Voith Brings Transformation of the Group to a Successful Conclusion and Moves into its Anniversary Year 2017

Dec. 14, 2016
In the 2015/16 fiscal year, the Voith Group successfully completed the transformation of the Group, which has taken several years.

In the 2015/16 fiscal year, the Voith Group successfully completed the transformation of the Group, which has taken several years. In 2017, Voith moves into its 150th anniversary year with renewed strength and at the same time anticipated to be starting point of a new period of growth for the Group.

In the past 2015/16 fiscal year (ending September 30, 2016), Voith not only significantly improved the operating performance of its Group Divisions but, with the help of its Voith 150+ success program, also generated a clearly positive net result for the Group once again, as forecasted. Parallel to the strong improvement in profitability in all Group Divisions, in addition, Voith has consistently driven forward its strategic focus on its technology and engineering competence in the digital age. As part of this strategy, the Group sold its majority shareholding in the technical services provider Voith Industrial Services. Furthermore, the new Voith Digital Solutions Group Division, in which the company brings together its activities in the fields of IT, automation, software and sensor technology, has commenced operations and has already launched a large number of promising new digital initiatives. Within the next two fiscal years, about €100 million will be invested in development of digital products in the new division.

“We have not only made more rapid progress in 2016 with Voith 150+ than expected and have once again significantly improved our net result under challenging macroeconomic conditions – we also set a decisive new course towards making Voith a key digital industry player,” explained Hubert Lienhard, president & CEO.

Digitalization as a Growth Driver

Following on the previous years marked by realignment activities and re-structuring, Voith is now on a good footing for future growth. In the three traditional Group Divisions – Voith Hydro, Voith Paper and Voith Turbo – the plans are to secure this growth by means of targeted refinement of the existing market and technology leadership. One important growth driver over the coming years will be the new Voith Digital Solutions Group Division that was launched on April 1, 2016. With this Group Division, Voith takes three strategic directions: first, supplementing our existing product portfolio with additional, digital capabilities that offer customers extended functions and added value; second, developing new digital solutions in the traditional core markets; and third, developing new products and business models for markets to date not covered by Voith. The activities brought together at Voith Digital Solutions provide for sales of just under €400 million already in the current year, of which about €320 million was generated by external customers and by 1,500 employees in more than 60 countries. More than twenty solid incubation projects have been taken to alpha or beta stage, some of which are about to be launched on the market. In the next two fiscal years alone, Voith will invest about €100 million in further development of digital products.

In addition to the positive effects from the transformation of the Group, the planned sale of its KUKA shareholding will provide Voith with the additional financial headroom for its growth strategy. The transaction is expected to lead to an inflow of €1.15 billion in spring 2017. The proceeds will be dedicated completely to the refinement of the Group’s portfolio, for example accelerating the building up of digital business models. The funds can be used either to facilitate organic growth or to make attractive acquisitions. “As an established technology leader with extensive domain knowledge, we will play a major role in shaping the digital transformation of the industry. We are taking Voith to the next level in its development and are setting out on the next 150 years in the company’s history,” said Lienhard.

Operating Result in the Core Business Increases by 18 Percent In the past fiscal year, Voith further strengthened its base and achieved all key targets – despite economic growth being weak once again, an ongoing subdued investment climate in important customer industries and increasing competitive pressure.

All key earnings indicators have been significantly improved due to the Voith 150+ success program increasingly developing its full impact, among other factors. All three of the traditional Group Divisions succeeded in boosting their operating results, with Voith Paper standing out with an increase of 33 percent. In total, the profits from operations of Voith Hydro, Voith Paper and Voith Turbo grew by just under one fifth (18 percent) to €295 million; the operating return on sales in the core business saw a correspondingly rise from 5.8 percent to 7.0 percent. At the level of the holding company, this positive development was counterbalanced to a certain extent by valuation effects on some foreign currency items as well as the costs for setting up the new Voith Digital Solutions Group Division. The Voith Group’s profit from operations was slightly up from the previous year as announced, reaching €275 million (2015: €270 million).

The Group’s net result, which had fallen to minus €93 million in the previous year as a result of restructuring costs, improved by €122 million to €29 million in the year under review. This means that this figure was once again positive, as forecasted. Without non-recurring expenses (mainly from impairment losses disclosed on the face of the balance sheet), the net result would have come to as much as €125 million.

The orders received in the Group’s continuing operations stood at a good level again in 2015/16. However, due to lower investments in the raw materials market, and in the oil & gas market as well as in the rail sector in particular in China, this figure saw a slight decline of, all in all, around 6 percent to €4.11 billion (2015: €4.39 billion). In contrast, sales remained virtually unchanged at €4.25 billion in comparison to the previous year (€4.30 billion). Orders received and sales were both impacted by negative currency effects.

Positive Development in all Group Divisions All three traditional Group Divisions contributed to the positive development of the Group. Voith Hydro looks back on a good fiscal year. Forecasts were exceeded with regard to sales and orders received as well as in profit from operations. This development was sustained in particular by the service business and equipment for and the modernization of hydropower plants. At Voith Paper, the rewards of the consistent restructuring measures performed in recent years are becoming ever more apparent. In a market environment that was difficult at times and did not revive until the second half of the year, sales fell slightly. Yet the Group Division succeed-ed in significantly improving its profitability further. Voith Turbo faced a lower level of orders received and sales in a very difficult market environment – demand was weak on account of the macroeconomic situation especially in the oil & gas business, in mining and the steel industry as well as in the rail sector in particular in China. Strengthened by the efficiency programs implemented in recent years and in the absence of the non-recurring effects seen in the previous year, the net result was, however, clearly increased by 25 percent.

Outlook: Profitable Growth in the Anniversary Year For the current 2016/17 fiscal year, Voith anticipates the state of the global economy to remain fragile. Nevertheless, the company intends to continue with its own positive development. In the operating business, the focus is on profitable growth. To this end, the successful 150+ excellence program will be continued in all areas of the company (from 2017: Voith 150+ Next Level). In doing so, Voith anticipates being able to slightly improve on the annual savings of €250 million communicated one year ago. One other growth driver is the continuation of the digital transformation of the entire portfolio of products and services – with the expansion of Voith Digital Solutions as a central task.

In recent years, Voith has formed the basis for future growth with the sale of the Industrial Services Group Division, the establishment of the new Voith Digital Solutions Group Division and the introduction of a leaner, more centralized administration. The new strategic program, Voith 150+ Next Level, will be rolled out in the 2017 anniversary year and will ensure the Group’s intended growth. The Group expects the effects of the new program to become apparent in the coming years. For the 2016/17 fiscal year, Voith anticipates sales around the same level as in the previous year and a slightly increasing level of orders received in comparison to 2015/16. On aggregate, the profits from operations of the Voith Hydro, Voith Paper and Voith Turbo Group Divisions will rise. This profitable core business will enable Voith to shoulder the high development costs for the new Voith Digital Solutions Group Division from current operations. The Group’s profit from operations will therefore also be clearly positive, yet probably slightly lower on account of these costs. The Group’s net result will be clearly positive once again – even without the expected strong non-recurring effect from the sale of the KUKA shareholding.

“We are now starting out on the next 150 years of the company’s history – by marrying the long-term perspective of a family-owned business with the dynamics and innovative strength of the digital world. This is precisely what is expressed by our new positioning and the new claim ‘Inspiring Technology for Generations’. Voith is ready to meet the future,” summarized President & CEO Lienhard.