Earnings and profitability

EBIT, EBITDA and ROCE

Earnings before interest and tax (EBIT) totalled €716.6 million, which was a substantial 11.5 per cent above the figure for the previous year (2018: €642.8 million). Gross profit improved by 11.2 per cent thanks to the increase in revenue and, in comparison, a smaller increase in the cost of sales. The total rise in selling expenses and administrative expenses was slightly less than the growth of revenue, whereas development costs went up at a faster rate than revenue due to the continued strategic expansion of the KION Group’s product and solution portfolio. As expected, the negative purchase price allocation effects fell sharply to €91.0 million (2018: €126.2 million). By contrast, non-recurring items increased from €21.0 million in 2018 to €42.9 million in the reporting year due to restructuring and reorganisation-related measures initiated in the fourth quarter of 2019 in connection with implementation of the KION 2027 strategy.

EBIT adjusted for non-recurring items and purchase price allocation effects (adjusted EBIT) rose by 7.7 per cent to €850.5 million (2018: €789.9 million). The adjusted EBIT margin stood at 9.7 per cent, which was slightly lower than the margin of 9.9 per cent for 2018. This was because the two operating segments saw disproportionately strong growth in new truck business and business solutions, which tend to have narrower margins than the service business. > TABLE 011

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased to €1,614.6 million (2018: €1,540.6 million). Adjusted EBITDA came to €1,657.5 million (2018: €1,555.1 million). The adjusted EBITDA margin decreased from 19.4 per cent in 2018 to 18.8 per cent in 2019. > TABLE 012

EBITDA for the long-term lease business, which is derived from internal reporting and assumes a minimum rate of return on the capital employed, amounted to €333.3 million (2018: €321.1 million).

Return on capital employed (ROCE), which is the ratio of adjusted EBIT to capital employed, was up year on year at 9.7 per cent (2018: 9.3 per cent). The improvement in this KPI was partly due to the smaller rise in capital employed at the end of 2019 relative to the increase in revenue.

Key influencing factors for earnings

The cost of sales increased by 9.8 per cent, which was a slightly slower rate than the rise in revenue of 10.1 per cent. The fallout from the production inefficiencies that had arisen from bottlenecks at suppliers in the Industrial Trucks & Services segment in 2018 disappeared over the course of 2019. Furthermore, the predicted decrease in purchase price allocation effects and, overall, an only moderate increase in material prices meant that the gross margin improved to 26.5 per cent (2018: 26.2 per cent). In 2018, the gross margin had been squeezed by temporary underutilisation of project-related personnel capacity in the Supply Chain Solutions segment resulting from delays in the awarding of projects.

The 10.2 per cent increase in selling expenses, development costs and administrative expenses to a total of €1,642.4 million (2018: €1,490.3 million) was almost on a par with the revenue growth rate. Within this total, selling expenses went up at a much slower rate in 2019 than in 2018, when there had been significant expansion of market-specific and customer-specific activities. Development costs rose to €155.3 million (2018: €137.7 million), reflecting the firm focus on implementing the innovation strategy under KION 2027. Administrative expenses also jumped, by 17.1 per cent, to reach €546.9 million (2018: €467.1 million). This was also due to restructuring and reorganisation-related measures initiated as part of this strategy. The change in the cost of sales and in other functional costs is shown in > TABLE 013.

The ‘other’ item is a net figure and includes not only other operating income and expenses but also the share of profit (loss) of equity-accounted investments, which amounted to a profit of €12.1 million (2018: €12.2 million).

Net financial expenses

The net financial expenses, representing the balance of financial income and financial expenses, improved slightly to reach €95.1 million (2018: €97.4 million). This positive trend was primarily a reflection of the continual reduction of financial liabilities and the optimisation of financing across the Group. As a result, there was a further decrease in current interest expense on financial liabilities.

Income taxes

Income tax expenses amounted to €176.8 million (2018: €143.7 million), equating to an effective tax rate of 28.4 per cent (2018: 26.3 per cent). The main positive effects on the tax expense were reductions in local tax rates, tax breaks for R&D activities in the US and adjustments to tax provisions for prior years. The lower effective tax rate in 2018 had primarily been due to the positive impact of an amendment to tax law in Germany (section 8c of the German Corporation Tax Act (KStG)).

Net income and appropriation of profit

Net income increased to €444.8 million (2018: €401.6 million). This figure included a net loss attributable to non-controlling interests of €10.0 million (2018: net income of €1.8 million). The net income attributable to the shareholders of KION GROUP AG was €454.8 million (2018: €399.9 million). Basic earnings per share rose to €3.86 (2018: €3.39) based on 117.9 million (2018: 117.9 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 €3.86 (2018: €3.39) based on a weighted average number of shares of 117.9 million (2018: 117.9 million).

KION GROUP AG’s net profit for 2019 was €156.9 million, of which €3.5 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 12 May 2020 that an amount of €153.4 million be appropriated from the distributable profit of €153.5 million for the payment of a dividend of €1.30 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 proposed dividend payout rate of around 34 per cent of the net income attributable to the shareholders of KION GROUP AG.