Selected notes to the consolidated statement of financial position

Goodwill and other intangible assets

The change in the amount of goodwill in the first nine months of 2014 was the result of currency effects.

The total carrying amount for technology and development assets as at 30 September 2014 was €217.5 million (31 December 2013: €216.9 million). Development costs of €9.9 million were capitalised in the third quarter of 2014 (Q3 2013: €10.0 million); the corresponding figure for the first nine months of 2014 was €31.5 million (Q1 – Q3 2013: €30.9 million). Total research and development costs of €29.7 million were expensed in the third quarter of 2014 (Q3 2013: €30.0 million), while €87.8 million was expensed in the first nine months of 2014 (Q1 – Q3 2013: €88.7 million). Of these respective amounts, €10.8 million related to amortisation in the third quarter of 2014 (Q3 2013: €11.8 million) and €31.3 million to amortisation in the first nine months of 2014 (Q1 – Q3 2013: €34.1 million).

Inventories

The rise in inventories compared with 31 December 2013 was largely attributable to the increase in materials and supplies (up by 19.3 per cent), work in progress (up by 28.0 per cent) and finished goods (up by 20.4 per cent). Impairment losses of €2.0 million were recognised on inventories in the third quarter of 2014 (Q3 2013: €1.9 million) and of €8.0 million in the first nine months of 2014 (Q1 – Q3 2013: €8.4 million). Reversals of impairment losses had to be recognised in the amount of €0.6 million in the third quarter of 2014 (Q3 2013: €1.4 million) and in the amount of €2.2 million in the first nine months of 2014 (Q1 – Q3 2013: €4.2 million) because the reasons for impairment no longer existed.

Trade receivables

The rise in trade receivables compared with 31 December 2013 was primarily due to the increase of €50.4 million in receivables due from third parties and the increase of €8.1 million in receivables due from associated companies and joint ventures. Valuation allowances of €43.7 million (31 December 2013: €42.4 million) were recognised for trade receivables.

Equity

As at 30 September 2014, the Company’s share capital amounted to €98.9 million, which was unchanged on 31 December 2013, and was fully paid up. It was divided into 98,900,000 no-par-value shares, each with a value of €1. The total number of shares outstanding as at 30 September 2014 was 98.6 million no-par-value shares. At the reporting date, KION GROUP AG held 251,000 treasury shares.

The distribution of a dividend of €0.35 per share to the shareholders of KION GROUP AG resulted in an outflow of funds of €34.5 million.

The Annual General Meeting on 19 May 2014 voted to create authorised capital that will enable the KION Group to meet its funding needs quickly and flexibly. Subject to the consent of the Supervisory Board, the Executive Board is authorised until 18 May 2019 to increase the Company’s share capital by up to €9.89 million by way of an issue of up to 9,890,000 new no-par-value bearer shares.

To safeguard the Company’s funding options, the Executive Board is also authorised until 18 May 2019 to issue warrant-linked bonds, convertible bonds or profit-sharing rights with a total par value of up to €800 million that contain pre-emptive rights / obligations for up to 9,890,000 no-par-value shares. To this end, a conditional increase was decided upon in order to increase the Company’s share capital by up to €9.89 million by way of an issue of up to 9,890,000 new no-par-value bearer shares.

The total amount attributable to shares that was spent in connection with this approved / conditional capital may not exceed 10 per cent of the share capital. In both cases, the pre-emptive right of shareholders can be excluded in certain circumstances. The corresponding amendments to the Articles of Incorporation were entered in the commercial register on 16 June 2014.

Retirement benefit obligation

For the purposes of the interim report, a qualified estimate of the defined benefit obligation was made based on the change in actuarial parameters and taking into account any particular effects in the period under review.

The retirement benefit obligation was higher than it had been at the end of 2013 owing, above all, to actuarial losses resulting largely from lower discount rates. The estimated present value of the defined benefit obligation was calculated on the basis of the discount rates shown in >> table 24.

The change in estimates in relation to defined benefit pension entitlements resulted in a decrease of €106.8 million in equity as at 30 September 2014 (after deferred taxes).

In connection with the so-called 2012 valuation of the pension plans for the employees of the KION Group’s UK companies, the Company and the trustees of the pension funds agreed on a calculation method in May 2014, according to which the deficit for all pension plans amounted to €8.3 million as at 1 July 2013. On this basis, the KION Group agreed with the trustees that it would pay approximately the equivalent of €5.0 million in 2015 and €2.5 million in 2016 in order to reduce the deficit. However, these payments are subject to the condition that the annual review of the pension plans’ funding position continues to reveal a deficit. If a payment would result in the pension plans being overfunded, the KION Group would be exempt from its payment obligation in that year. Between January and May 2014, the KION Group made one-off payments equivalent to €1.4 million. Under the new agreement, no further payments are due in 2014.

In addition, KION Material Handling GmbH has given default guarantees to the trustees of two pension plans (Blackwood Schemes) under which, if the employer defaults, KION Material Handling GmbH will assume all obligations of the employer up to the amount of the buy-out deficit, provided certain conditions are met. These guarantees replace the letters of support issued in 2013, which themselves had replaced the guarantees given to Blackwood Schemes by KION Material Handling GmbH (formerly KION GROUP GmbH) after KION GROUP AG’s IPO, as set forth in the original guarantee agreements. Where these letters of support had been given in respect of UK pension plans other than the Blackwood Schemes, these letters of support were amended by mutual agreement so that the trustees were able to measure the deficits of the pension plans at any time in future without losing the entitlements in the relevant letter of support.

The trustees were also granted collateral in rem in the form of charges on the real estate of Group companies in the UK and flexible collateral in respect of the rental fleets of UK dealers within a maximum overall limit of approximately €23.1 million. The term of this collateral is limited to five years (1 July 2018), and the overall limit will not be reduced by payments made by the KION Group.

Financial liabilities

On 15 April 2014, the fixed-rate tranche of the corporate bond issued in 2011, which was due to mature in 2018 and had a volume of €325.0 million, and the floating-rate tranche of the corporate bond issued in 2013, which was due to mature in 2020 and had a volume of €200.0 million, were repaid early in full. The funds used for the repayment mainly originated from a revolving credit facility, which has a term to maturity of five years after the IPO in June 2013. This credit facility currently has far lower interest rates than the two corporate bonds.

Against this background, the revolving credit facility was increased by €198.0 million to a total of €1,243.0 million in April 2014. This was achieved through bilateral lending agreements with a group of banks. These additional loans mature in April 2019 and have a variable interest rate. The transaction costs of €1.0 million directly attributable to increasing the revolving credit facility have been expensed over the term of the credit facility.