Financial position

Principles and objectives of financial management

The KION Group pursues a sound financial policy of maintaining a strong credit profile with reliable access to capital markets. By pursuing an appropriate financial management strategy, the KION Group makes sufficient cash and cash equivalents available at all times to meet the Group companies’ operational and strategic funding requirements. As part of its financial management activities, the KION Group aims to continually reduce its financial liabilities and, to an increasing extent, optimize the financing of the long-term leasing business. In addition, the KION Group manages its financial relationships with customers and suppliers and mitigates the financial risk to its enterprise value and profitability, notably currency risk, interest-rate risk, price risk, counterparty risk, and country risk. In this way, the KION Group creates a stable funding position from which to maintain profitable growth.

The financial resources within the KION Group are provided on the basis of an internal funding approach. The KION Group collects liquidity surpluses of the Group companies in central or regional cash pools and, where possible, covers subsidiaries’ funding requirements with intercompany loans. This funding enables the KION Group to present a united front in the capital markets and strengthens its hand in negotiations with banks and other market participants. The Group occasionally arranges additional credit lines for KION Group companies with local banks or leasing companies in order to comply with legal, tax, and other regulations.

The KION Group is a publicly listed corporate group and therefore ensures that its financial management takes into account the interests of shareholders, the banks providing its funding, and other lenders. For the sake of all stakeholders, the KION Group makes sure that it maintains an appropriate ratio of internal funding to borrowing. The KION Group’s borrowing is based on a generally long-term approach, with an age structure extending until 2027.

Depending on requirements and the market situation, the KION Group also avails itself of the funding facilities offered by the capital markets. The KION Group therefore seeks to implement proactive risk management by rigorously pursuing its corporate strategy and to maintain an investment-grade credit rating in the capital and funding markets by ensuring a solid funding structure.

The KION Group continues to have an investment-grade credit rating that helps it to secure more advantageous funding conditions in the capital markets. In October 2020, Fitch Ratings reaffirmed the Group’s long-term issuer default rating of BBB– with a stable outlook and its short-term issuer default rating of F3. The new bond placed by KION GROUP AG in September was given a rating of BBB–. Standard & Poor’s confirmed KION’s issuer rating of BB+ with a stable outlook in November 2020 and awarded a senior unsecured rating of BB+.

KION GROUP AG has issued guarantees to the banks and other lenders for all of its payment obligations to them and is the borrower in respect of all the payment obligations resulting from the promissory notes.

The KION Group maintains a liquidity reserve in the form of agreed and confirmed credit lines and cash in order to ensure long-term financial flexibility and solvency. In addition, it uses derivatives to hedge currency risk. Interest-rate swaps are entered into in order to hedge interest-rate risk.

Certain loans and promissory notes taken out by KION GROUP AG stipulate adherence to covenants. The agreed financial covenant involves ongoing testing of adherence to a defined maximum level of leverage. Less favorable interest terms may be imposed if this level of leverage is increased. Exceeding the maximum level of leverage as at a particular reference date may give lenders a right of termination. In May 2020, the financial covenant in respect of the current credit facility and the additional, now terminated liquidity line was temporarily suspended as agreed with the banks providing the funding. This suspension was still in effect at the reporting date.

Main corporate actions in the reporting period

In 2020, the KION Group undertook a number of equity-related and borrowing measures in order to build up its financial strength in response to the coronavirus pandemic and to increase the flexibility of its funding over the long term.

Having repaid the remaining liability of €200.0 million under the acquisition facilities agreement (AFA) in January 2020, the KION Group focused on precautionary measures to protect its financial strength in the months that followed. In May 2020, KION GROUP AG reached agreement with its core group of banks on the provision of a syndicated liquidity line, with Kreditanstalt für Wiederaufbau (KfW) taking a leading role. The liquidity line had a volume of €1.0 billion and a term of twelve months.

To increase the flexibility of its funding over the long term, KION GROUP AG launched a corporate bond program (EMTN program) with a total volume of €3 billion in September 2020. The program is listed on the regulated market of the Luxembourg Stock Exchange. The first bond placed on the capital markets under this program had a total volume of €500.0 million and a maturity date in 2025. In return, the variable-rate tranches of the promissory note that matures in May 2022 and has a nominal value of €653.5 million were repaid ahead of schedule on October 30, 2020.

In early December 2020, around 13.1 million new shares were placed as part of a capital increase against cash contributions. The gross issue proceeds amounted to €813.3 million and, in the first instance, were used to reduce the KION Group’s level of debt at the end of the year. This included the early repayment of a fixed-rate loan of €200.0 million and a further partial repayment, in a nominal amount of €72.5 million, of the promissory note maturing in 2026. The funding of €460.0 million that was still drawn down under the commercial paper program at the end of November 2020 was repaid in full by the end of the year. In addition, KION GROUP AG terminated the additional syndicated liquidity line ahead of schedule that it had agreed in May but had not utilized.

Analysis of capital structure

Non-current and current liabilities fell by €421.9 million to €9,784.8 million as at the reporting date (December 31, 2019: €10,206.8 million). The increase in liabilities in connection with the financing of the long-term leasing business, the growth of pension provisions, and the recognition of provisions and liabilities for the ongoing capacity and structural program were more than offset by the repayment of financial debt following the capital increase. Non-current liabilities included deferred tax liabilities of €511.1 million (December 31, 2019: €570.9 million).

Financial debt

Non-current financial liabilities were reduced to €1,117.4 million as at December 31, 2020 (December 31, 2019: €1,716.8 million). Within this line item, the carrying amount of the promissory notes fell to €590.0 million (December 31, 2019: €1,317.3 million) because the variable-rate tranches of the promissory note maturing in 2022 (nominal amount: €653.5 million) and part of the promissory note maturing in 2026 (a nominal amount of €72.5 million) were repaid early. Non-current financial liabilities also included the corporate bond issued in September with a carrying amount of €494.5 million and liabilities to banks of €2.7 million (December 31, 2019: €399.5 million). The latter went down because of the early repayment of the remaining liability under the AFA and of the fixed-rate loan taken out in 2019, both of which amounted to €200.0 million.

Current financial liabilities fell to €77.1 million as at the reporting date (December 31, 2019: €103.7 million).

There was no drawdown from the revolving credit facility as at December 31, 2020, as had also been the case a year earlier; the unused portion of the revolving credit facility therefore stood at €1,150.0 million as at December 31, 2020 (December 31, 2019: €1,150.0 million).

Net financial debt (non-current and current financial liabilities less cash and cash equivalents) decreased to €880.0 million as at December 31, 2020 (December 31, 2019: €1,609.3 million). This equated to 0.6 times adjusted EBITDA (December 31, 2019: 1.0 times). Net financial debt, which is an indicator of the liquidity situation and capital structure, relates to the operating business excluding leasing activities in which KION Group entities act as lessor. To reconcile the net financial debt with the industrial net operating debt of €1,912.6 million as at December 31, 2020 (December 31, 2019: €2,711.2 million), the liabilities from the short-term rental business of €505.6 million (December 31, 2019: €615.8 million) and the liabilities from procurement leases of €527.0 million (December 31, 2019: €486.1 million) were added to net financial debt.

Retirement benefit obligation

The KION Group maintains pension plans in many countries. These plans comply with legal requirements applicable to standard local practice and thus the situation in the country in question. They are either defined benefit pension plans, defined contribution pension plans, or multi-employer benefit plans. As at December 31, 2020, the retirement benefit obligation and similar obligations under defined benefit pension plans amounted to a total of €1,450.3 million, which was significantly higher than the figure of €1,263.4 million at the end of 2019 largely owing to lower discount rates. The net obligation under defined benefit pension plans increased year on year to reach €1,400.0 million (December 31, 2019: €1,211.7 million). Changes in estimates relating to defined benefit pension entitlements resulted in a decrease in equity of €105.5 million (including deferred taxes).

Contributions to pension plans that are entirely or partly funded via funds are paid in as necessary to ensure sufficient assets are available and to be able to make future pension payments to pension plan participants. These contributions are determined by factors such as the funded status, legal and tax considerations, and local practice. The payments made by the KION Group in 2020 in connection with the main pension plans totaled €27.8 million, primarily comprising €20.5 million for direct pension payments along with €7.0 million for employer contributions to plan assets.

Liabilities from the leasing business and short-term rental business

To present the leasing business and the short-term rental business more transparently in the consolidated statement of financial position, the liabilities from the financing of the leasing business and the liabilities from the financing of the short-term rental business will now be shown separately with retrospective effect from December 31, 2020. This reflects the approach taken with the associated assets. The previous line items ‘Liabilities from financial services’ and ‘Lease liabilities’, along with the liabilities from the financing of the short-term rental fleet (some of which were previously included in ‘Other financial liabilities’) have been reclassified to the new line items ‘Liabilities from leasing business’ and ‘Liabilities from short-term rental business’ respectively.

Liabilities from the leasing business comprise all liabilities from financing the leasing business on the basis of sale and leaseback sub-lease transactions, lease facilities, and the issuance of notes (securitization). Furthermore, they include repurchase obligations resulting from the indirect leasing business.

Non-current and current liabilities from the leasing business rose to €2,739.3 million as at December 31, 2020 (December 31, 2019: €2,495.0 million). Of this total, €2,483.6 million was attributable to financing of the direct leasing business (December 31, 2019: €2,197.8 million) and €255.7 million to the repurchase obligations resulting from the indirect leasing business (December 31, 2019: €297.2 million). Liabilities from the financing of the direct leasing business included liabilities arising from sale and leaseback sub-lease transactions with leasing companies in an amount of €1,125.0 million (December 31, 2019: €1,161.7 million), liabilities from lease facilities in an amount of €411.3 million (December 31, 2019: €505.9 million), and liabilities from securitization in amount of €947.3 million (December 31, 2019: €530.2 million).

Non-current and current liabilities from the short-term rental business, which totaled €505.6 million (December 31, 2019: €615.8 million), declined in line with the contraction of the short-term rental fleet.

Other financial liabilities

Current and non-current other financial liabilities stood at €646.9 million as at the reporting date (December 31, 2019: €606.3 million). This item also included liabilities from procurement leases amounting to €527.0 million (December 31, 2019: €486.1 million), for which right-of-use assets were recorded.

Contract liabilities

Contract liabilities, of which a large proportion related to the long-term project business, increased to €550.8 million (December 31, 2019: €504.9 million). This was mainly due to prepayments for new orders from customers in the long-term project business.

Equity

As a result of the capital increase in December 2020, consolidated equity rose by €803.1 million (after deduction of transaction costs) and amounted to €4,270.8 million as at December 31, 2020 (December 31, 2019: €3,558.4 million). The net income of €210.9 million earned during the year also contributed to the rise in equity. Conversely, equity was reduced by currency translation losses recognized in other comprehensive income of €204.4 million and actuarial losses of €105.5 million (after deferred taxes) arising from the measurement of the defined benefit obligation. KION GROUP AG’s dividend payout of €4.7 million (2019: €141.5 million) had only an insignificant effect. The equity ratio rose to 30.4 percent as at December 31, 2020 (December 31, 2019: 25.9 percent).

Analysis of capital expenditure

The KION Group’s total capital expenditure on property, plant, and equipment and on intangible assets (excluding right-of-use assets from procurement leases) totaled €283.8 million in the reporting year (2019: €287.4 million).

Spending in the Industrial Trucks & Services segment continued to be focused on capital expenditure on product development and on the expansion and modernization of production and technology facilities. Capital expenditure in the Supply Chain Solutions segment primarily related to development costs.

Analysis of liquidity

Liquidity management is an important aspect of central financial management in the KION Group. The sources of liquidity are cash and cash equivalents, cash flow from operating activities, and amounts available under credit facilities. Using cash pools, liquidity is managed in such a way that the Group companies can always access the cash that they need.

Cash and cash equivalents increased by €103.3 million to €314.4 million as at December 31, 2020 (December 31, 2019: €211.2 million). Taking into account the revolving credit facility that was still freely available, the unrestricted cash and cash equivalents available to the KION Group as at the reporting date amounted to €1,457.3 million (December 31, 2019: €1,357.4 million).

Net cash provided by operating activities totaled €527.1 million, which was lower than the prior-year figure of €846.3 million, primarily because of the decline in EBIT. The payment of taxes totaling minus €216.8 million (2019: minus €191.6 million), resulting mainly from the Company’s strong profitability in 2019, was also a factor. The outflow of minus €150.3 million represented by the change in net working capital was on a par with the prior-year figure (minus €146.8 million), while the effects from the capacity and structural program recognized in profit or loss were largely cash-neutral.

The net cash used for investing activities amounted to minus €406.3 million in the reporting period (2019: minus €277.9 million). Within this figure, cash payments for capital expenditure on production facilities, product development, and purchased property, plant, and equipment amounted to minus €283.8 million, which was slightly down on the prior year (2019: minus €287.4 million). In addition, cash payments for the acquisition of subsidiaries and other entities totaled minus €133.5 million (after deduction of cash and cash equivalents acquired); these predominantly comprised a net cash payment of minus €89.3 million for the acquisition of DAI and payments totaling minus €22.2 million for the acquisition of a minority interest in Quicktron.

In line with the interim guidance, free cash flow – the sum of cash flow from operating activities and investing activities – was well below the prior-year figure at €120.9 million (2019: €568.4 million). However, it did recover significantly over the course of 2020.

Net cash used for financing activities fell sharply to minus €4.5 million (2019: minus €534.9 million), mainly due to the net cash of €813.3 million provided by the capital increase and the issuance of the new corporate bond with a nominal amount of €500.0 million. These inflows more than compensated for the net cash outflow related to the early repayment of the outstanding liability under the AFA, the early repayment of a fixed-interest loan taken out in 2019, the partial repayment of the promissory notes, and the payments to reduce the revolving credit facility. Overall, financial debt taken on during the reporting year amounted to €3,650.5 million (2019: €2,940.1 million); repayments were much higher at minus €4,260.0 million (2019: minus €3,166.2 million). Payments made for interest portions and principal portions under procurement leases totaled minus €133.3 million (2019: minus €126.5 million). Current interest payments declined to minus €33.8 million thanks to the further optimization of the interest on financial debt (2019: minus €36.7 million). The payment of a dividend to the shareholders of KION GROUP AG had resulted in an outflow of funds of minus €141.5 million in 2019. The corresponding payment in 2020 amounted to minus €4.7 million, which equates to a dividend of €0.04 per share.