Business performance in the Group
Significant challenges resulting from macroeconomic conditions and sources of uncertainty
The cost of materials, energy, and logistics, along with bottlenecks in procurement markets, took a heavy toll on business in the KION Group in the reporting year. The situation had already been difficult at the start of the year and was then greatly exacerbated by the ongoing war in Ukraine and coronavirus lockdowns, particularly in Asia.
In the Industrial Trucks & Services (ITS) segment, orders took much longer to be shipped to customers due to limited availability of parts and materials. This also resulted in higher logistics costs owing to the growing number of unfinished industrial trucks. The KION Group introduced dynamic price increases for new trucks during the year in order to cope with the sharp rise in manufacturing costs, but the price increases did not work through to the ITS segment’s revenue and earnings in any noticeable way in 2022 because of the extended delivery times and the already sizeable order book. In addition, orders already on the books but not yet executed were successfully renegotiated with various customers in the EMEA region. The volume of unfinished trucks for which only individual components were missing was reduced significantly from its peak for 2022 by the end of the year by making production more flexible, creating inventory buffers of critical parts, redesigning electronics components, and expanding the pool of reliable suppliers.
In the Supply Chain Solutions (SCS) segment, the overall project costs expected in the long-term project business surged owing to higher delivery prices, limited availability of key parts and resources at the project sites, and the resulting inefficiencies caused by project delays. It was possible to pass on only a small proportion of these additional costs to customers in respect of existing orders, which significantly squeezed earnings from these long-term project orders in the third quarter. Countermeasures were implemented promptly in order to manage the higher costs more effectively throughout the project cycle. These included adding updated price adjustment clauses to new contracts, expanding the supplier base, and initiating major improvements in project execution and project management. In the fourth quarter, the SCS segment came close to breaking even in terms of adjusted EBIT.
In response to the war in Ukraine, business activity in Russia was restricted to local sales activities and carried out in compliance with the applicable international sanctions in 2022. Both operating segments stopped shipping products to Russia and Belarus entirely. Impairment losses were recognized on a significant proportion of the assets of the Russian subsidiaries in the ITS segment. Furthermore, the Executive Board of KION GROUP AG decided that the Group would withdraw from all business in Russia as quickly as possible. Owing to ongoing negotiations on the sale of the ITS segment’s business in Russia, the assets and liabilities that are classified as held for sale have been recognized separately in the consolidated statement of financial position. The bulk of local business in the Supply Chain Solutions segment has already been wound down. Effects relating to the ITS and SCS segments’ business in Russia reduced net income for 2022 by €36.8 million in total.
Systematically strengthening the market position and technological position
Due to its unsatisfactory adjusted EBIT and free cash flow, the KION Group has extended the timeline for its capital expenditure program. In the reporting year, it therefore focused on the main projects, which continued as planned despite the difficult situation in the procurement markets. In Jinan, in China’s Shandong province, the new factory for Linde and Baoli counterbalance trucks went into regular operation in February 2022. It is designed for a capacity of up to 40,000 industrial trucks and supports the strengthening of the Group’s market position in the fast-growing value segment. The KION Group is also aiming to use its new products to capitalize on opportunities for growth resulting from the increasing electrification of industrial trucks in China. The operator of the new plant is KION (Jinan) Forklift Co., Ltd., which was established with Weichai Power Co., Ltd. and in which the KION Group holds a 95.0 percent stake. Capital expenditure on this project amounted to around €100 million in total. The state-of-the-art research and development center at the site opened in 2022 too.
Also in Jinan, construction has begun of a new plant for supply chain solutions for the warehouses and distribution centers of customers in the growing Asian market, especially those in China. The new plant will be used to manufacture items such as racks for the Dematic Multishuttle system, components for automated guided vehicle systems, and conveyor belts and systems. The factory is scheduled to go into operation in the first quarter of 2023. The planned level of capital spending will be just under €40 million.
The KION Group is building an ultra-modern distribution center in Kahl am Main, Germany, for the supply of spare parts for the two operating segments. It will feature high-bay storage facilities and automated, digitalized, and intelligently networked processes. Known as the Kahl Regional Distribution Center, it will occupy a total area of around 31,000 square meters. A sum of around €60 million is being invested in the center, which is due to commence operations at the start of 2025. In November 2022, the KION Group announced that it would be significantly increasing capacity at its plant in Reutlingen, Germany, which is home to the Group’s global business in order picking stacker trucks.
In April 2022, as part of an investment in its existing facilities, KION Battery Systems GmbH (KBS) launched a second production line for inhouse production of lithium-ion batteries that are used to power mobile warehouse trucks.
Ensuring robust financing
Given the persistent uncertainties in the capital markets and the increased amount of capital tied up in the Group, due mainly to the high level of net working capital, KION GROUP AG took further steps to secure its funding requirements in the period under review. The commercial paper program was increased by €250.0 million to €750.0 million in April 2022. Of these funds, €305.0 million had been drawn down as at December 31, 2022.
A total of six bilateral loans were taken out with banks over the course of 2022. They have a total volume of €600.0 million and mature in 2023, 2024, and 2026. This borrowing was partly offset by the scheduled repayment of the short-term promissory note of €92.5 million in May 2022.
In September 2022, the term of the variable-rate syndicated revolving credit facility (RCF) with a total volume of €1,000.0 million was extended by one year until October 2027. Then in December, the RCF was increased to a total volume of €1,385.7 million. Of this available credit facility, €114.6 million was drawn down as at the reporting date.
Taking into account the total amount of €318.1 million resulting from the additional borrowing, cash and cash equivalents, and the credit facility that was still freely available, the KION Group had ensured financial flexibility for itself as at December 31, 2022 and therefore believes that, from the current perspective, it remains on a solid footing in terms of its future funding capability.