Basis of presentation

General information on the Company

KION GROUP AG, whose registered office is at Abraham-Lincoln-Strasse 21, 65189 Wiesbaden, is entered in the commercial register at the Wiesbaden local court under reference HRB 27060.

The condensed consolidated interim financial statements and the interim group management report were prepared by the Executive Board of KION GROUP AG on 26 October 2016.

Basis of preparation

The condensed consolidated interim financial statements of the KION Group for the nine months ended 30 September 2016 have been prepared in line with International Accounting Standard (IAS) 34 ‘Interim Financial Reporting’ and other International Financial Reporting Standards (IFRSs) as adopted by the European Union in accordance with Regulation (EC) No. 1606/2002 of the European Parliament and of the Council concerning the application of international accounting standards for interim financial statements. A condensed scope of interim reporting has been prepared in accordance with IAS 34.

All of the IFRSs and the related interpretations (IFRICs / SICs) of the IFRS Interpretations Committee (IFRS IC) that had been issued by the reporting date and that were required to be applied for financial years commencing on or after 1 January 2016 have been applied in preparing these condensed consolidated interim financial statements. These condensed consolidated interim financial statements do not contain all the information and disclosures required of a set of consolidated annual financial statements and should therefore be read in conjunction with the consolidated financial statements prepared for the year ended 31 December 2015.

The reporting currency is the euro. All amounts are disclosed in millions of euros (€ million) unless stated otherwise. The addition of the totals presented may result in minor rounding differences. The percentages shown are calculated on the basis of the respective amounts, rounded to the nearest thousand euros.

Financial reporting standards to be adopted for the first time in the current financial year

The following financial reporting standards were adopted for the first time with effect from 1 January 2016:

• Amendments to IFRS 10 ‘Consolidated Financial Statements’, IFRS 12 ‘Disclosure of Interests in Other Entities’ and IAS 28 ‘Investments in Associates and Joint Ventures’: clarification relating to application of the exception to the consolidation obligation for investment entities
• Amendments to IFRS 11 ‘Joint Arrangements’: clarification relating to the acquisition of interests in joint operations
• Amendments to IAS 1 ‘Presentation of Financial Statements’: amendments in connection with the initiative to improve disclosure requirements
• Amendments to IAS 16 ‘Property, Plant and Equipment’ and IAS 38 ‘Intangible Assets’: clarification relating to revenue-based depreciation and amortisation
• Amendments to IAS 16 ‘Property, Plant and Equipment’ and IAS 41 ‘Agriculture’: amendments relating to the financial reporting for bearer plants
• Amendments to IAS 19 ‘Employee Benefits’: defined benefit plans: employee contributions
• Amendments to IAS 27 ‘Separate Financial Statements’: amendments relating to the application of the equity method for subsidiaries, joint ventures and associates in separate financial statements
• Annual Improvements to IFRSs (2010–2012)
• Annual Improvements to IFRSs (2012–2014).

The first-time adoption of these amendments to standards has had no significant effect on the financial performance, financial position or notes to the interim financial statements of the KION Group.

Financial reporting standards released but not yet adopted

In its condensed consolidated interim financial statements for the nine months ended 30 September 2016, the KION Group has not applied – besides the standards and interpretations reported on as at 31 December 2015 – the following standards and amendments to standards, which have been issued by the IASB but are not yet required to be applied in 2016:

• Amendments to IFRS 2 ‘Share-based Payment’: amendments relating to the classification and measurement of share-based payment transactions
• Amendments to IFRS 4 ‘Insurance Contracts’: exempting provisions relating to the adoption of IFRS 9 ‘Financial Instruments’ before the effective date of the new version of IFRS 4
• Clarifications to IFRS 15 ‘Revenue from Contracts with Customers’: amendments relating to the identification of performance obligations, classification as principal or agent, revenue from licenses and transition relief.

These standards are expected to be applied by the entities included in the KION Group only from the date on which they must be adopted for the first time. The effects on the financial performance and financial position of the KION Group resulting from the first-time adoption of IFRS 9 ‘Financial Instruments’, IFRS 16 ‘Leases’ and IFRS 15 ‘Revenue from Contracts with Customers’ (including the clarifications to IFRS 15), particularly with regard to multiple-element arrangements and contracts for indirect end customer finance, are still being analysed. The effects of the first-time adoption of the other standards and interpretations on the presentation of the financial position and financial performance of the KION Group are expected to be insignificant.

Basis of consolidation

A total of 22 German (31 December 2015: 22) and 85 foreign (31 December 2015: 80) subsidiaries were fully consolidated in addition to KION GROUP AG as at 30 September 2016.

In addition, nine joint ventures and associates were consolidated and accounted for using the equity method as at 30 September 2016, which was the same number as at 31 December 2015.

50 (31 December 2015: 55) subsidiaries with minimal business volumes or no business operations and other equity investments were not included in the consolidation.

Sale and purchase agreement signed

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. Closing of the transaction is subject to the usual conditions and is likely to take place during the fourth quarter of 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, is expected to be closed in the fourth quarter and will make the KION Group one of the world’s top suppliers of solutions for Intralogistics 4.0. The enlarged Company’s sales and service network, technology and resources will enable it to offer customers of all sizes and in all 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. Dematic has engineering centres and manufacturing facilities located around the world and operates more than 100 sites in 22 countries.

The provisional purchase price for the net assets acquired is the equivalent of around €1.9 billion. In addition, debt instruments will be redeemed. Dematic, which employs almost 6,000 skilled professionals, generated revenue of roughly €1.6 billion and adjusted EBIT of around €150.0 million in the 2015 calendar year.

An agreement has been reached with a group of banks for a bridge loan of originally €3.0 billion as financing for the acquisition of Dematic. This bridge loan is to be refinanced partly by long-term capital-market and bank debt and partly by equity. For this reason, KION GROUP AG completed a capital increase in July 2016 that generated gross proceeds of €459.3 million (please see the disclosures on equity in these notes to the condensed consolidated interim financial statements). The agreed funding volume was reduced by the amount of the proceeds from the issue of shares and now stands at just over €2.5 billion.

Acquisitions

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 24.

As part of this transaction, receivables in a gross amount of €8.8 million were acquired, of which €5.3 million constituted gross amounts due from customers for contract work that have not yet been invoiced. At the acquisition date, it was assumed that the amount of irrecoverable trade receivables was insignificant. Consolidated revenue rose by €13.3 million as a result of the acquisition. The net income reported for the first nine months of 2016 contains a loss totalling €2.1 million attributable to the entity acquired. If this business combination had been completed by 1 January 2016, this would have had no material impact on either the revenue or the net income reported by the KION Group for the first nine months of this year.

In the second quarter of 2016, the change in measurement within the measurement period mainly concerned a change of the measurement of other intangible assets. 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.

Goodwill constitutes the strategic and geographical synergies that the KION Group expects to derive from this business combination plus the highly trained workforce. The goodwill arising from this acquisition is currently not tax deductible.

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 Moden Diesel S.p.A. (formerly MODEN DIESEL S.R.L.), Modena, Italy, were 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, were also 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 Roara AS, Heimdal, Norway, were acquired. The purchase consideration for these shares is €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 25.

In the second and third quarters of 2016, there were changes in the measurement within the measurement period in respect of the Italian dealer Moden Diesel S.p.A., which mainly concerned a change of the measurement of rental/leased assets. Analysis of the acquired leases resulted in additional capitalisation of rental / leased assets in an amount of €5.5 million and an increase in other liabilities of €5.7 million. 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 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 a cash outflow totalling €4.1 million that relates to these contingent considerations.

The purchase price allocation for the acquisition of Roara AS was only provisional as at 30 September 2016 because some details, particularly in the area of intangible assets and leasing, had not yet been fully evaluated. The contingent considerations in connection with the acquisition of Roara 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.

Accounting policies

With the exception of the new and amended IFRSs described above, the accounting policies applied in these condensed consolidated interim financial statements are fundamentally the same as those used for the year ended 31 December 2015. These condensed consolidated interim financial statements are based on the interim financial statements of the parent company and its consolidated subsidiaries prepared in accordance with the standard accounting policies applicable throughout the KION Group.

Assumptions and estimates

The preparation of these condensed IFRS consolidated interim financial statements requires the use of assumptions and estimates for certain line items that affect recognition and measurement in the statement of financial position and the income statement. The actual amounts realised may differ from estimates. Assumptions and estimates are applied in particular:

• in assessing the need for and the amount of impairment losses on intangible assets, property, plant and equipment, and inventories;
• in determining the useful life of non-current assets;
• in classifying leases;
• in recognising and measuring defined benefit pension obligations and other provisions;
• in recognising and measuring current and deferred taxes;
• in recognising and measuring assets acquired and liabilities assumed in connection with business combinations.

The estimates may be affected, for example, by deteriorating global economic conditions or by changes in exchange rates, interest rates or commodity prices. Production errors, the loss of key customers and changes in financing can also impact on the Company’s performance going forward. Changes are recognised in profit or loss when they become known and assumptions are adjusted accordingly.