Principles and objectives of financial management
The objective of financial management is to ensure the availability of adequate liquidity at all times and to limit financial risk.
Ensuring that the Company has sufficient liquidity at all times includes not just its solvency in the strict sense of the term but also the availability of the necessary financial resources for its day-to-day business, the settlement of customers' orders, the supply of cash throughout the organisation, and the management of any collateral security provided. The main objective of this approach is to limit the financial risks attaching to the Company's market value and profitability. They include exchange-rate risk, interest-rate risk, price risk, credit risk and country risk.
A group of international banks and investors primarily provide the financial resources required by the KION Group for external operations. The financial resources required within the KION Group are provided through internal funding. Where possible, the KION Group covers subsidiaries' funding requirements with intercompany loans. This central source of funding enables the KION Group to present a united front in the capital markets and strengthens its hand in negotiations with banks and other market participants.
Companies in the KION Group either utilise other entities' liquidity surpluses in the form of cash pools or receive intercompany loans. Group Treasury arranges credit lines with local banks or leasing companies in some cases in order to comply with legal, tax and other regulations.
The main loan agreement includes financial covenants specifying compliance with defined ratios for financial position and financial performance. The covenants are expressed in the form of key figures relating to gearing, available liquidity, adjusted EBITDA, interest paid and capital expenditure. In 2009, the terms of the loans were adjusted in line with current market conditions with the broad consent of the lenders. In return for the adjustment of the covenants, the lenders were granted an increase in the interest premium. This premium is payable for the most part as a bullet payment on maturity, thereby ensuring that there is no adverse effect in the meantime on the KION Group's liquidity. The KION Group complied with all the financial covenants in the past financial year.
In addition, investment funds associated with Kohlberg Kravis Roberts & Co. L.P. and Goldman, Sachs & Co. have provided the KION Group with a loan of €100 million under the terms of the SFA in order to offer the Company more flexibility in its corporate strategy. The loan amount and the associated interest are repayable as a bullet payment on maturity.
The KION Group also uses factoring for financing purposes. As at 31 December 2010, the volume of non-recourse factoring was €20 million (31 December 2009: €23 million); the KION Group only uses a small amount of recourse factoring.
KION Group GmbH has sufficient cash and cash equivalents as well as unrestricted, bindingly committed credit lines at its disposal to ensure solvency at all times.
