on hand Group1)
in € millions

5,3792)

2013/145,286

2014/15

Orders received at almost the same level
as in previous year
In the 2014/15 fiscal year, the Voith Group secured new orders through its continu­
ing operations totaling €4,389 million, almost equal to the figures for the previous
year (previous year: €4,404 million, -0 %). Orders received benefited from positive
currency effects of € 178 million and were in line with our expectations (projectionin the 2014 annual report: “constant”). Orders on hand as at the end of the period
under review were worth €5,286 million (September 30, 2014: €5,379 million).
As announced, Voith Hydro Group Division (-5 %) was unable to sustain the highlevel of orders it received in the previous year, and Voith Turbo (-3 %) also reported
a slight drop rather than the anticipated stable level of orders received. Orders
received by Voith Paper were up by 7 %, which was higher than originally expected.
Voith Paper (previous year: 32 %) and Voith Turbo (previous year: 34 %) contributed
34 % to the orders received by the Group respectively. Voith Hydro accounted for
32 % of sales (previous year: 34 %).

 xcluding the discontinued Group Division
E
Voith Industrial Services.
2)
Previous year restated.
1)

Orders received Group1)

Orders received total € 4,389 million1)in € millions

by Group Division

4,4042)

4,389

Voith ­Turbo
34 %by region

Voith ­­Hydro
32 %Americas26 %Germany
12 %EuropeexcludingGermany
26 %2013/141)

2)

2014/15

Excluding the discontinued Group Division
Voith Industrial Services.
Previous year restated.

Voith A nnual Repor t 2015

Voith Paper
34 %

1)

Asia
33 %

Excluding the discontinued Group Division Voith Industrial Services.

Other
3%

54

Group Management Repor t

With a share of 33 % (previous year: 29 %) Asia was the most important regionin terms of orders received by the continuing operations. The regions Europe
excluding Germany (previous year: 28 %) and the Americas (previous year: 28 %)both contributed 26 % to the orders received by the Group. Germany’s contribu­
tion amounted to 12 % (previous year: 12 %). As in the previous year, all the otherregions contributed 3 % of new business.

02.5. Results

Significant improvement in profit fromoperations, net result down as announced
As outlined elsewhere in this report, owing to the intention to sell Voith Indus­
trial Services it is treated as a discontinued operation. The separate income andexpense components in the consolidated statement of income contain the con­tinued operations and are consequently shown after adjustment for the relevant
share of Voith Industrial Services. The overall contribution to the Voith Group’s
profits made by Voith Industrial Services is included under net result from discon­tinued operations. The income statement for the previous year has been adjusted
in the same way.
Although we made significant improvements in the continued operations in opera­
tional earnings indicators and were able to improve return on sales in the 2014/15
fiscal year, the Group’s net result (including Voith Industrial Services) is negative,
as advised in the 2015 interim report at € -93 million (previous year: € 41 million).
This negative net result is due to expenses incurred in connection with efficiency
improvement measures instigated in the reporting period (these are described
below under results from non-recurring items), in particular job-cutting costs.

For information on the development ofsales, we refer to section 2.3. “Sales.”Consistent with the increase in sales we were also able to increase the Group’s
total output modestly: total output increased by € 152 million to €4,319 million(previous year: €4,167 million, +4 %). Trends in the total output of the Group’s­divisions were uneven, as was the case with sales (Voith Hydro +0 %, Voith Paper+6 %, and Voith Turbo +5 %).

Operational result before non-recurring items
Group1) in € millions

Net result Groupin € millions

239
190

41

2)

-93

2013/142014/15

 xcluding the discontinued Group Division
E
Voith Industrial Services.
2)
Previous year restated.
1)

Voith A nnual Repor t 20152013/142014/15

Group Management Repor t

55
Material expenses increased to €1,833 million (previous year: €1,777 million, +3 %).
The material ratio (the relationship between cost of materials and total output) fellslightly to 42.4 % (previous year: 42.6 %). This was due in part to the slight con­traction in the share of the Group’s total output contributed by Voith Hydro’s mate­rial-intensive business.
Personnel expenses increased slightly by € 10 million to €1,434 million (previous
year: €1,424 million, +1 %). The ratio of personnel expenses (ratio of personnel
expenses to total output) fell to 33.2 % (previous year: 34.2 %). This is the first
tangible outcome of the efficiency-boosting measures which have enabled reduc­tions to be made in the number of employees and which have led to significantly
better profitability.
Depreciation and amortization fell to € 142 million (previous year: € 152 million, -7 %).
€ -5 million of this decline was due to Voith Paper and resulted from the adjustments
made in the latter’s production capacities. Owing to the increase in total output theratio of depreciation and amortization to total output fell to 3 % (previous year: 4 %).
The balance of other operating expenses and income increased to € -673 million(previous year: € -623 million, +8 %). The ratio to total output increased to 15.6 %(previous year: 14.9 %). Fundamentally this was due to the negative impact of pro­visions for warranty costs recorded by Voith Turbo.

Detailed information on the develop­
ment of profit from operations andthe ROCE at the separate Group
Divisions can be found in section 3,“Business development and earnings
position of the Group Divisions.”

The operational result before non-recurring items was substantially better thanlast year and rose by 25 % to € 239 million (previous year: € 190 million). The profit
from operations, which is used for internal management purposes, was also sig­
nificantly higher and was up by 15 % to € 270 million (previous year: € 235 million),
thereby exceeding our targets (projection in the 2014 annual report: “grow slightly”).
Return on sales as a ratio of the profit from operations to sales rose to 6.3 % (pre­vious year: 5.6 %). The ROCE (return on capital employed) rose – in line with our
projection (“modest growth”) – as a result of the improved profit from operations
to 12.2 % (previous year: 10.4 %).
The result from non-recurring items in the reporting period totaled € -185 million
and primarily reflects the following measures:
As part of the Group-wide success program Voith 150+ and the reorganization ofindirect activities, standardized administrative functions are being combined acrossdivisions. This will lead to savings of 720 jobs in the Group. Current planning envis­
ages these measures being implemented by the end of the 2015/16 fiscal year.
This led to expenses associated with the planned job cuts in all Group Divisions.
In response to increased competitive and price pressures and in order to adjust
the cost structure to the permanent lower market volumes for machines for the
production of graphic paper, Voith Paper submitted a package in the 2014/15 fiscal
year designed to concentrate activities at a small number of locations and to cut
a further 900 jobs worldwide. 150 of these jobs concern the Voith 150+ programand are already included in the figures referred to above (720 jobs to be cut). Cur­rent planning envisages these measures being implemented by the end of 2016.
All in all, Voith Paper’s non-recurring result was € -128 million.

Voith A nnual Repor t 2015

56

Group Management Repor t

Voith Turbo’s non-recurring result includes expenses in connection with theVoith 150+ program as well as separate follow-on effects arising from restruc­turing activities launched in previous years. In total, Voith Turbo contributed € -12
million to the Group’s non-recurring result.
Impairment losses on capitalized development costs were recognized for Voith
Hydro which are shown in the non-recurring result. The background to this is thatthe expectations for tidal power stations in the Ocean Energies product sector
have not been met owing to limited government spending capacities. The plan now,therefore, is to continue operating this product sector on a considerably scaleddown basis. In total, Voith Hydro’s non-recurring result, including the expenses for
Voith 150+, amount to € -35 million.
Further details on the measures inconnection with the Voith 150+ programand at Voith Paper can be found insection 7 “Employees.” We also refer tonote 7 in the notes to the consolidated
financial statements for a more detailed
explanation of the non-recurring result.

The areas with holding function contributed a total of € -10 million to the non-recur­
ring result. This includes expenses arising from the Voith 150+ program as well as
for measures in the field of central location service functions which were adopted
following the restructuring activities in Voith Paper described above.
The balance of interest expenses and interest income amounted to € -64 million(previous year: € -68 million). The improvement of € 4 million is largely due to a fallin interest expenses for pension obligations. Lower interest income (e.g. from cash
investments) and lower interest expenses (e.g. for the first of US private placements
paid back in August 2014) were almost equal.
The other financial result amounted to € -11 million (previous year: € -41 million) andincludes income from equity investments (€+5 million) and impairment losses on
securities with a negative effect on the result amounting to € -16 million (previous
year: € -41 million).
Income taxes totaled € -48 million (previous year: € -59 million).
The net result from continued operations amounts to € -71 million (previous year:€ -6 million).
The net result from discontinued operations, which represents the contribution
made by Voith Industrial Services to the Voith Group, was € -22 million (previous
year € 47 million). Last year’s results were positively affected by the sale of the DIWGroup. In the year under review results were negatively affected by non-recurring
factors, such as the expenses for restructuring measures and the sale of P3 Voith
Aerospace Holding GmbH.

Voith A nnual Repor t 2015

57

Group Management Repor t

03

Business development
and earnings position of
the Group Divisions
The Group’s three continued operations were able tostabilize (Voith Hydro) or increase (Voith Paper andTurbo) their sales. All three reported positive operating
figures, although trends differed in each. Voith Hydro
reported profit from operations which, as planned,
remained at the same high level as in the previous year.
Voith Paper benefited from the restructuring measures
undertaken in recent years and reported a strong
improvement in profit from operations as a result. The
efficiency improvement measures implemented by Voith
Turbo also had a positive impact, but were more thancancelled out by a negative one-time effect.

03.1. Voith ­Hydro

Stable, profitable growth
Voith Hydro looks back on a satisfactory 2014/15 fiscal year. Sales and earnings
were at much the same level as in the previous year. Owing to the lower volume of
projects awarded in the market the number of orders received was, as anticipated,below the values for the previous year.
Sales at same level as previous year
Voith Hydro generated sales of €1,313 million in the 2014/15 fiscal year. As
announced (projection in the 2014 annual report: “stable sales”) these were at thesame level as the previous year (previous year: €1,313 million).
In addition to South America, and Brazil in particular, North America was one of
the regions which enjoyed the strongest sales. Asia also gained in importance.
As announced, fewer orders received than in previous year
Fewer orders were received in the hydropower market in the 2014/15 fiscal year
than in the previous year. However, significantly more projects were awarded in
the second half of the year than in the weak first half. Impetus came above allfrom large hydro projects, while the small hydro segment (power plants with aVoith A nnual Repor t 2015

58

Group Management Repor t

generating capacity of up to 30 MW per unit) remained at the low level of the previ­
ous year. Worldwide demand for spare parts and maintenance services developed
stably. Voith Hydro operated successfully on the market, winning orders worth€1,404 million (previous year: €1,471 million, -5 %). This drop was not as great as
had been anticipated (projection in the 2014 annual report: “noticeable decline”).
This does not represent a mid-term trend but is due solely to the irregular award
of major hydropower projects. We generated substantial growth in the automationof hydropower plants and in business with spare parts and maintenance services.
Orders on hand improved to €3,139 million as at the end of the fiscal year on Sep­
tember 30, 2015 (previous year: €3,091 million).
Orders received in the year under review were primarily shaped by many medium-­
sized and a few smaller-scale hydropower projects.
Numerous new hydropower plants are still being initiated in Asia to cover theregion’s rising energy needs. Alongside China the whole of Southeast Asia isalso growing in importance as a hydropower market. In the year under review
we received orders for new small hydropower plants in Indonesia, Vietnam and
the Philippines. In Sri Lanka we will be modernizing and significantly boosting thecapacities of a power plant for the biggest energy supplier in the country.
The Latin American market showed weaker development in Voith’s 2014/15 fiscal
year than in the previous year, although it remains one of the largest and mostimportant. We received an additional order for the delivery of a turbine and genera­
tor unit, electrical and mechanical auxiliaries and the plant control and automation
system for the Belo Monte hydropower plant, which has been under constructionin Brazil since 2012 and which is currently the third-biggest hydropower plant in
the world. Overall, however, current political instability and the weak economic cli­mate in Brazil are holding back infrastructure projects and are having a negative
effect on hydropower tenders.
The US and Canada are established hydropower markets which continue to offer
modernization potential. We won several orders for the modernization of existinghydropower plants in both countries. While renewable energies are being driven
back to some extent in the US by gas power plants due to the boom in shale gas,
new hydroplants are planned in Canada as a result of progressive energy policies.
Voith Hydro successfully acquired an extensive order for the equipment of theRiel converter station. This is located in the Canadian Province of Manitoba at theSales Voith ­­Hydro

Orders received Voith ­­Hydro

Profit from operations Voith ­­Hydroin € millionsin € millionsin € millions

1,313

1,313

2013/142014/15

1,471

2013/141,404

2014/15

Voith A nnual Repor t 2015

101

101

2013/142014/15

Group Management Repor t

59
junction of important high voltage power lines. Voith is supplying four synchronous
condensers, each providing reactive power of 250 megavolt amperes, which isnecessary to guarantee grid stability bearing in mind that the major power plants
are hundreds of kilometers away from the conurbations where large amounts ofenergy are consumed.
Owing to the current energy policy situation in Europe existing hydropower poten­
tial remains unused and the market is consequently as difficult as ever. In South­
ern and Western Europe high levels of government debt in some countries as well
as low demand for electricity associated with the weak economic climate standin the way of higher investments in hydropower. This situation has been exacer­bated in Germany by the massive build up of wind and solar plants. Despite this
we won several orders in the small hydro segment in particular, such as in Italy
and Austria. Voith Hydro also won orders in the difficult pumped storage segment.
Société Electrique de L’Our S.A. awarded us the contract for the modernization of
the Vianden pumped-storage power plant in Luxembourg which feeds electricity
directly into the German grid and which can be used to stabilize and regulate thegrid as part of the energy transition. In Northern Europe we won several smallerorders in the small hydro and automation fields, including from Norway, Sweden
and the United Kingdom. In Russia, due to the weakness of the ruble and contro­
versial Western sanctions, domestic providers are being given preference whenhydropower projects are awarded. Despite the difficult market conditions we havesuccessfully won a project in Russia.
Infrastructure development in Africa is making increasing use of the continent’s
huge hydropower potential. In the year under review additions to contracts alreadyawarded in South Africa and Liberia accounted for a major share of the orders
received by Voith Hydro.
Profit from operations at previous-year level
In the 2014/15 fiscal year Voith Hydro generated profit from operations of € 101 mil­lion. As projected, this value has not changed in the last 12 months (previous year:€ 101 million). Return on sales was the same as last year at 7.7 % (previous year:
7.7 %). The ROCE (return on capital employed) was 21.1 % (previous year: 21.8 %).
The modest increase in capital employed coupled with unchanged earnings meantthat it was not possible to achieve the planned year-on-year improvement in ROCE.

Voith A nnual Repor t 2015

60

Group Management Repor t

03.2. Voith Paper

Restructuring measures take effect
In a persistently difficult market, Voith Paper was able to increase both its sales
and orders received. Profit from operations has improved significantly. The con­sistent restructuring measures adopted in recent years are taking effect and are
manifesting themselves in much higher profitability.
Sales grow by 5 %In the 2014/15 fiscal year, we generated sales of €1,506 million (previous year:€1,430 million). At a plus of 5 % we exceeded our projections (2014 annual report:“stabilization on a par with the previous year”), thanks in part to positive currency
effects.
We were able to increase our sales in project business (new machines and major
rebuilds) for the first time in four years. Thanks to isolated investments in Asia,
project business picked up to some extent in the 2013/14 fiscal year. As a result,
the total number of orders received by Voith Paper went up as reflected in sales
for the year under review. Business with products, consumables and services
developed consistently well and sales in this area grew at a somewhat higher rate
than in project business.
Asia remained the strongest region in terms of sales and grew further in impor­tance in the year under review. The share of sales contributed by Germany andthe region of Europe excluding Germany both declined.
Orders received up by 7 %The positive trends, including for orders received, were sustained in the 2014/15
fiscal year despite the persistently adverse market environment. All in all, we won
new contracts worth a total of €1,505 million (previous year: €1,413 million) andincreased orders received by 7 %. In this respect, we were at the upper end of our
expectations (projection in the 2014 annual report: “slight increase”), whereby thisdevelopment was also due to positive currency effects. As at the end of the fiscal
year on September 30, 2015, orders on hand were worth € 961 million (Septem­
ber 30, 2014: €1,078 million).
Production of board and packaging paper as well as of tissue paper is growing
while production of graphic paper continues to decline. In contrast to previous
years, growing global paper production is no longer primarily covered by exist­
ing production capacities and there is renewed, albeit modest, demand by paper

Sales Voith ­Paper

Orders received Voith ­Paper

Profit from operations Voith ­Paperin € millionsin € millionsin € millions

1,430

1,506

1,413

1,505

58

9
2013/142014/15

2013/142014/15

Voith A nnual Repor t 20152013/142014/15

Group Management Repor t

61
manufacturers for new machines. The positive trend in new orders received byVoith Paper was also driven by the substantial growth in business with products,
consumables and services. Compared to the previous year, project business has
only improved very modestly.
The larger share of orders received by Voith Paper in the year under review origi­
nated from the EMEA region from where we received significantly more orders thanin the previous year. A substantial contribution was also made by Asia, where lastyear’s trend was sustained and where capital was again invested in new paper
machines. North America, with its focus on products, consumables and services,
also developed positively. The market in South America for new machines has
all but collapsed owing to the recession in Brazil. Nonetheless, we were able toincrease the number of orders received in South America thanks to a higher volumeof orders for consumables.
As far as new machines are concerned, we were mainly able to win orders in thereporting period under review for the manufacture of board and packaging paper,
whereby demand was primarily for medium-sized machines. A major order for amachine in the manufacturing of packaging paper was received from Germany.
Schoellershammer Papierfabrik awarded us a contract for the delivery of a com­plete process line for the production of testliner and corrugating medium with anannual capacity of 250,000 tonnes. In the field of tissue paper we also received
an order from South America for a new machine. However, all in all activities in thetissue segment failed to live up to our expectations. In the speciality paper seg­ment we were able to win orders for machines for the production of banknotes
and nonwovens.
Our project business continued to be shaped by major rebuilds, whereby the
focus here was also on machines for board and packaging paper. In addition to
two rebuild orders from North America and a substantial rebuild order from China,
the Dutch manufacturer Parenco also awarded us a contract for the rebuild of a
production line from newsprint to packaging paper. Conversion and facility reno­
vation will enable Parenco to bring this machine back into production, after several
years during which it has been out of operation, and to position itself on the market
for packaging paper as a competitive supplier. We also won rebuild orders in themarket segments of speciality and grafic paper machines. The Chinese manufac­
turer Shandong Huatai Paper awarded us a contract for the rebuild of a production
line from newsprint to offset paper, for example. Altogether, production of graphic
paper continues to decline.
Exponential increase in profit from operations
In the 2014/15 fiscal year, Voith Paper generated profit from operations of € 58 mil­lion, which is a strong year-on-year improvement (previous year: € 9 million,+564 %). This pleasing development exceeded our expectations (Annual Report
2014: “noticeable increase”). Alongside an increased level of sales this is the resultof a tangible reduction in personnel costs and other operating costs. Voith Paper
was therefore able to improve its return on sales to 3.8 % (previous year: 0.6 %)and its ROCE to 6.8 % (previous year: 1.0 %) thereby meeting its projections. The
significant increase in profitability demonstrates the success of the consistent
restructuring measures taken.

Voith A nnual Repor t 2015

62Group Management Repor t

03.3. Voith Turbo

Challenging fiscal year
In the difficult market climate which prevailed during the 2014/15 fiscal year Voith
Turbo was able to achieve a modest increase in sales but failed to match last year’s
figures for orders received. The efficiency programs had a significantly positive
impact, although Voith Turbo’s profit from operations dropped noticeably owing
to the formation of provisions for warranty costs.
Slight increase in sales
In the 2014/15 fiscal year, Voith Turbo generated sales of €1,470 million (previous
year: €1,409 million). At a plus of 4 % we exceeded our planning (projection in the2014 annual report: “constant”), thanks in part to positive currency effects. The Raildivision made significant improvements. The Commercial Vehicles and Power, Oil &Gas divisions remained stable on a par with the previous year. In a difficult market
setting, sales in the Mining & Metals division were down on the previous year.
More than half of sales in the past fiscal year were again generated in Europe(including Germany). The Asia-Pacific region accounted for more than one-quar­ter of sales. Voith Turbo reported its highest rates of growth in North Americaand Africa. In Asia Voith Turbo achieved modest growth after falling sales theprevious year.
Orders received slightly down on last year
In the 2014/15 fiscal year Voith Turbo received new orders worth a total of €1,467
million (previous year: €1,505 million, -3 %). These figures correspond with thelower end of our projections and mean that we failed to match the very high figuresfor last year (2014 annual report: “stable development”). This was due to low raw
material and dramatically lower oil prices combined with uncertainties regarding
the state of the economy – market conditions which have seriously impaired theinvestment activities of our customers in the Mining & Metals and Power, Oil &Gas divisions and have had a correspondingly negative impact on our new busi­
ness. The Mining & Metals division reported a substantial drop, and the Power,
Oil & Gas division a modest decline. In contrast, the Commercial Vehicles division
received slightly more and the Rail division much the same number of orders, inboth cases at a high level. Orders received also benefited from positive currency
effects. On September 30, 2015, Voith Turbo had orders on hand worth €1,186
million (previous year: €1,210 million).

Sales Voith ­Turbo

Orders received Voith ­Turbo

Profit from operations Voith ­Turboin € millionsin € millionsin € millions

1,409

1,470

1,505

1,467

111
91

2013/142014/15

2013/142014/15

Voith A nnual Repor t 20152013/142014/15

Group Management Repor t

63With its acquisition of sections of the company Hese, Voith Turbo has now
expanded its product portfolio in the Mining & Metals division to include equip­
ment for raw material mines and mining companies. Hese is a reputed company
in the mining sector for the development of the TT-intermediate drive (carrying belt
and pushing belt), which is currently one of Hese’s most important products in themining belt conveyor systems.
Owing to the strategic importance of the North American market we opened thecompany’s new Houston, Texas headquarters for the Power, Oil & Gas division for
the North and South America region. The “Houston Energy Corridor” is a global
hub for the industry.
Profit from operations down owing to provisions
In the 2014/15 fiscal year Voith Turbo generated a profit from operations of € 91 mil­lion (previous year: € 111 million). This is equal to 18 % over the comparable figure
for the previous year and was lower than we had projected (2014 annual report:“slight increase”). The main reasons for this are provisions for warranty costs which
negatively impacted the year ended. Adjusted for this effect the profitability of theoperative business is markedly positive. Voith Turbo benefited from the rapid andsuccessful implementation of the efficiency programs which have already been
instituted and which have had a significantly positive impact on the profit fromoperations without, however, compensating in full for the special burden. At 6.1 %,the return on sales in the year under review was down on the previous year (7.8 %).
The capital employed was reduced, although this positive development was over­laid by the opposing impact of the lower profit so that the ROCE of 12.3 % was,contrary to projections, lower than the previous year (14.7 %).

Voith A nnual Repor t 2015

64

04

04.1. Balance sheet

Group Management Repor t

Net assets and financial position
The structure of the Voith Group’s assets, equity andliabilities is healthy. We have also earned highly
positive operative cash flows in the year under review,
although the investment in KUKA resulted in a negative
overall cash flow. Investments in property, plant andequipment were significantly reduced following theintensive investments made in previous years.

Negative net result reduces equity ratio
The balance sheet total as at September 30, 2015 was €5,451 million (including
Voith Industrial Services) which is approximately equal to the balance sheet total
in the previous year (€5,453 million). Substantial changes occurred within each of
the balance sheet items compared to the previous year, owing in particular to theintended sale of Voith Industrial Services. The assets and liabilities for this Group
Division were reclassified in the balance sheet as assets held for sale (assets)
and liabilities directly associated with the assets classified as held for sale (liabili­ties). More information about these two compound items and an outline grouped
according to separate balance sheet items can be found in note 18 to the con­solidated financial statements). In addition, the sale during the reporting periodof P3 Voith Aerospace Holding GmbH, which was also assigned to the Voith
Industrial Services Group Division, also contributed to a reduction in certain bal­ance sheet items. In compliance with IFRS 5 the prior year balance sheet is not,in contrast to the consolidated statement of income, adjusted for these effects.
The Voith Group’s non-current assets increased by a total of € 136 million to€2,539 million (previous year: €2,403 million, +6 %). This was primarily due tothe acquisition of a shareholding in KUKA Aktiengesellschaft, Augsburg, whichlargely explains the increase in the amount recorded in the balance sheet forinvestments accounted for using the equity method (€+577 million). The € -254
million fall in intangible assets is mainly due to the effects arising from Voith
Industrial Services as described above (€ -246 million). The decrease in property,
plant and equipment (€ -131 million) basically includes depreciation, amortizationand impairment losses totaling € -159 million as against investments of € 94 mil­lion. The impact of Voith Industrial Services on property, plant and equipment
amounts to € -65 million.

Voith A nnual Repor t 2015

Group Management Repor t

65
Current assets fell in value to €2,913 million (previous year: €3,050 million, -5 %).
Total trade receivables and inventories fell in value by € 272 million (of which€ -246 million was due to the impact of Voith Industrial Services). The decreasein cash and cash equivalents (€ -366 million) was mainly related to the acquisi­tion of the KUKA shareholding. The assets held for sale of € 583 million represent
exclusively the assets of Voith Industrial Services. In the previous year (€ 30 mil­lion) this item included the assets for Voith Hydro’s tidal power station productsector. This product sector will now be operated by Voith Hydro on a substan­tially reduced basis.
Non-current liabilities declined by € 64 million to €1,931 million (previous year:€1,995 million, -3 %). A key role here was played by the reduction in long-termbonds, bank loans and other interest-bearing liabilities of € -57 million, which was
mainly due to the reclassification of a tranche of the US private placement as
current liabilities (€ -76 million). The repayment of this tranche is scheduled forthe 2015/16 fiscal year. Non-current provisions for pensions declined by € 29 mil­lion (of which € -21 million for Voith Industrial Services). On the other hand, othernon-current provisions rose by € 40 million. Adjusted for the effect arising from
Voith Industrial Services amounting to € -31 million, this increase includes higher
order-related provisions (€+32 million) and higher provisions for restructuring (€+32
million) in connection with the measures explained in sections 2.5. “Results” and7 “Employees”.
Current liabilities increased by € 219 million, from € 2,427 million to € 2,646 mil­lion (+9 %). This was largely due to the item bonds, bank loans and other inter­est-bearing liabilities (€+282 million). In addition to the reclassification to this itemof a tranche of the US private placement explained above, low interest short-termloans taken out for working capital purposes also played a role here. The increasein current other provisions (€+12 million) is largely explained following adjustment
for the effect arising from Voith Industrial Services by € -39 million for an increase
in restructuring provisions (€+51 million). Trade accounts payable dropped by€ 114 million, of which € -67 million resulted from Voith Industrial ­Services. The
reduction in current other liabilities (€ -238 million) is primarily due to lower down
payments received on account of orders from customers (€ -199 million, of which€ -23 million from Voith Industrial Services). The liabilities associated with assets
held for sale of € 280 million represent, analogously to the corresponding item in
the assets, exclusively the liabilities of Voith Industrial Services. In the previous
year (€ 6 million) this item included the liabilities for Voith Hydro’s tidal power sta­tion product sector.
The net balance of deferred tax assets and liabilities increased by € 23 million, driven
primarily by higher deferred tax income in connection with temporary differences.

Further information on the capital
structure can be found in the section 9.2.
of the management report under“Liquidity and financial risks” as well as innote 22 in the notes to the consolidated
financial statements.

Voith A nnual Repor t 2015

Equity fell to € 874 million (previous year: €1,031 million, -15 %). This fall is mainly
due to the Group’s negative net result, dividend payments and a reduction in equity
attributable to holders of non-controlling interests in connection with the sale of
P3 Voith Aerospace GmbH. The equity ratio fell to 16.0 % (previous year: 18.9 %).

66Group Management Repor t

04.2. Liquidity

Overall cash flow negative due to investment in KUKA
The cash flow from operating activities amounted to € 151 million (previous year:€ 191 million) in the period under review. The year-on-year reduction was mainly due
to the increase in the net working capital in the period under review (€+140 million;
previous year: fall of € 45 million) largely due to a lower level of down payments
received on account of orders from customers. This was not compensated for by
the improvement in the operating results.
The cash flow from investing activities of € -693 million (previous year: € -57 million)
is primarily due to investments in financial assets (€ -614 million, previous year:€ -9 million) mostly in connection with the acquisition of the shareholding in KUKA
Aktiengesellschaft. Investments in property, plant and equipment and intangibles
amounted to € -103 million (previous year: € -134 million).
The cash flow from financing activities of € 185 million (previous year: € -232 million)
was largely the result of additional loans. Financial liabilities were repaid on sched­ule during the previous year, including the first tranche of the US private placement.
Total cash flow amounted to € -357 million (previous year: € -98 million).
Net debt, measured as the difference between interest-bearing financial liabilities
and liquid financial assets, amounted to € 574 million (previous year: € -40 million =net asset position). The net position is the outcome of the financing requirements
for the acquisition of the KUKA shareholding and the positive cash flow from oper­
ating activities.
The net debt ratio is not covered by the accounting policies based on the Interna­
tional 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.

Development of cash flowin € millions

2014/15

2013/14

Cash flow from operating activities

151

191

Cash flow from investing activities

- 693

- 57

Cash flow from financing activities

185

- 232

Total cash flow

- 357

- 98

Voith A nnual Repor t 2015

67

Group Management Repor t

04.3. Capital spending

Investments reduced as planned
In the 2014/15 fiscal year we invested a total of € 80 million (previous year: € 103 mil­lion, -22 %) in improving productivity and in the future strategic alignment of theVoith Group. This does not include the investments made in the discontinued
Voith Industrial Services Group Division of € 23 million (previous year: € 31 million).
The fall in investment volume compared to the previous year is basically due tolower investments in cross-divisional projects. Last year this also included thetraining center in Heidenheim. It was also possible to reduce investments in Voith
Paper and Voith Hydro following the intensive investments made in previous years.
The investment ratio in terms of sales came to 1.9 % of Group sales in the period
under review (previous year: 2.5 %).

Strong commitment to Asia
We sustained our strong commitment in Asia. The intensive investment activities ofprevious years have already led to many important projects being completed in thisstrongly growing region. In the year under review we invested a total of € 20 mil­lion (previous year: € 25 million) in Asia, primarily in China. This figure accounts for
26 % of our total investment spending (previous year: 24 %). We invested a total of€ 16 million in the Americas (previous year: € 16 million) or 20 % (previous year: 16 %)of the total volume. 43 % of our investments (previous year: 49 %) were made inGermany at a volume of € 35 million (previous year: € 51 million). In Europe exclud­ing Germany, investments in the period under review came to € 8 million (previous
year: € 11 million), equal to a share of 10 % (previous year: 11 %).

Voith Hydro: volume of investment reduced
following massive expansion in capacity
In the year under review Voith Hydro invested a total of € 19 million (previous year:€ 22 million, -15 %) in the capacities of its value chain. This corresponds to an
investment ratio of 1.4 % (previous year: 1.7 %). In the last six years Voith Hydro has
invested a total of over € 280 million in its worldwide production. The corresponding

Investments total € 80 million1)
by Group Division

Investments Group1)
in € millions

1032)
80

Voith ­Turbo
36 %by region
Voith ­­Hydro
23 %Americas20 %Germany
43 %EuropeexcludingGermany
10 %2013/141)

2)

2014/15

Excluding the discontinued Group Division
Voith Industrial Services.
Previous year restated.

Voith A nnual Repor t 2015

Voith Paper
28 %

1)

Other
13 %

Asia
26 %

Excluding the discontinued Group Division Voith Industrial Services.

Other
1%

68

Group Management Repor t

expansion of capacity is largely completed. For this reason only very little invest­
ment was required for Voith Hydro compared to the other Group Divisions andprevious years. A large proportion of Voith Hydro’s investments were made in theAmericas and Asia.

Voith Paper: investments in quality andproductivity improvements
Following the conclusion of the “Build up China” investment project, which has
been underway for several years, Voith Paper’s investments were below the level
for the previous year at € 22 million (previous year: € 29 million, -25 %). The invest­
ment ratio was 1.5 % (previous year: 2.1 %). A larger share of the overall lower
volume of investments by Voith Paper was again made in Asia. North America grewin importance as an investment location, particularly in the field of consumables.

Voith Turbo: investment focus on Germany and Asia
Voith Turbo invested a total of € 29 million in property, plant and equipment in
the 2014/15 fiscal year (previous year: € 31 million, -6 %). This corresponds to an
investment ratio of 2.0 % (previous year: 2.2 %). Voith Turbo’s investments werefocused primarily on Germany, followed by Asia.

04.4. Financial investments
and participatinginterests

Detailed information can be foundin section 1.4. “Group strategy.”
Further information on investments
accounted for using the equity method
can be found in section 12 of the notes
to the consolidated financial statements.

Strategic shareholding in KUKA Aktiengesellschaft
Voith acquired a 25.1 % shareholding and voting rights in KUKA Aktiengesellschaft,Augsburg, in the first half of the 2014/15 fiscal year. The KUKA Group is one of theleading suppliers of robots and automatic production lines and solutions worldwide.
For Voith, this is one of the largest M&A investments made in recent years. KUKA
Aktiengesellschaft had Group sales of €2,096 million and an EBIT of € 142 million
in 2014. We regard the shareholding in KUKA Aktiengesellschaft as a strategic
investment and an important step forward as part of our Industry 4.0 strategy. The
investment is accounted for using the equity method in the Voith GmbH consoli­
dated financial statements.
In the second half of the fiscal year Voith increased its shareholding in KUKA
Aktiengesellschaft from 25.1 % to 27.96 %. The shareholding has been increased
as a precautionary measure to prevent potential dilution if a KUKA convertible
bond is converted to shares.

Voith A nnual Repor t 2015

69

Group Management Repor t

05

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 mostinnovative companies in the industries it serves. In
the period under review, we invested € 210 million, or
4.9 % of consolidated sales, in R&D.

Innovative strength as key success factor
Voith’s strong position on its markets and in its regions is largely based on thetechnological engineering competence it has built up as a result of decades ofresearch and development work. Since the Company was founded, our engineers
have been writing history with their inventions in the field of technology. All three of
our Voith Hydro, Voith Paper and Voith Turbo Group Divisions have a strong port­
folio of patents. The Voith Group currently has many thousands of active patents
around the world, and hundreds more are registered each year.
Innovative products and services are also the cornerstone of the Company’s futurebusiness success. This is why we also invest in research and development for new
products even in difficult economic times – around €1.2 billion in total over the
past five years. In the 2014/15 fiscal year the Group’s R&D spending amounted
to € 210 million (previous year: € 216 million, -2 %). At 4.9 %, the ratio of the Voith
Group’s R&D spending to Group sales was slightly below that for the previous year
(5.2 %). Of the total R&D spending of € 210 million, € 3 million was capitalized, as
was also the case the previous year. Impairment write-downs of € 33 million havebeen recorded against capitalized development costs in the period under review(previous year: € 14 million).
R&D spending was distributed roughly evenly between the Voith Hydro, Voith Paper
and Voith Turbo Group Divisions. Also included are R&D spending for Group-wide
development activities.
Voith’s research and development activities are internationally organized. The focus
is on Germany with centers in the Americas, Asia and Rest of Europe contributing
valuable specialized R&D input in the relevant Group Divisions.

Aligned with global megatrends
One of Voith’s objectives as a supplier to industry is to contribute to sustainableeconomic development. For this reason, the R&D strategy is systematically aligned

Voith A nnual Repor t 2015

70

Group Management Repor twith global megatrends and in particular with the infrastructure needs of the world’s
growth regions. Resource and energy efficiency, urbanization and mobility are not
only the key challenges for the 21st century, they are also the central themes ofour research and development strategy at Voith.

Further information on our Industry 4.0
strategy can be found in section 1.4.
“Group strategy.”

In the years ahead we will also concentrate on consistently exploiting the opportu­
nities offered by digitalization and networking to develop customer-oriented engi­
neering solutions and to contribute to the future shape of Industry 4.0. Our aim is
to use intelligent, networked offers to create significant added value for our cus­
tomers and to present Voith as a technology leader in the digital age. All Group
Divisions run flagship projects and adopt approaches for intelligent products aspart of Industry 4.0.
In the year under review, all Group Divisions again made substantial progress with
their research and development work.

Voith Hydro: continuous advances
In the year under review Voith Hydro continued to work intensively on the ongoingdevelopment of the most established and important form of renewable energy inthe world, i.e. hydropower.
In early 2015, we successfully put into operation the first commercial project
to use our environmentally friendly compact turbine StreamDiver®. The Swedishhydropower plant Bruksfors, which is located around 200 kilometers to the northof Stockholm, will be powered by a 250-kilowatt StreamDriver turbine after com­pletion of extensive rehabilitation work. The StreamDiver is an innovative turbine
generator unit for small hydropower plants which reduces the scope and impact
of building work on the environment to a minimum, eliminates any threats to thequality of water and minimizes maintenance costs. The innovative powerplant
concept is also suitable for developing areas for the production of energy fromhydropower in which it has not been possible to date to construct conventionalhydropower plants owing, for example, to insufficient heads or for reasons of
nature conservation.

210

We have also achieved considerable success in the year under review in anotherkey area of development, namely very-high-performance turbines and genera­
tors: the high-performance generator-turbine units supplied by us have been put
into operation for one major hydropower plant. The units are the most powerfulgenerator-turbine units we have ever built, and therefore represent an important
technological milestone on the road to developing the first one-gigawatt gener­
ating unit. Successful performance tests were carried out for further large-scale
projects in an external test laboratory and the highly ambitious specified values
were reached.

2014/15

The Hyperbole research project which is sponsored by the EU, which wasannounced in the 2014 annual report and in which Voith Hydro is taking part as
one of a total of nine cooperation partners from the business and scientific com­munities, has been successfully launched and is developing according to plan.
Hyperbole concerns the expansion of the operating range of Francis and pumpResearch and developmentin € millions

216

2013/14Voith A nnual Repor t 2015

71Group Management Repor tturbines. The project seeks better integration of renewable energy sources into
the grid by increasing the operational flexibility of hydropower plants. Extensive
measurement campaigns for structural and dynamic analyses were carried out inthe year under review.
We also continued to develop our high-end simulation tools for the flow mechanics
and electromagnetic fields in the year under review.

Voith Paper: “Papermaking 4.0” program presented
In the year under review Voith Paper presented its “Papermaking 4.0” innovation
program at leading industrial trade fairs around the world and introduced it to
the paper industry. In this context, the focus is on connected, smart solutions
and processes which offer paper producers clear added value. An importantnew product launch in this connection was the ComCore automation platform
which has been especially developed to meet the needs of the paper industry.
With its modular structure, ComCore is already contributing to the digital factory
which must meet the highest demands for decentralization, cost efficiency andthe intelligent capture and processing of data. ComCore is a modular, scalable
platform which can be easily integrated in a paper producer’s existing automa­tion infrastructure by means of standardized communication interfaces. ComCore
can be used to integrate a wide range of measurement, control and IT systems
regardless of whether the equipment is from Voith or another vendor. ComCore
enables information to be shared by all the machine components along the cus­
tomer’s entire value chain.
In addition, Voith Paper continued to concentrate on resource-saving solutions
which also offer customers substantial cost benefits and again launched several
products in the 2014/15 fiscal year. These include the new InfiltraScrewpress,
another product in the BlueLine product family for stock preparation. InForce, a
new polyurethane roll cover for the press section, has also been launched on
the market. With QualiFlex Crest and QualiFlex Crown we have presented twopress sleeve product lines which are tailored to the relevant paper grade and thespecific requirements of each paper machine. We have also launched two new,heat-resistant dryer fabrics on the market: Pyrox and PyroxHigh are part of the
CleanWeave product family and have been especially designed for dryer sections
with moderately high temperatures. Another innovation in the year under review
was C-bar HerculeX, a new screen basket. This is one of the strongest screenbaskets on the market. It is made of wear-resistant material and is suitable forvarious applications in stock preparation.
The Infinity press fabric which was launched last year and which ensures con­stantly high drainage of the paper web has proved successful on the market andhas now been sold more than 1,000 times. The Infinity press fabric is available forall graphic paper grades, packaging paper grades and board.
Our efforts to develop sustainable products were again rewarded with a prizeduring the period under review. Voith Paper 2015 was successful at the Baden-­
Württemberg Environmental Technology Award with its sealing strip for suction rolldesigns. The Company came second in the “Technologies for Emissions Reduction,

Voith A nnual Repor t 2015

72

Group Management Repor t

Treatment and Separation” category. The Baden-Württemberg Ministry of Environ­ment, Climate and Energy awards the prize for outstandingly innovative products
in environmental engineering every two years.

Voith Turbo: ongoing work on cross-divisional
R&D issues
In the 2014/15 fiscal year Voith Turbo pooled its R&D activities more stringently andestablished central responsibility for them. In addition to development work in theseparate divisions and business units a central innovation division was installed
which concerns itself with basic topics and cross-divisional projects. The mostimportant common topic in the year under review which will continue to dominate
in the years ahead is the development of innovations for Industry 4.0. We also aim
to add electrical engineering to Voith Turbo’s core mechanics and hydrodynamics
competences and are working on new functions that arise when mechanics andelectronics are combined.
Voith Turbo has already developed several Industry 4.0 products, including the
DIWA SmartNet telemetry system which provides regular monitoring of operationaland service data for bus transmissions. The Commercial Vehicles division launched
the new Generation 2.0 on the market in the year under review. The OPRA software
platform on which the DIWA SmartNet runs is also used for the fleet managementof rail vehicles and, as such, is marketed to customers of the Rail division. We havealso made progress on big data solutions for the evaluation of the large volumesof data generated by test runs and during the operation of variable speed drives
and turbo gear units. This allows the customers of the Mining & Metals and thePower, Oil & Gas divisions to be supplied with status-oriented service strategies.
Voith Turbo also launched new products in all divisions in the year under review,
including SelCon, the self-contained linear actuator for the valve controls of gas
and steam turbines. SelCon’s fail-safe functions combine the advantages ofhydraulic and electromechanical solutions. The hydraulics provide high force den­sity and dynamics while the electromechanical side contributes simple, cost-ef­
fective system integration. Various standardized communication interfaces andthe use of real-time Ethernet protocols make the SelCon ready for all common
Industry 4.0 concepts, such as intelligent process optimization, remote diagnos­
tics and condition monitoring.

Voith A nnual Repor t 2015

73

Group Management Repor t

The Voith Linear Jet (VLJ) is an innovative ship propulsion system which is designed
to pave our way for entry into the market for fast vessels with profiles of between
25 and 40 knots, including faster ferries, yachts, workboats of the offshore indus­
try and coastal protection vessels. The VLJ is a robust, low-noise and low main­
tenance propulsion system.
We have developed a new fluid coupling for Chinese coal mines. The CPC700
enables armored face conveyors to be started up smoothly whilst protecting
against overload and maximizing the availability of the system. The coupling is
produced directly in China for the local market and is suitable for price-sensitivemarkets in the mid-range performance segment.
We have also launched various systems and components for rail vehicles, suchas the RailPack 600DH, a new power class of drive system for use in railcars andspecial vehicles.

Success for carbon fiber development center
We continue to research and develop industrial production methods for CFRP
(carbon fiber-reinforced plastic) components at our cross-divisional development
center for carbon fiber products which we opened in 2011. For many years now
we have used CFRP for lightweight components, such as ship propellers, in paper
machines and in drive systems, among other applications. This is a long-term
research project for which we hold great hopes for the future. The benefits of thismaterial – such as low weight, high resilience and good 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. In thereporting period, an order was won from Audi AG for the high-volume productionof a CFRP component for a future Audi model which represents an important mile­stone in the industrialization of composite production. In particular, this is a suc­cess for the development partnership with Audi, which was also launched in 2011
and which focuses on the further development and highly automated productionof fiber-reinforced materials for use in future automotive projects. The order which
has now been received will continue the successful work of this partnership in theform of a series-produced product.

Voith A nnual Repor t 2015

74

06

Group Management Repor t

Sustainability
For us, sustainable business and the pursuit ofcorporate success go hand in hand. We aim to create
measurable added value in the areas of economy,
ecology and society and make Voith the benchmark forour 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 ecologi­
cal footprint, to act fairly, and to return a profit over the long term. Our motto is for
Voith to make a tangible contribution to sustainable development. Voith follows theapproach of giving equal consideration to economic, ecological and social factors.
Sustainability management is integrated in the Group in defined fields of action.
These include sustainable business management, the pursuit of profitable growth,
responsibility for products and supply chains, for the environment, for our employ­
ees and social responsibility. Information on the field of action regarding 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 ofthis management report. The other fields of action are described in this chapter.
The Voith Sustainability Report 2014
is available on the Internet at:
http://www.voith.com/en/Voith_
NHB_E_2014_WEB.pdf

Over 1,000 participants from 43 countries
contributed to the anonymous online
surveys. The study findings can be foundon page 15f of the Voith Sustainability
Report 2014.
Our most important stakeholders are
Voith’s owners and supervisory bodies,
employees, works council, customers,
suppliers and investors, the local
population at the locations, industrial
associations, public authorities and thescientific and policy communities.

Voith began implementing sustainability management throughout the Group in
2008. Since 2009, Voith has recorded and analyzed all relevant environmental
data, material indicators and selected personnel data in database systems. Oursustainability report, which has been published every year since 2011, contains
detailed information on sustainability management at Voith, including specific goals,
performance indicators and results. The project is geared towards the requirementsof the Global Reporting Initiative (GRI) for sustainability reporting.
We conducted a detailed materiality analysis in the 2014/15 fiscal year based on
the findings of a shareholder survey. The purpose of this analysis was to identify
the importance of particular topics and to focus our sustainability management
and reporting on the issues which matter most. We will continue systematicallywith our stakeholder dialog in the years ahead. The stakeholder survey will be
repeated every two years.

Voith A nnual Repor t 2015

75

Group Management Repor t

Responsibility for the environment
We have set ourselves the goal of steadily minimizing our ecological footprint. We
expect to create measurable economic added value for Voith by taking a respon­sible approach to the environment.
In developing Voith further as a sustainable company, we are pursuing three areasof focus regarding the environment. Our first area relates to compliance with andimplementation of environmental legislation and corporate environmental protec­
tion (eco standards). Secondly, we aim to improve energy and resource efficiency
at our production and service locations taking into account economic viability (eco­logical business management). Thirdly, we are driving energy and resource-efficient
product innovations forward through the systematic analysis and assessment ofVoith’s products and services (eco technologies).
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 oursales-related energy consumption by 20 %, our volumes of waste by 25 % andfresh water consumption by 10 %.
We have already received a number of awards for our commitment to the environ­ment. In November 2014, for example, we won the prestigious Dekra Award 2014
in the category “Environment” for our innovative management of hazardous mate­rials. We were awarded the Green Controlling Prize by the Péter Horváth Foun­dation in September 2015. The accolade was presented for our solution, which isderived from conventional financial controlling processes, which makes economicand ecological efficiency potentials measurable and controllable and systematically
implements appropriate improvements.

Responsibility for products and supply chains
We have set ourselves the standard of providing top-quality innovative products
displaying a level of safety, reliability and efficiency that our customers can relyon. Voith has implemented a Group-wide management system for technical risks
and quality (TRQM) which is used to control targets, processes and methods forthe development and production phase. We carry out risk assessments to checkthe safety of our products.
Our products and services should make a contribution to the conservation of
resources and environmental protection throughout the entire value chain, fromthe manufacturing process through to their use. In this context an important roleis played by a close dialog of trust with our customers. Our customers’ expecta­
tions are integrated in our product development, and we support our customers
with special trainings and advice on the most resource-saving use of our products.

Voith A nnual Repor t 2015

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Group Management Repor t

Our understanding of corporate responsibility also includes our suppliers. The
quantity and broad spectrum of procured goods and services make it a challeng­
ing task to ensure our supply chains are sustainable. We have integrated social,ecological and economic sustainability aspects in our General Terms and Condi­
tions of Purchase (AEBs). We require suppliers to pass on these requirements to
subsuppliers. We also require self-disclosures from our suppliers. The supplierswith the strongest sales are regularly evaluated in the departments responsible.
The results are stored in our central supplier management database. In a weight­
ing of amounts purchased and risk, more and more suppliers will be entered andassessed in the database. Long-term relationships of trust with our suppliers will
help us to minimize risks in the procurement process. In this context we work witha “preferred supplier” and a “blocked supplier concept”. Sustainability aspects areincluded in both concepts.

Social responsibility
We wish to make a contribution to the positive development of society and to sup­port local institutions everywhere in the world where Voith is based. The type andscope of our commitment as well as eligibility criteria have been documented in
the donations and sponsorship Group directive since 2008. As part of our commit­
ment to society, we support activities and organizations in the fields of education,social welfare, sports and culture. And, quite apart from all of the above, Voith
takes action where it perceives an urgent humanitarian need.

Voith A nnual Repor t 2015

77

Group Management Repor t

07

Employees
Qualified, motivated and dedicated employees are thefoundation and motor of our success. We endeavor tooffer our employees who meet our high demands
challenging tasks, individual development opportunities
and an attractive workplace. We take into accounteach of our employee’s personal situations and enable
them to pursue a wide range of different career options.
At the close of the 2014/15 fiscal year we employedaround 20,200 people in the Voith Group and its
continued operations Voith Hydro, Voith Paper andVoith Turbo, as well as around 17,300 people in Voith
Industrial Services, the Group Division which iscurrently being sold.

Headcount down again
As at September 30, 2015, we employed 20,223 full-time equivalents (excluding
apprentices) in the Voith Group as part of our continuing operations. Overall, thisis 720 or 3 % fewer jobs than one year previously (September 30, 2014: 20,943).
This figures does not include the 17,253 jobs (previous year: 18,359) in the discon­tinued Voith Industrial Services Group Division.

Further information on the
reorganization of indirect activities
can be found in section 1.4.
“Group strategy.”This decrease in jobs is largely due to the Voith 150+ success program which iscurrently being implemented worldwide. The greatest impact was on the Voith
Paper Group Division (-680 jobs) and, to a lesser extent, the Voith Hydro Group
Division (-31 jobs) and Voith Turbo (-21 jobs). A total of 12 jobs were added in theGroup Holding; this reflects the beginning of a shift of indirect functions from theGroup Divisions to the Group Holding in the framework of Voith 150+.
38 % of employees with Voith Paper
Excluding the discontinued personnel-intensive Voith Industrial Services Group
Division, Voith Paper has, with 38 % of the total headcount, more employees thanany other Group Division. 7,739 people were working there at the end of the period
under review (previous year: 8,419 employees). Voith Turbo had 6,254 employees(previous year: 6,275) or 31 % of the Group’s headcount. With 5,188 people, Voith
Hydro employed 26 % of the Group’s total workforce (previous year: 5,219 employ­ees). The remaining jobs (1,042, previous year: 1,030) were located in areas witha holding function.

Voith A nnual Repor t 2015

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Group Management Repor t

40 % of the workforce based in Germany
In a regional context, Voith continues to employ most of its staff in Germany, which
accounts for 40 % of the total number of employees in the Group. The Americas
were still the second most important region with a share of 25 %. We employed
20 % of our staff in Asia. The region of Europe excluding Germany accounted for
14 % of the total workforce. 1 % of all employees work in other regions.
We have cut back on jobs in all regions. In Germany, the number of employees
working in our core business (“continuing operations”) fell by 347 to 8,128 employ­
ees as at September 30, 2015 (previous year: 8,475). In Europe excluding Germany,
we employed 2,769 people or 158 fewer than in the previous year (2,927). The
number of employees in the Americas fell by 117 to a total of 5,091 positions (pre­vious year: 5,208). There were 4,060 employees in Asia (previous year: 4,146, -86).
Further job cuts at Voith Paper unavoidable
In order to adjust the cost structure of Voith Paper to the permanent contraction
in market volume and, against the background of increasingly fierce competitionand high pressure on prices, to ensure that it can continue to operate successfullyin the future, Voith Paper submitted a further package of measures in February
2015 involving the concentration of its European activities at just a few locations
as well as further job cuts. It is envisaged that a total of 900 jobs worldwide will
be cut. Based on current planning these measures will be implemented by theend of 2016.

Further information on the reorganization ofindirect activities can be found in section 1.4.
“Group strategy.”

Employees Group1)
20,9432)

Bundling of worldwide administrative functions
will reduce staff by more than 700
We also aim to reorganize our indirect activities and to reduce staff by 720 aspart of the Group-wide success program Voith 150+. 150 of these jobs are in Voith
Paper and are already included in the figures referred to above (900 jobs to go
at Voith Paper). We are already working on the implementation of new structures.
The associated slimming down of the workforce has already been partly under­
taken and will be completed by September 30, 2016. All the job cuts describedhere have already been taken into account in the accounts for the 2014/15 con­solidated financial statements.

Employees total 20,2231)
by Group Division
20,223Voith ­Turbo
31 %by region
Voith ­­Hydro
26 %Americas25 %Germany
40 %

Asia
20 %

2013/141)

2)

2014/15

Excluding the discontinued Group Division
Voith Industrial Services.
Previous year restated.

Voith Paper
38 %

1)

Other
5%

Other
1%

Excluding the discontinued Group Division Voith Industrial Services.

Voith A nnual Repor t 2015

EuropeexcludingGermany
14 %79Group Management Repor t

First-class professional 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 ofyoung people with career prospects and increased the number of trainee place­ments compared to the previous year. At the close of the 2014/15 fiscal year,
1,142 apprentices and students were employed at Voith locations around the globe(previous year: 1,294).
As a matter of tradition, we set great store by first-class vocational training. We
place great value on interdisciplinary learning and a holistic approach of impartinga combination of both social and professional skills. The high quality of our train­
ing is repeatedly demonstrated by the excellent performance of Voith apprentices
at state and federal level. In the 2014/15 fiscal year, 55 % of our apprentices in
Heidenheim received a final grade of 1.9 or higher (equivalent to good). One of
our apprentices was named best product technician of the year by the German
Chamber of Commerce and Industry.
In the 2014/15 fiscal year, the first 19 specialists successfully completed a one-yeartraining program at our important Chinese production location in Kunshan, where
we opened a large training center in April 2014. All 19 were taken on by Voith.
As part of our Global Graduate trainee program, we offer the trainee graduates oftechnical and business management disciplines that we recruit worldwide a chal­lenging entry into our Company. The participants combine practical experience
with training sessions, are supported by a mentor and work in various Group Divi­
sions and regions.

Needs and goal-oriented training

Further information about pep.
can be found in this section of
the management report under“Group-wide personal information
system implemented.”

We require our employees to be willing to keep on learning over the entire spanof their careers and help them to constantly develop. Our goal: we always seek
to have the right employee with the right qualifications and appropriate compe­
tencies at the right place in the company. Our leadership concept, which includes
numerous leadership tools, provides the operative framework for this purpose.
The key elements are two formal discussions which are held with every employee
once a year. While performance reviews focus on the individual’s personal contri­
bution to the achievement of corporate goals, employee appraisals concentrate on
work tasks and the working environment, the relationship between the employee
and supervisor and the employee’s own personal development perspectives. The
information gained from these discussions are entered in our People Excellence
Platform (“pep.”), an IT-based personal information system, with the findings ofthe management review process so that development measures can be definedand centrally controlled in line with needs in the company and the requirementsof any function to which an employee may aspire.
Based on individual training needs we offer our employees access to internaland external training and personal development measures that foster profes­
sional, social and intercultural skill sets as well as coaching. The range of topics inVoith A nnual Repor t 2015

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Group Management Repor t

standardized “Voith training” covers occupational safety and health, environmental
protection, technology, IT, quality, languages, economics as well as management
and personality. We provide specific training to employees from procurement,
finance and human resources as well as project managers in the Voith Manage­
ment School. Our executives also take part in a uniform development program tocreate a common understanding of leadership in all Group Divisions and regions.
The executives at top management level also take part in the training program
offered by our Voith Academy.
In the period under review, around 2,500 employees worldwide (previous year:
around 2,200) 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.

Occupational health and safety management
Occupational health and safety are top priorities for us. By taking a responsible
approach in designing workplaces and processes, we aim to avoid accidents andwork-related illnesses as far as is possible.
The Group guidelines on occupational safety prescribe binding mandatory mini­
mum 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. Personnel managers train
their staff and address safety issues at regular meetings.
Since 2009, the frequency rate, calculated pursuant to an international standard
and documenting the number of accidents per one million working hours, hasbeen falling consistently. We achieved our goal of a frequency rate of 2.0 for the
2017/18 fiscal year as early as 2013/14 with a significantly lower rate in the year
under review of 1.5. This makes Voith one of the world’s best companies in thefield of occupational safety. We also calculate the severity rate. We exceeded ourgoal for the 2017/18 fiscal year of a maximum of 350 lost hours per one million
working hours for the first time during the year under review in which just 288 per
one million hours were lost. We aim to continue improving both performance indi­cators in the years ahead.
We also wish to take systematic and preventive action to improve the health of
our employees – a task which is growing in importance, particularly bearing in
mind the aging workforces at our European and North American locations. It is
our intention that our employees should be able to maintain their ability to workand retire in good health at the end of their working life. In this regard, we concen­
trate on four fields of action: a safe working environment in line with demographic
developments, health promotion and preventive health care, support in the eventof illness and combating stress as well as corporate culture, leadership and health.

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Diversity and equal opportunity
Voith employs men and women that are at different stages of their lives, comefrom over 120 nations, and bring their own individual experiences with them. This
diversity enriches our corporate culture, encourages team creativity and innovative
drive and contributes to the economic success of our Company. As an employer,
Voith sees it as its duty to offer all its employees equal opportunities and to ensurethat the workplace is free from discrimination.
Under our Diversity & Inclusion (D&I) program which we launched across theGroup in the 2012/13 fiscal year, we are working on fostering employee diversity
and equal opportunity throughout the entire Group. Our regional D&I team’s trainthe-trainer courses were completed in the year under review for the regions Asia,
North and South America. Most of our top executives and their team leaders have
now received training and are aware of the relevant issues. Achieving higher pro­portions of women in the workforce, and particularly in management positions,remains a priority in all regions. We also pursue the principle of filling leadership
positions in the regions with local personnel whenever possible. The challenges
relating to the age structure of workforces vary depending on the demographic
development in the regions.

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.
We offer a wide range of working models, such as part-time or a combination ofhome office and presence at the Company. We offer childcare facilities for employ­ees’ children up to the age of ten at several of our locations in Germany. Various
locations in Germany have their own parent-child office allowing our employees
to bring their child with them to work when other childcare options fail at the lastminute.
Employees in Germany can also obtain information by telephone or e-mail about
issues such as caring for family members – an issue which, owing to demo­
graphic trends, is growing in importance for many employees. This service, andthe arrangement of childminding, au-pair and other childcare services, is offered incooperation with an external consultancy firm. Our employees can find additional
practical information on child care, nursing care and careers on our Germany-­
wide intranet platform.

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Group-wide personal information system
implemented
Functioning processes and sound decision-making depends on highly efficient
integrated human resources IT systems. In a project conducted over a period ofyears, we have developed a personal information system for Voith which maps all
the relevant human resources processes worldwide. We completed implementa­tion in the year under review and our human resources experts and executives inthe business units are now using our globally standard People Excellence Plat­
form (pep.).
The pep. platform contains basic information, such as qualifications and devel­
opment information, on all employees worldwide. It also maps the organizational
structure of all business units in Voith and provides transparency regarding report­
ing lines and expert know-how, which in turn makes it easier to establish virtual
teams across country and divisional boundaries. We use pep. to control our entire
talent management, from employee recruitment through to employee appraisals
and performance reviews as well as further training and succession planning.
Our personal information system can also be used to generate diverse humanresources reports automatically and to provide regular information on performanceindicators, such as employee structure, new hires and success rates for internal
refill positions. In this way pep. is the central source of information for facts andfigures relating to human resources.
The integration in a single system of all data and processes relating to humanresources and the efficient tools which can now be used by our executives
and human resources experts are a huge step forward for Voith. The interest
expressed in our personal information system and the feedback received fromhuman resources managers in other large German corporations confirms that wehave set a benchmark in German industry. We intend to continue along this routeand to develop our personal information system to lay the foundations for strate­
gic personnel planning. Our objective is to identify the needs relating to job pro­files in advance based on quantitative and qualitative information and to develop
measures on this basis, such as training and development programs, recruitment
initiatives or redeployments.

Excellent employer
We want to be an attractive employer for both experienced employees and qualified
jobseekers. Voith has been one of the most popular employers in Germany among
engineering graduates for many years. This is apparent from the many different
studies carried out every year, such as the Graduate Barometer carried out by tren­
dence, the research institute which specializes in personnel marketing. Students’positive expectations are clearly confirmed by their experiences on placement with
Voith. In Praktikantenspiegel, a placement rating survey undertaken among 7,500
trainees by the independent institute Clevis, Voith was given the highest company
rating – four stars in 2015 – for the quality of the placements it offers. In addition
to quality, the survey also examined the employer’s brand image. Overall, Voith
is among prestigious companies such as Audi, BASF or Ikea in the top group ofstars in the Clevis placement rating.

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All the recommendations andawards won by Voith as an employer
can be found on the Internet at:
http://www.voith.com/en/career/
why-voith/awards-42093.html

08

We also received an award for our endeavors in the year under review to improve
the work-life balance of our employees. In November 2014 Voith received the Family-aware company award from Baden-Württemberg’s familyNet company network
for its systematically family-aware human resources policy. In the year under review
Voith also received accolades for its innovative recruiting initiative, including in
December 2014 the HR Excellence Award given by the journal Human Resources
Manager. Various seals of approval have also been given to Voith for the values
the Company lives. These seals also make the Company’s values transparent forpotential employees.

Subsequent events
Voith GmbH successfully placed a promissory note for €300 million on the market
in November 2015. The loan is for general company financing purposes and for therefinancing of financial liabilities in particular. In the course of its placement, banks
and institutional investors subscribed to promissory notes in tranches with termsof five, seven and ten years at fixed and variable interest rates.
No additional significant developments have occurred since the close of the
2014/15 fiscal year.

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09

09.1. Risk and quality
management

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

Aligned toward increasing the value of
the Company
Entrepreneurial activity involves making decisions under conditions of uncertainty.
Risk is therefore an integral part of entrepreneurial activity. To safeguard against
risks that could jeopardize the Group 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, thesystem is intended to produce a state of equilibrium between correctly assessedrisks and the 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 individual companies in a series of suitable
programs such as training measures and informational events. The adjustments tothe processes and internal control systems that were needed in the companies toimplement these risk control matrices are close to completion. The ICS is part of
the risk management system aimed at ensuring the appropriateness and reliabilityof internal reporting and external financial reporting, the effectiveness, efficiency
and propriety of operating activities, as well as compliance with the Voith Code of
Conduct and the guidelines of the Voith Group. Risk and quality management areinterlinked and integrated in a comprehensive internal controlling system.

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

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

Voith has a decentralized 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
will arise. Wherever possible, the scope of potential damage is quantified as acost factor. The worst case scenario and a realistic scenario are analyzed foreach identified risk to performance to assess the potential risk, and its impact
on the financial situation of the Group is examined. This involves reporting thoseindividual risks with a maximum risk level of >€ 5 million or a realistic risk levelof >€ 2 million, including the measures taken to mitigate this risk such as exist­
ing insurance policies, recognized provisions or recorded depreciation, to theGroup’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 transferred 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 helps the Corporate Board of Management to analyze risks and take wellfounded decisions.

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09.2. Risks

Group Management Repor t

In the following, we describe risks which could have a substantially negative effecton our net assets, financial position and results of operations and cause theresults to deviate negatively from those forecast/targeted. The order of the risks
within the six risk categories presented below reflects how we currently estimate
the importance of these risks for the Voith Group. Unless otherwise stated, thefollowing risks relate to all the 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.
This demand is 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 substantially 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 confronting the global economy at present is the large
number of geopolitical conflicts: if one of the current geopolitical crises – such as
the extremely unstable situation in the Near and Middle East – were to escalate
into a global conflict or were to continue for an unexpectedly long period of time,
this could disrupt international trade, drastically raise energy prices and unsettle
the global investment climate. This would also have a directly negative effect on
our business with local companies. We believe that the specific risks of tensions
between Russia and the EU worsening further and of economic sanctions being
expanded into a full-scale embargo have diminished. We have already integrated
the assumption of limited business with Russia into our planning for the 2015/16
fiscal year.
The continuing economic development of the important emerging markets of China
and Brazil will be subject to intensive observation: the global economy as a whole
as well as Voith’s earnings position in particular would suffer if growth in China
were to slow even more than currently projected or if Brazil were to slip further into
recession than presently anticipated by economists.
In this connection the announced rise in interest rates in the US dollar area rep­resents an additional risk. This would probably result in further capital outflows fromemerging markets. In combination with other encumbering factors, such as low
raw material prices and falling exports the outflow of capital could accelerate theweakening of economic growth in various emerging market countries with poten­
tial spillover effects for the entire global economy.

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87
A more medium-term risk for the world’s economy is the as yet unresolved crisisin the euro zone. Despite showing signs of recovery, the countries of the eurozone remain vulnerable to setbacks as they continue to face significant challenges.
First and foremost are the high level of 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. A viable solution has
not yet been found for Greece, either. In our view, low energy prices and euro
exchange rates will only compensate for the weaknesses in the euro zone in the
short term.
We continue to regard financial markets as having become increasingly detachedfrom the real economy due to the loose monetary policy and believe that therisks described are at present insufficiently priced into securities prices. Negative
developments in the real economy could therefore trigger overreactions and, inthe 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.
Two fundamental market risks are associated with development of raw material
prices, on the one hand, and oil prices on the other. If these prices remain as low
as they are now for a long period of time, or even fall further, the investments orig­
inating from raw material producers and oil companies would be likely to contract
further. This could have a negative impact on the earnings position of our Voith
Turbo Group Division with its Mining & Metals and Power, Oil & Gas divisions.
For Voith Hydro, the stepped-up development of shale gas extraction could in
the mid to long term lead to partial displacement of new investments and renewal
work on existing hydropower plants in North America, which would diminish thisGroup Division’s earnings position. Uncertainties regarding energy policy, to which
Voith Hydro and Voith Turbo will have to adjust, are affecting the power generation
market worldwide.
The future of the paper market is also a source of risk. If the forecast growth inpaper production underlying our business plan is not realized in the coming years,
investments in paper machines would be lower than expected and increased
competitive pressure would have a negative impact on prices. Both of theseoutcomes would make it more difficult for Voith Paper and the Voith Group asa whole to reach their sales and earnings targets. However, in recent years wehave adjusted to the contraction of and structural shifts in the market with new
products, a cost structure tailored to a smaller market and greater efficiency, andwe now believe that the negative potential contained in this risk is much lower
than it was a year ago.

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On the market for several of Voith Turbo’s application fields, mechanical drive solu­
tions 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 by changing the cost structures by becoming
even more localized. If we fail to maintain our competitive position in the future
through technological progress, this would cause Voith Turbo’s market positionin the affected segments to deteriorate and would thus hamper the Voith Group’s
earnings position.
Furthermore, individual market segments in which we operate could also be
impacted in the future by slowed market growth, falls in demand or intensifying
competition, and we may consequently 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.
The political situation in Europe, which has been very stable for a long period oftime, has appeared to be jeopardized more recently by diplomatic conflicts within
the European Union. Particularistic interests are being placed above the common
good and it is becoming increasingly difficult for Member States to reach consen­
sus on difficult decisions. In the medium to long term sharpening political differ­ences and even greater divergences in the actions of Member States could impair
trade within the EU and weaken the economic area as a whole. This would impair
the earnings position of the Voith Group which generates a large share of its salesin Europe (excluding Germany).
The location risk in Africa, which we identified for the activities of Voith Hydro lastyear in connection with the possibility of the spread of Ebola, no longer exists.
The scenarios described below were analyzed by the Voith Group. The manage­
ment 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.
By monitoring all the important indicators on a monthly basis Voith believes it iswell placed to rapidly respond to the consequences of external risks.
Management risks
Under the multiyear success program Voith 150+, we are involved in a processof strategic adjustments. These include restructuring measures, capacity adjust­ments and process improvements. As is always the case with such processes,
there is the general risk of the strategic adjustments not being implemented within
the planned time period or of them not generating the planned savings. In thisrespect the planned cost savings will be achieved later or not in full. This in turnwould have a negative impact on the net assets, financial position and results ofoperations of the Voith Group and restrict our scope for further growth. We are
currently completely on course with the implementation of Voith 150+.

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89
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 that the Company is always in a position to meet its pay­
ment 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 andcash equivalents as far as possible (where legally permissible) and lower interest
expenses caused by external debt financing. Borrowings are generally taken out
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 for € 770 million, which was arranged in 2011
and increased in 2014 under an amend-and-extend agreement, was extended fora year in August 2015 and now runs until 2020 with the option of extending foranother year. The loan has not been drawn on and is available as a strategic liquid­
ity reserve if needed, as are additional bilateral lines of credit available to us frombanks. The syndicated loan placed in China in 2012 was extended in May 2015
until 2020 under an amend-and-extend agreement. The loan has a total volumeof CNY 2.1 billion, of which a good 55 % are available on the balance sheet date.
This facility secures the finance for future investments in the same currency as theoperating business on the local market. These instruments will allow for long-term
growth in a changing global market. Voith has given high priority to the availabil­
ity of liquidity from existing loan agreements. Risks of termination are minimizedin that compliance with the terms and conditions of the respective contracts ismonitored on an ongoing basis. As in the previous years, all contractual terms andconditions were complied with in the 2014/15 fiscal year.
The investment grade rating given by the Moody’s agency was downgraded in
September of this year to “Ba1 outlook stable.” The year before Moody’s gave theVoith bond investment grade rating of “Baa2 negative outlook.”
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 theeuro against various other currencies could have negative effects on sales andearnings due to currency translation for the financial statements prepared in for­eign currency. This could further have an impact on our competitive position as
cost benefits in weaker currencies are possible for competitors. Moreover, inter­est risks are covered by appropriate hedges in order to obtain long-term interestand financing security.
To hedge existing transactions such as future cash flows in different currencies
or variable-rate financing, Voith uses a variety of derivative financial instruments,
in particular forward exchange contracts to manage currency risks and interest
rate swaps to manage interest risks. The instruments used and the hedge strate­
gies are defined and documented at the start of a hedge in line with the goals ofcorporate 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 insur­
ance 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. The
related reporting as well as reporting on financial instruments (Sec. 315 (2) No. 1
HGB) is provided in the section entitled “Other notes.”
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.

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91
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 forthe entire Group and also maintain the specific application systems used by eachGroup 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 is certified under thisstandard. 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 inbusiness processes being massively disrupted or coming to a complete standstill.
In order to prevent such business interruptions, we have built redundancy capacity
into the core systems of our IT landscape at two data processing centers. At theapplication level, we address the risk of defective software in addition to the riskof 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. Inorder to maintain the confidentiality of our data, these are categorized according
to predefined confidentiality levels. Depending on the level of 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 prop­
erty is protected as best as possible. In addition to these technical measures, wetrain and inform our employees about how to securely handle confidential data bymeans of e-learning programs and awareness campaigns.

Further information on our personal
information system can be found insection 7 “Employees.”

Highly qualified professionals and executives are key to our products, our image
and ultimately to the success and growth of Voith. If we were unable to cover ourqualitative and quantitative personnel needs over a longer period of time, this would
call into question our ability to reach our corporate targets. For this reason, we
strive to provide ongoing further training and to bind experienced employees toVoith while remaining an employer of choice for newly trained candidates on thelabor market. We compete with other international players and act with foresightin order to ensure we have a sufficient number of such employees. With a fami­
ly-friendly human resources policy and flexible working hours, international careerdevelopment prospects and performance-linked compensation systems as well
as a broad spectrum of training and development programs, we offer an attractive
work environment. We are also extending our Group-wide personal information
system in the direction of strategic personnel planning in order to identify require­ments in advance and to take suitable measures to cover them.
At Voith, we base all our actions on integrity and trust. The guidelines and values
defined by the Corporate Board of Management are summarized in the Voith
Code of Conduct. This is equally binding for all Voith employees worldwide andprovides clear-cut rules of behavior toward third parties such as business partners,
competitors, political parties and government authorities. Compliance with these

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

principles is monitored by the Group’s Compliance Committee and the complianceofficers in the Group Divisions and in each entity of the Group. As part of a struc­tured worldwide process which covers all locations, compliance officers draw up
a risk control matrix for their specific area of responsibility which covers all poten­
tial corruption risks. The findings for all units are aggregated and form the basis
for internal compliance reviews. We place great value on functioning compliancemanagement, as issues ranging from non-compliant behavior through to illegal
acts committed by employees could be damaging for our reputation and lead tosanctions, 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 envi­
ronmental 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 devel­
opments at the project locations. Several of our multiyear contracts also containdemanding timelines or provisions 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 provisions are made for special risks
arising from existing contracts if these risks can be reliably quantified.

Voith A nnual Repor t 2015

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93
Technical risks
Technical risks relate to innovation-related risks, sourcing risks and sales risks
due to decreasing customer satisfaction. There are currently no indications of any
particular technical risks within the Voith Group.

Detailed information on 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 prod­
ucts and services and to 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 services.
With several thousand active patents to its name and hundreds more new patents
filed every year, Voith ranks as one of the world’s most innovative companies in
the industries it serves.

Detailed information on
our supply chains system
can be found in section 6“Sustainability.”

Collaboration with suppliers on the global procurement markets involves three
types of risk: supply outages, unforeseen cost increases and non-compliance withenvironmental and social standards. We have embedded effective measures tosecure our supplies – supplier selection and order processing – in our processes.
Moreover, a permanent Group-wide risk management process has been imple­
mented 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 place in case
suppliers who provide core components for the Group’s products and services
should default. Moreover, in the 2014/15 fiscal year Voith once again used all themeans at its disposal to contain the risks posed by cost increases. It did so by
concluding fixed-price contracts. We have integrated environmental and social
standards in our General Terms and Conditions of Purchase. We review compli­
ance with these standards on the basis of voluntary disclosures made by our sup­pliers and by means of audits conducted on our suppliers’ production materials.
Our customers’ satisfaction is key to achieving sales success and maintaining or
increasing our market share. In the mid to long term, a fall in customer satisfac­
tion 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.
As part of our regular internal reporting on performance risks we monitor thetheoretical maximum risks associated with specific risk positions as well as therisks which after careful assessment are deemed to be realistic. Maximum risks
are considered in the light of potential existential threats. No existential threats
existed at the time of this report. The risks which may be realistically expected areconsidered for profit planning purposes and in order to assess the precautionary

Voith A nnual Repor t 2015

94

Group Management Repor tmeasures in the balance sheet. In total, provisions for fundamental performancerisks amounting to € 204 million had been established and included in the balance
sheet as provisions and impairments (maximum risk: € 314 million).

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 devel­
opment. 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.

09.3. Opportunities

In addition to the systematic management of risks, it is also essential that we sup­port our corporate success by actively managing opportunities. The identificationof opportunities and their strategic and financial assessment plays an importantrole in the strategic discussions the Corporate Board of Management holds regu­
larly with those responsible for the operating units. The results of these meetings
are incorporated into the Voith Group’s strategic decisions as well as into theannual planning process.
In the following, we describe significant opportunities which could have a positive
impact 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 the Group divisions.
Growing service business from postponed new acquisitions
In the currently subdued investment climate spending on new equipment andmachines is being postponed in many industries. Owing to the extended service
life of existing equipment customers are increasingly tending to make more inten­
sive use of our range of services, such as maintenance, performance enhancing
components and spare parts. This offers opportunities in all Group Divisions forour service activities, which might grow more than currently anticipated.
Opportunities associated with the global economy
Given the slow recovery of the economy and persistent uncertainties, we currently
expect the 2015/16 fiscal year to be shaped by a persistently gloomy investment
climate. If important sales regions and, as a result, the global economy recover
more quickly and durably than currently anticipated and if investor trust stabilizes,
this could have a positive impact on Voith’s net assets, financial position and results

Voith A nnual Repor t 2015

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95
of operations. Particular attention must be given to Brazil and China in this respect.
If this scenario were to occur, the impact would be tangible in all Group Divisions,albeit with a different time lag in each division.

For information on current
production innovations, seesection 5 “Research anddevelopment.”

Further information on our
Industry 4.0 strategy can befound in section 1.4. “Groupstrategy” and section 5“Research and development.”

Expanding the portfolio with product innovations
We are constantly working on developing new technologies, products and solu­
tions as well as improving existing ones. In the period under review, we once again
launched numerous new products on the market in our Group Divisions Voith
Hydro, Voith Paper and Voith Turbo. In the best possible case, this not only allows
us to secure our market position but also to generate sales and market sharesthat are yet to be integrated in our business plan, especially if innovations are rec­ognized as value adding by our customers much faster than currently assumed.
We gear our development activities towards global megatrends as well as current
technology trends and new industry-specific requirements, for example those thatare regulatory in nature. In the years ahead we will be focusing on solutions for
Industry 4.0 in particular.
Growth through acquisitions
Under the Voith 150+ program, we are working intensively to strengthen our port­
folio of products and services, also by means of strategic acquisitions. In the
short term, these offer opportunities for additional earnings not provided for in
the business plan; in the mid-term they can help improve our position in certain
markets or tap promising new fields for Voith. One special area of focus is on
major investments in KUKA Aktiengesellschaft in the 2014/15 fiscal year as wellas during the years ahead on acquisitions in the Industry 4.0 field. In this way wewill develop further competences in the electronics, sensor systems/technology
and automation fields.
New sales markets for existing products and services
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 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 three dif­ferent speeds of development in the coming years, with the strongest growth stim­
ulus coming from the emerging markets in Asia, and North America also postingstrong growth on account of low energy prices due to the large scale of shale gas
extraction and demographic advantages, while most of the remaining industrial­
ized nations, especially those in 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 downeven 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

Voith A nnual Repor t 2015

96Group Management Repor tdevelopments 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 have a positive impact on our earnings position.
Persistently low euro exchange rate provides short-term global
competitive advantages
From today’s perspective the continuing low euro exchange rate is an opportu­
nity which could have a positive impact on our net assets, financial position andresults of operations. If the euro persists at its currently weak exchange rate this
could improve the competitive position of our products on the global market andhave a positive effect on our results. In the short term we have based our plan­ning for the 2015/16 fiscal year on the assumption that the euro will remain at rel­
atively the same level as during the year under review in comparison with the key
currencies in our markets.

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. Amendments to accounting rules are constantly adapted and communicatedby Voith GmbH. The quality of the guidelines is ensured by an ongoing exchange
between the departments responsible.
Accounting is organized on a decentralized basis. Accounting entries are recordedin the separate financial statements of the subsidiaries of Voith GmbH. Risk con­trol matrices have been developed at corporate headquarters for the most signifi­
cant line items that, from a Group perspective, are exposed to an elevated risk ofVoith A nnual Repor t 2015

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97
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 ana­
lytical reviews as well as processing and controlling of key and complex business
transactions by different people. Complex accounting issues (e.g. financial instru­
ments) 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 plau­
sibility 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 reviews of the proper functioning,correctness, reliability and efficiency of all internal control and risk management
systems in the Voith Group independent of the affected processes. 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 consolidated and separate
financial statements. Any deficiencies or flaws that appear are recorded in a man­agement letter along with suggested improvements.

Voith A nnual Repor t 2015

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10

Group Management Repor t

Forecast reportThanks to its strengthened operative earnings powerand strategic refocusing, the Voith Group is moving
in a positive direction. Against the backdrop of apersistently subdued investment climate we expect
both the sales and orders received to remain constantin the 2015/16 fiscal year. At the same time, we aim
to improve our profitability, increase our profit fromoperations further and generate a substantially positive
net result.

10.1. Business environment

Global economic recovery remains fragile

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

Economic analysts anticipate somewhat stronger worldwide economic growthover the next two years than during the year under review. An important excep­
tion is this regard is China. For example, in its latest release the International
Monetary Fund (IMF) is forecasting global rates of growth of between 3.6 % and
3.8 % for the calendar years 2016 and 2017 compared with a plus of 3.1 % in2015. However, overall the recovery remains fragile and is associated with a highnumber of risks, particularly in connection with the future development of China
and Brazil, while we deem the chances of development exceeding our expec­
tations to be poor. Due to high levels of uncertainty the environment for capital
goods remains difficult. Consumables and products for existing machines andequipment, in contrast, as well as the most diverse services could benefit fromthe basically positive trend.
Emerging markets as a whole continue to grow at a faster rate than the advanced
economies. Developments vary widely from country to country. Nonetheless, withthe exception of China, GDP is projected to grow faster in 2016 than in 2015 in all
the key emerging markets which are relevant for Voith. Despite the slowing downin the pace of economic growth, China continues to grow at rates well above theglobal average and remains an important pillar of global economic development.
The dynamic economic development of India is projected to continue. We are
more pessimistic about Brazil and Russia, both of which have been in recession
in 2015 and where economic output is forecast to contract once again in 2016.
Various unsolved structural and political problems in each country are damaging
investor confidence. Russia’s economy is being weakened further by the low prices

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Group Management Repor t

Economic growth
Real change in GDP on the previous year1)

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

2016

3.6 %

2017

3.8 %

2016

2.2 %

2017

2.2 %

2016

2.8 %

2017

2.8 %

2016

1.6 %

2017

1.7 %

2016

1.6 %

2017

1.5 %

2016

4.5 %

2017

4.9 %

2016

6.3 %

2017

6.0 %

2016

4.9 %

2017

5.3 %

2016

7.5 %

2017

7.5 %

2016

-1.0 %

2017

2.3 %

2016

-0.6 %

2017

1.0 %

Source: International Monetary Fund; World Economic Outlook, Oct. 2015.
1)
Forecasts.
2)
Including Germany.

of raw materials, the low ruble as well as by the economic sanctions imposed by
the EU and the US in connection with the Ukraine crisis. We expect continued
strong solid growth in Southeast Asia. In the medium and long term Africa willgrow in importance.
The slow economic recovery will probably continue in the industrialized nations.
This is based on the assumption that oil-importing countries continue to benefit
from the low oil prices resulting from a market glut. While the strong dollar hastaken some of the momentum out of the highly positive recent prospects for
growth in the US, low energy prices due to production of its own shale gas andoil are responsible for the re-industrialization of the country and are expected togenerate GDP growth in the US exceeding the average for the advanced econ­omies. This provides opportunities for capital goods and industrial services pro­viders in particular and makes the US a strategic growth market for Voith. We
expect the cheaper euro to support ongoing gradual recovery in the euro zone
with investing activities remaining subdued despite interest rates being at arecord low. Moreover, the euro zone remains vulnerable to setbacks. Continuing
moderate growth and below-average performance in the engineering industry is
expected in Germany.

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Group Management Repor t

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 four of our five target markets – energy, oil & gas, paper, raw materials – wecan see little stimulus for growth and an ongoing gloomy investment climate in the2015/16 fiscal year. We are optimistic about the transport & automotive market.
As global energy needs continue 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. The
generally positive outlook for hydropower as a renewable energy will be hamperedin the short to mid term by global uncertainties and the expansion of shale gas andoil activities in the US, even if the pace of this expansion is set to slow considerably.
The oil & gas market is also projected to continue suffering from a glut and result­ing low market prices. Investing activities are therefore most likely to contract inthe 2015/16 fiscal year. It is still unclear what impact low energy prices will haveon investments in the North American shale gas and oil market.
Consumption of paper will continue to rise gradually, although there will be huge
differences between the various grades of paper and regions. In the 2015/16
fiscal year, we assume that investment in new paper machines will remain low on
account of the deteriorating market prospects of paper manufacturers. Demandfor consumables and services is expected to rise somewhat.
In the long term, the market for raw materials will see a growth trend driven by
the industrialization of emerging markets in Asia and a strong demand for coal tomeet rising energy needs worldwide. In the short and medium term, manufacturers’
investing activities will be curbed by the fall in prices for raw materials and existing
excess capacities. We do not anticipate any improvement in the 2015/16 fiscal year.
The growing backlog in investment in the industry should, however, contribute to
renewed growth in demand for mining equipment in the medium term.
We continue to be optimistic about Voith’s most important segments of the trans­
port & automotive market. The commercial vehicles segment is expected to con­tinue to grow with impetus coming from the EMEA region and India. We expect
the Rail segment to generate solid growth.

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Group Management Repor t

10.2. Future development

All Group Divisions returning a clear profitof the Company

Thanks to its strengthened operative earnings power and strategic refocusing,the Voith Group is moving in a positive direction. The coming year will be the nextstage along the way. Against the backdrop of continuing challenging conditions we
expect both sales and orders received to remain constant in the 2015/16 fiscal year.
All the Group Divisions will again return a clear profit from operations, although –depending on what are in part difficult markets – their sales and orders received
will not develop uniformly. We are continuing to work on increasing our results
and on achieving a tangible improvement in profitability. However, if the key mar­kets were to contract strongly, the measures we have taken to enhance efficiency
would not be sufficient to compensate for the related volume effects on results.
With regard to the business of the Voith Hydro Group Division we expect the hydro­
power market, which will be primarily determined by the award of major projects
in North and South America, Africa and Asia, to remain stable in the coming years.
Owing to the high volumes associated with particular large-scale projects, fluctua­
tions may occur from year to year which do not necessarily reflect a medium-term
trend. The growing economic and political uncertainties have resulted in repeated
delays in the award of contracts, over which we have no influence. Therefore, ourprojections for the fiscal year 2015/16 are conservatively based on the assumptionof a lower market volume than in the year under review. For this reason, our plans
foresee Voith Hydro’s orders received falling tangibly. As a result of the develop­
ment of orders received in the year under review we anticipate sales decreasingslightly in the 2015/16 fiscal year. Profit from operations is also expected to fallslightly. We anticipate ROCE (return on capital employed) remaining constant.
In the Voith Paper Group Division we expect that, based on the encouraging
development in the year under review, we will be able to stabilize sales and orders
received in the 2015/16 fiscal year at levels that are on a par with the previous
year. We are planning for noticeable growth in profit from operations as the costsavings generated by restructuring are expected to have further positive effects
in the 2015/16 fiscal year. We therefore assume that, while the capital employed
will remain almost constant, the ROCE will increase noticeably to a high one-digit
figure. With regard to the orders in hand, we project that the market as a wholewill remain challenging but stable. Our business will profit from increasing demandfor board and packaging paper, as well as tissue. However, at the same time, thetrend for graphic paper continues to be downward. In the short term, owing to
the recession, Brazil will be a difficult market, particularly for project business. We
plan to compensate for the negative influences on project business by growing
business with products, consumables and services.

Voith A nnual Repor t 2015

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Group Management Repor t

In Voith Turbo we plan to achieve sales in the 2015/16 fiscal year at much the samelevel as in the previous year. We expect a large increase in profit from operations.
As well as the cessation of the one-time burden during the year under review theoutcome of the efforts to enhance efficiency in the framework of the Voith 150+
program will also lead to an improvement in the return on sales. Improved profit­
ability will also be apparent in the ROCE which will increase to a clear double-digit
level. The orders received by Voith Turbo will remain constant. Whether we achieve
this objective depends critically on market conditions in the oil & gas market, in
mining as well as on political developments, such as those in Russia.

Profitability of the Voith Group on the rise
After achieving important subsidiary goals in the course of the year under review
and after taking far-reaching decisions, we will continue to press ahead with thetransformation of the Group as planned in the 2015/16 fiscal year. As part of theGroup-wide success program Voith 150+ we will also bring a number of initiatives
which have already been launched to a conclusion. We assume that the processof selling the Voith Industrial Services Group Division will be completed in the2015/16 fiscal year. In order to strengthen our technological expertise we will takefurther steps, as part of our digital agenda, to establish ourselves in our markets
as a competitive technology leader in the digital age.
We will continue to focus on improving return and cash flow in the Voith Group.
With the help of Voith 150+, we aim to increase our efficiency and profitability inthe short term and to grow our sales in the medium term. In the 2015/16 fiscal
year, we forecast that Group sales will remain at the same level as the period underreview. Our sales projections are based on the high level of orders on hand as at
September 30, 2015 and stable development of orders received in the 2015/16
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+
are going to show further positive effects. We plan to return to a clearly positive
net result in the 2015/16 fiscal year.

Voith A nnual Repor t 2015

Group Management Repor t

103
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 a fundamentally
healthy company. Our robust financial constitution provides us with the headroom
we need to implement the decisions we regard to be expedient. 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 excellently equipped to meet the challenges ahead. 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.

Voith A nnual Repor t 2015

Consolidated statement of incomeConsolidated statementof comprehensive incomeConsolidated balance sheetConsolidated statement of changes in equity
Consolidated cash flow statement 
Notes to the consolidated financial
statements for the 2014/15 fiscal year
Notes to the consolidated statement of incomeNotes to the consolidated balance sheet
Notes on segment reportingSegment information by business segment
Segment information by region
Other notes
Responsibility statementImprint

106
107
108
110
112
113
139
148
180
182
184
185
204
Cover

106

Consolidated Financial Statements

Consolidated statement of income
for the period from October 1, 2014 to September 30, 2015in €   thousandsNote2014 /15

2013 /14

Sales

(1)

4,302,299

4,168,453

Changes in inventories and other own work capitalized(2)

16,654-1,694

4,318,953

4,166,759(3)362,837

306,263

Cost of material(4)-1,832,900-1,777,100

Personnel expenses(5)-1,433,859-1,424,344-141,747-152,387-1,035,070- 929,476

238,214

189,715-184,846- 29,867

53,368

159,848

Total output
Other operating income

Depreciation and amortization(6)

Other operating expenses
Operational result before non-recurring items(7)

Non-recurring result
Operational result
Income from companies accounted for using the equity method-1,423

2,142

Interest income

10,56415,807- 74,553- 83,644-10,680- 40,565- 22,724

53,588- 47,886- 59,326

Net result from continuing operations- 70,610- 5,738

Net result from discontinued operations- 22,051

46,534

Net result- 92,661

40,796

Net result attributable to shareholders of the parent company- 102,859

21,997

Net result attributable to holders of non-controlling interests

10,19818,799Interest expenses(8)

Other financial result
Result before taxes from continuing operations(9)

Income taxes

Voith A nnual Repor t 2015

107

Consolidated Financial Statements

Consolidated statement of comprehensive income
for the period from October 1, 2014 to September 30, 2015in €   thousands

2014 /15

2013 /14

Net result- 92,661

40,796

Remeasurement of defined benefit plans

8,976-122,796

Taxes on components of other comprehensive income that will not be recycled through the statement of comprehensive
income in later accounting periods-1,70531,435- 859- 33,395

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 the statement of comprehensive incomein later accounting periods:
Gains/losses on available-for-sale financial assets
Gains/losses on cash flow hedges

-4

- 34

Gains/losses on currency translation-18,107

15,665

Gains/losses from the currency translation of net investments in foreign operations- 2,735-1,144

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

1,146

490

Other comprehensive income-13,288-109,779

Total comprehensive income-105,949- 68,983

Total comprehensive income attributable to shareholders of the parent company-115,419- 87,758

Total comprehensive income attributable to holders of non-controlling interests

9,470

18,775-105,949- 68,983

Voith A nnual Repor t 2015

108

Consolidated Financial Statements

Consolidated balance sheet
as at September 30, 2015

Assetsin €   thousandsNote2015-09-30

2014-09-30(10)458,974

712,854

A.

Non-current assets

I.

Intangible assets

II.

Property, plant and equipment(11)

1,058,902

1,189,950

III.

Investments accounted for using the equity method(12)617,882

41,320IV.

Securities(16)

111,206

134,176

V.

Other financial assets

36,04532,501VI.

Other financial receivables(15)

52,73575,160VII.

Other assets(15)

21,52432,868

VIII. Deferred tax assets(9)

Total non-current assets

180,803

183,878

2,538,071

2,402,707

B.

Current assets

I.

Inventories(13)

610,501

734,421II.

Trade receivables(14)

664,858

812,520

III.

Receivables from customer-specific contracts(14)

276,773

324,054

IV.

Securities(16)

62,18749,552

63,94974,527130,294111,978

V.

Current income tax assets

VI.

Other financial receivables

(15)

VII.

Other assets(15)

86,478112,616(17)

434,953

800,823

2,329,993

3,020,491

VIII. Cash and cash equivalents

IX.

(18)

582,961

30,012

Total current assets

Assets held for sale

2,912,954

3,050,503

Total assets

5,451,025

5,453,210

Voith A nnual Repor t 2015

109

Consolidated Financial Statements

Equity and liabilitiesin €   thousandsNote2015-09-30

2014-09-30

A.

EquityI.

Issued capital

120,000

120,000

II.

Revenue reserves

624,938

737,573

III.

Other reserves-15,565

6,930

IV.

Profit participation rights

6,600

6,600

Equity attributable to shareholders of the parent company

735,973

871,103

V.

Profit participation rights

96,80096,800VI.

Other interests

41,47063,400138,270

160,200(19)874,243

1,031,303

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

Non-current liabilities

I.

Provisions for pensions and similar obligations(20)722,673752,425

II.

Other provisions(21)

234,774

194,931

III.

Income tax liabilities

325

965

IV.

Bonds, bank loans and other interest-bearing liabilities(22)841,642899,282

V.

Other financial liabilities(24)

48,454

18,348VI.

Other liabilities(24)

32,282

52,690VII.

Deferred tax liabilities(9)50,851

76,7301,931,001

1,995,371

Total non-current liabilities
C.

Current liabilities

I.

Provisions for pensions and similar obligations(20)

28,604

27,683II.

Other provisions(21)

307,065294,656

III.

Income tax liabilities

74,22990,847

IV.

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

377,985

96,547

V.

Trade payables(23)

397,928

512,317

VI.

Liabilities from customer-specific contracts(14)

46,12812,708VII.

Other financial liabilities(24)

282,979

297,758

VIII. Other liabilities(24)

850,410

1,087,753

2,365,328

2,420,269

280,453

6,267

Total current liabilities

2,645,781

2,426,536

Total equity and liabilities

5,451,025

5,453,210

IX.

Liabilities directly associated with theassets classified as held for sale

Voith A nnual Repor t 2015

(18)

110

Consolidated Financial Statements

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

2014-10- 01

Issued capital

Revenue
reserves

Available-for-salefinancial assets

Cash flow hedges

Currencytranslation

120,000

737,573

4,491-1,063

10,808

9,935

- 499

-4

- 20,218- 92,924

- 499

-4

- 20,218

3,992-1,067- 9,410

Net result- 102,859

Other comprehensive income
Total comprehensive income

0

Allocation of reserves toprofit participation rights- 5,590

Changes in non-controlling interests
as a result of changes in group structure
Share of income attributable toprofit participation rights
Dividends-15,000

Non-controlling interests – put options

2,276

Other adjustments-1,397

2015- 09- 30

120,000

624,938

Equity attributable to shareholdersof the parent companyin €   thousands

2013-10- 01

Issued capital

Revenue
reserves

Available-for-salefinancial assets

Cash flow hedges

Currencytranslation

120,000

829,750

38,122-1,040- 1,787

Net result

21,997

Other comprehensive income- 88,248- 33,631- 2312,595- 66,251- 33,631- 2312,595

4,491-1,063

10,808

Total comprehensive income

0

Allocation of reserves toprofit participation rights- 5,501

Acquisition of non-controlling interests

771

Share of income attributable toprofit 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

Voith A nnual Repor t 2015

737,573111

Consolidated Financial Statements

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

Profitparticipationrights- 7,306

6,600-1,774-1,774

Total

ProfitparticipationrightsOtherinterests

Total

Total
equity871,103

96,80063,400160,200

1,031,303- 102,859

10,198

10,198- 92,661-12,560

- 728

- 728

-13,288

9,470

9,470

-105,949

5,227

0- 26,409- 26,409

0-115,419

0363- 5,227

5,227

0
- 363

- 363

- 26,409- 5,227-15,000- 9,080

6,600- 9,195- 5,227- 5,590- 9,195- 24,195

2,276

5,849

5,849

8,125

-1,397-1,645-1,645- 3,042

41,470138,270874,243735,973

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

Profitparticipationrights- 6,858

6,600

- 448
- 448

Total

ProfitparticipationrightsOtherinterests

Total

Total
equity984,787

96,80058,147

154,947

1,139,734

21,997

18,79918,79940,796-109,755

- 24

- 24

-109,779

18,775

18,775- 68,983

5,138

0- 3,024- 3,024- 2,2530- 87,758

0363- 5,138

5,138

771
- 363

- 363

- 5,138-15,000- 7,327

Voith A nnual Repor t 2015

6,600

- 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- 5,138

871,103

96,800566

566-1,066

63,400160,200

1,031,303

112

Consolidated Financial Statements

Consolidated cash flow statementin €   thousands

2014 /15

2013 /14

Result before taxes of continuing and discontinued operations- 39,701

119,292

Depreciation and amortization

227,991

215,178

Interest expenses/income

65,14968,051Other non-cash items

26,581

3,107

Gains/losses from the disposal of property, plant, equipment and intangible assets- 6,305920

Gains/losses from the disposal of consolidated companies

16,756- 40,937

Gains/losses from investments- 4,077

56

Changes in other provisions and accruals

125,476-101,432

Change in net working capital-140,172

44,821

Interest paid

- 49,501- 53,836

8,930

17,267

Interest received
Dividends received

13,5003,300

Tax paid- 93,379- 84,508

Cash flow from operating activities

151,248

191,279

Investments in property, plant, equipment and intangible assets-103,011-133,802

27,1488,885- 613,578- 8,991169

0Acquisition of subsidiaries- 3,000-10,550

Receipts and payments in connection with the disposal of consolidated subsidiaries

5,015

68,900

Proceeds from the disposal of financial assets

4,164

1,504

Proceeds from the disposal of property, plant, equipment and intangible assets
Investments in financial assets
Subsequent purchase payments for earlier acquisitions

Changes in investments in securities- 9,857

17,469Cash flow from investing activities- 692,950- 56,585- 29,785- 27,8280

245

Dividends paid
Contributions from holders of non-controlling interests
Acquisition of non-controlling interests0- 6,825

New bonds, bank loans and overdrafts

294,142

51,229

Repayment of bonds, bank loans and overdrafts- 75,099- 239,498

Changes in other interest-bearing financial receivables and liabilities- 4,592- 9,600

Cash flow from financing activities

184,666- 232,277

Total cash flow

- 357,036- 97,583-14,925

3,530

Exchange rate movements and valuation changes

6,091- 6,091

Cash and cash equivalents at the beginning of the period

800,823

900,967

Cash and cash equivalents at the end of the period

434,953

800,823

Reclassification to assets held for sale

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113

Consolidated Financial Statements

Notes to the consolidated
financial statements for the
2014/15 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 requiredby Sec. 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 published in
the Bundesanzeiger [German Federal Gazette]. JMV GmbH & Co. KG, Heidenheim
is the ultimate parent company of the Voith Group.
The Board of Management of Voith GmbH authorized the consolidated financial
statements for presentation to the Supervisory Board on November 26, 2015.
The consolidated financial statements of Voith GmbH for the 2014/15 fiscal year
were prepared in accordance with International Financial Reporting Standards(IFRS) and the interpretations of the International Financial Reporting Standards
Interpretations Committee (IFRIC) pursuant to EU Regulation (EC) No. 1606/2002
in conjunction with Sec. 315a HGB. 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 which are domiciled in the EU to prepare theirconsolidated financial statements solely on the basis of IFRS as endorsed by the
EU. Voith GmbH has issued debt securities which are traded on the Luxembourg
stock exchange, a regulated market. 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 beentaken 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). Minor rounding differences may occur.
The Voith Group is divided into four segments: Voith Hydro, Voith Industrial
Services, Voith Paper, and Voith Turbo. An announcement was made in February
2015 of the Voith Group’s intention to concentrate its focus on its technology andengineering competency and to dispose of the Voith Industrial Services segment.
Accordingly, Voith Industrial Services is presented in this report as held for saleand as a discontinued operation. Voith Industrial Services is no longer included in
the segment reporting. Details of the business activities pursued by the Group’s
segments are provided in the explanatory notes to the segment reporting.

Voith A nnual Repor t 2015

114
Basis of consolidation

Consolidated Financial Statements

In addition to those entities acting as holding companies, the consolidated financial
statements also include all the Group’s manufacturing, service and sales companies both in Germany and in other countries as at September 30 of each fiscal year.
The financial statements of the subsidiaries are prepared for the same period astheir parents’ financial statements, using consistent accounting policies.
Subsidiary companies are consolidated in full from the date on which the Groupobtains control. They are no longer included in the consolidation as soon as theparent company ceases to have control. For four companies (previous year: 12)
control over companies included in the consolidation is obtained due to the factthat the Group has a majority of voting rights in the relevant decision-making
bodies.
There were no cases in which Voith has a majority shareholding while it does notcontrol the entity. In the previous year there were two cases; for those companies
the composition of the decision-making bodies was based on equal representation.
The following companies are included in the consolidated financial statements:

2015-09-30

2014-09-30

Voith GmbH and its fully consolidated subsidiaries:· Germany

43

56· Other countries

128

139

Total number of fully consolidated companies

171

195

· Germany

6

6· Other countries

12

13

Total number of companies
accounted for using the equity method

18

19Companies accounted for using the equity method:

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
VHFK
VHV

Voith H­ ydro GmbH & Co. KG, Heidenheim, Germany­ ydro Inc., York (PA), United States
Voith H
Voith H­ ydro Ltda., São Paulo (SP), Brazil
Voith H­ ydro 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 Fuji Hydro K. K., Kawasaki-shi, Kanagawa, Japan
Voith H­ ydro AB, Västerås, Sweden

Voith A nnual Repor t 2015

115

Consolidated Financial Statements

VIKI
VIAS
VICU
VIER
VIPA
VIWA
VIHC
VIHE
VISH
VIDK

Voith ­Industrial ­Services GmbH & Co. KG, Kirchseeon, Germany
Voith ­Industrial ­Services Ltd. & Co. KG, Stuttgart-Vaihingen, Germany
Voith ­Industrial ­Services Inc., Cincinnati (OH), United States
Voith ­Industrial ­Services GmbH, Mainhausen, Germany
Voith Serviços Industriais do Brasil Ltda., São Paulo (SP), Brazil
Voith ­Industrial ­Services Limited, Warwick, United Kingdom
Voith Engineering ­Services GmbH, Chemnitz, Germany
Helix Systems, Inc., Bessemer (AL), United States
Voith Industrial Services (Shanghai) Co., Ltd., Shanghai, China
Voith ­Industrial ­Services A / S, Ringsted, Denmark

VPH
Voith ­Paper GmbH & Co. KG, Heidenheim, Germany
Voith ­Paper Máquinas e Equipamentos Ltda., São Paulo (SP), Brazil
VPP
VPEZ	Voith ­Paper Fabric & Roll Systems GmbH & Co. KG, Heidenheim,
Germany
VPIT
Voith IHI ­Paper Technology Co., Ltd., Tokyo, Japan
VPC
Voith ­Paper (China) Co., Ltd., Kunshan, Jiangsu, China
VPFS
Voith ­Paper Fabric & Roll Systems Inc., Wilson (NC), United States
VPA
Voith ­Paper Inc., Appleton (WI), United States
VPS
Voith ­Paper GmbH, St. Pölten, Austria
VPFI	Voith ­Paper Fabrics Ipoh Sdn. Bhd., Chemor, Perak Darul Ridzuan,
Malaysia
Voith ­Paper S.A., Ibarra (Guipúzcoa), Spain
VPTA
VTA
Voith Turbo GmbH & Co. KG, Heidenheim, Germany
VTSK Voith Turbo Scharfenberg GmbH, 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
Voith Turbo sp. z o.o., Wola Krzysztoporska, Poland
VTPL
VTCN Voith Turbo Power Transmission (Shanghai) Co., Ltd., Shanghai, China
VTIP
Voith Turbo Private Limited, Hyderabad (A.P.), India
VTHL
Voith Turbo H + L Hydraulic GmbH & Co. KG, Rutesheim, Germany
Voith Turbo Ltda., São Paulo (SP), Brazil
VTPA
VTGB Voith Turbo Limited, Croydon, United Kingdom
VTSH	Voith Turbo Schneider Propulsion GmbH & Co. KG, Heidenheim,
Germany
Voith Turbo Limited, Hong Kong, China
VTEA
VTAU
Voith Turbo Pty. Ltd., Wetherill Park, N.S.W., Australia
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. The consolidated financial statements of Voith GmbH are filed with the
Bundesanzeiger pursuant to Sec. 264b No. 3 HGB and Sec. 264 (3) No. 4 HGB.

Voith A nnual Repor t 2015

116

Consolidated Financial Statements

Non-controlling interests are held in the following significant subsidiary companies:
Voith Hydro GmbH & Co. KG, Heidenheim

Non-controlling shareholding, in %2015-09-30

2014-09-30

35

35

The voting share capital of Voith Hydro GmbH & Co. KG is equal to the percentageof share capital held.
The following table shows the financial data of significant subsidiary companies
with non-controlling shareholders (the figures are those of the Voith Hydro GmbH& Co. KG segment):
Voith Hydro GmbH & Co. KG, Heidenheim
in €   thousands

2015-09-30

2014-09-30

Sales

1,316,066

1,317,384

17,08036,734

Net result

4,513

13,483

Other comprehensive income

Net result attributable to the non-controlling shareholders-11,824-1,715

Total comprehensive income

5,256

35,019754

12,020Total comprehensive income attributable to thenon-controlling shareholders
Current assets

1,060,980

1,015,633

Non-current assets

305,910305,920

Current liabilities

966,223

956,651

Non-current liabilities

210,796

169,728

Net assets

189,871

195,174

Net assets attributable to the non-controlling shareholders

59,654

61,223

Cash flow from operating activities

34,83737,225

Cash flow from investing activities- 25,503-17,020

Cash flow from financing activities

20,761-17,977

Total cash flow

30,095

2,227

Exchange rate movements of valuation changes- 8,973- 215

Reclassification to assets held for sale

6,091

- 6,091

Net increase/- decrease in cash and cash equivalents

27,213- 4,079

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117

Consolidated Financial Statements

Significant business combinations in the 2013/14 fiscal year
Acquisition of Helix Systems Inc., USA
Voith Industrial Services acquired all of the interests and voting rights in Helix
Systems Inc., USA with effect from July 31, 2014. The company has been integrated into the Automotive division. With this acquisition, Voith Industrial Services
aims to strengthen its position in the growth market of North America, thereby
expanding its portfolio by adding activities with a technical focus. In addition, newcustomer groups are also to be tapped.
Part of the intangible assets purchased, e.g. the know-how of the employees,
could not be recognized in the financial statements because the recognition criteria
were not met. Accordingly they were subsumed under goodwill. Apart from that,
goodwill stemmed from the aforementioned expected positive effect for the Voith
Industrial Services Group Division. Goodwill was not tax deductible.
The following amounts resulted from the assets and liabilities acquired from the
combination:
Balance sheet itemin €   thousands

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

Voith A nnual Repor t 2015

Acquisition
date fair value- 387
10,550118

Consolidated Financial Statements

Business combinations in the 2014/15 fiscal year
In the 2014/15 fiscal year Voith Turbo acquired assets from a business unit ofMaschinenfabrik Hese GmbH, Gelsenkirchen, a company in insolvency proceedings, under an asset deal.
The acquisition enabled Voith Turbo to expand its activities in the raw materials
exploitation and mining sector. Given Voith’s worldwide marketing activities we
see opportunities for increased marketing of Hese technology-based products.
In addition we expect to benefit from the know-how of the Hese employees thathave joined us.
The assets acquired were allocated the following fair values at the acquisition date:
Balance sheet itemin €   thousands

Intangible assets

Acquisition
date fair value

1,420

Other non-current assets

250

Inventories

13

Net fair value

1,683

Goodwill

1,317

Purchase price of the assets acquired

3,000Part of the intangible assets purchased, e.g. the know-how of the employees,
could not be recognized in the financial statements because the recognition criteria
were not met. Accordingly they were subsumed under goodwill. Apart from that,
goodwill stemmed from the expected positive effect for the Voith Turbo Division
described above.
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 interest in Voith Hydro Ocean
Current Technologies GmbH & Co. KG, Heidenheim, Germany in the 2013/14 fiscal
year. In addition, Voith Paper acquired the remaining 50 % of the interests in Voith
EcoSolutions GmbH & Co. KG, Heidenheim, Germany. The purchase price for thetwo transactions totaled € 6,825 thousand.
Disposals in the 2013/14 fiscal year
As at September 30, 2014, Voith Industrial Services sold the subsidiaries of the
DIW Group. The sale is part of the strategic realignment of the Group Division.
Furthermore, in the course of streamlining the product portfolio Voith Industrial
Services and Voith Turbo each sold one product segment. In total, the sale included
the disposal of goodwill of € 19,531 thousand, property, plant and equipmentof € 3,289 thousand, trade receivables of € 35,551 thousand, other current
assets of € 33,680 thousand, provisions of € 11,787 thousand, trade payables

Voith A nnual Repor t 2015

119

Consolidated Financial Statementsof € 11,004 thousand, and other liabilities of € 25,077 thousand. A total gain of€ 40,937 thousand was realized on the disposal. This was primarily generated on
the sale of the DIW Group.
Disposals and discontinued operations in the 2014/15 fiscal year
An announcement was made in February 2015 of the Voith group’s intention to concentrate its focus on its technology and engineering competency and to disposeof the Voith Industrial Services segment. Accordingly, Voith Industrial Services ispresented in this report as held for sale and as a discontinued operation.
The income after taxes from discontinued operations included in the statement ofincome includes the following:in €   thousands

Sales

2014/15

2013/14

1,044,506

1,199,749

Changes in inventories and other own work capitalized- 4,202

17,197

Other operating income

20,861

21,941-1,028,937-1,208,345

Operational result before non-recurring items

32,22830,542

Operating expenses

Non-recurring result-45,729

33,409Operational result-13,501

63,951

Financial result-3,476

1,754

Result before taxes-16,977

65,705

Income taxes-5,074-19,171

Net result-22,051

46,534

2014/15

2013/14

Cash flow from discontinued operations:in €   thousands

Cash flow from operating activities

8,945- 6,591

Cash flow from investing activities- 18,256

27,995The carrying values of the assets and liabilities held for sale attributable to the Voith
Industrial Services division are presented in note 18.
Voith Industrial Services had already sold its entire shareholding in P3 Voith
Aerospace Holding GmbH and its subsidiaries on April 30, 2015. The purchaseprice amounted to € 18,560 thousand. The significant assets disposed of represented goodwill of € 31,092 thousand, intangible assets € 6,840 thousand, othernon-current assets of € 3,847 thousand, inventories of € 12,022 thousand, tradereceivables of € 20,783 thousand, and other current assets of € 21,596 thousand.

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Consolidated Financial Statements

The significant liabilities disposed of were non-current liabilities of € 2,532 thousand,and current liabilities of € 33,149 thousand. As a result of the sale, a reduction of€ 25,352 thousand has been shown in non-controlling interests in equity and aloss of € 16,587 thousand has been recorded in the net result under discontinued
operations.
As part of the planned portfolio streamlining, the Voith Turbo segment disposedof its shareholding in a subsidiary in the 2014/15 fiscal year. This disposal resulted
in the sale of non-current assets totaling € 1,075 thousand, current assets of€ 3,819 thousand, non-current liabilities of € 245 thousand, and current liabilitiesof € 2,444 thousand. The purchase price was € 955 thousand. As a result of thissale, a reduction of € 1,081 thousand has been shown in non-controlling interestsin equity and a loss of € 169 thousand has been recorded which is included in theoperational result before non-recurring items.

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 isdeemed to be an asset or liability will be recognized either in profit or loss inaccordance with IAS 39 or as a change to other comprehensive income. If thecontingent consideration is classified as equity, it is not remeasured and its subsequent settlement is accounted for within equity.
In the case of business combinations achieved in stages that give rise to control
over an entity, or in the case of disposals of shares which result in a loss ofcontrol, the previously held or remaining equity interests are remeasured at fairvalue through profit or loss.
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. Accordingly, businesscombinations achieved in stages where the Group already has control or disposalsof shares without a loss of control have been recognized directly in equity without
affecting the result for the period from the 2009/10 fiscal year onwards.

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121

Consolidated Financial Statements

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 sameaccounting 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 eliminated on
consolidation. Intercompany profits in inventories and non-current assets are
eliminated in the consolidated statement of income. Intercompany sales and otherintercompany income are netted against the corresponding expense. Deferred tax
is recognized for consolidation transactions that are recognized in profit or loss.

Foreign currency 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 exchange 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.
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.

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Accounting policies

Consolidated Financial Statements

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,
which are recognized at fair value.
Consistent accounting policies are used to prepare the separate financial statements for the companies included in the consolidated financial statements.
Significant accounting policies are described below.
Income and expenses
Sales (adjusted for customer bonuses, cash discounts, and other rebates) arerecognized when products or merchandise have been delivered and/or services
rendered and when the risk of ownership has been transferred to the customer.
Revenue earned under long-term contracts, which is primarily relevant for Voith
Paper and Voith Hydro, are recognized in proportion to the completion of thecontract performance obligations (“percentage of completion”). Please refer to the
explanations on accounting for long-term contracts.
Interest expenses and interest income are recognized as they accrue. The effective
interest method, i.e. the imputed interest rate, is used to discount estimated future
cash receipts over the expected term to maturity of the financial instrument to the
net carrying amount of the financial asset.
Dividend income is recognized when the Group’s right to receive the payment 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.
Intangible assets
Intangible assets acquired for monetary consideration are recognized at acquisition
cost and 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, that the generation of future
economic benefits is probable. The manufacturing costs include all costs which

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are directly attributable to the development process and a proportionate share ofoverheads. These assets are amortized using the straight-line method from thedate of completion, i.e. the start of production, over a defined period, which isusually 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 amount of
the asset does not exceed its recoverable amount, nor exceed the carrying amountthat 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 underother operating income. However, significant impairment losses, particularly
those associated with the discontinuation of operations, are presented under thenon-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 groups of cash-generating units.
In line with the management’s internal reporting practices, these are identified on
the basis of the Group’s operating activities. Voith has therefore defined the four
segments Voith Hydro, Voith Industrial Services, Voith Paper and Voith Turbo as
the relevant groups of cash-generating units.
To determine whether goodwill is impaired, the Voith Group primarily measures theassets of the cash-generating unit against their value in use. This is based on the
discounted cash flow projections taken from the latest business planning preparedby management. The planning assumptions are adjusted to reflect the current
information available. Key assumptions on which calculations of fair value arebased include assumptions about the trend in orders received and sales, growth
rates, extrapolated cash flow forecasts beyond the planning horizon and discountrates. Due account is taken of reasonable assumptions regarding macroeconomic
trends and historical developments. Based on the value in use measurement ofthese assets there was no indication of a need to record an impairment loss on
goodwill.

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The Board of Management of Voith GmbH assumes business trends will remain
stable in the 2015/16 fiscal year. Based on this, the following assumptions apply:
Voith Hydro:
Voith Hydro’s orders received were above average in the 2014/15 fiscal year.
Primary drivers of this were hydropower plant projects awarded in Asia and North
America, including a large number of medium-sized projects and two large projects.
Based on the assumption of a stable market volume in hydropower for the coming
years, Voith Hydro also expects its orders received to be stable. Sales are stablein line with the orders received. For the terminal value, the Group Division expects
to see a slight increase in orders received and sales.
Voith Industrial Services:
In the first budget year 2015/16 Voith Industrial Services expects a slight fall in sales
following the sale of the P3 Voith Joint Venture. Starting in the 2016/17 fiscal year, itis planning on a higher level of 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 2015/16 and 2016/17 budget years, Voith Paper expects the market volume
for the project business to remain almost unchanged, and accordingly that sales
will stabilize at the current level. The volume of business is also expected to remain
stable at this level in the medium term. For the Products & Services division, Voith
Paper plans to see a continued increase in orders received and sales against thebackground 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 slight increase in orders
received and sales.
Voith Turbo:
Planned business activity levels reflect the overall slow development in the market.
In the second budget year (2016/17) Voith Turbo expects a moderate growth insales – an upturn is expected for the CV and Rail divisions. In the medium termVoith Turbo plans for higher sales and a significant improvement in profitability.
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 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 industrial sectors in which the corresponding cash-generating
unit operates.

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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 foreach of the cash-generating units. The discount rates applied reflect the equity
risk specific to each cash-generating unit. The present values are determinedusing after-tax interest rates of 4.6 % (previous year: 6.8 %) for Voith Hydro, 4.9 %(previous year: 6.2 %) for Voith Industrial Services, 5.5 % (previous year: 7.5 %) for
Voith Paper and 4.3 % (previous year: 5.8 %) for Voith Turbo. Extrapolated fromthese amounts the pre-tax rates for which IAS 36 disclosures are required are
5.6 % for Voith Hydro (previous year: 9.2 %), 7.4 % for Voith Industrial Services(previous year: 8.4 %) 7.1% for Voith Paper (previous year: 10.1%) and 5.9 % for
Voith Turbo (previous year: 7.8 %).
No impairment requirements arise if, for sensitivity purposes, a 1 percentage
point increase in the discount rate or a 5 % reduction of the future cash flows is
assumed.
Property, plant and equipment
Property, plant and equipment are stated at acquisition or manufacturing cost lessdepreciation and after deduction of any impairment losses. The cost of internallyproduced property, plant and equipment includes all directly attributable production costs and an appropriate share of production overheads. Depreciation is recognized on a straight-line basis over the following useful lives:
Useful life
Buildings

40 to 50 years

Plant and machinery

4 to 15 years

Other equipment, furniture and fixtures

4 to 12 years

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 amount of
the asset does not exceed its recoverable amount, nor exceed the carrying amountthat would have been determined, net of depreciation, had no impairment loss
been recognized for the asset in previous years.

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Impairment losses are generally shown in the statement of income under depreciation and amortization. Reversals of impairment losses are reported under 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 aspart of the cost of those assets.
Leasing
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 the use of
the leased asset to a Voith Group company (the lessee) are classified as financial
leases. In such cases, the lessee recognizes the leased asset at the start of 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 isrecognized in the interest result. All other leases in which Voith Group companies
act as the lessee are accounted for as operating leases. The lease payments for
operating leases are recognized as expenses using the straight-line method over
the term of the lease.
Financial instruments
A financial instrument is any contract that simultaneously gives rise to a financial
asset of one party to the contract and a financial liability or equity instrument of theother party to the contract. Financial assets and liabilities are only recognized in the
consolidated balance sheet when Voith is a contract party to a financial instrument.
The Group classifies non-derivative financial assets into the following categories:“Loans and Receivables”, “Available for Sale Financial Assets”, and “Financial
Assets at Fair Value through Profit and Loss”.
The Group classifies non-derivative financial liabilities as “Financial Liabilities
Measured at Amortized Cost”.
The derivative financial assets and liabilities are classified as “Held for Trading”
unless they are designated as hedging instruments and are effective for that
purpose.

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Loans and Receivables
The Group recognizes loans and receivables at the date they are originated. Suchassets are initially recognized at fair value plus directly attributable transaction
costs. Subsequent to initial recognition they are measured at amortized cost using
the effective interest rate method.
Available for Sale Financial Assets
Shareholdings in businesses accounted for as financial assets and reported within
other investments are measured at fair value on initial recognition. Subsequent
to initial recognition, such investments are stated at cost where no active market
exists for individual companies and it is impracticable to determine their fair value
at reasonable cost. In cases where there is objective evidence of impairment, thecarrying amount is reduced by the amount of any impairment.
In accordance with IAS 39, loans classified as non-current loans are recognizedunder other financial assets at amortized cost, adjusted (where necessary) for any
impairment.
The securities held by the Voith Group are normally available for sale. In the caseof customary purchases and sales these are accounted for on the trading date,and subsequent to initial recognition they are measured at fair value, whereby thechange in fair value is not recognized in the statement of income.
Any gains or losses arising from changes in the fair value of available-for-salesecurities are recognized in other comprehensive income until the asset is derecognized. The carrying amounts of non-current financial assets and available-for-salesecurities are regularly tested for objective evidence that they may be impaired.
Such evidence can take the form of significant financial difficulty of the debtor orchanges in the technological, economic and legal environment. Objective evidence
that equity instruments may be impaired is given if there is a sustained or significant
decline in their fair value. The sustainability criterion is met if the impairment lasts
longer than twelve months. The decline is regarded as significant if the fair valueof the investment falls more than 30 % below its cost. If this happens, the amounts
hitherto recognized under other comprehensive income are recognized in profit
or loss.
Financial Assets at Fair Value through Profit and Loss
A financial asset is measured at fair value through profit and loss if it is held for
trading purposes or if it is designated to be measured at fair value through profit
and loss on initial recognition. Attributable transaction costs are recognized in thestatement of income at the date they are incurred.

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The Group holds small volumes of securities that are classified as at fair value
through profit or loss upon initial recognition. Certain securities are assigned to thiscategory to eliminate measurement inconsistencies in the accounting for long-term
employee benefits.
Financial Liabilities Measured at Amortized Cost
Non-derivative financial liabilities are measured on initial recognition at fair valueless attributable transaction costs. Subsequent to initial recognition these financial
liabilities are measured at amortized cost using the effective interest rate method.
Financial assets and liabilities Held for Trading
All derivative financial instruments are recognized at fair value on the trading date.
Gains and losses on financial assets and liabilities that are held for trading arerecognized in the income statement.
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 byVoith for this purpose aim to reflect objective criteria as accurately as possible andto 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 valueof other financial instruments which are identical in all significant aspects.
Derivative financial instruments and hedging
Voith uses a variety of financial derivatives – such as forward exchange contracts
and interest rate swaps – to hedge underlying transactions. Essentially, the 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 to thehedged risk. Such hedging relationships are considered to be highly effective inoffsetting the risks of fair value changes. Their effectiveness is assessed on an
ongoing basis to determine whether they have been highly effective throughout
the financial reporting periods for which the hedge was designated.

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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 fairvalue of 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 thecase of fair value hedges, the carrying amount of a hedged item is adjusted by
the profit or loss that is attributable to the hedged exposure, and the difference isreported in profit and loss. The derivative financial instrument is remeasured at its
fair value and any gains or losses arising as a result are recognized in profit or loss.
For fair value hedges relating to hedged items carried at amortized cost, theadjustment to the carrying amount is amortized through profit or loss over theremaining term to maturity.
When an unrecognized firm commitment is designated as a hedged item, thesubsequent accumulated change in the fair value of the firm commitment thatis attributable to the hedged risk is recognized as an asset or liability and thecorresponding gain or loss is recognized in the profit or loss of the period. Changes
in fair value of the hedging instrument are also recognized in the profit or loss ofthe period.
The Group discontinues fair value hedge accounting if the hedging instrument
expires, is sold, terminated, or exercised, or if the hedge no longer meets thecriteria for hedge accounting. Every adjustment to the carrying amount of a hedged
financial instrument is released to income using the effective interest method. As
soon as there is an adjustment the reversal may begin, and shall in any case begin
no later than when the hedged item ceases to be adjusted for changes in its fairvalue attributable to the risk being hedged.
Embedded derivatives
When the Group becomes party to a contract, it assesses whether any embedded
derivatives should be separated from the host contract. Embedded derivatives canarise, for example, in cases where commercial agreements include requirementsthat payments are made in non-trading currencies. A reassessment is not madeunless there is a substantial change in the terms of the contract that significantly
modifies the cash flows that would otherwise have been generated from the contract. Where there are embedded derivatives for which separate recognition isrequired, such derivatives are recognized at fair value as financial assets held for

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Consolidated Financial Statements

trading. Embedded financial derivatives with positive fair values are stated underother financial receivables; those with negative fair values are stated under bonds,
bank loans and other interest-bearing liabilities or other financial liabilities.
Inventories
Materials and supplies, merchandise, work in progress and finished goods are allstated under inventories at the lower of cost and net realizable value. In addition
to direct costs, cost includes an appropriate portion of necessary materials andproduction overheads as well as production-related depreciation that can bedirectly allocated to the production process. The average cost, or cost based on
the first-in, first-out (FIFO) method, is capitalized in the balance sheet. Appropriate
allowance is made for 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 assigned tothe category “loans and receivables” and are measured at their nominal or acquisition cost. They are regularly tested for impairment on an individual basis. Where
objective evidence of possible loss exists (for example, if the debtor is experiencing
significant financial difficulty, if it is highly probable that insolvency proceedings
will be opened against the debtor, if the debtor defaults on or is in arrears withinterest or principal payments, if significant adverse changes in the technological,
economic, or legal environment occur, if there is a significant or prolonged decline
in the fair value of a financial instrument below its cost, or if legal proceedings are
opened), individual allowances are recorded using an allowance account to reflect
these factors. To the extent that impairment is derived from historical bad debt

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rates on a portfolio basis, a fall in the total volume of receivables reduces suchallowances and vice versa. Impaired receivables are derecognized when they areassessed as uncollectible. Interest-free or low-interest receivables due in morethan one year are discounted.
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.
Discontinued operations and non-current assets held for saleNon-current assets and disposal groups held for sale are classified as non-current
assets held for sale or as liabilities directly associated with assets classified as held
for sale, respectively, if their carrying amount is to be recovered through sale rather
than through continuing use. This condition is regarded as met when the sale ishighly probable and the asset or disposal group is available for immediate sale inits present condition. In this case management has decided to sell the asset andit is expected that the sale will take place within twelve 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.
Discontinued operations are recognized as soon as any component of an entitywith business activities and cash in- and outflows that can be clearly distinguishedfrom the rest of the entity for operational and accounting purposes is classified asheld for sale or has already been disposed of, and such business division either (1)represents a separate major line of business or a geographical area of operations,and (2) is part of a single coordinated plan to dispose of a separate major lineof business or geographical area of operations, or (3) is a subsidiary exclusively
acquired with a view to resale. Earnings of discontinued operations are reported
separately from income and expenses from continuing operations in the income
statement. Figures shown for previous years are presented on a comparable
basis. Cash in and outflows from discontinued and continuing operations are notpresented separately in the consolidated cash flow statement, and figures shownfor previous years in the cash flow statement are not restated. Figures disclosed
in the notes to the consolidated financial statements for items in the consolidated
income statement relate to continuing operations. Information on discontinued
activities is provided in the section “Disposals and discontinued operations”. Sales
revenues and expenses generated within the Group have been eliminated in orderto present the financial effect of the discontinued operations with the exception

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Consolidated Financial Statementsof sales revenues and expenses which are expected to continue after the sale ofthe discontinued operations.
Deferred and current taxes
Deferred tax assets and liabilities are recognized for temporary differences between
the amounts carried in the tax balance sheet and the amounts reported for IFRS
purposes (temporary concept) in accordance with IAS 12. Deferred tax assets arealso recognized for unused tax losses insofar as it is reasonable to expect that they
will be realized in the near future. Deferred taxes that relate to items recognizedunder 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 to apply in the countries
concerned at the time of realization. Deferred tax assets on unused tax losses thatare not likely to be realized within a foreseeable period (normally two years) or thatare not covered by deferred tax liabilities are either written down or not recognizedat all. Deferred tax assets and deferred tax liabilities are presented on a net basis if
the Group has a legal right to offset current tax assets against current tax liabilities
and they relate to income taxes levied by the same taxation authority.
Current taxes are calculated and reported in accordance with the tax laws andregulations valid for each company.
Profit participation rights
The profit participation rights amounting to € 103,400 thousand are reported as aseparate component of the Group’s equity, in accordance with IAS 32. Interest is
not reported as interest expenses, but is treated in a similar manner to a dividend
obligation.
Provisions for pensions and similar obligations
Provisions for pension obligations are measured based on actuarial valuation methods using the prescribed projected unit credit method for defined benefit plans as
required by IAS 19. This method considers not only the pensions and future claims
known at the end of the 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. Both expense items are recognized in the income statement. Revaluationsof the net debt recognized are disclosed under other comprehensive income netof deferred taxes.

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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 athird party as a result of a past event and it is probable that an outflow of resources
will be required whose amount can be estimated reliably. Provisions for warranty
claims are based on historical claim trends and estimated future trends. Specificprovisions are set up for known claims. Provisions for outstanding expenses,
onerous contracts, and other business-related obligations are measured basedon services still to be rendered, usually at the amount of the costs to sell.
Provisions which do not lead to an outflow of resources in the following year are
carried at the discounted settlement amount at the end of the period under review.
The discount rate used is derived from market interest rates. The settlement amountalso 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 fromrefunds 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 thecost of the financial liabilities adjusted for repayments, issue costs and the amortization of any debt discounts or debt premiums. Where liabilities are accounted foras hedged transactions, they are measured taking into account the market valueof 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 theminimum lease payments at the start of the lease and subsequently 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 the income statement.
Classification of non-controlling interests of third party shareholders
in limited partnerships based on termination rights of non-controllingshareholders and put options
In accordance with IAS 32, financial instruments that entitle the holder to repayment of the capital made available to the partnership must be classified as liabilities.
In companies that operate as limited partnerships, partners have the right under
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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 salerights for the holder of the put 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. Based on this,a share of net result for the year is allocated to holders of non-controlling interests.
At each reporting date, it is assumed that the put option will be exercised andthe 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 the share of equity attributable to non-controlling interests is treated asa transaction between owners and has been recognized from the 2009/10 fiscal
year onwards as a change in equity without any effect on the statement of income.
Until and including the 2008/09 fiscal year such transactions were regarded as abusiness combination achieved in stages and the difference stated as goodwill.
The Group elected to retain these amounts under the transitional arrangements
provided for under IAS 27 (2008).
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 result.
Amounts reclassified from equity to financial liabilities totaled € 71,824 thousand in
the 2014/15 fiscal year (previous year: € 80,262 thousand).
If the non-controlling interests in limited partnerships are terminated or if therespective comparable termination rights or put options are exercised, the financial
liabilities recognized prior to termination/exercise of the put options are reclassified
as other financial liabilities.
Financial guarantee contracts
Financial guarantee contracts issued by the Group are those contracts that 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 disclosed
as contingent liabilities until utilization becomes probable. When this is the case,the corresponding obligation is recognized.

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Exercise of judgment and estimates by management
The presentation of assets, liabilities and statement of operations in the consolidated financial statements requires the exercise of judgment by management.
Management has exercised judgment in the following instances:·· Income taxes: Management must exercise judgment in determining current anddeferred taxes, as deferred taxes are recognized to the extent that their realization is probable.
·· Determining the measurement and requirement for, and measuring, impairmentof intangible assets and property, plant and equipment.
·· Determining the requirement for allowances against doubtful receivables.
·· Sales revenues from construction contracts: Determining the percentage of completion and estimation of whether a contract is associated with the inflow of
future economic benefits.
·· Measurement of provisions and assessment of the likelihood of their occurrence
Some accounting policies require critical estimates that involve complex and subjective assessments and the use of assumptions, some of which are inherently
uncertain and subject to change. These critical accounting estimates can varyfrom period to period and significantly impact a company’s financial position and/or earnings. The management explicitly points out that future events will often
deviate from planning assumptions, and that it is normal for estimates to have tobe 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. Accurate estimates of the percentage of completion are of vital importanceunder this method. Depending on the method used to measure the percentage
of completion, the most significant estimates concern the total contract cost,
the remaining costs to complete the contract, the total contract revenue andcontract risks.
The management of Voith’s operating subsidiaries constantly reviews all estimatesthat are needed in the accounting for construction contracts and adjusts them as
and when necessary.
Such examinations are part of management’s normal accounting activities at
operating level. We refer to note 14 for details of the carrying amounts.

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Trade and other receivables
Determining allowances for doubtful receivables requires significant judgmenton the part of management as well as an analysis of the individual debtors thatcovers their creditworthiness, current economic trends and an examination ofhistoric default scenarios. We refer to note 14 for details of the carrying amounts.
Impairment of goodwill
Determining the recoverable amount of a Group Division to which goodwill was
allocated involves estimates by management. The value in use is measured
based on planning for the first five years, which is based on taking management’s
expectations and adjusting them for economic trends and 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 each given industry or division. We refer to note 10 and to the segment
reporting for details of the carrying amounts.
Development costs
Development costs are capitalized if the recognition criteria described in IAS 38 aremet. Initial capitalization is based on management’s estimate that the technical andeconomic feasibility is demonstrated; the forecast of the expected future economic
benefit to be gained from assets is essential to the decision whether or not costs
are to be capitalized. We refer to note 10 for details of the carrying amounts.
Pension obligations
Estimates of pension obligations depend significantly on key assumptions including
discount factors, expected salary increases, mortality rates and healthcare trends.
The assumptions used to calculate the discount factor reflect the interest rates
that can be realized on high-quality fixed-income instruments with appropriate
maturities. We refer to note 20 for details of the carrying amounts.
Other provisions
Recognizing provisions for anticipated losses on contracts, warranty-related costs
and litigation involves the use of significant estimates. Voith recognizes provisions
for anticipated losses in all cases where current estimates of the total contract
costs exceed expected contract revenues. Onerous contracts are identified byestimating the total costs of the contract, which requires significant judgment.
Estimates are also necessary for assessing obligations from warranties and litigation. Provisions for restructuring are based on detailed plans for expected activities
which are reviewed and approved by the Board of Management. We refer tonote 21 for details of the carrying amounts.

Voith A nnual Repor t 2015

137

Consolidated Financial Statements

Taxes
The Voith Group has business operations in many countries and is subject to manydifferent 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 madeabout the possibility of realizing sufficient taxable income in the future and theinterpretation of complex tax laws and regulations. We refer to note 9 for detailsof the carrying amounts.
Adoption of amended and new standards and interpretations
Changes in accounting and measurement policies due to first-time
adoption of revised and new IFRS and IFRICs
In the 2014/15 year, the following new and revised IAS and IFRS standards wereapplied for the first time:Standard/interpretation

Amendment/new standard or interpretation

IFRS 10 Consolidated Financial
Statements

IFRS 10 creates a uniform definition for control and thus a uniform basis for the existence of aparent-subsidiary relationship and the related demarcation of the consolidated Group.
The new standard replaces IAS 27 (2008) “Consolidated and Separate Financial Statements”
and SIC 12 “Consolidation – Special Purpose Entities” which had been applicable prior tothe change.

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” and SIC 13 “Jointly Controlled Entities – Non-Monetary Contributions by
Venturers” as the relevant rules for accounting for joint ventures to date.

IFRS 12 Disclosure of Interests
in Other Entities

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

Amendments to IAS 32: Financial
Instruments: Presentation

Amendments to provisions on offsetting financial assets and liabilities.

Amendment to IAS 36: Impairmentof Assets

Amendment of disclosure requirements in respect of the carrying amounts of non-financial
assets as a consequence of the new IFRS 13.

Amendments to IAS 39: Financial
Instruments: Recognition andMeasurement

Novation of derivatives and continuation of hedge accounting.

IFRIC 21 Levies

Accounting treatment of levies raised by public authorities.

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

Voith A nnual Repor t 2015

138

Consolidated Financial Statements

The adoption of the following revised and newly issued IFRS and IFRICs was not
yet compulsory in the 2014/15 fiscal year, and/or they had not yet been endorsedby the European Commission for adoption in the European Union.
Standard/interpretation

Amendment/new standards for 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 15 Revenue from Contracts
with Customers

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

Periods beginning on or afterJanuary 1, 2018

Amendments to IAS 1:
Disclosure Initiative

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

Periods beginning on or afterJanuary 1, 2016

Amendments to IFRS 10 and IAS 28:
Sale or Contribution of Assets
between an Investor and its Associateor Joint Venture

Amendment of IFRS 10 and IAS 28 to the effect thata presentation of the results of a disposal of businessactivity can be reported in full irrespective of whether
or not the business activity belongs to a subsidiary.

Periods beginning on or afterJanuary 1, 2016

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

Clarification of acceptable methods of depreciation
and amortization.

Periods beginning on or afterJanuary 1, 2016

Amendments to IFRS 11:
Joint Arrangements

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

Periods beginning on or afterJanuary 1, 2016

Improvements to IFRS (2010–2012)

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

Periods beginning on or after
February 1, 2015

Improvements to IFRS (2011–2013)

Amendments to standards IFRS 3 and 13 and IAS 40.

Periods beginning on or afterJanuary 1, 2015

Improvements to IFRS (2012–2014)

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

Periods beginning on or after
July 1, 2016

None of the revised and newly issued IFRS and IFRICs subject to mandatory
adoption from the 2015/16 fiscal year onwards are 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 by the Voith Group at a later date is currently
being investigated.
At present, the Voith Group does not plan to early adopt the new or amended
standards and interpretations.

Voith A nnual Repor t 2015

139

Consolidated Financial Statements

Notes to the consolidated
statement of income

01.

Sales
in €   thousands

2014 /15

2013 /14

Sale of goods

3,124,158

3,052,039

Rendering of services

1,178,141

1,116,414

4,302,299

4,168,453

in €   thousands

2014 /15

2013 /14

Changes in inventories of finished goods
and work in progress

11,940- 8,71302.	

Changes in inventories
and other own work
capitalized

Other own work capitalized

4,714

7,019

16,654-1,694in €   thousands

2014 /15

2013 /14

Income from the utilization of contract-specific provisions

90,56083,713

Income from the reversal of provisions and accruals

66,92966,565

Foreign exchange gains

138,171

69,245

Recovered bad debts

6,120

5,040

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

2,806

1,442

Rental and lease income

4,178

3,919

Income from insurance indemnification payments

9,963

18,54903.	

Other operating income

Other income

Voith A nnual Repor t 2015

44,11057,790362,837

306,263140

04.

Consolidated Financial Statements

Cost of materialin €   thousands

05.

2014 /15

2013 /14

Cost of material and supplies and of purchased
merchandise

1,494,510

1,437,493

Cost of purchased services

338,390339,607

1,832,900

1,777,100

2014 /15

2013 /14

Wages and salaries

1,188,172

1,170,329

Social security, pension and other benefit costs

245,687

254,015

1,433,859

1,424,344

Personnel expenses
in €   thousands

Number of employees
Annual average

As at the reporting date2014 /15

2013 /14*

2015-09-30

2014-09-30*

Direct production employees

26,93630,241

26,272

27,549Administration staff/indirect production

11,43012,446

11,204

11,75338,366

42,68737,47639,302

1,142

1,294

1,142

1,275

39,50843,981

38,61840,577

Apprentices and interns* Presented as direct production employees and administration staff/indirect production from the2014/15 fiscal year. The figures for the previous year have been adjusted accordingly.

Number of employees by region
Annual average

As at the reporting date2014 /15

2013 /14

2015-09-30

2014-09-30

13,90417,097

13,37914,434

7,457

8,333

7,259

7,544

Americas10,78911,538

10,37011,594

Asia

6,034

5,520

6,293

5,543

Other

182

199

175

187

38,366

42,68737,47639,302Germany
Rest of Europe

Voith A nnual Repor t 2015

141

Consolidated Financial Statements

06.	

Other operating
expensesin €   thousands

2014 /15

2013 /14

Increase in provisions and accruals

213,185

170,971

Other selling expenses

311,621309,983

Other administrative expenses

228,505

217,282

Foreign exchange losses

128,832

55,440Rent for buildings and machinery

50,052

49,071

Bad debt allowances

16,71010,672Losses on the disposal of intangible assets
and property, plant and equipment

1,796

2,425

Other expenses07.	

Non-recurring result

84,369113,632

1,035,070

929,476

Voith defines expenses and income arising from major restructuring activities,
measures addressing personnel capacity, and the discontinuation of operations
as exceptional items and presents them under the non-recurring result.
The result from non-recurring items in the reporting period totaled € -185 million
and primarily reflects the following measures:
As part of our Group-wide success program Voith 150+, a reorganization processof the Group’s indirect activities is currently under way in which standardized
administrative functions across the divisions are being combined. This will enablearound 720 jobs in the Group to be cut. Based on current planning, these measures will be completed by the end of the 2015/16 fiscal year. Personnel expenses
are being incurred in all the Group’s divisions as a result of the planned job cuts.
In response to increased competitive and price pressures and in order to adjust
the cost structure to the permanent lower market volumes, Voith Paper presented
a package of measures in the 2014/15 fiscal year involving the concentration of
its European activities at just a few locations, as well as 900 further job cuts
worldwide. 150 of these employees are included in the Voith 150+ program andare already included in the 720 job cuts referred to above. Based on current
planning the measures should be implemented by the end of 2016. The measurestaken result in expenses in connection with the planned job cuts, impairments ofproperty, plant and equipment, and other expenses incurred as a result of relocating business activities. Offsetting this is other income resulting from gains on thesale of property and from the release of provisions made for measures taken in
earlier years. Overall, the non-recurring result at Voith Paper totaled € -128 million.

Voith A nnual Repor t 2015

142

Consolidated Financial Statements

The non-recurring result at Voith Turbo includes various consequential effects
associated with restructuring activities initiated in earlier years, as well as the
personnel related costs associated with the Voith 150+ program. Among otherthings this relates to the relocation of activities, impairments of current assets,
gains from the disposal of assets and income from the release of provisions. In
total Voith Turbo has contributed € -12 million to the Group’s non-recurring result.
An impairment write-down of capitalized development costs at Voith Hydro has
been recognized. The resulting charge has been included in non-recurring items.
The write-down resulted from the fact that the expectations for the Ocean Energies
tidal power division have not been met due to the significant financing limitations
facing the public sector and, as a result, this product sector will be continued on asignificantly smaller scale. In total, with the personnel costs included in Voith 150+,
non-recurring items at Voith Hydro amounted to € -35 million.
The divisions with holding functions have contributed € -10 million to the non-recurring results. These include personnel related expenses as a consequence of
the Voith 150+ program as well as measures connected to the central location
administrative functions to be closed as a result of the restructuring activities atVoith Paper.
The non-recurring result in the previous 2013/14 fiscal year amounted to€ -30 million.
Of this total, Voith Paper contributed € -8 million in connection with the restructuring measures initiated at the headquarters in Heidenheim and various otherlocations in previous years. These amounts primarily related to personnel-related
and other 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 initiated in previous years. In detail, these included
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, and thediscontinuation, relocation and sale of business activities.

Voith A nnual Repor t 2015

143

Consolidated Financial Statements

Structural or market-related capacity adjustment measures at Voith Hydro atvarious foreign locations contributed € -6 million to the non-recurring result. This
amount largely contained personnel-related expenses.
The results of non-recurring items include the following:in €   thousands

2014 /15

2013 /14

Personnel expenses-146,722- 23,407

Depreciation and amortization of non-current assets- 54,121- 2,773

Cost of material/change in inventories- 2,426- 8,8150- 4,561- 8,489- 7,931

Income from the reversal of provisions

10,82913,676

Sundry other income

16,083

3,944-184,846- 29,867

Other expenses in connection with the sale of business activities
Sundry other expenses

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

08.

Other financial resultin €   thousands

Gains/losses from investments
Impairment of other investments and loans
Impairment of securities
Income from securities and loans

2014 /15

2013 /14

4,070

179

-137

- 491

-15,608- 40,976

995

723-10,680- 40,565

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

Voith A nnual Repor t 2015

144

Consolidated Financial Statements09.	

Income taxesin €   thousands

2014 /15

2013 /14

Current taxes- 67,998- 68,241

Deferred taxes

20,112

8,915- 47,886- 59,326

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.
The deferred tax expense from temporary differences amounted to € 24,349 thousand (previous year: tax expense of € 12,550 thousand).
The deferred tax expense from tax losses amounted to € 4,237 thousand in the
2014/15 fiscal year. This primarily includes the impairment of deferred tax assets of€ 3,690 thousand which were recognized in the 2013/14 fiscal year, a reduction ofdeferred tax assets on tax losses of € 13,228 thousand as a result of amendments
to tax losses from previous years, income of € 8,993 thousand from the initialrecognition of deferred tax assets on tax losses for the current fiscal year, expensesof € 5,001 thousand from the utilization of tax losses from previous years, andincome of € 9,199 thousand from the initial recognition of previously unrecognized
tax losses.
The deferred tax income from unused tax losses amounted to € 21,465 thousandin the 2013/14 fiscal year. This primarily includes the impairment of deferred tax
assets of € 3,879 thousand which had been recognized in the 2012/13 fiscal year,
a reduction of deferred tax assets on tax losses of € 2,809 thousand as a resultof amendments to tax losses from previous years, income of € 21,426 thousand
from the initial recognition of deferred tax assets on tax losses for the current fiscal
year, expenses of € 5,343 thousand from the utilization of tax losses from previous
years, and income of € 12,256 thousand from the initial recognition of previously
unrecognized tax losses.
In addition, the current income tax charge was reduced by the use of previously
unrecognized deferred tax assets on unused tax losses of € 5,210 thousand (previous year: € 2,875 thousand).

Voith A nnual Repor t 2015

145

Consolidated Financial Statements

As at September 30, 2015, no deferred tax assets were recognized on German
trade tax losses of € 603,384 thousand (previous year: € 607,153 thousand),German corporate income taxes of € 46,028 thousand (previous year: € 4,008 thousand) and on interest expenses currently not deductible under German tax law of€ 23,382 thousand (previous year: € 145,026 thousand) as it is probable that thelosses carried forward cannot be used in the near future.
In addition, no deferred tax assets were recorded on foreign federal tax losses
carried forward of € 51,518 thousand (previous year: € 75,467 thousand) and foreignstate taxes of € 105,561 thousand (previous year: € 115,479 thousand), also dueto the fact that the utilization of the losses is not probable.
Further changes may be made to the unused tax losses as a result of the current
external audit of the companies in Germany and abroad.
In Germany, unused tax losses can be carried forward indefinitely. In general, tax
losses recorded outside Germany can be carried forward for a limited period of
up to a maximum of five to ten years.
2014-09-30

2015-09-30
in €   thousands

Deferred tax assets

Deferred tax liabilities

Deferred tax assets

Deferred tax liabilities

Intangible assets

6,490

59,572

6,801

68,918Property, plant and equipment

3,046

42,776

8,646

46,312Financial assets and securities

288

18,283

4,872

8,045

38,78456,56354,02667,714Inventories and receivables
Other assets

11,950

6,046

3,312

24,880Pension provisions

122,764

12,441

120,649

11,541

Financial liabilities

13,0252,363

15,615

3,437

Other provisions and liabilities

106,230

12,852100,256

21,463

0

5,734

0

0

Tax effect on distributable earnings ofGroup entities
Impairments of deferred tax assets
on temporary differences
Unused tax losses- 4,120- 7,327

42,48552,608

Netting-150,662-150,662-175,580-175,580

Total

190,280

65,968183,878

76,730Continuing operations

180,80350,851

183,878

76,730Discontinued operations

9,477

15,11700Disclosure in the balance sheetin €   thousands

Voith A nnual Repor t 2015

146

Consolidated Financial Statements

For details of the origin of deferred taxes on items recorded directly in equity,
please refer to note 19.
Reconciliation of deferred tax assets and liabilities:in €   thousands

2015-09-30

2014-09-30

107,148

69,763

thereof: deferred tax assets

183,878

151,832

thereof: deferred tax liabilities- 76,730- 82,069

23,251

6,359*

143

31,925*5,639

0Balance, October 1

Deferred tax income/(-expense) reported
in the income statement in the reporting period
Deferred tax income/(-expense) reported
in other comprehensive income in the reporting period
Discontinued operations
Reclassified to held for sale

0

285

- 945

- 2,370

Currency- 5,284

1,186

Balance, September 30

129,952

107,148

thereof: deferred tax assets

180,803

183,878

thereof: deferred tax liabilities- 50,851- 76,730

Business acquisitions and disposals* Incl. discontinued operations.

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 accountthe legal structure of the Voith Group relevant for tax purposes.

Voith A nnual Repor t 2015

147

Consolidated Financial Statementsin €   thousands

2014/15

2013/14

Profit before income tax- 22,724

53,588

Expected tax expenses (+)/tax income (-)- 6,781

15,991

Deviations from expected tax rates

14,502

8,616

208

- 39

Effect of changes in tax rates
Tax-free income- 6,648- 4,806

Non-deductible expenses

39,94425,905

Taxes relating to other periods- 5,405

5,666

Change in impairments of deferred tax assets

13,978- 11,369

Other tax effects-1,912- 3,376

Income taxes

47,88659,326

Effective tax rate (in %)- 210.7

110.7

No deferred tax was recorded on temporary differences on investments in subsidiaries of € 927,427 thousand (previous year: € 771,471 thousand) as the criteria
specified in IAS 12.39 were met.
When distributions by foreign subsidiaries to Germany are made, 5 % of the
distribution is 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 case of distributions from subsidiaries abroad toanother foreign entity.

Voith A nnual Repor t 2015

148

Consolidated Financial Statements

Notes to the consolidatedbalance sheet

10.

Intangible assets

in €   thousands

Cost
2013-10-01

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

Business combinations

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

Capitalized interest
Disposals

0

0

13

0

13

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

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

Business combinations
Currency translation differences
Amortization

-19

0

0

0

- 19

- 503

0

69

0

- 434

-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

Voith A nnual Repor t 2015

149

Consolidated Financial Statements

Development of intangible assets
from October 1, 2014 until September 30, 2015in €   thousands

Cost
2014-10-01

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

Goodwill

Development
costs

Prepayments

Total

247,561

663,784

122,202

2,432

1,035,979

Business combinations

1,537

1,316

0

0

2,853

Currency translation differences

1,168

5,661

- 55

1

6,775

Additions

5,232

0

3,674

542

9,448

0

0

24

0

24

- 22,859- 31,092- 29,858-17- 83,826

Capitalized interest
Disposals
Other adjustments

729

- 20

0

0

709

2,277

0

26,350- 61

28,566

Reclassification to assets held for sale

- 44,986-199,656-1,428- 63- 246,133

Cost
2015-09-30

190,659

439,993

120,9092,834

754,395

Accumulated amortizationand impairments 2014-10-01-173,095- 54,179- 95,851

0- 323,125

0

0

0

0

0

589

0

44

0

633

Transfers

Business combinations
Currency translation differences
Amortization-15,2650- 8,551

0- 23,816

Impairment losses- 4,9740- 24,561

0- 29,535

Disposals

15,770029,849045, 619

Transfers

- 937

0

- 2,6350- 3,572

37,8840569

038,453

- 78

0

0

0

- 78

Accumulated amortizationand impairments 2015-09-30-140,106- 54,179-101,136

0- 295,421

Carrying amount 2015-09-30

50,553385,814

19,7732,834

458,974

Reclassification to assets held for sale
Other adjustments

Voith A nnual Repor t 2015

150

Consolidated Financial Statements

The impairment charge against intangible assets of € 24,561 thousand shown inthe development schedule in relation to capitalized development costs primarily
relates to the Voith Hydro’s tidal power division. The background to this charge isthat previous expectations for marketing tidal power plants in the Ocean Energies
division have not been realized given the significant financing limitations of publicauthorities, and currently it is anticipated that the business unit will be continued
on a significantly smaller scale. Accordingly, the assets which were reported underassets held for sale in the previous year have been reclassified to intangible assets.
Impairment charges of € 4,741 thousand against intangible assets were required
at one business unit at Voith Paper in the 2014/15 fiscal year in connection withthe termination of business activities in one product division.
The impairment charges described above are included in the non-recurring resultin the income statement in the 2014/15 fiscal year.
Impairment losses totaling € 1,636 thousand were recognized against intangible
assets in the 2013/14 fiscal year on the basis of updated economic feasibility
studies. These primarily related to development costs recorded by Voith Paper
and were included in the operating result in the income statement.
An interest rate of 4.4 % was used to calculate capitalized interest (previous year:
4.4 %).

Voith A nnual Repor t 2015

151

Consolidated Financial Statements

11.	

Property, plant andequipment

Development of property, plant and equipmentfrom October 1, 2013 to September 30, 2014in €   thousands

Land 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

957

576

64

-7

1,590

Cost
2014-09-30

876,289

1,546,701

572,547

32,793

3,028,330

Accumulated depreciationand impairments 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- 46,160

0-138,608

- 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

138

1,083

495

0

1,716

Other adjustments

- 942

- 534

- 271

0

-1,747

Accumulated depreciationand impairments 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

Cost
2013-10-01
Business combinations

Capitalized interest

Reclassification to assets held for sale
Other adjustments

Business combinations

Impairment losses

Reclassification to assets held for sale

Voith A nnual Repor t 2015

152

Consolidated Financial Statements

Development of property, plant and equipmentfrom October 1, 2014 to September 30, 2015in €   thousands

Cost
2014-10-01
Business combinations

Land and buildings,
including buildingson third-party land

Plant andmachinery

Other equipment,
furniture andfixturesPrepayments
and assets underconstruction

Total

876,289

1,546,701

572,547

32,793

3,028,330

0

147

103

0

250

Currency translation differences

5,497

13,584-11708

19,778Additions

4,749

24,95929,971

33,83893,517

0

0

0

524

524

Disposals- 28,241- 55,138- 49,458-172-133,009

Transfers

2,428

13,5283,976- 21,528-1,596-17,382- 44,013- 64,425- 6,452-132,272

- 20

- 363

14,407150

14,174Cost
2015-09-30

843,320

1,499,405

507,11039,8612,889,696

Accumulated depreciationand impairments 2014-10-01- 362,653-1,047,871- 427,856

0-1,838,380

0

0

0

0

0

Capitalized interest

Reclassification to assets held for sale
Other adjustments

Business combinations
Currency translation differences- 3,020-11,902280

0-14,642

Depreciation-19,751- 70,459- 43,003

0-133,213

Impairment losses-10,769-13,788- 841

0- 25,398

Disposals

20,29653,31437,995

0

111,605

Transfers

0

843

- 425

0

418

4,855

20,04643,444068,345

Reversal of impairments

0

90

126

0

216

Other adjustments

18

81

156

0

255

Accumulated depreciationand impairments 2015-09-30- 371,024-1,069,646- 390,124

0-1,830,794

Carrying amount 2015-09-30

472,296429,759

116,986

39,861

1,058,902

Reclassification to assets held for sale

The other adjustments to other equipment, furniture and fixtures of € 14,407 thousand include items of equipment that were previously reported under inventories
but which are now exclusively used for long-term purposes.
€ 25,398 thousand of the impairment charges recorded against property, plantand equipment in the financial year 2014/15 includes € 23,838 thousand attributable to the Voith Paper segment. The potential future use of property, plantand equipment at the production locations has been examined as part of therestructuring measures implemented in the reporting period, and an impairment

Voith A nnual Repor t 2015

153

Consolidated Financial Statements

recorded if appropriate. The impairment is reported in the income statement within
non-recurring results.
An interest rate of 6.0 % was used to calculate capitalized interest (previous year:
6.0 %).
The prepayments and assets under construction include buildings of € 7,488 thousand (previous year: € 3,895 thousand), plant and machinery of € 27,708 thousand(previous year: € 26,126 thousand), other non-production-related equipment of€ 4,611 thousand (previous year: € 2,772 thousand), and other property, plant andequipment of € 54 thousand (previous year: € 0).

12.

Investments accounted forusing the equity method

KUKA Aktiengesellschaft, Augsburg
Investments accounted for using the equity method include the investment in
KUKA Aktiengesellschaft, Augsburg, Germany for the first time. The investment
was acquired in the 2014/15 fiscal year.
KUKA Aktiengesellschaft and its subsidiaries are among the leading suppliers ofrobots and automated production lines and solutions worldwide. This shareholding
is regarded as a strategic investment, primarily in order to make targeted expansions in automation and digitalization skills, complementary to Voith’s existing
activities, which are primarily at home in the mechanical engineering sector.

2015-09-30

Shareholding

27.96 %

Market value (proportionate share) in € millions

681

Income accounted for using the equity method in € thousands*- 4,026

Dividend paid to the Group in € thousands

3,585* Including amortization of share of assets revalued to fair value under the purchase price allocation.

The tables below provide a summary of significant financial information obtained
from the quarterly financial statements published by KUKA Aktiengesellschaft asof September 30, 2015.
Balance sheet datain €   millions

Non-current assets
Current assets

Voith A nnual Repor t 2015

2015-09-30

813.3
1,243.9

Non-current liabilities

342.4

Current liabilities

1,111.6

Equity (including non-controlling interests)

603.2

154

Consolidated Financial Statements

Summary income statement datain €   millions

2015-09-30

Sales

2,199.4

Net result of continuing operations after tax

63.4

Net result of discontinued operations after tax

0

Other comprehensive income

34.8

Total comprehensive income (including non-controlling interests)

98.2

The following table shows a reconciliation between the financial data and thecarrying value of KUKA Aktiengesellschaft:in €   thousands

2015-09-30

Share of equity attributable to the Group(excluding non-controlling interests)

105,581Goodwill arising under the equity method, including share of fair value adjustments

491,173

Carrying value of the investment in the associate

596,754

Other associates
The following table summarizes the financial information for non-significant associates, whereby the figures presented represent the Group’s proportionate shareof the respective associates:in €   thousands

2015-09-30

2014-09-30

5,975

28,192

Net result of continuing operations after tax

1,646

1,183

Other comprehensive income

1,841

347

3,487

1,530

Carrying value of the investments in associates
Share of:

Total comprehensive income

Voith A nnual Repor t 2015

155

Consolidated Financial Statements

Joint ventures
The Group has investments in joint ventures which are not individually significant.
The following table summarizes the financial information for these joint ventures,
whereby the figures presented represent the Group’s proportionate share of therespective joint ventures:in €   thousands

2015-09-30

2014-09-30

15,152

13,128

Net result of continuing operations after tax

957

959

Other comprehensive income

125

775

1,082

1,734

Carrying value of the joint ventures
Share of:

Total comprehensive income

The cumulative unrecognized share of losses from joint ventures accounted forunder the equity method totals € 0 thousand (previous year: € 2,189 thousand).
The unrecognized share of losses of companies accounted for under the equity
method for the fiscal year just ended totals € 0 (previous year: € 1,838 thousand).
In some cases the companies accounted for under the equity method have fiscal
reporting periods which do not end on September 30. Accordingly, for somecompanies interim financial statements are prepared to September 30. For othercompanies the effects of the different year ends are not significant for the Voith
Group’s income and asset position.

13.

Inventories

Inventories consist of the following items:in €   thousands

2015-09-30

2014-09-30

Raw materials and supplies

210,797219,218

Work in progress

181,006

252,403

Finished goods and merchandise

141,561

156,504

Prepayments

77,137106,296

610,501

734,421

Write-downs of inventories recognized as expenses amounted to € 2,474 thousand(previous year: € 28,049 thousand). Obligatory reversals of write-downs totaling€ 4,548 thousand (previous year: € 6,625 thousand) were made. These amounts
are included in the cost of materials.

Voith A nnual Repor t 2015

156

14.	

Consolidated Financial Statements

Trade receivables andreceivables from customerspecific contracts

Trade receivables consist of the following items:in €   thousands

2015-09-30

2014-09-30

Trade receivables

703,053

848,054

Bad debt allowances- 38,195- 35,534

Receivables from customer-specific contracts

276,773

324,054

941,631

1,136,574

Trade receivables are classified as current assets. As at September 30, 2015 thevolume of receivables that was not expected to be realized within one year was€ 6,802 thousand (previous year: € 6,291 thousand).
Movements in the allowance account for the impairment of trade receivables wereas follows:in €   thousands

2015-09-30

2014-09-30

Impairment at the beginning of the fiscal year

- 35,534- 41,190

Additions-14,639-10,352

Utilization

3,405

9,990

Reversal

6,364

5,209

Changes in consolidated group/exchange differences

- 447

809

Reclassification to assets held for sale

2,656

0

Impairment at the end of the fiscal year

- 38,195- 35,534

The total reversal of € 6,364 thousand (previous year: € 5,209 thousand) includes
reversals of individual specific allowances of € 6,364 thousand (previous year:€ 4,239 thousand) and reversals of portfolio-based allowances of € 0 (previous year:€ 970 thousand). The additions of € 14,639 thousand (previous year: € 10,352 thousand) include additions to specific allowances of € 14,391 thousand (previous year:€ 10,352 thousand) and additions to portfolio-based allowances of € 248 thousand(previous year: € 0).
Credit insurance is used to manage default risk in trade receivables. For thispurpose Hermes cover is used to secure receivables from foreign customers inparticular.

Voith A nnual Repor t 2015

157

Consolidated Financial Statements

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

2015-09-30

2014-09-30

Manufacturing costs incurred and recognizedprofits less recognized losses to date on current
customer-specific projects

5,021,211

4,760,164

Progress billings to date

- 3,417,258- 2,955,688

Future receivables under customer-specific construction
contracts before deduction of progress billings

1,603,953

1,804,476

Advances received (“progress billings”)-1,373,308-1,515,172

230,645289,304

Thereof receivables from construction contracts

276,773300,073

Thereof liabilities from construction contracts- 46,128-10,769

Receivables from customer-specific service contracts from Voith Industrial Services
total € 17,318 thousand (previous year: € 23,981 thousand). Liabilities from customer-specific service contracts from Voith Industrial Services total € 770 thousand(previous year: € 1,940 thousand). These amounts are presented within assets andliabilities held for sale at September 30, 2015.
Other liabilities include further advances received on customer-specific contractsof € 609,528 thousand (previous year: € 740,978 thousand), for which no manu­
facturing costs have been incurred to date. Advances received on customer-­
specific contracts at Voith Industrial Services of € 22,786 thousand (previous year:€ 13,284 thousand) are recorded at September 30, 2015 and presented within
liabilities classified as held for sale.
Sales revenues from customer-specific contracts totaled € 2,210,100 thousand(previous year: € 2,089,203 thousand).
An amount of € 17,494 thousand (previous year: € 12,442 thousand) is retained bycustomers from progress billings as the amounts are payable only on fulfillment ofagreed contractual conditions.

Voith A nnual Repor t 2015

158

15.	

Consolidated Financial Statements

Other financial receivables
and other assets
Other financial receivablesin €   thousands

Current

Non-current

2015-09-30

Current

Non-current

2014-09-30

Derivatives used to hedge operationaltransactions

10,8042,461

13,265

5,832

1,153

6,985

Derivatives used to hedge financialtransactions

10,134

7,623

17,75753

12,191

12,244

Financial receivables

11,288188

11,476

41,794108

41,902Sundry financial assets

98,06842,463

140,531

64,29961,708126,007*130,294

52,735

183,029

111,978

75,160187,138* Includes assets totaling € 7,549 thousand (previous year: € 38,306 thousand) which are not financial
instruments and which are accordingly excluded from the disclosures made in the section “Additional
information on financial instruments”.

Other assets
in €   thousands

Current

Non-current

2015-09-30

Current

Non-current

2014-09-30

Prepaid expenses

22,04915,34037,38929,492

17,76647,258Other taxes (without income tax)

64,4296,184

70,613

83,124

15,102

98,22686,47821,524

108,002112,616

32,868145,484

Other assets totaling € 7,663 thousand at the balance sheet date (previous year:€ 38,416 thousand) are used as collateral for liabilities and contingent liabilities.
They may be drawn on if the underlying obligations are not fulfilled or if the contingent liabilities are realized.

Voith A nnual Repor t 2015

159

Consolidated Financial Statements

16.

Securities

Non-current securities totaling € 9,611 thousand (previous year: € 15,843 thousand)are used to cover future pension obligations. Further information on securities canbe found in the section “Additional information on financial instruments”.

17.

Cash and cash equivalents

This item mainly consists of time deposits held at banks.
2015-09-30

2014-09-30

Checks39

36

Cash on hand

626

688

in €   thousands

Cash equivalents

19,82913,507

Cash at bank414,459

786,592

434,953

800,823

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

Voith A nnual Repor t 2015

160

18.	

Consolidated Financial Statements

Assets held for sale andliabilities directly associated with assets classified
as held for sale

At September 30, 2015 this position includes the assets and liabilities of Voith
Industrial Services, a discontinued operation. For further details see the section“Disposals and discontinued operations”. The figures for the previous year represent the assets and liabilities of Voith Hydro’s tidal power product division. Thisdivision is continued by Voith Hydro on a significantly smaller scale.
The carrying amounts of the major groups of assets and liabilities held for sale
are as follows:
Assetsin €   thousands

2015-09-30

2014-09-30

A. Non-current assets
Goodwill

199,656

Other intangible assets

8,024

23,756

Property, plant and equipment

63,92729

Investments accounted for using the equity method

18,075

Securities

6,467

Other financial assets
Other financial receivables
Other assets
Deferred tax assets

599

25

22,798
315
9,477

21

329,338

23,831

B. Current assets
Inventories

35,004

Trade receivables

177,928

Receivables from customer-specific contracts

17,318

Securities

17

Current income tax assets

4,853

Other financial receivables

10,698Other assets

7,805

Cash and cash equivalents

Assets held for sale

Voith A nnual Repor t 2015

3

87

6,091
253,623

6,181

582,961

30,012

161

Consolidated Financial Statements

Liabilities
2015-09-30

2014-09-30

Provisions for pensions and similar obligations

20,755571

Other provisions

30,409in €   thousands

A. Non-current liabilities

Income tax liabilities
Bonds, bank loans and other interest-bearing liabilities

335
129

Other financial liabilities

3,996

Deferred tax liabilities

15,116306

70,740877

B. Current liabilities
Provisions for pensions and similar obligations
Other provisions

38,945

Income tax liabilities

3,593

Bonds, bank loans and other interest-bearing liabilities
Trade payables
Liabilities from customer-specific contracts
Other financial liabilities
Other liabilities

Liabilities directly associatedwith assets classified as held for sale

Voith A nnual Repor t 2015

1,316
61

178
67,34188

770
61,481

5,241

36,089209,7135,390

280,453

6,267

162

19.

Consolidated Financial Statements

EquityIssued capital
Unchanged since September 30, 2006, the issued capital in Voith GmbH of€ 120,000 thousand is 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 byVoith GmbH and its consolidated subsidiaries as well as the effects of the remeasurement of defined benefit plans, the currency translation of foreign subsidiaries,
gains/losses from available-for-sale securities recognized directly in equity without
effect on profit and loss, and cash flow hedges pursuant to IAS 39.
The statement of comprehensive income shows the individual components ofother comprehensive income. Other comprehensive income consists of:in €   thousands

2014 /15

2013 /14

Remeasurement of defined benefit plans

8,976-122,796· G ains/losses in the current period

8,976-122,796

Gains/losses on available-for-sale securities- 859- 33,395· G ains/losses in the current period- 859- 33,395· Transfers to profit and loss

00Gains/losses on cash flow hedges

-4

- 34

· G ains/losses in the current period

-4

- 34

· Transfers to profit and loss

00Gains/losses on currency translation-18,107

15,665· G ains/losses in the current period-18,107

15,66500

Gains/losses from currency translation of net investments
in foreign operations- 2,735-1,144· G ains/losses in the current period- 2,735-1,144

0

0

- 559

31,925-13,288-109,779· Transfers to profit and loss· Transfers to profit and loss
Tax on components of other comprehensive income
Other comprehensive income

Voith A nnual Repor t 2015

163

Consolidated Financial Statements

Deferred taxes on the components of other comprehensive income are as follows:
2014

2015
in €   thousands

Pre tax

Deferred taxes

After tax

Pre tax

Deferred taxes

After tax

Remeasurement ofdefined benefit plans

8,976-1,705

7,271-122,796

31,435- 91,361

Gains/losses onavailable-for-sale securities

- 859

331

- 528

- 33,395-161- 33,556

Gains/losses on cash flow hedges
including share of associates

-4

0

-4

- 34

11

- 23

Gains/losses oncurrency translation-18,1070-18,107

15,6650

15,665

Gains/losses from currencytranslation of net investments
in foreign operations- 2,735815-1,920-1,144640- 504

Other comprehensive income-12,729- 559-13,288-141,704

31,925-109,779

Profit participation rights
Profit participation rights with a nominal volume of € 103,400 thousand (previous
year: € 103,400 thousand) qualify as equity under the IAS 32 criteria. The rights
are lower-ranking bearer profit participation rights with variable compensation,no bullet maturity and no right of termination on the part of the creditors. ­Profit
participation rights of € 96,800 thousand were issued by a subsidiary of theVoith GmbH. Profit participation rights of € 6,600 thousand were issued by Voith
GmbH. Subject to the approval of the appropriate governing body, profits totaling€ 5,590 thousand (previous year: € 5,501 thousand) are scheduled to be distributedon the sum total of these rights for the 2014/15 fiscal year.
Holders of non-controlling interests
The major portion of non-controlling interests is held by the co-owners of thesubsidiaries Rif Roll Cover Srl, Italy, Voith Fuji Hydro K.K., Japan, Voith IHI Paper
Technology Co., Ltd., Japan, Voith Hydro Shanghai 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 result 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 € 105,305 thousand to reserves. Dividend payments 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).

Voith A nnual Repor t 2015

164

Consolidated Financial Statements

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

in €   thousands

EquityInterest-bearing financial liabilities

2015-09-30

2014-09-30

874,243

1,031,303

1,219,627

995,829

2,093,870

2,027,132

Year on year, equity fell by 15.2 %, primarily due to the loss for the year, currency
effects, and dividend payments. Interest-bearing financial liabilities increased
by 22.5 %. The composition of interest-bearing financial liabilities is described innote 22.
The articles of association of Voith GmbH do not prescribe 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 in the respective countries and are usually based on the length of
employee service and the level 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 on either 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 2015 theyamounted to € 86,887 thousand for the Voith Group as a whole (previous year:€ 89,713 thousand).
The majority of the pension plans are defined benefit plans that take the form ofprovisions-based or externally 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

Voith A nnual Repor t 2015

Consolidated Financial Statements

165
rata employee benefit obligations earned at the end of the period under review.
Pension provisions are calculated taking into account development assumptions
for those 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
based 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 in the respective countries. The features of the defined benefit plansthat are most significant for Voith are described below.
a) Pension plans in Germany and Austria
The pension plans in Germany include retirement, invalidity and surviving dependents benefits. Traditionally, the pension commitments are measured on thebeneficiary’s final salary. In recent years, these benefits have been increasingly
replaced by capital savings models. Under capital savings models the amountof the benefit 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 ofGerman statutory pension plan requirements, 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. The plan assets of German companies
take the form of insurance policies. 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 obligations result from a scheme known as severance benefit(“Abfertigungen”). Benefits become due upon termination of the employment
relationship (provided the employee is not culpable for the termination), i.e. also
upon retirement. Austrian severance benefits all qualify as capital savings. For anumber of years the nature of these benefits for new hires has changed to pension

Voith A nnual Repor t 2015

166

Consolidated Financial Statements

benefits on account of new statutory requirements. These qualify as defined contribution plans and are organized via legally independent employee welfare funds.
The employer’s obligation is limited to payment of the contribution. In addition,
obligations exist for retirement, invalidity and surviving dependents benefits on thebasis 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 for whom
only salary rises are still considered in the calculation of the final average pension).
The pensions are primarily based on the final average salary payment or the lengthof service (i.e. the product of a fixed dollar amount and the number of yearsof 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 with
provisions beyond the normal upper limit for pension plans required by 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 wasclosed to new participants. This plan is unfunded. These defined benefit plans giverise to actuarial risks for the Voith Holding Inc. Group, arising from such factors
as the investment risk, interest rate risk, longevity risk, and the risk of a rise in thecosts 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 investmentcommittee. According to a trust agreement and US law, the members of theinvestment committee have a fiduciary duty to act solely in the best interests ofthe beneficiaries. The committee has drawn up an investment guideline that lays
down the investment goals and procedures that must be followed. The trustees ofthe master trust only act on the express instructions of the investment committee
or an authorized representative of the investment committee. The trustee is responsible for the safe custody of the plan assets, but is not generally empoweredwith decision-making authority.
The legal and regulatory framework for calculating the minimum 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 the minimum

Voith A nnual Repor t 2015

167

Consolidated Financial Statements

pension obligation is made by the plan’s actuary on the basis of these laws. In
the past Voith paid into the plans to maintain a funding level of at least 80 %, asrequired by local law. The annual employer’s contributions correspond to the netpresent value of the benefit obligation accumulated in the year, plus the 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 the minimum 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 lifelong
monthly pensions.
The plan assets of the defined benefit plans are invested in insurance policies
with an insurer who manages the plan assets as trustee. The 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 and its representatives have a fiduciary duty as the
managers of the plan assets to act solely in the best interests of the beneficiaries.
The legal and regulatory framework used to calculate the minimum 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 valueof plan assets

Net carrying amountfrom defined benefit plans

2015-09-30

2014-09-30

2015-09-30

2014-09-30

2015-09-30

2014-09-30

Germany + Austria

713,393748,642- 27,933- 25,541

685,460

723,101

USA + Canada

207,938

201,815-149,999-154,618

57,93947,197

Other

29,52633,165- 21,648- 23,355

7,878

9,810

Total

950,857

983,622-199,580- 203,514

751,277

780,108

Voith A nnual Repor t 2015

168

Consolidated Financial Statements

Movements on the net obligation under defined benefit plans 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 from plan curtailments- 4,188-- 4,188

Interest expenses (+)/interest income (-)

30,654- 7,149

23,505Losses (+)/gains (-) from changes
in demographic assumptions

13,108-

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

112,853-

112,853

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

11,697-

11,697in €   thousands

Remeasurements:

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

Other
Currency translation differences
on foreign plans
2014- 09- 30

Voith A nnual Repor t 2015

12,416- 9,9632,453

983,622- 203,514

780,108169

Consolidated Financial Statements

Movements on the net obligation under defined benefit plans from October 1, 2014
to September 30, 2015:
Present value of
defined benefit
obligations

Fair value ofplan assets

Total

2014-10- 01

983,622- 203,514

780,108

Current service cost

20,625-

20,625

Past service cost from plan curtailments- 8,025-- 8,025

Interest expenses (+)/interest income (-)

27,687- 7,782

19,905Losses (+)/gains (-) from changes
in demographic assumptions

- 53

-

- 53

Losses (+)/gains (-) from changes
in financial assumptions- 24,159-- 24,159

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

- 508

-

- 508

in €   thousands

Remeasurements:

Remeasurement of plan assets(income less interest income)-

15,744

15,744

Employer contributions to the fund-

-11,679-11,679

Employee contributions to the fund

-

403

403

- 45,069

19,393- 25,676

000Benefits paid
Changes in the consolidated Group

Voith A nnual Repor t 2015

Other

3,029

13

3,042

Currency translation differences
on foreign plans

19,555-15,934

3,621

Reclassification to liabilities classified
as held for sale

- 25,847

3,776- 22,071

2015- 09- 30

950,857-199,580

751,277

170

Consolidated Financial Statements

Movements on the net obligation under defined benefits plans in Germany + Austria
and USA + Canada from October 1, 2013 to September 30, 2014:
Germany + Austriain €   thousands

2013-10- 01
Current service cost

Present value of
defined benefit
obligations

Fair value ofplan assets

Total

640,439- 23,361

617,078

17,108-

17,108

Past service cost from plan curtailments- 5,293-- 5,293

Interest expenses (+)/interest income (-)

22,019- 870

21,149Losses (+)/gains (-) from changes
in demographic assumptions

-108

-

-108

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

99,076-

99,076

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

11,083-

11,083

-

-16

-16

Employer contributions to the fund-

- 2,008- 2,008

Employee contributions to the fund

-

0

0

Benefits paid

- 32,629

792- 31,837

Changes in the consolidated Group- 4,4860- 4,486

Other

1,433

- 78

1,355

0

0

0

748,642- 25,541

723,101

Remeasurements:

Income from plan assets(exclusively amounts included
in interest expense)

Currency translation differences
on foreign plans
2014- 09- 30

Voith A nnual Repor t 2015

171

Consolidated Financial Statements

USA + Canadain €   thousands

2013-10- 01
Current service cost

Present value of
defined benefit
obligations

Fair value ofplan assets

Total

179,284-132,690

46,594

329

-

329

Past service cost from plan curtailments

1,105

-

1,105

Interest expenses (+)/interest income (-)

7,649- 5,5022,147

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

13,328-13,328Losses (+)/gains (-) from changes
in financial assumptions

12,227-

12,227

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

899

-

899

Income from plan assets(exclusively amounts included
in interest expense)--14,757-14,757

Employer contributions to the fund-

-17,450-17,450

Employee contributions to the fund

-

0

0

- 22,071

24,1592,088

Remeasurements:

Benefits paid
Changes in the consolidated Group

0

0

0

Other

- 2,054425-1,629Currency translation differences
on foreign plans

11,119- 8,8032,316

201,815-154,618

47,197

2014- 09- 30

Voith A nnual Repor t 2015

172

Consolidated Financial Statements

Movements on the net obligation under defined benefits plans in Germany + Austria
and USA + Canada from October 1, 2014 to September 30, 2015:
Germany + Austriain €   thousands

2014-10-01
Current service cost

Present value of
defined benefit
obligations

Fair value ofplan assets

Total

748,642- 25,541

723,101

19,217-

19,217

Past service cost from plan curtailments- 7,738-- 7,738

Interest expenses (+)/interest income (-)

18,911- 655

18,256

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

54

-

54

Losses (+)/gains (-) from changes
in financial assumptions- 20,543-- 20,543

246

-

246

Income from plan assets(exclusively amounts included
in interest expense)

-

128

128

Employer contributions to the fund-

- 2,859- 2,859

Employee contributions to the fund

-

0

0

- 25,772

712- 25,060

Remeasurements:

Losses (+)/gains (-) fromexperience adjustments

Benefits paid
Changes in the consolidated Group

0

0

0

1,608

0

1,608

0

0

0

Reclassification to liabilities classified asheld for sale

- 21,232

283- 20,949

2015-09-30

713,393- 27,932

685,461

Other
Currency translation differences
on foreign plans

Voith A nnual Repor t 2015

173

Consolidated Financial Statements

USA + Canadain €   thousands

2014-10- 01

Present value of
defined benefit
obligations

Fair value ofplan assets

Total

201,815-154,618

47,197

690

-

690

Current service cost
Past service cost from plan curtailments

- 288

-

- 288

Interest expenses (+)/interest income (-)

7,557- 6,214

1,343

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

0

-

0

Losses (+)/gains (-) from changes
in financial assumptions- 3,794-- 3,794

- 462

-

- 462

-

15,47915,479

Employer contributions to the fund-

- 7,435- 7,435

Employee contributions to the fund

-

491

491

-17,677

17,653- 24

Remeasurements:

Losses (+)/gains (-) fromexperience adjustments
Income from plan assets(exclusively amounts included
in interest expense)

Benefits paid
Changes in the consolidated Group

0

0

0

640

533

1,173

19,977-15,888

4,089

- 520

0

- 520

207,938-149,999

57,939Other
Currency translation differences
on foreign plans
Reclassification to liabilities classified asheld for sale2015-09-30

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

Current service cost

2015-09-30

2014-09-30

20,061

17,773

Past service costs- 7,803- 4,144

Interest expenses from pension obligations and plan assets

19,352

22,690Current service cost and past service cost are stated under personnel expenses.
Interest expenses on pension obligations and interest income on plan assets arestated in the interest result. Past service costs include the effects of the fall in the
discount rates for the capital savings plans.

Voith A nnual Repor t 2015

174

Consolidated Financial Statements

The fund assets consist of the following components:
Market price listing inan active marketin €   thousands

No market price listing inan active market

Total

2015-09-30

2014-09-30

2015-09-30

2014-09-30

2015-09-30

2014-09-30

Equity instruments

37,94755,94463

182

38,01056,126

Debt instruments

110,516

95,2990

1,620

110,516

96,919Real estate

7,307

5,705

2,336

2,167

9,643

7,872

Cash and cash equivalents

11,277

12,3050011,277

12,305

Other*

1,050

3,680

29,084

26,61230,13430,292

168,097

172,933

31,48330,581

199,580

203,514* Primarily reinsurance policies.

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

USA

2015-09-30

2014-09-30

2015-09-30

2014-09-30

Discount rate

2.42 %

2.5 %

4.05 %

3.9 %Pension increases

1.5 %

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. Thesevary depending on the economy and other factors in the respective country.
Changes to the relevant actuarial assumptions would have had the following
impact on the defined benefit obligation:
2014-09-30

2015-09-30

Discount ratePension increases

Life expectancyin €   thousandsin %in €   thousandsin %- 63,224- 6.6 %

- 65,861- 6.7 %

up 0.50 % points
down 0.50 %points71,147

7.5 %72,6517.4 %up 0.25 % points

16,904

1.8 %

15,720

1.6 %down 0.25 %points-15,156-1.6 %-16,188-1.6 %

up one year

27,944

2.9 %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 A nnual Repor t 2015

175

Consolidated Financial Statements

Increases or decreases in 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 changed simultaneously, 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 towards maximizing the value of the securities portfolios. The goal of theinvestment strategy is to close any gaps in funding between the defined benefit
obligation and the 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 is based on an individual limited risk strategy.
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 dependingon the residual risk budget. The success of such dynamic risk management isreviewed regularly by the pension committee and must be measured against a
standard asset allocation without dynamic risk management.
The interfaces between the actuaries, the asset managers, the pension committee
and the Group treasury are structured efficiently and functionally. In addition to amonthly comparison of the data and the reporting, the persons involved exchange
information on the evolution of the pension strategy on the basis of a predefinedschedule.
Future cash flows
Contributions of € 8,223 thousand are expected to be paid into the plans in thenext reporting period.
The weighted average term of the DBO is thirteen years.

Voith A nnual Repor t 2015

176

Consolidated Financial Statements

21.	

Other provisions

Provisions consist of the following:in €   thousandsAt
2014-09-30

Changein theconsoli­
dated
Group

Utilization

Additions

Reversals

Transfers

83,975- 525-17,050

22,893- 3,9010

Personnel-related provisions

Currency
Reclassitransla­t ion
fication to
Discountdiffer­ assets helding effectences
for sale

475

1,084

-13,012At
2015-09-30

73,939Other tax provisions

7,416

0

-1,776

4,045

- 440

0

0

211

- 3,218

6,238

Warranty provisions

201,083

0- 68,123

134,571- 43,502

- 704

62

-1,493-1,287

220,607

Other contract-related
provisions

66,453- 882- 24,592

47,344-16,596

299

915

- 289

-16,000

56,652Sundry other provisions

130,660- 78- 39,394

141,646-13,383

- 458

467

780

- 35,837

184,403

489,587-1,485-150,935

350,499- 77,822

- 863

1,919

293

- 69,354

541,839

2014-09-30

2015-09-30
in €   thousands< 1 year> 1 year< 1 year> 1 year

Personnel-related provisions

19,58454,35522,76861,207

Other tax provisions

6,043

195

7,126

290

Warranty provisions

127,845

92,762

144,02257,061Other contract-related provisions

54,301

2,351

61,446

5,007

Sundry other provisions

99,292

85,11159,29471,366

307,065

234,774

294,656

194,931

Other provisions include restructuring provisions and provisions for personnel
reductions of € 170 million (previous year: € 94 million).
Refund claims totaling € 22.2 million (previous year: € 18.5 million) associated withother provisions were capitalized.
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 recorded based on past experience or on thebasis of individual assessments, and represent the legal and contractual warranty obligations as well as goodwill commitments to customers. The provisions
generally represent amounts that will be payable within the next two years. Other
contract-related provisions include obligations for services still to be rendered on
customer orders, or parts of orders that have been billed, obligations for service
and maintenance contracts, and for commission provisions. In these cases, theamount and timing of future expenses are dependent on completion of the orders

Voith A nnual Repor t 2015

177

Consolidated Financial Statements

concerned. Among other items, other provisions cover the obligations related tochanges 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 accordance with the contracts.

22. 

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

Bonds
Bank loans

Current

Non-current

2015-09-30

Non-current

2014-09-30

79,367654,523

733,8900715,894

715,894258,340

114,107372,447

42,029101,333

143,362

306

997

1,303

424

1,417

1,841

Financial liabilities from leases
Notes payable
Other financial liabilities

Current

274

0

274

3,745

0

3,745

39,69872,015

111,71350,34980,638130,987

377,985

841,642

1,219,627

96,547899,282

995,829

Other financial liabilities contain obligations from the classification of holders of
non-controlling interests in limited partnerships based on repayment rights andput options.
No financial liabilities are secured by other assets (previous year: € 1,748 thousand).
The Voith Group’s current and non-current bonds and its bank loans are denominated in the following currencies:in €   thousands

Voith A nnual Repor t 2015

2015-09-30

2014-09-30

Euro804,322590,254

US dollar

142,760

128,778

Chinese renminbi

128,198

119,172

UK sterling

12,334871

Other currencies

18,723

20,181

1,106,337

859,256

178

Consolidated Financial Statements

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

2015-09-30

2014-09-30

Bank loans

372,447

143,362

Bonds

740,637

726,209

Other interest-bearing financial liabilities

113,597

136,573

Securities-179,877-183,728

Cash and cash equivalents- 434,953- 800,823

Other realizable financial receivables and loans- 38,208- 61,927

573,643- 40,334

Net debt as the difference between financial liabilities and realizable financial assets
is an important indicator for banks, analysts and rating agencies. This net debt
indicator is not defined under International Financial Reporting Standards (IFRS)
accounting policies and accordingly its definition and calculation may diverge fromthe practice of other companies. In contrast to the carrying amount, which is basedon the effective interest rate method, the ratio is calculated by measuring financial
liabilities at their higher nominal repayment amount. The bonds are included here
at an amount which is € 7 million higher (previous year: € 10 million higher) thanthe carrying amount in the balance sheet. The financial amounts attributable toVoith Industrial Services continue to be included in this ratio. The reclassification
to assets held for sale in the balance sheet result in the elimination of net financial
assets of € 8 million.

23.

Trade payables

Trade payables of € 9,162 thousand (previous year: € 8,592 thousand) are due after
more than one year.

Voith A nnual Repor t 2015

179

Consolidated Financial Statements

24.	

Other financial liabilities/
other liabilities
Other financial liabilitiesin €   thousands

Current

Non-current

2015-09-30

Current

Non-current

2014-09-30

Derivatives used to hedge
operational transactions

72,39534,752

107,147

15,963

4,137

20,100

Personnel-related liabilities

104,144115

104,259

129,024

2,640

131,664

Sundry financial liabilities

106,440

13,587

120,027

152,771

11,571

164,342

282,979

48,454331,433

297,758

18,348316,106

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

Other liabilitiesin €   thousands

Current

Non-current

2015-09-30

Current

Non-current

2014-09-30

Tax liabilities

51,375

174

51,54967,631

22,79190,422

Advances received

727,0760727,076926,2990926,299

Prepaid expenses
Sundry other liabilities

5,113

5,563

10,676

6,210

5,125

11,33566,846

26,54593,391

87,613

24,774112,387

850,41032,282882,692

1,087,753

52,6901,140,443

Tax liabilities principally relate to sales taxes (VAT).

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180

Consolidated Financial Statements

Notes on segment reporting
Information on thesegment data

The business is managed according to the different products and industries andcorresponds to the structure of internal reporting to the Board of Management ofVoith GmbH.
As described previously, the Group’s Voith Industrial Services division is presented
as a discontinued operation, as it is currently held for sale. The segment report has
been adjusted accordingly to exclude this division, and the figures for the previous
year have been adjusted correspondingly (with the exception of the non-current
assets disclosure note).
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 is thus a key management indicator. Basically, it is an operational indicator derived from externalreporting, comprising the operational result before non-recurring items. In line withthe calculation of profit from operations, the following profit/loss components aretaken into consideration:
Operating interest income
Operating interest income is defined as interest received by the Company on thelong-term financing of receivables from customers, or as the imputed interest
effect attributable to that portion of customer advances that is not used to financeinventories and PoC receivables.
Other adjustments
Other adjustments contain effects which are shown as other operating income
and expenses in the consolidated statement of income. In relation to ordinary
business activities, however, these are treated as non-recurring effects and areconsequently eliminated as such when determining the profit from operations
so as to facilitate a better assessment of business activities for internal control
purposes.

Voith A nnual Repor t 2015

Consolidated Financial Statements

181
Capital employed is defined as operating net assets. It is the aggregate of property,
plant and equipment and intangible assets (excluding goodwill), inventories, tradereceivables, other non-interest-bearing assets and income tax assets, as well as
prepaid expenses less trade payables, non-interest-bearing liabilities, income tax
liabilities, deferred income and advances received, which are deducted up to theamount 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, as at the reporting date for theprevious six-monthly financial statements, and as at the end of the previous period
under review. In contrast to the provisions of IAS 21, the assets and liabilities offoreign subsidiaries are translated at the average exchange rate for the period
under review. Owing to the use of averages, the capital employed cannot bereconciled 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.

Information on the activities
in the segments presented

Voith ­Hydro – one of the world’s leading full-line suppliers of equipment, technologies and services for hydropower plants. The product portfolio covers allcomponents for large and small hydropower plants: generators for all turbine
types, Francis, Pelton, Kaplan, bulb and pump turbines, pumps, electrical andmechanical power plant equipment, automation systems, and services including
spare parts and maintenance. Voith Hydro is a joint venture with Siemens, in which
Voith holds a majority 65 % of all shares and voting rights.
Voith ­Paper – as a partner and pioneer for the paper industry Voith Paper provides
technologies and products for the entire paper manufacturing process – from fiber
through to finished rolls of paper. All over the world, producers of paper, board andtissue have for many years put their trust in the expertise and competence of thissystem provider. Voith Paper’s innovative strength is evident in customer-oriented
solutions which optimize the paper manufacturing process. Voith Paper 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 paper manufacturing process.

Voith A nnual Repor t 2015

182

Consolidated Financial Statements

Voith Turbo – specialist 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 processsolutions.
Operating and reportable segments as defined in IFRS 8 are identical.

Segment information bybusiness segment
Voith ­H ydro

Voith ­Paper

Voith ­Turboin €   millions

2014 /15

2013 /14

2014 /15

2013 /14

2014 /15

2013 /14

External sales

1,313

1,313

1,506

1,430

1,470

1,409

3

4

22

22

5

5

Total segment sales

1,316

1,317

1,528

1,452

1,475

1,414

Profit from operations

101

101

58

9

91

111

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

25

30

61

67

44

43

Investments

Sales with other segments

19

22

22

29

29

31

Segment goodwill

15

15

222

222

141

140

Average capital employed

478

463

843

891

738

752

ROCE

21.1%

21.8 %

6.8 %

1.0 %

12.3 %

14.7 %

Employees 4)

5,188

5,219

7,739

8,419

6,254

6,275

3)

1)

Subtotal for Voith Hydro, Voith Paper and Voith Turbo.

2)

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

3)

Excluding additions due to new acquisitions and financial assets.

4)

Statistical number of persons employed at fiscal year-end.

As the earnings components “Operating interest income” and “Other adjustments”
are not shown directly in the consolidated statement of income, these two items
are presented separately in the reconciliation of the profit from operations bysegment to result before taxes presented below.

Voith A nnual Repor t 2015

183

Consolidated Financial Statements

Reconciliation

Total Core Business 1)

Total

2014 /15

2013 /14

2014 /15

2013 /14

2014 /15

2013 /14

4,289

4,152

13

16

4,302

4,168

30

31

- 30

- 31

0

0

4,319

4,183

-17

-15

4,302

4,168

250

221

20

14

270

235

130

140

12

12

142

152

70

82

10

21

80

103

378

377

8

8

386

385

2,059

2,106

155

154

2,214

2,260

12.2 %

10.4 %

1,042

1,030

20,223

20,943

12.1%

10.4 %

19,181

19,913

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

2014 /15

2013 /14

Profit from operations

270

235

Operating interest income

- 32

- 39

Other adjustments

0-5

Non-recurring result

-185

- 30

-1

2

Share of profits from associates

Voith A nnual Repor t 2015

Interest result

- 64

- 68

Other financial result

-11

- 41

Result before taxes from continuing operations

- 23

54

184

Consolidated Financial Statements

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

Germany
Other countries

2014 /15

2013 /14

462

476

3,840

3,692

of which Europe

1,146

1,210

of which
Americas

1,259

1,284

of which Asia

1,230

1,039

· thereof China

673

576

of which others

205

159

4,302

4,168

2014 /15

2013 /14

Germany533

891

Other countries

985

1,012

of which Europe

252

269

of which
Americas347

379· thereof USA

247

232

of which Asia

383

361

· thereof China

341

317

of which others

3

3

1,518

1,903

Total

Non-current assets
in €   millions

Total

Voith A nnual Repor t 2015

185

Consolidated 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 addition, there are risks in connection with the recognition of transfer prices
outside Germany amounting to € 4 million (previous year: € 5 million) and risks
from legal disputes of € 33 million (previous year: € 19 million). A successful outcome is currently expected in both cases.
Neither Voith GmbH nor any of its Group companies are involved in any further
current or foreseeable taxation, legal, or arbitration proceedings that could materially influence their economic situation.
Owing to the ongoing tax field audit of German companies, further changes may
be made to tax items.

Contingent liabilities

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

Guarantee obligations
Warranties

2015-09-30

2014-09-30

25,25817,740

1,717

3,625

26,97521,365

Most of the guarantee obligations expire in 2022.

Other financial obligations

Voith A nnual Repor t 2015

In addition to liabilities, provisions and contingent liabilities, the Voith Group also
has other financial obligations, in particular those arising from rental and lease186

Consolidated Financial Statements

agreements for buildings, land, plant, machinery and other non-production-related
tools and equipment.
in €   thousands

2015-09-30

2014-09-30

Purchase commitments for capital expenditures

12,696

16,008

Obligations arising from non-cancelable operating leases

144,326

137,945

1,531

1,305

158,553

155,258

Other

Assets leased under operating leases led to cash outflows totaling € 74,922 thousand (previous year: € 78,703 thousand). These payments mostly related to leased
passenger vehicles, machinery and buildings. The majority of leases run for between one and fifteen years. Some companies have the option of extending theirrental contracts.
The total of future minimum lease payments for non-cancelable operating leases
is shown below, broken down by maturity.
in €   thousands

2015-09-30

2014-09-30

47,58050,734· D ue between one and five years

72,65066,194· D ue in more than five years

24,09621,017

144,326

137,945

Nominal value of future minimum lease payments· D ue in less than one year

Future minimum lease payments include € 624 thousand (previous year: € 1,620 thousand) from sale and leaseback transactions.
There are expected cash inflows from non-cancelable subleases corresponding
to the future minimum lease payments. However, the amounts are not significant.

Voith A nnual Repor t 2015

187

Consolidated Financial Statements

Additional information on
financial instruments

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

IAS 39measure­ment
categoryin €   thousands

Carrying
amount2015-09-30

Amortized
cost

Cost

Fair value
through
equityFair value
through
profit orloss

Amount recognized in
the balance
sheet inaccordancewith IAS 17

Fair value
2015-09-30

Assets:Cash and cash equivalents

LaR

434,953434,953434,953

Trade receivables

LaR

664,858

664,858

664,858

Receivables from construction contracts

LaR

276,773276,773276,773

60,00460,00460,004

5,861

Other financial assets and securities

209,438· Financial investments

LaR· Loans

LaR

5,861

· Investments

AfS

30,184· Securities

AfS

113,389

Derivative financial instruments

5,861
30,184

1)

113,389

113,389

31,022· Forward exchange contracts

FAHfT

7,245

7,245

7,245

· Interest rate hedges

FAHfT

6,919

6,919

6,919

· Forward exchange contracts(fair value hedges)

n.a.

6,020

6,020

6,020

· Interest rate hedges (fair value hedges)

n.a.

10,838

10,838

10,838Other receivables

144,458· Financial receivables

LaR

11,476

11,476

11,476· S undry financial assets

LaR

132,982

132,982

132,982

Liabilities:
Trade payables

FLAC

397,928

397,928

397,928

Bonds/bank loans/notes

FLAC

1,106,611

1,106,611

1,149,358

Financial liabilities from leases

n.a.

Derivative financial instruments

1,303

1,303

107,147· Forward exchange contracts· Forward exchange contracts(fair value hedges)

FLHfT

6,722

n.a.

100,425

Other financial liabilities

FLAC

111,713102,315

Sundry financial liabilities

FLAC

224,286

224,286

LaR

1,586,907

1,586,907

6,722

6,722

100,425

100,425

9,398

417,059
224,286

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

AfS

143,573

Financial assets held for trading (FAHfT)

FAHfT

14,164

Financial liabilities measured atamortized cost (FLAC)

FLAC

1,840,538

Financial liabilities held for trading(FLHfT)

FLHfT

6,722

1)

Voith A nnual Repor t 2015

30,184

113,389
14,164

1,831,140

9,398
6,722

 he available for sale financial instruments include investments whose fair values were not reliably measurableTand for which a sale is not currently planned.

188

Consolidated Financial Statements

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

Trade receivables

LaR

812,520

812,520

812,520

Receivables from construction contracts

LaR

324,054

324,054

324,054

37,198in €   thousands

Cost

Fair value
through
equityFair value
2014-09-30

Assets:Other financial assets and securities

800,823

216,229· F inancial investments

LaR

37,19837,198· Loans

LaR

6,477

6,477

· I nvestments

AfS

26,024

6,477
26,024

1)· S ecurities

AfS

134,465

 ption right
·O

FAHfT

5,878

5,878

5,878

· S ecurities

FAfvtpl

6,187

6,187

6,187

Derivative financial instruments

134,465

134,465

19,229· Forward exchange contracts

FAHfT

2,229

2,229

2,229

· Interest rate hedges

FAHfT

732

732

732

· Forward exchange contracts(fair value hedges)

n. a.

4,756

4,756

4,756

· Interest rate hedges (fair value hedges)

n. a.

11,512

11,512

11,512Other receivables

129,603· Financial receivables

LaR

41,902

41,902

41,902· Sundry financial assets

LaR

87,70187,70187,701

Liabilities:
Trade payables

FLAC

512,317

512,317

512,317

Bonds/bank loans/notes

FLAC

863,001

863,001

948,435

Financial liabilities from leases

n. a.

Derivative financial instruments

1,841

1,841

20,100· Forward exchange contracts

FLHfT· Forward exchange contracts(fair value hedges)

2,872

2,872

n. a.

17,228Other financial liabilities

FLAC

130,987

115,171

17,228Sundry financial liabilities

FLAC

296,005

296,005

LaR

2,110,675

2,110,675

15,816

2,872
17,228283,764
296,005

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

AfS

160,489

Financial assets held for trading (FAHfT)

FAHfT

8,839

8,839

Financial assets at fair value throughprofit and loss (FAfvtpl)

FAfvtpl

6,187

6,187

Financial liabilities measured atamortized cost (FLAC)

FLAC

1,802,310

Financial liabilities held for trading(FLHfT)

FLHfT

2,872

1)

26,024

1,786,494

134,465

15,8162,872

The available for sale financial instruments include investments whose fair values were not reliably measurable.

Voith A nnual Repor t 2015

189

Consolidated Financial Statements

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

2015-09-30

Level 1

Level 2

Level 3

Securities

113,389

Derivative financial instruments

31,022

113,38900031,0220

Derivative financial instruments
Liabilities arising from the acquisitionof investment shareholdings

107,147

0

107,147

0

9,398

0

0

9,398

2014-09-30

Level 1

Level 2

Level 3

Securities

146,530

146,53000Derivative financial instruments

19,2290

19,2290

Derivative financial instruments

20,100020,1000Liabilities arising from the acquisitionof investment shareholdings

15,8160015,816

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, as follows:
Level 1:
Input factors quoted in active markets accessible to the Company for identicalassets or liabilities on the measurement date.
Level 2:Other inputs than those at level 1 for which observable market data which relates
directly or indirectly to the financial assets or liabilities is available.
Level 3:
Input factors for which there are no observable market data.
No reclassifications were made between the fair value hierarchies in the 2014/15
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, fair value measurement includes the risk of both counterparty
default and default on the part of the holder. Input factors that take account ofcounterparty 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.

Voith A nnual Repor t 2015

190

Consolidated Financial Statements

The fair values of liabilities from the acquisition of investment shareholdings allocated to level 3 of the fair value hierarchy are based on internal planning data.
These are measured using the discounted cash flow projections taken from thelatest business planning prepared by management. The planning assumptions
are adjusted to reflect the current information available.
The fair values of financial assets and financial liabilities measured at cost or
amortized cost, which need to be 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 amounting to € 636 million (previous year: € 675 million)
is equal to the nominal value multiplied by the quoted price at the end of thereporting period (fair value hierarchy level 1).
The market values of unlisted bonds, bank loans and other financial liabilities arecalculated as the present value of the payments associated with the liabilities,
based on the applicable term structure of interest rates and Voith GmbH’s credit
spread curve determined for different currencies (fair value hierarchy level 2).
The market values of the other financial liabilities totaling € 374 million (previous
year: € 230 million) were determined based on internal planning data using discounted cash flow projections taken from the latest business planning preparedby management. The planning assumptions are adjusted to reflect the current
information available (fair value hierarchy level 3).

Voith A nnual Repor t 2015

191

Consolidated Financial Statements

Net gains or losses for each measurement category of financial instruments:
2014 /15

Impairments

Other net
gains andlosses

Total

Loans and receivables (LaR)- 9,147

99,57790,430Available-for-sale financial assets-15,759862-14,897

Held for trading financial assets

0-1,160-1,160Financial liabilities measured at amortized cost0

- 53,540- 53,540

Impairments

Other net
gains andlossesTotalin €   thousands

2013 /14

in €   thousands- 5,421

15,591

10,170Available-for-sale financial assets

Loans and receivables (LaR)- 42,358

730- 41,628

Held for trading financial assets

212- 4,680- 4,4680- 2,615- 2,615

Financial liabilities measured at amortized cost

See note 19 for more information on net gains and losses through equity fromfinancial assets included in the category “available-for-sale”.
Impairments against “loans and receivables” primarily relate to trade receivables.
In the category “available-for-sale financial assets” impairments primarily relate towrite downs of securities where there has been a significant fall in fair value.
All interest income and interest expenses for financial assets or financial liabilities
relate to those assets or liabilities that are not measured at fair value through profit
or loss.
Offsetting of financial instruments
The following table shows the amounts of potential offsetting under master netting
agreements. The agreements do not meet the criteria required for net presentationin the balance sheet due to the fact that the Group does not have a current legal
right of set off, as the set off right is conditional on the occurrence of future events.

Voith A nnual Repor t 2015

192

Consolidated Financial Statementsin €   thousands

Gross presentation
balance sheet
2015-09-30

Potential set off
amount due tomaster netting
agreements

Potential
net amount

31,022

20,450

10,572

107,147

20,45086,697Gross presentation
balance sheet
2014-09-30

Potential set off
amount due tomaster netting
agreements

Potential
net amount

19,2295,741

13,488

20,1005,741

14,359AssetsDerivative financial instruments
Liabilities

Derivative financial instrumentsin €   thousands
AssetsDerivative financial instruments
Liabilities

Derivative financial instruments

Risk management

Principles of financial risk management
The Voith Group is a global business, and is exposed to risks arising from changes
in interest rates and exchange rates in the course of its ordinary business activities
which affect its liabilities, assets and transactions. 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 Corporate Board of Management. Long-term refinancing
is undertaken by Voith 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
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.

Voith A nnual Repor t 2015

Consolidated Financial Statements

193
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 businesswith 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. For banks, a ratings-based limit (derived fromcredit default swaps/rating) is monitored constantly. In addition, the Voith Groupinvests in securities and monitors the associated risks of these centrally. Securities
may only be traded by Group companies with the approval of Voith Finance GmbH.
Trade receivables:
Credit risk arising from the delivery of goods and services expresses itself interms of counterparty risk, manufacturing risks, and political export-related risks.
Handling of these risks is governed by rules that are binding throughout the Voith
Group. The maximum risk of default is limited to the carrying amount of the tradereceivables, which is € 664,858 thousand (previous year: € 812,520 thousand). The
maximum default risk for receivables arising from long-term construction contracts is € 276,773 thousand (previous year: € 324,054 thousand). On account of
the collateral held, the maximum default risk for trade receivables is reduced by€ 126,804 thousand (previous year: € 116,548 thousand) and by € 58,904 thousand(previous year: € 75,512 thousand) for receivables from long-term construction
contracts.
All orders above a defined contract 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-related risks classified as Euler Hermes country category 3 or higher
must always be hedged, unless approval is issued by the decision-making bodies
in individual cases. Further risk assessment is also activated for orders upward ofdefined contract values. 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 andcertain derivative instruments, the Group’s exposure to credit risk arises fromdefault of the counterparty, with a maximum exposure equal to the carrying amountof these instruments. For details of financial guarantees, please refer to the discussion of contingent liabilities. This kind of loss can occur if individual business
partners fail to meet their contractual obligations. As a rule, no collateral exists
for such an eventuality.

Voith A nnual Repor t 2015

194

Consolidated Financial Statements

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 thereporting date by:

2015-09-30
Gross value

Thereof not
impaired or
past due

Trade receivables

703,053

439,448

Other financial assets and securities

348,077

109,056

Other financial receivables

150,478

141,060in €   thousands

more than
180 days

144,672

42,82140,147

919

1,396

881

Thereof not impaired but past due at thereporting 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

123,727in €   thousands

between90 and180 daysless than
90 daysless than
90 days

between90 and180 daysmore than
180 days

168,139

27,49052,617

2,034

1,136

1,980

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 which was arranged in 2011 and increased in 2014 via the Amend-&Extend method, was extended in August 2015 for a further year and now runs until
2020 with the option of extending for another year – no financial covenants wereagreed. 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.

Voith A nnual Repor t 2015

195

Consolidated Financial Statements

To safeguard internal and external growth, the Voith Group procures long-term
funding on the capital markets by issuing bonds, private placements and individualbank 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 previous years, all contractual terms and conditions werecomplied with in the 2014/15 fiscal year. The “Baa3” rating issued by Moody’s waschanged in September of this year to “Ba1” and provided with a “stable outlook”.
Cash pools, intercompany loans, and the allocation of external bank credit lines toindividual operating units protect the liquidity of Group companies. Voith FinanceGmbH produces monthly finance status reports for the entire Group. Balancesof central bank and cash pool accounts and bank guarantees are available on adaily basis.
The table below lists the undiscounted, contractually agreed cash outflows fromfinancial instruments:in €   thousands

2015-09-30

Trade payables

397,928

388,9819,446

1

Bonds/bank loans/notes

1,106,611

375,647

826,1900Financial liabilities from leases

Cash flows < 1 year

Cash flows 1–5 years

Cash flows > 5 years

1,303

341

816

265

Other financial liabilities

111,71340,287

123

71,892Sundry financial liabilities

224,286

210,585

13,242460

Derivative financial instruments

107,147
276,866

109,0950· Outflows· Inflows
1,948,988

in €   thousands

2014-09-30- 218,025- 96,014- 3,449

1,074,682

862,898

69,169Cash 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 A nnual Repor t 2015

196

Consolidated Financial Statements

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 arepresented net with cash inflows.
There are no expectations that cash flows presented in the maturity analysis could
be incurred significantly earlier, or that there will be significant changes to the cash
flow amounts.
Financial market 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.
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.
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.
In the project business, both the hedge relationship and the objectives of andstrategies for risk management must be documented in respect of the underlying(hedged) transactions before external hedges are entered into.
Hedges must be highly effective to be in compliance with the Voith Group’s risk
management strategy. Where hedge relationships are demonstrated to be effective, the transactions qualify for hedge accounting. As a result, fluctuations in theexchange rate do not affect profit or loss, nor do they influence project costing.
In the Voith Group, derivative financial instruments are traded externally by Voith
Finance GmbH on behalf of Group companies. Group companies in countries
subject to foreign exchange restrictions hedge their currency risks locally. The
Group-wide treasury management software tool is used for central scheduling,
monitoring, and documentation of all foreign currency hedges entered into by
Voith Finance or Group companies.

Voith A nnual Repor t 2015

Consolidated Financial Statements

197
Changes in the US dollar exchange rate are significant for the Voith Group. Basedon the balance sheet items described above, the effects on the Group’s results
and consolidated equity are as follows: if the US dollar rises by 5 %, the Group’s
pre-tax profit increases by € 9,064 thousand (previous year: increase of€ 6,908 thousand) and equity (including the effect from income before tax) by thesame amount (previous year: increase of € 6,929 thousand). If, by contrast, theUS dollar falls by 5 %, the pre-tax profit decreases by € 9,064 thousand (previous
year: decrease of € 6,193 thousand) with an according effect on equity (including
the effect from pre-tax profit) (previous year: decrease of € 6,212 thousand).
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 pools. 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 A nnual Repor t 2015

198

Consolidated Financial Statements

The carrying amounts of the Group’s key financial instruments that are exposed
to interest rate risks are grouped by their contractually agreed maturities in thefollowing table:
2015-09-30
in €   thousands

Less than
1 year

1–2 years

2–3 years

3–4 years

4–5 years

More than
5 years

Total

434,953

079,367

0

0

0

0

0

434,953

061,27000140,637

258,08600

0

114,1070372,1930593,253

0

0

0

0

593,253

254

0

0

0

0

0

254

Less than
1 year

1–2 years

2–3 years

3–4 years

4–5 years

More than
5 years

Total

Floating interest rate
Cash and cash equivalents
Bonds
Bank loans
Fixed interest rate
Bonds
Bank loans

2014-09-30
in €   thousands

Floating interest rate
Cash and cash equivalents
Bonds
Bank loans

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

Fixed interest rate
Bonds
Bank loans

If the market rate of interest had been 100 bps higher (lower) at September 30,
2015, earnings from the significant floating rate financial instruments would
have been € 0.6 million lower (higher) (previous year: € 5.3 million higher (lower)).
Equity would have changed accordingly. This effect chiefly originates from euro-­denominated floating-rate financial instruments of € -0.6 million (previous year:€ 5.3 million).
If the market rate of interest had been 100 bps higher (lower) as at September 30,
2015, the fair value of the significant fixed rate financial instruments would havebeen € 8.5 million lower (higher) (previous year: € 17.9 million).
Risks relating to securities and stock prices:
The Voith Group holds stocks and other available-for-sale securities of € 113 million(previous year: € 134 million). Stock price risks are reflected in the balance sheet

Voith A nnual Repor t 2015

199

Consolidated Financial Statements

and not in the consolidated statement of income, unless the criteria for impairment
are met. Should the underlying share price change by 10 %, the equity wouldchange by 10 % of the carrying value of the respective shares and the net result
would change by approximately € 10 million.
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 canbe arranged by Voith Finance GmbH to limit any latent commodity price risks. The
Group had insignificant amounts of commodity contracts during the fiscal year.
Hedge relationships:
The following items are used to hedge foreign exchange and interest rate risks:
2015-09-30
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)

470,531

253,130

4,222

1,798

66,18634,239Interest rate swaps (fair value hedges)

76,13053,739

3,253

7,585

0

0

Other derivatives

299,206

90,936

13,463

701

6,209

513

Total

845,867

397,805

20,93810,084

72,39534,752

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

Voith A nnual Repor t 2015

200

Consolidated Financial Statements

Fair value hedges:
The Group uses fair value hedges primarily to hedge interest rate and foreignexchange risks.
In the 2014/15 fiscal year, a loss of € 82,608 thousand was recorded on derivative financial instruments classified as fair value hedges (previous year: a loss of€ 17,700 thousand). Since the hedges were classified as highly effective, measurement of the hedged transactions at the reporting date produced a contrary gain/
loss in the same amount.
There were no effects on earnings from ineffective hedges in the 2014/15 and2013/14 fiscal years.
Changes in the value of financial derivatives that do not meet the requirements
defined for hedge accounting under IAS 39 are recognized as income or expenses
in profit or loss at the reporting date.
Research and development costs
In the 2014/15 fiscal year, research and development costs totaled € 210,045 thousand (previous year: € 215,992 thousand).
Of these, an amount of € 3,698 thousand (previous year: € 3,663 thousand) wererecognized as development cost assets in the balance sheet. The remaining expenses of € 135,777 thousand (previous year: € 141,273 thousand) includes bothplanned amortization on these capitalized development expenses and activities
for non-customer-specific new developments and improvements, as well as€ 70,570 thousand (previous year: € 71,056 thousand) for development activities
capitalized under customer-specific orders.
Transactions with related parties and individuals
In the course of its ordinary business activities, Voith GmbH maintains relationships
both with the subsidiaries listed in these consolidated financial statements andwith other related entities and individuals (family members who are shareholders,and members of the Supervisory Board and of the Board of Management).
In the 2007/08 fiscal year, one subsidiary of Voith GmbH was sold to family shareholders in a transaction under common control. This company, JMV GmbH &Co. KG, Heidenheim, is now the ultimate parent company of the Voith Group.
All business transactions with related parties are conducted under 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 under arm’s length conditions.

Voith A nnual Repor t 2015

201

Consolidated Financial Statements

A total of € 967 thousand was paid at customary market rates to members of theSupervisory Board and former members of the Corporate Board of Management
for consulting and other services (previous year: € 973 thousand).
The majority of intercompany deliveries and services to related parties (entities andindividuals) are shown in the table below:
in €   thousands

2014 /15

2013 /14

Liabilities to family shareholders

19,476

17,743Services purchased from associates

1,984

6,417

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

284

203

2,815

3,152

828

1,755

7,793

3,292

Services rendered to other investments

15,686

18,425

Receivables from other investments, incl. advances paid

13,085

16,448

Impairment of receivables from other investments
Liabilities to other investments, including advances received
Services purchased from joint ventures

- 81

-102

10,58027,989

3,727

4,783

Services rendered to joint ventures

766

576

Receivables from joint ventures

252

4,382

Liabilities to joint ventures

1,355

768

Services purchased from the ultimate parent company

10,896

10,287

Services rendered to the ultimate parent company

782

656

Receivables from the ultimate parent company

196

165

5,770

4,852

Liabilities to the ultimate parent company

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, € 1,462 thousand and € 543 thousand were
issued in favor of one associate, one joint venture and other investees respectively(previous year: € 11,836 thousand, € 1,545 thousand and € 1,364 thousand).
The Group has obligations under outstanding orders with the ultimate parent
amounting to € 4,242 thousand (previous year: € 4,344 thousand). There are no
obligations in the current fiscal year under outstanding orders with associates(previous year: € 4,681 thousand).
Capital increases of € 2,567 thousand (previous year: € 1,255 thousand) werecarried out in favor of joint ventures.

Voith A nnual Repor t 2015

202

Consolidated Financial Statements

The investment in KUKA Aktiengesellschaft, Augsburg, an associate, was includedin the analysis of transactions with related companies and persons for the first timein the 2014/15 fiscal year. The reportable transactions and balances in the current
reporting period were not significant.

Remuneration of
governing bodies

The compensation for members of the Board of Management of Voith GmbH,
including pension expenses, totaled € 10,848 thousand in the fiscal year (previous
year: € 8,564 thousand). This amount includes short-term benefit components totaling € 6,237 thousand (previous year: € 7,030 thousand), post-employment benefitsof € 2,504 thousand (previous year: € 1,534 thousand), and termination benefitsof € 2,107 thousand (previous year: € 0), for which provisions of € 5,114 thousand(previous year: € 1,500 thousand) excluding pension liabilities have been made.
The present value of all defined benefit obligations (DBO) in respect of current
members of the Board of Management totals € 47,362 thousand at the reporting
date (previous year: € 46,754 thousand). The present value of defined benefit obligations of past members of the Board of Management totaled € 41,754 thousand(previous year (adjusted)*: € 33,250 thousand). Plan assets for current membersof the Corporate Board of Management total € 13,775 thousand (previous year:€ 16,212 thousand). Plan assets for former members of the Corporate Board ofManagement total € 14,099 thousand (previous year: € 8,997 thousand). Theseamounts are included in note 20.
The members of the Supervisory Board received compensation of € 545 thousand(previous year: € 529 thousand).
Pension and other payments to former members of the Corporate Boardof Management amounted to € 2,658 thousand (previous year (adjusted)*:€ 2,397 thousand).
* Pension obligations and payments to former members of the Group’s management which are accounted
for by a subsidiary of Voith GmbH are included from the 2014/15 fiscal year. The disclosure amounts forthe previous year have been adjusted accordingly.

Voith A nnual Repor t 2015

203

Consolidated Financial Statements

Auditor’s fees and services

The following fees (including reimbursement of expenses) were paid to the independent auditor for the services rendered in the 2014/15 fiscal year:in €   thousands

2014 /15

2013 /14

Annual audit

2,378

1,645

Other assurance or valuation services

261

74

Tax advisory services

136

172

Other services

210

83

2,985

1,974

The comparative figures for the previous year relate to the Group’s predecessor
auditor. The predecessor auditor did not audit companies included in the Voith
lndustrial Services segment in the previous year.

Subsequent events

Voith GmbH has successfully issued a loan note of € 300 million on the market inNovember 2015. The loan is for general business purposes, in particular for the
purposes of refinancing financial liabilities.
Under this loan issue, banks and institutional investors subscribed for loan notes
in tranches with maturities of five, seven and ten years, carrying both fixed andfloating interest rates.

Heidenheim an der Brenz, November 26, 2015
Voith GmbH
The Board of Management
Dr. Hubert Lienhard
Dr. Hermann Jung
Martin Hennerici (until March 31, 2015)
Bertram Staudenmaier
Dr. Roland Münch
Carsten J. Reinhardt (until October 19, 2015)
Dr. Uwe Knotzer (since October 19, 2015)
The German language consolidated financial statements of Voith GmbH as at
September 30, 2015 as authorized for issue and the unqualified audit opinion
issued thereon by KPMG Wirtschaftsprüfungsgesellschaft, Munich will be filed inGerman at the Bundesanzeiger [Federal German Gazette]. They can be viewed atwww.bundesanzeiger.de.

Voith A nnual Repor t 2015

204

Consolidated Financial Statements

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 26, 2015
Voith GmbH
The Board of Management
Dr. Hubert Lienhard
Dr. Hermann Jung
Martin Hennerici (until March 31, 2015)
Bertram Staudenmaier
Dr. Roland Münch
Carsten J. Reinhardt (until October 19, 2015)
Dr. Uwe Knotzer (since October 19, 2015)

Voith A nnual Repor t 2015

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E-mail: info@voith.com

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Phone: +49 7321 37-3462
Fax: +49 7321 37-7107
E-mail: info@voith.com
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E-mail: info@voith.com

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investment in a Gold Standard climate project,
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Both versions, as well as other information, canalso be downloaded from the Internet atwww.voith.com.
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