voith.com 2019 Annual Annual Report 2019 Report Voith at a Glance in € millions 2017/18 2018/19 Orders received1) 4,285 4,691 Sales1) 4,209 4,276 EBIT1), 2) 193 215 Return on sales in %1) 4.6 5.0 Result before taxes from continuing operations1) 157 147 Net result1) 49 72 Cash flow from operating activities 31 46 Total cash flow -216 66 Investments1) 93 113 Research and development1) 222 213 in % of sales1) 5.3 5.0 Equity1) 1,326 1,245 Equity ratio in %1) 28.5 26.2 Balance sheet total1) 4,654 4,756 Employees1), 3) 19,491 19,410 1) Previous-year figure restated. 2) For more information, see section “Notes on segment reporting” in the notes to the financial statements. 3) Full-time equivalents; without apprentices; as at September 30. Annual Report 2019 Group Foreword 4 The Corporate Board of Management 8 Report of the Supervisory Board 10 The Supervisory Board 16 Group Management Report I. Background 20 II. Economic report 31 III. Risks and opportunities 58 IV. Forecast report 68 Consolidated Financial Statements Consolidated statement of income 76 Consolidated statement of comprehensive income 77 Consolidated balance sheet 78 Consolidated statement of changes in equity 80 Consolidated cash flow statement 82 Notes to the consolidated financial statements for the 2018 /19 fiscal year 83 Notes to the consolidated statement of income 120 Notes to the consolidated balance sheet 127 Notes to the consolidated cash flow statement 150 Notes on segment reporting 151 Segment information by business segment 154 Segment information by region 156 Other notes 157 Responsibility statement 180 Voith Annual Report 2019 3 Group Group Page Foreword 4 The Corporate Board of Management 8 Report of the Supervisory Board 10 The Supervisory Board 16 4 Voith Annual Report 2019 Group Foreword Ladies and gentlemen, dear business partners of the Voith Group, In the 2018/19 fiscal year, Voith performed well overall, despite some challenges, in an economically difficult environment. We achieved our Group targets and generated profitable growth in a strained market and competitive environment. We again took a big step towards our objec- tive of viable and competitive profitability over the long term. As forecast, we succeeded in increasing all key performance indicators in the past fiscal year. Orders received have risen perceptibly, mainly buoyed by strong growth at Voith Hydro. This Group Division won the Voith Annual Report 2019 5 Group Foreword “Thanks to its robust financial situation, its increasing earnings power and its excellent market position, Voith second-largest order in Voith’s 152- is well equipped for the year history: Voith Hydro is supplying next stage in its six reversible pump-turbines for the development.” Snowy 2.0 project in Australia, one of the Dr. Toralf Haag largest and technologically advanced pumped storage power plants worldwide. At full output, Snowy 2.0 will be able to store sufficient energy to provide three million households with power for one week. We also achieved a slight increase in Group sales. The central key performance indicators, EBIT and net income, grew at a faster rate, which means that the key profitability indicators also rose. After the good performance in the past fiscal year, the Voith Group’s financial position also remains very sound. The equity ratio, which saw a record level in the previous year, fell only slightly, primarily on account of pension remeasurements. Net liquidity remains at a reassuring level, which means that there are still considerable funds available for further acquisitions. This is still the case even after the successful closing of the acquisition of BTG, a worldwide provider of integrated, highly specialized process solutions for the global pulp and paper industry. BTG is the perfect addition to Voith Paper’s portfolio of offerings, and strengthens the Group Division’s position as a full-line supplier. Thanks to its robust financial situation, its increasing earnings power and its excellent market position, Voith is well equipped for 6 Voith Annual Report 2019 Group Foreword “We want to become a driving force and key player in the post- carbon industry of the the next stage in its development. Over the digital age.” coming years, our first priority is to further Dr. Toralf Haag reinforce the successful core business and to develop sustainable customer solutions for the post-carbon digitalized industry – true to the motto: “down to earth”. As a contribution to this process, the intention is for further targeted acquisitions to be made. In addition to the process of strengthening the core business, which stands at the heart of our future growth strategy, one other strategic focus remains on the further expansion of our range of digital products and services. Voith’s strictly customer-oriented digitalization strategy is showing visible signs of success, one example being the sharp increase in demand for OnCumulus, Voith’s proprietary modular IIoT (Industrial Internet of Things) platform. Acquisitions such as Pilotfish and ventures such as TSP OnCare Digital Assets Inc. will also help Voith to further expand its offering of digital products and solutions along the value chain in its core business. With its strategic initiatives, Voith is pursuing a clear objective: we intend to use our extensive technological expertise and in-depth knowledge of markets as the basis to become a driving force and key player in the post-carbon industry of the digital age. This fundamental concept pervades all Group Divisions and is expressed, for example, in the refinement of hydropower, resource-conserving papermaking or the electrification of mobility, which is one of the focal points of Voith Voith Annual Report 2019 7 Group Foreword Turbo’s investments for the future. With our products, our expertise and our top-performing team, we want to make an overall contri- bution to a livable, sustainable future. This strategic alignment, accompanied by further measures to boost efficiency, backs up Voith’s intention to continue its profitable growth again over the current fiscal year. We anticipate a repeat of the stable high level of orders received seen in the past year. Sales are budgeted to rise, as are the operating result and the other profitability indicators. Over the medium term, Voith will not only deliver a significantly higher return, but also increase in size and be in an even better position in terms of technology. We have exciting times ahead of us, involving a great deal of uncertainty. On the other hand, great opportunities are arising for a company like Voith, specifically in the current environment and in light of the upheavals imminent in our industries. It would be a pleasure for us if you continue to accompany us on this path and retain your confidence in Voith. Sincerely yours, Dr. Toralf Haag President and CEO 8 Voith Annual Report 2019 Group The Corporate Board of Management The Corporate Board of Management Dr. Roland Münch Andreas Endters Dr. Toralf Haag Egon Krätschmer Dr. Uwe Knotzer Uwe Wehnhardt Voith Digital Ventures Voith Paper President and CEO Finance and Controlling Voith Turbo Voith Hydro Voith Annual Report 2019 9 Group The Corporate Board of Management “Strategic focus areas for our future growth strategy are, firstly, reinforcing our core business and, secondly, expanding our range of digital products and services.” The Corporate Board of Management 10 Voith Annual Report 2019 Group Report of the Supervisory Board Report of the Supervisory Board for the 2018/19 Fiscal Year Ladies and gentlemen, The global investment climate deteriorated over the course of the 2018/19 fiscal year on account of ongoing political and economic instability in various countries and regions. The trade conflict between the USA and China, the uncertainties regarding the date of and arrangements for Brexit and the growing geopolitical tensions, that are in some cases expressed in the form of trade sanctions, are curbing global demand for capital goods. World economic growth slowed in comparison to the previous year and stood at a lower level than forecast by economic analysts at the time of publication of our last annual report. A large share of global growth again originated in Asia, albeit with appreciably lower momentum. In China, an important sales market for us, investments, particularly in infrastructure, were cut back, as was expenditure on durable consumer goods, such as cars. South America, most of all Brazil, saw disappointing developments. While the US economy performed comparatively solidly, growth in the euro zone weakened markedly, specifically also in Germany. German mechanical engineering companies were confronted with painful downturns in their orders received. Measured against the more difficult business environment, the Voith Group’s operating business proved to be in a strong condition. We succeeded in generating perceptible growth in the number of orders received. One outstanding achievement in this context was Voith Hydro’s winning of a major contract for the Australian pumped storage power plant Snowy 2.0. All in all, we have reinforced our earnings Voith Annual Report 2019 11 Group Report of the Supervisory Board power throughout the Voith Group and have achieved a perceptible rise in our operating result in the reporting year. One of our ongoing core topics is the expansion of our portfolio of digital offerings. In all of the markets we serve, we achieved clearly visible progress in this respect, driven by our new Group Division Digital Ventures. Voith Digital Ventures itself has grown, and the burden on the Group’s results has decreased. Although divergent, developments in the three established Group Divisions were satisfactory overall. Oversight activities of the Supervisory Board One essential mainstay of the Supervisory Board meetings of Voith GmbH & Co. KGaA in the 2018/19 fiscal year were the reports by the Board of Management of the personally liable general partner, Voith Management GmbH, on the current business position and financial position of the Group and its Group Divisions as well as the reports on the Group’s planning, on the Group’s strategy and on material transactions.