Report on Expected Developments

The International Monetary Fund has lowered its growth forecast for the global economy in 2019 to 3.5 % in real terms. This means that the growth seen in the past years will decline slightly. Among other factors, this development is due to the negative consequences of the trade dispute between the USA and China. Effects curbing growth in Europe dating from the second half of 2018, including the risks in the Italian financial sector, a decline in consumer spending in Germany and political uncertainties in France are additionally expected to linger in 2019. For the United Kingdom, in particular, the forecast of around 1.5 % is subject to high risk on account of the uncertainties associated with Brexit. Overall growth in the euro zone is expected to weaken to 1.6 %.

The IMF forecasts anticipate a slowdown in the growth momentum in the USA to 2.5 %. The budget freeze at the start of the year also has a negative impact on economic growth. Nevertheless, the fiscal incentives suggest that consumer demand will remain high, which will also benefit imports.

For the emerging markets and developing economies the IMF is projecting a growth rate of 4.5 %, i.e. only slightly below the previous year’s level. For the European emerging economies a decline of the growth rate to 0.7 % overall is forecast despite a good economic performance in Central and Eastern Europe; this is solely due to the currency crisis in Turkey.

For Asia the IMF is forecasting economic growth of 6.3 %, which is attributable in particular to the weakening momentum in China of 6.2 %. By contrast, an increase in gross domestic product (GDP) of 7.5 % is anticipated for India, which benefits from lower oil prices and a less restrictive monetary policy. Growth of 5.1 % is projected for the ASEAN countries, which also include important KSB markets.

Growth in Latin America is expected to range at 2.0 %. The recovery from the recession in 2015 and 2016 continues in Brazil and should lead to a 2.5 % rise in GDP this year.

Despite the slowdown in the growth of the global economy the IMF expects persistently strong growth of gross investment worldwide. For the German mechanical engineering companies the German Mechanical Engineering Industry Association (VDMA) expects positive stimuli for orders received from the two biggest markets, USA and China, among others.

Gross domestic product growth

  * Source: International Monetary Fund (January 2019)

As far as manufacturers of liquid pumps in Germany are concerned, the VDMA expects sales revenue growth of 1 % in the current year; for industrial valves, the association expects an increase of 2 %.

For global mechanical engineering, the VDMA projects similar, slightly weaker economic growth. For German mechanical engineering, too, the VDMA forecasts the third consecutive boom year and a price-adjusted rise of + 2 %, i.e. slightly below the previous year.

As far as liquid pumps in Germany are concerned, the VDMA expects real sales revenue growth of + 2 % in the current year; for industrial valves, the association expects a nominal increase of 2 %.

For new shipbuilding, Macquarie Research projects a slight decline for 2019 after a slight increase in the year under review; for the following years it forecasts no more than a stable performance at the 2019 level.

SUMMARY OF EXPECTED DEVELOPMENT

Despite the weaker global economic growth, the underlying conditions are, generally speaking, expected to be good for an expansion of business in and outside Europe. Overall, the KSB Group is looking forward to further order intake growth in the current year because it tends to lag slightly behind the economic cycle. The main drivers of business will be standard products, support services and spare parts. Given that customers remain very willing to invest, the number of major projects for which products tailored to project specifications are supplied in addition to standard pumps and valves, is expected to increase. Overall, the order intake is expected to increase to € 2,350 million to € 2,500 million and sales revenue is expected to rise to € 2,300 million to € 2,450 million. Considering that the earnings for the current financial year will be impacted by one-time special effects, EBIT is forecast to grow to € 95 million to € 115 million overall for the 2019 financial year.

Pumps

Order intake in the Pumps segment will rise substantially in the course of the year although the situation in the field of conventional power stations remains critical and there are also signs that demand for pumps in industry and mining will be muted. Instead, a significant increase in order intake is to be expected from water and waste water management and from building services. In the oil and gas industry the extension of the product range may provide fresh stimuli for customer orders. Sales revenue for pumps will also increase substantially in 2019, helped by the invoicing of project orders from 2018 and previous years. Despite the expected substantial rise in sales revenue KSB is expecting EBIT for this segment to decline slightly in 2019 due to this year’s one-time special effects totalling € + 7.4 million.

Valves

A tangible increase in order intake is expected in the Valves segment in the current year. A rising number of orders are anticipated from industry, including but not limited to the chemicals and petrochemicals industries, and from the transport sector. In construction / building services and in industry, the planned growth will be based on new products and in the water and waste water sector on improved demand from East and South East Asia. By contrast, a further decline in demand for globe, butterfly and gate valves for the energy sector is to be expected. Sales revenue lags behind the order intake for valves and is therefore anticipated to show substantial growth in 2019 compared with 2018. For the Valves segment KSB therefore projects a substantial rise in EBIT.

Expected development

€ millions Actual 2018 Forecast 2019
Order intake 2,303.5 2,350 – 2,500
Pumps 1,506.2 Substantial increase
Valves 355.6 Tangible increase
Service 441.7 Substantial increase
Sales revenue 2,245.9 2,300 – 2,450
Pumps 1,469.4 Substantial increase
Valves 340.8 Substantial increase
Service 435.7 Tangible increase
EBIT 74.7 95 – 115
Pumps 90.6 Slight decline
Valves – 37.4 Substantial increase
Service 21.5 Substantial increase

Service

A focus of the growth strategy is on expansion of the service business. Consequently, substantial growth of the order intake for support services and spare parts is projected for the current year, with a focus on industry. The spare parts warehouses in Germany, Brazil and South Africa will be equipped with new software to make processes faster and smoother. In addition, new component warehouses will be established in China, India and South East Asia. Specifically in China a spare parts factory is planned to be built with a view to reducing delivery times significantly. Sales initiatives will help communicate the range of service offerings in growth markets more effectively and win new customers. This also applies to support services that are newly developed and offered in the wake of the digital transformation. For sales revenue in the Service sector the Group is projecting tangible growth while forecasting a substantial increase in EBIT in 2019. This assumption is based on the continued expansion of the service business under the new KSB SupremeServ brand.

The forecast horizon for all the afore-mentioned measures is the 2019 financial year.

Forward-looking Statements

This report contains forward-looking statements and information that are based upon the assumptions of Management. They express current forecasts and expectations with regard to future events. As a result, these forward-looking statements and information are exposed to risks and uncertainties that lie outside the Management’s sphere of influence. KSB wishes to point out that actual events or results may differ materially from the forward-looking statements and information presented, if one or more of the following opportunities or risks, or other opportunities, risks and uncertainties should materialise, or if the assumptions underlying the statements prove to be inaccurate.

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