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 optimize the financing of the long-term lease 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 and currently has 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.

There was a further improvement in the credit ratings awarded to the KION Group by the two rating agencies in the year under review. In September 2021, Fitch Ratings raised the Group’s long-term issuer default rating from BBB– to BBB with a stable outlook. At the same time, the short-term issuer default rating was upgraded from F3 to F2. In May 2021, Standard & Poor’s initially confirmed its issuer rating of BB+ and raised the outlook from stable to positive. It then raised this rating to BBB– with a stable outlook in August 2021.

As a rule, KION GROUP AG has issued guarantees to the banks for Group companies’ existing payment obligations.

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.

The revolving credit facility and a number of 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. This calculation is currently suspended in respect of the new revolving credit facility entered into in October 2021 because KION GROUP AG has had two investment-grade credit ratings since August 2021. Less favorable interest terms may be imposed if the level of leverage is increased significantly. Exceeding the maximum level of leverage as at a particular reference date may give lenders a right of termination.

Main corporate actions in the reporting period

The KION Group was able to further reduce its financial debt thanks to the healthy increase in free cash flow. A variable-rate tranche of the promissory note, that had a nominal amount of €167.0 million and was due to mature in 2024, was repaid ahead of schedule at the end of April 2021, thereby contributing to a further decrease in leverage.

KION GROUP AG entered into an agreement for a new syndicated revolving credit facility (RCF) with a total volume of €1,000.0 million on October 4, 2021. The new credit facility, which secures significantly better funding conditions for the KION Group, has a term of five years that can be extended by up to two years with the consent of the syndicate of banks. The previous credit facility, whose term was due to end in February 2023 and which had a volume of €1,150.0 million, was terminated at the same time.

Analysis of capital structure

Non-current and current liabilities amounted to €10,682.0 million as at December 31, 2021, which was €897.2 million higher than the figure as at December 31, 2020 of €9,784.8 million. This was primarily driven by the growth in trade payables and contract liabilities as a result of the higher volume of business and by higher non-current and current liabilities from lease business. The increase would have been higher without a fall in defined benefit obligations as a result of changed discount rates and plan adjustments and without the repayment of non-current financial liabilities. Non-current liabilities included deferred tax liabilities of €523.5 million (December 31, 2020: €511.1 million).

Financial debt

Non-current and current financial liabilities totaled €1,050.5 million (December 31, 2020: €1,194.5 million). Non-current financial liabilities fell to €898.7 million (December 31, 2020: €1,117.4 million), primarily because of the repayment of a variable-rate tranche of the promissory note with a nominal amount of €167.0 million in April 2021. As a result of this repayment, the carrying amount of non-current promissory notes stood at only €326.1 million as at the end of 2021 (December 31, 2020: €590.0 million). Non-current financial liabilities also included the corporate bond issued, which has a carrying amount of €495.6 million (December 31, 2020: €494.5 million), and liabilities to banks of €46.6 million (December 31, 2020: €2.7 million).

Current financial liabilities rose to €151.9 million as at the end of 2021 (December 31, 2020: €77.1 million). This included the fixed-rate tranche of the promissory note maturing in May 2022, which has a nominal amount of €92.5 million and is now recognized under current financial liabilities, having been reported as non-current at the end of 2020. The new revolving credit facility had not been drawn down as at December 31, 2021. The unused portion of the RCF therefore stood at €1,000.0 million (December 31, 2020: €1,150.0 million).

Net financial debt (non-current and current financial liabilities less cash and cash equivalents) amounted to €567.6 million as at the reporting date (December 31, 2020: €880.0 million). This equated to 0.3 times adjusted EBITDA (December 31, 2020: 0.6 times). To reconcile the net financial debt with the industrial net operating debt of €1,600.1 million as at December 31, 2021 (December 31, 2020: €1,912.6 million), the liabilities from the short-term rental business of €488.9 million (December 31, 2020: €505.6 million) and the liabilities from procurement leases of €543.6 million (December 31, 2020: €527.0 million) are 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, 2021, the retirement benefit obligation and similar obligations under defined benefit pension plans amounted to a total of €1,265.3 million, which was significantly lower than the figure of €1,450.3 million as at the end of 2020. This was largely owing to higher discount rates and to plan adjustments of €32.7 million recognized in profit or loss. The net obligation under defined benefit pension plans decreased year on year to €1,185.6 million (December 31, 2020: €1,400.0 million). Changes in estimates relating to defined benefit pension entitlements resulted in an increase in equity of €150.9 million (after 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 2021 in connection with the main pension plans totaled €31.2 million, primarily comprising €20.5 million for direct pension payments along with €10.2 million for employer contributions to plan assets.

Liabilities from lease business and short-term rental business

Non-current and current liabilities from the lease business rose to €3,070.8 million as at December 31, 2021 (December 31, 2020: €2,739.3 million). Of this total, €2,858.3 million was attributable to financing of the direct lease business (December 31, 2020: €2,483.6 million) and €212.6 million to the repurchase obligations resulting from the indirect lease business (December 31, 2020: €255.7 million).

Non-current and current liabilities from the short-term rental business declined slightly to a total of €488.9 million (December 31, 2020: €505.6 million).

Other financial liabilities

Non-current and current other financial liabilities stood at €652.0 million as at the end of 2021 (December 31, 2020: €646.9 million). This item included liabilities from procurement leases amounting to €543.6 million (December 31, 2020: €527.0 million), for which right-of-use assets were recorded.

Contract liabilities

Contract liabilities increased to €854.8 million (December 31, 2020: €550.8 million), mainly as a result of prepayments from customers in connection with the long-term project business in the Supply Chain Solutions segment.

Equity

Consolidated equity rose by €898.0 million to €5,168.9 million as at the end of 2021 (December 31, 2020: €4,270.8 million). The net income of €568.0 million earned during the year under review contributed significantly to the rise in equity, as did the actuarial gains and losses arising from the measurement of pensions, which amounted to a net gain of €150.9 million (after deferred taxes) and were recognized in other comprehensive income. The currency translation gains of €234.5 million, also recognized in other comprehensive income, had a substantial positive impact on equity too. KION GROUP AG’s dividend payout in May 2021 reduced equity by €53.7 million. Overall, the equity ratio improved to 32.6 percent (December 31, 2020: 30.4 percent).

Analysis of capital expenditure

The KION Group’s capital expenditure on property, plant, and equipment and on intangible assets in the reporting year (excluding right-of-use assets from procurement leases) gave rise to cash payments of €333.8 million (2020: €283.8 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. The KION Group also invested in the construction of the new plants at the production sites in Jinan, eastern China, and in Kołbaskowo in Poland in 2021. The latter went into operation in the third quarter. 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 to €483.0 million as at the reporting date (December 31, 2020: €314.4 million) thanks to the healthy increase in free cash flow. On October 4, 2021, KION GROUP AG entered into an agreement for a new syndicated revolving credit facility (RCF) with a reduced total volume of €1,000.0 million. The previous credit facility, which had a volume of €1,150.0 million, was terminated at the same time. Taking into account this credit facility of €1,000.0 million that was still freely available (December 31, 2020: €1,150.0 million), the unrestricted cash and cash equivalents available to the KION Group as at December 31, 2021 amounted to €1,473.7 million (December 31, 2020: €1,457.3 million).

Net cash provided by operating activities increased year on year to €881.7 million (2020: €527.1 million), mainly due to the significant improvement in operating profit. Within this total, the rise in net working capital of €201.9 million (2020: €150.3 million) reduced the level of cash flow from operating activities. The larger volume of business and the ongoing supply problems meant that inventories had increased by the end of the year, particularly in the ITS segment. In addition, more liquidity was tied up due to higher contract balances in the SCS segment’s project business. However, this was offset by a rise in trade payables.

Net cash used for investing activities amounted to minus €337.8 million in 2021, which was a lower amount than in the previous year (2020: minus €406.3 million). The figure for the prior-year period had included net payments of minus €89.3 million for the acquisition of UK software company Digital Applications International Limited (DAI), whereas acquisition-related net payments in the year under review came to just minus €17.0 million. This included a cash outflow totaling minus €11.9 million for the acquisition of the remaining shares in Hans Joachim Jetschke Industriefahrzeuge (GmbH & Co.) KG and JETSCHKE GmbH; in addition, minus €2.0 million had been paid as an advance payment in December 2020. In addition, the KION Group paid minus €4.8 million for the acquisition of around 20 percent of the shares in ifesca GmbH. Cash payments for capital expenditure on production facilities, product development, and purchased property, plant, and equipment rose to minus €333.8 million (2020: minus €283.8 million).

Free cash flow – the sum of cash flow from operating activities and investing activities – came to €543.8 million. This represented a significant improvement when viewed in comparison with the previous year, which had been affected by acquisition items (2020: €120.9 million).

Net cash used for financing activities amounted to minus €386.1 million in the year under review (2020: minus €4.5 million). The significantly lower level of net cash used in 2020 had mainly been attributable to the capital increase of €813.3 million carried out in early December 2020, which was used to repay financial debt. In 2021, financial debt was taken on in a total amount of €623.9 million (2020: €3,650.5 million); repayments amounted to minus €772.7 million (2020: minus €4,260.0 million). Payments made for interest portions and principal portions under procurement leases totaled minus €145.1 million (2020: minus €133.3 million). Current interest payments declined to minus €29.5 million (2020: minus €33.8 million), not least thanks to lower financial debt and the improved funding conditions. The payment of a dividend to the shareholders of KION GROUP AG in May 2021 resulted in an outflow of funds of minus €53.7 million (2020: minus €4.7 million).