Report on Expected Developments

  • Order intake and sales revenue set to increase considerably
  • Asia / Pacific remains the most important growth region
  • Stabilising earnings despite high price pressure

Market developments and sales opportunities

In 2011, the global economy is expected to continue its recovery from the recession of two years ago. Having returned to the growth track early on, emerging markets still offer export-oriented nations good sales potential. This fact, combined with their improving domestic economies, gives reason to hope that the upturn in a number of industrialised nations, including Germany, will gain staying power. By contrast, in some countries with high levels of debt, observers must wait and see whether, and to what extent, the economic situation is going to improve.

On the whole, forecasts for 2011 largely anticipate a continued upward trend in the economy, although this is not likely to develop the same dynamism as in the previous year. The necessary measures taken to consolidate critical state budgets – especially in over-leveraged European nations – could result in a dampening effect. Another factor curbing growth may come from national restriction measures taken in economies such as China, India and Brazil in order to keep inflationary risks in check.

Order intake in the mechanical and plant engineering sectors, which fell sharply during the crisis, will increase again significantly in 2011. Therefore, the German Engineering Federation (VDMA) anticipates production growth of roughly 10 %.

Demand for pumps, valves and systems will also rise during the current year. Continued improvement in order intake is also expected in the short-cyclical general business, whereas the purchase order situation is likely to stabilise in the project business. In 2011, business will be shaped by more intense competition and stronger price pressure.

Pumps

With the end of the financial and economic crisis, our pumps business already showed a marked positive trend in the second half of 2010, and we expect this to continue during the current year. We expect increasing investment in the chemicals industry and in the power and water engineering sectors to produce growing order volumes for single-stage and multi-stage pumps.

In addition, positive effects should result from the introduction of new pump type series, including very powerful circulating pumps for use in high-rise buildings and additional sizes of our pressure booster pumps for industry, water supply and building services. To increase submersible pumps sales, we will step up our activities in the waste water business, with the aim of winning additional market share.

As part of our strategic projects, we are also intensifying our sales of standard pumps in key markets and focusing on new areas of application. These include, for example, the hygienic fluid transport market, renewable energies and fire-extinguishing systems in line with the US FM / UL* standard. We also see good development opportunities in mining and will intensify our efforts in this market in selected countries.

Customer demand for products with a high level of energy efficiency favours our sales of energy-saving variable speed systems and energy-efficient motors. This is an area where we are technologically well positioned and will use these advantages to boost our sales revenue with automation products.

Valves

We would like to continue the upward trend from the second half of 2010 and increase our order intake for globe, gate and butterfly valves as well. After our successes with standard valves last year, we are counting on the fact that as the economy picks up, it will also drive demand for customised valves for use in specific applications.

We have high expectations in connection with developments in the chemical industry and our power plant business in certain regions. Even the sale of marine valves, which collapsed during the crisis, is likely to recover during the current year. A series of new butterfly valves scheduled to be launched in 2011 will strengthen our position in the valves market.

Service

In the service business, we will continue to improve our customer relationships in selected markets in line with our strategy. The establishment of new service centres in Asia, the Americas and Australia will contribute toward this goal. We will also selectively expand our service presence in the Middle East. We expect a higher percentage growth in the regions outside Europe than for our European core market.

In Europe we expect momentum to come from our nuclear business in France this year. We already concluded initial framework agreements for services there in 2010, drawing on the experience and contacts of our newly acquired French company Euro Techno Consulting, which has specialised in such systems. Furthermore, in Germany and France we will offer our services in the renewable energies sector, especially in the area of wind power plants.

Outlook for the Group and for the Regions

Current developments in the markets corroborate the fundamental direction of our strategy, which, among other objectives, involves increasing market penetration in countries outside Europe with strong prospects while stabilising our position within Europe. Within the Group, we will work intensively towards these aims as well as other strategic projects. Based on these initiatives and trends in the market, it is possible that our order intake in the Regions Asia / Pacific and Americas could see much stronger percentage growth in 2011 than in our European home market.

Europe

In the current European market, we can expect to see two types of economic development. While export-oriented economies will benefit from the revival in global trade, other countries will lose ground in their economic recovery as a result of the debt crisis and the difficult process of consolidation.

Our general business with standard products is likely to see further growth. By contrast, our power engineering and water transport project business will remain affected by reluctance on the part of many investors, who launched no new projects during the crisis. This goes for Western Europe in particular, whereas in the Eastern European market, especially in Russia, there are definitely reasons to see potential for positive developments in the project business. In our service business, acquisitions completed in Germany and France in 2010 provide starting points for expanding our business. Moreover, in 2011 as well, we would like to close regional gaps and broaden our service expertise.

Middle East / Africa

The upturn in the global economy and associated demand for energy and base metals has driven prices for these goods upward. Higher revenues in some raw materials and oil-exporting countries have freed up investment capital for infrastructure projects in the areas of water supply and wastewater treatment as well as construction projects. Furthermore, new pumps and valves are required by the oil and gas industry. In North Africa, it is likely that for a temporary period, fewer orders will be placed due to the political unrest.

We serve our customers via a regional trading centre in Dubai and a network of sales companies and trading partners. In Turkey, Saudi Arabia and South Africa we also do direct, local manufacturing in selected markets. In 2011, we would like to focus on improving our regional service offering, which involves a number of service companies, in the United Arab Emirates and Saudi Arabia.

Asia / Pacific

Despite regulatory measures taken in some countries, we expect the momentum in the Asian markets to continue. In the two strongest economies, China and India, we can participate directly in this growth through the sales and production companies we have established there.

As a result of rising industrial production in the region and steadily growing demand for energy, we see good order prospects in the manufacturing industry and in power plant construction. Water and waste water projects will also become more important for our business due to rapid developments in infrastructure. By setting up new regional centres for project management and application consultancy, we will improve our customer support and offer even more effective services, fast and efficiently.

Furthermore we have the strategic goal of intensifying our general business with standard pumps and valves. Special sales teams are putting in place the prerequisites for this in several Asian countries.

Growing new business in the Asia / Pacific region will bring about an increase in the demand for service. This development is associated with the increasing willingness of customers to outsource services to external providers. We will therefore set up new repair centres, above all in China, India and Australia.

Americas

Economic growth in the Region Americas in 2011 will likely end up lower than in 2010. The North American market is experiencing a slow recovery, and we therefore anticipate opportunities to participate in projects related to energy supply and waste water treatment systems. The high oil price will lead to new investments in the Canadian oil sands industry, which we supply with slurry pumps from our US subsidiary GIW Industries, Inc. We also expect an upturn in the service business, with a contribution coming from our new acquisition Standard Alloys Inc.

In South America, we expect stronger growth of the economy, in particular in Argentina, Brazil and Chile, where we are represented by own companies. We are planning to establish a new company in Peru, another promising country. We currently see good opportunities for orders in South America in industry, including the oil industry, water supply and mining.

Overall, intense competition should be expected in the US market. This is due to the increased involvement of producers from other regions, which currently aim to tap the Brazilian and US sales markets. Our longstanding customer relationships will help us to continue to leverage opportunities in the well-established areas of application for our products. At the same time, we intend to expand our business with standard products and service offerings.

Financial outlook

Against the backdrop of an improving global economy, we are striving to continue improving our order intake in 2011 and the following year as well. We anticipate growth in all three Business Units: Pumps, Valves and Service. We see growth opportunities during the current year especially in our general business with standard products and in service, while higher order intake in the project business is not expected until 2012. Overall, however, on the basis of forecast prospects for the economy, we will already be able to re-attain pre-crisis levels in 2011.

We expect sales revenue to increase at a stronger rate than order intake in all Business Units in 2011. This development is related to the completion of the high level of orders on hand. In the following year, sales revenue will likely see the same increase in volume as order intake.

During the current year, we expect consolidated earnings to reach at least the level of 2010. Considering the pressure on prices in our sales markets and looming increases in material and staff costs, it is not yet certain whether we can improve this figure. In the pumps business, we cannot rule out declines due to the problematic competitive situation, mainly in the project business. By contrast, a positive development is expected in the Business Units Valves and Service. From our current perspective, we anticipate moderate earnings growth overall in 2012.

Our expenditure for property, plant and equipment is likely to rise in 2011. Thanks to our very good financial position, we expect to be able to fully finance these investments from equity capital.

The implementation of our strategic projects will be a focus of our activities in 2011 and the coming years as well. We are providing the necessary financial resources and capacities for this.

We will only consider acquisitions if they fit with our key strategic projects and are likely to prove highly advantageous from a financial and strategic point of view.

Forward-looking statements

This report contains forward-looking statements. We wish to point out that actual events may differ materially from our expectations of developments if one of the uncertainties described, or other risks and uncertainties, should materialise, or if the assumptions underlying the statements prove to be inaccurate.