[29] Financial liabilities

In connection with its acquisition of Linde AG’s material handling business, the KION Group signed a loan agreement (a senior facilities agreement and a subordinated facility agreement, referred to below as ‘SFA’) for a total original amount of €3,300.0 million with the lead banks Barclays Bank Plc, Bayerische Hypo- und Vereinsbank AG, Credit Suisse (London branch), Goldman Sachs International Bank, Lehman Commercial Paper Inc. (UK branch) and Mizuho Corporate Bank Ltd. on 23 December 2006.

In 2013, the long-term bank loans under the acquisition finance arrangements (tranches B and C) of €1,714.1 million were repaid in full along with the interest that was due as a bullet payment on maturity. The floating-rate tranche (tranche H1b) of the corporate bond of €175.0 million that was issued in 2011 and was due to mature in 2018 was repaid early in full. On repayment of the SFA liabilities and the floating rate note due in 2018, an amount of €24.5 million representing the proportion of the related deferred borrowing costs was recognised as a financial expense. Of this total, €21.2 million related to the repaid bank liabilities and €3.3 million related to the repaid capital market liabilities. The funds for the repayment were generated by the corporate bond issued in February 2013 (tranches H2a and H2b), the inflows from the IPO and the Weichai capital increase. In 2013, financial expenses of €18.3 million arising from the unwinding of interest-rate hedges were also incurred in connection with repayment of the SFA liabilities, of which €14.4 million impacted cash flow.

The loan (tranche G) of €100.0 million (plus accrued interest of €17.0 million) was converted into equity in June 2013. In doing so, Superlift Holding S.à r.l., Luxembourg, transferred all rights and duties arising out of the loan with Superlift Funding S.à r.l., Luxembourg and all of the shares in the latter to KION GROUP AG as part of a capital increase.

In connection with the IPO, the KION Group agreed a new revolving loan facility with a group of banks under the SFA for €995.0 million with a term to maturity of five years after the IPO. The loan facility was increased to €1,045.0 million in December 2013. As at 31 December 2013, €184.4 million had been drawn down under this newly agreed revolving loan facility of €1,045.0 million – including other loan liabilities of individual Group companies outside Germany and contingent liabilities. The directly attributable transaction costs of €9.3 million have been recognised as prepaid expenses under current financial assets and expensed over the term of the loan facility. Combined with lower margins, this loan facility offers more favourable credit terms in line with those typically available to comparable listed companies.

The KION Group issued a corporate bond for €650.0 million through the consolidated subsidiary KION Finance S.A., Luxembourg, in February 2013. Of the bond’s total par value of €650.0 million, €450.0 million is repayable at a fixed interest rate of 6.75 per cent p.a., while €200.0 million carries a floating interest rate based on three-month Euribor plus a margin of 4.5 percentage points. The payout amount for the variable portion was €1.0 million below the par value (discount). The interest on the fixed-rate tranche is paid semi-annually, while interest on the floating-rate tranche is paid once a quarter. Excluding early repayment options, the contract stipulates repayment as a bullet payment on maturity in February 2020. Of the total proceeds of €649.0 million, €636.0 million was used to repay existing liabilities under the SFA. A further €12.7 million relates to settlement of the transaction costs incurred for the issuance of the corporate bond, which is allocated pro rata to the two tranches and expensed over their terms. In addition, the floating-rate tranche, which was due to mature in 2018 and amounted to €175.0 million, was repaid in full on 19 July 2013. Upon repayment, associated transaction costs of €3.3 million were derecognised and taken to income. The fixed-rate tranche of the bond issued in 2011, which has a volume of €325.0 million and a maturity date of 2018, remains unchanged.

The KION Group uses its net financial debt as a key internal figure for analysing the changes in its financial liabilities. Net financial debt is defined as the difference between financial liabilities (excluding lease liabilities) and cash and cash equivalents.

The inflows from the IPO and the capital increases were predominantly used for the repayments. As a result, net financial debt fell significantly in 2013. The table below gives a breakdown of the KION Group’s net financial debt as at 31 December 2013: >> Table 078

In 2013, the KION Group made payments totalling €1,714.1 million to repay long-term SFA bank liabilities and €175.0 million to fully repay the floating-rate tranche of the corporate bond issued in 2011 that was due to mature in 2018. The funds for the repayment were generated by issuance of a new corporate bond in February 2013 (€649.0 million after deduction of the discount of €1.0 million), the inflows from the IPO and the Weichai capital increase, which together totalled €732.5 million (after deduction of banking fees), part of the new revolving loan facility and existing cash reserves.

The table below gives details of the changes in financial debt and lists the applicable terms and conditions: >> Table 079

The SFA and the contractual terms and conditions governing the issuance of the corporate bond require compliance with certain undertakings and covenants. 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 gearing, available liquidity, EBITDA, interest paid and capital expenditure. Since the IPO and the associated amendment of the credit terms under the SFA, only the financial covenant for gearing (the ratio of net financial debt to EBITDA) now applies. 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.

Under the SFA, the KION Group is under an obligation to provide collateral for its obligations and liabilities. This obligation also extends to the corporate bonds (tranches H1a, H2a and H2b). By the reporting date, a total of 26 (31 December 2012: 26) KION Group companies (guarantors) in five countries – Germany, the UK, France, Spain and Italy – had provided the necessary collateral.

The collateral includes guarantees, the assignment of shares in the guarantors (with the exception of shares in KION Material Handling GmbH (formerly KION GROUP GmbH)), the assignment of certain bank accounts and certain guarantor receivables, the assignment of claims arising from and in connection with the share purchase agreement between Linde Material Handling GmbH and Linde AG dated November 5, 2006 relating to the shares in the former KION GROUP GmbH, the assignment of shares in KION Information Management Services GmbH and assignments and transfers of title to intellectual property rights by guarantors in Germany. The statutory provisions in the United Kingdom and the agreements entered into mean that all the assets of the UK guarantors are pledged as security.

The carrying amounts of the financial assets pledged as collateral amounted to €348.7 million as at the reporting date (31 December 2012: €566.3 million).

As had been the case at the end of 2012, no material liabilities to banks were secured by mortgage charges at the end of 2013.