Selected notes to the consolidated statement of financial position

The rise in inventories compared with 31 December 2015 was largely attributable to the increase in work in progress (up by 24.1 per cent) and finished goods (up by 23.7 per cent). Impairment losses of €4.2 million were recognised on inventories in the third quarter of 2016 (Q3 2015: €2.8 million) and of €13.2 million in the first nine months of 2016 (Q1 – Q3 2015: €6.8 million). No reversals of impairment losses had to be recognised in the third quarter of 2016 (Q3 2015: €0.9 million). In the first nine months of 2016, reversals of impairment losses had to be recognised in the amount of €1.1 million (Q1 – Q3 2015: €2.7 million) because the reasons for impairment no longer existed.

The rise in trade receivables compared with 31 December 2015 was largely due to the increase of €65.3 million in receivables due from third parties and the increase of €11.2 million in gross amounts due from customers for contract work. Receivables due from non-consolidated subsidiaries, equity-accounted investments and other equity investments fell by €5.9 million. Valuation allowances of €44.9 million (31 December 2015: €38.5 million) were recognised for trade receivables.

With the consent of the Supervisory Board, the Executive Board of KION GROUP AG decided on 18 July 2016 to fully utilise the authorised capital that has existed since the 2014 Annual General Meeting. This capital increase is to be used to partly fund the acquisition of Dematic. The Company’s share capital was increased by 10.0 per cent against cash contributions; shareholders’ subscription rights were excluded. The share capital rose from €98.9 million to €108.79 million as a result of issuing 9.89 million new no-par-value bearer shares. An amount of €449.4 million was paid into the capital reserves. The capital increase was entered in the commercial register on 20 July 2016.

Directly attributable transaction costs of €2.7 million were incurred in connection with the capital increase. The transaction costs were – after subtraction of a tax benefit of €0.8 million – deducted directly from the capital reserves.

The total number of shares outstanding as at 30 September 2016 was 108,579,950 no-par-value shares (31 December 2015: 98,739,950 no-par-value shares). Between 12 September 2016 and 27 September 2016, a further 50,000 treasury shares were repurchased via the stock exchange at an average price of €55.54 in order to provide the shares for employees’ own investments and the free shares under the planned KEEP 2016. The total cost was €2.8 million. At the reporting date, KION GROUP AG held 210,050 treasury shares (31 December 2015: 160,050 treasury shares).

The distribution of a dividend of €0.77 per share (Q1 – Q3 2015: €0.55 per share) to the shareholders of KION GROUP AG resulted in an outflow of funds of €76.0 million (Q1 – Q3 2015: €54.3 million).

For the purposes of the interim report, a qualified estimate of the defined benefit obligation was made based on the change in actuarial parameters in the period under review.

The retirement benefit obligation was higher than it had been at the end of 2015 owing, above all, to actuarial losses resulting from lower discount rates in connection with the generally volatile situation in the capital markets and the UK referendum. The present value of the defined benefit obligation was calculated on the basis of the discount rates shown in > TABLE 26.

The change in estimates in relation to defined benefit pension entitlements resulted in a decrease of €175.1 million in equity as at 30 September 2016 (after deferred taxes). The net defined benefit obligation increased to €1,051.5 million (31 December 2015: €767.8 million).

In connection with the valuation of the pension plans for the employees of the KION Group’s UK companies as at 1 January 2015, the Company and the trustees of the pension funds agreed on certain assumptions relevant to the valuation in March 2016, according to which the deficit for the two pension plans amounted to €11.1 million as at 1 January 2015. On this basis, the KION Group agreed with the trustees that it would pay approximately the equivalent of €4.3 million in 2016 and €3.8 million in 2017 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.

In addition, 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 €20.8 million were extended for the benefit of the pension funds. The term of this collateral is limited to five years (1 July 2021), and the overall limit will not be reduced by payments made by the KION Group.

KION GROUP AG signed a new syndicated loan agreement (senior facilities agreement) totalling €1,500.0 million with a syndicate of international banks on 28 October 2015. The senior facilities agreement enables the KION Group to obtain finance on far more favourable terms than has been possible in the past. On 25 January 2016, the Executive Board of KION GROUP AG decided to overhaul the funding structure of the KION Group by repaying the syndicated loan dated 23 December 2006 that took the form of a revolving credit facility of €1,243.0 million and the KION Group corporate bond of €450.0 million that was issued in 2013 and was due to mature in 2020. The associated repayment was made on 15 February 2016 using funds drawn down under the new senior facilities agreement.

The new senior facilities agreement comprises a revolving credit facility of €1,150.0 million maturing in February 2021 and a fixed-term tranche of €350.0 million maturing in February 2019 that has been fully drawn down. Both the revolving credit facility and the fixed-term tranche have a variable interest rate. The proceeds from the capital increase implemented in July 2016 have temporarily been used to repay current financial liabilities under the revolving credit facility until they can be put towards the funding of the Dematic acquisition in the fourth quarter. Consequently, an amount of only €13.6 million was drawn down from the revolving credit facility as at 30 September 2016 and relates to contingent liabilities.

Arrangement of the revolving credit facility of €1,150.0 million resulted in directly attributable transaction costs of €3.9 million. The transaction costs are recognised as prepaid expenses under current financial assets and expensed over the term of the credit facility. Arrangement of the fixed-term tranche of €350.0 million resulted in directly attributable transaction costs of €0.8 million. The transaction costs were deducted from the fair value of this tranche in the first period in which they were recognised and will be amortised as an expense in subsequent periods.

KION GROUP AG has issued guarantees to the banks for all of the payment obligations under the new senior facilities agreement. Unlike the previous syndicated loan and the repaid corporate bond, the new syndicated loan agreement is not collateralised. Following repayment of the syndicated loan from 23 December 2006, all collateral furnished under the previous loan agreement has now been released.

Among other stipulations, the contractual terms of the senior facilities agreement require compliance with certain covenants. They also contain a financial covenant that requires adherence to a maximum level of leverage (the ratio of financial liabilities to EBITDA). Non-compliance with the covenants may, for example, give lenders the right to terminate the new syndicated loan agreement. All the covenants, including the financial covenant, were complied with as at the reporting date.