5.3 Net assets

The equity and liabilities side of the balance sheet primarily reflects the financial liabilities incurred by the KION Group's acquisition finance (SFA). KION Finance S.A., a recently established subsidiary based in Luxembourg, issued a corporate bond for €500 million in April 2011. The interest on the fixed-rate tranche of €325 million (7.875 per cent per annum) is paid semi-annually, while interest on the floating-rate tranche of €175 million (three-month Euribor + 4.25 percentage points per annum) is paid once a quarter. The bond's principal is redeemed as a bullet payment on maturity. €483 million of the total proceeds of €500 million was used in 2011 to repay existing SFA liabilities, which reduced current and non-current financial liabilities from €2,878 million in 2010 to €2,517 million in 2011. A capital market liability of €488 million was recognised in respect of the bond after borrowing costs of €12 million had been deducted.

Although the SFA funding was originally taken out in euros, some of it was converted into US dollars. The last dates for the repayment of amounts drawn down under the syndicated loan are between December 2013 and December 2016. In both currencies, the interest payable is based on a variable rate. The KION Group has entered into interest-rate and currency derivatives – primarily interest-rate swaps, currency swaps and currency options – to hedge some of the interest-rate and exchange-rate risk arising from the acquisition finance. About half of the currency and interest exposures were hedged as at the reporting date.

Financial liabilities before borrowing costs advanced by €136 million in 2011. As at 31 December 2011, current and non-current liabilities to banks amounted to €2,530 million (gross), while liabilities relating to the corporate bond totalled €500 million. The liabilities to banks alone therefore reduced by €364 million year on year. Net inflows of €483 million from the issuance of the corporate bond were used to repay the SFA liabilities to banks and make a scheduled repayment of €54 million under the multi-currency capex facility. However, this was counteracted by the precautionary €133 million drawdown of the revolving credit facility and by new SFA interest liabilities from deferred interest (PIK) of €34 million. In addition, exchange differences arising from translation of the US dollar tranche of the SFA increased liabilities to banks by €19 million.

The total borrowing costs of €33 million incurred by the loan negotiations conducted in 2009 and in connection with the issuance of the corporate bond were allocated to the individual tranches on a pro-rata basis and deducted from the carrying amounts of the liabilities in accordance with IAS 39.

The weighted average interest rate on financial liabilities was 4.96 per cent at the reporting date (31 December 2010: 4.55 per cent).

Total net financial debt – including deferred refinancing costs – rose by €16 million to €2,657 million.

Non-current lease liabilities grew by 15 per cent to €471 million owing to recently signed leases. This increase reflects operating conditions in the key western European markets. The volumes of business in all the key leasing markets in 2011 exceeded the levels achieved in the five years leading up to the crisis.

Trade payables advanced by 25 per cent to €634 million in line with rising production output and higher capital expenditure. Total lease liabilities also rose, from €662 million in 2010 to €701 million in 2011, owing to the increase in revenue from new trucks.

The net loss of €93 million gave rise to negative equity of €488 million (31 December 2010: minus €400 million). Exchange differences and other comprehensive income increased equity by €7 million. Dividends paid to non-controlling interests amounted to €2 million.

The equity calculated on the basis of these consolidated financial statements for the KION Group is of no relevance under the covenants agreed with the financing banks or under the German Commercial Code (HGB). The relevant figure under HGB in Germany is primarily the equity of KION Group GmbH as reported in that company's single-entity financial statements in accordance with HGB. This equity figure was €276 million as at 31 December 2011. The equity of KION Holding 1 GmbH reported in the single-entity financial statements of that company in accordance with HGB as at 31 December 2011 amounted to €201 million.