Earnings and profitability

EBIT, EBITDA and ROCE

Despite negative currency effects, earnings before interest and tax (EBIT) went up by 14.6 per cent to €642.8 million in 2018 (2017: €561.0 million). The main reason was the sharp reduction, from €176.2 million in 2017 to €126.2 million in the reporting year, in the negative purchase price allocation effects included in EBIT. The non-recurring items also decreased, to €21.0 million, and mainly related to ongoing process standardisation in connection with the integration of Dematic and, in the Industrial Trucks & Services segment, to the redirection of sales activities in South Africa. In 2017, non-recurring items (€40.1 million) had been incurred in connection with the fundamental integration of Dematic and with the start-up costs for the new plant in Monterrey, Mexico.

EBIT adjusted for non-recurring items and purchase price allocation effects (adjusted EBIT) was above the figure for the previous year at €789.9 million (2017: €777.3 million). The adjusted EBIT margin declined from 10.2 per cent to 9.9 per cent. > TABLE 012

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased to €1,540.6 million (2017: €1,457.6 million). Adjusted EBITDA came to €1,555.1 million (2017: €1,495.8 million). The adjusted EBITDA margin decreased from 19.7 per cent in 2017 to 19.4 per cent in 2018.

EBITDA for the long-term leasing business, which is derived from internal reporting and assumes a minimum rate of return on the capital employed, amounted to €321.1 million (2017: €320.9 million). > TABLE 013

Return on capital employed (ROCE) was at the same level as in 2017 at 9.3 per cent.

Key influencing factors for earnings

Whereas revenue increased by 5.2 per cent, the cost of sales was up by 4.5 per cent. Consequently, the gross margin improved slightly to reach 26.2 per cent, compared with 25.7 per cent in 2017. Higher material prices and wage cost rises in the reporting year partly negated the positive impact of reduced purchase price allocation effects. In addition, the bottlenecks at individual suppliers in the Industrial Trucks & Services segment resulted in production inefficiencies and thus an increase in the cost of sales. Furthermore, delays in the awarding of projects by customers in previous quarters led to temporary underutilisation of project-related personnel capacity and, overall, squeezed earnings in the Supply Chain Solutions segment. Despite a recovery in the fourth quarter, currency effects, primarily from the US dollar, also had a negative impact on the key financials and therefore on the KION Group’s EBIT.

Selling expenses and administrative expenses increased by 6.1 per cent – virtually the same rate as for revenue growth – to reach €1,352.6 million (2017: €1,275.1 million). This rise was due to higher wage costs and, above all, the expansion of market-specific and customer-specific sales activities. The level of groupwide research and development costs held steady at €137.7 million (2017: €137.0 million), reflecting the ongoing innovation initiatives taking place in the KION Group in connection with its growth strategy. The ‘other’ item included, among other effects, the share of profit (loss) of equity-accounted investments, which amounted to a profit of €12.2 million (2017: profit of €13.6 million). It also included impairment losses on non-current assets of €6.4 million (2017: €14.8 million); the prior-year figure had included impairment losses of €8.6 million relating to the Egemin brand name, which has been integrated into the Dematic brand presentation. > TABLE 014

Net financial expenses

The net financial expenses, representing the balance of financial income and financial expenses, were virtually unchanged year on year at €97.4 million (2017: net financial expenses of €96.3 million). Current interest expense on financial liabilities decreased in 2018 due to the corporate actions carried out in 2017, whereas currency effects had improved the level of net financial expenses in the previous year. The deferred borrowing costs of €4.5 million reported within financial expenses included, among other items, expenses resulting from the early repayment of €400.0 million under the acquisition facilities agreement (AFA); previously deferred borrowing costs of €1.9 million were expensed. In 2017, borrowing costs totalling €8.8 million had been recognised as an expense.

Income taxes

Income tax expenses amounted to €143.7 million, which equates to a tax rate of 26.3 per cent. This included a positive tax effect stemming from the offsetting of losses of corporations in an amount of €29.4 million in connection with an amendment to tax law (section 8c of the German Corporation Tax Act (KStG)) at the end of the financial year 2018. The far lower level of tax expenses of €42.2 million in 2017 had primarily been attributable to the remeasurement of deferred tax liabilities in light of the US tax reforms; the associated positive non-recurring tax effect had amounted to €92.2 million in 2017.

Net income and appropriation of profit

Net income amounted to €401.6 million (2017: €422.5 million). On a like-for-like basis, i.e. excluding the non-recurring impact of the tax effects in both years, net income was significantly higher than in the previous year. The net income attributable to the shareholders of KION GROUP AG was €399.9 million (2017: €420.9 million). Basic earnings per share came to €3.39 (2017: €3.68) based on 117.9 million (2017: 114.3 million) no-par-value shares; this was the weighted average number of shares outstanding during the reporting year. Diluted earnings per share, which is calculated by adding the potential dilutive no-par-value shares under the employee share option programme, amounted to €3.39 (2017: €3.68) based on a weighted average number of shares of 117.9 million (2017: 114.4 million). These calculations did not include 165.6 thousand (2017: 160.8 thousand) no-par-value treasury shares that were repurchased by KION GROUP AG as part of the employee equity programme.

KION GROUP AG’s net profit for 2018 was €236.3 million, of which €94.8 million will be transferred to other revenue reserves. The Executive Board and the Supervisory Board will propose to the Annual General Meeting to be held on 9 May 2019 that an amount of €141.5 million be appropriated from the distributable profit of €141.7 million for the payment of a dividend of €1.20 per dividend-bearing share. It is also proposed that the remaining sum of €0.2 million be carried forward to the next accounting period. This equates to a dividend payout rate of 35 per cent of net income.