GROUP BUSINESS MODEL

The KSB Group’s mission is to supply customers around the world with top-quality pumps and valves as well as related systems. We also provide a wide range of service offerings to users of these products.

In the year under review, 85 operative subsidiaries in 40 countries were dedicated to achieving this mission. Nine Group companies exercised a holding company function. In the current financial year we plan to extend the consolidated Group to include two smaller companies in Spain and Morocco that have not yet been consolidated.

KSB AG, Frankenthal / Pfalz, Germany, as the parent company, directly or indirectly holds the shares in the companies belonging to the Group. Besides KSB AG itself, the companies in the KSB Group with the highest sales revenue are

  • KSB S.A.S., Gennevilliers (Paris), France
  • GIW Industries, Inc., Grovetown / Georgia, USA
  • KSB Shanghai Pump Co. Ltd., Shanghai, China
  • KSB Bombas Hidráulicas S.A., Várzea Paulista, Brazil
  • KSB Service GmbH, Frankenthal, Germany
  • KSB Pumps Limited, Pimpri (Pune), India

The economic and political changes that occurred in the year under review affected our business activity to some extent. These are – where relevant to KSB – described in the following sections. However, these external influencing factors have not affected our basic business model.

ORGANISATION, MANAGEMENT AND CONTROL

KSB AG’s Board of Management manages and controls the KSB Group. The strategy and instructions formulated by the Board of Management are implemented within an organi- sation that is structured into three areas of responsibility: pumps, valves and service. At the centre of this organisation are the Business Units with their areas of focus.

All organisational units act with the aim of ensuring sustainable, profitable growth that will secure both KSB’s financial independence and its medium- and long-term future. Management is monitored by a Supervisory Board consisting of twelve members. The Annual General Meeting of shareholders appoints six members of the Supervisory Board, with the remaining six being delegated by the employees under the terms of the Mitbestimmungsgesetz [German Co-determination Act].

MARKETS AND LOCATIONS

Within the KSB Group, centrifugal pumps account for around two thirds of sales revenue. These pumps, as well as valves, are sold to engineering contractors, OEMs and end users or, in some cases, distributed via dealers. The same applies to control and monitoring systems, and to package units with pumps and valves.

The best developed sales market for these products is Europe, where KSB operates its main manufacturing facilities in Germany and France. KSB AG’s main plant in Frankenthal is its largest in Europe, ahead of those in Pegnitz (Bavaria) and Halle (Saxony-Anhalt) in Germany, and La Roche-Chalais in France.

The second-largest market for KSB products is the Region Asia, followed by the Region Americas / Oceania and the Region Middle East/Africa. Outside Europe, KSB’s biggest manufacturing facilities are in Brazil, China, India and the USA.

KSB manufactures products and components in a total of 18 countries; they are sold through the Group’s own companies or agencies in more than 100 countries. With their products, the Group companies serve customers in the manufacturing sector (industry), the chemical and petrochemical industries, the energy industry and building services, transport equipment manufacturers and operators (e.g. ships, rail vehicles), water supply and waste water utilities and mining companies. The top-selling markets for our products in 2013 were the manufacturing and energy supply sectors.

In order to be able to offer our products at affordable prices, we combine the Group’s purchasing requirements and source affordable suppliers around the world who meet our quality standards. The focus is currently upon Asian companies. We are able to maintain our market position as one of the leading pump and valve manufacturers through our good and long-term relationships with our customers and suppliers. Our highly trained and motivated employees as well as the high quality of our products have also helped cement our reputation.

CONTROL SYSTEM

Based upon our matrix organisation, we determine our key financial performance indicators as follows:

Our management decisions are made primarily on the basis of the key indicators that are determined for the Business Units Pumps, Valves and Service: order intake, sales revenue and earnings before interest and taxes (EBIT). For further information on these key indicators see the Notes to the Consolidated Financial Statements, section VIII. Segment Reporting.

We also consider the pre-tax return on sales as well as the net financial position for controlling the Group. The pre-tax return on sales indicates the ratio between the earnings before taxes (EBT) and the sales revenue; the balance of financial liabilities and interest-bearing financial assets (current and non-current financial instruments, interest- bearing loans, cash and cash equivalents, and receivables from cash deposits) accounts for the net financial position. When specifying and evaluating these key indicators, we are guided on the one hand by developments in the market, and on the other by the performance of our key competitors.

We do not consult any other key indicators or non-financial performance indicators for controlling the Group and for making decisions regarding management issues. However, we attach great importance to matters relating to our employees, environmental protection and corporate social responsibility. For more information see the Management and Issues 2013 section.

Centrifugal pumps and shut-off valves continue to be the main product groups for the global business of the KSB Group.

RESEARCH AND DEVELOPMENT

The Research and Development department provides innovative methods, generates new products and works continuously towards improving existing type series. In doing so, it contributes towards enhancing our competitiveness and expanding our business.

To carry out these tasks, we spent € 47 million (previous year: € 45 million) on research and development in the year under review. In relation to sales revenue we invested, as in the previous year, around 2 % in this area. The activities financed in this way focus primarily on hydraulics, materials technology and the automation of our products. Around the world 531 (previous year: 440) of our employees worked in research and development. Staff costs accounted for around half of the budget as was the case in the previous year.

TECHNICAL DEVELOPMENT OF STANDARDISED AND CLOSE-COUPLED PUMPS

Our greatest expenditure in 2013 was made in order to technically optimise the Etabloc, Etanorm SYT, Etabloc SYT, Etaline-Z, HPK-L as well as the Magnochem and Magnochem-Bloc type series. Along with Etanorm and MegaCPK, which we modernised in 2012, they form the backbone of our business in industry, the process engineering sector and building services. “More performance per pump” – this describes the substantial progress made during the year under review. Quite a few calculations, simulations and tests were necessary to turn hydraulically improved designs into practical solutions. Once the type series had been re- developed, the next task was to integrate them into our EasySelect product configurator software.

Our customers can use EasySelect to select the pumps or valves that are appropriate for their applications and offer the greatest energy-saving potential. An inter-disciplinary team of specialists has developed a new version of this software that combines our product, process and control know-how. It proposes a pump, for example, taking into consideration criteria like price, efficiency and energy costs. Users can quickly and easily obtain individual solutions for their projects that are appropriate at both a technical and a commercial level.

COMPUTER SIMULATION OF STRESS CONDITIONS

Many vital components in pumps and valves are produced using cast materials which are subject to special manufac- turing conditions. This is particularly true for corrosion- and wear-resistant metal alloys. Our research activities in this domain during the year under review focused on stress and how it is generated when fluid metal solidifies during the casting process. It can lead to deformations and in the worst case can cause the material to crack meaning that the part cannot be used for further processing. In order to cast com- plicated elements such as impellers with a low reject rate, our material experts in Pegnitz have been developing a computer simulation since 2013 that predicts such stress conditions on an atomic basis. These virtual results are compared with experimental material tests to verify practical feasibility. We will use the findings to reduce production and development costs and to ensure the quality of our products.

NEW GENERATION OF AUTOMATION AND DRIVE SYSTEMS

For many years pumps combined with electronics have been considered state of the art. Intelligent control systems are used to make pump operation economical and resource-efficient. Thanks to precise interaction of the pump, motor and control system, the pump set offers high overall efficiency. Energy costs can be reduced by up to 60 % for systems with fluctuating flow rate requirements. The new generation of our PumpDrive that we will introduce successively from August 2014 onwards offers our customers a flexible variable speed system. A basic model will be available for building services and a more complex variant for industry. The latter is characterised by a broad range of communication interfaces that enable smooth integration into the different bus systems commonly used in industry.

95 % of all pumps have an electric drive. Our highly efficient KSB SuPremeE motor sets new standards in the area of standard drives. A frequency inverter is always required to operate the motor as it cannot start directly on the mains supply system. But as this device is very useful for applications involving varying rates of flow in any case, it does not really represent an “extra” investment. However there also applications where a pump transports a constant volume flow rate. In order to make the energy-efficient motor technology cost-effective for such applications, we are developing hybrid motors with rotors that have a squirrel cage as well as magnets. On these types of drives, the cage is used to set the rotor into rotation during start-up. Thanks to the installed magnets it runs synchronously with the frequency provided by the power supply system. This means that it operates at a low loss and low energy consumption rate, as the initial prototypes have proven.

KSB developers use model testing to complement computer-aided flow simulation results.

Depending on the design, there is also a range of pump types for which special drives are used. Submersible borehole pumps, for example, have electric motors that are very slim and are filled with water. Due to the slender, cylindrical design of these pumps we cannot use the same technology that we use in our KSB SuPremE motor. There is always a gap between the rotor and the stator, which is necessary to enable free rotary movement. As the magnetic field lines become weaker in water, this gap reduces the motor’s efficiency. In order to fill this gap we are experimenting with ferrofluids. These are fluids that react to magnetic fields without solidifying or lumping together. This enables the magnetic forces to travel better from the stator coils to the rotor. In the year under review we have started to research whether the use of these fluids in the motor compartment can cost-effectively increase the level of efficiency. We will continue these tests in the current year.

We assess all our research and development activities in accordance with their value for enhancing the competitiveness of KSB as well as in terms of protecting resources and the environment. To achieve the best possible results we channel the individual competencies of our Group companies in shared development tasks. We also involve research institutes and universities in our activities or work with other companies on collaborative projects.