Outlook

Forward-looking statements

The forward-looking statements and information given below are based on the Company’s current expectations and assessments. Consequently, they involve a number of risks and uncertainties. Many factors, several of which are beyond the control of the KION Group, affect the Group’s business activities and profitability as well as the earnings of KION GROUP AG. Any unexpected developments in the global economy would result in the KION Group’s and KION GROUP AG’s performance and profits differing significantly from those forecast below. The KION Group does not undertake to update forward-looking statements to reflect subsequently occurring events or circumstances. Furthermore, the KION Group cannot guarantee that future performance and actual profits generated will be consistent with the stated assumptions and estimates and can accept no liability in this regard.

Actual business performance may deviate from our forecasts due, among other factors, to the opportunities and risks described here. Performance particularly depends on macroeconomic and industry-specific conditions and may be negatively affected by increasing uncertainty or a worsening of the economic and political situation.

Forecast for 2016

The overall assessment of the financial situation of the KION Group compares the forecasts included in the 2015 group management report and subsequent interim reports with actual performance in 2016.

Assumptions

The forecasts in this section are derived from the KION Group’s multiple-year market, business and financial plan, which is based on certain assumptions. Market planning takes into account macroeconomic and industry-specific performance, which is described below. Business planning and financial planning are based on expected market performance, but also draw on other assumptions, such as those relating to changes in the cost of materials, the KION Group’s ability to command higher prices from customers and movements in exchange rates.

Expected macroeconomic conditions

In its January economic outlook, the International Monetary Fund (IMF) expects the global economy’s growth to accelerate, driven by the United States and China. Improved estimates for Europe are another contributing factor. According to this forecast, the world’s economy will expand by 3.4 per cent in 2017, compared with 3.1 per cent in 2016. Following weak growth in 2016, the IMF believes global trade will return closer to the trend growth rate of four per cent in 2017. Nonetheless, the IMF warns of increasing protectionist tendencies, which could lead to a trade war.

The outlook for macroeconomic conditions is based, in particular, on higher government spending and fiscal stimulus in the United States and China as well as a further stabilising of the oil price.

Expected sectoral conditions

Going forward, the overall market for industrial trucks and warehouse systems will continue to depend heavily on economic conditions in key sales markets. Over the past few years, the market’s growth – measured by the number of new trucks sold and the revenue of the largest system manufacturers – has consistently exceeded the growth rates for global gross domestic product (GDP). In view of the generally positive macroeconomic prospects, the KION Group anticipates that the worldwide market for material handling solutions will continue to expand in 2017.

Following substantial growth of almost eight per cent in the global market for new industrial trucks in 2016, growth rates are predicted to normalise, returning closer to the long-term trend of around four per cent. A further increase in orders is expected in Europe and North America, although growth rates will be more modest due to the record-high market volume and political uncertainties. Following a strong second half of 2016, the KION Group expects a further firming of demand in China. The constantly increasing number of trucks in operation worldwide provides a sustainable customer base for the service business.

In the warehouse systems business, the rapid expansion of e-commerce and the increasingly widespread use of Industry 4.0 technologies are likely to push up demand for automation solutions. For this reason, the KION Group expects slightly faster growth, with average growth rates of around 10 per cent up to 2019.

Expected business situation and financial performance of the KION Group

In 2017, the KION Group aims to build on its successful performance in 2016 and, based on the forecasts for market growth, achieve further increases in order intake, revenue and adjusted EBIT.

The order intake of the KION Group is expected to be between €7,800 million and €8,250 million. The target figure for consolidated revenue is in the range of €7,500 million to €7,950 million. The target range for adjusted EBIT is €740 million to €800 million. The adjusted EBIT margin is predicted to increase above the margin of 9.6 per cent that was generated in 2016. Free cash flow is expected to be in a range between €370 million and €430 million. The target figure for ROCE is in the range of 9.5 per cent to 10.5 per cent.

Order intake in the Industrial Trucks & Services segment is expected to be between €5,450 million and €5,600 million. The target figure for revenue is in the range of €5,300 million to €5,450 million. The target range for adjusted EBIT is €605 million to €630 million. The adjusted EBIT margin is predicted to increase slightly above the margin of 11.3 per cent achieved in 2016.

Order intake in the Supply Chain Solutions segment is expected to be between €2,350 million and €2,650 million. The target figure for revenue is in the range of €2,200 million to €2,500 million. The target range for adjusted EBIT is €195 million to €230 million. The adjusted EBIT margin is predicted to increase significantly above the margin of 1.6 per cent that was generated in 2016.

The outlook is based on the assumption that material prices will hold steady and the current exchange rate environment will remain as it is. > TABLE 037

Expected financial position of the KION Group

As at 31 December 2016, an amount of €225.3 million had been drawn down from the revolving credit facility, which includes other loan liabilities and contingent liabilities. The fixed-term tranche of €350.0 million was fully drawn down as at the end of 2016.

A bridge loan of €3,000.0 million was agreed for the acquisition of Dematic. The agreed financing volume was reduced by the net proceeds from the capital increase in July 2016 of €457.3 million and, when the bridge loan was drawn down for the first time on 1 November 2016, amounted to €2,543.2 million.

As at the end of 2016, the bridge loan consisted of three fixed-term, floating-rate tranches: tranche A2 of €343.2 million, tranche B of €1,200.0 million and a further loan of €1,000.0 million.

In February 2017, KION GROUP AG partly refinanced the bridge loan by issuing promissory notes (see note [50] in the notes to the consolidated financial statements). Over the course of 2017, KION GROUP AG intends to use free cash flow to lower its net debt still further.

Overall statement on expected performance

The basis for the long-term success of the KION Group will continue to be the strong position occupied by its international and national brands in western Europe and the emerging markets. The international brands Linde and STILL, in particular, safeguard their technology leadership and underline their status as premium brands in the Industrial Trucks & Services segment by maintaining high levels of capital expenditure and R&D spending. In Dematic, the KION Group has acquired a leading player in the expanding logistics systems segment. With a strong presence in the North American market, Dematic benefits from its position as the market number one in fast-growing customer segments such as e-commerce, retail and wholesale.

By pursuing its Strategy 2020 and other measures, the KION Group believes it will continue along its path of profitable growth and aims to achieve a further improvement in its market position worldwide in 2017.