The market for capital goods remained heavily weighed down by the effects of the financial and economic crisis in the third quarter of 2009. This is especially true of the markets in the industrial and construction sectors, where planned investments were either postponed or abandoned altogether.
Germany’s mechanical engineering industry therefore expects to see a sales decline of 20 to 25 percent for the current year. The pumps and valves manufacturers are assuming that the shortfall will be slightly less; but the figures will likewise be in the double-digit percentage range. In the markets for pumps, valves and related systems, which are currently still quite receptive, competition has intensified and the pressure on prices has increased. It has therefore become more difficult than in previous years to achieve reasonable returns.
Order intake and sales revenue development
In the first nine months of 2009, the order intake in the Group remained 13.7 percent down on the same period of the previous year. Orders for products in the Industry and Building Services segments were especially affected. Particularly customers in Europe remained very cautious with new investments. The decline in the order intake of KSB AG (minus 14.2 percent) was therefore more marked than in the Group as a whole.
Within the Group, the Region Asia / Pacific posted the least decline in order intake. In fact, KSB Shanghai Pump Co. Ltd. and also some smaller sales and production companies bucked the trend with a noticeable increase in orders received.
The consolidated sales revenue fell by 3.6 percent in the period from January to September 2009 compared with the strong previous year. The relatively stable sales revenue development compared with order intake is essentially attributable to the high level of long-term orders. Although numerous orders from the project business were completed and invoiced, the orders in hand resulting from new purchase orders was slightly up on the year-end figure in 2008 and now stands at more than € 1 billion.
The rather short-term standard business with industrial and building services products hardly profited from these orders in hand and was therefore well down in terms of sales revenue. This contrasted with growth in sales revenue with pumps and valves for the energy and water management sectors, as well as slurry pumps for the mining industry. But this growth was only partially able to offset the sales revenue decline in the standard business.
The sales revenue of KSB AG fell by 3.9 percent from January to September 2009, compared with the first nine months of the previous year.
Change in number of employees
In view of the changed economic situation, the KSB companies have not added to their core workforce in 2009, but have rather tended to leave positions that have become vacant unfilled. The fact that the number of employees in the Group has nevertheless increased slightly is a result, amongst other things, of a special situation in India. More than 100 people have been taken on for a fixed term in India as a short-term solution to meet the increased demand in well pumps resulting from the acute water shortage. In Germany, KSB AG has taken on a relatively large number of apprentices to counteract the shortage of specialists expected in the years ahead.
Results of operations and financial position
The completion of long-term project orders was not able to compensate for the decline of earnings in the standard business. In addition, the pressure on prices has increased, as have the staff costs. In the third quarter of this year, too, the consolidated earnings before taxes (EBT) were therefore about one-fifth below the previous year’s level.
The net financial position of the Group again showed a strong improvement thanks to a marked increase in advance payments from the project business.
To safeguard liquidity in the medium term, KSB AG has taken the precaution of placing a loan against borrower’s note worth € 100 million with a 3-year and 5-year maturity. This will serve to ensure the solvency of the company even in a protracted crisis situation.
The year as a whole is expected to show a markedly lower order intake than 2008, especially as a result of the weaker business with standard products for industrial and building services applications. The sales revenue will continue to be stabilised by the high level of long-term project orders in hand, but will nevertheless fall short of that of the previous year. Because of the lower sales volume, higher costs and the somewhat poorer profit quality, the consolidated earnings will probably remain around 25 percent down on the record earnings of the previous year (€ 200.1 million). The return on sales will therefore not reach the top score of 10.0 percent achieved in 2008.