KION GROUP AG

KION GROUP AG is the strategic management holding company in the KION Group. KION GROUP AG holds all the shares in KION Holding 2 GmbH and in the newly acquired DH Services Luxembourg Holding S.à r.l. Through DH Services Luxembourg Holding S.à r.l., KION GROUP AG holds all the shares in Dematic. In turn, KION Holding 2 GmbH is the sole shareholder of Linde Material Handling GmbH, Aschaffenburg, which holds almost all of the shares of the companies in the KION Group (excluding Dematic).

The annual financial statements of KION GROUP AG have been prepared in accordance with the provisions in the German Commercial Code (HGB) and the German Stock Corporation Act (AktG). The management report has been combined with the group management report. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and the additional provisions in section 315a HGB. Differences between the accounting policies in accordance with HGB and those in accordance with IFRSs arise primarily in connection with the accounting treatment of financial instruments, provisions and deferred taxes.

As a holding company without any operating activities of its own, KION GROUP AG is indirectly dependent on the earnings and economic performance of its subsidiaries. The management system, expected development and the opportunities and risks of the KION Group are described in detail in the ‘Management system’ and ‘Outlook, risk report and opportunity report’ sections of this combined management report.

The business performance and position of KION GROUP AG are largely determined by the business performance and success of the Group. Detailed reports in this regard are set out in the ‘Business performance’ and ‘Financial position and financial performance of the KION Group’ sections.

KION GROUP AG does not have any operating activities itself. The reported revenue has arisen as a result of the first-time application of the provisions in the German Accounting Directive Implementation Act (BilRUG) and largely relates to the provision of services for affiliated companies.

The cost of materials is related to the revenue from the provision of services and mostly consists of expenses for consultancy services.

Personnel expenses rose to €43.9 million (2015: €34.1 million) as a consequence of organisational changes following the implementation of the CTO organisation and additions to the performance share plans.

Other operating expenses went up by €14.9 million to €51.5 million. These largely comprised costs for external services and consultancy.

The main changes in net financial income / expenses were as follows:

• Of the total income from profit-transfer agreements, €361.3 million (2015: €24.6 million) related to KION Holding 2 GmbH and €1.1 million (2015: €0.6 million) to proplan Transport- und Lagersysteme GmbH.
• Interest expense and similar charges, which amounted to €27.0 million (2015: €2.8 million), arose mainly from expenses for the provision of credit facilities and from bank interest expenses (2015: from unwinding the discount on the pension provisions).
• Other interest and similar income for the most part consisted of interest income on intercompany receivables in the amount of €4.6 million (2015: €6.5 million).
• KION GROUP AG incurred tax expenses of €23.1 million as a result of its role as the parent company of the tax group in 2016 (2015: €0.0 million).

A total net profit of €258.3 million was generated in the year under review (2015: net loss of €29.3 million). > TABLE 032

The substantially higher profit transfer from KION Holding 2 GmbH led to a significantly higher net profit compared to the forecast for the year under review, which was for a net loss in the low double-digit-million range.

At the end of 2016, the total assets of KION GROUP AG had increased by approximately 144.1 per cent year on year to €5,505.3 million. This was predominantly attributable to the acquisition of the Dematic Group. The financial assets include the carrying amount of the equity investment in DH Services Luxembourg Holding S.à r.l. (€2,468.5 million) – which in turn holds all the shares in the subsidiaries in the Dematic Group –, the shares in KION Holding 2 GmbH (€2,005.3 million) and the shares in proplan Transport- und Lagersysteme GmbH (€0.6 million).

The receivables mainly consist of loans of €586.4 million to the Dematic Group and the Company’s entitlement to the transfer of profits from KION Holding 2 GmbH of €361.3 million. As at 31 December 2015, there had been receivables due from KION Holding 2 GmbH (€229.9 million).

As a result of the capital increase of €459.3 million implemented in July 2016 and the higher net profit (€258.3 million), and after taking into account the payment of the dividend of €76.0 million, equity rose to €2,842.5 million (31 December 2015: €2,200.5 million). As a consequence of the new borrowing, the equity ratio was 51.6 per cent as at the reporting date (31 December 2015: 97.6 per cent).

Provisions increased by €15.9 million to €62.8 million and this was mainly attributable to changes in pension provisions and personnel provisions. Pension provisions include provisions of €3.1 million (31 December 2015: €2.3 million) for former members of the Executive Board. KION GROUP AG recognised tax provisions of €4.1 million as a result of taking over the role as the parent company of the tax group.

At the end of the year, liabilities to banks amounted to €2,546.3 million (31 December 2015: €0.0 million). These liabilities were in connection with the acquisition of Dematic. > TABLE 033

By pursuing an appropriate financial management strategy, the KION Group – either directly through KION GROUP AG or through Linde Material Handling GmbH (LMH), a subsidiary of KION GROUP AG – makes sufficient cash and cash equivalents available at all times to meet the Group companies’ operational and strategic funding requirements. KION GROUP AG is a publicly listed company and therefore ensures that its financial management takes into account the interests of shareholders and banks. For the sake of these stakeholders, KION GROUP AG makes sure that it maintains an appropriate ratio of internal funding to borrowing.

An agreement was reached for a firmly committed bridge loan of originally €3.0 billion as financing for the acquisition of Dematic. In July 2016, KION GROUP AG increased its share capital by 10.0 per cent for cash. The total issue proceeds came to €459.3 million.

Following this capital increase, the agreed financing under the bridge loan was reduced by the amount of the proceeds from the issue and now stands at €2,543.2 million. This loan amount was fully drawn down as at the reporting date. The individual tranches of the bridge loan become due for repayment in the period from 2018 to 2021.

Back in the first quarter of 2016, KION GROUP AG decided to enter into a new senior facilities agreement (SFA) with a syndicate of banks. The SFA comprises a revolving credit facility of €1,150.0 million and a fixed-term tranche of €350.0 million. The SFA at LMH in existence up to that point was therefore repaid. The new SFA can also be utilised by other companies in the KION Group. KION GROUP AG has issued guarantees to the banks for all of the payment obligations under the new SFA. The SFA is not collateralised, as is typical in the current market environment for companies that are on the cusp of an investment-grade rating.

As a result of the drawdown of the bridge loan, the liabilities to banks amounted to €2,546.3 million (31 December 2015: €0.0 million). After deduction of cash and cash equivalents, net debt amounted to €2,489.6 million (31 December 2015: €0.0 million).

The average number of employees at KION GROUP AG was 172 in 2016 (2015: 138). KION GROUP AG employed 185 people as at 31 December 2016 (31 December 2015: 139).