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 optimize the funding structure and conditions. 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 for profitable growth.

Within the Group, KION GROUP AG manages intercompany cash pooling centrally. KION GROUP AG pools the liquidity of the Group companies and covers their funding requirements. The vast majority of the Group companies participate in KION GROUP AG’s groupwide cash pool. 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 local credit lines for some Group companies with 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 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.

The KION Group’s credit ratings remained more or less unchanged in the year under review. In October 2022, Fitch Ratings confirmed the Group’s long-term issuer default rating of BBB with a stable outlook. Fitch Ratings had already confirmed the short-term issuer default rating of F2 in September. Standard & Poor’s kept the issuer rating at BBB–, but put the outlook on CreditWatch Negative.

KION GROUP AG generally issues guarantees to the banks for Group companies’ existing payment obligations.

The KION Group maintains a liquidity reserve in the form of cash and a revolving credit facility 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. As contractually agreed, this calculation is currently suspended in respect of the revolving credit facility entered into in 2021, which was extended in 2022, because KION GROUP AG continues to have two investment-grade credit ratings.

Exceeding the agreed maximum level of leverage gives lenders a right of termination.

The contractually agreed interest terms for the revolving credit facility are linked to KION GROUP AG’s credit rating and to compliance with the Group’s sustainability KPIs.  

Main corporate actions in the reporting period

KION GROUP AG carried out various corporate actions to secure its funding requirements in the year under review, responding to the persistent uncertainties in the capital markets and the increased level of capital required, particularly in connection with net working capital.

The commercial paper program was increased by €250.0 million to €750.0 million in April 2022. Furthermore, 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. In September 2022, the term of the variable-rate syndicated revolving credit facility (RCF) was extended by one year until October 2027. Then in December 2022, a further amendment agreement was signed that increased the total volume from €1,000.0 million to €1,385.7 million. The borrowing was partly offset by the scheduled repayment of the short-term promissory note of €92.5 million in May 2022.

Analysis of capital structure

Non-current and current liabilities amounted to €10,920.7 million as at December 31, 2022, which was €238.7 million higher than the figure as at December 31, 2021 of €10,682.0 million. This rise was largely due to the increase in financial liabilities, which was partly offset by lower defined benefit obligations as a result of changed discount rates. Non-current liabilities included deferred tax liabilities of €492.8 million (December 31, 2021: €523.5 million).

Financial debt

Non-current and current financial liabilities rose to a total of €1,988.6 million (December 31, 2021: €1,050.5 million). Non-current financial liabilities stood at €1,361.8 million (December 31, 2021: €898.7 million). The carrying amount of the corporate bond issued, which is included in this line item, amounted to €496.8 million (December 31, 2021: €495.6 million). In addition to the non-current promissory notes, which had a carrying amount of €319.2 million (December 31, 2021: €326.1 million), non-current financial liabilities predominantly comprised liabilities to banks. The new long-term loans granted, which have a total volume of €500.0 million, meant that liabilities to banks increased to €515.1 million (December 31, 2021: €46.6 million).

Current financial liabilities rose to €626.7 million as at December 31, 2022 (December 31, 2021: €151.9 million). The increase was mainly due to paper issued under the commercial paper program; the volume issued as at December 31, 2022 was €305.0 million (December 31, 2021: €0.0 million). Current liabilities to banks stood at €304.2 million, which was also higher than at the end of 2021 (December 31, 2021: €57.4 million). They included, for example, the new short-term loan of €100.0 million granted in June 2022 and the amount of €114.6 million that was drawn down from the revolving credit facility (RCF) as at the reporting date. The unused portion of the RCF therefore stood at €1,271.1 million (December 31, 2021: €1,000.0 million).

Net financial debt (non-current and current financial liabilities less cash and cash equivalents) rose sharply to €1,670.5 million as at December 31, 2022 (December 31, 2021: €567.6 million). This equated to 1.4 times adjusted EBITDA on an annualized basis (December 31, 2021: 0.3 times). To reconcile the net financial debt with the industrial net operating debt (INOD) of €2,799.7 million as at December 31, 2022 (December 31, 2021: €1,600.1 million), the liabilities from the short-term rental business of €544.2 million (December 31, 2021: €488.9 million) and the liabilities from procurement leases of €584.9 million (December 31, 2021: €543.6 million) are added to net financial debt.

Retirement benefit obligation and similar obligations

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, 2022, the retirement benefit obligation and similar obligations under defined benefit pension plans amounted to a total of €712,8 million, a substantial year-on-year fall of €552.4 million that was primarily due to higher discount rates (December 31, 2021: €1,265.3 million). The net obligation under defined benefit pension plans decreased year on year to €618.9 million (December 31, 2021: €1,185.6 million). Changes in estimates relating to defined benefit pension entitlements resulted in an increase in equity of €410.6 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 2022 in connection with the main pension plans totaled €35.5 million, primarily comprising €22.3 million for direct pension payments along with €13.2 million for employer contributions to plan assets.

Liabilities from lease and short-term rental business

Non-current and current liabilities from the lease business came to €3,214.6 million as at December 31, 2022 (December 31, 2021: €3,070.8 million). Of this total, €3,048.4 million was attributable to financing of the direct lease business (December 31, 2021: €2,858.3 million) and €166.3 million to the repurchase obligations resulting from the indirect lease business (December 31, 2021: €212.6 million).

Non-current and current liabilities from the short-term rental business totaled €544.2 million (December 31, 2021: €488.9 million).

Other provisions

Non-current and current other provisions rose to €370.2 million as at December 31, 2022 (December 31, 2021: €340.3 million). In addition to provisions for product warranties and for personnel-related obligations, this includes provisions for onerous contracts mainly related to project business in the Supply Chain Solutions segment and provisions for other obligations.

Other financial liabilities

Non-current and current other financial liabilities stood at €693.7 million as at December 31, 2022 (December 31, 2021: €652.0 million). This item included liabilities from procurement leases amounting to €584.9 million (December 31, 2021: €543.6 million), for which right-of-use assets were recorded.

Contract liabilities

Contract liabilities, which mainly relate to prepayments received from customers in connection with the long-term project business in the Supply Chain Solutions segment, decreased to €826.1 million (December 31, 2021: €854.8 million).

Equity

Consolidated equity went up by €438.9 million to €5,607.8 million as at December 31, 2022 (December 31, 2021: €5,168.9 million). The net income of €105.8 million earned during the year under review contributed 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 €410.6 million (after deferred taxes) and were recognized in other comprehensive income. The currency translation gains of €92.6 million, also recognized in other comprehensive income, had a positive impact on equity too. KION GROUP AG’s dividend payout reduced equity by €196.7 million. The equity ratio improved to 33.9 percent (December 31, 2021: 32.6 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 €382.7 million (2021: €333.8 million). The focus in the Industrial Trucks & Services segment was on the expansion and modernization of production and technology facilities. Capital expenditure in the Supply Chain Solutions segment predominantly related to development costs and the construction of a new plant for supply chain solutions in the Chinese city of Jinan, Shandong province.

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 declined to €318.1 million as at the reporting date (December 31, 2021: €483.0 million). In addition, an amount of €14.1 million has been recognized for restricted cash under assets classified as held for sale. Taking into account the credit facility of €1,271.1 million that was still freely available (December 31, 2021: €1,000.0 million), the unrestricted cash and cash equivalents available to the KION Group at the end of 2022 amounted to €1,577.3 million (December 31, 2021: €1,473.7 million).

Cash flow from operating activities amounted to a net cash outflow of minus €345.9 million in 2022, which was down sharply compared with the net cash provided by operating activities of €881.7 million in the previous year. The main factors in this decrease were the fall in earnings and the considerable rise in net working capital of €804.5 million (2021: €201.9 million). The latter was primarily due to the much lower level of trade payables at the end of the year and the volume-related growth of receivables from customers. The build-up of unfinished trucks in the Industrial Trucks & Services segment, which was caused by the supply chain disruptions, had been reduced significantly by the end of 2022 thanks to the measures introduced during the year to strengthen both the supplier network and production processes. However, inventories of materials and supplies – particularly steel and electronics – were increased in order to counter procurement risks.

Net cash used for investing activities amounted to minus €369.7 million and was therefore higher than in the previous year (2021: minus €337.8 million). Within this total, cash payments for capital expenditure on production facilities, product development, and purchased property, plant, and equipment rose to minus €382.7 million (2021: minus €333.8 million). Net payments for acquisitions had amounted to minus €17.0 million in 2021; the equivalent figure for the year under review was minus €4.9 million.

Free cash flow – the sum of cash flow from operating activities and investing activities – was significantly negative at minus €715.6 million (2021: positive cash flow of €543.8 million).

Net cash provided by financing activities amounted to €562.8 million in 2022 (2021: net cash used of minus €386.1 million). The net addition to financial debt of €942.4 million (2021: net repayment of minus €148.8 million) mainly related to the commercial paper program and to the drawdown and subsequent repayment of amounts under the revolving credit facility (RCF) during the reporting year. Furthermore, new bank loans were arranged during the reporting year and, as scheduled, the fixed-rate tranche of the promissory note was repaid. There was a moderate increase in payments made for interest portions and principal portions under procurement leases to minus €151.7 million (2021: minus €145.1 million). Current interest payments also went up, rising to minus €32.6 million on the back of higher financial debt (2021: minus €29.5 million). The payment of a dividend to the shareholders of KION GROUP AG resulted in an outflow of funds of minus €196.7 million, which equates to €1.50 per share.