Annual Report 2002

FINANCIAL HIGHLIGHTS

Group highlights 2002 2001

Earnings

Sales revenue em 1,180.2 1,161.9

Earnings before interest and taxes (EBIT) em 43.9 36.8

Earnings before taxes (EBT) em 34.3 26.9

Net profit for the year em 19.6 14.1

Cash flows from operating activities em 91.0 37.1

Balance sheet

Balance sheet total em 859.3 909.7

Non-current assets em 234.2 248.5

Capital expenditure em 31.3 29.0

Depreciation and amortization expense em 30.0 32.8

Current assets em 604.4 645.7

Equity (including minority interest) em 355.8 367.6

Equity ratio (including minority interest) % 41.4 40.4

Profitability

Return on sales % 2.9 2.3

Return on equity % 9.5 7.4

Return on capital employed % 5.5 4.7

Employees

Number of employees at 31 Dec. 11,948 12,071

Staff costs em 428.6 420.3

Shares

Market capitalization at 31 Dec. em 140.2 142.7

Earnings per ordinary share (EPS) e 8.52 5.19

Earnings per preference share (EPS) e 8.78 5.45

Dividend per ordinary share e 4.00 4.00

Dividend per preference share e 4.26 4.26

Employee population Sales revenue

by Region by sales region

30% Asia / Pacific 15% Asia / Pacific

3% Eastern Europe / 10% Eastern Europe /

Middle East / Africa Middle East / Africa
15% Americas

11% Americas

56% Europe 60% Europe

COMPANY PROFILE PRODUCTS AND SERVICES

OUR PROFILE

Reliable and cost-effective fluid transport: this is our mtier. Throughout the

world, about 12,000 KSB employees are engaged in supplying our customers

with pumps, valves, associated systems and services. We see our future role in

the provision of smart products, modules and systems, as well as the best

possible service. We aim to achieve profitable growth and contribute to the

solution of major water supply and disposal problems.

PRODUCTS AND SERVICES

Industry and process engineering Building services

Pumps and valves, as well as associated control and Pumps and valves, as well as associated control and drive
drive systems systems for domestic water supply, drainage, heating and
air-conditioning

Water and waste water Mining

Pumps, valves and mixers, as well as associated Slurry pumps for use in the mining industry and on suction
control and drive systems for municipal and industrial hopper dredges
applications

Energy System engineering

Pumps and valves, as well as associated control and Design and engineering of fluid transfer systems and
drive systems for use in power stations and district heating subsystems, with a major focus on water and waste water
systems installations

Service
Installation, commissioning, start-up, inspection, servicing,
maintenance and repair of pumps, valves and related
systems; modular service concepts for complete systems
 KSB WORLDWIDE

Manufacturing and marketing company

Marketing company
Service centre

The KSB Group is on hand in over 100 countries. With sales

companies, offices, agencies and 27 manufacturing sites.

Sales revenue development

(e millions)
Eastern Europe /
Europe Middle East / Africa Asia / Pacific Americas

695 707

174 197 184

118 152
115

2001 2002 2001 2002 2001 2002 2001 2002

 I N H A LT CONTENTS

Providing our customers with a perfect service is our goal.

Smart products and systems are the way

also for the use of a vital resource: water.

CONTENTS

Board of Management 2
Chairmans Letter 3
KSB Shares 5
Report of the Supervisory Board 6
Water We Are Moving Todays and
Tomorrows Most Precious Resource 10
From our Group Operations 16
Europe 16
Eastern Europe / Middle East / Africa 22
Asia / Pacific 26
Americas 30
Group Management Report 36
Economic Environment 36
Business Development 38
Financial Position 42
Risk Management 46
Employees 48
Research and Development 50
Environmental Management 52
Outlook 54
Consolidated Financial Statements 58
Balance Sheet 58
Income Statement 59
Statement of Changes in Non-current Assets 60
Statement of Changes in Equity 62
Cash Flow Statement 63
Segment Reporting 64
Notes to the Consolidated Financial Statements 66
Proposal on the Appropriation of Net Retained Earnings 88
Independent Auditors Report 89
Shareholdings 90
Supervisory Board and Board of Management 91
Corporate Governance 92
Shareholder Information 93
Glossary 94

1
Members of the Board (from left to right): Peter Wurzbacher, Dr. Willi Enderle, Josef Gerstner, Dr. Alois Wittmann

Josef Gerstner
BOARD OF
joined KSB Aktiengesellschaft in 1996 as Chairman of the
MANAGEMENT Board of Management and Human Resources Director.
He is responsible for the Production operations in Europe
and Product Management. In addition, he is in charge of
the Group functions of Corporate Development, Human
Resources, Internal Audits, Global Manufacturing Network
and Communications.

Dr. Willi Enderle

has been a member of the Board of Management of KSB
Aktiengesellschaft since 2001. He is responsible for Research,
Development and Engineering, as well as Quality Manage-
ment and Environmental Protection. His responsibilities also
cover KSB Fluid Systems GmbH operations and the Region
Eastern Europe / Middle East / Africa.

Dr. Alois Wittmann

joined the Board of Management of KSB Aktiengesellschaft in
1995. His responsibilities cover Commercial Administration,
Purchasing and Corporate Law, as well as Group operations
in the Region Americas.

Peter Wurzbacher
was named member of the Board of Management of KSB
Aktiengesellschaft in 1998. His responsibilities include Sales,
Marketing and Service. He is also in charge of the Region
Asia / Pacific, as well as the Competence Centres in Europe.

2
 CHAIRMANS LETTER
VORWORT

In 2002, many companies suffered a notable fall in their sales and profits. In the same period we managed
to grow: order intake, sales revenue and profit all showed a positive development. Amongst other things,
this reflects the success of our project for technical and economic realignment (TWIN) in Europe. This is
gratifying, but gives no cause for self-satisfaction.

The stagnating global economy and weak demand for pumps and valves in many sectors continue to be an
obstacle to the achievement of our planned growth and return targets. These plans envisage an annual sales
revenue growth of about five percent in the medium term and a return on sales at the same percentage level.

To achieve these objectives within the defined time frame, we realigned the KSB strategy in 2002. As a
result, we shall focus the use of our resources in the coming years on those market segments where we see
the best medium-term prospects for growth and earnings. In the global context, this includes above all
the water and waste water sector as well as industry. Our Water special in
To make optimum use of our opportunities this Annual Report highlights the considerable potential for growth in the
in the coming years, we are focusing on water supply and waste water disposal markets.
attractive growth markets.
The provision, distribution and sparing use of water, our most precious
resource, are challenging tasks facing many countries. Growing population figures and expanding con-
urbations give rise to supply and waste disposal problems. Finding solutions is something that concerns
not just those directly affected.

With our products and know-how, we aim to help ensure that access to clean drinking water is and
remains a matter of course for increasing numbers of people.

KSB products have a strong appeal through advanced engineering solutions geared to our customers
needs. With innovative, and also smart, products and services, we aim to position ourselves firmly in the
competitive global market. Our customers today, for example, already benefit from variable speed systems
which save energy and transport only as much liquid as is actually needed for the process. Modern pump

3
 monitoring systems prevent high downtime costs, such as occur when a whole plant comes to a standstill.
Our teleservice allows pumps to be checked on-line and time-consuming service assignments to be reduced
to what it absolutely necessary.

More and more customers and plant managers consider the long-term costs of a product to be a decisive
criterion for selection. Since the start of the year, we have been able to provide customers with detailed
information, expressed in euros and cents, on the cost benefits our products offer
We aim to develop from a components them in the medium and long term. We have developed a computerized tool that
manufacturer to a systems provider. helps us calculate our products life cycle costs individually according to their
Wherever our products are in use, they particular fields of application.
get processes moving.
Our industry is still characterized by overcapacities for basic products. This
results in growing pressure on prices. We have responded by making greater use of our Global Manufacturing
Network. In this way, we are able to produce pumps and valves in all regions, close to the customer and
at low cost, and offer them at attractive conditions.

At the same time, we are integrating these products increasingly into fluid transfer systems and installations
and are extending our services to include the operation of such plants. In this way, we are gradually
developing from a components manufacturer to a systems provider.

Growth through innovation. This is our response to the stagnation of the market. Late in 2002, we
deployed an innovation team to garner and evaluate new business and product ideas for our more immediate
market environment, and where applicable to give the initial impetus for putting them into practice.

Within KSB, we talk of improving the way we get our companys horsepower onto the road. Behind this
metaphor is the idea of getting the most out of the huge potential of our development, production, sales
and service know-how. If we succeed in doing this, we shall show profitable growth in the years to come
even under difficult market conditions. We invite you as shareholders and business partners to accompany
us down this path.

Josef Gerstner

4
 KSB SHARES

Ordinary Preference
shares shares
WKN (securities
identification number) 629200 629203
ISIN DE0006292006 DE0006292030
Reuters symbol KSBG KSBG_p
Bloomberg symbol KSB KSB3
Share capital e 22.7 million e 22.1 million
Shares in free float approx. 25 % 100 %
Year-end closing price
KSB SHARES 31 Dec. 2002 e 75.24 e 85.00
Market capitalization
31 Dec. 2002 e 140.2 million
Development of KSB shares in 2002

The international capital markets found themselves in a

difficult environment in 2002. Plagued by sustained economic
and political uncertainty, the markets were dealt an additional Development of KSB shares
blow by accounting scandals and negative corporate news. in e

The Iraq conflict served to heighten uncertainty at the end of

the year. This development was reflected in the performance
of the leading German indices. While the DAX, MDAX and
120
SDAX recorded year-on-year drops of between 30 and 40
percent, our ordinary and preference shares managed to hold 110

their own. The year-end price of ordinary shares fell year-on-

100
year to e 75.24. Our preference shares closed at e 85.00,
a slight increase against the prior-year closing price. The 90

Companys market capitalization totalled e 140.2 million as

80
of the end of 2002 and thus remained close to the prior-year
figure of e 142.7 million. 70

Dividend
January 2002 Dec. 2002 March 2003

In light of the earnings situation at KSB Aktiengesellschaft,

KSB ordinary shares KSB preference shares
we will propose to the Annual General Meeting that the
dividend of e 4.00 per ordinary share and e 4.26 per
preference share remain unchanged. Based on the year-end
closing price, this corresponds to a dividend yield of 5.3 per-
cent per ordinary share and 5.0 percent per preference share.
Dividend development
New segmentation of the stock market
2002 2001
Late in March 2003, implementation of the new Prime Stan- (Proposal)
Ordinary share
dard and General Standard segments became effective at the
Dividend e 4.00 e 4.00
Frankfurt Stock Exchange. Since then, KSBs shares have been
Dividend yield 5.3 % 4.9 %
listed in the General Standard segment. This is a quality
Preference share
segment for German shares that have been admitted to the Dividend e 4.26 e 4.26
Official or Regulated Market. We chose not to apply for Dividend yield 5.0 % 5.2 %
admission to the Prime Standard segment, as the costs asso-
ciated with such a listing would have exceeded the potential
advantages.

5
REPORT OF THE SUPERVISORY BOARD

KSB Aktiengesellschaft can look back on another successful financial year. The Companys growth strategy
and the course of action it has adopted are contributing to the long-term enhancement of its value.

In the year under review, the Supervisory Board monitored all corporate management activities and advised
the Board of Management on a regular basis. The Board of Management informed the Supervisory Board
in comprehensive written and oral reports on the Companys financial position and business policy, as well
as on all significant business transactions.

The Supervisory Board discussed the Companys business development at length in four regular meetings.
In addition to fulfilling the duties assigned to it by law and the Articles of Association, the Supervisory
Board contributed in an advisory capacity to discussions of important individual issues.

Three committees were set up from the members of the Supervisory Board: 1. the Finance and Investment
Committee, 2. the Personnel Committee, 3. the Mediation Committee. The Personnel Committee and the
Finance and Investment Committee each met once, while there was no need for the Mediation Committee
to convene. The committees prepared topics that were then discussed in plenary sessions. In addition, the
Chairman of the Supervisory Board maintained a continuous exchange of information with the Chairman
of the Board of Management as well as the other members of the Board of Management.

In its four meetings, the Supervisory Board expanded its report on the business position of the individual
product areas and regions to include the following items:

Measures to safeguard the 2002 budget;

Analysis of the targets set in previous years, observed deviations from these and the causes of these
deviations;
Presentation and discussion of the strategy for the upcoming years, including topics such as the restruc-
turing of the Group by 2010 and the changes in the development and marketing of products and
services, as well as in the production structures;
Planned joint measures to improve KSBs cost structure and market penetration;
The continuation of projects to redesign KSBs process and systems environment.

The Supervisory Board and Board of Management have issued a declaration of compliance with the
majority of recommendations set forth by the German Corporate Governance Code. The Code is based on
the current applicable law in Germany and contains nationally and internationally recognized standards
for good and responsible corporate governance.

6
 REPORT OF THE SUPERVISORY BOARD

KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft was appointed by the Annual General Meeting
on 6 June 2002 and subsequently engaged by the Supervisory Board to audit the Companys financial
statements for financial year 2002.

All members of the Supervisory Board were provided with the written audit reports for 2002. The annual
financial statements of KSB Aktiengesellschaft, the consolidated financial statements of the KSB Group and
the management reports submitted for financial year 2002 by the Company and the Group were audited
by KPMG. The auditors did not raise any objections to these documents and issued them with an unqualified
audit opinion. Following its own examination, the Supervisory Board concurred with the results of the
auditors examination and approved both the annual financial statements of KSB Aktiengesellschaft and
the consolidated financial statements. The annual financial statements are thus adopted.

The Supervisory Board concurs with the proposal on the appropriation of net retained earnings submitted
by the Board of Management.

We have examined the report prepared by the Board of Management in accordance with section 312 of
the Aktiengesetz (AktG German Public Companies Act) on our relationships with affiliated companies.
The auditors issued an opinion on this report. We have no objections either to the Board of Managements
declaration in its report according to section 312 of the AktG, or to the audit opinion issued.

The consolidated financial statements were prepared in accordance with IFRSs (International Financial
Reporting Standards, formerly IASs) for the first time as of 31 December 2002. The single-entity financial
statements of KSB AG were prepared as before in accordance with the HGB (German Commercial Code).

Dr. Udo Wagner, who was appointed to the Supervisory Board by the Annual General Meeting on
28 June 2001, was unable to participate in any Board meetings due to illness. By way of mutual agreement,
he was replaced by Bernd Euler as per 6 June 2002.

The Supervisory Board would like to thank the Board of Management, Works Council and all employees
for their commitment and conscientious work.

Frankenthal, April 2003

The Supervisory Board

7
 SEAWATER DESALINATION

This new high-pressure shut-off valve is installed in pipelines carrying the

desalinated water to consumers.

8
 Xiaoyan Lippert,
Project Engineer with
KSB Frankenthal (Germany)

Drinking water from the sea: The United Arab Emirates have always played a pioneering role in

this field. In Abu Dhabi, KSB products are doing service in a state-of-the-art desalination plant

working on the multistage flash principle. As from 2005, the plant will be producing 1.2 billion

litres of fresh water per day. We also supply KSB pumps and valves for a new plant currently

under construction in Fujairah. Xiaoyan Lippert is in charge of project engineering for desalina-

tion systems based on the reverse osmosis method.

9
 Water We are moving todays and
tomorrows most precious resource
In chemical terms, water is simply a compound of two hydrogen atoms

and one oxygen atom. Yet this element possesses unique properties

without which life on Earth would not be possible. Drinking water is the

most important foodstuff. There is no other substance which can take

its place. That is why this priceless commodity and sustainable water use

will become key factors in the future.

The irreplaceable resource

A glance at the figures paints a clear picture: only 2.5 percent of water in the world is available in
the form of fresh water. Of this, only 0.28 percent is available for human consumption. The greatest
volume of the water consumed is used in agriculture. Yet many countries of the world are currently
facing water scarcity. World population growth will contribute to making water supply increasingly
difficult. Forty percent of the world's population have to live with inadequate water supplies. And
more than one billion people have no access to clean water.

Challenge for the future

The United Nations have declared 2003 the International Year of Fresh Water. All member states are
to contribute to promoting the sustainable use and protection of fresh water. Safeguarding the supply
of drinking water is a global challenge. And water is set to become even more valuable in the future.
It is estimated that, in the next 25 years, global water demand will
increase by 650 percent! Hence the need to tap new sources and to Fresh water is irreplaceable.
facilitate the distribution of water over long distances. At the same The sustainable use of this
time, a great deal has to be done to keep water clean. valuable resource is an
important task for the future.

10
 WATER: A VITAL RESOURCE

Accordingly, we are seeing an increase in global demand for water supply and waste water
treatment plants. Our products and services help in establishing and developing the necessary
infrastructures. Whether in water extraction from wells and inland waters, in seawater desalination,
water transport, agricultural irrigation or in waste water treatment: KSB plays its part in all these
areas to help in the economical utilization of this resource of the future. We use our know-how
throughout the world so that this vital element is available in adequate quality and quantity to
ever more people.

The supply of drinking water
is a global challenge. We
are helping to ensure that it
is available in the required
quality and quantity.
Whether in jungle and desert regions or in the vast capitals of the
world: we are on hand wherever water is to be supplied, purified
or disposed of. We provide state-of-the-art pumps, valves and
our local on-the-spot service. Wherever our products and system
solutions are in use, they set processes and cycles in motion
efficiently and reliably. And we have about 12,000 employees
around the globe committed to providing solutions day after day.

First-class products integrated solutions

Sophisticated systems, such as those required today in water supply and waste water treatment
systems, necessitate a perfect, intelligent interplay between many components. This is why we keep
the system as a whole in mind. Our control and monitoring systems help ensure smooth operation
of the plant. We always see our pumps and valves as part of a larger whole. Drawing on our system
engineering competence, we develop all-in package solutions right through to turnkey systems for
the transport of water and waste water. We are thus well positioned in a large market with strong
future potential. Investment requirements in the water sector and thus demand for appropriate
systems will remain high in the long term. We are well prepared to take on the challenge.

Three processes one goal We are developing solutions

for efficient water and waste
In the United Arab Emirates on the Persian Gulf, drinking water from natural water transport. About 12,000
sources is only available on a very limited scale. The solution to this problem employees around the globe
lies in the extraction of fresh water from the abundant supplies of salt water are committed to this task.
available.

11
 Basically, three processes are used for seawater desalination. All ultimately have one thing in
common: salt water is separated into fresh water and salt. The multistage flash process is a rapid
evaporation method for fresh water production. Seawater is heated and condensed in several
stages. Multiple effect distillation works in a similar way; seawater is evaporated and condensed
at very low pressures.

For some years, the reverse osmosis method has been attracting a lot of interest. This a mechanical
process in which seawater is pumped through filter membranes at very high pressures. The salt
dissolved in the water is extracted.

Today, thermal desalination processes have a market share of 74 percent and reverse osmosis a
share of 22 percent. In the future, we expect to see a substantial increase of investments in the field
of desalination by reverse osmosis. Our strength: we can offer the required product range for all
three methods of desalination.

Water shortages mean that seawater desalination is gaining increasing importance throughout
the world. Today, in 120 countries from Spain to Australia, there are around 13,000 small to large
desalination plants in operation, processing 26 million cubic metres of saline water every day. The
most recent estimates suggest that the market volume of currently just under two billion euros will
increase to around 70 billion euros by the year 2020.

KSB technology in practice

Al Taweelah, the worlds largest desalination plant, is situated We offer products and services
in Abu Dhabi on the Persian Gulf. It can currently process up for all methods of desalination.
to 805 million litres of seawater to fresh water a day. This has
enabled the United Arab Emirates to increase their potable water production by 50 percent.
More than 130 KSB pumps are doing service in the plant, which also has its own power station.
These pumps move vast amounts of seawater, aggressive brines, and also fresh water. KSB supplied
the complete pumping equipment and also took charge of installation and commissioning. With
their high degree of availability, maximum reliability and cost-efficient continuous operation, these
pumping systems offer a convincing performance.

12
 WATER: A VITAL RESOURCE

In Fujairah (UAE), KSB pumping systems are in operation in another With our high-performance
one of the worlds largest seawater desalination plants. This instal- products and integrated
lation uses both the multistage flash process and the reverse osmosis range of services we shall
method. The plant produces 500 million litres of desalinated potable tap the growth markets of
water every day. the future.

We have also completed many successful projects for the supply of irrigation systems. These include
the turnkey delivery of a water pumping station in Libya. Submersible borehole pumps carry ground-
water from under the Libyan Sahara to the surface, so that fields in arid areas can be irrigated and
used for agriculture.

We are helping to solve future problems

Being faster, better and different from the competition: this is our declared aim in product develop-
ment, in production, in sales and in service. The market success of our innovative solutions is based to
a large degree on the companys own research and development. Time and again, this gives us that
decisive advantage: both as a systems provider and as a global player.

Ambitious goals can only be achieved together through determined action. The most important
foundations of our success are our highly skilled and motivated employees. Their knowledge and
their creativity are the key to our strength. Behind the quality of our performance stands every
employee with his or her personal commitment. And they ensure that we are well equipped for
the future!

Systematically tapping growth markets

To make the most of our opportunities for growth in the coming years, we
are focusing on attractive and innovative markets. We shall further inter-
nationalize our value creation chain and push ahead with process and product
innovations. With our high-performance products and systems as well as our
reliable services, we shall tap the growth markets that offer potential for the
future. In this way, we can do our part to ensure that clean water is no longer
a luxury item for increasing numbers of people.

13
WATER S U P P LY

Amacan submersible motor pumps with axial propellers are used in

water supply systems. They pump up to 7,000 litres of water per second.

14
 Robert Wdowiak, Customer Support Engineer with KSB Warsaw (Poland)

Water for Warsaw: Three pumps in what has humorously been dubbed Big Catherine pump

3,300 litres of water per second from below the Vistula River to the water treatment plant.

The systems technical face lift also yielded energy savings of 25 percent a welcome side

effect Robert Wdowiak demonstrated to the customer.

15

FROM OUR GROUP OPERATIONS
EUROPE
Market position improved in Europe
Strong growth in EU accession countries
Sales force relieved of administrative burden
Strong KSB sales and service presence
The manufacture and sale of pumps and valves remains
our core business. In addition, our service business has been
showing steady growth for some years. We are striving to
achieve a comparable development in the systems business,
which is still in its infancy.
Europe continues to be our most important market. We are
the only manufacturer providing a one-stop shop for the
supply of pumps, valves and integrated systems solutions.
Customers are predominantly from industry, water manage-
ment, energy engineering and building services. Our product
range is complemented by services ranging from the repair of
pumps, valves, motors and actuators to energy cost optimiza-
tion and right through to teleservice.
16
FROM OUR GROUP OPERATIONS
We supply the market with these products and services not
only through our core companies KSB AG and KSB S.A.S.,
but also through KSB Fluid Systems GmbH, as well as a net-
work of European marketing and service companies.
Weak economy curbs demand
The European market was again influenced by a weak
economy in 2002. In most European companies, demand for
pumps, valves and related systems fell. The need for services
on these products stagnated. Demand for pumps and valves
was unsatisfactory in particular in our domestic market of
Germany.
Increased order intake bucks the trend
In a difficult market environment, we again succeeded in
increasing order intake in Europe in the year under review.
Since most of our European competitors suffered what in
some cases were substantial declines in orders received, we
were able to gain market share and strengthen our market
position.
 EUROPE EASTERN EUROPE / MIDDLE
We laid the foundation for this success with our focus on
those European markets where we had hitherto been less
strongly represented. We were particularly successful in the
EU accession states, where demand for pumps and valves is
currently much livelier than in the other markets of Europe.
The systems business is also finding a basis for growth in
these countries.
An important share of the orders received in Europe came
from international plant engineering contractors with projects
in Asia and the Middle East.
New business system strengthens sales and distribution
Another key factor behind our success on the European market
was a new business system in sales whose roll-out was com-
pleted in 2001. The use of the SAP R/3 software has led to a
sustainable easing of the burden of administrative work on our
field force. As a result, more time and attention can now be
devoted to our customers.
Our sales force took advantage of this extra time and space in
2002 and were thus able to make better use of the potential for
demand from large companies.
EAST / AFRICA ASIA / PACIFIC AMERICAS
KWP non-clogging impeller pumps
transport solids-containing fluids
PUMPS AND VALVES
More framework agreements with customers
In Europe, many large and medium-sized companies are in
the process of simplifying their procurement of capital goods.
This entails a reduction in the number of their suppliers. It is
precisely for companies of this kind that we are an excellent
partner with our broad range of pumps and valves. This is
reflected in the increasing number of framework agreements,
which include e-business activities.
The Internet is becoming an increasingly important trading
platform for our products, in particular for standardized
pumps and valves. These are products for which specialists
generally do not need advice before placing their orders.
As from February 2002, companies that want to reduce
their purchasing costs have had the option of ordering these
products on-line in a fast and uncomplicated procedure.
Visitors to the so-called KSB Web Shop will find a product
range that currently includes 3000 pumps and valves, as
well as around 500,000 spare parts.
17

Customers remain cautious with investments
The annual review of our four main customer groups showed
that investment activity was very subdued not only in indus-
try but also among customers from water and waste water
management, energy engineering and building services.
Replacement investments dominate new business
from industry
Demand from companies in the industrial and process
engineering sectors remained weak in 2002. Especially the
large chemical companies, which account for an important
share of our business, were very cautious with investments
particularly in the domestic market. In some cases, companies
even closed down plants. But a similar development was also
seen in other industrial sectors. Rather than purchase new
equipment, companies tended to focus on modernizing and
maintaining installed plants. This meant stronger growth
for our spare parts business.
New business was mostly generated by projects outside
Europe, such as the construction and extension of chemical
and petrochemical plants in Asia and the Middle East. High-
quality industrial valves were in demand for use on tankers,
with special emphasis on the equipment of ships for liquefied
gas transport.
Industrial pumps saw an increase in the sale of variable speed
units. Through the use of pumps with integrated or add-on
speed control systems, plant owners and operators can lower
their energy costs considerably. The savings potential is sub-
stantial. This means that the relatively high purchase price
compared with conventional units is offset by a very short
payback time for the customer.
18
FROM OUR GROUP OPERATIONS
Water and waste water market with huge potential
The water supply infrastructure is well-developed in
many parts of Western Europe, so that demand for water
engineering products in 2002 was again largely triggered
by replacement investments. Exceptions were the projects in
which international plant engineering contractors were
engaged outside Europe. In addition, this product segment
is currently characterized by global overcapacity, which
adds to the pressure on prices.
In spite of the unfavourable conditions, we were able to
stabilize our positioning in this market. One contributory fac-
tor was the conclusion of framework agreements with large
water utility companies, especially in Great Britain. We were
also able to make use of the growth opportunities which
emerged in East European countries.
In the water and waste water market, we see good medium-
term growth prospects. We are therefore planning to expand
our business with pumps for water extraction and transport
in the coming years. In a first step, we have updated our
range of submersible borehole pumps. The new models offer
substantially higher efficiency levels. The motors needed for
these machines are being manufactured as part of an Italian
joint venture with the US company Franklin Electric Co.
Equipment for the worlds largest seawater cooling plant
As in the year before, the business with pumps for water
transport showed gratifying growth. Also much in demand
were large butterfly valves for use in water transport. One
of the most comprehensive orders went to what will be
the worlds largest seawater cooling plant. Currently being
built in Qatar, the plant will supply several factories with
cooling water. In 2002, we delivered 130 electrically actuated
valves from Europe worth around e 5 million for this project.
These valves also included the largest butterfly valves ever
manufactured by KSB so far, with a diameter of 3.5 metres.
 EUROPE EASTERN EUROPE / MIDDLE
Amaprop submersible mixers
for sewage treatment facilities
Waste water market shows good growth prospects
Even better growth prospects than those enjoyed by the
water supply sector can be seen in the market for waste water
engineering products. Some countries in Southern Europe are
improving the level of access to sewage treatment facilities,
and the EU accession states are also showing an increase in
demand. The latter are in the process of bringing their waste
water systems up to EU standards in the framework of
so-called ISPA projects, which are supported by subsidies
from the European Union.
As well as pumps, our waste water engineering activities also
cover the manufacture of high-speed and low-speed mixers
for use in clarifiers and sedimentation tanks. We managed to
achieve good growth of orders for these products. The intro-
duction of a new generation of large mixers contributed to
this positive development.
Global manufacture improves competitiveness in
the energy industry
In contrast to previous years, 2002 saw a marked reduction
in power plant capacity expansion by energy supply com-
panies. The decline in demand was particularly dramatic in
the USA. This decrease also put a strong downward pressure
on prices in the European market.
Faced with tough competition, we made increasing use of
the capacity provided outside Europe by our Global Manu-
facturing Network. We thus supplied condensate and cooling
water pumps from our Asian factories, which were able to
compete on quality and price. This measure also helped in
Europe to step up order intake and consolidate our market
leadership.
The European business with power plant pumps was character-
ized by cooperation with two large engineering contractors
and also by direct exports to Asia. High-pressure globe and
EAST / AFRICA ASIA / PACIFIC AMERICAS
gate valves for power stations were ordered above all by
customers in Germany and Scandinavia for projects in
Western Europe.
Strong growth in large-scale projects business
in building services
Orders received for our products for water supply, drainage,
heating, ventilation and air-conditioning in the building services
segment rose substantially in 2002. This helped us win back
market share lost in the years before.
In keeping with Group strategy, we focused our activities
on providing the equipment for major construction projects.
We intensified the large-scale projects business especially in
some Northern and Central European countries where we see
large growth potential. Major orders came in for the building
services equipment of airports, hotels and congress centres
as well as for construction projects of the automobile and
computer industries.
Framework agreements and product intelligence to
combat price pressure
In our volume business with distributors and installation
contractors, we are faced with growing competition from
manufacturers in Asia. With a view to securing our market
position, we have extended framework agreements and signed
new contracts with wholesalers especially in Germany and
France.
In addition, we are pursuing a strategy of differentiating our
product range from those of cheap manufacturers by means
of smart products. KSB products are designed to offer
customers greater value. In 2002, for example, we launched
a new device for combined temperature and volume flow
control in heating circuits. With this new product, a circulator
pumps energy input can be reduced by up to 50 percent.
19

SYSTEMS
Pumping station construction
is an important future market
Business with all-in fluid transfer systems is gaining increasing
importance. We shall therefore continuously extend this busi-
ness in the years to come. Pivotal for the targeted growth are
the operations of KSB Fluid Systems GmbH. Our subsidiary
supplies customers with turnkey pumping stations for their
water supply and waste water disposal needs. If the building
is already in place, the company delivers the mechanical,
hydraulic and electrical equipment. The plant engineering
service ensures an optimum technical layout for the stations.
From our base in Europe, we successfully marketed our range
of systems packages in 2002. Several major orders also came
in from the Middle East and North Africa. These covered
projects for the construction and equipment of water and
waste water transport systems. In particular, for example, we
were involved in major water supply projects in Saudi Arabia
and Libya.
The Middle East orders compensated for the decline in orders
from Germany, which was due to shrinking budgets in the
public sector. Aiming to lessen the dependence of our domestic
business on public spending, we stepped up our systems
business with industrial customers.
20
FROM OUR GROUP OPERATIONS
New compact low lift pumping station
As well as providing systems engineering services geared to
customized solutions, we also developed packaged pumping
stations for our customers. In addition, we launched a newly
designed, patented low lift pumping station into the market.
Its benefits include low initial investment costs and improved
energy efficiency. Presented in May 2002 at the IFAT Inter-
national Fair for Waste Disposal and the Environment in
Munich, the system is conceived for use in flood control, in
agricultural irrigation and for water supply in power plants
and seawater desalination plants.
SERVICE
Market leadership extended throughout Europe
We are market leader in Europe in the service segment for
pumps and valves. In the year under review, we strengthened
this position through a number of systematic measures.
Despite the difficult environment in 2002, for example, we
managed to achieve a substantial increase in our service order
intake. Major contributory factors were the establishment
of new service centres in France, Great Britain, Italy and
Germany, and an increase in the range of inspections, main-
tenance and repairs that we offer. This involved above all
service work on motors and on electric valve actuators.
The number of customers who made use of our services for
continuous monitoring and quality assurance in their plants
is likewise on the increase. In France and Great Britain,
for example, we were able to strengthen our relations with
important customers through new service contracts. The
agreed scope of performance ranges from the continuous
provision of selected services right through to taking over full
responsibility for operation and service in a plant, where
required.
 EUROPE EASTERN EUROPE / MIDDLE
ZTS high-pressure gate valve for
steam lines in power stations
High-quality valve service
In 2002, we asserted our position as an important service
partner for power plant operators. Amongst others, two
power plant companies in Germany selected us as general
contractor for the technical overhaul of valves in the context
of rehabilitation measures for nuclear energy applications.
The volume of these orders more than made up for the decline
in the service business in fossil-fuelled power stations. Demand
in this area fell because cost considerations prompted energy
suppliers to prolong service intervals.
In the year under review, we were also engaged by large
refineries to perform challenging valve rehabilitation
comparable to those in power plants, where often hundreds
of valves are inspected, maintained and repaired during
plant downtime.
Trend towards risk-based maintenance
In view of cash shortages, many companies and municipal
authorities in Europe operated with reduced service budgets in
2002. This inevitably had a negative impact on preventive
maintenance; in the medium term, however, the volume of
repairs upon failure is likely to rise. To lower their fixed
costs, industrial companies and municipal organizations also
reduced the numbers of their own service personnel. This
development will bring to us as service provider additional
work which our customers hitherto carried out themselves.
We aim to increase order intake
and sales revenue again in 2003.
New products and services will
help us achieve this goal.
EAST / AFRICA ASIA / PACIFIC AMERICAS
OUTLOOK
Growth possible despite economic downturn
For the current year, we do not expect the European domestic
economy to recover. Nevertheless, we aim to grow in 2003 in
terms of both order intake and sales. This will require inten-
sive sales efforts, which will include the marketing of new
products and services.
This applies in particular to process pumps built to ANSI
standards, ball valves, small gate valves and check valves,
which we added to our product range at the end of 2002 and
beginning of 2003. We are extending our product range by
pumps and valves that will help customers reduce their
operating costs.
A pumps purchase price often makes up only a fraction
of its total costs. Since early this year, we have therefore been
using a newly developed computerized tool to show potential
buyers the savings they can expect from our products in the
estimated life cycle. This information enables customers to
plan their investments effectively for the long term.
Increasing market awareness of our range of
services and systems
With our professional services and systems we can also help
our customers cut costs in the medium to long term. Available
options extend right through to taking full responsibility for
service and operational functions. Relieved of this burden,
customers will be able to lower their fixed costs and to focus
on their own core business. With this in mind, we shall be
propagating our range of services even more strongly.
21

EASTERN EUROPE / MIDDLE EAST / AFRICA
High oil price pushing up demand in the Middle East
Good growth in Russian business
Cooperation on large water engineering projects
Restructuring put into practice
The EU enlargement to include parts of Eastern Europe
edges ever closer. Accordingly, we reorganized the Regional
Management for Eastern Europe / Middle East / Africa
at the beginning of 2002, removing the accession countries
Poland, the Czech Republic, Slovakia and Hungary and
integrating them into the organization of Western European
countries. The countries of sub-Saharan Africa have now
been integrated into the Region.
Healthy business in Russia
continued to gather momentum.
22
FROM OUR GROUP OPERATIONS
Growth in order volume
The European countries remaining in the Region Eastern
Europe / Middle East / Africa registered high demand for
industrial goods in 2002. Healthy economic growth above
all favoured business developments in Russia, Romania
and Bulgaria. Countries in the Middle East profited from
the higher proceeds arising out of oil exports. These
additional resources were used for investments which
stimulated our pumps and valves business in the Region.
Overall, the order intake in Africa also showed a positive
development. Only in Egypt was the growth of previous
years dampened by the economic and financial crisis.
 EUROPE EASTERN EUROPE / MIDDLE
HGM -RO high-pressure pump
for seawater desalination
KSB Group order intake from Eastern Europe / Middle East /
Africa showed double-digit percentage growth in the year
under review. Of the two consolidated companies in the
Region, Turkeys KSB-Pompa, Armatr Sanayi ve Ticaret
A.S., Ankara, almost doubled its order intake in euros after a
weak previous year that was affected by a flagging economy.
KSB Pumps (S.A.) (Pty.) Ltd., Germiston/Johannesburg, like-
wise reported double-digit percentage growth in order volume.
As a result of currency exchange fluctuations, however, the
order intake posted in South Africa was negative in terms of
euros.
PUMPS AND VALVES
Growth in the Russian market
Business in Russia, which already proved very gratifying in
2001, continued to gather momentum. This applied equally
to the order intake both for pumps and for valves. One out-
standing order was received from the mining sector for the
delivery of four large submersible borehole pumps and all
related control systems. Made of high-grade steel, the pump
sets with drive ratings of 1.5 megawatts each are used for
shaft drainage in Western Siberia. Each unit pumps about
600 cubic metres of pit water to the surface every hour.
Considerable increases in order intake were also reported in
Romania and Bulgaria. We received major orders from these
countries for submersible and industrial pumps as well as
for the modernization of power plant pumps.
EAST / AFRICA ASIA / PACIFIC AMERICAS
Pumps business picking up again
In the Eastern Mediterranean and Middle East region, our
Turkish company managed to step up its pumps business
again once the economic crisis had subsided and to improve
its competitiveness. A major share of this activity came from
several major orders for irrigation projects in Baklan and
Kolin as well as drinking water supply systems for the city of
Istanbul. The positive result was also helped by an efficient
planning of resources, optimized processes and reduced
material costs. At the same time, the companys first ISO 9001
certification underlined the quality of the products made in
Turkey. Among the successful products of the company were
pressure booster sets for domestic water supply. In 2002,
we included these Turkish products in the sales range for
the Region.
A positive development was also reported for the pumps busi-
ness in Saudi Arabia as well as in the Arab Gulf states. While
our Saudi joint venture secured participation in waste water
projects, order intake in Abu Dhabi and Dubai was shaped by
large orders in the water transport sector.
23

RDLO volute casing pump
for high flow rates
An encouraging expansion of the valves business was reported
in the United Arab Emirates. This included the equipment of
seawater desalination plants with butterfly valves. In addition,
orders were received for valves used in cooling water systems.
In Iran, whose economy is showing sustainable growth, we
established our own office in 2002. In this way, we aim to
strengthen our market position during the current year in the
oil-processing industry. At the same time, we are seeking
stronger involvement in the power plant and water engin-
eering sectors.
Large water projects strengthen KSB business
Our business expectations were met in North African
countries, with the exception of Egypt. In particular, business
in Algeria received a boost from our cooperation on some
major water engineering projects managed by our Belgian
company. From Libya we received orders for pumps as part
of a major water supply project in that country. Two notable
orders came in from Tunisia. These covered around 90 large
valves intended for a new irrigation system in the north of
the country.
Our South African company in-
creased pump production by 25 per-
cent and started its own production
of diaphragm valves.
24
FROM OUR GROUP OPERATIONS
Our manufacturing company in South Africa increased its pro-
duction of pumps in 2002 by around 25 percent. In addition, it
started its own production of diaphragm valves to ensure fast
supply to its customers. Order intake in South Africa was
marked in particular by orders from the petrochemicals and
mining sectors and also from the agricultural industry. Two
large orders were received to supply the pumping equipment
for an acrylic plant in South Africa, as well as several seawater
desalination plants in the Seychelles.
In the year under review, KSB Pumps (S.A.) (Pty.) Ltd. initiated
the introduction of SAP R/3 software in sales and production.
Together with process improvements and the international
sourcing of components, this IT measure will further enhance
the companys competitiveness. The devaluation of the rand
has also improved its export chances.
SYSTEMS
Water supply in Saudi Arabia offers opportunities
In the systems business, we received another large order from
Saudi Arabia in 2002. Worth approximately e 6 million, it
covers the engineering and pumping equipment for a well
field, as well as several pipeline stations for the drinking water
supply system of the city of Riyadh. We shall be supplying a
total of around 100 pumps for water extraction and transport.
 EUROPE EASTERN EUROPE / MIDDLE
A positive development was also seen for the systems business
in Eastern Europe. Here, for example, we built several turnkey
pumping stations for water supplies to the western Romanian
town of Oradea.
SERVICE
Growing demand for service
In our service business, we achieved substantial growth in
Saudi Arabia and Turkey. In the year under review, the service
engineers of our joint venture Masaood KSB Fluid Systems
LLC, Abu Dhabi, carried out modifications on three large
water pumping stations in Abu Dhabi, Shobaisi and Remah.
OUTLOOK
Good growth prospects for the future
In the Eastern European countries, the ongoing privatization
of businesses is providing the seed bed for economic growth.
We aim to take advantage of the modernization of power
plants and the creation of new water supply and waste water
disposal facilities to step up our business in these countries.
EAST / AFRICA ASIA / PACIFIC AMERICAS
In the Eastern Mediterranean and Middle East, the growing
demand for water and energy necessitates new investments.
Major projects in this field, including construction projects
for seawater desalination plants, are providing good prospects
for growth. A precondition for this, however, remains a politi-
cal environment that offers greater planning certainty to
investors.
We are now able to support all seawater desalination processes
in terms of both products and services. Recently, we developed
a high-pressure pump particularly well suited to recovering
drinking water from the sea by means of reverse osmosis.
Pumping sets are also available for seawater evaporation pro-
cesses, as are butterfly valves for the same field of application.
To help tap the growth potential in the Middle East even
better, we are aiming to increase our presence there in the
current year. In accordance with the increasing population of
our pumps and valves in the Region, we shall also extend
our range of services both in the Middle East and in North
Africa.
25

ASIA / PACIFIC
20 percent increase in order intake
KSB is leading supplier of pumps in China
Positive development in the water and waste water market
Economy strengthens KSB business
Markets in the Region Asia / Pacific overall showed a very
positive development in 2002, despite the uncertainties in the
global economy. Particularly outstanding was the develop-
ment of China, which achieved a growth of 7.8 percent in its
gross domestic product (GDP). The economies of India and
South Korea also picked up well. The economic situation in
the South-East Asian markets, with the exception of Singa-
pore, stabilized.
26
FROM OUR GROUP OPERATIONS
Volute casing pump to ANSI standards
for industrial applications
The marketing and production companies in the Region
Asia / Pacific took advantage of the economic recovery for a
notable upswing in order intake. The consolidated KSB
companies in the Region overall achieved a growth of more
than 20 percent.
KSB companies on course for success
The manufacturing companies in China, India and Pakistan
played a major part in this gratifying development. KSB
Shanghai Pump Co. Ltd. succeeded in boosting its order intake
by more than 50 percent. Including our direct business from
the Global Manufacturing Network, we are thus currently
Number 1 on the Chinese pumps market.
Indias KSB Pumps Limited, Pune, and Pakistans KSB Pumps
Co. Ltd., Lahore, showed double-digit order intake growth in
2002. Both companies were heavily engaged in the water
market with their products; KSB India also stepped up
order intake from the oil industry.
 EUROPE EASTERN EUROPE / MIDDLE
Although orders received by KSB Ajax Pumps Pty. Ltd.,
Tottenham (Melbourne), Australia, declined, the company
achieved a balanced result again thanks to the restructuring
measures formulated in 2001. These measures included
closure of the foundry and concentration of production at
the Tottenham site.
Drinking water supplies are a task for the future
The KSB companies in South Korea and Japan supplied an
increased number of butterfly valves for the equipment of
liquefied gas tankers; and KSB Korea Ltd., Seoul, also suc-
ceeded in expanding its activities in the petrochemicals indus-
try. KSB Taiwan Co. Ltd., Taipei, reported successes in the
waste water sector and the power plant market. A positive
development in the Region was also seen in the business with
standard pumps and valves, which are delivered from a
central warehouse of KSB AMRI (Asia / Pacific) Pte. Ltd. in
Singapore.
PUMPS AND VALVES
We are supplying the Asia / Pacific markets with pumps and
valves from our manufacturing companies in Australia,
China, India, Indonesia and Pakistan, as well as with products
from our Global Manufacturing Network.
Orders from the petrochemicals industry
boost KSB business
In 2002, Chinas KSB Shanghai Pump Co. Ltd. was particular
successful with products for industrial applications. It received
major orders from international industrial companies to provide
the pumping equipment of petrochemicals plants. KSB Korea
Ltd. received a major order for butterfly valves and process
pumps to API standards intended for a large petrochemicals
plant in Iran.
In light of the population growth in
the Region Asia / Pacific, the issue
of water supply and waste water
disposal is becoming increasingly
important.
EAST / AFRICA ASIA / PACIFIC AMERICAS
Indias KSB Pumps Limited, which also produces pumps
for the oil sector, was able to profit from orders from the
countrys oil-processing industry. The latters investments in
new plant and equipment included purchase orders for
high-pressure and process pumps.
In light of the population growth in the Region Asia / Pacific,
the issue of water supplies and waste water disposal is becom-
ing increasingly important. This is especially true for the
countries with the largest populations, namely China and India.
Here, an inadequate infrastructure for distributing the water
that is available causes bottlenecks in water supply. A further
challenge is increasing water pollution. Even the tiger states
of Malaysia, Thailand and Indonesia have water problems.
Singapore, which imports drinking water, is therefore banking
on seawater desalination and water recovery for the future.
Our growth of orders in the water and waste water business
in the Region Asia / Pacific is above all attributable to our
activities in China and India. Both in China and in Taiwan,
we were very successful with orders for waste water treatment
plant equipment.
Indias KSB Pumps intensified the sale of submersible borehole
pumps via its wide network of distributors and thus increased
its order volume in the water business. These pumps are
used in large numbers in the water supply and agricultural
irrigation sectors. In Australia and in Singapore, we are involved
in the water engineering projects of an international water
supply and waste water disposal company. In addition,
KSB Singapore received a large order to supply butterfly
valves for water engineering applications.
27

KSB Pumps Co. Ltd., Lahore, Pakistan, secured its continued
participation in the Left Bank Outfall Drain project, one of
the worlds largest drainage projects. The aim of this project
is to reclaim arable land which is threatened with salinization
caused by rising groundwater tables. Our company in Pakistan
has been playing an active part in this field of application
since the 60s.
Growth of orders in power plant pumps
With its high-quality pumps for the power generation sector,
KSB is one of the leading suppliers in the Region Asia / Pacific.
In 2002, we were able to strengthen this leading position.
The local KSB companies received a number of large orders
for the equipment of power plants in China, Taiwan and
Australia.
Business developments in China are particularly outstanding.
Whereas in the past we mostly supplied the Chinese energy
industry through international engineering contractors,
2002 marked a breakthrough: KSB Shanghai Pump Co. Ltd.
established a presence in the market covered by national plant
engineering contractors. These ordered amongst other things
boiler feed, cooling water and condensate pumps from Chinese
KSB production facilities for the equipment of new coal-fired
power stations in inner Mongolia and the province of Shanxi.
We also supplied well-known boiler contractors in China
with circulating pumps from Europe.
28
FROM OUR GROUP OPERATIONS
Demand for power plant pumps from India also rose. This
was particularly true for high-pressure and condensate pumps,
which are certified to meet the Groups Made by KSB
standards. This certification ensures a level of quality in pro-
duction equivalent to that achieved at our European sites.
Our Indian business with ANSI valves also profited from the
economic recovery in the energy market. Produced in India,
the globe, gate and check valves from this range were also
used by our customers in industry. Moreover, the company
also exports ANSI valves to other Asian countries and to
Europe.
The KSB companies in the Region are optimally geared to
serving the power plant market. Able to draw on both a
European and an Asian range of high-quality power plant
pumps, they are in a position to meet all the delivery require-
ments of their customers.
SYSTEMS
Equipment of pumping stations in India
KSB in India made progress in its business with the complete
equipment of pumping stations. This included orders for
equipping waste water pumping stations and water supply
facilities in Kolkata (Calcutta), Pondicherry, Bangalore and
Mizoram. We shall put the regional systems engineering busi-
ness on a broader base from our competence centre estab-
lished in India.
 EUROPE EASTERN EUROPE / MIDDLE
SERVICE
Service network even more tightly knitted
Most KSB companies in the Region Asia / Pacific expanded
their service business in 2002. The production companies in
China, India and Pakistan established profit centres along
European lines for supplying their markets. Thanks to the
favourable development of the service business in China,
KSB Shanghai Pump Co. Ltd. increased the numbers of their
service staff in Shanghai and Peking by around one-third.
By entering into cooperation agreements with smaller partner
companies, KSB India made its service network into an
even more tightly knitted organization. In addition to its own
service centres, the company increased from 50 to 60 the
number of authorized workshops. These service partners are
devoted primarily to servicing standard pumps. Our sales and
marketing organizations in Thailand, Taiwan and Indonesia
have also expanded their service activities.
OUTLOOK
Sustained economic growth expected
In most Asia / Pacific countries, the dynamic economic develop-
ment of 2002 is likely to be sustained. Particularly marked
growth is expected in China, followed by South Korea and
India.
Risks for business development stem from the political
situation in the Middle East and from cyclical trends in the
most important industrialized nations, such as USA, Japan
and the countries of the EU. This applies in particular for the
heavily export-dependent countries in East and South-East
Asia.
EAST / AFRICA ASIA / PACIFIC AMERICAS
We are seeking to achieve a level of growth in the Region that
will lead to a further medium-term increase in our market
share. The valves business, which is not yet so strong, should
enjoy an above-average share in this development.
We see great potential in the water and waste water market.
In China we intend to set up a competence centre during the
current year, in order to expand our marketing and order
handling activities. We are also planning to widen our distribu-
tor and service network there and want to place customer
relations on a stable footing through framework agreements.
Production at Asian sites to be stepped up
In the light of the comparatively good economic situation
in the Region, an increasing engagement by other pumps and
valves manufacturers can be expected. Precisely in a com-
petitive environment, where there is high pressure on prices,
we have to present convincing arguments with attractive
offers. We shall therefore be making increased use of the pro-
duction opportunities provided by our Asian factories. To
underline the quality of the products manufactured there, we
aim to achieve certification to Made by KSB standards
for additional product series.
29
 FROM OUR GROUP OPERATIONS

AMERICAS

Brazil receives major orders from the oil industry

Successful business in Chiles mining market
US companies hampered by flagging economy

US economy losing power affected by the weakness of the US market; in Argentina,

The overall economic conditions in the Region Americas
were substantially worse in 2002 than in the previous year.
Most countries achieved only very low growth rates, and in
addition regional currencies were affected by an unfavour-
able trend.
The US economy slowed down in the year under review,
with a dramatic decline especially in the demand for equip-
ment in the energy sector. But a downturn was also felt in
other sectors of importance to us, namely the industrial
and water / waste water markets.
Demand in most Latin American countries remained hampered
by the unstable economic situation, Chile being the positive
exception. Brazil overall showed moderate growth, while the
oil and refinery sector, which is important for KSB business,
performed much better than other industries. Mexico was
the gross domestic product declined further as a result of the
continuing financial and economic crisis.
Mixed performance of KSB business
The order intake of the consolidated companies in the Region
showed a negative development. The low exchange rates of
the US dollar and various Latin American currencies to the
euro aggravated the situation.
In Brazil, our business profited
from brisk demand from the oil
and petrochemicals sectors. Water
supply projects were another
major area of activities.

30
 EUROPE EASTERN EUROPE / MIDDLE
A particularly strong growth in orders, in local currency
terms, was posted by Brazils KSB Bombas Hidrulicas S.A.,
Vrzea Paulista. Shown in euros, the increase is less promi-
nent. KSB Chile S.A., Santiago, also reported marked growth
in order volume in local currency terms thanks to their cooper-
ation on major projects in the mining sector, as well as in
the water and waste water market. The euro-based figure
ranged at the previous years level.
In the USA, KSB Inc., Richmond / Virginia, achieved a sales
record in 2002. This came from the high level of orders
received in the previous year, in particular from the power
engineering sector. In the year under review, by contrast,
demand for power plant pumps fell back sharply. Our US
subsidiary GIW Industries Inc., Grovetown /Georgia, faced
declining demand in its mining business, which led to a
decrease in orders.
PUMPS AND VALVES
We supply our customers in the Americas with a full range of
pumps and valves. These are mostly manufactured in the
Region itself, where we have production centres in Argentina,
Brazil, Mexico and the USA.
KSB products in demand for the oil and process industries
In Brazil, our industrial business profited from brisk demand
from the oil and petrochemicals sectors. We received several
major orders to supply the pumping equipment of new refinery
facilities and off-shore oil platforms. In addition, major orders
came in for the fire fighting systems built in Brazil. Also in
demand were pumps for process water supply and boiler
feed duties in industrial plants. Argentinas KSB Compaa
Sudamericana de Bombas S.A., Buenos Aires, was able to
increase its order intake from the petrochemicals sector sub-
stantially.
EAST / AFRICA ASIA / PACIFIC AMERICAS
The industrial business in the USA suffered from the flagging
economy. This had an impact in particular on demand for
the butterfly valves we produce in Texas, which are used pre-
dominantly in the chemicals and semiconductor industries.
Leading position in the water and waste water
market consolidated
The water and waste water sector expected to grow consider-
ably in the coming years is one of the most important market
segments for American KSB companies. In Latin America, we
are one of the leading pump suppliers with a broad product
range. Our companies in the USA are predominantly active in
the waste water business. Our many years of success in this
Region are attributable to short delivery times, competitive
prices and the provision of engineering know-how.
In the year under review, KSB Brazil as a market leader in
pumps thus succeeded once again in taking an active part in
a number of projects in the areas of water supply, flood pre-
vention and agricultural irrigation. With new, hydraulically
improved axially split casing pumps from its own production
facilities, the company will also be involved in an important
environmental project. This is intended to help improve
the water quality of the Rio Pinheiro which flows through
So Paulo.
KSB Chile, leading supplier of water pumps, focused on pro-
cess water supply systems for the countrys mining industry.
In the waste water sector, the company also engaged in equip-
ping sewage works and drainage stations for new highways.
31

Public spending at low level
The water business of KSB de Mexico S.A. de C.V., Quertaro,
which is one of the leading suppliers of submersible borehole
pumps, suffered from the decline in public spending. Our
Argentinian company, however, managed to increase its market
share in the submersible pumps business.
In the USA, demand for waste water pumps fell as a result
of the lower volume of investments from the public sector.
But even in this scenario KSB Inc. managed to intensify its
participation in the market.
Weaker demand in the US energy market
Demand for high-pressure pumps in the US energy market
was substantially lower compared with the previous year. In
the year under review, KSB Inc. supplied a high number of
large-size high-pressure pumps for use in US power plants
based on orders placed in 2001. Interesting business activities
in the energy industry were also reported in Brazil and
Argentina.
Expansion of our slurry pump
competence centres will put our
business on a broader international
footing.
32
FROM OUR GROUP OPERATIONS
Competence centres for slurry pumps are expanding
Falling commodity prices have led to mining companies
around the globe postponing many of their planned invest-
ments. As a result, 2002 saw a decline in demand for hydraulic
slurry transport pumps from GIW Industries Inc. Consistently
good order levels, however, were reported for business in the
Canadian oil sand industry. A radical cost-saving programme
was introduced to safeguard the profits of our slurry pumps
manufacturer.
With a view to putting our mining business on a broader
international footing, we are in the process of expanding the
competence centres for slurry pumps in Australia, Brazil,
Chile and South Africa. GIW Industries Inc. is already doing
about 50 percent of its business outside the USA. In addition
to their applications in the mining sector, GIW pumps are
also used around the globe on suction dredgers and in flue
gas desulphurization systems.
SYSTEMS
KSB know-how in demand for drinking water supplies
In the systems business, we obtained another major order in
2002 for modernizing the water supply system of Caracas.
We shall be fitting pumping installations that supply drinking
water to the four million residents of the Venezuelan capital
with new pumps and spare parts. Particular emphasis is being
placed here on aspects such as water system reliability and
energy savings.
 EUROPE EASTERN EUROPE / MIDDLE
Another systems order was received in relation to the con-
struction of pumping stations in the north-east of Brazil.
The project, funded by the World Bank, is designed to ensure
drinking water supplies to about two million people in the
driest region of the country. We shall equip these installations
with pumps, butterfly valves, gate valves, cranes and all
hydraulic accessories.
SERVICE
New service centre improves availability
KSB Chile S.A. stepped up its service business substantially in
2002. Framework agreements with mining companies played
a part in this growth. These agreements are for the mainte-
nance and repair of slurry pumps used in mines. In addition,
service agreements for irrigation pumps were signed with
large agricultural companies.
GIW Industries Inc. has set up a new service centre at its head-
quarters in Grovetown /Georgia. This centre offers customers
an extended range of services, including in particular the
modernization of pumps to meet new technical standards
and an express spare parts service. A 24-hour standby service
is always on hand for prompt assistance in the event of
machinery failure. The new service centre, which opened on
2 January 2003, will be certified under ISO 9001.
In Brazil, customers benefit from a service portfolio that
includes spare parts supply, repair on site or in KSB own
workshops, technical assistance, systems analysis and plant
monitoring. In addition to our own service centres, we main-
tain an extensive network of authorized service providers
trained to provide our customers with the kind of services
expected from KSB.
EAST / AFRICA ASIA / PACIFIC AMERICAS
LCR slurry pump
for mining applications
OUTLOOK
Restrained growth expectations
In the Region Americas, there are signs that economic growth
will stagnate overall.
In the USA, some market segments, such as energy, waste
water, industry and mining, are expected to show a slight
revival in the medium term. Our three US American sub-
sidiaries would stand to profit from any such upturn. In the
current year, KSB Inc. will also be engaged in various areas
of water supply.
In Brazil, further investments in the oil industry and in the
water and waste water infrastructure are planned for the
current year. Agricultural irrigation projects are also planned.
KSB Bombas Hidrulicas S.A. as market leader in the pumps
sector expects to take an appropriate part in these projects
to achieve growth in orders again. Mexico and Argentina are
not likely to see any significant improvement in economic
development. KSB Chile S.A. plans to make use of market
potential in various industrial sectors, such as the paper and
cellulose industry, using KSB pump series imported from
other production units.
33
 IRRIGATION

Thamo Nkhoma,
Customer Support
Engineer with KSB
Johannesburg (South
Africa)

34
 KSB submersible borehole pumps are important
elements of reliable irrigation systems. They pump
up water from depths of up to 1,500 metres.

The drop of life: If Nature does not provide for sufficient quantities of water where it is

needed, pumps can do the job. They help transform arid areas into green farmland that feeds

the population. KSB experts like Thamo Nkhoma provide competent advice on agricultural

irrigation equipment.

35
 MANAGEMENT REPORT ECONOMIC ENVIRONMENT BUSINESS DEVELOPMENT

UPA submersible borehole pump

ECONOMIC ENVIRONMENT

Global economy remains weak

Downward pressure on prices continues
EU accession countries invest in infrastructure

For the KSB Group, with its global operations, the economic
framework for its business activities is defined by the global
economy. In 2002, this remained unfavourable. Crucial
factors behind the weak economic development were the
uncertainties caused by the Iraq conflict and the high price
of oil, as well as regional economic crises and overcapacities
in production facilities. The situation was further subdued
by the sustained downward slide of prices on the stock
markets.
In Europe, our most important region in terms of sales, eco-
nomic development overall was very sluggish. In the markets
of Germany and France in particular, the upturn that was
hoped for failed to materialize. According to the VDMA
(the German Engineering Federation), the volume of orders
for liquid pumps fell by five percent in the German market,
while industrial valves saw a decline of six percent. A positive
exception to the general trend was provided by the EU
accession countries, where infrastructure projects stimulated
demand for capital goods.
Market conditions in the Americas were substantially more
unfavourable than in the previous year. The US economy
saw a slowing of growth in many sectors. The US American
energy market in particular showed a dramatic decline after
two years of brisk demand. The economies of Latin America
were marked by low growth rates, currency devaluations
and political problems in countries such as Argentina and
Venezuela.
In 2002, economic performance was comparatively good in
Asia, which generated a growth of GDP in many countries,
with the exception of Japan. China took on the role of the
regional engine of growth. The markets in India, South
Korea and a number of South-East Asian countries recovered
well.

36
 FINANCIAL POSITION RISKS EMPLOYEES R & D ENVIRONMENT OUTLOOK

Change in real gross domestic product

(GDP)
in percent

2.2
In the Middle East, the high price of oil in 2002 freed up
additional resources for investments. Towards the end of the
year, however, a cautious approach to new investment activity
1.4
re-emerged as a result of the worsening Iraq crisis. 1.3

Development of our industry 0.8

Against this economic background, demand for pumps, valves

and associated systems remained largely stable. A decline was,
however, reported in some regions. Unlike KSB, many pump
and valve manufacturers suffered declining orders in the past 2001 2002

year. At the current level of demand, the industry continues

World Western Europe
to be hampered by overcapacity, causing a sustained pressure
on prices.

In the resulting climate of predatory price cutting, the com-

panies with the power to succeed are above all those which
offer high-quality products and services at attractive prices,
with a strong focus on customer needs. Other important
prerequisites for success in the market are a global presence,
a broad product range and a first-rate service network.

37
 MANAGEMENT REPORT ECONOMIC ENVIRONMENT BUSINESS DEVELOPMENT

BUSINESS DEVELOPMENT

Consolidated order intake and sales revenue increase

Cooperation agreements strengthen market position
Customers use benefits offered by KSB Web Shop

Order intake up on previous year European companies help to improve

sales performance
The orders received by the KSB Group in 2002, at
e 1,199.9 million, increased by 1.5 percent over the previous
year. This growth resulted above all from the successful
activities of companies in Europe and Asia. In Europe, most
sales organizations, in addition to KSB AG, the German
service companies and KSB Fluid Systems GmbH, reported
a growth in orders that in some cases was substantial.
The strongest percentage growth was achieved by Group
companies in the Region Asia / Pacific. Their order volume
was more than 20 percent up on the previous year. In the
Americas, the weak US economy and the devaluation of the
Latin American currencies versus the euro had a negative
impact on order intake. Of the two consolidated companies
in the Region Eastern Europe / Middle East / Africa, Turkeys
KSB company reported a marked growth in order intake.
At e 1,180.2 million, Group sales revenue rose again in 2002.
This 1.6 percent sales revenue growth was achieved above all
by our European companies, the strongest growth in absolute
terms being posted by KSB AG. Sales revenue in the Region
Asia / Pacific remained almost constant.
The consolidated companies in the Americas and Eastern
Europe / Middle East / Africa reported a negative sales revenue
development calculated in euros. However, this was essen-
tially due to the currency exchange fluctuations of several Latin
American currencies, the US dollar and the South African
rand versus our Group currency.

38
 FINANCIAL POSITION RISKS EMPLOYEES R & D ENVIRONMENT OUTLOOK

STAAL shut-off gate valve

for industrial and energy applications

Consolidated order intake

e millions

Acquisitions and cooperations 1,182 1,200

With effect from 15 November 2002, KSB AG acquired

part of the insolvent German valves manufacturer Prringer
+ Schindler GmbH (PSA), Zweibrcken. This acquisition
involves the production facility in Lnen, where gate and
check valves for industrial and energy applications are
manufactured.

As the largest customer of PSA Lnen, we used to include

these valves in our packages for energy-related and indus-
trial projects. We now produce the STAAL and BANTAM 2001 2002

series of valves ourselves and market them worldwide

through the KSB sales organization.

Aiming to round off our product range and strengthen our

market positioning, we also entered into cooperation Consolidated sales revenue
agreements with a US American pumps manufacturer and e millions

a Japanese valves company. In our agreement with Met-Pro

Corporation, Harleysville / Pennsylvania, we secured the
worldwide distribution rights for Dean pumps outside 1,162 1,180
North America. These pumps are made to American ANSI
standards, which along with DIN ISO are established
international standards in process engineering. With the
Japanese KITZ Corporation we signed a distribution agreement
for the sale of ball valves in selected European countries,
which rounds off our valves range.

We increased consolidated sales

revenue again, with the major
contribution in absolute terms
coming from the German KSB AG. 2001 2002

39
 MANAGEMENT REPORT ECONOMIC
Finlands Mercantile KSB Oy Ab, Helsinki, has been a wholly
owned KSB subsidiary since 1 January 2003. Before this, we
only had a minority 25 percent share in the company, which
now trades under the style KSB Finland Oy. Founded in 1995
as a joint venture, the company generates an annual sales
revenue of around e 20 million.
New organization in Europe proves a success
The organization introduced at the beginning of 2002 has
proved a success. It brings together all activities throughout
Europe, from development to the sale of pumps and valves. In
this way we have eliminated internal interfaces and strengthened
our ability to serve customers fast and flexibly as a one-stop
supplier for all the products they need.
In line with this new organization, we shall soon merge
Germanys KSB Armaturen GmbH with KSB AG with retro-
active effect from 1 January 2003. The service and system
engineering activities will remain organized in their own
business units and companies.
40
ENVIRONMENT BUSINESS DEVELOPMENT
Migration of production systems to SAP R/3
In 2001, implementation of the SAP R/3 software in sales,
materials management, finance and accounting was completed.
In the year under review, we prepared for the migration of
our European production systems to this software.
Shop floor redesign projects precede the introduction of the
SAP software. These projects are aimed at changing production
processes so that cycle times in production are shortened
and inventories reduced.
For about half the European production sites, we completed
the analysis phase in 2002 and initiated the resulting measures.
To make our industrial pumps production more efficient, we
started up new machining centres in Frankenthal and Pegnitz
in Germany. Further investments in production and assembly
facilities will follow.
In the year under review, we also completed the improvement
of processes in the production of submersible borehole pumps.
The focus was on the redesign of assembly units and the trans-
fer of orders from sales units to production. The effectiveness
of the measures deployed has been reflected in a substantially
improved delivery performance since mid-2002.
 FINANCIAL POSITION RISKS EMPLOYEES R & D ENVIRONMENT OUTLOOK

Implementation of SAP R/3 will be completed by the end

of 2004. The costs associated with the project range at
e 27 million.

Web Shop product range is being widened

Since February 2002, it has been possible to order standard

pumps and valves via the Internet. For more and more
customers, the KSB Web Shop is a rapid and low-cost alter-
native to conventional ordering procedures. From the start,
3,000 standardized pumps and valves as well as 500,000
spare parts were available in the Web Shop.

Since December 2002, customers have also been able, via a

configurator, to put together standardized industrial pumps
from components according to their particular technical
requirements and order them on-line. Further expansion steps
are planned.

Regardless of whether direct on-line ordering is possible

or not, KSB customers today can find around 90 percent of
the total product range documented on KSBs web site
(www.ksb.com).

We strengthened our positioning as

a fast and flexible one-stop source
for all the products customers need.

41
 MANAGEMENT REPORT
KWP non-clogging impeller pump for
use in flue gas desulphurization systems
FINANCIAL POSITION
KSB Group increases return on sales
Stable earnings allow KSB AG to declare a constant dividend
Net financial position considerably improved at e 66.4 million
Consolidated financial statements to IFRSs
The year 2002 marks the first time the KSB Group has
drawn up its consolidated financial statements in accordance
with the International Financial Reporting Standards (IFRSs),
formerly known as International Accounting Standards (IASs).
We applied these standards retrospectively, i.e. the consoli-
dated financial statements have been prepared as if IFRSs had
always been the primary basis of accounting. This ensures
that all the facts and figures quoted from the previous year
are fully comparable.
Pre-tax earnings substantially improved
The KSB Group increased its return on sales from 2.3 percent
in the previous year to 2.9 percent in 2002. We improved
the profit from ordinary activities by around 28 percent to
e 34.3 million.
Whereas personnel expenses as a percentage of the total out-
put of operations increased by one percent, we were able to
keep the cost of materials ratio constant. Lower Other
operating expenses and higher Other operating income
were decisive factors behind the improved results.
42
ECONOMIC ENVIRONMENT BUSINESS DEVELOPMENT
Earnings after taxes benefit from losses brought forward
As a result of the utilization of tax loss carryforwards in some
companies, the tax expense showed a disproportionately low
increase. On balance, the net profit for the year thus rose by
39 percent to e 19.6 million.
The minority interest in net profit / loss declined in 2002 by
e 0.3 million to e 4.5 million.
The consolidated net profit for the year thus totalled e 15.1
million, about 63 percent up on the prior-year figure of
e 9.3 million.
Results of companies and Regions
The comments on the results of the companies and Regions
are based on the relevant single-entity financial statements.
KSB AG increased its profit again by 6.3 percent.
Earnings before taxes ranged at e 18.6 million compared
with e 17.5 million in the previous year. Sales revenue
was 3.4 percent higher than in 2001, and total output of
operations rose by 2.1 percent.
 FINANCIAL POSITION RISKS EMPLOYEES R & D ENVIRONMENT OUTLOOK

Consolidated earnings before taxes

e millions

In the results posted by KSB AG, the profit pooling arrange- 34

ments with its German subsidiaries had a positive effect
overall. Whereas the profits transferred by the Service com- 27
panies in total were e 0.6 million higher than in the previous
year, KSB Armaturen GmbH posted a negative result of
e 0.3 million in 2002 (previous year: profit of e 0.8 million).
For KSB Fluid Systems GmbH, KSB AG also saw the trans-
fer of a loss, which was e 0.6 million higher than in the
previous year.

The French KSB S.A.S. contributed to the increase in

Group results with a profit of e 5.1 million (previous year: 2001 2002
e 2.4 million).

Our European companies outside Germany and France also

posted improved results. They earned e 4.6 million compared
with e 3.7 million in the previous year, which is attributable Consolidated net profit for the year
to a corresponding increase in sales revenue. e millions

Although order intake in the companies of the Region Asia /

Pacific was substantially higher than in the previous year, 15
sales revenue could not yet be increased because of the
relatively high proportion of orders with long delivery times.
While sales revenue remained more or less unchanged, how-
9
ever, the companies achieved an impressive improvement
in profit at e 5.1 million. This is essentially attributable to
the companies in India and Australia.

In the Region Americas excluding the deconsolidated

Venezuelan companies the decline in profit to e 7.4 million
is exclusively attributable to currency exchange rate effects.
We were able to compensate for the decline in volume by 2001 2002
reducing costs.

The Region Eastern Europe / Middle East / Africa posted

profit contributions e 1.0 million higher than in 2001 through
the two consolidated companies in Turkey and South Africa.

43
 MANAGEMENT REPORT
Sharp increase in earnings per share
The earnings per share, calculated in accordance with the
International Financial Reporting Standards, amount to
e 8.52 for ordinary shares compared with e 5.19 in the
previous year. For preference shares, earnings per share
amount to e 8.78 versus e 5.45 in 2001. This corresponds
to an increase by more than 60 percent.
Dividend at same level as previous year
Thanks to the stable earnings situation of KSB AG, we
shall be recommending to the Annual General Meeting that
the same dividend be paid out as in the previous year, i.e.
e 4.00 per ordinary share and e 4.26 per preference share.
e 9.0 million are to be transferred to the revenue reserves.
Dependent company report
The Board of Management has submitted the dependent
company report to the Supervisory Board. This concludes
with the following declaration: In accordance with section
312 clause 3 AktG (German Public Companies Act), we
declare that our company on the basis of the circumstances
known to us at the time when the transactions were made
or the measures were either taken or not taken received
adequate compensation and was not disadvantaged by the
fact that the measures were either taken or not taken.
All major return figures improved
significantly in financial year 2002.
44
ECONOMIC ENVIRONMENT BUSINESS DEVELOPMENT
Investments in balance with depreciation
and amortization volume
In 2002, the KSB Group made investments that matched the
level of depreciation / amortization and disposal transactions.
Major additions covered the purchase of business property
and buildings. These transactions were associated with our
service company Uder Elektromechanik GmbH in Friedrichs-
thal and the acquisition of the valves production facility of
Prringer + Schindler GmbH in Lnen. We also acquired new
machining centres in Frankenthal and Pegnitz to improve our
production processes.
Disposals of e 1.3 million were posted for the sale of our pro-
duction facilities for building services pumps in Chteauroux.
Improved balance sheet ratios and higher returns
The balance sheet total of e 859.3 million is 5.5 percent
lower than in 2001.
In particular, we noticeably reduced inventories and trade
receivables through intensive materials management and
credit control activities. Inventories at e 30.5 million,
corresponding to a fall of 14.0 percent, and receivables at
e 18.9 million, corresponding to a fall of 5.7 percent,
contributed to this reduction.
The reduction in non-current assets by e 14.3 million, or
5.8 percent, is exclusively an effect of currency translation
adjustments. Additions, as mentioned, approximately
matched the level of depreciation / amortization and dis-
posals, so that there is no notable change of any substance
to be reported.
A major item on the equity and liabilities side is the decline in
liabilities by e 44.4 million, or 19.3 percent. More than half
of this decrease is attributable to a reduction in the financial
liabilities.
 FINANCIAL POSITION RISKS EMPLOYEES R & D ENVIRONMENT OUTLOOK

Balance sheet structure

e millions

The equity ratio including minority interest showed a Assets

further improvement. It now stands at 41.4 percent compared 910

859
with 40.4 percent in the previous year. Non-current assets 249
234

The essential return ratios also show a significant improve- Deferred tax
15 21
assets
ment. Our return on equity rose from 7.4 percent to
Inventories 217 187
9.5 percent. Total return on capital employed increased
from 4.7 percent to 5.5 percent.
Receivables 329 309
Cash flow statement

Cash and cash 100 108

Cash flows from operating activities amount to e 91.0 mil-
equivalents
lion compared with e 37.1 million in 2001. It thus showed a 2001 2002
two-and-a-half-fold increase. This improvement is largely
explained by the release of funds, as mentioned previously,
resulting from the reduction in inventories and receivables.
Equity and liabilities

Cash flows from investing activities show an outflow of funds 910

859
of e 32.4 million (previous year: e 29.4 million). As in 2001, Equity 368
356
this covers predominantly investments in tangible assets.

Cash flows from financing activities are essentially influenced Deferred tax
liabilities 30
by dividends paid for the prior year and by the repayment Provisions for 159
35

of financial liabilities. The outflow of funds amounts to pensions 165

Other provisions 124
e 44.2 million versus e 9.6 million in 2001.
118
Financial liabilities 76
49
Much stronger net financial position
Other liabilities 153 136

On the balance sheet date of 31 December 2002, the KSB 2001 2002

Group shows cash and cash equivalents at e 107.6 million.

Compared with the same date a year earlier, this represents an
increase of 8.0 percent. At the same time, we managed to
reduce our financial liabilities by e 28.1 million by reducing
the funds tied up in inventories and receivables. This allowed
a substantial improvement in the net financial position of the
KSB Group from e 25.6 million to e 66.4 million.

45
 MANAGEMENT REPORT
RISK MANAGEMENT
Constant watch on risk areas
Early warning indicators help to react in good time
No major risks identified
With a view to minimizing corporate risks for the KSB Group,
we keep a constant watch on all the major individual risks.
Our objective is to detect risks at an early stage, estimate
them accurately and limit any potential negative impact.
Appropriate procedures are laid down in corporate guidelines;
their application is monitored by the corporate risk manage-
ment officer.
We keep an ongoing record of potential risks at the level of
the Group companies. Their risk management officers rate the
hazard potential in terms of the probability of their occur-
rence, time frames and maximum level of damage. If defined
limits are exceeded, the companies notify the corporate risk
management officer who estimates the total risk and reports
to the Board of Management.
We aim to detect risks at
an early stage, assess them
accurately and limit any
potential negative impact.
46
ECONOMIC ENVIRONMENT BUSINESS DEVELOPMENT
We analyse all relevant risks according to the following
categories: markets / competition, products / projects,
finances / liquidity, procurement, technology / research and
development and environmental protection. In these six
risk categories we monitor the following developments:
Markets / competition
Political developments in the Middle East carry risks which
at the time of reporting are still difficult to predict. We are
countering the risk of a decline in orders as a result of a pro-
tracted halt to investment in this region through stepping up
our sales efforts in other markets, such as the EU accession
states.
Downward pressure on prices in our industry remains high.
In addition, the strong euro will make it difficult this year to
push through appropriate prices for our products in markets
outside the area of the European monetary union. To remain
flexible on prices, we shall therefore draw even more strongly
on the opportunities offered by our Global Manufacturing
Network.
 FINANCIAL POSITION RISKS
BOA-CVE control valve
with smart actuator
Products / projects
In the market we detect a trend for products to be ordered
with ever shorter delivery deadlines. Aiming to ensure a
high level of delivery reliability under these conditions, we
started a project at the beginning of 2002 which is targeted
at providing us with a positive delivery performance profile.
To this end, we reviewed the whole process from the place-
ment of an order to delivery of the product to the end user.
Within the scope of the project, we succeeded in improving
what was already a high level of delivery reliability in nine
out of eleven facilities. Further improvements will be achieved
in the current year.
Finances / liquidity
The insolvency of a major customer highlighted the default
risk in 2002. We took account of this through bad debt
charges to the value of e 2.0 million. Various projects for
which we have already done some work are currently the
focus of discussions with the end users and operators, in
order to bring these projects to a conclusion.
We are reducing further risks of potential insolvency through
close monitoring of the payment practices of individual cus-
tomers and joint coordination of payment schedules with
them.
Receivables from the export business are secured primarily
through letters of credit. We limit the risk of letters of credit
being cancelled by following up these orders separately.
And we use derivative instruments to hedge against the risk
of changes in currency exchange rates.
EMPLOYEES R & D ENVIRONMENT OUTLOOK
Procurement
We make intensive use of the opportunities for procuring
consumables via on-line catalogues and inviting quotations
for specific goods in electronic marketplaces. In the process,
we take care to avoid the risks of electronic purchasing,
such as dependence on individual providers in electronic
marketplaces.
Technology / research and development
We expect the trend towards smart products and integrated
systems solutions to continue in the fluids handling sector.
Suppliers of pumps and valves that do not meet these
requirements will see a dwindling of market opportunities.
We therefore started at an early stage to integrate electronic
and mechatronic elements into our products. In this way, we
are enhancing our problem-solving competence and are able
to offer all-in systems and sub-systems for pumping liquids.
Environmental protection
We minimize environmental risks which could arise from
our activities by implementing preventive environmental pro-
tection measures. These include regular internal audits to
inspect all plants according to a defined set of criteria, as well
as the general certification of all European production sites
to ISO 14001.
Overall estimation
For the current year, there are no discernible risks whose
influence on net assets, financial position and performance
could jeopardize the continued existence of the company.
47
 MANAGEMENT REPORT
EMPLOYEES
New information system about to be introduced
High-quality training and development
KSB starts pilot project for knowledge transfer
Number of employees in Europe at prior years level
At the end of 2002 there were 11,948 people working for
the KSB Group, 123 fewer than a year earlier. This 1.0 percent
decline is attributable to a decrease in the number of staff
with some American companies and KSB S.A.S. in France.
In Europe, the employment figure remained almost constant
at 6,655. The number of KSB AG employees grew by 116 to
3,370. However, this nominal increase essentially results from
the reorganization of our European activities at the beginning
of 2002. This involved a transfer of employees from other
German companies to KSB AG.
Staff numbers at KSB S.A.S. fell by 71 to 1,171. This was
mainly attributable to the withdrawal of Building Services
from the do-it-yourself market, with some employees of our
French site in Chteauroux transferring to a new employer.
48
ECONOMIC ENVIRONMENT BUSINESS DEVELOPMENT
High-pressure pump
assembly requires know-how
and experience
The number of employees in the Region Americas fell by
251 in the year under review to 1,378. This is the result of
personnel adjustments by our companies in Brazil, Mexico
and the USA.
Our consolidated companies in the Region Asia / Pacific
reported a rise in staff levels by 126 to 3,585. The Indian KSB
Group subsidiary increased its number of employees follow-
ing the merger with a KSB foundry which was previously not
included in the consolidated Group.
International human resources management
in development
To provide management with human resources data across
national boundaries, a new information system based on SAP
software is being introduced in the course of 2003. Starting
from our companies in France and Germany, this will enable
us to put our human resources management, and hence per-
sonnel development and succession planning, on an inter-
national footing. Through the management of job applicants,
for example, we can compare electronically filed data with
the requirements profiles of vacant positions. This will save
 FINANCIAL POSITION RISKS
costly processing time and considerably shorten the recruit-
ment process. In coming years, we aim to integrate other
European companies into the new information system.
KSB training ensures high qualification
Vocational training at KSB is based on an integrated concept.
This includes the provision not only of training in specialist
technical disciplines, but also of opportunities to learn the
principles of business, to acquire problem-solving skills and
develop the competencies required for self-managed team-
work.
Altogether 67 school leavers started their vocational training
with KSB AG in 2002. We are currently training more than
220 young people at our three German factories to prepare
them for functions within the company. Even in economically
difficult times we remain committed to training the up-and-
coming generation ourselves.
In the year under review, special emphasis was placed on
modernizing the machine park in our training workshops. To
this end, we invested around e 250,000 in new machinery.
Continued training and development gives us
a competitive edge
Qualified employees are a success factor in the global economy.
We therefore attach very great importance to the continuous
training and development of our international staff. Over the
last three years, we have increased investments in training
activities by an average of 20 percent. In 2002, this spending
amounted to around e 1.3 million. We offer our employees a
broad training programme focused on objectives. This ranges
from leadership, facilitation and communication seminars,
via language and data processing courses, through to inter-
cultural training. For the first time, we are also offering
computer courses based on e-learning methods.
EMPLOYEES R & D ENVIRONMENT OUTLOOK
Keeping knowledge and experience in the company
We develop our employees according to their individual
abilities and inclinations. In the current year, we will be intro-
ducing throughout Europe a technical career track alongside
the traditional management career path. Employees who excel
through their expert knowledge or their work on a project
thus have the opportunity to follow alternative career paths
with KSB.
We are offering our mature employees attractive prospects
up to retirement age. In November 2001 we started a pilot
project in Frankenthal aimed at creating work structures to
match peoples individual merits. The objective is to motivate
employees aged over 50 to remain in the company for a
longer period. We already implemented some measures in
2002, such as management feedback and potential appraisal
for older employees to identify knowledge carriers. Using a
mentoring approach, we are securing the transfer of know-
how from these long-standing employees to their younger
colleagues.
A word of thanks to our employees
The reorganization of our European activities at the beginning
of 2002 called for a large measure of flexibility from our
employees. At the same time, we had to maintain our position
worldwide against tough competition and convince our
customers with competitive prices and high-quality services.
Our staff showed great commitment in meeting this challenge.
The Board of Management wishes to thank all our employees
for their efforts and their performance in fulfilling these tasks.
A special word of thanks goes to those representing the inter-
ests of our employees. It was through their constructive
support that we were able to implement the measures necessary
for improving our competitiveness.
49
 MANAGEMENT REPORT
RESEARCH AND DEVELOPMENT
Platform strategy for automation
Made-to-measure pumps for drinking water supply
Coatings lower life cycle costs
Technical and technological innovation is essential to our
financial success. In the year under review we invested
e 24 million in the development of new products and tech-
nologies. In line with our intention gradually to increase the
sales share of smart pumps and valves, we focused on auto-
mation issues. We also pushed ahead with our hydraulic and
materials engineering projects. On a case-by-case basis, we
cooperated in this field with universities, colleges of applied
science and independent institutions.
Flexible automation solutions
based on standardized components
With the development of technological platforms we are
taking pump and valve automation a step further. In this way,
we are increasing our products functionality and offering
customers huge savings potential in their operations. The
platform strategy helps us reduce the time-to-market of our
control, monitoring and drive systems.
50
ECONOMIC ENVIRONMENT BUSINESS DEVELOPMENT
Our automation products modular design enables us to offer
customized all-in package solutions both fast and at low cost.
In the future, it will be possible to use the same type of micro-
processor either for pump monitoring or in an integral motor.
The various function profiles are generated by appropriate
program modules.
We are also pursuing our platform strategy in the further
development of actuators for our butterfly valves used in in-
dustrial and process engineering applications. Today, we are
fitting new hydraulic actuators with the same digital inter-
faces as our pneumatic systems, which are already established
in the market. These compact, but high-performance hydrau-
lic systems can thus communicate with other plant compo-
nents and with the plant process control system.
 FINANCIAL POSITION RISKS
Pump casing made of wear- and
corrosion-resistant steel developed by KSB
New propeller design makes mixers more efficient
Submersible motor mixers are, for example, used in sewage
treatment plants for homogenizing and suspending various
liquids and solids. They operate in highly soiled liquids whose
viscosity can vary quite considerably. To date, this has meant
that the electric motors needed to have an adequate power
reserve.
For this reason, our developers in 2002 conceived hydraulic
systems in which the fluids viscosity does not have such a
marked influence on the drive input power. Thanks to this
improvement, motors will no longer need to be sized any
larger than is necessary for normal operation. The results of
this development work will already be implemented in the
current year.
Pumps made to measure
Customers in need of equipment for transporting large
volumes of water in drinking water supply systems are parti-
cularly interested in made-to-measure pumps. Matched
precisely to the optimum operating point, these units are
designed for maximum efficiency, i.e. a high output with
minimum energy input. Our customers nevertheless expect
the kind of delivery times that are usual for standard prod-
ucts. To meet this requirement, we have developed methods
that help us to determine a pumps hydraulic parameters
very quickly and to produce a full three-dimensional design.
After receipt of an order, CNC milling machines in a very
short time create the patterns needed for casting the required
components, such as casings and impellers. In 2002, a number
of pumps based on this process were built and employed
successfully.
EMPLOYEES R & D ENVIRONMENT OUTLOOK
Welding process developed for unweldables
Wear-resistant materials such as our proprietary Norihard,
Norichrom and Noriloy materials show very little plasticity
owing to their high carbide content. If cast products made
of these materials are welded using conventional processes,
then cracks often appear which render the part unusable. For
this reason, we have developed new techniques based on the
use of compatible filler metals for welding, so that production
welds are possible on components made of these materials.
Functional surfaces lower life cycle costs
A further focus of our work is on the development and test-
ing of coating applications. We are, for example, examining
functional surfaces which render pump and valve components
more resistant to stresses such as cavitation, corrosion, wear
and friction. The aim is to lower the life cycle costs of our
products.
One example is the application of diamond coatings to the
surface of plain bearings used as pump shaft bearings. This
approach increases these parts stability under load in excep-
tional situations. Such conditions can occur, for example,
when there is no inflow of the fluid needed to lubricate the
bearings.
The coating of components allows the load limits of our
pumps and valves to be extended with respect to temperatures
and service life. More and more customers are attaching great
importance to such factors within the scope of life cycle cost
considerations.
51
 MANAGEMENT REPORT
E N V I R O N M E N TA L M A N A G E M E N T
Ecologically sustainable practices are part of the companys policy
Environmental management system to international standards
Active environmental protection conserves resources
High standards in environmental protection
An unswerving commitment to environmental protection is
an important component of our business policy and firmly
anchored in our processes. In helping to protect the natural
framework of life on this planet, we set higher standards
around the world than those specified in the respective laws
on the environment.
Aiming to ensure that the environmental situation at our sites
is further enhanced, we spent e 2.2 million during the year
under review on preventive and redevelopment activities. For
example, we invested e 300,000 in a new painting plant at
Frankenthal, which allowed us to bring about a sustainable
reduction in emissions. Employees can now pre-treat the parts
to be painted without the use of solvents.
52
ECONOMIC ENVIRONMENT BUSINESS DEVELOPMENT
Integrated management system
Measures on environmental protection are closely associated
with questions of health and safety. For this reason, we created
an integrated management system in 2002 to compile informa-
tion on environmental protection, health and industrial safety,
as well as quality management. This cross-functional approach
will help us streamline and improve our internal processes.
The measure also fosters a good interplay between technical
departments and intensive exchanges of experience.
An unswerving commitment to
environmental protection is firmly
anchored in our processes.
 FINANCIAL POSITION RISKS EMPLOYEES R & D ENVIRONMENT OUTLOOK

Amarex KRT
submersible sewage pump

Certification to environmental standards Smart products save energy

In keeping with the requirements of the international market,
our environmental management systems will in future be
geared exclusively to the international ISO 14001 standard.
Following Dville in France and the German sites in Franken-
thal and Pegnitz, our factories in Halle (Germany) and La
Roche Chalais (France) received certification to this standard
in 2002. All these sites now have an environmental manage-
ment system in place and can thus provide transparent docu-
mentation on work flows and ecologically relevant processes.
This enables us to achieve targeted reductions in environmen-
tal impact. In 2003, we aim to create the framework for
having the other French sites approved under ISO 14001
standards.
In terms of preventive environmental protection, we regularly
conduct internal eco-audits. In 2002, we did this at 29 sites
and service centres. In our own environment report, we keep
the public informed about our activities.
Through the companys own research and development, we
can continuously improve and also where it makes sense to
do so automate our pumps, valves and systems. With the
development of energy-efficient components for our products,
we are helping to conserve the Earths natural resources.
Variable speed pumps, for example, reduce energy consump-
tion to the necessary minimum by operating close to best
efficiency point. Smart configurations of variable speed pumps,
valves and energy-efficient motors also contribute to keeping
down energy requirements.
In 2002, we conducted internal
eco-audits at 29 sites and service
centres.

Alternative materials ease the burden on the environment

We are constantly reviewing whether and where safer materi-

als can be used in our processes. To this end, we introduced a
hazardous substances programme for all sites of KSB AG.
This programme calls for mandatory assessment of potential
substitutes for problematical materials.

53
 MANAGEMENT REPORT
OUTLOOK
No economic recovery in sight
KSB Group targets further growth
Project team reviews business ideas
For the current year, the economic conditions will remain
unfavourable. Moreover, in the pumps and valves industry,
any growth in orders resulting from an economic upturn
would only materialize with something of a time lag. This
is particularly true of the projects business, where there are
considerable gaps in time between the decision to invest
and the realization of an investment.
In Europe, especially in Germany, economic policy and
structural problems continue to hamper a rapid recovery of
the markets. Our objective remains to grow in those countries
where our market coverage is weaker than in our core Euro-
pean markets. We shall make use of the opportunities for
more intensive servicing of the market that have arisen from
simplified quotation and processing activities in the sales
organizations.
54
ECONOMIC ENVIRONMENT BUSINESS DEVELOPMENT
HGM multistage boiler feed pump
A positive economic climate is anticipated for the Asian markets
during 2003. Above-average growth is predicted especially
for the Chinese economy. We aim to use the opportunities in
the Asian markets to achieve growth in our business. Starting
from the high level of 2002, we have planned increases in
order intake. However, fluctuations in currency exchange
rates could have a negative impact on order volume shown
in euros.
For the Americas, we assume that there will be a stagnation
of the economy. However, we may already see slight growth
rates in individual markets and sectors in the current year.
We shall strengthen our market presence in selected strategic
areas, such as industry and the water supply sector.
In the Middle East we see political risks which currently do
not permit any viable conclusions to be drawn as to likely
business developments.
 FINANCIAL POSITION RISKS
Overall, the KSB Group aims to achieve slight growth in
order intake and sales revenue in 2003. A major focus of this
effort will be on the development of the industrial and water
business, including the waste water business.
Results will be affected by the cost of modernizing our Euro-
pean production facilities, as described, within the scope of
implementing the SAP R/3 software. The costs associated
with a growth project extending over several years will add
to the burden on results.
Building on our Strategy 2004, we have defined a target vision
for the KSB Group for the year 2010 that is based on a con-
tinuous growth in sales revenue. To achieve this goal, we must
and shall introduce structural changes in our business. For
the year 2010, we are seeking to achieve a breakdown of sales
with a higher percentage of smart components, modules,
systems and private concession models in our business.
EMPLOYEES R & D ENVIRONMENT OUTLOOK
Paving the way for our quantitative and structural sales
objective, an interdisciplinary team has been hard at work
since November 2002 gathering and evaluating new business
ideas as part of the above-mentioned growth project. Ideas
found to be feasible shall be translated into sales or technical
measures. In new market segments and with new products
and services we are aiming to achieve a sales growth above
the market average.
These measures should start to have an effect on sales revenue
in 2005. Initially, the steps formulated in Strategy 2004 will
be implemented. These include establishing new regional com-
petence centres, using strategic cooperations and expanding
our global service network.
55
 WASTE WATER

KRK sewage pumps do their job in the worlds largest underground

mixed water retention tank in Hamburg, engineered by KSB.

56
 Dr. Dirk Kollmar, Project
Manager Teleservice,
KSB Frankenthal (Germany)

People and industry: In urban centres like Hamburg in northern Germany, municipal and

industrial sewage disposal is a complex task. Hamburgs waste water drainage utility uses

sewage pumps whose operation is monitored by our Frankenthal-based KSB teleservice centre.

Dr. Dirk Kollmar provided the customer with technical support throughout this pilot project.

57
 FINANCIAL STATEMENTS BALANCE SHEET INCOME STATEMENT

CONSOLIDATED FINANCIAL STATEMENTS

BALANCE SHEET

Assets
(e thousands) Notes 31 Dec. 2002 31 Dec. 2001
Non-current assets 1
Intangible assets 17,131 19,492
Property, plant and equipment 206,886 218,623
Non-current financial assets 10,169 10,419
234,186 248,534

Deferred tax assets 2 20,809 15,508

Current assets
Inventories 3 186,971 217,426
Receivables and other current assets 4 309,801 328,658
Current financial instruments 5 70 69
Cash 5 107,511 99,503
604,353 645,656
859,348 909,698

Equity and liabilities

(e thousands) Notes 31 Dec. 2002 31 Dec. 2001
Equity 6
Subscribed capital 44,772 44,772
Capital reserve 66,663 66,663
Revenue reserves 163,482 171,182
Consolidated net retained earnings 15,349 9,380
290,266 291,997
Minority interest 65,530 75,602
355,796 367,599

Deferred tax liabilities 7 35,242 29,751

Provisions
Pensions and similar obligations 8 164,734 158,680
Other provisions 9 118,413 124,107
283,147 282,787

Liabilities 10 185,163 229,561

859,348 909,698

58
CHANGES IN NON-CURRENT ASSETS CHANGES IN EQUITY CASH FLOW SEGMENTS NOTES

I N C O M E S TAT E M E N T

(e thousands) Notes 2002 2001

Sales revenue 11 1,180,167 1,161,940

Changes in inventories 22,211 4,391

Work performed and capitalized 1,496 1,553

Total output of operations 1,159,452 1,167,884

Other operating income 12 25,950 18,569

Cost of materials 13 444,101 448,092

Staff costs 14 428,632 420,289

Depreciation and amortization expense 29,975 32,813

Other operating expenses 15 232,852 241,495

Other taxes 7,100 8,131

42,742 35,633

Income from investments 16 1,637 1,209

Other financial income / expense 16 10,118 9,978

8,481 8,769

Profit from ordinary activities 34,261 26,864

Taxes on income 17 14,628 12,732

Net profit for the year 19,633 14,132

Minority interest in net profit / loss 18 4,486 4,819

Consolidated net profit for the year 15,147 9,313

Retained earnings brought forward 202 67

Consolidated net retained earnings 15,349 9,380

Earnings per ordinary share (e) 20 8.52 5.19

Earnings per preference share (e) 20 8.78 5.45

59
 FINANCIAL STATEMENTS BALANCE SHEET INCOME STATEMENT

S TAT E M E N T O F C H A N G E S I N N O N - C U R R E N T A S S E T S

Historical cost
Change
consolidated
Balance at Group / Reclassi- Balance at
(e thousands) 1 Jan. 2002 CTA* / Other Additions Disposals fications 31 Dec. 2002

Intangible assets

Concessions, industrial and similar

rights and assets, as well as licenses
in such rights and assets 14,868 1,071 898 3,481 241 11,455

Goodwill 17,247 37 17,210

Advance payments 6 6

32,115 1,108 904 3,481 241 28,671

Property, plant and equipment

Land and buildings 168,091 9,248 7,522 1,915 1,948 166,398

Plant and machinery 290,876 18,370 8,347 9,686 4,443 275,610

Other equipment, operating

and office equipment 124,189 9,473 8,157 12,858 1,163 111,178

Advance payments and assets

under construction 8,989 693 6,357 192 7,795 6,666

592,145 37,784 30,383 24,651 241 559,852

Non-current financial assets

Investments in affiliates 8,087 104 1,554 9,537

Loans to affiliates 998 998

Other investments 2,561 2,561

Non-current financial instruments 1,078 74 5 5 1,004

Other non-current loans 623 131 146 346

13,347 1,307 1,559 151 13,448

637,607 40,199 32,846 28,283 601,971

* CTA = currency translation adjustments

60
CHANGES IN NON-CURRENT ASSETS CHANGES IN EQUITY CASH FLOW SEGMENTS NOTES

Accumulated depreciation / amortization Carrying amounts

Change
consolidated
Balance at Group / Reclassi- Balance at Balance at Balance at
1 Jan. 2002 CTA* / Other Additions Disposals fications Write-ups 31 Dec. 2002 31 Dec. 2002 31 Dec. 2001

8,311 434 1,728 3,382 5 6,218 5,237 6,557

4,312 37 1,047 5,322 11,888 12,935

12,623 471 2,775 3,382 5 11,540 17,131 19,492

78,144 4,302 3,858 1,160 1,272 75,268 91,130 89,947

206,869 12,859 12,819 8,434 65 198,330 77,280 84,007

88,351 7,570 10,523 12,006 70 79,368 31,810 35,838

158 158 6,666 8,831

373,522 24,731 27,200 21,758 5 1,272 352,966 206,886 218,623

1,806 379 2,185 7,352 6,281

998

870 214 200 884 1,677 1,691

180 18 162 842 898

72 24 48 298 551

2,928 18 593 24 200 3,279 10,169 10,419

389,073 25,220 30,568 25,164 1,472 367,785 234,186 248,534

61
 FINANCIAL STATEMENTS BALANCE SHEET INCOME STATEMENT

S TAT E M E N T O F C H A N G E S I N E Q U I T Y
Including Minority Interest

Change Adjust-
Net Transfer to / in cons. Measure- ments
Balance profit / loss from Capital Currency Group / ment of taken Balance
at 1 Jan. for the Dividends revenue increases / translation Successive financial directly to at 31 Dec.
(e thousands) 2001 year paid reserves decreases changes acquisitions instruments equity 2001

Subscribed capital
of KSB AG 44,772 44,772
Capital reserve of KSB AG 66,663 66,663
Revenue reserves 167,474 5,325 876 714 1,455 171,182
Consolidated net
retained earnings 10,220 9,313 4,828 5,325 9,380
289,129 9,313 4,828 876 714 1,455 291,997

Minority interest 71,549 4,819 1,755 1,216 69 296 75,602

360,678 14,132 6,583 1,216 807 418 1,455 367,599

Change Adjust-
Net Transfer to / in cons. Measure- ments
Balance profit / loss from Capital Currency Group / ment of taken Balance
at 1 Jan. for the Dividends revenue increases / translation Successive financial directly to at 31 Dec.
(e thousands) 2002 year paid reserves decreases changes acquisitions instruments equity 2002

Subscribed capital
of KSB AG 44,772 44,772
Capital reserve of KSB AG 66,663 66,663
Revenue reserves 171,182 1,948 10,039 23 3,512 3,144 163,482
Consolidated net
retained earnings 9,380 15,147 7,230 1,948 15,349
291,997 15,147 7,230 10,039 23 3,512 3,144 290,266

Minority interest 75,602 4,486 3,095 9,636 88 1,915 65,530

367,599 19,633 10,325 19,675 111 3,512 5,059 355,796

Balance at Balance
31 Dec. at 31 Dec.
(e thousands) 2001 2002

Accumulated currency translation differences 8,175 27,060

thereof applicable to minority interest ( 5,385) ( 14,557)

62
CHANGES IN NON-CURRENT ASSETS CHANGES IN EQUITY CASH FLOW SEGMENTS NOTES

C A S H F L O W S TAT E M E N T

(e thousands) 2002 2001

Net profit before extraordinary items 19,633 14,132

Depreciation and amortization expense / write-ups 29,096 32,974
Increase / decrease in non-current provisions 11,617 4,242
Gain / loss on disposal of non-current assets 84 1,404
Cash flow 60,262 52,752

Increase / decrease in inventories 36,165 14,832

Increase / decrease in trade receivables and other current assets 19,305 28,962
Increase / decrease in current provisions 5,291 1,649
Increase / decrease in advances received from customers 3,642 5,752
Increase / decrease in liabilities (excl. financial liabilities) 10,223 21,213
Other non-cash income / expenses (operating) 5,599 427
30,715 15,607
Cash flows from operating activities 90,977 37,145

Proceeds from disposal of intangible assets 100 4

Payments to acquire intangible assets 904 1,213
Proceeds from disposal of property, plant and equipment 2,977 2,252
Payments to acquire property, plant and equipment 30,383 27,802
Proceeds from disposal of non-current financial assets 126 201
Payments to acquire non-current financial assets 1,559 664
Net cash flows from the acquisition and sale of consolidated
companies and other business units 0 561
Other non-cash income / expenses (investing) 2,799 1,602
Cash flows from investing activities 32,442 29,385

Proceeds from additions to equity 0 1,216

Dividends paid for prior year (incl. minority interest) 10,325 6,583
Repayment of financial liabilities 25,900 5,856
Net cash flows from financial receivables 5,180 2,056
Other non-cash income / expense (financing) 2,799 428
Cash flows from financing activities 44,204 9,595

Net change in cash and cash equivalents 14,331 1,835

Effects of exchange rate changes on cash held 6,146 677
Effects of changes in consolidated Group 176 1,578
Cash and cash equivalents at beginning of period 99,572 100,506
Cash and cash equivalents at end of period 107,581 99,572

Supplemental disclosures:
Interest received 4,549 5,963
Interest paid 14,158 15,863
Income taxes paid 9,594 8,176
Dividends received 1,637 1,209

63
 FINANCIAL STATEMENTS BALANCE SHEET INCOME STATEMENT

SEGMENT REPORTING

Pumps, Valves Region

and Service Europe Americas
(e thousands) 2002 2001 2002 2001

External sales revenue of the Group companies by segment 885,840 851,535 168,850 185,285

by geographic area

Europe 705,272 690,364 1,729 4,316

Americas 18,327 18,773 166,200 178,280

Asia / Pacific 71,029 56,970 854 2,621

Eastern Europe / Middle East / Africa 91,212 85,428 67 68

Inter-segment sales revenue 35,783 36,236 1,576 2,460

Segment result (EBIT) 27,344 27,497 8,810 8,395

thereof depreciation and amortization expense 21,332 21,861 3,888 5,460

thereof write-downs of non-current financial assets

thereof other non-cash items 9,156 5,297 1,285 306

thereof net profit or loss of equity-accounted investments

thereof income from investments

Segment assets 630,758 635,423 91,484 132,098

Segment liabilities 395,490 413,085 30,517 52,338

Capital expenditure 25,112 19,823 3,857 6,188

Number of employees (average) 6,630 6,684 1,456 1,655

64
CHANGES IN NON-CURRENT ASSETS CHANGES IN EQUITY CASH FLOW SEGMENTS NOTES

Region
Asia / Pacific Other Total
2002 2001 2002 2001 2002 2001

104,060 103,244 21,417 21,876 1,180,167 1,161,940

363 500 50 54 707,414 695,234

5 327 184,532 197,380

101,558 92,236 122 26 173,563 151,853

2,134 10,181 21,245 21,796 114,658 117,473

3,644 4,803 273 387 41,276 43,886

6,134 1,850 1,582 978 43,870 36,764

3,743 4,505 1,012 987 29,975 32,813

593 163 593 163

87 499 321 155 10,033 5,645

1,637 1,209 1,637 1,209

92,527 110,445 23,770 16,224 838,539 894,190

47,736 60,721 7,866 14,710 465,877 511,434

1,823 2,808 495 197 31,287 29,016

3,595 3,572 326 324 12,007 12,235

65
 FINANCIAL STATEMENTS BALANCE SHEET INCOME STATEMENT

NOTES

GENERAL

Basis of preparation
The accompanying consolidated financial statements of KSB Aktiengesellschaft, Frankenthal, have been
prepared for the first time in accordance with the International Financial Reporting Standards (IFRSs)
issued by the International Accounting Standards Board (IASB). We applied the Framework, as well as all
Standards and Interpretations in force at the reporting date. We have not prepared consolidated financial
statements in accordance with German accounting principles on the basis of the exemption provided for
under section 292a of the HGB (German Commercial Code).

The adoption of new accounting standards required the IFRSs to be applied retrospectively, i.e. we have
prepared and presented the consolidated financial statements as if IFRSs had always been the primary
basis of accounting. For this reason, the prior-period comparative amounts and disclosures have also been
prepared and presented in accordance with the IFRSs. The adjustments resulting from the transition to
IFRSs are treated as adjustments to the opening balance of revenue reserves or to minority interest.

The financial year of the companies consolidated is the calendar year, with the exception of one company
that was consolidated on the basis of interim financial statements.

All material items of the balance sheet and the income statement are presented separately and explained
in these notes.

The income statement has been prepared using the nature of expense method.

Significant differences between the HGB and the IFRSs

There are certain fundamental recognition and measurement differences between the IFRSs and the
German accounting principles. As far as our consolidated financial statements are concerned, these include:

Under the IFRSs, non-current assets are usually measured after deducting straight-line depreciation and
amortization, and the economic useful lives are longer than under the HGB. Tax-motivated accelerated
depreciation or transfers from the special reserve with equity portion are prohibited by the IFRSs. In
addition, leased assets are capitalized at the lessee where beneficial ownership is transferred.

Construction contracts carried under inventories are measured using the percentage of completion
method, under which revenue is recognized by reference to the stage of completion. This means that
revenue is recognized proportionately prior to completion and billing of the project.

Foreign currency receivables, cash and cash equivalents, and liabilities, as well as current financial
instruments, are translated at the closing rates. This may result in unrealized gains being reported.

Deferred tax assets and liabilities are accounted for using the balance sheet liability method, rather than
by the income statement liability method as used under the HGB. The IFRSs also require deferred tax
assets to be capitalized, in contrast to the recognition option under the HGB. In the special case of tax
loss carryforwards, the IFRSs require deferred tax assets to be capitalized under certain conditions; this
is prohibited under the HGB.

66
CHANGES IN NON-CURRENT ASSETS CHANGES IN EQUITY CASH FLOW SEGMENTS NOTES

In addition to future demographic trends, the IFRSs also require future compensation and pension trends,
as well as discounting at a long-term capital market interest rate, to be reflected in the computation of
pension provisions.

The recognition criteria for provisions are much more restrictive under the IFRSs than under the HGB.
Provisions for future internal expenses are generally prohibited. Provisions may only be recognized for
obligations to third parties if it is probable that the obligation will have to be settled.

Primary and derivative financial instruments are measured at their fair value.

First-time application of new and revised standards

No new standards for which first-time application was required became operative in the year under review.
The first-time application of revised standards did not materially affect the presentation of a true and fair
view of net assets, financial position and results of operations.

B A S I S O F C O N S O L I D AT I O N

Consolidated Group
In addition to KSB Aktiengesellschaft, 6 German and 34 foreign companies (previous year: 6 German
and 36 foreign companies) were fully consolidated. We hold a majority interest in the voting power of the
companies, either directly or indirectly, or we have the power to appoint the majority of the members of
the companies management. 30 (previous year: 29) subsidiaries were not consolidated because of their
insignificance for a true and fair presentation of net assets, financial position and results of operations. We
deconsolidated both of our companies in Venezuela early in 2002 because they discontinued business
operations following a strategic realignment of the KSB Group. The effects of changes in the consolidated
Group on the consolidated financial statements are not material. No companies are currently consolidated
at equity or by using proportionate consolidation.

Consolidation methods
Capital consolidation uses the purchase method of accounting, under which the acquisition cost of the
parents shares in the subsidiaries is eliminated against the equity attributable to the parent at the date of
acquisition. Any goodwill resulting from first-time consolidation is carried as an intangible asset and
reduced by straight-line amortization over a maximum of 15 years.

Those shares of subsidiaries equity not attributable to KSB Aktiengesellschaft are reported as minority
interest.

67
 FINANCIAL STATEMENTS BALANCE SHEET INCOME STATEMENT

All intercompany receivables, liabilities, provisions and contingent liabilities, as well as sales revenue,
other income and expenses, are eliminated. Intercompany profits contained in inventories and non-current
assets are also eliminated.

The financial statements of all material fully consolidated companies or those required to be audited
under local law have been audited and approved by the auditors. This audit also extended to the correct
reconciliation of the financial statements prepared under local GAAP to the uniform Group IFRS
accounting policies.

Currency translation
The consolidated financial statements have been prepared in euros (e).

Transactions denominated in foreign currencies are translated at the individual companies at the rate
prevailing when the transaction is initially recognized. Monetary assets and liabilities are subsequently
measured at the closing rate. Currency translation gains and losses are recognized in net profit or loss.

Financial statements of consolidated companies that are not prepared in euros are translated using the
functional currency principle. Because these companies are financially, economically and organizationally
independent (foreign entities), assets and liabilities are translated at the closing rate. Almost all items
of income and expense are translated at average exchange rates for the year. We only translate depreciation
and amortization expenses, income taxes and net profit or loss for the period at the closing rate. Any
resulting currency translation differences are recognized in the income statement as other operating income
or expenses.

Gains and losses from the translation of items of assets and liabilities compared with their translation in
the previous year are taken directly to equity.

The financial statements of two Group companies domiciled in a hyperinflationary economy are translated
by accounting for changes in general purchasing power to eliminate the effects of hyperinflation.

The exchange rates of our most important currencies to the euro are:

Closing rate Average rate

31 Dec. 2002 31 Dec. 2001 2002 2001

1 US dollar 0.954 1.135 1.058 1.117

1 Brazilian real 0.273 0.486 0.360 0.474

100 Indian rupee 2.092 2.495 2.303 2.370

100 Chinese yuan 11.701 14.016 13.065 13.488

68
CHANGES IN NON-CURRENT ASSETS CHANGES IN EQUITY CASH FLOW SEGMENTS NOTES

ACCOUNTING POLICIES

The accounting policies have not changed as against the previous year and apply to all companies included
in the consolidated financial statements.

Acquisition cost
In addition to the purchase price, acquisition cost also includes attributable incidental costs and subsequent
expenditure. Purchase price reductions are deducted from cost. Borrowing costs are not capitalized.

Production cost
In addition to direct material and direct labour costs, production cost also includes production-related
administrative expenses. General administrative expenses, selling expenses and borrowing costs are not
capitalized.

Intangible assets
Intangible assets are carried at cost and reduced by straight-line amortization. The underlying useful lives
are two to five years. We amortized goodwill originating on or after 1 January 1995 over a maximum
of 15 years. Goodwill originating up to and including 1994 has been deducted from revenue reserves.
Write-downs are charged for impairment if the recoverable amount is lower than the carrying amount.
If the reasons for an impairment loss charged in a previous period no longer apply, the impairment loss
is reversed (write-up).

Development costs
Development costs are capitalized as intangible assets at cost and reduced by straight-line amortization
where the criteria described in IAS 38 are met. Research costs are expensed as incurred. Where research
and development costs cannot be reliably distinguished, no costs are capitalized.

Property, plant and equipment

Property, plant and equipment is carried at cost and reduced by straight-line depreciation. No tax-motivated
depreciation is recognized. Write-downs are charged for impairment if the recoverable amount is lower than
the carrying amount. If the reasons for an impairment loss charged in a previous period no longer apply,
the impairment loss is reversed (write-up).

Government grants are deducted from the assets concerned.

Maintenance expenses are recognized as an expense in the period in which they are incurred, unless they
lead to the expansion or material improvement of the asset concerned.

69
 FINANCIAL STATEMENTS BALANCE SHEET INCOME STATEMENT

The following useful lives are applied:

Buildings 10 60 years
Plant and machinery 7 25 years
Operating and office equipment 3 25 years

Leases
Lease payments that are payable under operating leases are recognized as expenses in the period in which
they are incurred. In the case of finance leases, the leased asset is recognized at the time of inception of the
lease at the lower of fair value and the present value of future minimum lease payments. Simultaneously, a
liability is recognized for the lease payments. The asset's carrying amount is reduced by depreciation over
its useful life or the shorter lease term.

Non-current financial assets

Investments in unconsolidated affiliates and associates are carried at cost or the lower fair value. If
the reasons for an impairment loss charged in a previous period no longer apply, the impairment loss is
reversed (write-up). Interest-bearing loans are carried at their principal amount. Low-interest or non-
interest-bearing loans are carried at their present value. Non-current financial instruments are carried at
their fair values at the balance sheet date.

Inventories
Inventories are carried at the lower of cost and net realizable value. Cost is measured using the weighted
average method. Write-downs to the net realizable value take account of all inventory risks resulting from
slow-moving goods or impaired marketability. This also applies to write-downs to fair value if the selling
price is lower than production cost plus costs still to be incurred. If the reasons for an impairment loss
charged in a previous period no longer apply, the impairment loss is reversed.

Advances received from customers are deducted in full from inventories.

The percentage of completion (PoC) method is applied for construction contracts defined under IAS 11.
The stage of completion of the contracts is determined on the basis of the total estimated contract costs
and the actual contract costs up to the balance sheet date. The percentage contract revenue is reported
in inventories under a separate heading. Gains or losses in the period are recognized in total output of
operations in the income statement as changes in inventories.

Receivables and other current assets

Receivables and other current assets are generally carried at their principal amounts. Low-interest or
non-interest-bearing receivables are discounted. We take account of all identifiable risks by charging specific
write-downs and experience-based write-downs. If the reasons for an impairment loss charged in a previous
period no longer apply, the impairment loss is reversed.

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CHANGES IN NON-CURRENT ASSETS CHANGES IN EQUITY CASH FLOW SEGMENTS NOTES

Prepaid expenses relate to accrued expenditure prior to the balance sheet date that will only be classified
as an expense after the balance sheet date.

Cash
Cash items are carried at their principal amounts.

Deferred taxes
We account for deferred taxes using the balance sheet liability method on the basis of the enacted or
substantively enacted local tax rates. This means that deferred tax assets and liabilities generally arise
when the tax base of assets and liabilities differs from their carrying amount in the IFRS financial state-
ments, and this leads to future tax expense or income. We also recognize deferred tax assets from tax loss
carryforwards in those cases where it is more likely than not that there will be sufficient taxable profit
available in the foreseeable future against which these loss carryforwards can be utilized. Deferred taxes
are also recognized for consolidation adjustments. Deferred taxes are not discounted. Deferred tax assets
and liabilities are always offset where they relate to the same tax authority.

Provisions for pensions and similar obligations

Provisions for pensions and similar obligations are calculated on the basis of actuarial reports. They are
based on defined benefit pension plans. The reports are prepared using the projected unit credit method.
We apply the 10% corridor rule, under which actuarial gains and losses outside this 10 % corridor are
recognized over the remaining working lives. The actuarial demographic assumptions and the definition of
compensation and pension trends, as well as interest rate trends, are best estimates. The interest com-
ponent is reported as an interest cost in financial income / expense.

KSB companies that use a defined contribution pension plan do not recognize provisions. The premium
payments are recognized directly in the income statement as pension costs in the staff costs. These
companies have no obligations other than the obligation to pay premiums.

Other provisions
A provision is recognized only if a past event results in a present legal or constructive external obligation
that the company has no realistic alternative to settling, where settlement of this obligation is expected to
result in an outflow of resources embodying economic benefits, and the amount of the obligation can be
estimated reliably. No provisions are recognized for future internal expenses. The amount recognized as a
provision is our best estimate. Any recourse or reimbursement claims are recognized separately and are not
deducted from the provisions concerned.

Provisions for restructurings are recognized only if the additional criteria set out in IAS 37 are met
(detailed restructuring plan that has been announced to those affected by it).

Non-current provisions are discounted if material.

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 FINANCIAL STATEMENTS BALANCE SHEET INCOME STATEMENT

Liabilities
Liabilities are carried at their redemption amount.

Derivatives
We only use derivatives for hedging purposes. We hedge both existing recognized underlyings (fair value
hedges) and future cash flows (cash flow hedges) against foreign currency risks. The hedging instruments
used are exclusively highly effective currency forwards and currency options entered into with prime-rated
banks. The hedges relate mostly to items in USD and GBP. Group guidelines govern the use of these
instruments. These transactions are also subject to continuous risk monitoring.

Fair value changes of derivatives used to hedge an existing recognized underlying are recognized in net
profit or loss, as are changes in the fair value of the related hedged items.

In the case of cash flow hedges, changes in the fair value of derivatives are taken directly to equity until
the related hedged item is recognized.

We estimate fair values on the basis of quoted market prices at the balance sheet date.

Derivatives are reported under other receivables, other current assets and prepaid expenses, and under
miscellaneous other liabilities and deferred income.

The maturities of the derivatives used are mostly between one and two years.

Contingent liabilities
Contingent liabilities are possible obligations that arise from past events and whose existence will be
confirmed only by the occurrence or non-occurrence of uncertain future events. Contingent liabilities may
also be present obligations that arise from past events where it is possible but not probable that there
will be an outflow of resources embodying economic benefits.

Contingent liabilities correspond to the extent of liability at the balance sheet date.

Income and expenses

Sales revenue consists of charges for deliveries and services billed to customers, and licence income.
Sales allowances reduce sales revenue. Sales revenue is recognized when the deliveries have been effected
or the services have been rendered and the significant risks of ownership have been transferred.

Effects on the results from application of the percentage of completion method are recognized in changes
in inventories.

Expenses are recognized when they are incurred or when the services are utilized.

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CHANGES IN NON-CURRENT ASSETS CHANGES IN EQUITY CASH FLOW SEGMENTS NOTES

Estimates
Any estimates necessary for preparation of these consolidated financial statements are based on cautious
assumptions. Actual amounts may differ from these estimates.

Any changes in estimates that result in material differences are explained separately.

Maturities
A non-current maturity is one that extends to more than one year.

Disclosures on the transition to IFRSs as the primary basis of accounting

As mentioned above, we have prepared KSBs consolidated financial statements as if the IFRS Standards
and Interpretations had always been applied. The resulting differences compared with the HGB consolidated
financial statements have been treated as adjustments to the opening balance of revenue reserves or to
minority interest as of 1 January 2001.

Material adjustments in equity (incl. minority interest) and net profit for the year are presented below.
The transition date was 1 January 2001.

(e thousands)

Equity incl. minority interest 2001 (HGB) 279,095

Remeasurement of non-current assets / capitalization of finance leases 54,447

Measurement using PoC 13,190

Reversal of special reserve with equity portion 7,208

Remeasurement of pension provisions 15,775

Remeasurement of other provisions 12,752

Deferred taxes on loss carryforwards 6,050

Deferred taxes on recognized currency translation adjustments 4,904

Miscellaneous 5,728

Equity incl. minority interest 2001 (IFRS) 367,599

(e thousands)

Net profit for the year 2001 (HGB) 25,704

Remeasurement of non-current assets / capitalization of finance leases 3,221

Inventory measurement / measurement using PoC 1,662

Remeasurement of provisions 952

Utilization of tax loss carryforwards 8,830

Miscellaneous 231

Net profit for the year 2001 (IFRS) 14,132

73
 FINANCIAL STATEMENTS BALANCE SHEET INCOME STATEMENT

BALANCE SHEET DISCLOSURES

1_ Non-current assets
Development costs are not capitalized as not all of the comprehensive recognition criteria defined in
IAS 38 were met.

Assets resulting from finance leases (almost exclusively real property) are recognized as non-current assets
in accordance with IAS 17, and a financial liability is recognized. The carrying amount of these capitalized
assets amounts to e 12,645 thousand (previous year: e 11,113 thousand).

Disposals of items of property, plant and equipment resulted in book gains of e 1,659 thousand
(previous year: e 984 thousand) and book losses of e 1,575 thousand (previous year: e 2,388 thousand).
These were reported in the income statement under other operating income and other operating expenses.

No impairment losses (write-downs) were charged on intangible assets and property, plant and equipment
either in the year under review or in the prior period.

Changes in non-current financial assets resulted from the purchase of a service company in France, write-
downs of the carrying amounts of one of our companies in Mexico and of our company in Abu Dhabi due
to permanent impairment, and the reversal of an impairment loss charged on the carrying amount of our
Saudi Arabian company.

Currency translation adjustments taken directly to equity in the year under review resulted in a loss of
e 14,851 thousand (previous year: gain of e 1,174 thousand).

Details of changes in non-current assets are presented on page 60.

The list of shareholdings of KSB Aktiengesellschaft, Frankenthal, has been filed with the commercial
register of the Ludwigshafen (Rhine) Local Court, No. HRB 1016.

2_ Deferred tax assets

Explanations on deferred tax assets are presented under Taxes on income on page 82.

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CHANGES IN NON-CURRENT ASSETS CHANGES IN EQUITY CASH FLOW SEGMENTS NOTES

3_ Inventories

(e thousands) 31 Dec. 2002 31 Dec. 2001

Raw materials and production supplies 69,819 81,903

Work in progress 55,336 60,524

Finished goods and goods purchased and held for resale 52,039 64,070

Inventories recognized by PoC 50,673 55,720

Advance payments 3,919 3,876

Advances received from customers 44,815 48,667

186,971 217,426

A small volume of inventories is carried at net realizable value. We only reversed write-downs to a minor
extent where the current net realizable value is higher than the prior-period value.

Construction contracts under IAS 11 include recognized profits of e 2,530 thousand (previous year:
e 5,368 thousand) and costs of e 48,143 thousand (previous year: e 50,352 thousand).

4_ Receivables and other current assets

(e thousands) 31 Dec. 2002 31 Dec. 2001

Trade receivables 263,958 291,230

thereof with more than 1 year to maturity (8,351) (8,339)

Intragroup and associate receivables 21,130 17,049

thereof with more than 1 year to maturity (486) (166)

Other receivables, other current assets

and prepaid expenses 24,713 20,379

thereof with more than 1 year to maturity (2,197) (1,702)

309,801 328,658

Intragroup and associate receivables include loans to unconsolidated KSB companies amounting to
e 6,499 thousand (previous year: e 1,739 thousand). Associate receivables amounted to e 3,787 thousand
(previous year: e 4,381 thousand).

The other receivables, other current assets and prepaid expenses include recoverable taxes, receivables
from employees and deferred interest. They also include other assets from hedging transactions in
accordance with IAS 39 amounting to e 6,168 thousand (previous year: e 101 thousand). At the
balance sheet date, the notional volume of currency forwards was e 67,289 thousand (previous year:
e 93,082 thousand), and the notional volume of options was e 32,289 thousand (previous year:
e 18,155 thousand).

The fair values of receivables correspond to the carrying amounts reported.

75
 FINANCIAL STATEMENTS BALANCE SHEET INCOME STATEMENT

5_ Current financial instruments and cash

The current financial instruments amount to e 70 thousand (previous year: e 69 thousand). Cash relates
primarily to term deposits with short maturities and call deposits.

6_ Equity and minority interest

There was no change in the share capital of KSB Aktiengesellschaft, Frankenthal, as against the previous
year. In accordance with the Articles of Association, it totals e 44,771,963.82. It is composed of 886,615
no-par value ordinary shares and 864,712 no-par value preference shares. Each no-par value share re-
presents an equal notional amount of the share capital. The preference shares carry separate cumulative
preferred dividend rights and progressive additional dividend rights. All shares are bearer shares.

The Board of Management is authorized to increase the share capital by up to a total of e 15,338,756.44,
with the consent of the Supervisory Board, by issuing new ordinary shares and new non-voting preference
shares against cash contributions on one or more occasions up to 30 June 2003 (authorized capital).
Newly issued non-voting preference shares carry the same rights stipulated in the Articles of Association as
existing preference shares. Shareholders must be granted subscription rights. When ordinary and preference
shares are issued simultaneously, the Board of Management is authorized, with the consent of the Super-
visory Board, to suspend the subscription rights of holders of one class of shares for the other class of
shares, if equal subscription ratios have been defined for both classes. The Board of Management is also
authorized to exclude fractions from shareholders subscription rights.

The capital reserve results from the appropriation of premiums from capital increases in previous years.

In addition to revenue reserves from previous years, the revenue reserves primarily include currency trans-
lation adjustments and consolidation effects taken directly to equity. The deferred tax assets resulting from
these adjustments amount to e 8,030 thousand (previous year: e 6,648 thousand), while deferred tax
liabilities amount to e 2,863 thousand (previous year: e 3,862 thousand).

Equity also includes changes in the fair value of derivatives used to hedge future cash flows amounting
to e 2,842 thousand (previous year: e 2,723 thousand). The opening balance as of 1 January 2002 was
almost completely withdrawn from equity and included in the measurement of the hedged items. The
closing balance as of 31 December 2002 results mainly from additions in the year under review.

The minority interest relates primarily to PAB GmbH, Frankenthal, and the interests it holds. KSB Aktien-
gesellschaft holds a 51 % interest in PAB GmbH, while Klein Pumpen GmbH, Frankenthal, holds a
49 % interest.

Details of the changes in equity accounts and minority interest are contained in the Statement of Changes
in Equity on page 62.

The proposal on the appropriation of the net retained earnings of KSB Aktiengesellschaft calculated in
accordance with HGB is contained on page 88.

76
CHANGES IN NON-CURRENT ASSETS CHANGES IN EQUITY CASH FLOW SEGMENTS NOTES

7_ Deferred tax liabilities

Explanations on deferred tax liabilities are presented under Taxes on income on page 82.

8_ Provisions for pensions and similar obligations

More than 90 % of the provisions for pensions result from defined benefit plans of the German Group
companies. These relate to direct commitments by the companies to their employees. The commitments are
based on salary and length of service. Contributions from the employees themselves are also included.

The amounts provided for these benefit obligations and the annual expense for pension benefits are measured
and calculated each year on the basis of actuarial reports using the projected unit credit method (IAS 19).

The underlying actuarial assumptions were unchanged as against the previous year. The discount rate is
6.0 %. The assumed rate of future salary increases is 3.0 %, and benefit contributions are assumed to
grow at an annual rate of 2.0 %. A rate of 2.0 % per annum has been applied to future pension trends (or
1.0 % where this reflects the commitment), and the maximum income threshold for social security contri-
bution assessment is assumed to rise by 3.0 %. The assumption for pensionable age is governed by the
1999 German Pension Reform Act. A mean fluctuation table was applied to staff turnover, and the pen-
sion calculations are based on the 1998 mortality tables published by Prof. Klaus Heubeck. Actuarial gains
and losses outside the 10 % corridor have been recognized.

Change in pension provisions from the

above-mentioned benefit plans
(e thousands) 2002 2001

Opening balance at 1 Jan. 150,551 146,126

Annual pension expense (see below) 11,756 11,420

Net pension payments 7,301 6,995

Closing balance at 31 Dec. 155,006 150,551

The present value of pension commitments amounts to e 156,362 thousand. This results in a net actuarial
loss of e 1,356 thousand, which is within the 10 % corridor to be applied.

Changes recognized in income statement

(e thousands) 2002 2001

Current service cost 2,942 2,859

Interest cost 8,814 8,561

11,756 11,420

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 FINANCIAL STATEMENTS BALANCE SHEET INCOME STATEMENT

The current service cost is recognized in staff costs under pension costs, and the interest cost is recognized
in financial income / expense under interest and similar expenses. There was no requirement to recognize
actuarial gains or losses, or past service cost.

There are smaller benefit plans at certain foreign Group companies. At the US companies, there are post-
employment medical care obligations for employees. These are measured using comparable principles and
contained in the provisions for pensions and similar obligations in the amount of e 9,728 thousand
(previous year: e 8,129 thousand).

We reversed a total of e 34 thousand (previous year: e 0 thousand) of the provisions for pensions and
similar obligations in the year under review.

9_ Other provisions

Changes Change
consolidated
Balance at Group, CTA* Balance at
(e thousands) 1 Jan. 2002 and other Utilization Reversals Additions 31 Dec. 2002

Taxes 2,722 474 1,505 61 2,922 3,604

Other staff costs 56,386 1,341 35,759 3,316 43,340 59,310

Warranty obligations and

contractual penalties 22,808 585 14,413 2,340 15,561 21,031

Other obligations 42,191 1,866 33,615 1,722 29,480 34,468

124,107 4,266 85,292 7,439 91,303 118,413

* CTA = currency translation adjustments

Provisions for taxes contain amounts of tax still payable for the year under review and for previous years
for which no final tax assessment has yet been received. Provisions for other staff costs relate primarily to
profit sharing, jubilee payments, compensated absence and severance payments. The provisions for warranty
obligations and contractual penalties cover the statutory and contractual obligations to customers. The
provisions for other obligations include provisions for expected losses from uncompleted transactions
and onerous contracts, customer bonuses, accrued costs and environmental measures. They also include
provisions for restructuring amounting to e 391 thousand (previous year: e 3,500 thousand).

e 176,919 thousand of the total provisions (including pension provisions) is non-current (previous year:
e 167,500 thousand).

78
CHANGES IN NON-CURRENT ASSETS CHANGES IN EQUITY CASH FLOW SEGMENTS NOTES

10_ Liabilities

31 Dec. 2002 31 Dec. 2001

thereof thereof
(e thousands) < 1 year < 1 year

Financial liabilities

Bank loans and overdrafts 33,905 14,217 58,353 35,832

Finance lease liabilities 11,910 1,403 12,568 3,575

Other financial liabilities 2,740 1,812 5,734 4,125

Total 48,555 17,432 76,655 43,532

Trade payables

Trade payables to third parties 102,928 100,929 113,141 109,679

Intragroup trade payables 3,018 3,018 3,567 3,567

Total 105,946 103,947 116,708 113,246

Other liabilities and deferred income

Taxes 8,586 8,586 8,850 8,850

Social security 11,236 11,236 12,059 12,059

Miscellaneous other liabilities

and deferred income 10,840 10,797 15,289 15,286

Total 30,662 30,619 36,198 36,195

Total liabilities 185,163 151,998 229,561 192,973

Assets amounting to e 3,003 thousand (previous year: e 6,015 thousand) have been pledged as security
in the KSB Group for bank loans and other liabilities.

As in the previous year, no liabilities were secured by land charges or similar rights in the year under
review.

The weighted average interest rate on bank loans and overdrafts was 6.11 % (previous year: 7.85 %).
The interest rate risk is restricted to overdrafts. Taxes classified as other liabilities also relate to taxes that
Group companies must remit for third-party account.

79
 FINANCIAL STATEMENTS BALANCE SHEET INCOME STATEMENT

In the year under review, there were no changes in the fair value of hedging instruments (previous year:
e 3,203 thousand). Miscellaneous other liabilities and deferred income include deferred income of
e 343 thousand (previous year: e 21 thousand).

The fair values of liabilities correspond to the carrying amounts reported.

I N C O M E S TAT E M E N T D I S C L O S U R E S

11_ Sales revenue

The breakdown of sales revenue is presented in the segment reporting on page 64.

12_ Other operating income

(e thousands) 2002 2001

Gains from asset disposals and reversals of impairment losses (write-ups) 3,132 984

Income from current assets 1,772 1,169

Currency translation gains 3,704 2,703

Income from the reversal of provisions 7,473 4,746

Miscellaneous other income 9,869 8,967

25,950 18,569

Miscellaneous other income relates primarily to services income, commission income, rental and lease
income, insurance compensation, grants and subsidies.

13_ Cost of materials

(e thousands) 2002 2001

Cost of raw materials, production supplies and goods

purchased and held for resale 417,804 425,841

Cost of purchased services 26,297 22,251

444,101 448,092

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CHANGES IN NON-CURRENT ASSETS CHANGES IN EQUITY CASH FLOW SEGMENTS NOTES

14_ Staff costs

(e thousands) 2002 2001

Wages and salaries 340,733 338,172

Social security contributions and employee assistance costs 80,556 76,172

Pension costs 7,343 5,945

428,632 420,289

Pension costs are reduced by the interest component of provisions for pensions, which is reported as an
interest cost in financial income / expense.

Average number of employees 2002 2001

Wage earners 5,692 5,969

Salaried employees 5,973 5,921

Trainees and apprentices 342 345

12,007 12,235

15_ Other operating expenses

(e thousands) 2002 2001

Losses from asset disposals 1,575 2,388

Losses from current assets 6,789 4,304

Currency translation losses 5,624 1,360

Other staff costs 10,048 14,456

Repairs, maintenance, third-party services 68,916 66,345

Selling expenses 54,993 58,789

Administrative expenses 50,202 52,728

Rents and leases 11,483 11,972

Miscellaneous other expenses 23,222 29,153

232,852 241,495

Miscellaneous other expenses relate primarily to warranties, contractual penalties and additions to provisions.

81
 FINANCIAL STATEMENTS BALANCE SHEET INCOME STATEMENT

16_ Financial income / expense

(e thousands) 2002 2001

Income from investments 1,637 1,209

thereof from affiliates (1,517) (1,059)

Interest and similar income 4,549 5,963

thereof from affiliates (185) (106)

Interest and similar expenses 14,158 15,863

thereof to affiliates ( 47) ( 30)

Miscellaneous financial income / expense 509 78

8,481 8,769

Interest and similar expenses include the interest cost on discounted pension provisions amounting to
e 9,264 thousand (previous year: e 8,937 thousand). Income from other non-current financial instruments
and non-current loans amounting to e 84 thousand (previous year: e 85 thousand), as well as write-
downs of non-current financial assets and current financial instruments amounting to e 593 thousand
(previous year: e 163 thousand), are classified as miscellaneous financial income / expense.

17_ Taxes on income

All income-related taxes of the consolidated companies and deferred taxes are reported under this heading.
Other taxes are reported in the income statement after other operating expenses.

(e thousands) 2002 2001

Effective taxes 11,182 7,654

Deferred taxes 3,446 5,078

14,628 12,732

e 392 thousand (previous year: e 188 thousand) of the effective taxes in the year under review related to
prior-period tax refunds and e 198 thousand (previous year: e 76 thousand) to tax arrears.

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CHANGES IN NON-CURRENT ASSETS CHANGES IN EQUITY CASH FLOW SEGMENTS NOTES

Reconciliation of deferred taxes

(e thousands) 2002 2001

Change in deferred tax assets 5,301 2,780

Change in deferred tax liabilities 5,491 6,175

Change in deferred taxes recognized in balance sheet 190 3,395

Change in deferred taxes taken directly to equity 6,878 1,171

Changes in consolidated Group,

currency translation adjustments and other 3,622 512

Deferred taxes recognized in income statement 3,446 5,078

Changes in existing local tax rates or the introduction of new local taxes had no material effects in the
year under review.

Deferred tax assets of e 668 thousand (previous year: e 6,050 thousand) were recognized from tax
loss carryforwards. The corresponding loss carryforwards amount to e 3,992 thousand (previous year:
e 27,703 thousand). We did not recognize deferred tax assets from loss carryforwards amounting to
e 10,097 thousand (previous year: e 9,170 thousand) because it is unlikely that there will be sufficient
taxable profit available in the foreseeable future against which these tax loss carryforwards can be utilized.

Reconciliation of income taxes

(e thousands) 2002 2001

Profit from ordinary activities 34,261 26,864

Calculated income taxes on profit from ordinary activities

on the basis of the applicable tax rate (37 %) 12,677 9,940

Differences in tax rates of foreign Group companies 789 644

Utilization of tax loss carryforwards 2,974 8,830

Other changes in deferred taxes 472 3,752

Other 706 1,642

Current taxes on income 14,628 12,732

Current tax rate 43 % 47 %

The applicable tax rate of 37 % is a composite rate resulting from the German corporation tax, solidarity
tax contribution and trade income tax rates.

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 FINANCIAL STATEMENTS BALANCE SHEET INCOME STATEMENT

18_ Minority interest in net profit / loss

The minority interest in net profit amounts to e 6,376 thousand (previous year: e 6,120 thousand),
and the minority interest in net loss amounts to e 1,890 thousand (previous year: e 1,301 thousand).
This relates in particular to the interests held by PAB GmbH.

19_ Research and development costs

Research and development costs in the year under review amounted to e 23,410 thousand
(previous year: e 24,808 thousand).

20_ Earnings per share

2002 2001

Consolidated net profit for the year (e thousands) 15,147 9,313

Additional dividend attributable to preference shareholders (e thousands) 225 225

(f thousands) 14,922 9,088

Number of ordinary shares 886,615 886,615

Number of preference shares 864,712 864,712

Total number of shares 1,751,327 1,751,327

Earnings per ordinary share f 8.52 5.19

Earnings per preference share f 8.78 5.45

There were no dilutive effects.

SEGMENT REPORTING

Segment reporting corresponds to our internal organizational and management structure, as well as the
reporting lines to the Companys management and Supervisory Board.

The Pumps, Valves and Service Europe segment includes the development, production and marketing of
pumps and valves by our European Group companies, as well as the corresponding service business.

The Region Americas segment combines all pump, valve and service activities by the Group companies in
this region. Valve activities only play a minor role here. The same applies to the Region Asia / Pacific
segment.

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CHANGES IN NON-CURRENT ASSETS CHANGES IN EQUITY CASH FLOW SEGMENTS NOTES

The amounts disclosed for the individual segments have been established in compliance with the accounting
policies of the underlying consolidated financial statements. The amounts have been consolidated within
the individual segments.

Other contains the amounts of Group companies that cannot be allocated to any of the defined segments.
It also contains inter-segment consolidation adjustments to enable a reconciliation to the Group amounts.

The external sales revenue of the Group companies by segment presents sales revenue generated from third
parties and unconsolidated Group companies.

The external sales revenue of the Group companies by geographic area presents the sales revenue of the
segments generated from third parties and unconsolidated Group companies by customer location. Customer
locations are allocated to the Europe, Asia / Pacific, Americas and Eastern Europe / Middle East / Africa
regions.

Inter-segment sales revenue relates to all sales revenue between the segments.

The segment result (EBIT) shows the earnings before interest and taxes, including minorities.

Segment assets correspond to the entire assets reported on the balance sheet, excluding recoverable income
taxes; segment liabilities consist of all liabilities and provisions, net of provisions for income taxes.

The capital expenditure relates to intangible assets, property, plant and equipment.

Transfer prices for intercompany sales are determined on an arms length basis.

The amounts disclosed for the individual segments are presented in a separate overview on page 64.

A reconciliation between the segment liabilities and the provisions and liabilities reported in the balance
sheet is presented below:

(e thousands) 2002 2001

Segment liabilities 465,877 511,434

Provisions for income taxes 2,433 914

Provisions and liabilities 468,310 512,348

85
 FINANCIAL STATEMENTS BALANCE SHEET INCOME STATEMENT

A reconciliation between the segment result (EBIT) and the profit from ordinary activities reported in the
income statement is presented below:

(e thousands) 2002 2001

Segment result (EBIT) 43,870 36,764

Interest income 4,549 5,963

Interest expense 14,158 15,863

Profit from ordinary activities 34,261 26,864

OTHER DISCLOSURES

Contingencies and commitments

Contingent liabilities and security granted

(e thousands) 2002 2001

Liabilities from the issuance and transfer of bills 19 702

Liabilities from guarantees 5,532 6,492

Liabilities from warranties 7,389 6,804

Liabilities from the granting of other security for third-party liabilities 12,643 11,852

Total 25,583 25,850

Other financial obligations from rental agreements and operating leases amount to a total of e 20,239
thousand (previous year: e 16,010 thousand), of which e 13,857 thousand is due within one year.

Operating leases relate primarily to vehicles.

Minimum lease
Finance leases payments Present values

(e thousands) 2002 2001 2002 2001

Due within one year 1,832 1,904 1,403 3,575

Due between one and five years 9,982 6,492 7,849 3,978

Due after more than five years 2,923 7,590 2,658 5,015

Total 14,737 15,986 11,910 12,568

86
CHANGES IN NON-CURRENT ASSETS CHANGES IN EQUITY CASH FLOW SEGMENTS NOTES

Finance leases relate almost entirely to real property. There are purchase options on two properties in
Germany.

The annual obligations from IT services agreements amount to e 20,275 thousand over a term of two to
three years.

The aggregate purchase obligation amounts to e 3,134 thousand (previous year: e 5,662 thousand).
Almost all of the corresponding payments are due in 2003.

There are total payment obligations from the acquisition of shares of corporations in the amount of
e 6,038 thousand (previous year: e 0 thousand).

Related party disclosures

Klein Pumpen GmbH, Frankenthal, holds a majority interest in the voting power of KSB Aktiengesellschaft.
The consolidated financial statements of KSB Aktiengesellschaft are included in the consolidated financial
statements of Klein Pumpen GmbH, which are filed with the Ludwigshafen (Rhine) commercial register.

A rental and services agreement has been entered into between KSB Aktiengesellschaft and Klein Pumpen
GmbH. KSB Aktiengesellschaft paid e 86 thousand (previous year: e 85 thousand) under the terms of
this agreement in the year under review. Short-term deposits by KSB Aktiengesellschaft with Klein Pumpen
GmbH and by Klein Pumpen GmbH with KSB companies carry appropriate rates of interest.

All transactions are entered into on an arms length basis. This is also demonstrated by the dependent
company report prepared in accordance with section 312 of the AktG (German Public Companies Act).

The total remuneration of members of the Supervisory Board amounts to e 286 thousand for financial
year 2002 (previous year: e 285 thousand), and the total remuneration of the Board of Management
amounts to e 2,086 thousand (previous year: e 1,748 thousand). e 13,675 thousand (previous year:
e 12,716 thousand) has been provided for pension obligations to former members of the Board
of Management and their surviving dependants; total benefits paid to these persons amounted to
e 986 thousand in the year under review (previous year: e 952 thousand).

The members of the Board of Management and the Supervisory Board are listed on page 91.

Events after the balance sheet date

There were no reportable events after the balance sheet date.

German Corporate Governance Code

The Board of Management and Supervisory Board of KSB Aktiengesellschaft have issued the declaration
of conformity with the recommendations of the Government Commission on the German Corporate
Governance Code in accordance with section 161 of the AktG (German Public Companies Act). The
declaration is published on page 92 of the present Annual Report and on our web site.

87
APPROPRIATION OF NET RETAINED EARNINGS

Proposal on the appropriation of the net retained earnings of KSB Aktiengesellschaft

We will propose to the Annual General Meeting on 5 June 2003 to appropriate the net retained earnings
of KSB Aktiengesellschaft, Frankenthal, containing retained earnings brought forward of e 202,241,
as follows:

Distribution of a dividend of
e 4.00 per share for 886,615 no-par value ordinary shares e 3,546,460
and, in accordance with the Articles of Association,
e 4.26 per share for 864,712 no-par value preference shares e 3,683,673
Total e 7,230,133

Appropriation to revenue reserves e 9,000,000

e 16,230,133

Carried forward to new account e 250,655

e 16,480,788

Frankenthal, March 2003

The Board of Management

The annual financial statements of KSB Aktiengesellschaft, Frankenthal, were prepared in accordance with
German accounting principles. KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft, Wirtschafts-
prfungsgesellschaft, Mannheim, has audited these annual financial statements and issued an unqualified
audit opinion. They will be announced in the Bundesanzeiger (German Federal Gazette) and filed with
the commercial register of the Ludwigshafen (Rhine) Local Court. These annual financial statements can
also be downloaded from our web site at www.ksb.com, or be ordered in print form.

88
 AUDITORS REPORT

INDEPENDENT AUDITORS REPORT

We have audited the consolidated financial statements, comprising the balance sheet, the income statement
and the statements of changes in shareholders equity and cash flows as well as the notes to the financial
statements prepared by KSB Aktiengesellschaft, Frankenthal (Pfalz) for the business year from 1 January to
31 December 2002. The preparation and the content of the consolidated financial statements in accordance
with International Financial Reporting Standards (IFRS) are the responsibility of the Companys management.
Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit of the consolidated financial statements in accordance with German auditing
regulations and German generally accepted standards for the audit of financial statements promulgated by
the Institut der Wirtschaftsprfer (IDW). Those standards require that we plan and perform the audit such
that it can be assessed with reasonable assurance whether the consolidated financial statements are free of
material misstatements. Knowledge of the business activities and the economic and legal environment of
the Group and evaluations of possible misstatements are taken into account in the determination of audit
procedures. The evidence supporting the amounts and disclosures in the consolidated financial statements
is examined on a test basis within the framework of the audit. The audit includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements give a true and fair view of the net assets, financial
position, results of operations and cash flows of the Group for the business year in accordance with
International Financial Reporting Standards.

Our audit, which also extends to the group management report prepared by the Company's management
for the business year from 1 January to 31 December 2002, has not led to any reservations. In our opinion,
on the whole the group management report provides a suitable understanding of the Group's position and
suitably presents the risks of future development. In addition, we confirm that the consolidated financial
statements and the group management report for the business year from 1 January to 31 December 2002
satisfy the conditions required for the Company's exemption from its duty to prepare consolidated financial
statements and the group management report in accordance with German law.

Mannheim, 21 March 2003

KPMG Deutsche Treuhand-Gesellschaft

Aktiengesellschaft
Wirtschaftsprfungsgesellschaft

von Hohnhorst Benz

Wirtschaftsprfer Wirtschaftsprfer
(German Public Auditor) (German Public Auditor)

89
SHAREHOLDINGS

LIST OF SHAREHOLDINGS OF KSB AG

Investments in affiliates Net proft

for the year
(Net loss
Capital share Equity for the year)
31 Dec. 2002 2002 2002

Name and seat of the fully consolidated companies Country % (e thousands)

Direct investments
KSB Armaturen GmbH, Frankenthal Germany 100.00 10,226 1)

KSB Service GmbH, Frankenthal Germany 100.00 1,534 1)

KSB Service GmbH, Schwedt Germany 100.00 1,023 1)

KSB Fluid Systems GmbH, Frankenthal Germany 100.00 3,375 1)

Uder Elektromechanik GmbH, Friedrichsthal Germany 100.00 27 1)

KSB Zrich AG, Zurich Switzerland 100.00 1,473 29

Hydroskepi GmbH, Amaroussion Greece 100.00 1,248 18
KSB A/S, Farum (Copenhagen) Denmark 100.00 312 (95)
KSB Moerck AB, Askim (Gothenburg) Sweden 55.00 1,891 173
KSB Pompy i Armatura Sp. z o.o., Warsaw Poland 100.00 1,418 413
KSB-Pompa, Armatr Sanayi ve Ticaret A.S., Ankara Turkey 76.48 1,594 616
KSB Chile S.A., Santiago Chile 100.00 4,263 988
KSB Shanghai Pump Co. Ltd., Shanghai China 51.00 12,067 376
KSB de Mexico, S.A. de C.V., Quertaro Mexico 100.00 1,212 (795)
MIL Controls Limited, Mala India 51.00 2,269 254

KSB Finanz S.A., Mersch Luxembourg 100.00 88,218 497

KSB S.A.S., Gennevilliers (Paris) France 100.00 43,336 4,958
Techni Pompe Service S.A., Hoerdt France 100.00 1,228 318
AMRI Inc., Houston / Texas USA 10.03
KSB Verwaltungsgesellschaft S.A., Mersch Luxembourg 100.00 2,022 191
SISTO Armaturen S.A., Mersch Luxembourg 52.86 8,342 171
KSB Italia S.p.A., Milan Italy 100.00 19,428 746
KSB sterreich Ges.mbH, Vienna Austria 100.00 2,655 380
KSB Nederland B.V., Zwanenburg The Netherlands 100.00 4,167 247
KSB LIMITED, Loughborough United Kingdom 100.00 3,965 (1,059)
Rotary Equipment Services Ltd., Loughborough United Kingdom 100.00 503 384
N.V. KSB Belgium S.A., Wavre Belgium 100.00 2,618 496
KSB-AMVI S.A., Madrid Spain 100.00 2,413 296
AMVI S.A., Burgos Spain 99.80 4,465 383
KSB Ajax Pumps Pty. Ltd., Tottenham (Melbourne) Australia 100.00 5,717 23
KSB Pumps (S.A.) (Pty.) Ltd., Germiston (Johannesburg) South Africa 50.00 5,382 1,516

PAB Pumpen- und Armaturen-Beteiligungsgesellschaft mbH,

Frankenthal Germany 51.00 13,154 4,144
Canadian Kay Pump Ltd., Toronto Canada 100.00 10,329 (445)
KSB Bombas Hidrulicas S.A., Vrzea Paulista Brazil 100.00 13,198 2,093
KSB Comp. Sudamericana, Buenos Aires Argentina 100.00 2,404 (838)
KSB Pumps Co. Ltd., Lahore Pakistan 58.89 4,136 223
KSB Pumps Limited, Pune (Bombay) India 40.54 21,320 2,621
MIL Controls Limited, Mala India 49.00
KSB America Corporation, Richmond/Virginia USA 100.00 19,234 477
KSB Inc., Richmond / Virginia USA 100.00 7,084 1,207
GIW Industries Inc., Grovetown / Georgia USA 100.00 22,402 1,477
AMRI Inc., Houston / Texas USA 89.97 5,954 722

1) Profit pooling arrangement

90
 BOARDS

SUPERVISORY BOARD AND

BOARD OF MANAGEMENT

SUPERVISORY BOARD BOARD OF MANAGEMENT

Dr. Wolfgang Khborth, Dipl.-Ing., Frankenthal Dipl.-Ing. Josef Gerstner 3),

Chairman, Neckargemnd
Chairman of the Advisory Board of Klein Pumpen GmbH Chairman and Human Resources Director

Hermann Reutter, Mechanical Engineering Technician, Dr. Ing. Willi Enderle 4),
Bad Drkheim, Grnstadt
Deputy Chairman, Chairman of the General Works Council
and Chairman of the Frankenthal Works Council Dr. rer. pol. Alois Wittmann 5),
Frankenthal
Jacques Bouvet, Dipl.-Ing.,
Marnes-la-Coquette (France) Dipl.-Ing. Peter Wurzbacher 6),
Former Prsident Directeur Gnral de Charbonnages de France Frankenthal

Bernd Euler 1), Dipl.-Kfm., Buckenhof

Member of the Executive Management of the Industrial Solutions
and Services Division of Siemens Aktiengesellschaft
(since 6 June 2002)

Sigrid Feldmann, Neustadt/Weinstrae Mandates of KSB Supervisory Board members in the

Trade Union Secretary of IG Metall Ludwigshafen / Frankenthal Supervisory Board / Board of Directors of other companies:
1) Siemens DEMATIC AG, Nuremberg; Siemens s.r.o., Prague;

Heinz Kppel, Managing Director, Bayreuth, Siemens France S.A.S., Paris; Siemens Controlmatic S.A.,
1. Delegate of IG Metall Administration Area Ost-Oberfranken Barcelona
2) Aktiengesellschaft Khnle, Kopp & Kausch (KK&K), Frankenthal;

Alois Lautner, Lathe Operator, Kirchenthumbach TV Rheinland Holding AG, Cologne

Deputy Chairman of the Pegnitz Works Council
Mandates of KSB AG's Board of Management members in the
Gnther Mller, Dipl.-Ing., Pegnitz Board of Directors of KSB companies:
3) KSB Finanz S.A., Mersch, Luxembourg
Vice President Competence Centre Sales
Industry and Process Engineering KSB S.A.S., Gennevilliers, France
4) KSB Pumps (S.A.) (Pty.) Ltd.,

Prof. Dr. Franz Steffens, Wiesenbach Germiston (Johannesburg), South Africa

Professor of Business Administration, Organization and Industrial KSB Pumps Arabia Ltd., Riyadh, Saudi Arabia
5) KSB Finanz S.A., Mersch, Luxembourg
Information Technology at Mannheim University
KSB LIMITED, Loughborough, UK
Dr. Udo Wagner, Dipl.-Kfm., Karlsruhe KSB Italia S.p.A., Milan, Italy
Member of the Executive Management of the Industrial Solutions KSB America Corporation, Richmond, USA
and Services Division of Siemens Aktiengesellschaft GIW Industries Inc., Grovetown, USA
(until 6 June 2002) KSB Bombas Hidrulicas S.A., Vrzea Paulista, Brazil
Canadian Kay Pump Ltd., Toronto, Canada
6) KSB Ajax Pumps Pty. Ltd., Tottenham, Australia
Prof. Dr. Dietmar Werner 2), Dipl.-Ing., Neustadt/Weinstrae
Former Member of the Board of Management KSB AMRI (Asia Pacific) Pte. Ltd., Singapore
of BASF Aktiengesellschaft KSB Pumps Co. Ltd., Bangkok, Thailand
KSB Shanghai Pump Co. Ltd., China
Bernhard Wild, Dipl.-Ing., Knigstein KSB Pumps Limited, Pune, India
Chairman of the Board of Braun GmbH MIL Controls Limited, Mala, India
KSB Pumps Co. Ltd., Lahore, Pakistan
Klaus-Peter Wingerter, Machine Fitter, Frankenthal KSB Nederland B.V., Zwanenburg, The Netherlands
Member of the Frankenthal Works Council KSB sterreich Ges.mbH, Vienna, Austria

91
CORPORATE GOVERNANCE

CORPORATE GOVERNANCE

Declaration of Conformity by the Board of Management and the Supervisory Board of KSB Aktien-
gesellschaft concerning the recommendations of the Government Commission on the German Cor-
porate Governance Code pursuant to Article 161 of the German Public Companies Act (AktG)

The Board of Management and the Supervisory Board of KSB Aktiengesellschaft welcome the German Cor-
porate Governance Code specifying principles of management and supervision. The Code largely coincides
with the management and supervision practices of the management bodies of KSB Aktiengesellschaft. KSB
Aktiengesellschaft has adopted the recommendations expressed in the Code with the following exceptions:

1. The Supervisory Board specifies the Board of Management's information and reporting duties on a
case-to-case basis. No written rules governing reporting by the Board of Management are in place
(item 3.4 of the Code).

2. As regards the D&O (directors and officers' liability insurance) policy taken out by the company for the
Board of Management and Supervisory Board, no deductible has been agreed upon (item 3.8 of the Code).

3. Compensation of the members of the Board of Management is reported in the Notes to the Consolidated
Financial Statements, but not subdivided according to fixed, performance-related and long-term
incentive components (item 4.2.4 of the Code).

4. The Supervisory Board has not issued Terms of Reference (item 5.1.3 of the Code).

5. The Supervisory Board has not set up an Audit Committee (item 5.3.2 of the Code).

6. No age limit has been specified for the members of the Supervisory Board (item 5.4.1 of the Code).

7. Compensation of the members of the Supervisory Board or advantages extended for services provided
individually, in particular advisory or agency services, are not listed separately and subdivided according
to components in the Notes to the Consolidated Financial Statements (item 5.4.5 of the Code).

8. The Supervisory Board does not examine the efficiency of its activities on a regular basis (item 5.6 of
the Code).

9. KSB publishes the Consolidated Financial Statements well before expiry of the time periods provided by
law. However, the time period provided by the Code, i.e. within 90 days of the end of the financial year,
is not met (item 7.1.2 of the Code).

Frankenthal, 19 December 2002

For the Supervisory Board For the Board of Management

Dr. Wolfgang Khborth Josef Gerstner

92
SHAREHOLDER INFORMATION

25 April 2003 Should you need additional information, please contact:

Invitation to Annual General Meeting
KSB Aktiengesellschaft
29 April 2003 Johann-Klein-Strae 9
Financial press conference, Frankenthal 67227 Frankenthal (Pfalz)
Web site: www.ksb.com
5 June 2003, 15:00 h
Annual General Meeting Investor Relations
CongressForum Frankenthal, Dr. Wolfgang Schmitt
Stephan-Cosacchi-Platz 5, 67227 Frankenthal Tel. +49 (6233) 86 25 54
Fax +49 (6233) 86 34 93
As from 6 June 2003 E-mail: investor-relations@ksb.com
Dividend payment
Communications
August 2003 Ullrich Bingenheimer
Interim report January June 2003 Tel. +49 (6233) 86 21 38
Fax +49 (6233) 86 34 56
E-mail: ullrich.bingenheimer@ksb.com

Concept and design:

HGB Hamburger Geschftsberichte GmbH & Co. KG,
Hamburg

Printed by:
Bliesdruckerei Peter Jung GmbH,
Blieskastel

93
GLOSSARY

E-learning This term covers a wide set of electronic applications and

processes used to deliver learning and training programmes.
Employees can acquire skills and knowledge via their PC at
the workplace. This saves both time and costs.

Cavitation This phenomenon may be caused by localized low pressure

zones in a pump or when the static pressure is reduced to
vapour pressure at high fluid temperatures. Vapour bubbles
develop and then implode again when the pressure rises.
Prolonged operation under these conditions may cause the
pump to be damaged or even destroyed.

Competence centres In the framework of its global strategy, KSB has established
competence centres whose staff assume regional responsi-
bility for defined product groups, prepare quotations and
process orders. If they have the necessary equipment and
know-how, these centres also assemble products and modify
them to meet country-specific standards.

Life cycle costs This concept has come to be an important criterion for
purchasing decisions: it refers to the total costs incurred for
equipment over its life span. These include the cost of initial
investment, installation, energy, operation, maintenance,
downtimes and decommissioning, as well as environmental
costs.

Made by KSB Group-wide quality standards are to ensure high product

quality within the KSB Manufacturing Network. Compliance
with these standards is documented by certificates.

Rehabilitation This term describes the complete technical overhaul of a plant

that usually runs 24 hours a day and can only be shut down
for maintenance every few years.

Abbreviations
API American Petroleum Institute
ANSI American National Standards Institute
IFRSs International Financial Reporting Standards (formerly IASs)
ISO International Organization for Standardization
ISPA Instrument for Structural Policies for Pre-Accession. ISPA
projects are designed to help the EU accession countries
implement EU environmental and other standards.
TWIN: Aimed at a technical and economic realignment, this KSB
project has been successfully completed. It involved the
consolidation of manufacturing capacities in Western Europe.
VDMA Verband Deutscher Maschinen- und Anlagenbau e. V.
(German Engineering Federation)

94
V ISIT U S ON THE I NTERNET.

You will find more information and the latest news

on KSB at www.ksb.com
KSB Aktiengesellschaft
67225 Frankenthal (Germany)
www.ksb.com