[2] Basis of preparation

The consolidated financial statements of the KION Group for the financial year ended 31 December 2017 have been prepared in accordance with section 315e of the German Commercial Code (HGB) in conjunction with the International Financial Reporting Standards (IFRSs) of the International Accounting Standards Board (IASB) applicable as at the reporting date as well as the associated interpretations (IFRICs) of the IFRS Interpretations Committee (IFRS IC) 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. All of the IFRSs and IFRICs that had been enacted by the reporting date and that were required to be applied in the 2017 financial year have been applied in preparing the consolidated financial statements.

In order to improve the clarity of presentation, certain items are aggregated in the statement of financial position and the income statement. The items concerned are disclosed and explained separately in the notes. Assets and liabilities are broken down into current and non-current items in accordance with IAS 1.60. The consolidated income statement is prepared in accordance with the cost of sales (function-of-expense) method.

The consolidated financial statements are prepared in euros, which is the Group’s functional currency and reporting currency. 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. The separate financial statements of the subsidiaries included in the consolidation were prepared as at the same reporting date as the annual financial statements of KION GROUP AG.

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 in 2017:

  • Amendments to IFRS 12 ‘Disclosure of Interests in Other Entities’: amendments in connection with the annual improvements to IFRSs (2014–2016)
  • Amendments to IAS 7 ‘Statement of Cash Flows’: amendments in connection with the disclosure initiative
  • Amendments to IAS 12 ‘Income Taxes’: amendments relating to the recognition of deferred tax assets for unrealised losses on available-for-sale financial assets.

The first-time adoption of these amendments to standards has had no significant effect on presentation of the financial performance, financial position or notes to the financial statements of the KION Group. To provide a more detailed overview of the KION Group’s financing-related incoming and outgoing payments, a reconciliation of liabilities arising from financing activities in the current reporting period has been added in note [37] in connection with improvements to the disclosure requirements.

Financial reporting standards released but not yet adopted

In its consolidated financial statements for the year ended 31 December 2017, the KION Group has not applied the following standards and interpretations, which have been issued by the IASB but were not yet required to be adopted in 2017:

  • 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
  • IFRS 9 ‘Financial Instruments’
  • Amendments to IFRS 9 ‘Financial Instruments’: amendments relating to the classification of particular prepayable financial assets
  • IFRS 15 ‘Revenue from Contracts with Customers’
  • Clarifications to IFRS 15 ‘Revenue from Contracts with Customers’: amendments relating to the identification of performance obligations, classification as principal or agent, revenue from licences and transition relief
  • IFRS 16 ‘Leases’
  • IFRS 17 ‘Insurance Contracts’
  • Amendments to IAS 19 ‘Employee Benefits’: amendments in connection with the remeasurement of net defined benefit liabilities resulting from plan amendments, curtailments or settlements
  • Amendments to IAS 28 ‘Investments in Associates and Joint Ventures’: amendments in connection with the annual improvements to IFRSs (2014–2016)
  • Amendments to IAS 28 ‘Investments in Associates and Joint Ventures’: clarification relating to the accounting treatment of long-term interests that form part of the net investment in the associate or joint venture
  • Amendments to IAS 40 ‘Investment Property’: clarification in relation to transfers of property to, or from, investment property
  • IFRIC 22 ‘Foreign Currency Transactions and Advance Consideration’
  • IFRIC 23 ‘Uncertainty over Income Tax Treatments’
  • Annual Improvements to IFRSs (2015 – 2017).

These standards and interpretations are expected to be applied by the entities included in the KION Group only from the date of mandatory initial application. An exception is IFRS 16 ‘Leases’, which because of its interactions with IFRS 15 ‘Revenue from Contracts with Customers’ is being adopted early, on 1 January 2018.

For the majority of financial assets, the new classification rules in IFRS 9 do not require any change to the respective measurement model. However, the first-time adoption of IFRS 9 primarily results in changes to the subsequent measurement of financial assets. The KION Group applies the simplified impairment approach of IFRS 9 for the majority of financial assets and thus recognises lifetime expected losses. As a result of the new impairment model, which is based on expected losses, the KION Group expects the loss allowance recognised for counterparty risks to be reduced by between €25.0 million and €35.0 million. The KION Group is adopting IFRS 9 for the first time from 1 January 2018; as permitted under the applicable transitional provisions, the prior-year figures will not be restated. Furthermore, it is expected that all existing hedging relationships will also satisfy the requirements in IFRS 9 regarding hedge accounting. The amended hedge accounting requirements are applied prospectively.

Based on the analysis of the implications of the first-time adoption of IFRS 15 as at the transition date, it is expected that the revenue recognition pattern (point in time vs. over time) for the vast majority of today’s new business and service business contracts as well as construction contracts will not change. In the Supply Chain Solutions segment, KION expects that revenue will have to be recognised later for only a few, individual construction contracts currently accounted for by the percentage-of-completion method in accordance with IAS 11, because the IFRS 15 criteria for revenue recognition over time are not met. The resulting effect on the financial position of the KION Group is expected to be less than €50.0 million and for the financial performance insignificant. The KION Group is adopting IFRS 15 retrospectively for the first time with effect from 1 January 2018 and is restating the prior-year figures accordingly. Overall, there is no material impact on retained earnings as at 1 January 2017.

Analysis of the first-time adoption of IFRS 16 indicates that, as at the transition date, all off-balance procurement leases that were previously recognised as operating leases must in future be recorded in the statement of financial position as a right of use asset plus a corresponding lease liability. This will result in additional right of use assets of between €240.0 million and €280.0 million as well as liabilities from procurement leases of between €260.0 million and €300.0 million. Moreover, in relation to indirect end customer financing, the application of IFRS 15 and IFRS 16 is expected to result in a not insignificant proportion of such transactions – previously regarded as sales transactions – being categorised as leases in future. In particular, this will cause leased assets to rise by between €660.0 million and €720.0 million. Correspondingly, there will be additional residual-value liabilities of between €290.0 million and €350.0 million as well as deferred revenues of between €520.0 million and €580.0 million. The KION Group is adopting IFRS 16 retrospectively for the first time with effect from 1 January 2018; it will restate the prior-year figures in accordance with the pertinent transitional provisions. As a result of retrospective adoption, the decrease in retained earnings as at 1 January 2017 is likely to be in the region of €145.0 million to €195.0 million.

The effects of the first-time adoption of the other aforementioned standards and interpretations on the presentation of the financial position and financial performance of the KION Group are expected to be immaterial.