[5] Acquisitions

Dematic

On 21 June 2016, the KION Group reached agreement with funds managed by AEA Investors and the Ontario Teachers’ Pension Plan to acquire 100 per cent of the capital and voting shares in DH Services Luxembourg Holding S.à r.l., Luxembourg. The deal was completed on 1 November 2016. DH Services Luxembourg Holding S.à r.l. is the parent company of the Dematic Group. The acquisition of Dematic, a leading specialist for automation and optimisation of supply chains, will make the KION Group one of the world’s top suppliers of solutions for Intralogistics 4.0. The KION Group’s sales and service network, technology and resources will enable it to offer customers of all sizes in diverse industries worldwide a complete range of material handling products and services. The KION Group is thus strengthening its position as a full-service provider of intelligent supply chain and automation solutions and can benefit from megatrends, such as digitalisation and the growing e-commerce business. With technology centres and production facilities worldwide, Dematic has more than 100 sites in 22 countries.

The cash consideration paid for the acquired net assets amounted to €1,782.7 million, plus €383.4 million to extinguish debt instruments. A cash flow hedge in connection with the purchase price obligation denominated in foreign currency (see note [40]) gave rise to exchange-rate-driven changes of €10.4 million, which were recognised as a basis adjustment. The forward exchange deals involved had been recognised beforehand using hedge accounting.

The incidental acquisition costs incurred by this business combination amounted to €20.2 million and have been recognised in consolidated profit or loss under administrative expenses. The impact of this acquisition on the consolidated financial statements of KION GROUP AG based on the incomplete figures available at the acquisition date is shown in > TABLE 046.

It has not been possible to complete the analysis of the acquired assets and assumed liabilities before the publication date for these consolidated financial statements because of the timing of the deal close to the reporting date, the complexity of the business model and the extent of the detailed information necessary to carry out the measurements. The above acquisition’s purchase price allocation as at 31 December 2016 should therefore be treated as incomplete in terms of the recognition and measurement of the acquired net assets at fair value – especially the measurement of the intangible assets, property, plant and equipment, construction contracts, inventories and provisions. Additionally, the deferred taxes should be considered as incomplete. Furthermore, the reported purchase price should be viewed as incomplete due to contractual verification by KION. The goodwill represents both the well-qualified workforce and the KION Group’s expectations of revenue synergies. The latter will be generated on the sales side as Dematic makes use of the comprehensive sales and service organisation of Linde and STILL in Europe. At the same time, Dematic’s strong market position in North America and elsewhere should help to stimulate the truck business outside Europe. The goodwill arising from this acquisition is currently not tax deductible. The derived goodwill is initially being assigned to the Dematic cash-generating unit (CGU).

For now, the useful lives applied to the customer relationships are 10 to 15 years, and to technology & development 15 years.

The receivables acquired as part of this transaction, which largely constitute trade receivables (€170.9 million) and unbilled receivables from construction contracts with a net credit balance (€96.1 million), totalled €267.1 million gross. At the acquisition date, it was assumed that trade receivables of €11.4 million and unbilled receivables from construction contracts with a net credit balance of €0.5 million would not be recoverable. Consolidated revenue rose by €259.5 million as a result of the acquisition. The net income reported for 2016 contains a loss totalling €26.5 million attributable to the entities acquired. If the business combination had been in place for the whole of the year, i.e. from 1 January 2016, this would have caused an increase in revenue of €1,705.0 million and a decrease in net income of €128.2 million for the KION Group in 2016. The loss from the acquired entities results from non-operating losses in the course of the amortisation of the fair values determined for the acquired assets on initial recognition of the business combination.

An agreement was reached with a group of banks for a bridge loan (acquisition facilities agreement, AFA) to finance the acquisition of Dematic. The original amount of the AFA was €3,000.0 million. This bridge loan was to be refinanced partly by long-term capital-market and bank debt and partly by equity. For this reason, KION GROUP AG implemented a capital increase in July 2016 that generated gross proceeds of €459.3 million (see disclosures in note [28]). The agreed financing volume was reduced by the proceeds from the issue of shares and, when the AFA was drawn down for the first time on 1 November 2016, amounted to €2,543.2 million.

The line item ‘Acquisition of subsidiaries (net of cash acquired) and other equity investments’ in the consolidated statement of cash flows contains a net cash outflow of €2,091.1 million for the acquisition of the Dematic Group.

Retrotech Inc.

On 8 February 2016, the KION Group reached agreement on the acquisition of Retrotech Inc., a US systems integrator of automated warehouse and distribution solutions. The transaction was closed on 1 March 2016. The purchase price for the 100 per cent stake in Retrotech Inc., which is headquartered in Rochester, New York State, was €25.0 million.

The incidental acquisition costs incurred by this business combination amounted to €0.7 million. They have been recognised as an expense for the current period and reported as administrative expenses in the consolidated income statement. The impact of this acquisition on the consolidated financial statements of KION GROUP AG based on the figures available at the acquisition date is shown in > TABLE 047.

As part of this transaction, receivables in a gross amount of €8.8 million were acquired, of which €5.3 million constituted unbilled receivables from construction contracts with a net credit balance. At the acquisition date, the amount of acquired trade receivables that could not be recovered was insignificant. Consolidated revenue rose by €17.5 million as a result of the acquisition. The net income reported for 2016 contains a loss totalling €4.9 million attributable to the entity acquired. If this business combination had been in place for the whole of the year, i.e. from 1 January 2016, this would have had no material impact on either the revenue or the net income (loss) reported by the KION Group for 2016.

In the second quarter of 2016, the main item was a change in the measurement of other intangible assets within the measurement period. In addition to the increase in other intangible assets, this adjustment also caused a countervailing increase in the deferred tax liabilities recognised thereon, which caused the goodwill recognised to reduce by a total of €2.0 million.

The goodwill represents the KION Group’s expectations of strategic and geographical synergies, and the benefit of the well-qualified workforce. The goodwill arising from this acquisition is currently not tax deductible. The derived goodwill is assigned to the Egemin Automation CGU.

The line item ‘Acquisition of subsidiaries (net of cash acquired) and other equity investments’ in the consolidated statement of cash flows contains a net cash outflow of €23.2 million for the acquisition of Retrotech Inc.

Other acquisitions

In October 2015, 100.0 per cent of the shares in the dealer Emhilia Material Handling S.p.A. (formerly Moden Diesel S.p.A.), Modena, Italy, had been acquired. At the end of October 2015, 100.0 per cent of the shares in LR Intralogistik GmbH, Wörth an der Isar, Germany, a specialist in intralogistics concepts that eschew forklift trucks in favour of tugger trains, had also been acquired. These two subsidiaries were included in the KION Group’s basis of consolidation for the first time in January 2016 because they had become more financially important.

With effect from 1 September 2016, 100.0 per cent of the shares in the dealer STILL Norge AS (formerly Roara AS), Heimdal, Norway, were acquired. The purchase consideration for these shares was €0.7 million.

The impact of these acquisitions on the consolidated financial statements of KION GROUP AG based on the figures available at their acquisition dates is shown in > TABLE 048.

The goodwill constitutes the strategic, technological and geographical synergies that the KION Group expects to derive from these business combinations. None of the goodwill arising from the other acquisitions is currently tax deductible. The goodwill derived from these acquisitions is assigned to the STILL EMEA CGU.

The contingent considerations in connection with the acquisition of LR Intralogistik GmbH contractually oblige the KION Group to make additional payments to the previous shareholders that are mainly dependent on the usability of certain intangible assets. The line item ‘Acquisition of subsidiaries (net of cash acquired) and other equity investments’ in the consolidated statement of cash flows contains – in addition to cash payments (€0.3 million) – a cash outflow totalling €4.1 million that relates to these contingent considerations.

The purchase price allocation for the acquisition of STILL Norge AS was incomplete as at 31 December 2016 because some details, particularly in the area of intangible assets, and lease data had not yet been fully evaluated. The contingent considerations in connection with the acquisition of STILL Norge AS (€0.5 million) contractually oblige the KION Group to make additional payments to the previous shareholders that are mainly dependent on the achievement of defined EBIT targets for the years 2017 to 2019.