Principles and objectives of financial management
By pursuing an appropriate financial management strategy, KION Group GmbH ensures that sufficient liquidity is available at all times and mitigates the financial risk to its enterprise value and profitability. As an entity that operates worldwide, the KION Group is exposed to risks in respect of currencies, interest rates, prices, counterparties and countries.
The KION Group provides sufficient financial resources for its day-to-day business, optimises its financial relationships with customers and suppliers, ensures that the necessary liquidity is available to its companies, and manages any collateral security offered. A group of international banks and investors meets the Company's basic borrowing requirements. In addition, the Company availed itself of the funding facilities offered by the public capital markets by issuing its first corporate bond in April 2011. The financial resources required within the KION Group are provided through internal funding. The KION Group collects liquidity surpluses of the Group companies in central or regional cash pools and, where possible, 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.
The Group occasionally arranges additional credit lines for KION Group companies with local banks or leasing companies in order to comply with legal, tax and other regulations.
The SFA, which is the main loan agreement, and the contractual terms and conditions governing the issuance of the corporate bond require compliance with certain undertakings and covenants among other things. The SFA also requires compliance with specific financial covenants during the term of the agreement. The financial covenants specify required ratios for the financial position and financial performance of the KION Group. The covenants are expressed in the form of key figures relating to net gearing, available liquidity, EBITDA, interest paid and capital expenditure. These loan terms and conditions were adjusted in line with prevailing market conditions and with the broad consent of the lenders in 2009. In return for adjusting the covenants, the lenders were granted an increase in the interest premium. This premium is mainly payable as a bullet payment at maturity, thereby ensuring that there is no additional adverse effect on the KION Group's liquidity in the meantime. If undertakings or financial covenants are breached, this may, for example, give lenders the right to terminate the SFA or permit bondholders to call the corporate bond prior to its maturity date. All the financial covenants were complied with in the past financial year.
In addition, investment funds advised by Kohlberg Kravis Roberts & Co. L.P. and Goldman Sachs Capital Partners loaned the KION Group a principal amount of €100 million under the terms of the SFA in order to offer the Company greater strategic flexibility. The loan amount and the associated interest are repayable as a bullet payment at maturity. For funding purposes, the KION Group also engages to a small extent in factoring. The volume of non-recourse factoring business amounted to €18 million at the end of 2011 (31 December 2010: €20 million); the Company only uses recourse factoring in isolated cases. KION Group disposes of a liquidity reserve through unrestricted, bindingly committed credit lines and cash to ensure that it remains solvent and financially flexible.
